AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 7, 1996
REGISTRATION NO. 333-6803
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT 1
TO THE FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
(INCLUDING EXHIBITS)
FIRST ALLEN PARISH BANCORP, INC.
(Name of Small Business Issuer in Its Charter )
DELAWARE 6712 (APPLIED FOR)
(State or Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation or Industrial Classification Code Identification No.)
Organization) Number)
222 SOUTH 10TH STREET
OAKDALE, LOUISIANA 71463
(318) 335-2031
(Address and Telephone Number
of Principal Executive Offices)
222 SOUTH 10TH STREET
OAKDALE, LOUISIANA 71463
(Address of Principle Place of
Business or Intended Principal
Place of Business)
CHARLES L. GALLIGAN
222 SOUTH 10TH STREET
OAKDALE, LOUISIANA 71463
(318) 335-2031
(Name, Address and Telephone Number
of Agent for Service)
COPIES TO:
ROBERT I. LIPSHER, ESQ.
ALAN SCHICK, ESQ.
LUSE LEHMAN GORMAN POMERENK & SCHICK, P.C.
5335 WISCONSIN AVENUE, N.W.
SUITE 400
WASHINGTON, D.C. 20015
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after
this registration statement becomes effective.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box: [X]
If this Form is filed to register additional shares for an offering pursuant to
Rule 462(b) under the Securities Act please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If the delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
CALCULATION OF REGISTRATION FEE
================================================================================
PROPOSED PROPOSED
DOLLAR MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE PER SHARE OFFERING REGISTRATION FEE
REGISTERED PRICE (2)
(1)
- ----------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value per share $3,306,250 $10.00 $3,306,250 $1,150
- ----------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee.
(2) A filing fee of $1,150 was paid with the filing of the initial Registration
Statement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES
ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH
DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE
================================================================================
PROSPECTUS
FIRST ALLEN PARISH BANCORP, INC.
(PROPOSED HOLDING COMPANY FOR FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF
ALLEN PARISH)
Up to 287,500 Shares of Common Stock
(Anticipated Maximum)
$10.00 Purchase Price per Share
First Allen Parish Bancorp, Inc. (the "Holding Company"), a Delaware
corporation, is offering up to 287,500 shares of its common stock, par value
$.01 per share (the "Common Stock"), in connection with the conversion of First
Federal Savings and Loan Association of Allen Parish ("First Federal" or the
"Association"), from a federally chartered mutual savings and loan association
to a federally chartered stock savings and loan association, and the issuance of
all of First Federal's outstanding capital stock to the Holding Company pursuant
to the Association's Plan of Conversion (the "Plan" or "Plan of Conversion").
The simultaneous conversion of the Association to stock form, the issuance of
First Federal's outstanding common stock to the Holding Company and the Holding
Company's sale of its Common Stock are referred to herein as the "Conversion."
References herein to the Association refer to First Federal both in its mutual
and stock form as the context may indicate.
(continued on following page)
FOR INFORMATION ON HOW TO SUBSCRIBE, CALL THE STOCK INFORMATION CENTER AT
(318) 335-4487
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY EACH
PROSPECTIVE INVESTOR, SEE "RISK FACTORS" AT PAGE 17.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION, OR ANY OTHER FEDERAL
AGENCY OR ANY STATE SECURITIES COMMISSION, NOR HAS SUCH COMMISSION,
OFFICE OR OTHER AGENCY OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR DEPOSITS
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION ("FDIC"), THE BANK INSURANCE FUND ("BIF"), THE SAVINGS ASSOCIATION
INSURANCE FUND ("SAIF") OR ANY OTHER GOVERNMENT AGENCY.
- ---------------------------------------------------------------------------------------------------------------------
Estimated Underwriting Fees
and
Purchase Price(1) Other Expenses(2) Estimated Net Proceeds(2)
- ---------------------------------------------------------------------------------------------------------------------
Minimum Per Share $ 10.00 $ 1.65 $ 8.35
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Midpoint Per Share $ 10.00 $ 1.40 $ 8.60
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Maximum Per Share $ 10.00 $ 1.22 $ 8.78
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Maximum Per Share, as adjusted(3) $ 10.00 $ 1.06 $ 8.94
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Minimum Total $2,125,000 $350,000 $1,775,000
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Midpoint Total $2,500,000 $350,000 $2,150,000
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Maximum Total $2,875,000 $350,000 $2,525,000
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Maximum Total, as adjusted(3) $3,306,250 $350,000 $2,956,250
- ---------------------------------------------------------------------------------------------------------------------
(footnotes on second following page)
TRIDENT SECURITIES, INC.
The date of this Prospectus is August ___, 1996.
(continued from preceding page)
Non-transferable rights to subscribe for the Common Stock have been granted,
in order of priority, to (i) the Association's deposit account holders with
deposits of at least $50 as of May 31, 1995 ("Eligible Account Holders"), (ii)
tax-qualified employee stock benefit plans of the Association, (iii) certain
other depositors of the Association as of July 31, 1996 and certain borrowers of
the Association as of both June 26, 1996 and July 31, 1996, who continue to be
borrowers as of the date of the special meeting of members ("Other Members") and
(iv) officers, directors and employees of the Association in a subscription
offering (the "Subscription Offering"). PURSUANT TO OFFICE OF THRIFT SUPERVISION
("OTS") REGULATIONS, THESE SUBSCRIPTION RIGHTS ARE NON-TRANSFERABLE. PERSONS
VIOLATING THIS PROHIBITION AGAINST TRANSFER MAY LOSE THEIR RIGHT TO PURCHASE
STOCK IN THE CONVERSION AND BE SUBJECT TO OTHER POSSIBLE SANCTIONS. To the
extent that shares remain available for purchase after the Subscription
Offering, the Holding Company and Association intend to offer shares of Common
Stock for sale in a community offering to members of the general public to whom
a prospectus is delivered (the "Community Offering") with a preference given to
natural persons residing in Allen Parish, Louisiana (the "Local Community"). It
is anticipated that shares of Common Stock not subscribed for in the
Subscription and Community Offerings may be offered at the discretion of the
Holding Company to certain members of the general public as part of a community
offering on a best efforts basis by a selling group of broker-dealers managed by
Trident Securities, Inc. (the "Syndicated Community Offering"). The
Subscription, Community and Syndicated Community Offerings are referred to
collectively as the "Offerings."
The Association's Employee Stock Ownership Plan ("ESOP") intends to subscribe
for up to 8% (but may subscribe for up to 10%) of the total number of shares of
Common Stock issued in the Conversion, however; the Association reserves the
right to have all or part of the order of the ESOP filled by purchases in the
open market, subject to OTS approval, if required. Shares sold above the maximum
of the Estimated Valuation Range may be sold to the ESOP to fill its
subscription (prior to filling any other orders) or the ESOP may purchase shares
in the open market rather than pursuant to the Offerings. With the exception of
the ESOP, no individual Eligible Account Holder, or Other Member may purchase in
the Subscription Offering more than 5,000 shares of Common Stock offered in the
Conversion; no individual person or other entity, together with associates of
and persons acting in concert with such person, may purchase in the Community
Offering and the Syndicated Community Offering more than 5,000 shares of Common
Stock offered in the Conversion; and no person, together with associates of and
persons acting in concert with such person, may purchase in the aggregate more
than 10,000 shares of Common Stock offered in the Conversion. However, the
Association and the Holding Company in their sole discretion may increase the
purchase limitations to up to 5% or decrease purchase limitations without notice
to members or subscribers. The minimum purchase is 25 shares. See "The
Conversion--Limitations on Purchases of Shares."
The Holding Company may, in its absolute discretion, accept or reject, in
whole or in part, any or all subscriptions in the Community Offering or
Syndicated Community Offering at the time of receipt of an order or as soon as
practicable following the completion of such offerings. All orders submitted are
irrevocable until completion of the Conversion. Subscriptions paid by cash,
check, bank draft or money order will be placed in a segregated account at First
Federal and will earn interest at the rate paid by First Federal on passbook
savings accounts from the date of receipt until completion or termination of the
Conversion. Payments may be authorized by withdrawal from deposit accounts at
First Federal without penalty and will continue to earn interest at the
contractual rate until the Conversion is completed or terminated; these funds
will be otherwise unavailable to the depositor until such time. See "The
Conversion--Subscription Offering" and --Community Offering."
THE SUBSCRIPTION OFFERING WILL TERMINATE AT NOON, LOCAL TIME, ON SEPTEMBER
___, 1996 (THE "EXPIRATION DATE"), unless extended at the discretion of the
Company and the Association, with the approval of the OTS, if necessary. The
Community Offering may commence concurrently with or following the Subscription
Offering and may terminate on the Expiration Date or any date thereafter at the
discretion of the Association and the Holding Company but not later than 45 days
after the Expiration Date unless extended with the approval of the OTS. The
Syndicated Community Offering may commence simultaneously with or subsequent to
the Community Offering and may terminate on any date at the discretion of the
Association and the Holding Company but not later than 45 days after the
Expiration Date unless extended with the approval of the OTS.
If the Offerings are extended beyond 45 days after the Expiration Date (i.e.
______, 1996), all subscribers will be notified of such extension, of their
rights to modify or confirm their subscriptions or to rescind their
subscriptions and have their subscription funds returned promptly with interest,
and of the time period within which the subscriber must notify the Association
of his intention to modify, confirm or rescind his subscription. In the event
the value of an updated independent appraisal of the pro forma market value of
the Common Stock to be issued in the Conversion is less than $2,125,000 or more
than $2,875,000 and the Holding Company determines to sell an amount outside of
this range to its subscribers, all subscribers must be resolicited with an
updated prospectus. The failure of a subscriber to notify the Association of his
intention during a resolicitation will be deemed a rescission of the
subscription. Under applicable OTS regulations, the Conversion must be completed
or terminated no later than 24 months from the approval of the Conversion by the
Association's members.
The Holding Company and the Association have engaged Trident Securities, Inc.
("Trident") to consult with and advise the Association and the Holding Company
in connection with the Conversion and with the sale of shares of the Common
Stock in the Offerings. In addition, in the event the Common Stock is not fully
subscribed for in the Subscription and Community Offerings, Trident may manage a
selling group of broker-dealers in a Syndicated Community Offering. Neither
Trident nor any other broker-dealers will have any obligation to purchase or
accept any shares of Common Stock in the Conversion. See "The Conversion--Plan
of Distribution" and "--Marketing Arrangements."
There is currently no market for the Common Stock, and it is unlikely that an
active and liquid trading market for the Common Stock will develop. The Company
has requested Trident to undertake to match buy and sell offers for the Common
Stock and to list the Common Stock over-the-counter through the National Daily
Quotation System "Pink Sheets," and Trident has agreed to do so. There can be
no assurance that purchasers will be able to sell their shares at or above the
Purchase Price after the Conversion. See "Market for the Common Stock."
_____________________
(footnotes for preceding table)
(1) Determined in accordance with an amended independent appraisal prepared by
Ferguson & Co., LLP as of June 13, 1996. The estimated pro forma market
value of the Common Stock ranges from $2,125,000 to $2,875,000 ("Estimated
Valuation Range") or between 212,500 and 287,500 shares of Common Stock at
the purchase price of $10.00 per share which is the amount to be paid for
each share of Common Stock sold in the Offerings ("Purchase Price"). See
"The Conversion--Stock Pricing."
(2) Consists of the estimated expenses of $350,000 which includes printing,
postage, legal, accounting, appraisal and filing fees. These expenses also
include estimated financial advisory and marketing fees to be paid to
Trident Securities, Inc. ("Trident") which are $75,000. A portion of
Trident's fees may be deemed to be underwriting fees, and Trident may be
deemed to be an underwriter. Actual net proceeds and expenses may vary
substantially from estimated amounts depending on the number of shares sold
in the Offerings and other factors. Trident may be indemnified against
certain liabilities, including liabilities that may arise under the
Securities Act of 1933. See "Pro Forma Data" and "The Conversion--Marketing
Arrangements."
(3) Gives effect to an increase in the number of shares which could occur
without a resolicitation of subscribers or any right of cancellation due to
an increase in the Estimated Valuation Range of up to 15% above the maximum
of the Estimated Valuation Range to reflect changes in market and financial
conditions following commencement of the Offerings or to fill in part or in
whole the order of the ESOP. See "The Conversion--Stock Pricing."
[INSERT MAP HERE]
THE ASSOCIATION'S CONVERSION TO STOCK FORM IS CONTINGENT UPON THE APPROVAL OF
THE PLAN BY ITS MEMBERS AND THE SALE OF AT LEAST THE MINIMUM NUMBER OF SHARES OF
COMMON STOCK TO BE ISSUED PURSUANT TO THE PLAN OF CONVERSION.
PROSPECTUS SUMMARY
The following summary does not purport to be complete. It is qualified in its
entirety by the detailed information and financial statements and notes thereto
appearing elsewhere in this Prospectus.
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF ALLEN PARISH
First Federal Savings and Loan Association of Allen Parish ("First Federal" or
the "Association") is a federally chartered mutual savings and loan association
headquartered in Oakdale, Louisiana. First Federal was originally chartered in
1962. Its deposits are insured up to the maximum allowable amount by the
Savings Association Insurance Fund ("SAIF") of the Federal Deposit Insurance
Corporation (the "FDIC"). Through its office in Oakdale, First Federal serves
communities located in Allen Parish and in the surrounding parishes in the State
of Louisiana. At March 31, 1996, First Federal had total assets of $29.6
million, deposits of $27.3 million and retained earnings of $2.1 million.
First Federal has been, and intends to continue to be, a community-oriented
financial institution offering selected financial services to meet the needs of
the communities it serves. The Association attracts deposits from the general
public and historically has used such deposits, together with other funds, to
originate loans secured by real estate, including one- to four-family
residential mortgage loans, commercial real estate loans, land loans,
construction loans and loans secured by other properties. At March 31, 1996,
86.1% of the Association's gross loan portfolio consisted of loans secured by
real estate. The Association also originates consumer and other loans
consisting primarily of loans secured by automobiles, manufactured homes, loans
secured by deposits ("share loans") and lines of credit. At March 31, 1996,
consumer and other loans constituted 19.6% of the Association's gross loan
portfolio. See "Business--Lending Activities." In order to supplement its loan
originations, the Association has invested a significant portion of its assets
in mortgage-backed securities, which are insured or guaranteed by federal
agencies, as well as other investments. At March 31, 1996, the Association's
mortgage-backed securities portfolio totaled $15.2 million, or 51.3% of total
assets. See "Business--Investment Activities."
The Association funds its lending and investment activities primarily from
deposits received, repayment of principal and interest on its loans and
mortgage-backed securities and borrowings from the Federal Home Loan Bank of
Dallas (the "FHLB"). See "Business--Sources of Funds."
First Federal's office is located at 222 South 10th Street, Oakdale, Louisiana
71463. Its telephone number at that address is (318) 335-2031.
FIRST ALLEN PARISH BANCORP, INC.
First Allen Parish Bancorp, Inc. was organized in June 1996 by First Federal
for the purpose of acquiring all of the outstanding capital stock of First
Federal to be issued in the Conversion. Immediately following the Conversion,
the only significant assets of the Holding Company will be the capital stock of
the Association, the note evidencing its loan to fund the Association's Employee
Stock Ownership Plan ("ESOP") and approximately 50% of the net proceeds from the
Conversion (less the amount to fund the ESOP loan). Upon Conversion, the Holding
Company initially will be a unitary savings and loan holding company. See
"Regulation--Holding Company Regulation" and "Use of Proceeds." The business
of the Holding Company initially will consist only of the business of First
Federal. See "First Allen Parish Bancorp, Inc."
THE CONVERSION
The Offerings are being made in connection with the Conversion of First
Federal from a federally chartered mutual savings and loan association to a
federally chartered stock savings and loan association and the formation of
First Allen Parish Bancorp, Inc. as the holding company of the Association. The
Holding Company will retain up to 50% of the net proceeds of the issuance of the
Common Stock and will use the remaining 50% of the net proceeds to purchase
5
all of the stock of First Federal issued in the Conversion. Net Conversion
proceeds will increase the capital of the Association and, consistent with
regulatory restrictions, will support the Association's lending and investment
activities. The conversion to stock form and the use of a holding company
structure are also expected to enhance the ability of the Association to expand
through possible mergers and acquisitions and facilitate future access to the
capital markets. The Holding Company will have additional authorized shares of
common stock and serial preferred stock available for issuance to raise
additional equity capital for future acquisitions or for other business
purposes, although the Holding Company has no specific plans for expansion and
no present plans for the issuance of such securities. See "Use of Proceeds" and
"Description of Capital Stock - Holding Company Capital Stock."
The Conversion is subject to certain conditions, including the prior approval
of the Plan of Conversion by the Association's members at a special meeting to
be held at __:__ __.m. local time on ____________, 1996 (the "Special Meeting").
Approval of the Plan requires the affirmative vote of members of the Association
holding not less than a majority of the total number of votes eligible to be
cast at the Special Meeting. AFTER THE CONVERSION, DEPOSITORS AND BORROWERS OF
THE ASSOCIATION WILL HAVE NO VOTING RIGHTS IN THE HOLDING COMPANY, UNLESS THEY
BECOME HOLDING COMPANY STOCKHOLDERS. Eligible Account Holders, however, will
have certain liquidation rights in the Association. See "The Conversion -
Effects of Conversion to Stock Form on Depositors and Borrowers of the
Association - Liquidation Rights."
Subscription, Community and Syndicated Community Offerings. The Holding
Company is offering up to 287,500 shares of Common Stock, at a price of $10.00
per share, in the Subscription, Community and Syndicated Community Offerings.
The shares of Common Stock to be issued in the Conversion are being offered in
the following order of priority: (1) Eligible Account Holders (deposit account
holders of the Association with an account balance of $50 or more as of May 31,
1995); (2) Tax-Qualified Employee Plans; (3) Other Members (deposit account
holders of the Association as of July 31, 1996, other than Eligible Account
Holders and certain borrowers as of June 26, 1996, and July 31, 1996 who
continue to be borrowers as of the date of the Special Meeting); and (4)
employees, officers and directors of the Association. In addition, the Tax-
Qualified Employee Plans shall have first priority subscription rights to the
extent that the total number of shares of Common Stock sold in the Conversion
exceeds the maximum of the Estimated Valuation Range. Concurrently with or
following the Subscription Offering, and subject to the prior rights of holders
of Subscription Rights, any shares of Common Stock not subscribed for in the
Subscription Offering may be offered in the Community Offering to certain
members of the general public, to whom a prospectus is delivered with a
preference given to natural persons residing in Allen Parish, Louisiana. See
"The Conversion." THE HOLDING COMPANY AND THE ASSOCIATION RESERVE THE ABSOLUTE
RIGHT TO ACCEPT OR REJECT ANY ORDERS IN THE COMMUNITY OFFERING, IN WHOLE OR IN
PART, EITHER AT THE TIME OF RECEIPT OF AN ORDER OR AS SOON AS PRACTICABLE
THEREAFTER.
It is anticipated that shares of Common Stock not otherwise subscribed for in
the Subscription Offering and Community Offering, if any, may be offered at the
discretion of the Holding Company to certain members of the general public as
part of a Syndicated Community Offering on a best efforts basis by a selling
group of selected broker-dealers to be managed by Trident Securities, Inc.
("Trident" or the "Agent"). See "The Conversion--Syndicated Community Offering."
The Subscription and Community Offerings and Syndicated Community Offering are
referred to collectively herein as the "Offerings."
The Plan of Conversion places limitations on the number of shares which may be
purchased in the Conversion by various categories of persons. Except for the
Tax-Qualified Employee Plans which intend to subscribe for 8% of the total
number of shares of Common Stock offered in the Conversion, no Eligible Account
Holder or Other Member may purchase in their capacity as such in the
Subscription Offering more than $50,000 of Common Stock offered in the
Conversion based on the Estimated Valuation Range; no person, together with
associates of and persons acting in concert with such person, may purchase more
than $50,000 of Common Stock offered in the Community Offering or Syndicated
Community Offering based on the Estimated Valuation Range; and no person,
together with associates of or persons acting in concert with such person, may
purchase more than $100,000 of Common Stock offered in the Conversion. THE
PURCHASE LIMITATIONS DESCRIBED HEREIN ARE SUBJECT TO INCREASE OR DECREASE WITHIN
THE SOLE DISCRETION OF THE ASSOCIATION AND THE HOLDING COMPANY. The purchase
limitation for total purchases in all categories, however, may not be decreased
below 1% of the shares sold in the Conversion. Further, to the extent that
shares are available, each subscriber must subscribe for a minimum of 25 shares.
See "The Conversion - Offering of Holding Company Common Stock." The
6
Association and the Holding Company have engaged Trident to consult, advise and
assist in the distribution of shares of Common Stock in the Offerings on a best
efforts basis. The Agent is under no obligation to purchase any of the Common
Stock offered in the Conversion.
The term "acting in concert" is defined under OTS rules to mean: (i) knowing
participation in a joint activity or interdependent conscious parallel action
towards a common goal whether or not pursuant to an express agreement; or (ii) a
combination or pooling of voting or other interests in the securities of an
issuer for a common purpose pursuant to any contract, understanding,
relationship, agreement or other arrangement, whether written or otherwise. The
Holding Company and the Association may presume that certain persons are acting
in concert based upon, among other things, joint account relationships and the
fact that such persons have filed joint Schedules 13D with the SEC with respect
to other companies. The term "associate" of a person is defined in the Plan to
mean: (i) any corporation or organization (other than the Association or a
majority-owned subsidiary of the Association) of which such person is an officer
or partner or is, directly or indirectly, the beneficial owner of 10% or more of
any class of equity securities; (ii) any trust or other estate in which such
person has a substantial beneficial interest or as to which such person serves
as trustee or in a similar fiduciary capacity (excluding tax-qualified employee
plans); and (iii) any relative or spouse of such person, or any relative of such
spouse, who either has the same home as such person or who is a director or
officer of the Association or any of its parents or subsidiaries.
ALL SUBSCRIPTION RIGHTS FOR COMMON STOCK ARE NON-TRANSFERABLE AND WILL EXPIRE
AT __:__ __.M. LOCAL TIME ON ____________, 1996, UNLESS THE SUBSCRIPTION
OFFERING IS EXTENDED BY FIRST FEDERAL AND THE HOLDING COMPANY. The accompanying
stock order form and an executed certification, together with full payment for
all shares of Common Stock for which subscription is made, or appropriate
instructions authorizing withdrawal of such amount from one or more deposit
accounts at the Association, must be received by the Holding Company prior to
that time or any extension thereof. Under applicable federal regulations, all
shares of Common Stock must be sold in the Conversion within 45 days after the
completion of the Subscription and Community Offering, unless extended with OTS
approval.
If the Conversion is not approved by the members at the Special Meeting, no
shares will be issued, the Conversion will not take place, all subscription
funds received will be returned promptly with interest at the Association's
current passbook rate, and all withdrawal authorizations will be terminated. If
the aggregate Purchase Price of the Common Stock actually sold in the Conversion
is below $2,125,000 or above $3,306,250 (15% above the maximum of the Estimated
Valuation Range), or if the Offerings are extended beyond ________________,
1996, subscribers will be permitted to modify or cancel their subscriptions and
to have their subscription funds returned promptly with interest. In the event
of such an extension, each subscriber will be notified in writing of the time
period within which the subscriber must notify the Association of his intention
to maintain, modify or rescind his subscription. In the event the subscriber
does not respond in any manner to the Association's notice, the funds submitted
will be refunded to the subscriber with interest at 2.0% per annum, the
Association's current passbook rate, and/or the subscriber's withdrawal
authorizations will be terminated. See "The Conversion - Offering of Holding
Company Common Stock."
STOCK PRICING. The Purchase Price of the Common Stock in the Subscription,
Community and Syndicated Community Offerings is a uniform price for all
subscribers, including members of the Association's board of directors (the
"Board of Directors") and management. The aggregate Purchase Price is based
upon an independent appraisal of the aggregate pro forma market value of the
Holding Company and the Association as converted. The aggregate pro forma
market value was estimated by Ferguson & Co. LLP ("Ferguson"), an experienced
conversion appraisal firm independent of the Association, to range from
$2,125,000 to $2,875,000 at June 13, 1996. Depending upon the final updated
valuation, the number of shares to be issued is subject to a maximum of 330,625
shares (15% above the maximum of the Estimated Valuation Range) and a minimum of
212,500 shares. THE APPRAISAL SHOULD NOT BE CONSIDERED A RECOMMENDATION AS TO
THE ADVISABILITY OF PURCHASING SHARES OF THE COMMON STOCK. IN PREPARING THE
APPRAISAL, FERGUSON ASSUMED THE ACCURACY AND COMPLETENESS OF THE FINANCIAL AND
STATISTICAL INFORMATION PROVIDED BY THE ASSOCIATION AND DID NOT INDEPENDENTLY
VALUE THE ASSOCIATION'S ASSETS AND LIABILITIES. The Board of Directors reviewed
the appraisal, including the methodology and the appropriateness of the
assumptions utilized by Ferguson, and determined that in its opinion the
appraisal was not unreasonable. See "The Conversion - Stock Pricing and Number
of Shares to be Issued" for a description of the manner in which such valuation
was made and the limitations on its use. Subject to regulatory approval, the
Estimated Valuation Range may be increased or decreased to reflect market and
7
financial conditions prior to the completion of the Conversion and may be
increased to permit an increase in the number of shares of Common Stock sold in
the Conversion to cover any oversubscriptions in the Offerings. The actual
number of shares to be issued in the Conversion will not be determined until
completion of the Offerings. No resolicitation of subscribers will be made and
subscribers will not be permitted to modify or cancel their subscriptions unless
the gross proceeds from the sale of the Common Stock are below the minimum of
the Estimated Valuation Range or more than 15% above the maximum of the
Estimated Valuation Range. See "The Conversion - Stock Pricing and Number of
Shares to be Issued."
The Estimated Valuation Range is necessarily based upon estimates of a number
of matters (including certain assumptions as to expense factors affecting the
net proceeds from the sale of Common Stock in the Conversion and as to the net
earnings on such net proceeds), all of which are subject to change from time to
time. As a result, no assurance can be given that persons who purchase such
shares in the Conversion will be able to sell such shares thereafter at or above
the Purchase Price.
NON-TRANSFERABILITY OF SUBSCRIPTION RIGHTS. Prior to the completion of the
Conversion, federal regulations prohibit any person from transferring or
entering into any agreement or understanding to transfer the legal or beneficial
ownership of the Subscription Rights issued under the Plan or the shares of
Common Stock to be issued upon their exercise. Persons violating such
prohibition may lose their right to purchase stock in the Conversion and may be
subject to sanctions by the OTS. Each person exercising Subscription Rights
will be required to certify that a purchase of Common Stock is solely for the
purchaser's own account and that there is no agreement or understanding
regarding the sale or transfer of such shares. See "The Conversion -
Restrictions on Transferability."
USE OF PROCEEDS
The net proceeds from the sale of Common Stock in the Conversion are estimated
to be $1,775,000, $2,150,000, $2,525,000 and $2,956,000, respectively, based on
the minimum, midpoint, maximum and 15% above the maximum, of the Estimated
Valuation Range. See "Pro Forma Data." The Holding Company will purchase all
of the common stock of the Association to be issued upon Conversion in exchange
for 50% of the net proceeds from the issuance of the Common Stock and will
retain the remaining 50% of such net proceeds as its initial capitalization
(less funds loaned to the ESOP sufficient to purchase up to 8% of shares sold in
the Conversion). Subject to regulatory approval, the Holding Company intends to
lend a portion of the net proceeds to the ESOP to facilitate its purchase of up
to 8% of the Common Stock sold in the Conversion. Based upon the issuance of
shares at the minimum and maximum of the Estimated Valuation Range, the loan to
the ESOP to purchase 8% of the Common Stock would be $170,000 and $230,000,
respectively. The Association intends to make contributions to the ESOP in an
amount to be determined by the Board of Directors, but not less than the amount
needed to pay any currently maturing obligations under the loan made to the
ESOP, subject to the Association's continuing compliance with OTS capital
requirements. These contributions would be allocated among all eligible
participants in proportion to their compensation. It is expected the ESOP will
purchase up to 8% of the total number of shares sold in the Conversion. See
"Management - Benefit Plans - Employee Stock Ownership Plan." The remaining net
proceeds retained by the Holding Company are anticipated to be initially
invested in short- and intermediate-term securities and will be available as
general working capital. Subject to compliance with OTS regulations, such funds
may also be used to repurchase the Common Stock. However, since the Holding
Company has not yet issued stock, there is currently insufficient information
upon which an intention to repurchase stock could be based. For information
regarding the possible purchase of stock to implement a restricted stock plan
following the Conversion, see "Use of Proceeds." The net proceeds to the
Association will become part of the Association's general funds and will be used
to support its lending and investment activities, subject to applicable
regulatory restrictions and may also be used for expansion. On an interim
basis, such proceeds will be invested primarily in short- and intermediate term
securities and will be available as general working capital.
PURCHASES BY DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of First Federal have indicated their
intention to purchase in the Conversion an aggregate of $525,000 of Common Stock
(or 52,500 shares, or approximately 24.7%, 21.0%, 18.3% or 15.9%, respectively,
of the shares to be issued in the Conversion at the minimum, the midpoint, the
maximum and
8
15% above the maximum of the Estimated Valuation Range). There is no formal
agreement among the executive officers and directors and their affiliates
regarding their purchases of Common Stock. In addition, 8% of the shares issued
in the Conversion are expected to be purchased by the Association's ESOP. See
"Management - Benefit Plans - Employee Stock Ownership Plan."
BENEFITS OF CONVERSION TO DIRECTORS AND EXECUTIVE OFFICERS
EMPLOYMENT AGREEMENT. The Board of Directors of the Association intends to
enter into an employment agreement with Charles L. Galligan, President and Chief
Executive Officer of the Association and Betty Jean Parker, Treasurer and Chief
Financial Officer. It is anticipated that the agreements will provide for an
initial salary commensurate with Mr. Galligan's and Mrs. Parker's current salary
and will become effective upon completion of the Conversion. Mr. Galligan's
current salary is $54,000. Ms. Parker's current salary is $25,200. Under certain
circumstances, including a change in control, as defined in the employment
agreement, Mr. Galligan and Mrs. Parker will each be entitled to a severance
payment equal to 299% of their base amount of compensation, as defined. Assuming
a change in control occurred as of March 31, 1996, and such agreements were in
effect on such date, Mr. Galligan and Mrs. Parker would have received
approximately $162,000 and $75,000, respectively, pursuant to each employment
agreement's change in control provision. See "Management - Benefit Plans -
Employment Agreement" for a more detailed description of these agreements.
EMPLOYEE STOCK OWNERSHIP PLAN. The Board of Directors of the Association has
adopted an ESOP, a tax-qualified employee benefit plan for officers and
employees of the Holding Company and the Association. The ESOP intends to buy up
to 8% of the Common Stock issued in the Conversion (approximately $170,000 to
$230,000 of the Common Stock based on the issuance of the minimum (212,500
shares) and the maximum (287,500 shares) of the Estimated Valuation Range and
the $10.00 per share Purchase Price). The ESOP will purchase the shares with
funds borrowed from the Holding Company, and it is anticipated that the ESOP
will repay the loan through periodic tax-deductible contributions from the
Association over a ten-year period. It is expected that the interest rate on the
ESOP loan will be at the prime rate as quoted in the Wall Street Journal. These
contributions will increase the compensation expense of the Association. The
Association's contributions to the ESOP will be allocated among participants on
the basis of their compensation. The Holding Company will use a portion of the
net proceeds it retains from the Offerings to fund the ESOP loan. See
"Management - Benefit Plans - Employee Stock Ownership Plan" for a description
of this plan.
STOCK OPTION PLAN. Following consummation of the Conversion, the Holding
Company intends to adopt a stock option plan for the benefit of the directors,
officers and employees of the Holding Company and the Association (the "Stock
Option Plan"), pursuant to which the Holding Company intends to reserve a number
of shares of Common Stock equal to an aggregate of 10% of the Common Stock
issued in the Conversion (28,750 shares at the maximum of the Estimated
Valuation Range) for issuance pursuant to stock options and stock appreciation
rights. Under applicable regulations if the Stock Option Plan is submitted to
and approved by the stockholders of the Holding Company within one year after
completion of the Conversion, no more than 30% of the shares available under the
Stock Option Plan could be granted to non-employee directors and the
Association's director emeritus. Under such circumstances, it is expected that
each non-employee director and director emeritus will receive an option for the
same number of shares, in which event options for a total of approximately 1,437
shares would be granted to each director and director emeritus if the amount of
Common Stock sold in the Conversion is equal to the maximum of the Estimated
Valuation Range. In addition, it is currently expected that stock options will
be granted to Mr. Galligan and to other officers of the Association, although no
determination has been made at this time as to the amount of such stock options.
The Stock Option Plan will provide that no officer would be able to receive a
stock option for more than 25% of the shares available under the Stock Option
Plan, or 7,187 shares if the amount of Common Stock sold in the Conversion is
equal to the maximum of the Estimated Valuation Range. The Holding Company
currently anticipates that it will not implement the Stock Option Plan until
after one year following the Conversion, although it reserves the right to do so
as early as six months following the Conversion. See "Management of the
Company--Benefits--Stock Option Plan."
RECOGNITION AND RETENTION PLAN. Following consummation of the Conversion, the
Holding Company intends to adopt a recognition and retention plan for the
benefit of the directors, officers and employees of the Holding Company
9
and the Association (the "RRP"). It is expected that the RRP will be submitted
to stockholders for approval at the same time as the Stock Option Plan. Upon the
receipt of such approval, the RRP is expected to purchase a number of shares of
Common Stock either from the Holding Company or in the open market equal to an
aggregate of 4% of the Common Stock issued in the Conversion (11,500 shares at
the maximum of the Estimated Valuation Range). Assuming the Common Stock awarded
pursuant to the RRP had a value of $10.00 per share, the aggregate value of RRP
awards would be $115,000 at the maximum of the Estimated Valuation Range. Under
applicable regulations if the RRP is submitted to and approved by the
stockholders of the Holding Company within one year after completion of the
Conversion, no more than 30% of the shares available under the RRP could be
granted to non-employee directors and the Association's director emeritus. Under
such circumstances each non-employee director and director emeritus would
receive an award for the same number of shares, in which event awards of 575
shares would be granted to each such individual if the amount of common stock
sold in the Conversion is equal to the maximum of the Estimated Value Range. It
is currently expected that awards will be granted to Mr. Galligan and Ms.
Parker, although no determination has been made at this time as to the amount of
such awards. The RRP provides that no officer would be able to receive an award
for more than 25% of the shares available under the RRP, or 2,875 shares if the
amount of Common Stock sold in the Conversion is equal to the maximum of the
Estimated Valuation Range. Awards of Common Stock under the RRP will be at no
cost to the recipient.
DIVIDENDS
Subject to regulatory and other considerations, the Holding Company intends to
establish a dividend policy at an initial rate of $.30 per share per annum (or
3.0% based upon the initial offering price of $10 per share), payable semi-
annually in December and June of each year. In addition, the Holding Company
may determine from time to time to pay a special nonrecurring cash dividend as
circumstances warrant. The payment of dividends will be subject to
determination and declaration by the Board of Directors in its discretion, which
will take into account the Holding Company's consolidated financial condition
and results of operations, tax considerations, industry standards, economic
conditions, regulatory restrictions on dividend payments by the Association to
the Holding Company, general business practices and other factors. See
"Dividends," "Regulation - Regulatory Capital Requirements" and "Regulation -
Limitations on Dividends and Other Capital Distributions."
MARKET FOR COMMON STOCK
The Holding Company has never issued capital stock to the public and due to
the relatively small size of the Offering, it is unlikely that an active and
liquid trading market will develop or be maintained. The Holding Company has
requested that Trident undertake to match offers to buy and sell the Conversion
Stock, and that Trident list the Common Stock over the counter through the
National Daily Quotation System "Pink Sheets" published by the National
Quotation Bureau, Inc. and Trident has agreed to do so. However, purchasers of
Common Stock should have a long term investment intent and recognize that the
absence of an active and liquid trading market may make it difficult to sell the
Common Stock, and may have an adverse effect on the price. See "Illiquid Market
for the Common Stock" and "Market for Common Stock."
RISK FACTORS
Attention should be given to the matters discussed under "Risk Factors" which
include a discussion of the recapitalization of the SAIF and its impact on the
Association; pending legislation regarding bad debt reserve recapture; the local
economy and its effect on the Association's operations; the impact on the
Association of interest rate risk; limited lending opportunities in the
Association's market area; potential low return on equity following Conversion;
dependence on key personnel; anti-takeover provisions in the Holding Company's
corporate documents and the anti-takeover impact of certain benefit plans; the
expected impact of the Association's ESOP expense; competition; risks of delayed
Offering; the absence of a market for the Common Stock; and the possible
consequences of amendment to the Plan of Conversion.
10
SELECTED FINANCIAL INFORMATION AND OTHER DATA
Set forth below are selected financial and other data of the Association. The
selected financial and other data does not purport to be complete and is
qualified in its entirety by reference to the detailed information and Financial
Statements and Notes thereto presented elsewhere in this Prospectus. The
Selected Financial Information and Other Data at and for the three months ended
March 31, 1996 are derived from unaudited financial statements. However, in the
opinion of management, all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation at such dates and for such periods
have been made. The results of operations for the three months ended March 31,
1996, are not necessarily indicative of results that may be expected for a full
fiscal year.
At December 31,
At March 31, ----------------------
1996 1995 1994
------------ ------- -------
(In Thousands)
SELECTED FINANCIAL CONDITION DATA:
Total assets...................................... $29,605 $28,858 $26,916
Cash and cash equivalents......................... 2,226 1,363 1,392
Loans receivable, net
Real estate..................................... 9,344 9,315 9,807
Consumer and other.............................. 1,962 1,916 1,659
Mortgage-backed and related securities............ 15,195 15,391 13,257
FHLB stock........................................ 259 260 248
Deposits.......................................... 27,283 26,583 24,523
FHLB advances..................................... -- -- 500
Retained earnings, substantially restricted....... 2,103 2,059 1,669
Three Months Ended Year Ended
March 31, December 31,
------------------------- ---------------------
1996 1995 1995 1994
------- ------- ------- ------
(In Thousands)
SELECTED OPERATING DATA:
Interest income................................... $524 $459 $2,004 $1,757
Interest expense.................................. 297 229 1,078 804
---- ---- ------ ------
Net interest income............................. 227 230 926 953
Provision (recovery) for loan losses.............. (9) (8) (21) 2
---- ---- ------ ------
Net interest income after provision (recovery)
for loan losses.............................. 236 238 947 951
---- ---- ------ ------
Total non-interest income......................... 53 53 241 181
---- ---- ------ ------
Total non-interest expense........................ 211 187 747 753
---- ---- ------ ------
Income before income taxes................ 78 104 441 379
Income tax expense................................ 28 37 151 137
---- ---- ------ ------
Net income................................ $ 50 $ 67 $ 290 $ 242
==== ==== ====== ======
11
At or For the At or For the
Three Months Ended Years Ended
March 31, December 31,
-------------------------- -------------------------
1996 1995 1995 1994
----------- ----------- ---------- -----------
KEY FINANCIAL RATIOS AND OTHER DATA:
PERFORMANCE RATIOS:
Return on average assets (net income divided
by average total assets).......................... 0.68% 0.96% 1.00% 0.91%
Return on average equity (net income divided
by average equity)................................ 9.32% 15.72% 13.98% 14.17%
Net interest rate spread (difference between
average yield on interest earning assets and
average cost of interest bearing liabilities)..... 2.93% 3.21% 3.05% 3.48%
Net interest margin (net interest income as a
percentage of average interest earning assets).... 3.20% 3.40% 3.31% 3.68%
Net interest income to non-interest expense......... 107.59% 123.00% 123.97% 126.56%
Average interest-earning assets to average
interest-bearing liabilities...................... 106.38% 105.45% 106.59% 106.30%
Net interest income after provision (recovery)
for loan losses, to total non-interest expenses... 111.85% 127.28% 126.78% 126.30%
Non-interest expense to average assets.............. 2.88% 2.68% 2.58% 2.81%
ASSET QUALITY RATIOS:
Non-performing loans to total loans................. 0.67% 0.59% 1.44% 0.54%
Non-performing assets to total assets............... 0.39% 0.40% 0.69% 0.50%
Allowance for loan losses to non-performing loans... 412.00% 491.18% 196.90% 529.04%
Allowance for loan losses to non-performing assets.. 271.05% 298.22% 158.50% 306.54%
CAPITAL RATIOS:
Equity to assets at period end...................... 7.10% 6.45% 7.14% 6.20%
Retained earnings to average assets ratio
(Average retained earnings divided by
average total assets)............................. 7.39% 6.22% 7.34% 6.57%
OTHER DATA:
Number of full-service offices...................... 1 1 1 1
12
RECENT FINANCIAL DATA
The following tables set forth selected financial condition data for the
Association at June 30, 1996, March 31, 1996, and December 31, 1995 and selected
operating data for the Association for the three months and six months ended
June 30, 1996 and 1995. The selected financial condition data at June 30, 1996
and March 31, 1996 and selected operating data for the three months and six
months ended June 30, 1996 and 1995 are derived from the unaudited financial
statements of the Association which, in the opinion of management, reflect all
adjustments, consisting only of normal recurring accruals necessary for the fair
presentation of the results at and for such periods. This information should be
read in conjunction with the financial statements of the Association presented
elsewhere in this Prospectus. The results of operations for the three months and
six months ended June 30, 1996, are not necessarily indicative of the results
which may be expected for the full fiscal year.
