FELDMAN FINANCIAL ADVISORS, INC.
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1725 K STREET, NW O SUITE 205
WASHINGTON, DC 20006
202-467-6862
(FAX) 202-467-6963
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Gateway Community
Financial Corp.
Sewell, New Jersey
Conversion Valuation Appraisal Report
Valued as of March 13, 2007
Prepared By
Feldman Financial Advisors, Inc.
Washington, D.C.
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FELDMAN FINANCIAL ADVISORS, INC.
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1725 K STREET, NW O SUITE 205
WASHINGTON, DC 20006
202-467-6862
(FAX) 202-467-6963
March 13, 2007
Board of Directors
Gateway Community Financial Corp.
381 Egg Harbor Road
Sewell, New Jersey 08080
Members of the Board:
At your request, we have completed and hereby provide an independent
appraisal (the "Appraisal") of the estimated pro forma market value of Gateway
Community Financial Corp. (the "Company") on a fully converted basis, as of
March 13, 2007, in conjunction with the offer for sale of a minority interest of
the Company's common stock (the "Stock Offering"). The Company is the mid-tier
holding company of Gloucester County Federal Savings Bank (the "Bank"). The
Company will offer 45% of its outstanding shares of common stock for sale in
subscription and community offerings to eligible depositors, the employee stock
ownership plan, directors, officers and employees of the Company and the Bank,
and then to the general public. The remainder of Gateway Community Financial
Corp.'s outstanding common stock upon completion of this offering will be held
by Gateway Community Financial, MHC, the mutual holding company parent of
Gateway Community Financial Corp.. Gateway Community Financial, MHC will own the
remaining 55% of the Company's shares of common stock after the Stock Offering.
The Appraisal is furnished pursuant to the filing by the Company of the
Application for Approval of a Minority Stock Issuance by a Holding Company
Subsidiary of a Mutual Holding Company (the "Application") with the Office of
Thrift Supervision ("OTS").
Feldman Financial Advisors, Inc. ("Feldman Financial") is a financial
consulting and economic research firm that specializes in financial valuations
and analyses of business enterprises and securities in the thrift, banking, and
mortgage industries. The background of Feldman Financial is presented in Exhibit
I. In preparing the Appraisal, we conducted an analysis of the Company that
included discussions with the Company's management, the Company's legal counsel,
Malizia Spidi & Fisch, PC, and the Company's independent auditor, S.R.
Snodgrass, A.C. In addition, where appropriate, we considered information based
on other available published sources that we believe are reliable; however, we
cannot guarantee the accuracy and completeness of such information.
FELDMAN FINANCIAL ADVISORS, INC.
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Board of Directors
Gateway Community Financial Corp.
March 13, 2007
Page Two
We also reviewed, among other factors, the economy in the Company's
primary market area and compared the Company's financial condition and operating
performance with that of selected publicly traded thrift institutions. We
reviewed conditions in the securities markets in general and in the market for
thrift institution common stocks in particular.
The Appraisal is based on the Company's representation that the
information contained in the Application and additional evidence furnished to us
by the Company and its independent auditor are truthful, accurate, and complete.
We did not independently verify the financial statements and other information
provided by the Company and its independent auditor, nor did we independently
value the assets or liabilities of the Company. The Appraisal considers the
Company only as a going concern and should not be considered as an indication of
the liquidation value of the Company.
It is our opinion that, as of March 13, 2007, the estimated pro forma
market value of the Company on a fully converted basis was within a range (the
"Valuation Range") of $51,000,000 to $69,000,000 with a midpoint of $60,000,000.
The Valuation Range was based upon a 15% decrease from the midpoint to determine
the minimum and a 15% increase from the midpoint to establish the maximum.
Assuming an additional 15% increase above the maximum value would result in an
adjusted maximum of $79,350,000. As part of the Stock Offering, the Company will
offer common stock equal to 45% of the aggregate pro forma market value for sale
in a subscription and community offering. Thus, assuming an offering price of
$10.00 per share of common stock, the Company will offer a minimum of 2,295,000
shares, a midpoint of 2,700,000 shares, a maximum of 3,105,000 shares, and an
adjusted maximum of 3,570,750 shares. The aggregate pro forma market value of
the common stock sold in the Stock Offering will range from $22,950,000 at the
minimum and $27,000,000 at the midpoint to $31,050,000 at the maximum and
$35,707,500 at the adjusted maximum.
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 Stock Offering. Moreover, because the Appraisal 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 who
purchase shares of stock in the Stock Offering will thereafter be able to sell
such shares at prices related to the foregoing estimate of the Company'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.
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Board of Directors
Gateway Community Financial Corp.
March 13, 2007
Page Three
The valuation reported herein will be updated as appropriate. These
updates will consider, among other factors, any developments or changes in the
Company's operating performance, financial condition, or management policies,
and current conditions in the securities markets for thrift institution common
stocks. Should any such new developments or changes be material, in our opinion,
to the valuation of the Company, appropriate adjustments to the estimated pro
forma market value will be made. The reasons for any such adjustments will be
explained in detail at that time.
Respectfully submitted,
Feldman Financial Advisors, Inc
/s/Trent R. Feldman
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Trent R. Feldman
President
/s/Greg Izydorczyk
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Greg Izydorczyk
Senior Vice President
FELDMAN FINANCIAL ADVISORS, INC.
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TABLE OF CONTENTS
TAB PAGE
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INTRODUCTION ............................................................ 1
I. Chapter One - BUSINESS OF GATEWAY FINANCIAL CORPORATION
General Overview......................................................... 4
Financial Condition...................................................... 8
Income and Expense Trends................................................ 31
Interest Rate Risk Management............................................ 39
Asset Quality............................................................ 42
Market Area.............................................................. 48
Summary Outlook.......................................................... 54
II. Chapter Two - COMPARISONS WITH PUBLICLY HELD THRIFTS
General Overview......................................................... 55
Selection Criteria....................................................... 56
Recent Financial Comparisons............................................. 60
III. Chapter Three - MARKET VALUE ADJUSTMENTS
General Overview......................................................... 72
Earnings Prospects....................................................... 73
Financial Condition...................................................... 75
Market Area.............................................................. 76
Management............................................................... 76
Dividend Policy.......................................................... 77
Liquidity of the Issue................................................... 77
Subscription Interest ................................................... 78
Stock Market Conditions.................................................. 79
Recent Acquisition Activity.............................................. 83
New Issue Discount....................................................... 83
Adjustments Conclusion................................................... 87
Valuation Approach....................................................... 87
Valuation Conclusion..................................................... 89
IV. Appendix - EXHIBITS
I Background of Feldman Financial Advisors, Inc................. I-1
II-1 Statement of Financial Condition.............................. II-1
II-2 Statement of Operations....................................... II-2
II-3 Loan Portfolio Composition.................................... II-3
II-4 Investment Portfolio Composition.............................. II-4
II-5 Deposit Account Distribution.................................. II-5
III Financial and Market Data for All Public Thrifts..............III-1
IV-1 Pro Forma Assumptions for Full Conversion Valuation........... IV-1
IV-2 Pro Forma Full Conversion Valuation Range..................... IV-2
IV-3 Pro Forma Full Conversion Analysis at Maximum................. IV-3
IV-4 Comparative Discount and Premium Analysis..................... IV-4
V-1 Pro Forma Assumptions for MHC Stock Offering.................. V-1
V-2 Pro Forma MHC Stock Offering Range............................ V-2
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LIST OF TABLES
TAB PAGE
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I. Chapter One - BUSINESS OF GATEWAY FINANCIAL CORPORATION
Table 1 Selected Financial Condition Data........................ 8
Table 2 Selected Financial and Performance Ratios................ 9
Table 3 Loan Portfolio........................................... 11
Table 4 Securities Portfolio..................................... 23
Table 5 Securities Portfolio by Contractual Maturity............. 25
Table 6 Deposit Portfolio........................................ 27
Table 7 Certificates of Deposit by Interest Rate................. 28
Table 8 Certificates of Deposit by Maturity...................... 28
Table 9 Certificates of Deposit Greater Than $100,000............ 29
Table 10 FHLB Borrowings.......................................... 30
Table 11 Summary Income Statement Data............................ 31
Table 12 Average Balances and Yields.............................. 32
Table 13 Rate/Volume Analysis .................................... 33
Table 14 Interest Rate Risk Analysis.............................. 41
Table 15 Non-performing Asset Summary............................. 43
Table 16 Allowance for Loan Loss Summary ......................... 44
Table 17 Allocation of Allowance for Loan Losses.................. 45
Table 18 Selected Demographic Data................................ 50
Table 19 Employment by Industry for Gloucester County............. 51
Table 20 Largest Employers Gloucester County...................... 51
Table 21 Deposit Market Share for Gloucester and Camden Counties.. 53
II. Chapter Two - COMPARISONS WITH PUBLICLY HELD THRIFTS
Table 22 Comparative Group Operating Summary...................... 59
Table 23 Key Financial Comparisons................................ 62
Table 24 General Financial Performance Ratios..................... 67
Table 25 Income and Expense Analysis.............................. 68
Table 26 Yield-Cost Structure and Growth Rates.................... 69
Table 27 Balance Sheet Composition................................ 70
Table 28 Regulatory Capital, Credit Risk, and Loan Composition.... 71
III. Chapter Three - MARKET VALUE ADJUSTMENTS
Table 29 Comparative Stock Index Performance...................... 82
Table 30 Summary of Recent New Jersey Acquisition Activity........ 84
Table 31 Summary of Recent First-Stage MHC Stock Offerings........ 85
Table 32 Fully Converted Market Valuation Analysis................ 90
Table 33 Comparative Fully Converted Market Valuation Analysis.... 91
Table 34 Pro Forma Comparative MHC Valuation Analysis............. 92
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FELDMAN FINANCIAL ADVISORS, INC.
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INTRODUCTION
As requested, Feldman Financial Advisors, Inc. ("Feldman Financial")
has prepared an independent appraisal (the "Appraisal") of the estimated pro
forma market value of Gateway Community Financial Corp. (the "Company") on a
fully converted basis, as of March 13, 2007, in conjunction with the offer for
sale of a minority interest of the Company's outstanding shares of common stock
(the "Stock Offering"). The Company is the mid-tier holding company of
Gloucester County Federal Savings Bank (the "Bank"). Pursuant to the Stock
Offering, Gateway Community Financial Corp. is offering shares of its common
stock for sale in subscription and community offerings to eligible depositors,
the employee stock ownership plan, directors, officers and employees of the
Company and the Bank, and then to the general public. The shares being are
offering will represent 45% of the total outstanding common stock of Gateway
Community Financial Corp. The Appraisal is furnished pursuant to the filing by
the Company of the Application for Approval of a Minority Stock Issuance by a
Holding Company Subsidiary of a Mutual Holding Company (the "Application") with
the Office of Thrift Supervision ("OTS").
In the course of preparing the Appraisal, we reviewed and discussed
with the Company's management and the Company's independent accountants, S.R.
Snodgrass, A.C., the audited financial statements of the Company's operations
for the years ended December 31, 2005 and 2006. We also reviewed and discussed
with management other financial matters of the Bank.
Where appropriate, we considered information based upon other available
public sources, which we believe to be reliable; however, we cannot guarantee
the accuracy or completeness of such information. We visited the Company's
primary market area and examined the prevailing
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FELDMAN FINANCIAL ADVISORS, INC.
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economic conditions. We also examined the competitive environment within which
the Company operates and assessed the Company's relative strengths and
weaknesses.
We examined and compared the Company's financial performance with
selected segments of the thrift industry and selected publicly traded thrift
institutions. We reviewed conditions in the securities markets in general and
the market for thrift institution common stocks in particular. We included in
our analysis an examination of the potential effects of the Stock Offering on
the Company's operating characteristics and financial performance as they relate
to the estimated pro forma market value of the Company.
In preparing the Appraisal, we have relied upon and assumed the
accuracy and completeness of financial and statistical information provided by
the Company and its independent accountants. We did not independently verify the
financial statements and other information provided by the Company and its
independent accountants, nor did we independently value the assets or
liabilities of the Company. The Appraisal considers the Company only as a going
concern and should not be considered as an indication of the liquidation value
of the Company.
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 Stock Offering. Moreover, because such the Appraisal is necessarily
based on 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 common stock in the Stock Offering will thereafter be able to
sell such shares at prices related to the foregoing estimate of the Company's
pro forma market value. Feldman Financial is not a seller of
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FELDMAN FINANCIAL ADVISORS, INC.
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securities within the meaning of any federal and 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.
The valuation reported herein will be updated as appropriate. These
updates will consider, among other factors, any developments or changes in the
Company's financial performance or management policies, and current conditions
in the securities market for thrift institution common stocks. Should any such
developments or changes be material, in our opinion, to the Stock Offering
valuation of the Company, appropriate adjustments to the estimated pro forma
market value will be made. The reasons for any such adjustments will be
explained in detail at that time.
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FELDMAN FINANCIAL ADVISORS, INC.
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I. BUSINESS OF GATEWAY COMMUNITY FINANCIAL CORP.
General Overview
Gateway Community Financial Corp. is a federally chartered corporation
that holds all of the capital stock of Gloucester County Federal Savings Bank, a
state chartered savings bank with roots in the community going back to 1903. The
Bank was originally named Alcyon Building and Loan Association when it was
formed in 1921 and changed its name to Gloucester County Savings and Loan when
it switched to a federal charter in 1963. The Bank changed its name to
Gloucester County Federal Savings Bank in 1988 and became part of a three-tiered
mutual holding company in 2001 with the formation of Gateway Community Financial
Corp. and Gateway Community Financial, MHC. Currently, 100% of the outstanding
stock of Gateway Community Financial Corp. is held by Gateway Community
Financial, MHC, a federally chartered mutual holding company.
Gloucester County Federal Savings Bank offers a full range of
traditional deposit and lending services, including one-to-four family mortgage
loans, home equity loans and lines of credit, commercial real estate loans,
construction loans, commercial loans and lines of credit and consumer loans.
Gloucester County Federal Savings Bank currently operates five offices
located in Gloucester and Camden Counties, New Jersey. Gateway Community
Financial Corp.'s principal executive offices are located at the administrative
offices of Gloucester County Federal Savings Bank at 381 Egg Harbor Road,
Sewell, New Jersey 08080. Gloucester County Federal Savings
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FELDMAN FINANCIAL ADVISORS, INC.
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Bank maintains a website at www.gfcbank.com. Upon completion of the offering, it
will change its name to "GCF Bank."
Gateway Community Financial, MHC is a federally chartered mutual
holding company that was formed in connection with the mutual holding company
reorganization. So long as Gateway Community Financial, MHC is in existence, it
will at all times own a majority of the outstanding stock of Gateway Community
Financial Corp. After completion of the offering, Gateway Community Financial,
MHC will own approximately 55% of the outstanding stock of Gateway Community
Financial Corp. The primary business activity of Gateway Community Financial,
MHC going forward will be to own a majority of Gateway Community Financial
Corp.'s stock.
Gloucester County Federal Savings Bank is a federal stock savings bank.
Its deposits are insured by the Federal Deposit Insurance Corporation and it is
regulated by the Office of Thrift Supervision and the Federal Deposit Insurance
Corporation. The Office of Thrift Supervision also regulates Gateway Community
Financial, MHC and Gateway Community Financial Corp. as savings and loan holding
companies. At December 31, 2006, the Bank's total assets were $351.9 million,
representing a 14.2% increase over total assets at 2005 year-end, and loan
receivable, net comprised 60% of total assets while the securities portfolio
amounted to 32% of total assets.
The Bank's primary business is attracting retail deposits from the
general public and using those deposits, together with funds generated from
operations, principal repayments on securities and loans and borrowed funds, for
our lending and investing activities. The loan portfolio consists of one- to
four-family residential real estate mortgages, commercial real estate mortgages,
construction loans, commercial loans, home equity loans and lines of credit, and
other
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FELDMAN FINANCIAL ADVISORS, INC.
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consumer loans. The Bank also invests in U.S. government obligations,
mortgage-backed securities and other investment grade securities. At December
31, 2006, the Bank operated from five office locations plus an administrative
center. The Bank's main office is located in Sewell, in Gloucester County, New
Jersey. The Bank currently has three additional branch offices in Gloucester
County located in Glassboro, Pitman and Williamstown and one branch office in
Camden County in Sicklerville.
The Bank operates in a market area with a high concentration of banking
and financial institutions, and faces substantial competition in attracting
deposits and in originating loans. A number of competitors are significantly
larger institutions with greater financial and managerial resources and lending
limits. The ability to compete successfully is a significant factor affecting
growth potential and profitability.
Competition for deposits and loans historically has come from other
insured financial institutions such as local and regional commercial banks,
savings institutions, and credit unions located in the Bank's primary market
area. The Bank also competes with mortgage banking and finance companies for
real estate loans and with commercial banks and other savings institutions for
real estate loans in addition to consumer and commercial loans, and we face
competition for funds from investment products such as mutual funds, short term
money funds and corporate and government securities. There are large competitors
operating throughout the total market area, and the Bank also faces strong
competition from other community-based financial institutions.
In order to facilitate its growth objectives and maintain appropriate
capital levels, the Company plans to raise additional capital through the Stock
Offering. The net proceeds from the Stock Offering may also be used to support
increased lending activities, repay borrowings, or
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FELDMAN FINANCIAL ADVISORS, INC.
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other general corporate purposes. In addition, the Stock Offering will afford
the opportunity to implement stock-based compensation and benefit plans for
management and employees, thereby improving the Company's capacity to attract
and retain qualified personnel. The Stock Offering also provides the occasion
for the Company to strengthen its ties to the local community by allowing
customers the opportunity to become equity owners of the Company and participate
in possible stock price appreciation and cash dividends.
The remainder of Chapter I examines in more detail the trends addressed
in this section, including the impact of changes in the Company's economic and
competitive environment, and recent management initiatives. The discussion is
supplemented by the exhibits in the Appendix. Exhibit II-1 summarizes the
Company's consolidated balance sheets as of the years ended December 31, 2005
and 2006. Exhibit II-2 presents the Company's consolidated income statements for
the years ended December 31, 2005 and 2006.
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FELDMAN FINANCIAL ADVISORS, INC.
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Financial Condition
Table 1 presents selected data concerning the Company's financial
position as of December 31, 2002 to 2006. Table 2 displays relative financial
and performance ratios for the Company as of similar periods.
Table 1
Selected Financial Condition Data
As of December 31, 2002 to 2006
(Dollars in Thousands)
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At December 31,
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Balance Sheet Data: 2006 2005 2004 2003 2002
-------- -------- -------- -------- --------
(In thousands)
Assets $351,864 $308,011 $315,927 $293,414 $312,402
Loans receivable, net 210,492 180,916 167,320 163,343 182,660
Investment securities 52,797 41,315 48,451 50,361 58,222
Mortgage-backed securities 59,185 54,032 61,201 40,658 23,235
Cash and cash equivalents 10,618 14,180 19,760 19,448 28,729
Deposits 315,962 277,544 286,611 266,895 283,732
Short-term borrowings 4,400 - - - -
Total equity 28,903 28,546 26,934 25,332 27,062
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For the Year Ended December 31,
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Summary of Operations: 2006 2005 2004 2003 2002
-------- -------- -------- -------- --------
Interest income $16,273 $14,221 $13,913 $14,477 $17,306
Interest expense 9,377 5,871 5,204 5,899 9,007
------- ------- ------- -------- -------
Net interest income 6,896 8,350 8,769 8,578 8,299
Provision for (recovery of) loan losses (348) (917) (13) 4,342 7,550
------- ------- ------- -------- -------
Net interest income after provision
for loan losses 7,244 9,267 8,722 4,236 749
Non-interest income 856 883 876 793 712
Non-interest expense 7,631 7,634 7,689 7,384 6,022
------- ------- ------- -------- -------
Income before income taxes 469 2,516 1,909 (2,355) (4,561)
Provisions for income taxes 90 893 259 (673) (1,924)
------- ------- ------- -------- -------
Net income $ 379 $ 1,623 $ 1,650 $ (1,682) $(2,637)
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Source: Gateway Community Financial Corp., preliminary prospectus.
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Table 2
Selected Financial and Performance Ratios
As of December 31, 2002 to 2006
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At or for the Year Ended December 31,
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Performance Ratios: 2006 2005 2004 2003 2002
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Return on average assets (net income 0.11% 0.53% 0.54% (0.56)% (0.87)%
divided by average total assets)
Return on average equity (net income
divided by average equity) 1.33 6.04 6.43 (6.44) (8.87)
Net interest rate spread 2.06 2.80 2.98 3.38 2.82
Net interest margin on average
interest-earnings assets 2.25 2.94 3.08 3.33 3.02
Average interest-earning assets to
average interest-bearing liabilities 106.20 106.40 105.64 97.99 106.16
Efficiency ratio (Non-interest expense
divided by the sum of net interest
income and non-interest income) 98.44 82.68 80.22 78.80 66.83
Non-interest expense to average assets 2.30 2.49 2.52 2.45 1.98
Assert Quality Ratios: (1)
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Non-performing loans to total loans 1.17 1.75 0.80 1.46 0.84
Non-performing assets to total assets 0.80 1.14 0.58 0.99 0.51
Net charge-offs to average loans
outstanding 0.44 0.01 (0.07) 5.02 0.35
Allowance for loan losses to total
loans 0.85 1.65 2.31 2.31 4.36
Allowance for loan losses to
non-performing loans 72.99 94.46 290.76 158.73 522.19
Capital Ratios:
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Average equity to average assets 8.71 8.85 8.48 8.65 9.75
Equity to assets at period end 8.21 9.27 8.53 8.63 8.66
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(1) Asset quality ratios are period end ratios.
Source: Gateway Community Financial Corp., preliminary prospectus.
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FELDMAN FINANCIAL ADVISORS, INC.
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Asset Composition
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After holding relatively flat between fiscal years 2002 and 2005, the
Company's total assets experienced strong growth in 2006. Total assets increased
by $43.9 million, or 14.2%, to $351.9 million at December 31, 2006 from $308.0
million at December 31, 2005. This increase was primarily due to increases in
investment securities available for sale and loans receivable.
Net loans receivable increased $29.6 million, or 16.4%, to $210.5
million at December 31, 2006 from $180.9 million at December 31, 2005. Loan
growth in residential mortgages and home equity loans and lines of credit
resulted from economic growth in our market area and our increased marketing
efforts. The increases in those loan categories offset a decrease in auto loans,
which have decreased over the last several years following our decision to
significantly reduce indirect auto lending.
The Bank has traditionally focused on the origination of one- to
four-family loans, which comprise a significant majority of the total loan
portfolio while also providing financing for commercial real estate, including
multi-family dwellings/apartment buildings, service/retail and mixed-use
properties, churches and non-profit properties, professional facilities and
other commercial real estate. After real estate mortgage lending, consumer
lending is the next largest category of lending and is primarily composed of
loans for new and used autos, boats, recreational vehicles (RVs) and aircraft
and loans for manufactured housing as well as secured and unsecured personal
loans, account loans and overdraft lines of credit. The Bank also originates
construction loans for individual single-family residences and commercial loans
to businesses and non-profit organizations, generally secured by real estate.
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FELDMAN FINANCIAL ADVISORS, INC.
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Table 3 and Exhibit II-3 analyze the composition of the loan portfolio
by loan category at the dates indicated. The Bank's primary lending activity
consists of the origination of one-to four-family first mortgage loans. Fixed
rate, conventional mortgage loans are offered by the Bank with repayments terms
ranging from 10 years up to 30 years. Three and five year adjustable rate
mortgages ("ARM's") are offered with a 30 year term at rates based upon the one
year U.S. Treasury One Year Constant Maturity rate plus a margin.
Table 3
Loan Portfolio
As of December 31, 2002 to 2006
(Dollars in Thousands)
- ----------------------------------------------------------------------------------------------------------------------------------
At December 31, 2006 At December 31, 2005 At December 31, 2004 At December 31, 2003 At December 31, 2002
-------------------- -------------------- -------------------- -------------------- --------------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
Types of Loans:
- --------------
Real Estate Loans:
One-to-four family $102,755 48.08% $74,115 39.71% $56,736 32.44% $46,638 27.20% $50,489 25.78%
Home equity $59,327 27.76 $49,657 26.60 $41,112 23.50 $40,920 23.86 $32,158 16.42
Commercial $14,472 6.77 $13,889 7.44 $18,116 10.36 $22,578 13.17 $34,668 17.70
Construction 711 0.33 1,667 0.89 776 0.44 815 0.48 2,278 1.16
Commercial 4,561 2.13 6,022 3.23 11,533 6.59 16,870 9.84 32,405 16.55
Consumer and other loans:
Auto 21,136 9.89 33,591 18.00 40,890 23.38 41,832 24.39 41,677 21.28
Manufactured housing 7,512 3.51 5,422 2.90 3,392 1.94 0 0.00 0 0.00
Savings account 1,093 0.51 1,080 0.58 1,106 0.63 948 0.55 1,183 0.60
Other 2,155 1.01 1,203 0.64 1,248 0.71 878 0.51 1,001 0.51
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total 213,722 100.00% 186,646 100.00% 174,909 100.00% 171,479 100.00% 195,859 100.00%
======== ====== ======== ====== ======== ====== ======== ====== ======== ======
Deferred loan fees (costs) (164) (156) (8) 200 347
Less: unearned income 1,581 2,850 3,634 4,074 4,523
Less: allowance for
possib1e loan losses 1,813 3,036 3,963 3,862 8,329
-------- -------- -------- -------- --------
Total loans, net $210,492 $180,916 $167,320 $163,343 $182,660
======== ======== ======== ======== ========
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Source: Gateway Community Financial Corp., preliminary prospectus.
One to four family residential mortgages increased by 38.6% to $102.8
million at December 31, 2006 from $74.1 million at December 31, 2005. Home
equity loans and lines of credit increased by 19.5% to $59.3 million from $49.7
million. Commercial real estate loans and commercial loans totaled $14.3 million
and $4.6 million at December 31, 2006, representing 6.8% and 2.1% of total loans
at that date. Commercial real estate loans and commercial loans as a percentage
of total loans have decreased in recent years as the Bank worked through problem
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FELDMAN FINANCIAL ADVISORS, INC.
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loans and charged off a significant amount of such loans. The Bank anticipates
that this segment of the loan portfolio will, however, rebound as the Bank seeks
to grow commercial real estate loans and commercial loans. The Bank has recently
hired a commercial lender as part of the plan to diversify the loan portfolio
and improve the Bank's interest rate spread and margins. The Bank also
anticipates growing the consumer loan portfolio by focusing on manufactured
housing loans and aircraft loans.
Residential Lending. Currently, the Bank's main lending activity
--------------------
consists of the origination of residential real estate loans, including single
family homes and residences housing up to four families. The primary lending
territory for these loans is Gloucester County and surrounding areas in southern
New Jersey, however, to a smaller degree, the Bank does originate loans
throughout the entire state. The Bank is currently exploring expanding lending
into eastern Pennsylvania and northern Delaware. Although most loans are
underwritten to conform to secondary market standards, the Bank generally
retains the loans originated in portfolio. The Bank will purchase loans to
supplement its own originations; in 2006, 2005 and 2004 the Bank purchased $13.7
million and $7.1 million of one-to-four family first mortgage loans in its
market area from a national lender. The seller retains servicing on these loans.
The Bank's underwriting policies permit the origination of
single-family first mortgage loans, for primary residence, with a loan-to-value
of up to 95%. The Bank also created an affordable housing/first time homebuyer
program, which uses the 95% loan-to-value limit but permits the borrower to have
equity in the real estate of only 3%. Loans in excess of 90% loan-to-value must
have private mortgage insurance. The loan-to-value limit for non-single family
first mortgage loans (on one-to-four family properties) for primary residence is
80%. The Bank
12
FELDMAN FINANCIAL ADVISORS, INC.
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offers mortgage loans on non-owner occupied, investment properties with a 75%
loan-to-value limit. Fixed rate mortgage loans have terms of 10 to 30 years
while adjustable rate mortgages have 30 year terms.
The Bank originates adjustable rate mortgages, or ARM's, at rates based
upon the U.S. Treasury One Year Constant Maturity as an index. Currently, the
Bank offers either a 3/1 ARM or a 5/1 ARM. The rates on these loans reset on an
annual basis, beginning either the third or the fifth year, and have a two
percent annual adjustment cap, a five percent lifetime adjustment cap and a 3%
floor.
Property appraisals on real estate securing one-to-four family
residential loans are made by state certified or licensed independent
appraisers.
Home Equity Lending. The Bank offers home equity loans and home equity
-------------------
lines of credit with loan-to-value amounts up to 90% of the appraised value less
the outstanding balance of the first mortgage, if the property securing the loan
is the borrower's primary or secondary residence. A 70% loan-to-value limit
applies otherwise.
Home equity loans are generally originated for terms of up to 30 years.
Home equity line of credit has a five-year draw period during which the borrower
may take obtain advances on the line of credit, followed by a ten-year repayment
period. The minimum periodic payment on the home equity line of credit during
the draw period is 0.005% of the outstanding principal balance plus accrued
interest. A variable rate with a five percent lifetime adjustment cap but no
annual adjustment cap applies to all home equity lines of credit.
13
FELDMAN FINANCIAL ADVISORS, INC.
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Automated Valuation Models (AVM) are used for home equity loans and
lines of credit in amounts of $250,000 or less. Should the AVM not provide
sufficient value to support the request, a full appraisal may be requested by
the borrower at the borrower's expense.
The Bank recently introduced a CyberLoan home equity product, marketed
on a third party loan referral website. The Bank pays a fee to advertise on this
website. These loans will be primarily located in New Jersey, but may also be
originated in eastern Pennsylvania and in northern Delaware. This program
commenced in the second quarter of 2007. These loans will be originated using
the services of remote closing agents.
Construction Lending. Construction and land acquisition loans are
---------------------
originated for owner-occupied residences, and the Bank also provides financing
to builders and real estate developers for land acquisition and development and
residential or commercial construction. During the first quarter of 2007, the
Bank originated a $1.9 million land acquisition and development loan with an
18-month term.
Construction funds are disbursed periodically upon inspections made by
the Bank's inspectors on the completion of each phase, usually in three draws.
Additional draws may be made at the borrower's request, however the Bank
generally limits the funds disbursed to not exceed 80% of the appraised
loan-to-value of the land and improvements at any time during construction.
