As filed with the Securities and Exchange Commission on May 8, 1998
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
------------
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------
FIRST FEDERAL BANK OF THE SOUTHWEST, INC.
(Exact name of Registrant as specified in its Charter)
Delaware 6035 Applied For
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation Industrial Classification Identification No.)
or organization) Code Number)
300 North Pennsylvania Avenue, Roswell, New Mexico 88201
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
------------
Aubrey L. Dunn, Jr.
President and Chief Executive Officer
First Federal Bank of the Southwest, Inc.
300 North Pennsylvania Avenue
Roswell, New Mexico 88201
(505) 622-6201
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Please send copies of all communications to:
Gary A. Lax, P.C.
Silver, Freedman & Taff, L.L.P.
(a limited liabilty partnership including professional corporations)
7th Floor, East Tower
1100 New York Avenue, NW
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 the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [X]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
================================================================================================
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, par value 409,000 shares $53.29 $21,795,610 $6,430.00
$.01 per share
================================================================================================
</TABLE>
- - -----------
(1) Estimated solely for the purpose of calculating the registration fee based
upon the book value per share of First Federal Savings Bank of New Mexico
common stock.
<PAGE>
FIRST FEDERAL BANK OF THE SOUTHWEST, INC.
Cross-Reference Sheet Pursuant to Item 501(b) of Regulation S-K
Between Items in Part I of Form S-4 and Prospectus/Proxy Statement
Item
Number Caption in Form S-4 Caption in Prospectus
- - ------ ----------------------------------- -----------------------------------
1 Forepart of Registration Statement
and Outside Front Cover Page of
Prospectus ........................ Facing Page of Registration
Statement; Cross-Reference Sheet;
Available Information
2 Inside Front and Outside Back Cover
Pages of Prospectus ............... Cover Page; Table of Contents;
Available Information; Financial
Statements
3 Risk Factors, Ratios of Earnings
to Fixed Charges and Other
Information ....................... Summary; The Company
4 Terms of the Transaction .......... Summary; Proposal I -- The Holding
Company Merger and Reorganization,
Appendix A
5 Pro Forma Financial Information ... Financial Statements
6 Material Contracts With the Company
Being Acquired .................... Summary; Proposal I -- The Holding
Company Merger and Reorganization;
Appendix A
7 Additional Information Required for
Reoffering by Persons and Parties
Deemed to be Underwriters ......... Not Applicable
8 Interests of Named Experts and
Counsel ........................... Legal Opinion
9 Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities ................... Proposal I -- The Holding Company
Merger and Reorganization --
Comparison of Stockholder Rights
10 Information With Respect to S-3
Registrants ....................... Not Applicable
11 Incorporation of Certain
Information by Reference .......... Not Applicable
<PAGE>
Item
Number Caption in Form S-4 Caption in Prospectus
- - ------ ----------------------------------- -----------------------------------
12 Information With Respect to S-2 or
S-3 Registrants ................... Not Applicable
13 Incorporation of Certain
Information by Reference .......... Not Applicable
14 Information With Respect to
Registrants Other Than S-3 or S-2
Registrants ....................... Proposal I -- The Holding Company
Merger and Reorganization;
Financial Statements; The Company;
Appendix D
15 Information With Respect to S-3
Companies ......................... Not Applicable
16 Information With Respect to S-2 or
S-3 Companies ..................... Not Applicable
17 Information With Respect to
Companies Other Than S-3 or S-2
Companies ......................... Not Applicable
18 Information if Proxies, Consents
or Authorizations are to be
Solicited ......................... Summary; General Information;
Proposal I -- The Holding Company
Merger and Reorganization
19 Information if Proxies, Consents
or Authorizations are not to
be Solicited or in an Exchange
Offer ............................. Not Applicable
<PAGE>
First Federal Savings Bank of New Mexico
300 North Pennsylvania Avenue
Roswell, New Mexico 88201
(505) 622-6201
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To be Held on __________, 1998
Notice is hereby given that a Special Meeting of Stockholders (the
"Meeting") of First Federal Savings Bank of New Mexico ("First Federal" or the
"Bank") will be held at the main office of the Bank, located at 300 North
Pennsylvania Avenue, Roswell, New Mexico, on __________, 1998 at _:__ _.m.
A Proxy Card and a Proxy Statement for the Meeting are enclosed.
The Meeting is for the purpose of considering and acting upon:
1. A proposal to adopt a holding company structure for the Bank with the
result that the Bank will become a wholly owned subsidiary of First
Federal Bank of the Southwest, Inc. as provided in the Agreement and
Plan of Merger attached as Appendix A to this Proxy Statement;
2. A proposal to adjourn the Meeting in the event that a sufficient
number of votes necessary to approve the Agreement is not received;
and
such other matters as may properly come before the Meeting, or any adjournments
thereof. The Board of Directors is not aware of any other business to come
before the Meeting.
Any action may be taken on the foregoing proposal at the Meeting on the
date specified above, or on any date or dates to which the Meeting may be
adjourned. Stockholders of record at the close of business on ___________, 1998
are the stockholders entitled to vote at the Meeting, and any adjournments
thereof.
You are requested to fill in and sign the enclosed form of proxy which is
solicited on behalf of the Board of Directors, and to mail it promptly in the
enclosed envelope. The proxy will not be used if you attend and vote at the
Meeting in person.
By Order of the Board of Directors
Ronald D. Rogers,
Secretary
Roswell, New Mexico
____________, 1998
- - --------------------------------------------------------------------------------
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE BANK THE
EXPENSE OF FURTHER REQUESTS FOR PROXIES TO ENSURE A QUORUM AT THE
MEETING. A SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
NO POSTAGE IS REQUIRED IF MAILED WITHIN THE UNITED STATES.
- - --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
SUMMARY ................................................................... 1
Date, Time and Place of Meeting ......................................... 1
Purpose of Meeting ...................................................... 1
Record Date ............................................................. 1
Vote Required for Approval of Proposals ................................. 1
The Holding Company Reorganization ...................................... 1
Conditions and Regulatory Approvals ..................................... 2
Federal Income Tax Consequences ......................................... 2
Rights of Dissenting Stockholders ....................................... 2
Regulation and Supervision .............................................. 2
Differences Between Bank Common Stock and Company Common Stock........... 2
Recommendation and Reasons .............................................. 3
GENERAL INFORMATION........................................................ 4
Introduction ............................................................ 4
Revocation of Proxies ................................................... 4
Vote Required for Approval of Proposals ................................. 4
Voting Securities and Principal Holders Thereof ......................... 5
Board of Directors of the Bank .......................................... 5
Executive Officers Who Are Not Directors ................................ 7
Director Compensation ................................................... 8
Executive Compensation .................................................. 8
401(k) Profit Sharing Plan .............................................. 8
Certain Transactions .................................................... 9
PROPOSAL I -- THE HOLDING COMPANY MERGER AND REORGANIZATION................ 9
Parties to the Merger Agreement ......................................... 9
Reasons for the Reorganization .......................................... 9
Description of the Transaction; Exchange Ratio .......................... 11
Federal Income Tax Consequences ......................................... 11
Rights of Dissenting Stockholders ....................................... 12
Conditions to the Reorganization ........................................ 14
Amendment or Termination ................................................ 14
Effective Date of the Reorganization .................................... 15
Exchange of Stock Certificates Not Required ............................. 15
Operations After the Reorganization ..................................... 15
Accounting Treatment .................................................... 16
Stock Option and Incentive Plan ......................................... 16
Comparison of Stockholder Rights ........................................ 16
Other Restrictions on Acquisitions of Stock ............................. 22
i
<PAGE>
PROPOSAL II -- ADJOURNMENT OF THE SPECIAL MEETING ......................... 23
FINANCIAL STATEMENTS ...................................................... 24
THE BANK .................................................................. 24
THE COMPANY ............................................................... 24
General ................................................................. 24
Regulation .............................................................. 25
Federal and State Taxation .............................................. 26
Restrictions on Resale of Company Stock Received by Certain Persons...... 26
Company Management ...................................................... 26
LEGAL OPINION ............................................................. 27
STOCKHOLDER PROPOSALS ..................................................... 27
OTHER MATTERS ............................................................. 27
APPENDIX A -- AGREEMENT AND PLAN OF MERGER ................................ A-1
APPENDIX B -- HOLDING COMPANY CERTIFICATE OF INCORPORATION ................ B-1
APPENDIX C -- RIGHTS OF DISSENTING STOCKHOLDERS ........................... C-1
APPENDIX D -- ANNUAL REPORT TO STOCKHOLDERS FOR
THE FISCAL YEAR ENDED SEPTEMBER 30, 1997 ................................ D-1
ii
<PAGE>
AVAILABLE INFORMATION
This Proxy Statement of First Federal Savings Bank of New Mexico ("First
Federal" or the "Bank") also serves as the prospectus relating to the offer by
First Federal Bank of the Southwest, Inc. (the "Company"), a newly-formed
Delaware corporation, of shares of its common stock, par value $.01 per share
("Company Common Stock"), in exchange for the outstanding shares of common stock
of the Bank, par value $1.00 per share ("Bank Common Stock"), in connection with
a proposed reorganization (the "Reorganization") pursuant to which the Company
would become the holding company for the Bank, as more fully discussed under
"Proposal I -- The Holding Company Merger and Reorganization."
The Company has filed with the Securities and Exchange Commission (the
"SEC") a Registration Statement on Form S-4 under the Securities Act of 1933
(the "Securities Act"), as amended (Registration Statement No. 333-_____), with
respect to the shares of Company Common Stock issuable upon the exchange of Bank
Common Stock in the Reorganization as described herein. As permitted by the
rules and regulations of the SEC, this Proxy Statement omits certain information
contained in the Registration Statement. For further information pertaining to
Company Common Stock offered hereby, reference is made to the Registration
Statement and to the exhibits thereto, which may be inspected at the public
reference facilities of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549,
and copies of which can be obtained from the SEC at prescribed rates by writing
to the Public Reference Section of the SEC at the above-stated address. The SEC
also maintains an internet address ("Web site") that contains reports, proxy and
information statements and other information regarding registrants, including
the Company, that file electronically with the SEC. The address for this Web
site is "http://www.sec.gov."
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THE TRANSACTIONS DESCRIBED IN THIS PROXY
STATEMENT/PROSPECTUS OTHER THAN THOSE CONTAINED HEREIN, AND IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY EITHER THE BANK OR THE COMPANY OR THEIR MANAGEMENT. EXCEPT AS
OTHERWISE EXPRESSLY INDICATED, ALL INFORMATION IS GIVEN AS OF THE DATE OF THIS
PROXY STATEMENT/PROSPECTUS. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT/PROSPECTUS AFTER SUCH DATE NOR ANY OFFER, SALE OR EXCHANGE OF ANY
SECURITY MADE HEREUNDER AFTER SUCH DATE SHALL UNDER ANY CIRCUMSTANCE CREATE ANY
IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE INFORMATION SET FORTH
HEREIN SINCE SUCH DATE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC, THE
OFFICE OF THRIFT SUPERVISION ("OTS") OR THE FEDERAL DEPOSIT INSURANCE
CORPORATION ("FDIC"), NOR HAS THE SEC, OTS OR THE FDIC PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE. THIS SECURITY IS NOT A DEPOSIT OR ACCOUNT AND IS
NOT FEDERALLY INSURED OR GUARANTEED.
iii
<PAGE>
SUMMARY
The following is a summary of certain information contained in this Proxy
Statement/Prospectus. This summary is not complete and is qualified in its
entirety by the more detailed information appearing in this Proxy
Statement/Prospectus and appendices. Stockholders should review the entire Proxy
Statement/Prospectus and, in particular, the specific sections referred to in
this summary.
Date, Time and Place of Meeting
- - -------------------------------
_______________, 1998, at _:__ _.m., Roswell, New Mexico time, at the main
office of the Bank, located at 300 North Pennsylvania Avenue, Roswell, New
Mexico.
Purpose of Meeting
- - ------------------
The primary purpose of the Meeting is to consider and vote upon a proposal
to adopt a holding company structure. If the proposal to adopt a holding company
structure is approved, First Federal will conduct its operations as a wholly
owned subsidiary of the Company, a Dela ware corporation formed for the purpose
of serving as the holding company for the Bank.
Stockholders are also being asked to vote on a proposal to adjourn the
Meeting if sufficient votes are not obtained to approve the holding company
structure.
Record Date
- - -----------
Only holders of record of shares of the Bank Common Stock, at the close of
business on ___________, 1998, are entitled to vote at the Meeting.
Vote Required for Approval of Proposals
- - ---------------------------------------
The affirmative vote of the holders of at least 204,434 shares of Bank
Common Stock, a majority of the total shares outstanding on the record date, is
required to approve the proposal to adopt a holding company structure. The
affirmative vote of a majority of the shares voted on such proposal is required
to approve the proposal to adjourn the Meeting. Directors and officers (12
persons) beneficially own 180,420 shares, or 44.13% of the Bank's outstanding
Common Stock.
The Holding Company Reorganization
- - ----------------------------------
Under the Agreement and Plan of Merger (the "Agreement") attached hereto as
Appendix A, the Bank will be merged with an interim subsidiary of the Company.
As a result of this transaction (the "Reorganization") each share of Bank Common
Stock will be converted into one share of the
1
<PAGE>
Company. See "Proposal I -- The Holding Company Merger and Reorganization --
Description of the Transaction; Exchange Ratio."
Conditions and Regulatory Approvals
- - -----------------------------------
The consummation of the Reorganization is conditioned upon the fulfillment
of certain conditions set forth in the Agreement, including approval by the
stockholders of the Bank and by the Office of Thrift Supervision ("OTS"). See
"Proposal I -- The Holding Company Merger and Reorganization -- Conditions to
the Reorganization."
Federal Income Tax Consequences
- - -------------------------------
The Reorganization will qualify as a tax-free reorganization. No gain or
loss will be recognized by Bank stockholders whose shares are converted into
Company Common Stock. See "Proposal I -- The Holding Company Merger and
Reorganization -- Federal Income Tax Consequences."
Rights of Dissenting Stockholders
- - ---------------------------------
Under federal regulations, dissenters' rights of appraisal are available to
First Federal shareholders who follow certain prescribed procedures. In the
event that the holders of more than 10% of the Bank's Common Stock perfect their
rights to appraisal, the Bank may determine not to consummate the
Reorganization. See "Proposal I -- The Holding Company Merger and Reorganization
- - -- Rights of Dissenting Stockholders."
Regulation and Supervision
- - --------------------------
After the Reorganization, the Company will be a thrift institution holding
company regulated by the OTS. While the Company filed its Registration Statement
with the SEC under the Securities Act, it intends to immediately de-register
with the SEC following the effectiveness of the Reorganization in order to avoid
the expense of ongoing reporting obligations. See "The Company -- Regulation."
The Bank will continue to be regulated by the OTS.
Differences Between Bank Common Stock and Company Common Stock
- - --------------------------------------------------------------
After the consummation of the Reorganization, the rights of the
stockholders of the Company will be governed by Delaware law and the Certificate
of Incorporation and Bylaws of the Company, whereas the rights of stockholders
of the Bank are governed by its charter and bylaws and by federal statutes and
regulations. As a result, certain differences will exist between the rights of
stockholders of the Company and those of the Bank. These differences relate to
such matters as the issuance of additional capital stock, amendment of governing
instruments, transactions with affiliates, limitations on director liability,
and indemnification of officers and directors. For a description of these
2
<PAGE>
differences, see "Proposal I -- The Holding Company Merger and Reorganization --
Comparison of Stockholder Rights."
Recommendation and Reasons
- - --------------------------
The Bank's Board of Directors has unanimously approved the Agreement and
unanimously recommends that the stockholders vote FOR approval of the
Reorganization. A holding company structure offers significant advantages in
comparison to the Bank's present corporate structure. These advantages include a
broader range of permissible financial activities, increased organizational
flexibility and the ability to repurchase Company stock without adverse tax
consequences. The Board of Directors also recommend that stockholders vote FOR
proposals to adjourn the Meeting.
3
<PAGE>
PROXY STATEMENT
FIRST FEDERAL SAVINGS BANK OF NEW MEXICO
300 North Pennsylvania Avenue
Roswell, New Mexico 88201
(505) 622-6201
SPECIAL MEETING OF STOCKHOLDERS
__________, 1998
GENERAL INFORMATION
Introduction
- - ------------
This Proxy Statement/Prospectus is furnished in connection with the
solicitation on behalf of the Board of Directors of First Federal of proxies to
be used at a Special Meeting of Stockholders of the Bank (the "Meeting") to be
held at the main office of the Bank, located at 300 North Pennsylvania Avenue,
Roswell, New Mexico, on __________, 1998 at _:__ _.m., and at all adjournments
of the Meeting. The accompanying Notice of Special Meeting and this Proxy
Statement are first being mailed to stockholders on or about ____________, 1998.
Revocation of Proxies
- - ---------------------
Stockholders who execute proxies retain the right to revoke them at any
time. Unless so revoked, the shares represented by such proxies will be voted at
the Meeting and at all adjournments thereof. The presence of a stockholder at
the Meeting will not automatically revoke such stockholder's proxy. However, a
stockholder may revoke a proxy at any time prior to its exercise by filing a
written notice of revocation with, or delivering a duly executed proxy bearing a
later date to, Ronald D. Rogers, Secretary of the Bank, 300 North Pennsylvania
Avenue, Roswell, New Mexico 88201, or by attending the Meeting and voting in
person. Proxies solicited on behalf of the Board of Directors of the Bank and
not revoked will be voted in accordance with the directions given therein. Where
no instructions are indicated, proxies will be voted FOR the proposals set forth
in this Proxy Statement/Prospectus for consideration at the Meeting.
Proxies marked as abstaining will be treated as present for purposes of
determining a quorum at the Meeting, but will not be counted as voting on any
matter as to which abstention is indicated. Proxies returned by brokers as
"non-votes" on behalf of shares held in street name will not be treated as
present for purposes of determining a quorum for the Meeting unless they are
voted by the broker on at least one matter on the agenda. Such non-voted shares
will not be counted as voting on any matter as to which a non-vote is indicated
on the brokers' proxy.
Vote Required for Approval of Proposals
- - ---------------------------------------
Approval of the proposal to adopt a holding company structure require the
affirmative vote of the holders of a majority of the shares entitled to be voted
at the Meeting. Approval of the proposal to adjourn the Meeting requires the
affirmative vote of a majority of the shares voted on such proposal.
4
<PAGE>
Voting Securities and Principal Holders Thereof
- - -----------------------------------------------
Stockholders of record as of the close of business on ___________, 1998
will be entitled to one vote for each share then held. As of that date, the Bank
had 408,865 shares of Bank Common Stock issued and outstanding.
The following table sets forth, as of ___________, 1998, certain
information as to those persons who were known by management to be beneficial
owners of more than five percent of the Bank Common Stock outstanding and as to
the shares of Bank Common Stock beneficially owned by all officers and directors
of the Bank as a group.
Shares Percent
Name and Address Beneficially of
of Beneficial Owner Owned Class
------------------- ------------ -------
Colin R. McMillan 119,271(1) 29.17%
300 North Pennsylvania Avenue
Roswell, New Mexico 88201
Edward K. David 35,885(2) 8.78
300 North Pennsylvania Avenue
Roswell, New Mexico 88201
All officers and directors of
the Bank as a group (12 persons) 180,420 44.13
- - ----------
(1) Includes shares held directly, as well as shares held by certain family
members of Mr. McMillan, over which he is deemed to have voting and
investment power. Also includes 2,773 and 3,236 shares of Bank Common Stock
held by the Permian Exploration Corporation Money Purchase Pension Plan and
the Permian Exploration Corporation 401(k) Profit-Sharing Plan and Trust,
respectively.
(2) Includes shares held directly, as well as shares held by certain family
members of Mr. David, over which he is deemed to have voting and investment
power. Also includes 8,155 shares of Bank Common Stock held by the Edward
Keith David Profit-Sharing Plan and Trust as well as 750 and 500 shares of
the Bank Common Stock held by the David Petroleum Corporation Pension Plan
and Trust and the David Petroleum Corporation Profit Sharing Plan and
Trust, respectively.
Board of Directors of the Bank
- - ------------------------------
The Bank's Board of Directors is presently composed of nine members.
Approximately one-third of the directors are elected annually. Directors of the
Bank are generally elected to serve for a three year period or until their
respective successors shall have been elected and shall qualify.
5
<PAGE>
The table below sets forth certain information regarding the composition of
the Bank's Board of Directors, including their terms of office.
<TABLE>
<CAPTION>
Shares of
Common Stock
Term Beneficially Percent
Positions Held in Director to Owned at of
Name Age the Bank Since Expire , 1998(1) Class
- - ------------------- --- -------------------------- -------- ------ ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Colin R. McMillan 62 Chairman of the Board 1992 1999 119,271(2) 29.17%
Albert Lake, Jr. 75 Director 1983 1999 4,239 1.04
Arturo Jurado 56 Director 1994 1999 1,300 .32
Edward K. David 64 Director 1981 2000 35,885 8.78
Larry Sheffield 40 Director 1995 2000 100 .32
Aubrey L. Dunn, Jr. 42 President, Chief Executive 1996 2000 125 .03
Officer and Director
Russell P. Weems 50 Director 1991 2001 370 .09
Garry Owen 69 Director 1967 2001 17,774 4.35
Judy A. Collins 44 Director 1994 2001 100 .02
</TABLE>
- - ----------
(1) Includes shares held directly, as well as shares held by certain family
members of the named individuals, over which such individuals may be deemed
to have sole voting and investment power.
(2) Includes shares held directly, as well as shares held by certain family
members of Mr. McMillan, over which he is deemed to have voting and
investment power. Also includes 2,773 and 3,236 shares of Bank Common Stock
held by the Permian Exploration Corporation Money Purchase Pension Plan and
the Permian Exploration Corporation 401(k) Profit-Sharing Plan and Trust,
respectively.
(3) Includes shares held directly, as well as shares held by certain family
members of Mr. David, over which he is deemed to have voting and investment
power. Also includes 8,155 shares of Bank Common Stock held by the Edward
Keith David Profit-Sharing Plan and Trust as well as 750 and 500 shares of
the Bank Common Stock held by the David Petroleum Corporation Pension Plan
and Trust and the David Petroleum Corporation Profit Sharing Plan and
Trust, respectively.
The business experience during the last five years of each of the directors
is set forth below. Each of the Directors of the Bank has been a director of the
Company since its incorporation in April, 1998. Aubrey L. Dunn, Jr (the Bank's
President and Chief Executive Officer) and Ronald D. Rogers (the Bank's Senior
Vice President, Chief Financial Officer and Secretary) became President and
Chief Executive Officer, and Senior Vice President, Treasurer and Secretary of
the Company, respectively, since the organization of the Company. See "The
Company -- Company Management."
Colin R. McMillan, age 62, has been Chairman of the Board of the Bank since
1993. He is Chairman of the Board and Chief Executive Officer of Permian
Exploration Corporation and McMillan Production Company, Roswell, New Mexico.
Albert Lake, Jr., age 75, has been a Director of the Bank since 1983. He is
a private investor located in Roswell, New Mexico.
Arturo Jurado, age 56, has been a Director of the Bank since 1994. He is
the President of Jurado Farms, Las Cruces, New Mexico.
Edward K. David, age 64, has been a Director of the Bank since 1981. He is
President of David Petroleum Corporation, Roswell, New Mexico.
6
<PAGE>
Larry Sheffield, age 40, has been a Director of the Bank since 1995. He is
the President of Sheffield Development, Las Cruces, New Mexico.
Aubrey L. Dunn, Jr., age 42, has been a Director and President of the Bank
since 1996. Mr. Dunn joined the Bank in 1995 as its Senior Vice President. From
1984 to 1995, he was employed by Western Bank, Alamogordo, New Mexico as its
Senior Vice President and Managing Officer.
Russell P. Weems, age 50, has been a Director of the Bank since 1991. He is
an Architect located in Roswell, New Mexico.
Garry Owen, age 69, has been a Director of the Bank since 1967. He is
private investor located in Roswell, New Mexico.
Judy A. Collins, age 44, has been a Director of the Bank since 1994. She is
the Deputy Superintendent for Business Affairs, Chief Financial and
Administrative Officer for New Mexico Military Institute located in Roswell, New
Mexico.
Executive Officers Who Are Not Directors
- - ----------------------------------------
The following information as to the business experience during the past
five years is provided with respect to the executive officers of the Bank who do
not serve on the Bank's Board of Directors.
Ronald D. Rogers, age 47, is Senior Vice President, Chief Financial Officer
and Secretary of the Bank, positions he has held since 1994. Prior to his
employment with the Bank, he was Vice President and Trust Operations Officer
with First National Bank of West Texas.
Joe S. Bullock, age 49, joined the Bank in 1996 and currently serves as its
Senior Vice President and Las Cruces Division President. Prior to his employment
with the Bank, he worked for ten years for SunWest Bank of Las Cruces.
Ronald J. Shettlesworth, age 47, joined the Bank in 1998 and currently
serves as its Chief Lending Officer. Mr. Shettlesworth has been involved in the
banking industry since 1972. Prior to joining the Bank, he worked for 16 years
as a executive officer for The Bank of New Mexico.
7
<PAGE>
Director Compensation
- - ---------------------
Directors' Fees. Directors receive fees of $1,000 per month for membership
on the Bank's Board of Directors. Additionally, each Board member was paid
$1,500 during fiscal 1997. No fees are paid for attendance at meetings of
committees appointed by the Board of Directors.
Executive Compensation
- - ----------------------
The following table shows the compensation paid or granted by First Federal
for services rendered during the periods indicated to the Chief Executive
Officer of the Bank during the year ended September 30, 1997. No other officer
of the Bank made in excess of $100,000 (salary and bonus) during fiscal 1997.
SUMMARY COMPENSATION TABLE(1)
Long Term
Compensation
------------
Annual Compensation Awards
- - ----------------------------------------------------- ------------
Other
Annual Securities
Compen- Underlying All Other
Name and Principal Salary(2) Bonus sation Options Compensation
Position Year ($) ($) ($) (#) ($)
- - ------------------- ---- --------- ------ ------- ------------ ------------
Aubrey L. Dunn, Jr. 1997 $101,826 $2,306 $ -0- -0- $ -0-
President, Chief
Executive Officer
and Director
- - ----------
(1) Information with respect to fiscal years prior to 1997 is not presented
since the Bank was not a reporting company under the Securities Exchange
Act of 1934, as amended, at that time.
(2) Includes salary and Board fees.
401(k) Profit Sharing Plan
- - --------------------------
The Bank maintains a tax-qualified defined contribution profit sharing plan
(the "401(k) Plan") for the benefit of its employees. Employees are eligible to
participate in the 401(k) Plan upon attaining age 21 and completing one year of
service with the Bank. Under the 401(k) Plan, employees may voluntarily elect to
defer up to 15% of their compensation, not to exceed applicable limits under
federal law. The Bank matches dollar-for-dollar the first 3% of an employee's
savings in the 401(k) Plan. Such matching contributions become 100% vested
following completion of six years of service with the Bank.
Additionally, the Bank may contribute an annual discretionary contribution
to the 401(k) Plan. Such benefits are allocated to participant accounts as a
percentage of base compensation of such participant to the base compensation of
all participants. At the end of each fiscal year, the Bank's
8
<PAGE>
Board of Directors determines whether to make a discretionary contribution and,
if so, the amount of such contribution.
Benefits under the 401(k) Plan are payable upon termination of employment,
retirement, death, disability, or termination of the 401(k) Plan. For fiscal
year ended September 30, 1997, the Bank contributed $68,111 to the 401(k) Plan.
Certain Transactions
- - --------------------
The Bank, like many financial institutions, has followed a policy of
granting loans to its officers, directors and employees for the financing of
their personal residences as well as home improvement, consumer loans, and loans
secured by savings accounts. These loans are made in the ordinary course of
business on substantially the same terms and collateral as those of comparable
transactions prevailing at the time, and do not involve more than the normal
risk of collectibility or present other unfavorable features. At September 30,
1997, all loans made by the Bank to directors, executive officers and their
associates totaled $333,379, or .02% of the Bank's stockholders' equity.
PROPOSAL I -- THE HOLDING COMPANY MERGER AND REORGANIZATION
The statements contained in this Proxy Statement/Prospectus with respect to
the terms and conditions of the Reorganization are subject to and qualified in
their entirety by the detailed provi sions of the Agreement attached hereto as
Appendix A.
Parties to the Agreement
- - ------------------------
First Federal is a federally-chartered capital stock savings bank. The
Company is a recently-formed business corporation chartered and organized under
the laws of the State of Delaware for the purpose of becoming a holding company.
See "The Company." New First Federal Savings Bank of New Mexico ("New Bank")
will be a newly-chartered federal interim savings bank organized by First
Federal and the Company solely for the purpose of implementing the proposed
Reorganization. New Bank has not conducted, and prior to the merger with First
Federal will not conduct, any business operations except in connection with the
Reorganization. Aubrey L. Dunn, Jr., President, Chief Executive Officer and
Director of the Bank, at the direction of the Board of Directors of the Bank,
acted as incorporator of the Company. In order to facilitate the Reorganization,
one share of Company Common Stock was issued to Mr. Dunn and will be redeemed
upon consummation of the Reorganization.
Reasons for the Reorganization
- - ------------------------------
The Board of Directors of First Federal has determined that the
Reorganization is in the best interests of its stockholders and, accordingly,
recommends that the stockholders vote FOR the Reorganization.
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The Reorganization and the formation of the Company as a thrift institution
holding company offer First Federal and the Company various potential
advantages, including broader investment opportunities than those available to a
savings association and increased organizational flexibility. Further, because
the Company will not be subject to certain regulatory capital requirements,
borrowing limitations and other restrictions applicable to First Federal, the
Company may have greater access to capital markets for financing the growth of
First Federal and possible future operating subsidiaries of the Company. A
holding company structure would permit the Bank to repurchase shares of Company
Common Stock without adverse tax consequences, should the Board of Directors
determine a repurchase program to be in the best interests of stockholders. As a
holding company, First Federal Bank of the Southwest, Inc. will be able to
diversify its financial services and business activities through the Company or
subsidiaries which it may establish in the future, without being restricted by
the 2% of assets limitation on investments in service corporations which is
generally applicable to federally-chartered thrift institutions.
Also, the Company could acquire other thrift or banking institutions
located in New Mexico (and in certain circumstances outside New Mexico) and, as
a multiple thrift institution holding company or bank holding company, operate
them as separate corporate entities. For example, an acquired thrift or banking
institution could retain its own directors, officers and corporate name as well
as having representation on the Company's Board of Directors. This ability to
offer more autonomous operations could be decisive in negotiations with
acquisition candidates. However, while management continuously studies potential
acquisition opportunities, there are no specific plans, understandings or
agreements relating to the acquisition of any other depository institution by
the Company, and management intends to concentrate its consideration of
potential acquisition opportunities primarily on situations where the Company
could remain as a unitary thrift institution holding company rather than a
multiple thrift institution holding company or bank holding company. There can
be no assurance that such acquisition opportunities will be available in the
future or, if available, will be on terms deemed advantageous to the Company.
The types of financial services and business activities currently permitted
to a multiple thrift institution holding company are not substantially broader
than those permitted to service corporations of federal thrift institutions. If,
after becoming a multiple thrift institutions holding company by acquiring and
holding as separate entities more than one insured thrift institution, the
Company in the future determines that a broader range of business activities is
desirable, it could, subject to tax, accounting and other considerations, merge
its insured thrift institution subsidiaries into a single insured institution
subsidiary and thereby have authority to engage in virtually any legal business
activity. This ability to diversify on a limited basis while acquiring other
institutions through a multiple thrift institution holding company structure, or
to have complete authority to diversify as a unitary thrift institution holding
company, is believed by the Board of Directors of First Federal to be a
substantial operating advantage of the holding company structure.
It is anticipated that (subject to the Company's financial condition) the
Company may purchase Bank Common Stock to provide capital to First Federal when
and if needed. If the Company were not formed, and First Federal sought
additional capital through the issuance of shares of Bank Common Stock,
stockholders desiring to avoid dilution of their percentage ownership of First
Federal would have to purchase additional shares of Bank Common Stock with their
personal funds. In contrast, such future infusions of capital may be made by the
Company, through funds available from borrowing or from the operations of other
subsidiaries which may be acquired by the Company in the future, without
affecting the percentage ownership of stockholders of the Company. See "The
Company -- Regulation."
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<PAGE>
In the opinion of management, a holding company will be in a better
position to respond competitively in a rapidly changing, financial environment.
Management and the Board of Directors believe that operating as a holding
company will serve the interests of the public and of First Federal's
stockholders, depositors and borrowers by improving its capabilities for service
in a highly competitive environment.
Description of the Transaction; Exchange Ratio
- - ----------------------------------------------
The Company, First Federal and New Bank have executed the Agreement
pursuant to which the Reorganization will be implemented. In accordance with the
Agreement, New Bank (which is being organized as a wholly owned subsidiary of
the Company) will be merged with and into First Federal, and all outstanding
shares of Bank Common Stock will be converted into an equal number of shares of
Company Common Stock. The existing stockholders of First Federal will, after the
Reorganization, own all of the outstanding shares of Company Common Stock in
lieu of their present ownership of shares of Bank Common Stock.
All of the assets and liabilities of First Federal and New Bank will become
assets and liabilities of the surviving entity, which will retain its present
home office and branch office locations and continue to carry on the business of
First Federal as a federally-chartered savings bank.
