As filed with the Securities and Exchange Commission on May 11, 1998
Registration No. 333-49259
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
AMENDMENT NO. 1 TO FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
BEN FRANKLIN FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
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<S> <C> <C> <C>
Delaware 6035 Applied For
(State or other jurisdiction of incorporation (Primary Standard Industrial (I.R.S. Employer Identification No.)
or organization) Classification Code Number)
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14 N. Dryden Place, Arlington Heights, Illinois 60004 (847) 398-0990
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Ronald P. Pedersen
President and Chief Executive Officer
Ben Franklin Financial Corporation
14 N. Dryden Place
Arlington Heights, Illinois 60004
(847) 398-0990
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Please send copies of all communications to:
Kip A. Weissman, P.C.
Daniel C. Holdgreiwe, Esq.
SILVER, FREEDMAN & TAFF, L.L.P.
(A limited liability
partnership including
professional corporations)
1100 New York Avenue, N.W.
Seventh Floor, East Tower
Washington, DC 20005
(202) 414-6100
Approximate date of commencement of proposed
sale to the public: As soon as practicable after
this Registration Statement becomes effective.
If any of the securities being registered on this Form are being offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933 check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
====================================================================================================================================
Title of Each Amount Proposed Maximum Proposed Maximum
Class of Securities to be Offering Price Aggregate Offering Amount of
to be Registered Registered(1) Per Share(1) Price(1) Registration Fee
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value 1,851,500 shares $10.00 $18,515,000 $5,462
====================================================================================================================================
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(1) Estimated solely for the purpose of calculating the registration fee.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Prospectus
[LOGO]
BEN FRANKLIN FINANCIAL, INC.
(Proposed Holding Company for Ben Franklin Bank of Illinois,
formerly Douglas Federal Savings Bank)
$10.00 Per Share
1,851,500 Shares of Common Stock
(Anticipated Maximum, as adjusted)
Ben Franklin Financial, Inc. (the "Holding Company") is offering up to
1,610,000 shares of common stock, par value $.01 per share (the "Common Stock"),
in connection with the conversion of Ben Franklin Bank of Illinois ("Ben
Franklin" or the "Bank") from a federally chartered mutual savings bank to a
federally chartered stock savings bank and the issuance of all of Ben Franklin
outstanding stock to the Holding Company (the "Conversion"). Pursuant to the
Bank's plan of conversion (the "Plan of Conversion" or the "Plan"),
non-transferable rights to subscribe for the Common Stock ("Subscription
Rights") have been given to (i) Ben Franklin's depositors with account balances
of $50.00 or more as of January 31, 1997 ("Eligible Account Holders"), (ii)
tax-qualified employee plans of Ben Franklin and the Holding Company
("Tax-Qualified Employee Plans"), provided, however, that the Tax-Qualified
Employee Plans shall have first priority Subscription Rights to the extent that
the total number of shares of Common Stock sold in the Conversion exceeds the
maximum of the Estimated Valuation Range as defined below, (iii) Ben Franklin's
depositors with account balances of $50 or more as of [_________ __], 1998
("Supplemental Eligible Account Holders"), (iv) certain of its other members
("Other Members"), and (v) its employees, officers and directors (the
"Subscription Offering.)
(continued on next page)
FOR ADDITIONAL INFORMATION ON HOW TO SUBSCRIBE, PLEASE CALL THE STOCK
INFORMATION CENTER AT [(___) ___-____].
----------
FOR A DISCUSSION OF CERTAIN FACTORS TO BE CONSIDERED, SEE "RISK
FACTORS" AT PAGE __.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION OR THE FEDERAL DEPOSIT
INSURANCE CORPORATION, NOR HAS SUCH COMMISSION, OFFICE OR CORPORATION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR SAVINGS
DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION
OR ANY OTHER GOVERNMENT AGENCY.
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========================================================================================================
Estimated Underwriting Fees, Estimated Net
Purchase Price(1) Commissions and Other Conversion Proceeds(3)
Expenses(2)
----------------- --------------------------- ---------------------
<S> <C> <C> <C>
Per Share(4).................... $10.00 $0.39 $9.61
Minimum Total................... $11,900,000 $550,000 $11,350,000
Midpoint Total.................. $14,000,000 $550,000 $13,450,000
Maximum Total................... $16,100,000 $550,000 $15,550,000
Maximum Total, As Adjusted(5)... $18,515,000 $550,000 $17,965,000
========================================================================================================
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(1) Determined on the basis of an appraisal prepared by Ferguson & Co.
("Ferguson") dated March 20, 1998, which states that the estimated pro forma
market value of the Common Stock ranged from $11,900,000 to $16,100,000 or
between 1,190,000 shares and 1,610,000 shares, of Common Stock at $10.00 per
share. See "The Conversion - Stock Pricing and Number of Shares to be
Issued."
(2) Consists of the estimated costs to the Bank and the Holding Company arising
from the Conversion, including the payment to Friedman, Billings, Ramsey &
Co., Inc. ("FBR") of a fee of $150,000 and estimated expenses of $30,000 in
connection with the sale of shares in the Offering. Such fees may be deemed
to be underwriting fees. The Holding Company has agreed to indemnify FBR
against certain liabilities, including liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act"). See "The
Conversion - Marketing Arrangements" for a more detailed description of
underwriting fees and expenses.
(3) Net Conversion proceeds may vary from the estimated amounts, depending on
the Purchase Price and the number of shares issued. The Purchase Price and
the actual number of shares of Common Stock to be issued in the Conversion
will not be determined until after the close of the Offering.
(4) Assumes the sale of the midpoint number of shares. If the minimum, maximum
or 15% above the maximum number of shares are sold, estimated expenses per
share would be $0.46, $0.34 or $0.30, respectively, resulting in estimated
net Conversion proceeds per share of $9.54, $9.66 or $9.70, respectively.
(5) As adjusted to give effect to the sale of up to an additional 241,500
shares (15% above the maximum of the Estimated Valuation Range) which may be
offered in the Conversion without the resolicitation of subscribers or any
right of cancellation, to reflect changes in market and financial conditions
following the commencement of the Offering. See "Pro Forma Data," and "The
Conversion - Stock Pricing and Number of Shares to be Issued."
Friedman, Billings, Ramsey & Co., Inc.
The date of this Prospectus is [________ __], 1998
<PAGE>
(continued from prior page)
Subscription Rights are non-transferrable. Persons found to be selling
or otherwise transferring their right to purchase stock in the Subscription
Offering or purchasing Common Stock on behalf of another person will be subject
to forfeiture of such rights and possible further sanctions and penalties
imposed by the Office of Thrift Supervision (the "OTS"), an agency of the United
States Government. Subject to the prior rights of holders of Subscription Rights
and to market conditions at or near the completion of the Subscription Offering,
the Holding Company may also offer the Common Stock for sale through FBR on a
best efforts basis in a public offering to selected persons to whom this
prospectus is delivered (the "Public Offering"). Depending on market conditions
and availability of shares, the shares of Common Stock may be offered for sale
in the Public Offering on a best-efforts basis by a selling group of selected
broker-dealers to be managed by FBR. Finally, depending on market conditions,
the Holding Company may also offer the Common Stock for sale through FBR to
persons residing in communities near the Bank's offices in a direct community
offering (the "Direct Community Offering"). The Bank and the Holding Company
reserve the right, in their absolute discretion, to accept or reject, in whole
or in part, any or all orders in the Public Offering or Direct Community
Offering, if any.
The total number of shares to be issued in the Conversion will be based
upon an appraised valuation of the estimated aggregate pro forma market value of
the Holding Company and the Bank as converted. The purchase price per share
("Purchase Price") has been fixed at $10.00. Based on the current aggregate
valuation range of $11,900,000 to $16,100,000 (the "Estimated Valuation Range"),
the Holding Company is offering up to 1,610,000 shares. Depending upon the
market and financial conditions at the time of the completion of the
Subscription Offering and the Direct Community and/or Public Offering (when
referred to together with the Subscription Offering, the "Offering"), if any,
the total number of shares to be issued in the Conversion may be increased or
decreased from the 1,610,000 shares offered hereby, provided that the product of
the total number of shares multiplied by the price per share remains within, or
does not exceed by more than 15% the maximum of the Estimated Valuation Range.
If the aggregate Purchase Price of the Common Stock sold in the Conversion is
below $11,900,000 or above $18,515,000, or if the Offering is extended beyond
__________ __, 1998, subscribers will be permitted to modify or cancel their
subscriptions and to have their subscription funds returned promptly with
interest. Under such circumstances, if subscribers take no action, their
subscription funds will be promptly returned to them with interest. In all other
circumstances, subscriptions are irrevocable by subscribers. See "The Conversion
- - Offering of Holding Company Common Stock."
With the exception of the Tax-Qualified Employee Plans, no Eligible
Account Holder, Supplemental Eligible Account Holder or Other Member may
purchase in their capacity as such in the Subscription Offering more than
$200,000 of Common Stock; no person, together with associates of and persons
acting in concert with such person, may purchase more than $200,000 of Common
Stock in the Public Offering and no person, together with associates of and
persons acting in concert with such person, may purchase more than $800,000 of
Common Stock offered in the Conversion based on the Estimated Valuation Range
(as calculated without giving effect to any increase in the Estimated Valuation
Range subsequent to the date hereof). Under certain circumstances, the maximum
purchase limitations may be increased or decreased at the sole discretion of the
Bank and the Holding Company up to 9.99% of the total number of shares of Common
Stock sold in the Conversion or to one percent of shares of Common Stock offered
in the Conversion. The minimum purchase is 25 shares. See "The Conversion -
Additional Purchase Restrictions." The Bank and the Holding Company have engaged
FBR as financial advisor and agent to consult, advise and assist in the
distribution of shares of Common Stock, on a best-efforts basis in the Offering
including, if necessary, managing selected broker-dealers to assist in selling
stock in the Public Offering. For such services, FBR will receive a marketing
fee of $150,000. If selected dealers are used, the selected dealers will receive
a fee to be negotiated. Such fees may be deemed to be underwriting commissions.
FBR and the selected dealers may be deemed to be underwriters. See "The
Conversion - Marketing Arrangements" and "The Conversion - Offering of Holding
Company Common Stock."
To subscribe for shares of Common Stock in the Subscription Offering,
the Holding Company must receive a stock order form ("Order Form") and
certification form, together with full payment at $10.00 per share (or
appropriate instructions authorizing a withdrawal from a deposit account at the
Bank) for all shares for which subscription is made, at any office of the Bank,
by noon, Arlington Heights, Illinois time, on __________, 1998, unless the
Subscription Offering is extended, at the discretion of the Board of Directors,
up to an additional 45 days with the approval of the OTS, if necessary, but
without additional notice to subscribers (the "Expiration Date"). The date by
which orders must be received in the Public Offering, if any, will be set by the
Holding Company at the time of such offering provided that, if the Offering is
extended beyond _________ __, 1998, each subscriber will have the right to
modify or rescind his or her subscription. Subscription funds will be returned
promptly with interest to each subscriber unless he or she affirmatively
indicates otherwise. See "The Conversion - Offering of Holding Company Common
Stock."
2
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Subscriptions paid by check, bank draft or money order will be placed in a
segregated account at the Bank and will earn interest at the Bank's passbook
rate from the date of receipt until completion or termination of the Conversion.
Payments authorized by withdrawal from deposit accounts at the Bank will
continue to earn interest at the contractual rate until the Conversion is
completed or terminated; these funds will be otherwise unavailable to the
depositor until such time. Authorized withdrawals from time accounts for the
purchase of Common Stock will be permitted without the imposition of early
withdrawal penalties or loss of interest.
The Holding Company has never issued capital stock. Consequently, there
is no existing market for the Holding Company Common Stock at this time.
Therefore, no assurance can be given that an established and liquid trading
market for the Holding Company Common Stock will develop or that resales of the
Common Stock can be made at or above the Purchase Price. The Holding Company has
applied to have the Common Stock listed on the Nasdaq Stock Market under the
symbol "_____." Although it has no obligation to do so, FBR intends to make a
market for the Holding Company Common Stock, depending upon the volume of
trading activity in the common stock. See "Market for Common Stock" and "The
Conversion - Stock Pricing and Number of Shares to be Issued."
3
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[MAP TO COME]
4
<PAGE>
PROSPECTUS SUMMARY
The following summary does not purport to be complete and is qualified
in its entirety by the detailed information and financial statements appearing
elsewhere herein.
Ben Franklin Financial, Inc.
The Holding Company, Ben Franklin Financial, Inc., was recently formed
by Ben Franklin under the laws of Delaware for the purpose of becoming a savings
and loan holding company which will own all of the outstanding capital stock
that Ben Franklin will issue in connection with the Conversion. Immediately
following the Conversion, the only significant assets of the Holding Company
will be the capital stock of Ben Franklin, a note evidencing the Holding
Company's loan to the ESOP and up to approximately 50% of the net proceeds from
the Conversion. See "Use of Proceeds." Upon completion of the Conversion, the
Holding Company's business initially will consist only of the business of Ben
Franklin. See "Ben Franklin Financial, Inc."
Ben Franklin Bank of Illinois
General. Ben Franklin is a federally chartered mutual savings bank
headquartered in Arlington Heights, Illinois. Ben Franklin changed its name from
Douglas Savings Bank to Ben Franklin Bank of Illinois in connection with its
charter conversion from an Illinois chartered mutual savings bank to a mutual
federal savings bank in April 1998. Ben Franklin currently serves the financial
needs of communities in its market area through its main office located in
Arlington Heights and its branch office located in the city of Rolling Meadows,
Illinois. Its deposits are insured up to applicable limits by the Federal
Deposit Insurance Corporation ("FDIC"). At December 31, 1997, Ben Franklin had
total assets of $122.6 million, deposits of $112.8 million and equity of $7.8
million. See "Business - Market Area" and
"- Competition."
Ben Franklin's business has historically involved attracting deposits
from the general public and using such deposits, together with other funds, to
originate primarily one- to four-family residential mortgages and, to a lesser
extent, home equity, and other loans in its market area. The Bank also invests
in securities and other permissible investments. See "Business - Investment
Activities - Securities."
In early 1997, the Bank hired a new President and Chief Executive
Officer with a commercial banking background and began to explore the expansion
of its lending activities. In particular, the Bank has recently began acquiring
home improvement loans qualifying under Title I under the National Housing Act
("Title I loans"), many of which have been or will be sold on a servicing
retained basis. For additional information regarding Title I Loans, see
"Business-Lending Activities-Title I Lending." In addition, the Bank intends to
begin originating small and medium sized ($1.0 million or less) multi-family and
commercial real estate loans. The Bank has also recently purchased a
participation in a commercial construction loan, although the overall level of
construction and development lending is expected to be modest. In order to
implement these changes, the Bank has recently hired a number of new employees
including a new Chief Financial Officer, a new commercial loan officer and a new
deposit services coordinator. See "Business - Lending Activities"
The Bank is also in the beginning stages of considering whether to
establish a consumer finance subsidiary which would make loans to persons with a
a variety of different credit histories and whether to create a new department
which would offer loan administration and other correspondent services to credit
unions. In the event that the Bank determines to go forward with either of the
new lines of business, the Bank's staff would need to be further expanded.
However, the Board believes that the expansion of the Bank's activities will
help it compete more effectively in today's competitive financial services
environment and remain an independent community bank for the foreseeable future.
See "Risk Factors -- Risk Associated with Expansion of Business Activities."
Financial and operational highlights of the Bank include the following:
o Capital Strength. At December 31, 1997, the Bank had total equity of $7.8
million and exceeded the applicable regulatory capital requirements by $1.5
million. Assuming on a pro forma basis that $14.0 million, the midpoint of
the Estimated Valuation Range, of shares were sold in the Conversion and
approximately $6.3
5
<PAGE>
million of the net proceeds were retained by the Holding Company, as of
December 31, 1997, the Bank's tangible capital would have been $12.9
million (10.0% of assets). See "Pro Forma Regulatory Capital Analysis."
o Asset Quality. One of the principal aims of Ben Franklin's operating
strategy is to maintain a high level of asset quality. The Board has sought
to achieve this goal by emphasizing the origination of one- to four-family
residential mortgage loans in the Bank's market area and by investing in
government-backed or investment grade mortgage-backed and other securities.
The Bank's ratio of non-performing assets to total assets was .05% at
December 31, 1997. At that date, Ben Franklin had no foreclosed assets. In
view of the Board's recent decision to expand the Bank's lending activities
to include loans with a high level of risk, there can be no assurance that
the Bank's non-performing asset levels will not increase in the future. See
"Risk Factors-Risk Associated with the Expansion of Business Activities."
o Expansion of Lending and Fee Based Activities. In 1997, the Bank began to
expand the Bank's lending and fee based activities. In particular, the Bank
has begun to acquire Title I loans and servicing and is about to begin
originating multi-family and commercial real estate loans. The Bank has
also recently purchased an interest in a commercial construction loan.
Finally, the Bank is currently in the beginning stages of considering
whether to establish a consumer finance subsidiary and/or create a new
department to offer loan administration and other services to credit
unions. Such activities are believed to carry a higher level of risk than
traditional residential lending including risks related to the higher
credit risk of non-residential loans, the Bank's inexperience with these
new activities and the start-up costs of such activities. In addition, the
Bank believes that the expansion of its activities will require the hiring
of additional personnel thus causing a significant increase in overhead
expense. See "Risk Factors -- Risks Associated with the Expansion of
Business Activities," and "Increase in Overhead Expense."
o Core Deposits. Management believes that the "core" portions of the Bank's
passbook, NOW and money market deposit accounts can have a lower cost and
be more resistant to interest rate changes than certificate accounts.
Accordingly, the Bank uses marketing and customer service initiatives in an
attempt to maintain and expand these accounts. At December 31, 1997, $35.0
million, or 31.0%, of the Bank's total deposits consisted of passbook, NOW
and money market accounts. See "Business -- Source of Funds."
o Recent Decline in Net Income. The Bank's net income has declined from
$727,000 in 1995 to $469,000 in 1996 to $298,000 for 1997. The reasons for
these declines included a special deposit premium in 1996, a significant
increase in compensation expense in 1997 as a result of the implementation
of several new benefit plans as well as a significant increase in the
provision for loan losses for 1997. In addition, 1997 non-interest expense
rose as a result of an increase in the number of the Bank's officers and
employees. The Bank is attempting to address these declines through the
expansion of its lending and fees based activities; however, in view of the
likelihood of further increases in overhead expense as well as the risks
inherent in the new activities, there can be no assurance that these
activities will be successful. See "Risk Factors-Recent Decline in Net
Income".
The Conversion
The Offering is being made in connection with the conversion of Ben
Franklin from a federally chartered mutual savings bank to a federally chartered
stock savings bank and the formation of Ben Franklin Financial, Inc. as the
holding company of Ben Franklin. The Conversion is subject to certain
conditions, including the prior approval of the Plan by the Bank's members at a
Special Meeting to be held on [_______ __], 1998. After the Conversion, the
Bank's current voting members (who include certain deposit account holders and
borrowers) will have no voting rights in Ben Franklin and will have no voting
rights in the Holding Company unless they become Holding Company stockholders.
Eligible Account Holders and Supplemental Eligible Account Holders, however,
will have certain liquidation rights in the Bank. See "The Conversion - Effects
of Conversion to Stock Form on Depositors and Borrowers of the Bank -
Liquidation Rights."
6
<PAGE>
The Offering. The shares of Common Stock to be issued in the Conversion
are being offered at a Purchase Price of $10.00 per share in the Subscription
Offering pursuant to nontransferable Subscription Rights in the following order
of priority: (i) Eligible Account Holders (i.e., depositors whose accounts in
the Bank totaled $50 or more on January 31, 1997); (ii) Tax-Qualified Employee
Plans; provided, however, that the Tax Qualified Employee Plans shall have first
priority Subscription Rights to the extent that the total number of shares of
Common Stock sold in the Conversion exceeds the maximum of the Estimated
Valuation Range; (iii) Supplemental Eligible Account Holders (i.e., depositors
whose accounts in the Bank totaled $50 or more on [_______ __], 1998); (iv)
Other Members (i.e., depositors as of ____________); and (v) employees, officers
and directors of the Bank. Subscription Rights received in any of the foregoing
categories will be subordinated to the Subscription Rights received by those in
a prior category. Subscription Rights will expire if not exercised by noon,
Arlington Heights, Illinois time, on [_______ __], 1998, unless extended (the
"Expiration Date").
Subject to the prior rights of holders of Subscription Rights and
market conditions at or near the completion of the Subscription Offering, any
shares of Common Stock not subscribed for in the Subscription Offering may be
offered at the same price in a Public Offering and/or Direct Community Offering
through FBR on a best efforts basis to selected persons to whom this prospectus
is delivered. To order Common Stock in connection with the Public Offering
and/or Direct Community Offering, if any, an executed stock order form and
account withdrawal authorization and certification must be received by FBR prior
to the termination of such offerings. The date by which orders must be received
in the Public Offering and/or Direct Community Offering, if any, will be set by
the Holding Company at the time of such offering provided that if the Offering
is extended beyond _______, 1998, each subscriber will have the right to modify
or rescind his or her subscription. The Holding Company and the Bank reserve the
absolute right to accept or reject any orders in the Public Offering and Direct
Community Offering, if any, in whole or in part.
If necessary, shares of Common Stock may also be offered in connection
with the Public Offering for sale on a best-efforts basis by selected dealers
managed by FBR. See "The Conversion - Public Offering and Direct Community
Offering."
The Bank and the Holding Company have engaged FBR to consult with and
advise the Holding Company and the Bank with respect to the Offering, and FBR
has agreed to solicit subscriptions and purchase orders for shares of Common
Stock in the Offering. Neither FBR nor any selected broker-dealers will have any
obligation to purchase shares of Common Stock in the Offering. FBR will receive
for its services a marketing fee of $150,000. To the extent selected
broker-dealers are utilized in connection with the sale of shares in the Public
Offering, Holding Company will pay a fee to be negotiated with respect to all
shares of Common Stock sold through such broker-dealers. FBR will also receive
reimbursement for certain expenses incurred in connection with the Offering. The
Holding Company has agreed to indemnify FBR against certain liabilities,
including certain liabilities under the Securities Act of 1933, as amended
("Securities Act"). See "The Conversion - Marketing Arrangements."
The Bank has established a Stock Information Center, which will be
managed by FBR, to coordinate the Offering, and answer questions about the
Offering received by telephone. All subscribers will be instructed to mail
payment to the Stock Information Center or deliver payment directly to the
Bank's offices. Payment for shares of Common Stock may be made by cash (if
delivered in person), check or money order or by authorization of withdrawal
from deposit accounts maintained with the Bank. Such funds will not be available
for withdrawal and will not be released until the Conversion is completed or
terminated. See "The Conversion - Method of Payment for Subscriptions."
Purchase Limitations. The Plan of Conversion places limitations on the
number of shares which may be purchased in the Conversion by various categories
of persons. With the exception of the Tax-Qualified Employee Plans, no Eligible
Account Holder, Supplemental Eligible Account Holder, Other Member or director,
officer or employee may purchase in their capacity as such in the Subscription
Offering more than $200,000 of Common Stock; no person, together with associates
of and persons acting in concert with such person, may purchase more than
$200,000 of Common Stock in the Public Offering; and no person or group of
persons acting in concert (other than the Tax-Qualified Employee Plans) may
purchase more than $800,000 of Common Stock in the Conversion. The minimum
purchase limitation is 25 shares of Common Stock (representing a minimum
purchase of $250). These purchase limits may be increased or decreased
consistent with the Office of Thrift Supervision ("OTS") regulations at the sole
discretion of the Holding Company and the Bank. See "The Conversion - Offering
of Holding Company Common Stock."
7
<PAGE>
Restrictions on Transfer of Subscription Rights. Prior to the
completion of the Conversion, no person may transfer or enter into any agreement
or understanding to transfer the legal or beneficial ownership of the
subscription rights issued under the Plan or the shares of Common Stock to be
issued upon their exercise. Persons found to be selling or otherwise
transferring their right to purchase stock in the Subscription Offering or
purchasing Common Stock on behalf of another person will be subject to
forfeiture of such rights and possible federal penalties and sanctions. See "The
Conversion - Restrictions on Transfer of Subscription Rights and Shares."
Stock Pricing and Number of Shares of Common Stock to be Issued in the
Conversion. The Purchase Price of the Common Stock is $10.00 per share and is
the same for all purchasers. The aggregate pro forma market value of the Holding
Company and Ben Franklin, as converted, was estimated by Ferguson, which is
experienced in appraising converting thrift institutions, to be the Estimated
Valuation Range. The Board of Directors has reviewed the Estimated Valuation
Range as stated in the appraisal and compared it with recent stock trading
prices as well as other recent pro forma market value estimates. The Board of
Directors has also reviewed the appraisal report, including the assumptions and
methodology utilized therein, and determined that it was not unreasonable.
Depending on market and financial conditions at the time of the
completion of the Offering, the total number of shares of Common Stock to be
issued in the Conversion may be increased or decreased significantly from the
1,610,000 shares offered hereby and the Purchase Price may be decreased.
However, subscribers will be permitted to modify or rescind their subscriptions
if the product of the total number of shares to be issued multiplied by the
price per share is less than $11,900,000 or more than $18,515,000. The appraisal
is not intended to be, and must not be interpreted as, a recommendation of any
kind as to the advisability of voting to approve the Conversion or of purchasing
shares of Common Stock. The appraisal considers Ben Franklin and the Holding
Company only as going concerns and should not be considered as any indication of
the liquidation value of Ben Franklin or the Holding Company. Moreover, the
appraisal is necessarily based on many factors which change from time to time.
There can be no assurance that persons who purchase shares in the Conversion
will be able to sell such shares at prices at or above the Purchase Price. See
"Pro Forma Data" and "The Conversion - Stock Pricing and Number of Shares to be
Issued" for a description of the manner in which such valuation was made and the
limitations on its use.
Purchases by Directors and Executive Officers
The directors and executive officers of Ben Franklin intend to
purchase, for investment purposes and at the same price as the shares are sold
to other investors in the Conversion, approximately $1,025,000 of Common Stock,
or 8.6%, 7.3% or 6.4% of the shares to be sold in the Conversion at the minimum,
midpoint and maximum of the Estimated Valuation Range, respectively. In
addition, an amount of shares equal to an aggregate of 8% of the shares to be
issued in the Conversion is anticipated to be purchased by the ESOP. See "The
Conversion - Participation by the Board and Executive Officers."
Potential Benefits of Conversion to Directors and Executive Officers
Employee Stock Ownership Plan. The Board of Directors of the Bank has
adopted an ESOP, a tax-qualified employee benefit plan for officers and
employees of the Holding Company and the Bank. All employees of the Bank are
eligible to participate in the ESOP after they attain age 21 and complete one
year of service. The Bank's contribution to the ESOP is allocated among
participants on the basis of their relative compensation. Each participant's
account will be credited with cash and shares of Holding Company Common Stock
based upon compensation earned during the year with respect to which the
contribution is made. The ESOP intends to buy up to 8% of the Common Stock
issued in the Conversion (approximately $952,000 to $1.3 million of the Common
Stock based on the issuance of the minimum and the maximum of the Estimated
Valuation Range and the $10.00 per share Purchase Price). The ESOP will purchase
the shares with funds borrowed from the Holding Company, and it is anticipated
that the ESOP will repay the loans through periodic tax-deductible contributions
from the Bank over a ten-year period. These contributions will increase the
compensation expense of the Bank. See "Management - Benefit Plans - Employee
Stock Ownership Plan" for a description of this plan.
8
<PAGE>
Stock Option and Incentive Plan and Recognition and Retention Plan. The
Board of Directors of the Holding Company intends to adopt a Stock Option and
Incentive Plan (the "Stock Option Plan") and a Recognition and Retention Plan
("RRP") to become effective upon ratification by stockholders following the
Conversion. Certain of the directors and executive officers of the Holding
Company and the Bank will receive awards under these plans. It is currently
anticipated that an amount of shares equal to 10% and 4% of the shares sold in
the Conversion will be reserved for issuance under the Stock Option Plan and
RRP, respectively. Depending upon market conditions in the future, the Holding
Company may purchase shares in the open market to fund these plans. See
"Management - Benefit Plans" for a description of these plans.
Under the proposed Stock Option Plan, it is presently intended that the
directors and executive officers be granted options to purchase, in addition to
the shares to be issued in the Conversion, an amount of shares equal to __% of
the shares sold in the Conversion (or ________ and _______ shares, respectively,
of Common Stock based on the minimum and maximum of the Estimated Valuation
Range) at an exercise price equal to the market value per share of the Common
Stock on the date of grant. Such options will be awarded at no expense to the
recipients and pose no financial risk to the recipients until exercised. It is
presently anticipated that Joseph J. Gasior and Ronald P. Pedersen will each
receive an option to purchase an amount of shares equal to 2.5% of the shares
sold in the Conversion (or 29,750 and 40,250 shares, assuming the minimum and
maximum of the Estimated Valuation Range, respectively). See "Management -
Benefit Plans - Stock Option and Incentive Plan."
The award and exercise of options pursuant to the Stock Option Plan
will not result in any expense to the Holding Company; however, when the options
are exercised (or, depending on market conditions, potentially prior to
exercise), the per share earnings and book value of existing stockholders will
likely be diluted.
It is also intended that directors and executive officers be granted
(at no cost and without any requirement of payment by the grantee) an amount of
shares of restricted stock awards equal to __% of the shares sold in the
Conversion (or ______ and ______ shares, respectively, based on the minimum and
maximum of the Estimated Valuation Range) which will vest over five years
commencing one year from stockholder ratification and which will have a total
value of $_______ and $_______ based on the Purchase Price of $10.00 per share
at the minimum and maximum of the Estimated Valuation Range, respectively. It is
presently anticipated that Messrs. Gasior and Pedersen will each receive a
restricted stock award equal to 1.0% of the shares sold in the Conversion (or
11,900 and 16,100 shares, assuming the minimum and maximum of the Estimated
Valuation Range). The restricted stock award to each of Messrs. Gasior and
Pedersen would have an aggregate value ranging from $119,000 and $161,000, (at
the minimum and maximum of the Estimated Valuation Range) based upon the
original Purchase Price of $10.00 per share. See "Risk Factors - Takeover
Defensive Provisions; Dilution of Per Share Value" and "Management - Benefit
Plans - Recognition and Retention Plan."
Following stockholder ratification of the RRP, the RRP will be funded
either with shares purchased in the open market or with authorized but unissued
shares. Based upon the Purchase Price of $10.00 per share, the amount required
to fund the full amount of shares available for grant under the RRP through
open-market purchases would range from approximately $476,000 (based upon the
sale of shares at the minimum of the Estimated Valuation Range) to approximately
$644,000 (based upon the sale of shares at the maximum of the Estimated
Valuation Range). In the event that the per share price of the Common Stock
increases above the $10.00 per share Purchase Price following completion of the
Offering, the amount necessary to fund the RRP would also increase. The expense
related to the cost of the RRP will be recognized over the five-year vesting
period of the awards made pursuant to such plan. The use of authorized but
unissued shares to fund the RRP would dilute the holdings of stockholders who
purchase Common Stock in the Conversion. See "Management - Benefit Plans -
Recognition and Retention Plan."
The Holding Company intends to submit the RRP and the Stock Option Plan
to stockholders for ratification following completion of the Offering, but in no
event prior to six months following the completion of the Conversion. These
plans will only be effective if ratified by the stockholders. In the event the
Stock Option Plan and the RRP are not ratified by stockholders, management may
consider the adoption of alternate incentive plans, although no such plans are
currently contemplated. While the Bank believes that the RRP and the Stock
Option Plan will provide important incentives for the performance and retention
of management, the Bank has no reason to believe that the failure to obtain
shareholder ratification of such plans would result in the departure of any
members of senior management.
9
<PAGE>
Employment Agreement. The Holding Company intends to enter into an
employment agreement with President Pedersen. It is anticipated that this
agreement will provide for a salary equal to the President's current salary,
will have an initial term of three years, subject to annual extension, and will
become effective upon completion of the Conversion. In general, in the event
President Pedersen is terminated without cause, he will be entitled to receive a
severance payment equal to nine months' salary. In addition, in the event he is
terminated in connection with a change in control, Mr. Pedersen will be entitled
to receive a severance payment in lieu of salary equal to 299% of his base
compensation, as defined. See "Management -- Executive Compensation."
Use of Proceeds
The net proceeds from the sale of Common Stock in the Conversion
(estimated at $11.4 million, $13.5 million, $15.6 million and $18.0 million
based on sales at the minimum, midpoint, maximum and 15% above the maximum of
the Estimated Valuation Range, respectively) will substantially increase the
capital of Ben Franklin. See "Pro Forma Data." The Holding Company will utilize
approximately 50% of the net proceeds from the issuance of the Common Stock to
purchase all of the common stock of Ben Franklin to be issued upon Conversion
and will retain approximately 50.0% of the net proceeds; provided that the
amount retained by the Holding Company will be reduced to the extent required
that, upon the completion of the transaction, the Bank's ratio of capital to
assets is at least 10%. The proceeds retained by the Holding Company will be
invested initially in short-term investments. Such proceeds will subsequently be
invested in mortgage backed and other securities comparable to those currently
invested in by the Bank and will be available for general corporate purposes,
including the possible repurchase of shares of the Common Stock, as permitted by
the OTS. The Holding Company currently has no specific plans to make any such
repurchases of any of its Common Stock. In addition, the Holding Company intends
to provide the funding for the ESOP loan. Based upon the initial Purchase Price
of $10.00 per share, the dollar amount of the ESOP loan would range from
$952,000 (based upon the sale of shares at the minimum of the Estimated
Valuation Range) to $1.3 million (based upon the sale of shares at the maximum
of the Estimated Valuation Range). It is anticipated that the ESOP will repay
the loan through periodic tax-deductible contributions from the Bank over a
ten-year period. The interest rate to be charged by the Holding Company on the
ESOP loan will be based upon the Internal Revenue Service ("IRS") prescribed
applicable federal rate at the time of origination.
Finally, the Holding Company currently intends to use a portion of the
proceeds to fund a Recognition and Retention Plan ("RRP"), subject to
stockholder ratification. Compensation expense related to the RRP will be
recognized as share awards vest. See "Pro Forma Data." Following stockholder
ratification of the RRP, the RRP will be funded either with shares purchased in
the open market or with authorized but unissued shares. Based upon the Purchase
Price of $10.00 per share, the amount required to fund the RRP through
open-market purchases would range from approximately $476,000 (based upon the
sale of shares at the minimum of the Estimated Valuation Range) to approximately
$644,000 (based upon the sale of shares at the maximum of the Estimated
Valuation Range). In the event that the per share price of the Common Stock
increases above the $10.00 per share Purchase Price following completion of the
Offering, the amount necessary to fund the RRP would also increase. The use of
authorized but unissued shares to fund the RRP could dilute the holdings of
stockholders who purchase Common Stock in the Conversion. See "Management -
Benefit Plans - Recognition and Retention Plan."
The net proceeds received by Ben Franklin will become part of Ben
Franklin's general funds for use in its business and will be used to support the
Bank's existing operations, subject to applicable regulatory restrictions.
Immediately upon the completion of the Conversion, it is anticipated that the
Bank will invest such proceeds into high quality short-term assets such as U.S.
Treasury bills and overnight bank deposits. Subsequently, the Bank intends to
redirect the net proceeds to its current and projected lending programs, subject
to market conditions. The Bank currently anticipates that the proceeds will be
invested in the Bank's traditional lending products such as residential loans as
well as the Bank's new lending products such as Title I and multi-family and
commercial real estate loans. See "Risk Factors -- Risks Associated with
Expansion of Business Activities."
See "Use of Proceeds" for additional information on the utilization of
the offering proceeds as well as OTS restrictions on repurchases of the Holding
Company's stock.
10
<PAGE>
Dividends
The Board of Directors of the Holding Company has not yet established a
policy with respect to the payment of cash dividends on the Common Stock. The
declaration and payment of dividends are subject to, among other things, the
Holding Company's financial condition and results of operations, Ben Franklin's
compliance with its regulatory capital requirements, including the fully
phased-in capital requirements, tax considerations, industry standards, economic
conditions, regulatory restrictions, general business practices and other
factors. There can be no assurance as to whether or when the Holding Company
will pay a dividend. See "Dividends."
Market for Common Stock
The Holding Company has applied to have the Common Stock traded on the
Nasdaq Stock Market under the symbol "____." In order to be traded on the Nasdaq
Stock Market, there must be at least three market makers for the Common Stock.
FBR has indicated its intention to make a market in the Holding Company's Common
Stock following completion of the Conversion, depending upon the volume of
trading activity in the Common Stock and subject to compliance with applicable
laws and other regulatory requirements. Additional market makers have not yet
been secured by the Holding Company. The Holding Company anticipates that it
will be able to secure the additional market makers necessary to enable the
Common Stock to be traded on the Nasdaq Stock Market. A public market having the
desirable characteristics of depth, liquidity and orderliness, however, depends
upon the presence in the marketplace of both willing buyers and sellers of the
Common Stock at any given time, which is not within the control of the Holding
Company, the Bank or any market maker. Further, no assurance can be given that
an investor will be able to resell the Common Stock at or above the Purchase
Price after the Conversion. See "Market for Common Stock" and "The Conversion -
Stock Pricing and Number of Shares to be Issued."
Risk Factors
See "Risk Factors" for information regarding certain factors which
should be considered by prospective investors, including the Bank's recent
decline in net income, risks associated with expansion of business activities,
interest rate risk exposure, competition, takeover defensive provisions
contained in the Holding Company's certificate of incorporation and bylaws and
dilution of per share value, post-conversion overhead expenses, year 2000
compliance, regulatory oversight, the risk of a delayed offering, the absence of
an active market for the Common Stock, possible increase in estimated valuation
range and number of shares issued and related earnings dilution and the possible
consequences of amendment of the Plan of Conversion.
11
<PAGE>
SELECTED FINANCIAL INFORMATION
Set forth below are selected financial and other data of the Bank. The
financial data is derived in part from, and should be read in conjunction with,
the Financial Statements and Notes of the Bank presented elsewhere in this
Prospectus.
Selected Consolidated Financial Condition and Operations Information
<TABLE>
<CAPTION>
At December 31
------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(In Thousands)
Selected Financial Condition Data:
<S> <C> <C> <C> <C> <C>
Total assets....................... $122,591 $106,925 $103,441 $91,851 $84,209
Cash and cash equivalents.......... 7,065 2,524 2,762 3,239 4,024
Loans receivable, net.............. 93,950 92,956 90,396 77,380 67,263
Mortgage-backed securities:
Held to maturity................. 79 80 698 711 3,098
Available for sale............... 495 507 523 530 ---
Securities:
Held to maturity................. 510 1,118 3,934 4,954 8,151
Available for sale............... 18,220 7,423 3,291 3,330 ---
Deposits........................... 112,754 94,339 88,795 81,653 77,929
Total borrowings................... --- 3,700 5,800 2,800 ---
Total equity....................... 7,800 7,450 6,920 5,958 5,030
</TABLE>
For the Years Ended December 31,
---------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
(In Thousands)
Selected Operations Data:
Total interest income.............. $7,972 $7,775 $7,127 $6,129 $6,022
Total interest expense............. 4,837 4,681 4,164 3,027 2,926
------ ------ ------ ------ ------
Net interest income.............. 3,135 3,094 2,963 3,102 3,096
Provision for loan losses.......... 150 33 32 14 1
------ ------ ------ ------ ------
Net interest income after provision
for loan losses.................. 2,985 3,061 2,931 3,088 3,095
Fees and service charges .......... 150 148 140 127 123
Gain on sales of securities........ 1 -- -- -- 2
Other non-interest income.......... 31 13 13 7 8
------ ------ ------ ------ ------
Total non-interest income.......... 182 161 153 134 133
Total non-interest expense......... 2,668 2,441 1,873 1,757 1,720
------ ------ ------ ------ ------
Income before taxes................ 499 781 1,211 1,465 1,508
Income tax provision............... 201 312 484 564 590
Cumulative effect of change in
accounting principle............. -- -- -- -- (102)
------ ------ ------ ------ -----
Net income......................... $ 298 $ 469 $ 727 $ 901 $ 816
====== ====== ====== ====== =====
12
<PAGE>
Selected Financial Ratios and Other Data
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ -----
Performance ratios:
<S> <C> <C> <C> <C> <C>
Return on assets (ratio of net income
to average total assets)............. .27% .44% .75% 1.02% .98
Return on equity (ratio of net income
to average equity)................... 3.97 6.79 12.02 16.40 17.66
Interest rate spread information:
Average during period................. 2.59 2.64 2.81 3.46 3.75
End of period......................... 2.42 2.75 2.77 3.28 3.62
Net interest margin(1)................ 2.95 3.00 3.19 3.69 3.94
Ratio of operating expenses to average
total assets.......................... 2.42 2.29 1.94 1.99 2.07
Efficiency ratio(2)...................... 80.43 74.99 60.13 54.30 53.27
Ratio of average interest-earning assets
average to interest-bearing liabilities. 108.07 108.06 108.57 106.39 104.99
Quality ratios:
Non-performing assets to total assets
at end of period........................ .05 .43 .13 .02 .09
Allowance for loan loss to non-performing
loans................................... 618.46 173.55 172.93 152.94 233.33
Allowance for loan losses to gross loans
receivable.............................. .43 .29 .25 .25 .27
Capital ratios:
Equity to total assets at end of period.. 6.36 6.97 6.69 6.49 5.97
Average equity to average assets......... 6.80 6.48 6.25 6.23 5.55
Other data:
Number of full service offices........... 2 2 2 2 2
</TABLE>
- ----------------
(1) Net interest income divided by average interest earning assets.
(2) The efficiency ratio represents non-interest expense (less certain loss
provisions) divided by the sum of net interest income and non-interest
income (other than net security gains).
13
<PAGE>
RECENT FINANCIAL DATA
The selected financial and other data of the Bank set forth below at
and for the three months ended March 31, 1998 and 1997 were derived from
unaudited financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation of
the financial condition and results of operations for the unaudited periods
presented have been included. The results of operations and other data presented
for three months ended March 31, 1998 are not necessarily indicative of the
results of operations which may be expected for the fiscal year ending December
31, 1998. The information presented below is qualified in its entirety by the
detailed information and financial statements included elsewhere in this
Prospectus and should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business" and the
audited Financial Statements of the Bank and Notes thereto included elsewhere in
this Prospectus.
Selected Consolidated Financial Condition and Operations Information
At March 31, At December 31,
1998 1997
---- ----
(In Thousands)
Selected Financial Condition Data:
Total assets .................................. $132,566 $122,591
Cash and cash equivalents ..................... 6,408 7,065
Loans receivable, net ......................... 97,085 93,950
Mortgage-backed securities:
Held to maturity ............................ 79 79
Available for sale .......................... 451 495
Securities:
Held to maturity ............................ 509 510
Available for sale .......................... 25,626 18,220
Deposits ...................................... 122,154 112,754
Total borrowings .............................. 0 0
Total equity .................................. 8,228 7,880
For The Three Months
Ended March 31,
-----------------------
1998 1997
---- ----
(In Thousands)
Selected Operations Data:
Total interest income ............................. $2,262 $1,931
Total interest expense ............................ 1,458 1,150
------ ------
Net interest income ............................... 774 781
Provision for loan losses ......................... 0 0
------ ------
Net Interest income after provision for loan losses 781
Fees and service charges .......................... 42 40
Gain on sales of securities ....................... 0 1
Other non-interest income ......................... 61 1
------ ------
Total non-interest income .......................... 103 42
Total non-interest expense .......................... 578 456
------ ------
Income before taxes ................................ 299 367
Income tax provision ............................... 118 145
------ ------
Net income .......................................... $ 181 $ 222
====== ======
14
<PAGE>
At or for the
three months ending
----------------------
March 31, March 31,
1998 1997
---- ----
Performance ratios:
Return on assets (ratio of net
income to average total assets) ................... 0.56 0.82
Return on equity (ratio of net income
to average equity) ................................. 8.99 12.40
Interest rate spread information:
Average during period ................................ 2.12 2.65
End of period ........................................ 2.20 2.85
Net interest margin(1) ............................... 2.48 3.01
Ratio of operating expenses to average
total assets ....................................... 1.80 1.69
Efficiency ratio(2) .................................. 65.91 55.47
Ratio of average interest-earning assets
to average interest-bearing liabilities ............ 107.58 108.05
Quality ratios:
Non-performing assets to total assets
at end of period ................................... 0.05 0.15
Allowance for loan losses to non-
performing loans ................................... 670.00 171.34
Allowance for losses to gross loans
receivable ......................................... 0.41 0.29
Capital ratios:
Equity to total assets at end of period .............. 6.21 7.16
Average equity to average assets ..................... 6.27 6.66
Other data:
Number of full service offices ....................... 2 2
- ------------------
(1) Net interest income divided by average interest-earning assets.
(2) The efficiency ratio represents non-interest expense (less certain
provisions) divided by the sum net interest income and non-interest income
(other than security gains)
15
<PAGE>
Non-Performing Assets. The table below sets forth the amounts and categories of
Bank's non-performing assets. Foreclosed assets include acquired in settlement
of loans.
March 31,
1998
---------
(In Thousands)
Non-accruing loans:
One-to four-family................... $ ---
Accruing loans delinquent more
than 90 days:
One-to four-family 60
Foreclosed assets:
One-to four family.................. ---
----
Total non-performing assets............ $ 60.
=====
Total non-performing assets as a
percentage of total assets........... 0.05%
=====
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RECENT RESULTS
Comparison of Financial Condition at March 31, 1998 and December 31, 1997
Total assets as March 31, 1998, were $132.6 million compared to $112.6
million at December 31, 1997, an increase of $10.0 million or 8.16%. The
increase was primarily the result of an increase in certificates of deposit of
$6.8 million and an increase of $2.6 million in non-certificate deposits, which
were used to fund a $7.4 million increase in securities and a $3.1 million
increase in loans, along with a $657,000 decrease in cash and cash equivalents.
The increases in deposits were due to special rate promotions for certificates
of deposit and money market accounts, while the loan increase was primarily in
one-to-four family mortgage loans.
Total equity at March 31, 1998 was $8.2 million compared to $7.8
million at December 31, 1997, an increase of $428,000, or 5.49%. This increase
was the result of a net income of $181,000 for the three months ended March 31,
1998, as well as a $247,000 increase in the unrealized gain on securities
available-for-sale.
Comparison of Operating Results for the Three Months ended March 31, 1998 and
March 31, 1997
General. Net income for the three months ended March 31, 1998, was
$181,000 compared to $222,000 for the three months ended March 31, 1997, a
decrease of $41,000 or 18.47%. The decrease was primarily a result of a $122,000
increase in non-interest expense and a $7,000 decrease in net interest income.
This was offset by a $61,000 increase in non-interest income and a $27,000
decrease in the provision for income taxes.
Interest Income. Interest income for the three months ended March 31,
1998, was $2.3 million compared to $1.9 million for the three months ended March
31, 1997, an increase of $331,000 or 17.14%. The increase was primarily a result
of an increase in the average balance of interest-earning assets to $124.6
million for the three months ended March 31, 1998, from $103.8 million for the
three months ended March 31, 1997. This asset growth was offset by a decline in
the average yield on interest-earning assets to 7.26% for this period in 1998
compared to 7.44% during the 1997 period.
Interest Expense. Interest expense for the three months ended March 31,
1998, was $1.5 million compared to $1.2 million for the three months ended March
31, 1997, an increase of $338,000 or 29.39%. The increase was the
16
<PAGE>
result of an increase in the average balance of interest-bearing liabilities to
$115.8 million for the three months ended March 31, 1998, from $96.1 million for
the three months ended March 31, 1997. The average cost of funds increased to
5.14% for the 1998 period as compared to 4.79% for the 1997 period. This
increase is the result of various interest rate promotions and other programs
aimed at increasing the Bank's share of deposits in the local market area.
Net Interest Income. Net interest income for the three months ended
March 31, 1998, was $774,000 compared to $781,000 for the three months ended
March 31, 1997, a decrease of $7,000 or 0.90%. This decrease was the result of a
narrowing of the interest spread to 2.12% for the three months ended March 31,
1998, from 2.65% for the same period in 1997. The net interest margin declined
to 2.48% from 3.01% for the same periods. The decline in the interest spread was
due to the growth in average interest-earning assets and interest-bearing
liabilities for the 1998 period as compared to the 1997 period.
Non-Interest Income. Non-interest income for the three months ended
March 31, 1998, was $103,000 compared to $42,000 for the three months ended
March 31, 1997, an increase of $61,000 or 145.24%. The increase was primarily a
result of $59,000 of net loan servicing fees recognized as part of the new Title
I loan servicing program. See "Business-Lending Activities-Title I Lending."
Non-Interest Expense. Non-interest expense for the three months ended
March 31, 1998, was $578,000 compared to $456,000 for the three months ended
March 31, 1997, an increase of $122,000 or 26.75%. Several factors contributed
to the increase including an increase in compensation and employee benefits of
$109,000 primarily attributable to an increased number of employees. Data
processing expense also increased by $14,000 as a result of loan and deposit
growth, while advertising expense increased by $12,000. Offsetting these
expenses, was a decrease in other operating expenses of $13,000, primarily due
to an increase in the amount of loan origination costs deferred due to increased
loan origination volume.
Income Taxes. The provision for income taxes was $118,000 for the three
months ended March 31, 1998, compared to $145,000 for the three months ended
March 31, 1997. The decrease was primarily a result of a $68,000 decrease in
pretax income.
17
<PAGE>
RISK FACTORS
The following factors, in addition to those discussed elsewhere in this
Prospectus, should be considered by investors before deciding whether to
purchase the Common Stock offered in the Offering.
Recent Decline in Net Income
The Bank's net income has declined from $727,000 in 1995 to $469,000 in
1996 to $298,000 for fiscal 1997. The primary reasons for these declines was a
special deposit insurance premium in 1996 and a significant increase in
compensation and benefits expense in 1997 attributable to the implementation of
several new benefit plans as well as an increase in the number of the Bank's
officers and employees. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." In 1997, the net income level was also
impacted by an increase in the provision for loan losses. Management is
attempting to address these declines in net income through an expansion of the
Bank's lending and fee based activities. However, in view of the likelihood of
further increases in the Bank's overhead expenses as well as the risks inherent
in the Bank's new activities, there can be no assurance that these efforts will
be successful. See "-Increase in Overhead Expense" and "- Risks Associated with
Expansion of Business Activities."
The investment of the proceeds from the Offering is expected to
generate income which would increase the Bank's income above the level it would
be in the absence of the Conversion. As a result, the return on assets ratio may
increase as a result of the Conversion. However, because the percentage increase
in the Company's equity resulting from the Conversion is likely to be greater
than the increase in earnings attributable to the Conversion, return on equity
is likely to decrease as a result of the Conversion. See" Pro Forma Data."
Risks Associated with Expansion of Business Activities
In early 1997, the Bank hired a new President and Chief Executive
Officer with a commercial banking background and began to explore the expansion
of its business activities. In particular, the Bank has recently begun to
purchase Title I loans from third party lenders with the intention of selling
most such loans to the Federal National Mortgage Association ("FNMA") while
retaining the servicing in order to build a servicing portfolio. See "Business
Lending Activities -- Title I Lending." In addition, the Bank has also recently
purchased a participation in a commercial construction loan (although overall
construction or development activity is expected to be modest) and intends to
begin originating small and medium sized ($1.0 million or less) multi-family and
commercial real estate loans. Finally, the Bank is also beginning to consider
whether to establish a consumer finance subsidiary which would make loans to
persons with a variety of different credit histories and whether to create a new
department to offer loan administration and other correspondent services to
credit unions.
The new activities described above are generally believed to involve a
higher degree of risk than the Bank's current one to four family residential and
home equity lending. In the case of multi-family and commercial real estate
lending and commercial construction or development lending, this higher risk is
due to the larger size of the loans as well as the effects of general economic
conditions on income producing ventures and properties and the difficulty of
monitoring these types of loans. In the case of Title I loan servicing, these
risks relate primarily to the effects of prepayments or default on the servicing
asset. In the case of the Title I loans retained by the Bank, these risks relate
to the higher loan to value ratio of such loans and the fact that they are often
made to borrowers without strong credit ratings. See "Business-Lending
Activities". In the case of consumer lending through a consumer finance
subsidiary, there are significant risks associated with the impact of general
economic conditions on consumer loans, particularly where the borrowers' debt to
income ratios and credit histories are not strong. Finally, there are a number
of risks
18
<PAGE>
associated with the possible new fee based activities such as correspondent
banking including the significant start up costs and uncertain revenue streams
from such activities.
A significant risk related to all of these activities described above
is the Bank's lack of experience with respect thereto. Although the Bank's new
President and its new Commercial Loan Officer have experience in most of these
areas, the Bank does not currently have a seasoned infrastructure and tested
procedures in place with respect to these activities. Accordingly, although the
Bank intends to limit its investment in new products and services until it gains
additional experience with respect thereto, there can be no assurance that the
Bank will not experience loan delinquencies and other problems with these new
programs as a result of its inexperience.
Interest Rate Risk Exposure
The Bank's profitability is dependent to a large extent upon its net
interest income, which is the difference between its interest income on
interest-earning assets, such as loans and investments, and its interest expense
on interest-bearing liabilities, such as deposits and borrowings. When interest
rates rise, the Bank's net interest income tends to be adversely impacted since
its liabilities tend to reprice more quickly than its assets. Conversely, in a
declining rate environment the Bank's net interest income is generally
positively impacted since its assets tend to reprice more slowly than its
liabilities.
Changes in the level of interest rates also affect the amount of loans
originated by the Bank and, thus, the amount of loan and commitment fees, as
well as the market value of the Bank's interest-earning assets. In addition,
increases in interest rates also can result in disintermediation, which is the
flow of funds away from savings institutions into direct investments, such as
corporate securities and other investment vehicles, which generally pay higher
rates of return than savings institutions. Further, a flattening of the "yield
curve" (i.e., a decline in the difference between long and short term interest
rates), could adversely impact net interest income to the extent that the Bank's
assets have a longer average term than its liabilities. Finally, a decline in
interest rates could cause loan prepayments which would have an adverse impact
on the Bank's loan servicing assets.
In managing its asset/liability mix, the Bank generally, depending on
the relationship between long- and short-term interest rates, market conditions
and consumer preference, places more emphasis on managing net interest margin
than on better matching the interest rate sensitivity of its assets and
liabilities in an effort to enhance net interest income. As a result, the Bank
will continue to be significantly vulnerable to changes in interest rates and to
decreases in the difference between long and short term interest rates.
At December 31, 1997, the Bank's net portfolio value would have
declined by 26% and 55%, respectively, in the event of a 200 and a 400 basis
point increase in general interest rates. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Quantitative and
Qualitative Disclosures about Market Risk."
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Geographic Concentration of Business Activities; Competition.
The Bank conducts virtually all of its lending, investment and deposit
gathering activities through its two offices located in Arlington Heights and
Rolling Meadows, Illinois. While these communities have experienced favorable
population and economic growth in recent years, in the event of a decline in the
economic environment, the Bank's operations and profitability could be adversely
affected. See " Business-Market Area".
Ben Franklin experiences significant competition in its local market
area in both originating real estate and other loans and attracting deposits.
This competition arises from other savings institutions as well as commercial
banks, mortgage banks, credit unions and national and local securities firms.
The Bank's competitors include many significantly larger banks, including
several large regional banks with offices in Ben Franklin's primary market area.
Due to their size, these large banks can achieve certain economies of scale and
as a result offer a broader range of products and services than are currently
available at the Bank. The Bank attempts to mitigate the effect of such factors
by emphasizing customer service. Such competition may limit Ben Franklin's
growth in the future. See "Business - Competition."
Takeover Defensive Provisions; Dilution of Per Share Value
Holding Company and Bank Governing Instruments. Certain provisions of
the Holding Company's Certificate of Incorporation and Bylaws assist the Holding
Company in maintaining its status as an independent publicly owned corporation.
However, such provisions may also block stockholders from approving a potential
takeover of the Holding Company which a majority of such stockholders believe to
be in their best interests. These provisions provide for, among other things,
limiting voting rights of beneficial owners of more than 10.0% of the Common
Stock, staggered terms for directors, noncumulative voting for directors, limits
on the calling of special meetings, a fair price/supermajority vote requirement
for certain business combinations and certain notice requirements. The 80% vote
limitation would not affect the ability of an individual who is not the
beneficial owner of more than 10.0% of the Common Stock to solicit revocable
proxies in a public solicitation for proxies for a particular meeting of
stockholders and to vote such proxies. In addition, provisions in the Bank's
federal stock Charter that have an anti-takeover effect could also be applicable
to changes in control of the Holding Company as the sole shareholder of the
Bank. The Bank's Charter includes a provision applicable for five years which
prohibits acquisitions and offers to acquire, directly or indirectly, the
beneficial ownership of more than 10.0% of the Bank's securities. Any person
violating this restriction
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may not vote the Bank's securities in excess of 10.0%. Any or all of these
provisions may discourage potential proxy contests and other takeover attempts,
particularly those which have not been negotiated with the Board of Directors.
In addition, the Holding Company's certificate of incorporation also authorizes
preferred stock with terms to be established by the Board of Directors which may
rank prior to the Common Stock as to dividend rights, liquidation preferences,
or both, may have full or limited voting rights and may have a dilutive effect
on the ownership interests of holders of the Common Stock. See "Restrictions on
Acquisitions of Stock and Related Takeover Defensive Provisions."
Regulatory and Statutory Provisions. Federal regulations prohibit, for
a period of three years following the completion of the Conversion, any person
from offering to acquire or acquiring the beneficial ownership of more than
10.0% of the stock of a converted savings institution or its holding company
without prior OTS approval. Federal law also requires OTS approval prior to the
acquisition of "control" (as defined in OTS regulations) of an insured
institution, including a holding company thereof. See "Restrictions on
Acquisitions of Stock and Related Takeover Defensive Provisions."
Employment Agreement and Stock Option Plan. The employment agreement
and the proposed Stock Option Plan also contain provisions that could have the
effect of discouraging takeover attempts of the Holding Company. For more
information regarding this agreement, see "Management - Employment Agreement."
The proposed Stock Option Plan contains a provision allowing the
Holding Company to issue "Limited Stock Appreciation Rights" which are
exercisable only in connection with a change in control and which could have an
anti-takeover effect. However, the Holding Company does not currently intend to
issue any Limited Stock Appreciation Rights. See "Management - Benefit Plans -
Stock Option and Incentive Plan."
Possible Dilutive Effects. The issuance of additional shares pursuant
to the proposed Stock Option Plan and RRP will result in a dilution in the
percentage of ownership of the Holding Company of those persons purchasing
Common Stock in the Conversion, assuming that the shares utilized to fund the
proposed Stock Option Plan and RRP awards come from authorized but unissued
shares. Assuming the exercise of all options available under the Stock Option
Plan and the award of all shares available under the RRP, and assuming the use
of authorized but unissued shares, the interest of stockholders will be diluted
by approximately 9.1%% and 3.8%, respectively. See "Pro Forma Data," "Management
- - Benefit Plans - Stock Option and Incentive Plan," and "- Recognition and
Retention Plan" and "Restrictions on Acquisitions of Stock and Related Takeover
Defensive Provisions." The ownership dilution caused by these plans will result
in a lower level of (diluted) earnings per share than would be the case if these
plans were not implemented. Also, for financial accounting purposes, certain
incentive grants under the proposed RRP will result in the recording of
compensation expense over the vesting period. See "Pro Forma Data."
Voting Control of Directors and Executive Officers. The directors and
executive officers (11 persons) of the Bank intend to purchase an aggregate of
approximately $1,025,000 or approximately 8.6% of the shares offered in the
Conversion at the minimum of the Estimated Valuation Range, or 6.4% of the
shares offered in the Conversion at the maximum of the Estimated Valuation
Range. Directors and executive officers will also receive awards under the
proposed Stock Option Plan and the proposed RRP. Assuming the purchase of
$1,025,000 of Common Stock in the Conversion by directors and executive officers
in the aggregate, the full vesting of the restricted stock to be awarded under
the proposed RRP and the issuance of shares from authorized but unissued shares
in connection with the exercise of all options intended to be awarded under the
proposed Stock Option Plan the Conversion and approval of the Stock Option Plan
and the RRP by the stockholders, the shares owned by the directors and executive
officers in the aggregate would be between 21.2% (at the minimum of the
Estimated Valuation Range) and 19.3% (at the maximum of the Estimated Valuation
Range) of the outstanding shares. In addition, the ESOP is expected to purchase
8% of the shares sold in the Conversion. This stock ownership, if voted as a
block, could defeat takeover attempts or other actions favored by other
stockholders.
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Increase in Overhead Expense
In support of the expansion of the Bank's business operations set forth
above, since July 1997, the Bank has hired 3 new officers and 14 new employees
and may add additional officers and employees. As a result, the Bank's
noninterest expense has increased significantly and may rise further in the
future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations". In addition, after completion of the Conversion, the
Holding Company's noninterest expense is likely to increase further as a result
of the financial accounting, legal and tax expenses usually associated with
operating as a public company. See "Regulation - Federal and State Taxation" and
"Additional Information." In addition, it is currently anticipated that the
Holding Company will record additional expense based on the proposed RRP. See
"Pro Forma Data" and "Management - Benefit Plans - Recognition and Retention
Plan." Finally, the Holding Company will also record additional expense as a
result of the adoption of the ESOP. See "Management - Benefit Plans - Employee
Stock Ownership Plan."
Statement of Position 93-6 "Employers' Accounting for Employee Stock
Ownership Plans" ("SOP 93-6") requires an employer to record compensation
expense in an amount equal to the fair value of shares committed to be released
to employees from an employee stock ownership plan. Assuming shares of Common
Stock appreciate in value over time, the adoption of SOP 93-6 may increase
compensation expense relating to the ESOP to be established in connection with
the Conversion as compared with prior guidance which required the recognition of
compensation expense based on the cost of shares acquired by the ESOP. It is
impossible to determine at this time the extent of such impact on future net
income. See "Pro Forma Data."
Year 2000 Compliance
A critical issue facing the financial institution industry is concerns
over computer systems' ability to process year-date data beyond the year 1999.
Except in recently developed year 2000 compliant programs, computer programmers
consistently have abbreviated dates by eliminating the first two digits of a
year, with the assumption that these two digits would always be "19". Unless
corrected, this situation is expected to cause widespread problems on January 1,
2000, when computer systems may recognize this date as January 1, 1900, and
process data incorrectly or stop processing altogether. This issue could affect
a variety of the Bank's systems from its data processing system which records
loan and deposit information to other ancillary systems such as alarms and
locking devices.
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The Bank has formed a Year 2000 Committee comprised of all senior
officers to ensure that all issues relating to Year 2000 are addressed.
Management has developed a plan and, to date, the committee has completed the
awareness phase of the project which involves educating all employees and
members of the Board of Directors as to the scope and importance of the
situation. The committee is currently in the assessment phase which involves
testing all systems which may be affected by the issue. As part of its plan, the
committee also monitors the progress of its third party vendors as to their
plans to be Year 2000 compliant. Management has formulated contingency plans
including the possible conversion to a Year 2000 compliant processor, should the
need arise. The committee meets periodically among themselves and with the Board
of Directors to update the progress relative to the plan. Management estimates
that the costs of compliance will not exceed $200,000. Nevertheless, if not
properly addressed, these issues could result in interruptions in the Bank's
business and have a more significant effect on the Bank's results of operations.
Regulatory Oversight
The Bank is subject to extensive regulation, supervision and
examination by the OTS as its chartering authority and primary federal
regulator, and by the FDIC, which insures its deposits up to applicable limits.
The Bank is a member of the Federal Home Loan Bank (the "FHLB") of Chicago and
is subject to certain limited regulation by the Board of Governors of the
Federal Reserve System ("Federal Reserve Board"). As the savings and loan
holding company of the Bank, the Holding Company will be subject to regulation
and oversight by the OTS. See "Regulation." Such regulation and supervision
governs the activities in which an institution can engage and is intended
primarily for the protection of the insurance fund and depositors. Regulatory
authorities have been granted extensive discretion in connection with their
supervisory and enforcement activities which are intended to strengthen the
financial condition of the banking industry, including the imposition of
restrictions on the operation of an institution, the classification of assets by
the institution and the adequacy of an institution's allowance for loan losses.
See "Regulation - Federal Regulation of Savings Associations" and "- Regulatory
Capital Requirements." Any change in such regulation and oversight, whether by
the OTS, the Federal Reserve Board, the FDIC or Congress, could have a material
impact on the Holding Company, the Bank and their respective operations.
23
<PAGE>
Risk of Delayed Offering
The Subscription Offering will expire at noon, Arlington Heights,
Illinois time, on _________, 1998 unless extended by the Bank and the Holding
Company. Depending on the availability of shares and market conditions at or
near the completion of the Subscription Offering, the Holding Company may
conduct a Public Offering through FBR. If the Offering is extended beyond
[_______], 1998, all subscribers will have the right to modify or rescind their
subscriptions and to have their subscription funds returned with interest. There
can be no assurance that the Offering will not be extended as set forth above.
A material delay in the completion of the sale of all unsubscribed
shares in the Public Offering or otherwise may result in a significant increase
in the costs in completing the Conversion. Significant changes in the Bank's
operations and financial condition, the aggregate market value of the shares to
be issued in the Conversion and general market conditions may occur during such
material delay. In the event the Conversion is not consummated within 24 months
after the date of the Special Meeting, OTS regulations would require the Bank to
charge accrued Conversion costs to then-current period operations. See "The
Conversion - Risk of Delayed Offering."
Absence of Active Market for the Common Stock
The Holding Company, as a newly organized company, has never issued
capital stock. Consequently, there is not at this time any market for the Common
Stock. The Holding Company has applied for listing of the Common Stock on the
Nasdaq Stock Market under the symbol "____." FBR has agreed to act as a market
maker and to assist the Holding Company in securing additional market makers to
make a market in the Common Stock. However, there can be no assurance that at
least three market makers will be obtained, that the Bank will receive final
approval for listing on the Nasdaq Stock Market, that an active and liquid
market for the Common Stock will develop or be maintained or that resales of the
Common Stock can be made at or above the Purchase Price. If additional market
makers are not secured or subsequently stop coverage, the Common Stock may not
be listed on the Nasdaq Stock Market (or if initially listed, may be delisted),
which could reduce the activity and liquidity in the market for the Common
Stock. See "Market for Common Stock."
Possible Increase in Estimated Valuation Range and Number of Shares
Issued and Related Earnings Dilution
The number of shares to be sold in the Conversion may be increased as a
result of an increase in the maximum of the Estimated Valuation Range of up to
15% to reflect changes in market and financial conditions following the
commencement of the Subscription Offering. An increase in the number of shares
issued would decrease the pro forma net earnings per share and stockholders'
equity per share but would increase the Holding Company's pro forma consolidated
stockholders' equity and net earnings. See "Pro Forma Data."
Possible Consequences of Amendment to Plan of Conversion
The Plan of Conversion provides that, if deemed necessary or desirable
by the Boards of Directors of the Bank and the Holding Company, the Plan of
Conversion may be substantively amended by a two-thirds vote of the respective
Boards of Directors of the Bank and the Holding Company, as a result of comments
from regulatory authorities or otherwise, at any time with the concurrence of
the Securities and Exchange Commission ("SEC") and the OTS. Moreover, if the
Plan of Conversion is amended, subscriptions which have been received prior to
such amendment will not be refunded unless otherwise required by the SEC or the
OTS. If the Plan of Conversion is amended in a manner that is deemed to be
material to the subscribers by the Holding Company, subscription funds will be
returned to subscribers with interest unless they affirmatively elect to
increase, decrease or maintain their subscriptions. No such amendments are
currently contemplated, although the Bank reserves the right to increase or
decrease purchase limitations without a subscriber resolicitation. See "The
Conversion - Approval, Interpretation, Amendment and Termination."
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<PAGE>
BEN FRANKLIN FINANCIAL, INC.
The Holding Company was formed at the direction of Ben Franklin in
March 1998 for the purpose of becoming a savings and loan holding company and
owning all of the outstanding stock of the Bank issued in the Conversion. The
Holding Company is incorporated under the laws of the State of Delaware. The
Holding Company is authorized to do business in the State of Illinois, and
generally is authorized to engage in any activity that is permitted by the
Delaware General Corporation Law. The business of the Holding Company initially
will consist only of the business of Ben Franklin. The holding company structure
will, however, provide the Holding Company with greater flexibility than the
Bank has to diversify its business activities, through existing or newly formed
subsidiaries, or through acquisitions or mergers of stock financial
institutions, as well as, other companies. Although there are no current
arrangements, understandings or agreements regarding any such activity or
acquisition, the Holding Company will be in a position after the Conversion,
subject to regulatory restrictions, to take advantage of any favorable
acquisition opportunities that may arise.
The assets of the Holding Company will consist initially of the stock
of Ben Franklin, a note evidencing the Holding Company's loan to the ESOP and up
to 50% of the net proceeds from the Conversion (less the amount used to fund the
ESOP loan). See "Use of Proceeds." Initially, any activities of the Holding
Company are anticipated to be funded by such retained proceeds and the income
thereon and dividends from Ben Franklin, if any. See "Dividends" and "Regulation
- - Holding Company Regulation." Thereafter, activities of the Holding Company may
also be funded through sales of additional securities, through borrowings and
through income generated by other activities of the Holding Company. At this
time, there are no plans regarding such other activities other than the intended
loan to the ESOP to facilitate its purchase of Common Stock in the Conversion.
See "Management - Benefit Plans - Employee Stock Ownership Plan."
The executive office of the Holding Company is located at 14 N. Dryden
Place, Arlington Heights, Illinois. Its telephone number at that address is
(847) 398-0990.
BEN FRANKLIN BANK OF ILLINOIS
Ben Franklin serves the financial needs of communities in its market
area through its main office located at 14 N. Dryden Place, Arlington Heights,
Illinois and its branch office located at 3148 Kirchoff Road, Rolling Meadows,
Illinois. Effective April of 1998, the Bank changed its name from Douglas
Savings Bank to Ben Franklin Bank of Illinois. Its deposits are insured up to
applicable limits by the Federal Deposit Insurance Corporation ("FDIC"). At
December 31, 1997 Ben Franklin had total assets of $122.6 million, deposits of
$112.8 million and equity of $7.8 million (or 6.36% of total assets).
Ben Franklin has been, and intends to continue to be, an independent,
community oriented, financial institution. Ben Franklin's business involves
attracting deposits from the general public and using such deposits, together
with other funds, to originate one- to four-family residential mortgage loans
and, to a lesser extent, home equity and other loans primarily in its market
area. The Bank also invests in securities and other permissible investments. The
Bank has recently expanded its business to include additional activities. See
"Risk Factors -- Risks Associated With Expansion of Business Activities."
The executive office of the Bank is located at 14 N. Dryden Place,
Arlington Heights, Illinois. Its telephone number at that address is (847)
398-0990.
USE OF PROCEEDS
Although the actual net proceeds from the sale of the Common Stock
cannot be determined until the Conversion is completed, it is presently
anticipated that such net proceeds will be between $11.4 million and $15.6
million (or up to $18.0 million in the event of an increase in the aggregate pro
forma market value of the Common Stock
25
<PAGE>
of up to 15% above the maximum of the Estimated Valuation Range). See "Pro Forma
Data" and "The Conversion Stock Pricing and Number of Shares to be Issued" as to
the assumptions used to arrive at such amounts.
In exchange for all of the common stock of Ben Franklin issued upon
conversion, the Holding Company will contribute approximately 50% of the net
proceeds from the sale of the Holding Company's Common Stock to Ben Franklin;
provided that the amount retained by the Holding Company will be reduced to the
extent required, so that, upon the completion of the transaction, the Bank's
ratio of capital to assets is at least 10%. On an interim basis, the proceeds
will be invested by the Holding Company in short-term investments. The specific
types and amounts of short-term assets will be determined based on market
conditions at the time of the completion of the Conversion. In addition, the
Holding Company intends to provide the funding for the ESOP loan. Based upon the
initial Purchase Price of $10.00 per share, the dollar amount of the ESOP loan
would range from $952,000 (based upon the sale of shares at the minimum of the
Estimated Valuation Range) to $1.3 million (based upon the sale of shares at the
maximum of the Estimated Valuation Range). The interest rate to be charged by
the Holding Company on the ESOP loan will be based upon the IRS prescribed
applicable federal rate at the time of origination. It is anticipated that the
ESOP will repay the loan through periodic tax-deductible contributions from the
Bank over a ten-year period.
The net proceeds received by Ben Franklin will become part of Ben
Franklin's general funds for use in its business and will be used to support the
Bank's existing operations, subject to applicable regulatory restrictions.
Immediately upon the completion of the Conversion, it is anticipated that the
Bank will invest such proceeds into high quality short-term assets such as U.S.
Treasury bills and overnight bank deposits. Subsequently, the Bank will redirect
the net proceeds to its current and projected lending programs, subject to
market conditions. The types of the loans into which the proceeds are eventually
expected to be invested is anticipated to be similar to those currently being
originated and purchased by the Bank. See "Risk Factors -- Risks Associated With
Expansion of Business Activities."
After the completion of the Conversion, the Holding Company will
redirect the net proceeds invested by it in short-term assets into a variety of
mortgage-backed securities and other securities similar to those already held by
the Bank. Also, the Holding Company may use a portion of the proceeds to fund
the RRP, subject to shareholder approval of such plan. Compensation expense
related to the RRP will be recognized as share awards vest. See "Pro Forma
Data." Following stockholder ratification of the RRP, the RRP will be funded
either with shares purchased in the open market or with authorized but unissued
shares. Based upon the initial Purchase Price of $10.00 per share, the amount
required to fund the RRP through open-market purchases would range from
approximately $496,000 (based upon the sale of shares at the minimum of the
Estimated Valuation Range) to approximately $644,000 (based upon the sale of
shares at the maximum of the Estimated Valuation Range). In the event that the
per share price of the Common Stock increases above the $10.00 per share
Purchase Price following completion of the Offering, the amount necessary to
fund the RRP would also increase. The use of authorized but unissued shares to
fund the RRP could dilute the holdings of stockholders who purchase Common Stock
in the Conversion. See "Business - Lending Activities" and " - Investment
Activities" and "Management - Benefit Plans - Employee Stock Ownership Plan" and
"- Recognition and Retention Plan."
The proceeds may also be utilized by the Holding Company to repurchase
(at prices which may be above or below the initial offering price) shares of the
Common Stock through an open market repurchase program subject to limitations
contained in OTS regulations, although the Holding Company currently has no
specific plan to repurchase any of its stock. In the future, the Board of
Directors of the Holding Company will make decisions on the repurchase of the
Common Stock based on its view of the appropriateness of the price of the Common
Stock as well as the Holding Company's and the Bank's investment opportunities
and capital needs. Under current OTS regulations, no repurchases may be made
within the first year following Conversion except with OTS approval under
"exceptional circumstances." During the second and third years following
Conversion, OTS regulations permit, subject to certain limitations, the
repurchase of up to five percent of the outstanding shares of stock during each
twelve-month period with a greater amount permitted with OTS approval. In
general, the OTS regulations do not restrict repurchases thereafter, other than
limits on the Bank's ability to pay dividends to the Holding Company to fund the
repurchase. For a description of the restrictions on the Bank's ability to
provide the Holding Company with funds through dividends or other distributions,
see "Dividends" and "The Conversion - Restrictions on Repurchase of Stock."
26
<PAGE>
DIVIDENDS
The Board of Directors of the Holding Company has not yet established a
policy with respect to the payment of cash dividends on the Common Stock.
Dividends, when and if paid, will be subject to determination and declaration by
the Board of Directors at its discretion. The Holding Company may also consider
making a one time only special dividend or distribution (including a tax-free
return of capital) provided that the Holding Company will take no steps toward
making such a distribution for at least one year following the completion of the
Conversion. While the Holding Company's Board of Directors has not established
any quantitative factors to utilize in making decisions regarding dividends, it
currently anticipates that it will take into account the Holding Company's
consolidated financial condition, the Bank's regulatory capital requirements,
relevant tax considerations, industry standards, economic conditions, investment
opportunities, regulatory restrictions, general business practices and other
factors. In no event will the Holding Company pay a cash dividend if the Bank is
not meeting its regulatory capital requirements.
It is not presently anticipated that the Holding Company will conduct
significant operations independent of those of Ben Franklin for some time
following the Conversion. As such, the Holding Company does not expect to have
any significant source of income other than earnings on the net proceeds from
the Conversion retained by the Holding Company (which proceeds are currently
estimated to range from $11.4 million to $15.6 million based on the minimum and
the maximum of the Estimated Valuation Range, respectively) and dividends from
Ben Franklin, if any. Consequently, the ability of the Holding Company to pay
cash dividends to its stockholders will be dependent upon such retained proceeds
and earnings thereon, and upon the ability of Ben Franklin to pay dividends to
the Holding Company. See "Description of Capital Stock - Holding Company Capital
Stock - Dividends." Ben Franklin, like all savings banks regulated by the OTS,
is subject to certain restrictions on the payment of dividends based on its net
income, its capital in excess of the regulatory capital requirements and the
amount of regulatory capital required for the liquidation account to be
established in connection with the Conversion. See "The Conversion - Effects of
Conversion to Stock Form on Depositors and Borrowers of the Bank - Liquidation
Rights" and "Regulation - Regulatory Capital Requirements" and "- Limitations on
Dividends and Other Capital Distributions." Earnings allocated to Ben Franklin's
"excess" bad debt reserves and deducted for federal income tax purposes cannot
be used by Ben Franklin to pay cash dividends to the Holding Company without
adverse tax consequences. See "Regulation - Federal and State Taxation."
MARKET FOR COMMON STOCK
Ben Franklin, as a mutual thrift institution, and the Holding Company,
as a newly organized company, have never issued capital stock. Consequently,
there is not at this time an existing market for the Common Stock. The Holding
Company has applied for listing of the Common Stock on the Nasdaq Stock Market
under the symbol "____" upon completion of the Conversion. In order to be quoted
on the Nasdaq Stock Market, among other criteria, there must be at least three
market makers for the Common Stock. FBR has agreed, subject to certain
conditions, to act as a market maker for the Holding Company's Common Stock
following the Conversion, and assist in securing additional market makers to do
the same. A public trading market having the desirable characteristics of depth,
liquidity and orderliness depends upon the presence in the marketplace of both
willing buyers and sellers of the Common Stock at any given time. Accordingly,
there can be no assurance that an active and liquid market for the Common Stock
will develop or be maintained or that resales of the Common Stock can be made at
or above the Purchase Price. See "The Conversion Stock Pricing and Number of
Shares to be Issued."
PRO FORMA DATA
The following table sets forth the historical net loss, equity and per
share data of Ben Franklin at and for the fiscal year ended December 31, 1997,
and after giving effect to the Conversion, the pro forma net income, capital
stock and stockholders' equity and per share data of the Holding Company at and
for the fiscal year ended December 31, 1997. The pro forma data has been
computed on the assumptions that (i) the specified number of shares of Common
Stock was sold at the beginning of the specified period and yielded net proceeds
to the Holding Company as indicated, (ii) 50% of such net proceeds were retained
by the Holding Company and the remainder were used to purchase all of the stock
of Ben Franklin, and (iii) such net proceeds, less the amount of the ESOP and
RRP funding, were invested by the Bank and Holding Company at the beginning of
the period to yield a pre-tax return of 5.55% for the fiscal year ended December
31, 1997. The after-tax rate of return is 3.33% assuming a combined state and
federal income tax rate of
27
<PAGE>
40%. The assumed return is based upon the market yield rate on one-year U.S.
Government Treasury Securities as of December 31, 1997. The use of this current
rate is viewed to be more relevant in the current interest rate environment than
the use of an arithmetic average of the weighted average yield earned by the
Bank on its interest-earning assets and the weighted average rate paid on its
deposits during such periods. Expenses (including the FBR marketing fee) are
estimated to be $550,000. The pro forma net income amounts derived from the
assumptions set forth herein should not be considered indicative of the actual
results of operations of the Holding Company that would have been attained for
any period if the Conversion had been actually consummated at the beginning of
such period, and the assumptions regarding investment yields should not be
considered indicative of the actual yields expected to be achieved during any
future period.
The total number of shares to be issued in the Conversion may be
increased or decreased significantly, or the price per share decreased, to
reflect changes in market and financial conditions prior to the close of the
Offering. However, if the aggregate Purchase Price of the Common Stock sold in
the Conversion is below $11,900,000 (the minimum of the Estimated Valuation
Range) or more than $18,515,000 (15% above the maximum of the Estimated
Valuation Range), subscribers will be offered the opportunity to modify or
cancel their subscriptions. See "The Conversion - Stock Pricing and Number of
Shares to be Issued."
28
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended December 31, 1997
-------------------------------------------------------------------
15% Above
Minimum Midpoint Maximum Maximum
1,190,000 1,400,000 1,610,000 1,851,500
Shares at Shares at Shares at Shares at
$10.00 per $10.00 per $10.00 per $10.00 per
Share Share Share Share
------------------ -------------- ---------------- ----------------
(Dollars in Thousands, Except Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds................................................ $ 11,900 $ 14,000 $ 16,100 $ 18,515
Less offering expenses and commissions........................ (550) (550) (550) (550)
------------- -------------- -------------- --------------
Estimated net conversion proceeds............................ 11,350 13,450 15,550 17,965
Less ESOP shares.............................................. (952) (1,120) (1,288) (1,481)
Less RRP shares............................................... (476) (560) (644) (741)
------------- ------------- ------------- -------------
Estimated proceeds available for investment(1)............... $ 9,922 $ 11,770 $ 13,618 $ 15,743
========== ========== ========== ==========
Net Income:
Historical.................................................. $ 298 $ 298 $ 298 $ 298
Pro Forma Adjustments:
Net earnings from proceeds(2).............................. 330 392 453 524
ESOP(3).................................................... (57) (67) (77) (89)
RRP(4)..................................................... (57) (67) (77) (89)
------------- -------------- -------------- --------------
Pro forma net income(5).................................. $ 514 $ 556 $ 597 $ 644
=========== ============ ============ ============
Net Income Per Share:
Historical(6)............................................. $ 0.27 $ 0.23 $ 0.20 $ 0.17
Pro forma Adjustments:
Net earnings from proceeds............................... 0.30 0.30 0.30 0.31
ESOP(3).................................................. (0.05) (0.05) (0.05) (0.05)
RRP(4)................................................... (0.05) (0.05) (0.05) (0.05)
------------ ------------ ------------- ------------
Pro forma net income per share(3)(4)................. $ 0.47 $ 0.43 $ 0.40 $ 0.38
=========== ============ ============ ============
Number of shares................................... 1,104,320 1,299,200 1,494,080 1,718,192
Stockholders' Equity (Book Value) Per Share(7):
Historical................................................. $ 7,800 $ 7,800 $ 7,800 $ 7,800
Pro Forma Adjustments:
Estimated net Conversion proceeds........................... 11,350 13,450 15,550 17,965
Less common stock acquired by:
ESOP(3).................................................... (952) (1,120) (1,288) (1,481)
RRP(4)..................................................... (476) (560) (644) (741)
------------ ------------- ------------- -------------
Pro forma book value(4)................................ $ 17,722 $ 19,570 $ 21,418 $ 23,543
========= ========== ========== ==========
Stockholders' Equity (Book Value)(7):
Per Share(6):
Historical.................................................. $ 6.55 $ 5.57 $ 4.84 $ 4.21
Pro Forma Per Share Adjustments:
Estimated net Conversion proceeds........................... 9.54 9.61 9.66 9.70
Less common stock acquired by:
ESOP(3).................................................... (0.80) (0.80) (0.80) (0.80)
RRP(4)..................................................... (0.40) (0.40) (0.40) (0.40)
----------- ------------ ------------- ------------
Pro forma book value per share(5)...................... $ 14.89 $ 13.98 $ 13.30 $ 12.71
=========== =========== =========== ===========
Offering price per share to as a percentage of Pro Forma
Sockholders' equity per share............................. 67.2% 71.5% 75.2% 78.7%
============ ============= ============= =============
Ratio of offering price per share to Pro Forma net
income per share........................................... 21.3x 23.3x 25.0x 26.3x
============ ============= ============= =============
Number of shares.............................................. 1,190,000 1,400,000 1,610,000 1,851,500
</TABLE>
29
<PAGE>
- ----------
(1) Reflects a reduction to net proceeds for the cost of the ESOP and the RRP
(which is subject to shareholder ratification) which it is assumed will be
funded from the net proceeds retained by the Holding Company.
(2) No effect has been given to withdrawals from savings accounts for the
purpose of purchasing Common Stock in the Conversion. For purposes of
calculating pro forma net income, proceeds attributable to purchases by the
ESOP and RRP, which purchases are to be funded by the Holding Company and
the Bank, have been deducted from net proceeds.
(3) It is assumed that 8% of the shares of Common Stock offered in the
Conversion will be purchased by the ESOP. The funds used to acquire such
shares will be borrowed by the ESOP from the net proceeds from the
Conversion retained by the Holding Company. The Bank intends to make
contributions to the ESOP in amounts at least equal to the principal and
interest requirement of the debt. The Bank's payment of the ESOP debt is
based upon equal installments of principal and interest over a ten-year
period. However, assuming the Holding Company makes the ESOP loan, interest
income earned by the Holding Company on the ESOP debt will offset the
interest paid by the Bank. The amount of ESOP debt is reflected as a
reduction of stockholders' equity. In the event that the ESOP were to
receive a loan from an independent third party, both ESOP expense and
earnings on the proceeds retained by the Holding Company would be expected
to increase. Only the ESOP shares committed to be released are considered
to be outstanding for the purpose of the earnings per share calculations.
(4) Adjustments to both book value and net earnings have been made to give
effect to the proposed open market purchase (based upon an assumed purchase
price of $10.00 per share) following Conversion by the RRP (subject to
stockholder ratification of such plan) of an amount of shares equal to 4%
of the shares of Common Stock sold in the Conversion for the benefit of
certain directors, officers and employees. Funds used by the RRP to
purchase the shares will be contributed to the RRP by the Holding Company
if the RRP is ratified by stockholders following the Conversion. Therefore,
this funding is assumed to reduce the proceeds available for reinvestment.
For financial accounting purposes, the amount of the contribution will be
recorded as a compensation expense (after giving effect to a combined
federal and state income tax rate of 40%) over the period of vesting. These
grants are scheduled to vest in equal annual installments over the five
years following stockholder ratification of the RRP. However, all unvested
grants will be forfeited in the case of recipients who fail to maintain
continuous service with the Holding Company or its subsidiaries. In the
event the RRP is unable to purchase a sufficient number of shares of Common
Stock to fund the RRP, the RRP may issue authorized but unissued shares of
Common Stock from the Holding Company to fund the remaining balance. In the
event the RRP is funded by the issuance of authorized but unissued shares
in an amount equal to 4.0% of the shares sold in the Conversion, the
interests of existing stockholders would be diluted by approximately 3.8%.
In the event that the RRP is funded through authorized but unissued shares,
for the year ended December 31, 1997, pro forma net income per share would
be $.46, $.42, $.40 and $.37, respectively, and pro forma stockholders'
equity per share would be $14.70, $13.83, $13.18 and $12.61, respectively,
in each case at the minimum, midpoint, maximum and 15% above the maximum of
the Estimated Valuation Range.
(5) No effect has been given to the shares to be reserved for issuance under
the proposed Stock Option Plan which is expected to be adopted by the
Holding Company following the Conversion, subject to stockholder approval.
In the event the Stock Option Plan is funded by the issuance of authorized
but unissued shares in an amount equal to 10% of the shares sold in the
Conversion, at $10.00 per share and all options are vested and exercised
immediately, the interests of existing stockholders would be diluted as
follows: pro forma net income per share for the year ended December 31,
1997 would be $.45, $.42, $.39 and $.37, respectively, and pro forma
stockholders' equity per share would be $14.45, $13.62, $13.00 and $12.47,
respectively, in each case at the minimum, midpoint, maximum and 15% above
the maximum of the Estimated Valuation Range. In the alternative, the
Holding Company may purchase shares in the open market to fund the Stock
Option Plan following stockholder approval of such plan. To the extent, the
entire 10% of the shares to be reserved for issuance under the Stock Option
Plan were funded through open market purchases at the Purchase Price of
$10.00 per share, proceeds available for reinvestment would be reduced by
$1,190,000, $1,400,000, $1,610,000 and $1,851,500 at the minimum, midpoint,
maximum and 15% above the maximum of the Estimated Valuation Range. See
"Management - Benefit Plans - Stock Option and Incentive Plan."
(6) Historical pro forma per share amounts have been computed as if the shares
of Common Stock indicated had been outstanding at the beginning of the
periods or on the dates shown, but without any adjustment of historical net
income or historical equity to reflect the investment of the estimated net
proceeds of the sale of shares in the Conversion as described above. All
ESOP shares have been considered outstanding for purposes of computing book
value per share. Pro forma share amounts have been computed by dividing the
pro forma net income or stockholders' equity (book value) by the number of
shares indicated as outstanding under SOP 93-6.
(7) "Book value" represents the difference between the stated amounts of the
Bank's assets and liabilities computed in accordance with generally
accepted accounting principles. The amounts shown do not reflect the effect
of the Liquidation Account which will be established for the benefit of
Eligible and Supplemental Eligible Account Holders in the Conversion, or
the federal income tax consequences of the restoration to income of the
Bank's special bad debt reserves for income tax purposes which would be
required in the unlikely event of liquidation. See "The Conversion -
Effects of Conversion to Stock Form on Depositors and Borrowers of the
Bank" and "Regulation - Federal and State Taxation." The amounts shown for
book value do not represent fair market values or amounts, if any,
distributable to stockholders in the unlikely event of liquidation.
30
<PAGE>
PRO FORMA REGULATORY CAPITAL ANALYSIS
As of December 31, 1997, the Bank would have exceeded each of the OTS capital
requirements on both a current and a fully phased-in basis had it been subject
to such requirements on such date. Set forth below is a summary of the Bank's
pro forma compliance with the OTS capital standards as of December 31, 1997
assuming that it had been subject to such standards on such date and based on
historical capital. The table also assumes that the indicated number of shares
were sold as of such date using the assumptions contained under the caption "Pro
Forma Data."
<TABLE>
<CAPTION>
Pro Forma at December 31, 1997
---------------------------------------------------------------------------------------
1,851,500 Shares
1,190,000 Shares 1,400,000 Shares 1,610,000 Shares 15% above
Historical Minimum Midpoint Maximum Maximum
------------------- ----------------------- ---------------------- ------------------- --------------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP Capital(2)......... $7,800 6.4% $13,207 10.2% $13,225 10.2% $13,643 10.5% $14,561 11.1%
====== ====== ======= ===== ======= ==== ======== ==== ======= =====
Tangible Capital(3):
Capital level......... $7,426 6.1% $12,833 10.0% $12,851 10.0% $13,269 10.3% $14,187 10.9%
Requirement........... 1,830 1.5 1,925 1.5 1,928 1.5 1,936 1.5 1,953 1.5
------- ------ --------- ------ --------- ----- --------- ------ ---------- -----
Excess................ $5,596 4.6% $10,908 8.5% $10,923 8.5% $11,333 8.8% $12,234 9.4%
====== ====== ======= ====== ======= ===== ======= ====== ========
Core Capital(3):
Capital level......... $7,426 6.1% $12,833 10.0% $12,851 10.0% $13,269 10.3% $14,187 10.9%
Requirement(4)........ 3,659 3.0 3,850 3.0 3,855 3.0 3,873 3.0 3,906 3.0
------- ------ --------- ------- --------- ----- --------- ----- --------- -----
Excess................ $3,767 3.1% $ 8,983 7.0% $ 8,996 7.0% $ 9,396 7.3% $10,281 7.9%
====== ==== ======== ====== ======== ===== ======== ===== ======= =====
Risk-Based Capital(3):
Capital level(5)...... $7,828 11.2% $13,235 18.7% $13,253 18.7% $13,671 19.2% $14,589 20.5%
Requirement(1)........ 5,574 8.0 5,676 8.0 5,679 8.0 5,688 8.0 5,706 8.0
------- ------ --------- ------- --------- ------ --------- ------- ---------- -----
Excess................$ 2,254 3.2% $ 7,559 10.7% $ 7,574 10.7% $ 7,983 11.2% $ 8,883 12.5%
======= ====== ======== ======= ======== ===== ======== ===== ========= =====
</TABLE>
(1) Pro forma amounts and percentages assume net proceeds are invested in
assets that carry a 20% risk-weight.
(2) Total equity as calculated under generally accepted accounting principles
("GAAP"). Assumes that the Bank receives 50% of the net proceeds or such
amount (up to 60.2%) as will give the Bank, upon completion of the
transaction, a capital to assets ratio of 10%, offset in part, by the
aggregate Purchase Price of Common Stock acquired at a price of $10.00 per
share by the ESOP in the Conversion and the RRP (assuming stockholder
ratification of such plan following completion of the Conversion).
(3) Tangible and core capital figures are determined as a percentage of
adjusted total assets; risk-based capital figures are determined as a
percentage of risk-weighted assets. Unrealized gains and losses on debt
securities available for sale are excluded from tangible, core and
risk-based capital. Adjusted total assets at the minimum, midpoint,
maximum, and 15% above the maximum were, $128.3 million, $128.5 million,
$129.1 million and $130.2 million, respectively. Risk weighted assets at
the minimum, midpoint, maximum and 15% above the maximum were $70.9
million, $71.0 million, $71.1 million and $71.3 million, respectively.
(4) The OTS has proposed a core capital requirement for savings associations
comparable to the requirement for national banks. This proposed core
capital ratio is 3% of total adjusted assets for thrifts that receive the
highest supervisory rating for safety and soundness ("CAMEL" rating), with
a 3% to 4% core capital requirement for all other thrifts. See "Regulation
- Regulatory Capital Requirements."
(5) Includes $402,000 of the allowance for loan losses which qualifies as
supplementary capital. See "Regulation - Regulatory Capital Requirements."
31
<PAGE>
CAPITALIZATION
Set forth below is the capitalization, including deposits, of Ben
Franklin as of December 31, 1997, and the pro forma capitalization of the
Holding Company at the minimum, the midpoint, the maximum and 15% above the
maximum of the Estimated Valuation Range, after giving effect to the Conversion
and based on other assumptions set forth in the table and under the caption "Pro
Forma Data."
<TABLE>
<CAPTION>
Holding Company - Pro Forma Based
Upon Sale at $10.00 per share
----------------------------------------------------------
Minimum Midpoint Maximum Maximum
1,190,000 1,400,000 1,610,000 as adjusted
Actual Shares Shares Shares 1,851,500
-------- ------ ------ ------ ---------
(In Thousands, Except Share Amounts)
<S> <C> <C> <C> <C> <C>
Deposits(1)................................. $112,754 $112,754 $112,754 $112,754 $112,754
Borrowings.................................. --- --- --- --- ---
-------- -------- -------- -------- --------
Total deposits and borrowed funds....... $112,754 $112,754 $112,754 $112,754 $112,754
======== ======== ======== ======== ========
Stockholders' equity:
Common Stock ($0.01 par value)
2.5 million shares authorized; shares to
be issued as reflected(2)................ $ --- $ 12 $ 14 $ 16 $ 19
Additional paid-in capital................ --- 11,338 13,436 15,534 17,946
Retained earnings, substantially
restricted(3)............................. 7,426 7,426 7,426 7,426 7,426
Net unrealized gains on securities
available for sale..................... 374 374 374 374 374
Preferred Stock-- ($0.01 par value) 100,000
Shares authorized; no shares expected
to be issued.............................. --- --- --- --- ---
Less:
Common Stock acquired by ESOP(4).......... --- (952) (1,120) (1,288) (1,481)
Common Stock acquired by RRP(4)........... --- (476) (560) (644) (741)
------- -------- ---------- ---------- ----------
Total stockholders' equity.............. $ 7,800 $ 17,722 $ 19,570 $ 21,418 $ 23,543
======= ======== ========== ========== ==========
</TABLE>
(1) No effect has been given to withdrawals from deposit accounts for the
purpose of purchasing Common Stock in the Conversion. Any such withdrawals
will reduce pro forma deposits by the amount of such withdrawals.
(2) Does not reflect the shares of Common Stock that may be reserved for
issuance pursuant to the Stock Option Plan.
(3) See "Dividends" and "Regulation - Limitations on Dividends and Other
Capital Distributions" regarding restrictions on future dividend payments
and "The Conversion - Effects of Conversion to Stock Form on Depositors and
Borrowers of the Bank" regarding the liquidation account to be established
upon Conversion.
(4) Assumes that 8% of the shares sold in the Conversion will be purchased by
the ESOP. The funds used to acquire the ESOP shares will be borrowed from
the Holding Company. The Bank intends to make contributions to the ESOP
sufficient to service and ultimately retire the ESOP's debt over a ten-year
period. Also assumes that an amount of shares equal to 4% of the amount of
shares sold in the Conversion will be acquired by the RRP, following
shareholder ratification of such plan after completion of the Conversion.
In the event that the RRP is funded by the issuance of authorized but
unissued shares in an amount equal to 4% of the shares sold in the
Conversion, the interest of existing stockholders would be diluted by
approximately 3.8%. The amount to be borrowed by the ESOP and the Common
Stock acquired by the RRP is reflected as a reduction of stockholders'
equity. See "Management - Benefit Plans - Employee Stock Ownership Plan"
and "- Recognition and Retention Plan."
32
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Bank's financial statements and related notes and with the statistical
information and financial data included in this document.
When used in this document, the words or phrases "will likely result",
"are expected to", "will continue", "is anticipated", "estimate", "project", or
similar expressions are intended to identify "forward looking statements". Such
statements are subject to certain risks and uncertainties-including, changes in
economic conditions in the Bank's market area, changes in policies by regulatory
agencies, fluctuations in interest rates, demand for loans in the Bank's market
area, and competition that could cause actual results to differ materially from
historical results and those presently anticipated or projected. The Bank wishes
to caution readers not to place undue reliance on any such forward looking
statements, which speak only as of the date made. The Bank wishes to advise
readers that the factors listed above could affect the Bank's financial
performance and could cause the Bank's actual results for future periods to
materially differ from any opinions or statements expressed with respect to
future periods in any current statements.
General
The Bank is engaged primarily in attracting deposits from the general
public and using such deposits to originate one-to-four family residential
mortgage and, to a lesser extent, consumer and other loans primarily in its
market areas, and to acquire securities. In early 1997, the Bank hired a new
President with a commercial banking background and began to expand the Bank's
lending and fee based activities. In particular, the Bank has begun to acquire
Title I loans and servicing and is about to begin originating small and medium
sized ($1.0 million or less) multi-family and commercial real estate loans. The
Bank has also purchased an interest in a commercial construction loan, although
the overall level of construction and development lending is expected to be
modest. Finally, the Bank is currently considering establishing a consumer
finance subsidiary and/or a new department which would offer loan administration
and other correspondent services to credit unions. See "Risk Factors -- Risks
Associated With Expansion of Business Activities."
The Bank's revenues are derived principally from interest earned on
loans and securities. The operations of the Bank are influenced significantly by
general economic conditions and by policies of financial institution regulatory
agencies. The Bank's cost of funds is influenced by interest rates on competing
investments and general market interest rates. Lending activities are affected
by the demand for financing of real estate and other types of loans, which in
turn is affected by the interest rates at which such financings may be offered.
The Bank's net interest income is dependent primarily upon the
difference or spread between the average yield earned on loans receivable and
securities and the average rate paid on deposits, as well as the relative
amounts of such assets and liabilities. The Bank, like other thrift
institutions, is subject to interest rate risk to the degree that its
interest-bearing liabilities mature or reprice at different times, or an a
different basis, than its interest-earning assets.
Comparison of Financial Condition at December 31, 1997 and December 31, 1996
Total assets at December 31, 1997 were $122.6 million compared to
$106.9 million at December 31, 1996, an increase of $15.7 million, or 14.65%.
The increase was primarily the result of an increase in certificates of deposit
of $13.7 million and an increase of $4.7 million in non-certificate deposits
which were used to fund a $10.2 million increase in securities, a $4.5 million
increase in cash and cash equivalents and a $3.7 million reduction in federal
funds purchased as the Bank realized competitive opportunities to raise deposit
funds. The increases in deposits were due to special rate promotions. Total
gross loans increased $1.1 million, primarily in one- to four- family mortgage
loans.
Total equity at December 31, 1997 was $7.8 million compared to $7.4
million at December 31, 1996, an increase of $350,000, or 4.70% as a result of
$298,000 of net income for the year as well as a $52,000 increase in the
unrealized gain on securities available-for-sale.
33
<PAGE>
Results of Operations
The Bank's results of operations depend primarily upon the level of
net interest income, which is the difference between the interest income earned
on its interest-earning assets such as loans and securities, and the costs of
the Bank's interest-bearing liabilities, primarily deposits and borrowings.
Results of operations are also dependent upon the level of the Bank's
noninterest income, including fee income and service charges, and affected by
the level of its noninterest expenses, including its general and administrative
expenses. Net interest income depends upon the volume of interest-earning assets
and interest-bearing liabilities and the interest rate earned or paid on them,
respectively.
34
<PAGE>
The following table presents, for the periods indicated, the total
dollar amount of interest income from average interest-earning assets and the
resultant yields, as well as the interest expense on average interest-bearing
liabilities, expressed both in dollars and rates. No tax equivalent adjustments
were made. All average balances are monthly average balances. Management does
not believe that the use of monthly average balances instead of daily average
balances has caused any material differences in the information presented.
Non-accruing loans have been included in the average loan amounts.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------------------
1997 1996 1995
------------------------------ ------------------------------- ------------------------------
Average Interest Average Interest Average Interest
Outstanding Earned/ Outstanding Earned/ Outstanding Earned/
Balance Paid Yield/Rate Balance Paid Yield/Rate Balance Paid Yield/Rate
------- ---- ---------- ------- ---- ---------- ------- ---- ----------
(Dollars in Thousands)
Interest-Earning Assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans receivable....................$ 93,732 $ 7,209 7.69% $ 93,285 $ 7,196 7.71% $ 82,909 $6,506 7.85%
Investment and mortgage backed
securities......................... 10,629 688 6.47 8,866 562 6.34 9,443 600 6.35
Interest-bearing deposits........... 725 16 2.21 818 17 2.08 479 21 4.38
Federal funds sold.................. 1,064 59 5.55 --- --- --- --- --- ---
--------- --------- --------- -------- --------- --------
Total earning assets.............. 106,150 7,972 7.51 102,969 7,775 7.55 92,831 7,127 7.68
Non-interest earning assets......... 4,229 3,727 3,905
--------- --------- ---------
Total assets...................... $110,379 $ 106,696 $96,736
======== ======== =======
Interest-Bearing Liabilities:
Savings and CDs.....................$ 83,262 4,289 5.15 $ 76,128 3,970 5.21 $ 71,945 3,695 5.14
Demand, money market and NOW........ 10,917 321 2.94 12,012 315 2.62 10,868 307 2.82
Federal funds purchased............. 4,048 227 5.61 5,311 292 5.50 2,694 162 6.01
FHLB advances....................... --- --- 1,834 104 5.67 --- --- ---
--------- -------- -------- -------- --------- -------
Total interest-bearing liabilities 98,227 4,837 4.92 95,285 4,681 4.91 85,507 4,164 4.87
-------- ------- -----
Non-interest-bearing liabilities.... 4,641 4,502 5,180
--------- -------- ----------
Total liabilities................. 102,868 99,787 90,687
Equity.............................. 7,511 6,909 6,049
--------- -------- ----------
Total liabilities and equity...... $110,379 $106,696 $96,736
======== ======== =======
Net interest/income spread............ $ 3,135 2.59% $ 3,094 2.64% $2,963 2.81%
======= ==== ======== ==== ====== ====
Net interest margin................... 2.95% 3.00% 3.19%
==== ==== ====
Ratio of interest-earning assets to
interest-bearing liabilities......... 108.07% 108.06% 108.57%
====== ======= =======
</TABLE>
35
<PAGE>
The following table presents the weighted average contractual yields
earned on loans and securities, the combined weighted average yield on
interest-earning assets, the weighted average rates paid on deposits and
borrowings, the combined weighted average rate paid on interest-bearing
liabilities and the resultant interest rate spread at December 31, 1997.
Weighted Average Yields Earned/Rates Paid
December 31, 1997
- --------------------------------------------------------------------------------
Weighted average yield on:
Loans receivable.......................................... 7.74%
Total securities.......................................... 6.45
Interest-bearing deposits................................. 6.47
Federal funds sold........................................ 6.00
Combined weighted average yield on interest-earning
assets.................................................. 7.46
Weighted average rate paid on deposits....................... 5.04
Spread....................................................... 2.42%
The following schedule presents the dollar amount of changes in
interest income and interest expense for major components of interest-earning
assets and interest-bearing liabilities. It distinguishes between the changes
related to outstanding balances and that due to the changes in interest rates.
For each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume (i.e.,
changes in volume multiplied by old rate) and (ii) changes in rate (i.e.,
changes in rate multiplied by old volume). For purposes of this table, changes
attributable to both rate and volume, which cannot be segregated, have been
allocated proportionately to the change due to volume and the change due to
rate.
<TABLE>
<CAPTION>
Year Ended December 31, Year Ended December 31,
1997 vs. 1996 1996 vs. 1995
------------------------------- --------------------------------
Increase Total Increase Total
(Decrease) Increase (Decrease) Increase
Due to (Decrease) Due to (Decrease)
------ ---------- ------ ----------
Volume Rate Volume Rate
------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
(In Thousands)
Interest-earning assets:
Loans receivable....................... $ 34 $(21) $ 13 $802 $(112) $690
Federal funds sold..................... 59 --- 59 --- --- ---
Investment and mortgage-backed
securities........................... 114 12 126 (37) (1) (38)
Interest-bearing deposits............... (2) 1 (1) 10 (14) (4)
---- ---- ----- ----- ------ --------
Total interest-earning assets........ 205 (8) 197 775 (127) 648
----- --- ---- ---- ---- ------
Interest-bearing liabilities:
Savings and CDs....................... 368 (49) 319 217 58 275
Demand, money market and NOW......... (30) 36 6 31 (23) 8
Federal funds purchased............... (71) 6 (65) 145 (15) 130
FHLB advances......................... (104) --- (104) 104 --- 104
---- --- ---- ---- ------ ------
Total interest-bearing liabilities... 163 (7) 156 497 20 517
----- ---- ----- ---- ----- ------
Net interest/spread..................... $ 42 $ (1) $ 41 $278 $(147) $131
===== ==== ===== ==== ===== ====
</TABLE>
36
<PAGE>
Comparison of Operating Results for the Years Ended December 31, 1997 and
December 31, 1996
General. Net income for the year ended December 31, 1997 was $298,000
compared to $469,000 for the year ended December 31, 1996, a decrease of
$171,000, or 36.46%. The decrease was primarily a result of a $227,000 increase
in non-interest expense combined with a $117,000 increase in the provision for
loan losses. These increases were partially offset by increases of $41,000 and
$21,000 of net interest income and non-interest income, respectively and a
decrease of $111,000 in the provision for income taxes.
Interest Income. Interest income for the year ended December 31, 1997 was
$8.0 million compared to $7.8 million for the year ended December 31, 1996, an
increase of $197,000, or 2.53%. The increase was primarily a result of an
increase in the average balance of interest-earning assets to $106.1 million for
the year ended December 31, 1997 from $103.0 million for the year ended December
31, 1996 offsetting a decline in the average yield on interest-earning assets to
7.51% for the year ended December 31, 1997 from 7.55% for the year ended
December 31, 1996.
Interest Expense. Interest expense for the year ended December 31, 1997
was $4.8 million compared to $4.7 million for the year ended December 31, 1996,
an increase of $156,000, or 3.33%. The increase was the result of an increase in
the average balance of interest-bearing liabilities to $98.2 million for the
year ended December 31, 1997 from $95.3 million for the year ended December 31,
1996. The average cost of funds increased nominally to 4.92% for the year ended
December 31, 1997 from 4.91% for the year ended December 31, 1996. The average
cost of savings and certificates of deposit decreased to 5.15% for the year
ended December 31, 1997 from 5.21% for the year ended December 31, 1996 which
was offset by an increase in the average cost of demand and NOW accounts to
2.94% for the year ended December 31, 1997 from 2.62% for the year ended
December 31, 1996. These fluctuations in the cost paid on the various deposit
products were a direct result of competitive pressures within the Bank's market
area.
Net Interest Income. Net interest income of $3.1 million for the year
ended December 31, 1997 reflects an increase of $41,000 or 1.33% from the same
period in 1996. The increase in net interest income was primarily a result of
growth in the interest-earning assets and interest-bearing liabilities which
more than offset a decrease in the net interest spread to 2.59% for the year
ended December 31, 1997 from 2.64% for the year ended December 31, 1996, as well
as a decrease in the net interest margin to 2.95% from 3.00% for the same
period.
Provision for Loan Losses. The Bank's provision for loan losses for the
year ended December 31, 1997 was $150,000 compared to $33,000 for the year ended
December 31, 1996. The increase was due in part to management's reassessment of
the risk weightings assigned to various types of loans in its calculation of the
allowance for loan losses based on increases in automobile and home improvement
loans which carry somewhat increased credit risk as compared to one-to-four
family mortgage loans, as well as a $1.9 million increase in mortgage loans
during 1997. In addition, management considers loan growth based on statistical
percentages developed considering past loss experiences, delinquency trends,
charge off activity during the year, peer group comparisons, general economic
factors and other factors in evaluating the adequacy of the allowance for loan
losses. Gross loans increased $1.1 million, or 1.21% from 1996. The allowance
for loan losses represented .43% and .29% of gross loans receivable at December
31, 1997 and 1996, respectively.
In view of the planned expansion of the Bank's lending activities,
particularly into multi-family and commercial real estate, FHA Title I loans,
and other consumer loans which carry somewhat increased credit risk as compared
to one-to-four family mortgage loans, the Bank's provision for loan losses may
increase in future periods. Management has not developed a history of loss
experience and therefore is unable to determine an expected amount of future
provisions which will be required. See " Risk Factors -- Risks Associated with
the Expansion of the Bank's Business Activities."
Non-interest Income. Non-interest income for the year ended December 31,
1997 was $182,000 compared to $161,000 for the year ended December 31, 1996, an
increase of $21,000, or 13.04%. The increase was primarily a result of $19,000
of net loan servicing fees recognized as part of the new Title I loan servicing
program. See "Business --Lending Activities -- Title I Lending."
37
<PAGE>
Non-interest Expense. Non-interest expense for the year ended December
31, 1997 was $2.7 million compared to $2.4 million for the year ended December
31, 1996, an increase of $227,000, or 9.30%. Several factors contributed to the
increase including an increase in compensation and employee benefits primarily
attributable to the adoption of a supplemental retirement plan as well as an
increased number of employees. The Bank added fourteen employees in 1997
including the position of President which was vacant during 1996. This increase
was offset by a $650,000 decrease in deposit insurance premium expense primarily
attributable to the one-time special assessment on SAIF-insured deposits paid in
1996 and a reduction of the FDIC premium in 1997, and a net increase in
occupancy, data processing, advertising, other real estate owned and other
operating expenses of $207,000 consisting primarily of a decrease in the amount
of loan origination costs deferred in accordance with Statement of Financial
Accounting Standards No. 91 due to decreased loan origination volume.
Noninterest expense is likely to increase in the future in view of the expansion
of the Company's lending and fee based activities, such as multi-family and
commercial real estate and the FHA Title I lending program. After Conversion,
the implementation of stock based benefit plans and the costs of operations as a
public company will also increase the amount of non-interest expense. See "Risk
Factors - Increased Overhead Expense."
Income Taxes. The provision for income taxes was $201,000 for the year
ended December 31, 1997 compared to $312,000 for the year ended December 31,
1996. The decrease was primarily a result of a $282,000 decrease in pretax
income.
Comparison of Operating Results for the Years Ended December 31, 1996 and
December 31, 1995
General. Net income for the year ended December 31, 1996 was $469,000
compared to net income of $727,000 for the year ended December 31, 1995, a
decrease of $258,000, or 35.49%. The decrease was primarily a result of a
$491,000 FDIC special assessment on SAIF-insured deposits effective September
30, 1996.
Interest Income. Interest income for the year ended December 31, 1996 was
$7.8 million compared to $7.1 million for the year ended December 31, 1995, an
increase of $648,000 or 9.09%. The increase resulted from a 10.92% increase in
the average balance of interest-earning assets to $103.0 million for the year
ended December 31, 1996 from $92.8 million for the year ended December 31, 1995
offsetting a decline in the average yield on interest-earning assets to 7.55%
for the year ended December 31, 1996 from 7.68% for the year ended December 31,
1995.
Interest Expense. Interest expense for the year ended December 31, 1996
was $4.7 million compared to $4.2 million for the year ended December 31, 1995,
an increase of $517,000, or 12.42%. The increase in interest expense reflected a
larger interest-bearing liability base. The average balance of interest-bearing
liabilities increased 11.44% to $95.3 million for the year ended December 31,
1996 from $85.5 million for the year ended December 31, 1995 as a result of
market demand. Additionally, the average cost of interest-bearing liabilities
increased to 4.91% for the year ended December 31, 1996 from 4.87% for the year
ended December 31, 1995, driven particularly by the average cost of savings and
certificates of deposit which increased to 5.21% for the year ended December 31,
1996 from 5.14% for the year ended December 31, 1995. These fluctuations in the
rates paid on the various deposit products were a direct result of competitive
pressures within the Bank's market area.
Net Interest Income. Net interest income of $3.1 million for the year
ended December 31, 1996 represented an increase of $131,000 from the $3.0
million reported for the year ended December 31, 1995. There was a decrease in
the net interest spread to 2.64% for the year ended December 31, 1996 from 2.81%
for the year ended December 31, 1995. The decrease in the net interest rate
spread was a result of an increase in the average cost of interest-bearing
liabilities combined with a decrease in the average yield on interest-earning
assets. Additionally, the ratio of average interest-earning assets to average
interest-bearing liabilities decreased to 108.06% for the year ended December
31, 1996 from 108.57% for the year ended December 31, 1995, and the net interest
margin decreased to 3.00% from 3.19% for the same period.
Provision for Loan Losses. The Bank's provision for loan losses for the
year ended December 31, 1996 was $33,000 compared to $32,000 for the year ended
December 31, 1995. The Bank experienced modest loan growth during 1996 which
resulted in an increase in the allowance for loan losses. Management increases
the allowance for loan losses through a provision charged to expense for loan
growth based on a statistical percentage developed considering past loss
experiences, delinquency trends, general economic conditions and other factors.
Gross loans at December 31, 1996 increased $2.3 million to $93.0 million, or
2.54% from 1995. The allowance for loan losses represented .29% and .25% of
gross loans receivable at December 31, 1996 and 1995, respectively.
38
<PAGE>
Non-interest Income. Non-interest income for the year ended December 31,
1996 was $161,000 compared to $153,000 for the year ended December 31, 1995, an
increase of $8,000 or 5.23%. The increase was the result of increases in service
charge income due to a larger deposit base.
Non-interest Expense. Non-interest expense was $2.4 million for the year
ended December 31, 1996 compared to $1.9 million for the year ended December 31,
1995, an increase of $568,000 or 30.33%. The increase was primarily due to a
$491,000 one-time special assessment on SAIF insured deposits on September 30,
1996. As a result of the assessment, and depending upon the Bank's capital level
and supervisory rating, annual deposit insurance premiums were decreased for
periods beginning January 1, 1997 from the .23% of deposits previously paid by
the Bank to approximately .06% of deposits. See "Regulation -- Insurance of
Accounts and Regulation by the FDIC."
Income Taxes. The provision for income taxes was $312,000 for the year
ended December 31, 1996 compared to $484,000 for the year ended December 31,
1995. The decrease was primarily due to a $430,000 decrease in pretax income.
Year 2000 Compliance
A critical issue facing the financial institution industry is concerns
over computer systems' ability to process year-date data beyond the year 1999.
Except in recently developed year 2000 compliant programs, computer programmers
consistently have abbreviated dates by eliminating the first two digits of a
year, with the assumption that these two digits would always be "19". Unless
corrected, this situation is expected to cause widespread problems on January 1,
2000, when computer systems may recognize this date as January 1, 1900, and
process data incorrectly or stop processing altogether. This issue could affect
a variety of the Bank's systems from its data processing system which records
loan and deposit information to other ancillary systems such as alarms and
locking devices.
The Bank has formed a Year 2000 Committee comprised of all senior
officers to ensure that all issues relating to Year 2000 are addressed.
Management has developed a plan and, to date, the committee has completed the
awareness phase of the project which involves educating all employees and
members of the Board of Directors as to the scope and importance of the
situation. The committee is currently in the assessment phase which involves
testing all systems which may be affected by the issue. As part of its plan, the
committee also monitors the progress of its third party vendors as to their
plans to be Year 2000 compliant. Management has formulated contingency plans
including the possible conversion to a Year 2000 compliant processor, should the
need arise. The committee meets periodically among themselves and with the Board
of Directors to update the progress relative to the plan. Management estimates
that the costs of compliance will not exceed $200,000. Nevertheless, if not
properly addressed, these issues could result in interruptions in the Bank's
business and have a more significant effect on the Bank's results of operations
Quantitative and Qualitative Disclosure About Market Risk
In an attempt to manage its exposure to changes in interest rates,
management monitors the Bank's interest rate risk. The Board of Directors
reviews at least quarterly the Bank's interest rate risk position and
profitability. The Board of Directors also reviews the Bank's portfolio,
formulates investment strategies and oversees the timing and implementation of
transactions to assure attainment of the Bank's objectives in the most effective
manner. In addition, the Board reviews on a quarterly basis the Bank's
asset/liability position, including simulations of the effect on the Bank's
capital of various interest rate scenarios.
In managing its asset/liability mix, the Bank, depending on the
relationship between long- and short-term interest rates, market conditions and
consumer preference, often places more emphasis on managing short-term net
interest margin than on better matching the interest rate sensitivity of its
assets and liabilities in an effort to enhance net interest income. Management
believes that the increased net interest income resulting from a mismatch in the
maturity of its asset and liability portfolios can, during periods of declining
or stable interest rates, provide high enough returns to justify the increased
exposure to sudden and unexpected increases in interest rates.
39
<PAGE>
The Board has taken a number of steps to manage the Bank's vulnerability
to changes in interest rates. First, the Bank has long used customer service and
marketing efforts to increase and maintain the Bank's passbook and other
non-certificate accounts. At December 31, 1997, $35.0 million or 31.04% of the
Bank's deposits consisted of passbook, NOW and money market accounts. The Bank
believes that a majority of these accounts represent "core" deposits which are
generally somewhat less interest rate sensitive than other types of deposit
accounts. Second, while the Bank continues to originate 30 year fixed rate
residential loans for portfolio as a result of consumer demand, as of December
31, 1997, over 40% of the Bank's loans consisted of adjustable rate mortgage
loans and home equity lines of credit. However, the amount of adjustable rate
loans which the Bank may originate is limited by consumer preference,
particularly during periods of low interest rates. Third, the Bank has begun to
expand its business to include assets such as multi-family and commercial real
estate loans and, to a lesser extent, construction loans which generally have
adjustable rates and or shorter terms than one- to four-family residential
loans. Fourth, the Bank has begun to expand its noninterest income generating
activities which may be somewhat less sensitive to increases in interest rates
(although the Bank's loan servicing activities will likely be sensitive to
prepayments caused by declines in interest rates). Finally, the Bank has focused
a significant portion of its investment activities on securities with terms of
five years or less. At December 31, 1997, $17.6 million of the Bank's securities
had terms to maturity of five years or less.
Management utilizes the net portfolio value ("NPV") analysis to quantify
interest rate risk. In essence, this approach calculates the difference between
the present value of liabilities, expected cash flows from assets and cash flows
from off balance sheet contracts.
Presented below, as of December 31, 1997, is an analysis of the Bank's
estimated interest rate risk as measured by changes in NPV for instantaneous and
sustained parallel shifts in interest rates, up and down 400 basis points in 100
point increments.
Assumed Change $ Change % Change
in Interest Rates $ Amount in NPV in NPV
----------------- -------- -------- --------
(Basis Points) (Dollars in Thousands)
+400 $5,827 $(7,017) (55)%
+300 7,920 (4,924) (38)
+200 9,530 (3,314) (26)
+100 11,633 (1,211) (9)
-- 12,844 --- ---
-100 12,407 (437) (3)
-200 13,995 1,151 9
-300 13,903 1,059 8
-400 15,239 2,395 19
Certain assumptions utilized in assessing the interest rate risk of
thrift institutions were employed in preparing the preceding table. These
assumptions relate to interest rates, loan prepayment rates, deposit decay
rates, and the market values of certain assets under the various interest rate
scenarios. It was also assumed that delinquency rates will not change as a
result of changes in interest rates although there can be no assurance that this
will be the case. Even if interest rates change in the designated amounts, there
can be no assurance that the Bank's assets and liabilities would perform as set
forth above. In addition, a change in U.S. Treasury rates in the designated
amounts accompanied by a change in the shape of the Treasury yield curve would
cause significantly different changes to the NPV than indicated above.
Liquidity and Capital Resources
The Bank's primary sources of funds are deposits and proceeds from
principal and interest payments on loans and mortgage-backed securities. While
maturities and scheduled amortization of loans and securities are predictable
sources of funds, deposit flows and mortgage prepayments are greatly influenced
by general interest rates, economic conditions and competition. The Bank
generally manages the pricing of its deposits to be competitive and to increase
core deposit relationships.
40
<PAGE>
Federal regulations require the Bank to maintain minimum levels of liquid
assets. The required percentage has varied from time to time based upon economic
conditions and savings flows and is currently 4% of net withdrawable savings
deposits and borrowings payable on demand or in one year or less during the
preceding calendar month. Liquid assets for purposes of this ratio include cash,
certain time deposits, U.S. Government, government agency and corporate
securities and other obligations generally having remaining maturities of less
than five years. The Bank has historically maintained its liquidity ratio for
regulatory purposes at levels in excess of those required. At December 31, 1997,
the Bank's liquidity ratio for regulatory purposes was 21.02%.
The Bank's cash flows are comprised of three primary classifications:
cash flows from operating activities, investing activities and financing
activities. Cash flows provided by operating activities were $585,000, $6,000,
and $1.0 million for the years ended December 31, 1997, December 31, 1996, and
December 31, 1995, respectively. Net cash from investing activities consisted
primarily of disbursements for loan originations and the purchase of securities,
offset by principal collections on loans, proceeds from maturation and sales of
securities. Cash flows used by investing activities were $10.9 million, $3.6
million and $11.6 million for the years ended December 31, 1997, 1996 and 1995.
Net cash from financing activities consisted primarily of activity in deposit
and escrow accounts. Cash flows provided by financing activities were $14.8
million, $3.3 million and $10.1 million for the years ended December 31, 1997,
1996 and 1995.
The Bank's most liquid assets are cash and short-term investments. The
levels of these assets are dependent on the Bank's operating, financing, lending
and investing activities during any given period. At December 31, 1997, cash and
short-term investments totaled $7.1 million. The Bank has other sources of
liquidity if a need for additional funds arises, including securities maturing
within one year and the repayment of loans. The Bank may also utilize the sale
of securities available-for-sale, federal funds purchased, Federal Home Loan
Bank advances and other borrowings as sources of funds.
At December 31, 1997, the Bank had outstanding commitments to originate
loans of $1.5 million, $1.0 million of which had fixed interest rates. These
loans are to be secured by properties located in its market area. The Bank
anticipates that it will have sufficient funds available to meet its current
loan commitments. Loan commitments have, in recent periods, been funded through
liquidity, normal deposit flows or federal funds puchased. Certificates of
deposit scheduled to mature in one year or less from December 31, 1997 totaled
$58.7 million. Management believes, based on past experience, that a significant
portion of such deposits will remain with the Bank. Based on the foregoing, in
addition to the Bank's level of core deposits and capital, the Bank considers
its liquidity and capital resources sufficient to meet its outstanding
short-term and long-term needs.
Liquidity management is both a daily and long-term responsibility of
management. The Bank adjusts its investments in liquid assets based upon
management's assessment of (i) expected loan demand, (ii) expected deposit
flows, (iii) yields available on interest-earning deposits and investment
securities, and (iv) the objectives of its asset/liability management program.
Excess liquid assets are invested generally in interest-earning overnight
deposits, Federal funds sold, and short- and intermediate-term U.S. Government
and agency obligations and mortgage-backed securities of short duration. If The
Bank requires funds beyond its ability to generate them internally, it has
additional borrowing capacity with the Federal Home Loan Bank of Chicago. It is
anticipated that immediately upon completion of the Conversion, the Holding
Company's and the Bank's liquid assets will be increased. See "Use of Proceeds".
The Bank is subject to various regulatory capital requirements. At
December 31, 1997, The Bank was in compliance with all applicable capital
requirements. See "Regulation - Regulatory Capital Requirements" and "Pro Forma
Regulatory Capital Analysis" and Note 6 of the Notes to Consolidated Financial
Statements.
Impact of Inflation and Changing Prices
The financial statements and related data presented herein have been
prepared in accordance with generally accepted accounting principles which
require the measurement of financial position and operating results in terms of
historical dollars without considering changes in the relative purchasing power
of money over time due to inflation. The primary impact of inflation on the
operations of the Bank is reflected in increased operating costs. Unlike most
industrial companies, virtually all of the assets and liabilities of a financial
institution are monetary in nature. As a result, interest rates, generally, have
a more significant impact on a financial institution's performance than does
inflation. Interest rates do not necessarily move in the same direction or to
the same extent as the prices of goods and services.
41
<PAGE>
Impact of New Accounting Standards
In June 1996, the Financial Accounting Standards Board released Statement
of Financial Accounting Standards (SFAS) No. 125, Accounting for Transfers and
Extinguishments of Liabilities. SFAS No. 125 provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishments of
liabilities. SFAS No. 125 requires a consistent application of a
financial-components approach that focuses on control. Under that approach,
after a transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred, and
derecognizes liabilities when extinguished. SFAS No. 125 also supersedes SFAS
No. 122, Accounting for Mortgage Servicing Rights, and requires that servicing
assets and liabilities be subsequently measured by amortization in proportion to
and over the period of estimated net servicing income or loss and requires
assessment for asset impairment or increases obligations based on their fair
values. SFAS No. 125 applies to transfers and extinguishments occurring after
December 31, 1996 and early or retroactive application is not permitted. Because
the volume and variety of certain transactions will make it difficult for some
entities to comply in the timeframe established, some provisions have been
delayed by SFAS No. 127. The adoption of SFAS No. 125 did not have a material
impact on the financial condition or operations of the Bank.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive
Income. This statement establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements. This Statement requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. Income tax
effects must also be shown. This statement is effective for fiscal years
beginning after December 15, 1997. Management does not anticipate that the
adoption of SFAS No. 130 will have a material impact on the results of
operations or financial condition of The Bank.
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, will also become effective during 1998. SFAS No. 131 establishes
standards for the way public companies report information about its operating
segments and requires that these standards be adhered to for interim reporting
as well. SFAS No. 131 requires companies to provide more descriptive disclosures
about its operating segments including the way in which the segment was
determined, the products and services provided by the segment, and the profit or
loss generated by the segment. Management does not anticipate that the adoption
of SFAS No. 131 will have a material impact on the results of operations or
financial condition of The Bank.
SFAS No. 132, Employers' Disclosure About Pensions and Other
Postretirement Benefits, was issued in February 1998. SFAS No. 132 standardizes
the disclosure requirements for pensions and other postretirement benefits and
requires additional information on changes in benefit obligations and the fair
value of plan assets while eliminating other previously required disclosures.
SFAS No. 132 does not address measurement or recognition.
BUSINESS
General
As a community-oriented financial institution, Ben Franklin seeks to
serve the financial needs of the communities in its market area. Ben Franklin's
business involves attracting deposits from the general public and using such
deposits, together with other funds, to originate primarily one- to four-family
residential mortgage loans, and, to a lesser extent, home equity and other loans
in its market area. The Bank also invests in other securities and other
permissible investments.
42
<PAGE>
The Bank offers a variety of accounts having a range of interest rates
and terms. The Bank's deposits include passbook, statement savings, demand and
NOW accounts and time deposit accounts. The Bank solicits deposits only in its
primary market area.
In 1997, the Bank began to expand the Bank's lending and fee based
activities. In particular, the Bank has begun to acquire Title I loans and
servicing and intends to begin originating small and medium sized ($1.0 million
or less) multi-family and commercial real estate loans. The Bank has also
recently purchased an interest in a commercial construction loan, although the
overall level of construction and development lending is expected to be modest.
Finally, the Bank is currently also considering establishing a consumer finance
subsidiary as well as a new department which would provide loan administration
and other improvement services to credit unions. See "Risk Factors -- Risks
Associated With Expansion of Business Activities.
Market Area
The Bank conducts business through its main office located at 14 N.
Dryden Place, Arlington Heights, Illinois and a branch office located at 3148
Kirchoff Road, Rolling Meadows, Illinois. Both of these offices are located in
affluent suburban communities located approximately 15 miles to the northwest of
Chicago, Illinois. Over the last 20 years, these communities have experienced
significant population and commercial growth well above the state and national
averages.
Lending Activities
General. The principal lending activity of the Bank is originating one-
to four-family residential and, to a lesser extent, home equity and other loans.
In addition, in 1997, the Bank hired a new President and expanded its lending
activities to include Title I lending, multi-family and commercial real estate
lending, and, to a much lesser extent, construction and development lending. At
December 31, 1997, the Bank's net loans totaled $94.0 million. See "-
Originations of Loans" and "Use of Proceeds."
