Exhibit No. 99.3
Conversion Valuation Report
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Valued as of March 14, 1997
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
Sistersville, West Virginia
Prepared by:
Ferguson & Company
Suite 550
122 West John Carpenter Freeway
Irving, TX 75039
972-869-1177
[LOGO}
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FERGUSON Financial
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& COMPANY Consulting
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Suite 550
122 W. John Carpenter Frwy
Irving, Texas 75039
(972) 869-1177
(972) 869-2743 Fax
STATEMENT OF APPRAISER'S INDEPENDENCE
First Federal Savings and Loan Association of Sistersville
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Sistersville, West Virginia
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We are the appraiser for First Federal Savings and Loan Association of
Sistersville in connection with its conversion, reorganization and issuance of
Public Shares. We are submitting our independent estimate of the pro forma
market value of the First Federal Savings and Loan Association of Sistersville's
stock to be issued in the conversion and reorganization. In connection with our
appraisal of the to-be-issued stock, we have received a fee which was not
related to the estimated final value. The estimated pro forma market value is
solely the opinion of our company and it was not unduly influenced by First
Federal Savings and Loan Association, its conversion counsel, its selling agent,
or any other party connected with the conversion.
First Federal Savings and Loan Association of Sistersville has agreed to
indemnify Ferguson & Company under certain circumstances against liabilities
arising out of our services. Specifically, we are indemnified against
liabilities arising from our appraisal except to the extent such liabilities are
determined to have arisen because of our negligence or willful conduct.
Ferguson & Company
/s/Charles M. Hebert
Charles M. Hebert
Principal
March 24, 1997
[LOGO}
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FERGUSON Financial
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& COMPANY Consulting
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Suite 550
122 W. John Carpenter Frwy
Irving, Texas 75039
(972) 869-1177
(972) 869-2743 Fax
March 24, 1997
Board of Directors
First Federal Savings and Loan Association
of Sistersville
726 Wells Street
Sistersville, West Virginia
Dear Directors:
We have completed and hereby provide, as of March 14, 1997, an
independent appraisal of the estimated pro forma market value of First Federal
Savings and Loan Association of Sistersville, ("First Federal" or the
"Association"), Sistersville, West Virginia, in connection with the conversion
of First Federal from the mutual form to the stock form of organization
("Conversion"). This appraisal report is furnished pursuant to the regulatory
filing of the Association's Application for Conversion ("Form AC") with the
Office of Thrift Supervision ("OTS").
Ferguson & Company ("F&C") is a consulting firm that specializes in
providing financial, economic, and regulatory services to financial
institutions. The background and experience of F&C is presented in Exhibit I. We
believe that, except for the fees we will receive for preparing the appraisal
and assisting with First Federal's business plan, we are independent. F&C
personnel are prohibited from owning stock in conversion clients for a period of
at least one year after conversion.
In preparing our appraisal, we have reviewed First Federal's Application
for Approval of Conversion, including the Proxy Statement as filed with the OTS.
We conducted an analysis of First Federal that included discussions with S.R.
Snodgrass, A.C., the Association's independent auditors, and with Malizia,
Spidi, Sloane & Fisch, P.C., the Association's conversion counsel. In addition,
where appropriate, we considered information based on other available published
sources that we believe is reliable; however, we cannot guarantee the accuracy
or completeness of such information.
We also reviewed the economy in First Federal's primary market area
(assessment area) and compared the Association's financial condition and
operating results with that of selected publicly traded thrift institutions. We
reviewed the conditions in the securities markets in general and in the market
for thrifts stocks in particular.
Our appraisal is based on First Federal's representation that the
information contained in the Form AC and additional evidence furnished to us by
the Association and its independent auditors are truthful, accurate, and
complete. We did not independently verify the financial statements and other
information provided by First Federal and its auditors, nor did we
Board of Directors
March 24, 1997
Page 2
It is our opinion that, as of March 14, 1997, the estimated pro forma
market value of First Federal was $6,000,000, or 600,000 shares at $10.00 per
share. The resultant valuation range was $5,100,000 at the minimum (510,000
shares at $10.00 per share) to $6,900,000 at the maximum 690,000 shares at
$10.00 per share), based on a range of 15 percent below and above the midpoint
valuation. The supermaximum was $7,935,000 (793,500 shares at $10.00 per share).
Our valuation is not intended, and must not be construed, as a
recommendation of any kind as to the advisability of purchasing shares of common
stock in the conversion. Moreover, because such valuation is necessarily based
upon estimates and projections of a number of matters, all of which are subject
to change from time to time, no assurance can be given that persons who purchase
shares of common stock in the conversion will thereafter be able to sell such
shares at prices related to the foregoing estimate of the Association's pro
forma market value. F&C is not a seller of securities within the meaning of any
federal or state securities laws and any report prepared by F&C shall not be
used as an offer or solicitation with respect to the purchase or sale of any
securities.
Our opinion is based on circumstances as of the date hereof, including
current conditions in the United States securities markets. Events occurring
after the date hereof, including, but not limited to, changes affecting the
United States securities markets and subsequent results of operations of First
Federal, could materially affect the assumptions used in preparing this
appraisal.
The valuation reported herein will be updated as provided in the OTS
conversion regulations and guidelines. All updates will consider, among other
things, any developments or changes in First Federal's financial performance and
condition, management policies, and current conditions in the equity markets for
thrift shares. Should any such new developments or changes be material, in our
opinion, to the valuation of the shares, appropriate adjustments will be made to
the estimated pro forma market value. The reasons for any such adjustments will
be explained in detail at that time.
Respectfully,
Ferguson & Company
/s/ Charles M. Hebert
Charles M. Hebert
Principal
FERGUSON & COMPANY
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TABLE OF CONTENTS
First Federal Savings and Loan Association
Sistersville, West Virginia
PAGE
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INTRODUCTION 1
SECTION I. - FINANCIAL CHARACTERISTICS 3
PAST & PROJECTED ECONOMIC CONDITIONS 3
FINANCIAL CONDITION OF INSTITUTION 3
Balance Sheet Trends 3
Asset/Liability Management 4
Income and Expense Trends 9
Regulatory Capital Requirements 10
Lending 10
Nonperforming Assets 15
Loan Loss Allowance 16
Mortgage Backed Securities and Investments 18
Savings Deposits 19
Borrowings 20
Subsidiaries 20
Legal Proceedings 20
EARNINGS CAPACITY OF THE INSTITUTION 20
Asset-Size-Efficiency of Asset Utilization 21
Intangible Values 21
Effect of Government Regulations 21
Office Facilities 21
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TABLE OF CONTENTS - CONTINUED
First Federal Savings and Loan Association
Sistersville, West Virginia
PAGE
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SECTION II - MARKET AREA 1
DEMOGRAPHICS 1
SECTION III - COMPARISON WITH PUBLICLY TRADED THRIFTS 1
COMPARATIVE DISCUSSION 1
Selection Criteria 1
Profitability 2
Balance Sheet Characteristics 2
Risk Factors 3
Summary of Financial Comparison 3
FUTURE PLANS 3
SECTION IV - CORRELATION OF MARKET VALUE 1
MARKETABILITY & LIQUIDITY OF STOCK TO BE ISSUED 1
Financial Aspects 1
Market Area 3
Management 3
Dividends 3
Liquidity 3
Thrift Equity Market Conditions 4
WEST VIRGINIA ACQUISITIONS 4
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TABLE OF CONTENTS - CONTINUED
First Federal Savings and Loan Association
Sistersville, West Virginia
PAGE
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SECTION IV - CORRELATION OF MARKET VALUE - continued
EFFECT OF INTEREST RATES ON THRIFT STOCK 5
Adjustments Conclusion 7
Valuation Approach 7
Valuation Conclusion 8
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LIST OF TABLES
First Federal Savings and Loan Association
Sistersville, West Virginia
TABLE
NUMBER TABLE TITLE PAGE
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SECTION I - FINANCIAL CHARACTERISTICS
1 Selected Financial and Other Data 5
2 Summary of Operations 6
3 Selected Operating Ratios 7
4 Loan Maturity Schedule 8
5 Net Portfolio Value 9
6 Regulatory Capital Compliance 10
7 Analysis of Loan Portfolio 11
8 Loan Activity 12
9 Average Balances, Yields, Costs 14
10 Rate/Volume Analysis 15
11 Non-Performing Assets 16
12 Analysis of Allowance for Loan Losses 17
13 Allocation of Allowance for Loan Losses 18
14 Mortgage-backed Securities and Investments 18
15 Deposit Portfolio 19
16 Deposit Rates and Maturities 20
SECTION II - MARKET AREA
1 Key Economic Indicators 3
2 Summary of Building Permits 4
3 Market Area Deposits - Tyler, Wetzel, Pleasants and Wood Counties 5
3a Market Area Deposits - Tyler and Wetzel Counties 6
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LIST OF TABLES - continued
First Federal Savings and Loan Association
Sistersville, West Virginia
TABLE
NUMBER TABLE TITLE PAGE
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SECTION III - COMPARISON WITH PUBLICLY
TRADED THRIFTS
1 Comparatives General 4
2 Key Financial Indicators 5
3 Pro Forma Comparisons 6
4 Comparative Selection 8
SECTION IV - CORRELATION OF MARKET VALUE
1 Appraisal Adjustments to Earnings 2
2 West Virginia Acquisitions Since January 1, 1995 9
3 Recent Conversions 11
4 Recent Pink Sheet Conversions 13
5 Comparison of Pricing Ratios 15
LIST OF FIGURES
FIGURE
NUMBER FIGURE TITLE PAGE
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SECTION IV - CORRELATION OF MARKET VALUE
1 SNL Index Since 1994 16
2 Interest Rates Last Six Months 17
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EXHIBITS
First Federal Savings and Loan Association
Sistersville, West Virginia
EXHIBIT TITLE
Exhibit I - Ferguson & Co., LLP. Qualifications
Exhibit II - Selected Region, State, and Comparatives Information
Exhibit III - First Federal Savings and Loan Association TAFS Report
Exhibit IV - Comparative Group TAFS and BankSource Reports
Exhibit V - Pro Forma Calculations
Pro Forma Assumptions
Pro Forma Effect of Conversion Proceeds at the Minimum of the Range
Pro Forma Effect of Conversion Proceeds at the Midpoint of the Range
Pro Forma Effect of Conversion Proceeds at the Maximum of the Range
Pro Forma Effect of Conversion Proceeds at the SuperMax of the Range
Pro Forma Analysis Sheet
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SECTION I
FINANCIAL CHARACTERISTICS
FERGUSON & COMPANY Section I.
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INTRODUCTION
First Federal Savings and Loan Association of Sistersville, ("First
Federal" or "Association") is a federally chartered, federally insured mutual
savings and loan bank located in Sistersville (Tyler County), West Virginia. It
was chartered in 1933 by the State of West Virginia, under the name Sistersville
Building and Loan Association. The Association obtained its current name in 1934
and it obtained its insurance of accounts at the same time. The Association also
became a member of the Federal Home Loan Bank System in 1934. On December 5,
1996, it adopted a plan to convert to a stock savings and loan association, via
a standard mutual to stock conversion.
Sistersville Bancorp, Inc. ("Sistersville" or "Holding Company") was
organized in March 1997, to acquire all of the capital stock that the
Association will issue upon its conversion from a mutual to stock form of
ownership.
At December 31, 1996, First Federal had total assets of $26.3 million,
net loans of $21.6 million, mortgage-backed securities of $342 thousand,
investment securities of $3.6 million, deposits of $21.2 million, and net worth
of $4.7 million, or 18.08% of assets.
The Association is a community oriented savings institution offering
financial services to meet the needs of the communities it serves. The
Association conducts business from its only office, located at 726 Wells Street,
Sistersville, West Virginia.
First Federal is a traditional thrift. It invests primarily in: (1) 1-4
family residential loans; (2) construction loans; (3) automobile loans; and (4)
share loans. To a lesser degree, the Association will occasionally make
commercial loans. The majority of the 1-4 family residential loans that are in
the portfolio are fixed rate loans. Single family loans dominate the
Association's loan portfolio. In recent years, First Federal has concentrated
its single family lending on fixed rate loans. At December 31, 1996, gross loans
on 1-4 family dwellings were $21.28 million and made up 81.05% of total assets
and 94.89% of the net loan portfolio. Adjustable rate loans totaled a mere $49
thousand. Mortgage backed securities made up 1.31% of total assets. Cash and
investment securities made up 14.23% of First Federal's assets at December 31,
1996.
First Federal had $82 thousand in non-performing assets at December 31,
1996 (0.31% of total assets), as compared to $45 thousand at March 31, 1996
(0.17% of total assets), and $63 thousand as of March 31, 1995 (0.24% of total
assets). The current level of nonperforming assets are so low that they are
unlikely to affect earnings or capital.
Savings deposits increased during the one year and nine months from
March 31, 1995, to December 31, 1996, by $1.39 million. Between March 31, 1995
and March 31, 1996, the deposits increased from $19.8 million to $21.01 million,
an increase of $1.28 million.
The Association's capital to assets ratio has shown steady growth.
Equity capital increased by $199 thousand, or 4.40%, to $4.75 million at
December 31, 1996, from $4.55 million at March 31, 1996. The equity increased
$271 thousand, or 6.30%, at March 31, 1996, from $4.28 million at March 31,
1995. The increases were due mainly to sustained earnings between the periods.
First Federal's profitability, as measured by return on average assets
("ROAA"), was above its peer group average of thrifts filing TFR's with the OTS,
consisting of OTS supervised thrifts with assets from $25 million to $50 million
(in 1993 First Federal was in the peer group with assets less than $25 million),
with the exception of the calendar year ending December 31, 1995. For the
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years ending December 31, 1993, 1994, and 1995, and the nine months ended
September 30, 1996, First Federal ranked in the 62nd, 81st, 49th, and 66th
percentile, respectively, in ROAA. In return on equity for the same periods,
First Federal ranked in the 30th, 34th, 23rd, and 50th percentile,
respectively.(1) The disparity between the peer rankings on ROAA and ROAE
reflect the higher capital ratios of the institution. Definitely considered a
"Well Capitalized" institution by any regulatory or analytical definition, with
capital at 18.08% at December 31, 1996, the redundant capital position reduces
the level of performance as measured by ROAE.
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1 "TAFS" by Sheshunoff Information Services, Inc., as of September 30, 1996
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I. FINANCIAL CHARACTERISTICS
PAST & PROJECTED ECONOMIC CONDITIONS
Fluctuations in thrift earnings in recent years have occurred within the
time frames as a result of changing temporary trends in interest rates and other
economic factors. However, the year-to-year results have been upward while the
general trends in the thrift industry have been improving as interest rates
declined. Interest rates began a general upward movement during late 1993,
followed by a decline in interest margins and profitability. Rates began a
general decline in mid 1995. Since early 1996, rates have moved in a narrow
band. From mid-March until early June there was a slight upward trend, with the
spread between the short end and the long end increasing. Early July saw the
jobless rate dip, and responding to inflation fears, the rates rose slightly. In
late July, Greenspan's comments sparked a rise in the Dow-Jones, but rates
remained steady. Mid-August's report on the rising CPI caused a slight increase
in rates, but they remained within the narrow band. The recent pass by the
Federal Reserve to raise rates provided some stability in rates and the equities
market. However, more recent comments by Greenspan to Congress invoked fear and
speculation in the market. Recently rates have been stable, and that stability
has sparked a general upward trend in all equity markets.
The general rise in the various equity markets has translated into
overall gains in the thrift equity market. These factors, coupled with the
circumstances of having fewer conversions in 1996, have had some dramatic
results in the thrift equities market. The number of "conversion stock
speculators" has grown as thrift and bank acquisitions have continued. The hope
of a quick profit has many speculative dollars chasing fewer good conversion
opportunities.
The thrift industry generally is better equipped to cope with changing
interest rates than it was in the past, and investors have recognized the
demonstrated ability of the thrift industry to maintain interest margins in
spite of rising interest rates. However, much of the industry is still a long
lender and, for the most part, a short borrower. Periods of gradually rising
interest rates can be readily managed, but periods of rapidly rising rates and
interest rate spikes can negate, to a certain degree, the positive impact of
adjustable rate loans and investments.
FINANCIAL CONDITION OF INSTITUTION
Balance Sheet Trends
As Table I.1 shows, First Federal demonstrated a modest increase in
assets during the four year and nine month period between March 31, 1992 and
December 31, 1996. Assets have reflected an upward trend during that period,
except for reflecting a loss in total assets between March 31, 1995 and March
31, 1996. Assets have grown from $20.68 million at March 31, 1992, to $21.28
million at March 31, 1993, to $23.79 million at March 31, 1994, and $26.05
million at March 31, 1995. Year end March 31, 1996 reflected a decline in total
assets to $25.97 million, and then a resurgence to $26.26 million at December
31, 1996. The loan portfolio reflects an overall upward trend after March 31,
1993. Loans were $13.04 million at March 31, 1992, then they fell to $12.81
million at March 31, 1993, then increased to $14.20 million at March 31, 1994.