Commercial construction loans are limited to 75% of appraised value. Land
acquisition and development loans are limited to the lower of 90% of cost or
80%of the appraised value. Land acquisition and development loans on properties
with approved takeout financing may be originated at up to 90% of the appraised
value. Land loans are limited to 65% of the cost or appraised value.
14
FELDMAN FINANCIAL ADVISORS, INC.
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Construction lending is generally considered to involve a higher degree
of credit risk than residential mortgage lending. If the estimate of
construction cost proves to be inaccurate, the Bank may be compelled to advance
additional funds to complete the construction with repayment dependent, in part,
on the success of the ultimate project rather than the ability of a borrower or
guarantor to repay the loan. If the Bank is forced to foreclose on a project
prior to completion, there is no assurance that the Bank will be able to recover
all of the unpaid portion of the loan. In addition, the Bank may be required to
fund additional amounts to complete a project and may have to hold the property
for an indeterminate period of time.
Commercial Lending. The Bank's primary commercial lending area is
-------------------
Gloucester, Camden, Cumberland, Salem, Atlantic, Ocean, Cape May and Burlington
Counties. Loans outside of these counties are permitted (i) in order to allow
the Bank to follow existing customers when they may have borrowing needs outside
of this defined trade area, or (ii) if the Bank believes the loan to be a high
quality credit. The Bank also will participate in loan originations with other
financial institutions on loans outside of the primary commercial lending area.
Commercial underwriting standards require that borrowers have an
established history of legal and ethical financial dealings and careful
consideration should be given to the borrower's history, general background,
management experience and future plans, external environment, financial
condition and proposed collateral. The Bank obtains as much specific information
as possible about the management of the borrower in order to be satisfied that
the individuals have the capability to properly operate the business. The Bank
generally requires that borrowers who are not existing customers should
demonstrate at least two methods of repayment, one of which will be from cash
flow (or asset conversion) and the other will be from collateral of determinable
15
FELDMAN FINANCIAL ADVISORS, INC.
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value or from a clear ability to liquidate other non collateral assets. The Bank
attempts to structure commercial loans to meet the needs of the customers with
repayment over a period which shows a direct relationship to (i) the purpose,
(ii) the cash flow capabilities of the customer and (iii) the economic life of
the collateral.
Commercial real estate lending consists primarily of mortgage loans for
the acquisition or refinance of service/retail and mixed-use properties,
churches and non-profit properties, professional facilities and other commercial
real estate. The maximum loan-to-value ratio on most commercial real estate
loans originated is 75%. The maximum term is normally no more than ten years,
with payments based on a twenty-five year amortization. The Bank offers fixed
and adjustable rate commercial real estate mortgages but generally will not
offer a fixed rate period of more than seven years.
The Bank will provide financing for the owner occupied commercial
building as well as for real estate investment and will underwrite non-recourse
loans if it believe they are sufficiently supported by long-term leases with
strong tenants. The Bank offers bridge or swing loans to provide temporary
financing which transfers equity from one or more parcels of real estate
(present) to another (future). The maximum loan amount for a bridge or swing
loan will be 90% of the appraised value of the property to be sold less all
prior liens. Additional collateral may be obtained to meet this loan to value
requirement.
The Bank offers non-real estate commercial loans consisting of regular
lines of credit and revolving lines of credit to businesses to finance
short-term working capital needs like accounts receivable and inventory. In
general, lines of credit allow for intermittent borrowings and repayments, and
are not usually accompanied by extensive loan agreements. They are generally
16
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
priced on a floating rate basis. The policy is for all lines of credit to be
secured and, if possible, supported also by junior liens on real estate.
Business assets such as accounts receivable, inventory, equipment, furniture and
fixtures may be used to secure lines of credit. The Bank generally provides
regular lines of credit with a maximum term of 18 months. Revolving lines of
credit generally have a maximum term of two years, but may be up to seven years
if then converted to an amortizing term loan.
The Bank originates commercial time loans with maturities generally no
longer than 18 months and also originates commercial term loans with a monthly
or quarterly amortization schedule to fund longer term borrowing needs such as
purchasing equipment, property improvements or other fixed asset needs. The Bank
fixes the maturity of a term loan to correspond to the useful life of any
equipment purchased, if appropriate, and generally does not exceed a ten-year
term, except for certain real estate transactions. Term loans can be secured
with a variety of collateral including business assets such as accounts
receivable and inventory or long-term assets such as equipment, furniture,
fixtures or real estate. When the purpose of a term loan is the purchase of new
equipment, which will be pledged as collateral for the loan, the maximum advance
is typically no more than 90% of the purchase price. Used equipment may also be
used as collateral. The primary source of repayment for term loans is the global
cash flow of the borrowing entity.
Where a commercial loan is secured by "liquid collateral" (cash,
marketable securities, or cash surrender value of life insurance) the Bank will
offer considerable flexibility with the repayment schedule or will underwrite
these loans with no maturity, on a pure demand basis. The loan to value limits
for loans secured by liquid collateral are:
17
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
o Cash - 100%
o United States Treasury Issues - 90%
o Common stocks actively traded on the New York and American stock
exchanges or listed on NASDAQ - 80%
o Municipal Bonds - 80%
o Mutual Funds - 70%
o Corporate Bonds - 75%
o Cash Surrender Value of Life Insurance - 90%
o Margin Stock - 50%.
Commercial loan offerings also include overdrafts of demand deposit
accounts divided into four categories:
o Pure overdrafts
o Overdrafts that can be covered by available funds in other
deposit accounts (other than certificates of deposit) at the Bank
in the name of that depositor
o Overdrafts that can be covered by availability under pre
established credit facilities of that depositor
o Overdrafts of a technical nature, caused internally.
The Bank will also provide interim financing to commercial borrowers in
anticipation of a sale of an asset or closing of a long term refinancing.
Unlike single-family residential mortgage loans, which generally are
made on the basis of the borrower's ability to make repayment from his or her
employment and other income, and which are secured by real property whose value
tends to be more easily ascertainable, commercial loans (including real estate
as well as non-real estate loans) typically are made on the basis of the
borrower's ability to make repayment from the cash flow of the borrower's
business
18
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
or rental income produced by the property. As a result, the availability of
funds for the repayment of commercial loans may be substantially dependent on
the success of the business or rental property itself and the general economic
environment. Commercial loans, therefore, have greater credit risk than
one-to-four family residential mortgages or consumer loans. In addition,
commercial loans generally result in larger balances to single borrowers or
related groups of borrowers and also generally require substantially greater
evaluation and oversight efforts.
Consumer Lending. Consumer lending products include loans for new and
-----------------
used autos, boats, recreational vehicles (RV's) and aircraft and loans for
manufactured housing as well as secured and unsecured personal loans, account
loans and overdraft lines of credit.
The majority of the auto loans currently in portfolio are indirect auto
loans the Bank purchased from one auto leasing company with which the Bank
maintained a relationship with for over 20 years. Several years ago, the Bank
determined to terminate the arrangement with that company because the average
rate on these loans due to the pass-through pricing resulted in a below market
yield. The Bank will continue to originate direct auto loans to customers of the
Bank, but the overall size of the auto loan portfolio is decreasing
significantly as the indirect loans from that particular relationship mature.
The Bank may resume indirect auto lending through dealers if it can find
arrangements that are more profitable.
In 2004, the Bank began originating loans for the purchase and
refinance of manufactured housing. The majority of these loans are indirect
loans generated by an independent outside source and purchased by the Bank with
limited recourse. The maximum loan amount is $200,000 and the loan-to-value
limit is 80% for homes on leased land (with a minimum cash deposit of 20%) and
up to 90% for loans that include the land the home occupies. The Bank
19
FELDMAN FINANCIAL ADVISORS, INC.
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requires a first lien on the home and will record a first mortgage if it is a
land/home loan. The Bank intends to limit this portfolio to approximately $30
million.
In 2007, the Bank began providing financing for non-commercial use,
personal airplanes. During the first quarter of 2007, the Bank originated four
non-commercial aircraft loans with an aggregate balance of approximately
$1,000,000. The Bank anticipates growing this part of the consumer portfolio
significantly as a niche lending area, with the goal of growing the portfolio to
as much as $15 million in just the first year. Underwriting of these loans is
done with a 90% loan-to-value and the maximum loan amount is $1.0 million.
Personal loans, both secured and unsecured, are offered with terms of
up to four years with a minimum and maximum balance of $1,000 and $15,000,
respectively.
Consumer lending is generally considered to involve a higher degree of
credit risk than residential mortgage lending. Consumer loan repayment is
dependent on the borrower's continuing financial stability and can be adversely
affected by job loss, divorce, illness or personal bankruptcy. The application
of various federal laws, including federal and state bankruptcy and insolvency
laws, may limit the amount that can be recovered on consumer loans in the event
of a default.
Loans to One Borrower. Under federal law, savings institutions have,
---------------------
subject to certain exemptions, lending limits to one borrower in an amount equal
to the greater of $500,000 or 15% of the institution's unimpaired capital and
surplus. Accordingly, as of December 31, 2006, the Bank's loans to one borrower
legal limit was approximately $4.4 million. The largest borrower at that date
had one loan outstanding with a balance at that date of $1.7 million,
representing a mortgage on a vacation home on the New Jersey shore. The Bank's
loans to one borrower legal
20
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
lending limit will be higher following the stock offering because the stock
offering proceeds will increase the Bank's capital.
Loan Approval Procedures and Authority. Lending policies and loan
------------------------------------------
approval limits are approved and adopted by the Board of Directors. Lending
authority is vested primarily in a loan committee comprised of senior officers.
This committee may approve loans up to $750,000. Prior Board approval is
required for loans in excess of $750,000. Certain other Bank employees also have
limited lending authority and may authorize first mortgage loans up to $417,000
(the current conforming limit for sale in the secondary market as a non-jumbo
loan) and home equity and other secured loans up to $400,000. All loans require
the approval of at least two authorized employees.
Exhibit II-4 and Table 4 present a summary of the Company's investment
portfolio as of December 31, 2002 to 2006. As the Bank's deposits have
traditionally exceeded loan originations, the Bank has invested these deposits
primarily in mortgage-backed securities and investment securities.
As of year-end 2006, the investment portfolio of securities held to
maturity amounted to $97.6 million and consisted of $32.1 million of U.S.
government agency securities, $5.6 million of obligations of state and political
subdivisions, $1.0 million of corporate securities, and $59.0 million of
mortgage-backed securities. Of the $59.0 million of mortgage-backed securities
held to maturity as of December 31, 2006, this portfolio consisting of $3.4
million issued by the Federal Home Loan Mortgage Corporation, $16.8 million
issued by the Federal National Mortgage Association, $4.5 million issued by the
Government National Mortgage Association and $34.4 million of collateralized
mortgage obligations. The Company also had $14.4 million
21
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
of investment securities held to maturity, consisting primarily of U.S.
government obligations totaling $12.4 million plus $1.7 million of equity
securities.
The Bank's investment policy is designed to foster earnings and manage
cash flows within prudent interest rate risk and credit risk guidelines.
Generally, the investment policy is to invest funds in various categories of
securities and maturities based upon our liquidity needs, asset/liability
management policies, pledging requirements, investment quality, marketability
and performance objectives.
All of the securities carry market risk insofar as increases in market
rates of interest may cause a decrease in their market value. Prior to
investing, consideration is given to the interest rate, tax considerations,
market volatility, yield, settlement date and maturity of the security, the
Bank's liquidity position, and anticipated cash needs and sources. The effect
that the proposed security would have on the Bank's credit and interest rate
risk and risk-based capital is also considered.
Federally chartered savings banks have the authority to invest in
various types of liquid assets. The investments authorized under the Bank's
investment policy include U.S. government and government agency obligations,
municipal securities (consisting of bond obligations of state and local
governments), mortgage-backed securities, collateralized mortgage obligations
and corporate bonds. On a short-term basis, the investment policy authorizes
investment in federal funds, certificates of deposits and money market
investments with insured institutions and with brokerage firms.
22
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Table 4
Securities Portfolio
As of December 31, 2002 to 2006
- ----------------------------------------------------------------------------------------------------------------
At December 31,
------------------------------------------------------------
2006 2005 2004 2003 2002
-------- -------- -------- ------- --------
(In thousands)
Investment Securities Available for Sale:
- -----------------------------------------
Equity securities $ 1,718 $ 1,729 $ 1,689 $ 1,144 $ 1,149
U.S. government agency securities 12,434
Corporate securities 3,208 3,303
--------- ------- -------- ------- -------
Total investment securities
held to maturity 14,152 1,729 1,689 4,351 4,452
--------- ------- -------- ------- -------
Mortgage-Backed Securities Available for Sale:
- ----------------------------------------------
Government National Mortgage --------- ------- -------- ------- -------
Association 200 324 514 719 1,002
--------- ------- -------- ------- -------
Investment Securities Held to Maturity:
- ---------------------------------------
U.S. government agency securities $ 32,067 $35,351 $ 33,364 $16,998 $13,910
Corporate securities 1,028 3,059 12,846 28,460 38,959
Obligations of states and political 0 0 0 0 0
subdivisions 5,550 1,176 552 552 903
--------- -------- -------- ------- -------
Total investment securities
held to maturity 38,645 39,586 46,762 46,010 53,771
--------- -------- -------- ------- -------
Mortgage-Backed Securities Held to Maturity:
- --------------------------------------------
Government National Mortgage Association $ 4,489 $ 7,266 $ 11,494 $15,682 $12,659
Federal Home Loan Mortgage Corporation 3,351 2,983 3,991 3,271 3,085
Federa National Mortgage Corporation 16,793 18,810 21,493 19,777 6,489
Collateralized mortgage obligations 34,353 24,649 23,710 1,208 0
--------- -------- -------- ------- -------
Total mortgage-backed securities
held to maturity 58,985 53,708 60,688 39,939 22,233
Total $111,982 $95,348 $109,652 $91,019 $81,457
======== ======= ======== ======= =======
- ------------------------------------------------------------------------------------------------------------------
Source: Gateway Community Financial Corp., preliminary prospectus.
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," requires that securities 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 No. 115 allows debt securities to be classified as
23
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
"held to maturity" and reported in financial statements at amortized cost only
if the reporting entity has the positive intent and ability to hold these
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."
The Bank does not currently use or maintain a trading account.
Securities not classified as "held to maturity" 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.
The Bank does not currently participate in hedging programs, interest
rate caps, floors or swaps, or other activities involving the use of off-balance
sheet derivative financial instruments, however, the Bank may in the future
utilize such instruments if the Bank believes it would be beneficial for
managing interest rate risk. Further, the Bank does not purchase securities that
are not rated investment grade.
Actual maturities of the securities held may differ from contractual
maturities because issuers may have the right to call or prepay obligations with
or without prepayment penalties. Callable securities pose reinvestment risk
because the Bank may not be able to reinvest the proceeds from called securities
at an equivalent or higher interest rate.
Table 5 sets forth certain information regarding the carrying values,
weighted average yields and maturities of the Bank's securities portfolio at
December 31, 2006. This table shows contractual maturities and does not reflect
repricing or the effect of prepayments.
24
FELDMAN FINANCIAL ADVISORS, INC.
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Table 5
Securities Portfolio by Contractual Maturity
As of December 31, 2006
- ------------------------------------------------------------------------------------------------------------------------------------
As of December 31, 2006
---------------------------------------------------------------------------------------------------------
Maturing Maturing Maturing Maturing
Within 2007 2008-2011 More than 2012-2016 After 2016
One Year One to Five Years Five to Ten Years More than Ten Years Total Investment Securities
---------------- ----------------- ------------------- ------------------- ---------------------------
Amortized Avg. Amortized Avg. Amortized Avg. Amortized Avg. Amortized Avg. Fair
Cost Yield Cost Yield Cost Yield Cost Yield Cost Yield Value
---- ----- ---- ----- ---- ----- ---- ----- ---- ----- -----
(in thousands)
Corporate securities $ 1,028 5.65% $ 1,028 5.65% $ 1,001
U.S. government agency
securities 17,807 3.86 $11,479 5.88% $15,185 6.14% 44,471 5.16 44,277
Obligations of state and
political subdivisions $4,519 3.81% 406 4.27 625 4.00 5,550 3.42 5,560
Government National
Mortgage Association 26 5.38 4,661 5.34 4,687 5.31 4,681
Federal Home Loan
Mortgage Corporation 1,594 4.50 1,757 4.39 3,351 4.44 3,314
Federal National Mortgage
Association 5,255 4.29 4,608 4.54 6,930 5.05 16,793 4.67 16,409
Collateralized mortgage
obligations 34,353 4.92 34,353 4.92 33,799
------ ----- ------- ----- ------- ----- ------- ----- -------- ----- --------
Total $4,519 3.81% $26,090 3.84% $16,113 5.49% $63,511 5.19% $110,233 4.87% $109,041
====== ===== ======= ===== ======= ===== ======= ===== ======== ===== ========
- ------------------------------------------------------------------------------------------------------------------------------------
Source: Gateway Community Financial Corp., preliminary prospectus.
25
FELDMAN FINANCIAL ADVISORS, INC.
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Liability Composition
- ---------------------
Deposits are The Bank's major source of funds for lending and other
investment purposes. Exhibit II-5 presents a summary of the Company's deposit
composition as of December 31, 2005 and 2006. Total deposits amounted to $316.0
million at December 31, 2006.
Current deposit products include checking and savings accounts,
certificates of deposit and fixed or variable rate individual retirement
accounts (IRA's). Deposit account terms vary, primarily as to the required
minimum balance amount, the amount of time, if any, that the funds must remain
on deposit and the applicable interest rate. The determination of deposit and
certificate interest rates is based upon a number of factors, including: (1)
need for funds based on loan demand, current maturities of deposits and other
cash flow needs; (2) a current survey of a selected group of competitors' rates
for similar products; (3) economic conditions; and (4) business plan
projections.
Deposits are obtained primarily from within New Jersey. The Bank
recently introduced a new product, a CyberSavings account, which has brought
deposits into the Bank from throughout the United States. This product is a high
yield, multi-tiered savings account that is accessible only via the internet and
is not marketed through the branches or locally. To grow these deposits, the
Bank pays a fee to a third party referral website which advertises financial
products. The Bank is currently promoting this product by offering the highest
tier rate for the first 90 days, regardless of the account balance. The product
was launched in December 2006 and CyberSavings accounts grew quickly, totaling
approximately $17 million by the end of the first quarter of 2007.
26
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
The Bank does not at this time utilize the services of deposit brokers.
Premiums or incentives for opening accounts are offered. Periodically, the Bank
will select a particular certificate of deposit maturities for promotion in
connection with asset/liability management and interest rate risk concerns.
Table 6 sets forth the distribution of deposits by account type as of
the dates indicated. The increase in money market accounts from 2005 to 2006 is
attributable to the introduction in 2005 of a multi-tiered money market account
called the "Money Maker."
Table 6
Deposit Portfolio Distribution
As of December 31, 2006
- --------------------------------------------------------------------------------
As of December 31,
------------------------------------
2006 2005 2004
-------- -------- --------
Non-interest-bearing deposits $ 9,532 $ 12,123 $ 8,634
Savings 63,761 62,551 71,810
NOW checking 35,926 34,560 38,641
Money market 44,637 24,662 24,349
Certificates of deposit 162,107 143,648 142,913
-------- -------- --------
Total $315,962 $277,544 $286,349
======== ======== ========
- --------------------------------------------------------------------------------
Source: Gateway Community Financial Corp., preliminary prospectus.
A large percentage of deposits are in certificates of deposit, which
totaled 51.3% of total deposits at December 31, 2006. The inflow of certificates
of deposit and the retention of such deposits upon maturity are significantly
influenced by general interest rates and money market conditions, making
certificates of deposit traditionally a more volatile source of funding than
core deposits. Liquidity could be reduced if a significant amount of
certificates of deposit maturing within a short period of time were not renewed.
To the extent that such deposits do not
27
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
remain with the Bank, they may need to be replaced with borrowings that could
increase the cost of funds and negatively impact the net interest rate spread
and financial condition. Table 7 sets forth certificates of deposit classified
by interest rate as of the dates indicated.
Table 7
Certificates of Deposit by Interest Rate
As of December 31, 2006
(Dollars in Thousands)
- --------------------------------------------------------------------------------
As of December 31,
------------------------------------------
2006 2005 2004
---------- ---------- ----------
Interest Rate
2.00% or less $ - $ 3,328 $ 41,278
2.01 - 4.00% 29,261 83,200 74,964
4.01 - 6.00% 131,208 55,560 14,693
6.01 - 8.00% 1,638 1,559 11,978
-------- -------- --------
Total $162,107 $143,648 $142,913
======== ======== ========
- --------------------------------------------------------------------------------
Source: Gateway Community Financial Corp., preliminary prospectus.
Table 8 able sets forth the amount and maturities of certificates of
deposit at December 31, 2006.
Table 8
Certificates of Deposit by Maturity
As of December 31, 2006
(Dollars in Thousands)
- --------------------------------------------------------------------------------------------------------------------------
Amount Due
---------------------------------------------------------------------------------------------------
Interest Rate Within After
1 Year 1-2 Years 2-3 Years 3-4 Years 4-5 Years 5 Years Total
================ ============== ============ ============ ============ ============ ============ ===========
2.00% or less $ - $ - $ - $ - $ - $ - $ -
2.01 - 4.00% 18,753 4,374 2,988 1,971 1,175 29,262
4.01 - 6.00% 93,220 11,620 3,956 9,618 5,364 7,430 131,208
6.01 - 8.00% 1,543 95 - - - - 1,638
--------- -------- ------- -------- ------- ------- ---------
Total $ 113,516 $ 16,089 $ 6,944 $ 11,589 $ 6,539 $ 7,430 $ 162,108
========= ======== ======= ======== ======= ======= =========
- --------------------------------------------------------------------------------------------------------------------------
Source: Gateway Community Financial Corp., preliminary prospectus.
28
FELDMAN FINANCIAL ADVISORS, INC.
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Table 9 show the amount of certificates of deposit of $100,000 or more
by time remaining until maturity as of the dates indicated.
Table 9
Certificates of Deposit Greater Than $100,000
As of December 31, 2006
(Dollars in Thousands)
------------------------------------------------------------------
Certificates
Maturity Period of Deposit
--------------- ----------
Within three months $ 18,344
Three through six months 14,715
Six through twelve months 10,330
Over twelve months 11,621
------
$ 55,010
========
------------------------------------------------------------------
Source: Gateway Community Financial Corp., preliminary prospectus.
To supplement deposits as a source of funds for lending or investment,
the Bank may borrow funds in the form of advances from the Federal Home Loan
Bank ("FHLB"). The Bank has traditionally enjoyed cash flows from deposit
activities that were sufficient to meet day-to-day funding obligations and only
occasionally used the line of credit or borrowing facility with the Federal Home
Loan Bank. The Bank has a credit agreement with the FHLB and at December 31,
2006, the total amount available to the Bank under this line of credit was
$101.5 million. This credit arrangement is subject to annual renewal and incurs
no service charges. Advances from the Federal Home Loan Bank are typically
secured by the FHLB stock and a portion of residential mortgage loans and by
other assets, mainly securities which are obligations of or guaranteed by the
U.S. government.
29
FELDMAN FINANCIAL ADVISORS, INC.
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At December 31, 2006, borrowings consisted of $4.4 million of FHLB
overnight repurchase agreements as detailed in Table 10. Short-term Federal Home
Loan Bank advances generally have original maturities of less than one year.
Table 10
FHLB Borrowings
At or For The Years Ended December 31, 2004, 2005 and 2006
(Dollars in Thousands)
- --------------------------------------------------------------------------------
At of For The Years Ended
December 31,
2006 2005 2004
-------- -------- --------
Federal Home Loan Bank Advances
Balance outstanding at end of period $ 4,400 $ 0 $ 0
Average balance outstanding 12,859 197 -
Maximum amount outstanding
at any month-end during the period 24,100 - -
Average interest rate during the year 5.36% 4.03% -
Weighted average rate at year end 5.33% -% -%
- --------------------------------------------------------------------------------
Source: Gateway Community Financial Corp., preliminary prospectus.
Equity Capital
- --------------
The Company had equity capital of $28.9 million or 8.21% of total
assets as of December 31, 2006. Over the past five years, the Company's level of
capital has remained relatively constant. The Company did not have any
intangible assets as of year-end 2006.
The Bank's capital levels remain solid in comparison to minimum
regulatory requirements. The Bank's core capital amounted to $27.4 million or
7.8% of adjusted total assets at December 31, 2006. The Bank's regulatory
capital ratios of Tier 1 risk-based capital, and total risk-based capital were
13.4%, and 14.2%, respectively, as of December 31, 2006. In comparison, the
minimum regulatory requirements were 3.00%, 4.00%, and 8.00%, and the threshold
requirements for regulatory "well-capitalized" levels were 5.00%, 6.00%, and
10.00%, respectively.
30
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Income and Expense Trends
Table 11 displays the main components of the Company's earnings
performance over the years ended December 31, 2002 to 2006. Table 12 displays
sets forth certain information relating yields and costs at and for the periods
indicated. The average yields and costs are derived by dividing income or
expense by the daily average balance of assets or liabilities, respectively, for
the periods presented. Table 13 reflects the sensitivity of Gateway Community
Financial Corp.'s interest income and interest expense to changes in volume and
in prevailing interest rates during the periods indicated.
Table 11
Summary Income Statement Data
For the Years Ended December 31, 2002 to 2006
(Dollars in Thousands)
===================================================================================================================
Year Ended December,
---------------------------------------------------------------------
2006 2005 2004 2003 2002
- -----------------------------------------------------------------------------------------------------------------
Total Interest Income $16,273 $14,221 $13,913 $14,477 $17,306
Total Interest Expense 9,377 5,871 5,204 5,899 9,007
------- ------- ------- ------- -------
Net Interest Income 6,896 8,350 8,709 8,578 8,299
Provision for Loan Losses (348) (917) (13) 4,342 7,550
------- ------- ------- ------- -------
Net Int. Income After Prov. 7,244 9,267 8,722 4,236 749
Total Non-interest Income 856 883 876 793 712
Total Non-interest Expense 7,631 7,634 7,689 7,384 6,022
------- ------- ------- ------- -------
Income Before Taxes 469 2,516 1,909 (2,355) (4,561)
Income Tax Provision) 90 893 259 (673) (1,924)
------- ------- ------- ------- -------
Net Income $ 379 $ 1,623 $ 1,650 $(1,682) $(2,637)
===================================================================================================================
Source: Gateway Community Financial Corp., preliminary prospectus.
31
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Table 12
Average Balances and Yields
For the Year Ended December 31, 2004 to 2006 and as of December 31, 2006
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
At December 31, ----------------------------------------------------------------------------------------
2006 2006 2005 2004
------------------- ---------------------------- ---------------------------- ----------------------------
Average Average Average Average Average Average Average
Balance Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost
------- ---------- ------- ------------------- ------- ------------------- ------- -------------------
(Dollars in thousands)
Interest-earning
assets:
Loan receivable
net(1)............. $212,305 5.81% $199,752 $11,474 5.74% $171,130 $ 9,940 5.81% $165,622 $ 9,800 5.92%
Mortgage-backed
securities......... 59,185 4.85% 55,642 2,416 4.34% 61,596 2,423 3.93% 56,933 2,108 3.70%
Investment
securities......... 52,797 4.88% 51,845 2,285 4.54% 44,323 1,660 3.79% 48,024 1,862 3.90%
Other interest-
earning assets....... 1,407 5.78% 3,007 98 3.26% 8,098 197 2.43% 12,662 143 1.13%
-------- ---- -------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest-
earning assets..... 325,694 5.48% 310,246 16,273 5.27% 285,147 14,220 4.99% 283,241 13,913 4.92%
Non-interest-
earning assets....... 27,983 23,643 25,039 26,202
Allowance for
loan losses.......... (1,813) (2,442) (3,713) (3,947)
-------- -------- -------- --------
Total assets........ $351,864 $331,447 $306,473 $305,496
======== ======== ======== ========
Interest-bearing
liabilities:
Interest-bearing
demand............. $35,926 1.49% $35,901 373 1.04% $36,610 221 0.60% $36,491 194 0.53%
Money market
deposits........... 44,637 4.00% 34,959 1,339 3.83% 22,877 419 1.83% 25,837 297 1.15%
Savings accounts.... 63,760 2.10% 55,250 590 1.07% 68,301 683 1.00% 73,552 737 1.00%
Certificates of
deposits........... 162,107 4.60% 153,155 6,386 4.17% 140,021 4,540 3.24% 132,238 3,975 3.01%
FHLB advances....... 4,400 5.33% 12,859 689 5.36% 197 8 4.06% 0 0 0.00%
-------- ---- -------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest-
bearing
liabilities...... 310,830 3.66% 292,124 9,377 3.21% 268,006 5,871 2.19% 268,118 5,203 1.94%
Non-interest-
bearing
liabilities........ 12,131 10,721 11,612 11,730
-------- -------- -------- --------
Total
liabilities...... 322,961 302,845 279,618 279,848
Retained earnings... 28,903 28,602 26,855 25,648
-------- -------- -------- --------
Total liabilities
and retained
earnings......... $351,864 $331,447 $306,473 $305,496
======== ======== ======== ========
Net interest income. $ 6,896 $ 8,349 $ 8,710
======= ======= =======
Interest rate
spread(2).......... 1.83% 2.06% 2.80% 2.98%
==== ==== ==== ====
Net yield on
interest-bearing
assets(3).......... 2.00% 2.25% 2.94% 3.08%
==== ==== ==== ====
Ratio of average
interest-earnings
assets to average
interest-bearing
liabilities........ 104.78% 106.20% 106.40% 105.64%
====== ====== ====== ======
- ------------------------------------------------------------------------------------------------------------------------------------
- -----------------------
(1) Non-accruing loans have been included in loans receivable, and the effect
of such inclusion was not material.
(2) Interest rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
Source: Gateway Community Financial Corp., preliminary prospectus.