At At At
June 30, March 31, December 31,
1996 1996 1995
-------- -------------- -----------
(In Thousands)
SELECTED FINANCIAL CONDITION DATA:
Total assets............................ $29,954 $29,605 $28,858
Cash and cash equivalents............... 2,430 2,226 1,363
Loans receivable, net:
Real estate........................... 9,221 9,344 9,315
Consumer and other.................... 2,069 1,962 1,916
Mortgage-backed and related securities.. 15,240 15,195 15,391
FHLB stock.............................. 259 259 260
Deposits................................ 27,528 27,283 26,583
Retained earnings, substantially
restricted............................ 2,187 2,103 2,059
Three Months Six Months
Ended June 30, Ended June 30,
---------------- ----------------
1996 1995 1996 1995
------ ------ ------ ------
(In Thousands)
SELECTED OPERATING DATA:
Interest income......................... $ 528 $ 509 $1,052 $ 968
Interest expense........................ 289 272 586 501
----- ----- ------ -----
Net interest income................. 239 237 466 467
(Recovery) for loan losses.............. -- (1) (9) (9)
----- ----- ------ -----
Net interest income after
(recovery) for loan losses........ 239 238 475 476
----- ----- ------ -----
Total non-interest income............... 72 59 125 112
----- ----- ------ -----
Total non-interest expense.............. 181 170 392 357
----- ----- ------ -----
Income before income taxes.......... 130 127 208 231
Income tax expense...................... 45 44 73 81
----- ----- ------ -----
Net income.......................... $ 85 $ 83 $ 135 $ 150
===== ===== ====== =====
13
At or For the At or For the
Three Months Six Months
Ended June 30, Ended June 30,
---------------- --------------------
1996 1995 1996 1995
------ ------ ------ ------
FINANCIAL RATIOS AND OTHER DATA:
PERFORMANCE RATIOS:
Return on average assets (net income divided
by average total assets) (1)........................ 1.13% 1.12% 0.90% 1.02%
Return on average equity (net income divided
by average equity) (1).............................. 15.34% 16.83% 13.09% 16.73%
Net interest rate spread (difference between average
yield on interest earning assets and average cost
of interest-bearing liabilities) (1)................ 3.08% 3.00% 2.90% 3.03%
Net interest margin (net interest income as a
percentage of average interest earning assets) (1).. 3.34% 3.28% 3.20% 3.29%
Net interest income to non-interest expense........... 132.04% 139.41% 118.88% 130.81%
Average interest-earning assets to average
interest-bearing liabilities........................ 105.20% 107.51% 106.14% 105.83%
Net interest income, after provision (recovery)
for loan losses, to total non-interest expense...... 132.04% 140.00% 121.17% 133.33%
Non-interest expense to average assets (1)............ 2.41% 2.29% 2.62% 2.41%
ASSET QUALITY RATIOS:
Non-performing loans to total loans................... 0.80% 1.27% 0.80% 1.27%
Non-performing assets to total assets................. 0.43% 0.63% 0.43% 0.63%
Allowance for loan losses to non-performing loans..... 345.47% 223.81% 345.47% 223.81%
Allowance for loan losses to non-performing assets.... 242.19% 176.88% 242.19% 176.88%
CAPITAL RATIOS:
Equity to assets at period end........................ 7.30% 7.10% 7.30% 7.10%
Retained earnings to average assets ratio (Average
retained earnings divided by average total assets).. 6.89% 6.06% 6.89% 6.06%
OTHER DATA:
Number of full-service offices........................ 1 1 1 1
- ------------------------------------------------------------------------------------------------
(1) Annualized.
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RECENT DEVELOPMENTS.
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 1996 AND JUNE 30, 1996.
Total assets increased $349,000, or 1.2% to $30.0 million at June 30, 1996
from $29.6 million at March 31, 1996. The increase in total assets was primarily
attributable to a $204,000 increase in cash and cash equivalents, a $45,000
increase in mortgage-backed and related securities, a $21,000 increase in other
receivables and a $93,000 increase in other assets comprised of deferred charges
for the conversion process. These increases were offset by a decrease of $16,000
in net loans receivable.
Loans on non-accrual as a percentage of net loans receivable increased
slightly to .80% at June 30, 1996 from .67% at March 31, 1996. Management
presently believes its allowance for loan losses is at a level that is
considered to be adequate for estimated losses; however, there can be no
assurance that further additions will not be made to the loss allowance and that
such losses will not exceed the estimated amount.
Total deposits increased $245,000, or .89% to $27.5 million at June 30, 1996
from $27.3 million at March 31, 1996. The Association's liquidity ratio at June
30, 1996 was 11.89%, substantially in excess of the 5% required liquidity ratio.
Retained earnings increased to $2.19 million at June 30, 1996 from $2.10
million at March 31, 1996 due to net income of $85,000 in the three months ended
June 30, 1996.
At June 30, 1996, the Association's regulatory capital exceeded the
regulatory capital requirements as follows:
Tangible Core Risk-based
--------- ------- -----------
(Dollars in Thousands)
Regulatory capital $2,199 $2,199 $2,329
Regulatory capital requirement 499 899 935
------ ------ ------
Excess regulatory capital $1,750 $1,300 $1,394
====== ====== ======
Regulatory capital ratio 7.34% 7.34% 19.92%
Regulatory capital requirement 1.50% 3.00% 8.00%
------ ------ ------
Excess regulatory capital ratio 5.84% 4.34% 11.92%
====== ====== ======
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND
1995.
NET INTEREST INCOME. Net interest income for the three months ended
June 30, 1996 was $239,000 compared to $237,000 for the three months ended June
30, 1995. The Association's interest rate spread increased from 3.00% for the
three months ended June 30, 1995 to 3.08% for the comparable period in 1996.
The Association is attempting to increase its interest rate spread by increasing
its origination of commercial real estate and consumer and other loans and
purchasing mortgage-backed securities with maturities exceeding 10 years.
PROVISION FOR LOSSES ON LOANS. The provision for loan losses was
virtually unchanged from 1995 to 1996 with a credit of $1,000 in 1995 and no
provision in 1996.
15
NON-INTEREST INCOME. Non-interest income increased $13,000 or 11.6% to $72,000
for the three months ended June 30, 1996 from $59,000 for the three months ended
June 30, 1995. This increase was primarily due to an $8,000, or 16.3% increase
in service charges on deposits to $57,000 for the three months ended June
30,1996 from $49,000, for the three months ended June 30, 1995. Insurance
commissions increased by $3,000 and loan origination and servicing fees
increased by $2,000 to $3,000 and $7,000, respectively, for the three months
ended June 30, 1996 from $0 and $5,000, respectively, for the three months ended
June 30, 1995.
NON-INTEREST EXPENSE. Non-interest expense increased $11,000, or 6.5% to
$181,000 for the three months ended June 30, 1996 from $170,000 for the three
months ended June 30, 1995. This increase was due to a $3,000 increase in
compensation and employee benefits and a $4,000 increase in stationery and
printing. Additionally, SAIF deposit insurance premiums increased by $2,000 and
data processing increased by $4,000. Other expenses decreased by $2,000 from the
three months ended June 30, 1995 to the three months ended June 30, 1996.
INCOME TAX EXPENSE. Income tax expense remained virtually unchanged for the
three month periods due to taxable income of $130,000 for the three months ended
June 30, 1996, a $3,000 increase from $127,000 for the three months ended June
30, 1995.
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995.
NET INTEREST INCOME. Net interest income for the six months ended June 30,
1996 was $466,000 compared to $467,000 for the six months ended June 30, 1995.
PROVISION FOR LOSSES ON LOANS. The provision for loan losses was unchanged
from 1995 to 1996 with a credit of $9,000 for each period.
NON-INTEREST INCOME. Non-interest income increased $13,000 or 11.6% to
$125,000 for the six months ended June 30, 1996 from $112,000 for the six months
ended June 30, 1995. This increase was due to a $7,000 increase in service
charges on deposits, a $3,000 increase in insurance commissions earned and a
$3,000 increase in other operating revenues.
NON-INTEREST EXPENSE. Non-interest expense increased $35,000 or 9.8% to
$392,000 for the six months ended June 30, 1996 from $357,000 for the six months
ended June 30, 1995. This increase was due to a $16,000 increase in compensation
and employee benefits, a $4,000 increase in occupancy and equipment expenses, a
$3,000 increase in SAIF deposit insurance premiums, an $8,000 increase in
stationery and printing and a $3,000 increase in data processing.
INCOME TAX EXPENSE. Income tax expense decreased $8,000 or 9.9% to $73,000 for
the six months ended June 30, 1996 from $81,000 for the six months ended June
30, 1995. Taxable income decreased $23,000 from 1995 to 1996 resulting in the
decrease in income tax expense.
16
RISK FACTORS
The following factors, in addition to those discussed elsewhere in this
Prospectus, should be considered by investors before deciding whether to
purchase the Common Stock offered in the Conversion.
RECAPITALIZATION OF SAIF, ITS IMPACT ON SAIF PREMIUMS AND POSSIBLE ONE-TIME
RECAPITALIZATION FEE
As a SAIF-insured institution, the Association is subject to insurance
assessments imposed by the FDIC. Effective January 1, 1993, the FDIC replaced
its uniform assessment rate with a transitional risk-based assessment schedule
issued by the FDIC, which imposes assessments ranging from 23 cents to 31 cents
per $100 of domestic deposits. The actual assessment to be paid by each SAIF
member is based on the institution's assessment risk classification, which is
based on whether the institution is considered "well capitalized," "adequately
capitalized" or "undercapitalized" (as such terms have been defined in federal
regulations), and whether such institution is considered by its supervisory
agency to be financially sound or to have supervisory concerns. The FDIC also
may impose special assessments on SAIF members to repay amounts borrowed from
the U.S. Treasury or for any other reason deemed necessary by the FDIC. The
assessment rate on deposits could further increase over a 15-year period.
Financial institutions such as the Association which are members of the SAIF,
are required to pay higher deposit insurance premiums than financial
institutions which are members of the BIF, primarily commercial banks, because
the BIF has higher reserves than the SAIF and has been responsible for fewer
troubled institutions. The FDIC Board of Directors has recently approved a new
risk-based premium schedule that will reduce assessment rates for commercial
banks, will leave assessment rates for financial institutions such as the
Association at current levels, and will increase the disparity between SAIF and
BIF assessments. Assessments for BIF members in the lower risk category are now
only $2,000. The Association paid deposit insurance premiums of $58,000 and
$62,000 in fiscal 1995 and 1994, respectively. In announcing this rule, the FDIC
noted that the premium differential may have adverse consequences for SAIF
members, including reduced earnings and an impaired ability to raise funds in
the capital markets. In addition, SAIF members, such as the Association, could
be placed at a substantial competitive disadvantage to BIF members with respect
to pricing of loans and deposits and the ability to achieve lower operating
costs. Several alternatives to mitigate the effect of the BIF/SAIF premium
disparity have been suggested by the federal banking regulators, by members of
Congress and by industry groups.
Legislation supported by the thrift industry has been introduced in the United
States Congress providing for a one-time fee for SAIF members only equal to
approximately 85 cents per $100 of domestic deposits. If enacted by Congress,
the premium would have the effect of immediately reducing the capital of SAIF-
member institutions by the amount of the fee. It is anticipated that SAIF-member
institutions would not be allowed to amortize the expense of the one-time fee
over a period of years. Based upon the Association's deposits as of March 31,
1996, the proposed one-time fee would equal approximately $232,000. A
significant increase in SAIF insurance premiums or a significant one-time fee to
recapitalize the SAIF would likely have an adverse effect on the operating
expenses and results of operations of the Association. Management cannot predict
whether the legislation will be enacted or, if enacted, the amount of any one-
time fee or whether ongoing SAIF premiums will be reduced to a level equal to
that of BIF premiums.
PENDING LEGISLATION REGARDING BAD DEBT RESERVES
Under the Internal Revenue Code, thrift institutions such as the Association,
which meet certain definitional tests primarily relating to their assets and the
nature of their business, are permitted to establish a tax reserve for bad debts
and to make annual additions thereto, which additions may, within specified
limitations, be deducted in arriving at their taxable income. The Association's
deduction with respect to "qualifying loans," which are generally loans secured
by certain interests in real property, may currently be computed using an amount
based on the Association's actual loss experience (the "Experience Method"), or
a percentage equal to 8.0% of the Association's taxable income (the "PTI
Method"), computed without regard to this deduction and with additional
modifications and reduced by the amount of any permitted addition to the non-
qualifying reserve. See "Federal and State Taxation--Federal Taxation--Tax Bad
Debt Reserves."
17
Under pending legislative proposals, the PTI Method would be repealed and the
Association would be permitted to use only the Experience Method of computing
additions to its bad debt reserve. In addition, the Association would be
required to recapture (i.e., take into income) over a multi-year period the
excess of the balance of its bad debt reserves as of December 31, 1996 over the
greater of (a) the balance of such reserves as of December 31, 1988 or (b) an
amount that would have been the balance of such reserves as of December 31, 1996
had the Association always commuted the addition to its reserves using the
experience method. However, under the proposed legislation, such recapture
requirements would be suspended for each of two successive taxable years
beginning January 1, 1997 if the principal amount of residential loans made by
the Association during each such year is not less than the average of the
principal amounts of such loans made by the Association during its six taxable
years preceding January 1, 1996. (In calculating the average principal amount of
loans made each year, the years with the highest and the lowest principal amount
of loans may be eliminated from the calculation if the Association so elects).
Under present law, the Association would be required to recapture its entire bad
debt reserves and not only the excess over the December 31, 1988 balance of its
reserves, and there would be no two-year suspension of the recapture. There can
be no assurance that the legislative proposals discussed above will become law
or if they become law that they will not be materially amended.
EFFECT ON OPERATIONS OF LOCAL ECONOMY
The Association's primary market area consists of Allen Parish and the
surrounding parishes in Louisiana. The economy of the Association's market area
has historically been based on farming and the paper and wood industries. Major
employers in the area include the Federal Bureau of Prisons, Boise Cascade
Corporation, Arizona Chemical, Grand Casino and the state and local government.
The economy in the Association's market area has not experienced any significant
growth in recent years and is dependent, to some extent, on a small number of
major industrial employers. During the period between 1990 and 1994, per capita
income growth in the Association's market area was below that experienced in the
State of Louisiana and the nation as a whole. See "Business -- Market Area and
Competition." The Association anticipates that future expansion of its business
in its current market area will be limited.
INTEREST RATE RISK EXPOSURE; INVESTMENTS IN MORTGAGE-BACKED SECURITIES
The Association's profitability, like that of most financial institutions, is
dependent to a large extent upon its net interest income, which is the
difference between its interest income on interest-earning assets, such as loans
and investments, and its interest expense on interest-bearing liabilities, such
as deposits and borrowings. Like other savings associations, the Association's
earnings are affected by changes in market interest rates and other economic
factors beyond its control. Changes in the level of interest rates also affect
the amount of loans originated by the Association and, thus, the amount of loan
and commitment fees, as well as the market value of the Association's interest-
earning assets. Moreover, increases in interest rates also can result in
disintermediation, which is the flow of funds away from savings institutions
into direct investments, such as corporate securities and other investment
vehicles, which because of the absence of federal insurance premiums and reserve
requirements, may yield higher rates of return than savings institutions. To
better control the volatility of earnings the Association has sought to improve
the match between asset and liability maturities and rates by originating ARM
loans, limiting the maturity of its fixed rate loans to 15 years or less, and
originating consumer and other loans which are of shorter duration, and
typically have a higher yield, than mortgage loans.
Because the Association has had limited lending opportunities within its
market area, it has invested a significant percentage of its assets in mortgage-
backed securities. At March 31, 1996, $15.2 million, or 51.3% of its total
assets were invested in mortgage-backed securities. Mortgage-backed securities
typically earn lower yields than one- to four-family loans resulting in less
interest income and narrower interest rate spreads than could be obtained if
such assets were invested in one- to four-family loans. The Association has
primarily invested in adjustable rate mortgage-backed securities with scheduled
maturities of ten years or more. While such mortgage-backed securities typically
have higher yields than shorter term securities, longer term mortgage-backed
securities are more sensitive to changes in interest rates. At March 31, 1996,
$2.8 million of the Association's mortgage-backed securities were classified as
available for sale. The Association has attempted to increase its interest
income by increasing its origination of consumer and other loans. Consumer and
other loans increased to $2.2 million, or 19.6% of the Association's gross loan
portfolio at March 31,
18
1996 from $1.8 million, or 14.9% of the Association's gross loan portfolio at
December 31, 1994. See "-- Limited Lending Opportunities in Market Area."
The Association's primary source of funds consists of deposits. At March 31,
1996, total deposits were $27.3 million, and of this amount $16.3 million, or
59.9%, consisted of certificates of deposit with maturities of less than one
year. Certificates of deposit generally are costlier and a more volatile source
of funds than transaction accounts. In a rising interest rate environment,
certificates of deposit will reprice at a higher cost to the Association than
transaction accounts, and such certificates of deposit are more likely to be
invested in other investments than are transaction accounts. Notwithstanding the
foregoing, the Association believes that most of its certificates of deposit
accounts will remain at the Association upon maturity. The Association does not
accept brokered deposits.
LIMITED LENDING OPPORTUNITIES IN MARKET AREA
Due primarily to the economic factors discussed above, the Association has had
limited residential mortgage lending opportunities in its local market area. As
a result, the Association has not been able to originate loans in the volume
desired and consequently it has supplemented its investment in loans through the
purchase of mortgage-backed securities. At March 31, 1996, the Association's
loans receivable, net amounted to $11.3 million, or 38.2%, of total assets,
while the Association's investment in mortgage-backed securities totaled $15.2
million, or 51.3% of total assets. While mortgage-backed securities generally
increase the quality of the Association's assets by virtue of the guarantees
supporting them, and while lower overhead costs are associated with maintaining
a mortgage-backed securities portfolio as compared to a loan portfolio,
mortgage-backed securities typically earn lower yields than single-family,
residential mortgage loans. The Association's need to purchase mortgage-backed
securities due to the lack of lending opportunities has caused the
Association's interest rate spread to be below that of savings institutions
with more significant loan originations relative to their asset size.
At March 31, 1996, the Association's yield on its mortgage loans was 9.12%
compared to a yield of 6.40% on its mortgage-backed securities. The
Association has sought to improve its yield from mortgage-backed
securities by investing in mortgage-backed securities with maturities of
10 years or more. The Association will attempt to increase lending
opportunities by emphasizing commercial real estate and consumer lending;
however, because of the limited lending opportunities in its local market area,
the Association anticipates that the net proceeds of the Conversion initially
will be invested in short term and intermediate term securities and mortgage-
backed securities. Consequently, in the short term the Association will have
difficulty in improving its interest rate spread which could suppress earnings
and thus the return on equity to stockholders. See "Business -- Market Area and
Competition," "--Lending Activities" and "--Investment Activities."
POTENTIAL LOW RETURN ON EQUITY FOLLOWING CONVERSION
At December 31, 1995, the Association's ratio of equity to assets was 7.14%.
The Holding Company's equity position will be significantly increased as a
result of the Conversion. On a pro forma basis as of March 31, 1996, assuming
the sale of Common Stock at the midpoint of the Estimated Price Range, the
Holding Company's ratio of equity to assets would be 9.41%. The Holding
Company's ability to leverage this capital will be significantly affected by
industry competition for loans and deposits. The Holding Company currently
anticipates that it will take time to prudently deploy such capital. As a
result, the Holding Company's return on equity initially is expected to be below
the industry average after the Conversion, and no assurance can be given that
the Holding Company's return on equity will achieve the industry average level
at any time in the future.
DEPENDENCE ON KEY PERSONNEL
The Association depends to a considerable degree on a limited number of key
management personnel, and in particular, Charles L. Galligan, the Association's
chief executive officer, and the loss of such personnel could adversely affect
the Association. The Association and the Holding Company intend to enter into
employment agreements with the Chief Executive Officer and the other executive
officer of the Association. However, neither the Association nor the Holding
Company has obtained, or expects to obtain, "key man" life insurance policies
for its executive officers. See "Management."
19
TAKEOVER DEFENSIVE PROVISIONS
HOLDING COMPANY AND ASSOCIATION GOVERNING INSTRUMENTS. Certain provisions of
the Holding Company's Certificate of Incorporation and Bylaws assist the Holding
Company in maintaining its status as an independent publicly owned corporation.
These provisions provide for, among other things, limiting voting rights of
beneficial owners of more than 10% of the Common Stock, staggered terms for
directors, noncumulative voting for directors, limits on the calling of special
meetings, a fair price/supermajority vote requirement for certain business
combinations and certain notice requirements. The 10% vote limitation would not
affect the ability of an individual who is not the beneficial owner of more than
10% of the Common Stock to solicit revocable proxies in a public solicitation
for proxies for a particular meeting of stockholders and to vote such proxies.
In addition, provisions in the Association's federal stock Charter that have an
anti-takeover effect could also be applicable to changes in control of the
Holding Company as the sole shareholder of the Association. The Association's
Charter includes a provision applicable for five years which prohibits
acquisitions and offers to acquire, directly or indirectly, the beneficial
ownership of more than 10% of the Association's securities. Any person violating
this restriction may not vote the Association's securities in excess of 10%. Any
or all of these provisions may discourage potential proxy contests and other
takeover attempts, particularly those which have not been negotiated with the
Board of Directors. In addition, the Holding Company's Certificate of
Incorporation also authorizes preferred stock with terms to be established by
the Board of Directors which may rank prior to the Common Stock as to dividend
rights, liquidation preferences, or both, may have full or limited voting rights
and may have a dilutive effect on the ownership interests of holders of the
Common Stock. The Board of Directors of the Holding Company has the ability to
waive certain restrictions on acquisition, provided that the acquisition is
approved in advance by a majority of the disinterested Board of Directors. See
"Restrictions on Acquisitions of Stock and Related Takeover Defensive
Provisions."
REGULATORY AND STATUTORY PROVISIONS. Federal regulations prohibit, for a
period of three years following the completion of the Conversion, any person
from offering to acquire or acquiring the beneficial ownership of more than 10%
of the stock of a converted savings institution or its holding company without
prior OTS approval. Federal law also requires OTS approval prior to the
acquisition of "control" (as defined in OTS regulations) of an insured
institution, including a holding company thereof. See "Restrictions on
Acquisitions of Stock and Related Takeover Defensive Provisions."
EMPLOYMENT AGREEMENTS AND OTHER BENEFIT PLANS; VOTING CONTROL OF DIRECTORS AND
EXECUTIVE OFFICERS AND POSSIBLE DILUTIVE EFFECTS. The employment agreements, the
proposed Stock Option Plan and the proposed RRP also contain provisions that
could have the effect of discouraging takeover attempts of the Holding Company.
The Association intends to enter into an employment contract with Charles L.
Galligan, the Association's President and Chief Executive Officer and Betty Jean
Parker, Treasurer and Chief Financial Officer. These employment agreements
provide for payments equal to 299%, respectively, of each employee's base
compensation in the event that his or her employment is involuntarily terminated
as a result of a change in control of the Holding Company or the Association.
These provisions may have the effect of increasing the cost of, and thereby
discouraging, a future attempt to takeover the Holding Company or the
Association. See "Management - Employment Agreements."
Additionally, if the Holding Company issues additional shares pursuant to the
proposed Stock Option Plan and RRP (as opposed to funding such plans with shares
subsequently reacquired and held as treasury shares) the percentage of ownership
of the Holding Company of those persons purchasing Common Stock in the
Conversion will be diluted. Assuming exercise of all options available under the
Stock Option Plan, the interest of stockholders will be diluted by approximately
9.9%. The award of all shares available under the RRP will dilute the interests
of stockholders by approximately 3.8%. See "Pro Forma Data," "Management -
Benefit Plans - Stock Option and Incentive Plan," and "- Recognition and
Retention Plan" and "Restrictions on Acquisitions of Stock and Related Takeover
Defensive Provisions." For financial accounting purposes, grants under the
proposed RRP will result in the recording of compensation expense over the
period of vesting. See "Pro Forma Data."
20
The directors and executive officers of the Association are expected to
purchase an aggregate of approximately $525,000 or approximately 18.3% of the
shares offered in the Conversion at the maximum of the Estimate Valuation Range,
or 15.9% at 15% above the maximum of the Estimated Valuation Range, or 24.7% of
the shares offered in the Conversion at the minimum of the Estimated Valuation
Range. Directors and executive officers will also receive awards under the
proposed Stock Option Plan and the proposed RRP. Assuming the purchase of
$525,000 of Common Stock in the Conversion by directors and executive officers
in the aggregate (7 persons), the full vesting of the restricted stock to be
awarded under the proposed RRP and the exercise of all options to be awarded
under the proposed Stock Option Plan in connection with the Conversion, approval
of the Stock Option Plan and the RRP by the stockholders, and the repurchase by
the Holding Company of outstanding shares for purposes of funding such plans,
the shares owned by the directors and executive officers in the aggregate would
amount to approximately 29.9% (at 15% above the maximum of the Estimated
Valuation Range) and 38.7% (at the minimum of the Estimated Valuation Range) of
the outstanding shares. In addition, the ESOP is expected to purchase 8% of the
shares sold in the Conversion. This stock ownership, if voted as a block, could
defeat takeover attempts favored by other stockholders. See "Management -Benefit
Plans -Employee Stock Ownership Plan."
ESOP COMPENSATION EXPENSE
In November, 1993, the American Institute of Certified Public Accountants
("AICPA") Accounting Standards Executive Committee issued Statement of Position
93-6 Employers' Accounting for Employee Stock Ownership Plans ("SOP 93-6"). SOP
93-6 requires an employer to record compensation expense in an amount equal to
the fair value of shares committed to be released to employees from an employee
stock ownership plan. Assuming shares of Common Stock appreciate in value over
time, the adoption of SOP 93-6 will increase compensation expense relating to
the ESOP to be established in connection with the Conversion as compared with
prior guidance which required the recognition of compensation expense based on
the cost of shares acquired by the ESOP. It is impossible to determine at this
time the extent of such impact on future net income. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Impact of New Accounting Standards."
COMPETITION
The Association experiences strong competition in its local market area in
both originating loans and attracting deposits. This competition arises
principally from commercial banks, savings institutions and credit unions. See
"Business - Lending Activities" and "- Competition."
RISK OF DELAYED OFFERING
The Subscription Offering will expire at 12:00 noon, local time on September
__, 1996 unless extended by the Association and the Holding Company. If the
Offerings are extended beyond November __, 1996, all subscribers will have the
right to modify or rescind their subscriptions and to have their subscription
funds returned with interest. There can be no assurance that the Offerings will
not be extended as set forth above.
A material delay in the completion of the sale of all unsubscribed shares in
the Community or Syndicated Community Offering may result in a significant
increase in the costs in completing the Conversion. Significant changes in First
Federal's operations and financial condition, the aggregate market value of the
shares to be issued in the Conversion and general market conditions may occur
during such material delay. In the event the Conversion is not consummated
within 24 months after the date of the Special Meeting, OTS regulations would
require First Federal to charge deferred Conversion costs to then-current period
operations. See "The Conversion - Risk of Delayed Offering."
ABSENCE OF MARKET FOR THE COMMON STOCK
The Holding Company and the Association have never issued capital stock.
Consequently, there is no existing market for the Common Stock. The Holding
Company has requested that Trident undertake to match offers to buy and offers
to sell the Common Stock and that Trident list the Common Stock over-the-counter
through the National Daily Quotation System "Pink Sheets" published by the
National Quotation Bureau, Inc., and Trident has agreed to do so.
21
The development of a liquid public trading market depends upon the existence of
willing buyers and sellers, the presence of which is not within the control of
the Holding Company, the Association or any market maker. It is unlikely that an
active and liquid trading market for the Common Stock will develop due to the
relatively small size of the Offerings and the small number of stockholders
expected following the Conversion. Accordingly, purchasers should consider the
illiquid, long-term nature of an investment in the Common Stock. Furthermore,
there can be no assurance that purchasers will be able to sell their shares at
or above the Purchase Price. See "Market for Common Stock."
POSSIBLE CONSEQUENCES OF AMENDMENT TO PLAN OF CONVERSION
The Plan of Conversion provides that, if deemed necessary or desirable by the
Boards of Directors of the Association and the Holding Company, the Plan of
Conversion may be substantively amended (including an amendment to eliminate the
formation of the holding company as part of the Conversion) by a two-thirds vote
of the respective Boards of Directors of the Association and the Holding
Company, as a result of comments from regulatory authorities or otherwise, at
any time with the concurrence of the OTS. Moreover, if the Plan of Conversion is
amended, subscriptions which have been received prior to such amendment will not
be refunded unless otherwise required by the OTS. If the Plan of Conversion is
amended in a manner that is deemed to be material to the subscribers by the
Holding Company, the Association and the OTS, such subscriptions will be
resolicited. No such amendments are currently contemplated, although the
Association reserves the right to increase or decrease purchase limitations. See
"The Conversion - Approval, Interpretation, Amendment and Termination."
22
PRO FORMA REGULATORY CAPITAL
Set forth below is a summary of the Association's compliance with the
regulatory capital standards as of March 31, 1996, on an historical and a pro
forma basis assuming that the indicated number of shares were sold as of such
date.
Pro Forma Based Upon Sale of
----------------------------------------------------------------
212,500 Shares 250,000 Shares
(Minimum of Estimated (Midpoint of Estimated
Historical Valuation Range) Valuation Range)
------------------------ ----------------------------- ------------------------------
Amount Percent/(1)/ Amount/(2)/ Percent/(1)(2)/ Amount/(2)/ Percent/(1)(2)/
------- ------------ ----------- --------------- ----------- ---------------
Capital under generally (Dollars in Thousands)
accepted accounting
principles....................... $ 2,103 7.10% $ 2,736 9.00% $ 2,878 9.41%
======= ==== ======= ==== ======= ====
Tangible capital/(2)/.............. $ 2,114 7.14% $ 2,747 9.03% $ 2,889 9.44%
Tangible capital requirement/(5)/.. 444 1.50 456 1.50 459 1.50
------- ---- ------- ---- ------- ----
Excess........................... $ 1,670 5.64% $ 2,291 7.53% $ 2,430 7.94%
======= ==== ======= ==== ======= ====
Core capital/(2)/.................. $ 2,114 7.14% $ 2,747 9.03% $ 2,889 9.44%
Core capital requirement/(3)(5)/... 888 3.00 913 3.00 918 3.00
------- ---- ------- ---- ------- ----
Excess........................... $ 1,226 4.14% $ 1,834 6.03% $ 1,971 6.44%
======= ==== ======= ==== ======= ====
Risk-based capital/(2)(4)/......... $ 2,238 19.70% $ 2,871 24.91% $ 3,013 26.07%
Risk-based capital
requirement/(5)(6)/.............. 909 8.00 922 8.00 925 8.00
------- ----- ------- ----- ------- -----
Excess........................... $ 1,329 11.70% $ 1,949 16.91% $ 2,088 18.07%
======= ===== ======= ===== ======= =====
Pro Forma Based Upon Sale of
---------------------------------------------------------------
330,625 Shares
287,500 Shares (15% Above the
(Minimum of Estimated (Maximum of Estimated
Valuation Range) Valuation Range)
----------------------------- ------------------------------
Amount/(2)/ Percent/(1)(2)/ Amount/(2)/ Percent/(1)(2)/
----------- --------------- ----------- ---------------
Capital under generally
accepted accounting
principles....................... $ 3,021 9.82% $ 3,185 10.29%
======= ==== ======= =====
Tangible capital/(2)/.............. $ 3,032 9.86% $ 3,196 10.32%
Tangible capital requirement/(5)/.. 461 1.50 464 1.50
------- ---- ------- -----
Excess........................... $ 2,571 8.36% $ 2,732 8.82%
======= ==== ======= =====
Core capital/(2)/.................. $ 3,032 9.86% $ 3,196 10.32%
Core capital requirement/(3)(5)/... 923 3.00 929 3.00
------- ---- ------- -----
Excess........................... $ 2,109 6.86% $ 2,267 7.32%
======= ==== ======= =====
Risk-based capital/(2)(4)/......... $ 3,156 27.22% $ 3,320 28.54%
Risk-based capital
requirement/(5)(6)/.............. 927 8.00 931 8.00
------- ----- ------- -----
Excess........................... $ 2,229 19.22% $ 2,389 20.54%
======= ===== ======= =====
- ---------------------
/(1)/ Tangible and core capital levels are shown as a percentage of total
adjusted assets; risk-based capital levels are shown as a percentage of
risk-weighted assets.
/(2)/ Assumes retention by the Holding Company of 50% of the net Conversion
proceeds (less the amount of the loan made to the ESOP from the Holding
Company's portion of the net Conversion proceeds). The remaining 50% of
the net Conversion proceeds will be provided to the Association. For
regulatory capital purposes, the Association's capital will be reduced by
the anticipated purchases by the ESOP of 8% of the shares of Common Stock
sold in the Conversion and the proposed issuance of 4% of the shares of
Common Stock sold in the Conversion for the RRP. For purposes of
calculating regulatory capital, the valuation allowance applicable to the
write-down of investments and mortgage-backed securities in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 115 has been
excluded from capital. See Note 18 of Notes to Financial Statements.
/(3)/ In April 1991, the OTS proposed a core capital requirement for savings
associations comparable to the requirement for national banks that became
effective December 31, 1990. The proposal calls for an OTS core capital
requirement of at least 3% of total adjusted assets for thrifts that
receive the highest supervisory rating for safety and soundness, with a 4%
to 5% core capital requirement for all other thrifts. If adopted as
proposed, management would expect the Association to be subject to a 4% to
5% core capital requirement. See "Regulation -Regulatory Capital
Requirements."
/(4)/ Includes $143,000 of general valuation allowances, all of which qualifies
as supplementary capital. See "Regulation -Regulatory Capital
Requirements."
/(5)/ Assumes investment of net proceeds in U.S. Government agency securities
which have a 20% risk weight.
/(6)/ The OTS utilizes a net market value methodology to measure the interest
rate risk exposure of savings associations. Effective March 31, 1996,
institutions with more than normal interest rate risk, as defined by OTS
regulations, are required to make a deduction from capital equal to 50% of
its interest rate risk exposure multiplied by the present value of its
assets. Based upon this methodology, at March 31, 1996, the latest date
for which such information is available, the Association's interest rate
risk exposure to a 200 basis point increase in interest rates was
considered "normal" under this regulation. Further, since the Association
has assets of less than $300 million and a total risk-based capital ratio
in excess of 12%, it is exempt from this requirement unless the OTS
determines otherwise. See "Regulation - Regulatory Capital Requirements."
23
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF ALLEN PARISH
The Association is a federally chartered mutual savings and loan association
headquartered in Oakdale, Louisiana. First Federal was originally chartered in
1962. Its deposits are insured up to the maximum allowable amount by the Savings
Association Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation
(the "FDIC"). Through its office in Oakdale, First Federal serves communities
located in Allen Parish and in the surrounding parishes in the State of
Louisiana. At March 31, 1996, First Federal had total assets of $29.6 million,
deposits of $27.3 million and retained earnings of $2.1 million.
First Federal has been, and intends to continue to be, a community-oriented
financial institution offering selected financial services to meet the needs of
the communities it serves. The Association attracts deposits from the general
public and historically has used such deposits, together with other funds, to
originate loans secured by real estate, including one- to four-family
residential mortgage loans, commercial real estate loans, land loans,
construction loans and loans secured by other properties. At March 31, 1996,
86.1% of the Association's gross loan portfolio consisted of loans secured by
real estate. The Association also originates consumer and other loans consisting
primarily of loans secured by automobiles, manufactured homes, share loans and
lines of credit. At March 31, 1996, consumer and other loans constituted 19.6%
of the Association's gross loan portfolio. See "Business - Lending Activities."
In order to supplement its loan originations, the Association has invested a
significant portion of its assets in mortgage-backed securities, which are
insured or guaranteed by federal agencies, as well as other investments. At
March 31, 1996, the Association's mortgage-backed securities portfolio totaled
$15.2 million, or 51.3% of total assets. See "Business - Investment Activities."
The Association funds its lending and investment activities primarily from
deposits received, repayment of principal and interest on its loans and
mortgage-backed securities and borrowings from the FHLB. See "Business -
Sources of Funds."
First Federal's office is located at 222 South 10th Street, Oakdale, Louisiana
71463. Its telephone number at that address is (318) 335-2031.
FIRST ALLEN PARISH BANCORP, INC.
First Allen Parish Bancorp, Inc. was recently organized by First Federal for
the purpose of acquiring all of the outstanding capital stock of First Federal
to be issued in the Conversion. Immediately following the Conversion, the only
significant assets of the Holding Company will be the capital stock of the
Association, the note evidencing its loan to fund the Association's Employee
Stock Ownership Plan ("ESOP") and 50% of the net proceeds from the Conversion
(less the amount to fund the ESOP loan). Upon Conversion, the Holding Company
initially will be a unitary savings and loan holding company. See "Regulation -
Holding Company Regulation" and "Use of Proceeds." The business of the Holding
Company initially will consist only of the business of First Federal.
The initial activities of the Holding Company are anticipated to be funded by
such retained proceeds and the income thereon and dividends from First Federal,
if any. See "Dividends," "Use of Proceeds," "Regulation - Holding Company
Regulation" and "Regulation - Federal and State Taxation." Thereafter,
activities of the Holding Company may also be funded through sales of additional
securities, through borrowings and through income generated by other activities
of the Holding Company. At this time, there are no plans regarding any other
activities.
The executive office of the Holding Company is located at 222 South 10th
Street, Oakdale, Louisiana 71463. Its telephone number at that address is (318)
335-2031.
24
PARTICIPATION BY MANAGEMENT
The following table sets forth information regarding intended Common
Stock purchases by each of the directors, directors emeritus and executive
officers of the Association and the Holding Company and by all directors and
executive officers as a group. This table excludes shares to be purchased by
the ESOP or proposed Restricted Stock Awards under the proposed RRP or proposed
option grants pursuant to the proposed Stock Option Plan. See "Management -
Benefit Plans." The directors and executive officers of the Association have
indicated their intention to purchase in the Conversion an aggregate of $525,000
of Common Stock, equal to 24.7%, 21.0%, 18.3%, and 15.9% of the number of shares
to be issued in the Subscription and Community Offering, at the minimum,
midpoint, maximum and 15% above the maximum of the Estimated Valuation Range,
respectively. For information regarding the proposed Stock Option Plan and the
proposed RRP, see "Management - Benefit Plans."
AGGREGATE NUMBER PERCENT
PURCHASE OF AT
NAME TITLE PRICE SHARES MIDPOINT
- ----------------------------- -------------------------------------- --------- ------ ---------
Dr. James D. Sandefur Chairman of the Board $100,000 10,000 4.0%
Charles L. Galligan President, Chief Executive Officer 100,000 10,000 4.0
and Director
Jesse Boyd, Jr. Director 100,000 10,000 4.0
James E. Riley Director 50,000 5,000 2.0
J. C. Smith Director 100,000 10,000 4.0
Leslie A. Smith Director 50,000 5,000 2.0
Betty Jean Parker Treasurer and Chief Financial Officer 25,000 2,500 1.0
All directors and executive
officers as a group
(7 persons) $525,000 52,500 21.0%
======== ====== ====
25
PRO FORMA DATA
The following table sets forth the historical net income, retained earnings
and per share data of the Association at and for the three months ended March
31, 1996 and at and for the year ended December 31, 1995, and after giving
effect to the Conversion, the pro forma consolidated net income, stockholders'
equity and per share data of the Holding Company at and for the same periods.