Loans continued to increase to $17.69 million at March 31, 1995, and increased
further to $20.04 million at March 31, 1996. In the period between March 31,
1996 and December 31, 1996, loans further increased to $21.64 million. Total
earning assets have fluctuated in both dollar amounts and when expressed as a
percent of total assets. At March 31, 1992, total earning assets were $20.26
million or 97.97% of
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total assets. At March 31, 1993, total earning assets had grown to $20.91
million and were 98.24% of total assets. Then at March 31, 1994, total earning
assets were $23.32 million, 98.05% of total assets, and at March 31, 1995, they
were $25.55 million, or 98.08% of total assets. At March 31, 1996, earning
assets were $25.28 million, or 97.34% of total assets. At December 31, 1996,
earning assets were 25.62 million, 97.57% of total assets. The slight decline in
earning assets as a percentage of total assets in the last three periods
reflects the increase in fixed assets, caused mainly by the remodeling of their
facility. The decrease in earning assets as a percentage of total assets would
normally have a slight negative impact on earnings. However, First Federal's
ratio of interest earning assets ("IEA's") to interest bearing liabilities
("IBL's") has been on a steady increase, reflecting 119.30%, 120.24% and
120.52%, at March 31, 1995, and 1996, and December 31, 1996, respectively (See
Table I.10). This increase has offset the impact of the declining earning assets
to total assets ratio. The increase in the IEA to IBL ratio was mainly
facilitated by the steady increase in noninterest bearing liabilities, and
increased equity accounts.
Equity accounts increased steadily from $3.37 million at March 31, 1992,
to $3.59 million at March 31, 1993, to $3.84 million at March 31, 1994, to $4.28
million at March 31, 1995 and then to $4.55 million at March 31, 1996. In the
period between March 31, 1996 and December 31, 1996, equity accounts further
increased to $4.75 million. During this period, net interest spread and net
interest income have fluctuated in accordance with interest rates. Periods of
higher interest rates produced lower net interest rate spreads, reflecting the
impact of the Association's interest rate risk (See Table I.3). The net interest
rate spread was 3.07%, 3.51%, 3.64%, 3.59%, and 3.19% at March 31, 1992, 1993,
1994, 1995 and 1996, respectively. For the nine months ended December 31, 1996,
the net interest rate spread was 3.37%. Net interest income closely follows the
spread and was $804 thousand at March 31 1992, $875 thousand at March 31, 1993,
$946 thousand at March 31, 1994, $1,037 thousand at March 31, 1995, and $996
thousand at March 31, 1996. For the nine months ending December 31, 1996, net
interest income was annualized at $1,060 thousand.
Asset/Liability Management
Managing interest rate risk is a major and necessary component of the
strategy used in operating a thrift. Most of a thrift's interest earning assets
are long term, while most of the interest bearing liabilities have short to
intermediate terms to contractual maturity. To compensate, asset/liability
management techniques include: (1) making long term loans with interest rates
that adjust to market periodically, (2) investing in assets with shorter terms
to maturity, (3) lengthening the terms to maturities of savings deposits, and
(4) seeking to employ any combination of the aforementioned techniques
artificially through the use of synthetic hedge instruments. Management of First
Federal has take a rather passive approach to managing interest rate risk. That
passive approach embodies the thought that maintaining sufficient capital,
additional liquid assets, and a good earnings stream will ultimately protect
them from increased interest rate risk, typically caused by rising interest
rates. Table I.4 contains information on contractual loan maturities at December
31, 1996. However, this table must be read in conjunction with Table I.5. Table
I.5 shows the rate shock analysis of First Federal. Table I.5 provides rate
shock information at varying levels of interest rate change and confirms the
conclusion that First Federal is exposed to significant interest rate risk.
The Association has extensive interest rate risk and would suffer major
deterioration in profitability, as well an erosion in the value of its portfolio
equity. A 400 basis point ("BP") rise in rates would cause the Association to
lose 36% of its net portfolio value. A 300 BP rise in rates would cause the
Association to lose 27% of its net portfolio value.
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First Federal's approach to mitigating the interest rate risk has been
to emphasize longer term certificates of deposits (See Table I.15). It has also
increased investments in short and intermediate term investment securities. In
addition, in the past, First Federal has used FHLB advances as an alternative
source of funding where it is cost effective and prudent. These advances have
served to lengthen the maturities of the liabilities. In addition, these
advances are secured and not as likely to be called.
Table I.1 - Selected Financial and Other Data
Compound
December 31, At March 31, Growth
----------------------------------------------
1996 1996 1995 1994 1993 1992 Rate
-------------- --------------------------------------------------------
Total assets 26,258 25,967 26,054 23,792 21,283 20,682 5.15
11.22
Loans receivable, net 21,635 20,039 17,686 14,205 12,814 13,044
NM
Mortgage-backed securities 342 377 437 502 630 756
1.07
Investments (1) 3,643 4,859 7,430 8,620 7,464 3,464
NM
Cash - non-interest bearing 82 98 80 80 78 80 4.55
Savings deposits 21,199 21,091 19,810 19,797 17,570 17,161
NM
Other borrowings - - 1,685 - - -
7.46
Retained Earnings (2) 4,747 4,548 4,277 3,836 3,587 3,371
Number of:
Full service offices 1 1 1 1 1 1
Real estate loans outstanding 489 482 447 417 395 393
Deposit accounts 3,203 3,264 2,972 2,850 2,868 2,974
Source: Offering Circular.
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Table I.2 - Summary of Operations
Nine Months
Ended
December 31, Year Ended March 31,
--------------- -------------------------------------
1996 1995 1996 1995 1994 1993 1992
(in thousands)
Interest Income $1,531 $1,474 $1,973 $1,878 $1,708 $1,690 $1,842
Interest Expense 736 736 977 841 762 815 1,038
--------------- -------------------------------------
Net Interest Income 795 738 996 1,037 946 875 804
--------------- -------------------------------------
Provision for Loan Losses 6 6 7 28 10 23 45
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Net interest income after
provision for loan losses 789 732 989 1,009 936 852 759
--------------- -------------------------------------
Non-interest income:
Loan fees and service charges 16 15 20 18 16 19 15
Gain (loss) on sale of real
estate, net 4 1 - 4 2 5 3
Gain (loss) on sale of
investments, net - (8) (8) - - - -
Other income 1 2 4 4 2 1 4
--------------- -------------------------------------
Total other income 21 10 16 26 20 25 22
--------------- -------------------------------------
Non-interest expense:
Compensation and employee benefits 310 291 393 377 419 335 314
Occupancy and equipment 57 37 53 42 32 23 35
Deposit insurance premiums (1) 163 34 46 45 12 16 22
Real estate owned operations - - - - - - -
Other general and administrative 162 151 203 215 171 167 163
--------------- -------------------------------------
Total non-interest expense 692 513 695 679 634 541 534
--------------- -------------------------------------
Income before income taxes 118 229 310 356 322 336 247
Provision for federal income taxes 32 81 113 126 78 120 101
--------------- -------------------------------------
Net income before cumulative effect of
change in accounting principal 86 148 197 230 244 216 146
--------------- -------------------------------------
Cumulative effect of change in acct.
principal - - - - 4 - -
--------------- -------------------------------------
Net income 86 148 197 230 248 216 146
=============== =====================================
(1) Includes a non-recurring expense of $129,000 for the nine months ended
December 31, 1996 for a one-time deposit premium to recapitalize the Savings
Association Insurance Fund
Source: Offering Circular.
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Table I.3 - Selected Operating Ratios
Nine Months Ended
December 31,(1) At or For the Year Ended March 31,
--------------------------------------------------------------------------
1996 1995 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
Return on average assets (net income
divided by average total assets) (2) 0.44% 0.77% 0.77% 0.92% 1.10% 1.04% 0.72%
Return on average equity (net income
divided by average equity) (2) 2.49 4.51 4.47 5.60 6.74 6.25 4.49
Average equity to average assets
ratio (average equity divided by
average total assets) 17.67 17.10 17.22 16.51 16.38 16.55 15.99
Equity to assets at period end 18.08 17.65 17.51 16.42 16.12 16.85 16.30
Net interest rate spread 3.37 3.14 3.19 3.59 3.64 3.51 3.07
Net yield on average interest
earning assets 4.17 3.93 3.98 4.25 4.29 4.27 4.03
Non-performing loans to total assets . 0.31 0.07 0.06 0.13 0.11 0.16 0.55
Average interest earning assets to
average interest-bearing
liabilities 120.52 120.19 120.24 119.30 118.77 119.02 118.37
Net interest income after provision
for possible loan losses, to total
other expenses (2) 114.00 140.42 140.83 148.53 147.63 157.49 142.13
Non-performing loans to total loans .. 0.38 0.09 0.08 0.19 0.18 0.27 0.87
(1) Ratios for the nine month periods are stated on an annualized basis.
Such ratios and results are not necessarily indicative of results that
may be expected for the full year.
(2) Includes a non-recurring expense of $129,000 for the nine months ended
December 31, 1996 for a one-time deposit premium to recapitalize the
Savings Association Insurance Fund.
Source: Offering Circular.
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The following table sets forth the amounts of interest-earning assets
and interest-bearing liabilities outstanding at December 31, 1996, which are
expected to mature or reprice within the year.
Table I.4 - Loan Maturity Schedule
1-4 Family
Real Estate
Mortgage Construction Consumer Commercial Total
---------------------------------------------------------------
(in thousands)
Non-Performing $ 82 $ -- $ -- $ -- $ 82
Amounts due:
Within 3 months 14 -- 327 -- 341
3 months to 1 year 4 -- 24 -- 28
After 1 year
1 to 3 years 82 -- 317 28 427
3 to 5 years 301 -- 415 -- 716
5 to 10 years 1,751 -- 34 -- 1,785
10 to 20 years 11,575 120 -- -- 11,695
Over 20 years 6,716 638 -- -- 7,354
---------------------------------------------------------------
Total amount due 20,525 758 1,117 28 22,428
---------------------------------------------------------------
Less:
Allowance for loan loss 130 -- 32 -- 162
Loans in process 159 390 -- -- 549
Deferred loan fees 82 -- -- -- 82
---------------------------------------------------------------
Loan receivable, net $20,154 $ 368 $ 1,085 $ 28 $21,635
===============================================================
Source: Offering circular
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Table I.5 - Net Portfolio Value
Net Portfolio Value NPV as % of PV of Assets
----------------------------------------- -----------------------------
Change $ $ %
in Rates Amount Change Change NPV Ratio Change
- ------------ ---------- ---------- --------------- ------------ -------------
+400 bp 3,505 (1,979) -36% 14.38% -613 bp
+300 bp 3,999 (1,486) -27% 16.01% -450 bp
+200 bp 4,517 (968) -18% 17.66% -285 bp
+100 bp 5,032 (453) -8% 19.21% -130 bp
0 bp 5,485 20.51%
-100 bp 5,756 271 5% 21.23% +72 bp
-200 bp 5,858 374 7% 21.45% +94 bp
-300 bp 5,923 438 8% 21.55% +104 bp
-400 bp 6,096 611 11% 21.96% +145 bp
Source: Offering Circular.
Income and Expense Trends
First Federal was profitable for the five years ending March 31, 1996.
However, the nine months ending December 31, 1996, was significantly less
profitable than other periods. Profits were $146 thousand, $216 thousand, $248
thousand, $230 thousand, and $197 thousand at March 31, 1992, 1993, 1994, 1995,
and 1996, respectively. The nine month period ending December 31, 1996,
reflected profits of only $86 thousand. However, included in the period was a
non-recurring expense of $129 thousand related to the SAIF assessment. As
mentioned earlier, net interest spreads have remained relatively strong, and so
has the basic earnings capacity of the Association. The ability to generate core
earnings will improve with the anticipated infusion of capital generated by the
Conversion.
Non-interest income levels have remained relatively constant. As of
March 31, 1992, noninterest income was $22 thousand (0.11% of total assets); at
March 31, 1993, it was $25 thousand (0.12% of total assets); at March 31, 1994,
$20 thousand (0.08% of total assets); at March 31, 1995, it was $26 thousand
(0.10% of total assets); and at March 31, 1996, it was $16 thousand (0.06% of
total assets). At the end of the nine month period ending December 31, 1996,
noninterest income was $21 thousand, or .08% of total assets. The flat
performance of the noninterest income was affected at year end March 31, 1995 by
losses of $8 thousand on the sale of securities, which was recorded as negative
noninterest income. The modest contribution of noninterest income to total
income is more reflective of Management's reluctance to increase fees than of
market conditions. In contrast, the trend in noninterest expense items has
generally been subjected to less control. Noninterest expense, expressed as a
percentage of average assets, has been increasing. It was 2.58% in 1992, 2.59%
in 1993, 2.66% in 1994, 2.61% in 1995, and 2.67% in 1996. The nine months ending
December 31, 1996 show a noninterest expense of 2.85%. The 2.85% is adjusted for
the SAIF assessment and annualized. Inclusion of the SAIF assessment would
produce a much higher noninterest expense.
9
FERGUSON & COMPANY Section I.
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Regulatory Capital Requirements
As Table I.6 demonstrates, First Federal meets all regulatory capital
requirements and meets the regulatory definition of a "Well Capitalized"
institution. Moreover, the additional capital raised in the stock conversion
will add to the existing capital cushion.
Table I.6 - Regulatory Capital Compliance
Percent of
Adjusted
Amount Assets
(1)(2)(3)
--------------- ---------------
( 000's)
GAAP Capital $4,747 18.08%
Tangible Capital:
Actual Capital 4,349 16.82%
Regulatory requirement 388 1.50%
--------------- ---------------
Excess 3,961 15.32%
Core Capital
Actual capital 4,349 16.82%
Regulatory requirement 776 3.00%
--------------- ---------------
Excess 13.82%
3,573
Risk-Based Capital
Actual capital 4,505 36.09%
Regulatory requirement 999 8.00%
--------------- ---------------
Excess $3,506 28.09%
(1) Tangible and Core Capital requirements are as a percent of tangible
assets defined for regulatory purposes. Risk-Based Capital requirements
is a percent of of Risk-Weight assets defined for regulatory purposes.
(2) Tangible assets for regulatory purposes totaled $25,720,000 at December
31, 1996.
(3) Total Risk-Weighted Assets for regulatory purposes totaled $12,484,000
at December 31, 1996
Source: Offering Circular.
Lending
Table I.7 provides an analysis of the Association's loan portfolio by
type of loan security. This analysis shows that at December 31, 1996, First
Federal's loan composition is still dominated by 1 - 4 family dwelling loans.
Loans secured by 1 - 4 family dwellings total $20.53 million, or 91.52% of the
total portfolio. In addition, there is $209 thousand, net, ($758 thousand less
$549 thousand in LIP) in construction loans that are secured by 1 - 4 family
units. They represent 0.93% of the total portfolio. In aggregate these two
categories total 92.45% of total loans. Analysis of the other periods, March 31,
1995 and March 31, 1996, shows that in both periods, 1 - 4 family loans exceeded
92% of the total loan portfolio.
10
FERGUSON & COMPANY Section I.
- ------------------ ----------
Table I.7 - Analysis of Loan Portfolio
At December 31, At March 31,
------------------- ------------------------------------------------
1996 1996 1995
------------------- ----------------------- -----------------------
Amount Percent Amount Percent Amount Percent
------------------- ----------------------- -----------------------
(Dollars in Thousands)
Type of Loan
Real Estate Loans:
Construction $ 758 3.38% $ 359 1.73% $ 346 1.87%
1-4 family 20,525 91.52% 19,132 92.22% 17,043 92.11%
Multi - family -- 0.00% -- 0.00% -- 0.00%
Commercial -- 0.00% -- 0.00% -- 0.00%
Consumer loans:
Home Equity -- 0.00% -- 0.00% -- 0.00%
Automobiles 774 3.45% 786 3.79% 701 3.79%
Savings accounts 312 1.39% 405 1.95% 345 1.86%
Education -- 0.00% -- 0.00% -- 0.00%
Other 31 0.14% 26 0.13% 22 0.12%
Commercial 28 0.12% 37 0.18% 46 0.25%
------------------ ------------------ ------------------
Total loans 22,428 100.00% 20,745 100.00% 18,503 100.00%
========= ======== ========
Less:
Loans in process (549) (467) (598)
Deferred loan origination fees
and costs (82) (83) (69)
Allowance for possible loan
losses (162) (156) (150)
---------- --------- ---------
Total loans, net $ 21,635 $ 20,039 17,686
========== ========= =========
Type of Security Real estate loans:
1-4 family 21,283 93.47% 19,491 92.28% 17,389 91.81%
Savings accounts 312 1.37% 405 1.92% 345 1.82%
Automobiles 774 3.40% 786 3.72% 701 3.70%
Unsecured 31 0.14% 26 0.12% 22 0.12%
Other 28 0.12% 37 0.18% 46 0.24%
----------------------- --------------------- ------------------------
Total Loans 22,428 98.50% 20,745 98.22% 18,503 97.69%
Mortgage-backed securities 342 1.50% 377 1.78% 437 2.31%
----------------------- --------------------- ------------------------
Total loans and mortgage-backed
securities 22,770 100.00% 21,122 100.00% 18,940 100.00%
========= ========= =========
Less:
Loans in process (549) (467) (598)
Deferred loan origination fees
and costs (82) (83) (69)
Allowance for loan losses (162) (156) (150)
---------- --------- ---------
$ 21,977 $ 20,416 $ 18,123
========== ========= =========
Source: Offering Circular.
11
FERGUSON & COMPANY Section I.
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Table I.8 provides information with respect to loan originations and
repayments. It also clearly shows the continued emphasis on 1 - 4 residential
loans. At March 31, 1995, of the $5.77 million in loans originated, $4.84
million, or 83.83%, were 1 - 4 residential. At March 31, 1996, of the $4.37
million loans originated, $3.64 million, or 83.22%, were one to four
residential. At the nine months ending December 31, 1996, out of the $3.95
million in loans originated, the volume of 1 - 4 residential loans was $3.31
million, or 83.89%. Clearly these volumes of originations of 1 - 4 residential,
fixed rate loans show the commitment the Association has to the fixed rate
residential market. Management believes that this is their market niche. The
information provided in the table also reveals that the Association has good net
loan activity and is capable of increasing the loan portfolio.
