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 11,
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 12 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 11, 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 Alamogordo 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 7, 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
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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
<TABLE>
<CAPTION>
Annualized
Last Year to Last -------------------
Month 3 Mos. Date 12 Mos. 3 Yr. 5 Yr.
----- ------ ---- ------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
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 12 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.
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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.
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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, 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 972,038 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 holding company for Alamogordo Federal
Savings and Loan Association. 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. We expect that Alamogordo Financial's common stock will be quoted on
the OTC Bulletin Board under the symbol "ALMO."
================================================================================
TERMS OF THE OFFERING
Price: $10.00 per share
Adjusted
Minimum Maximum Maximum
------- ------- -------
Number of shares .................. 624,750 845,250 972,038
Underwriting commissions and
fixed expenses .................. $ 600,000 $ 600,000 $ 600,000
Net proceeds ...................... $ 5,648,000 $ 7,853,000 $ 9,120,000
Net proceeds per share ............ $ 9.04 $ 9.29 $ 9.38
The Adjusted Maximum column reflects that we may increase the maximum number of
shares that we may sell to up to 972,038 shares. We will not sell more than
845,250 shares unless the Office of Thrift Supervision approves the increase.
Subscribers are not required to be notified of any increase in the number of
shares that we sell.
-------------------
This investment involves a high degree of risk, including
possible loss of principal.
PLEASE READ THE RISK FACTORS BEGINNING ON PAGE 12.
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.
------------------
Keefe, Bruyette & Woods, Inc.
------------------
The date of this prospectus is February 11, 2000
<PAGE>
TABLE OF CONTENTS
SUMMARY................................................................... 4
SELECTED FINANCIAL AND OTHER DATA.........................................10
RISK FACTORS..............................................................12
RECENT DEVELOPMENTS ......................................................14
AF MUTUAL HOLDING COMPANY.................................................18
ALAMOGORDO FINANCIAL CORPORATION..........................................19
ALAMOGORDO FEDERAL SAVINGS AND LOAN ASSOCIATION...........................19
HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING.......................19
OUR POLICY REGARDING DIVIDENDS............................................20
MARKET FOR COMMON STOCK ..................................................21
ALAMOGORDO FEDERAL'S REGULATORY CAPITAL COMPLIANCE........................21
ALAMOGORDO FINANCIAL'S CAPITALIZATION.....................................22
PRO FORMA DATA............................................................23
ALAMOGORDO FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME.........................................27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............................28
BUSINESS OF ALAMOGORDO FINANCIAL CORPORATION..............................37
REGULATION................................................................53
TAXATION..................................................................60
MANAGEMENT................................................................61
THE STOCK OFFERING........................................................68
RESTRICTIONS ON ACQUISITION OF ALAMOGORDO
FINANCIAL AND ALAMOGORDO FEDERAL..........................................79
DESCRIPTION OF CAPITAL STOCK OF
ALAMOGORDO FINANCIAL......................................................80
TRANSFER AGENTS...........................................................81
EXPERTS...................................................................81
LEGAL MATTERS.............................................................82
ADDITIONAL INFORMATION....................................................82
INDEX TO FINANCIAL STATEMENTS.............................................83
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 savings and loan association, 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. Our principal executive offices are located at 500
10th Street, Alamogordo, New Mexico, and our telephone number is (505) 437-9334.
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 in addition to
4
<PAGE>
its main office. Alamogordo Federal's branch and main office are both located in
Alamogordo, New Mexico. As of June 30, 1999, Alamogordo Federal's deposits
represented over 31% of all FDIC-insured deposits in Alamogordo, and over 28% of
all FDIC-insured deposits in Otero County, New Mexico. Based on total deposits,
Alamogordo Federal is the largest depository institution headquartered in
Alamogordo, the New Mexico County of Otero.
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
Financial Corporation--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 624,750 and 845,250 shares of common stock in the
offering. After the offering, AF Mutual Holding Company will own between 650,250
and 879,750 shares of common stock, and our total outstanding shares will be
between 1,275,000 and 1,725,000 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 972,038 shares in the offering, we will issue
1,011,713 shares to AF Mutual Holding Company, and we will have a total of
1,983,751 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. 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;
(3) Depositors with accounts at Alamogordo Federal having total balances
of at least $50 on December 31, 1999; and
5
<PAGE>
(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 Otero
County, New Mexico. 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.
We have the right to accept or reject any order that we receive in the community
offering or the underwritten public offering. We intend to accept properly
submitted orders we receive in the subscription offering unless we receive
orders for more shares than are available based on the independent appraisal. We
have the right, in our sole discretion and for any reason, to accept or reject
any order that we receive in the community offering or the underwritten public
offering.
Deadline for Orders of Common Stock
If you wish to purchase shares, you must submit, by mail, by 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
12:00, Mountain Standard Time, on March 15, 2000, unless we extend this
deadline. We may extend the offering period termination date for either or both
of the subscription offering and community 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 January 21, 2000, was between $12.75 million
and $17.25 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 624,750 and
972,038 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
650,250 and 1,011,713 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 $19.00, assuming we sell 735,000
shares at the midpoint of the offering range. This means that the price you pay
for each share in this offering will be 52.63% 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 14.71x and 17.86x, respectively, assuming we sell 735,000 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 Common Stock
Your orders for common stock will be limited in the following ways:
o the minimum order is 25 shares;
o in the subscription offering, the maximum amount that may be purchased
by an individual depositor or group of depositors with a single
deposit account, is $150,000;
o in the community offering, the maximum amount that an individual may
purchase is $150,000;
o the total amount that an individual with his or her associates may
purchase is $200,000; and
o 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 Stock Offering--Limitations on Common Stock Purchases." As a
result, you may receive a smaller number of shares than you ordered.
6
<PAGE>
For additional information on these purchase limitations see "The
Stock Offering--Limitations on Common Stock Purchases."
How You May Pay for Your Shares
In the subscription offering and the community offering you may only pay
for your shares by:
o personal check, official bank check or money order; or
o 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.
Termination of the Offering
The subscription offering will terminate at 12:00 Noon, Mountain Standard
Time, on March 15, 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.