Federal Income Tax Consequences
- - -------------------------------
The Agreement provides that it is a condition to the proposed
Reorganization that, prior to the effective date of the Reorganization, First
Federal shall have received an opinion of its accountants, Ritter, Barr &
Company, 400 East College Boulevard, Roswell, New Mexico 88201, to the effect
that, for federal income tax purposes:
1. The Merger will constitute a reorganization within the meaning of
Section 368(a)(1)(A) and 368 (a)(2)(E) of the Internal Revenue Code of
1986, as amended (the "Code"). The reorganization will not be
disqualified by reason of the fact that stock of the Company is used
in the transaction (Section 368(a)(2)(E)of the Code). It will also not
be disqualified by the substitution of Company stock options for First
Federal Stock options as discussed in above (Rev. Rul. 70-269, 1970-1
C.B. 82). For purposes of this opinion, First Federal deposits with a
liquidation account interest do not constitute stock for purposes of
Section 368(c) of the Code. The Company, New Bank, and First Federal
will each be a "part to a reorganization" within the meaning of
Section 368(b) of the Code.
2. No gain or loss will be recognized to New Bank on the transfer of
substantially all of its assets to First Federal (Section 361(a) of
the Code).
3. No gain or loss will be recognized to First Federal on the receipt by
First Federal of substantially all of the assets of New Bank in
exchange for First Federal Stock (Section 1032(a) of the Code).
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<PAGE>
4. First Federal's basis in each New Bank asset received in the
transaction will be the same as the basis of those assets in the hands
of New Bank immediately prior to the transaction (Section 362(b) of
the Code.)
5. First Federal's holding period in each New Bank asset will include the
period during which New Bank held such asset (Section 1223(2) of the
Code).
6. No gain or loss will be recognized by Company upon receipt of First
Federal Common Stock (Section 354(a)(1) of the Code).
7. No gain or loss will be recognized by the shareholders of First
Federal on the exchange of their First Federal Common Stock solely for
an identical number of shares of Company Common Stock (Section
354(a)(1) of the Code).
8. Each First Federal shareholder's basis in the Company Common Stock
received in the transaction will be the same as their basis in their
First Federal Common Stock surrendered in the transaction (Section
358(a)(1) of the Code).
9. The holding period of the Company Common Stock received by a First
Federal common shareholder in exchange for the transfer of First
Federal Common Stock will include the period during which the First
Federal Common Stock surrendered in exchange therefor was held,
provided that the First Federal Common Stock was held as a capital
asset on the date of the exchange (Section 1223(1) of the Code).
10. The net operating loss of First Federal, if any, will not be reduced
or eliminated by reason of the proposed reorganization under Section
382 of the Code.
Any stockholder of the Bank who dissents and perfects appraisal rights as
described under "Rights of Dissenting Stockholders" and is paid cash for his
shares of Bank Common Stock may recognize gain or loss for federal income tax
purposes. Stockholders of the Bank who dissent and seek appraisal rights should
consult their own advisors for answers to individual questions regarding the
taxation of cash received in lieu of shares.
Rights of Dissenting Stockholders
- - ---------------------------------
If the reorganization is approved by the required vote at the Meeting and
is consummated, any record holder of the Bank's Common stock may require the
Bank to pay the fair or appraised value of his or her Common Stock, determined
as of the effective date of the Merger (the "Effective Date"), by complying with
Section 552.14 of the OTS Rules and Regulations. The computation of fair or
appraised value will exclude any element of value arising from the
accomplishment or expectation of the Reorganization.
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<PAGE>
To perfect the rights of a dissenting stockholder, a holder of Common Stock
must:
(1) deliver to First Federal, before voting on the Reorganization, a
writing identifying himself or herself and stating his or her
intention thereby to demand appraisal of and payment for his or her
shares (this demand must be in addition to and separate from any proxy
or vote against the Reorganization by the stockholder); and
(2) not vote in favor of the proposed Reorganization.
Any holder of Common Stock of First Federal who fails to comply with the
detailed procedures set forth in Section 552.14 may be bound by the terms of the
Reorganization. Neither a vote against the approval of the Reorganization nor
the giving of a proxy directing a negative vote will be sufficient to meet the
requirement described in clause (1) above. Further, because a proxy signed and
left blank will, unless revoked, be voted FOR approval of the Reorganization, a
stockholder electing to exercise rights as a dissenting stockholder who votes by
proxy must not leave his proxy blank, but must vote AGAINST approval of the
Reorganization or ABSTAIN from voting.
Within ten days after the effective date of the Reorganization, First
Federal must mail to each stockholder who has complied with the provisions of
Section 552.14 written notice of the Effective Date of the Reorganization and
make an offer to pay for his or her Common Stock at a price deemed by First
Federal to be the fair value of such stock.
If within 60 days after the Effective Date of the Reorganization, First
Federal and any such stockholder do not agree as to the fair value, the
stockholder may then file a petition with the OTS, with a copy sent by
registered or certified mail to First Federal, demanding a determination of the
fair market value of the Common Stock held by such stockholder. A stockholder
who fails to file such petition within the 60-day period is deemed to have
accepted the terms offered in the Reorganization. However, if within 60 days of
the Effective Date the fair value is agreed upon between First Federal and any
dissenting stockholder who has complied with the procedures set forth in Section
552.14, payment therefor shall be made within 90 days of the Effective Date.
Within such 60-day period, each stockholder demanding appraisal and payment
for his Common Stock must submit to First Federal his or her Common Stock
certificates for notation thereon that he or she is exercising his or her
appraisal rights. Any stockholder who fails to submit his or her certificates
for such notation will no longer be entitled to the appraisal rights and will be
deemed to have accepted the terms of the Reorganization.
The OTS will then, in the prescribed manner, appraise the Common Stock to
determine its fair market value as of the Effective Date of the Reorganization,
and will direct payment of the appraised fair market value. Payment will then be
made, with interest from the Effective Date, at a rate deemed equitable by the
OTS.
The cost and expenses of any proceedings in respect of the exercise of
dissenter or appraisal rights may be apportioned and assessed by the OTS as it
may deem equitable against all or some of the parties. Any stockholder who has
demanded appraisal rights shall thereafter not be entitled to vote such stock
for any purpose nor be entitled to the payment of dividends or other
distributions on the stock, unless such stockholder withdraws his demand for
appraisal rights.
At any time within 60 days after the Effective Date, any stockholder may
withdraw his demand for appraisal and accept the terms of the Agreement.
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<PAGE>
The foregoing summary does not purport to be a complete statement of the
provisions of the federal regulation relating to rights of dissenting
stockholders, and is qualified in its entirety by reference to such regulation,
a copy of which is attached hereto as Appendix C. Failure by a stockholder to
follow the steps required by the federal regulation for perfecting rights as a
dissenting stockholder may result in a loss of such rights. Stockholders'
notices of intent to demand appraisal of all payment for their shares should be
sent to: Ronald D. Rogers, Secretary of the Bank, 300 North Pennsylvania Avenue,
Roswell, New Mexico 88201.
In addition, if the Bank should abandon its plans to consummate the
Reorganization, the right of a dissenting stockholder to be paid the fair value
of his shares shall cease. In the event that the holders of more than 10% of the
Bank's Common Stock perfect their rights to appraisal, the Bank may determine
not to consummate the Reorganization. See "-- Amendment or Termination."
Conditions to the Reorganization
- - --------------------------------
The consummation of the Reorganization is conditioned upon, among other
things: (i) approval by the OTS and the stockholders of First Federal; and (ii)
the receipt of a favorable opinion of accountants with respect to the matters
summarized above under the caption "-- Federal Income Tax Consequences." It is
contemplated that these conditions will be complied with before consummation of
the Reorganization. See "--Effective Date of the Reorganization," below.
However, the Agreement provides that First Federal, the Company and New Bank,
without approval of their stockholders, may waive any of the conditions (other
than the necessary approvals of stockholders and government authorities) to
their respective obligations to consummate the Reorganization.
Except with the specific approval of its stockholders, First Federal will
not, subsequent to the approval of the Reorganization by First Federal's
stockholders, waive any condition to the Reorganization set forth in the Merger
Agreement if, in the judgment of its Board of Directors, such waiver would be
materially adverse to First Federal or its stockholders.
An application has been filed with the OTS for approval of the proposed
Reorganization, including notification of the Bank's intent to pay a dividend to
the Company in the amount of $200,000 for the quarter ending prior to
consummation of the Reorganization. It is anticipated, although there can be no
assurance, that final approval by the OTS will be received before approval of
the Reorganization by First Federal's stockholders. By approving the
Reorganization, the stockholders will be approving compliance by First Federal
and the Company with any condition which may be imposed by the OTS in connection
with its approval of the Reorganization and which is not deemed by First Federal
to be materially adverse to First Federal or its stockholders.
Amendment or Termination
- - ------------------------
First Federal, the Company and New Bank, by mutual consent of their
respective Boards of Directors and to the extent permitted by law, may amend the
Agreement pursuant to which the Reorganization will be implemented at any time
before or after approval of the Agreement by their respective stockholders, but
no amendment which would have a materially adverse impact on First Federal or
its stockholders may be implemented unless approval of the stockholders is first
obtained.
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<PAGE>
The Agreement also provides that it may be terminated and the
Reorganization abandoned at any time prior to the effective date by: (i) mutual
consent of the parties to the Agreement; (ii) specified parties to the Agreement
if certain conditions to the consummation of Reorganization are not satisfied or
waived; or (iii) by the Bank if holders of more than 10% of the Bank's
outstanding stock perfect their appraisal rights in connection with the
Reorganization. The rights of the parties to the Agreement to terminate it are
set forth in detail under Article X thereof. In the event of such termination,
First Federal will pay the fees and expenses incurred in connection with the
Agreement and the proposed Reorganization.
Effective Date of the Reorganization
- - ------------------------------------
The Effective Date shall be the day on which the Articles of Combination
(as required pursuant to the Rules and Regulations of the OTS) are executed by
the OTS. The Boards of Directors of the Bank, New Bank and the Company each
specifically and expressly delegate to their respective chief executive officers
the authority to change, by mutual consent of such officers, the Effective Date
if necessary to properly and efficiently accomplish the Merger. However, in no
event shall the Merger become effective unless and until approved by the OTS.
Exchange of Stock Certificates Not Required
- - -------------------------------------------
The holders of Bank Common Stock will be notified of the consummation of
the Reorganization. After the Reorganization is consummated, the former
stockholders of the Bank may forward to First Federal Bank of the Southwest,
Inc., 300 North Pennsylvania Avenue, Roswell, New Mexico 88201 (which will be
the transfer agent and registrar for the shares of Company Common Stock) stock
certificates theretofore evidencing Bank Common Stock for surrender and exchange
for certificates representing Company Common Stock. THERE IS NO REQUIREMENT THAT
SUCH SURRENDER AND EXCHANGE BE MADE AND, UNTIL SO SURRENDERED TO THE TRANSFER
AGENT AND REGISTRAR, CERTIFICATES FORMERLY REPRESENTING BANK COMMON STOCK WILL
BE DEEMED FOR ALL CORPORATE PURPOSES TO EVIDENCE THE NUMBER OF SHARES OF COMPANY
COMMON STOCK WHICH THE HOLDER THEREOF WOULD BE ENTITLED TO RECEIVE UPON
SURRENDER.
Operations After the Reorganization
- - -----------------------------------
After the Reorganization is consummated, the Bank will continue to conduct
its business substantially as it is now being conducted, except that the Bank
will be a wholly owned subsidiary of the Company. The Reorganization will not
result in a change in the Bank's directors, officers or personnel. For
information with respect to the management of the Company, see "The Company --
Company Management." After consummation of the Reorganization, the Bank will be
subject to regulation and supervision by regulatory authorities to the same
extent as it is now. See "-- Comparison of Stockholder Rights -- Reports to
Stockholders." For information with respect to the supervision and regulation of
the Company, see "The Company -- Regulation."
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<PAGE>
Accounting Treatment
- - --------------------
For accounting purposes, the assets, liabilities and stockholders' equity
of First Federal immediately prior to the Reorganization will be carried forward
on the financial statements of First Federal and the Company after the
Reorganization at the amounts carried on their respective books at the effective
date of the Reorganization.
Stock Option and Incentive Plan
- - -------------------------------
The Company will assume and continue First Federal's 1995 Employees' Stock
Option Plan, as amended (the "Stock Option Plan"). Holders of options granted or
to be granted under the Stock Option Plan will, following the effectiveness of
the Reorganization, be entitled to purchase a number of shares of Company Common
Stock equal to the number of shares of Bank Common Stock such holder would have
been entitled to purchase immediately prior to the effective date of the
Reorganization, upon the same terms and conditions as under such Stock Option
Plan and the option agreements relating thereto in effect immediately prior to
the Reorganization. The Company will also have the right to grant options as and
to the extent provided by the Stock Option Plan.
A vote in favor of the Reorganization will constitute a vote in favor of
the assumption of the Stock Option Plan by the Company.
Comparison of Stockholder Rights
- - --------------------------------
Various features of the Certificate of Incorporation and Bylaws of the
Company differ from those of the Bank. The following discussion does not purport
to be a complete statement of such differences but summarizes the differences
that are deemed by the Bank to be material. For additional information,
reference is made to "The Company" and other information contained else where in
this Proxy Statement/Prospectus, to the Certificate of Incorporation of the
Company attached as Appendix B to this Proxy Statement, and to the Bylaws of the
Company and the Charter and Bylaws of the Bank which may be obtained by
stockholders upon written request to the Secretary, First Federal Savings Bank
of New Mexico, 300 North Pennsylvania Avenue, Roswell, New Mexico 88201.
Choice of Delaware Law. For many years Delaware has followed a policy of
encouraging incorporation in that state. In furtherance of that policy, it has
adopted comprehensive, modern and flexible corporate laws which are periodically
updated and revised to meet changing business needs. As a result, many major
corporations, including a number of the largest and most success ful
enterprises, choose Delaware for their domicile. Because of Delaware's
significance as the state of incorporation for many major domestic corporations,
the Delaware judiciary has become particularly familiar with matters of
corporate law and a substantial body of court decisions has developed construing
Delaware law. As a consequence, Delaware corporate law has been interpreted and
explained in a number of significant court decisions, which may provide greater
predictability with respect to the Company's corporate legal affairs.
Issuance of Additional Capital Stock. The Bank has 499,422 shares of
authorized common stock, of which 408,865 shares were issued and outstanding as
of ___________, 1998. Under the Bank's Charter, no shares of capital stock may
be issued, unless their issuance or the plan under which they would be issued
receives stockholder approval, directly or indirectly to officers, directors or
controlling persons of the Bank other than as part of a general public offering
or as qualifying shares to a director. Stockholder approval under the Bank's
Charter would require the affirmative vote of a majority of the total votes
eligible to be cast.
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The Company's Certificate of Incorporation authorizes 1,000,000 shares of
common stock, which may generally be issued by action of the Board of Directors
without stockholder approval.
Amendment of Governing Instruments. Amendments to the Bank's Charter must
be preliminarily approved by the OTS, and the Bank's Bylaw amendments are
required to be consistent with OTS regulations governing permitted Bylaw
provisions. Amendments to the Company's Certificate of Incorporation and Bylaws
are not subject to OTS approval.
Transactions With Affiliates. The Bank, as a federally-insured savings
bank, is subject to certain restrictions, limitations, conditions and
prohibitions with respect to transactions with directors, officers and
affiliated persons. These include, but are not limited to, limitations upon
deposit relationships, loan services, loan procurements, and restrictions on
loans and investments. These requirements and restrictions will continue to
apply to the Bank following the Reorganization.
Under Delaware law, no contract or transaction between a corporation and
one or more of its directors or between a corporation and another organization
in which one or more of its directors is a director or officer or is financially
interested shall be void or voidable solely for this reason, provided that the
material facts of the relationship of the party to the transaction are disclosed
and the contract or transaction is authorized by a majority of the disinterested
directors or by a majority of the stockholders entitled to vote or, at the time
of such authorization, the contract or transaction was fair and reasonable to
the corporation.
Additionally, the Company is subject to certain federal regulations
relating to transactions between an insured thrift institution and their holding
company. See "The Company -- Regulation."
Number of Directors. First Federal's Charter sets the number of directors
at a minimum of seven, while the Company's Certificate of Incorporation provides
that the number of directors shall be fixed by the Board of Directors pursuant
to a resolution adopted by a majority of the whole board. Under Delaware law,
the Company must have at least one director, but no maximum number is specified.
Appraisal Rights. Holders of the Bank's Common Stock have certain dissenter
and appraisal rights for certain mergers, consolidations or sales of assets,
including the right to demand payment of the fair or appraised value of their
shares. These rights do not apply to certain transactions (such as the proposed
Reorganization) if the Bank's Common Stock is listed on a national securities
exchange or quoted on the Nasdaq National Market and stockholders are required
to accept only "qualified" consideration (i.e., cash and/or stock listed on a
national securities exchange or quoted on the Nasdaq National Market). The
Company's common stock will not be listed on the Nasdaq National Market.
Holders of the Company Common Stock would have generally similar dissenter
and appraisal rights for any plan of corporate merger or consolidation. Delaware
law provides that unless the certificate of incorporation of the corporation
otherwise provides, no appraisal rights are accorded
17
<PAGE>
to stockholders of any corporation involved in a merger or consolidation if
their stock is registered on a national securities exchange or held of record by
more than 2,000 stockholders or to stockholders of a constituent corporation
surviving a merger if the merger does not require the approval of such
stockholders, except that appraisal rights are provided to stockholders of a
constituent corporation if they are required to accept as consideration anything
other than (i) stock of the surviving or resulting corporation, (ii) stock
registered on a national exchange or held of record by more than 2,000
stockholders, (iii) cash in lieu of fractional shares, or (iv) any combination
of cash and stock of the types described in the foregoing clauses (i) and (ii).
(If all the shares of Bank Common Stock are converted into Company shares and
continue to be held of record as at present, it is expected that there will be
approximately 273 record holders of the Company Common Stock immediately
following the Reorganization.) However, under Delaware law these dissenter and
appraisal rights do not exist with respect to sale of assets transactions.
Reports to Stockholders. First Federal is required to transmit proxy
material and annual reports containing financial statements to its stockholders.
Following the Reorganization, these obligations will be assumed by the Company.
Although the Company Common Stock has been registered under the Securities Act,
it is the Company's intent to de-register immediately with the SEC following the
effectiveness of the Reorganization.
Liability and Indemnification of Directors, Officers and Employees. Federal
regulations require the indemnification of certain costs and expenses and
judgment liability for any action brought or threatened by reason of the fact
that a person is or was a director, officer or employee of the Bank. Such
indemnification is authorized, subject to certain conditions and limitations,
including the requirement that such action results in either a final judgment on
the merits in favor of the indemnitee or a judgment not on the merits or
settlement as to which the majority of the Board of Directors determines that
such indemnitee was acting in good faith within what he or she was reasonably
entitled to believe, under the circumstances, was within the scope of his or her
employment or authority and was acting for a purpose that he or she was
reasonably entitled to believe, under the circumstances, was in the best
interests of the Bank or its stockholders and after notice to, and without
objection by, the OTS. The Bank has insurance to protect its officers,
directors, employees and the Bank itself from potential liability expenses and
other costs arising from such claims. No such insurance, however, may be
provided for losses incurred as a consequence of willful or criminal conduct.
Delaware law provides corporations with broad indemnification powers. Such
powers include the ability to provide forms of indemnification in addition to
the type of indemnification set forth in the Delaware statute. The Certificate
of Incorporation of the Company authorizes rights of indemnification that are
broader than those applicable to the Bank and do not require any notice or right
of objection to be afforded the OTS. The Company's Certificate of Incorporation
provides that a director, officer, employee or agent of the Company or any
person serving in such capacity at the request of the Company shall be
indemnified by the Company from and against expenses, judgments, fines,
settlements and other amounts actually and reasonably incurred in connection
with a threatened, pending or completed suit or proceeding, including a
proceeding by or on behalf of the Company, in which such person is involved due
to such person's position with the Company, provided that a determination has
been made that such person acted in good faith and in a manner that such person
reasonably believed to be in, or not opposed to, the best interests of the
Company and in the case of a criminal proceeding, such person had no reason to
believe his or her conduct was unlawful. The
18
<PAGE>
determination that indemnification is proper shall be made by a majority vote of
a quorum of directors who were not parties to such proceedings, or if a quorum
cannot be obtained or such a quorum so directs, by a written opinion of
independent legal counsel or by stockholders. Expenses incurred in defending or
investigating a threatened or pending suit or proceeding may be paid by the
Company in advance of the final disposition of such suit or proceeding upon
receipt of an undertaking by or on behalf of such person to repay such amount if
it shall ultimately be determined that he or she is not entitled to
indemnification by the Company.
The Company intends to purchase insurance (if available) to protect its
officers, directors and employees. If the Company does not, or is not able to,
purchase such insurance, or to the extent that such insurance is inadequate, the
Company will be required to fund any amount that may ultimately be paid under
the indemnification provision. The Board of Directors of the Company has not
considered whether the Company will enter into indemnification agreements with
its directors. Notwithstanding the foregoing, indemnification for liability
under the federal securities laws may be considered void as against public
policy. The provisions in the Certificate of Incorporation regarding
indemnification and limitation of liability may only be amended or repealed by
the affirmative vote of the holders of 75 percent of the votes eligible to be
cast at a legal meeting of stockholders.
Under Delaware law, each director owes certain fiduciary duties to the
corporation and to its stockholders. These duties include a duty of loyalty and
a duty of care. Applicable decisional law requires not only that a director
refrain from fraud, bad faith, self-dealing and transactions involving material
conflicts of interest (the duty of loyalty), but also that the director exercise
his or her business judgment on an informed basis (the duty of care). Delaware
law permits the inclusion in the certificate of incorporation of a Delaware
corporation of a provision limiting or eliminating the potential monetary
liability of directors to the corporation or its stockholders by reason of any
failure to perform their fiduciary duty as directors, subject to certain
important exceptions which are reflected in Article Eleventh of the Company's
Certificate of Incorporation and discussed below. Subject to these exceptions,
this section would relieve directors (but not officers) from such personal
liability, including liability for any breach of the duty of care which involves
gross negligence in the performance of such duty in the various contexts in
which directors are called upon to act, including consideration of proposed
mergers or other business combinations.
As provided in the Delaware statute, the Company's Certificate of
Incorporation eliminates a director's personal liability to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Company or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit. This provision
does not affect the availability of equitable remedies, such as an injunction or
rescission, for a breach of fiduciary duty.
The Bank has not received notice of any suit or proceeding as to which this
provision could have the effect of reducing the likelihood of derivative
litigation against directors in the future. This proposition also may discourage
or deter stockholders from bringing a lawsuit against directors for breach of
their fiduciary duty or gross negligence even though such an action, if
successful, might result in a judgment in favor of the Company and its
stockholders.
19
<PAGE>
Since these provisions limit the potential liability of directors and
provide for indemnification of directors, and the Certificate of Incorporation
requires a 75 percent vote of the total votes eligible to be cast by
stockholders to amend, alter or repeal these provisions, it should be noted that
the Board of Directors has an interest in and may benefit from these provisions.
The Board is nevertheless of the view that the advantages of these provisions in
encouraging qualified persons to serve and to exercise their best judgment
without concern for personal monetary liability significantly outweigh the
potential disadvantages.
Voting Rights. All voting rights are vested in the holders of Bank Common
Stock, each share being entitled to one vote. Upon the Reorganization, holders
of Company Common Stock will have the same voting rights. The Bank's Charter
permits cumulative voting for the election of directors. The Company's
Certificate of Incorporation does not permit cumulative voting.
The Bank may, in general, effect a merger or consolidation or sale of all
or substantially all of its assets, if approved by the holders of two-thirds (or
a majority in the case of certain transactions with an interim institution) of
the outstanding Bank Common Stock. Under Delaware law, the Company will be able
to merge or consolidate with other corporations, or sell all or substantially
all of its assets, with the approval of the holders of a majority of its
outstanding Common Stock.
The Company Common Stock, like that of First Federal, has no redemption,
sinking fund or conversion privileges, and will be fully paid and
non-assessable.
Legal Investments. Under the laws of some jurisdictions, shares of Company
Common Stock may not be legal investments for certain institutions and
fiduciaries, whereas shares of Bank Common Stock are more likely to be. For
example, under the laws of some jurisdictions, certain pension funds may not be
permitted to invest in common stock or other securities of thrift institution
holding companies. Stockholders of the Bank should consult their personal
advisors or plan administrators regarding the permissibility under state law of
investment in the Company Common Stock.
Continuation of Certain Provisions. The Company's Certificate of
Incorporation will continue certain provisions already contained in the Bank's
Charter or Bylaws. Certain of these provisions, including those (a) providing
for a classified Board of Directors, or (b) restricting removal of directors,
could be deemed to have an anti-takeover effect and to render more difficult the
removal of management. As described elsewhere in this Proxy
Statement/Prospectus, the Bank's Stock Option Plan would also provide or
accelerate benefits in certain events involving a change of control or takeover
attempt.
Certain regulatory provisions may also have a takeover defensive effect.
OTS regulations generally require persons who intend to acquire control of a
federally-insured capital stock savings institution to give 60-days' prior
written notice to the OTS. OTS regulations also require prior OTS approval
before any company may acquire control of savings institution. See "The Company
- - -- Regulation."
20
<PAGE>
Limitations on Action by Stockholders. Under the Bank's Charter and Bylaws,
special meetings may be called upon the written request of the holders of not
less than one-tenth of all the outstanding capital stock of the Bank entitled to
vote at the meeting. Under Delaware law, special meetings of stockholders may be
called only by the board of directors or by any other person authorized to do so
in the certificate of incorporation or bylaws. The Certificate of Incorporation
of the Company provides that a special meeting of stockholders may be called
only by a majority of the Board of Directors.
The stockholders of the Bank may presently take action without a meeting
with the written consent of all the holders of the common stock entitled to vote
on such matters approving such action. The Certificate of Incorporation of the
Company provides that its stockholders may act only at an annual or special
meeting.
Amendment to Certificate of Incorporation and Bylaws. Amendments to the
Company's Certificate of Incorporation must be approved by the Company's Board
of Directors and also by a majority of the outstanding shares of the Company's
voting stock, provided, however, that approval by at least 75 percent 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; director
liability; 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 75 percent of the total votes eligible to be
voted at a duly constituted meeting of stockholders.
Purpose and Takeover Defensive Effects of the Company's Certificate of
Incorporation and Bylaws. The Board of Directors of the Bank believes that the
provisions described above are prudent and will reduce the Company's
vulnerability to takeover attempts and certain other transactions which have not
been negotiated with and approved by its Board of Directors. The Board of
Directors believes these provisions are in the best interest of the Bank and of
the Company and its stockholders. In the judgment of the Board of Directors, the
Company's Board will be in the best position to determine the true value of the
Company and to negotiate more effectively for what may be in the best interests
of its stockholders. Accordingly, the Board of Directors believes that it is in
the best interests of the Company and its stockholders to encourage potential
acquirors to negotiate directly with the Board of Directors of the Company and
that these provisions will encourage such negotiations and discourage hostile
takeover attempts. It is also the view of the Board of Directors that these
provisions should not discourage persons from proposing a merger or other
transaction at prices reflective of the true value of the Company and which is
in the best interests of all stockholders.
Attempts to take over financial institutions and their holding companies
have become increasingly common. Takeover attempts which have not been
negotiated with and approved by the Board of Directors present to stockholders
the risk of a takeover on terms which may be less favorable than might otherwise
be available. A transaction which is negotiated and approved by the Board of
Directors, on the other hand, can be carefully planned and undertaken at an
opportune time in order to obtain maximum value for the Company and its
stockholders, with due consideration given to matters such as the management and
business of the acquiring corporation and maximum strategic development of the
Company's assets.
21
<PAGE>
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.
Despite the belief of the Bank and the Company as to the benefits to
stockholders of these provisions of the Company's Certificate of Incorporation
and bylaws, these provisions may also have the effect of discouraging a future
takeover attempt which would not be approved by the Company's Board, but
pursuant to which stockholders may receive a substantial premium for their
shares over then current market prices. As a result, these provisions may
prevent stockholders who might desire to participate in such a transaction from
doing so even if such transaction is favored by a majority of the Company's
stockholders. Such provisions will also render the removal of the Company's
Board of Directors and of management more difficult. The Boards of Directors of
the Bank and the Company, however, have concluded that the potential benefits
outweigh the possible disadvantages.
Pursuant to applicable law, at any annual or special meeting of its
stockholders, the Company may adopt additional charter provisions regarding the
acquisition of its equity securities that would be permitted to a Delaware
corporation. The Company and the Bank do not presently intend to propose the
adoption of further restrictions on the acquisition of the Company's equity
securities.
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 Company, are prohibited from completing a
hostile takeover of such corporation for three years. However, the takeover can
be completed if (i) the buyer, while acquiring the 15% interest, acquires at
least 85% of the corporation's outstanding stock (the 85% requirement excludes
shares held by directors who are also officers and certain shares held under
employee stock plans), or (ii) the takeover is approved by the target
corporation's board of directors and two-thirds of the shares of outstanding
stock of the corporation (excluding shares held by the bidder).
However, these provisions of the DGCL do not apply to Delaware corporations
with less than 2,000 stockholders or which do not have voting stock listed on a
national exchange or listed for quotation with a registered national securities
association. If this statute were applicable to the Company, the Company could
exempt itself from the requirements of the statute by adopting an amendment to
its Certificate of Incorporation or Bylaws electing not to be governed by this
provision. At the present time, the Board of Directors does not intend to
propose any such amendment.
Federal Regulation. 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 except upon application and 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 Bank Insurance Fund and
holding companies thereof.
22
<PAGE>
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 the savings
association's directors, or a determination by the OTS that the acquiror has the
power to direct, or directly or indirectly to exercise a controlling influence
over, the management or policies of the institution. Acquisition of more than
10% of any class of a savings association's voting stock, if the acquiror also
is subject to any one of eight "control factors," constitutes a rebuttable
determination of control under the 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
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. 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. Colin R. McMillan,
the Chairman of the Board of the Bank, controls more that 25% of the Bank's
Common Stock. See "General Information -- Voting Securities and Principal
Holders Thereof."
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE APPROVAL
OF THE PROPOSED HOLDING COMPANY REORGANIZATION.
PROPOSAL II -- ADJOURNMENT OF THE SPECIAL MEETING
The Bank is asking stockholders to consider and approve a proposal at the
Meeting which would allow the Bank to adjourn the Meeting in the event that
sufficient votes are not received to approve the Agreement. If approved, this
proposal will permit the Bank to adjourn the Meeting in order to further solicit
proxies for approval of the Agreement in the event that such proposal does not
receive sufficient votes for its adoption. Any such adjournment will be
conducted in accordance with regulations of the OTS regarding notice and other
requirements.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE APPROVAL
OF THE PROPOSAL TO ADJOURN THE MEETING.
23
<PAGE>
FINANCIAL STATEMENTS
The audited financial statements of the Bank as of September 30, 1997 and
1996 and for each of the two years in the period ended September 30, 1997,
prepared in conformity with generally accepted accounting principles, are
included in the Annual Report to Stockholders which was previously provided to
all of the Bank's stockholders. A copy of the Bank's Annual Report to
Stockholders for the fiscal year ended September 30, 1997 is attached hereto as
Appendix D. Any stockholder which would like to receive an additional copy of
the Bank's Annual Report to Stockholders for the fiscal year ended September 30,
1997, may do so by making a written request to Ronald D. Rogers, Secretary of
the Bank, 300 North Pennsylvania Avenue, Roswell, New Mexico 88201.
No financial statements of the Company are presented in this Proxy
Statement/Prospectus, as the Company currently has no significant assets or
liabilities. In addition, no pro forma consolidated financial statements of the
Company are included herein since such statements would reflect no material
differences from the consolidated financial statements of the Bank.
THE BANK
The Bank was originally chartered in 1920 as a mutual savings and loan
association. In July 1979, the Bank converted from mutual to stock form of
ownership with the sale and issuance of 394,800 shares of capital stock. In
February 1983, the Bank converted from a New Mexico chartered savings
association to a federally chartered savings bank under its current name. In
June 1993, the Bank acquired through merger Mutual Building and Loan
Association, F.A., Las Cruces, New Mexico.
The Bank's primary business is the promotion of thrift through the
solicitation of deposits from the general public, and the promotion of home
ownership through the origination of mortgage loans primarily to finance the
purchase, construction, or improvement of residential real estate as well as
commercial and consumer loans.
The Bank is from time to time, a party to certain legal proceedings arising
in the ordinary course of its business. The Bank believes that none of these
proceedings would, if adversely determined, have a material adverse effect on
its financial condition.
For a further description of the operations of the Bank, its properties and
market price information, see the Annual Report to Stockholders for the fiscal
year ended September 30, 1997, attached hereto as Appendix D.
THE COMPANY
General
- - -------
The Company was incorporated under the laws of Delaware in April, 1998 at
the direction of the Board of Directors of the Bank for the purpose of serving
as a holding company for the Bank. The Company will be the sole stockholder of
New Bank, an interim savings bank subsidiary which is being organized for the
purpose of facilitating the proposed Reorganization. Until the Effective Date,
New Bank will not conduct any operations or business. On the Effective Date, it
will be merged into the Bank and the resulting institution will continue the
operations and business of the Bank without interruption.
24
<PAGE>
The Company's executive offices are located at 300 North Pennsylvania
Avenue, Roswell, New Mexico 88201, and its telephone number is (505) 622-6201.
Regulation
- - ----------
The Company will become a unitary savings and loan holding company subject
to regulatory oversight by the OTS. As such, the Company is required to register
and file reports with the OTS and is subject to regulation and examination by
the OTS. In addition, the OTS has enforcement authority over the 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 Company generally is not
subject to activity restrictions. If the Company acquires control of another
savings association as a separate subsidiary, it would become a multiple savings
and loan holding company, and the activities of the Company and any of its
subsidiaries (other than the Bank or any other SAIF-insured savings association)
would become subject to such restrictions unless such other associations each
qualify as a Qualified Thrift Lender ("QTL") and were acquired in a supervisory
acquisition.
