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NEWS RELEASE
Contact: The Torrenzano Group
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Donald W. Schuster
Beth S. Jarecki
(212) 681-1700 ext. 103/115
For release: MONDAY, OCTOBER 25, 1999
7:00 a.m. EST
COMMERCIAL FEDERAL ISSUES SHAREHOLDER LETTER
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CITES DISTORTIONS BY FRANKLIN MUTUAL ADVISORS
OMAHA, NEB, OCTOBER 25 - "Now is not the right time to seek a
sale of the Company," said William A. Fitzgerald, chairman and
chief executive officer of Commercial Federal Corporation,
(NYSE: CFB) in a letter issued on Friday to its shareholders.
The letter addressed a recent filing made by Franklin Mutual
Advisers, a New Jersey-based mutual fund manager and a
Commercial Federal shareholder, proposing the election of two
new outside directors who support Franklin's view that
Commercial Federal should be sold.
"We have created a solid foundation for continued long-term
growth and enhanced shareholder value," said Mr. Fitzgerald.
"Our growth strategy is working well - and now is not the time
to abandon it."
Mr. Fitzgerald updated shareholders on Commercial Federal's
strategy for enhancing long-term shareholder value - building a
powerful and profitable franchise in the high-growth urban and
rural Midwest, and providing better service and access to
customers by changing from a traditional thrift with its limited
product line to a more bank-like business mix.
LONG-TERM TRACK RECORD FOR GROWTH AND VALUE
"Just five years ago, Commercial Federal was a $6 billion bank,"
Mr. Fitzgerald said. "Today, we are a $13 billion financial
institution, serving both high-growth urban and rural markets in
the Midwest, one of the largest headquartered financial
institutions within our states of operation."
The letter stated that Commercial Federal's shares outperformed
its peer group of the top 50 thrifts in four out of the last
five years.
"In only one of those years, this past fiscal year, did our
stock performance trail our peers," he added. "But remember,
these investments were made to penetrate the most
demographically desirable areas of our region and to shift our
loan mix toward more profitable consumer and commercial
lending."
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"Franklin is attempting to cast your Company's relative
performance in the worst possible light in order to support its
own near-term agenda," said Mr. Fitzgerald.
SALE AT THIS TIME IS NOT IN THE SHAREHOLDERS' INTEREST
"The Board has unanimously concluded that now is not the right
time to seek a sale of the Company and that such a sale would
not be in the interest of maximizing long-term value for our
shareholders," said Mr. Fitzgerald.
Commercial Federal's Board made this decision at a September 15
board meeting following presentations on Franklin's view from
both Merrill Lynch and Goldman Sachs. The deciding factors
included the success and potential of Commercial Federal's
growth strategy and the current weakness in the bank acquisition
market.
Mr. Fitzgerald added, "Despite what we believe to be Franklin's
self-serving, short-term view, your Board of Directors carefully
considered Franklin Mutual's view regarding a sale."
Commercial Federal Corporation is the parent company of
Commercial Federal Bank, a $12.8 billion federal savings bank,
which currently operates 257 retail offices in Iowa, Kansas,
Nebraska, Colorado, Oklahoma, Missouri, Arizona, Minnesota, and
South Dakota.
Commercial Federal Corporation's common stock trades on the New
York Stock Exchange under the symbol ``CFB''.
NOTE TO EDITORS: The letter to Commercial Federal shareholders
follows.
# # #
DEAR FELLOW COMMERCIAL FEDERAL SHAREHOLDER:
We'd like to share with you the significant progress we've made
in building the Commercial Federal franchise into a leading
community bank in the urban and rural Midwest.
Just five years ago, Commercial Federal was a $6 billion bank,
primarily in Nebraska and Colorado. In 1995, we recognized the
potential benefits a locally focused bank, such as CFB, would
gain from the market dislocation caused by the banking
industry's consolidation. We began expanding our franchise -
growing in demographically strong markets, such as Iowa, Kansas
and Oklahoma, while achieving economies-of-scale through
in-market consolidation.