Under federal law, the aggregate amount of loans that the Bank is
permitted to make to any one borrower is generally limited to the greater of 15%
of unimpaired capital and surplus (25% if the security for such loan has a
"readily ascertainable" value or 30% for certain residential development loans)
or $500,000. At December 31, 1997, based on the above, the Bank's regulatory
loans-to-one borrower limit was approximately $1.1 million. On the same date,
the Bank had no borrowers with outstanding balances in excess of this amount as
its largest loans at such date were single family loans. However, subsequent to
December 31, 1997, the Bank purchased a $1.0 million interest in a construction
loan secured by an interest in a 67 unit mixed use condominium project in Lisle,
Illinois.
Decisions on loan applications are made on the basis of detailed
applications and property valuations (consistent with the Bank's appraisal
policy) by independent appraisers. Under the Bank's loan policy, the individual
processing an application is responsible for ensuring that all documentation is
obtained prior to the submission of the application to a loan officer for
approval. In addition, the loan officer verifies that the application meets the
Bank's underwriting guidelines. Also, each application file is reviewed to
assure its accuracy and completeness.
The Bank's President and its Chief Lending Officer have approval
authority for loans up to $500,000. Loans over $500,000 to $750,000 require the
approval of the Executive Loan Committee. Loans in excess of $750,000 require
approval of the Board of Directors.
The Bank requires title insurance on its mortgage loans, as well as
fire and extended coverage casualty insurance in amounts at least equal to the
principal amount of the loan or the value of improvements on the property,
depending on the type of loan. In addition, the Bank requires escrow for
property taxes, insurance and flood insurance (where appropriate) on its
conventional one- to four-family mortgage loans.
43
<PAGE>
The following table shows the composition of the Bank's loan portfolio by
loan type at the dates indicated.
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
----------------- ----------------- ----------------- ----------------- -----------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------- ------- ------- ------- ------- ------- ------- -------
(Dollars in Thousands)
Real Estate Loans:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family...........$78,544(1) 83.49% $76,681 82.49% $75,687 83.50% $64,603 83.24% $57,101 84.17%
Construction or development .. --- --- --- --- --- --- 487 .63 275 .40
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total real estate loans... 78,544 83.49 76,681 82.49 75,687 83.50 65,090 83.87 57,376 84.57
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Other loans:
Consumer Loans:
Deposit account............. 99 .11 92 .10 55 .06 39 .05 88 .13
Automobile.................. 350 .37 160 .17 115 .13 41 .05 38 .06
Home equity................. 14,340(1) 15.24 15,184 16.34 14,251 15.72 11,818 15.23 9,910 14.61
Home improvement............ 362(2) .38 251 .27 218 .24 273 .35 246 .36
Other....................... 386 .41 584 .63 320 .35 350 .45 184 .27
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total consumer loans...... 15,537 16.51 16,271 17.51 14,959 16.50 12,521 16.13 10,466 15.43
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total loans 94,081 100.00% 92,952 100.00% 90,646 100.00% 77,611 100.00% 67,842 100.00%
====== ====== ====== ====== ======
Less:
Loans in process............. --- --- 227 123 371
Deferred fees and
discounts.................. (271) (273) (207) (88) 26
Allowance for losses ........ 402 269 230 196 182
------- ------- ------- ------- -------
Total loans receivable,
net......................$93,950 $92,956 $90,396 $77,380 $67,263
======= ======= ======= ======= =======
</TABLE>
(1) Does not include $14.8 million of unused home equity lines of credit.
(2) Includes $201,000 of Title I loans.
44
<PAGE>
The following table shows the composition of the Bank's loan portfolio by
fixed and adjustable-rate at the dates indicated.
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
----------------------- ------------------ -------------------- ------------------- ----------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed-Rate Loans:
Real estate:
One- to four-family.......... $54,307 57.73% $52,530 56.51% $50,450 55.66% $41,614 53.62% $36,256 53.44%
Construction or development.. --- --- --- --- --- --- 487 .63 275 .40
---------- --------- --------- ------- --------- -------- ---------- -------- ------- -------
Total real estate loans... 54,307 57.73 52,530 56.51 50,450 55.66 42,101 54.25 36,531 53.84
Home Improvement............... 362 .38 251 .27 218 .24 273 .35 246 .36
Automobile..................... 350 .37 160 .17 115 .13 41 .05 38 .06
Other consumer................. 485 .52 676 .73 375 .41 389 .50 272 .40
---------- --------- -------- -------- --------- -------- --------- -------- ------- -------
Total fixed-rate loans..... 55,504 59.00 53,617 57.68 51,158 56.44 42,804 55.15 37,087 54.66%
Adjustable-Rate Loans
Real estate:
One-to four-family........... 24,237 25.76 24,151 25.98 25,237 27.84 22,989 29.62 20,845 30.73
Home equity.................. 14,340 15.24 15,184 16.34 14,251 15.72 11,818 15.23 9,910 14.61
-------- ------- -------- ------- -------- ------- -------- ------- ------- -------
Total adjustable-rate loans. 38,577 41.00 39,335 42.32 39,488 43.56 34,807 44.85 30,755 45.34
-------- ------- -------- -------- -------- ------- -------- ------- ------- ------
Total loans .............. 94,081 100.00% 92,952 100.00% 90,646 100.00% 77,611 100.00% 67,842 100.00%
Less:
Loans in process.............. --- --- 227 123 371
Deferred fees and discounts .. (271) (273) (207) (88) 26
Allowance for loan losses..... 402 269 230 196 182
---------- --------- --------- --------- --------
Total loans receivable, net $93,950 $92,956 $90,396 $77,380 $67,263
======= ======= ======= ======= =======
</TABLE>
45
<PAGE>
The following schedule illustrates the interest rate sensitivity of the
Bank's loan portfolio at December 31, 1997. Loans which have adjustable or
renegotiable interest rates are shown as maturing in the period during which the
contracts are due. The schedule does not reflect the effects of possible
prepayments or enforcement of due-on-sale clauses.
One- to four-family
and home equity(1) Consumer and Other
------------------ ------------------
Due During Weighted Weighted
Years Ending Average Average
December 31, Amount Rate Amount Rate
------------ ------ ---- ------ ----
(Dollars in Thousands)
1998................... $19,288 8.58% $ 119 9.18%
1999 to 2000........... 9,091 7.13 201 9.03
2001 to 2003........... 8,391 7.22 316 8.13
2004 to 2007........... 16,145 7.44 82 9.43
2008 to 2017........... 22,469 7.54 117 9.50
2018 and thereafter.... 17,862 7.80 ---
------ -------
Total............... $93,246 7.71% $ 835 8.83%
======= =======
(1) Includes home equity and home improvement loans.
As of December 31, 1997 the total amount of loans due after December 31,
1998 which had predetermined interest rates was $71.8 million while the total
amount of loans due after such dates which had floating or adjustable interest
rates was $2.9 million.
One- to Four-Family Residential Real Estate Lending. The cornerstone of
the Bank's lending program has historically been the origination of loans
secured by mortgages on owner-occupied one- to four-family residences. At
December 31, 1997, $78.5 million, or 83.5%, of the Bank's total loan portfolio
consisted of first mortgage loans secured by one- to four- family residences.
Historically, the Bank focused its residential lending activities on fixed rate
loans with up to 30 year terms. Beginning in fiscal 1985, the Bank began to
originate adjustable rate loans. The Bank underwrites both its fixed rate and
adjustable one- to four-family residential loans in accordance with Federal Home
Loan Mortgage Corporation ("FHLMC") standards. Substantially all of the Bank's
one- to four-family residential mortgage originations are secured by properties
located in its market area.
While most of the Bank's current fixed rate originations have terms of 15
years, the Bank currently offers conventional fixed-rate mortgage loans with
maturities up to 30 years. The Bank also originates a significant volume of five
to seven year balloon loans as well as "bi-weekly" loans. Since payments are
required on an alternating week basis, these loans tend to have shorter
contractual amortization periods than conventional monthly payment loans.
Interest rates and fees charged on these fixed-rate loans are established on a
regular basis according to market conditions. As of December 31, 1997, the Bank
had $54.5 million of fixed rate loans secured by one- to four-family residential
properties. See "- Originations of Loans."
The Bank also offers ARMs which carry interest rates which adjust
annually at a margin (generally 295 basis points) over the yield on one year
U.S. Treasury securities. Such loans may carry terms to maturity of up to 30
years. The ARM loans currently offered by the Bank generally provide for a 200
basis point annual interest rate change cap and a lifetime cap of 600 basis
points over the initial rate. The initial interest rate on such loans may be
fixed for a period of up to five years. Initial interest rates offered on the
Bank's ARMs may be 150 to 250 basis points below the fully indexed rate,
although borrowers are generally qualified at the fully indexed rate. As a
result, the risk of default on these loans may increase as interest rates
increase. In addition, the Bank's ARMs typically do not adjust below the
46
<PAGE>
initial rate. The Bank's ARMs are convertible at any time into fixed rate loans
for a nominal fee. At December 31, 1997, one- to four-family residential ARMs
totaled $24.2 million or 25.8% of the Bank's loan portfolio.
Ben Franklin will generally lend up to 90% of the lesser of the sales
price or appraised value of the security property on owner occupied one- to
four-family loans. For loans exceeding an 80% loan-to-value ratio, the Bank
requires private mortgage insurance in amounts intended to reduce the Bank's
exposure to 80% or less.
While the Bank seeks to originate most of its one- to four-family
residential loans in amounts which are less than or equal to the applicable
FHLMC maximum, the Bank does make one- to four-family residential loans in
amounts in excess of such maximum. The Bank's delinquency experience on such
loans has been comparable to its experience on smaller loans.
In underwriting one- to four-family residential real estate loans, the
Bank currently evaluates the borrower's ability to make principal, interest, and
escrow payments, and the value of the property that will secure the loan.
Residential loans do not currently include prepayment penalties, are
non-assumable and do not produce negative amortization. The Bank's residential
mortgage loans customarily include due-on-sale clauses giving the Bank the right
to declare the loan immediately due and payable in the event that, among other
things, the borrower sells the property subject to the mortgage.
Income Producing Property Lending. The Bank hired a new President with
commercial lending experience in early 1997 and a new commercial loan officer in
April 1998 and intends to commence multi-family and commercial real estate
lending. Such loans are expected to be permanent loans with terms up to five
years secured by apartment buildings or commercial properties such as
warehouses, small office buildings, small strip malls or retail establishments
located within the greater Chicago area. The Bank's multi-family and commercial
real estate loans may carry either fixed or adjustable rate interest rates,
depending on market conditions. The Bank will seek to obtain a personal
guarantee or other personal liability on all multi-family and commercial real
estate loans. The Bank anticipates that most of its multi-family and commercial
real estate loans will be in amounts of less than $1 million.
Multi-family and commercial real estate loans generally present a higher
level of risk than loans secured by one-to four-family residences. This greater
risk is due to several factors, including the concentration of principal in a
limited number of loans and borrowers, the effects of general economic
conditions on income producing properties and the increased difficulty of
evaluating and monitoring these types of loans. Furthermore, the repayment of
loans secured by multi-family and commercial real estate is typically dependent
upon the successful operation of the related real estate project. If the cash
flow from the project is reduced (for example, if leases are not obtained or
renewed), the borrower's ability to repay the loan may be impaired.
The Bank may also originate or purchase a limited amount of construction
or development loans. The terms on owner occupied construction loans will
probably be similar to the Bank's one to family residential loans (except that
interest only may be required during the construction phase). Commercial
construction or development loans would probably be made for terms up to two
years and would require inspections before disbursements would be made.
Commercial construction loans are generally subject to all of the income
producing property loan risks set forth above as well as additional risks
related to the difficulties and uncertainties of planning, executing and
monitoring a construction or development project.
In early 1998, the Bank purchased a $1.0 million participation in a $5.0
million construction loan on a 69 unit mixed use condominium project located in
Lisle, Illinois.
Title I Lending. Section 1 and 2(a) of the National Housing Act of 1934
(the "Housing Act") authorized the creation of the Federal Housing
Administration ("FHA"), an agency of the United State government, and the Title
I Insurance Program. Under the Housing Act, the FHA is authorized to insure
qualified lending institutions against losses on certain types of loans
including loans to finance the alteration, repair or improvement of existing
single-family, multi-family and non-residential real property structures. The
principal amount of Title I Loans may not exceed $25,000 in the case of a loan
for the improvement of a single family structure and $60,000 in the case of a
loan for the improvement of a multi-family structure.
47
<PAGE>
Subject to certain limitations described below, eligible Title loans
are insured by the FHA for 90% of an amount equal to the sum of (i) the net
unpaid principal amount and the uncollected interest earned to the date of
default, (ii) interest on the unpaid loan obligation from the date of default to
the date of the initial submission of the insurance claim, plus 15 calendar days
(the total period not to exceed nine months) at a rate of 7% per annum, (iii)
uncollected court costs, (iv) title examination costs, (v) fees for required
inspection by the lender or its agents, up to $75, and (vi) origination fees up
to a maximum of 5% of the loan amount. Accordingly, the Title I lender continues
to bear the risk of loss on Title I loans to the extent of at least 10% of the
unpaid principal and uncollected interest as well as certain other expenses.
Under the Housing Act, the insurance coverage provided by the FHA is
limited to the extent of the balance in a reserve (The "FHA Reserve") maintained
by the FHA for the benefit of the Title I lender. Under applicable regulations,
the amount in each Title I lender's FHA Reserve is equal to 10% of the amounts
disbursed, advanced or expended by the Title I lender in originating or
purchasing eligible loans registered with the FHA for Title I Insurance, with
certain adjustments permitted or required by FHA Regulations. The FHA will
reduce the insurance coverage available in a Title I lender's FHA Reserve by the
amount of FHA Insurance claims approved for payment with respect to such loans.
A Title I lender's FHA Reserve is also reduced in the event of the sale,
assignment or transfer of loans registered under Title I. Accordingly, in the
event significant losses, a lender's FHA Reserve could be reduced to zero and
thus, no longer available to offset loan losses.
The FHA charges a lender an annual fee equal to fifty basis points of
the original principal balance of each loan for the life of the loan in order to
establish such reserve account. Unlike many other federal insurance programs,
FHA reimbursement is subject to a review by the FHA to ensure that the original
lender fully complied with all applicable requirements including exercising due
diligence to determine whether the original obligor was solvent and an
acceptable risk with a reasonable ability to repay the loan. Such FHA reviews
are not made until a claim for reimbursement is made.
Title I loans are required to bear fixed rates of interest and may not
have terms of less than six months nor more than 240 months. Subject to other
federal and state regulations, the lender may establish the interest rate to be
charged. In general, Title I Loans are secured by junior liens on the subject
property.
The Bank has recently begun purchasing Title I loans from other
lenders. Under the applicable purchase contacts, at the time of purchase, the
loans purchased have not previously been registered for insurance with the FHA
and thus FHA transfer reports are not required. Upon acquisition, the Title I
loans purchased by the Bank for resale to FNMA are registered for FHA insurance
in the name of FNMA. Loans which the Bank intends to hold for portfolio are
registered for FHA insurance in the Bank's own name.
To date, most of the Bank's Title I loan purchases have been from a
lender located in California. However, the Bank However, the Bank intends to
increase its Title I loan purchases from other lenders. In each case, prior to
commitment, the Bank's underwriting personnel review completed loan applications
to verify compliance with the Bank's debt to income underwriting standards, the
borrower's credit history, FHA requirements and federal and state regulations.
However, because many Title I loans are made at loan to value ratios in excess
of 100% and due to the relatively small size of such loans, property inspections
are not required prior to acquisition by the Bank.
48
<PAGE>
The Bank seeks to sell most of its Title I loan acquisitions to the
FNMA on a servicing retained basis. The servicing is currently performed by a
third party on a sub-contracting basis. Under applicable accounting principles,
the Bank records gains on the sale of FHA loans equal to the sales price less
the adjusted carrying value of the loans sold. Although the Bank seeks to sell
most loans within thirty days of acquisition, the Bank is subject to interest
rate risk to the extent that interest rates change between the date of purchase
and sale of such loans. In the case of sold loans which result in a creation of
mortgage loan servicing assets, the Bank is also subject to the risk that
prepayment or default in with respect to such loans would result in the
elimination of such asset and a related charge to operations. Finally, even
after the sale of such loans, the Bank is subject to the risk that the FNMA will
require it to repurchase sold loans which become delinquent as to the first
payment or as to which there is fraud or documentary or Title I qualification
deficiencies. While this has not occurred to date, in several cases, the Bank
has required the originating lender to repurchase previously sold Title I loans.
In each case, the original lender has repurchased the loan at the Bank's
original cost, although there can be no assurance that the original lenders will
continue to be willing or able to do so in the future.
Title I loans tend to carry higher interest rates than home equity
loans and other home improvement loans. As a result, Title I loans tend to be
used by persons that would have difficulty qualifying for other types of home
improvement loans. In many cases, the loan to value ratios on Title I properties
are in excess of 100%. As a result, Title I loans are considered to involve a
higher risk of default than the Bank's other current real estate loans. The FHA
guarantee in Title I loans may not completely offset such risk for several
reasons. First, the FHA insurance in any particular loan is limited to 90% of
the loss on such loan. Second, the FHA insurance is limited to the amount of the
Bank's FHA Reserve Account. Finally, the FHA guarantee is subject to certain
substantive underwriting and documentation requirements, which if not strictly
complied with, could result in a denial of FHA reimbursement.
Consumer Lending. Management believes that offering consumer loan
products helps to expand the Bank's customer base and to create stronger ties to
its existing customer base. In addition, because consumer loans generally have
shorter terms to maturity and carry higher rates of interest than do residential
mortgage loans, they can be valuable interest rate risk management tools. The
Bank originates a variety of different types of consumer loans, including
automobile and deposit account loans for household and personal purposes. In
addition, the Bank has recently qualified to take applications, in exchange for
an origination fee, for student loans from a State lending authority. However,
because of the tax advantages to borrowers, the Bank has focused its recent
consumer lending activities on home equity lending. At December 31, 1997
consumer loans totaled $835,000 or .89% of total loans outstanding.
Consumer loan terms vary according to the type and value of collateral,
length of contract and creditworthiness of the borrower. The Bank's consumer
loans are made with fixed or adjustable interest rates, with terms of up to five
years.
49
<PAGE>
The Bank has offered home equity loans and lines of credit since fiscal
year 1985. Home equity loans are secured by second mortgages on one- to
four-family owner-occupied residences. The Bank generally uses the same
underwriting standards for home equity loans as for one- to four-family
residential loans. The Bank's home equity loans are written so that the total
commitment amount, when combined with the balance of the first mortgage lien,
may not exceed 80% of the appraised value of the property. The Bank's home
equity loans generally carry fixed terms of up to 10 years and floating interest
rates. At December 31, 1997, the Bank had $14.3 million of outstanding home
equity lines of credit as well as $14.8 million of available but unused lines of
credit.
The underwriting standards employed by the Bank for consumer loans
include a determination of the applicant's payment history on other debts and
ability to meet existing obligations and payments on the proposed loan. Although
creditworthiness of the applicant is of primary consideration, the underwriting
process also includes a comparison of the value of the security, if any, in
relation to the proposed loan amount. Consumer loans may entail greater credit
risk than do residential mortgage loans, particularly in the case of consumer
loans which are unsecured or are secured by rapidly depreciable assets, such as
automobiles. In such cases, any repossessed collateral for a defaulted consumer
loan may not provide an adequate source of repayment of the outstanding loan
balance as a result of the greater likelihood of damage, loss or depreciation.
In addition, consumer loan collections are dependent on the borrower's
continuing financial stability, and thus are more likely to be affected by
adverse personal circumstances. Furthermore, the application of various federal
and state laws, including bankruptcy and insolvency laws, may limit the amount
which can be recovered on such loans.
The Bank is currently in the beginning stages of considering whether to
establish a consumer finance loan subsidiary (the "Subsidiary"). If established,
the Subsidiary would substantially expand the nature and types of consumer loans
originated. In particular, the Subsidiary would probably concentrate on secured
lending (including junior lien residential and automobile lending) to consumers
with a variety of different credit ratings including those with debt to income
ratios and credit histories which are less favorable than those currently
required by the Bank's underwriting guidelines.
Since the Bank is in the early stages of considering whether to
establish a consumer finance subsidiary and since no staff has been hired for
such subsidiary, the Bank had not to date established underwriting guidelines or
other procedures for such subsidiary.
Although the Bank's current intention is that the Subsidiary would
operate within the Bank's current market area, if the initial lending experience
is favorable, the Bank may determine to establish additional subsidiary offices
and expand its geographic focus. Marketing efforts would be made through general
advertising, direct mail as well as cable television. In the event that the Bank
determines to go forward with a consumer loan subsidiary, such subsidiary would
have its own facilities and staff including a President and Chief Executive
Officer who would report directly to the Bank's President and Chief Executive
Officer.
In the event that a consumer finance subsidiary is established, its
activities would involve a number of risks, including (i) the increased default
rate which could result from loans to less credit worthy borrowers, (ii) the
risk that the subsidiary's loans would not saleable in the secondary market, and
(iii) the possibility that claims could be made against it for violations of
various laws related to truth in lending, equal credit opportunity, settlement
procedures, credit disclosure, debt collection practices or similar matters. As
a new line of business without material operations or revenues as of the date of
this prospectus, these new lending activities are also subject to risks,
expenses (including start up expenses) and difficulties which are often
encountered in the establishment of a new business.
Originations, Purchases and Sales of Loans
The lending activities of the Bank are subject to written,
non-discriminatory, underwriting standards and loan origination procedures
established by the Bank's Board of Directors and management. Loan originations
come from a number of sources. Residential loan originations can be attributed
to depositors, retail customers, telephone inquiries, advertising, the efforts
of the Bank's loan officers and referrals from other borrowers, real estate
brokers and builders. The Bank originates loans through its own efforts and does
not compensate mortgage brokers, mortgage bankers or other loan finders,
although it may do so in the future.
While the Bank originates both fixed and adjustable rate loans, its
ability to originate loans is dependent upon the relative customer demand for
loans in its market. Demand is affected by the local economy and the interest
rate environment.
50
<PAGE>
The Bank had not made any material loan sales in recent years prior to
the 1997 sales of Title I loans. The Bank intends to continue its Title I loan
sales and will consider other types of loan sales and will consider other types
of loan sales in the future, as a way to increase loan servicing income and as a
form of liquidity management. The Bank does not hedge its loans for sale
pipeline and, as a result, is subject to a measure of interest rate risk for the
period between the date of acquisition of the loan and the date of sale. At
December 31, 1997, the Bank serviced $4.0 million of loans for others including
$3.8 million of Title I loans.
The Bank had not purchased loans since the mid-1980s until the Bank began
purchasing Title I loans in 1997. The Bank also purchased a participation in a
commercial construction loan in 1998. The Bank intends to continue purchasing
Title I loans and will evaluate the purchase of other loans on a case-by-case
basis. All loan purchases will be subject to a review based on the Bank's normal
underwriting standards prior to purchase.
The following table shows the loan origination and repayment activities
of the Bank for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1997 1996 1995
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Originations by type:
Adjustable rate:
Real estate: One- to four-family....... $5,086 $7,084 $8,057
Non-real estate: Consumer.................. 25 --- ---
-------- -------- ----------
Total adjustable rate......................... 5,111 7,084 8,057
------ ------ -------
Fixed rate:
Real estate: One- to four-family....... 10,550 12,744 21,354
Non-real estate: Consumer.................. 263 435 144
-------- -------- --------
Total fixed-rate............................ 10,813 13,179 21,498
------ ------ ------
Total loans originated........................ 15,924 20,263 29,555
------ ------ ------
Purchases:
Real estate: Title 1 loans............. 4,091 --- ---
------ -------- ---------
Sales and Repayments:
Real estate: One- to four-family....... --- (287) ---
Title 1 loans............. (3,890) --- ---
-------- --------- ----------
Total loans sold........................... (3,890) (287) ---
Principal repayments............................. (14,996) (17,670) (16,520)
------- ------- -------
Total reductions............................ (18,886) (17,957) (16,520)
Increase (decrease) in other items, net.......... (135) 254 (19)
--------- ---------- -----------
Net increase................................ $ 994 $ 2,560 $ 13,016
======== ======== ========
</TABLE>
Delinquencies and Nonperforming Assets
Delinquency Procedures. When a borrower fails to make a required payment
on a loan, the Bank attempts to cure the delinquency by contacting the borrower.
Generally, Bank personnel work with the delinquent borrower on a case by case
basis to solve the delinquency. Generally, a late notice is sent on all
delinquent loans followed by a phone call after the fifteenth day of
delinquency. Additional written and verbal contacts may be made with the
borrower between 30 and 60 days after the due date. If the loan is contractually
delinquent for 90 days, the Bank may institute appropriate action to foreclose
on the property. Generally, after 120 days, foreclosure procedures are
initiated. If foreclosed, the property is sold at public sale and may be
purchased by the Bank.
Real estate acquired by the Bank as a result of foreclosure or by deed in
lieu of foreclosure is classified as real estate owned until it is sold. When
property is acquired by foreclosure or deed in lieu of foreclosure, it is
recorded at
51
<PAGE>
the lower of cost or fair value less estimated selling costs. After acquisition,
all costs incurred in maintaining the property are expensed. Costs relating to
the development and improvement of the property, however, are capitalized.
The following table sets forth the Bank's delinquencies at December 31,
1997.
<TABLE>
<CAPTION>
Loans Delinquencies at December 31, 1997
----------------------------------------------------------------------------
60-89 Days 90 Days and Over Total Delinquent Loans
------------------------ ------------------------ ------------------------
% of % of % of
Number Amount Category Number Amount Category Number Amount Category
------ ------ -------- ------ ------ -------- ------ ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate:
One- to four-family..... -- $ -- --% 1 $ 65 .08% 1 $ 65 .08%
---- ---- ---- ---- ---- ---- ---- ---- ----
Total................. -- $ -- --% 1 $ 65 .08% 1 $ 65 .08%
==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
Classification of Assets. Federal regulations require that each savings
institution classify its own assets on a regular basis. In addition, in
connection with examinations of savings institutions, OTS and FDIC examiners
have authority to identify problem assets and, if appropriate, require them to
be classified. There are three classifications for problem assets: Substandard,
Doubtful and Loss. Substandard assets have one or more defined weaknesses and
are characterized by the distinct possibility that the Bank will sustain some
loss if the deficiencies are not corrected. Doubtful assets have the weaknesses
of Substandard assets, with the additional characteristics that the weaknesses
make collection or liquidation in full on the basis of currently existing facts,
conditions and values questionable, and there is a high possibility of loss. An
asset classified Loss is considered uncollectible and of such little value that
continuance as an asset on the balance sheet of the institution is not
warranted. Assets classified as Substandard or Doubtful require the institution
to establish prudent general allowances for loan losses. If an asset or portion
thereof is classified as a loss, the institution charges off such amount against
the loan loss allowance. If an institution does not agree with an examiner's
classification of an asset, it may appeal this determination to the District
Director of the OTS. As of December 31, 1997, the Bank had no loans classified
as substandard, doubtful or loss.
Non-Performing Assets. The table below sets forth the amounts and
categories of Bank's non-performing assets. Foreclosed assets include assets
acquired in settlement of loans.
December 31,
--------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(In Thousands)
Non-accruing loans:
One- to four-family....................... $ -- $ -- $ -- $ -- $ 9
Accruing loans delinquent more than 90 days:
One- to four-family....................... 65 155 133 17 69
Foreclosed assets:
One- to four-family....................... -- 306 -- -- --
---- ---- ---- ---- ----
Total non-performing assets................. $ 65 $461 $133 $ 17 $ 78
==== ==== ==== ==== ====
Total non-performing assets as a
percentage of total assets................ .05% .43% .13% .02% .09%
==== === ==== ==== ====
Other Loans of Concern. In addition to the non-performing assets set forth
in the table above, as of December 31, 1997, there were no other loans with
respect to which known information about the possible credit
52
<PAGE>
problems of the borrowers or the cash flows of the security properties have
caused management to have concerns as to the ability of the borrowers to comply
with present loan repayment terms and which may result in the future inclusion
of such items in the non-performing asset categories.
Allowance for Loan Losses
The allowance for loan losses is established through a provision for loan
losses charged to earnings based on the Bank's evaluation of the risk inherent
in its entire loan portfolio. Such evaluation, which includes a review of all
loans for which full collectibility may not be reasonably assured, considers the
market value of the underlying collateral, growth and composition of the loan
portfolio, delinquency trends, adverse situations that may affect the borrower's
ability to repay, prevailing and projected economic conditions and other factors
that warrant recognition in providing for an adequate allowance for loan losses.
While the Bank believes that it uses the best information available to
determine the allowance for loan losses, unforeseen economic and market
conditions could result in adjustments to the allowance for loan losses, and net
earnings could be significantly affected, if circumstances differ substantially
from the assumptions used in making the final determination. Management believes
its allowance for loan losses is adequate at December 31, 1997; however, future
adjustments could be necessary and net income could be adversely affected if
circumstances differ substantially from the assumptions used in the
determination of allowance for loan losses.
53
<PAGE>
The following table sets forth an analysis of the Bank's allowance for loan
losses for the years indicated.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period.................... $269 $230 $196 $182 $181
Charge-offs:
One- to four-family............................. -- -- -- -- --
Multi-family....................................
Commercial real estate.......................... -- -- -- -- --
Construction or development..................... -- -- -- -- --
Consumer........................................ -- -- -- -- --
Home equity and second mortgage................. 17 -- -- -- --
------ ------ ------ ------- ------
17 -- -- -- --
Recoveries:
One- to four-family............................. -- 6 2 -- --
Multi-family.................................... -- -- -- -- --
Commercial real estate.......................... -- -- -- -- --
Construction or development..................... -- -- -- -- --
Consumer........................................ -- -- -- -- --
Commercial business............................. -- 6 2 -- --
------ ------ ------ ------- ------
-- 6 2 -- --
Net charge-offs (recoveries)...................... 17 (6) (2) -- --
Additions charged to operations................... 150 33 32 14 1
------ ------ ------ ------- ------
Balance at end of period.......................... $402 $269 $230 $196 $182
====== ====== ====== ======= ======
Ratio of net charge-offs (recoveries) during the
period to average gross loans outstanding
during the period................................ 0.02% (.01)% --% --% --%
====== ====== ====== ======= ======
Ratio of net charge-offs (recoveries) during the
period to average non-performing assets.......... 6.47% (2.02)% (2.67)% --% --%
====== ====== ====== ======= ======
Allowance as a percentage of non-performing loans
(end of period)................................. 618.46% 173.55% 172.93% 1152.94% 233.33%
====== ====== ====== ======= ======
</TABLE>
54
<PAGE>
The following table sets forth the allocation of the allowance for loan
losses by category as prepared by the Bank. This allocation is based on
management's assessment as of a given point in time of the risk characteristics
of each of the component parts of the total loan portfolio and is subject to
changes as and when the risk factors of each such component part change. The
allocation is not indicative of either the specific amounts or the loan
categories in which future charge-offs maybe taken, nor should it be taken as an
indicator of future loss trends. The allocation of the allowance to each
category does not restrict the use of the allowance to absorb losses in any
category.
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------------------
1997 1996 1995
----------------------------- ----------------------------- -----------------------------
Percent Percent Percent
of loans of loans of loans
Amount Loan in Each Amount Loan in Each Amount Loan in Each
of loan Amounts Category of loan Amounts Category of loan Amounts Category
loss by of Total loss by of Total loss by of Total
Allowance Category Loans Allowance Category Loans Allowance Category Loans
--------- -------- -------- --------- -------- -------- --------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family...... $158 $78,745 83.70% $155 $76,681 82.49% $151 $75,687 83.50%
Home equity and second
mortgage................ 72 14,501 15.41 76 15,435 16.61 72 14,469 15.96
Construction or
development............. -- -- -- -- -- -- -- -- --
Consumer................. 9 835 .89 10 836 0.90 7 490 0.54
Unallocated.............. 163 -- -- 28 -- -- -- -- --
---- ------- ------ ---- ------- ------ ---- ------- ------
Total............... $402 $94,081 100.00% $269 $92,952 100.00% $230 $90,646 100.00%
==== ======= ====== ==== ======= ====== ==== ======= ======
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------
1994 1993
----------------------------- -----------------------------
Percent Percent
of loans of loans
Amount Loan in Each Amount Loan in Each
of loan Amounts Category of loan Amounts Category
loss by of Total loss by of Total
Allowance Category Loans Allowance Category Loans
--------- -------- -------- --------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
One- to four-family...... $130 $64,603 83.24% $116 $57,101 84.17%
Home equity and second 7
mortgage................ 60 12,091 15.58 -- 10,156 14.9
Construction or
development............. -- 487 0.63 50 275 0.40
Consumer................. 6 430 0.55 5 310 0.46
Unallocated.............. -- -- -- 11 -- --
---- ------- ------ ---- ------- ------
Total............... $196 $77,611 100.00% $182 $67,842 100.00%
==== ======= ====== ==== ======= ======
</TABLE>
55
<PAGE>
Investment Activities
Federally chartered savings institutions have the authority to invest in
various types of liquid assets, including United States Treasury obligations,
securities of various federal agencies, certain certificates of deposit of
insured banks and savings institutions, certain bankers' acceptances, repurchase
agreements and federal funds. Subject to various restrictions, federally
chartered savings institutions may also invest their assets in commercial paper,
investment grade corporate debt securities and mutual funds whose assets conform
to the investments that a federally chartered savings institution is otherwise
authorized to make directly.
Generally, the investment policy of Ben Franklin is to invest funds among
categories of investments and maturities based upon the Bank's market risk
analysis policies, investment quality, loan and deposit volume, liquidity needs
and performance objectives. The Bank's securities must be classified into any of
three categories: trading, held to maturity and available for sale. Securities
that are bought and held principally for the purpose of selling them in the near
term are classified as trading securities and are reported at fair value with
unrealized gains and losses included in trading account activities in the
statement of operations. Securities that Ben Franklin has the positive intent
and ability to hold to maturity are classified as held to maturity and reported
at amortized cost. All other securities not classified as trading or held to
maturity are classified as available for sale.
56
<PAGE>
The following table sets forth the composition of the Bank's securities and
other earning assets at the dates indicated.
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------
1997 1996 1995
---------------- ---------------- ----------------
Carrying % of Carrying % of Carrying % of
Value Total Value Total Value Total
-------- ----- -------- ----- -------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Securities held to maturity:
U.S. Government securities............. $ -- -- $1,017 12.01% $ 500 6.30%
Federal agency obligations.............. 510 2.74% -- -- 3,333 41.99
Municipal bonds......................... -- -- 101 1.19 101 1.27
Mortgage-backed securities:
FNMA.................................. 79 .42 80 .94 81 1.02
FHLMC................................. -- -- -- -- 617 7.77
------- ------ ------ ------ ------ ------
589 3.16 1,198 14.14 4,632 58.35
Securities available for sale:
US Government securities................ -- -- -- -- -- --
Federal agency obligations.............. 17,536 94.18 6,765 79.87 2,783 35.06
Municipal bonds......................... -- -- -- -- -- --
Mortgage-backed securities:
FHLMC................................. 495 2.66 507 5.99 523 6.59
------- ------ ------ ------ ------ ------
18,031 96.84 7,272 85.86 3,306 41.65
Total securities.................. $18,620 100.00% $8,470 100.00% $7,938 100.00%
======= ====== ====== ====== ====== ======
Average remaining life of securities...... 3.8 years 2.5 years 2.2 years
Other interest-earning assets:
Interest-earning deposits with banks... $ 2,611 32.08% $1,878 54.34% $2,227 63.12%
FHLB Stock........................ 944 11.60 920 26.62 793 22.48
FHLMC Stock....................... 652 8.01 626 18.11 476 13.49
U.S. League Insurance Stock....... 32 .39 32 .93 32 .91
Federal funds sold................ 3,900 47.92 -- -- -- --
------- ------ ------ ------ ------ ------
Total....................... $ 8,139 100.00% $3,456 100.00% $3,528 100.00%
======= ====== ====== ====== ====== ======
</TABLE>
57
<PAGE>
The following table sets forth the contractual maturities of the Bank's
securities (excluding FHLB stock) at December 31, 1997.
<TABLE>
<CAPTION>
At December 31, 1997
-------------------------------------------------------
Less Than 1 to 5 5 to 10
1 Year Years Years Total Securities
---------- --------- --------- ------------------
Amortized Amortized Amortized Amortized Fair
Cost Cost Cost Cost Value
---------- --------- --------- --------- -----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Federal agency obligations..... $ 301 $16,739 $1,000 $18,040 $18,063
Mortgage-backed securities -- 587 -- 587 574
----- ------- ------ ------- ------
Total securities............... $ 301 $17,326 $1,000 $18,627 $18,637
===== ======= ====== ======= =======
Weighted average yield......... 5.36% 6.49% 6.60% 6.48%
</TABLE>
In order to complement its lending activities and to increase its holdings
of short and medium term assets, the Bank invests primarily in liquidity
investments and in high-quality investments, such as U.S. Treasury and agency
obligations having terms to maturity of five years or less. At December 31,
1997, the Bank's securities portfolio had an amortized cost totaling $18.6
million. At December 31, 1997, the Bank did not own any investment securities of
a single issuer which exceeded 10% of the Bank's retained earnings, other than
federal agency obligations. See Note 2 of the Notes to the Financial Statements
for additional information regarding the Bank's securities portfolio.
Ben Franklin must maintain minimum levels of investments and other assets
that qualify as liquid assets under OTS regulations. Liquidity may increase or
decrease depending upon the availability of funds and comparative yields on
investments in relation to the return on loans. At December 31, 1997, Ben
Franklin's liquidity ratio for regulatory purposes was 21.02%. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Quantitative and Qualitative Disclosure of Market Risk" and "- Liquidity and
Capital Resources."
In order to supplement its lending activities and achieve its market risk
analysis goals, the Bank has from time to time invested in mortgage-backed
securities. As of December 31, 1997, all of the mortgage-backed securities owned
by the Bank were issued, insured or guaranteed either directly or indirectly by
a federal agency. However, it should be noted that, while a (direct or indirect)
federal guarantee may indicate a high degree of protection against default, they
do not indicate that the securities will be protected from declines in value
based on changes in interest rates or prepayment speeds.
Sources of Funds
General. The Bank's primary source of funds are deposits. In addition, the
Bank derives funds for loans and investments from loan and security repayments
and prepayments, from cash flows from operations and, to a lesser extent, from
borrowings. Scheduled payments on loans and mortgage-backed and investment
securities are a relatively stable source of funds, while savings inflows and
outflows and loan and mortgage-backed and investment securities prepayments are
significantly influenced by general interest rates and money market conditions.
Borrowings are occasionally used to compensate for reductions in other sources
of funds and to take advantage of lower funding costs that better match the
Bank's short-term needs.
Deposits. The Bank offers a variety of deposit programs to its customers,
including money market deposit accounts, passbook and statement savings
accounts, NOW accounts, checking accounts and time deposits. Deposit account
terms very according to the minimum balance required, the time periods the funds
must remain on deposit and the interest rate, among other factors. The Bank's
deposits are obtained predominantly from its market area. The Bank
58
<PAGE>
relies primarily on customer service and long-standing relationships with
customers to attract and retain deposits; however, market interest rates and
rates offered by competing financial institutions significantly affect the
Bank's ability to attract and retain deposits. During recent years, the Bank
generally has not used brokers to obtain deposits.
The variety of deposit accounts offered by the Bank has allowed it to be
competitive in obtaining funds and to respond with flexibility to changes in
consumer demand. The Bank has become more susceptible to short-term fluctuations
in deposit flows, as customers have become more interest rate conscious. The
Bank manages the pricing of its deposits in keeping with its asset/liability
management, profitability and growth objectives. Based on its experience, the
Bank believes that its passbook, demand and NOW accounts are relatively stable
sources of deposits as compared to certificate deposits. However, the ability of
the Bank to attract and maintain all deposits, and the rates paid on these
deposits, has been and will continue to be significantly affected by market
conditions.
The following table provides maturity information for the Bank's
certificates of deposit with balances of $100,000 or more as of December 31,
1997.
Maturity
---------------------------------------------------------
Over Over
3 Months 3 to 6 6 to 12 Over
or Less Months Months 12 Months Total
-------- ------ ------- --------- -------
(In Thousands)
$3,144 $3,478 $2,991 $2,153 $11,766
=======
The following table sets forth the deposit flows at the Bank during the
periods indicated.
Year Ended December 31,
--------------------------------------
1997 1996 1995
---------- --------- ---------
(Dollars In Thousands)
Opening balance........................ $ 94,339 $ 88,795 $ 81,653
Deposits............................... 249,012 206,038 205,806
Withdrawals............................ (235,530) (205,409) (202,537)
Interest credited...................... 4,933 4,915 3,873
--------- --------- ---------
Ending balance....................... $ 112,754 $ 94,339 $ 88,795
========= ========= =========
Net increase........................... $ 18,415 $ 5,544 $ 7,142
========= ========= =========
Percent increase....................... 19.52% 6.24% 8.75%
===== ==== ====
59
<PAGE>
The following table sets forth the dollar amount of deposits in the various
types of deposit programs offered by the Bank as of the dates indicated.
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------------------
1997 1996 1995
------------------ ------------------ ------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Transaction and Savings Deposits
Passbook accounts................... $ 18,126 16.08% $18,029 19.11% $17,913 20.17%
NOW accounts........................ 9,033 8.01 7,279 7.72 7,741 8.72
Money market accounts............... 7,840 6.95 5,011 5.31 6,000 6.76
-------- ------ ------- ------ ------- ------
Total non-certificates.......... 34,999 31.04 30,319 32.14 31,654 35.65
-------- ------ ------- ------ ------- ------
Certificate Accounts.................. 77,755 68.96 64,020 67.86 57,141 64.35
-------- ------ ------- ------ ------ -----
Total deposits.................. $112,754 100.00% $94,339 100.00% $88,795 100.00%
======== ====== ======= ====== ======= ======
</TABLE>
60
<PAGE>
The following table shows rate and maturity information for the Bank's time
deposits as of December 31, 1997.
<TABLE>
<CAPTION>
Under 4.00- 5.00- 6.00- Percent
4.00% 4.99% 5.99% 6.99% Total of Total
----- ----- ----- ----- ----- --------
(Dollars in Thousands)
Time deposit accounts
maturing in year ending:
<S> <C> <C> <C> <C> <C> <C>
1998........................ $ -- $1,138 $35,788 $21,733 $58,659 75.44%
1999........................ 15 154 3,526 7,275 10,970 14.11
2000........................ -- -- 652 4,387 5,039 6.48
2001........................ -- -- 442 86 528 .68
2002........................ -- -- 363 2,196 2,559 3.29
---- ------ ------- ------- ------- ------
Total................... $ 15 $1,292 $40,771 $35,677 $77,755 100.00%
==== ====== ======= ======= ======= ======
Percent of total........ --% 1.7% 52.4% 45.9%
</TABLE>
For additional information regarding the composition of the Bank's
deposits, see Note 5 of the Notes to the Financial Statements.
Borrowings. Although deposits are the primary source of funds for the
Bank's lending and investment activities and for its general business purposes,
the Bank has occasionally used borrowed funds or federal funds purchased to
supplement them. The Bank has borrowed funds when the cost of borrowings was
attractive when compared to the rate required to be paid on deposits plus the
deposit insurance premium required to be paid. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital."
The Bank may borrow under a line of credit agreement with the FHLB of
Chicago. FHLB advances typically are collateralized by the assets of the Bank.
The Bank has also borrowed overnight funds from various correspondent lenders.
There were no borrowings outstanding at December 31, 1997.
The following table sets forth the maximum month-end balance and average
balance of the Bank's borrowings for the periods indicated.
Year Ended December 31,
----------------------------
1997 1996 1995
------ ------ ------
(In Thousands)
Maximum Balance:
FHLB advances........................... $ -- $4,600 $ --
Federal funds purchased................. 7,800 5,800 5,800
Average Balance:
FHLB advances........................... $ -- $1,834 $ --
Federal funds purchased................. 4,048 5,311 2,694
61
<PAGE>
The following table sets forth the amount and rate of the Bank's borrowings
at the dates indicated.
December 31,
----------------------------
1997 1996 1995
------ ------ ------
(Dollars in Thousands)
FHLB advances................................ $ -- $ -- $ --
Securities sold under agreements
to repurchase................................ -- -- --
Federal Funds purchased -- 3,700 5,800
------ ------ ------
Total borrowings.......................... $ -- $3,700 $5,800
====== ====== ======
Weighted average interest rate of
FHLB advances........................... --% --% --%
Weighted average interest rate of
Federal Funds purchased.................. --% 5.54% 6.01%
==== ==== ====
Subsidiary Activities
As a federally chartered savings bank, Ben Franklin is permitted by OTS
regulations to invest up to 2% of its assets in the stock of, or loans to,
service corporation subsidiaries, and may invest an additional 1% of its assets
in service corporations where such additional funds are used for inner-city or
community development purposes. In addition to investments in service
corporations, federal institutions are permitted to invest an unlimited amount
in operating subsidiaries engaged solely in activities which a federal savings
bank may engage in directly. At December 31, 1997, Ben Franklin did not have any
subsidiaries.
Competition
Ben Franklin faces strong competition both in originating real estate loans
and in attracting deposits. Competition in originating loans comes primarily
from mortgage bankers, commercial banks, credit unions and other savings
institutions, which also make loans secured by real estate located in the Bank's
market area. Ben Franklin competes for loans principally on the basis of the
interest rates and loan fees it charges, the types of loans it originates and
the quality of services it provides to borrowers.
Competition for those deposits is principally from commercial banks, credit
unions, securities firms, mutual funds and other savings institutions located in
the same communities. The ability of the Bank to attract and retain deposits
depends on its ability to provide an investment opportunity that satisfies the
requirements of investors as to rate of return, liquidity, risk, convenient
locations and other factors. The Bank competes for these deposits by offering
competitive rates, maintaining close ties with its local community, advertising
and marketing programs, convenient business hours and a customer-oriented staff.
The Bank is subject to competition from other financial institutions which
may have much greater financial and marketing resources. However, the Bank
believes that it benefits from its community orientation.
Employees
At December 31, 1997, the Bank had a total of 36 employees including nine
part-time employees. None of the Bank's employees are represented by any
collective bargaining agreement. Management considers its employee relations to
be good.
62
<PAGE>
Properties
The following table sets forth information concerning the main office and
the branch office of the Bank at December 31, 1997. At December 31, 1997, the
Bank's premises had an aggregate net book value of approximately $204,000.
Year Owned or Net Book Value at
Location Acquired Leased December 31, 1997
- --------------------------------- -------- -------- -----------------
Main Office:
14 N. Dryden Place
Arlington Heights, Illinois 60004 1977 Leased $184,000
Full Service Branch:
3148 Kirchoff Road
Rolling Meadows, Illinios 60008 1991 Leased $ 20,000
The Bank believes that its current facilities are adequate to meet the
present and foreseeable future needs of the Bank and the Holding Company.
The Bank's depositor and borrower customer files are maintained in-house.
The net book value of the data processing and computer equipment utilized by the
Bank at December 31, 1997 was approximately $61,000.
Legal Proceedings
From time to time, Ben Franklin is involved as plaintiff or defendant in
various legal proceedings arising in the normal course of its business. While
the ultimate outcome of these various legal proceedings cannot be predicted with
certainty, it is the opinion of management that the resolution of these legal
actions should not have a material effect on the Holding Company's and Ben
Franklin's financial position or results of operations.
REGULATION
General
Ben Franklin is a federally chartered savings bank, the deposits of which
are federally insured and backed by the full faith and credit of the United
States Government. Accordingly, Ben Franklin is subject to broad federal
regulation and oversight extending to all its operations. Ben Franklin is a
member of the FHLB of Chicago and is subject to certain limited regulation by
the Board of Governors of the Federal Reserve System ("Federal Reserve Board").
As the savings and loan holding company of Ben Franklin, the Holding Company
also is subject to federal regulation and oversight. The purpose of the
regulation of the Holding Company and other holding companies is to protect
subsidiary savings associations. Ben Franklin is a member of the Savings
Association Insurance Fund ("SAIF") and the deposits of Ben Franklin are insured
by the FDIC. As a result, the FDIC has certain regulatory and examination
authority over Ben Franklin.
Certain of these regulatory requirements and restrictions are discussed
below or elsewhere in this document.
Federal Regulation of Savings Associations
The OTS has extensive authority over the operations of savings banks. As
part of this authority, Ben Franklin is required to file periodic reports with
the OTS and is subject to periodic examinations by the OTS. However, since
63
<PAGE>
the Bank only recently converted from an Illinois chartered savings bank to a
federal savings bank, the Bank has not recently been subject to an OTS
examination. When these examinations are conducted by the OTS, the examiners may
require Ben Franklin to provide for higher general or specific loan loss
reserves. All savings banks are subject to a semi-annual assessment, based upon
the savings bank's total assets, to fund the operations of the OTS.
The OTS also has extensive enforcement authority over all savings
institutions and their holding companies, including Ben Franklin and the Holding
Company. This enforcement authority includes, among other things, the ability to
assess civil money penalties, to issue cease-and-desist or removal orders and to
initiate injunctive actions. In general, these enforcement actions may be
initiated for violations of laws and regulations and unsafe or unsound
practices. Other actions or inactions may provide the basis for enforcement
action, including misleading or untimely reports filed with the OTS. Except
under certain circumstances, public disclosure of final enforcement actions by
the OTS is required.
In addition, the investment, lending and branching authority of Ben
Franklin is prescribed by federal laws and it is prohibited from engaging in any
activities not permitted by such laws. For instance, no savings institution may
invest in non-investment grade corporate debt securities. In addition, the
permissible level of investment by federal associations in loans secured by
non-residential real property may not exceed 400% of total capital, except with
approval of the OTS. Federal savings associations are also generally authorized
to branch nationwide. Ben Franklin is in compliance with the noted restrictions.
The OTS, as well as the other federal banking agencies, has adopted
guidelines establishing safety and soundness standards on such matters as loan
underwriting and documentation, asset quality, earnings standards, internal
controls and audit systems, interest rate risk exposure and compensation and
other employee benefits. Any institution which fails to comply with these
standards must submit a compliance plan. A failure to submit a plan or to comply
with an approved plan will subject the institution to further enforcement
action. The OTS and the other federal banking agencies have also proposed
additional guidelines on asset quality and earnings standards. No assurance can
be given as to whether or in what form the proposed regulations will be adopted.
Insurance of Accounts and Regulation by the FDIC
Ben Franklin is a member of the SAIF, which is administered by the FDIC.
Deposits are insured up to applicable limits by the FDIC and such insurance is
backed by the full faith and credit of the United States Government. As insurer,
the FDIC imposes deposit insurance premiums and is authorized to conduct
examinations of and to require reporting by FDIC-insured institutions. It also
may prohibit any FDIC-insured institution from engaging in any activity the FDIC
determines by regulation or order to pose a serious risk to the FDIC. The FDIC
also has the authority to initiate enforcement actions against savings
associations, after giving the OTS an opportunity to take such action, and may
terminate the deposit insurance if it determines that the institution has
engaged in unsafe or unsound practices or is in an unsafe or unsound condition.
The FDIC's deposit insurance premiums are assessed through a risk-based
system under which all insured depository institutions are placed into one of
nine categories and assessed insurance premiums based upon their level of
capital and supervisory evaluation. Under the system, institutions classified as
well capitalized (i.e., a core capital ratio of at least 5%, a ratio of Tier 1
or core capital to risk-weighted assets ("Tier 1 risk-based capital") of at
least 6% and a risk-based capital ratio of at least 10%) and considered healthy
pay the lowest premium while institutions that are less than adequately
capitalized (i.e., core or Tier 1 risk-based capital ratios of less than 4% or a
risk-based capital ratio of less than 8%) and considered of substantial
supervisory concern pay the highest premium. Risk classification of all insured
institutions will be made by the FDIC for each semi-annual assessment period.
The FDIC is authorized to increase assessment rates, on a semiannual
basis, if it determines that the reserve ratio of the SAIF will be less than the
designated reserve ratio of 1.25% of SAIF-insured deposits. In setting these
increased assessments, the FDIC must seek to restore the reserve ratio to that
designated reserve level, or such higher reserve ratio as established by the
FDIC. The FDIC may also impose special assessments on SAIF members to repay
amounts borrowed from the United States Treasury or for any other reason deemed
necessary by the FDIC.
64
<PAGE>
For the first six months of 1995, the assessment schedule for BIF members
and SAIF members ranged from .23% to .31% of deposits. As is the case with the
SAIF, the FDIC is authorized to adjust the insurance premium rates for banks
that are insured by the BIF of the FDIC in order to maintain the reserve ratio
of the BIF at 1.25% of BIF insured deposits. As a result of the BIF reaching its
statutory reserve ratio the FDIC revised the premium schedule for BIF insured
institutions to provide a range of .04% to .31% of deposits. The revisions
became effective in the third quarter of 1995. In addition, the BIF rates were
further revised, effective January 1996, to provide a range of 0% to .27%. The
SAIF rates, however, were not adjusted. At the time the FDIC revised the BIF
premium schedule, it noted that, absent legislative action (as discussed below),
the SAIF would not attain its designated reserve ratio until the year 2002. As a
result, SAIF insured members would continue to be generally subject to higher
deposit insurance premiums than BIF insured institutions until, all things being
equal, the SAIF attains its required reserve ratio.
In order to eliminate this disparity and any competitive disadvantage
between BIF and SAIF member institutions with respect to deposit insurance
premiums, legislation to recapitalize the SAIF was enacted in September 1996.
The legislation provided for a one-time assessment to be imposed on all deposits
assessed at the SAIF rates, as of March 31, 1995, in order to recapitalize the
SAIF. It also provided for the merger of the BIF and the SAIF on January 1, 1999
if no savings associations then exist. The special assessment rate was
established at .657% of deposits by the FDIC and the resulting assessment of
$491,000 was paid in November 1996. This special assessment significantly
increased non-interest expense and adversely affected the Bank's results of
operations for the year ended December 31, 1996. As a result of the special
assessment, Ben Franklin's deposit insurance premiums was reduced to .06% based
upon its current risk classification and the new assessment schedule for SAIF
insured institutions. These premiums are subject to change in future periods.
Prior to the enactment of the legislation, a portion of the SAIF
assessment imposed on savings associations was used to repay obligations issued
by a federally chartered corporation to provide financing ("FICO") for resolving
the thrift crisis in the 1980s. Although the FDIC has proposed that the SAIF
assessment be equalized with the BIF assessment schedule, effective October 1,
1996, SAIF-insured institutions remain subject to a FICO assessment as a result
of this continuing obligation. Although the legislation also now requires
assessments to be made on BIF-assessable deposits for this purpose, effective
January 1, 1997, that assessment was limited to 20% of the rate imposed on SAIF
assessable deposits until the earlier of December 31, 1999 or when no savings
association continues to exist, thereby imposing a greater burden on SAIF member
institutions such as Ben Franklin. Thereafter, however, assessments on
BIF-member institutions will be made on the same basis as SAIF-member
institutions. The rates established by the FDIC for the first quarter of 1998
are a 6.28 basis points assessment on SAIF deposits and a 1.26 basis points
assessment on BIF deposits.
Regulatory Capital Requirements
Federally insured savings associations, such as Ben Franklin, are
required to maintain a minimum level of regulatory capital. The OTS has
established capital standards, including a tangible capital requirement, a
leverage ratio (or core capital) requirement and a risk-based capital
requirement applicable to such savings associations. These capital requirements
must be generally as stringent as the comparable capital requirements for
national banks. The OTS is also authorized to impose capital requirements in
excess of these standards on individual associations on a case-by-case basis.
The capital regulations require tangible capital of at least 1.5% of
adjusted total assets (as defined by regulation). Tangible capital generally
includes common stockholders' equity and retained income, and certain
noncumulative perpetual preferred stock and related income. In addition, all
intangible assets, other than a limited amount of purchased mortgage servicing
rights, must be deducted from tangible capital for calculating compliance with
the requirement. At December 31, 1997, Ben Franklin did not have any intangible
assets recorded as assets on its financial statements.
The OTS regulations establish special capitalization requirements for
savings associations that own subsidiaries. In determining compliance with the
capital requirements, all subsidiaries engaged solely in activities permissible
for national banks or engaged in certain other activities solely as agent for
its customers are "includable" subsidiaries that are consolidated for capital
purposes in proportion to the association's level of ownership. For excludable
subsidiaries the debt and equity investments in such subsidiaries are deducted
from assets and capital.
65
<PAGE>
At December 31, 1997, Ben Franklin had tangible capital of $7.4 million,
or 6.06% of adjusted total assets, which would have been approximately $5.6
million above the minimum OTS requirement of 1.5% of adjusted total assets in
effect on that date had such requirement been applicable to the Bank on such
date. On a pro forma basis, after giving effect to the sale of the minimum,
midpoint and maximum number of shares of Common Stock offered in the Conversion
and investment of 50% of the net proceeds in assets not excluded for tangible
capital purposes (provided that the amount of net proceeds retained by the
Holding Company will be reduced to the extent required so that, upon the
completion of the transaction the Bank will have at least 10% tangible capital),
Ben Franklin would have had tangible capital equal to 10.0%, 10.0% and 10.3%,
respectively, of adjusted total assets at December 31, 1997, which is $10.9
million, $10.9 million and $11.3 million, respectively, above the requirement.
The capital standards also require core capital equal to at least 3% of
adjusted total assets. Core capital generally consists of tangible capital plus
certain intangible assets, including a limited amount of purchased credit card
relationships. As a result of the prompt corrective action provisions discussed
below, however, a savings bank must maintain a core capital ratio of at least 4%
to be considered adequately capitalized unless its supervisory condition is such
to allow it to maintain a 3% ratio. At December 31, 1997, Ben Franklin had no
intangibles which were subject to these tests.
At December 31, 1997, Ben Franklin had core capital equal to $7.4
million, or 6.1% of adjusted total assets, which would have been $3.8 million
above the minimum leverage ratio requirement of 3.0% as in effect on that date
had such requirement been applicable to the Bank on such date. On a pro forma
basis, after giving effect to the sale of the minimum, midpoint and maximum
number of shares of Common Stock offered in the Conversion and investment of 50%
of the net proceeds in assets not excluded from core capital, Ben Franklin would
have had core capital equal to 10.0%, 10.0% and 10.3%, respectively, of adjusted
total assets at December 31, 1997, which is $9.0 million, $9.0 million and $9.4
million, respectively, above the requirement.
The OTS risk-based requirement requires savings associations to have
total capital of at least 8% of risk-weighted assets. Total capital consists of
core capital, as defined above, and supplementary capital. Supplementary capital
consists of certain permanent and maturing capital instruments that do not
qualify as core capital and general valuation loan and lease loss allowances up
to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be used
to satisfy the risk-based requirement only to the extent of core capital. The
OTS is also authorized to require a savings association to maintain an
additional amount of total capital to account for concentration of credit risk
and the risk of non-traditional activities. At December 31, 1997, Ben Franklin
had $402,000 of allowance for loan losses that qualify as supplementary capital,
which was less than 1.25% of risk-weighted assets.
Certain exclusions from capital and assets are required to be made for
the purpose of calculating total capital. Such exclusions consist of equity
investments (as defined by regulation) and that portion of land loans and
nonresidential construction loans in excess of an 80% loan-to-value ratio and
reciprocal holdings of qualifying capital instruments. Ben Franklin had no such
exclusions from capital and assets at December 31, 1997.
In determining the amount of risk-weighted assets, all assets, including
certain off-balance sheet items, will be multiplied by a risk weight, ranging
from 0% to 100%, based on the risk inherent in the type of asset. For example,
the OTS has assigned a risk weight of 50% for prudently underwritten permanent
one- to four-family first lien mortgage loans not more than 90 days delinquent
and having a loan to value ratio of not more than 80% at origination unless
insured to such ratio by an insurer approved by the FNMA or FHLMC.
OTS regulations also require that every savings association with more
than normal interest rate risk exposure to deduct from its total capital, for
purposes of determining compliance with such requirement, an amount equal to 50%
of its interest-rate risk exposure multiplied by the present value of its
assets. This exposure is a measure of the potential decline in the net portfolio
value of a savings association, greater than 2% of the present value of its
assets, based upon a hypothetical 200 basis point increase or decrease in
interest rates (whichever results in a greater decline). Net portfolio value is
the present value of expected cash flows from assets, liabilities and
off-balance sheet contracts. The rule will not become effective until the OTS
evaluates the process by which savings associations may appeal an interest rate
risk deduction determination. It is uncertain as to when this evaluation may be
completed. Any savings association with less than $300 million in assets and a
total capital ratio in excess of 12% is exempt from this requirement unless the
OTS
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determines otherwise. Based upon its capital level and assets size at December
31, 1997, Ben Franklin is subject to these requirements; however the OTS has not
required implementation of this regulation.
On December 31, 1997, Ben Franklin had total capital of $7.8 million
(including $7.4 million in core capital and $402,000 in qualifying supplementary
capital) and risk-weighted assets of $69.7 million; or total capital of 11.2% of
risk-weighted assets. This amount would have been $2.3 million above the 8%
requirement in effect on that date had the requirement been applicable to the
Bank on such date. On a pro forma basis, after giving effect to the sale of the
minimum, midpoint and maximum number of shares of Common Stock offered in the
Conversion, the infusion to Ben Franklin of $6.8 million, $7.1 million and $7.8
million at the minimum, midpoint, and maximum, respectively, of the net
Conversion proceeds and the investment of those proceeds to Ben Franklin in 20%
risk-weighted government securities, Ben Franklin would have had total capital
of 18.7%, 18.7% and 19.2%, respectively, of risk-weighted assets, which is above
the current 8% requirement by $7.6 million, $7.6 million and $8.0 million,
respectively.
The OTS and the FDIC are authorized and, under certain circumstances
required, to take certain actions against savings associations that fail to meet
their capital requirements. The OTS is generally required to take action to
restrict the activities of an "undercapitalized association" (generally defined
to be one with less than either a 4% core capital ratio, a 4% Tier 1
risked-based capital ratio or an 8% risk-based capital ratio). Any such
association must submit a capital restoration plan and until such plan is
approved by the OTS may not increase its assets, acquire another institution,
establish a branch or engage in any new activities, and generally may not make
capital distributions. The OTS is authorized to impose the additional
restrictions that are applicable to significantly undercapitalized associations.
As a condition to the approval of the capital restoration plan, any
company controlling an undercapitalized association must agree that it will
enter into a limited capital maintenance guarantee with respect to the
institution's achievement of its capital requirements.
Any savings association that fails to comply with its capital plan or is
"significantly undercapitalized" (i.e., Tier 1 risk-based or core capital ratios
of less than 3% or a risk-based capital ratio of less than 6%) must be made
subject to one or more of additional specified actions and operating
restrictions which may cover all aspects of its operations and include a forced
merger or acquisition of the association. An association that becomes
"critically undercapitalized" (i.e., a tangible capital ratio of 2% or less) is
subject to further mandatory restrictions on its activities in addition to those
applicable to significantly undercapitalized associations. In addition, the OTS
must appoint a receiver (or conservator with the concurrence of the FDIC) for a
savings association, with certain limited exceptions, within 90 days after it
becomes critically undercapitalized. Any undercapitalized association is also
subject to the general enforcement authority of the OTS and the FDIC, including
the appointment of a conservator or a receiver.
The OTS is also generally authorized to reclassify an association into a
lower capital category and impose the restrictions applicable to such category
if the institution is engaged in unsafe or unsound practices or is in an unsafe
or unsound condition.
The imposition by the OTS or the FDIC of any of these measures on Ben
Franklin may have a substantial adverse effect on Ben Franklin's operations and
profitability and the value of the Common Stock purchased in the Conversion.
Holding Company stockholders do not have preemptive rights, and therefore, if
the Holding Company is directed by the OTS or the FDIC to issue additional
shares of Common Stock, such issuance may result in the dilution in the
percentage of ownership of the Holding Company of those persons purchasing
shares in the Conversion.
Limitations on Dividends and Other Capital Distributions
OTS regulations impose various restrictions on savings associations with
respect to their ability to make distributions of capital, which include
dividends, stock redemptions or repurchases, cash-out mergers and other
transactions charged to the capital account. OTS regulations also prohibit a
savings association from declaring or paying any dividends or from repurchasing
any of its stock if, as a result, the regulatory capital of the association
would be reduced below the amount required to be maintained for the liquidation
account established in connection with its mutual to stock conversion. See "The
Conversion - Effects of Conversion to Stock Form on Depositors and Borrowers of
the Bank" and "- Restrictions on Repurchase of Stock."
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Generally, savings banks, such as Ben Franklin, that before and after the
proposed distribution meet their capital requirements, may make capital
distributions during any calendar year equal to the greater of 100% of net
income for the year-to-date plus 50% of the amount by which the lesser of the
association's tangible, core or risk-based capital exceeds its capital
requirement for such capital component, as measured at the beginning of the
calendar year, or 75% of its net income for the most recent four quarter period.
However, an association deemed to be in need of more than normal supervision by
the OTS may have its dividend authority restricted by the OTS. Ben Franklin may
pay dividends in accordance with this general authority.
Savings associations proposing to make any capital distribution need only
submit written notice to the OTS 30 days prior to such distribution. Savings
associations that do not, or would not meet their current minimum capital
requirements following a proposed capital distribution, however, must obtain OTS
approval prior to making such distribution. The OTS may object to the
distribution during that 30-day period notice based on safety and soundness
concerns. See "- Regulatory Capital Requirements."
The OTS has proposed regulations that would revise the current capital
distribution restrictions. Under the proposal a savings association that is a
subsidiary of a holding company may make a capital distribution with notice to
the OTS provided that it has a CAMEL 1 or 2 rating, is not of supervisory
concern, and would remain adequately capitalized (as defined in the OTS prompt
corrective action regulations) following the proposed distribution. Savings
associations that would remain adequately capitalized following the proposed
distribution but do not meet the other noted requirements must notify the OTS 30
days prior to declaring a capital distribution. The OTS stated it will generally
regard as permissible that amount of capital distributions that do not exceed
50% of the institution's excess regulatory capital plus net income to date
during the calendar year. A savings association may not make a capital
distribution without prior approval of the OTS and the FDIC if it is
undercapitalized before, or as a result of, such a distribution. As under the
current rule, the OTS may object to a capital distribution if it would
constitute an unsafe or unsound practice. No assurance may be given as to
whether or in what form the regulations may be adopted.
Liquidity
All savings associations, including Ben Franklin, are required to
maintain an average daily balance of liquid assets equal to a certain percentage
of the sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. For a discussion of what Ben Franklin
includes in liquid assets, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources." This liquid asset ratio requirement may vary from time to time
(between 4% and 10%) depending upon economic conditions and savings flows of all
savings associations. At the present time, the minimum liquid asset ratio is 4%.
Penalties may be imposed upon associations for violations of the liquid
asset ratio requirement. At December 31, 1997, Ben Franklin would have been in
compliance with this requirement, with an overall liquid asset ratio of 21.02%
had this requirement been applicable.
Accounting
An OTS policy statement applicable to all savings associations clarifies
and re-emphasizes that the investment activities of a savings association must
be in compliance with approved and documented investment policies and
strategies, and must be accounted for in accordance with GAAP. Under the policy
statement, management must support its classification of and accounting for
loans and securities (i.e., whether held-to-maturity, available-for-sale or
trading) with appropriate documentation. Ben Franklin is in compliance with
these amended rules.
OTS regulations, which may be made more stringent than GAAP by the OTS,
require that transactions be reported in a manner that best reflects their
underlying economic substance and inherent risk and that financial reports must
incorporate any other accounting regulations or orders prescribed by the OTS.
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Qualified Thrift Lender Test
Ben Franklin is required to meet a qualified thrift lender ("QTL") test
to avoid certain restrictions on their operations. This test requires a savings
association to have at least 65% of its portfolio assets (as defined by
regulation) in qualified thrift investments on a monthly average for nine out of
every 12 months on a rolling basis. As an alternative, the savings association
may maintain 60% of its assets in those assets specified in Section 7701(a)(19)
of the Internal Revenue Code. Under either test, such assets primarily consist
of residential housing related loans and investments. At December 31, 1997, Ben
Franklin would have met the test with 97.0% of its portfolio assets in qualified
thrift investments.
Any savings association that fails to meet the QTL test must convert to a
commercial bank charter, unless it requalifies as a QTL and thereafter remains a
QTL. If an association does not requalify and converts to a national bank
charter, it must remain SAIF-insured until the FDIC permits it to transfer to
the BIF. If such an association has not yet requalified or converted to a
national bank, its new investments and activities are limited to those
permissible for both a savings association and a national bank, and it is
limited to national bank branching rights in its home state. In addition, the
association is immediately ineligible to receive any new FHLB borrowings and is
subject to national bank limits for payment of dividends. If such association
has not requalified or converted to a national bank within three years after the
failure, it must divest of all investments and cease all activities not
permissible for a national bank. In addition, it must repay promptly any
outstanding FHLB borrowings, which may result in prepayment penalties. If any
association that fails the QTL test is controlled by a holding company, then
within one year after the failure, the holding company must register as a bank
holding company and become subject to all restrictions on bank holding
companies. See "- Holding Company Regulation."
Community Reinvestment Act
Under the Community Reinvestment Act ("CRA"), every FDIC insured
institution has a continuing and affirmative obligation consistent with safe and
sound banking practices to help meet the credit needs of its entire community,
including low and moderate income neighborhoods. The CRA does not establish
specific lending requirements or programs for financial institutions nor does it
limit an institution's discretion to develop the types of products and services
that it believes are best suited to its particular community, consistent with
the CRA. The CRA requires the OTS, in connection with the examination of Ben
Franklin, to assess the institution's record of meeting the credit needs of its
community and to take such record into account in its evaluation of certain
applications, such as a merger or the establishment of a branch, by Ben
Franklin. An unsatisfactory rating may be used as the basis for the denial of an
application by the OTS.
The federal banking agencies, including the OTS, have recently revised
the CRA regulations and the methodology for determining an institution's
compliance with the CRA. Due to the heightened attention being given to the CRA
in the past few years, Ben Franklin may be required to devote additional funds
for investment and lending in its local community. Ben Franklin was examined for
CRA compliance by the FDIC in January 1996 and received a rating of
satisfactory.
Transactions with Affiliates
Generally, transactions between a savings association or its subsidiaries
and its affiliates are required to be on terms as favorable to the association
as transactions with non-affiliates. In addition, certain of these transactions,
such as loans to an affiliate, are restricted to a percentage of the
association's capital. Affiliates of Ben Franklin include the Holding Company
and any company which is under common control with Ben Franklin. In addition, a
savings association may not lend to any affiliate engaged in activities not
permissible for a bank holding company or acquire the securities of most
affiliates.
Certain transactions with directors, officers or controlling persons are
also subject to conflict of interest regulations enforced by the OTS. These
conflict of interest regulations and other statutes also impose restrictions on
loans to such persons and their related interests. Among other things, such
loans must be made on terms substantially the same as for loans to unaffiliated
individuals.
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Holding Company Regulation
The Holding Company will be a unitary savings and loan holding company
subject to regulatory oversight by the OTS. As such, the Holding Company is
required to register and file reports with the OTS and is subject to regulation
and examination by the OTS. In addition, the OTS has enforcement authority over
the Holding Company and its non-savings association subsidiaries which also
permits the OTS to restrict or prohibit activities that are determined to be a
serious risk to the subsidiary savings association.
As a unitary savings and loan holding company, the Holding Company
generally is not subject to activity restrictions. If the Holding Company
acquires control of another savings association as a separate subsidiary, it
would become a multiple savings and loan holding company, and the activities of
the Holding Company and any of its subsidiaries (other than Ben Franklin or any
other SAIF-insured savings association) would become subject to such
restrictions unless such other associations each qualify as a QTL and were
acquired in a supervisory acquisition.
If Ben Franklin fails the QTL test, the Holding Company must obtain the
approval of the OTS prior to continuing after such failure, directly or through
its other subsidiaries, any business activity other than those approved for
multiple savings and loan holding companies or their subsidiaries. In addition,
within one year of such failure the Holding Company must register as, and will
become subject to, the restrictions applicable to bank holding companies. The
activities authorized for a bank holding company are more limited than are the
activities authorized for a unitary or multiple savings and loan holding
company. See "- Qualified Thrift Lender Test."
The Holding Company must obtain approval from the OTS before acquiring
control of any other SAIF-insured association. Such acquisitions are generally
prohibited if they result in a multiple savings and loan holding company
controlling savings associations in more than one state. However, such
interstate acquisitions are permitted based on specific state authorization or
in a supervisory acquisition of a failing savings association.
Federal Securities Law
The stock of the Holding Company is registered with the SEC under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Holding
Company is subject to the information, proxy solicitation, insider trading
restrictions and other requirements of the SEC under the Exchange Act.
Holding Company stock held by persons who are affiliates (generally
officers, directors and principal stockholders) of the Holding Company may not
be resold without registration or unless sold in accordance with certain resale
restrictions. If the Holding Company meets specified current public information
requirements, each affiliate of the Holding Company is able to sell in the
public market, without registration, a limited number of shares in any
three-month period.
Federal Reserve System
The Federal Reserve Board requires all depository institutions to
maintain non-interest bearing reserves at specified levels against their
transaction accounts (primarily checking, NOW and Super NOW checking accounts).
At December 31, 1997, Ben Franklin was in compliance with these reserve
requirements. The balances maintained to meet the reserve requirements imposed
by the Federal Reserve Board may be used to satisfy liquidity requirements that
may be imposed by the OTS. See "- Liquidity."
Savings associations are authorized to borrow from the Federal Reserve
Board "discount window," but Federal Reserve Board regulations require
associations to exhaust other reasonable alternative sources of funds, including
FHLB borrowings, before borrowing from the Federal Reserve Association.
Federal Home Loan Bank System
Ben Franklin is a member of the FHLB of Chicago, which is one of 12
regional FHLBs, that administers the home financing credit function of savings
associations. Each FHLB serves as a reserve or central bank for its members
within
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its assigned region. It is funded primarily from proceeds derived from the sale
of consolidated obligations of the FHLB System. It makes loans to members (i.e.,
advances) in accordance with policies and procedures, established by the board
of directors of the FHLB, which are subject to the oversight of the Federal
Housing Finance Board. All advances from the FHLB are required to be fully
secured by sufficient collateral as determined by the FHLB. In addition, all
long-term advances are required to provide funds for residential home financing.
As a member, Ben Franklin is required to purchase and maintain stock in
the FHLB of Chicago. At December 31, 1997, Ben Franklin had $944,000 in FHLB
stock, which was in compliance with this requirement. In past years, Ben
Franklin has received substantial dividends on its FHLB stock. Over the past
five calendar years such dividends have averaged 6.1%% and were 6.2% for
calendar year 1997. As a result of their holdings, the Bank could borrow up to
$42.9 million from the FHLB.
Under federal law the FHLBs are required to provide funds for the
resolution of troubled savings associations and to contribute to low- and
moderately priced housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate-income housing
projects. These contributions have affected adversely the level of FHLB
dividends paid and could continue to do so in the future. These contributions
could also have an adverse effect on the value of FHLB stock in the future. A
reduction in value of Ben Franklin's FHLB stock may result in a corresponding
reduction in Ben Franklin's capital.
For the year ended December 31, 1997, dividends paid by the FHLB of
Chicago to Ben Franklin totaled $73,000, which constitute a $5,000 increase from
the amount of dividends received in calendar year 1996.
Federal and State Taxation
Federal Taxation. In August 1996, legislation was enacted that repeals
the percentage of taxable income method of accounting used by many thrifts to
calculate their bad debt reserve for federal income tax purposes. As a result,
small thrifts such as the Bank must recapture that portion of the reserve that
exceeds the amount that could have been taken under the experience method for
post-1987 tax years. The legislation also requires thrifts to account for bad
debts for federal income tax purposes on the same basis as commercial banks for
tax years beginning after December 31, 1995. This change will require the
payment of a $280,000 deferred tax liability payable over a six-year period
beginning in 1998.
In addition to the regular income tax, corporations, including savings
associations such as Ben Franklin, generally are subject to a minimum tax. An
alternative minimum tax is imposed at a minimum tax rate of 20% on alternative
minimum taxable income, which is the sum of a corporation's regular taxable
income (with certain adjustments) and tax preference items, less any available
exemption. The alternative minimum tax is imposed to the extent it exceeds the
corporation's regular income tax and net operating losses can offset no more
than 90% of alternative minimum taxable income.
Ben Franklin currently maintains a tax bad debt reserve in excess of its
base year bad debt balance. The base year bad debt reserve balance is an amount
equal to the amount the tax bad debt reserves on December 31, 1987, or $385,000.
Ben Franklin can only make cash dividends or other distributions (including
distributions in redemption, dissolution or liquidation) to shareholders from
accumulated earnings to the extent the accumulated earnings exceed the base year
amount without adverse tax consequences.
Ben Franklin files its federal and Illinois income tax returns on a
calendar year basis using the accrual method of accounting. The Holding Company
may elect to file a consolidated federal income tax return with Ben Franklin.
Ben Franklin was audited by the IRS with respect to consolidated federal
income tax returns in 1994, 1995 and 1996. With respect to years examined by the
IRS, all deficiencies have been satisfied.
Illinois Taxation. For Illinois income tax purposes, the Bank is taxed at
an effective rate equal to 7.18% of Illinois taxable income. For these purposes,
"Illinois Taxable Income" generally means federal taxable income, subject
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to certain adjustments (including the addition of interest income on state and
municipal obligations and the exclusion of interest income on United States
Treasury obligations).
Delaware Taxation. As a Delaware holding company, the Holding Company is
exempted from Delaware corporate income tax but is required to file an annual
report with and pay an annual fee to the State of Delaware. The Holding Company
is also subject to an annual franchise tax imposed by the State of Delaware.
MANAGEMENT
Directors and Executive Officers of the Holding Company and of the Bank
Directors and Executive Officers of the Holding Company. The Board of
Directors of the Holding Company currently consists of seven members. The
directors of the Holding Company are currently comprised of the directors of the
Bank. See "- Board of Directors of the Bank." Directors of the Holding Company
will serve three-year staggered terms so that one-third of the directors will be
elected at each annual meeting of stockholders. The terms of the current
directors of the Holding Company are the same as that of the Bank's board. The
Holding Company does not intend to pay directors a fee for board service.
The executive officers of the Holding Company are elected annually and
hold office until their respective successors have been elected and qualified or
until death, resignation or removal by the Board of Directors. The following
table sets forth information regarding executive officers of the Holding
Company. Each executive officer of the Holding Company has held his or her
position since the incorporation of the Holding Company.
Name Title
- ------------------- ---------------------------------------------------------
Joseph J. Gasior Chairman of the Board
Ronald P. Pedersen President and Chief Executive Officer
V. Ted Stutzman Executive Vice-President and Chief Lending Officer
Roger E. Meyers Vice President and Chief Operating Officer
Edward J. Luzwick Secretary
Michael F. Barrett Vice President and Chief Financial and Accounting Officer
Karen A. Cericola Senior Vice President
The Holding Company does not initially intend to pay executive officers
any fees in addition to compensation payable to such persons as executive
officers of the Bank. For information regarding compensation of directors and
executive officers of the Bank, see "Management - Director Compensation" and "-
Executive Compensation."
Board of Directors of the Bank. Prior to the Conversion, the direction
and control of the Bank, as a mutual savings institution, was vested in its
Board of Directors. Upon conversion of the Bank to stock form, each of the
directors of the Bank will continue to serve as a director of the converted
Bank. The Board of Directors of the Bank currently consists of seven members.
Each Director of the Bank has served as such at least since 1992 except for
Robert DeCelles who was elected in 1996, Ronald P. Pedersen who was elected in
1997, and Bernadine Dziedzic who was elected in 1998. The directors serve
three-year staggered terms so that approximately one-third of the directors are
elected at each annual meeting of members. Because the Holding Company will own
all of the issued and outstanding shares of capital stock of the Bank after the
Conversion, directors of the Holding Company will elect the directors of the
Bank.
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The following table sets forth certain information regarding the
directors of the Bank.
<TABLE>
<CAPTION>
Director Term
Name Position(s) Held With the Bank Age(1) Since Expires
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Joseph Gasior Chairman of the Board 79 1962 2001
Ronald P. Pedersen President and Chief Executive Officer 57 1997 2001
Robert DeCelles Director 65 1996 2000
Bernadine Dziedzic Director and Secretary 58 1998 1999
Edward J. Luzwick Director and Treasurer 67 1962 2000
Joseph Nowicki Director 82 1992 1999
Charles E. Schuetz Director 75 1962 1999
</TABLE>
(1) At December 31, 1997.
The business experience of each director of the Holding Company and of
the Bank for at least the past five years is set forth below.
Joseph J. Gasior received a B.A. and a J.D. degree from the University of
Chicago. He was a part-time instructor in the field of Business Law at Wilson
Junior College, Chicago, Illinois, from 1946 to 1947 and was an attorney in
private practice from 1948 to 1953. Mr. Gasior served as a Director and
President of Ben Franklin Savings, a thrift institution in Oak Brook, Illinois
("Ben Franklin - Oak Brook") from 1953 to 1983 and is a past President of the
Polish-American Savings and Loan League. Mr. Gasior has been Chairman of the
Board and a salaried executive at the Bank since 1962. He is the father-in-law
of Director Robert E. DeCelles and the brother-in-law of Director Charles E.
Schuetz.
Ronald P. Pedersen, has been President and Chief Executive Officer of the
Bank since January 2, 1997. He previously served as President, Chief Executive
Officer and a member of the Board of Oxford Bank and Trust in Addison, Illinois
for eight years, and Director and senior lender at Aetna Bank of Chicago for
seven years. Mr. Pedersen has been an active member of the Sheshunoff
Affiliation President/Chief Executive Officer Roundtable Program and a faculty
staff member at the American Institution of Banking. He sat as a member of the
Legislative Review Committee of the Illinois Bankers Association and has
participated as a member of various bank associations over the years.
Robert E. DeCelles received his B.S. degree in Business Economics from
Loyola University of Chicago. His real estate experience began in 1969 and
encompasses high rise residential and commercial properties in Chicago, Boston
and Philadelphia. He has been involved in new construction projects in
Philadelphia and Telluride, Colorado. Most recently he has supervised high rise
residential condominium associations in Chicago's Lake Shore Drive and Gold
Coast areas totalling approximately 1400 apartment homes. He has been a member
of Apartment and Building Owners and Managers Association of Illinois (ABOMA)
since 1971; of the Institute of Real Estate Management since 1973; and was
awarded his certified property manager designation in 1974. He has been a member
of the ABOMA Labor Negotiation Group since 1974; and of the ABOMA Board of
Directors since 1976. He served as President of ABOMA from 1990 to 1992 and has
been Management Trustee of Local #1 Janitors Union Health and Pension Fund since
1993. Mr. DeCelles has been a Director of the Bank since 1996. He is the
son-in-law of Chairman of the Board Joseph J. Gasior.
Bernadine Dziedzic is the Secretary of the Bank. From 1957 to 1972 she
served as controller and a Director of Ben Franklin - Oak Brook. From 1972 to
1997, she was editor and chief operating officer for Chicago Law Book Co., a
major law book distributor; and a part-time paralegal for Mr. Gasior in his law
practice. She received a B.A. degree in Accounting and Economics from Mundelein
College (now Loyola University of Chicago), has successfully completed graduate
courses in taxation and book publishing, and is a graduate of the American
Savings and Loan Institute Graduate School of Executive Management at Indiana
University at Bloomington.
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Dr. Edward J. Luzwick, D.D.S. received his B.S. degree in Chemistry from
DePaul University of Chicago in 1956 and received his Doctor of Dental Surgery
degree from Loyola University of Chicago in 1960. He was an Associate Professor
of Operative Dentistry at Loyola University Dental School from 1960 to 1962. He
is a life member of the Chicago Dental Society, the American Dental Association
and the American Equilibration Society, a fellow of the American Academy of
General Dentistry since 1970, a fellow of the American Academy of Orthodontics
since 1977 and a charter member of the American Academy of Electrosurgery. Dr.
Luzwick has been a Director of the Bank since 1965; its Treasurer since 1978, a
member of its compensation committee since 1995, and its Dental Administrator
since 1997. Dr. Luzwick has been practicing general dentistry in Mt. Prospect
since 1960.
Joseph Nowicki has over 55 years experience as a real estate appraiser
and is the founder of Affiliated Appraisal Company, La Grange, Illinois. He
served as Assistant Vice President, Loan Department of First Federal Savings of
Chicago from 1938 to 1951; as Loan Manager for Chicago Federal Savings from 1952
to 1954; as President of the Chicago Chapter of Society of Real Estate
Appraisers ("SREA") from 1958 to 1959; as Chairman of the Appraisers Division of
the Chicago Real Estate Board from 1963 to 1964; and as Treasurer of the SREA
Market Data Center, Inc. from 1967 to 1969. He is an MAI appraiser, a member of
the American Institute of Real Estate Appraisers and has testified as an expert
valuation witness in the Circuit Courts of Cook, Lake and Du Page Counties. He
was a director of Ben Franklin - Oak Brook from 1978 to 1983 and has been a
director of the Bank since 1992. Mr. Nowicki had articles published in "The
Mortgage Banker," "American Builder" and "Real Estate Appraiser."
Charles E. Schuetz received a B.S. degree in Physics and Mathematics from
University of Chicago. He taught mathematics at the high school level in the
City of Chicago and Suburban school systems. He is the founder of Charles E.
Schuetz & Co; a builder of single-family residences and light commercial
buildings in Cook and in Du Page County, Illinois, and is a past President of
the Southside Builders Association, Chicago, Illinois. He has been a director of
the Bank since 1962. Mr. Schuetz is the brother-in-law of the Chairman of the
Board, Joseph J. Gasior.
Executive Officers of the Bank Who Are Not Directors. Each of the
executive officers of the Bank will retain his or her position in the converted
Bank. Officers are elected annually by the Board of Direcors of the Bank. The
business experience of the executive officers who are not also directors is set
forth below.
V. Ted Stutzman, age 62, has served as the Bank's Executive Vice
President and Chief Lending Officer since 1987. He joined the Bank in 1985 as
Senior Vice President and Chief Lending Officer. Prior to joining the Bank, Mr.
Stutzman served nine years as Senior Vice President and Retail Lender for Ben
Franklin - Oak Brook.
Roger E. Meyers, age 55, has been Vice President of the Bank since
October of 1980 and in that position has been responsible for all the accounting
and financial reporting for the Bank. In 1998, he was named Chief Operating
Officer. Prior to coming to the Bank, he was Senior Vice President and
Comptroller of Mid-America National Bank of Chicago where he was employed for 13
years.
Michael F. Barrett, age 42, is currently serving as the Chief Financial
and Accounting Officer of the Bank. He is responsible for managing and
overseeing the auditing, record keeping and accounting activities of the Bank.
Prior to joining the Bank in 1998, Mr. Barrett was Vice President & Controller
of Standard Federal Bank, a thrift institution located in the greater
southwestern Chicagoland area. Mr. Barrett holds a BA in Accounting from
Northeastern Illinois University, and an MBA in Finance from the Keller Graduate
School of Management. In addition, he is a Certified Public Accountant and a
Certified Financial Planner.
Karen J. Cericola, age 46, has served as the Bank's Senior Vice President
in charge of Consumer Lending and Loan Marketing since 1987. She joined Douglas
Savings Bank in 1985 as Vice President after having spent the prior five years
with Ben Franklin - Oak Brook, Mrs. Cericola has a BA from the University of
Illinois at Chicago Circle.
Indemnification
The Certificate of Incorporation of the Holding Company provides that a
director or officer of the Holding Company shall be indemnified by the Holding
Company to the fullest extent authorized by the General Corporation Law of the
State of Delaware against all expenses, liability and loss reasonably incurred
or suffered by such person in
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connection with his activities as a director or officer or as a director or
officer of another company, if the director or officer held such position at the
request of the Holding Company. Delaware law requires that such director,
officer, employee or agent, in order to be indemnified, must have acted in good
faith and in a manner reasonably believed to be not opposed to the best
interests of the Holding Company, and, with respect to any criminal action or
proceeding, did not have reasonable cause to believe his or her conduct was
unlawful.
The Certificate of Incorporation and Delaware law also provide that the
indemnification provisions of such Certificate and the statute are not exclusive
of any other right which a person seeking indemnification may have or later
acquire under any statute, provision of the Certificate of Incorporation, Bylaws
of the Holding Company, agreement, vote of stockholders or disinterested
directors or otherwise.
These provisions may have the effect of deterring shareholder derivative
actions, since the Holding Company may ultimately be responsible for expenses
for both parties to the action. A similar effect would not be expected for
third-party claims.
In addition, the Certificate of Incorporation and Delaware law also
provide that the Holding Company may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Holding
Company or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the Holding
Company has the power to indemnify such person against such expense, liability
or loss under the Delaware General Corporation Law. The Holding Company may
obtain such insurance.
Meetings and Committees of Board of Directors
The Holding Company. The Board of Directors of the Holding Company
recently established standing executive, audit and compensation committees.
These committees did not meet during fiscal 1997.
The Bank. The Bank's Board of Directors meets on a monthly basis. The
Board of Directors met 12 times during the year ended December 30, 1997. During
1997, no director of the Bank attended fewer than 75% of the aggregate of the
total number of Board meetings and the total number of meetings held by the
committees of the Board of Directors on which he or she served. The principal
standing committees of the Bank are the Audit, Compensation, Executive Loan,
Investment and Steering Committees.
The Audit Committee, comprised of Directors Luzwick and Schuetz, oversees
the Bank's audit policy and internal controls and reviews the financial
statements prepared by the Bank's independent auditors. The Audit Committee met
one time in 1997.
The Compensation Committee, comprised of Directors Gasior, DeCelles,
Luzwick, and Pedersen, oversees the Bank's compensation policies. In 1997 the
Compensation Committee met two times.
The Executive Loan Committee, comprised of Directors Gasior, Nowicki,
Schuetz and Pedersen, meets as necessary to consider applications for loans in
excess of $500,000. In 1997, the Executive Loan Committee met 2 times.
The Investment Committee is comprised of Directors Gasior and Pedersen,
who communicate telephonically throughout each month and report monthly to the
Board of Directors of the Bank.
The Steering Committee, comprised of Directors Gasior, DeCelles, Schuetz
and Pedersen, meets at the request of the Board to gather data or formulate
policy recommendations. In 1997 the Steering Committee met 2 times.
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Director Compensation
Directors of the Bank are paid a monthly attendance fee of $750 for
service on the Board of Directors and the Chairman is paid an annual salary of
$75,000. Directors receive an additional $250 for attendance at committee
meetings, except that no fees are typically paid with respect to the Investment
Committee.
Executive Compensation
The following table sets forth information concerning the compensation
accrued for services in all capacities to Ben Franklin for the fiscal year ended
December 31, 1997 for the Bank's President and Chief Executive Officer. No other
executive officer's aggregate annual compensation (salary plus bonus) exceeded
$100,000 in fiscal 1997.
<TABLE>
<CAPTION>
Summary Compensation Table
------------------------------------------------------------------------------------------------
Long Term Compensation
Annual Compensation(1) Awards
-------------------------------------------- -----------------------
Restricted
Name and Principal Other Annual Stock Options/ All Other
Position Year Salary($) Bonus($) Compensation($) Award($) SARs(#) Compensation($)
-------- ---- --------- -------- --------------- -------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ronald P. Pedersen 1997 $135,000 $ --- $8,250 N/A N/A $3,881(2)
President and Chief Executive
Officer
V. Ted Stutzman 1997 $80,850 $22,500 --- N/A N/A $2,999(2)
Executive Vice President and
Chief Lending Officer
</TABLE>
(1) In accordance with the transitional provisions applicable to the revised
rules on executive officer and director compensation disclosure adopted
by the SEC, as informally interpreted by the SEC's Staff, Summary
Compensation information is excluded for the fiscal years ended December
31, 1996 and 1995.
(2) Consists of contributions under Savings Incentive Matching Plan.
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Employment Agreement
The Holding Company intends to enter into an employment agreement with
President Pedersen providing for an initial term of three years. The employment
agreement will become effective upon completion of the Conversion and provide
for an annual base salary of $135,000 and a bonus based on a profit sharing
formula. The agreement provides for an annual extension, subject to the
performance of an annual evaluation by disinterested members of the Board of
Directors. The agreement also provides for termination upon the employee's
death, for cause or in certain events specified by OTS regulations. The
employment agreement is also terminable by the employee upon 90 days' notice to
the Holding Company.
In the event Mr. Pedersen is involuntarily terminated without cause, he
will receive his salary and insurance benefits for a period of nine months. In
addition, in the event employment involuntarily terminates in connection with a
" change in control" of the Holding Company or within twelve months thereafter,
the employment agreement provides for the payment to President Pedersen of an
amount equal to 299% of his five-year average annual base compensation. If the
employment of President Pedersen had been terminated as of December 31, 1997
under circumstances entitling him to a change in control severance payment as
described above, he would have been entitled to receive a lump sum cash payment
of approximately $424,580. The agreement also provides for the continued payment
to President Pedersen of health benefits for the remainder of the term of his
contract in the event he is terminated in connection with a change in control.
Supplemental Retirement Agreement
The Bank has entered into a non-qualified supplemental retirement
agreement (the "SERA") with Chairman of the Board Joseph J. Gasior to provide
him with an annual supplemental retirement benefit equal to fifty percent of his
final average annual compensation (as calculated over the final three years
before his retirement) for 12 years following his retirement as Chairman of the
Board of Directors.
The Bank may also establish an irrevocable grantor trust in connection
with the SERA. This trust will be funded with contributions from the Bank for
the purpose of providing the benefits promised thereunder. Under such
circumstances, Mr. Gasior would have only the rights of unsecured creditors with
respect to the trust's assets, and would not recognize income with respect to
benefits provided by the SERA until such benefits are received. The assets of
the grantor trust would be considered part of the general assets of the Bank and
would be subject to the claims of the Bank's creditors in the event of the
Bank's insolvency. Earnings on the trust's assets will be taxable to the Bank.
The trustee of the trust may invest the trust's assets in the Holding Company's
stock.
Benefit Plans
General. Ben Franklin Bank of Illinois currently provides insurance
benefits to its employees, including health and life insurance, subject to
certain deductibles and copayments.
During 1997, the Bank adopted a Savings Incentive Matching Plan for
Employees covering substantially all employees. Participants may elect to make
tax deferred contributions to the plan in amounts of up to $6,000 per calendar
year. Annually, the Bank makes dollar for dollar matching contributions based on
amounts contributed by participants up to a maximum of 3% of compensation per
participant. The Bank made contributions under this Plan totaling $16,000 during
1997.
Director Emeritus Plan. The Bank has adopted a Director Emeritus Plan
providing that, upon retirement from the board after age 59 or upon death or
disability while serving as director, each non-employee director qualifying as
director emeritus would be paid an annual benefit for a period of 10 years equal
to (i) 40% of the total amount of board and committee fees paid to him for his
last 12 months of service as a director (the "Final 12 Months Fees") plus (ii)
5% of the Final 12 Months Fees for each full or partial year of service as a
director; provided, that the total annual benefit shall not exceed the Final 12
Months Fees. Only directors with five or more years of service qualify for
participation in this plan.
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The Bank may determine to establish an irrevocable grantor trust in
connection with this plan similar to the trust which may be established in
connection with the SERA as described above.
Employee Stock Ownership Plan. The Boards of Directors of Ben Franklin
and the Holding Company have approved the adoption of an ESOP for the benefit of
employees of the Bank. The ESOP is also designed to meet the requirements of an
employee stock ownership plan as described at Section 4975(e)(7) of the Code and
Section 407(d)(6) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and, as such, the ESOP is empowered to borrow in order to
finance purchases of the Common Stock.
It is anticipated that the ESOP will be funded with a loan from the
Holding Company (not to exceed an amount equal to 8% of the gross Conversion
proceeds). The interest rate of the ESOP loan will be equal to the applicable
federal interest rate as determined by the Internal Revenue Service for the
month in which the loan is made, as calculated pursuant to Section 1274(d) of
the Code. As of December 31, 1997, such interest rate was ________% per year.
GAAP generally requires that any borrowing by the ESOP from an
unaffiliated lender be reflected as a liability in the Holding Company's
Financial Statements, whether or not such borrowing is guaranteed by, or
constitutes a legally binding contribution commitment of, the Holding Company or
the Bank. The funds used to acquire the ESOP shares will be borrowed from the
Holding Company. Since the Holding Company will finance the ESOP debt, the ESOP
debt will be eliminated through consolidation and no liability will be reflected
on the Holding Company's financial statements. In addition, shares purchased
with borrowed funds will, to the extent of the borrowings, be excluded from
stockholders' equity, representing unearned compensation to employees for future
services not yet performed. Consequently, if the ESOP purchases already-issued
shares in the open market, the Holding Company's consolidated liabilities will
increase to the extent of the ESOP's borrowings, and total and per share
stockholders' equity will be reduced to reflect such borrowings. If the ESOP
purchases newly issued shares from the Holding Company, total stockholders'
equity would neither increase nor decrease, but per share stockholders' equity
and per share net income would decrease because of the increase in the number of
outstanding shares. In either case, as the borrowings used to fund ESOP
purchases are repaid, total stockholders' equity will correspondingly increase.
All employees of the Bank are eligible to participate in the ESOP after
they attain age 21 and complete one year of service. The Bank's contribution to
the ESOP is allocated among participants on the basis of their relative
compensation. Each participant's account will be credited with cash and shares
of Holding Company Common Stock based upon compensation earned during the year
with respect to which the contribution is made. Contributions credited to a
participant's account become fully vested upon such participant's completing
five years of service. Credit will be given for prior years of service for
vesting purposes. ESOP participants are entitled to receive distributions from
their ESOP accounts only upon termination of service. Distributions will be made
in cash and in whole shares of the Holding Company's Common Stock. Fractional
shares will be paid in cash. Participants will not incur a tax liability until a
distribution is made.
Each participating employee is entitled to instruct the trustee of the
ESOP as to how to vote the shares allocated to his or her account. The trustee
will not be affiliated with the Holding Company or Ben Franklin.
The ESOP may be amended by the Board of Directors, except that no
amendment may be made which would reduce the interest of any participant in the
ESOP trust fund or divert any of the assets of the ESOP trust fund for purposes
other than the benefit of participants or their beneficiaries.
Stock Option and Incentive Plan. Among the benefits to the Bank
anticipated from the Conversion is the ability to attract and retain personnel
through the prudent use of stock options and other stock-related incentive
programs. The Board of Directors of the Holding Company intends to adopt a Stock
Option and Incentive Plan (the "Stock Option Plan"), subject to ratification by
stockholders of the Holding Company at a meeting to be held not earlier than six
months after completion of the Conversion. Under the terms of the proposed Stock
Option Plan, stock options covering shares representing an aggregate of up to
10% of the shares of Common Stock issued in the Conversion may be granted to
directors, officers and employees of the Holding Company or its subsidiaries
under the Stock Option Plan.
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Options granted under the Stock Option Plan may be either options that
qualify under the Code as "incentive stock options" (options that afford
preferable tax treatment to recipients upon compliance with certain restrictions
and that do not normally result in tax deductions to the employer) or options
that do not so qualify. The exercise price of stock options granted under the
Stock Option Plan is required to be at least equal to the fair market value per
share of the stock on the date of grant. All grants are made in consideration of
past and future services rendered to the Bank, and in an amount deemed necessary
to encourage the continued retention of the officers and directors who are
considered necessary for the continued success of the Bank. In this regard, all
options are intended to vest in five equal annual installments commencing one
year from the date of grant, subject to the continued service of the holder of
such option.
The proposed Stock Option Plan provides for the grant of stock
appreciation rights ("SARs") at any time, whether or not the participant then
holds stock options, granting the right to receive the excess of the market
value of the shares represented by the SARs on the date exercised over the
exercise price. SARs generally will be subject to the same terms and conditions
and exercisable to the same extent as stock options.
Limited SARs may be granted at the time of, and must be related to, the
grant of a stock option or SAR. The exercise of one will reduce to that extent
the number of shares represented by the other. Limited SARs will be exercisable
only for the 45 days following the expiration of the tender or exchange offer,
during which period the related stock option or SAR will be exercisable.
However, no SAR or Limited SAR will be exercisable by a 10% beneficial owner,
director or senior officer within six months of the date of its grant. The
Holding Company has no present intention to grant any SARs or Limited SARs.
The proposed Stock Option Plan will be administered by Stock Plan
Committee of the Holding Company which will consist of at least two
disinterested directors. The Stock Plan Committee will select the recipients and
terms of awards made pursuant to the Stock Option Plan. OTS regulations limit
the amount of shares that may be awarded pursuant to stock-based plans to each
individual officer, each non-employee director and all non-employee directors as
a group to 25%, 5% and 30%, respectively, of the total shares reserved for
issuance under each such stock-based plan.
The Committee currently intends to grant options in amounts expressed as
a percentage of the shares issued in the Conversion, as follows: to each of the
Chairman of the Board and the President - 2.5% and to all executive officers as
a group (5 persons) 6.2%. In addition, under the terms of the Stock Option Plan,
each non-employee director of the Holding Company at the time of stockholder
ratification of the Stock Option Plan will be granted an option to purchase
shares of Common Stock equal to .5% of the shares sold in the Conversion. The
remaining balance of the available awards is unallocated and reserved for future
use. All options will expire 10 years after the date such option was granted,
which, for the option grants listed above, is expected to be the date of
stockholder ratification of the Stock Option Plan. All proposed option grants to
officers are subject to modification by the Stock Plan Committee based upon its
performance evaluation of the option recipients at the time of stockholder
ratification of the Stock Option Plan following completion of the Conversion.
After stockholder ratification, the Stock Option Plan will be funded
either with shares purchased in the open market or with authorized but unissued
shares of Common Stock. The use of authorized but unissued shares to fund the
Stock Option Plan could dilute the holdings of stockholders who purchased Common
Stock in the Conversion. See "Pro Forma Data." In no event will the Stock Option
Plan acquire an amount of shares, which, in the aggregate, represent more than
10% of the shares issued in the Conversion.
Under SEC regulations, so long as certain criteria are met, an optionee
may be able to exercise the option at the Purchase Price and immediately sell
the underlying shares at the then-current market price without incurring
short-swing profit liability. This ability to exercise and immediately resell,
which under the SEC regulations applies to stock option plans in general, allows
the optionee to realize the benefit of an increase in the market price for the
stock without the market risk which would be associated with a required holding
period for the stock after payment of the exercise price. Under SEC regulations,
the short-swing liability period now runs for six months before and after the
option grant. All grants are subject to ratification of the Stock Option Plan by
stockholders of the Holding Company following completion of the Conversion.
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Recognition and Retention Plan. The Holding Company intends to establish
the RRP in order to provide employees with a proprietary interest in the Holding
Company in a manner designed to encourage such persons to remain with the
Holding Company and the Bank. The RRP will be subject to ratification by
stockholders at a meeting to be held not earlier than six months after the
completion of the Conversion. The Holding Company will contribute funds to the
RRP to enable it to acquire in the open market or from authorized but unissued
shares (with the decision between open market or authorized but unissued shares
based on the Holding Company's future stock price, alternate investment
opportunities and capital needs), following stockholder ratification of such
plan, an amount of stock equal to 4% of the shares of Common Stock issued in the
Conversion.
The Stock Plan Committee of the Board of Directors of the Holding Company
will administer the proposed RRP. Under the terms of the proposed RRP, awards
("Awards") can be granted to key employees without payment by such persons in
the form of shares of Common Stock held by the RRP. Awards are non-transferable
and non-assignable. OTS regulations limit the amount of shares that may be
awarded pursuant to stock-based plans to each individual officer, each
non-employee director and all non-employee directors as a group to 25%, 5% and
30%, respectively, of the total shares reserved for issuance under each such
stock-based plan.
Recipients will earn (i.e., become vested in), over a period of time, the
shares of Common Stock covered by the Award. Awards made pursuant to the RRP
will vest in five equal annual installments commencing one year from the date of
grant. Awards will be 100% vested upon termination of employment due to death or
disability. When shares become vested and are actually distributed in accordance
with the RRP, but in no event prior to such time, the participants will also
receive amounts equal to any accrued dividends with respect thereto. Earned
shares are distributed to recipients as soon as practicable following the date
on which they are earned.
The Stock Plan Committee presently intends to grant restricted stock
awards without cost to the recipients in amounts expressed as a percentage of
the shares sold in the Conversion, as follows: to Messrs. Gasior and Pedersen -
1.0%, and to all executive officers as a group (5 persons) - 2.5%. Pursuant to
the terms of the proposed RRP, each non-employee director of the Holding Company
at the time of stockholder ratification of the RRP will be awarded an amount of
shares equal to .2% of the shares sold in the Conversion. All proposed RRP
awards to officers of the Bank are subject to modification by the Stock Plan
Committee based upon its performance evaluation of the award recipients at the
time of stockholder ratification of the RRP following completion of the
Conversion.
After stockholder ratification, the RRP will be funded either with shares
purchased in the open market or with authorized but unissued shares of Common
Stock issued to the RRP by the Holding Company. The use of authorized but
unissued shares to fund the RRP could dilute the holdings of stockholders who
had purchased Common Stock in the Conversion. In the event the RRP purchases
stock in the open market at prices above the initial Purchase Price, the total
RRP expense may be above that disclosed under the caption "Pro Forma Data." In
no event will the RRP acquire an amount of shares which, in the aggregate,
represent more than 4% of the shares issued in the Conversion.
Certain Transactions
The Bank follows a policy of granting loans to the Bank's directors,
officers and employees. The loans to executive officers and directors are made
in the ordinary course of business and on the same terms and conditions as those
of comparable transactions prevailing at the time, in accordance with the Bank's
underwriting guidelines and do not involve more than the normal risk of
collectibility or present other unfavorable features. Loans to all directors and
executive officers and their associates, including outstanding balances and
commitments totaled $40,000 at December 31, 1997, which was .51% of the Bank's
retained earnings at that date.
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THE CONVERSION
The Board of Directors of the Bank and the OTS have approved the Plan of
Conversion. OTS approval does not constitute a recommendation or endorsement of
the Plan of Conversion. Certain terms used in the following summary of the
material terms of the Conversion are defined in the Plan of Conversion, a copy
of which may be obtained by contacting Ben Franklin.
General
The Board of Directors of the Bank unanimously adopted the Plan, subject
to approval by the OTS and the members of the Bank. Pursuant to the Plan, the
Bank will convert from a federally chartered mutual savings loan and Bank to a
federally chartered stock savings bank, with the concurrent formation of a
holding company.
The Conversion will be accomplished through amendment of the Bank's
federal charter to authorize capital stock, at which time the Bank will become a
wholly owned subsidiary of the Holding Company. The Conversion will be accounted
for as a pooling of interests.
Subscription Rights have been granted to the Eligible Account Holders as
of January 31, 1997, Tax-Qualified Employee Plans of the Bank and Holding
Company, Supplemental Eligible Account Holders as of _________, 1998, Other
Members, and directors, officers, and employees of the Bank. Additionally,
subject to the availability of shares and market conditions at or near the
completion of the Subscription Offering, the Common Stock may be offered for
sale in a Public Offering and Direct Community Offering to selected persons on a
best-efforts basis through FBR. See "- Offering of Holding Company Common
Stock." Subscriptions for shares will be subject to the maximum and minimum
purchase limitations set forth in the Plan of Conversion.
Business Purposes
Ben Franklin has several business purposes for the Conversion. The sale
of Holding Company Common Stock will have the immediate result of providing the
Bank with additional equity capital in order to support the expansion of its
existing operations, subject to market conditions. See "Business." The sale of
the Common Stock is the most effective means of increasing the Bank's permanent
capital and does not involve the high interest cost and repayment obligation of
subordinated debt. In addition, investment of that part of the net Conversion
proceeds paid by the Holding Company to the Bank is expected to provide
additional operating income to further increase the Bank's capital on a
continuing basis.
The Board of Directors of the Bank believes that a holding company
structure could facilitate the acquisition of both mutual and stock savings
institutions in the future as well as other companies. If a multiple holding
company structure is utilized in a future acquisition, the acquired savings
institution would be able to operate on a more autonomous basis as a wholly
owned subsidiary of the Holding Company rather than as a division of the Bank.
For example, the acquired savings institution could retain its own directors,
officers and corporate name as well as having representation on the Board of
Directors of the Holding Company. As of the date hereof, there are no plans or
understandings regarding the acquisition of any other institutions.
The Board of Directors of the Bank also believes that a holding company
structure can facilitate the diversification of the Bank's business activities.
While diversification will be maximized if a unitary holding company structure
is utilized because the types of business activities permitted to a unitary
holding company are broader than those of a multiple holding company, either
type of holding company may engage in a broader range of activities than may a
thrift institution directly. Currently, there are no plans that the Holding
Company engage in any material activities apart from holding the shares of the
Bank and investing the remaining net proceeds from the sale of Common Stock in
the Conversion.
The preferred stock and additional common stock of the Holding Company
being authorized in the Conversion will be available for future acquisitions and
for issuance and sale to raise additional equity capital, generally without
stockholder approval or ratification, but subject to market conditions. Although
the Holding Company currently has
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no plans with respect to future issuances of equity securities, the more
flexible operating structure provided by the Holding Company and the stock form
of ownership is expected to assist the Bank in competing more aggressively with
other financial institutions in its principal market area.
The Conversion will structure the Bank in the stock form used in the
United States by all commercial banks, most major business corporations and an
increasing number of savings institutions. The Conversion will permit the Bank's
members to become stockholders of the Holding Company, thereby allowing members
to own stock in the financial organization in which they maintain deposit
accounts or with which they have a borrowing relationship. Such ownership should
encourage stockholders to promote the Bank to potential customers, thereby
further contributing to the Bank's earnings potential.
The Bank is also expected to benefit from its management and employees
owning stock, because stock ownership is viewed as an effective performance
incentive and a means of attracting, retaining and compensating personnel.
Effects of Conversion to Stock Form on Depositors and Borrowers of the Bank
Voting Rights. Deposit account holders will have no voting rights in the
converted Bank or the Holding Company and will therefore not be able to elect
directors of either entity or to control their affairs. These rights are
currently accorded to deposit account holders with regard to the Bank.
Subsequent to Conversion, voting rights will be vested exclusively in the
Holding Company as the sole stockholder of the Bank. Voting rights as to the
Holding Company will be held exclusively by its stockholders. Each purchaser of
Holding Company Common Stock shall be entitled to vote on any matters to be
considered by the Holding Company stockholders. A stockholder will be entitled
to one vote for each share of Common Stock owned, subject to certain limitations
applicable to holders of 10% or more of the shares of the Common Stock. See
"Description of Capital Stock."
Deposit Accounts and Loans. The general terms of the Bank's deposit
accounts, the balances of the individual accounts and the existing FDIC
insurance coverage will not be affected by the Conversion. Furthermore, the
Conversion will not affect the loan accounts, the balances of these accounts, or
the obligations of the borrowers under their individual contractual arrangements
with the Bank.
Tax Effects. The Bank has received opinions from Crowe Chizek & Company
LLP with regard to federal income taxation and Illinois taxation to the effect
that the adoption and implementation of the Plan of Conversion set forth herein
will not be taxable for federal or Illinois tax purposes to the Bank or the
Holding Company. See "- Income Tax Consequences."
Liquidation Rights. The Bank has no plans to liquidate, either before or
subsequent to the completion of the Conversion. However, if there should ever be
a complete liquidation, either before or after Conversion, deposit account
holders would receive the protection of insurance by the FDIC up to applicable
limits. Subject thereto, liquidation rights before and after Conversion would be
as follows:
Liquidation Rights in Present Mutual Institution. In addition to the
protection of FDIC insurance up to applicable limits, in the event of a
complete liquidation of the Bank, each holder of a deposit account in the
Bank in its present mutual form would receive his or her pro rata share
of any assets of the Bank remaining after payment of claims of all
creditors (including the claims of all depositors in the amount of the
withdrawal value of their accounts). Such holder's pro rata share of such
remaining assets, if any, would be in the same proportion of such assets
as the balance in his or her deposit account was to the aggregate balance
in all deposit accounts in the Bank at the time of liquidation.
Liquidation Rights in Proposed Converted Institution. After Conversion,
each deposit account holder, in the event of a complete liquidation of
the Bank, would have a claim of the same general priority as the claims
of all other general creditors of the Bank in addition to the protection
of FDIC insurance up to applicable limits. Therefore, except as described
below, the deposit account holder's claim would be solely in the amount
of the balance in his or her deposit account plus accrued interest. The
holder would have no interest in the assets of the Bank above that
amount.
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The Plan of Conversion provides that there shall be established, upon the
completion of the Conversion, a special "liquidation account" for the
benefit of Eligible Account Holders (i.e., eligible depositors at January
31, 1997) and Supplemental Eligible Account Holders (eligible depositors
at _________, 1998) in an amount equal to the net worth of the Bank as of
the date of its latest consolidated statement of financial condition
contained in the final prospectus relating to the sale of shares of
Holding Company Common Stock in the Conversion. Each Eligible Account
Holder and Supplemental Eligible Account Holder would have an initial
interest in such liquidation account for each deposit account held in the
Bank on the qualifying date. An Eligible Account Holder and Supplemental
Eligible Account Holder's interest as to each deposit account would be in
the same proportion of the total liquidation account as the balance in
his or her account on January 31, 1997 and __________, 1998,
respectively, was to the aggregate balance in all deposit accounts of
Eligible Account Holders and Supplemental Eligible Account Holders on
such dates. However, if the amount in the deposit account of an Eligible
Account Holder or Supplemental Eligible Account Holder on any annual
closing date of the Bank is less than the lowest amount in such account
on January 31, 1997 or _________, 1998 and on any subsequent closing
date, then the account holder's interest in this special liquidation
account would be reduced by an amount proportionate to any such
reduction, and the account holder's interest would cease to exist if such
deposit account were closed.
In addition, the interest in the special liquidation account would never
be increased despite any increase in the balance of the account holders'
related accounts after Conversion, and would only decrease.
Any assets remaining after the above liquidation rights of Eligible
Account Holders and Supplemental Eligible Account Holders were satisfied
would be distributed to the Holding Company as the sole stockholder of
the Bank.
No merger, consolidation, purchase of bulk assets with assumption of
deposit accounts and other liabilities, or similar transaction, whether
the Bank, as converted, or another SAIF-insured institution is the
surviving institution, is deemed to be a complete liquidation for
purposes of distribution of the liquidation account and, in any such
transaction, the liquidation account would be assumed to the full extent
authorized by regulations of the OTS as then in effect. The OTS has
stated that the consummation of a transaction of the type described in
the preceding sentence in which the surviving entity is not a
SAIF-insured institution would be reviewed on a case-by-case basis to
determine whether the transaction should constitute a "complete
liquidation" requiring distribution of any then remaining balance in the
liquidation account. While the Bank believes that such a transaction
should not constitute a complete liquidation, there can be no assurance
that the OTS will not adopt a contrary position.
Common Stock. For information as to the characteristics of the Common
Stock to be issued under the Plan of Conversion, see "Dividends" and
"Description of Capital Stock." Common Stock issued under the Plan of Conversion
cannot, and will not, be insured by the FDIC or any other governmental agency.
The Bank will continue, immediately after completion of the Conversion,
to provide its services to depositors and borrowers pursuant to its existing
policies and will maintain the existing management and employees of the Bank.
Other than for payment of certain expenses incident to the Conversion, no assets
of the Bank will be distributed in the Conversion. Ben Franklin will continue to
be a member of the FHLB System, and its deposit accounts will continue to be
insured by the FDIC. The affairs of Ben Franklin will continue to be directed by
the existing Board of Directors and management.
Offering of Holding Company Common Stock
Under the Plan of Conversion, up to 1,610,000 shares of Holding Company
Common Stock will be offered for sale, subject to certain restrictions described
below, initially through the Offering. Federal conversion regulations require,
with certain exceptions, that all shares offered in a conversion be sold in
order for the conversion to become effective.
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The Subscription Offering will expire at noon, Arlington Heights,
Illinois time, on [________], 1998 (the "Subscription Expiration Date") unless
extended by the Bank and the Holding Company. Depending on the availability of
shares and market conditions at or near the completion of the Subscription
Offering, the Holding Company may effect a Public Offering of shares to selected
persons through FBR. To order Common Stock in connection with the Public
Offering and Direct Community Offering, if any, an executed stock order and
account withdrawal authorization and certification must be received by FBR prior
to the termination of the Public Offering and Direct Community Offering. The
date by which orders must be received in the Public Offering, if any, will be
set by the Holding Company at the time of such offering. OTS regulations require
that all shares to be offered in the Conversion be sold within a period ending
not more than 45 days after the Subscription Expiration Date (or such longer
period as may be approved by the OTS) or, despite approval of the Plan of
Conversion by members, the Conversion will not be effected and Ben Franklin will
remain in mutual form. This period expires on [________], 1998, unless extended
with the approval of the OTS. In addition, if the Offering is extended beyond
[________], 1998, all subscribers will have the right to modify or rescind their
subscriptions and to have their subscription funds returned promptly with
interest. In the event that the Conversion is not effected, all funds submitted
and not previously refunded pursuant to the Offering will be promptly refunded
to subscribers with interest at the Bank's current passbook rate and all
withdrawal authorizations will be terminated.
Stock Pricing and Number of Shares to be Issued
Federal regulations require that the aggregate purchase price of the
securities of a thrift institution sold in connection with its conversion must
be based on an appraised aggregate market value of the institution as converted
(i.e., taking into account the expected receipt of proceeds from the sale of the
securities in the conversion), as determined by an independent valuation.
Ferguson, which is experienced in the valuation and appraisal of business
entities, including thrift institutions involved in the conversion process, was
retained by the Bank to prepare an appraisal of the estimated pro forma market
value of the Bank and the Holding Company upon Conversion.
Ferguson will receive a fee of approximately $[________] for its
appraisal in addition to its reasonable out-of-pocket expenses incurred in
connection with the appraisal. Ferguson has also agreed to assist in the
preparation of the Bank's business plan for a separate fee of $[________]. The
Bank has agreed to indemnify Ferguson under certain circumstances against
liabilities and expenses (including legal fees) arising out of, related to, or
based upon the Conversion.
Ferguson has prepared an appraisal of the estimated pro forma market
value of the Bank as converted. The Ferguson appraisal concluded that, at March
20, 1998, an appropriate range for the estimated pro forma market value of the
Bank and the Holding Company was from a minimum of $11.9 million to a maximum of
$16.1 million with a midpoint of $14.0 million. Assuming that the shares are
sold at $10.00 per share in the Conversion, the estimated number of shares to be
issued in the Conversion is expected to be between 1,190,000 and 1,610,000. The
Purchase Price of $10.00 was determined by discussion among the Boards of
Directors of the Bank, the Holding Company and Ferguson, taking into account,
among other factors, (i) the requirement under OTS regulations that the Common
Stock be offered on a manner that would achieve the widest distribution of
shares and (ii) liquidity in the Common Stock subsequent to the Conversion.
The appraisal involved a comparative evaluation of the operating and
financial statistics of the Bank with those of other thrift institutions. The
appraisal also took into account such other factors as the market for thrift
institution stocks generally, prevailing economic conditions, both nationally
and in Illinois, which affect the operations of thrift institutions, the
competitive environment within which the Bank operates and the effect of the
Bank becoming a subsidiary of the Holding Company. No detailed individual
analysis of the separate components of the Holding Company's and the Bank's
assets and liabilities was performed in connection with the evaluation. The Plan
of Conversion requires that all of the shares subscribed for in the Offering be
sold at the same price per share. The Board of Directors reviewed the appraisal,
including the methodology and the appropriateness of the assumptions utilized by
Ferguson and determined that in its opinion the appraisal was not unreasonable.
The Estimated Valuation Range may be amended with the approval of the OTS in
connection with changes in the financial condition or operating results of the
Bank or market conditions generally. As described below, an amendment to the
Estimated Valuation Range above $18,515,000 would not be made without a
resolicitation of subscriptions and/or proxies except in limited circumstances.
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If, upon completion of the Offering, at least the minimum number of
shares are subscribed for, Ferguson, after taking into account factors similar
to those involved in its prior appraisal, will determine its estimate of the pro
forma market value of the Bank and the Holding Company upon Conversion, as of
the close of the Offering.
If, based on the estimate of Ferguson, the aggregate pro forma market
value is not within the Estimated Valuation Range, Ferguson, upon the consent of
the OTS, will determine a new Estimated Valuation Range ("Amended Valuation
Range"). If the aggregate pro forma market value of the Bank as converted and
the Holding Company has increased in the Amended Valuation Range to an amount
that does not exceed $18,515,000 (i.e.,15% above the maximum of the Estimated
Valuation Range), then the number of shares to be issued may be increased to
accommodate such increase in value without a resolicitation of subscriptions
and/or proxies. In such event the Bank and the Holding Company do not intend to
resolicit subscriptions and/or proxies unless the Bank and the Holding Company
then determine, after consultation with the OTS, that circumstances otherwise
require such a resolicitation. If, however, the aggregate pro forma market value
of the Holding Company and the Bank, as converted, at that time is less than
$11,900,000 or more than $18,515,000, a resolicitation of subscribers and/or
proxies may be made, the Plan of Conversion may be terminated or such other
actions as the OTS may permit may be taken. In the event that upon completion of
the Offering, the pro forma market value of the Holding Company and Bank, as
converted, is below $11,900,000 or above $18,515,000 (15% above the maximum of
the Estimated Valuation Range), the Holding Company intends to file the revised
appraisal with the SEC by post-effective amendment to its Registration Statement
on Form S-1. See "Additional Information." If the Plan of Conversion is
terminated, all funds would be returned promptly with interest at the rate of
the Bank's current passbook rate, and holds on funds authorized for withdrawal
from deposit accounts would be released. If there is a resolicitation of
subscriptions, subscribers will be given the opportunity to cancel or change
their subscriptions and to the extent subscriptions are so canceled or reduced,
funds will be returned with interest at the Bank's current passbook rate and
holds on funds authorized for withdrawal from deposit accounts will be released
or reduced. Stock subscriptions received by the Holding Company and the Bank may
not be withdrawn by the subscriber and, if accepted by the Holding Company and
the Bank, are final. If the Conversion is not completed prior to [________] (two
years after the date of the Special Meeting), the Plan of Conversion will
automatically terminate.
Any increase in the total number of shares of Common Stock to be offered
in the Conversion will dilute a subscriber's percentage ownership interest and
will reduce the pro forma net income and net worth on a per share basis. A
decrease in the number of shares to be issued in the Conversion will increase a
subscriber's proportionate ownership interest and will increase both pro forma
net income and net worth on a per share basis while decreasing that amount on an
aggregate basis.
No sale of the shares will take place unless, prior thereto, Ferguson
confirms to the OTS that, to the best of Ferguson's knowledge and judgment,
nothing of a material nature has occurred which would cause Ferguson to conclude
that the actual Purchase Price on an aggregate basis is incompatible with its
estimate of the aggregate pro forma market value of the Holding Company and the
Bank as converted at the time of the sale. If, however, the facts do not justify
such a statement, the Offering or other sale may be canceled, a new Estimated
Valuation Range set and new offering held.
In preparing its valuation of the pro forma market value of the Bank and
the Holding Company upon Conversion, Ferguson relied upon and assumed the
accuracy and completeness of all financial and statistical information provided
by the Bank and the Holding Company. Ferguson also considered information based
upon other publicly available sources which it believes are reliable. However,
Ferguson does not guarantee the accuracy and completeness of such information
and did not independently verify the financial statements and other data
provided by the Bank and the Holding Company or independently value the assets
or liabilities of the Bank and the Holding Company. The appraisal is not
intended to be, and must not be interpreted as, a recommendation of any kind as
to the advisability of voting to approve the Conversion or of purchasing shares
of Common Stock. The appraisal considers Ben Franklin and the Holding Company
only as going concerns and should not be considered as any indication of the
liquidation value of Ben Franklin or the Holding Company. Moreover, the
appraisal is necessarily based on many factors which change from time to time.
There can be no assurance that persons who purchase shares in the Conversion
will be able to sell such shares at prices at or above the Purchase Price.
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Subscription Offering
In accordance with OTS regulations, non-transferable Subscription Rights
have been granted under the Plan of Conversion to the following persons in the
following order of priority: (1) Eligible Account Holders (deposit account
holders of the Bank maintaining an aggregate balance of $50 or more as of
January 31, 1997), (2) the Holding Company and the Bank's Tax-Qualified Employee
Plans; provided, however, that the Tax-Qualified Employee Plans shall have first
priority Subscription Rights to the extent that the total number of shares of
Common Stock sold in the Conversion exceeds the maximum of the Estimated
Valuation Range; (3) Supplemental Eligible Accounts Holders (deposit account
holders of the Bank maintaining a balance of $50 or more as of [_________]), (4)
Other Members (depositors of the Bank at the close of business on [________],
1998, the voting record date for the Special Meeting) and (5) officers,
directors and employees of the Bank. All subscriptions received will be subject
to the availability of Holding Company Common Stock after satisfaction of all
subscriptions of all persons having prior rights in the Subscription Offering,
and to the maximum and minimum purchase limitations set forth in the Plan of
Conversion.
Category No. 1 is reserved for the Bank's Eligible Account Holders.
Subscription Rights to purchase shares under this category will be allocated
among Eligible Account Holders to permit each such depositor to purchase shares
in this Category in an amount equal to the greater of $200,000 of Common Stock,
one tenth of one percent (.10%) of the total shares offered in the Conversion,
or 15 times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Common Stock to be issued by a
fraction of which the numerator is the amount of the qualifying deposits of the
Eligible Account Holder and the denominator is the total amount of the
qualifying deposit of the Eligible Account Holders in the Bank, in each case on
the Eligibility Record Date. To the extent shares are oversubscribed in this
category, shares shall be allocated first to permit each subscribing Eligible
Account Holder to purchase, to the extent possible, 100 shares and thereafter
among each subscribing Eligible Account Holder pro rata in the same proportion
that his Qualifying Deposit bears to the total Qualifying Deposits of all
subscribing Eligible Account Holders whose subscriptions remain unsatisfied.
Category No. 2 provides for the issuance of Subscription Rights to
Tax-Qualified Employee Plans to purchase up to 10% of the total amount of shares
of Common Stock issued in the Subscription Offering on a second priority basis.
The ESOP intends to purchase a total of 8% of the Common Stock issued in the
Conversion under this category. Subscription Rights received pursuant to this
category shall be subordinated to all rights received by Eligible Account
Holders to purchase shares pursuant to Category No. 1; provided, however, that
notwithstanding any provision of the Plan of Conversion to the contrary, the
Tax-Qualified Employee Plans shall have first priority Subscription Rights to
the extent that the total number of shares of Common Stock sold in the
Conversion exceeds the maximum of the Estimated Valuation Range.
Category No. 3 is reserved for the Bank's Supplemental Eligible Account
Holders. Subscription Rights to purchase shares under this category will be
allocated among Supplemental Eligible Account Holders to permit each such
depositor to purchase shares in this Category in an amount equal to the greater
of $200,000 of Common Stock, one tenth of one percent (.10%) of the total shares
of Common Stock offered in the Conversion, or 15 times the product (rounded down
to the next whole number) obtained by multiplying the total number of shares of
Common Stock to be issued by a fraction of which the numerator is the amount of
the qualifying deposit of the Supplemental Eligible Account Holder and the
denominator is the total amount of the qualifying deposit of the Supplemental
Eligible Account Holders in the converting Bank in each case on [________], 1998
(the "Supplemental Eligibility Record Date"), subject to the overall purchase
limitation after satisfying the subscriptions of Eligible Account Holders and
Tax Qualified Employee Plans. Any non-transferable Subscription Rights received
by an Eligible Account Holder shall reduce, to the extent thereof, the
subscription rights to be distributed to such person as a Supplemental Eligible
Account Holder. In the event of an oversubscription for shares, the shares
available shall be allocated first to permit each subscribing Supplemental
Eligible Account Holder, to the extent possible, to purchase a number of shares
sufficient to make his total allocation (including the number of shares, if any,
allocated in accordance with Category No. 1) equal to 100 shares, and thereafter
among each subscribing Supplemental Eligible Account Holder pro rata in the same
proportion that his Qualifying Deposit bears to the total Qualifying Deposits of
all subscribing Supplemental Eligible Account Holders whose subscriptions remain
unsatisfied.
Category No. 4 provides, to the extent that shares are then available
after satisfying the subscriptions of Eligible Account Holders, Tax-Qualified
Employee Plans and Supplemental Eligible Account Holders, for the issuance of
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Subscription Rights to Other Members to purchase in this Category up to the
greater of $200,000 of Common Stock, or one-tenth of one percent (.10%) of the
Common Stock offered in the Conversion. In the event of an oversubscription, the
shares available shall be allocated among the subscribing Other Members pro rata
in the same proportion that his number of votes on the Voting Record Date bears
to the total number of votes on the Voting Record Date of all subscribing Other
Members on such date. Such number of votes shall be determined based on the
Bank's mutual charter and bylaws in effect on the date of approval by members of
this Plan of Conversion.
Each depositor (including individual retirement accounts ("IRAs") and
Keogh account beneficiaries) as of [________], 1998 and the date of the Special
Meeting is entitled at the Special Meeting to cast one vote for each $100 or
fraction thereof, of the aggregate withdrawal value of all of such depositor's
savings accounts in the Bank as of the applicable voting record date, up to a
maximum of 1,000 votes. No member may vote more than 1,000 votes. In general,
accounts held in different ownership capacities will be treated as separate
memberships for purposes of applying the [____] vote limitation. For example, if
two persons hold a $100,000 account in their joint names and each of the persons
also holds a separate account for $100,000 in his own name, each person would be
entitled to 1,000 votes for each separate account and they would together be
entitled to cast 1,000 votes on the basis of the joint account for a total of
3,000 votes.
Category No. 5 provides for the issuance of Subscription Rights to
officers, directors and employees of the Bank, to purchase in this Category up
to $200,000 of the Common Stock to the extent that shares are available after
satisfying the subscriptions of eligible subscribers in preference Categories 1,
2, 3 and 4. The total number of shares which may be purchased in the conversion
under this Category may not exceed 23% of the number of shares of Holding
Company Common Stock. In the event of an oversubscription, the available shares
will be allocated pro rata among all subscribers in this category based on the
number of shares ordered by each subscriber.