If the Bank fails the QTL test, the 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 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.
Should the Bank fail to meet its minimum regulatory capital requirements,
the Company will be required to execute a limited capital guarantee in
connection with the filing of a capital restoration plan by the Bank. Such a
guarantee would expire only after the OTS notifies the Bank that it has remained
adequately capitalized for each of four consecutive calendar quarters.
The Bank is subject to Sections 23A and 23B of the Federal Reserve Act
which govern transactions between savings banks and their affiliates, which
includes the Company. Section 23A limits the extent to which a savings and loan
association or its subsidiaries may engage in covered transactions with an
affiliate to an amount equal to 10% of the savings bank's capital and surplus
for each transaction, with an aggregate limit on all such transactions with
affiliates of 20% of capital and surplus, and imposes certain collateral
requirements with respect to such transactions. Section 23B requires that all
such transactions be on terms substantially the same or at least as favorable to
the savings and loan association as those that would be provided to a
non-affiliate. A "covered transaction" includes the making of loans, the
purchase and sale of assets, the issuance of guarantees and other similar
transactions.
The Company must obtain approval from the OTS before acquiring control of
any other SAIF-insured association. Such acquisitions are generally prohibited
if they result in a multiple savings and loan holding company controlling
savings associations in more than one state. However, such interstate
acquisitions are permitted based on specific state authorization or in a
supervisory acquisition of a failing savings association.
25
<PAGE>
Federal and State Taxation
- - --------------------------
After the consummation of the Reorganization, the Company and the Bank
intend to file consolidated federal and state income tax returns which would
have the effect of eliminating intercompany distributions, including dividends,
in the computation of the consolidated taxable income. Any income of the Company
would not be subject to the special bad debt deduction allowed the Bank, whether
or not consolidated tax returns are filed.
Restrictions on Resale of Company Stock Received by Certain Persons
- - -------------------------------------------------------------------
No present market exists for the Bank Common Stock and it is presently
exempt from the registration requirements of the Securities Act. The Bank Common
Stock currently has no public market and there will be no public market for the
Company Common Stock following the Reorganization. In addition, there can be no
assurance that a public market will develop for the Company Common Stock.
Although the Company Common Stock has been registered under the Securities Act,
the Company intends to immediately de-register with the SEC upon completion of
the Reorganization in order to avoid the expense of ongoing reporting
obligations. Rule 144 of the General Rules and Regulations under the Securities
Act (which permits public resales of unregistered stock under certain conditions
after a one-year holding period by the seller if there is available current
public information concerning the issuer) will not be available for use by
purchasers to effect transfers of Common Stock. The Company does not intend to
make available to the public information contemplated under Rule 144 concerning
itself. A non-affiliate of the Company may, however, be permitted (for federal
securities law purposes) to effect a resale of the Common Stock after such stock
has been owned continuously for two years under paragraph (k) of Rule 144.
Additionally, the registration of Company Common Stock may be required under
laws of certain states before any shares may be resold. A restrictive legend
will be placed on the stock certificates representing the shares exchanged in
the Reorganization to ensure the effectiveness of these restrictions. The
Company reserves the right to require an opinion of counsel satisfactory to it
regarding the availability of resale exemptions to be provided by a proposed
seller of the Company Common Stock.
Company Management
- - ------------------
The initial Board of Directors of the Company consists of the current
directors of the Bank. Such directors will serve for terms which will run
concurrently with their respective terms as directors of the Bank.
26
<PAGE>
The executive officers of the Company, each whom is currently an executive
officer of the Bank, are identified below. The executive officers of the Company
are elected annually by the Company's Board of Directors.
Name Position with the Company
---- -------------------------
Aubrey L. Dunn, Jr. President and Chief Executive Officer
Ronald D. Rogers Senior Vice President, Chief Financial
Officer and Secretary
It is currently expected that, unless the Company becomes actively involved
in the operation or acquisition of additional savings institutions or other
businesses, no separate compensation will be paid to the directors and employees
of the Company. However, the Company may determine that separate compensation is
appropriate in the future. Upon completion of the Reorganization, the Stock
Option Plan of the Bank will become the Stock Option Plan of the Company and
directors and employees of the Bank will continue to be eligible to participate.
Since the directors and employees of the Bank will not initially be compensated
by the Company but will continue to serve and be compensated by the Bank, no
additional Company benefit plans are anticipated at this time. The Bank will
continue to maintain its other benefit programs.
LEGAL OPINION
The legality of the Company Common Stock to be issued pursuant to the
Reorganization and certain other matters in connection with the Reorganization
will be passed upon by Silver, Freedman & Taff, L.L.P., a limited liability
partnership including professional corporations, 1100 New York Avenue, N.W.,
Washington, DC 20005-3934.
STOCKHOLDER PROPOSALS
In order to be eligible for inclusion in the Bank's proxy materials for
next year's Annual Meeting of Stockholders (or the Company's proxy materials, if
the Reorganization is then completed), any stockholder proposal to take action
at such meeting must be received at the main office of the Bank or the Company,
300 North Pennsylvania Avenue, Roswell, New Mexico 88201, no later than
__________, 1998. Any such proposals shall be subject to the requirements of the
proxy rules adopted under the Exchange Act.
OTHER MATTERS
The Board of Directors is not aware of any business to come before the
Meeting other than the matter described above in this Proxy
Statement/Prospectus. However, if any other matters should properly come before
the Meeting, it is intended that holders of the proxies will act in accordance
with their best judgment.
27
<PAGE>
The cost of solicitation of proxies will be borne by the Bank. The Bank
will reimburse brokerage firms and other custodians, nominees and fiduciaries
for reasonable expenses incurred by them in sending proxy materials to the
beneficial owners of Bank Common Stock. In addition to solicitation by mail,
directors, officers and regular employees of the Bank may solicit proxies
personally or by telegraph or telephone, without additional compensation.
BY ORDER OF THE BOARD OF DIRECTORS
RONALD D. ROGERS
Secretary
Roswell, New Mexico
____________, 1998
28
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Roswell, State of New
Mexico, on May 8, 1998.
FIRST FEDERAL BANK OF THE SOUTHWEST, INC.
By: /s/ Aubrey L. Dunn, Jr.
----------------------------
Aubrey L. Dunn, Jr.
(Duly Authorized Representative)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Aubrey L. Dunn, Jr. his or her true and
lawful attorney-in-fact and agents, with full power of substitution and
re-substitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and all other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
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
or she might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent or his substitutes or substitute may lawfully do
or cause to be done by virtue hereof.
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER ("Agreement"), is made and entered into
by and among FIRST FEDERAL SAVINGS BANK OF NEW MEXICO, a federally-chartered
capital stock thrift institution ("First Federal"), NEW FIRST FEDERAL SAVINGS
BANK OF NEW MEXICO, a federally-chartered capital stock thrift institution in
the process of organization ("New Bank") and FIRST FEDERAL BANK OF THE
SOUTHWEST, INC., a Delaware business corporation (the "Holding Company"),
effective as of the date executed by all of the parties.
WITNESSETH:
WHEREAS, First Federal is a capital stock thrift institution duly organized
and validly existing under the laws of the United States of America and having
its principal office in Roswell, New Mexico, with authorized capital stock
consisting of 499,422 shares of common stock, par value $1.00 per share ("First
Federal Common Stock"), of which 408,865 shares are issued and outstanding;
WHEREAS, New Bank is a capital stock thrift institution in the process of
organization under the laws of the United States of America, which is proposed
to be a subsidiary of the Holding Company and to have authorized capital stock
consisting of 499,422 shares of common stock, par value $1.00 per share ("New
Bank Stock");
WHEREAS, the Holding Company is a capital stock corporation duly organized
and validly existing under the laws of Delaware, with authorized capital stock
consisting of one million shares of common stock, par value $.01 per share
("Holding Company Common Stock") of which one share is issued and outstanding,
and 500,000 shares serial preferred stock, of which no shares are issued and
outstanding;
WHEREAS, the Holding Company proposes to issue one share of its common
stock to its incorporator in return for $10.00 cash consideration and to
purchase one share of the common stock of New Bank for $10.00;
WHEREAS, it is the desire of the parties to this Agreement to adopt a plan
of reorganization providing for the formation of a thrift institution holding
company; and
WHEREAS, a majority of the respective Boards of Directors of First Federal,
New Bank, and the Holding Company have approved and authorized the execution of
this Agreement pursuant to which the plan of reorganization, including the
merger of New Bank into First Federal, will be implemented;
A-1
<PAGE>
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, and in order to prescribe the plan of
reorganization and merger, including its terms and conditions, the mode of
carrying the same into effect, the manner and basis of stockholders of First
Federal exchanging their First Federal Common Stock for Holding Company Common
Stock or selling their First Federal Common Stock and such other details and
provisions as are deemed necessary or proper, the parties hereby agree as
follows:
ARTICLE I
MERGER AND REORGANIZATION
1.1 Subject to the conditions hereinafter set forth, New Bank shall be
merged into First Federal under the Charter of First Federal at the Effective
Date (as defined in Article XI hereof) of the merger (the "Merger"). The Merger
shall be effected pursuant to the provisions of, and with the effect provided
in, the applicable provisions of the laws of the United States of America and
the Rules and Regulations of the Office of Thrift Supervision ("OTS").
1.2 On the Effective Date, the resulting thrift institution in the Merger
shall be First Federal (hereinafter referred to as the "Surviving Institution"
whenever reference is made to it as of the Effective Date of the Merger or
thereafter) which will continue to operate as a thrift institution under the
name"First Federal Bank of the Southwest." The Charter and Bylaws of First
Federal in effect on the Effective Date shall be the Charter and Bylaws of the
Surviving Institution. The established offices and facilities of First Federal
immediately prior to the Merger shall become the established offices and
facilities of the Surviving Institution. The locations of the home office and
any other offices of the Surviving Institution are set forth in Schedule A
attached hereto.
1.3 On the Effective Date of the Merger, New Bank shall cease to exist
separately and shall be merged with and into First Federal in accordance with
the provisions of this Agreement and in accordance with the provisions of
applicable laws, rules and regulations, and all of the assets and property of
every kind and character, real, personal and mixed, tangible and intangible,
chose in action, rights and credits then owned by New Bank or which would inure
to it, shall immediately, by operation of law and without any conveyance or
transfer and without any further act or deed, be vested in and become the
property of the Surviving Institution, which shall have, hold and enjoy the same
in its own right as fully and to the same extent as the same were possessed,
held and enjoyed by New Bank prior to such Merger. The Surviving Institution
shall be deemed to be and shall be a continuation of the entity and identity of
New Bank and First Federal and all of the rights and obligations of New Bank and
First Federal shall remain unimpaired and the Surviving Institution, on the
Effective Date of such Merger, shall succeed to all such rights and obligations
and the duties and liabilities connected therewith on such Effective Date.
1.4 On the Effective Date of the Merger, there will be no holders of
deposit accounts, transaction accounts, savings accounts or certificates of
deposit issued by New Bank. Holders of deposit accounts, transaction accounts,
savings accounts or certificates of deposit of First Federal as of the Effective
Date of the Merger shall continue to be holders of the same interest of the
Surviving
A-2
<PAGE>
Institution without change as to withdrawal value or other rights. No existing
deposit account, transaction account, savings account or certificate of deposit
holder shall have any of his rights impaired by virtue of the Merger
contemplated hereby.
1.5 The directors and officers of the Surviving Institution on the
Effective Date shall be those persons who are directors and officers,
respectively, of First Federal immediately before the Effective Date.
Information with respect to the directors of the Surviving Institution is set
forth in Schedule B attached hereto. The committees of the Board of Directors of
the Surviving Institution on the Effective Date shall be the same as, and shall
be composed of the same persons who were serving on, committees appointed by the
Board of Directors of First Federal as they exist immediately before the
Effective Date. The committees, if any, of officers of the Surviving Institution
on the Effective Date shall be the same as, and shall be composed of the same
officers who were serving on, the committees of officers of First Federal as
they exist immediately before the Effective Date.
1.6 Except as expressly prohibited by applicable laws, all corporate acts,
plans, policies, applications, agreements, orders, registrations, licenses,
approvals and authorizations of First Federal and New Bank, their respective
stockholders, Boards of Directors, committees elected or appointed by their
Boards of Directors, and their respective officers and agents, which were valid
and effective immediately before the Effective Date, shall be taken for all
purposes at and after the Effective Date as the acts, plans and policies,
applications, agreements, orders, registrations, licenses, approvals and
authorizations of the Surviving Institution and shall be as effective and
binding thereon as the same were with respect to First Federal and New Bank
immediately before the Effective Date.
1.7 On and after the Effective Date, First Federal's 1995 Employees' Stock
Option Plan, as amended (the "Stock Option Plan") shall be assumed by the
Holding Company and shares and options for shares awarded under the Stock Option
Plan shall be options for shares of Holding Company Common Stock.
ARTICLE II
CONVERSION, EXCHANGE AND CANCELLATION OF SHARES
2.1 The manner and basis of converting and exchanging the issued and
outstanding shares of First Federal Common Stock into shares of Holding Company
Common Stock and related transactions concerning New Bank, shall be as
hereinafter provided in this Article II.
2.2 On the Effective Date:
(a) Each share of First Federal Common Stock outstanding on the Effective
Date shall, without any action on the part of the holder thereof or
First Federal or the Holding Company, be converted into and
exchangeable for one share of Holding Company Common Stock;
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(b) The outstanding share of New Bank Stock issued to the Holding Company
shall be canceled and converted into a share of First Federal Stock;
and
(c) The share of Holding Company Stock previously issued to the Holding
Company's incorporator and outstanding shall be canceled for a
redemption price of $10.00.
2.3 Exchange Procedures.
(a) In accordance with Section 2.2(a) herein, holders of record of
certificates formerly representing shares of First Federal Common
Stock (the "Certificates") shall be instructed to tender such
Certificates to the Holding Company pursuant to a letter of
transmittal that the Holding Company or First Federal shall deliver or
cause to be delivered to such holders.
(b) Holding Company shall accept Certificates upon compliance with such
reasonable terms and conditions as Holding Company may impose to
effect an orderly exchange thereof in accordance with customary
exchange practices. All Certificates shall be appropriately endorsed
or accompanied by such instruments of transfer as Holding Company may
require.
(c) Each outstanding Certificate shall, until duly surrendered to Holding
Company, be deemed to evidence ownership of the number of shares of
Holding Company Common Stock into which such First Federal Common
Stock shall have been converted by virtue of the Merger.
(d) After the Effective Date, holders of Certificates shall cease to have
rights with respect to First Federal Common Stock previously
represented by such Certificates, and their sole rights shall be to
exchange such Certificates for Holding Company Common Stock as
provided for in this Agreement. After the Effective Date, there shall
be no further transfer on the records of First Federal of
Certificates, and if such Certificates are presented to First Federal
for transfer, they shall be canceled as provided for in this
Agreement. The Holding Company shall be obligated to deliver Holding
Company Common Stock to which any former holder of First Federal
Common Stock is entitled as a result of the Merger until such holder
surrenders the Certificates as provided herein. No dividends declared
will be remitted to any person entitled to receive Holding Company
Common Stock under this Agreement until such person surrenders the
Certificates representing the right to receive such Holding Company
Common Stock, at which time such dividends shall be remitted to such
person, without interest and less any taxes that may have been imposed
thereon. Neither the Holding Company nor any party to this Agreement
nor any affiliate thereof shall be liable to any holder of stock
represented by any Certificate for any consideration paid to a public
official pursuant to applicable abandoned property, escheat or similar
laws. The Holding Company shall be entitled to rely upon the stock
transfer books of First Federal to establish the identity of those
persons entitled to receive Holding Company Common Stock specified in
this Agreement, which books shall be conclusive with respect thereto.
In the event of a dispute with respect to ownership of stock
represented by any Certificate, the Holding Company shall be entitled
to deposit any Holding Company Common Stock represented thereby in
escrow with an independent third party and thereafter be relieved with
respect to any claims thereto.
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2.7 New Bank Stock. The outstanding share of New Bank Stock issued to the
Holding Company shall be canceled and converted into a share of First Federal
Common Stock.
2.8 Dissenting Shares. Any record holder of First Federal's Common Stock
may require First Federal to pay the fair or appraised value of his or her First
Federal Common Stock, determined as of the Effective Date of the Merger, by
complying with Section 552.14 of the OTS Rules and Regulations. The computation
of fair or appraised value of such shares (the "Dissenting Shares") will exclude
any element of value arising from the accomplishment or expectation of the
Merger. Notwithstanding any other provision of this Agreement, any Dissenting
Shares shall not, after the Effective Date, be entitled to vote for any purpose
or receive any dividends or other distributions and shall be entitled only to
such rights as are afforded in respect of Dissenting Shares pursuant to the OTS
Regulations.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF HOLDING COMPANY
The Holding Company hereby represents and warrants as follows:
3.1 The Holding Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware. At the Effective
Date, the Holding Company will have the corporate power to carry on its business
as then to be conducted and will be qualified to do business in every
jurisdiction in which the character and location of the assets to be owned by it
or the nature of the business to be transacted by it require qualification.
3.2 The Holding Company has no subsidiaries other than New Bank at the date
of this Agreement. Between the date hereof and the Effective Date, the Holding
Company will not create or acquire any subsidiaries, other than New Bank,
without the consent of First Federal.
3.3 The authorized capital stock of the Holding Company consists on the
date hereof of one million shares of Holding Company Common Stock, par value
$.01 per share, and 500,000 shares of serial preferred stock. Except as set
forth above or as contemplated by this Agreement or necessary for the
effectuation of the Merger, as of the date hereof, the Holding Company has one
share of its capital stock issued and outstanding and does not have any
outstanding subscriptions, options or other agreements or commitments obligating
it to issue shares of its capital stock.
3.4 Compliance with the terms and provisions of this Agreement by the
Holding Company will not conflict with or result in a breach of any of the
terms, conditions or provisions of any judgment, order, injunction, decree or
ruling of any court or governmental authority, domestic or foreign, or of any
agreement or instrument to which the Holding Company is a party, or constitute a
default thereunder.
3.5 The execution, delivery and performance of this Agreement have been
duly authorized by the Board of Directors of the Holding Company and has been
approved by the Holding Company's incorporator as its sole stockholder.
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3.6 The Holding Company has complete and unrestricted power to enter into
and to consummate the transactions contemplated by this Agreement, subject to
approval of this Agreement and the Merger by the Holding Company's incorporator
and the provisions of Section 7.3 hereof.
3.7 On or prior to the Effective Date, the Holding Company will make
available for issuance and delivery that number of shares of Holding Company
Common Stock into which the outstanding First Federal Common Stock is to be
converted and exchanged pursuant to the Merger and this Agreement. All such
shares of Holding Company Common Stock, when delivered in exchange for First
Federal Common Stock, will be duly authorized, validly issued and outstanding,
fully paid and non-assessable, and will be voting stock of the Holding Company.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF FIRST FEDERAL
First Federal hereby represents and warrants as follows:
4.1 First Federal is a capital stock thrift institution duly organized and
validly existing under the laws of the United States of America, and is duly
authorized to carry on its business as it is now being conducted.
4.2 The authorized capital stock of First Federal consists on the date
hereof of 499,422 shares of First Federal Common Stock, par value $1.00 per
share, of which 408,865 shares are issued and outstanding, and no shares of
preferred stock.
4.3 Compliance with the terms and provisions of this Agreement by First
Federal will not conflict with, constitute a default under or result in a breach
of any of the terms, conditions or provisions of any judgment, order,
injunction, decree or ruling of any court or governmental authority, domestic or
foreign, or of any agreement or instrument to which First Federal is a party.
4.4 The execution, delivery and performance of this Agreement have been
duly authorized by the Board of Directors of First Federal.
4.5 First Federal has complete and unrestricted power to enter into and to
consummate the transactions contemplated by this Agreement, subject to the
provisions of Section 7.3 hereof.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF NEW BANK
New Bank hereby represents and warrants as follows:
5.1 New Bank, at the direction of the Holding Company, will apply to the
OTS to be chartered as a capital stock thrift institution, and immediately
before the Effective Date will be duly organized and validly existing under the
laws of the United States of America, and duly authorized to carry on the
business of an interim federal thrift institution.
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5.2 The authorized capital stock of New Bank is proposed to consist of
499,422 shares of New Bank Stock, par value $1.00 per share. Except for the one
share of New Bank Stock issued to the Holding Company for the effectuation of
the Merger, prior to the Merger, New Bank will not have any shares of its stock
issued and outstanding. There are no outstanding subscriptions, options or other
arrangements or commitments obligating New Bank to issue any shares of its
capital stock.
5.3 Compliance with the terms and provisions of this Agreement by New Bank
will not conflict with, constitute a default under or result in a breach of any
of the terms, conditions or provisions of any judgment, order, injunction,
decree or ruling of any court or governmental authority, domestic or foreign, or
of any agreement or instrument to which New Bank is, or upon organization will
be, a party.
5.4 Prior to the Merger, the execution, delivery and performance of this
Agreement will be duly authorized by the Board of Directors of New Bank and will
be approved by the Holding Company as the sole stockholder of New Bank.
5.5 New Bank has complete and unrestricted power to enter into and to
consummate the transaction contemplated by this Agreement, subject to the
approval of this Agreement and the Merger by the Holding Company as sole
stockholder of New Bank and the provisions of Section 7.3 hereof.
ARTICLE VI
OBLIGATIONS OF THE PARTIES PENDING THE EFFECTIVE DATE
6.1 Prior to the Effective Date, (i) New Bank shall complete its
organization and have directors who shall be duly elected and qualified, (ii)
the Holding Company shall complete its organization and have directors who shall
be duly elected and qualified, and (iii) this Agreement shall be duly submitted
to the stockholders of First Federal for the purpose of considering and acting
upon this Agreement in the manner required by law. Each party shall use its best
efforts to obtain the requisite approvals of this Agreement and the transactions
contemplated herein and, after obtaining such approval, the parties through
their respective officers and directors, shall execute and file with the
appropriate regulatory authorities all documents and papers, and the parties
shall take every reasonable action, necessary to comply with and to secure such
approval of this Agreement and the transactions contemplated herein as may be
required by all applicable statutes, rules and regulations.
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ARTICLE VII
CONDITIONS PRECEDENT TO THE CONSUMMATION OF
THE MERGER AND REORGANIZATION
The obligations of the parties hereto to consummate the Merger and the
reorganization contemplated hereby shall be subject to the conditions that on or
before the Effective Date:
7.1 Each of the parties hereto shall have performed and complied with all
of its obligations hereunder which are to be complied with or performed on or
before the Effective Date.
7.2 This Agreement and related transactions contemplated hereby shall have
been duly and validly authorized, approved and adopted at a meeting of
stockholders duly and properly called for such purpose by First Federal by an
affirmative vote of at least 50 percent of the outstanding voting stock of First
Federal plus one affirmative vote, all in accordance with the applicable
regulations of the OTS.
7.3 Orders, consents and approvals, in form and substance reasonably
satisfactory to all the parties hereto, shall have been entered by the OTS, (or
there shall have been received satisfactory assurance that such orders, consents
or approvals are not required), granting the authority necessary for
consummation of the transactions contemplated by this Agreement pursuant to the
provisions of the Rules and Regulations of the OTS, all other requirements
prescribed by law and the rules and regulations of any other regulatory
authority having jurisdiction over the transactions contemplated herein shall
have been satisfied.
7.4 There shall have been received from Ritter, Barr & Company accountants
to First Federal, an opinion to the effect that:
1. The Merger will constitute a reorganization within the meaning of
Section 368(a)(1)(A) and 368 (a)(2)(E) of the Internal Revenue Code of
1986, as amended (the "Code"). The reorganization will not be
disqualified by reason of the fact that stock of the Holding Company
is used in the transaction (Section 368(a)(2)(E)of the Code). It will
also not be disqualified by the substitution of Holding Company stock
options for First Federal Stock options as discussed in above (Rev.
Rul. 70- 269, 1970-1 C.B. 82). For purposes of this opinion, First
Federal deposits with a liquidation account interest do not constitute
stock for purposes of Section 368(c) of the Code. The Holding Company,
New Bank, and First Federal will each be a "part to a reorganization"
within the meaning of Section 368(b) of the Code.
2. No gain or loss will be recognized to New Bank on the transfer of
substantially all of its assets to First Federal (Section 361(a) of
the Code).
3. No gain or loss will be recognized to First Federal on the receipt by
First Federal of substantially all of the assets of New Bank in
exchange for First Federal Stock (Section 1032(a) of the Code).
4. First Federal's basis in each New Bank asset received in the
transaction will be the same as the basis of those assets in the hands
of New Bank immediately prior to the transaction (Section 362(b) of
the Code.)
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5. First Federal's holding period in each New Bank asset will include the
period during which New Bank held such asset (Section 1223(2) of the
Code).
6. No gain or loss will be recognized by Holding Company upon receipt of
First Federal Common Stock (Section 354(a)(1) of the Code).
7. No gain or loss will be recognized by the shareholders of First
Federal on the exchange of their First Federal Common Stock solely for
an identical number of shares of Holding Company Common Stock (Section
354(a)(1) of the Code).
8. Each First Federal shareholder's basis in the Holding Company Common
Stock received in the transaction will be the same as their basis in
their First Federal Common Stock surrendered in the transaction
(Section 358(a)(1) of the Code).
9. The holding period of the Holding Company Common Stock received by a
First Federal common shareholder in exchange for the transfer of First
Federal Common Stock will include the period during which the First
Federal Common Stock surrendered in exchange therefor was held,
provided that the First Federal Common Stock was held as a capital
asset on the date of the exchange (Section 1223(1) of the Code).
10. The net operating loss of First Federal, if any, will not be reduced
or eliminated by reason of the proposed reorganization under Section
382 of the Code.
7.6 No good faith action, suit or proceeding shall have been instituted or
shall have been threatened before any court or other governmental body or by any
public authority to restrain, enjoin or prohibit the Merger and reorganization
contemplated herein, or which might restrict the operation of the business of
the Surviving Institution or the ownership of the capital stock of the Surviving
Institution or the exercise of any rights with respect thereto by the Holding
Company, or subject any of the parties hereto or any of their directors or
officers to any liability, fine, forfeiture, or penalty on the grounds that the
transactions contemplated hereby, the parties hereto or their directors or
officers, have breached or will breach any applicable law or regulation, or have
otherwise acted improperly in connection with the transactions contemplated
hereby, and with respect to which the parties hereto have been advised by
counsel that, in the opinion of such counsel, such action, suit or proceeding
raises substantial questions of law or fact which could reasonably be decided
adversely to any party hereto or its directors or officers.
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ARTICLE VIII
ADDITIONAL CONDITIONS PRECEDENT
8.1 Each obligation of the Holding Company and New Bank to be performed on
or prior to the Effective Date shall be subject to the satisfaction, on or
before the Effective Date, of the following additional conditions:
(a) The representations and warranties made by First Federal and by
New Bank in this Agreement shall be true as though such representations and
warranties had been made or given on and as of the Effective Date; and
(b) The Holding Company shall have received an opinion of Silver,
Freedman & Taff, L.L.P. which shall be to the effect that:
(i) First Federal is duly organized and validly existing under
the laws of the United States of America and the Rules and Regulations
of the OTS;
(ii) the execution and delivery of this Agreement did not, and
the consummation of the Merger and reorganization contemplated hereby
will not, violate any provisions of the Charter or Bylaws of First
Federal;
(iii) New Bank is a capital stock thrift institution, duly
organized and validly existing under the laws of the United States of
America and Rules and Regulations of the OTS;
(iv) the execution and delivery of this Agreement did not, and
the consummation of the Merger and reorganization contemplated hereby
will not, violate any provisions of the Charter or Bylaws of New Bank;
and
(v) the Boards of Directors and stockholders of First Federal and
New Bank have taken all corporate action required by their respective
Charters and Bylaws and by the Rules and Regulations of the OTS to
authorize the execution and delivery of this Agreement and to approve
the Merger and reorganization in accordance with the terms of this
Agreement; First Federal and New Bank have obtained the requisite
approvals from the OTS to consummate the Merger and reorganization
contemplated by this Agreement; and this Agreement is a legal, valid
and binding agreement of First Federal and New Bank in accordance with
its terms, except to the extent that enforceability may be limited by
bankruptcy laws, insolvency laws, or other laws affecting the rights
of creditors generally or the rights of creditors of thrift
institutions the accounts of which are insured by the Federal Deposit
Insurance Corporation or which are subject to regulation by the OTS,
including but not limited to laws relating to the availability of
equitable remedies.
8.2 Each obligation of First Federal to be performed on or prior to the
Effective Date shall be subject to the satisfaction, on or before the Effective
Date, of the following additional conditions:
(a) The representations and warranties made by the Holding Company and
by New Bank contained in this Agreement shall be true as though such
representations and warranties had been made or given at and as of the
Effective Date;
(b) This Agreement and the transactions contemplated hereby shall have
been duly and validly authorized, approved and adopted by the Holding
Company and by New Bank; and
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(c) First Federal shall have received an opinion of Silver, Freedman &
Taff, L.L.P. which shall be to the effect that:
(i) The Holding Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware;
(ii) The Holding Company has corporate power to execute and
deliver this Agreement; the Board of Directors and the Holding
Company's incorporator have taken all action required by its
Certificate of Incorporation and Bylaws to authorize such execution
and delivery, to approve the Merger and reorganization contemplated
hereby and to authorize the issuance of the shares of Holding Company
Common Stock necessary to consummate the Merger and reorganization;
and this Agreement is the legal, valid and binding agreement of the
Holding Company in accordance with its terms, except to the extent
that enforceability may be limited by bankruptcy laws, insolvency
laws, or other laws affecting the rights of the creditors generally,
including but not limited to laws relating to the availability of
equitable remedies;
(iii) New Bank is a capital stock thrift institution duly
organized and validly existing under the laws of the United States of
America and the Rules and Regulations of the OTS;
(iv) New Bank has the corporate power to execute, deliver and
perform this Agreement; the Board of Directors and the stockholder of
New Bank have taken all action required by its Charter and Bylaws and
by the Rules and Regulations of the OTS to authorize such execution,
delivery and performance and to approve the Merger; and this Agreement
is the legal, valid and binding agreement of New Bank in accordance
with its terms, except to the extent that enforceability may be
limited by bankruptcy laws, insolvency laws, or other laws affecting
the rights of creditors generally or the rights of creditors of thrift
institutions the accounts of which are insured by the Federal Deposit
Insurance Corporation or which are subject to regulation by the OTS,
including but not limited to laws relating to the availability of
equitable remedies; and
(v) The Holding Company and New Bank have obtained or will obtain
the requisite approvals from the OTS to consummate the Merger and
reorganization contemplated by this Agreement.
In rendering opinions provided for in this Agreement, counsel may rely upon
opinions of other counsel and, as to matters of fact, upon certificates of
public officials and of any officer or officers of First Federal, New Bank and
the Holding Company.
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ARTICLE IX
AMENDMENTS
First Federal, the Holding Company and New Bank, by mutual consent of their
respective Boards of Directors or incorporators, as the case may be, to the
extent permitted by law, may amend, modify, supplement and interpret this
Agreement in such manner as may be mutually agreed upon by them in writing at
any time before or after the approval and adoption thereof by the stockholders
of First Federal, provided, however, that no such amendment, modification,
supplement or interpretation shall have a materially adverse impact on First
Federal or its stockholders except with the approval of the stockholders of
First Federal.
ARTICLE X
TERMINATION AND ABANDONMENT
10.1 Anything contained in this Agreement to the contrary notwithstanding,
this Agreement may be terminated and the Merger and reorganization abandoned at
any time (whether before or after the approval and adoption thereof by the
stockholders of First Federal) prior to the Effective Date:
(a) By mutual consent of the parties hereto;
(b) By the Holding Company or New Bank, if any condition set forth in
Sections 7.1 through 7.5 of Article VII or Section 8.1 of Article VIII has
not been met or has not been validly waived or if; or
(c) By First Federal, if any condition set forth in Sections 7.1
through 7.5 of Article VII or Section 8.2 of Article VIII has not been met
or has not been validly waived or if the holders of more than 10 percent of
the outstanding voting stock of First Federal deliver properly to First
Federal a demand for appraisal and payment for shares pursuant to 12 C.F.R.
ss. 552.14.
10.2 An election by a party hereto to terminate this Agreement and abandon
the Merger as provided in Section 10.1 shall be exercised on behalf of such
thrift institution or corporation by its Board of Directors or incorporators, as
may be the case.
10.3 In the event of the termination of this Agreement pursuant to the
provisions of Section 10.1 hereof, this Agreement shall become void and have no
effect and create no liability on the part of any of the parties hereto or their
respective incorporators, directors, officers or stockholders in respect to this
Agreement.
10.4 Any of the terms or conditions of this Agreement (other than the
necessary approvals of stockholders and government authorities) may be waived at
any time by the party which is entitled to the benefit thereof, by action taken
by its Board of Directors; provided, however, that such action shall be taken
only if, in the judgment of the Board of Directors taking the action, such
waiver will not have a materially adverse effect on the benefits intended under
this Agreement to be afforded to the stockholders of First Federal.
