EXHIBIT 99.6
FELDMAN FINANCIAL ADVISORS, INC.
1725 K STREET, NW· SUITE 205
Washington, DC 20006
202-467-6862
(FAX) 202-467-6963
November 5, 2004
Board of Directors
Slavie Federal Savings Bank
1614 Churchville Road
Bel Air, Maryland 21015
Gentlemen:
Feldman Financial Advisors, Inc. (“Feldman Financial”) hereby provides updated financial and market information as a supplement to its independent appraisal (“Appraisal”) of the estimated pro forma market value of Slavie Federal Savings Bank (the “Bank”) on a fully converted basis as of September 8, 2004 in conjunction with the Bank’s reorganization (the “Reorganization”) from a mutual savings bank to the mutual holding company (“MHC”) form of ownership. Pursuant to the Reorganization, the Bank will become a federal stock savings bank subsidiary of SFSB, Inc. (the “Company”). The Company will be a majority-owned subsidiary of Slavie Bancorp, MHC and offer 45% of its outstanding shares of common stock for sale in a subscription and community offering to certain members of the Bank and the general public.
In preparing this update, we conducted an analysis of the Bank that included discussions with its management. In addition, where appropriate, we considered information based upon other available public sources that we believe are reliable; however, we cannot guarantee the accuracy and completeness of such information. We also reviewed conditions in the securities markets in general and the market for thrift stocks in particular and discussed the Bank’s recent financial performance with management. Our Appraisal is based on representations by the Bank that information contained in the preliminary offering prospectus and information furnished to us by the Bank and its independent auditor are truthful, accurate, and complete. We did not independently verify the financial statements or any of the other information provided to us by the Bank or its independent auditor.
Our Appraisal is not intended, and must not be construed to be a recommendation of any kind as to the advisability of purchasing shares of common stock in the Reorganization. Moreover, because such valuations are 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 who purchase shares of stock in the Reorganization will thereafter be able to sell such shares at prices related to our estimate of the Bank’s pro forma market value. Feldman Financial is not a seller of securities within the meaning of any federal or state securities laws and any report prepared by Feldman Financial shall not be used as an offer or solicitation with respect to the purchase or sale of any securities.
FELDMAN FINANCIAL ADVISORS, INC.
Board of Directors
Slavie Federal Savings Bank
November 5, 2004
Page 2
Recent Financial Developments
Table 1 presents selected financial data of the Bank as of December 31, 2003, June 30, 2004, and September 30, 2004. The Bank’s financial condition, capital position, and asset quality was relatively unchanged from June 30, 2004 to September 30, 2004. Total assets increased modestly by 0.8% million from $146.8 million at June 30, 2004 to $148.0 million at September 30, 2004. The $1.2 million increase in asset expansion mainly reflected growth in the loan portfolio from $114.8 million at June 30, 2004 to $116.5 million at September 30, 2004, offset by a decrease in cash and securities from $23.8 million to $23.2 million. Total deposits increased from $100.4 million to $106.0 million, while borrowing remained unchanged at $29.5 million.
Total equity increased from $11.0 million at June 30, 2004, to $11.1 million at September 30, 2004 as a result of profitable earnings for the quarter ended September 30, 2004. The Bank’s ratio of equity to assets increased slightly from 7.48% at June 30, 2004 to 7.51% at September 30, 2004. The Bank’s ratio of non-performing loans to total assets increased modestly from 0.21% at June 30, 2004 to 0.24% at September 30, 2004
Table 1
Selected Financial Data
(Dollars in Thousands)
Selected Financial Data | Dec. 31, 2003 | June 30, 2004 | Sept. 30, 2004 | |||||||||
Total assets | $ | 126,436 | $ | 146,753 | $ | 147,954 | ||||||
Cash and cash equivalents | 3,497 | 3,475 | 3,647 | |||||||||
Loans receivable, net | 93,210 | 114,833 | 116,503 | |||||||||
Investment securities - available for sale | 7,849 | 7,888 | 7,936 | |||||||||
Investment securities - held to maturity | 3,993 | 3,994 | 3,995 | |||||||||
Mortgage-backed secs. - held to maturity | 10,266 | 8,450 | 7,670 | |||||||||
Deposits | 97,824 | 100,434 | 106,001 | |||||||||
Borrowings | 16,500 | 29,500 | 29,500 | |||||||||
Equity | 10,941 | 10,976 | 11,114 | |||||||||
Cash and securities / assets | 20.25 | % | 16.22 | % | 15.71 | % | ||||||
Loans receivable / assets | 73.72 | % | 78.25 | % | 78.74 | % | ||||||
Equity / assets | 8.65 | % | 7.48 | % | 7.51 | % | ||||||
FELDMAN FINANCIAL ADVISORS, INC.
Board of Directors
Slavie Federal Savings Bank
November 5, 2004
Page 3
Table 2 presents selected operating data for the Bank for the three-month and nine-month periods ended September 30, 2003 and 2004. The Bank’s profitability remained at below-average levels for the periods through September 2004. Net income increased to $138,000 for the quarter ended September 30, 2004, compared to $6,000 for the corresponding quarter in 2003. The increase was due primarily to a $298,000 increase in net interest income, offset by a $94,000 increase in non-interest expense. The Bank’s annualized return on average assets was 0.37% and its annualized return on average equity was 5.00% for the September 2004 quarter.
The Bank’s earnings increased to $203,000 for the nine months ended September 30, 2004, compared to $37,000 for the same period in the prior year. The increase was due chiefly to a $639,000 increase in net interest income, offset by a $293,000 increase in non-interest expense. The Bank’s annualized return on average assets was 0.20% and its annualized return on average equity was 2.45% for the nine months ended September 30, 2004.