What Happens to Your Subscription Funds Before the Offering is Completed
If you authorize Alamogordo Financial to withdraw subscription funds from
your deposit account at Alamogordo Federal, we will do so when the offering is
completed. The funds that you authorize to be withdrawn will continue to earn
interest based on the terms that you agreed to when you opened the account. You
will not be able to use these funds until the stock offering is completed or
terminated. If you subscribe by submitting cash, check or money order, your
funds will be held in an account at Alamogordo Federal until the stock offering
is completed, and Alamogordo Federal will pay you interest at its current
passbook rate. If you subscribe by submitting cash, check or a money order and
the stock offering is not completed, we will send you a refund check that will
include interest. If you subscribe by authorizing Alamogordo Financial to
withdraw funds from your deposit account and the stock offering is not
completed, then we will cancel the withdrawal authorization.
Steps We Can Take If We Do Not Receive Orders for the Minimum Number of Shares
We are required to sell at least 624,750 shares of common stock to complete
the stock offering. If we do not receive orders for at least 624,750 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.
Market for the Common Stock
We expect the common stock to be listed on the OTC Bulletin Board under the
symbol "ALMO." 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 735,000 shares at the midpoint of the offering, and our
offering expenses are $600,000, we intend to distribute the net proceeds from
the offering as follows:
o $3.4 million will be contributed to Alamogordo Federal;
o $588,000 will be loaned to the employee stock ownership plan of
Alamogordo Federal to fund its purchase of common stock; and
7
<PAGE>
o $2,8 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.
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 735,000 shares, we expect to ask our stockholders for
approval to grant options to purchase up to 73,500 of our shares and make stock
grants under the recognition and retention plan of up to 29,400 shares if the
recognition and retention plan is adopted within one year of the stock offering,
and 36,750 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 735,000
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........... $ 588,000 8.0% 3.9%
Recognition and retention plan.......... 294,000 4.0 2.0
Stock option plan....................... -- 10.0 4.9
-------------- ---------------- -------------
$ 882,000 22.0% 10.8%
============== ================ =============
</TABLE>
Total Shares That Will be Outstanding After the Offering
Our charter permits us to issue up to 10,000,000 shares of common stock. We
do not currently intend to issue additional shares after the conclusion of the
stock offering, other than pursuant to the stock benefit plans described above.
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) 443-2521.
9
<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 at and 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
Other income ....................... 108 53 260 213
Other expenses ..................... 766 785 3,022 2,611
------- ------- ------- -------
Income before income taxes ......... 322 176 975 1,651
Provision for income taxes ......... 93 38 296 536
------- ------- ------- -------
Net income ......................... $ 229 $ 138 $ 679 $ 1,115
======= ======= ======= =======
10
<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
Dividend payout ratio (4) .................................... -- -- -- --
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.
(4) Alamogordo Financial has not paid dividends during the periods presented.
11
<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 Market Risk."
After the stock offering our return on equity will be low compared to other
publicly traded companies. This could hurt the price of our common stock.
Our annualized return on equity for the three months ended September 30,
1999 and the fiscal years ended June 30, 1999 and 1998 was 4.06%, 3.03% and
5.18%, 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.
Public stockholders will own a minority of Alamogordo Financial's common stock
and will not be able to exercise voting control over most matters put to a vote
of stockholders.
Public stockholders will own a minority of the outstanding shares of
Alamogordo Financial's common stock. As a result, stockholders other than AF
Mutual Holding Company will not be able to exercise voting control over most
matters put to a vote of stockholders. AF Mutual Holding Company, through its
Board of Directors, will continue to own a majority of Alamogordo Financial's
common stock after the stock offering, and will be able to exercise voting
control over most matters put to a vote of stockholders. The same directors and
officers who manage Alamogordo Financial and Alamogordo Federal also manage AF
Mutual Holding Company. The only matters as to which stockholders other than AF
Mutual Holding Company will be able to exercise voting control include any
proposal to implement a restricted stock plan or stock option plan within one
year of the offering, and any proposal to convert AF Mutual Holding Company to
the stock form of organization, although a proposal to convert AF Mutual Holding
Company to stock form would also require approval of depositors and others.
Moreover, even if regulatory policy permitted acquisitions of mutual holding
companies, AF Mutual Holding Company could exercise voting control to prevent a
merger in which stockholders could receive a premium for their shares. 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."
12
<PAGE>
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.
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. Moreover, many of our competitors offer services through the
Internet, which we do not offer, and many larger institutions that do not have a
physical presence in our market area compete with us through the use of the
Internet. Our profitability depends upon our continued ability to successfully
compete in our market area.
Our loans are concentrated in a small geographic area.
Our loan portfolio is primarily secured by real estate located in
Alamogordo, New Mexico. Accordingly, the asset quality of our loan portfolio is
largely dependent upon the economy and unemployment rate in this area. A
downturn in our primary lending area would adversely affect our operations and
profitability. Moreover, a downturn in the local economy may affect us more
severely than some of our larger competitors whose lending operations are more
geographically diverse.
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.
There are many factors beyond our control that affect the demand for loans.
There are many factors beyond our control that can affect the demand for
loans. Because making loans is our primary business and primary source of
profits, our inability to insure a demand for loans is a continuing risk to our
results of operations. 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. 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.
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
13
<PAGE>
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.
Banking reform legislation may increase competition.
In November 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 services than we currently offer and that can
aggressively compete in the markets we currently serve. This could adversely
impact our profitability.
RECENT DEVELOPMENTS
The following selected financial data, summary of operations and key
operating ratios and other data at and for the three and six months ended
December 31, 1999 and 1998 is unaudited. In the opinion of management, all
adjustments, consisting only of recurring accruals, necessary for a fair
presentation have been included. The summary of operations and key operating
ratios and other data at and for the three and six months ended December 31,
1999 and 1998 do not necessarily mean that results for any other period will be
similar.