32
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Table 13
Rate/Volume Analysis
- ----------------------------------------------------------------------------------------------------------
For the Year Ended Decenber 31, For the Year Ended Decenber 31,
------------------------------- --------------- ---------------
2006 vs. 2005 2005 vs. 2004
------------------------------- ---------------- --------------
Increase (Decrease) Increase (Decrease)
Due to Due to
------------------------------- ----------------- -------------
Volume Rate Net Volume Rate Net
------- -------- -------- -------- -------- ---------
(Dollars in thousands) (Dollars in thousands)
Interest and dividend income:
Loans receivable .................... $ 1,643 ($ 109) $ 1,534 $ 313 ($ 173) $ 140
Mortgage-backed securities .......... 95 (102) (7) 179 136 315
Investment securities and other ..... 288 337 625 (147) (55) (202)
Other ............................... (216) 117 (99) (25) 79 54
------- ------- ------- ------- ------- -------
Total interest-earnings assets .... $ 1,810 $ 243 $ 2,053 $ 320 ($ 13) $ 307
======= ======= ======= ======= ======= =======
Interest expense:
Interest-bearing demand ............. ($ 4) $ 156 $ 152 $ 1 $ 26 $ 27
Money market deposits ............... 300 620 920 (29) 151 122
Savings accounts .................... (144) 51 (93) (53) (1) (54)
Certificates of deposit ............. 456 1,390 1,846 242 323 565
Advances from FHLB and other ........ 678 3 681 - 8 8
------- ------- ------- ------- ------- -------
Total interest-bearing liabilities 1,286 2,220 3,506 161 507 668
======= ======= ======= ======= ======= =======
------- ------- ------- ------- ------- -------
Chance in net interest income ....... $ 524 ($1,977) ($1,453) $ 159 ($ 520) ($ 361)
======= ======= ======= ======= ======= =======
- ----------------------------------------------------------------------------------------------------------
Source: Gateway Community Financial Corp., preliminary prospectus.
As noted in the tables above, earnings have remained relatively flat
over the past four years and management expects that earnings in 2006 will be
challenged, falling victim to the compression of net interest spread resulting
from the flat yield curve that characterized the interest rate environment
during 2005. The gap between funding short term deposits and pricing long term
loans tightened to levels not experienced in many years. The intense competition
for deposits and loans is a characteristic of the Company's market. Management
does not expect that there will be sufficient net interest income to absorb the
projected growth in non-interest expenses arising from the Bank's programmed
expansion, repositioning and organizational restructuring. Management also
expects that non-interest expenses will be higher for 2006 as a result of the
accounting, legal and various other additional non-interest expenses usually
33
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
associated with operating as a public company, particularly as a result of the
requirements of the Sarbanes-Oxley Act of 2002. Additional annual employee
compensation and benefit expenses stemming from the shares granted to employees,
officers and directors under new benefit plans will also increase non-interest
expenses.
Comparison of Operating Results for the Years Ended December 31, 2006, 2005 and
- --------------------------------------------------------------------------------
2004
- ----
Net income for 2006 decreased by $1.2 million, or 76%, to $379,000 for
2006 compared to $1.6 million for 2005. Net income was significantly lower for
2006 versus 2005 primarily due to a 17.4% decline in net interest income and a
smaller recovery of loan losses, which decreased from $917,000 in 2005 to
$348,000 in 2006. Net income for 2005 was slightly lower than 2004's net income
of $1.7 million, as an increase in recoveries of loan losses of $904,000 in 2006
partially offset a decrease in net interest income of $360,000 and an increase
in income taxes of $634,000. Net income for 2004 was $1.7 million. Net interest
income for 2004 was $359,000 higher than for 2005.
Net Interest Income. Net interest income decreased by $1.5 million, or
-------------------
17.4%, to $6.9 million for 2006 from $8.4 million for 2005. The decrease was
primarily attributable to a 74 basis point decrease in interest rate spread to
2.06% for 2006 from 2.80% for 2005. The decrease in the net interest margin was
due to average yields on interest-earning assets increasing at a slower pace
than the cost of interest-bearing liabilities. During 2006, the Federal Reserve
Board of Governors increased its target for the federal funds rate six times,
resulting in increases in short-term interest rates while longer- term rates
remained relatively stable.
34
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Interest Income. Interest income increased $2.1 million, or 14.8%, to
---------------
$16.3 million for 2006 from $14.2 million for 2005. The increase resulted from a
$25.1 million increase in average interest-earning assets, which had the effect
of increasing interest income by $1.8 million. In addition, there was a 28 basis
point increase in the overall yield on interest earning assets to 5.27% for
2006, from 4.99% for 2005, which increased interest income by $243,000. Loans
increased on average $28.6 million between the two periods, along with an
increase in the average balance of investment securities of $7.5 million and a
decrease in mortgage-backed securities of $6.0 million. Other interest earning
assets decreased by $5.1 million. The average yield on loans decreased to 5.74%
for the 2006, from 5.81% for 2005. The average yields on investment securities
increased to 4.54% from 3.79% and the average yield on mortgage backed
securities increased to 4.34% from 3.93% for the 2006 and 2005 periods,
respectively.
Interest income for 2004 was $308,000 less than 2005. The average yield
on interest earning assets for 2004 was 4.92%.
Interest Expense. Interest expense increased $3.5 million, or 59.7%, to
----------------
$9.4 million for 2006 from $5.9 million for 2005. The increase resulted from a
$24.1 million increase in average interest-bearing liabilities, which had the
effect of increasing interest expense by $1.3 million. In addition, there was a
102 basis point increase in the overall cost of interest-bearing liabilities to
3.21% for 2006 from 2.19% for 2005, which increased interest expense by $2.2
million. Money market and savings accounts decreased in the aggregate by
approximately $1.0 million, while certificates of deposits increased in the
aggregate by $13.1 million between the two periods. The average balance of
borrowed funds increased $12.7 million during the same comparative periods. The
cost of certificates of deposit increased to 4.17% for 2006 from 3.24%
35
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
for 2005. The cost of borrowed funds increased to 5.36% from 4.06% for the same
respective periods. The additional deposits and borrowings were used to fund
increases in loans and to purchase investment securities.
Interest expense for 2004 was $667,000 less than 2005. The average cost
of interest-bearing liabilities for 2004 was 1.94%.
Provision for Loan Losses. The allowance for loan losses is a valuation
-------------------------
account that reflects the estimation of the losses inherent in the loan
portfolio to the extent they are both probable and reasonable to estimate. The
allowance is established through provisions for loan losses that are charged to
income in the period they are established. The Bank charge losses on loans
against the allowance for loan losses when it believe the collection of loan
principal is unlikely. Recoveries on loans previously charged-off are added back
to the allowance. The Bank may also make recoveries of prior provisions charged
against income when management deems it appropriate to reduce the size of the
allowance to reflect the current estimate of future losses.
In each of the last three years, the Bank took recoveries from the
allowance for loan losses after having made provisions to the allowance of $4.3
million in 2003 and $7.6 million in 2002. As of 2006 year-end, our classified
loans amounted to $6.2 million as compared to $16.7 million at December 31,
2004. This was the primary reason that we determined it appropriate to take
recoveries of $13,000, $917,000 and $348,000 in 2004, 2005, and 2006,
respectively. The amount recovered from the allowance each year is reflected in
the net income for that year.
36
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Noninterest Income. Noninterest income decreased by $27,000, or 3.1%,
-------------------
to $856,000 for 2006, from $883,000 for 2005. Service charges and other fees
increased by $71,000 resulting from increased volume and earnings on bank-owned
life insurance increased $11,000. These increases were partially offset by
losses on the sale of securities of $30,000 and a decrease in other
miscellaneous non-interest income of $79,000.
Noninterest income for 2005 was $7,000 higher than noninterest income
for 2004. Increases in income for 2005 from bank-owned life insurance and other
miscellaneous non-interest income of $35,000 and $11,000, respectively, were
offset by a $15,000 decrease in income from service charges and other fees and a
gain of $23,000 on the sale of securities in 2004 that was not present in 2005.
Income on bank-owned life insurance increased in each of the last three
years represented approximately 24%, 28% and 30% of total noninterest income in
2004, 2005 and 2006, respectively. The investment in bank-owned life insurance
totaled $7.5 million at December 31, 2006 versus $7.2 million a year earlier.
Noninterest Expense. Non-interest expense was $7.6 million in both 2006
-------------------
and 2005. An increase in compensation and employee benefits expense of $91,000
and an increase in data processing expense of $22,000, were offset by a decrease
in occupancy and equipment of $46,000 and a decrease in federal insurance
premiums of $46,000. Noninterest expense for 2004 was $7.7 million. Compensation
and benefits expense for 2004 was $71,000 lower than in 2005 but professional
fees were $83,000 and higher and other miscellaneous noninterest expenses were
$67,000 higher. Professional fees and other expenses were higher in 2004 than in
2005 mainly as a result of the high level of problem loans we had in 2004 as
compared to 2005.
37
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
The largest component of non-interest expense is compensation and
employee benefits, which at $4.4 million for 2006 represented 58% of total
noninterest expense for the year. After the stock offering, additional annual
employee compensation and benefit expenses stemming from the shares granted to
employees, officers and directors under new benefit plans will increase this
category as a percentage of noninterest expenses. The Bank will recognize
expense for Employee Stock Ownership Plan when shares are committed to be
released to participants' accounts and will recognize expenses for restricted
stock awards over the vesting period of awards made to recipients. In addition,
the Bank will be required to recognize compensation expense related to stock
options outstanding based upon the fair value of such awards at the date of
grant over the period that such awards are earned.
The Bank expects that noninterest expense will be higher going forward
as a result of the accounting, legal and various other additional noninterest
expenses associated with operating as a public company, particularly as a result
of the requirements of the Sarbanes-Oxley Act of 2002.
Income Taxes. Income tax expense for 2006 was $90,000 as compared to
-------------
$893,000 for 2005 and $259,000 for 2004. The reduction for 2006 reflects the
much lower pre-tax income for that year as well as a reduction in the effective
tax rate. The decrease in the effective tax rate was due to an increase in
income from tax-exempt securities. The increase in income tax expense for 2005
as compared to 2004 reflects higher pre-tax income for 2005 compared to 2004 as
well as a $273,000 valuation allowance in 2004 that had the effect of reducing
taxes for that year.
38
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Interest Rate Risk Management
Because the majority of our assets and liabilities are sensitive to
changes in interest rates, a significant form of market risk for us is interest
rate risk, or changes in interest rates. Notwithstanding the unpredictability of
future interest rates, management expects that changes in interest rates may
have a significant, adverse impact on net interest income.
The Bank derives its income mainly from the difference or "spread"
between the interest earned on loans, securities and other interest-earning
assets, and interest paid on deposits, borrowings and other interest-bearing
liabilities. In general, the larger the spread, the more the Bank earns. When
market rates of interest change, the interest received on assets and the
interest paid on liabilities will fluctuate. This can cause decreases in the
spread and can adversely affect income.
Several years ago market interest rates were at historically low
levels. However, beginning June 2004, the U.S. Federal Reserve steadily
increased its target federal funds rate, raising it significantly. While the
federal funds rate and other short-term market interest rates, which the Bank
uses as a guide to deposit pricing, have increased, intermediate- and long-term
market interest rates, which the Bank uses as a guide to loan pricing, have not
increased proportionately. This has led to a "flattening" of the market yield
curve, which has even "inverted" recently as short-term rates have exceeded
long-term rates over an intermediate maturity horizon. The relatively flat yield
curve has hurt net interest rate spread and net interest margin because the
interest rates paid on deposits have repriced upwards faster than the interest
rates earned on loans and investments.
39
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Interest rates also affect how much money the Bank lends. For example,
when interest rates rise, the cost of borrowing increases and loan originations
tend to decrease. In addition, changes in interest rates can affect the average
life of loans and investment securities. A reduction in interest rates generally
results in increased prepayments of loans and mortgage-backed securities, as
borrowers refinance their debt in order to reduce their borrowing cost. This
causes reinvestment risk, because the Bank generally is not able to reinvest
prepayments at rates that are comparable to the rates earned on the prepaid
loans or securities.
Table 14 presents Gloucester County Federal Savings Bank's net
portfolio value ("NPV") as of December 31, 2006. The net portfolio values shown
in these tables were calculated by the Office of Thrift Supervision, based on
information provided by Gloucester County Federal Savings Bank.
As shown in Table 13, a rising interest rate scenario of 100 basis
points would have a negative effect on the NPV. Under this scenario, NPV would
decrease by 15% with a resulting NPV ratio of 8.45% of assets. In the event of a
200 basis point increase in interest rates, NPV would experience a 31% decrease
with a resulting NPV ratio of 6.98%. A downward movement in market rates by 100
basis points would result in a positive impact on NPV of 8% as the NPV ratio
measures 10.34% under this declining rate scenario.
40
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Table 14
Interest Rate Risk Analysis
Net Portfolio Value
At December 31, 2006
--------------------------------------------------------------------
Net Portfolio Value
Net Portfolio Value as % of Present Value of Assets
--------------------- ------------------------------------------
Change in Net Portfolio Basis Point
Rates (bp) (1) $ Amount $ Change % Change Value Ratio Change
- -------------- -------- -------- -------- ------------- -----------
(Dollars in thousands)
+ 300 17,802 (16,958) -49% 5.31% (442)
+ 200 23,938 (10,822) -31% 6.98% (275)
+ 100 29,586 (5,174) -15% 8.45% (128)
0 34,760 - 0% 9.73% 0
- 100 37,421 2,661 8% 10.34% 61
- 200 37,542 2,782 8% 10.31% 58
- ---------------
(1) The -300bp scenario is not shown due to the relatively low prevailing
interest rate environment.
Source: Gateway Community Financial Corp., preliminary prospectus.
41
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Asset Quality
Table 15 provides information regarding the Bank's non-performing loans
and other non-performing assets. Tables 16 and 17 detail the Bank's allowance
for loan loss reserves and the allocation of the reserve among loan types for
the periods ending December 31, 2002 to 2006. At December 31, 2006, the
allowance for loan losses totaled $2.2 million, non-performing loans totaled
$2.5 million, and the ratio of allowance for loan losses to non-performing loans
was 88.02%.
The Company's overall asset quality has suffered in recent years due to
problems related to the earlier expansion of the commercial loan portfolio. As
of December 31, 2006, non-performing loans ("NPLs") measured $2.5 million or
1.17% of total loans and 0.71% of total assets. The Company had $287,592 of
foreclosed assets at year-end 2006. In comparison, non-performing assets totaled
$1.6 million or 0.51% of total assets at year-end 2002.
The Company's allowance for loan losses totaled $1.8 million at
year-end 2006, measuring 0.85% of total loans and 74.03% of non-performing
loans. The loan loss allowance was allocated as follows at year-end 2006:
$419,000 for residential mortgages (23.12% of total allowances), $297,000 for
home equity loans (16.36% of total allowances), $484,000 for commercial real
estate loans (26.70% of total allowances), $4000 for construction loans (30.53%
of total allowances), $355,000 for commercial business loans (19.58% of total
allowances), $132,000 for consumer auto loans (7.28% of total allowances),
$39,000 for manufactured housing loans (2.15% of total allowances), $1,000 for
other loans (0.06% of total allowances) and $82,000 unallocated (4.52% of total
allowances).
42
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Table 15
Non-performing Asset Summary
As of December 31, 2002 to 2006
(Dollars in Thousands)
- ----------------------------------------------------------------------------------------------------------------------
At December 31,
------------------------------------------------------
2006 2005 2004 2003 2002
------ ------ ------ ------ ------
Loans accounted for on a non - accrual basis:
Real Estate:
One-to-four family $ 103 $ 106 $ 452 $ 421 $ 349
Home equity and second mortgage loans 16 16 16 125 88
Commercial 1,570 1,818 829 384 557
Construction - - - 600 -
Commercial 663 1,087 27 641 497
Consumer:
Auto 42 24 39 231 62
Other 55 26 - 10 12
------ ------ ------ ------ ------
Total non-accrual loans 2,449 3,076 1,363 2,411 1,564
------ ------ ------ ------ ------
Accruing loans contractually past due 90 days or more:
Real Estate:
One-to-four family 32 122 - - -
Consumer:
Auto - - - 8 -
Other 2 16 - 14 31
------ ------ ------ ------ ------
Total accruing loans contractually past due 90 days or more 34 138 - 22 31
------ ------ ------ ------ ------
Total non-performing loans $2,484 $3,214 $1,363 $2,433 $1,595
====== ====== ====== ====== ======
Real estate owned 288 288 461 448 -
====== ====== ====== ====== ======
Other nonperforming assets 49 11 - 14 -
====== ====== ====== ====== ======
Total non-performing assets $2,820 $3,513 $1,823 $2,895 $1,595
====== ====== ====== ====== ======
Total non-performing loans to total loans 1.17% 1.75% 0.80% 1.46% 0.84%
====== ====== ====== ====== ======
Total non-performing loans to total assets 0.71% 1.04% 0.43% 0.83% 0.51%
====== ====== ====== ====== ======
Total non-performing assets to total assets 0.80% 1.14% 0.58% 0.99% 0.51%
====== ====== ====== ====== ======
- ----------------------------------------------------------------------------------------------------------------------
Source: Gateway Community Financial Corp., preliminary prospectus.
43
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Table 16
Allowance for Loan Loss Summary
As of December 31, 2002 to 2006
- -------------------------------------------------------------------------------------------------------------------
At December 31,
----------------------------------------------------------------------
2006 2005 2004 2003 2002
---------- ----------- ----------- ----------- -----------
(Dollars in Thousands)
Allowance balances at beginning of period 3,037 3,963 3,862 8,329 1,468
Provision for loan losses (348) (917) (13) 4,342 7,550
Charge-offs:
Real Estate:
One-to-four family 0 (17) (19)
Commerical (531) (23) (1,329)
Commercial (373) (37) (337) (7,313) (544)
Consumer (84) (82) (165) (157)
------- ------- ------- ------- -------
Total charge-offs (988) (77) (419) (8,826) (701)
Recoveries:
Real Estate:
One-to-four family 4 0 17
Commerical 33 0 85
Commercial 74 52 401 4
Consumer 2 15 29 13 12
------- ------- ------- ------- -------
Total recoveries 113 67 533 17 12
------- ------- ------- ------- -------
Net (charge-offs) recoveries (875) (10) 114 (8,809) (689)
======= ======= ======= ======= =======
Allowance balances at end of period 1,813 3,036 3,963 3,862 8,329
======= ======= ======= ======= =======
Total loans outstanding 212,305 183,952 171,283 167,205 190,988
======= ======= ======= ======= =======
Average loans outstanding 199,752 171,130 165,622 175,412 196,541
======= ======= ======= ======= =======
Allowance for loan losses as a percent
of total loans outstanding 0.85% 1.65% 2.31% 2.31% 4.36%
Net loans charged off as a percent
of average loans outstanding 0.44% 0.01% -0.07% 5.02% 0.35%
- -------------------------------------------------------------------------------------------------------------------
Source: Gateway Community Financial Corp., preliminary prospectus.
44
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Table 17
Allocation of Allowance for Loan Losses
As of December 31, 2002 to 2006
- ---------------------------------------------------------------------------------------------------------------------------------
At December 31,
2006 2005 2004 2003 2002
----------------- ------------------- ------------------ ------------------ ------------------
Percent Percent Percent Percent Percent
of Loans of Loans of Loans of Loans of Loans
to Total to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
(Dollars in Thousands)
Type of Loans:
- -------------
Real Estate:
One-to-four family $ 419 48.08% $ 460 39.71% $ 287 32.44% $ 170 27.20% $ 182 25.78%
Home equity 297 27.76 248 26.60 206 23.51 205 23.86 161 16.42
Commercial 484 6.77 465 7.45 948 10.36 897 13.17 1,397 17.70
Construction 4 0.33 7 1.89 40 0.44 4 0.48 7 1.16
Commercial 355 2.14 1,195 3.23 1,824 6.59 2,050 9.84 6,250 16.55
Consumer:
- --------
Auto 132 9.89 440 18.00 248 23.38 243 24.39 309 21.28
Manufactured housing 39 3.51 143 2.90 9 1.94 - 0.00 - 0.00
Savings accoount 0 0.51 0 0.58 - 0.63 - 0.55 - 0.60
Other 1 1.01 7 0.64 2 0.71 2 0.51 2 0.51
Unallocated 82 71 399 291 21
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total $1,813 100.00% $3,036 100.00% $3,963 100.00% $3,862 100.00% $8,329 100.00%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
- ---------------------------------------------------------------------------------------------------------------------------------
Source: Gateway Community Financial Corp., preliminary prospectus.
45
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Management, in compliance with federal guidelines, has instituted an
internal loan review program, whereby non-performing loans are classified as
special mention, substandard, doubtful or loss. It is our policy to review the
loan portfolio, in accordance with regulatory classification procedures, on at
least a quarterly basis. When a loan is classified as substandard or doubtful,
management is required to evaluate the loan for impairment. When management
classifies a portion of a loan as loss, a reserve equal to 100% of the loss
amount is required to be established or the loan is to be charged-off.
An asset that does not currently expose the Bank to a sufficient degree
of risk to warrant an adverse classification, but which possesses credit
deficiencies or potential weaknesses that deserve management's close attention
is classified as "special mention."
An asset classified as "substandard" is inadequately protected by the
current net worth and paying capacity of the obligor or the collateral pledged,
if any. Assets so classified have well-defined weaknesses and are characterized
by the distinct possibility that the Bank will sustain some loss if the
deficiencies are not corrected.
An asset classified as "doubtful" has all the weaknesses inherent in a
"substandard" asset with the added characteristic that the weaknesses make
collection or liquidation in full, on the basis of currently existing facts,
conditions, and values, highly questionable and improbable. The possibility of a
loss on a doubtful asset is high.
That portion of an asset classified as "loss" is considered
uncollectible and of such little value that it's continuance as an asset,
without establishment of a specific valuation or charge-off, is not warranted.
This classification does not necessarily mean that an asset has absolutely no
46
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
recovery or salvage value; but rather, it is not practical or desirable to defer
writing off a basically worthless asset even though partial recovery may be
effected in the future.
At December 31, 2006, all classified assets and special mention
designated assets were loans. At December 31, 2006, none of the loans classified
as "special mention," $1.5 million of loans classified as "substandard" and
$745,000 of the loans classified as "doubtful" are included in the table of
non-performing assets shown above.
47
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Market Area
The Company and the Bank are headquartered in Sewell, New Jersey, and
operate four retail banking offices in Gloucester County and one retail office
in Camden County. Each of these counties is located in a region referred to as
the Delaware River Valley. The Bank's principal lending and savings market area
covers Gloucester County and surrounding areas in southern New Jersey, however,
to a smaller degree, the Bank does originate loans throughout the entire state.
Gloucester County covers an area of 3,296 square miles and is only
seven miles from Philadelphia and is located halfway between Washington, DC and
New York City. The county is situated along the eastern bank of the Delaware
River. While located within the highly urbanized Philadelphia Metropolitan
Region, many areas of the county remain undeveloped with most of the population
settled in the northern and eastern parts of the county. According to census
data, Gloucester County is the fastest growing county in the state of New
Jersey.
The primary business of the Bank of attracting deposits and making
loans is primarily conducted within its market area. A downturn in the local
economy could reduce the amount of funds available for deposit and the ability
of borrowers to repay their loans.
The Company operates in a market area with a high concentration of
banking and financial institutions, and we face substantial competition in
attracting deposits and in originating loans. A number of competitors are
significantly larger institutions with greater financial and managerial
resources and lending limits. The Company's ability to compete successfully is a
significant factor affecting growth potential and profitability.
48
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Table 18 displays selected demographic data for the United States, the
state of New Jersey, Gloucester County and zip code 08080.
Median household income levels for Gloucester County were in-line with
the comparable demographic data for New Jersey and higher than the figures for
the United States. The median household income for Gloucester County was
estimated at $65,993 in 2006, approximately equal to the state median household
income level of $66,848 and higher than the national household income levels of
$51,546. The median household income for zip code 08080 was well above these
figures at $81,910. Approximately 64% of the households in Gloucester County and
77% of households in zip code 08080 had incomes of $50,000 or greater, as
compared to 63% statewide and 52% nationally.
Table 19 displays employment by industry in Gloucester County while
Table 20 details the largest private employers in the county. As indicated by
the tables, the economy of Gloucester County is primarily service based with a
notable concentration in manufacturing and construction.
49
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Table 18
Selected Demographic Data
United States, New Jersey, Gloucester County and Zip Code 08080
==========================================================================================================
Demographic United New Gloucester Zip Code
Data States Jersey County 08080
- ----------------------------------------------------------------------------------------------------------
Population
----------
Total Population - 2006 303,582,361 8,853,518 281,422 40,822
2000-2006 actual change 7.87% 5.22% 10.50% 11.41%
2006-2011 projected change 6.66% 3.93% 9.34% 8.12%
Households
----------
Total Households - 2006 114,049,635 3,215,289 101,582 13,475
2000-2006 actual change 8.12% 4.92% 11.98% 13.76%
2006-2011 projected change 6.85% 4.02% 10.22% 9.34%
Per Capita Income
-----------------
Per Capita Income - 2006 $27,084 $34,209 $28,845 $32,894
2000-2006 actual change 25.46% 26.67% 27.03% 27.15%
2006-2011 projected change 21.78% 21.25% 21.30% 20.00%
Median Household Income
-----------------------
Median Household Income - 2006 $51,546 $66,848 $65,993 $81,910
2000-2006 actual change 22.25% 21.36% 21.87% 19.62%
2006-2011 projected change 17.77% 17.06% 17.42% 19.31%
Household Income Distribution
-----------------------------
$0 - $24,999 23% 17% 15% 7%
$25,000 - $49,999 26% 20% 22% 15%
$50,000+ 52% 63% 64% 77%
Age Group Distribution
----------------------
0 - 14 years 20% 21% 20% 22%
15 - 34 years 27% 25% 25% 25%
35 - 54 years 29% 31% 31% 34%
55+ years 23% 24% 23% 19%
Unemployment Rate
-----------------
December 2006 4.6% 4.2% 3.8% NA
December 2005 4.9% 4.4% 4.3% NA
==========================================================================================================
Source: SNL Financial; ESRI; U.S. Department of Labor.
50
FELDMAN FINANCIAL ADVISORS, INC.
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Table 19
Employment by Industry for Gloucester County
- --------------------------------------------------------------------------------
Industry Employees
================================================================================
Education, Health, Social Services 27,605
Retail Trade 19,116
Professional 13,407
Finance, Insurance, Real Estate 12,093
Construction 11,597
Manufacturing 10,412
Transportation 9,467
Wholesale Trade 8,076
Other Services 6,386
Arts, Entertainment 6,225
Public Administration 4,292
Information 3,468
Agriculture/Mining 320
- --------------------------------------------------------------------------------
Source: U.S. Department of Labor, Bureau of Labor Statistics.
Table 20
Largest Employers Gloucester County
- --------------------------------------------------------------------------------
Company City Employees
================================================================================
Underwood-Memorial Hospital Woodbury 1,776
Rowan University Glassboro 1,637
Kennedy Memorial Hospital Turnersville 1,035
US Foods/Services Swedesboro 900
US Postal Service Swedesboro 700
Missa Bay, LLC Swedesboro 600
Sony Music Pitman 582
Valero Refining Company Paulsboro 550
Delaware Valley Wholesale Florists Sewell 550
Electric Mobility Sewell 500
Compucon Systems Paulsboro 450
Direct Group Swedesboro 450
Heritage's Dairy Stores Thorofare 425
Sunoco-Eagle Point Oil Co. West Deptford 421
Cornell & Co. Woodbury 400
Exxon Mobil Research & Engineering Co. Paulsboro 400
- --------------------------------------------------------------------------------
Source: Gloucester County Department of Economic Development.
51
FELDMAN FINANCIAL ADVISORS, INC.
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Table 21 summarizes deposit market data for all commercial banks and
thrift institutions with offices in Gloucester and Camden Counties respectively.
Based on deposit data as of June 30, 2006 and adjusted for any subsequent merger
transactions, the Company ranked fourth in deposit market share among the
financial institutions operating in Gloucester County. As of such date, the
Company had total deposits of $290.1 million in the county, which reflected a
7.5% market share based on the area's total deposits of $3.9 billion. Three
large regional commercial banks occupied the top of the market share rankings of
deposits in Gloucester County. Commerce Bancorp, Fulton Financial Corp., and
Wachovia Corporation held market shares of 31.3%, 13.8%, and 9.7%, respectively.
52
FELDMAN FINANCIAL ADVISORS, INC.
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Table 21
Deposit Market Share
Data as of June 30, 2005 and 2006
(adjusted for completed and announced mergers)
- -----------------------------------------------------------------------------------------------------------------------------
COUNTY: Gloucester, NJ
2006 2006 2005 2005
Total Total Total Total
2006 Deposits Market Deposits Market
2006 2006 Branch in Market Share 2005 in Market Share
Rank Institution Type Count ($000) (%) Rank ($000) (%)
=============================================================================================================================
1 Commerce Bancorp Inc. (NJ) Bank 10 1,208,604 31.28 1 1,210,447 32.74
2 Fulton Financial Corp. (PA) Bank 13 531,230 13.75 2 494,735 13.38
3 Wachovia Corp. (NC) Bank 8 375,829 9.73 3 345,113 9.33
4 Gateway Community Finl MHC (NJ) Thrift 4 290,145 7.51 4 278,620 7.54
5 Newfield Bancorp Inc. (NJ) Bank 6 225,232 5.83 5 225,915 6.11
6 Parke Bancorp Inc. (NJ) Bank 2 197,877 5.12 7 162,901 4.41
7 Bank of America Corp. (NC) Bank 8 187,517 4.85 6 197,657 5.35
8 PNC Financial Services Group (PA) Bank 3 144,820 3.75 9 127,878 3.46
9 Susquehanna Bancshares Inc. (PA) Bank 4 142,837 3.70 8 137,810 3.73
10 Columbia Savings Bank M.H.C. (NJ) Thrift 3 86,847 2.25 10 83,513 2.26
NA All Other Institutions NA 20 472,955 12.23 432,854 11.69
Totals 81 3,863,893 100 3,697,443 100
COUNTY: Camden, NJ
2006 2006 2005 2005
Total Total Total Total
2006 Deposits Market Deposits Market
2006 2006 Branch in Market Share 2005 in Market Share
Rank Institution Type Count ($000) (%) Rank ($000) (%)
==============================================================================================================================
1 Commerce Bancorp Inc. (NJ) Bank 22 3,618,352 39.47 1 3,252,612 37.01
2 Wachovia Corp. (NC) Bank 18 1,334,945 14.56 2 1,189,772 13.54
3 PNC Financial Services Group (PA) Bank 25 1,146,947 12.51 3 1,123,687 12.79
4 Bank of America Corp. (NC) Bank 19 460,330 5.02 4 729,190 8.30
5 Hudson City Bancorp Inc. (NJ) Thrift 3 407,869 4.45 5 425,421 4.84
6 TD Bank Financial Group Bank 12 304,269 3.32 6 305,978 3.48
7 Royal Bank of Scotland Group Bank 7 252,566 2.76 7 269,642 3.07
8 Susquehanna Bancshares Inc. (PA) Bank 7 240,371 2.62 11 185,492 2.11
9 Sovereign Bancorp Inc. (PA) Thrift 4 226,343 2.47 12 160,288 1.82
10 Sun Bancorp Inc. (NJ) Bank 5 215,229 2.35 9 211,613 2.41
21 Gateway Community Finl MHC (NJ) Thrift 1 5,083 0.06 20 3,223 0.04
NA All Other Institutions NA 43 4,573,313 49.88 4,184,617 47.60
Totals 144 9,167,265 100 8,788,923 100
Source: SNL Financial.