As a result of this vision and our actions, today we are a $13
billion financial institution, serving both high-growth urban
and rural markets in the Midwest, one of the largest
headquartered financial institutions within our states of
operation.
LONG-TERM TRACK RECORD FOR GROWTH AND VALUE
Recognizing opportunity and growing the Commercial Federal
franchise is consistent with our steadfast goal of enhancing
shareholder value. As the chart below demonstrates, the value
of
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your shares outperformed Commercial Federal's peer group of the
top 50 thrifts in four out of the last five years as we've built
and diversified our banking business.
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
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6/94 6/95 6/96 6/97 6/98 6/99
<S> <C> <C> <C> <C> <C> <C>
Commercial Federal 100 116 165 242 323 239
Peer Group Index 100 115 146 238 311 258
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In only one of those years, this past fiscal year, did our stock
performance trail our peers. This was largely due to
acquisitions and franchise investments. But remember: these
investments were made to penetrate the most demographically
desirable areas of our region and to shift our loan mix toward
more profitable consumer and commercial lending. Through these
investments, we have now created a solid foundation for
continued long-term growth and enhanced shareholder value.
You may have read that Franklin Mutual Advisers, a New
Jersey-based mutual fund manager and holder of a 7.9% stake in
our Company, is proposing the election of two new outside
directors who support Franklin's view that we should seek the
sale of the Company. Franklin is attempting to cast your
Company's relative performance in the worst possible light in
order to support its own near-term agenda. Franklin has also
distorted actions taken by our board regarding Franklin's
nominees.
Don't be fooled by such distortions of our record, which are
motivated, in our view, by Franklin's short-term performance
objectives. These short-term objectives may be Franklin's
response to certain of its own funds having faced significant
net redemptions in recent periods.
It is our management philosophy - and that of our board of
directors - that we must balance all shareholder needs.
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Despite what we believe to be Franklin's self-serving,
short-term view, your Board of Directors carefully considered
Franklin Mutual's view regarding a sale with the assistance of
our long-standing financial advisor, Merrill Lynch. Goldman
Sachs also made a presentation to your Board regarding
Franklin's view. Based upon their analysis and advice, CFB's
growth strategy and the current weakness in the bank acquisition
market, the Board has unanimously concluded that now is not the
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right time to seek a sale of the Company and that such a sale
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would not be in the interest of maximizing long-term value for
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our shareholders.
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INVESTING FOR LONG-TERM GROWTH
We have invested heavily to ensure future success and enhanced
value for shareholders. In the last 18 months, we completed
seven acquisitions, growing from 80 branches to 257 branches in
a nine-state region. Through both internal growth and this
carefully managed acquisition program, we've doubled our branch
network, achieving the size and scale necessary to effectively
serve our customer base.
Commercial Federal has achieved this growth through a
disciplined acquisition program. We have turned down far more
acquisition opportunities than we have consummated. The pricing
multiples implied by the transactions we did complete were well
below those of comparable deals. For example, since 1995,
Commercial Federal has effected eight thrift acquisitions at an
average price/tangible book multiple of 1.6x, more than 40%
below the nationwide average price/tangible book multiple for
comparable transactions of 2.3x.
Our growth strategy is based on providing better service and
access to customers by moving from a traditional thrift to a
more bank-like business mix. To that end, we recently completed
an upgrade of our data processing system to meet the needs of an
expanding customer base. The newly installed system is
considerably more sophisticated in its speed and data quality.
It was an investment that provides better opportunities to
develop customer relationships, which means more profits and
greater value for shareholders.
The cost of this systems upgrade and staffing required for
multiple acquisitions and conversions impacted our near-term
earnings. As you are aware, CFB is recognized in the industry
for its prudence and low-cost structure, with an average
expense/asset ratio of 1.82 percent over the past five years,
well below the peer group average of 2.13 percent. Management
is intently focused on managing our expense base to bring it
down to its historic level.
With these necessary investments in place, we are
well-positioned for future success and increased shareholder
value.