Table I.9 provides rates, yields, and average balances for the two years
ended March 31, 1995, and 1996, and the nine months ending December 31, 1995,
and 1996. Average yield on earning assets increased from 7.70% at March 31,
1995, to 7.89% at March 31, 1996, and to 8.02% at the end of the nine months
ending December 31, 1996. Average rates paid on interest-bearing liabilities
increased from 4.11% at March 31, 1995, to 4.70% at March 31, 1996, and was down
slightly to 4.65% at the end of the nine months ending December 31, 1996. The
net yield on interest earning assets went from 4.25% at March 31, 1995, to 3.98%
at March 31, 1996, and to 4.17% at the nine months ending December 31, 1996.
First Federal's spread changed from 3.59% at March 31, 1995, to 3.19% at March
31, 1996, and increased to 3.37% at December 31, 1996. However, the ratio of
average interest earning assets ("IEA's") to average interest bearing
liabilities ("IBL's") increased from 119.30% at March 31, 1995, to 120.24% at
March 31, 1996, and rose to 120.52% by the end of the nine months ended December
31, 1996.
Table I.8 - Loan Activity
Nine Months
Ended December 31, Year Ended March 31,
----------------------------------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
(in thousands)
Total gross loans receivable
at beginning of period $ 20,745 $ 18,503 $ 18,503 $ 15,252
Loans Originated
1 to 4 family residential 2,026 1,736 2,099 2,704
Commercial real estate
Construction loans 1,285 1,357 1,540 2,131
Consumer loans 636 620 734 883
Commercial business loans 50
----------- ----------- ----------- -----------
Total loans originated 3,947 3,713 4,373 5,768
Loan principal repayments (2,263) (1,457) (2,131) (2,517)
Charge-offs 0 0 0 0
Net loan activity 1,684 2,256 2,242 3,251
----------- ----------- ----------- -----------
Total gross loans receivable
at end of period $22,429 $20,759 $20,745 $18,503
======= ======= ======= =======
Source: Offering circular
12
FERGUSON & COMPANY Section I.
- ------------------ ----------
Table I.8 clearly demonstrates that First Federal is considered
primarily a residential lender. The information shows that consumer type loans
are granted in limited volumes, but they are not becoming more common and are
not a growing portion of the loan portfolio.
13
FERGUSON & COMPANY Section I.
- ------------------ ----------
Table I.9 - Average Balances, Yields and Costs
Nine Months Ended December 31, Year Ended March 31, December 31,
------------------------------------------- -------------------------------------------
1996 1995 1996 1995 1996
--------------------- --------------------- --------------------- --------------------- -----------------
Average Average Average Average
Average Yield/ Average Yield/ Average Yield/ Average Yield/ Yield/
Balance Interest Cost Balance Interest Costs Balance Interest Cost Balance Interest Cost Balance Cost
------- -------- ---- ------- -------- ----- ------- -------- ---- ------- -------- ---- ------- ----
(in thousands)
Interest-earning
assets:
Loans receivable(1) $20,856 $1,342 8.58% $18,776 $1,222 8.68% $19,037 $1,662 8.73% $16,155 $1,435 8.88% $21,635 8.65%
Investment
securities (2) 4,226 169 5.33% 5,854 229 5.22% 5,574 281 5.04% 7,779 412 5.30% 3,643 5.53%
Mortgage -
backed
securities 359 20 7.43% 413 23 7.43% 406 30 7.39% 465 32 6.88% 342 7.02%
---------------------- ----------------------- ---------------------- --------------------- ----------------
Total int. -
earning assets 25,441 1,531 8.02% 25,043 1,474 7.85% 25,017 1,973 7.89% 24,399 1,879 7.70% 25,620 8.19%
------- ------- ------------- ------
Non-interest -
earning assets 663 532 565 468 638
------- ------- ------- ------- -------
Total assets $26,104 $25,575 $25,582 $24,867 $26,258
======= ======= ======= =======
Interest - bearing
liabilities:
Regular savings
deposits 8,422 254 4.02% 8,292 249 4.00% 8,252 329 3.99% 10,130 408 4.03% 8,507 4.00%
NOW accounts 979 25 3.40% 858 21 3.26% 879 27 3.07% 734 23 3.13% 1,000 3.25%
Money market
demand 1,646 46 3.73% 1,917 53 3.69% 1,856 69 3.72% 2,645 100 3.78% 1,613 3.50%
Time deposits 10,063 411 5.45% 9,264 392 5.64% 9,430 531 5.63% 6,521 288 4.42% 10,079 5.74%
---------------------- ----------------------- ---------------------- --------------------- ----------------
21,110 736 4.65% 20,331 715 4.69% 20,417 956 4.68% 20,030 819 4.09% 21,199 4.75%
---------------------- ----------------------- ---------------------- --------------------- ----------------
Short -term
borrowings 0 0 0% 506 21 5.53% 390 21 % 5.38% 421 22 5.23% - 0%
---------------------- ----------------------- ---------------------- --------------------- ----------------
Total interest -
bearing liab. $21,110 $736 4.65% $20,837 $736 4.71% $20,806 $977 4.70% $20,451 $841 4.11% $21,199 4.75%
--------------- ---------------- --------------- -------------- ---------
Noninterest -
bearing liab. 382 323 371 310 312
------- ------- ------- ------- -------
Total Liabilities $ 21,492 $ 21,160 $21,177 20,761 $21,511
======= ======= ======= ======= =======
Retained Earnings(3) 4,612 4,302 4,405 4,106 4,747
------- ------- ------- ------- -------
Total liabilities and
retained earnings $26,104 $25,462 $25,582 $24,867 $21,511
======= ======= ======= ======= =======
Net interest income $795 $738 $996 $1,038
======= ======= ======= =======
Interest rate
spread(4) 3.37% 3.14% 3.19% 3.59% 3.43%
Net yield on interest -
earning assets(5) 4.17% 3.93% 3.98% 4.25% 3.25%
Ratio of average
interest - earning
assets to average
interest - bearing
liabilities 120.52% 120.19% 120.24% 119.30% 120.85%
- -
(1) Average balances include non-accrual loans.
(2) Includes interest - bearing deposits in other financial institutions, FHLB
stock and FHLMC stock
(3) Includes unrealized gain on securities available for sale, net of applicable
deferred income taxes.
(4) Interest rate spread represents the difference between the average yield on
interest - earning assets and the average cost of interest - bearing
liabilities.
(5) Net yield on interest - earning assets represents net interest income as a
percentage of average interest - earning assets.
Source: Offering circular
14
FERGUSON & COMPANY Section I.
- ------------------ ----------
Table I.10 provides a rate volume analysis, measuring differences in
interest earning assets ("IEA's") and interest bearing liabilities ("IBL's"),
and the interest rates thereon, comparing the years ended March 31, 1994, 1995,
and 1996, and the nine months ending December 31, 1995 and 1996. The table shows
that of the $91.0 thousand increase in income between 1994 and 1995, a positive
$167.0 thousand can be attributed to volume, and a negative $48.0 thousand can
be attributed to rate, and a negative $28.0 thousand to Rate/Volume (changes in
rate multiplied by the change in average volume.) In the 1995 to 1996
comparison, income decreased $42.0 thousand. This was the net result of a $121.0
thousand increase in income due to volume, and a $163.0 thousand decrease due to
rates. In this period there was no adjustment due to Rate/Volume. In the nine
months ending December 31, 1996, income increased $74.0 thousand, and was the
result of a positive $83.0 thousand due to volume, a negative $5.0 thousand due
to rate and a negative $4.0 thousand due to Rate/Volume.
Table I.10 - Rate/Volume Analysis
Nine Months Ended Year Ended March 31,
December 31,
------------------------------------ --------------------------------- ------------------------------------
1996 vs. 1995 1996 vs. 1995 1995 vs. 1994
------------------------------------ -------------------- ------------ ------------------------------------
Increase (Decrease)(3) Increase (Decrease) Increase (Decrease)
Due to Due to Due to
------------------------------------ -------------------- ------------ ------------------------------------
Rate/ Rate/ Rate/
Volume Rate Volume Net Volume Rate Volume Net Volume Rate Volume Net
------ ---- ------ --- ------ ---- ------ --- ------ ---- ------ ---
Interest-earning
assets
Loans receivable(1) $181 $ (19) $ (2) $ 160 $(256) $ (25) $ (4) $ 227 $ 270 $ (121) $ (25) $ 124
Investment
securities(2) (85) 6 (2) (81) (117) (20) 6 (131) (14) 73 (3) 56
Mortgage-backed
securities (4) -- (4) (4) 2 (2) (7) (2) (9)
-------------------------------- -------------------------------- --------------------------------
Total
interest-earning
assets $ 92 $ (13) $ (4) $ 75 $ 135 $ (43) $ 2 $ 94 $ 249 $ (50) $ (28) $ 171
================================ ================================ ================================
Interest-bearing
liabilities
Savings deposits $ 37 $ (8) $ -- $ 29 $ 16 $ 119 $ 2 $ 137 $ 60 $ (2) $ -- $ 58
Short-term
borrowings (28) -- -- (28) (2) 1 -- (1) 22 -- -- 22
-------------------------------- -------------------------------- --------------------------------
Total
interest-bearing
liabilities $ 9 $ (8) $ -- $ 1 $ 14 $ 120 $ 2 $ 136 $ 82 $ (2) $ -- $ 80
================================ ================================ ================================
Net change
interest income $ 83 $ (5) $ (4) $ 74 $ 121 $(163) $ -- $ (42) $ 167 $ (48) $ (28) $ 91
================================ ================================ ================================
Source: Offering Circular.
Non-performing Assets
As shown in Table I.11, First Federal's total non-performing assets as
of December 31, 1996, were $82 thousand and represented .38% of total loans and
.31% of total assets. As of December 31, 1996, the nonperforming assets did not
include any real estate acquired in settlement of loans. As of March 31, 1996,
nonperforming assets were $45 thousand of which $16 thousand can be attributed
to loans and $29 thousand to real estate acquired in settlement of loans. During
that period, nonperforming loans were .08% of total loans and .06% of total
assets and total nonperforming assets were .17% of total assets. The limited
amount of nonperforming assets in relation to total assets and to capital makes
it improbable that these levels of problem loans and assets will have
significant impact on future earnings or capital.
15
FERGUSON & COMPANY Section I.
- ------------------ ----------
Table I.11 - Non-Performing Assets
At December 31, At March 31,
---------------- ----------------------------------
1996 1996 1995
---------------- ---------------- ----------------
(in thousands)
Loans accounted for on a non-accrual basis:
Mortgage loans:
1-4 family $ 16 $ 16 $ 34
Construction - - -
---------------- ---------------- ----------------
Total non-accrual loans 16 16 34
---------------- ---------------- ----------------
Accruing loans greater than 90 days past
due
Mortgage loans:
1-4 family 66 - -
---------------- ---------------- ----------------
Total $ 66 $ - $ -
================ ================ ================
Total non-performing loans $ 82 $ 16 $ 34
================ ================ ================
Real estate acquired in settlement of loans $ - $ 29 $ 29
================ ================ ================
Other non-performing assets $ - $ - $ -
================ ================ ================
Total non-performing assets $ 82 $ 45 $ 63
================ ================ ================
Total non-performing loans to total loans 0.38% 0.08% 0.19%
Total non-performing loans to total assets 0.31% 0.06% 0.13%
Total non-performing assets to total assets 0.31% 0.17% 0.24%
Source: Offering Circular.
Classified Assets
When an institution classifies problem assets as either substandard
("II") or doubtful ("III"), it may establish general allowances for possible
loan losses in amounts that are deemed prudent by Management. When an asset is
classified as a loss ("IV"), the institution is required to either charge the
asset off, or establish a specific reserve equal to 100% of the portion
considered loss. A portion of the general reserve may be used to provide
coverage for assets classified substandard or doubtful. At December 31, 1996,
the Association had $10 thousand in assets classified as special mention, which
require no reserves, and $76 thousand classified as substandard. The Association
had no assets classified doubtful or loss.
Real Estate Acquired in Settlement of Loans
Real estate that is acquired in settlement of loans is carried on the
balance sheet separately. It is carried at a value that is the lower of the
institution's investment in the property or its fair value minus the estimated
cost of sale. The Association had no real estate acquired in settlement of loans
at December 31, 1996.
Loan Loss Allowance
Table I.12 provides an analysis of First Federal's loan loss allowance.
The loan loss allowance is 0.72% of total loans outstanding as of December 31,
1996, which is down slightly from the 0.75% as of March 31, 1996, and the 0.81%
reported as of March 31, 1995. As of the nine months ending December 31, 1996,
the allowance for loan losses was 198% of nonperforming assets. This was down
from the 347% of nonperforming assets reported at March 31, 1996, and also down
from the 238% reported March 31, 1995. Table I.2 shows that provisions for loan
losses
16
FERGUSON & COMPANY Section I.
- ------------------ ----------
were $28 thousand at March 31, 1995, $7 thousand at March 31, 1996, and for the
nine months ending December 31, 1996, the provision for loan losses was $6
thousand. Given the secured nature of the loan portfolio, and in light of
historical losses, the loan loss allowance is considered adequate.
Table I.12 - Analysis of Allowance for Loan Losses
At
December 31, At March 31,
------------- -----------------------------
1996 1996 1995
------------- ------------- --------------
Total gross loans outstanding $ 22,429 $ 20,745 $ 18,503
============= ============= ==============
Average gross loans outstanding(1) $ 21,928 $ 20,002 $ 17,232
============= ============= ==============
Allowance balances (at beginning of
period) $ 156 $ 150 $ 122
Provision (credit):
Residential 3 3 15
Commercial real estate - - -
Consumer 3 3 13
Net Charge-offs (recoveries)(1):
Residential - - -
Commercial real estate - - -
Consumer - - -
------------- ------------- --------------
Allowance balance (at end of period) $ 162 $ 156 $ 150
============= ============= ==============
Allowance for loan losses as a percentage
of total loans outstanding 0.72% 0.75% 0.81%
Allowance for loan losses as a percentage
of non-performing assets(2) 198% 347% 238%
Net loans charged off as a percentage
of average loans outstanding(1) 0% 0% 0%
(1) For nine month period ended December 31, 1996 and for the years ended March
31, 1996 and 1995.
(2) Non-performing assets include non-accrual loans, accruing loans more than 90
days past due and real estate acquired in settlement of loans.
Source: Offering Circular.
Table I.13 shows the allocation of the loan loss allowance among the
various loan categories for the years ending March 31, 1996, 1995, 1994, and the
nine months ending December 31, 1996. The allocation appears reasonable given
the composition of the loan portfolio.
17
FERGUSON & COMPANY Section I.
- ------------------ ----------
Table I.13 - Allocation of Loan Loss Allowance
At
December 31, At March 31,
----------------- --------------------------------------------------------
1996 1996 1995 1994
----------------- ----------------- ----------------- -----------------
% of % of % of % of
Loans in Loans in Loans in Loans in
Each Each Each Each
Category Category Category Category
to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ ----- ------ -----
Mortgages:
1-4 family $ 130 91.52 % $ 126 92.22 % $ 123 92.11 % $ 109 92.62 %
Construction - 3.38 - 1.73 - 1.87 - 3.86
Consumer 32 4.98 30 5.87 27 5.77 12 3.52
Commercial - 0.12 - 0.18 - 0.25 - -
---------------- ---------------- ---------------- ----------------
Total $ 162 100.00 % $ 156 100.00 % $ 150 100.00 % $ 121 100.00 %
================ ================ ================ ================
Source: Offering Circular
The preceding table allocates the allowance for loan losses by loan
category at the dates indicated. The allocation of the allowance to each
category is not necessarily indicative of future losses and does not restrict
the use of the allowance to absorb losses in any other category.
Mortgage-Backed Securities and Investments
Table I.14 provides a breakdown of mortgage-backed securities and
investments as of December 31, 1996. Notable is the lack of dependency on
mortgage-backed securities. The major portion of the Associaton's investments
are interest bearing deposits and US Government Securities.
Table I.14 - Mortgage-backed Securities and Investments
As of December 31, 1996
---------------------------------------------------------------------------------------------
One Year or One to Five Five to Ten More than Total Investment
Less Years Years Ten Years Securities
-------------- ----------------- ----------------- ---------------- ------------------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average Market
Value Yield Value Yield Value Yield Value Yield Value Yield Value
-------------- ----------------- ---------------- ---------------- ------------------------
(dollars in thousands)
Investment Securities:
US government
securities
available for
sale(2) $ - - % $1,477 5.08 % $ - - % $ - % $1,477 5.08 % $1,477
FHLMC Stock(2) 648 1.23 - - - - - - 648 1.23 648
Interest-bearing
deposits in
other financial
institutions(1) 1,335 5.52 - - - - - - 1,335 5.52 1,335
FHLB Stock(1) 183 6.28 - - - - - - 183 6.28 183
------------- -------------- -------------- ------------ -------------- ------
Total $2,166 5.53 % $1,477 5.08 % $ - - % $ - - % $3,643 5.53 % $3,643
============= ============== ============== ============= ============== ======
(1) Recorded at cost
(2) Recorded at market value
Source: Offering circular
Table I.14 shows that at December 31, 1996, the Association had $1.48
million in US Government Securities and $648 thousand in FHLMC stock, all which
was classified as "Held for Sale." The interest bearing deposits, which have
short maturities, are used to provide liquidity and mitigate some of the
interest rate risk.
18
FERGUSON & COMPANY Section I.