53
FELDMAN FINANCIAL ADVISORS, INC.
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Summary Outlook
The overall earnings outlook of the Company (without the benefit of the
conversion proceeds) remains flat to slightly unfavorable due to the flat yield
curve and the low net interest margin. Earnings have been constrained over the
past few years due to the deteriorating net interest margin and problems related
to the earlier expansion of the Bank's commercial loan portfolio. While the
federal funds rate and other short-term market interest rates, which the Bank
uses as a guide to deposit pricing, have increased, intermediate- and long-term
market interest rates, used to guide loan pricing, have not increased
proportionately. This has led to a "flattening" of the market yield curve, which
has even "inverted" recently as short-term rates have exceeded long-term rates
over an intermediate maturity horizon. The flat yield curve has hurt the Bank's
interest rate spread and net interest margin because the interest rates paid on
deposits have repriced upwards faster than the interest rates earned on loans
and investments.
Management of the Company intends that the offering proceeds will
provide capital to enable growth and enhance profitability. Attention will be
paid to building the core banking business through internal growth and de novo
branching, and the Company will also actively consider expansion opportunities
such as the acquisition of other financial institutions or financial services
companies.
54
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
II. COMPARISONS WITH PUBLICLY HELD THRIFTS
General Overview
The comparative market approach provides a sound basis for determining
estimates of going-concern valuations where a regular and active market exists
for the stocks of peer institutions. The comparative market approach was
utilized in determining the estimated pro forma market value of the Company
because: (i) reliable market and financial data are readily available for
comparable institutions; (ii) the comparative market method is required by the
applicable regulatory guidelines; and (iii) other alternative valuation methods
(such as income capitalization, liquidation analysis, or discounted cash flow)
are unlikely to produce a valuation relevant to the future trading patterns of
the related equity interest. The generally employed valuation method in initial
public offerings, where possible, is the comparative market approach, which also
can be relied upon to determine pro forma market value in a thrift stock
conversion.
The comparative market approach derives valuation benchmarks from the
trading patterns of selected peer institutions which, due to certain factors
such as financial performance and operating strategies, enable the appraiser to
estimate the potential value of the subject institution in a stock conversion
offering. The pricing and trading history of recent initial public offerings of
thrifts are also examined to provide evidence of the "new issue discount" that
must be considered. In Chapter II, our valuation analysis focuses on the
selection and comparison of the Company with a comparable group of publicly
traded thrift institutions (the "Comparative Group"). Chapter III will detail
any additional discounts or premiums that we believe are appropriate to the
Company's pro forma market value.
55
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Selection Criteria
Selected market price and financial performance data for thrifts listed
on the New York and American Stock Exchanges and those thrifts traded on the
NASDAQ over-the-counter ("OTC") markets are shown in Exhibit III. Several
criteria, discussed below, were used to select the individual members of the
Comparative Group from the overall universe of publicly held thrifts.
o Operating characteristics - An institution's operating
----------------------------
characteristics are the most important factors because they
affect investors' expected rates of return on a company's stock
under various business/economic scenarios, and they influence the
market's general perception of the quality and attractiveness of
a given company. Operating characteristics, which may vary in
importance during the business cycle, include financial variables
such as profitability, balance sheet growth, capitalization,
asset quality, and other factors such as lines of business and
management strategies.
o Degree of marketability and liquidity - Marketability of a stock
--------------------------------------
reflects the relative ease and promptness with which a security
may be sold when desired, at a representative current price,
without material concession in price merely because of the
necessity of sale. Marketability also connotes the existence of
buying interest as well as selling interest and is usually
indicated by trading volumes and the spread between the bid and
asked price for a security. Liquidity of the stock issue refers
to the organized market exchange process whereby the security can
be converted into cash. We attempted to limit our selection to
companies that have access to a regular trading market or price
quotations. We eliminated from the comparative group companies
with market prices that were materially influenced by publicly
announced or widely rumored acquisitions. However, the
expectation of continued industry consolidation is currently
embedded in thrift equity valuations.
o Geographic Location - The region of the country where a company
--------------------
operates is also of importance in selecting the comparative
group. The operating environment for thrift institutions varies
from region to region with respect to business and economic
environments, real estate market conditions, speculative takeover
activity, and investment climates. Economic and investor climates
can also vary greatly within a region, particularly due to
takeover activity.
56
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
The operations of the Company fit the general profile of a thrift
institution, concentrated on retail banking in its local market and
simultaneously expanding its market presence in the commercial arena.
Residential mortgages remain the core product in the Company's loan portfolio.
Additionally, commercial real estate, commercial business and home equity
lending has increased steadily over the past five years.
In determining the Comparative Group composition, we focused on the
Company's corporate structure, location, asset size, profitability, and equity
level. As with any composition of a group of comparable companies, the selection
criteria were broadened sufficiently to assemble a meaningful number of members
for inclusion. Specifically, we applied the following selection criteria:
o Publicly traded thrift - stock-form thrift whose shares are
------------------------
traded on a major stock exchange or listed on NASDAQ.
o Non-acquisition target - company is not subject to a pending
-----------------------
acquisition.
o Mutual holding company - company's stock ownership interest is
----------------------
held in whole or in part by a mutual holding company, and is not
currently undertaking a "second-step" conversion offering.
o Current financial data - publicly reported financial data
------------------------
available for the most recent last twelve months ("LTM") ending
December 31, 2006.
o Asset size - total assets of between $250 million and $750
-----------
million.
o Geographic location - emphasis on institutions located in the
--------------------
Northeast and Mid-Atlantic.
o Capitalization - equity to assets ratio greater than or equal to
--------------
6.5%.
o Profitability measure - net income above 0.00% but less than
----------------------
0.75% relative to average assets for the LTM period ending
December 31, 2006.
57
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
As a result of applying the above criteria, the screening process
produced a reliable representation of publicly traded thrifts with operations
comparable to those of the Company. A general operating summary of the ten
members selected for the Comparative Group is presented in Table 22.
In focusing on profitable mutual holding companies, we identified a
sufficient number of companies meeting the overall selection criteria. The
companies in the Comparative Group were drawn from across the country with six
located in the Mid-Atlantic region (including three in New Jersey, two in New
York and one in Pennsylvania), three from the Northeast (one from Connecticut
and one from Massachusetts), and one from the Midwest (Illinois). The asset
sizes of the selected companies range from $266.5 at AJS Bancorp, Inc. (MHC) to
$562.3 million at Ocean Shore Holding Company, (MHC). The median asset size of
the Comparative Group was $397.4 million and similar to the Company's asset size
of $351.9 million.
In comparison to recent performance trends of the aggregate public
thrift industry, the Comparative Group companies generally exhibited
below-average profitability ratios, higher net interest spreads, higher capital
ratios, and slightly lower levels of problem assets. While some differences
inevitably may exist between the Company and the individual companies, we
believe that the chosen Comparative Group on the whole provides a meaningful
basis of financial comparison for valuation purposes.
58
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Table 22
Comparative Group Operating Summary
As of Decembe 31, 2006
- ----------------------------------------------------------------------------------------------------------------------
Initial Total Equity/
No. of Conversion Assets Assets
Company City State Offices Date ($000) (%)
======================================================================================================================
Gateway Community Sewell NJ 5 NA 351,864 8.21
AJS Bancorp, Inc. (MHC) Midlothian IL 3 12/27/01 266,497 10.78
Colonial Bankshares, Inc. (MHC) Bridgeton NJ 6 06/30/05 383,597 9.56
FedFirst Financial Corp. (MHC) Monessen PA 8 04/07/05 283,484 16.37
Lake Shore Bancorp, Inc. (MHC) Dunkirk NY 8 04/04/06 354,234 15.17
Magyar Bancorp, Inc. (MHC) New Brunswick NJ 4 01/24/06 449,109 10.81
Naugatuck Valley Financial Corp. (MHC) Naugatuck CT 9 10/01/04 413,696 12.35
Ocean Shore Holding Company (MHC) Ocean City NJ 8 12/22/04 562,261 11.12
Pathfinder Bancorp, Inc. (MHC) Oswego NY 8 11/16/95 301,382 6.92
PSB Holdings, Inc. (MHC) Putnam CT 7 10/05/04 479,520 10.71
Service Bancorp, Inc. (MHC) Medway MA 9 10/08/98 411,119 7.07
- ----------------------------------------------------------------------------------------------------------------------
59
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Recent Financial Comparisons
Table 23 summarizes certain key financial comparisons between the
Company and the Comparative Group. Tables 24 through 28 contain the detailed
financial comparisons of the Company with the individual Comparative Group
companies based on measures of profitability, income and expense components,
yield-cost structure, capital levels, credit risk, balance sheet composition,
and growth rates. Financial data for the Company, the Comparative Group, and All
Public Thrift aggregate were utilized as of or for the most recent available LTM
period ending December 31, 2006.
The Company's LTM return on average assets was 0.11%, reflecting a
profitability measure below the Comparative Group median of 0.39% and the All
Public Thrift median of 0.59%. The Company's comparatively weaker earnings level
was attributable mainly to its lower net interest margin and lower levels of
non-interest income. Only one member of the Comparative Group, Magyar Bancorp,
Inc. (MHC) exhibited an LTM ROAA lower than the Company's profitability ratio.
The Company's below-average net interest margin and lower non-interest income
level offset any advantage the Company gained through its lower than average
non-interest expense ratio. The Company's LTM return on average equity at 1.33%
was also well below the Comparative Group median of 3.94% and the All Public
Thrift median of 5.35%.
The Company's net interest income level of 2.08% relative to average
assets was positioned below the Comparative Group median of 2.73% and the All
Public Thrift median of 2.87%. The Company's lower level of net interest income
production was attributable to its lower yield on earning assets during the
period as compared to the Comparative Group median.
60
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
The Company's net interest spread of 2.06% for the LTM period fell far below the
Comparative Group and All Public Thrift medians of 2.74% and 2.60%,
respectively.
The Company's earning asset yield measured 5.27% and trailed the
Comparative Group median of 5.77% and the All Public Thrift median of 6.05%. The
Company's lower asset yield resulted from having a larger concentration of cash
and securities as a percentage of total assets and a lower level of net loans as
a percentage of total assets as compared to the Comparative Group and the All
Public Thrift Group. The Company's ratio of net loans to total assets measured
59.8% compared to the Comparative Group median of 64.3% and the All Public
Thrift Group median of 73.3%. The Company's ratio of residential mortgages to
total loans measured 75.8% as compared to medians of 71.8% for the Comparative
Group and 57.4% for the All Public Thrift Group. While the Company's yield on
earning assets fell below both the Comparative Group and the All Public Thrift
Group, its cost of interest-bearing liabilities at 3.21% fell between the
Comparative Group median cost of funds of 3.08% and All Public Thrift median of
3.58%. The Company's liability costs reflect its significant level of deposits
as a source of funds as opposed to the Comparative Group and All Public Thrifts
higher reliance upon borrowings as deposits generally bear lower rates than
higher-costing borrowings. The Company's level of borrowed funds was well below
the Comparative Group's median debt utilization. Borrowings measured 1.3% of the
Company's assets and 12.9% for the Comparative Group median and 16.7% for the
All Public Thrift median.
61
FELDMAN FINANCIAL ADVISORS, INC.
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Table 23
Key Financial Comparisons
Gateway Community Financial Corp. and the Comparative Group
As of or for the Last Twelve Months Ended December 31, 2006
===================================================================================================================
Gateway
Community Comp. All Public
Financial Group Thrift
Corp. Median Median
- -------------------------------------------------------------------------------------------------------------------
Profitability
-------------
LTM Return on Average Assets 0.11% 0.39% 0.59%
LTM Return on Average Equity 1.33 3.94 5.35
Core Return on Average Assets 0.11 0.38 0.59
Core Return on Average Equity 1.33 3.77 5.37
Income and Expense (% of avg. assets)
------------------
Total Interest Income 4.91 5.24 5.73
Total Interest Expense 2.83 2.72 2.88
----- ----- -----
Net Interest Income 2.08 2.73 2.87
Provision for Loan Losses (0.10) 0.05 0.07
Other Operating Income 0.26 0.46 0.50
Net Gains and Nonrecurring Income (0.01) 0.00 0.08
General and Administrative Expense 2.30 2.55 2.51
Intangibles Amortization Expense 0.00 0.00 0.00
Nonrecurring Expense 0.00 0.00 0.00
Pre-tax Core Earnings 0.14 0.52 0.79
Efficiency Ratio 98.44 80.43 72.12
Yield-Cost Data
---------------
Yield on Interest-earning Assets 5.27 5.77 6.05
Cost of Interest-bearing Liabilities 3.21 3.08 3.58
----- ----- -----
Net Interest Spread 2.06 2.74 2.60
Asset Utilization (% of avg. total assets)
-----------------
Avg. Interest-earning Assets 93.60 93.30 94.47
Avg. Interest-bearing Liabilities 88.07 82.89 83.62
----- ----- -----
Avg. Net Interest-earning Assets 5.54 8.28 10.85
===================================================================================================================
62
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Table 23 (continued)
Key Financial Comparisons
Gateway Community Financial Corp. and the Comparative Group
As of or for the Last Twelve Months Ended December 31, 2006
====================================================================================================================
Gateway
Community Comp. All Public
Financial Group Thrift
Corp. Median Median
- --------------------------------------------------------------------------------------------------------------------
Balance Sheet Composition (% of total assets)
-------------------------
Cash and Securities 35.01% 18.90% 20.86%
Loans Receivable, net 59.82 64.28 73.30
Real Estate 0.08 0.00 0.01
Intangible Assets 0.00 0.00 0.00
Other Assets 5.09 3.29 4.10
Total Deposits 89.80 72.32 70.12
Borrowed Funds 1.25 12.93 16.67
Other Liabilities 0.74 1.16 0.96
Total Equity 8.21 10.80 10.09
Loan Portfolio (% of total loans)
--------------
Residential Mortgage Loans 75.84 71.83 57.37
Other Real Estate Mortgage Loans 7.10 22.37 30.68
Non-mortgage Loans 17.06 4.52 8.56
Growth Rates
------------
Total Assets 14.24 8.50 4.57
Total Loans 16.35 10.04 7.56
Total Deposits 13.84 7.56 4.90
Regulatory Capital Ratios
-------------------------
Tier 1 Leverage Ratio 7.80 9.37 9.06
Tier 1 Risk-based Capital 13.40 15.48 13.75
Total Risk-based Capital 14.20 16.16 14.72
Credit Risk Ratios
------------------
Non-performing Loans / Total Loans 1.17 0.52 0.34
Non-performing Assets / Total Assets 0.80 0.27 0.35
Reserves / Total Loans 0.85 0.72 0.78
Reserves / Non-performing Assets 64.30 222.33 110.61
====================================================================================================================
Source: Gateway Community Financial Corp.; SNL Financial; Feldman Financial.
63
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
The Company's non-interest operating income totaled 0.26% of average
assets, trailing the Comparative Group and All Public Thrift medians of 0.46%
and 0.50%, respectively. Fees and service charges on deposit accounts were the
largest contributor to the Company's non-interest revenue.
The Company's provision for loan losses measured (0.10)% of average
assets, as compared to the Comparative Group median of 0.05% and the All Public
Thrift median of 0.07%. The Company's non-performing asset ratio measured 0.80%
of total assets versus the Comparative Group median of 0.27% and All Public
Thrift median of 0.35%. In keeping with the Company's higher non-performing
asset ratio relative to total assets, its non-performing loan ratio as a percent
of total loans was 1.17% and was above the corresponding Comparative Group
median of 0.52% and All Public Thrift median of 0.34%. The Company is still
dealing with the problems related to its earlier expansion of the commercial
lending portfolio. The Company maintained a slightly higher level of loan loss
reserves at 0.85% of total loans versus the Comparative Group median of 0.72%
and the All Public Thrift median of 0.78%.
The Company's operating expense ratio was lower than the Comparative
Group median. The Company's general and administrative expense ratio of 2.30%
was below the Comparative Group median of 2.55% and the All Public Thrift median
of 2.51%.
The Company's balance sheet composition had a higher concentration of
cash and securities and a lower level of loans compared to the Comparative Group
on the whole. Total net loans amounted to 59.8% of assets at the Company as of
December 31, 2006, versus 64.3% for the Comparative Group median. Cash and
securities aggregated 35.0% of assets at the Company, compared to 18.9% for the
Comparative Group median. The Company had intangible assets
64
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
totaling 0.00% of total assets compared to the Comparative Group median of
0.00%. Other assets, excluding intangibles and foreclosed real estate, composed
5.1% of the Company's assets versus the Comparative Group median of 3.3%. The
Company's other assets primarily comprised $6.5 million of premises and
equipment (1.8% of total assets) and $7.5 million in cash surrender value of
bank owned life insurance (2.1% of total assets).
The Company's borrowings level at 1.3% of assets reflected its limited
usage of FHLB advances as a supplemental funding source. The Comparative Group
is characterized by companies with borrowing activity similar to the overall
thrift industry as demonstrated by the median debt level of 12.9% of total
assets versus the All Public Thrift median of 16.7%. The Company's equity level
before the Stock Offering was 8.2% relative to assets, which was below the
Comparative Group median of 10.8%. The Company's risk-based capital ratios were
also positioned below the corresponding medians of the Comparative Group,
reflecting the Company's lower capital level.
The Company's recent growth rates reflect its objectives to expand its
lending activity. As a result, the Company's loan portfolio increased by 16.4%
during 2006 while the Comparative Group experienced a median loan portfolio
growth rate of 10.0%. The overall asset growth rate for the Company was 14.2%
and exceeded the Comparative Group median of 8.5%. Deposit growth at the Company
was similar to loan and asset growth and totaled 13.8% for 2006, compared to the
Comparative Group median of 6.0%. The growth rates exhibited by the Company and
the Comparative Group exceeded the All Public Thrift medians of 7.6%, 4.6% and
4.9%, respectively.
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FELDMAN FINANCIAL ADVISORS, INC.
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In summary, the Company's recent earnings performance trailed the
results attained by the Comparative Group and All Public Thrift aggregate when
based on returns on assets and equity, due to the Company's lower level of
profitability. The Company's profitability was hampered by a low net interest
margin and a lower level of non-interest income. The Company's net interest
income and low level of operating income were not sufficiently offset its lower
operating expense ratio. Management believes that the competition in the banking
and financial services industry in New Jersey is intense and that many of its
competitors have substantially greater resources and lending limits than the
Company do and offer services that it does not or cannot provide. Price
competition for loans might result in the Company originating fewer loans, or
earning a lower rate of return the loan portfolio, while price competition for
deposits might result in a decrease in total deposits or higher rates paid on
customer's deposits, impacting the profitability of the Company in the future.
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FELDMAN FINANCIAL ADVISORS, INC.
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Table 24
General Financial Performance Ratios
As of or for the Latest Twelve Months Ended December 31, 2006
Total Tang. Net
Total Total Equity/ Equity/ Interest Effcy. LTM LTM Core Core
Assets Deposits Assets Assets Margin Ratio ROA ROE ROA ROE
($000s) ($000s) (%) (%) (%) (%) (%) (%) (%) (%)
------- ------- ------- ------- -------- ------ ---- ---- ---- ----
Gateway Community 351,864 315,962 8.21 8.21 2.25 98.44 0.11 1.33 0.11 1.33
Comparative Group Average 390,490 278,551 11.09 10.77 2.89 82.32 0.36 3.48 0.35 3.25
Comparative Group Median 397,358 275,819 10.80 10.80 2.97 80.43 0.39 3.94 0.38 3.77
All Public Thrift Average 3,417,687 2,057,046 11.65 11.00 3.12 73.86 0.57 5.41 0.55 5.36
All Public Thrift Median 410,040 293,548 10.33 9.20 3.10 72.12 0.59 5.35 0.59 5.37
Comparative Group
- -----------------
AJS Bancorp, Inc. (MHC) 266,497 202,176 10.78 10.78 2.62 81.05 0.35 3.22 0.35 3.22
Colonial Bankshares, Inc. (MHC) 383,597 337,254 9.56 9.56 2.47 79.54 0.45 4.49 0.45 4.48
FedFirst Financial Corp. (MHC) 283,484 143,495 16.37 16.05 2.39 90.69 0.15 0.89 0.15 0.89
Lake Shore Bancorp, Inc. (MHC) 354,234 249,637 15.17 15.17 3.00 74.96 0.52 4.05 0.52 4.05
Magyar Bancorp, Inc. (MHC) 449,109 342,318 10.81 10.81 3.64 92.47 0.03 0.25 0.04 0.40
Naugatuck Valley Financial Corp. (MHC) 413,696 289,198 12.35 12.31 3.26 85.95 0.38 2.79 0.38 2.79
Ocean Shore Holding Company (MHC) 562,261 417,024 11.12 11.12 2.94 72.94 0.56 5.08 0.56 5.08
Pathfinder Bancorp, Inc. (MHC) 301,382 245,585 6.92 5.66 3.05 86.18 0.34 4.85 NA NA
PSB Holdings, Inc. (MHC) 479,520 296,385 10.71 9.17 2.51 79.80 0.43 3.83 0.42 3.77
Service Bancorp, Inc. (MHC) 411,119 262,439 7.07 7.07 3.00 79.66 0.39 5.39 0.32 4.53
Source: Gateway Community Financial Corp.; SNL Financial; Feldman Financial.
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FELDMAN FINANCIAL ADVISORS, INC.
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Table 25
Income and Expense Analysis
For the Latest Twelve Months Ended December 31, 2006
As a Percent of Average Assets
--------------------------------------------------------------------------------------------
Net Other Gains & Loan Gen. & Amort. Pretax
Interest Interest Interest Oper. Non-rec. Loss Admin. of Non-rec. Core
Income Expense Income Income Income Prov. Expense Intang, Expense Earnings
------- -------- -------- ------ -------- ----- ------- ------- ------- --------
Gateway Community 4.91 2.83 2.08 0.26 (0.01) (0.10) 2.30 0.00 0.00 0.14
Comparative Group Average 5.37 2.68 2.70 0.49 0.01 0.07 2.64 0.01 0.00 0.52
Comparative Group Median 5.24 2.72 2.73 0.46 0.00 0.05 2.55 0.00 0.00 0.52
All Public Thrift Average 5.77 2.87 2.92 0.58 0.15 0.10 2.65 0.02 0.01 0.72
All Public Thrift Median 5.73 2.88 2.87 0.50 0.08 0.07 2.51 0.00 0.00 0.79
Comparative Group
- -----------------
AJS Bancorp, Inc. (MHC) 5.22 2.70 2.52 0.36 0.00 (0.01) 2.34 0.00 0.00 0.56
Colonial Bankshares, Inc. (MHC) 5.17 2.85 2.32 0.29 0.00 0.05 2.08 0.00 0.00 0.27
FedFirst Financial Corp. (MHC) 5.09 2.81 2.28 0.81 0.00 0.03 2.79 0.00 0.00 0.27
Lake Shore Bancorp, Inc. (MHC) 5.08 2.30 2.78 0.52 0.00 0.05 2.47 0.00 0.00 0.78
Magyar Bancorp, Inc. (MHC) 6.18 2.84 3.35 0.31 (0.02) 0.24 3.36 0.00 0.00 0.03
Naugatuck Valley Financial Corp. (MHC) 5.44 2.45 2.99 0.51 0.00 0.05 3.01 0.01 0.00 0.43
Ocean Shore Holding Company (MHC) 5.31 2.60 2.71 0.41 0.00 0.05 2.28 0.00 0.00 0.79
Pathfinder Bancorp, Inc. (MHC) 5.25 2.49 2.75 0.87 0.00 0.01 3.13 0.07 0.00 0.79
PSB Holdings, Inc. (MHC) 5.12 2.74 2.38 0.55 0.04 0.08 2.37 0.06 0.00 0.79
Service Bancorp, Inc. (MHC) 5.85 2.98 2.87 0.30 0.12 0.18 2.62 0.00 0.00 0.49
Source: Gateway Community Financial Corp.; SNL Financial; Feldman Financial.
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FELDMAN FINANCIAL ADVISORS, INC.
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Table 26
Yield-Cost Structure and Growth Rates
For the latest Twelve Months Ended December 31, 2006
Avg. Avg. Avg. Net
Int. Earn. Int.-Bear. Earning Avg. Yield on Cost of Net Asset Loan Deposit
Assets/ Liabs./ Assets/ Equity/ Int.-Earn. Int-Bear. Interest Growth Growth Growth
Assets Assets Assets Assets Assets Liabs. Spread Rate Rate Rate
---------- ---------- --------- ------- ---------- --------- -------- ------ ------ -------
Gateway Community 93.60 88.14 5.47 8.71 5.27 3.21 2.06 14.24 16.35 13.84
Comparative Group Average 93.45 82.89 8.28 11.14 5.79 3.08 2.74 9.00 11.31 7.75
Comparative Group Median 93.30 82.89 8.28 10.95 5.77 3.08 2.74 8.50 10.04 5.97
All Public Thrift Average 93.94 82.62 11.32 11.29 6.23 3.56 2.78 6.70 10.01 7.57
All Public Thrift Median 94.47 83.62 10.85 9.99 6.05 3.58 2.60 4.57 7.56 4.90
Comparative Group
- -----------------
AJS Bancorp, Inc. (MHC) 96.35 NA NA 10.87 5.42 NA NA 3.33 (8.82) 6.18
Colonial Bankshares, Inc. (MHC) 93.88 NA NA 10.03 5.51 NA NA 13.88 25.82 18.45
FedFirst Financial Corp. (MHC) 95.23 NA NA 16.87 5.34 NA NA 2.65 2.08 14.89
Lake Shore Bancorp, Inc. (MHC) 92.71 NA NA 12.84 5.48 NA NA 6.15 (0.23) (0.50)
Magyar Bancorp, Inc. (MHC) 92.03 NA NA 10.79 6.72 NA NA 12.49 28.48 1.95
Naugatuck Valley Financial Corp. (MHC) 91.76 NA NA 13.62 5.93 NA NA 16.42 18.87 20.08
Ocean Shore Holding Company (MHC) 91.92 80.98 10.94 11.03 5.77 3.21 2.56 3.39 5.18 0.03
Pathfinder Bancorp, Inc. (MHC) 90.41 84.79 5.62 7.01 5.86 2.94 2.92 1.49 7.36 3.90
PSB Holdings, Inc. (MHC) 94.60 NA NA 11.17 NA NA NA 19.33 21.69 5.76
Service Bancorp, Inc. (MHC) 95.59 NA NA 7.17 6.12 NA NA 10.85 12.71 6.73
Source: Gateway Community Financial Corp.; SNL Financial; Feldman Financial.
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FELDMAN FINANCIAL ADVISORS, INC.
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Table 27
Balance Sheet Composition
As of the Latest Twelve Months Ended December 31, 2006
As a Percent of Total Assets
------------------------------------------------------------------------------------------
Cash & Net Real Intang. Other Total Borrowed Other Total Total
Securities Loans Estate Assets Assets Deposits Funds Liabs. Liabs. Equity
---------- ----- ------ ------ ------ -------- -------- ------ ------ ------
Gateway Community 35.01 59.82 0.08 0.00 5.09 89.80 1.25 0.74 91.79 8.21
Comparative Group Average 28.23 64.91 0.00 0.35 4.70 71.23 16.40 1.28 88.91 11.09
Comparative Group Median 18.90 64.28 0.00 0.00 3.29 72.32 12.93 1.16 89.20 10.80
All Public Thrift Average 23.23 71.17 0.20 0.71 4.29 69.69 17.36 1.30 88.41 11.54
All Public Thrift Median 20.86 73.30 0.01 0.00 4.10 70.17 16.67 0.96 89.81 10.09
Comparative Group
- -----------------
AJS Bancorp, Inc. (MHC) 45.32 51.92 0.00 0.00 2.76 75.86 10.79 2.57 89.22 10.78
Colonial Bankshares, Inc. (MHC) NA 51.75 0.00 0.00 NA 87.92 2.17 0.35 90.44 9.56
FedFirst Financial Corp. (MHC) NA 61.63 0.00 0.38 NA 50.62 31.51 1.50 83.63 16.37
Lake Shore Bancorp, Inc. (MHC) NA 58.06 NA 0.00 NA 70.47 12.24 2.12 84.83 15.17
Magyar Bancorp, Inc. (MHC) 10.70 81.33 0.00 0.00 7.97 76.22 11.38 1.58 89.19 10.81
Naugatuck Valley Financial Corp. (MHC) 18.90 74.54 0.00 0.05 6.51 69.91 16.56 1.19 87.65 12.35
Ocean Shore Holding Company (MHC) NA 77.07 0.00 0.00 NA 74.17 13.62 1.09 88.88 11.12
Pathfinder Bancorp, Inc. (MHC) NA 66.93 NA 1.33 NA 81.49 10.46 1.14 93.08 6.92
PSB Holdings, Inc. (MHC) 50.00 45.31 0.00 1.70 2.99 61.81 26.72 0.75 89.29 10.71
Service Bancorp, Inc. (MHC) 16.20 80.51 0.00 0.00 3.29 63.84 28.61 0.49 92.93 7.07
Source: Gateway Community Financial Corp.; SNL Financial; Feldman Financial.
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FELDMAN FINANCIAL ADVISORS, INC.
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Table 28
regulatory Capital, Credit Risk, and loan Composition
As of or for the Latest Twelve Months Ended December 31, 2006
Tier 1 Tier 1 Total Other
Leverage Risk- Risk- Total Resid. Real Est. Nonmtg.
