As filed with the Securities and Exchange Commission on December 16, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ALAMOGORDO FINANCIAL CORPORATION
(Name of Small Business Issuer in its Charter)
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Federal 6712 74-2819148
<S> <C> <C>
(State or Other Jurisdiction of (Primary Standard (I.R.S. Employer
Incorporation or Organization) Industrial Classification) identification number)
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500 10th Street
Alamogordo, New Mexico
(505) 437-9334
(Address, including zip code, and telephone number,
including area code, of registrant's principal
executive offices)
R. Miles Ledgerwood
President and Chief Executive Officer
500 10th Street
Alamogordo, New Mexico 88310
(505) 437-9334
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Eric Luse, Esq.
Kenneth R. Lehman, Esq.
Luse Lehman Gorman Pomerenk & Schick
5335 Wisconsin Avenue, N.W.
Suite 400
Washington, D.C. 20015
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 of the Securities Act of 1933,
check the following box: [X]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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Proposed Proposed maximum
Title of each class of Amount to be maximum offering aggregate Amount of
securities to be registered registered price per share offering price (1) registration fee
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Common Stock, $0.10 par value per share 1,101,643 shares $10.00 $11,016,430 $3,063
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Participation Interests (2) (3)
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___________
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Includes an indeterminate number of interests to purchase the Common Stock
pursuant to the Alamogordo Federal Savings and Loan Association 401(k)
Profit Sharing Plan.
(3) The securities of Alamogordo Financial Corporation to be purchased by the
Alamogordo Federal Savings and Loan Association 401(k) Profit Sharing Plan
as adopted by the Alamogordo Federal Savings and Loan Association are
included in the amount shown for Common
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Stock. However, Pursuant to Rule 457(h) of the Securities Act of 1933,as
amended, no separate fee is required for the participation interests.
Pursuant to such rule, the amount being registered has been calculated on
the basis of the number of shares of Common Stock that may be purchased
with the current assets of such plan.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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Prospectus Supplement
ALAMOGORDO FINANCIAL CORPORATION
ALAMOGORDO FEDERAL SAVINGS & LOAN ASSOCIATION
401(K) PROFIT SHARING PLAN AND TRUST
Alamogordo Financial Corporation is providing this prospectus
supplement to participants in Alamogordo Federal Savings & Loan Association
401(k) Profit Sharing Plan and Trust. As a participant in this 401(k) plan, you
may direct the trustee of the 401(k) plan to purchase common stock of Alamogordo
Financial Corporation in its offering with amounts allocated to your account
under the 401(k) plan.
This prospectus supplement relates to your initial election to direct
that all or a portion of your account be invested in a fund made up of
Alamogordo Financial Corporation common stock. The trustee will reinvest your
account in the other funds available under the 401(k) plan if the offering is
oversubscribed and the trustee cannot use the total amount you allocate to
purchase Alamogordo Financial Corporation common stock.
The prospectus of Alamogordo Financial Corporation dated February __,
2000 attached to this prospectus supplement includes detailed information with
respect to the offering and the financial condition, results of operations and
business of Alamogordo Federal Savings & Loan Association. You should read this
prospectus supplement, which provides information with respect to the 401(k)
plan, only in conjunction with the prospectus.
--------------------
For a discussion of risks that you should consider, see "Risk Factors"
beginning on page __ of the prospectus.
The interests in the 401(k) plan and the offering of the common stock
have not been approved or disapproved by the Office of Thrift Supervision, the
Securities and Exchange Commission or any other federal or state agency. Any
representation to the contrary is a criminal offense.
The securities offered in this prospectus supplement are not deposits
or accounts and are not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
The 401(k) plan's investment in common stock is subject to loss.
The date of this prospectus supplement is February __, 2000.
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TABLE OF CONTENTS
THE OFFERING................................................... 1
Securities Offered............................................. 1
Election to Purchase Common Stock in the Offering; Priorities.. 1
Value of 401(k) Plan Assets.................................... 2
Method of Directing Transfer................................... 2
Time for Directing Transfer.................................... 2
Irrevocability of Transfer Direction........................... 2
Direction to Purchase Common Stock After the Offering.......... 3
Purchase Price of Common Stock................................. 3
Nature of a Participant's Interest in the Common Stock......... 3
Voting Rights of Common Stock.................................. 3
DESCRIPTION OF THE 401(k) PLAN.......................................... 4
Introduction................................................... 4
Eligibility and Participation.................................. 4
Contributions Under the 401(k) Plan............................ 5
Limitations on 401(k) Plan Contributions....................... 5
Investment of Contributions and Account Balances............... 7
Benefits Under the 401(k) Plan.................................10
Withdrawals and Distributions From the 401(k) Plan.............11
Trustee ......................................................12
Plan Administrator.............................................12
Reports to 401(k) Plan Participants............................12
Amendment and Termination......................................12
Merger, Consolidation or Transfer..............................13
Federal Income Tax Consequences................................13
Additional Employee Retirement Income and Security
Act Considerations............................................18
Securities and Exchange Commission Reporting and
Short-Swing Profit Liability..................................18
Financial Information Regarding 401(k) Plan Assets.............19
LEGAL OPINION...........................................................19
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THE OFFERING
Securities Offered
Alamogordo Financial Corporation is offering participation interests in
the Alamogordo Federal Savings & Loan Association 401(k) Profit Sharing Plan and
Trust (the "401(k) plan"). The participation interests represent indirect
ownership of Almogordo Financial Corporation's common stock through the 401(k)
plan. The 401(k) plan may acquire up to 44,000 shares of Alamogordo Financial
Corporation common stock. Only employees of Alamogordo Federal Savings & Loan
Association may become participants in the 401(k) plan. Your investment in the
Alamogordo Financial Corporation stock fund is subject to the priorities listed
below. Information with regard to the 401(k) plan is contained in this
prospectus supplement and information with regard to the financial condition,
results of operations and business of Alamogordo Federal Savings & Loan
Association is contained in the attached prospectus. The address of the
principal executive office of Alamogordo Federal Savings & Loan Association is
500 10th Street, Alamogordo, New Mexico 88310. Alamogordo Federal Savings & Loan
Association's telephone number is (505) 437-9334.
Election to Purchase Common Stock in the Offering; Priorities
In connection with the offering, Alamogordo Federal Savings & Loan
Association has amended the 401(k) plan to permit you to transfer all or part of
your account balances in the 401(k) plan to the Alamogordo Financial Corporation
stock fund, to be used to purchase common stock issued in the offering. The
trustee of the Alamogordo Financial Corporation stock fund will purchase common
stock in accordance with your directions. You will also be provided the
opportunity to elect alternative investments from among the five other funds
offered. In the event the offering is oversubscribed, i.e. there are more orders
for common stock than shares available for sale in the offering, and the trustee
is unable to use the full amount allocated by you to purchase common stock in
the offering, the amount that cannot be invested in common stock will be
reinvested in the other investment funds of the 401(k) plan in accordance with
your current investment election. If you fail to direct the investment of your
account balances, your account balances will remain in the other investment
funds of the 401(k) plan as previously directed by you. If you have never made
an investment election, your account balance will be invested in the Cash
Investment Fund.
The shares of common stock are being offered for sale in the following
priorities:
(1) depositors of Alamogordo Federal Savings & Loan Association with
aggregate account balances of $50 or more as of September 30,
1998;
(2) Alamogordo Federal Savings & Loan Association's employee stock
ownership plan;
(3) depositors of Alamogordo Federal Savings & Loan Association with
aggregate account balances of $50 or more as of December 31,
1999;
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(4) directors, officers and employees of Alamogordo Federal Savings &
Loan Association; and
(5) the general public who hold shares of common stock of Alamogordo
Federal Savings & Loan Association with preference given to
residents of the New Mexico counties of Lincoln and Otero.
To the extent you fall into one of these categories, you may use funds
in your plan account to subscribe or pay for the common stock being acquired.
Common stock so purchased will be placed in the Alamogordo Financial Corporation
stock fund and allocated to your 401(k) plan account.
Value of 401(k) Plan Assets
As of September 30, 1999, the market value of the assets of the 401(k)
plan was approximately $435,653. The plan administrator informed each
participant of the value of his or her account balance under the 401(k) plan as
of September 30, 1999.
Method of Directing Transfer
You will receive a form on which you can elect to transfer all or a
portion of your account balance in the 401(k) plan to the Alamogordo Financial
Corporation stock fund or to the other investment options established under the
401(k) plan. If you wish to use all or part of your account balance in the
401(k) plan to purchase common stock issued in the offering, you should indicate
that decision on the investment allocation form.
Time for Directing Transfer
If you wish to purchase common stock with your 401(k) account balances,
you must return your election form to Susan White, Human Resources Director,
Alamogordo Federal Savings & Loan Association, 500 10th Street, Alamogordo, New
Mexico 88310 no later than 12:00 noon on March ____, 2000.
Irrevocability of Transfer Direction
You may not revoke your election to transfer amounts credited to your
account in the 401(k) plan to the Alamogordo Financial Corporation stock fund.
After the offering, however, you will be able to change the investment of your
accounts under the plan as explained below.
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Direction to Purchase Common Stock After the Offering
Whether you choose to purchase stock in the offering, or attempt to
purchase stock in the offering but are unable to do so because the offering is
oversubscribed, you will also be able to purchase stock after the offering. You
may direct that a certain percentage of your account balance in the 401(k) plan
be transferred to the Alamogordo Financial Corporation stock fund and invested
in common stock, or to the other investment funds available under the 401(k)
plan. You may change your investment allocation on a quarterly basis. Special
restrictions may apply to transfers directed to and from the Alamogordo
Financial Corporation stock fund by the participants who are subject to the
provisions of section 16(b) of the Securities Exchange Act of 1934, as amended,
relating to the purchase and sale of securities by officers, directors and
principal shareholders of Alamogordo Financial Corporation.
Purchase Price of Common Stock
The trustee will use the funds transferred to the Alamogordo Financial
Corporation stock fund to purchase common stock in the offering, except in the
event of an oversubscription, as discussed above. The trustee will pay $10.00
per share, which will be the same price paid by all other persons in the
offering.
After the offering, the trustee will acquire common stock in open
market transactions at the prevailing price. The trustee will pay transaction
fees associated with the purchase, sale or transfer of the common stock after
the offering.
Nature of a Participant's Interest in the Common Stock
The trustee will hold the common stock, in trust, for the participants
of the 401(k) plan. Shares of common stock acquired by the trustee at your
direction will be allocated to your account. Therefore, investment decisions of
other participants should not affect the earnings allocated to your account.
Voting Rights of Common Stock
The trustee generally will exercise voting rights attributable to all
common stock held by the Alamogordo Financial Corporation stock fund as directed
by participants with accounts invested in the fund. When stockholders have a
right to vote on a matter, you will be allocated voting instruction rights
reflecting your proportionate interest in the fund. The trustee will vote the
common stock affirmatively and negatively on each matter, in proportion to the
voting instructions the trustee receives from the participants.
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DESCRIPTION OF THE 401(k) PLAN
Introduction
Alamogordo Federal Savings & Loan Association adopted the United New
Mexico Trust Company Defined Contribution Master Plan and Trust Agreement, a
multiple-employer defined contribution plan, effective July 1, 1996 as a
substitution and amendment of an existing retirement plan originally established
July 1, 1954. United New Mexico Trust Company was subsequently acquired by
Norwest Bank New Mexico, N.A. and Norwest assumed the rule of Master Plan
Sponsor. Wells Fargo Bank New Mexico, N.A. recently acquired Norwest and has
assumed the role as Master Plan Sponsor. The 401(k) plan is a tax-qualified plan
that permits participants to defer current compensation to their account
balances. The plan also permits participant direction of investment.
Alamogordo Federal Savings & Loan Association intends that the 401(k)
plan, in operation, will comply with the requirements of the Internal Revenue
Code and the Employee Retirement Income Security Act. Alamogordo Federal Savings
& Loan Association may amend the 401(k) plan from time to time in the future, as
it sees fit or to maintain compliance with federal law. Since the 401(k) plan is
governed by the Employee Retirement Income Securities Act, federal law provides
you with various rights and protections as a participant in the 401(k) plan.
Although the 401(k) plan is subject to many of the provisions of the Employee
Retirement Income Security Act, your benefits under the 401(k) plan are not
governed by the Pension Benefit Guaranty Corporation.
Reference to full text of plan. The following statements are summaries
of certain provisions of the 401(k) plan. They are not complete and are
qualified in their entirety by the full text of the 401(k) plan. You may obtain
a copy of the 401(k) plan by filing a request with Alamogordo Federal Savings &
Loan Association, c/o Alamogordo Federal Savings & Loan Association, Attention:
Miles Ledgerwood, President, 500 10th Street, Alamogordo, New Mexico 88310. We
urge each employee to read carefully the full text of the 401(k) plan.
Eligibility and Participation
Any employee of Alamogordo Federal Savings & Loan Association is
eligible to become a participant in the 401(k) plan on the January 1 or July 1
following completion of one "year of service" during which an employee completes
at least 1000 hours of service with Alamogordo Federal Savings & Loan
Association. The 401(k) plan year is January 1 to December 31.
As of September 30, 1999, there were 27 employees eligible to
participate in the 401(k) plan and 26 employees participating by making elective
deferral contributions.
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Contributions Under the 401(k) Plan
401(k) plan contributions. As a participant in the 401(k) plan, you are
permitted to defer your salary on a pre-tax basis, subject to the limitations of
the Internal Revenue Code and to have that amount contributed to the 401(k) plan
on your behalf. For purposes of the 401(k) plan, "salary" means your total
compensation reported on Internal Revenue Service Form W-2, exclusive of any
compensation deferred from a prior year, plus pre-tax contributions made to this
401(k) plan or a section 125 cafeteria plan. In 1999, the maximum amount of your
annual salary that could be taken into account under the 401(k) plan was limited
to $160,000. Limits established by the Internal Revenue Service are subject to
increase pursuant to an annual cost of living adjustment. You may elect to
modify the amount contributed to the 401(k) plan by filing a new elective
deferral agreement with the 401(k) plan administrator which will be effective
the first day of the following month.
Employer contributions. If you make elective deferral contributions,
Alamogordo Federal Savings & Loan Association may make matching contributions to
the 401(k) plan in various amounts on the first 6% (divided into 4 tiers) of
your salary. The matching contributions are subject to revision by Alamogordo
Federal Savings & Loan Association at any time. The matching contributions vest
according to the vesting schedule set forth below. Alamogordo Federal Savings &
Loan Association may also make discretionary contributions to the 401(k) plan,
which are allocated to eligible employees based on their relative compensation.
Limitations on 401(k) Plan Contributions
Limitation on employee salary deferrals. The amount of your elective
deferral contributions may not currently exceed $10,500 per calendar year. The
Internal Revenue Service will periodically increase this annual limitation. If
you defer salary in excess of this limitation, your gross income for federal
income tax purposes will include the excess in the year of the deferral. In
addition, unless the excess deferral is distributed before April 15 of the
following year it will be taxed again in the year distributed. Income on the
excess deferral distributed by April 15 of the immediately succeeding year will
be treated, for federal income tax purposes, as earned and received by the
participant in the tax year in which the distribution is made.
Limitations on annual additions and benefits. The contributions and
forfeitures you receive under the 401(k) plan and employee stock ownership plan,
in the aggregate, cannot exceed the lesser of $30,000 or 25% of your
compensation, as defined in the 401(k) plan. To the extent contributions and
forfeitures exceed these limitations, the plan administrator will:
(1) return any elective deferral contributions, including earnings,
to reduce the excess amount in your accounts; and
5
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(2) reduce employer contributions which match your returned elective
deferral contributions.
If you are also covered under Alamogordo Federal Savings & Loan
Association's employee stock ownership plan and annual additions exceed the
maximum permissible amount, you must decide which plan you wish to designate as
the plan with the excess amount and the plan administrator will reduce your
contributions under the plan selected, so that the total annual additions do not
exceed the maximum permissible amount.
Limitation on plan contributions for highly compensated employees. The
Internal Revenue Code limits the amount of elective deferral contributions and
matching contributions that may be made to the 401(k) plan in any plan year on
behalf of highly compensated employees in relation to the amount of elective
deferral contributions made by or on behalf of all other employees eligible to
participate in the 401(k) plan. Specifically, the actual deferral percentage,
i.e., the average of the actual deferral ratios, expressed as a percentage, of
each eligible employee's elective deferral contribution if any, for the plan
year over the employee's salary, must meet either of the following tests:
(1) the actual deferral percentage of the eligible highly compensated
employees is not more than 125% of the actual deferral percentage
of all other eligible employees; or
(2) the actual deferral percentage of the eligible highly compensated
employees is not more than 200% of the actual deferral percentage
of all other eligible employees, and the excess of the actual
deferral percentage for the eligible highly compensated employees
over the actual deferral percentage of all other eligible
employees is not more than two percentage points.
Similarly, the actual contribution percentage, i.e., the average of the
actual contribution ratios, expressed as a percentage, of each eligible
employee's matching contributions, if any, for the plan year over the employee's
salary, must meet either of the following tests:
(1) the actual contribution percentage of the eligible highly
compensated employees is not more than 125% of the actual
contribution percentage of all other eligible employees; or
(2) the actual contribution percentage of the eligible highly
compensated employees is not more than 200% of the actual
contribution percentage of all other eligible employees, and the
excess of the actual contribution percentage for the eligible
highly compensated employees over the actual contribution
percentage of all other employees is not more than two percentage
points.
Example: If the actual deferral percentage of non-highly compensated
employees is 4%, the actual deferral percentage of highly
compensated employees cannot exceed 6%. Alternatively, if the
actual deferral percentage of non-highly compensated employees
is
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10%, the maximum deferral percentage of highly compensated
employees cannot exceed 12.5%.
Effective January 1, 1997, the actual deferral percentage and actual
contribution percentage tests are performed by using the actual deferral
percentage and the actual contribution percentage of non-highly compensated
employees for the plan year preceding the 401(k) plan year that is being tested.
In general, for plan years beginning in 1998, a highly compensated
employee includes:
(1) an employee who, during the plan year or the preceding plan year,
was at any time a 5% owner of the stock of Alamogordo Financial
Corporation, or stock possessing more than 5% of the total
combined voting power of all stock of Alamogordo Financial
Corporation; or
(2) an employee who, for the preceding plan year, received salary
from Alamogordo Federal Savings & Loan Association in excess of
$80,000, and, if Alamogordo Federal Savings & Loan Association
elects for a plan year, was in the group consisting of the top
20% of employees when ranked on the basis of salary paid during
the plan year. The dollar amounts set forth above are adjusted
annually to reflect increases in the cost of living.
The trustee will distribute amounts contributed by highly compensated
employees that exceed the actual deferral percentage limitation in any plan
year, together with any income allocable. These contributions must be
distributed before the close of the following plan year first to highly
compensated employees with the greatest dollar amount of deferrals, until the
plan satisfies the actual deferral percentage test. Moreover, Alamogordo Federal
Savings & Loan Association will be subject to a 10% excise tax on these
contributions unless, together with any income allocable thereto, they either
are re-characterized or are distributed before the close of the first 2-1/2
months following the plan year to which the contributions relate. In addition,
the trustee will distribute any contributions by highly compensated employees
that exceed the actual contribution percentage limitation in any plan year,
together with any income allocable thereto, before the close of the following
plan year. A 10% excise tax will also be imposed on Alamogordo Federal Savings &
Loan Association with respect to these contributions, unless such contributions,
plus any income allocable thereto, are distributed within 2-1/2 months following
the close of the plan year in which they arose.
Investment of Contributions and Account Balances
All amounts credited to your accounts under the 401(k) plan are held in
the plan trust which is administered by the trustee appointed by Alamogordo
Federal Savings & Loan Association's board of directors.
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Prior to the effective date of the offering, you and the other
participants were provided the opportunity to direct the investment of your
accounts into one of the following funds:
A. Wells Fargo Cash Investment Fund
B. Wells Fargo Diversified Bond Fund
C. Wells Fargo Growth Balanced Fund
D. Wells Fargo Diversified Equity Fund
E. Wells Fargo Growth Equity Fund
The 401(k) plan now provides that in addition to the funds specified
above, you may direct the trustee to invest all or a portion of your account in
the Alamogordo Financial Corporation stock fund.
You may elect to have both past contributions and earnings, as well as
future contributions to your account invested either in the Alamogordo Financial
Corporation stock fund or among the funds listed above. Transfers of past
contributions and the earnings thereon do not affect the investment mix of
future contributions. If you make an election to direct investment of assets
into the Alamogordo Financial Corporation stock fund, you may change your
investment at a future date. This may be done by filing a change of investment
allocation form with Wells Fargo Bank New Mexico, N.A. in accordance with
established procedures to dispose of a 401(k) plan investment and reinvest the
net proceeds in an alternative investment under the 401(k) plan. The proceeds of
the sale, net of expenses, will be allocated to your account and reinvested in
accordance with the 401(k) plan. Until an initial effective direction is made by
a participant, the participant's account will be invested in the Cash Investment
Fund.
A. Previous Funds.
Prior to the effective date of the offering, the trustee invested
contributions under the 401(k) plan in the five funds specified above. The
following table provides performance data with respect to the investment funds
available under the 401(k) plan, based on information provided to Alamogordo
Financial Corporation by Wells Fargo Bank New Mexico, N.A.:
Net Investment Performance - Fund Returns through September 30, 1999
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Annualized
Last Year to Last -------------------
Month 3 Mos. Date 12 Mos. 3 Yr. 5 Yr.
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A. Growth Equity Fund -1.74% -4.29% 4.61% 25.42% 15.23% 16.53%
B. Diversified Equity Fund -2.66% -5.72% 5.01% 25.89% 19.58% 20.40%
C. Growth Balanced Fund -1.53% -3.71% 3.38% 20.81% 16.94% 16.48%
D. Diversified Bond Fund 0.81% 0.58% -1.32% -2.05% 6.76% 6.70%
E. Cash Investment Fund 0.40% 1.22% 3.56% 4.87% 5.18% 5.29%
</TABLE>
The following is a description of each of the 401(k) plan's five
investment funds:
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Cash Investment Fund A money market fund, investing in a variety of
short-term, high quality debt securities that are low in risk and highly
marketable. Investments include obligations of highly rated banks (including
certificates of deposit), U.S. Treasury notes and bills, and top rated
commercial paper.
Diversified Bond Fund A bond fund that invests in a variety of
marketable bonds and fixed income securities that seeks to provide higher yield
opportunities. Corporate bonds, mortgage securities and floating rate notes are
often utilized.
Growth Balanced Fund A fund composed of investments in both stocks and
bonds, with an emphasis on stocks. The stock portion focuses on long-term
growth, while the bond portion reduces risk. The stock component is invested in
a diversified portfolio including income oriented stocks, large company growth
stocks, small company stocks, international stocks and an S&P 500 Index
portfolio. The fund seeks to enhance performance by automatically shifting
between stocks and bonds when market conditions warrant an adjustment. The stock
portion can be as high as 85% or as low as 45% depending on market
opportunities. The bond component seeks to provide strong fixed income results
from corporate, U.S. government and mortgage securities.
Diversified Equity Fund A stock fund that seeks to achieve above
average investment returns over the long term. Annual return volatility is
moderated through diversifying among five styles: the Index component which is
designed to perform similarly to the S&P 500 Index; the Income Equity component
which invests in income oriented stocks with above average dividend income; the
Large Company component that invests in stocks of large companies where
appreciation of the share price is the primary objective; the International
component invests in foreign stocks providing for increased diversification and
global growth opportunities; and the Small Company component that purchases
stock in small companies with the potential for dramatic growth.
Growth Equity Fund A stock fund that seeks to achieve above-average
long-term returns, with moderate annual return volatility through three
investment strategies. The portfolio includes investments in common stock of
large, high-quality, domestic companies that have superior growth potential;
small company stocks generally offer the greatest growth opportunities; and
International investments in foreign stocks for diversification and global
growth opportunities.
B. The Employer Stock Fund.
The Alamogordo Financial Corporation stock fund will consist of
investments in common stock made on and after the effective date of the
offering. After the offering, the trustee will, to the extent practicable, use
all amounts held by it in the Alamogordo Financial Corporation stock fund,
including cash dividends paid on common stock held in the Alamogordo Financial
Corporation stock fund, to purchase shares of common stock of Alamogordo
Financial Corporation. It is expected that all purchases will be made at
prevailing market prices. Under certain circumstances, the trustee may be
required to limit the daily volume of shares purchased.
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Pending investment in common stock, assets held in the Alamogordo Financial
Corporation stock fund will be placed in the Cash Investment Fund. Any earnings
that result therefrom will remain in the Alamogordo Financial Corporation stock
fund in the event of an oversubscription and will not be reinvested among the
other five funds.
As of the date of this prospectus supplement, none of the shares of
common stock have been issued or are outstanding and there is no established
market for the common stock. Accordingly, there is no record of the historical
performance of the Alamogordo Financial Corporation stock fund. Performance will
be dependent upon a number of factors, including the financial condition and
profitability of Alamogordo Financial Corporation and Alamogordo Federal Savings
& Loan Association and market conditions for the common stock generally.
For a discussion of risks that you should consider, see "Risk Factors"
beginning on page ___ of the prospectus.
Benefits Under the 401(k) Plan
Vesting. At all times, you have a fully vested, nonforfeitable interest
in your elective deferral contributions and the employer's discretionary
contributions and earnings under the 401(k) plan. You are vested in any employer
matching contributions, in accordance with the following schedule:
Years of Service Vesting Percentage
---------------- ------------------
Less than 2 0%
2 20%
3 40%
4 60%
5 80%
6 or more 100%
You are also 100% vested in employer matching contributions made to
your account, regardless of your years of employment, upon attainment of normal
retirement age under the 401(k) plan. Any non-vested employer contributions
which are forfeited shall be used at the option of Alamogordo Federal Savings &
Loan Association to:
(1) be allocated to all eligible participants as an employer
discretionary contribution; and
(2) to the extent attributable to matching contributions, reduce
employer matching contributions for the year in which the
forfeiture occurs.
10
<PAGE>
Withdrawals and Distributions From the 401(k) Plan
Federal law requires the 401(k) plan to impose substantial restrictions
on your right to withdraw amounts held for your benefit under the 401(k) plan
prior to your termination of employment with Alamogordo Federal Savings & Loan
Association. A federal tax penalty equal to 10% of the withdrawal, over and
above the normal federal and state income tax, may also be imposed on
withdrawals made prior to your attainment of age 59- 1/2, regardless of whether
the withdrawals occur during your employment with Alamogordo Federal Savings &
Loan Association or after termination of employment.
Withdrawals prior to termination of employment. You may withdraw your
employee elective deferral contributions in your 401(k) account prior to
termination of employment in the event of financial hardship, subject to the
hardship distribution rules under the plan. These requirements insure that you
have a true financial need before you make a withdrawal. You may withdraw
employer discretionary contributions credited to your account if you have
completed 5 years of participation in the 401(k) plan and you are 100% vested in
those contributions.
Distribution upon termination of employment or disability. Payment of
your benefits upon your retirement, disability, or other termination of
employment shall be made in a lump sum payment or in installments, over a fixed
period, which period can not exceed your life expectancy or the joint life and
last survivor expectancy of you and your beneficiary. Alternatively, your
benefit may be transferred to another qualified employee benefit plan or
individual retirement account. Benefit payments generally commence the first
calendar quarter following the end of the quarter in which you separate from
service.
Distribution upon death. If you die prior to the benefit commencement
date for retirement, disability or termination of employment, your benefit will
be paid to your surviving spouse or beneficiary in a lump sum, unless the
payment would exceed $5,000 and you elected prior to death that the payment be
made in installments over a period not to exceed 5 years or your designated
beneficiary's life expectancy. If no election is in effect at the time of your
death, your beneficiary may elect to receive the benefit in the form of a lump
sum or installments over a period not to exceed 5 years, or your designated
beneficiary's life expectancy. If you die after distribution of your interest
has begun, the remaining portion of such interests will continue to be
distributed as rapidly as under the method of distribution being used prior to
your death.
Nonalienation of benefits. Except for federal income tax withholding or
a qualified domestic relations order, your benefits payable under the 401(k)
plan cannot be alienated. Examples of alienation include transferring your
benefits voluntarily and a creditor placing a lien on your benefits. Any attempt
to alienate your benefits, whether voluntary or involuntary, shall be void.
11
<PAGE>
Trustee
The trustee with respect to the 401(k) plan is the named fiduciary of
the 401(k) plan. The trustee is appointed by the board of directors of
Alamogordo Federal Savings & Loan Association to serve at its pleasure. The
Wells Fargo Bank New Mexico, N.A. has been appointed as trustee of the 401(k)
plan.
The trustee receives, holds and invests the contributions to the 401(k)
plan in trust and distributes them to you and your beneficiaries in accordance
with the terms of the 401(k) plan and the directions of the plan administrator.
The trustee is responsible for investment of the assets of the trust.
Plan Administrator
The 401(k) plan is administered by the plan administrator. Alamogordo
Federal Savings & Loan Association is the 401(k) plan administrator. The address
of the 401(k) plan administrator is 500 10th Street, Alamogordo, New Mexico
88310, telephone number (505)437- 9334. The 401(k) plan administrator is
responsible for the administration of the 401(k) plan, interpretation of the
provisions of the 401(k) plan, prescribing procedures for filing applications
for benefits, preparation and distribution of information explaining the 401(k)
plan, maintenance of 401(k) plan records, books of account and all other data
necessary for the proper administration of the 401(k) plan, preparation and
filing of all returns and reports relating to the 401(k) plan which are required
to be filed and for all disclosures required to be made to participants,
beneficiaries and others.
Reports to 401(k) Plan Participants
The plan administrator will furnish you with a quarterly statement
showing:
(1) the current market value of each fund as of the end of the
quarter; and
(2) the amount of contributions and earnings allocated to your
account for that period.
Amendment and Termination
It is the intention of Alamogordo Federal Savings & Loan Association to
continue the 401(k) plan indefinitely. Nevertheless, Alamogordo Federal Savings
& Loan Association may terminate the 401(k) plan at any time. If the 401(k) plan
is terminated in whole or in part, then regardless of other provisions in the
401(k) plan, you will have a fully vested interest in your accounts. Alamogordo
Federal Savings & Loan Association reserves the right to make, from time to
time, any amendment or amendments to the 401(k) plan which do not cause any part
of the trust to be used for, or diverted to, any purpose other than the
exclusive benefit of participants or their beneficiaries; provided, however,
that Alamogordo Federal Savings & Loan Association
12
<PAGE>
may make any amendment it determines necessary or desirable, with or without
retroactive effect, to comply with the Employee Retirement Income Security Act.
Merger, Consolidation or Transfer
In the event of the merger or consolidation of the 401(k) plan with
another 401(k) plan, or the transfer of the trust assets to another plan, the
401(k) plan requires that you would, if either the 401(k) plan or the other plan
then terminated, receive a benefit immediately after the merger, consolidation
or transfer which is equal to or greater than the benefit you would have been
entitled to receive immediately before the merger, consolidation or transfer, if
the plan had then terminated.
Federal Income Tax Consequences
The following is a summary of the material federal income tax aspects
of the 401(k) plan. However, statutory provisions are subject to change, as are
their interpretations, and their application may vary in individual
circumstances. The consequences under state and local income tax laws may not be
the same as under the federal income tax laws. You are urged to consult your tax
advisors with respect to any distribution from the 401(k) plan and transactions
involving the 401(k) plan.
The 401(k) plan is tax-qualified and the related trust is exempt from
tax under the Internal Revenue Code. As a result, the 401(k) plan is afforded
special tax treatment which include the following:
(1) Alamogordo Federal Savings & Loan Association is allowed an
immediate tax deduction for the amount contributed to the 401(k)
plan each year;
(2) you pay no current income tax on amounts contributed by
Alamogordo Federal Savings & Loan Association on your behalf; and
(3) earnings of the 401(k) plan are tax-exempt thereby permitting the
tax-free accumulation of income and gains on investments.
The 401(k) plan will be administered to comply in operation with the
requirements of the Internal Revenue Code as of the effective date of any change
in the law. Alamogordo Federal Savings & Loan Association expects to timely
adopt any amendments to the 401(k) plan that may be necessary to maintain the
qualified status of the 401(k) plan under the Internal Revenue Code.
Assuming that the 401(k) plan is administered in accordance with the
requirements of the Internal Revenue Code, participation in the 401(k) plan
under existing federal income tax laws will have the following effects:
13
<PAGE>
(1) The contributions to your account and the investment earnings on
the account are not includable in your federal taxable income
until the contributions or earnings are actually distributed or
withdrawn from the 401(k) plan. Special tax treatment may apply
to the taxable portion of any distribution that includes common
stock or qualifies as a lump sum distribution, as described
below; and
(2) Income earned on assets held by the trust will not be taxable to
the trust.
Lump sum distribution. A distribution from the 401(k) plan to you or
your beneficiary will qualify as a lump sum distribution if it is made:
(1) within one calendar year;
(2) on account of your death, disability or separation from service,
or after you attain age 59-1/2; and
(3) consists of your balance under this 401(k) plan and all other
profit sharing plans, if any, maintained by Alamogordo Federal
Savings & Loan Association. The portion of any lump sum
distribution that is required to be included in your taxable
income for federal income tax purposes, consists of the entire
amount of the lump sum distribution less the amount of after-tax
contributions, if any, made by you to this or any other profit
sharing plan maintained by Alamogordo Federal Savings & Loan
Association which is included as part of the lump sum
distribution.
Averaging rules. The portion of the total taxable amount of a lump sum
distribution that is attributable to participation after 1973 in the 401(k) plan
or in any other profit-sharing plan maintained by Alamogordo Federal Savings &
Loan Association, referred to as the ordinary income portion, will be taxable
generally as ordinary income for federal income tax purposes. However, if you
have completed at least five years of participation in the 401(k) plan, before
the year in which the distribution is made, you may elect to have the ordinary
income portion of the lump sum distribution taxed according to a special
five-year averaging rule. In general, five-year income averaging allows you to
pay a separate tax on the lump-sum distribution that approximates the tax that
would have been due if the distribution had been received in five equal annual
installments. The election of the special averaging rules will apply only to one
lump sum distribution received by you provided such amount is received on or
after you turn age 59-1/2 and you elect to have any other lump sum distribution
from a qualified plan received in the same year taxed under the special
averaging rule. If your beneficiary receives a lump sum distribution as the
result of your death, your beneficiary may elect five-year averaging without
regard to whether you were a participant in the plan for five years prior to
your death.
Example: Brown, age 60 and married filing a joint return,
receives a lump-sum distribution of $150,000 from his
corporation's
14
<PAGE>
qualified plan and elects 5-year averaging. The tax
is computed as follows:
Amount of total distribution subject to tax $150,000.00
Tax at single rates on $30,000 (1/5 of $150,000) $ 5,988.50
Multiplied by 5 $ 29,942.50
Under a special grandfather rule, if you turned 50 by 1985, you may
elect to have your lump sum distribution taxed under either the five-year
averaging rule or under the prior law ten-year averaging rule; you also may
elect to have that portion of the lump sum distribution attributable to your
pre-1974 participation in the 401(k) plan taxed at a flat 20% rate as gain from
the sale of a capital asset.
For years beginning after December 31, 1999, five year income averaging
is repealed. The special grandfather rule is modified so that, if you qualify,
you can elect 10-year but not five year averaging.
Common stock included in lump sum distribution. If a lump sum
distribution includes common stock, the distribution generally will be taxed in
the manner described above under lump sum distributions, except that the total
taxable amount will be reduced by the amount of any net unrealized appreciation
with respect to such common stock, i.e., the net unrealized appreciation is the
excess of the value of such common stock at the time of the distribution over
the cost or other basis to the trust.
Example: Assume the 401(k) plan purchases 100 shares of common
stock in the offering at $10 per share. Ten dollars
would be the cost basis of the stock to the 401(k)
plan. If the 401(k) plan distributes the common stock
to you in a lump sum distribution when the stock is
trading at $18 per share, you will be taxed in the
year of distribution on the $10 cost basis of the
stock to the 401(k) plan. The additional $8 per
share, or the net unrealized appreciation, will not
be taxed until you sell the stock.
The tax basis of such common stock for purposes of computing gain or
loss on its subsequent sale will be the value of the common stock at the time of
distribution less the amount of net unrealized appreciation.
Example: Assuming the same facts as above, your cost basis in
the stock is $10, which is the $18 value of the stock
at the time of distribution minus the $8 of net
unrealized appreciation.
Any gain on a sale or other taxable disposition of such common stock,
to the extent of the amount of net unrealized appreciation at the time of
distribution, will be considered long-term
15
<PAGE>
capital gain regardless of the holding period of such common stock. Any gain on
a sale or other taxable disposition of the common stock in excess of the amount
of net unrealized appreciation at the time of distribution will be considered
short-term, mid-term or long-term capital gain depending upon the length of the
holding period of the common stock.
Example: Assume you sell 50 shares of the stock in January,
seven months after you receive the distribution, for
$20 per share. You will be taxed as follows: You will
not be taxed again on the $10 cost basis you
recognized as income at the time of distribution. The
$8 in net unrealized appreciation will be taxed at
long term capital gains rates. However, the $2
appreciation in the value of the stock that occurred
since the distribution will be taxed at short term
capital gains rates since you have only held the
stock for seven months following its distribution to
you.
As a recipient of a distribution you may elect to include the amount of
any net unrealized appreciation in the total taxable amount of such distribution
to the extent allowed by the regulations to be issued by the Internal Revenue
Service.
Contribution to another qualified plan or to an individual retirement
account. You may defer federal income taxation of all or any portion of the
total taxable amount of a lump sum distribution, including the proceeds from the
sale of any common stock included in the lump sum distribution, to the extent
that such amount, or a portion thereof, is contributed, within 60 days after the
date of its receipt by you, to another qualified plan or to an individual
retirement account. If less than the total taxable amount of a lump sum
distribution is contributed to another qualified plan or to an individual
retirement account within the applicable 60-day period, the amount not so
contributed must be included in your income for federal income tax purposes and
will not be eligible for the special averaging rules or for capital gains
treatment.
Example: You receive a distribution of 500 shares of stock and
$3,000 cash from the 401(k) plan on June 30. If you
intend to roll your distribution, over to another tax
qualified plan or individual retirement account, you
must do so no later than August 29, which is 60 days
after you received the distribution. If you roll over
all the stock but none of the cash, you must include
the $3,000 cash in your income for the calendar year
in which the distribution is made to you.
You generally may defer the federal income taxation of any portion of
any other distribution made on account of your disability or separation from
service, if the amount is distributed within one taxable year, and is
contributed, within 60 days after the date of its receipt by you, to an
individual retirement account.
16
<PAGE>
Effective January 1, 1993, you have the right to elect to have the
trustee transfer all or any portion of an "eligible rollover distribution"
directly to another qualified plan or to an individual retirement account. If
you do not elect to have an eligible rollover distribution transferred directly
to another qualified plan or to an individual retirement account, the
distribution will be subject to a mandatory federal withholding tax equal to 20%
of the taxable distribution. An eligible rollover distribution means any amount
distributed from the 401(k) plan except:
(1) a distribution that is (a) one of a series of substantially equal
periodic payments made, not less frequently than annually, over
your life or the joint lives of you and your designated
beneficiary, or (b) for a specified period of ten years or more;
(2) any amount that is required to be distributed under the minimum
distribution rules; and
(3) any other distributions excepted under applicable federal law.
If your beneficiary is your surviving spouse, he or she also may defer
federal income taxation of all or any portion of a distribution from the 401(k)
plan to the extent that such amount, or a portion thereof, is contributed within
60 days after the date of its receipt by your surviving spouse, to an individual
retirement account. If all or any portion of the total taxable amount of a lump
sum distribution is contributed by your surviving spouse to an individual
retirement account within the applicable 60-day period, any subsequent
distribution from the individual retirement account will not be eligible for the
special averaging rules or for capital gains treatment. Any amount received by
your surviving spouse that is not contributed to another qualified plan or to an
individual retirement account within the applicable 60-day period, and any
amount received by a nonspouse beneficiary will be included in such
beneficiary's income for federal tax purposes in the year in which it is
received.
Additional Tax on Early Distributions. If you receive a distribution
from the 401(k) plan prior to attaining age 59-1/2 it will be subject to an
additional income tax equal to 10% of the taxable amount of the distribution.
The 10% additional income tax will not apply, however, to the extent the
distribution is rolled over into an IRA or another qualified plan or the
distribution is:
(1) made to a beneficiary, or to your estate, on or after your death;
(2) attributable to your disability;
(3) part of a series of substantially equal periodic payments not
less frequently than annually made for your life or life
expectancy or the joint lives or joint life expectancies of you
and your beneficiary;
17
<PAGE>
(4) made to you after separation from service on account of early
retirement under the 401(k) plan after attainment of age 55;
(5) made to pay medical expenses to the extent deductible for federal
income tax purposes;
(6) made to an alternate payee pursuant to a qualified domestic
relations order; or
(7) made to effect the distribution of excess contributions or excess
deferrals.
Additional Employee Retirement Income and Security Act Considerations
As noted above, the 401(k) plan is subject to certain provisions of the
Employee Retirement Income Security Act, including special provisions relating
to control over the 401(k) plan's assets by participants and beneficiaries. The
401(k) plan's feature that allows you to direct the investment of your account
balances is intended to satisfy the requirements of section 404(c) of the
Employee Retirement Income Security Act of 1974 relating to control over plan
assets by a participant or beneficiary. The effect of this is two-fold. First,
you will not be deemed a 'fiduciary' because of your exercise of investment
discretion. Second, no person who otherwise is a fiduciary, such as your
employer, the plan administrator, or the plan's trustee is liable under the
fiduciary responsibility provision of the Employee Retirement Income Security
Act for any loss which results from your exercise of control over the assets in
your 401(k) plan account.
Because you will be entitled to invest all or a portion of your account
balance in the 401(k) plan in Alamogordo Financial Corporation common stock, the
regulations under section 404(c) of the Employee Retirement Income Security Act
require that the 401(k) plan establish procedures that ensure the
confidentiality of your decision to purchase, hold, or sell employer securities,
except to the extent that disclosure of such information is necessary to comply
with federal or state laws not preempted by the Employee Retirement Income
Security Act. These regulations also require that your exercise of voting and
similar rights with respect to the common stock be conducted in a way that
ensures the confidentiality of your exercise of these rights. Accordingly, the
401(k) plan committee designates Susan White of Alamogordo Federal Savings &
Loan Association, as the person to whom your investment instructions should be
returned. Ms. White will transfer your investment instructions directly to Wells
Fargo Bank New Mexico, N.A., the plan's trustee. In the case of an event that
involves a potential for undue employer influence such as a tender offer, you
will be instructed to return your instructions directly to Wells Fargo Bank New
Mexico, N.A.
Securities and Exchange Commission Reporting and Short-Swing Profit Liability
Section 16 of the Securities Exchange Act of 1934 imposes reporting and
liability requirements on officers, directors, and persons beneficially owning
more than 10% of public companies such as Alamogordo Financial Corporation.
Section 16(a) of the Securities Exchange
18
<PAGE>
Act of 1934 requires the filing of reports of beneficial ownership. Within 10
days of becoming an officer, director or person beneficially owning more than
10% of the shares of Alamogordo Financial Corporation, a Form 3 reporting
initial beneficial ownership must be filed with the Securities and Exchange
Commission. Changes in beneficial ownership, such as purchases, sales and gifts
generally must be reported periodically, either on a Form 4 within 10 days after
the end of the month in which a change occurs, or annually on a Form 5 within 45
days after the close of Alamogordo Financial Corporation's fiscal year.
Discretionary transactions in and beneficial ownership of the common stock
through the Alamogordo Financial Corporation stock fund of the 401(k) plan by
officers, directors and persons beneficially owning more than 10% of the common
stock of Alamogordo Financial Corporation generally must be reported to the
Securities and Exchange Commission by such individuals.
In addition to the reporting requirements described above, section
16(b) of the Securities Exchange Act of 1934 provides for the recovery by
Alamogordo Financial Corporation of profits realized by an officer, director or
any person beneficially owning more than 10% of Alamogordo Financial
Corporation's common stock resulting from non-exempt purchases and sales of
Alamogordo Financial Corporation common stock within any six-month period.
The Securities and Exchange Commission has adopted rules that provide
exemptions from the profit recovery provisions of section 16(b) for all
transactions in employer securities within an employee benefit plan, provided
certain requirements are met. These requirements generally involve restrictions
upon the timing of elections to acquire or dispose of employer securities for
the accounts of section 16(b) persons.
Except for distributions of common stock due to death, disability,
retirement, termination of employment or under a qualified domestic relations
order, persons affected by section 16(b) are required to hold shares of common
stock distributed from the 401(k) plan for six months following such
distribution and are prohibited from directing additional purchases of units
within the Alamogordo Financial Corporation stock fund for six months after
receiving such a distribution.
Financial Information Regarding 401(k) Plan Assets
Unaudited financial statements representing the net assets available
for 401(k) plan benefits at September 30, 1999, are attached to this prospectus
supplement.
LEGAL OPINION
The validity of the issuance of the common stock will be passed upon by
Luse Lehman Gorman Pomerenk & Schick, A Professional Corporation, Washington,
D.C., which firm acted as special counsel to Alamogordo Financial Corporation in
connection with Alamogordo Financial Corporation's stock offering.
19
<PAGE>
NORWEST BANK NEW MEXICO, N.A.
DEFINED CONTRIBUTION MASTER PLAN AND TRUST AGREEMENT
As Adopted By
ALAMOGORDO FEDERAL SAVINGS & LOAN ASSOCIATION
Statement of Net Assets Available for Plan Benefits
with Fund Information
September 30, 1999
<TABLE>
<CAPTION>
Cash Diversified Growth Diversified Growth
Investment Bond Balanced Equity Equity
Fund Fund Fund Fund Fund
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Assets
- ------
Investments .......................... $ 3,830.65 30,643.34 229,293.26 100,051.79 71,833.66
Total Value of Accounts .............. $ 435,652.70
Total Assets ......................... $ 435,652.70
Liabilities .......................... $ 0
- ----------- --------------
Net Assets Available for Plan Benefits $ 435,652.70
==============
</TABLE>
20
<PAGE>
PROSPECTUS
Alamogordo Financial Corporation
Up to 1,101,643 Shares of Common Stock
================================================================================
Alamogordo Financial Corporation, a Federal savings and loan holding company, is
offering shares of its common stock for a purchase price of $10.00 per share.
Alamogordo Financial Corporation is the wholly owned subsidiary of AF Mutual
Holding Company. The shares we are offering will represent 49%of the shares of
common stock outstanding after the offering. AF Mutual Holding Company will own
51% of our shares outstanding after the offering. Alamogordo Financial's common
stock will be quoted on the OTC Bulletin Board under the symbol
"_________________."
================================================================================
TERMS OF THE OFFERING
Price: $10.00 per share
Adjusted
Minimum Maximum Maximum
------- ------- -------
Number of shares .................. 708,050 957,950 1,101,643
Underwriting commissions and
fixed expenses .................. $ 600,000 $ 600,000 $ 600,000
Net proceeds ...................... $ 6,481,000 $ 8,980,000 $10,416,000
Net proceeds per share ............ $ 9.15 $ 9.37 $ 9.45
-------------------
This investment involves a high degree of risk, including
possible loss of principal.
PLEASE READ THE RISK FACTORS BEGINNING ON PAGE ___.
These securities are not deposits or accounts and are not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other governmental agency.
Neither the Securities and Exchange Commission, the Office of Thrift
Supervision, the Federal Deposit Insurance Corporation, nor any state securities
regulator has approved or disapproved these securities or determined if this
prospectus is accurate or complete. It is illegal for anyone to tell you
otherwise.
We are offering the common stock on a best efforts basis, and subject to certain
other conditions. The minimum number of shares that you may purchase is 25
shares. Payments received prior to closing will be held in an account at
Alamogordo Federal Savings and Loan Association which will bear interest at
Alamogordo Federal Savings and Loan Association's passbook rate.
------------------
Charles Webb & Company
a Division of Keefe, Bruyette & Woods
------------------
The date of this prospectus is February__, 2000
<PAGE>
TABLE OF CONTENTS
SUMMARY...................................................................
SELECTED FINANCIAL AND OTHER DATA.........................................
RISK FACTORS..............................................................
AF MUTUAL HOLDING COMPANY.................................................
ALAMOGORDO FINANCIAL CORPORATION..........................................
ALAMOGORDO FEDERAL SAVINGS AND LOAN ASSOCIATION...........................
HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING.......................
OUR POLICY REGARDING DIVIDENDS............................................
ALAMOGORDO FEDERAL'S REGULATORY CAPITAL COMPLIANCE........................
ALAMOGORDO FINANCIAL'S CAPITALIZATION.....................................
PRO FORMA DATA............................................................
ALAMOGORDO FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME.........................................
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............................
BUSINESS OF ALAMOGORDO FINANCIAL CORPORATION..............................
REGULATION................................................................
TAXATION..................................................................
MANAGEMENT................................................................
THE STOCK OFFERING........................................................
RESTRICTIONS ON ACQUISITION OF ALAMOGORDO
FINANCIAL AND ALAMOGORDO FEDERAL..........................................
DESCRIPTION OF CAPITAL STOCK OF
ALAMOGORDO FINANCIAL......................................................
TRANSFER AGENT AND REGISTRAR..............................................
EXPERTS...................................................................
LEGAL AND TAX OPINIONS....................................................
ADDITIONAL INFORMATION....................................................
ALAMOGORDO FINANCIAL CORPORATION CONSOLIDATED FINANCIAL STATEMENTS........
2
<PAGE>
[INSERT MAP]
3
<PAGE>
SUMMARY
To more fully understand the offering, you should read this entire document
carefully, including the consolidated financial statements and the notes to the
consolidated financial statements.
The Stock Offering
Our Organization. Alamogordo Federal Savings and Loan Association was
organized as a mutual savings and loan association in 1934. In April 1997,
Alamogordo Federal reorganized into the two-tier mutual holding company
structure. As part of the reorganization, Alamogordo Federal formed Alamogordo
Financial Corporation and AF Mutual Holding Company. Alamogordo Federal became a
capital stock corporation, and a wholly-owned subsidiary of Alamogordo
Financial, and Alamogordo Financial became the wholly owned subsidiary of AF
Mutual Holding Company. As part of the reorganization, Alamogordo Federal's
former members became members of AF Mutual Holding Company.
This chart shows our current ownership structure, which is commonly
referred to as the two-tier mutual holding company structure:
AF Mutual Holding Company
-------------------------
100% of common stock
Alamogordo Financial
--------------------
100% of common stock
Alamogordo Federal
------------------
Our Stock Offering. Federal regulations require that AF Mutual Holding
Company own a majority of our outstanding shares of common stock, and the shares
that we are permitted to sell in the stock offering must represent a minority of
our outstanding shares. Based on these restrictions, our Board of Directors has
decided that 49.0% of the shares that will be outstanding after our stock
offering will be sold in the offering, and 51.0% will be held by AF Mutual
Holding Company.
The following chart shows our structure following the offering:
AF Mutual Holding Company Public Stockholders
- ------------------------- -------------------
51.0% of 49.0%
common stock of
common stock
Alamogordo Financial
--------------------
100% of common stock
Alamogordo Federal
------------------
The Companies
Alamogordo Financial Corporation. We are a Federal mid-tier stock holding
company. As of the date of this prospectus, we own 100% of the outstanding
shares of Alamogordo Federal, and do not have any other significant assets. We
have not engaged in any significant business activity other than owning the
common stock of Alamogordo Federal, and we do not currently intend to do so
after the stock offering.
Alamogordo Federal Savings and Loan Association. Alamogordo Federal is a
community-oriented savings association engaged primarily in the business of
offering FDIC-insured deposits to customers and investing those deposits,
together with funds generated from operations and borrowings, in loans,
investment securities and mortgage-backed securities. Alamogordo Federal's
mortgage loans include one- to four-family residential, multifamily and
nonresidential, construction and land loans. Consumer and other loans include
second mortgage, consumer, commercial business and deposit account loans.
Alamogordo Federal operates one full-service branch
4
<PAGE>
in addition to its main office. Alamogordo Federal's branch and main office are
both located in Alamogordo, New Mexico. As of June 30, 1998, Alamogordo
Federal's deposits represented over 33% of all FDIC-insured deposits in
Alamogordo, and over 31% of all FDIC-insured deposits in Otero County, New
Mexico, positioning Alamogordo Federal as the largest (in total deposits)
depository institution in Alamogordo and Otero County, New Mexico.
AF Mutual Holding Company. AF Mutual Holding Company currently owns 100% of
our outstanding shares of common stock. After the stock offering, AF Mutual
Holding Company will own 51.0% of our outstanding shares. AF Mutual Holding
Company has not engaged in any significant business activity other than owning
the common stock of Alamogordo Financial, and does not intend to do so after the
stock offering.
Management of the Companies. Our directors and officers also manage
Alamogordo Federal and AF Mutual Holding Company. The board of directors of AF
Mutual Holding Company will control the outcome of most matters put to a vote of
our stockholders. We cannot assure you that the votes cast by AF Mutual Holding
Company will be in your personal best interests as a stockholder of Alamogordo
Financial. For more information regarding your lack of voting control over
Alamogordo Financial, see "AF Mutual Holding Company" and "Restrictions on
Acquisition of Alamogordo Financial and Alamogordo Federal."
Market Area
The majority of our loans are secured by real estate in Otero County, New
Mexico. Otero County's economy is heavily dependent on two U.S. Government
military installations located in the county. See "Business of Alamogordo
Federal Savings and Loan Association--Market Area."
Reasons for the Stock Offering
The proceeds from the sale of our common stock in the offering will be
important to our future growth and performance because it will:
o enhance our ability to attract and retain qualified management through
stock-based compensation plans;
o enhance our ability to expand through the acquisition of other
financial institutions or their assets;
o expand our ability to serve our community; and
o enhance our earnings capabilities by providing a larger capital base.
Terms of the Offering and Marketing Arrangements
We will sell between 708,050 and 957,950 shares of common stock in the
offering. After the offering, AF Mutual Holding Company will own between 736,950
and 997,050 shares of common stock, and our total outstanding shares will be
between 1,445,000 and 1,955,000 shares. As a result of changes in financial
markets, the number of shares we sell in the offering and issue to AF Mutual
Holding Company may increase by up to 15%. If we increase the number of shares
by 15%, then we will sell 1,101,643 shares in the offering, we will issue
1,146,608 shares to AF Mutual Holding Company, and we will have a total of
2,248,251 shares outstanding after the offering. If we increase the number of
shares we issue by no more than 15%, you will not have the opportunity to change
or cancel your stock order. The offering price is $10.00 per share. Charles Webb
& Company, a division of Keefe, Bruyette & Woods, Inc., will use its best
efforts to assist us in selling our stock.
Persons Who Can Order Stock in the Offering
We are offering the shares of common stock of Alamogordo Financial in what
is known as a "subscription offering" in the order of priority listed below:
(1) Depositors with accounts at Alamogordo Federal having total balances
of at least $50 on September 30, 1998;
(2) Our employee stock ownership plan, which will provide retirement
benefits to our employees;
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(3) Depositors with accounts at Alamogordo Federal having total balances
of at least $50 on December 31, 1999; and
(4) Directors, officers and employees of Alamogordo Federal.
The shares of common stock not purchased in the subscription offering will
be offered in what is known as a "community offering" to members of the public
to whom we deliver a prospectus, with a preference given to residents of the New
Mexico counties of Lincoln and Otero.
We may offer shares of common stock not purchased in either the
subscription offering or community offering to the public through a selling
group of brokers on a best efforts basis or in an underwritten public offering.
How We Determined the Offering Range and the $10.00 Price Per Share
As part of our offering we obtained an independent appraisal of the fair
market value of our company. The appraisal was performed by RP Financial, LC., a
firm experienced in appraisals of savings institutions. RP Financial has
estimated that our market value at December 10, 1999, was between $14.5 million
and $19.6 million. RP Financial's estimate of our market value was based in part
upon our financial condition and results of operations, the effect of the
additional capital raised in this offering, and the effect of the additional
capital that would have been raised if we sold all of our shares to the public
and did not issue any shares to AF Mutual Holding Company. RP Financial will
update the independent appraisal before we complete our stock offering. Based on
this appraisal, we will offer for sale at $10.00 per share between 708,050 and
1,101,643 shares of our common stock, or 49.0% of the shares that will be
outstanding after the offering. AF Mutual Holding Company will own between
736,950 and 1,146,608 shares, or 51% of the shares outstanding after the
offering.
Two of the factors that RP Financial considered in determining our market
value were the price-to-book ratio and the price-to-earnings ratio or P/E ratio.
A price-to-book ratio represents the price per share of stock divided by its
book value per share. A price-to-earnings ratio represents the price per share
of stock divided by net income per share. Based on the assumptions we have
described in the "Pro Forma Data" section, as of September 30, 1999, each share
of Alamogordo Financial common stock, including the shares held by AF Mutual
Holding Company, will have a book value of $17.27, assuming we sell 833,000
shares (the midpoint of the offering range). This means that the price you pay
for each share in this offering will be 57.90% of the book value. If we sell
fewer shares, the book value per share will be higher, and if we sell more
shares the book value per share will be lower.
A P/E ratio represents the price per share of stock divided by earnings or
net income per share. Based on the assumptions we have described in the "Pro
Forma Data" section, for the three months ended September 30, 1999 (on an
annualized basis) and the fiscal year ended June 30, 1999, our P/E ratio would
have been 16.67x and 20.40x, respectively, assuming we sell 833,000 shares of
stock. If we sell fewer shares the P/E ratio will be lower, and if we sell more
shares it will be higher.
Limits on Your Purchase of the Common Stock
Your orders for common stock will be limited in the following ways:
(1) the minimum order is 25 shares;
(2) in the subscription offering, the maximum amount that an individual
depositor (or group of depositors with a single deposit account) with
his or her associates may purchase is $150,000;
(3) in the community offering, the maximum amount that an individual may
purchase is $150,000;
(4) the total amount that an individual with his or her associates may
purchase is $200,000; and
(5) if we receive orders for a greater number of shares than we are
offering, then we will allocate the shares that we issue as described
in "The Offering--Limitations on Common Stock Purchases." This may
result in your receiving a smaller number of shares than you ordered.
For additional information on these purchase limitations see "The
Offering--Limitations on Common Stock Purchases."
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<PAGE>
How You May Pay for Your Shares
In the subscription offering and the community offering you may only pay
for your shares by:
(1) personal check, official bank check or money order; or
(2) authorizing us to withdraw money from your deposit accounts maintained
with Alamogordo Federal.
We will not accept wire transfers for payment of shares. We also cannot lend
funds to anyone for the purpose of purchasing shares.
You May Not Sell or Transfer Your Subscription Rights
If you order stock in the subscription offering, you must state that you
are purchasing the stock for yourself and that you have no agreement or
understanding to sell or transfer your rights. We intend to take legal action
against you if you sell or give away your subscription rights. We will not
accept your order if we have reason to believe that you sold or transferred your
subscription rights.
Deadline for Orders of Common Stock
If you wish to purchase shares, you must submit, by mail, overnight courier
or by hand delivering to either of our offices, a properly completed stock order
form and certification, together with payment for the shares by noon, Mountain
Standard Time, on March __, 2000, unless we extend this deadline.
Termination of the Offering
The subscription offering will terminate at noon, Mountain Standard Time,
on March__, 2000. We expect that the community offering will terminate at the
same time. We may extend the offering termination date for either or both the
subscription offering and the community offering without notifying you that we
are doing so. We will need regulatory approval to extend the offering for more
than 45 days.
Steps We Can Take If We Do Not Receive Orders for the Minimum Number of Shares
We are required to sell at least 708,050 shares of common stock to complete
the stock offering. If we do not receive orders for at least 708,050 shares of
common stock, we may increase the purchase limitations to a maximum of 5% of the
shares offered for sale in the offering and/or extend the offering period
termination date for either or both of the subscription offering and community
offering (as described above).
Market for the Common Stock
We expect the common stock to be listed on the OTC Bulletin Board under the
symbol "____." Keefe, Bruyette & Woods, Inc. intends to make a market in the
common stock but is under no obligation to do so.
How We Intend to Use the Proceeds We Raise from the Offering
Assuming we sell 833,000 shares at the midpoint of the offering, we intend
to distribute the net proceeds from the offering as follows:
1. $3.9 million will be contributed to Alamogordo Federal;
2. $666,000 will be loaned to the employee stock ownership plan of
Alamogordo Federal to fund its purchase of common stock; and
3. $3.2 million will be retained by Alamogordo Financial.
Alamogordo Financial may use the net proceeds retained from the offering as
a possible source of funds to finance the acquisition of other financial
institutions and other businesses, pay dividends to stockholders, repurchase
common stock, purchase mortgage-backed and investment securities, or for other
general corporate purposes. Alamogordo Federal may use the proceeds it receives
to establish or acquire additional branch offices, fund new loans, purchase
mortgage-backed and investment securities, fund the recognition and retention
plan or for general corporate purposes.
7
<PAGE>
Our Policy Regarding Dividends
Our board of directors currently intends to pay quarterly cash dividends of
between $.05 and $.07 per share, which is an annual rate of between 2.0% and
2.8%, based on the $10.00 per share offering price. However, we have not yet
determined the exact amount and timing of any dividends. The payment of
dividends will depend upon a number of factors, including the following:
o capital requirements,
o Alamogordo Financial's and Alamogordo Federal's financial condition
and results of operations,
o tax considerations,
o statutory and regulatory limitations, and
o general economic conditions.
Although we intend to do so, we do not guaranty that we will in fact pay
dividends or that if we do pay a dividend that it will not be lower than the
amount stated above.
Our Directors, Officers and Employees Will Have Additional Compensation and
Benefit Programs After the Stock Offering
We are adding new stock benefit plans for our officers, directors and
employees at no cost to them:
o Employee Stock Ownership Plan. This plan will cover most of our
employees, but is not available to non-employee directors. We will
lend it money to buy up to 8% of the shares we sell in the offering.
It will buy the shares either in the offering or in the open market
after the offering. The plan will allocate the stock to employees over
a period of time as additional compensation for their services,
provided certain conditions are met, including that the employee
remains employed by Alamogordo Federal for a certain period of time.
o Stock Option Plan. Under this plan, we may grant our officers,
directors and employees options to purchase a number of shares equal
to up to 10% of our common stock sold in the offering at a price that
is set on the date we grant the option. The price that we set will not
be less than our stock's trading price when we grant the options, so
the options will have value only if our stock price increases.
Recipients of options will have up to ten years to exercise their
options.
o Recognition and Retention Plan. This plan will allow selected
officers, directors and employees to receive a number of shares equal
to up to 4% of our common stock sold in the offering if the plan is
adopted within one year of the stock offering, and up to 5% if the
plan is adopted thereafter. Participants will not be required to make
a cash payment for these shares, and will receive them only if they
work for us until the end of a specified service period.
Assuming we sell 833,000 shares, we expect to ask our stockholders for
approval to grant options to purchase up to 83,300 of our shares and make stock
grants under the recognition and retention plan of up to 33,320 shares if the
recognition and retention plan is adopted within one year of the stock offering,
and 41,650 shares if it is adopted thereafter, as described above. We will not
implement a stock option plan or recognition and retention plan unless our
stockholders approve them. We do not expect to ask our stockholders to approve
these plans until at least six months after we complete the offering. We expect
that these plans will purchase in the open market the shares to fund the awards,
although the plans may be funded from our authorized but unissued shares.
8
<PAGE>
The following table presents the dollar value of the shares that we expect
to grant under the employee stock ownership plan and the recognition and
retention plan and the options to be granted under the stock option plan, and
the percentage of Alamogordo Financial's outstanding common stock and common
stock sold in the offering that will be represented by these shares. We based
the value of the shares for the employee stock ownership plan and recognition
and retention plan on a price of $10.00 per share and the issuance of 833,000
shares of common stock. We also assumed that the recognition and retention plan
awards common stock equal to 4% of the shares sold in the offering, and that the
recognition and retention plan awards and shares underlying the option awards
are purchased in the open market. The table does not include a value for the
options because the price paid for the option shares will be equal to the fair
market value of the common stock on the day that the options are granted. As a
result, financial gains can be realized under an option only if the market price
of common stock increases.
<TABLE>
<CAPTION>
Percentage of Percentage
Value of common stock sold of outstanding
Benefit plan shares granted in the offering common stock
------------ -------------- --------------- ------------
(In thousands)
<S> <C> <C> <C>
Employee stock ownership plan........... $ 666,400 8.0% 3.8%
Recognition and retention plan.......... 333,200 4.0 2.0
Stock option plan....................... -- 10.0 4.9
-------------- ---------------- -------------
$ 998,400 22.0% 10.7%
============== ================ =============
</TABLE>
Possible Conversion of AF Mutual Holding Company to Stock Form
In the future, AF Mutual Holding Company may convert from the mutual to
capital stock form, in a transaction commonly known as a "second-step
conversion." If AF Mutual Holding Company were to undertake a second-step
conversion, Alamogordo Financial's public stockholders would own approximately
the same percentage of the resulting entity as they owned of Alamogordo
Financial prior to the second-step conversion. This percentage would be adjusted
to reflect the assets owned by AF Mutual Holding Company and any dividends
waived by AF Mutual Holding Company. The board of directors has no current plan
to undertake a second-step conversion transaction. For a description of this
possible second-step conversion, see "Regulation--Holding Company Regulation."
How You May Obtain Additional Information Regarding the Offering
If you have any questions regarding the offering, please call the Stock
Information Center at (505) --------.
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<PAGE>
SELECTED FINANCIAL AND OTHER DATA
The following information at and for the years ended June 30, 1999 and
1998 is derived from Alamogordo Financial's audited consolidated financial
statements. The information at and for the three months ended September 30, 1999
and 1998 is based on Alamogordo Financial's unaudited consolidated financial
statements, which management believes reflect all adjustments, consisting only
of normal recurring adjustments, necessary to present fairly the financial
information as of such dates and for such periods. The summary of operations and
key operating ratios and other data for the three months ended September 30,
1999 and 1998 and the fiscal years ended June 30, 1999 and 1998 do not
necessarily mean that results for any other period will be similar. The
information is a summary only and you should read it in conjunction with the
Consolidated Financial Statements and Notes beginning on page F-1.
Selected Financial Data
June 30,
September 30 ----------------------
1999 1999 1998
---- ---- ----
(In Thousands)
Total assets ......................... $156,684 $156,158 $160,368
Loans receivable, net ................ 117,085 115,949 109,766
Mortgage-backed securities:
Held to maturity .................. 275 319 976
Available for sale ................ 2,927 3,114 3,957
Securities:
Held to maturity .................. 1,922 3,154 3,047
Available for sale ................ 13,097 13,916 24,733
Deposits ............................. 122,410 122,460 126,659
Total borrowings ..................... 10,000 10,000 10,151
Equity ............................... 22,633 22,441 22,066
Summary of Operations
Three Months Years Ended
Ended September 30, June 30,
------------------- ------------------
1999 1998 1999 1998
(In Thousands)
Total interest income .............. $ 2,634 $ 2,804 $11,016 $11,225
Total interest expense ............. 1,654 1,896 7,279 7,176
------- ------- ------- -------
Net interest income ............. 980 908 3,737 4,049
Provision for loan losses .......... -- -- -- --
------- ------- ------- -------
Net interest income after
provision for loan losses ......... 980 908 3,737 4,049
Non-interest income ................ 108 53 260 213
Non-interest expense ............... 766 785 3,022 2,611
------- ------- ------- -------
Income before taxes ................ 322 176 975 1,651
Income tax provision ............... 93 38 296 536
------- ------- ------- -------
Net income ......................... $ 229 $ 138 $ 679 $ 1,115
======= ======= ======= =======
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<PAGE>
Key Operating Ratios and Other Data
<TABLE>
<CAPTION>
At or for the At or for the
Three Months Ended Years Ended
September 30, June 30,
----------------- --------------
1999 1998 1999 1998
---- ---- ---- ----
Performance Ratios (1):
<S> <C> <C> <C> <C>
Return on assets (ratio of net income to average total assets) 0.59% 0.34% 0.42% 0.72%
Return on equity (ratio of net income to average equity) ..... 4.06 2.49 3.03 5.18
Average interest rate spread ................................. 2.43 1.91 2.06 2.28
Interest rate spread at end of period ........................ 2.37 1.92 2.19 2.23
Net interest margin (2) ...................................... 2.81 2.43 2.53 2.81
Ratio of operating expense to average total assets ........... 1.97 1.95 1.89 1.69
Ratio of average interest-earning assets to
average interest-bearing liabilities ....................... 107.97 110.26 109.54 110.50
Efficiency ratio (3) ......................................... 70.40 81.69 75.61 61.26
Asset Quality Ratios:
Non-performing assets to total assets at end of period ....... 0.20 0.51 0.34 0.51
Allowance for loan losses to non-performing loans ............ 176.23 48.59 88.72 60.83
Allowance for loan losses to gross loans receivable .......... 0.39 0.43 0.39 0.43
Capital Ratios:
Equity to total assets at end of period ...................... 14.44 13.82 14.37 13.76
Average equity to average assets ............................. 14.48 13.80 13.96 13.89
Other Data:
Number of full-service offices ............................... 2 2 2 1
</TABLE>
- --------------
(1) Ratios for the three month periods have been annualized where appropriate.
(2) Net interest income divided by average interest-earning assets.
(3) The efficiency ratio represents the ratio of operating expenses divided by
the sum of net interest income and non-interest income less gain on sales
of investments.
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<PAGE>
RISK FACTORS
You should consider carefully the following risk factors
before deciding whether to invest in our common stock.
Changes in interest rates may hurt our profits.
To be profitable, we have to earn more money in interest and other
income than we pay as interest and other expenses. We primarily originate loans
with terms of up to 30 years, many of which have interest rates that are fixed
for the term of the loan. Our deposit accounts consist of time deposit accounts,
many of which have remaining terms to maturity of less than one year, as well as
demand deposits such as NOW and passbook accounts. If interest rates rise, the
amount of interest we pay on deposits is likely to increase more quickly than
the amount of interest we receive on our loans, mortgage-backed securities and
investment securities. This could cause our profits to decrease. Rising interest
rates may also reduce the value of our mortgage-backed securities and investment
securities. If interest rates fall, many borrowers may refinance more quickly,
and interest rates on interest earning assets could fall, perhaps faster than
the interest rates on our liabilities. This could also cause our profits to
decrease. For additional information on our exposure to interest rates, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Management of Interest Rate Risk."
Low demand for mortgage, commercial and consumer loans may lower our
profitability.
Making loans is our primary business and primary source of profits. If
customer demand for loans decreases, our profits may decrease because our
alternative investments, such as mortgage-backed securities and investment
securities, have lower yields than loans. Customer demand for loans could be
reduced by a weaker economy, an increase in unemployment, a decrease in real
estate values, an increase in interest rates or increased competition from other
institutions.
After the stock offering our return on average equity will be low compared to
other publicly traded companies. This could hurt the price of our common stock.
Our return on equity for the three months ended September 30, 1999 and
the fiscal years ended June 30, 1999 and 1998 was 4.05%, 3.03% and 4.99%,
respectively. These ratios are below the industry averages. Moreover, we will
not be able to deploy the increased capital from this offering immediately. Our
ability to profitably leverage our new capital will be significantly affected by
competition for loans and deposits. Initially, we intend to invest the net
proceeds in short term investments which generally have lower yields than
residential mortgage loans. Until we can leverage our increased capital by
growing interest-earning assets and interest-bearing liabilities, we expect our
return on equity to continue to be below the industry average, which may
negatively impact the value of your stock.
You May Not Be Able to Sell Your Shares When You Desire, or for $10.00 or More
Per Share
We have never issued common stock to the public. Consequently, there is
no established market for the common stock. We expect that the common stock will
trade on the over-the-counter market with quotations available the OTC Bulletin
Board after the offering. We cannot predict whether a liquid trading market in
shares of our common stock will develop or how liquid that market might become.
Persons purchasing shares may not be able to sell their shares when they desire
if a liquid trading market does not develop or sell them at a price equal to or
above the initial offering price of $10.00 per share even if a liquid trading
market develops.
Our local economy may affect our future growth possibilities.
Our geographic market area for loans and deposits is principally Otero
County, New Mexico. The majority of our loans are secured by real estate in
Otero County, New Mexico. Otero County's economy is heavily dependent on two
U.S. Government military installations located in the county. A decrease in the
personnel employed by these military installations, or a decrease in government
funding, could have a significant adverse effect on our local economy, our
financial condition and results of operations.
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<PAGE>
Strong competition within our market area may reduce our customer base.
Competition in the banking and financial services industry is intense.
We have competed for customers by offering excellent service and competitive
rates on our loans and deposit products. We compete with commercial banks,
savings institutions, mortgage banking firms, credit unions, finance companies,
mutual funds, insurance companies, and brokerage and investment banking firms.
Some of these competitors have greater resources than we do and may offer
services that we do not provide. Our profitability depends upon our continued
ability to successfully compete in our market area.
The implementation of stock-based benefits will increase our future compensation
expense and reduce our earnings.
We intend to adopt a stock option plan that will provide for the
granting of options to purchase common stock, a recognition and retention plan
that will provide for awards of restricted stock to our eligible officers,
employees and directors and an employee stock ownership plan that will
distribute stock to all of our qualifying employees over a period of time. The
recognition and retention plan and the ESOP will increase our future costs of
compensating our directors and employees. The cost of these plans will vary
based on our stock price.
Consumer, commercial business and commercial real estate lending increase
lending risk because of the geographic concentration of such loans and the
higher risk that the loans will not be repaid.
Our portfolio of loans that are not one- to four-family mortgage loans
has been increasing, and our goal is to continue to increase this portfolio.
These loans, as a percentage of total loans outstanding, have increased to 12.0%
of total loans as of September 30,1999 from 8.0% at June 30, 1998. These types
of loans generally expose a lender to greater credit risks than loans secured by
one- to four-family real estate. As we increase our portfolio of these loans we
may begin to experience higher levels of nonperforming loans.
We have broad discretion in allocating the proceeds of the offering. Our failure
to effectively apply such proceeds could hurt our profits.
We intend to contribute approximately 50% of the net proceeds to
Alamogordo Federal. Alamogordo Financial will use a portion of the net proceeds
to fund the ESOP and may use the remaining net proceeds as a possible source of
funds to finance the acquisition of other financial institutions and other
businesses, pay dividends to stockholders, repurchase common stock, purchase
mortgage-backed and investment securities, or for other general corporate
purposes. Alamogordo Federal may use the proceeds it receives to establish or
acquire additional branch offices, fund new loans, purchase mortgage-backed and
investment securities, fund the recognition and retention plan or for general
corporate purposes. We have not, however, allocated specific amounts of proceeds
for any of these purposes and we will have significant flexibility in
determining the amounts of net proceeds we apply to different uses and the
timing of such applications. Our failure to apply these funds effectively could
hurt our profits.
AF Mutual Holding Company will continue to own a majority of Alamogordo
Financial's common stock.
AF Mutual Holding Company will continue to own a majority of Alamogordo
Financial's common stock after the stock offering. The same directors and
officers who manage Alamogordo Financial and Alamogordo Federal also manage AF
Mutual Holding Company. The board of directors of AF Mutual Holding Company will
control the outcome of most matters put to a vote of stockholders of Alamogordo
Financial. We cannot assure you that the votes cast by AF Mutual Holding Company
will be in your personal best interests as a stockholder. For more information
regarding your lack of voting control over Alamogordo Financial, see "AF Mutual
Holding Company" and "Restrictions on Acquisition of Alamogordo Financial and
Alamogordo Federal."
Banking Reform Legislation May Increase Competition.
On November 12, 1999, President Clinton signed into law the
Gramm-Leach-Bliley Financial Services Modernization Act of 1999, federal
legislation intended to modernize the financial services industry by
establishing a comprehensive framework to permit affiliations among commercial
banks, insurance companies, securities firms and other financial service
providers. To the extent the legislation permits banks, securities firms and
insurance companies to affiliate, the financial services industry may experience
further consolidation. This could result in a growing number of larger financial
institutions that offer a wider variety of financial
13
<PAGE>
services than we currently offer and that can aggressively compete in the
markets we currently serve. This could adversely impact our profitability.
AF MUTUAL HOLDING COMPANY
AF Mutual Holding Company is a federal mutual holding company that
currently owns 100% of our outstanding shares of common stock, and after the
stock offering will continue to own more than 50.0% of our outstanding shares.
AF Mutual Holding Company does not conduct any active business other than
activities relating to its investment in Alamogordo Financial and maintenance of
books and records relating to its members. AF Mutual Holding Company does not
intend to initially employ any persons other than its officers, although it may
utilize our support staff from time to time. Federal law and OTS regulations
require that as long as it is in existence AF Mutual Holding Company must own a
majority of our common stock. Federal law and OTS regulations permit federal
mutual holding companies to convert to the capital stock form of organization.
The manner in which such a transaction would be conducted and the regulations
and policy affecting such a transaction are described in "Regulation--Holding
Company Regulation."
Although many federal mutual holding companies waive the receipt of
cash dividends declared by their subsidiaries, AF Mutual Holding Company has not
determined whether or not it will do so, and intends to make such a
determination at the time we declare a dividend, should we in fact do so. OTS
regulations require that AF Mutual Holding Company give the OTS prior written
notice of any such waiver, and the conditions pursuant to which the OTS
generally approves dividend waivers are described in "Regulation--Holding
Company Regulation." AF Mutual Holding Company's Board of Directors will waive
dividends that we pay if the Board determines that such a waiver is in its
members' best interest because, among other reasons:
o AF Mutual Holding Company has no need for the dividend
considering its business operations;
o the cash that would be received could be invested by Alamogordo
Financial or Alamogordo Federal at a more favorable rate of
return;
o the waiver increases the capital of Alamogordo Financial and/or
Alamogordo Federal and enhances Alamogordo Financial's business
so that members will continue to have access to its offices and
services; and
o the waiver preserves the net worth of AF Mutual Holding Company
through its principal asset (Alamogordo Financial, and
indirectly, Alamogordo Federal), which would be available for
distribution in the unlikely event of a voluntary liquidation of
Alamogordo Financial and Alamogordo Federal after satisfaction of
claims of depositors and creditors.
The Board of Directors may consider other factors in determining whether to
waive dividends. Waiving dividends is likely to result in a downward adjustment
to the ratio pursuant to which shares of common stock are exchanged for shares
of the resulting company if AF Mutual Holding Company converts to the capital
stock form of organization.
AF Mutual Holding Company's Board of Directors will accept dividends in
an amount necessary to pay AF Mutual Holding Company's expenses, and will accept
additional dividends if it determines that accepting such dividends is in its
members' best interest because, among other reasons:
o AF Mutual Holding Company may increase its direct ownership of
Alamogordo Financial, and indirect ownership of Alamogordo
Federal, by using cash dividends to purchase additional shares of
common stock in the open market from time to time; and
o such dividends may be used to promote activities that are in the
interest of members and Alamogordo Federal's community.
Any purchases of common stock by AF Mutual Holding Company will increase the
percentage of the outstanding shares of common stock held by AF Mutual Holding
Company and if AF Mutual Holding Company converts to the capital stock form of
organization, will decrease the aggregate number of shares of the resulting
company issued to stockholders other than AF Mutual Holding Company in exchange
for their shares of common stock.
AF Mutual Holding Company's executive office is located at the
administrative offices of Alamogordo Federal, at 500 10th Street, Alamogordo,
New Mexico 88310 and its telephone number is (505) 437-9334.
14
<PAGE>
ALAMOGORDO FINANCIAL CORPORATION
We are a federal corporation. We own 100% of Alamogordo Federal's
common stock, and, after the stock offering, we will continue to own 100% of
Alamogordo Federal's common stock. We are registered with the OTS as a savings
and loan holding company, and we have all of the powers set forth in our federal
charter and federal law and OTS regulations.
We will retain up to 50% of the net proceeds of the stock offering.
Part of the net proceeds will be used to fund a loan to Alamogordo Federal's
ESOP, which is expected to purchase up to 8% of the common stock sold in the
stock offering. The remainder of the net proceeds will be used for general
corporate purposes. Our business activities are subject to the same restrictions
under federal law as the business activities of AF Mutual Holding Company. We do
not and will not conduct any active business, and we do not and do not intend to
employ any persons other than our officers, although we may utilize Alamogordo
Federal's support staff from time to time.
Alamogordo Financial's executive office is located at the
administrative offices of Alamogordo Federal, at 500 10th Street, Alamogordo,
New Mexico 88310 and its telephone number is (505) 437-9334.
ALAMOGORDO FEDERAL SAVINGS AND LOAN ASSOCIATION
Alamogordo Federal was organized in 1934. Its deposits are insured by
the Savings Association Insurance Fund (the "SAIF"), as administered by the
FDIC, up to the maximum amount permitted by law. Alamogordo Federal is a
community-oriented savings association engaged primarily in the business of
offering FDIC-insured deposits to customers through its two offices and
investing those deposits, together with funds generated from operations and
borrowings, in loans and investment and mortgage-backed securities. Alamogordo
Federal's executive offices are located at 500 10th Street, Alamogordo, New
Mexico 88310 and its telephone number is (505) 437-9334.
HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING
The net proceeds will depend on the total number of shares of common
stock sold in the offering, which in turn will depend on RP Financial's
appraisal, regulatory and market considerations, and the expenses incurred in
connection with the offering. Although we will not be able to determine the
actual net proceeds from the sale of the common stock until we complete the
offering, based on the assumptions set forth in "Pro Forma Data," we estimate
the net proceeds, after adjustment for the stock benefit plans, to be between
$5.6 million and $9.1 million, although the net proceeds may vary because total
expenses relating to the stock offering may be more or less than our estimates.
15
<PAGE>
Alamogordo Financial intends to distribute the net proceeds from the
offering as follows:
<TABLE>
<CAPTION>
Number of Shares Sold at Price of $10.00 Per Share
--------------------------------------------------
708,050 833,000 957,950 1,101,643
------- ------- ------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Gross proceeds ............................................. $ 7,081 $ 8,330 $ 9,580 $11,016
Offering expenses .......................................... 600 600 600 600
------- ------- ------- -------
Net offering proceeds ...................................... 6,481 7,730 8,980 10,416
Less:
Proceeds contributed to Alamogordo Federal for its general
corporate purposes (including funding the recognition
and retention plan) ................................... 3,241 3,865 4,490 5,208
Proceeds used for loan to employee stock ownership plan .. 566 666 766 881
------- ------- ------- -------
Proceeds remaining for Alamogordo Financial's
general corporate purposes ............................... $ 2,675 $ 3,199 $ 3,724 $ 4,327
======= ======= ======= =======
</TABLE>
Alamogordo Financial may use the proceeds it retains from the offering:
o to pay dividends to stockholders;
o to repurchase shares of common stock issued in the offering
(subject to regulatory restrictions);
o to finance the possible acquisition of financial institutions or
other businesses;
o to invest in mortgage-backed and investment securities; and
o for general corporate purposes.
Alamogordo Federal may use the proceeds it receives from the offering:
o to fund new loans;
o to purchase mortgage-backed and investment securities;
o to contribute funds to the recognition and retention plan to
purchase shares;
o to finance the possible establishment or acquisition of branch
offices; and
o for general corporate purposes.
OUR POLICY REGARDING DIVIDENDS
Our board of directors currently intends to pay quarterly cash
dividends of between $.05 and $.07 per share, which is an annual rate of between
2.0% and 2.8%, based on the $10.00 per share offering price. However, we have
not yet determined the exact amount and timing of any dividends. The payment of
dividends will depend upon a number of factors, including capital requirements,
Alamogordo Financial's and Alamogordo Federal's financial condition and results
of operations, tax considerations, statutory and regulatory limitations and
general economic conditions. No assurances can be given that any dividends will
be paid or that, if paid, will not be reduced or eliminated in the future.
Special cash dividends, stock dividends or returns of capital may, to the extent
permitted by Office of Thrift Supervision policy and regulations, be paid in
addition to, or in lieu of, regular cash dividends. Alamogordo Federal has filed
consolidated tax returns. Accordingly, it is anticipated that any cash
distributions made by Alamogordo Financial to its stockholders would be treated
as cash dividends and not as a non-taxable return of capital for federal and
state tax purposes.