Selected Financial Data
<TABLE>
<CAPTION>
December 31 September 30, June 30,
1999 1999 1999
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Total assets................................................ $ 156,685 $ 156,684 $ 156,158
Loans receivable, net ...................................... 117,451 117,085 115,949
Mortgage-backed securities:
Held to maturity......................................... 254 275 319
Available for sale....................................... 2,775 2,927 3,114
Securities:
Held to maturity......................................... 4,961 1,922 3,154
Available for sale....................................... 12,948 13,097 13,916
Deposits.................................................... 123,351 122,410 122,460
Total borrowings............................................ 10,000 10,000 10,000
Equity...................................................... 22,702 22,633 22,441
</TABLE>
<TABLE>
<CAPTION>
Summary of Operations
Three Months Six Months
Ended December 31, Ended December 31,
-------------------- --------------------
1999 1998 1999 1998
--------- --------- --------- ------
(In thousands)
<S> <C> <C> <C> <C>
Total interest income....................................... $ 2,647 $ 2,786 $ 5,281 $ 5,590
Total interest expense...................................... 1,674 1,877 3,328 3,773
-------- -------- -------- -------
Net interest income...................................... 973 909 1,953 1,817
Provision for loan losses................................... -- -- -- --
-------- -------- -------- -------
Net interest income after provision for loan losses 973 909 1,953 1,817
Other income................................................ 84 65 192 118
Other expenses.............................................. 796 751 1,562 1,536
-------- -------- -------- -------
Income before income taxes.................................. 261 223 583 399
Provision for income taxes.................................. 102 66 195 104
-------- -------- -------- -------
Net income.................................................. $ 159 $ 157 $ 388 $ 295
======== ======== ======== =======
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Key Operating Ratios and Other Data
At or for the At or for the
Three Months Ended Six Months Ended
December 31, December 31,
---------------------- -----------------
1999 1998 1999 1998
--------- --------- --------- ------
<S> <C> <C> <C> <C>
Performance Ratios (1):
Return on assets (ratio of net income to average total
assets) .................................................. 0.41 0.39 0.49 0.37
Return on equity (ratio of net income to average equity) ... 2.81 2.82 3.43 2.65
Average interest rate spread................................ 2.36 1.95 2.38 1.93
Interest rate spread at end of period....................... 2.38 1.99 2.39 1.99
Net interest margin (2)..................................... 2.75 2.44 2.77 2.44
Ratio of operating expense to average total assets ......... 2.03 1.86 1.99 1.91
Ratio of average interest-earning assets to
average interest-bearing liabilities...................... 108.15 109.75 108.40 110.01
Efficiency ratio (3)........................................ 75.31 77.08 72.82 79.38
Dividend payout ratio (4)................................... -- -- -- --
Asset Quality Ratios:
Non-performing assets to total assets at end of period ..... 0.15 0.44 0.15 0.44
Allowance for loan losses to non-performing loans .......... 259.12 68.03 259.12 68.03
Allowance for loan losses to gross loans receivable ........ 0.39 0.41 0.39 0.41
Capital Ratios:
Equity to total assets at end of period..................... 14.49 13.93 14.49 13.93
Average equity to average assets............................ 14.41 13.86 14.38 13.82
Other Data:
Number of full-service offices.............................. 2 2 2 2
- --------------------------
(1) Ratios 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.
(4) Alamogordo Financial has not paid dividends during the periods presented.
</TABLE>
Management's Discussion and Analysis of Financial Condition At December 31, 1999
and June 30, 1999
Alamogordo Financial's total assets increased by $527,000, or .3%, to
$156.7 million at December 31, 1999, from $156.2 million at June 30, 1999. The
increase resulted primarily from an increase in loans receivable and securities,
partially offset by a decrease in cash and cash equivalents. Loans receivable
increased by $1.5 million, or 1.3%, to $117.4 million from $115.9 million as a
result of new loan originations surpassing principal repayments and loan
payoffs. Securities, including mortgage-backed securities, increased by
$435,000, or 2.1%, to $20.9 million from $20.5 million as a result of new
purchases surpassing maturities and repayments. Cash and cash equivalents
decreased by $1.4 million, or 16.3%, to $7.1 million from $8.5 million primarily
due to the annual payment of county property taxes for borrowers.
Total deposits increased by $891,000, or .7%, to $123.4 million at December
31, 1999 from $122.5 million at June 30, 1999. The increase resulted from a $1.1
million, or 1.1%, increase in term certificates to $103.6 million from $102.5
million, offset by a $178,000, or .1%, decrease in transaction and savings
deposits to $19.8 million from $20.0 million. The increase in term certificates
resulted primarily from an increase in public funds. Total borrowings were
unchanged at $10.0 million.
Equity increased by $261,000, or 1.16%, to $22.7 million from $22.4 million
primarily due to earnings over the period, partially offset by a $127,000
decrease in accumulated other comprehensive income related to unrealized losses
on securities available for sale. As of December 31, 1999, Alamogordo Federal
had $22.7 million of tangible capital or 14.4% of tangible assets, $22.7 million
of core capital or 14.4% of total adjusted assets, and $23.1 million of
risk-based capital or 29.9% of risk-weighted assets.
15
<PAGE>
Comparison of Operating Results for the Three Months Ended December 31, 1999 and
1998
General. Net income increased by $2,000, or 1.3%, to $159,000 for the three
months ended December 31, 1999, from $157,000 for the three months ended
December 31, 1998. The increase resulted from an increase in net interest income
and other income, partially offset by an increase in other expense and the
provision for income taxes. Alamogordo Federal's computers and data processors
did not experience any difficulties related to their ability to correctly
identify the year 2000.
Interest Income. Interest income decreased by $139,000, or 5.0%, to $2.6
million for the three months ended December 31, 1999 from $2.8 million for the
three months ended December 31, 1998. The decrease resulted from a decrease in
interest on securities and other interest-earning assets, partially offset by an
increase in interest and fees on loans. Interest and fees on loans receivable
increased by $36,000, or 1.6%. The increase resulted from a $6.3 million, or
5.7%, increase in the average balance of loans receivable to $117.2 million from
$110.9 million, partially offset by a 32 basis point decrease in the average
yield on the loan portfolio to 7.80% from 8.12%. The increase in average balance
of loans receivable resulted from a net increase in both mortgage and consumer
and other loans. The decrease in the average yield resulted from the prepayment
of higher yielding loans in a declining interest rate environment. The decrease
in average yield also resulted, in part, from downward adjustments in
adjustable-rate loans. Interest on securities, including mortgage-backed
securities and other interest-earning assets, decreased by $175,000, or 32.7%,
to $360,000 from $535,000. This decrease resulted from a $4.1 million, or 16.3%,
decrease in the average balance of securities due to maturities and repayment of
principal, and a 10 basis point decrease in the average yield on securities. The
average balance of other interest-earning assets decreased by $9.4 million, the
effects of which were partially offset by an increase in the average yield of
190 basis points.