Table 2
Selected Operating Data
(Dollars in Thousands)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
Selected Operating Data | 2003 | 2004 | 2003 | 2004 | ||||||||||||
Total interest income | $ | 1,395 | $ | 1,735 | $ | 4,338 | $ | 4,753 | ||||||||
Total interest expense | 774 | 816 | 2,454 | 2,230 | ||||||||||||
Net interest income | 621 | 919 | 1,884 | 2,523 | ||||||||||||
Provision for loan losses | 13 | 12 | 28 | 36 | ||||||||||||
Net interest income after provision | 608 | 907 | 1,856 | 2,487 | ||||||||||||
Other income (loss) | 23 | 45 | 75 | 29 | ||||||||||||
Non-interest expense | 624 | 718 | 1,889 | 2,182 | ||||||||||||
Income taxes | 1 | 96 | 5 | 131 | ||||||||||||
Net income (loss) | $ | 6 | $ | 138 | $ | 37 | $ | 203 | ||||||||
Return on average assets | 0.02 | % | 0.37 | % | 0.04 | % | 0.20 | % | ||||||||
Return on average equity | 0.24 | 5.00 | 0.45 | 2.45 | ||||||||||||
Net yield on int.-earning assets | 5.09 | 4.92 | 5.42 | 4.91 | ||||||||||||
Net cost of int.-bearing liabilities | 3.02 | 2.40 | 3.24 | 2.41 | ||||||||||||
Net interest rate spread | 2.07 | 2.52 | 2.18 | 2.50 | ||||||||||||
Net interest margin | 2.27 | 2.61 | 2.36 | 2.60 | ||||||||||||
FELDMAN FINANCIAL ADVISORS, INC.
Board of Directors
Slavie Federal Savings Bank
November 5, 2004
Page 4
Comparative Group Performance Analysis
Since our Appraisal, only two of the Comparative Group members (Atlantic Liberty Financial Corp and Great Pee Dee Bancorp) have reported financial results for the September 2004 quarter. The earnings performance reported by these two companies was consistent with prior trends. As a result, the updated average and median profitability ratios of the Comparative Group did not change materially on a latest twelve months (“LTM”) basis as demonstrated in Table 3. The Bank’s return on average assets (“ROA”) increased from 0.08% for the LTM June 2004 period to 0.17% for the LTM September 2004 period as the Bank’s earnings increasingly reflects core operating results without significant non-recurring gains or expenses, which was the recent trend in previous periods. However, as summarized in Table 3, the Bank’s profitability continues to trail the Comparative Group’s overall performance.
Table 3
Comparative Profitability Ratios
| LTM 6/30/04 | LTM 9/30/04* | |||||
Return on Average Assets | ||||||
Slavie Federal Savings Bank | 0.08 | % | 0.17 | % | ||
Comparative Group Average | 0.51 | % | 0.53 | % | ||
Comparative Group Median | 0.63 | % | 0.63 | % | ||
Return on Average Equity | ||||||
Slavie Federal Savings Bank | 0.88 | % | 2.07 | % | ||
Comparative Group Average | 4.34 | % | 4.46 | % | ||
Comparative Group Median | 4.76 | % | 4.66 | % |
| * | two of twelve Comparative Group companies reporting through 9/30/04 versus LTM 6/30/04 |
Comparative Group Price Performance
Since our Appraisal, trading market valuations of thrifts have not changed materially. Table 4 summarizes the net price change of the Comparative Group and selected market indexes. The Comparative Group posted an average change of 0.47% and a median change of -1.13%. Among the Comparative Group companies, only two experienced a net stock price movement exceeding 5%. RSV Bancorp was up 17.0%, which likely reflected the upward price momentum
FELDMAN FINANCIAL ADVISORS, INC.
Board of Directors
Slavie Federal Savings Bank
November 5, 2004
Page 5
it experienced following its tender offer to repurchase a portion of its shares. South Street Financial Corp. was down by 8.4%. Over most of the observed eight-week period, the overall market traded within a narrow range. However, the market turned bullish in the aftermath of the Presidential election result and removal of any uncertainty about its outcome. Financial stocks participated in the short-lived rally. As a result, the SNL All Public Thrift Index eked out a 2.50% gain over the past eight weeks. However, the SNL Small Thrift Index was down by 0.35%.
Table 4
Comparative Group Stock Price
And Selected Index Performance
| 9/8/04 | 11/5/04 | % Change | |||||||
Comparative Group | |||||||||
American Bank Holdings, Inc. | $ | 8.40 | $ | 8.25 | (1.79 | )% | |||
Atlantic Liberty Financial Corp | 18.85 | 18.57 | (1.49 | ) | |||||
BUCS Financial Corp | 25.25 | 24.25 | (3.96 | ) | |||||
Coddle Creek Financial Corp. | 36.00 | 37.00 | 2.78 | ||||||
Farnsworth Bancorp, Inc. | 17.00 | 17.55 | 3.24 | ||||||
Great Pee Dee Bancorp, Inc. | 15.50 | 15.37 | (0.84 | ) | |||||
KS Bancorp, Inc. | 20.95 | 21.00 | 0.24 | ||||||
Mutual Community Svgs. Bank, Inc. | 11.75 | 12.30 | 4.68 | ||||||
RSV Bancorp, Inc. | 17.10 | 20.00 | 16.96 | ||||||
South Street Financial Corp. | 10.21 | 9.35 | (8.42 | ) | |||||
Southern Banc Company, Inc. | 17.50 | 17.25 | (1.43 | ) | |||||
SouthFirst Bancshares, Inc. | 16.05 | 15.35 | (4.36 | ) | |||||
Comparative Group Average | 0.47 | ||||||||
Comparative Group Median | (1.13 | ) | |||||||
SNL All Public Thrift Index | 1,489.4 | 1,526.7 | 2.50 | ||||||
SNL All Small Thrift Index | 1,329.6 | 1,325.0 | (0.35 | ) | |||||
S&P 500 Stock Index | 1,116.3 | 1,166.2 | 4.47 | ||||||
Dow Jones Industrials Index | 10,313.4 | 10,387.5 | 0.72 | ||||||
FELDMAN FINANCIAL ADVISORS, INC.