Dividends from Alamogordo Financial will depend, in large part, upon
receipt of dividends from Alamogordo Federal, because Alamogordo Financial
initially will have no source of income other than dividends from Alamogordo
Federal, earnings from the investment of proceeds from the sale of shares of
common stock, and interest payments with respect to Alamogordo Financial's loan
to the employee stock ownership plan. A regulation of the Office of Thrift
Supervision imposes limitations on "capital distributions" by savings
institutions. See "How We Are Regulated - Limitations on Dividends and Other
Capital Distributions."
16
<PAGE>
Any payment of dividends by Alamogordo Federal to Alamogordo Financial
which would be deemed to be drawn out of Alamogordo Federal's bad debt reserves
would require a payment of taxes at the then-current tax rate by Alamogordo
Federal on the amount of earnings deemed to be removed from the reserves for
such distribution. Alamogordo Federal does not intend to make any distribution
to Alamogordo Financial that would create such a federal tax liability. See
"Taxation."
MARKET FOR THE COMMON STOCK
Alamogordo Financial has not previously issued common stock and there
is no established market for it. We expect the common stock to trade under the
symbol "____" on the over-the-counter market with quotations available through
the OTC Bulletin Board after the completion of the offering. Keefe, Bruyette &
Woods has advised us that it intends to make a market in the common stock, but
is under no obligation to do so. We will seek to encourage and assist additional
market makers to make a market in our common stock.
The development of an active trading market depends on the existence of
willing buyers and sellers, and whether a sufficient number of broker-dealers
are willing to make a market in our stock. The number of active buyers and
sellers of the common stock at any particular time may be limited. Under such
circumstances, you could have difficulty selling your shares on short notice
and, therefore, you should not view the common stock as a short-term investment.
We cannot assure you that an active and liquid trading market for the common
stock will develop or that, if it develops, it will continue, nor can we assure
you that if you purchase shares you will be able to sell them at or above $10.00
per share.
17
<PAGE>
ALAMOGORDO FEDERAL'S REGULATORY CAPITAL COMPLIANCE
At September 30, 1999, Alamogordo Federal exceeded each of its
regulatory capital requirements. Set forth below is a summary of Alamogordo
Federal's compliance with the OTS capital standards as of September 30, 1999, on
an historical and pro forma basis assuming that the indicated number of shares
were sold as of such date and receipt by Alamogordo Federal of 50% of the net
proceeds. For purposes of the table below, the amount expected to be borrowed by
the ESOP and the cost of its shares expected to be acquired by the recognition
and retention plan are deducted from pro forma regulatory capital. See
"Management of Alamogordo Federal."
<TABLE>
<CAPTION>
Pro Forma at September 30, 1999, Based Upon the Sale of
----------------------------------------------------------------------------------------------
1,101,643 Shares(1)
708,050 Shares 833,000 Shares 957,950 Shares at Adjusted
Historical at at Minimum of at Midpoint of at Maximum of Maximum of
September 30, 1999 Offering Range Offering Range Offering Range Offering Range
------------------ ------------------ ------------------ ------------------ ------------------
Percent Percent Percent Percent Percent
of of of of of
Amount Assets(2) Amount Assets(2) Amount Assets(2) Amount Assets(2) Amount Assets(2)
------- -------- ------- -------- ------- -------- ------- -------- ------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP capital......... $22,610 14.4% $25,001 15.7% $25,475 15.9% $25,950 16.1% $26,496 16.4%
======= ===== ======= ==== ======= ==== ======= ==== ======= =====
Tangible capital:
Tangible capital(3). $22,613 14.4% $25,004 15.6% $25,478 15.9% $25,953 16.1% $26,499 16.4%
Requirement......... 2,356 1.5 2,400 1.5 2,409 1.5 2,417 1.5 2,427 1.5
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Excess........... $20,257 12.9% $22,603 14.1% $23,070 14.4% $23,536 14.6% $24,072 14.9%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
Core capital:
Core capital(3)..... $22,613 14.4% $25,004 15.6% $25,478 15.9% $25,953 16.1% $26,499 16.4%
Requirement(4)...... 4,712 3.0 4,800 3.0 4,817 3.0 4,835 3.0 4,855 3.0
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Excess........... $17,902 11.4% $20,203 12.6% $20,661 12.9% $21,119 13.1% $21,645 13.4%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
Risk-based capital:
Risk-based
capital(3)(5).... $23,040 30.6% $25,448 33.2% $25,927 33.7% $26,405 34.2% $26,955 34.8%
Requirement......... 6,018 8.0 6,131 8.0 6,153 8.0 6,176 8.0 6,201 8.0
------- ----- ------- ----- ------- ---- ------- ----- ------- -----
Excess........... $17,022 22.6% $19,317 25.2% $19,773 25.7% $20,229 26.2% $20,754 26.8%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
- ---------
(1) As adjusted to give effect to a 15% increase in the number of shares
outstanding after the offering which could occur due to an increase in the
maximum of the independent valuation as a result of regulatory
considerations, demand for the shares, or changes in market conditions or
general financial and economic conditions following the commencement of the
offering.
(2) Tangible capital levels are shown as a percentage of tangible assets. Core
capital levels are shown as a percentage of total adjusted assets.
Risk-based capital levels are shown as a percentage of risk-weighted
assets.
(3) Pro forma capital levels assume that Alamogordo Federal funds the
recognition and retention plan, which purchases in the open market 4% of
the common stock sold in the stock offering at a price equal to the price
for which the shares are sold in the offering, and that the ESOP purchases
8% of the shares sold in the stock offering. See "Management of Alamogordo
Federal" for a discussion of the recognition and retention plan and ESOP.
(4) The current core capital requirement for savings associations is 3% of
total adjusted assets. The OTS has proposed core capital requirements that
would require a core capital ratio of 3% of total adjusted assets for
thrifts that receive the highest supervisory rating for safety and
soundness and a 4% to 5% core capital ratio requirement for all other
thrifts. See "Regulation--Federal Regulation of Savings
Institutions--Capital Requirements.
(5) Assumes net proceeds are invested in assets that carry a risk-weighting
equal to the average risk weighting of Alamogordo Federal's risk weighted
assets as of September 30, 1999.
18
<PAGE>
ALAMOGORDO FINANCIAL'S CAPITALIZATION
The following table presents the historical consolidated capitalization
of Alamogordo Financial at September 30, 1999, and the pro forma consolidated
capitalization after giving effect to the stock offering, based upon the sale of
the number of shares indicated in the table and the other assumptions set forth
under "Pro Forma Data."
<TABLE>
<CAPTION>
Pro Forma Consolidated Capitalization
Based Upon the Sale for $10.00 Per Share of
----------------------------------------------------------
1,101,643
708,050 833,000 957,950 Shares at
Shares at Shares at Shares at Adjusted
Minimum of Midpoint of Maximum Maximum of
Historical Offering Offering Offering Offering
Capitalization Range Range Range Range(1)
-------------- ---------- ----------- --------- ----------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Deposits(2)..................................... $122,410 $122,410 $ 122,410 $ 122,410 $ 122,410
FHLB advances................................... 10,000 10,000 10,000 10,000 10,000
-------- -------- --------- --------- ---------
Total deposits and borrowed funds............... $132,410 $132,410 $ 132,410 $ 132,410 $ 132,410
======== ======== ========= ========= =========
Stockholders' equity:
Preferred Stock, $1.00 par value, 10,000,000
shares authorized; none to be issued(3)....... $ -- $ -- $ -- $ -- $ --
Common Stock, $1.00 par value per share:
20,000,000 shares authorized; shares to be
issued as reflected.......................... -- 145 170 196 225
Additional paid-in capital(3)................. -- 6,336 7,560 8,784 10,191
Retained earnings............................. 22,633 22,633 22,633 22,633 22,633
Less:
Common Stock acquired by ESOP(4)............. -- (566) (666) (766) (881)
Common Stock acquired by
recognition and retention plan(5)........... -- (283) (333) (383) (441)
-------- -------- --------- --------- ---------
Total stockholders' equity.................. $ 22,633 $ 28,264 $ 29,363 $ 30,464 $ 31,727
======== ======== ========= ========= =========
Total stockholders' equity as a percentage
of pro forma total assets.................... 14.44% 17.41% 17.97% 18.52% 19.14%
</TABLE>
- ---------
(1) As adjusted to give effect to a 15% increase in the number of shares
outstanding after the offering which could occur due to an increase in the
maximum of the independent valuation as a result of regulatory
considerations, demand for the shares, or changes in market conditions or
general financial and economic conditions following the commencement of the
offering.
(2) Does not reflect withdrawals from deposit accounts for the purchase of
common stock in the offering. Such withdrawals would reduce pro forma
deposits by the amount of such
(3) Reflects the sale of shares in the offering. Does not include proceeds from
the offering that will be loaned to the ESOP to enable it to purchase
shares in the offering. No effect has been given to the issuance of
additional shares of common stock pursuant to the stock option plan that
Alamogordo Financial expects to adopt. If such plan is approved by
stockholders, an amount equal to 10% of the shares of common stock issued
in the offering will be reserved for issuance upon the exercise of options.
See "Management of the Bank."
(4) Assumes that 8% of the shares sold in the offering will be purchased by the
ESOP and that the funds used to acquire the ESOP shares will be borrowed
from Alamogordo Financial. The common stock acquired by the ESOP is
reflected as a reduction of stockholders' equity. See "Management of the
Bank--Employee Stock Ownership Plan and Trust."
(5) Assumes that, subsequent to the stock offering, 4% of the shares of common
stock sold in the stock offering is purchased by the recognition and
retention plan in the open market. The common stock to be purchased by the
recognition and retention plan is reflected as a reduction of stockholders'
equity. See "Risk Factors--Possible Dilutive Effect of Issuance of
Additional Shares," "Pro Forma Data" and "Management of the Bank." The
recognition and retention plan will not be implemented for at least six
months after the stock offering and until it has been approved by
stockholders.
19
<PAGE>
PRO FORMA DATA
We can not determine the actual net proceeds from the sale of the
common stock until the offering is completed. However, we estimate that net
proceeds will be between $6.5 million and $9.0 million, or $10.4 million if the
maximum of the independent valuation is increased by 15%. Our estimate is based
on the assumption that the total expenses, including the marketing fees paid to
Charles Webb & Company, will be approximately $600,000.
We calculated the pro forma consolidated net income and stockholders'
equity of Alamogordo Financial for the three months ended September 30, 1999 and
the year ended June 30, 1999, as if the common stock had been sold at the
beginning of those periods and the net proceeds had been invested at 5.18% and
5.09% for the three months ended September 30, 1999 and the year ended June 30,
1999, respectively. We chose these yields because they represent the yields on
the one-year U.S. treasury bill at September 30, 1999 and at June 30, 1999. In
light of changes in interest rates in recent periods, Alamogordo Financial
believes these rates more accurately reflect pro forma reinvestment rates than
the arithmetic average method which assumes reinvestment of the net proceeds at
a rate equal to the average of the yield on interest earning assets and the cost
of deposits for these periods. We assumed a tax rate of 38% for both periods.
This results in an after-tax yield of 3.21% for the three months ended September
30, 1999 and 3.16% for the year ended June 30, 1999.
We calculated historical and pro forma per share amounts by dividing
historical and pro forma amounts of pro forma consolidated net income and
stockholders' equity by the indicated number of shares of common stock. We
adjusted these figures to give effect to the shares purchased by the employee
stock ownership plan. We computed per share amounts for each period as if the
common stock was outstanding at the beginning of the periods, but we did not
adjust per share historical or pro forma stockholders' equity to reflect the
earnings on the estimated net proceeds. As discussed under "How We Intend to Use
the Proceeds from the Offering," Alamogordo Financial intends to retain 50% of
the net proceeds from the offering and intends to make a loan to the employee
stock ownership plan to fund the employee stock ownership plan's purchase of 8%
of the common stock issued in the offering. The loan is assumed to be repaid in
substantially equal principal payments over a period of years.
The following table gives effect to the recognition and retention plan,
which we expect to adopt following the stock offering and present, along with
the stock option plan, to stockholders for approval at least six months
following the completion of the stock offering. If the recognition and retention
plan is approved by stockholders, the restricted stock plan will acquire an
amount of common stock equal to 4% of the shares of common stock issued in the
offering if the plan is adopted within one year of the stock offering, and 5% if
the plan is adopted thereafter, either through open market purchases or from
authorized but unissued shares of common stock, if permissible. In preparing the
table below we assumed that stockholder approval has been obtained and that the
recognition and retention plan purchases in the open market a number of shares
equal to 4% of the shares sold in the offering at the same price for which they
were sold in the stock offering. The stock is assumed to be awarded under the
program in awards that vest gradually over five years.
The following table does not give effect to:
o the shares to be reserved for issuance under the stock option
plan;
o withdrawals from deposit accounts for the purpose of purchasing
common stock in the stock offering;
o Alamogordo Financial's results of operations after the stock
offering; or
o the market price of the common stock after the stock offering.
20
<PAGE>
The following pro forma information may not represent the financial
effects of the stock offering at the date on which the stock offering actually
occurs and you should not use the table to indicate future results of
operations. Pro forma stockholders' equity represents the difference between the
stated amount of assets and liabilities of Alamogordo Financial computed in
accordance with generally accepted accounting principles. We did not increase or
decrease stockholders' equity to reflect the difference between the carrying
value of loans and other assets and market value. Pro forma stockholders' equity
is not intended to represent the fair market value of the common stock and may
be different than amounts that would be available for distribution to
stockholders if we liquidated.
<TABLE>
<CAPTION>
At or For the Three Months Ended September 30, 1999
Based upon the Sale for $10.00 per share of
---------------------------------------------------------
Maximum
Minimum Midpoint Maximum As Adjusted
708,050 833,000 957,950 1,101,643
Shares Shares Shares Shares(1)
--------- --------- --------- -----------
(Dollars and Number of Shares in Thousands)
<S> <C> <C> <C> <C>
Gross proceeds.................................................. $ 7,081 $ 8,330 $ 9,580 $ 11,016
Expenses........................................................ 600 600 600 600
--------- --------- --------- ---------
Estimated net proceeds........................................ 6,481 7,730 8,980 10,416
Common stock purchased by ESOP(2)............................. (566) (666) (766) (881)
Common stock purchased by
recognition and retention plan(3)........................... (283) (333) (383) (441)
--------- --------- --------- ---------
Estimated net proceeds after adjustment for stock benefit plans. $ 5,631 $ 6,730 $ 7,830 $ 9,094
========= ========= ========= =========
For the three months ended September 30, 1999:
Net income:
Historical.................................................... $ 229 $ 229 $ 229 $ 229
Pro forma adjustments:
Income on net proceeds........................................ 45 54 63 73
ESOP(2)....................................................... (9) (10) (12) (14)
Recognition and retention plan(3)............................. (9) (10) (12) (14)
--------- --------- --------- ---------
Pro forma net income........................................ $ 256 $ 263 $ 268 $ 274
========= ========= ========= =========
Net income per share:
Historical.................................................... $ 0.16 $ 0.14 $ 0.12 $ 0.11
Pro forma adjustments:
Income on net proceeds........................................ 0.03 0.03 0.03 0.03
ESOP(2)....................................................... (0.01) (0.01) (0.01) (0.01)
Recognition and retention plan(3)............................. (0.01) (0.01) (0.01) (0.01)
--------- --------- --------- ---------
Pro forma net income per share(2)(3)(4)..................... $ 0.17 $ 0.15 $ 0.13 $ 0.12
========= ========= ========= =========
Offering price to pro forma net income per share................ 14.71x 16.67x 19.23x 20.83x
========= ========= ========= =========
Shares considered outstanding in calculating pro forma net
income per share.............................................. 1,389,772 1,635,026 1,880,280 2,162,323
========= ========= ========= =========
At September 30, 1999:
Stockholders' equity:
Historical.................................................... $ 22,633 $ 22,633 $ 22,633 $ 22,633
Estimated net proceeds........................................ 6,481 7,730 8,980 10,416
Less: Common stock acquired by ESOP(2)....................... (566) (666) (766) (881)
Common stock acquired by
recognition and retention plan(3).................... (283) (333) (383) (441)
--------- --------- --------- ---------
Pro form stockholders' equity(5)............................. $ 28,264 $ 29,363 $ 30,464 $ 31,727
========= ========= ========= =========
Stockholders' equity per share:
Historical.................................................... $ 15.66 $ 13.31 $ 11.58 $ 10.07
Estimated net proceeds........................................ 4.48 4.55 4.59 4.63
Less: Common stock acquired by ESOP(2)....................... (0.39) (0.39) (0.39) (0.39)
Common stock acquired by
recognition and retention plan(3)...................... (0.20) (0.20) (0.20) (0.20)
--------- --------- --------- ---------
Pro forma stockholders' equity per share(3)(4)(5)............. $ 19.55 $ 17.27 $ 15.58 $ 14.11
========= ========= ========= =========
Offering price as a percentage of pro forma stockholders'
equity per share.............................................. 51.15% 57.90% 64.18% 70.87%
========= ========= ========= =========
Shares considered outstanding in calculating offering price
as a percentage of pro forma stockholders' equity per share... 1,445,000 1,700,000 1,955,000 2,248,251
========= ========= ========= =========
</TABLE>
(Footnotes begin on following page)
21
<PAGE>
<TABLE>
<CAPTION>
At or For the Three Months Ended June 30, 1999
Based upon the Sale for $10.00 per share of
---------------------------------------------------------
Maximum
Minimum Midpoint Maximum As Adjusted
708,050 833,000 957,950 1,101,643
Shares Shares Shares Shares(1)
--------- --------- --------- -----------
(Dollars and Number of Shares in Thousands)
<S> <C> <C> <C> <C>
Gross proceeds.................................................. $ 7,081 $ 8,330 $ 9,580 $ 11,016
Expenses........................................................ 600 600 600 600
--------- --------- --------- ---------
Estimated net proceeds........................................ 6,481 7,730 8,980 10,416
Common stock purchased by ESOP(2)............................. (566) (666) (766) (881)
Common stock purchased by recognition and retention plan(3)... (283) (333) (383) (441)
--------- --------- --------- ---------
Estimated net proceeds after adjustment for stock benefit plans. $ 5,631 $ 6,730 $ 7,830 $ 9,094
========= ========= ========= =========
For the fiscal year ended June 30, 1999:
Net income:
Historical.................................................... $ 679 $ 679 $ 679 $ 679
Pro forma adjustments:
Income on net proceeds........................................ 178 212 247 287
ESOP(2)....................................................... (35) (41) (48) (55)
Recognition and retention plan(3)............................. (35) (41) (48) (55)
--------- --------- --------- ---------
Pro forma net income........................................ $ 787 $ 809 $ 830 $ 856
========= ========= ========= =========
Net income per share:
Historical.................................................... $ 0.49 $ 0.41 $ 0.36 $ 0.31
Pro forma adjustments:
Income on net proceeds........................................ 0.13 0.13 0.13 0.13
ESOP(2)....................................................... (0.03) (0.03) (0.03) (0.03)
Recognition and retention plan(3)............................. (0.03) (0.03) (0.03) (0.03)
--------- --------- --------- ---------
Pro forma net income per share(2)(3)(4)..................... $ 0.56 $ 0.49 $ 0.43 $ 0.38
========= ========= ========= =========
Offering price to pro forma net income per share................ 17.86x 20.40x 23.26x 26.32x
========= ========= ========= =========
Shares considered outstanding in calculating pro forma net
income per share.............................................. 1,394,020 1,640,024 1,886,027 2,168,933
========= ========= ========= =========
At June 30, 1999:
Stockholders' equity:
Historical.................................................... $ 22,441 $ 22,441 $ 22,441 $ 22,441
Estimated net proceeds........................................ 6,481 7,730 8,980 10,416
Less: Common stock acquired by ESOP(2)....................... (566) (666) (766) (881)
Common stock acquired by
recognition and retention plan(3).................... (283) (333) (383) (441)
--------- --------- ---------- ---------
Pro form stockholders' equity(5)............................. $ 28,072 $ 29,171 $ 30,271 $ 31,535
========= ========= ========= =========
Stockholders' equity per share:
Historical.................................................... $ 15.53 $ 13.20 $ 11.48 $ 9.98
Estimated net proceeds........................................ 4.48 4.55 4.59 4.63
Less: Common stock acquired by ESOP(2)....................... (0.39) (0.39) (0.39) (0.39)
Common stock acquired by
recognition and retention plan(3).................... (0.20) (0.20) (0.20) (0.20)
--------- --------- --------- ---------
Pro forma stockholders' equity per share(3)(4)(5)............. $ 19.42 $ 17.16 $ 15.48 $ 14.02
========= ========= ========= =========
Offering price as a percentage of pro forma stockholders'
equity per share.............................................. 51.49% 58.28% 64.60% 71.33%
========= ========= ========= =========
Shares considered outstanding in calculating offering price
as a percentage of pro forma stockholders' equity per share... 1,455,000 1,700,000 1,955,000 2,248,251
========= ========= ========= =========
</TABLE>
- ---------
(1) As adjusted to give effect to a 15% increase in the number of shares
outstanding after the offering which could occur due to an increase in the
maximum of the independent valuation as a result of regulatory
considerations, demand for the shares, or changes in market conditions or
general financial and economic conditions following the commencement of
the offering.
(Footnotes continue on following page)
22
<PAGE>
(2) It is assumed that 8% of the shares sold in the stock offering will be
purchased by the ESOP. For purposes of this table, the funds used to
acquire such shares are assumed to have been borrowed by the ESOP from
Alamogordo Financial. The amount to be borrowed is reflected as a
reduction of stockholders' equity. Alamogordo Federal intends to make
annual contributions to the ESOP in an amount at least equal to the
principal and interest requirement of the debt. Alamogordo Federal's total
annual payment of the ESOP debt is based upon ten equal annual
installments of principal, with an assumed interest rate of 8.5%. The pro
forma net earnings information makes the following assumptions: (i)
Alamogordo Federal's contribution to the ESOP is equivalent to the debt
service requirement for the period presented and was made at the end of
the period; (ii) 1,416, 1,666, 1,916, and 2,203 shares at the minimum,
midpoint, maximum and adjusted maximum of the Offering Range,
respectively, were committed to be released during the quarter ended
September 30, 1999, at an average fair value equal to the price for which
the shares are sold in the stock offering in accordance with Statement of
Position ("SOP") 93-6; (iii) 5,664, 6,664, 7,664 and 8,813 shares at the
minimum, midpoint, maximum and adjusted maximum of the Offering Range,
respectively, were committed to be released during the year ended June 30,
1999, at an average fair value equal to the price for which the shares are
sold in the stock offering in accordance with SOP 93-6; and (iv) only the
ESOP shares committed to be released were considered outstanding for
purposes of the net earnings per share calculations.
(3) Gives effect to the recognition and retention plan expected to be adopted
following the stock offering. This plan intends to acquire a number of
shares of common stock equal to 4% of the shares sold in the stock
offering either through open market purchases or from authorized but
unissued shares of common stock or treasury stock of Alamogordo Financial,
if any. Funds used by the recognition and retention plan to purchase the
shares will be contributed to the plan by Alamogordo Federal. In
calculating the pro forma effect of the recognition and retention plan, it
is assumed that the shares were acquired by the plan in open market
purchases at the beginning of the period presented for a purchase price
equal to the price for which the shares are sold in the stock offering,
and that 5% and 20% of the amount contributed was an amortized expense
during the three months ended September 30, 1999 and the fiscal year ended
June 30, 1999, respectively. The issuance of authorized but unissued
shares of the common stock to the recognition and retention plan instead
of open market purchases would dilute the voting interests of existing
stockholders by approximately 2%. In addition, if the recognition and
retention plan purchases shares in the open market, then pro forma net
earnings per share for the three months ended September 30, 1999 would be
$0.17, $0.15, $0.13 and $0.11, and pro forma stockholders' equity per
share at September 30, 1999 would be $19.38, $17.14, $15.48 and $14.04 at
the minimum, midpoint, maximum and adjusted maximum of the Offering Range,
respectively, and pro forma net earnings per share for the fiscal year
ended June 30, 1999 would be $0.56, $0.48, $0.43 and $0.40, and pro forma
stockholders' equity per share at June 30, 1999 would be $19.25, $17.03,
$15.39 and $13.96 at the minimum, midpoint, maximum and adjusted maximum
of the Offering Range, respectively. There can be no assurance that the
actual purchase price of the shares granted under the recognition and
retention plan will be equal to the Subscription Price.
(4) No effect has been given to the issuance of additional shares of common
stock pursuant to the stock option plan expected to be adopted by
Alamogordo Financial following the stock offering. Under the stock option
plan, an amount equal to 10% of the common stock sold in the stock
offering will be reserved for future issuance upon the exercise of options
to be granted under the stock option plan. The issuance of common stock
pursuant to the exercise of options under the stock option plan will
result in the dilution of existing stockholders' interests. Assuming all
options were exercised at the end of the period at an exercise price equal
to the price for which the shares were sold in the offering, existing
stockholders' voting interest would be diluted by approximately 4.5%. In
addition, if the shares to fund the option plan are purchased in the open
market, then pro forma net earnings per share for the three months ended
September 30, 1999 would be $0.17, $0.15, $0.14 and $0.12 and pro forma
stockholders' equity per share at September 30, 1999 and would be $19.11,
$16.93, $15.33 and $13.92, at the minimum, midpoint, maximum and adjusted
maximum of the Offering Range, respectively, and pro forma net earnings
per share for the fiscal year ended June 30, 1999 would be $0.55, $0.48,
$0.43 and $0.39, and pro forma stockholders' equity per share at June 30,
1999 would be $18.98, $16.82, $15.23 and $13.84, at the minimum, midpoint,
maximum and adjusted maximum of the Offering Range, respectively. There
can be no assurance that the actual purchase price of the shares purchased
by the stock option Plan will be equal to the Subscription Price
(5) The retained earnings of Alamogordo Federal will continue to be
substantially restricted after the stock offering. See "Dividend Policy"
and "Regulation--Federal Regulation of Savings Institutions."
23
<PAGE>
ALAMOGORDO FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
The following Consolidated Statements of Income of Alamogordo Financial
Corporation for the years ended June 30, 1999 and 1998 have been derived from
the audited consolidated financial statements which appear beginning on page F-1
of this prospectus. All information contained in this prospectus for the three
months ended September 30, 1999 and 1998 is unaudited. In the opinion of
management, all adjustments necessary for a fair representation of those interim
periods have been included and are of a normal recurring nature. Results for the
three months ended September 30, 1999 do not necessarily indicate the results
that may be expected for the year ending June 30, 2000. These Consolidated
Statements of Income should be read with the Consolidated Financial Statements
and Notes and Management's Discussion and Analysis of Financial Condition and
Results of Operations included in this prospectus.
<TABLE>
<CAPTION>
Three Months Ended Years Ended
September 30, June 30,
------------------------- -------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
(Unaudited)
Interest income:
<S> <C> <C> <C> <C>
Interest and fees on loans.................................... $2,289,645 $2,212,120 $8,993,713 $9,455,666
Interest on securities........................................ 226,963 384,609 1,294,612 1,045,460
Interest on mortgage-backed securities........................ 44,684 57,071 219,678 343,737
Interest on other interest bearing assets..................... 72,915 149,802 508,279 379,831
---------- ---------- ---------- ----------
Total interest income........................................ 2,615,740 2,803,602 11,016,282 11,224,694
Interest expense:
Interest on deposits.......................................... 1,531,295 1,768,948 6,783,713 6,908,024
Interest on FHLB and other borrowings......................... 123,024 126,787 495,611 268,228
---------- ---------- ---------- ----------
Total interest expense ...................................... 1,654,319 1,895,735 7,279,324 7,176,252
---------- ---------- ---------- ----------
Net interest income......................................... 979,888 907,867 3,736,958 4,048,442
Provision for loan losses....................................... -- -- -- --
---------- ---------- ---------- ----------
Net interest income, after provision for loan losses.......... 979,888 907,867 3,736,958 4,048,442
---------- ---------- ---------- ----------
Other income (loss)
Service charges and fees...................................... 46,631 28,983 134,010 103,088
Gain (loss) on sale of real estate owned...................... -- -- (10,429) 833
Gain (loss) on sale of premises and equipment................. 29,108 -- -- 761
Other......................................................... 32,359 24,608 135,850 108,576
---------- ---------- ---------- ----------
Total other income........................................... 108,098 53,591 259,431 213,258
---------- ---------- ---------- ----------
Other expenses
Salaries and benefits......................................... 318,310 301,205 1,269,169 1,172,833
Occupancy .................................................... 178,843 150,715 650,785 525,560
Data processing fees.......................................... 63,597 128,683 335,658 193,378
Federal insurance premiums and other insurance expense........ 29,148 30,985 120,846 122,736
Advertising .................................................. 26,192 13,705 61,053 46,802
Other......................................................... 149,420 159,894 584,095 549,406
---------- ---------- ---------- ----------
Total other expenses......................................... 765,510 785,187 3,021,606 2,610,715
---------- ---------- ---------- ----------
Income before income taxes................................... 322,476 176,271 974,783 1,650,985
---------- ---------- ---------- ----------
Provision for income taxes...................................... 93,425 38,351 296,299 536,067
---------- ---------- ---------- ----------
Net income................................................... $ 229,051 $ 137,920 $ 678,484 $1,114,918
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis reflects Alamogordo Financial's
consolidated financial statements and other relevant statistical data and is
intended to enhance your understanding of our financial condition and results of
operations. You should read the information in this section in conjunction with
Alamogordo Financial's consolidated financial statements and their notes
beginning on page F-1 of this prospectus, and the other statistical data
provided in this prospectus. This prospectus contains certain "forward-looking
statements" which may be identified by the use of such words as "believe,"
"expect," "anticipate," "should," "planned," "estimated" and "potential."
Examples of forward-looking statements include, but are not limited to,
estimates with respect to our financial condition, results of operations and
business that are subject to various factors which could cause actual results to
differ materially from these estimates and most other statements that are not
historical in nature. These factors include, but are not limited to, general and
local economic conditions, changes in interest rates, deposit flows, demand for
mortgage and other loans, real estate values, and competition; changes in
accounting principles, policies, or guidelines; changes in legislation or
regulation; and other economic, competitive, governmental, regulatory, and
technological factors affecting our operations, pricing, products and services.
General
Alamogordo Financial's results of operations depend primarily upon the
results of operations of its wholly-owned subsidiary, Alamogordo Federal.
Alamogordo Federal's results of operations depend primarily on net interest
income. Net interest income is the difference between the interest income we
earn on our interest-earning assets, consisting primarily of loans and
investment and mortgage-backed securities, and the interest we pay on our
interest-bearing liabilities, primarily savings accounts, time deposits and
other borrowings. Our results of operations are also affected by our provision
for loan losses, other income and other expense. Other expense consists
primarily of non-interest expenses, including salaries and employee benefits,
occupancy, data processing fees, deposit insurance premiums, advertising and
other expenses. Other income consists primarily of non-interest income,
including service charges and fees, gain (loss) on sale of real estate owned and
other income. Our results of operations may also be affected significantly by
general and local economic and competitive conditions, particularly those with
respect to changes in market interest rates, government policies and actions of
regulatory authorities.
Business Strategy
We have several strategies designed to enhance profitability consistent
with safety and soundness. These strategies are discussed below. You should be
aware, however, that we are subject to intense competition, and there can be no
assurances that we will successfully implement these strategies.
o Emphasizing Traditional One- to Four-Family Residential Real
Estate Lending. Historically, we have emphasized one- to
four-family residential lending within our market area. As of
September 30, 1999, $106.3 million, or 88.0% of our total loan
portfolio consisted of one- to four-family residential real
estate loans. During the 15 months ended September 30, 1999, we
originated $21.3 million of one- to four-family residential real
estate loans. Following the stock offering, we will seek to
expand originations of these loans. We believe that the expansion
of our residential lending portfolio will enhance our reputation
as a service-oriented institution that meets the needs of its
local community. Although the yields on residential mortgage
loans are often less than the yields on other loans, we intend to
continue to emphasize one- to four-family lending because of our
expertise with this type of lending, and the relatively low
delinquency rates on these loans compared to other loans.
o Increasing Other Lending. To complement our continued emphasis on
one- to four-family residential real estate lending, we intend to
focus on increasing our originations of loans that are not one-
to four-family loans by stressing customer relationships and
customer service. We intend to initially use our existing
expertise, and we expect that any growth in our portfolio of
these other loans will be slow. We believe that if we are able to
expand our portfolio of these loans, we will be able to increase
the yield on our loan portfolio and diversify our assets while
continuing to meet the needs of our local community. As of
September 30, 1999, multifamily and nonresidential and consumer
and other loans totaled $13.5 million, or 11.2% of our total loan
portfolio. These types of loans generally expose us to greater
credit risk than loans secured by one- to four-family real estate
because repayment is dependent on income being generated in
amounts sufficient to cover operating expenses and debt service
and on the successful operation of the borrower's business.
25
<PAGE>
o Maintaining Asset Quality While Implementing our Diversification
Strategy. Through our commitment to conservative loan
underwriting guidelines and investment in high grade assets, we
have consistently experienced low levels of late payments and
losses on loans. As of September 30, 1999, we had $265,000 of
nonperforming loans, which represented 0.22% of total loans. Our
allowance for loan losses as of September 30, 1999 was $467,000,
or 176.2% of nonperforming loans. During the three months ended
September 30, 1999, and the fiscal year ended June 30, 1999, we
had net charge-offs of $5,000 and $14,000, respectively. Our goal
is to gradually increase our portfolio of multifamily and
nonresidential and consumer and other loans while applying
prudent underwriting standards. It may be necessary to increase
the provision for loan losses, which will have an adverse effect
on our net income.
o Maintaining Capital Strength. As a nonpublic company our policy
has been to maintain our financial strength through risk
management, a sound financial condition and relatively high
capital levels, and consistent earnings. At September 30, 1999,
our ratio of equity to assets was 14.4%. Following the offering,
our ratio of equity to assets will be approximately 17.4% to
19.1% (based on the assumptions set forth in "Alamogordo
Financial's Capitalization"). As a public company, we plan to use
the capital we receive in the offering to grow and diversify our
assets, internally or through acquisitions, and for other
shareholder enhancements such as dividends and, as permitted,
stock repurchases. We intend to maintain our commitment to
financial strength, although as a public company we intend to
rely less on higher ratios of equity to assets than we have as a
nonpublic company.
o Attracting Transaction and Savings Accounts. As a nonpublic
company we maintained a relatively high proportion of
certificates of deposit as compared to transaction and savings
accounts. The interest expense of certificates of deposit is
generally higher than the interest expense of transaction and
savings accounts, and we frequently paid relatively high rates on
our certificates of deposit. Our goal as a public company will be
to decrease our cost of deposits by increasing our transaction
and savings accounts. We also believe that building relationships
with transaction and savings account customers is an effective
means of marketing and selling loan products and other services.
As of September 30, 1999, we had $19.0 million of transaction and
savings accounts, which represented 15.6% of our total deposits.
Management of Market Risk
General. As with other savings and loan holding companies, our most
significant form of market risk is interest rate risk. Our assets, consisting
primarily of mortgage loans, have longer maturities than our liabilities,
consisting primarily of deposits. As a result, a principal part of our business
strategy is to manage interest rate risk and reduce the exposure of our net
interest income to changes in market interest rates. Accordingly, Alamogordo
Federal's Board of Directors has established an Asset/Liability Management
Committee which is responsible for evaluating the interest rate risk inherent in
Alamogordo Federal's assets and liabilities, determining the level of risk that
is appropriate given its business strategy, operating environment, capital,
liquidity and performance objectives, and managing this risk consistent with the
guidelines approved by the Board of Directors. The Asset/Liability Management
Committee consists of senior management operating under a policy adopted by the
Board of Directors and meets at least quarterly to review Alamogordo Federal's
asset/liability policies and interest rate risk position. See "Risk
Factors--Potential Effects of Changes in Interest Rates and the Current Interest
Rate Environment."
Although we originate a significant amount of 30-year fixed rate loans,
we believe that the interest rate risk generally associated with these loans is
mitigated by the transient nature of the persons employed in our market area.
Because our local economy is heavily dependent on two U.S. Government military
installations located in the county, many of our borrowers are employed by the
federal government in positions that require frequent relocation. When these
borrowers relocate, they often sell the homes securing the loan, and prepay the
mortgage loan. As a result, we believe our one- to four-family residential real
estate loans, particularly if the borrower is employed by the United States
Government, remain outstanding for a shorter period of time than the national
average for 30-year fixed-rate one- to four-family residential real estate
loans. In addition, from time to time we have and may continue to purchase
adjustable-rate mortgage loans, and adjustable-rate and shorter-term securities.
We do not engage in trading activities or use derivative instruments to control
interest rate risk.
Alamogordo Financial's current investment strategy is to maintain a
securities portfolio that provides a source of liquidity and that contributes to
its overall profitability and asset mix within given quality and maturity
considerations. The securities portfolio consists primarily of Federal
Government and government sponsored corporation securities. A portion of
Alamogordo Financial's investment securities, other than FHLB stock, are
26
<PAGE>
classified as available for sale to provide management with the flexibility to
make adjustments to the portfolio in the event of changes in interest rates, to
fulfill unanticipated liquidity needs, or to take advantage of alternative
investment opportunities.
Net Portfolio Value. In past years, many savings associations measured
interest rate sensitivity by computing the "gap" between the assets and
liabilities which were expected to mature or reprice within certain time
periods, based on assumptions regarding loan prepayment and deposit decay rates
formerly provided by the OTS. However, the OTS now requires the computation of
amounts by which the net present value of an institution's cash flow from
assets, liabilities and off balance sheet items (the institution's net portfolio
value or "NPV") would change in the event of a range of assumed changes in
market interest rates. These computations estimate the effect on an
institution's NPV from instantaneous and permanent 100 to 300 basis point
increases and decreases in market interest rates.
The following table presents Alamogordo Federal's NPV at September 30,
1999, as calculated by the OTS, which is based upon quarterly information that
Alamogordo Federal provided to the OTS.
Percentage Change in Net Portfolio Value
-----------------------------------------------------------------
Changes
in Market Projected Estimated Amount of
Interest Rates Change(1) NPV Change
-------------- -------- --------- ---------
(basis points) (Dollars in Thousands)
300 (44)% $13,638 $(10,861)
200 (29) 17,366 (7,133)
100 (14) 21,115 (3,384)
-- -- 24,499 --
(100) 9 26,749 2,250
(200) 13 27,658 3,158
(300) 16 28,334 3,835
- ---------
(1) Calculated as the amount of change in the estimated NPV divided by the
estimated NPV assuming no change in interest rates.
Certain shortcomings are inherent in the methodology used in the above
interest rate risk measurement. Modeling changes in NPV requires making certain
assumptions which may or may not reflect the manner in which actual yields and
costs respond to changes in market interest rates. In this regard, the NPV table
presented assumes that the composition of Alamogordo Federal's interest
sensitive assets and liabilities existing at the beginning of a period remain
constant over the period being measured and assumes that a particular change in
interest rates is reflected uniformly across the yield curve regardless of the
duration or repricing of specific assets and liabilities. Accordingly, although
the NPV table provides an indication of Alamogordo Federal's interest rate risk
exposure at a particular point in time, such measurements are not intended to
and do not provide a precise forecast of the effect of changes in market
interest rates on its net interest income, and will differ from actual results.
Additionally, the guidelines established by the Board of Directors are not
strict limitations. While a goal of the Asset/Liability Management Committee and
the Board of Directors is to limit projected NPV changes within the Board's
guidelines, Alamogordo Federal will not necessarily limit projected changes in
NPV if the required action would present disproportionate risk to Alamogordo
Federal's continued profitability.
27
<PAGE>
Average Balance Sheet
The following table presents for the periods indicated the total dollar
amount of interest income from average interest earning assets and the resultant
yields, as well as the interest expense on average interest bearing liabilities,
expressed both in dollars and rates. No tax equivalent adjustments were made.
All average balances are monthly average balances. Non-accruing loans have been
included in the table as loans carrying a zero yield.
Interest income includes fees that are considered adjustments to yields.
<TABLE>
<CAPTION>
Three Months Ended September 30,
------------------------------------------------------------------
At September 30, 1999 1999 1998
--------------------- -------------------------------- --------------------------------
Average Interest Average Interest
Outstanding Outstanding Earned/ Outstanding Earned/
Balance Yield/Rate Balance Paid Yield/Rate Balance Paid Yield/Rate
----------- ---------- ----------- -------- ----------
(Dollars in Thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans receivable(1).................. $117,085 7.79% $116,703 $ 2,289 7.85% $108,304 $ 2,212 8.17%
Mortgage-backed securities (2)....... 3,202 5.32 3,280 45 5.49 4,549 57 5.01
Securities (2)....................... 15,019 5.81 15,258 227 5.95 27,227 385 5.66
Other interest earning assets (3).... 3,771 6.74 4,325 73 6.75 9,277 150 6.47
-------- -------- ------- -------- -------
Total interest-earning assets....... 139,077 7.49 139,566 2,634 7.55 149,357 2,804 7.51
------- -------
Non-interest-earning assets.......... 17,607 16,042 11,554
-------- -------- --------
Total assets........................ $156,684 $155,608 $160,911
======== ======== ========
Interest-bearing liabilities:
Transactions and savings deposits.... $ 17,598 2.23 $ 17,981 96 2.14 $ 17,957 134 2.98
Certificate accounts................. 103,366 5.64 101,287 1,435 5.67 107,351 1,635 6.09
Borrowings........................... 10,000 4.81 10,000 123 4.92 10,151 127 5.00
-------- -------- ------- -------- -------
Total interest-bearing liabilities.. 130,964 5.12 129,268 1,654 5.12 135,459 1,896 5.60
------- -------
Non-interest-bearing liabilities....... 3,087 3,801 3,252
-------- -------- --------
Total liabilities.................... 134,051 133,069 138,711
Equity................................. 22,633 22,539 22,200
-------- -------- --------
Total liabilities and equity......... $156,684 $155,608 $160,911
======== ======== ========
Net interest income.................... $ 980 $ 908
======= =======
Net interest rate spread(4)............ 2.37% 2.43% 1.91%
====== ====== ======
Net earning assets..................... $ 8,113 $ 10,298 $ 13,898
======== ======== ========
Net yield on average interest-
earning assets (5)................... 2.81% 2.43%
======= ======
Average interest-earning assets to
average interest-bearing liabilities. 107.97% 110.26%
======== ========
</TABLE>
- ---------
(footnotes on following page)
28
<PAGE>
The following table presents for the periods indicated the total dollar
amount of interest income from average interest earning assets and the resultant
yields, as well as the interest expense on average interest bearing liabilities,
expressed both in dollars and rates. No tax equivalent adjustments were made.
All average balances are monthly average balances. Non-accruing loans have been
included in the table as loans carrying a zero yield. Interest income includes
fees that are considered adjustments to yields.
<TABLE>
<CAPTION>
Years Ended June 30,
-------------------------------------------------------------------
1999 1998
-------------------------------- -------------------------------
Average Interest Average Interest
Outstanding Earned/ Outstanding Earned/
Balance Paid Yield/Rate Balance Paid Yield/Rate
----------- -------- ---------- ---------- ------- ----------
(Dollars in Thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C>
Loans receivable (1)...................... $112,294 $ 8,994 8.01% $113,958 $ 9,455 8.30%
Mortgage-backed securities (2)............ 4,010 219 5.46 5,712 344 6.02
Securities (2)............................ 22,606 1,295 5.73 19,176 1,046 5.45
Other interest earning assets (3)......... 8,776 508 5.79 5,377 380 7.07
-------- ------- -------- -------
Total interest-earning assets............ 147,686 11,016 7.46 144,223 11,225 7.78
------- -------
Non-interest-earning assets............... 12,569 10,610
-------- --------
Total assets............................. $160,255 $154,833
======== ========
Interest-bearing liabilities:
Transaction and savings deposits.......... $ 18,181 430 2.37 $ 18,764 492 2.62
Certificate accounts...................... 106,572 6,354 5.96 105,684 6,416 6.07
Borrowings................................ 10,075 495 4.91 6,068 268 4.42
-------- ------- -------- -------
Total interest-bearing liabilities....... 134,828 7,279 5.40 130,516 7,176 5.50
------- -------
Non-interest-bearing liabilities............ 3,049 2,811
------- --------
Total liabilities........................ 137,877 133,327
Equity...................................... 22,378 21,506
------- --------
Total liabilities and equity............ $160,255 $154,833
======== ========
Net interest income......................... $ 3,737 $ 4,049
======= =======
Net interest rate spread (4)................ 2.06% 2.28%
====== ======
Net interest-earning assets................. $ 12,858 $ 13,707
======== ========
Net yield on average interest-earning assets(5) 2.53% 2.81%
======= ======
Average interest-earning assets to average
interest-bearing liabilities.............. 109.54% 110.50%
======== ========
</TABLE>
- ---------
(1) Amounts are net of allowance for loan losses but include non-accrual loans.
Interest is recognized on non-accrual loans only as and when received.
(2) Securities are included at carrying value.
(3) Other interest-earning assets include Federal Home Loan Bank of Dallas
stock.
(4) Net interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities.
(5) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
29
<PAGE>
Rate/Volume Analysis. The following table presents the dollar amount of
changes in interest income and interest expense for major components of
interest-earning assets and interest-bearing liabilities. It distinguishes
between the changes related to outstanding balances and that due to the changes
in interest rates. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to
(i) changes in volume (i.e., changes in volume multiplied by old rate), (ii)
changes in rate (i.e., changes in rate multiplied by old volume), and (iii)
change in rate/volume (change in rate multiplied by change in volume).
<TABLE>
<CAPTION>
Three Months Ended September 30, Years Ended June 30,
----------------------------------------- -------------------------------------------
1999 vs. 1998 1999 vs. 1998
----------------------------------------- -------------------------------------------
Increase/(Decrease) Increase/(Decrease)
Due to Total Due to Total
-------------------- Rate/ Increase ------------------- Rate/ Increase
Volume Rate Volume (Decrease) Volume Rate Volume (Decrease)
------ ---- ------ -------- ------ ---- ------ --------
(In Thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans receivable..................... $ (144) $ 64 $ 157 $ 77 $ 183 $ (334) $ (310) $ (461)
Mortgage-backed securities........... (3) 4 (13) (12) 8 (22) (111) (125)
Investment securities................ (13) 14 (159) (158) 46 24 179 249
Other interest earning assets........ (5) (2) (70) (77) 23 (123) 228 128
------- ------ ------ ------ ------- ------ ------ ------
Total interest-earning assets (165) 80 (85) (170) 260 (455) (14) (209)
------- ------ ------ ------ ------- ------ ------ ------
Interest-bearing liabilities:
Transactions and savings deposits.... (8) (31) 1 (38) 16 (39) (39) (62)
Certificate accounts................. (98) (106) 4 (200) 202 (80) (184) (62)
Borrowings........................... (8) -- 4 (4) (2) 240 (11) 227
------- ------ ------ ------ ------- ------ ------ ------
Total interest-bearing liabilities... (114) (137) 9 (242) 216 121 (234) 103
------ ------ ------ ------ ------- ------ ------ ------
Net interest income.................... $ (51) $ 217 $ (94) $ 72 $ 44 $ (576) $ 220 $ (312)
======= ====== ====== ====== ======= ====== ====== ======
</TABLE>
Comparison of Financial Condition at September 30, 1999 and June 30, 1999
Alamogordo Financial's total assets increased by $526,000, or .3%, to
$156.7 million at September 30, 1999 from $156.2 million at June 30, 1999. The
increase resulted primarily from an increase in loans receivable and cash
equivalents, partially offset by decreases in securities. Loans receivable
increased by $1.2 million, or 0.9%, to $117.1 million from $115.9 million as a
result of increased loan demand and Alamogordo Federal's efforts to increase its
loan portfolio. Cash and cash equivalents increased by $1.9 million, or 22.4% to
$10.4 million at June 30, 1999, from $8.5 million at September 30, 1999,
reflecting the proceeds from the maturity and repayment of securities.
Securities, including mortgage-backed securities, decreased by $2.3 million, or
11.2%, to $18.2 million from $20.5 million as a result of maturities and
repayments.
Total deposits remained relatively stable as a $910,000, or 4.6%,
decrease in transaction and savings deposits was offset by an $860,000, or .8%,
increase in term certificates to $103.4 million from $102.5 million.
Total borrowings were unchanged at $10.0 million.
Equity increased by $192,000, or .8%, to $22.6 million from $22.4
million primarily due to earnings over the period, partially offset by a $37,000
decrease in accumulated other comprehensive income related to unrealized losses
on securities available for sale.
Comparison of Operating Results for the Three Months Ended September 30, 1999
and 1998
General. Net income increased by $91,000, or 65.9%, to $229,000 for the
three months ended September 30, 1999, from $138,000 for the three months ended
September 30, 1998. The increase resulted from an increase in net interest
income and other income, and a decrease in total other expenses.
Total Interest Income. Total interest income decreased by $170,000, or
6.1%, to $2.6 million for the three months ended September 30, 1999 from $2.8
million for the three months ended September 30, 1998. The decrease resulted
from a decrease in interest on securities and other interest-earnings assets,
partially offset by an increase in interest and fees on loans.
Interest and fees on loans receivable increased by $77,000, or 3.5%, to
$2.3 million from $2.2 million. The increase resulted from an $8.4 million, or
7.8%, increase in the average balance of loans receivable to $116.7 million from
$108.3 million, partially offset by a 32 basis point decrease in the average
yield on the loan portfolio to 7.85% from 8.17%. The decrease in the average
yield resulted from the prepayment of higher yielding loans and the redeployment
of proceeds in originations of new lower-yielding loans in the then-current
declining interest rate environment. The decrease in average yield also
resulted, in part,
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<PAGE>
from downward adjustments in adjustable-rate loans.
Interest on securities, including mortgage-backed securities and
interest earning assets, decreased by $247,000, or 41.7%, to $345,000 from
$592,000. This decrease resulted from a $13.2 million, or 41.7%, decrease in the
average balance of securities and a $5.0 million decrease in the average balance
of other interest-earnings assets. The effects of the decreases in average
balances was partially offset by increases in the average yield, as the average
yield on securities (including mortgage-backed securities) increased by 30 basis
points and the average yield on other interest-earnings assets increased by 28
basis points. The decrease in average balances of investment securities and
other interest-earning assets resulted from maturities and repayment of
principal. The increase in average yield resulted from maturity of
lower-yielding investments.
Interest Expense. Interest expense on deposits decreased by $238,000,
or 13.4%, to $1.5 million for the three months ended September 30, 1999 from
$1.8 million for the three months ended September 30, 1998. Interest expense on
transaction and savings accounts decreased to $96,000 from $134,000, as the
average balance of transaction and savings accounts remained relatively stable,
and the average cost decreased to 2.14% from 2.98%. Interest expense on
certificate accounts decreased by $200,000, to $1.4 million from $1.6 million,
as the average balance of certificate accounts decreased by $6.1 million and the
average cost decreased by 42 basis points. Interest expense on borrowings
decreased by $4,000. The decrease in certificate accounts resulted from a
decrease in public funds. The decrease in rates resulted from a general decline
in shorter-term market rates of interest.
Net Interest Income. Net interest income increased by $72,000, or 7.9%,
to $980,000 the three months ended September 30, 1999 from $908,000 for the
three months ended September 30, 1998. Net interest rate spread, the difference
between the yield on average total interest-earning assets and the cost of
average total interest-bearing liabilities, increased by 52 basis points to
2.43% from 1.91%.
Provision for Loan Losses. We establish provisions for loan losses,
which are charged to operations, in order to maintain the allowance for loan
losses at a level that we believe is appropriate to absorb future charge-offs of
loans deemed uncollectible. In determining the appropriate level of the
allowance for loan losses, management considers past and anticipated loss
experience, evaluations of real estate collateral, current and anticipated
economic conditions, volume and type of lending and the levels of nonperforming
and other classified loans. The amount of the allowance is based on estimates
and the ultimate losses may vary from such estimates. Management assesses the
allowance for loan losses on a quarterly basis and makes provisions for loan
losses as necessary in order to maintain the adequacy of the allowance.
During the three months ended September 30, 1999 and 1998, we made no
provision for loan losses. Net loan charge-offs for the each period was $5,000.
Our allowance for loan losses was $467,000, or 176.2% of total nonperforming
loans at September 30, 1999. While management uses available information to
recognize losses on loans, future loan loss provisions may be necessary based on
changes in economic conditions. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the allowance
for loan losses and may require us to recognize additional provisions based on
their judgment of information available to them at the time of their
examination.
Other Income. Total other income includes service charges and fees,
gain (loss) on sale of real estate owned and premises and equipment, and other.
Total other income increased by $55,000, or 103.8%, to $108,000 from $53,000.
Service charges and fees increased by $18,000 primarily due to ATM fee income.
Gain on sale of premises and equipment totaled $29,000 for the three months
ended September 30, 1999 as compared to no gain for the previous period as a
result of the sale of land.
Other Expense. Total other expense decreased by $19,000, or 2.4%, to
$766,000 for the three months ended September 30, 1999 from $785,000 for the
three months ended September 30, 1998. The decrease in other expense resulted
primarily from a $65,000 decrease in data processing fees due to Alamogordo
Federal's conversion of its data processing system during the earlier period,
offset in part due to a $12,000 increase in advertising due to additional
marketing programs and a $28,000 increase in occupancy due to the opening of a
branch facility and an increase in property taxes.
Provision for Income Taxes. The provision for income taxes increased to
$93,000, or 28.9% of net income before income taxes, from $38,000, or 21.6% of
net income before income taxes. The increase in the provision resulted from an
increase in net income before income taxes. The increase in effective tax rate
resulted from a decrease in income from tax-exempt securities and other changes
in deferred tax items.
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<PAGE>
Comparison of Financial Condition at June 30, 1999 and 1998
Alamogordo Financial's total assets decreased by $4.2 million, or 2.6%,
to $156.2 million at June 30, 1999 from $160.4 million at June 30, 1998. The
decrease resulted primarily from a decrease in securities partially offset by an
increase in loans receivable. Loan receivable increased by $6.1 million, or
5.6%, to $115.9 million from $109.8 million as a result of increased loan demand
and Alamogordo Federal's efforts to increase its loan portfolio. Securities
decreased by $12.2 million, or 37.3%, to $20.5 million from $32.7 million as a
result of maturities and principal paydowns.
Total deposits decreased by $4.2 million, or 3.3%, to $122.5 million at
June 30, 1999 from $126.7 million at June 30, 1998. The decrease resulted from a
$5.0 million, or 4.6%, decrease in term certificates to $102.5 million from
$107.5 million, partially offset by a $767,000, or 4.0%, increase in transaction
and savings deposits to $20.0 million from $19.2 million. The decrease in
certificates of deposits resulted from a decrease in public funds and
maturities. Total borrowings decreased by $151,000 to $10.0 million from $10.2
million.
Equity increased by $375,000, or 1.7%, to $22.4 million from $22.1
million primarily due to earnings over the period, partially offset by a
$203,000 decrease in accumulated other comprehensive income related to
unrealized losses on securities available for sale.
Comparison of Operating Results for the Years Ended June 30, 1999 and 1998
General. Net income decreased by $436,000, or 39.1%, to $679,000 for
the fiscal year ended June 30, 1999, from $1.1 million for the fiscal year ended
June 30, 1998. The decrease resulted from a decrease in net interest income and
an increase in total other expenses, partially offset by an increase in total
other income.
Total Interest Income. Total interest income decreased by $209,000, or
1.9%, to $11.0 million for the fiscal year ended June 30, 1999 from $11.2
million for the fiscal year ended June 30, 1998. The decrease resulted from
decreases in interest and fees on loans receivable partially offset by an
increase in interest on securities.
Interest and fees on loans receivable decreased by $461,000, or 4.9%,
to $9.0 million from $9.5 million. The decrease resulted from a $1.7 million, or
1.5%, decrease in the average balance of loans receivable to $112.3 million from
$114.0 million, and a 29 basis point decrease in the average yield on the loan
portfolio to 8.01% from 8.30%. The decrease in average balance of loans
receivable and average yield resulted primarily from the prepayment of higher
yielding loans and the origination of lower-yielding loans in a declining
interest rate environment. The decrease in average yield also resulted, in part,
from the downward adjustments in adjustable-rate loans.
Interest on securities (including mortgage-backed securities) and other
interest earning assets increased by $252,000, or 14.2%, to $2.0 million from
$1.8 million. The increase resulted from a $1.7 million, or 6.9%, increase in
the average balance of investment securities and a $3.4 million increase in the
average balance of other interest-earnings assets. The increase in interest
income on securities and other interest earning assets was in partial by an
increase in the average yield, on securities which increased by 11 basis points
offset by a decrease in average yield on other interest-earning assets of 128
basis points. The increase in average balances of investment securities and
other interest-earnings assets resulted primarily from purchases of additional
securities. The change in average yield resulted from the change in shorter-term
market rates of interest.
Interest Expense. Interest expense on deposits decreased by $124,000,
or 1.8%, to $6.8 million for the fiscal year ended June 30, 1999 from $6.9
million for the fiscal year ended June 30, 1998. Interest expense on transaction
and savings accounts decreased to $430,000 from $492,000, as the average balance
of transaction and savings accounts decreased to $18.2 million from $18.8
million, and the average cost decreased to 2.37% from 2.62%. Interest expense on
certificate accounts decreased by $62,000, as a 11 basis point decrease in the
average cost was partially offset by an $888,000 increase in average balance.
Interest expense on borrowings increased by $227,000, to $495,000 from $268,000,
due to a $4.0 million increase in average borrowings and a 49 basis point
increase in average cost of borrowings. The decrease in rates resulted from a
general decline in shorter-term market rates of interest.
Net Interest Income. Net interest income decreased by $312,000, or
7.7%, to $3.7 million for the fiscal year ended June 30, 1999 from $4.0 million
for the fiscal year ended June 30, 1998. Net interest rate spread, the
difference between the yield on average total interest-earning assets and the
cost of average total interest-bearing liabilities, decreased by 22 basis points
to 2.06% from 2.28%. This decrease, or compression, resulted from the yield on
our average total interest-earning assets declining more rapidly than the cost
of our
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<PAGE>
interest-bearing liabilities in a declining interest rate environment. The yield
on our loans declined primarily due to the prepayment of higher-yielding loans
and originations of lower-yielding loans, and secondarily due to adjustments in
our adjustable-rate loans.
Provision for Loan Losses. We establish provisions for loan losses,
which are charged to operations, in order to maintain the allowance for loan
losses at a level that we believe is appropriate to absorb future charge-offs of
loans deemed uncollectible. In determining the appropriate level of the
allowance for loan losses, management considers past and anticipated loss
experience, evaluations of real estate collateral, current and anticipated
economic conditions, volume and type of lending and the levels of nonperforming
and other classified loans. The amount of the allowance is based on estimates
and the ultimate losses may vary from such estimates. Management assesses the
allowance for loan losses on a quarterly basis and makes provisions for loan
losses as necessary in order to maintain the adequacy of the allowance.
During the fiscal years ended June 30, 1999 and 1998 we made no
provision for loan losses. Net loan charge-offs for the periods were $14,000 and
$63,000, respectively. This resulted in the allowance for loan losses decreasing
to $472,000, or 88.7% of total nonperforming loans at June 30, 1999 from
$486,000, or 60.8% of total nonperforming loans at June 30, 1998. While
management uses available information to recognize losses on loans, future loan
loss provisions may be necessary based on changes in economic conditions. In
addition, various regulatory agencies, as an integral part of their examination
process, periodically review the allowance for loan losses and may require us to
recognize additional provisions based on their judgment of information available
to them at the time of their examination.
Other Income. Total other income includes service charges and fees,
gain (loss) on sale of real estate owned and other. Total other income increased
by $47,000, or 22.07, to $260,000 from $213,000. Service charges and fees
increased by $31,000 or 30% primarily due to an increase in ATM fees. Gain
(loss) on sale of real estate owned decreased by $12,000 as a result of losses
recognized on foreclosed loans. Other income, consisting primarily of rental
income, increased $27,000.
Other Expense. Total other expense increased by $411,000, or 15.7%, to
$3.0 million for the fiscal year ended June 30, 1999 from $2.6 million for the
fiscal year ended June 30, 1998. The increase in other expense resulted
primarily from Alamogordo Federal's conversion of its data processing system
during 1999 and the opening of its second branch office.
Provision for Income Taxes. The provision for income taxes decreased to
$296,000, or 30.4% of net income before income taxes, from $536,000, or 32.5% of
net income before income taxes. The decrease in the provision resulted from a
decrease in net income before income taxes. The decrease in effective tax rate
reflects a change in the mix of tax-exempt securities and other changes in
deferred tax items.
Liquidity and Capital Resources
Alamogordo Federal's liquidity management objective is to ensure the
availability of sufficient cash flows to meet all financial commitments and to
capitalize on opportunities for expansion. Liquidity management addresses the
ability to meet deposit withdrawals on demand or at contractual maturity, to
repay borrowings as they mature, and to fund new loans and investments as
opportunities arise. Alamogordo Federal's primary sources of internally
generated funds are principal and interest payments on loans receivable, cash
flows generated from operations, and cash flows generated by investments.
External sources of funds include increases in deposits and advances from the
FHLB of Dallas. Management believes that Alamogordo Federal's liquidity will be
initially increased due to the proceeds received from the stock offering.
Alamogordo Federal is required under applicable federal regulations to
maintain specified levels of "liquid" investments in qualifying types of United
States Government, federal agency and other investments having maturities of
five years of less. Current OTS regulations require that a savings association
maintain liquid assets of not less than 4% of its average daily balance of net
withdrawable deposit accounts and borrowings payable in one year or less.
Monetary penalties may be imposed for failure to meet applicable liquidity
requirements. At September 30, 1999, Alamogordo Federal's liquidity, as measured
for regulatory purposes, was in excess of the minimum OTS requirement.
At September 30, 1999, Alamogordo Federal had loan commitments
(excluding undisbursed portions of interim construction loans of $193,000) of
$305,000 and unused lines of credit of $56,000. Alamogordo Federal believes that
it has adequate resources to fund loan commitments as they arise. If Alamogordo
Federal requires funds beyond its internal funding capabilities, additional
advances from the FHLB of Dallas are available. At
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<PAGE>
September 30, 1999, approximately $53.7 million of time deposits were scheduled
to mature within a year, and we expect that a portion of these time deposits
will not be renewed upon maturity.
Alamogordo Financial has not engaged in any significant business
activity other than owning the common stock of Alamogordo Federal, and does not
currently intend to do so after the stock offering. In order to provide
sufficient funds for its operations, Alamogordo Financial expects to retain and
invest 50% of the net proceeds of the stock offering remaining after making the
loan to the ESOP. In the future, Alamogordo Financial's primary source of funds,
other than income from its investments and principal and interest payments
received with respect to the ESOP loan, is expected to be dividends from
Alamogordo Federal. As a stock savings and loan association, Alamogordo Federal
is subject to regulatory limitations on its ability to pay cash dividends.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities". This statement, as amended by
SFAS No. 137, establishes comprehensive accounting and reporting requirements
for derivative instruments and hedging activities. The statement requires
companies to recognize all derivatives as either assets or liabilities, with the
instruments measured at fair value. The accounting for gains and losses
resulting from changes in fair value of the derivative instrument depends on the
intended use of the derivative and the type of risk being hedged. This statement
is effective for all quarters of fiscal years beginning after June 15, 2000,
although earlier adoption is permitted. We do not currently invest in derivative
instruments, therefore the provisions of SFAS No. 133 are not expected to have a
significant effect on the our consolidated financial statements. SFAS No. 133
also permits certain reclassifications of securities among the trading,
available-for-sale and held-to-maturity classifications. We have no current
intention to reclassify any securities pursuant to SFAS No. 133.
In October 1998, the FASB issued SFAS No. 134, "Accounting for
Mortgage- Backed Securities Retained After the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise", which amends SFAS No. 65,
"Accounting for Certain Mortgage Banking Activities". This statement conforms
the subsequent accounting for securities retained after the securitization of
mortgage loans by a mortgage banking enterprise with the accounting for such
securities by a non-mortgage banking enterprise. This statement is effective for
the first quarter beginning after December 15, 1998, and did not have any impact
on our financial position or results of operations as we do not currently
securitize mortgage loans.
Impact of Inflation and Changing Prices
The consolidated financial statements and related notes of Alamogordo
Financial have been prepared in accordance with generally accepted accounting
principles (GAAP). GAAP generally requires the measurement of financial position
and operating results in terms of historical dollars without consideration for
changes in the relative purchasing power of money over time due to inflation.
The impact of inflation is reflected in the increased cost of our operations.
Unlike industrial companies, our assets and liabilities are primarily monetary
in nature. As a result, changes in market interest rates have a greater impact
on performance than the effects of inflation.
BUSINESS OF ALAMOGORDO FINANCIAL CORPORATION
General
Since being formed in April 1997, we have not engaged in any business
other than holding the common stock of Alamogordo Federal. We neither own nor
lease any property, but use the premises, equipment and furniture of Alamogordo
Federal. We employ only persons who are also officers of Alamogordo Federal to
serve as our officers, and we also use the support staff of Alamogordo Federal
from time to time. We do not separately compensate any employees, although in
the future we may hire additional employees if we expand our business. Through
our wholly-owned subsidiary, Alamogordo Federal, we are engaged primarily in the
business of offering FDIC-insured deposits to customers through our two offices
and investing those deposits, together with funds generated from operations and
borrowings, in loans, investment securities and mortgage-backed securities. Our
mortgage loans include one- to four-family residential, multifamily and
nonresidential, and construction and land loans. Consumer and other loans
include second mortgage, consumer, commercial business and deposit account
loans. We retain substantially all of the loans we originate. Our investment and
mortgage-backed securities include securities issued by the U.S. Government and
government agencies, although from time to time we may purchase other investment
and mortgage-backed securities as permitted by applicable laws and regulations.
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<PAGE>
Our revenues are derived principally from interest on our loans and
interest and dividends on our investment securities. Our primary sources of
funds are deposits, borrowings, scheduled amortization and prepayments of loan
principal and mortgage-backed securities, maturities and calls of investment
securities and funds provided by operations.
Market Area
We operate one full-service branch in addition to our main office. Our
branch and main office are both located in Alamogordo, New Mexico. As of June
30, 1998, our deposits represented over 33% of all FDIC- insured deposits in
Alamogordo, and over 31% of all FDIC-insured deposits in Otero County, New
Mexico, positioning us as the largest (in total deposits) depository institution
in Alamogordo and Otero County, New Mexico.
Our geographic market area for loans and deposits is principally Otero
County, New Mexico. The majority of our loans are secured by real estate in
Otero County, New Mexico. Otero County's economy is heavily dependent on two
U.S. Government military installations located in the county. Otero County is
located in southern New Mexico, 90 miles Northeast of El Paso, Texas, and is
adjacent to the New Mexico counties of Lincoln, Chaves, Eddy, Dona Ana and
Sierra and the Texas counties of El Paso, Hudspeth and Culberson.
The local economy is comprised primarily of tourist related activity
and light manufacturing. White Sands National Monument, home of the annual White
Sands Balloon Festival, is a major attraction as are the International Space
Hall of Fame and the Lincoln National Forest.
Holloman Air Force Base, the area's largest employer, is located near
Alamogordo, and is the home of the 49 Fighter Wing, flying the F-117 Stealth
Fighter. The air force base is also home to the German Air Force Flying Training
Center which provides flight training for Germany's Tornado Pilots. At the
present time approximately 1,380 German military personnel and dependents reside
in Alamogordo with this number expected to exceed 2,000 soon after the first of
the year. Holloman is also the home of the high speed test track which provides
extensive testing for various aircraft components.
White Sands Missile Range, an U.S. Army installation near Alamogordo,
is the second largest overland testing range in the world. The range is utilized
by Holloman Air Force Base, Fort Bliss, Texas, and various defense contractors,
and is presently home to the High Energy Laser Test Facility developing a
ballistic missile defense system. White Sands Missile Range is the birthplace of
the U.S. rocket program in the 1940's, and today is the testing site for
numerous Department of Defense research and evaluation programs including the
next generation for anti-ballistic missiles.
Together, Holloman Air Force Base and White Sands Missile Range have an
annual payroll of more than $200 million and an economic impact of more than
$450 million to the local economy. Other larger employers include Alamogordo
Public Schools and the School for the Visually Handicapped, City of Alamogordo,
Gerald Champion Memorial Hospital, Van Winkles IGA, White Sands Research Center
and Casa Arena Blanca Nursing Home.
As of 1998, the median household income in Alamogordo was $32,124,
slightly higher than the median household income for Otero County in 1998 of
$29,315. As of August, 1998, the labor force of Otero County consisted of 20,643
people of which 19,408 were employed. This equates to an unemployment rate of
6.0%.
Competition
We face intense competition both in making loans and attracting
deposits. New Mexico, and Otero County, have a high concentration of financial
institutions, many of which are branches of large money center and regional
banks which have resulted from the consolidation of the banking industry in New
Mexico and surrounding states. Some of these competitors have greater resources
than we do and may offer services that we do not provide.
Our competition for loans comes principally from commercial banks,
savings institutions, mortgage banking firms, credit unions, finance companies,
insurance companies and brokerage and investment banking firms. Our most direct
competition for deposits has historically come from credit unions, commercial
banks and savings and loan associations. We face additional competition for
deposits from short-term money market funds, corporate and government securities
funds, and from brokerage firms, mutual funds, and insurance companies.
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<PAGE>
Lending Activities
Loan Portfolio Composition. At September 30, 1999, we had total loans
of $120.7 million, of which $106.3 million, or 88.0%, were one- to four-family
residential mortgages. The remainder of our mortgage loans at September 30,
1999, consisted of multifamily and nonresidential, land and construction loans.
In addition, we originate consumer and other loans including second mortgage
loans, consumer loans, commercial business loans, and deposit account loans. As
of September 30, 1999, $6.75 million, or 5.6%, of our total loans have
adjustable rates of interest.
Our loans are subject to federal and state law and regulations. The
interest rates we charge on loans are affected principally by the demand for
loans, the supply of money available for lending purposes and the interest rates
offered by our competitors. These factors are, in turn, affected by general and
local economic conditions, monetary policies of the federal government,
including the Federal Reserve Board, legislative tax policies and governmental
budgetary matters.
The following table shows the composition of Alamogordo Federal's loan
portfolio in dollar amounts and in percentages (before deductions for loans in
process, deferred fees and discounts and allowances for losses) as of the dates
indicated.
<TABLE>
<CAPTION> June 30,
September 30, ------------------------------------------------
1999 1999 1998
---------------------- ---------------------- ----------------------
Amount Percent Amount Percent Amount Percent
-------- ------- -------- ------- -------- -------
(Dollars in Thousands)
Mortgage loans:
<S> <C> <C> <C> <C> <C> <C>
One- to four-family............ $106,294 88.0% $106,286 88.7% $103,174 92.0%
Multifamily and nonresidential. 8,086 6.7 8,109 6.8 4,366 3.9
Construction................... 357 0.3 807 0.7 957 0.9
Land........................... 541 0.5 42 0.0 102 0.1
-------- ----- -------- ----- -------- -----
Total mortgage loans.......... 115,278 95.5 115,244 96.2 108,599 96.9
-------- ----- -------- ----- -------- -----
Consumer and other loans:
Second mortgage................ 1,397 1.2 1,326 1.1 426 0.4
Consumer....................... 1,608 1.3 1,271 1.1 1,262 1.1
Commercial business............ 977 0.8 511 0.4 417 0.4
Deposit account................ 1,467 1.2 1,436 1.2 1,399 1.2
-------- ----- -------- ----- -------- -----
Total consumer and other loans 5,449 4.5 4,544 3.8 3,504 3.1
-------- ----- -------- ----- -------- -----
Total loans.................. 120,727 100.0% 119,788 100.0% 112,103 100.0%
===== ===== =====
Less:
Loans in process............... (2,632) (2,825) (1,289)
Deferred fees and discounts.... (543) (541) (562)
Allowance for losses........... (467) (473) (486)
-------- -------- --------
Total loans receivable, net $117,085 $115,949 $109,766
======== ======== ========
</TABLE>
Loan Maturity Schedules. The following table sets forth the dollar
amounts of fixed- and adjustable-rate loans at June 30, 1999 that are
contractually due after June 30, 2000.
Fixed Adjustable Total
-------- ---------- ---------
(In thousands)
Mortgage loans:
One- to four-family............. $ 95,170 $ 5,740 $100,910
Multifamily and nonresidential.. 6,116 948 7,064
Construction.................... -- -- --
Land............................ 38 -- 38
Consumer and other loans........... 2,698 -- 2.698
Add back: Loans in process......... 2,825 -- 2,825
-------- -------- --------
Total loans due after one year..... $106,847 $ 6,688 $113,535
======== ======== ========
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<PAGE>
Maturity of Loan Portfolio. The following table sets forth certain
information at June 30, 1999 regarding the dollar amount of loans maturing in
Alamogordo Financial's portfolio based on their contractual terms to maturity,
but does not include scheduled payments or potential prepayments. Demand loans
and loans with no stated maturity are reported as becoming due within one year.
Loan balances do not include undisbursed loan proceeds, unearned discounts,
unearned income and allowance for loans losses.
<TABLE>
<CAPTION>
Multifamily and
One- to Four-Family Nonresidential Construction Land Consumer and Other Total
------------------- ---------------- ---------------- ---------------- ------------------ --------------
Weighted Weighted Weighted Weighted Weighted Weighted
Average Average Average Average Average Average
Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate
------- --------- ------- --------- ------- -------- ------- -------- ------- -------- ------- -------
(Dollars in Thousands)
Due During Years
Ending June 30,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2000 (1)............ $ 3,275 7.78% $ 458 8.06% $ 676 9.40% $ 4 11.53% $ 1,840 7.99% $ 6,253 8.04%
2001................ 3,412 7.76 661 8.10 -- -- 19 12.29 602 8.18 4,694 8.00
2002................ 3,570 7.74 446 8.03 -- -- 11 12.32 784 8.27 4,811 7.96
2003 and 2004....... 7,967 7.73 901 7.99 -- -- 1 12.25 561 8.35 9,430 7.90
2005 to 2009........ 20,535 7.70 3,041 7.74 -- -- 4 12.02 580 8.42 24,160 7.80
2010 to 2024........ 54,923 7.64 2,015 7.93 -- -- 3 11.87 171 8.46 57,112 7.71
2025 and following.. 10,503 7.61 -- -- -- -- -- -- -- -- 10,503 7.70
Add back:
loans in process.. 2,101 -- 587 -- 131 -- -- -- 6 -- 2,825 --
-------- ---- ------- ---- ------- ---- ------- ----- ------- ---- -------- ----
Total loans......... $106,286 7.67% $ 8,109 7.89% $ 807 9.40% $ 42 12.17% $ 4,544 8.18% $119,788 7.78%
======== ==== ======= ==== ======= ==== ======= ===== ======= ==== ======== ====
</TABLE>
- ----------
(1) Includes demand loans, loans having no stated maturity and overdraft loans.
37
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One- to Four-Family Residential Real Estate Loans. We emphasize the
origination of mortgage loans secured by one- to four-family properties that
serve as the primary residence of the owner, although we also offer loans
secured by properties that do not serve as the primary residence of the owner.
We currently hold most of the loans that we originate in our portfolio and
intend to continue to do so, although in the past we have sold loans. From time
to time we purchase one- to four-family residential mortgage loans, and have
purchased loans that are secured by properties that are not located in our
market area. Generally, the loans that we purchase have adjustable rates of
interest, and are purchased as part of our interest rate risk strategy. As of
September 30, 1999, loans secured by one- to four-family residential properties
accounted for $106.3 million, or 88.0%, of our total loan portfolio.
We originate a significant amount of VA guaranteed loans, that is,
30-year fixed-rate residential real estate loans that are partially guaranteed
as to repayment of principal and interest by the Department of Veterans Affairs.
The Department of Veterans Affairs guarantees 80% of the mortgage loans against
default by the borrower, and establishes the maximum interest rate that lenders
may charge. VA guaranteed loans may be repaid at any time without penalty, and
are assumable by another borrower at the same rate if the borrower sells a home.
At September 30, 1999, $25.5 million, or 24.0%, of our one- to four-family
residential real estate loans were VA guaranteed loans.
We originate VA guaranteed loans in amounts up to 100% of the appraised
value or selling price of the mortgaged property, whichever is less. In other
cases, we lend up to 95% of the lesser of the appraised value or purchase price
of the property, with the condition that private mortgage insurance is required
on loans with a loan-to-value ratio in excess of 80%. On occasion we originate
non-conforming loans which are tailored for the local community, but which may
not satisfy the various requirements imposed by Fannie Mae.
Our one- to four-family residential mortgage loan originations are
generally for terms from 10 to 30 years, and amortize on a monthly basis with
interest and principal due each month. Residential real estate loans often
remain outstanding for significantly shorter periods than their contractual
terms as borrowers may refinance or prepay loans at their option without
penalty. Except for our VA guaranteed loans, our one- to four-family residential
mortgage loans customarily contain "due-on-sale" clauses which permit us to
accelerate the indebtedness of the loan upon transfer of ownership of the
mortgage property. Because our local economy is heavily dependent on two U.S.
Government military installations located in the county, many of our borrowers
are employed by the federal government in positions that require frequent
relocation. When these borrowers relocate, they often sell the homes securing
the loan, and prepay the mortgage loan. As a result, we believe our one- to
four-family residential real estate loans, particularly our 30-year VA
guaranteed loans, remain outstanding for a shorter period of time than the
national average for 30-year fixed-rate one- to four-family residential real
estate loans.
We also offer adjustable-rate mortgage, or ARM, loans with a maximum
term of 30 years. The adjustable-rate loans that we offer generally include
limitations on the maximum increases and decreases in interest rates, and may
have "teaser" rates, or relatively low initial rates of interest. We believe
that adjustable-rate mortgage loans help reduce our exposure to changes in
interest rates. However, there are unquantifiable credit risks resulting from
potential increased costs to the borrower as a result of the pricing of
adjustable-rate mortgage loans. During periods of rising interest rates, the
risk of default on adjustable-rate mortgage loans may increase due to the upward
adjustment of interest cost to the borrower. We have not originated a
significant amount of adjustable rate loans recently, and did not originate any
adjustable-rate one- to four-family residential real estate loans during the
three months ended September 30, 1999 and the fiscal year ended June 30, 1999.
During the fiscal year ended June 30, 1999, we purchased $4.6 million
of adjustable-rate loans secured by one- to four-family residential real estate
located in Indiana. At September 30, 1999, our portfolio included $5.7 million
of adjustable-rate one- to four-family residential mortgage loans, or 4.7% of
our total loan portfolio. Almost all of the adjustable-rate loans that we
currently own were purchased from another lender and are secured by real estate
located outside of our market area.
Multifamily and Nonresidential Real Estate Lending. Our multifamily and
nonresidential real estate loans include real estate loans secured primarily by
first liens on commercial real estate and apartment buildings. The commercial
real estate properties are predominantly nonresidential properties such as
office buildings, retail strip centers and more specialized properties such as
churches, mobile home parks, restaurants and motel/hotels. Loans secured by
commercial real estate totaled $7.4 million, or 6.2%, of our total loan
portfolio as of September 30, 1999, and consisted of 25 loans outstanding with
an average loan balance of approximately $297,000. Loans secured by multifamily
residential real estate totaled $660,000, or 0.6%, of our total loan portfolio
as of September 30, 1999, and consisted of four loans outstanding with an
average loan balance of approximately $165,000. Substantially all of our
commercial real estate and multifamily loans are secured by properties located
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in our primary market area. As of September 30, 1999, we had one multifamily
residential real estate loan and one commercial real estate loan with balances
in excess of $500,000. The commercial real estate loan had an aggregate balance
of $1.6 million and was secured by a first lien on a church property that is
located in our market area. The multifamily residential loan had an aggregate
balance of $1.6 million, $1.5 million of which had been disbursed, and was
secured by rental lots in a retirement community located in our market area.
Each of these loans was performing in accordance with its contractual terms.
As part of the our ongoing interest rate risk management, we offer
adjustable-rate commercial and multifamily real estate loans. The initial
interest rates on these loans adjust after an initial three or five year period
to new market rates that generally range between 200 to 350 basis points over
the then current three or five year U.S. Treasury or FHLB rates. Commercial and
multifamily residential real estate loans typically have a term of approximately
10 years, with an amortization schedule of approximately 20 years, and may be
repaid subject to certain penalties.
In the underwriting of commercial and multifamily real estate loans, we
generally lend up to 70% of the property's appraised value on apartment
buildings, and commercial properties that are not owner-occupied, and up to 75%
of the property's appraised value on commercial properties that are
owner-occupied. Appraised values are determined by independent appraisers that
we designate. We generally obtain an environmental assessment from an
independent engineering firm of any environmental risks that may be associated
with a particular building or the site. Decisions to lend are based on the
economic viability of the property and the creditworthiness of the borrower.
Creditworthiness is determined by considering the character, experience,
management and financial strength of the borrower, and the ability of the
property to generate adequate funds to cover both operating expenses and debt
service. In evaluating a commercial real estate loan, we emphasize primarily the
ratio of net cash flow to debt service for the property, generally requiring a
ratio of at least 125%, computed after deduction for a vacancy factor and
property expenses that we deem appropriate. In addition, a personal guarantee of
the loan is generally required from the principal(s) of the borrower. On all
real estate loans, we require title insurance insuring the priority of its lien,
fire and extended coverage casualty insurance, and flood insurance, if
appropriate, in order to protect our security interest in the underlying
property.
Multifamily and nonresidential real estate loans generally carry higher
interest rates and have shorter terms than those on one- to four-family
residential mortgage loans. Multifamily and nonresidential real estate loans,
however, entail significant additional credit risks compared to one- to
four-family residential mortgage loans, as they typically involve large loan
balances concentrated with single borrowers or groups of related borrowers. In
addition, the payment experience on loans secured by income producing properties
typically depends on the successful operation of the related real estate project
and thus may be subject to a greater extent to adverse conditions in the real
estate market and in the economy generally.
Construction and Land Loans. We originate acquisition, development and
construction loans to builders in our market area. Acquisition loans are made to
help finance the purchase of land intended for further development, including
single-family houses, multifamily housing, and commercial income property. Loans
for the acquisition of land are generally limited to our most creditworthy
customers. In general, the maximum loan-to-value ratio for a land acquisition
loan is 50% of the appraised value of the property. Development loans are often
made in conjunction with development and construction loans. Acquisition loans
may also be made to borrowers who already own the property, but who require
additional financing to develop the property.
We also make development loans to builders in our market area to
finance improvements to real estate, consisting mostly of single-family
subdivisions, typically to finance the cost of utilities, roads and sewers.
Builders generally rely on the sale of single family homes to repay development
loans, although in some cases the improved building lots may be sold to another
builder. The maximum loan-to-value ratio for these loans is generally 60% of the
appraised value of the property. Advances are made in accordance with a schedule
reflecting the cost of improvements. Our policy is to confirm prior to each
advance that the improvements have been completed properly as evidenced by an
inspection report issued by an appraiser or engineer that we hire. In addition,
prior to advancing funds, we confirm that its lien priority remains in effect.
We also grant construction loans to area builders, often in conjunction
with development loans. These loans finance the cost of completing homes on the
improved property. The loans are generally limited to the lesser of 75% of the
appraised value of the property or the actual cost of improvements. In the case
of single-family construction, we limit the number of houses we will finance
that are not under contract for sale. As part of our underwriting process for
construction loans on income producing properties, such as apartment buildings
and commercial rental properties, we consider the likelihood of leasing the
property at the expected rental amount, and the time to achieve sufficient
occupancy levels. We generally require a percentage of the building to be leased
prior to granting a construction loan on income producing property.
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<PAGE>
Advances on construction loans are made in accordance with a schedule
reflecting the cost of construction. Our policy is to confirm prior to each
advance that the construction has been completed properly as evidenced by an
inspection report typically issued by an in-house staff inspector. We also
confirm that our lien priority remains in force before advancing funds. The
normal construction period is six months, during which time we collect monthly
interest on the loan. Repayment of construction loans on residential
subdivisions is normally expected from the sale of units to individual
purchasers, although we may convert the construction loan into permanent
financing at such time. In the case of income producing property, repayment is
usually expected from permanent financing upon completion of construction. We
commit to provide the permanent mortgage financing on most of our construction
loans on income-producing property.