Public Offering and Direct Community Offering
To the extent that shares remain available and subject to market
conditions at or near the completion of the Subscription Offering, the Holding
Company may offer shares pursuant to the Plan to selected persons in a Public
Offering and/or Direct Community Offering on a best-efforts basis through FBR in
such a manner as to promote a wide distribution of the Common Stock. Any orders
received in connection with the Public Offering and Direct Community Offerings
if any, will receive a lower priority than orders properly made in the
Subscription Offering by persons properly exercising Subscription Rights. In
addition depending on market conditions, FBR may utilize selected broker-dealers
("Selected Dealers") in connection with the sale of shares in the Public
Offering, if any. Common Stock sold in the Public Offering and Direct Community
Offerings will be sold at $10.00 per share and hence will be sold at the same
price as all other shares in the Conversion. The Holding Company and the Bank
have the right to reject orders, in whole or in part, in their sole discretion
in the Public Offering and Direct Community Offering.
No person, together with any associate or group of persons acting in
concert, will be permitted to purchase more than $200,000 of Common Stock in the
Public Offering and Direct Community Offering. To order Common Stock in
connection with the Public Offering or Direct Community Offering, if any, an
executed stock order and account withdrawal authorization and certification must
be received by FBR prior to the termination of such Offering. The date by which
orders must be received in the Public Offering and Direct Community Offering
will be set by the Holding Company at the time of commencement of such offering;
provided however, if the Offering is extended beyond [________], 1998, each
subscriber will have the opportunity to maintain, modify or rescind his or her
subscription. In such event, all subscription funds will be promptly returned
with interest to each subscriber unless he or she affirmatively indicates
otherwise.
FBR may enter into agreements with Selected Dealers to assist in the sale
of shares in the Public Offering. Selected Dealers may only solicit indications
of interest from their customers to place orders with the Holding Company as of
a certain date ("Order Date") for the purchase of shares of Conversion Stock
with the authorization of FBR. When and if FBR and the Holding Company believe
that enough indications of interest and orders have been received to consummate
the Conversion, FBR will request, as of the Order Date, Selected Dealers to
submit orders to purchase shares for which they have received indications of
interest from their customers. Selected Dealers will send confirmation of the
orders to such customers on the next business day after the Order Date.
Customers who authorize Selected Dealers to debit their brokerage accounts are
required to have the funds for payment in their account on but
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not before the closing date of the Conversion. On the closing date, Selected
Dealers will remit funds to the account that the Holding Company established for
each Selected Dealer. Each customer's funds so forwarded to the Holding Company,
along with all other accounts held in the same title, will be insured up to the
applicable legal limit. After payment has been received by the Holding Company
from Selected Dealers, funds will earn interest at the Bank's passbook rate
until the completion of the Offering. In the event the Conversion is not
consummated as described above, funds with interest will be returned promptly to
the Selected Dealers, who, in turn, will promptly credit their customers'
brokerage account.
In the event the Holding Company determines to conduct a Public Offering
and/or Direct Community Offering, persons to whom a prospectus is delivered may
subscribe for shares of Common Stock by submitting a completed Stock Order and
Account Withdrawal Authorization Form (provided by FBR) and an executed
Certification along with immediately available funds (which may be obtained by
debiting a FBR account) to FBR by not later than the public offering expiration
date (as established by the Holding Company). Promptly upon receipt of available
funds, together with a properly executed Stock Order and Account Withdrawal
Authorization Form and Certification, FBR will forward such funds to Ben
Franklin to be deposited in a subscription escrow account.
If a subscription in the Public Offering and/or Direct Community Offering
is accepted, promptly after the completion of the Conversion, a certificate for
the appropriate amount of shares will be forwarded to FBR as nominee for the
beneficial owner. In the event that a subscription is not accepted or the
Conversion is not consummated, the Bank will promptly refund with interest the
subscription funds to FBR which will then return the funds to subscribers'
accounts. If the aggregate pro forma market value of the Company and the Bank,
as converted, is less than $11,900,000 or more than $18,515,000, each subscriber
will have the right to modify or rescind his or her subscription.
The opportunity to subscribe for shares of Common Stock in the Public
Offering and/or Direct Community Offering is subject to the right of the Bank
and the Holding Company, in their sole discretion, to accept or reject any such
orders in whole or in part.
Additional Purchase Restrictions
The Plan also provides for certain additional limitations to be placed
upon the purchase of shares in the Conversion. Specifically, no person (other
than a Tax-Qualified Employee Plan) by himself or herself or with an associate,
and no group of persons acting in concert, may subscribe for or purchase more
than $800,000 of Common Stock. For purposes of this limitation, an associate of
a person does not include a Tax-Qualified Employee Plan or Non-Tax Qualified
Employee Plan in which the person has a substantial beneficial interest or
serves as a trustee or in a similar fiduciary capacity. Moreover, for purposes
of this paragraph, shares held by one or more Tax Qualified or Non-Tax Qualified
Employee Plans attributed to a person shall not be aggregated with shares
purchased directly by or otherwise attributable to that person except for that
portion of a plan which is self-directed by a person. See "- Stock Pricing and
Number of Shares to be Issued" regarding potential changes in Subscription
Rights in the event of a decrease in the number of shares to be issued in the
Conversion. Officers and directors and their associates may not purchase, in the
aggregate, more than 33% of the shares to be sold in the Conversion. For
purposes of the Plan, the members of the Board of Directors are not deemed to be
acting in concert solely by reason of their Board membership. For purposes of
this limitation, an associate of an officer or director does not include a
Tax-Qualified Employee Plan. Moreover, any shares attributable to the officers
and directors and their associates, but held by a Tax-Qualified Employee Plan
(other than that portion of a plan which is self-directed) shall not be included
in calculating the number of shares which may be purchased under the limitations
in this paragraph. Shares purchased by employees who are not officers or
directors of the Bank, or their associates, are not subject to this limitation.
The term "associate" is used above to indicate any of the following
relationships with a person: (i) any corporation or organization (other than the
Holding Company or the Bank or a majority-owned subsidiary of the Holding
Company or the Bank) of which a person is an officer or partner or is, directly
or indirectly, the beneficial owner of 10% or more of any class of equity
security; (ii) any trust or other estate in which such person has a substantial
beneficial interest or as to which such person serves as trustee or in a similar
fiduciary capacity; and (iii) any relative or spouse of such person or any
relative of such spouse who has the same home as such person or who is a
director or officer of the Holding Company or the Bank or any subsidiary of the
Holding Company or the Bank.
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The Boards of Directors of the Holding Company and the Bank, in their
sole discretion, may increase the maximum purchase limitations referred to above
up to 9.9% of the total shares to be offered in the Offering, provided that
orders for shares exceeding 5% of the shares being offered in the Offering shall
not exceed, in the aggregate, 10% of the shares being offered in the Offering or
decrease the maximum purchase limitation to one percent of the Common Stock
offered in the Conversion. Requests to purchase additional shares of Common
Stock under this provision will be allocated by the Boards of Directors on a pro
rata basis giving priority in accordance with the priority rights set forth
above. Depending on market and financial conditions, the Boards of Directors of
the Holding Company and the Bank, with the approval of the OTS and without
further approval of the members, may increase or decrease any of the above
purchase limitations.
To the extent that shares are available, each subscriber must subscribe
for a minimum of 25 shares. In computing the number of shares to be allocated,
all numbers will be rounded down to the next whole number.
Common Stock purchased in the Conversion will be freely transferable
except for shares purchased by executive officers and directors of the Bank or
the Holding Company. See "- Restrictions on Transfer of Subscription Rights and
Shares."
Marketing Arrangements
Ben Franklin has retained FBR, a broker-dealer registered with the
Securities and Exchange Commission (the "SEC") and a member of the National
Association of Securities Dealers, Inc. (the "NASD"), to consult with and advise
the Bank and to assist in the distribution of shares in the Offering on a
best-efforts basis. FBR is headquartered in Arlington, Virginia and its phone
number is (703)___-____. Among the services FBR will perform are (i) training
and educating Ben Franklin employees, who will be performing certain ministerial
functions in the Offering, regarding the mechanics and regulatory requirements
of the stock sale process, (ii) keeping records of orders for shares of Common
Stock, (iii) targeting Ben Franklin's sales efforts including preparation of
marketing materials, (iv) assisting in the collection of proxies from Members
for use at the Special Meeting, and (v) providing its registered stock
representatives to staff the Stock Information Center and meeting with and
assisting potential subscribers. For its services, FBR will receive a fee of
$150,000. The Holding Company has agreed to reimburse FBR for its reasonable
out-of-pocket expenses (not to exceed $30,000 without management approval), and
its legal fees and expenses (not to exceed $20,000 without management approval)
and to indemnify FBR against certain claims or liabilities, including certain
liabilities under the Securities Act.
To the extent other registered broker-dealers are utilized and managed by
FBR under a selling syndicate to participate in the Public Offering and/or
Direct Community Offering pursuant to a Selected Dealers' Agreement or
participate in the Public Offering and/or Direct Community Offering as assisting
brokers, the Holding Company may pay a fee to such brokers or selected dealers
in an amount to be negotiated. Fees paid to FBR and to any other broker-dealer
may be deemed to be underwriting fees, and FBR and such other broker-dealers may
be deemed to be underwriters.
In the event there is a Public Offering or Direct Community Offering,
procedures may be implemented to permit a purchaser to pay for his or her shares
with funds held by or deposited with FBR or a "Selected Dealer." See "- Public
Offering and Direct Community Offering."
Directors and executive officers of the Holding Company and the Bank may,
to a limited extent, participate in the solicitation of offers to purchase
Common Stock. Sales will be made from a Stock Information Center located away
from the publicly accessible areas (including teller windows) of the Bank's
office. Other employees of the Bank may participate in the Offering in
administrative capacities, providing clerical work in effecting a sales
transaction or answering questions of a potential purchaser provided that the
content of the employee's responses is limited to information contained in this
Prospectus or other offering document. Other questions of prospective purchasers
will be directed to executive officers or registered representatives of FBR.
Such other employees have been instructed not to solicit offers to purchase
Common Stock or provide advice regarding the purchase of Common Stock. To the
extent permitted under applicable law, directors and executive officers of the
Holding Company and the Bank may participate in the solicitation of offers to
purchase Common Stock, except in the State of Texas where only a representative
of FBR
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will be able to offer and sell securities to Texas residents. The Holding
Company will rely on Rule 3a4-1 under the Exchange Act and sales of Common Stock
will be conducted within the requirements of Rule 3a4-1, so as to permit
officers, directors and employees to participate in the sale of Common Stock. No
officer, director or employee of the Holding Company or the Bank will be
compensated in connection with his participation by the payment of commissions
or other remuneration based either directly or indirectly on the transactions in
the Common Stock.
A conversion center will be established at the Bank's home office, in an
area separated from the Bank's banking operations. No sales activities will be
conducted in the public areas of the Bank's offices, but persons will be able to
obtain a Prospectus and sales information at such places, and employees will
inform prospective purchasers to direct their questions to the conversion center
and will provide such persons with the telephone number of the conversion
center. Completed stock orders will be accepted at such places, and will be
promptly forwarded to the conversion center for processing.
The Bank and the Holding Company will make reasonable efforts to comply
with the securities laws of all states in the United States in which persons
entitled to subscribe for shares, pursuant to the Plan of Conversion, reside.
However, no shares will be offered or sold under the Plan of Conversion to any
such person who (1) resides in a foreign country or (2) resides in a state of
the United States in which a small number of persons otherwise eligible to
subscribe for shares under the Plan of Conversion reside or as to which the Bank
and the Holding Company determine that compliance with the securities law of
such state would be impracticable for reasons of cost or otherwise, including,
but not limited to, a requirement that the Bank or the Holding Company or any of
their officers, directors or employees register, under the securities laws of
such state, as a broker, dealer, salesmen or agent. No payments will be made in
lieu of the granting of Subscription Rights to any such person.
Method of Payment for Subscriptions
To purchase shares in the Subscription Offering, an executed order form
and certification form with the required payment for each share subscribed for,
or with appropriate authorization for withdrawal from the Bank's deposit account
(which may be given by completing the appropriate blanks in the order form),
must be received by the Bank by noon, Arlington Heights, Illinois time, on
[________], 1998. Order forms which are not received by such time or are
executed defectively or are received without full payment (or appropriate
withdrawal instructions) are not required to be accepted.
To order Common Stock in connection with the Public Offering and/or
Direct Community Offering, if any, an executed Stock Order and Account
Withdrawal Authorization Form and Certification must be received by FBR prior to
the termination of such offering. The date by which orders must be received in
the Public Offering and Direct Community Offering will be set by the Holding
Company at the time of commencement of such offerings, if any; provided however,
if the Offering is extended beyond [________], 1998, each subscriber will have
the opportunity to maintain, modify or rescind his or her subscription. In such
event, all subscription funds will be promptly returned with interest to each
subscriber unless he or she affirmatively indicates otherwise. In addition, the
Holding Company and the Bank are not obligated to accept orders submitted on
photocopies or facsimile order forms.
The Holding Company and the Bank have the right to waive or permit the
correction of incomplete or improperly executed forms, but do not represent that
they will do so. Once received, an executed order form or stock order and
account withdrawal authorization may not be modified, amended or rescinded
without the consent of the Holding Company and the Bank unless the Conversion
has not been completed by [________], 1998.
Payment for subscriptions in the Subscription Offering, may be made (i)
in cash if delivered in person at the office of the Bank, (ii) by check or money
order or (iii) by authorization of withdrawal from deposit accounts maintained
with the Bank. Interest will be paid on payments made by cash, check, bank draft
or money order, whether or not the Conversion is complete or terminated, at the
Bank's current passbook rate from the date payment is received until the
completion or termination of the Conversion. If payment is made by authorization
of withdrawal from deposit or time accounts, the funds authorized to be
withdrawn from such account will continue to accrue interest at the contractual
rates until completion or termination of the Conversion. Such funds will be
unavailable to the depositor until completion or termination of the Conversion.
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If a subscriber authorizes the Bank to withdraw the amount of the
Purchase Price from his certificate account, the Bank will do so as of the
effective date of Conversion. The Bank will waive any applicable penalties for
early withdrawal from time accounts at Ben Franklin for the purpose of
purchasing Common Stock. If the remaining balance in a certificate account is
reduced below the applicable minimum balance requirement at the time that the
funds actually are transferred under the authorization, the rate paid on the
remaining balance of the certificate will earn interest at the then-current
passbook rate.
Owners of self-directed IRAs may under certain circumstances use the
assets of such IRAs to purchase shares of Common Stock in the Offering, provided
that such IRAs are self-directed and are not maintained at the Bank. Persons
with IRAs maintained at the Bank must have their accounts transferred to an
unaffiliated institution or broker to purchase shares of Common Stock in the
Offering. In addition, the provisions of the ERISA and Internal Revenue Service
regulations require that officers, directors and 10% stockholders who use
self-directed IRA funds to purchase shares of Common Stock in the Offering make
such purchases for the exclusive benefit of the IRAs.
If the ESOP subscribes for shares during the Subscription Offering, such
plan will not be required to pay for the shares subscribed for at the time it
subscribes, but rather, may pay for such shares of Common Stock subscribed for
the Purchase Price upon consummation of the Conversion, provided that there is
in force from the time of its subscription until such time, a loan commitment to
lend to the ESOP, at such time, the aggregate Purchase Price of the shares for
which it subscribed.
All refunds and any interest due will be paid after completion of the
Conversion. Certificates representing shares of Common Stock purchased will be
mailed to purchasers at the last address of such persons appearing on the
records of the Bank, or to such other address as may be specified in properly
completed order forms, as soon as practicable following consummation of the sale
of all shares of Common Stock. Any certificates returned as undeliverable will
be disposed of in accordance with applicable law.
To ensure that each purchaser receives a prospectus at least 48 hours
prior to the Expiration Date in accordance with Rule 15c2-8 under the Exchange
Act, no prospectus will be mailed any later than five days prior to such date or
hand delivered any later than two days prior to such date. Execution of the
order form will confirm receipt or delivery in accordance with Rule 15c2-8.
Order forms will only be distributed with a prospectus. The Bank will accept for
processing only orders submitted on original order forms with the form of
certification. Photocopies or facsimile copies of order forms or certifications
will not be accepted. Payment by cash, check, money order, bank draft or debit
authorization to an existing account at the Bank must accompany the order form.
No wire transfers will be accepted.
In order to ensure that Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members are properly identified as to their stock
purchase priorities, depositors as of the Eligibility Record Date (January 31,
1997), Supplemental Eligibility Record Date (_________, 1998) and/or the Voting
Record Date ([________]) must list all accounts on the stock order form giving
all names on each account and the account
number as of the applicable record date.
In addition to the foregoing, if shares are offered through Selected
Dealers, a purchaser may pay for his shares with funds held by or deposited with
a Selected Dealer. If an order form is executed and forwarded to the Selected
Dealer or if the Selected Dealer is authorized to execute the order form on
behalf of a purchaser, the Selected Dealer is required to forward the order form
and funds to the Bank for deposit in a segregated account on or before noon of
the business day following receipt of the order form or execution of the order
form by the Selected Dealer. Alternatively, Selected Dealers may solicit
indications of interest from their customers who indicated an interest and seek
their confirmation as to their intent to purchase. Those indicating an intent to
purchase shall forward executed order forms and certifications to their Selected
Dealer or authorize the Selected Dealer to execute such forms. The Selected
Dealer will acknowledge receipt of the order to its customer in writing on the
following business day and will debit such customer's account on the third
business day after the customer has confirmed his intent to purchase (the "debit
date") and on or before noon of the next business day following the debit date
will send order forms and funds to the Bank for deposit in a segregated account.
If such alternative procedure is employed, purchasers' funds are not required to
be in their accounts with Selected Dealers until the debit date.
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Restrictions on Transfer of Subscription Rights and Shares
Prior to the completion of the Conversion, the OTS conversion regulations
prohibit any person with subscription rights, including the Eligible Account
Holders, Tax-Qualified Employee Plans, Supplemental Eligible Account Holders,
Other Members and employees, officers and directors, from transferring or
entering into any agreement or understanding to transfer the legal or beneficial
ownership of the subscription rights issued under the Plan or the shares of
Common Stock to be issued upon their exercise. Such rights may be executed only
by the person to whom they are granted and only for his account. Each person
exercising such subscription rights will be required to certify that he is
purchasing shares solely for his own account and that he has no agreement or
understanding regarding the sale or transfer of such shares. The OTS regulations
also prohibit any person from offering or making an announcement of an offer or
intent to make an offer to purchase such subscription rights or shares of Common
Stock prior to the completion of the Conversion.
The Bank and the Holding Company may pursue any and all legal and
equitable remedies in the event they become aware of the transfer of
subscription rights and will not honor orders known by them to involve the
transfer of such rights.
Except as to directors and executive officers of the Bank and the Holding
Company, the shares of Common Stock sold in the Conversion will be freely
transferable. Shares purchased by directors, executive officers or their
associates in the Conversion shall be subject to the restrictions that said
shares shall not be sold during the period of one year following the date of
purchase, except in the event of the death of the stockholder. Accordingly,
stock certificates issued by the Holding Company to directors, executive
officers and their associates shall bear a legend giving appropriate notice of
such restriction and, in addition, the Bank and the Holding Company will give
appropriate instructions to the transfer agent for the Common Stock with respect
to the applicable restriction upon transfer of any restricted shares. Any shares
issued at a later date as a stock dividend, stock split or otherwise, to holders
of restricted stock, shall be subject to the same restrictions that may apply to
such restricted stock. Holding Company stock (like the stock of most companies)
is subject to the requirements of the Securities Act. Accordingly, Holding
Company stock may be offered and sold only in compliance with registration
requirements or pursuant to an applicable exemption from registration.
Holding Company stock received in the Conversion by persons who are not
"affiliates" of the Holding Company may be resold without registration. Shares
received by affiliates of the Holding Company (primarily the directors, officers
and principal stockholders of the Holding Company) will be subject to the resale
restrictions of Rule 144 under the Securities Act, which are discussed below.
Rule 144 generally requires that there be publicly available certain
information concerning the Holding Company, and that sales thereunder be made in
routine brokerage transactions or through a market maker. If the conditions of
Rule 144 are satisfied, each affiliate (or group of persons acting in concert
with one or more affiliates) is entitled to sell in the public market, without
registration, in any three-month period, a number of shares which does not
exceed the greater of (i) 1% of the number of outstanding shares of Holding
Company stock, or (ii) if the stock is admitted to trading on a national
securities exchange or reported through the automated quotation system of a
registered securities bank, the average weekly reported volume of trading during
the four weeks preceding the sale.
Participation by the Board and Executive Officers
The directors and executive officers of Ben Franklin have indicated their
intention to purchase in the Conversion an aggregate of $1,025,000 of Common
Stock, equal to 8.6%, 7.3%, 6.4% or 5.5% of the number of shares to be issued in
the Offering, at the minimum, midpoint, maximum and 15% above the maximum of the
Estimated Valuation Range, respectively. The following table sets forth
information regarding Subscription Rights to Common Stock intended to be
exercised by each of the directors of the Bank, including members of their
immediate family and their IRAs, and by all directors and executive officers as
a group. The following table assumes that 1.4 million shares, the midpoint of
the Estimated Valuation Range, of Common Stock are issued at the Purchase Price
of $10 per share and that sufficient shares will be available to satisfy the
subscriptions indicated. The table does not include shares to be purchased
through the ESOP (8% of shares issued in the Conversion) or awarded under the
proposed RRP (an amount of shares which may be acquired after stockholder
ratification of such plan equal to 4% of the shares sold in the Conversion) or
proposed
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Stock Option Plan (an amount of shares which may be issued after stockholder
ratification of such plan equal to 10.0% of the shares sold in the Conversion).
<TABLE>
<CAPTION>
Number
Aggregate of Shares Percent of
Purchase at $10.00 Shares at
Name Title Price per Share(1) Midpoint
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Joseph J. Gasior Chairman $400,000 40,000 2.9%
Ronald P. Pedersen President and Chief 25,000 2,500 .2
Executive Officer
Edward Luzwick Director 100,000 10,000 .7
Robert Decelles Director 100,000 10,000 .7
Bernadine Dziedzic Director and Secretary 100,000 10,000 .7
Joseph Nowicki Director 100,000 10,000 .7
Charles E. Schuetz Director 100,000 10,000 .7
All other executive officers
as a group (4 persons) 100,000 10,000 .7
------------ -------- -----
All directors and executive
officers as a group (11 persons) $1,025,000 102,500 7.3%
========== ======== ====
</TABLE>
(1) Includes purchases by spouse. Does not include subscriptions by the ESOP,
or options which are intended to be granted under the proposed Stock
Option Plan or restricted stock awards which are intended to be granted
under the proposed RRP, subject to stockholder ratification of such
plans.
Risk of Delayed Offering
The completion of the sale of all unsubscribed shares in the Offering
will be dependent, in part, upon the Bank's operating results and market
conditions at the time of the Offering. Under the Plan of Conversion, all shares
offered in the Conversion must be sold within a period ending 24 months from the
date of the Special Meeting. While the Bank and the Holding Company anticipate
completing the sale of shares offered in the Conversion within this period, if
the Board of Directors of the Bank and the Holding Company are of the opinion
that economic conditions generally or the market for publicly traded thrift
institution stocks make undesirable a sale of the Common Stock, then the
Offering may be delayed until such conditions improve.
A material delay in the completion of the sale of all unsubscribed shares
in the Public Offering or otherwise may result in a significant increase in the
costs of completing the Conversion. Significant changes in the Bank's operations
and financial condition, the aggregate market value of the shares to be issued
in the Conversion and general market conditions may occur during such material
delay. In the event the Conversion is not consummated within 24 months after the
date of the Special Meeting of Members, the Bank would charge accrued Conversion
costs to then current period operations.
Approval, Interpretation, Amendment and Termination
All interpretations of the Plan of Conversion, as well as the
completeness and validity of order forms and stock order and account withdrawal
authorizations, will be made by the Bank and the Holding Company and will be
final, subject to the authority of the OTS and the requirements of applicable
law. The Plan of Conversion provides that, if deemed necessary or desirable by
the Boards of Directors of the Bank and the Holding Company, the Plan of
Conversion may be substantively amended by the Boards of Directors of the Bank
and the Holding Company, as a result of comments from regulatory authorities or
otherwise, at any time with the concurrence of the OTS and the SEC. In the event
the Plan of Conversion is substantially amended, other than a change in the
maximum purchase limits set forth
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herein, the Holding Company intends to notify subscribers of the change and to
refund subscription funds with interest unless subscribers affirmatively elect
to increase, decrease or maintain their subscriptions. The Plan of Conversion
will terminate if the sale of all shares is not completed within 24 months after
the date of the Special Meeting of Members. The Plan of Conversion may be
terminated by the Boards of Directors of the Holding Company and the Bank with
the concurrence of the OTS, at any time. A specific resolution approved by a
two-thirds vote of the Boards of Directors of the Holding Company and the Bank
would be required to terminate the Plan of Conversion prior to the end of such
24-month period.
Restrictions on Repurchase of Stock
For a period of three years following Conversion, the Holding Company may
not repurchase any shares of its capital stock, except in the case of an offer
to repurchase on a pro rata basis made to all holders of capital stock of the
Holding Company. Any such offer shall be subject to the prior approval of the
OTS. Furthermore, the Holding Company may not repurchase any of its stock (i) if
the result thereof would be to reduce the regulatory capital of the Bank below
the amount required for the liquidation account to be established pursuant to
OTS regulations and (ii) except in compliance with the requirements of the OTS'
capital distribution rule.
The above limitations are subject to the OTS conversion rules which
generally provide that the Holding Company may repurchase its capital stock
provided (i) no repurchases occur within one year following the Conversion
(subject to certain exceptions), (ii) repurchases during the second and third
year after conversion are part of an open market stock repurchase program that
does not allow for a repurchase of more than 5% of the Holding Company's
outstanding capital stock during a 12-month period, (iii) the repurchases do not
cause the Bank to become undercapitalized, and (iv) the Holding Company provides
notice to the OTS at lease 10 days prior to the commencement of a repurchase
program and the OTS does not object to such regulations. In addition, the above
limitations do not preclude repurchases of capital stock by the Holding Company
in the event applicable federal regulatory limitations are subsequently
liberalized.
Income Tax Consequences
Consummation of the Conversion is expressly conditioned upon prior
receipt by the Bank of either a ruling from the IRS or an opinion of Crowe,
Chizek and Company LLP with respect to Federal and Illinois taxation, to the
effect that consummation of the Conversion will not be taxable to the converted
Bank or the Holding Company. The full text of the Ferguson Letter (hereinafter
defined) and the Crowe, Chizek and Company LLP opinions, which opinions are
summarized herein, were filed with the SEC as exhibits to the Holding Company's
Registration Statement on Form S-1.
See "Additional Information."
An opinion which is summarized below has been received from Crowe, Chizek
and Company LLP with respect to the proposed Conversion of the Bank to the stock
form. The Crowe, Chizek and Company LLP opinion states that (i) the Conversion
will qualify as a reorganization under Section 368(a)(1)(F) of the Internal
Revenue Code of 1986, as amended, and no gain or loss will be recognized to the
Bank as a result of the proposed Conversion, (ii) no gain or loss will be
recognized to the Bank in its stock form upon the receipt of money and other
property, if any, from the Holding Company for the stock of the Bank; and no
gain or loss will be recognized to the Holding Company upon the receipt of money
for Common Stock of the Holding Company; (iii) the assets of the Bank in its
stock form will have the same basis as the basis of the assets in its mutual
form immediately prior to the Conversion; (iv) the holding period of the assets
of the Bank in its stock form will include the period during which the assets
were held by the Bank in its mutual form prior to Conversion; (v) gain, if any,
will be realized by the depositors of the Bank upon the constructive issuance to
them of withdrawable deposit accounts of the Bank in its stock form,
nontransferable subscription rights to purchase Holding Company Common Stock
and/or interests in the Liquidation Account (any such gain will be recognized by
such depositors, but only in an amount not in excess of the fair market value of
the subscription rights and Liquidation Account interests received); (vi) the
basis of the account holder's savings accounts in the Bank after the Conversion
will be the same as the basis of his or her savings accounts in the Bank prior
to the Conversion; (vii) the basis of the Holding Company Common Stock to its
stockholders will be the purchase price thereof; (viii) a stockholder's holding
period for Holding Company Common Stock acquired through the exercise of
subscription rights shall begin on the date on which the subscription rights are
exercised and the holding period for the Conversion Stock purchased in the
Offering will commence on the date following the date on which such stock is
purchased; (ix) the Bank in its stock form will succeed to and take into account
the earnings and profits or deficit in earnings and profits, of the
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Bank, in its mutual form, as of the date of Conversion; (x) the Bank,
immediately after Conversion, will succeed to and take into account the bad debt
reserve accounts of the Bank, in mutual form, and the bad debt reserves will
have the same character in the hands of the Bank after Conversion as if no
Conversion had occurred; and (xi) the creation of the Liquidation Account will
have no effect on the Bank's taxable income, deductions or addition to reserve
for bad debts either in its mutual or stock form.
The opinion from Crowe, Chizek and Company LLP is based, among other
things, on certain assumptions, including the assumptions that the exercise
price of the Subscription Rights to purchase Holding Company Common Stock will
be approximately equal to the fair market value of that stock at the time of the
completion of the proposed Conversion. With respect to the Subscription Rights,
the Bank has received a letter from Ferguson (the "Ferguson Letter") which,
based on certain assumptions, sets forth its belief that the Subscription Rights
to be received by Eligible Account Holders, Supplemental Eligible Account
Holders and other eligible subscribers do not have any economic value at the
time of distribution or at the time the Subscription Rights are exercised,
whether or not a Public Offering takes place.
The Bank has also received an opinion of Crowe, Chizek and Company LLP to
the effect that, based in part on the Ferguson Letter: (i) no taxable income
will be realized by depositors as a result of the exercise of non-transferable
Subscription Rights to purchase shares of Holding Company Common Stock at fair
market value; (ii) no taxable income will be recognized by borrowers, directors,
officers and employees of the Bank on the receipt or exercise of Subscription
Rights to purchase shares of Holding Company Common Stock at fair market value;
and (iii) no taxable income will be realized by the Bank or Holding Company on
the issuance of Subscription Rights to eligible subscribers to purchase shares
of Holding Company Common Stock at fair market value.
Notwithstanding the Ferguson Letter, if the Subscription Rights are
subsequently found to have a fair market value and are deemed a distribution of
property, it is Crowe, Chizek and Company LLP's opinion that gain or income will
be recognized by various recipients of the Subscription Rights (in certain
cases, whether or not the rights are exercised) and the Bank and/or the Holding
Company may be taxable on the distribution of the Subscription Rights.
With respect to Illinois taxation, the Bank has received an opinion from
Crowe, Chizek and Company LLP to the effect that the Illinois tax consequences
to the Bank, in its mutual or stock form, the Holding Company, eligible account
holders, parties receiving Subscription Rights, parties purchasing conversion
stock, and other parties participating in the Conversion will be the same as the
federal income tax consequences described above.
Unlike a private letter ruling, the opinions of Crowe, Chizek and Company
LLP, as well as the Ferguson Letter, have no binding effect or official status,
and no assurance can be given that the conclusions reached in any of those
opinions would be sustained by a court if contested by the IRS or the Delaware
or Illinois tax authorities.
RESTRICTIONS ON ACQUISITIONS OF STOCK AND
RELATED TAKEOVER DEFENSIVE PROVISIONS
Although the Boards of Directors of the Bank and the Holding Company are
not aware of any effort that might be made to obtain control of the Holding
Company after Conversion, the Board of Directors, as discussed below, believe
that it is appropriate to include certain provisions as part of the Holding
Company's certificate of incorporation to protect the interests of the Holding
Company and its stockholders from takeovers which the Board of Directors of the
Holding Company might conclude are not in the best interests of the Bank, the
Holding Company or the Holding Company's stockholders.
The following discussion is a general summary of material provisions of
the Holding Company's certificate of incorporation and bylaws and certain other
regulatory provisions which may be deemed to have an "anti-takeover" effect. The
following description of certain of these provisions is necessarily general and,
with respect to provisions contained in the Holding Company's certificate of
incorporation and bylaws and the Bank's proposed stock charter and bylaws,
reference should be made in each case to the document in question, each of which
is part of the Bank's Conversion Application filed with the OTS and the Holding
Company's Registration Statement filed with the SEC. See "Additional
Information."
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Provisions of the Holding Company's Certificate of Incorporation and Bylaws
Directors. Certain provisions of the Holding Company's certificate of
incorporation and bylaws will impede changes in majority control of the Board of
Directors. The Holding Company's certificate of incorporation provides that the
Board of Directors of the Holding Company will be divided into three classes,
with directors in each class elected for three-year staggered terms except for
the initial directors. Thus, assuming a Board of seven directors, it would take
two annual elections to replace a majority of the Holding Company's Board. The
Holding Company's certificate of incorporation also provides that the size of
the Board of Directors may be increased or decreased only by a majority vote of
the whole Board or by a vote of 80% of the shares eligible to be voted at a duly
constituted meeting of stockholders called for such purpose. The bylaws also
provide that any vacancy occurring in the Board of Directors, including a
vacancy created by an increase in the number of directors, shall be filled for
the remainder of the unexpired term by a majority vote of the directors then in
office. Finally, the bylaws impose certain notice and information requirements
in connection with the nomination by stockholders of candidates for election to
the Board of Directors or the proposal by stockholders of business to be acted
upon at an annual meeting of stockholders.
The certificate of incorporation provides that a director may only be
removed for cause by the affirmative vote of 80% of the shares eligible to vote.
Restrictions on Call of Special Meetings. The certificate of
incorporation of the Holding Company provides that a special meeting of
stockholders may be called only pursuant to a resolution of the Board of
Directors and for only such business as directed by the Board. Stockholders are
not authorized to call a special meeting.
Absence of Cumulative Voting. The Holding Company's certificate of
incorporation does not provide for cumulative voting rights in the election of
directors.
Authorization of Preferred Stock. The certificate of incorporation of the
Holding Company authorizes 100,000 shares of serial preferred stock, $.01 par
value. The Holding Company is authorized to issue preferred stock from time to
time in one or more series subject to applicable provisions of law, and the
Board of Directors is authorized to fix the designations, powers, preferences
and relative participating, optional and other special rights of such shares,
including voting rights (which could be multiple or as a separate class) and
conversion rights. In the event of a proposed merger, tender offer or other
attempt to gain control of the Holding Company that the Board of Directors does
not approve, it might be possible for the Board of Directors to authorize the
issuance of a series of preferred stock with rights and preferences that would
impede the completion of such a transaction. An effect of the possible issuance
of preferred stock, therefore, may be to deter a future takeover attempt. The
Board of Directors has no present plans or understandings for the issuance of
any preferred stock and does not intend to issue any preferred stock except on
terms which the Board deems to be in the best interests of the Holding Company
and its stockholders.
Limitation on Voting Rights. The certificate of incorporation of the
Holding Company provides that in no event shall any record owner of any
outstanding Common Stock which is beneficially owned, directly or indirectly, by
a person who beneficially owns in excess of 10% of the then outstanding shares
of Common Stock (the "Limit"), be entitled or permitted to any vote in respect
of the shares held in excess of the Limit. This limitation would not inhibit any
person from soliciting (or voting) proxies from other beneficial owners for more
than 10% of the Common Stock or from voting such proxies. Beneficial ownership
is to be determined pursuant to Rule 13d-3 of the General Rules and Regulations
of the Exchange Act, and in any event includes shares beneficially owned by any
affiliate of such person, shares which such person or his affiliates (as defined
in the certificate of incorporation) have the right to acquire upon the exercise
of conversion rights or options and shares as to which such person and his
affiliates have or share investment or voting power but shall not include shares
beneficially owned by directors, officers and employees of the Bank or the
Holding Company. This provision will be enforced by the Board of Directors to
limit the voting rights of persons beneficially owning more than 10% of the
stock and thus could be utilized in a proxy contest or other solicitation to
defeat a proposal that is desired by a majority of the stockholders.
Procedures for Certain Business Combinations. The Holding Company's
certificate of incorporation requires that certain business combinations
(including transactions initiated by management) between the Holding Company (or
any majority-owned subsidiary thereof) and a 10% or more stockholder either (i)
be approved by at least 80% of the total number of outstanding voting shares,
voting as a single class, of the Holding Company, (ii) be approved by two-thirds
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of the continuing Board of Directors (i.e., persons serving prior to the 10%
stockholder becoming such) or (iii) involve consideration per share generally
equal to that paid by such 10% stockholder when it acquired its block of stock.
It should be noted that, since the Board and executive officers (nine
persons) intend to purchase approximately $1,025,000 of the shares offered in
the Conversion and may control the voting of additional shares through the ESOP
and proposed RRP and Stock Option Plan, the Board and management may be able to
block the approval of combinations requiring an 80% vote even where a majority
of the stockholders vote to approve such combinations.
Amendment to Certificate of Incorporation and Bylaws. Amendments to the
Holding Company's certificate of incorporation must be approved by the Holding
Company's Board of Directors and also by a majority of the outstanding shares of
the Holding Company's voting stock, provided, however, that approval by at least
80% of the outstanding voting stock is generally required for certain provisions
(i.e., provisions relating to number, classification, election and removal of
directors; amendment of bylaws; call of special stockholder meetings; offers to
acquire and acquisitions of control; director liability; certain business
combinations; power of indemnification; and amendments to provisions relating to
the foregoing in the certificate of incorporation).
The bylaws may be amended by a majority vote of the Board of Directors or
the affirmative vote of at least 80% of the total votes eligible to be voted at
a duly constituted meeting of stockholders.
Purpose and Takeover Defensive Effects of the Holding Company's
Certificate of Incorporation and Bylaws. The Board of Directors of the Bank
believes that the provisions described above are prudent and will reduce the
Holding Company's vulnerability to takeover attempts and certain other
transactions which have not been negotiated with and approved by its Board of
Directors. These provisions will also assist the Bank in the orderly deployment
of the conversion proceeds into productive assets during the initial period
after the Conversion. The Board of Directors believes these provisions are in
the best interest of the Bank and of the Holding Company and its stockholders.
In the judgment of the Board of Directors, the Holding Company's Board will be
in the best position to determine the true value of the Holding Company and to
negotiate more effectively for what may be in the best interests of its
stockholders. Accordingly, the Board of Directors believes that it is in the
best interests of the Holding Company and its stockholders to encourage
potential acquirors to negotiate directly with the Board of Directors of the
Holding Company and that these provisions will encourage such negotiations and
discourage hostile takeover attempts. It is also the view of the Board of
Directors that these provisions should not discourage persons from proposing a
merger or other transaction at prices reflective of the true value of the
Holding Company and which is in the best interests of all stockholders.
Attempts to take over financial institutions and their holding companies
have recently become increasingly common. Takeover attempts which have not been
negotiated with and approved by the Board of Directors present to stockholders
the risk of a takeover on terms which may be less favorable than might otherwise
be available. A transaction which is negotiated and approved by the Board of
Directors, on the other hand, can be carefully planned and undertaken at an
opportune time in order to obtain maximum value for the Holding Company and its
stockholders, with due consideration given to matters such as the management and
business of the acquiring corporation and maximum strategic development of the
Holding Company's assets.
An unsolicited takeover proposal can seriously disrupt the business and
management of a corporation and cause it great expense. Although a tender offer
or other takeover attempt may be made at a price substantially above then
current market prices, such offers are sometimes made for less than all of the
outstanding shares of a target company. As a result, stockholders may be
presented with the alternative of partially liquidating their investment at a
time that may be disadvantageous, or retaining their investment in an enterprise
which is under different management and whose objectives may not be similar to
those of the remaining stockholders. The concentration of control, which could
result from a tender offer or other takeover attempt, could also deprive the
Holding Company's remaining stockholders of the benefits of certain protective
provisions of the Exchange Act, if the number of beneficial owners becomes less
than the 300 required for Exchange Act registration.
Despite the belief of the Bank and the Holding Company as to the benefits
to stockholders of these provisions of the Holding Company's certificate of
incorporation and bylaws, these provisions may also have the effect of
discouraging a future takeover attempt which would not be approved by the
Holding Company's Board, but pursuant to which stockholders may receive a
substantial premium for their shares over then current market prices. As a
result,
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<PAGE>
stockholders who might desire to participate in such a transaction may not have
any opportunity to do so. Such provisions will also render the removal of the
Holding Company's Board of Directors and of management more difficult. The Board
will enforce the voting limitation provisions of the charter in proxy
solicitations and accordingly could utilize these provisions to defeat proposals
that are favored by a majority of the stockholders. The Boards of Directors of
the Bank and the Holding Company, however, have concluded that the potential
benefits outweigh the possible disadvantages.
Pursuant to applicable law, at any annual or special meeting of its
stockholders after the Conversion, the Holding Company may adopt additional
charter provisions regarding the acquisition of its equity securities that would
be permitted to a Delaware corporation. The Holding Company and the Bank do not
presently intend to propose the adoption of further restrictions on the
acquisition of the Holding Company's equity securities.
Other Restrictions on Acquisitions of Stock
Delaware Anti-Takeover Statute. The Delaware General Corporation Law (the
"DGCL") provides that buyers who acquire more than 15% of the outstanding stock
of a Delaware corporation, such as the Holding Company, are prohibited from
completing a hostile takeover of such corporation for three years. However, the
takeover can be completed if (i) the buyer, while acquiring the 15% interest,
acquires at least 85% of the corporation's outstanding stock (the 85%
requirement excludes shares held by directors who are also officers and certain
shares held under employee stock plans), or (ii) the takeover is approved by the
target corporation's board of directors and two-thirds of the shares of
outstanding stock of the corporation (excluding shares held by the bidder).
These provisions of the DGCL will not apply to during any period that the
Holding Company has less than 2,000 and does not have voting stock listed on a
national exchange or listed for quotation with a registered national securities
association.
Federal Regulation. A federal regulation prohibits any person prior to
the completion of a conversion from transferring, or entering into any agreement
or understanding to transfer, the legal or beneficial ownership of the
subscription rights issued under a plan of conversion or the stock to be issued
upon their exercise. This regulation also prohibits any person prior to the
completion of a conversion from offering, or making an announcement of an offer
or intent to make an offer, to purchase such subscription rights or stock. For
three years following conversion, this regulation prohibits any person, without
the prior approval of the OTS, from acquiring or making an offer to acquire (if
the offer is opposed by the savings association) more than 10% of the stock of
any converted savings institution if such person is, or after consummation of
such acquisition would be, the beneficial owner of more than 10% of such stock.
In the event that any person, directly or indirectly, violates this regulation,
the securities beneficially owned by such person in excess of 10% may not be
counted as shares entitled to vote and may not be voted by any person or counted
as voting shares in connection with any matter submitted to a vote of
stockholders. Like the charter provisions outlined above, these federal
regulations can make a change in control more difficult, even if desired by the
holders of the majority of the shares of the stock. The Board of Directors
reserves the right to ask the OTS or other federal regulators to enforce these
restrictions against persons seeking to obtain control of the Holding Company,
whether in a proxy solicitation or otherwise. The policy of the Board is that
these legal restrictions must be observed in every case, including instances in
which an acquisition of control of the Holding Company is favored by a majority
of the stockholders.
Federal law provides that no company, "directly or indirectly or acting
in concert with one or more persons, or through one or more subsidiaries, or
through one or more transactions," may acquire "control" of a savings
association at any time without the prior approval of the OTS. In addition,
federal regulations require that, prior to obtaining control of a savings
association, a person, other than a company, must give 60 days' prior notice to
the OTS and have received no OTS objection to such acquisition of control. Any
company that acquires such control becomes a "savings and loan holding company"
subject to registration, examination and regulation as a savings and loan
holding company. Under federal law (as well as the regulations referred to
below) the term "savings association" includes state and federally chartered
SAIF-insured institutions and federally chartered savings banks whose accounts
are insured by the FDIC's BIF and holding companies thereof.
Control, as defined under federal law, in general means ownership,
control of or holding irrevocable proxies representing more than 25% of any
class of voting stock, control in any manner of the election of a majority of a
savings association's directors, or a determination by the OTS that the acquiror
has the power to direct, or directly or indirectly to exercise a controlling
influence over, the management or policies of the institution. Acquisition of
more than 10%
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<PAGE>
of any class of a savings association's voting stock, if the acquiror also is
subject to any one of eight "control factors," constitutes a rebuttable
determination of control under the OTS regulations. Such control factors include
the acquiror being one of the two largest stockholders. The determination of
control may be rebutted by submission to the OTS, prior to the acquisition of
stock or the occurrence of any other circumstances giving rise to such
determination, of a statement setting forth facts and circumstances which would
support a finding that no control relationship will exist and containing certain
undertakings. The OTS regulations provide that persons or companies which
acquire beneficial ownership exceeding 10% or more of any class of a savings
association's stock must file with the OTS a certification that the holder is
not in control of such institution, is not subject to a rebuttable determination
of control and will take no action which would result in a determination or
rebuttable determination of control without prior notice to or approval of the
OTS, as applicable.
DESCRIPTION OF CAPITAL STOCK
Holding Company Capital Stock
The 2.6 million shares of capital stock authorized by the Holding Company
certificate of incorporation are divided into two classes, consisting of 2.5
million shares of Common Stock (par value $.01 per share) and 100,000 shares of
serial preferred stock (par value $.01 per share). The Holding Company currently
expects to issue between 1,190,000 and 1,610,000 shares (subject to increase to
1,851,500) of Common Stock in the Conversion and no shares of serial preferred
stock. The aggregate par value of the issued shares will constitute the capital
account of the Holding Company on a consolidated basis. Upon payment of the
Purchase Price, all shares issued in the Conversion will be duly authorized,
fully paid and nonassessable. The balance of the purchase price of Common Stock,
less expenses of Conversion, will be reflected as paid-in capital on a
consolidated basis. See "Capitalization."
Each share of the Common Stock will have the same relative rights and
will be identical in all respects with each other share of the Common Stock. The
Common Stock of the Holding Company will represent non-withdrawable capital,
will not be of an insurable type and will not be insured by the FDIC.
Under Delaware law, the holders of the Common Stock will possess
exclusive voting power in the Holding Company. Each stockholder will be entitled
to one vote for each share held on all matters voted upon by stockholders,
subject to the limitation discussed under "Restrictions on Acquisitions of Stock
and Related Takeover Defensive Provisions - Provisions of the Holding Company's
Certificate of Incorporation and Bylaws - Limitation on Voting Rights." If the
Holding Company issues preferred stock subsequent to the Conversion, holders of
the preferred stock may also possess voting powers.
Liquidation or Dissolution. In the event of any liquidation, dissolution
or winding up of the Bank, the Holding Company, as the sole holder of the Bank's
capital stock would be entitled to receive, after payment or provision for
payment of all debts and liabilities of the Bank (including all deposit accounts
and accrued interest thereon) and after distribution of the balance in the
special liquidation account to Eligible and Supplemental Account Holders, all
assets of the Bank available for distribution. In the event of liquidation,
dissolution or winding up of the Holding Company, the holders of its Common
Stock would be entitled to receive, after payment or provision for payment of
all its debts and liabilities, all of the assets of the Holding Company
available for distribution. See "The Conversion - Effects of Conversion to Stock
Form on Depositors and Borrowers of the Bank." If preferred stock is issued
subsequent to the Conversion, the holders thereof may have a priority over the
holders of Common Stock in the event of liquidation or dissolution.
No Preemptive Rights. Holders of the Common Stock will not be entitled to
preemptive rights with respect to any shares which may be issued. The Common
Stock will not be subject to call for redemption, and, upon receipt by the
Holding Company of the full purchase price therefor, each share of the Common
Stock will be fully paid and nonassessable.
Preferred Stock. After Conversion, the Board of Directors of the Holding
Company will be authorized to issue preferred stock in series and to fix and
state the voting powers, 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,
99
<PAGE>
and may have full or limited voting rights. The holders of preferred stock will
be entitled to vote as a separate class or series under certain circumstances,
regardless of any other voting rights which such holders may have.
Except as discussed above, the Holding Company has no present plans for
the issuance of the additional authorized shares of Common Stock or for the
issuance of any shares of preferred stock. In the future, the authorized but
unissued and unreserved shares of Common Stock will be available for general
corporate purposes, including but not limited to possible issuance as stock
dividends or stock splits, in future mergers or acquisitions, under a cash
dividend reinvestment and stock purchase plan, in a future underwritten or other
public offering, or under a stock based employee plan. The authorized but
unissued shares of preferred stock will similarly be available for issuance in
future mergers or acquisitions, in a future underwritten public offering or
private placement or for other general corporate purposes. Except as described
herein or as otherwise required to approve the transaction in which the
additional authorized shares of common stock or authorized shares of preferred
stock would be issued, no stockholder approval will be required for the issuance
of these shares. Accordingly, the Board of Directors of the Holding Company,
without stockholder approval, can issue preferred stock with voting and
conversion rights which could adversely affect the voting power of the holders
of Common Stock.
Restrictions on Acquisitions. See "Restrictions on Acquisitions of Stock
and Related Takeover Defensive Provisions" for a description of certain
provisions of the Holding Company's certificate of incorporation and bylaws
which may affect the ability of the Holding Company's stockholders to
participate in certain transactions relating to acquisitions of control of the
Holding Company.
Dividends. The Holding Company's Board of Directors may consider a policy
of paying cash dividends on the Common Stock in the future. No decision has been
made, however, as to the amount or timing of such dividends, if any. The
declaration and payment of dividends are subject to, among other things, the
Holding Company's then current and projected consolidated operating results,
financial condition, regulatory restrictions, future growth plans and other
factors the Board deems relevant. Therefore, no assurance can be given that any
dividends will be declared.
The ability of the Holding Company to pay cash dividends to its
stockholders will be dependent, in part, upon the ability of the Bank to pay
dividends to the Holding Company. OTS regulations do not permit the Bank to
declare or pay a cash dividend on its stock or repurchase shares of its stock if
the effect thereof would be to cause its regulatory capital to be reduced below
the amount required for the liquidation account or to meet applicable regulatory
capital requirements. See "Regulation - Limitations on Dividends and Other
Capital Distributions" for information regarding OTS regulations governing the
Bank's ability to pay dividends to the Holding Company.
Delaware law generally limits dividends of the Holding Company to an
amount equal to the excess of its net assets over its paid-in capital or, if
there is no such excess, to its net earnings for the current and immediately
preceding fiscal year. In addition, as the Holding Company does not anticipate,
for the immediate future, engaging in activities other than (i) investing in
cash, short-term securities and investment and mortgage-backed securities
similar to those invested in by the Bank and (ii) holding the stock of Ben
Franklin, the Holding Company's ability to pay dividends will be limited, in
part, by the Bank's ability to pay dividends, as set forth above.
Earnings appropriated to the Bank's "Excess" bad debt reserves and
deducted for federal income tax purposes cannot be used by the Bank to pay cash
dividends to the Holding Company without adverse tax consequences. See
"Regulation - Federal and State Taxation."
LEGAL AND TAX MATTERS
The legality of the Common Stock will be passed upon for Ben Franklin by
the firm of Silver, Freedman & Taff, L.L.P. (a limited liability partnership
including professional corporations), 7th Floor, East Tower, 1100 New York
Avenue, NW, Washington, DC 20005. Silver, Freedman & Taff, L.L.P. has consented
to the references herein to its opinion. The Federal and Illinois income tax
consequences of the Conversion will be passed upon by Crowe, Chizek and Company
LLP. Crowe, Chizek and Company LLP has consented to references herein to its
opinion. FBR has been represented in the Conversion by Elias, Matz, Tiernan &
Herrick L.L.P., 734 15th Street, 12th Floor, N.W., Washington, D.C. 20005.
100
<PAGE>
EXPERTS
The financial statements of Ben Franklin as of December 31, 1997 and
December 31, 1996 and for each of the years in the three year period ended
December 31, 1997 appearing in this Prospectus have been audited by Crowe,
Chizek and Company LLP, independent certified public accountants, as set forth
in their report thereon appearing elsewhere herein, and is included in reliance
upon such report, given upon the authority of such firm as experts in accounting
and auditing.
Ferguson has consented to the inclusion herein of the summary of its
letter to the Bank setting forth its belief as to the estimated pro forma market
value of the Holding Company and the Bank as converted and to the reference to
its opinion that subscription rights received by Eligible Account Holders,
Supplemental Eligible Account Holders and other eligible subscribers do not have
any economic value.
ADDITIONAL INFORMATION
The Holding Company has filed with the SEC a Registration Statement under
the Securities Act with respect to the Common Stock offered hereby. As permitted
by the rules and regulations of the SEC, this Prospectus does not contain all
the information set forth in the Registration Statement. However, the prospectus
does contain a description of the material provisions of the documents contained
therein. Such information can be examined without charge at the public reference
facilities of the SEC located at 450 Fifth Street, NW, Washington, DC 20549, and
copies of such material can be obtained from the SEC at prescribed rates. In
addition, the SEC maintains a Web site. The address of the SEC's Web site is
"http://www.sec.gov." The statements contained herein as to the contents of any
contract or other document filed as an exhibit to the Registration Statement
are, of necessity, brief descriptions thereof which describe only the material
provisions of such documents; each such statement is qualified by reference to
such contract or document.
The Bank has filed an Application for Conversion with the OTS with
respect to the Conversion. Pursuant to the rules and regulations of the OTS,
this Prospectus omits certain information contained in that Application. The
Application may be examined at the principal offices of the OTS, 1700 G Street,
NW, Washington, DC 20552 and at the Central Regional Office of the OTS, Suite
1300, 200 West Madison Avenue, Chicago, Illinois 60606, without charge.
In connection with the Conversion, the Holding Company will register the
Common Stock with the SEC under Section 12(g) of the Exchange Act, and, upon
such registration, the Holding Company and the holders of its Common Stock will
become subject to the proxy solicitation rules, reporting requirements and
restrictions on stock purchases and sales by directors, officers and greater
than 10% stockholders, the annual and periodic reporting and certain other
requirements of the Exchange Act. Under the Plan, the Holding Company has
undertaken that it will not terminate such registration for a period of at least
three years following the Conversion.
A copy of the Certificate of Incorporation and Bylaws of the Holding
Company are available without charge from the Bank.
101
<PAGE>
[CROWE CHIZEK LETTERHEAD]
Board of Directors
Douglas Savings Bank
Arlington Heights, Illinois
and
Office of Thrift Supervision
Washington, DC
We have been engaged by Ben Franklin Financial, Inc. (the Company) and Douglas
Savings Bank (the Bank) to report in accordance with standards established by
the American Institute of Certified Public Accountants on the appropriate
application of generally accepted accounting principles for the described
proposed transaction.
The facts and circumstances provided to us by management of the Bank (and more
extensively described in the Bank's Plan of Conversion) are that the Bank will
convert from the mutual to the stock form of organization and issue shares of
common stock to the Bank's members and the general public. We understand that
the shares to be issued will be offered first to Eligible Account Holders, then
to the Bank's Tax-Qualified Employee Plan, Supplemental Eligible Account
Holders, certain Other Members, and lastly, to the general public.
Based upon our review of the proposed transaction and subject to our further
review upon its completion, the appropriate accounting for this transaction is
at historical cost in a manner similar to that utilized in a pooling-
of-interest, which, in our opinion, will be in accordance with generally
accepted accounting principles.
The ultimate responsibility for the decision on the appropriate application of
generally accepted accounting principles rests with the preparers of the
financial statements. Our judgment on the appropriate application of generally
accepted accounting principles for the described proposed transaction is based
solely on the facts provided to us as described above; should these facts and
circumstances differ, our conclusion may change.
This letter is intended solely for the use of management and the Boards of
Directors of the Company and the Bank and the Office of Thrift Supervision.
/s/ Crow, Chizek and Company LLP
Crow, Chizek and Company LLP
Oak Brook, Illinois
March 20, 1998
<PAGE>
DOUGLAS SAVINGS BANK
Arlington Heights, Illinois
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996, and 1995
CONTENTS
REPORT OF INDEPENDENT AUDITORS........................................... F-1
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION...................... F-2
CONSOLIDATED STATEMENTS OF INCOME................................... F-3
CONSOLIDATED STATEMENTS OF EQUITY................................... F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS............................... F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.......................... F-6
All schedules are omitted because the required information
is not applicable or is included in the Consolidated
Financial Statements and related notes.
Financial Statements of the Holding Company have not
been provided because Ben Franklin Financial, Inc. has not
conducted any operations to date and has not
been capitalized.
<PAGE>
[CROWE CHIZEK LETTERHEAD]
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Douglas Savings Bank
Arlington Heights, Illinois
We have audited the accompanying consolidated statements of financial condition
of Douglas Savings Bank as of December 31, 1997 and 1996, and the related
consolidated statements of income, equity, and cash flows for each of the three
years in the period ended December 31, 1997. These financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Douglas Savings Bank
as of December 31, 1997 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
/s/ Crowe, Chizek and Company LLP
Crowe, Chizek and Company LLP
Oak Brook, Illinois
February 27, 1998
F-1
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, 1997 and 1996
(Dollars in thousands)
1997 1996
---- ----
ASSETS
Cash and due from banks $ 554 $ 646
Federal funds sold 3,900 -
Interest-bearing deposit accounts 2,611 1,878
---------- ----------
Cash and cash equivalents 7,065 2,524
Securities available-for-sale 18,715 7,930
Securities held-to-maturity (fair value:
1997 - $606, 1996 - $1,222) 589 1,198
Loans receivable, net 93,950 92,956
Federal Home Loan Bank stock 944 920
Premises and equipment, net 449 428
Mortgage servicing rights 212 -
Other real estate owned - 306
Accrued interest receivable 574 496
Other assets 93 167
---------- ----------
Total assets $ 122,591 $ 106,925
========== ==========
LIABILITIES AND EQUITY
Deposits $ $ 112,754 $ 94,339
Federal funds purchased - 3,700
Advances from borrowers for
taxes and insurance 691 557
Other liabilities 1,346 879
---------- ----------
114,791 99,475
Equity
Retained earnings, substantially
restricted 7,426 7,128
Unrealized gain on securities
available-for-sale, net 374 322
---------- ----------
7,800 7,450
---------- ----------
Total liabilities and equity $ 122,591 $ 106,925
========== ==========
See accompanying notes to consolidated financial statements
F-2
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1997, 1996, and 1995
(Dollars in thousands)
1997 1996 1995
---- ---- ----
Interest income
Loans $ 7,209 $ 7,196 $ 6,506
Securities 688 562 600
Federal funds sold 59 - -
Interest-bearing deposit accounts 16 17 21
--------- -------- --------
7,972 7,775 7,127
Interest expense
Deposits 4,610 4,285 4,002
Other borrowings 227 396 162
--------- -------- --------
4,837 4,681 4,164
--------- -------- --------
Net interest income 3,135 3,094 2,963
Provision for loan losses 150 33 32
--------- -------- --------
Net interest income after provision
for loan losses 2,985 3,061 2,931
Noninterest income
Service fee income 150 148 140
Gain on sale of securities 1 - -
Other 31 13 13
--------- -------- --------
182 161 153
Noninterest expenses
Compensation and employee benefits 1,536 866 927
Occupancy expenses 383 363 352
Data processing services 169 132 126
Federal deposit insurance premium 44 203 186
SAIF assessment - 491 -
Advertising 104 107 111
Loss on sale of other real estate owned 13 - -
Other 419 279 171
--------- -------- --------
2,668 2,441 1,873
--------- -------- --------
Income before income taxes 499 781 1,211
Provision for income taxes 201 312 484
--------- -------- --------
Net income $ 298 $ 469 $ 727
========= ======== ========
See accompanying notes to consolidated financial statements
F-3
<PAGE>
CONSOLIDATED STATEMENTS OF EQUITY
Years ended December 31, 1997, 1996, and 1995
(Dollars in thousands)
Unrealized
Gain on
Securities
Retained Available-
Earnings for-Sale Total
-------- -------- -----
Balance at January 1, 1995 $ 5,932 $ 26 $ 5,958
Net income 727 - 727
Increase in fair value of securities available-
for-sale, net of income taxes of $158 - 235 235
-------- -------- --------
Balance at December 31, 1995 6,659 261 6,920
Net income 469 - 469
Increase in fair value of securities available-
for-sale, net of income taxes of $39 - 61 61
-------- -------- --------
Balance at December 31, 1996 7,128 322 7,450
Net income 298 - 298
Increase in fair value of securities available-
for-sale, net of income taxes of $35 - 52 52
-------- -------- --------
Balance at December 31, 1997 $ 7,426 $ 374 $ 7,800
======== ======== ========
See accompanying notes to consolidated financial statements
F-4
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1997, 1996, and 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
Cash flows from operating activities
<S> <C> <C> <C>
Net income $ 298 $ 469 $ 727
Adjustments to reconcile net income to net
cash from operating activities
Depreciation 102 88 91
Amortization of premiums and discounts 6 16 29
Provision for loan losses 150 33 32
Gain on sale of securities (1) - -
Loss on sale of other real estate owned 13 - -
Change in mortgage servicing rights (212) - -
Change in loans held for sale (201) - -
Change in deferred loan costs 2 (65) (117)
Change in accrued interest receivable (78) (58) (30)
Stock dividend received - - (7)
Change in deferred income taxes (160) (6) 54
Change in other assets 74 (60) (71)
Change in other liabilities 592 (411) 310
-------- -------- --------
Net cash from operating activities 585 6 1,018
Cash flows from investing activities
Proceeds from sales of securities available-for-sale 301 - -
Proceeds from maturities of securities available-for-sale 3,520 1,788 1,000
Proceeds from maturities of securities held-to-maturity 600 2,800 1,000
Purchase of securities available-for-sale (14,531) (5,816) (600)
Principal repayments on mortgage-backed securities 16 630 50
Net increase in loans (945) (2,834) (12,931)
Purchase of Federal Home Loan Bank stock (24) (127) (92)
Proceeds from sale of other real estate owned 293 - -
Capital expenditures (123) (16) (29)
-------- -------- --------
Net cash from investing activities (10,893) (3,575) (11,602)
Cash flows from financing activities
Net increase in deposits 18,415 5,544 7,142
Net change in federal funds purchased (3,700) (2,100) 3,000
Net change in advances from borrowers for taxes
and insurance 134 (113) (36)
-------- -------- --------
Net cash from financing activities 14,849 3,331 10,106
-------- -------- --------
Net change in cash and cash equivalents 4,541 (238) (478)
Cash and cash equivalents at beginning of year 2,524 2,762 3,240
-------- -------- --------
Cash and cash equivalents at end of year $ 7,065 $ 2,524 $ 2,762
======== ======== ========
Supplemental disclosures of cash flow information
Interest paid $ 4,933 $ 4,915 $ 3,873
Income taxes paid 318 372 378
Transfer of loans to other real estate owned - 306 -
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Douglas Savings Bank (Bank) is a state-chartered mutual savings bank and a
member of the Federal Home Loan Bank (FHLB) system. The Bank maintains insurance
on savings accounts with the Savings Association Insurance Fund (SAIF) of the
Federal Deposit Insurance Corporation.
Nature of Business: Through its main office and one branch location, the Bank
provides a full line of financial services to customers in the Cook County,
Illinois, area. Douglas Savings Bank grants residential and consumer loans,
substantially all of which are secured by specific items of collateral including
residences and consumer assets.
Use of Estimates in the Preparation of Financial Statements: The preparation of
financial statements in conformity with generally accepted accounting principles
and with general practices within the thrift industry requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amount of income and expenses during the
reporting period. Actual results could differ from those estimates.
Principles of Consolidation: The accompanying 1996 financial statements include
the accounts of the Bank and its wholly-owned subsidiary, Courtesy Service, Inc.
All significant intercompany balances and transactions have been eliminated. The
subsidiary was dissolved in 1997.
Securities: Securities are classified as held-to-maturity when the Bank has the
positive intent and ability to hold those securities to maturity. Accordingly,
they are stated at cost, adjusted for amortization of premiums and accretion of
discounts. Securities are classified as available-for-sale when the Bank may
decide to sell those securities for changes in market interest rates, liquidity
needs, changes in yields on alternative investments, and for other reasons. They
are carried at fair value. Unrealized gains and losses on securities
available-for-sale are charged or credited to a valuation allowance which is
included as a separate component of members' equity. Realized gains and losses
on disposition are based on the net proceeds and the adjusted carrying amount of
the securities sold, using the specific identification method.
Recognition of Interest Income on Loans: Interest income on mortgage and
installment loans is recognized over the term of the loans based on the
principal balance outstanding. Unearned interest on home improvement loans is
amortized into income by the interest method.
Loan Origination Fees and Related Costs: Loan origination fees, net of certain
direct loan origination costs, are deferred. The net deferred fee or cost is
recognized as an adjustment to interest income using the interest method over
the contractual life of the loans.
F-6
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Premises and Equipment: Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets. The cost and accumulated
depreciation of assets retired or sold are eliminated from the financial
statements, and the gain or loss on disposition is credited or charged to
operations when incurred.
Servicing Rights: Servicing rights represent the allocated value of servicing
rights retained on loans sold. Servicing rights are expensed in proportion to,
and over the period of, estimated net servicing revenues. Impairment is
evaluated based on the fair value of the rights, using groupings of the
underlying loans as to interest rates. Any impairment of a grouping is reported
as a valuation allowance.
Other Real Estate Owned: Real estate acquired through foreclosure and similar
proceedings is carried at fair value less estimated costs to sell. Losses on
disposition, including expenses incurred in connection with the disposition, are
charged to operations.
Income Taxes: The provision for income taxes is based on an asset and liability
approach which requires the recognition of deferred tax liabilities and assets
for the expected future tax consequences of temporary differences between the
carrying amounts and the tax bases of assets and liabilities.
Allowance for Loans Losses: Because some loans may not be repaid in full, an
allowance for loan losses is maintained. Increases to the allowance are recorded
by a provision for loan losses charged to expense. Estimating the risk of loss
and the amount of loss on any loan is necessarily subjective. Accordingly, the
valuation allowance is maintained at levels considered adequate to cover losses
that are currently anticipated based on delinquencies, property appraisals, past
loss experience, general economic conditions, information about specific
borrower situations including their financial position, and other factors and
estimates which are subject to change over time. While management may
periodically allocate portions of the allowance for specific problem loan
situations, including impaired loans discussed below, the whole allowance is
available for any charge-offs that occur. Loans are charged off in whole or in
part when management's estimate of the undiscounted cash flows from the loan are
less than the recorded investment in the loan, although collection efforts
continue and future recoveries may occur.
Loans considered to be impaired are reduced to the present value of expected
future cash flows or to the fair value of collateral, by allocating a portion of
the allowance for loan losses to such loans. If these allocations cause the
allowance for loan losses to require increase, such increase is reported as a
provision for loan losses.
F-7
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Smaller balance homogenous loans are defined as residential first mortgage loans
secured by one-to-four-family residences, residential construction loans, and
share loans and are evaluated collectively for impairment. Commercial real
estate loans are evaluated individually for impairment. Normal loan evaluation
procedures, as described in the second preceding paragraph, are used to identify
loans which must be evaluated for impairment. In general, loans classified as
doubtful or loss are considered impaired while loans classified as substandard
are individually evaluated for impairment. Depending on the relative size of the
credit relationship, late or insufficient payments of 30 to 90 days will cause
management to reevaluate the credit under its normal loan evaluation procedures.
While the factors which identify a credit for consideration for measurement of
impairment, or nonaccrual, are similar, the measurement considerations differ. A
loan is impaired when management believes it is probable they will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. A loan is placed on nonaccrual when payments are more than 90 days
past due unless the loan is adequately collateralized and in the process of
collection.
Cash and Cash Equivalents: Cash and cash equivalents include cash on hand,
federal funds sold, due from banks, and interest-bearing deposit accounts with
maturities of three months or less.
Reclassifications: Some items in prior financial statements have been
reclassified to conform with the current presentation.
NOTE 2 - SECURITIES
Securities are summarized as follows:
<TABLE>
<CAPTION>
----------------------December 31, 1997---------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
Securities available-for-sale
<S> <C> <C> <C> <C>
U.S. government agency notes $ 17,530 $ 13 $ (7) $ 17,536
Mortgage-backed securities 508 - (13) 495
Marketable equity securities 54 630 - 684
------------ ----------- ----------- ------------
$ 18,092 $ 643 $ (20) $ 18,715
============ =========== =========== ============
</TABLE>
F-8
<PAGE>
NOTE 2 - SECURITIES (Continued)
<TABLE>
<CAPTION>
----------------------December 31, 1997---------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
Securities held-to-maturity
<S> <C> <C> <C> <C>
U.S. government agency notes $ 510 $ 17 $ - $ 527
Mortgage-backed securities 79 - - 79
------------- ------------- ------------ -------------
$ 589 $ 17 $ - $ 606
============= ============= ============ =============
----------------------December 31, 1996---------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Securities available-for-sale
U.S. government agency notes $ 6,817 $ 4 $ (56) $ 6,765
Mortgage-backed securities 523 - (16) 507
Marketable equity securities 54 604 - 658
------------- ------------- ------------ -------------
$ 7,394 $ 608 $ (72) $ 7,930
============= ============= ============ =============
Securities held-to-maturity
U.S. government agency notes $ 1,017 $ 24 $ - $ 1,041
State and political subdivision
notes 101 - 101
Mortgage-backed securities 80 - - 80
------------- ------------- ------------ -------------
$ 1,198 $ 24 $ - $ 1,222
============= ============= ============ =============
</TABLE>
The amortized cost and fair value of securities at December 31, 1997, by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties. Securities not due at
a specified maturity date, particularly mortgage-backed securities and equity
securities, are shown separately.
F-9
<PAGE>
NOTE 2 - SECURITIES (Continued)
<TABLE>
<CAPTION>
Available-for-Sale Held-to-Maturity
------------------ ----------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---- ----- ---- -----
<S> <C> <C> <C> <C>
Due in one year or less $ 301 $ 300 $ - $ -
Due after one year through five years 16,229 16,236 510 527
Due after five years through ten years 1,000 1,000 - -
---------- ---------- ---------- ----------
17,530 17,536 510 527
Mortgage-backed securities 508 495 79 79
Marketable equity securities 54 684 - -
---------- ---------- ---------- ----------
$ 18,092 $ 18,715 $ 589 $ 606
========== ========== ========== ==========
</TABLE>
Proceeds from securities sold during 1997 amounted to $301,000 with gross
realized gains of $1,000. There were no sales of securities for the years ended
December 31, 1996, and 1995.
Securities with a carrying amount of $9,248,000 and $4,501,000, respectively,
were pledged to secure borrowings with the American National Bank at December
31, 1997 and 1996.
NOTE 3 - LOANS RECEIVABLE
Loans receivable at December 31 are summarized as follows:
1997 1996
---- ----
First mortgage loans
Secured by one-to-four-family residences $ 78,544 $ 76,681
Consumer and other loans
Automobile 350 160
Loan contracts receivable 118 120
Home equity 14,340 15,184
Home improvement 362 251
Personal loans 268 464
Loans secured by deposit accounts 99 92
-------- --------
Total consumer and other loans 15,537 16,271
Net deferred loan-origination costs 271 273
Allowance for loan losses (402) (269)
-------- --------
$ 93,950 $ 92,956
======== ========
F-10
<PAGE>
NOTE 3 - LOANS RECEIVABLE (Continued)
The amount of loans serviced for FNMA and FHLMC are $3,971,000, $286,000, and
$35,000 at December 31, 1997, 1996, and 1995, respectively.
Activity of mortgage servicing rights for 1997 follows:
Balance, beginning of year $ -
Additions 224
Amortized to expense 12
---------
Balance, end of year $ 212
=========
Loans outstanding to officers and directors of the Bank total approximately
$40,000 and $43,000 at December 31, 1997 and 1996, respectively.
Activity in the allowance for loan losses for the years ended December 31 is as
follows:
1997 1996 1995
---- ---- ----
Balance at beginning of year $ 269 $ 230 $ 196
Provision for loan losses 150 33 32
Loans charged off (17) - -
Recoveries of loans previously charged off - 6 2
------- ------- -------
$ 402 $ 269 $ 230
======= ======= =======
There were no nonaccrual or impaired loans at December 31, 1997 and 1996.
Additionally, there were no impaired loans during 1997 or 1996.
F-11
<PAGE>
NOTE 4 - PREMISES AND EQUIPMENT
Premises and equipment consist of the following as of December 31:
1997 1996
---- ----
Leasehold improvements $ 495 $ 495
Furniture and fixtures 582 676
Automobiles 63 58
--------- ---------
1,140 1,229
Less accumulated depreciation and amortization (691) (801)
--------- ---------
$ 449 $ 428
========= =========
NOTE 5 - DEPOSITS
Fixed maturity deposit accounts with balances of $100,000 or more totaled
approximately $11,766,000 and $8,817,000 at December 31, 1997 and 1996,
respectively.
At December 31, 1997, scheduled maturities of certificates of deposit are as
follows:
1998 $ 58,659
1999 10,970
2000 5,039
2001 528
2002 2,559
-----------
$ 77,755
===========
NOTE 6 - REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional discretionary, actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices.
F-12
<PAGE>
NOTE 6 - REGULATORY MATTERS (Continued)
The Bank's capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of total and Tier I
capital as defined in the regulations to risk-weighted assets as defined and of
Tier I capital to average assets as defined. To be categorized as well
capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based,
and Tier I leverage ratios. The Bank was categorized as well capitalized at
December 31, 1997 and 1996. There are no conditions or events since that
notification that management believes have changed the institution's category.
The prompt corrective action regulations provide five classifications, including
well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized, although these terms are not
used to represent overall financial condition. If undercapitalized, asset growth
and expansion are limited, and plans for capital restoration are required.
At year end, consolidated actual capital levels and minimum required levels
were:
<TABLE>
<CAPTION>
Minimum Required
To Be Well
Minimum Required Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Regulations
------ ----------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
1997
- ----
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk-weighted assets) $ 7,828 11.2% $ 5,560 8.0% $ 6,950 10.0%
Tier 1 (core) capital (to risk-weighted
assets) 7,426 10.7 2,780 4.0 4,170 6.0
Tier 1 (leverage) capital (to average
assets) 7,426 6.7 4,415 4.0 5,519 5.0
1996
- ----
Total capital (to risk-weighted assets) $ 7,397 11.3% $ 5,219 8.0% $ 6,524 10.0%
Tier 1 (core) capital (to risk-weighted
assets) 7,128 10.9 2,609 4.0 3,914 6.0
Tier 1 (leverage) capital (to average
assets) 7,128 6.7 4,273 4.0 5,341 5.0
</TABLE>
F-13
<PAGE>
NOTE 7 - EMPLOYEE BENEFITS
During 1997, the Bank adopted a Savings Incentive Matching Plan for Employees
(SIMPLE) covering substantially all employees. Participants may elect to make
tax deferred contributions to the plan up to $6,000 per calendar year. Annually,
the Bank makes dollar for dollar matching contributions based on amounts
contributed by participants up to a maximum of 3% of compensation per
participant. The Bank made contributions totaling $16,000 during 1997.
During 1997, the Bank established a retirement plan for directors which provides
benefits based upon the amount of the prior year's board fees and the number of
years of service to the Bank. Benefits are payable when the individual reaches
age 65 and are payable quarterly for ten years. The maximum quarterly benefit
will be $12,300. The directors' retirement expense recorded in 1997 was
$450,000.
NOTE 8 - INCOME TAXES
The provision for income taxes consists of the following:
1997 1996 1995
---- ---- ----
Current $ 361 $ 318 $ 430
Deferred (160) (6) 54
------------ ------------ ------------
$ 201 $ 312 $ 484
============ ============ ============
The income tax provision differs from the amounts determined by applying the
statutory U.S. federal income tax rate as a result of the following items:
<TABLE>
<CAPTION>
1 9 9 7 1 9 9 6 1 9 9 5
------- ------- -------
Amount % Amount % Amount %
------ - ------ - ------ -
<S> <C> <C> <C> <C> <C> <C>
Income tax computed at the
statutory rate $ 170 34.0% $ 266 34.0% $ 412 34.0%
State income taxes 23 4.6 30 3.8 48 4.0
Other 8 1.7 16 2.1 24 2.0
--------- ------- --------- ------ --------- ------
$ 201 40.3% $ 312 39.9% $ 484 40.0%
========= ======= ========= ====== ========= ======
</TABLE>
F-14
<PAGE>
NOTE 8 - INCOME TAXES (Continued)
The net deferred tax liability consisted of the following at December 31:
1997 1996
---- ----
Deferred tax asset
Deferred compensation $ 175 $ -
Accumulated depreciation 5 -
Deferred tax liabilities
Deferred loan fees (112) (111)
Bad debts (125) (178)
Accumulated depreciation - (1)
Accrual to cash basis (37) (74)
FHLB stock dividends and other (129) (101)
Mortgage servicing rights (82) -
Unrealized gain on securities available-for-sale (249) (214)
------- ------
Net liability $ (554) $ (679)
======= ======
The Bank has qualified under provisions of the Internal Revenue Code which
permit it to deduct from taxable income a provision for bad debts which differs
from the provision charged to income on the financial statements. Retained
earnings at December 31, 1997 include approximately $385,000 for which no
deferred federal income tax liability has been recorded. Tax legislation passed
in 1996 now requires all thrift institutions to deduct a provision for bad debts
for tax purposes based on actual loss experience and recapture the excess bad
debt reserve accumulated in the tax years after 1987. The $280,000 of deferred
tax liability which must be recaptured is reflected in the statements of
financial condition and is payable over a six-year period, beginning in 1998.
NOTE 9 - COMMITMENTS AND FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Bank is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments consist of commitments to make loans and fund unused lines
of credit and loans in process. The Bank's exposure to credit loss in the event
of nonperformance by the other party to these financial instruments is
represented by the contractual amount of these instruments. The Bank follows the
same credit policy to make such commitments as is followed for those loans
recorded on the statement of financial condition. At December 31, these
financial instruments are summarized as follows:
F-15
<PAGE>
NOTE 9 - COMMITMENTS AND FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET
RISK (Continued)
Contractual Amount
------------------
1997 1996
---- ----
Financial instruments whose contract amounts
represent credit risk
Unused lines of credit $ 14,799 $ 14,996
Commitments to make loans 1,526 695
Fixed rate loan commitments totaled $1,046,000 and $695,000 at December 31, 1997
and 1996 and have terms up to 45 days and rates in the range of 6.875% to
7.625%. Since certain commitments to make loans and fund loans in process expire
without being used, these amounts do not necessarily represent future cash
commitments. No losses are anticipated as a result of these transactions.
Financial instruments which potentially subject the Bank to concentrations of
credit risk include deposit accounts in other financial institutions. At
December 31, 1997, the Bank had balances amounting to $5,294,000 on deposit with
American National Bank. This amount includes interest-bearing deposits and
federal funds sold.
The Bank currently leases its main bank and branch facility under noncancelable
five-year operating leases, which include two five-year options to renew. Future
commitments under the operating leases approximate the following:
1998 $ 133
1999 133
2000 137
2001 132
--------
$ 535
========
Rent expense for 1997, 1996, and 1995 was approximately $146,000, $141,000, and
$142,000, respectively.
F-16
<PAGE>
NOTE 10 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and estimated fair values of the Bank's financial
instruments are as follows:
<TABLE>
<CAPTION>
December 31, December 31,
------------1 9 9 7--------- ----------1 9 9 6-----------
------- -------
Approximate Estimated Approximate Estimated
Carrying Fair Carrying Fair
Value Value Value Value
----- ----- ----- -----
Financial assets
- ----------------
<S> <C> <C> <C> <C>
Cash on hand and in banks $ 554 $ 554 $ 646 $ 646
Federal funds sold 3,900 3,900 - -
Interest-bearing deposits 2,611 2,611 1,878 1,878
Securities available-for-sale 18,715 18,715 7,930 7,930
Securities held-to-maturity 589 606 1,198 1,222
Loans receivable, net 93,950 94,479 92,956 93,028
Federal Home Loan Bank stock 944 944 920 920
Accrued interest receivable 574 574 496 496
Financial liabilities
- ---------------------
NOW, money market, and passbook savings (34,876) (34,876) (30,319) (30,319)
Certificates of deposits (77,878) (77,991) (64,020) (64,079)
Federal funds purchased - - (3,700) (3,700)
Accrued interest payable (10) (10) (106) (106)
</TABLE>
The fair value of a financial instrument is defined 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 methods and assumptions used to
determine fair values for each class of financial instruments are presented
below.
The estimated fair value for cash and cash equivalents; interest-bearing
deposits; Federal Home Loan Bank stock; accrued interest receivable; NOW, money
market, and passbook savings deposits; federal funds purchased; and accrued
interest payable are considered to approximate their carrying values. The
estimated fair value for securities available-for-sale and securities
held-to-maturity are based on quoted market values for the individual securities
or for equivalent securities. The estimated fair value for loans is based on
estimates of the rate the Bank would charge for similar loans at December 31,
1997 and 1996, applied for the time period until estimated payment. The
estimated fair value of certificates of deposit is based on estimates of the
rate the Bank would pay on such deposits at December 31, 1997 and 1996, applied
for the time period until maturity. Loan commitments are not included in the
table above as their estimated fair value is immaterial.
F-17
<PAGE>
NOTE 10 - FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
While the above estimates are based on management's judgment of the most
appropriate factors, there is no assurance that were the Bank to have disposed
of these items on December 31, 1997, the fair values would have been achieved,
because the market value may differ depending on the circumstances. The
estimated fair values at December 31, 1997 should not necessarily be considered
to apply at subsequent dates.
NOTE 11 - ADOPTION OF PLAN OF CONVERSION (UNAUDITED)
On February 4, 1998, the Board of Directors of the Bank, subject to regulatory
approval and approval by the members of the Bank, adopted a Plan of Conversion
to convert from a state-chartered mutual savings bank to a federal stock savings
bank with the adoption of a federal thrift charter. The conversion is expected
to be accomplished through the amendment of the Bank's charter and the sale of
the Bank's common stock in an amount equal to the pro forma market value of the
Bank after giving effect to the conversion. A subscription offering of the
shares of common stock will be offered initially to the Bank's eligible deposit
account holders, then to other members of the Bank. Any shares of common stock
not sold in the subscription offering will be offered for sale to the general
public, giving preference to the Bank's market area.
The Board of Directors of the Bank intend to adopt an Employee Stock Ownership
Plan and various stock option and incentive plans, subject to ratification by
the stockholders after conversion, if such stockholder approval is required by
any regulatory body having jurisdiction to require such approval. In addition,
the Board of Directors is authorized to enter into employment contracts with key
employees.
At the time of conversion, the Bank will establish a liquidation account in an
amount equal to its total net worth as of the latest statement of financial
condition appearing in the final prospectus. The liquidation account will be
maintained for the benefit of eligible depositors who continue to maintain their
accounts at the Bank after the conversion. The liquidation account will be
reduced annually to the extent that eligible depositors have reduced their
qualifying deposits. Subsequent increases will not restore an eligible account
holder's interest in the liquidation account. In the event of a complete
liquidation, each eligible depositor will be entitled to receive a distribution
from the liquidation account in an amount proportionate to the current adjusted
qualifying balances for accounts then held. The liquidation account balance is
not available for payment of dividends.
F-18
<PAGE>
NOTE 11 - ADOPTION OF PLAN OF CONVERSION (UNAUDITED) (Continued)
The Bank may not declare or pay cash dividends on or repurchase any of its
shares of capital stock if the effect thereof would cause its net worth to be
reduced below applicable regulatory requirements or the amount of the
liquidation accounts of such a declaration and payment would otherwise violate
regulatory requirements.
Conversion costs will be deferred and deducted from the proceeds of the shares
sold in the conversion. If the conversion is not completed, all costs will be
charged to expense. At December 31, 1997, $21,400 of expenses have been
deferred.
<PAGE>
No person has been authorized to give any information or to make any
representation other than as contained in this Prospectus in connection with the
offering made hereby, and, if given or made, such other information or
representation must not be relied upon as having been authorized by the Holding
Company or the Bank. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any of the securities offered hereby to any
person in any jurisdiction in which such offer or solicitation is not authorized
or in which the person making such offer or solicitation is not qualified to do
so, or to any person to whom it is unlawful to make such offer or solicitation
in such jurisdiction. Neither the delivery of this Prospectus nor any sale
hereunder shall under any circumstances create any implication that there has
been no change in the affairs of the Holding Company or the Bank since any of
the dates as of which information is furnished herein or since the date hereof.
--------------
TABLE OF CONTENTS
Page
Prospectus Summary........................................
Selected Financial Information............................
Recent Developments Data .................................
Management's Discussion and Analysis
of Recent Operating Results ...........................
Risk Factors..............................................
Ben Franklin Financial, Inc...............................
Ben Franklin Bank of Illinois.............................
Use of Proceeds...........................................
Dividends.................................................
Market for Common Stock...................................
Pro Forma Data............................................
Pro Forma Regulatory Capital Analysis.....................
Capitalization............................................
Management's Discussion and Analysis of Financial
Condition and Results of Operations....................
Business .................................................
Regulation................................................
Management ...............................................
The Conversion............................................
Restrictions on Acquisitions of Stock and Related
Takeover Defensive Provisions..........................
Description of Capital Stock..............................
Legal and Tax Matters.....................................
Experts...................................................
Additional Information....................................
Index to Financial Statements.............................
Until the later of [________], 1998 or 90 days after commencement of the
offering of Common Stock, all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be required
to deliver a prospectus. This is in addition to the obligation of dealers to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
1,851,500 Shares,
(Maximum, as adjusted)
BEN FRANKLIN FINANCIAL, INC.
(Proposed Holding Company for Ben Franklin
Bank of Illinois)
COMMON STOCK
--------------
PROSPECTUS
--------------
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
[________], 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
Set forth below is an estimate of the amount of fees and expenses
(other than underwriting discounts and commissions) to be incurred in connection
with the issuance of the shares.
SEC registration fee..................................................$ 5,462
NASD fee.............................................................. 2,352
OTS filing fees....................................................... 8,400
Counsel fees and expenses............................................. 80,000
Accounting fees and expenses.......................................... 75,000
Appraisal and business plan fees and expenses......................... 20,000
Conversion agent fees and expenses.................................... 12,000
Marketing agent's fee................................................. 150,000
Marketing agent's expenses including counsel fees and expenses ....... 30,000
Printing, postage and mailing......................................... 70,000
Blue sky fees and expenses............................................ 10,000
Other expenses........................................................ 86,786
--------
TOTAL............................................................$550,000
========
Item 14. Indemnification of Directors and Officers
Article Eleventh of the Holding Company's Certificate of Incorporation
provides for indemnification of directors and officers of the Holding Company
against any and all liabilities, judgments, fines and reasonable settlements,
costs, expenses and attorneys' fees incurred in any actual, threatened or
potential proceeding, except to the extent that such indemnification is limited
by Delaware law and such law cannot be varied by contract or bylaw. Article
Eleventh also provides for the authority to purchase insurance with respect
thereto.
Section 145 of the General Corporation Law of the State of Delaware
authorizes a corporation's Board of Directors to grant indemnity under certain
circumstances to directors and officers, when made, or threatened to be made,
parties to certain proceedings by reason of such status with the corporation,
against judgments, fines, settlements and expenses, including attorneys' fees.
In addition, under certain circumstances such persons may be indemnified against
expenses actually and reasonably incurred in defense of a proceeding by or on
behalf of the corporation. Similarly, the corporation, under certain
circumstances, is authorized to indemnify directors and officers of other
corporations or enterprises who are serving as such at the request of the
corporation, when such persons are made, or threatened to be made, parties to
certain proceedings by reason of such status, against judgments, fines,
settlements and expenses, including
II-1
<PAGE>
attorneys' fees; and under certain circumstances, such persons may be
indemnified against expenses actually and reasonably incurred in connection with
the defense or settlement of a proceeding by or in the right of such other
corporation or enterprise. Indemnification is permitted where such person (i)
was acting in good faith; (ii) was acting in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation or other
corporation or enterprise, as appropriate; (iii) with respect to a criminal
proceeding, has no reasonable cause to believe his conduct was unlawful; and
(iv) was not adjudged to be liable to the corporation or other corporation or
enterprise (unless the court where the proceeding was brought determines that
such person is fairly and reasonably entitled to indemnity).
Unless ordered by a court, indemnification may be made only following a
determination that such indemnification is permissible because the person being
indemnified has met the requisite standard of conduct. Such determination may be
made (i) by the Board of Directors of the Holding Company by a majority vote of
a quorum consisting of directors not at the time parties to such proceeding; or
(ii) if such a quorum cannot be obtained or the quorum so directs, then by
independent legal counsel in a written opinion; or (iii) by the stockholders.
Section 145 also permits expenses incurred by directors and officers in
defending a proceeding to be paid by the corporation in advance of the final
disposition of such proceedings upon the receipt of an undertaking by the
director or officer to repay such amount if it is ultimately determined that he
is not entitled to be indemnified by the corporation against such expenses.
Item 15. Recent Sales of Unregistered Securities
The Registrant is newly incorporated, solely for the purpose of acting
as the holding company of Ben Franklin Savings Bank of Illinois pursuant to the
Plan of Conversion (filed as Exhibit 2 herein), and no sales of its securities
have occurred to date, other than the sale of one share of the Registrant's
stock to its incorporator for the purpose of qualifying the Registrant to do
business in Illinois.
II-2
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits:
1.1 Letter Agreement regarding marketing and consulting services
with Freedman Billings Ramsey & Company, Inc.*
1.2 Form of Agency Agreement
2 Amended Plan of Conversion
3.1 Certificate of Incorporation of the Holding Company*
3.2 Bylaws of the Holding Company*
3.3 Charter of Ben Franklin Savings Bank of Illinois in stock form*
3.4 Bylaws of Ben Franklin Savings Bank of Illinois in stock form*
4 Form of Stock Certificate of the Holding Company*
5 Opinion of Silver, Freedman & Taff, L.L.P. with respect to legality
of stock*
8.1 Opinion of Crowe Chizek & Co. with respect to Federal and Illinois
income tax consequences of the Conversion*
8.2 Ferguson & Co. Letter with respect to estimated pro forma market value
and Subscription Rights*
10.1 Form of Proposed Stock Option and Incentive Plan*
10.2 Form of Proposed Recognition and Retention Plan*
10.3 Form of Employment Agreement with Ronald P. Pedersen*
10.4 Employee Stock Ownership Plan
21 Not Applicable
23.1 Consent of Silver, Freedman & Taff, L.L.P.*
23.2 Consent of Crowe Chizek & Co.
23.3 Consent of Ferguson & Co.*
24 Power of Attorney (set forth on signature page)*
99.1 Appraisal
99.2 Proxy Statement and form of proxy to be furnished to Ben
Franklin Savings Bank of Illinois account holders
99.3 Stock Order Form and Order Form Instructions
99.4 Question and Answer Brochure
* Previously filed.
II-3
<PAGE>
Item 17. Undertakings
The undersigned Registrant hereby undertakes:
(i) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement;
(i) To include any Prospectus required by Section 10(a)(3) of the Securities
Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement; and
(iii)To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and it will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant
II-4
<PAGE>
to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Chicago,
State of Illinois on April 2, 1998.
BEN FRANKLIN FINANCIAL, INC.
By: /s/ Ronald P. Pedersen
---------------------------------
Ronald P. Pedersen, President,
Chief Executive Officer
and Director
(Duly Authorized Representative)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Ronald P. Pedersen and Joseph J. Gasior,
and each of them, his true and lawful attorney-in-fact and agent, with full
power of substitution and re-substitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto, and all other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorney-in-facts and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all said
attorney-in-facts and agents or their substitutes or substitute may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
/s/ Ronald P. Pedersen /s/ Joseph J. Gasior
- ----------------------------- ------------------------------
Ronald P. Pedersen Joseph J. Gasior
President, Chief Executive Officer and Chairman of the Board
Director
(Principal Executive Officer)
Date: April 2, 1998 Date: April 2, 1998
/s/ Robert E.Decelles /s/ Bernadine Dziedzic
- ----------------------------- ------------------------------
Robert E. Decelles Bernadine Dziedzic
Director Director and Secretary
Date: April 2, 1998 Date: April 2, 1998
/s/ Edward J. Luzwick /s/ Joseph Nowicki
- ----------------------------- ------------------------------
Edward J. Luzwick Joseph Nowicki
Director Director
Date: April 2, 1998 Date: April 2, 1998
/s/ Charles E. Schuetz /s/ Michael F. Barrett
- ----------------------------- ------------------------------
Charles E. Schuetz Michael F. Barrett
Director Principal Financial and
Accounting Officer
Date: April 2, 1998 Date: April 2, 1998
II-6
1,610,000 Shares
(subject to increase up to 1,851,500 shares
in the event of an oversubscription)
BEN FRANKLIN FINANCIAL, INC.
(a Delaware corporation)
Common Stock
(par value $.01 per share)
Agency Agreement
____________, 1998
Friedman, Billings, Ramsey & Co., Inc.
1001 Nineteenth Street North
10th Floor
Arlington, VA 22209
Ladies and Gentlemen:
Ben Franklin Financial, Inc., a Delaware corporation (the "Company"),
and Ben Franklin Bank of Illinois, a federal savings bank (the "Bank"), hereby
confirm their agreement with Friedman, Billings, Ramsey & Co., Inc. ("FBR" or
the "Agent") with respect to the offer and sale by the Company of 1,610,000
shares (subject to increase up to 1,851,500 shares in the event of an
oversubscription) of the Company's common stock, par value $.01 per share (the
"Common Stock"). The shares of Common Stock to be sold by the Company in the
Offerings (as hereinafter deemed) are hereinafter called the "Securities."
The Securities are being offered in accordance with the plan of
conversion (the "Plan") adopted by the Board of Directors of the Bank pursuant
to which the Bank intends to convert from a federally chartered mutual savings
bank to a federally chartered stock savings bank and issue all of its stock to
the Company. Pursuant to the Plan, the Company is offering to certain of the
Bank's depositors and borrowers and its tax qualified employee benefit plans
(the "Employee Plans") rights to subscribe for the Securities in a subscription
offering (the "Subscription Offering"). To the extent Securities are not
subscribed for in the Subscription Offering, such Securities may be offered to
certain members of the general public, in a public offering and/or direct
community offering (the "Public Offering," and together with the Subscription
Offering, as each may be extended or reopened from time to time, the
"Subscription/Public Offering") to be commenced concurrently with the
Subscription Offering. It is currently anticipated by the Bank and the Company
that any Securities not subscribed for in the Subscription/Public Offering will
be offered, subject to Section 2 hereof, in a syndicated public offering (the
"Syndicated Public Offering"). The Subscription/Public Offering and the
Syndicated Public Offering are hereinafter referred to collectively as the
"Offerings" and the conversion of the Bank from mutual to stock form, the
acquisition of all of the capital stock of the Bank by the Company and the
Offerings are
<PAGE>
hereinafter referred to collectively as the "Conversion." It is acknowledged
that the number of Securities to be sold in the Conversion may be increased or
decreased as described in the Prospectus (as hereinafter defined). If the number
of Securities is increased or decreased in accordance with the Plan, the term
"Securities" shall mean such greater or lesser number, where applicable. In the
event that a holding company form of organization is not utilized, all pertinent
terms of this Agreement will apply to the conversion of the Bank from the mutual
to stock form of organization and the sale of the Bank's common stock.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (No. 333-_____), including a
related prospectus, for the registration of the Securities under the Securities
Act of 1933, as amended (the "1933 Act"), has filed such amendments thereto, if
any, and such amended prospectuses as may have been required to the date hereof
by the Commission in order to declare such registration statement effective, and
will file such additional amendments thereto and such amended prospectuses and
prospectus supplements as may hereafter be required. Such registration statement
(as amended to date, if applicable, and as from time to time amended or
supplemented hereafter) and the prospectus constituting a part thereof
(including in each case all documents incorporated or deemed to be incorporated
by reference therein and the information, if any, deemed to be part thereof
pursuant to the rules and regulations of the Commission under the 1933 Act, as
from time to time amended or supplemented pursuant to the 1933 Act or otherwise
(the "1933 Act Regulations")), are hereinafter referred to as the "Registration
Statement" and the "Prospectus," respectively, except that if any revised
prospectus shall be used by the Company in connection with the Subscription/
Public Offering or the Syndicated Public Offering which differs from the
Prospectus on file at the Commission at the time the Registration Statement
becomes effective (whether or not such revised prospectus is required to be
filed by the Company pursuant to Rule 424(b) of the 1933 Act Regulations), the
term "Prospectus" shall refer to such revised prospectus from and after the time
it is first provided to the Agent for such use.
Concurrently with the execution of this Agreement, the Company is
delivering to the Agent copies of the Prospectus of the Company to be used in
the Subscription/ Public Offering. Such Prospectus contains information with
respect to the Bank, the Company, the Conversion and the Common Stock.
Section 1. Representations and Warranties. (a) The Company and the Bank
jointly and severally represent and warrant to the Agent as of the date hereof
as follows:
(i) The Registration Statement has been declared effective by the
Commission, no stop order has been issued with respect thereto and no
proceedings therefor have been initiated or, to the knowledge of the
Company and the Bank, threatened by the Commission. At the time the
Registration Statement became effective and at the Closing Time referred to
in Section 2 hereof, the Registration Statement complied and
2
<PAGE>
will comply in all material respects with the requirements of the 1933 Act
and the 1933 Act Regulations and did not and will 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 not
misleading. The Prospectus, at the date hereof does not and at the Closing
Time referred to in Section 2 hereof will not, include 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; provided, however, that the representations
and warranties in this subsection shall not apply to statements in or
omissions from the Registration Statement or Prospectus or the Plan made in
reliance upon and in conformity with information with respect to the Agent
furnished to the Company in writing by the Agent expressly for use in the
Registration Statement or Prospectus (the "Agent Information," which the
Company and the Bank acknowledge appears only in the cover page and the
sections captioned "Market for Common Stock" and "The Conversion--Public
Offering and Direct Community Offering" and "The Conversion--Marketing
Arrangements" of the Prospectus).
(ii) The Company has filed with the Department of the Treasury, Office
of Thrift Supervision (the "OTS") the Company's application for approval of
its acquisition of the Bank (the "Holding Company Application") on Form
H-(e)1 promulgated under the savings and loan holding company provisions of
the Home Owners' Loan Act ("HOLA") and the regulations promulgated
thereunder. The Company has received written notice dated _________ __,
1998 from the OTS of its approval of the acquisition of the Bank, such
approval remains in full force and effect and no order has been issued by
the OTS suspending or revoking such approval and no proceedings therefor
have been initiated or, to the knowledge of the Company or the Bank,
threatened by the OTS. At the date of such approval, the Holding Company
Application complied in all material respects with the applicable
provisions of HOLA and the regulations promulgated thereunder.
(iii) Pursuant to the rules and regulations of the OTS governing the
conversion of federally chartered mutual savings institutions to stock form
(the "Conversion Regulations"), the Bank has filed with the OTS an
application for conversion on Form AC, and has filed such amendments
thereto and supplementary materials as may have been required to the date
hereof (such application, as amended to date, if applicable, and as from
time to time amended or supplemented hereafter, is hereinafter referred to
as the ("Conversion Application")), including copies of the Bank's Proxy
Statement, dated _________ __, 1998, relating to the Conversion (the"Proxy
Statement"), and the Prospectus. The OTS has, by order dated _________ __,
1998 (the "Order"), approved the Conversion Application (which Application
includes the Plan), such approval remains in full force and effect and no
order has been issued by the OTS suspending or revoking such approval and
no proceedings
3
<PAGE>
therefor have been initiated or, to the knowledge of the Company or the
Bank, threatened by the OTS. At the date of such approval, the Conversion
Application complied in all material respects with the applicable
provisions of the Conversion Regulations except for those provisions
specifically waived by the OTS in the Order.
(iv) At the time of their use, the Proxy Statement and any other proxy
solicitation materials will comply in all material respects with the
applicable provisions of the Conversion Regulations and 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 the light of the
circumstances under which they were made, not misleading.
(v) The OTS has not, by order or otherwise, prevented or suspended the
use of the Prospectus or any supplemental sales literature authorized by
the Company or the Bank for use in connection with the Offerings.
(vi) At the Closing Time referred to in Section 2, the Company and the
Bank will have satisfied all conditions precedent to the Conversion in
accordance with the Plan, the applicable Conversion Regulations and all
other applicable laws, regulations, decisions and orders, including all
material terms, conditions, requirements and provisions precedent to the
Conversion imposed upon the Company or the Bank by the OTS, the Federal
Deposit Insurance Corporation (the "FDIC"), or any other regulatory
authority, other than those which the regulatory authority permits to be
completed after the Conversion.
(vii) Ferguson & Co., which prepared the valuation of the Bank as part
of the Conversion, has advised the Company in writing that it is
independent of the Company and the Bank, within the meaning of the
Conversion Regulations.
(viii) The accountants who certified the financial statements and
supporting schedules of the Bank included in the Registration Statement
have advised the Company in writing that they are independent public
accountants within the meaning of the Code of Ethics of the American
Institute of Certified Public Accountants, and such accountants have
advised the Company in writing that they are, with respect to the Company
and the Bank, independent certified public accountants as required by the
1933 Act and the 1933 Act Regulations.
(ix) The consolidated financial statements of the Bank and the related
notes thereto included in the Registration Statement and the Prospectus
present fairly the financial position of the Bank as at the dates indicated
and the results of operations, retained earnings and cash flows for the
periods specified, and comply as to form in all material respects with the
applicable accounting requirements of the 1933 Act Regulations and the
Conversion Regulations; except as otherwise stated
4
<PAGE>
in the Registration Statement, said consolidated financial statements have
been prepared in conformity with generally accepted accounting principles
applied on a consistent basis; and the supporting schedules and tables
included in the Registration Statement present fairly the information
required to be stated therein. The financial statements of the Company are
not required to be included in the Registration Statement and Prospectus
under applicable accounting requirements of the 1933 Act Regulations.
(x) The pro forma financial statements and other pro forma information
included in the Prospectus present fairly the information shown therein,
have been prepared in accordance with generally accepted accounting
principles and the Commission's rules and guidelines with respect to pro
forma financial statements and other pro forma information, have been
properly compiled on the pro forma basis described therein, and, in the
opinion of the Company, the assumptions used in the preparation thereof are
reasonable and the adjustments used therein are appropriate under the
circumstances.
(xi) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, except as otherwise stated
therein (A) there has been no material adverse change in the financial
condition, results of operations or business affairs of the Company and the
Bank considered as one enterprise, whether or not arising in the ordinary
course of business, and (B) except for transactions specifically referred
to or contemplated in the Prospectus, there have been no transactions
entered into by the Company or the Bank, other than those in the ordinary
course of business, which are material with respect to the Company and the
Bank considered as one enterprise.
(xii) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware
with corporate power and authority to own, lease and operate its properties
and to conduct its business as described in the Prospectus and to enter
into and perform its obligations under this Agreement; and the Company is
duly qualified as a foreign corporation to transact business in each
jurisdiction in which such qualification is required, whether by reason of
the ownership or leasing of property or the conduct of business, except
where the failure to so qualify would not have a material adverse effect on
the financial condition, results of operations or business affairs of the
Company and the Bank considered as one enterprise.
(xiii) Upon consummation of the Conversion, the authorized, issued and
outstanding capital stock of the Company will be within the range set forth
in the Prospectus under "Capitalization" (except for subsequent issuances,
if any, pursuant to reservations, agreements or employee benefit plans
referred to in the Prospectus, subject to compliance with all conditions
imposed thereon by the OTS, in an amount as described in
5
<PAGE>
the Prospectus); except for shares issued in connection with the initial
capitalization of the Company, which shares shall be canceled upon
consummation of the Conversion, no shares of Common Stock have been or will
be issued and outstanding prior to the Closing Time referred to in Section
2; at the time of Conversion, the Securities will have been duly authorized
for issuance and, when issued and delivered by the Company pursuant to the
Plan against payment of the consideration calculated as set forth in the
Plan, will be duly and validly issued and fully paid and non-assessable;
the terms and provisions of the Common Stock and the capital stock of the
Company conform to all statements relating thereto contained in the
Prospectus; and the issuance of the Securities is not subject to preemptive
or other similar rights.
(xiv) The Bank, as of the date hereof, is a federally chartered
savings bank in mutual form and upon consummation of the Conversion will be
a federally chartered savings bank in stock form, in both instances with
full corporate power and authority to own, lease and operate its properties
and to conduct its business as described in the Prospectus; the Company and
the Bank have obtained all licenses, permits and other governmental
authorizations currently required for the conduct of their respective
businesses or required for the conduct of their respective businesses as
contemplated by the Holding Company Application and the Conversion
Application, except where the failure to obtain such licenses, permits or
other governmental authorizations would not have a material adverse effect
on the financial condition, results of operations or business affairs of
the Company and the Bank considered as one enterprise; all such licenses,
permits and other governmental authorizations are in full force and effect
and the Company and the Bank are in all material respects in compliance
therewith; neither the Company nor the Bank has received notice of any
proceeding or action relating to the revocation or modification of any such
license, permit or other governmental authorization which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding,
might have a material adverse effect on the financial condition, results of
operations or business affairs of the Company and the Bank considered as
one enterprise; and the Bank is in good standing under the laws of the
United States and is qualified as a foreign corporation in any jurisdiction
in which the failure to so qualify would have a material adverse effect on
the financial condition, results of operations or business affairs of the
Company and the Bank considered as one enterprise.
(xv) The deposit accounts of the Bank are insured by the FDIC and upon
consummation of the Conversion, the liquidation account for the benefit of
eligible account holders and supplemental eligible account holders will be
duly established in accordance with the requirements of the Conversion
Regulations.
6
<PAGE>
(xvi) No shares of common stock of the Bank have been or will be
issued prior to the Closing Time referred to in Section 2; and as of
Closing Time referred to in Section 2, all of the issued and outstanding
capital stock of the Bank will be duly authorized, validly issued and fully
paid and nonassessable, and all such capital stock will be owned
beneficially and of record by the Company free and clear of any mortgage,
pledge, lien, encumbrance or claim.
(xvii) The Company and the Bank have taken all corporate action
necessary for them to execute, deliver and perform this Agreement, and this
Agreement has been duly executed and delivered by, and is the valid and
binding agreement of, the Company and the Bank, enforceable in accordance
with its terms, except as may be limited by bankruptcy, insolvency or other
laws affecting the enforceability of the rights of creditors generally or
the rights of creditors of a federally insured depository institution and
judicial limitations on the right of specific performance and except as the
enforceability of indemnification and contribution provisions may be
limited by applicable securities laws.
(xviii) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus and prior to the
Closing Time, except as otherwise may be specifically described, indicated
or contemplated therein, neither the Company nor the Bank will have (A)
issued any securities or incurred any material liability or obligation,
direct or contingent, or borrowed money, except borrowings in the ordinary
course of business from the same or similar sources and in similar amounts
as indicated in the Prospectus, or (B) entered into any transaction or
series of transactions which is material in light of the business of the
Company and the Bank, taken as a whole, excluding the origination of loans
or the purchase or sale of investment securities or mortgage-backed
securities in the ordinary course of business or otherwise as indicated in
the Prospectus.
(xix) No approval of any regulatory or supervisory or other public
authority is required in connection with the execution and delivery of this
Agreement or the issuance of the Securities, except for the declaration of
effectiveness of any required post-effective amendment to the Registration
Statement by the Commission and approval thereof by the OTS, the issuance
of the federal stock charter by the OTS and as may be required under the
securities laws of various jurisdictions.
(xx) Neither the Company nor the Bank is in violation of its
certificate of incorporation, articles of incorporation or charter or
bylaws, as the case may be (and the Bank will not be in violation of its
charter or bylaws in stock form upon consummation of the Conversion); and
neither the Company nor the Bank is in default (nor has any event occurred
which, with notice or lapse of time or both, would constitute a default) in
the performance or observance of any obligation, agreement, covenant or
condition contained in any contract, indenture,
7
<PAGE>
mortgage, loan agreement, note, lease or other instrument to which the
Company or the Bank is a party or by which it or any of them may be bound,
or to which any of the property or assets of the Company or the Bank is
subject, except for such defaults that would not, individually or in the
aggregate, have a material adverse effect on the financial condition,
results of operations or business affairs of the Company and the Bank
considered as one enterprise.
(xxi) The execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated herein have been duly
authorized by all necessary corporate action and do not and will not
conflict with or constitute a breach of, or default under, or result in the
creation or imposition of any lien, charge or encumbrance upon any property
or assets of the Company or the Bank pursuant to any contract, indenture,
mortgage, loan agreement, note, lease or other instrument to which the
Company or the Bank is a party or by which it or any of them may be bound,
or to which any of the property or assets of the Company or the Bank is
subject, except for such defaults that would not, individually or in the
aggregate, have a material adverse effect on the financial condition,
results of operations or business affairs of the Company and the Bank
considered as one enterprise; nor will such action result in any violation
of the provisions of the certificate of incorporation, articles of
incorporation or charter, as the case may be, or bylaws of the Company or
the Bank; nor will such action result in any violation of any applicable
law, administrative regulation or administrative or court decree except for
immaterial violations that would not impair the ability of the Company and
the Bank to execute, deliver and perform under this Agreement or consummate
the transactions contemplated herein.
(xxii) No labor dispute with the employees of the Company or the Bank
exists or, to the knowledge of the Company or the Bank, is imminent; and
the Company is not aware of any existing or imminent labor disturbance by
the employees of any of its principal suppliers or contractors which might
be expected to result in any material adverse change in the financial
condition, results of operations or business affairs of the Company and the
Bank considered as one enterprise.
(xxiii) The Company and the Bank have good and marketable title to all
properties and assets for which ownership is material to the business of
the Company or the Bank and to those properties and assets described in the
Prospectus as owned by them, free and clear of all liens, charges,
encumbrances or restrictions, except such as are described in the
Prospectus or are not material in relation to the business affairs of the
Company and the Bank considered as one enterprise; and all of the leases
and subleases material to the business of the Company or the Bank under
which the Company and the Bank hold properties, including those described
in the Prospectus, are valid and binding agreements of the Company and the
Bank, enforceable in accordance with their terms.
8
<PAGE>
(xxiv) The Company and the Bank are not in violation of any directive
from the OTS or the FDIC to make any change in the method of conducting
their respective businesses; the Bank has conducted and is conducting its
business so as to comply in all material respects with all applicable
statutes, regulations and administrative and court decrees (including,
without limitation, all regulations, decisions, directives and orders of
the OTS or the FDIC).
(xxv) There is no action, suit or proceeding before or by any court or
governmental agency or body, domestic or foreign, now pending, or, to the
knowledge of the Company or the Bank, threatened, against or affecting the
Company or the Bank which is required to be disclosed in the Registration
Statement (other than as disclosed therein), or which might result in any
material adverse change in the financial condition, results of operations
or business affairs of the Company and the Bank considered as one
enterprise, or which might materially and adversely affect the properties
or assets thereof or which might materially and adversely affect the
consummation of the Conversion; all pending legal or governmental
proceedings to which the Company or the Bank is a party or of which any of
their respective property or assets is the subject which are not described
in the Registration Statement, including ordinary routine litigation
incidental to their businesses, are considered in the aggregate not
material; and there are no contracts or documents of the Company or the
Bank which are required to be described in or filed as exhibits to the
Registration Statement or the Conversion Application which have not been so
described or filed.
(xxvi) The Bank has obtained an opinion of its counsel, Silver,
Freedman & Taff, L.L.P., with respect to the legality of the Securities to
be issued and the federal income tax consequences of the Conversion, copies
of which are filed as exhibits to the Registration Statement; all material
aspects of the aforesaid opinions are accurately summarized in the
Prospectus; the facts and representations upon which such opinions are
based are truthful, accurate and complete in all material respects; and
neither the Bank nor the Company has taken any action inconsistent
therewith.
(xxvii) The Company is not required to be registered under the
Investment Company Act of 1940, as amended.
(xxviii) All of the loans reflected as assets on the most recent
financial statements or selected financial information of the Bank included
in the Prospectus meet or are exempt from all requirements of federal,
state or local law pertaining to lending, including without limitation
truth in lending (including the requirements of Regulations Z and 12 C.F.R.
Part 226 and Section 563.99), 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
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financial condition, results of operations or business affairs of the
Company and the Bank considered as one enterprise.
(xxix) With the exception of the loan from the Company to the Employee
Stock Ownership Plan as described in the Prospectus, to the knowledge of
the Company and the Bank, none of the Company, the Bank or employees of the
Bank has made any payment of funds of the Company or the Bank as a loan for
the purchase of the Common Stock or 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.
(xxx) The Company and the Bank are in compliance in all material
respects with the applicable financial recordkeeping and reporting
requirements of the Currency and Foreign Transaction Reporting Act of 1970,
as amended, and the rules and regulations thereunder.
(xxxi) Neither the Company or the Bank nor any properties owned or
operated by the Company or the Bank is in violation of or liable under any
Environmental Law (as defined below), except for such violations or
liabilities that, individually or in the aggregate, would not have a
material adverse effect on the financial condition, results of operations
or business affairs of the Company and the Bank considered as one
enterprise. There are no actions, suits or proceedings, or demands, claims,
notices or investigations (including, without limitation, notices, demand
letters or requests for information from any environmental agency)
instituted or pending, or to the knowledge of the Company or the Bank,
threatened, relating to the liability of any property owned or operated by
the Company or the Bank thereof, under any Environmental Law. For purposes
of this subsection, the term "Environmental Law" means any federal, state,
local or foreign law, statute, ordinance, rule, regulation, code, license,
permit, authorization, approval, consent, order, judgment, decree,
injunction or agreement with any regulatory authority relating to (i) the
protection, preservation or restoration of the environment (including,
without limitation, air, water, vapor, surface water, groundwater, drinking
water supply, surface soil, subsurface soil, plant and animal life or any
other natural resource), and/or (ii) the use, storage, recycling,
treatment, generation, transportation, processing, handling, labeling,
production, release or disposal of any substance presently listed, defined,
designated or classified as hazardous, toxic, radioactive or dangerous, or
otherwise regulated, whether by type or by quantity, including any material
containing any such substance as a component.
(xxxii) The Company and the Bank have filed all federal income and
state and local franchise tax returns required to be filed and have made
timely payments of all taxes shown as due and payable in respect of such
returns, and no deficiency has been asserted with respect thereto by any
taxing authority.
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(xxxiii) The Company has received approval, subject to regulatory
approval to consummate the Offerings and issuance, to have the Common Stock
quoted on the Nasdaq National Market effective as of the Closing Time.
(b) Any certificate signed by any officer of the Company or the Bank
and delivered to the Agent or counsel for the Agent shall be deemed a
representation and warranty by the Company or the Bank to the Agent as to the
matters covered thereby.
Section 2. Appointment of FBR; Sale and Delivery of the Securities;
Closing. On the basis of the representations and warranties herein contained and
subject to the terms and conditions herein set forth, the Company hereby
appoints FBR as its Agent to consult with and advise the Company, and to assist
the Company with the solicitation of subscriptions and purchase orders for
Securities, in connection with the Company's sale of Common Stock in the
Subscription/Public Offering and the Syndicated Public Offering. On the basis of
the representations and warranties herein contained, and subject to the terms
and conditions herein set forth, FBR hereby accepts such appointment and agrees
to use its best efforts to assist the Company with the solicitation of
subscriptions and purchase orders for Securities in accordance with this
Agreement; provided, however, that the Agent shall not be obligated to take any
action which is inconsistent with any applicable laws, regulations, decisions or
orders. The services to be rendered by FBR pursuant to this appointment include
the following: (i) consulting as to the securities marketing implications of any
aspect of the Plan of Conversion or related corporate documents; (ii) reviewing
with the Board of Directors the independent appraiser's appraisal of the Common
Stock; (iii) reviewing all offering documents, including the Prospectus, stock
order form and related offering materials (it being understood that preparation
and filing of such documents is the sole responsibility of the Company and the
Bank and their counsel); (iv) assisting in the design and implementation of a
marketing strategy for the Offerings; (v) providing support to the Company and
the Bank in obtaining all requisite regulatory approvals; (vi) assisting Bank
management in preparing for meetings with potential investors and
broker-dealers; and (vii) providing such other general advice and assistance as
may be requested to promote the successful completion of the Offerings.
The appointment of the Agent hereunder shall terminate upon the earlier
to occur of (a) forty-five (45) days after the last day of the Subscription
Offering, unless the Company and the Agent agree in writing to extend such
period and the OTS agrees to extend the period of time in which the Securities
may be sold, or (b) the receipt and acceptance of subscriptions and purchase
orders for all of the Securities.
If any of the Securities remain available after the expiration of the
Subscription/Public Offering, at the request of the Company and the Bank, the
Agent will seek to form a syndicate of registered broker or dealers ("Selected
Dealers") to assist in the solicitation of purchase orders of such Securities on
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<PAGE>
a best efforts basis, subject to the terms and conditions set forth in a
selected dealers' agreement (the "Selected Dealers' Agreement"), substantially
in the form set forth in Exhibit A to this Agreement. FBR will endeavor to limit
the aggregate fees to be paid by the Company and the Bank under any such
Selected Dealers' Agreement to an amount competitive with gross underwriting
discounts charged at such time for underwritings of comparable amounts of stock
sold at a comparable price per share in a similar market environment. The Agent
will endeavor to distribute the Securities among the Selected Dealers in a
fashion which best meets the distribution objective of the Company and the
requirements of the Plan, which may result in limiting the allocation of stock
to certain Selected Dealers. It is understood that in no event shall the Agent
be obligated to act as a Selected Dealer or to take or purchase any Securities.
In the event the Company is unable to sell at least the total minimum
of the Securities, as set forth on the cover page of the Prospectus, within the
period herein provided, this Agreement shall terminate and the Company shall
refund to any persons who have subscribed for any of the Securities the full
amount which it may have received from them, together with interest as provided
in the Prospectus, and no party to this Agreement shall have any obligation to
the others hereunder, except for the obligations of the Company and the Bank as
set forth in Sections 4, 6 and 7 hereof and the obligations of the Agent as
provided in Sections 6 and 7 hereof. Appropriate arrangements for placing the
funds received from subscriptions for Securities or other offers to purchase
Securities in special interest-bearing accounts with the Bank until all
Securities are sold and paid for were made prior to the commencement of the
Subscription Offering, with provision for refund to the purchasers as set forth
above, or for delivery to the Company if all Securities are sold.
If at least the total minimum of Securities, as set forth on the cover
page of the Prospectus, are sold, the Company agrees to issue or have issued the
Securities sold and to release for delivery certificates for such Securities at
the Closing Time against payment therefor by release of funds from the special
interest-bearing accounts referred to above. The closing shall be held at the
offices of Silver, Freedman & Taff, L.L.P., at 10:00 a.m., local time, or at
such other place and time as shall be agreed upon by the parties hereto, on a
business day to be agreed upon by the parties hereto. The Company shall notify
the Agent by telephone, confirmed in writing, when funds shall have been
received for all the Securities. One or more certificates for Securities shall
be delivered in such denomination or denominations and registered in such name
or names as FBR requests. Notwithstanding the foregoing, certificates for
Securities purchased through Selected Dealers shall be made available to the
Agent for inspection at least 48 hours prior to the Closing Time at such office
as the Agent shall designate. The hour and date upon which the Company shall
release for delivery all of the Securities, in accordance with the terms hereof,
is herein called the "Closing Time."
The Company will pay any stock issue and transfer taxes which may be
payable with respect to the sale of the Securities.
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In addition to reimbursement of the expenses specified in Section 4
hereof, the Agent will receive the following compensation for its services
hereunder:
(a) a management fee of $20,000 (the "Management Fee") (in recognition
of services already provided by FBR, the Bank [has made] advance payment to
FBR of the Management Fee, which Management Fee shall be credited against
the Marketing Fee (as defined below)); FBR is entitled to the Management
Fee irrespective of any termination of the Conversion for any reason; and
(b) a marketing fee of $150,000 payable in immediately available funds
at the Closing Time (the "Marketing Fee").
If this Agreement is terminated by the Agent in accordance with the
provisions of Section 9(a) hereof or the Conversion is terminated by the Company
or the Bank, no fee other than the Management Fee shall be payable by the
Company to FBR; provided, however, the Company shall reimburse the Agent for all
of its reasonable out-of-pocket expenses incurred prior to termination,
including the reasonable fees and disbursements of counsel for the Agent in
accordance with the provisions of Section 4 hereof.
Section 3. Covenants of the Company. The Company and the Bank covenant
with the Agent as follows:
(a) The Company and the Bank will prepare and file such amendments or
supplements to the Registration Statement, the Prospectus, the Conversion
Application and the Proxy Statement as may hereafter be required by the 1933 Act
Regulations or the Conversion Regulations or as may hereafter be reasonably
requested by the Agent. The Company and the Bank will promptly file the
Prospectus and any supplemental sales literature with the OTS and, if required,
with the Commission. Following completion of the Subscription/Public Offering,
in the event of a Syndicated Public Offering, the Company and the Bank will (i)
promptly prepare and file with the Commission a post-effective amendment to the
Registration Statement relating to the results of the Subscription/Public
Offering, any additional information with respect to the proposed plan of
distribution and any revised pricing information or (ii) if no such
post-effective amendment is required, will file with, or mail for filing to, the
Commission, if necessary as determined by counsel to the Company, a prospectus
or prospectus supplement containing information relating to the results of the
Subscription/Public Offering and pricing information pursuant to Rule 424(c) of
the 1933 Act Regulations, in either case in a form acceptable to the Agent. The
Company and the Bank will notify the Agent immediately, and confirm the notice
in writing, (i) of the effectiveness of any post-effective amendment of the
Registration Statement, the filing of any supplement to the Prospectus and the
filing of any amendment to the Conversion Application, (ii) of the receipt of
any comments from the OTS or the Commission with respect to the transactions
contemplated by this Agreement or the Plan, (iii) of any request by the
Commission or the OTS for any
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<PAGE>
amendment to the Registration Statement, the Conversion Application or the
Holding Company Application or any amendment or supplement to the Prospectus or
for additional information, (iv) of the issuance by the OTS of any order
suspending the Offerings or the use of the Prospectus or the initiation of any
proceedings for that purpose, (v) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose, and (vi) of the receipt of any
notice with respect to the suspension of any qualification of the Securities for
offering or sale in any jurisdiction. The Company and the Bank will make every
reasonable effort to prevent the issuance of any stop order and, if any stop
order is issued, to obtain the lifting thereof at the earliest possible moment.
(b) The Company and the Bank will give the Agent notice of its
intention to file or prepare any amendment to the Conversion Application, the
Holding Company Application or the Registration Statement (including any
post-effective amendment) or any amendment or supplement to the Prospectus
(including any revised prospectus which the Company proposes for use in
connection with the Syndicated Public Offering of the Securities which differs
from the prospectus on file at the Commission at the time the Registration
Statement becomes effective, whether or not such revised prospectus is required
to be filed pursuant to Rule 424(b) of the 1933 Act Regulations), will furnish
the Agent with copies of any such amendment or supplement a reasonable amount of
time prior to such proposed filing or use, as the case may be, and will not file
any such amendment or supplement or use any such prospectus to which the Agent
or counsel for the Agent may reasonably object.
(c) The Company and the Bank will deliver to the Agent one signed copy
and as many conformed copies of the Conversion Application and the Registration
Statement as originally filed and of each amendment thereto (including exhibits
filed therewith) as the Agent may reasonably request, and from time to time such
number of copies of the Prospectus as the Agent may reasonably request.
(d) During the period when the Prospectus is required to be delivered,
the Company and the Bank will comply, at their own expense, with all
requirements imposed upon them by the OTS, by the applicable Conversion
Regulations, as from time to time in force, and by the 1933 Act, the 1933 Act
Regulations, the Securities Exchange Act of 1934, as amended (the "1934 Act"),
and the rules and regulations of the Commission promulgated thereunder,
including, without limitation, Regulation M under the 1934 Act, 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.
(e) If any event or circumstance shall occur as a result of which it is
necessary, in the reasonable opinion of counsel for the Agent, to amend or
supplement the Prospectus in order to make the Prospectus not misleading in the
light of the circumstances existing at the time it is delivered to a purchaser,
the Company and the Bank will forthwith amend or supplement the
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<PAGE>
Prospectus (in form and substance satisfactory to counsel for the Agent) so
that, as so amended or supplemented, the Prospectus will not include 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 existing at
the time it is delivered to a purchaser, not misleading, and the Company and the
Bank will furnish to the Agent a reasonable number of copies of such amendment
or supplement. For the purpose of this subsection, the Company and the Bank will
each furnish such information with respect to itself as the Agent may from time
to time reasonably request.
(f) The Company and the Bank will take all necessary action, in
cooperation with the Agent, to qualify the Securities for offering and sale
under the applicable securities laws of such states of the United States and
other jurisdictions as the Conversion Regulations may require and as the Agent
and the Company have agreed; provided, however, that the Company and the Bank
shall not be obligated to file any general consent to service of process or to
qualify as a foreign corporation in any jurisdiction in which it is not so
qualified.
(g) The Company authorizes FBR and any Selected Dealers to act as agent
of the Company in distributing the Prospectus to persons entitled to receive
subscription rights and other persons to be offered Securities having record
addresses in the states or jurisdictions set forth in a survey of the securities
or "blue sky" laws of the various jurisdictions in which the Offerings will be
made (the "Blue Sky Survey").
(h) The Company will make generally available to its security holders
as soon as practicable, but not later than 60 days after the close of the period
covered thereby, an earnings statement (in form complying with the provisions of
Rule 158 of the 1933 Act Regulations) covering a twelve month period beginning
not later than the first day of the Company's fiscal quarter next following the
"effective date" (as defined in said Rule 158) of the Registration Statement.
(i) During the period ending on the third anniversary of the expiration
of the fiscal year during which the closing of the transactions contemplated
hereby occurs, the Company will furnish to its stockholders as soon as
practicable after the end of each such fiscal year an annual report (including
consolidated statements of financial condition and consolidated statements of
income, stockholders' equity and cash flows, certified by independent public
accountants). In addition, such annual report shall be made public through the
issuance of appropriate press releases at the same time or prior to the time of
the furnishing thereof to stockholders of the Company.
(j) During the period ending on the third anniversary of the expiration
of the fiscal year during which the closing of the transactions contemplated
hereby occurs, the Company will furnish to the Agent (i) as soon as available, a
copy of each report or other document of the Company furnished generally to
stockholders of the Company or furnished to or filed with the Commission
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<PAGE>
under the 1934 Act or any national securities exchange or system on which any
class of securities of the Company is listed or quoted, and (ii) from time to
time, such other nonconfidential information concerning the Company as the Agent
may reasonably request.
(k) The Company and the Bank will conduct the Conversion in all
material respects in accordance with the Plan, the Conversion Regulations (to
the extent not waived by the provisions of the Order) and all other applicable
regulations, decisions and orders, including all applicable terms, requirements
and conditions precedent to the Conversion imposed upon the Company or the Bank
by the OTS.
(l) The Company and the Bank will use the net proceeds received by them
from the sale of the Securities in the manner specified in the Prospectus under
"Use of Proceeds."
(m) The Company will file with the Commission such reports on Form SR
as may be required pursuant to Rule 463 of the 1933 Act Regulations.
(n) The Company will file a registration statement for the Common Stock
under Section 12(g) of the 1934 Act prior to completion of the Offerings and
will request that such registration statement be effective upon completion of
the Conversion. The Company will maintain the effectiveness of such registration
for not less than three years. The Company will file with the Nasdaq Stock
Market all documents and notices required by the Nasdaq Stock Market of
companies that have issued securities that are traded in the over-the-counter
market and quotations for which are reported by the Nasdaq National Market.
(o) The Company and the Bank will take such actions and furnish such
information as are reasonably requested by the Agent in order for the Agent to
ensure compliance with the NASD's "Interpretation Relating to Free-Riding and
Withholding."
(p) Other than in connection with any employee benefit plan or
arrangement described in the Prospectus, the Company will not, without the prior
written consent of the Agent, which consent shall not be unreasonably withheld,
sell or issue, contract to sell or otherwise dispose of, any shares of Common
Stock or any securities convertible or exchangeable for shares of Common Stock
other than the Securities for a period of 180 days following the Closing Time.
(q) The Company and the Bank will comply with the conditions imposed by
or agreed to with the OTS in connection with its approval of the Holding Company
Application and the Conversion Application.
(r) During the period beginning on the date hereof and ending on the
later of the third anniversary of the Closing Time or the date on which the
Agent receives full payment in satisfaction of any claim for indemnification or
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<PAGE>
contribution to which it may be entitled pursuant to Sections 6 or 7 hereof,
respectively, neither the Company nor the Bank shall, without the prior written
consent of the Agent, which consent shall not be unreasonably withheld, take or
permit to be taken any action that could result in the common stock of the Bank
becoming subject to any security interest, mortgage, pledge, lien or
encumbrance; provided, however, that this covenant shall be null and void if the
Board of Governors of the Federal Reserve System, by regulation, policy
statement or interpretive release, or by written order or written advice
addressed to the Bank or the Agent specifically addressing the provisions of
Section 6(a) hereof, permits indemnification of the Agent by the Bank as
contemplated by such provisions.
Section 4. Payment of Expenses. The Company and the Bank jointly and
severally agree to pay all expenses incident to the performance of their
obligations under this Agreement, including but not limited to (i) the cost of
obtaining all securities and bank regulatory approvals, (ii) the printing and
filing of the Registration Statement and the Conversion Application as
originally filed and of each amendment thereto, (iii) the preparation, issuance
and delivery of the certificates for the Securities to the purchasers in the
Offerings, (iv) the fees and disbursements of the Company's and the Bank's
counsel, accountants, conversion agent, appraiser and other advisors, (v) the
qualification of the Securities under securities laws in accordance with the
provisions of Section 3(f) hereof, including filing fees and the fees and
disbursements of counsel in connection therewith and in connection with the
preparation of the Blue Sky Survey, (vi) the printing and delivery to the Agent
of copies of the Registration Statement as originally filed and of each
amendment thereto and the printing and delivery of the Prospectus and any
amendments or supplements thereto to the purchasers in the Offerings and the
Agent, (vii) the printing and delivery to the Agent of copies of a Blue Sky
Survey, and (viii) the fees and expenses incurred in connection with the listing
of the Common Stock on the Nasdaq National Market. In the event the Agent incurs
any such fees and expenses on behalf of the Bank or the Company, the Bank will
reimburse the Agent for such fees and expenses whether or not the Conversion is
consummated; provided, however, that the Agent shall not incur any substantial
expenses on behalf of the Bank or the Company pursuant to this Section without
the prior approval of the Bank or the Company.