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ARTICLE XI
EFFECTIVE DATE
The effective date of the Merger ("Effective Date") shall be the last day
of the calendar month during which the last to occur of the following events
takes place: (i) the Merger is approved by the OTS and the Articles of
Combination are executed by the OTS, (ii) all other required regulatory
approvals have been obtained, and (iii) all other conditions to the Merger
herein set forth have been met. The Boards of Directors of First Federal, New
Bank and the Holding Company each specifically and expressly delegate to their
respective chief executive officers the authority to change, by mutual consent
of such officers, the Effective Date of the Merger if necessary to properly and
efficiently accomplish the Merger. However, in no event shall the Merger become
effective unless and until approved by the OTS.
ARTICLE XII
TERMINATION OF REPRESENTATIONS AND
WARRANTIES AND CERTAIN AGREEMENTS
The respective representations, warranties, covenants and agreements of the
parties hereto in Articles III, IV and V hereof shall expire with, and be
terminated and extinguished by, the Merger and reorganization pursuant to this
Agreement at the time of the consummation thereof on the Effective Date. None of
the parties shall be under any liability whatsoever with respect to any such
representation, warranty, covenant or agreement which does not survive the
Merger and reorganization, it being intended that the sole remedy of the parties
for a breach of any such representation, warranty, covenant or agreement shall
be to elect not to proceed with the Merger and reorganization if such breach has
resulted in the failure to satisfy a condition precedent to such party's
obligation to consummate the transactions contemplated hereby.
ARTICLE XIII
MISCELLANEOUS
13.1 This Agreement embodies the entire agreement among the parties and
there have been and are no agreements, representations or warranties among the
parties other than those set forth or provided for herein.
13.2 Any number of counterparts hereof may be executed and each such
counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one instrument.
13.3 Any notice or waiver to be given to any party shall be in writing and
shall be deemed to have been duly given if delivered, mailed, or sent by prepaid
telegram, addressed to such party at 300 North Pennsylvania Avenue, Roswell, New
Mexico 88201.
13.4 The captions contained in this Agreement are solely for convenient
reference and shall not be deemed to affect the meaning or interpretation of any
paragraph hereof.
13.5 First Federal will pay all fees and expenses incurred in connection
with the transactions contemplated by this Agreement.
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IN WITNESS WHEREOF, First Federal, New Bank and the Holding Company each
under the authority of its Board of Directors have caused this Agreement to be
executed with the intent to be legally bound hereby.
FIRST FEDERAL SAVINGS BANK
ATTEST: OF NEW MEXICO
By: /s/ Ronald D. Rogers By: /s/ Aubrey L. Dunn, Jr.
------------------------------ ------------------------------
Ronald D. Rogers Aubrey L. Dunn, Jr.
Senior Vice President, President and Chief Executive
Chief Financial Officer and Officer
Secretary
Date: April 22, 1998 Date: April 22, 1998
---------------------------- ----------------------------
NEW FIRST FEDERAL SAVINGS
ATTEST: BANK OF NEW MEXICO
By: /s/ Ronald D. Rogers By: /s/ Aubrey L. Dunn, Jr.
------------------------------ ------------------------------
Ronald D. Rogers Aubrey L. Dunn, Jr.
Senior Vice President, President and Chief Executive
Chief Financial Officer and Officer
Secretary
Date: April 22, 1998 Date: April 22, 1998
---------------------------- ----------------------------
FIRST FEDERAL BANK OF THE
ATTEST: SOUTHWEST, INC.
By: /s/ Ronald D. Rogers By: /s/ Aubrey L. Dunn, Jr.
------------------------------ ------------------------------
Ronald D. Rogers Aubrey L. Dunn, Jr.
Senior Vice President, President and Chief Executive
Chief Financial Officer and Officer
Secretary
Date: April 22, 1998 Date: April 22, 1998
---------------------------- ----------------------------
WITNESS:
/s/ Sean Ormand /s/ Angie Humble
- - ---------------------------------- ----------------------------------
Date: April 22, 1998 Date: April 22, 1998
---------------------------- ----------------------------
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SCHEDULE A
OFFICES OF SURVIVING INSTITUTION
Main Office
- - -----------
300 North Pennsylvania Avenue
Roswell, New Mexico 88201
Branch Offices
- - --------------
1800 South Telshor Boulevard
Las Cruces, New Mexico 88011
398 Sudderth
Roswell, New Mexico 88345
301 West Amador
Las Cruces, New Mexico 88011
300 East First Street
Alamogordo, New Mexico 88310
Loan Production Office
- - ----------------------
7500 North Mesa, Suite 307
El Paso, Texas 79912
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SCHEDULE B
DIRECTORS OF SURVIVING INSTITUTION
Term
Name Address Expires
---- ------- -------
Colin R. McMillan 300 North Pennsylvania Avenue 1999
Chairman of the Board Roswell, New Mexico
Albert Lake, Jr. 300 North Pennsylvania Avenue 1999
Director Roswell, New Mexico
Arturo Jurado 300 North Pennsylvania Avenue 1999
Director Roswell, New Mexico
Garry Owen 300 North Pennsylvania Avenue 2000
Director Roswell, New Mexico
Larry L. Sheffield 300 North Pennsylvania Avenue 2000
Director Roswell, New Mexico
Aubrey L. Dunn, Jr. 300 North Pennsylvania Avenue 2000
Director Roswell, New Mexico
Edward K. David 300 North Pennsylvania Avenue 2000
Director Roswell, New Mexico
Russell P. Weems 300 North Pennsylvania Avenue 2001
Director Roswell, New Mexico
Judy A. Collins 300 North Pennsylvania Avenue 2001
Director Roswell, New Mexico
Successor or substitute directors may be named, subject to compliance with the
requirements of applicable law and the Charter and Bylaws of the Surviving
Institution.
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APPENDIX B
CERTIFICATE OF INCORPORATION
OF
FIRST FEDERAL BANK OF THE SOUTHWEST, INC
FIRST: The name of the Corporation is First Federal Bank of the Southwest,
Inc. (hereinafter sometimes referred to as the "Corporation").
SECOND: The address of the registered office of the Corporation in the
State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle. The name of the registered agent at that
address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of Delaware.
FOURTH:
A. The total number of shares of all classes of stock which the Corporation
shall have the authority to issue is one million five hundred thousand
(1,500,000) consisting of:
1. Five hundred thousand (500,000) shares of preferred stock, par value
one cent ($.01) per share (the "Preferred Stock"); and
2. One million (1,000,000) shares of common stock, par value one cent
($.01) per share (the "Common Stock").
B. The Board of Directors is hereby expressly authorized, subject to any
limitations prescribed by law, to provide for the issuance of the shares of
Preferred Stock in series, and by filing a certificate pursuant to the
applicable law of the State of Delaware (such certificate being hereinafter
referred to as a "Preferred Stock Designation"), to establish from time to time
the number of shares to be included in each such series, and to fix the
designation, powers, preferences and rights of the shares of each such series
and any qualifications, limitations or restrictions thereof. The number of
authorized shares of the Preferred Stock may be increased or decreased (but not
below the number of shares thereof then outstanding) by the affirmative vote of
the holders of a majority of the Common Stock, without a vote of the holders of
the Preferred Stock, or of any series thereof, unless a vote of any such holders
is required pursuant to the terms of any Preferred Stock Designation.
FIFTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
A. The business and affairs of the Corporation shall be managed by or under
the direction of the
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Board of Directors. In addition to the powers and authority expressly conferred
upon them by Statute or by this Certificate of Incorporation or the Bylaws of
the Corporation, the directors are hereby empowered to exercise all such powers
and do all such acts and things as may be exercised or done by the Corporation.
B. The directors of the Corporation need not be elected by written ballot
unless the Bylaws so provide.
C. Subject to the rights of holders of any class or series of Preferred
Stock, any action required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or special meeting of
stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders.
D. Subject to the rights of holders of any class or series of Preferred
Stock, special meetings of stockholders of the Corporation may be called only by
the Board of Directors pursuant to a resolution adopted by a majority of the
total number of directors which the Corporation would have if there were no
vacancies on the Board of Directors (the "Whole Board").
E. Stockholders shall not be permitted to cumulate their votes for the
election of directors.
SIXTH:
A. The number of directors shall be fixed from time to time exclusively by
the Board of Directors pursuant to a resolution adopted by a majority of the
Whole Board. The directors, other than those who may be elected by the holders
of any class or series of Preferred Stock, shall be divided into three classes,
as nearly equal in number as reasonably possible, with the term of office of the
first class to expire at the conclusion of the first annual meeting of
stockholders, the term of office of the second class to expire at the conclusion
of the annual meeting of stockholders one year thereafter and the term of office
of the third class to expire at the conclusion of the annual meeting of
stockholders two years thereafter, with each director to hold office until his
or her successor shall have been duly elected and qualified. At each annual
meeting of stockholders following such initial classification and election,
directors elected to succeed those directors whose terms expire shall be elected
for a term of office to expire at the third succeeding annual meeting of
stockholders after their election, with each director to hold office until his
or her successor shall have been duly elected and qualified.
B. Subject to the rights of the holders of any series of Preferred Stock
then outstanding, newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause may be filled only by a majority vote of the directors
then in office, though less than a quorum, and directors so chosen shall hold
office for a term expiring at the annual meeting of stockholders at which the
term of office of the class to which they have been elected expires, and until
such director's successor shall have been duly elected and qualified. No
decrease in the number of directors constituting the Board of Directors shall
shorten the term of any incumbent director.
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C. Advance notice of stockholder nominations for the election of directors
and of business to be brought by stockholders before any meeting of the
stockholders of the Corporation shall be given in the manner provided in the
Bylaws of the Corporation.
D. Subject to the rights of the holders of any series of Preferred Stock
then outstanding, any directors, or the entire Board of Directors, may be
removed from office at any time, but only for cause and only by the affirmative
vote of the holders of at least 75% of the voting power of all of the
then-outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors, voting together as a single class.
SEVENTH: The Board of Directors is expressly empowered to adopt, amend or
repeal the Bylaws of the Corporation. Any adoption, amendment or repeal of the
Bylaws of the Corporation by the Board of Directors shall require the approval
of a majority of the Whole Board. The stockholders shall also have power to
adopt, amend or repeal the Bylaws of the Corporation. In addition to any vote of
the holders of any class or series of stock of this Corporation required by law
or by this Certificate of Incorporation, the affirmative vote of the holders of
at least 75% of the voting power of all of the then-outstanding shares of the
capital stock of the Corporation entitled to vote generally in the election of
directors, voting together as a single class, shall be required to adopt, amend
or repeal any provisions of the Bylaws of the Corporation.
EIGHTH:
A. In addition to any affirmative vote required by law or this Certificate
of Incorporation, and except as otherwise expressly provided in this Section:
1. any merger or consolidation of the Corporation or any Subsidiary (as
hereinafter defined) with (i) any Interested Stockholder (as
hereinafter defined) or (ii) any other corporation (whether or not
itself an Interested Stockholder) which is, or after such merger or
consolidation would be, an Affiliate (as hereinafter defined) of an
Interested Stockholder; or
2. any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or
with any Interested Stockholder, or any Affiliate of any Interested
Stockholder, of any assets of the Corporation or any Subsidiary having
an aggregate Fair Market Value (as hereafter defined) equaling or
exceeding 25% or more of the combined assets of the Corporation and
its Subsidiaries; or
3. the issuance or transfer by the Corporation or any Subsidiary (in one
transaction or a series of transactions) of any securities of the
Corporation or any Subsidiary to any Interested Stockholder or any
Affiliate of any Interested Stockholder in exchange for cash,
securities or other property (or a combination thereof) having an
aggregate Fair Market Value equaling or exceeding 25% of the combined
assets of the Corporation and its Subsidiaries except pursuant to an
employee benefit plan of the Corporation or any Subsidiary thereof; or
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4. the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of any
Interested Stockholder or any Affiliate of any Interested Stockholder;
or
5. any reclassification of securities (including any reverse stock
split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any
other transaction (whether or not with or into or otherwise involving
an Interested Stockholder) which has the effect, directly or
indirectly, of increasing the proportionate share of the outstanding
shares of any class of equity or convertible securities of the
Corporation or any Subsidiary which is directly or indirectly owned by
any Interested Stockholder or any Affiliate of any Interested
Stockholder (a "Disproportionate Transaction"); provided, however,
that no such transaction shall be deemed a Disproportionate
Transaction if the increase in the proportionate ownership of the
Interested Stockholder or Affiliate as a result of such transaction is
no greater than the increase experienced by the other stockholders
generally;
shall require the affirmative vote of the holders of at least 75% of the voting
power of the then-outstanding shares of stock of the Corporation entitled to
vote in the election of directors (the "Voting Stock"), voting together as a
single class. Such affirmative vote shall be required notwithstanding the fact
that no vote may be required, or that a lesser percentage may be specified, by
law or by any other provisions of this Certificate of Incorporation or any
Preferred Stock Designation or in any agreement with any national securities
exchange or quotation system or otherwise.
The term "Business Combination" as used in this Article EIGHTH shall mean
any transaction which is referred to in any one or more of paragraphs 1 through
5 of Section A of this Article EIGHTH.
B. The provisions of Section A of this Article EIGHTH shall not be
applicable to any particular Business Combination, and such Business Combination
shall require only the affirmative vote of the majority of the outstanding
shares of capital stock entitled to vote, or such vote as is required by law or
by this Certificate of Incorporation, if, in the case of any Business
Combination that does not involve any cash or other consideration being received
by the stockholders of the Corporation solely in their capacity as stockholders
of the Corporation, the condition specified in the following paragraph 1 is met
or, in the case of any other Business Combination, all of the conditions
specified in either of the following paragraphs 1 and 2 are met:
1. The Business Combination shall have been approved by a majority of the
Disinterested Directors (as hereinafter defined).
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2. All of the following conditions shall have been met:
(a) The aggregate amount of the cash and the Fair Market Value as of
the date of the consummation of the Business Combination of
consideration other than cash to be received per share by the
holders of Common Stock in such Business Combination shall at
least be equal to the higher of the following:
I. (if applicable) the Highest Per Share Price, including any
brokerage commissions, transfer taxes and soliciting
dealers' fees, paid by the Interested Stockholder or any of
its Affiliates for any shares of Common Stock acquired by it
(X) within the two-year period immediately prior to the
first public announcement of the proposal of the Business
Combination (the "Announcement Date"), or (Y) in the
transaction in which it became an Interested Stockholder,
whichever is higher.
II. the Fair Market Value per share of Common Stock on the
Announcement Date or on the date on which the Interested
Stockholder became an Interested Stockholder (such latter
date is referred to in this Article EIGHTH as the
"Determination Date"), whichever is higher.
(b) The aggregate amount of the cash and the Fair Market Value as of
the date of the consummation of the Business Combination of
consideration other than cash to be received per share by holders
of shares of any class of outstanding Voting Stock other than
Common Stock shall be at least equal to the highest of the
following (it being intended that the requirements of this
subparagraph (b) shall be required to be met with respect to
every such class of outstanding Voting Stock, whether or not the
Interested Stockholder has previously acquired any shares of a
particular class of Voting Stock):
I. (if applicable) the Highest Per Share Price (as hereinafter
defined), including any brokerage commissions, transfer
taxes and soliciting dealers' fees, paid by the Interested
Stockholder for any shares of such class of Voting Stock
acquired by it (X) within the two-year period immediately
prior to the Announcement Date, or (Y) in the transaction in
which it became an Interested Stockholder, whichever is
higher;
II. (if applicable) the highest preferential amount per share to
which the holders of shares of such class of Voting Stock
are entitled in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation;
and
III. the Fair Market Value per share of such class of Voting
Stock on the Announcement Date or on the Determination Date,
whichever is higher.
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(c) The consideration to be received by holders of a particular class
of outstanding Voting Stock (including Common Stock) shall be in
cash or in the same form as the Interested Stockholder has
previously paid for shares of such class of Voting Stock. If the
Interested Stockholder has paid for shares of any class of Voting
Stock with varying forms of consideration, the form of
consideration to be received per share by holders of shares of
such class of Voting Stock shall be either cash or the form used
to acquire the largest number of shares of such class of Voting
Stock previously acquired by the Interested Stockholder. The
price determined in accordance with subparagraph B.2 of this
Article EIGHTH shall be subject to appropriate adjustment in the
event of any stock dividend, stock split, combination of shares
or similar event.
(d) After such Interested Stockholder has become an Interested
Stockholder and prior to the consummation of such Business
Combination; (i) except as approved by a majority of the
Disinterested Directors, there shall have been no failure to
declare and pay at the regular date therefor any full quarterly
dividends (whether or not cumulative) on any outstanding stock
having preference over the Common Stock as to dividends or
liquidation; (ii) there shall have been (X) no reduction in the
annual rate of dividends paid on the Common Stock (except as
necessary to reflect any subdivision of the Common Stock), except
as approved by a majority of the Disinterested Directors, and (Y)
an increase in such annual rate of dividends as necessary to
reflect any reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction which
has the effect of reducing the number of outstanding shares of
Common Stock, unless the failure to so increase such annual rate
is approved by a majority of the Disinterested Directors; and
(iii) neither such Interested Stockholder nor any of its
Affiliates shall have become the beneficial owner of any
additional shares of Voting Stock except as part of the
transaction which results in such Interested Stockholder becoming
an Interested Stockholder.
(e) After such Interested Stockholder has become an Interested
Stockholder, such Interested Stockholder shall not have received
the benefit, directly or indirectly (except proportionately as a
stockholder), of any loans, advances, guarantees, pledges or
other financial assistance or any tax credits or other tax
advantages provided by the Corporation, whether in anticipation
of or in connection with such Business Combination or otherwise.
(f) A proxy or information statement describing the proposed Business
Combination and complying with the requirements of the Securities
Exchange Act of 1934 and the rules and regulations thereunder (or
any subsequent provisions replacing such Act, rules or
regulations) shall be mailed to stockholders of the Corporation
at least 30 days prior to the consummation of such Business
Combination (whether or not such proxy or information statement
is required to be mailed pursuant to such Act or subsequent
provisions).
C. For the purposes of this Article EIGHTH:
1. A "Person" shall include an individual, a group acting in concert, a
corporation, a partnership, an association, a joint venture, a pool, a
joint stock company, a trust, an unincorporated organization or
similar company, a syndicate or any other group formed for the purpose
of acquiring, holding or disposing of securities.
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<PAGE>
2. "Interested Stockholder" shall mean any Person (other than the
Corporation or Subsidiary thereof) who or which:
(a) is the beneficial owner, directly or indirectly, of more than 10%
of the voting power of the outstanding Voting Stock; or
(b) is an Affiliate of the Corporation and at any time within the
two-year period immediately prior to the date in question was the
beneficial owner, directly or indirectly, of 10% or more of the
voting power of the then-outstanding Voting Stock; or
(c) is an assignee of or has otherwise succeeded to any shares of
Voting Stock which were at any time within the two-year period
immediately prior to the date in question beneficially owned by
any Interested Stockholder, if such assignment or succession
shall have occurred in the course of a transaction or series of
transactions not involving a public offering within the meaning
of the Securities Act of 1933.
3. A Person shall be a "beneficial owner" of any Voting Stock:
(a) which such Person or any of its Affiliates or Associates (as
hereinafter defined) beneficially owns, directly or indirectly
within the meaning of Rule 13d-3 under the Securities Exchange
Act of 1934, as in effect on October 31, 1994; or
(b) which such Person or any of its Affiliates or Associates has (i)
the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or
otherwise, or (ii) the right to vote pursuant to any agreement,
arrangement or understanding (but neither such Person nor any
such Affiliate or Associate shall be deemed to be the beneficial
owner of any shares of Voting Stock solely by reason of a
revocable proxy granted for a particular meeting of stockholders,
pursuant to a public solicitation of proxies for such meeting,
and with respect to which shares neither such Person nor any such
Affiliate or Associate is otherwise deemed the beneficial owner);
or
(c) which are beneficially owned, directly or indirectly within the
meaning of Rule 13d-3 under the Securities Exchange Act of 1934,
as in effect on October 31, 1994, by any other Person with which
such Person or any of its Affiliates or Associates has any
agreement, arrangement or understanding for the purposes of
acquiring, holding, voting (other than solely by reason of a
revocable proxy as described in Subparagraph (b) of this
Paragraph 3) or in disposing of any shares of Voting Stock;
provided, however, that, in the case of any employee stock ownership
or similar plan of the Corporation or of any Subsidiary in which the
beneficiaries thereof possess the right to vote any shares of Voting
Stock held by such plan, no such plan nor any trustee with respect
thereto (nor any Affiliate of such trustee), solely by reason of such
capacity of such trustee,
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shall be deemed, for any purposes hereof, to beneficially own any
shares of Voting Stock held under any such plan.
4. For the purpose of determining whether a Person is an Interested
Stockholder pursuant to Paragraph 2 of this Section C, the number of
shares of Voting Stock deemed to be outstanding shall include shares
deemed owned through application of Paragraph 3 of this Section C but
shall not include any other shares of Voting Stock which may be
issuable pursuant to any agreement, arrangement or understanding, or
upon exercise of conversion rights, warrants or options, or otherwise.
5. "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as in effect on
October 31, 1994.
6. "Subsidiary" means any corporation of which a majority of any class of
equity security is owned, directly or indirectly, by the Corporation;
provided, however, that for the purposes of the definition of
Interested Stockholder set forth in Paragraph 2 of this Section C, the
term "Subsidiary" shall mean only a corporation of which a majority of
each class of equity security is owned, directly or indirectly, by the
Corporation.
7. "Disinterested Director" means any member of the Board of Directors
who is unaffiliated with the Interested Stockholder and was a member
of the Board of Directors prior to the time that the Interested
Stockholder became an Interested Stockholder, and any director who is
thereafter chosen to fill any vacancy on the Board of Directors or who
is elected and who, in either event, is unaffiliated with the
Interested Stockholder, and in connection with his or her initial
assumption of office is recommended for appointment or election by a
majority of Disinterested Directors then on the Board of Directors.
8. "Fair Market Value" means: (a) in the case of stock, the highest
closing sales price of the stock during the 30-day period immediately
preceding the date in question of a share of such stock of the
National Association of Securities Dealers Automated Quotations
("NASDAQ") System or any system then in use, or, if such stock is
admitted to trading on a principal United States securities exchange
registered under the Securities Exchange Act of 1934, Fair Market
Value shall be the highest sale price reported during the 30-day
period preceding the date in question, or, if no such quotations are
available, the Fair Market Value on the date in question of a share of
such stock as determined by the Board of Directors in good faith, in
each case with respect to any class of stock, appropriately adjusted
for any dividend or distribution in shares of such stock or in
combination or reclassification of outstanding shares of such stock
into a smaller number of shares of such stock, and (b) in the case of
property other than cash or stock, the Fair Market Value of such
property on the date in question as determined by the Board of
Directors in good faith.
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9. Reference to "Highest Per Share Price" shall in each case with respect
to any class of stock reflect an appropriate adjustment for any
dividend or distribution in shares of such stock or any stock split or
reclassification of outstanding shares of such stock into a greater
number of shares of such stock or any combination or reclassification
of outstanding shares of such stock into a smaller number of shares of
such stock.
10. In the event of any Business Combination in which the Corporation
survives, the phrase "consideration other than cash to be received" as
used in Subparagraphs (a) and (b) of Paragraph 2 of Section B of this
Article EIGHTH shall include the shares of Common Stock and/or the
shares of any other class of outstanding Voting Stock retained by the
holders of such shares.
D. A majority of the Disinterested Directors of the Corporation shall have
the power and duty to determine for the purposes of this Article EIGHTH, on the
basis of information known to them after reasonable inquiry, (a) whether a
person is an Interested Stockholder; (b) the number of shares of Voting Stock
beneficially owned by any person; (c) whether a person is an Affiliate or
Associate of another; and (d) whether the assets which are the subject of any
Business Combination have, or the consideration to be received for the issuance
or transfer of securities by the Corporation or any Subsidiary in any Business
Combination has an aggregate Fair Market Value equaling or exceeding 25% of the
combined assets of the Corporation and its Subsidiaries. A majority of the
Disinterested Directors shall have the further power to interpret all of the
terms and provisions of this Article EIGHTH.
E. Nothing contained in this Article EIGHTH shall be construed to relieve
any Interested Stockholder from any fiduciary obligation imposed by law.
F. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least 75% of the voting power of all of the then-outstanding
shares of the Voting Stock, voting together as a single class, shall be required
to alter, amend or repeal this Article EIGHTH.
NINTH: The Board of Directors of the Corporation, when evaluating any offer
of another Person (as defined in Article EIGHTH hereof) to (A) make a tender or
exchange offer for any equity security of the Corporation, (B) merge or
consolidate the Corporation with another corporation or entity or (C) purchase
or otherwise acquire all or substantially all of the properties and assets of
the Corporation, may, in connection with the exercise of its judgment in
determining what is in the best interest of the Corporation and its
stockholders, give due consideration to all relevant factors, including, without
limitation, the social and economic effect of acceptance of such offer on the
Corporation's present and future customers and employees and those of its
Subsidiaries (as defined in Article EIGHTH hereof); on the communities in which
the Corporation and its Subsidiaries operate or are located; on the ability of
the Corporation to fulfill its corporate objectives as a financial institution
holding company and on the ability of its subsidiary financial institution to
fulfill the objectives of a federally insured financial institution under
applicable statutes and regulations.
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TENTH:
A. Except as set forth in Section B of this Article TENTH, in addition to
any affirmative vote of stockholders required by law or this Certificate of
Incorporation, any direct or indirect purchase or other acquisition by the
Corporation of any equity security of any class from any Interested Person (as
hereinafter defined) shall require the affirmative vote of the holders of at
least 75% of the Voting Stock of the Corporation that is not beneficially owned
by such Interested Person, voting together as a single class. Such affirmative
vote shall be required notwithstanding the fact that no vote may be required, or
that a lesser percentage may be specified, by law or by any other provisions of
this Certificate of Incorporation or any Preferred Stock Designation or in any
agreement with any national securities exchange or quotation system, or
otherwise. Certain defined terms used in this Article TENTH are as set forth in
Section C below.
B. The provisions of Section A of this Article TENTH shall not be
applicable with respect to:
1. any purchase or other acquisition of securities made as part of a
tender or exchange offer by the Corporation or a Subsidiary (which
term, as used in this Article TENTH, is as defined in the first clause
of Section C.6 of Article EIGHTH hereof) of the Corporation to
purchase securities of the same class made on the same terms to all
holders of such securities and, if required, complying with the
applicable requirements of the Securities Exchange Act of 1934 and the
rules and regulations thereunder (or any subsequent provision
replacing such Act, rules or regulations);
2. any purchase or acquisition made pursuant to an open market purchase
program approved by a majority of the Board of Directors, including a
majority of the Disinterested Directors (which term, as used in this
Article TENTH, is as defined in Article EIGHTH hereof); or
3. any purchase or acquisition which is approved by a majority of the
Board of Directors, including a majority of the Disinterested
Directors, and which is made at no more than the Market Price (as
hereinafter defined), on the date that the understanding between the
Corporation and the Interested Person is reached with respect to such
purchase (whether or not such purchase is made or a written agreement
relating to such purchase is executed on such date), of shares of the
class of Equity Security to be purchased.
C. For the purposes of this Article TENTH:
1. The term Interested Person shall mean any Person (other than the
Corporation, Subsidiaries of the Corporation, pension, profit sharing,
employee stock ownership or other employee benefit plans of the
Corporation and its Subsidiaries, entities organized or established by
the Corporation or any of its Subsidiaries pursuant to the terms of
such plans and trustees and fiduciaries with respect to any such plan
acting in such capacity) that is the direct or indirect beneficial
owner of 5% or more of the Voting Stock of the Corporation, and any
Affiliate or Associate of any such person.
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2. The Market Price of shares of a class of equity security on any day
shall be determined in the same manner as "Fair Market Value" set
forth in section C.8 of Article EIGHTH.
3. For purposes of this Article TENTH, all references to the term
Interested Stockholder in the definition of Disinterested Director
shall be deemed to refer to the term Interested Person.
ELEVENTH:
A. Each person who was or is made a party or is threatened to be made a
party to or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a "proceeding"),
by reason of the fact that he or she is or was a director or an officer of the
Corporation or is or was serving at the request of the Corporation as a director
or officer of another corporation, including, without limitation, any Subsidiary
(as defined in Article EIGHTH herein), partnership, joint venture, trust or
other enterprise, including service with respect to an employee benefit plan
(hereinafter an "indemnitee"), whether the basis of such proceeding is alleged
action in an official capacity as a director or officer or in any other capacity
while serving as a director or officer, shall be indemnified and held harmless
by the Corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than such law permitted
the Corporation to provide prior to such amendment), against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid in settlement) reasonably incurred or
suffered by such indemnitee in connection therewith; provided, however, that,
except as provided in Section C hereof with respect to proceedings to enforce
rights to indemnification, the Corporation shall indemnify any such indemnitee
in connection with a proceeding (or part thereof) initiated by such indemnitee
only if such proceeding (or part thereof) was authorized by the Board of
Directors of the Corporation.
B. The right to indemnification conferred in Section A of this Article
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition (hereinafter
an "advancement of expenses"); provided, however, that, if the Delaware General
Corporation Law requires, an advancement of expenses incurred by an indemnitee
in his or her capacity as a director or officer (and not in any other capacity
in which service was or is rendered by such indemnitee, including, without
limitation, service to an employee benefit plan) shall be made only upon
delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by
or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication"), that such
indemnitee is not entitled to be indemnified for such expenses under this
Section or otherwise. The rights to indemnification and to the advancement of
expenses conferred in Sections A and B of this Article shall be contract rights
and such rights shall continue as to an indemnitee who has ceased to be a
director or officer and shall inure to the benefit of the indemnitee's heirs,
executors and administrators.
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C. If a claim under Section A or B of this Article is not paid in full by
the Corporation within sixty days after a written claim has been received by the
Corporation, except in the case of a claim for an advancement of expenses, in
which case the applicable period shall be twenty days, the indemnitee may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim. If successful in whole or in part in any such suit, or in a suit
brought by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the indemnitee shall also be entitled to be paid the
expense of prosecuting or defending such suit. In (i) any suit brought by the
indemnitee to enforce a right to indemnification hereunder (but not in a suit
brought by the indemnitee to enforce a right to an advancement of expenses) it
shall be a defense that, and (ii) in any suit by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking the Corporation
shall be entitled to recover such expenses upon a final adjudication that, the
indemnitee has not met any applicable standard for indemnification set forth in
the Delaware General Corporation Law. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses, under this
Article or otherwise shall be on the Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Article shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, the Corporation's
Certificate of Incorporation, Bylaws, agreement, vote of stockholders or
Disinterested Directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the Delaware General Corporation Law.
F. The Corporation may, to the extent authorized from time to time by a
majority vote of the disinterested directors, grant rights to indemnification
and to the advancement of expenses to any employee or agent of the Corporation
to the fullest extent of the provisions of this Article with respect to the
indemnification and advancement of expenses of directors and officers of the
Corporation.
TWELFTH: A director of this Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts
B-12
<PAGE>
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit. If the Delaware General Corporation Law is hereafter
amended to further eliminate or limit the personal liability of directors, then
the liability of a director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the Delaware General Corporation Law, as so
amended.
Any repeal or modification of the foregoing paragraph by the stockholders
of the Corporation shall not adversely affect any right or protection of a
director of the Corporation existing at the time of such repeal or modification.
THIRTEENTH: The Corporation reserves the right to amend or repeal any
provision contained in this Certificate of Incorporation in the manner
prescribed by the laws of the State of Delaware and all rights conferred upon
stockholders are granted subject to this reservation; provided, however, that,
notwithstanding any other provision of this Certificate of Incorporation or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any vote of the holders of any class or series of the stock of this
Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least 75% of the voting power of all of
the then-outstanding shares of the capital stock of the Corporation entitled to
vote generally in the election of directors (after giving effect to the
provisions of Article FOURTH), voting together as a single class, shall be
required to amend or repeal this Article THIRTEENTH, clauses B or C of Article
FOURTH, clauses C or D of Article FIFTH, Article SIXTH, Article SEVENTH, Article
EIGHTH, Article TENTH or Article ELEVENTH.
FOURTEENTH: The name and mailing address of the sole incorporator are as
follows:
NAME MAILING ADDRESS
---- ---------------
Aubrey L. Dunn, Jr. 300 North Pennsylvania Avenue
Roswell, New Mexico 88201
B-13
<PAGE>
I, THE UNDERSIGNED, being the incorporator, for the purpose of forming a
corporation under the laws of the State of Delaware, do make, file and record
this Certificate of Incorporation, do certify that the facts herein stated are
true, and, accordingly, have hereto set my hand this 30th day of April, 1998.
FIRST FEDERAL BANK OF THE
SOUTHWEST, INC.
/s/ Aubrey L. Dunn, Jr.
-------------------------
Aubrey L. Dunn, Jr.
Incorporator
B-14
<PAGE>
APPENDIX C
RIGHTS OF DISSENTING STOCKHOLDERS
SECTION 552.14 OF THE OFFICE OF THRIFT SUPERVISION
RULES AND REGULATIONS
ss. 552.14 Dissenter and appraisal rights.
(a) Right to demand payment of fair or appraised value. Except as provided
in paragraph (b) of this section, any stockholder of a Federal stock association
combining in accordance with ss.552.13 of this part shall have the right to
demand payment of the fair or appraised value of his stock: Provided, That such
stockholder has not voted in favor of the combination and complies with the
provisions of paragraph (c) of this section.
(b) Exceptions. No stockholder required to accept only qualified
consideration for his or her stock shall have the right under this section to
demand payment of the stock's fair or appraised value, if such stock was listed
on a national securities exchange or quoted on the National Association of
Securities Dealers' Automated Quotation System ("NASDAQ") on the date of the
meeting at which the combination was acted upon or stockholder action is not
required for a combination made pursuant to ss. 552.13(h)(2) of this part.