- ------------------ ----------
Mortgage backed securities have been used very sparingly by Management
to supplement the demand for loan products. As such, the MBS's are classified as
"Held to Maturity".
Table I.15 - Deposit Portfolio
Deposits in the Association at December 31, 1996, were represented by
the various types of deposit programs described below.
Balance
Minimum as of Percentage
Interest Balance December 31, of Total
Category Term Rate (1) Amount 1996 Deposits
-------- ---- -------- ------ ---- --------
NOW Accounts None 3.25% $50 $1,000 4.72%
Regular Savings None 4.00% 1 8,507 40.12%
Money Market Accounts None (2) (2) 1,612 7.60%
Certificates of Deposit:
Fixed Term, Fixed Rate 1-3 months 0.00% 0.00%
- -
Fixed Term, Fixed Rate 4-6 months 4.75% 2,500 980 4.62%
Fixed Term, Fixed Rate 7-12 months (3) 500 2,940 13.86%
Fixed Term, Fixed Rate 13-24 months (4) 500 1,711 8.07%
Fixed Term, Fixed Rate 25-36 months (5) 500 2,282 10.76%
Fixed Term, Fixed Rate 36-48 months 5.63% 500 264 1.24%
Fixed Term, Fixed Rate 49-120 months 5.87% 500 1,903 8.97%
Jumbo Certificates (6) -- - - 0.00%
-------------------------
21,199 99.97%
Accrued Interest 7 0.03%
-------------------------
$21,206 100.00%
=========================
(1) Interest rates as of December 31, 1996
(2) Under $2,500: 3.50%; over $2,500: 3.75%
(3) 9 month Certificate: 4.9% ; other 7-12 month 5.10%
(4) 18 month IRA: 5.25% ; other 13-24 month 5.20%
(5) 36 month IRA: 5.50% ; other 25-36 month 5.35%
(6) The association offers has no specified rates or terms for Jumbo
Certificates
Source: Offering circular
Savings Deposits
At December 31, 1996, First Federal's deposit portfolio of $21.2 million
was composed as follows: total transaction type accounts--$2.6 million, or
12.32%; savings deposits and passbook account--$8.5 million, 40.12%; and
certificate accounts--$10.1 million, or 47.56%. As of December 31, 1996, the
Association had no Jumbo Certificates of Deposit. (See Table I.15 above.) The
most notable thing about the Association's deposit structure is the high
percentage of deposits that are in savings accounts. The Association pays above
market for the accounts, but has produced a very reasonable liability yield/cost
by so doing.
Table I.16 displayed below shows the totals of certificates of deposits
and the maturities by year with rate ranges at the year ending December 31,
1996. The rate section of Table I.16 clearly shows that Management has extended
the term on a portion of the certificates, and by extending the maturities has
reduced some of the interest rate risk. The majority of the certificates of
deposit are concentrated in rates between 4.00% and 6.00%. At December 31, 1996,
$7.9 million or 78.18% of the certificates were due within two years. Another
$1.03 million, or 10.25%, were due within three years and $1.16 million, or
11.51%, have maturities in excess of three years.
19
FERGUSON & COMPANY Section I.
- ------------------ ----------
Table I.16 - Time Deposit Rates and Maturities
After
December 31, December 31, December 31, December 31,
1997 1998 1999 1999 Total
------------------------------------------------------------------
Interest Rate
4.00% or less $ - $ - $ - $ - $ -
4.01 - 6.00% 5,189 1,035 863 713 7,800
6.01 - 8.00% 497 1,164 171 447 2,279
8.01 - 10.00% - - - - -
------------------------------------------------------------------
Total 5,686 2,199 1,034 1,160 10,079
Accrued interest 7
------------
$ 10,086
============
Source: Offering Circular.
Certificates of Deposit Greater than $100,000
First Federal has no Jumbo Certificates of Deposits as of December 31,
1996.
Borrowings
At December 31, 1996, First Federal had no borrowings. However, at the
year ending March 31, 1995, the Association had $1,685,000 in borrowings.
Management considers borrowings a viable alternative funding source.
Subsidiaries
At December 31, 1996, the Association had one inactive subsidiary.
Legal Proceedings
From time to time, First Federal becomes involved in legal proceedings
principally related to the enforcement of its security interest in real estate
loans. In the opinion of the Management of the Association, no legal proceedings
are in process or pending that would have a material effect on First Federal's
financial position, results of operations, or liquidity.
EARNINGS CAPACITY OF THE INSTITUTION
As in any interest sensitive industry, the future earnings capacity of
First Federal will be affected by the interest rate environment. Historically,
the thrift industry has performed at less profitable levels in periods of rising
interest rates. This performance is due principally to the general composition
of the assets and the limited repricing opportunities afforded even the
adjustable rate loans. The converse earnings situation (falling rates) does not
afford the same degree of profitability potential for thrifts due to the
tendency of borrowers to refinance both high rate fixed rate loans and
adjustable loans as rates decline.
First Federal is no exception to the aforementioned paradox. With its
current asset and liability structure, however, the effect of rising interest
rates will have more negative impact on earnings due to the concentration of
fixed rate loans in the composition of the Association's assets. However, the
copious amount of capital now available, and the additional capital that will be
infused as a result of the Conversion, will have a cushioning effect upon the
interest rate risk.
20
FERGUSON & COMPANY Section I.
- ------------------ ----------
The addition of capital through the Conversion will allow First Federal
to grow. As growth is attained, the leverage of that new capital should, from a
ratio of expenses to total assets standpoint, reduce the operating expense
ratio. However, growth and additional leverage will likely be moderate and well
controlled in order to maintain the current acceptable risk levels inherent in
the Association's asset base.
Asset-Size-Efficiency of Asset Utilization
At its current size and in its current asset configuration, First
Federal is an efficient operation. With total assets of approximately $26.26
million, First Federal has 11 full time equivalent employees. If current
strategies are maintained, the additional volume of growth brought on by the
Conversion can be handled by only minor increases in the current number of full
time equivalent employees.
Intangible Values
First Federal's greatest intangible value lies in its loyal deposit
base. First Federal has a 64 year history of sound operations, controlled
growth, and generally consistent earnings. The Association currently has 1.31%
of the deposit market in its assessment area consisting of Tyler, Wetzel,
Pleasants, and Woods counties. It has 5.94% of the deposit market in Tyler and
Wetzel counties, and it has the ability to increase market share (see Table II.3
in Section II).
First Federal has no significant intangible values that could be
attributed to unrecognized asset gains on investments and real estate.
Effect of Government Regulations
Government regulations will have the greatest impact in the area of cost
of compliance and reporting. The Conversion will create an additional layer of
regulations and reporting, and thereby increase the cost to the Association.
Moreover, no future plans currently exist to make additional acquisitions,
purchase additional branches, or complicate operations with matters that would
add to reporting and regulatory compliance. However, economic situations change,
and if an appropriate opportunity arises, it will be considered, and a proper
request will be made of the regulators, if necessary.
Office Facilities
First Federal has only one facility, located at 726 Wells Street,
Sistersville, West Virginia.
21
SECTION II
MARKET AREA
FERGUSON & COMPANY Section II.
- ------------------ -----------
II. MARKET AREA
DEMOGRAPHICS
First Federal Savings and Loan Association of Sistersville operates
through one office located at 726 Wells Street, Sistersville, West Virginia.
First Federal considers its primary Assessment Area to be Tyler,
Wetzel, Pleasants, and Wood Counties of West Virginia. Table II.1 presents
historical and projected trends for the United States, West Virginia, Tyler
County, Wetzel County, Pleasants County, Wood County, and zip code, 26175, which
includes Sistersville. The information addresses population, income, employment,
and housing trends.
As indicated in Table II, the population in the Association's
assessment area increased from 1990 to 1996. Tyler County, Wood County and Zip
Code 26175 experienced increases in population of 4.83%, 1.87% and 6.27%,
respectively, while Wetzel and Pleasants Counties experienced decreases in
population of 2.16% and .23%, respectively. During the same period, the
population of West Virginia grew 2.28% and the United States population grew
6.67%. Population projections of the assessment area are expected to follow the
same trends between 1996 and 2001, with growth rates of 3.71% for Tyler County,
1.48% for Wood County, and 4.41% for Zip Code 26175. Wetzel County projections
show a decrease of 1.73% and Pleasants County a slight decrease of .19%.
Comparing the 1996 estimated household income of the assessment area
to the United States, we find that household income is less than that of the
United States. Estimated household income for the United States is estimated at
$34,530, while that of West Virginia is $22,208. Estimated household income for
First Federal's assessment area is: Tyler County, $22,822; Wetzel County,
$22,774; Pleasants County, $21,917; Wood County, $27,597; and zip code 26175,
$26,390. Between 1996 and 2001, household income in the United States is
estimated to decrease 3.88%. Household income in West Virginia is estimated to
decrease 10.78%. While the decrease in household income, from 1996 to 2001, is
expected to be less than the state average in Tyler County (8.06%), Wood County
(9.90%), and the zip code 26175 (8.13%), the remaining two counties expect
decreases in household income of 15.93% (Wetzel) and 13.51% (Pleasants).
Household income distribution in the area shows a pattern more
typically seen in a manufacturing area with a large number of the households in
the population earning between $15,000 and $50,000. In both Tyler and Pleasants
Counties, 52% of the households are expected to have annual incomes between
$15,000 and $50,000, and 54% of the population of Wood County fall within that
range. Only Wetzel County has a population where less than 50% of the households
have incomes between $15,000 and $25,000. However, in Wetzel County, 37% of the
households have incomes less than $15,000, compared to 20% of the households in
the United States. The number of households in that range in the remaining
counties of the Association's assessment area are: Tyler County, 34%; Pleasants
County, 34%; Wood County, 27%; and zip code 26175, 31%.
Important to any financial institution that is in the business of
financing homes is the growth in the number of households. Table II.1 shows that
the prospects for the establishment of new households in the trade area follow
the same pattern as the population growth. During the period from 1990 to 1996,
Tyler, Wood, and Pleasants counties experienced growth of 4.99%,
1
FERGUSON & COMPANY Section II.
- ------------------ -----------
1.88%, and 1.23%, respectively, while Wetzel County experienced a decline of
2.08% in the number of households. Overall, the number of households in the
assessment area are expected to increase slightly from 1996 to 2001. Increases
are expected in Tyler and Wood counties with slight decreases in households in
Wetzel and Pleasants Counties.
The number of building permits issued in Sistersville, both
residential and commercial, has risen from 27 in 1995 to 51 in 1996. Building
permit information was not available from other political subdivisions.
When home ownership is compared to the Unites States, there is a
higher incidence of home ownership in the trade area than in the United States.
The percentage of homes occupied by the owner in the United States is 57.78%,
but in the state of West Virginia, this percentage jumps to 65.28%. In First
Federal's assessment area, the incidence of home ownership, ranges from a low of
66.99% in Wood County to 70.74% in the area including Sistersville (zip code
26175).
In summary, the demographics of the assessment area indicate that
the economic environment should remain relatively stable. Overall growth in the
number of households along with the increase in the number of building permits
issued should provide the Association with the opportunity to increase it
residential lending.
First Federal considers its assesment area the four county area
including Tyler, Wetzel, Pleasants and Wood counties. The Association more
typicallly draws deposits from Tyler and Wetzel counties. Table II.3 shows the
breakdown of deposits for the assessment area. Table II.3a shows the same
information for Tyler and Wetzel counties. Based on information publicly
available on deposits as of September 30, 1996, there are $355.8 million in
total deposits in the two counties. Banks controlled $195.2 million and credit
unions $92.4 million. Savings Associations had a total of $68.2 million in
deposits, and First Federal deposits were $21.1 million or 5.94%.
2
FERGUSON & COMPANY Section II.
- ------------------ -----------
Table II.1 - Demographic Trends
Key Economic Indicators
United States, West Virginia, Tyler, Wetzel, Pleasants, and Wood Counties,
and Zip Code 26175
===============================================================================================================================
United West Tyler Wetzel Pleasants Wood Zip
Key Economic Indicator States Virginia County County County County 26175
- -------------------------------------------------------------------------------------------------------------------------------
Total Population, 2001 Est ................ 278,802,003 1,868,734 10,650 18,516 7,515 89,847 3,435
1996 - 2001 Percent Change, Est ......... 5.09 1.87 3.71 (1.73) (0.19) 1.48 4.41
Total Population, 1996 Est ................ 265,294,885 1,834,429 10,269 18,842 7,529 88,541 3,290
1990 - 96 Percent Change, Est ........... 6.67 2.28 4.83 (2.16) (0.23) 1.87 6.27
Total Population, 1990 .................... 248,709,873 1,793,477 9,796 19,258 7,546 86,915 3,096
- -------------------------------------------------------------------------------------------------------------------------------
Household Income, 2001 Est ................ 33,189 19,813 20,982 19,147 18,956 24,865 24,097
1996 - 2001 Percent Change, Est ......... (3.88) (10.78) (8.06) (15.93) (13.51) (9.90) (8.13)
Household Income, 1996 Est ................ 34,530 22,208 22,822 22,774 21,917 27,597 26,230
- -------------------------------------------------------------------------------------------------------------------------------
Per Capita Income, 1990 ................... 16,738 10,520 9,692 11,228 10,733 13,306 10,998
- -------------------------------------------------------------------------------------------------------------------------------
Household Income Distribution-2001 Est. (%)
$15,000 and less ........................ 20 34 34 37 34 27 31
$15,000 - $25,000 ....................... 16 20 19 16 21 18 17
$25,000 - $50,000 ....................... 34 31 33 32 31 36 36
$50,000 - $100,000 ...................... 24 13 14 14 12 18 15
$100,000 - $150,000 ..................... 4 1 1 1 2 2 1
$150,000 and over ....................... 2 1 0 1 1 1 0
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Unemployment rate, 1990 ................... 6.24 10.60 12.57 14.04 8.99 6.53 12.91
- -------------------------------------------------------------------------------------------------------------------------------
Median Age of Population, 1996 Est ........ 34.3 37.3 37.7 37.7 37.5 37.8 38.2
Median Age of Population, 1990 ............ 32.9 35.4 36.3 36.1 34.9 36.0 37.3
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Average Housing Value, 1990 ............... 79,098 55,073 45,346 53,065 53,725 57,274 47,496
- -------------------------------------------------------------------------------------------------------------------------------
Total Households, 2001 Est ................ 103,293,062 717,857 4,042 7,028 2,798 35,325 1,329
1996 - 2001 Percent Change, Est ......... 5.14 1.88 3.80 (1.72) (0.18) 1.48 4.48
Total Households, 1996 .................... 98,239,161 704,638 3,894 7,151 2,803 34,811 1,272
1990 - 96 Percent Change, Est ........... 6.84 2.34 4.99 (2.08) 1.23 1.88 6.44
Total Households, 1990 .................... 91,947,410 688,557 3,709 7,303 2,769 34,168 1,195
- -------------------------------------------------------------------------------------------------------------------------------
Total Housing Units, 1990 ................. 101,641,260 781,295 4,441 8,129 3,134 37,620 1,360
% Vacant ................................ 10.07 11.87 16.48 10.16 11.65 9.18 11.99
% Occupied .............................. 89.93 88.13 83.52 89.84 88.35 90.82 88.01
% By Owner ........................... 57.78 65.28 68.52 69.42 70.33 66.99 70.74
% By Renter .......................... 32.15 22.85 15.00 20.42 18.03 23.84 17.28
===============================================================================================================================
3
FERGUSON & COMPANY Section II.
- ------------------ -----------
Table II.2 - Summary of Building Permits
- --------------------------------------------------------------------------------
Year Ended December 31,
--------------------------------------
1996 1995
-------------- ----------------
Value Value
No. ($000) No. ($000)
-------------- ----------------
Residential and commercial
combined ......................... 51 $980 27 $516
============== =============
- --------------------------------------------------------------------------------
SOURCE: City of Sistersville Building and Zoning Department
4
FERGUSON & COMPANY Section II.
- ------------------ -----------
Table II.3 - Market Area Deposits
Tyler, Wetzel, Pleasants and Wood Counties
- --------------------------------------------------------------------------------
1996 1995 1994
---------- ---------- ----------
(in Thousands)
First Federal ........................... $ 21,144 $ 20,505 $ 20,344
---------- ---------- ----------
Number of Branches .............. 1 1 1
Other Savings Associations .............. $ 52,392 $ 52,985 $ 58,838
---------- ---------- ----------
Number of Branches .............. 3 3 3
Total Savings Association Deposits ...... $ 73,536 $ 73,490 $ 79,182
---------- ---------- ----------
Number of Branches .............. 4 4 4
Total Credit Union Deposits ............. $ 328,999 $ 330,745 $ 347,589
---------- ---------- ----------
Number of Branches .............. 17 17 17
Total Bank Deposits ..................... $1,205,579 $1,173,471 $1,158,062
---------- ---------- ----------
Number of Branches .............. 38 40 41
Total Market Area Deposits ...... $1,608,114 $1,577,706 $1,584,833
========== ========== ==========
First Federal - Market Share
To Total Market Area Deposits 1.31% 1.30% 1.28%
- --------------------------------------------------------------------------------
Source: BranchSource, a product of Sheshunoff Information Services, Inc.
5
FERGUSON & COMPANY Section II.