The Company and the Bank jointly and severally agree to pay certain
expenses incident to the performance of the Agent's obligations under this
Agreement, including (i) the filing fees paid or incurred by the Agent in
connection with all filings with the NASD, (ii) legal fees and expenses of the
Agent's counsel up to an aggregate of $20,000, and (iii) all reasonable out of
pocket expenses incurred by the Agent relating to the Offerings, including,
without limitation, advertising, promotional, syndication and travel expenses
and fees, up to an aggregate of $10,000, provided that should the expenses in
clauses (ii) and/or (iii) above exceed $30,000 in the aggregate, the Company
must approve such expenses above that amount for FBR to be reimbursed. All fees
and expenses to which the Agent is entitled to reimbursement under this
paragraph of this Section 4 shall be due and payable upon receipt by the
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Company or the Bank of a written accounting therefor setting forth in reasonable
detail the expenses incurred by the Agent.
Section 5. Conditions of Agent's Obligations. The Company, the Bank and
the Agent agree that the issuance and the sale of Securities and all obligations
of the Agent hereunder are subject to the accuracy of the representations and
warranties of the Company and the Bank herein contained as of the date hereof
and the Closing Time, to the accuracy of the statements of officers and
directors of the Company and the Bank made pursuant to the provisions hereof, to
the performance by the Company and the Bank of their obligations hereunder, and
to the following further conditions:
(a) No stop order suspending the effectiveness of the Registration
Statement shall have been issued under the 1933 Act or proceedings therefor
initiated or threatened by the Commission, no order suspending the Offerings or
authorization for final use of the Prospectus shall have been issued or
proceedings therefor initiated or threatened by the OTS and no order suspending
the sale of the Securities in any jurisdiction shall have been issued.
(b) At Closing Time, the Agent shall have received:
(1) The favorable opinion, dated as of Closing Time, of Silver,
Freedman & Taff, L.L.P., counsel for the Company and the Bank, in form and
substance satisfactory to counsel for the Agent, to the effect that:
(i) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware.
(ii) The Company has full corporate power and authority to own, lease
and operate its properties and to conduct its business as described in the
Registration Statement and Prospectus and to enter into and perform its
obligations under this Agreement.
(iii) The Company is duly qualified as a foreign corporation to
transact business and is in good standing in the State of Illinois and each
jurisdiction in which the failure to so qualify would have a material
adverse effect upon the consolidated financial condition, results of
operations or business affairs of the Company and the Bank considered as
one enterprise.
(iv) Upon consummation of the Conversion and subject to compliance
with all conditions imposed upon the formation and contribution thereof by
the OTS under the terms of the Order, in an amount as described in the
Prospectus, the authorized, issued and outstanding capital stock of the
Company will be within the range described in the Prospectus and, except
for shares issued upon incorporation of the Company, which shares shall be
canceled prior to or
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concurrently with the Closing Time, no shares of Common Stock have been
issued and are outstanding prior to the Closing Time.
(v) The Securities have been duly and validly authorized for issuance
and sale and, when issued and delivered by the Company pursuant to the Plan
against payment of the consideration calculated as set forth in the Plan,
will be duly and validly issued and fully paid and non- assessable.
(vi) The issuance of the Securities is not subject to preemptive or
other similar rights arising by operation of law or, to their knowledge,
otherwise.
(vii) The Bank has been at all times since the date hereof and prior
to the Closing Time organized and validly existing under the laws of the
United States of America as a federally chartered savings bank of mutual
form, and, at Closing Time, has become duly chartered and validly existing
under the laws of the United States of America as a federally chartered
savings bank in stock form, in both instances with full corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Registration Statement and the Prospectus; and
the Bank is duly qualified as a foreign corporation in each jurisdiction in
which the failure to so qualify would have a material adverse effect upon
the financial condition, results of operations or business affairs of the
Bank.
(viii) The Bank is a member of the Federal Home Loan Bank of Chicago
and the deposit accounts of the Bank are insured by the FDIC up to the
applicable limits.
(ix) Upon consummation of the Conversion, all of the issued and
outstanding capital stock of the Bank will be duly authorized and validly
issued and fully paid and nonassessable, and all such capital stock will be
owned beneficially and of record by the Company free and clear of any
security interest, mortgage, pledge, lien, encumbrance or claim, legal,
equitable or otherwise.
(x) The OTS has approved the Holding Company Application and the
Conversion Application and no action is pending, or to such counsel's
knowledge, threatened with respect to the Holding Company Application or
the Conversion Application or the acquisition by the Company of all of the
Bank's issued and outstanding capital stock; the Holding Company
Application and the Conversion Application comply as to form in all
material respects with the applicable requirements of the OTS (other than
financial statements, the notes thereto, and other tabular, financial,
statistical and appraisal data included therein, as. to which no opinion
need be rendered) except as compliance therewith is specifically waived by
the provisions of the Order and include all documents required to be filed
as exhibits thereto; and the Company is authorized
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<PAGE>
to become a savings association holding company and is duly authorized to
own all of the issued and outstanding capital stock of the Bank to be
issued pursuant to the Plan.
(xi) The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action on the part of each of the
Company and the Bank, and this Agreement constitutes the legal, valid and
binding agreement of each of the Company and the Bank, enforceable in
accordance with its terms, except as rights to indemnity and contribution
hereunder may be limited under applicable law (it being understood that
such counsel may avail itself of customary exceptions concerning the effect
of bankruptcy, insolvency or similar laws and the availability of equitable
remedies); the execution and delivery of this Agreement, the incurrence of
the obligations herein set forth and the consummation of the transactions
contemplated herein will not result in any violation of the provisions of
the certificate of incorporation, articles of incorporation or charter, as
the case may be, or bylaws of the Company or the Bank or any applicable
law, statute, rule, regulation, judgment, order, writ or decree of any
government, governmental instrumentality or court, domestic or foreign,
having jurisdiction over the Company or the Bank or any of these respective
assets, properties or operations; and, to the best of such counsel's
knowledge, the execution and delivery of this Agreement, the incurrence of
the obligations herein set forth and the consummation of the transactions
contemplated herein will not conflict with or constitute a breach of, or
default under, and no default exists, and no event has occurred which, with
notice or lapse of time or both, would constitute a default under, or
result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company or the Bank pursuant to any
contract, indenture, mortgage, loan agreement, note, lease or other
instrument to which the Company or the Bank is a party or by which any of
them may be bound, or to which any of the property or assets of the Company
or the Bank is subject that, individually or in the aggregate, would have a
material adverse effect on the financial condition, results of operations
or business affairs of the Company and the Bank considered as one
enterprise.
(xii) The Prospectus has been duly authorized by the OTS for final use
pursuant to the Conversion Regulations and the Order and no action is
pending or, to the best of such counsel's knowledge, is threatened, by the
OTS to revoke such authorization.
(xiii) The Registration Statement is effective under the 1933 Act and
no stop order suspending the effectiveness of the Registration Statement
has been issued under the 1933 Act or proceedings therefor initiated or, to
the best of such counsel's knowledge and information, threatened by the
Commission.
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(xiv) To the best of such counsel's knowledge, no further approval,
authorization, consent or other order of any federal, Delaware or Illinois
board or body is required in connection with the execution and delivery of
this Agreement, the issuance of the Securities and the consummation of the
Conversion, except as may be required under the securities or Blue Sky laws
of various jurisdictions as to which no opinion need be rendered.
(xv) At the time the Registration Statement became effective, the
Registration Statement (other than the financial statements and appraisal,
financial and statistical data included therein, as to which no opinion
need be rendered) complied as to form in all material respects with the
requirements of the 1933 Act, the 1933 Act Regulations and the Conversion
Regulations.
(xvi) The Common Stock conforms to the description thereof contained
in the Prospectus, and the form of certificate used to evidence the Common
Stock is in due and proper form and complies with all applicable statutory
requirements.
(xvii) There are no legal or governmental proceedings pending or, to
the best of such counsel's knowledge, threatened against or affecting the
Company or the Bank which are required to be disclosed in the Registration
Statement and Prospectus, other than those disclosed therein, and all
pending legal or governmental proceedings to which the Company or the Bank
is a party or to which any of their property is subject which are not
described in the Registration Statement, including ordinary routine
litigation incidental to the business, are, considered in the aggregate,
not material.
(xviii) The information in the Prospectus under "Dividends," "The
Conversion--Income Tax Consequences," "Regulation," "The Conversion--
Effects of Conversion to Stock Form on Depositors and Borrowers of the
Bank," "Restrictions on Acquisitions of Stock and Related Takeover
Defensive Provisions" and "Description of Capital Stock," to the extent
that it constitutes matters of law, summaries of legal matters, documents
or proceedings, or legal conclusions, has been reviewed by them and is
correct in all material respects.
(xix) To the best of such counsel's knowledge, there are no contracts,
indentures, mortgages, loan agreements, notes, leases or other instruments
required to be described or referred to in the Registration Statement or to
be filed as exhibits thereto other than those described or referred to
therein or filed as exhibits thereto, and the descriptions thereof or
references thereto are correct in all material respects.
(xx) The Plan has been duly authorized by the Board of Directors of
the Company and the Board of Directors of the Bank and, to the best
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<PAGE>
of such counsel's knowledge, the OTS's approval of the Plan remains in full
force and effect; the Bank's charter has been amended, effective upon
consummation of the Conversion and the filing of such amended charter with
the OTS, to authorize the issuance of permanent capital stock; to the best
of such counsel's knowledge, the Company and the Bank have conducted the
Conversion in all material respects in accordance with applicable
requirements of the Conversion Regulations (except to the extent the
requirement to comply therewith was waived specifically by the terms of the
Order), the Plan and all other applicable regulations, decisions and orders
thereunder, including all material applicable terms, conditions,
requirements and conditions precedent to the Conversion imposed upon the
Company or the Bank by the OTS and no order has been issued by the OTS to
suspend the Offerings and no action for such purpose has been instituted
or, to the best of such counsel's knowledge, threatened by the OTS; and, to
the best of such counsel's knowledge, no person has sought to obtain review
of the final action of the OTS in approving the Conversion Application and
the Holding Company Application.
(xxi) To the best of such counsel's knowledge, the Company and the
Bank have obtained all material licenses, permits and other governmental
authorizations currently required for the conduct of their respective
businesses as described in the Registration Statement and Prospectus, and
all such licenses, permits and other governmental authorizations are in
full force and effect, and the Company and the Bank are in all material
respects complying therewith.
(xxii) To the best of such counsel's knowledge, neither the Company
nor the Bank is in violation of (A) its certificate of incorporation,
articles of incorporation or charter, as the case may be (and the Bank will
not be in violation of its charter in stock form upon consummation of the
Conversion) or (B) any applicable law, statute, rule, regulation, judgment,
order, writ or decree of any government, governmental instrumentality or
court, domestic or foreign, having jurisdiction over the Company or the
Bank or any of these respective assets, properties or operations; to the
best of such counsel's knowledge, the Company and the Bank are not in
default (nor has any event occurred which, with notice or lapse of time or
both, would constitute a default) in the performance or observance of any
obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease or other instrument to
which the Company or the Bank is a party or by which the Company or the
Bank or any of their property may be bound in any respect that would have a
material adverse effect upon the financial condition, results of operations
or business affairs of the Company and the Bank considered as one
enterprise.
(xxiii) The Company is not required to be registered as an investment
company under the Investment Company Act of 1940.
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<PAGE>
(2) The favorable opinion, dated as of Closing Time, of Elias, Matz,
Tiernan & Herrick L.L.P., counsel for the Agent, with respect to such
matters as the Agent may reasonably require.
(3) In giving their opinions required by subsections (b)(l) and
(b)(2), respectively, of this Section, Silver, Freedman & Taff, L.L.P. and
Elias, Matz, Tiernan & Herrick L.L.P. shall each additionally state that
nothing has come to their attention that would lead them to believe that
the Registration Statement (except for financial statements, the notes
thereto and other financial, statistical and appraisal data included
therein, as to which counsel need make no statement), at the time it became
effective, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading or that the Prospectus (except for
financial statements and schedules and other financial, statistical or
appraisal data included therein, as to which counsel need make no
statement), at the time the Registration Statement became effective or at
Closing Time, included an untrue statement of a material fact or omitted 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.
In giving their opinions, Silver, Freedman & Taff, L.L.P. and Elias, Matz,
Tiernan & Herrick L.L.P. may rely as to matters of fact on certificates of
officers and directors of the Company and the Bank and certificates of
public officials, and Elias, Matz, Tiernan & Herrick, L.L.P. may also rely
on the opinions of Silver, Freedman & Taff, L.L.P.
(c) At Closing Time, there shall not have been, since the date hereof
or since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any material adverse change in the
financial condition, results of operations or business affairs of the Company
and the Bank considered as one enterprise, whether or not arising in the
ordinary course of business, and the Agent shall have received a certificate of
the President and Chief Executive Officer of the Company and of the Bank and the
chief financial or chief accounting officer of the Company and of the Bank,
dated as of Closing Time, to the effect that (i) there has been no such material
adverse change, (ii) there shall have been no material transaction entered into
by the Company or the Bank from the latest date as of which the financial
condition of the Company or the Bank is set forth in the Registration Statement
and the Prospectus other than transactions referred to or contemplated therein
and transactions in the ordinary cause of business, (iii) neither the Company
nor the Bank shall have received from the OTS any direction (oral or written) to
make any material change in the method of conducting its business with which it
has not complied (which direction, if any, shall have been disclosed to the
Agent) or which materially and adversely would affect the business, financial
condition or results of operations of the Company or the Bank, (iv) the
representations and warranties in Section 1 hereof are true and correct with the
same force and effect as though expressly made at and as of the Closing Time,
(v) the Company and the Bank have complied with all
23
<PAGE>
agreements and satisfied all conditions on their part to be performed or
satisfied at or prior to Closing Time, (vi) no stop order suspending the
effectiveness of the Registration Statement has been issued and no proceedings
for that purpose have been initiated or threatened by the Commission and (vii)
no order suspending the Offerings or the authorization for final use of the
Prospectus has been issued and no proceedings for that purpose have been
initiated or threatened by the OTS and-no person has sought to obtain regulatory
or judicial review of the action of the OTS in approving the Plan in accordance
with the Conversion Regulations or the OTS approval of the Holding Company
Application.
(d) At the time of the execution of this Agreement, the Agent shall
have received from Crowe, Chizek and Company LLP a letter dated such date, in
form and substance satisfactory to the Agent, to the effect that (i) they are
independent public accountants with respect to the Company and the Bank within
the meaning of the Code of Ethics of the AICPA, the 1933 Act and the 1933 Act
Regulations and the Conversion Regulations; (ii) it is their opinion that the
consolidated financial statements and supporting schedules included in the
Registration Statement and covered by their opinion therein comply as to form in
all material respects with the applicable accounting requirements of the 1933
Act and the 1933 Act Regulations; (iii) based upon limited procedures set forth
in detail in such letter, nothing has come to their attention which causes them
to believe that (A) the unaudited financial statements and supporting schedules
of the Bank included in the Registration Statement do not comply as to form in
all material respects with the applicable accounting requirements of the 1933
Act and the 1933 Act Regulations or are not presented in conformity with
generally accepted accounting principles applied on a basis substantially
consistent with that of the audited financial statements included in the
Registration Statement and the Prospectus, (B) the unaudited amounts of net
interest income and net income set forth under "Selected Financial Information"
in the Prospectus were not determined on a basis substantially consistent with
that used in determining the corresponding amounts in the audited financial
statements included in the Registration Statement, (C) as of the date of the
most recent financial statements available prior to the date of this Agreement,
there has been any increase in the consolidated long-term or short-term debt of
the Bank or any decrease in consolidated total assets, the allowance for loan
losses, total deposits or equity of the Bank, in each case as compared with the
amounts shown in the December 31, 1997 balance sheet included in the
Registration Statement or, (D) during the period from December 31, 1997 to the
date of the most recent financial statements available prior to the date of this
Agreement, there were any decreases, as compared with the corresponding period
in the preceding year, in total interest income, net interest income, net
interest income after provision for loan losses, income before taxes or net
income of the Bank, except in all instances for increases or decreases which the
Registration Statement and the Prospectus disclose have occurred or may occur;
and (iv) in addition to the examination referred to in their opinion and the
limited procedures referred to in clause (iii) above, they have carried out
certain specified procedures, not constituting an audit, with respect to certain
24
<PAGE>
amounts, percentages and financial information which are included in the
Registration Statement and Prospectus and which are specified by the Agent, and
have found such amounts, percentages and financial information to be in
agreement with the relevant accounting, financial and other records of the
Company and the Bank identified in such letter.
(e) At Closing Time, the Agent shall have received from Crowe, Chizek
and Company LLP a letter, dated as of Closing Time, to the effect that they
reaffirm the statements made in the letter furnished pursuant to subsection (d)
of this Section, except that the specified date referred to shall be a date not
more than five days prior to Closing Time.
(f) At Closing Time, the Common Stock shall have been approved for
listing on the Nasdaq National Market upon notice of issuance.
(g) At Closing Time, the Agent shall have received a letter from
Ferguson & Co., dated as of the Closing Time, confirming its appraisal.
(h) At Closing Time, counsel for the Agent shall have been furnished
with such documents and opinions as they may require for the purpose of enabling
them to pass upon the issuance and sale of the Securities as herein contemplated
and related proceedings, or in order to evidence the accuracy of any of the
representations or warranties, or the fulfillment of any of the conditions,
herein contained; and all proceedings taken by the Company in connection with
the issuance and sale of the Securities as herein contemplated shall be
satisfactory in form and substance to the Agent and counsel for the Agent.
(i) At any time prior to Closing Time, (i) there shall not have
occurred any material adverse change in the financial markets in the United
States or elsewhere or any outbreak of hostilities or escalation thereof or
other calamity or crisis the effect of which, in the judgment of the Agent, are
so material and adverse as to make it impracticable to market the Securities or
to enforce contracts, including subscriptions or orders, for the sale of the
Securities, and (ii) trading generally on either the American Stock Exchange or
the New York Stock Exchange shall not have been suspended, and minimum or
maximum prices for trading shall not have been fixed, or maximum ranges for
prices for securities have been required, by either of said Exchanges or by
order of the Commission or any other governmental authority, and a banking
moratorium shall not have been declared by Federal authorities.
Section 6. Indemnification. (a) The Company and the Bank, jointly and
severally, agree to indemnify and hold harmless the Agent, each person, if any,
who controls the Agent, within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act, and its respective partners, directors, officers and
employees as follows:
(i) from and against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, reasonably related to or resulting
25
<PAGE>
from any action taken by the Agent in connection with the Conversion where
acting as agent of the Company or the Bank as described in Section 2
hereof;
(ii) from and against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, based upon or arising out of any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), or the omission or
alleged omission therefrom of a material fact required to be stated
therein, or necessary to make the statements therein not misleading or
arising out of any untrue statement or alleged untrue statement of a
material fact contained in the Prospectus (or any amendment or supplement
thereto) or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and
(iii) from and against reasonable expenses, as incurred (including,
subject to Section 6(c) hereof, the fees and disbursements of counsel
chosen by the Agent), reasonably incurred in investigating, preparing for
or defending against any litigation, or any investigation, proceeding or
inquiry by any governmental agency or body, commenced or threatened, or any
claim whatsoever described in clauses (i) or (ii) above, to the extent that
any such expense is not paid under (i) or (ii) above;
provided, however, that the indemnity in this paragraph (a) shall (i)
not apply to any settlement by the Agent effected without the prior written
consent of the Company or the Bank; (ii) not apply to the extent any loss,
claim, damage or liability is based on a false or misleading oral statement by
an FBR employee or representative which is not consistent with the Prospectus or
the supplemental sales literature; (iii) not apply to the extent that any loss,
claim, damage or liability is found in a final judgment by a court to have
resulted primarily from the Agent's gross negligence or willful misconduct; and
(iv) not apply to any loss, liability, claim, damage or liability to the extent
arising out of any untrue statement or alleged untrue statement of a material
fact contained in the Prospectus (or any amendment or supplement thereto) or
omission or alleged omission therefrom of a material fact necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading which was made in reliance upon and in conformity with
written information relating to the Agent furnished to the Company or the Bank
by the Agent expressly for use in the Registration Statement (or any amendment
or supplement thereto) or the Prospectus (or any amendment or supplement
thereto), which information the Company and the Bank acknowledge is included
only in the cover page and the sections captioned "Market for Common Stock,"
"The Conversion--Public Offering and Direct Community Offering" and "The
Conversion--Marketing Arrangements" of the Prospectus ("Agent's Information").
Notwithstanding the foregoing, the Bank shall not provide indemnification as
contemplated under the terms of this paragraph (a)
26
<PAGE>
if such indemnification would cause the Bank to violate the provisions of
Section 23A or Section 23B of the Federal Reserve Act.
(b) The Agent agrees to indemnify and hold harmless the Company, the
Bank, their directors, each of the Company's officers who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act against
any and all loss, liability, claim, damage and expense described in the
indemnity contained in subsection (a) of this Section, as incurred, but only
with respect to untrue statements or omissions, or alleged untrue statements or
omissions, of a material fact made in the Registration Statement (or any
amendment or supplement thereto) in the Prospectus (or any amendment or
supplement thereto) in reliance upon and in conformity with the Agent's
Information; provided, however, that the indemnity in this paragraph (b) shall
not apply to any Settlement by any such party effected without the prior written
consent of the Agent.
(c) Each indemnified party shall give notice as promptly as reasonably
practicable to each indemnifying party of any action commenced against it in
respect of which indemnity may be sought hereunder, but failure to so notify an
indemnifying party shall not relieve such indemnifying party from any liability
which it may have otherwise than on account of this indemnity agreement. An
indemnifying party may participate at its own expense in the defense of any such
action. In no event shall the indemnifying parties be liable for fees and
expenses of more than one counsel (in addition to no more than one local counsel
in each separate jurisdiction in which any action or proceeding is commenced)
separate from their own counsel for all indemnified parties in connection with
any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances.
(d) The Company and the Bank also agree that the Agent shall not have
any liability (whether direct or indirect, in contract or tort or otherwise) to
the Bank, the Company, its security holders or the Bank's or the Company's
creditors relating to or arising out of the engagement of the Agent pursuant to,
or the performance by the Agent of the services contemplated by, this Agreement,
except to the extent that any loss, claim, damage or liability is found in a
final judgment by a court of competent jurisdiction to have resulted primarily
from the Agent's bad faith, willful misconduct or gross negligence.
(e) In addition to, and without limiting, the provisions of Section
(6)(a)(iii) hereof, in the event that any Agent, any person, if any, who
controls the Agent within the meaning of Section 15 of the 1933 Act or Section
20 of the 1934 Act or any of its partners, directors, officers and employees is
requested or required to appear as a witness or otherwise gives testimony in any
action, proceeding, investigation or inquiry brought by or on behalf of or
against the Company, the Bank, the Agent or any of their respective affiliates
or any participant in the transactions contemplated hereby in which the Agent or
such person or agent is not named as a defendant, the Company and the Bank
jointly and severally agree to reimburse the Agent for all reasonable and
necessary
27
<PAGE>
out-of-pocket expenses incurred by it in connection with preparing or appearing
as a witness or otherwise giving testimony and to compensate the Agent in an
amount to be mutually agreed upon.
Section 7. Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
Section 6 hereof is for any reason held to be unenforceable by the indemnified
parties although applicable in accordance with its terms, the Company, the Bank
and the Agent shall contribute to the aggregate losses, liabilities, claims,
damages and expenses of the nature contemplated by said indemnity agreement
incurred by the Company or the Bank and the Agent, as incurred, in such
proportions (i) that the Agent is responsible for that portion represented by
the percentage that the maximum aggregate marketing fees appearing on the cover
page of the Prospectus bears to the maximum aggregate gross proceeds appearing
thereon and the Company and the Bank are jointly and severally responsible for
the balance or (ii) if, but only if, the allocation provided for in clause (i)
is for any reason held unenforceable, in such proportion as is appropriate to
reflect not only the relative benefits to the Company and the Bank on the one
hand and the Agent on the other, as reflected in clause (i), but also the
relative fault of the Company and the Bank on the one hand and the Agent on the
other, as well as any other relevant equitable considerations; provided,
however, that no person guilty of fraudulent misrepresentation (within the
meaning of Section l(f) of the 1933 Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. For purposes
of this Section, each person, if any, who controls the Agent within the meaning
of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same
rights to contribution as the Agent, and each director of the Company and of the
Bank, each officer of the Company who signed the Registration Statement, and
each person, if any, who controls the Company or the Bank within the meaning of
Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same
rights to contribution as the Company and the Bank. Notwithstanding anything to
the contrary set forth herein, to the extent permitted by applicable law, in no
event shall the Agent be required to contribute an aggregate amount in excess of
the aggregate marketing fees to which the Agent is entitled and actually paid
pursuant to this Agreement. Notwithstanding the foregoing, the Bank shall not
provide contribution as contemplated under the terms of this Section 7 if such
contribution would cause the Bank to violate the provisions of Section 23A or
Section 23B of the Federal Reserve Act.
Section 8. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement, or contained in certificates of officers of the Company or the Bank
submitted pursuant hereto, shall remain operative and in full force and effect,
regardless of any investigation made by or on behalf of any Agent or controlling
person, or by or on behalf of the Company, and shall survive delivery of the
Securities.
28
<PAGE>
Section 9. Termination of Agreement. (a) The Agent may terminate this
Agreement, by notice to the Company and the Bank, at any time at or prior to
Closing Time (i) if there has been, since the date of this Agreement or since
the respective dates as of which information is given in the Registration
Statement, any material adverse change in the financial condition, results of
operations or business affairs of the Company or the Bank, or the Company and
the Bank considered as one enterprise, whether or not arising in the ordinary
course of business; (ii) if there has occurred any material adverse change in
the financial markets in the United States or elsewhere or any outbreak of
hostilities or escalation thereof or other calamity or crisis the effect of
which, in the judgment of the Agent, are so material and adverse as to make it
impracticable to market the Securities or to enforce contracts, including
subscriptions or orders, for the sale of the Securities; (iii) or if trading
generally on either the American Stock Exchange or the New York Stock Exchange
has been suspended, or minimum or maximum prices for trading have been fixed, or
maximum ranges for prices for securities have been required, by either of said
Exchanges or by order of the Commission or any other governmental authority, or
if a banking moratorium has been declared by either Federal or New York
authorities; (iv) if any condition specified in Section 5 shall not have been
fulfilled when and as required to be fulfilled; (v) if there shall have been
such material adverse change in the condition or prospects of the Company or the
Bank or the prospective market for the Company's securities as in the Agent's
good faith opinion would make it inadvisable to proceed with the offering, sale
or delivery of the Securities; (vi) if in the Agent's good faith opinion, the
price for the Securities established by the Company is not reasonable or
equitable under then prevailing market conditions; or (vii) if the Conversion is
not consummated on or prior to _________, 1998.
(b) If this Agreement is terminated pursuant to this Section, such
termination shall be without liability of any party to any other party except as
provided in Section 4 hereof relating to the reimbursement of expenses and
except that the provisions of Sections 6 and 7 hereof shall survive any
termination of this Agreement.
Section 10. 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 the Agent
shall be directed to the Agent at 1001 Nineteenth Street North, 10th Floor,
Arlington, VA 22209, attention of Robert A. Kotecki, with a copy to Jeffrey D.
Haas, Esq., Elias, Matz, Tiernan & Herrick L.L.P., 734 15th Street, NW,
Washington, DC 20005; notices to the Company and the Bank shall be directed to
either of them at Ben Franklin Bank of Illinois, 14 N. Dryden Place, Arlington
Heights, Illinois 60004, attention of Ronald P. Pederson, President and Chief
Executive Officer, with a copy to Kip A. Weissman, P.C., Silver, Freedman &
Taff, L.L.P., 1100 New York Avenue, N.W., Washington, D.C. 20005.
Section 11. Parties. This Agreement shall inure to the benefit of and
be binding upon the Agent, the Company and the Bank and their respective
successors. Nothing expressed or mentioned in this Agreement is intended or
29
<PAGE>
shall be construed to give any person, firm or corporation, other than the
Agent, the Company and the Bank and their respective successors and the
controlling persons and officers and directors referred to in Sections 6 and 7
and their heirs and legal representatives, any legal or equitable right, remedy
or claim under or in respect of this Agreement or any provision herein or
therein contained. This Agreement and all conditions and provisions hereof and
thereof are intended to be for the sole and exclusive benefit of the Agent, the
Company and the Bank and their respective successors, and said controlling
persons and officers and directors and their heirs and legal representatives,
and for the benefit of no other person, firm or corporation.
Section 12. Entire Agreement; Amendment. This Agreement represents the
entire understanding of the parties hereto with reference to the transactions
contemplated hereby and supersedes any and all other oral or written agreements
heretofore made. No waiver, amendment or other modification of this Agreement
shall be effective unless in writing and signed by the parties hereto.
Section 13. Governing Law and Time. This Agreement shall be governed by
and construed in accordance with the laws of the State of Illinois applicable to
agreements made and to be performed in said State without regard to the
conflicts of laws provisions thereof. Unless otherwise noted, specified times of
day refer to Central time.
Section 14. Severability. Any term or provision of this Agreement which
is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
Section 15. Headings. Sections headings are not to be considered part
of this Agreement, are for convenience and reference only, and are not to be
deemed to be full or accurate descriptions of the contents of any paragraph or
subparagraph.
30
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the Agent, the Company and the Bank in accordance with its terms.
Very truly yours,
BEN FRANKLIN FINANCIAL, INC.
By: _____________________________________
Ronald P. Pederson
President and Chief Executive Officer
BEN FRANKLIN BANK OF ILLINOIS
By: _____________________________________
Ronald P. Pederson
President and Chief Executive Officer
CONFIRMED AND ACCEPTED, as of the date first above written:
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
By: ____________________________
Robert A. Kotecki
Senior Vice President
31
<PAGE>
EXHIBIT A
SELECTED DEALERS' AGREEMENT
32
<PAGE>
BEN FRANKLIN FINANCIAL, INC.
Up to 1,610,000 Shares (Anticipated Maximum)
(Par Value $.01 Per Share)
Selected Dealers' Agreement
______________, 1998
Gentlemen:
We have agreed to assist Ben Franklin Financial, Inc. (the "Company"),
a Delaware corporation, and Ben Franklin Bank of Illinois (the "Bank"), a
federally chartered mutual savings bank, in connection with the offer and sale
of up to 1,610,000 shares of the Company's common stock, $.01 par value per
share (the "Common Stock"), to be issued in connection with the Plan (as defined
herein). The total number of shares of Common Stock to be offered may be
decreased to a minimum of 1,190,000 shares, or increased to a maximum of
1,851,500 shares. The price per share has been fixed at $10.00. The Common
Stock, the number of shares to be issued, and certain of the terms on which they
are being offered, are more fully described in the enclosed prospectus dated
__________, 1998 (the "Prospectus").
The Common Stock is being offered in accordance with the plan of
conversion (the "Plan") adopted by the Board of Directors of the Bank pursuant
to which the Bank intends to convert from a federally chartered mutual savings
bank to a federally chartered stock savings bank and issue all of its stock to
the Company. Pursuant to the Plan, the Company is offering to certain of the
Bank's depositors and borrowers and its tax qualified employee benefit plans
rights to subscribe for the Common Stock in a subscription offering (the
"Subscription Offering"). To the extent Common Stock is not subscribed for in
the Subscription Offering, such Common Stock may be offered to certain members
of the general public, in a public offering and/or direct community offering
(the "Public Offering," and together with the Subscription Offering, as each may
be extended or reopened from time to time, the "Subscription/Public Offering")
to be commenced concurrently with the Subscription Offering. It is currently
anticipated by the Bank and the Company that any Common Stock not subscribed for
in the Subscription/Public Offering will be offered in a syndicated public
offering (the "Syndicated Public Offering"). The Subscription/Public Offering
and the Syndicated Public Offering are hereinafter referred to collectively as
the "Offerings," and the conversion of the Bank from mutual to stock form, the
acquisition of all of the capital stock of the Bank by the Company and the
Offerings are hereinafter referred to collectively as the "Conversion." The
Offering is further being conducted in accordance with the regulations of the
Office of Thrift Supervision and the Federal Deposit Insurance Corporation
subject to the restrictions contained in the Plan.
The Common Stock is being offered in the Syndicated Public Offering by
broker/ dealers licensed by the National Association of Securities Dealers, Inc.
("NASD") which have been approved by the Company ("Approved Brokers").
<PAGE>
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
in the Syndicated Public Offering and we will pay you a fee in the amount of up
to ____________ percent (___%) of the dollar amount of the Common Stock sold on
behalf of the Company by you, as evidenced by the authorized-designation of your
firm on the order form or forms or summary record, in the event indications of
interest are solicited (the "Purchase Record") accompanying funds transmitted
for payment therefor to the special account established by the Company for the
purpose of holding such funds. It is understood, of course, that payment of your
fee will be made only out of compensation received by us for the Common Stock
sold on behalf of the Company by you, as evidenced in accordance with the
preceding sentence. As soon as practicable after the Closing Date of the
offering, we will remit to you, only out of our compensation as provided above,
the fees to which you are entitled hereunder.
Each order form for the purchase of Common Stock or the Purchase Record
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 for the
Purchase Record 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 "Ben Franklin Financial, Inc."
This offer is made subject to the terms and conditions herein set forth
and is made only to selected dealers who are (i) members in good standing of the
NASD who are to comply with all applicable rules of the NASD, including, without
limitation, the NASD's Interpretation on Free-Riding and Withholding and Rule
2740 of the NASD's Rules of the Association, 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, Rules 2730, 2740 and 2750 of the
abovementioned Rules as if they were NASD members, and Rule 2420 of such Rules
as it applies to non-member brokers or dealers in a foreign country.
Orders for Common Stock will be strictly subject to confirmation and
we, acting on behalf of the Company, reserve the right in our unfettered
discretion to reject any order in whole or in part, to accept or reject orders
in the order of their receipt or otherwise, and to allot. Neither you nor any
other person is authorized by the Company, or by us to give any information or
make any representations other than those contained in the Prospectus in
connection with the sale of any of the Common Stock. No selected dealer is
authorized to act as agent for us when soliciting offers to buy the Common Stock
from the public or otherwise. No selected dealer shall engage in any stabilizing
(as defined in Regulation M promulgated under the Securities Exchange Act of
1934) with respect to the Company's Common Stock during the offering.
We and each selected dealer assisting in selling Common Stock pursuant
hereto agree to comply with the applicable requirements of the Securities
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Exchange Act of 1934 and applicable state rules and regulations. Each selected
dealer that is not a $______ net capital reporting broker/dealer agrees that it
will not use a sweep arrangement and that it will transmit all customer checks
by noon of the next business day after receipt thereof. 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 or
mailing of such confirmation in the event indications of interest are solicited.
We and each selected dealer further agree that to the extent that your
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 of the Common
Stock ordered on or before twelve noon Central time of the next business day
following receipt or execution of an order form by us to the Company for deposit
in a segregated account or Unto 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 conformation, (iii) we will debit accounts of
such customers on the fifth business day (the "debit date") following receipt of
the confirmation referred to in (i), and (iv) we will forward the Purchase
Record together with such funds to the Company on or before twelve noon on the
next business day and each selected dealer acknowledges 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 Conversion.
You agree that at any time or times prior to the termination of this
Agreement you will, upon our request, report to us the number of shares of
Common Stock sold on behalf of the Company by you under this Agreement.
We shall have full authority to take such actions as we may deem
advisable in respect of all matters pertaining to the offering. We shall be
under no liability to you except for lack of good faith and for obligations
expressly assumed by us in this Agreement.
Upon application to us, we will inform you as to the states in which we
believe the Common Stock has been qualified for sale under, or are exempt
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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 Illinois.
Please confirm your agreement hereto by signing and returning the
confirmation accompanying this letter at once to us at Friedman, Billings,
Ramsey & Co., Inc., 1001 Nineteenth Street North, 10th Floor, Arlington,
Virginia 22209. The enclosed duplicate copy will evidence the agreement between
us.
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
By: __________________________________
Name:
Title:
CONFIRMED AS OF:
______________, 1998.
__________________________
(Name of Dealer)
By: ______________________
Its: _____________________
4
Douglas Savings Bank
Arlington Heights, Illinois
AMENDED PLAN OF CONVERSION
From Mutual to Stock Form of Organization
I. GENERAL
The Board of Directors of Douglas Savings Bank (the "Bank") has adopted
a plan to convert the Bank's mutual charter from an Illinois to a federal
charter. On February 4, 1998, the Board of Directors of the Bank adopted a Plan
of Conversion whereby the Bank would convert from a mutual savings institution.
The Plan includes, as part of the conversion, the concurrent formation of a
holding company, to be named in the future. The Plan provides that
non-transferable subscription rights to purchase Holding Company Conversion
Stock will be offered first to Eligible Account Holders of record as of the
Eligibility Record Date, then to the Bank's Tax-Qualified Employee Plans, then
to Supplemental Eligible Account Holders of record as of the Supplemental
Eligibility Record Date, then to Other Members, and then to directors, officers
and employees. Concurrently with, at any time during, or promptly after the
Subscription Offering, and on a lowest priority basis, an opportunity to
subscribe may also be offered to the general public in a Direct Community
Offering, a Public Offering or both. The price of the Holding Company Conversion
Stock will be based upon an independent appraisal of the Bank and will reflect
its estimated pro forma market value, as converted. It is the desire of the
Board of Directors of the Bank to attract new capital to the Bank in order to
increase its capital, support future savings growth and increase the amount of
funds available for residential and other mortgage lending. The Converted Bank
is also expected to benefit from its management and other personnel having a
stock ownership in its business, since stock ownership is viewed as an effective
performance incentive and a means of attracting, retaining and compensating
management and other personnel. No change will be made in the Board of Directors
or management as a result of the Conversion.
II. DEFINITIONS
Acting in Concert: The term "acting in concert" shall have the same
meaning given it in ss.574.2(c) of the Rules and Regulations of the OTS.
Actual Subscription Price: The price per share, determined as provided
in Section V of the Plan, at which Holding Company Conversion Stock will be sold
in the Subscription Offering.
Affiliate: An "affiliate" of, or a Person "affiliated" with, a
specified Person, is a Person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by or is under common control with,
the Person specified.
Associate: The term "associate," when used to indicate a relationship
with any Person, means (i) any corporation or organization (other than the
Holding Company, the Bank or a majority-owned subsidiary of the Holding Company)
of which such Person is an officer or partner or is, directly or indirectly, the
beneficial owner of ten percent or more of any class of equity securities, (ii)
any trust or other estate in which such Person has a substantial beneficial
interest or as to which such Person serves as trustee or in a similar fiduciary
capacity, and (iii) any relative or spouse of such Person, or
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any relative of such spouse, who has the same home as such Person or who is a
director or officer of the Holding Company or the Bank or any subsidiary of the
Holding Company; provided, however, that any Tax-Qualified or Non-Tax-Qualified
Employee Plan shall not be deemed to be an associate of any director or officer
of the Holding Company or the Bank, to the extent provided in Section V hereof.
Bank: Douglas Savings Bank or such other name as the institution may
adopt.
Conversion: Change of the Bank's charter and bylaws to federal stock
charter and bylaws; sale by the Holding Company of Holding Company Conversion
Stock; and issuance and sale by the Converted Bank of Converted Bank Common
Stock to the Holding Company, all as provided for in the Plan.
Converted Bank: The federally chartered stock savings institution
resulting from the Conversion of the Bank in accordance with the Plan.
Deposit Account: Any withdrawable or repurchasable account or deposit
in the Bank including Savings Accounts and demand accounts.
Direct Community Offering: The offering to the general public of any
unsubscribed shares which may be effected as provided in Section V hereof.
Eligibility Record Date: The close of business on January 31, 1997.
Eligible Account Holder: Any Person holding a Qualifying Deposit in the
Bank on the Eligibility Record Date.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Holding Company: A corporation which upon completion of the Conversion
will own all of the outstanding common stock of the Converted Bank, and the name
of which will be selected in the future.
Holding Company Conversion Stock: Shares of common stock, par value
$.01 per share, to be issued and sold by the Holding Company as a part of the
Conversion; provided, however, that for purposes of calculating Subscription
Rights and maximum purchase limitations under the Plan, references to the number
of shares of Holding Company Conversion Stock shall refer to the number of
shares offered in the Subscription Offering.
Local Community: The geographic area encompassing Cook County,
Illinois.
Market Maker: A dealer (i.e., any Person who engages directly or
indirectly as agent, broker or principal in the business of offering, buying,
selling, or otherwise dealing or trading in securities issued by another Person)
who, with respect to a particular security, (i) regularly publishes bona fide,
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competitive bid and offer quotations in a recognized inter-dealer quotation
system; or (ii) furnishes bona fide competitive bid and offer quotations on
request; and (iii) is ready, willing, and able to effect transactions in
reasonable quantities at his quoted prices with other brokers or dealers.
Maximum Subscription Price: The price per share of Holding Company
Conversion Stock to be paid initially by subscribers in the Subscription
Offering.
Member: Any Person or entity that qualifies as a member of the Bank
pursuant to its charter and bylaws.
Non-Tax-Qualified Employee Plan: Any defined benefit plan or defined
contribution plan of the Bank or the Holding Company, such as an employee stock
ownership plan, stock bonus plan, profit-sharing plan or other plan, which with
its related trust does not meet the requirements to be "qualified" under Section
401 of the Internal Revenue Code.
OTS: Office of Thrift Supervision, Department of the Treasury, and its
successors.
Officer: An executive officer of the Holding Company or the Bank,
including the Chairman of the Board, President, Executive Vice Presidents,
Senior Vice Presidents in charge of principal business functions, Secretary and
Treasurer.
Order Forms: Forms to be used in the Subscription Offering to exercise
Subscription Rights.
Other Members: Members of the Bank, other than Eligible Account
Holders, Tax-Qualified Employee Plans or Supplemental Eligible Account Holders,
as of the Voting Record Date.
Person: An individual, a corporation, a partnership, an association, a
joint-stock company, a trust, any unincorporated organization, or a government
or political subdivision thereof.
Plan: This Plan of Conversion of the Bank, including any amendment
approved as provided in this Plan.
Public Offering: The offering for sale to selected members of the
general public of any shares of Holding Company Conversion Stock not subscribed
for in the Subscription Offering or the Direct Community Offering, if any.
Public Offering Price: The price per share at which any unsubscribed
shares of Holding Company Conversion Stock are initially offered for sale in the
Public Offering.
Qualifying Deposit: The aggregate balance of $50 or more of each
Deposit Account (which, in accordance with ss.563b(e), includes demand deposit
accounts as well as Savings Accounts)of an Eligible Account Holder as of the
Eligibility Record Date or of a Supplemental Eligible Account Holder as of the
Supplemental Eligibility Record Date.
SAIF: Savings Association Insurance Fund.
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Savings Account: The term "Savings Account" means any withdrawable
account in the Bank except a demand account.
SEC: Securities and Exchange Commission.
Special Meeting: The Special Meeting of Members called for the purpose
of considering and voting upon the Plan of Conversion.
Subscription Offering: The offering of shares of Holding Company
Conversion Stock for subscription and purchase pursuant to Section V of the
Plan.
Subscription Rights: Non-transferable, non-negotiable, personal rights
of the Bank's Eligible Account Holders, Tax-Qualified Employee Plans,
Supplemental Eligible Account Holders, Other Members, and directors, Officers
and employees to subscribe for shares of Holding Company Conversion Stock in the
Subscription Offering.
Supplemental Eligibility Record Date: The last day of the calendar
quarter preceding approval of the Plan by the OTS.
Supplemental Eligible Account Holder: Any person holding a Qualifying
Deposit in the Bank (other than an officer or director and their associates) on
the Supplemental Eligibility Record Date.
Tax-Qualified Employee Plans: Any defined benefit plan or defined
contribution plan of the Bank or the Holding Company, such as an employee stock
ownership plan, stock bonus plan, profit-sharing plan or other plan, which with
its related trust meets the requirements to be "qualified" under Section 401 of
the Internal Revenue Code.
Voting Record Date: The date set by the Board of Directors in
accordance with federal regulations for determining Members eligible to vote at
the Special Meeting.
III. STEPS PRIOR TO SUBMISSION OF PLAN OF CONVERSION TO THE MEMBERS FOR
APPROVAL
Prior to submission of the Plan of Conversion to its Members for
approval, the Bank must receive from the OTS approval of the Application for
Approval of Conversion to convert to the federal stock form of organization. The
following steps must be taken prior to such regulatory approval:
A. The Board of Directors shall adopt the Plan by not less than a
two-thirds vote.
B. The Bank shall notify its Members of the adoption of the Plan by
publishing a statement in a newspaper having a general circulation in
each community in which the Bank maintains an office.
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C. Copies of the Plan adopted by the Board of Directors shall be made
available for inspection at each office of the Bank.
D. The Bank will promptly cause an Application for Approval of Conversion
on Form AC to be prepared and filed with the OTS, an Application on
Form H-(e)1 (or other applicable form) to be prepared and filed with
the OTS and a Registration Statement on Form S-1 to be prepared and
filed with the SEC.
E. Upon receipt of notice from the OTS to do so, the Bank shall notify
its Members that it has filed the Application for Approval of
Conversion by posting notice in each of its offices and by publishing
notice in a newspaper having general circulation in each community in
which the Bank maintains an office.
IV. CONVERSION PROCEDURE
Following approval of the application by the OTS, the Plan will be
submitted to a vote of the Members at the Special Meeting. If the Plan is
approved by Members holding a majority of the total number of votes entitled to
be cast at the Special Meeting, the Bank will take all other necessary steps
pursuant to applicable laws and regulations to convert to a federal stock
savings institution as part of a concurrent holding company formation pursuant
to the terms of the Plan.
The Holding Company Conversion Stock will be offered for sale in the
Subscription Offering at the Maximum Subscription Price to Eligible Account
Holders, Tax-Qualified Employee Plans, Supplemental Eligible Account Holders,
Other Members and directors, Officers and employees of the Bank, prior to or
within 45 days after the date of the Special Meeting. The Bank may, either
concurrently with, at any time during, or promptly after the Subscription
Offering, also offer the Holding Company Conversion Stock to and accept
subscriptions from other Persons in a Direct Community and/or Public Offering;
provided that the Bank's Eligible Account Holders, Tax- Qualified Employee
Plans, Supplemental Eligible Account Holders, Other Members and directors,
Officers and employees shall have the priority rights to subscribe for Holding
Company Conversion Stock set forth in Section V of this Plan. However, the
Holding Company and the Bank may delay commencing the Subscription Offering
beyond such 45-day period in the event there exist unforeseen material adverse
market or financial conditions. If the Subscription Offering commences prior to
the Special Meeting, subscriptions will be accepted subject to the approval of
the Plan at the Special Meeting.
The period for the Subscription Offering and Direct Community Offering
and/or Public Offering will be not less than 20 days nor more than 45 days
unless extended by the Bank. If for any reason all the Conversion shares are not
sold in the Subscription Offering and Direct Community and/or Public Offering,
the Holding Company and the Bank will use their best efforts to obtain other
purchasers, subject to OTS approval. Completion of the sale of all shares of
Holding Company Conversion Stock not sold in the Subscription Offering and
Direct Community and/or Public Offering is required within 45 days after
termination of the Subscription Offering, subject to extension of such 45-day
period by the Holding Company and the Bank with the approval of the OTS. The
Holding Company and the Bank may jointly seek one or more extensions of such
45-day
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period if necessary to complete the sale of all shares of Holding Company
Conversion Stock. In connection with such extensions, subscribers and other
purchasers will be permitted to increase, decrease or rescind their
subscriptions or purchase orders to the extent required by the OTS in approving
the extensions. Completion of the sale of all shares of Holding Company
Conversion Stock is required within 24 months after the date of the Special
Meeting.
V. STOCK OFFERING
A. Total Number of Shares and Purchase Price of Conversion Stock
The total number of shares of Holding Company Conversion Stock to
be issued and sold in the Conversion will be determined jointly by the
Boards of Directors of the Holding Company and the Bank prior to the
commencement of the Subscription Offering, subject to adjustment if
necessitated by market or financial conditions prior to consummation
of the Conversion. The total number of shares of Holding Company
Conversion Stock shall also be subject to increase in connection with
any oversubscriptions in the Subscription Offering or Direct Community
and/or Public Offering.
The aggregate price for which all shares of Holding Company
Conversion Stock will be issued will be based on an independent
appraisal of the estimated total pro forma market value of the Holding
Company and the Converted Bank. Such appraisal shall be performed in
accordance with OTS guidelines and will be updated as appropriate
under or required by applicable regulations.
The appraisal will be made by an independent investment banking
or financial consulting firm experienced in the area of thrift
institution appraisals. The appraisal will include, among other
things, an analysis of the historical and pro forma operating results
and net worth of the Converted Bank and a comparison of the Holding
Company, the Converted Bank and the Conversion Stock with comparable
thrift institutions and holding companies and their respective
outstanding capital stocks.
Based upon the independent appraisal, the Boards of Directors of
the Holding Company and the Bank will jointly fix the Maximum
Subscription Price.
The Actual Subscription Price for each share of Holding Company
Conversion Stock will be determined by dividing the estimated
appraised aggregate pro forma market value of the Holding Company and
the Converted Bank, based on the independent appraisal as updated upon
completion of the Subscription Offering and Direct Community Offering
and/or Public Offering, if any, or other sale of all of the Holding
Company Conversion Stock, by the total number of shares of Holding
Company Conversion Stock to be issued and sold by the Holding Company
upon Conversion. Such appraisal will then be expressed in terms of a
specific aggregate dollar amount rather than as a range.
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B. Subscription Rights
Non-transferable Subscription Rights to purchase shares will be
issued without payment therefor to Eligible Account Holders,
Tax-Qualified Employee Plans, Supplemental Eligible Account Holders,
Other Members and directors, Officers and employees of the Bank as set
forth below.
1. Preference Category No. 1: Eligible Account Holders
Each Eligible Account Holder shall receive non-transferable
Subscription Rights to subscribe for shares of Holding Company
Conversion Stock in an amount equal to the greater of $200,000,
or one-tenth of one percent (.10%) of the total offering of
shares, or 15 times the product (rounded down to the next whole
number) obtained by multiplying the total number of shares of
common stock to be issued by a fraction of which the numerator is
the amount of the qualifying deposit of the Eligible Account
Holder and the denominator is the total amount of qualifying
deposits of all Eligible Account Holders in the converting Bank
in each case on the Eligibility Record Date.
If sufficient shares are not available, shares shall be
allocated first to permit each subscribing Eligible Account
Holder to purchase to the extent possible 100 shares and
thereafter among each subscribing Eligible Account Holder pro
rata in the same proportion that his Qualifying Deposit bears to
the total Qualifying Deposits of all subscribing Eligible Account
Holders whose subscriptions remain unsatisfied.
Non-transferable Subscription Rights to purchase Holding
Company Conversion Stock received by directors and Officers of
the Bank and their Associates, based on their increased deposits
in the Bank in the one-year period preceding the Eligibility
Record Date, shall be subordinated to all other subscriptions
involving the exercise of non-transferable Subscription Rights of
Eligible Account Holders.
2. Preference Category No. 2: Tax-Qualified Employee Plans
Each Tax-Qualified Employee Plan shall be entitled to
receive non-transferable Subscription Rights to purchase up to
10% of the shares of Holding Company Conversion Stock, provided
that singly or in the aggregate such plans (other than that
portion of such plans which is self-directed) shall not purchase
more than 10% of the shares of the Holding Company Conversion
Stock. Subscription Rights received pursuant to this Category
shall be subordinated to all rights received by Eligible Account
Holders to purchase shares pursuant to Category No. 1; provided,
however, that notwithstanding any other provision of this Plan to
the contrary, the Tax- Qualified Employee Plans shall have a
first priority Subscription Right to the extent that the total
number of shares of Holding Company Conversion Stock sold in the
Conversion exceeds the maximum of the appraisal range as set
forth in the subscription prospectus.
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3. Preference Category No. 3: Supplemental Eligible Account Holders
Each Supplemental Eligible Account Holder shall receive
non-transferable Subscription Rights to subscribe for shares of
Holding Company Conversion Stock in an amount equal to the
greater of $200,000, or one-tenth of one percent (.10%) of the
total offering of shares, or 15 times the product (rounded down
to the next whole number) obtained by multiplying the total
number of shares of common stock to be issued by a fraction of
which the numerator is the amount of the qualifying deposit of
the Supplemental Eligible Account Holder and the denominator is
the total amount of qualifying deposits of all Supplemental
Eligible Account Holders in the converting Bank in each case on
the Supplemental Eligibility Record Date.
Subscription Rights received pursuant to this category shall
be subordinated to all Subscription Rights received by Eligible
Account Holders and Tax-Qualified Employee Plans pursuant to
Category Nos. 1 and 2 above.
Any non-transferable Subscription Rights to purchase shares
received by an Eligible Account Holder in accordance with
Category No. 1 shall reduce to the extent thereof the
Subscription Rights to be distributed to such person pursuant to
this Category.
In the event of an oversubscription for shares under the
provisions of this subparagraph, the shares available shall be
allocated first to permit each subscribing Supplemental Eligible
Account Holder, to the extent possible, to purchase a number of
shares sufficient to make his total allocation (including the
number of shares, if any, allocated in accordance with Category
No. 1) equal to 100 shares, and thereafter among each subscribing
Supplemental Eligible Account Holder pro rata in the same
proportion that his Qualifying Deposit bears to the total
Qualifying Deposits of all subscribing Supplemental Eligible
Account Holders whose subscriptions remain unsatisfied.
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4. Preference Category No. 4: Other Members
Each Other Member shall receive non-transferable
Subscription Rights to subscribe for shares of Holding Company
Conversion Stock remaining after satisfying the subscriptions
provided for under Category Nos. 1 through 3 above, subject to
the following conditions:
a. Each Other Member shall be entitled to subscribe for an
amount of shares equal to the greater of $200,000, or
one-tenth of one percent (.10%) of the total offering of
shares of common stock in the Conversion, to the extent that
Holding Company Conversion Stock is available.
b. In the event of an oversubscription for shares under the
provisions of this subparagraph, the shares available shall
be allocated among the subscribing Other Members pro rata in
the same proportion that his number of votes on the Voting
Record Date bears to the total number of votes on the Voting
Record Date of all subscribing Other Members on such date.
Such number of votes shall be determined based on the Bank's
mutual charter and bylaws in effect on the date of approval
by members of this Plan of Conversion.
5. Preference Category No. 5: Directors, Officers and Employees
Each director, Officer and employee of the Bank as of the
date of the commencement of the Subscription Offering shall be
entitled to receive non-transferable Subscription Rights to
purchase shares of the Holding Company Conversion Stock to the
extent that shares are available after satisfying subscriptions
under Category Nos. 1 through 4 above. The shares which may be
purchased under this Category are subject to the following
conditions:
a. The total number of shares which may be purchased under this
Category may not exceed 23% of the number of shares of
Holding Company Conversion Stock.
b. The maximum amount of shares which may be purchased under
this Category by any Person is $200,000 of Holding Company
Conversion Stock. In the event of an oversubscription for
shares under the provisions of this subparagraph, the shares
available shall be allocated pro rata among all subscribers
in this Category.
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C. Public Offering and Direct Community Offering
1. Any shares of Holding Company Conversion Stock not subscribed for
in the Subscription Offering may be offered for sale in a Direct
Community Offering. This will involve an offering of all
unsubscribed shares directly to the general public with a
preference to those natural persons residing in the Local
Community. The Direct Community Offering, if any, shall be for a
period of not less than 20 days nor more than 45 days unless
extended by the Holding Company and the Bank, and shall commence
concurrently with, during or promptly after the Subscription
Offering. The purchase price per share to the general public in a
Direct Community Offering shall be the same as the Actual
Subscription Price. The Holding Company and the Bank may use an
investment banking firm or firms on a best efforts basis to sell
the unsubscribed shares in the Subscription and Direct Community
Offering. The Holding Company and the Bank may pay a commission
or other fee to such investment banking firm or firms as to the
shares sold by such firm or firms in the Subscription and Direct
Community Offering and may also reimburse such firm or firms for
expenses incurred in connection with the sale. The Holding
Company Conversion Stock will be offered and sold in the Direct
Community Offering, in accordance with OTS regulations, so as to
achieve the widest distribution of the Holding Company Conversion
Stock. No person, by himself or herself, or with an Associate or
group of Persons acting in concert, may subscribe for or purchase
more than $200,000 of Holding Company Conversion Stock in the
Direct Community Offering.
In the event of an oversubscription for shares in the Direct
Community Offering, shares may be allocated (to the extent shares
remain available) first to cover orders of natural persons
residing in the Local Community, then to cover the orders of any
other person subscribing for shares in the Direct Community
Offering so that each such person may receive 1,000 shares, and
thereafter, on a pro rata basis to such persons based on the
amount of their respective subscriptions.
The Bank and the Holding Company, in their sole discretion, may
reject subscriptions, in whole or in part, received from any
Person under this Section V.C. Further, the Bank and the Holding
Company may, at their sole discretion, elect to forego a Direct
Community Offering and instead effect a Public Offering as
described below.
2. Any shares of Holding Company Conversion Stock not sold in the
Subscription Offering and the Direct Community Offering, if any,
may be sold to selected members of the general public in the
Public Offering. The Public Offering shall be completed within 45
days after the termination of the Subscription Offering, unless
such period is extended as provided in Section IV hereof. The
Holding Company and the Bank may, in their sole
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discretion, reject any subscription, in whole or in part,
received in the Public Offering. No person, by himself or
herself, or with an Associate or group of persons acting in
concert, may purchase more than $200,000 of shares in the Public
Offering and/or Direct Community Offering.
3. If for any reason a Public Offering of unsubscribed shares of
Holding Company Conversion Stock cannot be effected and any
shares remain unsold after the Subscription Offering and the
Direct Community Offering, if any, the Boards of Directors of the
Holding Company and the Bank 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 and to compliance with
applicable securities laws.
D. Additional Limitations Upon Purchases of Shares of Holding Company
Conversion Stock
The following additional limitations shall be imposed on all
purchases of Holding Company Conversion Stock in the Conversion:
1. No Person, by himself or herself, or with an Associate or group
of Persons acting in concert, may subscribe for or purchase in
the Conversion a number of shares of Holding Company Conversion
Stock which exceeds an amount of shares equal to $800,000. For
purposes of this paragraph, an Associate of a Person does not
include a Tax-Qualified or Non-Tax Qualified Employee Plan in
which the person has a substantial beneficial interest or serves
as a trustee or in a similar fiduciary capacity. Moreover, for
purposes of this paragraph, shares held by one or more
Tax-Qualified or Non-Tax Qualified Employee Plans attributed to a
Person shall not be aggregated with shares purchased directly by
or otherwise attributable to that Person.
2. Directors and Officers and their Associates may not purchase in
all categories in the Conversion an aggregate of more than 33% of
the Holding Company Conversion Stock. For purposes of this
paragraph, an Associate of a Person does not include any
Tax-Qualified Employee Plan. Moreover, any shares attributable to
the Officers and directors and their Associates, but held by one
or more Tax-Qualified Employee Plans shall not be included in
calculating the number of shares which may be purchased under the
limitation in this paragraph.
3. The minimum number of shares of Holding Company Conversion Stock
that may be purchased by any Person in the Conversion is 25
shares, provided sufficient shares are available.
4. The Boards of Directors of the Holding Company and the Bank may,
in their sole discretion, increase the maximum purchase
limitation referred to in
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subparagraph 1. herein up to 9.99%, provided that orders for
shares exceeding 5% of the shares being offered in the Conversion
shall not exceed, in the aggregate, 10% of the shares being
offered in the Conversion. Requests to purchase additional shares
of Holding Company Conversion Stock under this provision will be
allocated by the Boards of Directors on a pro rata basis giving
priority in accordance with the priority rights set forth in this
Section V.
Depending upon market and financial conditions, the Boards of Directors
of the Holding Company and the Bank, with the approval of the OTS and without
further approval of the Members, may increase or decrease any of the above
purchase limitations.
For purposes of this Section V, the directors of the Holding Company
and the Bank shall not be deemed to be Associates or a group acting in concert
solely as a result of their serving in such capacities.
Each Person purchasing Conversion Stock in the Conversion shall be
deemed to confirm that such purchase does not conflict with the above purchase
limitations.
E. Restrictions and Other Characteristics of Holding Company Conversion
Stock Being Sold
1. Transferability. Holding Company Conversion Stock purchased by
Persons other than directors and Officers of the Holding Company
or the Bank will be transferable without restriction. Shares
purchased by directors or Officers shall not be sold or otherwise
disposed of for value for a period of one year from the date of
Conversion, except for any disposition of such shares (i)
following the death of the original purchaser, or (ii) resulting
from an exchange of securities in a merger or acquisition
approved by the applicable regulatory authorities. Any transfers
that could result in a change of control of the Bank or the
Holding Company or result in the ownership by any Person or group
acting in concert of more than 10% of any class of the Bank's or
the Holding Company's equity securities are subject to the prior
approval of the OTS.
The certificates representing shares of Holding Company
Conversion Stock issued to directors and Officers shall bear a
legend giving appropriate notice of the one-year holding period
restriction. Appropriate instructions shall be given to the
transfer agent for such stock with respect to the applicable
restrictions relating to the transfer of restricted stock. Any
shares of common stock of the Holding Company subsequently issued
as a stock dividend, stock split, or otherwise, with respect to
any such restricted stock, shall be subject to the same holding
period restrictions for Holding Company or Bank directors and
Officers as may be then applicable to such restricted stock.
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No director or Officer of the Holding Company or of the Bank, or
Associate of such a director or Officer, shall purchase any
outstanding shares of capital stock of the Holding Company for a
period of three years following the Conversion without the prior
written approval of the OTS, except through a broker or dealer
registered with the SEC or in a "negotiated transaction"
involving more than one percent of the then-outstanding shares of
common stock of the Holding Company. As used herein, the term
"negotiated transaction" means a transaction in which the
securities are offered and the terms and arrangements relating to
any sale are arrived at through direct communications between the
seller or any Person acting on its behalf and the purchaser or
his investment representative. The term "investment
representative" shall mean a professional investment advisor
acting as agent for the purchaser and independent of the seller
and not acting on behalf of the seller in connection with the
transaction.
2. Repurchase and Dividend Rights. Except as permitted by applicable
regulations, for a period of three years following Conversion,
the Converted Bank shall not repurchase any shares of its capital
stock, except in the case of an offer to repurchase on a pro rata
basis made to all holders of capital stock of the Converted Bank.
A repurchase of qualifying shares of a director shall not be
deemed to be a repurchase for purposes of this Section V.E.2.
Present regulations also provide that the Converted Bank may not
declare or pay a cash dividend on or repurchase any of its stock
(i) if the result thereof would be to reduce the regulatory
capital of the Converted Bank below the amount required for the
liquidation account to be established pursuant to Section XIII
hereof, and (ii) except in compliance with requirements of
Section 563.134 of the Rules and Regulations of the OTS.
The above limitations are subject to Section 563b.3 (g)(3) of the
Rules and Regulations of the OTS, which generally provides that
the Converted Bank may repurchase its capital stock provided (i)
no repurchases occur within one year following conversion, (ii)
repurchases during the second and third year after conversion are
part of an open market stock repurchase program that does not
allow for a repurchase of more than 5% of the Bank's outstanding
capital stock during a twelve-month period without OTS approval,
(iii) the repurchases do not cause the Bank to become
undercapitalized, and (iv) the Bank provides notice to the OTS at
least 10 days prior to the commencement of a repurchase program
and the OTS does not object. In addition, the above limitations
shall not preclude payments of dividends or repurchases of
capital stock by the Converted Bank in the event applicable
federal regulatory limitations are liberalized or waived by the
OTS subsequent to OTS approval of the Plan.
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3. Voting Rights. After Conversion, holders of deposit accounts will
not have voting rights in the Bank or the Holding Company.
Exclusive voting rights as to the Bank will be vested in the
Holding Company, as the sole stockholder of the Bank. Voting
rights as to the Holding Company will be held exclusively by its
stockholders.
F. Exercise of Subscription Rights; Order Forms
1. If the Subscription Offering occurs concurrently with the
solicitation of proxies for the Special Meeting, the subscription
prospectus and Order Form may be sent to each Eligible Account
Holder, Tax-Qualified Employee Plan, Supplemental Eligible
Account Holder, Other Member, and director, Officer and employee
at their last known address as shown on the records of the Bank.
However, the Bank may, and if the Subscription Offering commences
after the Special Meeting the Bank shall, furnish a subscription
prospectus and Order Form only to Eligible Account Holders,
Tax-Qualified Employee Plans, Supplemental Eligible Account
Holders, Other Members, and directors, Officers and employees who
have returned to the Bank by a specified date prior to the
commencement of the Subscription Offering a post card or other
written communication requesting a subscription prospectus and
Order Form. In such event, the Bank shall provide a postage-paid
post card for this purpose and make appropriate disclosure in its
proxy statement for the solicitation of proxies to be voted at
the Special Meeting and/or letter sent in lieu of the proxy
statement to those Eligible Account Holders, Tax- Qualified
Employee Plans or Supplemental Eligible Account Holders who are
not Members on the Voting Record Date.
2. Each Order Form will be preceded or accompanied by a subscription
prospectus describing the Holding Company and the Converted Bank
and the shares of Holding Company Conversion Stock being offered
for subscription and containing all other information required by
the OTS or the SEC or necessary to enable Persons to make
informed investment decisions regarding the purchase of Holding
Company Conversion Stock.
3. The Order Forms (or accompanying instructions) used for the
Subscription Offering will contain, among other things, the
following:
(i) A clear and intelligible explanation of the Subscription
Rights granted under the Plan to Eligible Account Holders,
Tax- Qualified Employee Plans, Supplemental Eligible Account
Holders, Other Members, and directors, Officers and
employees;
(ii) A specified expiration date by which Order Forms must be
returned to and actually received by the Bank or its
representative for purposes of exercising Subscription
Rights, which date will be not less than 20 days after the
Order Forms are mailed by the Bank;
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<PAGE>
(iii)The Maximum Subscription Price to be paid for each share
subscribed for when the Order Form is returned;
(iv) A statement that 25 shares is the minimum number of shares
of Holding Company Conversion Stock that may be subscribed
for under the Plan;
(v) A specifically designated blank space for indicating the
number of shares being subscribed for;
(vi) A set of detailed instructions as to how to complete the
Order Form including a statement as to the available
alternative methods of payment for the shares being
subscribed for;
(vii)Specifically designated blank spaces for dating and signing
the Order Form;
(viii) An acknowledgment that the subscriber has received the
subscription prospectus;
(ix) A statement of the consequences of failing to properly
complete and return the Order Form, including a statement
that the Subscription Rights will expire on the expiration
date specified on the Order Form unless such expiration date
is extended by the Holding Company and the Bank, and that
the Subscription Rights may be exercised only by delivering
the Order Form, properly completed and executed, to the Bank
or its representative by the expiration date, together with
required payment of the Maximum Subscription Price for all
shares of Holding Company Conversion Stock subscribed for;
(x) A statement that the Subscription Rights are
non-transferable and that all shares of Holding Company
Conversion Stock subscribed for upon exercise of
Subscription Rights must be purchased on behalf of the
Person exercising the Subscription Rights for his own
account; and
(xi) A statement that, after receipt by the Bank or its
representative, a subscription may not be modified,
withdrawn or canceled without the consent of the Bank.
15
<PAGE>
G. Method of Payment
Payment for all shares of Holding Company Conversion Stock
subscribed for, computed on the basis of the Maximum Subscription
Price, must accompany all completed Order Forms. Payment may be made
in cash (if presented in Person), by check, or, if the subscriber has
a Deposit Account in the Bank (including a certificate of deposit),
the subscriber may authorize the Bank to charge the subscriber's
account.
If a subscriber authorizes the Bank to charge his or her account,
the funds will continue to earn interest, but may not be used by the
subscriber until all Holding Company Conversion Stock has been sold or
the Plan of Conversion is terminated, whichever is earlier. The Bank
will allow subscribers to purchase shares by withdrawing funds from
certificate accounts without the assessment of early withdrawal
penalties with the exception of prepaid interest in the form of
promotional gifts. In the case of early withdrawal of only a portion
of such account, the certificate evidencing such account shall be
canceled if the remaining balance of the account is less than the
applicable minimum balance requirement, in which event the remaining
balance will earn interest at the passbook rate. This waiver of the
early withdrawal penalty is applicable only to withdrawals made in
connection with the purchase of Holding Company Conversion Stock under
the Plan of Conversion. Interest will also be paid, at not less than
the then-current passbook rate, on all orders paid in cash, by check
or money order, from the date payment is received until consummation
of the Conversion. Payments made in cash, by check or money order will
be placed by the Bank in an escrow or other account established
specifically for this purpose.
In the event of an unfilled amount of any subscription order, the
Converted Bank will make an appropriate refund or cancel an
appropriate portion of the related withdrawal authorization, after
consummation of the Conversion, including any difference between the
Maximum Subscription Price and the Actual Subscription Price (unless
subscribers are afforded the right to apply such difference to the
purchase of additional whole shares). If for any reason the Conversion
is not consummated, purchasers will have refunded to them all payments
made and all withdrawal authorizations will be canceled in the case of
subscription payments authorized from accounts at the Bank.
If any Tax-Qualified Employee Plans or Non-Tax-Qualified Employee
Plans subscribe for shares during the Subscription Offering, such
plans will not be required to pay for the shares subscribed for at the
time they subscribe, but may pay for such shares of Holding Company
Conversion Stock subscribed for upon consummation of the Conversion.
In the event that, after the completion of the Subscription Offering,
the amount of shares to be issued is increased above the maximum of
the appraisal range included in the Prospectus, the Tax Qualified and
Non-Tax Qualified Employee Plans shall be entitled to increase their
subscriptions by a percentage equal to the percentage increase in the
amount of shares to be issued above the maximum of the appraisal range
provided that such subscriptions shall continue to be subject to
applicable purchase limits and stock allocation procedures.
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<PAGE>
H. Undelivered, Defective or Late Order Forms; Insufficient Payment
The Boards of Directors of the Holding Company and the Bank shall
have the absolute right, in their sole discretion, to reject any Order
Form, including but not limited to, any Order Forms which (i) are not
delivered or are returned by the United States Postal Service (or the
addressee cannot be located); (ii) are not received back by the Bank
or its representative, or are received after the termination date
specified thereon; (iii) are defectively completed or executed; (iv)
are not accompanied by the total required payment for the shares of
Holding Company Conversion Stock subscribed for (including cases in
which the subscribers' Deposit Accounts or certificate accounts are
insufficient to cover the authorized withdrawal for the required
payment); or (v) are submitted by or on behalf of a Person whose
representations the Boards of Directors of the Holding Company and the
Bank believe to be false or who they otherwise believe, either alone
or acting in concert with others, is violating, evading or
circumventing, or intends to violate, evade or circumvent, the terms
and conditions of this Plan. In such event, the Subscription Rights of
the Person to whom such rights have been granted will not be honored
and will be treated as though such Person failed to return the
completed Order Form within the time period specified therein. The
Bank may, but will not be required to, waive any irregularity relating
to any Order Form or require submission of corrected Order Forms or
the remittance of full payment for subscribed shares by such date as
the Bank may specify. The interpretation of the Holding Company and
the Bank of the terms and conditions of this Plan and of the proper
completion of the Order Form will be final, subject to the authority
of the OTS.
I. Member in Non-Qualified States or in Foreign Countries
The Holding Company and the Bank will make reasonable efforts to
comply with the securities laws of all states in the United States in
which Persons entitled to subscribe for Holding Company Conversion
Stock pursuant to the Plan reside. However, no shares will be offered
or sold under the Plan of Conversion to any such Person who (1)
resides in a foreign country or (2) resides in a state of the United
States in which a small number of Persons otherwise eligible to
subscribe for shares under the Plan of Conversion reside or as to
which the Holding Company and the Bank determine that compliance with
the securities laws of such state would be impracticable for reasons
of cost or otherwise, including, but not limited to, a requirement
that the Holding Company or the Bank or any of their officers,
directors or employees register, under the securities laws of such
state, as a broker, dealer, salesman or agent. No payments will be
made in lieu of the granting of Subscription Rights to any such
Person.
VI. FEDERAL STOCK CHARTER AND BYLAWS
A. As part of the Conversion, the Bank will take all appropriate steps to
amend its charter to read in the form of federal stock savings
institution charter as prescribed by the OTS. The name of the Bank, as
converted, will not change. A copy of the proposed stock charter is
available upon request. By their approval of the Plan, the Members of
the Bank will thereby approve and adopt such charter.
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<PAGE>
B. The Bank will also take appropriate steps to amend its bylaws to read
in the form prescribed by the OTS for a federal stock savings
institution. A copy of the proposed federal stock bylaws is available
upon request.
C. The effective date of the adoption of the Bank's federal stock charter
and bylaws shall be the date of the issuance and sale of the Holding
Company Conversion Stock as specified by the OTS.
VII. HOLDING COMPANY CERTIFICATE OF INCORPORATION
A copy of the proposed certificate of incorporation of the Holding
Company will be made available from the Bank upon request.
VIII. DIRECTORS OF THE CONVERTED BANK
Each Person serving as a member of the Board of Directors of the Bank
at the time of the Conversion will thereupon become a director of the Converted
Bank.
IX. STOCK OPTION AND INCENTIVE PLAN AND RECOGNITION AND RETENTION PLAN
In order to provide an incentive for directors, Officers and employees
of the Holding Company and its subsidiaries (including the Bank), the Board of
Directors of the Holding Company intends to adopt, subject to shareholder
approval, a stock option and incentive plan and a recognition and retention plan
as soon as permitted by applicable regulation.
X. CONTRIBUTIONS TO TAX-QUALIFIED EMPLOYEE PLANS
The Converted Bank and the Holding Company may in their discretion make
scheduled contributions to any Tax-Qualified Employee Plans, provided that any
such contributions which are for the acquisition of Holding Company Conversion
Stock, or the repayment of debt incurred for such an acquisition, do not cause
the Converted Bank to fail to meet its regulatory capital requirements.
XI. SECURITIES REGISTRATION AND MARKET MAKING
Promptly following the Conversion, the Holding Company will register
its stock with the SEC pursuant to the Exchange Act. In connection with the
registration, the Holding Company will
18
<PAGE>
undertake not to deregister such stock, without the approval of the OTS, for a
period of three years thereafter.
The Holding Company shall use its best efforts to encourage and assist
two or more market makers to establish and maintain a market for its common
stock promptly following Conversion. The Holding Company will also use its best
efforts to cause its common stock to be quoted on the National Association of
Securities Dealers, Inc. Automated Quotations System or to be listed on a
national or regional securities exchange.
XII. STATUS OF SAVINGS ACCOUNTS AND LOANS SUBSEQUENT TO CONVERSION
Each Deposit Account holder shall retain, without payment, a
withdrawable Deposit Account or Accounts in the Converted Bank, equal in amount
to the withdrawable value of such account holder's Deposit Account or Accounts
prior to Conversion. All Deposit Accounts will continue to be insured by the
SAIF up to the applicable limits of insurance coverage, and shall be subject to
the same terms and conditions (except as to voting and liquidation rights) as
such Deposit Account in the Bank at the time of the Conversion. All loans shall
retain the same status after Conversion as these loans had prior to Conversion.
XIII. LIQUIDATION ACCOUNT
For purposes of granting to Eligible Account Holders and Supplemental
Eligible Account Holders who continue to maintain Deposit Accounts at the
Converted Bank a priority in the event of a complete liquidation of the
Converted Bank, the Converted Bank will, at the time of Conversion, establish a
liquidation account in an amount equal to the net worth of the Bank as shown on
its latest statement of financial condition contained in the final offering
circular used in connection with the Conversion. The creation and maintenance of
the liquidation account will not operate to restrict the use or application of
any of the regulatory capital accounts of the Converted Bank; provided, however,
that such regulatory capital accounts will not be voluntarily reduced below the
required dollar amount of the liquidation account. Each Eligible Account Holder
and Supplemental Eligible Account Holder shall, with respect to the Deposit
Account held, have a related inchoate interest in a portion of the liquidation
account balance ("subaccount balance").
The initial subaccount balance of a Deposit Account held by an Eligible
Account Holder and/or Supplemental Eligible Account Holder shall be determined
by multiplying the opening balance in the liquidation account by a fraction of
which the numerator is the amount of the Qualifying Deposit in the Deposit
Account on the Eligibility Record Date and/or the Supplemental Eligibility
Record Date and the denominator is the total amount of the Qualifying Deposits
of all Eligible Account Holders and Supplemental Eligible Account Holders on
such record dates in the Bank. For Deposit Accounts in existence at both dates,
separate subaccounts shall be determined on the basis of the Qualifying Deposits
in such Deposit Accounts on such record dates. Such initial subaccount balance
shall not be increased, and it shall be subject to downward adjustment as
provided below.
19
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If the deposit balance in any Deposit Account of an Eligible Account
Holder or Supplemental Eligible Account Holder at the close of business on any
annual closing date subsequent to the record date is less than the lesser of (i)
the deposit balance in such Deposit Account at the close of business on any
other annual closing date subsequent to the Eligibility Record Date or the
Supplemental Eligibility Record Date or (ii) the amount of the Qualifying
Deposit in such Deposit Account on the Eligibility Record Date or Supplemental
Eligibility Record Date, the subaccount balance shall be reduced in an amount
proportionate to the reduction in such deposit balance. In the event of a
downward adjustment, the subaccount balance shall not be subsequently increased,
notwithstanding any increase in the deposit balance of the related Deposit
Account. If all funds in such Deposit Account are withdrawn, the related
subaccount balance shall be reduced to zero.
In the event of a complete liquidation of the Bank (and only in such
event), each Eligible Account Holder and Supplemental Eligible Account Holder
shall be entitled to receive a liquidation distribution from the liquidation
account in the amount of the then-current adjusted subaccount balances for
Deposit Accounts then held before any liquidation distribution may be made to
stockholders. No merger, consolidation, bulk purchase of assets with assumptions
of Deposit Accounts and other liabilities, or similar transactions with another
institution the accounts of which are insured by the SAIF, shall be considered
to be a complete liquidation. In such transactions, the liquidation account
shall be assumed by the surviving institution.
XIV. RESTRICTIONS ON ACQUISITION OF CONVERTED BANK
Regulations of the OTS limit acquisitions, and offers to acquire,
direct or indirect beneficial ownership of more than 10% of any class of an
equity security of the Converted Bank or the Holding Company. In addition,
consistent with the regulations of the OTS, the charter of the Converted Bank
shall provide that for a period of five years following completion of the
Conversion: (i) no Person (i.e., no individual, group acting in concert,
corporation, partnership, association, joint stock company, trust, or
unincorporated organization or similar company, syndicate, or any other group
formed for the purpose of acquiring, holding or disposing of securities of an
insured institution) shall directly or indirectly offer to acquire or acquire
beneficial ownership of more than 10% of any class of the Bank's equity
securities. Shares beneficially owned in violation of this charter provision
shall not be counted as shares entitled to vote and shall not be voted by any
Person or counted as voting shares in connection with any matter submitted to
the shareholders for a vote. This limitation shall not apply to any offer to
acquire or acquisition of beneficial ownership of more than 10% of the common
stock of the Bank by a corporation whose ownership is or will be substantially
the same as the ownership of the Bank, provided that the offer or acquisition is
made more than one year following the date of completion of the Conversion; (ii)
shareholders shall not be permitted to cumulate their votes for elections of
directors; and (iii) special meetings of the shareholders relating to changes in
control or amendment of the charter may only be called by the Board of
Directors.
XV. AMENDMENT OR TERMINATION OF PLAN
If necessary or desirable, the Plan may be amended at any time prior to
submission of the Plan and proxy materials to the Members by a two-thirds vote
of the respective Boards of Directors of the Holding Company and the Bank. After
submission of the Plan and proxy materials to the
20
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Members, the Plan may be amended by a two-thirds vote of the respective Boards
of Directors of the Holding Company and the Bank only with the concurrence of
the OTS. In the event that the Bank determines that for tax purposes or
otherwise it is in the best interest of the Bank to convert from a federal
mutual to a federal stock institution without the concurrent formation of a
holding company, the Plan may be substantively amended, with OTS approval, in
such respects as the Board of Directors of the Bank deems appropriate to reflect
such change from a holding company conversion to a direct conversion. In the
event the Plan is so amended, common stock of the Bank will be substituted for
Holding Company Conversion Stock in the Subscription and Direct Community and/or
Public Offerings, if any, and subscribers will be resolicited as described in
Section V hereof. Any amendments to the Plan (including amendments to reflect
the elimination of the concurrent holding company formation) made after approval
by the Members with the concurrence of the OTS shall not necessitate further
approval by the Members unless otherwise required.
The Plan may be terminated by a two-thirds vote of the Bank's Board of
Directors at any time prior to the Special Meeting of Members, and at any time
following such Special Meeting with the concurrence of the OTS. In its
discretion, the Board of Directors of the Bank may modify or terminate the Plan
upon the order or with the approval of the OTS and without further approval by
Members. The Plan shall terminate if the sale of all shares of Conversion Stock
is not completed within 24 months of the date of the Special Meeting. A specific
resolution approved by a majority of the Board of Directors of the Bank is
required in order for the Bank to terminate the Plan prior to the end of such
24-month period.
XVI. EXPENSES OF THE CONVERSION
The Holding Company and the Bank shall use their best efforts to assure
that expenses incurred by them in connection with the Conversion shall be
reasonable.
XVII. TAX RULING
Consummation of the Conversion is expressly conditioned upon prior
receipt of either a ruling of the United States Internal Revenue Service or an
opinion of tax counsel or other tax advisor with respect to federal taxation,
and either a ruling of the Illinois taxation authorities or an opinion of tax
counsel or other tax advisor with respect to Illinois taxation, to the effect
that consummation of the transactions contemplated herein will not be taxable to
the Holding Company or the Bank.
XVIII. EXTENSION OF CREDIT FOR PURCHASE OF STOCK
The Bank may not knowingly loan funds or otherwise extend credit to any
Person to purchase in the Conversion shares of Holding Company Conversion Stock.
21
BEN FRANKLIN FINANCIAL, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
Effective as of January 1, 1998
<PAGE>
BEN FRANKLIN FINANCIAL, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
TABLE OF CONTENTS
Page
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PREAMBLE ................................................................... 1
ARTICLE I DEFINITION OF TERMS AND CONSTRUCTION ............................. 2
1.1 Definitions ......................................................... 2
(a) Account ......................................................... 2
(b) Act ............................................................. 2
(c) Administrator ................................................... 2
(d) Annual Additions ................................................ 2
(e) Authorized Leave of Absence ..................................... 2
(f) Beneficiary ..................................................... 3
(g) Board of Directors .............................................. 3
(h) Break ........................................................... 3
(i) Code ............................................................ 3
(j) Compensation .................................................... 3
(k) Date of Hire .................................................... 3
(l) Disability ...................................................... 3
(m) Disability Retirement Date ...................................... 4
(n) Early Retirement Date ........................................... 4
(o) Effective Date .................................................. 4
(p) Eligibility Period .............................................. 4
(q) Employee ........................................................ 4
(r) Employee Stock Ownership Account ................................ 4
(s) Employee Stock Ownership Contribution ........................... 4
(t) Employee Stock Ownership Suspense Account ....................... 4
(u) Employer ........................................................ 4
(v) Employer Securities ............................................. 4
(w) Entry Date ...................................................... 5
(x) Exempt Loan ..................................................... 5
(y) Exempt Loan Suspense Account .................................... 5
(z) Financed Shares ................................................. 5
(aa) Former Participant .............................................. 5
(bb) Fund ............................................................ 5
(cc) Hour of Service ................................................. 5
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(dd) Investment Adjustments .......................................... 6
(ee) Limitation Year ................................................. 6
(ff) Normal Retirement Date .......................................... 6
(gg) Participant ..................................................... 6
(hh) Plan ............................................................ 6
(ii) Plan Year ....................................................... 6
(jj) Qualified Domestic Relations Order .............................. 7
(kk) Related Employer ................................................ 7
(ll) Retirement ...................................................... 7
(mm) Service ......................................................... 7
(nn) Sponsor ......................................................... 7
(oo) Trust Agreement ................................................. 7
(pp) Trustee ......................................................... 7
(qq) Valuation Date .................................................. 7
(rr) Year of Eligibility Service ..................................... 7
(ss) Year of Vesting Service ......................................... 8
1.2 Plurals and Gender .................................................. 8
1.3 Incorporation of Trust Agreement .................................... 8
1.4 Headings ............................................................ 8
1.5 Severability ........................................................ 8
1.6 References to Governmental Regulations .............................. 8
1.7 Notices ............................................................. 8
1.8 Evidence ............................................................ 8
1.9 Action by Employer .................................................. 9
ARTICLE II PARTICIATION ................................................... 10
2.1 Commencement of Participation ....................................... 10
2.2 Termination of Participation ........................................ 10
2.3 Resumption of Participation ......................................... 10
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2.4 Determination of Eligibility ........................................ 11
2.5 Restricted Participation ............................................ 11
ARTICLE III CREDITED SERVICE ............................................... 12
3.1 Service Counted for Eligibility Purposes ............................ 12
3.2 Service Counted for Vesting Purposes ................................ 12
3.3 Credit for Pre-Break Service ........................................ 12
3.4 Service Credit During Authorized Leaves ............................. 12
3.5 Service Credit During Maternity or Paternity Leave .................. 13
3.6 Ineligible Employees ................................................ 13
ARTICLE IV CONTRIBUTIONS ................................................... 14
4.1 Employee Stock Ownership Contribution ............................... 14
4.2 Time and Manner of Employee Stock Ownership Contribution ............ 14
4.3 Records of Contributions ............................................ 15
4.4 Erroneous Contributions ............................................. 15
ARTICLE V ACCOUNTS, ALLOCATIONS AND INVESTMENTS ............................ 17
5.1 Establishment of Separate Participant Accounts ...................... 17
5.2 Establishment of Suspense Accounts .................................. 18
5.3 Allocation of Earnings, Losses and Expenses ......................... 18
5.4 Allocation of Forfeitures ........................................... 18
5.5 Allocation of Employee Stock Ownership Contribution ................. 18
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5.6 Limitation on Annual Additions ...................................... 19
5.7 Erroneous Allocations ............................................... 22
5.8 Value of Participant's Account ...................................... 22
5.9 Investment of Account Balances ...................................... 22
ARTICLE VI RETIREMENT, DEATH AND DESIGNATION OF BENEFICIARY ................ 23
6.1 Normal Retirement ................................................... 23
6.2 Early Retirement .................................................... 23
6.3 Disability Retirement ............................................... 23
6.4 Death Benefits ...................................................... 23
6.5 Designation of Beneficiary and Manner of Payment .................... 24
ARTICLE VII VESTING AND FORFEITURES ........................................ 25
7.1 Vesting on Death, Disability and Normal Retirement .................. 25
7.2 Vesting on Termination of Participation ............................. 25
7.3 Disposition of Forfeitures .......................................... 25
ARTICLE VIII EMPLOYEE STOCK OWNERSHIP PROVISIONS ........................... 27
8.1 Right to Demand Employer Securities ................................. 27
8.2 Voting Rights ....................................................... 27
8.3 Nondiscrimination in Employee Stock Ownership Contribution .......... 27
8.4 Dividends ........................................................... 28
8.5 Exempt Loans ........................................................ 28
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8.6 Exempt Loan Payments ................................................ 29
8.7 Put Option .......................................................... 31
8.8 Diversification Requirements ........................................ 31
8.9 Independent Appraiser ............................................... 32
8.10 Nonterminable Rights ................................................ 32
ARTICLE IX PAYMENTS AND DISTRIBUTIONS ...................................... 33
9.1 Payments on Termination of Service - In General ..................... 33
9.2 Commencement of Payments ............................................ 33
9.3 Mandatory Commencement of Benefits .................................. 33
9.4 Required Beginning Dates ............................................ 36
9.5 Form of Payment ..................................................... 36
9.6 Payments Upon Termination of Plan ................................... 37
9.7 Distributions Pursuant to Qualified Domestic Relations Orders ....... 37
9.8 Cash-Out Distributions .............................................. 37
9.9 ESOP Distribution Rules ............................................. 38
9.10 Direct Rollover ..................................................... 38
9.11 Waiver of 30-day Notice ............................................. 39
9.12 Re-employed Veterans ................................................ 39
9.13 Share Legend ........................................................ 40
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ARTICLE X PROVISIONS RELATING TO TOP-HEAVY PLANS ........................... 41
10.1 Top-Heavy Rules to Control .......................................... 41
10.2 Top-Heavy Plan Definitions .......................................... 41
10.3 Calculation of Accrued Benefits ..................................... 43
10.4 Determination of Top-Heavy Status ................................... 44
10.5 Determination of Super Top-Heavy Status ............................. 44
10.6 Minimum Contribution ................................................ 45
10.7 Vesting ............................................................. 46
10.8 Maximum Benefit Limitation .......................................... 46
ARTICLE XI ADMINISTRATION .................................................. 47
11.1 Appointment of Administrator ........................................ 47
11.2 Resignation or Removal of Administrator ............................. 47
11.3 Appointment of Successors: Terms of Office, Etc. .................... 47
11.4 Powers and Duties of Administrator .................................. 47
11.5 Action by Administrator ............................................. 49
11.6 Participation by Administrator ...................................... 49
11.7 Agents .............................................................. 49
11.8 Allocation of Duties ................................................ 49
11.9 Delegation of Duties ................................................ 50
11.10 Administrator's Action Conclusive ................................... 50
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11.11 Compensation and Expenses of Administrator .......................... 50
11.12 Records and Reports ................................................. 50
11.13 Reports of Fund Open to Participants ................................ 50
11.14 Named Fiduciary ..................................................... 50
11.15 Information from Employer ........................................... 51
11.16 Reservation of Rights by Employer ................................... 51
11.17 Liability and Indemnification ....................................... 51
11.18 Service as Trustee and Administrator ................................ 51
ARTICLE XII CLAIMS PROCEDURE ............................................... 52
12.1 Notice of Denial .................................................... 52
12.2 Right to Reconsideration ............................................ 52
12.3 Review of Documents ................................................. 52
12.4 Decision by Administrator ........................................... 52
12.5 Notice by Administrator ............................................. 52
ARTICLE XIII AMENDMENTS, TERMINATION AND MERGER ............................ 54
13.1 Amendments .......................................................... 54
13.2 Consolidation, Merger or Other Transactions of Employer ............. 54
13.3 Consolidation or Merger of Trust .................................... 55
13.4 Bankruptcy or Insolvency of Employer ................................ 55
13.5 Voluntary Termination ............................................... 56
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13.6 Partial Termination of Plan or Permanent Discontinuance
of Contributions ................................................... 56
ARTICLE XIV MISCELLANEOUS .................................................. 57
14.1 No Diversion of Funds ............................................... 57
14.2 Liability Limited ................................................... 57
14.3 Facility of Payment ................................................. 57
14.4 Spendthrift Clause .................................................. 57
14.5 Benefits Limited to Fund ............................................ 58
14.6 Cooperation of Parties .............................................. 58
14.7 Payments Due Missing Persons ........................................ 58
14.8 Governing Law ....................................................... 58
14.9 Nonguarantee of Employment .......................................... 59
14.10 Counsel ............................................................. 59
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BEN FRANKLIN FINANCIAL, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
PREAMBLE
Effective as of January 1, 1998, Ben Franklin Financial, Inc., a
Delaware corporation (the "Sponsor"), has adopted the Ben Franklin Financial,
Inc. Employee Stock Ownership Plan in order to enable Participants to share in
the growth and prosperity of the Sponsor and its wholly owned subsidiary, Ben
Franklin Bank of Illinois, and to provide Participants with an opportunity to
accumulate capital for their future economic security by accumulating funds to
provide retirement, death and disability benefits. The Plan is a stock bonus
plan designed to meet the applicable requirements of Section 409 of the Code and
of an employee stock ownership plan, as defined in Section 4975(e)(7) of the
Code and Section 407(d)(6) of the Act. The employee stock ownership plan is
intended to invest primarily in "qualifying employer securities" as defined in
Section 4975(e)(8) of the Code. The Sponsor intends that the Plan will qualify
under Sections 401(a) and 501(a) of the Code and will comply with the provisions
of the Act. The Plan has been drafted to comply with all applicable provisions
of law, including the Tax Reform Act of 1986, the Omnibus Budget Reconciliation
Act of 1986, the Omnibus Budget Reconciliation Act of 1987, the Technical and
Miscellaneous Revenue Act of 1988, the Revenue Reconciliation Act of 1989, the
Omnibus Budget Reconciliation Act of 1993, the Small Business Job Protection Act
of 1996, and the Taxpayer Relief Act of 1997.
The terms of this Plan shall apply only with respect to Employees of
the Employer on and after January 1, 1998.
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ARTICLE I
DEFINITION OF TERMS AND CONSTRUCTION
1.1 Definitions.
Unless a different meaning is plainly implied by the context, the
following terms as used in this Plan shall have the following meanings:
(a) "Account" shall mean a Participant's or Former Participant's entire
accrued benefit under the Plan, including the balance credited to his Employee
Stock Ownership Account and any other account described in Section 5.1.
(b) "Act" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, or any successor statute, together with the
applicable regulations promulgated thereunder.
(c) "Administrator" shall mean the fiduciary provided for in Article
XI.
(d) "Annual Additions" shall mean, with respect to each Participant,
the sum of those amounts allocated to the Participant's Account under this Plan
and accounts under any other qualified defined contribution plan to which the
Employer or a Related Employer contributes for any Limitation Year, consisting
of the following:
(1) Employer contributions;
(2) Forfeitures; and
(3) Employee contributions (if any).
Annual Additions shall not include any employer contributions which are
used by the Trust to pay interest on an Exempt Loan nor any forfeitures of
Employer Securities purchased with the proceeds of an Exempt Loan, provided that
not more than one-third of the employer contributions are allocated to
Participants who are among the group of employees deemed "highly compensated
employees" within the meaning of Code Section 414(q), as further described in
Section 8.3.
(e) "Authorized Leave of Absence" shall mean an absence from Service
with respect to which the Employee may or may not be entitled to Compensation
and which meets any one of the following requirements:
(1) Service in any of the armed forces of the United States for
up to 36 months, provided that the Employee resumes Service within 90
days after discharge, or such longer period of time during which such
Employee's employment rights are protected by law; or
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(2) Any other absence or leave expressly approved and granted by
the Employer which does not exceed 24 months, provided that the
Employee resumes Service at or before the end of such approved leave
period. In approving such leaves of absence, the Employer shall treat
all Employees on a uniform and nondiscriminatory basis.
(f) "Beneficiary" shall mean such legal or natural persons, who may be
designated contingently or successively, as may be designated by the Participant
pursuant to Section 6.5 to receive benefits after the death of the Participant,
or in the absence of a valid designation, such persons specified in Section
6.5(b) to receive benefits after the death of the Participant.
(g) "Board of Directors" shall mean the Board of Directors of the
Sponsor.
(h) "Break" shall mean a Plan Year during which an Employee fails to
complete more than 500 Hours of Service.
(i) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, or any successor statute, together with the applicable
regulations promulgated thereunder.
(j) "Compensation" shall mean the amount of remuneration paid to an
Employee by the Employer, after the date on which the Employee becomes a
Participant, for services rendered to the Employer during a Plan Year, including
base salary, bonuses, overtime and commissions, elective deferrals to a cash or
deferred arrangement described in Code Section 401(k), and any amount
contributed on a pre-tax salary reduction basis to a cafeteria plan described in
Section 125 of the Code, but excluding amounts paid by the Employer or accrued
with respect to this Plan or any other qualified or non-qualified unfunded plan
of deferred compensation or other employee welfare plan to which the Employer
contributes, payments for group insurance, medical benefits, reimbursement for
expenses, and other forms of extraordinary pay, and excluding amounts accrued
for a prior Plan Year. Notwithstanding anything herein to the contrary, the
annual Compensation of each Participant taken into account under the Plan for
any purpose during any Plan Year shall not exceed $150,000, as adjusted from
time to time in accordance with Section 415(d) of the Code.
(k) "Date of Hire" shall mean the date on which an Employee shall
perform his first Hour of Service. Notwithstanding the foregoing, in the event
that an Employee incurs one or more consecutive Breaks after his initial Date of
Hire which results in the forfeiture of his pre-Break Service pursuant to
Section 3.3, his "Date of Hire" shall thereafter be the date on which he
completes his first Hour of Service after such Break or Breaks.
(l) "Disability" shall mean a physical or mental impairment which
prevents a Participant from performing the duties assigned to him by the
Employer and which either has caused the Social Security Administration to
classify the individual as "disabled" for purposes of Social Security or has
been determined by a qualified physician selected by the Administrator.
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(m) "Disability Retirement Date" shall mean the first day of the month
after which a Participant incurs a Disability.
(n) "Early Retirement Date" shall mean the first day of the month
coincident with or next following the later of the date on which a Participant
attains age 55 and completes 5 Years of Vesting Service.
(o) "Effective Date" shall mean January 1, 1998.
(p) "Eligibility Period" shall mean the period of 12 consecutive months
commencing on an Employee's Date of Hire. Succeeding Eligibility Periods after
the initial Eligibility Period shall be based on Plan Years, the first of which
shall include the first anniversary of an Employee's Date of Hire.
(q) "Employee" shall mean any person who is classified as an employee
by the Employer or a Related Employer, including officers, but excluding
directors in their capacity as such.
(r) "Employee Stock Ownership Account" shall mean the separate
bookkeeping account established for each Participant pursuant to Section 5.1(a).
(s) "Employee Stock Ownership Contribution" shall mean the cash,
Employer Securities, or both that are contributed to the Plan by the Employer
pursuant to Article IV.
(t) "Employee Stock Ownership Suspense Account" shall mean the
temporary account in which the Trustee shall maintain any Employee Stock
Ownership Contribution that is made prior to the last day of the Plan Year for
which it is made, as described in Section 5.2.
(u) "Employer" shall mean Ben Franklin Financial, Inc., a Delaware
corporation, and its wholly owned subsidiary, Ben Franklin Bank of Illinois, or
any successors to the aforesaid corporations by merger, consolidation or
otherwise, which may agree to continue this Plan, or any Related Employer or any
other business organization which, with the consent of the Sponsor, shall agree
to become a party to this Plan. To the extent required by the Code or the Act,
references herein to the Employer shall also include all Related Employers,
whether or not they are participating in this Plan.
(v) "Employer Securities" shall mean the common stock issued by Ben
Franklin Financial, Inc., a Delaware corporation. Such term shall also mean, in
the discretion of the Board of Directors, any other common stock issued by the
Employer or any Related Employer having voting power and dividend rights equal
to or in excess of:
(a) that class of common stock of the Employer or a Related
Employer having the greatest voting power, and
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(b) that class of common stock of the Employer or a Related
Employer having the greatest dividend rights.
Non-callable preferred stock shall be treated as Employer Securities if such
stock is convertible at any time into stock which meets the requirements of (a)
and (b) next above and if such conversion is at a conversion price which (as of
the date of the acquisition by the Plan) is reasonable. For purposes of the last
preceding sentence, preferred stock shall be treated as non-callable if, after
the call, there will be a reasonable opportunity for a conversion which meets
the requirements of the last preceding sentence.
(w) "Entry Date" shall mean each January 1 and July 1.
(x) "Exempt Loan" shall mean a loan described at Section 4975(d)(3) of
the Code to the Trustee to purchase Employer Securities for the Plan, made or
guaranteed by a disqualified person, as defined at Section 4975(e)(2) of the
Code, including, but not limited to, a direct loan of cash, a purchase money
transaction, an assumption of an obligation of the Trustee, an unsecured
guarantee or the use of assets of such disqualified person as collateral for
such a loan.
(y) "Exempt Loan Suspense Account" shall mean the account to which
Financed Shares are initially credited until they are released in accordance
with Section 8.5.
(z) "Financed Shares" shall mean the Employer Securities acquired by
the Trustee with the proceeds of an Exempt Loan and which are credited to the
Exempt Loan Suspense Account until they are released in accordance with Section
8.5.
(aa) "Former Participant" shall mean any previous Participant whose
participation has terminated but who has a vested Account in the Plan which has
not been distributed in full.
(bb) "Fund" shall mean the Fund maintained by the Trustee pursuant to
the Trust Agreement in order to provide for the payment of the benefits
specified in the Plan.
(cc) "Hour of Service" shall mean each hour for which an Employee is
directly or indirectly paid or entitled to payment by the Employer or a Related
Employer for the performance of duties or for reasons other than the performance
of duties (such as vacation time, holidays, sickness, disability, paid lay-offs,
jury duty and similar periods of paid nonworking time). To the extent not
otherwise included, Hours of Service shall also include each hour for which back
pay, irrespective of mitigation of damages, is either awarded or agreed to by
the Employer or a Related Employer. Hours of working time shall be credited on
the basis of actual hours worked, even though compensated at a premium rate for
overtime or other reasons. In computing and crediting Hours of Service for an
Employee under this Plan, the rules set forth in Sections 2530.200b-2(b) and (c)
of the Department of Labor Regulations shall apply, said sections being herein
incorporated by reference. Hours of Service shall be credited to the Plan Year
or other relevant period during which the services were performed or the
nonworking time occurred, regardless of the time when compensation therefor
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may be paid. Any Employee for whom no hourly employment records are kept by the
Employer or a Related Employer shall be credited with 45 Hours of Service for
each calendar week in which he would have been credited with a least one Hour or
Service under the foregoing provisions, if hourly records were available.
Effective January 1, 1985, for absences commencing on or after that date, solely
for purposes of determining whether a Break for participation and vesting
purposes has occurred in an Eligibility Period or a Plan Year, an individual who
is absent from work for maternity or paternity reasons shall receive credit for
the Hours of Service which would otherwise have been credited to such individual
but for such absence, or in any case in which such hours cannot be determined, 8
Hours of Service per day of such absence. For purposes of this Section 1.1(cc),
an absence from work for maternity or paternity reasons means an absence (1) by
reason of the pregnancy of the individual, (2) by reason of the birth of a child
of the individual, (3) by reason of the placement of a child with the individual
in connection with the adoption of such child by such individual, or (4) for
purposes of caring for such child for a period beginning immediately following
such birth or placement. The Hours of Service credited under this provision
shall be credited (1) in the computation period in which the absence begins if
the crediting is necessary to prevent a Break in that period, or (2) in all
other cases, in the following computation period.
(dd) "Investment Adjustments" shall mean the increases and/or decreases
in the value of a Participant's Account attributable to earnings, gains, losses
and expenses of the Fund, as set forth in Section 5.3.
(ee) "Limitation Year" shall mean the Plan Year.
(ff) "Normal Retirement Date" shall mean the first day of the month
coincident with or next following the later of the date on which a Participant
attains age 65 or the fifth anniversary of the date he commenced participation
in the Plan.
(gg) "Participant" shall mean an Employee who has met all of the
eligibility requirements of the Plan and who is currently included in the Plan
as provided in Article II hereof; provided, however, that the term "Participant"
shall not include (1) leased Employees, (2) any Employee who is regularly
employed outside the Employer's own offices in connection with the operation and
maintenance of buildings or other properties acquired through foreclosure or
deed, (3) any individual who is employed by a Related Employer that has not
adopted the Plan in accordance with Section 1.1(u) hereof, (4) any Employee who
is a non-resident alien individual and who has no earned income from sources
within the United States, or (5) any Employee who is included in a unit of
Employees covered by a collective-bargaining agreement with the Employer or a
Related Employer that does not expressly provide for participation of such
Employees in the Plan, where there has been good-faith bargaining between the
Employer or a Related Employer and Employees' representatives on the subject of
retirement benefits. To the extent required by the Code or the Act, or
appropriate based on the context, references herein to Participant shall include
Former Participant.
(hh) "Plan" shall mean the Ben Franklin Financial, Inc. Employee Stock
Ownership Plan, as described herein or as hereafter amended from time to time.
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(ii) "Plan Year" shall mean any 12 consecutive month period commencing
on each January 1 and ending on the next following December 31.
(jj) "Qualified Domestic Relations Order" shall mean any judgment,
decree or order that satisfies the requirements to be a "qualified domestic
relations order," as defined in Section 414(p) of the Code.
(kk) "Related Employer" shall mean any entity that is:
(1) a member of a controlled group of corporations that includes
the Employer, while it is a member of such controlled group (within
the meaning of Section 414(b) of the Code);
(2) a member of a group of trades or businesses under common
control with the Employer, while it is under common control (within
the meaning of Section 414(c) of the Code);
(3) a member of an affiliated service group that includes the
Employer, while it is a member of such affiliated service group
(within the meaning of Section 414(m) of the Code); or
(4) a leasing or other organization that is required to be
aggregated with the Employer pursuant to the provisions of Section
414(n) or 414(o) of the Code.
(ll) "Retirement" shall mean termination of employment which qualifies
as early, normal or Disability retirement as described in Article VI.
(mm) "Service" shall mean, for purposes of eligibility to participate
and vesting, employment with the Employer or any Related Employer, and for
purposes of allocation of the Employee Stock Ownership Contribution and
forfeitures, employment with the Employer.
(nn) "Sponsor" shall mean Ben Franklin Financial, Inc., a Delaware
corporation.
(oo) "Trust Agreement" shall mean the agreement, dated ________, 1998,
by and between Ben Franklin Financial, Inc., a Delaware corporation, and
____________________, of ___________, __________.
(pp) "Trustee" shall mean the trustee or trustees by whom the assets of
the Plan are held, as provided in the Trust Agreement, or his or their
successors.
(qq) "Valuation Date" shall mean the last day of each Plan Year. The
Trustee may make additional valuations, at the direction of the Administrator,
but in no event may the Administrator request additional valuations by the
Trustee more frequently than quarterly. Whenever such date falls on a Saturday,
Sunday or holiday, the preceding business day shall be the Valuation Date.
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(rr) "Year of Eligibility Service" shall mean an Eligibility Period
during which an Employee is credited with at least 1,000 Hours of Service,
except as otherwise specified in Article III.
(ss) "Year of Vesting Service" shall mean a Plan Year during which an
Employee is credited with at least 1,000 Hours of Service, except as otherwise
specified in Article III.
1.2 Plurals and Gender.
Where appearing in the Plan and the Trust Agreement, the masculine
gender shall include the feminine and neuter genders, and the singular shall
include the plural, and vice versa, unless the context clearly indicates a
different meaning.
1.3 Incorporation of Trust Agreement.
The Trust Agreement, as the same may be amended from time to time, is
intended to be and hereby is incorporated by reference into this Plan. All
contributions made under the Plan will be held, managed and controlled by the
Trustee pursuant to the terms and conditions of the Trust Agreement.
1.4 Headings.
The headings and sub-headings in this Plan are inserted for the
convenience of reference only and are to be ignored in any construction of the
provisions hereof.
1.5 Severability.
In case any provision of this Plan shall be held illegal or void, such
illegality or invalidity shall not affect the remaining provisions of this Plan,
but shall be fully severable, and the Plan shall be construed and enforced as if
said illegal or invalid provisions had never been inserted herein.
1.6 References to Governmental Regulations.
References in this Plan to regulations issued by the Internal Revenue
Service, the Department of Labor, or other governmental agencies shall include
all regulations, rulings, procedures, releases and other position statements
issued by any such agency.
1.7 Notices.
Any notice or document required to be filed with the Administrator or
Trustee under the Plan will be properly filed if delivered or mailed by
registered mail, postage prepaid, to the Administrator in care of the Sponsor or
to the Trustee, each at its principal business offices. Any notice required
under the Plan may be waived in writing by the person entitled to notice.
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1.8 Evidence.
Evidence required of anyone under the Plan may be by certificate,
affidavit, document or other information which the person acting on it considers
pertinent and reliable, and signed, made or presented by the proper party or
parties.
1.9 Action by Employer.
Any action required or permitted to be taken by any entity constituting
the Employer under the Plan shall be by resolution of its Board of Directors or
by a person or persons authorized by its Board of Directors.
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ARTICLE II
PARTICIPATION
2.1 Commencement of Participation.
(a) Any Employee who is otherwise eligible to become a Participant in
accordance with Section 1.1(gg) hereof shall initially become a Participant on
the Entry Date coincident with or next following the later of the following
dates, provided he is employed by the Employer on that Entry Date:
(1) The date on which he completes a Year of Eligibility Service;
and
(2) The date on which he attains age 21.
(b) Any Employee who had satisfied the requirements set forth in
Section 2.1(a) during the 12 consecutive month period prior to the Effective
Date shall become a Participant on the Effective Date, provided he is still
employed by the Employer on the Effective Date.
2.2 Termination of Participation.
After commencement or resumption of his participation, an Employee
shall remain a Participant during each consecutive Plan Year thereafter until
the earliest of the following dates:
(a) His actual Retirement date;
(b) His date of death; or
(c) The last day of a Plan Year during which he incurs a Break.
2.3 Resumption of Participation.
(a) Any Participant whose employment terminates and who resumes Service
before he incurs a Break shall resume participation immediately on the date he
is reemployed.
(b) Except as otherwise provided in Section 2.3(c), any Participant who
incurs one or more Breaks and resumes Service shall resume participation
retroactively as of the first day of the first Plan Year in which he completes a
Year of Eligibility Service after such Break(s).
(c) Any Participant who incurs one or more Breaks and resumes Service,
but whose pre-Break Service is not reinstated to his credit pursuant to Section
3.3, shall be treated as a new Employee and shall again be required to satisfy
the eligibility requirements contained in Section 2.1(a) before resuming
participation on the appropriate Entry Date, as specified in Section 2.1(a).
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2.4 Determination of Eligibility.
The Administrator shall determine the eligibility of Employees in
accordance with the provisions of this Article. For each Plan Year, the Employer
shall furnish the Administrator a list of all Employees, indicating their Date
of Hire, their Hours of Service during their Eligibility Period, their date of
birth, the original date of their reemployment with the Employer, if any, and
any Breaks they may have incurred.
2.5 Restricted Participation
Subject to the terms and conditions of the Plan, during the period
between the Participant's date of termination of participation in the Plan (as
described in Section 2.2) and the distribution of his entire Account (as
described in Article IX), and during any period that a Participant does not meet
the requirements of Section 2.1(a) or is employed by a Related Employer that is
not participating in the Plan, the Participant or, in the event of the
Participant's death, the Beneficiary of the Participant, will be considered and
treated as a Participant for all purposes of the Plan, except as follows:
(a) the Participant will not share in the Employee Stock
Ownership Contribution and forfeitures (as described in Sections 7.2
and 7.3), except as provided in Sections 5.4 and 5.5; and
(b) the Beneficiary of a deceased Participant cannot designate a
Beneficiary under Section 6.5.
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ARTICLE III
CREDITED SERVICE
3.1 Service Counted for Eligibility Purposes.
Except as provided in Section 3.3, all Years of Eligibility Service
completed by an Employee shall be counted in determining his eligibility to
become a Participant on and after the Effective Date, whether such Service was
completed before or after the Effective Date.
3.2 Service Counted for Vesting Purposes.
All Years of Vesting Service completed by an Employee (including Years
of Vesting Service completed prior to the Effective Date) shall be counted in
determining his vested interest in this Plan, except the following:
(a) Service which is disregarded under the provisions of Section
3.3;
(b) Service prior to the Effective Date of this Plan if such
Service would have been disregarded under the "break in service" rules
(within the meaning of Section 1.411(a)-5(b)(6) of the Treasury
Regulations).
3.3 Credit for Pre-Break Service.
Upon his resumption of participation following one or a series of
consecutive Breaks, an Employee's pre-Break Service shall be reinstated to his
credit for eligibility and vesting purposes only if either:
(a) He was vested in any portion of his accrued benefit at the
time the Break(s) began; or
(b) The number of his consecutive Breaks does not equal or exceed
the greater of 5 or the number of his Years of Eligibility Service or
Years of Vesting Service, as the case may be, credited to him before
the Breaks began.
Except as provided in the foregoing, none of an Employee's Service
prior to one or a series of consecutive Breaks shall be counted for any purpose
in connection with his participation in this Plan thereafter.
3.4 Service Credit During Authorized Leaves.
An Employee shall receive no Service credit under Section 3.1 or 3.2
during any Authorized Leave of Absence. However, solely for the purpose of
determining whether he has
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incurred a Break during any Plan Year in which he is absent from Service for one
or more Authorized Leaves of Absence, he shall be credited with 45 Hours of
Service for each week during any such leave period. Notwithstanding the
foregoing, if an Employee fails to return to Service on or before the end of a
leave period, he shall be deemed to have terminated Service as of the first day
of such leave period and his credit for Hours of Service, determined under this
Section 3.4, shall be revoked. Notwithstanding anything contained herein to the
contrary, an Employee who is absent by reason of military service as set forth
in Section 1.1(e)(1) shall be given Service credit under this Plan for such
military leave period to the extent, and for all purposes, required by law.
3.5 Service Credit During Maternity or Paternity Leave.
Effective for absences beginning on or after January 1, 1985, for
purposes of determining whether a Break has occurred for participation and
vesting purposes, an individual who is on maternity or paternity leave as
described in Section 1.1(cc), shall be deemed to have completed Hours of Service
during such period of absence, all in accordance with Section 1.1(cc).
Notwithstanding the foregoing, no credit shall be given for such Hours of
Service unless the individual furnishes to the Administrator such timely
information as the Administrator may reasonably require to determine:
(a) that the absence from Service was attributable to one of the
maternity or paternity reasons enumerated in Section 1.1(cc); and
(b) the number of days of such absence.
In no event, however, shall any credit be given for such leave other than for
determining whether a Break has occurred.
3.6 Ineligible Employees.
Notwithstanding any provisions of this Plan to the contrary, any
Employee who is ineligible to participate in this Plan either because of his
failure
(a) To meet the eligibility requirements contained in Article II;
or
(b) To be a Participant, as defined in Section 1.1(gg),
shall, nevertheless, earn Years of Eligibility Service and Years of Vesting
Service pursuant to the rules contained in this Article III. However, such
Employee shall not be entitled to an allocation of any contributions or
forfeitures hereunder unless and until he becomes a Participant in this Plan,
and then, only during his period of participation.
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ARTICLE IV
CONTRIBUTIONS
4.1 Employee Stock Ownership Contribution.
(a) Subject to all of the provisions of this Article IV, for each Plan
Year commencing on or after the Effective Date, the Employer shall make an
Employee Stock Ownership Contribution to the Fund in such amount as may be
determined by resolution of the Board of Directors in its discretion; provided,
however, that the Employer shall contribute an amount in cash not less than the
amount required to enable the Trustee to discharge any indebtedness incurred
with respect to an Exempt Loan in accordance with Section 8.6(c). If any part of
the Employee Stock Ownership Contribution under this Section 4.1 for any Plan
Year is in cash in an amount exceeding the amount needed to pay the amount due
during or prior to such Plan Year with respect to an Exempt Loan, such cash
shall be applied by the Trustee, as directed by the Administrator in its sole
discretion, either to the purchase of Employer Securities or to repay an Exempt
Loan.. Contributions hereunder shall be in the form of cash, Employer Securities
or any combination thereof. In determining the value of Employer Securities
transferred to the Fund as an Employee Stock Ownership Contribution, the
Administrator may determine the average of closing prices of such securities for
a period of up to 90 consecutive days immediately preceding the date on which
the securities are contributed to the Fund. In the event that the Employer
Securities are not readily tradable on an established securities market, the
value of the Employer Securities transferred to the Fund shall be determined by
an independent appraiser in accordance with Section 8.9.
(b) In no event shall the Employee Stock Ownership Contribution exceed
for any Plan Year the maximum amount that may be deducted by the Employer under
Section 404 of the Code, nor shall such contribution cause the Employer to
violate its regulatory capital requirements. Each Employee Stock Ownership
Contribution by the Employer shall be deemed to be made on the express condition
that the Plan, as then in effect, shall be qualified under Sections 401(a) and
501(a) of the Code and that the amount of such contribution shall be deductible
from the Employer's income under Section 404 of the Code.
4.2 Time and Manner of Employee Stock Ownership Contribution.
(a) The Employee Stock Ownership Contribution (if any) for each Plan
Year shall be paid to the Trustee in one lump sum or installments at any time on
or before the expiration of the time prescribed by law (including any
extensions) for filing of the Employer's federal income tax return for its
fiscal year ending concurrent with or during such Plan Year. Any portion of the
Employee Stock Ownership Contribution for each Plan Year that may be made prior
to the last day of the Plan Year shall be maintained by the Trustee in the
Employee Stock Ownership Suspense Account described in Section 5.2 until the
last day of such Plan Year.
(b) If an Employee Stock Ownership Contribution for a Plan Year is paid
after the close of the Employer's fiscal year which ends concurrent with or
during such Plan Year but on or
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prior to the due date (including any extensions) for filing of the Employer's
federal income tax return for such fiscal year, it shall be considered, for
allocation purposes, as an Employee Stock Ownership Contribution to the Fund for
the Plan Year for which it was computed and accrued, unless such contribution is
accompanied by a statement to the Trustee, signed by the Employer, which
specifies that the Employee Stock Ownership Contribution is made with respect to
the Plan Year in which it is received by the Trustee. Any Employee Stock
Ownership Contribution paid by the Employer during any Plan Year but after the
due date (including any extensions) for filing of its federal income tax return
for the fiscal year of the Employer ending on or before the last day of the
preceding Plan Year shall be treated, for allocation purposes, as an Employee
Stock Ownership Contribution to the Fund for the Plan Year in which the
contribution is paid to the Trustee.
(c) Notwithstanding anything contained herein to the contrary, no
Employee Stock Ownership Contribution shall be made for any Plan Year during
which a limitations account created pursuant to Section 5.6(c)(3) is in
existence until the balance of such limitations account has been reallocated in
accordance with Section 5.6(c)(3).
4.3 Records of Contributions.
The Employer shall deliver at least annually to the Trustee, with
respect to the Employee Stock Ownership Contribution contemplated in Section
4.1, a certificate of the Administrator, in such form as the Trustee shall
approve, setting forth:
(a) The aggregate amount of such contribution, if any, to the
Fund for such Plan Year;
(b) The names, Internal Revenue Service identifying numbers and
current residential addresses of all Participants in the Plan;
(c) The amount and category of contributions to be allocated to
each such Participant; and
(d) Any other information reasonably required for the proper
operation of the Plan.
4.4 Erroneous Contributions.
(a) Notwithstanding anything herein to the contrary, upon the
Employer's request, a contribution which was made by a mistake of fact, or
conditioned upon the initial qualification of the Plan, under Code Section
401(a), or upon the deductibility of the contribution under Section 404 of the
Code, shall be returned to the Employer by the Trustee within one year after the
payment of the contribution, the denial of the qualification or the disallowance
of the deduction (to the extent disallowed), whichever is applicable; provided,
however, that in the case of denial of the initial qualification of the Plan, a
contribution shall not be returned unless an Application for Determination has
been timely filed with the Internal Revenue Service. Any portion of a
contribution returned pursuant to this Section 4.4 shall be adjusted to reflect
its proportionate share of the losses of the Fund, but shall not be adjusted to
reflect any earnings or gains. Notwithstanding any provisions of
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this Plan to the contrary, the right or claim of any Participant or Beneficiary
to any asset of the Fund or any benefit under this Plan shall be subject to and
limited by this Section 4.4.
(b) In no event shall Employee contributions be accepted. Any such
Employee contributions (and any earnings attributable thereto) mistakenly
received by the Trustee shall promptly be returned to the Participant.
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ARTICLE V
ACCOUNTS, ALLOCATIONS AND INVESTMENTS
5.1 Establishment of Separate Participant Accounts.
The Administrator shall establish and maintain a separate Account for
each Participant in the Plan and for each Former Participant in accordance with
the provisions of this Article V. Such separate Account shall be for bookkeeping
purposes only and shall not require a segregation of the Fund, and no
Participant, Former Participant or Beneficiary shall acquire any right to or
interest in any specific assets of the Fund as a result of the allocations
provided for under this Plan.
(a) Employee Stock Ownership Accounts.
The Administrator shall establish a separate Employee Stock Ownership
Account in the Fund for each Participant. The Administrator may establish
subaccounts hereunder, an Employer Stock Account reflecting a Participant's
interest in Employer Securities held by the Trust, and an Other Investments
Account reflecting the Participant's interest in his Employee Stock Ownership
Account other than Employer Securities. Each Participant's Employer Stock
Account shall reflect his share of any Employee Stock Ownership Contribution
made in Employer Securities, his allocable share of forfeitures (as described in
Section 5.4), and any Employer Securities attributable to earnings on such
stock. Each Participant's Other Investments Account shall reflect any Employee
Stock Ownership Contribution made in cash, any cash dividends on Employer
Securities allocated and credited to his Employee Stock Ownership Account (other
than currently distributable dividends) and his share of corresponding cash
forfeitures, and any income, gains, losses, appreciation, or depreciation
attributable thereto.
(b) Distribution Accounts.
In any case where distribution of a terminated Participant's vested
Account is to be deferred, the Administrator shall establish a separate,
nonforfeitable account in the Fund to which the balance in his Employee Stock
Ownership Account in the Plan shall be transferred after such Participant incurs
a Break. Unless the Former Participant's distribution accounts are segregated
for investment purposes pursuant to section 9.4, they shall share in Investment
Adjustments.
(c) Other Accounts.
The Administrator shall establish such other separate accounts for each
Participant as may be necessary or desirable for the convenient administration
of the Fund.
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5.2 Establishment of Suspense Accounts.
The Administrator shall establish a separate Employee Stock Ownership
Suspense Account. There shall be credited to such account any Employee Stock
Ownership Contribution that may be made prior to the last day of the Plan Year,
as provided in Section 4.2. The Employee Stock Ownership Suspense Account shall
share proportionately as to time and amount in any Investment Adjustments. As of
the last day of each Plan Year, the balance of the Employee Stock Ownership
Suspense Account shall be added to the Employee Stock Ownership Contribution and
allocated to the Employee Stock Ownership Accounts of Participants as provided
in Section 5.5, except as provided herein. In the event that the Plan takes an
Exempt Loan, the Employer Securities purchased thereby shall be allocated as
Financed Shares to a separate Exempt Loan Suspense Account, from which
allocations shall be made in accordance with Section 8.5.
5.3 Allocation of Earnings, Losses and Expenses.
As of each Valuation Date, any increase or decrease in the net worth of
the aggregate Employee Stock Ownership Accounts held in the Fund attributable to
earnings, losses, expenses and unrealized appreciation or depreciation in each
such aggregate account, as determined by the Trustee pursuant to the Trust
Agreement, shall be credited to or deducted from the appropriate suspense
accounts and all Participants' Employee Stock Ownership Accounts (except
segregated distribution accounts described in Section 5.1(b) and the
"limitations account" described in Section 5.6(c)(3)) in the proportion that the
value of each such account (determined immediately prior to such allocation and
before crediting any Employee Stock Ownership Contribution and forfeitures for
the current Plan Year but after adjustment for any transfer to or from such
accounts and for the time such funds were in such accounts) bears to the value
of all Employee Stock Ownership Accounts.
5.4 Allocation of Forfeitures.
As of the last day of each Plan Year, all forfeitures attributable to
the Employee Stock Ownership Accounts which are then available for reallocation
shall be, as appropriate, added to the Employee Stock Ownership Contribution (if
any) for such year and allocated among the Participants' Employee Stock
Ownership Accounts, as appropriate, in the manner provided in Sections 5.5 and
5.6.
5.5 Allocation of Employee Stock Ownership Contribution.
As of the last day of each Plan Year for which the Employer shall make
an Employee Stock Ownership Contribution, the Administrator shall allocate the
Employee Stock Ownership Contribution (including reallocable forfeitures) for
such Plan Year to the Employee Stock Ownership Account of each Participant who
completed a Year of Vesting Service during that Plan Year, provided that he is
still employed by the Employer on the last day of the Plan Year. Such allocation
shall be made in the same proportion that each such Participant's Compensation
for such Plan Year bears to the total Compensation of all such Participants for
such Plan Year, subject to Section 5.6.
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Notwithstanding the foregoing, if a Participant attains his Normal Retirement
Date and terminates Service prior to the last day of the Plan Year but after
completing a Year of Vesting Service, he shall be entitled to an allocation
based on his Compensation earned prior to his termination and during the Plan
Year. Furthermore, if a Participant completes a Year of Vesting Service and is
on a Leave of Absence on the last day of the Plan Year because of pregnancy or
other medical reason, such a Participant shall be entitled to an allocation
based on his Compensation earned during such Plan Year.
5.6 Limitation on Annual Additions.
(a) Notwithstanding any provisions of this Plan to the contrary, the
total Annual Additions credited to a Participant's Account under this Plan (and
accounts under any other defined contribution plan maintained by the Employer or
a Related Employer) for any Limitation Year shall not exceed the lesser of:
(1) 25% of the Participant's compensation (as defined below) for
such Limitation Year; or
(2) $30,000 (or, if greater, one-fourth of the defined benefit
dollar limitation set forth in Section 415(b)(1)(A) of the Code).
Whenever otherwise allowed by law, the maximum amount of $30,000 shall
be automatically adjusted annually for cost-of-living increases in
accordance with Section 415(d) of the Code, and the highest such
increase effective at any time during the Limitation Year shall be
effective for the entire Limitation Year, without any amendment to
this Plan.
(b) Solely for the purpose of this Section 5.6, the term "compensation"
is defined as wages, salaries, and fees for professional services, pre-tax
elective deferrals and salary reduction contributions under a plan described in
Section 401(k) or 125 of the Code, and other amounts received (without regard to
whether or not an amount is paid in cash) for personal services actually
rendered in the course of employment with the Employer or a Related Employer, to
the extent that the amounts are includable in gross income (including, but not
limited to, commissions paid to salesmen, compensation for services on the basis
of a percentage of profits, commissions on insurance premiums, tips, bonuses,
fringe benefits, and reimbursements or other expense allowances under a
nonaccountable plan (as described in Treas. Regs. Section 1.62-2(c)), and
excluding the following:
(1) Employer contributions by the Employer or a Related Employer
to a plan of deferred compensation (other than elective deferrals
under a plan described in Section 401(k) of the Code) which are not
includable in the Employee's gross income for the taxable year in
which contributed, or employer contributions by the Employer or a
Related Employer under a simplified employee pension plan to the
extent such contributions are deductible by the Employee, or any
distributions from a plan of deferred compensation;
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(2) Amounts realized from the exercise of a non-qualified stock
option, or when restricted stock (or property) held by the Employee
either becomes freely transferable or is no longer subject to a
substantial risk of forfeiture;
(3) Amounts realized from the sale, exchange or other disposition
of stock acquired under a qualified stock option; and
(4) Other amounts which received special tax benefits (other than
pre-tax salary reduction contributions under a plan described in
Section 125 of the Code), or contributions made by the employer
(whether or not under a salary reduction agreement) towards the
purchase of an annuity contract described in section 403(b) of the
Code (whether or not the contributions are actually excludable from
the gross income of the Employee).
(c) In the event that the limitations on Annual Additions described in
Section 5.6(a) above are exceeded with respect to any Participant in any
Limitation Year, then the contributions allocable to the Participant for such
Limitation Year shall be reduced to the minimum extent required by such
limitations, in the following order of priority:
(1) The Administrator shall determine to what extent the Annual
Additions to any Participant's Employee Stock Ownership Account must
be reduced in each Limitation Year. The Administrator shall reduce the
Annual Additions to all other qualified, tax-exempt retirement plans
maintained by the Employer or a Related Employer in accordance with
the terms contained therein for required reductions or reallocations
mandated by Section 415 of the Code before reducing any Annual
Additions in this Plan.
(2) If any further reductions in Annual Additions are necessary,
then the Employee Stock Ownership Contribution and forfeitures
allocated during such Limitation Year to the Participant's Employee
Stock Ownership Account shall be reduced. The amount of any such
reductions in the Employee Stock Ownership Contribution and
forfeitures shall be reallocated to all other Participants in the same
manner as set forth under Sections 5.4 and 5.5.
(3) Any amounts which cannot be reallocated to other Participants
in a current Limitation Year in accordance with Section 5.6(c)(2)
above because of the limitations contained in Sections 5.6(a) and (d)
shall be credited to an account designated as the "limitations
account" and carried forward to the next and subsequent Limitation
Years until it can be reallocated to all Participants as set forth in
Sections 5.4 and 5.5, as appropriate. No Investment Adjustments shall
be allocated to this limitations account. In the next and subsequent
Limitation Years, all amounts in the limitations account must be
allocated in the manner described in Sections 5.4 and 5.5, as
appropriate, before any Employee Stock Ownership Contribution may be
made to this Plan for that Limitation Year.
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(4) In the event this Plan is voluntarily terminated by the
Employer under Section 13.5, any amounts credited to the limitations
account described in Section 5.6(c)(3) above which have not be
reallocated as set forth herein shall be distributed to the
Participants who are still employed by the Employer on the date of
termination, in the proportion that each Participant's Compensation
bears to the Compensation of all Participants.