The pro forma data is computed on the assumptions that (i) the specified number
of shares of Common Stock were sold at the beginning of the specified periods
and yielded net proceeds to the Holding Company as indicated and (ii) such net
proceeds were invested by the Association and the Holding Company at the
beginning of the periods to yield a return of 5.40% and 5.40% for the three
months ended March 31, 1996 and the year ended December 31, 1995, respectively.
The assumed return is based on the approximate yield on the one-year U.S.
Treasury bill at March 31, 1996. OTS regulations specify that for purposes of
determining pro forma data that an assumption of a yield representing the
arithmetic average of the average yield on the Association's interest-earning
assets and the average cost of deposits be used. The Association did not use
this assumption in calculating its pro forma data because management believes
that the rates shown more accurately reflect reinvestment rates than the
arithmetic average method. The assumed return has been adjusted for applicable
federal and state taxes totaling 36% of such assumed return. The table also
assumes that the proposed RRP awards equal to 4% of the shares sold in the
Conversion were purchased by the RRP at $10 per share in the open market and
fixed expenses (including $75,000 in fees to Trident) were $350,000. No effect
has been given to the stock reserved for issuance under the Stock Option Plan.
ACTUAL CONVERSION EXPENSES MAY BE MORE OR LESS THAN THOSE ESTIMATED BECAUSE FEES
PAID MAY VARY DEPENDING UPON WHETHER SELECTED BROKER-DEALERS ARE USED, MARKET
CONDITIONS AND OTHER FACTORS. THE PRO FORMA NET INCOME AMOUNTS DERIVED FROM THE
ASSUMPTIONS SET FORTH HEREIN SHOULD NOT BE CONSIDERED INDICATIVE OF THE ACTUAL
RESULTS OF OPERATIONS OF THE HOLDING COMPANY THAT WOULD HAVE BEEN ATTAINED FOR
ANY PERIOD IF THE CONVERSION HAD BEEN ACTUALLY CONSUMMATED AT THE BEGINNING OF
SUCH PERIOD, AND THE ASSUMPTIONS REGARDING INVESTMENT YIELDS SHOULD NOT BE
CONSIDERED INDICATIVE OF THE ACTUAL YIELDS EXPECTED TO BE ACHIEVED DURING ANY
FUTURE PERIOD.
The total number of shares to be issued in the Conversion may be increased or
decreased to reflect changes in market and financial conditions prior to the
close of the Subscription and Community Offering. However, if the aggregate
Purchase Price of the Common Stock actually sold in the Conversion is below
$2,125,000 or more than $3,306,250 (15% above the maximum of the Estimated
Valuation Range) subscribers will be offered the opportunity to modify or cancel
their subscriptions. See "The Conversion - Stock Pricing and Number of Shares to
be Issued."
26
At or For the Three Months Ended March 31, 1996
------------------------------------------------------
330,625
212,500 250,000 287,500 Shares
Shares Shares Shares at $10.00
at $10.00 at $10.00 at $10.00 per Share
per Share per Share per Share (Maximum, as
(Minimum) (Midpoint) (Maximum) Adjusted) (8)
---------- ---------- --------- -------------
(In thousands, except per share amount)
Gross proceeds...................................... $ 2,125 $ 2,500 $ 2,875 $ 3,306
Less offering expenses and commissions.............. (350) (350) (350) (350)
-------- -------- -------- --------
Estimated net Conversion proceeds.................. 1,775 2,150 2,525 2,956
Less Common Stock acquired by ESOP................. (170) (200) (230) (264)
Less Common Stock acquired by RRP.................. (85) (100) (115) (132)
-------- -------- -------- --------
Estimated proceeds available for investment (1).. $ 1,520 $ 1,850 $ 2,180 $ 2,560
======== ======== ======== ========
Net income:
Historical......................................... $ 50 $ 50 $ 50 $ 50
======== ======== ======== ========
Pro Forma adjustments:
Net income from proceeds (1)...................... 13 16 19 22
ESOP (2).......................................... (3) (3) (4) (4)
RRP (3)........................................... (3) (3) (4) (4)
-------- -------- -------- --------
Pro Forma....................................... $ 57 $ 61 $ 61 $ 64
======== ======== ======== ========
Per share (4):
Historical......................................... $ 0.25 $ 0.22 $ 0.19 $ 0.16
======== ========
Pro Forma adjustments:
Net income from proceeds (1)...................... 0.07 0.07 0.07 0.07
ESOP (2).......................................... (0.01) (0.01) (0.01) (0.01)
RRP (3)........................................... (0.01) (0.01) (0.01) (0.01)
-------- -------- -------- --------
Pro Forma....................................... $ 0.30 $ 0.27 $ 0.24 $ 0.21
======== ======== ======== ========
Stockholders' equity (book value): (9)
Historical......................................... $ 2,103 $ 2,103 $ 2,103 $ 2,103
Estimated net Conversion proceeds.................. 1,775 2,150 2,525 2,956
Less common stock acquired by:
ESOP (2).......................................... (170) (200) (230) (264)
RRP (3)........................................... (85) (100) (115) (132)
-------- -------- -------- --------
Pro Forma....................................... $ 3,623 $ 3,953 $ 4,283 $ 4,663
======== ======== ======== ========
Per Share:
Historical......................................... $ 9.90 $ 8.41 $ 7.31 $ 6.36
Estimated net Conversion proceeds.................. 8.35 8.60 8.78 8.94
Less common stock acquired by:
ESOP (2).......................................... (0.80) (0.80) (0.80) (0.80)
RRP (3)........................................... (0.40) (0.40) (0.40) (0.40)
-------- -------- -------- --------
Pro Forma (3)(5)(6)(10)......................... $ 17.05 $ 15.81 $ 14.89 $ 14.10
======== ======== ======== ========
Pro forma price to book value (7)................... 58.65% 63.24% 67.13% 70.91%
======== ======== ======== ========
Pro forma price to earnings (P/E ratio)............. 8.40x 9.57x 10.68x 11.86x
======== ======== ======== ========
Number of shares used in calculating
earnings per share (4)............................. 197,200 232,000 266,800 306,820
======== ======== ======== ========
Number of shares used in calculating
equity per share (7)............................... 212,500 250,000 287,500 330,625
======== ======== ======== ========
(footnotes on page 24)
27
At or For the Year Ended December 31, 1995
----------------------------------------------------
330,625
212,500 250,000 287,500 Shares
Shares Shares Shares at $10.00
at $10.00 at $10.00 at $10.00 per Share
per Share per Share per Share (Maximum, as
(Minimum) (Midpoint) (Maximum) Adjusted)(8)
---------- ---------- --------- -------------
(In thousands, except per share amount)
Gross proceeds...................................... $ 2,125 $ 2,500 $ 2,875 $ 3,306
Less offering expenses and commissions.............. (350) (350) (350) (350)
-------- -------- -------- --------
Estimated net Conversion proceeds.................. 1,775 2,150 2,525 2,956
Less Common Stock acquired by ESOP................. (170) (200) (230) (264)
Less Common Stock acquired by RRP.................. (85) (100) (115) (132)
-------- -------- -------- --------
Estimated proceeds available for investment (1).. $ 1,520 $ 1,850 $ 2,180 $ 2,560
======== ======== ======== ========
Net income:
Historical......................................... $ 290 $ 290 $ 290 $ 290
Pro Forma adjustments:
Net income from proceeds (1)...................... 53 64 75 88
ESOP (2).......................................... (11) (13) (15) (17)
RRP (3)........................................... (11) (13) (15) (17)
-------- -------- -------- --------
Pro Forma....................................... $ 321 $ 328 $ 335 $ 344
======== ======== ======== ========
Per share (4):
Historical......................................... $ 1.47 $ 1.25 $ 1.09 $ 0.95
Pro Forma adjustments:
Net income from proceeds (1)...................... 0.27 0.28 0.28 0.29
ESOP (2).......................................... (0.06) (0.06) (0.06) (0.06)
RRP (3)........................................... (0.06) (0.06) (0.06) (0.06)
-------- -------- -------- --------
Pro Forma....................................... $ 1.62 $ 1.41 $ 1.25 $ 1.12
======== ======== ======== ========
Stockholders' equity (book value): (4)
Historical......................................... $ 2,059 $ 2,059 $ 2,059 $ 2,059
Estimated net Conversion proceeds.................. 1,775 2,150 2,525 2,956
Less common stock acquired by:
ESOP (2).......................................... (170) (200) (230) (264)
RRP (3)........................................... (85) (100) (115) (132)
-------- -------- -------- --------
Pro Forma....................................... $ 3,579 $ 3,909 $ 4,239 $ 4,619
======== ======== ======== ========
Per Share:
Historical......................................... $ 9.69 $ 8.24 $ 7.16 $ 6.23
Estimated net Conversion proceeds.................. 8.35 8.60 8.78 8.94
Less common stock acquired by:
ESOP (2).......................................... (0.80) (0.80) (0.80) (0.80)
RRP (3)........................................... (0.40) (0.40) (0.40) (0.40)
-------- -------- -------- --------
Pro Forma (6)(10)............................... $ 16.84 $ 15.64 $ 14.74 $ 13.97
======== ======== ======== ========
Pro forma price to book value (7)................... 59.37% 63.95% 67.82% 71.59%
======== ======== ======== ========
Pro forma price to earnings (P/E ratio)............. 6.15x 7.07x 7.94x 8.90x
======== ======== ======== ========
Number of shares used in calculating
earnings per share (4)............................. 197,200 232,000 266,800 306,820
======== ======== ======== ========
Number of shares used in calculating
equity per share (7)............................... 212,500 250,000 287,500 330,625
======== ======== ======== ========
(footnotes on following page)
28
_____________________
/(1)/ Estimated proceeds available for investment consist of the estimated net
Conversion proceeds, minus (i) the proceeds attributable to the purchase
by the ESOP and (ii) the value of the shares to be purchased by the RRP,
subject to stockholder approval, after the Conversion at an assumed price
of $10.00 per share.
/(2)/ It is assumed that 8% of the Common Stock issued in the Conversion will
be purchased by the ESOP. For purposes of this table, the funds used to
acquire such shares are assumed to have been borrowed by the ESOP from
the Holding Company. The Association intends to make contributions to the
ESOP over a 10-year period in an amount at least equal to the principal
and interest requirement of the debt. The Association's payment of the
ESOP debt is based upon equal quarterly installments of principal over a
ten-year period plus interest. The pro forma net income assumes (i) that
the ESOP expense for the period is equivalent to the principal payment
for the period; (ii) that 1,700, 2,000, 2,300 and 2,645 shares were
committed to be released with respect to both the year ended December 31,
1995, and the period of three months ended March 31, 1996, at the
minimum, midpoint, maximum and 15% above the maximum of the Estimated
Valuation Range, respectively; and (iii) in accordance with Statement of
Position ("SOP") 93-6 entitled "Employers' Accounting for Employee Stock
Ownership Plans" of the American Institute of Certified Public
Accountants ("AICPA"), only the ESOP shares committed to be released
during the period were considered outstanding for purposes of the net
income per share calculations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Recent Accounting
Developments" and "Management-- Benefits--Employee Stock Ownership Plan."
/(3)/ The adjustment is based upon the assumed purchases by the RRP of 8,500,
10,000, 11,500 and 13,225 shares at the minimum, midpoint, maximum and
15% above the maximum of the Estimated Valuation Range, assuming that:
(i) stockholder approval of the RRP has been received prior to
implementation of the RRP, as required by the OTS; (ii) the shares were
acquired by the RRP at the beginning of the period in open market
purchases at the Purchase Price; and (iii) the amortized expense for the
year ended December 31, 1995 was 20% of the amount contributed and the
amortized expense for the period ended March 31, 1996 was 5% of the
amount contributed. If the RRP purchases authorized but unissued shares
instead of making open market purchases, the voting interests of existing
stockholders would be diluted by approximately 3.8% and (1) pro forma net
income per share for the year ended December 31, 1995 would be $1.57,
$1.37, $1.22 and $1.09; (2) pro forma net income per share for the period
ending March 31, 1996 would be $.29, $.25, $.23, and $.21; and (3) pro
forma stockholders' equity per share at March 31, 1996 would be $16.78,
$15.59, $14.71 and $13.94, in each case at the minimum, midpoint, maximum
and 15% above the maximum and 15% above the maximum of the Estimated
Valuation Range, respectively. See "Management--Benefits-- Recognition
and Retention Plan."
/(4)/ Net income per share computations are determined by taking the number of
shares assumed to be sold in the Conversion and, in accordance with SOP
93-6, subtracting the ESOP shares which have not been committed for
release during the respective period. See Note 2 above.
/(5)/ No effect has been given to the issuance of additional shares of Common
Stock pursuant to the Stock Option Plan. If the Stock Option Plan is
approved by stockholders, an amount equal to 10% of the Common Stock
issued in the Conversion, or 21,250, 25,000, 28,750 and 33,063 shares at
the minimum, midpoint, maximum and 15% above the maximum of the Estimated
Valuation Range, respectively, will be reserved for future issuance upon
the exercise of options to be granted under the Stock Option Plan. The
issuance of Common Stock pursuant to the exercise of options under such
plan will result in the dilution of existing stockholders' interests.
Assuming stockholder approval of the Stock Option Plan, that all the
options were exercised at the beginning of the period at an exercise
price of $10.00 per share, and that the Recognition Plan purchases shares
in the open market at the Purchase Price, (1) pro forma net income per
share for the year ended December 31, 1995 would be $1.50, $1.31, $1.17
and $1.05; (2) pro forma net income for the period ending March 31, 1996
would be $.28, $.24, $.22 and $.20; and (3) pro forma stockholders'
equity per share at March 31, 1996 would be $16.41, $15.28, $14.45 and
$13.73, in each case the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Valuation Range, respectively.
/(6)/ The retained earnings of the Association will be substantially restricted
after the Conversion. See "Dividend Policy" and "The Conversion--
Liquidation Rights. "
/(7)/ Based on the number of shares sold in the Conversion.
/(8)/ As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Valuation Range of up to
15% to reflect changes in market and financial conditions prior to
completion of the Conversion.
/(9)/ "Book value" represents the difference between the stated amounts of the
Association's assets and liabilities. The amounts shown do not reflect
the effect of the Liquidation Account to be established for the benefit
of Eligible Account Holders in the Conversion, or the federal income tax
consequences of the restoration to income of the Association's special
bad debt reserves for income tax purposes which would be required in the
unlikely event of liquidation. See "The Conversion--Effects of Conversion
to Stock Form on Depositors and Borrowers of the Association" and
"Regulation--Federal and State Taxation." The amounts shown for book
value do not represent fair market values or amounts distributable to
shareholders in the unlikely event of liquidation.
/(10)/ Does not represent possible future price appreciation.
29
CAPITALIZATION
The table below sets forth the capitalization, including deposits, of First
Federal as of March 31, 1996 and the pro forma capitalization of the Holding
Company at the minimum, the midpoint, maximum and 15% above the maximum of the
Estimated Valuation Range, after giving effect to the Conversion and based on
other assumptions set forth in the table and under the caption "Pro Forma Data."
Holding Company - Pro Forma Based
Upon Sale at $10.00 Per Share
--------------------------------------------------------------------------------------
Association 212,500 250,000 287,500 330,625
Historical Shares Shares Shares Shares
----------- ------- ------- ------- -------
(In Thousands)
Deposits(1)................................ $ 27,283 $ 27,283 $ 27,283 $ 27,283 $ 27,283
Borrowings................................. -- -- -- -- --
-------- -------- -------- -------- --------
Total deposits and borrowings............ $ 27,283 $ 27,283 $ 27,283 $ 27,283 $ 27,283
======== ======== ======== ======== ========
Capital stock:
Preferred Stock, $.01 par value per share:
authorized - 100,000 shares; assumed
outstanding - none....................... $ -- $ -- $ -- $ -- $ --
Common Stock, $.01 par value per share:
authorized - 900,000 shares; shares to
be outstanding - as shown(5)............ -- 2 3 3 3
Additional paid-in capital................. -- 1,773 2,147 2,522 2,593
Less common shares acquired by:
ESOP(3).................................... -- (170) (200) (230) (264)
RRP(4)..................................... -- (85) (100) (115) (132)
Retained earnings, substantially restricted
(2)..................................... 2,103 2,103 2,103 2,103 2,103
-------- -------- -------- -------- --------
Total stockholders' equity.............. $ 2,103 $ 3,623 $ 3,953 $ 4,283 $ 4,303
======== ======== ======== ======== ========
--------------------------------------
(1) No effect has been given to withdrawals from savings accounts for the
purpose of purchasing Common Stock in the Conversion. Any such
withdrawals will reduce pro forma deposits by the amount of such
withdrawals.
(2) See "Dividends" and "Regulation - Limitations on Dividends and Other
Capital Distributions" regarding restrictions on future dividend
payments and "The Conversion - Effects of Conversion to Stock Form on
Depositors and Borrowers of the Association" regarding the liquidation
account to be established upon Conversion. Does not take into account
Holding Company dividends, if any, which may be paid subsequent to the
Conversion. See "Dividends."
(3) Assumes that 8% of the shares issued in the Conversion will be acquired
by the ESOP and that the ESOP will be funded by the Holding Company. The
Association intends to make contributions to the ESOP sufficient to
service and ultimately retire its debt. Since the Holding Company will
finance the ESOP debt, the ESOP debt will be eliminated through
consolidation and no liability will be reflected on the Holding
Company's consolidated financial statements. Accordingly, the amount of
stock acquired by the ESOP is shown in this table as a reduction of
total stockholders' equity. See "Management - Benefit Plans - Employee
Stock Ownership Plan."
(4) While management does not currently intend to do so, following OTS and
stockholder approval, shares utilized to fund the RRP could be obtained
from newly issued shares. In the event RRP shares are obtained from
authorized but unissued shares, the existing ownership of current
stockholders would be diluted by approximately 3.8%. However, there
would be no impact on stockholders' equity.
(5) Does not reflect the shares of Common Stock that may be reserved for
issuance pursuant to the proposed Stock Option Plan and the proposed
RRP. See "Management -- Benefit Plans."
30
USE OF PROCEEDS
The net proceeds from the sale of Common Stock in the Conversion, based on the
minimum, midpoint, maximum and 15% above the maximum of the Estimated Valuation
Range, are estimated at $1,775,000, $2,150,000, $2,525,000 and $2,956,000,
respectively. See "Pro Forma Data." The Holding Company will retain up to 50% of
the net Conversion proceeds as its initial capitalization and will use the
balance of the net Conversion proceeds to purchase all of the common stock of
the Association to be issued upon Conversion. The Holding Company intends to
lend a portion of the net proceeds retained by it to the ESOP to facilitate its
purchase of 8% of the Common Stock in the Conversion. Based upon the issuance of
shares at the minimum and maximum of the Estimated Valuation Range, the loan to
the ESOP to purchase 8% of the Common Stock would be $170,010 and $230,000,
respectively. See "Management - Benefit Plans - Employee Stock Ownership Plan."
The remainder of the proceeds will be invested on an interim basis in short- and
intermediate-term securities and mortgage-backed securities. These funds would
be available for general corporate purposes which may include origination of
loans, expansion of operations through acquisitions of other financial service
organizations and diversification into other related or unrelated businesses, or
for investment purposes. See "Regulation - Holding Company Regulation" for a
discussion of OTS activity restrictions. Currently, there are no specific plans
being considered for the expansion of the business of the Holding Company. In
addition, the funds may be used to infuse additional capital to the Association
when and if appropriate.
The net proceeds retained by the Holding Company may also be used to support
the future expansion of operations or diversification into other banking-related
businesses and for other business or investment purposes, including possibly the
repurchase of the Holding Company's Common Stock as permitted by the OTS. Upon
completion of the Conversion, the Board of Directors will have the authority to
adopt stock repurchase plans, subject to statutory and regulatory requirements.
Since the Holding Company has not yet issued stock, there is currently
insufficient information upon which an intention to repurchase stock could be
based.
Based upon facts and circumstances which may arise following Conversion, the
Board of Directors may determine to repurchase stock in the future. Such facts
and circumstances may include but are not limited to: (i) market and economic
factors such as the price at which the stock is trading in the market, the
volume of trading, the attractiveness of other investment alternatives in terms
of the rate of return and risk involved in the investment, the ability to
increase the book value or earnings per share of the remaining outstanding
shares, and the effect on the Holding Company's return on equity; (ii) the
avoidance of dilution to stockholders by not having to issue additional shares
to cover the exercise of stock options or to fund employee stock benefit plans;
and (iii) any other circumstances in which repurchases would be in the best
interests of the Holding Company and its shareholders.
Any stock repurchases will be subject to the determination of the Board of
Directors that both the Holding Company and the Association will be capitalized
in excess of all applicable regulatory requirements after any such repurchases
and that capital will be adequate taking into account, among other things, the
level of non-performing assets and other loans of concern, the Holding Company's
and the Association's current and projected results of operations and
asset/liability structure, the economic environment and tax and other regulatory
considerations. Subject to certain exceptions, no repurchases may be implemented
within the first year following Conversion pursuant to OTS regulations. A stock
repurchase program may have the effect of: (i) reducing the overall market value
of the Holding Company, (ii) increasing the overall cost of capital and (iii)
promoting a temporary demand for Common Stock.
Should the Holding Company implement a restricted stock plan (i.e., the RRP)
following the Conversion, a portion of the net proceeds may be used to fund the
purchase by the plan of Common Stock in an amount up to 4% of the shares sold in
the Conversion. The actual cost of such purchase will depend on the number of
shares sold in the Conversion and the market price at the time of purchase.
Based upon the minimum and the maximum of the Estimated Valuation Range and on a
$10.00 per share purchase price, the cost would be approximately $85,000 and
$115,000, respectively.
31
The net proceeds from the sale of the Common Stock in the Conversion will
substantially increase the capital of First Federal. First Federal will use the
net proceeds for general corporate business purposes, such as lending and
investment activities in the ordinary course of business. On an interim basis,
the proceeds will be invested by the Association in short- and intermediate-term
securities. Notwithstanding the foregoing, the Holding Company and the
Association reserve the right to use the proceeds in any manner authorized by
law.
The actual net proceeds may be more or less than the estimated net proceeds
calculated as shown under "Pro Forma Data," above. Additionally, the actual
expenses may be more or less than those estimated. See "The Conversion - Stock
Pricing and Number of Shares to be Issued."
DIVIDENDS
Subject to regulatory and other considerations, the Holding Company intends to
establish a dividend policy at an initial rate of $.30 per share per annum (or
3.0% based upon the initial public offering price of $10 per share) payable
semi-annually in December and June of each year. In addition, the Holding
Company may determine from time to time to pay a special nonrecurring cash
dividend. The payment of dividends will be subject to determination and
declaration by the Board of Directors in its discretion, which will take into
account the Holding Company's consolidated financial condition and results of
operations, tax considerations, industry standards, economic conditions,
regulatory restrictions, general business practices and other factors.
Therefore, no assurances can be made as to the future ability of the Holding
Company to pay dividends. Delaware law generally limits dividends of the Holding
Company to an amount equal to the excess of its net assets (the amount by which
total assets exceeds total liabilities) over its paid-in capital or, if there is
no excess, to its net profits for the current and immediately preceding fiscal
year.
It is presently anticipated that the Holding Company will not conduct
significant operations independent of those of the Association for some time
following the Conversion. As such, the Holding Company does not expect to have
any significant source of income other than earnings on the net Conversion
proceeds retained by the Holding Company and dividends from First Federal, if
any. Consequently, the ability of the Holding Company to pay cash dividends to
its stockholders will be dependent upon such retained proceeds and earnings
thereon, and upon the ability of the Association to pay dividends to the Holding
Company. Management believes that, upon completion of the Conversion, the
Association will qualify as a Tier 1 institution, and thereby be entitled to
make capital distributions without OTS approval in an amount not exceeding 100%
of its net income year-to-date plus 50% of the Association's capital surplus, as
measured at the beginning of the calendar year. See "Regulation - Regulatory
Capital Requirements" and "- Limitations on Dividends and Other Capital
Distributions." Assuming only the minimum number of shares are sold in the
Conversion, the purchase of the Association's stock by the Holding Company in
exchange for substantially all the net proceeds from the Conversion (less 50% to
be retained by the Holding Company) and the investment of such proceeds in 20%
risk-weighted assets, on a pro forma basis as of March 31, 1996, the Association
would have had risk-based capital of $1.9 million above its risk-based capital
requirement. The 50% of net proceeds retained by the Holding Company would be
immediately available for the payment of dividends. See "Regulation - Regulatory
Capital Requirements" and "- Limitations on Dividends and Other Capital
Distributions." Earnings appropriated to the Association's "excess" bad debt
reserves and deducted for federal income tax purposes cannot be used by the
Association to pay cash dividends to the Holding Company without adverse tax
consequences. See "Regulation - Federal and State Taxation."
MARKET FOR COMMON STOCK
The Holding Company and the Association have never issued capital stock.
Consequently, there is no established market for the Common Stock at this time.
The Holding Company has requested that Trident undertake to match offers to buy
and offers to sell the Common Stock, and that Trident list the Common Stock
over-the-counter through the National Daily Quotation System "Pink Sheets"
published by the National Quotation Bureau, Inc. and Trident has agreed to do
so. The development of a liquid public trading market depends upon the existence
of willing buyers and sellers, the presence of which is not within the control
of the Holding Company, the Association or any market maker. It is unlikely that
an active and liquid trading market for the Common Stock will develop due to the
relatively small size of the Offerings and the small number of stockholders
expected following the Conversion. Under such circumstances, investors in the
Common Stock could have difficulty disposing of their shares on short notice and
should not view the Common Stock as a short-term investment. Accordingly,
purchasers should consider the illiquid, long-term nature of an investment in
the Common Stock. Furthermore, there can be no assurance that purchasers will be
able to sell their shares at or above the Purchase Price.
32
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF ALLEN PARISH
STATEMENTS OF INCOME
The following Statements of Income of the Association for each of the
fiscal years in the two fiscal year period ended December 31, 1995 have been
audited by Darnall, Sikes, Kolder, Frederick & Rainey, independent certified
public accountants, whose report thereon appears elsewhere herein. The
Statements of Income for the three months ended March 31, 1996 and 1995 are
unaudited and have been prepared in accordance with the requirements for a
presentation of interim financial statements and are in accordance with
generally accepted accounting principles. In the opinion of Management, all
adjustments, consisting of normal recurring adjustments, that are necessary for
a fair presentation of the interim periods, have been reflected. The results of
operations at and for the three months ended March 31, 1996 are not necessarily
indicative of results that might be expected for a full fiscal year. These
Statements should be read in conjunction with the Financial Statements of the
Association and Notes thereto included elsewhere in this Prospectus.
Three months ended Years ended
March 31, December 31,
---------------------- ----------------------
1996 1995 1995 1994
--------- --------- ---------- ---------
Interest Income:
Loans receivable --
First mortgage loans.......................... $212,654 $216,105 $ 864,381 $ 869,793
Consumer and other loans...................... 47,408 41,792 182,072 167,872
Mortgage-backed and related securities......... 242,681 180,401 858,903 679,981
Other interest earning assets.................. 20,979 21,155 99,246 38,976
-------- -------- ---------- ---------
Total interest income......................... 523,722 459,453 2,004,602 1,756,622
Interest expense:
Deposits....................................... 297,002 226,437 1,074,698 788,088
Borrowed funds................................. 0 2,587 3,158 15,660
-------- -------- ---------- -------
Total interest expense........................ 297,002 229,024 1,077,856 803,748
-------- -------- ---------- -------
Net interest income............................. 226,720 230,429 926,746 952,874
Provision (recovery) for loan losses............ (9,461) (7,879) (21,020) 2,332
-------- -------- --------- --------
Net interest income after provision (recovery)
for loan losses................................ 236,181 238,308 947,766 950,542
-------- -------- --------- --------
Non-interest income:
Service charges on deposits.................... 42,280 43,014 191,862 147,731
Insurance commissions earned................... 885 771 5,549 10,704
Loan origination and servicing fees............ 6,135 7,315 21,473 28,527
Net other real estate expense.................. (56) 258 (717) (10,422)
Gain (loss) on foreclosed real estate.......... 86 1,252 6,467 (1,986)
Other operating revenues....................... 4,482 1,291 16,759 6,561
-------- -------- --------- --------
Total non-interest income..................... 53,812 53,901 241,393 181,115
-------- -------- --------- --------
Non-interest expense:
Compensation and employee benefits............. 97,134 84,456 369,033 356,767
Occupancy and equipment expenses............... 14,764 11,986 53,474 53,033
SAIF deposit insurance premiums................ 15,433 13,852 58,217 61,671
Stationery and printing........................ 14,208 9,595 38,902 38,446
Data processing................................ 14,810 15,839 60,191 59,673
Other expenses................................. 55,453 51,865 168,303 182,739
-------- -------- --------- --------
Total non-interest expense.................... 211,802 187,593 748,120 752,329
-------- -------- --------- --------
Income before income taxes.................... 78,191 104,616 441,039 379,328
Income tax expense.............................. 27,613 37,371 150,543 137,450
-------- -------- --------- --------
Net income..................................... 50,578 67,245 290,496 241,878
======== ======== ========= ========
33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Holding Company has been formed in connection with the Conversion and,
accordingly has no results of operations. The Association is primarily engaged
in the business of accepting deposit accounts from the general public and using
these funds to originate mortgage loans for the purchase, refinancing or
construction of single-family residences located in Allen Parish in central
Louisiana, and for the purchase of investment and mortgage-backed securities.
The Association also originates commercial real estate loans, multi-family
loans, agricultural loans, automobile loans, home equity loans, loans secured by
deposits and other loans. This lending focus, along with the adherence to
underwriting standards, is designed to reduce the risk of loss on the
Association's loan portfolio. However, the lack of diversification in its loan
portfolio structure does increase the Association's portfolio concentration risk
by making the value of the portfolio more susceptible to declines in real estate
market values in its market area. This risk has been mitigated in recent years
through the acquisition of government guaranteed mortgage-backed securities.
The earnings of the Association depend primarily on its level of net interest
income, which is the difference between interest income and interest expense.
The Association's net interest income is a function of its interest rate spread,
which is determined by the difference between rates of interest earned on
interest-earning assets, and rates of interest paid on interest-bearing
liabilities. The relative amounts of interest-earning assets and interest-
bearing liabilities also affect the Association's net interest income. The
Association's net income is also affected by its provision for loan losses, as
well as the amount of non-interest income and non-interest expense, such as
compensation and related expenses, deposit insurance premiums, data processing,
occupancy and equipment costs, and income taxes.
For information regarding certain regulatory developments and proposals that
would have an impact on the Association, see "Risk Factors--Recapitalization of
SAIF, its Impact on SAIF Premiums and Possible One-Time Recapitalization Fee"
and "--Pending Legislation Regarding Bad Debt Reserves."
FINANCIAL CONDITION
Total Assets. Total assets increased $747,000, or 2.6% to $29.6 million at
March 31, 1996 from $28.9 million at December 31, 1995. The increase in total
assets reflects a $863,000 increase in cash and cash equivalents, and a $75,000
increase in loans receivable net, partially offset by a $196,000 decrease in
mortgage-backed securities.
Total assets increased $2.0 million, or 7.2% to $28.9 million at December 31,
1995 from $26.9 million at December 31, 1994. The increase in total assets was
attributable to a $2.1 million increase in mortgage-backed securities. The
Association purchased $4.3 million of mortgage-backed securities in 1995,
whereas repayments during that year totaled $2.1 million. Cash and cash
equivalents amounted to $1.4 million at December 31, 1995 and December 31, 1994.
Loans receivable, net decreased to $11.2 million at December 31, 1995 from $11.5
million at December 31, 1994, reflecting a decrease in real estate loans and an
increase in consumer and other loans.
Liabilities. Deposits increased $700,000 or 2.6% to $27.3 million at March 31,
1996 from $26.6 million at December 31, 1995. Management believes the increase
in deposits is a result of the Association's status as the only locally-based
depository institution in its primary market area.
Interest-bearing liabilities increased $1.6 million, or 6.4% to $26.6 million
at December 31, 1995 from $25.0 million at December 31, 1994. Liabilities at
December 31, 1994 included $24.5 million in deposits and $500,000 in FHLB
advances. The FHLB advances were repaid during fiscal 1995.
Retained Earnings. Retained earnings totaled $2.1 million, $2.1 million and
$1.7 million at March 31, 1996, December 31, 1995 and December 31, 1994,
respectively. The increases in retained earnings was attributable to net income
of $50,000 for the three months ended March 31, 1996, and $290,000 for the year
ended December 31, 1995, in addition to the changes in the unrealized losses on
securities available for sale.
34
NET INTEREST INCOME ANALYSIS. The following table sets forth certain
information relating to the Association's average balance sheet and reflects the
average yield on assets and average cost of liabilities for the periods
indicated. Such yields and costs are derived by dividing income or expense by
the average balance of assets or liabilities, respectively, for the periods
presented. All average balances are daily average balances.
Three Months Ended March 31,
-----------------------------------------------------------
At March 31, 1996 1996 1995
----------------- --------------------------- -----------------------------
Average Average
Actual Yield/ Average Yield/ Average Yield/
Balance Cost Balance Interest Cost Balance Interest Cost
------- ------ -------- -------- ------ ------- -------- ------
Interest-earning assets:
Mortgage loans(1)..................... $ 9,344 9.12% $ 9,189 $ 213 9.27% $ 9,734 $ 216 8.88%
Consumer and other loans(1)........... 1,962 9.58 1,929 47 9.75 1,827 42 9.20
Mortgage-backed securities............ 15,195 6.40 15,237 243 6.38 13,385 180 5.38
FHLB stock............................ 259 6.18 256 4 6.25 248 4 6.45
Interest-bearing deposits............. 1,789 3.80 1,755 17 3.87 1,922 17 3.54
-------- ----- -------- -------- ----- -------- ------- -----
Total interest-earning assets............. 28,549 7.34 28,366 524 7.39 27,116 459 6.77
Non-interest-earning assets............... 1,056 -- 1,025 -- -- 878 -- --
-------- ----- -------- -------- ----- -------- ------- -----
Total assets............................ $ 29,605 7.08% $ 29,391 $ 524 7.13% $ 27,994 $ 459 6.56%
======== ===== ======== ======== ===== ======== ======= =====
Interest-bearing liabilities:
Passbook accounts....................... 3,092 2.20 3,098 17 2.19 3,417 18 2.11
Money market............................ 939 1.70 910 4 1.76 1,408 7 1.99
NOW accounts............................ 3,208 2.12 3,099 17 2.19 2,709 15 2.21
Certificate accounts.................... 19,625 5.28 19,558 259 5.30 18,126 186 4.10
FHLB advances........................... -- -- -- -- -- 53 3 5.66
-------- ----- -------- -------- ----- -------- ------- -----
Total interest-bearing liabilities..... 26,864 4.42 26,665 297 4.46 25,713 229 3.56
Non-interest bearing-liabilities.......... 638 -- 579 -- -- 509 -- --
-------- ----- -------- -------- ----- -------- ------- -----
Total liabilities....................... 27,502 4.32 27,244 297 4.36 26,222 229 3.49
Retained earnings......................... 2,114 -- 2,171 -- -- 1,085 -- --
Unrealized loss on mortgage-backed
and related securities held available-
for-sale................................. (11) -- (24) -- -- (33) -- --
-------- ----- -------- -------- ----- -------- ------- -----
Total liabilities and retained
earnings.............................. $ 29,605 4.01% $ 29,391 $ 297 4.04% $ 27,994 $ 229 3.27%
======== ===== ======== ======== ===== ======== ======= =====
Net interest income....................... $ 227 $ 230
======== =======
Net interest rate spread(2)............... 2.93% 3.21%
===== =====
Net interest margin(2).................... 3.20% 3.40%
===== =====
Ratio of average interest-earning assets
to average interest-bearing liabilities.. 106.38% 105.32%
======== =======
Years Ended December 31,
-----------------------------------------------------------
1995 1994
--------------------------- -----------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
-------- -------- ------ ------- -------- -------
Interest-earning assets:
Mortgage loans(1)..................... $ 9,290 $ 864 9.30% $ 9,768 $ 870 8.91%
Consumer and other loans(1)........... 1,911 182 9.52 1,653 168 10.16
Mortgage-backed securities............ 15,258 859 5.63 13,364 680 5.09
FHLB stock............................ 256 16 6.25 244 11 4.51
Interest-bearing deposits............. 1,282 83 6.47 874 28 3.20
-------- -------- ----- -------- ------- -----
Total interest-earning assets............. 27,997 2,004 7.16 25,903 1,757 6.78
Non-interest-earning assets............... 1,016 -- -- 896 -- --
-------- -------- ----- -------- ------- -----
Total assets............................ $ 29,013 $ 2,004 6.91% $ 26,799 $ 1,757 6.56%
======== ======== ===== ======== ======= =====
Interest-bearing liabilities:
Passbook accounts....................... 2,952 68 2.30 3,460 73 2.11
Money market............................ 1,029 21 2.04 938 27 2.88
NOW accounts............................ 3,044 70 2.30 3,180 70 2.20
Certificate accounts.................... 19,178 916 4.78 16,473 618 3.75
FHLB advances........................... 62 3 4.84 316 16 5.06
-------- -------- ----- -------- ------- -----
Total interest-bearing liabilities..... 26,265 1,078 4.10 24,367 804 3.30
Non-interest-bearing liabilities.......... 673 -- -- 724 -- --
-------- -------- ----- -------- ------- -----
Total liabilities....................... 26,938 1,078 4.00 25,091 804 3.20
Retained earnings......................... 2,129 -- -- 1,760 -- --
Unrealized loss on mortgage-backed
and related securities held available-
for-sale................................. (54) -- -- (52) -- --
-------- -------- ----- -------- ------- -----
Total liabilities and retained
earnings.............................. $ 29,013 $ 1,078 3.72% $ 26,799 $ 804 3.00%
======== ======== ===== ======== ======= =====
Net interest income....................... $ 926 $ 953
======== =======
Net interest rate spread(2)............... 3.05% 3.48%
===== =====
Net interest margin(2).................... 3.31% 3.68%
===== =====
Ratio of average interest-earning assets
to average interest-bearing liabilities.. 106.59% 106.30%
======== =======
(1) Average balances include non-accrual loans.
(2) Net interest rate spread represents the difference between the average
yield on interest-earning assets and the average rate on interest-bearing
liabilities.
(3) Net yield on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
35
RATE/VOLUME ANALYSIS
The table below sets forth certain information regarding changes in interest
income and interest expense of the Association for the periods indicated. For
each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume
(changes in volume multiplied by old rate); (ii) changes in rate (change in rate
multiplied by old volume); (iii) changes in rate-volume; and (iv) the net
change.
Three Months Ended March 31, Years Ended December 31,
------------------------------------------- -------------------------------------
1996 vs. 1995 1995 vs. 1994
------------------------------------------- -------------------------------------
Increase/(Decrease) Increase/(Decrease)
Due to Due to
------------------------------- Total ------------------ Total
Rate/ Increase Rate/ Increase
Volume Rate Volume (Decrease) Volume Rate Volume (Decrease)
------ ------- --------- ---------- ------- ---- ------- ----------
(In Thousands)
Interest-earning assets:
Mortgage loans........................ $ (12) $ 10 $ (1) $ (3) $ (43) $ 38 $ (1) $ (6)
Consumer and other loans.............. 2 3 -- 5 26 (10) (2) 14
Mortgage-backed securities............ 25 33 5 63 96 72 11 179
FHLB stock............................ -- -- -- -- 1 4 -- 5
Other................................. (1) 1 -- -- 13 29 13 55
------ ----- ----- --------- ------- ---- ----- ---------
Total interest-earning assets....... 14 47 4 65 93 133 21 247
------ ----- ----- --------- ------- ---- ----- ---------
Interest-bearing liabilities:
Passbook accounts..................... $ (2) $ 1 -- (1) (11) 7 (1) (5)
Money Market.......................... (2) (1) -- (3) 3 (8) (1) (6)
NOW accounts.......................... 2 ----- -- 2 (3) 3 -- --
Certificate accounts.................. 15 54 4 73 101 169 28 298
Federal Home Loan Bank advances....... (3) ----- -- (3) (13) (1) 1 (13)
------ ----- ----- --------- ------- ---- ----- ---------
Total interest-bearing liabilities.. 10 54 4 68 77 170 27 274
------ ----- ----- --------- ------- ---- ----- ---------
Net change in interest income.......... $ 4 $ (7) $ -- $ (3) $ 16 $(37) $ (6) $ (27)
====== ===== ===== ========= ======= ==== ===== =========
36
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND
1995
General. Net income decreased $17,000 or 25.0%, to $50,000 for the three
months ended March 31, 1996 from $67,000 for the three months ended March 31,
1995. This decrease was the result of an increase in noninterest expense of
$24,000 partially offset by a decrease in estimated income tax expense of
$9,000.