Acquisition, development and construction lending exposes us to greater
credit risk than permanent mortgage financing. The repayment of acquisition,
development and construction loans depends upon the sale of the property to
third parties or the availability of permanent financing upon completion of all
improvements. These events may adversely affect the borrower and the collateral
value of the property. Development and construction loans also expose us to the
risk that improvements will not be completed on time in accordance with
specifications and projected costs. In addition, the ultimate sale or rental of
the property may not occur as anticipated.
Consumer and Other Loans. The Bank originates a variety of consumer and
other loans, including second mortgage loans, consumer loans, deposit account
loans and commercial business loans. As of September 30, 1999, consumer and
other loans totaled $5.4 million, or 4.5% of the total loan portfolio. Our
second mortgage loans include fixed-rate, fixed-term second mortgage and home
equity loans. Our second mortgage loans are offered in amounts up to 90% of the
appraised value of the property (including prior liens). Other consumer loans
include primarily loans secured by personal property such as autos, recreational
vehicles and boats, although we make a small number of unsecured loans that are
personally guaranteed. Our procedures for underwriting consumer loans include an
assessment of an applicant's credit history and the ability to meet existing
obligations and payments on the proposed loan. Although an applicant's
creditworthiness is a primary consideration, the underwriting process also
includes a comparison of the value of the collateral security, if any, to the
proposed loan amount. Consumer loans generally entail greater risk than
residential mortgage loans, particularly in the case of consumer loans that are
unsecured or secured by assets that tend to depreciate, such as automobiles. In
such cases, repossessed collateral for a defaulted consumer loan may not provide
an adequate source of repayment for the outstanding loan and the remaining
deficiency often does not warrant further substantial collection efforts against
the borrower. In addition, the repayment of consumer loans depends on the
borrower's continued financial stability, as their repayment is more likely than
a single family mortgage loan to be adversely affected by job loss, divorce,
illness or personal bankruptcy. Furthermore, the application of various federal
and state laws (including bankruptcy and insolvency laws) may limit the amount
that can be recovered on such loans.
We also currently offer commercial business loans to customers in our
market area, some of which are secured in part by additional real estate
collateral. In our effort to expand our customer account relationships and
develop a broader base of more interest rate sensitive assets, we make various
types of secured commercial loans for the purpose of financing equipment
acquisition, expansion, working capital, inventory, operations and other general
business purposes. The terms of these loans generally range from less than one
year to up to ten years. The loans are either negotiated on a fixed-rate basis
or carry adjustable interest rates indexed to a lending rate which is determined
internally, or a short-term market rate index.
We base our commercial credit decisions upon a complete credit
assessment of the loan applicant. We try to comprehensively assess the risks
involved in the loan as part of our overall determination of whether the
applicant will be able to repay in accordance with the proposed terms. We
generally require personal guarantees of the principals. In addition to
evaluating the loan applicant's financial statements, we try to determine the
probable adequacy of the primary and secondary sources of repayment that we may
rely upon in the transaction. We supplement our analysis of the applicants
creditworthiness with credit agency reports of the applicant's credit history as
well as bank checks and trade investigations. We also analyze collateral
supporting a secured transaction to determine its marketability and liquidity.
Commercial business loans generally bear higher interest rates than residential
loans, but they also involve a higher risk of default since their repayment is
generally dependent on the successful operation of the borrower's business.
Loan Originations, Purchases, Sales and Servicing. Although we
originate both fixed-rate and adjustable-rate loans, our ability to generate
each type of loan depends upon borrower demand, market interest rates, borrower
preference for fixed- versus adjustable-rate loans, and the interest rates
offered on each type of loan by other lenders in our market area. This includes
competing banks, savings institutions, credit unions, and
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<PAGE>
mortgage banking companies, as well as life insurance companies, and Wall Street
conduits that also actively compete for local commercial real estate loans. Loan
originations are derived from a number of sources, including branch office
personnel, existing customers, borrowers, builders, attorneys, real estate
broker referrals and walk-in customers.
Our loan origination and sales activity may be adversely affected by a
rising interest rate environment that typically results in decreased loan
demand. Accordingly, the volume of loan originations and the profitability of
this activity can vary from period to period. One- to four-family residential
mortgage loans are generally underwritten to current Fannie Mae and Freddie Mac
seller/servicer guidelines, although we generally do not sell our loans.
From time to time we purchase one- to four-family residential mortgage
loans, and have purchased loans that are secured by properties that are not
located in our market area. Generally, the loans that we purchase have
adjustable rates of interest, and are purchased as part of our interest rate
risk strategy. During the fiscal year ended June 30, 1999, we purchased $4.6
million of adjustable-rate loans secured by one- to four-family residential real
estate located in Indiana. Almost all of the adjustable-rate loans that we
currently own were purchased from another lender and are secured by real estate
located outside of our market area.
The following table presents our loan originations, purchases, sales
and principal payments for the periods indicated.
<TABLE>
<CAPTION>
Three Months
Ended September 30, Years Ended June 30,
-------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C>
Loans receivable, net, at beginning of year...... $115,949 $109,766 $109,766 $114,577
Loans originated:
Mortgage loans:
One- to four-family .......................... 3,062 4,051 18,283 13,800
Multifamily and nonresidential................ -- 71 981 633
Construction.................................. 1,519 3,082 10,228 16,422
Land.......................................... 501 -- 146 --
-------- -------- -------- --------
Total mortgage loans originated.............. 5,082 7,204 29,638 30,855
-------- -------- -------- --------
Consumer and other loans:
Commercial.................................... 645 260 423 351
Second mortgage, consumer and deposit account. 1,151 530 2,593 2,100
-------- -------- -------- --------
Total consumer and other loans originated.... 1,796 790 3,016 2,451
-------- -------- -------- --------
Loans purchased:
Mortgage loans:
One- to four-family.......................... -- -- 4,585 --
Multifamily and nonresidential................ -- -- -- --
Construction.................................. -- -- -- --
Land.......................................... -- -- -- --
Consumer and other loans......................... -- -- -- --
-------- -------- -------- --------
Total loans purchased........................ -- -- 4,585 --
-------- -------- -------- --------
Loans sold:
Mortgage loans:
One- to four-family.......................... -- (1,148) (1,148) (2,282)
Multifamily and nonresidential................ -- -- -- --
Construction.................................. -- -- -- --
Land.......................................... -- -- -- --
Consumer and other loans......................... -- -- -- --
-------- -------- -------- --------
Total loans sold............................. -- (1,148) (1,148) (2,282)
-------- -------- -------- --------
Principal repayments............................. (5,939) (8,179) (28,406) (36,490)
-------- -------- -------- --------
Increase (decrease) in other items, net.......... 197 100 (1,502) 655
-------- -------- -------- --------
Loans receivable, net, at end of year............ $117,085 $108,533 $115,949 $109,766
======== ======== ======== ========
</TABLE>
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<PAGE>
Loan Approval Procedures and Authority. Once we receive a completed
application, each mortgage application is presented to the Loan Committee which
consists of Alamogordo Federal's directors, senior management and loan officers.
Our President has lending authority up to $50,000, and other officers may have
individual lending authority up to $35,000. Loans of up to $250,000 may be
approved by any three members of the Loan Committee (other than loan officers).
All loans of over $250,000 must be approved by the Board of Directors.
The following describes our current lending procedures. Upon receipt of
a completed loan application from a prospective borrower, we order a credit
report and we verify certain other information. If necessary, we obtain
additional financial or credit related information. We require an appraisal for
all mortgage loans including loans made to refinance existing mortgage loans.
Appraisals are performed by licensed or certified third-party appraisal firms
which have been approved by our Board of Directors. We require title insurance
on all first mortgage loans and certain other loans. We require borrowers to
obtain hazard insurance, and if applicable, we may require borrowers to obtain
flood insurance prior to closing. Borrowers are required to deposit funds on a
monthly basis together with each payment of principal and interest to a mortgage
escrow account from which we make disbursements for items such as real estate
taxes, flood insurance, hazard insurance, and private mortgage insurance
premiums, if required.
Asset Quality
One of our key operating objectives has been and continues to be to
maintain a high level of asset quality. Through a variety of strategies,
including, but not limited to, borrower workout arrangements and aggressive
marketing of foreclosed properties, we have been proactive in addressing problem
and non-performing assets. These strategies, as well as our high proportion of
one- to four-family mortgage loans, our maintenance of sound credit standards
for new loan originations and our loan administration procedures, have resulted
in historically low delinquency ratios and, in recent years, a reduction in non-
performing assets. These factors have helped strengthen our financial condition.
Delinquent Loans and Foreclosed Assets. When a borrower fails to make
required payments on a loan, we take a number of steps to induce the borrower to
cure the delinquency and restore the loan to a current status. In the case of
mortgage loans, our mortgage servicing department is responsible for collection
procedures from the 15th day up to the 120th day of delinquency. A late charge
notice is sent at 15 days. A reminder letter requesting prompt payment is sent
on the 25th day. At 30 days we also attempt to establish telephone contact with
the borrower. If no contact is established, progressively stronger collection
letters are sent on the 45th and 60th days of delinquency. Between the 60th and
90th day of delinquency, if telephone contact has not been established or if
there has been mail returned, the collector or his assistant makes a physical
inspection of the property. When contact is made with the borrower at any time
prior to foreclosure, we attempt to obtain full payment of the amount delinquent
or work out a repayment schedule with the borrower in order to avoid
foreclosure. It has been our experience that most loan delinquencies are cured
within 90 days and no legal action is taken.
We send the "right to cure" foreclosure notice when a loan is
approximately 75 days delinquent. This contains a "right to cure" clause that
gives our customer the terms which must be met within 30 days of the date the
letter is sent in order to avoid foreclosure action. After this letter expires,
we send the loan to committee for approval to foreclose. We commence foreclosure
if the loan is not brought current by the 120th day of delinquency unless
specific limited circumstances warrant an exception. We hold property foreclosed
upon as other real estate owned. We carry foreclosed real estate at its fair
market value less estimated selling costs. If a foreclosure action is commenced
and the loan is not brought current, paid in full or refinanced before the
foreclosure sale, we either sell the real property securing the loan at the
foreclosure sale or sell the property as soon thereafter as practical. The
collection procedures for Federal Housing Association (FHA) and Department of
Veterans Affairs (VA) one- to four-family mortgage loans follow the collection
guidelines outlined by those agencies.
The collection procedures for consumer and other loans include our
sending periodic late notices and letters to a borrower once a loan is past due.
We attempt to make direct contact with a borrower once a loan is 15 days past
due. We follow the same collection procedure as mortgages in our attempts to
reach individuals by telephone and sending them letters and notices. Supervisory
personnel in our lending area and in our collection area review loans 30 days or
more delinquent on a regular basis. If collection activity is unsuccessful after
120 days, we may charge off a loan and/or refer the matter to our legal counsel
for further collection effort. Loans deemed uncollectible by our Collection
Department are proposed for charge-off. All loan charge-offs regardless of
amount are to be approved by the senior loan officer or the president. Those
charge-offs in excess of $2,500
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<PAGE>
must be approved by a second senior officer and reported to the Executive
Committee or the Lending Committee at its next scheduled meeting.
Our policies require that management continuously monitor the status of
the loan portfolio and report to the Board of Directors on a monthly basis.
These reports include information on delinquent loans and foreclosed real estate
and our actions and plans to cure the delinquent status of the loans and to
dispose of the real estate.
Delinquent Loans. The following table sets forth our loan delinquencies
by type, by amount and by percentage of type at September 30, 1999.
<TABLE>
<CAPTION>
Loans Delinquent For:
---------------------------------------------------------------
90 Days and Over
30-89 Days and Nonaccrual Loans Total Delinquent Loans
----------------------------- ------------------------------- -----------------------------
Percent Percent Percent
Of Loan Of Loan of Loan
Number Amount Category Number Amount Category Number Amount Category
------ ------ -------- ------ ------ -------- ------ ------ --------
(Dollars in Thousands)
Mortgage loans:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family....... 25 $1,342 1.26% 6 $ 265 0.25% 31 $1,607 1.51%
Construction.............. 3 191 53.50 -- -- -- 3 191 53.50
Land...................... -- -- -- -- -- -- -- -- --
Multifamily and
nonresidential.......... -- -- -- -- -- -- -- -- --
---- ------ ---- ----- ---- ------ ----
Total mortgage loans....... 28 1,533 1.33 6 265 0.25 34 1,798 1.56
---- ------ ---- ----- ---- ------
Consumer and other loans:
Second mortgage........... 1 2 0.14 -- -- -- 1 2 0.14
Consumer.................. 2 9 0.56 -- -- -- 2 9 0.56
Commercial................ 1 4 0.41 -- -- -- 1 4 0.41
Deposit account........... -- -- -- -- -- -- -- -- --
Total consumer and other
loans................. 4 15 0.28% -- -- -- 4 15 0.28%
------ ---- ----- ---- ------
Total delinquent loans:.... 32 $1,548 1.28% 6 265 0.25% 38 $1,813 1.50%
==== ====== ==== ==== ==== ======
</TABLE>
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Nonperforming Loans. The table below sets forth the amounts and
categories of non-performing assets in our loan portfolio. Loans are placed on
non-accrual status when the collection of principal and/or interest become
doubtful. For all years presented, we have had no troubled debt restructurings
(which involve forgiving a portion of interest or principal on any loans or
making loans at a rate materially less than that of market rates).
Foreclosed assets include assets acquired in settlement of loans.
September 30, June 30,
1999 1999 1998
------------ ------ ------
(Dollars in Thousands)
Non-accruing loans:
Mortgage loans:
One- to four-family............................... $ 265 $ 513 $ 548
Multifamily and nonresidential.................... -- -- --
Construction...................................... -- 19 --
Land.............................................. -- -- --
Consumer and other loans:
Second mortgage................................... -- -- --
Consumer.......................................... -- -- --
Commercial........................................ -- -- --
Deposit account................................... -- -- --
----- ----- -----
Total non-accruing loans........................ 265 532 548
----- ----- -----
Accruing loans delinquent more than 90 days:
Mortgage loans:
One- to four-family............................... -- -- 247
Multifamily and nonresidential.................... -- -- --
Construction...................................... -- -- --
Land.............................................. -- -- --
Consumer and other loans:
Second mortgage................................... -- -- 4
Consumer.......................................... -- -- --
Commercial........................................ -- -- --
Deposit account................................... -- -- --
----- ----- -----
Total accruing loans more than 90 days delinquent -- -- 251
----- ----- -----
Total non-performing loans........................... 265 532 799
---- ----- -----
Foreclosed assets:
Mortgage loans:
One- to four-family............................... 55 -- 25
Multifamily and nonresidential.................... -- -- --
Construction...................................... -- -- --
Land.............................................. -- -- --
----- ----- -----
Total foreclosed assets......................... 55 -- 25
----- ----- -----
Total non-performing assets.......................... $ 320 $ 532 $ 824
===== ===== =====
Total nonperforming assets as a percentage
of total assets................................... .20% .34% .51%
===== ===== =====
Allowance for loan losses as a percentage
of nonperforming loans............................ 176.23% 88.72% 60.83%
====== ===== =====
Allowance for loan losses as a percentage
of gross loans receivable......................... 0.39% 0.39% 0.43%
====== ===== =====
For the three months ended September 30, 1999, and the year ended June
30, 1999 gross interest income which would have been recorded had the
non-accruing loans been current in accordance with their original terms amounted
to $20,000 and $34,000, respectively. We recorded no income on such loans for
the three months ended September 30, 1999, and the year ended June 30, 1999,
respectively.
With the exception of first mortgage loans insured or guaranteed by the
FHA or VA or for which the borrower has obtained private mortgage insurance, we
stop accruing income on loans when interest or principal payments are 90 days in
arrears or earlier when the timely collectibility of such interest or principal
is doubtful. We designate loans on which we stop accruing income as non-accrual
loans and we reverse outstanding interest that we previously credited. We may
recognize income in the period that we collect it, when the ultimate
collectibility of principal is no longer in doubt. We return a non-accrual loan
to accrual status when factors indicating doubtful collection no longer exist.
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<PAGE>
We define the population of impaired loans to be all non-accrual
commercial real estate and commercial loans greater than $250,000. Impaired
loans are individually assessed to determine whether a loan's carrying value is
not in excess of the fair value of the collateral or the present value of the
loan's cash flows. Smaller balance homogeneous loans that are collectively
evaluated for impairment, such as residential mortgage loans and consumer loans,
are specifically excluded from the impaired loan portfolio. We had no loans
classified as impaired at September 30, 1999, and at June 30, 1999 or 1998.
Foreclosed real estate consists of property we acquired through
foreclosure or deed in lieu of foreclosure. Foreclosed real estate properties
are initially recorded at the lower of the recorded investment in the loan or
fair value. Thereafter, we carry foreclosed real estate at fair value less
estimated selling costs.
Classification of Assets. Our policies, consistent with regulatory
guidelines, provide for the classification of loans and other assets such as
securities that are considered to be of lesser quality as substandard, doubtful,
or loss assets. An asset is considered substandard if it is inadequately
protected by the current net worth and paying capacity of the obligor or of the
collateral pledged, if any. Substandard assets include those characterized by
the distinct possibility that the savings institution will sustain some loss if
the deficiencies are not corrected. Assets classified as doubtful have all of
the weaknesses inherent in those classified substandard with the added
characteristic that the weaknesses present make collection or liquidation in
full, on the basis of currently existing facts, conditions, and values, highly
questionable and improbable. Assets classified as loss are those considered
uncollectible and of such little value that their continuance as assets is not
warranted. Assets that do not expose us to risk sufficient to warrant
classification in one of the aforementioned categories, but which possess some
weaknesses, are required to be designated as special mention by management. As
of September 30, 1999, we had $1.3 million of assets designated as special
mention.
When we classify assets as either substandard or doubtful, we allow for
analytical purposes a portion of general valuation allowances or loss reserves
to such assets as deemed prudent by management. General allowances represent
loss allowances that have been established to recognize the inherent risk
associated with lending activities, but which have not been allocated to
particular problem assets. When we classify problem assets as loss, we are
required either to establish a specific allowance for losses equal to 100% of
the amount of the assets so classified, or to charge-off such amount. Our
determination as to the classification of its assets and the amount of its
valuation allowance is subject to review by regulatory agencies, which can order
the establishment of additional loss allowances. Management regularly reviews
Alamogordo Federal's asset portfolio to determine whether any assets require
classification in accordance with applicable regulations. On the basis of
management's review of Alamogordo Federal's assets at September 30, 1999,
classified assets consisted of substandard assets of $979,000. There were no
assets classified as doubtful or loss at September 30, 1999.
45
<PAGE>
Allowance for Loan Losses. The following table sets forth activity in
Alamogordo Federal's allowance for loan losses and other ratios at or for the
dates indicated.
<TABLE>
<CAPTION>
Three Months
Ended September 30, Years Ended June 30,
------------------- --------------------
1999 1998 1999 1998
------ ------ ------ ------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Balance at beginning of period..................... $ 472 $ 486 $ 486 $ 549
Charge-offs:
Mortgage loans:
One- to four-family............................ 6 -- 9 75
Multifamily and nonresidential................. -- -- -- --
Construction................................... -- -- -- --
Land........................................... -- -- -- --
Consumer and other loans:
Second mortgage................................ -- 5 5 --
Consumer....................................... -- -- -- --
Commercial..................................... -- -- -- --
Deposit account................................ -- -- -- --
Real estate held for investment.................. -- -- -- 7
------ ----- ------ ------
Total charge-offs............................ 6 5 14 82
------ ----- ------ ------
Recoveries:
Mortgage loans:
One- to four-family............................ 1 -- -- 19
Multifamily and nonresidential................. -- -- -- --
Construction................................... -- -- -- --
Land........................................... -- -- -- --
Consumer and other loans......................... -- -- -- --
Second mortgage................................ -- -- -- --
Consumer....................................... -- -- -- --
Commercial .................................... -- -- -- --
Deposit account................................ -- -- -- --
Real estate held for investment.................. -- -- -- --
------ ----- ------ ------
Total recoveries............................. 1 -- -- 19
------ ----- ------ ------
Net charge-offs.................................... 5 5 14 63
Additions charged to operations.................... -- -- -- --
------ ----- ------ ------
Balance at end of period........................... $ 467 $ 481 $ 472 $ 486
====== ===== ====== ======
Ratio of net charge-offs during the period to
average loans outstanding during the period 0.00% 0.00% 0.01% 0.05%
===== ====== ====== =====
Ratio of net charge-offs during the period to
average non-performing assets.................... 1.46% 0.67% 2.04% 9.70%
====== ===== ====== ======
</TABLE>
The allowance for loan losses is a valuation account that reflects our
evaluation of the losses inherent in our loan portfolio. We maintain the
allowance through provisions for loan losses that we charge to income. We charge
losses on loans against the allowance for loan losses when we believe the
collection of loan principal is unlikely.
Our evaluation of risk in maintaining the allowance for loan losses
includes the review of all loans on which the collectibility of principal may
not be reasonably assured. We consider the following factors as part of this
evaluation: our historical loan loss experience, known and inherent risks in the
loan portfolio, the estimated value of the underlying collateral and current
economic and market trends. There may be other factors that may warrant our
consideration in maintaining an allowance at a level sufficient to provide for
probable losses. Although we believe that we have established and maintained the
allowance for loan losses at adequate levels, future additions may be necessary
if economic and other conditions in the future differ substantially from the
current operating environment.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review our loan and foreclosed real estate
portfolios and the related allowance for loan losses and valuation allowance for
foreclosed real estate. These agencies may require us to increase the allowance
for loan losses or
46
<PAGE>
the valuation allowance for foreclosed real estate based on their judgments of
information available to them at the time of their examination, thereby
adversely affecting our results of operations.
Allocation of the Allowance for Loans Losses. The following table
presents our allocation of the allowance for loan losses by loan category and
the percentage of loans in each category to total loans at the periods
indicated.
<TABLE>
<CAPTION>
June 30,
------------------------------------------------------------
September 30, 1999 1999 1998
------------------------------ ----------------------------- ----------------------------
Percent Percent Percent
of Loans of Loans of Loans
Loan in Each Loan in Each Loan in Each
Amount of Amounts Category Amount of Amounts Category Amount of Amounts Category
Loan Loss by to Total Loan Loss by to Total Loan Loss by to Total
Allowance Category Loans Allowance Category Loans Allowance Category Loans
--------- -------- -------- --------- -------- -------- --------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans.......... $ 407 $115,278 95.49% $ 412 $115,244 96.21% $ 421 $108,599 96.87%
Consumer and other loans 60 5,449 4.51 60 4,544 3.79 65 3,504 3.13
----- -------- ------ ----- -------- ------ ------ -------- ------
Total................... $ 467 $120,727 100.00% $ 472 $119,788 100.00% $ 486 $112,103 100.00%
===== ======== ====== ===== ======== ====== ====== ======== ======
</TABLE>
Investment Activities
Alamogordo Federal is permitted under federal law to invest in various
types of liquid assets, including U.S. Government obligations, securities of
various federal agencies and of state and municipal governments, deposits at the
Federal Home Loan Bank of Dallas, certificates of deposit of federally insured
institutions, certain bankers' acceptances and federal funds. Within certain
regulatory limits, Alamogordo Federal may also invest a portion of its assets in
commercial paper and corporate debt securities. Savings institutions like
Alamogordo Federal are also required to maintain an investment in FHLB stock.
Alamogordo Federal is required under federal regulations to maintain a minimum
amount of liquid assets. At September 30, 1999, Alamogordo Federal's liquidity
ratio (liquid assets as a percentage of net withdrawable savings deposits and
current borrowings) was 15.3%. See "Regulation" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," requires that investments be
categorized as "held to maturity," "trading securities" or "available for sale,"
based on management's intent as to the ultimate disposition of each security.
Statement of Financial Accounting Standards No. 115 allows debt securities to be
classified as "held to maturity" and reported in financial statements at
amortized cost only if the reporting entity has the positive intent and ability
to hold those securities to maturity. Securities that might be sold in response
to changes in market interest rates, changes in the security's prepayment risk,
increases in loan demand, or other similar factors cannot be classified as "held
to maturity." Debt and equity securities held for current resale are classified
as "trading securities." These securities are reported at fair value, and
unrealized gains and losses on the securities would be included in earnings.
Alamogordo Federal does not currently use or maintain a trading account. Debt
and equity securities not classified as either "held to maturity" or "trading
securities" are classified as "available for sale." These securities are
reported at fair value, and unrealized gains and losses on the securities are
excluded from earnings and reported, net of deferred taxes, as a separate
component of equity.
All of Alamogordo Federal's investment securities carry market risk
insofar as increases in market rates of interest may cause a decrease in their
market value. Many also carry prepayment risk insofar as they may be called
prior to maturity in times of low market interest rates, so that Alamogordo
Federal may have to invest the funds at a lower interest rate. Alamogordo
Federal's investment policy does not permit engaging directly in hedging
activities or purchasing high risk mortgage derivative products. Investments are
made based on certain considerations, which include the interest rate, tax
considerations, yield, settlement date and maturity of the investment,
Alamogordo Federal's liquidity position, and anticipated cash needs and sources.
The effect that the proposed investment would have on Alamogordo Federal's
credit and interest rate risk and risk-based capital is also considered.
Alamogordo Federal purchases investment securities to provide necessary
liquidity for day-to-day operations. Alamogordo Federal also purchases
investment securities when investable funds exceed loan demand.
47
<PAGE>
Generally, the investment policy of Alamogordo Federal, as established
by the Board of Directors, is to invest funds among various categories of
investments and maturities based upon Alamogordo Federal's liquidity needs,
asset/liability management policies, investment quality, marketability and
performance objectives.
Alamogordo Federal's investment and mortgage-backed securities include
securities issued by the U.S. Government and government agencies, although from
time to time Alamogordo may purchase other investment and mortgage-backed
securities as permitted by applicable laws and regulations.
The following table sets forth the composition of our investment
securities, net of premiums and discounts, at the dates indicated. As of
September 30, 1999, and June 30, 1999 and 1998, the average remaining life of
our securities was 3.9, 3.7 and 2.2 years, respectively.
<TABLE>
<CAPTION>
June 30,
September 30, ----------------------------------------
1999 1999 1998
------------------ ----------------- ------------------
Carrying % of Carrying % of Carrying % of
Value Total Value Total Value Total
-------- ----- -------- ----- -------- -----
(Dollars in Thousands)
Securities held to maturity:
<S> <C> <C> <C> <C> <C> <C>
U.S. government agency securities......... $ -- --% $ 407 1.78% $ -- --%
Securities issued by states and
political subdivisions................. 1,922 10.23 2,747 12.05 3,047 8.79
------- ------ ------- ------ ------- -----
Securities available for sale:
U.S. government agency securities......... 13,097 69.70 13,916 61.03 24,733 71.36
Securities issued by states and
political subdivisions................. -- -- -- -- -- --
------- ------ ------- ------ ------- ------
Total investment securities.............. 15,019 79.93 17,070 74.86 27,780 80.15
------- ------ ------- ------ ------- ------
FHLB stock.................................. 1,351 7.19 1,332 5.84 1,260 3.64
------- ------ ------- ------ ------- ------
Total securities and FHLB stock.......... 16,370 87.12 18,402 80.70 29,040 83.79
Other interest-earning assets:
Interest-bearing deposits with banks 2,420 12.88 4,401 19.30 5,618 16.21
------- ------ ------- ------ ------- ------
Total investment securities,
FHLB stock and other.................... $18,790 100.00% $22,803 100.00% $34,658 100.00%
======= ====== ======= ====== ======= ======
</TABLE>
The following table presents the composition of our mortgage-backed
securities portfolios.
<TABLE>
<CAPTION>
June 30,
September 30, ----------------------------------------
1999 1999 1998
------------------ ------------------- ------------------
Carrying % of Carrying % of Carrying % of
Value Total Value Total Value Total
-------- ------- -------- ------ ------- ------
(Dollars in Thousands)
Mortgage-backed securities held to maturity:
<S> <C> <C> <C> <C> <C> <C>
FHLMC..................................... $ 275 8.59% $ 319 9.29% $ 976 19.79%
Mortgage-backed securities available for sale:
GNMA...................................... 583 18.21 626 18.24 882 17.88
FNMA...................................... 1,431 44.69 1,513 44.07 1,851 37.52
FHLMC..................................... 913 28.51 975 28.40 1,224 24.81
------ ------ ------ ------ ------ ------
Total mortgage-backed securities......... $3,202 100.00% $3,433 100.00% $4,933 100.00%
====== ====== ====== ====== ====== ======
</TABLE>
48
<PAGE>
Carrying Values, Yields and Maturities. The following table sets forth
the scheduled maturities, carrying values, market value and weighted average
yields for our investment securities at September 30, 1999.
<TABLE>
<CAPTION>
September 30, 1999
-----------------------------------------
LessThan 1 to 5 5 to 10 Over Total Investment
1 Year Years Years 10 Years Securities
--------- --------- --------- -------- ------------------
Carrying Carrying Carrying Carrying Carrying Market
Value Value Value Value Value Value
--------- --------- --------- -------- -------- ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. government agency securities........... $ -- $13,097 $ -- $ -- $13,097 $13,097
Mortgage-backed securities.................. -- 275 -- 2,927 3,202 3,202
Securities issued by states and
political subdivisions.................... 696 1,226 -- -- 1,922 1,922
Equity securities........................... -- -- -- -- -- 4
------ ------- ------ ------- ------- -------
Total securities............................ $ 696 $14,598 $ -- $ 2,927 $18,221 $18,225
====== ======= ======= ======= ======= =======
Weighted average yield...................... 4.23% 5.71% --% 5.77% 5.67%
</TABLE>
Sources of Funds
General. Deposits are the primary source of Alamogordo Financial's
funds for lending and other investment purposes. In addition to deposits,
Alamogordo Financial derives funds primarily from principal and interest
payments on loans. Loan repayments are a relatively stable source of funds,
while deposit inflows and outflows are significantly influenced by general
interest rates and money market conditions. Borrowings may also be used on a
short- term basis to compensate for reductions in the availability of funds from
other sources and may be used on a longer-term basis for general business
purposes.
Deposits. Alamogordo Financial's deposits are attracted principally
from within its primary market area. Deposit account terms vary, with the
principal differences being the minimum balance required, the time periods the
funds must remain on deposit and the interest rate.
Alamogordo Financial's deposits are obtained primarily from residents
of its primary market area. Alamogordo Financial is not currently using brokers
to obtain deposits. Alamogordo Financial's deposit products include demand and
NOW, money market, savings, and term certificate accounts. Interest rates paid,
maturity terms, service fees and withdrawal penalties are established by
Alamogordo Financial on a periodic basis. Management determines the rates and
terms based on rates paid by competitors, Alamogordo Financial's needs for funds
or liquidity, growth goals and federal and state regulations.
Deposit Activity. The following table sets forth Alamogordo Financial's
savings flows during the periods indicated.
Three Months
Ended September 30, Years Ended June 30,
--------------------- ---------------------
1999 1998 1999 1998
-------- -------- -------- --------
(Dollars in Thousands)
Opening balance.............. $122,460 $126,659 $126,659 $121,986
Deposits..................... 52,633 29,808 159,824 99,556
Withdrawals.................. (54,237) (31,100) (170,637) (100,378)
Interest credited............ 1,554 1,588 6,614 5,495
-------- -------- -------- --------
Ending balance............... $122,410 $126,955 $122,460 $126,659
======== ======== ======== ========
Net increase (decrease)...... $ (50) $ 296 $ (4,199) $ 4,673
======== ======== ========= ========
Percent increase (decrease).. (0.04)% 0.23% (3.32)% 3.83%
======== ======== ======== ========
49
<PAGE>
Deposit Accounts. The following table sets forth the dollar amount of
savings deposits in the various types of deposit programs we offered as of the
dates indicated.
<TABLE>
<CAPTION>
September 30, June 30,
1999 1999 1998
---------------------- ---------------------- -------------
Amount Percent Amount Percent Amount Percent
-------- ------- ------- ------- ------- -------
(Dollars in Thousands)
Transaction and savings deposits:
<S> <C> <C> <C> <C> <C> <C>
Demand and NOW (0% to 1.25%)... $ 6,357 5.19% $ 6,659 5.44% $ 4,999 3.95%
Money market (0% to 2.79%)..... 7,399 6.05 8,229 6.72 9,221 7.28
Savings deposits (0% to 2.75%) 5,288 4.32 5,066 4.13 4,967 3.92
-------- ------ -------- ------ -------- ------
Total transaction and
savings deposits.......... 19,044 15.56 19,954 16.29 19,187 15.15
--------- ------ -------- ------ -------- ------
Term certificates:
0.00 - 4.00%................... 237 0.19 887 0.72 -- 0.00
4.01 - 5.00%................... 32,968 26.93 27,281 22.28 935 0.74
5.01 - 6.00%................... 36,415 29.75 35,965 29.37 35,500 28.01
6.01 - 7.00%................... 25,104 20.51 29,912 24.43 50,676 39.98
7.01 and above................. 8,642 7.06 8,461 6.91 20,361 16.07
-------- ------ -------- ------ -------- ------
Total term certificates....... 103,366 84.44 102,506 83.71 107,472 84.80
-------- ------ -------- ------ -------- ------
Total deposits................... $122,410 100.00% $122,460 100.00% $126,659 100.00%
======== ====== ======== ====== ======== ======
</TABLE>
Time Deposit Maturity Schedule. The following table presents, by rate
category, the remaining period to maturity of time deposit accounts outstanding
as of September 30, 1999.
<TABLE>
<CAPTION>
4.0% More Than More Than More Than More Than Percent
and less 4.0% to 5.0% 4.0% to 6.0% 6.0% to 7.0% 7.0% Total of Total
-------- ------------ ------------ ------------ --------- -------- --------
(Dollars in Thousands)
Quarter Ending:
- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1999 ... 237 7,177 5,425 5,889 82 18,810 18.20%
March 31, 2000 ...... -- 9,095 3,205 3,411 14 15,725 15.21
June 30, 2000 ....... -- 5,714 825 4,084 734 11,357 10.99
September 30, 2000 .. -- 2,623 1,920 3,308 -- 7,851 7.60
December 31, 2000 ... -- 445 1,110 1,007 1,445 4,007 3.88
March 31, 2001 ...... -- 656 1,548 2,127 4,190 8,521 8.24
June 30, 2001 ....... -- 164 2,222 951 1,578 4,915 4.75
September 30, 2001 .. -- 100 2,640 931 599 4,270 4.13
December 31, 2001 ... -- 295 3,632 569 -- 4,496 4.35
March 31, 2002 ...... -- 2,329 1,325 577 -- 4,231 4.09
June 30, 2002 ....... -- 2,768 1,433 398 -- 4,599 4.45
September 30, 2002 .. -- 571 4,481 413 -- 5,465 5.29
Thereafter .......... -- 1,031 6,649 1,439 -- 9,119 8.82
---- ------- ------- ------- ------ -------- -----------
Total ............. $237 $32,968 $36,415 $25,104 $8,642 $103,366 100.00%
==== ======= ======= ======= ====== ======== ======
Percent of total .. 0.22% 31.90% 35.23% 24.29% 8.36% 100.00%
==== ======= ======= ======= ====== ========
</TABLE>
Large Certificates. The following table indicates the amount of our
certificates of deposit and other deposits by time remaining until maturity as
of September 30, 1999.
<TABLE>
<CAPTION>
Maturity
-----------------------------------------
Over Over
3 Months 3 to 12 12 to 36 Over
or Less Months Months 36 Months Total
-------- ------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Certificates of deposit less than $100,000 ............ $14,305 $25,691 $26,852 $6,933 $ 73,781
Certificates of deposit of $100,000 or more ........... 4,005 9,242 13,652 1,886 28,785
Deposits from governmental and other public entities .. 500 -- -- 300 800
------- ------- ------- ------ --------
Total certificates of deposit ......................... $18,810 $34,933 $40,504 $9,119 $103,366
======= ======= ======= ====== ========
</TABLE>
Borrowings. Alamogordo Federal may obtain advances from the FHLB of
Dallas upon the security of the common stock it owns in that bank and certain of
its residential mortgage loans and mortgage-backed securities, provided certain
standards related to creditworthiness have been met. These advances are made
pursuant to several credit programs, each of which has its own interest rate and
range of maturities. FHLB advances are generally available to meet seasonal and
other withdrawals of deposit accounts and to permit increased lending.
50
<PAGE>
The following table sets forth the maximum month-end balance and
average balance of FHLB advances and other borrowings for the periods indicated.
Three Months
Ended September 30, Years Ended June 30,
------------------- --------------------
1999 1998 1999 1998
------- ------- ------- --------
(In Thousands)
Maximum balance:
FHLB advances ............. $10,000 $10,000 $10,000 $10,000
Other borrowings .......... -- 151 151 278
Average balance:
FHLB advances ............. $10,000 $10,000 $10,000 $ 5,833
Other borrowings .......... -- 151 75 235
The following table sets forth certain information as to our borrowings
at the dates indicated.
June 30,
September 30, ------------------
1999 1999 1998
------------- ------- -------
(In Thousands)
FHLB advances ............................. $10,000 $10,000 $10,000
Other borrowings .......................... -- -- 151
------- ------- -------
Total borrowings .......................... $10,000 $10,000 $10,151
======= ======= =======
Weighted average interest rate
of FHLB advances ........................ 4.81% 4.81% 4.81%
Weighted average interest rate
of other borrowings ..................... n/a n/a 10.00%
Subsidiary Activities
Alamogordo Financial has no direct subsidiaries other than Alamogordo
Federal. As a federally chartered savings association, Alamogordo Federal is
permitted by OTS regulations to invest up to 2% of its assets in the stock of,
or loans to, service corporation subsidiaries. Alamogordo Federal may invest an
additional 1% of its assets in service corporations where such additional funds
are used for inner-city or community development purposes and up to 50% of its
total capital in conforming loans to service corporations in which it owns more
than 10% of the capital stock. In addition to investments in service
corporations, federal associations are permitted to invest an unlimited amount
in operating subsidiaries engaged solely in activities in which a federal
association may engage. At September 30, 1999, Alamogordo Federal had one
subsidiary, Space Age City Service Corporation. Alamogordo Federal's investment
in its subsidiary was $184,000 as of September 30, 1999. As of September 30,
1999, Alamogordo Federal had an outstanding note receivable from Space Age City
Service Corporation of $112,000. The subsidiary has been involved in a real
estate development project for the purpose of development of real estate lots.
As of September 30, 1999, Space Age City Service Corporation owns real estate it
values at approximately $215,000. Gross rental income from its investment
amounted to $13,160 for the fiscal year ended June 30, 1999.
Properties
We conduct our business through our administrative office and one
branch office. We own our administrative office building, and lease our branch
office facility. Our administrative offices are located at 500 10th Street,
Alamogordo, New Mexico. Our branch office is located at 233 New York Street,
Alamogordo, New Mexico. Our premises and equipment had a net book value of $8.7
million as of September 30, 1999. We believe that our current facilities are
adequate to meet our present needs.
Legal Proceedings
We are not involved in any pending legal proceedings other than routine
legal proceedings occurring in the ordinary course of business. We believe that
these routine legal proceedings, in the aggregate, are immaterial to our
financial condition and results of operations.
51
<PAGE>
Personnel
As of September 30, 1999, we had 43 full-time employees and one
part-time employee. The employees are not represented by a collective bargaining
unit and we consider our relationship with our employees to be good.
REGULATION
General
Alamogordo Federal is regulated, examined and supervised by the OTS, as
its chartering agency, and the FDIC, as the insurer of its deposits. The
activities of federal savings institutions are governed by the Home Owners' Loan
Act, as amended and, incertain respects, the Federal Deposit Insurance Act and
the regulations issued by the OTS and the FDIC to implement these statutes.
These laws and regulations delineate the nature and extent of the activities in
which federal savings associations may engage. Lending activities and other
investments must comply with various statutory and regulatory capital
requirements. In addition, Alamogordo Federal's relationship with its depositors
and borrowers is also regulated to a great extent, especially in matters such as
the ownership of deposit accounts and the form and content of Alamogordo
Federal's mortgage documents. Alamogordo Federal must file reports with the OTS
and the FDIC concerning its activities and financial condition in addition to
obtaining regulatory approvals prior to entering into certain transactions such
as mergers with, or acquisitions of, other financial institutions. There are
periodic examinations by the OTS and the FDIC to review Alamogordo Federal's
compliance with various regulatory requirements. The regulatory structure also
gives the regulatory authorities extensive discretion in connection with their
supervisory and enforcement activities and examination policies, including
policies with respect to the classification of assets and the establishment of
adequate loan loss reserves for regulatory purposes. Any change in policies,
whether by the OTS, the FDIC or Congress, could have a material adverse impact
on Alamogordo Federal and its operations.
Federal Regulation of Savings Associations
Office of Thrift Supervision. The OTS is an office in the Department of
the Treasury. It generally possesses the supervisory and regulatory duties and
responsibilities formerly vested in the Federal Home Loan Bank Board. Among
other functions, the OTS issues and enforces regulations affecting federally
insured savings associations and regularly examines these institutions.
Federal Home Loan Bank System. The Federal Home Loan Bank System,
consisting of 12 banks, is under the jurisdiction of the Federal Housing Finance
Board. Alamogordo Federal, as a member of the Federal Home Loan Bank of Dallas,
is required to acquire and hold shares of capital stock in the Federal Home Loan
Bank of Dallas in an amount equal to the greater of 1.0% of the aggregate
outstanding principal amount of residential mortgage loans, home purchase
contracts and similar obligations at the beginning of each year, or 1/20 of its
borrowings from the Federal Home Loan Bank of Dallas. Alamogordo Federal is in
compliance with this requirement. Among other benefits, the Federal Home Loan
Bank of Dallas provides a central credit facility primarily for member
institutions.
Federal Deposit Insurance Corporation. The FDIC is an independent
federal agency that insures the deposits, up to prescribed statutory limits, of
depository institutions. The FDIC currently maintains two separate insurance
funds: the Bank Insurance Fund and the Savings Association Insurance Fund. As
insurer of Alamogordo Federal's deposits, the FDIC has examination, supervisory
and enforcement authority over Alamogordo Federal.
Alamogordo Federal's accounts are insured by the Savings Association
Insurance Fund to the maximum extent permitted by law. Alamogordo Federal pays
deposit insurance premiums based on a risk-based assessment system established
by the FDIC. Under applicable regulations, institutions are assigned to one of
three capital groups that are based solely on the level of an institution's
capital -- "well capitalized," "adequately capitalized," and "undercapitalized"
- -- which are defined in the same manner as the regulations establishing the
prompt corrective action system, as discussed below. These three groups are then
divided into three subgroups which reflect varying levels of supervisory
concern, from those which are considered to be healthy to those which are
considered to be of substantial supervisory concern. The matrix so created
results in nine assessment risk classifications, with rates that until September
30, 1996 ranged from 0.23% for well capitalized, financially sound institutions
with only a few minor weaknesses to 0.31% for undercapitalized institutions that
pose a substantial risk of loss to the Savings Association Insurance Fund unless
effective corrective action is taken.
52
<PAGE>
Under the Deposit Insurance Funds Act, which was enacted on September
30, 1996, the FDIC imposed a special assessment on each depository institution
with Savings Association Insurance Fund-assessable deposits which resulted in
the Savings Association Insurance Fund achieving its designated reserve ratio.
As a result, the FDIC reduced the assessment schedule for Savings Association
Insurance Fund members, effective January 1, 1997, to a range of 0% to 0.27%,
with most institutions, including Alamogordo Federal, paying 0%. This assessment
schedule is the same as that for the Bank Insurance Fund, which reached its
designated reserve ratio in 1995. In addition, since January 1, 1997, Savings
Association Insurance Fund members are charged an assessment of .065% of Savings
Association Insurance Fund-assessable deposits to pay interest on the
obligations issued by the Financing Corporation in the 1980s to help fund the
thrift industry cleanup. Bank Insurance Fund-assessable deposits will be charged
an assessment to help pay interest on the Financing Corporation bonds at a rate
of approximately .013% until the earlier of December 31, 1999 or the date upon
which the last savings association ceases to exist, after which time the
assessment will be the same for all insured deposits.
The Deposit Insurance Funds Act also contemplates the development of a
common charter for all federally chartered depository institutions and the
abolition of separate charters for national banks and federal savings
associations. It is not known what form the common charter may take and what
effect, if any, the adoption of a new charter would have on the operation of
Alamogordo Federal.
The FDIC may terminate the deposit insurance of any insured depository
institution if it determines after a hearing that the institution has engaged or
is engaging in unsafe or unsound practices, is in an unsafe or unsound condition
to continue operations, or has violated any applicable law, regulation, order or
any condition imposed by an agreement with the FDIC. It also may suspend deposit
insurance temporarily during the hearing process for the permanent termination
of insurance, if the institution has no tangible capital. If insurance of
accounts is terminated, the accounts at the institution at the time of
termination, less subsequent withdrawals, shall continue to be insured for a
period of six months to two years, as determined by the FDIC. Management is
aware of no existing circumstances that could result in termination of the
deposit insurance of Alamogordo Federal.
Liquidity Requirements. Under OTS regulations, each savings institution
is required to maintain an average daily balance of liquid assets, such as cash,
certain time deposits and savings accounts, bankers' acceptances, and specified
U.S. Government, state or federal agency obligations and certain other
investments, equal to a monthly average of not less than a specified percentage
of its net withdrawable accounts plus short-term borrowings. The current
percentage is 4%. Monetary penalties may be imposed for failure to meet
liquidity requirements. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
Prompt Corrective Action. Each federal banking agency is required to
implement a system of prompt corrective action for institutions that it
regulates. The federal banking agencies have promulgated substantially similar
regulations to implement this system of prompt corrective action. Under the
regulations, an institution shall be deemed to be "well capitalized" if it has a
total risk-based capital ratio of 10.0% or more, has a Tier I risk-based capital
ratio of 6.0% or more, has a leverage ratio of 5.0% or more and is not required
to meet and maintain a specific capital level for any capital
measure;"adequately capitalized" if it has a total risk-based capital ratio of
8.0% or more, has a Tier I risk-based capital ratio of 4.0% or more, has a
leverage ratio of 4.0% or more, or 3.0% under certain circumstances, and does
not meet the definition of "well capitalized"; "undercapitalized" if it has a
total risk-based capital ratio that is less than 8.0%, has a Tier I risk-based
capital ratio that is less than 4.0% or has a leverage ratio that is less than
4.0%, or 3.0% under certain circumstances; "significantly undercapitalized" if
it has a total risk-based capital ratio that is less than 6.0%, has a Tier I
risk-based capital ratio that is less than 3.0% or has a leverage ratio that is
less than 3.0%; and "critically undercapitalized" if it has a ratio of tangible
equity to total assets that is equal to or less than 2.0%.
A federal banking agency may, after notice and an opportunity for a
hearing, reclassify a well capitalized institution as adequately capitalized and
may require an adequately capitalized institution or an undercapitalized
institution to comply with supervisory actions as if it were in the next lower
category if the institution is in an unsafe or unsound condition or has received
in its most recent examination, and has not corrected, a less than satisfactory
rating for asset quality, management, earnings or liquidity. The OTS may not,
however, reclassify a significantly undercapitalized institution as critically
undercapitalized.
An institution generally must file a written capital restoration plan
that meets specified requirements, as well as a performance guaranty by each
company that controls the institution, with the appropriate federal banking
agency within 45 days of the date that the institution receives notice or is
deemed to have notice that it is undercapitalized, significantly
undercapitalized or critically undercapitalized. Immediately upon becoming
undercapitalized, an institution shall face various mandatory and discretionary
restrictions on its operations.
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At September 30, 1999, Alamogordo Federal was categorized as "well
capitalized" under the prompt corrective action regulations.
Standards for Safety and Soundness
The federal banking regulatory agencies have adopted regulatory
guidelines for all insured depository institutions relating to internal
controls, information systems and internal audit systems; loan documentation;
credit underwriting; interest rate risk exposure; asset growth; asset quality;
earnings; and compensation, fees and benefits. The guidelines outline the safety
and soundness standards that the federal banking agencies use to identify and
address problems at insured depository institutions before capital becomes
impaired. If the OTS determines that Alamogordo Federal fails to meet any
standard prescribed by the guidelines, it may require Alamogordo Federal to
submit to the agency an acceptable plan to achieve compliance with the standard.
OTS regulations establish deadlines for the submission and review of safety and
soundness compliance plans.
Qualified Thrift Lender Test. All savings associations are required to
meet a qualified thrift lender test to avoid certain restrictions on their
operations. A savings institution that fails to become or remain a qualified
thrift lender shall either convert to a national bank charter or face the
following restrictions on its operations. These restrictions are: the
association may not make any new investment or engage in activities that would
not be permissible for national banks; the association may not establish any new
branch office where a national bank located in the savings institution's home
state would not be able to establish a branch office; the association shall be
ineligible to obtain new advances from any Federal Home Loan Bank; and the
payment of dividends by the association shall be under the rules regarding the
statutory and regulatory dividend restrictions applicable to national banks.
Also, beginning three years after the date on which the savings institution
ceases to be a qualified thrift lender, the savings institution would be
prohibited from retaining any investment or engaging in any activity not
permissible for a national bank and would be required to repay any outstanding
advances to any Federal Home Loan Bank. In addition, within one year of the date
on which a savings association controlled by a company ceases to be a qualified
thrift lender, the company must register as a bank holding company and follow
the rules applicable to bank holding companies. A savings institution may
requalify as a qualified thrift lender if it thereafter complies with the test.
Currently, the qualified thrift lender test requires that either an
institution qualify as a domestic building and loan association under the
Internal Revenue Code or that 65% of an institution's "portfolio assets" consist
of certain housing and consumer-related assets on a monthly average basis in
nine out of every 12 months. Assets that qualify without limit for inclusion as
part of the 65% requirement are loans made to purchase, refinance, construct,
improve or repair domestic residential housing and manufactured housing; home
equity loans; mortgage-backed securities where the mortgages are secured by
domestic residential housing or manufactured housing; Federal Home Loan Bank
stock; direct or indirect obligations of the FDIC; and loans for educational
purposes, loans to small businesses and loans made through credit cards. In
addition, the following assets, among others, may be included in meeting the
test based on an overall limit of 20% of the savings institution's portfolio
assets: 50% of residential mortgage loans originated and sold within 90 days of
origination; 100% of consumer loans; and stock issued by Freddie Mac or Fannie
Mae. Portfolio assets consist of total assets minus the sum of goodwill and
other intangible assets, property used by the savings institution to conduct its
business, and liquid assets up to 20% of the institution's total assets. At
September 30, 1999, Alamogordo Federal was in compliance with the qualified
thrift lender test.
Capital Requirements. Federal regulations require a savings association
must satisfy three minimum capital requirements: core capital, tangible capital
and risk-based capital. Savings associations must meet all of the standards in
order to comply with the capital requirements.
OTS capital regulations establish a 3% core capital or leverage ratio
(defined as the ratio of core capital to adjusted total assets). Core capital is
defined to include common stockholders' equity, noncumulative perpetual
preferred stock and any related surplus, and minority interests in equity
accounts of consolidated subsidiaries, less any intangible assets, except for
certain qualifying intangible assets; certain mortgage servicing rights; and
equity and debt investments in subsidiaries that are not"includable
subsidiaries," which is defined as subsidiaries engaged solely inactivities not
impermissible for a national bank, engaged in activities impermissible for a
national bank but only as an agent for its customers, or engaged solely in
mortgage-banking activities. In calculating adjusted total assets, adjustments
are made to total assets to give effect to the exclusion of certain assets from
capital and to account appropriately for the investments in and assets of both
includable and non-includable subsidiaries. Institutions that fail to meet the
core capital requirement would be required to file with the OTS a capital plan
that details the steps they will take to reach compliance. In addition, the
OTS's prompt corrective action regulation provides that a savings institution
that has a leverage ratio of less than 4%, or 3% in the case of institutions
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receiving the highest CAMELS examination rating, will be deemed to be
"undercapitalized" and may face certain restrictions. See "--Federal Regulation
of Savings Associations--Prompt Corrective Action."
Savings associations also must maintain "tangible capital" not less
than 1.5% of Alamogordo Federal's adjusted total assets. "Tangible capital" is
defined, generally, as core capital minus any "intangible assets" other than
purchased mortgage servicing rights. Each savings institution must maintain
total risk-based capital equal to at least 8% of risk-weighted assets. Total
risk-based capital consists of the sum of core and supplementary capital,
provided that supplementary capital cannot exceed core capital, as previously
defined. Supplementary capital includes permanent capital instruments such as
cumulative perpetual preferred stock, perpetual subordinated debt and mandatory
convertible subordinated debt, maturing capital instruments such as subordinated
debt, intermediate-term preferred stock and mandatory convertible subordinated
debt, based on an amortization schedule, and general valuation loan and lease
loss allowances up to 1.25% of risk-weighted assets.
The risk-based capital regulation assigns each balance sheet asset held
by a savings institution to one of four risk categories based on the amount of
credit risk associated with that particular class of assets. Assets not included
for purposes of calculating capital are not included in calculating
risk-weighted assets. The categories range from 0% for cash and securities that
are backed by the full faith and credit of the U.S. Government to 100% for
repossessed assets or assets more than 90 days past due. Qualifying residential
mortgage loans, including multi-family mortgage loans, are assigned a 50% risk
weight. Consumer, commercial, home equity and residential construction loans a
reassigned a 100% risk weight, as are non qualifying residential mortgage loans
and that portion of land loans and nonresidential construction loans that do not
exceed an 80% loan-to-value ratio. The book value of assets in each category is
multiplied by the weighing factor from 0% to 100% assigned to that category.
These products are then totaled to arrive at total risk-weighted assets.
Off-balance sheet items are included in risk-weighted assets by converting them
to an approximate balance sheet "credit equivalent amount" based on a conversion
schedule. These credit equivalent amounts are then assigned to risk categories
in the same manner as balance sheet assets and included risk-weighted assets.
The OTS has incorporated an interest rate risk component into its
regulatory capital rule. Under the rule, savings associations with "above
normal" interest rate risk exposure would face a deduction from total capital
for purposes of calculating their risk-based capital requirements. A savings
association's interest rate risk is measured by the decline in the net portfolio
value of its assets, or the difference between incoming and outgoing discounted
cash flows from assets, liabilities and off-balance sheet contracts, that would
result from a hypothetical 200 basis point increase or decrease in market
interest rates divided by the estimated economic value of the association's
assets, as calculated in accordance with guidelines of the OTS. A savings
association whose measured interest rate risk exposure exceeds 2% must deduct an
interest rate risk component in calculating its total capital under the
risk-based capital rule. The interest rate risk component is an amount equal to
one-half of the difference between the institution's measured interest rate risk
and 2%, multiplied by the estimated economic value of the association's assets.
That dollar amount is deducted from an association's total capital in
calculating compliance with its risk-based capital requirement. Under the rule,
there is a two quarter lag between the reporting date of an institution's
financial data and the effective date for the new capital requirement based on
that data. A savings association with assets of less than $300 million and
risk-based capital ratios in excess of 12% is exempt from the interest rate risk
component, unless the OTS determines otherwise. The rule also provides that the
OTS may waive or defer an association's interest rate risk component on a
case-by-case basis. Under certain circumstances, a savings association may
request an adjustment to its interest rate risk component if it believes that
the calculated interest rate risk component, as calculated by the OTS,
overstates its interest rate risk exposure. In addition, certain
"well-capitalized" institutions may obtain authorization to use their own
interest rate risk model to calculate their interest rate risk component in lieu
of the amount as calculated by the OTS. The OTS has postponed the date that the
component will first be deducted from an institution's total capital.
See "Historical And Pro Forma Regulatory Capital Compliance" for a
table that sets forth in terms of dollars and percentages the tangible, core and
risk-based capital requirements, Alamogordo Federal's historical amounts and
percentages at September 30, 1999 and pro forma amounts and percentages based
upon the stated assumptions.
Capital Distributions
OTS regulations govern capital distributions by savings institutions,
which include cash dividends, stock repurchases and other transactions charged
to the capital account of a savings institution to make capital distributions.
Under new regulations effective April 1, 1999, a savings institution must file
an application for OTS approval of the capital distribution if either (1) the
total capital distributions for the applicable calendar year exceed the sum of
the institution's net income for that year to date plus the institution's
retained net income for the preceding two years, (2) the institution would not
be at least adequately capitalized following the distribution,
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(3) the distribution would violate any applicable statute, regulation, agreement
or OTS-imposed condition, or (4) the institution is not eligible for expedited
treatment of its filings. If an application is not required to be filed, savings
institutions which are a subsidiary of a holding company, as well as certain
other institutions, must still file a notice with the OTS at least 30 days
before the board of directors declares a dividend or approves a capital
distribution.
Loans to One Borrower
Savings institutions are generally required to follow the national bank
limit on loans to one borrower. Generally, this limit is 15% of its unimpaired
capital and surplus, plus an additional 10% of unimpaired capital and surplus,
if the loan is secured by readily marketable collateral, which is defined to
include certain financial instruments and bullion. The OTS by regulation has
amended the loans to one borrower rule to permit savings associations meeting
certain requirements, including capital requirements, to extend loans to one
borrower in additional amounts under circumstances limited essentially to loans
to develop or complete residential housing units. See "Business of Alamogordo
Federal--Lending Activities" for further information.
Activities of Associations and Their Subsidiaries
A savings association may establish operating subsidiaries to engage in
any activity that the savings association may conduct directly and may establish
service corporation subsidiaries to engage in certain pre-approved activities
or, with approval of the OTS, other activities reasonably related to the
activities of financial institutions. When a savings association establishes or
acquires a subsidiary or elects to conduct any new activity through a subsidiary
that the association controls, the savings association must notify the FDIC and
the OTS 30 days in advance and provide the information each agency may, by
regulation, require. Savings associations also must conduct the activities of
subsidiaries in accordance with existing regulations and orders.
The OTS may determine that the continuation by a savings association of
its ownership control of, or its relationship to, the subsidiary constitutes a
serious risk to the safety, soundness or stability of the association or is
inconsistent with sound banking practices. Based upon that determination, the
FDIC or the OTS has the authority to order the savings association to divest
itself of control of the subsidiary. The FDIC also may determine by regulation
or order that any specific activity poses a serious threat to the Savings
Association Insurance Fund. If so, it may require that no Savings Association
Insurance Fund member engage in that activity directly.
Transactions with Affiliates
Savings associations must comply with Sections 23A and 23B of the
Federal Reserve Act relative to transactions with affiliates in the same manner
and to the same extent as if the savings association were a Federal Reserve
member bank. A savings and loan holding company, its subsidiaries and any other
company under common control are considered affiliates of the subsidiary savings
association under the Home Owners Loan Act. Generally, Sections 23A and 23B
limit the extent to which the insured association or its subsidiaries may engage
in certain covered transactions with an affiliate to an amount equal to 10% of
the institution's capital and surplus and place an aggregate limit on all
transactions with affiliates to an amount equal to 20% of capital and surplus,
and require that all transactions be on terms substantially the same, or at
least as favorable to the institution or subsidiary, as those provided to a
non-affiliate. The term"covered transaction" includes the making of loans, the
purchase of assets, the issuance of a guarantee and similar types of
transactions.
Any loan or extension of credit by Alamogordo Federal to an affiliate
must be secured by collateral in accordance with Section 23A.
Three additional rules apply to savings associations. First, a savings
association may not make any loan or other extension of credit to an affiliate
unless that affiliate is engaged only in activities permissible for bank holding
companies. Second, a savings association may not purchase or invest insecurities
issued by an affiliate, other than securities of a subsidiary. Third, the OTS
may, for reasons of safety and soundness, impose more stringent restrictions on
savings associations but may not exempt transactions from or otherwise abridge
Section 23A or 23B. Exemptions from Section 23A or 23B may be granted only by
the Federal Reserve, as is currently the case with respect to all FDIC-insured
banks.
Alamogordo Federal's authority to extend credit to executive officers,
directors and 10% shareholders, as well as entities controlled by those persons,
is currently governed by Sections 22(g) and 22(h) of the Federal Reserve Act,
and Regulation O thereunder. Among other things, these regulations require that
loans be made on terms and conditions substantially the same as those offered to
unaffiliated individuals and not involve more than the normal risk of repayment.
Regulation O also places individual and aggregate limits on the amount of loans
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Alamogordo Federal may make to those persons based, in part, on Alamogordo
Federal's capital position, and requires certain board approval procedures to be
followed. The OTS regulations, with certain minor variances, apply Regulation O
to savings institutions.
Community Reinvestment Act
Savings associations are required to follow the provisions of the
Community Reinvestment Act of 1977, which requires the appropriate federal bank
regulatory agency, in connection with its regular examination of a savings
association, to assess the savings association's record in meeting the credit
needs of the community serviced by the savings associations, including low and
moderate income neighborhoods. The regulatory agency's assessment of the savings
association's record is made available to the public. Further, an assessment is
required of any savings associations which has applied, among other things, to
establish a new branch office that will accept deposits, relocate an existing
office or merge or consolidate with, or acquire the assets or assume the
liabilities of, a federally regulated financial institution. Alamogordo Federal
received a "satisfactory" rating as a result of its most recent examination.
Holding Company Regulation
Generally. AF Mutual Holding Company and Alamogordo Financial are
nondiversified mutual savings and loan holding companies within the meaning of
the HOLA. As such, AF Mutual Holding Company and Alamogordo Financial are
registered with the OTS and are subject to OTS regulations, examinations,
supervision and reporting requirements. In addition, the OTS has enforcement
authority over AF Mutual Holding Company and Alamogordo Financial and any
nonsavings institution subsidiaries. Among other things, this authority permits
the OTS to restrict or prohibit activities that are determined to be a serious
risk to the subsidiary savings institution. As federal corporations, Alamogordo
Financial and AF Mutual Holding Company are generally not subject to state
business organizations law.
Permitted Activities. Pursuant to Section 10(o) of the HOLA and OTS
regulations and policy, a mutual holding company and a federally chartered
mid-tier holding company such as Alamogordo Financial may engage in the
following activities: (i) investing in the stock of a savings association; (ii)
acquiring a mutual association through the merger of such association into a
savings association subsidiary of such holding company or an interim savings
association subsidiary of such holding company; (iii) merging with or acquiring
another holding company, one of whose subsidiaries is a savings association;
(iv) investing in a corporation, the capital stock of which is available for
purchase by a savings association under federal law or under the law of any
state where the subsidiary savings association or associations share their home
offices; (v) furnishing or performing management services for a savings
association subsidiary of such company; (vi) holding, managing or liquidating
assets owned or acquired from a savings subsidiary of such company; (vii)
holding or managing properties used or occupied by a savings association
subsidiary of such company properties used or occupied by a savings association
subsidiary of such company; (viii) acting as trustee under deeds of trust; (ix)
any other activity (A) that the Federal Reserve Board, by regulation, has
determined to be permissible for bank holding companies under Section 4(c) of
the Bank Holding Company Act of 1956, unless the Director, by regulation,
prohibits or limits any such activity for savings and loan holding companies; or
(B) in which multiple savings and loan holding companies were authorized (by
regulation) to directly engage on March 5, 1987; and (x) purchasing, holding, or
disposing of stock acquired in connection with a qualified stock issuance if the
purchase of such stock by such savings and loan holding company is approved by
the Director. If a mutual holding company acquires or merges with another
holding company, the holding company acquired or the holding company resulting
from such merger or acquisition may only invest in assets and engage in
activities listed in (i) through (x) above, and has a period of two years to
cease any nonconforming activities and divest of any nonconforming investments.
The HOLA prohibits a savings and loan holding company, including
Alamogordo Financial and AF Mutual Holding Company, directly or indirectly, or
through one or more subsidiaries, from acquiring another savings institution or
holding company thereof, without prior written approval of the OTS. It also
prohibits the acquisition or retention of, with certain exceptions, more than 5%
of a nonsubsidiary savings institution, a nonsubsidiary holding company, or a
nonsubsidiary company engaged in activities other than those permitted by the
HOLA; or acquiring or retaining control of an institution that is not federally
insured. In evaluating applications by holding companies to acquire savings
institutions, the OTS must consider the financial and managerial resources,
future prospects of the company and institution involved, the effect of the
acquisition on the risk to the insurance fund, the convenience and needs of the
community and competitive factors.
The OTS is prohibited from approving any acquisition that would result
in a multiple savings and loan holding company controlling savings institutions
in more than one state, subject to two exceptions: (i) the approval of
interstate supervisory acquisitions by savings and loan holding companies, and
(ii) the acquisition of a
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savings institution in another state if the laws of the state of the target
savings institution specifically permit such acquisitions. The states vary in
the extent to which they permit interstate savings and loan holding company
acquisitions.
Waivers of Dividends by AF Mutual Holding Company. OTS regulations
require AF Mutual Holding Company to notify the OTS of any proposed waiver of
its right to receive dividends. The OTS reviews dividend waiver notices on a
case-by-case basis, and, in general, does not object to any such waiver if: (i)
the mutual holding company's board of directors determines that such waiver is
consistent with such directors' fiduciary duties to the mutual holding company's
members; (ii) for as long as the savings association subsidiary is controlled by
the mutual holding company, the dollar amount of dividends waived by the mutual
holding company are considered as a restriction to the retained earnings of the
savings association, which restriction, if material, is disclosed in the public
financial statements of the savings association as a note to the financial
statements; (iii) the amount of any dividend waived by the mutual holding
company is available for declaration as a dividend solely to the mutual holding
company, and, in accordance with SFAS 5, where the savings association
determines that the payment of such dividend to the mutual holding company is
probable, an appropriate dollar amount is recorded as a liability; (iv) the
amount of any waived dividend is considered as having been paid by the savings
association in evaluating any proposed dividend under OTS capital distribution
regulations; and (v) in the event the mutual holding company converts to stock
form, the appraisal submitted to the OTS in connection with the conversion
application takes into account the aggregate amount of the dividends waived by
the mutual holding company.
Conversion of AF Mutual Holding Company to Stock Form. OTS regulations
permit AF Mutual Holding Company to convert from the mutual form of organization
to the capital stock form of organization (a "Conversion Transaction"). There
can be no assurance when, if ever, a Conversion Transaction will occur, and the
Board of Directors has no current intention or plan to undertake a Conversion
Transaction. In a Conversion Transaction a new holding company would be formed
as the successor to Alamogordo Financial (the "New Holding Company"), AF Mutual
Holding Company's corporate existence would end, and certain depositors of
Alamogordo Federal would receive the right to subscribe for additional shares of
the New Holding Company. In a Conversion Transaction, each share of Common Stock
held by stockholders other than AF Mutual Holding Company ("Minority
Stockholders") would be automatically converted into a number of shares of
common stock of the New Holding Company determined pursuant an exchange ratio
that ensures that after the Conversion Transaction, subject to the Dividend
Waiver Adjustment described below and any adjustment to reflect the receipt of
cash in lieu of fractional shares, the percentage of the to-be outstanding
shares of the New Holding Company issued to Minority Stockholders in exchange
for their Common Stock would be equal to the percentage of the outstanding
shares of Common Stock held by Minority Stockholders immediately prior to the
Conversion Transaction. The total number of shares held by Minority Stockholders
after the Conversion Transaction would also be affected by any purchases by such
persons in the offering that would be conducted as part of the Conversion
Transaction.
The Dividend Waiver Adjustment would decrease the percentage of the
to-be outstanding shares of common stock of the New Holding Company issued to
Minority Stockholders in exchange for their shares of Common Stock to reflect
(i) the aggregate amount of dividends waived by AF Mutual Holding Company and
(ii) assets other than Common Stock held by AF Mutual Holding Company. Pursuant
to the Dividend Waiver Adjustment, the percentage of the to-be outstanding
shares of the New Holding Company issued to Minority Stockholders in exchange
for their shares of Common Stock would be equal to the percentage of the
outstanding shares of Common Stock held by Minority Stockholders multiplied by
the Dividend Waiver Fraction. The Dividend Waiver Fraction is equal to the
product of (a) a fraction, of which the numerator is equal to Alamogordo
Financial's stockholders' equity at the time of the Conversion Transaction less
the aggregate amount of dividends waived by AF Mutual Holding Company and the
denominator is equal to Alamogordo Financial's stockholders' equity at the time
of the Conversion Transaction, and (b) a fraction, of which the numerator is
equal to the appraised pro forma market value of the New Holding Company minus
the value of AF Mutual Holding Company's assets other than Common Stock and the
denominator is equal to the pro forma market value of the New Holding Company.
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TAXATION
Federal Taxation
General. Alamogordo Financial and Alamogordo Federal are subject to the
corporate tax provisions of the Internal Revenue Code, and Alamogordo Federal is
subject to certain additional provisions which apply to thrift and other types
of financial institutions. The following discussion of federal taxation is
intended only to summarize certain pertinent federal income tax matters relevant
to the taxation of Alamogordo Financial and Alamogordo Federal and is not a
comprehensive discussion of the tax rules applicable to Alamogordo Financial and
Alamogordo Federal.
Fiscal Year. Alamogordo Financial and Alamogordo Federal file federal
income tax returns on the basis of a fiscal year ending on June 30, and it is
expected that separate returns will be filed for 1999 and 2000.
Bad Debt Reserves. In August 1997, legislation was enacted that
repealed the reserve method of accounting (including the percentage of taxable
income method) previously used by many savings institutions to calculate their
bad debt reserve for federal income tax purposes. Savings institutions with $500
million or less in assets may, however, continue to use the experience method.
Alamogordo Federal must recapture that portion of its reserve which exceeds the
amount that could have been taken under the experience method for post-1987 tax
years. The recapture will occur over a six-year period, commencing January 1,
1998. The legislation also requires savings institutions to account for bad
debts for federal income tax purposes on the same basis as commercial banks for
tax years beginning after December 31, 1995. This change in accounting method
and recapture of excess bad debt reserves is adequately provided for in
Alamogordo Federal's deferred tax liability.
At September 30, 1999, the federal income tax reserves of Alamogordo
Federal included $2.7 million for which no federal income tax has been provided.
Because of these federal income tax reserves, the retained earnings of
Alamogordo Federal are substantially restricted.
Distributions. If Alamogordo Federal were to distribute cash or
property to its stockholders, and the distribution was treated as being from its
accumulated bad debt reserves, the distribution would cause Alamogordo Federal
to have additional taxable income. A distribution is from accumulated bad debt
reserves if (a) the reserves exceed the amount that would have been accumulated
on the basis of actual loss experience, and (b) the distribution is a
"non-qualified distribution." A distribution with respect to stock is a
non-qualified distribution to the extent that, for federal income tax purposes,
o it is in redemption of shares,
o it is pursuant to a liquidation of the institution, or
o in the case of a current distribution, together with all other such
distributions during the taxable year, it exceeds the institution's
current and post-1951 accumulated earnings and profits.
The amount of additional taxable income created by a non-qualified distribution
is an amount that when reduced by the tax attributable to it is equal to the
amount of the distribution.
Minimum Tax. The Code imposes an alternative minimum tax at a rate of
20%. The alternative minimum tax generally applies to a base of regular taxable
income plus certain tax preferences ("alternative minimum taxable income" or
"AMTI") and is payable to the extent such AMTI is in excess of an exemption
amount. Tax preference items include the following:
o depreciation, and
o 75% of the excess (if any) of adjusted current earnings as defined
in the Code, over AMTI determined without regard to this preference
and prior to reduction by net operating losses).
Capital Gains and Corporate Dividends-Received Deduction. Corporate net
capital gains are taxed at a maximum rate of 35%. Corporations which own 20% or
more of the stock of a corporation distributing a dividend may deduct 80% of the
dividends received. Corporations which own less than 20% of the stock of a
corporation distributing a dividend may deduct 70% of the dividends received.
However, a corporation that receives dividends from a member of the same
affiliated group of corporations may deduct 100% of the dividends received.
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Other Matters. Federal legislation is introduced from time to time that
would limit the ability of individuals to deduct interest paid on mortgage
loans. Individuals are currently not permitted to deduct interest on consumer
loans. Significant increases in tax rates or further restrictions on the
deductibility of mortgage interest could adversely affect Alamogordo Federal.
Alamogordo Financial's federal income tax return for the fiscal year
ended June 30, 1998 has been audited, and there are no open years under the
statute of limitations that are subject to review by the IRS.
State Taxation
The State of New Mexico has a corporate tax which subjects Alamogordo
Federal's New Mexico taxable income to tax rates ranging from 4.80% to 7.65%.
New Mexico taxable income is computed by applying certain modifications to
federal taxable income. The principal difference between state and federal
taxable income is that interest earned on U.S. government obligations is not
taxable for state purposes.
MANAGEMENT
Shared Management Structure
We have the same directors and executive officers as Alamogordo
Federal. We expect that we will continue to have common directors and common
executive officers until there is a business reason to establish separate
management structures.
To date, Alamogordo Federal has compensated its directors and executive
officers for their services. Alamogordo Financial does not pay any additional
compensation. We expect to continue this practice until we have a business
reason to establish separate compensation programs. Until then, we expect
Alamogordo Financial to reimburse Alamogordo Federal for a part of the
compensation paid to each director and executive officer that is proportionate
to the amount of time which he or she devotes to performing services for
Alamogordo Financial.
Directors
Composition of Our Boards. We have five directors. Each belongs to one
of three classes with staggered three-year terms of office. One director is in a
class that has a term expiring in 2000. Two are in a class that has a term
expiring in 2001. Two are in a class that has a term expiring in 2002. At each
of our annual stockholder meetings, stockholders elect directors to fill the
seats of those directors whose terms are expiring in that year. As the sole
stockholder of Alamogordo Federal, we elect Alamogordo Federal's directors.
Alamogordo Federal currently has five directors. The directors of
Alamogordo Federal are divided into three classes with staggered three-year
terms of office, similar to our Board of Directors.
Who Our Directors Are. The following table states our directors' names,
their ages as of their birthdays in 1999, their positions, the years they began
serving as directors (including time spent on the Board of Directors of
Alamogordo Federal) and the years their current terms as directors will expire:
<TABLE>
<CAPTION>
Alamogordo Alamogordo Alamogordo
Federal Financial Financial
Name Age Positions Director Since Director Since Term Expires
- ------------------------- --- ------------------------- -------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Robert W. Hamilton ...... 80 Chairman 1958 1997 2002
S. Thomas Overstreet .... 62 Vice Chairman 1976 1997 2001
Marilyn L. Mott ......... 63 Director 1990 1997 2000
Earl E. Wallin .......... 71 Director 1982 1997 2002
R. Miles Ledgerwood ..... 44 Director, President and 1992 1997 2001
Chief Executive Officer
</TABLE>
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Who Our Executive Officers Are. The following table states the names of
our executive officers who are not also directors, their ages as of their
birthdays in 1999, their positions, and the years they began serving as
executive officers:
<TABLE>
<CAPTION>
Alamogordo Federal
Executive Officer
Name Age Positions Since
- ------------------------- --- ----------------------------------------- ------------------
<S> <C> <C> <C>
Norma J. Clute .......... 35 Vice President and Treasurer 1993
Howard M. Smith ......... 52 Vice President--Lending Operations 1995
Julia A. Eggleston ...... 48 Sr. Vice President, Chief Operating 1993
Officer and Secretary
Kemmie D. Jeter ......... 45 Vice President--Head of Teller Operations 1998
</TABLE>
Our Directors' and Executive Officers Backgrounds. The business
experience of our directors and executive officers is as follows:
Robert W. Hamilton. Mr. Hamilton has served as a director of Alamogordo
Federal since 1958. Mr. Hamilton is a retired funeral director.
S. Thomas Overstreet. Mr. Overstreet has served as a director of
Alamogordo Federal since 1976. Mr. Overstreet is an attorney in the law firm of
S. Thomas Overstreet and Associates, P.C.
Marilyn L. Mott. Ms. Mott has served as a director of Alamogordo
Federal since 1990. Ms. Mott is formerly an employee of Alamogordo Federal and
retired as a Vice President of Alamogordo Federal in 1989.
Earl E. Wallin. Mr. Wallin has served as a director of Alamogordo
Federal since 1982. Mr. Wallin was formerly employed by Alamogordo Federal as
its President and Chief Executive Officer until his retirement December 31,
1991.
R. Miles Ledgerwood. Mr. Ledgerwood has been employed by Alamogordo
Federal since 1983 and has served as its President and Chief Executive Officer
and as a director since 1992.
Norma J. Clute. Ms. Clute has been employed by Alamogordo Federal since
1991 and has served as our Vice President and Treasurer since 1993.
Howard M. Smith. Mr. Smith has been employed by Alamogordo Federal
since 1995 and has served as our Vice President since that date.
Julia A. Eggleston. Ms. Eggleston has been employed by Alamogordo
Federal since 1983 and has served as Senior Vice President, Chief Operating
Officer and Secretary since 1993.
Kemmie D. Jeter. Ms. Jeter has been employed by Alamogordo Federal
since 1972 and has served as Vice President and head of teller operations since
1998.
Meetings of the Board of Directors and Its Committees
Our board of directors meets on a quarterly basis and may hold
additional special meetings. During the fiscal year ended June 30, 1999, our
board of directors held three regular meetings and no special meetings, and no
director attended fewer than 75% of such meetings. Alamogordo Federal has a
standing audit committee that performs a similar function for Alamogordo
Financial. Our Board does not maintain a standing nominating or compensation
committee, although we intend to establish such committees following the
offering.
Alamogordo Federal's Board of Directors meets on a monthly basis and
may hold special meetings. During the fiscal year ended June 30, 1999, the
Alamogordo Federal Board of Directors held 12 regular meetings and no special
meetings. Alamogordo Federal has a standing Executive, Audit, Compliance and
Investment Committee. Alamogordo Federal's Audit Committee consists of Messrs.
Overstreet and Hamilton and Ms. Mott. Mr. Overstreet is the Chairman. The
Committee met nine times during the fiscal year ended June 30, 1999.
Director Compensation
During the fiscal year ended June 30, 1999, Alamogordo Financial did
not separately pay directors fees. During the fiscal year ended June 30, 1999,
Alamogordo Federal paid each of its directors a fee of $2,000 per
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month. The Chairman of the Board received an additional $800 per month and the
Vice Chairman received an additional $400 per month. In addition, the Chairs of
the Audit, Compliance and Investment Committee received additional monthly fees
of $350, $200, and $350, respectively. Alamogordo Federal paid fees totaling
$121,200 to its non-employee directors for the fiscal year ended June 30, 1999.
Executive Compensation
Summary Compensation Table. The following table provides information
about the compensation paid for 1999 to our Chief Executive Officer. No other
officer's total annual salary and bonus for 1999 totaled $100,000 or more.
<TABLE>
<CAPTION>
====================================================================================================================
Summary Compensation Table
- --------------------------------------------------------------------------------------------------------------------
Long-Term Compensation
Annual Compensation(1) Awards
-------------------------------------------- -----------------------
Other
Annual All Other
Fiscal Compensation Restricted Options/ Compensation
Name and Principal Position Year Salary($) Bonus($) ($)(2) Stock Awards SARs (#) ($)
- --------------------------- ------ --------- -------- ------------ ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Miles Ledgerwood, President,
Chief Executive Officer and
Director 1999 $114,500 $22,865 $-- -- -- $--
===================================================================================================================
</TABLE>
(1) The information provided is for the fiscal year ending June 30, 1999. In
accordance with the revised rules on executive officer and director
compensation disclosure adopted by the SEC, Summary Compensation
information is excluded for the calendar years ended June 30, 1998 and
1997, as Alamogordo Federal was not a public company during such periods.
(2) Does not include perquisites and personal benefits, the aggregate amount of
which does not exceed the lesser of $50,000 or 10% of the total salary and
bonus reported.
Benefit Plans
Defined Benefit Pension Plan. Alamogordo Federal maintains the
Financial Institutions Retirement Fund, which is a qualified, tax-exempt defined
benefit plan ("Retirement Plan"). All employees age 21 or older who have worked
at Alamogordo Federal for a period of one year in which they have 1,000 or more
hours of service are eligible for membership in the Plan. Once eligible, an
employee receives credit for all years of employment with Alamogordo Federal for
purposes of determining the employee's benefit service and vested percentage
under the Retirement Plan. Alamogordo Federal annually contributes an amount to
the Retirement Plan necessary to satisfy the actuarially determined minimum
funding requirements in accordance with the Employee Retirement Income Security
Act ("ERISA").
The regular form of all retirement benefits (i.e., normal, early or
disability) is payable in monthly installments for the life of the retiree plus
a retirement death benefit. An optional form of benefit may be selected instead
of the normal form of benefits. These optional forms include a higher monthly
installment payable for life and no further benefit upon death, a revised
monthly installment during the member's life with some other benefit payable
upon death and various annuity forms. Benefits payable upon death may be made in
a lump sum, installments over 10 years, or a lifetime annuity.
The normal retirement benefit payable annually ("regular annual
retirement allowance") at or after age 65, is an amount equal to 2% multiplied
by years of benefit service times average compensation based on the average of
the three years providing the highest average. A reduced benefit is payable as
early as age 45, after the member has become vested. A member is fully vested in
his account upon completion of five or more years of employment or upon
attaining normal retirement age. If a member dies in active service, his
beneficiary would be entitled to a lump sum death benefit equal to 100% of the
member's last 12 months' salary, plus an additional 10% of the salary for each
year of benefit service until a maximum of 300% of such salary is reached for 20
or more years, plus refund of the member's own contributions, if any, with
interest. If a member dies after becoming eligible for early retirement his
beneficiary would receive the higher of the active service death benefit
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or the retirement death benefit. The retirement death benefit is 12 times the
regular annual retirement allowance less the sum of the allowance payments made
before death.
The following table indicates the annual retirement benefit that would
be payable under the Retirement Plan upon retirement at age 65 in calendar year
1999, expressed in the form of a single life annuity for the average salary and
benefit service classifications specified below.
Highest Three-Year Years of Service and Benefit Payable at Retirement
Average -----------------------------------------------------------
Compensation 15 20 25 30 35 40
- ------------------ ------- ------- ------- ------- -------- --------
$ 50,000 $15,000 $20,000 $25,000 $30,000 $ 35,000 $ 40,000
$ 75,000 $22,500 $30,000 $37,500 $45,000 $ 52,500 $ 60,000
$100,000 $30,000 $40,000 $50,000 $60,000 $ 70,000 $ 80,000
$125,000 $37,500 $50,000 $62,500 $75,000 $ 87,500 $100,000
$160,000 $48,000 $64,000 $80,000 $96,000 $112,000 $128,000
As of June 30, 1999, R. Miles Ledgerwood had 15 years of benefit
service under the Retirement Plan.
401(k) Plan. Alamogordo Federal maintains a tax-qualified 401(k)
defined contribution plan for employees who have attained age 21 and have at
least one year of service. Eligible employees may make pre-tax contributions to
the 401(k) Plan through salary reduction elections, subject to limitations of
the Internal Revenue Code (for 1999, the annual limit is $10,000). Alamogordo
Federal may make a matching contribution to the 401(k) Plan in various amounts
on the first six percent (divided into four tiers) of annual compensation
contributed to the 401(k) Plan on a pre-tax basis by the eligible employee.
Alamogordo Federal may also make discretionary contributions to the 401(k) Plan,
which are allocated to eligible employees based on their relative compensation.
All employee contributions and employer discretionary contributions and
earnings thereon under the 401(k) plan are at all times fully 100% vested.
Employer matching contributions vest in a participant at the rate of 20% per
year after completing two years of service so that the participant is 100%
vested after six years of service. The 401(k) Plan permits employees to withdraw
salary reduction contributions prior to termination in the event the employee
suffers a financial hardship. In addition, the 401(k) Plan permits employees
that are fully vested in their accounts to withdraw Alamogordo Federal's
discretionary contributions prior to termination of employment.
Plan benefits will be paid to each participant in a lump sum, in
installments over a fixed period or part lump sum and part installments, upon
termination, disability or death. The 401(k) Plan permits employees to direct
the investment of their own accounts into various investment options.
At June 30, 1999, the market value of the 401(k) Plan equaled
approximately $445,611. Alamogordo Federal's matching contribution to the 401(k)
Plan for the Plan year ended December 31, 1998, was approximately $13,950.
Employee Stock Ownership Plan. This plan is a tax-qualified plan that
covers substantially all employees who have at least one year of service and
have attained age 21 and will take effect at the completion of the stock
offering.