(d) The Annual Additions credited to a Participant's accounts for each
Limitation Year are further limited so that in the case of an Employee who is a
Participant in both this Plan and any qualified defined benefit plan
(hereinafter referred to as a "pension plan") of the Employer or Related
Employer, the sum of (1) and (2) below will not exceed 1.0:
(1) (A) The projected annual normal retirement benefit of a
Participant under the pension plan, divided by
(B) The lesser of:
(i) The product of 1.25 multiplied by the dollar limitation
in effect under Section 415(b)(1)(A) of the Code for such
Limitation Year, or
(ii) The product of 1.4 multiplied by the amount of
compensation which may be taken into account under Section
415(b)(1)(B) of the Code for the Participant for such Limitation
Year; plus
(2) (A) The sum of Annual Additions credited to the Participant
under this Plan for all Limitation Years, divided by:
(B) The sum of the lesser of the following amounts determined
for such Limitation Year and for each prior year of service with the
Employer or a Related Employer:
(i) The product of 1.25 multiplied by the dollar limitation
in effect under Section 415(b)(1)(A) of the Code for such
Limitation Year, or
(ii) The product of 1.4 multiplied by the amount of
compensation which may be taken into account under Section
415(b)(1)(B) of the Code for the Participant for such Limitation
Year.
The Administrator may, in calculating the defined contribution plan fraction
described in Section 5.6(d)(2), elect to use the transitional rule pursuant to
Section 415(e)(7) of the Code, if applicable. If the sum of the fractions
produced above will exceed 1.0, even after the use of the "fresh start" rule
contained in Section 235 of the Tax Equity and Fiscal Responsibility Act of 1982
("TEFRA"), if applicable, then the same provisions as stated in Section 5.6(c)
above shall apply. If,
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even after the reductions provided for in Section 5.6(c), the sum of the
fractions still exceeds 1.0, then the benefits of the Participant provided under
the pension plan shall be reduced to the extent necessary, in accordance with
Treasury Regulations issued under the Code. Solely for the purposes of this
Section 5.6(d), the term "years of service" shall mean all years of service
defined by Treasury Regulations issued under Section 415 of the Code.
Notwithstanding the foregoing, the provisions of this Section 5.6(d) shall
expire with respect to all Limitation Years beginning after December 31, 1999.
5.7 Erroneous Allocations.
No Participant shall be entitled to any Annual Additions or other
allocations to his Account in excess of those permitted under Sections 5.3, 5.4,
5.5, and 5.6. If it is determined at anytime that the Administrator and/or
Trustee have erred in accepting and allocating any contributions or forfeitures
under this Plan, or in allocating Investment Adjustments, or in excluding or
including any person as a Participant, then the Administrator, in a uniform and
nondiscriminatory manner, shall determine the manner in which such error shall
be corrected and shall promptly advise the Trustee in writing of such error and
of the method for correcting such error. The accounts of any or all Participants
may be revised, if necessary, in order to correct such error. To the extent
applicable, such correction shall be made in accordance with the provisions of
IRS Revenue Procedure 98-22 (or any amendment or successor thereto).
5.8 Value of Participant's Account.
At any time, the value of a Participant's Account shall consist of the
aggregate value of his Employee Stock Ownership Account and his distribution
account, if any, determined as of the next-preceding Valuation Date. The
Administrator shall maintain adequate records of the cost basis of Employer
Securities allocated to each Participant's Employee Stock Ownership Account.
5.9 Investment of Account Balances.
The Employee Stock Ownership Accounts shall be invested primarily in
Employer Securities. Employer Securities shall constitute at least 51% of the
assets of all Employee Stock Ownership Accounts. All sales of Employer
Securities by the Trustee attributable to the Employee Stock Ownership Accounts
of all Participants shall be charged pro rata to the Employee Stock Ownership
Accounts of all Participants.
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ARTICLE VI
RETIREMENT, DEATH AND DESIGNATION OF BENEFICIARY
6.1 Normal Retirement.
A Participant who reaches his Normal Retirement Date and who shall
retire at that time shall thereupon be entitled to retirement benefits based on
the value of his Account, payable pursuant to the provisions of Section 9.1. A
Participant who remains in Service after his Normal Retirement Date shall not be
entitled to any retirement benefits until his actual termination of Service
thereafter (except as provided in Section 9.3(g)), and he shall meanwhile
continue to participate in this Plan.
6.2 Early Retirement.
A Participant who reaches his Early Retirement Date may retire at such
time (or, at his election, as of the first day of any month thereafter prior to
his Normal Retirement Date) and shall thereupon be entitled to retirement
benefits based on the value of his Account, payable pursuant to the provisions
of Section 9.1.
6.3 Disability Retirement.
In the event a Participant incurs a Disability, he may retire on his
Disability Retirement Date and shall thereupon be entitled to retirement
benefits based on the value of his Account, payable pursuant to the provisions
of Section 9.1.
6.4 Death Benefits.
(a) Upon the death of a Participant before his Retirement or other
termination of Service, the value of his Account shall be payable pursuant to
the provisions of Section 9.1. The Administrator shall direct the Trustee to
distribute his Account to any surviving Beneficiary designated by the
Participant or, if none, to such persons specified in Section 6.5(b).
(b) Upon the death of a Former Participant, the Administrator shall
direct the Trustee to distribute any undistributed balance of his Account to any
surviving Beneficiary designated by him or, if none, to such persons specified
in Section 6.5(b).
(c) The Administrator may require such proper proof of death and such
evidence of the right of any person to receive the balance credited to the
Account of a deceased Participant or Former Participant as the Administrator may
deem desirable. The Administrator's determination of death and of the right of
any person to receive payment shall be conclusive.
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6.5 Designation of Beneficiary and Manner of Payment.
(a) Each Participant shall have the right to designate a Beneficiary to
receive the sum or sums to which he may be entitled upon his death. The
Participant may also designate the manner in which any death benefits under this
Plan shall be payable to his Beneficiary, provided that such designation is in
accordance with Section 9.5. Such designation of Beneficiary and manner of
payment shall be in writing and delivered to the Administrator, and shall be
effective when received by the Administrator while the Participant is alive. The
Participant shall have the right to change such designation by notice in writing
to the Administrator while the Participant is alive. Such change of Beneficiary
or the manner of payment shall become effective upon its receipt by the
Administrator while the Participant is alive. Any such change shall be deemed to
revoke all prior designations.
(b) If a Participant shall fail to designate validly a Beneficiary, or
if no designated Beneficiary survives the Participant, the balance credited to
his Account shall be paid to the person or persons in the first of the following
classes of successive preference Beneficiaries surviving at the death of the
Participant: the Participant's (1) widow or widower, (2) natural-born or adopted
children, (3) natural-born or adoptive parents, and (4) estate. The
Administrator shall determine which Beneficiary, if any, shall have been validly
designated or entitled to receive the balance credited to the Participant's
Account in accordance with the foregoing order of preference, and its decision
shall be binding and conclusive on all persons.
(c) Notwithstanding the foregoing, if a Participant is married on the
date of his death, the sum or sums to which he may be entitled under this Plan
upon his death shall be paid to his spouse, unless the Participant's spouse
shall have consented to the election of another Beneficiary. Such a spousal
consent shall be in writing and shall be witnessed either by a representative of
the Administrator or by a notary public. Any designation by an unmarried
Participant shall be rendered ineffective by any subsequent marriage, and any
consent of a spouse shall be effective only as to that spouse. If it is
established to the satisfaction of the Administrator that spousal consent cannot
be obtained because there is no spouse, because the spouse cannot be located, or
other reasons prescribed by governmental regulations, the consent of the spouse
may be waived, and the Participant may designate a Beneficiary or Beneficiaries
other than his spouse.
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ARTICLE VII
VESTING AND FORFEITURES
7.1 Vesting on Death, Disability and Normal Retirement.
Unless his participation in this Plan shall have terminated prior
thereto, upon a Participant's death, Disability or Normal Retirement Date
(whether or not he actually retires at that time) while he is still employed by
the Employer, the Participant's entire Account shall be fully vested and
nonforfeitable.
7.2 Vesting on Termination of Participation.
Upon termination of his participation in this Plan for any reason other
than death, Disability, or Normal Retirement, a Participant shall be vested in a
percentage of his Employee Stock Ownership Account, such vested percentage to be
determined under the following table, based on the Years of Vesting Service
(including Years of Vesting Service prior to the Effective Date) credited to him
at the time of his termination of participation:
Years of Vesting Service Percentage Vested
------------------------ -----------------
Less than 5 0%
5 or more 100%
Any portion of the Participant's Employee Stock Ownership Account which
is not vested at the time he incurs a Break shall thereupon be forfeited and
disposed of pursuant to Section 7.3. Distribution of the vested portion of a
terminated Participant's interest in the Plan shall be payable in any manner
permitted under Section 9.1.
7.3 Disposition of Forfeitures.
(a) In the event a Participant incurs a Break and subsequently resumes
both his Service and his participation in the Plan prior to incurring at least 5
Breaks, the forfeitable portion of his Employee Stock Ownership Account shall be
reinstated to the credit of the Participant as of the date he resumes
participation.
(b) In the event a Participant terminates Service and subsequently
incurs a Break and receives a distribution, or in the event a Participant does
not terminate Service, but incurs at least 5 Breaks, or in the event that a
Participant terminates Service and incurs at least 5 Breaks but has not received
a distribution, then the forfeitable portion of his Employee Stock Ownership
Account, including Investment Adjustments, shall be reallocated to other
Participants, pursuant to Section 5.4, as of the date the Participant incurs
such Break or Breaks, as the case may be.
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(c) In the event a former Participant who had received a distribution
from the Plan is rehired, he shall repay the amount of his distribution before
the earlier of 5 years after the date of his rehire by the Employer, or the
close of the first period of 5 consecutive Breaks commencing after the
withdrawal, in order for any forfeited amounts to be restored to him.
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ARTICLE VIII
EMPLOYEE STOCK OWNERSHIP PROVISIONS
8.1 Right to Demand Employer Securities.
A Participant entitled to a distribution from his Account shall be
entitled to demand that his interest in the Account be distributed to him in the
form of Employer Securities, all subject to Section 9.9. The Administrator shall
notify the Participant of his right to demand distribution of his vested Account
balance entirely in whole shares of Employer Securities (with the value of any
fractional share paid in cash). However, if the charter or by-laws of the
Employer restrict ownership of substantially all of the outstanding Employer
Securities to Employees and the Trust, then the distribution of a Participant's
vested Account shall be made entirely in the form of cash or other property, and
the Participant is not entitled to a distribution in the form of Employer
Securities.
8.2 Voting Rights.
Each Participant with an Employee Stock Ownership Account shall be
entitled to direct the Trustee as to the manner in which the Employer Securities
in such account are to be voted. Employer Securities held in the Employee Stock
Ownership Suspense Account or the Exempt Loan Suspense Account shall be voted by
the Trustee on each issue with respect to which shareholders are entitled to
vote in the manner directed by the majority of the Participants who directed the
Trustee as to the manner of voting their shares in the Employee Stock Ownership
Accounts with respect to such issue. Prior to the initial allocation of shares,
the Trustee shall be entitled to vote the shares in the Exempt Loan Suspense
Account without prior direction from the Participants or the Administrator. In
the event that a Participant fails to give timely voting instructions to the
Trustee with respect to the voting of Employer Securities that are allocated to
his Employee Stock Ownership Account, the Trustee shall vote such shares in such
manner as directed by the Administrator.
8.3 Nondiscrimination in Employee Stock Ownership Contribution.
In the event that the amount of the Employee Stock Ownership
Contribution that would be required in any Plan Year to make the scheduled
payments on an Exempt Loan would exceed the amount that would otherwise be
deductible by the Employer for such Plan Year under Code Section 404, then no
more than one-third of the Employee Stock Ownership Contribution for the Plan
Year, which is also the Employer's taxable year, shall be allocated to the group
of Employees who:
(a) Was at any time during the Plan Year or the preceding Plan
Year a 5 percent owner of the Employer; or
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(b) Received compensation from the Employer for the preceding
Plan Year in excess of $80,000, as adjusted under Code Section 414(q),
and, if the Employer so elects, was in the "top-paid group" of
Employees (as defined below) for such year.
An Employee shall be deemed a member of the "top-paid group" of Employees for a
given Plan Year if such Employee is in the group of the top 20% of the Employees
of the Employer when ranked on the basis of compensation.
8.4 Dividends.
Dividends paid with respect to Employer Securities credited to a
Participant's Employee Stock Ownership Account as of the record date for the
dividend payment may be allocated to the Participant's Employee Stock Ownership
Account or paid in cash to the Participant, pursuant to the direction of the
Administrator. If the Administrator shall direct that the aforesaid dividends
shall be paid directly to Participants, the quarterly dividends paid with
respect to such Employer Securities shall be paid to the Plan, from which
dividend distributions in cash shall be made to the Participants with respect to
the Employer Securities in their Employee Stock Ownership Accounts within 90
days of the close of the Plan Year in which the dividends were paid. Dividends
on Employer Securities obtained pursuant to an Exempt Loan and still held in the
Exempt Loan Suspense Account may be used to make payments on an Exempt Loan, as
described in Section 8.5.
8.5 Exempt Loans.
(a) The Sponsor may direct the Trustee to obtain Exempt Loans. The
Exempt Loan may take the form of (i) a loan from a bank or other commercial
lender to purchase Employer Securities (ii) a loan from the Employer to the
Plan; or (iii) an installment sale of Employer Securities to the Plan. The
proceeds of any such Exempt Loan shall be used, within a reasonable time after
the Exempt Loan is obtained, only to purchase Employer Securities, repay the
Exempt Loan, or repay any prior Exempt Loan. Any such Exempt Loan shall provide
for no more than a reasonable rate of interest and shall be without recourse
against the Plan. The number of years to maturity under the Exempt Loan must be
definitely ascertainable at all times. The only assets of the Plan that may be
given as collateral for an Exempt Loan are Financed Shares acquired with the
proceeds of the Exempt Loan and Financed Shares that were used as collateral for
a prior Exempt Loan repaid with the proceeds of the current Exempt Loan. Such
Financed Shares so pledged shall be placed in an Exempt Loan Suspense Account.
No person or institution entitled to payment under an Exempt Loan shall have
recourse against Trust assets other than the Financed Shares, the Employer Stock
Ownership Contribution (other than contributions of Employer Securities) that is
available under the Plan to meet obligations under the Exempt Loan, and earnings
attributable to such Financed Shares and the investment of such contribution.
Any Employee Stock Ownership Contribution paid during the Plan Year in which an
Exempt Loan is made (whether before or after the date the proceeds of the Exempt
Loan are received), any Employee Stock Ownership Contribution paid thereafter
until the Exempt Loan has
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been repaid in full, and all earnings from investment of such Employee Stock
Ownership Contribution, without regard to whether any such Employee Stock
Ownership Contribution and earnings have been allocated to Participants'
Employee Stock Ownership Accounts, shall be available to meet obligations under
the Exempt Loan as such obligations accrue, or prior to the time such
obligations accrue, unless otherwise provided by the Employer at the time any
such contribution is made. Any pledge of Employer Securities shall provide for
the release of Financed Shares upon the payment of any portion of the Exempt
Loan.
(b) For each Plan Year during the duration of the Exempt Loan, the
number of Financed Shares released from such pledge shall equal the number of
Financed Shares held immediately before release for the current Plan Year
multiplied by a fraction. The numerator of the fraction is the sum of principal
and interest paid in such Plan Year. The denominator of the fraction is the sum
of the numerator plus the principal and interest to be paid for all future
years. Such years will be determined without taking into account any possible
extension or renewal periods. If interest on any Exempt Loan is variable, the
interest to be paid in future years under the Exempt Loan shall be computed by
using the interest rate applicable as of the end of the Plan Year.
(c) Notwithstanding the foregoing, the Trustee may obtain an Exempt
Loan pursuant to the terms of which the number of Financed Shares to be released
from encumbrance shall be determined with reference to principal payments only.
In the event that such an Exempt Loan is obtained, annual payments of principal
and interest shall be at a cumulative rate that is not less rapid at any time
than level payments of such amounts for not more than 10 years. The amount of
interest in any such annual loan repayment shall be disregarded only to the
extent that it would be determined to be interest under standard loan
amortization tables. The requirement set forth in the preceding sentence shall
not be applicable from the time that, by reason of a renewal, extension, or
refinancing, the sum of the expired duration of the Exempt Loan, the renewal
period, the extension period, and the duration of a new Exempt Loan exceeds 10
years.
8.6 Exempt Loan Payments.
(a) Payments of principal and interest on any Exempt Loan during a Plan
Year shall be made by the Trustee (as directed by the Administrator) only from
(1) the Employee Stock Ownership Contribution to the Trust made to meet the
Plan's obligation under an Exempt Loan (other than contributions of Employer
Securities) and from any earnings attributable to Financed Shares and
investments of such contributions (both received during or prior to the Plan
Year); (2) the proceeds of a subsequent Exempt Loan made to repay a prior Exempt
Loan; and (3) the proceeds of the sale of any Financed Shares. Such contribution
and earnings shall be accounted for separately by the Plan until the Exempt Loan
is repaid.
(b) Employer Securities released from the Exempt Loan Suspense Account
by reason of the payment of principal or interest on an Exempt Loan from amounts
allocated to
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Participants' Employee Stock Ownership Accounts shall immediately upon payment
be allocated as set forth in Section 5.5.
(c) The Employer shall contribute to the Trust sufficient amounts to
enable the Trust to pay principal and interest on any such Exempt Loans as they
are due, provided, however, that no such contribution shall exceed the
limitations in Section 5.6. In the event that such contributions by reason of
the limitations in Section 5.6 are insufficient to enable the Trust to pay
principal and interest on such Exempt Loan as it is due, then upon the Trustee's
request the Employer shall:
(1) Make an Exempt Loan to the Trust in sufficient amounts to
meet such principal and interest payments. Such new Exempt Loan shall
be subordinated to the prior Exempt Loan. Employer Securities released
from the pledge of the prior Exempt Loan shall be pledged as
collateral to secure the new Exempt Loan. Such Employer Securities
will be released from this new pledge and allocated to the Employee
Stock Ownership Accounts of the Participants in accordance with the
applicable provisions of the Plan;
(2) Purchase any Financed Shares in an amount necessary to
provide the Trustee with sufficient funds to meet the principal and
interest repayments. Any such sale by the Plan shall meet the
requirements of Section 408(e) of the Act; or
(3) Any combination of the foregoing.
However, the Employer shall not, pursuant to the provisions of this subsection,
do, fail to do or cause to be done any act or thing which would result in a
disqualification of the Plan as an employee stock ownership plan under Section
4975(e)(7) of the Code.
(d) Except as provided in Section 8.1 above and notwithstanding any
amendment to or termination of the Plan which causes it to cease to qualify as
an employee stock ownership plan within the meaning of Section 4975(e)(7) of the
Code, or any repayment of an Exempt Loan, no shares of Employer Securities
acquired with the proceeds of an Exempt Loan obtained by the Trust to purchase
Employer Securities may be subject to a put, call or other option, or buy-sell
or similar arrangement, while such shares are held by the Plan or when such
shares are distributed from the Plan.
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8.7 Put Option.
In the event that the Employer Securities distributed to a Participant
are not readily tradable on an established market, the Participant shall be
entitled to require that the Employer repurchase the Employer Securities under a
fair valuation formula, as provided by governmental regulations. The Participant
or Beneficiary shall be entitled to exercise the put option described in the
preceding sentence for a period of not more than 60 days following the date of
distribution of Employer Securities to him. If the put option is not exercised
within such 60-day period, the Participant or Beneficiary may exercise the put
option during an additional period of not more than 60 days after the beginning
of the first day of the first Plan Year following the Plan Year in which the
first put option period occurred, all as provided in regulations promulgated by
the Secretary of the Treasury.
If a Participant exercises the foregoing put option with respect to
Employer Securities that were distributed as part of a total distribution
pursuant to which a Participant's Employee Stock Ownership Account is
distributed to him in a single taxable year, the Employer or the Plan may elect
to pay the purchase price of the Employer Securities over a period not to exceed
5 years. Such payments shall be made in substantially equal installments not
less frequently than annually over a period beginning not later than 30 days
after the exercise of the put option. Reasonable interest shall be paid to the
Participant with respect to the unpaid balance of the purchase price, and
adequate security shall be provided with respect thereto. In the event that a
Participant exercises a put option with respect to Employer Securities that are
distributed as part of an installment distribution, if permissible under Section
9.5, the amount to be paid for such securities shall be paid not later than 30
days after the exercise of the put option.
8.8 Diversification Requirements.
Each Participant who has completed at least 10 years of participation
in the Plan and has attained age 55 may elect within 90 days after the close of
each Plan Year during his "qualified election period" to direct the Plan as to
the investment of at least 25 percent of his Employee Stock Ownership Account
(to the extent such percentage exceeds the amount to which a prior election
under this Section 8.8 had been made). For purposes of this Section 8.8, the
term "qualified election period" shall mean the 5-Plan-Year period beginning
with the Plan Year after the Plan Year in which the Participant attains age 55
(or, if later, beginning with the Plan Year after the first Plan Year in which
the Employee first completes at least 10 years of participation in the Plan). In
the case of an Employee who has attained age 60 and completed 10 years of
participation in the prior Plan Year and in the case of the election year in
which any other Participant who has met the minimum age and service requirements
for diversification can make his last election hereunder, he shall be entitled
to direct the Plan as to the investment of at least 50 percent of his Employee
Stock Ownership Account (to the extent such percentage exceeds the amount to
which a prior election under this Section 8.8 had been made). The Plan shall
make available at least 3 investment options (chosen by the Administrator in
accordance with regulations prescribed by the Department of Treasury) to each
Participant making an election
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hereunder. The Plan shall be deemed to have met the requirements of this Section
if the portion of the Participant's Employee Stock Ownership Account covered by
the election hereunder is distributed to the Participant or his designated
Beneficiary within 90 days after the period during which the election may be
made. In the absence of such a distribution, the Trustee shall implement the
Participant's election within 90 days following the expiration of the qualified
election period. Notwithstanding the foregoing, if the fair market value of the
Employer Securities allocated to the Employee Stock Ownership Account of a
Participant otherwise entitled to diversify hereunder is $500 or less as of the
Valuation Date immediately preceding the first day of any election period, then
such Participant shall not be entitled to an election under this Section 8.8 for
that qualified election period.
8.9 Independent Appraiser.
An independent appraiser meeting the requirements of the regulations
promulgated under Code Section 170(a)(1) shall value the Employer Securities in
those Plan Years when such securities are not readily tradable on an established
securities market.
8.10 Nonterminable Rights.
The provisions of this Article VIII shall continue to be applicable to
Employer Securities held by the Trustee, whether or not allocated to
Participants' and Former Participants' Accounts, even if the Plan ceases to be
an employee stock ownership plan, as defined in Section 4975(e)(7) of the Code.
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ARTICLE IX
PAYMENTS AND DISTRIBUTIONS
9.1 Payments on Termination of Service - In General.
All benefits provided under this Plan shall be funded by the value of a
Participant's vested Account in the Plan. As soon as practicable after a
Participant's Retirement, Disability, death or other termination of Service, the
Administrator shall ascertain the value of his vested Account, as provided in
Article V, and the Administrator shall hold or dispose of the same in accordance
with the following provisions of this Article IX.
9.2 Commencement of Payments.
(a) Distributions upon Retirement, Disability or Death. Upon a
Participant's Retirement, Disability or death, payment of benefits under this
Plan shall, unless the Participant otherwise elects (in accordance with Section
9.3), commence as soon as practicable after the Valuation Date next following
the date of the Participant's Retirement, Disability or death.
(b) Distribution following Termination of Service. Unless a Participant
elects otherwise, if a Participant terminates Service prior to Retirement,
Disability or death, he shall be accorded an opportunity to commence receipt of
benefits as soon as practicable after the Valuation Date next following the date
of his termination of Service. A Participant who terminates Service with a
vested Account balance shall be entitled to receive from the Administrator a
statement of his benefits. In the event that a Participant elects not to
commence receipt of distribution in accordance with this Section 9.2(b) after
the Participant incurs a Break, the Administrator shall transfer his vested
Account balance to a distribution account. If a Participant's vested Account
balance does not exceed (or at the time of any prior distribution did not
exceed) $5,000, the Plan Administrator shall distribute the vested portion of
his Account balance as soon as administratively feasible without the consent of
the Participant or his spouse.
(c) Distribution of Accounts Greater Than $5,000. If the value of a
Participant's vested Account balance exceeds (or at the time of any prior
distribution exceeded) $5,000, and the Account balance is immediately
distributable, the Participant must consent to any distribution of such Account
balance. The Plan Administrator shall notify the Participant of the right to
defer any distribution until the Participant's Account balance is no longer
immediately distributable. The consent of the Participant shall not be required
to the extent that a distribution is required to satisfy Code Section 401(a)(9)
or Code Section 415.
9.3 Mandatory Commencement of Benefits.
(a) Unless a Participant elects otherwise, in writing, distribution of
benefits will begin no later than the 60th day after the latest to occur of the
close of the Plan Year in
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which (i) the Participant attains age 65, (ii) the tenth anniversary of the Plan
Year in which the Participant commenced participation, or (iii) the Participant
terminates Service with the Employer and all Related Employers.
(b) In the event that the Plan shall be subsequently amended to provide
for a form of distribution other than a lump sum, as of the first distribution
calendar year, distributions, if not made in a lump sum, may be made only over
one of the following periods (or a combination thereof):
(i) the life of the Participant,
(ii) the life of the Participant and the designated Beneficiary,
(iii) a period certain not extending beyond the life expectancy
of the Participant, or
(iv) a period certain not extending beyond the joint and last
survivor expectancy of the Participant and a designated Beneficiary.
(c) In the event that the Plan shall be subsequently amended to provide
for a form of distribution other than a lump sum, if the Participant's interest
is to be distributed in other than a lump sum, the following minimum
distribution rules shall apply on or after the required beginning date:
(i) If a Participant's benefit is to be distributed over (1) a
period not extending beyond the life expectancy of the Participant or
the joint life and last survivor expectancy of the Participant and the
Participant's designated Beneficiary or (2) a period not extending
beyond the life expectancy of the designated Beneficiary, the amount
required to be distributed for each calendar year, beginning with
distributions for the first distribution calendar year, must at least
equal the quotient obtained by dividing the Participant's benefit by
the applicable life expectancy.
(ii) For calendar years beginning after December 31, 1988, the
amount to be distributed each year, beginning with distributions for
the first distribution calendar year, shall not be less than the
quotient obtained by dividing the Participant's Account balance by the
lesser of (1) the applicable life expectancy, or (2) if the
Participant's spouse is not the designated Beneficiary, the applicable
divisor determined from the table set forth in Q&A-4 of section
1.401(a)(9)-2 of the Proposed Regulations. Distributions after the
death of the Participant shall be distributed using the applicable
life expectancy in subsection (iii) of Section 9.3(b) above as the
relevant divisor without regard to Proposed Regulations section
1.401(a)(9)-2.
(iii) The minimum distribution required for the Participant's
first distribution calendar year must be made on or before the
Participant's required beginning date. The minimum
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distribution for other calendar years, including the minimum
distribution for the distribution calendar year in which the
Participant's required beginning date occurs, must be made on or
before December 31 of the distribution calendar year.
(d) If a Participant dies after a distribution has commenced in
accordance with Section 8.3(b) but before his entire interest has been
distributed to him, the remaining portion of such interest shall be distributed
to his Beneficiary at least as rapidly as under the method of distribution in
effect as of the date of his death.
(e) If a Participant shall die before the distribution of his Account
balance has begun, the entire Account balance shall be distributed by December
31 of the calendar year containing the fifth anniversary of the death of the
Participant, except in the following events:
(i) If any portion of the Participant's Account balance is
payable to (or for the benefit of) a designated Beneficiary over a
period not extending beyond the life expectancy of such Beneficiary
and such distributions begin not later than December 31 of the
calendar year immediately following the calendar year in which the
Participant died; or
(ii) If any portion of the Participant's Account balance is
payable to (or for the benefit of) the Participant's spouse over a
period not extending beyond the life expectancy of such spouse and
such distributions begin no later than December 31 of the calendar
year in which the Participant would have attained age 70-1/2.
If the Participant has not made a distribution election by the time of
his death, the Participant's designated Beneficiary shall elect the method of
distribution no later than the earlier of (1) December 31 of the calendar year
in which distributions would be required to begin under this Article or (2)
December 31 of the calendar year which contains the fifth anniversary of the
date of death of the Participant. If the Participant has no designated
Beneficiary, or if the designated Beneficiary does not elect a method of
distribution, distribution of the Participant's entire interest shall be
completed by December 31 of the calendar year containing the fifth anniversary
of the Participant's death.
(f) For purposes of this Article, the life expectancy of a Participant
and his spouse may be redetermined but not more frequently than annually. The
life expectancy (or joint and last survivor expectancy) shall be calculated
using the attained age of the Participant (or designated Beneficiary) as of the
Participant's (or designated Beneficiary's) birthday in the applicable calendar
year reduced by one for each calendar year which has elapsed since the date life
expectancy was first calculated. If life expectancy is being recalculated, the
applicable life expectancy shall be the life expectancy as so recalculated. The
applicable calendar year shall be the first distribution calendar year, and if
life expectancy is being recalculated, such succeeding calendar year. Unless
otherwise elected by the Participant (or his spouse, if applicable) by the time
distributions are required to begin, life expectancies shall be recalculated
annually. Any election not to recalculate
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shall be irrevocable and shall apply to all subsequent years. The life
expectancy of a nonspouse Beneficiary may not be recalculated.
(g) For purposes of Section 9.3(b) and 9.3(e), any amount paid to a
child shall be treated as if it had been paid to a surviving spouse if such
amount will become payable to the surviving spouse upon such child reaching
majority (or other designated event permitted under regulations).
(h) For distributions beginning before the Participant's death, the
first distribution calendar year is the calendar year immediately preceding the
calendar year which contains the Participant's required beginning date. For
distributions beginning after the Participant's death, the first distribution
calendar year is the calendar year in which distributions are required to begin
pursuant to this Article.
9.4 Required Beginning Dates.
(a) General Rule. The required beginning date of a Participant who is a
5-percent owner of the Employer is the first day of April of the calendar year
following the calendar year in which the Participant attains age 70-1/2. The
required beginning date of a Participant who is not a 5-percent owner shall be
April 1 of the calendar year following the later of either: (i) the calendar
year in which the Participant attains age 70-1/2, or (ii) the calendar year in
which the Participant retires.
(b) 5-percent owner. A Participant is treated as a 5-percent owner for
purposes of this section if such Participant is a 5-percent owner as defined in
section 416(i) of the Code (determined in accordance with section 416 but
without regard to whether the plan is top-heavy) at any time during the Plan
Year ending with or within the calendar year in which such owner attains age
66-1/2 or any subsequent Plan Year. Once distributions have begun to a 5-percent
owner under this section, they must continue to be distributed, even if the
Participant ceases to be a 5-percent owner in a subsequent year.
9.5 Form of Payment.
Each Participant's vested Account balance shall be distributed in a
lump sum payment. Notwithstanding the preceding sentence, but subject to Section
9.3, the Administrator may not distribute a lump sum without the Participant's
consent when the present value of a Participant's total Account balance is in
excess of $5,000. This form of payment shall be the normal form of distribution.
Furthermore, however, in the event that the Administrator must commence
distributions, as required by Section 9.4 herein, with respect to an Employee
who has attained age 70-1/2 and is still employed by the Employer, if the
Employee does not elect a lump sum distribution, payments shall be made in
installments in such amounts as shall satisfy the minimum distribution rules of
Section 9.3.
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9.6 Payments Upon Termination of Plan.
Upon termination of this Plan pursuant to Sections 13.2, 13.4, 13.5 or
13.6, the Administrator shall continue to perform its duties and the Trustee
shall make all payments upon the following terms, conditions and provisions: The
Account balance of each affected Participant and Former Participant shall
immediately become fully vested and nonforfeitable; the Account balance of all
Participants and Former Participants shall be determined within 60 days after
such termination, and the Administrator shall have the same powers to direct the
Trustee in making payments as contained in Sections 9.1 and 13.5.
9.7 Distributions Pursuant to Qualified Domestic Relations Orders.
Upon receipt of a domestic relations order, the Administrator shall
promptly notify the Participant and any alternate payee of receipt of the order
and the Plan's procedure for determining whether the order is a Qualified
Domestic Relations Order. While the issue of whether a domestic relations order
is a Qualified Domestic Relations Order is being determined, if the benefits
would otherwise be paid, the Administrator shall segregate in a separate account
in the Plan the amounts that would be payable to the alternate payee during such
period if the order were a Qualified Domestic Relations Order. If within 18
months the order is determined to be a Qualified Domestic Relations Order, the
amounts so segregated, along with the interest or investment earnings
attributable thereto, shall be paid to the alternate payee. Alternatively, if
within 18 months, it is determined that the order is not a Qualified Domestic
Relations Order or if the issue is still unresolved, the amounts segregated
under this Section 9.7, with the earnings attributable thereto, shall be paid to
the Participant or Beneficiary who would have been entitled to such amounts if
there had been no order. The determination as to whether the order is qualified
shall be applied prospectively. Thus, if the Administrator determines that the
order is a Qualified Domestic Relations Order after the 18-month period, the
Plan shall not be liable for payments to the alternative payee for the period
before the order is determined to be a Qualified Domestic Relations Order.
9.8 Cash-Out Distributions.
If a Participant receives a distribution of his entire vested Account
balance because of the termination of his participation in the Plan, the Plan
shall disregard a Participant's Service with respect to which such cash-out
distribution shall have been made, in computing his Account balance in the event
that a Former Participant shall again become an Employee and become eligible to
participate in the Plan. Such a distribution shall be deemed to be made on
termination of participation in the Plan if it is made not later than the close
of the second Plan Year following the Plan Year in which such termination
occurs. The forfeitable portion of a Participant's Account balance shall be
restored upon repayment to the Plan by such Former Participant of the full
amount of the cash-out distribution, provided that the Former Participant again
becomes an Employee. Such repayment must be made by the Employee not later than
the end of the 5-year period beginning with the date of the distribution.
Forfeitures required to be restored by virtue of such repayment shall be
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restored from the following sources in the following order of preference: (i)
current forfeitures; (ii) an additional Employee Stock Ownership Contribution,
as appropriate, and as subject to Section 5.6; and (iii) investment earnings of
the Fund. In the event that a Participant's Account balance is totally
forfeitable, a Participant shall be deemed to have received a distribution of
zero upon his termination of Service. In the event of a return to Service within
5 years of the date of his deemed distribution, the Participant shall be deemed
to have repaid his distribution in accordance with the rules of this Section
9.8.
9.9 ESOP Distribution Rules.
Notwithstanding any provision of this Article IX to the contrary, the
distribution of a Participant's Employee Stock Ownership Account (unless the
Participant elects otherwise in writing) shall commence as soon as
administratively feasible as of the first Valuation Date coincident with or next
following his death, Disability or termination of Service, but not later than 1
year after the close of the Plan Year in which the Participant separates from
Service by reason of the attainment of his Normal Retirement Date, Disability,
death or separation from Service. In addition, all distributions hereunder
shall, to the extent that the Participant's Account is invested in Employer
Securities, be made in the form of Employer Securities or cash, or a combination
of Employer Securities and cash, in the discretion of the Administrator, subject
to the Participant's right to demand Employer Securities in accordance with
Section 8.1. Fractional shares, however, may be distributed in the form of cash.
9.10 Direct Rollover.
(a) Notwithstanding any provision of the Plan to the contrary that
would otherwise limit a distributee's election under this Article IX, a
distributee may elect, at the time and in the manner prescribed by the
Administrator, to have any portion of an "eligible rollover distribution" paid
directly to an "eligible retirement plan" specified by the distributee in a
"direct rollover."
(b) For purposes of this Section 9.10, an "eligible rollover
distribution" is any distribution of all or any portion of the balance to the
credit of the distributee, except that an "eligible rollover distribution" does
not include: any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for the life (or life
expectancy) of the distributee or the joint lives (or joint life expectancies)
of the distributee and the distributee's designated Beneficiary, or for a
specified period of ten years or more; any distribution to the extent such
distribution is required under section 401(a)(9) of the Code; and the portion of
any distribution that is not includable in gross income (determined without
regard to the exclusion for net unrealized appreciation with respect to Employer
Securities).
(c) For purposes of this Section 9.10, an "eligible retirement plan" is
an individual retirement account described in section 408(a) of the Code, an
individual retirement annuity described in section 408(b) of the Code, an
annuity plan described in section 403(a) of the Code, or a qualified trust
described in section 401(a) of the Code, that accepts the distributee's eligible
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rollover distribution. However, in the case of an "eligible rollover
distribution" to the surviving spouse, an "eligible retirement plan" is an
individual retirement account or individual retirement annuity.
(d) For purposes of this Section 9.10, a distributee includes a
Participant or Former Participant. In addition, the Participant's or Former
Participant's surviving spouse and the Participant's or Former Participant's
spouse or former spouse who is the alternate payee under a Qualified Domestic
Relations Order are "distributees" with regard to the interest of the spouse or
former spouse.
(e) For purposes of this Section 9.10, a "direct rollover" is a payment
by the Plan to the "eligible retirement plan" specified by the distributee.
9.11 Waiver of 30-day Notice.
If a distribution is one to which Sections 401(a)(11) and 417 of the
Code do not apply, such distribution may commence less than 30 days after the
notice required under Section 1.411(a)-11(c) of the Income Tax Regulations is
given, provided that: (1) the Administrator clearly informs the Participant that
the Participant has a right to a period of at least 30 days after receiving the
notice to consider the decision of whether or not to elect a distribution (and,
if applicable, a particular distribution option), and (2) the Participant, after
receiving the notice, affirmatively elects a distribution.
9.12 Re-employed Veterans.
Notwithstanding anything to the contrary set forth in the Plan, if an
Employee has been rehired by the Employer and is eligible for the benefits
provided by the Uniformed Services Employment and Reemployment Rights Act by
virtue of his prior military service and by virtue of his having met all the
requirements of that act for being accorded the benefits provided thereunder, he
shall not be deemed to have incurred a Break because of his period of military
service. Such Employee's military service shall be treated as Service hereunder
for eligibility, vesting and benefit accrual purposes. Such Employee shall be
entitled to all Employer contributions to which he otherwise would have been
entitled had he been employed by the Employer during the period of his military
service. In computing contribution amounts dependent upon or limited by the
amount of compensation the Employee earned or would have earned, the Employee
shall be treated as receiving compensation from the Employer during the period
of military service equal to the compensation that the Employee otherwise would
have received from the Employer during that period, or, if the compensation the
Employee otherwise would have received is not reasonably certain, the Employee's
average compensation from the Employer during the period immediately preceding
the period of military service. Such Employee shall not, however, be credited
with any earnings on any such additional Employer contributions described in
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this Section before the contribution is actually made. Furthermore, no
forfeitures shall be allocated to such Employee's Employee Stock Ownership
Account hereunder for the period of military service. The rules governing the
limitations on all such contributions that may be required hereunder shall be
governed by Section 414(u) of the Code and any regulations promulgated
thereunder.
9.13 Share Legend.
Employer Securities held or distributed by the Trustee may include such
legend restrictions on transferability as the Employer may reasonably require in
order to assure compliance with applicable Federal and State securities and
other laws.
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ARTICLE X
PROVISIONS RELATING TO TOP-HEAVY PLANS
10.1 Top-Heavy Rules to Control.
Anything contained in this Plan to the contrary notwithstanding, if for
any Plan Year the Plan is a top-heavy plan, as determined pursuant to Section
416 of the Code, then the Plan must meet the requirements of this Article X for
such Plan Year.
10.2 Top-Heavy Plan Definitions.
Unless a different meaning is plainly implied by the context, the
following terms as used in this Article X shall have the following meanings:
(a) "Accrued Benefit" shall mean the account balances or accrued
benefits of an Employee, calculated pursuant to Section 10.3.
(b) "Determination Date" shall mean, with respect to any particular
Plan Year of this Plan, the last day of the preceding Plan Year (or, in the case
of the first Plan Year of the Plan, the last day of the first Plan Year). In
addition, the term "Determination Date" shall mean, with respect to any
particular plan year of any plan (other than this Plan) in a Required
Aggregation Group or a Permissive Aggregation Group, the last day of the plan
year of such plan which falls within the same calendar year as the Determination
Date for this Plan.
(c) "Employer" shall mean the Employer (as defined in Section 1.1(q))
and any entity which is (1) a member of a controlled group including such
Employer, while it is a member of such controlled group (within the meaning of
Section 414(b) of the Code), (2) in a group of trades or businesses under common
control with such Employer, while it is under common control (within the meaning
of Section 414(c) of the Code), and (3) a member of an affiliated service group
including such Employer, while it is a member of such affiliated service group
(within the meaning of Section 414(m) of the Code).
(d) "Key Employee" shall mean any Employee or former Employee (or any
Beneficiary of such Employee or former Employee, as the case may be) who, at any
time during the Plan Year or during the 4 immediately preceding Plan Years, is
one of the following:
(1) An officer of the Employer who has compensation greater than
50% of the amount in effect under Code 415(b)(1)(A) for the Plan Year;
provided, however, that no more than 50 Employees (or, if lesser, the
greater of 3 or 10% of the Employees) shall be deemed officers;
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(2) One of the 10 Employees having annual compensation (as
defined in Section 415 of the Code) in excess of the limitation in
effect under Section 415(c)(1)(A) of the Code, and owning (or
considered as owning, within the meaning of Section 318 of the Code)
the largest interests in the Employer;
(3) Any Employee owning (or considered as owning, within the
meaning of Section 318 of the Code) more than 5% of the outstanding
stock of the Employer or stock possessing more than 5% of the total
combined voting power of all stock of the Employer; or
(4) Any Employee having annual compensation (as defined in
Section 415 of the Code) of more than $150,000 and who would be
described in Section 10.2(d)(3) if "1%" were substituted for "5%"
wherever the latter percentage appears.
For purposes of applying Section 318 of the Code to the provisions of this
Section 10.2(d), Section 318(a)(2)(C) of the Code shall be applied by
substituting "5%" for "50%" wherever the latter percentage appears. In addition,
for purposes of this Section 10.2(d), the provisions of Section 414(b), (c) and
(m) shall not apply in determining ownership interests in the Employer. However,
for purposes of determining whether an individual has compensation in excess of
$150,000, or whether an individual is a Key Employee under Section 10.2(d)(1)
and (2), compensation from each entity required to be aggregated under Sections
414(b), (c) and (m) of the Code shall be taken into account. Notwithstanding
anything contained herein to the contrary, all determinations as to whether a
person is or is not a Key Employee shall be resolved by reference to Section 416
of the Code and any rules and regulations promulgated thereunder.
(e) "Non-Key Employee" shall mean any Employee or former Employee (or
any Beneficiary of such Employee or former Employee, as the case may be) who is
not considered to be a Key Employee with respect to this Plan.
(f) "Permissive Aggregation Group" shall mean all plans in the Required
Aggregation Group and any other plans maintained by the Employer which satisfy
Sections 401(a)(4) and 410 of the Code when considered together with the
Required Aggregation Group.
(g) "Required Aggregation Group" shall mean each plan (including any
terminated plan) of the Employer in which a Key Employee is (or in the case of a
terminated plan, had been) a Participant in the Plan Year containing the
Determination Date or any of the 4 preceding Plan Years, and each other plan of
the Employer which enables any plan of the Employer in which a Key Employee is a
Participant to meet the requirements of Sections 401(a)(4) and 410 of the Code.
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10.3 Calculation of Accrued Benefits.
(a) An Employee's Accrued Benefit shall be equal to:
(1) With respect to this Plan or any other defined contribution
plan (other than a defined contribution pension plan) in a Required
Aggregation Group or a Permissive Aggregation Group, the Employee's
account balances under the respective plan, determined as of the most
recent plan valuation date within a 12-month period ending on the
Determination Date, including contributions actually made after the
valuation date but before the Determination Date (and, in the first
plan year of a plan, also including any contributions made after the
Determination Date which are allocated as of a date in the first plan
year).
(2) With respect to any defined contribution pension plan in a
Required Aggregation Group or a Permissive Aggregation Group, the
Employee's account balances under the plan, determined as of the most
recent plan valuation date within a 12-month period ending on the
Determination Date, including contributions which have not actually
been made, but which are due to be made as of the Determination Date.
(3) With respect to any defined benefit plan in a Required
Aggregation Group or a Permissive Aggregation Group, the present value
of the Employee's accrued benefits under the plan, determined as of
the most recent plan valuation date within a 12-month period ending on
the Determination Date, pursuant to the actuarial assumptions used by
such plan, and calculated as if the Employee terminated Service under
such plan as of the valuation date (except that, in the first plan
year of a plan, a current Participant's estimated Accrued Benefit as
of the Determination Date shall be taken into account).
(4) If any individual has not performed services for the Employer
maintaining the Plan at any time during the 5-year period ending on
the Determination Date, any Accrued Benefit for such individual shall
not be taken into account.
(b) The Accrued Benefit of any Employee shall be further adjusted as
follows:
(1) The Accrued Benefit shall be calculated to include all
amounts attributable to both Employer and Employee contributions, but
shall exclude amounts attributable to voluntary deductible Employee
contributions, if any.
(2) The Accrued Benefit shall be increased by the aggregate
distributions made with respect to an Employee under the plan or
plans, as the case may be, during the 5-year period ending on the
Determination Date.
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(3) Rollover and direct plan-to-plan transfers shall be taken
into account as follows:
(A) If the transfer is initiated by the Employee and made
from a plan maintained by one employer to a plan maintained by
another unrelated employer, the transferring plan shall continue
to count the amount transferred; the receiving plan shall not
count the amount transferred.
(B) If the transfer is not initiated by the Employee or is
made between plans maintained by related employers, the
transferring plan shall no longer count the amount transferred;
the receiving plan shall count the amount transferred.
(c) If any individual has not performed services for the Employer at
any time during the 5-year period ending on the Determination Date, any Accrued
Benefit for such individual (and the account of such individual) shall not be
taken into account.
10.4 Determination of Top-Heavy Status.
This Plan shall be considered to be a top-heavy plan for any Plan Year
if, as of the Determination Date, the value of the Accrued Benefits of Key
Employees exceeds 60% of the value of the Accrued Benefits of all eligible
Employees under the Plan. Notwithstanding the foregoing, if the Employer
maintains any other qualified plan, the determination of whether this Plan is
top-heavy shall be made after aggregating all other plans of the Employer in the
Required Aggregation Group and, if desired by the Employer as a means of
avoiding top-heavy status, after aggregating any other plan of the Employer in
the Permissive Aggregation Group. If the required Aggregation Group is
top-heavy, then each plan contained in such group shall be deemed to be
top-heavy, notwithstanding that any particular plan in such group would not
otherwise be deemed to be top-heavy. Conversely, if the Permissive Aggregation
Group is not top-heavy, then no plan contained in such group shall be deemed to
be top-heavy, notwithstanding that any particular plan in such group would
otherwise be deemed to be top-heavy. In no event shall a plan included in a
top-heavy Permissive Aggregation Group be deemed a top-heavy plan unless such
plan is also included in a top-heavy Required Aggregation Group.
10.5 Determination of Super Top-Heavy Status.
The Plan shall be considered to be a super top-heavy plan if, as of the
Determination Date, the Plan would meet the test specified in Section 10.4 above
for classification as a top-heavy plan, except that "90%" shall be substituted
for "60%" whenever the latter percentage appears.
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10.6 Minimum Contribution.
(a) For any Plan Year in which the Plan is top-heavy, each Non-Key
Employee who has met the age and service requirements, if any, contained in the
Plan, shall be entitled to a minimum contribution (which may include forfeitures
otherwise allocable) equal to a percentage of such Non-Key Employee's
compensation (as defined in Section 415 of the Code) as follows:
(1) If the Non-Key Employee is not covered by a defined benefit
plan maintained by the Employer, then the minimum contribution under
this Plan shall be 3% of such Non-Key Employee's compensation.
(2) If the Non-Key Employee is covered by a defined benefit plan
maintained by the Employer, then the minimum contribution under this
Plan shall be 5% of such Non-Key Employee's compensation.
(b) Notwithstanding the foregoing, the minimum contribution otherwise
allocable to a Non-Key Employee under this Plan shall be reduced in the
following circumstances:
(1) The percentage minimum contribution required under this Plan
shall in no event exceed the percentage contribution made for the Key
Employee for whom such percentage is the highest for the Plan Year
after taking into account contributions under other defined
contribution plans in this Plan's Required Aggregation Group;
provided, however, that this Section 10.7(b)(1) shall not apply if
this Plan is included in a Required Aggregation Group and this Plan
enables a defined benefit plan in such Required Aggregation Group to
meet the requirements of Section 401(a)(4) or 410 of the Code.
(2) No minimum contribution shall be required (or the minimum
contribution shall be reduced, as the case may be) for a Non-Key
Employee under this Plan for any Plan Year if the Employer maintains
another qualified plan under which a minimum benefit or contribution
is being accrued or made on account of such Plan Year, in whole or in
part, on behalf of the Non-Key Employee, in accordance with Section
416(c) of the Code.
(c) For purposes of this Section 10.6, there shall be disregarded (1)
any Employer contributions attributable to a salary reduction or similar
arrangement, or (2) any Employer contributions to or any benefits under Chapter
21 of the Code (relating to the Federal Insurance Contributions Act), Title II
of the Social Security Act, or any other federal or state law.
(d) For purposes of this Section 10.6, minimum contributions shall be
required to be made on behalf of only those Non-Key Employees, as described in
Section 10.7(a), who have not terminated Service as of the last day of the Plan
Year. If a Non-Key Employee is otherwise entitled to receive a minimum
contribution pursuant to this Section 10.6(d), the fact that such
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Non-Key Employee failed to complete 1,000 Hours of Service or failed to make any
mandatory or elective contributions under this Plan, if any are so required,
shall not preclude him from receiving such minimum contribution.
10.7 Vesting.
(a) For any Plan Year in which the Plan is a top-heavy plan, a
Participant's Accrued Benefit derived from Employer contributions (not including
contributions made pursuant to Code Section 401(k), if any) shall continue to
vest according to the following schedule:
Years of Service Completed Percentage Vested
-------------------------- -----------------
Less than 1 0%
1 but less than 2 20%
2 but less than 3 40%
3 but less than 4 60%
4 but less than 5 80%
5 or more 100%
(b) For purposes of Section 10.7(a), the term "year of service" shall
have the same meaning as Year of Vesting Service, as set forth in Section
1.1(ss), and as modified by Section 3.2.
(c) If for any Plan Year the Plan becomes top-heavy and the vesting
schedule set forth in Section 10.7(a) becomes effective, then, even if the Plan
ceases to be top-heavy in any subsequent Plan Year, the vesting schedule set
forth in Section 10.7(a) shall remain applicable with respect to any Participant
who has completed 3 or more Years of Service.
10.8 Maximum Benefit Limitation.
For any Plan Year in which the Plan is a top-heavy plan, Section
5.6(d)(1)(B)(i) and Section 5.6(d)(2)(B)(i) shall be read by substituting "1.0"
for "1.25" wherever the latter figure appears; provided, however, that such
substitution shall not have the effect of reducing any benefit accrued under a
defined benefit plan prior to the first day of the Plan Year in which this
Section 10.8 becomes applicable.
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ARTICLE XI
ADMINISTRATION
11.1 Appointment of Administrator.
This Plan shall be administered by a committee consisting of up to 5
persons, whether or not Employees or Participants, who shall be appointed from
time to time by the Board of Directors to serve at its pleasure. The Sponsor may
require that each person appointed as an Administrator shall signify his
acceptance by filing an acceptance with the Sponsor. The term "Administrator" as
used in this Plan shall refer to the members of the committee, either
individually or collectively, as appropriate. The authority to control and
manage the operation and administration of the Plan is vested in the
Administrator appointed by the Board of Directors. The Administrator shall have
the rights, duties and obligations of an "administrator," as that term is
defined in section 3(16)(A) of the Act, and of a "plan administrator," as that
term is defined in Section 414(g) of the Code. In the event that the Sponsor
shall elect not to appoint any individuals to constitute a committee to
administer the Plan, the Sponsor shall serve as the Administrator hereunder.
11.2 Resignation or Removal of Administrator.
An Administrator shall have the right to resign at any time by giving
notice in writing, mailed or delivered to the Sponsor and to the Trustee. Any
Administrator who was an employee of the Employer at the time of his appointment
shall be deemed to have resigned as an Administrator upon his termination of
Service. The Board of Directors may, in its discretion, remove any Administrator
with or without cause, by giving notice in writing, mailed or delivered to the
Administrator and to the Trustee.
11.3 Appointment of Successors: Terms of Office, Etc.
Upon the death, resignation or removal of an Administrator, the Sponsor
may appoint, by Board of Directors' resolution, a successor or successors.
Notice of termination of an Administrator and notice of appointment of a
successor shall be made by the Sponsor in writing, with copies mailed or
delivered to the Trustee, and the successor shall have all the rights and
privileges and all of the duties and obligations of the predecessor.
11.4 Powers and Duties of Administrator.
The Administrator shall have the following duties and responsibilities
in connection with the administration of this Plan:
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(a) To promulgate and enforce such rules, regulations and
procedures as shall be proper for the efficient administration of the
Plan, such rules, regulations and procedures to apply uniformly to all
Employees, Participants and Beneficiaries;
(b) To exercise discretion in determining all questions arising
in the administration, interpretation and application of the Plan,
including questions of eligibility and of the status and rights of
Participants, Beneficiaries and any other persons hereunder;
(c) To decide any dispute arising hereunder strictly in
accordance with the terms of the Plan; provided, however, that no
Administrator shall participate in any matter involving any questions
relating solely to his own participation or benefits under this Plan;
(d) To advise the Employer and the Trustee regarding the known
future needs for funds to be available for distribution in order that
the Trustee may establish investments accordingly;
(e) To correct defects, supply omissions and reconcile
inconsistencies to the extent necessary to effectuate the Plan;
(f) To advise the Employer of the maximum deductible contribution
to the Plan for each fiscal year;
(g) To direct the Trustee concerning all payments which shall be
made out of the Fund pursuant to the provisions of this Plan;
(h) To advise the Trustee on all terminations of Service by
Participants, unless the Employer has so notified the Trustee;
(i) To confer with the Trustee on the settling of any claims
against the Fund;
(j) To make recommendations to the Board of Directors with
respect to proposed amendments to the Plan and the Trust Agreement;
(k) To file all reports with government agencies, Employees and
other parties as may be required by law, whether such reports are
initially the obligation of the Employer, the Plan or the Trustee; and
(l) To have all such other powers as may be necessary to
discharge its duties hereunder.
Reasonable discretion is granted to the Administrator to interpret the Plan and
to determine the benefits, rights and privileges of Participants, Beneficiaries
or other persons affected by this Plan. The Administrator shall exercise
reasonable discretion under the terms of this Plan and shall administer
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the Plan strictly in accordance with its terms, such administration to be
exercised uniformly so that all persons similarly situated shall be similarly
treated.
11.5 Action by Administrator.
The Administrator may elect a Chairman and Secretary from among its
members and may adopt rules for the conduct of its business. A majority of the
members then serving shall constitute a quorum for the transaction of business.
All resolutions or other action taken by the Administrator shall be by vote of a
majority of those present at such meeting and entitled to vote. Resolutions may
be adopted or other action taken without a meeting upon written consent signed
by at least a majority of the members. All documents, instruments, orders,
requests, directions, instructions and other papers shall be executed on behalf
of the Administrator by either the Chairman or the Secretary of the
Administrator, if any, or by any member or agent of the Administrator duly
authorized to act on the Administrator's behalf.
11.6 Participation by Administrator.
No member of the committee constituting the Administrator shall be
precluded from becoming a Participant in the Plan if he would be otherwise
eligible, but he shall not be entitled to vote or act upon matters or to sign
any documents relating specifically to his own participation under the Plan,
except when such matters or documents relate to benefits generally. If this
disqualification results in the lack of a quorum, then the Board of Directors
shall appoint a sufficient number of temporary members of the committee
constituting the Administrator who shall serve for the sole purpose of
determining such a question.
11.7 Agents.
The Administrator may employ agents and provide for such clerical,
legal, actuarial, accounting, medical, advisory or other services as it deems
necessary to perform its duties under this Plan. The cost of such services and
all other expenses incurred by the Administrator in connection with the
administration of the Plan shall be paid from the Fund, unless paid by the
Employer.
11.8 Allocation of Duties.
The duties, powers and responsibilities reserved to the Administrator
may be allocated among its members so long as such allocation is pursuant to
written procedures adopted by the Administrator, in which case, except as may be
required by the Act, no Administrator shall have any liability, with respect to
any duties, powers or responsibilities not allocated to him, for the acts of
omissions of any other Administrator.
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11.9 Delegation of Duties.
The Administrator may delegate any of its duties to any Employees of
the Employer, to the Trustee with its consent, or to any other person or firm,
provided that the Administrator shall prudently choose such agents and rely in
good faith on their actions.
11.10 Administrator's Action Conclusive.
Any action on matters within the authority of the Administrator shall
be final and conclusive except as provided in Article XII.
11.11 Compensation and Expenses of Administrator.
No Administrator who is receiving compensation from the Employer as a
full-time employee, as a director or agent, shall be entitled to receive any
compensation or fee for his services hereunder. Any other Administrator shall be
entitled to receive such reasonable compensation for his services as an
Administrator hereunder as may be mutually agreed upon between the Employer and
such Administrator. Any such compensation shall be paid from the Fund, unless
paid by the Employer. Each Administrator shall be entitled to reimbursement by
the Employer for any reasonable and necessary expenditures incurred in the
discharge of his duties.
11.12 Records and Reports.
The Administrator shall maintain adequate records of its actions and
proceedings in administering this Plan and shall file all reports and take all
other actions as it deems appropriate in order to comply with the Act, the Code
and governmental regulations issued thereunder.
11.13 Reports of Fund Open to Participants.
The Administrator shall keep on file, in such form as it shall deem
convenient and proper, all annual reports of the Fund received by the
Administrator from the Trustee, and a statement of each Participant's interest
in the Fund as from time to time determined. The annual reports of the Fund and
the statement of his Account balance, as well as a complete copy of the Plan and
the Trust Agreement and copies of annual reports to the Internal Revenue
Service, shall be made available by the Administrator to the Employer for
examination by each Participant during reasonable hours at the office of the
Employer, provided, however, that the statement of a Participant's Account
balance shall not be made available for examination by any other Participant.
11.14 Named Fiduciary.
The Administrator is the named fiduciary for purposes of Section 402 of
the Act and shall be the designated agent for receipt of service of process on
behalf of the Plan. It shall use the care and diligence in the performance of
its duties under this Plan that are required of fiduciaries under the Act.
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Nothing in this Plan shall preclude the Employer from purchasing liability
insurance to protect the Administrator with respect to its duties under this
Plan.
11.15 Information from Employer.
The Employer shall promptly furnish all necessary information to the
Administrator to permit it to perform its duties under this Plan. The
Administrator shall be entitled to rely upon the accuracy and completeness of
all information furnished to it by the Employer, unless it knows or should have
known that such information is erroneous.
11.16 Reservation of Rights by Employer.
Where rights are reserved in this Plan to the Employer, such rights
shall be exercised only by action of the Board of Directors, except where the
Board of Directors, by written resolution, delegates any such rights to one or
more officers of the Employer or to the Administrator. Subject to the rights
reserved to the Board of Directors acting on behalf of the Employer as set forth
in this Plan, no member of the Board of Directors shall have any duties or
responsibilities under this Plan, except to the extent he shall be acting in the
capacity of an Administrator or Trustee.
11.17 Liability and Indemnification.
(a) To the extent not prohibited by the Act, the Administrator shall
not be responsible in any way for any action or omission of the Employer, the
Trustee or any other person in the performance of their duties and obligations
set forth in this Plan and in the Trust Agreement. To the extent not prohibited
by the Act, the Administrator shall also not be responsible for any act or
omission of any of its agents, or with respect to reliance upon advice of its
counsel (whether or not such counsel is also counsel to the Employer or the
Trustee), provided that such agents or counsel were prudently chosen by the
Administrator and that the Administrator relied in good faith upon the action of
such agent or the advice of such counsel.
(b) The Administrator shall not be relieved from responsibility or
liability for any responsibility, obligation or duty imposed upon it under this
Plan or under the Act. Except for its own gross negligence, willful misconduct
or willful breach of the terms of this Plan, the Administrator shall be
indemnified and held harmless by the Employer against liability or losses
occurring by reason of any act or omission of the Administrator to the extent
that such indemnification does not violate the Act or any other federal or state
laws.
11.18 Service as Trustee and Administrator.
Nothing in this Plan shall prevent one or more Trustees from serving as
Administrator under this Plan.
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ARTICLE XII
CLAIMS PROCEDURE
12.1 Notice of Denial.
If a Participant or his Beneficiary is denied any benefits under this
Plan, either in whole or in part, the Administrator shall advise the claimant in
writing of the amount of his benefit, if any, and the specific reasons for the
denial. The Administrator shall also furnish the claimant at that time with a
written notice containing:
(a) A specific reference to pertinent Plan provisions;
(b) A description of any additional material or information
necessary for the claimant to perfect his claim, if possible, and an
explanation of why such material or information is needed; and
(c) An explanation of the Plan's claim review procedure.
12.2 Right to Reconsideration.
Within 60 days of receipt of the information described in 12.1 above,
the claimant shall, if he desires further review, file a written request for
reconsideration with the Administrator.
12.3 Review of Documents.
So long as the claimant's request for review is pending (including the
60-day period described in Section 12.2 above), the claimant or his duly
authorized representative may review pertinent Plan documents and the Trust
Agreement (and any pertinent related documents) and may submit issues and
comments in writing to the Administrator.
12.4 Decision by Administrator.
A final and binding decision shall be made by the Administrator within
60 days of the filing by the claimant of his request for reconsideration;
provided, however, that if the Administrator feels that a hearing with the
claimant or his representative present is necessary or desirable, this period
shall be extended an additional 60 days.
12.5 Notice by Administrator.
The Administrator's decision shall be conveyed to the claimant in
writing and shall include specific reasons for the decision, written in a manner
calculated to be understood by the claimant, with specific references to the
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pertinent Plan provisions on which the decision is based. The Administrator's
decision shall be binding and conclusive with respect to all persons interested
therein unless the Administrator has no reasonable basis for its decision.
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ARTICLE XIII
AMENDMENTS, TERMINATION AND MERGER
13.1 Amendments.
The Sponsor reserves the right at any time and from time to time, for
any reason and retroactively if deemed necessary or appropriate by it, to the
extent permissible under law, to conform with governmental regulations or other
policies, to amend in whole or in part any or all of the provisions of this
Plan, provided that:
(a) No amendment shall make it possible for any part of the Fund
to be used for, or diverted to, purposes other than for the exclusive
benefit of Participants or their Beneficiaries under the Trust
Agreement, except to the extent provided in Section 4.4;
(b) No amendment may, directly or indirectly, reduce the vested
portion of any Participant's Account balance as of the effective date
of the amendment or change the vesting schedule with respect to the
future accrual of Employer contributions for any Participants unless
each Participant with 3 or more Years of Vesting Service is permitted
to elect to have the vesting schedule in effect before the amendment
used to determine his vested benefit;
(c) No amendment may eliminate an optional form of benefit; and.
(d) No amendment may increase the duties of the Trustee without
its consent.
Amendments may be made in the form of Board of Directors' resolutions or
separate written document. Copies of all amendments shall be delivered to the
Trustee.
13.2 Consolidation, Merger or Other Transactions of Employer.
Nothing in this Plan shall prevent the consolidation, merger,
reorganization or liquidation of the Employer, or prevent the sale by the
Employer of any or all of its property. Any successor corporation or other
entity formed and resulting from any such transaction shall have the right to
become a party to this Plan by adopting the same by resolution and by appointing
a new Trustee as though the Trustee had resigned in accordance with the Trust
Agreement, and by executing a proper supplemental agreement with the Trustee.
If, within 180 days from the effective date of such transaction, such new entity
does not become a party to this Plan as above provided, this Plan shall
automatically be terminated with respect to such entity, and the Trustee shall
make payments to the persons entitled thereto in accordance with Section 9.5.
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13.3 Consolidation or Merger of Trust.
In the event of any merger or consolidation of the Fund with, or
transfer in whole or in part of the assets and liabilities of the Fund to,
another trust fund held under any other plan of deferred compensation maintained
or to be established for the benefit of all or some of the Participants of this
Plan, the assets of the Fund applicable to such Participants shall be
transferred to the other trust fund only if:
(a) Each Participant would receive a benefit under such successor
trust fund immediately after the merger, consolidation or transfer
which is equal to or greater than the benefit he would have been
entitled to receive immediately before the merger, consolidation or
transfer (determined as if this Plan and such transferee trust fund
had then terminated);
(b) Resolutions of the Board of Directors, or of any new or
successor employer of the affected Participants, shall authorize such
transfer of assets, and, in the case of the new or successor employer
of the affected Participants, its resolutions shall include an
assumption of liabilities imposed under this Plan with respect to such
Participants' inclusion in the new employer's plan; and
(c) Such other plan and trust are qualified under Sections 401(a)
and 501(a) of the Code.
13.4 Bankruptcy or Insolvency of Employer.
In the event of (a) the Employer's legal dissolution or liquidation by
any procedure other than a consolidation or merger, (b) the Employer's
receivership, insolvency, or cessation of its business as a going concern, or
(c) the commencement of any proceeding by or against the Employer under the
federal bankruptcy laws, or similar federal or state statute, or any federal or
state statute or rule providing for the relief of debtors, compensation of
creditors, arrangement, receivership, liquidation or any similar event which is
not dismissed within 30 days, this Plan shall terminate automatically with
respect to such entity on such date (provided, however, that if a proceeding is
brought against the Employer for reorganization under Chapter 11 of the United
States Bankruptcy Code or any similar federal or state statute, then this Plan
shall terminate automatically if and when said proceeding results in a
liquidation of the Employer, or the approval of any Plan providing therefor, or
the proceeding is converted to a case under Chapter 7 of the Bankruptcy Code or
any similar conversion to a liquidation proceeding under federal or state law
including, but not limited to, a receivership proceeding). In the event of any
such termination as provided in the foregoing sentence, the Trustee shall make
payments to the persons entitled thereto in accordance with Section 9.5 hereof.
-55-
<PAGE>
13.5 Voluntary Termination.
The Board of Directors reserves the right to terminate this Plan at any
time by giving to the Trustee and the Administrator notice in writing of such
desire to terminate. The Plan shall terminate upon the date of receipt of such
notice, the Account balances of all affected Participants and Former
Participants shall become fully vested and nonforfeitable, and the Trustee shall
make payments to each Participant or Beneficiary in accordance with Section 9.5.
Alternatively, the Sponsor, in its discretion, may determine to continue the
Trust Agreement and to continue the maintenance of the Fund, in which event
distributions shall be made upon the contingencies and in all the circumstances
under which such distributions would have been made, on a fully vested basis,
had there been no termination of the Plan. In addition, an entity other than the
Sponsor that is participating in this Plan may terminate its participation in
the Plan on a prospective basis by action of its board of directors. Upon such
termination of participation, Participants who are employees of such entity
shall be entitled to distributions from this Plan in accordance with Article IX
and this Article XIII.
13.6 Partial Termination of Plan or Permanent Discontinuance of Contributions.
In the event that a partial termination of the Plan shall be deemed to
have occurred, or if the Employer shall discontinue permanently its
contributions hereunder, the right of each affected Participant and Former
Participant in his Account balance shall be fully vested and nonforfeitable. The
Sponsor, in its discretion, shall decide whether to direct the Trustee to make
immediate distribution of such portion of the Fund assets to the persons
entitled thereto or to make distribution in the circumstances and contingencies
which would have controlled such distributions if there had been no partial
termination or permanent discontinuance of contributions.
-56-
<PAGE>
ARTICLE XIV
MISCELLANEOUS
14.1 No Diversion of Funds.
It is the intention of the Employer that it shall be impossible for any
part of the corpus or income of the Fund to be used for, or diverted to,
purposes other than for the exclusive benefit of the Participants or their
Beneficiaries, except to the extent that a return of the Employer's contribution
is permitted under Section 4.4.
14.2 Liability Limited.
Neither the Employer nor the Administrator, nor any agents, employees,
officers, directors or shareholders of any of them, nor the Trustee, nor any
other person, shall have any liability or responsibility with respect to this
Plan, except as expressly provided herein.
14.3 Facility of Payment.
If the Administrator shall receive evidence satisfactory to it that a
Participant or Beneficiary entitled to receive any benefit under the Plan is, at
the time when such benefit becomes payable, a minor, or is physically or
mentally incompetent to receive such benefit and to give a valid release
therefor, and that another person or an institution is then maintaining or has
custody of such Participant or Beneficiary and that no guardian, committee or
other representative of the estate of such Participant or Beneficiary shall have
been duly appointed, the Administrator may direct the Trustee to make payment of
such benefit otherwise payable to such Participant or Beneficiary, to such other
person or institution, including a custodian under a Uniform Gifts to Minors
Act, or corresponding legislation (who shall be an adult, a guardian of the
minor or a trust company), and the release of such other person or institution
shall be a valid and complete discharge for the payment of such benefit.
14.4 Spendthrift Clause.
Except as permitted by the Act or the Code, including in the case of
certain judgments and settlements described in subparagraph (C) of Section
401(a)(13) of the Code, no benefits or other amounts payable under the Plan
shall be subject in any manner to anticipation, sale, transfer, assignment,
pledge, encumbrance, charge or alienation. If the Administrator determines that
any person entitled to any payments under the Plan has become insolvent or
bankrupt or has attempted to anticipate, sell, transfer, assign, pledge,
encumber, charge or otherwise in any manner alienate any benefit or other amount
payable to him under the Plan or that there is any danger of any levy or
attachment or other court process or encumbrance on the part of any creditor of
such person entitled to payments under the Plan against any benefit or other
accounts payable to such person, the Administrator may, at any time, in its
discretion, and in accordance
-57-
<PAGE>
with applicable law, direct the Trustee to withhold any or all payments to such
person under the Plan and apply the same for the benefit of such person, in such
manner and in such proportion as the Administrator may deem proper.
14.5 Benefits Limited to Fund.
All contributions by the Employer to the Fund shall be voluntary, and
the Employer shall be under no legal liability to make any such contributions,
except as otherwise provided herein. The benefits of this Plan shall be provided
solely by the assets of the Fund, and no liability for the payment of benefits
under the Plan or for any loss of assets due to any action or inaction of the
Trustee shall be imposed upon the Employer.
14.6 Cooperation of Parties.
All parties to this Plan and any party claiming interest hereunder
agree to perform any and all acts and execute any and all documents and papers
which are necessary and desirable for carrying out this Plan or any of its
provisions.
14.7 Payments Due Missing Persons.
The Administrator shall direct the Trustee to make a reasonable effort
to locate all persons entitled to benefits under the Plan; however,
notwithstanding any provision in the Plan to the contrary, if, after a period of
5 years from the date such benefit shall be due, any such persons entitled to
benefits have not been located, their rights under the Plan shall stand
suspended. Before this provision becomes operative, the Trustee shall send a
certified letter to all such persons at their last known address advising them
that their interest in benefits under the Plan shall be suspended. Any such
suspended amounts shall be held by the Trustee for a period of 3 additional
years (or a total of 8 years from the time the benefits first became payable),
and thereafter such amounts shall be reallocated among current Participants in
the same manner that a current contribution would be allocated. However, if a
person subsequently makes a valid claim with respect to such reallocated amounts
and any earnings thereon, the Plan earnings or the Employer's contribution to be
allocated for the year in which the claim shall be paid shall be reduced by the
amount of such payment. Any such suspended amounts shall be handled in a manner
not inconsistent with regulations issued by the Internal Revenue Service and
Department of Labor.
14.8 Governing Law.
This Plan has been executed in the State of Illinois, and all questions
pertaining to its validity, construction and administration shall be determined
in accordance with the laws of that State, except to the extent superseded by
the Act.
-58-
<PAGE>
14.9 Nonguarantee of Employment.
Nothing contained in this Plan shall be construed as a contract of
employment between the Employer and any Employee, or as a right of any Employee
to be continued in the employment of the Employer, or as a limitation of the
right of the Employer to discharge any of its Employees, with or without cause.
14.10 Counsel.
The Trustee and the Administrator may consult with legal counsel, who
may be counsel for the Employer and for the Administrator or the Trustee (as the
case may be), with respect to the meaning or construction of this Plan and the
Trust Agreement, their respective obligations or duties hereunder, or with
respect to any action or proceeding or any question of law, and they shall be
fully protected to the extent allowable by law with respect to any action taken
or omitted by them in good faith pursuant to the advice of legal counsel.
IN WITNESS WHEREOF, the Sponsor has caused these presents to be
executed by its duly authorized officers and its corporate seal to be affixed on
this _____ day of _______, 1998.
Ben Franklin Financial, Inc.
ATTEST:
____________________________ By _________________________________
- -----------------------, -------------------------,
Secretary President and Chief Executive Officer
[Corporate Seal]
-59-
Conversion Valuation Report
- --------------------------------------------------------------------------------
Valued as of March 20, 1998
DOUGLAS SAVINGS BANK
RENAMED
BEN FRANKLIN BANK OF ILLINOIS
Arlington Heights, Illinois
Prepared By the Board of Directors and Management of
Douglas Savings Bank
With the assistance of:
Ferguson & Company
Suite 305
860 West Airport Freeway
Hurst, TX 76054
817-577-9558
<PAGE>
- ---------
FERGUSON Financial
- --------- Institution
& COMPANY Consulting
- ---------
Suite 305
860 West Airport Frwy
Hurst, TX 76054
(817) 577-9558
(817) 577-3054 Fax
STATEMENT OF APPRAISER'S INDEPENDENCE
Douglas Savings Bank
Renamed
Ben Franklin Bank of Illinois
Arlington Heights, Illinois
We are the appraiser for Ben Franklin Bank of Illinois, ("Franklin" or
"Bank") Arlington Heights, Illinois, in connection with its conversion,
reorganization and issuance of Public Shares. We are submitting our independent
estimate of the pro forma market value of the Franklin's stock to be issued in
the conversion and reorganization. In connection with our appraisal of the
to-be-issued stock, we have received a fee which was not related to the
estimated final value. The estimated pro forma market value is solely the
opinion of our company and it was not unduly influenced by Franklin, its
conversion counsel, its selling agent, or any other party connected with the
conversion.
Franklin has agreed to indemnify Ferguson & Company under certain
circumstances against liabilities arising out of our services. Specifically, we
are indemnified against liabilities arising from our appraisal except to the
extent such liabilities are determined to have arisen because of our negligence
or willful conduct.
Ferguson & Company
/s/ Charles M. Herbert
Charles M. Hebert
Principal
March 31, 1998
<PAGE>
- ---------
FERGUSON Financial
- --------- Institution
& COMPANY Consulting
- ---------
Suite 305
860 West Airport Frwy
Hurst, TX 76054
(817) 577-9558
(817) 577-3054 Fax
March 31, 1998
Board of Directors
Douglas Savings Bank
14 North Dryden Avenue
Arlington Heights, Illinois
Dear Directors:
We have completed and hereby provide, as of March 20, 1998, an independent
appraisal of the estimated pro forma market value of Douglas Savings Bank,
renamed Ben Franklin Bank of Illinois, ("Franklin" or the "Bank"), Arlington
Heights, Illinois, in connection with the conversion of Franklin from the mutual
form to the stock form of organization ("Conversion"). This appraisal report is
furnished pursuant to the regulatory filing of the Bank's Application for
Conversion ("Form AC") with the Office of Thrift Supervision ("OTS").
Ferguson & Company ("F&C") is a consulting firm that specializes in
providing financial, economic, and regulatory services to financial
institutions. The background and experience of F&C is presented in Exhibit I. We
believe that, except for the fees we will receive for preparing the appraisal
and assisting with Franklin's business plan, we are independent. F&C personnel
are prohibited from owning stock in conversion clients for a period of at least
one year after conversion.
In preparing our appraisal, we have reviewed Franklin's Application for
Approval of Conversion, including the Proxy Statement as filed with the OTS. We
conducted an analysis of Franklin that included discussions with Crowe, Chizek
and Company LLP, the Bank's independent auditors, and with Silver, Freedman &
Taff, L. L. P., the Bank's conversion counsel. In addition, where appropriate,
we considered information based on other available published sources that we
believe is reliable; however, we cannot guarantee the accuracy or completeness
of such information.
We also reviewed the economy in Franklin's primary market area and compared
the Bank's financial condition and operating results with that of selected
publicly traded thrift institutions. We reviewed conditions in the securities
markets in general and in the market for thrift's stocks in particular.
Our appraisal is based on Franklin's representation that the information
contained in the Form AC and additional evidence furnished to us by the Bank and
its independent auditors are truthful, accurate, and complete. We did not
independently verify the financial statements and other information provided by
Franklin and its auditors, nor did we independently value the Bank's assets or
liabilities. The valuation considers Franklin only as a going concern and should
not be considered an indication of its liquidation value.
<PAGE>
Board of Directors
March 31, 1998
Page 2
It is our opinion that, as of March 20, 1998, the estimated pro forma
market value of Franklin was $14,000,000 or 1,400,000 shares at $10.00 per
share. The resultant valuation range was $11,900,000 at the minimum (1,190,000
shares at $10.00 per share) to $16,100,000 at the maximum (1,610,000 shares at
$10.00 per share), based on a range of 15 percent below and above the midpoint
valuation. The supermaximum was $18,515,000 (1,851,500 shares at $10.00 per
share).
Our valuation is not intended, and must not be construed, as a
recommendation of any kind as to the advisability of purchasing shares of common
stock in the conversion. Moreover, because such valuation is necessarily based
upon estimates and projections of a number of matters, all of which are subject
to change from time to time, no assurance can be given that persons who purchase
shares of common stock in the conversion will thereafter be able to sell such
shares at prices related to the foregoing estimate of the Bank's pro forma
market value. F&C is not a seller of securities within the meaning of any
federal or state securities laws and any report prepared by F&C shall not be
used as an offer or solicitation with respect to the purchase or sale of any
securities.
Our opinion is based on circumstances as of the date hereof, including
current conditions in the United States securities markets. Events occurring
after the date hereof, including, but not limited to, changes affecting the
United States securities markets and subsequent results of operations of
Franklin, could materially affect the assumptions used in preparing this
appraisal.
The valuation reported herein will be updated as provided in the OTS
conversion regulations and guidelines. All updates will consider, among other
things, any developments or changes in Franklin's financial performance and
condition, management policies, and current conditions in the equity markets for
thrift shares. Should any such new developments or changes be material, in our
opinion, to the valuation of the shares, appropriate adjustments will be made to
the estimated pro forma market value. The reasons for any such adjustments will
be explained in detail at the time.
Respectfully,
Ferguson & Company
/s/ Charles M. Herbert
Charles M. Hebert
Principal
<PAGE>
FERGUSON & COMPANY
- ------------------
TABLE OF CONTENTS
Ben Franklin Bank of Illinois
Arlington Heights, Illinois
PAGE
----
INTRODUCTION 1
SECTION I -- FINANCIAL CHARACTERISTICS 3
PAST & PROJECTED ECONOMIC CONDITIONS 3
FINANCIAL CONDITION OF INSTITUTION 4
Balance Sheet Trends 4
Asset/Liability Management 5
Income and Expense Trends 10
Regulatory Capital Requirements 10
Lending 10
Nonperforming Assets 16
Loan Loss Allowance 17
Mortgage Backed Securities and Investments 20
Savings Deposits 22
Borrowings 23
Subsidiaries 23
Legal Proceedings 23
EARNINGS CAPACITY OF THE INSTITUTION 23
Asset-Size-Efficiency of Asset Utilization 24
Intangible Values 24
Effect of Government Regulations 24
Office Facilities 24
i
<PAGE>
FERGUSON & COMPANY
- ------------------
TABLE OF CONTENTS -- CONTINUED
Ben Franklin Bank of Illinois
Arlington Heights, Illinois
PAGE
----
SECTION II -- MARKET AREA 1
DEMOGRAPHICS 1
SECTION III -- COMPARISON WITH PUBLICLY TRADED THRIFTS 1
COMPARATIVE DISCUSSION 1
Selection Criteria 1
Profitability 2
Balance Sheet Characteristics 2
Risk Factors 2
Summary of Financial Comparison 3
FUTURE PLANS 3
SECTION IV -- CORRELATION OF MARKET VALUE 1
MARKETABILITY & LIQUIDITY OF STOCK TO BE ISSUED 1
Financial Aspects 1
Market Area 3
Management 3
Dividends 3
Liquidity 3
Thrift Equity Market Conditions 4
EFFECT OF INTEREST RATES ON THRIFT STOCK 4
ILLINOIS ACQUISITIONS 6
ii
<PAGE>
FERGUSON & COMPANY
- ------------------
TABLE OF CONTENTS -- CONTINUED
Ben Franklin Bank of Illinois
Arlington Heights, Illinois
PAGE
----
SECTION IV -- CORRELATION OF MARKET VALUE -- continued
Adjustments Conclusion 7
Valuation Approach 7
Valuation Conclusion 8
iii
<PAGE>
FERGUSON & COMPANY
- ------------------
LIST OF TABLES
Ben Franklin Bank of Illinois
Arlington Heights, Illinois
TABLE
NUMBER TABLE TITLE PAGE
- ------ ----------- ----
SECTION I -- FINANCIAL CHARACTERISTICS
1 Selected Financial and Other Data 6
2 Selected Operating Ratios 7
3 Weighted Average Yields Earned/Rates Paid 8
4 Interest Rate Sensitivity Analysis 9
5 Interest Rate Sensitivity Net Portfolio Value 9
6 Regulatory Capital Compliance 10
7 Analysis of Loan Portfolio 11
8 Loan Activity 12
9 Average Balances, Yields, Costs 14
10 Rate/Volume Analysis 15
11 Non-Performing Assets 16
12 Analysis of Allowance for Loan Losses 18
13 Allocation of Allowance for Loan Losses 19
14 Classification of Investment Securities 20
14a Contractual Maturities 21
15 Deposit Portfolio 22
16 Jumbo CD's at December 31, 1997 23
17 Office Facilities and Locations 24
SECTION II -- MARKET AREA
1 Key Economic Indicators 2
2 Employment by Industry 4
3 Market Area Deposits 5
iv
<PAGE>
FERGUSON & COMPANY
- ------------------
LIST OF TABLES -- continued
Ben Franklin Bank of Illinois
Arlington Heights, Illinois
TABLE
NUMBER TABLE TITLE PAGE
- ------ ----------- ----
SECTION III -- COMPARISON WITH PUBLICLY TRADED THRIFTS
1 Comparatives General 4
2 Key Financial Indicators 5
3 Pro Forma Comparisons 6
SECTION IV -- CORRELATION OF MARKET VALUE
1 Appraisal Adjustments to Earnings 2
2 Acquisitions in Illinois 9
3 Recent Conversions 11
4 Comparison of Pricing Ratios 14
LIST OF FIGURES
FIGURE
NUMBER FIGURE TITLE PAGE
- ------ ------------ ----
SECTION IV -- CORRELATION OF MARKET VALUE
I SNL Index 15
II Interest Rates 16
v
<PAGE>
FERGUSON & COMPANY
- ------------------
EXHIBITS
Ben Franklin Bank of Illinois
Arlington Heights, Illinois
EXHIBIT TITLE
-------------
Exhibit I -- Ferguson & Company Qualifications
Exhibit II -- Selected National, Region, State, and Comparatives Information
Exhibit III -- Financial Highlights Douglas Savings Bank
Exhibit IV -- Comparative Group TAFS and BankSource Reports
Exhibit V -- Pro Forma Calculations
Pro Forma Assumptions
Pro Forma Effect of Conversion Proceeds at the Minimum of the Range
Pro Forma Effect of Conversion Proceeds at the Midpoint of the Range
Pro Forma Effect of Conversion Proceeds at the Maximum of the Range
Pro Forma Effect of Conversion Proceeds at the SuperMax of the Range
Pro Forma Analysis Sheet
Exhibit VI -- Financial Highlights of Comparatives
vi
<PAGE>
SECTION I
FINANCIAL CHARACTERISTICS
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
INTRODUCTION
DOUGLAS SAVINGS BANK
Renamed
BEN FRANKLIN BANK OF ILLINOIS
Ben Franklin Bank of Illinois ("Franklin" or "Bank") will operate as a
federally chartered mutual savings bank located in Arlington Heights, Illinois.
Franklin changed its name from Douglas Saving Bank to Ben Franklin Bank of
Illinois in connection with its charter conversion from an Illinois chartered
mutual savings bank to a mutual federal savings bank. Founded in 1893 as the
Casmir Pulaski Savings and Loan the association operated under that title until
1938 when the name was changed to Douglas Savings and Loan Association. The
Association received insurance of accounts in January of 1941 and is currently
insured by the FDIC under the SAIF. In August 1967, the Association relocated
from Chicago to Arlington Heights. In 1991, the name of the institution was
changed to Douglas Savings Bank. The Bank now conducts its business through its
main office and one branch office. The main office (14 North Dryden Place) is
located in Arlington Heights, and the branch (3148 Kirchoff Road) is located in
Rolling Meadows, Illinois. At December 31, 1997, the Bank had $122.59 million in
total assets, $112.75 million in deposits, and equity capital of $7.8 million,
which equated to 6.36% of total assets.
BEN FRANKLIN FINANCIAL, INC.
Ben Franklin Financial, Inc. ("BFFI" or "the Holding Company"), a Delaware
Corporation, was organized by the Bank in March 1998, for the purpose of holding
all of the common stock of the Bank. The Company has received conditional
approval from the Office of Thrift Supervision ("OTS") to become a savings and
loan holding company through the acquisition of 100% of the capital stock of the
Bank. Upon completion of the Conversion and Reorganization, the significant
assets of the Company will be all of the Bank's outstanding Common Stock and the
loan to the ESOP that will be used to purchase 8% of the Common Stock issued in
the Conversion. The Holding Company will invest 50% of the net proceeds of the
Offering, as permitted by the OTS, in the Common Stock of the Douglas Savings.
The remaining net proceeds of offering, the company retains, are to be used for
general business activities.
Franklin is currently a traditional thrift. The asset composition of the
institution suggests that it has primarily been managed as a traditional thrift.
A traditional thrift mainly makes long-term residential loans that are funded
primarily with certificates of deposits and savings accounts. The Bank has
recently hired a new President and Chief Executive Officer with a commercial
banking background. The new CEO has begun exploring the expansion of its lending
activities. The changes anticipated in the activities of the bank have
influenced the hiring of a new Chief Financial Officer, an experienced
commercial loan officer and deposit services coordinator. Management is
considering the establishment of a consumer finance subsidiary and a department
that would offer loan administration and other correspondent services to credit
unions. If the planned changes are completed, the Bank will began to take on the
asset appearance of a commercial bank.
The Bank offers a variety of loan products to accommodate its customer
base. Single family loans, both fixed rate and adjustable rate mortgages
("ARM's") are originated. In addition, the Bank has been successful in
generating volume in a fixed rate "bi-weekly" loan product and an adjustable
equity line of credit. Franklin's Management has recognized the higher risk
levels associated with its portfolio changes
1
<PAGE>
FERGUSON & COMPANY Section I.
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by providing additional depth of management with commercial lending skills and
expertise. In addition, the Bank has provided additional loan and lease loss
reserves.
Franklin had $65 thousand in non-performing assets at December 31, 1997
(0.05% of total assets) as compared to $461 thousand at December 31, 1996 (0.43%
of total assets). The current level of nonperforming assets is nominal.
Management has adequate control of the problem assets and does a more than
adequate job of managing such assets. The current nonperforming asset level is
not likely to have a significant impact on the future earning capacity or
capital position of the Bank.
Deposit accounts have increased during the four years from December 31,
1993, to December 31, 1997, by $34.8 million. Between December 31, 1993, and
December 31, 1994, deposits increased from $77.9 million to $81.7 million.
Following 1994, growth continued between 1994 and 1995 with deposits increasing
$7.1 million. December 31, 1996 saw another increase of $5.5 million to $94.3
million. Between December 31, 1996, and December 31, 1997, deposits continued
growing by $18.4 million to their current level of $112.8 million.
The Bank's capital has increased both in dollar amounts and as a percentage
of total asset until December 1997. At December 31, 1993, capital was $5.03
million, or 5.97% of assets, in December 31, 1994; capital had increased to 5.96
million and was now 6.09% of total assets. December 31, 1995, capital was $6.92
million and had increased to 6.69% of total assets. Between December 31, 1995,
and December 31, 1996, capital increased from $6.92 million to $7.45 million, or
6.97% of total assets. At December 31, 1997, capital had increased in dollars to
$7.8 million, but due to asset growth, the percent of capital to assets had
decreased to 6.36%.
Franklin's profitability, as measured by return on average assets ("ROAA")
and return on average equity ("ROAE") has been in decent since December 31,
1993. At December 31, 1993, the Bank's ROAA was 0.98%. It increased slightly to
1.02%, by year-end December 31, 1994. From December 31, 1994 to December 31,
1995, ROAA declined to 0.75%. ROAA further declined to 0.44% at December 31,
1996 and fell further to 0.27% at December 31, 1997. Return on average equity
has displayed a similar decline. It was 17.66%, 16.40%, 12.02%, 6.79%, and 3.97%
in 1993, 1994, 1995, 1996, and 1997, respectively. The drop in the Bank
performance has followed exactly the diminishing interest rate spread (average
rate on interest earning assets ("IEA's") minus average rate on interest bearing
liabilities ("IBL's") and the declining net interest margins (fully tax
equivalent net interest/average earning assets). Interest rate spreads averaged
3.75% in 1993, 3.46% in 1994, 2.81% in 1995, 2.64% in 1996, and 2.59% in 1997.
This decline represents a 30.93% decline in average interest rate spread. The
net interest margin of the Bank has declined 25.13% during the same period. In
1993, the net interest margin was 3.94%; in 1994 it was 3.69%, in 1995 it was
3.19%, 3.00% in 1996, and finally, 2.95% in 1997. Non-interest income is so
limited that at its current levels it cannot have a major impact on earnings.
However, non-interest expense (operating expenses) have remained well
controlled. Expressed as a percent of total assets, operating income has
increased from 2.04% of total assets in 1993, to 2.18% of total assets in 1997.
2
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FERGUSON & COMPANY Section I.
- ------------------ ----------
I. FINANCIAL CHARACTERISTICS
PAST & PROJECTED ECONOMIC CONDITIONS
Fluctuations in thrift earnings in recent years have occurred within the
time frames as a result of changing temporary trends in interest rates and other
economic factors. However, the year-to-year results have been upward, while the
general trends in the thrift industry have been improving as interest rates
declined. Interest rates began a general upward movement during late 1993,
followed by a decline in interest margins and profitability. Rates began a
general decline in mid 1995. Since early 1996, rates have moved in a narrow
band. From mid-March until early June there was a slight upward trend, with the
spread between the short end and the long end increasing. Early July saw the
jobless rate dip, and responding to inflation fears, the rates rose slightly. In
late July, Greenspan's comments sparked a rise in the Dow-Jones, but rates
remained steady. Mid-August's report on the rising CPI caused a slight increase
in rates, but they remained within the narrow band. The recent pass by the
Federal Reserve in October 1997, to raise rates provided some stability in rates
and the equities market until the latter days of October. Then the equities
market demonstrated its ability to stage a market event by falling and rising
rapidly without real stimulus from the economy. By November's end the market had
gain most of the losses of October. Since the end of November the thrift
equities market has been moving up.
The overall economic environment has been conducive to profitability in the
industry as well as in the area of equity markets. The economy continues to
expand slowly, unemployment is at recent record low levels, and for the moment,
inflation seems to be in restraint. However, there is some preemptive concern
that the lower unemployment rates could be a harbinger of higher inflation
rates. Currently, a consensus indicates that although growing, the economy is
not as robust as some would desire, that inflation is for the moment under
control, and that the chance of a rate increase is nominal, for the moment.
These factors have caused the equities market to rise beyond the expectations of
most reasonable analysts. In addition, there is tremendous pressure on the
general equities market produced by the volume of new dollars entering the
mutual funds market. It is unreasonable to assume that the thrift equities
market would escape the buying pressures that have driven up other markets.
The general rise in the equity market has translated into overall gains in
the thrift equity market. Recently, conversion stocks have become of interest to
some mutual funds and institutional buyers. These factors, coupled with the
circumstances of having fewer conversions in 1996 and 1997, have produced some
dramatic results in the market. The number of "conversion stock speculators" has
grown as thrift and bank acquisitions have continued. The hope of a quick profit
has many speculative dollars chasing fewer good conversion opportunities,
bringing into play the principal of supply and demand.
In the recent months, the thrift equities market has generally paralleled
the other major equities markets. Some interim fluctuations have been caused by
changes or anticipated changes in interest rates or other economic conditions
that influence, or that are perceived to influence the market. In the general
equities market, increased stock prices usually response to improved profits or
anticipated improvements in profits, with price-to-earnings ratios increasing as
increased earnings potentials are anticipated. There is little economic news
that would indicate that the market will stop its upward trend although there
may be periodic adjustments similar to the one in late October. However, it is
not realistic to think that any market can continue to rise at a 15% to 20% rate
per annum for an indefinite period, but accurately anticipating the change is
unlikely.
The thrift industry generally is better equipped to cope with changing
interest rates than it was in the past, and investors have recognized the
demonstrated ability of the thrift industry to maintain interest margins in
spite of rising interest rates. However, much of the industry is still a long
lender and, for the most part, a short borrower. Periods of gradually rising
interest rates can be readily managed, but periods
3
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
of rapidly rising rates and interest rate spikes can negate, to a certain
degree, the positive impact of adjustable rate loans and investments.
FINANCIAL CONDITION OF INSTITUTION
Balance Sheet Trends
As Table I.1 shows, Franklin demonstrated an increase in assets during the
four year period between December 31, 1993, and December 31, 1997. Assets
increased from $84.2 million at December 31, 1993, to $91.9 million at December
31, 1994, to $103.4 million at December 31, 1995, to $106.9 million at December
31, 1996, and to $122.6 million at December 31, 1997. Earning assets reflect the
same trend, driven mainly by increases in the loan portfolio. Earning assets
were $82.5 million, $90.7 million, $101.9 million, 104.9 million and 120.3
million in 1993, 1994, 1995, 1996, and 1997, respectively. The loan portfolio
reflects an overall upward trend from $67.2 million at December 31, 1993, to
$93.95 million at December 31, 1997. In addition to an increasing loan
portfolio, asset growth has also occurred in the investment security category.
Investment securities were $8.15 million in 1993, $8.28 million in 1994, 7.23
million in 1995, $8.54 million in 1996, and 18.73 million at December 31, 1997.
At December 31, 1997, 18.22 million of the investment portfolio was classified
as "Available for Sale."
Franklin's ratio of interest earning assets ("IEA's") to interest bearing
liabilities ("IBL's") has been stable, reflecting 104.99%, 106.39%, 108.57%,
108.06%, and 108.07%, December 31, 1993, 1994, 1995, 1996, 1997, respectively
(see Table I.2). A declining average interest spread and a falling net interest
margin have served to question the sustainability of earnings. The capital
infused by the Conversion will improve profitability measured by return on
assets, but the additional capital will likely have a negative impact on the
return on equity calculation. It is unlikely that in the coming years Franklin
will have to bear expenses like the SAIF assessment in 1996. Prospects for
earnings are modest and there is an additional caveat - the high levels of
interest rate risk could present some problems in a rising interest rate
environment. Management's plan to change the composition of the loan portfolio
needs to work if spreads, net interest margins, and profits are to be increased.
Equity accounts increased steadily from $5.03 million at December 31, 1993,
to $5.96 million at December 31, 1994, and to $6.92 million in 1995. Equity
further increased to $7.45 million in 1996, and to $7.80 million at December 31,
1997. During this period, net interest margins, net interest spread, and net
interest income have been declining. Profitability has trended downward during
the entire five year period. The SAIF assessment recorded in 1996 produced a
noticeable impact on net income when the net income for the year is compared to
other years. The income for the year ended December 31, 1996, was negatively
impacted by the SAIF assessment of $491 thousand. The earnings for the 12 months
ending December 1997 included an excessive allocation to the reserve for loan
and lease losses of $117 thousand, pretax. and there was a loss recorded on the
sale of real estate of $13 thousand. In addition, the expense items for 1997,
included an expenditure of $450 thousand for two separate plans providing for
the director's retirement. The total pretax adjustments were $580 thousand ($349
thousand after tax). Adjusted income (appraisal income) for the 12 months ending
December 31, 1997, was $647 thousand. This was an increase over the previous
year, which included the SAIF assessment, but shows the downward trend in
earnings. This level of income ($647 thousand) is below the historical earnings
capacity of the Bank, which is shown in Table I.1.
4
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
Asset/Liability Management
Managing interest rate risk is a major and necessary component of the
strategy used in operating a financial institution. Most of a thrift's interest
earning assets are long term, while most of the interest bearing liabilities
have short to intermediate terms to contractual maturity. To compensate,
asset/liability management techniques include:
(1) Making long-term loans with interest rates that adjust to market
periodically,
(2) Investing in assets with shorter terms to maturity,
(3) Lengthening the terms of savings deposits, and
(4) Seeking to employ any combination of the aforementioned techniques
artificially through the use of synthetic hedge instruments.
Table I.4 contains information on contractual loan maturities at December
31, 1992. However, this table must be read in conjunction with Table I.5. Table
I.4 shows that Franklin has $39.63 million in rate sensitive interest earning
assets that mature in one year or less. It further shows that Franklin also has
$88.77 million in rate sensitive interest bearing liabilities that mature in one
year. This produces a negative GAP of $49.14 million or -40.10% of total assets.
As you continue through Table I.4, the negative cumulative GAP declines in the
longer terms. Notwithstanding there is a decline in the negative Gap, the
interest rate risk exposure is significant in the first year. Table I.5, which
demonstrates the changes in the Net Portfolio Value ("NPV"), confirms the degree
of interest rate risk imbedded in the Franklin portfolio. Assuming an
instantaneous and sustained increase in interest rates of 200 basis points, the
NPV would decrease by $3.42 million, or 30%. A 400 basis point increase would
have a negative impact of $6.90 million. In combination, the two tables clearly
confirm that Franklin's interest rate risk is significant. The additional funds
obtained in the Conversion will help mitigate, to some degree, the amount of
interest rate risk, if they are not placed in long-term assets. The Plan is to
place conversion funds in short-term assets. This coupled with the management
plan to offer new loan products of shorter maturities could lower the amount of
interest rate risk.
The Bank has significant interest rate risk and would suffer significant
deterioration in profitability, as well as an erosion in the value of its
portfolio equity (NPV).
5
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
Table I.1 -- SELECTED CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Selected Financial Condition Data:
- ----------------------------------
Total assets 122,591 106,925 103,441 91,851 84,209
Cash and cash equivalents 7,065 2,524 2,762 3,239 4,024
Loans receivable, net 93,950 92,956 90,396 77,380 67,263
Mortgage-backed securities:
Held to maturity 89 80 698 711 3,098
Available for sale 495 -- 523 530 --
Investment securities:
Held to maturity 510 1,118 3,934 4,954 8,151
Available for sale 18,220 7,423 3,291 3,330 --
Deposits 112,754 94,339 88,795 81,653 77,929
Total borrowings -- 3,700 5,800 2,800 --
Total equity 7,800 7,450 6,920 5,958 5,030
Selected Operations Data:
- -------------------------
Total interest income 7,972 7,775 7,127 6,129 6,022
Total interest expense 4,837 4,681 4,164 3,027 2,926
------- ------- ------- ------ ------
Net interest income 3,135 3,094 2,963 3,102 3,096
Provision for loan losses 150 33 31 14 1
------- ------- ------- ------ ------
Net interest income after
Prov. for loan losses 2,985 3,061 2,932 3,088 3,095
Fees and service charges 150 148 140 127 123
Gain on sales of securities 1 -- -- -- 2
Other non-interest income -- 13 12 7 --
------- ------- ------- ------ ------
Total non-interest income 182 161 152 134 133
Total non-interest expense 2,668 2,441 1,873 1,757 1,720
------- ------- ------- ------ ------
Income before taxes 499 781 1,211 1,465 1,508
Income tax provision 201 312 484 564 590
Extraordinary item -- -- -- -- (102)
------- ------- ------- ------ ------
Net income 298 469 727 901 816
======= ======= ======= ====== ======
</TABLE>
Source: Offering Circular
6
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
Table I.2 -- Selected Operating Ratios and Other Data
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Selected Financial Ratios & Other Data:
- ---------------------------------------
Performance Ratios:
Return on assets (ratio of net income
to average total assets) 0.27% 0.44% 0.75% 1.02% 0.98%
Return on equity (ratio of net income
to average equity) 3.97% 6.79% 12.02% 16.40% 17.66%
Interest rate spread information:
Average during period 2.59% 2.64% 2.81% 3.46% 3.75%
End of period 2.42% 2.75% 2.77% 3.28% 3.62%
Net interest margin 2.95% 3.00% 3.19% 3.69% 3.94%
Ratio of operating expense to average
total assets 2.42% 2.29% 1.94% 1.99% 2.07%
Efficiency ratio 80.43% 74.99% 60.13% 54.30% 53.27%
Ratio of average interest-earning assets
to average interest-bearing liabilities 108.07% 108.06% 108.57% 106.39% 104.99%
Asset Quality Ratios:
Non-performing assets to total assets 0.05% 0.43% 0.13% 0.02% 0.09%
Allowance for loan losses to
non-performing loans 618.46% 58.35% 172.93% 1152.94% 233.33%
Allowance for loan losses to gross loans 0.43% 0.29% 0.25% 0.25% 0.27%
Capital Ratios:
Equity to total assets at end of period 6.36% 6.97% 6.69% 6.49% 5.97%
Average equity to average assets 6.80% 6.48% 6.25% 6.23% 5.55%
Other Data:
Number of full-service offices 2 2 2 2 2
</TABLE>
Source: Offering Circular
7
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
Table I.3 -- Weighted Average Yields Earned/Rates Paid
At December 31 of Years Indicated
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Loans 7.74% 7.74% 7.85% 7.68% 7.45%
- -----
Principal 94,415 93,225 90,626 77,577 67,445
Projected interest 7,308 7,214 7,117 5,961 5,026
Securities 6.45% 6.37% 6.42% 6.21% 6.59%
- ----------
Book value 18,680 8,592 8,010 8,204 8,151
Projected interest 1,205 547 514 509 537
Fed funds sold 6.00% 0.00% 0.00% 0.00% 2.88%
- --------------
Principal 3,900 -- -- -- 500
Projected interest 234 -- -- -- 14
Other interest-earning deposits 6.47% 6.50% 4.86% 5.90% 2.79%
- -------------------------------
Principal 1,394 1,878 2,227 2,551 2,899
Projected interest 90 122 108 151 81
Total asset principal 118,389 103,695 100,863 88,332 78,995
Total asset projected earnings 8,837 7,884 7,740 6,621 5,658
Yield 7.46% 7.60% 7.67% 7.50% 7.16%
- -----
Deposits 5.04% 4.77% 4.83% 4.15% 3.54%
- --------
Principal 112,754 94,339 88,795 81,653 77,929
Projected interest 5,683 4,500 4,289 3,389 2,759
Fed funds purchased 0.00% 7.00% 6.06% 6.00% 0.00%
- -------------------
Principal -- 3,700 5,800 2,800 --
Projected interest -- 259 351 168 --
Total liability principal 112,754 98,039 94,595 77,929
84,453
Total liability projected expense 5,683 4,759 4,640 3,557 2,759
Cost 5.04% 4.85% 4.91% 4.21% 3.54%
Spread 2.42% 2.75% 2.77% 3.28% 3.62%
</TABLE>
Source: Offering circular
8
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
Table I.4 -- Interest Rate Sensitivity Analysis
As of December 31, 1997 (*)
----------------------------------
One Over Over
Year One Three
Or To To
LESS 3 Years 5 Years
-------- -------- --------
(In Thousands)
Cumulative RSA $ 39,630 $ 72,826 $ 97,128
Cumulative RSL 88,773 107,193 109,516
-------- -------- --------
Cumulative Gap $(49,143) $(34,367) $(12,388)
-------- -------- --------
Cumulative GAP/Assets -40.10% -28.04% -10.00%
-------- -------- --------
(*) Most recent information available at writing.
Source: Illinois Office of Banks and Real Estate
Table I.5 -- Interest Rate Sensitivity
--------------------------------------
Net Portfolio Value
As of December 31, 1997
$ Change % Change
Changes (In Basis Points) In In
in Interest Rates (1) $ Amount NPV NPV
------------------------- -------------------------------
(Dollars in Thousands)
+400 BP $ 4,351 $-6,903 -61%
+300 BP 6,250 -5,004 -44%
+200 BP 7,839 -3,415 -30%
+100 BP 9,825 -1,429 -13%
0 BP 11,254 0
-100 BP 11,071 -193 -2%
-200 BP 12,539 1,285 11%
-300 BP 11,792 538 5%
-400 BP 12,770 1,516 13%
(1) Assumes an instantaneous and sustained uniform change in interest
rates at all maturities.
Source: Illinois officer of Banks and Real Estate
9
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
Income and Expense Trends
Franklin was profitable for the five years ending December 31, 1997.
Profits stated as a return on average assets have been in decline. Return on
average assets was 0.98%, 1.02%, 0.75%, 0.44%, and 0.27%, at December 31, 1993,
1994, 1995, 1996, 1997, respectively (see Table I.2). As discussed earlier, this
earnings performance is below thrift peer average and reflects the shrinking net
interest spreads and net interest margins. In addition, having the lack of
ability to reprice in excess of 50% of the loan portfolio compounds to the
overall lack of profitability. The earnings for the year ending December 31,
1996, is one of the lowest in the five years reported above, and that was the
period that absorbed the SAIF assessment. The adjusted earnings (appraisal
earnings) for 1997 are better than 1996, but reflect the general downward trend
in earnings. The ability to generate core earnings will improve with the
anticipated infusion of capital generated by the Conversion. It is likely that
Franklin will continue to have lower than peer's average earnings until the
composition of the loan portfolio is completed
Regulatory Capital Requirements
As Table I.6 demonstrates, Franklin meets all regulatory capital
requirements and meets the regulatory definition of a "Well Capitalized"
institution. Moreover, the additional capital raised in the stock conversion
will add to the existing capital cushion.
Table I.6 -- Regulatory Capital Compliance
December 31, 1997
Capital
------------------------------------------
Excess
Required Actual (Deficit)
-------- ------ ---------
(In thousands)
GAAP Capital $7,800
Tangible Capital $1,830 $7,426 $5,596
Core Capital $3,659 $7,426 $3,767
Risk-based Capital $5,574 $7,828 $2,254
Source: Franklin's unaudited financial statements, and F&C calculations.
Lending
Table I.7 provides an analysis of the Bank's loan portfolio by type of loan
security. This analysis shows that Franklin's loan composition still reflects a
commitment to one-to-four-family dwelling loans. The concentration of assets in
the residential lending market has played a significant part in the lowering of
spreads and net interest margins. As many of the fixed rate loans refinance the
net income decreased at faster rate than the interest expense on the deposit
base decreased. This is compounded by strong competition in the local market for
deposits.
Table I.8 provides information with respect to loan originations,
purchases, and repayments. It also clearly shows the dependency upon
one-to-four-family for portfolio volume. Moreover, the table relates the impact
upon the types of loans originated by changing interest rates. In the year ended
December 31, 1995, the Bank originated $30.2 million in loans. As rates fell in
the years ending December 31, 1996, and 1997, we can see the impact of the
refinancing activity. Fixed rate loans were practically double the volume of
adjustable rate loans. The only conclusion that can be drawn from the
information in Table I.8 is that the strategy of changing the portfolio
composition is correct and should be implemented.
10
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
Table I.7 -- Loan Portfolio Composition
At December 31,
--------------------------------------
1997 1996
----------------- -----------------
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in thousands)
Mortgage Loans:
One- to four-family 78,745 83.70% 76,681 82.50%
Construction 0 0 0 0
Land 0 0 0 0
--------------------------------------
Total mortgage loans 78,745 83.70 76,681 82.50%
--------------------------------------
Consumer Loans:
Home equity and second mortgage 14,340 15.24% 15,184 16.34%
Automobile 350 0.37% 160 0.17%
Loans secured by deposits 99 0.11% 92 0.10%
Home improvement loans 161 0.17% 251 0.27%
Other 386 0.41% 584 0.63%
--------------------------------------
Sub Total 15,336 16.30% 16,271 17.50%
--------------------------------------
Total loans 94,081 100.00% 92,952 100.00%
======================================
Less:
Undisbursed portions of loans in process 0 0
Net deferred loans fees -271 -273
Allowance for loan losses 402 269
------ ------
Total loans receivable, net 93,950 92,956
====== ======
Source: Offering Circular
Table I.8 below clearly demonstrates why Franklin can currently only be
considered a traditional thrift. The information reveals that residential loans
are the major portion of the loan portfolio. Fixed rate loans are originated at
a rate nearly two times that of the adjustable rate loans. Management states
that competitive pressures limit the availability of adjustable loan product. In
addition, customers have become much more sophisticated in financial matters
adding to the problem with generating adjustable loan products. Alternative
lending products that are normally adjustable or have rapid repayments are
needed to combat the spread problem.
11
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
Table I.8 -- Loan Activity -- Origination's -- Sales -- Repayments
1997 1996 1995
-------------------------------
($ In Thousands)
Beginning of Year
1 to 4 family (includes HEL and HIL) 92,116 90,156 77,181
Consumer 836 490 430
Commercial -- -- --
Other items (fees, AFLL) 4 (250) (231)
-------------------------------
92,956 90,396 77,380
Originations -- adjustable
1 to 4 family (includes HEL and HIL) 5,086 7,084 8,057
Consumer 25 -- --
Commercial -- -- --
-------------------------------
5,111 7,084 8,057
Originations -- fixed
1 to 4 family (includes HEL and HIL) 10,550 12,744 21,354
Consumer 263 435 144
Commercial -- -- --
-------------------------------
10,813 13,179 21,498
Purchases
1 to 4 family (inc. HEL and HIL) 4,091 -- --
4,091 -- --
Change in
Loans in process -- 227 (104)
Deferred loan costs (2) 66 119
Allowance (133) (39) (34)
-------------------------------
(135) 254 (19)
Sales and repayments (force)
1 to 4 family (includes HEL and HIL) (14,707) (17,581) (16,436)
Consumer (289) (89) (84)
Commercial -- -- --
1 to 4 family sold (3,890) (287) --
-------------------------------
(18,886) (17,957) (16,520)
-------------------------------
End of Year
1 to 4 family (inc. HEL and HIL) 93,246 92,116 90,156
Consumer 835 836 490
Commercial -- -- --
Other items (fees, AFLL) (131) 4 (250)
-------------------------------
93,950 92,956 90,396
Total change in net loans 994 2,560 13,016
===============================
12
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
Table I.9 provides rates, yields, and average balances for the three years
ended December 31, 1995, 1995, and 1997. Net interest income increased from
$2.96 million at December 31, 1995, to $3.09 million at December 31, 1996. From
December 31, 1996, to December 31, 1997, it increased once again to $3.14
million. Increasing dollar amounts of income belie the actual profitability of
the institution. Net interest margins and net interest spreads have been on the
decline. Net interest spreads were 2.81%, 2.64%, and 2.59%, at the end of
December 31, 1995, 1996, and 1997, respectively. There has been a stable
relationship between interest earning assets ("IEA's"), and interest bearing
liabilities ("IBL's"). In 1995, IEA's were 108.57% of IBL's. In 1996, they were
108.06% and 108.07% in 1997. The impact of lower priced loan transactions being
funded with deposits that have a rising cost bring to question the
sustainability of the current level of profitability.
13
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
Table I.9 -- Rates, Volumes and Average Yields
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------- --------------------------- ---------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------- -------- ------- ------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS ("IEA")
- -------------------------------
Loans receivable 93,732 7,209 7.69% 93,285 7,196 7.71% 82,909 6,506 7.85%
Investment securities 10,629 688 6.47% 8,866 562 6.34% 9,443 600 6.35%
Federal funds sold 1,064 9 5.55% -- -- 0.00% -- -- 0.00%
Other IEA's (FHLB Time) 725 16 2.21% 818 17 2.08% 479 21 4.38%
------------------------- ------------------------- ------------------------
106,150 7,972 7.51% 102,969 7,775 7.55% 92,831 7,127 7.68%
Non-interest earning assets 4,229 3,727 3,905
------- ------- ------
Total assets 110,379 106,696 96,736
======= ======= ======
INTEREST-BEARING LIAB. ("IBL's)
- -------------------------------
Savings and certificates of deposit 83,262 4,289 5.15% 76,128 3,970 5.21% 71,945 3,695 5.14%
Demand and NOW deposits 10,917 321 2.94% 12,012 315 2.62% 307 2.82%
FHLB advances (GL 221003 & 4420) -- -- 0.00% 1,834 104 5.67% -- -- 0.00%
Federal funds purchased (GL 222002 & 4421) 4,048 227 5.61% 5,311 292 5.50% 2,694 162 6.01%
------------------------- ------------------------- ------------------------
98,227 4,837 4.92% 95,285 4,681 4.91% 85,507 4,164 4.87%
-------------- -------------- -------------
Non-interest bearing liabilities 4,641 4,502 5,180
------- ------- ------
Total liabilities 102,868 99,787 90,687
Equity 7,511 6,909 6,049
------- ------- ------
Total liabilities and equity 110,379 106,696 96,736
======= ======= ======
Net Interest/Spread $3,135 2.59% $3,094 2.64% $2,963 2.81%
============== ============== ==============
Margin 2.95% 3.00% 3.19%
==== ==== ====
IEA's IBL's 108.07% 108.06% 108.57%
====== ====== ======
</TABLE>
14
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
Table I.10 provides a rate volume analysis, measuring differences in
interest earning assets ("IEA's") and interest bearing liabilities ("IBL's"),
and the interest rates thereon comparing the year ended December 31, 1995, with
December 31, 1996, and then comparing the year ended December 31, 1996, with
December 31, 1997. The table shows the effect of the changes in interest income
and funding cost between 1995 and 1996 produced an increase in net interest
income of $131 thousand ($3,094 - $2,963) shown in Table I.9. Creating that
increase was total change in interest income of $648 thousand, that was due to
an increase in income of $774 thousand due to volume, and a negative change of
$127 thousand due to rates. On the expense side, interest expense increased $515
thousand for the same period. That increase was the result of an increase in
volume of $497 thousand and an increase in rates of $20 thousand. The results
for the 1995-1996 period were an increase of $131 thousand ($648 thousand - $517
thousand).
The period between 1996 and 1997 shows an increase in income of $41
thousand ($3,094 - $2,963) shown in Table I.9. That increase created a total
change in interest income of $197 thousand that was due to an increase in
interest income of $205 thousand due to volume and a decrease in income of $8
thousand due to rates. The offsetting interest expense had an increase of $156
thousand, which was the result of an increase in interest expense of $163
thousand due to increased volumes, and a negative $7 thousand that was due to
rates. The result for the 1996-1997 period was an increase of $41 thousand ($197
thousand - $156 thousand).
Table I.10 -- Rate Volume Analysis
<TABLE>
<CAPTION>
1997-1996 1996-1995
------------------------ ------------------------
Change Change Change Change
Total Due To Due To Total Due To Due To
INTEREST-EARNING ASSETS Change Volume Rate Change Volume Rate
- ----------------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Loans receivable 13 34 (21) 690 802 (112)
Investment securities 126 114 12 (38) (37) (1)
Federal funds sold 59 59 -- -- -- --
Other interest-earning assets (FHLB Time) (1) (2) 1 (4) 10 (14)
------------------------ ------------------------
197 205 (8) 648 775 (127)
INTEREST-BEARING LIABILITIES
- ----------------------------
Savings and certificates of deposit 319 368 (49) 275 217 58
Demand and NOW deposits 6 (30) 36 8 31 (23)
FHLB advances (104) (104) -- 104 104 --
Federal funds purchased (65) (71) 6 -- 145 (15)
------------------------ ------------------------
156 163 (7) 517 497 20
Net Interest/Spread 41 42 (1) 131 278 (147)
======================== ========================
</TABLE>
15
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
Table I.11 - Non-Performing Assets
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans:
1-4 -- -- -- -- 9
Multi- family -- -- -- -- --
Construction -- -- -- -- --
Consumer -- -- -- -- --
------- ------- ------- ------- ------
-- -- -- -- 9
------- ------- ------- ------- ------
Accruing delinquent more than 90 days:
1-4 65 155 133 17 69
Multi- family -- -- -- -- --
Construction -- -- -- -- --
Consumer -- -- -- -- --
------- ------- ------- ------- ------
65 155 133 17 69
------- ------- ------- ------- ------
Foreclosed assets:
1-4 -- 306 -- -- --
Multi- family -- -- -- -- --
Construction -- -- -- -- --
Consumer -- -- -- -- --
------- ------- ------- ------- ------
-- 306 -- -- --
------- ------- ------- ------- ------
Total nonperforming assets 65 461 133 17 78
======= ======= ======= ======= ======
Total assets 122,591 106,925 103,441 91,851 84,209
Allowance for loan losses 402 269 230 196 182
------- ------- ------- ------- ------
Non-performing assets to total assets 0.05% 0.43% 0.13% 0.02% 0.09%
------- ------- ------- ------- ------
Allowance for loan losses/non-performing loans 618.46% 58.35% 172.93% 1152.94% 233.33%
------- ------- ------- ------- ------
</TABLE>
Source: Offering Circular
Non-performing Assets
As shown in Table I.11 above Franklin's total non-performing loans as of
December 31, 1997, were a nominal $65 thousand and represented 0.05% of total
loans. All of the non-performing loans as of that date were secured. The level
of non-performing assets does not appear to be a significant threat to the
capitalization or future earnings of the institution.
16
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
Loan Loss Allowance
The following table (Table I.12) sets forth an analysis of the Bank's
allowance for possible loan losses for the periods indicated. As of December 31,
1997, the provision for loan and lease losses was equal to 0.43% of gross loans
and 6.18 times non-performing loans. Considering the conservative underwriting
of Management and the management of credit risk in the recent past, the
Allowance for Loan and Lease Losses is adequate.
Significant increases to the loan loss reserves were made during the year
ended December 31, 1997. These increases in loan loss reserves were not dictated
by historical experience or anticipated losses, but instead were provisions made
to adjust the percentage to levels that were more near a banking peer average.
17
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
Table I.12 -- Analysis of Allowance for Loan Losses
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Allowance at beginning of period. $269 $230 $196 $182 $181
Provision for loan losses 150 33 32 14 1
Recoveries
Mortgage loans
One-to four-family -- -- -- -- --
Commercial -- 6 2 -- --
Construction -- -- -- -- --
Land -- -- -- -- --
Consumer loans
Home equity and second mortgage -- -- -- -- --
Automobile -- -- -- -- --
Loans secured by deposit accounts -- -- -- -- --
Unsecured -- -- -- -- --
Other -- -- -- -- --
Commercial business loans -- -- -- -- --
------ ------ ------ ------ ------
Total recoveries -- 6 2 -- --
------ ------ ------ ------ ------
Charge-offs
Mortgage loans
One-to four-family -- -- -- -- --
Multi-family -- -- -- -- --
Commercial -- -- -- -- --
Construction -- -- -- -- --
Land -- -- -- -- --
Consumer loans
Home equity and second mortgage 17 -- -- -- --
Automobile -- -- -- -- --
Credit card -- -- -- -- --
Loans secured by deposit accounts -- -- -- -- --
Other -- -- -- -- --
Commercial business loans -- -- -- -- --
------ ------ ------ ------ ------
Total charge-offs 17 -- -- -- --
------ ------ ------ ------ ------
Net charge-offs 17 -6 -2 -- --
------ ------ ------ ------ ------
Balance at end of period $402 $269 $230 $196 $182
------ ------ ------ ------ ------
Allowance for loan losses as a % of
nonperforming loans at the end of the period 618.45% 173.55% 172.93% 1152.9% 233.33%
</TABLE>
Source: Offering Circular and Audited Financial Statements of Franklin
18
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
Table I.13 shows the allocation of the loan loss allowance among the
various loan categories for the years ending December 31, 1993, 1994, 1995,
1996, and 1997.
Table I.13 -- Allocation of Loan Loss Allowance
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------------ ------------------ ------------------ ------------------ ------------------
Percent Percent Percent Percent Percent
of Loans of Loans of Loans of Loans of Loans
In Category In Category In Category In Category In Category
to Total to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ ----------- ------ ----------- ------ ----------- ------ ----------- ------ -----------
($ In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans: One-to four-family $158 83.70% $155 82.50% $151 83.50%
$130 83.24% $114 84.17% Multi-family Commercial Construction 1 0.40% Land
Nonmortgage loans Consumer loans 9 0.89% 10 0.90% 7 0.54% 6 1.18% 5 0.46% Home
equity and second mortgage 72 15.41% 76 16.60% 72 15.96% 60 15.58% 50 14.97%
Automobile Credit card Loans secured by deposits Unsecured Other Commercial
business loans Unallocated 163 -- 28 -- 0 0 -- 0 11 -- ---- ------ ---- ------
- ---- ------ ---- ------ ---- ------ Total allowance for loan losses $402 100.00%
$269 100.00% $230 100.00% $196 100.00% $181 100.00% </TABLE> Source: Offering
Circular
19
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
The preceding table (Table I.13) allocates the allowance for loan losses by
loan category at the dates indicated. The allocation of the allowance to each
category is not necessarily indicative of future losses and does not restrict
the use of the allowance to absorb losses in any other category.
Mortgage-Backed Securities and Investments
Table I.14 provides a breakdown of mortgage-backed securities and
investments as of December 31, 1997.
Table I.14 -- Investments
<TABLE>
<CAPTION>
December 31,1997 December 31,1996 December 31,1995
-------------------- -------------------- --------------------
Carrying Carrying Carrying
Value % of Total Value % of Total Value % of Total
-------- ---------- -------- ---------- -------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Securities Held to Maturity:
U.S. government securities -- 0.00% 1,017 12.90% 500 7.44%
Federal agency obligations 510 2.83% -- 0.00% 3,333 49.62%
Municipal bonds -- 0.00% 101 1.28% 101 1.50%
Securities Available for Sale:
U.S. government securities -- 0.00% -- 0.00% -- 0.00%
Federal agency obligations 17,536 97.17% 6,765 85.82% 2,783 41.43%
Municipal bonds -- 0.00% -- 0.00% -- 0.00%
18,046 100.00% 7,883 100.00% 6,717 100.00%
Other interest-earning assets:
Interest bearing deposits banks 2,611 32.08% 1,878 54.34% 2,227 63.12%
FHLB stock 944 11.60% 920 26.62% 793 22.48%
FHLMC stock 652 8.01% 626 18.11% 476 13.49%
US League Insurance stock 32 0.39% 32 0.93% 32 0.91%
Federal funds sold 3,900 47.92% -- 0.00% -- 0.00%
Total 8,139 100.00% 3,456 100.00% 3,528 100.00%
Mortgage-backed securities:
Held to Maturity
FNMA 79 13.76% 80 13.63% 81 6.63%
FHLMC -- 0.00% -- 0.00% 617 50.53%
79 13.76% 80 13.63% 698 57.17%
Available for Sale
FNMA -- 0.00% -- 0.00% -- 0.00%
FHLMC 495 86.24% 507 86.37% 523 42.83%
495 86.24% 507 86.37% 523 42.83%
Total 574 100.00% 587 100.00% 1,221 100.00%
</TABLE>
Source: Offering Circular
20
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
Table I.14a -- Contractual Maturities of the Bank's Securities
<TABLE>
<CAPTION>
At December 31, 1997
----------------------------------
Less Than 1 to 5 5 to 10 Total Securities
1 Year Years Years ----------------------
Book Value Book Value Book Value Book Value Fair Value
---------- ---------- ---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Federal Agency Obligations $301 $16,738 $1,000 $18,039 $18,063
Mortgage-backed Securities -- 587 -- 587 574
Total Investment Securities $301 $17,325 $1,000 $18,626 $18,637
Weighted Average Yield 5.36% 6.49% 6.60% 6.48%
</TABLE>
Source: Offering Circular
Table I.14 is notable for showing that as December 31, 1997, the portion of
the investment portfolio that was classified as "Held to Maturity" totaled $510
thousand or 2.83%% of investment securities. Investment securities that were
classified as "Available for Sale" totaled $17.54 million or 97.17% of the
securities portfolio. Total MBS' were only $574 thousand and 86.24% were
classified as "Available for Sale." At December 31, 1997, Franklin had no
trading securities. Having a large portion of all investments classified
"Available for Sale" enhances actual liquidity of the institution and provides
Management with the flexibility to properly manage the investment portfolio of
the Bank. All securities classified as "Available for Sale" are carried at their
fair value as of December 31, 1997. In addition, as of December 31, 1997, the
market value of the portfolio was $18.64 million (see Table I.14a.
Management has not committed a significant amount of its assets to
Mortgage-Backed Securities ("MBS's"). This is due mainly to the strong demand
for loans in the primary assessment area. The majority U.S. Government
securities and agencies have a maturity that is greater than one year but less
than five years. The deposits in domestic banks and Fed funds have maturities of
less than one year.
21
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
Table I.15 -- Deposit Portfolio
Deposits programs in the Bank at December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ------------------ ------------------
Percent Percent Percent
Amount Of Total Amount Of Total Amount Of Total
------ -------- ------ -------- ------ --------
(Dollars in Thousands)
Transaction & Savings Deposits
- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
Passbook accounts $ 18,126 16.08% $18,029 19.11% $17,913 20.17%
NOW accounts 9,033 8.01% 7,279 7.72% 7,741 8.72%
Money market accounts 7,840 6.95% 5,011 5.31% 6,000 6.76%
Total non-certificates 34,999 31.04% 30,319 32.14% 31,654 35.65%
Total Certificates 77,755 68.96% 64,020 67.86% 57,141 64.35%
Total Accounts $112,754 100.00% $94,339 100.00% $88,795 100.00%
</TABLE>
Source: Offering circular
Savings Deposit
The Bank offers a variety of deposit products that have a wide range of
interest rates and terms. As the general customer base continues to become more
sophisticated, Franklin is likely to become more susceptible to short-term
interest rate changes. The Bank experiences a higher cost of funds than its
peers, mainly due to its mix of transaction accounts and certificate accounts.
In addition, in the recent past, Franklin has been "paying up" for new accounts
(mainly certificates) and then lowering rates. They have been effective in
retaining a high percent of the accounts, after lowering the rates. The success
is noted, but the "paying up" portion of the equation has taken its toll on
profitability.
At December 31, 1997, Franklin's deposit portfolio of $112.75 million was
composed as follows: passbook savings--$18.12 million, or 16.08%; NOW
accounts--$9.03 million, or 8.01%%, and certificate accounts--$77.76 million, or
68.96%. Certificates totaling $58.66 million, or 75.44% of total certificates,
mature in less than one year.
22
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
Franklin has limited dependency on jumbo certificates of deposit. At
December 1997, the Bank had $11.76 million in certificates that were issued for
$100 thousand or more, or 10.43% of its total deposits (see Table I.16). The
jumbo dependency is not considered excessive.
Table I.16 -- Jumbo CD's at December 31, 1997
Time Deposits over $100,000 -- Maturity Schedules
Certificates of
Maturity Period Deposits
--------------- ---------------
Three months or less $ 3,144
Over three through six mo. 3,478
Over six through 12 months 2,991
Over 12 months 2,153
=======
$11,766
=======
Source: Offering circular
Borrowings
At December 31, 1997, Franklin was a member of FHLB of Chicago and had the
availability of advances from the FHLB. However, no advances were used. The Bank
did at December 31, 1997 have $3.9 million in Federal funds sold. Advances are
not being utilized at this time, but remain a viable alternative source of
funding to the Bank.
Subsidiaries
At December 31, 1997, Franklin had no subsidiaries.
Legal Proceedings
From time to time, Franklin becomes involved in legal proceedings
principally related to the enforcement of its security interest in real estate
loans. In the opinion of Management of the Bank, no legal proceedings are in
process or pending that would have a material effect on Franklin's financial
position, results of operations, or liquidity.
EARNINGS CAPACITY OF THE INSTITUTION
As in any interest sensitive industry, the interest rate environment will
affect the future earnings capacity of Franklin. Historically, the thrift
industry has performed at less profitable levels in periods of rising interest
rates. This performance is due principally to the general composition of the
assets and the limited repricing opportunities afforded even the adjustable rate
loans. The converse earnings situation (falling rates) does not afford the same
degree of profitability potential for thrifts due to the tendency of borrowers
to refinance both high rate loans, fixed rate loans, and adjustable loans as
rates decline.
Franklin is no exception to the aforementioned paradox. However, with its
current asset and liability structure, the effect of rising interest rates will
have less negative impact on earnings. Management's strategy of offering an
array of loan products that provide additional repricing opportunities through
the cash flow of payments or in the adjustability of rates will mitigate the
effects of interest rate risk, and help sustain the Bank's profitability.
23
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
The addition of capital through the conversion will allow Franklin to grow.
As growth is attained, the leverage of that new capital should, from a ratio of
expenses to total assets standpoint, reduce the operating expense ratio.
However, growth and additional leverage will likely be well controlled to
maintain the current acceptable risk levels inherent in the Bank's asset base.
Asset-Size-Efficiency of Asset Utilization
At its current size and in its current asset configuration, Franklin is an
efficient operation. With total assets of approximately $122.59 million,
Franklin has 31 full time equivalent employees. Franklin does not have the
infrastructure that will be needed to complete the changes now anticipated by
Management. Consequently, some employee growth is anticipated.
Intangible Values
Franklin's greatest intangible value lies in its loyal deposit base, its
loan portfolio, its excellent staff of officers and employees, and its history
of service to its community. Franklin has a 105-year history of sound
operations, well-managed growth, and earnings. The Bank currently has 5.53% of
the deposit market in its area, and it has the ability to increase market share
(see Table II.3 in Section II).
Franklin has no significant intangible values beyond a small amount of loan
service rights (valued at $212 thousand) that could be attributed to
unrecognized asset gains.