Interest Income. Total interest income increased $65,000, or 14.0% to $524,000
for the three months ended March 31, 1996 from $459,000 for the three months
ended March 31, 1995. This increase was primarily the result of increases in the
average yield earned on and the average balance of mortgage-backed securities
from 1994 to 1995. Interest income for mortgage-backed securities increased
$63,000 or 34.5% to $243,000 for the three months ended March 31, 1996 from
$180,000 for the three months ended March 31, 1995. The Association's average
interest-earning assets increased to $28.4 million for the three months ended
March 31, 1996 from $27.1 million for the three months ended March 31, 1995. The
average yield on interest earning assets also increased to 7.39% from 6.77% for
the same periods. The higher yield was primarily due to an increase in market
interest rates for all types of interest-earning assets. Within the
Association's interest-earning assets, interest income on mortgage loans
decreased to $213,000 for the three months ended March 31, 1996 from $216,000
for the three months ended March 31, 1995. The average balance of mortgage loans
decreased marginally to $9.2 million from $9.7 million while the average yield
on mortgage loans increased to 9.27% from 8.88%. Interest income from consumer
and other loans increased to $47,000 from $42,000, resulting from an increase in
the average balance of such loans to $1.9 million from $1.8 million and an
increase in the average yield to 9.75% from 9.20%
Interest Expense. Total interest expense increased $68,000 or 29.7%, to
$297,000 for the three months ended March 31, 1996 from $229,000 for the three
months ended March 31, 1995. This increase was primarily due to an increase in
market interest rates paid on deposits and the relatively rapid repricing of the
Association's deposits, particularly short term certificates of deposit. The
Association's average cost for deposits increased to 4.46% for the three months
ended March 31, 1996 from 3.56% for the three months ended March 31, 1995.
The Association's interest spread decreased from 3.21% for the three months
ended March 31, 1995 to 2.93% for the three months ended March 31, 1996. The
Association's net interest margin decreased from 3.40% to 3.20% during such
periods. These decreases were the result of the Association's interest-bearing
liabilities repricing at a faster rate than interest-earning assets reflecting
both the interest rate environment and a customer preference for higher rate
certificates of deposit. The Association is attempting to increase its interest
rate spread and overall profitability by increasing its origination of
commercial real estate and consumer and other loans and purchasing mortgage-
backed securities with maturities exceeding 10 years. See "Recent Financial
Data."
Provision for Losses on Loans. The Association maintains an allowance for loan
losses based upon management's periodic evaluation of known and inherent risks
in the loan portfolio, the Association's past loss experience, adverse
situations that may affect the borrower's ability to repay loans, estimated
value of the underlying collateral and current and expected market conditions.
The allowance for loan losses was $309,000 at March 31, 1996 and $335,000 at
March 31, 1995. The provision for losses on loans is the method by which the
allowance for losses is adjusted during the period. The Association did not
establish a provision for loan losses for the three months ended March 31, 1996
and 1995, since during these periods the Association experienced recoveries on
loans for which reserves had previously been established. The recovery of $9,000
for the three months ended March 31, 1996 was primarily due to the payment of a
mortgage loan for which a provision had been made in prior periods. The recovery
of $8,000 for the three months ended March 31, 1995 was primarily due to
recoveries on consumer loans for which reserves had previously been established.
Management's focus on asset quality since 1991 has resulted in an increased
allowance for loan losses to net loans receivable to 2.74% at March 31, 1996
from 1.88% at December 1991. The ratio of non-performing loans to total loans
has also declined to .67% at March 31, 1996 from 3.92% at December 31, 1991.
Because of the improvement in asset quality and increased coverage of the
allowance for loan losses to total loans, management believes its allowance for
loan losses is at a level that is considered to be adequate to provide for
estimated losses; however, there can be no assurance that further additions will
not be made to the loss allowance and that such losses will not exceed the
estimated amount.
37
Non-Interest Income. Non-interest income remained constant at $53,000 for the
comparative periods ended March 31.
Non-Interest Expense. Non-interest expense increased $24,000, or 12.9% to
$211,000 for the three months ended March 31, 1996 from $187,000 for the three
months ended March 31, 1995. Compensation and employee benefits increased
$13,000, or 15.0% to $97,000 for the three months ended March 31, 1996 from
$84,000 for the three months ended March 31, 1995. This increase was primarily
due to employee salary increases and related benefits. Occupancy and equipment
expenses increased $4,000, or 36.4% to $15,000 for the three months ended March
31, 1996 from $11,000 for the three months ended March 31, 1995. Stationery and
printing expenses increased $4,000, or 40.0% to $14,000 for the three months
ended March 31, 1996 from $10,000 for the three months ended March 31, 1995.
Other expenses increased $3,000, or 5.8% to $55,000 for the three months ended
March 31, 1996 from $52,000 for the three months ended March 31, 1995. This
increase was primarily due to an increase in bank charges to the Association for
processing transaction accounts. Compensation and employee benefit expenses are
expected to increase after the conversion due to the proposed establishment of
the ESOP. Other non-interest expense is also expected to increase due to
additional expenses associated with being a public company.
Income Tax Expense. Income tax expense decreased $9,000 or 24.3% to $28,000
for the three months ended March 31, 1996 from $37,000 for the three months
ended March 31, 1995, due to a decrease in pretax income.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
General. Net income increased $48,000, or 19.8% to $290,000 for the year ended
December 31, 1995 from $242,000 for the year ended December 31, 1994. This
increase was primarily the result of the increase in service charges on deposits
in non-interest income.
Interest Income. Total interest income increased $247,000 or 14.1% to $2.0
million for the year ended December 31, 1995 from $1.8 million for the year
ended December 31, 1994. This increase was primarily the result of the increase
in the average yield earned and the average balance of mortgage-backed
securities from 1994 to 1995. Interest income from mortgage-backed securities
increased $179,000, or 26.3%, to $859,000 for the year ended December 31, 1995
from $680,000 for the year ended December 31, 1994. Interest income for other
interest-earning assets increased $60,000, or 153.8% to $99,000 for the year
ended December 31, 1995 from $39,000 for the year ended December 31, 1994.
Average interest earning deposits with the FHLB increased $408,000 from 1994 to
1995 and the average yield on such deposits increased to 6.47% from 3.20%
resulting in the increase in interest income in other interest earning assets.
The Association's average interest-earning assets increased to $28.0 million for
the year ended December 31, 1995 from $25.9 million for the year ended December
31, 1994. The average yield on these assets also increased to 7.16% from 6.78%
for the same periods. The higher yield is primarily due to an increase in market
interest rates for all types of interest-earning assets.
Interest Expense. Total interest expense increased $274,000, or 34.1% to $1.1
million for the year ended December 31, 1995 from $804,000 for the year ended
December 31, 1994. This increase was primarily due to an increase in market
interest rates paid on deposits and the relatively rapid repricing of deposits
particularly short-term certificates of deposit. The Association's average cost
for funds increased to 4.10% for the year ended December 31, 1995 from 3.30% for
the year ended December 31, 1994.
The Association's interest spread decreased from 3.48% for the year ended
December 31, 1994 to 3.05% for the year ended December 31, 1995. The
Association's net interest margin decreased from 3.68% to 3.31% during such
periods. These decreases were the result of the Association's interest-bearing
liabilities repricing at a faster rate than interest-earning assets.
Provision for Losses on Loans. The provision for losses on loans decreased
$23,000 to a recovery of $21,000 for the year ended December 31, 1995 from a
provision for loan losses of $2,000 for the year ended December 31, 1994.
Management's focus on asset quality since 1991 has resulted in an increased
allowance for loan losses to net loans receivable to 2.83% at December 31, 1995
from 1.88% in December 1991. The ratio of non-performing loans to total
38
loans has also declined to 1.43% at December 31, 1995 from 3.92% at December 31,
1991. Because of the improvements in asset quality and the increased coverage of
the allowance for loan losses to total loans, management elected to reduce the
loan loss reserve in 1995, thus resulting in recovery from loan losses on the
statement of income. While the Association maintains its allowance for loan
losses at a level that it considers to be adequate to provide for estimated
losses, there can be no assurance that further additions will not be made to the
loss allowance and that such losses will not exceed the estimated amounts.
Non-Interest Income. Non-interest income increased $60,000 or 33.3% to
$241,000 for the year ended December 31, 1995 from $181,000 for the year ended
December 31, 1994. This increase was primarily the result of an increase in
service charges.
Non-Interest Expense. Non-interest expense decreased $6,000 or .80%, to
$747,000 for the year ended December 31, 1995 from $753,000 for the year ended
December 31, 1994. An increase in compensation and employee benefits of $12,000
to $369,000 for the year ended December 31, 1995 from $357,000 for the year
ended December 31, 1994 was offset by a decrease in other expenses relating
primarily to a reduction in professional fees.
Income Tax Expense. Income tax expense increased $14,000 or 10.2% to $151,000
for the year ended December 31, 1995 from $137,000 for the year ended December
31, 1994. This increase was primarily due to an increase in pretax income.
ASSET/LIABILITY MANAGEMENT
The ability to maximize net interest income is largely dependent upon
achieving a positive interest rate spread that can be sustained during
fluctuations in prevailing interest rates. Interest rate sensitivity is a
measure of the difference between amounts of interest-earning assets and
interest-bearing liabilities that either price or mature within a given period
of time. The difference, or the interest rate repricing "gap," provides an
indication of the extent to which an institution's interest rate spread will be
affected by changes in interest rates over a period of time. A gap is considered
positive when the amount of interest-earning assets maturing, or repricing over
a specified period of time, exceeds the amount of interest-bearing liabilities
maturing or repricing within that period and is considered negative when the
amount of interest-bearing liabilities maturing or repricing over a specified
period of time exceeds the amount of interest-earning assets maturing or
repricing within that period. Generally, during a period of rising interest
rates, a negative gap within a given period of time would adversely affect net
interest income, while a positive gap within a given period of time would result
in an increase in net interest income; during a period of declining interest
rates, a negative gap within a giving period of time would result in an increase
in net interest income, while a positive gap within a given period of time would
have the opposite effect. A sustained rise in interest rates could have a
negative impact on the Association's future net interest income.
First Federal, like other financial institutions, is subject to interest rate
risk to the extent that its interest-bearing liabilities with short and
intermediate-term maturities reprice more rapidly, or on a difference basis,
than its interest-bearing assets. Management of First Federal believes it is
critical to manage the relationship between interest rates and the effect on the
Association's net portfolio value ("NPV"). This approach calculates the
difference between the present value of expected cash flows from assets and the
present value of expected cash flows from liabilities. Management of the
Association's assets and liabilities is done within the context of the market-
place, but also within limits established by the Board of Directors on the
amount of change in NPV which is acceptable given certain interest rate changes.
In an effort to reduce interest rate risk and protect it from the negative
effect of increases in interest rates, First Federal has instituted certain
asset and liability management measures. These measures include the following
primary elements: (1) investment in adjustable rate mortgage-backed securities;
(2) focus on new mortgage loan originations with one-year and three-year
adjustment periods; (3) continue to offer and attempt to increase the consumer
and commercial real estate loan portfolios; (4) require shorter maturities for
all other types of loans; (5) attempt to maintain cash and investments well
above the required liquidity levels; and (6) reduce reliance on short-term
deposits to fund loans. At March 31, 1996, the Association's one year cumulative
interest sensitivity gap as a percentage of total assets was a positive 6.72%.
39
The dollar amount of interest-earning assets has remained relatively stable;
however, over the past two years the composition of interest-earning assets has
changed as one- to four-family loans have declined due to prepayments or
refinancing and consumer and commercial loans have increased due to management's
decision to expand its consumer and commercial real estate loan portfolios to
service existing customers. Although increasing consumer and commercial lending
entails greater risk than residential mortgage loans, management has been able
to maintain high asset quality; however, no assurance can be made that
delinquencies will not increase in the future.
The Association's portfolio of mortgage-backed securities has increased
significantly since 1994. Management has elected to purchase mortgage-backed
securities due to an increase in deposits that has provided additional funds for
investments. At March 31, 1996, the Association's mortgage-backed securities
consisted of adjustable rate and fixed rate securities backed by FHLMC, Federal
National Mortgage Association ("FNMA") and Government National Mortgage
Association ("GNMA"). Interest rate risk is inherent in holding any debt
security. As interest rates rise, the value of the security declines and
conversely as interest rates decline, values rise. Adjustable rate mortgage-
backed securities have the contractual index used, subject to the risk of
prepayment. All of the adjustable rate mortgage-backed securities in the
portfolio are tied to the Eleventh District Cost of Funds Index or the One Year
Constant Maturity Treasury Index.
40
The following table sets forth the amounts of interest-earning assets
and interest-bearing liabilities outstanding at March 31, 1996, which are
expected to reprice or mature, based upon certain assumptions, in each of the
future time periods shown. Except as stated below, the amounts of assets and
liabilities shown which reprice or mature during a particular period were
determined in accordance with the earlier of term to repricing or the
contractual terms of the asset liability. For information regarding the
contractual maturities of the Association's loans, investments and deposits, see
"Business--Lending Activities," "Investment Activities" and "--Sources of
Funds."
Amounts Maturing or Repricing at March 31, 1996
----------------------------------------------------------------------------------------
Within 3 - 6 6 Months 1 - 3 3 - 5 Over
3 Months Months to 1 Year Years Years 5 Years Total
-------- ------ --------- ----- ----- ------- ----------
(Dollars in Thousands)
Interest-Earning Assets:
First mortgage loans -
One- to four-family residential
Adjustable rate........................ $ 1,466 $ 1,466 $ 2,934 $ -- $ -- $ -- $ 5,866
Fixed rate............................. -- -- 127 149 247 989 1,512
Other properties
Adjustable rate........................ 197 197 393 -- -- -- 787
Fixed rate............................. -- -- 105 109 191 456 861
Construction
Adjustable rate........................ -- -- -- -- -- -- --
Fixed rate............................. -- -- 233 -- -- 85 318
Consumer and other loans................. 490 490 982 -- -- -- 1,962
Mortgage-backed securities............... 3,799 3,799 7,107 192 5 293 15,195
FHLB stock............................... -- -- -- -- -- 259 259
Interest-bearing deposits................ 1,789 -- -- -- -- -- 1,789
-------- -------- ------- ------ ------ -------- -------
Total interest-earning assets......... 7,741 5,952 11,881 450 443 2,082 28,549
-------- -------- ------- ------ ------ -------- -------
Interest-bearing liabilities:
Passbook accounts........................ 3,092 -- -- -- -- -- 3,092
Money market............................. 939 -- -- -- -- -- 939
NOW accounts............................. 3,208 -- -- -- -- -- 3,208
Certificate accounts..................... 6,234 4,025 6,087 3,017 135 127 19,625
Federal Home Loan Bank advances.......... -- -- -- -- -- -- --
-------- -------- ------- ------ ------ -------- -------
Total interest-bearing liabilities.... 13,473 4,025 6,087 3,017 135 127 26,864
-------- -------- ------- ------ ------ -------- -------
Interest-earning assets less
interest-bearing liabilities............ (5,732) 1,927 5,794 (2,567) 308 1,955 1,685
-------- -------- ------- ------ ------ -------- -------
Cumulative excess (deficiency) of
interest-sensitive assets over interest-
sensitive liabilities................... (5,732) (3,805) 1,989 (578) (270) 1,685 1,685
-------- -------- ------- ------ ------ -------- -------
Interest sensitivity gap to total assets.. (19.36)% (12.85)% 6.72% (1.95)% (0.91)% 5.69% 5.69%
-------- -------- ------- ------ ------ -------- -------
Ratio of interest-earning assets to
interest-bearing liabilities............ 57.46% 147.88% 195.19% 14.92% 328.15% 1,639.37% 106.27%
-------- -------- ------- ------ ------ -------- -------
Cumulative ratio of interest-earning assets
to interest-bearing liabilities......... 57.46% 78.25% 108.43% 97.83% 98.99% 106.27% 106.27%
-------- -------- ------- ------ ------ -------- -------
The Association's analysis of its interest-rate sensitivity incorporates
certain assumptions concerning the amortization of loans and mortgage-backed
securities. Repricing assumptions used for adjustable-rate loans and adjustable-
rate mortgage-backed securities are as follows: 25% of adjustable portfolio to
reprice within 3 months, 25% to reprice within 3-6 months and the remaining 50%
to reprice within 6 months to 1 year. Fixed rate loans and fixed rate mortgage-
backed securities are presented based on when the final contractual payment is
due. The interest-rate sensitivity of the Association's assets and liabilities
illustrated in the table could vary substantially if different assumptions were
used or if actual experience differs from the assumptions used.
41
Net Portfolio Value. In order to encourage associations to reduce their
interest rate risk, the OTS adopted a rule incorporating an interest rate risk
("IRR") component into the risk-based capital rules. The IRR component is a
dollar amount that will be deducted from total capital for the purpose of
calculating an institution's risk-based capital requirement and is measured in
terms of the sensitivity of its net portfolio value ("NPV") to changes in
interest rates. NPV is the difference between incoming and outgoing discounted
cash flows from assets, liabilities, and off-balance sheet contracts. An
institution's IRR is measured as the change to its NPV as a result of a
hypothetical 200 basis point ("bp") change in market interest rates. A resulting
change in NPV of more than 2% of the estimated market value of its assets will
require the institution to deduct from its capital 50% of that excess change.
The rules provide that the OTS will calculate the IRR component quarterly for
each institution. The Association, based on asset size and risk-based capital,
has been informed by the OTS that it is exempt from this rule. Nevertheless, the
following table presents the Association's NPV at March 31, 1996, as calculated
by the OTS, based on information provided to the OTS by the Association.
Change in
Interest Rates March 31, 1996
in Basis Points -------------------------
Net Portfolio Value
------------------------------
(Rate Shock) Amount Change
------------ ----------- ----------
(Dollars in thousands)
400 2,186 (18)%
300 2,412 (9)
200 2,567 (4)
100 2,649 0
Static 2,661
(100) 2,642 1
(200) 2,650 0
(300) 2,741 3
(400) 2,915 10
As shown in the above table, increases in interest rates will result
in net decreases in the Association's NPV, while decreases in interest rates
will result in smaller net increases in the Association's NPV. For example, the
table reflects the Association's NPV decreasing by 9% if interest rates
increased by 300bp, whereas the Association's NPV would increase by 3% if
interest rates decreased by 300bp.
Certain shortcomings are inherent in the method of analysis presented
in both the computation of NPV and in the analysis presented in the prior tables
setting forth the maturing and repricing of interest-earning assets and
interest-bearing liabilities. Although certain assets and liabilities may have
similar maturities or periods within which they will reprice, they may react
differently to changes in market interest rates. The interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market
interest rates, while interest rates on other types may lag behind changes in
market rates. Additionally, adjustable-rate mortgages have features which
restrict changes in interest rates on a short-term basis and over the life of
the asset. The proportion of adjustable-rate loans could be reduced in future
periods if market interest rates would decrease and remain at lower levels for a
sustained period, due to increased refinancing activity. Further, in the event
of a change in interest rates, prepayment and early withdrawal levels would
likely deviate significantly from those assumed in the table. Finally, the
ability of many borrowers to service their adjustable-rate debt may decrease in
the event of a sustained interest rate increase.
LIQUIDITY AND CAPITAL RESOURCES
The Association's primary sources of funds are deposits, borrowings,
principal and interest payments on loans, mortgage-backed and investment
securities. In the event that the Association should require funds beyond its
ability to generate them internally, additional sources of funds are available
through the use of FHLB advances. While scheduled
42
loan repayments and maturing investments are relatively predictable, deposit
flows and early loan repayments are more influenced by interest rates, general
economic conditions and competition.
Federal regulations require the Association to maintain minimum levels of
liquid assets. The required percentage has varied from time to time based upon
economic conditions and savings flows and is currently 5 percent of net
withdrawable savings deposits and borrowings payable on demand in one year or
less during the preceding calendar month. Liquid assets for purposes of this
ratio include cash, certain time deposits, U. S. Government, government agency
and other securities and obligations generally having remaining maturities of
less than five years. The Association's most liquid assets are cash and cash
equivalents, short-term investments and mortgage-backed and related securities.
The levels of these assets are dependent on the Association's operating,
financing, lending and investing activities during any given period. At March
31, 1996, December 31, 1995 and December 31, 1994 liquidity eligible assets
totaled $2.6 million, $2.1 million, and $1.7 million, respectively. At those
dates, the Association's liquidity ratios were 10.0%, 8.2%, and 7.0%,
respectively, all in excess of the 5% minimum regulatory requirement. Management
anticipates initially maintaining a somewhat higher liquidity ratio following
the Conversion.
The Association uses its liquid resources principally to meet ongoing
commitments, to fund maturing certificates of deposit and deposit withdrawals,
to invest, to fund existing and future loan commitments, to maintain liquidity
and to meet operating expenses. At March 31, 1996, the Association had
outstanding commitments to extend credit which amounted to $277,000. Management
believes that loan repayments and other sources of funds will be adequate to
meet the Association's foreseeable liquidity needs.
At March 31, 1996, the Association had $16.3 million in certificates of
deposit due within one year and $7.7 million in savings and checkings accounts.
Based on past experience, management expects that most of the deposits will be
retained or replaced by new deposits.
The primary investment activities of the Association are the origination of
one- to four- family, commercial real estate, one- to four-family construction,
land and consumer loans, and the purchase of investment and mortgage-backed
securities. During the three months ended March 31, 1996 and 1995 and the years
ended December 31, 1995 and 1994, the Association originated loans totaling
$730,000, $970,000, $2.9 million and $3.7 million, respectively. During those
same periods, the Association purchased mortgage-backed securities totaling
$339,000, $782,000, $4.3 million, and $2.3 million, respectively. These
activities were funded primarily by deposits, principal repayments on loans and
mortgage-backed securities. The Association increased its purchases of mortgage-
backed securities as its deposits increased. The continued increase in mortgage-
backed securities and relatively flat lending activity could adversely affect
the Association's interest rate spreads.
As a federal mutual savings and loan association, the Association's capital
currently consists entirely of accumulated retained earnings. At March 31, 1996,
the Association's capital totaled $2.1 million or 7.1% of assets. Upon
Conversion, the consolidated capital of the Holding Company will consist of the
accumulated retained earnings of the Association and the net Conversion proceeds
from the sale of common stock. Assuming the net Conversion proceeds are
$2,150,000 (based upon the midpoint of the Estimated Valuation Range), the
Holding company would have had, at March 31, 1996, a pro forma ratio of capital
(as determined under GAAP) to assets of 9.4%.
Following completion of the Conversion, the Holding Company initially will
have no business other than that of the Association. Subject to regulatory
approval, the Holding Company intends to lend a portion of the net Conversion
proceeds to the ESOP to facilitate its purchase of Common Stock in the
Conversion. It is expected that the ESOP will purchase 8% of the total number of
shares sold in the Conversion. See "Management--Benefit Plans--Employee Stock
Ownership Plan." Management plans initially to invest the remaining net
Conversion proceeds to be retained by the Holding Company and the Association in
short- and intermediate-term securities. The Holding Company may use a portion
of the net Conversion proceeds to purchase shares of its Common Stock. See "Use
of Proceeds."
43
The Holding Company's Board of Directors anticipates initially paying a
dividend on the Common Stock of $.30 per share per annum. The Board may,
however, consider a policy of paying quarterly cash dividends on the Common
Stock in the future. The declaration and payment of dividends are subject to,
among other things, the Holding Company's financial condition and results of
operations, regulatory capital requirements, including the fully phased-in
capital requirements, tax considerations, industry standards, economic
conditions, regulatory restrictions, general business practices and other
factors.
RECENT ACCOUNTING DEVELOPMENTS
SFAS No. 119, Disclosures About Derivative Financial Instruments and Fair
Value of Financial Instruments, requires disclosures of information such as
credit and market risks, cash requirements and accounting policies about
derivative financial instruments. SFAS No. 119 is effective for financial
statements issued for fiscal years ending after December 15, 1994, except for
entities with less than $150 million in total assets. For those entities, SFAS
No. 119 is effective for financial statements issued for fiscal years ending
after December 15, 1995. SFAS No. 119 was effective for the Association for the
year beginning January 1, 1995.
In November 1993, the AICPA issued SOP 93-6. The SOP requires that shares to
be released in an accounting period should be reflected in the consolidated
financial statements as compensation expense equal to the fair value of the
shares at the time of release. Thus, as shares increase or decrease in value,
earnings will be affected relative to the shares to be released in that period.
Additionally, the SOP requires that outstanding shares for purposes of computing
both primary and fully diluted earnings per share include only those shares
scheduled to be released in that or prior periods. Thus, as additional shares
are released by the ESOP in future periods, earnings per share may be diluted.
Shares of Common Stock of the Holding Company to be acquired by the ESOP are
scheduled to be released over a ten-year period commencing with the consummation
of the Conversion. However, the effect on net income and book value per share
for 1996 cannot be predicted due to the uncertainty of the fair value of the
shares subsequent to their issuance.
The Financial Accounting Standards Board has issued SFAS No. 115, Accounting
for Certain Investments in Debt and Equity Securities, which requires reporting
of certain debt and equity securities at fair value with unrealized gains and
losses either included in the results of operations or reported in a separate
component of retained earnings. As of December 31, 1994, the Association adopted
SFAS No. 115. At March 31, 1996, the Association has classified all investment
securities consisting of FHLB stock as held to maturity, classified $12.4
million of its mortgage-backed securities as held to maturity and $2.8 million
of its mortgage-backed securities as available for sale. In November 1994, the
OTS modified its regulatory capital standards regarding the treatment of
unrealized gains and losses on securities available for sale under SFAS No. 115.
The capital standards require that unrealized gains and losses included in GAAP
capital under SFAS No. 115 should not be included in computing regulatory
capital levels.
SFAS No. 122, Accounting for Mortgage Servicing Rights, will be effective for
the Association for the year beginning January 1, 1996 and generally requires
entities that sell or securitize loans and retain the mortgage servicing rights
to allocate the total cost of the mortgage loans to the mortgage servicing right
and the loan based on their relative fair value. Costs allocated to mortgage
servicing rights should be recognized as a separate asset and amortized over the
period of estimated net servicing income and evaluated for impairment based on
fair value. The adoption of this statement is not expected to have a material
effect on the financial statements.
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" supersedes SFAS No. 122 and will be effective
for all transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996. This statement provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities based on consistent application of a
financial-components approach that focuses on control. It distinguished
transfers of financial assets that are sales from transfers that are secured
borrowings.
44
Under the financial-components approach, after a transfer of financial assets,
an entity recognizes all financial assets it no longer controls and liabilities
that have been extinguished. The financial-components approach focuses on the
assets and liabilities that exist after the transfer. Many of these assets and
liabilities are components of financial assets that existed prior to the
transfer. If a transfer does not meet the criteria for a sale, the transfer is
accounted for as a secured borrowing with a pledge of collateral. The adoption
of this statement is not expected to have a material effect on the consolidated
financial statements.
Statement of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting
for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed
of," is effective for the fiscal year beginning January 1, 1996. The statement
requires that long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. An impairment loss is recognized if the sum of the expected future
cash flows is less than the carrying amount of the asset. Management does not
expect the implementation of SFAS No. 121 to have a material impact on the
Association's consolidated financial position or results of operations.
In April 1995, the FASB issued SOP 94-6, "Disclosure of Certain Significant
Risks and Uncertainties." This SOP applies to financial statements prepared in
conformity with generally accepted accounting principles by all nongovernmental
entities. The disclosure requirements in SOP 94-6 focus primarily on risks and
uncertainties that could significantly affect the amounts reported in the
financial statements in the near-term functioning of the reporting entity. The
risks and uncertainties discussed in SOP 94-6 stem from the nature of the
entity's operations, from the necessary use of estimates in the preparation of
the entity's financial statements, and from significant concentrations in
certain aspects of the entity's operations. SOP 94-6 is effective for financial
statements issued for fiscal years ending after December 31, 1995 and is not
expected to have any impact on the Association's operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which is effective for transactions entered into after December
15, 1995. This Statement establishes financial accounting and reporting
standards for stock-based employee compensation plans. This Statement defines a
fair value based method of accounting for an employee stock option or similar
equity instrument and encourages all entities to adopt that method of accounting
for all of their employee stock compensation plans. However, it also allows an
entity to continue to measure compensation cost for those plans using the
intrinsic value based method of accounting prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees." Under the fair
value based method, compensation cost is measured at the grant date based on the
value of the award and is recognized over the service period, which is usually
the vesting period. Under the intrinsic value based method, compensation cost is
the excess, if any, of the quoted market price of the stock at grant date or
other measurement date over the amount an employee must pay to acquire the
stock. Management presently anticipates that it will elect to use the intrinsic
value based method if the Stock Option Plan is approved by stockholders
following the Conversion.
IMPACT OF INFLATION AND CHANGING PRICES
The Financial Statements and Notes thereto presented herein have been prepared
in accordance with generally accepted accounting principles, which generally
require the measurement of financial position and operating results in terms of
historical dollars without considering the change in the relative purchasing
power of money over time due to inflation. The impact of inflation is reflected
in the increased cost of the Association's operations. Nearly all the assets and
liabilities of the Association are financial, unlike most industrial companies.
As a result, the Association's performance is directly impacted by changes in
interest rates, which are indirectly influenced by inflationary expectations.
The Association's ability to match the interest sensitivity of its financial
assets to the interest sensitivity of its financial liabilities in its
asset/liability management may tend to minimize the effect of change in interest
rates on the Association's performance. Changes in interest rates do not
necessarily move to the same extent as changes in the price of goods and
services. In the current increasing interest rate environment, liquidity and the
maturity structure of the Association's assets and liabilities are critical to
the maintenance of acceptable performance levels.
45
BUSINESS
GENERAL
As a community-oriented financial institution, the Association seeks to serve
the financial needs of the families in its market area. The principal business
of the Association has historically consisted of attracting retail deposits from
the general public and investing those funds primarily in first mortgage loans
on one- to four-family residential real estate, commercial real estate loans,
land loans and construction loans. The Association also originates consumer
loans and other loans consisting primarily of loans secured by automobiles,
manufactured homes, share loans and lines of credit. At March 31, 1996,
substantially all of the Association's real estate mortgage loans, were secured
by properties located in the Association's market area. At March 31, 1996, gross
loans receivable were $11.9 million, or 40.3% of total assets. In recent
periods, due to weak loan demand, the Association has invested a significant
portion of its assets in mortgage-backed securities.
The Association currently offers a variety of deposit accounts, which include
passbook savings, NOW, non-interest bearing demand, money market and certificate
accounts. The Association generally solicits deposits in its primary market
area. The Association does not accept any brokered deposits.
CURRENT BUSINESS STRATEGY
The Association's business strategy is to operate as a well-capitalized,
profitable and independent community savings institution dedicated primarily to
home mortgage lending. The Association has sought to implement this strategy by
(1) maintaining asset quality, (2) maintaining acceptable levels of capital, and
(3) maintaining and, if possible, increasing the Association's interest rate
spread and other income.
The highlights of the Association's business strategy are as follows:
. Maintain Asset Quality. The Association has maintained its high asset
quality by using conservative underwriting standards and diligent
collection efforts. The Association's non-performing assets have ranged
between 0.39% and 0.69% of total assets during the last two fiscal years
and interim periods and represented 0.39% of total assets at March 31,
1996. At March 31, 1996, the Association's ratio of allowance for loan
losses as a percent of net loans receivable was 2.74%, and its ratio of
allowance for loan losses to total non-performing loans was 412.0%.
. Capital Strength. At March 31, 1996, the Association had retained earnings
of $2.1 million, or 7.1% of total assets, and exceeded all of its
regulatory capital requirements with tangible and core capital of 7.1% of
adjusted total assets and risk-based capital of 19.7% of total risk-
weighted assets. As a result of the Conversion and based on the assumptions
stated under "Pro Forma Data" at the midpoint of the Estimated Valuation
Range at March 31, 1996, the Association would have had pro forma equity of
approximately $2.9 million, or 9.4% of total assets and its tangible, core
and risk-based capital ratios would have been 9.4%, 9.4% and 26.1%,
respectively.
. Profitability. Although no assurance can be made regarding future
profitability, the Association has been profitable in each of the past 10
fiscal years. The Association had net income of $50,000 for the three
months ended March 31, 1996, $290,000 in fiscal 1995 and $242,000 in fiscal
1994. The Association's net interest rate spread was 2.93% (annualized),
3.05% and 3.48%, respectively, for the three months ended March 31, 1996
and the fiscal years ended December 31, 1995 and 1994, respectively. The
Association is attempting to increase its interest rate spread by
increasing its origination of commercial real estate and consumer and other
loans and purchasing mortgage-backed securities with maturities exceeding
ten years. The Association has sought to
46
improve the interest rate sensitivity of its interest earning assets by
emphasizing the origination of ARM loans, and continuing to purchase
adjustable rate mortgage-backed securities. At March 31, 1996, 80% of the
Association's one- to four-family loan portfolio consisted of ARM loans.
The Association has also attempted to increase noninterest income by
offering transaction accounts. Like other financial institutions, the
Association's profitability and earnings are affected by changes in
interest rates. See "Risk Factors - Interest Rate Risk Exposure" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
MARKET AREA AND COMPETITION
First Federal serves Allen Parish, Louisiana and the surrounding parishes,
from its office in Oakdale, Louisiana. Allen Parish consists of small farms and
residential communities of predominantly one- to four-family residences. The
Association's market for deposits is concentrated in Allen Parish. The
Association is the only independent financial institution headquartered in Allen
Parish.
The economy of the Association's market area consists primarily of small
farming communities, the timber and wood industry and state and local
government. The largest employers in the Association's market area are the
Federal Bureau of Prisons, which operates a corrections facility, Boise Cascade
Corporation, a wood manufacturer, Arizona Chemical, a division of International
Paper Co., Grand Casino, which is operated by the Coushatta Indians and the
Allen Parish School Board. In recent years the oil and gas industry has become a
growing segment of the Association's economy.
The Association's business and operating results are significantly affected by
the general economic conditions precedent in the Association's market area. As
of March 31, 1996, the latest date for which statistical data is available, the
unemployment rate in the Association's market area was 7.8%. During the period
between 1990 and 1994, per capita income growth in the Association's market area
was below that experienced in the state of Louisiana and the nation as a whole.
Management believes that the population in the Association's market area will
remain stable in the foreseeable future.
The Association faces significant competition in attracting deposits from
commercial banks, other savings institutions and credit unions. The Association
faces additional competition for deposits from short-term money market funds,
from other corporate and government securities funds and from brokerage funds
and insurance companies. The Association also faces significant competition in
the origination of loans from savings institutions, mortgage banking companies,
credit unions and commercial banks.
LENDING ACTIVITIES
GENERAL. The Association's loan portfolio consists primarily of loans secured
by real estate which consist primarily of loans secured by one- to four-family
residences, commercial real estate loans, construction loans and loans secured
by other properties. The Association also originates consumer and other loans
consisting primarily of loans secured by automobiles, manufactured homes, share
loans, lines of credit and other consumer loans. At March 31, 1996, the
Association's gross loans totaled $11.9 million, of which $7.8 million or 65.0%
were one-to four-family residential mortgage loans. Of the one- to four-family
mortgage loans outstanding at that date, 20.0% were fixed-rate loans, and 80.0%
were adjustable-rate loans. At March 31, 1996, $1.3 million or 10.9% of gross
loans were secured by commercial real estate properties consisting of retail
shops and churches, $318,000, or 2.8%, of gross loans were construction loans
for the construction of owner-occupied homes, and $249,000, or 2.2% of gross
loans consisted of land loans. At that date, consumer and other loans totaled
$2.2 million or 18.5% of the Association's gross loan portfolio, of which
$834,000, or 7.0%, consisted of share loans, $445,000, or 3.7%, consisted of
automobile loans, $415,000, or 3.5%, consisted of lines of credit to small farms
and businesses, $11,000 or 0.1% consisted of loans on manufactured homes and
$505,000 or 4.2% consisted of other loans (consisting of personal loans,
disaster relief loans, and loans to governmental entities and non-profit
organizations).
47
The Association also invests in mortgage-backed securities. At March 31, 1996,
mortgage-backed securities totaled $15.2 million. See "Investment Activities."
The Association's loans-to-one borrower limit is generally the greater of 15%
of unimpaired capital and surplus or $500,000. See "Regulation - Federal
Regulation of Savings Associations." At March 31, 1996, the maximum amount which
the Association could have lent under this limit to any one borrower and the
borrower's related entities was approximately $500,000. At March 31, 1996, the
Association had no loans or groups of loans to related borrowers with
outstanding balances in excess of this amount. The Association's largest lending
relationship at March 31, 1996 was $299,000 in loans to one borrower which was
comprised of seven loans, six of which were secured by real estate and one of
which was a commercial loan. The Association's second largest lending
relationship at March 31, 1996 was $297,000 in loans to one borrower which was
comprised of eight loans, seven of which were secured by real estate and one of
which was an unsecured commercial loan. The Association's third largest lending
relationship totaled $274,000, which consisted of a commercial real estate loan
to a church. At March 31, 1996, all of these loans were performing in accordance
with their terms.
48
LOAN PORTFOLIO COMPOSITION. Set forth below is data relating to the
composition of the Association's loan portfolio by type of loan as of the dates
indicated.
At March 31, At December 31,
------------------ --------------------------------------
1996 1995 1994
-------- -------- --------
Amount Percent Amount Percent Amount Percent
-------- -------- -------- -------- -------- --------
(Dollars in Thousands)
Real estate loans:
One- to four-family residential.... $ 7,767 68.70% $ 7,918 70.50% $ 8,710 75.96%
Commercial real estate loans....... 1,294 11.45 1,208 10.76 881 7.68
Construction....................... 318 2.81 260 2.32 162 1.41
Land loans......................... 249 2.20 203 1.81 181 1.58
Other real estate loans............ 105 0.93 131 1.17 235 2.05
------- ------ ------- ------ ------- ------
Total first mortgage loans.......... 9,733 86.09 9,720 86.55 10,169 88.69
------- ------ ------- ------ ------- ------
Consumer and other loans:
Automobile......................... 445 3.94 496 4.42 460 4.01
Manufactured homes................. 11 0.10 12 0.11 21 0.18
Share loans........................ 834 7.38 800 7.12 765 6.67
Lines of credit.................... 415 3.67 440 3.92 165 1.44
Other loans........................ 505 4.47 415 3.70 346 3.01
------- ------ ------- ------ ------- ------
Total consumer and other loans.. 2,210 19.55 2,163 19.26 1,757 15.31
------- ------ ------- ------ ------- ------
Total loans receivable.......... 11,943 105.63 11,883 105.82 11,926 104.00
Less:
Undisbursed loan proceeds.......... (328) (2.90) (335) (2.98) (131) (1.13)
Unearned discounts................. -- -- -- -- (1) (.01)
Allowance for loan losses.......... (309) (2.73) (317) (2.82) (328) (2.86)
------- ------ ------- ------ ------- ------
Total loans receivable,
net............................ $11,306 100.00% $11,231 100.00% $11,466 100.00%
======= ====== ======= ====== ======= ======
ONE- TO FOUR-FAMILY MORTGAGE LOANS. The Association's primary lending activity
is the origination of one- to four-family, owner-occupied, residential mortgage
loans secured by property located in the Association's market area. Loans are
generated through the Association's marketing efforts, its existing customers
and referrals, real estate brokers, builders and local businesses. The
Association generally has limited its real estate loan originations to the
financing of properties located within its market area and will not make out of
state loans. At March 31, 1996, the Association had $7.8 million, or 65.0% of
its gross loan portfolio, invested in mortgage loans secured by one- to four-
family residences.