Interest Expense. Interest expense on deposits decreased by $203,000, or
11.6%, to $1.5 million for the three months ended December 31, 1999 from $1.8
million for the three months ended December 31,1998. Interest expense on
transaction and savings accounts decreased to $101,000 from $111,000, as the
average balance of transaction and savings accounts remained relatively stable,
and the average cost decreased to 2.27% from 2.46%. Interest expense on
certificate accounts decreased by $193,000, to $1.4 million from $1.6 million,
as the average balance of certificate accounts decreased by $4.6 million and the
average cost decreased by 48 basis points. Interest expense on borrowings
remained stable at $127,000. The decrease in certificate accounts resulted
primarily 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 $64,000, or 7.0%, to
$973,000 for the three months ended December 31, 1999 from $909,000 for the
three months ended December 31, 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 41 basis points to
2.36% from 1.95%.
Provision for Loan Losses. Our policy regarding provisions for loan losses
is described in "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Comparison of Operating Results for the Three Months
Ended September 30, 1999 and 1998." Based on our evaluation of the factors
described in that section, and based on loan allowance recoveries of $7,000 and
charge-offs of $5,000 for the three months ended December 31, 1999, and no
charge-offs or recoveries for the three months ended December 31, 1998, we made
no provision for loan losses. The allowance for loan losses decreased to
$469,000, or 259.1% of total nonperforming loans at December 31, 1999 from
$473,000, or 259.1% of total nonperforming loans at June 30, 1999. Management
believes that the allowance for loan losses at December 31, 1999 was adequate.
Other Income. Total other income includes service charges and fees, lease
income, gain (loss) on sale of real estate owned and premises and equipment, and
other. Total other income increased by $19,000, or 29.2%, to $84,000 from
$65,000. Service charges and fees increased by $16,000 primarily due to ATM fee
income and deposit account service charges. Lease income increased by $5,000 as
a result of increased tenant occupancy of the office building.
Other Expense. Total other expense increased by $45,000, or 6.1%, to
$796,000 for the three months ended December 31, 1999 from $751,000 for the
three months ended December 31, 1998. A decrease in the deferral of loan
origination costs, which was offset by employee compensation expense,
contributed $16,000 to this increase as new loan originations decreased during
the latter period. Advertising expense increased $9,000 primarily due to
additional marketing programs. These increases were partially offset by a
$15,000 decrease in data processing fees due to Alamogordo Federal's conversion
of its data processing system during the earlier period.
16
<PAGE>
Provision for Income Taxes. The provision for income taxes increased to
$102,000, or 39.1% of net income before income taxes, from $66,000, or 29.6% 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.
Comparison of Operating Results for the Six Months Ended December 31, 1999 and
1998
General. Net income increased by $93,000, or 31.7%, to $388,000 for the six
months ended December 31, 1999, from $295,000 for the six months ended December
31, 1998. The increase resulted from an increase in net interest income and
other income, partially offset by an increase in other expense and the provision
for income taxes.
Interest Income. Interest income decreased by $309,000, or 5.5%, to $5.3
million for the six months ended December 31, 1999 from $5.6 million for the six
months ended December 31, 1998. The decrease resulted from a decrease in
interest on securities and other interest-earning assets, partially offset by an
increase in interest and fees on loans. Interest and fees on loans receivable
increased by $114,000, or 2.6%. The increase resulted from a $7.2 million, or
6.5%, increase in the average balance of loans receivable to $116.9 million from
$109.7 million, partially offset by a 30 basis point decrease in the average
yield on the loan portfolio to 7.83% from 8.13%. The increase in average balance
of loans receivable resulted from a net increase in both mortgage and consumer
and other loans. The decrease in the average yield resulted from the prepayment
of higher yielding loans in a declining interest rate environment. The decrease
in average yield also resulted, in part, from downward adjustments in
adjustable-rate loans. Interest on securities, including mortgage-backed
securities and other interest-earning assets, decreased by $423,000, or 37.5%,
to $704,000 from $1.1 million. This decrease resulted from an $8.7 million, or
30.2%, decrease in the average balance of securities due to maturities and
repayment of principal, and an 8 basis point decrease in the average yield on
securities. The average balance of other interest-earning assets decreased by
$6.8 million, the effects of which were partially offset by a 76 basis point
increase in the average yield.
Interest Expense. Interest expense on deposits decreased by $441,000, or
12.5%, to $3.1 million for the six months ended December 31, 1999 from $3.5
million for the six months ended December 31,1998. Interest expense on
transaction and savings accounts decreased to $197,000 from $245,000, as the
average balance of transaction and savings accounts remained relatively stable,
and the average cost decreased to 2.18% from 2.72%. Interest expense on
certificate accounts decreased by $393,000, to $2.9 million from $3.3 million,
as the average balance of certificate accounts decreased by $5.6 million and the
average cost decreased by 44 basis points. Interest expense on borrowings
decreased to $250,000 from $254,000. The decrease in certificate accounts
resulted primarily 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 $136,000, or 7.5%, to
$1.9 million for the six months ended December 31, 1999 from $1.8 million for
the six months ended December 31, 1998. The 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 45 basis points
to 2.38% from 1.93%.
Provision for Loan Losses. Our policy regarding provisions for loan losses
is described in "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Comparison of Operating Results for the Three Months
Ended September 30, 1999 and 1998." Based on the factors described in that
section, and based on net loan charge-offs of $3,000 and $5,000 during the six
months ended December 31, 1999 and 1998, respectively, we made no provision for
loan losses in either period. Management believes that the allowance for loan
losses at December 31, 1999 was adequate.
Other Income. Total other income increased by $74,000, or 62.7%, to
$192,000 from $118,000. Service charges and fees increased by $33,000 primarily
due to ATM fee income and deposit account service charges. Lease income
increased by $10,000 as a result of increased tenant occupancy of the office
building. Gain on sale of real estate totaled $29,000 for the six months ended
December 31, 1999, as compared to no gain for the previous period as a result of
the sale of land.
Other Expense. Total other expense increased by $26,000, or 1.7%, to $1.6
million for the six months ended December 31, 1999 from $1.5 million for the six
months ended December 31, 1998. The net increase was the result primarily of the
opening of Alamogordo Federal's second branch office.
Provision for Income Taxes. The provision for income taxes increased to
$195,000, or 33.4% of net income before income taxes, from $104,000, or 26.1% 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.
17
<PAGE>
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% 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.
18
<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.