Effect of Government Regulations
Government regulations will have the greatest impact in the area of cost of
compliance and reporting. The Conversion will create an additional layer of
regulations and reporting, and thereby increase the cost to the Bank. Moreover,
no future plans currently exist to make additional acquisitions, purchase
additional branches, or complicate operations with matters that would add to
reporting and regulatory compliance. However, economic situations change, and if
an appropriate opportunity arises, it will be considered, and a proper request
will be made of the regulators, if necessary.
Office Facilities
Franklin's main office is an adequately maintained facility. Table I.17
provides information on all of the Bank's offices. The Bank's facilities are
currently adequate for the convenience and needs of the Bank's customer base.
Table I.17 -- Office Facilities and Locations
<TABLE>
<CAPTION>
Year Square Net Book Owned or
Physical address Opened Footage Value (1) Leased
- ---------------- ------ ------- --------- --------
($000's)
<S> <C> <C> <C> <C>
Main Office:
- ------------
14 North Dryden Avenue, Arlington Heights, IL 1977 8,345 $184 Leased
Branch Office:
- --------------
3148 Kirchoff Rd. Rolling Meadows, IL 1991 3,300 20 Leased
----
Total $204
</TABLE>
(1) Cost less accumulated depreciation and amortization of leasehold
improvements.
Source: Franklin's unaudited financial statement and the Offering Circular.
24
<PAGE>
SECTION II
MARKET AREA
<PAGE>
FERGUSON & COMPANY Section II.
- ------------------ -----------
II. MARKET AREA
DEMOGRAPHICS
Franklin operates from its main office located at 14 North Dryden Road in
Arlington Heights, Illinois. In addition to its home office, it has one branch
office that is located at 3148Kirchoff Road, Rolling Meadows, Illinois. Rolling
Meadows is contiguous to Arlington Heights and both are northwestern suburbs of
the City of Chicago, which is in the northeastern part of Illinois.
Franklin considers its primary Assessment Area to be the two Zip Codes in
which Arlington Heights and Rolling Meadows are located. These Zip Codes are
60004 and 60008. Table II.1 below, presents historical and projected trends for
the United States, Illinois, Cook County, Zip Code 60004, and Zip Code 60008.
The information addresses population, income, employment, and housing trends.
As indicated in Table II.1 below, the State of Illinois, Cook County, Zip
Code 60004, and Zip Code 60008 have experienced nominal growth rates in terms of
population, when compared to the growth rate of the United States. The State of
Illinois experienced a growth rate from 1990 to 1996 of 4.13%, which is lower
than the recorded growth rate of 6.67% for the United States. Within the trade
area, Cook County grew 0.61%, Zip Code 60004 grew 1.56% and Zip Code 60008 grew
3.03%. Future prospects are less than historical growth rates. Between 1996 and
2001, the State is expected to grow 3.18%; Cook County is expected to grow
0.49%, and the two Zip Codes are expected to grow 0.92% and 1.62%, respectively.
Growth rates between 1996 and 2001 are not as good as those recorded in the
previous six years, but the growth will continue, and is not considered bad for
an area that has been established for a considerable length of time.
Another important demographic factor about Franklin's Assessment Area is
the Household Income Estimates for 2001. The future prospects of this portion of
the economic indicators are dismal at first glance. All of the Assessment Area
of Franklin is anticipating a drop in Household Income. Cook County estimates a
decline of 6.36%, there is a 7.27% and a 7.07% decline expected for Zip codes
60004 and 60008, respectively. These economic predictions reflect the general
conditions that have occurred in other large metropolitan areas. Mitigating to
some degree the anticipated loss of Household Incomes is the fact that the
primary Assessment Area of the Bank, Zip Codes 60004 and 60008, has a
disproportionate amount of its population in the higher income categories. Zip
code 60004 has 59% of its population in households that have incomes in excess
of $50,000. Zip code 60008 has 48% of its population in the same categories.
Cook County has only 34% in those categories, the State of Illinois 33% and the
U.S. 30%. This clearly indicates that the anticipated reduction in Household
Incomes will not have as great an economic impact on Franklin's Assessment Area
as a 7.0% decrease in income would have in areas of more limited incomes.
1
<PAGE>
FERGUSON & COMPANY Section II.
- ------------------ -----------
Table II.1 -- Demographic Trends
Key Economic Indicators
United States, Illinois, Cook County, Zip Codes 60004, 60008
<TABLE>
<CAPTION>
United State County Zip Code Zip Code
Key Economic Indicator States Illinois Cook 60004 60008
- ---------------------- ------ -------- ------ -------- --------
<S> <C> <C> <C> <C> <C>
Total Population, 2001 Est. 278,802,003 12,281,535 5,161,249 55,342 19,689
1996-2001 Percent Change, Est. 5.09 3.18 0.49 0.92 1.62
Total Population, 1996 Est. 265,294,885 11,902,847 5,136,263 54,839 19,375
1990-96 Percent Change, Est. 6.67 4.13 0.61 1.56 3.03
Total Population, 1990 248,709,873 11,430,602 5,105,067 53,998 18,806
- ------------------------------------------------------------------------------------------------------
Household Income, 2001 Est. 33,189 34,009 34,136 52,715 44,814
1996-2001 Percent Change, Est. (3.88) (6.36) (7.15) (7.27) (7.07)
Household Income, 1996 Est. 34,530 36,318 36,764 56,850 48,221
- ------------------------------------------------------------------------------------------------------
Per Capita Income, 1990 16,738 17,337 18,013 25,206 22,231
- ------------------------------------------------------------------------------------------------------
Household Income Distribution-2001 Est. (%)
$15,000 and less 20 19 19 5 6
$15,000 - $25,000 16 15 14 7 9
$25,000 - $50,000 34 34 33 28 37
$50,000 - $100,000 24 26 26 43 38
$100,000 - $150,000 4 5 5 12 7
$150,000 and over 2 2 3 4 3
- ------------------------------------------------------------------------------------------------------
Unemployment rate, 1990 6.24 6.59 8.03 2.78 2.58
- ------------------------------------------------------------------------------------------------------
Median Age of Population, 1996 Est. 34.3 34.3 34.1 36.3 34.5
Median Age of Population, 1990 32.9 32.8 32.6 34.7 32.1
- ------------------------------------------------------------------------------------------------------
Average Housing Value, 1990 79,098 103,582 128,217 173,260 136,163
- ------------------------------------------------------------------------------------------------------
Total Households, 2001 Est. 103,293,062 4,527,174 1,911,022 20,369 7,229
1996-2001 Percent Change, Est. 5.14 3.20 0.65 1.04 1.77
Total Households, 1996 98,239,161 4,386,585 1,898,703 20,160 7,103
1990 - 96 Percent Change, Est. 6.84 4.39 1.02 1.90 3.42
Total Households, 1990 91,947,410 4,202,240 1,879,488 19,784 6,868
- ------------------------------------------------------------------------------------------------------
Total Housing Units, 1990 101,641,260 4,506,275 2,021,833 20,568 7,162
% Vacant 10.07 6.75 7.04 3.06 4.79
% Occupied 89.93 93.25 92.96 96.94 95.21
% By Owner 57.78 59.90 51.58 74.69 67.70
% By Renter 32.15 33.35 41.38 22.25 27.51
</TABLE>
Source: Scan/US, Inc.
2
<PAGE>
FERGUSON & COMPANY Section II.
- ------------------ -----------
Illinois is one of the East North Central states of the United States. It
is bordered on the north by Wisconsin, on the northeast by Lake Michigan, on the
east by Indiana, on the south by Kentucky, and on the West by Missouri and Iowa.
Springfield is the capital of Illinois. Chicago is the largest city. Illinois is
the 25th largest state in the United States. The population estimate for 1996 is
11,853,000. Early on, Illinois was predominately an agricultural state, but is
now one of the most industrialized states in the Union. Manufacturing is the
most important economic activity. Approximately 1,000,000 people in the State
are engaged in manufacturing. In addition to manufacturing as an important
source of income, there is also trade, tourism and other services, and
government.(1)
Important to any financial institution that is in the business of financing
the construction and purchase of homes is the growth in the number of
households. Table II.1 shows that the prospects for the establishment of new
households in the trade area are good. From 1990 until 1996, all of the area
discussed above experienced an increase in the number of households created.
Growth rates were modest. Cook County saw total households increase 1.02%, Zip
code 60004 increased 1.9%, and Zip Code 60008 had an increase of 3.42%. The
largest recorded increase was in Zip Code 60008. Future increases in the number
of households created between 1996 and 2001 are not expected to be as good as
the antecedent years between 1990 and 1996. Cook County household increases are
anticipated to be 0.65%, Zip code 60004 1.04%, and Zip code 60008 1.77%. Even
modest growth levels of households present an aggressive and well managed
financial institution with multiple lending opportunities. Some of the
opportunities are the construction of new houses and commercial buildings, the
financing of the purchase of these houses and commercial buildings, consumer
goods, such as autos, boats and RV's, plus the financing of new and existing
businesses.
When home ownership is compared to the United States and the State of
Illinois, all except one of the trade areas has a higher incidence of home
ownership than the United States and the State of Illinois. Occupancy rates can
also reflect the economic viability of an area. Franklin's Assessment Area has
occupancy levels that range from a low of 92.96% up to 96.94%.
The principal sources of employment in Franklin's assessment area are shown
in Table II.2 below. On average, the major sources of employment are
manufacturing, trade, and services. The Assessment Area shows significantly more
people engaging in manufacturing activity than the State. People engaged in
trade in the Assessment Area exceed those engaged in trade in the State.
Services, the third highest employment category in the Assessment Area, is below
that of the State. The manufacturing portion of the economic base contributes to
the generous measure of the local household incomes and gives some dimension to
the stability of the local economy.
- ----------
1 Illinois, Encarta 96 Encyclopedia
3
<PAGE>
FERGUSON & COMPANY Section II.
- ------------------ -----------
Table II.2 -- EMPLOYMENT BY INDUSTRY
As of September 1996
---------------------------------------
United State of Arlington
Employment by Industry (percent) States Illinois Heights
- -------------------------------- ------ -------- ---------
Construction/Agriculture/Mining 9.5% 7.5% 5.2%
Manufacturing 17.7% 16.7% 35.6%
Transportation/Utilities 7.1% 5.6% 4.3%
Trade 21.2% 22.5% 25.8%
Finance/Insurance 6.9% 7.2% 6.3%
Services 32.7% 26.7% 21.4%
Public Administration 4.9% 13.8% 1.4%
====== ====== ======
Total 100.0% 100.0% 100.0%
====== ====== ======
Source: State of Illinois, Department of Economic Development
This information gives rise to understanding the other demographic
information. With manufacturing, trade, and services employing such high
percentages of the population and contributing to the earnings of the citizenry,
the concentration of income in the upper and middle ranges is clearer.
Obviously, on average, the population within the Assessment Area of Franklin is
better employed than the State average. This should equate to continued economic
growth, albeit modest, which should translate into more home buyers, more
consumer goods being purchased, more businesses being started, and a growing,
stable economy.
In summary, the demographics of the Assessment Area are moderately good.
The area has and is expected to have an overall growth in population. This
growth in population is being accompanied with an anticipated increase in
household income that is creating a more stable per capita income and an
anticipated increase in the number of new households that will be created. These
factors, coupled with a strong tradition of home ownership in the area, should
translate into an increased number of housing units being built and a good
market for previously owned housing. Moreover, the economic stability of the
area should provide more than an average amount of business opportunity to
Franklin. The change in business strategy that allows Franklin to participate in
more than just the business benefits of increased home ownership, should produce
varied lending opportunities in the area of consumer loans, business loans,
construction loans, development loans, and other ancillary business stimulated
by the economic growth.
Based on information publicly available on deposits as of June 30, 1996
(see Table II.3), in the Assessment Area, there are $1.61 billion in total
deposits. Banks controlled $928.3 million, credit unions $101.2 million, and
other thrifts $492.5 million. As of that date, Franklin had 5.53% of the total
deposit market, or $89.1 million.
4
<PAGE>
FERGUSON & COMPANY Section II.
- ------------------ -----------
The Bank is not a major player in the total market area that is located
within the delineated market area. But it has been able to maintain market
share. The statistics reveal success and opportunities for the institution.
Additional capital infused by the Conversion will assist the Bank in becoming
more competitive.
Table II.3 -- Market Area Deposits
As of June 30,
----------------------------------------
1996 1995 1994
---------- ---------- ----------
(Dollars in Thousands)
Ben Franklin Bank -- Total $ 89,059 $ 86,008 $ 78,897
---------- ---------- ----------
Number of Offices 2 2 2
Other Savings Associations (1) $ 492,583 $ 554,185 $ 533,049
---------- ---------- ----------
Number of Branches 8 10 10
Total Savings Association Deposits $ 581,624 $ 640,193 $ 611,946
---------- ---------- ----------
Total Number of Branches 10 12 12
Total Credit Union Deposits (2) $ 101,223 $ 96,496 $ 95,428
---------- ---------- ----------
Total Number of Branches 6 6 6
Total Bank Deposits $ 928,294 $ 808,029 $ 697,968
---------- ---------- ----------
Total Number of Branches 17 15 13
Total Market Area Deposits $1,611,159 $1,544,718 $1,405,342
========== ========== ==========
Franklin - Market Share 5.53% 5.57% 5.61%
- ----------------------- ========== ========== ==========
(1) The decline in thrift deposits between 1995 and 1996 is mainly attributable
to the sale of deposits by thrift to a commercial bank.
(2) Excluded United Airlines Employees Credit Union.
Source: BranchSource, June 30, 1996, a product of Sheshunoff Information
Services.
Reviewing economic factors in its market area can assess growth
opportunities for Franklin. The salient factors include growth trends, economic
trends, and competition from other financial institutions. We have reviewed
these factors to assess the potential for the market area. In assessing the
growth potential of Franklin, we must also assess the willingness and
flexibility of Management to respond to the competitive factors that exist in
the market area. It is our analysis that the economic environment and the
potential of the area is excellent, moreover, we feel that the current
Management team can readily realize the potential afforded by the area's
economic base. Our analysis of the economic potential and the potential of
Management has a positive effect on the valuation of the institution.
5
<PAGE>
SECTION III
COMPARISON WITH PUBLICLY
TRADED THRIFTS
<PAGE>
FERGUSON & COMPANY Section III.
- ------------------ ------------
III. COMPARISON WITH PUBLICLY TRADED THRIFTS
COMPARATIVE DISCUSSION
This section presents an analysis of Franklin relative to a group of 11
publicly traded thrift institutions ("Comparative Group"). Such analysis is
necessary to determine the adjustments that must be made to the pro forma market
value of Franklin's stock. Table III.1 presents a listing of the comparative
group with general information about the group. Table III.2 presents key
financial indicators relative to profitability, balance sheet composition and
strength, and risk factors. Table III.3 presents a pro forma comparison of
Franklin to the comparative group. Exhibits III and IV contain selected
financial information on Franklin and the comparative group. This information is
derived from quarterly TFR's filed with the OTS. The selection criteria and
comparison with the Comparative Group are discussed below.
Selection Criteria
Ideally, the comparative group would consist of thrifts in the same
geographic region with identical local economies, asset size, capital level,
earnings performance, asset quality, etc. However, there are few comparably
sized institutions with stock that is liquid enough to provide timely,
meaningful market values. Therefore, we have selected a group of comparatives
that are listed on either the New York Stock Exchange ("NYSE"), the American
Stock Exchange ("AMEX"), or NASDAQ. We excluded companies that are apparent
takeover targets and companies with unusual characteristics that tend to distort
both mean and median calculations. For example, we have excluded all companies
with losses during the trailing 12 months (see Exhibit II.1).
The principal source of data was SNL Securities, Charlottesville, Virginia.
There are approximately 381 publicly traded thrifts listed on NYSE, AMEX, or
NASDAQ. In developing statistics for the entire country, we eliminated certain
institutions that skewed the results, in order to make the data more meaningful:
o We eliminated companies with losses,
o We eliminated indicated acquisition targets,
o We eliminated companies with price/earnings ratios in excess of 35,
and
o We eliminated companies that had not reported as a stock institution
for one complete year.
The resulting group of approximately 260 publicly traded thrifts is
included in Exhibit II.1.
Because of the limited number of similar size thrifts with sufficient
trading volume, we refined the search looking for members of the comparative
groups among thrifts with assets between $75 million and $200 million. We found
96 in the asset size. From that group we then eliminated the following:
o Merger Targets,
o Eliminated MHC's,
o Eliminated companies with no P/E ratio,
o Eliminated companies with P/E Ratio greater than 35,
o Eliminated companies with Tangible equity less than 12%, or greater
than 24%,
o Eliminated companies with non-performing assets greater than 1%,
o Eliminated companies with loans less than 70% of assets, and
o Eliminated companies with loan servicing greater than 20% of assets.
1
<PAGE>
FERGUSON & COMPANY Section III.
- ------------------ ------------
The result was a group of 11 thrifts. Normally, we consider 10 to be the
desired sample, but provided the extra comparative in case there are changes
before this Conversion is completed. See Exhibit VI.
The selected group of comparatives has sufficient trading volume to provide
meaningful price data. Five of the comparative group members are located in the
Midwest, four in the Mid-Atlantic, and two in the Southeast. Four of the group
are located in Indiana, two in Virginia, and one each in Missouri, Arkansas,
Maryland, North Carolina, and New York. With total assets of approximately
$122.6 million, Franklin is near the group selected, which has average assets of
$141.3 million and median assets of $152.8 million.
Profitability
Using the comparison of profitability components as a percentage of average
assets and using appraisal earnings compared to the group's core earnings,
Franklin was below the comparative group in return on assets, 0.56% to 1.12%.
Franklin was below the comparative group in other operating income, 0.16% to
0.32%, and net interest income, 2.73% to 3.57%; also below the group in
operating expense, 1.80% to 2.08%, after adjusting for non-recurring expenses.
After conversion, the deployment of proceeds will provide additional income.
Franklin will then compare more favorably to the comparative group with a return
of 0.71% ROAA, at the midpoint of the appraisal range. Pro forma return on
average equity is 4.66% at the midpoint, versus a mean of 7.01%, and median of
7.81% for the comparative group. After conversion, the employment of funds and
the growth of assets and liabilities will improve the profitability of this
institution.
Balance Sheet Characteristics
The general asset composition of the Franklin is very near that of the
comparative group. Franklin has a higher level of investments with 21.51% of its
assets invested in cash, investments, and mortgage-backed securities, versus
16.17% for the comparative group. In the investment portfolio, Franklin has
21.04% in cash and investment securities, and 0.47% in mortgage backed
securities. The comparative group has 11.18% in cash and investments, and 4.99%
in mortgage backed securities. Franklin has a lower percentage of its assets in
loans at 76.63%, versus 81.28% for the comparative group. The Bank's percentage
of interest earning assets to interest bearing liabilities is lower than that of
the group. Franklin has 108.07%, and the comparative group averages 116.18%.
Franklin is considered "Well Capitalized" with 6.36% of assets in equity
capital, and the comparative group has an average of 15.14% in equity to assets.
After conversion, and after the utilization of the capital infusion for earning
assets and supporting growth, Franklin's ratio will be closer to that of the
group of comparatives. Management plans to utilize the capital from the
Conversion to increase assets and liabilities, but does not plan to lower
lending and underwriting standards. Consequently, the capital will not be
completely utilized for some time, and the ROAE will be lower until the capital
can be leveraged.
The liability side differs mainly in that the Bank has no borrowings and a
higher percentage of deposits. The Bank funds its assets with 91.98% deposits,
expressed as a percentage of total assets. On the other hand, the comparative
group has deposits of 72.80% and borrowings of 10.91%. The comparison between
the Bank's capital level and that of the comparative group will improve after
conversion. After the Conversion, the Bank's equity to assets will be 14.57%, at
the midpoint. The average equity to assets of the comparative group is 15.14%,
and the median is 14.40%.
Risk Factors
Both Franklin and the comparative group have well-controlled levels of
non-performing assets, with the Bank being lower than the comparative group,
0.05% to 0.40% of assets. Franklin's loan loss allowance is 0.43% of gross
loans, which compares favorably with the comparative group's 0.52%. In the area
of interest rate risk and the implications of one-year gap assets, Franklin and
the comparative group are far
2
<PAGE>
FERGUSON & COMPANY Section III.
- ------------------ ------------
apart. Franklin has a negative one-year gap of 40.10%, and the group has a
positive 1.64%. Franklin's high level of interest rate risk is due mainly
because the Bank is still a fixed rate residential lender and is managing the
interest rate risk with liquid investments. The comparatives manage interest
rate risk with more adjustable loans. Both methods lower interest rate risk but
the former is more debilitating to profitability than the latter.
Summary of Financial Comparison
Based on the above discussion of operational, balance sheet, and risk
characteristics of Franklin compared with the group, we believe that Franklin's
performance is inferior to that of the comparative group. Moreover, the
profitability of Franklin is less sustainable due to the composition of the loan
portfolio and the presence of significant interest rate risk. The Bank's
appraisal profitability levels are lower than the comparative group; capital
levels are also lower than the comparative group. The conversion proceeds will
increase its capital levels near that of the comparatives, and will enhance
profitability.
FUTURE PLANS
Franklin's future plans are to remain an independent, well capitalized,
profitable institution with good asset quality, and a commitment to serving the
needs of its trade area, and emphasizing all types of lending. The new strategy,
which is reflected in the business plan, projects increased growth in commercial
real estate lending, commercial loans, consumer loans, and construction loans.
Management recognizes that it will take time to invest the proceeds of its
capital infusion in a manner consistent with its current lending and
underwriting policies. During that period of time, Management is willing to
accept a lower return on assets, as well as a lower return on equity capital.
Franklin has adhered to a measured-growth policy. In fact, the Bank has
experienced asset and liability growth in the last five years. That growth has
been supported by simultaneous growth in the equity accounts. The additional
capital raised by the sale of Common Stock will initially be used to purchase
short-term investment securities. The Bank will continue to utilize long term,
fixed rate loans, and will introduce additional loan products tailored to
shorten maturities and increase the net interest margins of the Bank. The Bank's
business plan projects that it will experience growth in loans, deposits, and
liquidity.
Franklin anticipates continued growth. It will continue to diversify the
assets of the institution. The additional capital and the continuation of the
holding company concept would make the acquisition of another institution or
branch a viable option, along with de novo branching. At this time there are no
plans for acquisition of institutions or new branches. If an economically viable
opportunity arises, proper approval will be sought from the regulatory agencies.
Increasing market penetration by increasing the number of services and
products available, coupled with expanded marketing efforts and improved
service, are the most likely methods to be employed to achieve growth.
3
<PAGE>
FERGUSON & COMPANY Section III.
- ------------------ ------------
Table III.1 -- Comparatives General Characteristics
<TABLE>
<CAPTION>
Total Current Current
Number Assets Stock Market
of ($000) Price Value
Ticker Short Name City State Offices Mst RctQ IPO Date ($) ($M)
- ------ ---------- ---- ----- ------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ALBC Albion Banc Corp. Albion NY 2 066,316 07/26/93 23.2500 06.012
AMFC AMB Financial Corp. Munster IN 4 100,003 04/01/96 17.6250 16.990
BFSB Bedford Bancshares Inc. Bedford VA 3 136,908 08/22/94 29.1250 33.270
CFFC Community Financial Corp. Staunton VA 4 182,879 03/30/88 30.2500 38.710
FBSI First Bancshares Inc. Mountain Grove MO 8 161,527 12/22/93 16.7500 36.970
FTF Texarkana First Financial Corp Texarkana AR 5 180,259 07/07/95 28.0000 49.270
HBS Haywood Bancshares Inc. Waynesville NC 4 152,796 12/18/87 22.2500 27.820
LOGN Logansport Financial Corp. Logansport IN 1 86,115 06/14/95 17.5000 22.070
NEIB Northeast Indiana Bancorp Huntington IN 3 190,319 06/28/95 21.1250 36.260
SFED SFS Bancorp Inc. Schenectady NY 4 174,428 06/30/95 23.7500 28.700
SOBI Sobieski Bancorp Inc. South Bend IN 3 87,553 03/31/95 21.2500 16.660
WHGB WHG Bancshares Corp. Lutherville MD 5 101,331 04/01/96 18.0000 25.000
Maximum 8 190,319 30.25 49.27
Minimum 1 86,115 16.75 16.66
Average 4 141,283 22.33 30.16
Median 4 152,796 21.25 28.70
</TABLE>
Source: SNL Securities and F&C calculations.
4
<PAGE>
FERGUSON & COMPANY Section III.
- ------------------ ------------
Table III.2 -- Key Financial Indicators
Comparative
Franklin Group
-------- -----------
Profitability
(% of average assets)
Net income 0.56(1) 1.12
Net interest income 2.73 3.57
Loss (recovery) provisions 0.13 0.07
Other operating income 0.16 0.32
Operating expense 1.80(2) 2.08
Core income (excluding gains
and losses on asset sales) 0.56 1.08
Balance Sheet Factors
(% of assets)
Cash and investments 21.04 11.18
Mortgage-backed securities 0.47 4.99
Loans 76.63 81.28
Savings deposits 91.98 72.80
Borrowings -- 10.91
Equity 6.36 15.14
Tangible equity 6.36 14.40
Risk Factors (%)
Earning assets/costing liabilities 108.07 116.18
Non-performing assets/assets 0.05 0.40
Loss allowance/non performing assets 618.46 278.66
Loss allowance/gross loans 0.43 0.52
One year gap/assets 40.10 1.64
(1) Based on Appraisal Earnings
(2) Adjusted for Non-recurring items.
Source: SNL Securities and F&C calculations.
5
<PAGE>
FERGUSON & COMPANY Section III.
- ------------------ ------------
Table III.3 -- Pro Forma Comparison
Converting Institution to Comparative Group
As of March 20, 1998
<TABLE>
<CAPTION>
Price Mk Value PE P/Book P/TBook P/Assets Div Yld Assets Eq/A TEq/A EPS ROAA ROAE
Ticker Name ($) ($Mil) (X) (%) (%) (%) (%) ($000) (%) (%) ($) (%) (%)
- ------ ---- ----- -------- --- ------ ------- -------- ------- ------ ---- ----- --- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Douglas
-------
Before Conversion N/A N/A N/A N/A N/A N/A N/A 122,591 6.36 6.36 N/A 0.56 3.91
Pro Forma Supermax 10.000 18.515 18.64 78.64 78.64 13.38 -- 138,334 17.02 17.02 0.54 0.76 4.25
Pro Forma Maximum 10.000 16.100 17.02 75.15 75.15 11.82 -- 136,209 15.72 15.72 0.59 0.74 4.45
Pro Forma Midpoint 10.000 14.000 15.48 71.54 71.54 10.42 -- 134,361 14.57 14.57 0.65 0.71 4.66
Pro Forma Minimum 10.000 11.900 13.79 67.15 67.15 8.98 -- 132,513 13.37 13.37 0.73 0.69 4.92
Comparative Group
-----------------
Averages 22.330 30.16 22.09 140.39 140.87 21.41 1.744 141,283 15.14 15.10 1.09 1.08 7.01
Medians 21.250 28.70 20.51 133.95 133.95 21.13 1.778 152,796 14.40 14.40 0.96 1.12 7.81
Illinois Public Thrifts
-----------------------
Averages 26.256 194.05 25.50 146.71 151.02 21.42 1.438 1,042,403 16.14 15.91 1.43 1.07 7.90
Medians 26.188 70.37 18.57 137.21 139.00 22.04 1.527 343,409 15.38 15.38 1.41 0.99 7.88
Midwest Region Thrifts
----------------------
Averages 23.900 139.61 21.91 166.78 171.15 20.48 1.741 707,107 13.38 13.19 1.18 1.01 8.54
Medians 21.625 42.70 20.80 147.77 149.55 19.57 1.600 223,558 11.84 11.58 1.09 0.94 7.69
All Public Thrifts
------------------
Averages 26.337 286.48 21.71 175.75 183.86 19.74 1.629 1,591,481 12.22 11.97 1.32 0.98 9.22
Medians 22.250 65.53 20.62 161.07 164.22 18.24 1.587 359,855 10.18 10.14 1.13 0.94 8.34
Comparative Group
-----------------
AMFC AMBFinancial-IN 17.625 16.99 24.82 114.97 114.97 16.99 1.589 100,003 14.77 14.77 0.71 0.71 4.39
BFSB BedfordBcshs-VA 29.125 33.27 20.51 159.33 159.33 24.30 1.923 136,908 14.52 14.52 1.42 1.19 8.34
CFFC CommunityFinl-VA 30.250 38.71 20.72 155.05 155.77 21.13 1.851 182,879 13.63 13.58 1.46 1.07 7.88
FBSI FirstBcshs-MO 16.750 36.97 20.18 157.42 157.42 22.67 0.597 161,527 14.40 14.40 0.83 1.12 8.06
FTF TexarkanaFirst-AR 28.000 49.27 16.09 180.41 180.41 27.34 2.000 180,259 15.15 15.15 1.74 1.71 10.91
HBS HaywoodBcshs-NC 22.250 27.82 14.26 128.39 132.92 18.21 2.697 152,796 14.18 13.77 1.56 1.37 9.41
LOGN LogansprtFinl-IN 17.500 22.07 18.23 133.38 133.38 25.62 2.286 86,115 19.21 19.21 0.96 1.53 7.81
NEIB NEIndianaBncp-IN 21.125 36.26 17.46 136.20 136.20 19.57 1.609 190,319 14.37 14.37 1.21 1.20 7.78
SFED SFSBancorp-NY 23.750 28.70 26.39 133.95 133.95 16.45 1.347 174,428 12.29 12.29 0.90 0.61 4.87
SOBI SobieskiBancorp-IN 21.250 16.66 32.20 119.72 119.72 18.55 1.506 87,553 14.39 14.39 0.66 0.61 3.95
WHGB WHGBancshares-MD 18.000 25.00 32.14 125.52 125.52 24.67 1.778 101,331 19.65 19.65 0.56 0.77 3.66
</TABLE>
Note: Stock prices are closing prices or last trade. Pro forma calculations for
Douglas are based on sales at $10 per share with a midpoint of $14,000,000,
minimum of $11,900,000, and maximum of $16,100,000.
Source: SNL Securities and F&C calculations.
6
<PAGE>
SECTION IV
CORRELATION OF MARKET VALUE
<PAGE>
FERGUSON & COMPANY Section IV.
- ------------------ -----------
IV. CORRELATION OF MARKET VALUE
MARKETABILITY & LIQUIDITY OF STOCK TO BE ISSUED
This section addresses the aforementioned factors and the estimated pro
forma market. Certain factors must be considered to determine whether
adjustments are required in correlating Franklin's market value to the
comparative group. Those factors include financial aspects, market area,
management, dividends, liquidity, thrift equity market conditions, and
subscription interest value of the to-be-issued common shares, and compares the
resulting market value of the Bank to the members of its comparative group and
the selected group of publicly held thrifts.
Financial Aspects
Section III includes a discussion regarding a comparison of Franklin's
earnings, balance sheet characteristics, and risk factors with its comparative
group. Table III.2 presents a comparison of certain key indicators, and Table
III.3 presents certain key indicators on a pro forma basis after conversion.
As shown in Table III.2, from an earnings viewpoint, Franklin is below its
comparative group in return on assets (based on appraisal earnings) as a
percentage of average assets. This is principally a result of Franklin's lower
net interest income and lower net interest margins. Another comparison is the
core earnings of Franklin to the comparative group. In that comparison Franklin
is lower than the comparative group in core earnings to assets (0.56% to 1.08%).
Franklin has a lower net interest income than the comparables, 2.73% to the
comparative group's 3.57%. Franklin has a higher loss provision than the
comparative group (0.13% vs. 0.07%). However, if you adjust Franklin's 0.13%
provision to a normal provision, the comparison would be 0.03% to 0.07%.
Franklin has a lower other operating income (0.16% vs. 0.32%) and lower
operating expenses than the comparative group, after adjustment for
non-recurring expenses (1.80% vs. 2.08%). After considering all of the
analytical factors, and adjusting to core earnings, Franklin has lower earnings,
but is similar in results to the comparative group. After Franklin completes its
stock conversion, its return on average assets and core income as a percentage
of average assets will increase, but it will continue to be out performed by the
comparative group. Table III.3 projects that Franklin will have a return on
assets of 0.71% at the midpoint, versus a mean of 1.08% and median of 1.12% for
the comparative group.
Franklin's pro forma equity to assets ratio at the midpoint is 14.57%,
versus a mean of 15.14%, and median of 14.40% for the comparative group.
Franklin's pro forma return on equity is lower than the comparative group--4.66%
at the midpoint versus a mean of 7.01% and median of 7.81% for the comparative
group.
Franklin's recorded earnings of December 31, 1997 have been adjusted for
appraisal purposes (see Table IV.1). The first adjustment was for losses on the
sale of real estate owned in the amount of $13 thousand, pretax. The Bank
recorded loan loss provisions of $150 thousand for the twelve months ending
December 31, 1997. Previous annual provisions had been in the $32 thousand to
$33 thousand range. This additional provision was not dictated by historical or
anticipated loses, but instead was an attempt to bring the reserves for loan and
lease losses nearer to the Bank's peer average. The excess provision was $117
thousand, pretax. The final adjustment to earnings was for $450 thousand,
pretax, which was an expense recorded to provide for a Directors' compensation
and retirement plan. The total adjustments made were $580 thousand pretax and
$349 after tax. The $349 thousand adjustment plus the recorded earning at
December 31, 1997 of $298 thousand produced appraisal earnings of $647 thousand.
1
<PAGE>
FERGUSON & COMPANY Section IV.
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Table IV.1 - Appraisal Earnings Adjustments
For the Twelve Months Ending December 31, 1997
(In Thousands)
Appraisal Earnings
Net Income Year
Ended December 31, 1997 $298
----
Loss on Sale of Real Estate 13
Excess Loss Provision 117
Dir. Comp & Ret. Plan 450
----
580
Tax @ 40% (231)
Net Adjustments 349
----
Adjusted Earnings $647
====
Source: Franklin's audited financial statements and F&C calculations.
Franklin's asset composition is lending oriented, with 76.63% of total
assets dedicated to lending. The comparative group is also lending oriented
(more than 50% of total assets are in loans); and the percentage of total assets
assigned to lending is 81.28%. The comparative group uses mortgage-backed
securities to augment loans (4.99%). Taking loans and MBS's as a total, Franklin
has 77.10% of total assets in that combination and the comparable group has
86.27%. Another area of significant difference in assets is in cash and
investments, where Franklin has 21.04% of its assets in that category and the
comparable group has 11.18%. Another notable difference in Franklin and the
comparative group is the funding source for the earnings assets, besides
capital. Franklin has a line of credit with the FHLB, but it was not in use for
much of 1997. Instead, assets are funded with deposits, which are 91.98% of
total assets. The comparative group has deposits of only 72.80% of assets and
borrowings of 10.91% of total assets.
From the viewpoint of risk, Franklin is similar to the comparative group
except in the area of interest rate risk. Franklin has 0.05% in nonperforming
assets, and the comparative group has 0.40% in nonperforming assets. Obviously,
Franklin's percentage is much smaller, but both levels are indicative of quality
portfolios, and neither should present any problems related to capital or future
earnings of Franklin or the comparative group. Franklin's loan loss allowance is
0.43% of net loans, comparing favorably with the comparative group, which is
0.52%. The increase in provisions for loan and lease losses recorded in the
quarter ending December 1997, was designed to bring the reserves to near peer
levels. Its ratio of interest earning assets to interest bearing liabilities
(108.07%) is much lower than the comparative group (116.18%). Franklin's
earnings ratios will be lower than the comparative group due to its dependency
on fixed rate, single family loans and the lack of repricing opportunities
within that portfolio. This dependency on fixed rate loans also increases the
level of interest rate risk borne by Franklin, compared to the comparative group
(one-year negative gap of 40.10% vs. positive 1.64% gap). Franklin's earnings
would be more sensitive to interest rate increases than the comparative group.
After the Conversion, Franklin's earnings capacity will increase due to the
capital infusion. The Bank's interest rate risk will decrease some after the
Conversion with the employment of the subsequent capital infusion.
2
<PAGE>
FERGUSON & COMPANY Section IV.
- ------------------ -----------
We believe that no adjustment is necessary relative to financial aspects of
Franklin.
Market Area
Section II describes Franklin's market area.
We believe that no adjustment is required for Franklin's market area.
Management
The CEO has served as President, CEO, and Director since 1997. He joined
the Bank in 1997, and has significant experience in financial institution
management. His background is in lending and in commercial banking. His skills
are needed if goals of the plan are to be reached. He is well qualified for the
position he holds.
The senior staff is qualified, and has the necessary intellect, skills,
levels of expertise, and experience to maintain the integrity of the assets and
to implement the strategic goals of the organization. The Board of Directors has
hired additional commercial lenders to help with the Bank's business plan
objectives. Franklin's results are well below the comparative group, but the
current management team was not in control for all of 1997. Therefore, the
Bank's Management is considered to be on the same level as the selected
comparatives. There is no management succession plan in effect. There is not
sufficient depth of management so that the Bank would be vulnerable to the loss
of the CEO.
We believe that no adjustment is required Franklin's Management.
Dividends
Table III.3 provides dividend information relative to the comparative group
and the thrift industry as a whole. The comparative group is paying a mean yield
on a market price of 1.744% and a median of 1.778%, while all public thrifts are
paying a mean of 1.629% and median of 1.587%. Illinois public thrifts are paying
a mean of 1.438% and a median of 1.527%. Franklin does not intend to pay a
dividend.
We believe that a downward adjustment is required relative to Franklin's
intention not to pay dividends.
Liquidity
The Holding Company has never issued capital stock to the public, and as a
result, there is no existing market for the Common Stock. Although the Holding
Company has applied to list its Common Stock on NASDAQ, there can be no
assurance that a liquid trading market will develop.
A public market having the desirable characteristics of depth, liquidity,
and orderliness depends upon the presence in the marketplace of both willing
buyers and sellers of the Common Stock. These characteristics are not within the
control of the Bank or the market.
The peer group includes companies with sufficient trading volume to develop
meaningful pricing characteristics for the stock. The market value of the
comparative group ranges from $16.66 million to $49.2 million, with a mean value
of $30.16 million. The midpoint of Franklin's valuation range is $14.0 million
at $10.00 a share, or 1,400,000 shares. The liquidity of the stock can be
affected by the size of the issue ($14.00 million at the midpoint at $10.00 per
share). Of the 1,400,000 shares in the offering, approximately 100,000 shares
will be purchased by insiders, 112,000 by the ESOP, leaving approximately
1,188,000 shares available to the market. This number of shares can produce the
trading volume necessary to develop a meaningful, liquid market.
We believe that no adjustment is required relative to the liquidity of
Franklin's stock.
3
<PAGE>
FERGUSON & COMPANY Section IV.
- ------------------ -----------
Thrift Equity Market Conditions
As shown in Figure IV.1, which is a graph of the SNL Thrift Index covering
from January 31, 1994, through March 20, 1998, the market, as reflected by the
Index, experienced fluctuations but ended in 1994 - down 13.74, which is only
5.3%. Since year-end 1994, the market has continued with a well-defined increase
and has moved from 244.7 at December 31, 1994, to 376.51 at December 29, 1995,
an increase of 53.84%. From that point, the SNL Index rose consistently from the
376.51 reported at December 31, 1995, to 486.63 at December 31, 1996. The Index
increased further until the end of February 1997, reaching 569.67. March 1997
brought the first retrenchment of the Index and it fell to 537.21 in April of
1997. From April 11, 1997, forward, the Index increased. By the end of the month
of April, the Index rebounded, and has rebounded robustly since then, increasing
from 537.21 at April 30, 1997, to 684.51 reported July 31, 1997. From July
through the first three week of October 1997, the market continued to climb.
Late October saw significant market adjustments. The market fell sharply then
started an unsure rise. The SNL Index fell from 773.33 at October 21, 1997, to
745.83 at October 28, 1997. At November 7, 1997, the Index had reclaimed some of
its loss and closed at 755.07. Since November 1997, the market posted an overall
gain. There have been incidents of downward adjustments, but the trend is
showing a rising market and has reached an all time high at March 20, 1998.
The increase in the SNL Index, in general, has been parallel with the other
increases in equity markets, with some interim fluctuations caused by changes or
anticipated changes in interest rates. However, another factor is also notable.
In other markets, increased prices are responding to improved profits, with
price earnings ratios increasing as earnings potentials are anticipated. The
thrift IPO market has been affected by speculation that the majority of the
institutions will become viable consolidation candidates and sell at some
expanded multiple of book value.
EFFECT OF INTEREST RATES ON THRIFT STOCK
The current interest rate environment and the anticipated rate environment
will affect the pricing of thrift stocks and all other interest sensitive
stocks. As the economy continues to expand, the fear of inflation can return.
The Federal Reserve, in its resolve to curb inflation, has increased rates in
the past, but has more recently relented and passed several opportunities to
increase rates, until March 25, 1997, when the Federal Open Market Committee
(FOMC) increased the discount rate 25 basis points. In some minds, this was an
attempt to head off inflationary trends. According to the FOMC, "This action was
taken in light of persisting strength in demand, which is progressively
increasing the risk of inflationary imbalances developing in the economy that
would eventually undermine the long expansion."1 This increase was clearly
telegraphed by Chairman Greenspan who voiced concern about the levels of the
equity markets. Following the March 25 increase, unemployment rates were
announced at the 5.2% level, down from the 5.5% level at the beginning of 1996,
and significantly down from the 6.7% level at the beginning of 1994.2 The good
news about unemployment gave way to speculation that the March 25 increase was
just the first of at least two or three increases. That speculation was given
some credence at that time by rises in the Employment Cost Index, an increase in
Unit Labor Cost and an upward trend in the price of crude oil. Current crude oil
prices have significantly decreased due to the lack of demand for oil in the
Pacific Rim area. By April 1, 1997, following the rate increase, the equities
markets lost all of the gains registered since the first of the year. By the end
of April 1997, the market had begun a rebound and has trended upward since then.
There have been specific days of price adjustment, but the overall trend is up
notwithstanding
- ----------
1 US Financial Data, March 20, 1998, published by the Research Division of
the Federal Reserve Bank of St. Louis, MO.
2 National Economic Trends, The Federal Reserve Bank of St. Louis, MO.
4
<PAGE>
FERGUSON & COMPANY Section IV.
- ------------------ -----------
recent dramatic ups and downs. Chairman Greenspan, in recent public appearances,
has not articulated concerns about market levels and inflation. Since the
significant market adjustment recorded October 21st, the Fed has publicized
inaction. The market reaction to the inaction has been mixed--generally regarded
as a neutral response.
The thrift equities market is following the market in general. However, the
thrift equities market will continue to be influenced by the speculation that
there will eventually be a buyout and the knowledge that thrift IPO stock can be
purchased at significant discounts from book value. These two facts could keep
the thrift equities market from falling as much as the other general markets.
The large mergers are likely to slow, but at the regional level, merger activity
is likely to continue.
What is likely to happen in the short to intermediate term is that rates
will float around current levels, but will be trending downward for the next few
months. By year-end, the long bond could be as low as 5.40%. The GDP is likely
to grow at the rate of 2.5% to 3.0%, with most of the growth coming in the first
half of the year. Inflation will moderate at between 1.5% and 2.0% for the year.
With the Federal Reserve always ready to raise (or lower) rates as economic
conditions warrant, it is likely that before this expansion cycle is over that
rates will ultimately rise. The supply and demand portion of the equation is
nicely balanced, and a continuation of such equilibrium will probably restrain
rising rates in the near term.
The consumer seems to be happier now than in the past. Job markets remain
strong and the unemployment rate is at 4.7%--the lowest since November of 1973.
Consumer confidence is at a 28 year high. Our continuing economic health has
always been dependent upon meaningful consumer participation, because consumers
(household sector) actually account for 68% of the Gross Domestic Product
("GDP").
In the second quarter of 1997, consumers seemed to rein in their
consumption. However, consumer expenditures rebounded nicely in the third
quarter. Manufacturing is still strong (new factory orders rose 2.4% in the
third quarter), as are home purchases and other big ticket items.
With consumer confidence at a high level, jobs plentiful, inflation
seemingly in check, and the economy healthy and continuing to expand, there is
little to keep the stock markets from continuing their upward movement. From an
analytical view, there is one thing on the economic horizon that could
negatively impact our economy--the Pacific Rim countries are in depression. Some
of these countries will resist or only pay "lip service" to the IMF
requirements. These economies only have one way out of their problems--exports.
They will begin to export at very low prices, and this will have a negative
impact on the United States corporate profits. Our corporate profits will be hit
from two directions with the Pacific Rim problems--(1) competition from cheap
exports, as we have discussed, coupled with (2) loss of exports (sales) by U. S.
companies due to the economic inability of the Pacific Rim customers to buy our
goods and services.
Thrift net interest margins have remained stable. The equilibrium in the
supply and demand portion of the interest rate market has helped continue the
profitability mode of the industry that started in 1993. Access to
mortgage-backed securities and derivatives have made it possible for many to be
profitable without making loans in significant volumes. With reduced deposit
insurance premiums, perhaps they will become more willing to compete for
customer deposits.
Figure IV.2 graphically displays the rate environment since June 13, 1997.
Since then, the yield curve has flattened with the high spread between the 1
year T-Bill and the 30 year long bond being 111 BP and the low 35 BP. The
current spread is 53 BP. Mortgage rates follow closely the long-term government
obligations.
5
<PAGE>
FERGUSON & COMPANY Section IV.
- ------------------ -----------
Franklin, with its significant interest rate risk, is highly vulnerable to
rising rates. However, such risk will be reduced by the additional capital
arising from the Conversion.
ILLINOIS ACQUISITIONS
Table IV.2 provides information relative to acquisitions of financial
institutions in Illinois between January 1, 1997, and December 31, 1997. There
were 20 acquisitions announced during that timeframe; 15 were banks and five
were thrifts. Currently, there are 11 publicly held thrifts in the State of
Illinois. There are 104 publicly held thrifts in the Midwest region of the
country. Acquisitions of financial institutions in Illinois completed since
January 1, 1997, have averaged 185.87% of book value and 20.46 times earnings.
The median price has been 181.52% of tangible book value and 17.42 times
earnings. Thrifts generally sell at lower price/book multiples than do banks.
This data reflects that banks averaged sales prices of 192.74% of book value,
while thrifts averaged 172.12%. Sales price/earnings ratios were lower for
banks, 18.33 times earnings vs. 24.28 times earnings for thrifts.
Disparity, or the lack thereof, between the price of thrifts and banks
aside, there is ample data shown to conclude that speculators in thrift IPO
stock have good reason to believe that, in the event of a sell out, there would
be a generous profit. Offsetting the disparity of sales price is the discount
from book value accorded thrift IPO stock. Such knowledge and hope for profits
have created a whole new level of professional investors (speculators) and that,
in turn, has increased the demand for thrift IPO stocks.
Table IV.3, which has information on recent conversions since August 31,
1997, shows that recent price appreciation has been more vigorous than it was in
past periods. Table IV.4 provides information on 15 conversions completed since
August 1997. The average change in price since conversion is a gain of 72.88%,
and the median change is a gain of 74.48%. All thrifts within that group have
increased in value, ranging from a low of 45.63% to a high of 128.75%. The
average increase in value at one day, one week, and one month after conversion
has been 57.93%, 58.18%, and 56.39%, respectively. The median increase in value
at one day, one week, and one month after conversion has been 56.25%, 60.00%,
and 59.90%, respectively. It is not uncommon for a stock to gain 75% to 80% of
its total price increase in the first day or week. Recent conversions gained
79.48% of their total price increase in the first day, and 79.82% of the total
price increase in the first week. This is in spite of the trend toward higher
price to pro forma book values at closings. Since August 31, 1997, no issues
have closed at a price to pro forma book value of less than 70.00%. The closing
range was between 70.70% and 81.50% price to pro forma book value.
Because of the lack of complete earnings information on recent conversions,
a meaningful comparison of the price earnings ratios is difficult to make.
However, there is sufficient information to review the current price-to-book
ratio. The average price-to-book ratio as of March 20, 1998, is 118.58%, and the
median is 115.88%. That compares to the offering price to pro forma book, where
the average was 77.31%, and the median was 77.80%.
We believe that a slight downward adjustment is required for the new issue
discount.
6
<PAGE>
FERGUSON & COMPANY Section IV.
- ------------------ -----------
Adjustments Conclusion
Adjustments Summary
- --------------------------------------------------------------------------------
No Change Upward Down
Financial Aspects X
Market Area X
Management X
Dividends X
Liquidity X
Thrift Equity Market Conditions X
- --------------------------------------------------------------------------------
Valuation Approach
Typically, investors rely on the price/earnings ratio as the most
appropriate indicator of value. We consider price/earnings to be one of the
important pricing methods in valuing a thrift stock. Price/book is a recognized
analytical yardstick for measuring the value of financial institution stocks in
general. Another method of viewing thrift values is price/assets, which is more
meaningful in situations where the subject is thinly capitalized. Given the
healthy condition of the thrift industry today, more emphasis is placed on
price/earnings and price/book. Generally, price/earnings and price/book should
be considered in tandem.
Table III.3 presents Franklin's pro forma ratios and compares them to the
ratios of its comparative group and the publicly held thrift industry as a
whole. Franklin's reported earnings for the 12 months ended December 31, 1997,
were approximately $298,000, with adjustments of $580,000 ($349,000 after tax @
40%) required to determine appraisal earnings of $647,000 (see Table IV.1).
Management has planned diversification of deposit and loan products; the changes
will help provide the flexibility in operations needed to serve the public, the
institution, and the "bottom line." The Bank is not well positioned to manage
interest rate variations and would have reduced profitability in a rising
interest rate market. The Bank projects a deposit growth rate of 18.40% for the
first year, 7.49% the second and 6.97% the third year.
At March 20, 1998, the comparative group traded at an average of 22.09
times earnings, and at 140.39% of book value. The comparative group traded at a
median of 20.51 times earnings and a median of 133.95% of book value. At the
midpoint of the valuation range, Franklin is priced at 15.48 times earnings and
71.54% of book value. At the maximum end of the range, Franklin is priced at
17.02 times earnings and 75.15% of book value. At the supermaximum, Franklin is
priced at 18.64 times earnings and 78.64% of book value.
The midpoint valuation of $14,000,000 represents a discount of 49.0% from
the average and a discount of 46.6% from the median of the comparative group on
a price/book basis. The price/earnings ratio for Franklin at the midpoint
represents a discount of 29.9% from the comparative group's mean and 24.5% from
the median price/earnings ratio.
The maximum valuation of $16,100,000 represents a discount of 46.5% from
the average and 43.9% from the median of the comparative group on a price/book
basis. The price/earnings ratio for Franklin at the maximum represents a
discount of 23.0% from the average and a discount of 17.0% from the median of
the comparative group.
7
<PAGE>
FERGUSON & COMPANY Section IV.
- ------------------ -----------
As shown in Table IV.3, conversions closing since August 31, 1997, (Recent
Conversions) have closed at an average price to book ratio of 77.31% and median
of 77.80%. Franklin's pro forma price to book ratio is 71.54% at the midpoint,
75.15% at the maximum, and 78.64% at the supermaximum of the range. At the
midpoint, Franklin is 7.5% below the average and 8.0% below the median. At the
maximum of the range, Franklin is 2.8% below the average and 3.4% below the
median. At the supermaximum of the range, Franklin's pro forma price to book
ratio is 1.7% above the average and 1.1% above the median.
Addressing the discounts between the pro forma book value of Franklin and
the current price to book values of the comparative group (see Table IV.4),
there are some notable factors. Should the issue close at the supermaximum,
which is likely, then it would be closing at a premium of 1.70% on the average
of recent conversions. It is important to realize that there is some point
beyond which most knowledgeable investors will not travel as it relates to the
price of thrift IPO stock. This valuation provides for a 15% increase between
midpoint and maximum and an additional 15% to supermaximum, which would take the
value to a level that is comparable to the majority of most recent conversions.
Valuation Conclusion
We believe that as of March 20, 1998, the estimated pro forma market value
of Franklin was $14,000,000. The resulting valuation range was $11,900,000 at
the minimum to $16,100,000 at the maximum, based on a range of 15% below and 15%
above the midpoint valuation. The supermaximum is $18,515,000, based on 1.15
times the maximum. Pro forma comparisons with the comparative group are
presented in Table III.3 based on calculations shown in Exhibit V.
8
<PAGE>
FERGUSON & COMPANY Section IV.
- ------------------ -----------
Table IV.2
Whole Bank and Thrift
Acquisitions in Illinois
<TABLE>
<CAPTION>
Seller: Seller: Ann'd
1:Total 1:Eqty/ Deal Pr/
Announce Assets Assets Assets
Buyer ST Seller ST TYPE Date ($000) (%) (%)
- -------------------- -- -------------------- -- ---- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Kankakee Bancorp IL Coal City Nat'l Bank IL B 10/16/97 54,346 6.9 14.35
Banc Ed Corp IL Omni Financial Corp IL B 08/22/97 44,283 7.3 16.03
Suburban Illinois IL Southwest Fin'l Corp IL B 06/26/97 206,706 9.2 NA
Community Financial IL MidAmerica Bank IL B 06/25/97 13,195 27.6 42.44
First Midwest Bncp IL SparBank, Inc. IL B 06/20/97 455,762 11.0 23.21
Community Financial IL Egyptian Bancshares IL B 05/22/97 40,707 12.8 NA
National Canton Bcsh IL Sturm Investment IL B 02/24/97 102,995 8.9 16.21
Edgar County Bcshrs IL Kansas Banc Corp IL B 02/21/97 30,046 9.6 15.13
Parkway Bancorp IL Jefferson Holding IL B 02/07/97 156,657 16.3 24.20
AmeriMark Financial IL Duco Bancshares IL B 01/21/97 48,979 9.8 NA
Coal City Corp IL U.S. Bancorp IL B 01/14/97 205,823 13.9 20.21
National City Bncs IN Vernois Bcshs IL B 12/02/97 149,729 7.5 NA
National City Bncs IN Illinois One Bncp IL B 11/06/97 81,397 13.1 NA
National City Bncs IN Bridgeport Bancorp IL B 04/21/97 40,040 15.9 33.72
State Fin'l Svcs Cp WI Richmond Bancorp IL B 09/18/97 86,453 5.6 12.15
Alliance Bncp IL Southwest Bancshares IL T 12/17/97 375,004 11.3 23.97
Citizens Finl Svcs IN SuburbFed Financial IL T 12/30/97 432,559 6.6 10.75
TCF Financial Corp MN Standard Financial IL T 03/17/97 2,405,221 11.2 17.60
Magna Group MO Charter Financial IL T 11/20/97 393,268 14.5 25.89
Mercantile Bancorp MO HomeCorp Inc. IL T 10/29/97 326,877 6.8 13.40
Maximum 2,405,221 27.61 42.44
Minimum 13,195 5.63 10.75
Average 282,502 11.29 20.62
Median 126,362 10.41 17.60
Banks
- ------------------------------------------------------------------------------------------------
Average-banks 114,475 11.69 21.77
Median-banks 81,397 9.77 18.21
- ------------------------------------------------------------------------------------------------
Thrifts
- ------------------------------------------------------------------------------------------------
Average-thrifts 786,586 10.08 18.32
Median-thrifts 393,268 11.15 17.60
- ------------------------------------------------------------------------------------------------
</TABLE>
Source: SNL Securities and F&C calculations.
9
<PAGE>
FERGUSON & COMPANY Section IV.
- ------------------ -----------
Table IV.2 (Continued)
Whole Bank and Thrift
Acquisitions in Illinois
<TABLE>
<CAPTION>
Ann'd Ann'd Ann'd Ann'd Seller: Seller:
Deal Deal Pr/ Deal TgBk Prem/ 1:YTD 1:YTD
Pr/Bk 4-Qtr Pr/Deps CoreDeps ROAA ROAE
Buyer ST Seller ST (%) EPS (x) (%) (%) (%) (%)
- -------------------- -- -------------------- -- ----- -------- ------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Kankakee Bancorp IL Coal City Nat'l Bank IL 206.95 15.66 15.48 8.43 1.19 17.63
Banc Ed Corp IL Omni Financial Corp IL 219.14 14.85 17.51 11.37 1.22 16.90
Suburban Illinois IL Southwest Fin'l Corp IL NA NA NA NA 0.75 8.63
Community Financial IL MidAmerica Bank IL 153.72 NA 58.98 23.13 (4.86) NA
First Midwest Bncp IL SparBank, Inc. IL 210.33 17.19 28.12 16.96 1.36 12.56
Community Financial IL Egyptian Bancshares IL NA NA NA NA 1.22 9.77
National Canton Bcsh IL Sturm Investment IL 181.52 12.29 19.25 9.12 1.28 13.47
Edgar County Bcshrs IL Kansas Banc Corp IL 147.32 16.44 17.39 7.42 0.83 9.13
Parkway Bancorp IL Jefferson Holding IL 141.26 14.78 29.76 15.55 1.63 10.60
AmeriMark Financial IL Duco Bancshares IL NA NA NA NA 1.58 16.74
Coal City Corp IL U.S. Bancorp IL 145.70 29.97 24.10 8.78 0.67 4.96
National City Bncs IN Vernois Bcshs IL NA NA NA NA 1.86 25.61
National City Bncs IN Illinois One Bncp IL NA NA NA NA 1.27 9.71
National City Bncs IN Bridgeport Bancorp IL 212.53 28.07 40.49 24.86 1.16 7.78
State Fin'l Svcs Cp WI Richmond Bancorp IL 308.91 15.74 13.06 10.94 (0.25) (3.94)
Alliance Bncp IL Southwest Bancshares IL 202.05 22.46 32.65 19.48 1.08 10.01
Citizens Finl Svcs IN SuburbFed Financial IL 158.33 17.65 14.77 6.34 0.66 10.13
TCF Financial Corp MN Standard Financial IL 150.78 33.33 24.62 9.97 0.53 4.45
Magna Group MO Charter Financial IL 167.00 22.02 37.13 19.79 1.44 9.90
Mercantile Bancorp MO HomeCorp Inc. IL 182.45 25.92 14.64 8.19 0.54 8.33
Maximum 308.91 33.33 58.98 24.86 1.86 25.61
Minimum 141.26 12.29 13.06 6.34 (4.86) (3.94)
Average 185.87 20.46 25.86 13.36 0.76 10.65
Median 181.52 17.42 24.10 10.94 1.18 9.90
Banks
- -----------------------------------------------------------------------------------------------------------
Average-banks 192.74 18.33 26.41 13.66 0.73 11.40
Median-banks 194.24 15.74 21.68 11.16 1.22 10.19
- -----------------------------------------------------------------------------------------------------------
Thrifts
- -----------------------------------------------------------------------------------------------------------
Average-thrifts 172.12 24.28 24.76 12.75 0.85 8.56
Median-thrifts 167.00 22.46 24.62 9.97 0.66 9.90
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Source: SNL Securities and F&C calculations.
10
<PAGE>
FERGUSON & COMPANY Section IV.
- ------------------ -----------
Table IV.3 -- Recent Conversions -- Since August 31, 1997
<TABLE>
<CAPTION>
Conversion Pricing Ratios
-------------------------------------------
Price/ Price/ Price/ Price/
Conversion Gross Offering Pro-Forma Pro-Forma Pro-Forma Adjusted
Assets Proceeds Price Book Value Tang. Book Earnings Assets
Ticker Short Name State IPO Date ($000) ($000) ($) (%) (%) (x) (%)
- ------ ----------------------------- ----- -------- ---------- -------- -------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHSB SHS Bancorp Inc. PA 10/01/97 81,688 8,200 10.000 70.70 70.73 13.90 9.10
OTFC Oregon Trail Financial Corp. OR 10/06/97 204,213 46,949 10.000 76.60 76.63 18.50 18.70
FSFF First SecurityFed Financial IL 10/31/97 258,115 66,580 10.000 76.50 76.49 26.00 20.50
HCBC High Country Bancorp Inc. CO 12/10/97 76,324 13,225 10.000 77.70 77.75 30.50 14.80
SIB Staten Island Bancorp Inc. NY 12/22/97 2,144,500 515,775 12.000 80.60 83.01 14.10 19.40
WSBI Warwick Community Bancorp NY 12/23/97 286,545 66,065 10.000 78.60 78.58 13.70 18.70
UCBC Union Community Bancorp IN 12/29/97 84,291 30,418 10.000 74.10 74.11 13.50 26.50
PEDE Great Pee Dee Bancorp SC 12/31/97 60,538 21,821 10.000 73.90 73.89 15.90 26.50
UTBI United Tennessee Bankshares TN 01/05/98 64,189 14,548 10.000 78.40 78.40 16.10 18.50
MYST Mystic Financial Inc. MA 01/09/98 149,653 27,111 10.000 77.80 77.75 17.50 15.30
TSBK Timberland Bancorp Inc. WA 01/13/98 206,188 66,125 10.000 81.50 81.54 10.50 24.30
HFBC HopFed Bancorp Inc. KY 02/09/98 202,496 40,336 10.000 75.40 75.43 12.40 16.60
RCBK Richmond County Financial Corp NY 02/18/98 993,370 244,663 10.000 79.60 79.64 14.00 19.80
ICBC Independence Comm. Bank Corp. NY 03/17/98 3,733,316 760,438 10.000 78.50 83.73 18.40 16.90
CAVB Cavalry Bancorp Inc. TN 03/17/98 275,925 75,383 10.000 79.80 79.80 14.30 21.50
-------------------------------------------
Maximum 3,733,316 760,438 12.000 81.50 83.73 30.50 26.50
Minimum 60,538 8,200 10.000 70.70 70.73 10.50 9.10
Average 588,090 133,176 10.133 77.31 77.83 16.62 19.14
Median 204,213 46,949 10.000 77.80 77.75 14.30 18.70
-------------------------------------------
</TABLE>
Table IV.3 -- Recent Conversions -- Since August 31, 1997 (Continued)
<TABLE>
<CAPTION>
Post Conversion Increases (Decreases)
-----------------------------------------------
Current Current Current Price Price Price % Increase % Increase % Increase % Increase
Stock Price/ Price/Tang Day After Week After Month After Price One Price One Price One Since
Price Book Value Book Value Conversion Conversion Conversion Day After Week After Month After Conversion
Ticker ($) (%) (%) ($) ($) ($) (%) (%) (%) (%)
- ------ ------- ---------- ---------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHSB 17.120 116.86 116.86 14.75 16.25 16.00 47.50 62.50 60.00 71.20
OTFC 18.375 119.78 119.78 16.75 16.38 16.13 67.50 63.75 61.25 83.75
FSFF 15.500 NA NA 15.06 15.13 16.06 50.63 51.25 60.63 55.00
HCBC 15.500 114.90 114.90 14.44 15.06 14.50 44.38 50.63 45.00 55.00
SIB 20.938 137.75 141.57 19.06 19.44 19.19 58.86 61.98 59.90 74.48
WSBI 17.625 NA NA 15.63 17.00 15.63 56.25 70.00 56.25 76.25
UCBC 15.500 109.85 109.85 14.69 14.25 14.25 46.88 42.50 42.50 55.00
PEDE 15.750 112.34 112.34 16.13 15.50 14.88 61.25 55.00 48.75 57.50
UTBI 14.563 NA NA 14.75 13.75 14.25 47.50 37.50 42.50 45.63
MYST 17.875 NA NA 14.44 15.63 15.00 44.38 56.25 50.00 78.75
TSBK 18.125 NA NA 14.50 16.00 16.00 45.00 60.00 60.00 81.25
HFBC 17.250 NA NA 16.81 16.00 16.75 68.13 60.00 67.50 72.50
RCBK 17.938 NA NA 16.31 16.44 17.88 63.13 64.38 78.75 79.38
ICBC 17.875 NA NA 17.25 17.88 NA 72.50 78.75 NA 78.75
CAVB 22.875 NA NA 19.50 NA NA 95.00 NA NA 128.75
-----------------------------------------------
Maximum 22.88 137.75 141.57 19.50 19.44 19.19 95.00 78.75 78.75 128.75
Minimum 14.56 109.85 109.85 14.44 13.75 14.25 44.38 37.50 42.50 45.63
Average 17.52 118.58 119.22 16.00 16.05 15.88 57.93 58.18 56.39 72.88
Median 17.63 115.88 115.88 15.63 16.00 16.00 56.25 60.00 59.90 74.48
-----------------------------------------------
</TABLE>
Source: SNL Securities and F&C calculations.
11
<PAGE>
FERGUSON & COMPANY Section IV.
- ------------------ -----------
Table IV.4 -- Comparison of Pricing Ratios
<TABLE>
<CAPTION>
Group Percent Premium
Compared to (Discount) Versus
Ben ----------------- -----------------
Franklin Average Median Average Median
-------- ------- ------ ------- ------
<S> <C> <C> <C> <C> <C>
Comparison of PE ratio at midpoint to:
- ------------------------------------------
Comparative group 15.48 22.09 20.51 (29.9) (24.5)
Illinois Thrifts 15.48 25.50 18.57 (39.3) (16.6)
Midwest 15.48 21.91 20.80 (29.3) (25.6)
All public thrifts 15.48 21.71 20.62 (28.7) (24.9)
Recent conversions 15.48 16.62 14.30 (6.9) 8.3
Comparison of PE ratio at maximum to:
- ------------------------------------------
Comparative group 17.02 22.09 20.51 (23.0) (17.0)
Illinois Thrifts 17.02 25.50 18.57 (33.3) (8.3)
Midwest 17.02 21.91 20.80 (22.3) (18.2)
All public thrifts 17.02 21.71 20.62 (21.6) (17.5)
Recent conversions 17.02 16.62 14.30 2.4 19.0
Comparison of PE ratio at supermaximum to:
- ------------------------------------------
Comparative group 18.64 22.09 20.51 (15.6) (9.1)
Illinois Thrifts 18.64 25.50 18.57 (26.9) 0.4
Midwest 18.64 21.91 20.80 (14.9) (10.4)
All public thrifts 18.64 21.71 20.62 (14.1) (9.6)
Recent conversions 18.64 16.62 14.30 12.2 30.3
Comparison of PB ratio at midpoint to:
- ------------------------------------------
Comparative group 71.54 140.39 133.95 (49.0) (46.6)
Illinois Thrifts 71.54 146.71 137.21 (51.2) (47.9)
Midwest 71.54 166.78 147.77 (57.1) (51.6)
All public thrifts 71.54 175.75 161.07 (59.3) (55.6)
Recent conversions 71.54 77.31 77.80 (7.5) (8.0)
Comparison of PB ratio at maximum to:
- ------------------------------------------
Comparative group 75.15 140.39 133.95 (46.5) (43.9)
Illinois Thrifts 75.15 146.71 137.21 (48.8) (45.2)
Midwest 75.15 166.78 147.77 (54.9) (49.1)
All public thrifts 75.15 175.75 161.07 (57.2) (53.3)
Recent conversions 75.15 77.31 77.80 (2.8) (3.4)
Comparison of PB ratio at supermaximum to:
- ------------------------------------------
Comparative group 78.64 140.39 133.95 (44.0) (41.3)
Illinois Thrifts 78.64 146.71 137.21 (46.4) (42.7)
Midwest 78.64 166.78 147.77 (52.8) (46.8)
All public thrifts 78.64 175.75 161.07 (55.3) (51.2)
Recent conversions 78.64 77.31 77.80 1.7 1.1
</TABLE>
Source: SNL Securities and F&C calculations.
12
<PAGE>
FIGURES FOR SECTION IV
13
<PAGE>
FERGUSON & COMPANY Section IV.
- ------------------ -----------
Figure I -- SNL Index
Date Index
- -----------------
31-Jan-94 258.47
28-Feb-94 249.53
31-Mar-94 241.57
29-Apr-94 248.31
31-May-94 263.34
30-Jun-94 269.58
29-Jul-94 276.69
31-Aug-94 287.18
30-Sep-94 279.69
31-Oct-94 236.12
30-Nov-94 245.84
30-Dec-94 244.73
31-Jan-95 256.10 [GRAPHIC OMITTED]
28-Feb-95 277.00
31-Mar-95 278.40
28-Apr-95 295.44
31-May-95 307.60
23-Jun-95 313.95 -------------------------------------------------------------
31-Jul-95 328.20 Percent Change Since
31-Aug-95 355.50 -------------------------------------------------------------
29-Sep-95 362.29 SNL Prev.
31-Oct-95 354.05 Date Index Date 12/31/94 12/31/95 12/31/96 11/7/97
30-Nov-95 370.17 ---- ----- ----- -------- -------- -------- -------
29-Dec-95 376.51 31-Dec-94 244.70
31-Jan-95 370.69 31-Mar-95 278.40 13.77% 13.77%
29-Feb-96 373.64 30-Jun-95 313.50 12.61% 28.12%
29-Mar-96 382.13 30-Sep-95 362.30 15.57% 48.06%
30-Apr-96 377.24 31-Oct-95 354.10 -2.26% 44.71%
31-May-96 382.99 30-Nov-95 370.20 4.55% 51.29%
28-Jun-96 387.18 31-Dec-95 376.50 1.70% 53.86%
30-Jul-96 388.38 12-Jan-96 372.40 -1.09% 52.19% -1.09%
30-Aug-96 408.34 31-Jan-96 370.70 -0.46% 51.49% -1.54%
30-Sep-96 429.28 29-Feb-96 373.60 0.78% 52.68% -0.77%
30-Oct-96 456.70 29-Mar-96 382.10 2.28% 56.15% 1.49%
29-Nov-96 485.83 30-Apr-96 377.20 -1.28% 54.15% 0.19%
31-Dec-96 486.63 31-May-96 382.99 1.53% 56.51% 1.72%
31-Jan-97 520.08 28-Jun-96 387.18 1.09% 58.23% 2.84%
27-Feb-97 569.67 30-Jul-96 371.62 -4.02% 51.87% -1.30%
31-Mar-97 527.74 30-Aug-96 408.34 9.88% 66.87% 8.46%
30-Apr-97 537.21 20-Sep-96 419.50 2.73% 71.43% 11.42%
30-May-97 577.94 30-Sep-96 429.28 2.33% 75.43% 14.02%
30-Jun-97 624.55 30-Oct-96 456.70 6.39% 86.64% 21.30%
30-Jul-97 684.51 29-Nov-96 485.83 6.38% 98.54% 29.04%
28-Aug-97 661.21 13-Dec-96 473.64 -2.51% 93.56% 25.80%
2-Sep-97 677.20 20-Dec-96 481.56 1.67% 96.80% 27.90%
12-Sep-97 698.55 31-Dec-96 486.63 1.05% 98.87% 29.25%
23-Sep-97 729.07 10-Jan-97 484.33 -0.47% 97.93% 28.64% -0.47%
30-Sep-97 737.50 31-Jan-97 520.08 7.38% 112.54% 38.14% 6.87%
9-Oct-97 766.19 14-Feb-97 547.17 5.21% 123.61% 45.33% 12.44%
21-Oct-97 773.33 27-Feb-97 569.67 4.11% 132.80% 51.31% 17.06%
28-Oct-97 745.83 14-Mar-97 560.67 -1.58% 129.13% 48.92% 15.21%
7-Nov-97 755.07 31-Mar-97 527.74 -5.87% 115.67% 40.17% 8.45%
20-Nov-97 763.40 15-Apr-97 525.48 -0.43% 114.74% 39.57% 7.98%
28-Nov-97 767.35 30-Apr-97 537.21 2.23% 119.54% 42.69% 10.39%
19-Dec-97 793.02 30-May-97 577.94 7.58% 136.18% 53.50% 18.76%
26-Dec-97 786.90 12-Jun-97 604.15 4.54% 146.89% 60.46% 24.15%
31-Dec-97 797.56 30-Jun-97 624.55 3.38% 155.23% 65.88% 28.34%
9-Jan-98 720.16 17-Jul-97 652.44 4.47% 166.63% 73.29% 34.07%
30-Jan-98 768.35 30-Jul-97 684.51 4.92% 179.73% 81.81% 40.66%
23-Feb-98 814.61 22-Aug-97 663.36 -3.09% 171.09% 76.19% 36.32%
6-Mar-98 823.58 28-Aug-97 661.21 -0.32% 170.21% 75.62% 35.88%
20-Mar-98 872.70 2-Sep-97 677.20 2.42% 176.75% 79.87% 39.16%
12-Sep-97 698.55 3.15% 185.47% 85.54% 43.55%
30-Sep-97 737.50 5.58% 201.39% 95.88% 51.55%
9-Oct-97 766.19 3.89% 213.11% 103.50% 57.45%
21-Oct-97 773.33 4.86% 216.03% 105.40% 58.92%
28-Oct-97 745.83 -3.56% 204.79% 98.10% 53.26%
7-Nov-97 755.07 1.24% 208.57% 100.55% 55.16%
20-Nov-97 763.40 1.10% 211.97% 102.76% 56.87% 1.10%
28-Nov-97 767.35 0.52% 213.59% 103.81% 57.69% 1.63%
19-Dec-97 793.02 3.35% 224.08% 110.63% 62.96% 5.03%
26-Dec-97 786.90 -0.77% 221.58% 109.00% 61.70% 4.22%
31-Dec-97 797.56 1.35% 225.93% 111.84% 63.89% 5.63%
9-Jan-98 720.16 -9.70% 194.30% 91.28% 47.99% -4.62%
30-Jan-98 768.35 6.69% 214.00% 104.08% 57.89% 1.76%
23-Feb-98 814.61 6.02% 232.90% 116.36% 67.40% 7.89%
6-Mar-98 823.58 1.10% 236.57% 118.75% 69.24% 9.07%
20-Mar-98 872.70 5.96% 256.64% 131.79% 79.34% 15.58%
-------------------------------------------------------------
Source: SNL Securities and F&C calculations.
14
<PAGE>
FERGUSON & COMPANY Section IV.
- ------------------ -----------
Figure II -- Interest Rates
- ------------------------------------------------------------- ----------
1 Year 5 Year 10 Year 30 Year 1 to 30
Fed Fds (*) T-bill Treas. Treas. Treas. Yr. Spread
- ------------------------------------------------------------- ----------
13-Jun-97 5.48 5.71 6.40 6.52 6.80
27-Jun-97 5.42 5.64 6.33 6.45 6.75 1.11
- ------------------------------------------------------------- ----------
18-Jul-97 5.44 5.53 6.14 6.23 6.52
1-Aug-97 5.57 5.47 6.00 6.11 6.38 0.91
- ------------------------------------------------------------- ----------
15-Aug-97 5.45 5.61 6.20 6.37 6.65
29-Aug-97 5.56 5.59 6.22 6.34 6.61 1.02
- ------------------------------------------------------------- ----------
12-Sep-97 5.48 5.59 6.23 6.34 6.64
26-Sep-97 5.45 5.46 6.00 6.08 6.36 0.90
- ------------------------------------------------------------- ----------
10-Oct-97 5.46 5.40 5.88 5.99 6.29
28-Oct-97 5.45 5.39 5.88 6.16 6.22 0.83
- ------------------------------------------------------------- ----------
14-Nov-97 5.50 5.43 5.81 5.88 6.12
28-Nov-97 5.49 5.50 5.82 5.86 6.06 0.56
- ------------------------------------------------------------- ----------
19-Dec-97 5.66 5.47 5.75 5.79 5.97
31-Dec-97 5.44 5.55 5.72 5.74 5.90 0.35
- ------------------------------------------------------------- ----------
16-Jan-98 5.45 5.17 5.32 5.45 5.74
30-Jan-98 5.53 5.27 5.48 5.63 5.89 0.62
- ------------------------------------------------------------- ----------
13-Feb-98 5.43 5.29 5.49 5.61 5.91
27-Feb-98 5.51 5.42 5.60 5.63 5.94 0.52
- ------------------------------------------------------------- ----------
13-Mar-98 5.45 5.36 5.57 5.62 5.93
20-Mar-98 5.47 5.36 5.54 5.57 5.89 0.53
- ------------------------------------------------------------- ----------
(*) Average of Rates Available
INREREST RATES FROM JUNE 13, 1997 TO MARCH 20, 1998
[GRAPHIC OMITTED]
- ------------------------------------------------------------- ----------
1 Year 5 Year 10 Year 30 Year 1 to 30
Fed Fds (*) T-bill Treas. Treas. Treas. Yr. Spread
- ------------------------------------------------------------- ----------
20-Mar-98 5.47 5.36 5.54 5.57 5.89 0.53
- ------------------------------------------------------------- ----------
CURRENT YIELD CURVE
[GRAPHIC OMITTED]
(*) Average of Rates Available
Source: US Financial Data, Federal Reserve Bank of St. Louis, MO
15
<PAGE>
EXHIBITS
<PAGE>
EXHIBIT I
<PAGE>
FERGUSON & COMPANY QUALIFICATIONS
Ferguson & Company (F&C) is a financial, economic, and regulatory
consulting firm providing services to financial institutions. It is located in
Hurst, Texas. Its services to financial institutions include:
o Mergers and acquisition services,
o Business plans,
o Fairness opinions and conversion appraisals,
o Litigation support,
o Loan review and valuation,
o Operational and efficiency consulting,
o Human resources evaluation and management, and
o Regulatory consulting.
F&C developed several financial institution databases of information
derived from periodic financial reports filed with regulatory authorities by
financial institutions. For example, F&C developed TAFS and BankSource. TAFS
includes thrifts filing TFR's with the OTS and BankSource includes banks and
savings banks filing call reports with the FDIC. Both databases of information
include information from the periodic reports plus numerous calculations derived
from F&C's analysis. In addition, both databases are interactive, permitting the
user to conduct merger analysis, do peer group comparisons, and a number of
other items. F&C recently sold its electronic publishing segment to Sheshunoff
Information Services Inc., Austin, Texas.
Brief biographical information is presented below on F&C's principals:
WILLIAM C. FERGUSON
- -------------------
Mr. Ferguson has approximately 30 years of experience providing various services
to financial institutions. He was a partner in a CPA firm prior to founding F&C
in 1984. Mr. Ferguson is a frequent speaker for financial institution seminars
and he has testified before Congressional Committees several times on his
analysis of the state of the thrift industry. Mr. Ferguson has a B.A. degree
from Austin Peay University and an M.S. degree from the University of Tennessee.
He is a CPA.
1
<PAGE>
CHARLES M. HEBERT
- -----------------
Mr. Hebert has over 30 years of experience providing services to and managing
financial institutions. He spent 7 years as a national bank examiner, 14 years
in bank management, 5 years in thrift management, and has spent the last 7 years
on the F&C consulting staff. Mr. Hebert holds a B.S. degree from Louisiana State
University. He is a certified commercial lender.
ROBIN L. FUSSELL
- ----------------
Mr. Fussell has over 25 years of experience providing professional services to
and managing financial institutions. He worked on the audit staff of a "Big Six"
accounting firm for 12 years, served as CFO of a thrift for 3 years, and has
worked in financial institution consulting for the last 12 years. He is a
co-founder of F&C. He holds a B.S. degree from East Carolina University. He is a
CPA.
2
<PAGE>
EXHIBIT II
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit II.1 -- Select Publicly Held Thrifts
<TABLE>
<CAPTION>
Deposit Current
Insurance Stock
Agency Price
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($)
- ------ ---------- ---- ----- ------ ---------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AABC Access Anytime Bancorp Inc. Clovis NM SW SAIF NASDAQ 08/08/86 10.813
ABBK Abington Bancorp Inc. Abington MA NE BIF NASDAQ 06/10/86 20.875
ABCL Alliance Bancorp Inc. Hinsdale IL MW SAIF NASDAQ 07/07/92 28.750
ABCW Anchor BanCorp Wisconsin Madison WI MW SAIF NASDAQ 07/16/92 44.500
AFBC Advance Financial Bancorp Wellsburg WV SE SAIF NASDAQ 01/02/97 19.875
AFED AFSALA Bancorp Inc. Amsterdam NY MA SAIF NASDAQ 10/01/96 20.000
AHCI Ambanc Holding Co. Amsterdam NY MA BIF NASDAQ 12/27/95 19.125
ALBC Albion Banc Corp. Albion NY MA SAIF NASDAQ 07/26/93 10.766
ALBK ALBANK Financial Corp. Albany NY MA SAIF NASDAQ 04/01/92 49.250
AMFC AMB Financial Corp. Munster IN MW SAIF NASDAQ 04/01/96 17.625
ANA Acadiana Bancshares Inc. Lafayette LA SW SAIF AMSE 07/16/96 22.125
ANDB Andover Bancorp Inc. Andover MA NE BIF NASDAQ 05/08/86 40.063
ASBI Ameriana Bancorp New Castle IN MW SAIF NASDAQ 03/02/87 20.500
ASBP ASB Financial Corp. Portsmouth OH MW SAIF NASDAQ 05/11/95 14.250
ASFC Astoria Financial Corp. Lake Success NY MA SAIF NASDAQ 11/18/93 61.875
BDJI First Federal Bancorp. Bemidji MN MW SAIF NASDAQ 04/04/95 20.000
BFD BostonFed Bancorp Inc. Burlington MA NE SAIF AMSE 10/24/95 22.188
BFSB Bedford Bancshares Inc. Bedford VA SE SAIF NASDAQ 08/22/94 29.125
BKC American Bank of Connecticut Waterbury CT NE BIF AMSE 12/01/81 52.625
BKCT Bancorp Connecticut Inc. Southington CT NE BIF NASDAQ 07/03/86 20.000
BNKU Bank United Corp. Houston TX SW SAIF NASDAQ 08/09/96 48.375
BPLS Bank Plus Corp. Los Angeles CA WE SAIF NASDAQ NA 15.250
BVCC Bay View Capital Corp. San Mateo CA WE SAIF NASDAQ 05/09/86 35.750
CAFI Camco Financial Corp. Cambridge OH MW SAIF NASDAQ NA 26.375
CASB Cascade Financial Corp. Everett WA WE SAIF NASDAQ 09/16/92 14.750
CASH First Midwest Financial Inc. Storm Lake IA MW SAIF NASDAQ 09/20/93 22.875
CATB Catskill Financial Corp. Catskill NY MA BIF NASDAQ 04/18/96 17.875
CBCI Calumet Bancorp Inc. Dolton IL MW SAIF NASDAQ 02/20/92 36.750
CBSA Coastal Bancorp Inc. Houston TX SW SAIF NASDAQ NA 32.875
CEBK Central Co-operative Bank Somerville MA NE BIF NASDAQ 10/24/86 32.250
CENB Century Bancorp Inc. Thomasville NC SE SAIF NASDAQ 12/23/96 115.750
CFB Commercial Federal Corp. Omaha NE MW SAIF NYSE 12/31/84 35.250
CFCP Coastal Financial Corp. Myrtle Beach SC SE SAIF NASDAQ 09/26/90 22.000
CFFC Community Financial Corp. Staunton VA SE SAIF NASDAQ 03/30/88 30.250
CFNC Carolina Fincorp Inc. Rockingham NC SE SAIF NASDAQ 11/25/96 17.313
CFSB CFSB Bancorp Inc. Lansing MI MW SAIF NASDAQ 06/22/90 29.125
CFTP Community Federal Bancorp Tupelo MS SE SAIF NASDAQ 03/26/96 18.625
CIBI Community Investors Bancorp Bucyrus OH MW SAIF NASDAQ 02/07/95 18.000
CKFB CKF Bancorp Inc. Danville KY MW SAIF NASDAQ 01/04/95 20.500
CLAS Classic Bancshares Inc. Ashland KY MW SAIF NASDAQ 12/29/95 20.250
CMRN Cameron Financial Corp Cameron MO MW SAIF NASDAQ 04/03/95 20.250
CMSB Commonwealth Bancorp Inc. Norristown PA MA SAIF NASDAQ 06/17/96 21.000
CNIT CENIT Bancorp Inc. Norfolk VA SE SAIF NASDAQ 08/06/92 79.000
CNSB CNS Bancorp Inc. Jefferson City MO MW SAIF NASDAQ 06/12/96 18.250
COFI Charter One Financial Cleveland OH MW SAIF NASDAQ 01/22/88 65.625
COOP Cooperative Bankshares Inc. Wilmington NC SE SAIF NASDAQ 08/21/91 19.750
CRSB Crusader Holding Corp. Philadelphia PA MA SAIF NASDAQ NA 15.500
CRZY Crazy Woman Creek Bancorp Buffalo WY WE SAIF NASDAQ 03/29/96 17.250
CSBF CSB Financial Group Inc. Centralia IL MW SAIF NASDAQ 10/09/95 13.750
CVAL Chester Valley Bancorp Inc. Downingtown PA MA SAIF NASDAQ 03/27/87 35.250
DCBI Delphos Citizens Bancorp Inc. Delphos OH MW SAIF NASDAQ 11/21/96 21.250
DIBK Dime Financial Corp. Wallingford CT NE BIF NASDAQ 07/09/86 30.250
DIME Dime Community Bancorp Inc. Brooklyn NY MA BIF NASDAQ 06/26/96 24.125
DME Dime Bancorp Inc. New York NY MA BIF NYSE 08/19/86 29.875
DNFC D & N Financial Corp. Hancock MI MW SAIF NASDAQ 02/13/85 27.750
DSL Downey Financial Corp. Newport Beach CA WE SAIF NYSE 01/01/71 32.063
EBSI Eagle Bancshares Tucker GA SE SAIF NASDAQ 04/01/86 21.375
EFBC Empire Federal Bancorp Inc. Livingston MT WE SAIF NASDAQ 01/27/97 18.000
EFBI Enterprise Federal Bancorp West Chester OH MW SAIF NASDAQ 10/17/94 33.000
</TABLE>
Source: SNL Securities and F&C calculations.
1
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit II.1 -- Select Publicly Held Thrifts (Continued)
<TABLE>
<CAPTION>
Deposit Current
Insurance Stock
Agency Price
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($)
- ------ ---------- ---- ----- ------ ---------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EMLD Emerald Financial Corp. Strongsville OH MW SAIF NASDAQ 10/05/93 22.000
EQSB Equitable Federal Savings Bank Wheaton MD MA SAIF NASDAQ 09/10/93 31.500
ESBK Elmira Savings Bank (The) Elmira NY MA BIF NASDAQ 03/01/85 28.656
FAB FIRSTFED AMERICA BANCORP INC. Swansea MA NE SAIF AMSE 01/15/97 20.250
FBBC First Bell Bancorp Inc. Pittsburgh PA MA SAIF NASDAQ 06/29/95 21.000
FBCI Fidelity Bancorp Inc. Chicago IL MW SAIF NASDAQ 12/15/93 25.000
FBCV 1ST Bancorp Vincennes IN MW SAIF NASDAQ 04/07/87 27.250
FBER 1st Bergen Bancorp Wood-Ridge NJ MA SAIF NASDAQ 04/01/96 20.750
FBSI First Bancshares Inc. Mountain Grove MO MW SAIF NASDAQ 12/22/93 16.750
FCB Falmouth Bancorp Inc. Falmouth MA NE BIF AMSE 03/28/96 23.625
FCBF FCB Financial Corp. Oshkosh WI MW SAIF NASDAQ 09/24/93 32.250
FCME First Coastal Corp. Westbrook ME NE BIF NASDAQ NA 13.750
FDEF First Defiance Financial Defiance OH MW SAIF NASDAQ 10/02/95 15.375
FED FirstFed Financial Corp. Santa Monica CA WE SAIF NYSE 12/16/83 39.875
FESX First Essex Bancorp Inc. Andover MA NE BIF NASDAQ 08/04/87 24.625
FFBH First Federal Bancshares of AR Harrison AR SE SAIF NASDAQ 05/03/96 26.250
FFBZ First Federal Bancorp Inc. Zanesville OH MW SAIF NASDAQ 07/13/92 25.000
FFCH First Financial Holdings Inc. Charleston SC SE SAIF NASDAQ 11/10/83 51.750
FFDB FirstFed Bancorp Inc. Bessemer AL SE SAIF NASDAQ 11/19/91 23.750
FFED Fidelity Federal Bancorp Evansville IN MW SAIF NASDAQ 08/31/87 9.375
FFES First Federal of East Hartford East Hartford CT NE SAIF NASDAQ 06/23/87 40.000
FFFD North Central Bancshares Inc. Fort Dodge IA MW SAIF NASDAQ 03/21/96 22.438
FFHH FSF Financial Corp. Hutchinson MN MW SAIF NASDAQ 10/07/94 20.000
FFHS First Franklin Corp. Cincinnati OH MW SAIF NASDAQ 01/26/88 26.500
FFIC Flushing Financial Corp. Flushing NY MA BIF NASDAQ 11/21/95 24.500
FFKY First Federal Financial Corp. Elizabethtown KY MW SAIF NASDAQ 07/15/87 21.484
FFLC FFLC Bancorp Inc. Leesburg FL SE SAIF NASDAQ 01/04/94 19.750
FFOH Fidelity Financial of Ohio Cincinnati OH MW SAIF NASDAQ 03/04/96 18.000
FFSL First Independence Corp. Independence KS MW SAIF NASDAQ 10/08/93 15.000
FFSX First Fed SB of Siouxland(MHC) Sioux City IA MW SAIF NASDAQ 07/13/92 35.750
FFWC FFW Corp. Wabash IN MW SAIF NASDAQ 04/05/93 19.000
FFWD Wood Bancorp Inc. Bowling Green OH MW SAIF NASDAQ 08/31/93 20.000
FFYF FFY Financial Corp. Youngstown OH MW SAIF NASDAQ 06/28/93 34.375
FGHC First Georgia Holding Inc. Brunswick GA SE SAIF NASDAQ 02/11/87 10.750
FIBC Financial Bancorp Inc. Long Island City NY MA SAIF NASDAQ 08/17/94 25.750
FISB First Indiana Corp. Indianapolis IN MW SAIF NASDAQ 08/02/83 27.000
FKFS First Keystone Financial Media PA MA SAIF NASDAQ 01/26/95 17.000
FKKY Frankfort First Bancorp Inc. Frankfort KY MW SAIF NASDAQ 07/10/95 16.750
FLAG FLAG Financial Corp. LaGrange GA SE SAIF NASDAQ 12/11/86 19.875
FLFC First Liberty Financial Corp. Macon GA SE SAIF NASDAQ 12/06/83 34.000
FLGS Flagstar Bancorp Inc. Bloomfield Hills MI MW SAIF NASDAQ NA 23.375
FLKY First Lancaster Bancshares Lancaster KY MW SAIF NASDAQ 07/01/96 15.125
FMCO FMS Financial Corp. Burlington NJ MA SAIF NASDAQ 12/14/88 34.750
FMSB First Mutual Savings Bank Bellevue WA WE BIF NASDAQ 12/17/85 18.250
FNGB First Northern Capital Corp. Green Bay WI MW SAIF NASDAQ 12/29/83 13.500
FSBI Fidelity Bancorp Inc. Pittsburgh PA MA SAIF NASDAQ 06/24/88 30.750
FSNJ Bayonne Bancshares Inc. Bayonne NJ MA SAIF NASDAQ 08/22/97 14.813
FSPT FirstSpartan Financial Corp. Spartanburg SC SE SAIF NASDAQ 07/09/97 44.000
FSTC First Citizens Corp. Newnan GA SE SAIF NASDAQ 03/01/86 32.000
FTF Texarkana First Financial Corp Texarkana AR SE SAIF AMSE 07/07/95 28.000
FTFC First Federal Capital Corp. La Crosse WI MW SAIF NASDAQ 11/02/89 31.500
FTSB Fort Thomas Financial Corp. Fort Thomas KY MW SAIF NASDAQ 06/28/95 15.250
FWWB First SB of Washington Bancorp Walla Walla WA WE SAIF NASDAQ 11/01/95 27.000
GAF GA Financial Inc. Pittsburgh PA MA SAIF AMSE 03/26/96 19.000
GDW Golden West Financial Oakland CA WE SAIF NYSE 05/29/59 97.813
GFCO Glenway Financial Corp. Cincinnati OH MW SAIF NASDAQ 11/30/90 20.000
GPT GreenPoint Financial Corp. New York NY MA BIF NYSE 01/28/94 37.063
GSBC Great Southern Bancorp Inc. Springfield MO MW SAIF NASDAQ 12/14/89 25.750
GSFC Green Street Financial Corp. Fayetteville NC SE SAIF NASDAQ 04/04/96 17.875
GTPS Great American Bancorp Champaign IL MW SAIF NASDAQ 06/30/95 21.000
</TABLE>
Source: SNL Securities and F&C calculations.
2
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit II.1 -- Select Publicly Held Thrifts (Continued)
<TABLE>
<CAPTION>
Deposit Current
Insurance Stock
Agency Price
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($)
- ------ ---------- ---- ----- ------ ---------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GUPB GFSB Bancorp Inc. Gallup NM SW SAIF NASDAQ 06/30/95 22.000
HALL Hallmark Capital Corp. West Allis WI MW SAIF NASDAQ 01/03/94 15.500
HARB Harbor Florida Bancorp (MHC) Fort Pierce FL SE SAIF NASDAQ 01/06/94 75.500
HARL Harleysville Savings Bank Harleysville PA MA SAIF NASDAQ 08/04/87 30.250
HAVN Haven Bancorp Inc. Woodhaven NY MA SAIF NASDAQ 09/23/93 24.625
HBFW Home Bancorp Fort Wayne IN MW SAIF NASDAQ 03/30/95 36.625
HBNK Highland Bancorp Inc. Burbank CA WE SAIF NASDAQ NA 36.500
HBS Haywood Bancshares Inc. Waynesville NC SE BIF AMSE 12/18/87 22.250
HCFC Home City Financial Corp. Springfield OH MW SAIF NASDAQ 12/30/96 18.625
HFFB Harrodsburg First Fin Bancorp Harrodsburg KY MW SAIF NASDAQ 10/04/95 16.563
HFFC HF Financial Corp. Sioux Falls SD MW SAIF NASDAQ 04/08/92 29.500
HFNC HFNC Financial Corp. Charlotte NC SE SAIF NASDAQ 12/29/95 13.500
HFSA Hardin Bancorp Inc. Hardin MO MW SAIF NASDAQ 09/29/95 18.875
HHFC Harvest Home Financial Corp. Cheviot OH MW SAIF NASDAQ 10/10/94 15.063
HIFS Hingham Instit. for Savings Hingham MA NE BIF NASDAQ 12/20/88 34.000
HMLK Hemlock Federal Financial Corp Oak Forest IL MW SAIF NASDAQ 04/02/97 18.750
HMNF HMN Financial Inc. Spring Valley MN MW SAIF NASDAQ 06/30/94 30.000
HOMF Home Federal Bancorp Seymour IN MW SAIF NASDAQ 01/23/88 30.500
HPBC Home Port Bancorp Inc. Nantucket MA NE BIF NASDAQ 08/25/88 26.000
HRBF Harbor Federal Bancorp Inc. Baltimore MD MA SAIF NASDAQ 08/12/94 24.813
HRZB Horizon Financial Corp. Bellingham WA WE BIF NASDAQ 08/01/86 18.875
HTHR Hawthorne Financial Corp. El Segundo CA WE SAIF NASDAQ NA 19.438
HZFS Horizon Financial Svcs Corp. Oskaloosa IA MW SAIF NASDAQ 06/30/94 16.250
INBI Industrial Bancorp Inc. Bellevue OH MW SAIF NASDAQ 08/01/95 22.000
IPSW Ipswich Savings Bank Ipswich MA NE BIF NASDAQ 05/26/93 14.000
ITLA ITLA Capital Corp. La Jolla CA WE BIF NASDAQ 10/24/95 21.250
IWBK InterWest Bancorp Inc. Oak Harbor WA WE SAIF NASDAQ NA 42.000
JSB JSB Financial Inc. Lynbrook NY MA BIF NYSE 06/27/90 54.375
JSBA Jefferson Savings Bancorp Ballwin MO MW SAIF NASDAQ 04/08/93 27.000
JXVL Jacksonville Bancorp Inc. Jacksonville TX SW SAIF NASDAQ 04/01/96 20.125
KFBI Klamath First Bancorp Klamath Falls OR WE SAIF NASDAQ 10/05/95 23.000
KNK Kankakee Bancorp Inc. Kankakee IL MW SAIF AMSE 01/06/93 36.125
KSBK KSB Bancorp Inc. Kingfield ME NE BIF NASDAQ 06/24/93 18.500
KYF Kentucky First Bancorp Inc. Cynthiana KY MW SAIF AMSE 08/29/95 14.000
LARK Landmark Bancshares Inc. Dodge City KS MW SAIF NASDAQ 03/28/94 23.500
LARL Laurel Capital Group Inc. Allison Park PA MA SAIF NASDAQ 02/20/87 21.625
LFBI Little Falls Bancorp Inc. Little Falls NJ MA SAIF NASDAQ 01/05/96 20.188
LOGN Logansport Financial Corp. Logansport IN MW SAIF NASDAQ 06/14/95 17.500
LSBI LSB Financial Corp. Lafayette IN MW BIF NASDAQ 02/03/95 30.500
LSBX Lawrence Savings Bank North Andover MA NE BIF NASDAQ 05/02/86 18.875
LVSB Lakeview Financial Corp. Paterson NJ MA SAIF NASDAQ 12/22/93 25.281
LXMO Lexington B&L Financial Corp. Lexington MO MW SAIF NASDAQ 06/06/96 16.625
MAFB MAF Bancorp Inc. Clarendon Hills IL MW SAIF NASDAQ 01/12/90 39.000
MARN Marion Capital Holdings Marion IN MW SAIF NASDAQ 03/18/93 28.000
MASB MASSBANK Corp. Reading MA NE BIF NASDAQ 05/28/86 51.000
MBB MSB Bancorp, Inc. Goshen NY MA BIF AMSE NA 36.375
MBLF MBLA Financial Corp. Macon MO MW SAIF NASDAQ 06/24/93 27.500
MBSP Mitchell Bancorp Inc. Spruce Pine NC SE SAIF NASDAQ 07/12/96 17.000
MCBN Mid-Coast Bancorp Inc. Waldoboro ME NE SAIF NASDAQ 11/02/89 38.000
MDBK Medford Bancorp Inc. Medford MA NE BIF NASDAQ 03/18/86 43.000
MECH MECH Financial Inc. Hartford CT NE BIF NASDAQ 06/26/96 29.000
METF Metropolitan Financial Corp. Mayfield Heights OH MW SAIF NASDAQ NA 16.625
MFBC MFB Corp. Mishawaka IN MW SAIF NASDAQ 03/25/94 26.250
MFFC Milton Federal Financial Corp. West Milton OH MW SAIF NASDAQ 10/07/94 16.125
MFLR Mayflower Co-operative Bank Middleboro MA NE BIF NASDAQ 12/23/87 27.000
MIFC Mid-Iowa Financial Corp. Newton IA MW SAIF NASDAQ 10/14/92 12.125
MONT Montgomery Financial Corp. Crawfordsville IN MW SAIF NASDAQ 07/01/97 13.125
MSBF MSB Financial Inc. Marshall MI MW SAIF NASDAQ 02/06/95 17.000
MWBI Midwest Bancshares Inc. Burlington IA MW SAIF NASDAQ 11/12/92 16.000
MWBX MetroWest Bank Framingham MA NE BIF NASDAQ 10/10/86 7.875
</TABLE>
Source: SNL Securities and F&C calculations.
3
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit II.1 -- Select Publicly Held Thrifts (Continued)
<TABLE>
<CAPTION>
Deposit Current
Insurance Stock
Agency Price
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($)
- ------ ---------- ---- ----- ------ ---------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NASB North American Savings Bank Grandview MO MW SAIF NASDAQ 09/27/85 69.000
NBN Northeast Bancorp Auburn ME NE BIF AMSE 08/19/87 17.250
NEIB Northeast Indiana Bancorp Huntington IN MW SAIF NASDAQ 06/28/95 21.125
NHTB New Hampshire Thrift Bncshrs Newport NH NE SAIF NASDAQ 05/22/86 20.625
NMSB NewMil Bancorp Inc. New Milford CT NE BIF NASDAQ 02/01/86 13.875
NSLB NS&L Bancorp Inc. Neosho MO MW SAIF NASDAQ 06/08/95 17.500
NSSY NSS Bancorp Inc. Norwalk CT NE BIF NASDAQ 06/16/94 42.625
NWEQ Northwest Equity Corp. Amery WI MW SAIF NASDAQ 10/11/94 21.625
OCFC Ocean Financial Corp. Toms River NJ MA SAIF NASDAQ 07/03/96 36.563
OFCP Ottawa Financial Corp. Holland MI MW SAIF NASDAQ 08/19/94 29.250
OHSL OHSL Financial Corp. Cincinnati OH MW SAIF NASDAQ 02/10/93 33.750
PBCI Pamrapo Bancorp Inc. Bayonne NJ MA SAIF NASDAQ 11/14/89 27.750
PCBC Perry County Financial Corp. Perryville MO MW SAIF NASDAQ 02/13/95 23.250
PDB Piedmont Bancorp Inc. Hillsborough NC SE SAIF AMSE 12/08/95 10.625
PEEK Peekskill Financial Corp. Peekskill NY MA SAIF NASDAQ 12/29/95 16.875
PERM Permanent Bancorp Inc. Evansville IN MW SAIF NASDAQ 04/04/94 36.000
PFDC Peoples Bancorp Auburn IN MW SAIF NASDAQ 07/07/87 22.500
PFFB PFF Bancorp Inc. Pomona CA WE SAIF NASDAQ 03/29/96 20.438
PFNC Progress Financial Corp. Blue Bell PA MA SAIF NASDAQ 07/18/83 18.375
PFSB PennFed Financial Services Inc West Orange NJ MA SAIF NASDAQ 07/15/94 18.500
PFSL Pocahontas FS&LA (MHC) Pocahontas AR SE SAIF NASDAQ 04/05/94 45.875
PHBK Peoples Heritage Finl Group Portland ME NE BIF NASDAQ 12/04/86 46.750
PHFC Pittsburgh Home Financial Corp Pittsburgh PA MA SAIF NASDAQ 04/01/96 17.875
PHSB Peoples Home Savings Bk (MHC) Beaver Falls PA MA SAIF NASDAQ 07/10/97 19.750
PRBC Prestige Bancorp Inc. Pleasant Hills PA MA SAIF NASDAQ 06/27/96 19.250
PSFC Peoples-Sidney Financial Corp. Sidney OH MW SAIF NASDAQ 04/28/97 18.000
PSFI PS Financial Inc. Chicago IL MW SAIF NASDAQ 11/27/96 14.125
PTRS Potters Financial Corp. East Liverpool OH MW SAIF NASDAQ 12/31/93 18.750
PULS Pulse Bancorp South River NJ MA SAIF NASDAQ 09/18/86 26.625
PVFC PVF Capital Corp. Bedford Heights OH MW SAIF NASDAQ 12/30/92 24.000
PVSA Parkvale Financial Corp. Monroeville PA MA SAIF NASDAQ 07/16/87 31.250
PWBC PennFirst Bancorp Inc. Ellwood City PA MA SAIF NASDAQ 06/13/90 19.313
PWBK Pennwood Bancorp Inc. Pittsburgh PA MA SAIF NASDAQ 07/15/96 18.750
QCBC Quaker City Bancorp Inc. Whittier CA WE SAIF NASDAQ 12/30/93 22.625
QCFB QCF Bancorp Inc. Virginia MN MW SAIF NASDAQ 04/03/95 28.250
QCSB Queens County Bancorp Inc. Flushing NY MA BIF NASDAQ 11/23/93 42.125
RARB Raritan Bancorp Inc. Bridgewater NJ MA BIF NASDAQ 03/01/87 26.500
RELY Reliance Bancorp Inc. Garden City NY MA SAIF NASDAQ 03/31/94 37.250
RIVR River Valley Bancorp Madison IN MW SAIF NASDAQ 12/20/96 19.500
ROSE TR Financial Corp. Garden City NY MA BIF NASDAQ 06/29/93 35.500
RSLN Roslyn Bancorp Inc. Roslyn NY MA BIF NASDAQ 01/13/97 23.594
SCBS Southern Community Bancshares Cullman AL SE SAIF NASDAQ 12/23/96 18.500
SFED SFS Bancorp Inc. Schenectady NY MA SAIF NASDAQ 06/30/95 23.750
SFFC StateFed Financial Corp. Des Moines IA MW SAIF NASDAQ 01/05/94 14.500
SFIN Statewide Financial Corp. Jersey City NJ MA SAIF NASDAQ 10/02/95 22.750
SFSL Security First Corp. Mayfield Heights OH MW SAIF NASDAQ 01/22/88 22.500
SISB SIS Bancorp Inc. Springfield MA NE BIF NASDAQ 02/08/95 39.500
SKAN Skaneateles Bancorp Inc. Skaneateles NY MA BIF NASDAQ 06/02/86 19.375
SMBC Southern Missouri Bancorp Inc. Poplar Bluff MO MW SAIF NASDAQ 04/13/94 21.750
SOBI Sobieski Bancorp Inc. South Bend IN MW SAIF NASDAQ 03/31/95 21.250
SOPN First Savings Bancorp Inc. Southern Pines NC SE SAIF NASDAQ 01/06/94 24.625
SPBC St. Paul Bancorp Inc. Chicago IL MW SAIF NASDAQ 05/18/87 26.188
SSB Scotland Bancorp Inc. Laurinburg NC SE SAIF AMSE 04/01/96 10.188
SSM Stone Street Bancorp Inc. Mocksville NC SE SAIF AMSE 04/01/96 20.250
STFR St. Francis Capital Corp. Brookfield WI MW SAIF NASDAQ 06/21/93 46.500
STSA Sterling Financial Corp. Spokane WA WE SAIF NASDAQ NA 25.500
SVRN Sovereign Bancorp Inc. Wyomissing PA MA SAIF NASDAQ 08/12/86 21.875
SZB SouthFirst Bancshares Inc. Sylacauga AL SE SAIF AMSE 02/14/95 22.000
THR Three Rivers Financial Corp. Three Rivers MI MW SAIF AMSE 08/24/95 22.000
THRD TF Financial Corp. Newtown PA MA SAIF NASDAQ 07/13/94 27.250
</TABLE>
Source: SNL Securities and F&C calculations.
4
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit II.1 -- Select Publicly Held Thrifts (Continued)
<TABLE>
<CAPTION>
Deposit Current
Insurance Stock
Agency Price
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($)
- ------ ---------- ---- ----- ------ ---------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TRIC Tri-County Bancorp Inc. Torrington WY WE SAIF NASDAQ 09/30/93 15.000
TSH Teche Holding Co. Franklin LA SW SAIF AMSE 04/19/95 21.750
TWIN Twin City Bancorp Bristol TN SE SAIF NASDAQ 01/04/95 14.750
UBMT United Financial Corp. Great Falls MT WE SAIF NASDAQ 09/23/86 28.250
USAB USABancshares Inc. Philadelphia PA MA BIF NASDAQ NA 12.250
VABF Virginia Beach Fed. Financial Virginia Beach VA SE SAIF NASDAQ 11/01/80 19.625
WAMU Washington Mutual Inc. Seattle WA WE BIF NASDAQ 03/11/83 73.938
WBST Webster Financial Corp. Waterbury CT NE SAIF NASDAQ 12/12/86 66.500
WCBI Westco Bancorp Inc. Westchester IL MW SAIF NASDAQ 06/26/92 29.375
WCFB Webster City Federal SB (MHC) Webster City IA MW SAIF NASDAQ 08/15/94 20.875
WEFC Wells Financial Corp. Wells MN MW SAIF NASDAQ 04/11/95 18.750
WFI Winton Financial Corp. Cincinnati OH MW SAIF AMSE 08/04/88 28.500
WFSL Washington Federal Inc. Seattle WA WE SAIF NASDAQ 11/17/82 29.000
WOFC Western Ohio Financial Corp. Springfield OH MW SAIF NASDAQ 07/29/94 26.000
WRNB Warren Bancorp Inc. Peabody MA NE BIF NASDAQ 07/09/86 24.000
WSB Washington Savings Bank, FSB Bowie MD MA SAIF AMSE NA 8.313
WSFS WSFS Financial Corp. Wilmington DE MA BIF NASDAQ 11/26/86 21.875
WSTR WesterFed Financial Corp. Missoula MT WE SAIF NASDAQ 01/10/94 25.875
WVFC WVS Financial Corp. Pittsburgh PA MA SAIF NASDAQ 11/29/93 38.750
WYNE Wayne Bancorp Inc. Wayne NJ MA SAIF NASDAQ 06/27/96 28.750
YFCB Yonkers Financial Corp. Yonkers NY MA SAIF NASDAQ 04/18/96 20.000
YFED York Financial Corp. York PA MA SAIF NASDAQ 02/01/84 25.500
Maximum 115.750
Minimum 7.875
Average 26.337
Median 22.250
</TABLE>
Source: SNL Securities and F&C calculations.
5
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit II.1 -- Select Publicly Held Thrifts (Continued)
<TABLE>
<CAPTION>
Current Price/ Current Current Current Total Equity/ Equity/ Core Income/
Market LTM Price/ Price/Tang Price/ Dividend Assets Assets Tang Assets EPS Avg Assets
Value Core EPS Book Value Book Value Assets Yield ($000) (%) (%) ($) (%)
Ticker ($M) (x) (%) (%) (%) (%) Mst RctQ Mst RctQ Mst RctQ LTM LTM
- ------ --------- -------- ---------- ---------- ------ -------- --------- -------- ----------- ---- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AABC 12.90 9.65 143.98 143.98 12.46 -- 105,639 8.65 8.65 1.12 1.34
ABBK 75.92 21.52 208.96 229.65 14.27 0.96 531,986 6.83 6.25 0.97 0.77
ABCL 230.64 20.68 176.16 178.24 16.91 1.53 1,363,825 9.60 9.50 1.39 0.85
ABCW 402.81 23.30 312.28 317.40 20.75 0.72 1,941,180 6.65 6.54 1.91 0.96
AFBC 21.55 NA 131.10 131.10 19.95 1.61 108,032 15.22 15.22 NA 0.84
AFED 27.57 21.51 122.32 122.32 17.25 1.40 160,408 12.52 12.52 0.93 0.79
AHCI 82.36 65.95 136.80 136.80 15.56 1.26 529,309 11.37 11.37 0.29 (0.61)
ALBC 8.08 25.04 133.24 133.24 11.41 0.99 70,810 8.56 8.56 0.43 0.49
ALBK 635.66 15.68 176.78 227.59 15.57 1.46 4,083,097 8.81 6.98 3.14 1.18
AMFC 16.99 24.82 114.97 114.97 16.99 1.59 100,003 14.77 14.77 0.71 0.71
ANA 58.78 21.27 128.56 128.56 21.78 1.99 274,018 16.95 16.95 1.04 0.95
ANDB 207.35 16.42 193.35 193.35 15.65 1.90 1,322,745 8.10 8.10 2.44 1.04
ASBI 66.28 21.13 149.20 149.31 16.96 3.12 390,868 11.37 11.36 0.97 0.81
ASBP 23.31 22.27 134.56 134.56 20.82 2.81 113,176 15.46 15.46 0.64 0.92
ASFC 1,620.99 21.86 190.85 274.27 15.40 1.29 10,528,393 8.54 6.24 2.83 0.77
BDJI 19.97 23.26 165.15 165.15 16.80 -- 118,838 10.18 10.18 0.86 0.66
BFD 122.49 19.99 141.15 146.46 12.57 1.26 974,680 8.37 8.09 1.11 0.67
BFSB 33.27 20.51 159.33 159.33 24.30 1.92 136,908 14.52 14.52 1.42 1.19
BKC 122.14 17.90 212.03 219.27 19.11 2.89 639,013 9.02 8.75 2.94 1.15
BKCT 101.84 20.83 216.92 216.92 22.99 2.60 443,025 10.60 10.60 0.96 1.24
BNKU 1,528.44 22.19 249.48 255.95 12.20 1.32 12,523,459 4.89 4.77 2.18 0.61
BPLS 295.35 20.89 162.93 178.99 7.09 -- 4,167,806 4.35 3.98 0.73 0.38
BVCC 720.27 24.66 248.61 299.41 13.29 1.12 3,246,476 5.35 4.48 1.45 0.61
CAFI 84.85 18.97 173.29 186.79 16.30 2.05 520,582 9.41 8.78 1.39 0.94
CASB 50.07 19.93 170.92 170.92 11.85 -- 422,530 6.94 6.94 0.74 0.64
CASH 61.58 18.75 139.57 156.46 15.11 2.10 407,592 10.83 9.77 1.22 0.90
CATB 82.77 21.03 115.47 115.47 28.09 1.79 294,656 24.32 24.32 0.85 1.34
CBCI 115.45 15.98 141.45 141.45 23.72 -- 486,626 16.77 16.77 2.30 1.62
CBSA 164.67 14.68 159.05 187.11 5.66 1.46 2,911,410 3.60 3.08 2.24 0.40
CEBK 63.37 24.62 175.75 194.39 17.26 0.99 367,096 9.82 8.97 1.31 0.75
CENB 47.15 26.67 152.91 152.91 46.10 1.73 102,281 30.15 30.15 4.34 1.63
CFB 1,420.71 17.28 250.71 278.00 15.98 0.62 7,189,342 6.38 5.79 2.04 0.95
CFCP 102.83 20.95 305.13 305.13 18.24 1.64 563,866 5.97 5.97 1.05 1.04
CFFC 38.71 20.72 155.05 155.77 21.13 1.85 182,879 13.63 13.58 1.46 1.07
CFNC 32.99 23.72 123.14 123.14 27.96 1.39 114,660 22.71 22.71 0.73 1.17
CFSB 221.57 23.30 327.98 327.98 25.98 1.79 852,888 7.92 7.92 1.25 1.18
CFTP 86.21 29.10 126.44 126.44 37.70 1.72 228,656 26.46 26.46 0.64 1.33
CIBI 16.24 16.98 146.22 146.22 16.94 1.78 95,876 11.58 11.58 1.06 0.97
CKFB 17.77 21.13 119.60 119.60 28.27 2.44 62,865 21.89 21.89 0.97 1.37
CLAS 26.32 28.93 131.66 154.34 19.82 1.38 132,793 15.06 13.14 0.70 0.64
CMRN 51.88 21.09 114.67 114.67 24.58 1.38 211,253 21.44 21.44 0.96 1.16
CMSB 341.19 30.00 158.85 201.15 15.04 1.52 2,268,595 9.47 7.63 0.70 0.50
CNIT 124.37 24.53 254.76 278.17 18.63 1.52 701,708 6.95 6.40 3.22 0.78
CNSB 30.17 35.78 126.12 126.12 30.82 1.32 97,891 24.44 24.44 0.51 0.87
COFI 4,190.08 20.64 304.38 325.84 21.20 1.52 19,760,265 6.97 6.54 3.18 1.10
COOP 58.94 28.62 208.33 208.33 15.97 -- 369,121 7.67 7.67 0.69 0.60
CRSB 54.25 NA NM NM 27.07 -- 134,538 2.88 2.88 NA NA
CRZY 16.47 21.84 114.69 114.69 27.10 2.32 60,774 23.64 23.64 0.79 1.30
CSBF 11.55 55.00 105.04 111.61 24.25 -- 47,602 23.10 22.04 0.25 0.45
CVAL 76.76 25.92 266.24 266.24 23.47 1.25 325,643 8.82 8.82 1.36 0.95
DCBI 41.35 22.37 143.29 143.29 38.37 1.13 107,747 26.78 26.78 0.95 1.62
DIBK 156.21 9.63 197.07 202.34 16.30 1.59 958,503 8.27 8.07 3.14 1.92
DIME 300.07 27.11 161.16 186.44 20.16 1.33 1,488,074 12.51 11.00 0.89 0.86
DME 3,476.20 26.67 264.38 322.28 15.91 0.54 21,848,000 6.02 4.99 1.12 0.60
DNFC 252.50 20.26 257.42 259.83 13.91 0.66 1,815,315 5.40 5.36 1.37 0.79
DSL 857.88 19.67 199.40 201.91 14.70 1.00 5,835,825 7.37 7.29 1.63 0.76
EBSI 122.24 19.61 166.47 166.47 13.08 2.81 934,458 7.83 7.83 1.09 0.77
EFBC 46.66 NA 116.05 116.05 42.21 1.67 110,540 36.37 36.37 NA NA
EFBI 65.53 33.00 202.33 202.45 21.75 3.03 301,261 10.75 10.75 1.00 0.75
</TABLE>
Source: SNL Securities and F&C calculations.
6
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit II.1 -- Select Publicly Held Thrifts (Continued)
<TABLE>
<CAPTION>
Current Price/ Current Current Current Total Equity/ Equity/ Core Income/
Market LTM Price/ Price/Tang Price/ Dividend Assets Assets Tang Assets EPS Avg Assets
Value Core EPS Book Value Book Value Assets Yield ($000) (%) (%) ($) (%)
Ticker ($M) (x) (%) (%) (%) (%) Mst RctQ Mst RctQ Mst RctQ LTM LTM
- ------ --------- -------- ---------- ---------- ------ -------- --------- -------- ----------- ---- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EMLD 111.60 19.64 230.13 233.30 18.48 1.27 603,965 8.03 7.93 1.12 0.98
EQSB 38.32 17.70 228.76 228.76 11.90 -- 321,687 5.20 5.20 1.78 0.74
ESBK 21.22 22.04 142.78 142.78 9.19 2.23 230,981 6.32 6.32 1.30 0.42
FAB 176.32 NA 126.48 126.48 15.21 -- 1,159,508 11.17 11.17 NA 0.54
FBBC 136.72 17.50 187.33 187.33 20.24 1.91 675,684 10.80 10.80 1.20 1.06
FBCI 70.37 23.36 137.21 137.44 14.37 1.60 489,673 10.47 10.45 1.07 0.61
FBCV 29.69 23.09 129.27 131.58 11.60 0.98 255,927 8.98 8.83 1.18 0.49
FBER 59.44 26.27 151.35 151.35 20.47 0.96 290,435 13.52 13.52 0.79 0.78
FBSI 36.97 20.18 157.42 157.42 22.67 0.60 161,527 14.40 14.40 0.83 1.12
FCB 34.37 42.19 147.10 147.10 35.22 1.02 97,564 23.94 23.94 0.56 0.85
FCBF 124.57 22.55 170.01 170.01 23.96 2.48 519,911 14.10 14.10 1.43 1.15
FCME 18.69 18.58 126.26 126.26 12.77 -- 146,400 10.11 10.11 0.74 0.68
FDEF 131.11 25.63 122.71 122.71 22.62 2.34 579,698 18.44 18.44 0.60 0.94
FED 422.37 18.90 189.52 191.16 10.15 -- 4,160,115 5.36 5.31 2.11 0.55
FESX 185.58 21.99 203.85 231.87 15.50 2.27 1,197,459 7.60 6.75 1.12 0.73
FFBH 128.52 22.83 157.75 157.75 23.49 1.07 547,119 14.89 14.89 1.15 1.01
FFBZ 39.38 23.81 273.52 273.82 18.86 1.12 208,840 7.61 7.60 1.05 0.92
FFCH 349.86 23.85 302.99 302.99 19.51 1.62 1,793,325 6.44 6.44 2.17 0.86
FFDB 27.43 17.21 158.33 172.48 15.34 2.11 178,792 9.69 8.97 1.38 0.96
FFED 29.32 15.37 186.75 186.75 13.59 4.27 215,821 7.28 7.28 0.61 0.68
FFES 108.23 17.94 161.55 161.55 11.01 1.70 982,747 6.82 6.82 2.23 0.63
FFFD 73.29 19.34 145.42 145.42 33.02 1.43 221,954 22.72 22.72 1.16 1.78
FFHH 60.91 18.18 122.40 122.40 14.97 2.50 402,850 10.91 10.91 1.10 0.82
FFHS 31.59 20.87 148.79 149.55 13.70 1.51 230,504 9.21 9.17 1.27 0.68
FFIC 192.68 21.68 141.21 146.97 17.70 1.31 1,088,476 12.54 12.10 1.13 0.88
FFKY 88.70 14.72 167.71 177.41 22.93 2.61 388,329 13.67 13.02 1.46 1.61
FFLC 73.94 21.70 143.74 143.74 18.48 1.82 400,237 12.85 12.85 0.91 0.95
FFOH 100.67 21.18 156.66 177.69 18.81 1.78 535,100 12.01 10.74 0.85 0.90
FFSL 14.31 20.83 125.94 125.94 12.59 2.00 113,669 9.99 9.99 0.72 0.65
FFSX 101.33 31.09 249.30 251.23 22.08 1.34 458,940 8.85 8.79 1.15 0.71
FFWC 27.54 15.32 149.72 164.22 14.33 1.90 191,298 9.57 8.81 1.24 1.01
FFWD 53.02 26.32 248.76 248.76 31.84 1.70 166,546 12.80 12.80 0.76 1.29
FFYF 139.91 17.81 167.44 167.44 22.76 2.33 614,749 13.59 13.59 1.93 1.27
FGHC 32.81 23.89 237.31 255.95 19.72 3.72 166,386 8.30 7.75 0.45 0.94
FIBC 44.02 15.33 159.94 160.64 14.28 1.94 308,248 8.93 8.90 1.68 0.99
FISB 342.04 24.55 223.51 226.13 21.20 1.78 1,613,405 9.49 9.39 1.10 0.95
FKFS 41.02 16.04 163.78 163.78 10.84 1.18 378,527 6.62 6.62 1.06 0.73
FKKY 27.12 27.92 120.33 120.33 20.42 4.78 132,809 16.96 16.96 0.60 0.72
FLAG 40.49 24.84 186.44 186.44 16.98 1.71 238,463 9.11 9.11 0.80 0.72
FLFC 263.45 26.98 272.22 299.56 20.66 1.29 1,275,398 7.59 6.95 1.26 0.79
FLGS 319.54 13.36 262.94 273.71 15.72 1.03 2,033,260 5.98 5.75 1.75 1.43
FLKY 14.42 27.50 101.37 101.37 28.90 3.31 49,880 28.50 28.50 0.55 1.17
FMCO 82.98 15.31 219.94 223.19 14.27 0.81 581,660 6.49 6.40 2.27 1.02
FMSB 75.29 17.38 245.63 245.63 16.89 1.10 445,762 6.88 6.88 1.05 1.03
FNGB 119.42 21.43 161.68 161.68 17.89 2.67 667,696 11.06 11.06 0.63 0.90
FSBI 48.12 18.30 178.68 178.68 12.22 1.17 393,076 6.84 6.84 1.68 0.76
FSNJ 134.63 NA 139.35 139.35 21.95 1.15 610,639 15.75 15.75 NA 0.66
FSPT 194.92 NA 149.05 149.05 39.35 1.36 495,319 26.40 26.40 NA 1.24
FSTC 88.72 17.02 248.83 311.28 25.12 1.00 352,233 10.09 8.24 1.88 1.70
FTF 49.27 16.09 180.41 180.41 27.34 2.00 180,259 15.15 15.15 1.74 1.71
FTFC 289.50 22.50 264.71 279.75 18.75 1.52 1,544,294 7.08 6.72 1.40 0.89
FTSB 22.49 18.60 142.39 142.39 22.51 1.64 99,873 15.82 15.82 0.82 1.23
FWWB 270.30 21.60 167.49 180.84 24.12 1.33 1,136,693 13.38 12.51 1.25 1.15
GAF 146.64 17.43 126.25 127.43 18.70 2.53 783,948 14.81 14.69 1.09 1.08
GDW 5,582.04 16.19 206.88 206.88 14.10 0.51 39,590,271 6.81 6.81 6.04 0.90
GFCO 45.65 19.23 161.16 162.87 14.98 2.00 304,621 9.29 9.20 1.04 0.83
GPT 3,137.01 20.59 218.02 399.82 23.98 1.73 13,083,518 9.70 5.54 1.80 1.08
GSBC 207.23 17.05 316.73 319.48 27.68 1.71 750,458 8.74 8.68 1.51 1.75
GSFC 76.83 26.29 121.35 121.35 42.75 2.46 179,700 35.23 35.23 0.68 1.60
GTPS 35.11 42.86 113.70 113.70 24.73 1.91 141,976 19.93 19.93 0.49 0.63
</TABLE>
Source: SNL Securities and F&C calculations.
7
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit II.1 -- Select Publicly Held Thrifts (Continued)
<TABLE>
<CAPTION>
Current Price/ Current Current Current Total Equity/ Equity/ Core Income/
Market LTM Price/ Price/Tang Price/ Dividend Assets Assets Tang Assets EPS Avg Assets
Value Core EPS Book Value Book Value Assets Yield ($000) (%) (%) ($) (%)
Ticker ($M) (x) (%) (%) (%) (%) Mst RctQ Mst RctQ Mst RctQ LTM LTM
- ------ --------- -------- ---------- ---------- ------ -------- --------- -------- ----------- ---- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GUPB 17.62 20.18 122.84 122.84 15.35 1.82 114,745 12.50 12.50 1.09 0.89
HALL 45.47 16.67 144.19 144.19 11.00 -- 413,511 7.62 7.62 0.93 0.65
HARB 377.09 27.45 373.02 384.42 33.30 1.85 1,128,942 8.93 8.68 2.75 1.24
HARL 50.43 15.05 212.58 212.58 14.48 1.46 347,882 6.81 6.81 2.01 1.02
HAVN 216.32 19.70 191.63 192.23 10.95 1.22 1,974,890 5.72 5.70 1.25 0.63
HBFW 87.36 30.27 205.41 205.41 24.96 0.55 350,038 12.15 12.15 1.21 0.86
HBNK 84.62 18.25 203.91 203.91 15.40 -- 549,638 7.55 7.55 2.00 0.93
HBS 27.82 14.26 128.39 132.92 18.21 2.70 152,796 14.18 13.77 1.56 1.37
HCFC 16.85 18.81 120.39 120.39 23.45 -- 71,854 19.49 19.49 0.99 1.41
HFFB 30.89 20.97 104.50 104.50 30.20 2.42 108,908 26.73 26.73 0.79 1.36
HFFC 87.83 16.03 157.75 157.75 15.13 1.42 580,668 9.58 9.58 1.84 1.00
HFNC 232.10 25.47 139.75 139.75 25.48 2.37 910,786 18.24 18.24 0.53 0.94
HFSA 15.54 20.52 118.79 118.79 13.47 2.76 115,434 11.34 11.34 0.92 0.69
HHFC 13.43 22.82 129.63 129.63 14.42 2.92 93,141 11.12 11.12 0.66 0.67
HIFS 44.32 17.00 207.32 207.32 19.91 1.41 222,584 9.60 9.60 2.00 1.26
HMLK 38.93 NA 127.99 127.99 22.04 1.49 176,683 17.22 17.22 NA 0.99
HMNF 124.33 26.55 147.20 158.56 17.99 -- 691,232 12.22 11.45 1.13 0.78
HOMF 156.16 19.55 249.80 256.95 21.98 1.31 709,412 8.80 8.58 1.56 1.22
HPBC 47.89 14.86 218.12 218.12 22.93 3.08 208,815 10.51 10.51 1.75 1.64
HRBF 42.02 26.12 144.09 144.09 17.99 1.93 233,572 12.49 12.49 0.95 0.72
HRZB 140.74 17.16 165.86 165.86 26.41 2.33 532,767 15.93 15.93 1.10 1.55
HTHR 60.08 11.71 141.99 141.99 6.47 -- 928,197 4.56 4.56 1.66 1.26
HZFS 13.86 24.25 153.59 153.59 15.62 1.11 88,769 10.16 10.16 0.67 0.68
INBI 112.26 21.36 184.41 184.41 30.84 2.55 364,023 16.72 16.72 1.03 1.48
IPSW 33.39 19.44 282.26 282.26 14.69 1.14 227,244 5.21 5.21 0.72 0.97
ITLA 167.27 13.54 168.38 NA 16.47 -- 1,015,909 9.78 NA 1.57 1.37
IWBK 337.55 19.27 253.01 257.35 17.03 1.81 1,982,317 6.73 6.62 2.18 0.95
JSB 539.40 17.05 146.76 146.76 35.14 2.94 1,535,031 23.94 23.94 3.19 2.13
JSBA 270.40 25.71 219.69 280.08 21.49 1.04 1,257,753 9.03 7.22 1.05 0.76
JXVL 49.18 14.80 142.83 142.83 20.89 2.48 235,405 14.63 14.63 1.36 1.49
KFBI 229.86 24.73 144.47 158.08 23.57 1.48 975,207 15.07 13.96 0.93 1.07
KNK 49.55 18.43 131.03 139.00 14.43 1.33 343,409 11.01 10.45 1.96 0.86
KSBK 22.92 14.68 198.29 207.63 15.01 0.54 152,752 7.56 7.25 1.26 1.05
KYF 17.55 18.18 123.67 123.67 21.05 3.57 86,307 17.02 17.02 0.77 1.11
LARK 39.68 18.65 120.57 120.57 16.98 1.70 233,640 14.09 14.09 1.26 0.98
LARL 47.03 17.03 208.53 208.53 22.04 1.60 213,379 10.57 10.57 1.27 1.40
LFBI 50.02 33.65 138.94 150.66 16.23 0.99 324,425 11.68 10.87 0.60 0.51
LOGN 22.07 18.23 133.38 133.38 25.62 2.29 86,115 19.21 19.21 0.96 1.53
LSBI 27.95 19.18 147.77 147.77 13.53 1.31 206,584 8.58 8.58 1.59 0.72
LSBX 80.93 10.49 215.22 215.22 22.49 -- 359,855 10.45 10.45 1.80 2.29
LVSB 108.35 26.61 215.16 262.25 20.76 0.50 472,691 9.65 8.06 0.95 0.90
LXMO 18.63 23.75 109.88 117.16 20.15 1.81 92,450 18.34 17.39 0.70 1.14
MAFB 585.50 16.60 222.22 252.26 16.93 0.72 3,457,664 7.62 6.77 2.35 1.13
MARN 49.89 18.42 125.11 127.85 26.00 3.14 191,854 20.78 20.43 1.52 1.58
MASB 182.11 19.92 175.50 178.07 19.68 1.96 925,403 11.21 11.07 2.56 1.03
MBB 103.46 32.48 162.39 304.65 13.37 1.54 773,991 9.84 6.23 1.12 0.54
MBLF 34.48 20.37 123.21 123.21 15.62 1.46 223,558 12.68 12.68 1.35 0.82
MBSP 15.83 28.33 109.25 109.25 43.84 2.35 36,103 40.13 40.13 0.60 1.51
MCBN 9.01 20.65 172.49 172.49 14.38 1.37 62,632 8.34 8.34 1.84 0.71
MDBK 195.27 18.70 192.39 204.47 17.20 1.86 1,135,572 8.94 8.46 2.30 1.01
MECH 153.50 11.79 173.34 173.34 17.20 -- 892,371 9.92 9.92 2.46 1.59
METF 117.23 21.59 319.71 347.80 12.67 -- 924,985 3.96 3.65 0.77 0.65
MFBC 42.70 22.25 127.37 127.37 16.17 1.30 264,097 12.70 12.70 1.18 0.82
MFFC 36.55 28.79 132.06 132.06 16.70 3.72 218,826 11.84 11.84 0.56 0.62
MFLR 24.28 19.15 188.68 191.63 18.41 2.96 131,908 9.75 9.62 1.41 1.00
MIFC 20.73 15.16 163.63 163.85 15.32 0.66 135,345 9.36 9.35 0.80 1.10
MONT 21.70 NA 110.39 110.39 20.53 1.68 105,671 18.60 18.60 NA 0.73
MSBF 20.94 20.24 160.98 160.98 27.14 1.77 77,444 16.86 16.86 0.84 1.40
MWBI 16.33 15.84 152.96 152.96 11.06 1.50 147,724 7.23 7.23 1.01 0.77
MWBX 111.10 14.86 248.42 248.42 18.25 1.52 608,941 7.35 7.35 0.53 1.32
</TABLE>
Source: SNL Securities and F&C calculations.