The Association originates for retention in its portfolio fixed-rate
residential one- to four-family loans with terms of up to 15 years. The
Association's fixed-rate mortgage loans amortize monthly with principal and
interest due each month. Residential real estate loans often remain outstanding
for significantly shorter periods than their contractual terms because borrowers
may refinance or prepay loans at their option.
The Association currently offers ARM loans with amortization periods ranging
up to 30 years. The Association generally offers ARM loans that either adjust
every year or every three years from the date of origination, with interest rate
adjustment limitations up to two percentage points per adjustment and with a cap
of up to six percentage points on total interest rate increases over the life of
the loan. Currently, ARM loans are originated with a minimum interest rate of
five percent and a maximum rate of 15% regardless of the initial rate. In a
rising interest rate environment, such rate limitations may prevent ARM loans
from repricing to market interest rates, which would have an adverse effect on
net interest income. The Association has used different interest indices for ARM
loans in the past, and currently uses the National Average Contract Interest
Rate for Major Lenders on the Purchase of Previously Occupied Loans as its
index. ARM loans secured by residential one- to four-family real
49
estate totaled $6.1 million, or 80.0% of the Association's total one- to four-
family residential real estate loans receivable at March 31, 1996. The
origination of fixed-rate mortgage loans versus ARM loans is monitored on an
ongoing basis and is affected significantly by the level of market interest
rates, customer preference, the Association's interest rate gap position and
loan products offered by the Association's competitors. Particularly in a
relatively low interest rate environment, borrowers may prefer fixed-rate loans
to ARM loans. During the three months ended March 31, 1996, the Association
originated $180,000 in fixed-rate residential mortgage loans and no ARM loans.
During fiscal 1995, the Association originated $286,000 of fixed-rate
residential mortgage loans and $927,000 of ARM loans.
The primary purpose of offering ARM loans is to make the Association's loan
portfolio more interest rate sensitive. However, as the interest income earned
on ARM loans varies with prevailing interest rates, such loans do not offer the
Association predictable cash flows as would long-term, fixed-rate loans. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Asset and Liability Management--Interest Rate Sensitivity Analysis."
ARM loans carry increased credit risk associated with potentially higher monthly
payments by borrowers as general market interest rates increase. It is possible,
therefore, during periods of rising interest rates, that the risk of
delinquencies and defaults on ARM loans may increase due to the upward
adjustment of interest costs to the borrower, resulting in increased loan
losses.
The Association's residential first mortgage loans customarily include due-on-
sale clauses, which are provisions giving the Association the right to declare a
loan immediately due and payable in the event, among other things, that the
borrower sells or otherwise disposes of the underlying real property serving as
security for the loan. Due-on-sale clauses are a means of imposing assumption
fees and increasing the interest rate on the Association's mortgage portfolio
during periods of rising interest rates.
Effective December 19, 1993, all financial institutions were required to adopt
and maintain comprehensive written real estate lending policies that are
consistent with safe and sound banking practices. These lending policies must
reflect consideration of the Interagency Guidelines for Real Estate Lending
Policies adopted by the Federal banking agencies, including the OTS, in December
1992 ("Guidelines"). The Guidelines set forth, pursuant to the mandates of the
FDICIA, uniform regulations prescribing standards for real estate lending. Real
estate lending is defined as extension of credit secured by liens on interests
in real estate or made for the purpose of financing the construction of a
building or other improvements to real estate, regardless of whether a lien has
been taken on the property.
The policies must address certain lending considerations set forth in the
Guidelines, including loan-to-value ("LTV") limits, loan administration
procedures, underwriting standards, portfolio diversification standards, and
documentation, approval and reporting requirements. These policies must also be
appropriate based upon the size of the institution and the nature and scope of
its operations, and must be reviewed and approved by the institution's board of
directors at least annually. The LTV ratio framework, with an LTV ratio being
the total amount of credit to be extended divided by the appraised value of the
property at the time the credit is originated, must be established for each
category of real estate loans. If not a first lien, the lender must combine all
senior liens when calculating this ratio. The Guidelines, among other things,
establish the following supervisory LTV limits: raw land (65%); land development
(75%); construction (commercial, multi-family and nonresidential) (80%);
improved property (85%); and owner occupied one- to four-family residential (no
maximum ratio, however, any LTV ratio in excess of 90% requires appropriate
insurance or readily marketable collateral).
Certain institutions are permitted to make real estate loans that do not
conform with the established LTV ratio limits up to 100% of the institution's
total capital. Within this aggregate limit, total loans for all commercial,
agricultural, multi-family and other non-one- to four-family residential
properties should not exceed 30% of total capital. An institution will come
under increased supervisory scrutiny as the total of such loans approaches these
levels. Certain loans are exempt from the LTV ratios (e.g., those guaranteed by
a government agency, loans to facilitate the sale of real estate owned, loans
renewed, refinanced or restructured by the original lender(s) to the same
borrower(s) where there is no advancement of new funds, etc.).
50
Regulations limit the amount that a savings association may lend relative to
the appraised value of the real estate securing the loan, as determined by an
appraisal at the time of loan origination. Such regulations permit a maximum LTV
ratio of 95% for residential property (and 100% for loans guaranteed by the
Veterans Administration) and 90% for all other real estate loans. The
Association's lending policies, however, generally limit the maximum LTV ratio
on fixed-rate and ARM loans to 95% of the lesser of the appraised value or the
purchase price of the property securing the loan in the case of loans secured by
one- to four-family owner-occupied properties. The maximum LTV ratio on other
types of real estate loans is generally the lesser of 80% of the appraisal value
or the purchase price of the property.
When underwriting residential real estate loans, the Association reviews and
verifies each loan applicant's employment, income and credit history. Management
believes that stability of income and past credit history are integral parts in
the underwriting process. Generally, the applicant's total monthly mortgage
payment, including all escrow amounts, is limited to 28% of the applicant's
total monthly income. In addition, total monthly obligations of the applicant,
including mortgage payments, should not generally exceed 42% of total monthly
income. Written appraisals are generally required on real estate property
offered to secure an applicant's loan. For real estate loans with LTV ratios of
between 80% and 95%, the Association requires private mortgage insurance. The
Association requires fire, casualty and where necessary flood insurance on all
properties securing real estate loans. The Association requires title insurance,
and an attorney's title opinion.
COMMERCIAL REAL ESTATE LOANS. The Association originates commercial real
estate loans typically secured by retail facilities, churches and office
buildings. At March 31, 1996, $1.3 million, or 10.9% of the Association's gross
loan portfolio consisted of commercial real estate loans. At March 31, 1996, all
of the Association's commercial real estate loans were secured by properties
within the State of Louisiana. The maximum loan to value ratio for commercial
real estate loans originated by the Association is 80%. At March 31, 1996, the
largest commercial real estate loan had a principal balance of $274,000, and was
secured by church property. The loan was performing in accordance with its terms
at March 31, 1996.
The underwriting standards employed by the Association for commercial real
estate loans include a determination of the applicant's credit history and an
assessment of the applicant's ability to meet existing obligations and payments
on the proposed loan. Written appraisals are obtained on all commercial real
estate loans. The Association assesses the creditworthiness of the applicant by
reviewing a credit report, financial statements and tax returns on the
applicant.
Loans secured by commercial real estate generally involve a greater degree of
credit risk than one- to four-family mortgage loans. The increased risk is the
result of several factors, including the effects of general economic conditions
in income producing properties and the successful operation or management of the
properties securing the loans. Furthermore, the repayment of loans secured by
commercial real estate is typically dependent upon the successful operation of
the related business and real estate property. If the cash flow from the project
is reduced, the borrower's ability to repay the loan may be impaired.
LAND LOANS. The Association offers land loans, primarily loans to purchase
and develop single family homesites, which may consist of individual lots or
large acreage tracts. At March 31, 1996, $249,000, or 2.2% of the Association's
gross loan portfolio consisted of land loans. The maximum loan amount generally
does not exceed 75% of the appraised value of the property. The terms of land
loans are negotiated on a case by case basis; however, fixed rate loans are
typically originated for terms of 5 years or less; adjustable rate land loans
are originated for terms up to 15 years and will either adjust at a premium over
the prime rate or will be based upon the National Average Contract Interest Rate
for Major Lenders on the Purchase of Previously Occupied Loans. The Association
will make a limited number of land loans for speculation purposes. Land loans
are typically made to companies or individuals with whom the Association has had
a prior business relationship.
51
CONSTRUCTION LENDING. At March 31, 1996, the Association had $318,000 or 2.8%
of its gross loan portfolio, invested in construction loans. First Federal
offers loans to both builders and individuals for the construction of one- to
four-family residences. Currently, such loans are offered with fixed-or
adjustable-rates of interest, with loan terms of six months. The interest rates
of construction loans are typically at a margin over the prime rate or the
National Average Contract Interest Rate for Major Lenders on the Purchase of
Previously Owned Homes. The maximum loan amount will not exceed 80% of the
appraised value of the project. The Association requires the builder to submit
plans, specifications and cost projections. In addition, the Association reviews
the borrower's existing financial condition, including total outstanding debt.
Funds are dispersed as the construction project progresses. Following the
construction period, these loans may convert to permanent loans, generally with
terms for up to 15 years if the interest rate is fixed and up to 30 years if the
interest rate is adjustable. At March 31, 1996, none of the Association's
construction loans were non-performing.
Construction lending and land loans are generally considered to involve a
higher level of credit risk than one- to four-family residential lending since
the risk of loss on construction loans is dependent largely upon the accuracy of
the initial estimate of the individual property's value upon completion of the
project and the estimated cost (including interest) of the project. If the cost
estimate proves to be inaccurate, the Association may be required to advance
funds beyond the amount originally committed to permit completion of the
project.
CONSUMER AND OTHER LENDING. First Federal offers a variety of consumer loans,
including loans secured by deposits, lines of credit, automobile and home
improvement loans. The Association currently originates substantially all of its
consumer loans in its primary market area generally to its existing customers.
At March 31, 1996, the Association's consumer and other loan portfolio totaled
$2.2 million, or 18.5% of its gross loan portfolio.
The Association offers loans secured by the borrower's savings deposits
("share loans"). At March 31, 1996, share loans totaled $834,000, or 7.0% of the
Association's gross loan portfolio.
First Federal originates home improvement loans. Home equity and home
improvement loans secured by second mortgages, together with loans secured by
all prior liens, are generally limited to 80% or less of the appraised value of
the home. Generally, such loans have a maximum term of up to 15 years. As of
March 31, 1996, home improvement loans amounted to $82,000, which represented
.68% of the Association's gross loan portfolio.
The Association also originates lines of credit for businesses. These loans
are made on both a secured and unsecured basis. Lines of credit may be secured
by real estate, equipment and inventory. They are generally originated with
interest rates that adjust at a premium above the prime rate. All lines of
credit are reviewed annually by the Association.
Another component of the Association's consumer loan portfolio consists of
automobile loans. The Association originates automobile loans on a direct basis,
where the Association extends credit directly to the borrower. These loans
generally have terms that do not exceed five years and carry a fixed-rate of
interest. Generally, loans on new vehicles are made in amounts up to 80% of
dealer cost and loans on used vehicles are made in amounts up to 80% of the
vehicle's published NADA value. At March 31, 1996, the Association's automobile
loans totaled $445,000 million or 3.7% of the Association's gross loan
portfolio.
Consumer loan terms vary according to the type and value of collateral,
length of contract and creditworthiness of the borrower. The underwriting
standards employed by the Association for consumer loans include an application,
a determination of the applicant's payment history on other debts and an
assessment of ability to meet existing obligations and payments on the proposed
loan. Although creditworthiness of the applicant is a primary consideration,
the underwriting process also includes a comparison of the value of the
security, if any, in relation to the proposed loan amount.
52
Consumer loans entail greater credit risk than do residential mortgage loans,
particularly in the case of consumer loans which are unsecured or are secured by
rapidly depreciable assets, such as automobiles. Further, any repossessed
collateral for a defaulted consumer loan may not provide an adequate source of
repayment of the outstanding loan balance as a result of the greater likelihood
of damage, loss or depreciation. In addition, consumer loan collections are
dependent on the borrower's continuing financial stability, and thus are more
likely to be affected by adverse personal circumstances. Furthermore, the
application of various federal and state laws, including bankruptcy and
insolvency laws, may limit the amount which can be recovered on such loans.
Management believes that its level of delinquencies is relatively low in
comparison with other financial institutions, and that its low level of consumer
loan delinquencies is attributable to the Association's policy of aggressively
contacting borrowers who become delinquent in repaying their loans. At March 31,
1996, $13,000 in consumer loans were non-performing. See "- Non-Performing
Assets and Classified Assets." There can be no assurances, however, that
delinquencies will not increase in the future.
LOAN MATURITY SCHEDULE
The following table sets forth certain information at December 31, 1995,
regarding the dollar amount of loans maturing in the Association's portfolio
based on their contractual terms to maturity. Demand loans, loans having no
stated schedule of repayments and no stated maturity, and overdrafts are
reported as due in one year or less.
One Three Five Ten Twenty
Within Through Through Through Through Years
One Year Three Years Five Years Ten Years Twenty Years Or More Total
-------- ----------- ---------- --------- ------------ ------- -------
(In Thousands)
First mortgage loans:
One- to four-family residential.. $ 223 $321 $ 427 $2,546 $3,340 $1,061 $ 7,918
Other properties................. 132 137 225 511 494 43 1,542
Construction..................... 175 -- -- 35 50 -- 260
Consumer and other loans........... 1,180 380 603 -- -- -- 2,163
------ ---- ------ ------ ------ ------ -------
Total......................... $1,710 $838 $1,255 $3,092 $3,884 $1,104 $11,883
====== ==== ====== ====== ====== ====== =======
The following table sets forth the dollar amount of all loans at December
31, 1995 that have predetermined interest rates and have floating or adjustable
interest rates and which are due after December 31, 1996.
Floating or
Fixed-Rates Adjustable Rates Total
----------- ---------------- -----------
(In Thousands)
First mortgage loans:
One- to four-family residential.. $1,307 $6,389 $ 7,696
Other properties................. 594 816 1,410
Construction..................... 85 -- 85
Consumer and other loans........... 982 -- 982
------ ------ -------
Total......................... $2,968 $7,205 $10,173
====== ====== =======
53
ORIGINATION OF LOANS
Loan originations are developed from continuing business with depositors and
borrowers, soliciting realtors, builders, walk-in customers and third-party
sources. All real estate loans must be approved by the Association's board of
directors. Consumer and other loans up to $15,000 may be approved by the
Association's President. All other consumer and other loans must be approved by
the Board of Directors.
While the Association originates both adjustable-rate and fixed-rate loans,
its ability to originate loans to a certain extent is dependent upon the
relative customer demand for loans in its market, which is affected by the
interest rate environment, among other factors. For the three months ended March
31, 1996, the Association originated $647,000 in fixed-rate loans and $80,000 in
adjustable-rate loans. For the year ended December 31, 1995, the Association
originated $1.9 million in fixed-rate loans and $1.0 million in adjustable rate
loans.
In recent years the Association has neither purchased, nor sold loans. All
loans originated by the Association are retained in the Association's portfolio.
Set forth below is a table showing the Association's loan originations and
repayments for the periods indicated.
Three Months
Ended March 31, Year Ended December 31,
----------------------- ----------------------
1996 1995 1995 1994
------- ------- ------- -------
(In Thousands)
Loans receivable at beginning of period.. $11,883 $11,926 $11,926 $11,431
------- ------- ------- -------
Originations:
First mortgage loans -
One- to four-family residential........ 150 173 482 1,006
Construction........................... 94 138 243 493
Other properties....................... 137 111 257 160
Consumer and other loans:
Automobile............................. 58 37 359 554
Manufactured home...................... -- -- 38 11
Other.................................. 271 306 773 540
Refinancing............................. 17 200 764 933
------- ------- ------- -------
Total originations................... 727 965 2,916 3,697
Transfer of mortgage loans
to foreclosed real estate............ -- -- -- (91)
Repayments............................. (667) (742) (2,959) (3,111)
------- ------- ------- -------
Net loan activity........................ 60 223 (42) 495
------- ------- ------- -------
Total loans receivable
at end of period................. $11,943 $12,149 $11,883 $11,926
======= ======= ======= =======
DELINQUENCIES AND CLASSIFIED ASSETS
The Association's collection procedures provide that when a loan is 15 days
past due, a computer-generated late charge notice is sent to the borrower
requesting payment plus a late charge. If the loan remains delinquent a
telephone call is made or a letter is sent to the borrower stressing the
importance of reinstating the loan and obtaining reasons for the delinquency
before the loan becomes delinquent after 30 days. After 45 days a written
commitment to bring the loan current is required. When a loan continues in a
delinquent status for 90 days or more, and a repayment schedule has not been
made or adhered to by the borrower, a notice of intent to foreclose upon the
underlying property is sent to the borrower by the Association's attorney,
giving the borrower 10 days to cure the delinquency. If not cured, foreclosure
proceedings are initiated.
54
In recent years the Association has increased its collection efforts by more
closely monitoring delinquent loans and employing diligent collection efforts.
Management believes that these efforts have contributed to the loan portfolio's
low delinquency levels. At March 31, 1996, December 31, 1995 and 1994 the
percentage of total loans delinquent 90 days or more to net loans receivable
were .05%, .06% and 0%, respectively.
DELINQUENT LOANS AND NONPERFORMING ASSETS. Generally, when a loan becomes
more than 90 days delinquent, the Association will place the loan on non-accrual
status and previously accrued interest income on the loan is charged against
current income. The loan will remain on a non-accrual status as long as the loan
is more than 90 days delinquent.
Real estate acquired through foreclosure or by deed-in-lieu of foreclosure is
classified as real estate owned until such time as it is sold. When real estate
owned is acquired, it is recorded at the lower of the unpaid principal balance
of the related loan, or its fair market value, less estimated selling expenses.
Any further write-down of real estate owned is charged against earnings. At
March 31, 1996, the Association owned approximately $39,000 of property
classified as real estate owned.
Delinquent consumer loans are handled in a similar manner as to those
described above; however, shorter time frames for each step apply due to the
type of collateral generally associated with such types of loans. The
Association's procedures for repossession and sale of consumer collateral are
subject to various requirements under Louisiana and federal consumer protection
laws.
The following table sets forth information with respect to the Association's
delinquent loans and other problem assets at March 31, 1996.
At March 31, 1996
-----------------
Balance Number
------- ------
(In Thousands)
One- to four-family residential real estate:
Loans 60 to 89 days delinquent........................ $ 42 3
Loans 90 days or more delinquent...................... -- --
Other properties:
Loans 60 to 89 days delinquent........................ -- --
Loans 90 days or more delinquent...................... -- --
Construction:
Loans 60 to 89 days delinquent........................ -- --
Loans 90 days or more delinquent...................... -- --
Consumer and other loans:
Loans 60 to 89 days delinquent........................ -- --
Loans 90 days or more delinquent...................... -- --
Foreclosed real estate and repossessions............... 39 1
Other nonperforming assets............................. -- --
Restructured loans within the meaning of Statement of
Financial Accounting Standards No. 15 (not included
in other nonperforming categories above).............. 186 11
Loans to facilitate sale of real estate owned.......... 574 27
55
The following table sets forth information regarding delinquent loans and real
estate owned by the Association at the dates indicated. At March 31, 1996, the
Association had $186,000 in restructured loans within the meaning of SFAS 15.
At March At December 31,
1996 1995 1994
-------- ------ ------
(Dollars In Thousands)
Non-accruing loans:
First mortgage loans:
One- to four-family residential........... $ 57 $144 $ 62
Other properties.......................... -- -- --
Construction.............................. -- -- --
Consumer and other loans.................... 13 11 --
---- ---- ------
Total non-accruing loans.................. 70 155 62
---- ---- ------
Accruing loans past due 90 days or more:
First mortgage loans:
One- to four-family residential........... $ -- -- --
Other properties.......................... -- -- --
Construction.............................. -- -- --
Consumer and other loans.................... 5 6 --
---- ---- ------
Total accruing loans delinquent
90 days or more....................... 5 6 --
---- ---- ------
Total non-performing loans.......... 75 161 62
---- ---- ------
Total real estate owned..................... 39 39 45
---- ---- ------
Total non-performing assets............ $114 $200 $ 107
==== ==== ======
Performing troubled debt restructurings...... $186 $191 $ 121
==== ==== ======
Total non-performing assets and troubled
debt restructurings....................... $300 $391 $ 228
==== ==== ======
Total loans delinquent 90 days or more to
net loans receivable........................ 0.05% 0.06% 0.00%
----- ----- ------
Total loans delinquent 90 days or more to
total assets................................ 0.02% 0.02% 0.00%
----- ----- ------
Total non-performing loans and REO
to total assets............................. 0.39% 0.69% 0.50%
----- ----- ------
Total non-performing assets and troubled
debt restructurings to total assets......... 1.01% 1.35% 0.85%
----- ----- ------
56
DELINQUENT LOANS
The following table sets forth information with respect to loans past
due 60-89 days in the Association's portfolio at the dates indicated.
At December 31,
At March ---------------
1996 1995 1994
-------- ------ ------
(In Thousands)
Loans past due 60-89 days:
First mortgage loans:
One- to four-family residential.. $42 $15 $32
Other properties................. -- -- --
Construction..................... -- -- --
Consumer and other loans........... -- 10 12
For the year ended December 31, 1995 and the three months ended March 31, 1996
gross interest income which would have been recorded had the non-accruing loans
been current in accordance with their original terms amounted to $21,000 and
$10,000, respectively. The amount that was included in interest income on such
loans was $9,000 and $1,000 for the year ended December 31, 1995 and the three
months ended March 31, 1996, respectively.
CLASSIFIED ASSETS. Federal regulations provide for the classification of
loans and other assets, such as debt and equity securities, considered by the
OTS to be of lesser quality, as "substandard," "doubtful" or "loss." An asset is
considered "substandard" if it is inadequately protected by the current net
worth and paying capacity of the obligor or the collateral pledged, if any.
"Substandard" assets include those characterized by the "distinct possibility"
that the insured institution will sustain "some loss" if the deficiencies are
not corrected. Assets classified as "doubtful" have all of the weaknesses
inherent in those classified "substandard" with the added characteristic that
the weaknesses present make "collection or liquidation in full" on the basis of
currently existing facts, conditions and values, "highly questionable and
improbable." Assets classified as "loss" are those considered "uncollectible"
and of such little value that their continuance as assets without the
establishment of a specific loss reserve is not warranted.
When an insured institution classifies problem assets as either substandard or
doubtful, it may establish general allowances for losses in an amount deemed
prudent by management. General allowances represent loss allowances which have
been established to recognize the inherent risk associated with lending
activities, but which, unlike specific allowances, have not been allocated to
particular problem assets. When an insured institution classifies problem assets
as "loss," it is required either to establish a specific allowance for losses
equal to 100% of that portion of the asset so classified or to charge-off such
amount. An institution's determination as to the classification of its assets
and the amount of its valuation allowances is subject to review by the
regulatory authorities, who may order the establishment of additional general or
specific loss allowances.
In connection with the filing of its periodic reports with the OTS and in
accordance with its classification of assets policy, the Association regularly
reviews loans in its portfolio to determine whether such assets require
classification in accordance with applicable regulations. On the basis of
management's review of its assets, at March 31, 1996, the Association had
classified a total of $182,000 of its assets as substandard, $0 as doubtful, and
$50,000 as loss. At March 31, 1996, total classified assets comprised $232,000,
or 11.0% of the Association's capital, or 0.78% of the Association's total
assets.
OTHER LOANS OF CONCERN. Other than the non-performing loans set forth in the
tables above, as of March 31, 1996, there were no loans classified by the
Association with respect to which known information about the possible credit
problems of the borrowers or the cash flows of the security properties have
caused management to have some doubts as to the ability of the borrowers to
comply with present loan repayment terms and which may result in the future
inclusion of such items in the non-performing asset categories.
57
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the risk
inherent in its loan portfolio and changes in the nature and volume of its loan
activity, including those loans which are being specifically monitored by
management. Such evaluation, which includes a review of loans for which full
collectibility may not be reasonably assured, considers among other matters, the
loan classifications discussed above, the estimated fair value of the underlying
collateral, economic conditions, historical loan loss experience, the amount of
loans outstanding and other factors that warrant recognition in providing for an
adequate loan loss allowance.
Real estate properties acquired through foreclosure are recorded at the lower
of cost or fair value minus estimated cost to sell. If fair value at the date of
foreclosure is lower than the balance of the related loan, the difference will
be charged-off to the allowance for loan losses at the time of transfer.
Valuations are periodically updated by management and if the value declines, a
specific provision for losses on such property is established by a charge to
operations. At March 31, 1996, the Association had properties with a net book
value of $39,000 which were acquired through foreclosure.
Although management believes that it uses the best information available to
determine the allowance, unforeseen market conditions could result in
adjustments and net earnings could be significantly affected if circumstances
differ substantially from the assumptions used in making the final
determination. Future additions to the Association's allowance for loan losses
will be the result of periodic loan, property and collateral reviews and thus
cannot be predicted in advance. In addition, federal regulatory agencies, as an
integral part of the examination process, periodically review the Association's
allowance for loan losses. Such agencies may require the Association to increase
the allowance based upon their judgment of the information available to them at
the time of their examination. At March 31, 1996, the Association had a total
allowance for loan losses of $309,000, representing 412.0% of total non-
performing loans and 2.7% of the Association's loans, net. See Note 4 of the
Notes to Financial Statements.
58
The following table sets forth the allocation for loan losses by category for
the periods indicated.
At March 31, At December 31,
---------------------- -------------------------------------------------------
1996 1995 1994
---------------------- ------------------------ -----------------------
% of Loans % of Loans % of Loans
In Each In Each In Each
Category to Category to Category to
Amount Total Loans Amount Total Loans Amount Total Loans
------ ----------- ------ ----------- ------ ------------
(Dollars in thousands)
First mortgage loans
One- to four-family residential.. $ 219 65.04% $ 230 66.63% $ 242 73.04%
Other properties................. 40 13.80 37 12.98 36 10.88
Construction..................... -- 2.66 -- 2.19 -- 1.36
Consumer and other loans........... 50 18.50 50 18.20 50 14.72
------ ------ ------ ------ ------ ------
Balance, end of period......... $ 309 100.00% $ 317 100.00% $ 328 100.00%
====== ====== ====== ====== ====== ======
The following table sets forth information with respect to the
Association's allowance for loan losses at the dates indicated.
Three Months
Ended March 31, Year Ended December 31,
-------------------- ------------------------
1996 1995 1996 1994
-------- ------ -------- -------
(Dollars in thousands)
Balance at beginning of period................ $ 317 $ 328 $ 328 $ 333
Charge-offs:
First mortgage loans........................ -- -- -- --
Consumer and other loans.................... -- (1) ( 7) (14)
Recoveries:
First mortgage loans........................ -- -- -- --
Consumer and other loans.................... 1 15 17 7
------ ------ ------- -------
Net charge-offs........................... 1 14 10 (7)
Provision for loan losses (recoveries).. (9) (8) (21) 2
Balance, at end of period..................... $ 309 $ 334 $ 317 $ 328
======= ====== ======= =======
Allowance for loan losses as a percent
of net loans receivable at
end of period............................... 2.74% 2.88% 2.83% 2.86%
Ratio of net loans-charged off during
the period to average loans outstanding
during the period........................... 0.01% 0.13% 0.09% (0.07)%
Ratio of allowance for loan losses
to total non-performing loans
at end of period............................ 412.00% 491.18% 196.90% 529.04%
Ratio of allowance for loan losses
to total non-performing loans
and REO at end of period.................... 271.05% 298.22% 158.50% 306.54%
59
INVESTMENT ACTIVITIES
GENERAL. First Federal must maintain minimum levels of investments that
qualify as liquid assets under OTS regulations. Liquidity may increase or
decrease depending upon the availability of funds and comparative yields on
investments in relation to the return on loans. Historically, the Association
has generally maintained liquid assets at levels above the minimum requirements
imposed by the OTS regulations and at levels believed adequate to meet the
requirements of normal operations, including repayments of maturing debt and
potential deposit outflows. Cash flow projections are regularly reviewed and
updated to assure that adequate liquidity is maintained. At March 31, 1996, the
Association's liquidity ratio (liquid assets as a percentage of net withdrawable
savings deposits and current borrowings) was 10.0%. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources" and "Regulation - Liquidity."
Federally chartered savings institutions have the authority to invest in
various types of liquid assets, including United States Treasury obligations,
securities of various federal agencies, certain certificates of deposit of
insured banks and savings institutions, certain bankers' acceptances, repurchase
agreements and federal funds. Subject to various restrictions, federally
chartered savings institutions may also invest their assets in commercial paper,
investment grade corporate debt securities and mutual funds whose assets conform
to the investments that a federally chartered savings institution is otherwise
authorized to make directly.
Generally, the investment policy of the Association, as established by the
Board of Directors, is to invest funds among various categories of investments
and maturities based upon the Association's liquidity needs, asset/liability
management policies, investment quality, marketability and performance
objectives.
MORTGAGE-BACKED SECURITIES. The Association purchases mortgage-backed
securities to supplement residential loan production and as part of its
asset/liability strategy. The type of securities purchased is based upon the
Association's asset/liability management strategy and balance sheet objectives.
For instance, substantially all of the mortgage-backed investments purchased by
the Association over the last several years have had adjustable rates of
interest. Management believes that the adjustable rate feature of the mortgages
underlying adjustable rate mortgage-backed securities generally will help to
reduce changes in the value of the mortgage-backed security in response to
normal interest rate fluctuations. As the interest rates on the mortgages
underlying the adjustable rate mortgage-backed securities are reset
periodically, the yields of such securities will gradually align themselves to
reflect changes in the market rates so that the market value of such securities
will remain relatively constant as compared to fixed rate instruments. The
Association has invested primarily in federal agency securities, principally
Federal Home Loan Mortgage Corporation ("FHLMC"), Government National Mortgage
Association ("GNMA") and Federal National Mortgage Association ("FNMA")
obligations. At March 31, 1996, the Association's investment in mortgage-backed
securities totaled $15.2 million or 51.3% of its total assets. At March 31,
1996, $12.4 million of the Association's mortgage-backed securities were
classified as held-to-maturity and $2.8 million were classified as available for
sale. See Note 3 of the Notes to Financial Statements.
The FNMA, FHLMC and GNMA certificates are modified pass-through mortgage-
backed securities that represent undivided interests in underlying pools of
fixed-rate, or certain types of adjustable-rate, single-family residential
mortgages issued by these government-sponsored entities. As a result, the
interest rate risk characteristics of the underlying pool of mortgages, i.e.,
fixed rate or adjustable rate, as well as prepayment risk, are passed on to the
certificate holder. FNMA and FHLMC provide the certificate holder a guarantee of
timely payments of interest and ultimate collection of principal, whether or not
they have been collected. GNMA's guarantee to the holder timely payments of
principal and interest and are backed by the full faith and credit of the U.S.
government.
Mortgage-backed securities generally yield less than the loans that underlie
such securities, because of the cost of payment guarantees or credit
enhancements that reduce credit risk. In addition, mortgage-backed securities
are more liquid than individual mortgage loans and may be used to collateralize
obligations of the Association. In general, mortgage-backed securities issued or
guaranteed by FNMA and FHLMC are weighted at no more than 20% for risk-based
capital purposes, and mortgage-backed securities issued or guaranteed by GNMA
are weighted at 0% for risk-based capital purposes, compared to an assigned risk
weighting of 50% to 100% for whole residential mortgage loans. These types of
securities thus allow the Association to optimize regulatory capital to a
greater extent than non-securitized whole loans. The Association has sought to
improve the yield on its mortgage-backed securities portfolio by investing in
mortgage-backed securities with maturities in excess of 10 years.
60
While mortgage-backed securities carry a reduced credit risk as compared to
whole loans, such securities remain subject to the risk that a fluctuating
interest rate environment, along with other factors such as the geographic
distribution of the underlying mortgage loans, may alter the prepayment rate of
such mortgage loans and so affect both the prepayment speed, and value, of such
securities.
Set forth below is a table showing the Association's purchases and
repayments of mortgage-backed securities for the periods indicated. The
Association did not sell any mortgage-backed securities during the periods
indicated.
Three Months
Ended March 31, Year Ended December 31,
-------------------- -----------------------
1996 1995 1995 1994
-------- ------- ------- -------
(In Thousands)
Mortgage-backed securities at beginning
of period............................... $15,391 $13,257 $13,257 $13,943
Purchases.............................. 339 782 4,275 2,290
Repayments............................. (524) (527) (2,069) (2,845)
Discount (premium) amortization.......... (11) 41 (72) (131)
------- ------- ------- -------
Mortgage-backed securities
at end of period....................... $15,195 $13,553 $15,391 $13,257
======= ======= ======= =======
At March 31, 1996, the Association's investment securities consisted solely of
FHLB stock totaling $259,000. The Association invests excess liquidity in FHLB
overnight deposits.
OTS regulations restrict investments in corporate debt and equity
securities by the Association. These restrictions include prohibitions against
investments in the debt securities of any one issuer in excess of 15% of the
Association's unimpaired capital and unimpaired surplus as defined by federal
regulations, plus an additional 10% if the investments are fully secured by
readily marketable collateral. At March 31, 1996, the Association was in
compliance with this regulation. See "Regulation - Federal Regulation of
Savings Associations" for a discussion of additional restrictions on the
Association's investment activities.
The following table sets forth the carrying value of the Association's
FHLB stock and mortgage-backed securities at the dates indicated. At March 31,
1996, the market value of the Association's mortgage-backed portfolios and
investment securities was approximately $15.1 million and $259,000,
respectively.
At December 31,
At March 31, -------------------
1996 1995 1994
------- ------- -------
(In Thousands)
Mortgage-backed securities.... $15,195 $15,391 $13,257
Federal Home Loan Bank stock.. 259 260 248
------- ------- -------
Total investments......... $15,454 $15,651 $13,505
======= ======= =======
61
MORTGAGE-BACKED AND INVESTMENT PORTFOLIO MATURITIES. The following
table sets forth the scheduled maturities, carrying values, market values and
average yields for the Association's investment securities at March 31, 1996.
At March 31, 1996
-------------------------------------------------------------------------------------------------------
Five to More than Total
One Year or Less One to Five Years Ten Years Ten Years Investment Portfolio
------------------ ---------------- ------------------- ----------------- --------------------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Market Average
Value Yield Value Yield Value Yield Value Yield Value Value Yield
--------- ------- --------- ------- -------- ------- -------- -------- -------- ------- -------
Mortgage-backed and
investment securities held
to maturity:
GNMA certificates........ $ -- -- $ 9 6.10% $10 8.00% $ 383 6.70% $ 402 $ 401 6.72%
FHLMC certificates....... -- -- -- -- 19 7.25 4,353 6.36 4,372 4,379 6.36
FNMA certificates........ -- -- -- -- -- -- 7,536 6.50 7,536 7,434 6.50
Collateralized mortgage
obligations............ -- -- -- -- -- -- 87 7.25 87 80 7.25
FHLB Stock............... -- -- -- -- -- -- 259 5.86 259 259 5.86
------ ----- ---- ----- --- ---- ------- ---- ------- ------- -----
Total.................. $ -- --% $ 9 6.10% $29 7.71% $12,618 6.40% $12,656 $12,553 6.23%
====== ===== ==== ===== === ==== ======= ==== ======= ======= =====
Mortgage-backed and
investment securities
available for sale:
GNMA certificates........ $ -- -- $-- -- % $-- --% $ 585 6.94% $ 585 $ 585 6.94%
FHLMC certificates....... -- -- -- -- 11 7.38 771 7.24 782 782 7.24
FNMA certificates........ -- -- 188 4.88 -- -- 1,243 7.12 1,431 1,431 6.80
Collateralized mortgage
obligations............ -- -- -- -- -- -- -- -- -- -- --
------ ----- ---- ----- --- ---- ------- ---- ------- ------- ----
Total.................. $ -- --% $188 4.88% $11 7.41% $ 2,599 7.04% $ 2,798 $ 2,798 6.95%
====== ===== ==== ===== === ==== ======= ==== ======= ======= ====
62
The Association's investment securities portfolio at March 31, 1996,
contained neither tax-exempt securities nor securities of any issuer with an
aggregate book value in excess of 10% of the Association's retained earnings,
excluding those issued by the U.S. government, or its agencies.
SOURCES OF FUNDS
GENERAL. The Association's primary sources of funds are deposits,
receipt of principal and interest on loans and securities, interest-earning
deposits with other banks, FHLB advances, and other funds provided from
operations.
FHLB advances are used to support lending activities and to assist in
the Association's asset/liability management strategy. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Asset\Liability Management." Typically, the Association does not use other
forms of borrowings. At March 31, 1996, the Association had no FHLB advances.
DEPOSITS. First Federal offers a variety of deposit accounts having a
wide range of interest rates and terms. The Association's deposits consist of
passbook, commercial demand, NOW, money market deposit and certificate accounts.
The certificate accounts currently range in terms from 30 days to five years.
The Association relies primarily on advertising, competitive pricing
policies and customer service to attract and retain these deposits. Currently,
First Federal solicits deposits from its market area only, and does not use
brokers to obtain deposits. The flow of deposits is influenced significantly by
general economic conditions, changes in money market and prevailing interest
rates and competition.
The Association has become more susceptible to short-term fluctuations
in deposit flows as customers have become more interest rate conscious. The
Association endeavors to manage the pricing of its deposits in keeping with its
profitability objectives giving consideration to its asset/liability management.
Notwithstanding the foregoing, a significant percentage of the Association's
deposits are for terms of less than one year. At March 31, 1996, $16.3 million
or 59.9% of the Association's deposits were in certificates of deposits with
terms of 11 months or less. The Association believes that upon maturity most of
these deposits will remain at the Association. The ability of the Association
to attract and maintain savings accounts and certificates of deposit, and the
rates paid on these deposits, has been and will continue to be significantly
affected by market conditions.
63
SAVINGS PORTFOLIO
Deposits in the Association as of March 31, 1996, were represented by
the various types of deposit programs described below.
Weighted
Average Percentage
Interest Minimum Checking and Minimum of Total
Rate Term Savings Amount Balances Savings
- --------------------------- ---------------------- --------------------------- -------------- -------------------- -----------
(In Thousands)
0.00% None Non interest-bearing demand $ 5,000 $ 419 1.54%
2.20 None Passbook accounts 50 3,092 11.33
1.70 None Money market 2,500 939 3.44
2.12 None NOW accounts 100 3,208 11.76
Certificates of Deposit
-----------------------
5.04% 1-5 months Fixed term, fixed rate 2,500 10,259 37.60
5.29 6-11 months Fixed term, fixed rate 2,500 6,087 22.31
5.51 12-17 months Fixed term, fixed rate 1,000 2,111 7.74
5.53 18-23 months Fixed term, fixed rate 1,000 541 1.98
5.72 24-29 months Fixed term, fixed rate 1,000 171 0.63
5.07 30-35 months Fixed term, fixed rate 1,000 194 0.71
6.00 36-47 months Fixed term, fixed rate 1,000 24 0.09
6.38 48-53 months Fixed term, fixed rate 1,000 67 0.25
6.00 54-59 months Fixed term, fixed rate 1,000 44 0.16
6.00 60 months
or greater Fixed term, fixed rate 1,000 127 0.47
------ ------ ------
$27,283 100.00%
======= ======
DEPOSIT ACTIVITY
The following table sets forth the deposit activities of the Association for
the periods indicated:
Three Months Ended
March 31, Year Ended December 31,
--------------------------- --------------------------
1996 1995 1995 1994
------- -------- ----------- -----------
(In Thousands)
Deposits, beginning of
period........................... 26,583 $ 24,523 $ 24,523 $ 25,525
Deposits.......................... 15,089 14,687 57,787 46,051
Withdrawals....................... (14,686) (13,153) (56,808) (47,846)
Net increase (decrease) before ------- -------- -------- --------
interest credited............... 403 1,534 979 (1,795)
Interest credited................. 297 227 1,081 793
------- -------- -------- --------
Net increase (decrease)
in deposits.................... 700 1,761 2,060 (1,002)
Deposits, end of period.......... ------- -------- -------- --------
$27,283 $26,284 $ 26,583 $ 24,523
======= ======= ======== ========
64
Deposit Flow
The following table sets forth the change in dollar amount of savings
deposits in the various types of savings accounts offered by the Association
between the dates indicated.