The table below sets forth the proceeds that Alamogordo Financial will
receive if the minimum, midpoint, maximum and adjusted maximum number of shares
are sold in the offering, and the manner in which Alamogordo Financial intends
to distribute the new proceeds of the offering:
<TABLE>
<CAPTION>
Number of Shares Sold at Price of $10.00 Per Share
--------------------------------------------------
624,750 735,000 845,250 972,038
------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C>
Gross proceeds ............................................. $ 6,248 $ 7,350 $ 8,453 $9,720
Offering expenses .......................................... 600 600 600 600
------- ------- ------- -------
Net offering proceeds ...................................... 5,648 6,750 7,853 9,120
Less:
Proceeds contributed to Alamogordo Federal for its general
corporate purposes (including funding the recognition
and retention plan) ................................... 2,824 3,375 3,927 4,560
Proceeds used for loan to employee stock ownership plan .. 500 588 676 778
------- ------- ------- -------
Proceeds remaining for Alamogordo Financial's
general corporate purposes ............................... $ 2,324 $ 2,787 $ 3,250 $ 3,782
======= ======= ======= =======
</TABLE>
19
<PAGE>
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.
Although we have not determined the exact amount of proceeds that will
be used for each of the purposes set forth above, we believe that the offering
is in the best interest of Alamogordo Financial and Alamogordo Federal because
it will enhance our ability to grow and compete with other financial service
providers in the products and services we offer and in our ability to attract
and retain management and employees through various stock benefit plans.
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 "Regulation -- Capital Distributions."
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."
Additionally, Alamogordo Financial has committed to the Office of
Thrift Supervision that during the one-year period following the stock offering
Alamogordo Financial will not take any action to declare an extraordinary
dividend to stockholders that would be treated by recipients as a tax-free
return of capital for federal income tax purposes.
20
<PAGE>
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 "ALMO" 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.
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 for $10.00 per share 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
----------------------------------------------------------------------------------------------
972,038 Shares(1)
624,750 Shares 735,000 Shares 845,250 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% $24,684 15.5% $25,103 15.7% $25,523 15.9% $26,003 16.2%
======= ===== ======= ==== ======= ==== ======= ==== ======= =====
Tangible capital:
Tangible capital(3). $22,916 14.6% $24,990 15.7% $25,409 15.9% $25,829 16.1% $26,309 16.3%
Requirement......... 2,356 1.5 2,394 1.5 2,402 1.5 2,410 1.5 2,418 1.5
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Excess........... $20,560 13.1% $22,596 14.2% $23,007 14.4% $23,419 14.6% $23,891 14.8%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
Core capital:
Core capital(3)..... $22,916 14.6% $24,990 15.7% $25,409 15.9% $25,829 16.1% $26,307 16.3%
Requirement(4)...... 4,712 3.0 4,789 3.0 4,804 3.0 4,819 3.0 4,837 3.0
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Excess........... $18,204 11.6% $20,201 12.7% $20,605 12.9% $21,010 13.1% $21,470 13.3%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
Risk-based capital:
Risk-based
capital(3)(5).... $23,383 31.1% $25,457 33.3% $25,876 33.7% $26,296 34.2% $26,776 34.7%
Requirement......... 6,018 8.0 6,117 8.0 6,136 8.0 6,156 8.0 6,178 8.0
------- ----- ------- ----- ------- ---- ------- ----- ------- -----
Excess........... $17,365 23.1% $19,340 25.3% $19,740 25.7% $20,140 26.2% $20,281 26.7%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</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 -- Standards for Safety and Soundness -- 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.
21
<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
----------------------------------------------------------
972,038
624,750 735,000 845,250 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, $.10 par value, 10,000,000
shares authorized; none to be issued(3)....... $ -- $ -- $ -- $ -- $ --
Common Stock, $.10 par value per share:
10,000,000 shares authorized; shares to be
issued as reflected.......................... -- 12 15 17 20
Additional paid-in capital(3)................. -- 5,636 6,735 7,836 9,100
Retained earnings............................. 22,633 22,633 22,633 22,633 22,633
Less:
Common Stock acquired by ESOP(4)............. -- (500) (588) (676) (778)
Common Stock acquired by
recognition and retention plan(5)........... -- (250) (294) (338) (389)
-------- -------- --------- --------- ---------
Total stockholders' equity.................. $ 22,633 $ 27,530 $ 28,501 $ 29,472 $ 30,586
======== ======== ========= ========= =========
Total stockholders' equity as a percentage
of pro forma total assets.................... 14.44% 17.04% 17.53% 18.02% 18.58%
</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 --
Benefit Plans."
(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.
22
<PAGE>
PRO FORMA DATA
We are not able to 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 $5.6 million and $7.9 million, or $9.1 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
Keefe, Bruyette & Woods, 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.
23
<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
624,750 735,000 845,250 972,038
Shares Shares Shares Shares(1)
--------- --------- --------- -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Gross proceeds.................................................. $ 6,248 $ 7,350 $ 8,453 $ 9,720
Expenses........................................................ 600 600 600 600
--------- --------- --------- ---------
Estimated net proceeds........................................ 5,648 6,750 7,853 9,120
Common stock purchased by ESOP(2)............................. (500) (588) (676) (778)
Common stock purchased by
recognition and retention plan(3)........................... (250) (294) (338) (389)
--------- --------- --------- ---------
Estimated net proceeds after adjustment for stock benefit plans. $ 4,898 $ 5,868 $ 6,839 $ 7,953
========= ========= ========= =========
For the three months ended September 30, 1999:
Net income:
Historical.................................................... $ 229 $ 229 $ 229 $ 229
Pro forma adjustments:
Income on net proceeds........................................ 39 47 55 64
ESOP(2)....................................................... (8) (9) (10) (12)
Recognition and retention plan(3)............................. (8) (9) (10) (12)
--------- --------- --------- ---------
Pro forma net income........................................ $ 252 $ 258 $ 264 $ 269
========= ========= ========= =========
Net income per share:
Historical.................................................... $ 0.19 $ 0.16 $ 0.14 $ 0.12
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)..................... $ 0.20 $ 0.17 $ 0.15 $ 0.13
========= ========= ========= =========
Offering price to pro forma net income per share................ 12.50x 14.71x 16.67x 19.23x
========= ========= ========= =========
Shares considered outstanding in calculating pro forma net
income per share.............................................. 1,226,270 1,442,670 1,659,070 1,907,932
========= ========= ========= =========
At September 30, 1999:
Stockholders' equity:
Historical.................................................... $ 22,633 $ 22,633 $ 22,633 $ 22,633
Estimated net proceeds........................................ 5,648 6,750 7,853 9,120
Less: Common stock acquired by ESOP(2)....................... (500) (588) (676) (778)
Common stock acquired by