Capital based based NPLs/ NPAs/ Resrvs./ Resrvs./ Mtgs./ Mtgs./ Loans/
Ratio Capital Capital Loans Assets NPAs Loans Loans Loans Loans
-------- ------- -------- ----- ------ ------- -------- ------ --------- -------
Gateway Community 7.80 13.40 14.20 1.17 0.80 64.30 0.85 75.84 7.10 17.06
Comparative Group Average 9.41 16.30 17.15 0.45 0.29 272.33 0.77 70.69 23.84 5.47
Comparative Group Median 9.37 15.48 16.16 0.52 0.27 222.33 0.72 71.83 22.37 4.52
All Public Thrift Average 10.58 17.11 18.02 0.59 0.53 186.47 0.82 55.64 33.01 11.35
All Public Thrift Median 9.06 13.75 14.72 0.34 0.35 110.61 0.78 57.37 30.68 8.56
Comparative Group
- -----------------
AJS Bancorp, Inc. (MHC) 10.77 21.71 22.97 0.39 0.20 299.81 1.16 69.13 30.59 0.28
Colonial Bankshares, Inc. (MHC) 9.05 16.95 17.59 0.12 0.06 589.27 0.69 70.02 25.03 4.95
FedFirst Financial Corp. (MHC) 11.20 24.02 24.67 NA NA NA 0.51 81.03 16.51 2.46
Lake Shore Bancorp, Inc. (MHC) 11.69 22.71 23.73 NA NA NA 0.58 85.60 8.85 5.55
Magyar Bancorp, Inc. (MHC) 8.61 10.16 11.26 NA NA NA 1.10 43.89 44.94 11.17
Naugatuck Valley Financial Corp. (MHC) 9.69 14.01 14.73 0.65 0.49 103.03 0.67 73.64 22.28 4.08
Ocean Shore Holding Company (MHC) 10.59 18.47 19.11 0.12 0.09 385.34 0.47 87.23 10.72 2.05
Pathfinder Bancorp, Inc. (MHC) 7.71 12.11 12.98 NA NA NA 0.74 68.39 19.88 11.73
PSB Holdings, Inc. (MHC) 7.49 13.38 14.02 0.72 0.33 111.65 0.80 74.31 22.46 3.23
Service Bancorp, Inc. (MHC) 7.28 9.46 10.48 0.69 0.56 144.85 1.00 53.70 37.13 9.17
Source: Gateway Community Financial Corp.; SNL Financial; Feldman Financial.
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FELDMAN FINANCIAL ADVISORS, INC.
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III. MARKET VALUE ADJUSTMENTS
General Overview
This concluding chapter of the Appraisal identifies certain additional
adjustments to the Company's estimated pro forma market value relative to the
Comparative Group selected in Chapter II. The adjustments discussed in this
chapter are made from the viewpoints of potential investors, which would include
depositors holding subscription rights and unrelated parties who may purchase
stock in a community offering. It is assumed that these potential investors are
aware of all relevant and necessary facts as they would pertain to the value of
the Company relative to other publicly traded thrift institutions and relative
to alternative investments.
Our appraised value is predicated on a continuation of the current
operating environment for the Company and thrift institutions in general.
Changes in the Company's operating performance along with changes in the local
and national economy, the stock market, interest rates, the regulatory
environment, and other external factors may occur from time to time, often with
great unpredictability, which could impact materially the pro forma market value
of the Company or thrift stocks in general. Therefore, the Valuation Range
provided herein is subject to a more current re-evaluation prior to the actual
completion of the Stock Offering.
In addition to the comparative operating fundamentals discussed in
Chapter II, it is important to address additional market value adjustments based
on certain financial and other criteria, which include, among other factors:
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FELDMAN FINANCIAL ADVISORS, INC.
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(1) Earnings Prospects
(2) Financial Condition
(3) Market Area
(4) Management
(5) Dividend Policy
(6) Liquidity of the Issue
(7) Subscription Interest
(8) Stock Market Conditions
(9) Recent Acquisition Activity
(10) New Issue Discount
Earnings Prospects
- ------------------
Earnings prospects are dependent upon the sensitivity of asset yields
and liability costs to changes in market interest rates, the credit quality of
assets, the stability of non-interest components of income and expense, and the
ability to leverage the balance sheet. Each of the foregoing is an important
factor to investors in assessing earnings prospects.
The Company derives its income mainly from the difference or "spread"
between the interest earned on loans, securities and other interest-earning
assets, and interest paid on deposits, borrowings and other interest-bearing
liabilities. Several years ago, market interest rates were at historically low
levels. However, since June 30, 2004, the U.S. Federal Reserve has increased its
target federal funds rate 17 times, from 1.00% to 5.25%. While the federal funds
rate and other short-term market interest rates have increased, intermediate-
and long-term market interest rates, have not increased proportionately. This
has led to a "flattening" of the market yield curve, which has even "inverted"
recently as short-term rates have exceeded long-term rates over an intermediate
maturity horizon. The flat or "inverted" yield curve negatively affects the
Company's interest rate spread and net interest margin as the cost of deposits,
which are generally tied to short-term rates, have repriced upwards faster than
the interest rates earned on loans and investments, which tend to be priced off
long-term rates.
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FELDMAN FINANCIAL ADVISORS, INC.
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The Company's profitability in recent years has been negatively
impacted by the flattening of the yield curve, which has led to a shrinking net
interest margin. In addition, the Company's earnings have been adversely
impacted by a rising efficiency ratio as non-interest expense has risen over the
past few years and the impact of material difficulties with large amounts of
troubled commercial loans. Going forward, the full impact of the expenses
related to the new headquarters will be reflected in the expense base.
The Company's ROA was (0.87)%, (0.56)%, 0.53%, 0.54% and 0.11%,
respectively, for 2002, 2003, 2004, 2005 and 2006. The jump in earnings for
fiscal years 2004 and 2005 was primarily related to the recovery of a portion of
loan loss provisions made in 2002 and 2003. The Company's net interest margin
has declined moderately over the past five years and is below the industry norm
due to a very low yield on earning assets facilitated by the high concentration
of cash and investment securities as opposed to loans. Additionally, the
Company's efficiency ratio has deteriorated over the past five years. The
Company's has been unable to generate a steady stream of non-interest revenue
from deposit account charges and loan origination fees, due to the Company's
relatively high concentration of certificates of deposit as a percentage of
total deposits and the low level of loans as a percentage of total assets.
The infusion of capital from the Stock Offering will provide the
Company with the additional flexibility and opportunity to accommodate
implementation of planned expansion strategy, although it will take time for the
Company to prudently invest these proceeds and generate significant returns on
these funds. In the current business cycle, interest rate risk poses a threat to
the Company's future earnings growth. As the Company's recent earnings have
trended down and the current interest rate yield curve has a negative impact on
the Company's
74
FELDMAN FINANCIAL ADVISORS, INC.
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net interest margin, we believe a downward adjustment is warranted
for the Company's immediate earnings growth prospects.
Financial Condition
- -------------------
As noted in Chapter II, with total assets of $351.9 million, the
Company is slightly smaller than the Comparative Group median of $397.4 million.
At the pro forma midpoint of the offering range, the Company is expected to have
total assets of $374.7 million. The Company has a lower level of net loans as a
percentage of total assets at 59.8% compared to the Comparative Group median of
64.3% while having a higher level of cash and securities at 35.0% of total
assets as compared to the Comparative Group median of 18.9%.
The Company has a higher level of deposits and a lower reliance on
borrowed funds as compared to the Comparative Group. As a percentage of total
assets, the Company has a deposit ratio of 89.8% and borrowings to assets ratio
of 1.3% compared to the Comparative Group medians of 72.3% and 12.9%,
respectively.
The Company's equity to assets ratio of 8.2% trails the Comparative
Group median of 10.8%. At the pro forma midpoint of the offering range, the
Company is projected to raise its equity to assets ratio of 13.8%. The Company
has no intangible assets.
An area of importance for investors is the level of nonperforming loans
and the level of allowance for loan losses as compared to the level of
non-performing assets. The Company's level of non-performing assets as a
percentage of total assets at 0.80% is above to the Comparative Group median of
0.27%. The Company's level of reserves as a percentage on non-performing assets
at 64.3% falls below the Comparative Group median of 222.3%.
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FELDMAN FINANCIAL ADVISORS, INC.
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While the Company has a lower level of loans as a percentage of total
assets as compared to the Comparative Group and a higher level of non-performing
assets as a percentage of total assets, the Company's resulting capital level
after the conversion will be higher than the Comparative Group median. Taken a
whole, we believe that no adjustment is warranted for financial condition.
Market Area
- -----------
The Company's primary market area is Gloucester County, and to a
limited extent, surrounding counties in southern New Jersey. Demographic data
for the Company's local market reflects a trend of income growth comparable to
the United States and New Jersey as a whole, with a higher-level of household
income and above average population growth. Therefore, based on the demographic
trends affecting the Company's market area as compared to the United States as a
whole and the State of New Jersey, we do not believe that the market area
conditions on the whole are notably different from those facing the Company.
While not materially different from the rest of the United States in terms of
demographic data, financial institutions located in New Jersey have generally
priced higher and performed better in the after-market for MHC stock offerings.
Accordingly, we believe an upward adjustment is warranted for market area
considerations.
Management
- ----------
Management's principal challenges are to generate profitable results,
monitor credit risks, and control operating costs while the Company competes in
an increasingly competitive financial services environment while dealing with a
flattening yield curve and attempting to expand upon its current operations. The
Company's current Chief Executive Officer assumed his position in
76
FELDMAN FINANCIAL ADVISORS, INC.
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1997. We believe that investors will take into account that the Company is
professionally and knowledgeably managed by a team of experienced banking
executives. Additions to the management team are expected as the Company grows.
This will add to its operating costs. We also note that stock investors will
likely rely upon bottom-line earnings results as the means of evaluating the
future performance of management. Based on these considerations, we believe no
adjustment is warranted based on management.
Dividend Policy
- ---------------
The Company has not yet established a definitive dividend policy or
determined the amount or timing of cash dividends that Gateway Community
Financial Corp. may pay after the offering. The timing, amount and frequency of
dividends will be determined by the Board of Directors.
Payment of cash dividends has become commonplace among publicly traded
thrifts with relatively high capital levels. Eight of the thirteen members of
the Comparative Group companies currently pay dividends. The average dividend
yield of the Comparative Group was 0.50% as of March 13, 2007, and was below the
average All Public Thrift dividend yield of 2.25%. While a formal dividend
policy has yet to be established, the Company will have the capital base to pay
a dividend in the future and therefore, we believe that no adjustment is
warranted for this factor.
Liquidity of the Issue
- ----------------------
Eleven of the thirteen members of the Comparative Group are listed on
the NASDAQ National Market, while the other two companies are listed on the OTC
Bulletin Board. The
77
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Company has applied to have its common stock listed for
trading on the NASDAQ Global Market following the Stock Offering and anticipates
meeting the requirements for listing. Thus, we do not believe that any further
adjustment is necessary to address this factor.
Subscription Interest
- ---------------------
In recent years, initial public offerings ("IPOs") of thrift stocks
have attracted a great deal of investor interest and this speculative fervor
generally continued through 2006. While the total number of conversions fell,
from 27 in 2005 to 18 in 2006, the average one-day price increase rose to 15.0%
in 2006 from 7.1% in 2005. The mutual holding company stock offerings continued
to be the most popular option with a total of 12 MHC deals in 2006. While
investors traditionally have had mixed views about the mutual holding company
structure, MHC offerings recorded a median one-day price increase of 10.0% in
2006, compared to 4.8% in 2005. The fact that the majority of the thrift's
voting stock is controlled by the top-tier holding company makes it difficult
for shareholders to exert their influence on management.
The Company has retained the services of Sandler O'Neill + Partners,
L.P. to assist in the marketing and sale of the Stock Offering. The Company also
plans to form an employee stock ownership plan ("ESOP) that will purchase common
stock in the offering. The Company's Board members and executive officers
currently anticipate purchasing an aggregate amount of $2.1 million of common
stock. The maximum individual purchase limitations per eligible category is
placed at $150,000 and persons or groups acting in concert are limited to
$250,000 in stock purchases in all categories
Notwithstanding the demand for thrift MHC IPOs, a strong subscription
offering does not always indicate that the valuation should be increased. Many
thrift IPO investors do not
78
FELDMAN FINANCIAL ADVISORS, INC.
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routinely purchase in the after-market, particularly at higher stock prices or
involving stock issues with limited liquidity. As such, absent actual results of
the Company's subscription offering (as well as actual market conditions
prevailing during the subscription offering), we do not believe any adjustment
is warranted at this time.
Stock Market Conditions
- -----------------------
Table 29 graphically displays the performance of the SNL Thrift Index
of all publicly traded thrifts and the SNL MHC Thrift Index as compared to the
Standard & Poor's 500-Stock Index ("S&P 500") since year-end 2003. While the SNL
Thrift Index has underperformed the broader stock index, advancing at 11.8% as
compared to 23.9% for the S&P 500, the SNL MHC Thrift Index has advanced 37.2%,
during the period from December 31, 2003 to March 13, 2007. During calendar
2006, the SNL Thrift Index and the S&P 500 advanced 13.2% and 13.6%
respectively, compared to the SNL MHC Thrift Index, which increased 33.0% over
the same period. Since December 31, 2006, the All Thrift Public Index has
declined 9.4% while the SNL MHC Thrift Index has declined 5.7%. This compares to
a decline of 2.8% for the S&P 500 over the same period.
The Thrift Industry has seen a steady recovery since the 1990s. This
has been fueled primarily by the demand for housing loans, as the real estate
sector of the economy has flourished. As reported by The Office of Thrift
Supervision (OTS), the thrift industry posted historically strong earnings and
profitability in 2006 and asset quality measures for OTS-regulated thrifts also
remain strong by historical levels despite weakening in the fourth quarter from
the slowdown in the housing markets. Record equity capital-to-assets ratio at
the end of 2006 has the industry well positioned to absorb the possibility of
further weakening that could
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FELDMAN FINANCIAL ADVISORS, INC.
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result from a housing slowdown. In addition, the industry doubled its aggregate
percentage of loan loss provisions in the fourth quarter of 2006 to 0.45 percent
of assets from 0.22 percent in the third quarter of 2006, and from 0.26 percent
in the fourth quarter of 2005.
For the fourth quarter of 2006, the slowdown in housing and the
changing credit cycle for residential mortgages and consumer lending widely
affected industry earnings, profitability and asset quality measures. The drop
was more pronounced coming off the industry's second best quarter for earnings
in the third quarter of 2006. Earnings and profitability, especially for smaller
institutions, continue to be stressed by the flat to inverted yield curve
affecting the current interest rate environment. In addition, delinquencies for
residential mortgages and consumer loans have increased from record lows.
Industry-wide, loan growth slowed during the year while retail deposit growth
was up after accounting for the loss of deposits from two large thrifts in the
fourth quarter of 2006.
Industry net income for 2006 was $15.9 billion, down from the record
$16.4 billion in 2005, but significantly higher than $14.0 billion in 2004. In
the fourth quarter, net income was $3.19 billion, down from $4.29 billion in the
prior quarter and $4.32 billion in the year ago fourth quarter, which were the
best two quarters in the industry's history. Profitability, as measured by
return on average assets (ROA), was 1.06 percent for 2006, down from 1.19
percent in 2005 and 1.17 percent in 2004. For the fourth quarter, ROA was 0.91
percent, down from 1.08 percent in the third quarter and 1.19 percent in the
fourth quarter of 2005. While higher provisioning for loan losses affected the
ROA decline, the agency noted that a portion of the fourth quarter drop was
attributable to one-time events. For the quarter, the industry's aggregate net
interest margin rose slightly to 2.71 percent from 2.65 percent in the prior
quarter. Net
80
FELDMAN FINANCIAL ADVISORS, INC.
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interest margin was 2.76 percent one year ago. The continued flat to inverted
yield curve continues to overhang the net interest margin for the industry
Since the beginning of 2007, thrift stocks have generally trended
downward in value due to concerns over the mortgage market and the sub-prime
mortgage market in particular and the effect that this may have on the housing
industry. Given these concerns and the general uncertainties about the pace of
economic recovery, oil prices, the continuing war in Iraq, and the flat yield
curve, both the thrift market and the broader market has exhibited some modest
downward momentum in 2007. Going forward into 2007, as interest rates continue
to hold relatively stable, housing demand and the demand for home mortgages
should continue its recent slowdown.
81
FELDMAN FINANCIAL ADVISORS, INC.
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Table 29
Comparative Stock Index Performance
December 31, 2003 to March 13, 2007
(Index Value 100 = 12/31/03)
[GRAPHIC OMITTED]
All Public Thrifts
MHC Thrift Index
S&P 500 Stock Index
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FELDMAN FINANCIAL ADVISORS, INC.
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Recent Acquisition Activity
- ---------------------------
Acquisition speculation is one factor underpinning the prices of newly
converted thrifts in the after-market and existing trading companies. Table 30
summarizes recent acquisition activity involving banks and thrifts based in New
Jersey. Since January 1, 2006, there have been six acquisitions involving New
Jersey financial institutions, three banks and three thrifts. Overall
acquisition valuation ratios for New Jersey financial institutions were above
the premiums reported nationwide. As the Company will be structured as an MHC,
we do not believe that acquisition premiums are a significant factor to consider
in determining the Company's pro forma market value, and any speculative
interest may be reflected to some degree in the general trading values of thrift
stocks and encompass members of the Comparative Group as well.
New Issue Discount
- ------------------
A "new issue" discount that reflects investor concerns and investment
risks inherent in all IPOs is a factor to be considered for purposes of valuing
converting thrifts. The magnitude of the new issue discount typically expands
during periods of declining thrift stock prices as investors require larger
inducements, and narrows during strong market conditions. The thrift conversion
market continues to respond to the after-market performance of recent offerings.
Table 31 presents a summary of thrifts that have completed first-stage minority
MHC stock offerings since January 1, 2004.
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FELDMAN FINANCIAL ADVISORS, INC.
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Table 30
Summary of Recent New Jersey Acquisition Activity
Transactions Announced in 2005, 2006 and 2007 Year-to-Date
====================================================================================================================================
Seller's Prior Financial Data Offer Value to
----------------------------- -----------------------------
Total Equity/ YTD YTD Offer Book Tang. LTM Total
B/T Assets Assets ROA ROE Date Status Value Value Book EPS Assets
Buyer State Seller (1) ($Mil.) (%) (%) (%) Anncd. (2) ($Mil.) (%) (%) (x) (%)
- ------------------------------------------------------------------------------------------------------------------------------------
Overall Average 1,357.5 8.53 0.80 9.18 NA NA 278.0 252.0 275.2 30.92 19.18
Overall Median 522.7 8.32 0.63 7.94 NA NA 106.9 243.0 245.2 25.48 17.99
- ------------------------------------------------------------------------------------------------------------------------------------
Cathay General CA United Heritage B 60.4 8.26 (0.32) (3.45) 11/21/06 P 9.4 188.4 188.4 NM 9.41
Bancorp Inc. Bank
New York NY PennFed Financial T 2,334.3 5.33 0.39 7.32 11/02/06 P 261.9 202.7 202.7 22.57 NA
Community Services Inc
Bancorp
Provident NJ First Morris B 570.6 6.69 0.26 3.81 10/15/06 P 124.2 325.5 327.6 46.79 18.74
Financial Bank & Trust
Services
Beneficial PA FMS Financial T 1,244.6 6.07 0.47 7.54 10/12/06 P 183.0 241.4 246.3 30.43 11.99
Savings Corp.
Bank, MHC
Sterling Bank NJ Farnsworth Bancorp T 105.6 8.58 0.30 3.39 06/23/06 P 18.9 194.8 194.8 64.56 12.81
Inc.
TD Banknorth ME Interchange B 1,631.4 10.97 1.28 12.38 04/13/06 C 480.7 258.7 442.3 23.23 31.09
Inc. Financial Services
Susquehanna PA Minotola National B 623.4 12.95 1.09 8.33 11/14/05 C 166.1 205.7 206.4 25.48 17.23
Bancshares Inc. Bank
Sun Bancorp Inc. NJ Advantage Bank B 166.0 8.38 0.48 5.45 08/25/05 C 37.0 244.2 244.2 42.85 17.99
Community NJ Town Bank B 147.1 10.24 1.53 13.88 08/16/05 C 41.2 258.7 258.7 25.00 25.52
Partners Bncp
TD Banknorth ME Hudson United B 8,850.4 6.00 1.32 22.28 07/11/05 C 1,898.7 360.4 446.7 15.12 27.34
Inc. Bancorp
Interchange NJ Franklin Bank B 81.0 12.91 2.06 16.14 06/23/05 C 25.3 241.7 241.7 18.22 22.93
Financial
Services
Fulton PA SVB Financial
Financial Services Inc. B 474.9 6.00 0.77 13.03 01/11/05 C 89.6 302.3 302.3 25.88 15.90
Corp.
====================================================================================================================================
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FELDMAN FINANCIAL ADVISORS, INC.
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Table 31
Summary of Recent First State MHC Stock Offerings
Transactions Completed Since January 1, 2005
====================================================================================================================================
Stock Fully After-Market Price Chg. Change
----------------------
Total Retained Gross Conv. IPO 3/13/07 One One One Thru
Stock IPO Assets by MHC Proceeds P/B Price Price Day Week Month 3/13/07
Company State Exchange Date ($Mil.) (%) ($Mil.) (%) ($) ($) (%) (%) (%) (%)
- ------------------------------------------------------------------------------------------------------------------------------------
Average -- NA NA NA 418.5 57.6 43.0 79.4 10.00 12.19 17.8 18.0 17.0 21.9
2006 and 2007 YTD
Average -- NA NA NA 737.8 58.5 74.5 83.6 10.00 12.54 4.5 4.0 3.6 25.4
2005
- ------------------------------------------------------------------------------------------------------------------------------------
Oritani NJ NASDAQ 01/24/07 1,031.4 68.0 129.8 83.6 10.00 15.31 59.7 54.3 55.0 53.1
Financial Corp.
Polonia PA OTC BB 01/16/07 172.4 55.0 14.9 80.8 10.00 10.04 1.0 1.4 0.5 0.4
Bancorp
MSB Financial NJ NASDAQ 01/05/07 270.2 55.0 25.3 84.3 10.00 11.11 23.0 21.5 19.3 11.1
Corp.
Mainstreet MI OTC BB 12/27/06 112.3 53.0 3.5 70.1 10.00 9.65 10.0 10.0 (2.5) (3.5)
Financial Corp.
Ben Franklin IL OTC BB 10/19/06 110.2 55.0 8.9 79.3 10.00 10.85 7.0 6.5 6.5 8.5
Financial
ViewPoint TX NASDAQ 10/03/06 1,430.0 55.0 116.0 79.8 10.00 16.05 49.9 52.5 53.9 60.5
Financial Group
Fox Chase PA NASDAQ 10/02/06 754.1 56.4 64.0 79.1 10.00 13.50 29.5 27.9 30.1 35.0
Bancorp, Inc.
Roma Financial NJ NASDAQ 07/12/06 797.8 69.0 98.2 77.1 10.00 14.75 41.0 45.0 46.6 47.5
Corporation
Seneca-Cayuga NY OTC BB 07/11/06 151.1 55.0 10.7 79.1 10.00 9.16 0.0 (1.5) (7.0) (8.4)
Bancorp, Inc.
Northeast Community NY NASDAQ 07/06/06 238.8 55.0 59.5 85.8 10.00 11.85 10.0 12.0 12.0 18.5
Bancorp, Inc.
Mutual Federal IL OTC BB 04/06/06 65.3 70.0 10.9 74.6 10.00 12.50 11.3 10.0 14.0 25.0
Bancorp, Inc.
Lake Shore NY NASDAQ 04/04/06 332.0 53.0 29.8 80.4 10.00 12.18 7.0 5.5 2.9 21.8
Bancorp, Inc.
United Community IN NASDAQ 03/31/06 323.6 55.0 36.5 85.1 10.00 11.80 8.0 NA NA 18.0
Bancorp
Magyar Bancorp, NJ NASDAQ 01/24/06 359.7 54.0 26.2 82.3 10.00 14.15 6.5 5.0 6.0 41.5
Inc.
Greenville Federal OH OTC BB 01/05/06 128.4 55.0 10.3 69.7 10.00 10.00 2.5 2.5 0.0 0.0
Financial Corp.
Equitable NE OTC BB 11/08/05 163.7 55.0 14.2 79.4 10.00 10.30 0.0 0.0 (5.0) 3.0
Financial Corp.
Investors Bancorp, NJ NASDAQ 10/12/05 4,992.8 54.3 516.3 85.4 10.00 14.56 0.2 0.7 5.2 45.6
Inc.
Wauwatosa Holdings, WI NASDAQ 10/05/05 1,386.1 68.4 101.2 82.5 10.00 17.07 12.5 11.5 9.5 70.7
Inc.
Ottawa Savings IL OTC BB 07/15/05 173.3 55.0 10.0 74.9 10.00 13.50 10.0 5.0 7.0 35.0
Bancorp, Inc.
United Financial MA NASDAQ 07/13/05 796.0 53.4 76.7 84.4 10.00 14.06 17.5 15.7 17.0 40.6
Bancorp, Inc.
Colonial NJ NASDAQ 06/30/05 296.2 54.0 20.8 82.5 10.00 13.95 6.0 6.9 7.5 39.5
Bankshares, Inc.
Heritage GA NASDAQ 06/30/05 347.8 70.0 33.7 84.2 10.00 15.58 7.5 7.2 9.3 55.8
Financial Group
North Penn PA OTC BB 06/02/05 90.5 53.9 6.4 73.7 10.00 11.05 10.0 2.5 1.5 10.5
Bancorp, Inc.
Rockville CT NASDAQ 05/23/05 923.5 55.0 83.6 83.5 10.00 14.58 4.8 10.5 19.6 45.8
Financial, Inc.
FedFirst PA NASDAQ 04/07/05 270.3 55.0 29.8 86.0 10.00 9.00 (6.6) (7.1) (14.5) (10.0)
Financial Corp.
Brooklyn Federal NY NASDAQ 04/06/05 303.7 70.0 39.7 89.6 10.00 14.00 (0.5) (0.1) (5.0) 40.0
Bancorp, Inc.
Prudential PA NASDAQ 03/30/05 405.0 55.0 56.5 86.9 10.00 13.53 (1.5) (6.5) (12.5) 35.3
Bancorp, Inc.
Kentucky First KY NASDAQ 03/03/05 139.8 55.0 21.3 96.4 10.00 10.05 7.9 11.0 12.4 0.5
Federal Bancorp
Kearny Financial NJ NASDAQ 02/24/05 1,935.5 70.0 218.2 80.0 10.00 14.46 13.9 14.3 10.8 44.6
Corp
Home Federal LA OTC BB 01/21/05 95.7 60.0 14.2 75.4 10.00 10.30 (1.0) 0.0 (0.8) 3.0
Bancorp, Inc.
BV Financial, MD OTC BB 01/14/05 98.1 55.0 11.9 87.8 10.00 8.60 (6.5) (4.0) (1.5) (14.0)
Inc.
Georgetown MA OTC BB 01/06/05 124.9 55.0 12.5 88.5 10.00 8.65 2.0 0.0 0.5 (13.5)
Bancorp, Inc.
====================================================================================================================================
Source: SNL Financial.
85
FELDMAN FINANCIAL ADVISORS, INC.
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There were a total of twelve MHC stock offerings during 2006 and three
so far in 2007. During this period, the after-market performance of MHC thrift
conversions has shown significant strength. Of the fifteen MHC stock offerings
completed since January 1, 2006, the average first day price increase was 17.8%,
with an average price increase of 21.9% through March 13, 2007. Excluding
companies who listed on the OTC BB, the first day price increase average was
23.0% with an average price increase of 35.0% through March 13, 2007. Only two
of these fifteen MHC stock issues were still trading below their IPO price while
ten of the fifteen are trading at more than 15% above their IPO price.
Since January 1, 2006, there have been four MHC stock offerings
completed by New Jersey institutions, Oritani Financial Corp., MSB Financial
Corp., Roma Financial Corporation and Magyar Bancorp, Inc., and these
institutions are up 53.1%, 11.1%, 47.5% and 41.5%, respectively, from their IPO
prices to closing market prices at March 13, 2007. The average one-day price
increase for these institutions was 32.0%.
In the after-market, thrift conversions had been trading upward to a
range between 90% and 100% of fully converted book value, but found resistance
at this level until a discernible trend in earnings improvement was evident. To
price a new offering at 90% of pro forma book value, because of the mathematics
of the calculation, would require very large increases in valuations and produce
very marginal returns on equity. Accordingly, thrift conversions continue to be
priced at discounts to publicly traded companies. MHC conversions closed in 2006
had a median discount to the industry on a price/book ratio of 43.6%. This is
due to the relatively high pro forma equity ratios, expected low returns on
equity, and the uncertainty regarding the prospects of an institution to adeptly
leverage the balance sheet in the currently low interest rate environment.
However, the after-market performance of recent thrift IPOs provides
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FELDMAN FINANCIAL ADVISORS, INC.
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has given reason to reduce the new issue discount for valuation of current
thrift IPOs. In addition, given, the performance of MHC conversions for
institutions located in New Jersey, we believe an upward adjustment is
warranted.
Adjustments Conclusion
- ----------------------
Based upon our analysis, we believe that an upward adjustment is
necessary based upon the performance of New Jersey institutions performing an
MHC conversion. This is offset to some degree for a downward adjustment related
to the Company's earning performance. Currently, converting thrifts are often
valued at substantial discounts to peer institutions relative to price-to-book
ratios, but at lesser discounts to the comparable institutions'
price-to-earnings ratios. It is the role of the appraiser to balance the
relative dynamics of price-to-book and price-to-earnings discounts and premiums.
Valuation Approach
- ------------------
In determining the estimated pro forma market value of the Company, we
have employed the comparative company approach and considered the following
pricing ratios: price-to-earnings per share ("P/E"), price-to-book value per
share ("P/B"), price-to-tangible book value per share ("P/TB"), and
price-to-assets ("P/A"). Table 32 displays the market price valuation ratios of
the Comparative Group on a fully converted basis as of March 13, 2007. Averages
for the All Public Thrift aggregate are also shown in Table 33. Table 33 also
includes the pro forma fully-converted valuation ratios attributable to the
Company as compared to the Comparative Group. Table 34 detailed the pro forma
MHC valuation ratios attributable to the Company and the Comparative Group.
Exhibit IV displays the pro forma assumptions and calculations utilized
87
FELDMAN FINANCIAL ADVISORS, INC.