Board of Directors
Slavie Federal Savings Bank
November 5, 2004
Page 6
Recent Thrift Conversion Activity
Since our Appraisal, five thrifts completed conversion offerings in late September and October 2004. As summarized in Table 5, four of the offerings were first-stage MHC issues and one offering was a second-stage MHC conversion. Most of the recent thrift conversion offerings experienced restrained after-market price movement. The average price change from IPO to date of the recent thrift offerings was 9.0%, with a median price change of 7.0%. The second-stage offering of Roebling Financial Corp was trading below its IPO price, while the MHC offerings generally exhibited price movement of 5.0% to 10.0% in the IPO after-market. These moderate levels of after-market price changes are in contrast to the robust price movements exhibited by thrift IPOs in recent years.
Table 5
Recent Thrift Stock Conversion Offerings
Summary Data and Price Performance
| Offering Date | Gross Amount ($mil.) | IPO Price | 11/5/04 Price | Pct. Change | ||||||||||
Atlantic Coast Federal Corp. (MHC) - GA | 10/05/04 | $ | 58.2 | $ | 10.00 | $ | 13.00 | 30.00 | % | |||||
Naugatuck Valley Fin’l Corp. (MHC) - CT | 10/01/04 | 32.7 | 10.00 | 10.70 | 7.00 | |||||||||
PSB Holdings, Inc. (MHC) - CT | 10/05/04 | 30.9 | 10.00 | 10.50 | 5.00 | |||||||||
Roebling Fin’l Corp, Inc. (2nd Stage) - NJ | 10/01/04 | 9.1 | 10.00 | 9.30 | (7.00 | ) | ||||||||
SI Financial Group Inc. (MHC) - CT | 09/30/04 | 50.3 | 10.00 | 11.00 | 10.00 | |||||||||
Average | 9.00 | |||||||||||||
Median | 7.00 | |||||||||||||
Valuation Review and Analysis
Table 6 updates the market valuation ratios of the Comparative Group through November 5, 2004, and includes the pro forma valuation ratios of the Bank on a fully converted basis as updated with historical financial data through September 30, 2004. At the current valuation range and reflecting September 2004 data, the Bank’s pro forma price to book ratio is 81.5% at the
FELDMAN FINANCIAL ADVISORS, INC.
Board of Directors
Slavie Federal Savings Bank
November 5, 2004
Page 7
adjusted maximum of the valuation range, as compared to 81.8% using June 2004 historical data. Similarly, the overall Comparative Group was relatively unchanged with an average price to book ratio of 108.6% at September 8, 2004 and 108.1% at November 5, 2004.
The Bank’s pro forma price to LTM earnings ratio is 46.4x at the adjusted maximum for the September period, compared to 58.0x for the June period. The slightly improved earnings base for the Bank in the September period results in less of a distortedly high price to earning ratio for the Bank on a pro forma basis. The Comparative Group’s average price to LTM earnings ratio was 20.8x at September 8, 2004 and 20.4x at November 5, 2004.
As discussed in the Appraisal, the Bank’s pro forma valuation on a fully converted basis was discounted relative to the Comparative Group due to several factors, including earnings prospects. As noted earlier, while the Bank’s earnings results improved in the recent quarter, the Bank’s ROA and ROE continue to trail the profitability ratios exhibited by the Comparative Group. The Bank’s ROA for the LTM ended September 30, 2004 was 0.17% versus the Comparative Group’s average ROA of 0.53%. With the reinvestment of the net stock proceeds on a fully converted basis, and adjusted for estimated expenses related to the stock benefit compensation plans, the Bank’s pro forma ROA would improve to 0.34%, but still remain below the Comparative Group’s average level.
As discussed in its business plan, the Bank intends to expand its operations in a controlled manner following the stock offering and focus on various initiatives to improve its competitive position. Many of these initiatives involve increased expenses and cost expenditures in the near term before a substantive payoff is produced in the form of increased earnings. The Bank intends to increase customer access through enhanced electronic delivery systems in the form of ATM network affiliation and online banking. Another strategic initiative involves broadening the array of financial products and services offered and incurring training and marketing costs to support the launch of these new fee-generating activities. As the Bank attempts to strengthen its long-term competitive position and improve its operating infrastructure, it does not anticipate a dramatic surge in profitability in the short-term following the re-investment and leverage of proceeds from the stock offering. The Bank projects earnings to remain at moderate levels as it implements these business strategies.
Therefore, based on the foregoing factors, we maintain the opinion that the Bank’s pro forma valuation ratios should continued to be discounted relative to the Comparative Group’s market valuation ratios at the levels demonstrated in our Appraisal. Accordingly, we believe that there is no basis at the present time to change the Bank’s pro forma valuation change as established in the Appraisal.
FELDMAN FINANCIAL ADVISORS, INC.
Board of Directors
Slavie Federal Savings Bank
November 5, 2004
Page 8
Valuation Conclusion
It is our opinion that upon reviewing current market conditions and the Bank’s recent earnings performance through September 30, 2004, there is no basis to change the estimated range of Bank’s pro forma market value on a fully converted basis as established in our Appraisal, Thus, the aggregate estimated pro forma market value of the Bank on a fully converted basis remains within the valuation range of $19,125,000 to $25,875,000 with a midpoint of $22,500,000. The valuation range was based upon a 15% decrease from the midpoint to determine the minimum and a 15% increase to establish the maximum. An additional 15% increase above the maximum results in an adjusted maximum of $29,756,250. Tables 7 to 11 display the assumptions and calculations utilized in determining the Bank’s estimated pro forma market value on a fully converted basis. Tables 12 to 13 display the Bank’s resulting pro forma data assuming a sale of 45% of the aggregate pro forma market value of common stock in the MHC Reorganization.