- ------------------ -----------
Table II.3a - Market Area Deposits
Tyler and Wetzel Counties only
- --------------------------------------------------------------------------------
1996 1995 1994
---------------------------------
(in Thousands)
First Federal .............................. $ 21,144 $ 20,505 $ 20,344
--------------------------------
Number of Branches ................. 1 1 1
Other Savings Associations ................. $ 47,096 $ 47,062 $ 52,078
--------------------------------
Number of Branches ................. 2 2 2
Total Savings Association Deposits ......... $ 68,240 $ 67,567 $ 72,422
--------------------------------
Number of Branches ................. 3 3 3
Total Credit Union Deposits ................ $ 92,404 $ 99,288 $ 91,439
--------------------------------
Number of Branches ................. 2 2 2
Total Bank Deposits ........................ $195,162 $187,197 $184,432
--------------------------------
Number of Branches ................. 13 13 12
Total Market Area Deposits ......... $355,806 $354,052 $348,293
================================
First Federal - Market Share
To Total Market Area Deposits ...... 5.94% 5.79% 5.84%
- --------------------------------------------------------------------------------
Source: BranchSource, a product of Sheshunoff Information Services, Inc.
6
SECTION III
COMPARISON WITH PUBLICLY
TRADED THRIFTS
FERGUSON & COMPANY Section III.
- ------------------ ------------
III. COMPARISON WITH PUBLICLY TRADED THRIFTS
COMPARATIVE DISCUSSION
This section presents an analysis of First Federal relative to a group
of 11 publicly traded thrift institutions ("Comparative Group"). Such analysis
is necessary to determine the adjustments that must be made to the pro forma
market value of First Federal's stock. Table III.1 presents a listing of the
comparative group with general information about the group. Table III.2 presents
key financial indicators relative to profitability, balance sheet composition
and strength, and risk factors. Table III.3 presents a pro forma comparison of
First Federal to the comparative group. Exhibits III and IV contain selected
financial information on First Federal and the comparative group. This
information is derived from quarterly TFR's filed with the OTS. The selection
criteria and comparison with the Comparative Group are discussed below.
Selection Criteria
Ideally, the comparative group would consist of thrifts in the same
geographic region with identical local economies, asset size, capital level,
earnings performance, asset quality, etc. However, there are few comparably
sized institutions with stock that is liquid enough to provide timely,
meaningful market values. Therefore, we have selected a group of comparatives
that are listed on either the American Stock Exchange ("AMEX"), or NASDAQ. We
excluded companies that are apparent takeover targets and companies with unusual
characteristics that tend to distort both mean and median calculations. For
example, we have excluded all companies with losses during the trailing 12
months. We have also excluded mutual holding companies (see Exhibit II.1).
The principal source of data was SNL Securities, Charlottesville,
Virginia. There are approximately 421 publicly traded thrifts listed on NYSE,
AMEX, or NASDAQ (see Exhibit I.1). In developing statistics for the entire
country, we eliminated certain institutions that skewed the results, in order to
make the data more meaningful:
o We eliminated companies with losses,
o We eliminated companies with price earnings ratios in excess of 25,
o We eliminated all merger targets,
o We eliminated companies that had not reported as a stock institution
for one complete year, and
o We eliminated mutual holding companies.
The resulting group of approximately 280 publicly traded thrifts is
included in Exhibit II.1.
Because of the limited number of similar size thrifts with sufficient
trading volume, we refined the search looking for members of the comparative
group among thrifts with assets between $25 million and $126 million. From that
group we then eliminated the following:
o Companies with earnings that were not meaningful,
o Companies with ROAA in excess of 1.5%,
o Companies with nonperforming assets in excess of 1.5%,
o Companies with loans less than 40% of total assets and loans greater
than 85% of total assets,
o Companies that were insured by BIF, and
o Companies that did not match the subject thrift for specific reasons
that are listed.
1
FERGUSON & COMPANY Section III.
- ------------------ ------------
The result was a group of 11 thrifts (See Table III.4). Normally, we
consider 10 to be the desired sample, but provided the extra comparative in case
there are changes before this Conversion is completed.
The selected group of comparatives has sufficient trading volume to
provide meaningful price data. Eight of the comparative group members are
located in the Midwest, two in the Southeast, and one in the Southwest. Two of
the group are located in Ohio, two in Missouri, and one each in Iowa, Minnesota,
South Carolina, Louisiana, Mississippi, Kentucky, and Wisconsin. With total
assets of approximately $26.3 million, First Federal is much smaller than the
group selected, which has average assets of $93.0 million and median assets of
$96.5 million. Smaller institutions were available in the "Pink Sheets," but
there is limited information in that data base, and the liquidity of stocks in
the "Pink Sheets" is less than desired for adequate comparisons.
Profitability
Using the comparison of profitability components as a percentage of
average assets, First Federal was above the comparative group in return on
assets, 0.84% to 0.71%; and below the group in core income, 0.82% to 0.99% (see
Table III.2). First Federal was also below the comparative group in other
operating income, 0.11% to 0.46%. First Federal's net interest income was
greater, 4.06% to 3.50%; and also above the group in operating expense, 3.53% to
2.39%. After conversion, deployment of the proceeds will provide additional
income, and First Federal will compare even more favorably with the comparative
group in terms of return on average assets, with a return of 1.07% at the
midpoint of the appraisal range, and the average for the comparable group is
0.71% and the median 0.76%. Pro forma return on average equity is 3.46% at the
midpoint, versus a mean of 4.30%, and median of 3.88% for the comparative group.
The high post conversion equity position of First Federal makes it difficult to
have a reasonable ROAE. The capital infusion has a positive impact on ROAA, but
has adverse impact on ROAE.
Balance Sheet Characteristics
The general asset composition of the Association is similar to that of
the comparative group(see Table III.2). First Federal has a lower level of
passive investments with 15.49% of its assets invested in cash, investments, and
mortgage-backed securities, versus 35.27% for the comparative group. In the
investment portfolio, the Association has 14.19% in cash and investment
securities, and 1.30% in mortgage backed securities. The comparative group has a
similar mixture with 25.73% in cash and investments, and 9.54% in mortgage
backed securities. First Federal has a higher percentage of its assets in loans
at 82.39%, versus 62.63% for the comparative group. The Association's percentage
of interest earning assets to interest bearing liabilities is slightly higher
than that of the group. First Federal has 120.52%, and the comparative group
averages 119.66%.
The liability side differs mainly in that First Federal has no
borrowings and higher percentage of deposits. First Federal funds its assets
with, among other things, 80.73% deposits, and capital of 18.08% expressed as a
percentage of total assets. On the other hand, the comparative group has
deposits of 72.67%, borrowings of 10.40%, and capital of 15.84%. The group and
the subject both have high levels of equity, (First Federal 18.08% vs. the group
15.84%). After the conversion, First Federal will have equity to assets of
30.83% at the midpoint.
2
FERGUSON & COMPANY Section III.
- ------------------ ------------
Risk Factors
Both First Federal and the comparative group have reasonable and
controllable levels of non-performing assets, with the Association being lower
than the comparative group, 0.31% to 0.61% of assets. However, both ratios are
indicative of high quality assets. First Federal's loan loss allowance is 0.72%
of net loans, which compares favorably with the comparative group's 0.61%. In
the area of interest rate risk and the implications of one year gap to assets,
the Association has not provided gap information; however, the dearth of
adjustable rate loans and the significant loss of NPV as shown in Table I.5 is
indicative of major interest rate risk. The comparative group has a negative
8.12%.
Summary of Financial Comparison
Based on the above discussion of operational, balance sheet, and risk
characteristics of First Federal compared with the group, we believe that First
Federal's performance is equal to that of the comparative group. The infusion of
additional capital by the Conversion, will only serve to improve the
profitability of the institution, as measured by ROAA. As measured by ROAE,
First Federal will perform at lower levels due to the capital levels.
FUTURE PLANS
First Federal's future plans are to remain a well capitalized,
profitable institution with good asset quality, a commitment to serving the
needs of its trade area, and emphase lending. The current strategy, which is
reflected in the business plan, emphasizes continuation of growth in residential
lending. Management has determined that the niche for First Federal is to be the
residential real estate lender of its assessment area. First Federal will
continue to offer, on a limited basis, other type of consumer transactions, but
the main emphasis will not change. Management recognizes that it will take time
to invest the proceeds of its capital infusion in a manner consistent with its
historical performance and current policy. During that period of time,
Management is willing to accept a lower return on assets as well as a lower
return on equity capital.
First Federal has always adhered to a controlled growth policy, and in
recent years, it has controlled its rates paid and overall spreads. In the
recent past, First Federal has funded some of its growth with FHLB advances. The
advances were used to control spreads and help control interest rate risk. The
additional capital raised by the sale of Common Stock will initially be used to
purchase short term investment securities. The Association's business plan
projects that it will experience growth in loans, savings deposits, and
liquidity.
First Federal anticipates a conservative growth rate. The additional
capital and the holding company would make the acquisition of another
institution or branches a viable option, along with de nova branching. At this
time there are no plans for acquisition of institutions or branches, however, if
an economically viable opportunity arises, proper approval will be sought from
the regulatory agencies.
Increasing market penetration by increasing the number of services and
products available, coupled with expanded marketing efforts and improved
service, are the most likely methods to be employed to achieve growth.
3
FERGUSON & COMPANY Section III.
- ------------------ ------------
Table III.1 - Comparative General
Total Current Current
Number Assets Stock Market
of ($000) Price Value
Ticker Short Name City State Offices Mst RctQ IPO Date ($) ($M)
ASBP ASB Financial Corp. Portsmouth OH 1 111,824 05/11/95 11.750 20.23
BDJI First Federal Bancorporation Bemidji MN 5 109,729 04/04/95 18.750 13.14
CIBI Community Investors Bancorp Bucyrus OH 3 95,787 02/07/95 17.250 10.92
CZF CitiSave Financial Corp Baton Rouge LA 6 75,635 07/14/95 14.000 13.47
FFBS FFBS BanCorp, Inc. Columbus MS 3 127,125 07/01/93 22.000 34.44
HFSA Hardin Bancorp, Inc. Hardin MO 3 97,015 09/29/95 15.250 13.18
KYF Kentucky First Bancorp, Inc. Cynthiana KY 2 87,874 08/29/95 11.750 15.72
MIFC Mid-Iowa Financial Corp. Newton IA 6 117,066 10/14/92 8.250 13.83
NSLB NS&L Bancorp, Inc. Neosho MO 2 58,394 06/08/95 16.000 11.78
NWEQ Northwest Equity Corp. Amery WI 3 96,518 10/11/94 14.000 13.01
SCCB S. Carolina Community Bancshrs Winnsboro SC 3 45,919 07/07/94 20.000 14.11
Maximum 6 127,125 22.000 34.44
Minimum 1 45,919 8.250 10.92
Average 3 92,990 15.364 15.80
Median 3 96,518 15.250 13.47
Source: SNL Securities Inc. and F&C calculations.
4
FERGUSON & COMPANY Section III.
- ------------------ ------------
Table III.2 - Key Financial Indicators
First Federal Comparative
Sistersville Group
------------ -----
Profitability
(% of average assets)
Net income 0.84(*) 0.71
Net interest income 4.06 3.50
Loss (recovery) provisions 0.03 0.03
Other operating income 0.11 0.46
Operating expense 3.53 2.39
Core income ( excluding gains
and losses on asset sales) 0.82 0.99
Balance Sheet Factors
(% of assets)
Cash and investments 14.19 25.73
Mortgage-backed securities 1.30 9.54
Loans 82.39 62.63
Savings deposits 80.73 72.67
Borrowings -- 10.40
Equity 18.08 15.84
Tangible equity 18.08 15.84
Risk Factors
(%)
Earning assets/costing liabilities 120.52 119.66
Non-performing assets/assets 0.31 0.61
Loss allowance/non performing assets 198.00 106.91
Loss allowance/loans 0.72 0.61
One year gap/assets N/A (8.12)
(*) Appraisal Earnings
5
FERGUSON & COMPANY Section III.
- ------------------ ------------
Table III.3 - Pro Forma Comparison
Converting Institution to Comparative Group
As of March 14, 1997
Ticker Name Price Mk Value PE P/Book P/TBook P/Assets Div Yld
($) ($Mil) (X) (%) (%) (%) (%)
Before Conversion N/A N/A N/A N/A N/A N/A N/A
Pro Forma Supermax 10.000 7.935 21.67 70.51 70.51 24.22 3.00
Pro Forma Maximum 10.000 6.900 20.00 66.59 66.59 21.65 3.00
Pro Forma Midpoint 10.000 6.000 18.37 62.59 62.59 19.29 3.00
Pro Forma Minimum 10.000 5.100 16.54 57.88 57.88 16.82 3.00
Comparative Group
-----------------
Averages 15.364 15.80 19.54 110.08 110.10 17.87 2.54
Medians 15.250 13.47 18.78 108.29 108.29 17.81 2.86
West Virginia Public Thrifts
----------------------------
Averages 16.625 31.09 14.62 112.56 118.38 13.66 1.53
Medians 16.625 31.09 14.62 112.56 118.38 13.66 1.53
Southeast Region Thrifts
------------------------
Averages 20.341 103.57 16.70 154.99 161.12 15.85 2.45
Medians 19.875 46.72 16.79 133.93 135.40 15.41 2.38
All Public Thrifts
------------------
Averages 20.874 184.11 19.46 134.11 140.08 15.51 2.01
Medians 18.500 48.38 16.92 124.51 128.08 13.69 1.86
Comparative Group
-----------------
ASBP ASBFinancial-OH 11.750 20.23 19.92 108.39 108.39 18.09 3.40
BDJI FirstFedBncp-MN 18.750 13.14 18.75 105.34 105.34 11.97 --
CIBI CommunityInvrs-OH 17.250 10.92 12.41 100.06 100.06 11.40 2.32
CZF CitiSaveFinCorp-LA 14.000 13.47 15.91 111.02 111.02 17.81 2.86
FFBS FFBSBanCorp-MS 22.000 34.44 18.80 131.89 131.89 27.09 2.27
HFSA HardinBancorp-MO 15.250 13.18 20.07 101.73 101.73 15.01 2.62
KYF KYFirstBancorp-KY 11.750 15.72 16.32 108.29 108.29 18.57 4.26
MIFC Mid-IowaFinCorp-IA 8.250 13.83 NA 125.19 125.38 11.67 0.97
NSLB NS&LBancorp-MO 16.000 11.78 30.77 99.01 99.01 20.80 3.13
NWEQ NorthwestEqty-WI 14.000 13.01 15.05 101.30 101.30 13.48 3.14
SCCB SCCommunBancsh-SC 20.000 14.11 27.40 118.69 118.69 30.72 3.00
6
FERGUSON & COMPANY Section III.
- ------------------ ------------
Table III.3 - Pro Forma Comparison
Converting Institution to Comparative Group
Name Assets Eq/A TEq/A EPS ROAA ROAE
($000) (%) (%) ($) (%) (%)
Before Conversion 26,258 18.08 18.08 NA 0.84 2.41
Pro Forma Supermax 32,765 34.35 34.35 0.46 1.13 3.29
Pro Forma Maximum 31,873 32.51 32.51 0.50 1.10 3.37
Pro Forma Midpoint 31,098 30.83 30.83 0.54 1.07 3.46
Pro Forma Minimum 30,323 29.06 29.06 0.60 1.03 3.55
Comparative Group
- -----------------
Averages 92,990 15.84 15.84 0.87 0.71 4.30
Medians 96,518 15.71 15.71 0.82 0.76 3.88
West Virginia Public Thrifts
- ----------------------------
Averages 221,053 13.70 13.45 1.30 0.69 5.70
Medians 221,053 13.70 13.45 1.30 0.69 5.70
Southeast Region Thrifts
- ------------------------
Averages 615,526 10.94 10.70 1.28 0.83 8.09
Medians 341,897 9.71 9.36 1.27 0.70 6.68
All Public Thrifts
- ------------------
Averages 1,453,274 12.37 12.07 1.30 0.62 6.11
Medians 349,347 9.97 9.61 1.17 0.66 5.40
Comparative Group
- -----------------
ASBFinancial-OH 111,824 15.71 15.71 0.59 0.60 2.72
FirstFedBncp-MN 109,729 11.36 11.36 1.00 0.32 2.45
CommunityInvrs-OH 95,787 11.39 11.39 1.39 0.64 4.99
CitiSaveFinCorp-LA 75,635 16.00 15.99 0.88 0.78 4.30
FFBSBanCorp-MS 127,125 19.39 19.39 1.17 1.13 5.72
HardinBancorp-MO 97,015 14.76 14.76 0.76 0.49 2.82
KYFirstBancorp-KY 87,874 17.15 17.15 0.72 0.87 3.88
Mid-IowaFinCorp-IA 117,066 9.32 9.30 NA 0.84 9.07
NS&LBancorp-MO 58,394 21.00 21.00 0.52 0.51 2.29
NorthwestEqty-WI 96,518 12.25 12.25 0.93 0.76 5.88
SCCommunBancsh-SC 45,919 25.89 25.89 0.73 0.90 3.21
Note: Stock prices are closing prices or last trade. Pro forma calculations for
First Federal are based on sales at $10 per share with a midpoint of $6,000,000,
minimum of $5,100,000 and maximum of $6,900,000
Sources: First Federal's audited and unaudited financial statements, SNL
Securitise, and F&C calculations.