"Qualified consideration" means cash, shares of stock of any association or
corporation which at the effective date of the combination will be listed on a
national securities exchange or quoted on NASDAQ or any combination of such
shares of stock and cash.
(c) Procedure.
(1) NOTICE. Each constituent Federal stock association shall notify
all stockholders entitled to rights under this section, not less than
twenty days prior to the meeting at which the combination agreement is to
be submitted for stockholder approval, of the right to demand payment of
appraised value of shares, and shall include in such notice a copy of this
section. Such written notice shall be mailed to stockholders of record and
may be part of the management's proxy solicitation for such meeting.
(2) DEMAND FOR APPRAISAL AND PAYMENT. Each stockholder electing to
make a demand under this section shall deliver to the Federal stock
association, before voting on the combination, a writing identifying
himself or herself and stating his or her intention thereby to demand
appraisal of and payment for his or her shares. Such demand must be in
addition to and separate from any proxy or vote against the combination by
the stockholder.
(3) NOTIFICATION OF EFFECTIVE DATE AND WRITTEN OFFER. Within ten days
after the effective date of the combination, the resulting association
shall;
(i) Give written notice by mail to stockholders of constituent
Federal stock associations who have complied with the provisions of
paragraph (c)(2) of this section and have not voted in favor of the
combination, of the effective date of the combination;
C-1
<PAGE>
(ii) Make a written offer to each stockholder to pay for
dissenting shares at a specified price deemed by the resulting
association to be the fair value thereof; and
(iii) Inform them that, within sixty days of such date, the
respective requirements of paragraphs (c)(5) and (6) of this section
(set out in the notice) must be satisfied.
The notice and offer shall be accompanied by a balance sheet and statement
of income of the association the shares of which the dissenting stockholder
holds, for a fiscal year ending not more than sixteen months before the
date of notice and offer, together with the latest available interim
financial statements.
(4) ACCEPTANCE OF OFFER. If within sixty days of the effective date of
the combination the fair value is agreed upon between the resulting
association and any stockholder who has complied with the provisions of
paragraph (c)(2) of this section, payment therefor shall be made within
ninety days of the effective date of the combination.
(5) PETITION TO BE FILED IF OFFER NOT ACCEPTED. If within sixty days
of the effective date of the combination the resulting association and any
stockholder who has complied with the provisions of paragraph (c)(2) of
this section do not agree as to the fair value, then any such stockholder
may file a petition with the Office, with a copy by registered or certified
mail to the resulting association, demanding a determination of the fair
market value of the stock of all such stockholders. A stockholder entitled
to file a petition under this section who fails to file such petition
within sixty days of the effective date of the combination shall be deemed
to have accepted the terms offered under the combination.
(6) STOCK CERTIFICATES TO BE NOTED. Within sixty days of the effective
date of the combination, each stockholder demanding appraisal and payment
under this section shall submit to the transfer agent his certificates of
stock for notation thereon that an appraisal and payment have been demanded
with respect to such stock and that appraisal proceedings are pending. Any
stockholder who fails to submit his stock certificates for such notation
shall no longer be entitled to appraisal rights under this section and
shall be deemed to have accepted the terms offered under the combination.
(7) WITHDRAWAL OF DEMAND. Notwithstanding the foregoing, at any time
within sixty days after the effective date of the combination, any
stockholder shall have the right to withdraw his or her demand for
appraisal and to accept the terms offered upon the combination.
(8) VALUATION AND PAYMENT. The Director shall, as he or she may elect,
either appoint one or more independent persons or direct appropriate staff
of the Office to appraise the shares to determine their fair market value,
as of the effective date of the combination, exclusive of any element of
value arising from the accomplishment or expectation of the combination.
Appropriate staff of the Office shall review and provide an opinion on
appraisals prepared by independent persons as to the suitability of the
appraisal methodology and the adequacy of the analysis and supportive data.
The Director after consideration of the appraisal report and the advice of
the appropriate staff shall, if he or she concurs in the valuation of the
shares, direct payment by the resulting association of the appraised fair
market value of the shares, upon surrender of the
C-2
<PAGE>
certificates representing such stock. Payment shall be made, together with
interest from the effective date of the combination, at a rate deemed
equitable by the Director.
(9) COSTS AND EXPENSES. The costs and expenses of any proceeding under
this section may be apportioned and assessed by the Director as he or she
may deem equitable against all or some of the parties. In making this
determination the Director shall consider whether any party has acted
arbitrarily, vexatiously, or not in good faith in respect to the rights
provided by this section.
(10) VOTING AND DISTRIBUTION. Any stockholder who has demanded
appraisal rights as provided in paragraph (c)(2) of this section shall
thereafter neither be entitled to vote such stock for any purpose nor be
entitled to the payment of dividends or other distributions on the stock
(except dividends or other distribution payable to, or a vote to be taken
by stockholders of record at a date which is on or prior to, the effective
date of the combination): Provided, That if any stockholder becomes
unentitled to appraisal and payment of appraised value with respect to such
stock and accepts or is deemed to have accepted the terms offered upon the
combination, such stockholder shall thereupon be entitled to vote and
receive the distributions described above.
(11) STATUS. Shares of the resulting association into which shares of
the stockholders demanding appraisal rights would have been converted or
exchanged, had they assented to the combination, shall have the status of
authorized and unissued shares of the resulting association.
C-3
<PAGE>
APPENDIX D
----------
First Federal
of New Mexico
Annual Report 1997
First Federal Savings Bank of New Mexico
<PAGE>
Las Cruces Telshor Branch
800 S. Telshor Blvd.
Las Cruces, NM 88011
(505)522-2664
Las Cruces Main Branch
301 W. Amador
Las Cruces, NM 88011
(505) 524-8571
Ruidoso Branch
388 Sudderth
Ruidoso, NM 88345
(505)257-4006
Loan Production Office
7500 N. Mesa, Suite 307
El Paso, TX 79912
(915)845-7270
Home Office
300 N. Pennsylvania Ave.
Roswell, NM 88201
(505)622-6201
In State: 1-800-219-6201
Alamogordo Branch
300 E. First St.
Alamogordo, NM 88310
(505)439-0011
<PAGE>
[LOGO] 1997 Annual Report
- - --------------------------------------------------------------------------------
TABLE OF CONTENTS
President's Letter ......................................................... 2
Financial Highlights ....................................................... 4
Management's Discussion and Analysis of Financial Condition
and Results of Operations ................................................ 6
Report of Ritter, Barr & Company, Independent Auditors ..................... 9
Consolidated Financial Statements
Statements of Financial Condition ........................................ 10
Statements of Income ..................................................... 12
Statements of Stockholders' Equity ....................................... 13
Statements of Cash Flows ................................................. 14
Notes to Consolidated Financial Statements ............................... 15
Corporate Information ...................................................... 34
- - --------------------------------------------------------------------------------
<PAGE>
Dear Stockholders,
September 30, 1997 marked the end of a profitable and exciting fiscal year for
First Federal Savings Bank of New Mexico. The Savings Bank expanded its markets,
strived to remain competitive in an everchanging market, and provided a return
to its stockholders.
September 30, 1997 year end profits were $2,137,106, a 111 % increase over 1996
profits (after a one time FDIC assessment in 1996 of $988,825). If this one time
FDIC assessment is backed out of the 1996 year, the increase in profits for 1997
was 31.93%. The return on assets (ROA) for the Savings Bank during the year was
1.02% and the return on beginning equity (ROE) was 11.05%. The earnings per
share were $5.23 and the Savings Bank paid an annual dividend of $1.65 per
share.
Fee income contributed to this outstanding performance along with our growth in
loans. Fee income increased from $346,270 to $532,208, an increase of 53.70%
over last year. Total loans outstanding for the same period increased from
$153,496,870 to $168,012,806, an increase of $14,515,936 or 9.46%. This growth
in loans was funded largely by a decrease in investments of $13,585,982 and an
increase in passbook savings accounts of $5,787,300. A major area of loan growth
occurred in the commercial real estate loans out of our Las Cruces branch.
However, mortgage lending continues to be a major focus of the Savings Bank. In
1997, the Savings Bank originated $28,646,582 in mortgage loans, of which
$17,324,290 were sold into the secondary market. We at First Federal still
strive to be a community bank offering lending to individuals for homes,
businesses, and personal needs.
In an effort to diversify its lending portfolio First Federal has been very
active in the consumer lending area. Through all of 1996 and the first six
months of fiscal year 1997, the Savings Bank was active in the indirect
automobile lending market. This enabled the Savings Bank to increase its
consumer customer base. However, charge-offs increased in 1997 primarily due to
these indirect automobile loans. Management has focused on tightening lending in
indirect automobile paper and the majority of these losses have been recognized.
First Federal continues to maintain a strong equity position with year-end
capital of $20,871,550. The tangible capital to total assets ratio remains above
9% and the total risk-based capital ratio is over 15%. The Savings Bank has
adequate capital to sustain continued growth and expand through acquisitions.
Fiscal 1997 was a great year of expansion for First Federal. The Alamogordo
branch opened its new facility and moved out of the pizza mall. The new building
has approximately 5,000 square feet and five new drive-up lanes. This new branch
showed profits exceeding $100,000 in 1997 despite its start-up costs. The Las
Cruces branch has also had a great year in growth, as mentioned above, with
$11,111,950 in commercial real estate loans originated. This growth has been in
large part due to our new Las Cruces branch president, Joe Bullock. Joe came to
First Federal in August of 1996 from Nations Bank. The Ruidoso branch
experienced a record-breaking year for new loan originations. There were 372
loans made for a total of $8,640,755, an increase of 25% over 1996.
Additionally, in the summer of 1997, First Federal opened a new loan production
office ("LPO") in El Paso, Texas. This new LPO is located on the west side of El
Paso on Mesa Street. This new venture has
2
<PAGE>
been slow in starting, but with the proposed change of home equity lending in
Texas the prospects for potential looks good for 1998. Also, we have changed
managers and hired a Small Business Administration (" SBA") specialist to work
on bringing in new small business loans.
In closing, I urge you to take the time to read and study this report so that
you might obtain a better understanding of the operations of First Federal. We
will continue to strive to achieve a higher return on your investment in a
manner that is safe, sound and consistent with prudent management decisions.
Finally, I would like to take this opportunity to thank the directors, officers
and staff of First Federal for their outstanding performance and commitment
during the past fiscal year.
Sincerely,
/s/ Aubrey L. Dunn, Jr.
Aubrey L. Dunn, Jr.
President and Chief Executive Officer
3
<PAGE>
Financial Highlights
Year ended September 30, 1997
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Total interest income $ 16,560,493 $ 15,125,462 $ 13,902,727 $ 12,781,414 $ 11,160,850
Total interest expense 8,313,006 7,761,290 7,019,085 5,733,208 5,500,329
------------ ------------ ------------ ------------ ------------
Net interest income before provision
(benefit) for loan losses 8,247,487 7,364,172 6,883,642 7,048,206 5,660,521
Provision (benefit) for loan losses 440,935 255,653 325,727 176,167 (20,583)
------------ ------------ ------------ ------------ ------------
Net interest income after provision
(benefit) for loan losses 7,806,552 7,108,519 6,557,915 6,872,039 5,681,104
Other income 1,539,273 1,510,868 1,493,950 954,018 796,705
Other expenses 5,852,996 6,960,684 4,969,444 5,225,787 3,849,826
------------ ------------ ------------ ------------ ------------
Income before income taxes, cumulative
effect of a change in accounting
principle and extraordinary item 3,492,829 1,658,703 3,082,421 2,600,270 2,627,983
Income tax expense 1,355,723 643,903 1,296,752 1,036,218 349,303
------------ ------------ ------------ ------------ ------------
Income before cumulative effect of a
change in accounting principle and
extraordinary item 2,137,106 1,014,800 1,785,669 1,564,052 2,278,680
Cumulative effect of a change in
accounting principle -- -- -- -- 343,027
------------ ------------ ------------ ------------ ------------
Income before extraordinary item 2,137,106 1,014,800 1,785,669 1,564,052 2,621,707
Extraordinary item -- Insurance proceeds
in excess of carrying value of assets
destroyed or damaged in fire, less
applicable income taxes -- -- 42,485 -- --
------------ ------------ ------------ ------------ ------------
Net Income $ 2,137,106 $ 1,014,800 $ 1,828,154 $ 1,564,052 $ 2,621,707
============ ============ ============ ============ ============
Weighted average shares outstanding 408,825 408,825 408,752 408,750 408,750
============ ============ ============ ============ ============
Earnings per share
Income from continuing operations
before income taxes $ 7.54 $ 6.43
============ ============
Income before the cumulative effect
of a change in accounting principle
and extraordinary item $ 4.37 $ 5.57
============ ============
Cumulative effect of a change in
accounting principle $ .84
============
Extraordinary item $ .10
============
Net income $ 5.23 $ 2.48 $ 4.47 $ 3.83 $ 6.41
============ ============ ============ ============ ============
</TABLE>
4
<PAGE>
Financial Highlights (Continued)
Year ended September 30, 1997
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Total assets $212,153,109 $207,617,365 $190,680,149 $186,555,703 $200,455,132
Total deposits 172,212,340 167,029,221 161,296,007 156,956,636 179,955,802
Real estate loans 125,469,681 115,691,371 121,831,792 115,662,928 109,796,701
Other loans and mortgage-backed
securities* 54,278,574 52,659,695 43,553,470 44,967,863 49,268,927
Stockholders' equity 20,871,550 19,347,696 18,865,237 17,605,945 16,664,624
Weighted average yield on total loans 8.86% 8.83% 8.73% 8.15% 8.27%
Weighted average interest rate on
savings deposits 4.53% 4.50% 4.76% 3.73% 3.79%
Primary spread 4.33% 4.33% 3.97% 4.42% 4.48%
Customer Service Facilities
Full Service 5 4 3 3 3
Branch Facilities 3 3 4 3 5
Dividends per share $ 1.65 $ 1.25 $ 1.40 $ 1.50 $ 1.25
============ ============ ============ ============ ============
</TABLE>
* Before loss allowances, unearned discounts, deferred loan origination fees and
unearned interest.
- - ----------------------------------------
Effective June 1, 1993, First Federal Savings Bank of New Mexico purchased all
of the outstanding common stock of Mutual Building and Loan Association, F.A.
("Mutual"). Accordingly, the financial information for the fiscal year ended
September 30, 1993 presented above reflects the purchase of Mutual, and thus,
may not necessarily be indicative of future operating results or future
financial condition.
5
<PAGE>
Managment's discussion and analysis of
financial condition and results of operations
- - --------------------------------------------------------------------------------
General
- - -------
First Federal Savings Bank of New Mexico's (the "Savings Bank") net income
depends primarily on its interest rate spread, which is the difference between
the interest earned on its loan and investment portfolios and the interest paid
on its deposits and borrowings. The spread is affected by economic factors that
influence interest rates, loan demand and deposit flows. Earnings are also
affected by levels of operating expenses, non-interest revenues and non-earning
assets, such as real estate owned.
The Savings Bank's results from operations during the last two fiscal years have
been influenced by fundamental changes in the economic, regulatory and
competitive environment. Fiscal 1997 brought a continuation of a stable interest
rate environment, with the thirty-year treasury bond yield trading in a range of
6.3% to 7.17%. This interest rate scenario allowed the Savings Bank to slightly
increase its overall primary spread by five basis points through increasing the
yield on earning assets (primarily loans) in spite of an increase in the cost of
interest bearing liabilities (primarily savings accounts).
The following table sets forth, for the periods indicated, the weighted average
interest yields earned on the Savings Bank's interest-earning assets, the
weighted average interest rates paid on interest-bearing liabilities and the net
yield on average interest-earning assets:
Year ended September 30,
------------------------
1997 1996
---- ----
Weighted average yield on all interest-earning assets 8.34% 8.21%
Weighted average rate paid on
all interest-bearing liabilities 4.69% 4.61%
---- ----
Net yield on average interest-earning assets 3.65% 3.60%
==== ====
In an effort to make the yields on its loan portfolio and investments more
responsive to its cost of funds, the Savings Bank implemented a number of
policies to enhance its interest rate spread and reduce interest rate risk.
Those measures included (i) the continuation of a secondary market function
where long-term, fixed-rate mortgages are sold on a regular basis, (ii) an
emphasis upon the granting of adjustable rate mortgage loans and shorter
maturity fixed-rate mortgage loans, (iii) the origination of commercial and
consumer loans at interest rates subject to periodic adjustment based upon the
prevailing prime rate or other prevailing market interest rates, and (iv)
obtaining fixed-rate Federal Home Loan Bank (FHLB) advances where maturities
are matched to the term and/or expected life of longer-term loans where
acceptable margins can be obtained.
Although the emphasis has changed on mortgage loan originations to adjustable
rates and shorter terms, the Savings Bank granted more long-term, fixed-rate
mortgage loans due to relatively low interest rates and the existing demand in
the Savings Bank's market area. For the year ended September 30, 1997, the
Savings Bank sold $17,324,290 in newly originated long-term, fixed-rate mortgage
loans.
While the Savings Bank has made some changes in the types of mortgages and other
loans offered to permit more rapid adjustment to changes in prevailing rates,
these adjustments have not fully compensated for the sensitivity of the cost of
deposits to changes in rates. Consequently, the Savings Bank will remain
vulnerable to future increases in interest rates which, if significant, would
have an adverse effect on operations.
Liquidity and Capital Resources
- - -------------------------------
Total assets at September 30, 1997 were, $212,153,109 representing a 2% increase
compared to total assets of $207,617,365 at September 30, 1996. Loans receivable
increased by approximately $15.3 million from the prior year. Mortgage-backed
securities decreased approximately $3.5 million from
6
<PAGE>
September 30, 1996 to September 30, 1997, investment securities decreased by
approximately $10.1 primarily due to the sale of an adjustable rate mutual fund
and paydowns in mortgage-backed securities, respectively. Loan originations
increased during fiscal 1997, with approximately $72.2 million being originated
this year as compared to $69.4 million in the prior year. Originations were
primarily funded through loan principal collections, excess liquidity and FHLB
advances. As of September 30, 1997, the Savings Bank had $15.7 million in
outstanding FHLB advances. These advances are primarily used to reduce the cost
of funds and manage interest rate risk through matching these funds against
longer-term, fixed-rate loans (see Note N to the consolidated financial
statements). Management anticipates maintaining or increasing the current level
of outstanding FHLB advances. At September 30, 1997, the Savings Bank had
commitments to originate loans totaling $8,576,108 to be funded from cash and
FHLB advances. Of the Savings Bank's total loans of $164,319,323 and total
deposits of $172,212,340 at September 30, 1997, approximately $116,036,616 of
loans and $73,570,109 of deposits represent variable rate instruments which are
sensitive to market conditions. This represents an improvement in the match of
interest-earning assets and interest-bearing liabilities and enables the Savings
Bank to more readily adjust to fluctuating market conditions and changes in the
economy. The liquidity position of the Savings Bank remains adequate (see Note I
to the consolidated financial statements).
In July 1997 the Savings Bank completed its construction of the approximate
5,000 square foot full-service branch in Alamogordo, New Mexico at a cost of
approximately $804,000 (excluding land acquired in fiscal 1996). The facilities,
furniture, fixtures and equipment were funded out of excess liquidity. Also in
July 1997, the Savings Bank established a Loan Production Office located in El
Paso, Texas. The premises are leased and the overhead cost associated with the
start up and operations of the office totaled approximately $24,000 in fiscal
1997. The office generated no revenue for fiscal 1997. A recent change in the
management at that office is expected to bring positive changes for fiscal 1998.
Results of Operations
- - ---------------------
Year ended September 30, 1997 as compared to year ended September 30, 1996
In fiscal 1997, net income increased 111 % from $1,014,800 in fiscal 1996 to
$2,137,106 in fiscal 1997. Fiscal 1996 included a one-time assessment to
recapitalize the SAIF, totaling $988,825. The increase in income in fiscal 1997,
after the effect of the one-time assessment (net of tax effect), totaling
$517,264, is due primarily to increased interest income, origination, commitment
and loan fees, and fees for other services to customers (see Note K to the
consolidated financial statements). This increase in income is after increased
normal operating expenses of approximately $844,245, including interest and
other expenses and excluding the overall decrease in insurance premiums.
Total interest income increased 9% in fiscal 1997, while total interest expense
increased 7%. Interest income on loans increased $1,898,460 or 15% in fiscal
1997. This increase is primarily attributable to an increase in commercial real
estate and consumer loan originations, which typically have higher yields than
residential loans. The weighted average yield on all loans increased from 8.83%
in fiscal 1996 to 8.86% in fiscal 1997.
Other income increased 2% in fiscal 1997 compared to fiscal 1996 primarily due
to increased origination and commitment fees, and fees for other service income.
Loan origination and commitment fees increased by 14% and fees for other service
income increased by 54% during fiscal 1997 as compared to fiscal 1996.
Origination fees, loan commitment fees and fees for other services increased by
$244,457 while gain on the sale of loans and other income decreased by $236,137.
Gain on the sale of loans decreased 45% from $376,483 during fiscal 1996 to
$205,518 during fiscal 1997 due primarily to the onetime sale of $10,450,000 in
mortgage loans in fiscal 1996 which resulted in a gain of $209,019 in that
period. Exclusive of the one time-gain, the gain on sale through normal
operations in fiscal 1997 would have increased by approximately $38,054.
Interest expense on deposits increased 7% or $551,716 in fiscal 1997. This
increase was due primarily to an increase in deposits and a lengthening of the
term of FHLB advances obtained for matched funding purposes. Provision for
losses on loans increased by $185,282 in fiscal 1997 from a $255,653 provision
in
7
<PAGE>
fiscal 1996 to a provision of $440,935 in fiscal 1997, primarily due to losses
incurred related to indirect automobile lending and increased level of
outstanding loans. As of September 30, 1997 the allowance for loan losses
totaled $1,677,153. Other expenses decreased $1,107,688 or 16% not withstanding
expenses associated with the Savings Bank's holding company reorganization which
was later withdrawn (see note S to the consolidated financial statements). The
decrease in other expenses is primarily a result of the decreased insurance
assessments and advertising expense. During fiscal 1997, the Savings Bank
disposed of real estate owned and other assets at a loss (net of recoveries) of
approximately $321,871. The losses were primarily related to automobile loans,
specifically indirect dealer paper loans which totaled approximately $285,046.
In light of the losses relative to automobile lending, management has
implemented tighter lending standards.
Results of Operations
- - ---------------------
Year ended September 30, 1996 as compared to year ended September 30, 1995
In fiscal 1996 net income decreased 45% from $1,828,154 in fiscal 1995 to
$1,014,800 in fiscal 1996 due primarily to a one time assessment totaling
$988,825, payment of compensation packages to former bank officers totaling
$126,155, and to a curtailment gain of approximately $363,000 which resulted
from the termination of the Savings Bank's pension plan in fiscal 1995 (see Note
J to the consolidated financial statements).
Total interest income increased 9% in fiscal 1996, while total interest expense
increased 11%. Interest income on loans increased $1,140,190 or 10% in fiscal
1996. This increase is primarily attributable to an increase in commercial
real-estate and consumer loans, which typically have higher yields than
residential loans. The weighted average yield on all loans increased from 8.73%
in fiscal 1995 to 8.83% in fiscal 1996.
Other income decreased 2% in fiscal 1996 compared to fiscal 1995 due primarily
to the curtailment gain discussed above and losses incurred during fiscal 1996
on the operation of real estate owned properties. Loan origination and
commitment fees increased by 31 % during fiscal 1996 compared to fiscal 1995 due
to the increase in loan originations of approximately $27.9 million in fiscal
1996. The Savings Bank originated approximately $69.4 million of new loans in
fiscal 1996 compared to $41.5 million in fiscal 1995. Gain on sale of loans
increased by $294,312 during fiscal 1996 compared to fiscal 1995. This increase
includes a gain of $209,019 related to the one-time sale of a pool of
$10,450,000 in long-term, fixed-rate mortgage loans. Interest expense on
deposits and borrowed funds increased 11 % or $742,205 in fiscal 1996. This
increase was due primarily to an increase in deposits and an increase in FHLB
advances. Provision for losses on loans decreased by $70,074 in fiscal 1996 from
a $325,727 provision in fiscal 1995 to a provision of $255,653 in fiscal 1996,
based on management's estimate of the allowance for loan losses required to
absorb possible future losses in the Savings Bank's portfolios at September 30,
1996. As of September 30, 1996 the allowance for loan losses totaled $1,523,349.
This represents an increase of $164,986 or 12% from 1995. Other expenses
increased $1,950,232 or 39%, primarily as a result of the one-time SAIF
assessment, increased compensation from the establishment of the Alamogordo
branch and compensation packages granted to former Senior Officers, increases in
insurance premiums, increases in advertising expense and an increase in the loss
on sale of investment securities. Loss on the sale of investment securities
totaled $150,870 in fiscal 1996 as compared to a loss of $18,418 in fiscal 1995.
The decision to sell long-term, low-yielding securities at a loss was predicated
on managing interest rate risk and the fact that these securities had previously
had a mark-to-market value with a much greater loss when interest rates were
higher. Management and the Board were of the opinion that the loss on the sale
of these securities could be recouped in a relatively short time through
reinvesting the sales proceeds at the higher prevailing rates while mitigating
interest rate risk. In fiscal 1996, the Savings Bank disposed of real estate
owned and other repossessed assets with a carrying value of $62,997 for total
proceeds of $26,674. This resulted in losses of $36,323 on the sale of real
estate owned and other repossessed assets with an additional loss related to
real estate owned operations of $4,685 (see Notes E, K and M to the consolidated
financial statements).
8
<PAGE>
- - --------------------------------------------------------------------------------
Report of Ritter, Barr & Company, Independent Auditors
- - --------------------------------------------------------------------------------
Board of Directors and Stockholders
First Federal Savings Bank of New Mexico
Roswell, New Mexico
We have audited the accompanying consolidated statements of financial condition
of First Federal Savings Bank of New Mexico and subsidiary (the "Savings Bank")
as of September 30, 1997 and 1996, and the related consolidated statements of
income, stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Savings Bank's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial condition of First Federal
Savings Bank of New Mexico and subsidiary at September 30, 1997 and 1996, and
the consolidated results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
As described in Note A to the consolidated financial statements, in fiscal 1997
the Savings Bank adopted Statement of Financial Accounting Standards ("SFAS")
No. 121, "Accounting for Impairment of Long-lived Assets and for Long-lived
Assets to be Disposed of," and SFAS No. 122, "Accounting for Mortgage Servicing
Rights, an Amendment of FASB Statement No. 65 " and SFAS No. 123, "Accounting
for Stock-based Compensation."
/s/ Ritter Barr & Company
Roswell, New Mexico
November 4, 1997
9
<PAGE>
Consolidated Statements of Financial Condition
- - --------------------------------------------------------------------------------
September 30,
---------------------------
1997 1996
------------ ------------
ASSETS
Cash on hand and in banks -- Note P $ 5,834,941 $ 4,812,612
Interest-bearing deposits in banks -- Note P 7,303,569 5,641,277
Marketable securities, net of allowance
for decline in market value of $6,480 and
$11,963 at September 30, 1997 and 1996,
respectively -- Notes B and P 493,007 487,524
Investment securities -- Notes B, L and P:
Investment securities held-to-maturity (fair
value of $5,341,261 and $7,938,761 at
September 30, 1997 and 1996, respectively) 5,362,404 8,061,541
Investment securities available-for-sale,
at fair value 5,557,257 12,977,989
------------ ------------
Total Investment Securities 10,919,661 21,039,530
Loans held for sale -- Note P 497,820 674,175
Loans receivable, net -- Notes C, D, L, N and P 164,319,323 149,143,130
Mortgage-backed securities - Notes B, L and P:
Mortgage-backed securities held-to-maturity
(fair value of $10,910,838 and $13,750,405
at September 30, 1997 and 1996, respectively) 10,944,501 13,970,963
Mortgage-backed securities available-for-sale,
at fair value 292,783 732,434
------------ ------------
Total Mortgage-Backed Securities 11,237,284 14,703,397
Accrued interest receivable -- Note L 1,287,162 1,177,680
Real estate owned, net -- Note K 264,878 142,757
Investments in real estate, net -- Notes E and M 199,627 198,390
Federal Home Loan Bank stock, at cost 1,583,300 1,493,200
Property and equipment, at cost, less
accumulated depreciation -- Note F 7,014,419 6,411,359
Goodwill, net of accumulated amortization of
$73,588 and $51,512 at September 30, 1997
and 1996, respectively 367,936 390,012
Prepaid expenses and other assets -- Note H 830,182 1,302,322
------------ ------------
TOTAL ASSETS $212,153,109 $207,617,365
============ ============
10
<PAGE>
Consolidated Statements of Financial Condition (Continued)
- - --------------------------------------------------------------------------------
September 30,
---------------------------
1997 1996
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Savings, certificates and demand accounts --
Notes G and P $172,212,340 $167,029,221
Advances from the Federal Home Loan Bank --
Notes N and P 15,653,565 17,000,000
Advance payments by borrowers for taxes
and insurance 510,822 559,275
Accounts payable and accrued expenses --
Notes G and H 2,443,057 3,309,684
Net deferred tax liability -- Note H 461,775 371,489
Contingencies -- Note Q -- --
------------ ------------
TOTAL LIABILITIES 191,281,559 188,269,669
============ ============
STOCKHOLDERS' EQUITY -- NOTES B, I AND R
Capital stock, $1 par value; 499,422 shares
authorized; 408,835 and 408,825 shares
issued and outstanding at September 30,
1997 and 1996, respectively 408,835 408,825
Capital in excess of par value 3,390,772 3,374,866
Retained earnings 17,055,894 15,593,360
Unrealized gain (loss) on marketable securities,
investment securities and mortgage-backed
securities available-for-sale 16,049 (29,355)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 20,871,550 19,347,696
============ ============
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $212,153,109 $207,617,365
============ ============
See notes to consolidated financial statements.
11
<PAGE>
Consolidated Statements of Income
- - --------------------------------------------------------------------------------
Year Ended
September 30,
-------------------------
1997 1996
----------- -----------
Interest Income
Interest and fees on loans $14,479,139 $12,580,679
Interest on mortgage-backed securities 721,786 1,040,455
Interest and dividends on investment securities 907,657 898,754
Interest and dividends on deposits 451,911 605,574
----------- ----------
Total Interest Income 16,560,493 15,125,462
----------- ----------
Interest Expense
Deposits -- Note G 7,508,795 7,275,180
Borrowed funds -- Note N 804,211 486,110
----------- ----------
Total Interest Expense 8,313,006 7,761,290
----------- ----------
Net Interest Income Before Provision for Loan Losses 8,247,487 7,364,172
Provision for loan losses -- Note D 440,935 255,653
----------- ----------
Net Interest Income After Provision for Loan Losses 7,806,552 7,108,519
----------- ----------
Other Income
Origination and commitment fees 627,202 548,598
Fees for other services to customers 532,208 346,270
Gain on sale of loans 205,518 376,483
Other 174,345 239,517
----------- ----------
Total Other Income 1,539,273 1,510,868
----------- ----------
Other Expenses
Compensation and related benefits - Note R 2,809,045 2,819,180
Occupancy 949,707 783,854
S.A.I.F. premiums 157,088 1,372,023
Data processing 367,562 325,314
Legal, accounting and supervisory examinations 269,842 206,830
Advertising 116,914 230,310
Insurance and surety bond premiums 70,282 65,709
Loss from real estate operations and sale of other
repossessed assets -- Notes E and K 82,148 44,637
Net loss on sale of investment securities and
mortgage-backed securities -- Note B 30,937 150,870
Other 999,471 961,957
----------- ----------
Total Other Expense 5,852,996 6,960,684
----------- ----------
Income Before Income Taxes 3,492,829 1,658,703
----------- ----------
Income Tax Expense -- Note H
Current 1,265,437 520,324
Deferred 90,286 123,579
----------- ----------
1,355,723 643,903
----------- ----------
NET INCOME $ 2,137,106 $1,014,800
=========== ==========
NET INCOME PER SHARE $ 5.23 $ 2.48
=========== ==========
DIVIDENDS PER SHARE $ 1.65 $ 1.25
=========== ==========
See notes to consolidated financial statements.
12
<PAGE>
Consolidated Statements of Stockholders' Equity
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Unrealized
gain (loss) on
securities
available-for-
sale, net of
Capital in applicable
Capital excess of Retained deferred
stock par value earnings income taxes Totals
-------- ---------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Balance at October 1, 1995 $408,825 $3,374,866 $15,089,591 $ (8,045) $18,865,237
Net income -- -- 1,014,800 -- 1,014,800
Dividends -- -- (511,031) -- (511,031)
Change in unrealized gain
(loss) on securities
available-for-sale, net of
applicable deferred
income taxes -- -- -- (21,310) (21,310)
-------- ---------- ----------- -------- -----------
Balance at September 30, 1996 408,825 3,374,866 15,593,360 (29,355) 19,347,696
Net income -- -- 2,137,106 -- 2,137,106
Dividends -- -- (674,572) -- (674,572)
Stock issued 10 340 -- -- 350
Vested portion of stock
granted under stock
option plan -- 15,566 -- -- 15,566
Change in unrealized gain
(loss) on securities
available-for-sale, net of
applicable deferred
income taxes -- -- -- 45,404 45,404
-------- ---------- ----------- -------- -----------
Balance at September 30, 1997 $408,835 $3,390,772 $17,055,894 $ 16,049 $20,871,550
======== ========== =========== ======== ===========
</TABLE>
There were 408,835 and 408,825 shares of capital stock outstanding at September
30, 1997 and 1996, respectively.
See notes to consolidated financial statements.
