EXHIBIT 99.(d)(1)
TRI-COUNTY BANCORP, INC.
Offer to Purchase For Cash Up to 313,000 Shares of its Common Stock
at a Purchase Price not in excess of $14.00 nor less than $11.00 Per Share
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THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS EXPIRE AT 5:00 P.M., WYOMING
TIME, ON THURSDAY, NOVEMBER 19, 1998, UNLESS THE OFFER IS EXTENDED.
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Tri-County Bancorp, Inc., a Wyoming corporation (the "Company"),
invites its shareholders to tender shares of its common stock, $0.10 par value
per share (the "Shares") at prices not in excess of $14.00 nor less than $11.00
per Share in cash, as specified by shareholders tendering their Shares, upon the
terms and subject to the conditions set forth herein and in the related Letter
of Transmittal (which together constitute the "Offer"). The Company will
determine the single per Share price, not in excess of $14.00 nor less than
$11.00 per Share, net to the seller in cash (the "Purchase Price"), that it will
pay for Shares validly tendered pursuant to the Offer, taking into account the
number of Shares so tendered and the prices specified by tendering shareholders.
The Company will select the lowest Purchase Price that will allow it to buy
313,000 Shares (or such lesser number of Shares as are validly tendered at
prices not in excess of $14.00 nor less than $11.00 per Share). All Shares
validly tendered at prices at or below the Purchase Price and not withdrawn will
be purchased at the Purchase Price, upon the terms and subject to the conditions
of the Offer, including the proration provisions. All Shares acquired in the
Offer will be acquired at the Purchase Price.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR
MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THE COMPANY
OBTAINING THE FUNDS NECESSARY TO CONSUMMATE THE OFFER AND TO PAY ALL RELATED
FEES AND EXPENSES, HOWEVER, THE OFFER IS NOT CONDITIONED ON ANY MINIMUM NUMBER
OF SHARES BEING TENDERED. SEE "THE OFFER-- CERTAIN CONDITIONS OF THE OFFER."
The Shares are traded on the Nasdaq SmallCap Market. On October 13,
1998, the last full trading day in the Nasdaq on which a sale was reported prior
to the commencement of the Offer, the closing per Share sales price was $11.25.
Shareholders are urged to obtain current market quotations for the Shares. FOR
INFORMATION REGARDING RECENT TRADING IN THE SHARES, SHAREHOLDERS MAY CALL KEEFE,
BRUYETTE & WOODS, INC., AT 1-877-298-6520. SEE "The Offer-- Price Range of
Shares; Dividends."
Any shareholder wishing to tender all or any part of his or her Shares
should either (a) complete and sign a Letter of Transmittal (or a facsimile
thereof) in accordance with the instructions in the Letter of Transmittal and
either mail or deliver it with any required signature guarantee and any other
required documents to American Securities Transfer & Trust, Inc. (the
"Depositary"), and either mail or deliver the stock certificates for such Shares
to the Depositary (with all such other documents) or tender such Shares pursuant
to the procedure for book-entry delivery set forth in "The Offer--Procedures for
Tendering Shares," or (b) request a broker, dealer, commercial bank, trust
company or other nominee to effect the transaction for such shareholder. Holders
of Shares registered in the name of a broker, dealer, commercial bank, trust
company or other nominee must contact that broker, dealer, commercial bank,
trust company or other nominee if such shareholder desires to tender such
Shares. Any shareholder who desires to tender Shares and whose certificates for
such Shares cannot be delivered to the Depositary or who cannot comply with the
procedure for book-entry delivery or whose other required documents cannot be
delivered to the Depositary, in any case, by the expiration of the Offer must
tender such Shares pursuant to the guaranteed delivery procedure set forth in
"The Offer--Procedures for Tendering Shares." SHAREHOLDERS MUST PROPERLY
COMPLETE THE LETTER OF TRANSMITTAL INCLUDING THE SECTION OF THE LETTER OF
TRANSMITTAL RELATING TO THE PRICE AT WHICH THEY ARE TENDERING SHARES IN ORDER TO
EFFECT A VALID TENDER OF THEIR SHARES.
THE BOARD OF DIRECTORS OF THE COMPANY, BASED ON, AMONG OTHER THINGS,
THE UNANIMOUS RECOMMENDATION OF A SPECIAL COMMITTEE OF NON-EMPLOYEE DIRECTORS OF
THE BOARD, HAS UNANIMOUSLY APPROVED THE OFFER, HOWEVER, NEITHER THE COMPANY NOR
ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO ANY SHAREHOLDER AS TO WHETHER
TO TENDER OR REFRAIN FROM TENDERING SHARES. EACH SHAREHOLDER MUST MAKE THE
DECISION WHETHER TO TENDER SHARES AND, IF SO, HOW MANY SHARES TO TENDER AND AT
WHICH PRICE OR PRICES.
Questions and requests for assistance or for additional copies of this
Offer to Purchase, the Letter of Transmittal or the Notice of Guaranteed
Delivery may be directed to Keefe, Bruyette & Woods, Inc. (the "Deal Manager"
and "Information Agent"), at its address and telephone number set forth on the
back cover of this Offer to Purchase.
The Date of this Offer to Purchase is October 23, 1998
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SUMMARY
This general summary is solely for the convenience of the Company's
shareholders and is qualified in its entirety by reference to the full text and
more specific details in this Offer to Purchase.
Purchase Price.............................. The Company will select a single Purchase Price which will
be not more than $14.00 nor less than $11.00 per Share. All
Shares purchased by the Company will be purchased at the
Purchase Price even if tendered below the Purchase Price.
Each shareholder desiring to tender Shares must specify in the
Letter of Transmittal the minimum price (not more than
$14.00 nor less than $11.00 per Share) at which such
shareholder is willing to have his or her Shares purchased by
the Company.
Number of Shares to be Purchased............ 313,000 Shares (or such lesser number of Shares as are validly
tendered).
How to Tender Shares........................ See "The Offer--Procedures for Tendering Shares." Call the
Information Agent or consult your broker for additional
assistance.
Brokerage Commissions....................... None.
Stock Transfer Tax.......................... None, if payment is made to the registered holder.
Expiration and Proration Dates.............. Thursday, November 19, 1998, at 5:00 p.m., Wyoming time,
unless extended by the Company.
Payment Date................................ As soon as practicable after the termination of the Offer.
Position of the Company and its
Directors................................. Neither the Company nor its Board of Directors makes any
recommendation to any shareholder as to whether to tender or
refrain from tendering Shares. The Company has been
advised that several of its directors or executive officers may
tender Shares pursuant to the Offer.
Withdrawal Rights........................... Tendered Shares may be withdrawn at any time until 5:00
p.m., Wyoming time, on Thursday, November 19, 1998,
unless the Offer is extended by the Company, and, unless
previously purchased, after 12:00 Midnight, Wyoming time,
on Wednesday, December 16, 1998. See "The Offer--
Withdrawal Rights."
Odd Lots ................................... There will be no proration of Shares tendered by any
shareholder owning beneficially less than 100 Shares as of
October 15, 1998, who tenders all such Shares at or below the
Purchase Price prior to the Expiration Date and who checks
the "Odd Lots" box in the Letter of Transmittal. See "The
Offer--Number of Shares; Proration."
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2
NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY RECOMMENDATION ON BEHALF OF THE
COMPANY AS TO WHETHER SHAREHOLDERS SHOULD TENDER OR REFRAIN FROM TENDERING
SHARES PURSUANT TO THE OFFER. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THE OFFER OTHER
THAN THOSE CONTAINED HEREIN OR IN THE RELATED LETTER OF TRANSMITTAL. IF GIVEN OR
MADE, ANY SUCH RECOMMENDATION OR ANY SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY.
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TABLE OF CONTENTS
PAGE
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INTRODUCTION......................................................................................................4
SPECIAL FACTORS...................................................................................................5
1. Background of the Offer...........................................................................5
2. Purposes of and Reasons for the Offer ............................................................7
3. Fairness of the Offer ............................................................................8
4. Opinion of Financial Advisor ....................................................................11
5. Plans for the Company After the Offer ...........................................................12
6. Certain Effects of the Offer.....................................................................13
7. Interests of Directors and Executive Officers; Transactions and Arrangements
Concerning Shares............................................................................14
8. Certain Federal Income Tax Consequences..........................................................15
9. Dissenters' Rights...............................................................................17
THE OFFER........................................................................................................17
1. Number of Shares; Proration......................................................................17
2. Procedures for Tendering Shares..................................................................19
3. Withdrawal Rights................................................................................22
4. Price Range of Shares; Dividends.................................................................23
5. Purchase of Shares and Payment of Purchase Price.................................................24
6. Certain Conditions of the Offer..................................................................25
7. Extension of the Offer; Termination; Amendment...................................................26
8. Source and Amount of Funds.......................................................................26
9. Certain Information Concerning the Company.......................................................27
10. Effects of the Offer on the Market for Shares;
Registration under the Exchange Act........................................................35
11. Fees and Expenses................................................................................35
ADDITIONAL INFORMATION...........................................................................................36
MISCELLANEOUS....................................................................................................36
Schedule A. . . . . . . . . Certain Information Concerning the Directors and Executive Officers of the Company
Annex I. . . . . . . . . . . Opinion of Keefe, Bruyette & Woods, Inc. & Company
Annex II. . . . . . . . . . Financial Statements of Tri-County Bancorp, Inc. and Subsidiary
3
To the Holders of Common Stock of Tri-County Bancorp, Inc.:
INTRODUCTION
Tri-County Bancorp, Inc., a Wyoming corporation (the "Company"),
invites its shareholders to tender shares of its common stock, $0.10 par value
per share at prices, net to the seller in cash, not in excess of $14.00 nor less
than $11.00 per Share, as specified by shareholders tendering their Shares, upon
the terms and subject to the conditions set forth herein and in the related
Letter of Transmittal (which together constitute the "Offer"). The Company will
determine the single per Share price, not in excess of $14.00 nor less than
$11.00 per Share (the "Purchase Price"), that it will pay for Shares validly
tendered pursuant to the Offer, taking into account the number of Shares so
tendered and the prices specified by tendering shareholders. The Company will
select the lowest Purchase Price that will allow it to buy 313,000 Shares (or
such lesser number of Shares as are validly tendered). All Shares acquired in
the Offer will be acquired at the Purchase Price. All Shares validly tendered at
prices at or below the Purchase Price and not withdrawn will be purchased at the
Purchase Price, net to the seller in cash, upon the terms and subject to the
conditions of the Offer, including the proration provisions. The Offer is not
conditioned on any minimum number of shares being tendered. See "The
Offer--Certain Conditions of the Offer."
Upon the terms and subject to the conditions of the Offer, if at the
expiration of the Offer more than 313,000 Shares are validly tendered at or
below the Purchase Price and not withdrawn, the Company will buy Shares first
from all Odd Lot Holders (as defined in "The Offer--Number of Shares;
Proration") who validly tender all their Shares at or below the Purchase Price
and then on a pro rata basis from all other shareholders who validly tender at
prices at or below the Purchase Price (and did not withdraw them prior to the
expiration of the Offer). See "The Offer--Number of Shares; Proration." All
Shares not purchased pursuant to the Offer, including Shares tendered at prices
greater than the Purchase Price and not withdrawn and Shares not purchased
because of proration, will be returned at the Company's expense to the
shareholders who tendered such Shares.
The Purchase Price will be paid net to the tendering shareholder in
cash for all Shares purchased. Tendering shareholders will not be obligated to
pay brokerage commissions, solicitation fees or, subject to Instruction 7 of the
Letter of Transmittal, stock transfer taxes on the purchase of Shares by the
Company. HOWEVER, ANY TENDERING SHAREHOLDER OR OTHER PAYEE WHO FAILS TO
COMPLETE, SIGN AND RETURN TO THE DEPOSITARY THE SUBSTITUTE FORM W-9 THAT IS
INCLUDED IN THE LETTER OF TRANSMITTAL MAY BE SUBJECT TO REQUIRED BACKUP FEDERAL
INCOME TAX WITHHOLDING. SEE "THE OFFER--PROCEDURES FOR TENDERING SHARES" OF THIS
OFFER TO PURCHASE AND INSTRUCTION 12 OF THE LETTER OF TRANSMITTAL. The Company
will pay all fees and expenses of the Depositary, the Deal Manager and the
Information Agent incurred in connection with the Offer. See "The Offer--Fees
and Expenses."
The Company is the sponsor of two employee benefit plans (the "Stock
Plans") which hold Shares: the Tri-County Federal Savings Bank Employee Stock
Ownership Plan ("ESOP") and the Tri-County Bancorp, Inc. 1993 Stock Option Plan
("SOP"). Participants in each plan have the right, subject to any limitations in
the plans, to direct the trustee(s) of such plans to tender Shares in their
accounts, to specify the price at which such Shares (if any) are to be tendered
and to receive tender offer materials in connection therewith.
THE BOARD OF DIRECTORS OF THE COMPANY, BASED ON, AMONG OTHER THINGS,
THE UNANIMOUS RECOMMENDATION OF A SPECIAL COMMITTEE OF NON-EMPLOYEE DIRECTORS OF
THE BOARD (THE "SPECIAL COMMITTEE"), HAS UNANIMOUSLY APPROVED THE OFFER.
HOWEVER, NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION
TO ANY SHAREHOLDER AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING THEIR
SHARES. EACH SHAREHOLDER MUST MAKE THE DECISION WHETHER TO TENDER SHARES AND, IF
SO, HOW MANY SHARES AND AT WHICH PRICE OR PRICES.
4
Assuming the maximum 313,000 Shares are purchased pursuant to the Offer
and no executive officers or directors of the Company or ESOP participants
tender in the Offer, officers, directors, and the ESOP, in the aggregate, will
own approximately 49.98% of the outstanding Shares. Consequently, the officers
and directors will be able to exert greater control over the business affairs
and management of the Company than that which they were able to exert prior to
the Offer. In addition, it will be more difficult to remove directors and change
the management. See "Special Factors--Certain Effects of the Offer." Note,
however, that two directors of the Company have indicated they will tender
Shares in the Offering. See "Special Factors--Interests of Directors and
Executive Officers; Transactions and Arrangements Concerning Shares."
The Special Committee was formed on September 15, 1998, for the purpose
of reviewing and considering stock repurchases by the Company. Keefe, Bruyette &
Woods, Inc., financial advisor to the Special Committee and the Board, has
delivered its opinion to the Special Committee and the Board of Directors to the
effect that the Offer is fair, from a financial point of view, to the
shareholders of the Company. A copy of this opinion is attached hereto as Annex
I. Shareholders should read the full text of Keefe, Bruyette & Woods, Inc.'s
opinion for a description of the assumptions made, matters considered and
procedures followed in rendering such opinion. See "Special Factors--Opinion of
Financial Advisor." See "Special Factors--Fairness of the Offer" for the various
factors considered by the Special Committee in approving the Offer and in
unanimously recommending that the Board approve the Offer.
As of October 15, 1998, there were 1,167,498 Shares outstanding held by
approximately 230 holders of record, and 143,522 Shares issuable upon exercise
of stock options under the Company's stock option plans. The 313,000 Shares that
the Company is offering to purchase pursuant to the Offer represent
approximately 26.8% of the outstanding Shares. The Shares are traded on the
Nasdaq SmallCap Market under the symbol "TRIC." Shareholders are urged to obtain
current market quotations for the Shares. For trading information regarding the
Shares, shareholders may call the Information Agent, Keefe, Bruyette & Woods,
Inc. at 1-877-298-6520. See "The Offer--Price Range of Shares; Dividends."
SPECIAL FACTORS
1. Background of the Offer
The Company was organized in May 1993 at the direction of Tri-County
Federal Savings Bank (the "Bank") in connection with the Bank's conversion from
the mutual to stock form (the "Conversion"). On September 29, 1993, the Bank
completed the Conversion and became a wholly owned subsidiary of the Company.
The Conversion generated, through the issuance of common stock of the Company,
$7.0 million of new capital to the Company, of which approximately $3.5 million
was contributed to the Bank, whose capital ratios prior to the Conversion had
significantly exceeded all minimum federal regulatory capital requirements.
Prior to the Conversion, the Bank's total risk-based capital ratio was 33.1%
which exceeded the minimum regulatory capital requirement of 8% by 25.1%. After
the Conversion as of September 30, 1993, the Bank's total risk-based capital
ratio was 42.4%, exceeding the minimum regulatory capital requirement by 34.4%.
The additional capital was raised through the Conversion due to regulations (the
"Conversion Regulations") promulgated by the Office of Thrift Supervision (the
"OTS") governing conversions from the mutual to stock form by savings
associations. After the Conversion, the cash proceeds were invested in U.S.
Government and federal agency securities.
Due to the offering of stock of the Company in connection with the
Conversion and pursuant to the Conversion Regulations, the Company's common
stock was registered under Section 12(g) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"). In addition, the Conversion Regulations
required the Company to maintain such registration for a period of no less than
three years from the consummation of the Conversion on September 28, 1993.
5
Since the Conversion, management has attempted to utilize the excess
capital raised in its initial public offering. The Company has put in place a
combined strategy utilizing shareholder enhancement tools and retail franchise
growth with the goal to increase return on equity and earnings per share. On the
retail franchise side, while the Company has been able to grow its loan
portfolio from $23.2 million at December 31, 1993 to $40.2 million as of June
30, 1998, an annualized growth rate of approximately 14% per year, a portion
($15.3 million) of the loan growth has been purchased loans, primarily located
in Colorado. The purchase loans have been used to economically diversify the
loan portfolio and use excess liquidity. Furthermore, at June 30, 1998,
approximately 49.8% of the Company's assets were either invested in
mortgage-backed securities or U.S. Government and federal agency securities.
Both mortgage-backed securities and U.S. Government securities typically have
lower yields than substantially all loans contained in the Bank's loan
portfolio. The inability of the Company to redistribute its assets from
mortgage-backed securities and U.S. government and federal agency securities
into higher yielding assets such as loans has had an adverse affect on the
Company's return on equity. For the six months ended June 30, 1998, the
Company's annualized return on average equity was 6.54%, compared to a median of
6.49% for the Comparable Group. For more information regarding the Comparable
Group, see "--Opinion of the Financial Advisor".
On the shareholder enhancement side, the Company has taken efforts to
effectively utilize its excess capital through the payment of dividends and the
implementation of open market repurchase programs during the past five years. In
fiscal year 1997, the Company paid annual cash dividends of $0.325 per share,
and for the first three quarters fiscal 1998, the Company paid total cash
dividends of $0.32 per share. In addition, as of June 30, 1998, the Company had
repurchased approximately 21.9% of the common stock sold in the Conversion.
While such efforts have reduced capital, the Company still has excess capital
which is adversely affecting the return on average equity. As of June 30, 1998,
the Bank's total risk-based capital ratio was 36.1%.
The Company has considered the use of the excess capital to fund growth
of the Bank through branch acquisitions, de novo expansion, and/or acquisitions
of other financial institutions. However, the Company has been unable to
identify potential institutions and transactions which could be consummated at
acceptable terms that would result in an accretion to earnings per share.
Over approximately the past 10 months, the Company has with the
assistance of its financial advisors undertaken a comprehensive analysis of the
Company's strategic strengths and weaknesses. In December, 1997, the Company
retained Keefe, Bruyette & Woods, Inc. to assist a possible sale of, or
acquisition by, the Company. While the Company received some preliminary
indications of interest from a few parties concerning the sale of the Company,
all such indications contained several conditions and none involved an
acceptable price to sell control of the Company.
Recognizing that some shareholders may desire to currently sell all or
some of their Shares, the Company determined to repurchase Shares pursuant to
the Offer at a range of prices in excess of the current market price at the time
the Board adopted the Offer and at a range of prices generally above the trading
price during the past six months. Since after more than year, the Company has
been unable to identify an acceptable institution, as either an acquiror or as
an acquiree, or acceptable terms, the Board has decided to discontinue to
actively explore merger and acquisition alternatives, except for possible branch
acquisitions. Instead the Board has adopted a plan to leverage its existing
capital by increasing its lending and investment activities and repurchasing its
own stock pursuant to the Offer.
In July 1998, management discussed with the Board of Directors a
proposal to repurchase stock by means of an issuer tender offer. The Board
discussed the matter at such meeting and instructed management to obtain further
information from counsel regarding the structure, timing and costs of such an
offer. At the Board of Director's meeting in August 1998, the Board was advised
of management's review of issuer tender offers and provided a memorandum from
counsel. Absent such restrictions, the Board discussed the possibility of a
one-time repurchase of a large block of stock in order to reduce excess capital
and possibly save costs. A representative of Keefe, Bruyette & Woods, Inc.
provided a brief presentation regarding a potential repurchase.
6
On September 15, 1998, the Board of Directors of the Company
established the Special Committee comprised of three outside directors. The
members appointed to the Special Committee were David Kellam, Carl Rupp and
Lance Griggs. Based on a review of liquidity, the average rate on earning assets
and return on equity, growth potential, as well as other factors, the Board
authorized management to prepare terms of an issuer tender offer and propose
such terms to the Special Committee for its review and consideration.