7
FERGUSON & COMPANY Table III.4 - Comparative Selection Section III
- ------------------ -----------
Deposit Current
Insurance Stock
Agency Price
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($)
Comparables
-----------
ASBP ASB Financial Corp. Portsmouth OH MW SAIF NASDAQ 05/11/95 13.000
BDJI First Federal Bancorporation Bemidji MN MW SAIF NASDAQ 04/04/95 17.500
CIBI Community Investors Bancorp Bucyrus OH MW SAIF NASDAQ 02/07/95 16.500
CZF CitiSave Financial Corp Baton Rouge LA SW SAIF AMSE 07/14/95 13.750
FFBS FFBS BanCorp, Inc. Columbus MS SE SAIF NASDAQ 07/01/93 22.125
HFSA Hardin Bancorp, Inc. Hardin MO MW SAIF NASDAQ 09/29/95 12.250
KYF Kentucky First Bancorp, Inc. Cynthiana KY MW SAIF AMSE 08/29/95 11.125
MIFC Mid-Iowa Financial Corp. Newton IA MW SAIF NASDAQ 10/14/92 6.750
NSLB NS&L Bancorp, Inc. Neosho MO MW SAIF NASDAQ 06/08/95 14.000
NWEQ Northwest Equity Corp. Amery WI MW SAIF NASDAQ 10/11/94 12.125
SCCB S. Carolina Community Bancshrs Winnsboro SC SE SAIF NASDAQ 07/07/94 15.250
Maximum 22.125
Minimum 6.750
Average 14.138
Median 13.88
Rejects and Reasons
-------------------
PCBC Perry County Financial Corp. Perryville MO MW SAIF NASDAQ 02/13/95 18.000
Loans are to low in relation to total assets
HHFC Harvest Home Financial Corp. Cheviot OH MW SAIF NASDAQ 10/10/94 9.500
Earnings Problems - not comparable
ETFS East Texas Financial Services Tyler TX SW SAIF NASDAQ 01/10/95 17.000
Volume of Loans Serviced is to high.
MFLR Mayflower Co-operative Bank Middleboro MA NE BIF NASDAQ 12/23/87 16.500
BIF Insured - can distort earnings and profitability comparisons
GLBK Glendale Co-Operative Bank Everett MA NE BIF NASDAQ 01/10/94 20.000
BIF Insured - can distort earnings and profitability comparisons
PTRS Potters Financial Corp. East Liverpool OH MW SAIF NASDAQ 12/31/93 19.250
Non-performing assets to high.
Parameters Used in Finding Comps
--------------------------------
1. Eliminated all with PE Ratios in excess of 25
2. Eliminated all that did not report full 12 months.
3. Eliminated MHC's.
4. Eliminated all with TA's in excess of $150 million.
5. Eliminated all merger targets.
6. Eliminated all with ROA greater than 1.5
7. Eliminated BIF Insured thrifts on an individual basis.
Source: SNL Securitise Inc. and F&C calculations.
8
FERGUSON & COMPANY Table III.4 - Comparative Selection Section III
- ------------------ -----------
Current Price/ Price/ Current Current Current Total
Market LTM Core Price/ Price/ Tang Price/ Dividend Assets
Value Core EPS EPS Book Value Book Value Assets Yield (000)
Ticker ($M) (x) (x) (%) (%) (%) (1%) Mst RctQ
ASBP 22.28 21.31 29.55 82.17 82.17 19.49 3.08 114,298
BDJI 12.26 19.02 16.20 99.49 99.49 11.43 - 107,256
CIBI 10.99 12.50 12.50 97.12 97.12 11.60 2.42 94,799
CZF 13.23 15.63 20.22 109.04 109.04 17.49 2.91 75,635
FFBS 34.75 19.41 16.76 133.12 133.12 27.64 2.26 125,727
HFSA 11.70 18.01 18.01 83.56 83.56 14.02 3.27 87,807
KYF 15.45 15.67 17.38 80.73 80.73 17.96 4.49 86,009
MIFC 11.19 10.07 NM 105.63 105.80 9.67 1.19 115,804
NSLB 10.63 23.73 38.89 87.28 87.28 17.19 3.57 61,807
NWEQ 11.27 14.79 15.95 89.48 89.48 11.80 3.30 95,501
SCCB 11.22 22.43 21.18 90.56 90.56 25.94 3.93 43.232
Maximum 34.75 23.73 38.89 133.12 133.12 27.64 4.49 125,727
Minimum 10.63 10.07 12.50 80.73 80.73 9.67 - 43,232
Average 14.27 17.13 19.68 97.60 97.62 16.47 2.73 89,358
Median 11.49 16.84 17.38 93.84 93.84 15.61 3.09 91,303
PCBC 15.35 19.57 9.38 101.81 101.81 18.91 1.67 81,149
HHFC 8.88 21.59 NM 91.35 91.35 11.28 4.21 78,718
ETFS 18.35 22.97 26.56 87.67 87.67 16.04 1.18 114,373
MFLR 14.68 15.42 14.73 127.91 130.43 12.62 2.91 116,263
GLBK 4.95 20.83 18.52 82.47 82.47 13.38 - 36,947
PTRS 9.74 21.88 24.06 94.59 94.59 7.76 1.46 125,497
Source: SNL Securities Inc. and F&C calculations.
9
FERGUSON & COMPANY Table III.4 - Comparative Selection Section III
- ------------------
Tangible Return on Return on ROACE ROACE
Equity/ Equity/ Core Core Avg Assets Avg Assets Before Before
Assets Tang Assets EPS EPS Before Extra Before Extra Extra Extra
(%) (%) ($) ($) (%) (%) (%) (%)
Ticker Mst RctQ Mst RctQ LTM Mst RctQ LTM Mst RctQ LTM Mst RctQ
ASBP 22.18 22.18 0.61 0.11 0.57 (0.62) 2.45 (2.76)
BDJI 11.49 11.49 0.92 0.27 0.31 (0.73) 2.20 (5.98)
CIBI 11.94 11.94 1.32 0.33 0.68 (0.44) 5.03 (3.61)
CZF 16.00 15.99 0.88 0.17 0.78 (0.45) 4.30 (2.73)
FFBS 19.59 19.59 1.14 0.33 1.09 0.33 5.51 1.70
HFSA 16.78 16.78 0.68 0.17 0.44 (0.60) 2.39 (3.53)
KYF 22.25 22.25 0.71 0.16 0.89 0.07 3.68 0.31
MIFC 9.15 9.14 0.67 - 0.74 (0.02) 7.91 (0.19)
NSLB 19.70 19.70 0.59 0.09 0.57 (0.66) 2.43 (3.07)
NWEQ 12.14 12.14 0.82 0.19 0.71 0.05 5.18 0.41
SCCB 28.65 28.65 0.68 0.18 0.85 0.15 2.96 0.52
Maximum 28.65 28.65 1.32 0.33 1.09 0.33 7.91 1.70
Minimum 9.15 9.14 0.59 - 0.31 (0.73) 2.20 (5.98)
Average 16.77 16.77 0.84 0.19 0.71 (0.23) 4.16 (1.62)
Median 16.39 16.39 0.77 0.18 0.73 (0.23) 3.99 (1.46)
PCBC 18.57 18.57 0.92 0.48 0.58 (0.04) 2.97 (0.21)
HHFC 12.35 12.35 0.44 (0.02) 0.18 (1.28) 1.05 (8.82)
ETFS 18.30 18.30 0.74 0.16 0.40 (0.73) 2.08 (3.93)
MFLR 9.86 9.69 1.07 0.28 0.91 0.94 9.29 9.59
GLBK 16.23 16.23 0.96 0.27 0.77 0.74 4.84 4.59
PTRS 8.21 8.21 0.88 0.20 0.03 (1.06) 0.27 (12.06)
Source: SNL Securities Inc. and F&C calculations 10
FERGUSON & COMPANY Table III.4 - Comparative Selection Section III
- ------------------
Loans
Deposits/ Borrowings/ Serviced
NPAs/ Loans/ Loans/ Assets Assets For Others
Merger Current Assets Deposits Assets (%) (%) ($000)
Target? Pricing (%) (%) (%) Mst RctQ Mst RctQ Mst RctQ
Ticker (Y/N) Date Mst RctQ Mst RctQ Mst RctQ
ASBP N 01/10/97 1.60 84.02 61.68 73.41 2.11 -
BDJI N 01/10/97 0.23 63.49 47.98 75.56 11.09 192
CIBI N 01/10/97 0.88 99.76 73.84 74.02 13.05 650
CZF N 01/10/97 0.22 71.48 58.49 81.83 - 1,333
FFBS N 01/10/97 0.33 86.37 68.19 78.96 - 17
HFSA N 01/10/97 0.19 75.79 57.57 75.96 5.69 3,601
KYF N 01/10/97 - 91.99 53.07 57.69 18.98 -
MIFC N 01/10/97 0.13 75.29 53.88 71.56 17.70 2,786
NSLB N 01/10/97 - 64.18 50.30 78.38 - -
NWEQ N 01/10/97 1.19 123.95 81.12 65.44 21.64 24,318
SCCB N 01/10/97 NA 110.87 77.75 70.13 - NA
Maximum 1.19 123.95 81.12 81.83 21.640 24,318
Minimum - 63.49 47.98 57.69 - -
Average 0.35 86.32 62.22 72.95 8.815 3,655
Median 0.22 81.08 58.03 74.79 8.390 650
PCBC N 01/10/97 - 18.73 14.47 77.28 3.08 -
HHFC N 01/10/97 0.21 73.12 53.84 73.63 12.70 350
ETFS N 01/10/97 0.39 52.60 42.16 80.14 - 40,111
MFLR N 01/10/97 1.11 74.10 61.99 83.65 6.02 27,694
GLBK N 01/10/97 - 47.26 39.56 83.70 - NA
PTRS N 01/10/97 2.20 59.39 46.36 78.05 12.67 615
Source: SNL Securities Inc. and F&C calculations 11
SECTION IV
CORRELATION OF MARKET VALUE
FERGUSON & COMPANY Section IV
- ------------------ ----------
IV. CORRELATION OF MARKET VALUE
MARKETABILITY & LIQUIDITY OF STOCK TO BE ISSUED
This section addresses the aforementioned factors and the estimated pro
forma market. Certain factors must be considered to determine whether
adjustments are required in correlating First Federal's market value to the
comparative group. Those factors include financial aspects, market area,
management, dividends, liquidity, thrift equity market conditions, and
subscription interest value of the to-be-issued common shares, and compares the
resulting market value of the Association to the members of its comparative
group and the selected group of publicly held thrifts.
Financial Aspects
Section III includes a discussion regarding a comparison of First
Federal's earnings, balance sheet characteristics, and risk factors with its
comparative group. Table III.2 presents a comparison of certain key indicators,
and Table III.3 presents certain key indicators on a pro forma basis after
conversion.
As shown in Table III.2, from an earnings viewpoint, First Federal is
above its comparative group in return on assets and lower in core income as a
percentage of average assets, principally as a result of its higher noninterest
expense levels. First Federal has a higher net interest income than the
comparables, 4.06% to the comparative group's 3.50%. The Association's higher
capital ratio, and higher ratio of interest earning assets ("IEA's") to interest
bearing liabilities ("IBL's"), are helpful to profitability. Higher operating
expenses are offsetting the higher net interest income. After First Federal
completes its stock conversion, its return on average assets and core income as
a percentage of average assets will increase, and will exceed the comparable
group in spite of the higher levels of operating expense (3.53% vs. 2.39%).
Table III.3 projects that First Federal will surpass the group in return on
assets with 1.07% at the midpoint, versus a mean of 0.71% and median of 0.76%
for the comparative group.
First Federal's pro forma equity to assets ratio at the midpoint is
30.83%, versus a mean of 15.84%, and median of 15.71% for the comparative group.
First Federal's pro forma return on equity is below the comparative group--3.46%
at the midpoint versus a mean of 4.30%, and median of 3.88% for the comparative
group. This is an expected result considering the higher capital ratios of First
Federal in comparison to the group. Before conversion, First Federal is
generously capitalized at 18.08% of total assets. The Conversion will result in
a capital ratio of 30.83% at the midpoint. The impact of these capital levels is
a plus when you measure income as a percentage of total assets, but these high
levels have the opposite effect on earnings measured as a percent of equity. In
other words, higher capital, lower ROAE, and lower capital, higher ROAE - all
other factors being equal.
First Federal's recorded earnings as of December 31, 1996, have been
adjusted for appraisal purposes (see Table IV.1). The Association recorded gains
of $4 thousand from the sale of investments, and paid the SAIF special
assessment of $129 thousand.
1
FERGUSON & COMPANY Section IV
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Table IV.1 - Appraisal Earnings Adjustments
for the Twelve Months Ending December 31, 1996
Income Year Ended March 31, 1996 197
9 months Ended December 31, 1995 (148)
9 months Ended December 31, 1996 86
---------
12 months Ended December 31, 1996 135
---------
Adjustments to Earnings
Add:
SAIF-BIF Deposit Premium 129
Deduct:
Gain on sale of R/E (4)
----------
Adjustments 125
----------
Tax effect of Adjustments at 35% (44)
----------
81
----------
Appraisal Earnings 261
==========
Source: First Federal's audited and unaudited financial statements and F&C
calculations.
First Federal's asset composition is similar to that of its comparative
group-lending oriented; however, cash and investments, and mortgage-backed
securities present some differences from the comparative group. First Federal
has 14.19% in cash and investment securities and a nominal 1.30% of total assets
in MBS's. The comparative group has 25.73% in cash and investments, and 9.54% in
MBS's. However, if you add MBS's to loans, Carrolton Federal then has 83.69% in
combination (loans + MBS's), and the comparative group has 72.17% in the same
combination.
From the risk factor viewpoint, First Federal is similar to the
comparative group. First Federal has 0.31% in nonperforming assets, and the
comparative group has 0.61% in nonperforming assets. Obviously, First Federal's
percentage is much smaller, but both levels are manageable, and neither should
present any problems related to capital or future earnings. First Federal's loan
loss allowance is 0.72% of net loans, comparing favorably with the comparative
group, which is 0.61%. Its ratio of interest earning assets to interest bearing
liabilities (120.52%) is near the comparative group (119.66%). Although no gap
information is available, the significant degree of interest rate risk can be
determine from Table 1.5. That table shows that the NPV would decrease by 18%
with a 200 BP increase in rates and 36% with a 400 BP increase in rates.
Therefore, from an interest rate risk factor, First Federal has more interest
rate risk than the comparative group. First Federal's interest rate risk will
decrease after the Conversion with the employment of the subsequent capital
infusion in short term securities, but over time will increase as the loan
portfolio grows.
We believe that no adjustment is necessary relative to financial
aspects of First Federal.
2
FERGUSON & COMPANY Section IV
- ------------------ ----------
Market Area
Section II describes First Federal's market area.
We believe that no adjustment is required for First Federal's market
area.
Management
First Federal has two officers that are responsible for the daily
operations of the Association. The President and Chief Executive Officer is Mr.
Stanley M. Kiser. He has been with the Association in that capacity since 1993,
and has served as director since 1994. All officers report directly to Mr.
Kiser. He is well qualified for his position. Mr. Gary L. Ward, Treasurer, Vice
President and Chief Lending Officer has been with the Association for 35 years.
He has served on the Board of Directors since 1972. He assists in the management
of the Association in the areas of lending asset/liability management, and
compliance. He has announced his intention to retire in Mach of 1997. His
position will be filled from within the organization. He is well qualified for
the position he holds. The Association's staff possess the necessary intellect,
skills, levels of expertise, and experience to maintain the integrity of the
assets and to implement the strategic goals of the organization. First Federal's
results compare well with the comparative group. Therefore, First Federal's
Management has done the same quality job as its selected comparatives. The Board
has not developed a formal management succession plan. However, that is not
unusual for Associations of this size. The Association is not particularly
vulnerable to the loss of one senior manager, but the loss of two could create
short term problems.
We believe that no adjustment is required for First Federal's
Management.
Dividends
Table III.3 provides dividend information relative to the comparative
group and the thrift industry as a whole. The comparative group is paying a mean
yield on a market price of 2.54% and a median of 2.86%, while all public thrifts
are paying a mean of 2.01% and median of 1.86%. West Virginia public thrifts are
paying a mean of 1.53% and a median of 1.53%, but they are so few in number that
they are not a significant analytical factor. First Federal intends to pay a
dividend at an initial annual rate of 3.0%, on an offering price of $10.00 per
share ($0.30 per share). Even with market appreciation, First Federal's dividend
rate will be comparable.
We believe that no adjustment is required relative to First Federal's
intention to pay dividends.
Liquidity
The Holding Company has never issued capital stock to the public, and
as a result, there is no existing market for the Common Stock. Although the
Holding Company has applied to list its Common Stock on NASDAQ's bulletin board,
there can be no assurance that a liquid trading marking will develop.
A public market having the desirable characteristics of depth,
liquidity, and orderliness depends upon the presence in the market place of both
willing buyers and sellers of the Common Stock. These characteristics are not
within the control of the Association or the market.
The peer group includes companies with sufficient trading volume to
develop meaningful pricing characteristics for the stock. The market value of
the comparative group ranges from $34.4 million to $10.9 million, with a mean
value of $15.8 million. The midpoint of First Federal's
3
FERGUSON & COMPANY Section IV
- ------------------ ----------
valuation range is $6.0 million at $10.00 a share, or 600,000 shares. There is a
lack of liquidity in the stock that is inherent in an issue of this small size
($6.0 million).
We believe a downward adjustment is required relative to the liquidity
of First Federal's stock.
Thrift Equity Market Conditions
The SNL Thrift Index has performed well since the end of 1990. The
Index has grown as follows: year ended December 31, 1991--increased 49.0% from
96.6 to 143.9; year ended December 31, 1992--increased 39.7% to 201.1; year
ended December 31, 1993-increased 25.6% to 252.5; year ended December 31,
1994--decreased 3.1% to 244.7; year ended December 31, 1995--increased 53.86% to
376.5; and year ended December 31, 1996--increased 29.25% to 486.63. The SNL
Index is market value weighted with a base value of 100 as of March 31, 1984.
