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[LETTERHEAD OF COMMERCIAL FEDERAL CORPORATION]
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 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.
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CUMULATIVE TOTAL RETURN
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<S> <C> <C> <C> <C> <C> <C>
6/94 6/95 6/96 6/97 6/98 6/99
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.
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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. 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.
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.
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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 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 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 Mutual's suggested strategy is not in the best
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long-term interests of our shareholders. It is a short-term
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agenda without regard to the long-term interests of the Company
or its shareholders.
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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 which is assisting us at (800)
431-9629.
Sincerely yours,
/s/ William A. Fitzgerald
William A. Fitzgerald
Chairman of the Board
and Chief Executive Officer
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.