The Special Committee met on October 9, 1998 to act on organizational
matters and review and consider the proposed transaction. At that meeting the
Special Committee ratified the selection of Keefe, Bruyette & Woods, Inc. as
financial advisor. The Special Committee then met via teleconference with a
representative from Keefe, Bruyette & Woods, Inc. and legal counsel. At that
time Keefe, Bruyette & Woods, Inc. presented a booklet containing its analysis
of the Company, the Offer and the methodologies it employed. Keefe, Bruyette &
Woods, Inc. presented its analysis of the estimated trading value of the Shares
based on the historic trading of the Shares, an analysis of a selected "peer
group" and other data. The Special Committee asked questions regarding Keefe,
Bruyette & Woods, Inc.'s presentation, including the extent to which growth
potential, growth potential was considered, the adjustments made to Keefe,
Bruyette & Woods, Inc.'s acquisition analysis and the effect of the Offer on
future earnings per share. Keefe, Bruyette & Woods, Inc. provided the Special
Committee with its recommendation regarding the pricing of the Offer and the
Special Committee questioned Keefe, Bruyette & Woods, Inc.'s analyses regarding
pricing of the Offering. Keefe, Bruyette & Woods, Inc. stated that it was
prepared to render its opinion that the Offer (based on the range it
recommended) was fair from a financial point of view to the shareholders of the
Company. The Special Committee, by unanimous vote, determined to accept Keefe,
Bruyette & Woods, Inc.'s recommended pricing and to recommend that the Board of
Directors approve the Offer as fair and in the best interests of the Company and
its shareholders.
On October 16, the Special Committee met to consider the pricing of
the Offer and, after consultation with Counsel at KBW, determined a range of
$11.00 to $14.00 was reasonable. The Board of Directors met on October 16,
1998, with all directors in attendance. The proposed offer with a price range of
$11.00 to $14.00 was presented. The Board reviewed the opinion of Keefe,
Bruyette & Woods, Inc., the recommendation of the Special Committee and the
terms of the Offer and determined to approve the Offer as fair and in the best
interests of the Company and its shareholders. Furthermore, the Board instructed
that any proposals from third parties relating to an acquisition of the Company
should be referred to the Special Committee for its consideration and
recommendation.
2. Purposes of and Reasons for the Offer
The Company is making the Offer to promote its long-term objectives of
providing a fair financial return to its shareholders as well as providing those
shareholders who desire to sell their Shares an opportunity to do so at a fair
price. The Company believes that its purchase of Shares represents an attractive
long-term investment that will benefit the Company and its remaining
shareholders.
The Offer is designed to reposition the Company's balance sheet to
increase return on equity and earnings per share by redeploying a portion of the
Company's equity capital. Following completion of the Offer, the Company and the
Bank, will continue to have strong capital positions and will continue to
qualify as "well capitalized" institutions under the prompt corrective action
scheme enacted by the Federal Deposit Insurance Corporation Improvements Act of
1991. On a pro forma basis as of June 30, 1998, giving effect to the Offer at
the maximum Purchase Price of $14.00 per Share and assuming acceptance of the
maximum number of Shares in the Offer, the Company would have had an equity to
assets ratio of 11.76%, and the Bank would have had a total risk-based capital
ratio of approximately 24.3% and a leverage ratio of approximately 9.7%.
The Offer will enable shareholders to sell a portion of their Shares
while retaining a continuing equity interest in the Company if they so desire.
The Offer may provide shareholders who are considering a sale of all or a
portion of their Shares the opportunity to determine the price or prices (not
greater than $11.00 nor less than $14.00 per Share) at which they are willing to
sell their Shares and, if any such Shares are purchased pursuant to
7
the Offer, to sell those Shares for cash without the usual transaction costs
associated with open-market sales. In addition, Odd Lot Holders whose Shares are
purchased pursuant to the Offer not only will avoid the payment of brokerage
commissions but also would avoid any applicable odd lot discounts in a sale of
such holder's Shares. To the extent the purchase of Shares in the Offer results
in a reduction in the number of shareholders of record, the costs of the Company
for services to shareholders may be reduced. For shareholders who do not tender,
there is no assurance that the price of the stock will not trade below the price
currently being offered by the Company pursuant to the Offer. For shareholders
who do tender, the trading price of stock may increase as a result of the Offer
or an unexpected acquisition at a premium could occur in the future. Finally,
the Offer may affect the Company's ability to qualify for pooling-of-interests
accounting treatment for any acquisition transaction for approximately the next
two years.
THE BOARD OF DIRECTORS, BASED ON, AMONG OTHER THINGS, THE UNANIMOUS
RECOMMENDATION OF THE SPECIAL COMMITTEE, HAS UNANIMOUSLY APPROVED THE OFFER.
HOWEVER, NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION
TO ANY SHAREHOLDER AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ANY OR ALL
OF SUCH SHAREHOLDER'S SHARES AND HAS NOT AUTHORIZED ANY PERSON TO MAKE ANY SUCH
RECOMMENDATION. SHAREHOLDERS ARE URGED TO EVALUATE CAREFULLY ALL INFORMATION IN
THE OFFER, CONSULT THEIR OWN INVESTMENT AND TAX ADVISORS AND MAKE THEIR OWN
DECISIONS WHETHER TO TENDER SHARES AND, IF SO, HOW MANY SHARES TO TENDER AND THE
PRICE OR PRICES AT WHICH SHARES SHOULD BE TENDERED.
Shares the Company acquires pursuant to the Offer will be held in the
Company's treasury and will be available for the Company to issue without
further shareholder action (except as required by applicable law). Such Shares
could be issued without shareholder approval for such purposes as, among others,
the acquisition of other businesses or the raising of additional capital for use
in the Company's business.
3. Fairness of the Offer
The Company. The Special Committee of the Board, designated by the
Board on September 15, 1998, and the Board upon the recommendation of the
Special Committee, each unanimously approved the Offer as fair and in the best
interests of the Company and its shareholders.
The Special Committee took into account a number of factors, including
the following, in concluding to approve the Offer:
(i) The opinion delivered to the Special Committee by Keefe,
Bruyette & Woods, Inc., financial advisor to the Special Committee,
that the consideration to be received in the Offer is fair, from a
financial point of view, to the Company's shareholders, and the oral
and written presentations of Keefe, Bruyette & Woods, Inc. supporting
this opinion. A copy of Keefe, Bruyette & Woods, Inc.'s opinion is
attached to this Offer to Purchase as Annex I and should be read in its
entirety by each shareholder. For a description of the information
presented by Keefe, Bruyette & Woods, Inc. to the Special Committee,
see "--Opinion of Financial Advisor"
(ii) The financial condition and results of operations of the
Company, including the earnings per share and capital levels of the
Company for fiscal year 1997 and the first six months of fiscal year
1998.
(iii) The capital of the Company and the Bank after the
payment of a dividend to the Company by the Bank and the Company's
purchase of 313,000 Shares in the Offer would remain significantly in
excess of minimum capital requirements. The following table sets forth
(a) the Bank's
8
capital ratios as of June 30, 1998 and as adjusted to give effect to
the purchase of 313,000 Shares, and (b) the minimum capital ratios for
savings associations required by the OTS:
As of June 30, 1998
-------------------
Ratio Historical As Adjusted Minimum
- ----- ---------- ----------- -------
Tier 1 Capital
(to adjusted total assets) 14.5% 9.7% 4%
Tier 1 Capital
(to risk-weighted assets) 14.5 23.1 4
Total Adjusted Capital
(to risk-weighted assets) 36.1 24.3 8
(iv) The percentage by which the per Share price to be paid in
the Offer exceeds recent trading prices and estimated trading values.
See "--Opinion of Financial Advisor."
(v) Various financial ratios of the Company compared to those
of comparable companies, including particularly comparisons of return
on equity and equity-to-assets ratio. See "--Opinion of Financial
Advisor."
(vi) The likelihood that the transaction would be consummated.
(vii) The fact that the public shareholders would be able to
participate in the Offer by selling a portion of their Shares and still
have the opportunity to participate in any future growth of the Company
following consummation of the Offer. The Special Committee also is
aware that certain members of management of the Company will benefit
from any increase in the value of the Company following the Offer by
virtue of the equity interest they have in the Company presently and
will have in the Company following the Offer. The Special Committee
recognizes that because of the equity interests in the Company which
certain members of management of the Company have or are expected to
acquire following the Offer, such persons have conflicts of interest in
connection with the Offer. See "--Interests of Directors and Executive
Officers; Transactions and Arrangements Concerning Shares."
Accordingly, the Special Committee considered the Company's results of
operations and future growth opportunities in light of these factors.
(viii) The Bank's payment of a dividend to the Company to
purchase Shares in the Offer would not require prior approval by the
OTS.
Among the reasons for the Special Committee reaching its
decision to approve the Offer were the following:
o Since its conversion to a stock company in 1993, the Company has
been unable to adequately deploy the excess capital raised as a
result of its initial public offering thus creating a below peer
group return on equity. The use of a tender offer to bring the
excess capital level down to peer ratios and increase the earnings
per share (by reducing the number of outstanding shares) was
reviewed by the Special Committee;
9
o Liquidity for the shares of the Company has never been excessive
and given current market conditions, the Special Committee
considered the desire to add a one-time window for those
shareholders who wish to exit the stock outside of normal trading
parameters;
o The desire to reduce its expenses. After completion of this
tender offer, the Board will evaluate the potential to deregister
the Company from the reporting requirements of the Securities
Exchange Act of 1934, as amended, and reduce the expenses
commensurate with being a public company;
o Based in part upon the written and oral presentations of Keefe,
Bruyette & Woods, Inc., including the opinion of Keefe, Bruyette
& Woods, Inc. referred to above, the Special Committee concluded
that the consideration in the Offer was fair to the shareholders
of the Company.
o Based upon various financial ratio comparisons with comparable
companies as presented by Keefe, Bruyette & Woods, Inc. in its
presentation to the Special Committee, the consideration was fair
to the shareholders of the Company;
o Based upon the voluntary nature of the transaction in
shareholders may or may not participate;
o That the use of the all-cash consideration means that the value
of the consideration received by the shareholders would not be
dependent on the future earnings performance of the Company;
o And, given the financial condition and current and proforma
capital levels of the Bank, there is significant likelihood that
the Offer would be consummated.
In making its determination that the Offer is fair and in the best
interests of the shareholders of the Company, the Board considered, among other
things, the opinion of Keefe, Bruyette & Woods, Inc., the recommendation of the
Special Committee and the factors considered by the Special Committee.
Among the reasons for the Special Committee reaching its decision to
approve the Offer were the following: that the repurchase was consistent with
the Company's long-term capital management strategy; that the future prospects
of the Company, particularly low growth potential in its present market area;
that recent return on average equity of the Company had not shown substantial
improvement; that the per Share consideration in the Offer was at a premium over
the recent trading price and such premium, on a percentage basis, appeared
generally comparable to, or in excess of, premiums, in other recent issuer
tender offers; that based in part upon the written and oral presentations of
Keefe, Bruyette & Woods, Inc., including the opinion of Keefe, Bruyette & Woods,
Inc. referred to above, the Special Committee concluded that the consideration
in the Offer was fair to the shareholders of the Company; that based upon the
various financial ratios of the Company compared to those of comparable
companies in the Keefe, Bruyette & Woods, Inc. presentation, the consideration
in the Offer was fair to the shareholders of the Company; that based upon the
Offer is a voluntary transaction in which shareholders of the Company may or may
not participate; that the use of all-cash consideration means that the value of
the consideration received by the shareholders would not be dependent on the
future performance of the Company; and that, given the financial condition and
capital levels of the Bank, there is a significant likelihood that the Offer
would be consummated. The Special Committee did not take into consideration the
book value of the Company because it believed that book value did not reflect
the fair value of the Company and because book value was substantially lower
than the values resulting from any of the analyses of Keefe, Bruyette & Woods,
Inc..
In making its determination that the Offer is fair and in the best
interests of the shareholders of the Company, the Board considered, among other
things, the opinion of Keefe, Bruyette & Woods, Inc., the recommendation of the
Special Committee, and the factors considered by the Special Committee.
10
In view of the wide variety of factors considered in connection with
its evaluation of the Offer, each of the Special Committee and the Board has
found it impractical to, and therefore has not, quantified or otherwise
attempted to assign relative weights to the specific factors considered in
reaching a decision to approve the Offer.
The Offer does not require the approval of a majority of unaffiliated
security holders. All directors, including the directors who are not employees
of the Company, have approved the Offer. The non-employee directors, who
comprise a majority of the Board of Directors, have not retained an unaffiliated
representative to act solely on behalf of the unaffiliated shareholders for
purposes of negotiating terms of the Offer.
It is expected that if Shares are not accepted for payment by the
Company in the Offer, the Company's current management, under the general
direction of the Company's Board of Directors, will continue to manage the
Company as an ongoing business.
4. Opinion of Financial Advisor
In October 1998, Keefe, Bruyette & Woods, Inc. was retained by the
Company to provide advice relative to the tender offer and to render a written
fairness opinion to the Board of Directors of the Company. Keefe, Bruyette &
Woods, Inc., as part of its investment banking business, is regularly engaged in
the evaluation of business and securities in connection with securities
transactions, mergers and acquisitions, negotiated transactions, and
distributions of listed and unlisted securities. Keefe, Bruyette & Woods, Inc.
is familiar with the market for common stocks of publicly traded banks, thrifts
and bank and thrift holding companies. The Board selected Keefe, Bruyette &
Woods, Inc. on the basis of the firm's reputation and its experience and
expertise in transactions similar to this Offer and its prior work for and
relationship with the Company.
Pursuant to its engagement, Keefe, Bruyette & Woods, Inc. was asked to
render an opinion as to the fairness, from a financial point of view, of the
range of consideration to shareholders of the Company. Keefe, Bruyette & Woods,
Inc. delivered its opinion to the Board that, as of October 23, 1998, the
consideration is fair, from a financial point of view, to the shareholders of
the Company. No limitations were imposed by the Board upon Keefe, Bruyette &
Woods, Inc. with respect to the investigations made or procedures followed by it
in rendering its opinion. Keefe, Bruyette & Woods, Inc. has consented to the
inclusion herein of the summary of its opinion to the Board and to the reference
to the entire opinion attached hereto as Annex I.
The full text of the opinion of Keefe, Bruyette & Woods, Inc., which is attached
as Annex I hereto, sets forth certain assumptions made, matters considered and
limitations on the review undertaken by Keefe, Bruyette & Woods, Inc., and
should be read in its entirety. The summary of the opinion of Keefe, Bruyette &
Woods, Inc., set forth below, is qualified in its entirety by reference to the
opinion.
In rendering its opinion, Keefe, Bruyette & Woods, Inc. reviewed
certain financial and other business data supplied to it by the Company
including the audited financial statements for the years ended December 31,
1997, 1996, 1995 and unaudited quarterly information for the quarters ended
March 31, 1998 and June 30, 1998 and preliminary financial statements for the
quarter ended September 30, 1998 and certain other information we deemed
relevant. Keefe, Bruyette & Woods, Inc. discussed with senior management and the
Board of Directors of the Company the current position and prospective outlook
for the Company. We considered historical quotations, levels of activity and
prices of recorded transactions in the Company's common stock and we reviewed
financial and stock market data of other thrifts in a comparable asset range and
capital to assets ratio as the Company. And we performed other analyses which
Keefe, Bruyette & Woods, Inc. considered appropriate.
In rendering its opinion, Keefe, Bruyette & Woods, Inc. assumed and
relied upon the accuracy and completeness of the financial information provided
to it by the Company. In its review, with the consent of the Board, Keefe,
Bruyette & Woods, Inc. did not undertake any independent verification of the
information provided to it, nor did it make any independent appraisal or
evaluation of the assets or liabilities nor of potential exposure resulting from
Year 2000 issues of the Company, and potential or contingent liabilities of the
Company.
11
Analysis of Recent Trading Activity of Comparable Thrift Institutions.
In rendering its opinion, Keefe, Bruyette & Woods, Inc. analyzed certain
companies of comparable asset size, capital to asset ratio, market price to
tangible book value, market price to last twelve months (LTM) earnings, total
assets, return on equity, and market capitalization. The analysis included a
comparison of the median and average of the above ratios for the comparable
group (consisting of seven companies) relative to the Company current levels for
each ratio.
The information in the following table summarizes the material
information analyzed by Keefe, Bruyette & Woods, Inc. with respect to the range
of consideration offered by the Company to its shareholders with this Offer. The
summary does not purport to be a complete description of the analysis performed
by Keefe, Bruyette & Woods, Inc. and should not be construed independently of
the other information considered by Keefe, Bruyette & Woods, Inc. in rendering
its opinion. Selecting portions of Keefe, Bruyette & Woods, Inc.'s analysis or
isolating certain aspects of the comparable transactions without considering all
analysis and factors, could create an incomplete or potentially misleading view
of the evaluation process.
Comparable The
Group Company
----------------------- -------
Median Average
------ -------
($ in millions)
Assets $110.70 $109.40 $ 86.50
Tang. Equity/Assets 16.88% 16.60% 16.44%
LTM Return on Equity 6.49% 6.55% 6.46%
Market Capitalization $ 18.59 $ 19.77 $714.01
Market Price/Tang. Book Value 115.6% 109.5% 98.4%
Market Price to LTM Earnings 16.1x 16.3x 16.7x
Market price used in the analysis for the Company was $11.75 (October 9, 1998).
The range of the market price to book value for the group described
above ranged from ^91.6% to 124.2%. A range of $11.00 per share to $14.00 per
share, equates to a market price to book value ratio for the Company of between
approximately 90% and ^115%. Therefore, in reviewing all the above information
as well as other information deemed relevant, Keefe, Bruyette & Woods, Inc.
concluded that the cash consideration range of $11.00 to $14.00 per share was
fair to the shareholders from a financial point of view.
In preparing its analysis, Keefe, Bruyette & Woods, Inc. made numerous
assumptions with respect to industry performance, business and economic
conditions and other matters, many of which are beyond the control of Keefe,
Bruyette & Woods, Inc. and the Company. The analyses performed by Keefe,
Bruyette & Woods, Inc. is not necessarily indicative of actual values or future
results, which may be significantly more or less favorable than suggested by
such analyses and do not purport to be appraisals or reflect the prices at which
a companies securities will trade.
Keefe, Bruyette & Woods, Inc. will receive a fee for services rendered
in connection with advising and issuing a fairness opinion regarding the Offer.
See "11. Fees and Expenses."
5. Plans for the Company After the Offer
It is expected that following the Offer, the business and operations of
the Company will be continued by the Company substantially as they are currently
being conducted by management. Except for the Offer and as otherwise described
in this Offer to Purchase, the Company does not have any present plans or
proposals which relate to or would result in an extraordinary corporate
transaction, such as a merger, reorganization, liquidation, relocation of any
operations of the Company or sale or transfer of a material amount of assets
involving the
12
Company or any of its subsidiaries, or any changes in the Company's
capitalization or any other change in the Company's corporate structure or
business or the composition of its management. However, the Company will
continue to review its business plan and strategic direction and in such process
may develop strategies for internal growth through expansion of products and
services or growth through acquisitions and/or branching.
Following completion of the Offer, the Company may repurchase
additional Shares in the open market, in privately negotiated transactions or
otherwise. Any such purchases may be on the same terms or on terms which are
more or less favorable to shareholders than the terms of the Offer. Rule 13e-4
under the Exchange Act prohibits the Company and its affiliates from purchasing
any Shares, other than pursuant to the Offer, until at least ten business days
after the Expiration Date. Any possible future purchases by the Company will
depend on many factors, including the market price of the Shares, the results of
the Offer, the Company's business and financial position and general economic
and market conditions.
6. Certain Effects of the Offer
Impact on Tendering Shareholders. Shareholders who sell Shares to the
Company in response to the Offer will receive the Purchase Price in cash. The
sale of Shares in response to the Offer will have federal income tax
consequences to the selling shareholders and may have tax consequences under
applicable federal, state, local and other tax laws. See "--Certain Federal
Income Tax Consequences."
Impact on Non-Tendering Shareholders. Decreased Equity Share - The
purchase of Shares as a result of the Offer could decrease the Company's
shareholders' equity per Share because the Purchase Price will be greater than
the Company's shareholders' equity per Share of $12.19 at June 30, 1998. The
Shares purchased by the Company pursuant to the Offer will be held in the
Company's treasury and will constitute authorized but unissued Shares.
Decreased Regulatory Capital - The Company will purchases Shares
pursuant to the Offer with funds received as dividends from the Bank and the
capital ratios of the Bank will be reduced but will continue to exceed the
minimum capital ratios required by the OTS. See "--Fairness of the Offer." The
Company does not anticipate any change to the current dividend policy, however,
there can be no assurance that dividends will be paid in the future. Any payment
of cash dividends in the future will depend upon the financial condition,
capital requirements and earnings of the Company, regulatory restrictions
applicable to financial institutions, as well as other factors the Board of
Directors may deem relevant.
Increased Insider Ownership - To the extent that officers and directors
of the Company do not tender their Shares, the percentage ownership in the
Company represented by their Shares will increase in proportion to the reduction
in the number of Shares outstanding. See "Schedule A--Directors and Executive
Officers." Assuming the maximum 313,000 Shares are purchased pursuant to the
Offer and no executive officers or directors of the Company or ESOP participants
tender in the Offer, officers, directors, and the ESOP, in the aggregate, will
own approximately 49.98% of the outstanding Shares. Therefore, the Company's
officers and directors will be able to exert greater control over the business
affairs and management of the Company than that which they were able to exert
prior to the Offer's consummation. After the Offer, it will be more difficult to
remove directors and change the Company's management. Note, however, that two
directors of the Company have indicated they will tender Shares in the Offering.
See "Special Factors -- Interests of Directors and Executive Officers;
Transactions and Arrangements Concerning Shares."
Decreased Liquidity/Delisting from NASDAQ - The purchase of Shares
by the Company will increase the percentage ownership of Shares held by
non-tendering shareholders. The Offer may reduce the number of Shares that might
otherwise be traded publicly and, depending upon the number of Shares purchased
pursuant to the Offer, could adversely affect the liquidity and market value of
the remaining Shares held by the public. The Shares are traded on the Nasdaq
SmallCap Market. Consummation of the Offer will further reduce the liquidity
13
of the Shares and it is expected the Shares will no longer be listed on the
Nasdaq SmallCap Market. It is expected that the Shares will be traded in the
over-the-counter market with quotations available on the OTC Electronic Bulletin
Board. There can be no assurance that shareholders will be able to find willing
buyers for their Shares after completion of the Offer.