At December 31,
At March 31, ------------------------------------------------------
1996 1995 1994
-------------------------------- -------------------------------- --------------------
Balance Percent (1) Change (2) Balance Percent (1) Change (2) Balance Percent (1)
------- ----------- ---------- ------- ----------- ---------- ------- -----------
(Dollars in Thousands)
Non interest-bearing demand.. $ 419 1.54% $ 88 $ 331 1.25% $ 39 $ 292 1.19%
NOW Accounts................. 3,208 11.76 235 2,973 11.18 (177) 3,150 12.85
Passbook savings............. 3,092 11.33 178 2,914 10.96 (489) 3,403 13.88
Money market deposit
accounts................... 939 3.44 (68) 1,007 3.79 (324) 1,331 5.43
Time deposits:
which mature
within 12 months........... 16,346 59.91 276 16,070 60.45 3,232 12,838 52.35
within 12-24 months........ 2,652 9.72 62 2,590 9.74 108 2,482 10.12
beyond 24 months........... 627 2.32 (71) 698 2.64 (329) 1,027 4.19
------- ------ ---- ------- ------ ------ ------- ------
Total............... $27,283 100.00% $700 $26,583 100.00% $2,060 $24,523 100.00%
======= ====== ==== ======= ====== ====== ======= ======
The following table indicates the amount of the Association's certificates of
deposit of $100,000 or more by time remaining until maturity at March 31, 1996.
Certificates
of Deposits
--------------
(In thousands)
Three months or less............ $1,036
Over three through six months... 1,325
Over six through twelve months.. 1,131
Over twelve months.............. 200
------
Total........................ $3,692
======
Time Deposits by Rates
The following table sets forth the time deposits in the Association classified
by rates as of the dates indicated.
December 31,
March 31, -----------------
1996 1995 1994
--------- ------- -------
(In Thousands)
3.99% or Less.............. $ 202 $ 172 $ 8,552
4.00 - 5.99%............... 17,628 17,180 6,803
6.00 - 7.99%............... 1,750 1,961 946
8.00 - 9.99%............... 45 45 46
------- ------- -------
$19,625 $19,358 $16,347
======= ======= =======
65
TIME DEPOSIT MATURITY SCHEDULE
The following table sets forth the amount and maturities of time deposits at
March 31, 1996.
Amount Due
------------------------------------------------------------------------------
Less Than 1-2 2-3 3-4 4-5 After
1 Year Years Years Years Years 5 Years Total
--------- ----- ----- ----- ----- ------- -----
(In Thousands)
Rate
- ----
3.99% or Less.......... $ 202 $ -- $ -- $ -- $ -- $ -- $ 202
4.00 - 5.99%........... 15,302 2,063 263 -- -- -- 17,628
6.00 - 7.99%........... 799 589 100 25 110 127 1,750
8.00 - 9.99%........... 43 -- 2 -- -- -- 45
--------- ------ ----- ------ ----- ------- -------
$ 16,346 $2,652 $ 365 $ 25 $ 110 $ 127 $19,625
========= ====== ===== ====== ===== ======= =======
BORROWINGS. First Federal's borrowings historically have consisted of
advances from the FHLB of Dallas. Such advances may be made pursuant to
different credit programs, each of which has its own interest rate and range of
maturities. Federal law limits an institution's borrowings from the FHLB to 20
times the amount paid for capital stock in the FHLB, subject to regulatory
collateral requirements. At March 31, 1996, the Association had no advances from
the FHLB. The Association has the ability to purchase additional capital stock
from the FHLB. For additional information regarding the term to maturity and
average rate paid on FHLB advances, see Note 10 of the Notes to Financial
Statements.
The following table sets forth the maximum month-end balance and average
balance of FHLB advances.
During the
Three Months Ended During the
March 31, Year Ended December 31,
------------------------------ --------------------------------
1996 1995 1995 1994
---- ---- ---- ----
(In Thousands)
FHLB advances
Maximum balance................... $-- $-- $-- $500
Average balance................... $-- $53 $62 $316
EMPLOYEES
At March 31, 1996, the Association had a total of 12 full-time and 2 part-time
employees. The Association's employees are not represented by any collective
bargaining group. Management considers its employee relations to be excellent.
PROPERTIES
The Association conducts its business through one office, located in Oakdale,
Louisiana in Allen Parish. The following table sets forth information relating
to the Association's office as of March 31, 1996. The total net book value of
the Association's premises and equipment (including land, buildings and
leasehold improvements and furniture, fixtures and equipment) at March 31, 1996
was approximately $301,000.
66
Total
Approximate
Year Square Net Book Value at
Location Opened Footage March 31, 1996
- ------------------------ ------ ----------- -----------------
Main Office: 1975 4,100 $134,000
222 South 10th Street
Oakdale, Louisiana
LEGAL PROCEEDINGS
First Federal is involved, from time to time, as plaintiff or defendant in
various legal actions arising in the normal course of their businesses. While
the ultimate outcome of these proceedings cannot be predicted with certainty, it
is the opinion of management, after consultation with counsel representing First
Federal in the proceedings, that the resolution of these proceedings should not
have a material effect on the Holding Company's financial position or results of
operations on a consolidated basis.
REGULATION
GENERAL
As a federally chartered savings institution, the Association is subject to
extensive regulation by the OTS. Both the OTS and FDIC, as insurer of deposit
accounts, periodically examine the Association for compliance with various
regulatory requirements. The Association must file reports with the OTS
describing its activities and financial condition. The Association is also
subject to certain reserve requirements promulgated by the Board of Governors of
the Federal Reserve System ("Federal Reserve Board"). This supervision and
regulation is intended primarily for the protection of depositors. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes. Any
change in such regulation, whether by the OTS, the FDIC or the Congress could
have a material adverse impact on the Company, the Association and their
operations. As a savings association holding company, the Company will be
subject to OTS regulation, examination, supervision and reporting requirements.
Certain of these regulatory requirements are referred to below or appear
elsewhere herein.
FEDERAL REGULATION OF SAVINGS ASSOCIATIONS
The OTS has extensive authority over the operations of savings associations.
As part of this authority, the Association is required to file periodic reports
with the OTS and is subject to periodic examinations by the OTS and the FDIC.
The last regular OTS and FDIC examinations of the Association were as of
December 1994. When these examinations are conducted by the OTS and the FDIC,
the examiners may require the Association to provide for higher general or
specific loan loss reserves.
All savings associations are subject to a semi-annual assessment, based upon
the savings association's total assets. The Association's OTS assessment for the
fiscal year ended December 31, 1995, was approximately $9,500.
The OTS also has extensive enforcement authority over all savings institutions
and their holding companies, including the Association and the Holding Company.
This enforcement authority includes, among other things, the ability to assess
civil money penalties, to issue cease-and-desist or removal orders and to
initiate injunctive actions. In general, these enforcement actions may be
initiated for violations of laws and regulations and unsafe or unsound
practices. Other actions or inactions may provide the basis for enforcement
action, including misleading or untimely
67
reports filed with the OTS. Except under certain circumstances, public
disclosure of final enforcement actions by the OTS is required.
In addition, the investment, lending and branching authority of the
Association is prescribed by federal laws, and regulations, and it is prohibited
from engaging in any activities not permitted by such laws and regulations. For
instance, no savings institution may invest in non-investment grade corporate
debt securities. In addition, the permissible level of investment by federal
associations in loans secured by non-residential real property may not exceed
400% of total capital, except with approval of the OTS. Federal savings
associations are also generally authorized to branch nationwide. The Association
is in compliance with the noted restrictions.
The Association's general permissible lending limit for loans-to-one-borrower
is equal to the greater of $500,000 or 15% of unimpaired capital and surplus
(except for loans fully secured by certain readily marketable collateral, in
which case this limit is increased to 25% of unimpaired capital and surplus).
The Association is in compliance with the loans to one borrower limitation.
The OTS, as well as the other federal banking agencies, has adopted guidelines
establishing safety and soundness standards on such matters as loan underwriting
and documentation, internal controls and audit systems, interest rate risk
exposure and compensation and other employee benefits. Any institution which
fails to comply with these standards must submit a capital compliance plan. A
failure to submit a plan or to comply with an approved plan will subject the
institution to further enforcement action. The OTS and the other federal banking
agencies have also proposed additional guidelines on asset quality and earnings
standards. No assurance can be given as to whether or in what form the proposed
regulations will be adopted. The guidelines are not expected to materially
effect the Association.
INSURANCE OF ACCOUNTS AND REGULATION BY THE FDIC
First Federal is a member of the SAIF, which is administered by the FDIC.
Deposits are insured up to applicable limits by the FDIC and such insurance is
backed by the full faith and credit of the United States Government. As insurer,
the FDIC imposes deposit insurance premiums and is authorized to conduct
examinations of and to require reporting by FDIC-insured institutions. It also
may prohibit any FDIC-insured institution from engaging in any activity the FDIC
determines by regulation or order to pose a serious risk to the FDIC. The FDIC
also has the authority to initiate enforcement actions against savings
associations, after giving the OTS an opportunity to take such action, and may
terminate the deposit insurance if it determines that the institution has
engaged or is engaging in unsafe or unsound practices, or is in an unsafe or
unsound condition.
The FDIC's deposit insurance premiums for SAIF-insured institutions are
assessed through a risk-based system under which all insured depository
institutions are placed into one of nine categories and assessed insurance
premiums, ranging from .23% to .31% of deposits, based upon their level of
capital and supervisory evaluation. Under the system, institutions classified as
well capitalized (i.e., a core capital ratio of at least 5%, a ratio of core
capital to risk-weighted assets of at least 6% and a risk-based capital ratio of
at least 10%) and considered healthy would pay the lowest premium while
institutions that are less than adequately capitalized (i.e., a core capital or
core capital to risk-based capital ratios of less than 4% or a risk-based
capital ratio of less than 8%) and considered of substantial supervisory concern
would pay the highest premium. Risk classification of all insured institutions
will be made by the FDIC for each semi-annual assessment period.
The FDIC is authorized to increase assessment rates, on a semiannual basis, if
it determines that the reserve ratio of the SAIF will be less than the
designated reserve ratio of 1.25% of SAIF insured deposits. In setting these
increased assessments, the FDIC must seek to restore the reserve ratio to that
designated reserve level, or such higher reserve ratio as established by the
FDIC. The FDIC may also impose special assessments on SAIF members to repay
amounts borrowed from the United States Treasury or for any other reason deemed
necessary by the FDIC. See "Risk Factors -Disparity Between BIF and SAIF
Insurance Premiums."
As is the case with the SAIF, the FDIC is authorized to adjust the insurance
premium rates for banks that are insured by the Bank Insurance Fund (the "BIF")
of the FDIC in order to maintain the reserve ratio of the BIF at 1.25%
68
of BIF insured deposits. On August 8, 1995, the FDIC revised the premium
schedule to provide a range of .04% to .31% of deposits so that well-capitalized
and healthy banks would pay the lowest premiums. This action was taken because
the FDIC anticipates that the BIF will reach the required reserve ratio in mid-
1995 as a result of the decrease in bank failures in the past few years. In the
fourth quarter of 1995 the FDIC reduced the assessments paid by the majority of
BIF-insured institutions to the statutory minimum of $2,000.
The disparity in insurance premiums is expected to adversely affect the
Association and other SAIF members. It may have the effect of permitting BIF-
insured banks to offer loan and deposit products on more attractive terms than
SAIF members due to the cost savings achieved through lower deposit premiums,
thereby placing SAIF members at a competitive disadvantage. A number of
proposals are being considered to recapitalize the SAIF in order to eliminate
this disparity. One plan currently being considered by the Treasury Department,
the FDIC and the Congress provides for a one time assessment of .85% to .90% to
be imposed on all SAIF-insured deposits, including those held by commercial
banks, and for BIF deposit insurance premiums to be used to pay the FICO bond
interest on a pro rata basis together with SAIF premiums. The BIF and SAIF would
be merged into one fund as soon as practicable, but no later than January 1,
1998. Based upon total deposits at March 31, 1996, the Association would have
paid a special assessment of approximately $232,000 or $246,000, respectively,
if a special assessment of .85% or .90% had been implemented at that date. There
can be no assurance that any particular proposal will be implemented or that
premiums for either BIF or SAIF members will not be adjusted in the future by
the FDIC or by legislative action.
REGULATORY CAPITAL REQUIREMENTS
Federally insured savings associations, such as the Association, are required
to maintain a minimum level of regulatory capital. The OTS has established
capital standards, including a tangible capital requirement, a leverage ratio
(or core capital) requirement and a risk-based capital requirement applicable to
such savings associations. Generally, these capital requirements must be
generally as stringent as the comparable capital requirements for national
banks. The OTS is also authorized to impose capital requirements in excess of
these standards on individual associations on a case-by-case basis.
The capital regulations require tangible capital of at least 1.5% of adjusted
total assets (as defined by regulation). Tangible capital generally includes
common stockholders' equity and retained income, and certain noncumulative
perpetual preferred stock and related income. In addition, all intangible
assets, other than a limited amount of purchased mortgage servicing rights, must
be deducted from tangible capital for calculating compliance with the
requirement. Further, the valuation allowance applicable to the write-down of
investments and mortgage-backed securities in accordance with SFAS No. 115 is
excluded from the regulatory capital calculation.
For a description of regulatory capital requirements which are applicable to
the Association and the Association's compliance therewith see "Pro Forma
Regulatory Capital."
The OTS has adopted a final rule that requires every savings association with
more than normal interest rate risk exposure to deduct from its total capital,
for purposes of determining compliance with such requirement, an amount equal to
50% of its interest-rate risk exposure multiplied by the present value of its
assets. This exposure is a measure of the potential decline in the net portfolio
value of a savings association, greater than 2% of the present value of its
assets, based upon a hypothetical 200 basis point increase or decrease in
interest rates (whichever results in a greater decline). Net portfolio value is
the present value of expected cash flows from assets, liabilities and off-
balance sheet contracts. The rule provides for a two quarter lag between
calculating interest rate risk and recognizing any deduction from capital. The
rule will not become effective until the OTS adopts the process by which savings
associations may appeal an interest rate risk deduction determination. Any
savings association with less than $300 million in assets and a total risk-based
capital ratio in excess of 12% is exempt from this requirement unless the OTS
determines otherwise. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Asset/Liability Management" for
information regarding the effect of this rule on the Association.
Pursuant to FDICIA, the federal banking agencies, including the OTS, have also
proposed regulations authorizing the agencies to require a depository
institution to maintain additional total capital to account for
69
concentration of credit risk and the risk of non-traditional activities. No
assurance can be given as to the final form of any such regulation.
The OTS and the FDIC are authorized and, under certain circumstances required,
to take certain actions against savings associations that fail to meet their
capital requirements. Effective December 19, 1992, the federal banking agencies,
including the OTS, were given additional enforcement authority over
undercapitalized depository institutions. The OTS is generally required to take
action to restrict the activities of an "undercapitalized association"
(generally defined to be one with less than either a 4% core capital ratio, a 4%
Tier 1 risked-based capital ratio or an 8% risk-based capital ratio). Any such
association must submit a capital restoration plan and until such plan is
approved by the OTS may not increase its assets, acquire another institution,
establish a branch or engage in any new activities, and generally may not make
capital distributions. The OTS is authorized to impose the additional
restrictions that are applicable to significantly undercapitalized associations.
As a condition to the approval of the capital restoration plan, any company
controlling an undercapitalized association must agree that it will enter into a
limited capital maintenance guarantee with respect to the institution's
achievement of its capital requirements.
Any savings association that fails to comply with its capital plan or is
"significantly undercapitalized" (i.e., Tier 1 risk-based or core capital ratios
of less than 3% or a risk-based capital ratio of less than 6%) must be made
subject to one or more of additional specified actions and operating
restrictions, which may cover all aspects of its operations and include a forced
merger or acquisition of the association. An association that becomes
"critically undercapitalized" (i.e., a tangible capital ratio of 2% or less) is
subject to further mandatory restrictions on its activities in addition to those
applicable to significantly undercapitalized associations. In addition, the OTS
must appoint a receiver (or conservator with the concurrence of the FDIC) for a
savings association, with certain limited exceptions, within 90 days after it
becomes critically undercapitalized.
Any undercapitalized association is also subject to the general enforcement
activity of the OTS and the FDIC, including the appointment of a receiver or
conservator.
The OTS is also generally authorized to reclassify an association into a lower
capital category and impose restrictions applicable to such category if the
institution is engaged in unsafe or unsound practices or is in an unsafe or
unsound condition.
The imposition by the OTS or the FDIC of any of these measures on First
Federal may have a substantial adverse effect on the Association's operations
and profitability and the value of the Common Stock purchased in the Conversion.
Holding Company shareholders do not have preemptive rights, and therefore, if
the Holding Company is directed by the OTS or the FDIC to issue additional
shares of Common Stock, such issuance may result in the dilution in the
percentage of ownership of the Holding Company of those persons purchasing
shares in the Conversion.
LIMITATIONS ON DIVIDENDS AND OTHER CAPITAL DISTRIBUTIONS
OTS regulations impose various restrictions or requirements on associations
with respect to their ability to pay dividends or make other distributions of
capital. OTS regulations prohibit an association from declaring or paying any
dividends or from repurchasing any of its stock if, as a result, the regulatory
capital of the association would be reduced below the amount required to be
maintained for the liquidation account established in connection with its mutual
to stock conversion. See "The Conversion - Effects of Conversion to Stock Form
on Depositors and Borrowers of the Association" and "- Restrictions on
Repurchase of Stock."
The OTS utilizes a three-tiered approach to permit associations, based on
their capital level and supervisory condition, to make capital distributions
which include dividends, stock redemptions or repurchases, cash-out mergers and
other transactions charged to the capital account. See "- Regulatory Capital
Requirements."
70
Generally, Tier 1 associations, which are associations that before and after
the proposed distribution meet their fully phased-in capital requirements, may
make capital distributions during any calendar year equal to the greater of 100%
of net income for the year-to-date plus 50% of the amount by which the lesser of
the association's tangible, core or risk-based capital exceeds its fully phased-
in capital requirement for such capital component, as measured at the beginning
of the calendar year, or the amount authorized for a Tier 2 association.
However, a Tier 1 association deemed to be in need of more than normal
supervision by the OTS may be downgraded to a Tier 2 or Tier 3 association as a
result of such a determination. The Association meets the requirements for a
Tier 1 association and has not been notified of a need for more than normal
supervision. Tier 2 associations, which are associations that before and after
the proposed distribution meet their current minimum capital requirements, may
make capital distributions of up to 75% of net income over the most recent four
quarter period.
Tier 3 associations (which are associations that do not meet current minimum
capital requirements) that propose to make any capital distribution and Tier 2
associations that propose to make a capital distribution in excess of the noted
safe harbor level must obtain OTS approval prior to making such distribution.
Tier 2 associations proposing to make a capital distribution within the safe
harbor provisions and Tier 1 associations proposing to make any capital
distribution need only submit written notice to the OTS 30 days prior to such
distribution. As a subsidiary of the Holding Company, the Association will also
be required to give the OTS 30 days' notice prior to declaring any dividend on
its stock. The OTS may object to the distribution during that 30-day period
based on safety and soundness concerns. See "- Regulatory Capital Requirements."
The OTS has proposed regulations that would revise the current capital
distribution restrictions. The proposal eliminates the current tiered structure
and the safe-harbor percentage limitations. Under the proposal a savings
association may make a capital distribution without notice to the OTS (unless it
is a subsidiary of a holding company) provided that it has a CAMEL 1 or 2
rating, is not in troubled condition and would remain adequately capitalized (as
defined by regulation) following the proposed distribution. Savings associations
that would remain adequately capitalized following the proposed distribution but
do not meet the other noted requirements must notify the OTS 30 days prior to
declaring a capital distribution. The OTS stated it will generally regard as
permissible that amount of capital distributions that do not exceed 50% of the
institution's excess regulatory capital plus net income to date during the
calendar year. A savings association may not make a capital distribution without
prior approval of the OTS and the FDIC if it is undercapitalized before, or as a
result of, such a distribution. A savings association will be considered in
troubled condition if it has a CAMEL rating of 4 or 5, is subject to an
enforcement action relating to its safety and soundness or financial viability
or has been informed in writing by the OTS that it is in troubled condition. As
under the current rule, the OTS may object to a capital distribution if it would
constitute an unsafe or unsound practice. No assurance may be given as to
whether or in what form the regulations may be adopted.
LIQUIDITY
All savings associations, including the Association, are required to maintain
an average daily balance of liquid assets equal to a certain percentage of the
sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. For a discussion of what the Association
includes in liquid assets, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources." This liquid asset ratio requirement may vary from time to time
(between 4% and 10%) depending upon economic conditions and savings flows of all
savings associations. At the present time, the minimum liquid asset ratio is
5%.
In addition, short-term liquid assets (e.g., cash, certain time deposits,
certain bankers acceptances and short-term United States Treasury obligations)
currently must constitute at least 1% of the association's average daily balance
of net withdrawable deposit accounts and current borrowings. Penalties may be
imposed upon associations for violations of either liquid asset ratio
requirement. At March 31, 1996, the Association was in compliance with both
requirements, with an overall liquid asset ratio of 10.0% and a short-term
liquid assets ratio of 7.2%.
71
ACCOUNTING
An OTS policy statement applicable to all savings associations clarifies and
re-emphasizes that the investment activities of a savings association must be in
compliance with approved and documented investment policies and strategies, and
must be accounted for in accordance with GAAP. Under the policy statement,
management must support its classification of and accounting for loans and
securities (i.e., whether held for investment, sale or trading) with appropriate
documentation.
The OTS has adopted an amendment to its accounting regulations, which may be
made more stringent than GAAP by the OTS, to require that transactions be
reported in a manner that best reflects their underlying economic substance and
inherent risk and that financial reports must incorporate any other accounting
regulations or orders prescribed by the OTS. The Association is in compliance
with these amended rules.
QUALIFIED THRIFT LENDER TEST
All savings associations, including the Association, are required to meet a
qualified thrift lender ("QTL") test to avoid certain restrictions on their
operations. This test requires a savings association to have at least 65% of its
portfolio assets (as defined by regulation) in qualified thrift investments on a
monthly average for nine out of every 12 months on a rolling basis. Such assets
primarily consist of residential housing related loans and investments. At March
31, 1996, the Association complied with the QTL requirement.
Any savings association that fails to meet the QTL test must convert to a
national bank charter, unless it requalifies as a QTL and thereafter remains a
QTL. If an association does not requalify and converts to a national bank
charter, it must remain SAIF-insured until the FDIC permits it to transfer to
the BIF. If such an association has not yet requalified or converted to a
national bank, its new investments and activities are limited to those
permissible for both a savings association and a national bank, and it is
limited to national bank branching rights in its home state. In addition, the
association is immediately ineligible to receive any new FHLB borrowings and is
subject to national bank limits for payment of dividends. If such association
has not requalified or converted to a national bank within three years after the
failure, it must divest of all investments and cease all activities not
permissible for a national bank. In addition, it must repay promptly any
outstanding FHLB borrowings, which may result in prepayment penalties. If any
association that fails the QTL test is controlled by a holding company, then
within one year after the failure, the holding company must register as a bank
holding company and become subject to all restrictions on bank holding
companies. See "- Holding Company Regulation."
COMMUNITY REINVESTMENT ACT
Under the Community Reinvestment Act ("CRA"), every FDIC insured institution
has a continuing and affirmative obligation consistent with safe and sound
banking practices to help meet the credit needs of its entire community,
including low and moderate income neighborhoods. The CRA does not establish
specific lending requirements or programs for financial institutions nor does it
limit an institution's discretion to develop the types of products and services
that it believes are best suited to its particular community, consistent with
the CRA. The CRA requires the OTS, in connection with the examination of the
Association, to assess the institution's record of meeting the credit needs of
its community and to take such record into account in its evaluation of certain
applications, such as a merger or the establishment of a branch, by the
Association. An unsatisfactory rating may be used as the basis for the denial of
an application by the OTS.
The federal banking agencies, including the OTS, have recently revised the CRA
regulations and the methodology for determining an institution's compliance with
the CRA. Due to the heightened attention being given to the CRA in the past few
years, the Association may be required to devote additional funds for investment
and lending in its local community. The Association was examined for CRA
compliance in 1996 and received a rating of "Satisfactory", as indicated in the
OTS Community Reinvestment Act Performance Evaluation public disclosure dated
April 1, 1996.
72
TRANSACTIONS WITH AFFILIATES
Generally, transactions between a savings association or its subsidiaries and
its affiliates are required to be on terms as favorable to the association as
transactions with non-affiliates. In addition, certain of these transactions,
such as loans to an affiliate, are restricted to a percentage of the
association's capital. Affiliates of the Association include the Holding Company
and any company which is under common control with the Association. In addition,
a savings association may not lend to any affiliate engaged in activities not
permissible for a bank holding company or acquire the securities of most
affiliates.
Certain transactions with directors, officers or controlling persons are also
subject to conflict of interest regulations enforced by the OTS. These conflict
of interest regulations and other statutes also impose restrictions on loans to
such persons and their related interests. Among other things, such loans must be
made on terms substantially the same as for loans to unaffiliated individuals.
HOLDING COMPANY REGULATION
The Holding Company will be a unitary savings and loan holding company subject
to regulatory oversight by the OTS. As such, the Holding Company is required to
register and file reports with the OTS and is subject to regulation and
examination by the OTS. In addition, the OTS has enforcement authority over the
Holding Company and its non-savings association subsidiaries which also permits
the OTS to restrict or prohibit activities that are determined to be a serious
risk to the subsidiary savings association.
As a unitary savings and loan holding company, the Holding Company generally
is not subject to activity restrictions. If the Holding Company acquires control
of another savings association as a separate subsidiary, it would become a
multiple savings and loan holding company, and the activities of the Holding
Company and any of its subsidiaries (other than the Association or any other
SAIF-insured savings association) would become subject to such restrictions
unless such other associations each qualify as a QTL and were acquired in a
supervisory acquisition.
If the Association fails the QTL test, the Holding Company must obtain the
approval of the OTS prior to continuing after such failure, directly or through
its other subsidiaries, any business activity other than those approved for
multiple savings and loan holding companies or their subsidiaries. In addition,
within one year of such failure the Holding Company must register as, and will
become subject to, the restrictions applicable to bank holding companies. The
activities authorized for a bank holding company are more limited than are the
activities authorized for a unitary or multiple savings and loan holding
company. See "- Qualified Thrift Lender Test."
The Holding Company must obtain approval from the OTS before acquiring control
of any other SAIF-insured association. Such acquisitions are generally
prohibited if they result in a multiple savings and loan holding company
controlling savings associations in more than one state. However, such
interstate acquisitions are permitted based on specific state authorization or
in a supervisory acquisition of a failing savings association.
FEDERAL SECURITIES LAW
The stock of the Holding Company will be registered with the SEC under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Holding
Company will be subject to the information, proxy solicitation, insider trading
restrictions and other requirements of the SEC under the Exchange Act.
Holding Company stock held by persons who are affiliates (generally officers,
directors and principal stockholders) of the Holding Company may not be resold
without registration or unless sold in accordance with certain resale
restrictions. If the Holding Company meets specified current public information
requirements, each affiliate of the Holding Company is able to sell in the
public market, without registration, a limited number of shares in any three-
month period.
73
FEDERAL RESERVE SYSTEM
The Federal Reserve Board requires all depository institutions to maintain
non-interest bearing reserves at specified levels against their transaction
accounts (primarily checking, NOW and Super NOW checking accounts). At March
31, 1996, the Association was in compliance with these reserve requirements.
The balances maintained to meet the reserve requirements imposed by the
Federal Reserve Board may be used to satisfy liquidity requirements that may
be imposed by the OTS. See "- Liquidity."
Savings associations are authorized to borrow from the Federal Reserve Bank
"discount window," but Federal Reserve Board regulations require associations to
exhaust other reasonable alternative sources of funds, including FHLB
borrowings, before borrowing from the Federal Reserve Bank.
FEDERAL HOME LOAN BANK SYSTEM
The Association is a member of the FHLB of Dallas, which is one of 12 regional
FHLBs, that administers the home financing credit function of savings
associations. Each FHLB serves as a reserve or central bank for its members
within its assigned region. It is funded primarily from proceeds derived from
the sale of consolidated obligations of the FHLB System. It makes loans to
members (i.e., advances) in accordance with policies and procedures established
by the board of directors of the FHLB. These policies and procedures are subject
to the regulation and oversight of the Federal Housing Finance Board. All
advances from the FHLB are required to be fully secured by sufficient collateral
as determined by the FHLB. In addition, all long-term advances are required to
provide funds for residential home financing.
As a member, the Association is required to purchase and maintain stock in the
FHLB of Dallas. At March 31, 1996, the Association had $259,000 of FHLB stock,
which was in compliance with this requirement. In past years, the Association
has received substantial dividends on its FHLB stock. Over the past five fiscal
years such dividends have averaged 4.87% and were 6.18% for the three months
ended March 31, 1996. No assurance can be given that such dividends will
continue in the future at such levels.
Under federal law, the FHLBs are required to provide funds for the resolution
of troubled savings associations and to contribute to low- and moderately priced
housing programs through direct loans or interest subsidies on advances targeted
for community investment and low- and moderate-income housing projects. These
contributions have affected adversely the level of FHLB dividends paid and could
continue to do so in the future. These contributions could also have an adverse
effect on the value of FHLB stock in the future. A reduction in value of the
Association's FHLB stock may result in a corresponding reduction in the
Association's capital.
FEDERAL AND STATE TAXATION
FEDERAL TAXATION. Savings associations such as the Association that meet
certain definitional tests relating to the composition of assets and other
conditions prescribed by the Internal Revenue Code of 1986, as amended (the
"Code"), are permitted to establish reserves for bad debts and to make annual
additions thereto which may, within specified formula limits, be taken as a
deduction in computing taxable income for federal income tax purposes. The
amount of the bad debt reserve deduction for "non-qualifying loans" is computed
under the experience method. The amount of the bad debt reserve deduction for
"qualifying real property loans" (generally loans secured by improved real
estate) may be computed under either the experience method or the percentage of
taxable income method (based on an annual election).
Under the experience method, the bad debt reserve deduction is an amount
determined under a formula based generally upon the bad debts actually sustained
by the savings association over a period of years.
The percentage of specially computed taxable income that is used to compute a
savings association's bad debt reserve deduction under the percentage of taxable
income method (the "percentage bad debt deduction") is 8%. The percentage bad
debt deduction thus computed is reduced by the amount permitted as a deduction
for non-qualifying loans
74
under the experience method. The availability of the percentage of taxable
income method permits qualifying savings associations to be taxed at a lower
effective federal income tax rate than that applicable to corporations generally
(approximately 31.3% assuming the maximum percentage bad debt deduction).
If an association's specified assets (generally, loans secured by residential
real estate or deposits, educational loans, cash and certain government
obligations) constitute less than 60% of its total assets, the association may
not deduct any addition to a bad debt reserve and generally must include
existing reserves in income over a four-year period. No representation can be
made as to whether the Association will meet the 60% test for subsequent taxable
years.
Under the percentage of taxable income method, the percentage bad debt
deduction cannot exceed the amount necessary to increase the balance in the
reserve for "qualifying real property loans" to an amount equal to 6% of such
loans outstanding at the end of the taxable year or the greater of (I) the
amount deductible under the experience method or (ii) the amount which when
added to the bad debt deduction for "non-qualifying loans" equals the amount by
which 12% of the amount comprising savings accounts at year end exceeds the sum
of surplus, undivided profits and reserves at the beginning of the year. At
March 31, 1996, the 6% and 12% limitations did not restrict the percentage bad
debt deduction available to the Association. It is possible that these
limitations will be a limiting factor in the future.
In addition to the regular federal income tax, corporations, including savings
associations such as the Association, generally are subject to a minimum tax. An
alternative minimum tax is imposed at a minimum tax rate of 20% on alternative
minimum taxable income, which is the sum of a corporation's regular taxable
income (with certain adjustments) and tax preference items, less any available
exemption. The alternative minimum tax is imposed to the extent it exceeds the
corporation's regular income tax and net operating losses can offset no more
than 90% of alternative minimum taxable income. For taxable years beginning
after 1986 and before 1996, corporations, including savings associations such as
the Association, are also subject to an environmental tax equal to 0.12% of the
excess of alternative minimum taxable income for the taxable year (determined
without regard to net operating losses and the deduction for the environmental
tax) over $2 million.
To the extent earnings appropriated to a savings association's bad debt
reserves for "qualifying real property loans" and deducted for federal income
tax purposes exceed the allowable amount of such reserves computed under the
experience method and to the extent of the Association's supplemental reserves
for losses on loans ("Excess"), such Excess may not, without adverse tax
consequences, be utilized for the payment of cash dividends or other
distributions to a shareholder (including distributions on redemption,
dissolution or liquidation) or for any other purpose (except to absorb bad debt
losses). As of March 31, 1996, the Association's excess for tax purposes totaled
approximately $1.6 million.
The Association files federal income tax returns on a calendar year basis
using the cash method of accounting. Savings associations, such as the
Association, that file federal income tax returns as part of a consolidated
group are required by applicable Treasury regulations to reduce their taxable
income for purposes of computing the percentage bad debt deduction for losses
attributable to activities of the non-savings association members of the
consolidated group that are functionally related to the activities of the
savings association member.
The Association has not been audited by the IRS recently with respect to
federal income tax returns. In the opinion of management, any examination of
still open returns would not result in a deficiency which could have a material
adverse effect on the financial condition of the Association.
STATE TAXATION. The Louisiana Corporation Income Tax Act provides for an
exemption from the Louisiana Corporation Income Tax for mutual savings banks and
for banking corporations, which includes stock association (e.g., the
Association). However, this exemption does not extend to non-banking entities
such as the Company. The non-banking subsidiaries of the Association (as well as
the Company) are subject to the Louisiana Corporate Income Tax based on their
Louisiana taxable income, as well as franchise taxes. The Louisiana Corporation
Income Tax applies at graduated rates from 4% upon the first $25,000 of
Louisiana taxable income to 8% on all Louisiana taxable income in excess of
$200,000. For these purposes, "Louisiana taxable income" means net income which
is earned within or derived from sources within the State of Louisiana, after
adjustments permitted under Louisiana law including a federal income
75
tax deduction and an allowance for net operating losses, if any. In addition,
the Association will become subject to the Louisiana Shares Tax after the
Conversion, which will be imposed on the assessed value of the Association's
stock. The formula for deriving the assessed value is to calculate 15% of the
sum of (i) 20% of a corporation's capitalized earnings, plus (ii) 80% of a
corporation's taxable stockholders' equity, and to subtract from that amount 50%
of a corporation's real and personal property assessment. Other various items
may also be subtracted in calculating a corporation's capitalized earnings.
DELAWARE TAXATION. As a Delaware holding company, the Holding Company is
exempted from Delaware corporate income tax but is required to file an annual
report with and pay an annual fee to the State of Delaware. The Holding Company
is also subject to an annual franchise tax imposed by the State of Delaware.
76
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE HOLDING COMPANY
The Board of Directors of the Holding Company currently consists of six
members, each of whom is also a director of the Association. See "Management -
Directors of the Association." Each Director of the Holding Company has served
as such since the Holding Company's incorporation in June 1996. Directors of the
Holding Company will serve three-year staggered terms so that approximately one-
third of the directors will be elected at each annual meeting of stockholders.
The terms of the current directors of the Holding Company are the same as their
terms as directors of the Association. The Holding Company intends to pay
directors a fee of $2,000 per annum, payable quarterly. See "-Directors of the
Association."
The executive officers of the Holding Company, each of whom held his or her
present position since June 1996, are elected annually and hold office until his
or her respective successor has been elected and qualified or until death,
resignation or removal by the Board of Directors. The executive officers of the
Holding Company, are set forth below. See "- Executive Officers Who are Not
Directors."
Name Title
- --------------------- -------------------------------------
Charles L. Galligan President and Chief Executive Officer
Betty Jean Parker Treasurer and Chief Financial Officer
It is not anticipated that the executive officers of the Holding Company will
receive any remuneration in their capacity as Holding Company executive
officers. For information regarding compensation of directors and executive
officers of the Association, see "- Compensation and Meetings of the Board of
Directors of the Association" and "- Executive Compensation."
COMMITTEES OF THE HOLDING COMPANY
The Holding Company formed standing Audit, Nominating and Compensation
Committees in connection with its organization in June 1996.
The Audit Committee will review audit reports and related matters to ensure
effective compliance with regulations and internal policies and procedures. This
committee also will act on the recommendation by management of an accounting
firm to perform the Holding Company's annual audit and acts as a liaison between
the auditors and the Board. The current members of this committee are Directors
Sandefur, Riley and Leslie A. Smith.
The Nominating Committee will meet annually in order to nominate candidates
for membership on the Board of Directors. This committee is comprised of the
Board members who are not up for election.
The Compensation Committee will establish the Holding Company's compensation
policies and review compensation matters. The current members of this Committee
are Directors Sandefur, Riley and Boyd.
77
INDEMNIFICATION
The Certificate of Incorporation of the Holding Company provides that a
director or officer of the Holding Company shall be indemnified by the Holding
Company to the fullest extent authorized by the Delaware General Corporation Law
against all expenses, liability and loss reasonably incurred or suffered by such
person in connection with his activities as a director or officer or as a
director or officer of another company, if the director or officer held such
position at the request of the Holding Company. Delaware law requires that such
director, officer, employee or agent, in order to be indemnified, must have
acted in good faith and in a manner reasonably believed to be not opposed to the
best interests of the Holding Company and, with respect to any criminal action
or proceeding, either had reasonable cause to believe such conduct was lawful or
did not have reasonable cause to believe his conduct was unlawful.
The Certificate of Incorporation and Delaware law also provide that the
indemnification provisions of such Certificate and the statute are not exclusive
of any other right which a person seeking indemnification may have or later
acquire under any statute, provision of the Certificate of Incorporation, Bylaws
of the Holding Company, agreement, vote of stockholders or disinterested
directors or otherwise.
These provisions may have the effect of deterring shareholder derivative
actions, since the Holding Company may ultimately be responsible for expenses
for both parties to the action. A similar effect would not be expected for
third-party claims.
In addition, the Certificate of Incorporation and Delaware law also provide
that the Holding Company may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Holding Company or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Holding Company has
the power to indemnify such person against such expense, liability or loss under
the DGCL. The Holding Company intends to obtain such insurance.
DIRECTORS OF THE ASSOCIATION
Prior to the Conversion, the direction and control of the Association, as a
mutual savings institution, had been vested in its Board of Directors. Upon
conversion of the Association to stock form, each of the directors of the
Association will continue to serve as a director of the converted Association.
The Board of Directors of the Association currently consists of six directors.
The directors are divided into three classes. Approximately one-third of the
directors are elected at each annual meeting of stockholders. Because the
Holding Company will own all of the issued and outstanding shares of capital
stock of the converted Association after the Conversion, directors of the
Holding Company will elect the directors of the Association.
The following table sets forth certain information regarding the directors of
the Association and the Holding Company:
Director Term
Name Position(s) Held with the Association Age(1) Since Expires
- ----------------------- ----------------------------------------------- -------- -------- -------
Dr. James D. Sandefur Chairman of the Board 54 1989 1999
Charles L. Galligan President, Chief Executive Officer and Director 55 1991 1997
Jesse Boyd, Jr. Director 71 1962 1998
James E. Riley Director 71 1962 1998
J. C. Smith Director 65 1995 1997
Leslie A. Smith Director 63 1993 1999
- -------------
(1) At March 31, 1996.
78
The business experience of each director is set forth below. All directors
have held their present position for at least the past five years, except as
otherwise indicated.
DR. JAMES D. SANDEFUR. Dr. Sandefur has served as Chairman of the Board since
January 1996. Dr. Sandefur is a practicing optometrist, and is the owner of the
Vision Clinic located in Oakdale, Louisiana.
CHARLES L. GALLIGAN. Mr. Galligan has served as the President and Chief
Executive Officer since joining the Association in 1991. In these capacities, he
is responsible for overseeing the day to day operations of the Association.
Prior to joining the Association, Mr. Galligan was President of Vermilion
Federal Savings Bank located in Abbeville, Louisiana.
JESSE BOYD, JR. Mr. Boyd is the owner and president of Boyd Buick-Cadillac-
Chevrolet-Pontiac-Olds-GMC, Inc., a car dealership, and Boyd Oil Company, a bulk
oil distributorship, located in Oakdale and Glenmora, Louisiana, respectively.