recognition and retention plan(3).................... (250) (294) (338) (389)
--------- --------- --------- ---------
Pro form stockholders' equity(5)............................. $ 27,531 $ 28,501 $ 29,472 $ 30,586
========= ========= ========= =========
Stockholders' equity per share:
Historical.................................................... $ 17.75 $ 15.09 $ 13.12 $ 11.41
Estimated net proceeds........................................ 4.43 4.50 4.55 4.60
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)............. $ 21.59 $ 19.00 $ 17.08 $ 15.42
========= ========= ========= =========
Offering price as a percentage of pro forma stockholders'
equity per share.............................................. 46.32% 52.63% 58.55% 64.85%
========= ========= ========= =========
Shares considered outstanding in calculating offering price
as a percentage of pro forma stockholders' equity per share... 1,275,000 1,500,000 1,725,000 1,983,751
========= ========= ========= =========
</TABLE>
(Footnotes begin on following page)
24
<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
624,750 735,000 845,250 972,038
Shares Shares Shares Shares(1)
--------- --------- --------- -----------
(Dollars and Number of Shares in Thousands)
<S> <C> <C> <C> <C>
Gross proceeds.................................................. $ 6,248 $ 7,350 $ 8,453 $ 9,720
Expenses........................................................ 600 600 600 600
--------- --------- --------- ---------
Estimated net proceeds........................................ 5,648 6,750 7,853 9,120
Common stock purchased by ESOP(2)............................. (500) (588) (676) (778)
Common stock purchased by recognition and retention plan(3)... (250) (294) (338) (389)
--------- --------- --------- ---------
Estimated net proceeds after adjustment for stock benefit plans. $ 4,898 $ 5,868 $ 6,839 $ 7,953
========= ========= ========= =========
For the fiscal year ended June 30, 1999:
Net income:
Historical.................................................... $ 679 $ 679 $ 679 $ 679
Pro forma adjustments:
Income on net proceeds........................................ 155 185 216 251
ESOP(2)....................................................... (31) (36) (42) (48)
Recognition and retention plan(3)............................. (31) (46) (42) (48)
--------- --------- --------- ---------
Pro forma net income........................................ $ 772 $ 792 $ 811 $ 834
========= ========= ========= =========
Net income per share:
Historical.................................................... $ 0.55 $ 0.47 $ 0.41 $ 0.35
Pro forma adjustments:
Income on net proceeds........................................ 0.13 0.13 0.13 0.13
ESOP(2)....................................................... (0.03) (0.02) (0.03) (0.03)
Recognition and retention plan(3)............................. (0.03) (0.02) (0.03) (0.03)
--------- --------- --------- ---------
Pro forma net income per share(2)(3)(4)..................... $ 0.62 $ 0.56 $ 0.48 $ 0.42
========= ========= ========= =========
Offering price to pro forma net income per share................ 16.13x 17.86x 20.83x 23.81x
========= ========= ========= =========
Shares considered outstanding in calculating pro forma net
income per share.............................................. 1,230,018 1,447,080 1,664,142 1,913,764
========= ========= ========= =========
At June 30, 1999:
Stockholders' equity:
Historical.................................................... $ 22,441 $ 22,441 $ 22,441 $ 22,441
Estimated net proceeds........................................ 5,648 6,750 7,853 9,120
Less: Common stock acquired by ESOP(2)....................... (500) (588) (676) (778)
Common stock acquired by
recognition and retention plan(3).................... (250) (294) (338) (389)
--------- --------- ---------- ---------
Pro form stockholders' equity(5)............................. $ 27,339 $ 28,309 $ 29,280 $ 30,394
========= ========= ========= =========
Stockholders' equity per share:
Historical.................................................... $ 17.60 $ 14.96 $ 13.01 $ 11.31
Estimated net proceeds........................................ 4.43 4.50 4.55 4.60
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)............. $ 21.44 $ 18.87 $ 16.97 $ 15.32
========= ========= ========= =========
Offering price as a percentage of pro forma stockholders'
equity per share.............................................. 46.64% 52.99% 58.93% 65.27%
========= ========= ========= =========
Shares considered outstanding in calculating offering price
as a percentage of pro forma stockholders' equity per share... 1,275,000 1,500,000 1,725,000 1,983,751
========= ========= ========= =========
</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)
25
<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) 1,250,
1,470, 1,691 and 1,944 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)
4,998, 5,880, 6,672 and 7,776 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 $0.19, $0.17, $0.15, and $0.13, and pro
forma stockholders' equity per share at September 30, 1999 would be $21.38,
$18.84, $16.96 and $15.22 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 $0.63, $0.55, $0.49
and $0.44, and pro forma stockholders' equity per share at June 30, 1999
would be $21.23, $18.71, $16.85 and $15.22 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 $0.19, $0.16, $0.15 and $0.13 and pro forma stockholders' equity
per share at September 30, 1999 and would be $21.05, $18.58, $16.76 and
$15.17, 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 $0.62, $0.55, $0.49 and $0.44, and
pro forma stockholders' equity per share at June 30, 1999 would be $20.91,
$18.46, $16.65 and $15.07, 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 "Our Policy
Regarding Dividends" and "Regulation--Federal Regulation of Savings
Institutions."
26
<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
27
<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.
28
<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 Otero 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
29
<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. A basis point equals one
one-hundredth of one percentage point, and 100 basis points equals one
percentage point. A change in interest rates to 8% from 7% would mean, for
example, a 100 basis point increase in the "Changes in Market Interest Rates"
column below.
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.
30
<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)
31
<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.
32
<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:
Transaction 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. Premises and equipment decreased by $88,000, primarily due to an
increase in accumulated depreciation and the sale of land by Alamogordo
Federal's subsidiary, Space Age City Service Corporation, partially offset by an
increase in furniture and equipment due to improvements to Alamogordo Federal's
main office facility and the addition of a new ATM.
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
33
<PAGE>
$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, 30 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 were 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 loss experience, evaluations of
real estate collateral, economic conditions, volume and type of lending and the
levels of nonperforming and other classified loans. Based on our evaluation of
these factors, and our $5,000 of net loan charge-offs during the three months
ended September 30, 1999 and 1998, we made no provision for loan losses during
these periods. Our allowance for loan losses was $467,000, or 176.2% of total
nonperforming loans at September 30, 1999. 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.
Management believes that the allowance for loan losses at September 30, 1999 was
adequate. 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
34
<PAGE>
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.