Periodic Reports - The Company is required to file periodic reports
with the Commission pursuant to Section 13 of the Exchange Act. Regardless of
the results of the Offer, the Company plans to apply to the Commission to
suspend this duty if the number of its shareholders is less than 300 holders of
record. Termination of the Company's reporting duty would substantially reduce
the public information available concerning the Company. The reduction of such
public information may adversely effect option holders' ability to exercise
their options or resell such underlying securities as well as the ability of
affiliates of the Company to resell Shares held by them. Such termination will,
however, decrease the Company's non-interest expenses.
7. Interests of Directors and Executive Officers; Transactions and
Arrangements Concerning Shares.
As of June 30, 1998, the Company's directors and executive officers as
a group beneficially owned (including pursuant to options) an aggregate of
380,293 Shares (approximately 29.13% of the outstanding Shares including Shares
issuable upon the exercise of options held by directors and executive officers).
Such ownership includes 130,962 Shares as of June 30, 1998 subject to stock
options which are held by executive officers and directors. This does not
include 72,330 unallocated Shares held by the ESOP.
Except as set forth in "Schedule A--Certain Transactions Involving
Shares," neither the Company, nor any subsidiary of the Company nor, to the best
of the Company's knowledge, any of the Company's directors or executive
officers, nor any affiliates of any of the foregoing, had any transactions
involving the Shares during the 40 business days prior to the date hereof.
Except for outstanding options to purchase Shares granted from time to
time over recent years to certain employees (including executive officers) and
directors of the Company pursuant to the Company's stock option plans and except
as otherwise described herein, neither the Company nor, to the best of the
Company's knowledge, any of its directors or executive officers, is a party to
any contract, arrangement, understanding or relationship with any other person
relating, directly or indirectly, to the Offer including, but not limited to,
any contract, arrangement, understanding or relationship concerning the transfer
or the voting of any such securities, joint ventures, loan or option
arrangements, puts or calls, guaranties of loans, guaranties against loss or the
giving or withholding of proxies, consents or authorizations.
Executive officers and directors of the Company may participate in the
Offer on the same basis as the Company's other shareholders. The Company has
been advised that two of its directors intend to tender Shares pursuant to the
Offer. The table below identifies the executive officer and directors of the
Company that intend to tender their Shares and sets forth the number of Shares
each expects to tender.
Name Shares to be tendered
---- ---------------------
William J. Rueb, Director (Not determined. It is expected that Mr. Rueb will
tender a substantial portion of his Shares. Including
options, Mr. Reub currently is the beneficial owner
of 65,780 shares. See "Schedule A.")*
Larry C. Goddard, Director 10,000*
* The price at which such tenders will be made has not been determined.
14
Assuming the Company purchases 313,000 Shares pursuant to the Offer and
no executive officers or directors of the Company or ESOP participants tender in
the Offer, the percentage of Shares outstanding held by executive officers,
directors, and the ESOP would be approximately 49.98% of the outstanding Shares
immediately after the Offer (including Shares issuable upon exercise of options
held by executive officers and directors). Even excluding the shares tendered by
the two directors of the Company listed above, executive officers and directors
of the Company will own a significant percentage of Shares immediately after the
Offer.
8. Certain Federal Income Tax Consequences
General. The federal income tax discussion set forth below summarizes
the principal federal income tax consequences to domestic shareholders of sales
of stock pursuant to the Offer and is included for general information only. The
discussion does not address all aspects of federal income taxation that may be
relevant to a particular shareholder nor any relevant foreign, state, local or
other tax laws. Certain shareholders (including, but not limited to, insurance
companies, tax-exempt entities, foreign persons, financial institutions, broker
dealers, employee benefit plans, personal holding companies and persons who
acquired their Shares upon the exercise of employee stock options or as
compensation) may be subject to special rules not discussed below. The
discussion is based on laws, regulations, rulings and court decisions currently
in effect as of the date of this Offer, all of which are subject to change. The
Company intends that, under the terms of the Offer, sales of Shares will be
completed in 1998 and shareholders will receive payment for purchased Shares in
1998. In that event, shareholders will report the sale of Shares pursuant to the
Offer in 1998 for tax purposes. In the event that sales are not completed this
year and/or shareholders receive payments for Shares in 1999, shareholders may
be required to report the sale of Shares pursuant to the Offer in 1999 for tax
purposes. The Company has neither requested nor obtained a written opinion of
counsel or a ruling from the Internal Revenue Service (the "Service") with
respect to the tax matters discussed herein. Prior to tendering any Shares
pursuant to the Offer, each shareholder is strongly advised to consult with
their own tax advisor as to the particular tax consequences of the Offer to such
shareholder, including the application of foreign, state, local, or other tax
laws.
In general, a sale of Shares pursuant to the Offer will be a taxable
transaction for federal income tax purposes. Such sale will constitute a
"redemption" within the meaning of Section 317 of the Internal Revenue Code of
1986, as amended (the "Code"). Each tendering shareholder will recognize either
gain or loss from a sale of Shares or dividend income, depending upon the
application of Section 302 of the Code to the shareholder's particular facts and
circumstances. If the redemption qualifies as a sale of Shares under Section
302, the cash received pursuant to the Offer will be treated as a distribution
from the Company in part or full payment in exchange for the Shares surrendered
("Sale Treatment"). Sale Treatment will result in the shareholder's recognizing
gain or loss equal to the difference between (i) the cash received pursuant to
the Offer and (ii) the shareholder's tax basis in the Shares surrendered. If the
redemption does not qualify for Sale Treatment, the shareholder will not be
treated as having sold Shares but will be treated as having received a dividend
taxable as ordinary income, in an amount equal to the cash received pursuant to
the Offer ("Dividend Treatment").
Sale Treatment. Under Section 302 of the Code, a sale of Shares
pursuant to the Offer will be treated as a sale of such Shares for federal
income tax purposes if such sale of Shares (i) results in a "complete
redemption" of all of the shareholder's stock in the Company, (ii) is a
"substantially disproportionate redemption" with respect to the shareholder, or
(iii) is "not essentially equivalent to a dividend" with respect to the
shareholder. In determining whether any of these three tests under Section 302
is satisfied, shareholders must take into account not only Shares that they
actually own, but also any Shares that they are deemed to own pursuant to the
constructive ownership rules of Section 318 of the Code. Pursuant to these
constructive ownership rules, shareholders will be treated as owning a certain
amount of (i) Shares held by certain family members, including the shareholder's
spouse, children, grandchildren, and parents, (ii) Shares owned by certain
trusts of which the shareholder is a beneficiary, (iii) Shares owned by an
estate of which the shareholder is a beneficiary, (iv) Shares owned by any
partnership or "S corporation" in which the shareholder is a partner or
shareholder, (v) Shares owned by any non-S corporation
15
of which the shareholder owns at least 50% in value of the stock and (vi) Shares
that the shareholder can acquire by exercise of an option or similar right.
A shareholder's sale of Shares pursuant to the Offer will generally
result in a "complete redemption" of all the shareholder's stock in the Company
if, pursuant to the Offer, the Company purchases all of the Shares actually
owned by the shareholder and subsequently the shareholder does not
constructively own any Shares. If the shareholder's sale of Shares pursuant to
the Offer would satisfy the complete redemption requirement but for the
shareholder's constructive ownership of Shares held by certain family members,
such shareholder may, under certain circumstances, be entitled to waive such
constructive ownership, provided the shareholder complies with the provisions of
Section 302(c) of the Code. If the shareholder actually owns no Shares after
selling his or her Shares pursuant to the Offer, constructively owns only Shares
owned by certain family members, and the shareholder qualifies to and does waive
constructive ownership of Shares owned by certain family members, that
redemption of Shares would generally qualify as a "complete redemption."
A shareholder's sale of Shares pursuant to the Offer will generally be
a "substantially disproportionate redemption" with respect to the shareholder if
the percentage of Shares actually and constructively owned by the shareholder
compared to all the outstanding Shares of the Company immediately following the
sale of Shares pursuant to the Offer (treating as not outstanding all Shares
sold by all the shareholders pursuant to the Offer) is less than 80% of the
percentage of Shares actually and constructively owned by the shareholder
compared to all the outstanding Shares of the Company immediately before the
sale of Shares pursuant to the Offer (treating as outstanding all Shares sold by
the shareholders pursuant to the Offer). This test will be applied to each
shareholder individually, regardless of the effect of the redemption on the
other shareholders.
A shareholder's sale of Shares pursuant to the Offer will generally
"not be essentially equivalent to a dividend" if, as a result of the sale of
Shares pursuant to the Offer, the shareholder experiences a "meaningful
reduction" in his proportionate interest in the Company, including the
shareholder's voting rights, participation in earnings, and liquidation rights
and taking into account the constructive ownership rules. The Service has
indicated in a published ruling that even a small reduction in the proportionate
interest of a small minority shareholder who does not exercise any control over
company affairs may constitute a "meaningful reduction" in the shareholder's
interest in the company. The fact that the redemption fails to qualify as a sale
pursuant to the other two tests is not taken into account in determining whether
the redemption is "not essentially equivalent to a dividend."
Shareholders should be aware that their ability to satisfy any of the
foregoing tests may be affected by proration pursuant to the Offer. Therefore, a
shareholder can be given no assurance, even if he tenders all of his Shares,
that the Company will purchase a sufficient number of such Shares to permit him
to satisfy any of the foregoing tests. Shareholders should also be aware that it
is possible that, depending on the facts and circumstances, an acquisition or
disposition of Shares in the market or to other parties as part of an integrated
plan may be taken into account in determining whether any of the foregoing tests
is satisfied. Shareholders are strongly advised to consult with their own tax
advisors with regard to whether acquisitions from sales to third parties,
including market sales, may be so integrated. Subsequent open market purchases
by the Company may also be taken into account in determining whether any of the
foregoing tests is satisfied.
If any of the above three tests is satisfied by a tendering
shareholder, such shareholder will recognize gain or loss equal to the
difference between the amount of cash received by the shareholder pursuant to
the Offer and the shareholder's tax basis in the Shares sold. Such gain or loss
must be determined separately for each block of Shares sold (i.e., Shares
acquired at the same time in a single transaction), and will be capital gain or
loss, assuming the Shares were held by the shareholder as a capital asset.
Capital gain or loss will qualify as long-term capital gain or loss if, at the
time the Company accepts the Shares for payment, the Shares were held by the
shareholder for more than eighteen (18) months.
16
Dividend Treatment. If none of the three foregoing tests are satisfied,
the tendering shareholder generally will be treated as having received a
dividend, taxable as ordinary income, in an amount equal to the total cash
received by the shareholder pursuant to the Offer, provided the Company has
sufficient accumulated or current earnings and profits. The Company expects that
its current and accumulated earnings and profits will be sufficient to cover the
amount of all distributions pursuant to the Offer, if any, that are treated as
dividends. To the extent that the purchase of Shares from any shareholder
pursuant to the Offer is treated as a dividend, such shareholder's tax basis in
any Shares which the shareholder actually or constructively retains after
consummation of the Offer will be increased by the shareholder's tax basis in
the Shares surrendered pursuant to the Offer.
Treatment of Dividend Income for Corporate Shareholders. In the case of
a corporate shareholder, if the cash received for Shares pursuant to the Offer
is treated as a dividend, the dividend income may be eligible for the
dividends-received deduction under Section 243 of the Code. The
dividends-received deduction is subject to certain limitations and may not be
available if the corporate shareholder does not satisfy certain holding period
requirements with respect to the Shares or if the Shares are treated as
"debt-financed portfolio stock." The Company believes that the Offer will not
result in a pro rata distribution to all shareholders. Consequently, dividends
received by corporate shareholders pursuant to the Offer will probably be
treated as "extraordinary dividends" as defined by Section 1059 of the Code.
Corporate shareholders should consult their tax advisors as to the availability
of the dividends-received deduction and the application of Section 1059 of the
Code.
SEE "THE OFFER--PROCEDURES FOR TENDERING SHARES" WITH RESPECT TO THE
APPLICATION OF BACKUP FEDERAL INCOME TAX WITHHOLDING.
9. Dissenters' Rights
No dissenters' rights are available to shareholders in connection with
the Offer under applicable Wyoming law.
THE OFFER
1. Number of Shares; Proration.
Upon the terms and subject to the conditions of the Offer, the Company
will purchase up to 313,000 Shares or such lesser number of Shares as are
validly tendered (and not withdrawn in accordance with "--Withdrawal Rights")
prior to the Expiration Date (as defined below) at prices not in excess of
$14.00 nor less than $11.00 net per Share in cash. The term "Expiration Date"
means 5:00 p.m., Wyoming time, on Thursday, November 19, 1998, unless and until
the Company, in its sole discretion, shall have extended the period of time
during which the Offer will remain open, in which event the term "Expiration
Date" shall refer to the latest time and date at which the Offer, as so extended
by the Company, shall expire. In the event of an oversubscription of the Offer,
Shares tendered at or below the Purchase Price prior to the Expiration Date will
be subject to proration except for Odd Lots as explained below. The proration
period also expires on the Expiration Date.
The Company will, upon the terms and subject to the conditions of the
Offer, determine the Purchase Price (not greater than $14.00 nor less than
$11.00 per Share) that it will pay for Shares validly tendered pursuant to the
Offer taking into account the number of Shares so tendered and the prices
specified by tendering shareholders. The Company will select a single per Share
Purchase Price that will allow it to buy 313,000 Shares (or such lesser number
as are validly tendered at prices not greater than $14.00 nor less than $11.00
per Share) pursuant to the Offer. The Company reserves the right, in its sole
discretion, to purchase more than 313,000 Shares pursuant to the Offer. The
Offer is not conditioned on any minimum number of shares being tendered. See
"--Certain Conditions of the Offer."
17
If (i) the Company increases or decreases the price to be paid for
Shares, increases the number of Shares being sought and any such increase in the
number of Shares being sought exceeds 2% of the outstanding Shares, decreases
the number of Shares being sought, or incurs dealer manager soliciting fees and
(ii) the Offer is scheduled to expire less than ten business days from and
including the date that notice of such increase or decrease is first published,
sent or given in the manner specified in "--Extension of the Offer;Termination;
Amendment," the Offer will be extended for at least ten business days from and
including the date of such notice. For purposes of the Offer, a "business day"
means any day other than Saturday, Sunday or federal holiday and consists of the
time period from 12:01 a.m. through 12:00 midnight, Wyoming time.
In accordance with Instruction 5 of the Letter of Transmittal,
shareholders desiring to tender Shares must specify the price, not in excess of
$14.00 nor less than $11.00 per Share, at which they are willing to sell their
Shares to the Company. Shares validly tendered pursuant to the Offer at or below
the Purchase Price and not withdrawn will be purchased at the Purchase Price,
subject to the terms and conditions of the Offer, including the proration
provisions. All Shares tendered and not purchased pursuant to the Offer,
including Shares tendered at prices in excess of the Purchase Price and Shares
not purchased because of proration will be returned to the tendering
shareholders at the Company's expense as promptly as practicable following the
Expiration Date.
Priority of Purchases. Upon the terms and subject to the conditions of
the Offer, if more than 313,000 Shares (or such greater number of Shares as the
Company may elect to purchase) have been validly tendered at prices at or below
the Purchase Price and not withdrawn prior to the Expiration Date, the Company
will purchase validly tendered Shares on the basis set forth below:
(a) first, all Shares tendered and not withdrawn prior to the
Expiration Date by any Odd Lot Holder (as defined below) who:
(1) tenders all Shares beneficially owned by such Odd Lot
Holder at a price at or below the Purchase Price (tenders of less than
all Shares owned by such shareholder will not qualify for this
preference); and
(2) completes the box captioned "Odd Lots" on the Letter of
Transmittal and, if applicable, on the Notice of Guaranteed Delivery;
and
(b) second, after purchase of all of the foregoing Shares, all other
Shares validly tendered at prices at or below the Purchase Price and
not withdrawn prior to the Expiration Date, on a pro rata basis (with
appropriate adjustments to avoid purchases of fractional Shares) as
described below.
Odd Lots. For purposes of the Offer, the term "Odd Lots" shall mean all
Shares validly tendered prior to the Expiration Date at prices at or below the
Purchase Price and not withdrawn by any person (an "Odd Lot Holder") who owned,
beneficially or of record, as of the close of business on October 15, 1998 and
as of the Expiration Date, an aggregate of fewer than 100 Shares and so
certified in the appropriate place on the Letter of Transmittal and, if
applicable, on the Notice of Guaranteed Delivery. In order to qualify for this
preference, an Odd Lot Holder must tender all such Shares in accordance with the
procedures described in "--Procedures for Tendering Shares." As set forth above,
Odd Lots will be accepted for payment before proration, if any, of the purchase
of other tendered Shares. This preference is not available to partial tenders or
to beneficial or record holders of an aggregate of 100 or more Shares, even if
such holders have separate accounts or certificates representing fewer than 100
Shares. By accepting the Offer, an Odd Lot Holder would not only avoid the
payment of brokerage commissions but also would avoid any applicable odd lot
discounts in a sale of such holder's Shares. Any shareholder wishing to tender
all of such shareholder's Shares pursuant to this Section should complete the
box captioned "Odd Lots" on the Letter of Transmittal and, if applicable, on the
Notice of Guaranteed Delivery.
18
The Company also reserves the right, but will not be obligated, to
purchase all Shares validly tendered by any shareholder who tendered all Shares
owned, beneficially or of record, at or below the Purchase Price and who, as a
result of proration, would then own, beneficially, an aggregate of fewer than
100 Shares. If the Company exercises this right, it will increase the number of
Shares that it is offering to purchase by the number of Shares purchased through
the exercise of the right.
Proration. In the event that proration of tendered Shares is required,
the Company will determine the proration factor as soon as practicable following
the Expiration Date. Proration for each shareholder tendering Shares, other than
Odd Lot Holders, shall be based on the ratio of the number of Shares tendered by
such shareholder to the total number of Shares tendered by all shareholders,
other than Odd Lot Holders, at or below the Purchase Price. Because of the
difficulty in determining the number of Shares validly tendered (including
Shares tendered by guaranteed delivery procedures, as described in Section 2)
and not withdrawn, and because of the odd lot procedure, the Company does not
expect that it will be able to announce the final proration factor or to
commence payment for any Shares purchased pursuant to the Offer until
approximately seven over-the-counter ("OTC") trading days after the Expiration
Date. The preliminary results of any proration will be announced by press
release as promptly as practicable after the Expiration Date. Shareholders may
obtain such preliminary information from the Information Agent and may be able
to obtain such information from their brokers.
This Offer to Purchase and the related Letter of Transmittal will be
mailed to record holders of Shares and will be furnished to brokers, banks and
similar persons whose names, or the names of whose nominees, appear on the
Company's shareholder list or, if applicable, who are listed as participants in
a clearing agency's security position listing for subsequent transmittal to
beneficial owners of Shares.
2. Procedures for Tendering Shares.
Valid Tender of Shares. For Shares to be validly tendered pursuant to
the Offer, (a) the certificates for such Shares (or confirmation of receipt of
such Shares pursuant to the procedures for book-entry delivery set forth below),
together with a properly completed and duly executed Letter of Transmittal (or
manually signed facsimile thereof) including any required signature guarantees
and any other documents required by the Letter of Transmittal, must be received
prior to 5:00 p.m., Wyoming time, on the Expiration Date by the Depositary at
one of its addresses set forth on the back cover of this Offer to Purchase or
(b) the tendering shareholder must comply with the guaranteed delivery procedure
set forth below.
IN ACCORDANCE WITH INSTRUCTION 5 OF THE LETTER OF TRANSMITTAL,
SHAREHOLDERS DESIRING TO TENDER SHARES PURSUANT TO THE OFFER MUST PROPERLY
INDICATE IN THE SECTION CAPTIONED "PRICE (IN DOLLARS) PER SHARE AT WHICH SHARES
ARE BEING TENDERED" ON THE LETTER OF TRANSMITTAL THE PRICE (IN MULTIPLES OF
$0.25) AT WHICH THEIR SHARES ARE BEING TENDERED. SHAREHOLDERS WHO DESIRE TO
TENDER SHARES AT MORE THAN ONE PRICE MUST COMPLETE A SEPARATE LETTER OF
TRANSMITTAL FOR EACH PRICE AT WHICH SHARES ARE TENDERED, PROVIDED THAT THE SAME
SHARES CANNOT BE TENDERED (UNLESS VALIDLY WITHDRAWN PREVIOUSLY IN ACCORDANCE
WITH THE TERMS OF THE OFFER) AT MORE THAN ONE PRICE. IN ORDER TO VALIDLY TENDER
SHARES, ONE AND ONLY ONE PRICE BOX MUST BE CHECKED IN THE APPROPRIATE SECTION ON
EACH LETTER OF TRANSMITTAL.
In addition, Odd Lot Holders who tender all such Shares must complete
the box captioned "Odd Lots" on the Letter of Transmittal and, if applicable, on
the Notice of Guaranteed Delivery, in order to qualify for the preferential
treatment available to Odd Lot Holders as set forth in "--Number of Shares;
Proration."