Alamogordo Financial intends to lend this plan enough money to purchase
8% of the shares issued to investors other than AF Mutual Holding Company. The
plan will purchase these shares from Alamogordo Financial to the extent that
shares are available after filling the subscriptions of eligible account
holders. Otherwise, the plan will purchase these shares on the open market after
completion of the stock offering to the extent that shares are available for
purchase on reasonable terms. If this plan cannot purchase the shares that it
wants directly from Alamogordo Financial in the offering, there is no assurance
that it will purchase shares after the stock offering, or that such purchases
will occur during any particular time period or at any particular price.
Although contributions to this plan will be discretionary, Alamogordo
Federal intends to contribute enough money each year to make the required
principal and interest payments on the loan from Alamogordo Financial. It is
expected that this loan will be for a term of ten years and will call for level
annual payments of principal. The plan will initially pledge the shares it
purchases as collateral for the loan and hold them in a suspense account.
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<PAGE>
The plan will not distribute the pledged shares right away. Instead, it
will release a portion of the pledged shares annually. The plan will allocate
the shares released each year among the accounts of participants in proportion
to their salary for the year. For example, if a participant's salary for a year
represents 1% of the total salaries of all participants for the year, subject to
tax limitations, the plan would allocate to that participant 1% of the shares
released for the year. Participants direct the voting of shares allocated to
their accounts. Shares in the suspense account will usually be voted in a way
that mirrors the votes which participants cast for shares in their individual
accounts.
This plan may purchase additional shares in the future, and may do so
using borrowed funds, cash dividends, periodic employer contributions or other
cash flow.
The Employee Stock Ownership Plan provides additional and accelerated
benefits if we experience a change of control. Neither, the stock offering nor a
second step conversion will trigger additional benefits or accelerate benefits
under any of the plans or agreements.
Future Stock Benefit Plans
Stock Option Plan. We intend to implement a stock option plan for our
directors and officers after the stock offering. Applicable regulations prohibit
us from implementing this plan until six months after the stock offering. The
stock option plan that will authorize the Stock Plan Committee to grant options
to purchase a number of shares equal to up to 10% of the shares sold in the
offering. The Stock Plan Committee will decide which directors and officers will
receive options and what the terms of those options will be. Generally, no stock
option will permit its recipient to purchase shares at a price that is less than
the fair market value of a share on the date the option is granted, and no
option will have a term that is longer than 10 years. If we implement a stock
option plan before the first anniversary of the stock offering, applicable
regulations will require that we observe the following restrictions:
o We must obtain the approval of the holders of a majority of our
outstanding shares that are not owned by AF Mutual Holding Company.
o We must limit the total number of options awarded to outside directors
to 30% of the options authorized to be awarded under the plan.
o We must limit the number of options awarded to any one outside
director to 5% of the options authorized to be awarded under the plan
and the number of options awarded to any executive officer to 25% of
the options authorized to be awarded under the plan.
o We may not permit the options to become vested more rapidly than 20%
per year beginning on the first anniversary of stockholder approval of
the plan.
o We may not permit accelerated vesting for any reason other than death
or disability.
These restrictions are not required if the stock option plan is implemented more
than one year after the offering. After the first anniversary of the stock
offering, we may amend the plan to change or remove these restrictions. If we
adopt a stock option plan within one year after the stock offering, we expect to
amend the plan later to remove these restrictions and to provide for accelerated
vesting in cases of retirement and change of control.
We may obtain the shares needed for this plan by issuing additional
shares or through stock repurchases. Because we cannot issue new shares that
would reduce AF Mutual Holding Company's ownership position to less than a
majority of Alamogordo Financial's outstanding shares, we expect to obtain most
or all of the shares for this plan through stock repurchases. Our ability to
engage in stock repurchases may be restricted by Office of Thrift Supervision
regulations that prohibit us from repurchasing our common stock during the first
three years following our stock offering, unless we receive the prior approval
of the Office of Thrift Supervision.
We expect the stock option plan will permit the Stock Plan Committee to
grant either incentive stock options that qualify for special federal income tax
treatment or non-qualified stock options that do not qualify for special
treatment. Incentive stock options may be granted only to employees and will not
create federal income tax consequences when they are granted. If they are
exercised during employment or within three months after termination of
employment, the exercise will not create federal income tax consequences either.
When the shares acquired on exercise of an incentive stock option are resold,
the seller must pay federal income taxes on the amount by which the sales price
exceeds the purchase price. This amount will be taxed at capital gains rates if
the
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<PAGE>
sale occurs at least two years after the option was granted and at least one
year after the option was exercised. Otherwise, it is taxed as ordinary income.
Non-qualified stock options may be granted to either employees or
non-employees such as directors, consultants and other service providers.
Incentive stock options that are exercised more than three months after
termination of employment are treated as non-qualified stock options.
Non-qualified stock options will not create federal income tax consequences when
they are granted. When they are exercised, federal income taxes must be paid on
the amount by which the fair market value of the shares acquired by exercising
the option exceeds the exercise price. When the shares acquired on exercise of a
non-qualified stock option are resold, the seller must pay federal income taxes
on the amount by which the sales price exceeds the purchase price plus the
amount included in ordinary income when the option was exercised. This amount
will be taxed at capital gains rates, which will vary depending upon the time
that has elapsed since the exercise of the option.
When a non-qualified stock option is exercised, Alamogordo Financial
and Alamogordo Federal may be allowed a federal income tax deduction for the
same amount that the option holder includes in his or her ordinary income. This
amount may be the same as the related compensation expense or it may be
different. When an incentive stock option is exercised, there is no tax
deduction unless the shares acquired are resold sooner than two years after the
option was granted or one year after the option was exercised.
Recognition and Retention Plan. We intend to implement a recognition
and retention plan for our directors and officers after the stock offering.
Applicable regulations prohibit us from implementing this plan until six months
after the stock offering. The recognition and retention plan that will authorize
the Stock Plan Committee to make restricted stock awards of up to 4% of the
shares sold in the offering. In the event we initially implement the recognition
and retention plan more than 12 months after the stock offering, the recognition
and retention plan may authorize the Stock Plan Committee to award up to 5% of
the shares sold in the offering. The Stock Plan Committee will decide which
directors and officers will receive restricted stock and what the terms of those
awards will be. If we implement a recognition and retention plan before the
first anniversary of the stock offering, applicable regulations will require
that we observe the following restrictions:
o We must obtain the approval of the holders of a majority of our
outstanding shares that are not owned by AF Mutual Holding Company.
o We must limit the total number of shares awarded to outside directors
to 30% of the shares authorized to be awarded under the plan.
o We must limit the number of shares awarded to any one outside director
to 5% of the shares authorized to be awarded under the plan and the
number of shares awarded to any executive officer to 25% of the shares
authorized to be awarded under the plan.
o We may not permit the shares to become vested more rapidly than 20%
per year beginning on the first anniversary of stockholder approval of
the plan.
o We may not permit accelerated vesting for any reason other than death
or disability.
These restrictions are not required if the recognition and retention plan is
implemented more than one year after the offering. After the first anniversary
of the stock offering, we may amend the plan to change or remove these
restrictions. If we adopt a recognition and retention plan within one year after
the stock offering, we expect to amend the plan later to remove these
restrictions and to provide for accelerated vesting in cases of retirement and
change of control.
We may obtain the shares needed for this plan by issuing additional
shares or through stock repurchases. Because we cannot issue new shares that
would reduce AF Mutual Holding Company's ownership position to less than a
majority of Alamogordo Financial's outstanding shares, we expect to obtain most
or all of the shares for this plan through stock repurchases. Our ability to
engage in stock repurchases may be restricted by Office of Thrift Supervision
regulations that prohibit us from repurchasing our common stock during the first
three years following our stock offering, unless we receive the prior approval
of the Office of Thrift Supervision.
Restricted stock awards under this plan may feature employment
restrictions that require continued employment for a period of time for the
award to be vested. Awards are not vested unless the specified employment
restrictions are met. However, pending vesting, the award recipient may have
voting and dividend rights. When an award becomes vested, the recipient must
include the current fair market value of the vested shares in his income for
federal income tax purposes, and Alamogordo Financial will be allowed a federal
income
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<PAGE>
tax deduction in the same amount. Depending on the nature of the restrictions
attached to the restricted stock award, Alamogordo Financial may have to
recognize a compensation expense for accounting purposes ratably over the
vesting period.
Certain Transactions with Managers and Executive Officers
Federal regulations require that all loans or extensions of credit to
executive officers and directors must generally be made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons, unless the loan or
extension of credit is made under a benefit program generally available to all
other employees and does not give preference to any insider over any other
employee, and must not involve more than the normal risk of repayment or present
other unfavorable features. We currently do not make new loans or extensions of
credit to our executive officers, directors and employees at different rates or
terms than those offered to the general public. All loans to our directors,
officers and employees have been made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions, and do not involve more than minimal risk of collectibility.
S. Thomas Overstreet, who serves as a director of Alamogordo Financial
and Alamogordo Federal, is a partner of the law firm of S. Thomas Overstreet and
Associates, P.C., which represents Alamogordo Federal in mortgage loan
transactions. For the fiscal year ended June 30, 1999, Alamogordo Federal paid
legal fees to S. Thomas Overstreet and Associates, P.C. totaling $44,000. The
terms and conditions of these fees and services are substantially the same as
those for similar transactions with other parties.
Proposed Purchases of Common Stock by Management
The following table presents certain information as to the approximate
purchases of common stock by each of our directors and by executive officers as
a group, including their associates, as defined by applicable regulations. No
individual has entered into a binding agreement to purchase these shares and,
therefore, actual purchases could be more or less than indicated. For purposes
of the following table, sufficient shares are assumed to be available to satisfy
subscriptions in all categories. Our directors and executive officers and their
associates, and our employees will pay the same price as all other subscribers
for the shares for which they subscribe.
<TABLE>
<CAPTION>
As a Percentage of Shares Sold
------------------------------
Number Minimum Adjusted Maximum
Name Amount of shares of Offering Of Offering
- ------------------------------------ -------- --------- ----------- ----------------
<S> <C> <C> <C> <C>
Robert W. Hamilton ................. $150,000 15,000 2.1% 1.4%
S. Thomas Overstreet ............... 150,000 15,000 2.1 1.4
Marilyn L. Mott .................... 50,000 5,000 * *
Earl E. Wallin ..................... 50,000 5,000 * *
R. Miles Ledgerwood ................ 50,000 5,000 * *
Executive officers who are
not directors (4 persons) ........ 86,000 8,600 1.2 *
-------- ------ ---- ----
Total to be purchased by directors
and executive officers ......... $536,000 53,600 7.6% 4.9%
======== ====== ==== ====
</TABLE>
THE STOCK OFFERING
General
On October 19, 1999, Alamogordo Financial's Board of Directors
unanimously adopted the stock issuance plan pursuant to which Alamogordo
Financial will sell shares of its common stock depositors of Alamogordo Federal
and certain other persons, and issue shares of its common stock to AF Mutual
Holding Company. After the stock offering, purchasers in the offering will own
49.0% of Alamogordo Financial's outstanding shares of common stock, and AF
Mutual Holding Company will own 51.0% of Alamogordo Financial's outstanding
shares of common stock.
The aggregate price of the shares of common stock sold in the offering
will be within the offering range. The offering range of between $7.1 million
and $9.6 million has been established by the Board of Directors, based upon an
independent appraisal of the estimated pro forma market value of the common
stock of Alamogordo Financial. The appraisal was prepared by RP Financial, a
consulting firm experienced in the valuation and appraisal of savings
institutions. All shares of common stock to be sold in the offering will be sold
at the same price per share. The independent appraisal will be affirmed or, if
necessary, updated at the completion of the offering. See "How We Determined the
Offering Range and the $10.00 Price Per Share" for additional information as to
the determination of the estimated pro forma market value of the common stock.
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- --------------------------------------------------------------------------------
The following is a brief summary of pertinent aspects of the stock offering. The
summary is qualified in its entirety by reference to the provisions of the stock
issuance plan. A copy of the plan is available from Alamogordo Federal upon
request and is available for inspection at the offices of Alamogordo Federal and
at the Office of Thrift Supervision. The plan is also filed as an exhibit to the
Registration Statement of which this prospectus is a part, copies of which may
be obtained from the Securities and Exchange Commission. See "Where You Can Find
Additional Information."
- --------------------------------------------------------------------------------
Reasons for the Stock Offering
The proceeds from the sale of common stock of Alamogordo Financial will
provide Alamogordo Federal with additional capital, which may be used to support
future growth, internally or through acquisitions. The stock offering will also
enable Alamogordo Financial and Alamogordo Federal to increase their capital in
response to any future regulatory capital requirements. Although Alamogordo
Federal currently exceeds all regulatory capital requirements, the sale of
common stock will assist Alamogordo Federal with the orderly preservation and
expansion of its capital base and will provide flexibility to respond to sudden
and unanticipated capital needs.
In addition, since Alamogordo Federal competes with local and regional
banks not only for customers, but also for employees, we believe that the stock
offering will also afford us the opportunity to attract and retain management
and employees through various stock benefit plans, including incentive stock
option plans, restricted stock plans and an employee stock ownership plan.
After completion of the stock offering, the unissued common and
preferred stock authorized by Alamogordo Financial's Charter, as well as any
treasury shares that may have been repurchased, will permit Alamogordo Financial
to raise additional equity capital through further sales of securities and may
permit Alamogordo Financial to issue securities in connection with possible
acquisitions, subject to market conditions and any required regulatory approval.
Alamogordo Financial currently has no plans with respect to additional offerings
of securities.
The stock offering proceeds will provide additional flexibility to grow
through acquisitions of other financial institutions or other businesses.
Although there are no current arrangements, understandings or agreements,
written or oral, regarding any such opportunities, Alamogordo Financial will be
in a position after the stock offering to take advantage of any such favorable
opportunities that may arise. See "How We Intend to Use the Proceeds from the
Offering" for a description of our intended use of proceeds.
After considering the advantages and disadvantages of the stock
offering, as well as applicable fiduciary duties, the Board of Directors of
Alamogordo Financial unanimously approved the stock offering as being in the
best interests of Alamogordo Financial, Alamogordo Federal, and Alamogordo
Federal's depositors and the communities we serve.
How We Determined the Offering Range and the $10.00 Price Per Share
The stock issuance plan requires that the purchase price of the common
stock must be based on the appraised pro forma market value of Alamogordo
Financial, as determined on the basis of an independent valuation. Alamogordo
Financial retained RP Financial, LC to perform this valuation. For its services
in making this appraisal and assistance in preparing a business plan, RP
Financial's fees and out-of-pocket expenses are estimated to be $25,000.
Alamogordo Financial has agreed to indemnify RP Financial and any employees of
RP Financial who act for or on behalf of RP Financial in connection with the
appraisal against any and all loss, cost, damage, claim, liability or expense of
any kind, including claims under federal and state securities laws, arising out
of any misstatement or untrue statement of a material fact or an omission to
state a material fact in the information supplied by Alamogordo Financial to RP
Financial, unless RP Financial is determined to be negligent or otherwise at
fault.
An appraisal has been made by RP Financial in reliance upon the
information contained in this prospectus, including the Consolidated Financial
Statements. RP Financial also considered the following factors, among others:
o the present and projected operating results and financial
condition of Alamogordo Financial and Alamogordo Federal and the
economic and demographic conditions in Alamogordo Federal's
existing marketing areas;
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o certain historical, financial and other information relating to
Alamogordo Financial; a comparative evaluation of the operating
and financial statistics of Alamogordo Financial with those of
other similarly situated publicly traded mutual holding
companies;
o the aggregate size of the offering of the common stock;
o the impact of the stock offering on Alamogordo Financial's net
worth and earnings potential;
o the proposed dividend policy of Alamogordo Financial; and
o the trading market for securities of comparable institutions and
general conditions in the market for such securities.
In its review of the appraisal provided by RP Financial, the board of
directors reviewed the methodologies and the appropriateness of the assumptions
used by RP Financial in addition to the factors listed above, and the board of
directors believes that these assumptions were reasonable.
On the basis of the foregoing, RP Financial has advised Alamogordo
Financial that in its opinion, dated December 10, 1999, the estimated pro forma
market value of the common stock on a fully converted basis, ranged from a
minimum of $14.5 million to a maximum of $19.6 million with a midpoint of $17.0
million. The board of directors of Alamogordo Financial determined that the
common stock should be sold at $10.00 per share and that of the shares
outstanding immediately after the offering, 49.0% should be held by purchasers
in the offering, and 51.0% should be held by AF Mutual Holding Company. Based on
the estimated valuation range and the purchase price, the number of shares of
Alamogordo Financial's common stock that will be outstanding upon completion of
the stock offering will range from 1,445,000 to 1,955,000, and the number of
shares of Alamogordo Financial's common stock that will be sold in the stock
offering will range from between 708,050 shares to 957,950 shares, with a
midpoint of 833,000 shares. The number of shares that AF Mutual Holding Company
will own after the offering will range from 736,950 to 997,050. The estimated
valuation range may be amended with the approval of the Office of Thrift
Supervision, if required, or if necessitated by subsequent developments in the
financial condition of Alamogordo Financial and Alamogordo Federal or market
conditions generally, or to fill the order of the employee stock ownership plan.
In the event the estimated valuation range is updated to amend the value of the
common stock below $14.45 million or above $22.5 million, which is the maximum
of the estimated valuation range, as adjusted by 15%, the new appraisal will be
filed with the Securities and Exchange Commission.
RP Financial's valuation is not intended, and must not be construed, as
a recommendation of any kind as to the advisability of purchasing these shares.
RP Financial did not independently verify the consolidated financial statements
and other information provided by Alamogordo Financial, nor did RP Financial
value independently the assets or liabilities of Alamogordo Financial. The
valuation considers Alamogordo Financial as a going concern and should not be
considered as an indication of the liquidation value of Alamogordo Financial.
Moreover, because this valuation is necessarily based upon estimates and
projections of a number of matters, all of which are subject to change from time
to time, no assurance can be given that persons purchasing common stock in the
stock offering will thereafter be able to sell such shares at prices at or above
the purchase price or in the range of the valuation described above.
Prior to completion of the stock offering, the maximum of the estimated
pro forma market value of the common stock on a fully converted basis may be
increased by up to 15% to up to $22.5 million and the maximum number of shares
that will be outstanding immediately following the offering may be increased by
up to 15% to up to 2,248,251 shares. If the maximum of the estimated pro forma
market value is increased, then the maximum number of shares sold in the
offering will also be increased by up to 15% to 1,101,643 shares, and the
maximum number of shares held by AF Mutual Holding Company immediately following
the offering will also be increased by up to 15% to 1,146,608 shares. The
increase in the estimated pro forma market value of the common stock on a fully
converted basis may occur as a result of regulatory considerations, demand for
shares, or changes in market conditions or general financial and economic
conditions following commencement of the offering and will not require a
resolicitation of subscribers. See "-- Limitations on Stock Purchases" as to the
method of distribution and allocation of additional shares that may be issued in
the event of an increase in the estimated offering range to fill unfilled orders
in the Subscription Offering.
In the event that regulatory considerations, demand for shares, or
changes in market conditions or general financial and economic conditions
following commencement of the offering result in an increase in the maximum of
the estimated pro forma market value of the common stock of greater than 15%, or
a decrease in the minimum of the estimated pro forma market value of the common
stock, purchasers will be resolicited and be permitted to
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continue their orders, in which case they will need to reconfirm their
subscriptions prior to the expiration of the resolicitation offering or their
subscription funds will be promptly refunded with interest at Alamogordo
Federal's passbook rate of interest, or be permitted to modify or rescind their
subscriptions. If the maximum number of shares of common stock sold in the stock
offering is increased due to an increase of no more than 15% in the estimated
pro forma market value of the common stock, persons who subscribed for the
maximum number of shares will not be given the opportunity to subscribe for the
adjusted maximum number of shares. See "-- Limitations on Stock Purchases."
An increase in the number of shares of common stock outstanding after
conclusion of the offering as a result of an increase in the estimated pro forma
market value of the common stock would decrease both the percentage of
Alamogordo Financial's outstanding shares owned by a subscriber and Alamogordo
Financial's pro forma net income and stockholders' equity on a per share basis
while increasing pro forma net income and stockholders' equity on an aggregate
basis. A decrease in the number of shares of common stock outstanding would
increase both a subscriber's ownership interest and Alamogordo Financial's pro
forma net income and stockholders 'equity on a per share basis while decreasing
pro forma net income and stockholders' equity on an aggregate basis. See "Pro
Forma Data."
No sale of shares of common stock in the stock offering may be
completed unless prior to such completion RP Financial confirms that nothing of
a material nature has occurred which, taking into account all relevant factors,
would cause it to conclude that the aggregate value of the common stock to be
issued is materially incompatible with the estimate of the aggregate
consolidated pro forma market value of Alamogordo Financial. If this
confirmation is not received, Alamogordo Financial may cancel the stock
offering, extend the stock offering and establish a new estimated valuation
range and/or estimated price range, extend, reopen or hold a new offering or
take any other action the Office of Thrift Supervision may permit.
Copies of the appraisal report of RP Financial, including any
amendments, and the detailed report of the appraiser setting forth the method
and assumptions for the appraisal are available for inspection at the main
office of Alamogordo Federal and the other locations specified under "Additional
Information."
Subscription Offering and Subscription Rights
Under the stock issuance plan, rights to subscribe for the purchase of
common stock have been granted to the following persons in the following order
of descending priority:
o depositors with accounts at Alamogordo Federal with total account
balances of at least $50 as of the close of business on September
30, 1998 ("Eligible Account Holders"),
o Tax-Qualified Employee Plans,
o depositors with accounts at Alamogordo Federal with total account
balances of at least $50 as of the close of business on December
31, 1999 ("Supplemental Eligible Account Holders"),and
o Directors, Officers and Employees of Alamogordo Federal.
All subscriptions received will be subject to the availability of
common stock after satisfaction of all subscriptions of all persons having prior
rights in the subscription offering and to the maximum and minimum purchase
limitations set forth in the stock issuance plan and as described below under
"--Limitations on Stock Purchases."
Priority 1: Eligible Account Holders. Each Eligible Account Holder
shall receive, without payment, first priority, nontransferable subscription
rights to subscribe for shares of common stock in an amount equal to the greater
of:
o $150,000 or 15,000 shares of common stock;
o one-tenth of one percent of the total offering of shares of
common stock; or
o 15 times the product (rounded down to the next whole number)
obtained by multiplying the total number of shares of common
stock to be issued by a fraction, of which the numerator is the
amount of the qualifying deposit of the Eligible Account Holder
and the denominator is the total amount of qualifying deposits of
all Eligible Account Holders in Alamogordo Federal in each
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case as of the close of business on September 30, 1998, subject
to the overall purchase limitations. See "-- Limitations on Stock
Purchases."
If there are not sufficient shares available to satisfy all
subscriptions, shares first will be allocated among subscribing Eligible Account
Holders so as to permit each such Eligible Account Holder, to the extent
possible, to purchase a number of shares sufficient to make his total allocation
equal to the lesser of the number of shares subscribed for or 100 shares.
Thereafter, any shares remaining after each subscribing Eligible Account Holder
has been allocated the lesser of the number of shares subscribed for or 100
shares will be allocated among the subscribing Eligible Account Holders pro rata
whose subscriptions remain unfilled in the proportion that the amounts of their
respective qualifying deposits bear to the total amount of qualifying deposits
of all subscribing Eligible Account Holders whose subscriptions remain unfilled.
Subscription Rights of Eligible Account Holders will be subordinated to the
priority rights of Tax-Qualified Employee Plans to purchase shares in excess of
the maximum of the estimated offering range.
To ensure proper allocation of stock, each Eligible Account Holder must
list on his subscription order form all accounts in which he has an ownership
interest. Failure to list an account could result in fewer shares being
allocated than if all accounts had been disclosed. The subscription rights of
Eligible Account Holders who are also directors or officers of Alamogordo
Federal or their associates will be subordinated to the subscription rights of
other Eligible Account Holders to the extent attributable to increased deposits
in the year preceding September 30, 1998.
Priority 2: Tax-Qualified Employee Plans. Each Tax-Qualified Employee
Plan, including the employee stock ownership plan shall be entitled to receive,
without payment therefor, second priority, nontransferable subscription rights
to purchase up to 10% of common stock, provided that individually or in the
aggregate such plans (other than that portion of such plans which is
self-directed) shall not purchase more than 10% of the shares of common stock,
including any increase in the number of shares of common stock after the date
hereof as a result of an increase of up to 15% in the maximum of the estimated
offering range. The employee stock ownership plan intends to purchase 8.0% of
the shares of common stock sold in the stock offering. Subscriptions by any of
the Tax-Qualified Employee Plans will not be aggregated with shares of common
stock purchased directly by or which are otherwise attributable to any other
participants in the stock offering, including subscriptions of any of Alamogordo
Federal's directors, officers, employees or associates thereof. Subscription
rights received pursuant to this Priority shall be subordinated to all rights
received by Eligible Account Holders to purchase shares pursuant to Priority 1;
provided, however, that notwithstanding any other provision of the stock
issuance plan to the contrary, the Tax-Qualified Employee Plans shall have a
first priority subscription right to the extent that the total number of shares
of common stock sold in the stock offering exceeds the maximum of the offering
range as set forth in this prospectus. In the event that the total number of
shares offered in the stock offering is increased to an amount greater than the
number of shares representing the maximum of the estimated offering range, each
Tax-Qualified Employee Plan will have a priority right to purchase any such
shares exceeding the maximum of the estimated offering range up to an aggregate
of 10% of the common stock sold in the stock offering. See "Management -
Benefits -- Employee Stock Ownership Plan."
Priority 3: Supplemental Eligible Account Holders. To the extent that
there are sufficient shares remaining after satisfaction of subscriptions by
Eligible Account Holders and the Tax-Qualified Employee Plans, each Supplemental
Eligible Account Holder shall be entitled to receive, without payment therefor,
third priority, nontransferable subscription rights to subscribe for shares of
common stock in an amount equal to the greater of:
o $150,000 or 15,000 shares of common stock;
o one-tenth of one percent of the total offering of shares of
common stock; or
o 15 times the product (rounded down to the next whole
number)obtained by multiplying the total number of shares of
common stock to be issued by a fraction, of which the numerator
is the amount of the qualifying deposit of the Supplemental
Eligible Account Holder and the denominator of which is the total
amount of qualifying deposits of all Supplemental Eligible
Account Holders in Alamogordo Federal in each case on the close
of business on December 31, 1999, subject to the overall purchase
limitations. See "--Limitations on Stock Purchases."
If there are not sufficient shares available to satisfy all
subscriptions of all Supplemental Eligible Account Holders, available shares
first will be allocated among subscribing Supplemental Eligible Account Holders
so as to permit each such Supplemental Eligible Account Holder, to the extent
possible, to purchase a number of shares sufficient to make his total allocation
(including the number of shares, if any, allocated in accordance with Priority
1) equal to the lesser of the number of shares subscribed for or 100 shares.
Thereafter, any shares
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remaining available will be allocated among the Supplemental Eligible Account
Holders pro rata whose subscriptions remain unfilled in the proportion that the
amounts of their respective qualifying deposits bear to the total amount of
qualifying deposits of all subscribing Supplemental Eligible Account Holders
whose subscriptions remain unfilled.
Priority 4: Directors, Officers and Employees. To the extent that there
are sufficient shares remaining after satisfaction of all subscriptions by
Eligible Account Holders, the Tax-Qualified Employee Plans, Supplemental
Eligible Account Holders and Other Members, then directors, officers and
employees of Alamogordo Federal as of the date of the commencement of the stock
offering shall be entitled to receive, without payment, fourth priority,
nontransferable subscription rights to purchase in this category up to $150,000
or 15,000 shares of common stock. The ability of directors, officers and
employees to purchase common stock under this category is in addition to rights
which are otherwise available to them under the stock issuance plan as they may
fall within higher priority categories, and the stock issuance plan generally
allows such persons to purchase in the aggregate up to 32% of common stock sold
in the stock offering. See "--Limitations on Stock Purchases."
In the event of an oversubscription in this category, the shares
available shall be allocated pro rata among all of the subscribing directors,
officers and employees in this category.
Expiration Date for the Subscription Offering. The Subscription
Offering will expire at Noon, Mountain Standard Time, on March ___, 2000 (the
"Subscription Expiration Date"), unless extended for up to 45 days or for such
additional periods by Alamogordo Financial as may be approved by the Office of
Thrift Supervision. Subscription rights which have not been exercised prior to
the Subscription Expiration Date (unless extended) will become void.
Alamogordo Financial will not execute orders until at least the minimum
number of shares of common stock offered in the offering have been subscribed
for or otherwise sold. If all shares have not been subscribed for or sold within
45 days after the Subscription Expiration Date, unless this period is extended
with the consent of the Office of Thrift Supervision, all funds delivered to
Alamogordo Federal pursuant to the Subscription Offering will be returned
promptly to the subscribers with interest and all withdrawal authorizations will
be canceled. If an extension beyond the 45-day period following the Subscription
Expiration Date is granted, Alamogordo Financial will notify subscribers of the
extension of time and of any rights of subscribers to modify or rescind their
subscriptions.
Community Offering
To the extent that shares remain available for purchase after
satisfaction of all subscriptions of Eligible Account Holders, the Tax-Qualified
Employee Plans, Supplemental Eligible Account Holders, and Directors, officers
and employees of Alamogordo Federal, we anticipate we will offer shares pursuant
to the stock issuance plan to certain members of the general public, with
preference given to natural persons residing in the New Mexico Counties of Otero
and Lincoln. These natural persons are referred to as Preferred Subscribers.
Persons, together with an Associate or group of persons acting in concert with
such persons, may not subscribe for or purchase more than $150,000 of common
stock in the Community Offering, if any. Alamogordo Financial may limit total
subscriptions under this section so as to assure that the number of shares
available for the public offering may be up to a specified percentage of the
number of shares of common stock. Finally, Alamogordo Financial may reserve
shares offered in the Community Offering for sales to institutional investors.
The opportunity to subscribe for shares of common stock in any Community
Offering will be subject to the right of Alamogordo Financial, in its sole
discretion, to accept or reject any such orders in whole or in part from any
person either at the time of receipt of an order or as soon as practicable
following the Expiration Date. The Community Offering, if any, shall commence
concurrently with, during or promptly after the Subscription Offering.
In the event of an oversubscription for shares in the Community
Offering, shares may be allocated, to the extent shares remain available, first
to each Preferred Subscriber whose order is accepted by Alamogordo Financial.
Thereafter, shares may be allocated to cover the orders of any other person
subscribing for shares in the Community Offering so that each such person
subscribing for shares may receive 1,000 shares, if available, and thereafter on
a pro rata basis to such person based on the amount of their respective
subscriptions.
Persons Who are Not Permitted to Participate in the Stock Offering
Alamogordo Financial will make reasonable efforts to comply with the
securities laws of all states in the United States in which persons entitled to
subscribe for stock pursuant to the stock issuance plan reside.
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However, Alamogordo Financial is not required to offer stock in the Subscription
Offering to any person who resides in a foreign country or resides in a state of
the United States with respect to which:
o the number of persons otherwise eligible to subscribe for shares
under the plan of stock issuance plan who reside in such
jurisdiction is small;
o the granting of subscription rights or the offer or sale of
shares of common stock to such persons would require any of
Alamogordo Financial and Alamogordo Federal or their officers,
directors or employees, under the laws of such jurisdiction, to
register as a broker, dealer, salesman or selling agent or to
register or otherwise qualify its securities for sale in such
jurisdiction or to qualify as a foreign corporation or file a
consent to service of process in such jurisdiction; and
o such registration, qualification or filing in the judgment of
Alamogordo Financial would be impracticable or unduly burdensome
for reasons of cost or otherwise.
Where the number of persons eligible to subscribe for shares in one
state is small, Alamogordo Financial will base its decision as to whether or not
to offer the common stock in that state on a number of factors, including but
not limited to the size of accounts held by account holders in the state, the
cost of registering or qualifying the shares or the need to register Alamogordo
Financial, its officers, directors or employees as brokers, dealers or salesmen.
Limitations on Stock Purchases
The stock issuance plan includes the following limitations on the
number of shares of Alamogordo Financial common stock which may be purchased in
the stock offering:
(1) No fewer than 25 shares of common stock may be purchased, to the
extent shares are available;
(2) Each Eligible Account Holder may subscribe for and purchase in
the Subscription Offering up to the greater of:
o $150,000 or 15,000 shares of common stock;
o one-tenth of one percent of the total offering of shares of
common stock; or
o 15 times the product (rounded down to the next whole number)
obtained by multiplying the total number of shares of common
stock to be issued by a fraction, of which the numerator is
the amount of the qualifying deposit of the Eligible Account
Holder and the denominator is the total amount of qualifying
deposits of all Eligible Account Holders in Alamogordo
Federal in each case as of the close of business on the
Eligibility Record Date, subject to the overall limitation
in clause (7) below;
(3) The Tax-Qualified Employee Plans, including an employee stock
ownership plan, may purchase in the aggregate up to 10% of the
shares of common stock sold in the stock issuance, including any
additional shares issued in the event of an increase in the
estimated offering range; although at this time the employee
stock ownership plan intends to purchase only 8.0% of such
shares;
(4) Each Supplemental Eligible Account Holder may subscribe for and
purchase in the Subscription Offering up to the greater of:
(a) $150,000 or 15,000 shares of common stock;
(b) one-tenth of one percent of the total offering of shares of
common stock; or
(c) 15 times the product (rounded down to the next whole
number)obtained by multiplying the total number of shares of
common stock to be issued by a fraction, of which the
numerator is the amount of the qualifying deposit of the
Supplemental Eligible Account Holder and the denominator is
the total amount of qualifying deposits of all Supplemental
Eligible Account Holders in Alamogordo Federal in each case
as of the close of business on the Supplemental Eligibility
Record Date, subject to the overall limitation in clause (7)
below;
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(5) Persons purchasing shares of common stock in the Community
Offering or Public Offering may purchase in the Community
Offering or Public Offering up to $150,000 or 15,000 shares of
common stock, subject to the overall limitation in clause (7)
below;
(6) Except for the Tax-Qualified Employee Plans and certain Eligible
Account Holders and Supplemental Eligible Account Holders whose
subscription rights are based upon the amount of their deposits,
the maximum number of shares of Alamogordo Financial common stock
subscribed for or purchased in all categories of the stock
offering by any person, together with associates of and groups of
persons acting in concert with such persons, shall not exceed
$200,000 or 20,000 shares of common stock; and
(7) No more than 32% of the total number of shares offered for sale
in the stock offering may be purchased by directors and officers
of Alamogordo Federal and their associates in the aggregate,
excluding purchases by the Tax-Qualified Employee Plans.
Subject to any required regulatory approval and the requirements of
applicable laws and regulations, the board of directors of Alamogordo Financial
may, in its sole discretion, increase the individual amount permitted to be
subscribed for to a maximum of 9.99% of the number of shares sold in the stock
offering, provided that orders for shares exceeding 5% of the shares being
offered in the stock offering shall not exceed, in the aggregate, 10% of the
shares being offered in the stock offering. Requests to purchase additional
shares of common stock will be allocated by the boards of directors on a pro
rata basis giving priority in accordance with the preference categories set
forth in this prospectus.
The term "associate" when used to indicate a relationship with any
person means:
o any corporation or organization (other than Alamogordo Federal,
Alamogordo Financial, AF Mutual Holding Company or a
majority-owned subsidiary of any of them) of which such person is
a director, officer or partner or is directly or indirectly the
beneficial owner of 10% or more of any class of equity
securities;
o any trust or other estate in which such person has a substantial
beneficial interest or as to which such person serves as trustee
or in a similar fiduciary capacity;
o any relative or spouse of such person, or any relative of such
spouse, who has the same home as such person or who is a director
or officer of Alamogordo Federal, AF Mutual Holding Company,
Alamogordo Financial or any subsidiary of AF Mutual Holding
Company or Alamogordo Financial or any affiliate thereof; and
o any person acting in concert with any of the persons or entities
specified above; provided, however, that Tax-Qualified or Non-Tax
Qualified Employee Plans shall not be deemed to be an associate
of any director or officer of Alamogordo Federal, Alamogordo
Financial or AF Mutual Holding Company, to the extent provided in
the stock issuance plan. When used to refer to a person other
than an officer or director of Alamogordo Federal, the board of
directors of Alamogordo Financial or officers delegated by the
board of directors in their sole discretion may determine the
persons that are associates of other persons.
The term "acting in concert" is defined to mean knowing participation
in a joint activity or interdependent conscious parallel action towards a common
goal whether or not pursuant to an express agreement, or a combination or
pooling of voting or other interests in the securities of an issuer for a common
purpose pursuant to any contract, understanding, relationship, agreement or
other arrangement, whether written or otherwise. A person or company which acts
in concert with another person or company shall also be deemed to be acting in
concert with any person or company who is also acting in concert with that other
party, except that the Tax-Qualified Employee Plans will not be deemed to be
acting in concert with their trustees or a person who serves in a similar
capacity solely for the purpose of determining whether stock held by the trustee
and stock held by each plan will be aggregated. The determination of whether a
group is acting in concert shall be made solely by the board of directors of
Alamogordo Financial or officers delegated by such board of directors and may be
based on any evidence upon which such board or delegatee chooses to rely.
Marketing Arrangements
Alamogordo Financial has retained Charles Webb & Company to consult
with and to advise Alamogordo Financial, and to assist Alamogordo Financial, on
a best efforts basis, in the distribution of the shares of common
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stock in the Subscription Offering and Community Offering. The services that
Charles Webb & Company will provide include, but are not limited to:
o training the employees of Alamogordo Federal who will perform
certain ministerial functions in the Subscription Offering and
Community Offering regarding the mechanics and regulatory
requirements of the stock offering process;
o managing the stock information centers by assisting interested
stock subscribers and by keeping records of all stock orders; and
o preparing marketing materials.
For its services, Charles Webb & Company will receive a management fee
of $25,000 and a success fee of $75,000. Alamogordo Financial has agreed to
indemnify Charles Webb & Company against certain claims or liabilities,
including certain liabilities under the Securities Act of 1933, as amended, and
will contribute to payments Charles Webb & Company may be required to make in
connection with any such claims or liabilities.
Sales of shares of Alamogordo Financial common stock will be made by
registered representatives affiliated with Charles Webb & Company. Charles Webb
& Company has undertaken that the shares of Alamogordo Financial common stock
will be sold in a manner that satisfy the distribution standards of any stock
market on which the common stock will trade. A stock information center will be
established at the main office of Alamogordo Federal in Alamogordo, New Mexico.
Alamogordo Financial will rely on Rule 3a4-1 of the Securities Exchange Act of
1934 and sales of Alamogordo Financial common stock will be conducted within the
requirements of this rule, so as to permit officers, directors and employees to
participate in the sale of Alamogordo Financial common stock in those states
where the law permits. No officer, director or employee of Alamogordo Financial
or Alamogordo Financial will be compensated directly or indirectly by the
payment of commissions or other remuneration in connection with his or her
participation in the sale of common stock.
Procedure for Purchasing Shares in the Subscription Offering
To ensure that each purchaser receives a prospectus at least 48 hours
before the Subscription Expiration Date (unless extended) in accordance with
Rule 15c2-8 of the Securities Exchange Act of 1934, no prospectus will be mailed
any later than five days prior to such date or hand delivered any later than two
days prior to such date. Execution of the order form will confirm receipt or
delivery in accordance with Rule 15c2-8. Order forms will only be distributed
with a prospectus.
To purchase shares in the Subscription Offering, an executed order form
with the required payment for each share subscribed for, or with appropriate
authorization for withdrawal from a deposit account at Alamogordo Federal, which
may be given by completing the appropriate blanks in the order form, must be
received by Alamogordo Federal by Noon, Mountain Standard Time, on the
Subscription Expiration Date, unless extended. In addition, Alamogordo Financial
will require a prospective purchaser to execute a certification in the form
required by applicable Office of Thrift Supervision regulations in connection
with any sale of common stock. Order forms which are not received by this time
or are executed defectively or are received without full payment, or appropriate
withdrawal instructions, are not required to be accepted. In addition,
Alamogordo Financial will not accept orders submitted on photocopied or
facsimiled order forms nor order forms unaccompanied by an executed
certification form. Alamogordo Financial has the right to waive or permit the
correction of incomplete or improperly executed forms, but does not represent
that it will do so. Once received, an executed order form may not be modified,
amended or rescinded without the consent of Alamogordo Financial, unless the
stock offering has not been completed within 45 days after the end of the
Subscription Offering, or this period has been extended.
In order to ensure that Eligible Account Holders, Tax-Qualified
Employee Plans, Supplemental Eligible Account Holders, and directors, officers
and employees are properly identified as to their stock purchase priority,
depositors as of the close of business on the Eligibility Record Date (September
30, 1998) or the Supplemental Eligibility Record Date (December 31, 1999) must
list all accounts on the stock order form giving all names in each account and
the account numbers.
Payment for subscriptions may be made:
o by check or money order;
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o by authorization of withdrawal from deposit accounts maintained
with Alamogordo Federal (including a certificate of deposit); or
o in cash, if delivered in person at any full-service banking
office of Alamogordo Federal, although we request that you
exchange cash for a check with any of our tellers;
No wire transfers will be accepted. Interest will be paid on payments made by
cash, check or money order at our then-current passbook yield from the date
payment is received until completion of the stock offering. If payment is made
by authorization of withdrawal from deposit accounts, the funds authorized to be
withdrawn from a deposit account will continue to accrue interest at the
contractual rate, but may not be used by the subscriber until all of Alamogordo
Financial common stock has been sold or the stock issuance plan is terminated,
whichever is earlier.
If a subscriber authorizes Alamogordo Financial to withdraw the amount
of the purchase price from his deposit account, Alamogordo Financial will do so
as of the effective date of the stock offering. Alamogordo Federal will waive
any applicable penalties for early withdrawal from certificate accounts.
In the event of an unfilled amount of any subscription order,
Alamogordo Financial will make an appropriate refund or cancel an appropriate
portion of the related withdrawal authorization, after completion of the stock
offering. If for any reason the stock offering is not consummated, purchasers
will have refunded to them all payments made, with interest, and all withdrawal
authorizations will be canceled in the case of subscription payments authorized
from accounts at Alamogordo Federal.
If any Tax-Qualified Employee Plans or Non-Tax-Qualified Employee Plans
subscribe for shares during the Subscription Offering, these plans will not be
required to pay for the shares subscribed for at the time they subscribe, but
rather, may pay for shares of common stock subscribed for at the purchase price
upon completion of the Subscription Offering and Community Offering, if all
shares are sold, or upon completion of the Public Offering if shares remain to
be sold in such offering. In the event that, after the completion of the
Subscription Offering, the amount of shares to be issued is increased above the
maximum of the estimated valuation range included in this prospectus, the
Tax-Qualified and Non-Tax-Qualified Employee Plans will be entitled to increase
their subscriptions by a percentage equal to the percentage increase in the
amount of shares to be issued above the maximum of the estimated valuation
range, provided that such subscription will continue to be subject to applicable
purchase limits and stock allocation procedures.
Owners of self-directed IRAs may use the assets of such IRAs to
purchase shares of Alamogordo Financial common stock in the Subscription
Offering and Community Offering. ERISA provisions and IRS regulations require
that officers, directors and 10% stockholders who use self-directed IRA funds to
purchase shares of common stock in the stock offering make such purchases for
the exclusive benefit of the IRAs. IRAs maintained at Alamogordo Federal are not
self-directed IRAs and any interested parties wishing to use IRA funds for stock
purchases are advised to contact the stock information center at the number
given on the cover page of this prospectus for additional information.
The records of Alamogordo Federal will be deemed to control with
respect to all matters related to the existence of subscription rights and/or
one's ability to purchase shares of common stock in the Subscription Offering.
Restrictions on Transfer of Subscription Rights and Shares
Pursuant to the rules and regulations of the Office of Thrift
Supervision, no person with subscription rights may transfer or enter into any
agreement or understanding to transfer the legal or beneficial ownership of the
subscription rights issued under the stock issuance plan or the shares of common
stock to be issued upon their exercise. Such rights may be exercised only by the
person to whom they are granted and only for such person's account. Each person
exercising such subscription rights will be required to certify that the person
is purchasing shares solely for the person's own account and that such person
has no agreement or understanding regarding the sale or transfer of such shares.
Federal regulations also prohibit any person from offering or making an
announcement of an offer or intent to make an offer to purchase such
subscription rights or shares of common stock prior to the completion of the
stock offering.
Alamogordo Financial will refer to the Office of Thrift Supervision any
situations that it believes may involve a transfer of subscription rights and
will not honor orders believed by it to involve the transfer of such rights.
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Delivery of Certificates
Certificates representing common stock issued in the stock offering
will be mailed by Alamogordo Financial's transfer agent to the persons entitled
thereto at the addresses of such persons appearing on the stock order form as
soon as practicable following completion of the stock offering. Any certificates
returned as undeliverable will be held by Alamogordo Financial until claimed by
persons legally entitled to them or otherwise disposed of in accordance with
applicable law. Until certificates for common stock are available and delivered
to subscribers, they may not be able to sell the shares of common stock for
which they have subscribed, even though trading of the common stock may have
commenced.
Required Approvals
Alamogordo Financial's stock issuance plan must be approved by the
Office of Thrift Supervision in order to consummate the stock offering.
Alamogordo Financial is also required to make certain filings with state
securities regulatory authorities in connection with the issuance of its common
stock in the stock offering.
Restrictions on Purchase or Transfer of Shares
All shares of common stock purchased in connection with the stock
offering by a director or an executive officer of Alamogordo Financial and
Alamogordo Federal will be subject to a restriction that the shares not be sold
for a period of one year following the stock offering except in the event of the
death of the director or officer or pursuant to a merger or similar transaction
approved by the Office of Thrift Supervision. Each certificate for restricted
shares will bear a legend giving notice of this restriction on transfer, and
instructions will be issued to the effect that any transfer within such time
period of any certificate or record ownership of the shares other than as
provided above is a violation of the restriction. Any shares of common stock
issued at a later date within this one year period as a stock dividend, stock
split or otherwise with respect to the restricted stock will be subject to the
same restrictions.
Purchases of common stock of Alamogordo Financial by directors,
executive officers and their associates during the three-year period following
completion of the stock offering may be made only through a broker or dealer
registered with the Securities and Exchange Commission, except with the prior
written approval of the Office of Thrift Supervision. This restriction does not
apply, however, to negotiated transactions involving more than 1% of Alamogordo
Financial's outstanding common stock or to certain purchases of stock pursuant
to an employee stock benefit plan.
Pursuant to Office of Thrift Supervision regulations, Alamogordo
Financial will generally be prohibited from repurchasing any shares of the
common stock for a period of three years following the stock offering other than
pursuant to:
o an offer to all stockholders on a pro rata basis which is
approved by the Office of Thrift Supervision (provided, however,
that AF Mutual Holding Company may be excluded with the approval
of the Office of Thrift Supervision);
o the repurchase of qualifying shares of a director; or
o the purchased on the open market by a tax-qualified or nontax
qualified employee stock benefit plan of Alamogordo Federal (but
not Alamogordo Financial) in an amount reasonable and appropriate
to fund such plan.
The above limitations are subject to Office of Thrift Supervision
policies which generally provide that Alamogordo Financial may repurchase its
capital stock provided:
o no repurchases occur within the first six months following the
stock offering;
o repurchases during the second six months following the stock
offering do not exceed 5% of the shares held by stockholders
other than AF Mutual Holding Company (subject to certain
exceptions);
o repurchases prior to the third anniversary of the stock offering
do not exceed 25% of the shares held by stockholders other than
AF Mutual Holding Company;
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<PAGE>
o repurchases prior to the third anniversary of the stock offering
are part of an open-market stock repurchase program; and
o the repurchases do not cause Alamogordo Federal to become
undercapitalized.
The Office of Thrift Supervision may permit stock repurchases in excess
of such amounts prior to the third anniversary of the stock offering if
exceptional circumstances are shown to exist.
RESTRICTIONS ON ACQUISITION OF ALAMOGORDO
FINANCIAL AND ALAMOGORDO FEDERAL
The principal federal regulatory restrictions which affect the ability
of any person, firm or entity to acquire Alamogordo Financial, Alamogordo
Federal or their respective capital stock are described below. Also discussed
are certain provisions in Alamogordo Financial's charter and bylaws which may be
deemed to affect the ability of a person, firm or entity to acquire Alamogordo
Financial.
Federal Law
The Change in Bank Control Act provides that no person, acting directly
or indirectly or through or in concert with one or more other persons, may
acquire control of a savings institution unless the Office of Thrift Supervision
has been given 60 days prior written notice. The Home Owners Loan Act provides
that no company may acquire "control" of a savings institution without the prior
approval of the Office of Thrift Supervision. Any company that acquires such
control becomes a savings and loan holding company subject to registration,
examination and regulation by the Office of Thrift Supervision. Pursuant to
federal regulations, control of a savings institution is conclusively deemed to
have been acquired by, among other things, the acquisition of more than 25% of
any class of voting stock of the institution or the ability to control the
election of a majority of the directors of an institution. Moreover, control is
presumed to have been acquired, subject to rebuttal, upon the acquisition of
more than 10% of any class of voting stock, or of more than 25% of any class of
stock of a savings institution, where certain enumerated "control factors" are
also present in the acquisition.
The Office of Thrift Supervision may prohibit an acquisition of control if:
o it would result in a monopoly or substantially lessen
competition;
o the financial condition of the acquiring person might jeopardize
the financial stability of the institution; or
o the competence, experience or integrity of the acquiring person
indicates that it would not be in the interest of the depositors
or of the public to permit the acquisition of control by such
person.
These restrictions do not apply to the acquisition of a savings institution's
capital stock by one or more tax-qualified employee stock benefit plans,
provided that the plans do not have beneficial ownership of more than 25% of any
class of equity security of the savings institution.
For a period of three years following completion of the stock issuance,
Office of Thrift Supervision regulations generally prohibit any person from
acquiring or making an offer to acquire beneficial ownership of more than 10% of
the stock of Alamogordo Financial or Alamogordo Federal without Office of Thrift
Supervision approval.
Charter and Bylaws of Alamogordo Financial
The following discussion is a summary of certain provisions of the
charter and bylaws of Alamogordo Financial that relate to corporate governance.
The description is necessarily general and qualified by reference to the charter
and bylaws.
Classified Board of Directors. The board of directors of Alamogordo
Financial is required by the charter and bylaws to be divided into three classes
which are as equal in size as is possible. One class is required to be elected
annually by stockholders of Alamogordo Financial for three-year terms. A
classified board promotes continuity and stability of management of Alamogordo
Financial but makes it more difficult for stockholders to change a majority of
the directors because it generally takes at least two annual elections of
directors for this to occur.
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<PAGE>
Authorized but Unissued Shares of Capital Stock. Following the stock
offering, Alamogordo Financial will have authorized but unissued shares of
preferred stock and common stock. See "Description of Capital Stock of
Alamogordo Financial." Although these shares could be used by the board of
directors of Alamogordo Financial to make it more difficult or to discourage an
attempt to obtain control of Alamogordo Financial through a merger, tender
offer, proxy contest or otherwise, these uses will be unlikely since AF Mutual
Holding Company owns a majority of the common stock.
Special Meetings of Stockholders. Alamogordo Financial's charter
provides that for a period of five years after completing the stock offering,
special meetings of stockholders may be called only by Alamogordo Financial's
board of directors, for matters relating to changes in control of Alamogordo
Financial or amendments to its charter.
How Shares are Voted. Alamogordo Financial's charter provides that
there will not be cumulative voting by stockholders for the election of
Alamogordo Financial's directors. No cumulative voting rights means that AF
Mutual Holding Company, as the holder of a majority of the shares eligible to be
voted at a meeting of stockholders, may elect all directors of Alamogordo
Financial to be elected at that meeting. This could prevent minority stockholder
representation on Alamogordo Financial's board of directors.
Restrictions on Acquisitions of Shares. Alamogordo Financial's charter
provides that for a period of five years from the closing of the stock issuance,
no person other than AF Mutual Holding Company may offer to acquire or acquire
the beneficial ownership of more than 10% of any class of equity security of
Alamogordo Financial. This provision does not apply to any tax-qualified
employee benefit plan of Alamogordo Financial or to an underwriter or member of
an underwriting or selling group involving the public sale or resale of
securities of Alamogordo Financial or any of its subsidiaries so long as after
the sale or resale, no underwriter or member of the selling group is a
beneficial owner of more than 10% of any class of equity securities of
Alamogordo Financial. In addition, during this five-year period, all shares
owned over the 10% limit may not be voted in any matter submitted to
stockholders for a vote.
Procedures for Stockholder Nominations. Alamogordo Financial's bylaws
provide that any stockholder wanting to make a nomination for the election of
directors or a proposal for new business at a meeting of stockholders must send
written notice to the Secretary of Alamogordo Financial at least five days
before the date of the annual meeting. The bylaws further provide that if a
stockholder wanting to make a nomination or a proposal for new business does not
follow the prescribed procedures, the proposal will not be considered until an
adjourned, special, or annual meeting of the shareholders taking place 30 days
or more thereafter. Management believes that it is in the best interests of
Alamogordo Financial and its stockholders to provide enough time for management
to disclose to stockholders information about a dissident slate of nominations
for directors. This advance notice requirement may also give management time to
solicit its own proxies in an attempt to defeat any dissident slate of
nominations if management thinks it is in the best interest of stockholders
generally. Similarly, adequate advance notice of stockholder proposals will give
management time to study such proposals and to determine whether to recommend to
the stockholders that such proposals be adopted.
Benefit Plans
In addition to the provisions of Alamogordo Financial's charter and
bylaws described above, certain benefit plans of Alamogordo Financial and
Alamogordo Federal adopted in connection with the stock issuance contain
provisions which also may discourage hostile takeover attempts which the board
of directors of Alamogordo Federal might conclude are not in the best interests
of Alamogordo Financial and Alamogordo Federal or Alamogordo Financial's
stockholders. For a description of the benefit plans and the provisions of such
plans relating to changes in control of Alamogordo Financial or Alamogordo
Federal, see "Management Benefits."
DESCRIPTION OF CAPITAL STOCK OF
ALAMOGORDO FINANCIAL
General
Alamogordo Financial is authorized to issue 20,000,000 shares of common
stock having a par value of $1.00 per share and 10,000,000 shares of preferred
stock. Alamogordo Financial currently expects to issue up to a maximum of up to
2,248,251 shares of common stock and no shares of preferred stock in the stock
issuance. Each share of Alamogordo Financial's common stock will have the same
relative rights as, and will be identical in all respects with, each other share
of common stock. Upon payment of the purchase price for the common stock in
accordance with the stock issuance plan, all of the stock will be duly
authorized, fully paid and nonassessable.
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<PAGE>
Presented below is a description of all aspects of Alamogordo Financial's
capital stock which are deemed material to an investment decision with respect
to the stock issuance.
The common stock of Alamogordo Financial will represent nonwithdrawable
capital, will not be an account of an insurable type, and will not be insured by
the FDIC.
Common Stock
Distributions. Alamogordo Financial can pay dividends if, as and when
declared by its board of directors, subject to compliance with limitations which
are imposed by law. See "Our Policy Regarding Dividends." The holders of common
stock of Alamogordo Financial will be entitled to receive and share equally in
such dividends as may be declared by the board of directors of Alamogordo
Financial out of funds legally available therefor. If Alamogordo Financial
issues preferred stock, the holders thereof may have a priority over the holders
of the common stock with respect to dividends.
Voting Rights. Upon the effective date of the stock offering, the
holders of common stock of Alamogordo Financial will possess exclusive voting
rights in Alamogordo Financial. Each holder of common stock will be entitled to
one vote per share and will not have any right to cumulate votes in the election
of directors. Under certain circumstances, shares in excess of 10% of the issued
and outstanding shares of common stock may be considered "Excess Shares" and,
accordingly, not be entitled to vote. See "Restrictions on Acquisition of
Alamogordo Financial and Alamogordo Federal." If Alamogordo Financial issues
preferred stock, holders of the preferred stock may also possess voting rights.
Liquidation. In the event of any liquidation, dissolution or winding up
of Alamogordo Federal, Alamogordo Financial, as holder of Alamogordo Federal's
capital stock, would be entitled to receive, after payment or provision for
payment of all debts and liabilities of Alamogordo Federal, including all
deposit accounts and accrued interest thereon, all assets of Alamogordo Federal
available for distribution. In the event of liquidation, dissolution or winding
up of Alamogordo Financial, the holders of its common stock would be entitled to
receive, after payment or provision for payment of all its debts and
liabilities, all of the assets of Alamogordo Financial available for
distribution. If preferred stock is issued, the holders thereof may have a
priority over the holders of the common stock in the event of liquidation or
dissolution.
Rights to Buy Additional Shares. Holders of the common stock of
Alamogordo Financial will not be entitled to preemptive rights with respect to
any shares which may be issued. Preemptive rights are the priority right to buy
additional shares if Alamogordo Financial issues more shares in the future. The
common stock is not subject to redemption.
Preferred Stock
None of the shares of Alamogordo Financial's authorized preferred stock
will be issued in the stock issuance. Such stock may be issued with such
preferences and designations as the board of directors may from time to time
determine. The board of directors can, without stockholder approval, issue
preferred stock with voting, dividend, liquidation and conversion rights which
could dilute the voting strength of the holders of the common stock and may
assist management in impeding an unfriendly takeover or attempted change in
control. Alamogordo Financial has no present plans to issue preferred stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for Alamogordo Financial common stock
is ______________________.
EXPERTS
The financial statements of Alamogordo Federal as of June 30, 1999 and
1998 and for each of the two years in the period ended June 30, 1999 included in
this prospectus have been audited by The Accounting & Consulting Group, L.L.P.,
independent auditors, as stated in their report appearing herein and elsewhere
in the registration statement, and have been so included in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
RP Financial has consented to the publication herein of the summary of
its report to Alamogordo Federal setting forth its opinion as to the estimated
pro forma market value of the common stock upon stock offering and its letter
with respect to subscription rights.
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<PAGE>
LEGAL AND TAX OPINIONS
The legality of the common stock and the federal income tax
consequences of the stock offering will be passed upon for Alamogordo Federal by
Luse Lehman Gorman Pomerenk & Schick, P.C., Washington, D.C., special counsel to
Alamogordo Federal and Alamogordo Financial. Certain legal matters will be
passed upon for Charles Webb & Company by Silver, Freedman & Taff, L.L.P.,
Washington, D.C.
ADDITIONAL INFORMATION
Alamogordo Financial has filed with the Securities and Exchange
Commission a registration statement under the Securities Act of 1933 with
respect to the common stock offered hereby. As permitted by the rules and
regulations of the Securities and Exchange Commission, this prospectus does not
contain all the information set forth in the registration statement. Such
information, including the appraisal report which is an exhibit to the
registration statement, can be examined without charge at the public reference
facilities of the Securities and Exchange Commission located at 450 Fifth
Street, N.W., Washington, D.C. 20549, and copies of such material can be
obtained from the SEC at prescribed rates. In addition, the SEC maintains a web
site (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the SEC, including Alamogordo Financial. The statements contained in this
prospectus as to the contents of any contract or other document filed as an
exhibit to the Registration Statement are, of necessity, brief descriptions
thereof and are not necessarily complete; each such statement is qualified by
reference to such contract or document.
Alamogordo Financial has filed an Application on Form MHC-2 with
respect to stock issuance. This prospectus omits certain information contained
in the application. The Application may be examined at the principal office of
the Office of Thrift Supervision, 1700 G Street, N.W., Washington, D.C. 20552,
and at the Midwest Regional Office of the Office of Thrift Supervision located
at 122 West John Carpenter Freeway, Suite 600, Irving, Texas 75039-2010.
In connection with the stock offering, Alamogordo Financial will
register its common stock with the SEC under Section 12 of the Securities
Exchange Act of 1934, and, upon such registration, Alamogordo Financial and the
holders of its stock will become subject to the proxy solicitation rules,
reporting requirements and restrictions on stock purchases and sales by
directors, officers and greater than 10% stockholders, the annual and periodic
reporting and certain other requirements of the Securities Exchange Act of 1934.
Under the stock issuance plan, Alamogordo Financial has undertaken that it will
not terminate such registration for a period of at least three years following
the stock offering.
A copy of the Stock Issuance Plan and the charter and bylaws of
Alamogordo Financial, Alamogordo Federal and AF Mutual Holding Company are
available without charge from Alamogordo Federal. Requests for such information
should be directed to: Corporate Secretary, Alamogordo Financial, 500 10th
Street.
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ALAMOGORDO FINANCIAL CORPORATION
Table of Contents
Page
----
Report of Independent Certified Public Accountants ...................... F-1
Consolidated Financial Statements
Consolidated Balance Sheets, As of September 30, 1999 (unaudited)
and as of June 30, 1999 and 1998 .................................... F-2
Consolidated Statements of Income, Three Months Ended
September 30, 1999 and 1998 (unaudited) and Years Ended
June 30, 1999 and 1998 .............................................. 24
Consolidated Statements of Changes in Equity, Three Months Ended
September 30, 1999 (unaudited) and Years Ended
June 30, 1999 and 1998 .............................................. F-3
Consolidated Statements of Cash Flows, Three Months Ended
September 30, 1999 and 1998 (unaudited) and Years Ended
June 30, 1999 and 1998 .............................................. F-4
Notes to Consolidated Financial Statements .............................. F-5
All schedules are omitted as the required information is either not applicable
or is included in the Consolidated Financial Statements or related notes.
81
<PAGE>
Report of Independent Certified Public Accountants
--------------------------------------------------
The Board of Directors
ALAMOGORDO FINANCIAL CORPORATION
Alamogordo, New Mexico
We have audited the consolidated balance sheets of Alamogordo Financial
Corporation and subsidiary (the Company) as of June 30, 1999 and 1998, and the
related consolidated statements of income, changes in equity and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Alamogordo Financial
Corporation and subsidiary as of June 30, 1999 and 1998, and the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
August 18, 1999
Alamogordo, New Mexico
F-1
<PAGE>
ALAMOGORDO FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
September 30, June 30,
1999 ---------------------------
(Unaudited) 1999 1998
------------- ------------ ------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents (Note 1) ...................... $ 10,354,371 $ 8,471,573 $ 6,993,105
Securities
Available for sale (Note 2) ........................... 16,024,803 17,029,781 28,689,498
Held to maturity (Note 2) ............................. 2,196,449 3,473,061 4,022,764
Loans, net (Note 3) ..................................... 117,085,087 115,949,420 109,765,511
Real estate owned, net .................................. 54,823 -- 25,000
Premises and equipment, net (Note 4) .................... 8,657,184 8,745,204 8,644,224
Stock in Federal Home Loan Bank, at cost ................ 1,350,500 1,332,100 1,259.900
Accrued interest ........................................ 685,018 955,018 766,942
Other assets ............................................ 275,660 201,775 200,917
------------ ------------ ------------
TOTAL ASSETS ...................................... $156,683,895 $156,157,932 $160,367,861
============ ============ ============
LIABILITIES AND EQUITY
LIABILITIES
Deposits (Note 5) ....................................... $122,410,093 $122,460,122 $126,659,018
Advance payments by borrowers for taxes and insurance ... 1,302,869 1,006,270 981,445
Accrued interest and other liabilities .................. 337,824 250,452 511,161
Advances from Federal Home Loan Bank (Note 6) ........... 10,000,000 10,000,000 10,000,000
Note payable (Note 7) ................................... -- -- 150,500
------------ ------------ ------------
Total Liabilities ................................... 134,050,786 133,716,844 138,302,124
Contingent liabillities and commitments (Note 9)
EQUITY
Common Stock, $1.00 par, 20,000,000 shares
authorized and 10 shares issued ....................... 10 10 10
Retained earnings, substantially restricted ............. 22,939,212 22,710,161 22,131,677
Accumulated other comprehensive income .................. (306,113) (269,083) (65,950)
------------ ------------ ------------
Total Equity ........................................ 22,633,109 22,441,088 22,065,737
------------ ------------ ------------
TOTAL LIABILITIES AND EQUITY ...................... $156,683,895 $156,157,932 $160,367,861
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
F-2
<PAGE>
ALAMOGORDO FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
THREE MONTHS ENDED SEPTEMBER 30, 1999 (Undaudited)
AND YEARS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive Total
Stock Equity Income Equity
----- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Balances at June 30, 1997 ..................... $ 10 $21,016,759 $ (80,190) $20,936,579
Comprehensive income
Net income .................................. -- 1,114,918 -- 1,114,918
Other comprehensive income, net of tax:
Change in unrealized loss on securities
available-for-sale, net of deferred
income taxes of $9,493 .................. -- -- 14,240 14,240
-----------
Total comprehensive income .................. 1,129,158
---- ----------- --------- -----------
Balances at June 30, 1998 ..................... 10 22,131,677 (65,950) 22,065,737
Dividends ..................................... -- (100,000) -- (100,000)
Comprehensive income
Net income .................................. -- 678,484 -- 678,484
Other comprehensive income, net of tax:
Change in unrealized loss on securities
available-for-sale, net of deferred
income taxes of $(135,417) .............. -- -- (203,133) (203,133)
-----------
Total comprehensive income .................. 475,351
---- ----------- --------- -----------
Balances at June 30, 1999 ..................... 10 22,710,161 (269,083) 22,441,088
Comprehensive income
Net income .................................. -- 229,051 -- 229,051
Other comprehensive income, net of tax:
Change in unrealized loss on securities
available-for-sale, net of deferred
income taxes of $(24,692) ............... -- -- (37,030) (37,030)
-----------
Total comprehensive income .................. 192,021
---- ----------- --------- -----------
Balances at September 30, 1999................. $ 10 $22,939,212 $(306,113) $22,633,109
==== =========== ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE>
ALAMOGORDO FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
AND YEARS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
Three Months Ended September 30, Years Ended June 30,
-------------------------------- --------------------------
1999 1998 1999 1998
-------------- -------------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income ................................................. $ 229,051 $ 137,920 $ 678,484 $ 1,114,918
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation ........................................... 92,784 80,771 346,224 321,908
Net amortization of premiums and discounts
on securities ........................................ 9,677 2,351 15,842 (15,084)
Gain on sale of loans .................................. (5,482) -- -- --
(Gain) loss on sales of other real estate owned ........ -- -- 10,429 (1,594)
Gain on sales of premises and equipment ................ (29,108) -- -- (761)
(Increase) decrease in interst receivable .................. 270,000 (234,512) (188,076) (150,911)
(Increase) decrease in other assets ........................ (73,885) (51,326) (858) (118,875)
Increase (decrease) in other liabilities ................... 87,372 83,009 (260,709) 32,028
----------- ----------- ----------- -----------
Net cash provided by operating activities ................ 580,409 18,213 601,336 1,181,629
Cash flows from investing activities:
Proceeds from maturities of securities available-for sale .. 958,271 7,097,584 29,783,020 6,726,829
Proceeds from maturities of securities held-to-maturity .... 1,276,612 382,464 949,002 1,724,593
Purchases of securities available-for-sale ................. -- (5,000,000) (18,342,278) (22,806,789)
Purchases of securities held-to-maturity ................... -- -- (399,299) (2,413,474)
Purchases of FHLB stock .................................... (18,400) (19,000) (72,200) (72,700)
Net (increase) decrease in loans ........................... 2,251,992 1,232,196 (6,183,909) 7,093,943
Proceeds from sale of loans ................................ 1,148,000 -- -- (2,282,000)
Purchases of loans ......................................... (4,585,000) -- -- --
Proceeds from sales of premises and equipment .............. 61,190 -- -- 761
Purchases of premises and equipment ........................ (36,846) (175,638) (447,204) (1,544,362)
Net proceeds from sales of real estate owned ............... -- 25,000 14,571 29,265
----------- ----------- ----------- -----------
Net cash provided by (used in) investing activities ...... 1,055,819 3,542,606 5,301,703 (13,543,934)
Cash flows from financing activities:
Net increase (decrease) in deposits ........................ (50,029) 296,366 (4,198,896) 4,673,374
Net increase (decrease) in advances by borrowers for
taxes and insurance ...................................... 296,599 270,371 24,825 (20,537)
Payments on note payable ................................... -- -- (150,500) (127,000)
Proceeds from advances from Federal Home Loan Bank ......... -- -- -- 10,000,000
Cash dividends paid on common stock ........................ -- -- (100,000) --
----------- ----------- ----------- -----------
Net cash provided by (used in) financing activities ...... 246,570 566,737 (4,424,571) 14,525,837
----------- ----------- ----------- -----------
Net increase in cash and cash equivalents .................... 1,882,798 4,127,556 1,478,468 2,163,532
Cash and cash equivalents, beginning of year ................. 8,471,573 6,993,105 6,993,105 4,829,573
----------- ----------- ----------- -----------
Cash and cash equivalents, end of year ....................... $10,354,371 $11,120,661 $ 8,471,573 $ 6,993,105
=========== =========== =========== ===========
Noncash investing and financing activities:
Transfers of loans to real estate owned .................... $ 54,823 $ -- $ 140,804 $ 160,454
Supplemental disclosures of cash flow information:
Income taxes paid .......................................... $ -- $ -- $ 278,000 $ 448,818
Interest ................................................... 1,632,940 1,908,978 7,272,584 7,194,708
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE>
ALAMOGORDO FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED) AND
YEARS ENDED JUNE 30, 1999 AND 1998
NOTE 1 SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Alamogordo Financial Corporation is a stock holding company that owns
100% of Alamogordo Federal Savings and Loan Association (the
Association). The Association is a federally chartered stock savings
association and has a wholly owned subsidiary, Space Age City Service
Corporation. Alamogordo Financial Corporation was incorporated on April
30, 1997 and is a wholly owned subsidiary of AF Mutual Holding Company.
The Company provides a variety of banking services to individuals and
businesses through their location in Alamogordo, New Mexico. Their
primary deposit products are demand deposits, certificates of deposit,
NOW and money market accounts. Their primary lending products are real
estate mortgages and commercial loans. The Company is subject to
competition from other financial institutions and to regulation by
certain federal agencies and undergoes periodic examinations by these
regulatory authorities.
The majority of the Company's loans are secured by real estate in Otero
County, New Mexico. Otero County's economy is heavily dependent on two
U. S. Government military installations located in the county.
Accordingly, the ultimate collectibility of the Company's loan
portfolio is susceptible to changes in market conditions in southern
New Mexico. In addition, the Company's investment portfolio is directly
impacted by fluctuations in market interest rates.
Rising and falling interest rate environments can have various impacts
on an association's net interest income, depending on the short-term
interest rate gap that an association maintains, the relative changes
in interest rates that occur when an association's various assets and
liabilities reprice, unscheduled repayments of loans, early withdrawals
of deposits, and other factors.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its subsidiary. Significant intercompany accounts and
transactions have been eliminated.
F-5
<PAGE>
ALAMOGORDO FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED) AND
YEARS ENDED JUNE 30, 1999 AND 1998
NOTE 1 SIGNIFICANT ACCOUNTING POLICIES, Continued
BASIS OF FINANCIAL STATEMENT PRESENTATION
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from these estimates.
Material estimates that are particularly susceptible to significant
change relate to the determination of the allowance for losses on loans
and the valuation of real estate acquired in connection with
foreclosures or in satisfaction of loans. In connection with the
determination of the allowances for losses on loans and foreclosed real
estate, management obtains independent appraisals for significant
properties.
CASH AND CASH EQUIVALENTS
For the purpose of reporting cash flows, the Company defines cash and
cash equivalents as cash on hand and investments in certificates of
deposits with original maturities of three months or less. Included in
cash and cash equivalents are interest bearing deposits of $2,382,286,
$4,303,229 and $5,522,667 at September 30, 1999, June 30, 1999 and
1998, respectively.
SECURITIES
The Company's investments in securities are classified in two
categories and accounted for as follows:
Securities Held-to-Maturity: Bonds, notes and debentures for
which the Company has the positive intent and ability to hold
to maturity are reported at cost, adjusted for amortization of
premiums and accretion of discounts which are recognized in
interest income using the interest method over the period to
maturity.
Securities Available-for-Sale: Securities available-for-sale
consist of bonds, notes, debentures, and certain equity
securities not classified as securities to be
held-to-maturity. These securities are carried at estimated
fair value. Discounts and premiums are accreted or amortized
using the interest method.
F-6
<PAGE>
ALAMOGORDO FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED) AND
YEARS ENDED JUNE 30, 1999 AND 1998
NOTE 1 SIGNIFICANT ACCOUNTING POLICIES, Continued
SECURITIES, continued
Unrealized holding gains and losses, net of tax, on securities
available for sale are reported as a net amount in a separate component
of equity until realized. Gains and losses on the sale of securities
available for sale are determined using the specific-identification
method.
LOANS
Loans are stated net of loan participations sold, the allowance for
loan losses and deferred loan fees, net of deferred loan costs.
Interest on other loans is accrued based on the principal amounts
outstanding. Unearned interest on home improvement loans is amortized
into income by the interest method. The Company discontinues accruing
interest on loans when the loans become ninety days past due and when
management believes that the borrower's financial condition is such
that collection of interest is doubtful.
Because some loans may not be repaid in full, an allowance for loan
losses is maintained. Increases to the allowance are recorded by a
provision for loan losses charged to expense. Estimating the risk of
loss and the amount of loss on any loan is necessarily subjective.
Accordingly, the valuation allowance is maintained at levels considered
adequate to cover losses based on delinquencies, property appraisals,
past loss experience, general economic conditions, information about
specific borrower situations including their financial position, and
other factors and estimates which are subject to change over time.
While management may periodically allocate portions of the allowance
for specific problem loan situations, including impaired loans
discussed below, the whole allowance is available for any charge-offs
that occur. Loans are charged off in whole or in part when management's
estimate of the undiscounted cash flows from the loan are less than the
recorded investment in the loan, although collection efforts continue
and future recoveries may occur.
Loans considered to be impaired are reduced to the present value of
expected future cash flows or to the fair value of collateral, by
allocating a portion of the allowance for loan losses to such loans. If
these allocations cause the allowance for loan losses to require
increase, such increase is reported as a provision for loan losses.
F-7
<PAGE>
ALAMOGORDO FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED) AND
YEARS ENDED JUNE 30, 1999 AND 1998
NOTE 1 SIGNIFICANT ACCOUNTING POLICIES, Continued
Smaller balance homogenous loans are defined as residential first
mortgage loans secured by one-to-four-family residences, residential
construction loans, and share loans and are evaluated collectively for
impairment. Commercial real estate loans are evaluated individually for
impairment. Normal loan evaluation procedures, as described in the
second preceding paragraph, are used to identify loans which must be
evaluated for impairment. Depending on the relative size of the credit
relationship, late or insufficient payments of 30 to 90 days will cause
management to reevaluate the credit under its normal loan evaluation
procedures. While the factors which identify a credit for consideration
for measurement of impairment or nonaccrual are similar, the
measurement considerations differ. A loan is impaired when management
believes it is probable they will be unable to collect all amounts due
according to the contractual terms of the loan agreement. A loan is
placed on nonaccrual when payments are more than 90 days past due
unless the loan is adequately collateralized and in the process of
collection.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation and amortization are computed using the
straight line method in amounts sufficient to relate the cost of
depreciable assets to operations over the estimated useful lives of the
assets which range from three to seven years for equipment and fifteen
to forty years for leasehold improvements and buildings. Maintenance
and repairs that do not extend the useful lives of premises and
equipment are charged to expense as incurred.
REAL ESTATE OWNED
Real estate properties acquired through, or in lieu of, loan
foreclosures are initially recorded at the lower of cost or fair value,
less estimated selling expenses, at the date of foreclosure. Costs
relating to improvement of property are capitalized, whereas cost
relating to the holding of property is expensed.
F-8
<PAGE>
ALAMOGORDO FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED) AND
YEARS ENDED JUNE 30, 1999 AND 1998
NOTE 1 SIGNIFICANT ACCOUNTING POLICIES, Continued
INCOME TAXES
The Company records income tax expense based on the amount of taxes due
on its tax return, plus deferred taxes computed based on the expected
future tax consequences of temporary differences between the carrying
amounts and tax bases of assets and liabilities, using enacted tax
rates. A valuation allowance has been recorded to reduce deferred tax
assets to the amount expected to be realized.
LOAN ORIGINATION FEES AND COSTS
Loan origination fees and certain direct origination costs are
capitalized and recognized as an adjustment of the yield over the
contractual life of the related loan.
LOANS HELD FOR SALE
Loans originated and intended for sale in the secondary market are
carried at the lower of cost or estimated fair value in the aggregate.
Net unrealized losses, if any, are recognized through a valuation
allowance by charges to earnings.
COMPREHENSIVE INCOME
Comprehensive income consists of net income and unrealized gains and
losses on securities available for sale. Comprehensive income reporting
became effective July 1, 1998, with prior information restated to be
comparable.
RECLASSIFICATIONS
Some items in these financial statements have been reclassified for
comparability.
F-9
<PAGE>
ALAMOGORDO FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED) AND
YEARS ENDED JUNE 30, 1999 AND 1998
NOTE 2 SECURITIES
The amortized cost and fair value were as follows:
<TABLE>
<CAPTION>
Gross Gross
Carrying Unrealized Unrealized Fair
September 30, 1999: Value Gains Losses Value
------------------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Securities available-for-sale
U.S.Government agencies ........ $13,498,602 $ -- $(401,101) $13,097,501
Mortgage-backed securities
FHLMC ........................ 957,661 -- (44,670) 912,991
GNMA ......................... 590,017 -- (7,312) 582,705
FNMA ......................... 1,488,713 -- (57,107) 1,431,606
----------- ------ --------- -----------
$16,534,993 $ -- $(510,190) $16,024,803
=========== ====== ========= ===========
Securities held-to-maturity
U.S.Government agencies ........ $ -- $ -- $ -- $ --
Mortgage-backed securities
FHLMC ........................ 274,662 -- (19) 274,643
Securities issued by states
and political subdivisions ... 1,921,787 1,467 (872) 1,922,382
----------- ------ --------- -----------
$ 2,196,449 $1,467 $ (891) $ 2,197,025
=========== ====== ========= ===========
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
Carrying Unrealized Unrealized Fair
June 30, 1999: Value Gains Losses Value
-------------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Securities available-for-sale
U.S.Government agencies ........ $14,249,715 $ -- $(334,011) $13,915,704
Mortgage-backed securities
FHLMC ........................ 1,020,535 -- (45,722) 974,813
GNMA ......................... 631,244 -- (4,912) 626,332
FNMA ......................... 1,576,754 -- (63,822) 1,512,932
----------- ------ --------- -----------
$17,478,248 $ -- $(448,467) $17,029,781
=========== ====== ========= ===========
Securities held-to-maturity
U.S.Government agencies ........ $ 406,797 $ -- $ (21) $ 406,776
Mortgage-backed securities
FHLMC ........................ 318,896 202 -- 319,098
Securities issued by states
and political subdivisions ... 2,747,368 4,588 (251) 2,751,705
----------- ------ --------- -----------
$ 3,473,061 $4,790 $ (272) $ 3,477,579
=========== ====== ========= ===========
</TABLE>
F-10
<PAGE>
ALAMOGORDO FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED) AND
YEARS ENDED JUNE 30, 1999 AND 1998
NOTE 2 SECURITIES, Continued
<TABLE>
<CAPTION>
Gross Gross
Carrying Unrealized Unrealized Fair
June 30, 1998: Value Gains Losses Value
-------------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Securities available-for-sale
U.S.Government agencies ........ $24,786,572 $ 7,594 $ (61,359) $24,732,807
Mortgage-backed securities
FHLMC ........................ 1,251,437 -- (27,752) 1,223,685
GNMA ......................... 880,704 991 -- 881,695
FNMA ......................... 1,880,702 -- (29,391) 1,851,311
----------- ------- --------- -----------
$28,799,415 $ 8,585 $(118,502) $28,689,498
=========== ======= ========= ===========
Securities held-to-maturity
Mortgage-backed securities
FHLMC ........................ $ 976,170 $ 2,408 $ (10,050) $ 968,528
Securities issued by states
and political subdivisions ... 3,046,594 11,489 (163) 3,057,920
----------- ------- --------- -----------
$ 4,022,764 $13,897 $ (10,213) $ 4,026,448
=========== ======= ========= ===========
</TABLE>
Securities, carried at approximately $3,400,000, $3,800,000 and
$3,500,000 at September 30, 1999, June 30, 1999 and 1998, respectively,
were pledged to secure public deposits and for other purposes required
or permitted by law.
At September 30, 1999, June 30, 1999 and 1998, there were no gross
realized gains or losses on sales of securities available-for-sale.
Amortized cost and fair value of debt securities by contractual
maturity are shown below. Expected maturities may differ from
contractual maturities because borrowers may call or prepay
obligations.
<TABLE>
<CAPTION>
September 30, 1999 June 30, 1999
------------------------- -------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Due in one year or less .......... $ 650,715 $ 696,000 $ 2,233,123 $ 2,234,529
Due in one year to five years .... 14,769,674 14,598,883 10,172,218 9,969,343
Due in five years to ten years ... -- -- 4,998,539 4,870,313
Mortgage-backed securities ....... 3,311,053 2,926,945 3,547,429 3,433,175
----------- ----------- ----------- -----------
$18,731,442 $18,221,828 $20,951,309 $20,507,360
=========== =========== =========== ===========
</TABLE>
F-11
<PAGE>
ALAMOGORDO FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED) AND
YEARS ENDED JUNE 30, 1999 AND 1998
NOTE 3 LOANS AND THE ALLOWANCE FOR LOAN LOSSES
Loans reflected in the balance sheets consist of the following:
<TABLE>
<CAPTION>
June 30,
September 30, -----------------------------
1999 1999 1998
------------- ------------- -------------
<S> <C> <C> <C>
Mortgage Loans
One-to-four family ................ $ 106,293,883 $ 106,285,878 $ 103,173,789
Construction ...................... 356,599 807,148 957,250
Land .............................. 541,133 42,583 101,859
Multi-family and nonresidential ... 8,087,179 8,109,055 4,365,690
------------- ------------- -------------
Total first mortgage loans ...... 115,278,794 115,244,664 108,598,588
Consumer & other loans
Second mortgage ................... 1,397,545 1,325,598 426,326
Consumer .......................... 1,607,512 1,270,507 1,261,899
Commercial ........................ 976,396 510,991 417,428
Deposit account ................... 1,466,509 1,436,093 1,398,626
------------- ------------- -------------
Total non-mortgage loans ........ 5,447,962 4,543,189 3,504,279
------------- ------------- -------------
Gross Loans ......................... 120,726,756 119,787,853 112,102,867
Less
Deferred loan fees & discounts .... (542,503) (540,735) (562,118)
Loans in process .................. (2,632,187) (2,825,145) (1,289,500)
Allowance for loan loss ........... (466,979) (472,553) (485,738)
------------- ------------- -------------
Net loans ....................... $ 117,085,087 $ 115,949,420 $ 109,765,511
============= ============= =============
</TABLE>
An analysis of the allowance for loan losses follows:
<TABLE>
<CAPTION>
Three Months Ended Year Ended
September 30, June 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Balance at beginning of year .... $472,553 $485,738 $485,738 $549,187
Provision for loan losses ..... -- -- -- --
Recoveries .................... 426 -- -- 19,259
Loans charged off ............. (6,000) (4,685) (13,185) (82,708)
-------- -------- -------- --------
Balance at end of year .......... $466,979 $481,053 $472,553 $485,738
======== ======== ======== ========
</TABLE>
Certain loans within the Company's loan and real estate owned
portfolios are guaranteed by the Veterans Administration (VA). In the
event of default by the borrower, the VA can elect to pay the
guaranteed amount or take possession of the property. If the VA takes
possession of the property, the Company is entitled to be
F-12
<PAGE>
ALAMOGORDO FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED) AND
YEARS ENDED JUNE 30, 1999 AND 1998
NOTE 3 LOANS AND THE ALLOWANCE FOR LOAN LOSSES, Continued
reimbursed for the outstanding principal balance, accrued interest and
certain other expenses. There was one commitment from the VA to take
title to foreclosed VA properties at September 30, 1999 in the amount
of $35,500. There was one commitment from the VA to take title to
foreclosed VA properties at June 30, 1999 in the amount of $45,000.
There were no commitments from the VA to take title to foreclosed VA
properties at June 30, 1998.