As shown in Figure IV.1, which is a graph of the SNL Thrift Index
covering the period January 31, 1994, through March 14, 1997, the market, as
depicted by the Index, has experienced fluctuations recently. It dipped in the
latter part of 1994, but recovered during the first quarter of 1995. During
1995, the Index continued a more robust increase and moved from 244.7 at year
end 1994, to 376.50 by December 31, 1995, an increase of 53.86%. Between
December 30, 1995, and May 31, 1996, the Index moved up and down within a narrow
band of performance. In May of 1996, the upward trend became recognizable and
continuous. The Index has generally tended upward since that start. Overall, the
market index increased 27.06% (from 382.99 to 486.63) between the end of May and
December 31, 1996. However, driven by other markets, generally good economic
news, and a pass by the Federal Reserve in February to raise rates, the thrift
equities market has again risen abruptly. By March 14, 1997, the SNL Index was
560.67, an increase of an additional 15.12% since the beginning of 1997.
The increase in the SNL Index in general has been parallel with the
increases in other equity market with some interim fluctuations caused by
changes or anticipated changes in interest rates or other economic conditions.
Another factor, however, is also notable. In other markets, increased prices are
responding to improved profits, with price to earnings ratios increasing as
increased earnings potentials are anticipated. The thrift market has also
reflected higher price earnings ratios. In addition, the thrift IPO market has
been affected by speculation that conveys the notion that the majority of the
converting institutions will sooner or later become viable consolidation
candidates and sell at some expanded multiple of book value. Moreover, the
number of conversions has decreased in recent months and the basis of supply and
demand are affecting the pricing of some of the recent issues, as professional
investor and regional speculators chase fewer viable issues of thrift equities.
WEST VIRGINIA ACQUISITIONS
Table IV.2 provides information relative to acquisitions of financial
institutions in West Virginia between January 1, 1995, and December 31, 1996.
There was one thrift acquisition and 5 bank acquisitions announced during that
time frame. Currently there are two publicly held thrifts in the State of West
Virginia. There are 56 publicly held thrifts in the Southeast region of the
country. Bank acquisitions in West Virginia since January 1, 1995, have averaged
195.19% of tangible book value and 21.80 times earnings. The median price has
been 213.97% of tangible book value and 22.29 times earnings. Thrifts generally
sell at lower price/book multiples than do banks. There has been only one thrift
sale in the State of West Virginia during the period. That
4
FERGUSON & COMPANY Section IV
- ------------------ ----------
transaction closed at 190.42% of book value and 19.25 times earnings. This data
reflects that there is little difference between the price of banks and thrifts.
However, on a national scale there usually is a disparity between the price of
banks and thrifts. That fact aside, there is ample data shown to conclude that
speculators in thrift IPO stock have good reason to believe that, in the event
of a sell out, there would be a generous profit to be made. Such knowledge and
hope for profits have created a whole new level of professional investors
(speculators) and that, in turn, has increased the demand for thrift IPO stocks.
EFFECT OF INTEREST RATES ON THRIFT STOCK
The current interest rate environment and the anticipated rate
environment will affect the pricing of thrift stocks and all other interest
sensitive stocks. As the economy continues to expand, the fear of inflation can
return. The Federal Reserve, in its resolve to curb inflation, has increased
rates in the past, but has more recently relented to vagaries of the economy and
passed on an opportunity to increase rates. In some minds, this was an attempt
to stimulate what is currently perceived as a fragile and irresolute economy
that could be dampened by a modest increase in rates. Recent gains in thrift
stocks are mainly due to the rise in other equity markets, the effect of supply
and demand, and fewer conversions. Should the merger and acquisition levels
drop, if there were a sharp and sustained rise in the interest rates, or if
other equity markets have an adjustment, the market in thrift equities would
also adjust downward.
What is likely to happen in the short to intermediate term is that
rates will float around current levels and trend upward. The yield curve will
continue to be of normal configuration. Most economists feel that a rise of
three quarters of one percent on the short side, and less on the long side,
could severely dampen the economy. Currently, we are in the second longest
post-war expansion on record. The Federal Reserve passed on raising rates in
February, and the next opportunity will be March 25, 1997. There is concern that
a decision to raise rates could have significant impact upon the stock market,
and if rates are increased, it will not be by much. It is also possible that the
Fed could slow the economy furtively, without raising rates. It could allow the
US Dollar to remain strong against the Yen and the European currencies. Although
not as effective as a rate increase, a continuing strong dollar would have a
natural economic "braking effect" on the US economy. Goods and services produced
by countries with weaker currencies would become cheaper on the global market
and more competitive to US produced goods. The net result would be a market
induced slowing of the economy--until the US Dollar loses its strength and
values of currencies are adjusted.
Thrift net interest margins will narrow if the cost of funds starts to
rise more quickly than currently anticipated. Even with portfolios replete with
adjustable rate loans and adjustable MBS's, a quickly rising rate environment
can cause the cost of funds to rise faster than the adjustable assets can
accommodate, and accordingly, spreads would narrow. If rates rise in a slow and
orderly manner, the negative impact on spreads will be less, and the adjustable
rate assets will have time to rise and protect rate spreads.
As clearly illustrated in Figure IV.1, the SNL Thrift Index has
performed well over the last five years. It moved in tandem with all interest
sensitive stocks and reflected the weakness in the market as investors began to
consider the importance of increases in rates and their impact on the net
interest margins of thrifts. The clear implication is that eventually rising
interest rates will have a negative impact on earnings, but until that occurs,
it is likely that the market will continue to rise.
5
FERGUSON & COMPANY Section IV
- ------------------ ----------
Figure IV.2 graphically displays the rate environment since August 30,
1996. In August, September, and October of 1996, the yield curve was normal,
with between 200 basis points ("BP") and 161 BP's difference between the federal
funds rate and the 30 year treasury. In November and December, the yield curve
has become flatter, with a 111 BP spread between the federal funds rate and the
30 year treasury rate being the low in November, and 140 BP spread being the
high in December. However, since the year end, the yield curve has increased
with the high spread being 171 BP and the low 151 BP. Mortgage rates follow
closely the long term government obligations. The increasing spread of the last
two months has improved portfolio managers chances of improving profitability.
Increased cost of funds will serve to narrow the net interest margins
of thrifts. A thrift's ability to maintain net interest margins through business
cycles is important to investors, unless thrifts can offset the decline in net
interest income by other sources of revenue or reductions in noninterest
expense. The former is difficult, and the latter is unlikely.
First Federal is significantly vulnerable to interest rate risk. If
current strategies to remain principally a single family fixed rate lender are
maintained, the Association will continue to be exposed to interest rate risk.
However, the institution will have generous capital levels to insulate the
institution from the risk of failing. But this does call to question the
reasonableness of a strategy that is basically to keep excess capital in case
they lose a portion to interest rate changes.
Table IV.3, which has information on recent conversions since August
1, 1996, shows that recent price appreciation has been more robust than it wa in
past periods. Table IV.3 provides information on 21 conversions completed since
August, 1996. The average change in price since conversion is a gain of 48.67%,
and the median change is a gain of 42.50%. All thrifts within that group have
increased in value ranging from a low of 32.00% to a high of 83.75%. The average
increase in value at one day, one week, and one month after conversion has been
24.30%, 27.12%, and 31.74%, respectively. The median increase in value at one
day, one week, and one month after conversion has been 25.25%, 26.25%, and
32.50%, respectively. A notable change in pricing patterns is that it is taking
longer for the stocks to increase in value. This is mainly due to the trend
toward higher price to pro forma book values at closings. Since December 1,
1996, only one stock has closed at a price to pro forma book value of less than
70.00%, and that was 68.10% of pro forma book value. The remainder closed
between 71.10% and 74.40% price to pro forma book value.
Because of the lack of complete earnings information on recent
conversions, a meaningful comparison of the price earnings ratios is difficult
to make. However, there is sufficient information to review the current
price-to-book ratio. The average price-to-book ratio as of March 14, 1997, is
100.83%, and the median is 96.91%. That compares to the offering price to pro
forma book, where the average was 71.37%, and the median was 72.10%.
In addition to looking at recent conversions of larger institutions
(Table IV.3), it is also important in making a fair comparison to look at recent
conversions in smaller institutions. For that comparison, we have information on
all "Pink Sheet" conversions since August of 1996 (See table IV.4). Table IV.4
shows that the market value of these issues was an average of $4.83 million,
with a median of $4.88 million, a maximum of $6.7 million and a minimum of $1.9
million. Clearly these issues are nearer in size to First Federal, but the lack
of a substantial market in these stocks, and the dearth of operating information
makes it impractical to use "Pink Sheet" issues as comparable. The information
shows that these eleven issues sold at a price to pro forma book value of 73.6%,
with a median of 65.5%. These pro forma book values are close to those of larger
6
FERGUSON & COMPANY Section IV
- ------------------ ----------
issues. However, the notable difference is in the current price to book value
ratios which average 94.31% and have a median of 89.92%. Clearly, the inference
is that the smaller issues that have less liquidity, and will for some period of
time sell at price to book values that are less than the larger issues. Although
the information is limited (only four out of eleven have reported earnings), it
is likely that these issues will also trade at lower price/earnings ratios. The
average of these was 16.30, and the median was 13.95. Table IV.5 demonstrates
the comparison of pricing ratios.
We believe that a downward adjustment is required for the new issue
discount.
Adjustments Conclusion
Adjustments Summary
- --------------------------------------------------------------------------------
No Change Upward Down
Financial Aspects X
Market Area X
Management X
Dividends X
Liquidity X
Thrift Equity Market Conditions X
- --------------------------------------------------------------------------------
Valuation Approach
Typically, investors rely on the price/earnings ratio as the most
appropriate indicator of value. We consider price/earnings to be one of the
important pricing methods in valuating a thrift stock. Price/book is a well
recognized yardstick for measuring the value of financial institution stocks in
general. Another method of viewing thrift values is price/assets, which is more
meaningful in situations where the subject is thinly capitalized. Given the
healthy condition of the thrift industry today, more emphasis is placed on
price/earnings and price/book. Generally, price/earnings and price/book should
be considered in tandem.
Table III.3 presents First Federal's pro forma ratios and compares them
to the ratios of its comparative group and the publicly held thrift industry as
a whole. First Federal's earnings for the 12 months ended December 31, 1996,
were approximately $135,000, with net adjustments of $125,000 ($81,000 after tax
@ 35%) required to determine appraisal earnings of $216,000 (see Table IV.1).
The Association is not well positioned to manage interest variations, but the
utilization of conversion proceeds could mitigate to some degree the amount of
interest rate risk. The Association projects controlled growth.
The comparative group traded at an average of 19.54 times earnings at
March 14, 1997, and at 110.08% of book value. The comparative group traded at a
median of 18.78 times earnings and a median of 108.29% of book value. At the
midpoint of the valuation range, First Federal is priced at 18.37 times earnings
and 62.59% of book value. At the maximum end of the range, First Federal is
priced at 20.00 times earnings and 66.59% of book value. At the supermaximum,
First Federal is priced at 21.67 times earnings and 70.51% of book value.
7
FERGUSON & COMPANY Section IV
- ------------------ ----------
The midpoint valuation of $6,000,000 represents a discount of 43.1%
from the average and a discount of 42.2% from the median of the comparative
group on a price/book basis. The price/earnings ratio for First Federal at the
midpoint represents a discount of 6.0% from the comparative group's mean and
2.2% from the median price/earnings ratio.
The maximum valuation of $6,900,000 represents a discount of 39.5% from
the average and 38.5% from the median of the comparative group on a price/book
basis. The price/earnings ratio for First Federal at the maximum represents a
premium of 2.4% over the average and a premium of 6.5% over the median of the
comparative group.
The supermaximum valuation of $7,935,000 represents a discount of 35.9%
from the average and 34.9% from the median of the comparative group on a
price/book basis. The price/earnings ratio for First Federal at the supermaximum
represents a premium of 10.9% over the average and a premium of 15.4% over the
median of the comparative group.
As shown in Table IV.3, conversations closing since August 1, 1996,
have closed at an average price to pro forma book ratio of 71.37% and median of
72.10%. First Federal's pro forma price to book ratio is 62.59% at the midpoint,
66.59% at the maximum, and 70.51% at the supermaximum of the range. At the
midpoint, First Federal is 12.30% below the average and 13.19% below the median.
At the maximum of the range, First Federal is 6.69% below the average and 7.64%
below the median. At the supermaximum of the range, First Federal's pro forma
price to book ratio is 1.20% below the average and 2.20% above the median.
Addressing the discounts between the pro forma book value of First
Federal and the current price to book values of the comparative group (See Table
IV.3). All of these calculations were made from book value. At a midpoint pro
forma book value of 62.59%, the discount from the average pro forma book value
closing ratio for all of the recent conversions is 12.30%. Should the issue
close at the super maximum, which is likely, then it would be closing at a
discount of 1.20% from the average of recent conversion. It is important to
realize that there is some point beyond which most knowledgeable investors will
not travel as it relates to the price of thrift IPO stock. It is important to
consider the limited size of this issue and the lack of liquidity that is
inherent in an issue of the size, because this issue is smaller than any of the
recent conversion issues. A high P/E ratio, a price to pro forma book value of
70.51% at the supermax, and the lack of liquidity in this stock will place
limits on investor tolerances. This valuation provides for a 15% increase
between midpoint and maximum and an additional 15% to supermaximum, which would
place it near the average of recent conversions recent conversions.
Valuation Conclusion
We believe that as of March 14, 1997, the estimated pro forma market
value of First Federal was $6,000,000. The resulting valuation range was
$5,100,000 at the minimum to $6,900,000 at the maximum, based on a range of 15%
below and 15% above the midpoint valuation. The supermaximum is $7,935,000 based
on 1.15 times the maximum. Pro forma comparisons with the comparative group are
presented in Table III.3 based on calculations shown in Exhibit V.