Signature Guarantees and Method of Delivery. No signature guarantee is
required on the Letter of Transmittal (i) if the Letter of Transmittal is signed
by the registered holder of the Shares (which term, for purposes
19
of this Section 3, shall include any participant in The Depository Trust Company
or The Philadelphia Depository Trust Company (collectively, the "Book-Entry
Transfer Facilities") whose name appears on a security position listing as the
owner of the Shares) tendered therewith and such holder has not completed either
the box entitled "Special Delivery Instructions" or the box entitled "Special
Payment Instructions" on the Letter of Transmittal; or (ii) if Shares are
tendered for the account of a member firm of a registered national securities
exchange, a member of the National Bank of Securities Dealers, Inc. or a
commercial bank or trust company having an office, branch or agency in the
United States. In all other cases, all signatures on the Letter of Transmittal
must be guaranteed by an eligible guarantor institution (bank, stockbroker,
savings and loan association or credit union with membership in an approved
signature guarantee medallion program) pursuant to Rule 17Ad-15 promulgated
under the Exchange Act (an "Eligible Institution"). See Instruction 1 of the
Letter of Transmittal. If a certificate for Shares is registered in the name of
a person other than the person executing a Letter of Transmittal, or if payment
is to be made, or Shares not purchased or tendered are to be issued, to a person
other than the registered holder, the certificate must be endorsed or
accompanied by an appropriate stock power, in either case, signed exactly as the
name of the registered holder appears on the certificate, with the signature on
the certificate or stock power guaranteed by an Eligible Institution.
In all cases, payment for Shares tendered and accepted for payment
pursuant to the Offer will be made only after timely receipt by the Depositary
of certificates for such Shares (or a timely confirmation of a book-entry
transfer of such Shares into the Depositary's account at one of the Book-Entry
Transfer Facilities as described above), a properly completed and duly executed
Letter of Transmittal (or manually signed facsimile thereof) and any other
documents required by the Letter of Transmittal. The method of delivery of all
documents, including certificates for Shares, the Letter of Transmittal and any
other required documents, is at the election and risk of the tendering
shareholder. If delivery is by mail, registered mail with return receipt
requested, properly insured, is recommended.
Book-Entry Delivery. The Depositary will establish an account with
respect to the Shares for purposes of the Offer at each Book-Entry Transfer
Facility within two business days after the date of this Offer to Purchase, and
any financial institution that is a participant in a Book-Entry Transfer
Facility's system may make book-entry delivery of the Shares by causing such
facility to transfer Shares into the Depositary's account in accordance with the
Book-Entry Transfer Facility's procedures for transfer. Although delivery of
Shares may be effected through a book-entry transfer into the Depositary's
account at a Book-Entry Transfer Facility, either (i) a properly completed and
duly executed Letter of Transmittal (or a manually signed facsimile thereof)
with any required signature guarantees and any other required documents must, in
any case, be transmitted to and received by the Depositary at one of its
addresses set forth on the back cover of this Offer to Purchase prior to the
Expiration Date, or (ii) the guaranteed delivery procedure described below must
be followed. Delivery of the Letter of Transmittal and any other required
documents to a book-entry transfer facility does not constitute delivery to the
Depositary.
Backup Federal Income Tax Withholding. To prevent backup federal income
tax withholding on payments made to shareholders for Shares purchased pursuant
to the Offer, each shareholder who does not otherwise establish an exemption
from such withholding must provide the Depositary with the shareholder's correct
taxpayer identification number and provide certain other information by
completing the substitute Form W-9 included in the Letter of Transmittal.
Foreign shareholders may be required to submit Form W-8, certifying non-United
States status, to avoid backup withholding. See Instructions 12 and 13 of the
Letter of Transmittal. For a discussion of certain federal income tax
consequences to tendering shareholders, see "Certain Federal Income Tax
Consequences."
Withholding For Foreign Shareholders. The Depositary will withhold
federal income taxes equal to 30% of the gross payments payable to a foreign
shareholder or his agent unless the Depositary determines that an exemption from
or a reduced rate of withholding is available pursuant to a tax treaty or an
exemption from withholding is applicable because such gross proceeds are
effectively connected with the conduct of a trade or business in the United
States. In order to obtain an exemption from or a reduced rate of withholding
pursuant to a tax treaty, a foreign shareholder must deliver to the Depositary a
properly completed Form 1001 (or any related successor form). For this purpose,
a foreign shareholder is a shareholder that is not (i) a citizen or resident of
the United States, (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United
20
States, any State or any political subdivision thereof or (iii) an estate or
trust the income of which is subject to United States federal income taxation
regardless of the source of such income. In order to obtain an exemption from
withholding on the grounds that the gross proceeds paid pursuant to the Offer
are effectively connected with the conduct of a trade or business within the
United States, a foreign shareholder must deliver to the Depositary a properly
completed Form 4224 (or any related successor form). The Depositary will
determine a shareholder's status as a foreign shareholder and eligibility for a
reduced rate of, or an exemption from, withholding by reference to any
outstanding certificates or statements concerning eligibility for a reduced rate
of, or exemption from, withholding (e.g., Form 1001 or Form 4224) unless facts
and circumstances indicate that such reliance is not warranted. A foreign
shareholder who has not previously submitted the appropriate certificates or
statements with respect to a reduced rate of, or exemption from, withholding for
which such shareholder may be eligible should consider doing so in order to
avoid excess withholding. A foreign shareholder may be eligible to obtain a
refund of tax withheld if such shareholder meets one of the three tests for sale
treatment described in "Certain Federal Income Tax Consequences" or is otherwise
able to establish that no tax or a reduced amount of tax is due. Backup
withholding generally will not apply to amounts subject to the 30% or
treaty-reduced rate of withholding.
Guaranteed Delivery. If a shareholder desires to tender Shares pursuant
to the Offer and such shareholder's Share certificates are not immediately
available (or the procedures for book-entry delivery cannot be completed on a
timely basis) or if time will not permit all required documents to reach the
Depositary prior to the Expiration Date, such Shares may nevertheless be
tendered, provided that all of the following conditions are satisfied:
(a) such tender is made by or through an Eligible Institution;
(b) the Depositary receives by hand, mail, telegram or facsimile
transmission, on or prior to the Expiration Date, a properly completed and duly
executed Notice of Guaranteed Delivery substantially in the form the Company has
provided with this Offer to Purchase (specifying the price at which the Shares
are being tendered), including (where required) a signature guarantee by an
Eligible Institution; and
(c) the certificates for all tendered Shares, in proper form for
transfer (or confirmation of book-entry delivery of such Shares into the
Depositary's account at one of the Book-Entry Transfer Facilities), together
with a properly completed and duly executed Letter of Transmittal (or a manually
signed facsimile thereof) and any required signature guarantees or other
documents required by the Letter of Transmittal, are received by the Depositary
within three OTC trading days after the date of receipt by the Depositary of
such Notice of Guaranteed Delivery.
If any tendered Shares are not purchased, or if less than all Shares
evidenced by a shareholder's certificates are tendered, certificates for
unpurchased Shares will be returned as promptly as practicable after the
expiration or termination of the Offer or, in the case of Shares tendered by
book-entry delivery at a Book-Entry Transfer Facility, such Shares will be
credited to the appropriate account maintained by the tendering shareholder at
the appropriate Book-Entry Transfer Facility, in each case without expense to
such shareholder.
Employee Stock Ownership Plan. As of June 30, 1998, the ESOP owned
117,820 Shares of which 49,050 Shares were allocated to the accounts of the
participants. Shares allocated to participants' accounts will, subject to the
limitations of the Employee Retirement Income Security Act of 1974, as amended,
and applicable regulations thereunder ("ERISA"), be tendered by the Trustee of
the plan according to the instructions of participants to the Trustee. Decisions
as to whether to tender Shares not allocated to participants' accounts will be
made by the Trustee subject to the terms of the plan and ERISA. The Trustee will
make available to the participants whose accounts hold allocated Shares all
documents furnished to the shareholders in connection with the Offer generally
and will provide additional information in a separate letter with respect to the
operations of the Offer to the participants of the ESOP. Each participant will
also receive a form upon which the participant may instruct the Trustee
regarding the Offer. Each participant may direct that all, some or none of the
Shares allocated to the participant's account be tendered. Participants will
also be afforded withdrawal rights. See "--Withdrawal Rights."
21
Under ERISA the Company will be prohibited from purchasing any Shares
from the ESOP (including Shares allocated to the accounts of participants) if
the Purchase Price is less than the prevailing market price of the Shares on the
date the Shares are accepted for payment pursuant to the Offer.
Company Stock Option Plans. The Company is not offering, as part of the
Offer, to purchase any of the options outstanding under the Company's stock
option plans and tenders of such options will not be accepted. In no event are
any options to be delivered to the Depositary in connection with a tender of
Shares hereunder. An exercise of an option cannot be revoked even if Shares
received upon the exercise thereof and tendered in the Offer are not purchased
in the Offer for any reason.
Determination of Validity; Rejection of Shares; Waiver of Defects; No
Obligation to Give Notice of Defects. All questions as to the number of Shares
to be accepted, the price to be paid therefor and the validity, form,
eligibility (including time of receipt) and acceptance of any tender of Shares
will be determined by the Company, in its sole discretion, and its determination
shall be final and binding on all parties. The Company reserves the absolute
right to reject any or all tenders of any Shares that it determines are not in
appropriate form or the acceptance for payment of or payment for which may be
unlawful. The Company also reserves the absolute right to waive any of the
conditions of the Offer or any defect or irregularity in any tender with respect
to any particular Shares. No tender of Shares will be deemed to have been
validly made until all defects or irregularities have been cured by the
tendering shareholder or waived by the Company. None of the Company, the
Depositary, the Information Agent or any other person shall be obligated to give
notice of any defects or irregularities in tenders, nor shall any of them incur
any liability for failure to give any such notice.
Tendering Shareholder's Representation and Warranty; Company's
Acceptance Constitutes an Agreement. A tender of Shares pursuant to any of the
procedures described above will constitute the tendering shareholder's
acceptance of the terms and conditions of the Offer, as well as the tendering
shareholder's representation and warranty to the Company that (a) such
shareholder has a net long position in the Shares being tendered within the
meaning of Rule 14e-4 promulgated by the Commission under the Exchange Act and
(b) the tender of such Shares complies with Rule 14e-4. It is a violation of
Rule 14e-4 for a person, directly or indirectly, to tender Shares for such
person's own account unless, at the time of tender and at the end of the
proration period, the person so tendering (i) has a net long position equal to
or greater than the amount of (x) Shares tendered or (y) other securities
convertible into or exchangeable or exercisable for the Shares tendered and will
acquire such Shares for tender by conversion, exchange or exercise and (ii) will
cause such Shares to be delivered in accordance with the terms of the Offer.
Rule 14e-4 provides a similar restriction applicable to the tender or guarantee
of a tender on behalf of another person. The Company's acceptance for payment of
Shares tendered pursuant to the Offer will constitute a binding agreement
between the tendering shareholder and the Company upon the terms and subject to
the conditions of the Offer.
3. Withdrawal Rights.
Except as otherwise provided in this Section 4, the tender of Shares
pursuant to the Offer is irrevocable. Shares tendered pursuant to the Offer may
be withdrawn at any time prior to the Expiration Date and, unless theretofore
accepted for payment by the Company pursuant to the Offer, may also be withdrawn
at any time after 12:00 midnight, Wyoming time, on Wednesday, December 16, 1998.
For a withdrawal to be effective, a notice of withdrawal must be in
written, telegraphic or facsimile transmission form and must be received in a
timely manner by the Depositary at one of its addresses set forth on the back
cover of this Offer to Purchase. Any such notice of withdrawal must specify the
name of the tendering shareholder, the name of the registered holder, if
different, the number of Shares tendered and the number of Shares to be
withdrawn. If the certificates for Shares to be withdrawn have been delivered or
otherwise identified to the Depositary, then, prior to the release of such
certificates, the tendering shareholder must also submit the serial numbers
shown on the particular certificates evidencing the Shares to be withdrawn and
the signature on the notice of withdrawal must be guaranteed by an Eligible
Institution (except in the case of Shares tendered by an Eligible Institution).
If Shares have been tendered pursuant to the procedure for book-entry delivery
set forth in "--
22
Procedures for Tendering Shares," the notice of withdrawal also must specify the
name and the number of the account at the applicable Book-Entry Transfer
Facility to be credited with the withdrawn Shares and otherwise comply with the
procedures of such facility. None of the Company, the Depositary, the
Information Agent or any other person shall be obligated to give notice of any
defects or irregularities in any notice of withdrawal nor shall any of them
incur liability for failure to give any such notice. All questions as to the
form and validity (including time of receipt) of notices of withdrawal will be
determined by the Company, in its sole discretion, which determination shall be
final and binding on all parties.
Withdrawals may not be rescinded and any Shares withdrawn will
thereafter be deemed not validly tendered for purposes of the Offer. However,
withdrawn Shares may be retendered prior to the Expiration Date by again
following one of the procedures described in "--Procedures for Tendering
Shares."
If the Company extends the Offer, is delayed in its purchase of Shares
or is unable to purchase Shares pursuant to the Offer for any reason, then,
without prejudice to the Company's rights under the Offer, the Depositary may,
subject to applicable law, retain tendered Shares on behalf of the Company, and
such Shares may not be withdrawn except to the extent tendering shareholders are
entitled to withdrawal rights as described in this Section 3.
4. Price Range Of Shares; Dividends
The Shares trade is on the Nasdaq SmallCap Market under the symbol
"TRIC." The following table sets forth, for the periods indicated, the high and
low closing per Share sales price as published by the Nasdaq statistical report
and the cash dividends paid per Share in each such fiscal quarter.
Dividends
Paid
Fiscal Year High(1) Low(1) Per Share(1)
- ----------- ------- ------ ------------
1996:
1st Quarter ............................ $ 9.25 $ 8.25 $ 0.125
2nd Quarter ............................ 9.25 8.75 --
3rd Quarter ............................ 9.44 9.00 0.125
4th Quarter ............................ 9.50 9.00 --
1997:
1st Quarter ............................ 9.50 9.00 0.075
2nd Quarter ............................ 10.63 9.50 0.075
3rd Quarter ............................ 12.25 10.75 0.075
4th Quarter ............................ 15.00 11.50 0.10
1998:
1st Quarter ............................ 15.00 13.13 0.10
2nd Quarter ............................ 16.50 12.50 0.11
3rd Quarter ............................ 13.00 11.50 0.11
4th Quarter (through October 15, 1998) . 11.75 11.25 --
- ---------------------
(1) Restated to reflect stock dividend in a form of a 100% stock split paid
December 8, 1997.
23
On October 13, 1998, the last full trading day on which a sale was
reported prior to the commencement of the Offer, the closing per Share sales
price was $11.25. Shareholders are urged to obtain current market quotations for
the Shares. For trading information regarding the Shares, shareholders may call
Keefe, Bruyette & Woods, Inc. at 1-877-298-6520.
5. Purchase of Shares and Payment of Purchase Price.
Upon the terms and subject to the conditions of the Offer, the Company
will determine the Purchase Price it will pay for the Shares validly tendered
and not withdrawn prior to the Expiration Date, taking into account the number
of Shares so tendered and the prices specified by tendering shareholders, and
will accept for payment and pay for (and thereby purchase) Shares validly
tendered at prices at or below the Purchase Price as promptly as practicable
following the Expiration Date. For purposes of the Offer, the Company will be
deemed to have accepted (and therefor purchased) Shares which are tendered at or
below the Purchase Price and not withdrawn (subject to the proration provisions
of the Offer) when, as and if it gives oral or written notice to the Depositary
of its acceptance of such Shares for payment pursuant to the Offer.
Upon the terms and subject to the conditions of the Offer, promptly
following the Expiration Date the Company will accept for payment and pay a
single per Share Purchase Price for 313,000 Shares (subject to increase or
decrease as provided in "--Extension of the Offer; Termination; Amendment") or
such lesser number of Shares as are validly tendered at prices not in excess of
$14.00 nor less than $11.00 per Share and not withdrawn as permitted in
"--Withdrawal Rights."
The Company will pay for Shares purchased pursuant to the Offer by
depositing the aggregate Purchase Price therefor with the Depositary, which will
act as agent for tendering shareholders for the purpose of receiving payment
from the Company and transmitting payment to the tendering shareholders.
In the event of proration, the Company will determine the proration
factor and pay for those tendered Shares accepted for payment as soon as
practicable after the Expiration Date; however, the Company does not expect to
be able to announce the final results of any proration and commence payment for
Shares purchased until approximately seven Nasdaq Stock Market trading days
after the Expiration Date. Certificates for all Shares tendered and not
purchased, including all Shares tendered at prices in excess of the Purchase
Price and Shares not purchased due to proration, will be returned (or, in the
case of Shares tendered by book-entry delivery, such Shares will be credited to
the account maintained with the Book-Entry Transfer Facility by the participant
therein who so delivered such Shares) to the tendering shareholder as promptly
as practicable after the Expiration Date without expense to the tendering
shareholders. Under no circumstances will interest on the Purchase Price be paid
by the Company by reason of any delay in making payment.
The Company will pay all stock transfer taxes, if any, payable on the
transfer to it of Shares purchased pursuant to the Offer. If, however, payment
of the Purchase Price is to be made to, or (in the circumstances permitted by
the Offer) if unpurchased Shares are to be registered in the name of, any person
other than the registered holder, or if tendered certificates are registered in
the name of any person other than the person signing the Letter of Transmittal,
the amount of all stock transfer taxes, if any (whether imposed on the
registered holder or such other person), payable on account of the transfer to
such person will be deducted from the Purchase Price unless evidence
satisfactory to the Company of the payment of the stock transfer taxes, or
exemption therefrom, is submitted. See Instruction 7 of the Letter of
Transmittal.
ANY TENDERING SHAREHOLDER OR OTHER PAYEE WHO FAILS TO COMPLETE FULLY,
SIGN AND RETURN TO THE DEPOSITARY THE SUBSTITUTE FORM W-9 INCLUDED IN THE LETTER
OF TRANSMITTAL MAY BE SUBJECT TO REQUIRED BACKUP FEDERAL INCOME TAX WITHHOLDING.
SEE "-- PROCEDURES FOR TENDERING SHARES" AND INSTRUCTION 12 OF THE LETTER OF
TRANSMITTAL. ALSO SEE "-- PROCEDURES FOR TENDERING SHARES" REGARDING FEDERAL
INCOME TAX CONSEQUENCES FOR FOREIGN SHAREHOLDERS.
24
6. Certain Conditions of the Offer.
Notwithstanding any other provision of the Offer, the Company shall not
be required to accept for payment, purchase or pay for any Shares tendered, and
may terminate or amend the Offer or may postpone the acceptance for payment of,
or the purchase of and the payment for Shares tendered, subject to Rule 13e-4(f)
under the Exchange Act (see "-- Extension of the Offer; Termination;
Amendment"), if at any time on or after October 23, 1998, prior to the
Expiration Date, and prior to the time of payment for any such Shares any of the
following events shall have occurred (or shall have been determined by the
Company to have occurred) which, in the Company's reasonable judgment in any
such case and regardless of the circumstances giving rise thereto (including any
action or omission to act by the Company), makes it inadvisable to proceed with
the Offer or with such acceptance for payment or payment:
(a) there shall have been threatened, instituted or pending any action
or proceeding by any government or governmental, regulatory or administrative
agency or authority or tribunal or any other person, domestic or foreign, or
before any court or governmental, regulatory or administrative authority or
agency or tribunal, domestic or foreign, which: (1) challenges the making of the
Offer, the acquisition of Shares pursuant to the Offer or otherwise relates in
any manner to the Offer or (2) in the Company's reasonable judgment, could
materially affect the business, condition (financial or other), income,
operations or prospects of the Company and its subsidiaries, taken as a whole,
or otherwise materially impair in any way the contemplated future conduct of the
business of the Company or any of its subsidiaries or materially impair the
Offer's contemplated benefits to the Company; or
(b) there shall have been any claim, action or proceeding threatened,
pending or taken, or any consent, license, authorization, permit or approval
withheld, or any law, statute, rule, regulation, judgment, order or injunction
threatened, proposed, sought, promulgated, enacted, entered, enforced or deemed
to be applicable to the Offer or the Company, by or before any court or any
government or governmental, regulatory or administrative agency or authority
(federal, state, local or foreign) or tribunal, domestic or foreign, which, in
the reasonable judgment of the Company, could or might directly or indirectly
(i) make the acceptance for payment of, or payment for, some or all of the
Shares illegal or otherwise restrict or prohibit the consummation of the Offer,
(ii) delay or restrict the ability of the Company, or render the Company unable,
to accept for payment or pay for some or all of the Shares, (iii) materially
affect the business, condition (financial or other), income, operations or
prospects of the Company and its subsidiaries, taken as a whole, or otherwise
materially impair in any way the contemplated future conduct of the business of
the Company or any of its subsidiaries, or (iv) materially impair the
contemplated benefits of the Offer to the Company; or
(c) there shall have occurred any of the following events: (i) the
commencement of any state of war, international crisis or national emergency;
(ii) the declaration of any banking moratorium or suspension of payments by
banks in the United States or any limitation on the extension of credit by
lending institutions in the United States; (iii) any general suspension of
trading or limitation of prices for securities on any securities exchange or in
the over-the-counter market in the United States; (iv) any significant adverse
change in the market price of the Shares or any change in the general political,
market, economic or financial conditions in the United States or abroad that
could have a material adverse effect upon the trading of the Shares; (v) in the
case of any of the foregoing existing at the time of the commencement of the
Offer, in the reasonable judgment of the Company, a material acceleration or
worsening effect thereof; or (vi) any decline in either the Dow Jones Industrial
Average or the Standard and Poor's Index of 500 Industrial Companies by an
amount in excess of 10% measured from the close of business on October 13, 1998;
or
(d) a tender or exchange offer with respect to some or all of the
Shares (other than the Offer), or a merger or acquisition proposal for the
Company, shall have been proposed, announced or made by another person or shall
have been publicly disclosed, or the Company shall have learned that any person
or "group" (within the meaning of Section 13(d)(3) of the Exchange Act), shall
have acquired or proposed to acquire beneficial ownership of more than five
percent of the outstanding Shares, or any new group shall have been formed that
beneficially owns more than five percent of the outstanding Shares; or
25
(e) there shall have occurred any event which, in the reasonable
judgment of the Company, has resulted in an actual or threatened material
adverse change in the business, financial condition, assets, income, operations,
prospects or stock ownership of the Company or which may adversely affect the
value of the Shares; and, in the reasonable judgment of the Company, such event
makes it inadvisable to proceed with the Offer or with acceptance for payment of
or payment for any Shares.