Sincerely,
| FELDMAN FINANCIAL ADVISORS, INC. | ||
/s/ Trent R. Feldman | ||
By: | Trent R. Feldman | |
President | ||
FELDMAN FINANCIAL ADVISORS, INC.
Table 6
Comparative Market Valuation Analysis
Slavie Federal Savings Bank and the Comparative Group
Market Price Data as of November 5, 2004
| Company | Current Stock Price ($) | Total Market Value ($mil.) | Price/ LTM EPS (x) | Price/ Qtr.Ann. EPS (x) | Price/ Book Value (%) | Price/ Tang. Book (%) | Price/ Total Assets (%) | Total Equity/ Assets (%) | Current Dividend Yield (%) | |||||||||
Slavie Federal Savings Bank (1) | ||||||||||||||||||
Pro Forma Minimum | 10.00 | 19.1 | 38.5 | 22.6 | 70.1 | 70.2 | 11.65 | 16.62 | 0.00 | |||||||||
Pro Forma Midpoint | 10.00 | 22.5 | 41.4 | 25.2 | 74.5 | 74.5 | 13.47 | 18.09 | 0.00 | |||||||||
Pro Forma Maximum | 10.00 | 25.9 | 43.9 | 27.5 | 78.1 | 78.1 | 15.22 | 19.50 | 0.00 | |||||||||
Pro Forma Adjusted Maximum | 10.00 | 29.8 | 46.4 | 30.0 | 81.5 | 81.5 | 17.17 | 21.06 | 0.00 | |||||||||
Comparative Group Average | NA | 17.8 | 20.4 | 21.3 | 108.1 | 109.3 | 12.06 | 11.18 | 1.98 | |||||||||
All Public Thrift Average | NA | 525.4 | 19.4 | 19.0 | 148.1 | 162.2 | 14.42 | 10.05 | 1.90 | |||||||||
Maryland Thrift Average | NA | 65.4 | 13.9 | 13.8 | 163.6 | 165.1 | 13.82 | 8.14 | 0.87 | |||||||||
Comparative Group | ||||||||||||||||||
American Bank Holdings, Inc. | 8.25 | 16.0 | 10.1 | 6.9 | 104.4 | 104.4 | 6.32 | 6.05 | 0.00 | |||||||||
Atlantic Liberty Financial Corp | 18.57 | 29.5 | 16.2 | 9.7 | 108.3 | 108.3 | 15.97 | 14.74 | 1.51 | |||||||||
BUCS Financial Corp | 24.25 | 9.7 | 22.5 | 26.4 | 96.7 | 101.2 | 8.09 | 8.37 | 0.00 | |||||||||
Coddle Creek Financial Corp. | 37.00 | 24.2 | NA | NA | 120.7 | 120.7 | 17.91 | 14.83 | 2.70 | |||||||||
Farnsworth Bancorp, Inc. | 17.55 | 9.3 | 13.9 | 11.3 | 138.7 | 138.7 | 9.58 | 6.90 | 0.57 | |||||||||
Great Pee Dee Bancorp, Inc. | 15.37 | 27.9 | 21.4 | 21.4 | 104.3 | 108.3 | 17.12 | 16.42 | 4.16 | |||||||||
KS Bancorp, Inc. | 21.00 | 25.1 | 22.6 | 21.9 | 139.2 | 139.2 | 11.55 | 8.29 | 3.05 | |||||||||
Mutual Community Savings Bank, Inc. | 12.30 | 4.5 | NM | 23.7 | 60.9 | 60.9 | 4.72 | 7.75 | 0.00 | |||||||||
RSV Bancorp, Inc. | 20.00 | 12.3 | 18.0 | 21.7 | 115.3 | 115.3 | 17.57 | 15.24 | 1.50 | |||||||||
South Street Financial Corp. | 9.35 | 28.7 | 31.2 | 39.0 | 112.9 | 112.9 | 13.55 | 12.01 | 4.28 | |||||||||
Southern Banc Company, Inc. (The) | 17.25 | 15.4 | 27.4 | 30.8 | 89.2 | 89.2 | 14.47 | 16.22 | 2.03 | |||||||||
SouthFirst Bancshares, Inc. | 15.35 | 10.9 | NM | NM | 106.9 | 112.9 | 7.84 | 7.34 | 3.91 | |||||||||
Maryland Thrifts | ||||||||||||||||||
American Bank Holdings, Inc. | 8.25 | 16.0 | 10.1 | 6.9 | 104.4 | 104.4 | 6.32 | 6.05 | 0.00 | |||||||||
BUCS Financial Corp | 24.25 | 9.7 | 22.5 | 26.4 | 96.7 | 101.2 | 8.09 | 8.37 | 0.00 | |||||||||
Severn Bancorp, Inc. | 33.95 | 141.2 | 11.5 | 10.7 | 259.6 | 261.2 | 22.74 | 8.76 | 1.30 | |||||||||
Washington Savings Bank, F.S.B. (The) | 12.85 | 94.5 | 11.6 | 11.1 | 193.5 | 193.5 | 18.11 | 9.36 | 2.18 | |||||||||
(1) Fully-converted valuation assumes sale of 100% of common stock.
Source: Slavie Federal Savings Bank; SNL Financial; Feldman Financial.
FELDMAN FINANCIAL ADVISORS, INC.