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. Loans 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. Premises and equipment increased by
$101,000 primarily due to the completion of a branch located in the local Super
Wal-Mart and an additional ATM location, and the purchase of land for a new ATM
location. The effects of these increases were partially offset by an increase in
accumulated depreciation.
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 due to an increase in
the average yield on such 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.
35
<PAGE>
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 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 loss experience, evaluations of
real estate collateral, economic conditions, volume and type of lending and the
levels of nonperforming and other classified loans. Based on our evaluation of
these factors, and Alamogordo Federal's net loan charge-offs of $14,000 and
$63,000 for the years ended June 30, 1999 and 1998, respectively, Alamogordo
Federal made no provision for loan losses during these periods. 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. 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.
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. Management
believes that the allowance for loan losses at June 30, 1999 and 1998 was
adequate.
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.
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.
Alamogordo Federal will receive 50% of the net proceeds of the offering, or
approximately $2.8 million at the minimum of the offering range and $4.6 million
at the adjusted maximum of the offering range. Management of Alamogordo Federal
intends to initially invest a substantial portion of these funds in shorter-term
investments that are considered "liquid" investments, and, as a result,
Alamogordo Federal's liquidity will be initially increased due to the proceeds
received from the stock offering. The effects of the stock offering on liquidity
are likely to decrease over time as the offering proceeds are deployed into
other investments and activities, such as establishing or acquiring additional
branch offices, funding new loans, and funding the recognition and retention
plan or for general corporate purposes.
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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 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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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, 1999, our deposits represented over 31% of all FDIC- insured deposits in
Alamogordo, and over 28% 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. Moreover, many of our
competitors offer services through the Internet, which we do not offer, and many
larger institutions that do not have a physical presence in our market area
compete with us through the use of the Internet.
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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In November 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 services than we currently
offer and that can aggressively compete in the markets we currently serve.
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>
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<PAGE>
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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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.
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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 management
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
("VA"). 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
43
<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 period.... $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 period.......... $117,085 $108,533 $115,949 $109,766
======== ======== ======== ========
</TABLE>
Loan Approval Procedures and Authority. Once we receive a completed
application, it is presented to the Loan Committee which consists of Alamogordo
Federal's directors, senior
44
<PAGE>
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 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 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.
45
<PAGE>
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>
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%
====== ===== =====
46
<PAGE>
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.
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.
47
<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
48
<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.
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.
49
<PAGE>
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>
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>
50
<PAGE>
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%
======== ======== ======== ========
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>
51
<PAGE>
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.
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
52
<PAGE>
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.
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
53
<PAGE>
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.
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.
54
<PAGE>
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. At September 30, 1999, Alamogordo Federal's liquidity,
as measured for regulatory purposes, was in excess of the minimum requirement.
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%. At September 30, 1999,
Alamogordo Federal was categorized as "well capitalized" under the prompt
corrective action regulations.
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.
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.
55
<PAGE>
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
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.
56
<PAGE>
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.
As of September 30, 1999, Alamogordo Federal was in compliance with all
regulatory capital requirements. See "Alamogordo Federal's 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, (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. As of September 30, 1999,
Alamogordo Federal was in compliance with all loans to one borrower limitations.
See "Business of Alamogordo Financial Corporation -- Lending Activities" for
further information.
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<PAGE>
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
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.
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Holding Company Regulation
General. 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 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.
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<PAGE>
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.
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 is a summary of the material federal
income tax matters relating to the taxation of Alamogordo Financial and
Alamogordo Federal. The summary 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.
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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.
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
Alamogordo Financial has 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.
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Directors
Composition of Our Boards. Alamogordo Financial has 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, Alamogordo Financial elects
Alamogordo Federal's directors.
The five directors of Alamogordo Financial also serve as the directors
of Alamogordo Federal. The directors of Alamogordo Federal are divided into
three classes with staggered three-year terms of office, similar to our Board of
Directors.
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>
Who Our Executive Officers Are. The following table states the names of
Alamogordo Federal's 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.
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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
Alamogordo Financial's 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. Alamogordo Financial's 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.
Indemnification of Officers and Directors
Federal regulations require that federal mid-tier holding companies,
such as Alamogordo Financial, indemnify any person against whom any action is
brought or threatened because that person is or was a director or officer of the
company for any amount for which that person becomes liable under a judgment in
such action. Indemnification would include reasonable costs and expenses
actually paid or incurred by that person in defending or settling such action,
or in enforcing his or her rights under federal regulations if he or she attains
a favorable judgment in such enforcement action.
Indemnification will also be made if there is a final judgment on the
merits in such person's favor. In the case of settlement, final judgment against
such person, or final judgment in such person's favor other than on the merits,
then such person shall be indemnified only if a majority of the disinterested
directors of the company determine that such person was or believed himself to
be acting in good faith and within the scope of his or her employment or
authority. No such indemnification shall be made if the OTS advises the company
that it objects to the indemnification.
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 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 Committees 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.
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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 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.
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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.
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
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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 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.
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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 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.
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Certain Transactions with Directors 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 of Adjusted Maximum
Name Amount of shares Offering Range 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 ................ 20,000 2,000 * *
Executive officers who are
not directors (4 persons) ........ 86,000 8,600 1.2 *
-------- ------ ---- ----
Total to be purchased by directors
and executive officers ......... $506,000 50,600 7.1% 4.6%
======== ====== ==== ====
</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 $6.2 million
and $8.5 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 $12.75 million to a maximum of $17.25 million with a midpoint of
$15.0 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 1,275,000 to 1,725,000, and the number of
shares of Alamogordo Financial's common stock that will be sold in the stock
offering will range from between 624,750 shares to 845,250 shares, with a
midpoint of 735,000 shares. The number of shares that AF Mutual Holding Company
will own after the offering will range from 650,250 to 879,750. 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 $12.75 million or above $19.84 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 $19.84 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 1,983,751 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 972,038 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 1,011,713 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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<PAGE>
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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<PAGE>
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 remaining
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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, and Supplemental
Eligible Account Holders, and to the extent not qualified in the first or third
priority, 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. 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. See "--Limitations on Stock Purchases."
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 Otero County, New Mexico. 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. 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;
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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 (8) 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:
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 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 (8) below;
(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 (8)
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
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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;
(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; and
(8) 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
5.0% of the number of shares sold in the stock offering, or
further increase it to a maximum of 9.99% of the number of shares
sold in the stock offering provided that orders for shares
exceeding 5.0% of the shares being offered in the stock offering
shall not exceed, in the aggregate, 10.0% 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 Keefe, Bruyette & Woods 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 stock in the
Subscription Offering and Community Offering. The services that Keefe, Bruyette
& Woods 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;
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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, Keefe, Bruyette & Woods will receive a management fee
of $25,000 and a success fee of $75,000 if the stock offering is completed.