The foregoing conditions are for the sole benefit of the Company and
may be asserted by the Company regardless of the circumstances (including any
action or inaction by the Company) giving rise to any such condition, and may be
waived by the Company, in whole or in part, at any time and from time to time in
its sole discretion. The Company's failure at any time to exercise any of the
foregoing rights shall not be deemed a waiver of any such right and each such
right shall be deemed an ongoing right which may be asserted at any time and
from time to time. Any determination by the Company concerning the events
described above will be final and binding on all parties.
7. Extension of the Offer; Termination; Amendment.
The Company expressly reserves the right, in its sole discretion, at
any time and from time to time, and regardless of whether or not any of the
events set forth in "-- Certain Conditions of the Offer" shall have occurred or
been determined by the Company to have occurred, (a) to extend the period of
time during which the Offer is open by giving oral or written notice of such
extension to the Depositary and making a public announcement thereof no later
than 9:00 a.m., Wyoming time, on the next business day after the previously
scheduled Expiration Date, and (b) to amend the Offer in any respect (including,
without limitation, by increasing or decreasing the range of prices it may pay
for Shares or the number of Shares being sought in the Offer) by giving oral or
written notice of such amendment to the Depositary and, as promptly as
practicable thereafter, making a public announcement thereof. If (i) the Company
increases or decreases the price to be paid for Shares, increases or decreases
the number of Shares being sought in the Offer or incurs dealer manager
soliciting fees and, in the event of an increase in the number of Shares being
sought, such increase exceeds two percent of the outstanding Shares and (ii) the
Offer is scheduled to expire at any time earlier than the expiration of a period
ending on the tenth business day from, and including, the date that such notice
of an increase or decrease is first published, sent or given in the manner
specified in this Section 7, the Offer will, at least, be extended until the
expiration of such period of ten business days. The Company also expressly
reserves the right, in its sole and absolute discretion, to terminate the Offer
and not to accept for payment or pay for Shares upon the occurrence of any of
the conditions specified in "--Certain Conditions of the Offer" by giving oral
or written notice of such termination to the Depositary and, as promptly as
practicable thereafter, making a public announcement thereof. Without limiting
the manner in which the Company may choose to make a public announcement, except
as required by applicable law (including Rule 13e- 4(e)(2) under the Exchange
Act), the Company shall have no obligation to publish, advertise or otherwise
communicate any such public announcement other than by making a release to the
Dow Jones News Service. The rights reserved by the Company in this paragraph are
in addition to the Company's rights under "--Certain Conditions of the Offer."
Payment for Shares accepted for payment pursuant to the Offer may be delayed in
the event of proration due to the difficulty of determining the number of
validly tendered Shares. See "--Number of Shares; Proration" and "--Purchase of
Shares and Payment of Purchase Price."
8. Source and Amount of Funds.
Assuming that the Company purchases 313,000 Shares pursuant to the
Offer at a price of $14.00 per Share, the cost to the Company (including all
fees and expenses relating to the Offer), is estimated to be approximately
$4,500,000. The Company plans to obtain all the funds needed for the Offer from
a dividend from the Bank of $4,500,000. The Bank filed a Notice of Capital
Distribution (the "Notice") with the OTS, regarding the dividend, on August 19,
1998. On September 21, 1998, the Company received a letter of non objection
regarding the payment of such dividend. Pursuant to OTS regulations, the OTS
could object to the dividend within 30 days of the filing of the Notice. Such
dividend has already been paid by the Bank.
26
9. Certain Information Concerning The Company
General. The Company is the holding company for the Bank which was
originally chartered in 1935. The Bank is primarily engaged in the business of
attracting deposits from the general public and using those deposits, together
with other funds, to originate loans on one-to four-family residences and, to a
lesser extent, multi-family, consumer loans, (including automobile and home
equity loans), commercial real estate loans and commercial business loans. The
Bank's loan portfolio consists of both adjustable-rate and fixed-rate mortgage
loans. The Bank also purchases loans and participates in loans with other
financial and mortgage banking institutions on a case by case basis.
Additionally, the Bank invests in mortgage-backed and investment securities.
The business of the Bank is conducted through its main office in
Torrington, Wyoming and its branch office in Wheatland, Wyoming.
The Bank is subject to examination by the OTS and the Federal Deposit
Insurance Corporation. The Company, as a federal savings and loan holding
company, is subject to examination by the OTS.
27
SELECTED CONSOLIDATED FINANCIAL INFORMATION
Set forth below is certain selected consolidated financial information
with respect to the Company, excerpted or derived from the audited financial
statements for the years ended December 31, 1997 and 1996 and from the unaudited
financial statements for the six months ended June 30, 1998 and 1997 included in
Annex II to this Offer to Purchase. The selected information below is qualified
in its entirety by reference to such consolidated financial statements and the
financial information and related notes contained therein.
Tri-County Bancorp, Inc.
Summary Historical Financial Information
At June 30, At December 31,
-------------------------------------------------------------------------------------------
1998 1997 1996
-------------------------------------------------------------------------------------------
(Dollars in thousands)
Selected Financial Condition
and Other Data
Total assets........................ $86,549 $89,961 $85,888
Loans receivable, net............... 40,211 40,425 35,265
Mortgage-backed securities, net..... 23,537 21,273 25,247
Investment securities, net.......... 15,523 23,240 21,466
Cash and cash equivalents.......... 5,540 2,638 2,289
Deposits............................ 45,594 45,405 48,533
Total shareholders' equity.......... 14,232 13,827 13,146
Six Months Ended June 30, Year Ended December 31,
-------------------------------------------------------------------------------------------
1998 1997 1997 1996
-------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts)
Interest income..................... $3,158 $3,123 $6,466 $5,494
Interest expense.................... 1,815 1,791 3,722 3,026
Net interest income................. 1,343 1,332 2,744 2,468
Provision for loan losses........... -- -- -- --
Noninterest income................. 94 90 105 159
Noninterest expense................. 784 744 1,623 1,811(2)
Income tax expense.................. 195 206 325 276
Net income ......................... 459 472 901 540(2)
Net income per share - diluted...... 0.37 0.37 0.71 0.41
Dividends per share................. 0.21 0.15 0.33 0.25
Book value per share................ 12.19 11.25 11.84 10.80
28
At or For Six Months Ended At or For Year Ended
June 30, December 31,
------------------------------------------------------------------------
1998(1) 1997(1) 1997 1996(2)
------------------------------------------------------------------------
Selected financial ratios:
Return on average assets............ 1.04% 1.08% 1.02% 0.71%
Return on average equity............ 6.54 7.07 6.68 4.05
Dividend payout ratio............... 53.42 38.69 42.95 57.83
Average equity/total assets......... 15.94 15.33 14.99 15.51
Allowance for loan losses/loans
receivable, net..................... 1.01 1.11 1.01 1.16
Efficiency ratio.................... 54.52 52.34 56.96 68.93(4)
- ------------------
(1) The ratios for the six month periods are annualized.
(2) The Federal Deposit Insurance Corporation has imposed a special
assessment on the Savings Bank Insurance Fund members based on deposits
as of March 31, 1995. The Bank paid an assessment of $304,606 on
September 30, 1996, which was required to be accrued and expended for
the quarter ended September 30, 1996.
(3) The consolidated ratio of earnings to fixed charges has been computed
by dividing income before income taxes, cumulative effect of changes in
accounting principles and fixed charges by fixed charges. Fixed charges
represent all interest expense (ratios are presented both excluding and
including interest on deposits). There were no amortization of notes
and debentures expense nor any portion of net rental expense which was
deemed to be equivalent to interest on debt. Interest expense (other
than on deposits) includes interest on notes, federal funds purchased
and securities sold under agreements to repurchase, and other funds
borrowed.
(4) Without Savings Association Insurance Fund one-time assessment: 57.33%.
29
SELECTED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information of the Company
for the six months ended June 30, 1998 and the fiscal year ended December 31,
1997 show the effects of the purchase of 313,000 Shares pursuant to the Offer.
The balance sheet data give effect to the purchase of Shares pursuant to the
Offer as if it had occurred as of the date of the balance sheet. The pro forma
financial information should be read in conjunction with the audited financial
statements and related notes thereto for the year ended December 31, 1997 and
the unaudited financial statements for the six months ended June 30, 1998
contained in Annex II to this Offer to Purchase. The pro forma financial
information does not purport to be indicative of the results that would actually
have been attained had the purchases of the Shares been completed at the dates
indicated or that may be attained in the future.
Tri-County Bancorp, Inc.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
Six Months Ended June 30, 1998
(Dollars in thousands, except per share data)
Shares Purchased at
-------------------
$11.00 $14.00
per Share per Share
--------- ---------
Interest income................................................. $3,051 $3,013
Interest expense (3)............................................ 1,815 1,815
----- -----
Net interest income........................................ 1,236 1,198
Provision for credit losses.................................... -- --
----- -----
Net interest income after provision for credit losses...... 1,236 1,198
Noninterest income............................................. 94 94
Noninterest expenses............................................ 784 784
----- -----
Income before income taxes...................................... 546 508
Income tax expense (3).......................................... 158 145
----- -----
Net income................................................. $ 388 $ 363
===== =====
Basic earnings per share................................... $ 0.44 $ 0.43
===== =====
Diluted earnings per share................................. $ 0.40 $ 0.38
===== =====
Weighted average shares outstanding (2)......................... 854,498 854,498
Efficiency ratio................................................ 59.26% 60.60%
See Notes to Unaudited Proforma Financial Information on page 34
30
Tri-County Bancorp, Inc.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
Year Ended December 31, 1997
(Dollars in thousands, except per share data)
Shares Purchased at
-------------------
$11.00 $14.00
per Share per Share
--------- ---------
Interest income................................................. $ 6,216 $ 6,150
Interest expense (3)............................................ 3,723 3,723
------- -------
Net interest income........................................ 2,493 2,427
Provision for credit losses..................................... -- --
------- -------
Net interest income after provision for credit losses...... 2,493 2,427
Noninterest income.............................................. 105 105
Noninterest expenses............................................ 1,623 1,623
------- -------
Income before income taxes...................................... 991 909
Income tax expense (3).......................................... 245 218
------- -------
Net income................................................. $ 746 $ 691
======= =======
Basic earnings per share................................... $ 0.83 $ 0.78
======= =======
Diluted earnings per share................................. $ 0.77 $ 0.72
======= =======
Weighted average shares outstanding (2)......................... 881,347 881,347
Efficiency ratio................................................ 62.46 64.09
See Notes to Unaudited Proforma Financial Information on page 34
31
Tri-County Bancorp, Inc.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
June 30, 1998
(Dollars in thousands, except per share data)
Shares Purchased at
-------------------
$11.00 $14.00
per Share per Share
--------- ---------
ASSETS
Cash and cash equivalents (3).................................................... $ 5,425 $ 5,394
Certificates of deposit in other financial institutions......................... -- --
Securities available for sale (3)............................................... 28,673 27,734
Securities held to maturity...................................................... 6,826 6,826
Loans receivable, net............................................................ 40,211 40,211
Other assets..................................................................... 1,739 1,739
------- -------
Total assets................................................................ $ 82,874 $ 81,904
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
- -----------
Deposits....................................................................... $ 45,594 $ 45,594
Borrowings (3)................................................................. 25,623 25,623
Other liabilities.............................................................. 1,064 1,052
------ ------
Total liabilities........................................................... 72,281 72,269
Shareholders' equity
- --------------------
Common stock................................................................... 150 150
Paid in capital................................................................ 7,152 7,152
Retained earnings (6).......................................................... 8,929 8,910
Unrealized gain on securities available for sale............................... 897 897
Treasury stock (1)(2)(4)....................................................... (6,206) (7,145)
Unearned ESOP/MSBP............................................................. (329) (329)
Total shareholders' equity.................................................. 10,593 9,636
------ ------
Total liabilities and equity................................................ $ 88,274 $ 81,904
====== ======
Shareholders' equity/total assets............................................. 12.78% 11.76%
Book value per common share................................................... $ 12.40 $ 11.28
See Notes to Unaudited Proforma Financial Information on page 34
32
Tri-County Bancorp, Inc.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
December 31, 1997
(Dollars in thousands, except per share data)
Shares Purchased at
-------------------
$11.00 $14.00
per Share per Share
--------- ---------
ASSETS
Cash and cash equivalents (3).............................................. $ 2,388 $ 2,322
Certificates of deposit in other financial institutions................... -- --
Securities available for sale (3)......................................... 32,965 32,026
Securities held to maturity................................................ 7,987 7,987
Loans receivable, net...................................................... 40,425 40,425
Other assets............................................................... 2,383 2,383
------- -------
Total assets.......................................................... $ 86,148 $ 85,143
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
- -----------
Deposits................................................................... $45,405 $45,405
Borrowings (3)............................................................. 29,697 29,697
Other liabilities.......................................................... 946 923
------ ------
Total liabilities..................................................... 76,048 76,025
Shareholders' equity
- --------------------
Common stock............................................................... 150 150
Paid in capital............................................................ 7,101 7,101
Retained earnings (6)...................................................... 8,626 8,584
Unrealized gain on securities available for sale........................... 817 817
Treasury stock (1)(2)(4)................................................... (6,206) (7,145)
Unearned ESOP/MSBP......................................................... ( 388) ( 388)
Total Shareholders' equity............................................ 10,100 9,118
------ ------
Total liabilities and equity.......................................... $ 86,148 $ 85,143
====== ======
Shareholders' equity/total assets.......................................... 11.72% 10.71%
Book value per common share................................................ $ 11.82 $ $10.67
See Notes to Unaudited Proforma Financial Information on page 34
33
Tri-County Bancorp, Inc.
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
(1) The proforma financial information reflects the repurchase of 313,000
Shares of stock at $11.00 and $14.00 per Share, as appropriate.
(2) The balance sheet data give effect to the purchase of Shares as of the
balance sheet date. The income statement data give effect to the purchase
of Shares as of the beginning of each period presented.
(3) The funds used to purchase Shares were considered to have been obtained
from cash and cash equivalents and securities available for sale. The
income statement data reflects the decrease in investment income as if cash
was used to purchase the common stock at the beginning of the period.
(4) Effect has been given to costs to be incurred in connection with the Offer,
which are estimated to be $118,000. Such costs will be capitalized as part
of the costs of the stock purchased.
(5) Net income after tax effect on earnings as a result of pro forma effect of
repurchase.
(6) After tax effect of reduced earnings due to the loss of interest income
resulting from the sale of cash and cash equivalents and securities
available for sale.
34
10. Effects of the Offer on the Market for Shares; Registration under
the Exchange Act.
The Shares are currently traded on the Nasdaq SmallCap Market under the
symbol "TRIC." Upon completion of the Offer, it is expected that the Shares will
no longer meet the listing criteria for listing on the Nasdaq and therefore will
be delisted at that item. It is expected that shares will be traded in the
over-the-counter market with quotations available on the OTC Electronic Bulletin
Board. There can be no assurance that shareholders will be able to find willing
buyers for their Shares after completion of the Offer.
The Shares are not currently "margin securities" under the rules of the
Federal Reserve Board. The Company believes that, following the purchase of
Shares pursuant to the Offer, the Shares will continue to not be "margin
securities" for purposes of the Federal Reserve Board's margin regulations.
The Savings and Loan Holding Company Act and the Change in Bank Control
Act each set forth thresholds with respect to the ownership of voting shares of
a savings and loan holding company of 5% to 10%, respectively, over which the
owner of such voting shares may be determined to control such savings and loan
holding company. If, as a result of the Offer, the ownership interest of any
shareholder in the Company is increased over these thresholds, such shareholder
may be required to reduce its ownership interest in the Company or file a notice
with regulators. Each shareholder whose ownership interest may be so increased
is urged to consult the shareholder's own legal counsel with respect to the
consequences to the shareholder of the Offer.
The Company files periodic reports with the Commission pursuant to
Section 13 of the Exchange Act. Regardless of the results of the Offer the
Company will consider applying to the Commission to suspend this duty if the
number of its shareholders is less than 300 holders of record. Termination of
the Company's reporting duty would substantially reduce the public information
available concerning the Company. Such termination will, however, decrease the
Company's non-interest expenses.
11. Fees and Expenses.
The Company has retained Keefe, Bruyette & Woods, Inc. to act as Deal
Manager and Information Agent and American Securities Transfer & Trust, Inc. to
act as Depositary in connection with the Offer. The Deal Manager and Information
Agent may contact holders of Shares by mail, telephone, telegraph and personal
interviews and may request brokers, dealers and other nominee shareholders to
forward materials relating to the Offer to beneficial owners. The Deal Manager
and Information Agent and the Depositary will each receive reasonable and
customary compensation for their respective services and will be reimbursed by
the Company for certain reasonable out-of-pocket expenses, including attorneys'
fees.
No fees or commissions will be payable to brokers, dealers or other
persons (other than fees to the Deal Manager and Information Agent and the
Depositary as described above) for soliciting tenders of Shares pursuant to the
Offer. The Company will, however, upon request, reimburse brokers, dealers and
commercial banks for customary mailing and handling expenses incurred by such
persons in forwarding the Offer to Purchase and related materials to the
beneficial owners of Shares held by any such person as a nominee or in a
fiduciary capacity. No broker, dealer, commercial bank or trust company has been
authorized to act as the agent of the Company, the Deal Manager and Information
Agent or the Depositary for purposes of the Offer. The Company will pay or cause
to be paid all stock transfer taxes, if any, on its purchase of Shares except as
otherwise provided in Instruction 7 in the Letter of Transmittal.
35
The estimated costs and fees to be paid by the Company in connection
with the Offer are as follows:
Legal fees......................................... $ 30,000
Commission filing fees............................. 1,000
Printing and mailing expenses...................... 18,000
Depositary fees.................................... 7,500
Deal Manager and Information Agent fees............ 61,300
Miscellaneous..................................... 200
-------
Total.............................................. $118,000
=======
ADDITIONAL INFORMATION
The Company is currently subject to the informational filing
requirements of the Exchange Act and, in accordance therewith, is obligated to
file reports and other information with the Commission relating to its business,
financial condition and other matters. Information, as of particular dates,
concerning the Company's directors and officers, their remuneration, options
granted to them, the principal holders of the Company's securities and any
material interest of such persons in transactions with the Company is required
to be disclosed in proxy statements distributed to the Company's shareholders
and filed with the Commission. Such reports, proxy statements and other
information are available for inspection at the public reference facilities of
the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549; and for inspection and copying at the regional offices of the Commission,
located at Suite 1400, Citicorp Center, 14th Floor, 500 West Madison Street,
Chicago, Illinois 60661; and 7 World Trade Center, Suite 1300, New York, New
York 10048. Copies of such material may also be obtained by mail, upon payment
of the Commission's customary charges, from the Commission's principal office at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission
also maintains a Web site on the World Wide Web at http:\www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
MISCELLANEOUS
The Company is not aware of any jurisdiction where the making of the
Offer is not in compliance with applicable law. If the Company becomes aware of
any jurisdiction where the making of the Offer is not in compliance with any
valid applicable law, the Company will make a good faith effort to comply with
such law. If, after such good faith effort, the Company cannot comply with such
law, the Offer will not be made to (nor will tenders be accepted from or on
behalf of) the holders of Shares residing in such jurisdiction.
Pursuant to Rule 13e-3 and Rule 13e-4 under the Exchange Act, the
Company has filed with the Commission a Rule 13e-3 Transaction Statement and an
Issuer Tender Offer Statement on Schedule 13E-4 which contain additional
information with respect to the Offer. Such Schedule 13E-3 and Schedule 13E-4,
including the exhibits and any amendments thereto, may be examined, and copies
may be obtained, at the same places and in the same manner as is set forth in
"Additional Information" with respect to information concerning the Company.
Tri-County Bancorp, Inc.
October 23, 1998
36
Schedule A
1. Directors and Executive Officers
The following table sets forth certain information about the Company's
directors and executive officers as of June 30, 1998.
Number of Shares Percent of Percent of Shares
Name and Address(1) Principal Occupation Beneficially Owned Shares After Offer
------------------- -------------------- ------------------ ---------- -----------
DIRECTORS
Larry C. Goddard Optometrist 46,930(3) 3.59% 4.73%
Lance H. Griggs Dentist 48,912(2)(4) 3.71 4.93
David C. Kellam Owner, Torrington Turf Farm 64,240(2)(5) 4.92 6.47
Carl F. Rupp Farmer 24,734(2)(6) 1.89 2.49
William J. Rueb Owner, Cattle Hide and 65,780(2)(6) 5.04 6.56
Processing Company
Robert L. Savage President and Chief Executive 93,685(7) 7.18 9.44
Officer of Bank & Company
NON-DIRECTOR EXECUTIVE OFFICERS
Earl F. Warren, Jr. Senior Vice President of Bank 16,866(8) 1.15 1.70
& Company
Tommy A. Gardner Vice President & Chief 19,146(9) 1.33 1.93
Financial Officer of Bank &
Company
- ------------------
(1) The address of the individuals listed above is 2201 Main Street,
Torrington, Wyoming. Each of the individuals listed above is a citizen of
the United States of America.