8
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit II.1 -- Select Publicly Held Thrifts (Continued)
<TABLE>
<CAPTION>
Current Price/ Current Current Current Total Equity/ Equity/ Core Income/
Market LTM Price/ Price/Tang Price/ Dividend Assets Assets Tang Assets EPS Avg Assets
Value Core EPS Book Value Book Value Assets Yield ($000) (%) (%) ($) (%)
Ticker ($M) (x) (%) (%) (%) (%) Mst RctQ Mst RctQ Mst RctQ LTM LTM
- ------ --------- -------- ---------- ---------- ------ -------- --------- -------- ----------- ---- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NASB 154.54 15.72 247.93 255.37 21.05 1.45 734,091 8.49 8.26 4.39 1.36
NBN 38.55 26.14 182.35 202.23 13.76 1.23 278,733 8.26 7.58 0.66 0.64
NEIB 36.26 17.46 136.20 136.20 19.57 1.61 190,319 14.37 14.37 1.21 1.20
NHTB 43.07 17.05 168.50 194.94 13.54 2.91 317,989 8.04 7.03 1.21 0.80
NMSB 53.82 21.02 162.47 162.47 15.14 2.31 355,526 9.32 9.32 0.66 0.87
NSLB 12.00 26.92 105.17 105.93 20.76 2.86 57,823 19.74 19.62 0.65 0.71
NSSY 103.46 58.39 189.53 195.26 15.42 0.94 670,749 8.14 7.92 0.73 0.33
NWEQ 18.14 16.63 145.92 145.92 18.22 2.78 99,558 11.61 11.61 1.30 1.02
OCFC 287.12 20.54 133.20 133.20 19.00 2.19 1,510,947 14.27 14.27 1.78 0.98
OFCP 155.41 22.85 203.55 250.21 17.54 1.37 885,817 8.62 7.13 1.28 0.83
OHSL 41.88 21.63 156.25 156.25 17.53 2.61 238,905 10.90 10.90 1.56 0.84
PBCI 78.89 16.72 162.57 163.62 20.94 4.04 376,714 12.88 12.81 1.66 1.31
PCBC 19.25 20.04 117.66 117.66 22.64 1.72 85,030 19.24 19.24 1.16 1.08
PDB 29.23 18.97 138.71 138.71 22.45 3.77 130,167 16.18 16.18 0.56 1.22
PEEK 52.77 25.19 113.48 113.48 28.65 2.13 184,215 25.24 25.24 0.67 1.09
PERM 75.87 30.00 174.17 176.21 18.03 1.22 419,819 10.00 9.89 1.20 0.61
PFDC 76.08 18.00 169.81 169.81 25.92 1.96 294,291 15.26 15.26 1.25 1.49
PFFB 366.98 26.54 136.71 138.09 13.27 -- 2,765,855 9.70 9.62 0.77 0.52
PFNC 74.67 26.63 297.33 354.05 15.13 0.65 493,406 5.09 4.31 0.69 0.70
PFSB 178.45 16.52 160.59 187.44 12.09 0.76 1,475,509 6.96 6.02 1.12 0.81
PFSL 74.89 32.31 302.61 302.61 19.23 1.96 389,405 6.36 6.36 1.42 0.62
PHBK 1,296.72 18.41 272.91 363.25 19.08 1.88 6,795,337 6.99 5.35 2.54 1.25
PHFC 35.20 18.06 142.77 144.50 11.75 1.34 299,669 8.23 8.14 0.99 0.71
PHSB 54.51 NA 190.45 190.45 25.03 1.22 217,735 13.14 13.14 NA 0.75
PRBC 17.61 21.39 112.70 112.70 12.29 1.04 143,263 10.91 10.91 0.90 0.57
PSFC 32.14 NA 113.56 113.56 30.25 1.56 106,239 24.74 24.74 NA 1.14
PSFI 29.29 NA 95.70 95.70 35.71 3.40 85,698 37.32 37.32 NA 2.10
PTRS 18.31 15.76 165.78 165.78 14.88 1.07 122,637 8.97 8.97 1.19 0.98
PULS 82.33 15.04 186.06 186.06 15.24 3.01 539,322 8.20 8.20 1.77 1.08
PVFC 63.82 13.87 221.20 221.20 16.11 -- 396,214 7.28 7.28 1.73 1.29
PVSA 160.26 15.47 197.91 199.04 15.66 1.92 1,019,143 7.91 7.87 2.02 1.07
PWBC 101.79 17.88 148.56 166.78 11.18 1.86 910,770 7.52 6.76 1.08 0.68
PWBK 10.32 21.80 111.87 111.87 21.87 1.92 47,211 17.98 17.98 0.86 0.98
QCBC 105.39 18.25 143.83 143.83 12.41 -- 852,154 8.63 8.63 1.24 0.70
QCFB 39.04 13.85 145.54 145.54 25.57 -- 152,668 17.57 17.57 2.04 1.62
QCSB 628.20 26.66 318.41 318.41 39.18 1.90 1,603,269 10.64 10.64 1.58 1.59
RARB 62.86 17.43 203.69 206.55 15.40 2.26 408,308 7.56 7.46 1.52 1.01
RELY 358.87 20.03 187.00 274.50 16.00 1.93 2,243,100 8.55 5.99 1.86 0.85
RIVR 23.21 NA 131.76 133.65 16.76 1.03 138,461 12.72 12.56 NA 0.61
ROSE 624.73 20.29 244.15 244.15 16.26 1.92 3,843,056 6.27 6.27 1.75 0.87
RSLN 1,029.70 NA 163.85 164.65 28.60 1.36 3,601,079 17.45 17.38 NA 1.25
SCBS 21.04 21.26 149.19 149.19 29.68 1.62 70,893 19.89 19.89 0.87 1.20
SFED 28.70 26.39 133.95 133.95 16.45 1.35 174,428 12.29 12.29 0.90 0.61
SFFC 22.61 20.14 144.42 144.42 25.49 1.38 88,608 17.66 17.66 0.72 1.27
SFIN 102.58 17.91 158.65 158.87 14.85 1.93 703,112 9.36 9.35 1.27 0.81
SFSL 169.39 21.03 268.50 272.73 25.13 1.42 677,876 9.36 9.23 1.07 1.37
SISB 274.44 18.81 217.39 217.39 15.83 1.62 1,733,618 7.24 7.24 2.10 0.87
SKAN 27.84 17.78 157.52 161.86 10.87 1.45 256,101 6.90 6.73 1.09 0.66
SMBC 34.73 26.52 132.06 132.06 21.93 2.30 159,926 16.60 16.60 0.82 0.80
SOBI 16.66 32.20 119.72 119.72 18.55 1.51 87,553 14.39 14.39 0.66 0.61
SOPN 91.24 19.70 133.04 133.04 30.29 4.06 300,816 22.77 22.77 1.25 1.75
SPBC 895.75 18.57 214.30 214.83 19.65 1.53 4,557,336 9.17 9.15 1.41 1.09
SSB 19.50 15.67 131.80 131.80 31.72 1.96 61,473 24.07 24.07 0.65 1.65
SSM 38.44 24.70 123.70 123.70 35.56 2.27 108,092 28.75 28.75 0.82 1.45
STFR 244.19 20.76 188.03 210.88 15.28 1.20 1,597,648 8.27 7.44 2.24 0.75
STSA 193.03 22.37 187.64 203.03 10.29 -- 1,876,250 5.48 5.09 1.14 0.51
SVRN 2,504.09 24.04 287.45 346.12 14.26 0.37 14,336,283 5.43 4.66 0.91 0.69
SZB 21.47 24.72 134.15 137.67 12.98 2.73 165,388 9.67 9.45 0.89 0.69
THR 18.14 21.78 138.19 138.63 18.61 2.00 97,487 13.46 13.43 1.01 0.84
THRD 86.85 25.71 156.97 188.06 14.55 1.76 597,047 8.39 7.10 1.06 0.66
</TABLE>
Source: SNL Securities and F&C calculations.
9
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit II.1 -- Select Publicly Held Thrifts (Continued)
<TABLE>
<CAPTION>
Current Price/ Current Current Current Total Equity/ Equity/ Core Income/
Market LTM Price/ Price/Tang Price/ Dividend Assets Assets Tang Assets EPS Avg Assets
Value Core EPS Book Value Book Value Assets Yield ($000) (%) (%) ($) (%)
Ticker ($M) (x) (%) (%) (%) (%) Mst RctQ Mst RctQ Mst RctQ LTM LTM
- ------ --------- -------- ---------- ---------- ------ -------- --------- -------- ----------- ---- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TRIC 17.51 19.48 126.69 126.69 19.46 2.67 89,999 15.36 15.36 0.77 1.05
TSH 74.77 18.91 135.18 135.18 18.30 2.30 408,591 13.54 13.54 1.15 0.94
TWIN 18.71 20.77 133.48 133.48 17.22 2.71 108,687 12.89 12.89 0.71 0.83
UBMT 47.98 23.16 139.58 139.58 33.53 3.54 103,082 24.02 24.02 1.22 1.40
USAB 8.97 47.12 182.02 184.77 13.96 -- 64,269 8.43 8.32 0.26 0.47
VABF 97.74 30.66 221.50 221.50 15.86 1.22 616,188 7.16 7.16 0.64 0.54
WAMU 19,043.47 23.47 355.47 381.71 19.64 1.57 96,981,099 5.47 5.13 3.15 0.87
WBST 907.94 18.84 237.58 272.43 12.93 1.20 7,019,621 5.44 4.78 3.53 0.77
WCBI 72.39 18.02 148.96 148.96 22.91 2.32 315,944 15.38 15.38 1.63 1.41
WCFB 44.03 32.12 196.93 196.93 46.30 3.83 95,121 23.50 23.50 0.65 1.45
WEFC 36.74 16.59 123.93 123.93 18.24 2.56 201,436 14.71 14.71 1.13 1.06
WFI 57.20 19.79 234.38 238.69 17.33 1.75 329,897 7.39 7.27 1.44 0.91
WFSL 1,519.19 14.36 205.82 223.25 26.54 3.01 5,713,308 12.90 12.01 2.02 1.87
WOFC 63.16 32.50 111.11 119.05 15.41 3.85 397,425 13.87 13.06 0.80 0.43
WRNB 91.35 16.44 228.14 228.14 24.62 2.17 370,993 10.79 10.79 1.46 1.61
WSB 36.53 27.71 162.05 162.05 13.79 1.20 264,904 8.51 8.51 0.30 0.52
WSFS 272.56 17.22 314.30 316.11 17.99 -- 1,515,217 5.73 5.69 1.27 1.10
WSTR 144.43 19.90 134.00 164.91 13.94 1.86 1,035,096 10.40 8.62 1.30 0.76
WVFC 67.94 18.28 218.31 218.31 23.26 3.10 292,022 10.66 10.66 2.12 1.31
WYNE 57.90 27.91 170.52 170.52 21.44 0.70 270,043 12.57 12.57 1.03 0.76
YFCB 60.42 18.69 134.50 134.50 18.21 1.40 331,802 13.54 13.54 1.07 1.04
YFED 225.72 25.00 215.37 215.37 19.09 2.04 1,182,276 8.86 8.86 1.02 0.80
Maximum 19,043.47 65.95 373.02 399.82 46.30 4.78 96,981,099 40.13 40.13 6.04 2.29
Minimum 8.08 9.63 95.70 95.70 5.66 -- 36,103 2.88 2.88 0.25 (0.61)
Average 286.48 21.71 175.75 183.86 19.74 1.63 1,591,481 12.22 11.97 1.32 0.98
Median 65.53 20.62 161.07 164.22 18.24 1.59 359,855 10.18 10.14 1.13 0.94
</TABLE>
Source: SNL Securities and F&C calculations.
10
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit II.1 -- Select Publicly Held Thrifts (Continued)
<TABLE>
<CAPTION>
Income/ NPAs/ Price/ Core Income/ Income/
Avg Equity Merger Current Assets Core EPS Avg Assets Avg Equity
(%) Target? Pricing (%) EPS ($) (%) (%)
Ticker LTM (Y/N) Date Mst RctQ (x) Mst RctQ Mst RctQ Mst RctQ
- ------ ---------- ------- -------- -------- ------ -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AABC 20.89 N 03/20/98 1.58 2.57 1.05 4.90 60.86
ABBK 11.15 N 03/20/98 0.17 22.69 0.23 0.71 10.20
ABCL 9.25 N 03/20/98 0.27 23.19 0.31 0.79 8.16
ABCW 14.70 N 03/20/98 0.97 21.39 0.52 1.03 15.64
AFBC 5.42 N 03/20/98 0.79 26.15 0.19 0.74 4.87
AFED 5.91 N 03/20/98 0.30 20.83 0.24 0.78 6.19
AHCI (4.75) N 03/20/98 0.62 34.15 0.14 0.42 3.47
ALBC 5.46 N 03/20/98 0.12 22.43 0.12 0.53 6.17
ALBK 12.92 N 03/20/98 0.70 11.19 1.10 1.55 17.41
AMFC 4.39 N 03/20/98 NA 27.54 0.16 0.57 3.95
ANA 5.44 N 03/20/98 0.50 20.49 0.27 0.96 5.57
ANDB 12.97 N 03/20/98 0.62 15.90 0.63 1.03 12.95
ASBI 7.20 N 03/20/98 NA 25.63 0.20 0.65 5.79
ASBP 5.87 N 03/20/98 0.08 22.27 0.16 0.89 5.73
ASFC 9.55 N 03/20/98 0.52 22.75 0.68 0.75 8.66
BDJI 6.05 N 03/20/98 0.03 19.23 0.26 0.75 7.17
BFD 7.37 N 03/20/98 0.18 21.33 0.26 0.61 7.06
BFSB 8.34 N 03/20/98 -- 22.06 0.33 1.10 7.72
BKC 13.74 N 03/20/98 2.11 19.07 0.69 1.05 12.47
BKCT 12.02 N 03/20/98 0.91 20.83 0.24 1.20 11.38
BNKU 11.99 N 03/20/98 0.68 19.51 0.62 0.66 13.15
BPLS 7.06 N 03/20/98 1.66 15.25 0.25 0.46 10.94
BVCC 10.00 N 03/20/98 0.51 25.54 0.35 0.58 10.33
CAFI 9.78 N 03/20/98 0.29 25.36 0.26 0.66 6.90
CASB 9.80 N 03/20/98 0.35 19.41 0.19 0.65 9.49
CASH 7.97 N 03/20/98 0.74 17.33 0.33 0.90 8.36
CATB 5.19 N 03/20/98 0.35 20.31 0.22 1.31 5.30
CBCI 10.26 N 03/20/98 1.64 12.09 0.76 2.16 13.24
CBSA 11.61 N 03/20/98 0.71 15.22 0.54 0.38 10.86
CEBK 7.43 N 03/20/98 0.42 23.71 0.34 0.73 7.40
CENB 5.91 N 03/20/98 0.58 31.12 0.93 1.38 4.56
CFB 15.76 N 03/20/98 0.84 16.95 0.52 0.94 15.15
CFCP 16.59 N 03/20/98 0.59 22.00 0.25 0.94 15.05
CFFC 7.88 N 03/20/98 0.44 18.01 0.42 1.18 8.76
CFNC 5.06 N 03/20/98 0.10 24.05 0.18 1.11 4.88
CFSB 15.27 N 03/20/98 0.10 22.75 0.32 1.18 15.09
CFTP 4.54 N 03/20/98 0.49 31.04 0.15 1.19 4.43
CIBI 8.33 N 03/20/98 0.65 18.00 0.25 0.89 7.64
CKFB 5.84 N 03/20/98 0.10 19.71 0.26 1.39 6.13
CLAS 4.31 N 03/20/98 0.34 22.01 0.23 0.83 5.55
CMRN 5.26 N 03/20/98 0.38 23.01 0.22 0.99 4.64
CMSB 5.17 N 03/20/98 0.42 30.88 0.17 0.45 4.88
CNIT 10.96 N 03/20/98 0.45 20.79 0.95 0.91 12.75
CNSB 3.54 N 03/20/98 0.13 32.59 0.14 0.90 3.68
COFI 15.66 N 03/20/98 0.30 21.59 0.76 0.96 13.56
COOP 7.76 N 03/20/98 0.07 29.04 0.17 0.61 7.90
CRSB NA N 03/20/98 0.54 13.84 0.28 1.82 73.66
CRZY 5.11 N 03/20/98 0.18 20.54 0.21 1.27 5.36
CSBF 1.85 N 03/20/98 NA 31.25 0.11 0.77 3.25
CVAL 11.04 N 03/20/98 0.25 24.48 0.36 0.96 11.03
DCBI 5.82 N 03/20/98 0.35 24.15 0.22 1.48 5.56
DIBK 24.02 N 03/20/98 0.29 9.11 0.83 1.88 23.11
DIME 5.86 N 03/20/98 0.53 26.22 0.23 0.78 6.08
DME 11.05 N 03/20/98 1.06 33.95 0.22 0.49 8.31
DNFC 14.13 N 03/20/98 0.29 20.40 0.34 0.70 13.21
DSL 10.64 N 03/20/98 0.89 15.41 0.52 0.94 12.99
EBSI 9.06 N 03/20/98 1.18 17.81 0.30 0.81 9.69
EFBC NA N 03/20/98 -- 26.47 0.17 1.49 4.04
EFBI 6.28 N 03/20/98 -- 34.38 0.24 0.70 6.28
</TABLE>
Source: SNL Securities and F&C calculations.
11
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit II.1 -- Select Publicly Held Thrifts (Continued)
<TABLE>
<CAPTION>
Income/ NPAs/ Price/ Core Income/ Income/
Avg Equity Merger Current Assets Core EPS Avg Assets Avg Equity
(%) Target? Pricing (%) EPS ($) (%) (%)
Ticker LTM (Y/N) Date Mst RctQ (x) Mst RctQ Mst RctQ Mst RctQ
- ------ ---------- ------- -------- -------- ------ -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EMLD 12.77 N 03/20/98 0.35 20.37 0.27 0.97 12.19
EQSB 14.65 N 03/20/98 0.38 18.31 0.43 0.70 13.55
ESBK 6.57 N 03/20/98 0.69 14.05 0.51 0.64 9.97
FAB 4.79 N 03/20/98 0.35 26.64 0.19 0.55 4.69
FBBC 10.03 N 03/20/98 0.09 16.94 0.31 1.08 10.01
FBCI 5.90 N 03/20/98 NA 18.38 0.34 0.78 7.54
FBCV 5.85 N 03/20/98 1.23 20.64 0.33 0.55 6.29
FBER 5.26 N 03/20/98 0.75 24.70 0.21 0.78 5.66
FBSI 8.06 N 03/20/98 0.04 18.21 0.23 1.23 8.80
FCB 3.44 N 03/20/98 -- 29.53 0.20 1.27 4.92
FCBF 7.69 N 03/20/98 0.26 19.20 0.42 1.22 8.75
FCME 7.06 N 03/20/98 0.49 16.37 0.21 0.80 8.08
FDEF 4.57 N 03/20/98 0.33 34.94 0.11 0.64 3.37
FED 11.05 N 03/20/98 0.96 17.19 0.58 0.60 11.48
FESX 10.03 N 03/20/98 0.54 20.52 0.30 0.79 10.45
FFBH 6.51 N 03/20/98 0.96 22.63 0.29 0.97 6.49
FFBZ 12.01 N 03/20/98 0.57 31.25 0.20 0.69 9.02
FFCH 13.90 N 03/20/98 1.35 23.52 0.55 0.87 13.66
FFDB 9.89 N 03/20/98 0.99 17.46 0.34 0.93 9.63
FFED 11.84 N 03/20/98 0.30 23.44 0.10 0.58 8.19
FFES 9.71 N 03/20/98 0.25 17.24 0.58 0.65 9.77
FFFD 7.61 N 03/20/98 NA 19.34 0.29 1.71 7.49
FFHH 7.15 N 03/20/98 0.22 19.23 0.26 0.74 6.74
FFHS 7.60 N 03/20/98 0.32 18.40 0.36 0.76 8.27
FFIC 6.08 N 03/20/98 0.27 20.42 0.30 0.85 6.37
FFKY 11.79 N 03/20/98 0.07 15.35 0.35 1.51 11.01
FFLC 6.79 N 03/20/98 0.19 19.75 0.25 0.97 7.40
FFOH 6.93 N 03/20/98 0.18 21.43 0.21 0.86 6.84
FFSL 6.26 N 03/20/98 0.89 20.83 0.18 0.64 6.25
FFSX 8.40 N 03/20/98 0.14 33.10 0.27 0.70 7.82
FFWC 10.28 N 03/20/98 0.31 14.39 0.33 0.99 10.25
FFWD 10.30 N 03/20/98 0.02 27.78 0.18 1.21 9.56
FFYF 9.23 N 03/20/98 0.62 17.54 0.49 1.25 9.14
FGHC 11.32 N 03/20/98 1.64 17.92 0.15 1.12 13.49
FIBC 10.50 N 03/20/98 1.89 15.33 0.42 0.94 10.31
FISB 9.87 N 03/20/98 1.38 24.11 0.28 0.94 9.72
FKFS 10.47 N 03/20/98 1.15 17.00 0.25 0.64 9.65
FKKY 3.42 N 03/20/98 -- 17.45 0.24 1.14 6.25
FLAG 7.98 N 03/20/98 3.92 24.84 0.20 0.69 7.75
FLFC 10.52 N 03/20/98 1.00 24.29 0.35 0.87 11.61
FLGS 22.94 N 03/20/98 3.04 12.99 0.45 1.41 21.01
FLKY 3.64 N 03/20/98 2.25 23.63 0.16 1.20 4.15
FMCO 15.74 N 03/20/98 1.15 15.24 0.57 0.99 15.00
FMSB 15.27 N 03/20/98 -- 16.29 0.28 1.06 15.58
FNGB 7.98 N 03/20/98 0.09 19.85 0.17 0.91 8.19
FSBI 11.16 N 03/20/98 0.15 18.75 0.41 0.68 10.02
FSNJ 5.87 N 03/20/98 0.90 28.49 0.13 0.74 4.74
FSPT 6.93 N 03/20/98 0.28 25.58 0.43 1.43 5.40
FSTC 17.58 N 03/20/98 1.12 19.51 0.41 1.41 14.00
FTF 10.91 N 03/20/98 0.07 17.07 0.41 1.58 10.33
FTFC 13.57 N 03/20/98 0.32 23.16 0.34 0.86 12.50
FTSB 7.53 N 03/20/98 2.04 18.15 0.21 1.24 7.75
FWWB 8.00 N 03/20/98 0.19 21.77 0.31 1.06 7.79
GAF 6.80 N 03/20/98 0.22 16.96 0.28 1.01 6.92
GDW 13.93 N 03/20/98 1.07 15.28 1.60 0.94 13.98
GFCO 8.78 N 03/20/98 0.06 18.52 0.27 0.87 9.29
GPT 10.64 N 03/20/98 2.90 19.30 0.48 1.11 11.68
GSBC 20.23 N 03/20/98 1.84 16.51 0.39 1.72 20.10
GSFC 4.48 N 03/20/98 0.07 26.29 0.17 1.54 4.37
GTPS 3.02 N 03/20/98 NA 35.00 0.15 0.73 3.65
</TABLE>
Source: SNL Securities and F&C calculations.
12
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit II.1 -- Select Publicly Held Thrifts (Continued)
<TABLE>
<CAPTION>
Income/ NPAs/ Price/ Core Income/ Income/
Avg Equity Merger Current Assets Core EPS Avg Assets Avg Equity
(%) Target? Pricing (%) EPS ($) (%) (%)
Ticker LTM (Y/N) Date Mst RctQ (x) Mst RctQ Mst RctQ Mst RctQ
- ------ ---------- ------- -------- -------- ------ -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GUPB 6.09 N 03/20/98 0.24 18.33 0.30 0.82 6.50
HALL 9.09 N 03/20/98 0.09 16.15 0.24 0.68 9.10
HARB 14.73 N 03/19/98 0.51 26.22 0.72 1.28 14.72
HARL 15.66 N 03/20/98 -- 15.76 0.48 0.95 14.11
HAVN 10.51 N 03/20/98 0.66 18.11 0.34 0.63 10.79
HBFW 6.48 N 03/20/98 -- 33.91 0.27 0.73 5.92
HBNK 12.51 N 03/20/98 1.94 13.22 0.69 1.26 16.43
HBS 9.41 N 03/20/98 0.67 8.43 0.66 2.18 15.52
HCFC 9.28 N 03/20/98 0.36 19.40 0.24 1.41 7.21
HFFB 5.06 N 03/20/98 -- 20.70 0.20 1.32 4.89
HFFC 10.68 N 03/20/98 0.33 13.92 0.53 1.09 11.42
HFNC 4.61 N 03/20/98 0.79 30.68 0.11 0.82 4.43
HFSA 5.56 N 03/20/98 0.19 18.88 0.25 0.67 5.91
HHFC 5.68 N 03/20/98 0.03 26.90 0.14 0.51 4.64
HIFS 13.00 N 03/20/98 0.77 16.67 0.51 1.25 12.77
HMLK 7.49 N 03/20/98 0.15 21.31 0.22 0.98 5.39
HMNF 5.43 N 03/20/98 NA 32.61 0.23 0.60 4.36
HOMF 14.31 N 03/20/98 0.55 19.55 0.39 1.23 14.16
HPBC 15.43 N 03/20/98 -- 14.44 0.45 1.62 15.37
HRBF 5.55 N 03/20/98 0.53 29.54 0.21 0.64 4.92
HRZB 9.90 N 03/20/98 -- 16.27 0.29 1.66 10.24
HTHR 25.89 N 03/20/98 NA 10.80 0.45 1.39 26.03
HZFS 6.70 N 03/20/98 0.96 22.57 0.18 0.72 7.12
INBI 8.38 N 03/20/98 0.23 19.64 0.28 1.53 9.11
IPSW 16.95 N 03/20/98 0.95 18.42 0.19 0.92 17.15
ITLA 13.26 N 03/20/98 NA 12.65 0.42 1.41 13.75
IWBK 14.38 N 03/20/98 0.69 21.43 0.49 0.80 12.33
JSB 9.26 N 03/20/98 NA 11.33 1.20 3.21 13.61
JSBA 9.32 N 03/20/98 0.67 29.35 0.23 0.70 7.92
JXVL 9.90 N 03/20/98 0.70 15.72 0.32 1.33 9.18
KFBI 6.11 N 03/20/98 0.02 26.14 0.22 0.88 5.84
KNK 7.88 N 03/20/98 0.89 18.82 0.48 0.83 7.51
KSBK 14.06 N 03/20/98 NA 13.60 0.34 1.07 14.32
KYF 6.70 N 03/20/98 0.04 21.88 0.16 0.94 5.55
LARK 6.94 N 03/20/98 0.15 17.80 0.33 0.97 6.87
LARL 13.48 N 03/20/98 0.42 17.44 0.31 1.37 12.98
LFBI 3.93 N 03/20/98 0.90 28.04 0.18 0.57 4.75
LOGN 7.81 N 03/20/98 0.62 14.58 0.30 1.71 8.96
LSBI 8.17 N 03/20/98 1.01 17.73 0.43 0.75 8.75
LSBX 25.38 N 03/20/98 0.52 5.69 0.83 4.28 44.00
LVSB 8.48 N 03/20/98 1.27 26.33 0.24 0.78 7.70
LXMO 4.33 N 03/20/98 0.54 23.09 0.18 0.99 4.59
MAFB 14.48 N 03/20/98 0.26 17.11 0.57 1.05 13.71
MARN 7.09 N 03/20/98 1.43 25.00 0.28 1.08 5.07
MASB 9.73 N 03/20/98 0.19 19.92 0.64 1.02 9.29
MBB 6.17 N 03/20/98 0.78 29.33 0.31 0.60 6.81
MBLF 6.41 N 03/20/98 0.48 19.64 0.35 0.83 6.54
MBSP 3.62 N 03/20/98 1.77 32.69 0.13 1.20 3.02
MCBN 8.34 N 03/20/98 0.85 19.39 0.49 0.75 8.84
MDBK 11.38 N 03/20/98 0.16 16.80 0.64 1.08 12.07
MECH 15.78 N 03/20/98 0.58 20.71 0.35 0.86 8.48
METF 16.43 N 03/20/98 0.52 16.63 0.25 0.75 19.14
MFBC 5.99 N 03/20/98 -- 22.63 0.29 0.76 5.82
MFFC 4.67 N 03/20/98 0.09 31.01 0.13 0.54 4.49
MFLR 10.40 N 03/20/98 0.65 18.24 0.37 1.02 10.56
MIFC 11.83 N 03/20/98 0.21 15.16 0.20 1.07 11.37
MONT 4.61 N 03/20/98 0.75 25.24 0.13 0.77 4.08
MSBF 8.16 N 03/20/98 0.02 20.24 0.21 1.36 8.16
MWBI 11.14 N 03/20/98 0.73 15.38 0.26 0.76 10.83
MWBX 17.83 N 03/20/98 0.58 15.14 0.13 1.26 17.10
</TABLE>
Source: SNL Securities and F&C calculations.
13
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit II.1 -- Select Publicly Held Thrifts (Continued)
<TABLE>
<CAPTION>
Income/ NPAs/ Price/ Core Income/ Income/
Avg Equity Merger Current Assets Core EPS Avg Assets Avg Equity
(%) Target? Pricing (%) EPS ($) (%) (%)
Ticker LTM (Y/N) Date Mst RctQ (x) Mst RctQ Mst RctQ Mst RctQ
- ------ ---------- ------- -------- -------- ------ -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NASB 17.26 N 03/20/98 3.07 13.91 1.24 1.51 18.18
NBN 8.18 N 03/20/98 1.24 19.60 0.22 0.84 10.56
NEIB 7.78 N 03/20/98 0.17 16.00 0.33 1.28 8.66
NHTB 10.43 N 03/20/98 0.44 16.11 0.32 0.82 10.33
NMSB 8.55 N 03/20/98 0.78 17.34 0.20 1.01 9.94
NSLB 3.56 N 03/20/98 0.01 31.25 0.14 0.64 3.24
NSSY 4.07 N 03/20/98 1.14 18.06 0.59 0.86 10.70
NWEQ 8.78 N 03/20/98 1.33 15.45 0.35 1.10 9.45
OCFC 6.04 N 03/20/98 0.45 19.04 0.48 0.96 6.55
OFCP 9.47 N 03/20/98 0.27 22.16 0.33 0.86 10.02
OHSL 7.55 N 03/20/98 0.03 24.82 0.34 0.70 6.43
PBCI 9.87 N 03/20/98 1.70 18.26 0.38 1.15 8.88
PCBC 5.72 N 03/20/98 0.01 22.36 0.26 0.95 4.94
PDB 7.26 N 03/20/98 1.13 20.43 0.13 1.13 6.88
PEEK 4.23 N 03/20/98 0.77 26.37 0.16 1.01 3.92
PERM 6.49 N 03/20/98 0.70 29.03 0.31 0.63 6.47
PFDC 9.78 N 03/20/98 0.25 18.75 0.30 1.40 9.21
PFFB 5.02 N 03/20/98 1.38 21.29 0.24 0.61 6.14
PFNC 13.37 N 03/20/98 0.50 28.71 0.16 0.64 12.09
PFSB 10.98 N 03/20/98 0.55 16.52 0.28 0.76 10.60
PFSL 9.72 N 03/20/98 0.13 34.75 0.33 0.58 9.16
PHBK 16.13 N 03/20/98 0.75 16.46 0.71 1.24 17.38
PHFC 6.51 N 03/20/98 1.68 17.19 0.26 0.67 6.86
PHSB 6.92 N 03/20/98 0.38 29.04 0.17 0.81 6.10
PRBC 5.03 N 03/20/98 0.43 30.08 0.16 0.39 3.35
PSFC 5.75 N 03/20/98 0.82 22.50 0.20 1.27 5.13
PSFI 5.43 N 03/20/98 0.68 18.59 0.19 1.98 5.24
PTRS 10.54 N 03/20/98 0.17 24.67 0.19 0.60 6.71
PULS 13.56 N 03/20/98 0.85 15.85 0.42 1.02 12.69
PVFC 18.16 N 03/20/98 0.96 13.33 0.45 1.26 17.48
PVSA 14.71 N 03/20/98 0.36 15.02 0.52 1.08 14.56
PWBC 8.64 N 03/20/98 0.45 17.88 0.27 0.67 8.21
PWBK 5.28 N 03/20/98 0.74 29.30 0.16 0.70 3.85
QCBC 8.08 N 03/20/98 1.33 17.14 0.33 0.72 8.44
QCFB 9.27 N 03/20/98 0.39 12.39 0.57 1.68 9.90
QCSB 12.76 N 03/20/98 0.44 28.46 0.37 1.32 12.38
RARB 12.93 N 03/20/98 0.23 16.99 0.39 0.97 12.93
RELY 10.31 N 03/20/98 0.54 19.01 0.49 0.87 10.30
RIVR 5.14 N 03/20/98 0.71 18.75 0.26 0.81 6.44
ROSE 14.16 N 03/20/98 0.48 18.88 0.47 0.89 14.35
RSLN 6.78 N 03/20/98 0.18 21.85 0.27 1.18 6.90
SCBS 5.66 N 03/20/98 2.17 21.02 0.22 1.22 6.05
SFED 4.87 N 03/20/98 0.82 25.82 0.23 0.56 4.63
SFFC 7.21 N 03/20/98 1.74 20.14 0.18 1.24 7.05
SFIN 8.46 N 03/20/98 0.33 17.23 0.33 0.81 8.62
SFSL 14.78 N 03/20/98 0.43 20.09 0.28 1.36 14.68
SISB 12.13 N 03/20/98 0.44 16.19 0.61 0.93 13.02
SKAN 9.47 N 03/20/98 1.89 18.63 0.26 0.61 8.63
SMBC 4.96 N 03/20/98 0.83 33.98 0.16 0.66 4.05
SOBI 3.95 N 03/20/98 0.26 31.25 0.17 0.59 4.06
SOPN 7.43 N 03/20/98 0.20 19.24 0.32 1.74 7.61
SPBC 12.25 N 03/20/98 0.17 18.19 0.36 1.07 11.87
SSB 5.17 N 03/20/98 -- 28.30 0.09 1.00 4.31
SSM 4.52 N 03/20/98 -- 26.64 0.19 1.35 4.39
STFR 9.18 N 03/20/98 0.21 22.36 0.52 0.66 8.30
STSA 9.51 N 03/20/98 0.73 19.32 0.33 0.54 10.11
SVRN 12.55 N 03/20/98 0.63 19.53 0.28 0.80 15.13
SZB 5.35 N 03/20/98 0.29 18.97 0.29 0.73 6.83
THR 6.12 N 03/20/98 0.95 22.92 0.24 0.78 5.70
THRD 6.28 N 03/20/98 0.29 25.23 0.27 0.61 7.45
</TABLE>
Source: SNL Securities and F&C calculations.
14
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit II.1 -- Select Publicly Held Thrifts (Continued)
<TABLE>
<CAPTION>
Income/ NPAs/ Price/ Core Income/ Income/
Avg Equity Merger Current Assets Core EPS Avg Assets Avg Equity
(%) Target? Pricing (%) EPS ($) (%) (%)
Ticker LTM (Y/N) Date Mst RctQ (x) Mst RctQ Mst RctQ Mst RctQ
- ------ ---------- ------- -------- -------- ------ -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TRIC 6.89 N 03/20/98 -- 20.83 0.18 0.98 6.46
TSH 6.97 N 03/20/98 0.38 19.42 0.28 0.90 6.66
TWIN 6.49 N 03/20/98 0.08 21.69 0.17 0.77 6.04
UBMT 6.04 N 03/20/98 0.35 21.40 0.33 1.53 6.52
USAB 4.08 N 03/20/98 0.57 20.42 0.15 0.87 9.19
VABF 7.84 N 03/20/98 0.40 28.86 0.17 0.58 8.28
WAMU 15.29 N 03/20/98 0.83 20.54 0.90 0.95 17.13
WBST 14.06 N 03/20/98 0.65 16.79 0.99 0.81 14.99
WCBI 9.14 N 03/20/98 0.19 17.91 0.41 1.38 8.94
WCFB 6.18 N 03/20/98 0.06 32.62 0.16 1.46 6.23
WEFC 7.48 N 03/20/98 NA 16.74 0.28 1.04 7.22
WFI 12.63 N 03/20/98 0.22 17.81 0.40 0.98 13.41
WFSL 15.35 N 03/20/98 0.60 14.50 0.50 1.88 14.64
WOFC 3.16 N 03/20/98 0.44 32.50 0.20 0.40 2.89
WRNB 15.53 N 03/20/98 0.83 17.14 0.35 1.53 14.19
WSB 6.25 N 03/20/98 NA 34.64 0.06 0.39 4.59
WSFS 20.00 N 03/20/98 1.23 18.23 0.30 1.00 17.34
WSTR 6.94 N 03/20/98 0.29 17.97 0.36 0.80 7.53
WVFC 11.03 N 03/20/98 0.20 16.70 0.58 1.44 11.95
WYNE 5.64 N 03/20/98 0.92 31.25 0.23 0.66 5.26
YFCB 7.00 N 03/20/98 0.49 19.23 0.26 0.92 6.63
YFED 9.36 N 03/20/98 1.01 27.72 0.23 0.74 8.44
Maximum 25.89 3.92 35.00 1.60 4.90 73.66
Minimum (4.75) -- 2.57 0.06 0.38 2.89
Average 9.22 0.61 21.12 0.34 1.01 9.69
Median 8.34 0.47 19.85 0.28 0.92 8.44
</TABLE>
Source: SNL Securities and F&C calculations.
15
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit II.2 -- Select Midwest Region Publicly Held Thrifts
<TABLE>
<CAPTION>
Deposit Current
Insurance Stock
Agency Price
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($)
- ------ ---------- ---- ----- ------ ---------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ABCL Alliance Bancorp Inc. Hinsdale IL MW SAIF NASDAQ 07/07/92 28.750
ABCW Anchor BanCorp Wisconsin Madison WI MW SAIF NASDAQ 07/16/92 44.500
AMFC AMB Financial Corp. Munster IN MW SAIF NASDAQ 04/01/96 17.625
ASBI Ameriana Bancorp New Castle IN MW SAIF NASDAQ 03/02/87 20.500
ASBP ASB Financial Corp. Portsmouth OH MW SAIF NASDAQ 05/11/95 14.250
BDJI First Federal Bancorp. Bemidji MN MW SAIF NASDAQ 04/04/95 20.000
CAFI Camco Financial Corp. Cambridge OH MW SAIF NASDAQ NA 26.375
CASH First Midwest Financial Inc. Storm Lake IA MW SAIF NASDAQ 09/20/93 22.875
CBCI Calumet Bancorp Inc. Dolton IL MW SAIF NASDAQ 02/20/92 36.750
CFB Commercial Federal Corp. Omaha NE MW SAIF NYSE 12/31/84 35.250
CFSB CFSB Bancorp Inc. Lansing MI MW SAIF NASDAQ 06/22/90 29.125
CIBI Community Investors Bancorp Bucyrus OH MW SAIF NASDAQ 02/07/95 18.000
CKFB CKF Bancorp Inc. Danville KY MW SAIF NASDAQ 01/04/95 20.500
CLAS Classic Bancshares Inc. Ashland KY MW SAIF NASDAQ 12/29/95 20.250
CMRN Cameron Financial Corp Cameron MO MW SAIF NASDAQ 04/03/95 20.250
CNSB CNS Bancorp Inc. Jefferson City MO MW SAIF NASDAQ 06/12/96 18.250
COFI Charter One Financial Cleveland OH MW SAIF NASDAQ 01/22/88 65.625
CSBF CSB Financial Group Inc. Centralia IL MW SAIF NASDAQ 10/09/95 13.750
DCBI Delphos Citizens Bancorp Inc. Delphos OH MW SAIF NASDAQ 11/21/96 21.250
DNFC D & N Financial Corp. Hancock MI MW SAIF NASDAQ 02/13/85 27.750
EFBI Enterprise Federal Bancorp West Chester OH MW SAIF NASDAQ 10/17/94 33.000
EMLD Emerald Financial Corp. Strongsville OH MW SAIF NASDAQ 10/05/93 22.000
FBCI Fidelity Bancorp Inc. Chicago IL MW SAIF NASDAQ 12/15/93 25.000
FBCV 1ST Bancorp Vincennes IN MW SAIF NASDAQ 04/07/87 27.250
FBSI First Bancshares Inc. Mountain Grove MO MW SAIF NASDAQ 12/22/93 16.750
FCBF FCB Financial Corp. Oshkosh WI MW SAIF NASDAQ 09/24/93 32.250
FDEF First Defiance Financial Defiance OH MW SAIF NASDAQ 10/02/95 15.375
FFBZ First Federal Bancorp Inc. Zanesville OH MW SAIF NASDAQ 07/13/92 25.000
FFED Fidelity Federal Bancorp Evansville IN MW SAIF NASDAQ 08/31/87 9.375
FFFD North Central Bancshares Inc. Fort Dodge IA MW SAIF NASDAQ 03/21/96 22.438
FFHH FSF Financial Corp. Hutchinson MN MW SAIF NASDAQ 10/07/94 20.000
FFHS First Franklin Corp. Cincinnati OH MW SAIF NASDAQ 01/26/88 26.500
FFKY First Federal Financial Corp. Elizabethtown KY MW SAIF NASDAQ 07/15/87 21.484
FFOH Fidelity Financial of Ohio Cincinnati OH MW SAIF NASDAQ 03/04/96 18.000
FFSL First Independence Corp. Independence KS MW SAIF NASDAQ 10/08/93 15.000
FFSX First Fed SB of Siouxland(MHC) Sioux City IA MW SAIF NASDAQ 07/13/92 35.750
FFWC FFW Corp. Wabash IN MW SAIF NASDAQ 04/05/93 19.000
FFWD Wood Bancorp Inc. Bowling Green OH MW SAIF NASDAQ 08/31/93 20.000
FFYF FFY Financial Corp. Youngstown OH MW SAIF NASDAQ 06/28/93 34.375
FISB First Indiana Corp. Indianapolis IN MW SAIF NASDAQ 08/02/83 27.000
FKKY Frankfort First Bancorp Inc. Frankfort KY MW SAIF NASDAQ 07/10/95 16.750
FLGS Flagstar Bancorp Inc. Bloomfield Hills MI MW SAIF NASDAQ NA 23.375
FLKY First Lancaster Bancshares Lancaster KY MW SAIF NASDAQ 07/01/96 15.125
FNGB First Northern Capital Corp. Green Bay WI MW SAIF NASDAQ 12/29/83 13.500
FTFC First Federal Capital Corp. La Crosse WI MW SAIF NASDAQ 11/02/89 31.500
FTSB Fort Thomas Financial Corp. Fort Thomas KY MW SAIF NASDAQ 06/28/95 15.250
GFCO Glenway Financial Corp. Cincinnati OH MW SAIF NASDAQ 11/30/90 20.000
GSBC Great Southern Bancorp Inc. Springfield MO MW SAIF NASDAQ 12/14/89 25.750
GTPS Great American Bancorp Champaign IL MW SAIF NASDAQ 06/30/95 21.000
HALL Hallmark Capital Corp. West Allis WI MW SAIF NASDAQ 01/03/94 15.500
HBFW Home Bancorp Fort Wayne IN MW SAIF NASDAQ 03/30/95 36.625
HCFC Home City Financial Corp. Springfield OH MW SAIF NASDAQ 12/30/96 18.625
HFFB Harrodsburg First Fin Bancorp Harrodsburg KY MW SAIF NASDAQ 10/04/95 16.563
HFFC HF Financial Corp. Sioux Falls SD MW SAIF NASDAQ 04/08/92 29.500
HFSA Hardin Bancorp Inc. Hardin MO MW SAIF NASDAQ 09/29/95 18.875
HHFC Harvest Home Financial Corp. Cheviot OH MW SAIF NASDAQ 10/10/94 15.063
HMLK Hemlock Federal Financial Corp Oak Forest IL MW SAIF NASDAQ 04/02/97 18.750
HMNF HMN Financial Inc. Spring Valley MN MW SAIF NASDAQ 06/30/94 30.000
HOMF Home Federal Bancorp Seymour IN MW SAIF NASDAQ 01/23/88 30.500
</TABLE>
Source: SNL Securities and F&C calculations.
16
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit II.2 -- Select Midwest Region Publicly Held Thrifts (Continued)
<TABLE>
<CAPTION>
Deposit Current
Insurance Stock
Agency Price
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($)
- ------ ---------- ---- ----- ------ ---------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HZFS Horizon Financial Svcs Corp. Oskaloosa IA MW SAIF NASDAQ 06/30/94 16.250
INBI Industrial Bancorp Inc. Bellevue OH MW SAIF NASDAQ 08/01/95 22.000
JSBA Jefferson Savings Bancorp Ballwin MO MW SAIF NASDAQ 04/08/93 27.000
KNK Kankakee Bancorp Inc. Kankakee IL MW SAIF AMSE 01/06/93 36.125
KYF Kentucky First Bancorp Inc. Cynthiana KY MW SAIF AMSE 08/29/95 14.000
LARK Landmark Bancshares Inc. Dodge City KS MW SAIF NASDAQ 03/28/94 23.500
LOGN Logansport Financial Corp. Logansport IN MW SAIF NASDAQ 06/14/95 17.500
LSBI LSB Financial Corp. Lafayette IN MW BIF NASDAQ 02/03/95 30.500
LXMO Lexington B&L Financial Corp. Lexington MO MW SAIF NASDAQ 06/06/96 16.625
MAFB MAF Bancorp Inc. Clarendon Hills IL MW SAIF NASDAQ 01/12/90 39.000
MARN Marion Capital Holdings Marion IN MW SAIF NASDAQ 03/18/93 28.000
MBLF MBLA Financial Corp. Macon MO MW SAIF NASDAQ 06/24/93 27.500
METF Metropolitan Financial Corp. Mayfield Heights OH MW SAIF NASDAQ NA 16.625
MFBC MFB Corp. Mishawaka IN MW SAIF NASDAQ 03/25/94 26.250
MFFC Milton Federal Financial Corp. West Milton OH MW SAIF NASDAQ 10/07/94 16.125
MIFC Mid-Iowa Financial Corp. Newton IA MW SAIF NASDAQ 10/14/92 12.125
MONT Montgomery Financial Corp. Crawfordsville IN MW SAIF NASDAQ 07/01/97 13.125
MSBF MSB Financial Inc. Marshall MI MW SAIF NASDAQ 02/06/95 17.000
MWBI Midwest Bancshares Inc. Burlington IA MW SAIF NASDAQ 11/12/92 16.000
NASB North American Savings Bank Grandview MO MW SAIF NASDAQ 09/27/85 69.000
NEIB Northeast Indiana Bancorp Huntington IN MW SAIF NASDAQ 06/28/95 21.125
NSLB NS&L Bancorp Inc. Neosho MO MW SAIF NASDAQ 06/08/95 17.500
NWEQ Northwest Equity Corp. Amery WI MW SAIF NASDAQ 10/11/94 21.625
OFCP Ottawa Financial Corp. Holland MI MW SAIF NASDAQ 08/19/94 29.250
OHSL OHSL Financial Corp. Cincinnati OH MW SAIF NASDAQ 02/10/93 33.750
PCBC Perry County Financial Corp. Perryville MO MW SAIF NASDAQ 02/13/95 23.250
PERM Permanent Bancorp Inc. Evansville IN MW SAIF NASDAQ 04/04/94 36.000
PFDC Peoples Bancorp Auburn IN MW SAIF NASDAQ 07/07/87 22.500
PSFC Peoples-Sidney Financial Corp. Sidney OH MW SAIF NASDAQ 04/28/97 18.000
PSFI PS Financial Inc. Chicago IL MW SAIF NASDAQ 11/27/96 14.125
PTRS Potters Financial Corp. East Liverpool OH MW SAIF NASDAQ 12/31/93 18.750
PVFC PVF Capital Corp. Bedford Heights OH MW SAIF NASDAQ 12/30/92 24.000
QCFB QCF Bancorp Inc. Virginia MN MW SAIF NASDAQ 04/03/95 28.250
RIVR River Valley Bancorp Madison IN MW SAIF NASDAQ 12/20/96 19.500
SFFC StateFed Financial Corp. Des Moines IA MW SAIF NASDAQ 01/05/94 14.500
SFSL Security First Corp. Mayfield Heights OH MW SAIF NASDAQ 01/22/88 22.500
SMBC Southern Missouri Bancorp Inc. Poplar Bluff MO MW SAIF NASDAQ 04/13/94 21.750
SOBI Sobieski Bancorp Inc. South Bend IN MW SAIF NASDAQ 03/31/95 21.250
SPBC St. Paul Bancorp Inc. Chicago IL MW SAIF NASDAQ 05/18/87 26.188
STFR St. Francis Capital Corp. Brookfield WI MW SAIF NASDAQ 06/21/93 46.500
THR Three Rivers Financial Corp. Three Rivers MI MW SAIF AMSE 08/24/95 22.000
WCBI Westco Bancorp Inc. Westchester IL MW SAIF NASDAQ 06/26/92 29.375
WCFB Webster City Federal SB (MHC) Webster City IA MW SAIF NASDAQ 08/15/94 20.875
WEFC Wells Financial Corp. Wells MN MW SAIF NASDAQ 04/11/95 18.750
WFI Winton Financial Corp. Cincinnati OH MW SAIF AMSE 08/04/88 28.500
WOFC Western Ohio Financial Corp. Springfield OH MW SAIF NASDAQ 07/29/94 26.000
Maximum 69.000
Minimum 9.375
Average 23.900
Median 21.625
</TABLE>
Source: SNL Securities and F&C calculations.
17
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit II.2 -- Select Midwest Region Publicly Held Thrifts (Continued)
<TABLE>
<CAPTION>
Current Price/ Current Current Current Total Equity/ Equity/ Core Income/
Market LTM Price/ Price/Tang Price/ Dividend Assets Assets Tang Assets EPS Avg Assets
Value Core EPS Book Value Book Value Assets Yield ($000) (%) (%) ($) (%)
Ticker ($M) (x) (%) (%) (%) (%) Mst RctQ Mst RctQ Mst RctQ LTM LTM
- ------ --------- -------- ---------- ---------- ------ -------- --------- -------- ----------- ---- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ABCL 230.64 20.68 176.16 178.24 16.91 1.53 1,363,825 9.60 9.50 1.39 0.85
ABCW 402.81 23.30 312.28 317.40 20.75 0.72 1,941,180 6.65 6.54 1.91 0.96
AMFC 16.99 24.82 114.97 114.97 16.99 1.59 100,003 14.77 14.77 0.71 0.71
ASBI 66.28 21.13 149.20 149.31 16.96 3.12 390,868 11.37 11.36 0.97 0.81
ASBP 23.31 22.27 134.56 134.56 20.82 2.81 113,176 15.46 15.46 0.64 0.92
BDJI 19.97 23.26 165.15 165.15 16.80 -- 118,838 10.18 10.18 0.86 0.66
CAFI 84.85 18.97 173.29 186.79 16.30 2.05 520,582 9.41 8.78 1.39 0.94
CASH 61.58 18.75 139.57 156.46 15.11 2.10 407,592 10.83 9.77 1.22 0.90
CBCI 115.45 15.98 141.45 141.45 23.72 -- 486,626 16.77 16.77 2.30 1.62
CFB 1,420.71 17.28 250.71 278.00 15.98 0.62 7,189,342 6.38 5.79 2.04 0.95
CFSB 221.57 23.30 327.98 327.98 25.98 1.79 852,888 7.92 7.92 1.25 1.18
CIBI 16.24 16.98 146.22 146.22 16.94 1.78 95,876 11.58 11.58 1.06 0.97
CKFB 17.77 21.13 119.60 119.60 28.27 2.44 62,865 21.89 21.89 0.97 1.37
CLAS 26.32 28.93 131.66 154.34 19.82 1.38 132,793 15.06 13.14 0.70 0.64
CMRN 51.88 21.09 114.67 114.67 24.58 1.38 211,253 21.44 21.44 0.96 1.16
CNSB 30.17 35.78 126.12 126.12 30.82 1.32 97,891 24.44 24.44 0.51 0.87
COFI 4,190.08 20.64 304.38 325.84 21.20 1.52 19,760,265 6.97 6.54 3.18 1.10
CSBF 11.55 55.00 105.04 111.61 24.25 -- 47,602 23.10 22.04 0.25 0.45
DCBI 41.35 22.37 143.29 143.29 38.37 1.13 107,747 26.78 26.78 0.95 1.62
DNFC 252.50 20.26 257.42 259.83 13.91 0.66 1,815,315 5.40 5.36 1.37 0.79
EFBI 65.53 33.00 202.33 202.45 21.75 3.03 301,261 10.75 10.75 1.00 0.75
EMLD 111.60 19.64 230.13 233.30 18.48 1.27 603,965 8.03 7.93 1.12 0.98
FBCI 70.37 23.36 137.21 137.44 14.37 1.60 489,673 10.47 10.45 1.07 0.61
FBCV 29.69 23.09 129.27 131.58 11.60 0.98 255,927 8.98 8.83 1.18 0.49
FBSI 36.97 20.18 157.42 157.42 22.67 0.60 161,527 14.40 14.40 0.83 1.12
FCBF 124.57 22.55 170.01 170.01 23.96 2.48 519,911 14.10 14.10 1.43 1.15
FDEF 131.11 25.63 122.71 122.71 22.62 2.34 579,698 18.44 18.44 0.60 0.94
FFBZ 39.38 23.81 273.52 273.82 18.86 1.12 208,840 7.61 7.60 1.05 0.92
FFED 29.32 15.37 186.75 186.75 13.59 4.27 215,821 7.28 7.28 0.61 0.68
FFFD 73.29 19.34 145.42 145.42 33.02 1.43 221,954 22.72 22.72 1.16 1.78
FFHH 60.91 18.18 122.40 122.40 14.97 2.50 402,850 10.91 10.91 1.10 0.82
FFHS 31.59 20.87 148.79 149.55 13.70 1.51 230,504 9.21 9.17 1.27 0.68
FFKY 88.70 14.72 167.71 177.41 22.93 2.61 388,329 13.67 13.02 1.46 1.61
FFOH 100.67 21.18 156.66 177.69 18.81 1.78 535,100 12.01 10.74 0.85 0.90
FFSL 14.31 20.83 125.94 125.94 12.59 2.00 113,669 9.99 9.99 0.72 0.65
FFSX 101.33 31.09 249.30 251.23 22.08 1.34 458,940 8.85 8.79 1.15 0.71
FFWC 27.54 15.32 149.72 164.22 14.33 1.90 191,298 9.57 8.81 1.24 1.01
FFWD 53.02 26.32 248.76 248.76 31.84 1.70 166,546 12.80 12.80 0.76 1.29
FFYF 139.91 17.81 167.44 167.44 22.76 2.33 614,749 13.59 13.59 1.93 1.27
FISB 342.04 24.55 223.51 226.13 21.20 1.78 1,613,405 9.49 9.39 1.10 0.95
FKKY 27.12 27.92 120.33 120.33 20.42 4.78 132,809 16.96 16.96 0.60 0.72
FLGS 319.54 13.36 262.94 273.71 15.72 1.03 2,033,260 5.98 5.75 1.75 1.43
FLKY 14.42 27.50 101.37 101.37 28.90 3.31 49,880 28.50 28.50 0.55 1.17
FNGB 119.42 21.43 161.68 161.68 17.89 2.67 667,696 11.06 11.06 0.63 0.90
FTFC 289.50 22.50 264.71 279.75 18.75 1.52 1,544,294 7.08 6.72 1.40 0.89
FTSB 22.49 18.60 142.39 142.39 22.51 1.64 99,873 15.82 15.82 0.82 1.23
GFCO 45.65 19.23 161.16 162.87 14.98 2.00 304,621 9.29 9.20 1.04 0.83
GSBC 207.23 17.05 316.73 319.48 27.68 1.71 750,458 8.74 8.68 1.51 1.75
GTPS 35.11 42.86 113.70 113.70 24.73 1.91 141,976 19.93 19.93 0.49 0.63
HALL 45.47 16.67 144.19 144.19 11.00 -- 413,511 7.62 7.62 0.93 0.65
HBFW 87.36 30.27 205.41 205.41 24.96 0.55 350,038 12.15 12.15 1.21 0.86
HCFC 16.85 18.81 120.39 120.39 23.45 -- 71,854 19.49 19.49 0.99 1.41
HFFB 30.89 20.97 104.50 104.50 30.20 2.42 108,908 26.73 26.73 0.79 1.36
HFFC 87.83 16.03 157.75 157.75 15.13 1.42 580,668 9.58 9.58 1.84 1.00
HFSA 15.54 20.52 118.79 118.79 13.47 2.76 115,434 11.34 11.34 0.92 0.69
HHFC 13.43 22.82 129.63 129.63 14.42 2.92 93,141 11.12 11.12 0.66 0.67
HMLK 38.93 NA 127.99 127.99 22.04 1.49 176,683 17.22 17.22 NA 0.99
HMNF 124.33 26.55 147.20 158.56 17.99 -- 691,232 12.22 11.45 1.13 0.78
HOMF 156.16 19.55 249.80 256.95 21.98 1.31 709,412 8.80 8.58 1.56 1.22
</TABLE>
Source: SNL Securities and F&C calculations.
18
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit II.2 -- Select Midwest Region Publicly Held Thrifts (Continued)
<TABLE>
<CAPTION>
Current Price/ Current Current Current Total Equity/ Equity/ Core Income/
Market LTM Price/ Price/Tang Price/ Dividend Assets Assets Tang Assets EPS Avg Assets
Value Core EPS Book Value Book Value Assets Yield ($000) (%) (%) ($) (%)
Ticker ($M) (x) (%) (%) (%) (%) Mst RctQ Mst RctQ Mst RctQ LTM LTM
- ------ --------- -------- ---------- ---------- ------ -------- --------- -------- ----------- ---- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HZFS 13.86 24.25 153.59 153.59 15.62 1.11 88,769 10.16 10.16 0.67 0.68
INBI 112.26 21.36 184.41 184.41 30.84 2.55 364,023 16.72 16.72 1.03 1.48
JSBA 270.40 25.71 219.69 280.08 21.49 1.04 1,257,753 9.03 7.22 1.05 0.76
KNK 49.55 18.43 131.03 139.00 14.43 1.33 343,409 11.01 10.45 1.96 0.86
KYF 17.55 18.18 123.67 123.67 21.05 3.57 86,307 17.02 17.02 0.77 1.11
LARK 39.68 18.65 120.57 120.57 16.98 1.70 233,640 14.09 14.09 1.26 0.98
LOGN 22.07 18.23 133.38 133.38 25.62 2.29 86,115 19.21 19.21 0.96 1.53
LSBI 27.95 19.18 147.77 147.77 13.53 1.31 206,584 8.58 8.58 1.59 0.72
LXMO 18.63 23.75 109.88 117.16 20.15 1.81 92,450 18.34 17.39 0.70 1.14
MAFB 585.50 16.60 222.22 252.26 16.93 0.72 3,457,664 7.62 6.77 2.35 1.13
MARN 49.89 18.42 125.11 127.85 26.00 3.14 191,854 20.78 20.43 1.52 1.58
MBLF 34.48 20.37 123.21 123.21 15.62 1.46 223,558 12.68 12.68 1.35 0.82
METF 117.23 21.59 319.71 347.80 12.67 -- 924,985 3.96 3.65 0.77 0.65
MFBC 42.70 22.25 127.37 127.37 16.17 1.30 264,097 12.70 12.70 1.18 0.82
MFFC 36.55 28.79 132.06 132.06 16.70 3.72 218,826 11.84 11.84 0.56 0.62
MIFC 20.73 15.16 163.63 163.85 15.32 0.66 135,345 9.36 9.35 0.80 1.10
MONT 21.70 NA 110.39 110.39 20.53 1.68 105,671 18.60 18.60 NA 0.73
MSBF 20.94 20.24 160.98 160.98 27.14 1.77 77,444 16.86 16.86 0.84 1.40
MWBI 16.33 15.84 152.96 152.96 11.06 1.50 147,724 7.23 7.23 1.01 0.77
NASB 154.54 15.72 247.93 255.37 21.05 1.45 734,091 8.49 8.26 4.39 1.36
NEIB 36.26 17.46 136.20 136.20 19.57 1.61 190,319 14.37 14.37 1.21 1.20
NSLB 12.00 26.92 105.17 105.93 20.76 2.86 57,823 19.74 19.62 0.65 0.71
NWEQ 18.14 16.63 145.92 145.92 18.22 2.78 99,558 11.61 11.61 1.30 1.02
OFCP 155.41 22.85 203.55 250.21 17.54 1.37 885,817 8.62 7.13 1.28 0.83
OHSL 41.88 21.63 156.25 156.25 17.53 2.61 238,905 10.90 10.90 1.56 0.84
PCBC 19.25 20.04 117.66 117.66 22.64 1.72 85,030 19.24 19.24 1.16 1.08
PERM 75.87 30.00 174.17 176.21 18.03 1.22 419,819 10.00 9.89 1.20 0.61
PFDC 76.08 18.00 169.81 169.81 25.92 1.96 294,291 15.26 15.26 1.25 1.49
PSFC 32.14 NA 113.56 113.56 30.25 1.56 106,239 24.74 24.74 NA 1.14
PSFI 29.29 NA 95.70 95.70 35.71 3.40 85,698 37.32 37.32 NA 2.10
PTRS 18.31 15.76 165.78 165.78 14.88 1.07 122,637 8.97 8.97 1.19 0.98
PVFC 63.82 13.87 221.20 221.20 16.11 -- 396,214 7.28 7.28 1.73 1.29
QCFB 39.04 13.85 145.54 145.54 25.57 -- 152,668 17.57 17.57 2.04 1.62
RIVR 23.21 NA 131.76 133.65 16.76 1.03 138,461 12.72 12.56 NA 0.61
SFFC 22.61 20.14 144.42 144.42 25.49 1.38 88,608 17.66 17.66 0.72 1.27
SFSL 169.39 21.03 268.50 272.73 25.13 1.42 677,876 9.36 9.23 1.07 1.37
SMBC 34.73 26.52 132.06 132.06 21.93 2.30 159,926 16.60 16.60 0.82 0.80
SOBI 16.66 32.20 119.72 119.72 18.55 1.51 87,553 14.39 14.39 0.66 0.61
SPBC 895.75 18.57 214.30 214.83 19.65 1.53 4,557,336 9.17 9.15 1.41 1.09
STFR 244.19 20.76 188.03 210.88 15.28 1.20 1,597,648 8.27 7.44 2.24 0.75
THR 18.14 21.78 138.19 138.63 18.61 2.00 97,487 13.46 13.43 1.01 0.84
WCBI 72.39 18.02 148.96 148.96 22.91 2.32 315,944 15.38 15.38 1.63 1.41
WCFB 44.03 32.12 196.93 196.93 46.30 3.83 95,121 23.50 23.50 0.65 1.45
WEFC 36.74 16.59 123.93 123.93 18.24 2.56 201,436 14.71 14.71 1.13 1.06
WFI 57.20 19.79 234.38 238.69 17.33 1.75 329,897 7.39 7.27 1.44 0.91
WOFC 63.16 32.50 111.11 119.05 15.41 3.85 397,425 13.87 13.06 0.80 0.43
Maximum 4,190.08 55.00 327.98 347.80 46.30 4.78 19,760,265 37.32 37.32 4.39 2.10
Minimum 11.55 13.36 95.70 95.70 11.00 -- 47,602 3.96 3.65 0.25 0.43
Average 139.61 21.91 166.78 171.15 20.48 1.74 707,107 13.38 13.19 1.18 1.01
Median 42.70 20.80 147.77 149.55 19.57 1.60 223,558 11.84 11.58 1.09 0.94
</TABLE>
Source: SNL Securities and F&C calculations.
19
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit II.2 -- Select Midwest Region Publicly Held Thrifts (Continued)
<TABLE>
<CAPTION>
Income/ NPAs/ Price/ Core Income/ Income/
Avg Equity Merger Current Assets Core EPS Avg Assets Avg Equity
(%) Target? Pricing (%) EPS ($) (%) (%)
Ticker LTM (Y/N) Date Mst RctQ (x) Mst RctQ Mst RctQ Mst RctQ
- ------ ---------- ------- -------- -------- ------ -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ABCL 9.25 N 03/20/98 0.27 23.19 0.31 0.79 8.16
ABCW 14.70 N 03/20/98 0.97 21.39 0.52 1.03 15.64
AMFC 4.39 N 03/20/98 NA 27.54 0.16 0.57 3.95
ASBI 7.20 N 03/20/98 NA 25.63 0.20 0.65 5.79
ASBP 5.87 N 03/20/98 0.08 22.27 0.16 0.89 5.73
BDJI 6.05 N 03/20/98 0.03 19.23 0.26 0.75 7.17
CAFI 9.78 N 03/20/98 0.29 25.36 0.26 0.66 6.90
CASH 7.97 N 03/20/98 0.74 17.33 0.33 0.90 8.36
CBCI 10.26 N 03/20/98 1.64 12.09 0.76 2.16 13.24
CFB 15.76 N 03/20/98 0.84 16.95 0.52 0.94 15.15
CFSB 15.27 N 03/20/98 0.10 22.75 0.32 1.18 15.09
CIBI 8.33 N 03/20/98 0.65 18.00 0.25 0.89 7.64
CKFB 5.84 N 03/20/98 0.10 19.71 0.26 1.39 6.13
CLAS 4.31 N 03/20/98 0.34 22.01 0.23 0.83 5.55
CMRN 5.26 N 03/20/98 0.38 23.01 0.22 0.99 4.64
CNSB 3.54 N 03/20/98 0.13 32.59 0.14 0.90 3.68
COFI 15.66 N 03/20/98 0.30 21.59 0.76 0.96 13.56
CSBF 1.85 N 03/20/98 NA 31.25 0.11 0.77 3.25
DCBI 5.82 N 03/20/98 0.35 24.15 0.22 1.48 5.56
DNFC 14.13 N 03/20/98 0.29 20.40 0.34 0.70 13.21
EFBI 6.28 N 03/20/98 -- 34.38 0.24 0.70 6.28
EMLD 12.77 N 03/20/98 0.35 20.37 0.27 0.97 12.19
FBCI 5.90 N 03/20/98 NA 18.38 0.34 0.78 7.54
FBCV 5.85 N 03/20/98 1.23 20.64 0.33 0.55 6.29
FBSI 8.06 N 03/20/98 0.04 18.21 0.23 1.23 8.80
FCBF 7.69 N 03/20/98 0.26 19.20 0.42 1.22 8.75
FDEF 4.57 N 03/20/98 0.33 34.94 0.11 0.64 3.37
FFBZ 12.01 N 03/20/98 0.57 31.25 0.20 0.69 9.02
FFED 11.84 N 03/20/98 0.30 23.44 0.10 0.58 8.19
FFFD 7.61 N 03/20/98 NA 19.34 0.29 1.71 7.49
FFHH 7.15 N 03/20/98 0.22 19.23 0.26 0.74 6.74
FFHS 7.60 N 03/20/98 0.32 18.40 0.36 0.76 8.27
FFKY 11.79 N 03/20/98 0.07 15.35 0.35 1.51 11.01
FFOH 6.93 N 03/20/98 0.18 21.43 0.21 0.86 6.84
FFSL 6.26 N 03/20/98 0.89 20.83 0.18 0.64 6.25
FFSX 8.40 N 03/20/98 0.14 33.10 0.27 0.70 7.82
FFWC 10.28 N 03/20/98 0.31 14.39 0.33 0.99 10.25
FFWD 10.30 N 03/20/98 0.02 27.78 0.18 1.21 9.56
FFYF 9.23 N 03/20/98 0.62 17.54 0.49 1.25 9.14
FISB 9.87 N 03/20/98 1.38 24.11 0.28 0.94 9.72
FKKY 3.42 N 03/20/98 -- 17.45 0.24 1.14 6.25
FLGS 22.94 N 03/20/98 3.04 12.99 0.45 1.41 21.01
FLKY 3.64 N 03/20/98 2.25 23.63 0.16 1.20 4.15
FNGB 7.98 N 03/20/98 0.09 19.85 0.17 0.91 8.19
FTFC 13.57 N 03/20/98 0.32 23.16 0.34 0.86 12.50
FTSB 7.53 N 03/20/98 2.04 18.15 0.21 1.24 7.75
GFCO 8.78 N 03/20/98 0.06 18.52 0.27 0.87 9.29
GSBC 20.23 N 03/20/98 1.84 16.51 0.39 1.72 20.10
GTPS 3.02 N 03/20/98 NA 35.00 0.15 0.73 3.65
HALL 9.09 N 03/20/98 0.09 16.15 0.24 0.68 9.10
HBFW 6.48 N 03/20/98 -- 33.91 0.27 0.73 5.92
HCFC 9.28 N 03/20/98 0.36 19.40 0.24 1.41 7.21
HFFB 5.06 N 03/20/98 -- 20.70 0.20 1.32 4.89
HFFC 10.68 N 03/20/98 0.33 13.92 0.53 1.09 11.42
HFSA 5.56 N 03/20/98 0.19 18.88 0.25 0.67 5.91
HHFC 5.68 N 03/20/98 0.03 26.90 0.14 0.51 4.64
HMLK 7.49 N 03/20/98 0.15 21.31 0.22 0.98 5.39
HMNF 5.43 N 03/20/98 NA 32.61 0.23 0.60 4.36
HOMF 14.31 N 03/20/98 0.55 19.55 0.39 1.23 14.16
</TABLE>
Source: SNL Securities and F&C calculations.
20
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit II.2 -- Select Midwest Region Publicly Held Thrifts (Continued)
<TABLE>
<CAPTION>
Income/ NPAs/ Price/ Core Income/ Income/
Avg Equity Merger Current Assets Core EPS Avg Assets Avg Equity
(%) Target? Pricing (%) EPS ($) (%) (%)
Ticker LTM (Y/N) Date Mst RctQ (x) Mst RctQ Mst RctQ Mst RctQ
- ------ ---------- ------- -------- -------- ------ -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HZFS 6.70 N 03/20/98 0.96 22.57 0.18 0.72 7.12
INBI 8.38 N 03/20/98 0.23 19.64 0.28 1.53 9.11
JSBA 9.32 N 03/20/98 0.67 29.35 0.23 0.70 7.92
KNK 7.88 N 03/20/98 0.89 18.82 0.48 0.83 7.51
KYF 6.70 N 03/20/98 0.04 21.88 0.16 0.94 5.55
LARK 6.94 N 03/20/98 0.15 17.80 0.33 0.97 6.87
LOGN 7.81 N 03/20/98 0.62 14.58 0.30 1.71 8.96
LSBI 8.17 N 03/20/98 1.01 17.73 0.43 0.75 8.75
LXMO 4.33 N 03/20/98 0.54 23.09 0.18 0.99 4.59
MAFB 14.48 N 03/20/98 0.26 17.11 0.57 1.05 13.71
MARN 7.09 N 03/20/98 1.43 25.00 0.28 1.08 5.07
MBLF 6.41 N 03/20/98 0.48 19.64 0.35 0.83 6.54
METF 16.43 N 03/20/98 0.52 16.63 0.25 0.75 19.14
MFBC 5.99 N 03/20/98 -- 22.63 0.29 0.76 5.82
MFFC 4.67 N 03/20/98 0.09 31.01 0.13 0.54 4.49
MIFC 11.83 N 03/20/98 0.21 15.16 0.20 1.07 11.37
MONT 4.61 N 03/20/98 0.75 25.24 0.13 0.77 4.08
MSBF 8.16 N 03/20/98 0.02 20.24 0.21 1.36 8.16
MWBI 11.14 N 03/20/98 0.73 15.38 0.26 0.76 10.83
NASB 17.26 N 03/20/98 3.07 13.91 1.24 1.51 18.18
NEIB 7.78 N 03/20/98 0.17 16.00 0.33 1.28 8.66
NSLB 3.56 N 03/20/98 0.01 31.25 0.14 0.64 3.24
NWEQ 8.78 N 03/20/98 1.33 15.45 0.35 1.10 9.45
OFCP 9.47 N 03/20/98 0.27 22.16 0.33 0.86 10.02
OHSL 7.55 N 03/20/98 0.03 24.82 0.34 0.70 6.43
PCBC 5.72 N 03/20/98 0.01 22.36 0.26 0.95 4.94
PERM 6.49 N 03/20/98 0.70 29.03 0.31 0.63 6.47
PFDC 9.78 N 03/20/98 0.25 18.75 0.30 1.40 9.21
PSFC 5.75 N 03/20/98 0.82 22.50 0.20 1.27 5.13
PSFI 5.43 N 03/20/98 0.68 18.59 0.19 1.98 5.24
PTRS 10.54 N 03/20/98 0.17 24.67 0.19 0.60 6.71
PVFC 18.16 N 03/20/98 0.96 13.33 0.45 1.26 17.48
QCFB 9.27 N 03/20/98 0.39 12.39 0.57 1.68 9.90
RIVR 5.14 N 03/20/98 0.71 18.75 0.26 0.81 6.44
SFFC 7.21 N 03/20/98 1.74 20.14 0.18 1.24 7.05
SFSL 14.78 N 03/20/98 0.43 20.09 0.28 1.36 14.68
SMBC 4.96 N 03/20/98 0.83 33.98 0.16 0.66 4.05
SOBI 3.95 N 03/20/98 0.26 31.25 0.17 0.59 4.06
SPBC 12.25 N 03/20/98 0.17 18.19 0.36 1.07 11.87
STFR 9.18 N 03/20/98 0.21 22.36 0.52 0.66 8.30
THR 6.12 N 03/20/98 0.95 22.92 0.24 0.78 5.70
WCBI 9.14 N 03/20/98 0.19 17.91 0.41 1.38 8.94
WCFB 6.18 N 03/20/98 0.06 32.62 0.16 1.46 6.23
WEFC 7.48 N 03/20/98 NA 16.74 0.28 1.04 7.22
WFI 12.63 N 03/20/98 0.22 17.81 0.40 0.98 13.41
WOFC 3.16 N 03/20/98 0.44 32.50 0.20 0.40 2.89
Maximum 22.94 3.07 35.00 1.24 2.16 21.01
Minimum 1.85 -- 12.09 0.10 0.40 2.89
Average 8.54 0.52 21.82 0.29 0.99 8.34
Median 7.69 0.31 20.40 0.26 0.91 7.51
</TABLE>
Source: SNL Securities and F&C calculations.
21
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit II.3 -- Select Illinois Publicly Held Thrifts
<TABLE>
<CAPTION>
Deposit Current
Insurance Stock
Agency Price
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($)
- ------ ---------- ---- ----- ------ ---------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ABCL Alliance Bancorp Inc. Hinsdale IL MW SAIF NASDAQ 07/07/92 28.750
CBCI Calumet Bancorp Inc. Dolton IL MW SAIF NASDAQ 02/20/92 36.750
CSBF CSB Financial Group Inc. Centralia IL MW SAIF NASDAQ 10/09/95 13.750
FBCI Fidelity Bancorp Inc. Chicago IL MW SAIF NASDAQ 12/15/93 25.000
GTPS Great American Bancorp Champaign IL MW SAIF NASDAQ 06/30/95 21.000
HMLK Hemlock Federal Financial Corp Oak Forest IL MW SAIF NASDAQ 04/02/97 18.750
KNK Kankakee Bancorp Inc. Kankakee IL MW SAIF AMSE 01/06/93 36.125
MAFB MAF Bancorp Inc. Clarendon Hills IL MW SAIF NASDAQ 01/12/90 39.000
PSFI PS Financial Inc. Chicago IL MW SAIF NASDAQ 11/27/96 14.125
SPBC St. Paul Bancorp Inc. Chicago IL MW SAIF NASDAQ 05/18/87 26.188
WCBI Westco Bancorp Inc. Westchester IL MW SAIF NASDAQ 06/26/92 29.375
Maximum 39.000
Minimum 13.750
Average 26.256
Median 26.188
</TABLE>
Source: SNL Securities and F&C calculations.
22
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit II.3 -- Select Illinois Publicly Held Thrifts (Continued)
<TABLE>
<CAPTION>
Current Price/ Current Current Current Total Equity/ Equity/ Core Income/
Market LTM Price/ Price/Tang Price/ Dividend Assets Assets Tang Assets EPS Avg Assets
Value Core EPS Book Value Book Value Assets Yield ($000) (%) (%) ($) (%)
Ticker ($M) (x) (%) (%) (%) (%) Mst RctQ Mst RctQ Mst RctQ LTM LTM
- ------ --------- -------- ---------- ---------- ------ -------- --------- -------- ----------- ---- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ABCL 230.64 20.68 176.16 178.24 16.91 1.53 1,363,825 9.60 9.50 1.39 0.85
CBCI 115.45 15.98 141.45 141.45 23.72 -- 486,626 16.77 16.77 2.30 1.62
CSBF 11.55 55.00 105.04 111.61 24.25 -- 47,602 23.10 22.04 0.25 0.45
FBCI 70.37 23.36 137.21 137.44 14.37 1.60 489,673 10.47 10.45 1.07 0.61
GTPS 35.11 42.86 113.70 113.70 24.73 1.91 141,976 19.93 19.93 0.49 0.63
HMLK 38.93 NA 127.99 127.99 22.04 1.49 176,683 17.22 17.22 NA 0.99
KNK 49.55 18.43 131.03 139.00 14.43 1.33 343,409 11.01 10.45 1.96 0.86
MAFB 585.50 16.60 222.22 252.26 16.93 0.72 3,457,664 7.62 6.77 2.35 1.13
PSFI 29.29 NA 95.70 95.70 35.71 3.40 85,698 37.32 37.32 NA 2.10
SPBC 895.75 18.57 214.30 214.83 19.65 1.53 4,557,336 9.17 9.15 1.41 1.09
WCBI 72.39 18.02 148.96 148.96 22.91 2.32 315,944 15.38 15.38 1.63 1.41
Maximum 895.75 55.00 222.22 252.26 35.71 3.40 4,557,336 37.32 37.32 2.35 2.10
Minimum 11.55 15.98 95.70 95.70 14.37 -- 47,602 7.62 6.77 0.25 0.45
Average 194.05 25.50 146.71 151.02 21.42 1.44 1,042,403 16.14 15.91 1.43 1.07
Median 70.37 18.57 137.21 139.00 22.04 1.53 343,409 15.38 15.38 1.41 0.99
</TABLE>
Source: SNL Securities and F&C calculations.
23
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit II.3 -- Select Illinois Publicly Held Thrifts (Continued)
<TABLE>
<CAPTION>
Income/ NPAs/ Price/ Core Income/ Income/
Avg Equity Merger Current Assets Core EPS Avg Assets Avg Equity
(%) Target? Pricing (%) EPS ($) (%) (%)
Ticker LTM (Y/N) Date Mst RctQ (x) Mst RctQ Mst RctQ Mst RctQ
- ------ ---------- ------- -------- -------- ------ -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ABCL 9.25 N 03/20/98 0.27 23.19 0.31 0.79 8.16
CBCI 10.26 N 03/20/98 1.64 12.09 0.76 2.16 13.24
CSBF 1.85 N 03/20/98 NA 31.25 0.11 0.77 3.25
FBCI 5.90 N 03/20/98 NA 18.38 0.34 0.78 7.54
GTPS 3.02 N 03/20/98 NA 35.00 0.15 0.73 3.65
HMLK 7.49 N 03/20/98 0.15 21.31 0.22 0.98 5.39
KNK 7.88 N 03/20/98 0.89 18.82 0.48 0.83 7.51
MAFB 14.48 N 03/20/98 0.26 17.11 0.57 1.05 13.71
PSFI 5.43 N 03/20/98 0.68 18.59 0.19 1.98 5.24
SPBC 12.25 N 03/20/98 0.17 18.19 0.36 1.07 11.87
WCBI 9.14 N 03/20/98 0.19 17.91 0.41 1.38 8.94
Maximum 14.48 1.64 35.00 0.76 2.16 13.71
Minimum 1.85 0.15 12.09 0.11 0.73 3.25
Average 7.90 0.53 21.08 0.35 1.14 8.05
Median 7.88 0.27 18.59 0.34 0.98 7.54
</TABLE>
Source: SNL Securities and F&C calculations.
24
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit II.4 -- Comparatives General
<TABLE>
<CAPTION>
Total Current Current
Number Assets Stock Market
of ($000) Price Value
Ticker Short Name City State Offices Mst RctQ IPO Date ($) ($M)
- ------ ---------- ---- ----- ------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AMFC AMB Financial Corp. Munster IN 4 100,003 04/01/96 17.6250 16.990
BFSB Bedford Bancshares Inc. Bedford VA 3 136,908 08/22/94 29.1250 33.270
CFFC Community Financial Corp. Staunton VA 4 182,879 03/30/88 30.2500 38.710
FBSI First Bancshares Inc. Mountain Grove MO 8 161,527 12/22/93 16.7500 36.970
FTF Texarkana First Financial Corp Texarkana AR 5 180,259 07/07/95 28.0000 49.270
HBS Haywood Bancshares Inc. Waynesville NC 4 152,796 12/18/87 22.2500 27.820
LOGN Logansport Financial Corp. Logansport IN 1 86,115 06/14/95 17.5000 22.070
NEIB Northeast Indiana Bancorp Huntington IN 3 190,319 06/28/95 21.1250 36.260
SFED SFS Bancorp Inc. Schenectady NY 4 174,428 06/30/95 23.7500 28.700
SOBI Sobieski Bancorp Inc. South Bend IN 3 87,553 03/31/95 21.2500 16.660
WHGB WHG Bancshares Corp. Lutherville MD 5 101,331 04/01/96 18.0000 25.000
Maximum 8 190,319 30.25 49.27
Minimum 1 86,115 16.75 16.66
Average 4 141,283 22.33 30.16
Median 4 152,796 21.25 28.70
</TABLE>
Source: SNL Securities and F&C calculations.
25
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit II.5 -- Comparatives Balance Sheet
<TABLE>
<CAPTION>
Total Cash and Backed Net Foreclosed Servicing Total Other
Assets Investments Securities Loans Real Estate Rights Intangibles Assets
($000) ($000) ($000) ($000) ($000) ($000) ($000) ($000)
Ticker Short Name Mst RctQ Mst RctQ Mst RctQ Mst RctQ Mst RctQ Mst RctQ Mst RctQ Mst RctQ
- ------ ---------- -------- ----------- ---------- -------- ----------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AMFC AMB Financial Corp. 100,003 20,533 3,494 77,093 27 -- -- 2,350
BFSB Bedford Bancshares Inc. 136,908 16,714 19 117,692 -- -- -- 2,502
CFFC Community Financial Corp. 182,879 16,796 -- 160,409 294 7 110 4,880
FBSI First Bancshares Inc. 161,527 19,015 768 138,157 -- -- -- 4,355
FTF Texarkana First Financial Corp 180,259 28,815 9,237 147,100 133 65 -- 4,146
HBS Haywood Bancshares Inc. 152,796 31,607 11,410 114,531 218 2,978 741 2,721
LOGN Logansport Financial Corp. 86,115 18,545 9,932 63,634 106 -- -- 3,830
NEIB Northeast Indiana Bancorp 190,319 17,651 3 168,958 -- -- -- 3,710
SFED SFS Bancorp Inc. 174,428 36,560 16,966 133,786 111 -- -- 3,971
SOBI Sobieski Bancorp Inc. 87,553 16,020 12,512 68,879 152 -- -- 2,502
WHGB WHG Bancshares Corp. 101,331 17,615 2,774 79,321 -- -- -- 4,395
Maximum 190,319 36,560 16,966 168,958 294 2,978 741 4,880
Minimum 86,115 16,020 -- 63,634 -- -- -- 2,350
Average 141,283 21,806 6,101 115,415 95 277 77 3,578
Median 152,796 18,545 3,494 117,692 106 -- -- 3,830
</TABLE>
Source: SNL Securities and F&C calculations.
26
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit II.5 -- Comparatives Balance Sheet (Continued)
<TABLE>
<CAPTION>
Core Risk-Based
Total Total Other Total Common Total Tangible Core Total Tangible Capital/ Capital/
Deposits Borrowings Liabilities Liabilities Equity Equity Capital Capital Capital Capital/ Adj Risk-
($000) ($000) ($000) ($000) ($000) ($000) ($000) ($000) ($000) Tangible Tangible Weightd
Ticker Mst RctQ Mst RctQ Mst RctQ Mst RctQ Mst RctQ Mst RctQ Mst RctQ Mst RctQ Mst RctQ Assets (%) Assets (%) Assets (%)
- ------ -------- ---------- ----------- ----------- -------- -------- -------- -------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AMFC 71,786 12,000 1,447 85,233 14,770 14,770 NA NA NA 13.41 13.41 26.61
BFSB 103,387 13,000 640 117,027 19,881 19,881 17,681 17,681 18,290 12.39 12.39 23.13
CFFC 132,962 23,000 1,993 157,955 24,924 24,924 21,184 21,184 22,194 11.67 11.67 17.78
FBSI 120,812 17,055 400 138,267 23,260 23,260 18,664 18,664 18,849 12.45 12.45 19.45
FTF 143,828 6,472 2,643 152,943 27,316 27,316 27,224 27,224 27,982 16.55 16.55 28.54
HBS 118,295 10,500 2,329 131,124 21,672 21,672 NA 21,061 21,795 NA NA NA
LOGN 60,595 6,500 2,478 69,573 16,542 16,542 16,482 16,482 16,727 21.82 21.82 41.64
NEIB 96,969 65,000 1,008 162,977 27,342 27,342 23,031 23,031 24,032 12.84 12.84 22.28
SFED 150,469 -- 2,528 152,997 21,431 21,431 21,431 21,431 22,199 10.40 10.40 20.37
SOBI 57,611 16,850 491 74,952 12,601 12,601 9,166 9,166 9,360 11.85 11.85 28.52
WHGB 76,390 4,000 1,025 81,415 19,916 19,916 15,541 15,541 15,729 16.36 16.36 32.04
Maximum 150,469 65,000 2,643 162,977 27,342 27,342 27,224 27,224 27,982 21.82 21.82 41.64
Minimum 57,611 -- 400 69,573 12,601 12,601 9,166 9,166 9,360 10.40 10.40 17.78
Average 103,009 15,852 1,544 120,406 20,878 20,878 18,934 19,147 19,716 13.97 13.97 26.04
Median 103,387 12,000 1,447 131,124 21,431 21,431 18,664 19,863 20,322 12.65 12.65 24.87
</TABLE>
Source: SNL Securities and F&C calculations.
27
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit II.5 -- Comparatives Balance Sheet (Continued)
<TABLE>
<CAPTION>
NPAs/ Reserves/ Reserves/ Reported Publicly Rep Int Bearing Equivalent Serviced
Assets Assets NPLs Book Value Book Value Liabilities Employees For Others
(%) (%) (%) ($) ($) (%) (Actual) ($000)
Ticker Mst RctQ Mst RctQ Mst RctQ Mst RctQ Mst RctQ Mst RctQ Mst RctQ Mst RctQ
- ------ -------- --------- --------- ---------- ------------ ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AMFC NA 0.41 NA 15.33 15.33 116.58 NA --
BFSB -- 0.52 NM 18.28 18.28 119.04 39.00 2,684
CFFC 0.44 0.57 203.68 19.51 19.42 113.11 58.00 9,473
FBSI 0.04 0.32 905.26 10.64 10.64 114.88 65.00 13
FTF 0.07 0.62 NM 15.52 15.52 118.19 35.00 25,496
HBS 0.67 0.48 90.28 17.33 16.74 113.21 34.00 --
LOGN 0.62 0.28 56.84 13.12 13.12 122.53 14.00 --
NEIB 0.17 0.60 353.23 15.51 15.51 116.38 40.00 2,061
SFED 0.82 0.45 58.58 17.73 17.73 113.64 60.00 3,525
SOBI 0.26 0.23 259.74 17.75 17.75 112.35 24.00 --
WHGB 0.95 0.19 19.59 14.34 14.34 118.09 NA NA
Maximum 0.95 0.62 905.26 19.51 19.42 122.53 65.00 25,496
Minimum -- 0.19 19.59 10.64 10.64 112.35 14.00 --
Average 0.40 0.42 243.40 15.91 15.85 116.18 41.00 4,325
Median 0.35 0.45 146.98 15.52 15.52 116.38 39.00 1,037
</TABLE>
Source: SNL Securities and F&C calculations.
28
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit II.6 -- Comparatives Operations
<TABLE>
<CAPTION>
Net Income Return on Core
Average Before Return on Avg Assets Income/ Return on
Assets Net Income Extra Items Avg Assets Before Extra Avg Assets Avg Equity
($000) ($000) ($000) (%) (%) (%) (%)
Ticker Short Name LTM LTM LTM LTM LTM LTM LTM
- ------ ---------- ------- ---------- ----------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AMFC AMB Financial Corp. 93,053 1,023 1,023 1.10 1.10 0.71 6.83
BFSB Bedford Bancshares Inc. 135,243 1,618 1,618 1.20 1.20 1.19 8.39
CFFC Community Financial Corp. 175,293 1,875 1,875 1.07 1.07 1.07 7.85
FBSI First Bancshares Inc. 161,114 1,870 1,870 1.16 1.16 1.12 8.38
FTF Texarkana First Financial Corp 173,148 3,021 3,021 1.74 1.74 1.71 11.13
HBS Haywood Bancshares Inc. 142,369 1,953 1,953 1.37 1.37 1.37 9.41
LOGN Logansport Financial Corp. 81,892 1,232 1,232 1.50 1.50 1.53 7.71
NEIB Northeast Indiana Bancorp 173,476 2,085 2,085 1.20 1.20 1.20 7.78
SFED SFS Bancorp Inc. 170,319 1,068 1,068 0.63 0.63 0.61 5.04
SOBI Sobieski Bancorp Inc. 82,090 497 497 0.61 0.61 0.61 3.95
WHGB WHG Bancshares Corp. 98,962 752 752 0.76 0.76 0.77 3.61
Maximum 175,293 3,021 3,021 1.74 1.74 1.71 11.13
Minimum 81,892 497 497 0.61 0.61 0.61 3.61
Average 135,178 1,545 1,545 1.12 1.12 1.08 7.28
Median 142,369 1,618 1,618 1.16 1.16 1.12 7.78
</TABLE>
Source: SNL Securities and F&C calculations.
29
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit II.6 -- Comparatives Operations (Continued)
<TABLE>
<CAPTION>
Return on Core Loan Loan Loss Total Total Net Loan Common Dividend
Avg Equity Income/ Loss Provision Noninterest Noninterest Chargeoffs/ LTM EPS Dividends Payout
Before Extra Avg Equity Provision as a % Assets Income Expense Avg Loans After Extra Per Share Ratio
(%) (%) ($000) (%) ($000) ($000) (%) ($) ($) (%)
Ticker LTM LTM LTM LTM LTM LTM LTM LTM LTM LTM
- ------ ------------ ---------- --------- ------------- ----------- ----------- ----------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AMFC 6.83 4.39 74 0.08 532 2,686 NA 1.10 0.250 22.73
BFSB 8.39 8.34 105 0.08 606 3,123 0.05 1.42 0.550 38.73
CFFC 7.85 7.88 443 0.25 698 3,780 0.28 1.46 0.560 38.36
FBSI 8.38 8.06 76 0.05 494 3,128 -- 0.87 0.100 11.49
FTF 11.13 10.91 -- -- 736 2,597 0.01 1.77 0.533 30.08
HBS 9.41 9.41 15 0.01 389 2,000 -- 1.56 0.560 35.90
LOGN 7.71 7.81 26 0.03 161 1,271 0.03 0.95 0.400 42.11
NEIB 7.78 7.78 228 0.13 518 3,001 0.06 1.21 0.320 26.45
SFED 5.04 4.87 120 0.07 424 4,345 (0.01) 0.93 0.270 29.03
SOBI 3.95 3.95 -- -- 137 1,966 -- 0.66 0.300 45.45
WHGB 3.61 3.66 60 0.06 130 2,445 0.10 0.55 0.230 41.82
Maximum 11.13 10.91 443 0.25 736 4,345 0.28 1.77 0.560 45.45
Minimum 3.61 3.66 -- -- 130 1,271 (0.01) 0.55 0.100 11.49
Average 7.28 7.01 104 0.07 439 2,758 0.05 1.13 0.370 32.92
Median 7.78 7.81 74 0.06 494 2,686 0.02 1.10 0.320 35.90
</TABLE>
Source: SNL Securities and F&C calculations.
30
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit II.6 -- Comparatives Operations (Continued)
<TABLE>
<CAPTION>
Interest Interest Net Interest Gain on Real Noninterest G&A Noninterest Net Opr. Total
Income/ Expense/ Income/ Sale/ Estate Income/ Expense/ Expense/ Expenses/ Nonrecurring
Avg Assets Avg Assets Avg Assets Avg Assets Expense Avg Assets Avg Assets Avg Assets Avg Assets Expense
(%) (%) (%) (%) ($000) (%) (%) (%) (%) ($000)
Ticker LTM LTM LTM LTM LTM LTM LTM LTM LTM LTM
- ------ ---------- ---------- ------------ ---------- ------- ----------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AMFC 7.69 4.08 3.61 0.61 (3) 0.57 2.89 2.89 2.32 --
BFSB 7.75 3.90 3.86 0.01 (6) 0.45 2.31 2.31 1.87 --
CFFC 7.79 4.07 3.72 (0.01) -- 0.40 2.16 2.16 1.76 --
FBSI 7.67 4.26 3.40 0.07 (69) 0.31 1.98 1.94 1.67 --
FTF 7.96 4.16 3.80 0.05 (13) 0.43 1.51 1.50 1.08 --
HBS 7.34 4.10 3.24 -- (980) 0.27 2.06 1.40 1.78 --
LOGN 7.62 3.80 3.81 (0.06) (1) 0.20 1.55 1.55 1.36 --
NEIB 7.87 4.33 3.53 -- -- 0.30 1.73 1.73 1.43 --
SFED 7.26 3.89 3.37 0.03 (24) 0.25 2.57 2.55 2.32 --
SOBI 7.27 4.02 3.25 -- (2) 0.17 2.40 2.39 2.23 --
WHGB 7.22 3.55 3.68 -- -- 0.13 2.47 2.47 2.34 15.00
Maximum 7.96 4.33 3.86 0.61 -- 0.57 2.89 2.89 2.34 15.00
Minimum 7.22 3.55 3.24 (0.06) (980.00) 0.13 1.51 1.40 1.08 --
Average 7.59 4.01 3.57 0.06 (99.82) 0.32 2.15 2.08 1.83 1.36
Median 7.67 4.07 3.61 -- (3.00) 0.30 2.16 2.16 1.78 --
</TABLE>
Source: SNL Securities and F&C calculations.
31
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit II.6 -- Comparatives Operations (Continued)
<TABLE>
<CAPTION>
Amortization Yield on Cost of Interest
of Tax Efficiency Int Earning Int Bearing Effective Yield
Intangibles Provision Ratio Assets Liabilities Tax Rate Spread
($000) ($000) (%) (%) (%) (%) (%)
Ticker LTM LTM LTM LTM LTM LTM LTM
- ------ ------------ --------- ---------- ----------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
AMFC -- 675 69.04 7.85 4.94 39.75 2.91
BFSB -- 991 53.74 8.11 4.82 37.98 3.29
CFFC -- 1,112 52.33 8.18 4.79 37.23 3.39
FBSI 5.00 1,015 53.39 8.03 5.10 35.18 2.93
FTF -- 1,779 35.71 8.16 5.05 37.06 3.11
HBS 53.00 1,031 58.55 7.68 4.88 34.55 2.80
LOGN -- 728 38.75 7.89 4.88 37.14 3.01
NEIB -- 1,332 45.15 7.98 5.16 38.98 2.82
SFED -- 692 70.82 7.45 4.49 39.32 2.96
SOBI -- 345 70.09 7.55 4.78 40.97 2.77
WHGB -- 495 64.91 7.56 4.56 39.70 3.00
Maximum 53.00 1,779 70.82 8.18 5.16 40.97 3.39
Minimum -- 345 35.71 7.45 4.49 34.55 2.77
Average 5.27 927 55.68 7.86 4.86 37.99 3.00
Median -- 991 53.74 7.89 4.88 37.98 2.96
</TABLE>
Source: SNL Securities and F&C calculations.
32
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit II.7 -- Comparatives Risk
<TABLE>
<CAPTION>
NPAs + Loans Net Loan Intangible
NPAs/ 90+ Past Due/ NPAs/ Reserves/ Reserves/ Chargeoffs/ Loans/ Assets/
Assets Assets Equity Loans NPAs Avg Loans Assets Equity
(%) (%) (%) (%) (%) (%) (%) (%)
Ticker Short Name Mst RctQ Mst RctQ Mst RctQ Mst RctQ Mst RctQ Mst RctQ Mst RctQ Mst RctQ
- ------ ---------- -------- ------------- -------- --------- --------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AMFC AMB Financial Corp. NA NA NA 0.53 NA NA 77.50 --
BFSB Bedford Bancshares Inc. -- 0.54 -- 0.60 NM -- 86.48 --
CFFC Community Financial Corp. 0.44 0.44 3.25 0.65 129.75 0.13 88.50 0.44
FBSI First Bancshares Inc. 0.04 0.42 0.25 0.37 905.26 (0.01) 85.85 --
FTF Texarkana First Financial Corp 0.07 0.17 0.49 0.76 845.11 -- 82.23 --
HBS Haywood Bancshares Inc. 0.67 0.67 4.76 0.64 71.19 -- 75.44 3.42
LOGN Logansport Financial Corp. 0.62 0.62 3.25 0.38 45.62 -- 74.18 --
NEIB Northeast Indiana Bancorp 0.17 0.17 1.20 0.67 350.00 0.06 89.38 --
SFED SFS Bancorp Inc. 0.82 0.84 6.71 0.58 54.07 0.01 77.15 --
SOBI Sobieski Bancorp Inc. 0.26 0.26 1.82 0.29 87.34 -- 78.90 --
WHGB WHG Bancshares Corp. 0.95 0.95 4.85 0.24 19.59 0.38 78.47 --
Maximum 0.95 0.95 6.71 0.76 905.26 0.38 89.38 3.42
Minimum -- 0.17 -- 0.24 19.59 (0.01) 74.18 --
Average 0.40 0.51 2.66 0.52 278.66 0.06 81.28 0.35
Median 0.35 0.49 2.54 0.58 87.34 -- 78.90 --
</TABLE>
Source: SNL Securities and F&C calculations.
33
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit II.7 -- Comparatives Risk (Continued)
<TABLE>
<CAPTION>
One Year Earn Assets/
Cum Gap/ Net Int Bearing
Assets Loans Liabilities
(%) ($000) (%)
Ticker Mst RctY Mst RctQ Mst RctQ
- ------ -------- -------- ------------
<S> <C> <C> <C>
AMFC NA 77,093 116.58
BFSB 22.69 117,692 119.04
CFFC NA 160,409 113.11
FBSI NA 138,157 114.88
FTF (11.93) 147,100 118.19
HBS (5.85) 114,531 113.21
LOGN NA 63,634 122.53
NEIB NA 168,958 116.38
SFED NA 133,786 113.64
SOBI NA 68,879 112.35
WHGB NA 79,321 118.09
Maximum 22.69 168,958 122.53
Minimum (11.93) 63,634 112.35
Average 1.64 115,415 116.18
Median (5.85) 117,692 116.38
</TABLE>
Source: SNL Securities and F&C calculations.
34
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit II.8 -- Comparatives Price
<TABLE>
<CAPTION>
Current Current Price/ Current Current
Stock Market LTM Price/ Price/Tang Price/
Abbreviated Price Value Core EPS Book Value Book Value Assets
Ticker Name City State ($) ($M) (x) (%) (%) (%)
- ------ ----------- ---- ----- ------- ------- -------- ---------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AMFC AMBFinancial-IN Munster IN 17.63 16.99 24.82 114.97 114.97 16.99
BFSB BedfordBcshs-VA Bedford VA 29.13 33.27 20.51 159.33 159.33 24.30
CFFC CommunityFinl-VA Staunton VA 30.25 38.71 20.72 155.05 155.77 21.13
FBSI FirstBcshs-MO Mountain Grove MO 16.75 36.97 20.18 157.42 157.42 22.67
FTF TexarkanaFirst-AR Texarkana AR 28.00 49.27 16.09 180.41 180.41 27.34
HBS HaywoodBcshs-NC Waynesville NC 22.25 27.82 14.26 128.39 132.92 18.21
LOGN LogansprtFinl-IN Logansport IN 17.50 22.07 18.23 133.38 133.38 25.62
NEIB NEIndianaBncp-IN Huntington IN 21.13 36.26 17.46 136.20 136.20 19.57
SFED SFSBancorp-NY Schenectady NY 23.75 28.70 26.39 133.95 133.95 16.45
SOBI SobieskiBancorp-IN South Bend IN 21.25 16.66 32.20 119.72 119.72 18.55
WHGB WHGBancshares-MD Lutherville MD 18.00 25.00 32.14 125.52 125.52 24.67
Maximum 30.25 49.27 32.20 180.41 180.41 27.34
Minimum 16.75 16.66 14.26 114.97 114.97 16.45
Average 22.33 30.16 22.09 140.39 140.87 21.41
Median 21.25 28.70 20.51 133.95 133.95 21.13
</TABLE>
Source: SNL Securities and F&C calculations.
35
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit II.8 -- Comparatives Price (Continued)
<TABLE>
<CAPTION>
Equity/
Current Total Equity/ Tangible Core Income/ Income/ Before NPAs/ Price/
Dividend Assets Assets Assets EPS Avg Assets Avg Equity Extra Merger Current Assets Core
Yield ($000) (%) (%) ($) (%) (%) (%) Target? Pricing (%) EPS
Ticker (%) Mst RctQ Mst RctQ Mst RctQ LTM LTM LTM LTM (Y/N) Date Mst RctQ (x)
- ------ -------- -------- -------- -------- ---- ---------- ---------- ------ ------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AMFC 1.59 100,003 14.77 14.77 0.71 0.71 4.39 6.83 N 03/20/98 NA 27.54
BFSB 1.92 136,908 14.52 14.52 1.42 1.19 8.34 8.39 N 03/20/98 -- 22.06
CFFC 1.85 182,879 13.63 13.58 1.46 1.07 7.88 7.85 N 03/20/98 0.44 18.01
FBSI 0.60 161,527 14.40 14.40 0.83 1.12 8.06 8.38 N 03/20/98 0.04 18.21
FTF 2.00 180,259 15.15 15.15 1.74 1.71 10.91 11.13 N 03/20/98 0.07 17.07
HBS 2.70 152,796 14.18 13.77 1.56 1.37 9.41 9.41 N 03/20/98 0.67 8.43
LOGN 2.29 86,115 19.21 19.21 0.96 1.53 7.81 7.71 N 03/20/98 0.62 14.58
NEIB 1.61 190,319 14.37 14.37 1.21 1.20 7.78 7.78 N 03/20/98 0.17 16.00
SFED 1.35 174,428 12.29 12.29 0.90 0.61 4.87 5.04 N 03/20/98 0.82 25.82
SOBI 1.51 87,553 14.39 14.39 0.66 0.61 3.95 3.95 N 03/20/98 0.26 31.25
WHGB 1.78 101,331 19.65 19.65 0.56 0.77 3.66 3.61 N 03/20/98 0.95 37.50
Maximum 2.70 190,319 19.65 19.65 1.74 1.71 10.91 11.13 0.95 37.50
Minimum 0.60 86,115 12.29 12.29 0.56 0.61 3.66 3.61 -- 8.43
Average 1.74 141,283 15.14 15.10 1.09 1.08 7.01 7.28 0.40 21.50
Median 1.78 152,796 14.40 14.40 0.96 1.12 7.81 7.78 0.35 18.21
</TABLE>
Source: SNL Securities and F&C calculations.
36
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit II.8 -- Comparatives Price (Continued)
<TABLE>
<CAPTION>
Core Income/ Income/
EPS Avg Assets Avg Equity
($) (%) (%)
Ticker Mst RctQ Mst RctQ Mst RctQ
- ------ -------- ---------- ----------
<S> <C> <C> <C>
AMFC 0.16 0.57 3.95
BFSB 0.33 1.10 7.72
CFFC 0.42 1.18 8.76
FBSI 0.23 1.23 8.80
FTF 0.41 1.58 10.33
HBS 0.66 2.18 15.52
LOGN 0.30 1.71 8.96
NEIB 0.33 1.28 8.66
SFED 0.23 0.56 4.63
SOBI 0.17 0.59 4.06
WHGB 0.12 0.61 3.08
Maximum 0.66 2.18 15.52
Minimum 0.12 0.56 3.08
Average 0.31 1.14 7.68
Median 0.30 1.18 8.66
</TABLE>
Source: SNL Securities and F&C calculations.
37
<PAGE>
EXHIBIT III
<PAGE>
DOUGLAS SAVINGS BANK
ARLINGTON HEIGHTS, ILLINOIS
FINANCIAL HIGHLIGHTS
1994 1995 1996 YTD 9/97
---- ---- ---- --------
Number of Open Quarters 4 4 4 3
($'s in Thousands)
BALANCE SHEET:
Total Assets 91,579 103,413 106,826 111,439
% Change in Assets 8.70 12.92 3.30 4.32
Securities-Book Value 9,962 9,239 10,048 12,001
Securities-Fair Value 9,868 9,300 10,072 12,019
Total Loans & Leases 77,489 90,626 93,531 95,029
Total Deposits 82,359 89,465 94,896 98,865
Loan/Deposit Ratio 94.09 101.30 98.56 96.12
Provision for Loan Losses 14.00 32.00 8.00 --
CAPITAL:
Equity Capital 5,800 6,920 7,445 8,180
Total Qualifying Capital(Est) 6,127 6,889 7,363 7,968
Equity Capital/Average Assets 6.60 7.10 6.98 7.56
Tot Qual Cap/Rk Bsd Asts(Est) 11.18 11.54 11.29 11.71
Tier 1 Cap/Rsk Bsed Asts(Est) 10.82 11.16 10.92 11.34
T1 Cap/Avg Assets(Lev Est) 6.53 6.53 6.64 7.02
Dividends Declared/Net Income -- -- -- --
PROFITABILITY:
Net Income(Loss) 901 728 464 586
Return on Average Assets 1.02 0.75 0.44 0.72
Return on Average Equity Cap 16.64 11.45 6.46 10.00
Net Interest Margin 3.96 3.39 3.19 3.13
Net Int Income/Avg Assets 3.84 3.30 3.06 3.03
Noninterest Income/Avg Assets 0.13 0.13 0.13 0.12
Noninterest Exp/Avg Assets 2.29 2.15 2.46 1.94
ASSET QUALITY:
NPL+Frcl RE/Lns+Frcl RE 0.02 0.15 0.17 0.06
NPA's/Equity + LLR 0.28 1.86 2.03 0.69
LLR/Nonperf & Restrcd Lns 1,152.94 172.93 153.85 434.48
Foreclosed RE/Total Assets -- -- -- --
90+ Day Del Loans/Total Loans 0.02 0.15 0.17 0.06
Loan Loss Reserves/Total Lns 0.25 0.25 0.26 0.27
Net Charge-Offs/Average Loans -- -- -- 0.02
Dom Risk R/E Lns/Tot Dom Lns 0.80 0.13 0.10 0.09
LIQUIDITY:
Brokered Dep/Total Dom Deps -- -- -- --
$100M+ Time Dep/Total Dom Dep 7.04 7.65 10.13 9.97
Int Earn Assets/Int Bear Liab 105.59 108.21 107.68 107.33
Pledged Sec/Total Sec -- 69.27 63.69 62.49
Fair Value Sec/Amort Cost Sec 96.92 105.65 105.89 107.04
1
Source: Sheshunoff Information Services, Inc.
<PAGE>
EXHIBIT IV
<PAGE>
AMFC
AMERICAN SAVINGS, FSB
MUNSTER, INDIANA
FINANCIAL HIGHLIGHTS
1994 1995 1996 YTD 9/97
---- ---- ---- --------
(All $ Amounts in Thousands)
Num of Quarters Open for Period 4 4 4 3
BALANCE SHEET:
Total Assets 65,575 69,829 85,390 101,168
% Change in Assets 0.66 6.49 22.28 18.48
Total Loans 52,091 54,932 67,562 75,433
Deposits 58,289 59,599 60,894 73,981
Broker Originated Deposits -- -- -- 694
CAPITAL:
Equity Capital 5,633 6,314 11,192 9,298
Tangible Capital 5,807 6,195 11,162 9,251
Core Capital 5,807 6,195 11,162 9,251
Risk-Based Capital 6,122 6,540 11,502 9,624
Equity Capital/Total Assets 8.59 9.04 13.11 9.19
Core Capital/Risk Based Assets 16.39 16.62 24.13 17.49
Core Capital/Adj Tang Assets 8.83 8.89 13.08 9.15
Tangible Cap/Tangible Assets 8.83 8.89 13.08 9.15
Risk-Based Cap/Risk-Wt Assets 17.28 17.55 24.86 18.20
PROFITABILITY:
Net Income(Loss) 384 375 389 555
Ret on Avg Assets Bef Ext Item 0.59 0.55 0.49 0.80
Return on Average Equity 6.97 6.28 3.77 6.71
Net Interest Income/Avg Assets 3.97 3.69 3.47 3.38
Noninterest Income/Avg Assets 0.59 0.48 0.68 0.65
Noninterest Expense/Avg Assets 3.77 3.20 3.44 2.69
Yield/Cost Spread 4.22 3.91 3.21 3.20
LIQUIDITY:
Int Earn Assets/Int Bear Liab 102.03 103.09 111.46 105.59
Brokered Deposits/Tot Deposits -- -- -- 0.94
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 1.75 1.26 0.89 0.81
Nonaccrual Loans/Gross Loans 0.98 0.66 0.44 0.27
Nonaccrual Lns/Ln Loss Reserve 126.68 102.50 85.92 52.06
Repos Assets/Tot Assets -- -- -- 0.12
Net Chrg-Off/Av Adj Lns (0.18) 0.13 0.01 0.02
Nonmtg 1-4 Constr&Conv Lns/TA 14.00 12.94 15.87 14.54
1
Source: Sheshunoff Information Services, Inc.
<PAGE>
BFSB
BEDFORD FEDERAL SAVINGS BANK
BEDFORD, VIRGINIA
FINANCIAL HIGHLIGHTS
1994 1995 1996 YTD 9/97
---- ---- ---- --------
(All $ Amounts in Thousands)
Num of Quarters Open for Period 4 4 4 3
BALANCE SHEET:
Total Assets 105,837 116,051 130,235 139,579
% Change in Assets 9.34 9.65 12.22 7.17
Total Loans 90,309 98,763 112,047 116,770
Deposits 85,123 92,532 96,304 104,328
Broker Originated Deposits -- -- -- --
CAPITAL:
Equity Capital 13,779 15,047 16,131 17,313
Tangible Capital 13,779 15,025 16,163 17,301
Core Capital 13,779 15,025 16,163 17,301
Risk-Based Capital 14,409 14,798 16,776 17,887
Equity Capital/Total Assets 13.02 12.97 12.39 12.40
Core Capital/Risk Based Assets 24.32 23.93 22.23 21.99
Core Capital/Adj Tang Assets 13.04 12.97 12.41 12.40
Tangible Cap/Tangible Assets 13.04 12.97 12.41 12.40
Risk-Based Cap/Risk-Wt Assets 25.43 23.57 23.07 22.73
PROFITABILITY:
Net Income(Loss) 1,590 1,180 1,137 1,136
Ret on Avg Assets Bef Ext Item 1.25 1.06 0.93 1.13
Return on Average Equity 12.63 8.19 7.28 9.06
Net Interest Income/Avg Assets 3.85 3.83 3.88 3.82
Noninterest Income/Avg Assets 0.31 0.35 0.40 0.35
Noninterest Expense/Avg Assets 2.29 2.44 2.78 2.28
Yield/Cost Spread 3.79 3.61 3.69 3.67
LIQUIDITY:
Int Earn Assets/Int Bear Liab 110.72 110.20 109.21 107.01
Brokered Deposits/Tot Deposits -- -- -- --
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 1.29 1.25 1.07 0.47
Nonaccrual Loans/Gross Loans -- -- -- --
Nonaccrual Lns/Ln Loss Reserve -- -- -- --
Repos Assets/Tot Assets -- -- -- 0.15
Net Chrg-Off/Av Adj Lns 0.01 0.01 0.01 0.08
Nonmtg 1-4 Constr&Conv Lns/TA 7.63 7.93 7.98 10.81
2
Source: Sheshunoff Information Services, Inc.
<PAGE>
CFFC
COMMUNITY BANK
STAUNTON, VIRGINIA
FINANCIAL HIGHLIGHTS
1994 1995 1996 YTD 9/97
---- ---- ---- --------
(All $ Amounts in Thousands)
Num of Quarters Open for Period 4 4 4 3
BALANCE SHEET:
Total Assets 143,067 157,462 167,327 183,878
% Change in Assets 5 10 6 10
Total Loans 131,113 140,620 149,228 161,807
Deposits 108,935 112,407 116,987 130,552
Broker Originated Deposits -- -- -- --
CAPITAL:
Equity Capital 15,630 18,686 20,734 22,507
Tangible Capital 15,489 17,829 19,266 20,638
Core Capital 15,489 17,829 19,266 20,638
Risk-Based Capital 16,197 18,566 20,110 21,633
Equity Capital/Total Assets 11 12 12 12
Core Capital/Risk Based Assets 18 18 17 16
Core Capital/Adj Tang Assets 11 11 12 11
Tangible Cap/Tangible Assets 11 11 12 11
Risk-Based Cap/Risk-Wt Assets 18 19 18 17
PROFITABILITY:
Net Income(Loss) 1,667 2,049 1,707 1,371
Ret on Avg Assets Bef Ext Item 1 1 1 1
Return on Average Equity 11 12 9 8
Net Interest Income/Avg Assets 3 4 4 4
Noninterest Income/Avg Assets 0 0 0 0
Noninterest Expense/Avg Assets 2 2 2 2
Yield/Cost Spread 3 4 4 4
LIQUIDITY:
Int Earn Assets/Int Bear Liab 107 109 109 108
Brokered Deposits/Tot Deposits -- -- -- --
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 0 0 0 1
Nonaccrual Loans/Gross Loans 0 0 0 1
Nonaccrual Lns/Ln Loss Reserve 4 25 17 84
Repos Assets/Tot Assets -- -- -- 0
Net Chrg-Off/Av Adj Lns 0 0 0 0
Nonmtg 1-4 Constr&Conv Lns/TA 29 27 25 24
3
Source: Sheshunoff Information Services, Inc.
<PAGE>
FSBI
FIRST HOME SAVINGS BANK
MOUNTAIN GROVE, MISSOURI
FINANCIAL HIGHLIGHTS
1994 1995 1996 YTD 9/97
---- ---- ---- --------
(All $ Amounts in Thousands)
Num of Quarters Open for Period 4 4 4 3
BALANCE SHEET:
Total Assets 123,435 136,507 155,249 161,028
% Change in Assets 11.10 10.59 13.73 3.72
Total Loans 93,856 112,485 126,133 137,363
Deposits 104,571 102,900 114,305 121,608
Broker Originated Deposits -- -- -- --
CAPITAL:
Equity Capital 16,980 18,468 18,375 18,565
Tangible Capital 16,413 17,982 17,901 17,999
Core Capital 16,413 17,982 17,901 17,999
Risk-Based Capital 16,062 18,120 18,064 18,180
Equity Capital/Total Assets 13.76 13.53 11.84 11.53
Core Capital/Risk Based Assets 22.08 20.54 17.97 16.82
Core Capital/Adj Tang Assets 13.37 13.21 11.56 11.21
Tangible Cap/Tangible Assets 13.37 13.21 11.56 11.21
Risk-Based Cap/Risk-Wt Assets 21.61 20.70 18.13 16.98
PROFITABILITY:
Net Income(Loss) 961 820 1,010 1,316
Ret on Avg Assets Bef Ext Item 0.82 0.63 0.70 1.10
Return on Average Equity 5.55 4.63 5.33 9.25
Net Interest Income/Avg Assets 2.95 2.88 3.28 3.27
Noninterest Income/Avg Assets 0.12 0.16 0.31 0.41
Noninterest Expense/Avg Assets 1.89 2.02 2.41 1.87
Yield/Cost Spread 2.67 2.55 2.98 3.11
LIQUIDITY:
Int Earn Assets/Int Bear Liab 111.24 110.61 108.26 107.03
Brokered Deposits/Tot Deposits -- -- -- --
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 0.47 0.40 0.60 0.80
Nonaccrual Loans/Gross Loans 0.06 0.04 0.04 0.04
Nonaccrual Lns/Ln Loss Reserve 11.42 10.49 12.56 26.39
Repos Assets/Tot Assets -- -- -- 0.10
Net Chrg-Off/Av Adj Lns 0.04 0.01 0.12 --
Nonmtg 1-4 Constr&Conv Lns/TA 8.48 9.61 9.84 10.99
4
Source: Sheshunoff Information Services, Inc.
<PAGE>
FTF
FIRST FEDERAL SAVINGS & LOAN ASSOCIATION
TEXARKANA, ARKANSAS
FINANCIAL HIGHLIGHTS
1994 1995 1996 YTD 9/97
---- ---- ---- --------
(All $ Amounts in Thousands)
Num of Quarters Open for Period 4 4 4 3
BALANCE SHEET:
Total Assets 142,343 153,496 163,365 178,600
% Change in Assets 4 8 6 9
Total Loans 120,755 125,360 136,854 148,344
Deposits 127,179 126,042 135,268 143,249
Broker Originated Deposits -- -- -- --
CAPITAL:
Equity Capital 13,329 25,354 26,305 26,878
Tangible Capital 13,329 25,250 26,259 26,797
Core Capital 13,329 25,250 26,259 26,797
Risk-Based Capital 13,879 26,029 27,033 27,553
Equity Capital/Total Assets 9.36 16.52 16.10 15.05
Core Capital/Risk Based Assets 16.15 28.70 26.91 24.67
Core Capital/Adj Tang Assets 9.36 16.46 16.08 15.01
Tangible Cap/Tangible Assets 9.36 16.46 16.08 15.01
Risk-Based Cap/Risk-Wt Assets 16.81 29.58 27.71 25.36
PROFITABILITY:
Net Income(Loss) 1,950 2,283 2,395 2,461
Ret on Avg Assets Bef Ext Item 1.40 1.54 1.51 1.93
Return on Average Equity 15.79 11.80 9.06 12.29
Net Interest Income/Avg Assets 3.18 3.58 3.72 3.80
Noninterest Income/Avg Assets 0.66 0.55 0.65 0.62
Noninterest Expense/Avg Assets 1.37 1.57 2.04 1.33
Yield/Cost Spread 3.01 3.15 3.11 3.27
LIQUIDITY:
Int Earn Assets/Int Bear Liab 108.28 117.66 116.56 115.91
Brokered Deposits/Tot Deposits -- -- -- --
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 1.20 1.01 0.27 0.36
Nonaccrual Loans/Gross Loans 0.04 0.03 0.05 --
Nonaccrual Lns/Ln Loss Reserve 5.04 3.66 5.94 --
Repos Assets/Tot Assets -- -- -- 0.07
Net Chrg-Off/Av Adj Lns 0.12 -- 0.00 0.02
Nonmtg 1-4 Constr&Conv Lns/TA 14.33 13.85 12.84 14.24
5
Source: Sheshunoff Information Services, Inc.
<PAGE>
HBS
HAYWOOD SAVINGS BANK
WAYNESVILLE, NORTH CAROLINA
FINANCIAL HIGHLIGHTS
1994 1995 1996 YTD 9/97
---- ---- ---- --------
Number of Open Quarters 4 4 4 3
($'s in Thousands)
BALANCE SHEET:
Total Assets 132,672 132,328 131,232 152,868
% Change in Assets (5.59) (0.26) (0.83) 16.49
Securities-Book Value 25,510 20,031 13,390 27,381
Securities-Fair Value 23,886 21,710 13,077 27,607
Total Loans & Leases 100,567 104,726 110,070 115,271
Total Deposits 110,511 109,074 107,671 118,377
Loan/Deposit Ratio 91.00 96.01 102.23 97.38
Provision for Loan Losses 60.00 20.00 15.00 15.00
CAPITAL:
Equity Capital 20,371 21,351 20,526 21,687
Total Qualifying Capital(Est) 20,170 21,222 20,465 21,795
Equity Capital/Average Assets 14.91 16.11 15.54 14.69
Tot Qual Cap/Rk Bsd Asts(Est) 28.88 29.94 27.47 27.54
Tier 1 Cap/Rsk Bsed Asts(Est) 27.90 28.95 26.50 26.62
T1 Cap/Avg Assets(Lev Est) 14.62 15.53 15.15 13.88
Dividends Declared/Net Income 34.09 45.60 59.32 33.14
PROFITABILITY:
Net Income(Loss) 1,675 1,353 1,094 1,584
Return on Average Assets 1.23 1.02 0.83 1.43
Return on Average Equity Cap 8.38 6.49 5.27 10.12
Net Interest Margin 4.03 3.75 3.80 3.38
Net Int Income/Avg Assets 3.88 3.62 3.63 3.11
Noninterest Income/Avg Assets 0.23 0.29 0.39 1.08
Noninterest Exp/Avg Assets 2.10 2.23 2.75 2.00
ASSET QUALITY:
NPL+Frcl RE/Lns+Frcl RE 3.28 3.01 2.36 0.89
NPA's/Equity + LLR 15.96 14.53 12.43 4.59
LLR/Nonperf & Restrcd Lns 42.17 51.27 84.39 90.28
Foreclosed RE/Total Assets 1.31 1.38 1.36 0.14
90+ Day Del Loans/Total Loans 1.61 1.31 -- --
Loan Loss Reserves/Total Lns 0.68 0.67 0.65 0.64
Net Charge-Offs/Average Loans -- -- -- --
Dom Risk R/E Lns/Tot Dom Lns 13.42 12.65 16.90 18.61
LIQUIDITY:
Brokered Dep/Total Dom Deps -- -- -- --
$100M+ Time Dep/Total Dom Dep 10.47 9.86 10.34 11.94
Int Earn Assets/Int Bear Liab 114.57 115.66 113.88 113.03
Pledged Sec/Total Sec -- 1.50 2.24 2.19
Fair Value Sec/Amort Cost Sec 93.63 108.38 97.66 100.19
6
Source: Sheshunoff Information Services, Inc.
<PAGE>
LOGN
LOGANSPORT SAVINGS BANK, FSB
LOGANSPORT, INDIANA
FINANCIAL HIGHLIGHTS
1994 1995 1996 YTD 9/97
---- ---- ---- --------
(All $ Amounts in Thousands)
Num of Quarters Open for Period 4 4 4 3
BALANCE SHEET:
Total Assets 59,452 70,750 77,574 85,496
% Change in Assets 5.73 19.00 9.65 10.21
Total Loans 43,691 49,058 57,068 61,271
Deposits 51,202 52,502 57,396 61,741
Broker Originated Deposits -- -- -- --
CAPITAL:
Equity Capital 6,935 16,672 16,861 16,005
Tangible Capital 7,131 16,671 17,018 16,009
Core Capital 7,131 16,671 17,018 16,009
Risk-Based Capital 7,337 16,894 17,254 16,245
Equity Capital/Total Assets 11.66 23.56 21.74 18.72
Core Capital/Risk Based Assets 21.31 42.94 40.57 34.65
Core Capital/Adj Tang Assets 11.93 23.56 21.89 18.72
Tangible Cap/Tangible Assets 11.93 23.56 21.89 18.72
Risk-Based Cap/Risk-Wt Assets 21.93 43.51 41.13 35.17
PROFITABILITY:
Net Income(Loss) 734 851 869 899
Ret on Avg Assets Bef Ext Item 1.27 1.31 1.17 1.48
Return on Average Equity 11.01 7.21 5.24 7.61
Net Interest Income/Avg Assets 3.27 3.19 3.53 3.57
Noninterest Income/Avg Assets 0.30 0.48 0.33 0.32
Noninterest Expense/Avg Assets 1.66 1.58 2.03 1.51
Yield/Cost Spread 3.09 2.69 2.77 2.97
LIQUIDITY:
Int Earn Assets/Int Bear Liab 108.43 125.00 124.78 120.08
Brokered Deposits/Tot Deposits -- -- -- --
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 0.64 0.63 0.71 0.69
Nonaccrual Loans/Gross Loans -- -- -- 0.52
Nonaccrual Lns/Ln Loss Reserve -- -- -- 134.75
Repos Assets/Tot Assets -- -- -- 0.12
Net Chrg-Off/Av Adj Lns -- 0.01 (0.00) 0.04
Nonmtg 1-4 Constr&Conv Lns/TA 3.71 5.36 7.22 5.45
7
Source: Sheshunoff Information Services, Inc.
<PAGE>
NEIB
FIRST FEDERAL SAVINGS BANK
HUNTINGTON, INDIANA
FINANCIAL HIGHLIGHTS
1994 1995 1996 YTD 9/97
---- ---- ---- --------
(All $ Amounts in Thousands)
Num of Quarters Open for Period 4 4 4 3
BALANCE SHEET:
Total Assets 115,185 137,649 169,531 190,443
% Change in Assets 19.73 19.50 23.16 12.34
Total Loans 104,674 122,835 147,140 169,198
Deposits 68,533 68,496 85,717 97,060
Broker Originated Deposits -- 2,302 2,126 100
CAPITAL:
Equity Capital 10,328 20,461 21,185 23,053
Tangible Capital 10,328 20,459 21,169 23,031
Core Capital 10,328 20,459 21,169 23,031
Risk-Based Capital 10,932 21,145 21,999 24,032
Equity Capital/Total Assets 8.97 14.86 12.50 12.10
Core Capital/Risk Based Assets 14.78 24.25 20.95 19.20
Core Capital/Adj Tang Assets 8.97 14.86 12.49 12.09
Tangible Cap/Tangible Assets 8.97 14.86 12.49 12.09
Risk-Based Cap/Risk-Wt Assets 15.64 25.06 21.77 20.03
PROFITABILITY:
Net Income(Loss) 1,427 1,190 1,346 1,548
Ret on Avg Assets Bef Ext Item 1.35 0.94 0.88 1.17
Return on Average Equity 14.84 7.73 6.60 9.36
Net Interest Income/Avg Assets 3.75 3.07 3.20 3.25
Noninterest Income/Avg Assets 0.60 0.40 0.39 0.46
Noninterest Expense/Avg Assets 1.86 1.81 2.00 1.63
Yield/Cost Spread 3.61 2.72 2.86 2.95
LIQUIDITY:
Int Earn Assets/Int Bear Liab 106.71 113.87 109.95 109.53
Brokered Deposits/Tot Deposits -- 3.36 2.48 0.10
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 0.32 0.23 0.48 0.19
Nonaccrual Loans/Gross Loans 0.31 0.23 0.46 0.19
Nonaccrual Lns/Ln Loss Reserve 48.42 32.24 68.58 32.47
Repos Assets/Tot Assets -- -- -- 0.00
Net Chrg-Off/Av Adj Lns 0.03 0.06 0.06 0.02
Nonmtg 1-4 Constr&Conv Lns/TA 11.43 11.44 10.39 10.37
8
Source: Sheshunoff Information Services, Inc.
<PAGE>
SFED
SCHENECTADY FEDERAL SAVINGS
SCHENECTADY, NEW YORK
FINANCIAL HIGHLIGHTS
1994 1995 1996 YTD 9/97
---- ---- ---- --------
(All $ Amounts in Thousands)
Num of Quarters Open for Period 4 4 4 3
BALANCE SHEET:
Total Assets 150,896 166,557 164,903 174,151
% Change in Assets 3.12 10.38 (0.99) 5.61
Total Loans 94,299 101,585 119,167 129,639
Deposits 138,132 139,555 140,583 149,848
Broker Originated Deposits -- -- -- --
CAPITAL:
Equity Capital 10,046 17,030 17,808 18,537
Tangible Capital 10,046 16,942 17,762 18,481
Core Capital 10,046 16,942 17,762 18,481
Risk-Based Capital 10,907 17,514 18,404 19,233
Equity Capital/Total Assets 6.66 10.22 10.80 10.64
Core Capital/Risk Based Assets 13.25 20.79 20.19 19.95
Core Capital/Adj Tang Assets 6.66 10.18 10.77 10.62
Tangible Cap/Tangible Assets 6.66 10.18 10.77 10.62
Risk-Based Cap/Risk-Wt Assets 14.38 21.49 20.92 20.76
PROFITABILITY:
Net Income(Loss) 511 724 663 718
Ret on Avg Assets Bef Ext Item 0.34 0.46 0.40 0.56
Return on Average Equity 5.19 5.35 3.82 5.28
Net Interest Income/Avg Assets 3.17 3.13 3.16 3.19
Noninterest Income/Avg Assets 0.06 0.22 0.26 0.27
Noninterest Expense/Avg Assets 2.66 2.49 3.08 2.47
Yield/Cost Spread 3.11 2.94 2.89 2.95
LIQUIDITY:
Int Earn Assets/Int Bear Liab 105.77 110.21 110.05 109.31
Brokered Deposits/Tot Deposits -- -- -- --
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 2.67 1.94 1.64 1.66
Nonaccrual Loans/Gross Loans 1.34 0.79 0.70 0.78
Nonaccrual Lns/Ln Loss Reserve 147.39 139.09 130.06 133.64
Repos Assets/Tot Assets -- -- -- 0.06
Net Chrg-Off/Av Adj Lns 0.07 0.67 0.05 (0.02)
Nonmtg 1-4 Constr&Conv Lns/TA 5.05 3.58 2.69 2.94
9
Source: Sheshunoff Information Services, Inc.