Table 7
Pro Forma Assumptions for Full Conversion Valuation
| 1. | The total amount of the net offering proceeds was fully invested at the beginning of the applicable period. |
| 2. | The net offering proceeds are invested to yield a return of 3.74%, which represented the average of the yield on interest-earning assets and the cost of deposits for the LTM period ending September 30, 2004. The effective income tax rate was assumed to be 38.62%, resulting in a net after-tax yield of 2.30%. |
| 3. | It is assumed that 8.0% of the shares offered for sale at the initial offering price will be acquired by the Bank’s employee stock ownership plan (“ESOP”). Pro forma adjustments have been made to earnings and equity to reflect the impact of the ESOP. The annual expense is estimated based on a twenty-year loan period. No reinvestment is assumed on proceeds used to fund the ESOP. |
| 4. | It is assumed that 4.0% of the shares offered for sale at the initial offering price will be acquired by the Bank’s recognition and retention plan (“RRP”). Pro forma adjustments have been made to earnings and equity to reflect the impact of the RRP. The annual expense is estimated based on a five-year vesting period. No reinvestment is assumed on proceeds used to fund the RRP. |
| 5. | Fixed offering expenses are estimated at $450,000. |
| 6. | Marketing fees for the stock offering are estimated at 1.25% of the amount of stock sold in the offering, excluding sales to directors, officers, employees, and stock-benefit plans. |
| 7. | No effect has been given to withdrawals from deposit accounts for the purpose of purchasing common stock in the offering. |
| 8. | No effect has been given in the pro forma equity calculation for the assumed earnings on the net proceeds. |
FELDMAN FINANCIAL ADVISORS, INC.
Board of Directors
Slavie Federal Savings Bank
November 5, 2004
Page 12
Table 8
Pro Forma Full Conversion Valuation Range
Slavie Federal Savings Bank
Historical Financial Data as of September 30, 2004
(Dollars in Thousands, Except Per Share Data)
| Minimum | Midpoint | Maximum | Adj. Max. | |||||||||||||
Shares offered | 1,912,500 | 2,250,000 | 2,587,500 | 2,975,625 | ||||||||||||
Offering price | $ | 10.00 | $ | 10.00 | $ | 10.00 | $ | 10.00 | ||||||||
Gross proceeds | $ | 19,125 | $ | 22,500 | $ | 25,875 | $ | 29,756 | ||||||||
Less: estimated expenses | (664 | ) | (703 | ) | (741 | ) | (786 | ) | ||||||||
Net offering proceeds | 18,461 | 21,798 | 25,134 | 28,970 | ||||||||||||
Less: ESOP purchase | (1,530 | ) | (1,800 | ) | (2,070 | ) | (2,381 | ) | ||||||||
Less: RRP purchase | (765 | ) | (900 | ) | (1,035 | ) | (1,190 | ) | ||||||||
Net investable proceeds | $ | 16,166 | $ | 19,098 | $ | 22,029 | $ | 25,399 | ||||||||
Net Income: (LTM period) | ||||||||||||||||
LTM ended 9/30/04 | $ | 228 | $ | 228 | $ | 228 | $ | 228 | ||||||||
Pro forma income on net proceeds | 372 | 439 | 507 | 584 | ||||||||||||
Pro forma ESOP adjustment | (47 | ) | (55 | ) | (64 | ) | (73 | ) | ||||||||
Pro forma RRP adjustment | (94 | ) | (110 | ) | (127 | ) | (146 | ) | ||||||||
Pro forma net income | $ | 459 | $ | 502 | $ | 544 | $ | 593 | ||||||||
Pro forma earnings per share | $ | 0.26 | $ | 0.24 | $ | 0.23 | $ | 0.22 | ||||||||
Net Income: (Quarter annlzd. period) | ||||||||||||||||
Quarter ended 9/30/04 annualized | $ | 552 | $ | 552 | $ | 552 | $ | 552 | ||||||||
Pro forma income on net proceeds | 372 | 439 | 507 | 584 | ||||||||||||
Pro forma ESOP adjustment | (47 | ) | (55 | ) | (64 | ) | (73 | ) | ||||||||
Pro forma RRP adjustment | (94 | ) | (110 | ) | (127 | ) | (146 | ) | ||||||||
Pro forma net income | $ | 783 | $ | 826 | $ | 868 | $ | 917 | ||||||||
Pro forma earnings per share | $ | 0.44 | $ | 0.40 | $ | 0.36 | $ | 0.33 | ||||||||
Total Equity | $ | 11,114 | $ | 11,114 | $ | 11,114 | $ | 11,114 | ||||||||
Net offering proceeds | 18,461 | 21,798 | 25,134 | 28,970 | ||||||||||||
Less: ESOP purchase | (1,530 | ) | (1,800 | ) | (2,070 | ) | (2,381 | ) | ||||||||
Less: RRP purchase | (765 | ) | (900 | ) | (1,035 | ) | (1,190 | ) | ||||||||
Pro forma total equity | $ | 27,280 | $ | 30,212 | $ | 33,143 | $ | 36,513 | ||||||||
Pro forma book value | $ | 14.26 | $ | 13.43 | $ | 12.81 | $ | 12.27 | ||||||||
Tangible Equity | $ | 11,092 | $ | 11,092 | $ | 11,092 | $ | 11,092 | ||||||||
Net offering proceeds | 18,461 | 21,798 | 25,134 | 28,970 | ||||||||||||
Less: ESOP purchase | (1,530 | ) | (1,800 | ) | (2,070 | ) | (2,381 | ) | ||||||||
Less: RRP purchase | (765 | ) | (900 | ) | (1,035 | ) | (1,190 | ) | ||||||||
Pro forma tangible equity | $ | 27,258 | $ | 30,190 | $ | 33,121 | $ | 36,491 | ||||||||
Pro forma tangible book value | $ | 14.25 | $ | 13.42 | $ | 12.80 | $ | 12.26 | ||||||||
Total Assets | $ | 147,954 | $ | 147,954 | $ | 147,954 | $ | 147,954 | ||||||||
Net offering proceeds | 18,461 | 21,798 | 25,134 | 28,970 | ||||||||||||
Less: ESOP purchase | (1,530 | ) | (1,800 | ) | (2,070 | ) | (2,381 | ) | ||||||||
Less: RRP purchase | (765 | ) | (900 | ) | (1,035 | ) | (1,190 | ) | ||||||||
Pro forma total assets | $ | 164,120 | $ | 167,052 | $ | 169,983 | $ | 173,353 | ||||||||
Pro Forma Ratios: | ||||||||||||||||
Price / EPS – 9/30/04 LTM | 38.5 | 41.4 | 43.9 | 46.4 | ||||||||||||
Price / EPS – 9/30/04 Qtr. Ann. | 22.6 | 25.2 | 27.5 | 30.0 | ||||||||||||
Price / Book Value | 70.1 | % | 74.5 | % | 78.1 | % | 81.5 | % | ||||||||
Price / Tangible Book Value | 70.2 | % | 74.5 | % | 78.1 | % | 81.5 | % | ||||||||
Price / Total Assets | 11.65 | % | 13.47 | % | 15.22 | % | 17.17 | % | ||||||||
Equity / Assets | 16.62 | % | 18.09 | % | 19.50 | % | 21.06 | % | ||||||||
FELDMAN FINANCIAL ADVISORS, INC.