GROWTH POTENTIAL - TOP 10 IN DEPOSIT SHARE IN 5 HIGH-GROWTH
STATES
Our growth strategy is working well - and now is not the time to
abandon it. Our franchise is exceptionally well-positioned
within our geographic footprint with our markets growing 25
percent faster - as defined by population growth - than the
total projected growth of our region. We are gaining
significant market share - new customers and new sources of
income - at a rapid rate.
Commercial Federal ranks in the top ten in deposit-market share
in five high-growth states. The markets we serve have a
projected five-year population growth of six percent compared to
a peer average of two percent and a national average of four
percent. The projected five-year household
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income growth is 24 percent, compared to a peer average of 19
percent and a nationwide average of 20 percent. In sum, we are
in the right place at the right time!
RETURNING VALUE TO THE SHAREHOLDERS
The Company's capital management initiatives are another
significant aspect of the Board's continuing effort to enhance
shareholder value. The Company has successfully managed its
capital position throughout its acquisition program. As you are
aware, the Board recently authorized the repurchase of up to
three million shares (or approximately five percent of the
Company's outstanding stock). This program, with an 18-month
term subject to renewal, has already resulted in the repurchase
of over two million shares of common stock in the open market as
of September 30, 1999.
CFB will continue to monitor its capital position and deliver
capital back to shareholders through share repurchases. Also,
since we began paying a cash dividend in October 1995, we have
increased our dividend each year, including an 18% increase in
1999 to $0.26 per share. We are examining our dividend payout
ratio, currently at 16%, for possible future increases.
ANNUAL MEETING SHAREHOLDER VOTE
It is the Board's responsibility to be vigilant and consider the
overall benefits of all strategies that could deliver
shareholder value. The Board believes strongly that Franklin
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Mutual's suggested strategy is not in the best long-term
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interests of our shareholders. It is a short-term agenda
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without regard to the long-term interests of the Company or its
shareholders.
In your proxy materials and at the upcoming annual meeting of
November 16, you will be asked by the Company to vote for four
directors each serving three-year terms. You will receive two
sets of proxy cards in the mail - blue cards from Commercial
Federal and white cards from Franklin Mutual.
CONSIDER YOUR VOTE CAREFULLY. IF YOU BELIEVE IN THE SAME THINGS
WE DO, THE SAME THINGS THAT MAKE OUR BANK SO SUCCESSFUL -
COMMITMENT, HARD WORK AND VALUES FUNDAMENTAL TO THE LONG-TERM
GROWTH OF OUR BUSINESS - THEN VOTE YOUR BLUE CARD.
Because our Board of Directors is charged with overseeing the
continued growth and success of Commercial Federal, it is
critical that its members be highly qualified and dedicated
individuals whose leadership will add value and serve the best
interests of all shareholders. We've nominated four directors
who will be committed to the future growth and success of the
Company.
Commercial Federal is governed by a set of principled core
values that includes commitment to all its shareholders and
customers. We've invested in long-term growth and success and
will continue to dedicate ourselves to delivering shareholder
value for you. WE ASK THAT YOU VOTE YOUR SUPPORT BY MAILING
YOUR BLUE CARD.
If you have any questions, please contact Larry Goddard in our
investor relations department at (402) 390-6553 or D.F. King,
our proxy solicitor that is assisting us at (800) 431-9629.
Sincerely yours,
/s/ William A. Fitzgerald
William A. Fitzgerald
Chairman of the Board and Chief Executive Officer
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FORWARD-LOOKING STATEMENTS
This document contains certain forward-looking statements
(within the meaning of the Private Securities Litigation Reform
Act) which involve risks and uncertainties. The Corporation
cautions readers that a number of important factors could cause
actual results to differ materially from the forward-looking
statements. These factors include unforeseen fluctuations in
interest rates, inflation, adverse changes in government
regulations, unexpected costs resulting from the process of
integrating acquisitions, economic conditions, technology
changes and increased competition in the geographic and business
areas in which the Corporation conducts its operations.