13
<PAGE>
Consolidated Statements of Cash Flows
- - --------------------------------------------------------------------------------
Year Ended September 30,
---------------------------
1997 1996
------------ ------------
OPERATING ACTIVITIES
Net income $ 2,137,106 $ 1,014,800
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation 472,072 413,502
Loss on sale of real estate owned and other
repossessed assets 51,085 36,323
Net loss on sale of investment securities and
mortgage-backed securities 30,937 150,870
Net loss (gain) on disposal of property and
equipment 13,338 (12,658)
Gain on sale of loans (205,518) (376,483)
Provision for loans losses 440,935 255,653
Accretion of deferred loan fees and discounts (252,427) (190,156)
Net amortization of premiums (285,309) (259,246)
Accretion of discounts (7,320) (7,878)
Amortization of goodwill 22,076 22,076
Compensation cost -- stock options 15,566 --
Deferred tax expense 90,286 123,579
Increase in accrued interest receivable (109,482) (183,177)
Decrease (increase) in prepaid expenses and
other assets 472,140 (473,705)
(Decrease) increase in accounts payable and
accrued expenses (917,175) 1,296,808
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,968,310 1,810,308
------------ ------------
INVESTING ACTIVITIES
Increase in interest-bearing deposits in banks (1,662,292) (3,513,923)
Proceeds from maturities of investments in
U.S. Government and Federal agency obligations
held-to-maturity 5,700,000 1,220,000
Proceeds from sale of U.S. Government and Federal
agency obligations available-for-sale 8,935,264 --
Purchases of investments in U.S. Government and
Federal agency obligations held-to-maturity (506,406) (2,025,000)
Purchases of investments in U.S. Government and
Federal agency obligations available-for-sale (3,976,704) (10,531,836)
Proceeds from sale of mortgage-backed securities
available-for-sale 328,312 8,099,799
Net loan originations and principal payments on
loans and mortgage-backed securities (29,873,669) (36,179,221)
Proceeds from sale of loans 17,529,808 26,275,808
Capitalized deferred loan fees 281,699 224,200
Proceeds from sales of real estate owned 44,914 26,674
Capitalized costs on real estate owned (4,509) --
Purchases of Federal Home Loan Bank stock (90,100) (86,900)
Purchases of property and equipment (1,099,816) (696,466)
Proceeds from sale of property and equipment 11,346 17,140
------------ ------------
NET CASH USED BY INVESTING ACTIVITIES (4,382,153) (17,169,725)
------------ ------------
FINANCING ACTIVITIES
Net increase in savings, certificates of deposit
and demand accounts 5,505,282 6,055,377
Decrease in advance payments by borrowers (48,453) (684,036)
Proceeds from borrowings 25,000,000 19,000,000
Payments on borrowings (26,346,435) (9,000,000)
Proceeds from stock issued 350 --
Cash dividends (674,572) (511,031)
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,436,172 14,860,310
------------ ------------
INCREASE (DECREASE) IN CASH ON HAND AND
IN BANKS 1,022,329 (499,107)
CASH ON HAND AND IN BANKS AT BEGINNING
OF YEAR 4,812,612 5,311,719
------------ ------------
CASH ON HAND AND IN BANKS AT END OF YEAR $ 5,834,941 $ 4,812,612
============ ============
See notes to consolidated financial statements.
14
<PAGE>
Notes to Consolidated Financial Statements
September 30, 1997
- - --------------------------------------------------------------------------------
Note A -- Summary of Significant Accounting Procedures
Business Activity and History
- - -----------------------------
First Federal Savings Bank of New Mexico's (the "Savings Bank") primary business
is the promotion of thrift through the solicitation of savings accounts from its
depositors and the general public, and the promotion of home ownership through
the granting of mortgage loans, primarily upon the security of single family
residences located in New Mexico.The Savings Bank was chartered in 1920 as a
mutual savings and loan association. In July 1979, the Savings Bank converted to
a capital stock association through the sale and issuance of 394,800 shares of
capital stock. In February 1983, the Savings Bank converted from a New Mexico
state chartered association to a federally chartered savings bank and changed
its name to First Federal Savings Bank of New Mexico (formerly Chaves County
Savings & Loan Association).Effective June 1, 1993, the Savings Bank acquired
all of the outstanding common stock of Mutual Building and Loan Association,
F.A. ("Mutual") for $4,130,000 in cash plus direct costs of $102,000 associated
with the acquisition.
Principles of Consolidation
- - ---------------------------
The consolidated statements include the accounts of the Savings Bank and its
wholly-owned subsidiary, First New Mexico Service Corporation ("FNMSC"). All
material intercompany accounts and transactions have been eliminated in
consolidation.
Interest Bearing Deposits
- - -------------------------
Interest bearing deposits in banks consist of a Federal Home Loan Bank ("FHLB")
account. The Savings Bank's policy is to maintain account balances, excluding
balances with the FHLB, with institutions which are federally insured by the
U.S. Government. Management monitors the accounts with other financial
institutions to ascertain that account balances do not exceed $100,000.The
Savings Bank is required by regulatory authorities to maintain certain cash
balances based on levels of customer deposits. There was no reserve required at
September 30, 1997 and 1996.
Investment Securities and Mortgage-backed Securities
- - ----------------------------------------------------
Investment securities are comprised of U.S. Government and Federal agency
obligations and municipal and other bonds. Mortgage-backed securities represent
participating interests in pools of long-term first mortgage loans originated
and serviced by someone other than the Savings Bank.Premiums and discounts
associated with investment securities are amortized using the interest method
over the remaining period to contractual maturity. Premiums and discounts
associated with mortgage-backed securities are amortized using a method that
approximates a level yield. Gains and losses on the sale of investment
securities and mortgage-backed securities are determined using the specific
identification method.Statement of Financial Accounting Standards ("SFAS") No.
115, "Accounting for Certain Investments in Debt and Equity Securities,"
addresses the accounting and reporting for investments in equity securities that
have readily determinable fair values and for all investments in debt
securities. Those investments are to be classified in three categories and
accounted for as follows:
o Debt securities that the Savings Bank has the positive intent and
ability to hold to maturity are classified as held-to-maturity
securities and reported at amortized cost.
o Debt and equity securities that are bought and held principally for
the purpose of selling them in the near term are classified as trading
securities and reported at fair value, with unrealized holding gains
and losses included in earnings.
o Debt and equity securities not classified as either held-to-maturity
securities or trading securities are classified as available-for-sale
securities and reported at fair value, with unrealized holding gains
and losses excluded from earnings and reported as a separate component
of stockholders' equity, net of applicable deferred income taxes.
Marketable securities have been classified by management as available-for-sale
and, accordingly, these securities are being reported at their estimated fair
values.
Use of Estimates
- - ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and
15
<PAGE>
expenses during the reporting period. Actual results could differ from those
estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for losses on loans and the
valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. The allowance for losses on loans is based on
management's estimates. In connection with the determination of the value of
foreclosed real estate, management obtains independent appraisals for
significant properties.
While management uses available information to recognize losses on loans and
foreclosed real estate, future additions to the allowances may be necessary
based on changes in local economic conditions. In addition, regulatory agencies,
as an integral part of their examination process, periodically review the
Savings Bank's allowances for losses on loans and foreclosed real estate. Such
agencies may require the Savings Bank to recognize additions to the allowances
based on their judgments about information available to them at the time of
their examination. Because of these factors, it is reasonably possible that the
allowances for losses on loans and the valuation of foreclosed real estate may
change materially in the near term.
Loans Held for Sale
- - -------------------
Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of cost or estimated market value in the aggregate. Net
unrealized losses are recognized in the valuation allowance by a charge to
income.
Loans Receivable
- - ----------------
Loans receivable are stated at unpaid principal balances, less the allowance for
loan losses, net deferred loan origination fees and unearned discounts and
interest.Discounts on first mortgage loans are accreted to income using the
interest method over the remaining period to contractual maturity, adjusted for
anticipated prepayments. Discounts on consumer loans are recognized over the
lives of the loans using methods that approximate the interest
method.Uncollectible interest on loans that are contractually past due is
charged off, or an allowance is established based on management's periodic
evaluation. The allowance is established by a charge to interest income equal to
all interest previously accrued, and income is subsequently recognized only to
the extent that cash payments are received until, in management's judgment, the
borrower's ability to make periodic interest and principal payments is back to
normal, in which case the loan is returned to accrual status.
Allowance for Loan Losses
- - -------------------------
An allowance is maintained at a level believed adequate by management to absorb
potential losses in the loan portfolio. The loan balance is charged against the
allowance when it is deemed uncollectible in the ordinary course of business.
Loan-Servicing Rights
- - ---------------------
The cost of loan-servicing rights is amortized in proportion to, and over the
period of, estimated net servicing revenues.Impairment of mortgage servicing
rights is assessed based on the fair value of those rights. Fair values are
estimated using discounted cash flows based on a current market interest rate.
For purposes of measuring impairment, the rights are stratified based on the
underlying loans with similar predominant risk characteristics. The amount of
impairment recognized is the amount by which the capitalized mortgage servicing
rights exceed their fair value.
When participating interests in loans sold have an average contractual interest
rate, adjusted for normal servicing fees, that differs from the agreed yield to
the purchaser, gains or losses are recognized equal to the present value of such
differential over the estimated remaining life of such loans. The resulting
"excess servicing receivable" or "deferred servicing revenue" is amortized over
the estimated life using a method approximating the interest method. Quoted
market prices are not available for the excess servicing receivables. Thus, the
excess servicing receivables and the amortization thereon are periodically
evaluated in relation to estimated future servicing revenues, taking into
consideration changes in interest rates, current prepayment rates, and expected
future cash flows. The Savings Bank evaluates the carrying value of the excess
servicing receivables by estimating the future servicing income of the excess
servicing receivables based on management's best estimate of remaining loan
lives and discounted at the original discount rate.
Loan Origination Fees
- - ---------------------
Loan origination fees and direct origination costs are deferred and amortized
over the contractual life of the loan using the interest method. Amortization of
deferred loan fees is discontinued when a loan is placed on nonaccrual status.
If the loan is held for sale, the fees are deferred until the loan is sold.
Deferred fees and purchase discounts remaining on loans originated prior to
October 1, 1988 are credited to income using methods which approximate a level
yield over the average life of the loan.
16
<PAGE>
Real Estate Owned and Real Estate Held for Investment
- - -----------------------------------------------------
Foreclosed real estate owned is recorded at the lower of cost (principal balance
of former loan plus costs of obtaining title and major repairs, if any) or fair
value (based on the property's appraised value), less cost of disposition at the
date of foreclosure. Any write-downs based on the asset's fair value at the date
of acquisition are charged to the allowance for loan losses. These assets are
subsequently carried at the lower of this new book basis or estimated fair value
less disposition costs. Costs relating to development and improvement of
properties are capitalized, whereas costs incurred in maintaining foreclosed
real estate and subsequent write-downs to reflect declines in the fair value of
the property are expensed.
Federal Home Loan Bank Stock
- - ----------------------------
FHLB stock is stated at cost, based on the ultimate recoverability of its par
value. The FHLB stock represents a form of equity interest in the FHLB and can
be sold back only at par and only to the FHLB or to another institution. The
FHLB stock lacks a market and, accordingly, is a restricted investment security.
The FHLB requires the Savings Bank to maintain an investment in FHLB stock equal
to the greater of 1% of mortgage loans or .3% of the Savings Bank's total
assets.
Property and Equipment
- - ----------------------
Property and equipment is stated on the basis of cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
The assets' actual useful lives could differ from the estimated useful lives
used for calculating depreciation.It is the Savings Bank's policy to capitalize
project and interest costs associated with the construction or remodeling of
facilities. The amount of interest capitalized in an accounting period is
determined by applying an interest rate (based on the rates applicable to
borrowings outstanding during the period) to the average amount of accumulated
expenditures for the construction during the period. However, the total amount
of interest cost capitalized in an accounting period cannot exceed the total
amount of interest cost incurred by the Savings Bank in that period.
Income Taxes
- - ------------
The Savings Bank and its subsidiary file consolidated income tax returns.
Deferred taxes represent the future tax return consequences of differences
between the basis of assets and liabilities for financial and income tax
reporting, which will be either taxable or deductible when those assets and
liabilities are recovered or settled.
Goodwill
- - --------
The Savings Bank's goodwill arose from the purchase of Mutual and is being
amortized over a 20 year period utilizing the straight-line method.
Advertising
- - -----------
Advertising costs relate to non-direct response advertising. Accordingly, it is
the Savings Bank's policy to expense the cost of advertising in the period the
expenses are incurred.
Statement of Cash Flows
- - -----------------------
Cash and cash equivalents include currency on hand, cash due from banks,
investments in certificates of deposit which have a maturity of three months or
less when acquired and the FHLB demand deposit account.Cash paid for interest
for the years ended September 30, 1997 and 1996 was $8,494,071 and $8,135,344,
respectively. Cash paid for income taxes for the years ended September 30, 1997
and 1996 was $919,000 and $749,916, respectively.Noncash investing and financing
activities include loans foreclosed and transferred to real estate owned
totaling $200,867 and $110,618 at September 30, 1997 and 1996, respectively.
There were no loans made to facilitate the sale of REO for the year ended
September 30, 1997. Real estate owned transferred back to loans, through loans
made to facilitate the sale of REO, totaled approximately $57,000 for the year
ended September 30, 1996 (see Note K). Noncash investing and financing
activities also include a net change in unrealized holding loss of $76,956 and
$21,310 for the years ended September 30, 1997 and 1996, respectively. The net
unrealized holding loss is included as a separate component of stockholders'
equity, net of deferred income taxes (see Note B).
Fair Values of Financial Instruments
- - ------------------------------------
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments," requires
disclosure of fair value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to estimate that
value. In cases where quoted market prices are not available, fair values are
based on estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. In that regard, the derived
fair value estimates cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in immediate settlement of the
instrument. SFAS No. 107 excludes certain financial instruments and all
nonfinancial instruments from its disclosure requirements. Accordingly, the
17
<PAGE>
aggregate fair value amounts presented in Note P do not represent the underlying
value of the Savings Bank.The following methods and assumptions were used by the
Savings Bank in estimating the fair values of its financial instruments:
o Cash and cash equivalents: The carrying amounts reported in the
consolidated balance sheets for cash and short-term instruments
approximate the fair values of those assets.
o Investment securities (including marketable securities and
mortgage-backed securities): Fair values for investment securities are
based on quoted market prices, where available. If quoted market
prices are not available, fair values are based on quoted market
prices of comparable instruments.
o Loans held for sale: The fair values of the Savings Bank's loans held
for sale are based on quoted market prices of similar loans being sold
in the secondary market.
o Loans receivable: For variable-rate loans that reprice frequently and
with no significant change in credit risk, fair values are based on
carrying values. The fair values for certain mortgage loans (e.g.,
one-to-four family residential) and other consumer loans are based on
quoted market prices of similar loans sold in conjunction with
securitization transactions, adjusted for differences in loan
characteristics. The fair values for other loans (e.g., commercial
real estate and rental property mortgage loans, and commercial loans)
are estimated using discounted cash flow analyses, using interest
rates currently being offered for loans with similar terms to
borrowers of similar credit quality. The carrying amount of accrued
interest approximates its fair value.
o Federal Home Loan Bank stock: It is not practicable to estimate the
fair value of Federal Home Loan Bank Stock because it is not
marketable. The carrying amount of that investment is reported in the
consolidated statements of financial condition.
o Deposit liabilities: The fair values disclosed for demand deposits
(e.g., interest bearing and non-interest bearing checking, passbook
savings, and certain types of money market accounts) are, by
definition, equal to the amount payable on demand at the reporting
date (i.e., their carrying amounts). The carrying amounts for
variable-rate, fixed-term money market accounts and certificates of
deposit approximate their fair values at the reporting date. Fair
values for fixed-rate certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently
being offered on certificates to a schedule of aggregated expected
monthly maturities on time deposits.
o Federal Home Loan Bank advances: The fair value of Federal Home Loan
Bank advances is estimated based on interest rates for the same or
similar debt offered to the Savings Bank having the same or similar
remaining maturities and collateral requirements.
o Off-balance sheet instruments: Fair values for the Savings Bank's
off-balance sheet instruments (lending commitments) are based on fees
currently charged to enter into similar agreements, taking into
account the remaining terms of the agreements and the counterparties'
credit standing.
Net Income Per Share
- - --------------------
Net income per share has been computed on the basis of weighted-average number
of shares of stock outstanding.
Impairment of Loans
- - -------------------
The Savings Bank recognizes bad debt expense for the difference between the
carrying value of the loan and the fair value of the collateral underlying the
loan. The entire change in the fair value of the collateral between reporting
periods is reported as bad debt expense in the same manner in which impairment
initially was recognized (for an increase in impairment), or as a deduction in
the amount of bad debt expense that otherwise would be reported (for a decrease
in impairment). A loan which foreclosure is probable is accounted for as a loan
until the Savings Bank receives physical possession of the debtor's assets,
regardless of whether formal foreclosure proceedings take place (see Note K)
Significant Risks and Uncertanties
- - ----------------------------------
During fiscal 1996, the Savings Bank adopted SOP 94-6, "Disclosure of Certain
Significant Risks and Uncertainties." SOP 94-6 requires disclosures about the
nature of an entity's operations and the use of estimates in the preparation of
financial statements in conformity with generally accepted accounting
principles. In addition, if specific disclosure criteria are met, it requires
disclosures about reported amounts that are particularly sensitive to change in
the near term and concentrations in the volume of business transacted with a
particular customer, supplier, lender, grantor or contributor.
18
<PAGE>
Impairment of Long-lived Assets
- - -------------------------------
During fiscal 1997, the Savings Bank adopted SFAS No. 121, "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of."
SFAS No. 121 requires long-lived assets and certain identifiable intangibles
that have experienced a non-recoverable loss in value, or are to be disposed of,
to be reported at the lower of carrying amount or fair value.
Accounting for Mortgage Servicing Rights
- - ----------------------------------------
During fiscal 1997, the Savings Bank adopted SFAS No. 122, "Accounting for
Mortgage Servicing Rights, an Amendment of FASB Statement No. 65." SFAS No. 122
provides guidance for the recognition of mortgage servicing rights as an asset
and the measurement of impairment for those rights. It also requires the
capitalization of mortgage servicing rights for rights acquired by purchasing
mortgage loans, originating mortgage loans and selling those loans and retaining
the servicing rights, or by purchasing the servicing rights separately.
Accounting for Stock-Based Compensation
- - ---------------------------------------
During fiscal 1997, the Savings Bank adopted SFAS No. 123. "Accounting for
Stock-Based Compensation." SFAS No. 123 establishes financial accounting and
reporting standards for stock-based employees compensation plans. Those plans
include all arrangements by which employees receive shares of stock or other
equity instruments of the employer or the employer incurs liabilities to
employees in amounts based on the price of the employer's stock.
Reclassifications
- - -----------------
Certain reclassifications have been made to the 1996 consolidated financial
statements to conform to the 1997 presentations.
19
<PAGE>
NOTE B -- MARKETABLE, INVESTMENT AND MORTGAGE-BACKED SECURITIES
The amortized costs and aggregate fair values of investment securities and
mortgage-backed securities classified as held-to-maturity were as follows at
September 30:
1997
------------------------------------------------
Gross Gross Aggregate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- -----------
U.S. Government and Federal
agency obligations $ 5,328,252 $ 4,026 $ (25,169) $ 5,307,109
Municipal and other bonds 34,152 -- -- 34,152
----------- ------- --------- -----------
Total investment securities $ 5,362,404 $ 4,026 $ (25,169) $ 5,341,261
=========== ======= ========= ===========
Mortgage-backed securities $10,944,501 $16,690 $ (50,353) $10,910,838
=========== ======= ========= ===========
1996
------------------------------------------------
Gross Gross Aggregate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- -----------
U.S. Government and Federal
agency obligations $ 8,022,946 $ -- $(122,780) $ 7,900,166
Municipal and other bonds 38,595 -- -- 38,595
----------- ------- --------- -----------
Total investment securities $ 8,061,541 $ -- $(122,780) $ 7,938,761
=========== ======= ========= ===========
Mortgage-backed securities $13,970,963 $10,621 $(231,179) $13,750,405
=========== ======= ========= ===========
The amortized costs and aggregate fair values of investment securities and
mortgage-backed securities classified as available-for-sale were as follows at
September 30:
1997
------------------------------------------------
Gross Gross Aggregate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- -----------
U.S. Government and Federal
agency obligations $ 5,523,230 $34,027 $ -- $ 5,557,257
=========== ======= ========= ===========
Mortgage-backed securities $ 293,128 $ -- $ (345) $ 292,783
=========== ======= ========= ===========
1996
------------------------------------------------
Gross Gross Aggregate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- -----------
U.S. Government and Federal
agency obligations $13,023,001 $11,747 $ (56,759) $12,977,989
=========== ======= ========= ===========
Mortgage-backed securities $ 725,209 $ 9,106 $ (1,881) $ 732,434
=========== ======= ========= ===========
20
<PAGE>
The following is a summary of maturities of securities held-to-maturity and
available-for-sale as of September 30, 1997:
Available-for-Sale Held-to-Maturity
---------------------- ------------------------
Amortized Aggregate Amortized Aggregate
Cost Fair Value Cost Fair Value
---------- ---------- ----------- -----------
Due in one year or less $2,482,740 $2,491,319 $ 1,824,079 $ 1,818,828
Due after one through five years 3,040,490 3,065,938 1,504,334 1,502,031
Due after five through ten years -- -- 2,033,991 2,020,402
Due after ten years -- -- -- --
---------- ---------- ----------- -----------
5,523,230 5,557,257 5,362,404 5,341,261
Mortgage-backed securities 293,128 292,783 10,944,501 10,910,838
---------- ---------- ----------- -----------
$5,816,358 $5,850,040 $16,306,905 $16,252,099
========== ========== =========== ===========
The U.S. Government and Federal agency obligations are comprised of a Federal
National Mortgage Association ("FNMA") term note, U.S. Treasury Notes, FHLB
debentures, Federal Farm Credit Bureau ("FFCB") bonds and Federal Home Loan
Mortgage Corporation ("FHLMC") debentures and bonds.
Mortgage-backed securities held by the Savings Bank represent participation
certificates guaranteed by the FNMA and FHLMC, which are issued by qualified
mortgage lenders that pool qualifying loans. The FNMA and FHLMC mortgage-backed
securities are currently yielding approximately 5.42% and 5.58%, respectively,
with approximate maturities of one to 11 years. As of September 30, 1997, the
book value and fair value of the FNMA mortgage-backed securities were $1,727,574
and $1,701,819, respectively, and the book value and fair value of the FHLMC
mortgage-backed securities were $8,344,413 and $8,346,998, respectively. As of
September 30, 1996, the book value and fair value of the FNMA mortgage-backed
securities were $2,401,980 and $2,330,649, respectively, and the book value and
fair value of the FHLMC mortgage-backed securities were $10,395,021 and
$10,275,325, respectively.
Also included in mortgage-backed securities on the consolidated statements of
financial condition are Small Business Administration ("SBA") securities which
represent a pool of qualifying loans (currently yielding 6.78%) with
approximately the same maturities (13 years expected). As of September 30, 1997,
the book value and fair value of the SBA securities were $165,744 and $166,054,
respectively. As of September 30, 1996, the book value and fair value of the SBA
securities were $174,079 and $174,431, respectively.
Included in mortgage-backed securities held-to-maturity on the consolidated
statements of financial condition is a Collateralized Mortgage Obligation
("CMO") security issued by the FNMA with a par value of $1,000,000, which was
purchased at a cost of $999,844. At September 30, 1997, the book value and fair
value of the CMO were $999,897 and $988,750, respectively. At September 30,
1996, the book value and fair value of the CMO were $999,883 and $970,000,
respectively. The CMO is currently yielding approximately 5.65% and has an
approximate maturity of eight years. The CMO is exposed to credit and market
risk due to potential changes in interest rates, the prepayment rate of the
assets of the CMO structure, and reinvestment earnings.
Marketable securities at September 30, 1997 consist of a Smith Breeden U.S.
Government Fund which represents an investment in mutual funds that invests
primarily in mortgage-backed securities created from pools of adjustable-rate
mortgages which are issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. The securities comprising these funds have an average
duration of six to 12 months. At September 30, 1997, the amortized cost and fair
value of these securities were $499,487 and $493,007, respectively. At September
30, 1996, the amortized cost and market value of these securities were $499,487
and $487,524, respectively. Accordingly, included in stockholders' equity at
September 30, 1997 is $16,049 of unrealized gain on marketable, investment and
mortgage-backed securities, net of applicable deferred income taxes. Included in
stockholders' equity at September 30, 1996 is $29,355 of unrealized loss on
marketable, investment and mortgage-backed securities, net of applicable
deferred income taxes.
During fiscal 1996, the Savings Bank transferred four mortgage-backed securities
from the held-to-maturity portfolio to the available-for-sale portfolio as a
result of the FASB providing a one-time opportunity to reassess the proper
classification of securities, provided that any reclassifications made met
certain criteria set by the FASB. Reclassification from the held-to-maturity
category that met the criteria would not taint other held-to-maturity
securities. Subsequent to this transfer, the Savings Bank sold the four
mortgage-backed securities. During fiscal 1997, the Savings Bank sold
mortgage-backed securities available-for-
21
<PAGE>
sale for total proceeds of $328,312, resulting in gross realized gains of
$6,657. Proceeds from the sale of mortgage-backed securities classified as
available-for-sale during fiscal 1996 were $8,009,799, resulting in a gross
realized loss of $150,870. During fiscal 1997, the Savings Bank sold investment
securities available-for-sale for total proceeds of $8,935,264, resulting in
gross realized losses of $37,596. The Savings Bank did not sell any investment
securities during 1996. The Savings Bank did not sell any marketable securities
during fiscal 1997 and 1996. The fair value of mortgage-backed securities and
investments in U.S. Government and Federal agency obligations pledged to state,
city and county savings deposits was $8,728,986 and $8,540,159 at September 30,
1997 and 1996, respectively.
During fiscal 1993, the Savings Bank recorded premiums of approximately $178,000
and $268,000 related to investments and mortgage-backed securities,
respectively, which were acquired from Mutual and recorded at their estimated
fair values. These premiums are being amortized over the remaining contractual
lives of the assets using the interest method.
- - --------------------------------------------------------------------------------
NOTE C -- LOANS RECEIVABLE
Loans receivable consisted of the following at September 30:
1997 1996
------------ ------------
First mortgage loans
Conventional $ 83,891,508 $ 86,683,658
Guaranteed -- FHA 9,934,513 9,821,212
Construction loans 9,283,988 8,034,532
Commercial real estate loans 21,861,852 10,862,104
Commercial non-real estate loans 9,246,874 8,168,598
Loans collateralized by savings accounts 695,718 699,524
Home improvement loans 30,158 53,559
Consumer loans 33,068,195 29,173,683
------------ ------------
168,012,806 153,496,870
Less:
Unearned interest 1,413,337 2,004,594
Net deferred loan origination fees 470,759 441,487
Allowance for loan losses 1,677,153 1,523,349
Loans in process 132,234 384,310
------------ ------------
3,693,483 4,353,740
------------ ------------
$164,319,323 $149,143,130
============ ============
All first mortgage loans and construction loans are secured by a primary lien on
the mortgaged property.
The weighted average yield on all loans was 8.86% and 8.83% at September 30,
1997 and 1996, respectively.
The Savings Bank serviced loans for other investors totaling $54,067,558 and
$59,725,287 at September 30, 1997 and 1996, respectively. Gross fees derived
from servicing such loans totaled $244,609 and $259,082 for the years ended
September 30, 1997 and 1996, respectively. Custodial escrow balances maintained
in connection with the Savings Bank's loan servicing portfolio were $351,909 and
$370,254 at September 30, 1997 and 1996, respectively.
During the year ended September 30, 1997, the Savings Bank capitalized $32,793
of mortgage-servicing rights. At September 30, 1997 and 1996, the Savings Bank
had $212,997 and $221,472, respectively, of mortgage servicing rights recorded
on the consolidated statements of financial condition. The Savings Bank recorded
$41,268 and $39,083 of amortization of mortgage servicing rights for each of the
years ended September 30, 1997 and 1996, respectively.
Nonaccrual and renegotiated loans for which interest has been reduced totaled
$1,177,647 and $626,061 at September 30, 1997 and 1996, respectively. There was
no material difference between interest income that would have been recorded
under the original terms of such loans and the interest income actually
recognized for the years ended September 30, 1997 and 1996.
The Savings Bank is not committed to lend additional funds to debtors whose
loans have been modified.
22
<PAGE>
During fiscal 1993, the Savings Bank recorded premiums of approximately $759,000
related to loans receivable acquired from Mutual which were recorded at their
estimated fair values. These premiums are being amortized over the remaining
contractual lives of the loans receivable using the interest method. The Savings
Bank recognized approximately $88,000 and $138,000 of amortization expense on
premiums recorded on loans receivable during the years ended September 30, 1997
and 1996, respectively. At September 30, 1997 and 1996, unamortized premiums
related to the acquired loans totaled approximately $204,000 and $292,000,
respectively.
An analysis of loans to directors and executive officers is as follows at
September 30:
1997 1996
-------- ---------
Balance at beginning of year $356,369 $ 509,853
Loan principal repayments (22,990) (20,948)
Other -- (132,536)
-------- ---------
Balance at end of year $333,379 $ 356,369
======== =========
None of the loans to directors and executive officers were on nonaccrual, were
past due or were restructured during the years ended September 30, 1997 and
1996.
All loans to directors and executive officers were made in the ordinary course
of business and were made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable third-party
transactions.
- - --------------------------------------------------------------------------------
NOTE D -- ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses were as follows for the year ended
September 30:
1997 1996
---------- ----------
Balance at beginning of year $1,523,349 $1,358,363
Provision 440,935 255,653
---------- ----------
1,964,284 1,614,016
Charge-offs 290,467 91,451
Recoveries (3,336) (784)
---------- ----------
287,131 90,667
---------- ----------
Balance at end of year $1,677,153 $1,523,349
========== ==========
At September 30, 1997 and 1996, the Savings Bank had loans totaling
approximately $47,000 and $54,000, respectively, that were specifically
classified as impaired. The average balance of these loans totaled approximately
$59,000 and $55,000 for the years ended September 30, 1997 and 1996,
respectively. The Savings Bank's investment in loans for which an impairment
allowance has been recognized was $17,397 and $10,855 at September 30, 1997 and
1996, respectively. A specific valuation allowance of $17,397 and $10,855
existed on these loans as of September 30, 1997 and 1996, respectively.
23
<PAGE>
NOTE E -- INVESTMENT IN REAL ESTATE
The Savings Bank's service corporation (see Note M) is a partner in two land
development joint ventures. Summary unaudited financial information for the
joint ventures is as follows for the year ended September 30:
The Meadows West Spring II
Joint Venture Joint Venture
------------------ ------------------
1997 1996 1997 1996
-------- -------- -------- --------
Condensed Balance Sheets
Cash $ 653 $ 691 $ 1,103 $ 4
Inventories (land) 186,410 186,410 131,392 131,392
Note receivable 28 132 -- --
Other assets 35,328 35,328 -- --
-------- -------- -------- --------
Total Assets $222,419 $222,561 $132,495 $131,396
======== ======== ======== ========
Accrued expenses $ -- $ -- $ 28 $ 28
Partners' equity 222,419 222,561 132,467 131,368
-------- -------- -------- --------
Total Liabilities & Equity $222,419 $222,561 $132,495 $131,396
======== ======== ======== ========
Condensed Statements of Income (Loss)
Proceeds from sale of land $ -- $ 23,000 $ -- $ --
Cost of land sold -- (17,583) -- --
Operating and administrative expenses (2,432) (4,366) (960) (1,188)
-------- -------- -------- --------
Net Income (Loss) $ (2,432) $ 1,051 $ (960) $ (1,188)
======== ======== ======== ========
The Savings Bank's net investment in these joint ventures was $199,627 and
$198,390 at September 30, 1997 and 1996, respectively. The investment is
accounted for using the equity method. The Savings Bank's share of revenues and
expenses (60% for The Meadows, except interest expense which is at 100%, and 50%
for West Springs II, except interest expense which is at 100%) is included in
(loss) income from real estate operations on the Savings Bank's consolidated
statements of income. Inventories are carried at the lower of cost or market
value.
- - --------------------------------------------------------------------------------
NOTE F -- PROPERTY & EQUIPMENT
Property and equipment, summarized by major classifications, was as follows at
September 30:
1997 1996
---------- ----------
Land $1,210,318 $1,206,071
Construction in progress -- 9,797
Buildings 6,132,217 5,425,208
Furniture, fixtures and equipment 2,181,181 1,921,218
---------- ----------
9,523,716 8,562,294
Accumulated depreciation (2,509,297) (2,150,935)
---------- ----------
Balance at end of year $7,014,419 $6,411,359
========== ==========
The Savings Bank leases equipment and a building under agreements which are
classified as operating leases. These leases have an initial period which expire
within one year. Rent expense under these agreements was $60,658 and $35,907 for
the years ended September 30, 1997 and 1996, respectively.