(2) Excludes 117,820 Shares (68,770 currently unallocated) held under the ESOP
Committee for which such specified individual (or certain individuals in
the named group) serves as a member of the ESOP Committee or as an ESOP
Trustee. Such individuals disclaim beneficial ownership with respect to
such Shares held in a fiduciary capacity.
(3) Includes (i) 14,950 Shares subject to options under the SOP; (ii) 5,000
Shares owned by Mr. Goddard's spouse, which Shares Mr. Goddard may be
deemed to beneficially own.
(4) Includes (i) 14,950 Shares subject to options under the SOP; (ii) 12,656
Shares owned by Mr. Griggs' spouse, which Shares Mr. Griggs may be deemed
to beneficially own; and (iv) 1,000 Shares held in trust.
(5) Includes (i) 14,950 Shares subject to options under the SOP; (ii) 23,110
Shares owned by Mr. Kellam's spouse, which Shares Mr. Kellam may be deemed
to beneficially own.
(6) Includes (i) 14,950 Shares subject to options under the SOP;
(7) Includes 9,677 Shares held in ESOP and allocated for the benefit of Mr.
Savage; Includes (i) 41,860 Shares subject to options under the SOP; (ii)
5,000 Shares owned by Mr. Savage's spouse, which Shares Mr. Savage may be
deemed to beneficially own.
(8) Includes (i) 6,408 Shares held in the ESOP and allocated for the benefit of
Mr. Warren; (ii) 8,970 Shares subject to options under the SOP;
(9) Includes (i) 6,450 Shares held in the ESOP and allocated for the benefit of
Mr. Gardner; (ii) 8,970 Shares subject to options under the SOP;
A-1
2. Principal Shareholders
The following table lists the name and address of each person who, to
the best knowledge of the Company, owned beneficially (as determined in
accordance with the rules and regulations of the Commission) more than 5% of the
Shares as of June 30, 1998.
Amount and Nature of Percent of Shares
Name and Address of Beneficial Owner Beneficial Ownership outstanding(1)
- ------------------------------------ -------------------- --------------
Tri-County Federal Savings Bank Employee 117,820(2) 10.09%
Stock Ownership Plan
2201 Main Street
Torrington, Wyoming 82240
First Financial Fund, Inc. 83,200(3)(4) 7.13%
Gateway Center Three
100 Mulberry Street, 9th Floor
Newark, New Jersey 07102-4077
Wellington Management Company 95,000(3)(4) 8.14%
75th State Street
Boston, Massachusetts 02109
R. Keith Long 121,700(3)(5) 10.42%
450 Royal Palm Way
Suite 502
Palm Beach, Florida 33480
Robert L. Savage 93,685(3)(6) 7.18%
112 Linda Vista
Torrington, Wyoming 82240
Friedlander & Co., Inc. 85,200(3)(7) 7.30%
Theodore Friedlander, III
322 East Michigan Street, Suite 402
Milwaukee, Wisconsin 53202
William J. Rueb 65,780(3)(8) 5.04%
RR 1, Box 91
Torrington, Wyoming 82240
The Burton Partnership 64,000(3) 5.48%
P.O. Box 4643
Jackson, WY 83001
- ----------------------------------
(1) Based on the number of Shares outstanding as of June 30, 1998.
(2) Includes allocated and unallocated Shares. The ESOP purchased such
Shares for the exclusive benefit of plan employee participants with
borrowed funds. These Shares are held in a suspense account and will be
allocated among ESOP participants annually on the basis of compensation
as the ESOP debt is repaid.
A-2
(3) Based upon Schedules 13Ds or 13Gs and amendments thereto (if
applicable) filed with the Company pursuant to the 1934 Act by the
beneficial owners.
(4) Shares are owned by a variety of investment adviser clients of the
beneficial owner. No specific client is known to have a beneficial
ownership of more than 5% of the class, except for First Financial Eq.
which is an investor of both Wellington Management Company and First
Financial Fund, Inc.
(5) Represents 46,300 Shares beneficially owned by Otter Creek Partners I,
L.P. ("Otter Creek") and 75,400 Shares beneficially owned by First
Reinsurance Company of Hartford ("First Reinsurance"), 45 West Main
Street, Avon, Connecticut 06001. R. Keith Long is the sole shareholder
of Otter Creek Management, Inc., which is the general partner in Otter
Creek. First Reinsurance maintains an investment account with Otter
Creek. Mr. Long shares with First Reinsurance the power to dispose of
the Shares. First Reinsurance has no rights with respect to Shares
owned by Otter Creek or any other stockholder.
(6) Includes 41,860 Shares granted under the SOP. Includes 5,000 Shares
held in an IRA for the benefit of the spouse of Mr. Savage which he may
be deemed to beneficially own. Includes 9,677 Shares held by the ESOP
for the benefit of Mr. Savage.
(7) Theodore Friedlander III is a controlling person of Friedlander & Co.,
Inc. ("Friedlander") and as such may be deemed to beneficially own the
Shares of the Company beneficially owned by Friedlander. Mr.
Friedlander beneficially owns less than 1% of the Shares held by
Friedlander and disclaims beneficial ownership of all other Shares held
by Friedlander.
(8) Includes 14,950 Shares granted under the SOP.
3. Certain Transactions Involving Shares
Neither the Company, nor any subsidiary of the Company nor, to the best
of the Company's knowledge, any of the Company's directors or executive
officers, nor any affiliates of any of the foregoing, had any transactions
involving the Shares during the 40 business days prior to the date hereof.
4. Previous Stock Repurchases
Since March 11, 1996, the Company has purchased 57,039 Shares at a
range of prices of $9.00 to $12.00. The average purchase price for each
quarterly period since the second quarter of 1996 is disclosed below.
Fiscal Year Average Purchase Price(1)
1996:
1st Quarter........................ --
2nd Quarter........................ $ 9.16
3rd Quarter........................ --
4th Quarter........................ --
1997:
1st Quarter........................ --
2nd Quarter........................ $12.00
3rd Quarter........................ --
4th Quarter........................ --
1998:
1st Quarter........................ --
2nd Quarter........................ --
3rd Quarter........................ --
4th Quarter (to date).............. --
- --------------------------
(1) Restated to reflect stock dividend in a form of a 100% stock split paid
December 8, 1997.
A-3
Annex I
KEEFE, BRUYETTE & WOODS, INC.
211 BRADENTON AVE. DUBLIN, OH 43017
PHONE FAX
614-766-8400 614-766-8406
October 23, 1998
Board of Directors
Tri-County Bancorp, Inc.
2201 Main Street
Torrington, WY 82240-2317
Gentlemen:
You have requested our opinion as an independent investment banking firm
regarding the fairness, from a financial point of view, to the shareholders of
Tri-County Bancorp, Inc. ("TRIC"), of the range of consideration to be received
by such shareholders in the proposed common share tender (the "Tender"). We have
not been requested to opine as to, and our opinion does not in any matter
address, TRIC's underlying business decision to proceed with or effect the
Merger.
Pursuant to the terms and conditions of the offering document, dated October 23,
1998, TRIC will offer to purchase its common shares at prices not in excess of
$11.00 nor less than $14.00 per share in cash. Total cash consideration could
equal $4.5 million. The complete terms of the proposed transaction are described
in the offering document, and this summary is qualified in its entirety by
reference thereto.
Keefe Bruyette & Woods, Inc. ("KBW"), as part of its investment banking
business, is regularly engaged in the evaluation of businesses and securities in
connection with mergers and acquisitions, negotiated offerings, and
distributions of listed and unlisted securities. We are familiar with the market
for common stocks of publicly traded banks, thrifts and bank and thrift holding
companies.
In October, 1998, you engaged us to advise and manage the Tender. Because of the
structure and extent of this Tender, KBW has also been requested to deliver a
fairness opinion as to the offering range. Prior to the commencement of this
Tender, we reviewed certain financial and other business data supplied to us by
TRIC including audited financial statements for the years ended December 31,
1997, 1996 and 1995 and unaudited quarterly information for the quarters ended
March 31, 1998 and June 30, 1998 and preliminary financial statements for the
quarter ended September 30, 1998 and certain other information we deemed
relevant. We considered historical quotations and the prices of recorded
transactions in TRIC's common stock since its public offering and conversion to
a stock holding company in September 1993. We reviewed financial and stock
market data of other thrifts, particularly of the asset size and capitalization
similar to TRIC. Further we have acted as financial advisor and investment
banker for TRIC on recent shareholder enhancements efforts, which have included
exploration of a possible strategic alliance with other financial institutions.
I-1
For purposes of this opinion we have relied, without independent verification,
on the accuracy and completeness of the material furnished to us by TRIC and the
material otherwise made available to us, including information from published
sources, and we have not made any independent effort to verify such data. With
respect to the financial information, including forecasts and asset valuations
we received from TRIC, we assumed (with your consent) that they had been
reasonably prepared reflecting the best currently available estimates and
judgment of TRIC's management. In addition, we have not made or obtained any
independent appraisals or evaluations of the assets or liabilities, and
potential and/or contingent liabilities of TRIC. We have further relied on the
assurances of management of TRIC that they are not aware of any facts that would
make such information inaccurate or misleading. We express no opinion on matters
of a legal, regulatory, tax or accounting nature of the Tender, as disclosed in
the offering document.
In rendering our opinion, we have assumed that in the course of obtaining any
necessary approvals for the Tender, no restrictions or conditions will be
imposed that would have a material adverse effect on the contemplated benefits
of the Tender to TRIC or the ability to consummate the Tender. Our opinion is
based on the market, economic and other relevant considerations as they exist
and can be evaluated on the date hereof.
We have been engaged as deal manager and information agent, which includes the
issuance of this fairness opinion, for a fee, a majority of which is contingent
upon the successful completion of the Tender. In addition, TRIC has agreed to
indemnify us for certain liabilities arising out of our engagement by TRIC in
connection with the Tender. We have also performed various investment banking
services for TRIC in the past and have received customary fees for such
services.
Based upon and subject to the foregoing, as outlined in the foregoing paragraphs
and based on such other matters as we considered relevant, it is our opinion
that as of the date hereof, the range of consideration to be received by the
shareholders who participate in the TRIC Tender is fair, from a financial point
of view.
This opinion may not, however, be summarized, excerpted from or otherwise
publicly referred to without our prior written consent, although this opinion
may be included in its entirety in the offering document which is being
distributed to TRIC shareholders.
Very truly yours,
/s/Keefe, Bruyette & Woods, Inc.
Keefe, Bruyette & Woods, Inc.
I-2
Annex II
INDEX TO FINANCIAL STATEMENTS
Tri-County Bancorp, Inc.
Second Quarter 1998 Financial Statements
Consolidated Statements of Financial Condition (Unaudited)
as of June 30, 1998 and December 31, 1997...............................II-2
Consolidated Statements of Operations (Unaudited)
for the Three and Six Months Ended June 30, 1998 and 1997...............II-3
Consolidated Statement of Stockholders' Equity...........................II-4
Consolidated Statements of Cash Flows
(Unaudited) for the Six Months Ended
June 30, 1998 and 1997..................................................II-5
Notes to Consolidated Financial
Statements (Unaudited)..................................................II-6
Annual Financial Statements
Independent Auditor's Report.............................................II-8
Consolidated Statements of Financial Condition
as of December 31, 1997 and 1996........................................II-9
Consolidated Statements of Operations for the
Years Ended December 31, 1997 and 1996..................................II-10
Consolidated Statements of Stockholders'
Equity for the Years Ended December 31, 1997 and 1996...................II-11
Consolidated Statements of Cash Flows
for the Years Ended December 31, 1997 and 1996..........................II-12
Notes to Consolidated Financial Statements...............................II-13
II-1
TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, December 31,
ASSETS 1998 1997
(unaudited)
------------ -----------
Cash $ 485,471 $ 758,398
Interest earning deposits at other financial institutions 5,054,233 1,880,407
Securities available-for-sale 32,234,461 36,526,012
Securities held-to-maturity, market value of $7,005,664 (1998) and
$8,260,991 (1997) 6,825,657 7,987,250
Loans receivable, net 40,210,594 40,425,288
Loans held for resale 373,657 117,111
Office property and equipment, net 843,659 886,879
Prepaid expenses and other assets 521,689 1,379,180
----------- -----------
Total Assets $86,549,421 $89,960,525
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand deposits $ 802,122 $ 541,510
Savings and NOW deposits 13,506,298 12,504,022
Time deposits 31,285,850 32,359,696
----------- -----------
Total Deposits 45,594,270 45,405,228
----------- -----------
Advance from Federal Home Loan Bank 25,622,867 29,696,616
Advances by borrowers for taxes and insurance 114,266 101,267
Accounts payable and accrued expenses 307,275 269,105
Deferred income taxes 679,127 661,125
----------- -----------
Total Liabilities 72,317,805 76,133,341
----------- -----------
Stockholders' Equity
Preferred stock, $.10 par value, 5,000,000 shares authorized,
none issued 0 0
Common stock, 10,000,000 share of $.10 par value authorized,
1,495,000 (1998) and 1,495,000 (1997) shares issued 149,500 149,500
Additional paid in capital 7,152,276 7,100,600
Retained earnings - substantially restricted 9,006,760 8,792,947
Unearned compensation relating to Management Stock Bonus Plan
and ESOP (328,675) (388,025)
Unrealized gain/(loss) on securities available-for-sale, net
of tax 897,069 817,476
Treasury stock, 327,502 (1998) and 327,502 (1997) shares, at
cost (2,645,314) (2,645,314)
----------- -----------
Total Stockholders' Equity 14,231,616 13,827,184
----------- -----------
Total Liabilities and Stockholders' Equity $86,549,421 $89,960,525
=========== ===========
See notes to condensed consolidated financial statements.
II-2
TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
Interest Income
Loans $ 873,719 $ 749,565 $1,731,371 $1,488,061
Securities available-for-sale 535,015 653,333 1,104,756 1,238,758
Securities held-to-maturity 130,655 184,940 275,008 375,524
Other interest earning assets 29,651 8,910 46,634 20,886
---------- ---------- ---------- ----------
Total Interest Income 1,569,040 1,596,748 3,157,769 3,123,229
---------- ---------- ---------- ----------
Interest Expense
Deposits 515,787 546,399 1,026,471 1,093,218
Advances and other borrowings 391,032 381,904 788,420 697,926
---------- ---------- ---------- ----------
Total Interest Expense 906,819 928,303 1,814,891 1,791,144
---------- ---------- ---------- ----------
Net Interest Income 662,221 668,445 1,342,878 1,332,085
Provision for credit losses -- -- -- --
---------- ---------- ---------- ----------
Net Interest Income After
Provision for Credit Losses 662,221 668,445 1,342,878 1,332,085
---------- ---------- ---------- ----------
Non-interest Income
Gain on sale of loans 19,084 6,452 25,744 16,403
Gain(loss) on sale of available-for-sale
securities -- 1,172 -- 1,172
Service charges on deposits 28,537 28,135 57,799 56,316
Other, net 6,462 11,486 10,937 15,947
---------- ---------- ---------- ----------
Total Non-interest Income 54,083 47,245 94,480 89,838
---------- ---------- ---------- ----------
Non-interest Expense
Compensation and benefits 209,476 195,993 418,939 385,593
Occupancy and equipment 80,235 86,073 160,662 161,865
Federal deposit insurance premium 7,031 7,964 14,500 15,315
Other, net 98,766 92,157 189,669 181,457
---------- ---------- ---------- ----------
Total Non-interest Expense 395,508 382,187 783,770 744,230
---------- ---------- ---------- ----------
Earnings Before Income Taxes 320,796 333,503 653,588 677,693
Income taxes 93,600 90,400 194,600 205,652
---------- ---------- ---------- ----------
Net Earnings(Loss) $ 227,196 $ 243,103 $ 458,988 $ 472,041
========== ========== ========== ==========
Earnings(Loss) Per Common Share - Primary $0.19 $0.20 $0.39 $0.39
===== ===== ===== =====
Cash Dividend Paid Per Common Share $0.11 $0.08 $0.21 $0.15
===== ===== ===== =====
See notes to condensed consolidated financial statements.
II-3
TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Six Months Ended June 30, 1998
(unaudited)
Unrealized
Employee Gain on
Additional Stock MSBP Securities
Common Paid-In Retained Ownership Unearned Available- Treasury
Stock Capital Earnings Plan Compensation for-sale Stock Total
---------------------------------------------------------------------------------------------------
Balance - December 31, 1997 $149,500 $7,100,600 $8,792,947 $(343,850) $(44,175) $817,476 $(2,645,314) $13,827,184
Net earnings -- -- 458,988 -- -- -- -- 458,988
Repayment of ESOP debt -- -- -- 29,900 -- -- -- 29,900
Allocation of ESOP shares -- 51,676 -- -- -- -- -- 51,676
Amortization of deferred
compensation -- -- -- -- 29,450 -- -- 29,450
Change in unrealized gain on
securities available-for-sale,
net of tax -- -- -- -- -- 79,593 -- 79,593
Dividends paid - cash -- -- (245,175) -- -- -- -- (245,175)
Treasury stock purchased -- -- -- -- -- -- -- --
Dividends paid - stock -- -- -- -- -- -- -- --
-------- --------- ---------- --------- -------- -------- ----------- -----------
Balance - June 30, 1998 $149,500 $7,152,27 $9,006,760 $(313,950) $(14,725) $897,069 $(2,645,314) $14,231,616
======== ========= ========== ========= ======== ======== =========== ===========
See notes to consolidated condensed financial statements.
II-4
TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended
June 30,
1998 1997
---------- ----------
Net Cash Provided by Operations $1,180,229 $ 482,281
Investing Activities
Principal payments received on held-to-maturity securities 1,235,699 1,404,137
Purchase of held-to-maturity securities (75,000) --
Purchase of available-for-sale securities (7,398,590) (6,626,825)
Sale of available-for-sale securities -- 1,927,850
Principal payments received on available-for-sale securities 11,845,194 786,017
Net decrease(increase) in loans 3,586,091 (137,622)
Purchase of loans (3,371,397) (1,448,720)
Proceeds from sale of real estate owned -- 52,392
Investment in property and equipment and real estate owned (14,421) (69,087)
---------- ----------
Net Cash Provided (Used) by Investing Activities 5,807,576 (4,111,858)
Financing Activities
Net increase (decrease) in deposits 189,115 (1,691,314)
Net increase (decrease) in advances from borrowers for
taxes and insurance 13,000 13,404
FHLB borrowings 9,500,000 28,450,000
Repayment of FHLB advance (13,573,748) (23,823,750)
Payments received from ESOP 29,900 21,064
Treasury stock purchased -- --
Cash dividends paid (245,175) (182,625)
---------- ----------
Net Cash Provided (Used) by Financing Activities (4,086,908) 2,786,779
---------- ----------
Increase (Decrease) in Cash and Cash Equivalents 2,900,897 (842,798)
Cash and cash equivalents - beginning of period 2,638,807 2,288,592
---------- ----------
Cash and cash equivalents - end of period $5,539,704 $1,445,794
========== ==========
Supplemental Disclosures
Cash paid for:
Interest 1,819,710 1,811,574
Income taxes 257,300 221,300
See notes to consolidated condensed financial statements.
II-5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
(unaudited)
NOTE 1 - BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements include the accounts
of Tri-County Bancorp, Inc. (the "Company"), Tri-County Federal Savings Bank
(the "Bank") and First Tri-County Services, Inc. All significant intercompany
balances and transactions have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements were
prepared in accordance with generally accepted accounting principles for interim
financial information and with instructions for Form 10-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all information and disclosures
required by generally accepted accounting principles for complete financial
statements. The accompanying consolidated financial statements do not purport to
contain all the necessary financial disclosures required by generally accepted
accounting principles that might otherwise be necessary in the circumstances and
should be read together with the 1997 consolidated financial statements and
notes thereto of Tri-County Bancorp, Inc. and Subsidiaries included in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1997.
However, all normal recurring adjustments have been made which, in the opinion
of Management, are necessary to the fair presentation of the financial
statements.
The results of operations for the six-month period ended June 30, 1998 are not
necessarily indicative of the results which may be expected for the year ending
December 31, 1998 or any other period.
See Notes 2 and 3.
NOTE 2 - EARNINGS PER SHARE
In February 1997, the FASB issued Statement No. 128, Earnings Per Share (SFAS
128). SFAS 128 replaced the calculation of primary and fully diluted earnings
per share (EPS) with basic and diluted EPS. Unlike primary EPS, basic EPS
excludes any dilutive effects of options, warrants, and convertible securities.
Diluted EPS is very similar to fully diluted EPS. All EPS amounts presented have
been restated, as applicable, to conform with the new requirements.
II-6
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
EARNINGS PER SHARE
Net earnings available for common shares and
common stock equivalent shares deemed to have
a dilutive effect $227,196 $243,103 $458,988 $472,041
======== ======== ======== ========
Basic earnings per share $0.19 $0.20 $0.39 $0.39
===== ===== ===== =====
Diluted earnings per share $0.18 $0.19 $0.37 $0.36
===== ===== ===== =====
Shares used in basic earnings per share
computation. Weighted average common shares
outstanding 1,167,498 1,217,498 1,167,498 1,217,498
========= ========= ========= =========
Shares used in diluted earnings per share
computation. Weighted average common shares
outstanding 1,260,873 1,289,402 1,260,520 1,286,347
Additional potentially dilutive effect of
stock options 93,375 71,904 93,022 68,849
---------- ---------- ---------- ----------
$1,167,498 $1,217,498 $1,167,498 $1,217,498
========== ========== ========== ==========
NOTE 3 - INVESTMENTS
Effective January 1, 1994, the Company adopted SFAS No. 115, Accounting for
Certain Investments in Debt and Equity Securities. In accordance with SFAS No.