JAMES E. RILEY. Mr. Riley owned and operated a pharmacy in Oberlin, Louisiana
until his retirement in 1990.
J. C. SMITH. Mr. Smith's principal business is farming. He is also involved
in J.C. Smith & Sons, Partnership, a farming operation, and J. C. Smith & Sons
Auto and Home Service Center, a retail hardware store, both located in Oberlin,
Louisiana.
LESLIE A. SMITH. Mr. Smith is the principal of the Oakdale Elementary School.
In 1994, Mr. T. H. Mayes, who had served as a director of the Association
since 1965, retired from the board and was named a director emeritus.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
The Association's executive officers who are not also directors will retain
their position in the converted Association. Executive Officers of the
Association are elected annually by the Board of Directors of the Association.
The business experience of the executive officers of the Association and the
Holding Company who are not also directors are set forth below.
BETTY JEAN PARKER. Mrs. Parker, age 51, is the Treasurer and Chief Financial
Officer of the Association. Until June 1996, Mrs. Parker was also Corporate
Secretary of the Association. Mrs. Parker is responsible for the supervision of
the accounting department and reporting to the regulatory authorities.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES OF THE ASSOCIATION
The Board of Directors met 16 times during the year ended December 31, 1995.
During fiscal 1995, no director of the Association attended fewer than 75% of
the aggregate of the total number of Board meetings and the total number of
meetings held by the committees of the Board of Directors on which he served.
The Association has a standing Audit Committee, which meets as needed to
review the books and financial records of the Association. The Audit Committee
also makes a recommendation to the full Board regarding the retention of the
Association's independent auditors, and reviews the results of the audit and
determines what actions, if any, are needed. The Committee is composed of
Directors Galligan and Riley as well as three officers of the Association.
Following the Conversion, the primary functions of the Audit Committee will be
assumed by the Audit Committee of the Holding Company. The Audit Committee met
once during fiscal 1995.
The Association also has standing Compliance, Investment, Loan and Disaster
Recovery Committees, which meet as needed to oversee various aspects of the
Association's operations.
79
COMPENSATION OF THE BOARD OF DIRECTORS OF THE ASSOCIATION
During fiscal 1995, all directors received a fee of $650 per month for serving
on the Board of Directors. Directors do not receive any additional fees for
attending special board meetings or for participation on Association committees.
In December 1993, the Association developed and offered a deferred
compensation plan to the members of the board. Director Sandefur was the only
director who elected to enter into an unfunded deferred compensation agreement
pursuant to this program. Under the agreement, Dr. Sandefur has elected to defer
100% of his director fees until he reaches age 59-1/2. Upon reaching that age,
Dr. Sandefur receives the total amount of deferred fees, plus interest, in a
lump sum payment. In the event of Dr. Sandefur's disability or death, the total
amount of deferred fees plus interest would be paid to Dr. Sandefur or his
beneficiaries in a lump sum payment. In the event the Association is acquired by
another company, the agreement automatically terminates, and the deferred fees
plus interest are payable in a lump sum.
Following completion of the Conversion, and subject to the approval of the
Holding Company's stockholders, each director and director emeritus of the
Association who is not a full-time employee (5 persons) are expected to be
granted an option to purchase shares of Common Stock under the Stock Option Plan
and an award of restricted stock under the RRP. See "- Benefit Plans - Stock
Option and Incentive Plan" and "- Benefit Plans -Recognition and Retention
Plan."
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation paid or
granted to the Association's Chief Executive Officer. No other executive officer
of the Association had aggregate compensation (salary plus bonus) in excess of
$100,000 in fiscal 1995.
- ---------------------------------------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
- ---------------------------------------------------------------------------------------------------------------
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION/(1)/ AWARDS
- ---------------------------------------------------------------------------------------------------------------
OTHER RESTRICTED
ANNUAL STOCK OPTIONS/ ALL OTHER
NAME AND PRINCIPAL FISCAL COMPENSATION AWARD SARS COMPENSATION
POSITION YEAR/(1)/ SALARY($) BONUS($) (#) ($) ($) ($)
- ---------------------------------------------------------------------------------------------------------------
Charles L. Galligan, 1995 $54,000 $10,000 $ --- ---/(2)/ ---/(2)/ $ ---
President and Chief
Executive Officer
- ---------------------------------------------------------------------------------------------------------------
- --------------
/(1)/ In accordance with the revised rules on executive officer and
director compensation disclosure adopted by the Securities and Exchange
Commission, Summary Compensation information is excluded for the fiscal
years ended December 31, 1993 and 1994, as the Association was not a
public company during such periods.
/(2)/ Following the Conversion, it is expected that Mr. Galligan will be granted
an option to purchase shares of Common Stock under the Stock Option Plan,
and an award of restricted stock under the RRP. See "-Benefit Plans -
Stock Option and Incentive Plan" and " - Benefit Plans -Recognition and
Retention Plan."
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EMPLOYMENT AGREEMENTS
The Association has determined to enter into an employment agreement effective
upon consummation of the Conversion, with Charles L. Galligan, the Association's
President and Chief Executive Officer, providing for a term of three years. The
contract provides for payment to the employee for the remaining term of the
contract unless the employee is terminated "for cause."
The employment agreement for Mr. Galligan provides for an annual base salary
as determined by the Board of Directors, but not less than the employee's
current salary. Mr. Galligan's base salary (exclusive of director fees and
bonuses) will be $54,000, assuming the employment contract is entered into in
fiscal 1996. So long as the contract remains in force, salary increases will be
reviewed not less often than annually thereafter, and are subject to the sole
discretion of the Board of Directors. The employment contract provides for
annual extensions for one additional year, but only upon express authorization
by the Board of Directors at the end of each year. The contract provides for
termination upon the employee's death, for cause or in certain events specified
by OTS regulations. The employment contract is terminable by the employee upon
90 days' notice to the Association.
In the event there is a change in control of the Holding Company or the
Association, as defined in the agreement, if employment terminates
involuntarily, as defined in the agreement, in connection with such change in
control or within 12 months thereafter, the employment contract provides for a
payment equal to 299% of Mr. Galligan's base amount of compensation as defined
in the Code. Assuming a change in control were to take place as of March 31,
1996, the aggregate amounts payable to Mr. Galligan pursuant to this change in
control provision would be approximately $162,000.
The contract provides, among other things, for participation in an equitable
manner in employee benefits applicable to executive personnel. The employment
contract may have an "anti-takeover" effect that could affect a proposed future
acquisition of control of the Association after its Conversion. See
"Restrictions on Acquisitions of Stock and Related Takeover Defensive
Provisions."
The Association also intends to enter into an employment agreement with Betty
Jean Parker, as Treasurer and Chief Financial Officer. The agreement will
provide for a term of three years and a change of control payment equal to 299%
of Ms. Parker's base amount of compensation, and is otherwise expected to be
similar to the employment agreement with Mr. Galligan. Ms. Parker's base salary
will be $25,200, assuming the contract is entered into in fiscal 1996.
BENEFIT PLANS
GENERAL. First Federal currently provides health care benefits, including
medical, disability and dental, subject to certain deductibles and copayments by
employees, a retirement plan and group life insurance to its employees.
PROFIT SHARING PLAN. The Association maintains a Profit Sharing Plan which is
a qualified, tax-exempt profit sharing plan with a salary deferred feature under
Section 401(k) of the Internal Revenue Code. All employees who have attained age
21 and have completed one year of employment during which they worked at least
1,000 hours are eligible to participate. The Association's contribution to the
plan for each plan year is a sum that the Association, by action of the Board of
Directors, authorizes in its discretion (so long as the contribution, along with
the employee's voluntary contribution for any plan year does not exceed the
maximum amount permissible under Section 415(c) of the Code.) Association
contributions and plan forfeitures are allocated among plan participants in the
proportion that the compensation of each participant bears to the total
compensation of all participants.
Under the plan, participants are permitted to make salary reduction
contributions equal to a percentage of up to 10% of compensation. All employee
contributions and earnings thereon are fully and immediately vested. If a
participant's employment is terminated, voluntarily or involuntarily, for any
reason other than death, disability or attainment of the normal retirement age
of 65 or later, the participant's interest in the Association contributions
vests at the rate of 20% per year beginning after completion of three years of
service with full vesting occurring after seven
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years of service. A participant may withdraw employee voluntary contributions at
any time, but may only withdraw Association contributions in the event the
participant suffers a financial hardship, termination of employment, death,
disability, retirement, or the attainment of age 59 1/2.
Contributions under the plan are invested under a group annuity contract with
a life insurance company. Contributions under the group annuity contract are
invested in the insurance company's general fund which is made up of fixed
income investments such as mortgages and bonds.
Plan benefits will be paid to each participant as an annuity, in lump sum or
installments, at the participant's election. For the fiscal year ended December
31, 1995, the Association contributed a total of $30,000 to the Profit-Sharing
Plan.
STOCK OPTION AND INCENTIVE PLAN. Following consummation of the Conversion, the
Board of Directors of the Holding Company intends to adopt a Stock Option Plan,
which will be designed to attract and retain qualified personnel in key
positions, provide directors, officers and key employees with a proprietary
interest in the Holding Company as an incentive to contribute to the success of
the Holding Company and reward key employees for outstanding performance and the
attainment of targeted goals. The Stock Option Plan will provide for the grant
of incentive stock options intended to comply with the requirements of Section
422 of the Code ("incentive stock options"), non-incentive stock options, and
stock appreciation rights (collectively "Awards"). Awards may be granted to key
employees of the Company and any subsidiaries. The Stock Option Plan will be
administered and interpreted by a committee of the Board of Directors
("Committee") which is "disinterested" pursuant to applicable regulations under
the federal securities laws. Non-employee directors will only be entitled to
receive non-incentive stock options pursuant to a formula governing the amount
and timing of such options. Unless sooner terminated, the Stock Option Plan
shall continue in effect for a period of 10 years from the date the Stock Option
Plan is adopted by the Board of Directors.
Under the Stock Option Plan, the Committee will determine which officers and
key employees will be granted Awards, whether options will be incentive or non-
incentive options, the number of shares subject to each Award, the exercise
price of each option, whether options may be exercised by delivering other
shares of Common Stock and when such options become exercisable. The per share
exercise price of an incentive or non-incentive stock option must at least equal
the fair market value of a share of Common Stock on the date the option is
granted.
Stock options will become exercisable in the manner specified by the
Committee, provided that all options will become fully exercisable in the event
of a change in control of the Company if the plan is implemented following the
one-year anniversary of the Conversion. If the plan is implemented within the
first year following the Conversion, current OTS regulations would require the
stock options to vest at a rate not in excess of 20% per year and prohibit
accelerated vesting except in the case of disability or death. Each stock option
or portion thereof will be exercisable at any time on or after it vests and will
be exercisable until 10 years after its date of grant or for periods of up to
one year following the death, disability or other termination of the optionee's
employment. However, failure to exercise incentive stock options within three
months after the date on which the optionee's employment terminates may result
in adverse tax consequences to the optionee. Stock options are non-transferable
except by will or the laws of descent and distribution.
The proposed Stock Option Plan provides for the grant of Stock Appreciation
Rights ("SARs") at any time, whether or not the participant then holds stock
options, granting the right to receive the excess of the market value of the
shares represented by the SARs on the date exercised over the exercise price.
SARs generally will be subject to the same terms and conditions and exercisable
to the same extent as stock options. There is no present intention to grant any
SARs.
At the time an Award is granted pursuant to the Plan, the recipient will not
be required to make any payment in consideration for such grant. With respect to
incentive or non-incentive stock options, the optionee will be required to pay
the applicable exercise price at the time of exercise in order to receive the
underlying shares of Common Stock. If a stock appreciation right is exercised,
the holder of the right is entitled to receive an amount equal to the excess of
the fair market value of the underlying shares of Common Stock over the
applicable exercise price, without having to pay the exercise price.
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A number of shares of Common Stock equal to an aggregate of 10% of the Common
Stock sold in the Conversion will be reserved for issuance pursuant to the Stock
Option Plan (28,750 shares, based on the sale of 287,500 shares). Such shares
may be authorized but previously unissued shares, treasury shares, or shares
purchased by the Holding Company on the open market or from private sources. In
the event of a stock split, reverse stock split or stock dividend, the number of
shares of Common Stock under the Stock Option Plan, the number of shares to
which any Award relates and the exercise price per share under any option or
stock appreciation right shall be adjusted to reflect such increase or decrease
in the total number of shares of Common Stock outstanding.
Under current provisions of the Code, the federal income tax treatment of
incentive stock options and non-incentive stock options is different. As regards
incentive stock options, an optionee who meets certain holding period
requirements will not recognize income at the time the option is granted or at
the time the option is exercised, and a federal income tax deduction generally
will not be available to the Holding Company at any time as a result of such
grant or exercise. With respect to non-incentive stock options, the difference
between the fair market value on the date of exercise and the option exercise
price generally will be treated as compensation income upon exercise, and the
Holding Company will be entitled to a deduction in the amount of income so
recognized by the optionee. Upon the exercise of a stock appreciation right, the
holder will realize income for federal income tax purposes equal to the amount
received by him, whether in cash, shares of stock or both, and the Holding
Company will be entitled to a deduction for federal income tax purposes in the
same amount.
Under applicable regulations, if the Stock Option Plan is submitted to and
approved by stockholders of the Holding Company within one year after completion
of the Conversion, no more than 30% of the shares available under the Stock
Option Plan could be granted to non-employee directors and directors emeritus.
It is expected that each non-employee director and directors emeritus will
receive an option for the same number of shares, in which event options for a
total of approximately 1,437 shares would be granted to each non-employee
director if the amount of Common Stock sold in the Conversion is equal to the
maximum of the Estimated Valuation Range. In addition, it is currently expected
that stock options will be granted to Messrs. Galligan and other officers of the
Association, although no determination has been made at this time as to the
amount of such stock options. The Stock Option Plan provides that no officer
would be able to receive a stock option for more than 25% of the shares
available under the Stock Option Plan, or 7,187 shares if the amount of Common
Stock sold in the Conversion is equal to the maximum of the Estimated Valuation
Range. The Company does not expect to grant any stock appreciation rights or
performance share awards in the first year following completion of the
Conversion.
The Holding Company currently intends to submit the Stock Option Plan to
stockholders for approval following the one-year anniversary of the Conversion.
However, the Holding Company reserves the right to submit such plan to
stockholders prior to such time, provided that such meeting is at least six
months following the Conversion. In such event, the proposed Stock Option Plan
would need to be revised to include a mandatory five-year vesting schedule and a
prohibition on accelerated vesting in the event of a change in control, which
provisions are required by current OTS regulations for plans implemented within
one year following the Conversion, and the Stock Option Plan would need to be
submitted to the OTS for review in accordance with applicable regulations and
policies.
RECOGNITION AND RETENTION PLAN. Following consummation of the Conversion, the
Board of Directors of the Company intends to adopt a Recognition and Retention
Plan ("RRP") for directors, officers and key employees. The objective of the RRP
will be to enable the Holding Company to provide directors, officers and key
employees with a proprietary interest in the Holding Company as an incentive to
contribute to its success.
The RRP will be administered by a committee of the Board of Directors which is
"disinterested" pursuant to applicable regulations under the federal securities
laws. The Committee will have the responsibility to invest all funds contributed
to the RRP. The Holding Company will contribute sufficient funds so that the RRP
can purchase, following the receipt of stockholder approval, a number of shares
equal to an aggregate of 4% of the Common Stock sold in the Conversion (11,500
shares, based on the sale of 287,500 shares). Assuming the Common Stock awarded
pursuant to the RRP had a value of $10.00 per share, and the Holding Company
issued 287,500 shares, the aggregate value of RRP awards would be $115,000.
Shares of Common Stock granted pursuant to the RRP generally will be in the form
of restricted stock and will vest at the rate of 20% per year over the five
years following the date of grant. For accounting
83
purposes, compensation expense in the amount of the fair market value of the
Common Stock at the date of the grant to the recipient will be recognized pro
rata over the period during which the shares are payable. A recipient will be
entitled to all voting and other stockholder rights, except that the shares,
while restricted, may not be sold, pledged or otherwise disposed of. Under the
terms of the RRP, the committee has discretionary power to vote all shares of
Common Stock held by the RRP as to which recipients have not directed the
voting. If a recipient terminates employment for reasons other than death or
disability, the recipient will forfeit all rights to the allocated shares under
restriction. If the recipient's termination is caused by death or disability,
all restrictions will expire and all allocated shares will become unrestricted.
All restrictions also will expire and all allocated shares will become
unrestricted in the event of a change in control of the Company, as defined in
the RRP. However, if the plan is implemented within the first year following the
Conversion, current OTS regulations would prohibit accelerated vesting except in
the event of disability or death. The Board of Directors of the Holding Company
can terminate the RRP at any time, and if it does so, any shares not allocated
will revert to the Holding Company. Recipients of grants under the RRP will not
be required to make any payment at the time of grant or when the underlying
shares of Common Stock become vested.
Under applicable regulations, if the RRP is submitted to and approved by the
stockholders of the Holding Company within one year after completion of the
Conversion, no more than 30% of the shares available under the RRP could be
granted to non-employee directors, and the director emeritus. In such event, it
is expected that each non-employee director will receive an award for the same
number of shares, in which event awards for a total of approximately 575 shares
would be granted to each non-employee director if the amount of Common Stock
sold in the Conversion is equal to the maximum of the Estimated Valuation Range.
It is currently expected that awards will be granted to Messrs. Galligan and
other officers of the Association, although no determination has been made at
this time as to the amount of such awards. The RRP provides that no officer
would be able to receive an award for more than 25% of the shares available
under the RRP, or 2,875 shares if the amount of Common Stock sold in the
Conversion is equal to the maximum of the Estimated Valuation Range.
The Holding Company currently intends to submit the RRP to stockholders for
approval following the one-year anniversary of the Conversion. However, the
Holding Company reserves the right to submit such plan to stockholders prior to
such time, provided that such meeting is held at least six months following the
Conversion. In such event, the RRP would need to be revised to include a
prohibition on accelerated vesting in the event of a change in control, which
provision is required by current OTS regulations applicable to plans implemented
within one year following the Conversion, and the RRP would need to be submitted
to the OTS for review in accordance with applicable regulations and policies.
It is currently anticipated that the RRP will be funded by shares subsequently
reacquired and held as treasury shares or through the issuance of authorized but
unissued shares. To the extent the RRP is funded from authorized but unissued
shares, the funding of the RRP will have the effect of diluting existing
stockholders. See "Summary -Benefits of Conversion to Directors and Executive
Officers" and "Capitalization."
EMPLOYEE STOCK OWNERSHIP PLAN. The Boards of Directors of the Association and
the Holding Company have approved the adoption of an ESOP for the benefit of
employees of the Association. The ESOP is designed to meet the requirements of
an employee stock ownership plan as described at Section 4975(e)(7) of the Code
and Section 407(d)(6) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and, as such, the ESOP is empowered to borrow in order to
finance purchases of the Holding Company's Common Stock.
It is anticipated that the ESOP will be capitalized with a loan from the
Holding Company. The proceeds from this loan are expected to be used by the ESOP
to purchase up to 8.0% of the Common Stock issued in the Conversion. After the
Conversion, as a qualified employee pension plan under Section 401(a) of the
Code, the ESOP will be in the form of a stock bonus plan and will provide for
contributions, predominantly in the form of either the Holding Company's Common
Stock or cash, which will be used within a reasonable period after the date of
contributions primarily to purchase Holding Company Common Stock. The
Association will receive a tax deduction equal to the amount it contributes to
the ESOP, subject to the limitations set forth in the Code. The maximum tax-
deductible contribution by the Association in any year is an amount equal to the
maximum amount that may be deducted by the Association under Section 404 of the
Code, subject to reduction based on contributions to other Tax-Qualified
Employee
84
Plans. Additionally, the Association will not make contributions if such
contributions would cause the Association to violate its regulatory capital
requirements. The assets of the ESOP will be invested primarily in Holding
Company Common Stock.
From time to time, the ESOP may purchase additional shares of Common Stock for
the benefit of plan participants through purchases of outstanding shares in the
market, upon the original issuance of additional shares by the Holding Company
or upon the sale of shares held in treasury by the Holding Company. Such
purchases, which are not currently contemplated, would be subject to then-
applicable laws, regulations and market conditions.
Generally accepted accounting principles require that any third party
borrowing by the ESOP be reflected as a liability in the Holding Company's
consolidated financial statements, whether or not such borrowing is guaranteed
by, or constitutes a legally binding contribution commitment of the Holding
Company or the Association. In addition, shares purchased with borrowed funds
will, to the extent of the borrowings, be excluded from stockholders' equity,
representing unearned compensation to employees for future services not yet
performed. Consequently, if the ESOP purchases already-issued shares in the open
market, the Holding Company's consolidated liabilities will increase to the
extent of the ESOP's borrowings, and total and per share stockholders' equity
will be reduced to reflect such borrowings. If the ESOP purchases newly issued
shares from the Holding Company, total stockholders' equity would neither
increase nor decrease, but per share stockholders' equity and per share net
income would decrease because of the increase in the number of outstanding
shares. In either case, as the borrowings used to fund ESOP purchases are
repaid, total stockholders' equity will correspondingly increase.
All employees of the Association are eligible to participate in the ESOP after
they attain age 21 and complete one year of service during which they work at
least 1,000 hours. For the initial plan year, every employee who satisfies the
above on the date of adoption of the ESOP shall be eligible to participate on
that date. Employees will be credited for years of service to the Association
prior to the adoption of the ESOP for participation and vesting purposes. The
Association's contribution to the ESOP is allocated among participants on the
basis of compensation. Each participant's account will be credited with cash and
shares of Holding Company Common Stock based upon compensation earned during the
year with respect to which the contribution is made. After completing five years
of service, a participant will be 100% vested in his or her ESOP account. ESOP
participants are entitled to receive distributions from their ESOP accounts only
upon termination of service. Distribution will be made in cash and in whole
shares of Holding Company Common Stock. Fractional shares will be paid in cash.
Participants will not incur a tax liability until a distribution is made.
Participating employees are entitled to instruct the trustee of the ESOP as to
how to vote the shares held in their account. The trustee, who has dispositive
power over the shares in the Plan, will not be affiliated with the Holding
Company or the Association. The ESOP may be amended by the Board of Directors of
the Holding Company, except that no amendment may be made which would reduce the
interest of any participant in the ESOP trust fund or divert any of the assets
of the ESOP trust fund to purposes other than the benefit of participants or
their beneficiaries.
CERTAIN TRANSACTIONS; INDEBTEDNESS OF MANAGEMENT
The Association has followed a policy of granting loans, including loans
secured by one- to four-family real estate, to officers, directors and
employees. All loans by the Association to its directors and executive officers
are subject to OTS regulations restricting loan and other transactions with
affiliated persons of the Association. Federal law currently requires that all
loans to directors and executive officers be made on terms and conditions
comparable to those for similar transactions with non-affiliates. The
Association is therefore prohibited from making any loans or extensions of
credit to the Association's executive officers and directors at different rates
or terms than those offered to the general public, and has adopted a policy to
this effect. In addition, any such loans are approved by a majority of the
independent, disinterested directors. Loans to all directors, executive
officers, employees and their associates totaled $279,000 at March 31, 1996,
which was 13.26% of the Association's equity capital at that date and 7.05% of
the Holding Company's stockholders' equity at that date, assuming completion of
the Conversion at the midpoint of the Estimated Valuation Range. There were no
loans outstanding to any director, executive officer or their affiliates at
preferential rates or terms
85
which in the aggregate exceeded $60,000 during the three years ended March 31,
1996. All loans to directors and officers were performing in accordance with
their terms at March 31, 1996 and do not in the opinion of management involve
more than the normal risk of collectibility or present other unfavorable
features.
THE CONVERSION
The Board of Directors of the Association and the OTS have approved the Plan
of Conversion, subject to approval by the members of the Association and the
satisfaction of certain other conditions. OTS approval does not constitute a
recommendation or endorsement by the OTS of the Plan of Conversion. Certain
terms used in the following summary are defined in the Plan of Conversion, a
copy of which may be obtained by contacting the Association.
GENERAL
On June 3, 1996, the Board of Directors of the Association unanimously adopted
the Plan, subject to approval by the OTS and the members of the Association.
Pursuant to the Plan, the Association is to be converted from a federal mutual
savings and loan association to a federal stock savings and loan association,
with the concurrent formation of a holding company. The OTS has approved the
Plan, subject to its approval by the affirmative vote of the members of the
Association holding not less than a majority of the total number of votes
eligible to be cast at a Special Meeting called for that purpose to be held on
September ___, 1996.
The Conversion will be accomplished through amendment of the Association's
federal charter to authorize the issuance of capital stock, at which time the
Association will become a wholly owned subsidiary of the Holding Company. The
Conversion will be accounted for as a pooling of interests.
Subscription Rights are being given to Eligible Account Holders as of May 31,
1995, the Tax-Qualified Employee Plans of the Association and the Holding
Company, Other Members, and officers, directors and employees of the
Association. Concurrently with or following the Subscription Offering, and
subject to the prior rights of holders of Subscription Rights, members of the
general public to whom a prospectus is delivered are being afforded the
opportunity to subscribe for Holding Company Common Stock in the Community
Offering with a preference to natural persons residing in the Local Community.
The residence of such individuals shall be determined by the Association in its
sole discretion based upon the books and records of the Association. See "-
Offering of Holding Company Common Stock." Depending upon market conditions, any
shares not initially subscribed for in the Subscription Offering may be offered
for sale by the Holding Company to the general public in a Syndicated Community
Offering. See "-Syndicated Community Offering." Subscriptions for shares will be
subject to the maximum and minimum purchase limitations set forth in the Plan of
Conversion.
BUSINESS PURPOSES
The Association has several business purposes for the Conversion. The sale of
Holding Company Common Stock will have the immediate result of providing the
Association with additional equity capital. This increased capital will support
expansion of its financial services, subject to applicable regulatory
restrictions. The sale of the Common Stock is the most effective means of
increasing the Association's permanent capital and does not involve the high
interest cost and repayment obligation of subordinated debt. In addition,
investment of the net Conversion proceeds is expected to provide additional
operating income to further increase the Association's capital on a continuing
basis.
The Board of Directors of the Association believes that a holding company
structure could facilitate the acquisition of both mutual and stock savings
institutions in the future as well as other companies. If a multiple holding
company structure is utilized in a future acquisition, the acquired savings
institution would be able to operate on a more autonomous basis as a wholly
owned subsidiary of the Holding Company rather than as a division of the
Association. For example, the acquired savings institution could retain its own
directors, officers and corporate name as well and have representation on the
Board of Directors of the Holding Company. As of the date hereof, there are no
plans or understandings by the Association or the Holding Company regarding the
acquisition of any other institutions.
86
The Board of Directors of the Association also believes that a holding company
structure will facilitate the diversification of the Association's business
activities. While diversification will be maximized if a unitary holding company
structure is utilized because the types of business activities permitted to a
unitary holding company are broader than those of a multiple holding company,
either type of holding company may engage in a broader range of activities than
may a thrift institution directly. Currently, there are no plans that the
Holding Company engage, immediately after Conversion, in any material activities
apart from holding the shares of the Association, although the Board may
determine to expand the Holding Company's activities after Conversion.
The preferred stock and additional common stock of the Holding Company being
authorized in the Conversion will be available for future acquisitions (although
the Holding Company has no current negotiations, understandings or plans with
respect to any acquisition) and for issuance and sale to raise additional equity
capital, subject to market conditions and generally without stockholder
approval. Although the Holding Company currently has no plans with respect to
future issuances of equity securities, the more flexible operating structure
provided by the Holding Company and the stock form of ownership is expected to
assist the Association in competing aggressively with other financial
institutions in its principal market area.
The Conversion will structure the Association in the stock form used in the
United States by all commercial banks, most major business corporations and an
increasing number of savings institutions. The Conversion will permit the
Association's members to become stockholders of the Holding Company, thereby
allowing them to own stock in the parent corporation of the Association in which
they maintain deposit accounts or with which they have a borrowing relationship.
Such ownership may encourage customers who become stockholders to promote the
Association to others, thereby further contributing to the Association's growth.
The Association is also expected to benefit from its management and employees
owning stock, because stock ownership is viewed as an effective performance
incentive and a means of attracting, retaining and compensating personnel.
EFFECTS OF CONVERSION TO STOCK FORM ON DEPOSITORS AND BORROWERS OF THE
ASSOCIATION
VOTING RIGHTS. Upon Conversion, neither deposit account holders nor borrowers
will have voting rights in the Association or the Holding Company and will
therefore not be able to elect directors of either entity or to control their
affairs. These rights are currently accorded to deposit account holders with
regard to the Association. Subsequent to Conversion, voting rights will be
vested exclusively in the Holding Company as the sole stockholder of the
Association. Voting rights as to the Holding Company will be held exclusively by
its stockholders. Each purchaser of Holding Company Common Stock shall be
entitled to vote on any matters to be considered by the Holding Company
stockholders. A stockholder will be entitled to one vote for each share of
Common Stock owned, subject to certain limitations applicable to holders of 10%
or more of the shares of the Common Stock. See "Restrictions on Acquisitions of
Stock and Related Takeover Defensive Provisions." The Holding Company intends to
supply each stockholder with quarterly and annual reports and proxy statements.
DEPOSIT ACCOUNTS AND LOANS. The terms of the Association's deposit accounts,
the balances of the individual accounts and the existing FDIC insurance coverage
will not be affected by the Conversion. Furthermore, the Conversion will not
affect the loan accounts, the balances of these accounts, or the obligations of
the borrowers under their individual contractual arrangements with the
Association.
TAX EFFECTS. The Association has received an opinion from Luse Lehman Gorman
Pomerenk & Schick, P.C. with regard to federal income taxation, and an opinion
of Darnall, Sikes, Kolder, Frederick & Rainey with regard to Louisiana taxation,
to the effect that the adoption and implementation of the Plan of Conversion set
forth herein will not be taxable for federal or Louisiana tax purposes to the
Association or the Holding Company. See "- Income Tax Consequences."
LIQUIDATION RIGHTS. The Association has no plan to liquidate either before or
after the Conversion. However, if there should ever be a complete liquidation,
either before or after Conversion, deposit account holders would receive
87
the protection of insurance by the FDIC up to applicable limits. Subject
thereto, liquidation rights before and after Conversion would be as follows:
Liquidation Rights in Present Mutual Association. In addition to the
protection of FDIC insurance up to applicable limits, in the event of a
complete liquidation each holder of a deposit account in the Association in
its present mutual form would receive his or her pro rata share of any assets
of the Association remaining after payment of claims of all creditors
(including the claims of all depositors in the amount of the withdrawal value
of their accounts). Such holder's pro rata share of such remaining assets, if
any, would be in the same proportion of such assets as the balance in his or
her deposit account was to the aggregate balance in all deposit accounts in
the Association at the time of liquidation.
Liquidation Rights in Proposed Converted Association. After Conversion each
deposit account holder, in the event of a complete liquidation, would have a
claim of the same general priority as the claims of all other general
creditors of the Association in addition to the protection of FDIC insurance
up to applicable limits. Therefore, except as described below, the deposit
account holder's claim would be solely in the amount of the balance in his or
her deposit account plus accrued interest and the holder would have no
interest in the value of the Association above that amount.
The Plan of Conversion provides that there shall be established, upon the
completion of the Conversion, a special "liquidation account" for the benefit
of Eligible Account Holders (i.e., depositors with an account balance of $50
or more at May 31, 1995) in an amount equal to the net worth of the
Association as of the date of its latest consolidated statement of financial
condition contained in the final Prospectus relating to the sales of shares of
Holding Company Common Stock in the Conversion. Each Eligible Account Holder
would have an initial interest in such liquidation account for each qualifying
deposit account held in the Association on the qualifying date. An Eligible
Account Holder's interest as to each deposit account would be in the same
proportion of the total liquidation account as the balance in his or her
account on May 31, 1995 was to the aggregate balance in all qualifying deposit
accounts of Eligible Account Holders on such date. For accounts in existence
on both dates, separate subaccounts shall be determined on the basis of the
qualifying deposits in such accounts on the record dates. However, if an
Eligible Account Holder should reduce the amount in the qualifying deposit
account on any annual closing date of the Association to a level less than the
lowest amount in such account on May 31, 1995 and on any subsequent closing
date, then the account holder's interest in this special liquidation account
would be reduced by an amount proportionate to any such reduction, and the
account holder's interest would cease to exist if such qualifying deposit
account were closed.
In addition, the interest in the special liquidation account would never be
increased despite any increase in the balance of the account holders' related
accounts after Conversion, and would only decrease.
Any assets remaining after the above liquidation rights of Eligible Account
Holders were satisfied would be distributed to the Holding Company as the sole
stockholder of the Association.
No merger, consolidation, purchase of bulk assets with assumption of
deposit accounts and other liabilities, or similar transaction, whether the
Association, as converted, or another SAIF-insured institution if the
surviving institution, is deemed to be a complete liquidation for purposes of
distribution of the liquidation account and, in any such transaction, the
liquidation account would be assumed to the full extent authorized by
regulations of the OTS as then in effect. The OTS has stated that the
consummation of a transaction of the type described in the preceding sentence
in which the surviving entity is not an SAIF-insured institution would be
reviewed on a case-by-case basis to determine whether the transaction should
constitute a "complete liquidation" requiring distribution of any then
remaining balance in the liquidation account. While the Association believes
that such
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a transaction should not constitute a complete liquidation, there can be no
assurance that the OTS will not adopt a contrary position and, in such event,
that the Association's position will be determined to be correct.
COMMON STOCK. For information as to the characteristics of the Common Stock to
be issued under the Plan of Conversion, see "Dividends" and "Description of
Capital Stock." Common Stock issued under the Plan of Conversion cannot, and
will not, be insured by the FDIC or any other government agency.
THE ASSOCIATION WILL CONTINUE, IMMEDIATELY AFTER COMPLETION OF THE CONVERSION,
TO PROVIDE ITS SERVICES TO DEPOSITORS AND BORROWERS PURSUANT TO ITS EXISTING
POLICIES AND WILL MAINTAIN THE EXISTING MANAGEMENT AND EMPLOYEES OF THE
ASSOCIATION. OTHER THAN FOR PAYMENT OF EXPENSES INCIDENT TO THE CONVERSION, NO
ASSETS OF THE ASSOCIATION WILL BE DISTRIBUTED IN THE CONVERSION. THE ASSOCIATION
WILL CONTINUE TO BE A MEMBER OF THE FHLB SYSTEM, AND ITS DEPOSIT ACCOUNTS WILL
CONTINUE TO BE INSURED BY THE FDIC. THE AFFAIRS OF THE ASSOCIATION WILL CONTINUE
TO BE DIRECTED BY THE EXISTING BOARD OF DIRECTORS AND MANAGEMENT.
OFFERING OF HOLDING COMPANY COMMON STOCK
Under the Plan of Conversion, up to 287,500 shares of Holding Company Common
Stock will be offered for sale, subject to certain restrictions described below
through a Subscription and Community Offering.
The Subscription Offering will expire at ______ p.m. Oakdale, Louisiana time,
on September ____, 1996 (the "Subscription Expiration Date") unless extended by
the Association and the Holding Company. Regulations of the OTS require that all
shares to be offered in the Conversion be sold within a period ending not more
than 45 days after the Subscription Expiration Date (or such longer period as
may be approved by the OTS) or, despite approval of the Plan of Conversion by
members, the Conversion will not be effected and the Association will remain in
mutual form. This period expires on ________, 1996, unless extended with the
approval of the OTS. If the Conversion is not completed by __________, 1996, all
subscribers will have the right to modify or rescind their subscriptions and to
have their subscription funds returned promptly with interest. In the event of
such an extension, all subscribers will be notified in writing of the time
period within which subscribers must notify the Association of their intention
to maintain, modify or rescind their subscriptions. If the subscriber rescinds
or does not respond in any manner to the Association's notice, the funds
submitted will be refunded to the subscriber with interest at 2.0%, the
Association's current passbook rate per annum, and/or the subscriber's
withdrawal authorizations will be terminated. In the event that the Conversion
is not effected, all funds submitted and not previously refunded pursuant to the
Subscription and Community Offering will be promptly refunded to subscribers
with interest at 2.0%, the Association's current passbook rate per annum, and
all withdrawal authorizations will be terminated.
SUBSCRIPTION RIGHTS. In accordance with OTS regulations, nontransferable
Subscription Rights have been granted under the Plan of Conversion to the
following persons in the following order of priority: (1) Eligible Account
Holders (deposit account holders of the Association maintaining an account
balance of $50 or more as of May 31, 1995), (2) Tax-Qualified Employee Plans,
(3) Other Members of the Association (deposit account holders of the Association
as of July 31, 1996 and certain borrowers as of both June 26, 1996 and July 31,
1996, who continue to be borrowers as of the date of the Special Meeting, other
than Eligible Account Holders and Supplemental Eligible Account Holders), and
(4) officers, directors and employees of the Association. All subscriptions
received will be subject to the availability of Common Stock after satisfaction
of all subscriptions of all persons having prior rights in the Subscription
Offering, and to the maximum and minimum purchase limitations set forth in the
Plan of Conversion. SUBSCRIPTION RIGHTS ARE NON-TRANSFERABLE. PERSONS FOUND TO
BE SELLING OR OTHERWISE TRANSFERRING THEIR RIGHT TO PURCHASE STOCK IN THE
SUBSCRIPTION OFFERING OR PURCHASING COMMON STOCK ON BEHALF OF ANOTHER PERSON
WILL BE SUBJECT TO FORFEITURE OF SUCH RIGHTS AND POSSIBLE FURTHER SANCTIONS AND
PENALTIES IMPOSED BY THE OTS, AN AGENCY OF THE U.S. GOVERNMENT. The preference
categories are more fully described below.
Category No. 1 is reserved for the Association's Eligible Account Holders.
Subscription Rights to purchase shares under this category will be allocated
among Eligible Account Holders to permit each such depositor to purchase shares
in an amount equal to the greater of $50,000 of Common Stock, one-tenth of one
percent (.10%) of the total shares
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of Common Stock offered in the Conversion, or 15 times the product (rounded down
to the next whole number) obtained by multiplying the total number of shares of
Common Stock to be issued by a fraction of which the numerator is the amount of
the qualifying deposit of the Eligible Account Holder and the denominator is the
total amount of the qualifying deposit of the Eligible Account Holders in the
converting Association in each case on May 31, 1995 (the "Eligibility Record
Date"); if sufficient shares are not available, shares shall be allocated first
to permit each subscribing Eligible Account Holder to purchase to the extent
possible 100 shares, and thereafter among each subscribing Eligible Account
Holder pro rata in the same proportion that his qualifying deposit bears to the
total qualifying deposits of all subscribing Eligible Account Holders whose
subscriptions remain unsatisfied.
Category No. 2 provides for the issuance of Subscription Rights to Tax-
Qualified Employee Plans to purchase up to 10% of the total shares issued in the
Subscription Offering, provided that singly or in the aggregate such plans
(other than that portion of such plans which is self-directed) shall not
purchase more than 10% of the shares of the Holding Company Conversion Stock.
Subscription Rights received pursuant to this Category shall be subordinated to
all rights received by Eligible Account Holders to purchase shares pursuant to
Category No. 1; provided, however, that notwithstanding any other provision in
the Plan of Conversion to the contrary, the Tax-Qualified Employee Plans shall
have a first priority Subscription Right to the extent that the total number of
shares of Holding Company Conversion Stock sold in the Subscription and
Community Offering exceeds the maximum of the Estimated Valuation Range.
However, such plans shall not, in the aggregate, purchase more than 10% of the
Holding Company Common Stock issued. It is currently intended that the ESOP will
purchase 8% of the shares of Common Stock issued in the Conversion.
Category No. 3 provides, to the extent that shares are then available after
satisfying the subscriptions of Eligible Account Holders, Tax-Qualified Employee
Plans, for the issuance of Subscription Rights to each such Other Member to
purchase shares in an amount equal to the greater $50,000 of Common Stock or
one-tenth of one percent (.10%) of the total offering of shares offered in the
Conversion based on the Estimated Valuation Range subject to the overall
purchase limitation and to the extent Common Stock is available. In the event of
an oversubscription for shares, the shares available shall be allocated among
the subscribing Other Members pro rata in the same proportion that his number of
votes on the Voting Record Date bears to the total number of votes on the Voting
Record Date of all subscribing Other Members on such date. Such number of votes
shall be determined based on the Association's mutual charter and bylaws in
effect on the date of approval by members of this Plan of Conversion.