24
<PAGE>
NOTE G -- SAVINGS, CERTIFICATES AND DEMAND ACCOUNTS
Deposits consisted of the following at September 30:
Interest Rate
------------------
Weighted
Effective Average 1997 1996
--------- -------- ------------ ------------
Non-interest bearing checking
accounts -- -- $ 5,978,955 $ 4,055,808
Interest bearing checking accounts 1.75% 1.69% 19,395,984 18,741,359
Passbook savings 2.50-5.00% 4.05% 25,776,851 19,989,551
Money market deposits 1.75-3.00% 2.98% 11,539,652 13,757,907
Certificates of deposit 4.44-8.60% 5.56% 109,309,302 109,950,836
Premiums on deposits acquired
from Mutual -- -- 211,597 533,760
------------ ------------
$172,212,340 $167,029,221
============ ============
Accrued interest payable on deposits was as follows at September 30:
1997 1996
---------- ----------
Interest bearing checking accounts $ 7,918 $ 7,888
Money market deposits 9,519 11,222
Certificates of deposit 1,246,178 1,128,550
---------- ----------
$1,263,615 $1,147,660
========== ==========
Interest expense incurred on the above deposits was as follows for the year
ended September 30:
1997 1996
---------- ----------
Interest bearing checking accounts $ 508,691 $ 534,846
Passbook savings 462,016 312,851
Money market deposits 190,393 200,118
Certificates of deposit 6,669,859 6,549,529
Amortization of premiums on deposits acquired from Mutual (322,164) (322,164)
---------- ----------
$7,508,795 $7,275,180
========== ==========
Certificates of deposit, including rate, amount, and maturity were as follows at
September 30, 1997:
<TABLE>
<CAPTION>
In less
Than In In In In In
Rate One Year 1-2 Years 2-3 Years 3-4 Years 4-5 Years 5+ Years Total
- - ---- ----------- ---------- ---------- ---------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
4-5% $ 3,877,223 $ 224,512 $ -- $ -- $ -- $ -- $ 4,101,735
5-6% 69,281,467 6,613,324 2,028,350 2,991,418 2,938,994 39,710 83,893,263
6-7% 5,956,890 2,365,669 3,962,848 1,750,923 6,830,723 -- 20,867,053
7-8% 99,000 30,116 295,276 -- -- -- 424,392
8-9% 22,859 -- -- -- -- -- 22,859
----------- ---------- ---------- ---------- ---------- ------- ------------
$79,237,439 $9,233,621 $6,286,474 $4,742,341 $9,769,717 $39,710 $109,309,302
=========== ========== ========== ========== ========== ======= ============
</TABLE>
The weighted average interest rate on deposits was 4.53% and 4.50% at September
30, 1997 and 1996, respectively. Interest expense on certificates of deposit
with a minimum denomination exceeding $100,000 was approximately $1,796,000 and
$1,720,000 for the years ended September 30, 1997 and 1996, respectively.The
aggregate amount of deposits with a minimum denomination of $100,000 was
approximately $27,600,000 and $18,843,000 at September 30, 1997 and 1996,
respectively. During fiscal 1993, the Savings Bank recorded approximately
$1,611,000 in premiums relating to deposits acquired from Mutual which were
recorded at their estimated fair values. These deposit premiums are being
amortized using the straight-line method over the estimated average life of the
deposits acquired. The Savings Bank recognized approximately $322,000 in income
from the amortization of these deposit premiums during the years ended September
30, 1997 and 1996.
25
<PAGE>
NOTE H -- INCOME TAXES
The components of income tax expenses are as follows at September 30:
1997 1996
---------- --------
Current:
Federal $1,081,507 $453,582
State 183,930 66,742
---------- --------
1,265,437 520,324
Deferred:
Federal 75,609 103,490
State 14,677 20,089
---------- --------
90,286 123,579
---------- --------
$1,355,723 $643,903
========== ========
Significant components of the Savings Bank's deferred tax liabilities and assets
are as follows for the year ended September 30:
1997 1996
---------- ----------
Deferred tax liabilities:
Financial reporting basis of assets acquired from
Mutual in excess of income tax basis $ 750,206 $ 831,752
Financial reporting basis of Federal Home Loan
Bank stock in excess of income tax basis 303,053 266,472
---------- ----------
Total deferred tax liabilities 1,053,259 1,098,224
---------- ----------
Deferred tax assets:
Financial reporting basis of liabilities assumed from
Mutual in excess of income tax basis 91,240 228,704
Financial reporting bad debt reserve in excess of
income tax bad debt reserve 379,523 317,078
Financial reporting depreciation in excess of income
tax depreciation 38,149 84,145
Financial reporting stock option compensation in
excess of income tax stock option compensation 6,320 --
Income tax basis of deferred servicing fees in excess
of financial reporting basis as a result of purchase
accounting 54,457 75,014
Other, net 21,795 21,794
---------- ----------
Total deferred tax assets 591,484 726,735
---------- ----------
Net deferred tax liability $ 461,775 $ 371,489
========== ==========
The reconciliation of income tax attributable to continuing operations computed
at the U.S. federal statutory rates is as follows for the year ended September
30:
1997 1996
---------- ----------
Income taxes at statutory rate $1,187,562 $ 563,959
Increase (decrease) in taxes resulting from:
State income tax expense, net of federal tax benefit 121,394 44,050
Asset basis differences due to fair value adjustments
resulting from purchase accounting (134,096) (48,193)
Reversal of temporary differences for which expense
has been recognized 90,286 123,579
Statutory bad debt deduction 90,577 (39,492)
---------- ----------
$1,355,723 $ 643,903
========== ==========
26
<PAGE>
During the year ended September 30, 1997, the Savings Bank changed its method of
accounting for bad debt reserves for income tax purposes from the bad debt
deduction method based on a percentage of taxable income or an amount computed
using the six-year experience method to the method of computing the bad debt
deduction based on actual charge offs incurred during the year. At September 30,
1997 and 1996, the Savings Bank had an accumulated bad debt reserve of
approximately $5,158,000 for federal income tax purposes that arose in tax years
beginning before December 31, 1987, as a result of deductions taken for tax
purposes only. No deferred tax liability has been recognized on this reserve as
a result of it not reversing in the foreseeable future. The reserve can only be
used to absorb actual loan losses and any use for other purposes may result in
taxable income at current rates to the Savings Bank.
- - --------------------------------------------------------------------------------
NOTE I -- STOCKHOLDERS' EQUITY AND REGULATORY MATTERS
The Savings Bank is subject to various regulatory capital requirements
administered by its primary federal regulator, the Office of Thrift Supervision
("OTS"). Failure to meet the minimum regulatory capital requirements can
initiate certain mandatory, and possible additional discretionary actions by
regulators, that if undertaken, could have a direct material affect on the
Savings Bank and the consolidated financial statements. Accordingly, the Savings
Bank may not declare or pay a cash dividend, or repurchase any of its capital
stock, if the effect would cause the net worth of the Savings Bank to be reduced
below the amount of the regulatory capital requirements imposed by the OTS.
Under the regulatory capital adequacy guidelines and the regulatory framework
for prompt corrective action, the Savings Bank must meet specific capital
guidelines involving quantitative measures of the Savings Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Savings Bank's capital amounts and classification
under the prompt corrective action guidelines 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 Savings Bank to maintain minimum amounts and ratios of: total
risk-based capital and Tier I capital to risk-weighted assets (as defined in the
regulations), Tier I capital to adjusted total assets (as defined), and tangible
capital to adjusted total assets (as defined). As discussed in greater detail
below, as of September 30, 1997 and 1996, the Savings Bank met all of the
capital adequacy requirements to which it is subject.
As of September 30, 1997 and 1996, the most recent notification from the OTS,
the Savings Bank was categorized as "well capitalized" under the regulatory
framework for prompt corrective action. To remain categorized as well
capitalized, the Savings Bank would have to maintain minimum total risk-based,
Tier I risk-based, and Tier I leverage ratios as disclosed in the table below.
There are no conditions or events since the most recent notification that
management believes have changed the Savings Bank's prompt corrective action
category.
27
<PAGE>
<TABLE>
<CAPTION>
To be Well Capitalized For
Minimum For Capital Prompt Corrective Action
Actual Adequacy Purposes Provisions
------------------- ------------------- --------------------------
Ratio Amount Ratio Amount Ratio Amount
(Dollars in (Dollars in (Dollars in
Thousands) Thousands) Thousands)
<S> <C> <C> <C> <C> <C> <C>
As of September 30, 1997:
Total Risk-Based Capital
(to Risk-weighted Assets) 15.91% $21,950 >8.00% >$11,036 >10.00% >$13,795
- - - -
Tier I Capital
(to Risk-weighted Assets) 14.70% $20,273 -- -- > 6.00% >$ 8,277
- -
Tier I Capital
(to Adjusted Total Assets) 9.58% $20,273 >3.00% >$ 6,347 > 5.00% > $10,578
- - - -
Tangible Capital
(to Adjusted Total Assets) 9.58% $20,273 >1.50% >$ 3,173 -- --
- -
As of September 30, 1996:
Total Risk-Based Capital
(to Risk-weighted Assets) 16.77% $20,291 >8.00% >$ 9,678 >10.00% >$12,098
- - - -
Tier I Capital
(to Risk-weighted Assets) 15.51% $18,768 -- -- > 6.00% >$ 7,259
- -
Tier I Capital
(to Adjusted Total Assets) 9.07% $18,768 >3.00% >$ 6,211 > 5.00% >$10,352
- - - -
Tangible Capital
(to Adjusted Total Assets) 9.07% $18,768 >1.50% >$ 3,106 -- --
- -
</TABLE>
- - --------------------------------------------------------------------------------
NOTE J -- EMPLOYEE RETIREMENT PLAN
Effective October 1, 1995, the Savings Bank established a defined contribution
profit-sharing plan ("401(K) Plan") which was immediately available to all
employees who were employed on September 30, 1995. Otherwise, the 401(K) Plan is
available to all employees who have been credited with 1,000 hours of service at
the end of their first 12 consecutive months of employment and have attained the
age of 21. The rate of annual vesting is based on employees' credited years of
service with the Savings Bank. Employees are fully vested when they have
attained six years or more of credited service. Qualifying employees may
contribute up to 15 percent of their annual earnings, but not in excess of the
maximum amount allowed by the Internal Revenue Service. Employer contributions
are made at the discretion of the Board of Directors of the Savings Bank. The
Savings Bank expects to contribute $68,111 to the 401(K) Plan during fiscal 1998
for the 1997 plan year. During the fiscal year ended September 30, 1997, the
Savings Bank contributed $60,347 to the 401(K) Plan for the 1996 plan year.
Included in the Savings Bank's contribution to the 401(K) Plan for the 1996 plan
year was $6,477 of funds which were rolled over into the 401(K) Plan from the
Savings Bank's previous retirement plan which was liquidated during fiscal 1996.
Prior to September 30, 1996, the Savings Bank had a non-contributory, defined
benefit retirement plan (the "Retirement Plan") which covered substantially all
employees upon completion of stipulated employment requirements. Effective
September 30, 1995, the Board of Directors of the Savings Bank elected to
terminate the Savings Bank's Retirement Plan. During fiscal 1996, the Retirement
Plan was liquidated, at which time all benefit obligations were settled and the
remaining asset of $19,623, net of the amount rolled over into the 401 (K) Plan,
reverted back to the Savings Bank.
- - --------------------------------------------------------------------------------
NOTE K -- REAL ESTATE OWNED
Real estate acquired through foreclosure totaled $200,867 and $110,618 at
September 30, 1997 and 1996, respectively, net of the allowance for losses. The
Savings Bank capitalized costs for real estate owned totaling $4,509 during the
year ended September 30, 1997. The Savings Bank did not have any capitalized
costs for real estate owned during the year ended September 30, 1996. The
Savings Bank did not originate loans to facilitate the sale of real estate owned
during the years ended September 30, 1997 and 1996. The Savings Bank had
$162,066 and $343,095 of loans in process of
28
<PAGE>
foreclosure, net ofallowance for losses, at September 30, 1997 and 1996,
respectively.The Savings Bank does not have an allowance for losses on
foreclosed real estate owned for the years ended September 30, 1997 and 1996.
- - --------------------------------------------------------------------------------
NOTE L -- ACCRUED INTEREST RECEIVABLE
Accrued interest receivable consisted of the following at September 30:
1997 1996
---------- ----------
Loans $1,118,718 $ 914,530
Mortgage-backed securities 156,279 211,347
Investments and other securities 12,165 51,803
---------- ----------
$1,287,162 $1,177,680
========== ==========
- - --------------------------------------------------------------------------------
NOTE M -- INVESTMENT IN SERVICE CORPORATION
In January 1984, the Savings Bank formed FNMSC as a wholly-owned subsidiary of
the Savings Bank, and the Savings Bank's investment in joint ventures (see Note
E) was transferred to FNMSC in order to comply with Federal regulations. At this
time, FNMSC's only function is the holding of the joint ventures. A summary of
assets, liabilities and equity of FNMSC was as follows at September 30:
1997 1996
--------- ---------
Cash $ 14,950 $ 20,157
Investment in joint ventures 199,627 199,393
--------- ---------
Total Assets $ 214,577 $ 219,550
========= =========
Accounts payable $ -- $ 1,003
Capital stock 42,300 42,300
Additional paid-in capital 432,326 432,326
Accumulated deficit (260,049) (256,079)
--------- ---------
Total Liabilities & Equity $ 214,577 $ 219,550
========= =========
FNMSC incurred losses of $3,764 and $1,763 for the years ended September 30,
1997 and 1996, respectively, which primarily represented its share of the income
and losses of The Meadows and West Springs II joint ventures.
- - --------------------------------------------------------------------------------
NOTE N -- ADVANCES FROM THE FEDERAL HOME LOAN BANK
At September 30, 1997 and 1996, the Savings Bank had $15,653,565 and
$17,000,000, respectively, of borrowed funds with the Federal Home Loan Bank.
The advances have fixed interest rates ranging from 6.32% to 6.70% on the
outstanding balances. Interest is due monthly.
Maturities of the advances are as follows:
Years Ending
September 30, Amount
------------- -----------
1998 $ 750,470
1999 800,306
2000 853,452
2001 910,130
2002 3,966,283
Thereafter 8,372,924
-----------
$15,653,565
===========
Although no individual loans are specifically pledged, the FHLB requires the
Savings Bank to have a blanket floating lien which constitutes sufficient
collateral to secure borrowings in an aggregate amount of
29
<PAGE>
the lesser of 65% of the book value (unpaid principal balance) of the Savings
Bank's first mortgage collateral or 35% of the Savings Bank's assets. The
Savings Bank has loans meeting these criteria sufficient to comply with this
requirement.
- - --------------------------------------------------------------------------------
NOTE O -- SIGNIFICANT GROUP CONCENTRATION OF CREDIT RISK
The Savings Bank's loan business activity is with customers located primarily
within Chaves, Lincoln, Dona Ana and Otero counties of New Mexico. Generally,
the loans are secured by real estate, however, the Savings Bank also makes
consumer loans and commercial loans. All loans are expected to be repaid from
cash flows of the borrowers. Credit losses arising from lending transactions are
affected by the economic conditions surrounding the agribusiness, oil and gas,
military and manufacturing industries within the aforementioned counties.The
Savings Bank's collateral policy is to secure all real estate loans by
mortgages, place first liens on commercial loans and perfect liens on consumer
loan products.The Savings Bank infrequently grants unsecured loans to its
customers.At September 30, 1997, the Savings Bank had fixed and variable rate
credit commitments outstanding of $4,794,790 and $3,781,318, respectively. At
September 30, 1996, the Savings Bank had fixed and variable rate credit
commitments outstanding of $6,921,834 and $2,670,166, respectively. At September
30, 1997 and 1996, the Savings Bank had $450,391 and $419,950, respectively, of
unused letters of credit outstanding. Commitments to extend credit are
agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee.
Since many of the commitments are expected to expire without being drawn upon,
the total commitment amounts do not necessarily represent future cash
requirements. However, the Savings Bank's maximum exposure to credit loss in the
event of nonperformance by the other party to the financial instrument for the
commitments to extend credit, is represented by the contractual notional amount
of those instruments. The Savings Bank uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet
instruments.
Standby letters of credit are conditional commitments issued by the Savings Bank
to guarantee the performance of a customer to a third party. Standby letters of
credit generally have fixed expiration dates or other termination clauses and
may require payment of a fee. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan facilities to
customers. The Savings Bank policy for obtaining collateral, and the nature of
such collateral, is essentially the same as that involved in making commitments
to extend credit.
The Savings Bank evaluates each customer's creditworthiness on a case-by-case
basis, The amount of collateral obtained, if deemed necessary by the Savings
Bank upon extension of credit, is based on management's credit evaluation of the
counter-party. Collateral held varies but generally includes single-family or
multiple-family mortgages on residential or commercial property.
- - --------------------------------------------------------------------------------
NOTE P -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The Savings Bank, in accordance with SFAS No. 107, has estimated fair values of
its financial instruments as follows as of September 30:
1997 1996
------------------------- -------------------------
Carrying Fair Carrying Fair
Value Value Value Value
------------ ------------ ------------ ------------
Financial Assets:
Cash and cash equivalents $ 13,138,510 $ 13,138,510 $ 10,453,889 $ 10,453,889
Marketable securities 493,007 493,007 487,524 487,524
Investment securities 10,919,661 10,898,518 21,039,530 20,916,750
Loans held for sale 497,820 500,077 674,175 682,504
Loans receivable, net 164,319,323 166,700,872 149,143,113 148,708,790
Mortgage-backed securities 11,237,284 11,203,621 14,703,397 14,482,839
30
<PAGE>
1997 1996
------------------------- -------------------------
Carrying Fair Carrying Fair
Value Value Value Value
------------ ------------ ------------ ------------
Financial Liabilities:
Savings, certificates and
demand accounts $172,212,340 $172,320,292 $167,029,221 $167,794,073
Advances from the Federal
Home Loan Bank 15,653,565 15,618,018 17,000,000 17,000,000
Off-balance Sheet Items:
Credit commitments $ 8,576,108 $ 8,576,108 $ 9,592,000 $ 9,592,000
Letters of credit 450,391 450,391 419,950 419,950
The carrying values in the preceding tables are included in the statements of
financial condition under the applicable captions.
- - --------------------------------------------------------------------------------
NOTE Q --CONTINGENCIES
The Savings Bank makes loans to borrowers in its normal course of business which
are collateralized by real and/or personal property. As a result of the Savings
Bank generally holding a mortgage, deed of trust, or legal or equitable title to
the loan collateral, it exhibits evidence of ownership interest in the real
and/or personal property. Accordingly, the Savings Bank could be subject to
various environmental laws and regulations of the United States and the state in
which it operates and political subdivisions thereof. However, the Environmental
Protection Agency exempts from liability, as a result of the Comprehensive
Environmental, Response, Compensation and Liability Act, those persons who
exhibit evidence of ownership interest in property primarily to protect their
security interest. The exemption, however, does not apply if such persons
participate in the management of the property. As of and for the years ended
September 30, 1997 and 1996, the Savings Bank did not participate in the
management of any property which it believes may be subject to environmental
liability.
- - --------------------------------------------------------------------------------
NOTE R -- STOCK OPTION PLAN
The Savings Bank has a nonqualified stock option plan which provides for the
granting of stock options to directors, officers and key employees. A maximum of
20,441 shares of stock may be issued under the plan. The option price, number of
shares and grant date are determined at the discretion of the Savings Bank's
board of directors. Grantees vest in the options at a rate determined by the
board of directors on the date of grant. The exercise price of each option
approximates the market price of the Savings Bank's stock on the date of grant.
Options granted under the plan are exercisable for a period not to exceed five
years from the option grant date. The Savings Bank accounts for the fair value
of its grants under those plans in accordance with SFAS No. 123, "Accounting for
Stock-Based Compensation." The compensation cost for options granted during
fiscal 1997 and 1996 totaled approximately $16,000 and $8,000, respectively.
The weighted average fair value of the options granted during 1997 and 1996 was
estimated by calculating a minimum value for each option using the following
assumptions:
1997 1996
------ ------
Risk-free interest rate 5.99% 6.46%
Expected life (years) 5 5
Expected dividends (annually) $1.40 $1.40
Expected volatility N/A N/A
31
<PAGE>
A summary of option transactions during the years ended September 30, 1997 and
1996 is shown below:
Number Weighted-Average
of Shares Exercise Price
--------- ----------------
Outstanding October 1, 1995 --
Granted 4,050 $35.00
Exercised --
Forfeited (1,800) $35.00
------
Outstanding at September 30, 1996 2,250 $35.00
Granted 14,250 $38.53
Exercised (10) $35.00
Forfeited (250) $36.00
------
Outstanding at September 30, 1997 16,240 $38.22
======
Exercisable at September 30, 1997 7,240 $36.01
======
Available for issuance at September 30, 1997 4,201
======
A summary of options outstanding as of September 30, 1997 is shown below:
Weighted Average
Remaining
Number Contractual Life Number
Exercise of Shares of Shares of Shares
Price Outstanding Outstanding Exercisable
-------- ----------- ---------------- -----------
$35 2,240 3 years 2,240
$36 5,000 4 years 5,000
$40 9,000 5 years --
------ -----
16,240 7,240
====== =====
- - --------------------------------------------------------------------------------
NOTE S -- CAPITALIZED MERGER COSTS
In December 1996, the Savings Bank submitted an application to the Office of
Thrift Supervision ("OTS") for the approval of the reorganization of the Savings
Bank into a holding company. The Savings Bank incurred certain legal and
accounting costs totaling $87,724 related to the proposed reorganization. During
fiscal 1997, the Savings Bank's Board of Directors made the decision to withdraw
the application due to regulatory concerns. During the fiscal year ended
September 30, 1997, the Savings Bank expensed $38,867 of legal, accounting and
appraisal costs incurred related to the proposed reorganization and capitalized
certain other costs totaling $48,857. The capitalized costs relate to consulting
fees from which the Savings Bank expects to receive future benefit for the
filing of a new holding company application at a later date.
32
<PAGE>
CORPORATE INFORMATION
Business of the Bank
- - --------------------
First Federal Savings Bank of New Mexico operates as a federally chartered
permanent capital stock savings bank, the deposits of which are insured by the
Federal Deposit Insurance Corporation's Savings Association Insurance Fund, an
agency of the Federal Government. The Savings Bank's primary business is the
promotion of thrift through the solicitation of savings accounts from its
depositors and the general public and the promotion of home ownership through
the granting of mortgage loans, primarily to finance the purchase, construction,
or improvement of residential real estate located in the state of New Mexico.
Corporate Office
----------------
First Federal Savings Bank of New Mexico
300 North Pennsylvania Avenue
Roswell, New Mexico -- Telephone (505) 622-6201
Branch Offices
--------------
3201 N. Main 1810 S. Main
Roswell, New Mexico 88201 Roswell, New Mexico 88201
398 Sudderth Drive 300 E. First St.
Ruidoso, New Mexico 88345 Alamogordo, New Mexico 88130
301 W. Amador 1800 S. Telshor Blvd.
Las Cruces, New Mexico 88011 Las Cruces, New Mexico 88011
7500 N. Mesa, Suite 307
El Paso, Texas 79912
Stock Transfer Agent General Counsel
-------------------- ---------------
First Federal Savings Bank of New Mexico Cusack, Jaramillo & Associates
300 North Pennsylvania Avenue 123 West Fourth Street
Roswell, New Mexico 88201 Roswell, New Mexico 88201
Independent Auditors Special Counsel
-------------------- ---------------
Ritter, Barr & Company Silver, Freedman & Taff, L.L.P.
400 East College Boulevard 1100 New York Ave., N.W.
P.O. Box 1836 Washington, D.C. 20005-3934
Roswell, New Mexico 88201
- - --------------------------------------------------------------------------------
Annual Meeting
- - --------------
The annual meeting of First Federal Savings Bank of New Mexico will be held on
Monday, January 26, 1998 at 7:00 p.m., at the Savings Bank's main office, 300
North Pennsylvania Avenue, Roswell, New Mexico 88201.
- - --------------------------------------------------------------------------------
Market for Common Stock
- - -----------------------
The common stock of First Federal Savings Bank of New Mexico is not traded on
any exchange nor is there a market maker in the stock. The market for the stock
is limited and sporadic. There are no accurate quarterly high bid and low bid
quotations available; accordingly, such bid information by quarter is not shown.
Recent transactions in the stock have been at $35 per share. As of September 30,
1997, there were approximately 276 stockholders of record (as determined by the
stock transfer agent) of the Savings Bank's common stock. Dividends were paid
semi-annually in 1997 and 1996 aggregating $674,572 ($1.65 per share) and
$511,031 ($1.25 per share), respectively. There are certain restrictions on the
payment of dividends as described in Note I to the consolidated financial
statements.
33
<PAGE>
Directors
- - ---------
Garry Owen Colin R. McMillan Albert Lake, Jr.
Investments Chairman of the Board Investments
Consulting Geophysicist
Chairman of the Board and CEO
Permian Exploration Corporation
Arturo Jurado
President
Jurado Farms
Russell P. Weems Judy A. Collins Larry L. Sheffield
Architect Deputy Superintendent President
for Business Affairs, Chief Sheffield Development
Financial and Administrative Corporation
Officer for New Mexico
Military Institute
Aubrey L. Dunn, Jr. T. Brad Watkins Edward K. David
President and CEO Director Emeritus President
First Federal Savings David Petroleum
Bank of New Mexico Corporation
<TABLE>
<CAPTION>
Officers
- - --------
<S> <C> <C> <C>
Aubrey L. Dunn, Jr. Blair Boyd Ron Rogers Joe Bullock
President, Senior Vice President, Senior Vice President Senior Vice President,
Chief Executive Officer Commercial Loans CFO and Secretary Las Cruces Division President
Sean Ormand Phyllis Yruegas John Marquardt Judith J. Vie
Vice President Vice President Vice President Senior Vice President of
Consumer Loans Mortgage Loans Alamogordo Branch Manager Operations and Treasurer
Tom Rigsby Russell Foddrill B.J. Logan Jessica Bryant
Vice President Vice President Vice President Vice President,
Ruidoso Branch Manager Consumer Loans El Paso LPO Operations
Orlene Lucas Mark Northcutt Pam Bernard Janice Smith
Asst. Vice President Asst. Vice President Asst. Vice President Asst. Vice President
Controller Internal Loan Reviewer
James Kunko Michelle Chavez Carole Baca Nancy Fritsch
Internal Auditor/ Asst. Vice President Asst. Vice President Asst. Vice President
Compliance Officer Operations Officer Consumer Loans Collection Manager
Gloria Yanez Shelly Jett Lupe Loving Tammy Beaver
Asst. Vice President Asst. Vice President Assistant Vice President Operations Officer
Operations Consumer Loans Consumer Loan Officer
Katie Newton Geneva Britt Jennie Bustamante Dayna Johnson
Mortgage Loan Operations Officer Consumer Loan Officer Mortgage Loan Officer
Servicing Officer
Xan Carpenter Deanna Linthicum
Operations Officer Mortgage Loan Officer
</TABLE>
34
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
------------------------------------------
Section 145 of the Delaware General Corporation Law provides that an
officer, director, employee or agent may be indemnified by the Registrant from
and against expenses, judgments, fines, settlements and other amounts actually
and reasonably incurred in connection with threatened, pending or completed
"proceedings" (including civil, criminal, administrative or investigative
proceedings) in which such person is involved by reason of such person's
position with the Registrant, provided that a determination has been made (by a
majority vote of a quorum consisting of directors who were not parties to such
proceeding, or if such a quorum is not obtainable, by independent legal counsel
in a written opinion, or by the shareholders) that such person acted in good
faith and in a manner that such person reasonably believes to be in, or not
opposed to, the best interests of the Registrant, such person may not be
indemnified if the person has been adjudged liable for negligence or misconduct
in the performance of such person's duty to the Registrant unless the court
otherwise determines. To the extent that such person has been successful on the
merits or otherwise in the defense of any proceeding, the Delaware Corporations
Code provides that such person shall be indemnified.
Provisions regarding indemnification of directors, officers, employees or
agents of the Registrant contained in Article Ninth of the Registrant's
Certificate of Incorporation (filed as part of the Prospectus/Proxy Statement)
are incorporated herein by this reference. Article Ninth also provides for the
authority to purchase insurance with respect thereto and is incorporated herein
by reference.
Item 21. Exhibits and Financial Statement Schedules.
-------------------------------------------
2 Agreement and Plan of Merger (attached as Appendix A to the
Prospectus/Proxy Statement filed as part of this Registration
Statement and hereby incorporated by reference).
3.1 Certificate of Incorporation of First Federal Bank of the Southwest,
Inc. (attached as Appendix B to the Prospectus/ Proxy Statement filed
as part of this Registration Statement and hereby incorporated by
reference).
3.2 Bylaws of First Federal Bank of the Southwest, Inc.
4 Form of Common Stock Certificate.
5 Opinion of Silver, Freedman & Taff, L.L.P. with respect to the
legality of the Common Stock.
8 Tax Opinion of Ritter, Barr & Company
13 1997 Annual Report to Stockholders of First Federal Savings Bank of
New Mexico (Attached as Appendix D to the Prospectus/Proxy Statement
filed as part of this Registration Statement and hereby incorporated
by reference).
21 Subsidiaries of the Registrant.
23.1 Consent of Silver, Freedman & Taff, L.L.P.
23.2 Consent of Ritter, Barr & Company
24 Power of Attorney (included in Part II of the Registration Statement).
99 Form of Proxy to be mailed to stockholders of First Federal Savings
Bank of New Mexico
II-1
<PAGE>
Item 22. Undertakings.
-------------
(1) The undersigned Registrant hereby undertakes that 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 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) The undersigned Registrant hereby undertakes that for purposes 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.
(3) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11, or 13 of this Form, within one business day of
receipt of such request, and to send the incorporated documents by first
class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(4) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Roswell, State of New
Mexico, on May 8, 1998.
FIRST FEDERAL BANK OF THE SOUTHWEST, INC.
By: /s/ Aubrey L. Dunn,Jr.
------------------------------------
Aubrey L. Dunn, Jr.
(Duly Authorized Representative)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Aubrey L. Dunn, Jr. his or her true and lawful
attorney-in-fact and agents, with full power of substitution and
re-substitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and all other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
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
or she might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent or his 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/ Aubrey L. Dunn, Jr. Date: May 8, 1998
- - -------------------------------------------- -------------------
Aubrey L. Dunn, Jr., President,
Chief Executive Officer and Director
(Principal Executive and Operating Officer)
/s/ Ronald D. Rogers Date: May 8, 1998
- - -------------------------------------------- -------------------
Ronald D. Rogers, Senior Vice President,
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
/s/ Colin R. McMillan Date: May 8, 1998
- - -------------------------------------------- -------------------
Colin R. McMillan, Chairman of the Board
/s/ Albert Lake, Jr. Date: May 8, 1998
- - -------------------------------------------- -------------------
Albert Lake, Jr., Director
/s/ Arturo Jurado Date: May 8, 1998
- - -------------------------------------------- -------------------
Arturo Jurado, Director
/s/ Edward K. David Date: May 8, 1998
- - -------------------------------------------- -------------------
Edward K. David, Director
/s/ Larry Sheffield Date: May 8, 1998
- - -------------------------------------------- -------------------
Larry Sheffield, Director
/s/ Russell P. Weems Date: May 8, 1998
- - -------------------------------------------- -------------------
Russell P. Weems, Director
/s/ Garry Owen Date: May 8, 1998
- - -------------------------------------------- -------------------
Garry Owen, Director
/s/ Judy A. Collins Date: May 8, 1998
- - -------------------------------------------- -------------------
Judy A. Collins, Director
II-3
<PAGE>
As filed with the Securities and Exchange Commission on May 8, 1998
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
------------
EXHIBITS
TO
FORM S-4
UNDER
THE SECURITIES ACT OF 1933
------------
FIRST FEDERAL BANK OF THE SOUTHWEST, INC.
300 North Pennsylvania Avenue
Roswell, New Mexico 88201
================================================================================
<PAGE>
EXHIBIT INDEX
Page Number
in
Sequentially
Regulation Numbered
S-B Registration
Number Statement
- - ---------- ------------
2 Agreement and Plan of Merger (attached as Appendix
A to the Prospectus/Proxy Statement filed as part
of this Registration Statement) .................. N/A
3.1 Certificate of Incorporation of First Federal Bank
of the Southwest, Inc. (attached as Appendix B to
the Prospectus/Proxy Statement) .................. N/A
3.2 Bylaws of First Federal Bank of the Southwest,
Inc. ............................................. --
4 Form of Common Stock Certificate ................. --
5 Opinion of Silver, Freedman & Taff, L.L.P. with
respect to the legality of the Common Stock ...... --
8 Tax Opinion of Ritter, Barr & Company ............ --
13 1997 Annual Report to Stockholders of First
Federal Savings Bank of New Mexico (Attached as
Appendix D to the Prospectus/Proxy Statement filed
as part of this Registration Statement) .......... N/A
21 Subsidiaries of the Registrant ................... --
23.1 Consent of Silver, Freedman & Taff, L.L.P ........ --
23.2 Consent of Ritter, Barr & Company ................ --
24 Power of Attorney (included in Part II of the
Registration Statement) .......................... --
99 Form of Proxy Card to be mailed to stockholders of
First Federal Savings Bank of New Mexico ......... --
FIRST FEDERAL BANK OF THE SOUTHWEST, INC.
BYLAWS
ARTICLE I
STOCKHOLDERS
Section 1. Annual Meeting.
---------------
An annual meeting of the stockholders, for the election of directors to
succeed those whose terms expire and for the transaction of such other business
as may properly come before the meeting, shall be held at such place, on such
date, and at such time as the Board of Directors shall each year fix.
Section 2. Special Meetings.
-----------------
Subject to the rights of the holders of any class or series of preferred
stock of the Corporation, special meetings of stockholders of the Corporation
may be called only by the Board of Directors pursuant to a resolution adopted by
a majority of the total number of directors which the Corporation would have if
there were no vacancies on the Board of Directors (hereinafter the "Whole
Board").
Section 3. Notice of Meetings.
-------------------
Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than ten nor more than 60 days before the
date on which the meeting is to be held, to each stockholder entitled to vote at
such meeting, except as otherwise provided herein or required by law (meaning,
here and hereinafter, as required from time to time by the Delaware General
Corporation Law or the Certificate of Incorporation of the Corporation).