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in analyzing the Company's valuation ratios. In reaching our conclusions of the
Valuation Range, we evaluated the relationship of the Company's pro forma
valuation ratios relative to the Comparative Group valuation data and recent
thrift IPO valuations.
Investors continue to make decisions to purchase thrift conversion
stocks and more seasoned thrift issues based upon consideration of core earnings
profitability and P/B comparisons. The P/B ratio is an important valuation ratio
in the current thrift stock environment and was a key focus in developing our
estimate of the Company's pro forma market value. The Company's net income for
the LTM period ending December 31, 2006 was $379,000 and reflected an ROA of
0.11%.
The average P/B ratio on a fully converted basis for the Comparative
Group was 91.4% and the median was 95.4%. In comparison, the All Public Thrift
average and median P/B ratios were 125.2% and 120.3%. In consideration of the
foregoing factors along with the additional adjustments discussed in this
chapter, we have determined a fully converted pro forma price-to-book and
price-to-tangible book ratio of 74.5% for the Company, which reflects an
aggregate midpoint value of $60 million based on the assumptions summarized in
Exhibit IV. Employing a range of 15% above and below the midpoint, the resulting
minimum value of $51.0 million reflects a 70.1% P/B ratio and the resulting
maximum value of approximately $69.0 million reflects a 78.1% P/B ratio. The
adjusted maximum, an additional 15.0% above the maximum, is positioned at
approximately $79.4 million and a P/B ratio of 81.5%. At this adjusted maximum
price-to-book valuation ratio, the Company is valued higher, on a fully
converted basis, to the 79.4% average of recent MHC stock offerings as displayed
in Table 31.
The Company's pro forma maximum P/B ratio of 78.1% reflects a 14.5%
discount to the Comparative Group average P/B ratio of 91.4% and a 37.7%
discount to the All Public Thrift
88
FELDMAN FINANCIAL ADVISORS, INC.
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average of 125.2%. At the adjusted maximum, the Company's pro forma P/B ratio of
81.5% reflects a 10.8% discount to the Comparative Group average and a 34.9%
discount to the All Public Thrift average.
Based on the Valuation Range as indicated above, the Company's pro
forma P/E ratios ranged from a minimum of 58.8x to 66.7x at the adjusted maximum
based on LTM earnings. As discussed earlier, the Company's below average
earnings are reflected by the P/E ratios. The Company's pro forma maximum P/E
LTM ratio of 66.7x reflects a 95.7% premium to the Comparative Group average P/E
ratio of 34.1x and a 217.2% premium to the All Public Thrift average of 21.0x.
Based on the P/A measure, the Company's pro forma midpoint of $60.0
million reflects a corresponding valuation ratio of 14.9%, ranging from 12.9% at
the minimum to 16.8% and 18.9% at the maximum and adjusted maximum,
respectively.
Valuation Conclusion
- --------------------
It is our opinion that, as of March 13, 2007, the aggregate estimated
pro forma market value of the Company on a fully converted basis was within the
Valuation Range of $51,000,000 to $69,000,000 with a midpoint of $60,000,000.
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 $79,350,000.
Exhibit IV displays the assumptions and calculations utilized in determining the
Company's estimated pro forma market value on a fully converted basis. Exhibit V
displays the Company's resulting pro forma data assuming a sale of 45% of the
aggregate pro forma market value of common stock in the MHC Stock Offering.
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FELDMAN FINANCIAL ADVISORS, INC.
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Table 32
Fully Converted Market Valuation Analysis
Comparative Group
Computed from Market Price Data as of March 13, 2007
====================================================================================================================================
Pro Forma Fully Converted Pro Forma Fully Converted
Current Financial Data Market Valuation Ratios
------------------------------------ ------------------------------------------
MHC Gross Total Tang. Price/ Price/ Price/ Price/ Price/
Owner- Stock Net LTM LTM Equity/ Equity/ LTM Core Book Tang. Total
ship Proceeds Income ROA ROE Assets Assets EPS EPS Value Book Assets
Company (%) ($Mil.) ($Mil.) (%) (%) (%) (%) (x) (x) (%) (%) (%)
- ------------------------------------------------------------------------------------------------------------------------------------
Comparative Group Average 56.0 38.9 1.9 0.45 2.60 18.05 17.73 34.1 36.2 91.4 93.4 16.47
Comparative Group Median 55.0 36.8 2.0 0.47 2.79 18.32 18.32 28.2 29.2 95.4 95.4 17.50
Comparative Group
- -----------------
AJS Bancorp, Inc. (MHC) 57.9 30.2 1.3 0.46 2.44 18.70 18.70 37.7 37.7 95.3 95.3 17.83
Colonial Bankshares, Inc. (MHC) 54.0 34.1 2.1 0.51 3.17 15.97 15.97 28.0 28.0 95.6 95.6 15.28
FedFirst Financial Corp. (MHC) 53.5 32.7 0.9 0.28 1.17 23.93 23.58 63.8 63.8 82.1 83.3 19.65
Lake Shore Bancorp, Inc. (MHC) 55.0 44.3 2.4 0.62 2.66 23.41 23.41 NA NA 87.7 87.7 20.53
Magyar Bancorp, Inc. (MHC) 54.0 45.3 0.7 0.15 0.86 17.93 17.93 NA NA 95.8 95.8 17.17
Naugatuck Valley 55.8 51.4 2.2 0.47 2.28 20.80 20.76 39.3 39.3 96.7 96.9 20.12
Financial Corp. (MHC)
Ocean Shore Holding Company (MHC) 55.4 63.2 4.0 0.66 3.45 18.96 18.96 26.5 26.5 97.6 97.6 18.51
Pathfinder Bancorp, Inc. (MHC) 64.2 20.4 1.3 0.41 3.43 12.04 10.78 23.2 NA 82.7 92.4 9.96
PSB Holdings, Inc. (MHC) 54.8 39.6 2.5 0.49 2.92 16.63 15.05 28.4 28.7 84.5 93.4 14.06
Service Bancorp, Inc. (MHC) 54.9 27.7 1.9 0.44 3.61 12.16 12.16 25.5 29.2 95.4 95.4 11.61
====================================================================================================================================
Source: SNL Financial; Feldman Financial computations.
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FELDMAN FINANCIAL ADVISORS, INC.
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Table 33
Comparative Fully Converted Market Valuation Analysis
Gateway Community and the Comparative Group
Computed from Market Price Data as of March 13, 2007
====================================================================================================================================
Current Total Price/ Price/ Price/ Price/ Price/ Total Current
Stock Market LTM Core Book Tang. Total Equity/ Dividend
Price Value EPS EPS Value Book Assets Assets Yield
Company ($) ($Mil.) (x) (x) (%) (%) (%) (%) (%)
- ------------------------------------------------------------------------------------------------------------------------------------
Gateway Community(1)
Pro Forma Minimum 10.00 51.0 58.8 55.6 70.1 70.1 12.89 12.89 0.00
Pro Forma Midpoint 10.00 60.0 62.5 62.5 74.5 74.5 14.87 14.87 0.00
Pro Forma Maximum 10.00 69.0 66.7 62.5 78.1 78.1 16.77 16.77 0.00
Pro Forma Adj. Maximum 10.00 79.4 66.7 66.7 81.5 81.5 18.88 18.88 0.00
Comparative Group Average NA 70.1 34.1 36.2 91.4 93.4 16.47 18.05 0.99
Comparative Group Median NA 67.6 28.2 29.2 95.4 95.4 17.50 18.32 0.50
All Public Thrift Average(2) NA 507.6 21.0 23.3 125.2 141.8 12.91 10.62 2.23
All Public Thrift Median(2) NA 62.6 16.4 17.1 120.3 130.5 11.58 9.42 2.25
Comparative Group(1)
- -----------------
AJS Bancorp, Inc. (MHC) 24.60 52.1 37.7 37.7 95.3 95.3 17.83 18.70 1.79
Colonial Bankshares, Inc. (MHC) 13.95 63.1 28.0 28.0 95.6 95.6 15.28 15.97 0.00
FedFirst Financial Corp. (MHC) 9.00 61.2 63.8 63.8 82.1 83.3 19.65 23.93 0.00
Lake Shore Bancorp, Inc. (MHC) 12.18 80.5 NA NA 87.7 87.7 20.53 23.41 0.99
Magyar Bancorp, Inc. (MHC) 14.15 83.8 NA NA 95.8 95.8 17.17 17.93 0.00
Naugatuck Valley Financial 12.28 92.1 39.3 39.3 96.7 96.9 20.12 20.80 1.63
Corp. (MHC)
Ocean Shore Holding Company (MHC) 13.28 114.1 26.5 26.5 97.6 97.6 18.51 18.96 0.00
Pathfinder Bancorp, Inc. (MHC) 12.89 31.8 23.2 NA 82.7 92.4 9.96 12.04 3.18
PSB Holdings, Inc. (MHC) 10.61 72.2 28.4 28.7 84.5 93.4 14.06 16.63 2.26
Service Bancorp, Inc. (MHC) 30.55 50.5 25.5 29.2 95.4 95.4 11.61 12.16 0.00
====================================================================================================================================
(1) Fully-converted valuation assumes sale of 100% of common stock for Gateway
Community and MHC-owned stock for the Comparative Group.
(2) Excludes existing MHC companies and companies subject to announced
acquisitions.
Source: Gateway Community Financial Corp.; SNL Financial; Feldman Financial.
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FELDMAN FINANCIAL ADVISORS, INC.
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Table 34
Pro Forma Comparative MHC Valuation Analysis
Gateway Comunity and the Comparative Group
Computed from Market Price Data as of March 13, 2007
====================================================================================================================================
Current Total Price/ Price/ Price/ Price/ Price/ Total Current
Stock Market LTM Core Book Tang. Total Equity/ Dividend
Price Value EPS EPS Value Book Assets Assets Yield
Company ($) ($Mil.) (x) (x) (%) (%) (%) (%) (%)
- ------------------------------------------------------------------------------------------------------------------------------------
Gateway Community(1)
Pro Forma Minimum 10.00 51.0 90.9 90.9 105.7 105.7 13.74 13.00 0.00
Pro Forma Midpoint 10.00 60.0 100.0 100.0 115.9 115.9 16.01 13.81 0.00
Pro Forma Maximum 10.00 69.0 111.1 111.1 124.8 124.8 18.24 14.61 0.00
Pro Forma Adjusted Maximum 10.00 79.4 125.0 111.1 133.9 133.9 20.76 15.51 0.00
Comparative Group Average NA 70.1 42.2 60.1 163.4 170.0 17.92 11.09 0.99
Comparative Group Median NA 67.6 37.7 39.9 172.3 172.6 19.11 10.80 0.50
Comparative Group(2)
- --------------------
AJS Bancorp, Inc. (MHC) 24.60 52.2 57.2 57.2 181.4 181.4 19.56 10.78 1.79
Colonial Bankshares, Inc. (MHC) 13.95 63.1 37.7 37.8 172.0 172.0 16.44 9.56 0.00
FedFirst Financial Corp. (MHC) 9.00 61.2 NM 150.0 131.9 135.1 21.60 16.37 0.00
Lake Shore Bancorp, Inc. (MHC) 12.18 80.5 NA NA 149.9 149.9 22.74 15.17 0.99
Magyar Bancorp, Inc. (MHC) 14.15 83.8 NA NA 172.6 172.6 18.66 10.81 0.00
Naugatuck Valley 12.28 92.1 61.4 61.4 180.3 181.0 22.26 12.35 1.63
Financial Corp. (MHC)
Ocean Shore Holding Company (MHC) 13.28 114.1 35.9 35.9 182.5 182.5 20.30 11.12 0.00
Pathfinder Bancorp, Inc. (MHC) 12.89 31.8 31.4 NA 152.4 188.8 10.54 6.92 3.18
PSB Holdings, Inc. (MHC) 10.61 72.2 37.9 38.5 138.5 164.6 14.84 10.71 2.26
Service Bancorp, Inc. (MHC) 30.55 50.5 33.6 39.9 172.7 172.7 12.21 7.07 0.00
====================================================================================================================================
(1) Pro forma market valuation ratios assume sale of 45% of common stock for
Gateway Community, reflecting $22.95 million at the minimum, $27.0 million
at the midpoint, $31.1 million at the maximum, and $35.7 million at the
adjusted maximum
(2) Reported market valuation ratios reflect current MHC ownership.
Source: Gateway Community Financial Corp.; SNL Financial; Feldman Financial.
92
FELDMAN FINANCIAL ADVISORS, INC.
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Exhibit I
Background of Feldman Financial Advisors, Inc.
Overview of Firm
- ----------------
Feldman Financial Advisors provides consulting and advisory services to
financial institutions and mortgage companies in the areas of corporate
valuations, mergers and acquisitions, strategic planning, branch sales and
purchases, developing and implementing regulatory business and capital plans,
and expert witness testimony and analysis. Our senior staff members have been
involved in the stock conversion process since 1982 and have valued more than
350 converting institutions.
Feldman Financial Advisors was incorporated in February 1996 by a group of
consultants who were previously associated with CS First Boston and Kaplan
Associates. Each of the principals at Feldman Financial Advisors has more than
10 years experience in consulting and all were officers of their prior firm. Our
senior staff collectively has worked with more than 1,000 banks, thrifts and
mortgage companies nationwide. The firm's office is located in Washington, D.C.
Background of Senior Professional Staff
- ---------------------------------------
Trent Feldman - President. Trent is a nationally recognized expert in providing
- -------------
strategic advice to and valuing service companies, and advising on mergers and
acquisitions. Trent was with Kaplan Associates for 14 years and was one of three
founding principals at that firm. Trent also has worked at the Federal Home Loan
Bank Board and with the California legislature. Trent holds Bachelors and
Masters Degrees from the University of California at Los Angeles.
Peter Williams - Principal. Peter specializes in merger and acquisition
- ---------------
analysis, stock and other corporate valuations, strategic business plans and
retail delivery analysis. Peter was with Kaplan Associates for 13 years. Peter
also served as a Corporate Planning and Development Analyst with the Wilmington
Trust Company in Delaware. Peter holds a BA in Economics from Yale University
and an MBA in Finance and Investments from George Washington University.
Michael Green - Principal. Mike is an expert in mergers and acquisition
- --------------
analysis, financial institution and corporate valuations, and strategic and
business plans. During Mike's 10 years at Kaplan Associates, his experience also
included business restructurings, litigation support, mark-to-market analysis,
and goodwill valuations. Mike holds a BA in Finance and Economics from Rutgers
College.
Greg Izydorczyk - Senior Vice President. Greg specializes in merger and
- ----------------
acquisition analysis and corporate valuations and also has experience in
mark-to-market analysis and business plans. Greg was with Kaplan Associates for
three years. Previous, Greg worked as a Senior Auditor for First Virginia Bank
and Integra Financial and as a Financial Analyst with Airbus Industrie of N.A.
Greg holds a BS in Finance from Pennsylvania State University and an MBA in
Finance from the Katz Graduate School, University of Pittsburgh.
I-1
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit II-1
Statement of Financial Condition
As of December 31, 2005 and 2006
(Dollars in Thousands)
December 31,
2006 2005
------------- -------------
ASSETS
Cash and due from banks $ 9,792,977 $ 7,094,534
Interest-bearing deposits in other banks 825,203 1,636,118
Federal funds sold - 5,300,000
------------- -------------
Cash and cash equivalents 10,618,180 14,030,652
Investment securities available for sale 14,151,943 1,729,053
Investment securities held to maturity
(fair value $38,404,079 and $38,955,768) 38,645,234 39,586,162
Mortgage-backed securities available for sale 200,059 324,314
Mortgage-backed securities held to maturity
(fair value $58,002,971 and $52,771,675) 58,984,533 53,708,105
Loans receivable 212,305,275 183,951,358
Less allowance for loan losses 1,813,469 3,035,676
------------- -------------
Net loans 210,491,806 180,915,682
Accrued interest receivable 1,733,571 1,106,854
Real estate owned 287,592 287,592
Premises and equipment 6,468,933 6,549,886
Federal Home Loan Bank stock 581,600 355,000
Bank-owned life insurance 7,462,020 7,205,131
Other assets 2,238,354 2,212,379
------------- -------------
TOTAL ASSETS $ 351,863,825 $ 308,010,810
============= =============
LIABILITIES
Deposits $ 315,962,427 $ 277,544,217
Short-term borrowings 4,400,000 -
Advances by borrowers for taxes and insurance 514,511 474,957
Accrued interest payable and other liabilities 2,083,690 1,445,686
------------- -------------
TOTAL LIABILITIES 322,960,628 279,464,860
------------- -------------
Commitments and Contingencies (Note 14) - -
------------- -------------
STOCKHOLDERS' EQUITY
Preferred stock, par value $.10; 5,000,000 shares authorized
no shares issued and outstanding - -
------------- -------------
Common stock, par value $.10; 25,000,000 shares authorized;
10,000 shares issued and outstanding 1,000 1,000
Additional paid-in capital 249,000 249,000
Retained earnings 28,685,843 28,306,369
Accumulated other comprehensive loss
(32,646) (10,419)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 28,903,197 28,545,950
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 351,863,825 $ 308,010,810
============= =============
Source: Gateway Community Financial Corp., audited financial statements.
II-1
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit II-2
Statement of Operations
For the Years Ended December 31, 2004, 2005 and 2006
(Dollars in Thousands)
Year Ended December 31,
2006 2005 2004
------------ ------------ ------------
INTEREST AND DIVIDEND INCOME
Loans receivable $ 11,474,291 $ 9,940,497 $ 9,800,017
Interest-bearing deposits in other banks and federal funds sold 97,856 196,997 142,910
Investment securities
Taxable 2,149,634 1,621,073 1,837,680
Exempt from federal income tax 135,502 38,799 24,388
Mortgage-backed securities 2,416,192 2,423,423 2,108,277
------------ ------------ ------------
Total interest and dividend income 16,273,475 14,220,789 13,913,272
------------ ------------ ------------
INTEREST EXPENSE
Deposits 8,688,512 5,863,428 5,203,667
Short-term borrowings 688,692 7,937 -
------------ ------------ ------------
Total interest expense 9,377,204 5,871,365 5,203,667
------------ ------------ ------------
NET INTEREST INCOME 6,896,271 8,349,424 8,709,605
Recovery of loan losses (348,444) (916,695) (12,766)
------------ ------------ ------------
NET INTEREST INCOME AFTER RECOVERY
OF LOAN LOSSES 7,244,715 9,266,119 8,722,371
------------ ------------ ------------
NONINTEREST INCOME
Service charges and other fees 445,954 375,439 390,570
Investment securities gains (losses), net (30,145) - 22,788
Earnings on bank-owned life insurance 256,889 245,689 211,060
Other 182,953 262,031 251,155
------------ ------------ ------------
Total noninterest income 855,651 883,159 875,573
------------ ------------ ------------
NONINTEREST EXPENSE
Compensation and employee benefits 4,427,176 4,336,167 4,265,410
Occupancy and equipment 1,247,148 1,292,666 1,253,504
Data processing 608,416 586,478 560,825
Federal insurance premiums 35,228 80,828 121,071
Professional fees 235,151 238,834 321,988
Other 1,077,773 1,099,110 1,166,343
------------ ------------ ------------
Total noninterest expense 7,630,892 7,634,083 7,689,141
------------ ------------ ------------
Income before income taxes 469,474 2,515,195 1,908,803
Income taxes
90,000 892,597 258,570
------------ ------------ ------------
NET INCOME $ 379,474 $ 1,622,598 $ 1,650,233
============ ============ ============
Source: Gateway Community Financial Corp., audited financial statements.
II-2
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit II-3
Loan Portfolio Composition
As of December 31, 2002 to 2006
(Dollars in Thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
At December 31, 2006 At December 31, 2005 At December 31, 2004 At December 31, 2003 At December 31, 2002
-------------------- -------------------- -------------------- -------------------- --------------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(Dollars in Thousands)
Type of Loans:
- --------------
Real Estate Loans:
One-to-four family $102,755 48.08% $74,115 39.71% $56,736 32.44% $46,638 27.20% $50,489 25.78%
Home equity $59,327 27.76 $49,657 26.60 $41,112 23.50 $40,920 23.86 $32,158 16.42
Commercial $14,472 6.77 $13,889 7.44 $18,116 10.36 $22,578 13.17 $34,668 17.70
Construction 711 0.33 1,667 0.89 776 0.44 815 0.48 2,278 1.16
Commercial 4,561 2.13 6,022 3.23 11,533 6.59 16,870 9.84 32,405 16.55
Consumer and other loans:
Auto 21,136 9.89 33,591 18.00 40,890 23.38 41,832 24.39 41,677 21.28
Manufactured housing 7,512 3.51 5,422 2.90 3,392 1.94 0 0.00 0 0.00
Savings account 1,093 0.51 1,080 0.58 1,106 0.63 948 0.55 1,183 0.60
Other 2,155 1.01 1,203 0.64 1,248 0.71 878 0.51 1,001 0.51
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
Total 213,722 100.00% 186,646 100.00% 174,909 100.00% 171,479 100.00% 195,859 100.00%
======== ====== ======== ====== ======== ====== ======== ====== ======== ======
Deferred loan fees (costs) (164) (156) (8) 200 347
Less: unearned income 1,581 2,850 3,634 4,074 4,523
Less: allowance for
possible loan losses 1,813 3,036 3,963 3,862 8,329
-------- -------- -------- -------- --------
Total loans, net $210,492 $180,916 $167,320 $163,343 $182,660
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------------
Source: Gateway Community Financial Corp., preliminary prospectus.
II-3
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit II-4
Investment Portfolio Composition
As of December 31, 2001 to 2005
(Dollars in Thousands)
- -----------------------------------------------------------------------------------------------------
At December 31,
-----------------------------------------------------
2006 2005 2004 2003 2002
--------- -------- -------- -------- --------
(In thousands)
Investment Securities Available for Sale:
- -----------------------------------------
Equity securities $ 1,718 $ 1,729 $ 1,689 $ 1,144 $ 1,149
U.S. government agency securities 12,434
Corporate securities 3,208 3,303
-------- -------- -------- -------- --------
Total investment securities
held to maturity 14,152 1,729 1,689 4,351 4,452
-------- -------- -------- -------- --------
Mortgage-Backed Securities Available for Sale:
- ----------------------------------------------
Government National Mortgage
-------- -------- -------- -------- --------
Association 200 324 514 719 1,002
-------- -------- -------- -------- --------
Investment Securities Held to Maturity:
- ---------------------------------------
U.S. government agency securities $ 32,067 $ 35,351 $ 33,364 $ 16,998 $ 13,910
Corporate securities 1,028 3,059 12,846 28,460 38,959
Obligations of states and political 0 0 0 0 0
subdivisions 5,550 1,176 552 552 903
-------- -------- -------- -------- --------
Total investment securities
held to maturity 38,645 39,586 46,762 46,010 53,771
-------- -------- -------- -------- --------
Mortgage-Backed Securities Held to Maturity:
- --------------------------------------------
Government National Mortgage Association $ 4,489 $ 7,266 $ 11,494 $ 15,682 $ 12,659
Federal Home Loan Mortgage Corporation 3,351 2,983 3,991 3,271 3,085
Federa National Mortgage Corporation 16,793 18,810 21,493 19,777 6,489
Collateralized mortgage obligations 34,353 24,649 23,710 1,208 0
-------- -------- -------- -------- --------
Total mortgage-backed securities
held to maturity 58,985 53,708 60,688 39,939 22,233
Total $111,982 $ 95,348 $109,652 $ 91,019 $ 81,457
======== ======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------
Source: Gateway Community Financial Corp., preliminary prospectus.
II-4
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit II-5
Deposit Account Distribution
As of December 31, 2004 to 2006
(Dollars in Thousands)
- -----------------------------------------------------------------------
As of December 31,
------------------------------------
2006 2005 2004
-------- -------- --------
Non-interest-bearing deposits $ 9,532 $ 12,123 $ 8,634
Savings 63,761 62,551 71,810
NOW checking 35,926 34,560 38,641
Money market 44,637 24,662 24,349
Certificates of deposit 162,107 143,648 142,913
-------- -------- --------
Total $315,962 $277,544 $286,349
======== ======== ========
- -----------------------------------------------------------------------
Source: Gateway Community Financial Corp., preliminary prospectus.
II-5
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit III
Financial and Market Data for All Public Thrifts
====================================================================================================================================
Total Tang. Closing Total Price/ Price/ Price/ Price/ Price/
Total LTM LTM Equity/ Equity/ Price Market LTM Core Book Tang. Total Div.
Assets ROA ROE Assets Assets 3/13/07 Value EPS EPS Value Book Assets Yield
Company Ticker Stat($Mil.) (%) (%) (%) (%) ($)($Mil.) (x) (x) (%) (%) (%) (%)
====================================================================================================================================
Fully Converted Companies
- -------------------------
Alaska Pacific Bancshares, IncAKPB AK 178.9 0.60 6.23 9.90 9.89 25.50 16.3 15.6 14.6 92.2 92.2 9.12 1.41
Allied First Bancorp, Inc. AFBA IL 160.2 0.28 4.31 6.70 NA 16.20 8.3 18.6 18.6 77.1 81.0 5.17 0.00
AMB Financial Corp. AMFC IN 182.3 0.37 4.47 8.04 8.04 15.40 16.1 24.1 25.0 109.9 109.9 8.84 2.08
Ameriana Bancorp ASBI IN 437.2 (0.22)(2.74) 7.58 7.40 12.60 38.5 NM NM 116.1 119.2 8.80 1.27
American Bancorp of
New Jersey, Inc. ABNJ NJ 524.3 0.35 1.43 21.47 21.47 11.65 152.6 NM 83.2 135.7 135.7 29.12 1.37
American Bank Holdings, Inc. ABKH MD 364.0 1.04 12.32 7.83 7.83 24,700 39.0 10.8 NA 136.9 136.9 10.72 0.00
Anchor BanCorp Wisconsin Inc. ABCW WI 4,505.9 0.98 12.94 7.47 7.06 26.91 588.7 13.9 13.8 174.2 185.2 13.01 2.53
ASB Financial Corp. ASBN OH 206.0 0.77 9.02 8.39 8.39 20.50 32.6 21.4 21.5 188.9 188.9 15.85 3.32
Astoria Financial Corporation AF NY 21,554.5 0.80 13.73 5.64 4.82 26.83 2,633.8 14.9 14.6 203.1 239.6 11.46 3.88
B of I Holding, Inc. BOFI CA 803.4 0.44 4.56 8.89 8.89 6.96 57.6 19.9 21.9 86.9 86.9 7.21 0.00
BancAffiliated, Inc. BAFI TX 111.5 0.75 8.85 8.55 8.53 26.50 7.3 9.3 NA 77.0 77.2 6.58 0.00
Bank Mutual Corporation BKMU WI 3,452.2 0.59 3.89 15.46 14.08 10.95 649.9 32.2 32.9 123.6 139.0 19.11 2.92
BankAtlantic Bancorp, Inc. BBX FL 6,495.7 0.24 2.93 8.08 6.97 11.40 640.9 45.6 34.7 132.6 157.7 10.71 1.44
BankFinancial Corporation BFIN IL 1,613.1 0.61 3.02 20.21 18.58 16.44 399.6 36.5 38.5 122.6 136.0 24.77 1.70
BankPlus, FSB BPLS IL 293.5 0.51 6.57 8.16 8.16 13.15 20.5 NA NA NA NA NA 0.00
BankUnited Financial
Corporatin BKUNA FL 13,810.7 0.74 13.28 5.66 5.47 20.46 742.3 8.2 8.2 97.1 100.8 5.44 0.10
Benjamin Franklin Bancorp,
Inc. BFBC MA 913.7 0.53 4.35 11.97 8.28 14.77 121.9 24.6 23.0 111.4 167.8 13.34 1.08
Berkshire Hills Bancorp, Inc. BHLB MA 2,149.6 0.53 4.40 12.01 6.75 32.60 284.0 25.3 21.0 110.0 207.6 13.21 1.72
BFC Financial Corporation BFF FL 7,694.3 0.03 1.16 2.31 1.23 4.68 171.8 NM NA 103.3 213.6 2.18 0.00
Blue River Bancshares, Inc. BRBI IN 226.4 0.28 3.40 7.82 6.41 5.75 20.2 33.8 NA 113.9 140.9 8.90 1.39
Broadway Financial
Corporation BYFC CA 301.0 0.58 8.96 6.65 6.65 10.80 17.7 12.0 12.1 101.2 101.2 5.93 1.85
Brookline Bancorp, Inc. BRKL MA 2,373.0 0.89 3.53 24.56 22.91 12.08 743.7 35.5 36.2 127.6 139.8 31.33 2.81
BUCS Financial Corp BUCS MD 148.8 0.40 4.98 7.87 7.87 23.70 20.9 37.6 37.7 181.6 181.6 14.30 0.00
Carver Bancorp, Inc. CNY NY 764.9 0.35 4.85 6.57 5.82 16.10 40.5 17.9 11.6 80.5 91.7 5.29 2.24
CCSB Financial Corp. CCFC MO 95.8 (0.08)(0.56) 13.62 13.62 14.05 11.8 NM NM 90.6 90.6 12.34 0.00
Central Bancorp, Inc. CEBK MA 565.5 0.27 3.78 7.21 6.84 31.05 50.9 30.2 37.9 124.9 132.1 9.00 2.32
Central Federal Corporation CFBK OH 236.0 (0.02)(0.12) 12.32 12.32 7.30 33.2 NM NM 114.1 114.1 14.06 4.93
CFS Bancorp, Inc. CITZ IN 1,254.4 0.42 3.96 10.51 10.41 14.48 160.3 30.8 33.9 122.3 123.5 12.85 3.31
Chicopee Bancorp, Inc. CBNK MA 450.2 (0.60)(3.59) 24.09 24.09 15.13 112.6 NA NA 103.8 103.8 25.00 0.00
Citizens Community Bancorp,
Inc. CZWI WI 289.9 0.06 0.45 26.77 24.90 9.45 67.3 NM NM 86.7 95.6 23.20 2.12
Citizens First Bancorp, Inc. CTZN MI 1,775.1 0.53 5.29 9.99 9.35 22.51 189.6 19.8 19.8 107.9 116.1 10.77 1.60
Citizens South Banking
Corporation CSBC NC 743.4 0.76 6.42 11.56 7.63 12.78 103.6 19.1 19.3 120.5 190.7 13.93 2.35
City Savings Financial Corp. CSFC IN 137.0 0.25 2.97 9.27 9.27 34.00 19.2 50.0 NA 151.5 151.5 14.04 0.88
CKF Bancorp, Inc. CKFBE KY 159.1 0.89 8.65 10.49 9.87 15.50 20.6 14.2 14.2 120.3 128.7 12.62 4.65
Coastal Financial Corporation CFCP SC 1,660.9 1.19 18.37 6.98 6.98 15.29 334.9 17.6 17.4 286.3 286.3 19.99 1.31
Coddle Creek Financial Corp. CDLX NC 148.9 0.29 2.28 13.45 13.45 27.00 17.0 35.1 38.6 NA NA NA 8.89
III-1
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit III
Financial and Market Data for All Public Thrifts
====================================================================================================================================
Total Tang. Closing Total Price/ Price/ Price/ Price/ Price/
Total LTM LTM Equity/ Equity/ Price Market LTM Core Book Tang. Total Div.