Included in net loans were loans on nonaccrual status. Such loans
approximated $265,000, $532,000 and $548,000 at September 30, 1999,
June 30, 1999 and 1998, respectively. For the three months ended
September 30, 1999 and the years ended June 30, 1999 and 1998, gross
interest income which would have been recorded had the non-accruing
loans been current in accordance with their original terms amounted to
$20,422, $33,923 and $18,881, respectively. No amounts were included in
interest income on such loans for the three months ended September 30,
1999 and years ended June 30, 1999 and 1998, respectively.
As of or for the periods ended September 30, 1999, June 30, 1999 and
1998, there were no loans considered to be impaired.
NOTE 4 PREMISES AND EQUIPMENT
Premises and equipment reflected in the balance sheets consist of the
following:
<TABLE>
<CAPTION>
June 30,
September 30, -----------------------
1999 1999 1998
------------- ---------- ----------
<S> <C> <C> <C>
Land ........................... $ 816,874 $ 921,710 $ 876,540
Buildings ...................... 7,471,615 7,434,813 7,308,403
Leasehold improvements ......... 171,249 192,553 --
Construction in progress ....... -- -- 83,806
Furniture and equipment ........ 1,165,286 1,071,182 931,119
---------- ---------- ----------
9,625,024 9,620,258 9,199,868
Less
Accumulated depreciation ..... (967,840) (875,054) (555,644)
---------- ---------- ----------
Balance at end of year ......... $8,657,184 $8,745,204 $8,644,224
========== ========== ==========
</TABLE>
F-13
<PAGE>
ALAMOGORDO FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED) AND
YEARS ENDED JUNE 30, 1999 AND 1998
NOTE 5 DEPOSITS
Deposits include non-interest bearing accounts of $1,445,586,
$1,466,547 and $987,660 at September 30, 1999 and June 30, 1999 and
1998, respectively.
Certificates of deposit are scheduled to mature as follows:
September 30, June 30,
1999 1999
------------- ------------
One year or less ....................... $ 53,743,641 $ 56,873,821
Over one year to two years ............. 21,713,677 20,999,117
Over two years to three years .......... 18,789,921 17,643,057
Over three years ....................... 9,119,007 6,989,921
------------ ------------
$103,366,246 $102,505,916
============ ============
Deposits of $100,000 or more totaled $29,585,000, $24,237,000 and
$27,400,000 at September 30, 1999, June 30, 1999 and 1998,
respectively. Deposits greater than $100,000 are not federally insured.
The Company held deposits of approximately $2,094,000, $2,063,000 and
$2,620,000 for related parties at September 30, 1999, June 30, 1999 and
1998, respectively.
NOTE 6 ADVANCES FROM FEDERAL HOME LOAN BANK
The Company has the ability to borrow funds from the Federal Home Loan
Bank of Dallas (FHLB) of up to 50% of total assets. Advances are
secured by a blanket-floating lien on qualifying first mortgage loans.
Advances from FHLB were $10,000,000 at September 30, 1999, June 30,
1999 and 1998. These advances bear interest at 4.814% and mature on
December 31, 2007.
NOTE 7 NOTE PAYABLE
In January 1996, the Company incurred a $277,500 note payable to an
unrelated party for the purchase of land for the new main office
facility. The note paid interest at 10% payable monthly and was secured
by the land. The note was paid off on January 4, 1999 and had a balance
at June 30, 1998 of $150,500.
F-14
<PAGE>
ALAMOGORDO FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED) AND
YEARS ENDED JUNE 30, 1999 AND 1998
NOTE 8 EMPLOYEE RETIREMENT BENEFIT PLAN
The Company has established a profit-sharing 401(k) type salary
reduction plan for all employees that meet the necessary eligibility
requirements for participation in the plan. Participants fully vest
after six years of service. Annual contributions are at the discretion
of the Board of Directors of the Company. Contributions to the plan
were made by the Company of $0, $13,950 and $12,400 at September 30,
1999, June 30, 1999 and 1998, respectively.
The Company also participates in a multi-employer defined benefit
pension plan. The pension plan is available to all employees completing
one year of service. Segregated statements of plan assets or separate
actuarial valuations are not available. Total pension expense was $0,
$2,792 and $2,818 for September 30, 1999, June 30, 1999 and 1998,
respectively.
NOTE 9 CONTINGENT LIABILITIES AND COMMITMENTS
In the normal course of business, various commitments are outstanding,
such as commitments to extend credit. These financial instruments with
off-balance sheet risk are not reflected in the consolidated financial
statements. Management does not anticipate any significant losses as a
result of these transactions. The following summarizes these financial
instruments:
<TABLE>
<CAPTION>
June 30,
September 30, ---------------------
1999 1999 1998
------------- -------- ----------
<S> <C> <C> <C>
Commitments to extend credit .......... $ 305,000 $804,000 $ 468,000
Unused line of credit ................. 56,000 43,000 76,000
Commitments to sell loans ............. -- -- 1,168,000
Commitments to purchase securities .... 2,998,000 -- --
</TABLE>
Since certain commitments to make loans and fund lines of credit expire
without being used, the amounts do not necessarily represent future
cash commitments. In addition, commitments used to extend credit are
agreements to lend to a customer as long as there is no violation of
any condition established in the contract. The Company's exposure to
credit loss in the event of nonperformance by the other party to these
financial instruments is represented by the contractual amount of these
instruments. The Company follows the same credit policy to make such
commitments as is followed for those loans recorded on the consolidated
balance sheet.
F-15
<PAGE>
ALAMOGORDO FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED) AND
YEARS ENDED JUNE 30, 1999 AND 1998
NOTE 9 CONTINGENT LIABILITIES AND COMMITMENTS, Continued
As of September 30, 1999, variable rate and fixed rate commitments to
make loans amounted to approximately $0 and $305,000. The interest
rates on fixed rate commitments ranged from 7.50% to 8.50%. As of June
30, 1999, variable rate and fixed rate commitments to make loans
amounted to approximately $0 and $804,000. The interest rates on fixed
rate commitments ranged from 7.00% to 9.00%. As of June 30, 1998,
variable rate and fixed rate commitments to make loans amounted to
approximately $0 and $468,000. The interest rates on fixed rate
commitments ranged from 7.50% to 9.50%. Since loan commitments may
expire without being used, the amounts do not necessarily represent
future cash commitments.
The Company is required by regulatory authorities to maintain certain
daily cash balances. The Company's reserve requirements were met
through vault cash at September 30, 1999, June 30, 1999 and 1998.
NOTE 10 INCOME TAXES
The Company and subsidiaries file a consolidated income tax return. The
Company recognizes deferred tax assets and liabilities for future tax
consequences of events that have been previously recognized in the
Company's financial statements or tax returns. The measurement of
deferred tax assets and liabilities is based on provisions of the
currently enacted tax law. The effects of future changes in tax laws or
rates are not anticipated.
The provision for income taxes consists of the following:
Three Months Ended September 30, Year Ended June 30,
-------------------------------- --------------------
1999 1998 1999 1998
-------------- ------------- -------- --------
Current
Federal .... $104,306 $25,084 $303,290 $546,255
State ...... -- -- (10,390) 15,666
-------- ------- -------- --------
104,306 25,084 292,900 561,921
Deferred
Federal .... (11,311) 12,630 3,236 (24,886)
State ...... (570) 637 163 (968)
-------- ------- -------- --------
(11,881) 13,267 3,399 (25,854)
-------- ------- -------- --------
$ 93,425 $38,351 $296,299 $536,067
======== ======= ======== ========
F-16
<PAGE>
ALAMOGORDO FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED) AND
YEARS ENDED JUNE 30, 1999 AND 1998
NOTE 10 INCOME TAXES, Continued
The income tax differs from the amounts computed by applying the
statutory federal income tax rate of 34% to income before income taxes
as follows:
<TABLE>
<CAPTION>
Three Months Ended September 30, Year Ended June 30,
-------------------------------- ---------------------
1999 1998 1999 1998
-------------- ------------- -------- --------
<S> <C> <C> <C> <C>
Expense at statutory rate .......... $109,642 $59,932 $331,426 $561,335
State income taxes,
net of federal tax benefit ....... (5,022) (5,590) (6,898) 9,701
Nontaxable municipal
Interest income .................. (7,689) (8,143) (32,462) (20,854)
Valuation allowance ................ -- -- -- 1,173
Other, net ......................... (3,506) (7,848) 4,233 (15,288)
-------- ------- -------- --------
$ 93,425 $38,351 $296,299 $536,067
======== ======= ======== ========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
Three Months Ended September 30, Year Ended June 30,
-------------------------------- ---------------------
1999 1998 1999 1998
-------------- ------------- --------- ---------
<S> <C> <C> <C> <C>
Deferred tax assets
Unrealized loss on
available-for-sale securities .. $ 204,077 $ -- $ 179,384 $ 43,967
Other than temporary loss on
investment in mutual fund ...... 291,885 291,885 291,885 291,885
Bad debt reserve ................. 119,907 81,814 110,560 69,029
Reorganization expenses .......... 8,127 -- 8,128 --
Non-accrual loan interest ........ 8,168 10,176 13,567 7,552
State loss carryforward .......... 12,769 -- -- --
--------- --------- --------- ---------
Total gross deferred tax assets .... 644,933 383,875 603,524 412,433
Less valuation allowance ........... (291,885) (291,885) (291,885) (291,885)
--------- --------- --------- ---------
Total deferred tax assets .......... 353,048 91,990 311,639 120,548
Deferred tax liabilities
Unrealized gain on
available-for-sale securities .. -- 8,906 -- --
FHLB stock dividends ............. 261,078 232,438 253,715 224,838
Loan origination costs ........... 64,607 50,374 65,468 45,335
Book/tax depreciation ............ 60,140 49,971 61,806 51,746
--------- --------- --------- ---------
Total deferred tax liabilities ..... 385,825 341,689 380,989 321,919
--------- --------- --------- ---------
Net deferred tax assets
(liabilities) .................... $ (32,777) $(249,699) $ (69,350) $(201,371)
========= ========= ========= =========
</TABLE>
F-17
<PAGE>
ALAMOGORDO FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED) AND
YEARS ENDED JUNE 30, 1999 AND 1998
NOTE 10 INCOME TAXES, Continued
A valuation allowance was established at June 30, 1996 for the portion
of the deferred tax asset created by the other than temporary loss on
investment securities in a mutual fund. Management believes that a tax
benefit will not be realized.
Equity of the Association at September 30, 1999 and June 30, 1999
includes approximately $2,700,000 of bad debt deductions for tax years
prior to 1987 for which no deferred federal income tax liability has
been recorded. Tax legislation passed in August 1996 now requires all
thrift institutions to deduct a provision for bad debts for tax
purposes based on the actual loss experience and recapture the excess
bad debt reserve accumulated in the tax years after 1987.
NOTE 11 CONCENTRATIONS OF CREDIT
All of the Company's loans, commitments, and standby letters of credit
have been granted to customers in the Company's market area.
Investments in state and municipal securities also involve governmental
entities within the Company's market area. The concentrations of credit
by type of loan are set forth in Note 4. The distribution of
commitments to extend credit approximates the distribution of loans
outstanding. Standby letters of credit were granted primarily to
commercial borrowers.
NOTE 12 REGULATORY CAPITAL
The Association is subject to various regulatory capital requirements
administered by the federal thrift agencies. Failure to meet minimum
capital requirements can initiate certain mandatory, and possibly
discretionary, actions by regulators that, if undertaken, could have a
direct material effect on the Association's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Association must meet specific capital
guidelines that involve quantitative measures of the Association's
assets, liabilities, and certain off-balance sheet items as calculated
under regulatory accounting practices. The Association's capital
amounts and classification are also subject to qualitative judgements
by the regulators about components, risk weightings, and other factors.
F-18
<PAGE>
ALAMOGORDO FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED) AND
YEARS ENDED JUNE 30, 1999 AND 1998
NOTE 12 REGULATORY CAPITAL, Continued
Quantitative measures established by regulation to ensure capital
adequacy require the Association to maintain minimum amounts and ratios
(set forth below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined) and of Tier I capital
(as defined) to average assets (as defined). Management believes, as of
September 30, 1999 and June 30, 1999, that the Association meets all
capital adequacy requirements to which it is subject.
As of June 30, 1999, the most recent notification from the Office of
Thrift Supervision categorized the Association as well capitalized
under the regulatory framework for prompt corrective action. There are
no conditions or events since that notification that management
believes have changed the Association's category.
The following is a reconciliation of the Association's equity under
generally accepted accounting principles (GAAP) to regulatory capital:
<TABLE>
<CAPTION>
June 30,
September 30, -------------------------
1999 1999 1998
------------- ----------- -----------
<S> <C> <C> <C>
GAAP equity ........................... $22,610,220 $22,417,935 $22,042,180
Unrealized loss on securities
available for sale .................. 306,113 269,083 65,950
----------- ----------- -----------
Tier I (Core) capital ................. 22,916,333 22,687,018 22,108,130
Allowance for loan losses ............. 466,979 472,553 485,738
----------- ----------- -----------
Total Risk-Based Capital .............. $23,383,312 $23,159,571 $22,593,868
=========== =========== ===========
</TABLE>
F-19
<PAGE>
ALAMOGORDO FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED) AND
YEARS ENDED JUNE 30, 1999 AND 1998
NOTE 12 REGULATORY CAPITAL, Continued
The Association's OTS capital ratios were (dollars in thousands):
<TABLE>
<CAPTION>
Requirements to be
Requirements to be well capitalized under
Adequately prompt corrective
Actual Capitalized action provisions
-------------------- ------------------- ----------------------
Amount Percentage Amount Percentage Amount Percentage
------- ---------- ------ ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
September 30, 1999
------------------
Core capital ............... $22,916 14.6% $6,267 4.0% $ 7,834 5.0%
Tier I (Core) capital ...... 22,916 14.6% 6,267 4.0% 9,401 6.0%
Total Risk-based capital ... 23,383 31.1% 6,018 8.0% 15,668 10.0%
June 30, 1999
-------------
Core capital ............... $22,687 14.5% $6,264 4.0% $ 7,808 5.0%
Tier I (Core) capital ...... 22,687 14.5% 6,264 4.0% 9,369 6.0%
Total Risk-based capital ... 23,160 31.0% 5,968 8.0% 15,616 10.0%
June 30, 1998
-------------
Core capital ............... $22,108 13.8% $6,409 4.0% $ 8,018 5.0%
Tier I (Core) capital ...... 22,108 13.8% 6,409 4.0% 9,622 6.0%
Total Risk-based capital ... 22,594 34.0% 5,324 8.0% 16,037 10.0%
</TABLE>
NOTE 13 DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures about
Fair Value of Financial Instruments (FAS 107) requires that the Company
disclose estimated fair values for its financial instruments. Fair
value estimates, methods and assumptions are set forth below for the
Company's financial instruments.
Cash and Cash Equivalents
The carrying amount approximates fair value because of the short
maturity of these instruments.
Securities
The fair value of securities is estimated based on market values
received from a securities broker.
F-20
<PAGE>
ALAMOGORDO FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED) AND
YEARS ENDED JUNE 30, 1999 AND 1998
NOTE 13 DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, Continued
Loans
The fair value of one-to-four-family fixed-and adjustable-rate
mortgages is calculated by using the option-based pricing approach that
makes use of the Monte Carlo simulation. The Monte Carlo model uses an
interest rate simulation program to generate numerous random interest
rate paths that, in conjunction with a prepayment model, are used to
estimate mortgage cash flows along each path.
The fair value of other loans in the portfolio is calculated by using
the static discounted cash flow approach. Under the static discounted
cash flow approach, the economic value of a financial instrument is
estimated by calculating the present value of the instrument's expected
cash flows. The present value is determined by discounting the cash
flows the instrument is expected to generate by the yield currently
available to investors from an instrument of comparable risk and
duration.
Deposits
The fair value of deposits with no stated maturity, such as noninterest
bearing demand deposits, NOW accounts, money market demand and savings
accounts, is equal to the amount payable on demand. The fair value of
certificate accounts is based on the static discounted cash flow
approach. The discount rate is estimated using the rates currently
offered for deposits of similar remaining maturities.
Note Payable
The fair value of the note payable is based on the static discounted
cash flow approach. The discount rate used is the rate currently
available to investors from an instrument of comparable risk and
duration.
Off-Balance Sheet Financial Instruments
The fair value of financial instruments with off-balance sheet risk is
based on the credit quality and relationship, probability of funding
and other requirements. Fair values of off-balance sheet financial
instruments are not material to the consolidated financial statements.
F-21
<PAGE>
ALAMOGORDO FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED) AND
YEARS ENDED JUNE 30, 1999 AND 1998
NOTE 14 DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, Continued
Limitations
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that
could result from offering for sale at one time the Company's entire
holdings of a particular financial instrument. Because no market exists
for a significant portion of the Company's financial instruments, fair
value estimates are based on judgments regarding future expected loss
experience, current economic conditions, risk characteristics of
various financial instruments and other factors. These estimates are
subjective in nature and involve uncertainties and matters of
significant judgment and, therefore, cannot be determined with
precision. Changes in assumptions could significantly affect the
estimates.
Fair value estimates are based on existing on-and off-balance sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities
that are not considered financial instruments. For example, significant
assets that are not considered financial instruments include premises
and equipment. In addition, the tax ramifications related to the
realization of the unrealized gains and losses can have a significant
effect on fair value estimates and have not been considered in any of
the estimates.
The estimated fair values of the Company's financial instruments are as
follows:
September 30, 1999
-----------------------------
Carrying Estimated
Value Fair Value
------------ ------------
Financial Assets
Cash and cash Equivalents ............ $ 10,354,371 $ 10,354,371
Securities ........................... 18,221,252 18,221,828
Loans ................................ 117,085,087 115,979,108
Accrued interest ..................... 685,018 685,018
Financial Liabilities
Deposits ............................. 122,410,093 121,881,793
Advance payments by borrowers
for taxes and insurance ............ 1,302,869 1,297,597
Accrued interest ..................... 98,367 98,367
Advances from FHLB ................... 10,000,000 9,967,000
Off-balance sheet instruments .......... -- --
F-22
<PAGE>
ALAMOGORDO FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED) AND
YEARS ENDED JUNE 30, 1999 AND 1998
NOTE 13 DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, Continued
<TABLE>
<CAPTION>
June 30, 1999 June 30, 1998
--------------------------- ---------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Financial Assets
Cash and cash Equivalents ............ $ 8,471,573 $ 8,471,573 $ 6,993,105 $ 6,993,105
Securities ........................... 20,502,842 20,507,360 32,712,262 32,715,946
Loans ................................ 115,949,420 115,851,926 109,765,511 112,465,973
Accrued interest ..................... 955,018 955,018 766,942 766,942
Financial Liabilities
Deposits ............................. 122,460,122 122,334,527 126,659,018 127,403,822
Advance payments by borrowers
for taxes and insurance ............ 1,006,270 1,005,238 981,445 987,216
Accrued interest ..................... 76,988 76,988 121,820 121,820
Note payable ......................... -- -- 150,500 150,199
Advances from FHLB ................... 10,000,000 9,985,000 10,000,000 9,980,000
Off-balance sheet instruments .......... -- -- -- --
</TABLE>
F-23
<PAGE>
ALAMOGORDO FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED) AND
YEARS ENDED JUNE 30, 1999 AND 1998
NOTE 14 ADOPTION OF PLAN OF CONVERSION (UNAUDITED)
On October 19,1999, the Board of Directors of the Company, subject to
regulatory approval and approval by the members of the Company, adopted
a plan to issue up to 957,950 shares of Alamogordo Financial
Corporation stock, to depositors of the Association representing 49% of
the outstanding shares of the Company. AF Mutual Holding Company will
hold the remaining 51%. The offering price will be $10 per share.
The shares of common stock of Alamogordo Financial Corporation will be
offered in order of priority as follows:
1) Depositors with accounts at the Association with total balances
of at least $50 on September 30, 1998
2) Employee stock ownership plan of the Association, which will
provide retirement benefits to employees
3) Depositors with accounts at the Association with total balances
of at least $50 on September 30, 1999; and
4) Directors, officers and employees of the Association
Any additional shares will be offered in a community offering with
preference given to residents of Lincoln and Otero counties of New
Mexico.
Offering costs will be deferred and deducted from the proceeds of the
shares sold. If the offering is not completed, all costs will be
charged to expense. At June 30, 1999, no expenses have been deferred.
F-24
<PAGE>
- --------------------------------------------------------------------------------
You should rely only on the information contained in this prospectus.
Alamogordo Financial Corporation has authorized anyone to provide you with
different information. This prospectus does not constitute an offer to sell or
the solicitation of an offer to buy any security other than the shares of Common
Stock offered hereby to any person in any jurisdiction in which such offer or
solicitation is not authorized, or in which the person making such offer or
solicitation is not qualified to do so, or to any person to whom it is unlawful
to make such offer or solicitation. Neither the delivery of this prospectus nor
any sale hereunder shall, under any circumstances, create any implication that
information herein is correct as of any time subsequent to the date hereof.
ALAMOGORDO
FINANCIAL CORPORATION
Up to 1,101,643 Shares
Common Stock
($0.10 par value per share)
SUBSCRIPTION AND
COMMUNITY OFFERING
PROSPECTUS
-------------------------------------
Charles Webb & Company
a Division of Keefe, Bruyette & Woods
-------------------------------------
February ___, 2000
THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS
AND ARE NOT FEDERALLY INSURED OR GUARANTEED
Until _____________________, 2000, all dealers effecting transactions in the
registered securities, whether or not participating in this distribution, may be
required to deliver a prospectus. This is in addition to the obligation of
dealers to deliver a prospectus when acting as underwriters and with respect to
their unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Generally, federal regulations define areas for indemnity coverage for
federal savings associations, and proposed federal regulations define areas for
indemnity coverage for federal MHC subsidiary holding companies, as follows:
(a) Any person against whom any action is brought or threatened
because that person is or was a director or officer of the savings
association shall be indemnified by the savings association for:
(i) Any amount for which that person becomes liable under a
judgment in such action; and
(ii) Reasonable costs and expenses, including reasonable
attorneys' fees, actually paid or incurred by that person in defending
or settling such action, or in enforcing his or her rights under this
section if he or she attains a favorable judgement in such enforcement
action.
(b) Indemnification shall be made to such person under paragraph (b)
of this Section only if:
(i) Final judgment on the merits is in his or her favor; or
(ii) In case of:
a. Settlement,
b. Final judgement against him or her, or
c. Final judgement in his or her favor, other than on the
merits, if a majority of the disinterested directors of
the savings association determine that he or she was
acting in good faith within the scope of his or her
employment or authority as he or she could reasonably
have perceived it under the circumstances and for a
purpose he or she could reasonably have believed under
the circumstances was in the best interest of the
savings association or its members. However, no
indemnification shall be made unless the association
gives the Office at least 60 days notice of its
intention to make such indemnification. Such notice
shall state the facts on which the action arose, the
terms of any settlement, and any disposition of the
action by a court. Such notice, a copy thereof, and a
certified copy of the resolution containing the
required determination by the board of directors shall
be sent to the Regional Director, who shall promptly
acknowledge receipt thereof. The notice period shall
run from the date of such receipt. No such
indemnification shall be made if the OTS advises the
association in writing, within such notice period, of
its objection thereto.
(c) As used in this paragraph:
(i) "Action" means any judicial or administrative proceeding, or
threatened proceeding, whether civil, criminal, or otherwise,
including any appeal or other proceeding for review;
(ii) "Court" includes, without limitation, any court to which or
in which any appeal or any proceeding for review is brought;
(iii) "Final Judgment" means a judgment, decree, or order which
is not appealable or as to which the period for appeal has expired
with no appeal taken;
(iv) "Settlement" includes the entry of a judgment by consent or
confession or a plea of guilty or of nolo contendere.
<PAGE>
Item 25. Other Expenses of Issuance and Distribution
Amount
--------
* Legal Fees ................................................ $100,000
* Printing, Mailing and Photocopying ........................ 125,000
* Appraisal and Business Plan Fees and Expenses ............. 25,000
* Accounting Fees and Expenses .............................. 100,000
** Marketing Fees and Expenses ............................... 135,000
*** Filing Fees (SEC and OTS) and Expenses .................... 40,000
* Blue Sky .................................................. 10,000
* Miscellaneous Expenses .................................... 65,000
--------
** Total .................................................. ... $600,000
========
- ---------
* Estimated
** Alamogordo Federal Savings and Loan Association and the Company have
retained Charles Webb & Co.("Charles Webb") to assist in the sale of common
stock on a best efforts basis in the Subscription and Community Offerings.
For purposes of computing estimated expenses, it has been assumed that
Charles Webb will receive fees and expenses of approximately $100,000,
exclusive of its out of pocket expenses of $35,000.
*** Includes Edgarization fees.
Item 26. Recent Sales of Unregistered Securities.
Not Applicable.
Item 27. Exhibits and Financial Statement Schedules:
(a) List of Exhibits
The index of exhibits immediately preecedes the exhibits attached to
this registration statement.
(b) Financial Statement Schedules
No financial statement schedules are filed because the required
information is not applicable or is included in the consolidated financial
statements or related notes.
Item 28. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
<PAGE>
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement of securities offered, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering.
(3) To remove from registration by means of post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(4) To provide to the underwriter at the closing specified in the
underwriting agreements, certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act, and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the small business
issuer will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of
Alamogordo, State of New Mexico on December 15, 1999.
ALAMOGORDO FINANCIAL CORPORATION
By: /s/ R. Miles Ledgerwood
-----------------------------------------
R. Miles Ledgerwood
President and Chief Executive Officer
(Duly Authorized Representative)
POWER OF ATTORNEY
We, the undersigned directors and officers of Alamogordo Financial
Corporation (the "Company") hereby severally constitute and appoint R. Miles
Ledgerwood, as our true and lawful attorney and agent, to do any and all things
in our names in the capacities indicated below which said R. Miles Ledgerwood
may deem necessary or advisable to enable the Company to comply with the
Securities Act of 1933, and any rules, regulations and requirements of the
Securities and Exchange Commission, in connection with the registration
statement on Form SB-2 relating to the offering of the Company's Common Stock,
including specifically, but not limited to, power and authority to sign for us
in our names in the capacities indicated below the registration statement and
any and all amendments (including post-effective amendments) thereto; and we
hereby approve, ratify and confirm all that said R. Miles Ledgerwood shall do or
cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and as of the dates indicated.
Signatures Title Date
---------- ----- ----
/s/ R. Miles Ledgerwood President, Chief Executive December 15, 1999
- ----------------------- Officer and Director (Principal
R. Miles Ledgerwood Executive Officer)
/s/ Norma J. Clute Chief Financial Officer and December 15, 1999
- ----------------------- Treasurer (Principal Financial
Norma J. Clute and Accounting Officer)
/s/ Robert W. Hamilton Chairman of the Board December 15, 1999
- -----------------------
Robert W. Hamilton
/s/ S. Thomas Overstreet Director December 15, 1999
- ------------------------
S. Thomas Overstreet
/s/ Marilyn L. Mott Director December 15, 1999
- ------------------------
Marilyn L. Mott
/s/ Earl E. Wallin Director December 15, 1999
- ------------------------
Earl E. Wallin
<PAGE>
As filed with the Securities and Exchange Commission on December 16, 1999
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
EXHIBITS
TO
REGISTRATION STATEMENT
ON
FORM SB-2
------------------------------------
ALAMOGORDO FINANCIAL CORPORATION
================================================================================
<PAGE>
EXHIBIT INDEX
1.1 Engagement Letter between Alamogordo Financial Corporation and Charles
Webb & Co.
1.2 Form of Agency Agreement among Alamogordo Financial Corporation.,
Alamogordo Federal Savings and Loan Association, and Charles Webb & Co.
2 Alamogordo Financial Corporation Stock Issuance Plan
3.1 Stock Holding Company Charter of Alamogordo Financial Corporation
3.2 Bylaws of Alamogordo Financial Corporation
4 Form of Common Stock Certificate of Alamogordo Financial Corporation
5 Opinion of Luse Lehman Gorman Pomerenk & Schick, P.C. regarding legality
of securities being registered
10.1 Form of Employee Stock Ownership Plan
21 Subsidiaries of the Registrant
23.1 Consent of Luse Lehman Gorman Pomerenk & Schick, P.C. (contained in
opinion filed as Exhibit 5)
23.2 Consent of The Accounting & Consulting Group, L.L.P. with respect to
Report on Financial Statements
23.3 Consent of RP Financial, LC.
24 Power of Attorney (set forth on Signature Page)
27 EDGAR Financial Data Schedule
99.1 Agreement between Alamogordo Financial Corporation and RP Financial, LC.
99.2 Business Plan Agreement between Alamogordo Financial Corporation and RP
Financial, LC.
99.3 Appraisal Report of RP Financial, LC.(separately filed)**
99.4 Marketing Materials
99.5 Order and Acknowledgment Form
- -------------
* To be filed supplementally or by amendment.
** Paper copy of this Exhibit was filed supplementally pursuant to Rule 202 of
Regulation S-T.
[KEEFE, BRUYETTE & WOODS, INC. LETTERHEAD]
November 29, 1999
Mr. Miles Ledgerwood
President and Chief Executive Officer
Alamogordo Financial Corporation
500 10th Street
Alamogordo, NM 88310-6768
Dear Mr. Ledgerwood:
This proposal is in connection with the offer and sale by Alamogordo Financial
Corporation (the "Company") the holding company of Alamogordo Federal Savings &
Loan Association (the "Bank") of a minority number of shares of its common stock
first to eligible persons (pursuant to the Company's Plan of Stock Issuance) in
a Subscription and Community Offering.
Charles Webb & Company, a division of Keefe, Bruyette and Woods, Inc. ("KBW"),
will act as the Bank's and the Company's exclusive financial advisor and
marketing agent in connection with the Offering. This letter sets forth selected
terms and conditions of our engagement.
1. Advisory/Offering Services. As the Bank's and Company's financial advisor and
marketing agent, KBW will provide the Bank and the Company with a comprehensive
program of offering services designed to promote an orderly, efficient,
cost-effective and long-term stock distribution. KBW will provide financial and
logistical advice to the Bank and the Company concerning the offering and
related issues. KBW will assist in providing offering enhancement services
intended to maximize stock sales in the Subscription Offering and to residents
of the Bank's market area, if necessary, in the Community Offering.
KBW shall provide financial advisory services to the Company which are typical
in connection with an equity offering and include, but are not limited to,
overall financial analysis of the client with a focus on identifying factors
which impact the valuation of the common stock and provide the appropriate
recommendations for the betterment of the equity valuation.
Additionally, post offering financial advisory services will include advice on
shareholder relations, after-market trading, dividend policy (for both regular
and special dividends), stock repurchase strategy and communication with market
makers. Prior to the closing of the offering, KBW shall furnish to client a
Post-Offering reference manual which will include specifics relative to these
items. (The nature of the services to be provided by KBW as the Bank's and the
Company's financial advisor and marketing agent is further described in Exhibit
A attached hereto.)
<PAGE>
2. Preparation of Offering Documents. The Bank, the Company and their counsel
will draft the Application for a Minority Stock Offering, Prospectus and other
documents to be used in connection with the Offering. KBW will attend meetings
to review these documents and advise you on their form and content. KBW and its
counsel will draft appropriate agency agreement and related documents as well as
marketing materials other than the Prospectus.
3. Due Diligence Review. Prior to filing the Application for a Minority Stock
Offering or other documents naming KBW as the Bank's and the Company's financial
advisor and marketing agent, KBW and their representatives will undertake
substantial investigations to learn about the Bank's business and operations
("due diligence review") in order to confirm information provided to us and to
evaluate information to be contained in the Company's offering documents. The
Company agrees that it will make available to KBW all relevant information,
whether or not publicly available, which KBW reasonably requests, and will
permit KBW to discuss with management the operations and prospects of the
Company. KBW will treat all material non-public information as confidential. The
Company acknowledges that KBW will rely upon the accuracy and completeness of
all information received from the Company, its officers, directors, employees,
agents and representatives, accountants and counsel including this letter to
serve as the Bank's and the Company's financial advisor and marketing agent.
4. Regulatory Filings. The Bank and/or the Company will cause appropriate
offering documents to be filed with all regulatory agencies including, the
National Association of Securities Dealers ("NASD"), Office of Thrift
Supervision ("OTS") and such state securities commissioners as may be determined
by the Bank.
5. Agency Agreement. The specific terms of the offering services, offering
enhancement and syndicated offering services contemplated in this letter shall
be set forth in an Agency Agreement between KBW and the Bank and the Company to
be executed prior to commencement of the offering, and dated the date that the
Company's Prospectus is declared effective and/or authorized to be disseminated
by the appropriate regulatory agencies, the NASD, the OTS and such state
securities commissioners and other regulatory agencies as required by applicable
law.
6. Representations, Warranties and Covenants. The Agency Agreement will provide
for customary representations, warranties and covenants by the Bank and KBW, and
for the Company to indemnify KBW and their controlling persons (and, if
applicable, the members of the selling group and their controlling persons), and
for KBW to indemnify the Bank and the Company against certain liabilities,
including, without limitation, liabilities under the Securities Act of 1933.
<PAGE>
7. Fees. For the services hereunder, the Bank and/or Company shall pay the
following fees to KBW at closing unless stated otherwise:
(a) Management Fee. Management Fee of $25,000 payable in four
consecutive monthly installments of $6,250 commencing with the
signing of this letter. Such fees shall be deemed to have been
earned when due. Should the Offering be terminated for any reason
not attributable to the action or inaction of KBW, KBW shall have
earned and be entitled to be paid fees accruing through the stage
at which point the termination occurred.
(b) Success Fee. A Success Fee of $75,000.
(c) Broker-Dealer Pass-Thru. If any shares of the Company's stock
remain available after the subscription offering, at the request
of the Bank, KBW will seek to form a syndicate of registered
broker-dealers to assist in the sale of such common stock on a
best efforts basis, subject to the terms and conditions set forth
in the selected dealers agreement. KBW will endeavor to distribute
the common stock among dealers in a fashion which best meets the
distribution objectives of the Bank and the Plan of Stock
Issuance. KBW will be paid a fee not to exceed 5.5% of the
aggregate Purchase Price of the shares of common stock sold by
them. KBW will pass onto selected broker-dealers, who assist in
the syndicated community, an amount competitive with gross
underwriting discounts charged at such time for comparable amounts
of stock sold at a comparable price per share in a similar market
environment. Fees with respect to purchases affected with the
assistance of a broker/dealer other than KBW shall be transmitted
by KBW to such broker/dealer. The decision to utilize selected
broker-dealers will be made by the Company upon consultation with
KBW. In the event, with respect to any stock purchases, fees are
paid pursuant to this subparagraph 7(c), such fees shall be in
lieu of, and not in addition to, payment pursuant to subparagraph
7(a) and 7(b).
8. Additional Services. KBW further agrees to provide financial advisory
assistance to the Company and the Bank for a period of one year following
completion of the Offering, including formation of a dividend policy and share
repurchase program, assistance with shareholder reporting and shareholder
relations matters, general advice on mergers and acquisitions and other related
financial matters, without the payment by the Company and the Bank of any fees
in addition to those set forth in Section 7 hereof. Nothing in this Agreement
shall require the Company and the Bank to obtain such services from KBW.
Following this initial one year term, if both parties wish to continue the
relationship, a fee will be negotiated and an agreement entered into at that
time.
<PAGE>
9. Expenses. The Company will bear those expenses of the proposed offering
customarily borne by issuers, including, without limitation, regulatory filing
fees, "Blue Sky," and NASD filing and registration fees; the fees of the
Company's accountants, attorneys, appraiser, transfer agent and registrar,
printing, mailing and marketing and syndicate expenses associated with the
Offering; the fees set forth in Section 7; and fees for "Blue Sky" legal work.
If KBW incurs expenses on behalf of Client, Client will reimburse KBW for such
expenses.
KBW shall be reimbursed for reasonable out-of-pocket expenses, including costs
of travel, meals and lodging, photocopying, telephone, facsimile and couriers.
KBW reimbursed for its fees of underwriter's counsel (including counsel's
out-of-pocket expenses) not to exceed $35,000. The selection of such counsel
will be done by KBW, after consultation with the Bank.
10. Conditions. KBW's willingness and obligation to proceed hereunder shall be
subject to, among other things, satisfaction of the following conditions in
KBW's opinion, which opinion shall have been formed in good faith by KBW after
reasonable determination and consideration of all relevant factors: (a) full and
satisfactory disclosure of all relevant material, financial and other
information in the disclosure documents and a determination by KBW, in its sole
discretion, that the sale of stock on the terms proposed is reasonable given
such disclosures; (b) no material adverse change in the condition or operations
of the Bank subsequent to the execution of the agreement; and (c) no adverse
market conditions at the time of offering which in KBW's opinion make the sale
of the shares by the Company inadvisable.
12. Benefit. This Agreement shall inure to the benefit of the parties hereto and
their respective successors and to the parties indemnified pursuant to the terms
and conditions of the Agency Agreement and their successors, and the obligations
and liabilities assumed hereunder by the parties hereto shall be binding upon
their respective successors provided, however, that this Agreement shall not be
assignable by KBW.
13. Definitive Agreement. This letter reflects KBW's present intention of
proceeding to work with the Company on its proposed offering. It does not create
a binding obligation on the part of the Bank, the Company or KBW except as to
the agreement to maintain the confidentiality of non-public information set
forth in Section 3, the payment of certain fees as set forth in Section 7(a) and
7(b) and the assumption of expenses as set forth in Section 9, all of which
shall constitute the binding obligations of the parties hereto and which shall
survive the termination of this Agreement or the completion of the services
furnished hereunder and shall remain operative and in full force and effect. You
further acknowledge that any report or analysis rendered by KBW pursuant to this
engagement is rendered for use solely by the management of the Company and its
agents in connection with the Offering. Accordingly, you agree that you will not
provide any such information to any other person without our prior written
consent.
<PAGE>
KBW acknowledges that in offering the Company's stock no person will be
authorized to give any information or to make any representation not contained
in the offering prospectus and related offering materials filed as part of a
registration statement to be declared effective in connection with the offering.
Accordingly, KBW agrees that in connection with the offering it will not give
any unauthorized information or make any unauthorized representation. We will be
pleased to elaborate on any of the matters discussed in this letter at your
convenience.
If the foregoing correctly sets forth our mutual understanding, please so
indicate by signing and returning the original copy of this letter to the
undersigned.
Very truly yours,
KEEFE, BRUYETTE & WOODS, INC.
By: /s/Patricia A. McJoynt
---------------------------------
Patricia A. McJoynt
Managing Director
ALAMOGORDO FINANCIAL CORPORATION
By: /s/Miles Ledgerwood Date: 12-9-99
---------------------------------- -----------
Miles Ledgerwood
President and Chief Executive Officer
<PAGE>
EXHIBIT A
CONVERSION SERVICES PROPOSAL
TO ALAMOGORDO FINANCIAL CORPORATION
Keefe, Bruyette & Woods, Inc. provides thrift institutions with a comprehensive
program of offering services designed to promote an orderly, efficient,
cost-effective and long-term stock distribution. The following list is
representative of the offering services, if appropriate, we propose to perform
on behalf of the Company and the Bank.
General Services
Assist management and legal counsel with the design of the transaction
structure.
Analyze and make recommendations on bids from printing, transfer agent, and
appraisal firms.
Assist officers and directors in obtaining bank loans to purchase stock, if
requested.
Assist in drafting and distribution of press releases as required or
appropriate.
Offering Enhancement Services
Establish and manage Stock Information Center at the Bank. Stock Information
Center personnel will track prospective investors; record stock orders; mail
order confirmations; provide the Bank's senior management with daily reports;
answer customer inquiries; and handle special situations as they arise.
Assign Webb's personnel to be at the Bank through completion of the Subscription
and Community Offerings to manage the Stock Information Center, meet with
prospective shareholders at individual and community information meetings,
solicit local investor interest through a tele-marketing campaign, answer
inquiries, and otherwise assist in the sale of stock in the Subscription and
Community Offerings. This effort will be lead by a Principal of KBW.
Create target investor list based upon review of the Bank's depositor base.
Provide intensive financial and marketing input for drafting of the prospectus.
<PAGE>
Offering Enhancement Services- Continued
Prepare other marketing materials, including prospecting letters and brochures,
and media advertisements.
Arrange logistics of community information meeting(s) as required.
Prepare audio-visual presentation by senior management for community information
meeting(s).
Prepare management for question-and-answer period at community information
meeting(s).
Attend and address community information meeting(s) and be available to answer
questions.
Broker-Assisted Sales Services.
Arrange for broker information meeting(s) as required.
Prepare audio-visual presentation for broker information meeting(s).
Prepare script for presentation by senior management at broker information
meeting(s).
Prepare management for question-and-answer period at broker information
meeting(s).
Attend and address broker information meeting(s) and be available to answer
questions.
Produce confidential broker memorandum to assist participating brokers in
selling the Company's common stock.
Aftermarket Support Services.
Webb will use their best efforts to secure market making and on-going research
commitment from at least four NASD firms, one of which will be Keefe, Bruyette &
Woods, Inc.
ALAMOGORDO FINANCIAL CORPORATION
1,101,643 Shares
COMMON STOCK
(Par Value $.0l Per Share)
Subscription Price $10.00 Per Share
AGENCY AGREEMENT
___________ __, 2000
Charles Webb & Company,
a Division of Keefe, Bruyette & Woods, Inc.
211 Bradenton Avenue
Dublin, Ohio 43017
Ladies and Gentlemen:
Alamogordo Financial Corporation, a federal corporation (the
"Company"), AF Mutual Holding Company (the "MHC") and Alamogordo Federal Savings
and Loan Association, a federally chartered stock savings and loan association
(the "Bank") with its deposit accounts insured by the Savings Association
Insurance Fund ("SAIF") administered by the Federal Deposit Insurance
Corporation ("FDIC"), hereby confirm, jointly and severally, their agreement
with Charles Webb & Company, a Division of Keefe, Bruyette & Woods, Inc. (the
"Agent"), as follows:
Section 1. The Offering. In accordance with the Stock Issuance Plan
adopted by its Board of Directors (the "Plan"), the Company will offer and sell
up to 1,101,643 shares of its common stock, par value, $.01 per share (the
"Shares" or "Common Stock"), in a subscription offering (the "Subscription
Offering") to (1) depositors of the Bank with account balances of $50.00 or more
as of September 30, 1998 ("Eligible Account Holders"), (2) the Employee Stock
Ownership Plan of the Bank (the "ESOP"), (3) depositors of the Bank with account
balances of $50.00 or more as of December 31, 1999 ("Supplemental Eligible
Account Holders"), and (4) employees, officers and directors of the Bank. To the
extent Shares remain unsold in the Subscription Offering, the Company is
offering for sale in a community offering (the "Community Offering" and when
referred to together with the Subscription Offering, the "Subscription and
Community Offering") the Shares not so subscribed for or ordered in the
Subscription Offering to members of the general public, with preference given to
natural persons residing in the New Mexico counties of Otero and Lincoln
<PAGE>
("Other Subscribers"), (all such offerees being referred to in the aggregate as
"Eligible Offerees"). It is anticipated that shares not subscribed for in the
Subscription and Community Offering will be offered to certain members of the
general public on a best efforts basis through a selected dealers arrangement
(the "Syndicated Community Offering") (the Subscription Offering, Community
Offering and Syndicated Community Offering are collectively referred to as the
"Offering"). It is acknowledged that the purchase of Shares in the Offering is
subject to the maximum and minimum purchase limitations as described in the Plan
and that the Company and the Bank may reject, in whole or in part, any orders
received in the Community Offering or Syndicated Community Offering. The Company
will issue the Shares at a purchase price of $10.00 per share (the "Purchase
Price").
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (File No. 333- ) (the
"Registration Statement") containing a prospectus relating to the Offering for
the registration of the Shares under the Securities Act of 1933 (the "1933
Act"), and has filed such amendments thereof and such amended prospectuses as
may have been required to the date hereof. The term "Registration Statement"
shall include all exhibits thereto, as amended, including post-effective
amendments. The prospectus, as amended, on file with the Commission at the time
the Registration Statement initially became effective is hereinafter called the
"Prospectus," except that if any Prospectus is filed by the Company pursuant to
Rule 424(b) or (c) of the rules and regulations of the Commission under the 1933
Act (the "1933 Act Regulations") differing from the prospectus on file at the
time the Registration Statement initially becomes effective, the term
"Prospectus" shall refer to the prospectus filed pursuant to Rule 424(b) or (c)
from and after the time said prospectus is filed with the Commission.
In accordance with Title 12, Parts 575 and 563b of the Code of Federal
Regulations (the "MHC Regulations"), the Company has filed with the Office of
Thrift Supervision (the "OTS") an Application on Form MHC-2 with respect to the
stock issuance (the "MHC Application"), including the Prospectus and the
Valuation Appraisal Report prepared by RP Financial, LC (the "Appraisal") and
has filed such amendments thereto as may have been required by the OTS. The MHC
Application has been approved by the OTS and the related Prospectus has been
authorized for use by the OTS.
Section 2. Retention of Agent; Compensation; Sale and Delivery of the
Shares. Subject to the terms and conditions herein set forth, the Company and
the Bank have retained the Agent to consult with and to advise the Bank, the MHC
and the Company, and to assist the Company, on a best efforts basis, in the
distribution of the shares of Common Stock in the Offering. The services that
the Agent will provide include, but are not limited to (i) training the
employees of the Bank who will perform certain ministerial functions in the
Subscription and Community Offering regarding the mechanics and regulatory
requirements of the stock offering process, (ii) managing the Stock Information
Center by assisting interested stock subscribers and by keeping records of all
stock orders and (iii) preparing marketing materials.
2
<PAGE>
On the basis of the representations, warranties, and agreements herein
contained, but subject to the terms and conditions herein set forth, the Agent
accepts such appointment and agrees to consult with and advise the Company, the
MHC and the Bank as to the matters set forth in the letter agreement ("Letter
Agreement"), dated November 29, 1999 between the Company and the Agent (a copy
of which is attached hereto as Exhibit A). It is acknowledged by the Company,
the MHC and the Bank that the Agent shall not be required to take or purchase
any Shares or be obligated to take any action which is inconsistent with all
applicable laws, regulations, decisions or orders.
The obligations of the Agent pursuant to this Agreement (other than
those set forth in Sections 2(d), 8 and 9 hereof) shall terminate upon the
completion or termination or abandonment of the Plan by the Company or upon
termination of the Offering, but in no event later than the date (the "End
Date") which is 45 days after the Closing Date (as hereinafter defined). All
fees or expenses due to the Agent but unpaid will be payable to the Agent in
next day funds at the earlier of the Closing Date (as hereinafter defined) or
the End Date. In the event the Offering is extended beyond the End Date, the
Company, the MHC, the Bank and the Agent may agree to renew this Agreement under
mutually acceptable terms.
In the event the Company is unable to sell a minimum of 708,050 Shares
within the period herein provided, this Agreement shall terminate and the
Company shall refund to any persons who have subscribed for any of the Shares,
the full amount which it may have received from them plus accrued interest as
set forth in the Prospectus; and none of the parties to this Agreement shall
have any obligation to the other parties hereunder, except as set forth in this
Section 2 and in Sections 6, 8 and 9 hereof.
In the event the Offering is terminated, the Agent shall be reimbursed
for its actual accountable out-of-pocket expenses.
If all conditions precedent to the consummation of the Offering,
including, without limitation, the sale of all Shares required by the Plan to be
sold, are satisfied, the Company agrees to issue, or have issued, the Shares
sold in the Offering and to release for delivery certificates for such Shares on
the Closing Date (as hereinafter defined) against payment to the Company by any
means authorized by the Plan; provided, however, that no funds shall be released
to the Company until the conditions specified in Section 7 hereof shall have
been complied with to the reasonable satisfaction of the Agent and their
counsel. The release of Shares against payment therefor shall be made on a date
and at a place acceptable to the Company, the MHC, the Bank and the Agent.
Certificates for shares shall be delivered directly to the purchasers in
accordance with their directions. The date upon which the Company shall release
or deliver the Shares sold in the Offering, in accordance with the terms herein,
is called the "Closing Date."
The Agent shall receive the following compensation for its services
hereunder:
3
<PAGE>
(a) A management fee of $25,000, payable in four installments of
$6,250 on November 29 and December 29, 1999 and January 29 and
February 29, 2000. Should the Offering be terminated for any
reason not attributable to the action or inaction of the Agent,
the Agent shall have earned and be entitled to be paid fees
accruing through the stage at which the termination occurred.
(b) A Success Fee of $75,000.
(c) If any of the shares remain available after the Subscription and
Community Offerings, at the request of the Bank, the Agent will
seek to form a syndicate of registered broker-dealers to assist
in the sale of such Common Stock on a best efforts basis, subject
to the terms and conditions set forth in the selected dealers
agreement. the Agent will endeavor to distribute the Common Stock
among dealers in a fashion which best meets the distribution
objectives of the Bank and the Plan. the Agent will be paid a fee
not to exceed 5.5% of the aggregate Purchase Price of the Shares
sold by them. the Agent will pass onto selected broker-dealers,
who assist in the syndicated community, an amount competitive
with gross underwriting discounts changed at such time for
comparable amounts of stock sold at a comparable price per share
in a similar market environment. Fees with respect to purchases
affected with the assistance of a broker/dealer other than the
Agent shall be transmitted by the Agent to such broker/dealer.
The decision to utilize selected broker-dealers will be made by
the Bank upon consultation with the Agent. In the event, with
respect to any purchases of Shares, fees are paid pursuant to
this subparagraph 2(c), such fees shall be in lieu of, and not in
addition to, payment pursuant to subparagraph 2(a) and 2(b).
(d) The Company will bear those expenses of the proposed offering
customarily borne by issuers, including, without limitation,
regulatory filing fees, "Blue Sky," and NASD filing and
registration fees; the fees of the Company's accountants,
attorneys, appraiser, transfer agent and registrar, printing,
mailing and marketing and syndicate expenses associated with the
Offering; the fees set forth in Section 2; and fees for "Blue
Sky" legal work. If the Agent incurs expenses on behalf of the
Company, the Company will reimburse the Agent for such expenses.
The Agent shall be reimbursed for reasonable out-of-pocket
expenses, including costs of travel, meals and lodging,
photocopying, telephone, facsimile and couriers. The Agent shall
also be reimbursed for its fees of underwriter's counsel
(including counsel's out-of-pocket expenses) not to exceed
$35,000. The selection of such counsel will be done by the Agent,
after consultation with the Bank.
Section 3. Prospectus; Offering. The Shares are to be initially offered
in the Offering at the Purchase Price as defined and set forth on the cover page
of the Prospectus.
4
<PAGE>
Section 4. Representations and Warranties of the Company, the MHC and
the Bank. The Company, the MHC and the Bank jointly and severally represent and
warrant to and agree with the Agent as follows:
(a) The Registration Statement which was prepared by the Company, the
MHC and the Bank and filed with the Commission was declared
effective by the Commission on __________ __, 2000. At the time
the Registration Statement, including the Prospectus contained
therein (including any amendment or supplement), became
effective, the Registration Statement contained all statements
that were required to be stated therein in accordance with the
1933 Act and the 1933 Act Regulations, complied in all material
respects with the requirements of the 1933 Act and the 1933 Act
Regulations and the Registration Statement, including the
Prospectus contained therein (including any amendment or
supplement thereto), and any information regarding the Company or
the MHC or the Bank contained in Sales Information (as such term
is defined in Section 8 hereof) authorized by the Company, the
MHC or the Bank for use in connection with the Offering, did not
contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which
they were made, not misleading, and at the time any Rule 424(b)
or (c) Prospectus was filed with the Commission and at the
Closing Date referred to in Section 2, the Registration
Statement, including the Prospectus contained therein (including
any amendment or supplement thereto), and any information
regarding the Company, the MHC or the Bank contained in Sales
Information (as such term is defined in Section 8 hereof)
authorized by the Company, the MHC or the Bank for use in
connection with the Offering will contain all statements that are
required to be stated therein in accordance with the 1933 Act and
the 1933 Act Regulations and will not contain an untrue statement
of a material fact or omit to state a material fact necessary in
order to make the statements therein, in light of the
circumstances under which they were made, not misleading;
provided, however, that the representations and warranties in
this Section 4(a) shall not apply to statements or omissions made
in reliance upon and in conformity with written information
furnished to the Company, the MHC or the Bank by the Agent or its
counsel expressly regarding the Agent for use in the Prospectus
or statements in or omissions from any Sales Information or
information filed pursuant to state securities or blue sky laws
or regulations regarding the Agent.
(b) The MHC Application which was prepared by the Company, the MHC
and the Bank and filed with the OTS was approved by the OTS on
___________ ___, 2000, and the related Prospectus has been
authorized for use by the OTS. At the time of the approval of the
MHC Application, including the
5
<PAGE>
Prospectus (including any amendment or supplement thereto), by
the OTS and at all times subsequent thereto until the Closing
Date, the MHC Application, including the Prospectus (including
any amendment or supplement thereto), will comply in all material
respects with the MHC Regulations, except to the extent waived in
writing by the OTS. The MHC Application, including the Prospectus
(including any amendment or supplement thereto), does not include
any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which
they were made, not misleading; provided, however, that the
representations and warranties in this Section 4(b) shall not
apply to statements or omissions made in reliance upon and in
conformity with written information furnished to the Company, the
MHC or the Bank by the Agent or its counsel expressly regarding
the Agent for use in the Prospectus contained in the MHC
Application or statements in or omissions from any sales
information.
(c) The Company and the MHC have registered with the OTS as savings
and loan holding companies under the Home Owners' Loan Act, as
amended ("HOLA").
(d) No order has been issued by the OTS or the FDIC (hereinafter any
reference to the FDIC shall include the SAIF) preventing or
suspending the use of the Prospectus, and no action by or before
any such government entity to revoke any approval, authorization
or order of effectiveness related to the Offering is, to the best
knowledge of the Company, the MHC or the Bank, pending or
threatened.
(e) The MHC is and, as of the Closing Date, will continue to be duly
organized and validly existing as a federally chartered mutual
holding company under the laws of the United States, duly
authorized to conduct its business and own its property as
described in the Registration Statement and the Prospectus; as of
the Closing Date, the MHC will have obtained all licenses,
permits and other governmental authorizations required for the
conduct of its business except those that individually or in the
aggregate would not materially adversely affect the financial
condition, earnings, capital, assets or properties of the
Company, MHC and Bank taken as a whole; as of the Closing Date,
all such licenses, permits and governmental authorizations will
be in full force and effect and the MHC will be in compliance
therewith in all material respects; as of the Closing Date, the
MHC will be duly qualified as a foreign corporation to transact
business in each jurisdiction in which the failure to be so
qualified in one or more of such jurisdictions would have a
material adverse effect on the financial condition, earnings,
capital, assets, properties or business of the Company, MHC and
Bank considered as one enterprise.
6
<PAGE>
(f) The MHC does not own any equity securities or any equity interest
in any business enterprise except as described in the Prospectus.
(g) The MHC is not authorized to issue any shares of capital stock.
(h) At the Closing Date, the Plan will have been adopted by the
Boards of Directors of the Company, the MHC and the Bank and
approved by the members of the Bank, and the offer and sale of
the Shares will have been conducted in all material respects in
accordance with the Plan, the MHC Regulations, and all other
applicable laws, regulations, decisions and orders, including all
terms, conditions, requirements and provisions precedent to the
Offering imposed upon the Company, the MHC or the Bank by the
OTS, the Commission, or any other regulatory authority and in the
manner described in the Prospectus. No person has sought to
obtain review of the final action of the OTS in approving the
Plan or in approving the MHC Application, or any other statute or
regulation.
(i) The Bank has been organized and is a validly existing federally
chartered savings and loan association in capital stock form of
organization, duly authorized to conduct its business and own its
property as described in the Registration Statement and the
Prospectus; the Bank has obtained all material licenses, permits
and other governmental authorizations currently required for the
conduct of its business; all such licenses, permits and
governmental authorizations are in full force and effect, and the
Bank is in all material respects complying with all laws, rules,
regulations and orders applicable to the operation of its
business; the Bank is existing under the laws of the United
States and is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in which
its ownership of property or leasing of property or the conduct
of its business requires such qualification, unless the failure
to be so qualified in one or more of such jurisdictions would not
have a material adverse effect on the condition, financial or
otherwise, or the business, operations or income of the Bank. The
Bank does not own equity securities or any equity interest in any
other business enterprise except as described in the Prospectus
or as would not be material to the operations of the Bank. Upon
completion of the sale by the Company of the Shares contemplated
by the Prospectus, (i) all of the issued and outstanding capital
stock of the Bank will be owned by the Company, (ii) the Company
will have no direct subsidiaries other than the Bank, and (iii)
the Company will be a majority-owned subsidiary of the MHC. The
Offering will have been effected in all material respects in
accordance with all applicable statutes, regulations, decisions
and orders; and, except with respect to the filing of certain
post-sale, post-Offering reports, and documents in compliance
with the 1933 Act Regulations, the OTS' resolutions or letters of
7
<PAGE>
approval, all terms, conditions, requirements and provisions with
respect to the Offering imposed by the Commission, the OTS, and
the FDIC, if any, will have been complied with by the Company,
the MHC and the Bank in all material respects or appropriate
waivers will have been obtained and all material notice and
waiting periods will have been satisfied, waived or elapsed.
(j) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the United
States with corporate power and authority to own, lease and
operate its properties and to conduct its business as described
in the Registration Statement and the Prospectus, and at the
Closing Date the Company will be qualified to do business as a
foreign corporation in each jurisdiction in which the conduct of
its business requires such qualification, except where the
failure to so qualify would not have a material adverse effect on
the condition, financial or otherwise, or the business,
operations or income of the Company. The Company has obtained all
material licenses, permits and other governmental authorizations
currently required for the conduct of its business; all such
licenses, permits and governmental authorizations are in full
force and effect, and the Company is in all material respects
complying with all laws, rules, regulations and orders applicable
to the operation of its business.
(k) The Bank is a member of the Federal Home Loan Bank of Dallas
("FHLB- Dallas"). The deposit accounts of the Bank are insured by
the FDIC up to the applicable limits; and no proceedings for the
termination or revocation of such insurance are pending or, to
the best knowledge of the Company or the Bank, threatened.
(l) The Company, the MHC and the Bank have good and marketable title
to all real property and good title to all other assets material
to the business of the Company, the MHC and the Bank, taken as a
whole, and to those properties and assets described in the
Registration Statement and Prospectus as owned by them, free and
clear of all liens, charges, encumbrances or restrictions, except
such as are described in the Registration Statement and
Prospectus, or are not material to the business of the Company,
the MHC and the Bank, taken as a whole; and all of the leases and
subleases material to the business of the Company, the MHC and
the Bank, taken as a whole, under which the Company, the MHC or
the Bank hold properties, including those described in the
Registration Statement and Prospectus, are in full force and
effect.
(m) The Company and the Bank have received an opinion of their
special counsel, Luse Lehman Gorman Pomerenk & Schick with
respect to the federal income tax consequences of the Offering
and the opinions of
8
<PAGE>
____________________ with respect to New Mexico income tax
consequences of the Offering; all material aspects of the
opinions of Luse Lehman Gorman Pomerenk & Schick and
_____________________ are accurately summarized in the
Registration Statement and will be accurately summarized in the
Prospectus; and further represent and warrant that the facts upon
which such opinions are based are truthful, accurate and
complete.
(n) The Company, the MHC and the Bank have all such power, authority,
authorizations, approvals and orders as may be required to enter
into this Agreement, to carry out the provisions and conditions
hereof and to issue and sell the Shares to be sold by the
Company, as provided herein and as described in the Prospectus
except approval or confirmation by the OTS of the final appraisal
of the Company. The consummation of the Offering, the execution,
delivery and performance of this Agreement and the consummation
of the transactions herein contemplated have been duly and
validly authorized by all necessary corporate action on the part
of the Company, the MHC and the Bank and this Agreement has been
validly executed and delivered by the Company, the MHC and the
Bank and is the valid, legal and binding agreement of the
Company, the MHC and the Bank enforceable in accordance with its
terms (except as the enforceability thereof may be limited by
bankruptcy, insolvency, moratorium, reorganization or similar
laws relating to or affecting the enforcement of creditors'
rights generally or the rights of creditors of savings and loan
holding companies, the accounts of whose subsidiaries are insured
by the FDIC or by general equity principles regardless of whether
such enforceability is considered in a proceeding in equity or at
law, and except to the extent if any, that the provisions of
Sections 8 and 9 hereof may be unenforceable as against public
policy).
(o) The Company, the MHC and the Bank are not in violation of any
directive received from the OTS, the FDIC, or any other agency to
make any material change in the method of conducting their
businesses so as to comply in all material respects with all
applicable statutes and regulations (including, without
limitation, regulations, decisions, directives and orders of the
OTS, and the FDIC) and, except as may be set forth in the
Registration Statement and the Prospectus, there is no suit or
proceeding or charge or action before or by any court, regulatory
authority or governmental agency or body, pending or, to the
knowledge of the Company, the MHC or the Bank, threatened, which
might materially and adversely affect the Offering, the
performance of this Agreement or the consummation of the
transactions contemplated in the Plan and as described in the
Registration Statement and the Prospectus or which might result
in any material adverse change in the condition (financial or
otherwise), earnings, capital or properties of the
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<PAGE>
Company, the MHC and the Bank, or which would materially affect
their properties and assets.
(p) The financial statements, schedules and notes related thereto
which are included in the Prospectus fairly present the
consolidated balance sheet, income statement, statement of
changes in equity and cash flows of the Bank at the respective
dates indicated and for the respective periods covered thereby
and comply as to form in all material respects with the
applicable accounting requirements of Title 12 of the Code of
Federal Regulations and generally accepted accounting principles
(including those requiring the recording of certain assets at
their current market value). Such financial statements, schedules
and notes related thereto have been prepared in accordance with
generally accepted accounting principles consistently applied
through the periods involved, present fairly in all material
respects the information required to be stated therein and are
consistent with the most recent financial statements and other
reports filed by the Bank with the OTS. The other financial,
statistical and pro forma information and related notes included
in the Prospectus present fairly the information shown therein on
a basis consistent with the audited and unaudited financial
statements of the Bank included in the Prospectus, and as to the
pro forma adjustments, the adjustments described therein have
been properly applied on the basis described therein.
(q) Since the respective dates as of which information is given in
the Registration Statement including the Prospectus: (i) there
has not been any material adverse change, financial or otherwise,
in the condition of the Company, the MHC or the Bank considered
as one enterprise, or in the earnings, capital or properties of
the Company, the MHC or the Bank, whether or not arising in the
ordinary course of business; (ii) there has not been any material
increase in the long-term debt of the Bank or in the principal
amount of the Bank's assets which are classified by the Bank as
substandard, doubtful or loss or in loans past due 90 days or
more or real estate acquired by foreclosure, by deed-in-lieu of
foreclosure or deemed in-substance foreclosure or any material
decrease in retained earnings or total assets of the Bank nor has
the Company, the MHC or the Bank issued any securities (other
than in connection with the incorporation of the Company) or
incurred any liability or obligation for borrowing other than in
the ordinary course of business; (iii) there have not been any
material transactions entered into by the Company, the MHC or the
Bank; (iv) there has not been any material adverse change in the
aggregate dollar amount of the Bank's deposits or its
consolidated net worth; (v) there has been no material adverse
change in the Company's, the MHC's or the Bank's relationship
with its insurance carriers, including, without limitation,
cancellation or other termination of the Company's, the
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<PAGE>
MHC's or the Bank's fidelity bond or any other type of insurance
coverage; (vi) except as disclosed in the Prospectus there has
been no material change in management of the Company, the MHC or
the Bank, neither of which has any material undisclosed liability
of any kind, contingent or otherwise; (vii) the Company, the MHC
or the Bank has not sustained any material loss or interference
with its respective business or properties from fire, flood,
windstorm, earthquake, accident or other calamity, whether or not
covered by insurance; (viii) the Company, the MHC or the Bank is
not in default in the payment of principal or interest on any
outstanding debt obligations; (ix) the capitalization,
liabilities, assets, properties and business of the Company, the
MHC and the Bank conform in all material respects to the
descriptions thereof contained in the Prospectus; and (x) neither
the Company, the MHC nor the Bank has any material contingent
liabilities, except as set forth in the Prospectus. All documents
made available to or delivered or to be made available to or
delivered by the Bank, the MHC or the Company or their
representatives in connection with the issuance and sale of the
Shares, including records of account holders, depositors and
other members of the Bank, or in connection with the Agent's
exercise of due diligence, except for those documents which were
prepared by parties other than the Bank, the MHC, the Company or
their representatives, to the best knowledge of the Bank, the MHC
and the Company, were on the dates on which they were delivered,
or will be on the dates on which they are to be delivered, true,
complete and correct in all material respects.
(r) As of the date hereof and as of the Closing Date, neither the
Company, the MHC nor the Bank is (i) in violation of its articles
of incorporation or charter or bylaws, respectively, or (ii) in
default in the performance or observance of any material
obligation, agreement, covenant, or condition contained in any
material contract, lease, loan agreement, indenture or other
instrument to which it is a party or by which it or any of its
property may be bound; the consummation of the Offering, the
execution, delivery and performance of this Agreement and the
consummation of the transactions herein contemplated have been
duly and validly authorized by all necessary corporate action on
the part of the Company, the MHC and the Bank and this Agreement
has been validly executed and delivered by the Company, the MHC
and the Bank and is a valid, legal and binding Agreement of the
Company, the MHC and the Bank enforceable in accordance with its
terms, except as the enforceability thereof may be limited by (i)
bankruptcy, insolvency, reorganization, moratorium,
conservatorship, receivership or other similar laws now or
hereafter in effect relating to or affecting the enforcement of
creditors' rights generally or the rights of creditors of federal
savings institutions, (ii) general equitable principles, (iii)
laws relating to the safety and soundness of insured depository
institutions, and (iv) applicable
11
<PAGE>
law or public policy with respect to the indemnification and/or
contribution provisions contained herein, and except that no
representation or warranty need be made as to the effect or
availability of equitable remedies or injunctive relief
(regardless of whether such enforceability is considered in a
proceeding in equity or at law). The consummation of the
transactions herein contemplated will not: (i) conflict with or
constitute a breach of, or default under, or result in the
creation of any material lien, charge or encumbrance upon any of
the assets of the Company, the MHC or the Bank pursuant to the
articles of incorporation of the Company or the charter and
bylaws of the Bank and the MHC, or any material contract, lease
or other instrument to which the Company, the MHC or the Bank has
a beneficial interest, or any applicable law, rule, regulation or
order; (ii) violate any authorization, approval, judgement,
decree, order, statute, rule or regulation applicable to the
Company, the MHC or the Bank, except for such violations which
would not have a material adverse effect on the financial
condition and results of operations of the Company, the MHC and
the Bank on a consolidated basis; or (iii) result in the creation
of any material lien, charge or encumbrance upon any property of
the Company, the MHC or the Bank.
(s) No default exists, and no event has occurred which with notice or
lapse of time, or both, would constitute a default, on the part
of the Company, the MHC or the Bank in the due performance and
observance of any term, covenant or condition of any indenture,
mortgage, deed of trust, note, bank loan or credit agreement or
any other instrument or agreement to which the Company, the MHC
or the Bank is a party or by which any of them or any of their
property is bound or affected, except such defaults which would
not have a material adverse affect on the financial condition or
results of operations of the Company, the MHC and the Bank on a
consolidated basis; such agreements are in full force and effect;
and no other party to any such agreements has instituted or, to
the best knowledge of the Company, the MHC and the Bank,
threatened any action or proceeding wherein the Company, the MHC
or the Bank would or might be alleged to be in default
thereunder.
(t) Upon consummation of the Offering, the authorized, issued and
outstanding equity capital of the Company will be within the
range set forth in the Prospectus under the caption
"Capitalization," and no Shares have been or will be issued and
outstanding prior to the Closing Date (other than Shares held by
the MHC); the Shares will have been duly and validly authorized
for issuance and, when issued and delivered by the Company
pursuant to the Plan against payment of the consideration
calculated as set forth in the Plan and in the Prospectus, will
be duly and validly issued, fully paid and non-assessable, except
for shares purchased by the ESOP with funds
12
<PAGE>
borrowed from the Company to the extent payment therefor in cash
has not been received by the Company; except to the extent that
subscription rights and priorities pursuant thereto exist
pursuant to the Plan, no preemptive rights exist with respect to
the Shares; and the terms and provisions of the Shares will
conform in all material respects to the description thereof
contained in the Registration Statement and the Prospectus. To
the best knowledge of the Company, the MHC and the Bank, upon the
issuance of the Shares, good title to the Shares will be
transferred from the Company to the purchasers thereof against
payment therefor, subject to such claims as may be asserted
against the purchasers thereof by third-party claimants.
(u) No approval of any regulatory or supervisory or other public
authority is required in connection with the execution and
delivery of this Agreement or the issuance of the Shares, except
for the approval of the Commission, the OTS and any necessary
qualification, notification, registration or exemption under the
securities or blue sky laws of the various states in which the
Shares are to be offered, and except as may be required under the
rules and regulations of the NASD.
(v) The Accounting & Consulting Group L.L.P. which has certified the
consolidated audited financial statements and schedules of the
Bank included in the Prospectus, has advised the Company, the MHC
and the Bank in writing that they are, with respect to the
Company, the MHC and the Bank, independent public accountants
within the meaning of the Code of Professional Ethics of the
American Institute of Certified Public Accountants and Title 12
of the Code of Federal Regulations and Section 571.2(c)(3).
(w) RP Financial LC, which has prepared the Valuation Appraisal
Report as of December ___, 1999 (as amended or supplemented, if
so amended or supplemented) (the "Appraisal"), has advised the
Company in writing that it is independent of the Company, the MHC
and the Bank within the meaning of the MHC Regulations.
(x) The Company, the MHC and the Bank have timely filed all required
federal, state and local tax returns; the Company, the MHC and
the Bank have paid all taxes that have become due and payable in
respect of such returns, except where permitted to be extended,
have made adequate reserves for similar future tax liabilities
and no deficiency has been asserted with respect thereto by any
taxing authority.
(y) The Bank is in compliance in all material respects with the
applicable financial record-keeping and reporting requirements of
the Currency and
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<PAGE>
Foreign Transactions Reporting Act of 1970, as amended, and the
regulations and rules thereunder.
(z) To the knowledge of the Company, the MHC and the Bank, neither
the Company, the MHC, the Bank nor employees of the Company, the
MHC or the Bank have made any payment of funds of the MHC, the
Company or the Bank as a loan for the purchase of the Shares or
made any other payment of funds prohibited by law, and no funds
have been set aside to be used for any payment prohibited by law.
(aa) Prior to the Offering, neither the Company, the MHC nor the Bank
has: (i) issued any securities within the last 18 months (except
for notes to evidence other bank loans and reverse repurchase
agreements or other liabilities in the ordinary course of
business or as described in the Prospectus, and except for any
shares issued in connection with the incorporation of the
Company); (ii) had any material dealings within the 12 months
prior to the date hereof with any member of the NASD, or any
person related to or associated with such member, other than
discussions and meetings relating to the proposed Offering and
routine purchases and sales of United States government and
agency securities; (iii) entered into a financial or management
consulting agreement except as contemplated hereunder; and (iv)
engaged any intermediary between the Agent and the Company, the
MHC and the Bank in connection with the offering of the Shares,
and no person is being compensated in any manner for such
service. Appropriate arrangements have been made for placing the
funds received from subscriptions for Shares in a special
interest-bearing account with the Bank until all Shares are sold
and paid for, with provision for refund to the purchasers in the
event that the Offering is not completed for whatever reason or
for delivery to the Company if all Shares are sold.
(bb) The Company, the MHC and the Bank have not relied upon the Agent
or its legal counsel or other advisors for any legal, tax or
accounting advice in connection with the Offering.
(cc) The Company is not required to be registered under the Investment
Company Act of 1940, as amended.
(dd) Any certificates signed by an officer of the Company, the MHC or
the Bank pursuant to the conditions of this Agreement and
delivered to the Agent or their counsel that refers to this
Agreement shall be deemed to be a representation and warranty by
the Company, the MHC or the Bank to the Agent as to the matters
covered thereby with the same effect as if such representation
and warranty were set forth herein.
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<PAGE>
Section 5. Representations and Warranties of the Agent.
The Agent represents and warrants to the Company, the MHC and the Bank
that:
(i) it is a corporation and is validly existing in good standing
under the laws of the State of Ohio and licensed to conduct business
in the State of Ohio and it has the full power and authority to
provide the services to be furnished to the Bank, the MHC and the
Company hereunder.
(ii) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
and validly authorized by all necessary action on the part of the
Agent, and this Agreement has been duly and validly executed and
delivered by the Agent and is a legal, valid and binding agreement of
the Agent, enforceable in accordance with its terms.
(iii) Each of the Agent and its employees, agents and
representatives who shall perform any of the services hereunder shall
be duly authorized and empowered, and shall have all licenses,
approvals and permits necessary to perform such services.
(iv) The execution and delivery of this Agreement by the Agent,
the consummation of the transactions contemplated hereby and
compliance with the terms and provisions hereof will not conflict
with, or result in a breach of, any of the terms, provisions or
conditions of, or constitute a default (or an event which with notice
or lapse of time or both would constitute a default) under, the
articles of incorporation of the Agent or any agreement, indenture or
other instrument to which the Agent is a party or by which it or its
property is bound.
(v) No approval of any regulatory or supervisory or other public
authority is required in connection with the Agent's execution and
delivery of this Agreement, except as may have been received.
(vi) There is no suit or proceeding or charge or action before or
by any court, regulatory authority or government agency or body or, to
the knowledge of the Agent, pending or threatened, which might
materially adversely affect the Agent's performance of this Agreement.
Section 5.l Covenants of the Company, the MHC and the Bank. The
Company, the MHC and the Bank hereby jointly and severally covenant with the
Agent as follows:
(a) The Company will not, at any time after the date the Registration
Statement is declared effective, file any amendment or supplement
to the Registration Statement without providing the Agent and its
counsel an opportunity to
15
<PAGE>
review such amendment or supplement or file any amendment or
supplement to which amendment or supplement the Agent or its
counsel shall reasonably object.
(b) The MHC and Bank will not, at any time after the MHC Application
is approved by the OTS, file any amendment or supplement to such
MHC Application without providing the Agent and its counsel an
opportunity to review such amendment or supplement or file any
amendment or supplement to which amendment or supplement the
Agent or its counsel shall reasonably object.
(c) The Company, the MHC and the Bank will use their best efforts to
cause any post-effective amendment to the Registration Statement
to be declared effective by the Commission and any post-effective
amendment to the MHC Application to be approved by the OTS and
will immediately upon receipt of any information concerning the
events listed below notify the Agent: (i) when the Registration
Statement, as amended, has become effective; (ii) when the MHC
Application, as amended has been approved by the OTS; (iii) any
comments from the Commission, the OTS or any other governmental
entity with respect to the Offering or the transactions
contemplated by this Agreement; (iv) of the request by the
Commission, the OTS or any other governmental entity for any
amendment or supplement to the Registration Statement, the MHC
Application or for additional information; (v) of the issuance by
the Commission, the OTS or any other governmental entity of any
order or other action suspending the Offering or the use of the
Registration Statement or the Prospectus or any other filing of
the Company, the MHC or the Bank under the MHC Regulations, or
other applicable law, or the threat of any such action; (vi) the
issuance by the Commission, the OTS or any authority of any stop
order suspending the effectiveness of the Registration Statement
or of the initiation or threat of initiation or threat of any
proceedings for that purpose; or (vii) of the occurrence of any
event mentioned in paragraph (g) below. The Company, the MHC and
the Bank will make every reasonable effort (i) to prevent the
issuance by the Commission, the OTS or any state authority of any
such order and, if any such order shall at any time be issued,
(ii) to obtain the lifting thereof at the earliest possible time.
(d) The Company, the MHC and the Bank will deliver to the Agent and
to its counsel two conformed copies of the Registration Statement
and the MHC Application, as originally filed and of each
amendment or supplement thereto, including all exhibits. Further,
the Company, the MHC and the Bank will deliver such additional
copies of the foregoing documents to counsel to the Agent as may
be required for any NASD and "blue sky" filings.
16
<PAGE>
(e) The Company, the MHC and the Bank will furnish to the Agent, from
time to time during the period when the Prospectus (or any later
prospectus related to this offering) is required to be delivered
under the 1933 Act or the Securities Exchange Act of 1934 (the
"1934 Act"), such number of copies of such Prospectus (as amended
or supplemented) as the Agent may reasonably request for the
purposes contemplated by the 1933 Act, the 1933 Act Regulations,
the 1934 Act or the rules and regulations promulgated under the
1934 Act (the "1934 Act Regulations"). The Company authorizes the
Agent to use the Prospectus (as amended or supplemented, if
amended or supplemented) in any lawful manner contemplated by the
Plan in connection with the sale of the Shares by the Agent.
(f) The Company, the MHC and the Bank will comply with any and all
material terms, conditions, requirements and provisions with
respect to the Offering, and the transactions contemplated
thereby, imposed by the Commission, the OTS or the MHC
Regulations, and by the 1933 Act, the 1933 Act Regulations, the
1934 Act and the 1934 Act Regulations to be complied with prior
to or subsequent to the Closing Date and when the Prospectus is
required to be delivered, and during such time period the
Company, the MHC and the Bank will comply, at their own expense,
with all material requirements imposed upon them by the
Commission, the OTS or the MHC Regulations, and by the 1933 Act,
the 1933 Act Regulations, the 1934 Act and the 1934 Act
Regulations, including, without limitation, Rule 10b-5 under the
1934 Act, in each case as from time to time in force, so far as
necessary to permit the continuance of sales or dealing in the
Common Stock during such period in accordance with the provisions
hereof and the Prospectus.
(g) If, at any time during the period when the Prospectus relating to
the Shares is required to be delivered, any event relating to or
affecting the Company, the MHC or the Bank shall occur, as a
result of which it is necessary or appropriate, in the opinion of
counsel for the Company, the MHC and the Bank or in the
reasonable opinion of the Agent's counsel, to amend or supplement
the Registration Statement or Prospectus in order to make the
Registration Statement or Prospectus not misleading in light of
the circumstances existing at the time the Prospectus is
delivered to a purchaser, the Company, the MHC and the Bank will
immediately so inform the Agent and prepare and file, at their
own expense, with the Commission and the OTS and furnish to the
Agent a reasonable number of copies of an amendment or amendments
of, or a supplement or supplements to, the Registration Statement
or Prospectus (in form and substance reasonably satisfactory to
the Agent and its counsel after a reasonable time for review)
which will amend or supplement the Registration Statement or
Prospectus so that as amended
17
<PAGE>
or supplemented it will not contain an untrue statement of a
material fact or omit to state a material fact necessary in order
to make the statements therein, in light of the circumstances
existing at the time the Prospectus is delivered to a purchaser,
not misleading. For the purpose of this Agreement, the Company,
the MHC and the Bank each will timely furnish to the Agent such
information with respect to itself as the Agent may from time to
time reasonably request.
(h) The Company, the MHC and the Bank will take all necessary
actions, in cooperating with the Agent, and furnish to whomever
the Agent may direct, such information as may be required to
qualify or register the Shares for offering and sale by the
Company or to exempt such Shares from registration, or to exempt
the Company as a broker-dealer and its officers, directors and
employees as broker-dealers or agents under the applicable
securities or blue sky laws of such jurisdictions in which the
Shares are required under the MHC Regulations to be sold or as
the Agent and the Company, the MHC and the Bank may reasonably
agree upon; provided, however, that the Company shall not be
obligated to file any general consent to service of process, to
qualify to do business in any jurisdiction in which it is not so
qualified, or to register its directors or officers as brokers,
dealers, salesmen or agents in any jurisdiction. In each
jurisdiction where any of the Shares shall have been qualified or
registered as above provided, the Company will make and file such
statements and reports in each fiscal period as are or may be
required by the laws of such jurisdiction.
(i) The Company, the MHC and the Bank will not sell or issue,
contract to sell or otherwise dispose of, for a period of 90 days
after the Closing Date, without the Agent's prior written
consent, any Common Stock other than the Shares or other than in
connection with any plan or arrangement described in the
Prospectus, including existing stock benefit plans.
(j) The Company shall register its Common Stock under Section 12(g)
of the 1934 Act on or prior to the Closing Date pursuant to the
Plan and shall request that such registration be effective prior
to or upon completion of the Offering. The Company shall maintain
the effectiveness of such registration for not less than three
years or such shorter period as may be required by the OTS.
(k) During the period during which the Company's Common Stock is
registered under the 1934 Act or for three (3) years from the
date hereof, whichever period is greater, the Company will
furnish to its shareholders as soon as practicable after the end
of each fiscal year an annual report of the Company (including a
consolidated balance sheet and statements of consolidated
18
<PAGE>
income, shareholders' equity and cash flows of the Company and
its subsidiaries as at the end of and for such year, certified by
independent public accountants in accordance with Regulation S-X
under the 1933 Act and the 1934 Act).
(l) During the period of three years from the date hereof, the
Company will furnish to the Agent: (i) as soon as practicable
after such information is publicly available, a copy of each
report of the Company furnished to or filed with the Commission
under the 1934 Act or any national securities exchange or system
on which any class of securities of the Company is listed or
quoted (including, but not limited to, reports on Forms 10-K,
10-Q and 8-K and all proxy statements and annual reports to
stockholders), (ii) a copy of each other non-confidential report
of the Company mailed to its stockholders or filed with the
Commission, the OTS or any other supervisory or regulatory
authority or any national securities exchange or system on which
any class of securities of the Company is listed or quoted, each
press release and material news items and additional documents
and information with respect to the Company, MHC or the Bank as
the Agent may reasonably request; and (iii) from time to time,
such other nonconfidential information concerning the Company,
the MHC or the Bank as the Agent may reasonably request.
(m) The Company, the MHC and the Bank will use the net proceeds from
the sale of the Shares in the manner set forth in the Prospectus
under the caption "Use of Proceeds."
(n) Other than as permitted by the MHC Regulations, the HOLA, the
1933 Act, the 1933 Act Regulations, and the laws of any state in
which the Shares are registered or qualified for sale or exempt
from registration, neither the Company, the MHC nor the Bank will
distribute any prospectus, offering circular or other offering
material in connection with the offer and sale of the Shares.
(o) The Company will use its best efforts to (i) encourage and assist
a market maker to establish and maintain a market for the Shares
and (ii) list and maintain quotation of the Shares on a national
or regional securities exchange or on the Nasdaq Stock Market
("Nasdaq") effective on or prior to the Closing Date.
(p) The Bank will maintain appropriate arrangements for depositing
all funds received from persons mailing subscriptions for or
orders to purchase Shares in the Offering on an interest-bearing
basis at the rate described in the Prospectus until the Closing
Date and satisfaction of all conditions precedent to the release
of the Bank's obligation to refund payments received from
19
<PAGE>
persons subscribing for or ordering Shares in the Offering in
accordance with the Plan and as described in the Prospectus or
until refunds of such funds have been made to the persons
entitled thereto or withdrawal authorizations canceled in
accordance with the Plan and as described in the Prospectus. The
Bank will maintain such records of all funds received to permit
the funds of each subscriber to be separately insured by the FDIC
(to the maximum extent allowable) and to enable the Bank to make
the appropriate refunds of such funds in the event that such
refunds are required to be made in accordance with the Plan and
as described in the Prospectus.
(q) The Company, the MHC and the Bank will take such actions and
furnish such information as are reasonably requested by the Agent
in order for the Agent to ensure compliance with the NASD's
"Interpretation Relating to Free Riding and Withholding."
(r) Neither the Company, the MHC nor the Bank will amend the Plan
without notifying the Agent prior thereto.
(s) The Company shall assist the Agent, if necessary, in connection
with the allocation of the Shares in the event of an
oversubscription and shall provide the Agent with any information
necessary to assist the Company in allocating the Shares in such
event and such information shall be accurate and reliable in all
material respects.
(t) Prior to the Closing Date, the Company, the MHC and the Bank will
inform the Agent of any event or circumstances of which it is
aware as a result of which the Registration Statement and/or
Prospectus, as then amended or supplemented, would contain an
untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein not
misleading.