115, the Company classified its investment securities and mortgage-backed
securities as either "held-to-maturity," "available-for-sale," or "trading."
Management has determined that all applicable securities are either
"held-to-maturity" or "available-for-sale."
Investment and mortgage-backed securities designated as held-to-maturity are
stated at cost adjusted for amortization of the related premiums and accretion
of discounts, computed using the level yield method. The Company has the
positive intent and ability to hold these securities to maturity.
Investment and mortgage-backed securities designated as available-for-sale are
stated at estimated market value. Unrealized gains and losses are aggregated and
reported as a separate component of equity capital, net of deferred taxes. These
securities are acquired with the intent to hold them to maturity, but they are
available for disposal in the event of unforeseen liquidity needs.
II-7
Board of Directors
Tri-County Bancorp, Inc. and Subsidiaries
REPORT OF INDEPENDENT AUDITORS
We have audited the accompanying consolidated statements of financial
condition of Tri-County Bancorp, Inc. and Subsidiaries (Tri-County) as of
December 31, 1997 and 1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for the years then ended.
These consolidated financial statements are the responsibility of
Tri-County's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management,
as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
condition of Tri-County Bancorp, Inc. and Subsidiaries as of December 31,
1997 and 1996, and the consolidated results of their operations and their
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
/s/DALBY, WENDLAND & CO., P.C.
------------------------------
DALBY, WENDLAND & CO., P.C.
Grand Junction, Colorado
February 6, 1998
II-8
TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31,
ASSETS 1997 1996
----------- -----------
Cash and due from banks $ 758,398 $ 537,195
Interest earning deposits with banks 1,880,407 1,751,397
Securities available for sale, at fair value 34,900,612 35,140,115
Securities held to maturity 7,987,250 10,319,706
Loans held for sale, at market value 117,111 90,000
Loans receivable, net of allowance for loan losses
of $412,456 (1997) and 40,425,288 35,265,278
$415,447 (1996)
Accrued interest receivable 655,339 549,524
Federal Home Loan Bank stock 1,625,400 1,253,300
Premises and equipment 886,879 921,681
Other assets 723,841 59,885
----------- -----------
Total Assets $89,960,525 $85,888,081
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Demand deposits $ 541,510 $ 367,480
Savings and NOW deposits 12,504,022 12,199,232
Other time deposits 32,359,696 35,966,345
----------- -----------
Total Deposits 45,405,228 48,533,057
Advances from Federal Home Loan Bank 29,696,616 23,460,492
Advances by borrowers for taxes and insurance 101,267 104,387
Accounts payable and accrued expenses 269,105 234,141
Deferred income taxes 661,125 410,440
----------- -----------
Total Liabilities 76,133,341 72,742,517
----------- -----------
Stockholders' Equity
Preferred stock, authorized 5,000,000 shares, -- --
$.10 par value authorized, none issued or
outstanding
Common stock, authorized 10,000,000 shares,
$.10 par value authorized, 1,495,000 (1997)
and 747,500 (1996) shares issued 149,500 74,750
Additional paid-in capital 7,100,600 7,029,604
Retained earnings - substantially restricted 8,792,947 8,353,630
Unearned compensation relating to Employee Stock
Option Plan and Management Stock Bonus Plan (388,025) (506,725)
Unrealized gain on securities available for
sale, net of tax 817,476 239,619
Treasury stock - 327,502 (1997) and 138,751
shares (1996), at cost (2,645,314) (2,045,314)
----------- -----------
Total Stockholders' Equity 13,827,184 13,145,564
----------- -----------
Total Liabilities and Stockholders' Equity $89,960,525 $85,888,081
=========== ===========
See accompanying notes.
II-9
TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31,
1997 1996
-----------------------
INTEREST INCOME
Interest and fees on loans $3,144,917 $2,632,609
Interest and dividends on available for sale securities:
Taxable interest 2,459,395 1,781,693
Dividends 117,050 102,641
Interest on held to maturity securities, taxable 683,848 944,406
Other interest earning assets 61,236 32,553
---------- ----------
Total Interest Income 6,466,446 5,493,902
---------- ----------
INTEREST EXPENSE
Deposits 2,188,492 2,082,646
Advances 1,534,093 943,600
---------- ----------
Total Interest Expense 3,722,585 3,026,246
---------- ----------
Net Interest Income 2,743,861 2,467,656
PROVISION FOR LOAN LOSSES -- --
---------- ----------
Net Interest Income After
Provision for Loan Losses 2,743,861 2,467,656
---------- ----------
NONINTEREST INCOME
Service charges on deposits 112,449 100,795
Gain on sale of loans 35,420 33,359
Loss on sale of investments available for sale (71,421) (5,596)
Other income 28,973 30,710
---------- ----------
Total Noninterest Income 105,421 159,268
---------- ----------
NONINTEREST EXPENSE
Compensation and benefits 891,096 810,212
Occupancy and equipment 330,726 294,493
SAIF assessment -- 304,606
Federal insurance premiums 30,518 97,894
Other expenses 370,476 303,497
---------- ----------
Total Noninterest Expense 1,622,816 1,810,702
---------- ----------
Net Income Before Income Taxes 1,226,466 816,222
PROVISION FOR INCOME TAXES 325,462 276,073
---------- ----------
Net Income $ 901,004 $ 540,149
========== ==========
EARNINGS PER SHARE
Basic $ .75 $ .44
===== =====
Diluted $ .71 $ .41
===== =====
See accompanying notes.
II-10
TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended December 31, 1997 and 1996
Employee Unrealized
Additional Stock Management Gains/
Common Paid-in Retained Ownership Stock Losses on Treasury
Stock Capital Earnings Plan Bonus Plan Securities Stock Total
--------- ---------- ---------- ---------- ---------- --------- ------------ ------------
BALANCE - January 1, 1996 $ 74,750 $6,983,901 $8,125,865 $(463,450) $(164,450) $ 398,026 $(1,458,218) $13,496,424
Net income - - 540,149 - - - - 540,149
Repayment of ESOP debt - - - 59,800 - - - 59,800
Allocation of ESOP shares - 45,703 - - - - - 45,703
Amortization of deferred
compensation-MSBP - - - - 61,375 - - 61,375
Treasury stock purchased - - - - - - (587,096) (587,096)
Change in unrealized loss on
securities available
for sale (net of taxes) - - - - - (158,407) - (158,407)
Cash dividend - - (312,384) - - - - (312,384)
--------- ---------- ---------- --------- --------- -------- ----------- -----------
BALANCE - December 31, 1996 74,750 7,029,604 8,353,630 (403,650) (103,075) 239,619 (2,045,314) 13,145,564
Net income - - 901,004 - - - - 901,004
Repayment of ESOP debt - - - 59,800 - - - 59,800
Allocation of ESOP shares - 70,996 - - - - - 70,996
Amortization of deferred
compensation-MSBP - - - - 58,900 - - 58,900
Treasury stock purchased - - - - - - (600,000) (600,000)
Change in unrealized gain on
securities available
for sale (net of taxes) - - - - - 577,857 - 577,857
Two for one stock split
effected as a stock dividend 74,750 - (74,750) - - - - -
Cash dividend - - (386,937) - - - - (386,937)
-------- ---------- ---------- --------- --------- --------- ----------- -----------
BALANCE - December 31, 1997 $149,500 $7,100,600 $8,792,947 $(343,850) $ (44,175) $ 817,476 $(2,645,314) $13,827,184
======== ========== ========== ========= ========= ========= =========== ===========
See accompanying notes.
II-11
TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
1997 1996
-------- --------
OPERATING ACTIVITIES
Net income $ 901,004 $540,149
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization 89,258 89,104
Provision for deferred taxes (47,000) 42,000
Loss on sale of securities available for sale 71,421 5,596
Gain on sale of loans (35,420) (33,359)
Loss on sale of real estate owned - 2,615
FHLB stock dividends received (106,400) (93,400)
Unvested forfeitable stock awarded 58,900 61,375
Net change in other assets (781,340) (19,612)
Net change in other liabilities 76,061 135,766
Origination of loans held for sale (1,603,145) (1,780,506)
Proceeds from sale of loans 1,611,454 1,808,794
--------- ---------
Net Cash Provided By Operations 234,793 758,522
--------- ---------
INVESTING ACTIVITIES
Net loan origination and principal repayments on loans 697,364 99,009
Purchase of loans (5,869,928) (9,840,220)
Purchase of securities available for sale (7,765,700) (21,138,975)
Proceeds from sale of securities available for sale 5,227,850 2,710,541
Principal received on securities available for sale 3,321,899 1,154,524
Proceeds from maturity of securities held to maturity 500,000 -
Principal received on securities held to maturity 1,839,685 7,948,466
Proceeds from sale of real estate owned 75,786 210,777
Investment in property, equipment and real estate owned (89,574) (81,370)
--------- ----------
Net Cash Used By Investing Activities (2,062,618) (18,937,248)
--------- ----------
FINANCING ACTIVITIES
Net change in noninterest bearing demand, savings and NOW deposits 478,820 1,418,797
Net change in time deposits (3,606,649) 2,530,961
Advances from Federal Home Loan Bank 53,218,250 49,784,625
Repayment of Federal Home Loan Bank advances (46,982,125) (33,324,133)
Decrease in advances by borrowers for taxes and insurance (3,121) (11,984)
Dividends paid (386,937) (312,384)
ESOP payments received 59,800 59,800
Purchase of treasury stock (600,000) (587,096)
---------- ----------
Net Cash Provided by Financing Activities 2,178,038 19,558,586
---------- ----------
Increase in Cash and Cash Equivalents 350,213 1,379,860
Cash and cash equivalents - Beginning of Period 2,288,592 908,732
---------- ----------
Cash and cash equivalents - End of Period $2,638,805 $2,288,592
========== ==========
See accompanying notes.
II-12
TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Tri-County Bancorp, Inc. (Tri-County) is a bank holding company organized under
Wyoming law in 1993 and headquartered in Torrington, Wyoming. Through its
subsidiaries, Tri-County provides a wide range of banking services to customers
in its primary market area of eastern Wyoming.
Basis of Presentation
The consolidated financial statements include the accounts of Tri-County, its
subsidiaries, Tri-County Federal Savings Bank (the Bank) and First Tri-County
Services, Inc. The investment in the subsidiaries is accounted for using the
equity method of accounting. All significant intercompany accounts and
transactions have been eliminated in consolidation. Certain prior period amounts
have been reclassified to conform with the current year's presentation.
The preparation of financial statements in conformity with generally accepted
accounting principles (GAAP) requires management to make estimates and
assumptions that affect amounts reported in the consolidated financial
statements.
Actual results could differ from those estimates.
On January 1, 1997, Tri-County adopted Financial Accounting Standards Board
(FASB) Statement No. 125, Accounting for Transfers and Servicing of Financial
Assets and Extinguishment of Liabilities (SFAS 125). The Statement is effective
for transactions occurring after December 31, 1996. However, transactions such
as securities lending, repurchase agreements, dollar rolls, and similar secured
financing arrangements are not subject to the provisions of SFAS 125 until
January 1, 1998. The standard provides that, following a transfer of financial
assets, an entity is to recognize the financial and servicing assets it controls
and the liabilities it has incurred, derecognize financial assets when control
has been surrendered and derecognize liabilities when extinguished. The adoption
of SFAS 125 did not have a material impact on Tri-County's consolidated
financial statements. The impact of the delayed provisions is also not expected
to be material.
In February 1997, the FASB issued Statement No. 128, Earnings Per Share (SFAS
128). SFAS 128 replaced the calculation of primary and fully diluted earnings
per share (EPS) with basic and diluted EPS. Unlike primary EPS, basic EPS
excludes any dilutive effects of options, warrants, and convertible securities.
Diluted EPS is very similar to fully diluted EPS. All EPS amounts presented have
been restated, as applicable, to conform with the new requirements.
II-13
In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive Income
(SFAS 130) and Statement No. 131, Disclosures about Segments of an Enterprise
and Related Information (SFAS 131). Each of the new statements is effective for
periods beginning after December 15, 1997, and requires that certain additional
information be reported in the financial statements and related notes.
Tri-County will adopt SFAS 130 in the first quarter of 1998 but doesn't expect
SFAS 131 to affect its 1998 financial statements.
Securities
Debt securities that Tri-County has both the positive intent and ability to hold
to maturity are classified as securities held to maturity. These are carried at
amortized cost. Securities purchased with the intention of recognizing
short-term profits are placed in the trading account and are carried at fair
value. Tri-County does not have any such securities at December 31, 1997 or
1996, or during the years then ended. Securities not classified as held to
maturity or trading are designated available for sale and carried at fair value.
Unrealized gains and losses (net of taxes) on securities available for sale are
carried as a separate component of stockholders' equity. Unrealized gains and
losses on securities classified as trading would be reported in earnings. The
amortized cost of specific securities sold is used to compute realized gains and
losses. Amortization of premiums and discounts are recognized in interest income
using the interest method.
Loans
Tri-County has established a lending policy where the credit worthiness of each
customer is reviewed and the amount and type of collateral obtained, upon
approval, is based on management's credit evaluation of the customer. Generally
the loans are collateralized by mortgages held by Tri-County.
Loans are stated at the principal amount outstanding, net of deferred loan fees,
discounts, and the allowance for loan losses. Interest on loans is calculated by
using the simple interest method on the balance of the principal amount
outstanding. Interest income on loans receivable is accrued as earned based on
the principal balance outstanding. Tri-County discontinues the accrual of
interest when the related loan is 90 days delinquent.
Net direct loan origination costs/fees, when material, are deferred and
amortized over the term of the loan as a yield adjustment.
The accrual of interest on impaired loans is discontinued when, in management's
opinion, the borrower may be unable to meet payments as they become due. When
interest accrual is discontinued, all unpaid accrued interest is reversed. For
impaired loans, cash receipts are applied entirely against principal until the
loan has been collected in full, after which time any additional cash receipts
are recognized as interest income.
Allowance for Loan Losses The allowance for loan losses reflects management's
judgment as to the level considered adequate to absorb potential losses inherent
in the loan portfolio. This judgment is based on a review of individual loans,
historical loss experience, economic conditions, portfolio trends and other
factors. Allowances for impaired loans are generally determined based on
collateral values or the present value of estimated cash flows. The allowance is
increased by provisions charged to earnings and reduced by charge-offs, net of
recoveries. Changes in the allowance relating to impaired loans are charged or
credited to the provision for loan losses. Because of uncertainties inherent in
the estimation process, management's estimate of credit losses inherent in the
loan portfolio and the related allowance may change in the near term.
II-14
Mortgage Banking Operations
Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of cost or estimated market value in the aggregate. All
loans sold by Tri-County are sold with servicing released. Net unrealized losses
are recognized in a valuation allowance by a charge to income. The cost of loans
held for sale at December 31, 1997 and 1996 approximated their estimated market
value.
Other Real Estate
Other real estate, acquired through partial or total satisfaction of loans, is
included in other assets and carried at the lower of cost or fair value less
estimated costs of disposition. At the date of acquisition, any losses are
charged to the allowance for loan losses. Subsequent write-downs are included in
noninterest expense. Realized losses from disposition of the property and
declines in fair value that are considered permanent are charged to the reserve
for other real estate, as applicable.
Federal Home Loan Bank Stock
The Bank, as a member of the Federal Home Loan Bank (FHLB), is required to
maintain an investment in capital stock of the FHLB. No ready market exists for
the FHLB stock, and it has no quoted market value. The stock is carried at cost
and is assumed to have a market value which is equal to cost.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the related assets.
Income Taxes
Deferred tax assets and liabilities are reflected at currently enacted income
tax rates applicable to the period in which the deferred tax assets or
liabilities are expected to be realized or settled. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted through the
provision for income taxes.
Stock Options
In October 1995, FASB issued Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation (SFAS 123). Under SFAS 123, an
entity can choose to compute compensation expense related to stock options using
a fair value method or can continue to use the intrinsic value method. If the
intrinsic value method is chosen, then Tri-County will be required to present
pro forma data for all awards granted in future fiscal years. If the fair value
method is selected, SFAS 123 would be effective for all transactions entered
into for fiscal years that began after December 15, 1995.
Tri-County had no stock option transactions that would require the
implementation of SFAS 123 in the years ended December 31, 1997 and 1996. It is
currently anticipated that Tri-County will continue to account for stock-based
compensation plans under the intrinsic value method. Final determination of the
method selected will be done in the year Tri-County has transactions covered by
this accounting pronouncement.
II-15
Cash and Cash Equivalents and Supplemental Disclosures
For the purpose of reporting cash flows, cash and cash equivalents include cash
on hand, demand deposits at other financial institutions and overnight deposits.
Supplemental cash payments and noncash activities were as follows:
1997 1996
---------- ----------
Interest paid $3,729,293 $2,927,883
Income taxes paid $ 367,300 $ 243,600
Noncash transactions:
Loans transferred to real estate owned $ 34,367 $ 17,947
Earnings Per Share
Basic earnings per share is the amount of earnings for the period available to
each share of common stock outstanding during the reporting period. Diluted
earnings per share is the amount of earnings available to each share of common
stock outstanding during the reporting period adjusted for the potential
issuance of common shares for stock options.
The calculation of basic and diluted earnings per share for the years ended
December 31 is as follows:
1997 1996
---------- ----------
Net income $ 901,004 $ 540,149
========== ==========
Average common shares outstanding 1,194,210 1,239,775
Dilutive effect of stock options 79,000 63,237
--------- ---------
1,273,210 1,303,012
========= =========
Earnings per share $ .75 $ .44
Diluted $ .71 $ .41
Average common shares outstanding and the dilutive effect of stock options have
been adjusted for Tri-County's December 8, 1997 two-for-one stock split effect
as a dividend.
II-16
NOTE 2 - SECURITIES
The amortized cost and estimated fair value at December 31 were as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Securities Available for Sale Cost Gains Losses Value
----------- ----------- ----------- -----------
December 31, 1997
- -----------------
Debt Securities
U.S. Government and Federal
Agency/Corporation Obligations $13,496,353 $ 108,732 $ (20,000) $13,585,085
U.S. Agency mortgage-backed securities 13,621,365 190,988 (23,240) 13,789,113
----------- ----------- ----------- -----------
Total Debt Securities 27,117,718 299,720 (43,240) 27,374,198
----------- ----------- ----------- -----------
Equity Securities
U.S. Government and Federal
Agency/Corporation Obligations 25,662 1,073,436 - 1,099,098
Asset management funds
ARM portfolio 536,085 - (2,095) 533,990
Mortgage securities performance portfolio 5,982,545 - (89,219) 5,893,326
----------- ----------- ----------- -----------
Total Equity Securities 6,544,292 1,073,436 (91,314) 7,526,414
----------- ----------- ----------- -----------
$33,662,010 $ 1,373,156 $ (134,554) $34,900,612
=========== =========== =========== ===========
December 31, 1996
- -----------------
Debt Securities
U.S. Government and Federal
Agency/Corporation Obligations $ 8,928,006 $ 29,549 $ (36,291) $ 8,921,264
U.S. Agency mortgage-backed securities 15,932,166 61,955 (61,709) 15,932,412
----------- ----------- ----------- -----------
Total Debt Securities 24,860,172 91,504 (98,000) 24,853,676
----------- ----------- ----------- -----------
Equity Securities
U.S. Government and Federal
Agency/Corporation Obligations 25,662 697,515 - 723,177
Asset management funds
ARM portfolio 1,137,836 - (7,854) 1,129,982
Mortgage performance portfolio securities 8,753,387 - (320,107) 8,433,280
----------- ----------- ----------- -----------
Total Equity Securities 9,916,885 697,515 (327,961) 10,286,439
----------- ----------- ----------- -----------
$34,777,057 $ 789,019 $ (425,961) $35,140,115
=========== =========== =========== ===========
Securities Held to Maturity
December 31, 1997
- -----------------
U.S. Government and Federal
Agency/Corporation Obligations $ 503,321 $ 18,394 $ - $ 521,715
U.S. Agency mortgage-backed securities 7,483,929 264,543 (9,196) 7,739,276
----------- ----------- ----------- -----------
$7,987,250 $ 282,937 $ (9,196) $ 8,260,991
=========== =========== =========== ===========
December 31, 1996
- -----------------
U.S. Government and Federal
Agency/Corporation Obligations $1,005,570 $ 27,380 $ - $ 1,032,950
U.S. Agency mortgage-backed securities 9,314,136 264,217 (21,895) 9,556,458
----------- ----------- ----------- -----------
$10,319,706 $ 291,597 $ (21,895) $10,589,408
=========== =========== =========== ===========
II-17
The amortized cost and fair value of debt securities at December 31, 1997, by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
Held to Maturity Available for Sale
----------------------- ------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---------- ---------- ---------- -----------
Due in one year or less $ - $ - $ 1,998,121 $ 1,999,780
Due after one year through five years 503,321 521,715 3,500,000 3,495,955
Due after five years through ten years - - 5,998,232 6,094,160
Due after ten years - - 2,000,000 1,995,190
---------- ---------- ----------- -----------
503,321 521,715 13,496,353 13,585,085
Mortgage-backed securities 7,483,929 7,739,276 13,621,365 13,789,113
---------- ---------- ----------- -----------
$7,987,250 $8,260,991 $27,117,718 $27,374,198
========== ========== =========== ===========
Sales of securities available for sale during the years ended December 31
follows:
Proceeds Gross Gains Gross Losses
---------- ----------- ------------
1997 $5,227,850 $1,173 $72,593
1996 $2,710,541 $ - $ 5,596
Tri-County pledges investments for public deposits held in excess of $100,000.