Alamogordo Financial has agreed to indemnify Keefe, Bruyette & Woods against
certain claims or liabilities, including certain liabilities under the
Securities Act of 1933, as amended, and will contribute to payments Keefe,
Bruyette & Woods 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 Keefe, Bruyette & Woods. Keefe,
Bruyette & Woods 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 March 15,
2000, 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. This certification form is found on the back of the order form.
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;
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.
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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.
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.
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Tax Effects of the Offering
A sale of shares of common stock for cash is generally a non-taxable
event under Section 1032 of the Code, and management believes that the offering
will not have a material federal or New Mexico income tax consequence to
Alamogordo Federal, Alamogordo Financial, or AF Mutual Holding Company.
Management believes that no gain or loss will be recognized by Alamogordo
Federal upon the receipt of offering proceeds from Alamogordo Financial, and
that no gain or loss will be recognized by Alamogordo Financial upon the receipt
of subscription proceeds for its common stock. Management also believes that the
basis of Alamogordo Financial common stock to shareholders will be the purchase
price thereof and that a shareholder's holding period for the common stock
acquired through the exercise of subscription rights will begin on the date of
consummation of the offering.
There is a possibility that the receipt and/or exercise of the
subscription rights by Eligible Account Holders and Supplemental Eligible
Account Holders could result in taxable gain or income to the extent that these
purchase rights are determined to have a fair market value. Alamogordo Financial
and Alamogordo Federal have received a letter issued by RP Financial stating
that RP Financial believes that subscription rights issued in connection with
the offering will have no value. Unlike a private letter ruling, the letter of
RP Financial does not have a binding effect or official status, and no assurance
can be given that the conclusions reached by RP Financial would be sustained by
a court if contested by the IRS. If it is subsequently established that the
subscription rights have an ascertainable fair market value, then the
subscription rights will be taxable to the recipient in the amount of the fair
market value of the subscription rights.
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;
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.
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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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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 -- Future Stock Benefit Plans."
DESCRIPTION OF CAPITAL STOCK OF
ALAMOGORDO FINANCIAL
General
Alamogordo Financial is authorized to issue 10,000,000 shares of common
stock having a par value of $.10 per share. 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. 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.
80
<PAGE>
Alamogordo Financial currently expects that it will have a maximum of
up to 1,983,751 shares of common stock outstanding after the stock offering. The
board of directors can, without stockholder approval, issue additional shares of
common stock, although AF Mutual Holding Company, so long as it is in existence,
must own a majority of Alamogordo Financial's outstanding shares of common
stock. Alamogordo Financial's issuance of additional shares of common stock
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 additional shares of
common stock other than pursuant to the stock benefit plans previously
discussed.
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
The transfer agent and registrar for Alamogordo Financial common stock
is American Securities Transfer & Trust, Inc., Denver, Colorado.
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.
81
<PAGE>
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.
LEGAL MATTERS
The legality of the common stock 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 Keefe, Bruyette & Woods 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 of
the material terms of, and should be read in conjunction with, such contract or
document.
Alamogordo Financial has filed an Application on Form MHC-2 with
respect to the 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.
82
<PAGE>
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 .............................................. 28
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.
87
<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. Space Age City Service Corporation was organized to hold,
purchase and sell real estate assets. 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. Over 75% 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.
The information contained in the accompanying interim, unaudited,
consolidated financial statements contain all adjustments (consisting
of normal recurring accruals) necessary to present fairly the financial
position as of September 30, 1999, the results of operations for the
three months ended September 30, 1999 and 1998, and cash flows for the
three months ended September 30, 1999 and 1998.
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.
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
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.
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. The allowance for loan loses is
general in nature. Management does not adjust the allowance for
specific problem loans.
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
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.
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 issued by states and political subdivisions are secured by
tax revenues (either property tax or gross receipts tax) assessed and
collected by such entities.
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. The public depositors include the local school and
Otero County.
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
============ ============
Interest Expense by major category of deposits is as follows (dollars
in thousands):
September 30, June 30,
---------------- ----------------
1999 1998 1999 1998
(unaudited)
Transaction & saving
deposits.................... $ 96 $ 134 $ 430 $ 492
Certificate accounts......... 1,435 1,635 6,345 6,416
------ ------ ------ ------
$1,531 $1,769 $6,784 $6,908
====== ====== ====== ======
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. The related parties consist of officers and
directors of the Company and are made on the same terms and conditions
as other non-related parties.
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 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.
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 for the period
ending 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 the period ending September 30, 1999, June 30,
1999 and 1998, respectively.
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
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.
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.
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
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
======== ======= ======== ========
Effective
Tax Rate..... 29% 22% 30% 32%
======== ======= ======== ========
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>
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
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>
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.
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 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 3. 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.
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.
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 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
General allowance for loan losses ..... 466,979 472,553 485,738
----------- ----------- -----------
Total Risk-Based Capital .............. $23,383,312 $23,159,571 $22,593,868
=========== =========== ===========
</TABLE>
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>
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
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.
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.
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 13 DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, Continued
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.
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.
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
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 .......... -- --
<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 THE STOCK ISSUANCE PLAN (UNAUDITED)
On October 19,1999, the Board of Directors of the Company, subject to
regulatory, adopted a plan to issue up to 972,038 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 December 31, 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 Otero County, 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 September 30, 1999, no expenses have been
deferred.
F-24
<PAGE>
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You should rely only on the information contained in this prospectus.
Alamogordo Financial Corporation has not 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 of the securities offered hereby to any
person in any jurisdiction in which such offer or solicitation is not
authorized, or in which the person making such offer or solicitation is not
qualified to do so, or to any person to whom it is unlawful to make such offer
or solicitation. 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 972,038 Shares
Common Stock
($0.10 par value per share)
SUBSCRIPTION AND
COMMUNITY OFFERING
PROSPECTUS
-------------------------------------
Keefe, Bruyette & Woods, Inc.
-------------------------------------
February 11, 2000
THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS
AND ARE NOT FEDERALLY INSURED OR GUARANTEED
Until the later of May 11, 2000 or 90 days after commencement of the offering,
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.
- --------------------------------------------------------------------------------