<PAGE>
SOBI
SOBIESKI FEDERAL SAVINGS & LOAN ASSOCIATION
SOUTH BEND, INDIANA
FINANCIAL HIGHLIGHTS
1994 1995 1996 YTD 9/97
---- ---- ---- --------
(All $ Amounts in Thousands)
Num of Quarters Open for Period 4 4 4 3
BALANCE SHEET:
Total Assets 70,694 72,595 75,773 81,969
% Change in Assets (4.11) 2.69 4.38 8.18
Total Loans 49,594 45,893 52,234 60,427
Deposits 64,309 61,399 59,714 58,645
Broker Originated Deposits -- -- -- --
CAPITAL:
Equity Capital 5,917 10,002 9,321 9,139
Tangible Capital 5,917 9,964 9,331 9,136
Core Capital 5,917 9,964 9,331 9,136
Risk-Based Capital 6,117 10,164 9,531 9,336
Equity Capital/Total Assets 8.37 13.78 12.30 11.15
Core Capital/Risk Based Assets 19.89 35.15 29.37 23.88
Core Capital/Adj Tang Assets 8.37 13.73 12.31 11.15
Tangible Cap/Tangible Assets 8.37 13.73 12.31 11.15
Risk-Based Cap/Risk-Wt Assets 20.56 35.86 30.00 24.40
PROFITABILITY:
Net Income(Loss) 686 363 74 326
Ret on Avg Assets Bef Ext Item 0.95 0.57 0.10 0.56
Return on Average Equity 12.25 5.09 0.76 4.82
Net Interest Income/Avg Assets 3.53 3.02 2.92 2.99
Noninterest Income/Avg Assets 0.22 0.23 0.37 0.26
Noninterest Expense/Avg Assets 2.20 2.40 3.08 2.25
Yield/Cost Spread 3.45 2.84 2.69 2.83
LIQUIDITY:
Int Earn Assets/Int Bear Liab 105.04 109.97 107.58 107.37
Brokered Deposits/Tot Deposits -- -- -- --
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 0.30 0.17 0.38 0.17
Nonaccrual Loans/Gross Loans -- -- -- 0.18
Nonaccrual Lns/Ln Loss Reserve -- -- -- 53.00
Repos Assets/Tot Assets -- -- -- --
Net Chrg-Off/Av Adj Lns -- -- -- --
Nonmtg 1-4 Constr&Conv Lns/TA 0.50 3.57 4.53 1.92
10
Source: Sheshunoff Information Services, Inc.
<PAGE>
WHGB
HERITAGE SAVINGS BANK, FSB
LUTHERVILLE, MARYLAND
FINANCIAL HIGHLIGHTS
1994 1995 1996 YTD 9/97
---- ---- ---- --------
(All $ Amounts in Thousands)
Num of Quarters Open for Period 4 4 4 3
BALANCE SHEET:
Total Assets 85,167 85,026 95,773 98,218
% Change in Assets 2.59 (0.17) 12.64 2.55
Total Loans 76,522 74,809 81,511 81,740
Deposits 75,031 74,201 71,290 74,167
Broker Originated Deposits -- -- -- --
CAPITAL:
Equity Capital 7,900 8,578 14,626 15,333
Tangible Capital 7,900 8,578 14,624 15,331
Core Capital 7,900 8,578 14,624 15,331
Risk-Based Capital 8,000 8,728 14,829 15,581
Equity Capital/Total Assets 9.28 10.09 15.27 15.61
Core Capital/Risk Based Assets 17.10 19.43 29.46 32.66
Core Capital/Adj Tang Assets 9.28 10.09 15.27 16.09
Tangible Cap/Tangible Assets 9.28 10.09 15.27 16.09
Risk-Based Cap/Risk-Wt Assets 17.32 19.77 29.87 33.19
PROFITABILITY:
Net Income(Loss) 537 595 308 422
Ret on Avg Assets Bef Ext Item 0.64 0.70 0.34 0.57
Return on Average Equity 7.03 7.22 2.14 3.76
Net Interest Income/Avg Assets 3.26 3.22 3.36 3.43
Noninterest Income/Avg Assets 0.15 0.25 0.24 0.21
Noninterest Expense/Avg Assets 2.28 2.27 2.95 2.55
Yield/Cost Spread 3.12 3.02 2.85 2.93
LIQUIDITY:
Int Earn Assets/Int Bear Liab 108.34 109.13 116.56 115.81
Brokered Deposits/Tot Deposits -- -- -- --
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 0.74 0.21 0.94 1.49
Nonaccrual Loans/Gross Loans 0.72 0.10 0.46 1.03
Nonaccrual Lns/Ln Loss Reserve 475.42 48.37 176.61 334.80
Repos Assets/Tot Assets -- -- -- --
Net Chrg-Off/Av Adj Lns 0.03 (0.01) 0.01 --
Nonmtg 1-4 Constr&Conv Lns/TA 4.95 4.19 5.10 5.07
11
Source: Sheshunoff Information Services, Inc.
<PAGE>
EXHIBIT V
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit V -- Pro Forma Assumptions
1. Net proceeds from the conversion were invested at the beginning of the
period at 5.55%, which was the approximate rate on the one-year treasury
bill on December 31, 1997. This rate was selected because it is considered
more representative of the rate the Bank is likely to earn.
2. Ben Franklin's ESOP will acquire 8% of the conversion stock with loan
proceeds obtained from the Holding Company; therefore, there will be no
interest expense. We assumed that the ESOP expense is 10% annually of the
initial ESOP expense.
3. Franklin's RP will acquire 4% of the stock through open market purchases at
$10 per share and the expense is recognized ratably over five years as the
shares vest.
4. All pro forma income and expense items are adjusted for income taxes at a
combined state and federal rate of 40%.
5. In calculating the pro forma adjustments to net worth, the ESOP and RP are
deducted in accordance with generally accepted accounting principles.
6. Earnings per share calculations have ignored AICPA OP 93-6. Calculating
earnings per share under SOP 93-6 and assuming 10% of the ESOP shares are
committed to be released and allocated to individual accounts at the
beginning of the period would yield earnings per share of $.78, $0.70,
$0.63 and $0.58 and a price to earnings ratio of 12.79, 14.36, 15.80 and
17.29, at the minimum, midpoint, maximum and super maximum, respectively.
1
<PAGE>
Exhibit V
Pro Forma Effect of Conversion Proceeds
At the Minimum of the Conversion Valuation Range
31-Dec-97
Ben Franklin Bank of Illinois, Arlington Heights, Illinois
- ----------------------------------------------------------
1. Conversion Proceeds
Pro Forma Market Value (Minimum) $11,900,000
Less: Estimated Expenses (550,000)
-----------
Net Conversion Proceeds $11,350,000
2. Estimated Additional Income From Conversion Proceeds
Net Conversion Proceeds $11,350,000
Less: ESOP Contributions (952,000)
MRP Contributions (476,000)
-----------
Net Conversion Proceeds after ESOP & MRP $ 9,922,000
Estimated Incremental Rate of Return(1) 3.33%
-----------
Estimated Additional Income $ 330,403
Less: ESOP Expense (57,120)
MRP Expense (57,120)
-----------
$ 216,163
===========
3. Pro Forma Calculations
Before Conversion After
Period Conversion Results Conversion
------ -----------------------------------------------
a. Pro Forma Earnings
Twelve Months Ended
31-Dec-97 $ 647,000 $ 216,163 $ 863,163
b. Pro Forma Net Worth
31-Dec-97 $ 7,800,000 $9,922,000 $ 17,722,000
c. Pro Forma Net Assets
31-Dec-97 $122,591,000 $9,922,000 $132,513,000
(1) Investment rate of 5.55%, subject to an effective tax rate of 40%.
2
<PAGE>
Exhibit V
Pro Forma Effect of Conversion Proceeds
At the Midpoint of the Conversion Valuation Range
31-Dec-97
Ben Franklin Bank of Illinois, Arlington Heights, Illinois
- ----------------------------------------------------------
1. Conversion Proceeds
Pro Forma Market Valuation (Midpoint) $14,000,000
Less: Estimated Expenses (550,000)
-----------
Net Conversion Proceeds $13,450,000
2. Estimated Additional Income From Conversion Proceeds
Net Conversion Proceeds $13,450,000
Less: ESOP Contributions (1,120,000)
MRP Contributions (560,000)
-----------
Net Conversion Proceeds after ESOP & MRP $11,770,000
Estimated Incremental Rate of Return(1) 3.33%
-----------
Estimated Additional Income $ 391,941
Less: ESOP Expense (67,200)
MRP Expense (67,200)
-----------
$ 257,541
===========
3. Pro Forma Calculations
Before Conversion After
Period Conversion Results Conversion
------ -----------------------------------------------
a. Pro Forma Earnings
Twelve Months Ended
31-Dec-97 $ 647,000 $ 257,541 $ 904,541
b. Pro Forma Net Worth
31-Dec-97 $ 7,800,000 $11,770,000 $ 19,570,000
c. Pro Forma Net Assets
31-Dec-97 $122,591,000 $11,770,000 $134,361,000
(1) Investment rate of 5.55%, subject to an effective tax rate of 40%.
3
<PAGE>
Exhibit V
Pro Forma Effect of Conversion Proceeds
At the Maximum of the Conversion Valuation Range
31-Dec-97
Ben Franklin Bank of Illinois, Arlington Heights, Illinois
- ----------------------------------------------------------
1. Conversion Proceeds
Pro Forma Market Valuation (Maximum) $16,100,000
Less: Estimated Expenses (550,000)
-----------
Net Conversion Proceeds $15,550,000
2. Estimated Additional Income From Conversion Proceeds
Net Conversion Proceeds $15,550,000
Less: ESOP Contributions (1,288,000)
MRP Contributions (644,000)
-----------
Net Conversion Proceeds after ESOP & MRP $13,618,000
Estimated Incremental Rate of Return(1) 3.33%
-----------
Estimated Additional Income $ 453,479
Less: ESOP Expense (77,280)
MRP Expense (77,280)
-----------
$ 298,919
===========
3. Pro Forma Calculations
Before Conversion After
Period Conversion Results Conversion
------ -----------------------------------------------
a. Pro Forma Earnings
Twelve Months Ended
31-Dec-97 $ 647,000 $ 298,919 $ 945,919
b. Pro Forma Net Worth
31-Dec-97 $ 7,800,000 $13,618,000 $ 21,418,000
c. Pro Forma Net Assets
31-Dec-97 $122,591,000 $13,618,000 $136,209,000
(1) Investment rate of 5.55%, subject to an effective tax rate of 40%.
4
<PAGE>
Exhibit V
Pro Forma Effect of Conversion Proceeds
At the SuperMax of the Conversion Valuation Range
31-Dec-97
Ben Franklin Bank of Illinois, Arlington Heights, Illinois
- ----------------------------------------------------------
1. Conversion Proceeds
Pro Forma Market Valuation (Supermax) $18,515,000
Less: Estimated Expenses $ (550,000)
-----------
Net Conversion Proceeds $17,965,000
2. Estimated Additional Income From Conversion Proceeds
Net Conversion Proceeds $17,965,000
Less: ESOP Contributions $(1,481,200)
MRP Contributions $ (740,600)
-----------
Net Conversion Proceeds after ESOP & MRP $15,743,200
Estimated Incremental Rate of Return(1) 3.33%
-----------
Estimated Additional Income $ 524,249
Less: ESOP Expense $ (88,872)
MRP Expense $ (88,872)
-----------
$ 346,505
===========
3. Pro Forma Calculations
Before Conversion After
Period Conversion Results Conversion
------ -----------------------------------------------
a. Pro Forma Earnings
Twelve Months Ended
31-Dec-97 $ 647,000 $ 346,505 $ 993,505
b. Pro Forma Net Worth
31-Dec-97 $ 7,800,000 $15,743,200 $ 23,543,200
c. Pro Forma Net Assets
31-Dec-97 $122,591,000 $15,743,200 $138,334,200
(1) Investment rate of 5.55%, subject to an effective tax rate of 40%.
5
<PAGE>
Exhibit V
Pro Forma Analysis Sheet
Name of Association: Ben Franklin Bank of Illinois, Arlington Heights, Illinois
Date of Letter to Assn.: 31-Mar-98
Date of Market Prices: 31-Dec-97
<TABLE>
<CAPTION>
Midwest
--------------
State Publicly All Publicly
Comparatives Held Thrifts Held Thrifts
-------------- -------------- --------------
Symbols Value Mean Median Mean Median Mean Median
--------------- ---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Price-Earnings Ratio P/E
- --------------------
Last Twelve Months N/A
At Minimum of Range 13.79 21.91 20.80
---------------
At Midpoint of Range 15.48 22.09 20.51 25.50 18.57 21.71 20.62
At Maximum of Range 17.02
At SuperMax of Range 18.64
Price-Book Ratio P/B
- ----------------
Last Twelve Months N/A
At Minimum of Range 67.15% 166.78 147.77
---------------
At Midpoint of Range 71.54% 140.39 133.95 146.71 137.21 175.75 161.07
At Maximum of Range 75.15%
At SuperMax of Range 78.64%
Price-Asset Ratio P/A
- -----------------
Last Twelve Months N/A
At Minimum of Range 8.98% 20.48 19.57
---------------
At Midpoint of Range 10.42% 21.41 21.13 21.42 22.04 19.74 18.24
At Maximum of Range 11.82%
At SuperMax of Range 13.38%
Twelve Mo. Earnings Base Y $ 647,000
Period Ended 31-Dec-97
Book Value B $ 7,800,000
As of 31-Dec-97
Total Assets A $122,591,000
As of 31-Dec-97
Return on Money (1) R 3.33%
Conversion Expense X $ 550,000
Underwriting Commission C 0.00%
Percentage Underwritten S 0.00%
Estimate Dividend
Dollar Amount DA $ --
Yield DY
ESOP Contributions P $ 1,120,000
MRP Contributions I $ 560,000
ESOP Annual Expense E $ 67,200
MRP Annual Contributions M $ 67,200
Cost of ESOP Borrowings F 0.00%
</TABLE>
(1) Investment rate of 5.55%, subject to an effective tax rate of 40%.
6
<PAGE>
Exhibit V
Pro Forma Analysis Sheet
Calculation of Estimated Value (V) at Midpoint Value
1. V= P/A(A-X-P-I) $14,000,000
------------------------
1-P/A(1-(CxS))
2. V= P/B(B-X-P-I) $14,000,000
------------------------
1-P/B(1-(CxX))
3. V= P/E(Y-R(X+P+I)-(E+M+ST)) $14,000,000
------------------------
1-P/E(R(1-(CxX))
Value
Estimated Value Per Share Total Shares Date
- --------------- --------- ------------ ---------
$14,000,000 $10.00 1,400,000 31-Dec-97
Range of Value
$14.0 million x 1.15 = $16.1 million or 1,610,000 shares at $10.00 per share.
$14.0 million x .085 = $11.9 million or 1,190,000 shares at $10.00 per share.
Calculation of Estimated Value (V) Supermax
1. V= P/A(A-X-P-I) $18,515,000
------------------------
1-P/A(1-(CxS))
2. V= P/B(B-X-P-I) $18,515,000
------------------------
1-P/B(1-(CxX))
3. V= P/E(Y-R(X+P+I)-(E+M)) $18,515,000
------------------------
1-P/E(R(1-(CxX))
Value
Final Value Per Share Total Shares Date
- --------------- --------- ------------ ---------
$18,515,000 $10.00 1,851,500 31-Dec-97
7
<PAGE>
EXHIBIT VI
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit VI -- Comparative Group Selection
To search for a comparative group for Douglas, we selected all thrifts from the
entire U.S. with assets between $75 million and $200 million with sufficient
trading volume to produce meaningful market data. All of these thrifts are
listed on either AMEX, NYSE, or Nasdaq.
We found 96 thrifts in the asset size described above. We eliminated 84 and
retained a group of 12. Normally, we consider 10 to 12 to be the desired sample
size.
We eliminated thrifts for the following reasons: 1) Mutual holding company; 2)
No PE for the last year or PE ratio for the last year greater than 35; 3)
Tangible equity less than 12% of assets or greater than 24% of assets; 4)
Non-performing assets greater than 1.0% of assets; 5) Loans less than 70% of
assets; and 6) Loans serviced greater than 20% of assets.
After eliminating thrifts as discussed above, we had 13 left. We then eliminated
FFBS when it was transferred to pink sheets, reducing our group to 12. Between
selection date and appriasal date 1 was acquired leaving 11.
The group of 96 from which the comparative group was selected is listed on
Exhibit VI.1 and the selected comparative group is listed on Exhibit VI.2. On
Exhibit VI.1, we have blocked the cells that indicate which ones were not
selected and why. Set forth below is a legend for the column summarizing reasons
individual thrifts were not selected.
A Mutual holding company.
B No core EPS for last twelve months or PR ratio over 35.
C Equity either less than 12% of assets or greater than 24% of assets.
D Non-performing assets greater than 1.0% of total assets.
E Loans less than 70% of assets.
F Loans serviced greater than 20% of assets.
G Transferred to pink sheets.
1
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit VI.1 -- Comparative Group Selection
<TABLE>
<CAPTION>
A B
Deposit Current Current Price/
Insurance Stock Market LTM
Agency Price Value Core EPS
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($) ($M) (x)
- ------ ---------- ---- ----- ------ ---------- -------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -------
AABC Access Anytime Bancorp Inc. Clovis NM SW SAIF NASDAQ 08/08/86 10.750 12.83 9.6
- ------- -----
AFBC Advance Financial Bancorp Wellsburg WV SE SAIF NASDAQ 01/02/97 17.750 19.25 NA
- ------- -----
AFED AFSALA Bancorp Inc. Amsterdam NY MA SAIF NASDAQ 10/01/96 18.750 26.03 NA
- ------- -----
AMFC AMB Financial Corp. Munster IN MW SAIF NASDAQ 04/01/96 16.500 15.90 23.6
- -------
ASBP ASB Financial Corp. Portsmouth OH MW SAIF NASDAQ 05/11/95 13.500 22.53 21.1
- -------
BDJI First Federal Bancorp. Bemidji MN MW SAIF NASDAQ 04/04/95 28.000 18.83 23.7
- -------
BFSB Bedford Bancshares Inc. Bedford VA SE SAIF NASDAQ 08/22/94 28.250 32.27 19.4
- ------- -----
BWFC Bank West Financial Corp. Grand Rapids MI MW SAIF NASDAQ 03/30/95 16.000 41.96 45.7
- ------- -----
BYFC Broadway Financial Corp. Los Angeles CA WE SAIF NASDAQ 01/09/96 13.250 11.01 30.8
- -------
CBES CBES Bancorp Inc. Excelsior Springs MO MW SAIF NASDAQ 09/30/96 21.875 22.42 18.9
- ------- -----
CCFH CCF Holding Company Jonesboro GA SE SAIF NASDAQ 07/12/95 19.750 16.20 NM
- ------- -----
CENB Century Bancorp Inc. Thomasville NC SE SAIF NASDAQ 12/23/96 83.000 33.81 NA
- ------- -----
CFFC Community Financial Corp. Staunton VA SE SAIF NASDAQ 03/30/88 26.500 33.84 17.7
- ------- -----
CFNC Carolina Fincorp Inc. Rockingham NC SE SAIF NASDAQ 11/25/96 17.625 32.63 NA
- ------- -----
CIBI Community Investors Bancorp Bucyrus OH MW SAIF NASDAQ 02/07/95 15.750 14.21 15.0
- -------
CLAS Classic Bancshares Inc. Ashland KY MW SAIF NASDAQ 12/29/95 16.250 21.12 23.9
- ------- -----
CNSB CNS Bancorp Inc. Jefferson City MO MW SAIF NASDAQ 06/12/96 21.500 35.54 41.4
- ------- -----
DCBI Delphos Citizens Bancorp Inc. Delphos OH MW SAIF NASDAQ 11/21/96 17.250 33.80 NA
- ------- -----
EFBC Empire Federal Bancorp Inc. Livingston MT WE SAIF NASDAQ 01/27/97 16.500 42.77 NA
- ------- -----
EGLB Eagle BancGroup Inc. Bloomington IL MW SAIF NASDAQ 07/01/96 19.250 22.91 56.6
- ------- -----
ESX Essex Bancorp Inc. Norfolk VA SE SAIF AMSE 07/18/90 4.500 4.76 NM
- ------- -----
ETFS East Texas Financial Services Tyler TX SW SAIF NASDAQ 01/10/95 20.625 21.17 28.3
- ------- -----
FBNW FirstBank Corp. Lewiston ID WE SAIF NASDAQ 07/02/97 17.750 35.21 NA
- ------- -----
FBSI First Bancshares Inc. Mountain Grove MO MW SAIF NASDAQ 12/22/93 26.000 28.43 16.9
- ------- -----
FCB Falmouth Bancorp Inc. Falmouth MA NE BIF AMSE 03/28/96 20.000 29.10 40.0
- ------- -----
FCME First Coastal Corp. Westbrook ME NE BIF NASDAQ NA 15.000 20.39 3.5
- -------
FFBI First Financial Bancorp Inc. Belvidere IL MW SAIF NASDAQ 10/04/93 21.000 8.72 23.1
- -------
FFBS FFBS BanCorp Inc. Columbus MS SE SAIF NASDAQ 07/01/93 22.250 34.98 18.5
- -------
FFDB FirstFed Bancorp Inc. Bessemer AL SE SAIF NASDAQ 11/19/91 21.281 24.49 14.9
- -------
FFDF FFD Financial Corp. Dover OH MW SAIF NASDAQ 04/03/96 18.625 26.91 30.0
- -------
FFSL First Independence Corp. Independence KS MW SAIF NASDAQ 10/08/93 14.875 14.55 21.9
- -------
FFWC FFW Corp. Wabash IN MW SAIF NASDAQ 04/05/93 41.750 29.98 17.3
- -------
FFWD Wood Bancorp Inc. Bowling Green OH MW SAIF NASDAQ 08/31/93 18.500 39.22 19.9
- -------
</TABLE>
Source: SNL & F&C calculations
2
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit VI.1 -- Comparative Group Selection (Continued)
<TABLE>
<CAPTION>
A B
Deposit Current Current Price/
Insurance Stock Market LTM
Agency Price Value Core EPS
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($) ($M) (x)
- ------ ---------- ---- ----- ------ ---------- -------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -------
FGHC First Georgia Holding Inc. Brunswick GA SE SAIF NASDAQ 02/11/87 8.250 25.18 22.3
- ------- -----
FKKYD Frankfort First Bancorp Inc. Frankfort KY MW SAIF NASDAQ 07/10/95 18.625 30.54 35.8
- ------- -----
FTF Texarkana First Financial Corp Texarkana AR SE SAIF AMSE 07/07/95 25.750 46.02 15.8
- ------- -----
FTNB Fulton Bancorp Inc. Fulton MO MW SAIF NASDAQ 10/18/96 21.375 36.75 NA
- ------- -----
FTSB Fort Thomas Financial Corp. Fort Thomas KY MW SAIF NASDAQ 06/28/95 15.500 23.17 19.6
- ------- -----
GOSB GSB Financial Corp. Goshen NY MA BIF NASDAQ 07/09/97 17.125 38.50 NA
- ------- -----
GSFC Green Street Financial Corp. Fayetteville NC SE SAIF NASDAQ 04/04/96 18.000 77.37 26.9
- ------- -----
GSLA GS Financial Corp. Metairie LA SW SAIF NASDAQ 04/01/97 18.000 61.89 NA
- ------- -----
GTPS Great American Bancorp Champaign IL MW SAIF NASDAQ 06/30/95 18.500 31.39 43.0
- ------- -----
GUPB GFSB Bancorp Inc. Gallup NM SW SAIF NASDAQ 06/30/95 20.250 16.21 21.1
- -------
HBS Haywood Bancshares Inc. Waynesville NC SE BIF AMSE 12/18/87 21.250 26.57 13.6
- ------- -----
HCBB HCB Bancshares Inc. Camden AR SE SAIF NASDAQ 05/07/97 13.625 36.04 NA
- ------- -----
HFFB Harrodsburg First Fin Bancorp Harrodsburg KY MW SAIF NASDAQ 10/04/95 17.250 34.93 23.0
- -------
HFSA Hardin Bancorp Inc. Hardin MO MW SAIF NASDAQ 09/29/95 17.750 15.25 19.5
- -------
HHFC Harvest Home Financial Corp. Cheviot OH MW SAIF NASDAQ 10/10/94 14.750 13.49 27.8
- ------- -----
HMLK Hemlock Federal Financial Corp Oak Forest IL MW SAIF NASDAQ 04/02/97 17.375 36.08 NA
- ------- -----
HZFS Horizon Financial Svcs Corp. Oskaloosa IA MW SAIF NASDAQ 06/30/94 11.750 10.00 18.7
- -------------------------------------- -----
JXSB Jacksonville Savings Bk (MHC) Jacksonville IL MW SAIF NASDAQ 04/21/95 28.500 36.26 43.2
- -------------------------------------- -----
KSAV KS Bancorp Inc. Kenly NC SE SAIF NASDAQ 12/30/93 22.500 19.92 17.2
- -------
KSBK KSB Bancorp Inc. Kingfield ME NE BIF NASDAQ 06/24/93 21.000 26.00 16.2
- -------
KYF Kentucky First Bancorp Inc. Cynthiana KY MW SAIF AMSE 08/29/95 14.688 19.06 18.6
- -------
LOGN Logansport Financial Corp. Logansport IN MW SAIF NASDAQ 06/14/95 15.250 19.22 16.2
- -------
MARN Marion Capital Holdings Marion IN MW SAIF NASDAQ 03/18/93 27.500 48.89 17.5
- -------
MFLR Mayflower Co-operative Bank Middleboro MA NE BIF NASDAQ 12/23/87 23.750 21.15 18.3
- -------
MIFC Mid-Iowa Financial Corp. Newton IA MW SAIF NASDAQ 10/14/92 11.250 18.88 13.7
- ------- -----
MONT Montgomery Financial Corp. Crawfordsville IN MW SAIF NASDAQ 07/01/97 12.500 20.66 NA
- ------- -----
MSBF MSB Financial Inc. Marshall MI MW SAIF NASDAQ 02/06/95 19.500 24.06 22.7
- -------
MWBI Midwest Bancshares Inc. Burlington IA MW SAIF NASDAQ 11/12/92 17.750 18.07 18.3
- ------- -----
NBSI North Bancshares Inc. Chicago IL MW SAIF NASDAQ 12/21/93 25.875 24.73 38.6
- ------- -----
NEIB Northeast Indiana Bancorp Huntington IN MW SAIF NASDAQ 06/28/95 20.500 36.14 16.9
- ------- -----
NTMG Nutmeg Federal S&LA Danbury CT NE SAIF NASDAQ NA 10.750 10.61 39.8
- ------- -----
NWEQ Northwest Equity Corp. Amery WI MW SAIF NASDAQ 10/11/94 19.250 16.15 16.0
- -------
</TABLE>
Source: SNL & F&C calculations
3
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit VI.1 -- Comparative Group Selection (Continued)
<TABLE>
<CAPTION>
A B
Deposit Current Current Price/
Insurance Stock Market LTM
Agency Price Value Core EPS
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($) ($M) (x)
- ------ ---------- ---- ----- ------ ---------- -------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------
PBHC Oswego City Savings Bk (MHC) Oswego NY MA BIF NASDAQ 11/16/95 30.000 57.50 31.3
- --------------------------------------
PCBC Perry County Financial Corp. Perryville MO MW SAIF NASDAQ 02/13/95 23.250 19.25 17.2
- ------- -----
PDB Piedmont Bancorp Inc. Hillsborough NC SE SAIF AMSE 12/08/95 10.375 28.54 39.9
- ------- -----
PEEK Peekskill Financial Corp. Peekskill NY MA SAIF NASDAQ 12/29/95 17.500 55.88 26.1
- -------
PFED Park Bancorp Inc. Chicago IL MW SAIF NASDAQ 08/12/96 17.750 43.16 22.5
- ------- -----
PFFC Peoples Financial Corp. Massillon OH MW SAIF NASDAQ 09/13/96 13.750 20.15 NA
- -------------------------------------- -----
PLSK Pulaski Savings Bank (MHC) Springfield NJ MA SAIF NASDAQ 04/03/97 20.000 41.40 NA
- -------------------------------------- -----
PRBC Prestige Bancorp Inc. Pleasant Hills PA MA SAIF NASDAQ 06/27/96 19.250 17.61 21.2
- ------- -----
PSFC Peoples-Sidney Financial Corp. Sidney OH MW SAIF NASDAQ 04/28/97 17.250 30.80 NA
- ------- -----
PSFI PS Financial Inc. Chicago IL MW SAIF NASDAQ 11/27/96 18.500 38.36 NA
- ------- -----
PTRS Potters Financial Corp. East Liverpool OH MW SAIF NASDAQ 12/31/93 18.500 17.85 16.1
- -------------------------------------- -----
PULB Pulaski Bank, Svgs Bank (MHC) St. Louis MO MW SAIF NASDAQ 05/11/94 30.000 62.82 38.5
- -------------------------------------- -----
QCFB QCF Bancorp Inc. Virginia MN MW SAIF NASDAQ 04/03/95 28.500 39.44 14.5
- ------- -----
RIVR River Valley Bancorp Madison IN MW SAIF NASDAQ 12/20/96 18.125 21.57 NA
- ------- -----
SFED SFS Bancorp Inc. Schenectady NY MA SAIF NASDAQ 06/30/95 24.500 30.16 24.8
- -------
SFFC StateFed Financial Corp. Des Moines IA MW SAIF NASDAQ 01/05/94 13.375 20.83 18.6
- ------- -----
SHSB SHS Bancorp Inc. Pittsburgh PA MA SAIF NASDAQ 10/01/97 17.250 14.14 NA
- -------------------------------------- -----
SKBO First Carnegie Deposit (MHC) Carnegie PA MA SAIF NASDAQ 04/04/97 18.875 43.41 NA
- -------------------------------------- -----
SMBC Southern Missouri Bancorp Inc. Poplar Bluff MO MW SAIF NASDAQ 04/13/94 19.750 31.84 21.5
- -------
SOBI Sobieski Bancorp Inc. South Bend IN MW SAIF NASDAQ 03/31/95 19.375 15.10 31.8
- ------- -----
SRN Southern Banc Co. Gadsden AL SE SAIF AMSE 10/05/95 17.750 21.84 42.3
- ------- -----
SSM Stone Street Bancorp Inc. Mocksville NC SE SAIF AMSE 04/01/96 22.125 41.99 24.9
- ------- -----
SZB SouthFirst Bancshares Inc. Sylacauga AL SE SAIF AMSE 02/14/95 20.625 17.48 108.6
- ------- -----
THR Three Rivers Financial Corp. Three Rivers MI MW SAIF AMSE 08/24/95 20.250 16.68 20.1
- -------
TPNZ Tappan Zee Financial Inc. Tarrytown NY MA SAIF NASDAQ 10/05/95 20.000 29.76 28.2
- -------
TRIC Tri-County Bancorp Inc. Torrington WY WE SAIF NASDAQ 09/30/93 14.750 17.22 18.9
- -------
TWIN Twin City Bancorp Bristol TN SE SAIF NASDAQ 01/04/95 14.125 17.97 23.5
- -------
UBMT United Financial Corp. Great Falls MT WE SAIF NASDAQ 09/23/86 25.250 30.89 20.7
- --------------------------------------
WCFB Webster City Federal SB (MHC) Webster City IA MW SAIF NASDAQ 08/15/94 21.250 44.63 32.7
- --------------------------------------
WEHO Westwood Homestead Fin. Corp. Cincinnati OH MW SAIF NASDAQ 09/30/96 14.250 39.65 25.9
- -------
WHGB WHG Bancshares Corp. Lutherville MD MA SAIF NASDAQ 04/01/96 15.875 23.21 27.4
Maximum 83.000 77.37 108.6
Minimum 4.500 4.76 3.5
Average 19.666 28.11 25.4
Median 18.500 25.59 21.7
</TABLE>
Source: SNL & F&C calculations
4
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit VI.1 -- Comparative Group Selection (Continued)
<TABLE>
<CAPTION>
C
Tangible ROAA ROAA ROACE ROACE
Price/ Current Current Current Total Equity/ Equity/ Core Core Before Before Before Before
Core Price/ Price/Tang Price/ Dividend Assets Assets T Assets EPS EPS Extra Extra Extra Extra
EPS Book Value Book Value Assets Yield ($000) (%) (%) ($) ($) (%) (%) (%) (%)
Ticker (x) (%) (%) (%) (%) MRQ MRQ MRQ LTM MRQ LTM MRQ LTM MRQ
- ------ ------ ---------- ---------- ------ -------- ------- ------- -------- ---- ---- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------- ----
AABC 2.6 143.1 143.1 12.4 -- 105,639 8.7 8.7 1.12 1.05 1.44 5.02 22.55 62.33
- ------- ----
AFBC 23.4 118.3 118.3 18.2 1.80 105,717 15.4 15.4 NA 0.19 0.88 0.78 6.11 5.06
- -------
AFED 20.4 117.8 117.8 17.1 1.28 159,181 13.5 13.5 NA 0.23 0.38 0.79 2.96 5.83
- -------
AMFC 22.9 110.4 110.4 15.4 1.70 103,388 13.9 13.9 0.70 0.18 1.03 1.17 6.30 8.14
- -------
ASBP 21.1 131.1 131.1 20.4 2.96 112,449 15.6 15.6 0.64 0.16 0.97 0.87 5.89 5.59
- ------- ----
BDJI 20.0 157.8 157.8 16.9 -- 111,492 10.7 10.7 1.18 0.35 0.65 0.71 5.87 6.50
- ------- ----
BFSB 19.1 156.6 156.6 23.2 1.98 139,179 14.1 14.1 1.46 0.37 1.20 1.20 8.39 8.48
- -------
BWFC 44.4 180.4 180.4 25.5 1.33 164,854 14.2 14.2 0.35 0.09 1.03 1.46 6.76 10.30
- ------- ----
BYFC 165.6 89.7 89.7 8.8 1.51 124,740 10.6 10.6 0.43 0.02 0.29 0.33 2.44 2.97
- ------- ----
CBES 19.5 124.3 124.3 21.0 1.83 106,635 16.9 16.9 1.16 0.28 1.24 1.17 6.89 6.81
- ------- ----
CCFH NM 139.0 139.0 14.8 2.79 109,342 10.7 10.7 (0.20) (0.05) 0.14 (0.02) 1.10 (0.23)
- ------- ----
CENB 19.8 110.6 110.6 33.5 2.41 100,937 30.3 30.3 NA 1.05 1.58 1.57 6.21 5.20
- ------- ----
CFFC 25.5 139.6 139.6 18.4 2.11 183,278 13.2 13.2 1.50 0.26 1.12 0.73 8.18 5.45
- -------
CFNC 22.0 126.6 126.6 28.6 1.36 114,069 22.6 22.6 NA 0.20 1.20 1.26 5.52 5.55
- ------- ----
CIBI 14.1 130.3 130.3 15.3 2.03 94,328 11.8 11.8 1.05 0.28 0.97 1.01 8.37 8.53
- ------- ----
CLAS 67.7 107.4 126.5 16.0 1.72 132,186 14.9 12.9 0.68 0.06 0.81 0.83 5.53 5.61
- ------- ----
CNSB 41.4 149.9 149.9 36.5 1.12 97,411 24.3 24.3 0.52 0.13 0.79 0.78 3.20 3.19
- ------- ----
DCBI 18.0 117.8 117.8 31.4 -- 107,796 26.6 26.6 NA 0.24 1.61 1.74 8.03 6.32
- ------- ----
EFBC 24.3 106.4 106.4 38.7 1.82 110,540 36.4 36.4 NA 0.17 NA 1.49 NA 4.04
- ------- ----
EGLB 80.2 113.0 113.0 13.4 -- 172,160 11.9 11.9 0.34 0.06 0.32 0.24 2.62 2.04
- ------- ----
ESX NM NM NM 2.5 -- 191,886 7.8 7.8 (1.19) (0.85) 0.12 (1.03) 125.88 (719.41)
- ------- ----
ETFS 27.1 101.4 101.4 18.3 0.97 115,949 18.0 18.0 0.73 0.19 0.67 0.72 3.67 4.00
- -------
FBNW NA 111.0 111.0 19.8 1.58 177,870 16.4 16.4 NA NA 0.85 1.21 NA 9.91
- -------
FBSI 14.8 125.4 125.4 17.5 0.77 162,755 13.9 13.9 1.54 0.44 1.20 1.27 8.49 9.48
- -------
FCB 35.7 127.6 127.6 30.2 1.00 96,391 23.7 23.7 0.50 0.14 0.83 0.89 3.36 3.75
- ------- ----
FCME 19.7 140.7 140.7 13.7 -- 148,571 9.8 9.8 4.33 0.19 4.13 0.89 46.76 9.35
- ------- ----
FFBI 23.9 116.0 116.0 10.4 -- 84,242 8.9 8.9 0.91 0.22 (0.04) 0.56 (0.54) 6.40
- ------- ----
FFBS 18.5 147.6 147.6 25.9 2.25 134,952 16.7 16.7 1.20 0.30 1.41 1.36 7.42 7.57
- ------- ----
FFDB 15.2 144.1 157.4 13.9 2.35 176,464 9.6 8.9 1.43 0.35 1.03 0.95 10.60 9.99
- ------- ----
FFDF 27.4 125.3 125.3 30.5 1.61 88,220 24.3 24.3 0.62 0.17 1.93 1.02 7.83 4.17
- ------- ----
FFSL 18.6 126.3 126.3 12.9 1.68 112,523 10.3 10.3 0.68 0.20 0.65 0.72 6.09 7.02
- ------- ----
FFWC 16.1 169.4 186.7 16.5 1.73 181,468 9.7 8.9 2.41 0.65 1.05 1.04 10.54 10.77
- ------- ----
FFWD 18.5 189.4 189.4 23.5 2.16 166,520 12.4 12.4 0.93 0.25 1.40 1.48 11.07 11.98
- ------- ----
</TABLE>
Source: SNL & F&C calculations
5
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit VI.1 -- Comparative Group Selection (Continued)
<TABLE>
<CAPTION>
C
Tangible ROAA ROAA ROACE ROACE
Price/ Current Current Current Total Equity/ Equity/ Core Core Before Before Before Before
Core Price/ Price/Tang Price/ Dividend Assets Assets T Assets EPS EPS Extra Extra Extra Extra
EPS Book Value Book Value Assets Yield ($000) (%) (%) ($) ($) (%) (%) (%) (%)
Ticker (x) (%) (%) (%) (%) MRQ MRQ MRQ LTM MRQ LTM MRQ LTM MRQ
- ------ ------ ---------- ---------- ------ -------- ------- ------- -------- ---- ---- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------- ----
FGHC 17.2 196.0 213.7 16.1 0.65 156,383 8.2 7.6 0.37 0.12 0.66 1.00 7.97 11.97
- ------- ----
FKKYD 19.4 136.2 136.2 22.9 4.30 133,255 16.8 16.8 0.52 0.24 0.09 1.13 0.37 6.72
- -------
FTF 14.6 168.1 168.1 25.8 2.18 178,710 15.3 15.3 1.63 0.44 1.71 1.72 10.74 11.10
- ------- ----
FTNB 31.4 143.7 143.7 35.4 0.94 103,713 24.7 24.7 NA 0.17 1.25 1.33 5.41 5.33
- ------- ----
FTSB 16.9 146.8 146.8 23.7 1.61 97,843 16.1 16.1 0.79 0.23 1.22 1.33 7.18 8.25
- ------- ----
GOSB NA NA NA NA -- 154,649 8.1 8.1 NA NA NA 0.40 NA NA
- ------- ----
GSFC 26.5 123.0 123.0 43.5 2.44 177,962 35.4 35.4 0.67 0.17 1.58 1.64 4.47 4.58
- ------- ----
GSLA 26.5 109.5 109.5 47.2 1.56 131,071 43.1 43.1 NA 0.17 1.31 1.67 NA 3.81
- ------- ----
GTPS 35.6 100.3 100.3 22.5 2.16 139,568 20.4 20.4 0.43 0.13 0.53 0.66 2.38 3.15
- -------
GUPB 22.0 115.1 115.1 14.8 1.98 109,964 12.8 12.8 0.96 0.23 0.87 0.70 5.47 5.11
- -------
HBS 8.1 122.6 126.9 17.4 2.64 152,796 14.2 13.8 1.56 0.66 1.37 2.18 9.41 15.52
- -------
HCBB 31.0 94.4 98.0 18.0 -- 199,946 19.1 18.5 NA 0.11 NA 0.58 NA 3.08
- ------- ----
HFFB 21.6 110.0 110.0 32.1 2.32 108,949 26.9 26.9 0.75 0.20 1.03 1.39 3.80 5.23
- ------- ----
HFSA 21.1 112.7 112.7 13.0 2.70 117,364 11.5 11.5 0.91 0.21 0.80 0.65 5.88 5.31
- ------- ----
HHFC 19.4 130.4 130.4 15.4 2.98 87,596 11.8 11.8 0.53 0.19 0.30 0.80 2.31 6.60
- ------- ----
HMLK 19.7 115.4 115.4 22.3 1.38 161,905 19.3 19.3 NA 0.22 0.37 1.03 NA 5.41
- ------- ----
HZFS 14.0 114.4 114.4 11.4 1.53 87,784 10.0 10.0 0.63 0.21 0.81 1.14 7.85 11.52
- ------- ----
JXSB 35.6 209.3 209.3 22.1 1.58 164,235 10.6 10.6 0.66 0.20 0.64 0.74 6.04 7.16
- ------- ----
KSAV 18.2 136.9 136.9 18.1 2.67 109,937 13.2 13.2 1.31 0.31 1.21 1.10 8.84 8.19
- ------- ----
KSBK 14.6 236.0 248.2 17.4 0.38 149,657 7.4 7.0 1.30 0.36 1.07 1.21 14.91 16.68
- ------- ----
KYF 17.5 130.1 130.1 21.7 3.40 88,089 16.7 16.7 0.79 0.21 1.15 1.21 6.64 7.26
- -------
LOGN 15.9 118.6 118.6 22.4 2.62 85,801 18.9 18.9 0.94 0.24 1.42 1.41 7.28 7.39
- -------
MARN 19.1 123.8 123.8 27.2 3.20 179,822 22.0 22.0 1.57 0.36 1.70 1.50 7.49 6.72
- ------- ----
MFLR 17.5 170.0 172.7 16.4 2.86 129,033 9.6 9.5 1.30 0.34 1.05 1.04 10.91 10.73
- ------- ----
MIFC 14.1 156.5 156.7 14.8 0.71 128,017 9.4 9.4 0.82 0.20 1.27 1.09 13.68 11.66
- ------- ----
MONT NA 105.8 105.8 20.3 1.76 101,986 19.1 19.1 NA NA 0.69 0.89 NA 4.65
- ------- ----
MSBF 22.2 188.8 188.8 31.2 1.44 77,014 16.5 16.5 0.86 0.22 1.50 1.54 8.42 9.16
- ------- ----
MWBI 16.4 174.4 174.4 12.1 1.35 149,850 6.9 6.9 0.97 0.27 0.87 1.13 12.54 16.37
- ------- ----
NBSI 53.9 151.9 151.9 20.4 1.86 122,081 13.4 13.4 0.67 0.12 0.63 0.37 4.37 2.69
- -------
NEIB 15.5 132.2 132.2 19.0 1.66 190,319 14.4 14.4 1.21 0.33 1.20 1.28 7.78 8.66
- ------- ----
NTMG 38.4 182.8 182.8 10.1 1.40 105,151 8.3 8.3 0.27 0.07 0.68 0.81 10.98 13.01
- ------- ----
NWEQ 15.0 132.5 132.5 16.7 2.91 96,954 11.7 11.7 1.20 0.32 1.03 1.06 8.75 9.23
- ------- ----
</TABLE>
Source: SNL & F&C calculations
6
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit VI.1 -- Comparative Group Selection (Continued)
<TABLE>
<CAPTION>
C
Tangible ROAA ROAA ROACE ROACE
Price/ Current Current Current Total Equity/ Equity/ Core Core Before Before Before Before
Core Price/ Price/Tang Price/ Dividend Assets Assets T Assets EPS EPS Extra Extra Extra Extra
EPS Book Value Book Value Assets Yield ($000) (%) (%) ($) ($) (%) (%) (%) (%)
Ticker (x) (%) (%) (%) (%) MRQ MRQ MRQ LTM MRQ LTM MRQ LTM MRQ
- ------ ------ ---------- ---------- ------ -------- ------- ------- -------- ---- ---- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------- ----
PBHC 32.6 249.6 297.0 29.8 0.93 193,005 11.9 10.2 0.96 0.23 1.06 1.01 9.21 8.49
- ------- ----
PCBC 19.4 123.6 123.6 23.7 1.72 81,105 19.2 19.2 1.35 0.30 0.93 1.14 4.97 6.10
- -------
PDB 18.5 137.2 137.2 22.6 3.86 126,544 16.4 16.4 0.26 0.14 (0.25) 1.34 (1.39) 7.97
- ------- ----
PEEK 25.7 118.2 118.2 30.8 2.06 181,242 26.1 26.1 0.67 0.17 1.15 1.09 4.33 4.20
- ------- ----
PFED 22.2 106.9 106.9 24.7 -- 174,515 23.1 23.1 0.79 0.20 1.10 1.03 4.84 4.49
- ------- ----
PFFC 24.6 87.1 87.1 23.7 3.64 86,486 27.2 27.2 NA 0.14 0.59 0.92 2.31 3.39
- ------- ----
PLSK 31.3 193.1 193.1 23.1 1.50 178,987 12.0 12.0 NA 0.16 0.64 0.73 NA 6.12
- ------- ----
PRBC 20.1 114.0 114.0 12.8 0.62 137,834 11.2 11.2 0.91 0.24 0.62 0.59 5.10 5.27
- ------- ----
PSFC 21.6 109.7 109.7 30.0 1.62 102,835 25.3 25.3 NA 0.20 1.04 1.31 NA 5.18
- ------- ----
PSFI 24.3 125.3 125.3 46.8 2.60 85,698 37.3 37.3 NA 0.19 2.03 1.98 5.26 5.25
- ------- ----
PTRS 18.5 165.0 165.0 14.5 1.08 122,716 8.8 8.8 1.15 0.25 0.98 0.91 10.93 10.07
- ------- ----
PULB 34.1 267.1 267.1 34.9 3.67 180,232 13.0 13.0 0.78 0.22 0.67 1.19 5.21 9.16
- -------
QCFB 13.7 151.4 151.4 24.9 -- 158,192 16.5 16.5 1.96 0.52 1.65 1.63 9.33 9.58
- -------
RIVR 17.4 122.5 124.2 15.6 0.88 138,461 12.7 12.6 NA 0.26 0.76 0.90 6.28 7.20
- -------
SFED 24.5 138.9 138.9 17.3 1.14 174,093 12.5 12.5 0.99 0.25 0.69 0.68 5.48 5.59
- -------
SFFC 22.3 135.7 135.7 23.8 1.50 87,542 17.5 17.5 0.72 0.15 1.28 1.03 7.20 5.86
- -------
SHSB NA NA NA NA -- 88,460 13.3 13.3 NA NA 0.45 0.66 NA NA
- -------
SKBO 42.9 177.9 177.9 29.5 1.59 147,102 16.6 16.6 NA 0.11 0.59 0.87 NA 5.27
- -------
SMBC 23.5 120.7 120.7 19.5 2.53 163,297 16.2 16.2 0.92 0.21 0.93 0.88 5.81 5.41
- -------
SOBI 26.9 112.3 112.3 17.9 1.65 84,279 14.8 14.8 0.61 0.18 0.62 0.60 3.88 4.00
- -------
SRN 34.1 120.4 121.5 20.6 1.97 106,164 17.1 17.0 0.42 0.13 0.47 0.54 2.77 3.19
- ------- ----
SSM 27.7 135.6 135.6 40.1 2.03 104,773 29.6 29.6 0.89 0.20 1.56 1.49 4.57 4.98
- ------- ----
SZB 34.4 128.4 128.4 18.0 2.42 97,283 14.0 14.0 0.19 0.15 (0.03) 0.52 (0.20) 3.73
- -------
THR 18.8 128.6 129.1 17.7 1.98 94,216 13.8 13.7 1.01 0.27 0.90 0.95 6.48 6.98
- -------
TPNZ 29.4 139.3 139.3 23.9 1.40 124,603 17.2 17.2 0.71 0.17 0.85 0.78 4.87 4.60
- -------
TRIC 17.6 127.5 127.5 19.5 2.71 88,173 15.3 15.3 0.78 0.21 1.05 0.96 7.13 6.34
- -------
TWIN 18.6 129.9 129.9 16.8 2.83 106,931 12.9 12.9 0.60 0.19 0.85 1.08 6.65 8.38
- ------- ----
UBMT 19.1 124.8 124.8 30.0 3.96 103,082 24.0 24.0 1.22 0.33 1.41 1.53 6.06 6.52
- ------- ----
WCFB 33.2 202.0 202.0 47.2 3.77 94,481 23.4 23.4 0.65 0.16 1.42 1.38 6.09 5.94
- ------- ----
WEHO 23.8 100.4 100.4 27.8 1.97 142,878 27.7 27.7 0.55 0.15 1.01 0.56 3.23 1.97
- ------- ----
WHGB 23.4 112.1 112.1 23.2 2.02 100,235 20.7 20.7 0.58 0.17 0.52 0.93 2.25 4.37
Maximum 165.6 267.1 297.0 47.2 4.30 199,946 43.1 43.1 4.33 1.05 4.13 5.02 125.88 62.33
Minimum 2.6 87.1 87.1 2.5 -- 77,014 6.9 6.9 (1.19) (0.85) (0.25) (1.03) (1.39) (719.41)
Average 25.7 137.5 139.0 22.2 1.74 128,396 16.6 16.6 0.90 0.23 0.97 1.05 8.29 (0.31)
Median 21.3 128.4 128.4 20.4 1.71 119,723 14.8 14.6 0.79 0.20 0.97 1.03 6.11 6.22
</TABLE>
Source: SNL & F&C calculations
7
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit VI.1 -- Comparative Group Selection (Continued)
<TABLE>
<CAPTION>
D E F
Loans Loans
NPAs/ Loans/ Loans/ Deposits/ Borrowings/ Serviced Serviced/
Merger Current Assets Deposits Assets Assets Assets For Others Assets
Target? Pricing (%) (%) (%) (%) (%) ($000) (%)
Ticker (Y/N) Date MRQ MRQ MRQ MRQ MRQ MRQ MRQ Reasons Excluded
- ------ ------- -------- ------ -------- ------ --------- ----------- ---------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------- ---- -----
AABC N 12/12/97 1.58 57.86 52.34 90.46 -- NA NA C, D, E
- ------- ---- -----
AFBC N 12/12/97 0.31 113.20 86.57 76.48 7.32 NA NA B
- ------- -----
AFED N 12/12/97 0.45 55.40 47.07 84.96 0.95 -- -- B, E
- ------- ----- --------
AMFC N 12/12/97 0.32 102.43 73.06 71.33 13.06 -- -- Selected
- ------- ----- --------
ASBP N 12/12/97 0.90 86.15 68.38 79.37 3.00 -- -- E
- ------- -----
BDJI N 12/12/97 0.24 65.08 48.45 74.45 12.76 162 0.15 C, E
- ------- ----- --------
BFSB N 12/12/97 0.15 112.70 83.90 74.45 10.78 2,903 2.09 Selected
- ------- --------
BWFC N 12/12/97 0.21 112.88 72.01 63.80 21.23 27,928 16.94 B
- ------- ----
BYFC N 12/12/97 1.62 97.58 83.95 86.04 2.00 NA NA C, D
- ------- ---- ------
CBES N 12/12/97 0.59 126.14 90.59 71.82 9.14 29,570 27.73 F
- ------- ------
CCFH N 12/12/97 0.20 103.98 82.17 79.03 9.15 8,868 8.11 B, C
- ------- -----
CENB N 12/12/97 0.25 93.44 64.56 69.09 -- -- -- B, C, E
- ------- ----- --------
CFFC N 12/12/97 0.56 126.26 88.35 69.97 15.82 9,610 5.24 Selected
- ------- --------
CFNC N 12/12/97 0.16 93.98 71.26 75.82 -- 8,000 7.01 B
- -------
CIBI N 12/12/97 0.53 107.50 84.42 78.53 9.05 445 0.47 C
- ------- -----
CLAS N 12/12/97 0.43 89.59 67.32 75.14 8.95 -- -- E
- ------- -----
CNSB N 12/12/97 0.50 93.03 69.68 74.91 -- 20,744 21.30 B, C, E
- ------- -----
DCBI N 12/12/97 0.45 109.07 78.29 71.78 0.93 -- -- B, C
- ------- -----
EFBC N 12/12/97 -- 65.37 40.30 61.65 0.64 NA NA B, C, E
- ------- ---- ----- ------
EGLB N 12/12/97 1.48 94.94 72.65 76.52 10.89 36,765 21.36 B, C, D, F
- ------- ---- ------
ESX N 12/12/97 1.92 108.86 85.65 78.67 12.39 306,041 159.49 B, C, D, F
- ------- ---- ----- ------
ETFS N 12/12/97 0.27 64.80 49.49 76.37 3.62 39,976 34.48 E, F
- ------- ---- ----- ------
FBNW N 12/12/97 1.67 123.60 75.39 61.00 19.76 129,822 72.99 B, D, F
- ------- ---- ------ --------
FBSI N 12/12/97 0.13 114.35 84.39 73.80 11.89 14 0.01 Selected
- ------- --------
FCB N 12/12/97 NA NA NA 74.89 0.77 NA NA B
- ------- ---- ------
FCME N 12/12/97 1.59 91.39 71.56 78.30 11.76 42,806 28.81 C, D, E
- ------- ---- ----- ------
FFBI N 12/12/97 0.32 83.44 67.21 80.54 9.73 69,011 81.92 C, E, F
- ------- ----- ------ --------
FFBS N 12/12/97 0.03 90.62 71.00 78.35 3.41 354 0.26 G
- ------- --------
FFDB N 12/12/97 0.98 78.49 70.03 89.21 0.57 NA NA C
- ------- -----
FFDF N 12/12/97 NA 103.14 66.97 64.93 9.39 NA NA C, E
- ------- -----
FFSL N 12/12/97 0.99 98.69 66.85 67.75 21.06 2,200 1.96 C, E
- ------- -----
FFWC N 12/12/97 0.18 104.83 66.40 63.34 25.79 22,787 12.56 C, E
- ------- ----- ------
FFWD N 12/12/97 0.03 110.66 82.06 74.15 12.63 37,221 22.35 F
- ------- ------
</TABLE>
Source: SNL & F&C calculations
8
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit VI.1 -- Comparative Group Selection (Continued)
<TABLE>
<CAPTION>
D E F
Loans Loans
NPAs/ Loans/ Loans/ Deposits/ Borrowings/ Serviced Serviced/
Merger Current Assets Deposits Assets Assets Assets For Others Assets
Target? Pricing (%) (%) (%) (%) (%) ($000) (%)
Ticker (Y/N) Date MRQ MRQ MRQ MRQ MRQ MRQ MRQ Reasons Excluded
- ------ ------- -------- ------ -------- ------ --------- ----------- ---------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------- ----
FGHC N 12/12/97 1.41 105.35 85.03 80.71 8.85 -- -- C, D
- ------- ----
FKKYD N 12/12/97 -- 145.28 92.71 63.82 17.89 -- -- B
- ------- --------
FTF N 12/12/97 0.07 103.68 83.08 80.13 2.79 23,362 13.07 Selected
- ------- --------
FTNB N 12/12/97 0.86 133.46 87.17 65.31 8.19 NA NA B, C
- ------- ----
FTSB N 12/12/97 1.91 124.42 91.37 73.44 9.04 -- -- D
- ------- ----
GOSB N 12/12/97 NA NA NA 62.41 -- NA NA B, C
- -------
GSFC N 12/12/97 0.10 114.47 72.46 63.30 -- -- -- C
- ------- -----
GSLA N 12/12/97 0.01 85.99 36.77 42.76 13.00 -- -- B, C, E
- ------- -----
GTPS N 12/12/97 0.01 100.56 78.95 78.51 -- NA NA B
- ------- -----
GUPB N 12/12/97 0.29 97.89 53.72 54.88 31.24 -- -- E
- ------- ----- --------
HBS N 12/12/97 0.67 97.44 75.44 77.42 6.87 -- -- Selected
- ------- ----- --------
HCBB N 12/12/97 NA 69.89 51.89 74.25 5.00 NA NA B, E
- ------- -----
HFFB N 12/12/97 -- 102.71 73.91 71.96 -- -- -- C
- ------- -----
HFSA N 12/12/97 0.09 76.50 49.43 64.61 22.58 9,071 7.73 C, E
- ------- -----
HHFC N 12/12/97 0.11 79.16 51.58 65.15 22.43 262 0.30 C, E
- ------- -----
HMLK N 12/12/97 -- 47.25 37.61 79.60 -- 1,683 1.04 B, E
- ------- -----
HZFS N 12/12/97 0.71 97.51 62.52 64.12 25.16 1,592 1.81 C, E
- ------- ----- ------
JXSB N 12/12/97 0.79 90.76 79.43 87.51 0.16 81,067 49.36 A, B, C, F
- ------- ------ --------
KSAV N 12/12/97 0.53 107.50 84.55 78.65 7.28 -- -- Selected
- ------- ---- ------ --------
KSBK N 12/12/97 1.39 107.81 77.38 71.77 19.43 75,073 50.16 C, D, F
- ------- ---- ----- ------
KYF N 12/12/97 0.04 90.77 56.42 62.15 20.17 -- -- E
- ------- ----- --------
LOGN N 12/12/97 0.49 99.17 71.36 71.96 6.41 -- -- Selected
- ------- ---- --------
MARN N 12/12/97 1.08 127.59 85.56 67.05 8.06 32,236 17.93 D
- ------- ---- ----- ------
MFLR N 12/12/97 0.57 71.93 56.52 78.57 10.85 31,599 24.49 C, E, F
- ------- ----- ------
MIFC N 12/12/97 NA 74.65 52.12 69.82 19.53 NA NA C, E
- ------- -----
MONT N 12/12/97 0.73 125.36 89.00 71.00 8.26 -- -- B
- ------- ---- ----- ------
MSBF N 12/12/97 0.02 169.02 92.01 54.44 27.61 33,411 43.38 F
- ------- ---- ----- ------
MWBI N 12/12/97 0.81 86.57 61.14 70.62 21.69 -- -- C, E
- ------- -----
NBSI N 12/12/97 -- 104.73 62.73 59.90 23.84 131 0.11 B, E
- ------- ----- --------
NEIB N 12/12/97 0.17 175.42 89.38 50.95 34.15 2,061 1.08 Selected
- ------- ------ --------
NTMG N 12/12/97 NA 111.58 88.08 78.94 9.99 368,095 350.06 B, C, F
- ------- ---- ------
NWEQ N 12/12/97 1.42 127.25 82.18 64.58 23.09 25,821 26.63 C, D, F
- ------- ---- ------
</TABLE>
Source: SNL & F&C calculations
9
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit VI.1 -- Comparative Group Selection (Continued)
<TABLE>
<CAPTION>
D E F
Loans Loans
NPAs/ Loans/ Loans/ Deposits/ Borrowings/ Serviced Serviced/
Merger Current Assets Deposits Assets Assets Assets For Others Assets
Target? Pricing (%) (%) (%) (%) (%) ($000) (%)
Ticker (Y/N) Date MRQ MRQ MRQ MRQ MRQ MRQ MRQ Reasons Excluded
- ------ ------- -------- ------ -------- ------ --------- ----------- ---------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------- -----
PBHC N 12/12/97 0.91 73.80 59.68 80.87 6.40 -- -- A, C, E
- ------- -----
PCBC N 12/12/97 0.03 21.97 16.44 74.83 5.55 -- -- E
- ------- -----
PDB N 12/12/97 0.63 123.82 83.07 67.08 15.45 10,506 8.30 B
- ------- -----
PEEK N 12/12/97 0.66 35.78 26.03 72.75 -- -- -- C, E
- ------- -----
PFED N 12/12/97 0.24 54.05 39.73 73.50 1.72 -- -- E
- ------- -----
PFFC N 12/12/97 -- 84.64 60.45 71.43 -- -- -- B, C, E
- ------- -----
PLSK N 12/12/97 0.65 67.24 56.62 84.21 3.17 -- -- A, B, E
- ------- -----
PRBC N 12/12/97 0.33 103.90 67.89 65.34 22.62 -- -- C, E
- ------- -----
PSFC N 12/12/97 0.78 120.18 89.29 74.29 -- -- -- B, C
- ------- -----
PSFI N 12/12/97 0.68 86.24 41.58 48.21 9.92 -- --
- ------- -----
PTRS N 12/12/97 0.44 78.90 64.84 82.19 8.03 459 0.37 B, C, E
- ------- -----
PULB N 12/12/97 0.20 95.56 79.58 83.28 1.22 26,489 14.70 A, B
- ------- -----
QCFB N 12/12/97 0.24 62.15 41.07 66.09 13.43 NA NA E
- ------- -----
RIVR N 12/12/97 0.71 98.31 82.13 83.54 2.17 NA NA B
- ------- --------
SFED N 12/12/97 0.71 86.44 74.40 86.08 -- 3,771 2.17 Selected
- ------- ---- --------
SFFC N 12/12/97 2.19 130.17 77.82 59.78 21.70 -- -- D
- ------- ---- -----
SHSB N 12/12/97 1.42 89.35 65.63 73.46 12.05 NA NA B, C, D, E
- ------- ---- -----
SKBO N 12/12/97 NA 80.98 42.39 52.35 29.42 NA NA A, B, E
- ------- -----
SMBC N 12/12/97 0.88 96.07 69.00 71.83 10.74 -- -- E
- ------- ----- --------
SOBI N 12/12/97 0.13 110.72 76.81 69.37 15.44 -- -- Selected
- ------- ----- --------
SRN N 12/12/97 -- 43.79 35.93 82.04 -- NA NA B, E
- ------- -----
SSM N 12/12/97 -- 135.09 86.03 63.68 4.82 -- -- C
- -------
SZB N 12/12/97 0.53 114.80 73.80 64.29 19.01 -- -- B
- ------- -----
THR N 12/12/97 0.87 105.19 67.97 64.62 19.89 NA NA E
- ------- ---- -----
TPNZ N 12/12/97 1.16 57.25 46.56 81.33 -- -- -- D, E
- ------- ---- -----
TRIC N 12/12/97 -- 83.25 44.68 53.66 29.89 157 0.18 E
- ------- ----- ------
TWIN N 12/12/97 0.08 84.74 71.02 83.81 0.94 58,017 54.26 F
- ------- ----- ------
UBMT N 12/12/97 0.35 47.48 33.21 69.95 4.85 NA NA C, E
- ------- -----
WCFB N 12/12/97 0.07 76.90 57.76 75.11 0.27 -- -- A, E
- ------- -----
WEHO N 12/12/97 -- 129.96 78.26 60.22 11.74 2,484 1.74 C
- ------- --------
WHGB N 12/12/97 0.15 108.52 79.50 73.26 3.99 9,045 9.02 Selected
--------
Maximum 2.19 175.42 92.71 90.46 34.15 368,095 350.06
Minimum -- 21.97 16.44 42.76 -- -- --
Average 0.54 95.94 67.90 71.66 10.07 20,670 15.62
Median 0.43 97.55 71.14 73.01 9.00 162 0.18
</TABLE>
Source: SNL & F&C calculations
10
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit VI.2 -- Comparative Group Selected
<TABLE>
<CAPTION>
Deposit Current Current Price/
Insurance Stock Market LTM
Agency Price Value Core EPS
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($) ($M) (x)
- ------ ---------- ---- ----- ------ ---------- -------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AMFC AMB Financial Corp. Munster IN MW SAIF NASDAQ 04/01/96 16.500 15.90 23.6
BFSB Bedford Bancshares Inc. Bedford VA SE SAIF NASDAQ 08/22/94 28.250 32.27 19.4
CFFC Community Financial Corp. Staunton VA SE SAIF NASDAQ 03/30/88 26.500 33.84 17.7
FBSI First Bancshares Inc. Mountain Grove MO MW SAIF NASDAQ 12/22/93 26.000 28.43 16.9
FTF Texarkana First Financial Corp Texarkana AR SE SAIF AMSE 07/07/95 25.750 46.02 15.8
HBS Haywood Bancshares Inc. Waynesville NC SE BIF AMSE 12/18/87 21.250 26.57 13.6
KSAV KS Bancorp Inc. Kenly NC SE SAIF NASDAQ 12/30/93 22.500 19.92 17.2
LOGN Logansport Financial Corp. Logansport IN MW SAIF NASDAQ 06/14/95 15.250 19.22 16.2
NEIB Northeast Indiana Bancorp Huntington IN MW SAIF NASDAQ 06/28/95 20.500 36.14 16.9
SFED SFS Bancorp Inc. Schenectady NY MA SAIF NASDAQ 06/30/95 24.500 30.16 24.8
SOBI Sobieski Bancorp Inc. South Bend IN MW SAIF NASDAQ 03/31/95 19.375 15.10 31.8
WHGB WHG Bancshares Corp. Lutherville MD MA SAIF NASDAQ 04/01/96 15.875 23.21 27.4
Maximum 28.250 46.02 31.8
Minimum 15.250 15.10 13.6
Average 21.854 27.23 20.1
Median 21.875 27.50 17.4
</TABLE>
Source: SNL & F&C calculations
11
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit VI.2 -- Comparative Group Selected (Continued)
<TABLE>
<CAPTION>
Tangible ROAA ROAA ROACE ROACE
Price/ Current Current Current Total Equity/ Equity/ Core Core Before Before Before Before
Core Price/ Price/Tang Price/ Dividend Assets Assets T Assets EPS EPS Extra Extra Extra Extra
EPS Book Value Book Value Assets Yield ($000) (%) (%) ($) ($) (%) (%) (%) (%)
Ticker (x) (%) (%) (%) (%) MRQ MRQ MRQ LTM MRQ LTM MRQ LTM MRQ
- ------ ------ ---------- ---------- ------ -------- ------- ------- -------- ---- ---- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AMFC 22.9 110.4 110.4 15.4 1.70 103,388 13.9 13.9 0.70 0.18 1.03 1.17 6.30 8.14
BFSB 19.1 156.6 156.6 23.2 1.98 139,179 14.1 14.1 1.46 0.37 1.20 1.20 8.39 8.48
CFFC 25.5 139.6 139.6 18.4 2.11 183,278 13.2 13.2 1.50 0.26 1.12 0.73 8.18 5.45
FBSI 14.8 125.4 125.4 17.5 0.77 162,755 13.9 13.9 1.54 0.44 1.20 1.27 8.49 9.48
FTF 14.6 168.1 168.1 25.8 2.18 178,710 15.3 15.3 1.63 0.44 1.71 1.72 10.74 11.10
HBS 8.1 122.6 126.9 17.4 2.64 152,796 14.2 13.8 1.56 0.66 1.37 2.18 9.41 15.52
KSAV 18.2 136.9 136.9 18.1 2.67 109,937 13.2 13.2 1.31 0.31 1.21 1.10 8.84 8.19
LOGN 15.9 118.6 118.6 22.4 2.62 85,801 18.9 18.9 0.94 0.24 1.42 1.41 7.28 7.39
NEIB 15.5 132.2 132.2 19.0 1.66 190,319 14.4 14.4 1.21 0.33 1.20 1.28 7.78 8.66
SFED 24.5 138.9 138.9 17.3 1.14 174,093 12.5 12.5 0.99 0.25 0.69 0.68 5.48 5.59
SOBI 26.9 112.3 112.3 17.9 1.65 84,279 14.8 14.8 0.61 0.18 0.62 0.60 3.88 4.00
WHGB 23.4 112.1 112.1 23.2 2.02 100,235 20.7 20.7 0.58 0.17 0.52 0.93 2.25 4.37
Maximum 26.9 168.1 168.1 25.8 2.67 190,319 20.7 20.7 1.63 0.66 1.71 2.18 10.74 15.52
Minimum 8.1 110.4 110.4 15.4 0.77 84,279 12.5 12.5 0.58 0.17 0.52 0.60 2.25 4.00
Average 19.1 131.1 131.5 19.6 1.93 138,731 14.9 14.9 1.17 0.32 1.11 1.19 7.25 8.03
Median 18.6 128.8 129.6 18.3 2.00 145,988 14.1 14.0 1.26 0.29 1.20 1.19 7.98 8.17
</TABLE>
Source: SNL & F&C calculations
12
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit VI.2 -- Comparative Group Selected (Continued)
<TABLE>
<CAPTION>
Loans Loans
NPAs/ Loans/ Loans/ Deposits/ Borrowings/ Serviced Serviced/
Merger Current Assets Deposits Assets Assets Assets For Others Assets
Target? Pricing (%) (%) (%) (%) (%) ($000) (%)
Ticker (Y/N) Date MRQ MRQ MRQ MRQ MRQ MRQ MRQ Reasons Excluded
- ------ ------- -------- ------ -------- ------ --------- ----------- ---------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AMFC N 12/12/97 0.32 102.43 73.06 71.33 13.06 -- -- Selected
BFSB N 12/12/97 0.15 112.70 83.90 74.45 10.78 2,903 2.09 Selected
CFFC N 12/12/97 0.56 126.26 88.35 69.97 15.82 9,610 5.24 Selected
FBSI N 12/12/97 0.13 114.35 84.39 73.80 11.89 14 0.01 Selected
FTF N 12/12/97 0.07 103.68 83.08 80.13 2.79 23,362 13.07 Selected
HBS N 12/12/97 0.67 97.44 75.44 77.42 6.87 -- -- Selected
KSAV N 12/12/97 0.53 107.50 84.55 78.65 7.28 -- -- Selected
LOGN N 12/12/97 0.49 99.17 71.36 71.96 6.41 -- -- Selected
NEIB N 12/12/97 0.17 175.42 89.38 50.95 34.15 2,061 1.08 Selected
SFED N 12/12/97 0.71 86.44 74.40 86.08 -- 3,771 2.17 Selected
SOBI N 12/12/97 0.13 110.72 76.81 69.37 15.44 -- -- Selected
WHGB N 12/12/97 0.15 108.52 79.50 73.26 3.99 9,045 9.02 Selected
Maximum 0.71 175.42 89.38 86.08 34.15 23,362 13.07
Minimum 0.07 86.44 71.36 50.95 -- -- --
Average 0.34 112.05 80.35 73.11 10.71 4,231 2.72
Median 0.25 108.01 81.29 73.53 9.03 1,038 0.55
</TABLE>
Source: SNL & F&C calculations
13
<PAGE>
LETTERS
<PAGE>
March 31, 1998
Board of Directors
Douglas Savings Bank
14 North Dryden Avenue
Arlington Heights, Illinois
Gentlemen:
All capitalized terms not otherwise defined in this letter have the
meanings given such terms in the Plan of Conversion adopted by the Board of
Directors of Douglas Savings Bank, Arlington Heights, Illinois, ("Bank") on
February 4, 1998.
It is our understanding that, pursuant to Office of Thrift Supervision
regulations, subscription rights are non-transferable. Persons violating such
prohibition may lose their rights to purchase stock in the Conversion and be
subject to other possible sanctions.
Because the Subscription Rights to purchase shares of Common Stock in the
Bank to be issued to the Bank's employee stock benefit plans, depositors of the
Bank, and to other members of the Bank will be acquired by such recipients,
without cost, will be non-transferable and of short duration and will afford the
recipients the right only to purchase shares of Common Stock at the same price
as will paid by members of the general public in a Community Offering, we are of
the opinion that:
(1) the Subscription Rights will have no ascertainable fair market value
and,
(2) the price at which the Subscription Rights are exercisable will not be
more or less than the fair market value of the shares on the date of
exercise.
Sincerely,
Ferguson & Company
/s/ Charles M. Herbert
Charles M. Hebert
Principal
<PAGE>
March 31, 1998
Board of Directors
Douglas Savings Bank
14 North Dryden Avenue
Arlington Heights, Illinois
Directors:
We hereby consent to the use of our firm's name in the Form AC Application
for Conversion of Douglas Savings Bank, and any amendments thereto, in the Form
S-1 Registration Statement of Ben Franklin Financial, Inc. and any amendments
thereto, and in the Application H- (e) 1-S for Ben Franklin Financial, Inc. We
also hereby consent to the inclusion of, summary of, and references to our
Appraisal Report and our opinion concerning subscription rights in such filings
including the Prospectus of Ben Franklin Financial, Inc.
Sincerely,
/s/ Charles M. Herbert
Charles M. Hebert
Principal
<PAGE>
December 5, 1997
Board of Directors
Douglas Savings Bank
14 North Dryden Avenue
Arlington Heights, Illinois 60004
Dear Directors:
This letter sets forth the agreement between Douglas Savings Bank ("Douglas
Savings" or "Bank"), Arlington Heights, Illinois, and Ferguson & Company
("F&C"), Hurst, Texas, under the terms of which Douglas Savings has engaged F&C,
in connection with its conversion from mutual to stock form, to (1) determine
the pro forma market value of the shares of common stock to be issued and sold
by Douglas Savings' holding company; and (2) assist Douglas Savings in preparing
a business plan to be filed with the application for approval to convert to
stock.
F&C agrees to deliver the written valuation and business plan to Douglas
Savings at the above address on or before a mutually agreed upon date. Further,
F&C agrees to perform such other services as are necessary or required in
connection with comments from the applicable regulatory authorities relating to
the business plan and appraisal and the preparation of appraisal updates as
requested by Douglas Savings or its counsel. It is understood that the services
of F&C under this agreement shall be limited as herein described.
F&C's fee for the business plan and initial appraisal valuation report and
any required updates shall be $20,000. In addition, Douglas Savings shall
reimburse F&C for all out-of-pocket expenses, which will be reviewed by the
Board of Directors of Douglas Savings prior to payment. Payment under this
agreement shall be made as follows:
1. Five thousand dollars ($5,000) upon execution of this engagement
letter.
2. Five thousand dollars ($5,000) upon delivery of the business plan.
3. Ten thousand dollars ($10,000) upon delivery of the completed
appraisal report.
4. Out-of-pocket expenses are to be paid monthly.
If, during the course of Douglas Savings' conversion, unforeseen events
occur so as to change materially the nature or the work content of the services
described in this contract, the terms of the contract shall be subject to
renegotiation. Such unforeseen events shall include, but not be limited to,
major changes in the conversion regulations, appraisal guidelines or processing
procedures as they relate to conversion appraisals, major changes in Douglas
Savings' management or operating policies, execution of a merger agreement with
another institution prior to completion of conversion, and excessive delays or
suspension of processing of conversions by the regulatory authorities such that
completion of Douglas Savings' conversion requires the preparation by F&C of a
new appraisal report or business plan, excluding appraisal updates during the
course of the engagement.
<PAGE>
Board of Directors
December 5, 1997
Page 2
To induce F&C to provide the services described above, Douglas Savings
hereby agrees as follows:
1. Douglas Savings shall supply in a timely manner to F&C such
information with respect to its business and financial condition as
F&C reasonably may request in order to make the aforesaid valuation.
Such information made available to F&C shall include, but not be
limited to, annual financial statements, periodic regulatory filings,
material agreements, debt instruments and corporate books and records.
2. Douglas Savings hereby represents and warrants, to the best of its
knowledge, that any information provided to F&C does not and will not,
at any time relevant hereto, contain any misstatement or untrue
statement of a material fact or omit any and all material facts
required to be stated therein or necessary to make the statements
therein not false or misleading in light of the circumstances under
which they were made.
3. (a) Douglas Savings shall indemnify and hold harmless F&C and any
employees of F&C who act for or on behalf of F&C in connection
with the services called for under this agreement, from and
against any and all loss, cost, damage, claim, liability or
expense of any kind, including reasonable attorneys fees and
other expenses incurred in investigating, preparing to defend and
defending any claim or claims (specifically including, but not
limited to, claims under federal and state securities laws)
arising out of any misstatement or untrue statement of a material
fact contained in the information supplied by Douglas Savings to
F&C or by an omission to state a material fact in the information
so provided which is required to be stated therein in order to
make the statement therein not false or misleading.
(b) F&C shall not be entitled to indemnification pursuant to
Paragraph 3(a) above with regard to any claim arising where, with
regard to the basis for such claim, F&C had knowledge that a
statement of a fact material to the evaluation and contained in
the information supplied by Douglas Savings was untrue or had
knowledge that a material fact was omitted from the information
so provided and that such material fact was necessary in order to
make the statement made to F&C not false or misleading.
(c) F&C additionally shall not be entitled to indemnification
pursuant to Paragraph 3(a) above notwithstanding its lack of
actual knowledge of an intentional misstatement or omission of a
material fact in the information provided if F&C is determined to
have been negligent or to have failed to exercise due diligence
in the preparation of its valuation.
Douglas Savings and F&C are not affiliated, and neither Douglas Savings nor
F&C has an economic interest in, or held in common with, the other and has not
derived a significant portion of its gross revenue, receipts or net income for
any period from transactions with the other.
In order for F&C to consider this proposal binding, please acknowledge your
consent to the foregoing by executing the enclosed copies of this letter and
returning one copy to us, together with a check payable to Ferguson & Company in
the amount of $5,000. The extra copy of this letter is for your conversion
counsel.
Yours very truly,
/s/ Charles M. Herbert
Charles M. Hebert
Principal
Agreed to ($5,000 check enclosed):
Douglas Savings Bank
Arlington Heights, Illinois
By: ______________________________
BEN FRANKLIN BANK OF ILLINOIS
14 N. Dryden Place
Arlington Heights, Illinois 60004
(847) 398-0990
---------------
NOTICE OF SPECIAL MEETING OF MEMBERS
---------------
Notice is hereby given that a Special Meeting of Members (the "Special
Meeting") of Ben Franklin Bank of Illinois ("Ben Franklin" or the "Bank") will
be held at the main office of the Bank located at 14 N. Dryden Place, Arlington
Heights, Illinois, on ________ __, 1998 at __:__ _.m., local time. The purpose
of this Special Meeting is to consider and vote upon:
1. A plan to convert the Bank from a federally chartered mutual savings
bank to a federally chartered stock savings bank, including the
adoption of a federal stock savings bank charter and bylaws, with the
concurrent sale of all the Bank's common stock to Ben Franklin
Financial, Inc., a Delaware corporation (the "Holding Company"), and
sale by the Holding Company of shares of its common stock; and
such other business as may properly come before the Special Meeting or any
adjournment thereof. Management is not aware of any such other business.
The members who shall be entitled to notice of and to vote at the
Special Meeting and any adjournment thereof are depositors of the Bank at the
close of business on _______ __, 1998 who continue to be depositors as of the
date of the Special Meeting. In the event there are not sufficient votes for
approval of the Plan of Conversion at the time of the Special Meeting, the
Special Meeting may be adjourned from time to time in order to permit further
solicitation of proxies.
BY ORDER OF THE BOARD OF DIRECTORS
Joseph J. Gasior
Chairman of the Board
Arlington Heights, Illinois
________ __, 1998
- --------------------------------------------------------------------------------
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE
FOR APPROVAL OF THE PLAN OF CONVERSION BY COMPLETING THE
ENCLOSED PROXY CARD AND RETURNING IT IN THE ENCLOSED
POSTAGE-PAID ENVELOPE AS SOON AS POSSIBLE.
YOUR VOTE IS VERY IMPORTANT.
- --------------------------------------------------------------------------------
<PAGE>
SUMMARY OF PROPOSED CONVERSION
This summary does not purport to be complete and is qualified in its
entirety by the more detailed information contained in the remainder of this
Proxy Statement and the accompanying Prospectus.
Under its present "mutual" form of organization, Ben Franklin has no
stockholders. Its deposit account holders are members of the Bank and have
voting rights in that capacity. In the unlikely event of liquidation, the Bank's
deposit account holders would have the sole right to receive any assets of the
Bank remaining after payment of its liabilities (including the claims of all
deposit account holders to the withdrawal value of their deposits). Under the
Plan of Conversion (the "Plan of Conversion") to be voted on at the Special
Meeting, the Bank would be converted into a federally chartered savings bank
organized in stock form, and all of the Bank's common stock would be sold
concurrently to the Holding Company (the "Conversion"). The Holding Company will
offer and sell its common stock (the "Common Stock") in an offering to (1)
account holders with an account balance of $50 or more on January 31, 1997
("Eligible Account Holders"), (2) tax-qualified employee plans of the Bank and
the Holding Company ("Tax-Qualified Employee Plans") provided, however, that the
Tax-Qualified Employee Plans shall have first priority Subscription Rights to
the extent that the total number of shares of Common Stock sold in the
Conversion exceeds the maximum of the appraisal range, (3) account holders of
the Bank with an account balance of $50 or more as of __________ __, 1997
("Supplemental Eligible Account Holders"), (4) certain other members of the Bank
as of ________ __, 1997 who are not Eligible or Supplemental Eligible Account
Holders ("Other Members") and (5) employees, officers and directors of the Bank
(the "Subscription Offering"). It is anticipated that Tax-Qualified Employee
Plans will purchase 8% of the Common Stock sold in the Conversion.
To the extent the Common Stock is not all sold to the persons in the
foregoing categories, the Holding Company may offer and sell the remainder of
the Common Stock in a direct community offering ("Direct Community Offering") or
public offering ("Public Offering") through Friedman, Billings, Ramsey & Co.,
Inc. ("FBR") to selected persons to whom a prospectus (the "Prospectus") is
delivered. The Subscription Offering and the Public Offering and/or Direct
Community Offering are referred to collectively as the "Offering." Voting and
liquidation rights with respect to the Bank would thereafter be held by the
Holding Company, except to the limited extent of the liquidation account (the
"Liquidation Account") that will be established for the benefit of Eligible and
Supplemental Eligible Account Holders of the Bank and voting and liquidation
rights in the Holding Company would be held only by those persons who become
stockholders of the Holding Company through purchase of shares of its Common
Stock. See "Description of the Plan of Conversion - Principal Effects of
Conversion - Liquidation Rights of Depositor Members."
THE CONVERSION WILL NOT AFFECT THE BALANCE, INTEREST RATE OR FEDERAL
INSURANCE PROTECTION OF ANY SAVINGS DEPOSIT, AND NO PERSON WILL BE OBLIGATED TO
PURCHASE ANY STOCK IN THE CONVERSION.
Business Purposes Net Conversion proceeds are expected to increase the capital
for Conversion of Ben Franklin, which will support the expansion of its
financial services to the public. The conversion to stock
form and the use of a holding company structure are also
expected to enhance its ability to expand through possible
mergers and acquisitions (although no such transactions are
contemplated at this time) and will facilitate its future
access to the capital markets. The Bank will continue to be
subject to comprehensive regulation and examination by the
Office of Thrift Supervision, Department of Treasury ("OTS")
and the Federal Deposit Insurance Corporation ("FDIC").
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<PAGE>
Subscription As part of the Conversion, Common Stock is being offered for
Offering sale in the Subscription Offering, in the priorities
summarized below, to the Bank's (1) Eligible Account Holders,
(2) Tax-Qualified Employee Plans, (3) Supplemental Eligible
Account Holders (4) Other Members, and (5) employees,
officers and directors. If necessary, all shares of Common
Stock not purchased in the Subscription Offering, if any, may
be offered in connection with the Public Offering and/or
Direct Community Offering for sale to selected persons
through FBR.
Subscription Each Eligible Account Holder has been given non-transferable
Rights of rights to subscribe for an amount equal to the greater of
Eligible Account $200,000 of Common Stock, one-tenth of one percent of the
Holders total number of shares offered in the Subscription Offering
or 15 times the product (rounded down to the whole next
number) obtained by multiplying the total number of shares to
be issued by a fraction of which the numerator is the amount
of qualifying deposits of such subscriber and the denominator
is the total qualifying deposits of all account holders in
this category on the qualifying date.
Subscription The Bank's Tax-Qualified Employee Plans have been given non-
Rights of Tax- transferable rights to subscribe, individually and in the
Qualified aggregate, for up to 10% of the total number of shares sold
Employee Plans in the Conversion after satisfaction of subscriptions of
Eligible Account Holders. Notwithstanding the foregoing, to
the extent orders for shares exceed the maximum of the
appraisal range, Tax-Qualified Employee Plans shall be
afforded a first priority to purchase shares sold above the
maximum of the appraisal range. It is anticipated that
Tax-Qualified Employee Plans will purchase 8% of the Common
Stock sold in the Conversion.
Subscription After satisfaction of subscriptions of Eligible Account
Rights of Holders and Tax- Qualified Employee Plans, each Supplemental
Supplemental Eligible Account Holder (other than directors and officers of
Eligible Account the Bank) has been given non-transferable rights to subscribe
Holders for an amount equal to the greater of $200,000 of Common
Stock, one-tenth of one percent of the total number of shares
offered in the Conversion or 15 times the product (rounded
down to the whole next number) obtained by multiplying the
total number of shares to be issued by a fraction of which
the numerator is the amount of qualifying deposits of such
subscriber and the denominator is the total qualifying
deposits of all account holders in this category on the
qualifying date. The subscription rights of each Supplemental
Eligible Account Holder shall be reduced to the extent of
such person's subscription rights as an Eligible Account
Holder.
Subscription Each Other Member has been given non-transferable rights to
Rights of Other subscribe for an amount equal to the greater of $200,000 of
Members Common Stock or one-tenth of one percent of the total number
of shares offered in the Conversion after satisfaction of the
subscriptions of the Bank's Eligible Account Holders,
Tax-Qualified Employee Plans and Supplemental Eligible
Account Holders.
ii
<PAGE>
Subscription Each individual employee, officer and director of the Bank
Rights of Bank has been given the right to subscribe for an amount equal to
Personnel the greater of $200,000 of Common Stock after satisfaction of
the subscriptions of Eligible Account Holders, Tax-Qualified
Employee Plans, Supplemental Eligible Account Holders and
Other Members. Total shares subscribed for by the employees,
officers and directors in this category may not exceed 23% of
the total shares offered in the Conversion.
Public Offering Subject to prior rights of holders of subscription rights,
and/or Direct the Holding Company may also offer the Common Stock for sale
Community to selected persons through FBR in a Public Offering and/or
Offering Direct Community Offering.
Purchase No person may purchase more than $200,000 of Common Stock in
Limitations the Subscription Offering. No person, together with
associates, and persons acting in concert, may purchase more
than $800,000 of Common Stock in the Conversion. No person,
together with associates of and persons acting in concert
with such person, may purchase more than $200,000 of Common
Stock in the Public Offering and/or Direct Community
Offering. The aggregate purchases of directors and executive
officers and their associates may not exceed 33% of the total
number of shares offered in the Conversion. These purchase
limitations do not apply to the Bank's Tax-Qualified Employee
Plans.
Expiration Date of All subscriptions for Common Stock in connection with the
the Subscription Subscription Offering must be received by noon, Arlington
Offering Heights, Illinois Time on _____ __, 1998.
How to Subscribe For information on how to subscribe for Common Stock being
for Shares offered in the Subscription Offering, please read the
Prospectus and the order form and instructions accompanying
this Proxy Statement. Subscriptions will not become effective
until the Plan of Conversion has been approved by the Bank's
members and all of the Common Stock offered in the Conversion
has been subscribed for or sold in the Offering or through
such other means as may be approved by the OTS.
Price of Common All sales of Common Stock in the Offering will be made at the
Stock same price per share which is currently expected to be $10.00
per share on the basis of an independent appraisal of the pro
forma market value of the Bank and the Holding Company upon
Conversion. On the basis of a preliminary appraisal by
Ferguson and Company ("Ferguson"), which has been reviewed by
the OTS, a minimum of 1,190,000 and a maximum of 1,851,500
shares will be offered in the Conversion. See "The Conversion
Stock Pricing and Number of Shares to be Issued" in the
Prospectus.
Tax Consequences The Bank has received an opinion from Crowe Chizek and
Company LLP ("Crowe Chizek"), stating that the Conversion is
a nontaxable reorganization under Section 368(a)(1)(F) of the
Internal Revenue Code. The Bank has also received an opinion
from Crowe Chizek stating that the Conversion will not be a
taxable transaction for Illinois income tax purposes.
Required Vote Approval of the Plan of Conversion will require the
affirmative vote of a majority of all votes eligible to be
cast at the Special Meeting.
iii
<PAGE>
BEN FRANKLIN BANK OF ILLINOIS
PROXY STATEMENT
SPECIAL MEETING OF MEMBERS TO BE HELD ON ________ __, 1998
PURPOSE OF MEETING
This Proxy Statement is being furnished to you in connection with the
solicitation on behalf of the Board of Directors of Ben Franklin Bank of
Illinois ("Ben Franklin" or the "Bank") of the proxies to be voted at the
Special Meeting of Members (the "Special Meeting") of the Bank to be held at the
Bank's main office located at 14 N. Dryden Place, Arlington Heights, Illinois
___________, on ________ __, 1998 at __:__ _.m., local time, and at any
adjournments thereof. The Special Meeting is being held for the purpose of
considering and voting upon a Plan of Conversion under which the Bank would be
converted (the "Conversion") from a federally chartered mutual savings bank into
a federally chartered stock savings bank, the concurrent sale of all the common
stock of the stock savings bank to Ben Franklin Financial, Inc. (the "Holding
Company"), a Delaware corporation, and the sale by the Holding Company of shares
of its common stock (the "Common Stock").
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF THE BANK UNANIMOUSLY RECOMMENDS THAT YOU VOTE
TO APPROVE THE PLAN OF CONVERSION.
The Bank is currently organized in "mutual" rather than "stock" form,
meaning that it has no stockholders and no authority under its federal mutual
charter to issue capital stock. The Bank's Board of Directors has adopted the
Plan of Conversion providing for the Conversion. The sale of Common Stock of the
Holding Company, which was recently formed to become the holding company of the
Bank, will substantially increase the Bank's net worth. The Holding Company will
exchange 50% of the net proceeds from the sale of the Common Stock for the
common stock of the Bank to be issued upon Conversion. The Holding Company
expects to retain the balance of the net proceeds as its initial capitalization,
a portion of which the Holding Company intends to lend to the ESOP to fund its
purchase of Common Stock. This increased capital will support the expansion of
the Bank's financial services to the public. The Board of Directors of the Bank
also believes that the conversion to stock form and the use of a holding company
structure will enhance the Bank's ability to expand through possible mergers and
acquisitions (although no such transactions are contemplated at this time) and
will facilitate its future access to the capital markets.
The Board of Directors of the Bank believes that the Conversion will
further benefit the Bank by enabling it to attract and retain key personnel
through prudent use of stock-related incentive compensation and benefit plans.
The Board of Directors of the Holding Company intends to adopt a stock option
and incentive plan and a recognition and retention plan, subject to approval of
Holding Company stockholders following completion of the Conversion. See
"Management - Benefit Plans" in the accompanying Prospectus.
Voting in favor of the Plan of Conversion will not obligate any person
to purchase any Common Stock.
THE OFFICE OF THRIFT SUPERVISION ("OTS") HAS APPROVED THE PLAN OF
CONVERSION SUBJECT TO THE APPROVAL OF THE BANK'S MEMBERS AND THE SATISFACTION OF
CERTAIN OTHER CONDITIONS. HOWEVER, SUCH APPROVAL DOES NOT CONSTITUTE A
RECOMMENDATION OR ENDORSEMENT OF THE PLAN OF CONVERSION BY THE OTS.
INFORMATION RELATING TO VOTING AT THE SPECIAL MEETING
The Board of Directors of the Bank has fixed , 1998 as the voting
record date ("Voting Record Date") for the determination of members entitled to
notice of the Special Meeting. All Bank depositors are members of the Bank under
its current charter. All Bank depositors of record as of the close of business
on the Voting Record
<PAGE>
Date who continue to be depositors as of the date of the Special Meeting will be
entitled to vote at the Special Meeting or any adjournment thereof.
Each depositor member (including IRA and Keogh account beneficiaries)
will be entitled at the Special Meeting to cast one vote for each $100, or
fraction thereof, of the aggregate withdrawal value of all of such depositor's
accounts in the Bank as of the Voting Record Date, up to a maximum of 1,000
votes. In general, accounts held in different ownership capacities will be
treated as separate memberships for purposes of applying the 1,000 vote
limitation. For example, if two persons hold a $100,000 account in their joint
names and each of the persons also holds a separate account for $100,000 in his
own name, each person would be entitled to 1,000 votes for each separate account
and they would together be entitled to cast 1,000 votes on the basis of the
joint account. Where no proxies are received from IRA and Keogh account
beneficiaries, after due notification, the Bank, as trustee of these accounts,
is entitled to vote these accounts in favor of the Plan of Conversion.
Approval of the Plan of Conversion requires the affirmative vote of a
majority of the total outstanding votes of the Bank's members eligible to be
cast at the Special Meeting. As of _______ __, 1998, the Bank had approximately
______ members who were entitled to cast a total of approximately _________
votes at the Special Meeting.
Bank members may vote at the Special Meeting or any adjournment thereof
in person or by proxy. Any member giving a proxy will have the right to revoke
the proxy at any time before it is voted by giving written notice to the
Secretary of the Bank, provided that such written notice is received by the
Secretary prior to the Special Meeting or any adjournment thereof, or upon
request if the member is present and chooses to vote in person.
All properly executed proxies received by the Board of Directors of the
Bank will be voted in accordance with the instructions indicated thereon by the
members giving such proxies. If no instructions are given, such proxies will be
voted in favor of the Plan of Conversion and the establishment of the charitable
foundation. If any other matters are properly presented at the Special Meeting
and may properly be voted on, the proxies solicited hereby will be voted on such
matters in accordance with the best judgment of the proxy holders named thereon.
Management is not aware of any other business to be presented at the Special
Meeting.
If a proxy is not executed and is returned and the member does not vote
in person, the Bank is prohibited by OTS regulations from using a previously
executed proxy to vote for the Conversion or the Foundation. As a result,
failure to vote may have the same effect as a vote against the Plan of
Conversion and the Foundation.
To the extent necessary to permit approval of the Plan of Conversion,
proxies may be solicited by officers, directors or regular employees of the
Bank, in person, by telephone or through other forms of communication and, if
necessary, the Special Meeting may be adjourned to a later date. In addition,
FBR will assist the Bank in the solicitation of proxies. Such persons will be
reimbursed by the Bank for their expenses incurred in connection with such
solicitation. The Bank will bear all costs of this solicitation. The proxies
solicited hereby will be used only at the Special Meeting and at any adjournment
thereof.
DESCRIPTION OF THE PLAN OF CONVERSION
The Plan of Conversion to be presented for approval at the Special
Meeting provides for the Conversion to be accomplished through adoption of
amended charter and bylaws for the Bank to authorize the issuance of capital
stock along with the concurrent formation of a holding company. As part of the
Conversion, the Plan of Conversion provides for the subscription offering (the
"Subscription Offering") of the Common Stock to the Bank's (i) Eligible Account
Holders (deposit account holders with an account balance of $50 or more as of
January 31, 1997; (ii) Tax-Qualified Employee Plans, (iii) Supplemental Eligible
Account Holders (deposit account holders with an account balance of $50 or more
as of __________ __, 1998); (iv) Other Members (deposit account holders eligible
to vote at the Special Meeting who are not as Eligible Account Holders or
Supplemental Eligible Account Holders); and (v) the Bank's employees, officers
and directors. Notwithstanding the foregoing, to the extent orders for shares
exceed the maximum of the appraisal range, Tax-Qualified Employee Plans shall be
afforded a first priority to purchase shares sold above the maximum of the
appraisal range. It is anticipated that Tax-Qualified Employee Plans will
purchase 8% of the Common Stock sold in the Conversion. If necessary, all shares
of Common Stock not purchased in the Subscription
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<PAGE>
Offering, if any, may be offered to selected persons in connection with the
Public Offering and/or Direct Community Offering through FBR.
THE SUBSCRIPTION OFFERING HAS COMMENCED AS OF THE DATE OF MAILING OF
THIS PROXY STATEMENT. A PROSPECTUS EXPLAINING THE TERMS OF THE SUBSCRIPTION
OFFERING, INCLUDING HOW TO ORDER AND PAY FOR SHARES AND DESCRIBING THE BUSINESS
OF THE BANK AND THE HOLDING COMPANY; ACCOMPANIES THIS PROXY STATEMENT AND SHOULD
BE READ BY ALL PERSONS WHO WISH TO CONSIDER SUBSCRIBING FOR COMMON STOCK. THE
SUBSCRIPTION OFFERING EXPIRES AT NOON, ARLINGTON HEIGHTS, ILLINOIS TIME ON
________ __, 1998 UNLESS EXTENDED BY THE BANK AND THE HOLDING COMPANY.
The federal conversion regulations require that all stock offered in a
conversion must be sold in order for the conversion to become effective. The
conversion regulations require that the offering be completed within 45 days
after completion of the Subscription Offering period unless extended by the Bank
and the Holding Company with the approval of the OTS. This 45-day period expires
________ __, 1998 unless the Subscription Offering is extended. If this is not
possible, an occurrence that is currently not anticipated, the Board of
Directors of the Bank and the Holding Company will consult with the OTS to
determine an appropriate alternative method of selling all unsubscribed shares
offered in the Conversion. The Plan of Conversion provides that the Conversion
must be completed within 24 months after the date of the Special Meeting.
The Public Offering and/or Direct Community Offering or any other sale
of the unsubscribed shares will be made as soon as practicable after the
completion of the Subscription Offering. No sales of shares may be completed,
either in the Subscription Offering or otherwise, unless the Plan of Conversion
is approved by the members of the Bank.
The commencement and completion of the Offering, however, is subject to
market conditions and other factors beyond the Bank's control. Due to adverse
conditions in the stock market in the past, a number of converting thrift
institutions encountered significant delays in completing their stock offerings
or were not able to complete them at all. No assurance can be given as to the
length of time after approval of the Plan of Conversion at the Special Meeting
that will be required to complete the Public Offering and/or Direct Community
Offering or other sale of the Common Stock to be offered in the Conversion. If
delays are experienced, significant changes may occur in the estimated pro forma
market value of the Holding Company's Common Stock, together with corresponding
changes in the offering price and the net proceeds realized by the Bank and the
Holding Company from the sale of the Common Stock. The Bank and the Holding
Company may also incur substantial additional printing, legal, accounting and
other expenses in completing the Conversion.
The following is a brief summary of the Conversion and is qualified in
its entirety by reference to the Plan of Conversion, a complete copy of which is
attached hereto. The Bank's federal stock charter and bylaws that will become
effective upon completion of the Conversion are available from the Bank upon
request. A copy of the Holding Company's articles of incorporation and bylaws
are also available from the Bank upon request.
Principal Effects of Conversion
Depositors. The Conversion will not change the amount, interest rate,
withdrawal rights or federal insurance protection of deposit accounts, or affect
deposit accounts in any way other than with respect to voting and liquidation
rights as discussed below.
Borrowers. The rights and obligations of borrowers under their loan
agreements with the Bank will remain unchanged by the Conversion. The principal
amount, interest rate and maturity date of loans will remain as they were
contractually fixed prior to the Conversion.
Voting Rights of Members. Under the Bank's current federal mutual
charter, depositors have voting rights as members of the Bank with respect to
the election of directors and certain other affairs of the Bank. After the
Conversion, exclusive voting rights with respect to all such matters will be
vested in the Holding Company as the sole stockholder of the Bank. Depositors
will no longer have any voting rights, except to the extent that they become
stockholders of the Holding Company through the purchase of its Common Stock.
Voting rights in the Holding Company will be held exclusively by its
stockholders.
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<PAGE>
Liquidation Rights of Depositor Members. Currently, in the unlikely
event of liquidation of the Bank, any assets remaining after satisfaction of all
creditors' claims in full (including the claims of all depositors to the
withdrawal value of their accounts) would be distributed pro rata among the
depositors of the Bank, with the pro rata share of each being the same
proportion of all such remaining assets as the withdrawal value of each
depositor's account is of the total withdrawal value of all accounts in the Bank
at the time of liquidation. After the Conversion, the assets of the Bank would
first be applied, in the event of liquidation, against the claims of all
creditors (including the claims of all depositors to the withdrawal value of
their accounts). Any remaining assets would then be distributed to the persons
who qualified as Eligible Account Holders or Supplemental Eligible Account
Holders under the Plan of Conversion to the extent of their interests in a
"Liquidation Account" that will be established at the time of the completion of
the Conversion and then to the Holding Company as the sole stockholder of the
Bank's outstanding common stock. The Bank's depositors who did not qualify as
Eligible Account Holders or Supplemental Eligible Account Holders would have no
right to share in any residual net worth of the Bank in the event of liquidation
after the Conversion, but would continue to have the right as creditors of the
Bank to receive the full withdrawal value of their deposits prior to any
distribution to the Holding Company as the Bank's sole stockholder. In addition,
the Bank's deposit accounts will continue to be insured by the Federal Deposit
Insurance Corporation ("FDIC") to the maximum extent permitted by law, currently
up to $100,000 per insured account. The Liquidation Account will initially be
established in an amount equal to the net worth of the Bank as of the date of
the Bank's latest statement of financial condition contained in the final
prospectus used in connection with the Conversion. Each Eligible Account Holder
and/or Supplemental Eligible Account Holder will receive an initial interest in
the Liquidation Account in the same proportion as the balance in all of his
qualifying deposit accounts was of the aggregate balance in all qualifying
deposit accounts of all Eligible Account Holders and Supplemental Eligible
Account Holders on January 31, 1997 or ________ __, 1998, respectively. For
accounts in existence on both dates, separate subaccounts shall be determined on
the basis of the qualifying deposits in such accounts on the record dates.
However, if the amount in the qualifying deposit account on any annual closing
date of the Bank is less than the lowest amount in such deposit account on the
Eligibility Record Date and/or Supplemental Eligibility Record Date, and any
subsequent annual closing date, this interest in the Liquidation Account will be
reduced by an amount proportionate to such reduction in the related deposit
account and will not thereafter be increased despite any subsequent increase in
the related deposit account.
The Bank. Under federal law, the stock savings bank resulting from the
Conversion will be deemed to be a continuation of the mutual savings bank rather
than a new entity and will continue to have all of the rights, privileges,
properties, assets and liabilities of the Bank prior to the Conversion. The
Conversion will enable the Bank to issue capital stock, but will not change the
general objectives, purposes or types of business currently conducted by the
Bank, and no assets of the Bank will be distributed in order to effect the
Conversion, other than to pay the expenses incident thereto. After the
Conversion, the Bank will remain subject to examination and regulation by the
OTS and will continue to be a member of the Federal Home Loan Bank System. The
Conversion will not cause any change in the executive officers or directors of
the Bank.
Tax Consequences. Consummation of the Conversion is expressly
conditioned upon prior receipt of either a ruling of the United States Internal
Revenue Service ("IRS") or an opinion letter with respect to federal taxation,
and either a ruling of the Illinois taxation authorities or an opinion letter
with respect to Illinois taxation, to the effect that the Conversion will not be
a taxable transaction to the Holding Company, the Bank or the Bank's deposit
account holders receiving subscription rights.
The Bank has received an opinion of Crowe Chizek, to the effect that
(i) the Conversion will qualify as a reorganization under Section 368(a)(1)(F)
of the Internal Revenue Code of 1986, as amended, and no gain or loss will be
recognized to the Bank in either its mutual form or its stock form by reason of
the proposed Conversion, (ii) no gain or loss will be recognized to the Bank in
its stock form upon the receipt of money and other property, if any, from the
Holding Company for the stock of the Bank; and no gain or loss will be
recognized to the Holding Company upon the receipt of money for Common Stock of
the Holding Company; (iii) the assets of the Bank in either its mutual or its
stock form will have the same basis before and after the Conversion; (iv) the
holding period of the assets of the Bank in its stock form will include the
period during which the assets were held by the Bank in its mutual form prior to
Conversion; (v) gain, if any, will be realized by the depositors of the Bank
upon the constructive issuance to them of withdrawable deposit accounts of the
Bank in its stock form, nontransferable subscription rights to purchase Holding
Company Common Stock and/or interests in the Liquidation Account (any such gain
will be recognized by such depositors, but only in an amount not in excess of
the fair market value of the subscription rights and Liquidation Account
interests received); (vi) the basis of the account holder's savings accounts in
the Bank after the Conversion will be the same as the
4
<PAGE>
basis of his or her savings accounts in the Bank prior to the Conversion; (vii)
the basis of each account holder's interest in the Liquidation Account is
assumed to be zero; (viii) based on the Ferguson Letter, as hereinafter defined,
the basis of the subscription rights will be zero; (ix) the basis of the Holding
Company Common Stock to its stockholders will be the purchase price thereof; (x)
a stockholder's holding period for Holding Company Common Stock acquired through
the exercise of subscription rights shall begin on the date on which the
subscription rights are exercised and the holding period for the Conversion
Stock purchased in the Offering will commence on the date following the date on
which such stock is purchased; (xi) the Bank in its stock form will succeed to
and take into account the earnings and profits or deficit in earnings and
profits, of the Bank, in its mutual form, as of the date of Conversion; (xii)
the Bank, immediately after Conversion, will succeed to and take into account
the bad debt reserve accounts of the Bank, in mutual form, and the bad debt
reserves will have the same character in the hands of the Bank after Conversion
as if no Conversion had occurred; and (xiii) the creation of the Liquidation
Account will have no effect on the Bank's taxable income, deductions or addition
to reserve for bad debts either in its mutual or stock form.
The opinion from Crowe Chizek is based, among other things, on certain
assumptions, including the assumptions that the exercise price of the
Subscription Rights to purchase Holding Company Common Stock will be
approximately equal to the fair market value of that stock at the time of the
completion of the proposed Conversion. With respect to the Subscription Rights,
the Bank will receive a letter from Ferguson (the "Ferguson Letter") which,
based on certain assumptions, will conclude that the Subscription Rights to be
received by Eligible Account Holders, Supplemental Eligible Account Holders and
other eligible subscribers do not have any economic value at the time of
distribution or at the time the Subscription Rights are exercised, whether or
not a Direct Community or Public Offering takes place.
The Bank has also received an opinion of Crowe Chizek to the effect
that, based in part on the Ferguson Letter: (i) no taxable income will be
realized by depositors as a result of the exercise of non-transferable
Subscription Rights to purchase shares of Holding Company Common Stock at fair
market value; (ii) no taxable income will be recognized by directors, officers
and employees of the Bank on the receipt or exercise of Subscription Rights to
purchase shares of Holding Company Common Stock at fair market value; and (iii)
no taxable income will be realized by the Bank or Holding Company on the
issuance of Subscription Rights to eligible subscribers to purchase shares of
Holding Company Common Stock at fair market value.
Notwithstanding the Ferguson Letter, if the Subscription Rights are
subsequently found to have a fair market value and are deemed a distribution of
property, it is Crowe Chizek's opinion that gain or income will be recognized by
various recipients of the Subscription Rights (in certain cases, whether or not
the rights are exercised) and the Bank and/or the Holding Company may be taxable
on the distribution of the Subscription Rights.
With respect to Illinois taxation, the Bank has received an opinion
from Crowe Chizek to the effect that the Illinois tax consequences to the Bank,
in its mutual or stock form, the Holding Company, eligible account holders,
parties receiving Subscription Rights, parties purchasing conversion stock, and
other parties participating in the Conversion will be the same as the federal
income tax consequences described above.
Unlike a private letter ruling, the opinions of Crowe, Chizek, as well
as the Ferguson Letter, have no binding effect or official status, and no
assurance can be given that the conclusions reached in any of those opinions
would be sustained by a court if contested by the IRS or the Delaware or
Illinois tax authorities.
Approval, Interpretation, Amendment and Termination
Under the Plan of Conversion, the letter from the OTS giving approval
thereto, and applicable regulations, consummation of the Conversion is subject
to the satisfaction of the following conditions: (a) approval of the Plan of
Conversion by members of the Bank casting at least a majority of the votes
eligible to be cast at the Special Meeting; (b) sale of all of the Common Stock
to be offered in the Conversion; and (c) receipt of favorable rulings or
opinions of counsel as to the federal and Illinois tax consequences of the
Conversion.
The Plan of Conversion may be substantively amended by the Boards of
Directors of the Bank and the Holding Company with the concurrence of the OTS.
If the Plan of Conversion is amended, proxies which have been received prior to
such amendment will not be resolicited unless otherwise required by the OTS.
Also, as required by the federal regulations, the Plan of Conversion provides
that the transactions contemplated thereby may be terminated by the Board of
5
<PAGE>
Directors of the Bank alone at any time prior to the Special Meeting and may be
terminated by the Board of Directors of the Bank at any time thereafter with the
concurrence of the OTS, notwithstanding approval of the Plan of Conversion by
the members of the Bank at the Special Meeting. All interpretations by the Bank
and the Holding Company of the Plan of Conversion and of the order forms and
related materials for the Subscription Offering will be final, except as regards
or affects the OTS.
Judicial Review
Section 5(i)(2)(B) of the Home Owners' Loan Act, as amended, 12 U.S.C.
ss.1464(i)(2)(B) and Section 563b.8(u) of the Rules and Regulations promulgated
thereunder (12 C.F.R. Section 563b.8(u)) provide: (i) that persons aggrieved by
a final action of the OTS which approves, with or without conditions, or
disapproves a plan of conversion, may obtain review of such final action only by
filing a written petition in the United States Court of Appeals for the circuit
in which the principal office or residence of such person is located, or in the
United States Court of Appeals for the District of Columbia, requesting that the
final action of the OTS be modified, terminated or set aside, and (ii) that such
petition must be filed within 30 days after publication of notice of such final
action in the Federal Register, or 30 days after the date of mailing of the
notice and proxy statement for the meeting of the converting institution's
members at which the conversion is to be voted on, whichever is later. The
notice of the Special Meeting of the Bank's members to vote on the Plan of
Conversion described herein is included at the beginning of this Proxy
Statement. The statute and regulation referred to above should be consulted for
further information.
ADDITIONAL INFORMATION
The information contained in the accompanying Prospectus, including a
more detailed description of the Plan of Conversion, consolidated financial
statements of the Bank and a description of the capitalization and business of
the Bank and the Holding Company, including the Bank's directors and executive
officers and their compensation, the anticipated use of the net proceeds from
the sale of the Common Stock, and a description of the Common Stock, is intended
to help you evaluate the Conversion and the establishment of the Foundation and
is incorporated herein by reference.
YOUR VOTE IS VERY IMPORTANT TO US. PLEASE TAKE A MOMENT NOW TO COMPLETE
AND RETURN YOUR PROXY CARD IN THE POSTAGE-PAID ENVELOPE PROVIDED. YOU MAY STILL
ATTEND THE SPECIAL MEETING AND VOTE IN PERSON EVEN THOUGH YOU HAVE VOTED YOUR
PROXY. FAILURE TO SUBMIT A PROXY WILL HAVE THE SAME EFFECT AS VOTING AGAINST THE
CONVERSION.
If you have any questions, please call our Information Center at (___)
___-____.
IMPORTANT: YOU MAY BE ENTITLED TO VOTE IN MORE THAN ONE CAPACITY.
PLEASE SIGN, DATE AND PROMPTLY RETURN EACH PROXY CARD YOU RECEIVE.
----------
THIS PROXY STATEMENT IS NOT AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY STOCK. THE OFFER WILL BE MADE ONLY BY THE PROSPECTUS.
THE COMMON STOCK IS NOT A DEPOSIT OR ACCOUNT AND IS NOT FEDERALLY
INSURED OR GUARANTEED.
6
<PAGE>
REVOCABLE PROXY
BEN FRANKLIN BANK OF ILLINOIS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF FIRST
SECURITY FEDERAL SAVINGS BANK
The undersigned member of Ben Franklin Bank of Illinois (the "Bank")
hereby appoints the Board of Directors of the Bank as proxies to cast all votes
which the undersigned member is entitled to cast at a Special Meeting of Members
to be held at the Bank's office located at 14 N. Dryden Place, Arlington
Heights, Illinois 60004, at the hour and date stated in the Proxy Statement, and
at any and all adjournments and postponements thereof, and to act with respect
to all votes that the undersigned would be entitled to cast, if then personally
present, in accordance with the instructions on the reverse side hereof to vote
FOR or AGAINST:
1) The adoption of the Plan of Conversion to convert the Bank
from a federally chartered mutual savings bank to a federally
chartered stock savings bank, including the adoption of a
federal stock savings bank charter and bylaws, with the
simultaneous issuance of its common stock to Ben Franklin
Financial, Inc., a Delaware corporation (the "Holding
Company") and sale by the Holding Company of shares of its
Common Stock; and
This proxy will be voted as directed by the undersigned member. UNLESS
CONTRARY DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR ADOPTION OF THE PLAN
OF CONVERSION. In addition, this proxy will be voted at the discretion of the
Board of Directors upon any other matter as may properly come before the Special
Meeting.
The undersigned member may revoke this proxy at any time before it is
voted by delivering to the Secretary of the Bank either by a written revocation
of the proxy or a duly executed proxy bearing a later date, or by appearing at
the Special Meeting and voting in person. The undersigned member hereby
acknowledges receipt of the Notice of Special Meeting and Proxy Statement.
(IMPORTANT: PLEASE VOTE, DATE AND SIGN ON REVERSE SIDE)
<PAGE>
BEN FRANKLIN BANK OF ILLINOIS
Please Mark Votes Below
Approval of the Plan of Conversion
FOR [ ] AGAINST [ ] DATE: _____________________, 1997
X __________________________________
X __________________________________
IMPORTANT: Please sign your name
exactly as it appears on this proxy.
Joint accounts need only one
signature. When signing as an
attorney, administrator, agent,
corporation, officer, executor,
trustee or guardian, etc., please
add your full title to your
signature.
NOTE: IF YOU RECEIVE MORE THAN ONE PROXY CARD, PLEASE SIGN AND RETURN ALL CARDS
IN THE ACCOMPANYING ENVELOPE.
Ben Franklin Financial, Inc.
Stock Center -- 6 South Dryden -- Arlington Heights, IL 60004
(847) 000-0000
Stock Order Form Instructions
- --------------------------------------------------------------------------------
Items 1 and 2 -- Fill in the number of shares that you wish to purchase and the
total payment due. The amount due is determined by multiplying the number of
shares by the subscription price of $10.00 per share. The minimum purchase is 25
shares. The maximum purchase limitations are as follows: (i) the maximum number
of shares that any person (or persons on a single account) may purchase in the
Offering is 20,000 shares of Common Stock, and (ii) the maximum number of shares
that any person together with any associate or group of persons acting in
concert may purchase in the Offering is 80,000 shares of Common Stock. No
person, by himself or herself, or with an Associate or group of persons acting
in concert, may subscribe for or purchase more than 20,000 shares of Common
Stock in the Public and/or Direct Community Offering.
Ben Franklin Financial, Inc. and Ben Franklin Bank of Illinois have reserved the
right to reject any order received in the Subscription Offering and Community
Offering, in whole or in part.
Item 3 -- Payment for shares may be made in cash (only if delivered by you in
person) or by check, bank draft, or money order payable to Ben Franklin
Financial, Inc. DO NOT MAIL CASH. If you choose to make a cash payment, take
your Stock Order Form, signed Certification Form, and payment in person to a
branch of Ben Franklin Bank of Illinois. Your funds will earn interest at the
Ben Franklin Bank of Illinois' passbook rate until the stock is issued.
Item 4 -- To pay by withdrawal from a savings account or certificate of deposit
of Ben Franklin Bank of Illinois, insert the account number(s) and the amount(s)
you wish to withdraw from each account. If more than one signature is required
to withdraw, each person must sign in the Signature box on the bottom of the
front of the Stock Order Form. To withdraw from an account with checking
privileges, please write a check. No early withdrawal penalty will be charged on
funds used to purchase our stock. A hold will be placed on the account(s) for
the amount(s) you indicate. Payments will remain in certificate account(s) until
the stock offering closes and will continue to earn interest at the certificate
account rate until then. However, if a partial withdrawal reduces the balance of
a certificate account to less than the applicable minimum, the remaining balance
will earn interest at the passbook rate.
Item 5 -- Please check this box if you were a depositor with $50.00 or more on
the Eligibility Record Date (January 31, 1997) and/or the Supplemental
Eligibility Record Date (March 31, 1998) and/or a depositor on the Voting Record
Date (April 30, 1998) and list all the names on the account(s) and all account
number(s) of those accounts you had at these dates to ensure proper
identification of your purchase rights.
Items 6 and 7 -- The stock transfer industry has developed a uniform system of
shareholder registrations that we will use in the issuance of Ben Franklin
Financial, Inc. common stock. Print the name(s) in which you want the stock
registered and the mailing address of the registration. Include the first name,
middle initial, and last name of the shareholder. Avoid the use of two initials.
Please omit words that do not affect ownership rights, such as "Mrs.", "Mr.",
"Drs.", "special account", etc. Subscription rights are not transferable. If you
are a qualified member, to protect your priority over other purchasers as
described in the Prospectus, you must take ownership as your account
relationship is established. If you, as a qualified member, include a
non-qualified member on your order, your priority will be lowered or eliminated.
Enter the Social Security or Tax I.D. number of one registered owner. This
registered owner must be listed on the first "Name" line. Be sure to include
your telephone number, because we will need to contact you if we cannot execute
your order as given. Review the Stock Ownership Guide on the back of this page
and refer to the instructions for Uniform Gift to Minors/Uniform Transfer to
Minors and Fiduciaries.
Items 8 and 9 -- See instructions on the form.
Item 10 -- Be sure all required persons sign.
Be sure to read and sign the Certification Form on the back of the Stock Order
Form.
4111-Ben Franklin Stock Order Form Instructions (Emerald Services)
<PAGE>
Stock Ownership Guide
- --------------------------------------------------------------------------------
Individual -- The stock is to be registered in an individual's name only. You
may not list beneficiaries for this ownership.
Joint Tenants -- Joint tenants with rights of survivorship (WROS) identifies two
or more owners. When stock is held by joint tenants with rights of survivorship,
ownership automatically passes to the surviving joint tenant(s) upon the death
of any joint tenant. You may not list beneficiaries for this ownership.
Tenants in Common -- Tenants in common may also identify two or more owners.
When stock is held by tenants in common, upon the death of one co-tenant,
ownership of the stock will be held by the surviving co-tenant(s) and by the
heirs of the deceased co-tenant. All parties must agree to the transfer or sale
of shares held by tenants in common. You may not list beneficiaries for this
ownership.
Individual Retirement Account -- Individual retirement account ("IRA") holders
may make stock purchases from their deposits through a pre-arranged
"trustee-to-trustee" transfer. Stock may only be held in a self-directed IRA.
Ben Franklin Bank does not offer a self-directed IRA. Please contact the Stock
Center if you have any questions about your IRA account or to obtain a list of
brokers who will open a self-directed IRA, or check with your broker. There will
be no early withdrawal or IRS penalties incurred by properly executed
transactions.
Uniform Gift to Minors/Uniform Transfer to Minors -- For residents of many
states, stock may be held in the name of a custodian for the benefit of a minor
under the Uniform Transfer to Minors Act. For residents in other states, stock
may be held in a similar type of ownership under the Uniform Gift to Minors Act
of the individual states. For either ownership, the minor is the actual owner of
the stock with the adult custodian being responsible for the investment until
the minor reaches legal age.
Instructions: See your legal advisor if you are unsure about the correct
registration of your stock.
On the first "Name" line, print the first name, middle initial, and last name of
the custodian, with the abbreviation "CUST" after the name. Print the first
name, middle initial, and last name of the minor on the second "Name" line. Only
one custodian and one minor may be designated.
Corporation/Partnership
Corporations/Partnerships may purchase stock. Please provide the
Corporation/Partnership's legal name and Tax I.D. To have depositor rights, the
Corporation/Partnership must have an account in the legal name. Please contact
the Stock Center to verify depositor rights and purchase limitations.
Fiduciary/Trust
Generally, fiduciary relationships (such as Trusts, Estates, Guardianships,
etc.) are established under a form of trust agreement or pursuant to a court
order. Without a legal document establishing a fiduciary relationship, your
stock may not be registered in a fiduciary capacity.
Instructions: On the first "Name" line, print the first name, middle initial,
and last name of the fiduciary if the fiduciary is an individual. If the
fiduciary is a corporation, list the corporate title on the first "Name" line.
Following the name, print the fiduciary "title" such as trustee, executor,
personal representative, etc.
On the second "Name" line, print either the name of the maker, donor or estator
OR the name of the beneficiary. Following the name, indicate the type of legal
document establishing the fiduciary relationship (agreement, court order, etc.).
In the blank after "Under Agreement Dated", fill the date of the document
governing the relationship. The date of the document need not be provided for a
trust created by a will.
An example of fiduciary ownership of stock in the case of a trust is: John D.
Smith, Trustee for Thomas A. Smith Under Agreement Dated 06/09/87.
4111 -- Ben Franklin Stock Order Form Instructions (Emerald Services)
Exhibit 99.4
STOCK
OFFERING
QUESTIONS
AND
ANSWERS
Ben Franklin
Financial, Inc.
(Proposed Holding Company for
Ben Franklin Bank of Illinois formerly known as
Douglas Savings Bank)
<PAGE>
STOCK OFFERING
QUESTIONS & ANSWERS
FACTS ABOUT THE PLAN OF CONVERSION
The Board of Directors of Ben Franklin Bank of Illinois (the "Bank"), formerly
known as Douglas Savings Bank, unanimously adopted a Plan of Conversion (the
"Plan") to convert from a federal mutual savings bank to a federal stock savings
bank (the "Conversion").
This brochure answers some of the most frequently asked questions about the
Conversion and about your opportunity to invest in Ben Franklin Financial, Inc.,
the newly formed holding company for the Bank (the "Holding Company"), through
Subscription and Direct Community and/or Public Offerings (the "Offering").
Investment in the common stock of the Holding Company ("Common Stock") involves
certain risks. For a discussion of these risks and other factors, investors are
urged to read the accompanying Prospectus, especially the discussion under the
heading "Risk Factors."
WHY IS THE BANK CONVERTING TO THE STOCK HOLDING COMPANY STRUCTURE?
The stock holding company form of ownership is used by most business
corporations and an increasing number of banks and savings institutions. Through
the sale of the stock, the Holding Company will raise additional capital,
enabling it to:
o Take advantage of opportunities for internal growth and possible future
acquisitions.
o The Bank, in turn, will utilize these funds to support and broaden its
range of products and services offered; and
o Allow customers of the Bank and friends to subscribe to purchase stock and
share in the Holding Company's and the Bank's future.
WILL THE CONVERSION AFFECT ANY OF MY DEPOSIT ACCOUNTS(S) OR LOAN(S)?
No. The Conversion will have no effect on the balance or terms of any deposit
account or loan, and your deposit(s) will continue to be federally insured by
the Federal Deposit Insurance Corporation ("FDIC") to the maximum legal limit.
Your account(s) will not automatically be converted to stock.
WHO MAY PURCHASE STOCK IN THE OFFERING?
Depositors of the Bank as of certain dates, the Bank's Employee Stock Ownership
Plan, and employees, officers and directors of the Bank may purchase stock in
the Subscription Offering. To the extent that all of the Common Stock is not
sold to eligible subscribers, the Holding Company may offer and sell the
remainder of the Common Stock through Friedman, Billings, Ramsey & Co., Inc. to
the general public in the Direct Community and/or Public Offering.
<PAGE>
HOW MANY SHARES OF STOCK ARE BEING OFFERED AND AT WHAT PRICE?
The Company is offering up to 1,610,000 shares (subject to adjustment up to
1,851,500 shares) of Common Stock at a price of $10.00 per share. The Offering
is made by the Prospectus accompanied by the Stock Order Form and Certification
Form.
HOW MUCH STOCK MAY I BUY?
The minimum order is 25 shares. The maximum purchase for any person (or persons
on a single account) is 20,000 shares. The maximum order for any person together
with associates of and persons acting in concert with such person is 80,000
shares of the Common Stock sold in the Offering. No person, by himself or
herself, or with an associate or group of persons acting in concert, may
subscribe for or purchase more than 20,000 shares in the Public or Direct
Community Offering.
The maximum purchase limitation may be increased or decreased at the sole
discretion of the Holding Company and the Bank, subject to any necessary
regulatory approval.
DO I HAVE TO BUY STOCK?
No. The Conversion, however, will allow the Bank's eligible depositors,
employees, officers and directors an opportunity to subscribe for stock. They
will have the opportunity to become initial stockholders of the Company and to
share in the future of the Company and the Bank with which they do business.
HOW DO I ORDER STOCK?
You must complete the Stock Order Form (and Certification Form printed on the
back) by following the printed Stock Order Form Instructions. A properly
executed Stock Order Form and Certification Form and payment in full must be
received at the Stock Center or at any office of the Bank by 12:00 noon,
Arlington Heights, Illinois Time, on xxxday, June___, 1998.
IF I PLACE AN ORDER FOR STOCK, AM I GUARANTEED TO RECEIVE THAT STOCK?
No. Placing an order for stock does not guarantee that you will receive any or
all of your order. Orders are filled on a priority basis. For detailed
information on the preference categories, refer to "The Conversion" section of
the Prospectus.
HOW DO I PAY FOR MY SHARES OF STOCK?
You must include payment by check, money order or cash with your Stock Order
Form and Certification Form. Cash will be accepted only if delivered in person
to a branch of the Bank where it will be converted into a check. Interest will
be paid by the Bank on these funds at the Bank's passbook rate from the day the
funds are received until the completion or termination of the Conversion.
You may authorize us to withdraw funds from your deposit account or certificate
of deposit for the amount of funds you specify for payment. The Bank is waiving
all early withdrawal penalties on certificates of deposit where the funds are
used to subscribe for stock.
<PAGE>
Note: You will not have access to these funds from the day we receive your order
until the completion or
termination of the Conversion.
May I purchase shares using funds in my Ben Franklin Bank of Illinois (formerly
known as Douglas Savings Bank) IRA account?
Federal regulations do not permit the purchase of conversion stock in your IRA
account held by the Bank. To accommodate our IRA depositors, we have made
arrangements to have funds transferred into self-directed IRA accounts with a
third party broker-dealer to allow for such purchases. Please call our Stock
Center as soon as possible at (847) 938-____ for additional information.
WILL THE STOCK BE INSURED?
No. Like any other common stock, the Common Stock will not be insured by the
Federal Deposit Insurance Corporation, the Bank Insurance Fund, the Savings
Association Insurance Fund or any other governmental agency.
WILL DIVIDENDS BE PAID ON THE STOCK?
The Board of Directors has not yet established a policy with respect to payment
of cash dividends on the Common Stock. Some factors that will be taken into
account when making decisions regarding dividends are: the Holding Company's
consolidated financial condition, capital requirements, tax considerations,
industry standards, economic conditions, investment opportunities, regulatory
restrictions, general business practices and other factors.
HOW WILL THE STOCK BE TRADED?
The Common Stock will trade on the Nasdaq Stock Market under the symbol "BFFI".
However, no assurance can be given that an active and liquid market will
develop.
DO I PAY A COMMISSION?
No. You will not be charged a commission or fee on the purchase of shares in the
Offering.
SHOULD I VOTE IN FAVOR OF THE PLAN OF CONVERSION?
Yes. The Board of Directors of the Bank recommends that you vote in favor of the
Plan of Conversion. Your "FOR" vote is very important!
WHY DID I GET SEVERAL PROXY CARDS?
If you have more than one account, you could receive more than one proxy card,
depending on the ownership structure of your accounts. PLEASE VOTE, SIGN AND
RETURN ALL PROXY CARDS TODAY!
HOW MANY VOTES DO I HAVE?
Your proxy card(s) show the number of votes you have. Every depositor entitled
to vote may cast one vote for each $100, or fraction thereof, on deposit as of
April___, 1998, the Voting Record Date. The maximum is 1,000 votes. We must
receive affirmative votes from the majority of members of the Bank in order to
approve the Plan of Conversion.
<PAGE>
MAY I VOTE IN PERSON AT THE SPECIAL MEETING?
Yes, but we would still like you to sign and mail your proxy card today. If you
decide to revoke your proxy, you may do so by voting at the Special Meeting of
Members to be held on June ___, 1998 at 10:00 a.m.
FOR ADDITIONAL INFORMATION YOU MAY CALL OUR STOCK CENTER AT (847)
398-____between 9:00 a.m. and 5:00 p.m., Arlington Heights, Illinois Time,
Monday through Friday.
The shares of Common Stock offered in the Conversion are not savings accounts or
deposits and are not insured by the Federal Deposit Insurance Corporation, the
Bank Insurance Fund, the Savings Association Insurance Fund or any other
governmental agency.
This is neither an offer to sell nor a solicitation of an offer to buy stock.
The offer will be made only by the Prospectus accompanied by the Stock Order
Form and Certification Form.
Ben Franklin Financial, Inc.
Stock Center
6 South Dryden Place
Arlington Heights, IL 60004
(847) ____-______