The carrying and fair values of the pledged investments at December 31 follows:
Carrying Fair
Value Value
---------- ----------
1997 $9,085,820 $9,119,775
1996 $9,325,332 $9,337,688
NOTE 3 - LOANS RECEIVABLE
December 31,
1997 1996
----------- -----------
Real estate - mortgage $31,395,063 $28,970,513
Real estate - commercial 4,623,723 3,937,312
Real estate - construction 1,537,295 51,785
Commercial 472,418 228,348
Installment loans to individuals 2,911,034 2,585,360
----------- -----------
40,939,533 35,773,318
Less:
Allowance for loan losses (412,456) (415,447)
Deferred loan fees and unearned
discounts (101,789) (92,593)
----------- -----------
$40,425,288 $35,265,278
=========== ===========
II-18
A summary of the changes in the allowance for loan losses is as follows:
Year Ended December 31,
1997 1996
-------- --------
Beginning of the period $415,447 $423,079
Provision for losses - -
Loan charge-offs (3,637) (7,632)
Recoveries 646 -
-------- --------
$412,456 $415,447
======== ========
At December 31, 1996, non-accrual loans were approximately$35,000 with foregone
interest of $3,400. There were no non-accrual loans at December 31, 1997.
Loans serviced by Tri-County for the benefit of others at December 31 were
$163,598 (1997) and $171,770 (1996).
NOTE 4 - PROPERTY AND EQUIPMENT
December 31,
1997 1996
---------- ----------
Land $ 65,776 $ 65,776
Building and improvements 1,102,357 1,095,749
Furniture, fixtures and equipment 598,764 626,624
---------- ----------
1,766,897 1,788,149
Less accumulated depreciation (880,018) (866,468)
---------- ----------
$ 886,879 $ 921,681
========== ==========
Depreciation expense for the years ended December 31 was $124,426 (1997) and
$112,916 (1996).
NOTE 5 - DEPOSITS
At December 31, 1997, scheduled maturities of certificates of deposit were as
follows:
Year
1998 $24,169,888
1999 5,605,389
2000 1,361,254
2001 1,223,165
-----------
Total $32,359,696
===========
The Federal Deposit Insurance Corporation (FDIC), an agency of the U.S.
Government, insures all depositors up to $100,000 in accordance with the rules
and regulations of the FDIC. Deposits in excess of $100,000 at December 31 were
$5,207,027 (1997) and $9,245,806 (1996), see Note 2.
II-19
NOTE 6 - ADVANCES FROM FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank (FHLB) at December 31 were $29,696,616
(1997) and $23,460,492 (1996) . The following table summarizes the maturities of
the FHLB advances:
Year
1998 5.70% - 6.16% $21,350,000
1999 5.92% - 6.07% 2,168,250
2000 6.08% 300,000
2002 5.39% - 5.62% 5,000,000
2016 5.96% 878,366
-----------
$29,696,616
===========
Pursuant to a blanket pledge agreement with the FHLB, the advances are secured
by the FHLB stock, real estate loans and other securities not otherwise pledged.
NOTE 7 - INCOME TAXES
The provisions for federal income taxes are as follows:
Year ended December 31,
1997 1996
-------- --------
Current $372,462 $234,073
Deferred (47,000) 42,000
-------- --------
$325,462 $276,073
Deferred income taxes and benefits are provided for significant income and
expense items recognized in different years for tax and financial reporting
purposes. Temporary differences which give rise to significant deferred tax
assets (liabilities) follow:
December 31,
1997 1996
---------- ----------
Joint Venture income $ 20,000 $ 10,000
Loan origination fees 5,000 6,000
Bad debt reserve 88,000 18,000
Valuation allowance - -
---------- ----------
Total Deferred Assets 113,000 34,000
---------- ----------
Federal Home Loan Bank stock dividends (323,000) (287,000)
Net unrealized gain on available for (421,125) (123,440)
sale securities
Accelerated depreciation (30,000) (34,000)
---------- ----------
Total Deferred Liabilities (774,125) (444,440)
---------- ----------
Net Deferred Liabilities $ (661,125) $ (410,440)
========== ==========
II-20
Total income tax expense differed from the amounts computed by applying the U.S.
federal income tax rate of 34 percent in 1997 and 1996 to income before income
taxes as a result of the following:
Year ended December 31,
1997 1996
-------- --------
Normal "expected" corporate taxes $417,000 $277,500
Change in tax provision resulting from
Income tax refunds (62,690) -
Other (28,848) (1,427)
-------- --------
$325,462 $276,073
======== ========
Tri-County and its subsidiaries file a consolidated income tax return. Excess of
bad debt reserves for income tax purposes over book provisions for the Bank at
December 31, 1997 were approximately $2,005,000. No deferred income tax
liability has been provided for these reserves. If such reserves are used for
purposes other than to absorb the Bank's bad debts, the amount used is subject
to the then current federal corporate tax rates. Tri-County and its subsidiaries
are not subject to state income taxes.
NOTE 8 - RELATED PARTY TRANSACTIONS
Tri-County has had, and may be expected to have in the future, financial
transactions in the ordinary course of business with directors, principal
officers, their immediate families and affiliated companies in which they are
principal stockholders (commonly referred to as related parties), all of which
have been made in compliance with federal regulations.
Activity in loans to related parties for the years ended December 31:
1997 1996
-------- --------
Balance, beginning of year $209,739 $289,897
New loans 10,300 6,300
Repayments (72,446) (86,458)
-------- --------
Balance, end of year $147,593 $209,739
======== ========
Terms and rates of interest on deposit accounts of directors and officers are
substantially the same as those extended to unrelated Tri-County customers. At
December 31 deposits of related parties totaled $458,941 (1997) and $429,917
(1996).
NOTE 9 - EMPLOYEE RETIREMENT PLAN
Tri-County sponsors a 401(k) plan where Tri-County matches up to 3% of the
employees qualifying compensation. Employees may contribute up to 12% of their
qualifying compensation. Tri-County's expense was $17,054 (1997) and $15,632
(1996).
II-21
NOTE 10 - STOCK BENEFIT PLANS
Stock Option Plan
Tri-County adopted a stock option plan (Option Plan) whereby stock options of
149,500 common shares may be granted to directors and officers of the Bank.
Options granted under the Option Plan may be either options that qualify as
Incentive Stock Options as defined in Section 422 of the Internal Revenue Code
of 1986, as amended, or options that do not qualify. In the event of a change in
control, as defined, all options are immediately exercisable.
On September 28, 1993, qualified stock options were granted for the purchase of
143,522 shares exercisable at the market price at the date of grant of $5 per
share. All options expire ten years from the date of the grant. None of the
options had been exercised at December 31, 1997. The options vest over a 5 year
period. Stock options vested as of December 31 were 138,138 (1997) and 132,756
(1996).
Employee Stock Ownership Plan
Tri-County sponsors an employee stock ownership plan (ESOP). Tri-County issued
stock for a note receivable from the ESOP, which is unconditionally guaranteed
by the Bank. The note is at prime (determined at the beginning of each quarter),
payable quarterly through 2003. The ESOP's loan payments are provided by the
Bank's contributions to the ESOP and dividends on Tri-County's stock held by the
ESOP's Trustee.
Since the Bank guarantees the note, the receivable is reflected as a reduction
of stockholders' equity in the consolidated financial statements. At December 31
the balance was $343,850 (1997) and $403,650 (1996).
The ESOP covers substantially all employees. The Bank's ESOP contributions are
based on the note's scheduled principal and interest payments, net of
Tri-County's cash dividends paid to the ESOP. The released stock is allocated
based upon the ratio of each participating employee's eligible compensation to
total eligible compensation. The shares held by the ESOP are released in the
proportion each year's principal payment bears to the total principal payments
due. This is currently scheduled as 11,960 shares per year.
The Bank's ESOP contributions are recorded as compensation expense and totaled
$126,553 (1997) and $114,197 (1996). Dividends used to satisfy note payments
were $38,292 (1997) and $29,678 (1996). As of December 31, the ESOP held 66,990
(1997) and 80,730 (1996) unallocated shares. The unallocated shares' fair value
at December 31 (based on NASDAQ) was $913,744 (1997) and $736,661 (1996).
Management Stock Bonus Plan Tri-County and Bank have adopted a management stock
bonus plan (MSBP) to enable the Bank to attract and retain experienced and
capable personnel in key positions of responsibility. A total of 59,800 shares
of restricted stock were awarded on September 28, 1993, the conversion date, in
the form of restricted stock payable over a five-year vesting period, at 20
percent per year, beginning September 28, 1994. Tri-County will recognize
compensation expense in the amount of the fair market value of the common stock
at the grant date, prorata over the years during which the shares are payable.
The unvested shares are entitled to all voting and other stockholder rights,
except that the shares, while restricted, cannot be sold, pledged or otherwise
disposed of, and are required to be held in escrow.
II-22
If a holder of restricted stock under the MSBP terminates employment for reasons
other than death, disability, retirement or change in control of Tri-County,
such employee forfeits all rights to any allocated shares which are still
restricted. If termination is caused by death, disability, retirement or change
in control of Tri-County, allocated shares become unrestricted. The unamortized
deferred compensation related to the MSBP conversion is deducted from
stockholders' equity.
NOTE 11 - REGULATORY CAPITAL
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by
regulators. These actions, if undertaken, could have a direct material effect on
the Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, banks must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices. Bank's capital amounts and classifications are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require banks to maintain minimum amounts and ratios of total and Tier 1 capital
(as defined in the regulations) to risk-weighted assets (as defined). Management
believes that, as of December 31, 1997, the Bank meets all capital adequacy
requirements to which it is subject.
As of December 31, 1997, the most recent notification from applicable regulatory
agencies categorize the Bank as adequately capitalized under the regulatory
framework for prompt corrective action. To be categorized as adequately
capitalized, the Bank must maintain minimum ratios as set forth in the following
table (amounts in thousands):
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------- ----------------- -----------------
Dollars Ratio Dollars Ratio Dollars Ratio
------- ----- ------- ----- ------- -----
December 31, 1997
Total Adjusted Capital
(to risk-weighted assets) $12,185 34.0% $2,784 8.0% $3,480 10.0%
Tier 1 Capital
(to risk-weighted assets) $11,842 34.0% $1,392 4.0% $2,088 6.0%
Tier 1 Capital
(to adjusted total assets) $11,842 13.3% $2,664 3.0% $4,438 5.0%
II-23
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------- ----------------- -----------------
Dollars Ratio Dollars Ratio Dollars Ratio
------- ----- ------- ----- ------- -----
December 31, 1996
Total Adjusted Capital
(to risk-weighted assets) $11,145 34.4% $2,592 8.0% $3,240 10.0%
Tier 1 Capital
(to risk-weighted assets) $10,740 33.2% $1,296 4.0% $1,944 6.0%
Tier 1 Capital
(to adjusted total assets) $10,740 12.6% $2,547 3.0% $4,246 5.0%
At December 31, the Bank's tangible equity and tangible capital ratios were
13.3% (1997) and 12.7% (1996). This exceeds the capital adequacy requirements of
2% and 1.5%, respectively.
NOTE 12 - CONCENTRATION OF CREDIT RISK
In the normal course of business, Tri-County enters into commitments to extend
credit with off-balance-sheet risk to meet the financing needs of its customers.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the commitment.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. As some commitments normally expire without
being drawn upon, the total commitment amount does not necessarily represent
future cash requirements.
Tri-County evaluates each customer's credit worthiness on a case-by-case basis,
using the same credit policies in making commitments and conditional obligations
as it does for on-balance-sheet instruments. The amount and type of collateral
obtained, if deemed necessary by Tri-County upon extension of credit, is based
upon management's credit evaluation. Tri-County's underwriting policies for
mortgage loans generally require a maximum loan-to-value of 80% for owner
occupied residential loans and 75% on non-owner occupied one-to-four family
loans. Owner occupied residential loans in excess of 80% are generally required
to obtain private mortgage insurance.
Tri-County had the following commitments at December 31, 1997:
Loan commitments $1,239,400
Lines of credit $ 692,000
Available overdraft protection $ 135,500
The loan commitments ($869,400 fixed rate and $370,000 adjustable rate) are at
interest rates ranging from 7.375% to 9.75%.
Tri-County's loans and commitments include commitments to purchase loans in
western Colorado ($643,700) as well as commitments to extend credit to customers
in Tri-County's market area. The market area primarily consists of eastern
Wyoming. Agriculture and related support industries are a significant factor in
the primary market area's economy.
II-24
The loans purchased in Colorado, through a mortgage banking relationship, are
located in various resort areas and comprise approximately 31% of the loan
portfolio.
NOTE 13 - CONTINGENCIES
Self-Insured Health Plan
The Bank sponsors a self-insured health plan for eligible employees. The Plan
provides for payment by the Bank of health claims up to $3,000 per eligible
employee, with reinsurance coverage for all claims greater than $3,000. An
estimate of claims incurred but not reported and claims reported but not funded
is included in accounts payable at December 31, 1997 and 1996.
Year 2000 Compliance
Tri-County relies upon computers for the daily conduct of its business and for
general data processing. Significant national attention has been directed at
possible problems that may occur with computer programs and data processing
systems when they start utilizing the year 2000 in data fields. Accordingly,
Tri-County has adopted a Year 2000 plan (the Plan) to identify all areas that
may be affected by the change to the year 2000. The Plan includes ensuring that
external vendors and services are adequately addressing the system and software
issues related to the year 2000 by requiring written certifications that the
systems and software are fully Year 2000 compliant by December 31, 1998. The
majority of Tri-County's data is processed by a third party service bureau. The
service bureau has notified Tri-County that it will be Year 2000 compliant by
December 31, 1998. If Tri-County's service bureau is unable to resolve this
potential problem in time, Tri-County would likely experience significant data
processing delays, mistakes or failures. These delays, mistakes or failures
could have a significant adverse impact on the consolidated financial condition
and results of operations of Tri-County.
Other
In the normal course of business, Tri-County is involved in various legal
actions arising from its lending and collection activities. In the opinion of
management, the outcome of these legal actions will not significantly affect the
consolidated financial position of Tri-County.
NOTE 14 - STOCKHOLDERS' EQUITY
In 1993, Tri-County was formed when the Bank converted from a mutual to a stock
form of ownership. A "liquidation account" was established that restricts a
portion of net worth for the benefit of deposit accounts at the Bank at the time
of the conversion. Eligible account holders who close their accounts cause a
corresponding reduction in the liquidation account. Except for the repurchase of
stock, payment of dividends and complete liquidation, the existence of the
account does not restrict the use of the Bank's net worth. At December 31, 1997,
the liquidation account was $2,098,184 as compared to $6,432,095 at inception.
Payment of dividends to Tri-County by the Bank are subject to the above
restriction as well as various other regulatory restrictions and approvals.
II-25
NOTE 15 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value is the amount at which a financial instrument could be exchanged in a
current transaction between willing parties, other than in a forced sale or
liquidation, and is best evidenced by a quoted market price, if one exists.
Fair value estimates are made as of a specific point in time based on the
characteristics of the financial instruments and relevant market information.
Where available, quoted market prices are used. In other cases, fair values are
based on estimates using present value or other valuation techniques. These
techniques involve uncertainties and are significantly affected by the
assumptions used and judgments made regarding risk characteristics of various
financial instruments, discount rates, estimates of future cash flows, future
expected loss experience and other factors. Changes in assumptions could
significantly affect these estimates and the resulting fair values. Derived fair
value estimates cannot be substantiated by comparison to independent markets
and, in many cases, could not be realized in an immediate sale of the
instrument. Also, because of differences in methodologies and assumptions used
to estimate fair values, Tri-County's fair values should not be compared to
those of other financial institutions.
Fair value estimates are based on existing financial instruments without
attempting to estimate the value of anticipated future business and the value of
assets and liabilities that are not considered financial instruments.
Accordingly, the aggregate fair value amounts presented do not purport to
represent the underlying market of Tri-County.
The following summary presents the methodologies and assumptions used to
estimate the fair value of Tri-County's financial instruments.
Assets for Which Fair Value Approximates Carrying Value: The fair value of
certain financial assets carried at cost, including cash and due from banks,
deposits with banks, and accrued interest receivable are considered to
approximate their respective carrying values due to their short-term nature and
negligible credit losses. In addition, as discussed in Note 1, Tri-County valued
loans held for sale at fair value.
Federal Home Loan Bank Stock: As discussed in Note 1, the stock's fair value
approximates carrying value due to the limited marketability.
Securities: Held to maturity securities are carried at amortized costs.
Available for sale securities are carried at fair value. Fair value of actively
traded securities is determined by the secondary market, while the fair value of
nonactively traded securities is based on independent broker quotations.
Loans: Loans are valued using methodologies suitable for each loan type.
Variable rate loans that reprice frequently and have no significant change in
credit risk, fair value is assumed to approximate carrying amount. Fair value of
other loans is estimated using a discounted cash flow analysis based on interest
rates currently offered for similar loan products.
II-26
Liabilities for Which Fair Value Approximates Carrying Value: The fair value of
accounts payable, accrued liabilities and accrued interest payable is considered
to approximate their respective book values due to their short-term nature. By
definition, fair values of deposits with no stated maturities, such as demand
deposits, savings and NOW accounts and money market deposit accounts are equal
to the amounts payable on demand at the reporting date.
Time Deposits: The fair value of time deposits is estimated by discounting cash
flows based on contractual maturities at current interest rates offered for
similar products.
Long-Term Debt: The valuation of long-term debt with floating rates is estimated
to be the same as carrying value. Fair value of long-term debt with fixed rates
is estimated based on quoted market prices for similar issues, or by using
current rates offered to Tri-County for debt of the same remaining maturity.
Unused Commitments and Letters of Credit: Tri-County has reviewed the unfunded
portion of commitments to extend credit as well as letters of credit and has
determined that the fair value of such financial instruments is not material.
Following are the estimated fair values of Tri-County's financial instruments:
December 31, 1997 December 31, 1996
------------------------ ------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------- ----------- ----------- -----------
Financial assets
Assets for which fair value approximates book value $ 5,021,975 $ 5,021,975 $ 2,928,116 $ 2,928,116
Securities $44,513,262 $44,787,003 $45,459,821 $45,729,523
Loans $40,425,288 $41,149,803 $35,265,278 $35,371,313
Financial liabilities
Liabilities for which fair value approximates
book value $14,077,029 $14,077,029 $12,722,895 $12,722,895
Time deposits $32,359,696 $32,436,396 $35,966,345 $36,045,962
Long-term debt $29,696,616 $29,573,248 $23,460,492 $23,380,663
NOTE 16 - PARENT COMPANY FINANCIAL INFORMATION
CONDENSED PARENT COMPANY ONLY
STATEMENTS OF CONDITION
December 31,
1997 1996
----------- -----------
Assets
Cash $ 250,308 $ 613,000
Investment in subsidiary 12,229,216 11,246,946
Securities available for sale 533,990 1,129,983
Other assets, net 40,952 13,908
----------- -----------
Total Assets $13,054,466 $13,003,837
=========== ===========
Liabilities and stockholders' equity
Other liabilities $ 1,965 $ -
Stockholders' equity 13,052,501 13,003,837
----------- -----------
Total Liabilities and Stockholders' Equity $13,054,466 $13,003,837
=========== ===========
II-27
STATEMENTS OF OPERATIONS
Year ended December 31,
1997 1996
--------- --------
Revenue
Equity in earnings of subsidiary $ 911,272 $512,482
Other income 82,734 105,989
Expense
Operating expenses (118,002) (79,357)
Income tax benefit 25,000 1,035
--------- --------
Net Income $ 901,004 $540,149
========= ========
STATEMENTS OF CASH FLOWS
Year ended December 31,
1997 1996
--------- ----------
Operating activities
Net income $ 901,004 $ 540,149
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Earnings of subsidiary (911,272) (512,482)
Amortization of organization expense 1,068 1,068
Loss on sale of securities 1,751 1,593
(Increase) decrease in other assets and
accrued liabilities (28,106) 6,601
--------- ----------
Net Cash Provided (Used) by Operating Activities (35,555) 36,929
--------- ----------
Investing activities
Sale of securities available for sale 600,000 200,000
Dividends received - 1,000,000
--------- ----------
Net Cash Provided by Investing Activities 600,000 1,200,000
--------- ----------
Financing activities
Dividends paid (386,937) (312,385)
ESOP payments received 59,800 59,800
Treasury stock purchased (600,000) (587,096)
--------- ----------
Net Cash Used by Financing Activities (927,137) (839,681)
--------- ----------
Net Increase (Decrease) in Cash (362,692) 397,248
Cash and cash equivalents - Beginning of Period 613,000 215,752
--------- ----------
Cash and cash equivalents - End of Period $ 250,308 $ 613,000
========= ==========
II-28
Manually signed photocopies of the Letter of Transmittal will be
accepted from Eligible Institutions. The Letter of Transmittal and certificates
for Shares and any other required documents should be sent or delivered by each
shareholder or his or her broker, dealer, commercial bank, trust company or
nominee to the Depositary at one of its addresses set forth below.
The Depositary for the Offer is:
American Securities Transfer & Trust, Inc.
By Mail/Hand/Overnight Delivery:
1825 Lawrence Street
Suite 444
Denver, Colorado 80202-1817
By Facsimile Transmission:
(Eligible Institutions Only)
(303) 234-5340
Any questions or requests for assistance or additional copies of this
Offer to Purchase, the Letter of Transmittal or the Notice of Guaranteed
Delivery may be directed to the Information Agent at the telephone numbers and
location listed below. Shareholders may also contact their local broker, dealer,
commercial bank or trust company for assistance concerning the Offer.
The Information Agent and Deal Manager for the Offer is:
KEEFE, BRUYETTE & WOODS, INC.
211 Bradenton Avenue
Dublin, Ohio 43017-3541
(614) 766-8400 (call collect)
Call Toll Free
1-(877) 298-6520