(u) Subsequent to the date the Registration Statement is declared
effective by the Commission and prior to the Closing Date, except
as otherwise may be indicated or contemplated therein or set
forth in an amendment or supplement thereto, neither the Company,
the MHC nor the Bank will have: (i) issued any securities or
incurred any liability or obligation, direct or contingent, for
borrowed money, except borrowings from the same or similar
sources indicated in the Prospectus in the ordinary course of its
business, or (ii) entered into any transaction which is material
in light of the business and properties of the Company and the
Bank, taken as a whole.
(v) The facts and representations provided to Luse Lehman Gorman
Pomerenk & Schick by the Bank, the MHC and the Company and upon
which Luse
20
<PAGE>
Lehman Gorman Pomerenk & Schick will base its opinion under
Section 7(c)(1) are and will be truthful, accurate and complete.
Section 6. Payment of Expenses. Whether or not the Offering is
completed or the sale of the Shares by the Company is consummated, the Company,
the MHC and the Bank jointly and severally agree to pay or reimburse the Agent
for the Company, the MHC and the Bank have agreed to reimburse the Agent for its
out-of-pocket expenses, and its legal fees (as specified in Section 2) and to
indemnify the Agent against certain claims or liabilities, including certain
liabilities under the Securities Act, and will contribute to payments the Agent
may be required to make in connection with any such claims or liabilities; and
the fees set forth under Section 2. In the event the Company is unable to sell a
minimum of 708,050 Shares, the Company, the MHC and the Bank shall promptly
reimburse the Agent in accordance with Section 2 hereof.
Section 7. Conditions to the Agent's Obligations. The obligations of
the Agent hereunder, as to the Shares to be delivered at the Closing Date, are
subject, to the extent not waived in writing by the Agent, to the condition that
all representations and warranties of the Company, the MHC and the Bank herein
are, at and as of the commencement of the Offering and at and as of the Closing
Date, true and correct in all material respects, the condition that the Company,
the MHC and the Bank shall have performed all of their obligations hereunder to
be performed on or before such dates, and to the following further conditions:
(a) At the Closing Date, the Company, the MHC and the Bank shall have
conducted the Offering in all material respects in accordance
with the Plan, the MHC Regulations, and all other applicable
laws, regulations, decisions and orders, including all terms,
conditions, requirements and provisions precedent to the Offering
imposed upon them by the OTS.
(b) The Registration Statement shall have been declared effective by
the Commission and the MHC Application and MHC Notice shall be
approved by the OTS not later than 5:30 p.m. on the date of this
Agreement, or with the Agent's consent at a later time and date;
and at the Closing Date, no stop order suspending the
effectiveness of the Registration Statement shall have been
issued under the 1933 Act or proceedings therefore initiated or
threatened by the Commission or any state authority, and no order
or other action suspending the authorization of the Prospectus or
the consummation of the Conversion shall have been issued or
proceedings therefore initiated or, to the Company's, the MHC's
or the Bank's knowledge, threatened by the Commission, the OTS,
the FDIC, or any state authority.
(c) At the Closing Date, the Agent shall have received:
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(1) The favorable opinion, dated as of the Closing Date and
addressed to the Agent and for its benefit, of Luse Lehman Gorman
Pomerenk & Schick, special counsel for the Company, the MHC and
the Bank, in form and substance to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation under the laws of the United States.
(ii) The Company has corporate power and authority to own,
lease and operate its properties and to conduct its business as
described in the Registration Statement and the Prospectus.
(iii) The Bank has been organized and is a validly existing
federally chartered savings and loan association in capital stock
form of organization, authorized to conduct its business and own
its property as described in the Registration Statement and the
Prospectus. All of the outstanding capital stock of the Bank upon
completion of the Offering will be duly authorized and, upon
payment therefor, will be validly issued, fully paid and
non-assessable and will be owned by the Company, free and clear
of any liens, encumbrances, claims or other restrictions.
(iv) The Bank is a member of the FHLB-Dallas. The deposit
accounts of the Bank are insured by the FDIC up to the maximum
amount allowed under law and no proceedings for the termination
or revocation of such insurance are pending or, to such counsel's
Actual Knowledge, threatened; to the extent that such information
constitutes matters of law and legal conclusions, has been
reviewed by such counsel and is accurately described in all
material respects.
(v) The MHC has been duly organized and is validly existing
as a federally chartered mutual holding company, duly authorized
to conduct its business and own its properties as described in
the Registration Statement and Prospectus.
(vi) Upon consummation of the Offering, immediately upon
completion thereof subject to compliance with all conditions
imposed by the OTS under the terms of the OTS' approval order, in
an amount as described in the Prospectus, the authorized, issued
and outstanding capital stock of the Company will be within the
range set forth in the Prospectus under the caption
"Capitalization," and no shares of Common Stock have been issued
prior to the Closing Date; at the time of the Offering, the
Shares subscribed for pursuant to the Offering will have been
duly and validly authorized for issuance, and when issued and
delivered by the Company pursuant to the Plan against payment of
the consideration calculated as set forth in the Plan and
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Prospectus, will be duly and validly issued and fully paid and
non-assessable; the issuance of the Shares is not subject to
preemptive rights and the terms and provisions of the Shares
conform in all material respects to the description thereof
contained in the Prospectus. To such counsel's Actual Knowledge,
upon the issuance of the Shares, good title to the Shares will be
transferred by the Company to the purchasers thereof against
payment therefor, subject to such claims as may be asserted
against the purchasers thereof by third-party claimants.
(vii) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, have been
duly and validly authorized by all necessary action on the part
of the Company, the MHC and the Bank; and this Agreement is a
valid and binding obligation of the Company, the MHC and the
Bank, enforceable in accordance with its terms, except as the
enforceability thereof may be limited by (i) bankruptcy,
insolvency, reorganization, moratorium, conservatorship,
receivership or other similar laws now or hereafter in effect
relating to or affecting the enforcement of creditors' rights
generally or the rights of creditors of savings institutions, the
deposits of which are insured by the FDIC and their holding
companies, (ii) general equitable principles, (iii) laws relating
to the safety and soundness of insured depository institutions
and their holding companies, and (iv) applicable law or public
policy with respect to the indemnification and/or contribution
provisions contained herein, including without limitation the
provisions of Sections 23A and 23B of the Federal Reserve Act and
except that no opinion need be expressed as to the effect or
availability of equitable remedies or injunctive relief
(regardless of whether such enforceability is considered in a
proceeding in equity or at law).
(viii) The MHC Application has been approved by the OTS and
the Prospectus has been authorized for use by the OTS, and no
action has been taken, and to such counsel's Actual Knowledge
none is pending or threatened, to revoke any such authorization
or approval.
(ix) The Plan has been duly adopted by the required vote of
the directors of the Company, the MHC and the Bank, and based
upon the certificate of the inspector of election, by the members
of the Bank.
(x) Subject to the satisfaction of the conditions to the
OTS' approval of the Offering, no further approval, registration,
authorization, consent or other order of any federal regulatory
agency is required in connection with the execution and delivery
of this Agreement, the issuance of the Shares and the
consummation of the Offering, except as may be required under the
securities or blue sky laws of various jurisdictions (as to which
no opinion need be
23
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rendered) and except as may be required under the rules and
regulations of the NASD and/or the NYSE (as to which no opinion
need be rendered). To such counsel's Actual Knowledge, the
Offering has been consummated in all material respects in
accordance with MHC Regulations, except that no opinion is
rendered with respect to (a) the Registration Statement or
Prospectus, which are covered by other clauses of this opinion,
(b) the satisfaction of the post-Offering conditions in the OTS
Regulations or in the OTS approvals of the MHC Application, (c)
the securities or "blue sky" laws of various jurisdictions, and
(d) the rules and regulations of the NASD.
(xi) The Registration Statement is effective under the 1933
Act, and no stop order suspending the effectiveness has been
issued under the 1933 Act or proceedings therefor initiated or,
to such counsel's Actual Knowledge, threatened by the Commission.
(xii) At the time the MHC Application, including the
Prospectus contained therein, was approved by the OTS, the MHC
Application, including the Prospectus contained therein, complied
as to form in all material respects with the requirements of the
MHC Regulations, federal law and all applicable rules and
regulations promulgated thereunder (other than the financial
statements, the notes thereto, and other tabular, financial,
statistical and appraisal data included therein, as to which no
opinion need be rendered).
(xiii) At the time that the Registration Statement became
effective, (i) the Registration Statement (as amended or
supplemented, if so amended or supplemented) (other than the
financial statements, the notes thereto, and other tabular,
financial, statistical and appraisal data included therein, as to
which no opinion need be rendered), complied as to form in all
material respects with the requirements of the 1933 Act and the
1933 Act Regulations, and (ii) the Prospectus (other than the
financial statements, the notes thereto, and other tabular,
financial, statistical and appraisal data included therein, as to
which no opinion need be rendered) complied as to form in all
material respects with the requirements of the 1933 Act, the 1933
Act Regulations, the MHC Regulations and federal law.
(xiv) The terms and provisions of the Shares of the Company
conform, in all material respects, to the description thereof
contained in the Registration Statement and Prospectus, and the
form of certificate used to evidence the Shares is in due and
proper form.
(xv) There are no legal or governmental proceedings pending
or threatened which are required to be disclosed in the
Registration Statement and Prospectus, other than those disclosed
therein, and to such counsel's
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Actual Knowledge, all pending legal and governmental proceedings
to which the Company, the MHC or the Bank is a party or of which
any of their property is the subject, which are not described in
the Registration Statement and the Prospectus, including ordinary
routine litigation incidental to the Company's, the MHC's or the
Bank's business, are, considered in the aggregate, not material.
(xvi) To such counsel's Actual Knowledge, there are no
material contracts, indentures, mortgages, loan agreements,
notes, leases or other instruments required to be described or
referred to in the MHC Application, the Registration Statement or
the Prospectus or required to be filed as exhibits thereto other
than those described or referred to therein or filed as exhibits
thereto in the MHC Application, the Registration Statement or the
Prospectus. The description in the MHC Application, the
Registration Statement and the Prospectus of such documents and
exhibits is accurate in all material respects and fairly presents
the information required to be shown.
(xvii) To such counsel's Actual Knowledge, the Company, the
MHC and the Bank have conducted the Offering, in all material
respects, in accordance with all applicable requirements of the
Plan and applicable federal law, except that no opinion is
rendered with respect to (a) the MHC Application, the
Registration Statement or Prospectus, which are covered by other
clauses of this opinion, (b) the satisfaction of the
post-Offering conditions in the OTS Regulations or in the OTS
approval of the MHC Application, (c) the securities or "blue sky"
laws of various jurisdictions, and (d) the rules and regulations
of the NASD. The Plan complies in all material respects with all
applicable federal laws, rules, regulations, decisions and orders
including, but not limited to, the MHC Regulations; no order has
been issued by the OTS, the Commission, the FDIC, or any state
authority to suspend the Offering or the use of the Prospectus,
and no action for such purposes has been instituted or, to such
counsel's Actual Knowledge, threatened by the OTS, the
Commission, the FDIC, or any state authority and no person has
sought to obtain regulatory or judicial review of the final
action of the OTS, approving the Plan, the MHC Application or the
Prospectus.
(xviii) To such counsel's Actual Knowledge, the Company, the
MHC and the Bank have obtained all material licenses, permits and
other governmental authorizations currently required for the
conduct of their businesses and all such licenses, permits and
other governmental authorizations are in full force and effect,
and the Company, the MHC and the Bank are in all material
respects complying therewith, except where the failure to have
such licenses, permits and other governmental authorizations or
the failure to be in compliance therewith would not have a
material adverse effect on the
25
<PAGE>
business or operations of the Bank, the MHC and the Company,
taken as a whole.
(xix) To such counsel's Actual Knowledge, neither the
Company, the MHC nor the Bank is in violation of its articles of
incorporation and bylaws or its Charter and bylaws, as
appropriate or, to such counsel's Actual Knowledge, in default or
violation of any obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, loan agreement,
note, lease or other instrument to which it is a party or by
which it or its property may be bound, except for such defaults
or violations which would not have a material adverse impact on
the financial condition or results of operations of the Company,
the MHC and the Bank on a consolidated basis; to such counsel's
Actual Knowledge, the execution and delivery of this Agreement,
the occurrence of the obligations herein set forth and the
consummation of the transactions contemplated herein will not
conflict with or constitute a breach of, or default under, or
result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company, the MHC
or the Bank pursuant to any material contract, indenture,
mortgage, loan agreement, note, lease or other instrument to
which the Company, the MHC or the Bank is a party or by which any
of them may be bound, or to which any of the property or assets
of the Company, the MHC or the Bank are subject; and, such action
will not result in any violation of the provisions of the
certificate of incorporation or bylaws of the Company or the
Charter or bylaws of the MHC or the Bank or, to such counsel's
Actual Knowledge, result in any violation of any applicable
federal law, act, regulation (except that no opinion with respect
to the securities and blue sky laws of various jurisdictions or
the rules or regulations of the NASD need be rendered) or order
or court order, writ, injunction or decree.
(xx) The Company's articles of incorporation and bylaws
comply in all material respects with the regulations of the OTS.
The Bank's and MHC's charter and bylaws comply in all material
respects with the rules and regulations of the OTS.
(xxi) To such counsel's Actual Knowledge, neither the
Company, the MHC nor the Bank is in violation of any directive
from the OTS or the FDIC to make any material change in the
method of conducting its respective business.
(xxii) The information in the Prospectus under the captions
"Regulation," "The Stock Offering," "Restrictions on Acquisition
of the Alamogordo Financial and Alamogordo Federal" and
"Description of Capital Stock of the Alamogordo Financial," to
the extent that such information constitutes
26
<PAGE>
matters of law, summaries of legal matters, documents or
proceedings, or legal conclusions, has been reviewed by such
counsel and is correct in all material respects. The discussion
of statutes or regulations described or referred to in the
Prospectus are accurate summaries and fairly present the
information required to be shown. The information in the
Prospectus relating to the tax consequences of the stock offering
has been reviewed by such counsel and fairly describes the
opinions rendered by Luse Lehman Gorman Pomerenk & Schick and
_____________________ to the Company, the MHC and the Bank with
respect to such matters.
(xxiii) The Company and the MHC have been duly registered
and are in good standing as savings and loan holding companies
under the HOLA.
(xxiv) In addition, such counsel shall state that during the
preparation of the MHC Application, the Registration Statement
and the Prospectus, they participated in conferences with certain
officers of, the independent public and internal accountants for,
and other representatives of the Company, the MHC and the Bank,
at which conferences the contents of the MHC Application, the
Registration Statement and the Prospectus and related matters
were discussed and, while such counsel have not confirmed the
accuracy or completeness of or otherwise verified the information
contained in the MHC Application, the Registration Statement or
the Prospectus, and do not assume any responsibility for such
information, based upon such conferences and a review of
documents deemed relevant for the purpose of rendering their view
(relying as to materiality as to factual matters on certificates
of officers and other factual representations by the Company, the
MHC and the Bank), nothing has come to their attention that would
lead them to believe that the MHC Application, the Registration
Statement, the Prospectus, or any amendment or supplement thereto
(other than the financial statements, the notes thereto, and
other tabular, financial, statistical and appraisal data included
therein as to which no view need be rendered) contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were
made, not misleading.
In giving such opinion, such counsel may rely as to all matters of fact
on certificates of officers or directors of the Company, the MHC and the Bank
and certificates of public officials. The opinion of Luse Lehman Gorman Pomerenk
& Schick shall be governed by the Legal Opinion Accord ("Accord") of the
American Bar Association Section of Business Law (1991). The term "Actual
Knowledge" as used herein shall have the meaning set forth in the Accord. For
purposes of such opinion, no proceedings shall be deemed to be pending, no order
or stop order shall be deemed to be issued, and no action shall be deemed to be
instituted unless, in each case, a director or executive officer of the Company,
the MHC or the Bank shall have received a copy of such
27
<PAGE>
proceedings, order, stop order or action. In addition, such opinion may be
limited to present statutes, regulations and judicial interpretations and to
facts as they presently exist; in rendering such opinion, such counsel need
assume no obligation to revise or supplement it should the present laws be
changed by legislative or regulatory action, judicial decision or otherwise; and
such counsel need express no view, opinion or belief with respect to whether any
proposed or pending legislation, if enacted, or any proposed or pending
regulations or policy statements issued by any regulatory agency, whether or not
promulgated pursuant to any such legislation, would affect the validity of the
Offering or any aspect thereof. Such counsel may assume that any agreement is
the valid and binding obligation of any parties to such agreement other than the
Company, the MHC or the Bank.
The favorable opinion, dated as of the Closing Date and addressed to
the Agent and for their benefit, of the Bank's local counsel, in form and
substance to the effect that, to the best of such counsel's knowledge, (i) the
Company, the MHC and the Bank have good and marketable title to all properties
and assets which are material to the business of the Company, the MHC and the
Bank and to those properties and assets described in the Registration Statement
and Prospectus, as owned by them, free and clear of all liens, charges,
encumbrances or restrictions, except such as are described in the Registration
Statement and Prospectus, or are not material in relation to the business of the
Company, the MHC and the Bank considered as one enterprise; (ii) all of the
leases and subleases material to the business of the Company, the MHC and the
Bank under which the Company, the MHC and the Bank hold properties, as described
in the Registration Statement and Prospectus, are in full force and effect; and
(iii) the Bank is duly qualified as a foreign corporation to transact business
and is in good standing in each jurisdiction in which its ownership of property
or leasing of property or the conduct of its business requires such
qualification, unless the failure to be so qualified in one or more of such
jurisdictions would not have a material adverse effect on the condition,
financial or otherwise, or the business, operations or income of the Bank.
(d) At the Closing Date, the Agent shall have received the favorable
opinion, dated as of the Closing Date, of Silver, Freedman &
Taff, L.L.P., the Agent's counsel, with respect to such matters
as the Agent may reasonably require. Such opinion may rely upon
the opinions of counsel to the Company, the MHC and the Bank, and
as to matters of fact, upon certificates of officers and
directors of the Company, the MHC and the Bank delivered pursuant
hereto or as such counsel shall reasonably request.
(e) At the Closing Date, the Agent shall receive a certificate of the
Chief Executive Officer and the Principal Financial and/or
Accounting Officer of the Company, the MHC and the Bank in form
and substance reasonably satisfactory to the Agent's Counsel,
dated as of such Closing Date, to the effect that: (i) they have
carefully reviewed the Prospectus and, in their opinion, at the
time the Prospectus became authorized for final use, the
Prospectus did not contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make
the statements therein, in light of the circumstances under which
they were made, not misleading; (ii) since
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<PAGE>
the date the Prospectus became authorized for final use, no event
has occurred which should have been set forth in an amendment or
supplement to the Prospectus which has not been so set forth,
including specifically, but without limitation, any material
adverse change in the condition, financial or otherwise, or in
the earnings, capital, properties or business of the Company, the
MHC or the Bank, and the conditions set forth in this Section 7
have been satisfied; (iii) since the respective dates as of which
information is given in the Registration Statement and the
Prospectus, there has been no material adverse change in the
condition, financial or otherwise, or in the earnings, capital or
properties of the Company, the MHC or the Bank, independently, or
of the Company, the MHC and the Bank, considered as one
enterprise, whether or not arising in the ordinary course of
business; (iv) the representations and warranties in Section 4
are true and correct with the same force and effect as though
expressly made at and as of the Closing Date; (v) the Company,
MHC and the Bank have complied in all material respects with all
agreements and satisfied all conditions on their part to be
performed or satisfied at or prior to the Closing Date and will
comply in all material respects with all obligations to be
satisfied by them after the Offering; (vi) no stop order
suspending the effectiveness of the Registration Statement has
been initiated or, to the best knowledge of the Company, the MHC
or the Bank, threatened by the Commission or any state authority;
(vii) no order suspending the Offering or the effectiveness of
the Prospectus has been issued and no proceedings for that
purpose are pending or, to the best knowledge of the Company, the
MHC or the Bank, threatened by the OTS, the Commission, the FDIC,
or any state authority; and (viii) to the best knowledge of the
Company, the MHC or the Bank, no person has sought to obtain
review of the final action of the OTS approving the Plan.
(f) Prior to and at the Closing Date: (i) in the reasonable opinion
of the Agent, there shall have been no material adverse change in
the condition, financial or otherwise, or in the earnings or
business of the Company, the MHC or the Bank independently, or of
the Company, the MHC and the Bank, considered as one enterprise,
from that as of the latest dates as of which such condition is
set forth in the Prospectus other than transactions referred to
or contemplated therein; (ii) the Company, the MHC or the Bank
shall not have received from the OTS or the FDIC any direction
(oral or written) to make any material change in the method of
conducting their business with which it has not complied (which
direction, if any, shall have been disclosed to the Agent) or
which materially and adversely would affect the business,
operations or financial condition or income of the Company, the
MHC and the Bank taken as a whole; (iii) the Company, the MHC and
the Bank shall not have been in default (nor shall an event have
occurred which, with notice or lapse of time or both, would
constitute a default) under any provision of
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<PAGE>
any agreement or instrument relating to any outstanding
indebtedness; (iv) no action, suit or proceeding, at law or in
equity or before or by any federal or state commission, board or
other administrative agency, shall be pending or, to the
knowledge of the Company, the MHC or the Bank, threatened against
the Company, the MHC or the Bank or affecting any of their
properties wherein an unfavorable decision, ruling or finding
would materially and adversely affect the business, operations,
financial condition or income of the Company, the MHC and the
Bank taken as a whole; and (v) the Shares have been qualified or
registered for offering and sale or exempted therefrom under the
securities or blue sky laws of the jurisdictions as the Agent
shall have reasonably requested and as agreed to by the Company,
the MHC and the Bank.
(g) Concurrently with the execution of this Agreement, the Agent
shall receive a letter from The Accounting & Consulting Group
L.L.P. dated as of the date of the Prospectus and addressed to
the Agent: (i) confirming that The Accounting & Consulting Group
L.L.P. is a firm of independent public accounts within the
meaning of Rule 101 of the Code of Professional Ethics of the
American Institute of Certified Public Accountants and applicable
regulations of the OTS and stating in effect that in its opinion
the consolidated financial statements, schedules and related
notes of the Bank as of September 30, 1999 and 1998 and for each
of the three years in the period ended September 30, 1998, as are
included in the Prospectus and covered by their opinion included
therein, comply as to form in all material respects with the
applicable accounting requirements and related published rules
and regulations of the OTS and the 1933 Act; (ii) stating in
effect that, on the basis of certain agreed upon procedures (but
not an audit in accordance with generally accepted auditing
standards) consisting of a reading of the latest available
unaudited interim consolidated financial statements of the Bank
prepared by the Bank, a reading of the minutes of the meetings of
the Board of Directors and members of the Bank and consultations
with officers of the Bank responsible for financial and
accounting matters, nothing came to their attention which caused
them to believe that: (A) the unaudited financial statements
included in the Prospectus are not in conformity with the 1933
Act, applicable accounting requirements of the OTS and generally
accepted accounting principles applied on a basis substantially
consistent with that of the audited financial statements included
in the Prospectus; or (b) during the period from the date of the
latest unaudited consolidated financial statements included in
the Prospectus to a specified date not more than three business
days prior to the date of the Prospectus, except as has been
described in the Prospectus, there was any increase in
borrowings, other than normal deposit fluctuations, by the Bank;
or (c) there was any decrease in the consolidated net assets of
the Bank at the date of such letter as compared with amounts
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shown in the latest unaudited consolidated statement of condition
included in the Prospectus; and (iii) stating that, in addition
to the audit referred to in their opinion included in the
Prospectus and the performance of the procedures referred to in
clause (ii) of this subsection (f), they have compared with the
general accounting records of the Bank, which are subject to the
internal controls of the Bank, the accounting system and other
data prepared by the Bank, directly from such accounting records,
to the extent specified in such letter, such amounts and/or
percentages set forth in the Prospectus as the Agent may
reasonably request; and they have reported on the results of such
comparisons.
(h) At the Closing Date, the Agent shall receive a letter dated the
Closing Date, addressed to the Agent, confirming the statements
made by The Accounting & Consulting Group L.L.P. in the letter
delivered by it pursuant to subsection (f) of this Section 7, the
"specified date" referred to in clause (ii) of subsection (f)
thereof to be a date specified in such letter, which shall not be
more than three business days prior to the Closing Date.
(i) At the Closing Date, the Agent shall receive a letter from RP
Financial LC, dated the date thereof and addressed to counsel for
the Agent (i) confirming that said firm is independent of the
Company, the MHC and the Bank and is experienced and expert in
the area of corporate appraisals within the meaning of Title 12
of the Code of Federal Regulations, Section 563b.7(f)(1)(i), (ii)
stating in effect that the Appraisal prepared by such firm
complies in all material respects with the applicable
requirements of Title 12 of the Code of Federal Regulations, and
(iii) further stating that their opinion of the aggregate pro
forma market value of the Company, the MHC and the Bank expressed
in their Appraisal dated as of December __, 1999, and most
recently updated, remains in effect.
(j) The Company, the MHC and the Bank shall not have sustained since
the date of the latest financial statements included in the
Prospectus any material loss or interference with its business
from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or
governmental action, order or decree, otherwise than as set forth
or contemplated in the Registration Statement and Prospectus and
since the respective dates as of which information is given in
the Registration Statement and Prospectus, there shall not have
been any change in the long- term debt of the Company, the MHC or
the Bank other than debt incurred in relation to the purchase of
Shares by the Bank's Eligible Plans, or any change, or any
development involving a prospective change, in or affecting the
general affairs, management, financial position, stockholders'
equity or results of operations of the Company or the Bank,
otherwise than as set forth or
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contemplated in the Registration Statement and Prospectus, the
effect of which, in any such case described above, is in the
Agent's reasonable judgment sufficiently material and adverse as
to make it impracticable or inadvisable to proceed with the
Subscription Offering or the delivery of the Shares on the terms
and in the manner contemplated in the Prospectus.
(k) At or prior to the Closing Date, the Agent shall receive: (i) a
copy of the letters from the OTS approving the MHC Application
and authorizing the use of the Prospectus; (ii) a copy of the
order from the Commission declaring the Registration Statement
effective; (iii) certificate of good standing from the OTS
evidencing the good standing of the Company; (iv) a certificate
from the FDIC evidencing the Bank's insurance of accounts; (v) a
certificate of the FHLB-Dallas evidencing the Bank's membership
thereof; (vi) a certificate from the OTS evidencing the Company's
and the MHC's standing as registered savings and loan holding
companies; (vii) a copy of the Bank's federal stock charter; and
(viii) a copy of the Company's federal charter; and (viii) a copy
of the MHC's federal charter.
(l) Subsequent to the date hereof, there shall not have occurred any
of the following: (i) a suspension or limitation in trading in
securities generally on the New York Stock Exchange or in the
over-the-counter market, or quotations halted generally on the
Nasdaq, or minimum or maximum prices for trading have been fixed,
or maximum ranges for prices for securities have been required by
either of such exchanges or the NASD or by order of the
Commission or any other governmental authority; (ii) a general
moratorium on the operations of commercial banks, federal savings
institutions or a general moratorium on the withdrawal of
deposits from commercial banks or federal savings institutions
declared by federal authorities; (iii) the engagement by the
United States in hostilities which have resulted in the
declaration, on or after the date hereof, of a national emergency
or war; or (iv) a material decline in the price of equity or debt
securities if the effect of such a declaration or decline, in the
Agent's reasonable judgement, makes it impracticable or
inadvisable to proceed with the Offering or the delivery of the
shares on the terms and in the manner contemplated in the
Registration Statement and the Prospectus.
(m) At or prior to the Closing Date, counsel to the Agent shall have
been furnished with such documents and opinions as they may
reasonably require for the purpose of enabling them to pass upon
the sale of the Shares as herein contemplated and related
proceedings or in order to evidence the occurrence or
completeness of any of the representations or warranties, or the
fulfillment of any of the conditions, herein contained; and all
proceedings taken by the Company, the MHC or the Bank in
connection with the Offering and the sale
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of the Shares as herein contemplated shall be satisfactory in
form and substance to the Agent and its counsel.
Section 8. Indemnification.
(a) The Company, the MHC and the Bank jointly and severally agree to
indemnify and hold harmless the Agent, its respective officers
and directors, employees and agents, and each person, if any, who
controls the Agent within the meaning of Section 15 of the 1933
Act or Section 20(a) of the 1934 Act, against any and all loss,
liability, claim, damage or expense whatsoever (including but not
limited to settlement expenses), joint or several, that the Agent
or any of them may suffer or to which the Agent and any such
persons may become subject under all applicable federal or state
laws or otherwise, and to promptly reimburse the Agent and any
such persons upon written demand for any expense (including
reasonable fees and disbursements of counsel) incurred by the
Agent or any of them in connection with investigating, preparing
or defending any actions, proceedings or claims (whether
commenced or threatened) to the extent such losses, claims,
damages, liabilities or actions: (i) arise out of or are based
upon any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement (or any
amendment or supplement thereto), preliminary or final Prospectus
(or any amendment or supplement thereto), the MHC Application (or
any amendment or supplement thereto), or any instrument or
document executed by the Company, the MHC or the Bank or based
upon written information supplied by the Company, the MHC or the
Bank filed in any state or jurisdiction to register or qualify
any or all of the Shares or to claim an exemption therefrom, or
provided to any state or jurisdiction to exempt the Company as a
broker-dealer or its officers, directors and employees as
broker-dealers or agent, under the securities laws thereof
(collectively, the "Blue Sky Application"), or any document,
advertisement, oral statement or communication ("Sales
Information") prepared, made or executed by or on behalf of the
Company, the MHC or the Bank with their consent or based upon
written or oral information furnished by or on behalf of the
Company, the MHC or the Bank, whether or not filed in any
jurisdiction, in order to qualify or register the Shares or to
claim an exemption therefrom under the securities laws thereof;
(ii) arise out of or are based upon the omission or alleged
omission to state in any of the foregoing documents or
information, a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; or
(iii) arise from any theory of liability whatsoever relating to
or arising from or based upon the Registration Statement (or any
amendment or supplement thereto), preliminary or final Prospectus
(or any amendment or supplement thereto), the MHC Application
33
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(or any amendment or supplement thereto), any Blue Sky
Application or Sales Information or other documentation
distributed in connection with the Offering; provided, however,
that no indemnification is required under this paragraph (a) to
the extent such losses, claims, damages, liabilities or actions
arise out of or are based upon any untrue material statement or
alleged untrue material statement in, or material omission or
alleged material omission from, the Registration Statement (or
any amendment or supplement thereto), preliminary or final
Prospectus (or any amendment or supplement thereto), the MHC
Application (or any amendment or supplement thereto), any Blue
Sky Application or Sales Information made in reliance upon and in
conformity with information furnished in writing to the Company,
the MHC or the Bank by the Agent or its counsel regarding the
Agent provided, that it is agreed and understood that the only
information furnished in writing to the Company, the MHC or the
Bank by the Agent regarding the Agent is set forth in the
Prospectus; and, provided further, that such indemnification
shall be to the extent permitted by the Commissioner, the OTS,
the FDIC and the Board of Governors of the Federal Reserve. The
indemnification provided for in this paragraph (a) shall not be
applicable with respect to any loss, liability, claim, damage, or
expense whatsoever if it is determined by final judgment of a
court having jurisdiction over the matter that such loss,
liability, claim, damage or expense was primarily a result of the
Agent's willful misconduct or gross negligence.
(b) The Agent agrees to indemnify and hold harmless the Company, the
MHC and the Bank, their directors and officers and each person,
if any, who controls the Company, the MHC or the Bank within the
meaning of Section 15 of the 1933 Act or Section 20(a) of the
1934 Act against any and all loss, liability, claim, damage or
expense whatsoever (including but not limited to settlement
expenses), joint or several, which they, or any of them, may
suffer or to which they, or any of them may become subject under
all applicable federal and state laws or otherwise, and to
promptly reimburse the Company, the MHC, the Bank, and any such
persons upon written demand for any expenses (including
reasonable fees and disbursements of counsel) incurred by them,
or any of them, in connection with investigating, preparing or
defending any actions, proceedings or claims (whether commenced
or threatened) to the extent such losses, claims, damages,
liabilities or actions: (i) arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement (or any amendment or
supplement thereto), the MHC Application (or any amendment or
supplement thereto), the preliminary or final Prospectus (or any
amendment or supplement thereto), any Blue Sky Application or
Sales Information, (ii) are based upon the omission or alleged
omission to state in any of the foregoing documents a material
fact required to be stated therein
34
<PAGE>
or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or
(iii) arise from any theory of liability whatsoever relating to
or arising from or based upon the Registration Statement (or any
amendment or supplement thereto), preliminary or final Prospectus
(or any amendment or supplement thereto), the MHC Application (or
any amendment or supplement thereto),or any Blue Sky Application
or Sales Information or other documentation distributed in
connection with the Offering; provided, however, that the Agent's
obligations under this Section 8(b) shall exist only if and only
to the extent (i) that such untrue statement or alleged untrue
statement was made in, or such material fact or alleged material
fact was omitted from, the Registration Statement (or any
amendment or supplement thereto), the preliminary or final
Prospectus (or any amendment or supplement thereto), the MHC
Application (or any amendment or supplement thereto), or any Blue
Sky Application or Sales Information in reliance upon and in
conformity with information furnished in writing to the Company,
the MHC or the Bank by the Agent or its counsel regarding the
Agent, provided, that it is agreed and understood that the only
information furnished in writing to the Company, the MHC or the
Bank by the Agent regarding the Agent is set forth in the
Prospectus. The indemnification provided for in this Section 8
(b) shall not be applicable with respect to any loss, liability,
claim, damage, or expense whatsoever if it is determined by final
judgment of a court having jurisdiction over the matter that such
loss, liability, claim, damage or expense was primarily a result
of the Company's, the MHC's or the Bank's willful misconduct or
gross negligence.
(c) Each indemnified party shall give prompt written notice to each
indemnifying party of any action, proceeding, claim (whether
commenced or threatened), or suit instituted against it in
respect of which indemnity may be sought hereunder, but failure
to so notify an indemnifying party shall not relieve it from any
liability which it may have on account of this Section 8 or
otherwise. An indemnifying party may participate at its own
expense in the defense of such action. In addition, if it so
elects within a reasonable time after receipt of such notice, an
indemnifying party, jointly with any other indemnifying parties
receiving such notice, may assume defense of such action with
counsel chosen by it and approved by the indemnified parties that
are defendants in such action, unless such indemnified parties
reasonably object to such assumption on the ground that there may
be legal defenses available to them that are different from or in
addition to those available to such indemnifying party. If an
indemnifying party assumes the defense of such action, the
indemnifying parties shall not be liable for any fees and
expenses of counsel for the indemnified parties incurred
thereafter in connection with such action, proceeding or claim,
other than reasonable costs
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<PAGE>
of investigation. In no event shall the indemnifying parties be
liable for the fees and expenses of more than one separate firm
of attorneys (and any special counsel that said firm may retain)
for each indemnified party in connection with any one action,
proceeding or claim or separate but similar or related actions,
proceedings or claims in the same jurisdiction arising out of the
same general allegations or circumstances.
(d) The agreements contained in this Section 8 and in Section 9
hereof and the representations and warranties of the Company, the
MHC and the Bank set forth in this Agreement shall remain
operative and in full force and effect regardless of: (i) any
investigation made by or on behalf of agent or their officers,
directors or controlling persons, agent or employees or by or on
behalf of the Company, the MHC or the Bank or any officers,
directors or controlling persons, agent or employees of the
Company, the MHC or the Bank; (ii) delivery of and payment
hereunder for the Shares; or (iii) any termination of this
Agreement.
Section 9. Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in
Section 8 is due in accordance with its terms but is for any reason held by a
court to be unavailable from the Company, the MHC, the Bank or the Agent, the
Company, the MHC, the Bank and the Agent shall contribute to the aggregate
losses, claims, damages and liabilities (including any investigation, legal and
other expenses incurred in connection with, and any amount paid in settlement
of, any action, suit or proceeding of any claims asserted, but after deducting
any contribution received by the Company, the MHC, the Bank or the Agent from
persons other than the other party thereto, who may also be liable for
contribution) in such proportion so that the Agent is responsible for that
portion represented by the percentage that the fees paid to the Agent pursuant
to Section 2 of this Agreement (not including expenses) bears to the gross
proceeds received by the Company from the sale of the Shares in the Offering,
and the Company, the MHC and the Bank shall be responsible for the balance. If,
however, the allocation provided above is not permitted by applicable law or if
the indemnified party failed to give the notice required under Section 8 above,
then each indemnifying party shall contribute to such amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect not only
such relative fault of the Company, the MHC and the Bank on the one hand and the
Agent on the other in connection with the statements or omissions which resulted
in such losses, claims, damages or liabilities (or actions, proceedings or
claims in respect thereto), but also the relative benefits received by the
Company, the MHC and the Bank on the one hand and the Agent on the other from
the Offering (before deducting expenses). The relative fault shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company, the MHC and/or the
Bank on the one hand or the Agent on the other and the parties' relative intent,
good faith, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company, the MHC, the Bank and the Agent
agree that it would not be just and equitable if contribution pursuant to this
Section 9 were determined by pro-rata allocation or by any other
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<PAGE>
method of allocation which does not take into account the equitable
considerations referred to above in this Section 9. The amount paid or payable
by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions, proceedings or claims in respect thereof) referred to
above in this Section 9 shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action, proceeding or claim. It is expressly agreed that
the Agent shall not be liable for any loss, liability, claim, damage or expense
or be required to contribute any amount which in the aggregate exceeds the
amount paid (excluding reimbursable expenses) to the Agent under this Agreement.
It is understood that the above stated limitation on the Agent's liability is
essential to the Agent and that the Agent would not have entered into this
Agreement if such limitation had not been agreed to by the parties to this
Agreement. No person found guilty of any fraudulent misrepresentation (within
the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution
from any person who was not found guilty of such fraudulent misrepresentation.
The obligations of the Company, the MHC and the Bank under this Section 9 and
under Section 8 shall be in addition to any liability which the Company and the
Bank may otherwise have. For purposes of this Section 9, each of the Agent's,
the Company's, the MHC or the Bank's officers and directors and each person, if
any, who controls the Agent or the Company or the MHC or the Bank within the
meaning of the 1933 Act and the 1934 Act shall have the same rights to
contribution as the Agent, the Company, the MHC or the Bank. Any party entitled
to contribution, promptly after receipt of notice of commencement of any action,
suit, claim or proceeding against such party in respect of which a claim for
contribution may be made against another party under this Section 9, will notify
such party from whom contribution may be sought, but the omission to so notify
such party shall not relieve the party from whom contribution may be sought from
any other obligation it may have hereunder or otherwise than under this Section
9.
Section 10. Survival of Agreements, Representations and Indemnities.
The respective indemnities of the Company, the MHC, the Bank and the Agent and
the representations and warranties and other statements of the Company, the MHC,
the Bank and the Agent set forth in or made pursuant to this Agreement shall
remain in full force and effect, regardless of any termination or cancellation
of this Agreement or any investigation made by or on behalf of the Agent, the
Company, the MHC, the Bank or any controlling person referred to in Section 8
hereof, and shall survive the issuance of the Shares, and any successor or
assign of the Agent, the Company, the MHC, the Bank, and any such controlling
person shall be entitled to the benefit of the respective agreements,
indemnities, warranties and representations.
Section 11. Termination. The Agent may terminate this Agreement by
giving the notice indicated below in this Section 11 at any time after this
Agreement becomes effective as follows:
(a) In the event the Company fails to sell the required minimum
number of the Shares by _________, 2000, and in accordance with
the provisions of the Plan or as required by the MHC Regulations,
and applicable law, this Agreement shall terminate upon refund by
the Company to each person who has subscribed for or ordered any
of the Shares the full amount which it may
37
<PAGE>
have received from such person, together with interest as
provided in the Prospectus, and no party to this Agreement shall
have any obligation to the other hereunder, except for payment by
the Company, the MHC and/or the Bank as set forth in Sections
2(a), 6, 8 and 9 hereof.
(b) If any of the conditions specified in Section 7 shall not have
been fulfilled when and as required by this Agreement unless
waived in writing, or by the Closing Date, this Agreement and all
of the Agent's obligations hereunder may be cancelled by the
Agent by notifying the Company, the MHC and the Bank of such
cancellation in writing or by telegram at any time at or prior to
the Closing Date, and any such cancellation shall be without
liability of any party to any other party except as otherwise
provided in Sections 2(a), 6, 8 and 9 hereof.
(c) If the Agent elects to terminate this Agreement as provided in
this Section, the Company, the MHC and the Bank shall be notified
promptly by telephone or telegram, confirmed by letter.
The Company, the MHC and the Bank may terminate this Agreement in the
event the Agent is in material breach of the representations and warranties or
covenants contained in Section 5 and such breach has not been cured after the
Company, the MHC and the Bank have provided the Agent with notice of such
breach.
This Agreement may also be terminated by mutual written consent of the
parties hereto.
Section 12. Notices. All communications hereunder, except as herein
otherwise specifically provided, shall be mailed in writing and if sent to the
Agent shall be mailed, delivered or telegraphed and confirmed to Charles Webb &
Company, a Division of Keefe, Bruyette & Woods, Inc., 211 Bradenton, Dublin,
Ohio 43017-3514, Attention: Patricia A. McJoynt, Executive Vice President (with
a copy to Silver, Freedman & Taff, L.L.P., Attention: Martin L. Meyrowitz, P.C.)
and, if sent to the Company, the MHC and the Bank, shall be mailed, delivered or
telegraphed and confirmed to the Company, the MHC and the Bank at 500 10th
Street, Alamogordo, New Mexico 88310-0690, Attention: Miles Ledgewood, President
(with a copy to Luse Lehman Gorman Pomerenk & Schick, Attention: Eric Luse).
Section 13. Parties. The Company, the MHC and the Bank shall be
entitled to act and rely on any request, notice, consent, waiver or agreement
purportedly given on behalf of the Agent when the same shall have been given by
the undersigned. The Agent shall be entitled to act and rely on any request,
notice, consent, waiver or agreement purportedly given on behalf of the Company,
the MHC or the Bank, when the same shall have been given by the undersigned or
any other officer of the Company, the MHC or the Bank. This Agreement shall
inure solely to the benefit of, and shall be binding upon, the Agent, the
Company, the MHC, the Bank, and their respective successors and assigns, and no
other person shall have or be construed to have any legal or equitable right,
remedy
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<PAGE>
or claim under or in respect of or by virtue of this Agreement or any provision
herein contained. It is understood and agreed that this Agreement is the
exclusive agreement among the parties hereto, and supersedes any prior agreement
among the parties and may not be varied except in writing signed by all the
parties.
Section 14. Closing. The closing for the sale of the Shares shall take
place on the Closing Date at such location as mutually agreed upon by the Agent
and the Company, the MHC and the Bank. At the closing, the Company, the MHC and
the Bank shall deliver to the Agent in next day funds the commissions, fees and
expenses due and owing to the Agent as set forth in Sections 2 and 6 hereof and
the opinions and certificates required hereby and other documents deemed
reasonably necessary by the Agent shall be executed and delivered to effect the
sale of the Shares as contemplated hereby and pursuant to the terms of the
Prospectus.
Section 15. Partial Invalidity. In the event that any term, provision
or covenant herein or the application thereof to any circumstance or situation
shall be invalid or unenforceable, in whole or in part, the remainder hereof and
the application of said term, provision or covenant to any other circumstances
or situation shall not be affected thereby, and each term, provision or covenant
herein shall be valid and enforceable to the full extent permitted by law.
Section 16. Construction. This Agreement shall be construed in
accordance with the laws of the State of Kansas.
Section 17. Counterparts. This Agreement may be executed in separate
counterparts, each of which so executed and delivered shall be an original, but
all of which together shall constitute but one and the same instrument.
If the foregoing correctly sets forth the arrangement among the
Company, the MHC, the Bank and the Agent, please indicate acceptance thereof in
the space provided below for that purpose, whereupon this letter and the Agent's
acceptance shall constitute a binding agreement.
Section 18. Entire Agreement. This Agreement, including schedules and
exhibits hereto, which are integral parts hereof and incorporated as though set
forth in full, constitutes the entire agreement between the parties pertaining
to the subject matter hereof superseding any and all prior or contemporaneous
oral or prior written agreements, proposals, letters of intent and
understandings, and cannot be modified, changed, waived or terminated except by
a writing which expressly states that it is an amendment, modification or
waiver, refers to this Agreement and is signed by the party
39
<PAGE>
to be charged. No course of conduct or dealing shall be construed to modify,
amend or otherwise affect any of the provisions hereof.
Very truly yours,
ALAMOGORDO FINANCIAL ALAMOGORDO FEDERAL SAVINGS AND
CORPORATION LOAN ASSOCIATION
By Its Authorized By Its Authorized
Representative: Representative:
- ---------------------------- ---------------------------------
Miles Ledgerwood Miles Ledgerwood
Chairman Chairman
AF MUTUAL HOLDING
COMPANY
By Its Authorized
Representative:
- ----------------------------
Miles Ledgerwood
Chairman
Accepted as of the date first above written
Charles Webb & Company, a Division
Keefe, Bruyette & Woods, Inc.
By Its Authorized
Representative:
- -----------------------------
Patricia A. McJoynt
Executive Vice President
40
ALAMOGORDO FINANCIAL CORP.
STOCK ISSUANCE PLAN
<PAGE>
TABLE OF CONTENTS
Page
1. Introduction..........................................................1
2. Definitions...........................................................1
3. Timing of the Sale of Capital Stock...................................5
4. Number of Shares to be Offered........................................5
5. Independent Valuation and Purchase Price of Shares....................6
6. Method of Offering Shares and Rights to Purchase Stock................7
7. Additional Limitations on Purchases of Common Stock..................10
8. Payment for Stock....................................................12
9. Manner of Exercising Subscription Rights Through Order Forms.........12
10. Undelivered, Defective or Late Order Form; Insufficient Payment......14
11. Completion of the Stock Offering.....................................14
12. Market for Common Stock..............................................14
13. Stock Purchases by Management Persons After the Offering.............14
14. Resales of Stock by Management Persons...............................15
15. Stock Certificates...................................................15
16. Restriction on Financing Stock Purchases.............................15
17. Stock Benefit Plans..................................................15
18. Post-Stock Offering Filing and Market Making.........................16
19. Payment of Dividends and Repurchase Stock............................16
20. Stock Offering Expenses..............................................16
21. Employment and Other Severance Agreements............................16
22. Interpretation.......................................................17
23. Amendment and Termination of the Plan................................17
<PAGE>
1. Introduction
On May 22, 1997, Alamogordo Federal Savings and Loan Association (the
"Bank") completed its reorganization into the two-tier mutual holding company
form of ownership. The Board of Directors of Alamogordo Financial Corp. (the
"Holding Company") has adopted this Stock Issuance Plan (the "Plan") pursuant to
which the Company intends to offer for sale up to 49.0% of its Common Stock in a
Stock Offering. The Common Stock will be offered on a priority basis to members
of AF Mutual Holding Company (the "Mutual Holding Company") and the
Tax-Qualified Employee Plans of the Bank, with any remaining shares offered to
the public in a Community Offering. At all times following completion of the
Offering, the Mutual Holding Company shall own at least a majority of the
outstanding common stock of the Holding Company so long as the Mutual Holding
Company is in existence.
The primary purpose of the Plan is to enable the Holding Company to
issue Capital Stock to the public which will raise capital for the expansion of
the Bank's business operations, including the acquisition of other financial
institutions. Only a minority of the Common Stock will be offered for sale in
the Stock Offering. As a result, the Mutual Holding Company's mutual form of
ownership and the Bank's ability to remain an independent savings association
and to provide community-oriented financial services will be preserved through
the mutual holding company structure.
2. Definitions
As used in this Plan, the terms set forth below have the following
meanings:
Acting in Concert: The term "acting in concert" shall have the
definition given in 12 C.F.R. ss.574.2(c). The determination of whether a group
is acting in concert shall be made by the Board of Directors of the Holding
Company or officers delegated by such Board and may be based on any evidence
upon which the Board or such delegatee chooses to rely.
Affiliate: An "affiliate" of, or a Person "affiliated" with, a
specified Person, is a Person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the Person specified.
Associate: The term "Associate," when used to indicate a
relationship with any Person, means: (i) any corporation or organization (other
than the Bank, the Holding Company, the Mutual Holding Company or a
majority-owned subsidiary of any thereof) of which such Person is a director,
officer or partner or is, directly or indirectly, the beneficial owner of 10% or
more of any class of equity securities; (ii) any trust or other estate in which
such Person has a substantial beneficial interest or as to which such Person
serves as trustee or in a similar fiduciary capacity; (iii) any relative or
spouse of such Person or any relative of such spouse, who has the same home as
such Person or who is a director or officer of the Bank, the Mutual Holding
Company, the Holding Company or any subsidiary of the Mutual Holding Company or
the Holding Company or any affiliate thereof; and (iv) any person acting in
concert with any of the persons or entities specified in clauses (i) through
(iii) above; provided, however, that any Tax-Qualified or Non-Tax-Qualified
Employee Plan shall not be deemed to be an associate of any director or officer
of the Mutual Holding Company, the Holding Company or the Bank, to the extent
provided in Sections 6-8 hereof. When used to refer to a Person other than an
officer or director of the Bank, the Bank in its sole discretion may determine
the Persons that are Associates of other Persons.
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Bank: Alamogordo Savings and Loan Association, a
federally-chartered stock savings and loan association.
Capital Stock: Any and all authorized stock of the Bank or the
Holding Company.
Common Stock: Common stock issuable by the Holding Company in
connection with the Plan, including securities convertible into Common Stock,
pursuant to its stock charter.
Community: The New Mexico Counties of Otero and Lincoln.
Community Offering: The offering to certain members of the
general public of any unsubscribed shares in the Subscription Offering which may
be effected pursuant to Section 6 of this Plan. The Community Offering may
include a Syndicated Community Offering or public offering.
Deposit Account(s): Any withdrawable deposit(s) offered by the
Bank, including NOW account deposits, certificates of deposit, savings accounts,
demand deposits and IRA accounts and Keogh plans for which the Bank acts as
custodian or trustee.
Effective Date: The date upon which all necessary approvals
have been obtained to complete the Stock Offering.
Eligible Account Holder: Any person holding a Qualifying
Deposit on the Eligibility Record Date.
Eligibility Record Date: September 30, 1998, the date for
determining who qualifies as an Eligible Account Holder.
Employee Plans: The Tax-Qualified and Non-Tax Qualified
Employee Plans of the Bank.
ESOP: The Bank's employee stock ownership plan.
Exchange Act: The Securities Exchange Act of 1934, as amended.
FDIC: The Federal Deposit Insurance Corporation.
HOLA: The Home Owners' Loan Act, as amended.
Holding Company: Alamogordo Financial Corp., the federal
corporation which is currently wholly-owned by the Mutual Holding Company and
which owns 100% of the common stock of the Bank.
Independent Appraiser: The appraiser retained by the Holding
Company to prepare an appraisal of the pro forma market value of the Bank and
the Holding Company.
Management Person: Any Officer or director of the Bank or any
Affiliate of the Bank or Holding Company, and any person acting in concert with
any such Officer or director.
2
<PAGE>
Market Maker: A dealer (i.e., any person who engages directly
or indirectly as agent, broker, or principal in the business of offering,
buying, selling or otherwise dealing or trading in securities issued by another
person) who, with respect to a particular security, (1) regularly publishes bona
fide competitive bid and offer quotations on request, and (2) is ready, willing
and able to effect transactions in reasonable quantities at the dealer's quoted
prices with other brokers or dealers.
Members: Any person or entity who qualifies as a member of the
Mutual Holding Company pursuant to its charter and bylaws.
Mutual Holding Company: AF Mutual Holding Company, the mutual
holding company parent of the Holding Company.
Minority Ownership Interest: The shares of the Holding
Company's Common Stock owned by persons other than the Mutual Holding Company,
expressed as a percentage of the total shares of Holding Company Common Stock
issued and outstanding.
Minority Stock Offering: One or more offerings of less than
50% in the aggregate of the outstanding Common Stock of the Holding Company to
persons other than the Mutual Holding Company.
Minority Stockholder: Any owner of the Holding Company's
Common Stock, other than the Mutual Holding Company.
Non-Voting Stock: Any Capital Stock other than Voting Stock.
Officer: An executive officer of the Holding Company or the
Bank, including the Chief Executive Officer, President, Senior Vice Presidents
in charge of principal business functions, Secretary, Treasurer and any other
person performing similar functions.
OTS: The Office of Thrift Supervision, and any successor
thereto.
Parent: A company that controls another company, either
directly or indirectly through one or more subsidiaries.
Person: An individual, corporation, partnership, association,
joint-stock company, trust (including Individual Retirement Accounts and KEOGH
Accounts), unincorporated organization, government entity or political
subdivision thereof or any other entity.
Plan: This Stock Issuance Plan.
Purchase Price: The price per share, determined as provided in
this Plan, at which the Common Stock will be sold in the Stock Offering.
Qualifying Deposit: The aggregate balance of all Deposit
Accounts of an Eligible Account Holder as of the close of business on the
Eligibility Record Date or of a Supplemental Eligible Account Holder as of the
close of business on the Supplemental Eligibility Record Date, as the case may
be, provided such aggregate balance is not less than $50.
3
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Regulations: The regulations of the OTS regarding mutual
holding companies.
Residence: The terms "residence," "reside," "resided" or
"residing" as used herein with respect to any person shall mean any Person who
occupied a dwelling within the Bank's Community, has an intent to remain with
the Community for a period of time, and manifests the genuineness of that intent
by establishing an ongoing physical presence within the Community together with
an indication that such presence within the Community is something other than
merely transitory in nature. To the extent the Person is a corporation or other
business entity, the principal place of business or headquarters shall be in the
Community. To the extent a Person is a personal benefit plan, the circumstances
of the beneficiary shall apply with respect to this definition. In the case of
all other benefit plans, the circumstances of the trustee shall be examined for
purposes of this definition. The Bank may utilize deposit or loan records or
such other evidence provided to it to make a determination as to whether a
Person is a resident. In all cases, however, such a determination shall be in
the sole discretion of the Bank.
SEC: The Securities and Exchange Commission.
Stock Offering: The offering of Common Stock of the Holding
Company to persons other than the Mutual Holding Company, in a Subscription
Offering and, to the extent shares remain available, in a Community Offering.
Subscription Offering: The offering of Common Stock of the
Holding Company for subscription and purchase pursuant to Section 6 of this
Plan.
Subsidiary: A company that is controlled by another company,
either directly or indirectly through one or more subsidiaries.
Supplemental Eligible Account Holder: Any Person holding a
Qualifying Deposit on the Supplemental Eligibility Record Date, who is not an
Officer or director of the Bank, or an Associate of an Officer or director of
the Bank.
Supplemental Eligibility Record Date: The last day of the
calendar quarter preceding approval of the Plan by the OTS.
Syndicated Community Offering: The offering of Common Stock
following or contemporaneously with the Community Offering through a syndicate
of broker-dealers, if necessary.
Tax-Qualified Employee Plan: Any defined benefit plan or
defined contribution plan (including any employee stock ownership plan, stock
bonus plan, profit-sharing plan, or other plan) of the Bank, the Holding
Company, the Mutual Holding Company or any of their affiliates, which, with its
related trusts, meets the requirements to be qualified under Section 401 of the
Internal Revenue Code. The term Non-Tax-Qualified Employee Plan means any
defined benefit plan or defined contribution plan which is not so qualified.
Voting Stock:
(1) Voting Stock means common stock or preferred stock, or
similar interests if the shares by statute, charter or in any manner, entitle
the holder:
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(i) To vote for or to select directors of the
Bank or the Holding Company; and
(ii) To vote on or to direct the conduct of the
operations or other significant policies of
the Bank or the Holding Company.
(2) Notwithstanding anything in paragraph (1) above, preferred
stock is not "Voting Stock" if:
(i) Voting rights associated with the preferred
stock are limited solely to the type
customarily provided by statute with regard
to matters that would significantly and
adversely affect the rights or preferences
of the preferred stock, such as the issuance
of additional amounts or classes of senior
securities, the modification of the terms of
the preferred stock, the dissolution of the
Bank, or the payment of dividends by the
Bank when preferred dividends are in
arrears;
(ii) The preferred stock represents an
essentially passive investment or financing
device and does not otherwise provide the
holder with control over the issuer; and
(iii) The preferred stock does not at the time
entitle the holder, by statute, charter, or
otherwise, to select or to vote for the
selection of directors of the Bank or the
Holding Company.
(3) Notwithstanding anything in paragraphs (1) and (2) above,
"Voting Stock" shall be deemed to include preferred stock and other securities
that, upon transfer or otherwise, are convertible into Voting Stock or
exercisable to acquire Voting Stock where the holder of the stock, convertible
security or right to acquire Voting Stock has the preponderant economic risk in
the underlying Voting Stock. Securities immediately convertible into Voting
Stock at the option of the holder without payment of additional consideration
shall be deemed to constitute the Voting Stock into which they are convertible;
other convertible securities and rights to acquire Voting Stock shall not be
deemed to vest the holder with the preponderant economic risk in the underlying
Voting Stock if the holder has paid less than 50% of the consideration required
to directly acquire the Voting Stock and has no other economic interest in the
underlying Voting Stock.
3. Timing of the Sale of Capital Stock
The Company intends to commence the Stock Offering as soon as possible
following receipt of OTS approval of the Plan and SEC effectiveness of the
registration statement. The Stock Offering will comply with the securities
offering regulations of the SEC. Neither the Holding Company nor the Bank will
finance or loan funds to any person to purchase Common Stock.
4. Number of Shares to be Offered
The total number of shares (or range thereof) of Common Stock to be
issued and offered for sale pursuant to the Plan shall be determined initially
by the Board of Directors of the Holding Company in
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conjunction with the determination of the Independent Appraiser. The number of
shares to be offered may be adjusted prior to completion of the Stock Offering.
The total number of shares of Common Stock that may be issued to persons other
than the Mutual Holding Company at the close of the Stock Offering must be less
than 50% of the issued and outstanding shares of Common Stock of the Holding
Company.
5. Independent Valuation and Purchase Price of Shares
All shares of Common Stock sold in the Stock Offering shall be sold at
a uniform price per share, which shall be the Purchase Price. The Purchase Price
and number of shares to be outstanding shall be determined by the Board of
Directors of the Holding Company on the basis of the estimated pro forma market
value of the Holding Company and the Bank. The aggregate purchase price for the
Common Stock will not be inconsistent with such market value of the Holding
Company and the Bank. The pro forma market value of the Holding Company and the
Bank will be determined for such purposes by the Independent Appraiser.
Prior to the commencement of the Stock Offering, an estimated valuation
range will be established, which range may vary within 15% above to 15% below
the midpoint of such range, and up to 15% greater than the maximum of such
range, as determined by the Board of Directors at the time of the Stock Offering
and consistent with OTS regulations. The Holding Company intends to sell up to
49.0% of its Common Stock in the Stock Offering. The number of shares of Common
Stock to be issued and the ownership interest of the Mutual Holding Company may
be increased or decreased by the Holding Company, taking into consideration any
change in the independent valuation and other factors, at the discretion of the
Board of Directors of the Holding Company.
Based upon the independent valuation as updated prior to the
commencement of the Stock Offering, the Board of Directors may establish the
minimum and maximum percentage of shares of the Common Stock that will be
offered for sale in the Stock Offering, or it may fix the percentage of shares
of Common Stock that will be offered for sale in the Stock Offering. In the
event the percentage of shares offered for sale is not fixed in the Stock
Offering, the Minority Ownership Interest resulting from the Stock Offering will
be determined as follows: (a) the product of (x) the total number of shares of
Common Stock sold by the Holding Company and (y) the Purchase Price, divided by
(b) the aggregate pro forma market value of the Bank and the Holding Company
upon the closing of the Stock Offering as determined by the Independent
Appraiser.
Notwithstanding the foregoing, no sale of Common Stock may be
consummated unless, prior to such consummation, the Independent Appraiser
confirms to the Holding Company and to the OTS that, to the best knowledge of
the Independent Appraiser, nothing of a material nature has occurred which,
taking into account all relevant factors, would cause the Independent Appraiser
to conclude that the aggregate value of the Common Stock at the Purchase Price
is incompatible with its estimate of the aggregate consolidated pro forma market
value of the Holding Company. If such confirmation is not received, the Holding
Company may cancel the Stock Offering, extend the Stock Offering and establish a
new price range and/or estimated price range, extend, reopen or hold a new Stock
Offering or take such other action as the OTS may permit.
The estimated consolidated market value of the Holding Company shall be
determined for such purpose by the Independent Appraiser on the basis of such
appropriate factors as are not inconsistent with
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OTS regulations. The Common Stock to be issued in the Stock Offering shall be
fully paid and nonassessable.
The aggregate amount of outstanding Common Stock that may be owned or
controlled by persons other than the Mutual Holding Company parent at the close
of the Stock Offering shall be less than 50% of the Holding Company's total
outstanding Common Stock.
If there is a Community Offering and/or Syndicated Community Offering
of shares of Common Stock not subscribed for in the Subscription Offering, the
price per share at which the Common Stock is sold in such Community Offering or
Syndicated Community Offering shall be equal to the Purchase Price at which the
Common Stock is sold to persons in the Subscription Offering.
6. Method of Offering Shares and Rights to Purchase Stock
In descending order of priority, the opportunity to purchase Common
Stock shall be given in the Subscription Offering to: (1) Eligible Account
Holders; (2) Tax-Qualified Employee Plans; (3) Supplemental Eligible Account
Holders; and (4) directors, officers and employees of the Holding Company. Any
shares of Common Stock that are not subscribed for in the Subscription Offering
may at the discretion of the Holding Company be offered for sale in a Community
Offering or a Syndicated Community Offering. The minimum purchase by any Person
shall be 25 shares. The Holding Company may use its discretion in determining
whether prospective purchasers are "residents," "associates," or "acting in
concert" as defined in the Plan, and in interpreting any and all other
provisions of the Plan. All such determinations are in the sole discretion of
the Holding Company, and may be based on whatever evidence the Holding Company
chooses to use in making any such determination.
In addition to the priorities set forth below, the Board of Directors
may establish other priorities for the purchase of Common Stock, subject to the
approval of the OTS. The priorities for the purchase of shares in the Stock
Offering are as follows:
A. Subscription Offering
Priority 1: Eligible Account Holders. Each Eligible Account Holder
shall be given the opportunity to purchase up to the greater of $150,000 of
Common Stock offered in the Stock Offering or 15 times the product (rounded down
to the next whole number) obtained by multiplying the total number of shares to
be issued in the Stock Offering by a fraction of which the numerator is the
amount of the Eligible Account Holder's Qualifying Deposit and the denominator
is the total amount of Qualifying Deposits of all Eligible Account Holders, in
each case on the Supplemental Eligibility Record Date; provided that the Holding
Company may, in its sole discretion and without further notice to or
solicitation of subscribers or other prospective purchasers, increase such
maximum purchase limitation to up to 5% of the maximum number of shares offered
in the Stock Offering or decrease such maximum purchase limitation to 0.1% of
the maximum number of shares offered in the Stock Offering, subject to the
overall purchase limitation set forth in Section 7. Subscription rights to
purchase Common Stock received by Officers and Directors and their Associates
based on their increased deposits in the Bank in the one year period preceding
the Eligibility Record Date shall be subordinated to all other subscriptions
involving the exercise of subscription rights by Eligible Account Holders in
their capacity as such. If there are insufficient shares available to satisfy
all subscriptions of Eligible Account Holders, shares will be allocated to
Eligible Account Holders so as to permit each such subscribing Eligible Account
Holder to purchase a
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<PAGE>
number of shares sufficient to make his total allocation equal to the lesser of
100 shares or the number of shares subscribed for. Thereafter, unallocated
shares will be allocated pro rata to remaining subscribing Eligible Account
Holders whose subscriptions remain unfilled in the same proportion that each
such subscriber's Qualifying Deposit bears to the total amount of Qualifying
Deposits of all subscribing Eligible Account Holders whose subscriptions remain
unfilled. To ensure proper allocation of stock, each Eligible Account Holder
must list on his subscription order form all accounts in which he had an
ownership interest as of the Eligibility Record Date.
Priority 2: Tax-Qualified Employee Plans. The Tax-Qualified Employee
Plans shall be given the opportunity to purchase in the aggregate up to 10% of
the Common Stock issued in the Stock Offering. In the event of an
oversubscription in the Stock Offering, subscriptions for shares by the
Tax-Qualified Employee Plans may be satisfied, in whole or in part, out of
authorized but unissued shares of the Holding Company subject to the maximum
purchase limitations applicable to such plans as set forth in Section 7, or may
be satisfied, in whole or in part, through open market purchases by the
Tax-Qualified Employee Plans subsequent to the closing of the Stock Offering. In
the event that the number of shares offered is increased as a result of an
increase in the Independent Valuation, the ESOP will have a priority right to
fill its subscription in whole or in part prior to all other subscriptions.
Priority 3: Supplemental Eligible Account Holders. To the extent there
are sufficient shares remaining after satisfaction of subscriptions by Eligible
Account Holders and the Tax-Qualified Employee Plans, each Supplemental Eligible
Account Holder shall have the opportunity to purchase up to the greater of
$150,000 of Common Stock offered in the Stock Offering or 15 times the product
(rounded down to the next whole number) obtained by multiplying the total number
of shares to be issued in the Stock Offering by a fraction of which the
numerator is the amount of the Supplemental Eligible Account Holder's Qualifying
Deposit and the denominator is the total amount of Qualifying Deposits of all
Supplemental Eligible Account Holders, in each case on the Supplemental
Eligibility Record Date, provided that the Holding Company may, in its sole
discretion and without further notice to or solicitation of subscribers or other
prospective purchasers, increase such maximum purchase limitation to up to 5% of
the maximum number of shares offered in the Stock Offering or decrease such
maximum purchase limitation to 0.1% of the maximum number of shares offered in
the Stock Offering subject to the overall purchase limitations set forth in
Section 7. In the event Supplemental Eligible Account Holders subscribe for a
number of shares which, when added to the shares subscribed for by Eligible
Account Holders and the Tax-Qualified Employee Plans, the shares of Common Stock
will be allocated among subscribing Supplemental Eligible Account Holders so as
to permit each subscribing Supplemental Eligible Account Holder to purchase a
number of shares sufficient to make his total allocation equal to the lesser of
100 shares or the number of shares subscribed for. Thereafter, unallocated
shares will be allocated to each subscribing Supplemental Eligible Account
Holder whose subscription remains unfilled in the same proportion that such
subscriber's Qualifying Deposits on the Supplemental Eligibility Record Date
bear to the total amount of Qualifying Deposits of all subscribing Supplemental
Eligible Account Holders whose subscriptions remain unfilled. To ensure proper
allocation of stock, each Supplemental Eligible Account Holder must list on his
subscription order form all accounts in which he had an ownership interest as of
the Supplemental Eligibility Record Date.
Priority 4: Directors, Officers and Employees. To the extent that
shares remain available for purchase after satisfaction of all subscriptions of
the Eligible Account Holders, Tax-Qualified Employee Plans, Supplemental
Eligible Account Holders and Employees, Officers and Directors of the Holding
Company shall have the opportunity to purchase up to $150,000 of the Common
Stock offered in the Stock
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Offering; provided that the Holding Company may, in its sole discretion, and
without further notice to or solicitation of subscribers or other prospective
purchasers, increase such maximum purchase limitation to up to 5% of the maximum
number of shares offered in the Stock Offering or decrease such maximum purchase
limitation to 0.1% of the maximum number of shares offered in the Stock
Offering, subject to the overall purchase limitations set forth in Section 7. In
the event that directors, officers and employees subscribe for a number of
shares, which, when added to the shares subscribed for by Eligible Account
Holders, Tax-Qualified Employee Plans and Supplemental Eligible Account Holders
is in excess of the total shares offered in the Stock Offering, the
subscriptions of such Persons will be allocated among directors, officers and
employees on a pro rata basis based on the size of each Person's orders.
B. Community Offering
Any shares of Common Stock not subscribed for in the Subscription
Offering may be offered for sale in a Community Offering. This will involve an
offering of unsubscribed shares directly to the general public with a preference
to those natural persons residing in the counties in which the Bank maintains
its offices. The Community Offering, if any, shall be for a period of not more
than 45 days unless extended by the Holding Company, and shall commence
concurrently with, during or promptly after the Subscription Offering. The
Holding Company may use an investment banking firm or firms on a best efforts
basis to sell the unsubscribed shares in the Subscription and Community
Offering. The Holding Company may pay a commission or other fee to such
investment banking firm or firms as to the shares sold by such firm or firms in
the Subscription and Community Offering and may also reimburse such firm or
firms for expenses incurred in connection with the sale. The Community Offering
may include or be followed by a syndicated community offering managed by such
investment banking firm or firms. The Common Stock will be offered and sold in
the Community Offering, in accordance with OTS regulations, so as to achieve the
widest distribution of the Common Stock. Individuals may purchase up to $100,000
in the Community Offering. No person, by himself or herself, together with an
Associate or group of Persons acting in concert, may subscribe for or purchase
more than $200,000 of Common Stock offered in the Community Offering. Further,
the Holding Company may limit total subscriptions under this Section 6(B) so as
to assure that the number of shares available for the Syndicated Community
Offering may be up to a specified percentage of the number of shares of Common
Stock. Any order received from natural persons residing in the Bank's community
will be given preference in any Community Offering that is conducted currently
with the Subscription Offering. If a Community Offering is conducted, or
continues, following the conclusion of the Subscription Offering in order to
sell the minimum number of shares required to complete the Offering, the Bank
may reserve shares offered in such additional or continuing Community Offering
for sales to institutional investors.
In the event of an oversubscription for shares in the Community
Offering, shares may be allocated (to the extent shares remain available) first
to cover orders of natural persons residing in the counties in which the Bank
maintains its offices, then to cover the orders of any other person subscribing
for shares in the Community Offering so that each such person may receive 1,000
shares, and thereafter, on a pro rata basis to such persons whose orders are not
filled based on the amount of their respective subscriptions.
The Holding Company, in its sole discretion, may reject subscriptions,
in whole or in part, received from any Person under this Section 6(B).
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C. Syndicated Community Offering
Any shares of Common Stock not sold in the Subscription Offering or in
the Community Offering, if any, may be offered for sale to the general public by
a selling group of broker-dealers in a Syndicated Community Offering, subject to
terms, conditions and procedures, including the timing of the offering, as may
be determined by the Holding Company in a manner that is intended to achieve the
widest distribution of the Common Stock subject to the rights of the Holding
Company to accept or reject in whole or in part all order in the Syndicated
Community Offering. It is expected that the Syndicated Community Offering would
commence during or as soon as practicable after termination of the Community
Offering, if any. The Syndicated Community Offering shall be completed within 45
days after the termination of the Subscription Offering, unless such period is
extended as provided herein. The Syndicated Community Offering price and
underwriting discount in the Syndicated Community Offering shall be determined
by an underwriting agreement between the Holding Company and the underwriters.
Such underwriting agreement shall be filed with the OTS and the SEC.
If for any reason a Syndicated Community Offering of unsubscribed
shares of Common Stock cannot be effected or is inadvisable and any shares
remain unsold after the Subscription Offering and the Community Offering, if
any, the Board of Directors of the Holding Company will seek to make other
arrangements for the sale of the remaining shares. Such other arrangements will
be subject to the approval of the OTS and to compliance with applicable
securities laws.
7. Additional Limitations on Purchases of Common Stock
Purchases of Common Stock in the Stock Offering will be subject to the
following purchase limitations:
A. The aggregate amount of outstanding Common Stock of the
Holding Company owned or controlled by persons other than
Mutual Holding Company at the close of the Stock Offering
shall be less than 50% of the Holding Company's total
outstanding Common Stock.
B. No Person, together with Associates thereof, or group of
persons acting in concert, may purchase more than $200,000 of
Common Stock offered in the Stock Offering to persons other
than the Mutual Holding Company, except that: (i) the Holding
Company may, in its sole discretion and without further notice
to or solicitation of subscribers or other prospective
purchasers, increase such maximum purchase limitation to up to
5% of the number of shares sold in the Stock Offering; (ii)
Tax-Qualified Employee Plans may purchase up to 10% of the
shares sold in the Stock Offering; and (iii) for purposes of
this subsection 7(B) shares to be held by any Tax-Qualified
Employee Plan and attributable to a person shall not be
aggregated with other shares purchased directly by or
otherwise attributable to such person.
C. The aggregate amount of Common Stock acquired in the Stock
Offering by all Management Persons and their Associates,
exclusive of any stock acquired by such persons in the
secondary market, shall not exceed 25% of the outstanding
shares of Common Stock of the Holding Company held by persons
other than the Mutual Holding Company at the close of the
Stock Offering. In calculating the number of shares held by
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Management Persons and their Associates under this paragraph
or under the provisions of paragraph D of this section, shares
held by any Tax-Qualified Employee Plans of the Bank that are
attributable to such persons shall not be counted.
D. The aggregate amount of Common Stock acquired in the Stock
Offering by all Management Persons and their Associates,
exclusive of any Common Stock acquired by such plans or
persons in the secondary market, shall not exceed 25% of the
stockholders' equity of the Holding Company other than the
Mutual Holding Company at the close of the Stock Offering.
E. The Board of Directors of the Holding Company may, in its sole
discretion, increase the maximum purchase limitation set forth
in paragraph 7(B) hereof to up to 9.9%, provided that orders
for Common Stock in excess of 5% of the number of shares of
Common Stock sold in the Stock Offering shall not in the
aggregate exceed 10% of the total shares of Common Stock
offered in the Stock Offering (except that this limitation
shall not apply to purchases by Tax-Qualified Employee Plans).
If such limitation is increased, subscribers for the maximum
amount will be, and certain other large subscribers in the
sole discretion of the Holding Company may be, given the
opportunity to increase their subscriptions up to the then
applicable limit. Requests to purchase additional shares of
Common Stock under this provision will be determined by the
Board of Directors of the Holding Company, in its sole
discretion.
F. Notwithstanding any other provision of this Plan, no person
shall be entitled to purchase any Common Stock to the extent
such purchase would be illegal under any federal law or state
law or regulation or would violate regulations or policies of
the National Association of Securities Dealers, Inc.,
particularly those regarding free riding and withholding. The
Holding Company and/or its agents may ask for an acceptable
legal opinion from any purchaser as to the legality of such
purchase and may refuse to honor any purchase order if such
opinion is not timely furnished.
G. The Board of Directors of the Holding Company has the right in
its sole discretion to reject any order submitted by a person
whose representations the Board of Directors believes to be
false or who it otherwise believes, either alone or acting in
concert with others, is violating, circumventing, or intends
to violate, evade or circumvent the terms and conditions of
this Plan.
Prior to the consummation of the Stock Offering, no person shall offer
to transfer, or enter into any agreement or understanding to transfer the legal
or beneficial ownership of any subscription rights or shares of Common Stock.
Each person purchasing Common Stock shall be deemed to confirm that such
purchase does not conflict with the above purchase limitations contained in this
Plan.
EACH PERSON PURCHASING COMMON STOCK IN THE STOCK OFFERING WILL BE
DEEMED TO CONFIRM THAT SUCH PURCHASE DOES NOT CONFLICT WITH THE PURCHASE
LIMITATIONS IN THIS PLAN. ALL QUESTIONS CONCERNING WHETHER ANY PERSONS ARE
ASSOCIATES OR A GROUP ACTING IN CONCERT OR WHETHER ANY PURCHASE CONFLICTS WITH
THE PURCHASE LIMITATIONS IN THIS PLAN OR OTHERWISE VIOLATES ANY PROVISION OF
THIS PLAN SHALL BE DETERMINED BY THE HOLDING COMPANY IN ITS
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SOLE DISCRETION. SUCH DETERMINATION SHALL BE CONCLUSIVE, FINAL AND BINDING ON
ALL PERSONS AND THE HOLDING COMPANY MAY TAKE ANY REMEDIAL ACTION, INCLUDING
WITHOUT LIMITATION REJECTING THE PURCHASE OR REFERRING THE MATTER TO THE OTS FOR
ACTION, AS IN ITS SOLE DISCRETION THE HOLDING COMPANY MAY DEEM APPROPRIATE.
8. Payment for Stock
All payments for Common Stock subscribed for or ordered in the Stock
Offering must be delivered in full to the Holding Company, together with a
properly completed and executed order form, or by such other procedure in the
case of the Syndicated Community Offering, on or prior to the expiration date
specified on the order form, as the case may be, unless such date is extended by
the Holding Company; provided, that if the Tax Qualified Employee Plans
subscribe for shares during the Subscription Offering, such plans will not be
required to pay for the shares at the time they subscribe but rather may pay for
such shares of Common Stock subscribed for by such plans upon consummation of
the Stock Offering. The Holding Company or the Bank may make scheduled
discretionary contributions to Employee Plans provided such contributions from
the Bank, if any, do not cause the Bank to fail to meet its regulatory capital
requirement.
Payment for Common Stock shall be made either by check or money order,
or if a purchaser has a Deposit Account in the Bank, such purchaser may pay for
the shares subscribed for by authorizing the Bank to make a withdrawal from the
purchaser's passbook or certificate account at the Bank in an amount equal to
the aggregate Purchase Price of such shares. Such authorized withdrawal, whether
from a savings or certificate account, shall be without penalty as to premature
withdrawal. If the authorized withdrawal is from a certificate account, and the
remaining balance does not meet the applicable minimum balance requirements, the
certificate shall be canceled at the time of withdrawal, without penalty, and
the remaining balance will earn interest at the passbook rate. Funds for which a
withdrawal is authorized will remain in the purchaser's Deposit Account but may
not be used by the purchaser unless the 45-day period (or such longer period as
may be approved by the OTS) following the Stock Offering has expired, whichever
occurs first. Thereafter, the withdrawal will be given effect only to the extent
necessary to satisfy the subscription (to the extent it can be filled) at the
Purchase Price. Interest will continue to be earned in the Deposit Account on
any amounts authorized for withdrawal until such withdrawal is given effect.
Interest will be paid at a rate established by the Holding Company on payment
for Common Stock received by check or money order. Such interest will be paid
from the date payment is received by the Holding Company until consummation or
termination of the Stock Offering. If for any reason the Stock Offering is not
consummated, all payments made by subscribers in the Stock Offering will be
refunded to them with interest. In case of amounts authorized for withdrawal
from Deposit Accounts, refunds will be made by canceling the authorization for
withdrawal.
9. Manner of Exercising Subscription Rights Through Order Forms
As soon as practicable after the prospectus prepared by the Holding
Company has been declared effective by the OTS and the SEC, copies of the
prospectus and order forms will be distributed to all Eligible Account Holders,
Supplemental Eligible Account Holders, the Employee Plans and employees,
officers and directors at their last known addresses appearing on the records of
the Mutual Holding Company, Company or the Bank, as the case may be for the
purpose of subscribing for shares of Common
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Stock in the Subscription Offering and will be made available for use by those
persons entitled to purchase in the Community Offering.
Each order form will be preceded or accompanied by the prospectus
describing the Mutual Holding Company, Holding Company, the Bank, the Common
Stock and the Subscription and Community Offerings. Each order form will
contain, among other things, the following:
A. A specified date by which all order forms must be received by
the Holding Company, which date shall be not less than 20, nor
more than 45 days, following the date on which the order forms
are mailed by the Holding Company, and which date will
constitute the termination of the Subscription Offering;
B. The Purchase Price for shares of Common Stock to be sold in
the Subscription and Community Offerings;
C. A description of the minimum and maximum number of shares of
Common Stock that may be subscribed for pursuant to the
exercise of subscription rights or otherwise purchased in the
Community Offering;
D. Instructions as to how the recipient of the order form is to
indicate thereon the number of shares of Common Stock for
which such Person elects to subscribe and the available
alternative methods of payment therefor;
E. An acknowledgment that the recipient of the order form has
received a final copy of the prospectus prior to execution of
the order form;
F. A statement indicating the consequences of failing to properly
complete and return the order form, including a statement to
the effect that all subscription rights are nontransferable,
will be void at the end of the Subscription Offering, and can
only be exercised by delivering to the Holding Company within
the subscription period such properly completed and executed
order form, together with check or money order in the full
amount of the Purchase Price as specified in the order form
for the shares of Common Stock for which the recipient elects
to subscribe in the Subscription Offering (or by authorizing
on the order form that the Holding Company withdraw said
amount from the subscriber's Deposit Account at the Bank); and
G. A statement to the effect that the executed order form, once
received by the Holding Company, may not be modified or
amended by the subscriber without the consent of the Holding
Company.
Notwithstanding the above, the Holding Company reserves the right in
its sole discretion to accept or reject orders received on photocopied or
facsimilied order forms.
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10. Undelivered, Defective or Late Order Form; Insufficient Payment
In the event order forms (a) are not delivered and are returned to the
Holding Company by the United States Postal Service or the Holding Company is
unable to locate the addressee, (b) are not received back by the Holding Company
or are received by the Holding Company after the expiration date specified
thereon, (c) are defectively filled out or executed, (d) are not accompanied by
the full required payment for the shares of Common Stock subscribed for
(including cases in which Deposit Accounts from which withdrawals are authorized
are insufficient to cover the amount of the required payment), or (e) are not
mailed pursuant to a "no mail" order placed in effect by the account holder, the
subscription rights of the Person to whom such rights have been granted will
lapse as though such Person failed to return the contemplated order form within
the time period specified thereon; provided, that the Holding Company may, but
will not be required to, waive any immaterial irregularity on any order form or
require the submission of corrected order forms or the remittance of full
payment for subscribed shares by such date as the Holding Company may specify.
The interpretation by the Holding Company of terms and conditions of this Plan
and of the order forms will be final, subject to the authority of the OTS.
11. Completion of the Stock Offering
The Stock Offering will be terminated if not completed within 90 days
from the date of approval by the OTS, unless an extension is approved by the
OTS.
12. Market for Common Stock
If at the close of the Stock Offering the Holding Company has more than
100 shareholders of any class of stock, the Holding Company shall use its best
efforts to:
(i) encourage and assist a market maker to establish and maintain
a market for that class of stock; and
(ii) list that class of stock on a national or regional securities
exchange, or on the Nasdaq system.
13. Stock Purchases by Management Persons After the Offering
For a period of three years after the proposed Stock Offering, no
Management Person or his or her Associates may purchase, without the prior
written approval of the OTS, any Common Stock of the Holding Company, except
from a broker-dealer registered with the SEC, except that the foregoing shall
not apply to:
A. Negotiated transactions involving more than 1% of the
outstanding stock in the class of stock; or
B. Purchases of stock made by and held by any Tax-Qualified or
Non-Tax Qualified Employee Plan of the Stock Bank or the
Holding Company even if such stock is attributable to
Management Persons or their Associates.
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14. Resales of Stock by Management Persons
Common Stock purchased by Management Persons and their Associates in
the Stock Offering may not be resold for a period of at least one year following
the date of purchase, except in the case of death of the Management Person or
Associate.
15. Stock Certificates
Each stock certificate shall bear a legend giving appropriate notice of
the restrictions set forth in Section 19 above. Appropriate instructions shall
be issued to the Holding Company's transfer agent with respect to applicable
restrictions on transfers of such stock. Any shares of stock issued as a stock
dividend, stock split or otherwise with respect to such restricted stock, shall
be subject to the same restrictions as apply to the restricted stock.
16. Restriction on Financing Stock Purchases
The Holding Company will not offer or sell any of the Common Stock
proposed to be issued to any person whose purchase would be financed by funds
loaned to the person by the Bank or any of its Affiliates.