Assets ROA ROE Assets Assets 3/13/07 Value EPS EPS Value Book Assets Yield
Company Ticker Stat($Mil.) (%) (%) (%) (%) ($)($Mil.) (x) (x) (%) (%) (%) (%)
====================================================================================================================================
Community Financial
Corporation CFFC VA 450.1 0.96 11.62 8.50 8.50 12.63 54.1 13.3 13.3 141.6 141.6 12.03 2.06
Community First Bancorp, Inc. CFBC KY 77.3 (0.57)(14.84) 3.63 3.63 7.00 2.3 NM NM 82.0 82.0 2.97 0.00
Community Investors Bancorp,
Inc. CIBN OH 130.0 0.59 6.34 8.37 8.37 14.75 13.0 NA NA NA NA NA 2.71
Crazy Woman Creek Bancorp
Incorporated CRZY WY 124.6 0.71 8.02 8.48 8.35 20.00 12.8 16.7 17.5 120.8 122.9 10.24 2.40
Dime Community Bancshares,
Inc. DCOM NY 3,173.4 0.98 10.43 9.16 7.54 12.64 460.8 14.5 15.0 158.6 196.1 14.52 4.43
Downey Financial Corp. DSL CA 16,209.4 1.19 15.80 8.65 8.63 62.36 1,737.0 8.5 8.5 123.9 124.1 10.72 0.77
DSA Financial Corporation DSFN IN 109.7 0.75 4.52 15.60 15.60 13.00 21.8 26.5 29.5 127.8 127.8 19.94 3.23
East Side Financial, Inc. ESDF IL 135.9 0.32 3.54 9.54 9.54 37.75 10.7 NA NA 82.9 82.9 7.91 0.53
East Texas Financial
Services, Inc. ETFS TX 229.7 0.20 2.11 9.65 8.79 16.20 21.2 46.3 46.3 95.6 106.0 9.23 1.23
ebank Financial Services,
Inc. EBDC GA 138.7 0.10 1.21 7.59 7.59 0.85 6.1 NM NM 94.6 94.6 4.55 0.00
Elmira Savings Bank, FSB ESBK NY 371.4 0.49 7.21 6.63 6.57 29.30 39.0 23.1 17.1 158.2 159.8 10.49 2.87
ESB Financial Corporation ESBF PA 1,922.7 0.56 8.55 6.69 4.46 10.81 138.9 13.0 13.6 108.1 165.7 7.23 3.70
Farnsworth Bancorp, Inc. FNSW NJ 109.5 (0.57) (6.78) 7.97 7.97 27.25 17.7 NM NM 203.1 203.1 16.18 0.37
Federal Trust Corporation FDT FL 723.0 0.46 6.70 7.56 7.56 9.92 92.8 26.8 27.1 169.3 169.3 12.79 1.61
FFD Financial Corporation FFDF OH 167.3 1.00 8.72 10.46 10.46 17.35 19.2 13.0 13.0 109.7 109.7 11.47 3.23
FFW Corporation FFWC IN 286.8 1.09 12.29 8.77 NA 25.25 30.9 10.5 11.4 123.0 NA 10.78 3.01
Fidelity Bancorp, Inc. FSBI PA 738.7 0.56 9.44 6.09 5.74 18.60 55.5 14.0 16.6 123.1 131.2 7.51 3.01
Fidelity Federal Bancorp FDLB IN 218.7 0.38 5.60 7.04 NA 20.00 16.7 18.9 18.9 108.5 NA 7.64 5.00
First Bancorp of Indiana,
Inc. FBEI IN 364.4 0.27 2.80 9.42 7.66 17.75 32.9 33.5 33.5 95.0 119.0 8.95 3.38
First Bancshares, Inc. FBSI MO 237.0 (0.09) (0.82) 11.18 11.06 16.85 26.2 NM NA 98.7 99.9 11.04 0.95
First BancTrust Corporation FBTC IL 310.9 0.39 4.27 8.57 8.29 11.80 27.4 24.6 23.4 102.6 106.4 8.80 2.03
First Capital Bancshares,
Inc. FCPB SC 52.0 1.12 11.93 9.82 9.82 9.45 5.3 NA NA 104.4 104.4 10.25 0.00
First Capital, Inc. FCAP IN 457.1 0.84 8.64 9.65 8.49 18.07 51.4 13.9 13.9 116.6 134.2 11.25 3.76
First Clover Leaf Financial
Corp. FCLF IL 340.7 0.87 3.43 27.32 24.76 11.40 103.4 49.6 50.2 111.1 126.9 30.36 2.11
First Community Bank
Corporation FCFL FL 371.6 1.09 12.19 8.82 8.71 19.04 76.7 20.9 22.3 234.0 237.1 20.63 0.00
First Defiance Financial
Corp. FDEF OH 1,527.9 1.04 10.03 10.46 8.15 28.43 203.1 13.0 13.3 127.0 167.3 13.29 3.52
First Federal Bancshares of
Arkansas FFBH AR 852.5 0.85 9.41 8.87 8.87 23.48 113.6 16.3 17.1 150.3 150.3 13.33 2.73
First Federal Bankshares,
Inc. FFSX IA 600.6 0.49 4.17 11.60 8.79 21.55 73.6 25.1 25.1 105.5 143.7 12.24 1.95
First Federal of Northern
Michigan FFNM MI 281.0. 0.16 1.29 12.62 11.36 9.15 27.8 61.0 57.4 78.3 88.3 9.88 2.19
First Financial Holdings,
Inc. FFCH SC 2,655.0 1.04 15.32 7.08 6.28 34.39 415.0 15.3 15.3 220.7 251.2 15.63 2.91
First Franklin Corporation FFHS OH 332.0 0.43 5.40 7.75 7.75 17.50 29.5 21.9 56.1 114.6 114.6 8.89 2.06
First Independence
Corporation FFSL KS 180.3 0.68 7.63 9.11 9.11 18.00 15.9 13.0 13.1 96.6 96.6 8.80 3.89
First Keystone Financial,
Inc. FKFS PA 520.3 0.13 2.42 6.60 6.60 20.24 49.1 57.8 130.8 143.1 143.1 9.44 0.00
First Mutual Bancshares, Inc. FMSB WA 1,079.3 1.01 16.89 6.49 6.49 22.32 149.0 14.0 14.3 212.8 212.8 13.80 1.61
First Niagara Financial
Group, Inc. FNFG NY 7,945.5 1.14 6.67 17.46 8.88 13.69 1,496.2 16.1 16.6 105.4 228.6 18.40 3.80
First Niles Financial, Inc. FNFI OH 96.8 0.67 4.13 16.69 16.69 11.90 16.5 23.8 37.3 102.0 102.0 17.02 5.38
First PacTrust Bancorp, Inc. FPTB CA 808.3 0.59 5.91 10.11 10.11 26.15 115.2 23.4 23.4 132.1 132.1 13.36 2.75
III-2
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit III
Financial and Market Data for All Public Thrifts
====================================================================================================================================
Total Tang. Closing Total Price/ Price/ Price/ Price/ Price/
Total LTM LTM Equity/ Equity/ Price Market LTM Core Book Tang. Total Div.
Assets ROA ROE Assets Assets 3/13/07 Value EPS EPS Value Book Assets Yield
Company Ticker Stat($Mil.) (%) (%) (%) (%) ($)($Mil.) (x) (x) (%) (%) (%) (%)
====================================================================================================================================
First Place Financial Corp. FPFC OH 3,074.3 0.85 8.51 10.55 7.44 20.09 350.9 13.2 12.2 108.2 158.7 11.42 3.09
First Star Bancorp, Inc. FSSB PA 587.3 0.40 7.29 6.07 6.07 35.00 20.6 8.7 NA 58.5 58.5 3.51 0.11
FirstFed Financial Corp. FED CA 9,295.6 1.27 20.28 7.58 7.57 52.04 862.3 6.8 6.8 122.9 123.2 9.32 0.00
Flagstar Bancorp, Inc. FBC MI 15,497.2 0.49 9.42 5.24 5.24 12.23 778.1 10.5 9.3 95.8 95.8 5.02 3.27
Flushing Financial
Corporation FFIC NY 2,836.5 0.84 11.14 7.70 7.11 15.55 328.6 13.6 13.7 150.4 164.0 11.58 3.09
FMS Financial Corporation FMCO NJ 1,213.0 0.46 7.35 6.46 6.35 31.27 204.0 36.8 39.9 260.2 264.8 16.80 0.38
FPB Financial Corp. FPBF LA 135.5 0.73 11.61 6.26 6.26 38.25 10.8 11.4 11.6 127.1 127.1 7.96 1.25
Franklin Bank Corp. FBTX TX 5,537.4 0.38 6.08 7.81 5.07 17.30 408.1 26.6 16.8 116.1 222.7 7.38 0.00
Globe Bancorp, Inc. GLBP LA 29.9 0.70 3.91 18.57 18.57 21.05 5.3 21.1 22.5 96.0 96.0 17.82 1.66
Great American Bancorp, Inc. GTPS IL 141.6 1.07 8.92 12.27 11.97 33.40 22.7 15.2 15.2 130.4 134.1 15.99 1.32
Great Lakes Bancorp, Inc. GLK NY 884.4 (0.10) (0.88) 15.32 14.08 12.20 133.3 NM NM 98.3 108.6 15.06 0.00
Great Pee Dee Bancorp, Inc. PEDE SC 220.2 0.80 6.42 12.33 12.09 16.00 28.6 16.2 15.3 105.5 107.9 13.01 4.00
Greater Atlantic Financial
Corp GAFC VA 286.6 (1.36)(37.18) 2.82 2.49 2.60 7.9 NM NM 97.4 110.4 2.74 0.00
GS Financial Corp. GSLA LA 168.4 1.21 8.16 16.21 16.21 21.00 26.6 12.1 NA 97.4 97.4 15.79 1.90
Guaranty Bancorp, Inc. GUAA NH 291.3 0.83 9.89 8.24 8.24 34.00 33.0 14.3 NA 137.6 137.6 11.34 0.00
Hampden Bancorp, Inc. HBNK MA NA NA NA NA NA 12.25 97.4 NA NA NA NA NA 0.00
Harleysville Savings
Financial Corp HARL PA NA 0.50 8.05 6.51 6.51 16.53 64.7 16.9 17.0 130.8 130.8 8.51 4.11
Harrington West Financial
Group, Inc. HWFG CA 1,154.5 0.72 12.85 5.86 5.34 17.11 93.4 11.6 11.0 138.0 152.5 8.09 2.92
HF Financial Corp. HFFC SD 1,012.0 0.56 9.49 5.99 5.53 18.17 72.3 13.7 20.5 119.2 129.8 7.14 2.31
High Country Bancorp, Inc. HCBC CO 201.4 0.47 5.20 9.06 9.06 20.00 17.3 18.7 NA 94.6 94.6 8.57 2.50
Hingham Institution for
Savings HIFS MA 691.7 0.71 9.19 7.49 7.49 36.35 77.0 16.6 16.6 148.6 148.6 11.13 2.20
HMN Financial, Inc. HMNF MN 977.8 0.86 8.85 9.53 9.16 34.65 149.7 16.5 16.6 160.6 167.6 15.30 2.89
Home City Financial
Corporation HCFL OH 149.2 0.53 5.80 9.30 9.16 15.05 12.6 15.8 15.8 90.7 92.2 8.43 3.19
Home Financial Bancorp HWEN IN 75.0 0.36 3.75 9.97 9.97 4.95 6.7 24.8 28.6 89.5 89.5 8.93 2.42
Home Loan Financial
Corporation HLFN OH 158.2 0.25 2.11 11.69 11.69 14.85 22.3 55.0 55.0 120.6 120.6 14.10 5.39
Homestead Bancorp, Inc. HSTD LA 131.9 0.33 3.80 9.04 9.04 17.20 12.0 NA NA 100.6 100.6 9.10 1.40
HopFed Bancorp, Inc. HFBC KY 770.9 0.56 7.79 6.79 5.73 16.02 58.1 14.8 14.2 111.1 133.0 7.54 3.00
Horizon Financial Services
Corporation HZFS IA 132.0 (0.34) (3.79) 8.31 8.31 11.75 9.2 NM NM 83.5 83.5 6.94 2.38
Hudson City Bancorp, Inc. HCBK NJ 35,506.6 0.91 5.70 13.89 13.49 13.16 7,318.1 24.8 24.8 139.0 143.8 19.30 2.43
Independence Federal
Savings Bank IFSB DC 158.5 (1.96)(22.69) 8.14 8.14 10.25 15.9 NM NM 123.3 123.3 10.04 0.00
Indian Village Bancorp, Inc. IDVB OH 108.3 (0.14) (1.89) 7.53 7.53 20.25 8.9 NM NA 103.2 103.2 7.76 0.79
IndyMac Bancorp, Inc. NDE CA 29,495.3 1.17 19.09 6.88 6.52 26.98 1,951.5 5.6 5.5 97.1 102.8 6.68 7.41
Jefferson Bancshares, Inc. JFBI TN 330.4 0.46 1.96 22.46 22.46 12.60 81.5 50.4 45.6 110.6 110.6 24.85 1.90
KNBT Bancorp, Inc. KNBT PA 2,898.8 0.91 6.63 12.28 8.07 14.23 374.7 16.4 20.0 105.3 167.0 12.93 2.25
KS Bancorp, Inc. KSBI NC 286.8 0.78 13.47 6.04 6.04 26.50 34.7 15.9 15.8 200.5 200.5 12.10 1.96
Legacy Bancorp, Inc. LEGC MA 808.3 0.36 1.92 18.56 18.24 15.60 160.8 53.8 42.6 107.2 109.5 19.90 1.03
Lexington B&L Financial Corp. LXMO MO 133.5 0.67 6.39 11.27 10.75 26.00 16.2 17.9 18.0 107.9 113.9 12.17 1.54
III-3
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit III
Financial and Market Data for All Public Thrifts
====================================================================================================================================
Total Tang. Closing Total Price/ Price/ Price/ Price/ Price/
Total LTM LTM Equity/ Equity/ Price Market LTM Core Book Tang. Total Div.
Assets ROA ROE Assets Assets 3/13/07 Value EPS EPS Value Book Assets Yield
Company Ticker Stat($Mil.) (%) (%) (%) (%) ($)($Mil.) (x) (x) (%) (%) (%) (%)
====================================================================================================================================
Liberty Bancorp, Inc. LBCP MO 295.1 0.62 5.35 16.86 16.86 11.14 53.0 30.9 30.9 106.6 106.6 17.97 0.90
Logansport Financial Corp. LOGN IN 159.9 0.62 5.72 11.00 11.00 18.00 15.7 15.8 20.3 89.1 89.1 9.80 3.33
LSB Corporation LSBX MA 543.3 0.02 0.22 10.69 10.69 16.50 75.8 NM 40.0 130.5 130.5 13.96 3.39
LSB Financial Corp. LSBI IN 368.4 0.91 9.89 9.46 9.46 26.68 42.8 12.9 12.9 122.8 122.8 11.61 3.00
MAF Bancorp, Inc. MAFB IL 11,120.5 0.75 8.04 9.64 6.21 40.61 1,337.2 16.2 14.7 124.6 200.9 12.01 2.66
Malaga Financial Corporation MLGF CA 633.3 0.90 11.57 7.56 7.56 10.10 58.3 11.5 11.9 121.6 121.6 9.19 3.17
MASSBANK Corp. MASB MA 843.5 0.82 6.74 12.67 12.56 32.80 141.6 20.4 21.9 132.5 133.8 16.79 3.41
Mayflower Bancorp, Inc. MFLR MA 238.7 0.46 5.97 8.11 8.09 11.40 23.9 21.5 21.5 123.1 123.5 9.99 3.51
Meta Financial Group, Inc. CASH IA 754.5 0.02 0.34 5.78 5.35 30.81 78.6 NM NM 179.3 194.5 10.37 1.69
MFB Corp. MFBC IN 501.9 0.73 9.60 7.99 7.33 33.72 44.6 12.6 13.5 111.3 122.2 8.89 1.96
Midland Capital Holdings
Corporation MCPH IL 125.0 0.68 6.60 10.88 10.88 42.55 15.9 18.1 18.4 116.6 116.6 12.68 2.26
Monadnock Bancorp, Inc. MNKB NH 87.3 0.12 1.54 11.03 10.80 7.00 9.1 NM 82.7 94.1 96.3 10.38 0.00
Mutual Community Savings
Bank, Inc. MTUC NC 86.9 (1.01)(12.85) 7.45 7.45 9.10 3.3 NM NM 51.1 51.1 3.81 3.63
MutualFirst Financial, Inc. MFSF IN 960.7 0.49 5.39 9.08 NA 20.04 87.5 18.1 18.1 100.3 120.9 9.11 2.99
NASB Financial, Inc. NASB MO 1,559.7 1.31 13.06 10.23 10.06 35.09 291.9 14.7 14.8 183.0 186.4 18.71 2.56
NetBank, Inc. NTBK GA 3,687.5 (4.66)(59.48) 6.21 5.08 2.54 134.4 NM NM 58.8 72.6 3.65 0.00
New England Bancshares, Inc. NEBS CT 276.5 0.41 1.91 20.60 20.10 12.95 69.2 61.7 63.3 121.6 125.4 25.04 0.93
New Hampshire Thrift
Bancshares, Inc. NHTB NH 672.0 0.75 11.03 7.20 5.50 16.05 67.1 13.7 13.7 138.6 185.0 9.98 3.24
New York Community Bancorp,
Inc. NYB NY 28,482.4 0.83 6.57 12.95 5.47 16.76 4,955.9 20.7 18.8 133.4 343.4 17.29 5.97
NewAlliance Bancshares, Inc. NAL CT 7,247.7 0.70 3.65 18.80 12.73 15.67 1,777.8 32.0 30.6 126.1 199.9 23.70 1.53
Newport Bancorp, Inc. NFSB RI 290.4 (0.58) (4.34) 20.65 20.65 13.85 67.6 NA NA 112.7 112.7 23.26 0.00
North Central Bancshares,
Inc. FFFD IA 515.5 0.96 11.24 8.18 7.29 40.50 55.9 12.2 12.2 132.5 150.1 10.85 3.46
Northeast Indiana Bancorp,
Inc. NIDB IN 230.1 0.56 5.49 10.51 10.35 16.40 22.0 16.9 19.5 91.4 93.1 9.61 3.90
NorthWest Indiana Bancorp NWIN IN 619.0 1.04 13.43 8.08 8.08 31.29 87.6 13.6 13.6 175.2 175.2 14.15 4.60
OC Financial, Inc. OCFL OH 64.2 (1.12)(10.36) 10.36 10.36 10.95 6.1 NM NM 92.2 92.2 9.55 0.00
OceanFirst Financial Corp. OCFC NJ 2,073.6 0.91 13.91 6.67 6.62 18.36 225.1 11.6 11.6 162.6 164.1 10.85 4.36
Ohio Savings Financial
Corporation OHSF OH 17,243.1 1.09 14.46 7.37 7.37 11,775 1,974.1 NA NA NA NA NA 0.00
Osage Bancshares, Inc. OSBK OK 116.0 0.58 4.81 11.56 11.56 9.75 NA NA NA NA NA NA 0.00
Pacific Premier Bancorp, Inc. PPBI CA 731.2 1.07 13.48 7.98 7.98 11.39 72.2 10.3 10.3 123.8 123.8 9.88 0.00
Pamrapo Bancorp, Inc. PBCI NJ 636.6 1.02 11.03 9.20 9.20 22.73 113.1 17.4 18.1 193.1 193.1 17.77 4.05
Park Bancorp, Inc. PFED IL 226.4 (0.11) (0.87) 12.98 12.98 33.25 37.1 NM NM 120.9 120.9 15.69 2.17
Parkvale Financial
Corporation PVSA PA 1,863.5 0.74 11.17 6.86 5.25 29.50 168.1 12.3 12.4 131.4 174.7 9.01 2.71
Partners Trust Financial
Group Inc. PRTR NY 3,747.6 0.62 4.67 13.18 6.89 11.15 491.9 21.0 20.1 99.6 205.0 13.13 2.51
PennFed Financial Services,
Inc. PFSB NJ 2,338.5 0.29 5.33 5.28 5.28 20.34 263.8 41.5 28.3 213.7 213.7 11.27 1.38
Peoples Bancorp PFDC IN 500.1 0.62 4.81 12.55 12.11 19.85 62.6 21.3 20.9 100.8 104.9 12.64 3.83
Peoples Community Bancorp,
Inc. PCBI OH 1,028.1 (0.38) (4.53) 8.52 5.79 17.21 82.6 NM NM 94.3 142.9 8.04 3.49
Peoples-Sidney Financial
Corporation PSFC OH 137.9 0.78 6.70 11.07 11.07 13.00 17.7 16.3 16.3 115.9 115.9 12.83 4.92
III-4
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit III
Financial and Market Data for All Public Thrifts
====================================================================================================================================
Total Tang. Closing Total Price/ Price/ Price/ Price/ Price/
Total LTM LTM Equity/ Equity/ Price Market LTM Core Book Tang. Total Div.
Assets ROA ROE Assets Assets 3/13/07 Value EPS EPS Value Book Assets Yield
Company Ticker Stat($Mil.) (%) (%) (%) (%) ($)($Mil.) (x) (x) (%) (%) (%) (%)
====================================================================================================================================
Perpetual Federal Savings
Bank PFOH OH 363.1 1.04 7.00 15.34 15.34 25.50 63.0 16.4 16.4 113.1 113.1 17.34 3.92
PFF Bancorp, Inc. PFB CA 4,614.9 1.27 14.94 8.68 8.66 29.64 729.5 13.1 13.3 182.1 182.6 15.81 2.56
Prince George's Federal
Saving Bank PCGO MD 98.9 1.02 8.73 12.62 12.62 25.25 NA NA NA NA NA NA 2.97
Provident Financial Holdings,
Inc. PROV CA 1,770.3 0.86 10.27 7.56 7.56 27.68 185.1 13.6 15.3 138.5 138.5 10.47 2.60
Provident Financial Services,
Inc. PFS NJ 5,743.0 0.92 5.17 17.75 11.11 16.75 1,060.6 19.3 19.5 103.9 179.7 18.44 2.39
Provident New York Bancorp PBNY NY 2,796.5 0.71 4.97 14.71 9.11 13.34 569.8 28.4 28.9 138.5 238.6 20.37 1.50
Pulaski Financial Corp. PULB MO 1,034.8 1.15 14.33 7.50 7.09 15.92 158.3 15.3 18.6 204.4 217.2 15.32 2.14
PVF Capital Corp. PVFC OH 915.6 0.57 7.47 7.72 7.72 11.49 88.8 17.2 17.2 125.6 125.6 9.69 2.58
Rainier Pacific Financial
Group, Inc. RPFG WA 902.7 0.33 3.45 9.73 9.72 20.85 137.4 41.7 41.7 145.5 151.2 14.16 1.25
Redwood Financial, Inc. REDW MN 86.2 0.41 3.89 9.45 9.45 17.25 7.4 26.1 26.1 94.6 94.6 8.95 0.00
River Valley Bancorp RIVR IN 333.5 0.53 7.50 7.12 7.11 17.50 28.3 14.7 15.9 119.1 119.3 8.49 4.57
Riverview Bancorp, Inc. RVSB WA 835.6 1.45 11.98 11.73 8.86 16.50 191.6 16.5 16.6 195.5 268.7 22.93 2.42
RMG Capital Corporation RMGC CA 649.8 0.81 10.20 6.33 6.29 24.00 64.6 15.9 NA 156.4 157.4 9.90 0.63
Roebling Financial Corp, Inc. RBLG NJ 132.4 0.30 2.27 12.40 12.40 12.25 21.0 55.7 55.7 127.7 127.7 15.85 0.00
Rome Bancorp, Inc. ROME NY 298.6 0.83 2.91 25.88 25.88 12.48 105.6 43.0 43.2 136.7 136.7 35.38 2.56
Royal Financial, Inc. RYFL IL 129.8 0.16 0.57 25.05 25.05 16.70 43.0 NM NM 132.3 132.3 33.13 0.00
San Luis Trust Bank, FSB SNLSE CA 256.0 1.79 18.12 10.41 10.41 11.50 50.1 10.9 10.9 188.2 188.2 19.58 2.09
SE Financial Corp. SEFL PA 180.0 (0.20)(1.42) 13.37 13.37 12.30 28.1 NM NM 97.5 97.5 13.03 0.98
Security Bancorp, Inc. SCYT TN 133.9 1.11 12.40 9.68 9.68 37.75 15.5 10.4 NA NA NA NA 1.99
Security Federal Bancorp, Inc.SIYF AL 70.7 0.77 4.79 16.10 16.10 17.25 12.0 22.7 NA 105.5 105.5 16.98 3.48
Security Federal Corporation SFDL SC 714.6 0.59 10.32 5.82 5.59 25.00 65.2 16.2 16.2 157.3 164.3 9.15 0.96
Severn Bancorp, Inc. SVBI MD 910.2 1.84 20.99 9.15 9.12 21.03 211.7 13.5 13.1 254.2 255.2 23.26 1.04
SFB Bancorp, Inc. SFBK TN 59.4 1.03 5.05 20.50 20.50 22.50 10.3 NA NA NA NA NA 0.89
Sistersville Bancorp, Inc. SVBC WV 52.7 0.65 4.08 15.43 15.43 18.00 7.1 NA NA NA NA NA 3.00
South Street Financial Corp. SSFC NC 268.8 0.56 5.50 9.70 9.70 8.54 25.2 17.4 16.9 96.8 96.8 9.39 4.68
Southern Banc Company, Inc. SRNN AL 101.0 0.01 0.08 15.25 15.25 14.85 12.0 NM NM 77.8 77.8 11.87 2.36
Southern Community
Bancshares, Inc. SCBS. AL 58.7 0.56 4.75 13.31 13.31 10.00 6.4 NA NA 82.1 82.1 10.93 3.30
SouthFirst Bancshares, Inc. SZBI AL 142.2 0.38 5.21 7.05 6.70 12.00 8.6 15.2 16.2 84.8 89.7 5.98 3.33
Sovereign Bancorp, Inc. SOV PA 89,641.8 0.17 1.82 9.64 3.73 24.19 11,493.7 NM 28.2 135.7 389.2 12.82 1.32
State of Franklin
Bancshares, Inc. SFKT TN 343.2 0.79 10.50 8.01 8.01 24.60 25.2 14.9 15.7 NA NA NA 0.00
Sturgis Bancorp, Inc. STBI MI 320.9 1.02 11.67 8.59 7.08 12.90 31.2 10.0 9.4 113.2 139.6 9.72 3.72
Superior Bancorp SUPR AL 2,439.2 0.30 3.55 11.30 6.44 11.02 381.9 52.5 46.3 138.6 256.3 15.67 0.00
Synergy Financial Group, Inc. SYNF NJ 986.3 0.42 4.29 9.99 9.92 15.88 180.8 41.8 41.8 183.5 184.8 18.33 1.51
Teche Holding Company TSH LA 695.1 1.09 11.99 9.27 8.77 46.19 102.0 14.2 14.4 158.6 168.5 14.71 2.68
TF Financial Corporation THRD PA 653.6 0.83 8.68 10.15 9.52 30.26 87.0 14.9 14.8 123.3 131.9 12.51 2.64
Third Century Bancorp TDCB IN 131.5 0.43 2.69 14.70 14.70 11.85 19.6 32.9 32.9 101.3 101.3 14.89 1.35
TierOne Corporation TONE NE 3,431.2 1.25 12.48 10.30 8.95 25.25 456.0 10.5 10.5 129.0 150.5 13.28 1.11
III-5
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit III
Financial and Market Data for All Public Thrifts
====================================================================================================================================
Total Tang. Closing Total Price/ Price/ Price/ Price/ Price/
Total LTM LTM Equity/ Equity/ Price Market LTM Core Book Tang. Total Div.