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting is more than 30 days after
the date for which the meeting was originally noticed, or if a new record date
is fixed for the adjourned meeting, written notice of the place, date and time
of the adjourned meeting shall be given in conformity herewith. At any adjourned
meeting, any business may be transacted which might have been transacted at the
original meeting.
Section 4. Quorum.
-------
At any meeting of the stockholders, the holders of at least one-third of
all of the shares of the stock entitled to vote at the meeting, present in
person or by proxy, shall constitute a quorum for all purposes, unless or except
to the extent that the presence of a larger number may be required by law. Where
a separate vote by a class or classes is required, a majority of the shares of
such class or classes, present in person or represented by proxy, shall
constitute a quorum entitled to take action with respect to that vote on that
matter.
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If a quorum shall fail to attend any meeting, the chairman of the meeting
or the holders of a majority of the shares of stock entitled to vote who are
present, in person or by proxy, may adjourn the meeting to another place, date
or time.
If a notice of any adjourned special meeting of stockholders is sent to all
stockholders entitled to vote thereat, stating that it will be held with those
present constituting a quorum, then except as otherwise required by law, those
present at such adjourned meeting shall constitute a quorum, and all matters
shall be determined by a majority of the votes cast at such meeting.
Section 5. Organization.
-------------
Such person as the Board of Directors may have designated or, in the
absence of such a person, the President of the Corporation or, in his or her
absence, such person as may be chosen by the holders of a majority of the shares
entitled to vote who are present, in person or by proxy, shall call to order any
meeting of the stockholders and act as chairman of the meeting. In the absence
of the Secretary of the Corporation, the secretary of the meeting shall be such
person as the chairman appoints.
Section 6. Conduct of Business.
--------------------
(a) The chairman of any meeting of stockholders shall determine the
order of business and the procedure at the meeting, including such
regulation of the manner of voting and the conduct of discussion as seem to
him or her in order.
(b) At any annual meeting of the stockholders, only such business
shall be conducted as shall have been brought before the meeting (i) by or
at the direction of the Board of Directors or (ii) by any stockholder of
the Corporation who is entitled to vote with respect thereto and who
complies with the notice procedures set forth in this Section 6(b). For
business to be properly brought before an annual meeting by a stockholder,
the stockholder must have given timely notice thereof in writing to the
Secretary of the Corporation. To be timely, a stockholder's notice must be
delivered or mailed to and received at the principal executive offices of
the Corporation not less than 60 days prior to the anniversary of the
preceding year's annual meeting; provided, however, that in the event that
the date of the annual meeting is advanced by more than twenty days, or
delayed by more than 60 days from such anniversary date, notice by the
stockholder to be timely must be so delivered not later than the close of
business on the later of the 60th day prior to such annual meeting or the
tenth day following the day on which notice of the date of the annual
meeting was mailed or public announcement of the date of such meeting is
first made. A stockholder's notice to the Secretary shall set forth as to
each matter such stockholder proposes to bring before the annual meeting
(i) a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and address, as they appear on the Corporation's
books, of the stockholder who proposed such business, (iii) the class and
number of shares of the Corporation's capital stock that are beneficially
owned by such stockholder and (iv) any material interest of such
stockholder in such business. Notwithstanding anything in these Bylaws to
the contrary, no business shall be brought before or conducted at an annual
meeting except in accordance with the provisions of this Section 6(b). The
officer of the Corporation or other person presiding over the annual
meeting shall, if the facts so warrant, determine and declare to the
meeting
2
<PAGE>
that business was not properly brought before the meeting in accordance
with the provisions of this Section 6(b) and, if he should so determine, he
shall so declare to the meeting and any such business so determined to be
not properly brought before the meeting shall not be transacted.
At any special meeting of the stockholders, only such business shall
be conducted as shall have been brought before the meeting by or at the
direction of the Board of Directors.
(c) Only persons who are nominated in accordance with the procedures
set forth in these Bylaws shall be eligible for election as directors.
Nominations of persons for election to the Board of Directors of the
Corporation may be made at a meeting of stockholders at which directors are
to be elected only (i) by or at the direction of the Board of Directors or
(ii) by any stockholder of the Corporation entitled to vote for the
election of directors at the meeting who complies with the notice
procedures set forth in this Section 6(c). Such nominations, other than
those made by or at the direction of the Board of Directors, shall be made
by timely notice in writing to the Secretary of the Corporation. To be
timely, a stockholder's notice shall be delivered or mailed to and received
at the principal executive offices of the Corporation not less than 60 days
prior to the date of the meeting; provided, however, that in the event that
less than 40 days' notice of the date of the meeting is first given or made
to stockholders, by public announcement or mail, notice by the stockholder
to be timely must be so received not later than the close of business on
the tenth day following the day on which such notice of the date of the
meeting was mailed or public announcement was first made. Such
stockholder's notice shall set forth (i) as to each person whom such
stockholder proposes to nominate for election or re-election as a director,
all information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (including such person's written consent
to being named in the proxy statement as a nominee and to serving as a
director if elected); and (ii) as to the stockholder giving the notice: (x)
the name and address, as they appear on the Corporation's books, of such
stockholder and (y) the class and number of shares of the Corporation's
capital stock that are beneficially owned by such stockholder. At the
request of the Board of Directors, any person nominated by the Board of
Directors for election as a director shall furnish to the Secretary of the
Corporation that information required to be set forth in a stockholder's
notice of nomination which pertains to the nominee. No person shall be
eligible for election as a director of the Corporation unless nominated in
accordance with the provisions of this Section 6(c). The officer of the
Corporation or other person presiding at the meeting shall, if the facts so
warrant, determine that a nomination was not made in accordance with such
provisions and, if he or she should so determine, he or she shall so
declare to the meeting and the defective nomination shall be disregarded.
Section 7. Proxies and Voting.
-------------------
At any meeting of the stockholders, every stockholder entitled to vote may
vote in person or by proxy authorized by an instrument in writing (or as
otherwise permitted under applicable law) by the stockholder or his duly
authorized attorney-in-fact filed in accordance with the procedure established
for the meeting. Proxies solicited on behalf of the management shall be voted as
directed by the stockholder or in the absence of such direction, as determined
by a majority of the Board of Directors. No proxy shall be valid after eleven
months from the date of its execution except for a proxy coupled with an
interest.
3
<PAGE>
Each stockholder shall have one vote for every share of stock entitled to
vote which is registered in his or her name on the record date for the meeting,
except as otherwise provided herein or in the Certificate of Incorporation of
the Corporation or as required by law.
All voting, including on the election of directors but excepting where
otherwise required by law, may be by a voice vote; provided, however, that upon
demand therefore by a stockholder entitled to vote or his or her proxy, a stock
vote shall be taken. Every stock vote shall be taken by ballot, each of which
shall state the name of the stockholder or proxy voting and such other
information as may be required under the procedure established for the meeting.
Every vote taken by ballot shall be counted by an inspector or inspectors
appointed by the chairman of the meeting.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law or as provided in the Certificate of
Incorporation, all other matters shall be determined by a majority of the votes
cast.
Section 8. Stock List.
-----------
The officer who has charge of the stock transfer books of the Corporation
shall prepare and make, in the time and manner required by applicable law, a
list of stockholders entitled to vote and shall make such list available for
such purposes, at such places, at such times and to such persons as required by
applicable law. The stock transfer books shall be the only evidence as to the
identity of the stockholders entitled to examine the stock transfer books or to
vote in person or by proxy at any meeting of stockholders.
Section 9. Consent of Stockholders in Lieu of Meeting.
-------------------------------------------
Subject to the rights of the holders of any class or series of preferred
stock of the Corporation, any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called annual or
special meeting of stockholders of the Corporation and may not be effected by
any consent in writing by such stockholders.
Section 10. Inspectors of Election
----------------------
The Board of Directors shall, in advance of any meeting of stockholders,
appoint one or more persons as inspectors of election, to act at the meeting or
any adjournment thereof and make a written report thereof, in accordance with
applicable law.
4
<PAGE>
ARTICLE II
BOARD OF DIRECTORS
Section 1. General Powers, Number and Term of Office.
------------------------------------------
The business and affairs of the Corporation shall be managed by or under
the direction of the Board of Directors. The number of directors shall be as
provided for in the Certificate of Incorporation. The Board of Directors shall
annually elect a Chairman of the Board, a Vice Chairman of the Board and a
President from among its members and shall designate, when present, either the
Chairman of the Board, the Vice Chairman of the Board or the President to
preside at its meetings.
The directors, other than those who may be elected by the holders of any
class or series of preferred stock, shall be divided into three classes, as
nearly equal in number as reasonably possible, with the term of office of the
first class to expire at the conclusion of the first annual meeting of
stockholders, the term of office of the second class to expire at the conclusion
of the annual meeting of stockholders one year thereafter and the term of office
of the third class to expire at the conclusion of the annual meeting of
stockholders two years thereafter, with each director to hold office until his
or her successor shall have been duly elected and qualified. At each annual
meeting of stockholders, commencing with the first annual meeting, directors
elected to succeed those directors whose terms expire shall be elected for a
term of office to expire at the third succeeding annual meeting of stockholders
after their election, with each director to hold office until his or her
successor shall have been duly elected and qualified.
Section 2. Vacancies and Newly Created Directorships.
------------------------------------------
Subject to the rights of the holders of any class or series of preferred
stock then outstanding, newly created directorships resulting from any increase
in the authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause may be filled only by a majority vote of the directors
then in office, though less than a quorum, and directors so chosen shall hold
office for a term expiring at the annual meeting of stockholders at which the
term of office of the class to which they have been elected expires, and until
such director's successor shall have been duly elected and qualified. No
decrease in the number of authorized directors constituting the Board shall
shorten the term of any incumbent director.
Section 3. Regular Meetings.
-----------------
Regular meetings of the Board of Directors shall be held at such place or
places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all directors. A
notice of each regular meeting shall not be required.
Section 4. Special Meetings.
-----------------
Special meetings of the Board of Directors may be called by one-third (1/3)
of the directors then in office (rounded up to the nearest whole number) or by
the President and shall be held at such
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place, on such date, and at such time as they or he or she shall fix. Notice of
the place, date, and time of each such special meeting shall be given to each
director by whom it is not waived by mailing written notice not less than five
days before the meeting or by telegraphing or telexing or by facsimile
transmission of the same not less than twenty-four (24) hours before the
meeting. Unless otherwise indicated in the notice thereof, any and all business
may be transacted at a special meeting.
Section 5. Quorum.
-------
At any meeting of the Board of Directors, a majority of the authorized
number of directors then constituting the Board shall constitute a quorum for
all purposes. If a quorum shall fail to attend any meeting, a majority of those
present may adjourn the meeting to another place, date, or time, without further
notice or waiver thereof.
Section 6. Participation in Meetings By Conference Telephone.
--------------------------------------------------
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.
Section 7. Conduct of Business.
--------------------
At any meeting of the Board of Directors, business shall be transacted in
such order and manner as the Board may from time to time determine, and all
matters shall be determined by the vote of a majority of the directors present,
except as otherwise provided herein or required by law. Action may be taken by
the Board of Directors without a meeting if all members thereof consent thereto
in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors.
Section 8. Powers.
-------
The Board of Directors may, except as otherwise required by law, exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation, including, without limiting the generality of the foregoing,
the unqualified power:
(1) To declare dividends from time to time in accordance with law;
(2) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such form as it
may determine, of written obligations of every kind, negotiable or
non-negotiable, secured or unsecured, and to do all things necessary in
connection therewith;
(4) To remove any officer of the Corporation with or without cause,
and from time to time to devolve the powers and duties of any officer upon
any other person for the time being;
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(5) To confer upon any officer of the Corporation the power to
appoint, remove and suspend subordinate officers, employees and agents;
(6) To adopt from time to time such stock, option, stock purchase,
bonus or other compensation plans for directors, officers, employees and
agents of the Corporation and its subsidiaries as it may determine;
(7) To adopt from time to time such insurance, retirement, and other
benefit plans for directors, officers, employees and agents of the
Corporation and its subsidiaries as it may determine; and
(8) To adopt from time to time regulations, not inconsistent with
these By-laws, for the management of the Corporation's business and
affairs.
Section 9. Compensation of Directors.
--------------------------
Directors, as such, may receive, pursuant to resolution of the Board of
Directors, fixed fees and other compensation for their services as directors,
including, without limitation, their services as members of committees of the
Board of Directors.
Section 10. Qualification.
--------------
Any member of the Board of directors shall, in order to qualify as such, be
domiciled in or have his or her primary place of business located in any county,
a portion of which is within a twenty-five mile radius of any office of any
financial institution subsidiary of the Corporation.
ARTICLE III
COMMITTEES
Section 1. Committees of the Board of Directors.
-------------------------------------
The Board of Directors, by a vote of a majority of the Board of Directors,
may from time to time approve committees of the Board, as designated by the
Chairman of the Board, with such lawfully delegable powers and duties as it
thereby confers, to serve at the pleasure of the Board and shall, for those
committees and any others provided for herein, elect a director or directors to
serve as the member or members, designating, if it desires, other directors as
alternate members who may replace any absent or disqualified member at any
meeting of the committee. Any committee so designated may exercise the power and
authority of the Board of Directors to declare a dividend, to authorize the
issuance of stock or to adopt a certificate of ownership and merger pursuant to
Section 253 of the Delaware General Corporation Law if the resolution which
designated the committee or a supplemental resolution of the Board of Directors
shall so provide. In the absence or disqualification of any member of any
committee and any alternate member in his or her place, the member or members of
the committee present at the meeting and not disqualified from voting, whether
or not he or she or they constitute a quorum, may by unanimous vote appoint
another member of the Board of Directors to act at the meeting in the place of
the absent or disqualified member.
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Section 2. Conduct of Business.
--------------------
Each committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be made
for notice to members of all meetings; one-third (1/3) of the members shall
constitute a quorum unless the committee shall consist of one or two members, in
which event one member shall constitute a quorum; and all matters shall be
determined by a majority vote of the members present. Action may be taken by any
committee without a meeting if all members thereof consent thereto in writing,
and the writing or writings are filed with the minutes of the proceedings of
such committee.
Section 3. Nominating Committee.
---------------------
The Board of Directors shall act as the Nominating Committee. The
Nominating Committee shall have authority (i) to review any nominations for
election to the Board of Directors made by a stockholder of the Corporation
pursuant to Section 6(c)(ii) of Article I of these Bylaws in order to determine
compliance with such Bylaw and (ii) to recommend nominees for election to the
Board of Directors to replace those directors whose terms expire at the annual
meeting of stockholders next ensuing.
ARTICLE IV
OFFICERS
Section 1. Generally.
----------
(a) The Board of Directors as soon as may be practicable after the
annual meeting of stockholders shall choose a President, a Secretary and a
Treasurer and from time to time may choose such other officers as it may
deem proper. The President shall be chosen from among the directors. Any
number of offices may be held by the same person.
(b) The term of office of all officers shall be until the next annual
election of officers and until their respective successors are chosen, but
any officer may be removed from office at any time by the affirmative vote
of a majority of the authorized number of directors then constituting the
Board of Directors.
(c) All officers chosen by the Board of Directors shall each have such
powers and duties as generally pertain to their respective offices, subject
to the specific provisions of this Article IV. Such officers shall also
have such powers and duties as from time to time may be conferred by the
Board of Directors or by any committee thereof.
8
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Section 2. President.
----------
The President shall be the chief executive officer and, subject to the
control of the Board of Directors, shall have general power over the management
and oversight of the administration and operation of the Corporation's business
and general supervisory power and authority over its policies and affairs. The
President shall see that all orders and resolutions of the Board of Directors
and of any committee thereof are carried into effect.
Each meeting of the stockholders and of the Board of Directors shall be
presided over by such officer as has been designated by the Board of Directors
or, in his absence, by such officer or other person as is chosen at the meeting.
The Secretary or, in the Secretary's absence, the General Counsel of the
Corporation or such officer as has been designated by the Board of Directors or,
in his absence, such officer or other person as is chosen by the person
presiding, shall act as secretary of each such meeting.
Section 3. Vice President.
---------------
The Vice President or Vice Presidents, if any, shall perform the duties of
the President in his absence or during his disability to act. In addition, the
Vice Presidents shall perform the duties and exercise the powers usually
incident to their respective offices and/or such other duties and powers as may
be properly assigned to them from time to time by the Board of Directors, the
Chairman of the Board or the President.
Section 4. Secretary.
----------
The Secretary or an Assistant Secretary shall issue notices of meetings,
shall keep their minutes, shall have charge of the seal and the corporate books,
shall perform such other duties and exercise such other powers as are usually
incident to such offices and/or such other duties and powers as are properly
assigned thereto by the Board of Directors, the Chairman of the Board or the
President.
Section 5. Treasurer.
----------
The Treasurer shall have charge of all monies and securities of the
Corporation, other than monies and securities of any division of the Corporation
which has a treasurer or financial officer appointed by the Board of Directors,
and shall keep regular books of account. The funds of the Corporation shall be
deposited in the name of the Corporation by the Treasurer with such banks or
trust companies or other entities as the Board of Directors from time to time
shall designate. The Treasurer shall sign or countersign such instruments as
require his signature, shall perform all such duties and have all such powers as
are usually incident to such office and/or such other duties and powers as are
properly assigned to him by the Board of Directors, the Chairman of the Board or
the President, and may be required to give bond, payable by the Corporation, for
the faithful performance of his duties in such sum and with such surety as may
be required by the Board of Directors.
9
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Section 6. Assistant Secretaries and Other Officers.
-----------------------------------------
The Board of Directors may appoint one or more assistant secretaries and
one or more assistant treasurers, or one appointee to both such positions, which
officers shall have such powers and shall perform such duties as are provided in
these By-laws or as may be assigned to them by the Board of Directors, the
Chairman of the Board or the President.
Section 7. Action with Respect to Securities of Other Corporations.
--------------------------------------------------------
Unless otherwise directed by the Board of Directors, the President or any
officer of the Corporation authorized by the President shall have power to vote
and otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of stockholders of or with respect to any action of stockholders of any
other corporation in which this Corporation may hold securities and otherwise to
exercise any and all rights and powers which this Corporation may possess by
reason of its ownership of securities in such other Corporation.
ARTICLE V
STOCK
Section 1. Certificates of Stock.
----------------------
Each stockholder shall be entitled to a certificate signed by, or in the
name of the Corporation by, the President or a Vice President, and by the
Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer,
certifying the number of shares owned by him or her. Any or all of the
signatures on the certificate may be by facsimile.
Section 2. Transfers of Stock.
-------------------
Transfers of stock shall be made only upon the transfer books of the
Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where a
certificate is issued in accordance with Section 4 of Article V of these Bylaws,
an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefore.
Section 3. Record Date.
------------
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders, or to receive payment of
any dividend or other distribution or allotment of any rights or to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date on which the resolution
fixing the record date is adopted and which record date shall not be more than
60 nor less than ten days before the date of any meeting of stockholders, nor
more than 60 days prior to the time for such other action as hereinbefore
described; provided, however, that if no record date is fixed by the Board of
Directors, the record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given or, if notice is
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<PAGE>
waived, at the close of business on the day next preceding the day on which the
meeting is held, and, for determining stockholders entitled to receive payment
of any dividend or other distribution or allotment of rights or to exercise any
rights of change, conversion or exchange of stock or for any other purpose, the
record date shall be at the close of business on the day on which the Board of
Directors adopts a resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 4. Lost, Stolen or Destroyed Certificates.
---------------------------------------
In the event of the loss, theft or destruction of any certificate of stock,
another may be issued in its place pursuant to such regulations as the Board of
Directors may establish concerning proof of such loss, theft or destruction and
concerning the giving of a satisfactory bond or bonds of indemnity.
Section 5. Regulations.
------------
The issue, transfer, conversion and registration of certificates of stock
shall be governed by such other regulations as the Board of Directors may
establish.
ARTICLE VI
NOTICES
Section 1. Notices.
--------
Except as otherwise specifically provided herein or required by law, all
notices required to be given to any stockholder, director, officer, employee or
agent shall be in writing and may in every instance be effectively given by hand
delivery to the recipient thereof, by depositing such notice in the mail,
postage paid, by sending such notice by prepaid telegram or mailgram or by
sending such notice by facsimile machine or other electronic transmission. Any
such notice shall be addressed to such stockholder, director, officer, employee
or agent at his or her last known address as the same appears on the books of
the Corporation. The time when such notice is received, if hand delivered, or
dispatched, if delivered through the mail, by telegram or mailgram or by
facsimile machine or other electronic transmission, shall be the time of the
giving of the notice.
Section 2. Waivers.
--------
A written waiver of any notice, signed by a stockholder, director, officer,
employee or agent, whether before or after the time of the event for which
notice is to be given, shall be deemed equivalent to the notice required to be
given to such stockholder, director, officer, employee or agent. Neither the
business nor the purpose of any meeting need be specified in such a waiver.
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ARTICLE VII
MISCELLANEOUS
Section 1. Facsimile Signatures.
---------------------
In addition to the provisions for use of facsimile signatures elsewhere
specifically authorized in these Bylaws, facsimile signatures of any officer or
officers of the Corporation may be used whenever and as authorized by the Board
of Directors or a committee thereof.
Section 2. Corporate Seal.
---------------
The Board of Directors may provide a suitable seal, containing the name of
the Corporation, which seal shall be in the charge of the Secretary. If and when
so directed by the Board of Directors or a committee thereof, duplicates of the
seal may be kept and used by the Treasurer or by an Assistant Secretary or
Assistant Treasurer.
Section 3. Reliance upon Books, Reports and Records.
-----------------------------------------
Each director, each member of any committee designated by the Board of
Directors, and each officer of the Corporation shall, in the performance of his
or her duties, be fully protected in relying in good faith upon the books of
account or other records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its officers or
employees, or committees of the Board of Directors so designated, or by any
other person as to matters which such director or committee member reasonably
believes are within such other person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the Corporation.
Section 4. Fiscal Year.
------------
The fiscal year of the Corporation shall be as fixed by the Board of
Directors.
Section 5. Time Periods.
-------------
In applying any provision of these Bylaws which requires that an act be
done or not be done a specified number of days prior to an event or that an act
be done during a period of a specified number of days prior to an event,
calendar days shall be used, the day of the doing of the act shall be excluded
and the day of the event shall be included.
ARTICLE VIII
AMENDMENTS
The Bylaws of the Corporation may be adopted, amended or repealed as
provided in Article SEVENTH of the Certificate of Incorporation of the
Corporation.
12
NUMBER _________ COMMON STOCK
FIRST FEDERAL BANK OF THE SOUTHWEST, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
This Certifies that
is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE OF
FIRST FEDERAL BANK OF THE SOUTHWEST, INC. (the "Corporation"), a Delaware
corporation. The shares represented by this certificate are transferable only on
the stock transfer books of the Corporation by the holder of record hereof, or
by his duly authorized attorney or legal representative, upon the surrender of
this certificate properly endorsed. THIS SECURITY IS NOT A DEPOSIT OR ACCOUNT
AND IS NOT FEDERALLY INSURED OR GUARANTEED.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
executed by its duly authorized officers and has caused its corporate seal to be
hereunto affixed.
DATED ____________________________
Ronald D. Rogers, Aubrey L. Dunn, Jr.,
Secretary President and Chief Executive Officer
[Seal]
<PAGE>
FIRST FEDERAL BANK OF THE SOUTHWEST, INC.
The shares represented by this certificate are issued subject to all the
provisions of the certificate of incorporation and bylaws of FIRST FEDERAL BANK
OF THE SOUTHWEST, INC.. (the "Corporation") as from time to time amended (copies
of which are on file at the principal executive offices of the Corporation).
The Corporation will furnish to any stockholder upon request and without
charge a full statement of the powers, designations, preferences and relative
participating, optional or other special rights of each authorized class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights, to the extent that the same have been fixed, and
of the authority of the board of directors to designate the same with respect to
other series. Such request may be made to the Corporation or to its transfer
agent and registrar.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
UNIF GIFT MIN ACT______Custodian_______Under Uniform Gift to Minors Act--_______
(Cust) (Minor) (State)
UNIF TRANS MIN ACT____Custodian_____Under Uniform Transfers to Minor Act--_____
(Cust) (Minor) (State)
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common
Additional abbreviations may also be used though not in the above list.
<PAGE>
For Value Received, __________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
------------------------------
------------------------------
- - --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - ------------------------------------------------------------------------ Shares
of Common Stock represented by the within certificate, and do hereby irrevocably
constitute and appoint ---------------------------------------------- Attorney
to transfer the said shares on the books of the within named Corporation with
full power of substitution in the premises.
Dated ____________________________
- - --------------------------------------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER
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May 8, 1998
Board of Directors Board of Directors
First Federal Bank of the First Federal Savings Bank
Southwest, Inc. of New Mexico
300 North Pennsylvania Avenue 300 North Pennsylvania Avenue
Roswell, New Mexico 88201 Roswell, New Mexico 88201
Re: Registration Statement Under the Securities Act of 1933
Gentlemen:
This opinion is rendered in connection with the Registration Statement to
be filed on Form S-4 with the Securities and Exchange Commission under the
Securities Act of 1933 relating to the shares of Common Stock of First Federal
Bank of the Southwest, Inc. (the "Company"), par value $.01 per share, proposed
to be issued to holders of the common stock of First Federal Savings Bank of New
Mexico as described in the Registration Statement. As counsel, we have reviewed
the corporate proceedings relating to the Agreement and Plan of Merger contained
in the Registration Statement and such other legal matters as we have deemed
appropriate for the purpose of this opinion. We are rendering this opinion as of
the time the Registration Statement referred to above becomes effective.
We have examined originals, or copies identified to our satisfaction, of
such corporate records of the Company and have made such examinations of law as
we have deemed relevant. In our examination, we have assumed and have not
verified (i) the genuineness of all signatures, (ii) the authenticity of all
documents submitted to us as originals, (iii) the conformity with the originals
of all documents supplied to us as copies, and (iv) the accuracy and
completeness of all corporate records and documents and all certificates and
statements of fact, in each case given or made available to us by the Company.
We have relied upon certificates and other written documents from public
officials and government agencies and departments and we have assumed the
accuracy and authenticity of such certificates and documents.
<PAGE>
Board of Directors
First Federal Bank of the Southwest, Inc.
First Federal Savings Bank of New Mexico
May 8, 1998
Page 2
Based on the foregoing, we are of the opinion that the shares of Common
Stock of the Company covered by the Registration Statement will, when issued in
accordance with the terms of the Agreement and Plan of Merger, be validly
issued, fully paid and non-assessable shares of Common Stock of the Company.
Very truly yours,
/s/ Silver, Freedman & Taff, L.L.P.
SILVER, FREEDMAN & TAFF, L.L.P.
EXHIBIT 8
[RITTER, BARR & CO. LETTERHEAD]
April 28, 1998
The Board of Directors
First Federal Savings Bank of New Mexico
Roswell, New Mexico
We have reviewed the proposed transaction and principal terms of the holding
company merger and reorganization as fully described in First Federal Savings
Bank of New Mexico's Proxy Statement and the Agreement and Plan of Merger dated
4/22/98.
In our opinion the merger will constitute a reorganization within the meaning of
Section 368(a)(1)(A) and 368 (a)(2)(E) of the Internal Revenue Code of 1986, as
amended ("IRC"). The reorganization will not be disqualified by reason of the
fact that stock of the Holding Company is used in the transaction [IRC Section
368(a)(2)(E)]. It will also not be disqualified by the substitution of Holding
Company stock options for First Federal's Stock options (Rev. Rul. 70-269,
1970-1 C.B. 82). For purposes of this opinion, First Federal deposits with a
liquidation account interest do not constitute stock for purposes of IRC Section
368(c). The Holding Company, New Bank, and First Federal will each be a "party
to a reorganization" within the meaning of IRC Section 368(b).
It is also our opinion that:
1. No gain or loss will be recognized to New Bank on the transfer of
substantially all of its assets to First Federal [IRC Section 361(a)].
2. No gain or loss will be recognized to First Federal on the receipt by First
Federal of substantially all of the assets of New Bank in exchange for
First Federal Stock [IRC Section 1032(a)].
3. First Federal's basis in each New Bank asset received in the transaction
will be the same as the basis of those assets in the hands of New Bank
immediately prior to the transaction [IRC Section 362(b)].
4. First Federal's holding period in each New Bank asset will include the
period during which New Bank held such asset [IRC Section 1223(2)].
5. No gain or loss will be recognized by Holding Company upon receipt of First
Federal Common Stock [IRC Section 354(a)(1)].
<PAGE>
6. No gain or loss will be recognized by the shareholders of First Federal on
the exchange of their First Federal Common Stock solely for an identical
number of shares of Holding Company Common Stock [IRC Section 354(a)(1)].
7. Each First Federal shareholder's basis in the Holding Company Common Stock
received in the transaction will be the same as their basis in their First
Federal Common Stock surrendered in the transaction [IRC Section
358(a)(1)].
8. The holding period of the Holding Company Common Stock received by a First
Federal common shareholder in exchange for the transfer of First Federal
Common Stock will include the period during which First Federal Common
Stock surrendered in exchange therefor was held, provided that First
Federal Common Stock was held as a capital asset on the date of the
exchange [IRC Section 1223(1)].
In summary, the transaction as proposed should generate no income tax at the
Federal, state or local levels to the Holding Company, its newly formed
subsidiary, or First Federal Savings Bank. The shareholders, if any, that
receive cash for their shares of First Federal stock will generate taxable
income equal to the difference between the cash received and the tax basis in
their stock.
If you have any questions relating to the above, feel free to call.
In confidence,
/s/ Walter G. Barr
Walter G. Barr
Partner
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT(1)
Parent Subsidiary Ownership Organization
------ ---------- --------- ------------
First Federal Bank of the First Federal Savings Bank 100% Federal
Southwest, Inc. of New Mexico
- - ----------
(1) Upon consummation of the Reorganization.
The financial statements of the Registrant will be consolidated with those
of its subsidiaries upon completion of the Reorganization.
May 8, 1998
Board of Directors
First Federal Bank of the Southwest, Inc.
300 North Pennsylvania Avenue
Roswell, New Mexico 88201
Gentlemen:
We consent to the use of our opinions, to the incorporation by reference of
such opinions as exhibits to the Form S-4 and to the reference to our firm and
our opinions under the heading "Legal Matters" in the Registration Statement on
Form S-4 filed by First Federal Bank of the Southwest, Inc. and all amendments
thereto. In giving this consent, we do not admit that we are within the category
of persons whose consent is required under Section 7 of the Securities Act of
1933, as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder.
/s/ Silver, Freedman & Taff, L.L.P.
SILVER, FREEDMAN & TAFF, L.L.P.
CONSENT OF RITTER, BARR & COMPANY, INDEPENDENT AUDITORS
We consent to the use in this Registration Statement on Form S-4 of
First Federal Bank of the Southwest, Inc. of our report dated November 4, 1997
on the financial statements of First Federal Savings Bank of New Mexico, as of
September 30, 1997 and 1996 and for the years then ended and our opinion on the
Federal, state and local tax consequences dated April 28, 1998.
/s/ Ritter, Barr & Company
Roswell, New Mexico
May 8, 1998
REVOCABLE PROXY
First Federal Savings Bank of New Mexico
SPECIAL MEETING OF STOCKHOLDERS
__________, 1998
The undersigned hereby appoints the Board of Directors of First Federal
Savings Bank of New Mexico (the "Bank"), and its survivor, with full powers of
substitution, to act as attorney and proxy for the undersigned to vote all
shares of Common Stock of the Bank which the undersigned is entitled to vote at
the Special Meeting of Stockholders (the "Meeting"), to be held on __________,
1998, at _:__ _.m., and at any and all adjournments thereof, as follows:
FOR AGAINST ABSTAIN
--- ------- -------
I. Approval of a proposal to adopt a holding company
structure for the Bank with the result that the
Bank will become a wholly owned subsidiary of
First Federal Bank of the Southwest, Inc. as
provided in the Agreement and Plan of Merger. [ ] [ ] [ ]
II. Approval of a proposal to adjourn the Meeting in
the event that a sufficient number of votes
necessary to approve the Agreement is not
received. [ ] [ ] [ ]
In their discretion, upon such other matters as may properly come before
the Meeting or any adjournment thereof.
The Board of Directors recommends a vote "FOR" the listed propositions.
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THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED FOR THE PROPOSITIONS STATED. IF ANY OTHER BUSINESS IS
PRESENTED AT SUCH MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS PROXY
IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO
OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
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<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Should the undersigned be present and elect to vote at the Meeting or at
any adjournment thereof, and after notification to the Secretary of the Bank at
the Meeting of the stockholder's decision to terminate this Proxy, then the
power of such attorney and proxy shall be deemed terminated and of no further
force and effect.
The undersigned acknowledges receipt from the Bank, prior to the execution
of this Proxy, of Notice of the Meeting and a Proxy Statement/Prospectus.
Dated: ______________________, 1998
- - ---------------------------------- -----------------------------------
STREET ADDRESS PRINT NAME OF STOCKHOLDER
- - ---------------------------------- -----------------------------------
CITY STATE ZIP CODE SIGNATURE OF STOCKHOLDER
-----------------------------------
PRINT NAME OF STOCKHOLDER
-----------------------------------
SIGNATURE OF STOCKHOLDER
Please sign exactly as your name
appears above on this card. When
signing as attorney, executor,
administrator, trustee or guardian,
please give your full title. If
shares are held jointly, each
holder should sign.
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PLEASE PROMPTLY COMPLETE, DATE, SIGN AND MAIL THIS PROXY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE
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