Board of Directors
Slavie Federal Savings Bank
November 5, 2004
Page 13
Table 9
Pro Forma Full Conversion Analysis at Maximum
Slavie Federal Savings Bank
Historical Financial Data as of September 30, 2004
Valuation Parameters | Symbol | Data | ||||
Net income — 9/30/04 LTM | Y | $ 228,000 | ||||
Net income — 9/30/04 Qtr. ann. | Y | 552,000 | ||||
Net worth | B | 11,114,000 | ||||
Tangible net worth | B | 11,092,000 | ||||
Total assets | A | 147,954,000 | ||||
Expenses in conversion | X | 741,313 | ||||
Other proceeds not reinvested | O | 3,105,000 | ||||
ESOP purchase | E | 2,070,000 | ||||
ESOP expense (pre-tax) | F | 104,268 | ||||
RRP purchase | M | 1,035,000 | ||||
RRP expense (pre-tax) | N | 206,908 | ||||
Re-investment rate (after-tax) | R | 2.30% | ||||
Tax rate | T | 38.62% | ||||
Shares for EPS | S | 92.40% | ||||
Pro Forma Valuation Ratios at Maximum Value | ||||||
Price / EPS — 9/30/04 LTM | P/E | 43.95 | x | |||
Price / EPS — 9/30/04 Qtr. ann. | P/E | 27.54 | x | |||
Price / Book Value | P/B | 78.07% | ||||
Price / Tangible Book | P/B | 78.12% | ||||
Price / Assets | P/A | 15.22% | ||||
| Pro Forma Calculation at Maximum Value | Based on | |||||||||||
| V | = | (P/E / S)*((Y-R*(O+X)-(F+N)*(1-T))) | = | $25,875,000 | [LTM earnings] | |||||||
| 1 - (P/E / S) * R | ||||||||||||
| V | = | (P/E / S)*((Y-R*(O+X)-(F+N)*(1-T))) | = | $25,875,000 | [Qtr. annlzd.] | |||||||
| 1 - (P/E / S) * R | ||||||||||||
| V | = | P/B * (B - X - E - M) | = | $25,875,000 | [Book value] | |||||||
| 1 - P/B | ||||||||||||
| V | = | P/B * (B - X - E - M) | = | $25,875,000 | [Tangible book] | |||||||
| 1 - P/B | ||||||||||||
| V | = | P/A * (B - X - E - M) | = | $25,875,000 | [Total assets] | |||||||
| 1 - P/A | ||||||||||||
Pro Forma Valuation Range | ||||||||||||
Minimum = | $ | 22,500,000 | x | 0.85 | = | $ | 19,125,000 | |||||
Midpoint = | $ | 22,500,000 | x | 1.00 | = | $ | 22,500,000 | |||||
Maximum = | $ | 22,500,000 | x | 1.15 | = | $ | 25,875,000 | |||||
Adj. Max. = | $ | 25,875,000 | x | 1.15 | = | $ | 29,756,250 | |||||
FELDMAN FINANCIAL ADVISORS, INC.
Table 10
Comparative Valuation Ratios
Pro Forma Full Conversion Valuation
Market Price Data as of November 5, 2004
Valuation Ratio | Symbol | Slavie Bank | Comparative Group | Nationwide Aggregate(1) | Maryland Public Thrift Aggregate(2) | |||||||||||||
| Mean | Median | Mean | Median | Mean | Median | |||||||||||||
Price / LTM EPS | P/E | |||||||||||||||||
Minimum | (X) | 38.5 | 20.4 | 21.4 | 19.4 | 17.5 | 13.9 | 11.6 | ||||||||||
Midpoint | 41.4 | |||||||||||||||||
Maximum | 43.9 | |||||||||||||||||
Adjusted Maximum | 46.4 | |||||||||||||||||
Price / Qtr. Ann. EPS | P/E | |||||||||||||||||
Minimum | (X) | 22.6 | 21.3 | 21.8 | 19.0 | 17.2 | 13.8 | 10.9 | ||||||||||
Midpoint | 25.2 | |||||||||||||||||
Maximum | 27.5 | |||||||||||||||||
Adjusted Maximum | 30.0 | |||||||||||||||||
Price / Book Value | P/B | |||||||||||||||||
Minimum | (%) | 70.1 | 108.1 | 107.6 | 148.1 | 137.8 | 163.6 | 149.0 | ||||||||||
Midpoint | 74.5 | |||||||||||||||||
Maximum | 78.1 | |||||||||||||||||
Adjusted Maximum | 81.5 | |||||||||||||||||
Price / Tang. Book | P/B | |||||||||||||||||
Minimum | (%) | 70.2 | 109.3 | 110.6 | 162.2 | 146.5 | 165.1 | 149.0 | ||||||||||
Midpoint | 74.5 | |||||||||||||||||
Maximum | 78.1 | |||||||||||||||||
Adjusted Maximum | 81.5 | |||||||||||||||||
Price / Total Assets | P/A | |||||||||||||||||
Minimum | (%) | 11.65 | 12.06 | 12.55 | 14.42 | 13.55 | 13.82 | 13.10 | ||||||||||
Midpoint | 13.47 | |||||||||||||||||
Maximum | 15.22 | |||||||||||||||||
Adjusted Maximum | 17.17 | |||||||||||||||||
(1) Includes 218 publicly-traded, non-MHC, non-acquired thrifts nationwide.