Assets ROA ROE Assets Assets 3/13/07 Value EPS EPS Value Book Assets Yield
Company Ticker Stat($Mil.) (%) (%) (%) (%) ($)($Mil.) (x) (x) (%) (%) (%) (%)
====================================================================================================================================
Timberland Bancorp, Inc. TSBK WA 594.2 1.44 10.40 13.01 11.96 36.48 133.9 16.4 16.4 173.3 190.8 22.54 1.97
TrustCo Bank Corp NY TRST NY 3,161.2 1.52 19.68 7.58 7.56 9.46 708.9 15.8 15.6 295.7 296.6 22.41 6.77
United Community Financial
Corp. UCFC OH 2,703.5 0.92 8.72 10.41 9.23 10.49 325.0 12.8 12.8 115.5 132.0 12.02 3.62
United Tennessee Bankshares,
Inc. UNTN TN 121.8 0.80 7.22 10.42 10.00 21.05 18.4 21.3 21.2 144.7 151.6 15.09 2.09
United Western Bancorp, Inc. UWBK CO 2,156.5 0.54 10.49 5.00 5.00 23.87 173.2 15.9 NA 160.7 160.7 8.03 1.01
Virginia Savings Bank, FSB VSBR VA NA NA NA NA NA 16.25 30.9 NA NA 243.4 243.4 17.20 2.31
Washington Federal Bank for
Savings WFBSsIL NA 1.06 11.72 9.10 9.10 19.00 2.6 NA NA NA NA NA 0.00
Washington Federal, Inc. WFSL WA 9,150.8 1.60 11.37 13.98 13.45 22.80 1,993.9 14.3 14.3 155.8 163.0 21.79 3.60
Washington Mutual, Inc. WM WA 346,288.0 1.02 13.47 7.79 5.16 39.79 35,374.7 10.9 12.3 141.1 221.4 10.80 5.43
Washington Savings Bank,
F.S.B. WSB MD 433.6 0.80 6.05 14.20 14.20 8.45 63.2 19.2 19.3 102.7 102.7 14.58 1.89
Wayne Savings Bancshares,
Inc. WAYN OH 409.0 0.55 6.07 8.63 8.08 14.01 44.8 20.3 20.8 129.0 138.6 11.13 3.43
Wells Financial Corp. WEFP MN 267.4 0.78 8.52 9.10 9.10 29.50 27.7 13.8 13.8 114.0 114.0 10.37 3.53
West Town Bancorp, Inc. WTWN IL 53.8 0.18 3.01 6.31 6.31 15.00 3.2 NA NA 95.1 95.1 5.99 0.00
Westfield Financial, Inc. WFD MA 996.8 0.56 3.99 29.03 29.03 10.26 327.5 68.4 65.0 113.1 113.1 32.84 1.95
Willow Financial Bancorp,
Inc. WFBC PA 1,539.5 0.76 5.82 13.57 7.18 11.55 192.2 15.0 NA 86.4 175.2 11.72 4.16
WSFS Financial Corporation WSFS DE 2,997.4 1.03 15.42 7.07 7.03 63.05 418.8 14.3 13.7 197.5 199.7 13.97 0.51
WVS Financial Corp. WVFC PA 417.5 0.79 11.47 7.19 7.19 16.40 38.1 11.3 11.3 126.3 126.3 9.08 3.90
Average NA NA 4,168 0.56 5.89 10.55 9.84 NA 491.6 21.5 23.5 127.8 143.7 12.99 2.17
Median NA NA 450 0.62 6.08 9.27 8.63 NA 58.3 16.5 17.3 120.6 131.2 11.72 2.17
III-6
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit III
Financial and Market Data for All Public Thrifts
====================================================================================================================================
Total Tang. Closing Total Price/ Price/ Price/ Price/ Price/
Total LTM LTM Equity/ Equity/ Price Market LTM Core Book Tang. Total Div.
Assets ROA ROE Assets Assets 3/13/07 Value EPS EPS Value Book Assets Yield
Company Ticker Stat($Mil.) (%) (%) (%) (%) ($)($Mil.) (x) (x) (%) (%) (%) (%)
====================================================================================================================================
MHC Companies
- -------------
Abington Community Bancorp,
Inc. ABBC PA 925.2 0.77 5.94 12.33 12.33 18.90 289.0 42.0 42.0 253.2 253.2 31.23 1.27
AF Financial Group, Inc. ASFE NC 248.0 0.43 7.24 5.75 5.13 18.05 19.0 18.8 18.8 133.1 150.0 7.65 1.11
AJS Bancorp, Inc. AJSB IL 266.5 0.35 3.22 10.78 10.78 24.60 52.2 57.2 57.2 181.4 181.4 19.56 1.79
Alamogordo Financial Corp. ALMG NM 147.8 0.44 2.43 18.91 18.91 30.35 39.8 NA NA 142.3 142.3 26.90 2.50
Alliance Bancorp, Inc. of
Pennsylvania ALLB PA 378.3 0.40 4.51 9.07 9.07 9.25 66.8 46.3 46.3 194.7 194.7 17.67 1.73
Atlantic Coast Federal
Corporation ACFC GA 842.8 0.66 5.50 10.81 10.50 18.54 256.1 48.8 47.6 281.2 290.4 30.39 2.59
BCSB Bankcorp, Inc. BCSB MD 767.9 (0.94)(21.22) 4.38 4.07 15.05 89.0 NM NM 264.5 285.9 11.59 0.00
Ben Franklin Financial, Inc. BFFI IL NA NA NA NA NA 10.85 21.5 NA NA NA NA NA 0.00
Brooklyn Federal Bancorp,
Inc. BFSB NY 405.1 1.35 6.51 20.17 20.17 14.00 188.2 35.0 35.0 226.6 226.6 45.70 0.86
BV Financial, Inc. BVFL MD 133.5 0.09 0.63 13.86 13.83 8.60 22.6 NM 215.0 122.0 122.4 16.91 2.33
Capitol Federal Financial CFFN KS 8,205.8 0.55 5.22 10.57 10.57 36.94 2,738.1 59.6 59.1 309.9 309.9 32.75 5.41
Charter Financial Corporation CHFN GA 1,114.9 4.86 20.31 24.72 24.35 47.27 914.6 17.3 106.7 337.4 344.3 83.42 4.23
Cheviot Financial Corp. CHEV OH 312.3 0.62 2.47 23.23 23.23 13.15 123.8 NM 70.4 170.8 170.8 39.68 2.43
Clifton Savings Bancorp, Inc. CSBK NJ 816.9 0.35 1.49 23.29 23.29 11.15 325.4 NM 111.5 171.9 171.9 40.03 1.79
Colonial Bankshares, Inc. COBK NJ 383.6 0.45 4.49 9.56 9.56 13.95 63.1 37.7 37.8 172.0 172.0 16.44 0.00
Eagle Bancorp EBMT MT 238.1 0.76 7.48 10.03 10.03 33.00 35.8 23.2 23.2 150.2 150.2 15.06 2.67
Equitable Financial Corp. EQFC NE 186.0 (0.54) (4.13) 13.16 13.16 10.30 34.0 NM NM 138.8 138.8 18.26 0.00
Eureka Financial Corporation EKFC PA 97.8 1.04 5.00 21.15 21.15 26.50 32.7 34.0 34.0 158.2 158.2 33.47 5.28
FedFirst Financial Corp. FFCO PA 283.5 0.15 0.89 16.37 16.05 9.00 61.2 NM 150.0 131.9 135.1 21.60 0.00
First Federal of South
Carolina, FSB FSGB SC 117.3 0.43 4.80 8.66 8.61 35.00 35.5 NM 80.4 349.1 351.1 30.22 0.00
Flatbush Federal Bancorp,
Inc. FLTB NY 156.0 0.14 1.34 10.37 10.37 7.35 20.4 NM 81.7 125.7 125.7 13.04 0.00
Fox Chase Bancorp, Inc. FXCB PA 756.4 0.49 4.59 16.61 16.61 13.50 198.2 NA NA 157.5 157.5 26.17 0.00
Georgetown Bancorp, Inc. GTWN MA 164.4 (0.33) (2.90) 10.92 10.92 8.65 23.4 NM NM 130.0 130.0 14.20 0.00
Gouverneur Bancorp, Inc. GOV NY 132.2 0.96 6.24 15.24 15.24 11.60 26.7 21.9 27.4 132.3 132.3 20.16 2.76
Greene County Bancorp, Inc. GCBC NY 312.3 0.84 7.56 11.30 11.30 15.35 63.7 24.8 26.0 179.3 179.3 20.27 3.26
Greenville Federal
Financial Corporation GVFF OH 131.6 0.40 2.48 17.29 17.29 10.00 23.0 NA NA 101.0 101.0 17.47 2.80
Guaranty Financial Corp. GFCJ WI 1,771.0 0.01 0.10 11.29 11.19 139.00 257.9 NM NM 129.0 130.3 14.56 1.44
Heritage Financial Group HBOS GA 413.4 0.63 3.44 15.22 15.01 15.58 169.7 NM 69.7 269.8 274.2 41.06 1.54
Home Federal Bancorp, Inc. HOME ID 767.6 0.77 5.35 14.27 14.27 14.69 223.1 36.7 36.7 203.7 203.7 29.08 1.50
Home Federal Bancorp, Inc.
of Louisiana HFBL LA 124.2 0.52 2.05 24.91 24.91 10.30 36.4 57.2 64.0 117.6 117.6 29.30 2.33
Investors Bancorp, Inc. ISBC NJ 5,447.0 0.56 3.39 16.55 16.55 14.56 1,677.7 52.0 48.3 178.2 178.2 29.49 0.00
Jacksonville Bancorp, Inc. JXSB IL 259.2 0.40 5.17 8.09 7.06 13.50 26.8 30.0 25.7 127.8 148.0 10.34 2.22
Kearny Financial Corp. KRNY NJ 2,018.0 0.29 1.17 23.35 20.07 14.46 1,036.1 NM 204.5 219.8 266.8 51.32 1.38
Kentucky First Federal
Bancorp KFFB KY 265.4 0.41 1.73 23.87 19.25 10.05 84.8 NM 72.3 127.5 167.7 30.45 3.98
K-Fed Bancorp KFED CA 776.7 0.67 5.39 11.88 11.39 19.04 267.1 51.5 51.5 290.0 304.3 34.46 2.10
Lake Shore Bancorp, Inc. LSBK NY 354.2 0.52 4.05 15.17 15.17 12.18 80.5 NA NA 149.9 149.9 22.74 0.99
III-7
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit III
Financial and Market Data for All Public Thrifts
====================================================================================================================================
Total Tang. Closing Total Price/ Price/ Price/ Price/ Price/
Total LTM LTM Equity/ Equity/ Price Market LTM Core Book Tang. Total Div.
Assets ROA ROE Assets Assets 3/13/07 Value EPS EPS Value Book Assets Yield
Company Ticker Stat($Mil.) (%) (%) (%) (%) ($)($Mil.) (x) (x) (%) (%) (%) (%)
====================================================================================================================================
Lincoln Park Bancorp LPBC NJ 95.8 0.38 2.72 13.87 13.87 9.00 16.7 45.0 46.1 125.4 125.4 17.39 0.00
Magyar Bancorp, Inc. MGYR NJ 449.1 0.03 0.25 10.81 10.81 14.15 83.8 NA NA 172.6 172.6 18.66 0.00
MainStreet Financial
Corporation MSFN MI NA NA NA NA NA 9.65 7.3 NA NA NA NA NA 0.00
Mid-Southern Savings
Bank, FSB MSVB IN 159.5 0.62 5.92 10.57 10.57 19.60 28.8 29.3 29.3 170.7 170.7 18.04 2.68
Minden Bancorp, Inc. MDNB LA 116.0 1.16 6.86 17.38 17.38 22.00 29.1 23.2 23.2 144.5 144.5 25.11 1.64
MSB Financial Corp. MSBF NJ NA NA NA NA NA 11.11 62.5 NA NA NA NA NA 0.00
Mutual Federal Bancorp, Inc. MFDB IL 73.6 0.70 2.12 38.28 38.28 12.50 45.5 NA NA 161.5 161.5 61.81 0.00
Naugatuck Valley Financial
Corp. NVSL CT 413.7 0.38 2.79 12.35 12.31 12.28 92.1 61.4 61.4 180.3 181.0 22.26 1.63
North Penn Bancorp, Inc. NPEN PA 118.0 (0.06)(0.54) 11.06 11.06 11.05 16.0 NM NM 122.3 122.3 13.52 1.09
Northeast Community
Bancorp, Inc. NECB NY 290.1 NA NA 33.27 33.27 11.85 156.7 NA NA 162.4 162.4 54.02 0.00
Northwest Bancorp, Inc. NWSB PA 6,527.8 0.79 8.60 9.26 6.90 25.59 1,280.3 24.8 25.0 211.8 291.6 19.62 3.13
Ocean Shore Holding Company OSHC NJ 562.3 0.56 5.08 11.12 11.12 13.28 114.1 35.9 35.9 182.5 182.5 20.30 0.00
Oneida Financial Corp. ONFC NY 443.1 0.96 7.67 13.21 9.13 11.80 91.8 21.9 25.1 154.9 234.6 20.45 4.07
Oritani Financial Corp. ORIT NJ NA NA NA NA NA 15.31 620.9 NA NA NA NA NA 0.00
Ottawa Savings Bancorp, Inc. OTTW IL 193.1 0.87 8.18 10.59 10.59 13.50 30.0 18.2 18.2 146.9 146.9 15.56 1.48
Pathfinder Bancorp, Inc. PBHC NY 301.4 0.34 4.85 6.92 5.66 12.89 31.8 31.4 NA 152.4 188.8 10.54 3.18
People's Bank PBCT CT 10,687.0 1.15 9.38 12.53 11.67 41.98 5,969.6 48.3 42.9 446.1 484.2 55.92 2.38
Polonia Bancorp PBCP PA NA NA NA NA NA 10.04 33.2 NA NA NA NA NA 0.00
Prudential Bancorp, Inc. of
Pennsylvania PBIP PA 467.0 0.79 4.18 18.73 18.73 13.53 162.6 43.7 44.0 185.9 185.9 34.82 1.18
PSB Holdings, Inc. PSBH CT 479.5 0.43 3.83 10.71 9.17 10.61 72.2 37.9 38.5 138.5 164.6 14.84 2.26
Rockville Financial, Inc. RCKB CT 1,213.2 0.73 5.25 12.94 12.86 14.58 283.4 41.7 NA 180.5 181.7 23.36 0.00
Roma Financial Corporation ROMA NJ 876.1 0.62 2.89 26.78 26.74 14.75 482.8 NA NA 205.8 206.3 55.11 0.00
Seneca-Cayuga Bancorp, Inc. SCAY NY 154.1 0.05 0.68 12.46 12.22 9.16 21.8 NA NA 113.6 116.1 14.15 0.00
Service Bancorp, Inc. SERC MA 411.1 0.39 5.39 7.07 7.07 30.55 50.5 33.6 39.9 172.7 172.7 12.21 0.00
SFSB, Inc. SFBI MD 176.5 (0.01)(0.10) 12.75 12.75 9.40 27.6 NM NM 122.5 122.5 15.62 0.00
SI Financial Group, Inc. SIFI CT 757.0 0.38 3.44 10.88 10.80 12.61 156.6 54.8 51.4 190.1 191.9 20.69 1.27
United Community Bancorp UCBA IN 357.6 0.33 2.01 17.83 17.83 11.80 99.9 NA NA 156.6 156.6 27.93 2.37
United Financial Bancorp, Inc.UBNK MA 1,008.9 0.51 3.59 13.65 NA 14.06 241.2 46.9 45.5 175.1 NA 23.90 1.71
ViewPoint Financial Group VPFG TX 1,576.7 0.65 6.76 13.62 13.62 16.05 413.9 NA NA 192.7 192.7 26.25 1.25
Wake Forest Bancshares, Inc. WAKE NC 106.3 1.65 9.27 18.04 18.04 23.25 27.0 15.8 15.8 140.4 140.4 25.33 3.27
Wauwatosa Holdings, Inc. WAUW WI 1,648.5 0.50 3.41 14.64 14.64 17.07 565.3 NM 66.7 234.2 234.2 34.27 0.00
Wawel Savings Bank WAWL NJ 98.2 1.28 7.34 15.57 15.57 11.95 25.6 23.0 23.0 167.6 167.6 26.10 0.00
Webster City Federal Bancorp WCFB IA 96.8 0.64 2.99 22.04 21.97 8.30 30.7 48.8 48.8 143.9 144.5 31.73 7.23
Westborough Financial
Services, Inc. WFSM MA 300.5 (0.20)(2.09) 9.37 9.37 36.00 57.9 NM NM 205.6 205.6 19.27 0.67
Average NA NA 921 0.56 3.70 14.79 14.46 18.08 300.8 37.3 56.1 181.4 188.6 26.48 1.50
Median NA NA 354 0.51 3.94 13.16 12.81 13.52 65.3 36.7 45.5 170.7 171.4 22.74 1.33
Note: Includes all public thrifts listed on NYSE, AMEX, and NASDAQ stock
exchanges.
Source: SNL Financial.
III-8
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
IV-1
Exhibit IV-1
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 5.00%, which
represented the yield on one-year U.S. Treasury securities at December 31,
2006. The effective income tax rate was assumed to be 40.0%, resulting in a
net after-tax yield of 3.00%.
3. It is assumed that 8.0% of the shares offered for sale and shares held by
the foundation at the initial offering price will be acquired by the
Company'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 ten-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 and shares held by
the foundation at the initial offering price will be acquired by the
Company's restricted stock plan ("RSP"). Pro forma adjustments have been
made to earnings and equity to reflect the impact of the RSP. The annual
expense is estimated based on a five-year vesting period. No reinvestment
is assumed on proceeds used to fund the RSP.
5. It is assumed that the stock option plan had been approved by stockholders
of Gateway Community Financial Corp. and that Gateway Community Financial
Corp. had reserved for future issuance upon the exercise of options to be
granted under the plan an amount of stock equal to 10.0% of the of the
shares offered for sale and shares held by the foundation. We assumed that
options for all shares reserved under the plan were granted to plan
participants at the beginning of the period and that 30% of the options
granted were non-qualified options for income tax purposes. We assumed that
the options would vest at a rate of 20% per year and that compensation
expense would be recognized on a straight-line basis over the 5-year
vesting period.
6. Fixed offering expenses are estimated at $534,000.
7. Marketing fees for the stock offering are estimated at 1.11% 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.
IV-1
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit IV-2
Pro Forma Fully Converted Valuation Range
Gateway Community
Historical Financial Data as of December 31, 2006
(Dollars in Thousands, Except Per Share Data)
Minimum Midpoint Maximum Adj. Max.
===============================================================================================================
Shares offered 5,100,000 6,000,000 6,900,000 7,935,000
Shares sold 100% 5,100,000 6,000,000 6,900,000 7,935,000
Offering price $10.00 $10.00 $10.00 $10.00
- ---------------------------------------------------------------------------------------------------------------
Gross proceeds $ 51,000 $ 60,000 $ 69,000 $ 79,350
Less: estimated expenses (1,055) (1,147) (1,239) (1,344)
-------- -------- -------- --------
Net offering proceeds 49,945 58,853 67,761 78,006
Less: ESOP purchase (4,080) (4,800) (5,520) (6,348)
Less: RSP purchase (2,040) (2,400) (2,760) (3,174)
-------- -------- -------- --------
Net investable proceeds $ 43,825 $ 51,653 $ 59,481 $ 68,484
===============================================================================================================
Net Income: (LTM period)
LTM ended 12/31/06 $ 379 $ 379 $ 379 $ 379
Pro forma income on net proceeds 1,315 1,550 1,784 2,055
Pro forma ESOP adjustment (245) (288) (331) (381)
Pro forma RSP adjustment (245) (288) (331) (381)
Pro forma option adjustment (387) (455) (524) (602)
-------- -------- -------- --------
Pro forma net income $ 817 $ 898 $ 977 $ 1,070
-------- -------- -------- --------
Pro forma earnings per share $ 0.17 $ 0.16 $ 0.15 $ 0.15
- ---------------------------------------------------------------------------------------------------------------
Core Earnings: (LTM period)
LTM ended 12/31/06 $ 398 $ 398 $ 398 $ 398
Pro forma income on net proceeds 1,315 1,550 1,784 2,055
Pro forma ESOP adjustment (245) (288) (331) (381)
Pro forma RSP adjustment (245) (288) (331) (381)
Pro forma option adjustment (387) (455) (524) (602)
-------- -------- -------- --------
Pro forma core earnings $ 836 $ 917 $ 996 $ 1,089
-------- -------- -------- --------
Pro forma core earnings per share $ 0.18 $ 0.16 $ 0.16 $ 0.15
===============================================================================================================
Total Equity $ 28,903 $ 28,903 $ 28,903 $ 28,903
Net offering proceeds 49,945 58,853 67,761 78,006
Less: ESOP purchase (4,080) (4,800) (5,520) (6,348)
Less: RSP purchase (2,040) (2,400) (2,760) (3,174)
-------- -------- -------- --------
Pro forma total equity $ 72,728 $ 80,556 $ 88,384 $ 97,387
-------- -------- -------- --------
Pro forma book value $ 14.26 $ 13.43 $ 12.81 $ 12.27
- ---------------------------------------------------------------------------------------------------------------
Tangible Equity $ 28,903 $ 28,903 $ 28,903 $ 28,903
Net offering proceeds 49,945 58,853 67,761 78,006
Less: ESOP purchase (4,080) (4,800) (5,520) (6,348)
Less: RSP purchase (2,040) (2,400) (2,760) (3,174)
-------- -------- -------- --------
Pro forma tangible equity $ 72,728 $ 80,556 $ 88,384 $ 97,387
-------- -------- -------- --------
Pro forma tangible book value $ 14.26 $ 13.43 $ 12.81 $ 12.27
===============================================================================================================
Total Assets $351,864 $351,864 $351,864 $351,864
Net offering proceeds 49,945 58,853 67,761 78,006
Less: ESOP purchase (4,080) (4,800) (5,520) (6,348)
Less: RSP purchase (2,040) (2,400) (2,760) (3,174)
-------- -------- -------- --------
Pro forma total assets $395,689 $403,517 $411,345 $420,348
===============================================================================================================
IV-2
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit IV -3
================================================================================================================
Valuation Parameters Symbol Data
-------------------- ------ ----
Net income -- LTM Y $ 379,000
Core earnings -- LTM Y 398,000
Net worth B 28,903,000
Tangible net worth B 28,903,000
Total assets A 351,864,000
Expenses in conversion X 1,238,728
Other proceeds not reinvested O 8,280,000
ESOP purchase E 5,520,000
ESOP expense (pre-tax) F 551,667
RSP purchase M 2,760,000
RSP expense (pre-tax) N 551,667
Stock option expense (pre-tax) Q 594,924
Option expense tax-deductible D 30.00%
Re-investment rate (after-tax) R 3.00%
Tax rate T 40.00%
Shares for EPS S 92.80%
Pro Forma Valuation Ratios at Maximum Value
-------------------------------------------
Price / EPS -- LTM P/E 66.67x
Price / Core EPS -- LTM P/E 62.50x
Price / Book Value P/B 78.06%
Price / Tangible Book P/TB 78.06%
Price / Assets P/A 16.77%
Pro Forma Calculation at Maximum Value Based on
-------------------------------------- --------
V = (P/E / S)*((Y-R*(O+X)-(F+N)*(1-T)-(Q-Q*D*T))) = $69,000,000 [LTM earnings]
---------------------------------------------
1 - (P/E / S) * R
V = (P/E / S)*((Y-R*(O+X)-(F+N)*(1-T))) = $69,000,000 [Core earings]
-----------------------------------
1 - (P/E / S) * R
V = P/B * (B - X - E - M) = $69,000,000 [Book value]
---------------------
1 - P/B
V = P/TB * (B - X - E - M) = $69,000,000 [Tangible book]
----------------------
1 - P/TB
V = P/A * (B - X - E - M) = $69,000,000 [Total assets]
---------------------
1 - P/A
Pro Forma Valuation Range
-------------------------
Minimum = $60,000,000 x 0.85 = $51,000,000
Midpoint = $60,000,000 x 1.00 = $60,000,000
Maximum = $60,000,000 x 1.15 = $69,000,000
Adj. Max. $69,000,000 x 1.15 = $79,350,000
================================================================================================================
IV-3
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit IV-4
Comparative Valuation Ratio Differential
Pro Forma Fully Converted Valuation
Computed from Market Price Data as of March 13, 2007
Comparative All Public
Group Thrifts
Valuation Gateway ----------------------- -----------------------
Ratio Symbol Community Average Median Average Median
----- ------ --------- ------- ------ ------- ------
----------- ----------------------- -----------------------
Price / LTM EPS P/E 34.1 28.2 21.0 16.4
----------- ----------------------- -----------------------
Minimum (X) 58.8 72.7% 108.7% 179.9% 258.7%
Midpoint 62.5 83.5% 121.7% 197.4% 281.1%
Maximum 66.7 95.7% 136.5% 217.2% 306.5%
Adj. Maximum 66.7 95.7% 136.5% 217.2% 306.5%
-----------
----------------------- -----------------------
Price / Core EPS P/E 36.2 29.2 23.3 17.1
----------- ----------------------- -----------------------
Minimum (X) 55.6 53.5% 90.0% 138.6% 224.9%
Midpoint 62.5 72.7% 113.7% 168.4% 265.5%
Maximum 62.5 72.7% 113.7% 168.4% 265.5%
Adj. Maximum 62.5 72.7% 113.7% 168.4% 265.5%
-----------
----------------------- -----------------------
Price / Book Value P/B 91.4 95.4 125.2 120.3
----------- ----------------------- -----------------------
Minimum (%) 70.1 -23.2% -26.5% -44.0% -41.7%
Midpoint 74.5 -18.5% -21.9% -40.5% -38.1%
Maximum 78.1 -14.5% -18.1% -37.7% -35.1%
Adj. Maximum 81.5 -10.8% -14.5% -34.9% -32.3%
-----------
----------------------- -----------------------
Price / Tangible Book P/TB 93.4 95.4 141.8 130.5
----------- ----------------------- -----------------------
Minimum (%) 70.1 -24.9% -26.5% -50.5% -46.3%
Midpoint 74.5 -20.2% -21.9% -47.5% -42.9%
Maximum 78.1 -16.4% -18.1% -44.9% -40.2%
Adj. Maximum 81.5 -12.7% -14.5% -42.5% -37.5%
-----------
----------------------- -----------------------
Price / Total Assets P/A 16.47 17.50 12.91 11.58
----------- ----------------------- -----------------------
Minimum (%) 12.89 -21.7% -26.4% -0.1% 11.3%
Midpoint 14.87 -9.7% -15.0% 15.2% 28.4%
Maximum 16.77 1.8% -4.2% 30.0% 44.9%
Adj. Maximum 18.88 14.6% 7.9% 46.3% 63.0%
-----------
===========================================================================================================
IV-4
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit V-1
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. Gateway Community Financial, MHC, will own the
remaining 55% of common stock.
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 5.00%, which
represented the yield on one-year U.S. Treasury securities at December 31,
2005. The effective income tax rate was assumed to be 40.0%, resulting in a
net after-tax yield of 3.00%.
4. It is assumed that 8.0% of the shares offered for sale and shares held by
the foundation at the initial offering price will be acquired by the
Company'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 ten-year loan period. No
reinvestment is assumed on proceeds used to fund the ESOP.
5. It is assumed that 1.96% of total shares outstanding (or 4.36% of the
shares offered for sale) will be acquired by the Company's restricted stock
plan ("RSP"). Pro forma adjustments have been made to earnings and equity
to reflect the impact of the RSP. The annual expense is estimated based on
a five-year vesting period. No reinvestment is assumed on proceeds used to
fund the RSP.
6. It is assumed that an additional 4.90% of the total shares outstanding will
be reserved for issuance by the Company's stock option plan. The pro forma
net income has been adjusted to reflect the expense associated with the
granting of options at an assumed options value of $4.31 per share. It is
further assumed that options for all shares reserved under the plan were
granted to plan participants at the beginning of the period, 30% of the
options granted were non-qualified options for income tax purposes, the
options would vest at a rate of 20% per year, and compensation expense will
be recognized on a straight-line basis over the five-year vesting period.
7. Fixed offering expenses are estimated at $534,000.
8. Marketing fees for the stock offering are estimated at 1.11% of the amount
of stock sold in the offering, excluding sales to directors, officers,
employees, and stock-benefit plans.
9. No effect has been given to withdrawals from deposit accounts for the
purpose of purchasing common stock in the offering.
10. No effect has been given in the pro forma equity calculation for the
assumed earnings on the net proceeds.
V-1
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit V-2
Pro Forma MHC Stock Offering Range
Gateway Community
Historical Financial Data as of December 31, 2006
(Dollars in Thousands, Except Per Share Data)
Minimum Midpoint Maximum Adj. Max.
===============================================================================================================
Shares offered 5,100,000 6,000,000 6,900,000 7,935,000
Shares sold 45% 2,295,000 2,700,000 3,105,000 3,570,750
Offering price $10.00 $10.00 $10.00 $10.00
- ---------------------------------------------------------------------------------------------------------------
Gross proceeds $22,950 $27,000 $31,050 $35,708
Less: estimated expenses (768) (810) (851) (899)
------- ------- ------- -------
Net offering proceeds 22,182 26,190 30,199 34,809
Less: ESOP purchase (1,836) (2,160) (2,484) (2,857)
Less: RSP purchase (1,000) (1,176) (1,352) (1,555)
------- ------- ------- -------
Net investable proceeds $19,346 $22,854 $26,363 $30,397
===============================================================================================================
Net Income: (LTM period)
LTM ended 12/31/05 $379 $379 $379 $379
Pro forma income on net proceeds 580 686 791 912
Pro forma ESOP adjustment (110) (130) (149) (171)
Pro forma RSP adjustment (120) (141) (162) (187)
Pro forma option adjustment (190) (223) (257) (295)
---- ---- ---- ----
Pro forma net income $539 $571 $602 $638
---- ---- ---- ----
Pro forma earnings per share $0.11 $0.10 $0.09 $0.08
- ---------------------------------------------------------------------------------------------------------------
Core Earnings: (LTM period)
LTM ended 12/31/05 $398 $398 $398 $398
Pro forma income on net proceeds 580 686 791 912
Pro forma ESOP adjustment (110) (130) (149) (171)
Pro forma RSP adjustment (120) (141) (162) (187)
Pro forma option adjustment (190) (223) (257) (295)
---- ---- ---- ----
Pro forma core earnings $558 $590 $621 $657
---- ---- ---- ----
Pro forma core earnings per share $0.11 $0.10 $0.09 $0.09
===============================================================================================================
Total Equity $28,903 $28,903 $28,903 $28,903
Net offering proceeds 22,182 26,190 30,199 34,809
Less: ESOP purchase (1,836) (2,160) (2,484) (2,857)
Less: RSP purchase (1,000) (1,176) (1,352) (1,555)
------- ------- ------- -------
Pro forma total equity $48,249 $51,757 $55,266 $59,300
------- ------- ------- -------
Pro forma book value $9.46 $8.63 $8.01 $7.47
- ---------------------------------------------------------------------------------------------------------------
Tangible Equity $28,903 $28,903 $28,903 $28,903
Net offering proceeds 22,182 26,190 30,199 34,809
Less: ESOP purchase (1,836) (2,160) (2,484) (2,857)
Less: RSP purchase (1,000) (1,176) (1,352) (1,555)
------- ------- ------- -------
Pro forma tangible equity $48,249 $51,757 $55,266 $59,300
------- ------- ------- -------
Pro forma tangible book value $9.46 $8.63 $8.01 $7.47
===============================================================================================================
Total Assets $351,864 $351,864 $351,864 $351,864
Net offering proceeds 22,182 26,190 30,199 34,809
Less: ESOP purchase (1,836) (2,160) (2,484) (2,857)
Less: RSP purchase (1,000) (1,176) (1,352) (1,555)
------- ------- ------- -------
Pro forma total assets $371,210 $374,718 $378,227 $382,261
===============================================================================================================
V-2