8
FERGUSON & COMPANY Section IV
- ------------------ ----------
Table IV.2 - Recent West Virginia Bank and Thrift Sales
Buyer: Seller: Ann'd
1:Total 1:Total Completed/ Deal
Bank/ Bank/ Assets Assets Announce Terminated Value
Buyer ST Thrift Seller ST Thrift ($000) ($000) Date Status Date ($M)
WesBanco WV Bank Vandalia Nat'l Corp. WV Bank 1,380,065 58,259 07/19/96 Pending NA 10.10
City Holding
Company WV Bank Old National Bank WV Bank 1,055,011 39,120 05/16/96 Pending NA 9.90
WesBanco WV Bank Bank of Weirton WV Bank 1,359,365 178,967 02/09/96 Completed 09/03/96 45.40
Horizon
Bancorp WV Bank Twentieth Bancorp WV Bank 602,667 315,965 02/07/96 Completed 08/31/96 78.20
City Holding
Company WV Bank First Merchants Bncp WV Bank 780,526 115,300 03/14/95 Completed 09/01/95 26.30
United
Bankshares WV Bank Eagle Bancorp WV Thrift 1,770,206 383,868 08/21/95 Completed 04/12/96 93.40
Maximun Bank & Thrifts 93.40
Minimum 9.90
Average 43.88
Median 35.85
Maximun Banks Only 78.20
Minimum 9.90
Average 33.98
Median 26.30
Thrift Only 93.40
Source: SNL Securited and F&C calculations 9
FERGUSON & COMPANY Section IV
- ------------------ ----------
Table IV.2 - Recent West Virginia Bank and Thrift Sales
Ann'd Ann'd Final Final Final Final Final
Deal Deal Pr/ Deal Deal Deal Pr/ Deal Pr/ Deal
PR/BK Tg Bk 4-Qtr Value Pr/Bk Tg Bk 4-Qtr
Seller (%) (%) EPS (x) ($M) (%) (%) EPS (x)
Vandalia Nat'l Corp. 224.24 224.24 32.41 NA NA NA NA
Old National Bank 249.18 249.18 28.86 NA NA NA NA
Bank of Weirton 123.94 123.94 21.24 46.90 125.99 125.99 22.82
Twentieth Bancorp 246.49 254.29 22.56 71.80 213.79 219.63 22.29
First Merchants Bncp 277.54 328.53 21.92 24.80 245.79 271.39 20.28
Eagle Bancorp 198.34 198.34 17.19 91.40 190.42 190.42 19.25
Maximun 277.54 328.53 32.41 91.40 245.79 271.39 22.82
Minimum 123.94 123.94 17.19 24.80 125.99 125.99 19.25
Average 219.96 229.75 24.03 58.73 194.00 201.86 21.16
Median 235.37 236.71 22.24 59.35 202.11 205.03 21.29
Maximun 277.54 328.53 32.41 71.80 245.79 271.39 22.82
Minimum 123.94 123.94 21.24 24.80 125.99 125.99 20.28
Average 224.28 236.04 25.40 47.83 195.19 205.67 21.80
Median 246.49 249.18 22.56 46.90 213.79 219.63 22.29
198.34 198.34 17.19 91.40 190.42 190.42 19.25
Source: SNL Securited and F&C calculations 10
FERGUSON & COMPANY Section IV
- ------------------ ----------
FERGUSON & COMPANY
- ------------------
Table IV.3 - Recent Conversions Since August 1, 1996
Price/ Price/ Price/
Conversion Gross Offering Pro-Forma Pro-Forma Adjusted
Assets Proceeds Price Book Value Earnings Assets
Ticker Short Name State IPO Date ($000) ($000) ($) (%) (x) (%)
AFBC Advance Financial Bancorp WV 01/02/97 91,852 10,845 10.000 71.10 16.80 10.60
AFED AFSALA Bancorp, Inc. NY 10/01/96 133,046 14,548 10.000 71.70 13.70 9.90
BFFC Big Foot Financial Corp. IL 12/20/96 194,624 25,128 10.000 72.70 33.10 11.40
CBES CBES Bancorp, Inc. MO 09/30/96 86,168 10,250 10.000 61.10 13.20 10.60
CENB Century Bancorp, Inc. NC 12/23/96 81,304 20,367 50.000 72.10 18.90 20.00
CFNC Carolina Fincorp, Inc. NC 11/25/96 94,110 18,515 10.000 77.00 17.20 16.40
CNBA Chester Bancorp, Inc. IL 10/08/96 134,781 21,821 10.000 72.10 18.80 13.90
DCBI Delphos Citizens Bancorp, Inc. OH 11/21/96 88,022 20,387 10.000 72.20 14.60 18.80
EFBC Empire Federal Bancorp, Inc. MT 01/27/97 86,810 25,921 10.000 68.10 21.50 23.00
FAB FirstFed America Bancorp, Inc. MA 01/15/97 723,778 87,126 10.000 72.00 13.60 10.70
FTNB Fulton Bancorp, Inc. MO 10/18/96 85,496 17,193 10.000 72.50 14.60 16.70
HBEI Home Bancorp of Elgin, Inc. IL 09/27/96 304,520 70,093 10.000 72.60 24.90 18.70
HCFC Home City Financial Corp. OH 12/30/96 55,728 9,522 10.000 71.20 13.70 14.60
PFED Park Bancorp, Inc. IL 08/12/96 158,939 27,014 10.000 66.70 26.20 14.50
PFFC Peoples Financial Corp. OH 09/13/96 78,078 14,910 10.000 64.30 28.60 16.00
PSFI PS Financial, Inc. IL 11/27/96 53,520 21,821 10.000 71.90 17.20 29.00
RIVR River Valley Bancorp IN 12/20/96 86,604 11,903 10.000 73.00 15.20 12.10
RSLN Roslyn Bancorp, Inc. NY 01/13/97 1,596,744 423,714 10.000 72.00 9.30 21.00
SCBS Southern Community Bancshares AL 12/23/96 64,381 11,374 10.000 74.40 14.50 15.00
SSFC South Street Financial Corp. NC 10/03/96 166,978 44,965 10.000 76.30 26.10 21.20
WEHO Westwood Homestead Fin. Corp. OH 09/30/96 96,638 28,434 10.000 73.80 NA 22.70
Maximum 1,596,744 423,714 50.000 77.00 33.10 29.00
Minimum 53,520 9,522 10.000 61.10 9.30 9.90
Average 212,482 44,564 11.905 71.37 18.59 16.51
Median 91,852 20,387 10.000 72.10 17.00 16.00
Source: SNL Securities and F&C calculations 11
FERGUSON & COMPANY
- ------------------
Table IV.3 - Recent Conversion Since August 1, 1996
% Increase % Increase % Increase
Current Current Current Price One One Price One One Price One One % Increase
Stock Price/ Price/ Tang Day After Day After Week After Week After Month After Month After Since
Price Book Value Book Value Conversion Conversion Conversion Conversion Conversion Conversion Conversion
Ticker ($) (%) (%) ($) (%) ($) (%) ($) (%) (%)
AFBC 14.250 NA NA 12.875 28.75 12.938 29.38 14.000 40.00 42.50
AFED 14.125 90.95 91.19 11.375 13.75 11.313 13.13 11.563 15.63 41.25
BFFC 14.125 NA NA 12.313 23.13 12.500 25.00 13.875 38.75 41.25
CBES 16.625 98.37 98.37 12.625 26.25 13.438 34.38 13.250 32.50 66.25
CENB 66.000 91.03 91.03 62.625 25.25 66.000 32.00 65.125 30.25 32.00
CFNC 14.625 104.02 104.02 13.000 30.00 13.000 30.00 13.625 36.25 46.25
CNBA 15.000 NA NA 12.938 29.38 12.625 26.25 12.625 26.25 50.00
DCBI 13.750 93.66 93.66 12.125 21.25 12.125 21.25 12.063 20.63 37.50
EFBC 13.500 NA NA 13.250 32.50 13.500 35.00 13.750 37.50 35.00
FAB 14.875 NA NA 13.625 36.25 14.125 41.25 14.875 48.75 48.75
FTNB 18.375 127.96 127.96 12.500 25.00 12.875 28.75 14.750 47.50 83.75
HBEI 15.125 106.14 106.14 11.813 18.13 12.500 25.00 12.625 26.25 51.25
HCFC 13.625 85.37 85.37 NA NA 12.500 25.00 13.500 35.00 36.25
PFED 15.750 102.41 102.41 10.250 2.50 10.438 4.38 10.500 5.00 57.50
PFFC 15.500 95.86 95.86 10.875 8.75 11.500 15.00 12.750 27.50 55.00
PSFI 13.875 NA NA 11.641 16.41 11.688 16.88 12.500 25.00 38.75
RIVR 14.250 NA NA 13.688 36.88 13.875 38.75 15.000 50.00 42.50
RSLN 18.000 NA NA 15.000 50.00 15.938 59.38 16.000 60.00 80.00
SCBS 13.375 95.26 95.26 13.000 30.00 13.750 37.50 13.500 35.00 33.75
SSFC 16.625 122.88 122.88 NA NA 12.500 25.00 12.375 23.75 66.25
WEHO 13.625 96.91 96.91 10.750 7.50 10.625 6.25 10.500 5.00 36.25
Maximum 66.000 127.96 127.96 62.625 50.00 66.000 59.38 65.125 60.00 83.75
Minimum 13.375 85.37 85.37 10.250 2.50 10.438 4.38 10.500 5.00 32.00
Average 17.381 100.83 100.85 15.067 24.30 15.226 27.12 15.655 31.74 48.67
Median 14.625 96.91 96.91 12.625 25.25 12.625 26.25 13.500 32.50 42.50
Source: SNL Securities and F&C calculations. 12
FERGUSON & COMPANY
- ------------------
Table IV.4 - Recent Pinksheet Conversion
Price/ Price/
Conversion Pro-Forma Pro-Forma
Assets IPO Proceeds IPO Price Book Value Tang. Book
Ticker Short Name State IPO Date ($000) ($000) ($) (%) (%)
WBIO Washington Bancorp IA 03/12/96 55,202 6,575 10.000 65.4 65.417
WAKE Wake Forest FS&LA, MHC NC 04/03/96 55,136 5,150 10.000 114.1 114.087
NSGB North Cincinnati Savings Bank OH 05/01/96 56,637 3,968 10.000 65.0 65.025
FFFB First Federal Finl Bncp, Inc. OH 06/04/96 51,296 6,718 10.000 64.5 64.496
KNWP Kenwood Bancorp, Incorporated OH 07/01/96 NA NA NA NA NM
ALGC Algiers Bancorp, Incorporated LA 07/09/96 42,450 6,480 10.000 69.0 68.988
LNXC Lenox Bancorp, Incorporated OH 07/18/96 43,149 4,256 10.000 59.6 59.583
MDWB Midwest Savings Bank IL 09/23/96 36,354 1,918 10.000 65.1 65.145
FALN First Allen Parish Bncp, Inc. LA 09/30/96 29,605 2,645 10.000 65.5 65.519
ASFE Ashe Federal Bank, MHC NC 10/07/96 69,163 4,618 10.000 95.0 95.021
IFBH IFB Holdings, Inc. MO 12/30/96 52,587 5,925 10.000 73.1 73.131
Maximum 69,163 6,718 10.000 114.1 114.087
Minimum 29,605 1,918 10.000 59.6 59.583
Average 49,158 4,825 10.000 73.6 73.641
Median 51,942 4,884 10.000 65.5 65.468
Source: SNL Securities and F&C calculations. 13
FERGUSON & COMPANY
- ------------------
Table IV.4 - Recent Pinksheet Conversion
Price/ Price/ Current Current Current Current Current
Pro-Forma Adjusted Stock Price/ Price/ Tang Price/ Price/
Earnings Assets Price Book Value Book Value Earnings LTM EPS
Ticker (x) (%) ($) (%) (%) (x) (x)
WBIO 12.7 10.6 14.750 90.83 90.83 11.52 NA
WAKE 13.3 8.5 13.750 138.33 138.33 16.37 NA
NSGB NA 6.5 14.000 99.43 99.43 NM NA
FFFB 13.2 11.6 12.750 79.74 79.74 26.56 NA
KNWP NA NA 10.750 73.73 73.73 10.75 NA
ALGC 18.8 13.2 14.250 87.10 87.10 NA NA
LNXC 40.9 9.0 14.000 83.83 83.83 NA NA
MDWB NA 5.0 11.750 81.31 81.31 NA NA
FALN 8.8 8.2 15.750 96.57 96.57 NA NA
ASFE 31.4 6.3 12.625 116.57 116.57 NA NA
IFBH 14.3 10.1 12.750 89.92 89.92 NA NA
Maximum 40.9 13.2 15.750 138.33 138.33 26.56
Minimum 8.8 5.0 10.750 73.73 73.73 10.75
Average 19.2 8.9 13.375 94.31 94.31 16.30
Median 13.8 8.8 13.750 89.92 89.92 13.95
Source: SNL Securities and F&C calculations. 14
FERGUSON & COMPANY
- ------------------ Table IV.5 - Comparison of Pricing Ratios Schedule IV
-----------
First Federal
Savings and Group Percent Premium
Loan Compared to (Discount) Versus
-------------------------- --------------------------
Association Average Median Average Median
---------------- ------------ ------------ ------------ ------------
Comparison of PE ratio at
midpoint to:
- --------------------------------------------
Comparative group 18.37 19.54 18.78 (6.0) (2.2)
West Virginia thrifts 18.37 14.62 14.62 25.6 25.6
Southeast Region thrifts 18.37 16.70 16.79 10.0 9.4
All public thrifts 18.37 19.46 16.82 (5.6) 9.2
Recent conversions 18.37 18.59 17.00 (1.2) 8.1
Recent pink sheet conversions 18.37 19.20 13.80 (4.3) 33.1
Comparison of PE ratio at
maximum to:
- --------------------------------------------
Comparative group 20.00 19.54 18.78 2.4 6.5
West Virginia thrifts 20.00 14.62 14.62 36.8 36.8
Southeast Region thrifts 20.00 16.70 16.79 19.8 19.1
All public thrifts 20.00 19.46 16.82 2.8 18.9
Recent conversions 20.00 18.59 17.00 7.6 17.6
Recent pink sheet conversions 20.00 19.20 13.80 4.2 44.9
Comparison of PE ratio at
supermaximum to:
- --------------------------------------------
Comparative group 21.67 19.54 18.78 10.9 15.4
West Virginia thrifts 21.67 14.62 14.62 48.2 48.2
Southeast Region thrifts 21.67 16.70 16.79 29.8 29.1
All public thrifts 21.67 19.46 16.82 11.4 28.8
Recent conversions 21.67 18.59 17.00 16.6 27.5
Recent pink sheet conversions 21.67 19.20 13.80 12.9 57.0
Comparison of PB ratio at
midpoint to:
- --------------------------------------------
Comparative group 62.59 110.08 108.29 (43.1) (42.2)
West Virginia thrifts 62.59 112.56 112.56 (44.4) (44.4)
Southeast Region thrifts 62.59 154.99 133.93 (59.6) (53.3)
All public thrifts 62.59 134.11 124.51 (53.3) (49.7)
Recent conversions 62.59 100.83 96.91 (37.9) (35.4)
Recent pink sheet conversions 62.59 94.31 89.92 (33.6) (30.4)
Comparison of PB ratio at
maximum to:
- --------------------------------------------
Comparative group 66.59 110.08 108.29 (39.5) (38.5)
West Virginia thrifts 66.59 112.56 112.56 (40.8) (40.8)
Southeast Region thrifts 66.59 154.99 133.93 (57.0) (50.3)
All public thrifts 66.59 134.11 124.51 (50.3) (46.5)
Recent conversions 66.59 100.83 96.91 (34.0) (31.3)
Recent pink sheet conversions 66.59 94.31 89.92 (29.4) (25.9)
Comparison of PB ratio at
supermaximum to:
- --------------------------------------------
Comparative group 70.51 110.08 108.29 (35.9) (34.9)
West Virginia thrifts 70.51 112.56 112.56 (37.4) (37.4)
Southeast Region thrifts 70.51 154.99 133.93 (54.5) (47.4)
All public thrifts 70.51 134.11 124.51 (47.4) (43.4)
Recent conversions 70.51 100.83 96.91 (30.1) (27.2)
Recent pink sheet conversions 70.51 94.31 89.92 (25.2) (21.6)
Source: SNL Securities and F&C calculations. 15
FERGUSON & COMPANY
- ------------------
SNL Index [SNL INDEX GRAPH OMITTED]
- ---------
Date Index
- -----------------------------
1/31/94 258.47
2/28/94 249.53
3/31/94 241.57
4/29/94 248.31
5/31/94 263.34
6/30/94 269.58
7/29/94 276.69
8/31/94 287.18
9/30/94 279.69
10/31/94 236.12
11/30/94 245.84
12/30/94 244.73
1/31/95 256.10
2/28/95 277.00
3/31/95 278.40
4/28/95 295.44
5/31/95 307.60
6/23/95 313.95
7/31/95 328.20
8/31/95 355.50
9/29/95 362.29
10/31/95 354.05
11/30/95 370.17
12/29/95 376.51
1/31/95 370.69
2/29/96 373.64
3/29/96 382.13
4/30/96 377.24
5/31/96 382.99
6/28/96 387.18
7/30/96 388.38
8/30/96 408.34
9/13/96 416.01
9/20/96 419.50
9/30/96 429.28
10/30/96 456.70
11/15/96 468.06
11/29/96 485.83
12/13/96 473.64
12/20/96 481.56
12/31/96 486.63
1/10/97 484.33
1/31/97 520.08
2/14/97 547.17
2/27/97 569.67
3/14/97 560.67
Percent Change Since
- -------------------------------------------------------------------------------------------------------------
SNL Prev.
Date Index Date 12/31/94 12/31/95
- -------------------------------------------------------------------------------------------------
12/31/94 244.70
3/31/95 278.40 13.77% 13.77%
6/30/95 313.50 12.61% 28.12%
9/30/95 362.30 15.57% 48.06%
10/31/95 354.10 -2.26% 44.71%
11/30/95 370.20 4.55% 51.29%
12/31/95 376.50 1.70% 53.86%
1/12/96 372.40 -1.09% 52.19% -1.09%
1/31/96 370.70 -0.46% 51.49% -1.54%
2/29/96 373.60 0.78% 52.68% -0.77%
3/29/96 382.10 2.28% 56.15% 1.49%
4/30/96 377.20 -1.28% 54.15% 0.19%
5/31/96 382.99 1.53% 56.51% 1.72%
6/28/96 387.18 1.09% 58.23% 2.84%
7/30/96 371.62 -4.02% 51.87% -1.30%
8/30/96 408.34 9.88% 66.87% 8.46%
9/20/96 419.50 2.73% 71.43% 11.42%
9/30/96 429.28 2.33% 75.43% 14.02%
10/30/96 456.70 6.39% 86.64% 21.30%
11/29/96 485.83 6.38% 98.54% 29.04%
12/13/96 473.64 -2.51% 93.56% 25.80%
12/20/96 481.56 1.67% 96.80% 27.90%
12/31/96 486.63 1.05% 98.87% 29.25%
1/10/97 484.33 -0.47% 97.93% 28.64%
1/31/97 520.08 7.38% 112.54% 38.14%
2/14/97 547.17 5.21% 123.61% 45.33%
2/27/97 569.67 4.11% 132.80% 51.31%
3/14/97 560.67 -1.58% 129.13% 48.92%
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Figure I - SNL Index
Source: SNL Securities, Inc., and F&C calculations. 16
FERGUSON & COMPANY
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1 Year 5 Year 10 Year 30 Year
Fed Fds (*) T-bill Treas. Treas. Treas.
- -----------------------------------------------------------------------------------------------
9/6/96 5.39 5.94 6.73 6.95 7.17
9/13/96 5.16 5.90 6.69 6.93 7.16
9/27/96 5.34 5.75 6.53 6.77 6.96
10/17/96 5.25 5.56 6.28 6.55 6.86
10/25/96 5.22 5.52 6.25 6.53 6.81
11/18/96 5.21 5.39 5.96 6.19 6.46
11/29/96 5.30 5.41 5.90 6.12 6.41
12/13/96 5.22 5.45 6.03 6.27 6.53
12/20/96 5.38 5.51 6.15 6.40 6.63
12/31/96 5.18 5.48 6.12 6.34 6.58
1/17/97 5.19 5.60 6.33 6.56 6.81
1/31/97 5.18 5.60 6.36 6.62 6.89
2/14/97 5.05 5.48 6.14 6.37 6.65
2/27/97 5.16 5.52 6.25 6.45 6.71
3/14/97 5.19 5.69 6.41 6.58 6.85
(*) Seven-day average for week ending two days earlier than date shown.
[Rates September 6, 1996 to March 14, 1997 Graph Omitted]
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1 Year 5 Year 10 Year 30 Year
Fed Fds T-bill Treas. Treas. Treas.
- -----------------------------------------------------------------------------------------------
3/14/97 5.19 5.69 6.41 6.58 6.85
- -----------------------------------------------------------------------------------------------
[Current Yield Curve Graph Omitted]
Source: U.S. Financial Data, Feb. 27, 1997, Figure II - Rate Enviornment
Federal Reserve Bank of St. Louis, MO. 17