17. Stock Benefit Plans
The Board of Directors of the Bank and/or the Holding Company intend to
adopt one or more stock benefit plans for its employees, officers and directors,
including an ESOP, stock award plans and stock option plans, which will be
authorized to purchase Common Stock and grant options for Common Stock. However,
only the Tax-Qualified Employee Plans will be permitted to purchase Common Stock
in the Stock Offering on a priority basis as set forth in this Plan. The Board
of Directors of the Bank intends to establish the ESOP and authorize the ESOP
and any other Tax-Qualified Employee Plans to purchase in the aggregate up to
10% of the Common Stock issued in the Stock Offering. The Bank or the Holding
Company may make scheduled discretionary contributions to one or more
Tax-Qualified Employee Plans to purchase Common Stock issued in the Stock
Offering or to purchase issued and outstanding shares of Common Stock or
authorized but unissued shares of Common Stock subsequent to the completion of
the Stock Offering, provided such contributions do not cause the Bank to fail to
meet any of its regulatory capital requirements. This Plan specifically
authorizes the grant and issuance by the Holding Company of (i) awards of Common
Stock after the Stock Offering pursuant to one or more stock recognition and
award plans (the "Recognition Plans") in an amount equal to up to 4% of the
number of shares of Common Stock issued in the Stock Offering (and in an amount
equal to up to 5% of the Common Stock issued in the Stock Offering if the
Recognition Plans are adopted more than one year after the completion of the
Stock Offering), (ii) options to purchase a number of shares of the Holding
Company's Common Stock in an amount equal to up to 10% of the number of shares
of Common Stock issued in the Stock Offering and shares of Common Stock issuable
upon exercise of such options, and (iii) Common Stock to one or more Tax
Qualified Employee Plans, including the ESOP, at the closing of the Stock
Offering or at any time thereafter, in an amount equal to up to 8% of the number
of shares of Common Stock issued in the Stock Offering if the Recognition Plans
award Common Stock sooner than one year after the completion of the Stock
Offering, and up to 10% of the number of shares of Common Stock issued in the
Stock Offering if the Recognition Plans are adopted more than one year after the
completion of the Stock Offering. Shares awarded to the Tax Qualified Employee
Plans or pursuant to the Recognition Plans, and shares issued upon
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<PAGE>
exercise of options may be authorized but unissued shares of the Holding
Company's Common Stock, or shares of Common Stock purchased by the Holding
Company or such plans on the open market. Any awards of Common Stock under the
Recognition Plans and the stock option plans will be subject to prior
stockholder approval.
18. Post-Stock Offering Filing and Market Making
It is likely that there will be a limited market for the Common Stock
sold in the Stock Offering, and purchasers must be prepared to hold the Common
Stock for an indefinite period of time. If the Holding Company has more than 35
stockholders of any class of stock, the Holding Company shall register its
Common Stock with the SEC pursuant to the Exchange Act, and shall undertake not
to deregister such Common Stock for a period of three years thereafter.
19. Payment of Dividends and Repurchase of Stock
The Holding Company may not declare or pay a cash dividend on its
Common Stock if the effect thereof would cause the regulatory capital of the
Bank to be reduced below the amount required under ss. 567.2 of the OTS rules
and regulations. Otherwise, the Holding Company may declare dividends or make
other capital distributions in accordance with applicable laws and regulations.
Following completion of the Stock Offering, the Holding Company may repurchase
its Common Stock subject to ss. 563b.3(g) of the OTS rules and regulations, as
long as such repurchases do not cause the regulatory capital of the Bank to be
reduced below the amount required under 12 C.F.R. ss. 567.2. The Mutual Holding
Company may from time to time purchase Common Stock of the Holding Company.
Subject to the approval of the OTS, the Mutual Holding Company may waive its
right to receive dividends declared by the Holding Company.
20. Stock Offering Expenses
The Regulations require that the expenses of any Stock Offering must be
reasonable. The Holding Company will use its best efforts to assure that the
expenses incurred by the Bank and the Holding Company in effecting the Stock
Offering will be reasonable.
21. Employment and Other Severance Agreements
Following or contemporaneously with the Stock Offering, the Bank and/or
the Holding Company may enter into employment and/or severance arrangements with
one or more executive officers of the Bank and/or the Holding Company. It is
anticipated that any employment contracts entered into by the Bank and/or the
Holding Company will be for terms not exceeding three years and that such
contracts will provide for annual renewals of the term of the contracts, subject
to approval by the Board of Directors. The Bank and/or the Holding Company also
may enter into severance arrangements with one or more executive officers which
provide for the payment of severance compensation in the event of a change in
control of the Bank and/or the Holding Company. The terms of such employment and
severance arrangements have not been determined as of this time, but will be
described in any prospectus circulated in connection with the Stock Offering and
will be subject to and comply with all regulations of the OTS.
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22. Interpretation
All interpretations of this Plan and application of its provisions to
particular circumstances by a majority of the Board of Directors of the Holding
Company shall be final, subject to the authority of the OTS.
23. Amendment or Termination of the Plan
If necessary or desirable, the terms may be amended by a majority vote
of the Holding Company's Board of Directors as a result of comments from
regulatory authorities or otherwise at any time prior to the approval of the
Plan by the OTS and at any time thereafter with the concurrence of the OTS. The
Plan may be terminated by a majority vote of the Board of Directors at any time
prior to the approval of the Plan by the OTS, and may be terminated by a
majority vote of the Board of Directors at any time thereafter with the
concurrence of the OTS.
Adopted by the Board of Directors this 19th day of October, 1999
As amended on November 29, 1999.
17
Charter No. 6544
ALAMOGORDO FINANCIAL CORP.
STOCK HOLDING COMPANY CHARTER
Section 1. Corporate Title. The full corporate title of the company is
Alamogordo Financial Corp. (the "Company").
Section 2. Duration. The duration of the Company is perpetual.
Section 3. Purpose and Powers. The purpose of the Company is to pursue
any or all of the lawful objectives of a federal mutual savings bank holding
company chartered under section 10(o) of the Home Owners' Loan Act, 12 U.S.C.
1467a(o), and to exercise all of the express, implied, and incidental powers
conferred thereby and by all acts amendatory thereof and supplemental thereto,
subject to the Constitution and laws of the United States as they are now in
effect, or as they may hereafter be amended, and subject to all lawful and
applicable rules, regulations, and orders of the Office of Thrift Supervision
("Office").
Section 4. Capital Stock. The total number of shares of all classes of
the capital stock that Company has the authority to issue is 10,000,000, all of
which shall be common stock par value of .10 per share. The shares may be issued
from time to time as authorized by the board of directors without the approval
of the shareholders of the Company, except as otherwise provided in this Section
4 or to the extent that such approval is required by governing law, rule, or
regulation. The consideration for the issuance of the shares shall be paid in
full before their issuance and shall not be less than the par value. Neither
promissory notes nor future services shall constitute payment or part payment
for the issuance of shares of the Company. The consideration for the shares
shall be cash, tangible or intangible property (to the extent direct investment
in such property would be permitted to the Company), labor, or services actually
performed for the Company, or any combination of the foregoing. In the absence
of actual fraud in the transaction, the value of such property, labor, or
services, as determined by the board of directors of the Company, shall be
conclusive. Upon payment of such consideration, such shares shall be deemed to
be fully paid and nonassessable. In the case of a stock dividend, that part of
the retained earnings of the Company that is transferred to common stock or
paid-in-capital accounts upon the issuance of shares as a stock dividend shall
be deemed to be the consideration for their issuance.
Except for shares issued in the initial organization of the Company, no
shares of capital stock (including shares issuable upon conversion, exchange, or
exercise of other securities) shall be issued, directly or indirectly, to
officers, directors, or controlling persons (except for shares issued to the
parent mutual holding company) of the Company other than as part of a general
public offering or as qualifying shares to a director, unless the issuance or
the plan under which they would be issued has been approved by a majority of the
total votes eligible to be cast at a legal meeting.
<PAGE>
The holders of the common stock shall exclusively possess all voting
power. Each holder of shares of common stock shall be entitled to one vote for
each share held by such holder. There shall be no cumulative voting for the
election of directors. Subject to any provision for a liquidation account, in
the event of any liquidation, dissolution, or winding up of the Company, the
holders of the common stock shall be entitled, after payment or provision for
payment of all debts and liabilities of the Company, to receive the remaining
assets of the Company available for distribution, in cash or in kind. Each share
of common stock shall have the same relative rights as and be identical in all
respects with all the other shares of common stock.
Section 5. Preemptive Rights. Holders of the capital stock of the
Company shall not be entitled to preemptive rights with respect to any shares of
the Company which may be issued.
Section 6. Directors. The Company shall be under the direction of a
board of directors. The authorized number of directors, as stated in the
Company's bylaws, shall not be fewer than five nor more than fifteen except when
a greater or lesser number is approved by the Director of the Office, or his or
her delegate.
Section 7. Amendment of Charter. Except as provided in Section 4, no
amendment, addition, alteration, change or repeal of this charter shall be made,
unless such is proposed by the board of directors of the Company, approved by
the shareholders by a majority of the votes eligible to be cast at a legal
meeting, unless a higher vote is otherwise required, and approved or preapproved
by the Office.
<PAGE>
ALAMOGORDO FINANCIAL CORP.
Attest: /s/ Julia Eggleston
---------------------------
Julia Eggleston
Secretary
By: /s/ R. Miles Ledgerwood
----------------------------
R. Miles Ledgerwood
President or Chief Executive Officer
Attest: /s/ Nadine Y. Washington
--------------------------
Secretary of the Office of Thrift Supervision
By: /s/ Nicolas P. Retsines
---------------------------
Director of the Office of Thrift Supervision
Effective Date: May 22, 1997
ALAMOGORDO FINANCIAL CORP
BYLAWS
ARTICLE I - Home Office
The home office of Alamogordo Financial Corp. (the "Company") shall be
located in the City of Alamogordo in the State of New Mexico.
ARTICLE II - Shareholders
Section 1. Place of Meetings. All annual and special meetings of
shareholders shall be held at the home office of the Company or at such other
place in the State in which the principal place of business of the Company is
located as the board of directors may determine.
Section 2. Annual Meeting. A meeting of the shareholders of the Company
for the election of directors and for the transaction of any other business of
the Company shall be held annually within 150 days after the end of the
Company's fiscal year, on the third Wednesday in July, if not a legal holiday,
and if a legal holiday, then on the next day following which is not a legal
holiday, at such time as the board of directors shall by resolution determine or
at such other date and time within such 150-day period as the board of directors
may determine.
Section 3. Special Meetings. Special meetings of the shareholders for
any purpose or purposes may be called at any time by the chairman of the board,
the president, or a majority of the board of directors, and shall be called by
the chairman of the board, the president, or the secretary upon the written
request of the holders of not less than one-tenth of all of the outstanding
capital stock of the Company entitled to vote at the meeting. Such written
request shall state the purpose or purposes of the meeting and shall be
delivered to the home office of the Company addressed to the chairman of the
board, the president, or the secretary.
Section 4. Conduct of Meetings. The chairman of any meeting of
stockholders shall determine the order or business and the procedure at the
meeting, including such regulation of the manner of voting. The rules of conduct
at any meeting of stockholders shall be determined by the Board of Directors
prior to the meeting and shall be made available for inspection at the
stockholders meeting. The date and time of the opening and closing of the polls
for each matter upon which the stockholders will vote at the meeting shall be
announced at the meeting.
Section 5. Notice of Meetings. Written notice stating the place, date,
and hour of the meeting and the purpose(s) for which the meeting is called shall
be delivered not fewer than 10 nor more than 50 days before the date of the
meeting, either personally or by mail, by or at the direction of the chairman of
the board, the president, or the secretary, or the directors calling the
meeting, to each shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the mail,
addressed to the shareholder at the address as it appears on the stock transfer
books or records of the Company as of the record date prescribed in Section 6 of
this Article II with postage prepaid. When any shareholders meeting, either
annual or special, is adjourned for 30 days or more, notice of the adjourned
meeting shall be given as in the case of an original meeting. It shall not be
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necessary to give any notice of the time and place of any meeting adjourned for
less than 30 days or of the business to be transacted at the meeting, other than
an announcement at the meeting at which such adjournment is taken.
Section 6. Fixing of Record Date. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment, or shareholders entitled to receive payment of any dividend, or
in order to make a determination of shareholders for any other proper purpose,
the board of directors shall fix in advance a date as the record date for any
such determination of shareholders. Such date in any case shall be not more than
60 days and, in case of a meeting of shareholders, not fewer than 10 days prior
to the date on which the particular action, requiring such determination of
shareholders, is to be taken. When a determination of shareholders entitled to
vote at any meeting of shareholders has been made as provided in this section,
such determination shall apply to any adjournment.
Section 7. Voting List. At least 20 days before each meeting of the
shareholders, the officer or agent having charge of the stock transfer books for
shares of the Company shall make a complete list of the shareholders entitled to
vote at such meeting, or any adjournment, arranged in alphabetical order, with
the address and the number of shares held by each. This list of shareholders
shall be kept on file at the home office of the Company and shall be subject to
inspection by any shareholder at any time during usual business hours for a
period of 20 days prior to such meeting. Such list also shall be produced and
kept open at the time and place of the meeting and shall be subject to
inspection by any shareholder during the entire time of the meeting. The
original stock transfer book shall constitute prima facie evidence of the
shareholders entitled to examine such list or transfer books or to vote at any
meeting of shareholders.
In lieu of making the shareholder list available for inspection by
shareholders as provided in the preceding paragraph, the board of directors may
elect to follow the procedures described in ss. 552.6(d) of the Office's
regulations as now or hereafter in effect.
Section 8. Quorum. A majority of the outstanding shares of the Company
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of shareholders. If less than a majority of the outstanding shares
is represented at a meeting, a majority of the shares so represented may adjourn
the meeting from time to time without further notice. At such adjourned meeting
at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to constitute less than a quorum.
Section 9. Proxies. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or by his duly authorized
attorney in fact. Proxies solicited on behalf of the management shall be voted
as directed by the shareholder or, in the absence of such direction, as
determined by a majority of the board of directors. No proxy shall be valid more
than eleven months from the date of its execution except for a proxy coupled
with an interest.
Section 10. Voting of Shares in the Name of Two or More Persons. When
ownership stands in the name of two or more persons, at any meeting of the
shareholders of the Company, any one or more of such shareholders may cast, in
person or by proxy, all votes to which such ownership is entitled in the absence
of written directions to the Company to the contrary. In the event an attempt is
made to cast
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conflicting votes, in person or by proxy, by the several persons in whose names
shares of stock stand, the vote or votes to which those persons are entitled
shall be cast as directed by a majority of those holding such and present in
person or by proxy at such meeting, but no votes shall be cast for such stock if
a majority cannot agree.
Section 11. Voting of Shares of Certain Holders. Shares standing in the
name of another corporation may be voted by any officer, agent, or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian, or conservator may be voted by him, either in
person or by proxy, without a transfer of such shares into his name. Shares
standing in the name of a trustee may be voted by him, either in person or by
proxy, but no trustee shall be entitled to vote shares held by him without a
transfer of such shares into his name. Shares standing in the name of a receiver
may be voted by such receiver, and shares held by or under the control of a
receiver may be voted by such receiver without the transfer into his name if
authority to do so is contained in an appropriate order of the court or other
public authority by which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the Company nor shares
held by another corporation, if a majority of the shares entitled to vote for
the election of directors of such other corporation are held by the Company,
shall be voted at any meeting or counted in determining the total number of
outstanding shares at any given time for purposes of any meeting.
Section 12. Cumulative Voting. Stockholders may not cumulate their
votes for election of directors.
Section 13. Inspectors of Election. In advance of any meeting of
shareholders, the board of directors may appoint any person other than nominees
for office as inspectors of election to act at such meeting or any adjournment.
The number of inspectors shall be either one or three. Any such appointment
shall not be altered at the meeting. If inspectors of election are not so
appointed, the chairman of the board or the president may or at the request of
not fewer than 10 percent of the votes represented at the meeting shall, make
such appointment at the meeting. If appointed at the meeting, the majority of
the votes present shall determine whether one or three inspectors are to be
appointed. In case any person appointed as inspector fails to appear or fails or
refuses to act, the vacancy may be filled by appointment by the board of
directors in advance of the meeting or at the meeting by the chairman of the
board or the president.
Unless otherwise prescribed by regulations of the Office, the duties of
such inspectors shall include: determining the number of shares and the voting
power of each share, the shares represented at the meeting, the existence of a
quorum, and the authenticity, validity and effect of proxies; receiving votes,
ballots, or consents; hearing and determining all challenges and questions in
any way arising in connection with the rights to vote; counting and tabulating
all votes or consents; determining the result; and such acts as may be proper to
conduct the election or vote with fairness to all shareholders.
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Section 14. Nominating Committee. The board of directors shall act as a
nominating committee for selecting the management nominees for election as
directors. Except in the case of a nominee substituted as a result of the death
or other incapacity of a management nominee, the nominating committee shall
deliver written nominations to the secretary at least 20 days prior to the date
of the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the Company. No nominations for directors
except those made by the nominating committee shall be voted upon at the annual
meeting unless other nominations by shareholders are made in writing and
delivered to the secretary of the Company at least five days prior to the date
of the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the Company. Ballots bearing the names of
all persons nominated by the nominating committee and by shareholders shall be
provided for use at the annual meeting. However, if the nominating committee
shall fail or refuse to act at least 20 days prior to the annual meeting,
nominations for directors may be made at the annual meeting by any shareholder
entitled to vote and shall be voted upon.
Section 15. New Business. Any new business to be taken up at the annual
meeting shall be stated in writing and filed with the secretary of the Company
at least five days prior to the date of the annual meeting, and all business so
stated, proposed, and filed shall be considered at the annual meeting; but no
other proposal shall be acted upon at the annual meeting. Any shareholder may
make any other proposal at the annual meeting and the same may be discussed and
considered, but unless stated in writing and filed with the secretary at least
five days before the meeting, such proposal shall be laid over for action at an
adjourned, special or annual meeting of the shareholders taking place 30 days or
more thereafter. This provision shall not prevent the consideration and approval
or disapproval at the annual meeting of reports of officers, directors, and
committees; but in connection with such reports, no new business shall be acted
upon at such annual meeting unless stated and filed as herein provided.
Section 16. Informal Action by Shareholders. Any action required to be
taken at a meeting of the shareholders, or any other action which may be taken
at a meeting of shareholders, may be taken without a meeting if consent in
writing, setting forth the action to be taken, shall be given by all of the
shareholders entitled to vote with respect to the subject matter.
ARTICLE III - Board of Directors
Section 1. General Powers. The business and affairs of the Company
shall be under the direction of its board of directors. The board of directors
shall annually elect a chairman of the board and a president from among its
members and shall designate, when present, either the chairman of the board or
the president to preside at its meetings.
Section 2. Number and Term. The board of directors shall consist of
five members and shall be divided into three classes as nearly equal in number
as possible. The members of each class shall be elected for a term of three
years and until their successors are elected and qualified. One class shall be
elected annually by ballot.
Section 3. Regular Meetings. A regular meeting of the board of
directors shall be held without notice other than this bylaw immediately after,
and at the same place as, the annual meeting of shareholders. The board of
directors may provide, by resolution, the time and place, within the Company's
normal lending territory, for the holding of additional regular meetings without
notice other than such resolution.
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Section 4. Special Meetings. Special meetings of the board of directors
may be called by or at the request of the chairman of the board, the president,
or one-third of the directors. The persons authorized to call special meetings
of the board of directors may fix any place, within the Company's normal lending
territory, as the place for holding any special meeting of the board of
directors called by such persons.
Members of the board of directors may participate in special meetings
by means of conference telephone or similar communications equipment by which
all persons participating in the meeting can hear each other. Such participation
shall constitute presence in person but shall not constitute attendance for the
purpose of compensation pursuant to Section 11 of this Article.
Section 5. Notice. Written notice of any special meeting shall be given
to each director at least two days prior thereto when delivered personally or by
telegram or at least five days prior thereto when delivered by mail at the
address at which the director is most likely to be reached. Such notice shall be
deemed to be delivered when deposited in the mail so addressed, with postage
prepaid if sent by mail or when delivered to the telegraph company if sent by
telegram. Any director may waive notice of any meeting by a writing filed with
the secretary. The attendance of a director at a meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any meeting of the board of directors need be
specified in the notice of waiver of notice of such meeting.
Section 6. Quorum. A majority of the number of directors fixed by
Section 2 of this Article III shall constitute a quorum for the transaction of
business at any meeting of the board of directors; but if less than such
majority is present at a meeting, a majority of the directors present may
adjourn the meeting from time to time. Notice of any adjourned meeting shall be
given in the same manner as prescribed by Section 5 of this Article III.
Section 7. Manner of Acting. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors, unless a greater number is prescribed by regulation of the Office
or by these bylaws.
Section 8. Action Without a Meeting. Any action required or permitted
to be taken by the board of directors at a meeting may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the directors.
Section 9. Resignation. Any director may resign at any time by sending
a written notice of such resignation to the home office of the Company addressed
to the chairman of the board or the president. Unless otherwise specified, such
resignation shall take effect upon receipt by the chairman of the board or the
president. More than three consecutive absences from regular meetings of the
board of directors, unless excused by resolution of the board of directors,
shall automatically constitute a resignation, effective when such resignation is
accepted by the board of directors.
Section 10. Vacancies. Any vacancy occurring on the board of directors
may be filled by the affirmative vote of a majority of the remaining directors
although less than a quorum of the board of directors. A director elected to
fill a vacancy shall be elected to serve until the next election of directors by
the shareholders. Any directorship to be filled by reason of an increase in the
number of directors may
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be filled by election by the board of directors for a term of office continuing
only until the next election of directors by the shareholders.
Section 11. Compensation. Directors, as such, may receive a stated
salary for their services. By resolution of the board of directors, a reasonable
fixed sum, and reasonable expenses of attendance, if any, may be allowed for
actual attendance at each regular or special meeting of the board of directors.
Members of either standing or special committees may be allowed such
compensation for actual attendance at committee meetings as the board of
directors may determine.
Section 12. Presumption of Assent. A director of the Company who is
present at a meeting of the board of directors at which action on any Company
matter is taken shall be presumed to have assented to the action taken unless
his dissent or abstention shall be entered in the minutes of the meeting or
unless he shall file a written dissent to such action with the person acting as
the secretary of the meeting before the adjournment thereof or shall forward
such dissent by registered mail to the secretary of the Company within five days
after the date a copy of the minutes of the meeting is received. Such right to
dissent shall not apply to a director who voted in favor of such action.
Section 13. Removal of Directors. At a meeting of shareholders called
expressly for that purpose, any director may be removed for cause by a vote of
the holders of a majority of the shares then entitled to vote at an election of
directors. If less than the entire board is to be removed, no one of the
directors may be removed if the votes cast against the removal would be
sufficient to elect a director if then cumulatively voted at an election of the
class of directors of which such director is a part. Whenever the holders of the
shares of any class are entitled to elect one or more directors by the
provisions of the charter or supplemental sections thereto, the provisions of
this section shall apply, in respect to the removal of a director or directors
so elected, to the vote of the holders of the outstanding shares of that class
and not to the vote of the outstanding shares as a whole.
ARTICLE IV - Executive And Other Committees
Section 1. Appointment. The board of directors, by resolution adopted
by a majority of the full board, may designate the chief executive officer and
two or more of the other directors to constitute an executive committee. The
designation of any committee pursuant to this Article IV and the delegation of
authority shall not operate to relieve the board of directors, or any director,
of any responsibility imposed by law or regulation.
Section 2. Authority. The executive committee, when the board of
directors is not in session, shall have and may exercise all of the authority of
the board of directors except to the extent, if any, that such authority shall
be limited by the resolution appointing the executive committee; and except also
that the executive committee shall not have the authority of the board of
directors with reference to: the declaration of dividends; the amendment of the
charter or bylaws of the Company; recommending to the shareholders a plan of
merger, consolidation, or conversion; the sale, lease, or other disposition of
all or substantially all of the property and assets of the Company otherwise
than in the usual and regular course of its business; a voluntary dissolution of
the Company; a revocation of any of the foregoing; or the approval of a
transaction in which any member of the executive committee, directly or
indirectly, has any material beneficial interest.
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Section 3. Tenure. Subject to the provisions of Section 8 of this
Article IV, each member of the executive committee shall hold office until the
next regular annual meeting of the board of directors following his or her
designation and until a successor is designated as a member of the executive
committee.
Section 4. Meetings. Regular meetings of the executive committee may be
held without notice at such times and places as the executive committee may fix
from time to time by resolution. Special meetings of the executive committee may
be called by any member thereof upon not less than one days notice stating the
place, date, and hour of the meeting, which notice may be written or oral. Any
member of the executive committee may waive notice of any meeting and no notice
of any meeting need be given to any member thereof who attends in person. The
notice of a meeting of the executive committee need not state the business
proposed to be transacted at the meeting.
Section 5. Quorum. A majority of the members of the executive committee
shall constitute a quorum for the transaction of business at any meeting
thereof, and action of the executive committee must be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present.
Section 6. Action Without a Meeting. Any action required or permitted
to be taken by the executive committee at a meeting may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the members of the executive committee.
Section 7. Vacancies. Any vacancy in the executive committee may be
filled by a resolution adopted by a majority of the full board of directors.
Section 8. Resignations and Removal. Any member of the executive
committee may be removed at any time with or without cause by resolution adopted
by a majority of the full board of directors. Any member of the executive
committee may resign from the executive committee at any time by giving written
notice to the president or secretary of the Company. Unless otherwise specified,
such resignation shall take effect upon its receipt; the acceptance of such
resignation shall not be necessary to make it effective.
Section 9. Procedure. The executive committee shall elect a presiding
officer from its members and may fix its own rules of procedure which shall not
be inconsistent with these bylaws. It shall keep regular minutes of its
proceedings and report the same to the board of directors for its information at
the meeting held next after the proceedings shall have occurred.
Section 10. Other Committees. The board of directors may by resolution
establish an audit, loan, or other committee composed of directors as they may
determine to be necessary or appropriate for the conduct of the business of the
Company and may prescribe the duties, constitution, and procedures thereof.
ARTICLE V - Officers
Section 1. Positions. The officers of the Company shall be a president,
one or more vice presidents, a secretary, and a treasurer, each of whom shall be
elected by the board of directors. The board of directors also may designate the
chairman of the board as an officer. The president shall be the chief executive
officer, unless the board of directors designates the chairman of the board as
chief executive
Page 7
<PAGE>
officer. The president shall be a director of the Company. The offices of the
secretary and treasurer may be held by the same person and a vice president also
may be either the secretary or the treasurer. The board of directors may
designate one or more vice presidents as executive vice president or senior vice
president. The board of directors also may elect or authorize the appointment of
such other officers as the business of the Company may require. The officers
shall have such authority and perform such duties as the board of directors may
from time to time authorize or determine. In the absence of action by the board
of directors, the officers shall have such powers and duties as generally
pertain to their respective offices.
Section 2. Election and Term of Office. The officers of the Company
shall be elected annually at the first meeting of the board of directors held
after each annual meeting of the shareholders. If the election of officers is
not held at such meeting, such election shall be held as soon thereafter as
possible. Each officer shall hold office until a successor has been duly elected
and qualified or until the officers death, resignation, or removal in the manner
hereinafter provided. Election or appointment of an officer, employee, or agent
shall not of itself create contractual rights. The board of directors may
authorize the Company to enter into an employment contract with any officer in
accordance with regulations of the Office; but no such contract shall impair the
right of the board of directors to remove any officer at any time in accordance
with Section 3 of this Article V.
Section 3. Removal. Any officer may be removed by the board of
directors whenever in its judgment the best interests of the Company will be
served thereby, but such removal, other than for cause, shall be without
prejudice to any contractual rights of the person so removed.
Section 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise may be filled by the board
of directors for the unexpired portion of the term.
Section 5. Remuneration. The remuneration of the officers shall be
fixed from time to time by the board of directors.
ARTICLE VI - Contracts, Loans, Checks, and Deposits
Section 1. Contracts. To the extent permitted by regulations of the
Office, and except as otherwise prescribed by these bylaws with respect to
certificates for shares, the board of directors may authorize any officer,
employee or agent of the Company to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the Company. Such
authority may be general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the Company
and no evidence of indebtedness shall be issued in its name unless authorized by
the board of directors. Such authority may be general or confined to specific
instances.
Section 3. Checks, Drafts, etc. All checks, drafts, or other orders for
the payment of money, notes, or other evidences of indebtedness issued in the
name of the Company shall be signed by one or more officers, employees, or
agents of the Company in such manner as shall from time to time be determined by
the board of directors.
Page 8
<PAGE>
ARTICLE VII - Certificates for Shares and Their Transfer
Section 1. Certificates for Shares. Certificates representing shares of
capital stock of the Company shall be in such form as shall be determined by the
board of directors and approved by the Office. Such certificates shall be signed
by the chief executive officer or by any other officer of the Company authorized
by the board of directors, attested by the secretary or an assistant secretary,
and sealed with the corporate seal or a facsimile thereof. The signature of such
officers upon a certificate may be facsimiles if the certificate is manually
signed on behalf of a transfer agent or a registrar other than the Company
itself or one of its employees. Each certificate for shares of capital stock
shall be consecutively numbered or otherwise identified. The name and address of
the person to whom the shares are issued, with the number of shares and date of
issue, shall be entered on the stock transfer books of the Company. All
certificates surrendered to the Company for transfer shall be cancelled and no
new certificate shall be issued until the former certificate for a like number
of shares has been surrendered and cancelled, except that in the case of a lost
or destroyed certificate, a new certificate may be issued upon such terms and
indemnity to the Company as the board of directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of capital stock of
the Company shall be made only on its stock transfer books. Authority for such
transfer shall be given only by the holder of record or by his legal
representative, who shall furnish proper evidence of such authority, or by his
attorney authorized by a duly executed power of attorney and filed with the
Company. Such transfer shall be made only on surrender for cancellation of the
certificate for such shares. The person in whose name shares of capital stock
stand on the books of the Company shall be deemed by the Company to be the owner
for all purposes.
ARTICLE VIII - Fiscal Year; Annual Audit
The fiscal year of the Company shall end on the last day of June of
each year. The Company shall be subject to an annual audit as of the end of its
fiscal year by independent public accountants appointed by and responsible to
the board of directors.
ARTICLE IX - Dividends
Subject only to the terms of the Company's charter and the regulations
and orders of the Office, the board of directors may, from time to time,
declare, and the Company may pay, dividends on its outstanding shares of capital
stock.
ARTICLE X - Corporate Seal
The board of directors shall provide a Company seal which shall be two
concentric circles between which shall be the name of the Company. The year of
incorporation or an emblem may appear in the center.
Page 9
<PAGE>
ARTICLE XI - Amendments
These bylaws may be amended in a manner consistent with regulations of
the Office at any time by a majority vote of the full board of directors or by a
majority vote of the votes cast by the shareholders of the Company at any legal
meeting.
Page 10
[FORM OF STOCK CERTIFICATE]
INCORPORATED UNDER THE LAWS OF THE UNITED STATES OF AMERICA
ALAMOGORDO FINANCIAL CORP.
ALAMOGORDO, NEW MEXICO
$0.10 par value common stock--fully paid and non assessable
This certifies that ____________________________ is the owner of _______ shares
of the common stock of ALAMOGORDO FINANCIAL CORP. (the "Corporation"), a Federal
corporation.
The shares evidenced by this certificate are transferable only on the stock
transfer books of the Corporation by the holder of record hereof, in person or
by his duly authorized attorney or legal representative, upon surrender of this
certificate properly endorsed. This Certificate in not valid until countersigned
and registered by the Corporation's transfer agent and registrar. 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 the facsimile signatures of its duly authorized officers and has caused its
seal to be affixed hereto.
DATED:
- ------------------------------------- ------------------------------------
Secretary (SEAL) President
<PAGE>
ALAMOGORDO FINANCIAL CORPORATION
The Board of Directors of the Corporation is authorized by resolution or
resolutions, from time to time adopted, to provide for the issuance of serial
preferred stock in series and to fix and state the voting powers, designations,
preferences, limitations and restrictions thereof. The Corporation will furnish
to any shareholder upon request and without charge a full description of each
class of stock and any series thereof.
The shares represented by this Certificate may not be cumulatively voted
on any matter.
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:
TEN COM - as tenants in common UNIF GIFT MIN ACT - ______Custodian________
(Cust) (Minor)
TEN ENT - as tenants by the entireties
Under Uniform Gifts to Minors Act
JT TEN - as joint tenants with right _________________________________
of survivorship and not as (State)
tenants in common
Additional abbreviations may also be used though not in the above list
For value received, ______________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY NUMBER OR OTHER IDENTIFYING NUMBER
- --------------------------------------------------------------------------------
(please print or typewrite name and address including postal zip code of
assignee)
- --------------------------------------------------------------------------------
_______________________________________________________________________Shares of
the 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, _____________________________
In the presence of Signature:
_____________________________ _____________________________
NOTE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME OF THE
STOCKHOLDER(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
December 15, 1999 (202) 274-2000
The Board of Directors
Alamogordo Financial Corporation
500 10th Street
Alamogordo, New Mexico 88310-0690
Re: Alamogordo Financial Corporation
Common Stock Par Value $0.10 Per Share
Ladies and Gentlemen:
You have requested the opinion of this firm as to certain matters in
connection with the offer and sale (the "Offering") of Alamogordo Financial
Corporation (the "Company") Common Stock, par value $0.10 per share ("Common
Stock"). We have reviewed the Company's Stock Holding Company Charter,
Registration Statement on Form SB-2 ("Form SB-2"), as well as applicable
statutes and regulations governing the Company and the offer and sale of the
Common Stock.
We are of the opinion that upon the declaration of effectiveness of the
Form SB-2 and the incorporation of the Company as a federal corporation, the
Common Stock, when sold, will be legally issued, fully paid and non-assessable.
This Opinion has been prepared for the use of the Company in connection
with its registration statement on Form SB-2, and we hereby consent to the
filing of this Opinion as an exhibit to such registration statement and to our
firm being referenced under the caption "Legal and Tax Opinions."
Very truly yours,
\S\ LUSE LEHMAN GORMAN POMERENK & SCHICK
----------------------------------------
LUSE LEHMAN GORMAN POMERENK & SCHICK
A PROFESSIONAL CORPORATION
FORM OF
ALAMOGORDO FEDERAL SAVINGS & LOAN ASSOCIATION
EMPLOYEE STOCK OWNERSHIP PLAN
(adopted effective January 1, 2000)
<PAGE>
ALAMOGORDO FEDERAL SAVINGS & LOAN ASSOCIATION
EMPLOYEE STOCK OWNERSHIP PLAN
This Employee Stock Ownership Plan, executed on the ___th day of
____________, 2000, by Alamogordo Federal Savings & Loan Association, a federal
stock savings association (the "Association"),
W I T N E S S E T H T H A T
WHEREAS, the board of directors of the Association has resolved to
adopt an employee stock ownership plan for eligible employees in accordance with
the terms and conditions presented to the directors;
NOW, THEREFORE, the Association hereby adopts the following Plan
setting forth the terms and conditions pertaining to contributions by the
Employer and the payment of benefits to Participants and Beneficiaries.
IN WITNESS WHEREOF, the Association has adopted this Plan and caused
this instrument to be executed by its duly authorized officers as of the above
date.
ATTEST:
_________________________________ By:________________________________
Secretary President
<PAGE>
C 0 N T E N T S
Page No.
--------
Section 1. Plan Identity..................................................-1-
1.1 Name.....................................................-1-
1.2 Purpose..................................................-1-
1.3 Effective Date...........................................-1-
1.4 Fiscal Period............................................-1-
1.5 Single Plan for All Employers............................-1-
1.6 Interpretation of Provisions.............................-1-
Section 2. Definitions....................................................-1-
Section 3. Eligibility for Participation............................-7-
3.1 Initial Eligibility......................................-7-
3.2 Definition of Eligibility Year...........................-7-
3.3 Terminated Employees.....................................-7-
3.4 Certain Employees Ineligible.............................-7-
3.5 Participation and Reparticipation........................-7-
3.6 Omission of Eligible Employee............................-7-
3.7 Inclusion of Ineligible Employee.........................-8-
Section 4. Contributions and Credits................................-8-
4.1 Discretionary Contributions..............................-8-
4.2 Contributions for Stock Obligations......................-8-
4.3 Definitions Related to Contributions.....................-8-
4.4 Conditions as to Contributions...........................-9-
Section 5. Limitations on Contributions and Allocations.............-9-
5.1 Limitation on Annual Additions...........................-9-
5.2 Coordinated Limitation With Other Plans.................-11-
5.3 Effect of Limitations...................................-11-
5.4 Limitations as to Certain Participants..................-11-
Section 6. Trust Fund and Its Investment...........................-12-
6.1 Creation of Trust Fund..................................-12-
6.2 Stock Fund and Investment Fund..........................-12-
6.3 Acquisition of Stock....................................-12-
6.4 Participants' Option to Diversify.......................-13-
Section 7. Voting Rights and Dividends on Stock....................-14-
7.1 Voting and Tendering of Stock...........................-14-
7.2 Dividends on Stock......................................-15-
(i)
<PAGE>
Page No.
--------
Section 8. Adjustments to Accounts................................-15-
8.1 Adjustments for Transactions...........................-15-
8.2 Valuation of Investment Fund...........................-15-
8.3 Adjustments for Investment Experience..................-16-
Section 9. Vesting of Participants' Interests.....................-16-
9.1 [Intentionally Omitted]................................-16-
9.2 Computation of Vesting Years...........................-16-
9.3 Full Vesting Upon Certain Events.......................-17-
9.4 Full Vesting Upon Plan Termination.....................-18-
9.5 Forfeiture, Repayment, and Restoral....................-18-
9.6 Accounting for Forfeitures.............................-18-
9.7 Vesting and Nonforfeitability..........................-18-
Section 10. Payment of Benefits....................................-18-
10.1 Benefits for Participants..............................-18-
10.2 Time for Distribution..................................-19-
10.3 Marital Status.........................................-20-
10.4 Delay in Benefit Determination.........................-20-
10.5 Accounting for Benefit Payments........................-21-
10.6 Options to Receive and Sell Stock......................-21-
10.7 Restrictions on Disposition of Stock...................-22-
10.8 Continuing Loan Provisions; Creations of Protections
and Rights...........................................-22-
10.9 Direct Rollover of Eligible Distribution...............-22-
10.10 Waiver of 30 Day Period After Notice of Distribution...-23-
Section 11. Rules Governing Benefit Claims and Review of Appeals...-23-
11.1 Claim for Benefits.....................................-23-
11.2 Notification by Committee..............................-23-
11.3 Claims Review Procedure................................-23-
Section 12. The Committee and Its Functions........................-24-
12.1 Authority of Committee.................................-24-
12.2 Identity of Committee..................................-24-
12.3 Duties of Committee....................................-24-
12.4 Valuation of Stock.....................................-25-
12.5 Compliance with ERISA..................................-25-
12.6 Action by Committee....................................-25-
12.7 Execution of Documents.................................-25-
12.8 Adoption of Rules......................................-25-
12.9 Responsibilities to Participants.......................-25-
12.10 Alternative Payees in Event of Incapacity..............-25-
12.11 Indemnification by Employers...........................-26-
12.12 Nonparticipation by Interested Member..................-26-
(ii)
<PAGE>
Page No.
--------
Section 13. Adoption, Amendment, or Termination of the Plan........-26-
13.1 Adoption of Plan by Other Employers....................-26-
13.2 Plan Adoption Subject to Qualification.................-26-
13.3 Right to Amend or Terminate............................-26-
Section 14. Miscellaneous Provisions...............................-27-
14.1 Plan Creates No Employment Rights......................-27-
14.2 Nonassignability of Benefits...........................-27-
14.3 Limit of Employer Liability............................-27-
14.4 Treatment of Expenses..................................-27-
14.5 Number and Gender......................................-27-
14.6 Nondiversion of Assets.................................-27-
14.7 Separability of Provisions.............................-27-
14.8 Service of Process.....................................-28-
14.9 Governing State Law....................................-28-
14.10 Employer Contributions Conditioned on Deductibility....-28-
14.11 Unclaimed Accounts.....................................-28-
14.12 Qualified Domestic Relations Order.....................-28-
Section 15. Top-Heavy Provisions...................................-29-
15.1 Top-Heavy Plan.........................................-29-
15.2 Super Top-Heavy Plan...................................-29-
15.3 Definitions............................................-30-
15.4 Top-Heavy Rules of Application.........................-31-
15.5 Top-Heavy Ratio........................................-32-
15.6 Minimum Contributions..................................-32-
15.7 Minimum Vesting........................................-33-
15.8 Top-Heavy Provisions Control in Top-Heavy Plan.........-33-
(iii)
<PAGE>
ALAMOGORDO FEDERAL SAVINGS & LOAN ASSOCIATION
EMPLOYEE STOCK OWNERSHIP PLAN
Section 1. Plan Identity.
1.1 Name. The name of this Plan is "Alamogordo Federal Savings & Loan
Association Employee Stock Ownership Plan."
1.2 Purpose. The purpose of this Plan is to describe the terms and
conditions under which contributions made pursuant to the Plan will be credited
and paid to the Participants and their Beneficiaries.
1.3 Effective Date. The Effective Date of this Plan is January 1, 2000.
1.4 Fiscal Period. This Plan shall be operated on the basis of a
January 1 to December 31 fiscal year for the purpose of keeping the Plan's books
and records and distributing or filing any reports or returns required by law.
1.5 Single Plan for All Employers. This Plan shall be treated as a
single plan with respect to all participating Employers for the purpose of
crediting contributions and forfeitures and distributing benefits, determining
whether there has been any termination of Service, and applying the limitations
set forth in Section 5.
1.6 Interpretation of Provisions. The Employers intend this Plan and
the Trust to be a qualified stock bonus plan under Section 401(a) of the Code
and an employee stock ownership plan within the meaning of Section 407(d)(6) of
ERISA and Section 4975(e)(7) of the Code. The Plan is intended to have its
assets invested primarily in qualifying employer securities of one or more
Employers within the meaning of Section 407(d)(3) of ERISA, and to satisfy any
requirement under ERISA or the Code applicable to such a plan.
Accordingly, the Plan and Trust Agreement shall be interpreted and
applied in a manner consistent with this intent and shall be administered at all
times and in all respects in a nondiscriminatory manner.
Section 2. Definitions.
The following capitalized words and phrases shall have the meanings
specified when used in this Plan and in the Trust Agreement, unless the context
clearly indicates otherwise:
"Account" means a Participant's interest in the assets accumulated
under this Plan as expressed in terms of a separate account balance which is
periodically adjusted to reflect his Employer's contributions, the Plan's
investment experience, and distributions and forfeitures.
"Active Participant" means any Employee who has satisfied the
eligibility requirements of Section 3 and who qualifies as an Active Participant
for a particular Plan Year under Section 4.3.
"Association" means Alamogordo Federal Savings & Loan Association and
any entity which succeeds to the business of Alamogordo Federal Savings & Loan
Association and adopts this Plan as its own pursuant to Section 13.2.
-1-
<PAGE>
"Beneficiary" means the person or persons who are designated by a
Participant to receive benefits payable under the Plan on the Participant's
death. In the absence of any designation or if all the designated Beneficiaries
shall die before the Participant dies or shall die before all benefits have been
paid, the Participant's Beneficiary shall be his surviving Spouse, if any, or
his estate if he is not survived by a Spouse. The Committee may rely upon the
advice of the Participant's executor or administrator as to the identity of the
Participant's Spouse.
"Break in Service" means any Plan Year, or, for the initial eligibility
computation period under Section 3.2, the 12-consecutive month period beginning
on the first day of which an Employee has an Hour of Service, in which an
Employee has 500 or fewer Hours of Service. Solely for this purpose, an Employee
shall be considered employed for his normal hours of paid employment during a
Recognized Absence (said Employee shall not be credited with more than 501 Hours
of Service to avoid a Break in Service), unless he does not resume his Service
at the end of the Recognized Absence. Further, if an Employee is absent for any
period beginning on or after January 1, 1985, (i) by reason of the Employee's
pregnancy, (ii) by reason of the birth of the Employee's child, (iii) by reason
of the placement of a child with the Employee in connection with the Employee's
adoption of the child, or (iv) for purposes of caring for such child for a
period beginning immediately after such birth or placement, the Employee shall
be credited with the Hours of Service which would normally have been credited
but for such absence, up to a maximum of 501 Hours of Service.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the committee responsible for the administration of
this Plan in accordance with Section 12.
"Company" means Alamogordo Financial Corp., the stock holding company
of Association.
"Disability" means only a disability which renders the Participant
totally unable, as a result of bodily or mental disease or injury, to perform
any duties for an Employer for which he is reasonably fitted, which disability
is expected to be permanent or of long and indefinite duration. However, this
term shall not include any disability directly or indirectly resulting from or
related to habitual drunkenness or addiction to narcotics, a criminal act or
attempt, service in the armed forces of any country, an act of war, declared or
undeclared, any injury or disease occurring while compensation to the
Participant is suspended, or any injury which is intentionally self-inflicted.
Further, this term shall apply only if (i) the Participant is sufficiently
disabled to qualify for the payment of disability benefits under the federal
Social Security Act or Veterans Disability Act, or (ii) the Participant's
disability is certified by a physician selected by the Committee. Unless the
Participant is sufficiently disabled to qualify for disability benefits under
the federal Social Security Act or Veterans Disability Act, the Committee may
require the Participant to be appropriately examined from time to time by one or
more physicians chosen by the Committee, and no Participant who refuses to be
examined shall be treated as having a Disability. In any event, the Committee's
good faith decision as to whether a Participant's Service has been terminated by
Disability shall be final and conclusive.
"Early Retirement" means retirement on or after a Participant's
attainment of age 55 and the completion of fifteen years of employment with an
Employer. If the Participant terminates employment before satisfying the age
requirement, but has satisfied the employment requirement, the Participant will
be entitled to elect early retirement upon satisfaction of the age requirement.
-2-
<PAGE>
"Effective Date" means January 1, 2000.
"Employee" means any individual who is or has been employed or
self-employed by an Employer. "Employee" also means an individual employed by a
leasing organization who, pursuant to an agreement between an Employer and the
leasing organization, has performed services for the Employer and any related
persons (within the meaning of Section 414(n)(6) of the Code) on a substantially
full-time basis for more than one year, if such services are performed under the
primary direction or control of the Employer. However, such a "leased employee"
shall not be considered an Employee if (i) he participates in a money purchase
pension plan sponsored by the leasing organization which provides for immediate
participation, immediate full vesting, and an annual contribution of at least 10
percent of the Employee's 415 Compensation, and (ii) leased employees do not
constitute more than 20 percent of the Employer's total work force (including
leased employees, but excluding Highly Paid Employees and any other Employees
who have not performed services for the Employer on a substantially full-time
basis for at least one year).
"Employer" means the Association or any affiliate within the purview of
section 414(b), (c) or (m) and 415(h) of the Code, any other corporation,
partnership, or proprietorship which adopts this Plan with the Association's
consent pursuant to Section 13.1, and any entity which succeeds to the business
of any Employer and adopts the Plan pursuant to Section 13.2.
"Entry Date" means the Effective Date of the Plan and each January 1
and July 1 of each Plan Year after the Effective Date.
"ERISA" means the Employee Retirement Income Security Act of 1974 (P.L.
93-406, as amended).
"415 Compensation"
(a) shall mean wages, as defined in Code Section 3401(a) for
purposes of income tax withholding at the source.
(b) Any elective deferral as defined in Code Section 402(g)(3)
(any Employer contributions made on behalf of a Participant to the
extent not includible in gross income and any Employer contributions to
purchase an annuity contract under Code Section 403(b) under a salary
reduction agreement) and any amount which is contributed or deferred by
the Employer at the election of the Participant and which is not
includible in gross income of the Participant by reason of Code Section
125 (Cafeteria Plan) shall also be included in the definition of 415
Compensation.
(c) 415 Compensation in excess of $160,000 (as indexed) shall
be disregarded for all Participants. For purposes of this sub-section,
the $160,000 limit shall be referred to as the "applicable limit" for
the Plan Year in question. The $160,000 limit shall be adjusted for
increases in the cost of living in accordance with Section
401(a)(17)(B) of the Code, effective for the Plan Year which begins
within the applicable calendar year. For purposes of the applicable
limit, 415 Compensation shall be prorated over short Plan Years.
"Highly Paid Employee" for any Plan Year means an Employee who, during
either of that or the immediately preceding Plan Year was at any time a five
percent owner of the Employer (as defined in Code
-3-
<PAGE>
Section 416(i)(1)) or, during the immediately preceding Plan Year, had 415
Compensation exceeding $80,000 and was among the most highly compensated
one-fifth of all Employees. For this purpose:
(a) "415 Compensation" shall include any amount which is
excludable from the Employee's gross income for tax purposes pursuant
to Sections 125, 402(a)(8), 402(h)(1)(B), or 403(b) of the Code.
(b) The number of Employees in "the most highly compensated
one-fifth of all Employees" shall be determined by taking into account
all individuals working for all related Employer entities described in
the definition of "Service", but excluding any individual who has not
completed six months of Service, who normally works fewer than 17-1/2
hours per week or in fewer than six months per year, who has not
reached age 21, whose employment is covered by a collective bargaining
agreement, or who is a nonresident alien who receives no earned income
from United States sources.
"Hours of Service" means hours to be credited to an Employee under the
following rules:
(a) Each hour for which an Employee is paid or is entitled to
be paid for services to an Employer is an Hour of Service.
(b) Each hour for which an Employee is directly or indirectly
paid or is entitled to be paid for a period of vacation, holidays,
illness, disability, lay-off, jury duty, temporary military duty, or
leave of absence is an Hour of Service. However, except as otherwise
specifically provided, no more than 501 Hours of Service shall be
credited for any single continuous period which an Employee performs no
duties. No more than 501 Hours of Service will be credited under this
paragraph for any single continuous period (whether or not such period
occurs in a single computation period). Further, no Hours of Service
shall be credited on account of payments made solely under a plan
maintained to comply with worker's compensation, unemployment
compensation, or disability insurance laws, or to reimburse an Employee
for medical expenses.
(c) Each hour for which back pay (ignoring any mitigation of
damages) is either awarded or agreed to by an Employer is an Hour of
Service. However, no more than 501 Hours of Service shall be credited
for any single continuous period during which an Employee would not
have performed any duties. The same Hours of Service will not be
credited both under paragraph (a) or (b) as the case may be, and under
this paragraph (c). These hours will be credited to the employee for
the computation period or periods to which the award or agreement
pertains rather than the computation period in which the award
agreement or payment is made.
(d) Hours of Service shall be credited in any one period only
under one of the foregoing paragraphs (a), (b) and (c); an Employee may
not get double credit for the same period.
(e) If an Employer finds it impractical to count the actual
Hours of Service for any class or group of non-hourly Employees, each
Employee in that class or group shall be credited with 45 Hours of
Service for each weekly pay period in which he has at least one Hour of
Service. However, an Employee shall be credited only for his normal
working hours during a paid absence.
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(f) Hours of Service to be credited on account of a payment to
an Employee (including back pay) shall be recorded in the period of
Service for which the payment was made. If the period overlaps two or
more Plan Years, the Hours of Service credit shall be allocated in
proportion to the respective portions of the period included in the
several Plan Years. However, in the case of periods of 31 days or less,
the Administrator may apply a uniform policy of crediting the Hours of
Service to either the first Plan Year or the second.
(g) In all respects an Employee's Hours of Service shall be
counted as required by Section 2530.200b-2(b) and (c) of the Department
of Labor's regulations under Title I of ERISA.
"Investment Fund" means that portion of the Trust Fund consisting of
assets other than Stock. Notwithstanding the above, assets from the Investment
Fund may be used to purchase Stock in the open market or otherwise, or used to
pay on the Stock Obligation, and shares so purchased will be allocated to a
Participant's Stock Fund.
"Normal Retirement" means retirement on or after the Participant's
Normal Retirement Date.
"Normal Retirement Date" means the date on which a Participant attains
age 65 and completes five years of Service.
"Participant" means any Employee who is participating in the Plan, or
who has previously participated in the Plan and still has a balance credited to
his Account.
"Plan Year" means the twelve month period commencing January 1 and
ending December 31, 1998 and each period of 12 consecutive months beginning on
January 1 of each succeeding year.
"Recognized Absence" means a period for which --
(a) an Employer grants an Employee a leave of absence for a
limited period, but only if an Employer grants such leave on a
nondiscriminatory basis; or
(b) an Employee is temporarily laid off by an Employer because
` of a change in business conditions; or
(c) an Employee is on active military duty, but only to the
extent that his employment rights are protected by the Military
Selective Service Act of 1967 (38 U.S.C. Sec. 2021).
"Service" means an Employee's period(s) of employment or
self-employment with an Employer, excluding for initial eligibility purposes any
period in which the individual was a nonresident alien and did not receive from
an Employer any earned income which constituted income from sources within the
United States. An Employee's Service shall include any Service which constitutes
Service with a predecessor Employer within the meaning of Section 414(a) of the
Code. An Employee's Service shall also include any Service with an entity which
is not an Employer, but only either (i) for a period after 1975 in which the
other entity is a member of a controlled group of corporations or is under
common control with other trades and businesses within the meaning of Section
414(b) or 414(c) of the Code, and a member of the controlled group or one of the
trades and businesses is an Employer, (ii) for a period after 1979 in which the
other entity is a member of an affiliated service group within the meaning of
Section 414(m) of the
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Code, and a member of the affiliated service group is an Employer, or (iii) all
Employers aggregated with the Employer under Section 414(o) of the Code (but not
until the Proposed Regulations under Section 414(o) become effective).
Notwithstanding any provision of this Plan to the contrary, contributions,
benefits and service credit with respect to qualified military service will be
provided in accordance with Section 414(u) of the Code.
"Spouse" means the individual, if any, to whom a Participant is
lawfully married on the date benefit payments to the Participant are to begin,
or on the date of the Participant's death, if earlier. A former Spouse shall be
treated as the Spouse or surviving Spouse to the extent provided under a
qualified domestic relations order as described in section 414(p) of the Code.
"Stock" means shares of the Company's voting common stock or preferred
stock meeting the requirements of Section 409(e)(3) of the Code issued by an
Employer which is a member of the same controlled group of corporations within
the meaning of Code Section 414(b).
"Stock Fund" means that portion of the Trust Fund consisting of Stock.
"Stock Obligation" means an indebtedness arising from any extension of
credit to the Plan or the Trust which satisfies the requirements set forth in
Section 6.3 and which was obtained for any or all of the following purposes:
(i) to acquire qualifying Employer securities as defined
in Treasury Regulations ss. 54.4975-12
(ii) to repay such Stock Obligation; or
(iii) to repay a prior exempt loan.
"Trust" or "Trust Fund" means the trust fund created under this Plan.
"Trust Agreement" means the agreement between the Association and the
Trustee concerning the Trust Fund. If any assets of the Trust Fund are held in a
co-mingled trust fund with assets of other qualified retirement plans, "Trust
Agreement" shall be deemed to include the trust agreement governing that
co-mingled trust fund. With respect to the allocation of investment
responsibility for the assets of the Trust Fund, the provisions of Article II of
the Trust Agreement are incorporated herein by reference.
"Trustee" means one or more corporate persons or individuals selected
from time to time by the Association to serve as trustee or co-trustees of the
Trust Fund.
"Unallocated Stock Fund" means that portion of the Stock Fund
consisting of the Plan's holding of Stock which have been acquired in exchange
for one or more Stock obligations and which have not yet been allocated to the
Participant's Accounts in accordance with Section 4.2
"Valuation Date" means the last day of the Plan Year and each other
date as of which the Committee shall determine the investment experience of the
Investment Fund and adjust the Participants' Accounts accordingly.
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"Valuation Period" means the period following a Valuation Date and
ending with the next Valuation Date.
"Vesting Year" means a unit of Service credited to a Participant
pursuant to Section 9.2 for purposes of determining his vested interest in his
Account.
Section 3. Eligibility for Participation.
3.1 Initial Eligibility. An Employee shall enter the Plan as of the
Entry Date coincident with or next following the later of the following dates:
(a) the last day of the Employee's first Eligibility Year, and
(b) the Employee's 21st birthday. However, if an Employee is
not in active Service with an Employer on the date he would otherwise
first enter the Plan, his entry shall be deferred until the next day he
is in Service.
3.2 Definition of Eligibility Year. An "Eligibility Year" means an
applicable eligibility period (as defined below) in which the Employee has
completed 1,000 Hours of Service for the Employer. For this purpose:
(a) an Employee's first "eligibility period" is the
12-consecutive month period beginning on the first day on which he has
an Hour of Service, and
(b) his subsequent eligibility periods will be 12-consecutive
month periods beginning on each January 1 after that first day of
Service.
3.3 Terminated Employees. No Employee shall have any interest or rights
under this Plan if he is never in active Service with an Employer on or after
the Effective Date.
3.4 Certain Employees Ineligible. No Employee shall participate in the
Plan while his Service is covered by a collective bargaining agreement between
an Employer and the Employee's collective bargaining representative if (i)
retirement benefits have been the subject of good faith bargaining between the
Employer and the representative and (ii) the collective bargaining agreement
does not provide for the Employee's participation in the Plan.
3.5 Participation and Reparticipation. Subject to the satisfaction of
the foregoing requirements, an Employee shall participate in the Plan during
each period of his Service from the date on which he first becomes eligible
until his termination. For this purpose, an Employee who returns before five (5)
consecutive Breaks in Service who previously satisfied the initial eligibility
requirements or who returns after five (5) consecutive one year Breaks in
Service with a vested Account balance in the Plan shall re-enter the Plan as of
the date of his return to Service with an Employer.
3.6 Omission of Eligible Employee. If, in any Plan Year, any Employee
who should be included as a Participant in the Plan is erroneously omitted and
discovery of such omission is not made until after a contribution by his
Employer for the year has been made, the Employer shall make a subsequent
contribution with respect to the omitted Employee in the amount which the said
Employer
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would have contributed shall be made regardless of whether or not it is
deductible in whole or in part in any taxable year under applicable provisions
of the Code.
3.7 Inclusion of Ineligible Employee. If, in any Plan Year, any person
who should not have been included as a Participant in the Plan is erroneously
included and discovery of such incorrect inclusion is not made until after a
contribution for the year has been made, the Employer shall not be entitled to
recover the contribution made with respect to the ineligible person regardless
of whether or not a deduction is allowable with respect to the ineligible person
shall constitute a forfeiture for the Plan Year in which the discovery is made.
Section 4. Contributions and Credits.
4.1 Discretionary Contributions. The Employer shall from time to time
contribute, with respect to a Plan Year, such amounts as it may determine from
time to time. The Employer shall have no obligation to contribute any amount
under this Plan except as so determined in its sole discretion. The Employer's
contributions and available forfeitures for a Plan Year shall be credited as of
the last day of the year to the Accounts of the Active Participants in
proportion to their amounts of 415 Compensation.
4.2 Contributions for Stock Obligations. If the Trustee, upon
instructions from the Committee, incurs any Stock Obligation upon the purchase
of Stock, the Employer may contribute for each Plan Year an amount sufficient to
cover all payments of principal and interest as they come due under the terms of
the Stock Obligation. If there is more than one Stock Obligation, the Employer
shall designate the one to which any contribution is to be applied. Investment
earnings realized on Employer contributions and any dividends paid by the
Employer on Stock held in the Unallocated Stock Account, shall be applied to the
Stock Obligation related to that Stock, subject to Section 7.2.
In each Plan Year in which Employer contributions, earnings on
contributions, or dividends on unallocated Stock are used as payments under a
Stock Obligation, a certain number of shares of the Stock acquired with that
Stock Obligation which is then held in the Unallocated Stock Fund shall be
released for allocation among the Participants. The number of shares released
shall bear the same ratio to the total number of those shares then held in the
Unallocated Stock Fund (prior to the release) as (i) the principal and interest
payments made on the Stock Obligation in the current Plan Year bears to (ii) the
sum of (i) above, and the remaining principal and interest payments required (or
projected to be required on the basis of the interest rate in effect at the end
of the Plan Year) to satisfy the Stock Obligation.
At the direction of the Committee, the current and projected payments
of interest under a Stock Obligation may be ignored in calculating the number of
shares to be released in each year if (i) the Stock Obligation provides for
annual payments of principal and interest at a cumulative rate that is not less
rapid at any time than level annual payments of such amounts for 10 years, (ii)
the interest included in any payment is ignored only to the extent that it would
be determined to be interest under standard loan amortization tables, and (iii)
the term of the Stock Obligation, by reason of renewal, extension, or
refinancing, has not exceeded 10 years from the original acquisition of the
Stock.
4.3 Definitions Related to Contributions. For the purposes of this
Plan, the following terms have the meanings specified:
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"Active Participant" means a Participant who has satisfied the
eligibility requirements under Section 3 and who has at least 1000 Hours of
Service during the current Plan Year. However, a Participant shall not qualify
as an Active Participant unless (i) he is in active Service with an Employer as
of the last day of the Plan Year, or (ii) he is on a Recognized Absence as of
that date, or (iii) his Service terminated during the Plan Year by reason of
Disability, death, Early or Normal Retirement.
In the event a Plan Year is a period of less than 12 months for any
reason, then 415 Compensation for the short period shall not exceed the pro rata
portion of this limit created by multiplying a fraction which is the number of
months in the short period divided by twelve times the annual compensation
limit.
4.4 Conditions as to Contributions. Employers' contributions shall in
all events be subject to the limitations set forth in Section 5. Contributions
may be made in the form of cash, or securities and other property to the extent
permissible under ERISA, including Stock, and shall be held by the Trustee in
accordance with the Trust Agreement. In addition to the provisions of Section
13.3 for the return of an Employer's contributions in connection with a failure
of the Plan to qualify initially under the Code, any amount contributed by an
Employer due to a good faith mistake of fact, or based upon a good faith but
erroneous determination of its deductibility under Section 404 of the Code,
shall be returned to the Employer within one year after the date on which the
contribution was originally made, or within one year after its nondeductibility
has been finally determined. However, the amount to be returned shall be reduced
to take account of any adverse investment experience within the Trust Fund in
order that the balance credited to each Participant's Account is not less that
it would have been if the contribution had never been made.
Section 5. Limitations on Contributions and Allocations.
5.1 Limitation on Annual Additions. Notwithstanding anything herein to
the contrary, allocation of Employer contributions for any Plan Year shall be
subject to the following:
5.1-1If allocation of Employer contributions in accordance
with Section 4.1 will result in an allocation of more than one-third
the total contributions for a Plan Year to the Accounts of Highly Paid
Employees, then allocation of such amount shall be adjusted so that
such excess will not occur.
5.1-2After adjustment, if any, required by the preceding
paragraph, the annual additions during any Plan Year to any
Participant's Account under this and any other defined contribution
plans maintained by the Employer or an affiliate (within the purview of
Section 414(b), (c) and (m) and Section 415(h) of the Code, which
affiliate shall be deemed the Employer for this purpose) shall not
exceed the lesser of $30,000 (or such other dollar amount which results
from cost-of-living adjustments under Section 415(d) of the Code) or
"25 percent of the Participant's 415 Compensation for such limitation
year." In the event that annual additions exceed the aforesaid
limitations, they shall be reduced in the following priority:
(i) If the Participant is covered by the Plan at the end of
the Plan Year, any excess amount at the end of the Plan Year that
cannot be allocated to the Participant's Account shall be used to
reduce the employer contribution for such Participant in the next
limitation year and any succeeding limitation years if necessary.
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(ii) If the Participant is not covered by the Plan at the end
of the Plan Year, the excess amount will be held unallocated in a
suspense account. The suspense account will be applied to reduce future
Employer contributions for all remaining Participants in the next
limitation year and each succeeding limitation year if necessary.
(iii)If a suspense account is in existence at any time during
a limitation year, it will not participate in any allocation of
investment gains and losses. All amounts held in suspense accounts must
be allocated to Participant's Accounts before any contributions may be
made to the Plan for the limitation year.
(iv) If a suspense account exists at the time of Plan
termination, amounts held in the suspense account that cannot be
allocated shall revert to the Employer.
5.1-3 For purposes of this Section 5.1 and the following
Section 5.2, the "annual addition" to a Participant's Accounts means
the sum of (i) Employer contributions, (ii) Employee contributions, if
any, and (iii) forfeitures. Annual additions to a defined contribution
plan also include amounts allocated, after March 31, 1984, to an
individual medical account, as defined in Section 415(l)(2) of the
Internal Revenue Code, which is part of a pension or annuity plan
maintained by the Employer, amounts derived from contributions paid or
accrued after December 31, 1985, in taxable years ending after such
date, which are attributable to post-retirement medical benefits
allocated to the separate account of a Key Employee under a welfare
benefit fund, as defined in Section 419A(d) of the Internal Revenue
Code, maintained by the Employer. For these purposes, annual additions
to a defined contribution plan shall not include the allocation of the
excess amounts remaining in the Unallocated Stock Fund subsequent to a
sale of stock from such fund in accordance with a transaction described
in Section 8.1 of the Plan. The $30,000 limitations referred to shall,
for each limitation year ending after 1988, be automatically adjusted
to the new dollar limitations determined by the Commissioner of
Internal Revenue for the calendar year beginning in that limitation
year.
5.1-4.........Notwithstanding the foregoing, if no more than
one-third of the Employer contributions to the Plan for a year which
are deductible under Section 404(a)(9) of the Code are allocated to
Highly Paid Employees (within the meaning of Section 414(q) of the
Internal Revenue Code), the limitations imposed herein shall not apply
to:
(i) forfeitures of Employer securities (within the meaning of
Section 409 of the Code) under the Plan if such securities were
acquired with the proceeds of a loan described in Section 404(a)(9)(A)
of the Code), or
(ii) Employer contributions to the Plan which are deductible
under Section 404(a)(9)(B) and charged against a Participant's Account.
5.1-5If the Employer contributes amounts, on behalf of
Employees covered by this Plan, to other "defined contribution plans"
as defined in Section 3(34) of ERISA, the limitation on annual
additions provided in this Section shall be applied to annual additions
in the aggregate to this Plan and to such other plans. Reduction of
annual additions, where required, shall be accomplished first by
reductions under such other plan pursuant to the directions of the
named Fiduciary for administration of such other plans or under
priorities, if any, established under the terms of such
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other plans and then by allocating any remaining excess for this Plan
in the manner and priority set out above with respect to this Plan.
5.1-6 A limitation year shall mean each 12 consecutive month
period beginning each January 1.
5.2 Coordinated Limitation With Other Plans. Aside from the limitation
prescribed by Section 5.1 with respect to the annual addition to a Participant's
Accounts for any single limitation year, if a Participant has ever participated
in one or more defined benefit plans maintained by an Employer or an affiliate,
then the accrued benefit shall be limited so that the sum of his defined plan
fraction and his defined contribution plan fraction does not exceed one. For
this purpose:
5.2-1 A Participant's defined contribution plan fraction with
respect to a Plan Year shall be a fraction, (i) the numerator of which
is the sum of the annual additions to his Accounts through the current
year, and (ii) the denominator of which is the sum of the lesser of the
following amounts -A- and -B- determined for the current limitation
year and each prior limitation year of Service with an Employer: -A- is
1.25 times the dollar limit in effect for the year under Section
415(c)(1)(A) of the Code, or 1.0 times such dollar limitation if the
Plan is super top-heavy, and -B- is 35 percent of the Participant's 415
Compensation for such year. Further, if the Participant participated in
any related defined contribution plan in any years beginning before
1976, any excess of the sum of the actual annual additions to the
Participant's Accounts for those years over the maximum annual
additions which could have been made in accordance with Section 5.1
shall be ignored, and voluntary contributions by the Participant during
those years shall be taken into account as to each such year only to
the extent that his average annual voluntary contribution in those
years exceeded 10 percent of his average annual 415 Compensation in
those years.
5.2-2 A Participant's defined benefit plan fraction with
respect to a limitation year shall be a fraction, (i) the numerator of
which is his projected annual benefit payable at normal retirement
under the Employers' defined benefit plans, and (ii) the denominator of
which is the lesser of (a) 1.25 times $90,000, or 1.0 times such dollar
limitation if the Plan is super top-heavy, and (b) 1.4 times the
Participant's average 415 Compensation during his highest-paid three
consecutive limitation years.
5.3 Effect of Limitations. The Committee shall take whatever action may
be necessary from time to time to assure compliance with the limitations set
forth in Section 5.1 and 5.2. Specifically, the Committee shall see that each
Employer restrict its contributions for any Plan Year to an amount which, taking
into account the amount of available forfeitures, may be completely allocated to
the Participants consistent with those limitations. Where the limitations would
otherwise be exceeded by any Participant, further allocations to the Participant
shall be curtailed to the extent necessary to satisfy the limitations. Where an
excessive amount is contributed on account of a mistake as to one or more
Participants' compensation, or there is an amount of forfeitures which may not
be credited in the Plan Year in which it becomes available, the amount shall be
corrected in accordance with Section 5.1-2 of the Plan.
5.4 Limitations as to Certain Participants. Aside from the limitations
set forth in Section 5.1 and 5.2, if the Plan acquires any Stock in a
transaction as to which a selling shareholder or the estate of a deceased
shareholder is claiming the benefit of Section 1042 of the Code, the Committee
shall see that
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none of such Stock, and no other assets in lieu of such Stock, are allocated to
the Accounts of certain Participants in order to comply with Section 409(n) of
the Code.
This restriction shall apply at all times to a Participant who owns
(taking into account the attribution rules under Section 318(a) of the Code,
without regard to the exception for employee plan trusts in Section
318(a)(2)(B)(i) more than 25 percent of any class of stock of a corporation
which issued the Stock acquired by the Plan, or another corporation within the
same controlled group, as defined in Section 409(l)(4) of the Code (any such
class of stock hereafter called a "Related Class"). For this purpose, a
Participant who owns more than 25 percent of any Related Class at any time
within the one year preceding the Plan's purchase of the Stock shall be subject
to the restriction as to all allocations of the Stock, but any other Participant
shall be subject to the restriction only as to allocations which occur at a time
when he owns more than 25 percent of any Related Class.
Further, this restriction shall apply to the selling shareholder
claiming the benefit of Section 1042 and any other Participant who is related to
such a shareholder within the meaning of Section 267(b) of the Code, during the
period beginning on the date of sale and ending on the later of (1) the date
that is ten years after the date of sale, or (2) the date of the Plan allocation
attributable to the final payment of acquisition indebtedness incurred in
connection with the sale.
This restriction shall not apply to any Participant who is a lineal
descendant of a selling shareholder if the aggregate amounts allocated under the
Plan for the benefit of all such descendants do not exceed five percent of the
Stock acquired from the shareholder.
Section 6. Trust Fund and Its Investment.
6.1 Creation of Trust Fund. All amounts received under the Plan from
Employers and investments shall be held as the Trust Fund pursuant to the terms
of this Plan and of the Trust Agreement between the Association and the Trustee.
The benefits described in this Plan shall be payable only from the assets of the
Trust Fund, and none of the Association, any other Employer, its board of
directors or trustees, its stockholders, its officers, its employees, the
Committee, and the Trustee shall be liable for payment of any benefit under this
Plan except from the Trust Fund.
6.2 Stock Fund and Investment Fund. The Trust Fund held by the Trustee
shall be divided into the Stock Fund, consisting entirely of Stock, and the
Investment Fund, consisting of all assets of the Trust other than Stock. The
Trustee shall have no investment responsibility for the Stock Fund, but shall
accept any Employer contributions made in the form of Stock, and shall acquire,
sell, exchange, distribute, and otherwise deal with and dispose of Stock in
accordance with the instructions of the Committee. The Trustee shall have full
responsibility for the investment of the Investment Fund, except to the extent
such responsibility may be delegated from time to time to one or more investment
managers pursuant to Section 2.2 of the Trust Agreement, or to the extent the
Committee directs the Trustee to purchase Stock with the assets in the
Investment Fund.
6.3 Acquisition of Stock. From time to time the Committee may, in its
sole discretion, direct the Trustee to acquire Stock from the issuing Employer
or from shareholders, including shareholders who are or have been Employees,
Participants, or fiduciaries with respect to the Plan. The Trustee shall pay for
such Stock no more than its fair market value, which shall be determined
conclusively by the Committee pursuant to Section 12.4. The Committee may direct
the Trustee to finance the acquisition of
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Stock by incurring or assuming indebtedness to the seller or another party which
indebtedness shall be called a "Stock Obligation". The term "Stock Obligation"
shall refer to a loan made to the Plan by a disqualified person within the
meaning of Section 4975(e)(2) of the Code, or a loan to the Plan which is
guaranteed by a disqualified person. A Stock Obligation includes a direct loan
of cash, a purchase-money transaction, and an assumption of an obligation of a
tax-qualified employee stock ownership plan under Section 4975(e)(7) of the Code
("ESOP"). For these purposes, the term "guarantee" shall include an unsecured
guarantee and the use of assets of a disqualified person as collateral for a
loan, even though the use of assets may not be a guarantee under applicable
state law. An amendment of a Stock Obligation in order to qualify as an "exempt
loan" is not a refinancing of the Stock Obligation or the making of another
Stock Obligation. The term "exempt loan" refers to a loan that satisfies the
provisions of this paragraph. A "non-exempt loan" fails to satisfy this
paragraph. Any Stock Obligation shall be subject to the following conditions and
limitations:
6.3-1 A Stock Obligation shall be for a specific term, shall
not be payable on demand except in the event of default, and shall bear
a reasonable rate of interest.
6.3-2 A Stock Obligation may, but need not, be secured by a
collateral pledge of either the Stock acquired in exchange for the
Stock Obligation, or the Stock previously pledged in connection with a
prior Stock Obligation which is being repaid with the proceeds of the
current Stock Obligation. No other assets of the Plan and Trust may be
used as collateral for a Stock Obligation, and no creditor under a
Stock Obligation shall have any right or recourse to any Plan and Trust
assets other than Stock remaining subject to a collateral pledge.
6.3-3 Any pledge of Stock to secure a Stock Obligation must
provide for the release of pledged Stock in connection with payments on
the Stock obligations in the ratio prescribed in Section 4.2.
6.3-4 Repayments of principal and interest on any Stock
Obligation shall be made by the Trustee only from Employer cash
contributions designated for such payments, from earnings on such
contributions, and from cash dividends received on Stock, in the last
case, however, subject to the further requirements of Section 7.2.
6.3-5In the event of default of a Stock Obligation, the value
of Plan assets transferred in satisfaction of the Stock Obligation must
not exceed the amount of the default. If the lender is a disqualified
person within the meaning of Section 4975 of the Code, a Stock
Obligation must provide for a transfer of Plan assets upon default only
upon and to the extent of the failure of the Plan to meet the payment
schedule of said Stock Obligation. For purposes of this paragraph, the
making of a guarantee does not make a person a lender.
6.4 Participants' Option to Diversify. The Committee shall provide for
a procedure under which each Participant may, during the qualified election
period, elect to "diversify" a portion of the Employer Stock allocated to his
Account, as provided in Section 401(a)(28)(B) of the Code. An election to
diversity must be made on the prescribed form and filed with the Committee
within the period specified herein. For each of the first five (5) Plan years in
the qualified election period, the Participant may elect to diversify an amount
which does not exceed 25% of the number of shares allocated to his Account since
the inception of the Plan, less all shares with respect to which an election
under this Section has already been made. For the last year of the qualified
election period, the Participant may elect to have up to 50
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percent of the value of his Account committed to other investments, less all
shares with respect to which an election under this Section has already been
made. The term "qualified election period" shall mean the six (6) Plan Year
period beginning with the first Plan Year in which a Participant has both
attained age 55 and completed 10 years of participation in the Plan. A
Participant's election to diversify his Account may be made within each year of
the qualified election period and shall continue for the 90-day period
immediately following the last day of each year in the qualified election
period. Once a Participant makes such election, the Plan must complete
diversification in accordance with such election within 90 days after the end of
the period during which the election could be made for the Plan Year. In the
discretion of the Committee, the Plan may satisfy the diversification
requirement by any of the following methods:
6.4-1.The Plan may distribute all or part of the amount
subject to the diversification election.
6.4-2The Plan may offer the Participant at least three other
distinct investment options, if available under the Plan. The other
investment options shall satisfy the requirements of Regulations under
Section 404(c) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA").
6.4-3...The Plan may transfer the portion of the Participant's
Account subject to the diversification election to another qualified
defined contribution plan of the Employer that offers at least three
investment options satisfying the requirements of the Regulations under
Section 404(c) of ERISA.
Section 7. Voting Rights and Dividends on Stock.
7.1 Voting and Tendering of Stock. The Trustee generally shall vote all
shares of Stock held under the Plan in accordance with the written instructions
of the Committee. However, if any Employer has registration-type class of
securities within the meaning of Section 409(e)(4) of the Code, or if a matter
submitted to the holders of the Stock involves a merger, consolidation,
recapitalization, reclassification, liquidation, dissolution, or sale of
substantially all assets of an entity, then (i) the shares of Stock which have
been allocated to Participants' Accounts shall be voted by the Trustee in
accordance with the Participants' written instructions, and (ii) the Trustee
shall vote any unallocated Stock and allocated Stock for which it has received
no voting instructions in the same proportions as it votes the allocated Stock
for which it has received instructions from Participants; provided, however,
that if an exempt loan, as defined in Section 4975(d) of the Code, is
outstanding and the Plan is in default on such exempt loan, as default is
defined in the loan documents, then to the extent that such loan documents
require the lender to exercise voting rights with respect to the unallocated
shares, the loan documents will prevail. In the event no shares of Stock have
been allocated to Participants' Accounts at the time Stock is to be voted and
any exempt loan which may be outstanding is not in default, each Participant
shall be deemed to have one share of Stock allocated to his or her Account for
the sole purpose of providing the Trustee with voting instructions.
Notwithstanding any provision hereunder to the contrary, all
unallocated shares of Stock must be voted by the Trustee in a manner determined
by the Trustee to be for the exclusive benefit of the Participants and
Beneficiaries. Whenever such voting rights are to be exercised, the Employers
shall provide the Trustee, in a timely manner, with the same notices and other
materials as are provided to other holders of the Stock, which the Trustee shall
distribute to the Participants. The Participants shall be provided with adequate
opportunity to deliver their instructions to the Trustee regarding the voting of
Stock
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allocated to their Accounts. The instructions of the Participants' with respect
to the voting of allocated shares hereunder shall be confidential.
7.1-1 In the event of a tender offer, Stock shall be tendered
by the Trustee in the same manner as set forth above with respect to
the voting of Stock. Notwithstanding any provision hereunder to the
contrary, Stock must be tendered by the Trustee in a manner determined
by the Trustee to be for the exclusive benefit of the Participants and
Beneficiaries.
7.2 Dividends on Stock. Dividends on Stock which are received by the
Trustee in the form of additional Stock shall be retained in the Stock Fund, and
shall be allocated among the Participant's Accounts and the Unallocated Stock
Fund in accordance with their holdings of the Stock on which the dividends have
been paid. Dividends on Stock credited to Participants' Accounts which are
received by the Trustee in the form of cash shall, at the direction of the
Employer paying the dividends, either (i) be credited to the Accounts in
accordance with Section 8.3 and invested as part of the Investment Fund, (ii) be
distributed immediately to the Participants in proportion with the Participants'
Stock Fund Account balance (iii) be distributed to the Participants within 90
days of the close of the Plan Year in which paid in proportion with the
Participants' Stock Fund Account balance or (iv) be used to make payments on the
Stock Obligation. If dividends on Stock allocated to a Participant's Account are
used to repay the Stock Obligation, Stock with a fair market value equal to the
dividends so used must be allocated to such Participant's Account in lieu of the
dividends. Dividends on Stock held in the Unallocated Stock Fund which are
received by the Trustee in the form of cash shall be allocated to Participants'
Investment Fund Accounts (pro rata based on the Participant's Account balance in
relation to all Participants' Account balances) and shall be applied as soon as
practicable to payments of principal and interest under the Stock Obligation
incurred with the purchase of the Stock.
Section 8. Adjustments to Accounts.
8.1 Adjustments for Transactions. An Employer contribution pursuant to
Section 4.1 shall be credited to the Participants' Accounts as of the last day
of the Plan Year for which it is contributed, in accordance with Section 4.1.
Stock released from the Unallocated Stock Fund upon the Trust's repayment of a
Stock Obligation pursuant to Section 4.2 shall be credited to the Participants'
Accounts as of the last day of the Plan Year in which the repayment occurred,
pro rata based on the cash applied from such Participant's Account relative to
the cash applied from all Participants' Accounts. Any excess amounts remaining
from the use of proceeds of a sale of Stock from the Unallocated Stock Fund to
repay a Stock Obligation shall be allocated as earnings of the Plan as of the
last day of the Plan Year in which the repayment occurred among the
Participants' Accounts in proportion to the opening balance in each Account. Any
benefit which is paid to a Participant or Beneficiary pursuant to Section 10
shall be charged to the Participant's Account as of the first day of the
Valuation Period in which it is paid. Any forfeiture or restoral shall be
charged or credited to the Participant's Account as of the first day of the
Valuation Period in which the forfeiture or restoral occurs pursuant to Section
9.6.
8.2 Valuation of Investment Fund. As of each Valuation Date, the
Trustee shall prepare a balance sheet of the Investment Fund, recording each
asset (including any contribution receivable from an Employer) and liability at
its fair market value. Any liability with respect to short positions or options
and any item of accrued income or expense and unrealized appreciation or
depreciation shall be included; provided, however, that such an item may be
estimated or excluded if it is not readily ascertainable unless estimating or
excluding it would result in a material distortion. The Committee shall then
determine the
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net gain or loss of the Investment Fund since the preceding Valuation Date,
which shall mean the entire income of the Investment Fund, including realized
and unrealized capital gains and losses, net of any expenses to be charged to
the general Investment Fund and excluding any contributions by the Employer. The
determination of gain or loss shall be consistent with the balance sheets of the
Investment Fund for the current and preceding Valuation Dates.
8.3 Adjustments for Investment Experience. Any net gain or loss of the
Investment Fund during a Valuation Period, as determined pursuant to Section
8.2, shall be allocated as of the last day of the Valuation Period among the
Participants' Accounts in proportion to the opening balance in each Account, as
adjusted for benefit payments and forfeitures during the Valuation Period,
without regard to whatever Stock may be credited to an Account. Any cash
dividends received on Stock credited to Participant's Accounts shall be
allocated as of the last day of the Valuation Period among the Participants'
Accounts based on the opening balance in each Participant's Stock Fund Account.
Section 9. Vesting of Participants' Interests.
9.1 [Intentionally Omitted]
9.2 Computation of Vesting Years. For purposes of this Plan, a "Vesting
Year" means generally a Plan Year in which an Employee has at least 1,000 Hours
of Service, beginning with the first Plan Year in which the Employee has
completed an Hour of Service with the Employer, and including Service with other
Employers as provided in the definition of "Service." However, a Participant's
Vesting Years shall be computed subject to the following conditions and
qualifications:
9.2-1 A Participant's Vesting Years shall not include any
Service prior to the date on which an Employee attains age 18.
9.2-2 A Participant's vested interest in his Account
accumulated before five (5) consecutive Breaks in Service shall be
determined without regard to any Service after such five consecutive
Breaks in Service. Further, if a Participant has five (5) consecutive
Breaks in Service before his interest in his Account has become vested
to some extent, pre-Break years of Service shall not be required to be
taken into account for purposes of determining his post-Break vested
percentage.
9.2-3 In the case of a Participant who has 5 or more
consecutive 1-year Breaks in Service, the Participant's pre-Break
Service will count in vesting of the Employer-derived post- break
accrued benefit only if either:
(i) such Participant has any nonforfeitable interest in
the accrued benefit attributable to Employer
contributions at the time of separation from Service,
or
(ii) upon returning to Service the number of consecutive
1-year Breaks in Service is less than the number of
years of Service.
9.2-4 Unless otherwise specifically excluded, a Participant's
Vesting Years shall include any period of active military duty to the
extent required by the Military Selective Service Act of 1967 (38
U.S.C. Section 2021).
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9.2-5 If any amendment changes the vesting schedule, including
an automatic change to or from a top-heavy vesting schedule, any
Participant with three (3) or more Vesting Years may, by filing a
written request with the Employer, elect to have his vested percentage
computed under the vesting schedule in effect prior to the amendment.
The election period must begin not later than the later of sixty (60)
days after the amendment is adopted, the amendment becomes effective,
or the Participant is issued written notice of the amendment by the
Employer or the Committee.
9.3 Full Vesting Upon Certain Events.
9.3-1 Notwithstanding Section 9.1, a Participant's interest in his
Account shall fully vest on the Participant's Normal Retirement Date. The
Participant's interest shall also fully vest in the event that his Service is
terminated by Early Retirement, Disability or by death.