(2) Includes 4 publicly-traded, non-MHC, non-acquired thrifts based in Maryland.
FELDMAN FINANCIAL ADVISORS, INC.
Table 11
Comparative Discount and Premium Analysis
Pro Forma Full Conversion Valuation
Market Price Data as of November 5, 2004
Valuation Ratio | Symbol | Slavie Federal Savings Bank | Relative Premiums (Discounts) | ||||||||||||||
Comp. Group Average | All Public Thrifts(1) | All Maryland Thrifts(2) | |||||||||||||||
Price / LTM EPS | P/E | 20.4 | 19.4 | 13.9 | |||||||||||||
Minimum | (X) | 38.5 | 89.0 | % | 98.5 | % | 176.5 | % | |||||||||
Midpoint | 41.4 | 103.3 | % | 113.5 | % | 197.4 | % | ||||||||||
Maximum | 43.9 | 115.8 | % | 126.5 | % | 215.6 | % | ||||||||||
Adjusted Maximum | 46.4 | 127.7 | % | 139.0 | % | 233.0 | % | ||||||||||
Price / Qtr. Ann. EPS | P/E | 21.3 | 19.0 | 13.8 | |||||||||||||
Minimum | (X) | 22.6 | 10.8 | % | 16.3 | % | 62.1 | % | |||||||||
Midpoint | 25.2 | 23.6 | % | 29.7 | % | 80.8 | % | ||||||||||
Maximum | 27.5 | 35.2 | % | 42.0 | % | 97.8 | % | ||||||||||
Adjusted Maximum | 30.0 | 47.2 | % | 54.6 | % | 115.3 | % | ||||||||||
Price / Book Value | P/B | 108.1 | 148.1 | 163.6 | |||||||||||||
Minimum | (%) | 70.1 | -35.2 | % | -52.7 | % | -57.1 | % | |||||||||
Midpoint | 74.5 | -31.1 | % | -49.7 | % | -54.5 | % | ||||||||||
Maximum | 78.1 | -27.8 | % | -47.3 | % | -52.3 | % | ||||||||||
Adjusted Maximum | 81.5 | -24.6 | % | -45.0 | % | -50.2 | % | ||||||||||
Price / Tangible Book | P/B | 109.3 | 162.2 | 165.1 | |||||||||||||
Minimum | (%) | 70.2 | -35.8 | % | -56.7 | % | -57.5 | % | |||||||||
Midpoint | 74.5 | -31.8 | % | -54.1 | % | -54.9 | % | ||||||||||
Maximum | 78.1 | -28.5 | % | -51.8 | % | -52.7 | % | ||||||||||
Adjusted Maximum | 81.5 | -25.4 | % | -49.7 | % | -50.6 | % | ||||||||||
Price / Total Assets | P/A | 12.06 | 14.42 | 13.82 | |||||||||||||
Minimum | (%) | 11.65 | -3.4 | % | -19.2 | % | -15.6 | % | |||||||||
Midpoint | 13.47 | 11.7 | % | -6.6 | % | -2.5 | % | ||||||||||
Maximum | 15.22 | 26.2 | % | 5.6 | % | 10.2 | % | ||||||||||
Adjusted Maximum | 17.17 | 42.4 | % | 19.0 | % | 24.2 | % | ||||||||||
(1) Average for 218 publicly-traded, non-MHC, not-subject-to-acquisition thrifts nationwide.
(2) Average for 4 publicly-traded, non-MHC, not-subject-to-acquisition thrifts based in Maryland.
FELDMAN FINANCIAL ADVISORS, INC.
Table 12
Pro Forma Assumptions for MHC Stock Offering
| 1. | The aggregate common stock sold in the stock offering will amount to 45% of total shares outstanding. The remaining 55% of common stock will be owned by the MHC. |
| 2. | The total amount of the net offering proceeds was fully invested at the beginning of the applicable period. |
| 3. | The net offering proceeds are invested to yield a return of 3.74%, which represented the average of the yield on interest-earning assets and the cost of deposits for the LTM period ending September 30, 2004. The effective income tax rate was assumed to be 38.62%, resulting in a net after-tax yield of 2.30%. |
| 4. | It is assumed that 8.71% of the shares offered for sale (or 3.92% of total shares outstanding) will be acquired by the Bank’s ESOP. Pro forma adjustments have been made to earnings and equity to reflect the impact of the ESOP. The annual expense is estimated based on a twenty-year loan period. No reinvestment is assumed on proceeds used to fund the ESOP. |
| 5. | It is assumed that 4.36% of the shares offered for sale (or 1.96% of total shares outstanding) will be acquired by the Bank’s RRP. Pro forma adjustments have been made to earnings and equity to reflect the impact of the RRP. The annual expense is estimated based on a five-year vesting period. No reinvestment is assumed on proceeds used to fund the RRP. |
| 6. | Fixed offering expenses are estimated at $450,000. |
| 7. | Marketing fees for the stock offering are estimated at 1.25% of the amount of stock sold in the offering, excluding sales to directors, officers, employees, and stock-benefit plans. |
| 8. | No effect has been given to withdrawals from deposit accounts for the purpose of purchasing common stock in the offering. |
| 9. | No effect has been given in the pro forma equity calculation for the assumed earnings on the net proceeds. |
FELDMAN FINANCIAL ADVISORS, INC.