9.3-2 The Participant's interest in his Account shall also fully vest
in the event of a "Change in Control" of the Association, or the Company. For
these purposes, "Change in Control" shall mean an event of a nature that; (i)
would be required to be reported in response to Item 1a of the current report on
Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (the "Exchange Act'); or (ii) results in a
Change in Control of the Association or the Company within the meaning of the
Bank Holding Company Act of 1956, as amended, and applicable rules and
regulations promulgated thereunder as in effect at the time of the Change in
Control (collectively, the BHCA"); or (iii) without limitation such a Change in
Control shall be deemed to have occurred at such time as (a) any "Person' (as
the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Association or the Company
representing 25% or more of the Association's or the Company's outstanding
securities except for any securities of the Association purchased by the Company
in connection with the conversion of the Association to the stock form and any
securities purchased by the Association's employee stock ownership plan and
trust; or (b) individuals who constitute the Board on the date hereof (the
"Incumbent Board") cease for any reason to constitute at least a majority
thereof, provided, however, that this sub-section (b) shall not apply if the
Incumbent Board is replaced by the appointment by a Federal banking agency of a
conservator or receiver for the Association and, provided further that any
person becoming a director subsequent to the date hereof whose election was
approved by a vote of at least two-thirds of the directors comprising the
Incumbent Board or whose nomination for election by the Company's stockholders
was approved by the same Nominating Committee serving under an Incumbent Board,
shall be, for purposes of this clause (b), considered as though he were a member
of the Incumbent Board; or (c) a reorganization, merger, consolidation, sale of
all or substantially all the assets of the Association or the Company, or
similar transaction in which the Association or Company is not the surviving
institution occurs.
9.3-3 Upon a Change in Control described in 9.3-2, the Plan shall be
terminated and the Plan Administrator shall direct the Trustee
to sell a sufficient amount of Stock from the Unallocated
Stock Fund to repay any outstanding Stock Obligation in full.
The proceeds of such sale shall be used to repay such Stock
Obligation. After repayment of the Stock Obligation, all
remaining shares in the Unallocated Stock Fund (or the
proceeds thereof, if applicable) shall be treated as earnings
and shall be allocated in accordance with the requirements of
Section 8.1.
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9.4 Full Vesting Upon Plan Termination. Notwithstanding Section 9.1, a
Participant's interest in his Account shall fully vest upon termination of this
Plan or upon the permanent and complete discontinuance of contributions by his
Employer. In the event of a partial termination, the interest of each affected
Participant shall fully vest with respect to that part of the Plan which is
terminated.
9.5 Forfeiture, Repayment, and Restoral. If a Participant's Service
terminates before his interest in his Account is fully vested, that portion
which has not vested shall be forfeited if he either (i) receives a distribution
of his entire vested interest pursuant to Section 10.1, or (ii) incurs five (5)
consecutive one year Breaks in Service. If a Participant's Service terminates
prior to having any portion of his Account become vested, such Participant shall
be deemed to have received a distribution of his vested interest as of the
Valuation Date next following his termination of Service.
If a Participant who has received his entire vested interest returns to
Service before he has five (5) consecutive Breaks in Service, he may repay to
the Trustee an amount equal to the distribution. The Participant may repay such
amount at any time within five years after he has returned to Service. The
amount shall be credited to his Account at the time it is repaid; an additional
amount equal to that portion of his Account which was previously forfeited shall
be restored to his Account at the same time from other Employees' forfeitures
and, if such forfeitures are insufficient, from a special contribution by his
Employer for that year. A Participant who was deemed to have received a
distribution of his vested interest in the Plan shall have his Account restored
as of the first day on which he performs an Hour of Service after his return.
9.6 Accounting for Forfeitures. If a portion of a Participant's Account
is forfeited, Stock allocated to said Participant's Account shall be forfeited
only after other assets are forfeited. If interests in more than one class of
Stock have been allocated to a Participant's Account, the Participant must be
treated as forfeiting the same proportion of each class of Stock. A forfeiture
shall be charged to the Participant's Account as of the first day of the first
Valuation Period in which the forfeiture becomes certain pursuant to Section
9.5. Except as otherwise provided in that Section, a forfeiture shall be added
to the contributions of the terminated Participant's Employer which are to be
credited to other Participants pursuant to Section 4.1 as of the last day of the
Plan Year in which the forfeiture becomes certain.
9.7 Vesting and Nonforfeitability. A Participant's interest in his
Account which has become vested shall be nonforfeitable for any reason.
Section 10. Payment of Benefits.
10.1 Benefits for Participants. For a Participant whose Service ends
for any reason, distribution will be made to or for the benefit of the
Participant or, in the case of the Participant's death, his Beneficiary, by
either, or a combination of the following methods:
10.1.1 By payment in a lump sum, in accordance with Section
10.2; or
10.1.2 By payment in a series of substantially equal annual
installments over a period not to exceed five (5)
years, provided the maximum period over which the
distribution of a Participant's Account may be made
shall be extended by 1 year, up to five (5)
additional years, for each $145,000 (or fraction
thereof) by which such Participant's Account balance
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exceeds $725,000 (the aforementioned figures are subject to
cost-of-living adjustments prescribed by the Secretary of the
Treasury pursuant to Section 409(o)(2) of the Code).
The Participant shall elect the manner in which his vested
Account balance will be distributed to him. If a Participant so
desires, he may direct how his benefits are to be paid to his
Beneficiary. If a deceased Participant did not file a direction with
the Committee, the Participant's benefits shall be distributed to his
Beneficiary in a lump sum. Notwithstanding any provision to the
contrary, if the value of a Participant's vested Account balance at the
time of any distribution, does not equal or exceed $5,000, then such
Participant's vested Account shall be distributed in a lump sum within
60 days after the end of the Plan Year in which employment terminates.
If the value of a Participant's vested Account balance is, or has ever
been, in excess of $5,000, then his benefits shall not be paid prior to
the later of the time he has attained Normal Retirement or age 62
unless he elects an early payment date in a written election filed with
the Committee. A Participant may modify such an election at any time,
provided any new benefit payment date is at least 30 days after a
modified election is delivered to the Committee. Failure of a
Participant to consent to a distribution prior to the later of Normal
Retirement or age 62 shall be deemed to be an election to defer
commencement of payment of any benefit under this section.
10.2 Time for Distribution.
10.2.1 If the Participant and, if applicable, with the consent
of the Participant's spouse, elects the distribution of the
Participant's Account balance in the Plan, distribution shall commence
as soon as practicable following his termination of Service, but no
later than one year after the close of the Plan Year:
(i) in which the Participant separates from service by
reason of attainment of Normal Retirement Age under
the Plan, Disability, or death; or
(ii) which is the fifth Plan Year following the year in
which the Participant resigns or is dismissed, unless
he is reemployed before such date.
10.2.2 Unless the Participant elects otherwise, the
distribution of the balance of a Participant's Account shall commence not later
than the 60th day after the latest of the close of the Plan Year in which -
(i) the Participant attains the age of 65;
(ii) occurs the tenth anniversary of the year in
which the Participant commenced participation in the Plan; or
(iii) the Participant terminates his Service with the
Employer.
10.2.3 Notwithstanding anything to the contrary, (1) with
respect to a 5-percent owner (as defined in Code Section 416),
distribution of a Participant's Account shall commence (whether or not
he remains in the employ of the Employer) not later than the April 1 of
the calendar year next following the calendar year in which the
Participant attains age 70- 1/2, and (2) with respect to all other
Participants, payment of a Participant's benefit will commence not
later than April 1
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of the calendar year following the calendar year in which the
Participant attains age 70-1/2, or, if later, the year in which the
Participant retires. A Participant's benefit from that portion of his
Account committed to the Investment Fund shall be calculated on the
basis of the most recent Valuation Date before the date of payment.
10.2.4 Distribution of a Participant's Account balance after
his death shall comply with the following requirements:
(i) If a Participant dies before his distributions
have commenced, distribution of his Account to his Beneficiary
shall commence not later than one year after the end of the
Plan Year in which the Participant died, however, if the
Participant's Beneficiary is his surviving Spouse,
distributions may commence on the date on which the
Participant would have attained age 70-1/2. In either case,
distributions shall be completed within five years after the
they commence.
(ii) If the Participant dies after distribution has
commenced pursuant to Section 10.1.2 but before his entire
interest in the Plan has been distributed to him, then the
remaining portion of that interest shall, in accordance with
Section 401(a)(9) of the Code, be distributed at least as
rapidly as under the method of distribution being used under
Section 10.1.2 at the date of his death.
(iii) If a married Participant dies before his
benefit payments begin, then unless he has specifically
elected otherwise the Committee shall cause the balance in his
Account to be paid to his Spouse. No election by a married
Participant of a different Beneficiary shall be valid unless
the election is accompanied by the Spouse's written consent,
which (i) must acknowledge the effect of the election, (ii)
must explicitly provide either that the designated Beneficiary
may not subsequently be changed by the Participant without the
Spouse's further consent, or that it may be changed without
such consent, and (iii) must be witnessed by the Committee,
its representative, or a notary public. (This requirement
shall not apply if the Participant establishes to the
Committee's satisfaction that the Spouse may not be located.)
10.3 Marital Status. The Committee shall from time to time take
whatever steps it deems appropriate to keep informed of each Participant's
marital status. Each Employer shall provide the Committee with the most reliable
information in the Employer's possession regarding its Participants' marital
status, and the Committee may, in its discretion, require a notarized affidavit
from any Participant as to his marital status. The Committee, the Plan, the
Trustee, and the Employers shall be fully protected and discharged from any
liability to the extent of any benefit payments made as a result of the
Committee's good faith and reasonable reliance upon information obtained from a
Participant and his Employer as to his marital status.
10.4 Delay in Benefit Determination. If the Committee is unable to
determine the benefits payable to a Participant or Beneficiary on or before the
latest date prescribed for payment pursuant to Section 10.1 or 10.2, the
benefits shall in any event be paid within 60 days after they can first be
determined, with whatever makeup payments may be appropriate in view of the
delay.
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10.5 Accounting for Benefit Payments. Any benefit payment shall be
charged to the Participant's Account as of the first day of the Valuation Period
in which the payment is made.
10.6 Options to Receive and Sell Stock. Unless ownership of virtually
all Stock is restricted to active Employees and qualified retirement plans for
the benefit of Employees pursuant to the certificates of incorporation or
by-laws of the Employers issuing Stock, a terminated Participant or the
Beneficiary of a deceased Participant may instruct the Committee to distribute
the Participant's entire vested interest in his Account in the form of Stock. In
that event, the Committee shall apply the Participant's vested interest in the
Investment Fund to purchase sufficient Stock from the Stock Fund or from any
owner of Stock to make the required distribution. In all other cases, the
Participant's vested interest in the Stock Fund shall be distributed in shares
of Stock, and his vested interest in the Investment Fund shall be distributed in
cash.
Any Participant who receives Stock pursuant to Section 10.1, and any
person who has received Stock from the Plan or from such a Participant by reason
of the Participant's death or incompetency, by reason of divorce or separation
from the Participant, or by reason of a rollover contribution described in
Section 402(a)(5) of the Code, shall have the right to require the Employer
which issued the Stock to purchase the Stock for its current fair market value
(hereinafter referred to as the "put right"). The put right shall be exercisable
by written notice to the Committee during the first 60 days after the Stock is
distributed by the Plan, and, if not exercised in that period, during the first
60 days in the following Plan Year after the Committee has communicated to the
Participant its determination as to the Stock's current fair market value.
However, the put right shall not apply to the extent that the Stock, at the time
the put right would otherwise be exercisable, may be sold on an established
market in accordance with federal and state securities laws and regulations.
Similarly, the put option shall not apply with respect to the portion of a
Participant's Account which the Employee elected to have reinvested under Code
Section 401(a)(28)(B). If the put right is exercised, the Trustee may, if so
directed by the Committee in its sole discretion, assume the Employer's rights
and obligations with respect to purchasing the Stock. Notwithstanding anything
herein to the contrary, in the case of a plan established by a Association (as
defined in Code Section 581), the put option shall not apply if prohibited by a
federal or state law and Participants are entitled to elect their benefits be
distributed in cash.
If a Participant elects to receive his distribution in the form of a
lump sum pursuant to Section 10.1.1 of the Plan, the Employer or the Trustee, as
the case may be, may elect to pay for the Stock in equal periodic installments,
not less frequently than annually, over a period not longer than five years from
the day after the put right is exercised, with adequate security and interest at
a reasonable rate on the unpaid balance, all such terms to be set forth in a
promissory note delivered to the seller with normal terms as to acceleration
upon any uncured default.
If a Participant elects to receive his distribution in the form of an
installment payment pursuant to Section 10.1.2 of the Plan, the Employer or the
Trustee, as the case may be, shall pay for the Stock distributed in the
installment distribution over a period which shall not exceed 30 days after the
exercise of the put right.
Nothing contained herein shall be deemed to obligate any Employer to
register any Stock under any federal or state securities law or to create or
maintain a public market to facilitate the transfer or disposition of any Stock.
The put right described herein may only be exercised by a person described in
the second preceding paragraph, and may not be transferred with any Stock to any
other person. As to all Stock purchased by the Plan in exchange for any Stock
Obligation, the put right shall be nonterminable.
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The put right for Stock acquired through a Stock Obligation shall continue with
respect to such Stock after the Stock Obligation is repaid or the Plan ceases to
be an employee stock ownership plan.
10.7 Restrictions on Disposition of Stock. Except in the case of Stock
which is traded on an established market, a Participant who receives Stock
pursuant to Section 10.1, and any person who has received Stock from the Plan or
from such a Participant by reason of the Participant's death or incompetency, by
reason of divorce or separation from the Participant, or by reason of a rollover
contribution described in Section 402(a)(5) of the Code, shall, prior to any
sale or other transfer of the Stock to any other person, first offer the Stock
to the issuing Employer and to the Plan at the greater of (i) its current fair
market value, or (ii) the purchase price offered in good faith by an independent
third party purchaser. This restriction shall apply to any transfer, whether
voluntary, involuntary, or by operation of law, and whether for consideration or
gratuitous. Either the Employer or the Trustee may accept the offer within 14
days after it is delivered. Any Stock distributed by the Plan shall bear a
conspicuous legend describing the right of first refusal under this Section
10.7, as well as any other restrictions upon the transfer of the Stock imposed
by federal and state securities laws and regulations.
10.8 Continuing Loan Provisions; Creations of Protections and Rights.
Except as otherwise provided in Sections 10.6 and 10.7 and this Section, no
shares of Employer Stock held or distributed by the Trustee may be subject to a
put, call or other option, or buy-sell arrangement. The provisions of this
Section shall continue to by applicable to such Stock even if the Plan ceases to
be an employee stock ownership plan under Section 4975(e)(7) of the Code.
10.9 Direct Rollover of Eligible Distribution. A Participant or
distributee may elect, at the time and in the manner prescribed by the Trustee
or the Committee, to have any portion of an eligible rollover distribution paid
directly to an eligible retirement plan specified by the Participant or
distributee in a direct rollover.
10.9-1 An "eligible rollover" is any distribution that does
not include: any distribution that is one of a series of substantially
equal periodic payments (not less frequently than annually) made for
the life (or life expectancy) of the distributee or the joint lives (or
joint life expectancies) of the Participant and the Participant's
Beneficiary, or for a specified period of ten years or more; any
distribution to the extent such distribution is required under Code
Section 401(a)(9); and the portion of any distribution that is not
included in gross income (determined without regard to the exclusion
for net unrealized appreciation with respect to employer securities).
10.9-2 An "eligible retirement plan" is an individual
retirement account described in Code Section 401(a), an individual
retirement annuity described in Code Section 408(b), an annuity plan
described in Code Section 403(a), or a qualified trust described in
Code Section 401(a), that accepts the distributee's eligible rollover
distribution. However, in the case of an eligible rollover distribution
to the surviving Spouse, an eligible retirement plan is an individual
retirement account or individual retirement annuity.
10.9-3 A "direct rollover" is a payment by the Plan to the
eligible retirement plan specified by the distributee.
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10.9-4 The term "distributee" shall refer to a deceased
Participant's Spouse or a Participant's former Spouse who is the
alternate payee under a qualified domestic relations order, as defined
in Code Section 414(p).
10.10 Waiver of 30 Day Period After Notice of Distribution. If a
distribution is one to which Sections 401(a)(11) and 417 of the Code do not
apply, such distribution may commence less than 30 days after the notice
required under Section 4.11(a)-11(c) of the Income Tax Regulations is given,
provided that:
(i) the Trustee or Administrative Committee, as
applicable, clearly informs the Participant
that the Participant has a right to a period
of at least 30 days after receiving the
notice to consider the decision of whether
or not to elect a distribution (and, if
applicable, a particular option), and
(ii) the Participant, after receiving the notice,
affirmatively elects a distribution.
Section 11. Rules Governing Benefit Claims and Review of Appeals.
11.1 Claim for Benefits. Any Participant or Beneficiary who qualifies
for the payment of benefits shall file a claim for his benefits with the
Committee on a form provided by the Committee. The claim, including any election
of an alternative benefit form, shall be filed at least 30 days before the date
on which the benefits are to begin. If a Participant or Beneficiary fails to
file a claim by the day before the date on which benefits become payable, he
shall be presumed to have filed a claim for payment for the Participant's
benefits in the standard form prescribed by Sections 10.1 or 10.2
11.2 Notification by Committee. Within 90 days after receiving a claim
for benefits (or within 180 days, if special circumstances require an extension
of time and written notice of the extension is given to the Participant or
Beneficiary within 90 days after receiving the claim for benefits), the
Committee shall notify the Participant or Beneficiary whether the claim has been
approved or denied. If the Committee denies a claim in any respect, the
Committee shall set forth in a written notice to the Participant or Beneficiary:
(i) each specific reason for the denial;
(ii) specific references to the pertinent Plan provisions on which
the denial is based;
(iii) a description of any additional material or information
which could be submitted by the Participant or Beneficiary to support his
claim, with an explanation of the relevance of such information; and
(iv) an explanation of the claims review procedures set forth
in Section 11.3.
11.3 Claims Review Procedure. Within 60 days after a Participant or
Beneficiary receives notice from the Committee that his claim for benefits has
been denied in any respect, he may file with the Committee a written notice of
appeal setting forth his reasons for disputing the Committee's determination. In
connection with his appeal the Participant or Beneficiary or his representative
may inspect or purchase copies of pertinent documents and records to the extent
not inconsistent with other Participants' and
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Beneficiaries' rights of privacy. Within 60 days after receiving a notice of
appeal from a prior determination (or within 120 days, if special circumstances
require an extension of time and written notice of the extension is given to the
Participant or Beneficiary and his representative within 60 days after receiving
the notice of appeal), the Committee shall furnish to the Participant or
Beneficiary and his representative, if any, a written statement of the
Committee's final decision with respect to his claim, including the reasons for
such decision and the particular Plan provisions upon which it is based.
Section 12. The Committee and Its Functions.
12.1 Authority of Committee. The Committee shall be the "plan
administrator" within the meaning of ERISA and shall have exclusive
responsibility and authority to control and manage the operation and
administration of the Plan, including the interpretation and application of its
provisions, except to the extent such responsibility and authority are otherwise
specifically (i) allocated to the Association, the Employers, or the Trustee
under the Plan and Trust Agreement, (ii) delegated in writing to other persons
by the Association, the Employers, the Committee, or the Trustee, or (iii)
allocated to other parties by operation of law. The Committee shall have
exclusive responsibility regarding decisions concerning the payment of benefits
under the Plan. The Committee shall have no investment responsibility with
respect to the Investment Fund except to the extent, if any, specifically
provided in the Trust Agreement. In the discharge of its duties, the Committee
may employ accountants, actuaries, legal counsel, and other agents (who also may
be employed by an Employer or the Trustee in the same or some other capacity)
and may pay their reasonable expenses and compensation.
12.2 Identity of Committee. The Committee shall consists of three or
more individuals selected by the Association. Any individual, including a
director, trustee, shareholder, officer, or Employee of an Employer, shall be
eligible to serve as a member of the Committee. The Association shall have the
power to remove any individual serving on the Committee at any time without
cause upon 10 days written notice, and any individual may resign from the
Committee at any time upon 10 days written notice to the Association. The
Association shall notify the Trustee of any change in membership of the
Committee.
12.3 Duties of Committee. The Committee shall keep whatever records may
be necessary to implement the Plan and shall furnish whatever reports may be
required from time to time by the Association. The Committee shall furnish to
the Trustee whatever information may be necessary to properly administer the
Trust. The Committee shall see to the filing with the appropriate government
agencies of all reports and returns required of the plan Committee under ERISA
and other laws.
Further, the Committee shall have exclusive responsibility and
authority with respect to the Plan's holdings of Stock and shall direct the
Trustee in all respects regarding the purchase, retention, sale, exchange, and
pledge of Stock and the creation and satisfaction of Stock Obligations. The
Committee shall at all times act consistently with the Association's long-term
intention that the Plan, as an employee stock ownership plan, be invested
primarily in Stock. Subject to the direction of the Board as to the application
of Employer contributions to Stock Obligations, and subject to the provisions of
Sections 6.4 and 10.6 as to Participants' rights under certain circumstances to
have their Accounts invested in Stock or in assets other than Stock, the
Committee shall determine in its sole discretion the extent to which assets of
the Trust shall be used to repay Stock Obligations, to purchase Stock, or to
invest in other assets to be selected by the Trustee or an investment manager.
No provision of the Plan relating to the allocation or vesting of any interests
in the Stock Fund or the Investment Fund shall restrict the Committee from
changing any holdings of the Trust, whether the changes involve an increase or a
decrease in the Stock or other assets credited
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<PAGE>
to Participants' Accounts. In determining the proper extent of the Trust's
investment in Stock, the Committee shall be authorized to employ investment
counsel, legal counsel, appraisers, and other agents to pay their reasonable
expenses and compensation.
12.4 Valuation of Stock. If the valuation of any Stock is not
established by reported trading on a generally recognized public market, the
valuation of such Stock shall be determined by an independent appraiser. For
purposes of the preceding sentence, the term "independent appraiser" means any
appraiser meeting requirements similar to the requirements of the regulations
prescribed under Section 170(a)(1) of the Code.
12.5 Compliance with ERISA. The Committee shall perform all acts
necessary to comply with ERISA. Each individual member or employee of the
Committee shall discharge his duties in good faith and in accordance with the
applicable requirements of ERISA.
12.6 Action by Committee. All actions of the Committee shall be
governed by the affirmative vote of a number of members which is a majority of
the total number of members currently appointed, including vacancies. The
members of the Committee may meet informally and may take any action without
meeting as a group.
12.7 Execution of Documents. Any instrument executed by the Committee
shall be signed by any member or employee of the Committee.
12.8 Adoption of Rules. The Committee shall adopt such rules and
regulations of uniform applicability as it deems necessary or appropriate for
the proper administration and interpretation of the Plan.
12.9 Responsibilities to Participants. The Committee shall determine
which Employees qualify to enter the Plan. The Committee shall furnish to each
eligible Employee whatever summary plan descriptions, summary annual reports,
and other notices and information may be required under ERISA. The Committee
also shall determine when a Participant or his Beneficiary qualifies for the
payment of benefits under the Plan. The Committee shall furnish to each such
Participant or Beneficiary whatever information is required under ERISA (or is
otherwise appropriate) to enable the Participant or Beneficiary to make whatever
elections may be available pursuant to Sections 6 and 10, and the Committee
shall provide for the payment of benefits in the proper form and amount from the
assets of the Trust Fund. The Committee may decide in its sole discretion to
permit modifications of elections and to defer or accelerate benefits to the
extent consistent with applicable law and the best interests of the individuals
concerned.
12.10 Alternative Payees in Event of Incapacity. If the Committee finds
at any time that an individual qualifying for benefits under this Plan is a
minor or is incompetent, the Committee may direct the benefits to be paid, in
the case of a minor, to his parents, his legal guardian, or a custodian for him
under the Uniform Gifts to Minors Act, or, in the case of an incompetent, to his
spouse, or his legal guardian, the payments to be used for the individual's
benefit. The Committee and the Trustee shall not be obligated to inquire as to
the actual use of the funds by the person receiving them under this Section
12.10, and any such payment shall completely discharge the obligations of the
Plan, the Trustee, the Committee, and the Employers to the extent of the
payment.
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<PAGE>
12.11 Indemnification by Employers. Except as separately agreed in
writing, the Committee, and any member or employee of the Committee, shall be
indemnified and held harmless by the Employer, jointly and severally, to the
fullest extent permitted by ERISA, and subject to and conditioned upon
compliance with 12 C.F.R. Section 545.121, to the extent applicable, against any
and all costs, damages, expenses, and liabilities reasonably incurred by or
imposed upon it or him in connection with any claim made against it or him or in
which it or he may be involved by reason of its or his being, or having been,
the Committee, or a member or employee of the Committee, to the extent such
amounts are not paid by insurance.
12.12 Nonparticipation by Interested Member. Any member of the
Committee who also is a Participant in the Plan shall take no part in any
determination specifically relating to his own participation or benefits, unless
his abstention would leave the Committee incapable of acting on the matter.
Section 13. Adoption, Amendment, or Termination of the Plan.
13.1 Adoption of Plan by Other Employers. With the consent of the
Association, any entity may become a participating Employer under the Plan by
(i) taking such action as shall be necessary to adopt the Plan, (ii) becoming a
party to the Trust Agreement establishing the Trust Fund, and (iii) executing
and delivering such instruments and taking such other action as may be necessary
or desirable to put the Plan into effect with respect to the entity's Employees.
13.2 Plan Adoption Subject to Qualification. Notwithstanding any other
provision of the Plan, the adoption of the Plan and the execution of the Trust
Agreement are conditioned upon their being determined initially by the Internal
Revenue Service to meet the qualification requirements of Section 401(a) of the
Code, so that the Employers may deduct currently for federal income tax purposes
their contributions to the Trust and so that the Participants may exclude the
contributions from their gross income and recognize income only when they
receive benefits. In the event that this Plan is held by the Internal Revenue
Service not to qualify initially under Section 401(a), the Plan may be amended
retroactively to the earliest date permitted by U.S. Treasury Regulations in
order to secure qualification under Section 401(a). If this Plan is held by the
Internal Revenue Service not to qualify initially under Section 401(a) either as
originally adopted or as amended, each Employer's contributions to the Trust
under this Plan (including any earnings thereon) shall be returned to it and
this Plan shall be terminated. In the event that this Plan is amended after its
initial qualification and the Plan as amended is held by the Internal Revenue
Service not to qualify under Section 401(a), the amendment may be modified
retroactively to the earliest date permitted by U.S. Treasury Regulations in
order to secure approval of the amendment under Section 401(a).
13.3 Right to Amend or Terminate. The Association intends to continue
this Plan as a permanent program. However, each participating Employer
separately reserves the right to suspend, supersede, or terminate the Plan at
any time and for any reason, as it applies to that Employer's Employees, and the
Association reserves the right to amend, suspend, supersede, merge, consolidate,
or terminate the Plan at any time and for any reason, as it applies to the
Employees of each Employer. No amendment, suspension, supersession, merger,
consolidation, or termination of the Plan shall (i) reduce any Participant's or
Beneficiary's proportionate interest in the Trust Fund, (ii) reduce or restrict,
either directly or indirectly, the benefit provided any Participant prior to the
amendment, or (iii) divert any portion of the Trust Fund to purposes other than
the exclusive benefit of the Participants and their Beneficiaries prior to the
satisfaction of all liabilities under the Plan. Moreover, there shall not be any
-26-
<PAGE>
transfer of assets to a successor plan or merger or consolidation with another
plan unless, in the event of the termination of the successor plan or the
surviving plan immediately following such transfer, merger, or consolidation,
each participant or beneficiary would be entitled to a benefit equal to or
greater than the benefit he would have been entitled to if the plan in which he
was previously a participant or beneficiary had terminated immediately prior to
such transfer, merger, or consolidation. Following a termination of this Plan by
the Association, the Trustee shall continue to administer the Trust and pay
benefits in accordance with the Plan as amended from time to time and the
Committee's instructions.
Section 14. Miscellaneous Provisions.
14.1 Plan Creates No Employment Rights. Nothing in this Plan shall be
interpreted as giving any Employee the right to be retained as an Employee by an
Employer, or as limiting or affecting the rights of an Employer to control its
Employees or to terminate the Service of any Employee at any time and for any
reason, subject to any applicable employment or collective bargaining
agreements.
14.2 Nonassignability of Benefits. No assignment, pledge, or other
anticipation of benefits from the Plan will be permitted or recognized by the
Employer, the Committee, or the Trustee. Moreover, benefits from the Plan shall
not be subject to attachment, garnishment, or other legal process for debts or
liabilities of any Participant or Beneficiary, to the extent permitted by law.
This prohibition on assignment or alienation shall apply to any judgment,
decree, or order (including approval of a property settlement agreement) which
relates to the provision of child support, alimony, or property rights to a
present or former spouse, child or other dependent of a Participant pursuant to
a state domestic relations or community property law, unless the judgment,
decree, or order is determined by the Committee to be a qualified domestic
relations order within the meaning of Section 414(p) of the Code, as more fully
set forth in Section 14.2 hereof.
14.3 Limit of Employer Liability. The liability of the Employer with
respect to Participants under this Plan shall be limited to making contributions
to the Trust from time to time, in accordance with Section 4.
14.4 Treatment of Expenses. All expenses incurred by the Committee and
the Trustee in connection with administering this Plan and Trust Fund shall be
paid by the Trustee from the Trust Fund to the extent the expenses have not been
paid or assumed by the Employer or by the Trustee.
14.5 Number and Gender. Any use of the singular shall be interpreted to
include the plural, and the plural the singular. Any use of the masculine,
feminine, or neuter shall be interpreted to include the masculine, feminine, or
neuter, as the context shall require.
14.6 Nondiversion of Assets. Except as provided in Sections 5.3 and
13.3, under no circumstances shall any portion of the Trust Fund be diverted to
or used for any purpose other than the exclusive benefit of the Participants and
their Beneficiaries prior to the satisfaction of all liabilities under the Plan.
14.7 Separability of Provisions. If any provision of this Plan is held
to be invalid or unenforceable, the other provisions of the Plan shall not be
affected but shall be applied as if the invalid or unenforceable provision had
not been included in the Plan.
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<PAGE>
14.8 Service of Process. The agent for the service of process upon the
Plan shall be the president of the Association, or such other person as may be
designated from time to time by the Association.
14.9 Governing State Law. This Plan shall be interpreted in accordance
with the laws of the State of New Mexico to the extent those laws are applicable
under the provisions of ERISA.
14.10 Employer Contributions Conditioned on Deductibility. Employer
Contributions to the Plan are conditioned on deductibility under Code Section
404. In the event that the Internal Revenue Service shall determine that all or
any portion of an Employer Contribution is not deductible under that Section,
the nondeductible portion shall be returned to the Employer within one year of
the disallowance of the deduction.
14.11 Unclaimed Accounts. Neither the Employer nor the Trustees shall
be under any obligation to search for, or ascertain the whereabouts of, any
Participant or Beneficiary. The Employer or the Trustees, by certified or
registered mail addressed to his last known address of record with the Employer,
shall notify any Participant or Beneficiary that he is entitled to a
distribution under this Plan, and the notice shall quote the provisions of this
Section. If the Participant or Beneficiary fails to claim his benefits or make
his whereabouts known in writing to the Employer or the Trustees within seven
(7) calendar years after the date of notification, the benefits of the
Participant or Beneficiary under the Plan will be disposed of as follows:
(a) If the whereabouts of the Participant is unknown but the
whereabouts of the Participant's Beneficiary is known to the Trustees,
distribution will be made to the Beneficiary.
(b) If the whereabouts of the Participant and his Beneficiary
are unknown to the Trustees, the Plan will forfeit the benefit,
provided that the benefit is subject to a claim for reinstatement if
the Participant or Beneficiary make a claim for the forfeited benefit.
Any payment made pursuant to the power herein conferred upon the
Trustees shall operate as a complete discharge of all obligations of the
Trustees, to the extent of the distributions so made.
14.12 Qualified Domestic Relations Order. Section 14.2 shall not apply
to a "qualified domestic relations order" defined in Code Section 414(p), and
such other domestic relations orders permitted to be so treated under the
provisions of the Retirement Equity Act of 1984. Further, to the extent provided
under a "qualified domestic relations order", a former Spouse of a Participant
shall be treated as the Spouse or surviving Spouse for all purposes under the
Plan.
In the case of any domestic relations order received by the Plan:
(a) The Employer or the Plan Committee shall promptly notify
the Participant and any other alternate payee of the receipt of such
order and the Plan's procedures for determining the qualified status of
domestic relations orders, and
(b) Within a reasonable period after receipt of such order,
the Employer or the Plan Committee shall determine whether such order
is a qualified domestic relations order and notify the Participant and
each alternate payee of such determination. The Employer or the Plan
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<PAGE>
Committee shall establish reasonable procedures to determine the
qualified status of domestic relations orders and to administer
distributions under such qualified orders.
During any period in which the issue of whether a domestic relations
order is a qualified domestic relations order is being determined (by the
Employer or Plan Committee, by a court of competent jurisdiction, or otherwise),
the Employer or the Plan Committee shall segregate in a separate account in the
Plan or in an escrow account the amounts which would have been payable to the
alternate payee during such period if the order had been determined to be a
qualified domestic relations order. If within eighteen (18) months the order (or
modification thereof) is determined to be a qualified domestic relations order,
the Employer or the Plan Committee shall pay the segregated amounts (plus any
interest thereon) to the person or persons entitled thereto. If within eighteen
(18) months it is determined that the order is not a qualified domestic
relations order, or the issue as to whether such order is a qualified domestic
relations order is not resolved, then the Employer or the Plan Committee shall
pay the segregated amounts (plus any interest thereon) to the person or persons
who would have been entitled to such amounts if there had been no order. Any
determination that an order is a qualified domestic relations order which is
made after the close of the eighteen (18) month period shall be applied
prospectively only. The term "alternate payee" means any Spouse, former Spouse,
child or other dependent of a Participant who is recognized by a domestic
relations order as having a right to receive all, or a portion of, the benefit
payable under a Plan with respect to such Participant.
Section 15. Top-Heavy Provisions.
15.1 Top-Heavy Plan. For any Plan Year beginning after December 31,
1983, this Plan is top-heavy if any of the following conditions exist:
(a) If the top-heavy ratio for this Plan exceeds sixty percent
(60%) and this Plan is not part of any required aggregation group or permissive
aggregation group;
(b) If this Plan is a part of a required aggregation group
(but is not part of a permissive aggregation group) and the aggregate top-heavy
ratio for the group of Plans exceeds sixty percent (60%); or
(c) If this Plan is a part of a required aggregation group and
part of a permissive aggregation group and the aggregate top-heavy ratio for the
permissive aggregation group exceeds sixty percent (60%).
15.2 Super Top-Heavy Plan For any Plan Year beginning after December
31, 1983, this Plan will be a super top-heavy Plan if any of the following
conditions exist:
(a) If the top-heavy ratio for this Plan exceeds ninety
percent (90%) and this Plan is not part of any required aggregation group or
permissive aggregation group.
(b) If this Plan is a part of a required aggregation group
(but is not part of a permissive aggregation group) and the aggregate top-heavy
ratio for the group of Plans exceeds ninety percent (90%), or
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<PAGE>
(c) If this Plan is a part of a required aggregation group and
part of a permissive aggregation group and the aggregate top-heavy ratio for the
permissive aggregation group exceeds ninety percent (90%).
15.3 Definitions.
In making this determination, the Committee shall use the following definitions
and principles:
15.3-1 The "Determination Date", with respect to the first
Plan Year of any plan, means the last day of that Plan Year, and with
respect to each subsequent Plan Year, means the last day of the
preceding Plan Year. If any other plan has a Determination Date which
differs from this Plan's Determination Date, the top-heaviness of this
Plan shall be determined on the basis of the other plan's Determination
Date falling within the same calendar years as this Plan's
Determination Date.
15.3-2 A "Key Employee", with respect to a Plan Year, means an
Employee who at any time during the five years ending on the top-heavy
Determination Date for the Plan Year has received compensation from an
Employer and has been (i) an officer of the Employer having 415
Compensation greater than 50 percent of the limit then in effect under
Section 415(b)(1)(A) of the Code, (ii) one of the 10 Employees owning
the largest interests in the Employer having 415 Compensation greater
than the limit then in effect under Section 415(c)(1)(A), (iii) an
owner of more than five percent of the outstanding equity interest or
the outstanding voting interest in any Employer, or (iv) an owner of
more than one percent of the outstanding equity interest or the
outstanding voting interest in an Employer whose annual compensation
exceeds $150,000. For purposes of determining whether an Employee is a
Key Employee, annual compensation means compensation as defined in
Section 415(c)(3) of the Code, but including amounts contributed by the
Employee pursuant to a salary reduction agreement which are excludable
from the Employee's gross income under Section 125, Section 402(e)(3),
Section 402(H)(1)(B) or Section 403(b) of the Code. The Beneficiary of
a Key Employee shall also be considered a Key Employee.
15.3-3 A "Non-key Employee" means an Employee who at any time
during the five years ending on the top-heavy Determination Date for
the Plan Year has received compensation from an Employer and who has
never been a Key Employee, and the Beneficiary of any such Employee.
15.3-4 A "required aggregation group" includes (a) each
qualified Plan of the Employer in which at least one Key Employee
participates in the Plan Year containing the Determination Date and any
of the four (4) preceding Plan Years, and (b) any other qualified Plan
of the Employer which enables a Plan described in (a) to meet the
requirements of Code Sections 401(a)(4) and 410. For purposes of the
preceding sentence, a qualified Plan of the Employer includes a
terminated Plan maintained by the Employer within the five (5) year
period ending on the Determination Date. In the case of a required
aggregation group, each Plan in the group will be considered a
top-heavy Plan if the required aggregation group is a top-heavy group.
No Plan in the required aggregation group will be considered a
top-heavy Plan if the required aggregation group is not a top-heavy
group. All Employers aggregated under Code Sections 414(b), (c) or (m)
or (o) (but only after the Code Section 414(o) regulations become
effective) are considered a single Employer.
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<PAGE>
15.3-5 A "permissive aggregation group" includes the required
aggregation group of Plans plus any other qualified Plan(s) of the
Employer that are not required to be aggregated but which, when
considered as a group with the required aggregation group, satisfy the
requirements of Code Sections 401(a)(4) and 410 and are comparable to
the Plans in the required aggregation group. No Plan in the permissive
aggregation group will be considered a top-heavy Plan if the permissive
aggregation group is not a top-heavy group. Only a Plan that is part of
the required aggregation group will be considered a top-heavy Plan if
the permissive aggregation group is top-heavy.
15.4 Top-Heavy Rules of Application.
For purposes of determining the value of Account balances and
the present value of accrued benefits the following provisions shall apply:
15.4-1 The value of Account balances and the present value of
accrued benefits will be determined as of the most recent Valuation
Date that falls within or ends with the twelve (12) month period ending
on the Determination Date.
15.4-2 For purposes of testing whether this Plan is top-heavy,
the present value of an individual's accrued benefits and an
individual's Account balances is counted only once each year.
15.4-3 The Account balances and accrued benefits of a
Participant who is not presently a Key Employee but who was a Key
Employee in a Plan Year beginning on or after January 1, 1984 will be
disregarded.
15.4-4 For years beginning after December 31, 1984, Employer
contributions attributable to a salary reduction or similar arrangement
will be taken into account.
15.4-5 When aggregating Plans, the value of Account balances
and accrued benefits will be calculated with reference to the
Determination Dates that fall within the same calendar year.
15.4-6 The present value of the accrued benefits or the amount
of the Account balances of an Employee shall be increased by the
aggregate distributions made to such Employee from a Plan of the
Employer. No distribution, however, made from the Plan to an individual
(other than the Beneficiary of a deceased Employee who was an Employee
within the five (5) year period ending on the Determination Date) who
has not been an Employee at any time during the five (5) year period
ending on the Determination Date shall be taken into account in
determining whether the Plan is top-heavy. Also, any amounts
recontributed by an Employee upon becoming a Participant in the Plan
shall no longer be counted as a distribution under this paragraph.
15.4-7 The present value of the accrued benefits or the amount
of the Account balances of an Employee shall be increased by the
aggregate distributions made to such Employee from a terminated Plan of
the Employer, provided that such Plan (if not terminated) would have
been required to be included in the aggregation group.
15.4-8 Accrued benefits and Account balances of an individual
shall not be taken into account for purposes of determining the
top-heavy ratios if the individual has performed no services for the
Employer during the five (5) year period ending on the applicable
Determination
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<PAGE>
Date. Compensation for purposes of this subparagraph shall not include
any payments made to an individual by the Employer pursuant to a
qualified or non-qualified deferred compensation plan.
15.4-9 The present value of the accrued benefits or the amount
of the Account balances of any Employee participating in this Plan
shall not include any rollover contributions or other transfers
voluntarily initiated by the Employee except as described below. If
this Plan transfers or rolls over funds to another Plan in a
transaction voluntarily initiated by the Employee after December 31,
1983, then this Plan shall count the distribution for purposes of
determining Account balances or the present value of accrued benefits.
A transfer incident to a merger or consolidation of two or more Plans
of the Employer (including Plans of related Employers treated as a
single Employer under Code Section 414), or a transfer or rollover
between Plans of the Employer, shall not be considered as voluntarily
initiated by the Employee.
15.5 Top-Heavy Ratio.
If the Employer maintains one (1) or more defined contribution plans
(including any simplified Employee pension plan) and the Employer has never
maintained any defined benefit plans which have covered or could cover a
Participant in this Plan, the top-heavy ratio is a fraction, the numerator of
which is the sum of the Account balances of all Key Employees as of the
Determination Date, and the denominator of which is the sum of the Account
balances of all Employees as of the Determination Date. Both the numerator and
denominator of the top-heavy ratio shall be increased to reflect any
contribution which is due but unpaid as of the Determination Date.
If the Employer maintains one (1) or more defined contribution plans
(including any simplified Employee pension plan) and the Employer maintains or
has maintained one (1) or more defined benefit plans which have covered or could
cover a Participant in this Plan, the top-heavy ratio is a fraction, the
numerator of which is the sum of Account balances under the defined contribution
plans for all Key Employees and the present value of accrued benefits under the
defined benefit plans for all Key Employees, and the denominator of which is the
sum of the Account balances under the defined contribution plans for all
Employees and the present value of accrued benefits under the defined benefit
plans for all Employees.
For these purposes, the accrued benefit of a Participant other than a
Key Employee in a defined benefit plan shall be determined under (a) the method,
if any, that uniformly applies for accrual purposes under all defined benefit
plans maintained by the Employer, or (b) if there is no such method, as if such
benefit accrued not more rapidly than the slowest accrual rate permitted under
the fractional rule of Section 411(b)(1)(C).
15.6 Minimum Contributions. For any Top-Heavy Year, each Employer shall
make a special contribution on behalf of each Participant to the extent that the
total allocations to his Account pursuant to Section 4 is less than the lesser
of:
(i) three percent of his 415 Compensation for that year, or
(ii) the highest ratio of such allocation to 415 Compensation
received by any Key Employee for that year. For purposes of the special
contribution of this Section 15.2, a Key Employee's 415 Compensation
shall include amounts the Key Employee elected to defer under a
qualified 401(k) arrangement. Such a special contribution shall be made
on behalf of each
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<PAGE>
Participant who is employed by an Employer on the last day of the Plan
Year, regardless of the number of his Hours of Service, and shall be
allocated to his Account.
For any Plan Year when (1) the Plan is top-heavy and (2) a Non-key
Employee is a Participant in both this Plan and a defined benefit plan included
in the plan aggregation group which is top heavy, the sum of the Employer
contributions and forfeitures allocated to the Account of each such Non-key
Employee shall be equal to at least five percent (5%) of such Non-key Employee's
415 Compensation for that year.
15.7 Minimum Vesting. For any Plan Year in which this Plan is
Top-Heavy, a Participant's vested interest in his Account shall be based on the
following "top-heavy table":
Vesting Percentage of
Years Interest Vested
----- ---------------
Fewer than 3 years 0%
3 or more 100%
15.8 Top-Heavy Provisions Control in Top-Heavy Plan. In the event this Plan
becomes top-heavy and a conflict arises between the top-heavy provisions herein
set forth and the remaining provisions set forth in this Plan, the top-heavy
provisions shall control.
-33-
SUBSIDIARIES OF THE REGISTRANT
EXHIBIT 21
The following are subsidiaries of Alamogordo Financial Corporation.
Name Ownership
- ---- ---------
Alamogordo Federal Savings and Loan Association 100% Owned
Space Age City Service Corporation 100% Owned by Bank
[ACCOUNTING AND CONSULTING GROUP LETTERHEAD]
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT'S CONSENT
We hereby consent to the use in the Registration Statement on Form SB-2
(filed with the Securities and Exchange Commission) and the Application for
Approval of a Minority Stock Issuance by a Subsidiary of a Mutual Holding
Company on Form MHC-2 (filed with the Office of Thrift Supervision) of our
report dated August 18, 1999 on the financial statements of Alamogordo Financial
Corporation and subsidiary for the years ended June 30, 1999 and 1998.
We also consent to the reference to us under the heading "Experts"
appearing in the Prospectus.
/s/ Accounting and Consulting Group, L.L.P.
- --------------------------------------------
Alamogordo, New Mexico
December 15, 1999
[RP FINANCIAL, LC LETTERHEAD]
December 13, 1999
Board of Directors
Alamogordo Financial Corporation
Alamogordo Federal Savings and Loan Association
500 10th Street
Alamogordo, New Mexico 88310-6768
Members of the Boards of Directors:
We hereby consent to the use of our firm's name on the Form SB-2
Registration Statement and Application for Approval of a Minority Stock Issuance
by a Subsidiary of a Mutual Holding Company on Form MHC-2. We also hereby
consent to the inclusion of, summary of and references to our Appraisal Report
in such filings including the Prospectus of Alamogordo Financial Corporation.
Sincerely,
/s/RP FINANCIAL, LC.
RP FINANCIAL, LC.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> JUN-30-2000 JUN-30-1999
<PERIOD-END> SEP-30-1999 JUN-30-1999
<CASH> 7,934 4,071
<INT-BEARING-DEPOSITS> 2,240 4,401
<FED-FUNDS-SOLD> 0 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 2,197 17,030
<INVESTMENTS-CARRYING> 16,024 3,473
<INVESTMENTS-MARKET> 2,197 3,478
<LOANS> 117,085 115,949
<ALLOWANCE> 467 472
<TOTAL-ASSETS> 156,684 156,158
<DEPOSITS> 122,410 122,460
<SHORT-TERM> 0 0
<LIABILITIES-OTHER> 1,641 1,257
<LONG-TERM> 10,000 10,000
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 22,633 22,441
<TOTAL-LIABILITIES-AND-EQUITY> 156,684 156,158
<INTEREST-LOAN> 2,289 8,994
<INTEREST-INVEST> 272 1,514
<INTEREST-OTHER> 73 508
<INTEREST-TOTAL> 2,634 11,016
<INTEREST-DEPOSIT> 1,531 6,784
<INTEREST-EXPENSE> 1,654 7,279
<INTEREST-INCOME-NET> 980 3,737
<LOAN-LOSSES> 0 0
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 766 3,022
<INCOME-PRETAX> 322 975
<INCOME-PRE-EXTRAORDINARY> 322 975
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 229 679
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
<YIELD-ACTUAL> 2.81 2.53
<LOANS-NON> 265 532
<LOANS-PAST> 0 0
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 1,548 1,636
<ALLOWANCE-OPEN> 472 486
<CHARGE-OFFS> 6 14
<RECOVERIES> 1 0
<ALLOWANCE-CLOSE> 467 472
<ALLOWANCE-DOMESTIC> 467 472
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
[RP FINANCIAL, LC LETTERHEAD]
October 26, 1999
Board of Directors
Alamogordo Financial Corporation
500 10th Street
Alamogordo, New Mexico 88310-6768
Dear Members of the Board:
This letter sets forth the agreement between Alamogordo Financial
Corporation, Alamogordo, New Mexico (the "Company"), and RP Financial, LC. ("RP
Financial") for the independent appraisal services pertaining to the Company's
minority stock offering (the "Stock Offering"). The specific appraisal services
to be rendered by RP Financial are described below. These appraisal services
will be rendered by a team of two to three senior consultants on staff and will
be directed by the undersigned.
Description of Conversion Appraisal Services
Prior to preparing the valuation report, RP Financial will conduct a
financial due diligence, including on-site interviews of senior management and
reviews of financial and other documents and records, to gain insight into the
Company's operations, financial condition, profitability, market area, risks and
various internal and external factors which impact the pro forma value of the
Company. RP Financial will prepare a written detailed valuation report of the
Company which will be fully consistent with applicable regulatory guidelines and
standard pro forma valuation practices. The appraisal report will include an
in-depth analysis of the Company's financial condition and operating results, as
well as an assessment of the Company's interest rate risk, credit risk and
liquidity risk. The appraisal report will describe the Company's business
strategies, market area, prospects for the future and the intended use of
proceeds both in the short term and over the longer term. A peer group analysis
relative to publicly-traded savings institutions will be conducted for the
purpose of determining appropriate valuation adjustments relative to the group.
We will review pertinent sections of the applications and offering documents to
obtain necessary data and information for the appraisal, including the impact of
key deal elements on the appraised value, such as dividend policy, use of
proceeds and reinvestment rate, tax rate, conversion expenses and
characteristics of stock plans. The appraisal report will conclude with a
midpoint pro forma value which will establish the range of value, and reflect
the Stock Offering size determined by the Company's Board of Directors. The
appraisal report may be periodically updated throughout the offering process and
there will be at least one updated valuation prepared at the time of the closing
of the Stock Offering.
<PAGE>
RP Financial agrees to deliver the valuation appraisal and subsequent
updates, in writing, to the Company at the above address in conjunction with the
filing of the regulatory application. Subsequent updates will be filed promptly
as certain events occur which would warrant the preparation and filing of such
valuation updates. Further, RP Financial agrees to perform such other services
as are necessary or required in connection with the regulatory review of the
appraisal and respond to the regulatory comments, if any, regarding the
valuation appraisal and subsequent updates.
Fee Structure and Payment Schedule
The Company agrees to pay RP Financial a fixed fee of $17,500 for these
appraisal services, plus reimbursable expenses. Payment of these fees shall be
made according to the following schedule:
o $5,000 upon execution of the letter of agreement engaging RP
Financial's appraisal services;
o $10,000 upon delivery of the completed original appraisal report;
and
o $2,500 upon completion of the Stock Offering to cover all
subsequent valuation updates that may be required, provided that
the transaction is not delayed for reasons described below.
The Company will reimburse RP Financial for out-of-pocket expenses
incurred in preparation of the valuation. Such out-of-pocket expenses will
likely include travel, printing, telephone, facsimile, shipping, computer and
data services. RP Financial will agree to limit reimbursable expenses in
connection with this engagement and in connection with the preparation of a
regulatory business plan as described in the accompanying letter, subject to
written authorization from the Company to exceed such level.
In the event the Company shall, for any reason, discontinue the
proposed Stock Offering prior to delivery of the completed documents set forth
above and payment of the respective progress payment fees, the Company agrees to
compensate RP Financial according to RP Financial's standard billing rates for
consulting services based on accumulated and verifiable time expenses, not to
exceed the respective fee caps noted above, after giving full credit to the
initial retainer fee. RP Financial's standard billing rates range from $75 per
hour for research associates to $250 per hour for managing directors.
If during the course of the proposed transaction, unforeseen events
occur so as to materially change the nature or the work content of the services
described in this contract, the terms of said contract shall be subject to
renegotiation by the Company and RP Financial. Such unforeseen events shall
include, but not be limited to, major changes in the conversion regulations,
appraisal guidelines or processing procedures as they relate to appraisals,
major changes in management or procedures, operating policies or philosophies,
and excessive delays or suspension of processing of conversion applications by
the regulators such that completion of the transaction requires the preparation
by RP Financial of a new appraisal or financial projections.
2
<PAGE>
Representations and Warranties
The Company and RP Financial agree to the following:
1. The Company agrees to make available or to supply to RP
Financial such information with respect to its business and financial condition
as RP Financial may reasonably request in order to provide the aforesaid
valuation. Such information heretofore or hereafter supplied or made available
to RP Financial shall include: annual financial statements, periodic regulatory
filings and material agreements, debt instruments, off balance sheet assets or
liabilities, commitments and contingencies, unrealized gains or losses and
corporate books and records. All information provided by the Company to RP
Financial shall remain strictly confidential (unless such information is
otherwise made available to the public), and if the Stock Offering is not
consummated or the services of RP Financial are terminated hereunder, RP
Financial shall upon request promptly return to the Company the original and any
copies of such information.
2. The Company hereby represents and warrants to RP Financial that
any information provided to RP Financial does not and will not, to the best of
the Company's knowledge, at the times it is provided to RP Financial, contain
any untrue statement of a material fact or fail to state a material fact
necessary to make the statements therein not false or misleading in light of the
circumstances under which they were made.
3. (a) The Company agrees that it will indemnify and hold harmless
RP Financial, any affiliates of RP Financial, the respective directors,
officers, agents and employees of RP Financial or their successors and assigns
who act for or on behalf of RP Financial in connection with the services called
for under this agreement (hereinafter referred to as "RP Financial"), from and
against any and all losses, claims, damages and liabilities (including, but not
limited to, all losses and expenses in connection with claims under the federal
securities laws) attributable to (i) any untrue statement or alleged untrue
statement of a material fact contained in the financial statements or other
information furnished or otherwise provided by the Company to RP Financial,
either orally or in writing; (ii) the omission or alleged omission of a material
fact from the financial statements or other information furnished or otherwise
made available by the Company to RP Financial; or (iii) any action or omission
to act by the Company, or the Company's respective officers, Directors,
employees or agents which action or omission is willful or negligent. The
Company will be under no obligation to indemnify RP Financial hereunder if a
court determines that RP Financial was negligent or acted in bad faith with
respect to any actions or omissions of RP Financial related to a matter for
which indemnification is sought hereunder. Any time devoted by employees of RP
Financial to situations for which indemnification is provided hereunder, shall
be an indemnifiable cost payable by the Company at the normal hourly
professional rate chargeable by such employee.
3
<PAGE>
(b) RP Financial shall give written notice to the Company of
such claim or facts within thirty days of the assertion of any claim or
discovery of material facts upon which RP Financial intends to base a claim for
indemnification hereunder. In the event the Company elects, within ten business
days of the receipt of the original notice thereof, to contest such claim by
written notice to RP Financial, RP Financial will be entitled to be paid any
amounts payable by the Company hereunder within five days after the final
determination of such contest either by written acknowledgement of the Company
or a final judgment (including all appeals therefrom) of a court of competent
jurisdiction. If the Company does not so elect, RP Financial shall be paid
promptly and in any event within thirty days after receipt by the Company of the
notice of the claim.
(c) The Company shall pay for or reimburse the reasonable
expenses, including attorneys' fees, incurred by RP Financial in advance of the
final disposition of any proceeding within thirty days of the receipt of such
request if RP Financial furnishes the Company: (1) a written statement of RP
Financial's good faith belief that it is entitled to indemnification hereunder;
and (2) a written undertaking to repay the advance if it ultimately is
determined in a final adjudication of such proceeding that it or he is not
entitled to such indemnification. The Company may assume the defense of any
claim (as to which notice is given in accordance with 3(b)) with counsel
reasonably satisfactory to RP Financial, and after notice from the Company to RP
Financial of its election to assume the defense thereof, the Company will not be
liable to RP Financial for any legal or other expenses subsequently incurred by
RP Financial (other than reasonable costs of investigation and assistance in
discovery and document production matters). Notwithstanding the foregoing, RP
Financial shall have the right to employ their own counsel in any action or
proceeding if RP Financial shall have concluded that a conflict of interest
exists between the Company and RP Financial which would materially impact the
effective representation of RP Financial. In the event that RP Financial
concludes that a conflict of interest exists, RP Financial shall have the right
to select counsel reasonably satisfactory to the Company which will represent RP
Financial in any such action or proceeding and the Company shall reimburse RP
Financial for the reasonable legal fees and expenses of such counsel and other
expenses reasonably incurred by RP Financial. In no event shall the Company be
liable for the fees and expenses of more than one counsel, separate from its own
counsel, for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same allegations or circumstances. The Company will not be liable under the
foregoing indemnification provision in respect of any compromise or settlement
of any action or proceeding made without its consent, which consent shall not be
unreasonably withheld.
(d) In the event the Company does not pay any indemnified
loss or make advance reimbursements of expenses in accordance with the terms of
this agreement, RP Financial shall have all remedies available at law or in
equity to enforce such obligation.
It is understood that, in connection with RP Financial's
above-mentioned engagement, RP Financial may also be engaged to act for the
Company in one or more additional capacities, and that the terms of the original
engagement may be incorporated by reference in one or more separate agreements.
The provisions of Paragraph 3 herein shall apply to the original engagement, any
such additional engagement, any modification of the original engagement or such
additional engagement and shall remain in full force and effect following the
completion or termination of RP Financial's engagement(s). This agreement
constitutes the entire understanding of the Company and RP Financial concerning
the subject matter addressed herein, and such contract shall be governed and
construed in accordance with the laws of the State of Virginia. This agreement
may not be modified, supplemented or amended except by written agreement
executed by both parties.
4
<PAGE>
The Company and RP Financial are not affiliated, and neither the
Company nor RP Financial has an economic interest in, or is held in common with,
the other and has not derived a significant portion of its gross revenues,
receipts or net income for any period from transactions with the other.
* * * * * * * * * * *
Please acknowledge your agreement to the foregoing by signing as
indicated below and returning to RP Financial a signed copy of this letter,
together with the initial retainer fee of $5,000.
Very truly yours,
/s/William E. Pommerening
William E. Pommerening
Chief Executive Officer and
Managing Director
Agreed To and Accepted By: Miles Ledgerwood /s/Miles Ledgerwood
---------------------------
President and Chief Executive Officer
Upon Authorization by the Board of
Directors For: Alamogordo Financial Corporation
Alamogordo, New Mexico
Date Executed: 11-1-99
--------------
[RP FINANCIAL, LC LETTERHEAD]
October 26, 1999
Board of Directors
Alamogordo Financial Corporation
500 10th Street
Alamogordo, New Mexico 88310-6768
Dear Members of the Board:
This letter sets forth the agreement between Alamogordo Financial
Corporation, Alamogordo, New Mexico (the "Company"), and RP Financial, LC. ("RP
Financial"), whereby the Company has engaged RP Financial to prepare the
regulatory business plan and financial projections to be adopted by the
Company's Board of Directors in conjunction with the Company's minority stock
offering. These services are described in greater detail below.
Description of Proposed Services
RP Financial's business planning services will include the following
areas: (1) evaluating the Company's current financial and operating condition,
business strategies and anticipated strategies in the future; (2) analyzing and
quantifying the impact of business strategies, incorporating the use of net
offering proceeds both in the short and long term; (3) preparing detailed
financial projections on a quarterly basis for a period of at least three fiscal
years to reflect the impact of Board approved business strategies and use of
proceeds; (4) preparing the written business plan document which conforms with
applicable regulatory guidelines including a description of the use of proceeds
and how the convenience and needs of the community will be addressed; and (5)
preparing the detailed schedules of the capitalization of the Company and AF
Mutual Holding Company cash flows.
Contents of the business plan will include: Philosophy/Goals; Economic
Environment and Background; Lending, Leasing and Investment Activities; Deposit,
Savings and Borrowing Activity; Asset and Liability Management; Operations;
Records, Systems and Controls; Growth, Profitability and Capital; Responsibility
for Monitoring this Plan.
RP Financial agrees to prepare the business plan and accompanying
financial projections in writing such that the business plan can be filed with
the appropriate regulatory agencies prior to filing the appropriate
applications.
<PAGE>
Fee Structure and Payment Schedule
The Company agrees to compensate RP Financial for preparation of the
business plan on a fixed fee basis of $7,500. Payment of the professional fees
shall be made upon delivery of the completed business plan.
The Company also agrees to reimburse RP Financial for those direct
out-of-pocket expenses necessary and incidental to providing the business
planning services. Reimbursable expenses will likely include shipping,
telephone/facsimile printing, computer and data services, and shall be paid to
RP Financial as incurred and billed. RP Financial will agree to limit
reimbursable expenses in conjunction with the appraisal engagement, subject to
written authorization from the Company to exceed such level.
In the event the Company shall, for any reason, discontinue this
planning engagement prior to delivery of the completed business plan and payment
of the progress payment fee, the Company agrees to compensate RP Financial
according to RP Financial's standard billing rates for consulting services based
on accumulated and verifiable time expenses, not to exceed the fixed fee
described above, plus reimbursable expenses incurred.
If during the course of the planning engagement, unforeseen events
occur so as to materially change the nature or the work content of the business
planning services described in this contract, the terms of said contract shall
be subject to renegotiation by the Company and RP Financial. Such unforeseen
events may include changes in regulatory requirements as it specifically relates
to the Company or potential transactions which will dramatically impact the
Company such as a pending acquisition or branch transaction.
* * * * * * * * * * *
Please acknowledge your agreement to the foregoing by signing as
indicated below and returning to RP Financial a signed copy of this letter.
Very truly yours,
/s/William E. Pommerening
William E. Pommerening
Chief Executive Officer and
Managing Director
Agreed To and Accepted By: Miles Ledgerwood /s/Miles Ledgerwood
---------------------------
President and Chief Executive Officer
Upon Authorization by the Board of
Directors For: Alamogordo Financial Corporation
Alamogordo, New Mexico
Date Executed: 11-1-99
--------------
February xx, 2000
Dear Prospective Investor:
We are pleased to announce that Alamogordo Financial Corporation
("Alamogordo Financial"), a Federal savings and loan holding company is offering
shares of common stock. Alamogordo Financial Corporation is the wholly owned
subsidiary of AF Mutual Holding Company. The shares offered will represent 49%
of the shares outstanding after the offering. AF Mutual Holding Company will own
51% of the shares outstanding after the offering.
We have enclosed the following materials that will help you learn more
about the merits of Alamogordo Financial common stock as an investment. Please
read and review the materials carefully.
PROSPECTUS: This document provides detailed information about
operations at Alamogordo Financial and a complete discussion on the
proposed stock offering.
QUESTIONS AND ANSWERS: Key questions and answers about the stock
offering are found in this pamphlet.
STOCK ORDER AND CERTIFICATION FORM: This form is used to purchase
stock by returning it with your payment in the enclosed business reply
envelope. The deadline for ordering stock is 12:00 noon, Standard
Time, March xx, 2000.
We invite you and other local community members to become charter
shareholders of Alamogordo Financial. Through this offering you have the
opportunity to buy stock directly from Alamogordo Financial without a commission
or a fee. The Board of Directors and Senior Management fully support the stock
offering.
If you have additional questions regarding the stock offering, please
call us at (505) xxx-xxxx, Monday from 12:00 p.m. to 5:00 p.m., Tuesday through
Thursday from 8:30 a.m. to 5:00 p.m. and Friday from 8:30 a.m. to 2:00 p.m., or
stop by the Stock Information Center located at 500 10th Street, Alamogordo, New
Mexico.
Sincerely,
R. Miles Ledgerwood
President and Chief Executive Officer
THE SHARES OF COMMON STOCK BEING OFFERED ARE NOT SAVINGS ACCOUNTS OR DEPOSITS
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK
INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND, OR ANY OTHER GOVERNMENT
AGENCY.
<PAGE>
[KEEFE, BRUYETTE & WOODS, INC. LETTERHEAD]
To Members and Friends of
Alamogordo Financial Corporation
- --------------------------------------------------------------------------------
Keefe, Bruyette & Woods, Inc., a member of the National Association of
Securities Dealiers, Inc. ("NASD"), is assisting Alamogordo Financial
Corporation ("Alamogordo Financial"), a Federal savings and loan holding company
in its offering of shares of common stock. Alamogordo Financial Corporation is
the wholly owned subsidiary of AF Mutual Holding Company. The shares offered
will represent 49% of the shares outstanding after the offering. AF Mutual
Holding Company will own 51% of the shares outstanding after the offering.
At the request of Alamogordo Financial, we are enclosing materials explaining
this porcess and your options, including an opportunity to invest in shares of
Alamogordo Financial's common stock which is being offered to customers through
12:00 noon, Standard Time, March xx, 2000. Please read the enclosed offering
materials including the Prospectus carefully for a complete discussion of the
offering. Alamogordo Financial has asked us to forward these documents to you in
accordance with certain requirements of the securities laws in your state.
Should you have any questions, please call us at (505)xxx-xxxx or stop by the
Stock Information Center located at 500 10th Street, Alamogordo, New Mexico.
Very truly yours,
Keefe, Bruyette & Woods, Inc.
THE SHARES OF COMMON STOCK BEING OFFERED ARE NOT SAVINGS ACCOUNTS OR DEPOSITS
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK
INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND, OR ANY GOVERNMENT
AGENCY.
<PAGE>
February xx, 2000
Dear Member:
We are pleased to announce that Alamogordo Financial Corporation
("Alamogordo Financial"), a Federal savings and loan holding company is offering
shares of common stock. Alamogordo Financial Corporation is the wholly owned
subsidiary of AF Mutual Holding Company and owns 100% of the Common Stock of
Alamogordo Federal Savings and Loan Association ("Alamogordo Federal"). The
shares offered will represent 49% of the shares outstanding after the offering.
AF Mutual Holding Company will own 51% of the shares outstanding after the
offering.
The Board of Directors believes this Offering will offer a number of
advantages such as an opportunity for depositors of Alamogordo Federal to become
shareholders. Please remember:
o Your accounts at Alamogordo Federal will continue to be insured up to
the maximum legal limit by the Federal Deposit Insurance Corporation
("FDIC").
o There will be no change in the balance, interest rate, or maturity of
any deposit accounts because of the Offering.
o Members have a right, but no obligation, to buy stock without a
commission or fee before it is offered to the general public.
o Like all stock, shares of stock issued in this offering will not be
insured by the FDIC.
Enclosed is a prospectus containing a complete discussion of the stock
offering. We urge you to read this material carefully. If you are interested in
purchasing the common stock of Alamogordo Financial, your enclosed Stock Order
and Certification Form and payment must be received by 12:00 noon, Standard
Time, on March xx, 2000.
If you have additional questions regarding the stock offering, please
call us at (505) xxx-xxxx, Monday from 12:00 p.m. to 5:00 p.m., Tuesday through
Thursday from 8:30 a.m. to 5:00 p.m. and Friday from 8:30 a.m. to 2:00 p.m., or
stop by the Stock Information Center located at 500 10th Street, Alamogordo, New
Mexico.
Sincerely,
R. Miles Ledgerwood
President and Chief Executive Officer
THE SHARES OF COMMON STOCK BEING OFFERED ARE NOT SAVINGS ACCOUNTS OR DEPOSITS
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK
INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND, OR ANY OTHER GOVERNMENT
AGENCY.
<PAGE>
February xx, 2000
Dear Friend:
We are pleased to announce that Alamogordo Financial Corporation ("Alamogordo
Financial"), a Federal savings and loan holding company is offering shares of
common stock. Alamogordo Financial Corporation is the wholly owned subsidiary of
AF Mutual Holding Company. The shares offered will represent 49% of the shares
outstanding after the offering. AF Mutual Holding Company will own 51% of the
shares outstanding after the offering.
Because of your subscription rights as a former member of Alamogordo Federal
Savings and Loan Association, we are sending you the following materials which
describe the stock offering.
PROSPECTUS: This document provides detailed information about
operations at the Alamogordo Financial and the proposed stock
offering.
QUESTIONS AND ANSWERS: Key questions and answers about the stock
offering are found in this pamphlet.
STOCK ORDER AND CERTIFICATION FORM: This form is used to purchase
stock by returning it with your payment in the enclosed business reply
envelope. The deadline for ordering stock is 12:00 noon, Standard
Time, on March xx, 2000.
As a former depositor of Alamogordo Federal, you have the opportunity to buy
stock without commission or fee. If you have additional questions regarding the
stock offering, please call us at (505) xxx-xxxx, Monday from 12:00 p.m. to 5:00
p.m., Tuesday through Thursday from 8:30 a.m. to 5:00 p.m. and Friday from 8:30
a.m. to 2:00 p.m., or stop by the Stock Information Center located at 500 10th
Street, Alamogordo, New Mexico.
Sincerely,
R. Miles Ledgerwood
President and Chief Executive Officer
THE SHARES OF COMMON STOCK BEING OFFERED ARE NOT SAVINGS ACCOUNTS OR DEPOSITS
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK
INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND, OR ANY OTHER GOVERNMENT
AGENCY.
<PAGE>
STOCKGRAM
We are pleased to announce that Alamogordo Financial Corporation, is offering
shares of common stock in a subscription offering. The sale of stock in
connection with the offering will enable Alamogordo Financial Corporation to
raise additional capital to support and enhance its current franchise.
We previously mailed to you a Prospectus providing detailed information about
Alamogordo Financial Corporation's operations and the proposed stock offering.
We urge you to read the Prospectus carefully.
We invite our loyal customers and community members to become shareholders of
Alamogordo Financial Corporation. If you are interested in purchasing the common
stock of Alamogordo Financial Corporation, your Stock Order Form, Certification
Form and payment must be received by the Alamogordo Federal Savings and Loan
Association prior to 12:00 noon, Mountain Standard Time, on March XX, 2000.
Should you have additional questions regarding the stock offering or need
additional materials, please call the Stock Information Center at (505) XXX-XXXX
or stop by the Stock Information Center at 500 10th Street, Alamogordo, New
Mexico.
The shares of common stock being offered are not savings accounts or deposits
and are not insured by the Federal Deposit Insurance Corporation, the Bank
Insurance Fund, the Savings Association Insurance Fund or any other governmental
agency. This is not an offer to sell or a solicitation of an offer to buy stock.
The offer is made only by the Prospectus.
Alamogordo Financial Stock Ownership Guide and Stock Order Form Instructions
Stock Order Form Instructions
- --------------------------------------------------------------------------------
Item 1 and 2 - Fill in the number of shares that you wish to purchase and the
total payment due. The amount due is determined by multiplying the number of
shares ordered by the subscription price of $10.00 per share. The minimum
purchase is 25 shares. Generally, the maximum purchase for any person is 15,000
shares. No person, together with associates, as defined in the Prospectus, and
no person acting in concert may purchase more than 20,000 shares. For additional
information, see "The Stock Offering Limitations on Common Stock Purchases" in
the Prospectus.
Item 3 - Payment for shares may be made in cash (only if delivered by you in
person, although we request you to exchange the cash for a check with any of the
tellers at Alamogordo Federal Savings and Loan Association ("Alamogordo
Federal")), by check, bank draft or money order payable to ALAMOGORDO FINANCIAL
CORPORATION. DO NOT MAIL CASH. Your funds will earn interest at Alamogordo
Federal's current passbook rate.
Item 4 - To pay by withdrawal from a savings account or certificate at
Alamogordo Federal, insert the account number(s) and the amount(s) you wish to
withdraw from each account. If more than one signature is required for a
withdrawal, all signatories must sign in the signature box on the front of this
form. To withdraw from an account with checking privileges, please write a
check. Alamogordo Federal will waive any applicable penalties for early
withdrawal from certificate accounts. A hold will be placed on the account(s)
for the amount(s) you indicate to be withdrawn. Payments will remain in
account(s) until the stock offering closes.
Item 5 - Please check the appropriate box to tell us the earliest of the dates
that applies to you.
Item 6 - Please check this box if you are a director, officer or employee of
Alamogordo Federal, or a member of such person's household.
Item 7 - Please check this box if you have a National Association of Securities
Dealers, Inc. ("NASD") affiliation (as defined on the reverse side of the Stock
Order Form.
Item 8 - Please review the preprinted qualifying account information. The
accounts listed may not be all of your qualifying accounts or even your accounts
as of the earliest of the three dates if you have changed their ownership. You
should list any other qualifying accounts that you may have or had with
Alamogordo Federal in the blue box located under the heading "Additional
Qualifying Accounts". These may appear on other stock order forms you have
received. For example, if you are ordering stock in just your name, you should
list all of your accounts as of the earliest of the three dates that you were a
depositor. This may include accounts on which you were a joint owner, your own
regular individual accounts or your IRA accounts. Similarly, if you are ordering
stock jointly with another depositor, you should list all accounts on which
either of you are owners, i.e. individual accounts, joint accounts, etc. If you
are ordering stock in your minor child's or grandchild's name under the Uniform
Transfer to Minors Act ownership, the minor must have had an account on one of
the three dates and you should list only their accounts. If you are ordering
stock corporately, you need to list just that corporation's accounts, as your
individual accounts do not qualify. Failure to list all of your qualifying
accounts may result in the loss of part or all of your subscription rights.
Item 9 - The stock transfer industry has developed a uniform system of
shareholder registrations that we will use in the issuance of Alamogordo
Financial common stock. Please complete this section as fully and accurately as
possible, and be certain to supply your social security or Tax I.D. number(s)
and your daytime and evening phone numbers. We will need to call you if we
cannot execute your order as given. If you have any questions regarding the
registration of your stock, please consult your legal advisor. Subscription
rights are not transferable. If you are an eligible or supplemental eligible
account holder or other member, to protect your priority over other purchasers
as described in the Prospectus, you must take ownership in at least one of the
account holder's names.
(See Reverse Side for Stock Ownership Guide)
<PAGE>
Alamogordo Financial Stock Ownership Guide and Stock Order Form Instructions
Stock Ownership Guide
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Individual - The stock is to be registered in an individual's name only. You may
not list beneficiaries for this ownership.
Joint Tenants - Joint tenants with rights of survivorship identifies two or more
owners. When stock is held by joint tenants with rights of survivorship,
ownership automatically passes to the surviving joint tenant(s) upon the death
of any joint tenant. You may not list beneficiaries for this ownership.
Tenants in Common - Tenants in common may also identify two or more owners. When
stock is to be held by tenants in common, upon the death of one co-tenant,
ownership of the stock will be held by the surviving co-tenant(s) and by the
heirs of the deceased co-tenant. All parties must agree to the transfer or sale
of shares held by tenants in common. You may not list beneficiaries for this
ownership.
Uniform Transfer / Gift to Minors Act - For residents of New Mexico and many
states, stock may be held in the name of a custodian for the benefit of a minor
under the Uniform Transfer to Minors Act. For residents in other states, stock
may be held in a similar type of ownership under the Uniform Gift to Minors Act
of the individual state. For either ownership, the minor is the actual owner of
the stock with the adult custodian being responsible for the investment until
the child reaches legal age. Only one custodian and one minor may be designated.
Instructions: On the first name line, print the first name, middle initial and
last name of the custodian, with the abbreviation "CUST" after the name. Print
the first name, middle initial and last name of the minor on the second name
line followed by the notation UTMA-NM or UGMA-Other State. List only the minor's
social security number.
Corporation/Partnership - Corporations/Partnerships may purchase stock. Please
provide the Corporation/Partnership's legal name and Tax I.D. To have depositor
rights, the Corporation/Partnership must have an account in the legal name.
Please contact the Stock Information Center to verify depositor rights and
purchase limitations.
Individual Retirement Account - Individual Retirement Account ("IRA") holders
may make stock purchases from their deposits through a prearranged
"trustee-to-trustee" transfer. Stock may only be held in a self-directed IRA.
Please contact the Stock Information Center if you have any questions about your
IRA account and please do not delay in exploring this option.
Registration for IRA's: On Name Line 1 - list the name of the broker or trust
department followed by CUST or TRUSTEE.
On Name Line 2 - FBO (for benefit of) YOUR NAME IRA
a/c #______.
Address will be that of the broker / trust department
to where the stock certificate will be sent.
The Social Security / Tax I.D. number(s) will be
either yours or your trustees, as they direct.
Please list your phone numbers.
Fiduciary/Trust - Generally, fiduciary relationships (such as Trusts, Estates,
Guardianships, etc.) are established under a form of trust agreement or pursuant
to a court order. Without a legal document establishing a fiduciary
relationship, your stock may not be registered in a fiduciary capacity.
Instructions: On the first name line, print the first name, middle initial and
last name of the fiduciary if the fiduciary is an individual. If the fiduciary
is a corporation, list the corporate title on the first name line. Following the
name, print the fiduciary title such as trustee, executor, personal
representative, etc. On the second name line, print the name of the maker, donor
or testator or the name of the beneficiary. Following the name, indicate the
type of legal document establishing the fiduciary relationship (agreement, court
order, etc.). In the blank after "Under Agreement Dated," fill in the date of
the document governing the relationship. The date of the document need not be
provided for a trust created by a will.
(See Reverse Side for Stock Order Form Instructions)
<PAGE>
ALAMOGORDO FINANCIAL CORPORATION
Stock Information Center
500 10th Street
Alamogordo, New Mexico 88310
(505) xxx-xxxx
STOCK ORDER FORM
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Deadline: The subscription Offering ends at 12:00 noon, Standard Time, on March
xx, 2000. Your original Stock Order and Certification Form, properly executed
and with the correct payment, must be received (not postmarked) at the address
on the top of this form, or at any Alamogordo Federal Savings and Loan
Association branch office, by the deadline, or it will be considered void. Faxes
or copies of this form will not be accepted.
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(1) Number of Shares Price Per Share (2) Total Amount Due
X $10.00 = $
Mininum - 25 shares Maximum - Generally 15,000 Shares, however, see the Stock
Order Form Insutructions (blue sheet) and the Prospectus.
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Method of Payment
(3) [ ] Enclosed is a check, bank draft or money order payable to Alamogordo
Federal for $__________.
(4) [ ] I authorize Alamogordo Federal to make withdrawals from my Alamogordo
Federal certificate or savings account(s) shown below, and understand that
the amounts will not otherwise be available for withdrawal:
Account Number(s) Amount(s)
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Total Withdrawal
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There is NO penalty for early withdrawal.
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(5) Purchaser Information (check one)
a. [ ] Eligible Account Holder - Check here if you were a depositor with
$50.00 or more on deposit with Alamogordo Federal as of June 30, 1998.
Enter information in section 8 for all deposit accounts that you had at
Alamogordo Federal on June 30, 1998.
b. [ ] Supplemental Eligible Account Holder - Check here if you were a
depositor with $50.00 or more on deposit with Alamogordo Federal as of
December 31, 1999 but are not an Eligible Account Holder. Enter information
in section 8 for all deposit accounts that you had at Alamogordo Federal on
December 31, 1999.
c. [ ] Directors, Officers and Employees - Check here if you were a Director,
Officer or Employee of Alamogordo Federal and a, b or c do not apply.
d. [ ] General Community - Check here if a, b or c do not apply.
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(6) [ ] Check here if you are a director, officer or employee of Alamogordo
Federal or a member of such person's immediate family (same household).
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(7) [ ] NASD Affiliation - see description on reverse side of this form.
<PAGE>
(8) Please review the preprinted account information listed below. The accounts
printed below may not be all of your qualifying accounts or even your
accounts as of the earliest of the three dates if you have changed names on
the accounts. You should list any other accounts that you may have or had
with Alamogordo Federal in the blue box below. SEE THE STOCK ORDER FORM
INSTRUCTIONS SHEET FOR FURTHER INFORMATION (blue sheet). All Subscription
orders are subject to the provisions of the Stock Issuance Plan.
________________________________________________________________________________
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Additional Qualifying Accounts
Account Title (Names on Accounts) Account Number
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Please Note: Failure to list all of your accounts may result in the loss of
part or all of your subscription rights. (additional space on back of
form)
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(9) Stock Registration - Please PRINT Legibly and Fill Out Completely
(Note: The Stock Certificate and all correpsondence related to this stock
order will be mailed to the address provided below)
[ ] Individual [ ] Corporation
[ ] Joint Tenants [ ] Partnership
[ ] Tenants in Common [ ] Individual Retirement Account
[ ] Uniform Transfers to Minors Act [ ] Fiduciary Trust (Under
[ ] Uniform Gift to Minors Act Agreement Dated _____________)
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Name_____________________________________ Social Security or Tax ID____________
Name_____________________________________ Social Security or Tax ID____________
Mailing Address__________________________ Daytime Telephone____________________
City_________ State______ Zip Code_______ County______ Evening Telephone________
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Acknowledgement. By signing below, I acknowledge receipt of the Prospectus dated
February xx, 2000 and understand I may not change or revoke my order once it is
received by Alamogordo Federal. I also certify that this stock order is for my
account and there is no agreement or understanding regarding any further sale or
transfer of these shares. Applicable regulations prohibit any persons from
transferring, or entering into any agreement directly or indirectly to transfer,
the legal or beneficial ownership of subscription rights or the underlying
securities to the account of another person. Alamogordo Federal will pursue any
and all legal and equitable remedies in the event it becomes aware of the
transfer of subscription rights and will not honor orders known by it to involve
such transfer. Under penalties of perjury, I further certify that: (1) the
social security number or taxpayer identification number given above is correct
and (2) I am not subject to backup withholding. You must cross out this item (2)
above if you have been notified by the Internal Revenue Service that you are
subject to backup withholding because of under-reporting interest or dividends
on your tax return. By signing below, I also acknowledge that I have not waived
any rights under the Securities Act of 1933 and the Securities Exchange Act of
1934, both as amended.
Signature: THIS FORM MUST BE SIGNED AND DATED BELOW AND ON THE BACK OF THIS
FORM. This order is not valid if the Stock Order and Certification Form is not
both signed and properly completed. Your order will be filled in accordance with
the provisions of the Stock Issuance Plan as described in the Prospectus. An
additional signature is required only if payment is by withdrawal from an
account that requires more than one signature to withdraw funds.
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Signature Date Office Use Only Check #_______________
- ---------------------------------- Date Rec'd___/___ Ck. Amt.______________
Signature Date
- ---------------------------------- Batch #____Order #_____ Category________
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<PAGE>
ALAMOGORDO FEDERAL
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Item (7) continued - NASD Affiliation (This section only applies to those
individuals who meet the delincated criteria)
Check the box if you are a member of the National Association of Securities
Dealers, Inc. ("NASD"), a person associated with an NASD member, a member of the
immediate family of any such person to whose support such person contributes,
directly or indirectly, or the holder of an account in which an NASD member or
person associated with an NASD member has a beneficial interest. To comply with
conditions under which an exemption from the NASD's Interpretation With Respect
to Free-Riding and Withholding is available, you agree, if you have checked the
NASD affiliation box: (1) not to sell, transfer or hypothecate the stock for a
period of three months following the issuance and (2) to report this
subscription in writing to the applicable NASD member within one day of the
payment therefor.
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Item (8) continued: Purchaser Information
Account Title (Names on Accounts) Account Number
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CERTIFICATION FORM
(This Certification Form Must Be Signed In Addition to the Stock Order Form)
I ACKNOWLEDGE THAT THE SHARES OF COMMON STOCK, PAR VALUE $0.10 PER SHARE, OF
ALAMORGORDO FINANCIAL ARE NOT DEPOSITS OR AN ACCOUNT AND ARE NOT FEDERALLY
INSURED OR GUARANTEED BY ALAMOGORDO FINANCIAL OR ALAMOGORDO FEDERAL OR BY THE
FEDERAL GOVERNMENT
If anyone asserts that the shares of Common Stock are federally insured or
guaranteed, or are as safe as insured deposit, I should call the Office of
Thrift Supervision, Midwest Regional Director, Frederick R. Casteel at (972)
281-2000.
I further certify that, before purchasing the Common Stock of Alamogordo
Financial I received a copy o the Prospectus dated February xx, 2000 which
discloses the nature of the Common Stock being offered and describes the
following risks involved in an investment in the Common Stock under the heading
"Risk Factors" beginning on page 12 of the Prospectus:
1. Changes in interest rates may hurt our profits.
2. Low demand for mortgage, commercial and consumer loans may lower our
profitability.
3. After the stock offering our return on average equity will be low
compared to other publicly traded companies. This could hurt the price of
our common stock.
4. You may not be able to sell your shares when you desire, or for $10.00 or
more per share.
5. Our local economy may affect our future growth possibilities.
6. Strong competition within our market area may reduce our customer base.
7. The implementation of stock-based benefits will increae our future
compensation expense and reduce our earnings.
8. Consumer, commercial business and commercial real estate lending increase
lending risk because of the geographic concentration of such loans and
the higher risk that the loans will not be repaid.
9. We have broad discretion in allocating the proceeds of the offering. Our
failure to effectively apply such proceeds could hurt our profits.
10. AF Mutual Holding Company will continue to own a majority of Alamogordo
Financial's common stock.
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Signature Date Signature Date
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(Note: If shares are to be held jointly, BOTH parties must sign)
Execution of the certification form will not constitute a waiver of any rights
that a purchaser may have under the Securities Act of 1933, as amended. The
share of Common Stock being offered are not savings accounts or deposits and are
not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.