Table 13
Pro Forma MHC Stock Offering Range
Historical Financial Data as of September 30, 2004
(Dollars in Thousands, Except Per Share Data)
| Minimum | Midpoint | Maximum | Adj. Max. | |||||||||||||
Shares outstanding | 1,912,500 | 2,250,000 | 2,587,500 | 2,975,625 | ||||||||||||
Shares sold 45% | 860,625 | 1,012,500 | 1,164,375 | 1,339,031 | ||||||||||||
Offering price | $ | 10.00 | $ | 10.00 | $ | 10.00 | $ | 10.00 | ||||||||
Gross proceeds | $ | 8,606 | $ | 10,125 | $ | 11,644 | $ | 13,390 | ||||||||
Less: estimated expenses | (542 | ) | (559 | ) | (577 | ) | (597 | ) | ||||||||
Net offering proceeds | 8,064 | 9,566 | 11,067 | 12,794 | ||||||||||||
Less: ESOP purchase | (750 | ) | (882 | ) | (1,014 | ) | (1,166 | ) | ||||||||
Less: RRP purchase | (375 | ) | (441 | ) | (507 | ) | (583 | ) | ||||||||
Net investable proceeds | $ | 6,939 | $ | 8,243 | $ | 9,546 | $ | 11,045 | ||||||||
Net Income: (LTM period) | ||||||||||||||||
LTM ended 9/30/04 | $ | 228 | $ | 228 | $ | 228 | $ | 228 | ||||||||
Pro forma income on net proceeds | 160 | 190 | 220 | 254 | ||||||||||||
Pro forma ESOP adjustment | (23 | ) | (27 | ) | (31 | ) | (36 | ) | ||||||||
Pro forma RRP adjustment | (46 | ) | (54 | ) | (62 | ) | (72 | ) | ||||||||
Pro forma net income | $ | 319 | $ | 337 | $ | 355 | $ | 374 | ||||||||
Pro forma earnings per share | $ | 0.18 | $ | 0.16 | $ | 0.15 | $ | 0.14 | ||||||||
Net Income: (Qtr. annlzd. 9/30/04) | ||||||||||||||||
Quarter ended 9/30/04 annualized | $ | 552 | $ | 552 | $ | 552 | $ | 552 | ||||||||
Pro forma income on net proceeds | 160 | 190 | 220 | 254 | ||||||||||||
Pro forma ESOP adjustment | (23 | ) | (27 | ) | (31 | ) | (36 | ) | ||||||||
Pro forma RRP adjustment | (46 | ) | (54 | ) | (62 | ) | (72 | ) | ||||||||
Pro forma net income | $ | 643 | $ | 661 | $ | 679 | $ | 698 | ||||||||
Pro forma earnings per share | $ | 0.37 | $ | 0.32 | $ | 0.29 | $ | 0.26 | ||||||||
Total Equity | $ | 11,114 | $ | 11,114 | $ | 11,114 | $ | 11,114 | ||||||||
Net offering proceeds | 8,064 | 9,566 | 11,067 | 12,794 | ||||||||||||
Less: capitalization of MHC | (100 | ) | (100 | ) | (100 | ) | (100 | ) | ||||||||
Less: ESOP purchase | (750 | ) | (882 | ) | (1,014 | ) | (1,166 | ) | ||||||||
Less: RRP purchase | (375 | ) | (441 | ) | (507 | ) | (583 | ) | ||||||||
Pro forma total equity | $ | 17,953 | $ | 19,257 | $ | 20,560 | $ | 22,058 | ||||||||
Pro forma book value | $ | 9.39 | $ | 8.56 | $ | 7.95 | $ | 7.41 | ||||||||
Tangible Equity | $ | 11,083 | $ | 11,083 | $ | 11,083 | $ | 11,083 | ||||||||
Net offering proceeds | 8,064 | 9,566 | 11,067 | 12,794 | ||||||||||||
Less: capitalization of MHC | (100 | ) | (100 | ) | (100 | ) | (100 | ) | ||||||||
Less: ESOP purchase | (750 | ) | (882 | ) | (1,014 | ) | (1,166 | ) | ||||||||
Less: RRP purchase | (375 | ) | (441 | ) | (507 | ) | (583 | ) | ||||||||
Pro forma tangible equity | $ | 17,922 | $ | 19,226 | $ | 20,529 | $ | 22,027 | ||||||||
Pro forma tangible book value | $ | 9.37 | $ | 8.54 | $ | 7.93 | $ | 7.40 | ||||||||
Total Assets | $ | 147,954 | $ | 147,954 | $ | 147,954 | $ | 147,954 | ||||||||
Net offering proceeds | 8,064 | 9,566 | 11,067 | 12,794 | ||||||||||||
Less: capitalization of MHC | (100 | ) | (100 | ) | (100 | ) | (100 | ) | ||||||||
Less: ESOP purchase | (750 | ) | (882 | ) | (1,014 | ) | (1,166 | ) | ||||||||
Less: RRP purchase | (375 | ) | (441 | ) | (507 | ) | (583 | ) | ||||||||
Pro forma total assets | $ | 154,793 | $ | 156,097 | $ | 157,400 | $ | 158,898 | ||||||||
Pro Forma Ratios: | ||||||||||||||||
Price / EPS – 9/30/04 LTM | 55.0 | 61.2 | 66.9 | 73.0 | ||||||||||||
Price / EPS – 9/30/04 Qtr. Ann. | 27.3 | 31.2 | 35.0 | 39.1 | ||||||||||||
Price / Book Value | 106.5 | % | 116.8 | % | 125.8 | % | 135.0 | % | ||||||||
Price / Tangible Book Value | 106.7 | % | 117.1 | % | 126.1 | % | 135.1 | % | ||||||||
Price / Total Assets | 12.36 | % | 14.41 | % | 16.44 | % | 18.73 | % | ||||||||
Equity / Assets | 11.60 | % | 12.34 | % | 13.06 | % | 13.88 | % | ||||||||