Category No. 4 provides for the issuance of Subscription Rights to officers,
directors and employees of the Association, to purchase up to a maximum of
$50,000 individually of Common Stock to the extent that shares are available
after satisfying the subscriptions of eligible subscribers in preference
Categories 1, 2 and 3. In the event of an oversubscription, the available shares
will be allocated pro rata among all subscribers in this Category.
The Association and the Holding Company will make reasonable efforts to comply
with the securities laws of all states in the United States in which persons
entitled to subscribe for shares pursuant to the Plan of Conversion reside.
However, no shares will be offered or sold under the Plan of Conversion to any
such person who (1) resides in a foreign country or (2) resides in a state of
the United States in which a small number of persons otherwise eligible to
subscribe for shares under the Plan of Conversion reside or as to which the
Association and the Holding Company determine that compliance with the
securities laws of such state would be impracticable for reasons of cost or
otherwise, including, but not limited to, a requirement that the Association or
the Holding Company or any of their officers, directors or employees register,
under the securities laws of such state, as a broker, dealer, salesman or agent.
No payments will be made in lieu of the granting of Subscription Rights to any
such person.
COMMUNITY OFFERING. To the extent that shares remain available for purchase
after the Subscription Offering, the Holding Company and the Association have
determined to offer shares pursuant to the Plan to certain members of the
general public to whom the Holding Company delivers a copy of this Prospectus
and a stock order form in the Community Offering, with preference given to
natural persons residing in Allen Parish, Louisiana (the "Local Community").
Such persons, together with associates of and persons acting in concert with
such persons, may purchase up to $50,000 of Common Stock. The Community
Offering, if any, may terminate at any time without notice, but may not
terminate later than _________, 1996, unless extended with the approval of the
OTS. THE OPPORTUNITY TO SUBSCRIBE FOR SHARES OF COMMON STOCK IN THE COMMUNITY
OFFERING CATEGORY IS SUBJECT TO THE RIGHT OF THE COMPANY AND THE
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ASSOCIATION, IN THEIR SOLE DISCRETION, TO ACCEPT OR REJECT ANY SUCH ORDERS IN
WHOLE OR IN PART EITHER AT THE TIME OF RECEIPT OF AN ORDER OR AS SOON AS
PRACTICABLE THEREAFTER.
If there are not sufficient shares available to fill orders in the Community
Offering, such stock will be allocated first to each natural person residing in
the Local Community whose order is accepted by the Company, in an amount equal
to the lesser of 1,000 shares or the number of shares subscribed for by each
such subscriber in the Local Community, if possible. Thereafter, unallocated
shares will be allocated among the subscribers in the Local Community whose
orders remain unsatisfied in the same proportion that the unfilled subscription
of each bears to the total unfilled subscriptions of all subscribers in the
Local Community whose subscription remains unsatisfied. If there are any shares
remaining, shares will be allocated to other members of the general public who
subscribe in the Community Offering applying the same allocation described above
for subscribers in the Local Community.
SYNDICATED COMMUNITY OFFERING. As part of the Community Offering, all shares
of Common Stock not purchased in the Subscription and Community Offerings, if
any, may be offered for sale to the general public in a Syndicated Community
Offering through a syndicate of registered broker-dealers which may be formed
and managed by Trident. The Holding Company and the Association expect to market
any shares which remain unsubscribed after the Subscription and Community
Offerings through a Syndicated Community Offering. The Holding Company and the
Association have the right to reject orders in whole or part in their sole
discretion in the Syndicated Community Offering. Neither Trident nor any
registered broker-dealer shall have any obligation to take or purchase any
shares of Common Stock in the Syndicated Community Offering; however, Trident
has agreed to use its best efforts in the sale of shares in the Syndicated
Community Offering.
The price at which Common Stock is sold in the Syndicated Community Offering
will be the same price as in the Subscription and Community Offerings. Subject
to overall purchase limitations, no person will be permitted to subscribe in the
Syndicated Community Offering for more than $50,000 or 5,000 shares of Common
Stock.
Trident may enter into agreements with broker-dealers ("Selected Dealers") to
assist in the sale of the shares in the Syndicated Community Offering. After the
close of or concurrent with the close of the Subscription Offering, Trident will
instruct Selected Dealers as to the number of shares to be allocated to each
Selected Dealer. Only after the close of the Subscription Offering and upon
allocation of shares to Selected Dealers may Selected Dealers take orders from
their customers. During the Subscription and Community Offerings, Selected
Dealers may only solicit indications of interest from their customers to place
orders with the Holding Company as of a certain date ("Order Date") for the
purchase of shares of Common Stock. When and if Trident and the Holding Company
believe that enough indications of interest and orders have not been received in
the Subscription and Community Offerings to consummate the Conversion, Trident
will request, as of the Order Date, Selected Dealers to submit orders to
purchase shares for which they have previously received indications of interest
from their customers. Selected Dealers will send confirmations of the orders to
such customers on the next business day after the Order Date. Selected Dealers
will debit the accounts of their customers on the "Settlement Date" which date
will be three business days from the Order Date. Customers who authorize
Selected Dealers to debit their brokerage accounts are required to have the
funds for payment in their account on but not before the Settlement Date. On the
Settlement Date, Selected Dealers will remit funds to the account established by
the Association for each Selected Dealer. Each customer's funds so forwarded to
the Association, along with all other accounts held in the same title, will be
insured by the FDIC up to $100,000 in accordance with applicable FDIC
regulations. After payment has been received by the Association from Selected
Dealers, funds will earn interest at the Association's passbook rate until the
consummation or termination of the Conversion. Funds will be promptly returned,
with interest, in the event the Conversion is not consummated as described
above.
The Syndicated Community Offering will terminate no more than 45 days
following the Subscription Expiration Date, unless extended by the Holding
Company and the Association with the approval of the OTS.
LIMITATIONS ON PURCHASE OF SHARES. The Plan also provides for certain
additional limitations to be placed upon the purchase of shares in the
Conversion. Specifically, no person (other than a Tax-Qualified Employee Plan)
by himself or herself or with an associate, and no group of persons acting in
concert, may subscribe for or purchase more than $100,000 of Common Stock
offered in the Conversion. Officers and directors and their associates may not
purchase,
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in the aggregate, more than 35% of the shares to be sold in the Conversion. For
purposes of the Plan, the members of the Board of Directors are not deemed to be
acting in concert solely by reason of their Board membership. For purposes of
this limitation, an associate of a person does not include a Tax-Qualified
Employee Plan or Non-Tax Qualified Employee Plan. Also, for purposes of this
limitation, an associate of an officer or director does not include a Tax-
Qualified Employee Plan or a recognition and retention plan, such as the RRP.
Moreover, any shares attributable to the officers and directors and their
associates, but held by a Tax-Qualified Employee Plan (other than that portion
of a plan which is self-directed) shall not be included in calculating the
number of shares which may be purchased under the limitations in this paragraph.
Shares purchased by employees who are not officers or directors of the
Association, or their associates, are not subject to this limitation. The term
"associate" is used above to indicate any of the following relationships with a
person: (i) any corporation or organization (other than the Holding Company or
the Association or a majority-owned subsidiary of the Holding Company or the
Association) of which a person is an officer or partner or is, directly or
indirectly, the beneficial owner of 10% or more of any class of equity security;
(ii) any trust or other estate in which such person has a substantial beneficial
interest or as to which such person serves as trustee or in a similar fiduciary
capacity; and (iii) any relative or spouse of such person or any relative of
such spouse who has the same home as such person or who is a director or officer
of the Holding Company or the Association or any subsidiary of the Holding
Company or the Association.
The Boards of Directors of the Holding Company and the Association may, in
their sole discretion, decrease the maximum purchase limitation referred to
above or increase the maximum purchase limitation up to 9.99% of the shares
being offered in the Conversion, provided that orders for shares exceeding 5.0%
of the shares being offered in the Conversion shall not exceed, in the
aggregate, 10% of the shares being offered in the Conversion. Requests to
purchase additional shares of Holding Company Common Stock under this provision
will be allocated by the Boards of Directors on a pro rata basis giving priority
in accordance with the priority rights set forth above. DEPENDING UPON MARKET
AND FINANCIAL CONDITIONS, AND SUBJECT TO CERTAIN REGULATORY LIMITATIONS, THE
BOARDS OF DIRECTORS OF THE HOLDING COMPANY AND THE ASSOCIATION, WITH THE
APPROVAL OF THE OTS AND WITHOUT FURTHER APPROVAL OF THE MEMBERS, MAY INCREASE OR
DECREASE ANY OF THE ABOVE PURCHASE LIMITATIONS AT ANY TIME. To the extent that
shares are available, each subscriber must subscribe for a minimum of 25 shares.
In computing the number of shares to be allocated, all numbers will be rounded
down to the next whole number.
Common Stock purchased in the Conversion will be freely transferable except
for shares purchased by executive officers and directors of the Association or
the Holding Company and except as described below. See "- Restrictions on
Transferability." In addition, under National Association of Securities Dealers,
Inc. ("NASD") guidelines, members of the NASD and their associates are subject
to certain restrictions on transfer of securities purchased in accordance with
Subscription Rights and to certain reporting requirements upon purchase of such
securities.
MARKETING ARRANGEMENTS
The Holding Company and the Association have engaged Trident as a financial
advisor and marketing agent in connection with the offering of the Common Stock,
and Trident has agreed to use its best efforts to solicit subscriptions and
purchase orders for shares of Common Stock in the Offerings. Trident is a member
of the National Association of Securities Dealers, Inc. ("NASD") and an SEC-
registered broker-dealer. Trident is headquartered in Raleigh, North Carolina,
and its telephone number is (919) 781-8900. Trident will provide various
services including, but not limited to, (i) training and educating the
Association's directors, officers and employees regarding the mechanics and
regulatory requirements of the stock sales process; (2) providing its employees
to staff the Stock Sales Center to assist the Association's customers and
internal stock purchasers and to keep records of orders for shares of Common
Stock; and (3) targeting the Holding Company's sales efforts, including
preparation of marketing materials. Based upon negotiations between the Holding
Company and the Association concerning fee structure, Trident will receive a fee
of $75,000. In the event that a selected dealers agreement is entered into in
connection with a Syndicated Community Offering, the Association will pay a fee
of up to 5.5% of the aggregate Purchase Price of Common Stock to such selected
dealers, for shares sold by an NASD member firm pursuant to a selected dealers
agreement. Fees to Trident and to any other broker-dealer may be deemed to be
underwriting fees, and Trident and such broker-dealers may be deemed to be
underwriters. Trident will also be reimbursed for its reasonable out of pocket
expenses in an amount not to exceed $10,000 and reasonable legal fees and
expenses not to exceed $25,000 without the prior approval of the Association.
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The Holding Company and the Association have agreed to indemnify Trident for
reasonable costs and expenses in connection with certain claims or liabilities,
including certain liabilities under the Securities Act.
In addition, directors and executive officers of the Holding Company and the
Association, may to a limited extent and subject to applicable state law,
participate in the solicitation of offers to purchase Common Stock. Other
employees of the Association may participate in the Subscription and Community
Offering in administrative capacities, providing clerical work in effecting a
sales transaction or answering questions of a potential purchaser provided that
the content of the employee's responses is limited to information contained in
the Prospectus or other offering document. Other questions of prospective
purchasers will be directed to registered representatives. Such other employees
have been instructed not to solicit offers to purchase Common Stock or provide
advice regarding the purchase of Common Stock. Sales of Common Stock by
directors, executive officers and registered representatives will be made from
the Stock Center. The Holding Company will rely on Rule 3a4-1 under the Exchange
Act, and sales of Common Stock will be conducted within the requirements of Rule
3a4-1, so as to permit officers, directors and employees to participate in the
sale of Common Stock except in some states where only registered broker-dealers
may sell. No officer, director or employee of the Holding Company or the
Association will be compensated in connection with his participation by the
payment of commissions or other remuneration based either directly or indirectly
on the transactions in the Common Stock.
STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED
Federal regulations require that the aggregate Purchase Price of the
securities of a thrift institution sold in connection with its conversion must
be based on an appraised aggregate market value of the institution as converted
(i.e., taking into account the expected receipt of proceeds from the sale of the
securities in the conversion), as determined by an independent valuation.
Ferguson, which is experienced in the valuation and appraisal of business
entities, including thrift institutions involved in the conversion process, was
retained by the Association to prepare an appraisal of the estimated pro forma
market value of the Common Stock.
Ferguson will receive a fee of $22,500 for its appraisal and assistance in
preparation of the Association's business plan plus reasonable out-of-pocket
expenses. The Holding Company has agreed to indemnify Ferguson, under certain
circumstances against liabilities and expenses (including legal fees) arising
out of, related to, or based upon the Conversion.
Ferguson has prepared an appraisal of the estimated pro forma market value of
the Common Stock taking into account market conditions for initial public
offerings of thrift stocks and the formation of Holding Company as the holding
company for the Association. Ferguson's appraisal concluded that at June 13,
1996, an appropriate range for the estimated pro forma market value of the
Common Stock was from a minimum of $2,125,000 to a maximum of $2,875,000, with a
midpoint of $2,500,000. Assuming that the shares are sold at $10.00 per share in
the Conversion, the estimated number of shares to be issued in the Conversion is
expected to be between 212,500 and 287,500. The appraisal involved a comparative
evaluation of the operating and financial statistics of the Association with
those of other thrift institutions. The appraisal also took into account such
other factors as the market for thrift institution stocks generally, prevailing
economic conditions, both nationally and in Louisiana, which affect the
operations of thrift institutions, the competitive environment within which the
Association operates and the effect of the Association becoming a subsidiary of
the Holding Company. No detailed individual analysis of the separate components
of the Holding Company's and the Association's assets and liabilities was
performed in connection with the evaluation. The Plan of Conversion requires
that all of the shares subscribed for in the Subscription and Community Offering
be sold at the same price per share. The Board of Directors reviewed the
appraisal, including the methodology and the appropriateness of the assumptions
utilized by Ferguson, and determined that in its opinion the appraisal was not
unreasonable.
No sale of the shares will take place unless, prior thereto, Ferguson confirms
to the Association, the Holding Company and the OTS that, to the best of
Ferguson's knowledge and judgment, nothing of a material nature has occurred
which would cause Ferguson to conclude that the actual aggregate Purchase Price
was incompatible with its estimate of the total pro forma market value of the
Common Stock at the time of the sale. If, however, the facts do not justify
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such a statement, a new Estimated Valuation Range and price per share may be
set. Under such circumstances, the Holding Company will be required to
resolicit, and subscribers would have the right to modify or rescind their
subscriptions and to have their subscription funds returned promptly with
interest and holds on funds authorized for withdrawal from deposit accounts
would be released or reduced; provided that if the pro forma market value of the
Association upon Conversion has not decreased below $2,125,000 or increased to
an amount which does not exceed $3,306,250 (15% above the maximum of the
Estimated Valuation Range), the Holding Company and the Association do not
intend to resolicit subscriptions unless it is determined after consultation
with the OTS that a resolicitation is required.
Depending upon market and financial conditions, the number of shares issued
may be more or less than the range in number of shares shown above. A change in
the number of shares to be issued in the Conversion will not affect Subscription
Rights, which are based upon maximum dollar purchase limitations rather than
percentages of the offering. A decrease in the number of shares to be issued in
the Conversion would increase a purchaser's ownership interest and both pro
forma net income and net worth on a per share basis while decreasing these
amounts on an aggregate basis. In the event of a resolicitation, subscribers
will be afforded the opportunity to increase, decrease or maintain their
previously submitted order. In the event a new valuation range is established by
Ferguson, such new range will be subject to approval by the OTS and the Holding
Company will be required to resolicit. The Holding Company will also be required
to resolicit if the aggregate Purchase Price of Common Stock sold in the
Conversion is less than the minimum of the Estimated Valuation Range or above
15% above the maximum of the Estimated Valuation Range.
If purchasers can not be found for an insignificant residue of unsubscribed
shares from the general public, other purchase arrangements will be made by the
Boards of Directors of the Association and the Holding Company, if possible.
Such other purchase arrangements will be subject to the approval of the OTS and
may provide for purchases by directors, officers, their associates and other
persons in excess of the limitations discussed herein. If such other purchase
arrangements cannot be made, the Subscription and Community Offering will
terminate.
In preparing its valuation of the pro forma market value of the Holding
Company Common Stock, Ferguson relied upon and assumed the accuracy and
completeness of all financial and statistical information provided by the
Association and the Holding Company. Ferguson also considered information based
upon other publicly available sources which it believes are reliable. However,
Ferguson does not guarantee the accuracy and completeness of such information
and did not independently verify the financial statements and other data
provided by the Association and the Holding Company or independently value the
assets or liabilities of the Association and the Holding Company. THE VALUATION
BY FERGUSON IS NOT INTENDED AND MUST NOT BE CONSTRUED AS A RECOMMENDATION OF ANY
KIND AS TO THE ADVISABILITY OF VOTING TO APPROVE THE CONVERSION OR OF PURCHASING
SHARES OF COMMON STOCK. MOREOVER, BECAUSE THE VALUATION IS NECESSARILY BASED
UPON ESTIMATES OF AND PROJECTIONS AS TO A NUMBER OF MATTERS (INCLUDING CERTAIN
ASSUMPTIONS AS TO EXPENSE FACTORS AFFECTING THE NET PROCEEDS FROM THE SALE OF
COMMON STOCK IN THE CONVERSION AND AS TO THE NET EARNINGS ON SUCH NET PROCEEDS),
ALL OF WHICH ARE SUBJECT TO CHANGE FROM TIME TO TIME, NO ASSURANCE CAN BE GIVEN
THAT PERSONS WHO PURCHASE SUCH SHARES IN THE CONVERSION WILL BE ABLE TO SELL
SUCH SHARES THEREAFTER AT OR ABOVE THE PURCHASE PRICE.
METHOD OF PAYMENT FOR SUBSCRIPTIONS
Subscribers must, before the Subscription Expiration Date, or such date to
which the Subscription Expiration Date may be extended, return an original stock
order form and certification to the Association, properly completed, together
with cash, checks or money orders in an amount equal to the Purchase Price
($10.00 per share) multiplied by the number of shares for which subscription is
made. Subscriptions which are returned by mail must be received by the
Association by the Subscription Expiration Date. Payment for stock purchases can
also be accomplished through authorization on the order form of withdrawals from
accounts with the Association. Until completion or termination of the
Conversion, subscribers who elect to make payment through authorization of
withdrawal from accounts with the Association will not be permitted to reduce
the deposit balance in any such accounts below the amount required to purchase
the shares for which they subscribed. In such cases interest will continue to be
credited on deposits authorized for withdrawal until the completion of the
Conversion. Interest at the Association's current passbook rate per annum will
be paid on amounts submitted in cash, check, bank draft or money order.
Authorized withdrawals from certificate
94
accounts for the purchase of Common Stock will be permitted without the
imposition of early withdrawal penalties or loss of interest. However,
withdrawals from certificate accounts that reduce the balance of said accounts
below the required minimum for specific interest rate qualification will cause
the cancellation of the certificate accounts, and the remaining balance will
earn interest at the Association's current passbook rate per annum.
The beneficiaries of IRA accounts are deemed to have the same subscription
rights as other depositors. However, the IRA accounts maintained at the
Association do not permit investment in Common Stock. A depositor interested in
using his IRA funds to purchase Common Stock must do so through a self-directed
IRA account. Since the Association does not offer such accounts, it will allow
such a depositor to make a trustee to trustee transfer of the IRA on deposit at
the Association. There will be no early withdrawal or IRS penalties for such
transfers. The new trustee would hold the Common Stock in a self-directed
account in the same manner as the Association now holds the depositor's IRA
funds. An annual administrative fee might be payable to the new trustee. The
Association assumes no responsibility as to the selection of, or services
performed by, a new trustee.
Depositors interested in transferring IRA funds on deposit at the Association
to purchase Common Stock should contact the Stock Information Center at (318)
335-4487 as soon as possible so that the necessary forms may be forwarded for
execution and returned prior to the Expiration Date of the Subscription
Offering.
Stock subscriptions received by the Association may not be modified, withdrawn
or canceled by the subscriber without the consent of the Association and, if
accepted by the Association, are final. Subscriptions which are not received by
the Subscription Expiration Date or are not in compliance with the Plan of
Conversion or the stock order form instructions may be deemed void by the
Association. The Association and the Holding Company have the right to extend
the Subscription Expiration Date, unless objected to by the OTS, or to waive or
permit correction of incomplete or improperly executed stock order forms, but
does not represent that they will do so.
If Tax-Qualified Employee Plans subscribe for shares during the Subscription
Offering, such plans will not be required to pay for the shares subscribed for
at the time they subscribe, but may pay for such shares of Common Stock
subscribed for by such plans at the actual Purchase Price upon consummation of
the Conversion, provided that, in the case of the ESOP, there is a loan
commitment to lend to the ESOP the aggregate Purchase Price of the shares for
which it subscribes.
To ensure that each purchaser receives a Prospectus at least 48 hours prior to
the Subscription Expiration Date in accordance with Rule 15c2-8 under the
Exchange Act, no Prospectus will be mailed any later than five days prior to
such date or hand delivered any later than two days prior to such date.
Execution of the order form will confirm receipt or delivery in accordance with
Rule 15c2-8. Order forms will only be distributed with a Prospectus. The
Association will accept for processing only orders submitted on original order
forms. Payment by check, money order, bank draft or debit authorization to an
existing account at the Association must accompany the order form.
RISK OF DELAYED OFFERING
In the event that all shares of the Common Stock are not sold in the
Subscription Offering and concurrent Community Offering, the Association and the
Holding Company may extend the Community Offering for a period of up to 45 days
from the date of the termination of the Subscription Offering. Further
extensions are subject to OTS approval and may be granted for successive
periods, but not beyond 24 months from the date of the Special Meeting.
A material delay in the completion of the sale of all unsubscribed shares in
the Community Offering may result in a significant increase in the costs in
completing the Conversion. Significant changes in the Association's operations
and financial condition, the aggregate market value of the shares to be issued
in the Conversion and general market conditions may occur during such material
delay. In the event the Conversion is not consummated within 24 months after the
date of the Special Meeting, the Association would charge accrued Conversion
costs to then current period operations.
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APPROVAL, INTERPRETATION, AMENDMENT AND TERMINATION
All interpretations of the Plan of Conversion, as well as the completeness and
validity of order forms, will be made by the Association and the Holding Company
and will be final, subject to the authority of the OTS and the requirements of
applicable law. The Plan of Conversion provides that, if deemed necessary or
desirable by the Boards of Directors of the Association and the Holding Company,
the Plan of Conversion may be substantively amended (including an amendment to
eliminate the formation of the Holding Company as part of the Conversion) by the
Boards of Directors of the Association and the Holding Company, as a result of
comments from regulatory authorities or otherwise, at any time but only with the
concurrence of the OTS. Moreover, if the Plan of Conversion is amended,
subscriptions which have been received prior to such amendment will not be
refunded if such amendment is not material to the transaction or otherwise
required by the OTS.
In the event that a decision is made to eliminate the Holding Company as part
of the Conversion, the Holding Company will withdraw its registration statement
from the SEC and the Association will take all steps necessary to complete the
Conversion without the Holding Company, including filing any necessary documents
with the OTS. In such event, and provided there is no regulatory action,
directive or other consideration upon which basis the Association determines not
to complete the Conversion, if permitted by the OTS the Association will issue
and sell the common stock of the Association and subscribers will be notified of
the elimination of the Holding Company and resolicited (i.e., permitted to
affirm their orders, in which case they will need affirmatively to reconfirm
their subscriptions prior to the expiration of the resolicitation offering or
their funds will be promptly refunded with interest at the Association's current
passbook rate per annum; or be permitted to modify or rescind their
subscriptions) and notified of the time period within which they must
affirmatively notify the Association of their intention to affirm, modify or
rescind their subscription. In the event that a holding company form of
organization is not used, all other pertinent terms of the Plan as described in
"- Offering of Holding Company Common Stock" will apply to the conversion of the
Association from the mutual to stock form of organization and the sale of the
Association's common stock.
The Plan of Conversion will terminate if the sale of all shares is not
completed within 24 months after the date of the Special Meeting. The Plan of
Conversion may be terminated by the Board of Directors of the Association with
the concurrence of the OTS at any time. A specific resolution approved by a two-
thirds vote of the Board of Directors would be required to terminate the Plan of
Conversion prior to the end of such 24-month period. See "Risk Factors-Possible
Consequences of Amendment to Plan of Conversion."
RESTRICTIONS ON REPURCHASE OF STOCK
For a period of three years following Conversion, the Holding Company may not
repurchase any shares of its capital stock, except in the case of an offer to
repurchase on a pro rata basis made to all holders of capital stock of the
Holding Company. Any such offer shall be subject to the prior approval of the
OTS. Furthermore, the Holding Company may not repurchase any of its stock (i) if
the result thereof would be to reduce the regulatory capital of the Association
below the amount required for the liquidation account to be established pursuant
to OTS regulations and (ii) except in compliance with the requirements of the
OTS' capital distribution rule.
The above limitations are subject to the OTS conversion rules which generally
provide that the Holding Company may repurchase its capital stock provided (i)
no repurchases occur within one year following the Conversion (except with OTS
approval), (ii) repurchases during the second and third year after conversion
are part of an open market stock repurchase program that does not allow for a
repurchase of more than 5% of the Holding Company's outstanding capital stock
during a 12-month period, (iii) the repurchases do not cause the Association to
become undercapitalized, and (iv) the Holding Company provides notice or an
application to the OTS at least 10 days prior to the commencement of a
repurchase program and the OTS does not object. In addition, the above
limitations do not preclude repurchases of capital stock by the Holding Company
as otherwise permitted by the OTS or in the event applicable federal regulatory
limitations are subsequently liberalized.
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RESTRICTIONS ON TRANSFERABILITY
THE SUBSCRIPTION RIGHTS DESCRIBED IN THIS PROSPECTUS ARE NON-TRANSFERABLE AND
SHALL BE AWARDED TO ELIGIBLE PERSONS WITHOUT PAYMENT. PRIOR TO THE COMPLETION OF
THE CONVERSION, FEDERAL REGULATIONS PROHIBIT ANY PERSON FROM TRANSFERRING OR
ENTERING INTO ANY AGREEMENT OR UNDERSTANDING TO TRANSFER THE LEGAL OR BENEFICIAL
OWNERSHIP OF THE SUBSCRIPTION RIGHTS ISSUED UNDER THE PLAN OR THE SHARES OF
COMMON STOCK TO BE ISSUED UPON THEIR EXERCISE. PERSONS VIOLATING SUCH
PROHIBITION MAY LOSE THEIR RIGHT TO PURCHASE STOCK IN THE CONVERSION AND MAY BE
SUBJECT TO SANCTIONS BY THE OTS. EACH PERSON EXERCISING SUBSCRIPTION RIGHTS WILL
BE REQUIRED TO CERTIFY THAT A PURCHASE OF COMMON STOCK IS SOLELY FOR THE
PURCHASER'S OWN ACCOUNT AND THAT THERE IS NO AGREEMENT OR UNDERSTANDING
REGARDING THE SALE OR TRANSFER OF SUCH SHARES. THE ASSOCIATION AND THE HOLDING
COMPANY WILL PURSUE ANY AND ALL LEGAL AND EQUITABLE REMEDIES IN THE EVENT THEY
BECOME AWARE OF THE TRANSFER OF SUBSCRIPTION RIGHTS AND WILL NOT HONOR ORDERS
KNOWN BY THEM TO INVOLVE THE TRANSFER OF SUCH RIGHTS.
Shares purchased by directors, executive officers or their associates in the
Conversion shall be subject to the restrictions that said shares shall not be
sold during the period of one year following the date of purchase, except in the
event of the death of the stockholder or resulting from an exchange of
securities in a merger or acquisition approved by applicable regulatory
authorities, in which event such restriction shall be released. Accordingly,
stock certificates issued by the Holding Company to directors, executive
officers and associates shall bear a legend giving appropriate notice of such
restriction and, in addition, the Association and the Holding Company will give
appropriate instructions to the transfer agent for the Holding Company's Common
Stock with respect to the applicable restriction upon transfer of any restricted
shares. Any shares issued at a later date as a stock dividend, stock split or
otherwise, to holders of restricted stock, shall be subject to the same
restrictions that may apply to such restricted stock. Holding Company stock
(like the stock of most companies) is subject to the requirements of the
Securities Act. Accordingly, Holding Company stock may be offered and sold only
in compliance with such registration requirements or pursuant to an applicable
exemption from registration.
OTS regulations provide that for a period of three years following the
Conversion, without prior approval of the OTS, neither directors and officers of
the Holding Company, the Association nor their associates may purchase shares of
the Holding Company, except from a broker registered with the SEC. This
restriction does not, however, apply to negotiated transactions involving more
than one percent of the Holding Company's outstanding Common Stock or the
purchase of stock made by or held by any one or more employee stock benefit
plans which may be attributable to individual directors or officers.
Holding Company stock received in the Conversion by persons who are not
"affiliates" of the Holding Company may be resold without registration. Shares
received by affiliates of the Holding Company (primarily the directors, officers
and principal stockholders of the Holding Company) will be subject to the resale
restrictions of Rule 144 under the Securities Act, which are discussed below.
Rule 144 generally requires that there be publicly available certain information
concerning the Holding Company, and that sales thereunder be made in routine
brokerage transactions or through a market maker. If the conditions of Rule 144
are satisfied, each affiliate (or group of persons acting in concert with one or
more affiliates) is entitled to sell in the public market, without registration,
in any three-month period, a number of shares which does not exceed the greater
of (i) 1% of the number of outstanding shares of Holding Company stock, or (ii)
if the stock is admitted to trading on a national securities exchange or
reported through the automated quotation system of a registered securities
association the average weekly reported volume of trading during the four weeks
preceding the sale.
INCOME TAX CONSEQUENCES
Consummation of the Conversion is expressly conditioned upon prior receipt by
the Association of either a ruling from the Internal Revenue Service or an
opinion of Luse Lehman Gorman Pomerenk & Schick, P.C. with respect to federal
taxation, and a ruling of the Louisiana taxation authorities or an opinion of
Darnall, Sikes, Kolder, Frederick & Rainey with respect to Louisiana taxation,
to the effect that consummation of the Conversion will not be taxable to the
converted Association or the Holding Company.
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An opinion has been received from Luse Lehman Gorman Pomerenk & Schick, P.C.
with respect to the proposed Conversion of the Association to the stock form, to
the effect that (i) the Conversion will qualify as a reorganization under
Section 368(a)(1)(F) of the Internal Revenue Code of 1986, as amended, and no
gain or loss will be recognized to the Association in either its mutual form or
its stock form by reason of the proposed Conversion, (ii) no gain or loss will
be recognized to the Association upon the receipt of money from the Holding
Company for stock of the Association; and no gain or loss will be recognized to
the Holding Company upon the receipt of money for Common Stock of the Holding
Company; (iii) the assets of the Association in either its mutual or its stock
form will have the same basis before and after the Conversion; (iv) the holding
period of the assets of the Association will include the period during which the
assets were held by the Association in its mutual form prior to conversion; (v)
no gain or loss will be recognized by the depositors of the Association upon the
issuance to them of withdrawable deposit accounts in the Association in the same
dollar amount as their deposit accounts in the Association plus an interest in
the Liquidation Account of the Association after the Conversion, as described
above in exchange for their deposit account in the Association; (vi) the basis
of the account holder's deposit accounts in the Association after the Conversion
will be the same as the basis of his or her deposit accounts in the Association
prior to the Conversion; (vii) the basis of each account holder's interest in
the Liquidation Account will be zero; (viii) the basis of the Holding Company
Common Stock to its shareholders will be the Purchase Price thereof plus, in the
case of stock acquired by account holders, the basis, if any in the Subscription
Rights and a shareholder's holding period for Holding Company Common Stock
acquired through the exercise of Subscription Rights shall begin on the date on
which the Subscription Rights are exercised; (ix) for purposes of Section 381 of
the Code, the Association will be treated as if there had been no Conversion,
accordingly, the taxable year of the Association will not end on the effective
date of the Conversion and the tax attributes of the Association in its mutual
form will be taken into account by the Association as if there had been no
reorganization; (x) the part of the taxable year of the Association before the
Conversion and the part of the taxable year of the Association in stock form
after the Conversion will constitute a single taxable year of the Association;
(xi) the Association, immediately after Conversion, will succeed to the bad debt
reserve accounts of the Association, in mutual form, and the bad debt reserves
will have the same character in the hands of the Association after Conversion as
if no distribution or transfer had occurred; and (xii) the creation of the
liquidation account will have no effect on the Association's taxable income,
deductions or addition to reserve for bad debts either in its mutual or stock
form.
The opinion from Luse Lehman Gorman Pomerenk & Schick, P.C. is based, among
other things, on certain assumptions, including the assumptions that the
exercise price of the Subscription Rights to purchase Holding Company Common
Stock will be approximately equal to the fair market value of that stock at the
time of the completion of the proposed Conversion. With respect to the
Subscription Rights, the Association will receive a letter from Ferguson (the
"Ferguson Letter") which, based on certain assumptions, will conclude that the
Subscription Rights to be received by Eligible Account Holders and other
eligible subscribers do not have any economic value at the time of distribution
or at the time the Subscription Rights are exercised, whether or not a public
offering takes place.
The Association has also received an opinion of Luse Lehman Gorman Pomerenk &
Schick, P.C. to the effect that, based in part on the Ferguson Letter: (i) no
taxable income will be realized by depositors as a result of the receipt or
exercise of non-transferable Subscription Rights to purchase shares of Holding
Company Common Stock at fair market value; and (ii) no taxable income will be
realized by the Association or Holding Company on the issuance of Subscription
Rights to eligible subscribers to purchase shares of Holding Company Common
Stock at fair market value.
If it is subsequently established that the Subscription Rights received by
such persons have an ascertainable fair market value, then, in such event, the
Subscription Rights will be taxable to the recipient in the amount of their fair
market value. In this regard, the Subscription Rights may be taxed partially or
entirely at ordinary income tax rates.
With respect to Louisiana the Association has received an opinion from
Darnall, Sikes, Kolder, Frederick & Rainey to the effect that, assuming the
Conversion does not result in any federal taxable income, gain or loss to the
Association in its mutual or stock form, the Holding Company, the account
holders, borrowers, officers, directors and employees and Tax-Qualified Employee
Plans of the Association, the Conversion should not result in any Louisiana
income tax liability to such entities or persons.
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Unlike a private letter ruling, the opinions of Luse Lehman Gorman Pomerenk &
Schick, P.C. and Darnall, Sikes, Kolder, Frederick & Rainey, as well as the
Ferguson Letter, have no binding effect or official status, and no assurance can
be given that the conclusions reached in any of those opinions would be
sustained by a court if contested by the IRS or the Louisiana tax authorities.
RESTRICTIONS ON ACQUISITIONS OF STOCK AND
RELATED TAKEOVER DEFENSIVE PROVISIONS
Although the Boards of Directors of the Association and the Holding Company
are not aware of any effort that might be made to obtain control of the Holding
Company after Conversion, the Boards of Directors, as discussed below, believe
that it is appropriate to include certain provisions as part of the Holding
Company's certificate of incorporation to protect the interests of the Holding
Company and its stockholders from takeovers which the Board of Directors of the
Holding Company might conclude are not in the best interests of the Association,
the Holding Company or the Holding Company's stockholders.
The following discussion is a general summary of the material provisions of
the Holding Company's certificate of incorporation and bylaws and certain other
regulatory provisions which may be deemed to have an "anti-takeover" effect. The
following description of certain of these provisions is necessarily general and,
with respect to provisions contained in the Holding Company's certificate of
incorporation and bylaws and the Association's proposed stock charter and
bylaws, reference should be made in each case to the document in question, each
of which is part of the Association's application to the OTS and the Holding
Company's Registration Statement filed with the SEC. See "Additional
Information."
PROVISIONS OF THE HOLDING COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS
DIRECTORS. Certain provisions of the Holding Company's certificate of
incorporation and bylaws will impede changes in majority control of the Board of
Directors. The Holding Company's certificate of incorporation provides that the
Board of Directors of the Holding Company will be divided into three classes,
with directors in each class elected for three-year staggered terms except for
the initial directors. Thus, it would take two annual elections to replace a
majority of the Holding Company's Board. The Holding Company's certificate of
incorporation provides that the size of the Board of Directors may be increased
or decreased only by a majority vote of the Board. The certificate of
incorporation also provides that any vacancy occurring in the Board of
Directors, including a vacancy created by an increase in the number of
directors, shall be filled for the remainder of the unexpired term by a majority
vote of the directors then in office. Finally, the certificate and bylaws impose
certain notice and information requirements in connection with the nomination by
stockholders of candidates for election to the Board of Directors or the
proposal by stockholders of business to be acted upon at an annual meeting of
stockholders.
The certificate of incorporation provides that a director may only be removed
for cause by the affirmative vote of 80% of the shares eligible to vote. Removal
for "cause" is limited to the grounds for termination in the federal regulations
that applies to employment contracts of federally insured savings institutions.
RESTRICTIONS ON CALL OF SPECIAL MEETINGS. The certificate of incorporation of
the Holding Company provides that a special meeting of stockholders may be
called by the Chairman of the Board of the Holding Company or pursuant to a
resolution adopted by a majority of the Board of Directors. Stockholders are not
authorized to call a special meeting.
ABSENCE OF CUMULATIVE VOTING. The Holding Company's certificate of
incorporation provides that there shall be no cumulative voting rights in the
election of directors.
AUTHORIZATION OF PREFERRED STOCK. The certificate of incorporation of the
Holding Company authorizes 100,000 shares of serial preferred stock, without par
value. The Holding Company is authorized to issue preferred stock from time to
time in one or more series subject to applicable provisions of law; and the
Board of Directors is authorized to
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fix the designations, and relative preferences, limitations, voting rights, if
any, including without limitation, conversion rights of such shares (which could
be multiple or as a separate class). In the event of a proposed merger, tender
offer or other attempt to gain control of the Holding Company that the Board of
Directors does not approve, it might be possible for the Board of Directors to
authorize the issuance of a series of preferred stock with rights and
preferences that would impede the completion of such a transaction. An effect of
the possible issuance of preferred stock, therefore, may be to deter a future
takeover attempt. The Board of Directors has no present plans or understandings
for the issuance of any preferred stock but it may issue any preferred stock on
terms which the Board deems to be in the best interests of the Holding Company
and its stockholders.
LIMITATION ON VOTING RIGHTS. The certificate of incorporation of the Holding
Company provides that (I) no person shall directly or indirectly offer to
acquire or acquire the beneficial ownership of more than 10% of any class of
equity security of the Holding Company (provided that such limitation shall not
apply to the acquisition of equity securities by any one or more tax-qualified
employee stock benefit plans maintained by the Holding Company, if the plan or
plans beneficially own no more than 25% of any class of such equity security of
the Holding Company); and that (ii) shares beneficially owned in violation of
the stock ownership restriction described above shall not be entitled to vote
and shall not be voted by any person or counted as voting stock in connection
with any matter submitted to a vote of stockholders. For these purposes, a
person (including management) who has obtained the right to vote shares of the
Common Stock pursuant to revocable proxies shall not be deemed to be the
"beneficial owner" of those shares if that person is not otherwise deemed to be
a beneficial owner of those shares.
The certificate of incorporation of the Holding Company further provides that
the Board of Directors of the Holding Company, when determining to take or
refrain from taking corporate action on any matter, including making or
declining to make any recommendation to the Holding Company's stockholders, may,
in connection with the exercise of its judgment in determining what is in the
best interest of the Holding Company, the Association and the stockholders of
the Holding Company, give due consideration to all relevant factors, including,
without limitation, the social and economic effects of acceptance of such offer
on the Holding Company's customers and the Association's present and future
account holders, borrowers and employees; the effect on the communities in which
the Holding Company and the Association operate or are located; and the effect
on the ability of the Holding Company to fulfill the objectives of a savings and
loan holding company and of the Association or future subsidiaries to fulfill
the objectives of a stock savings association under applicable statutes and
regulations. The certificate of incorporation of the Holding Company also
authorize the Board of Directors to take certain actions to encourage a person
to negotiate for a change of control of the Holding Company or to oppose such a
transaction deemed undesirable by the Board of Directors including the adoption
of so-called shareholder rights plans. By having these standards and provisions
in the certificate of incorporation of the Holding Company, the Board of
Directors may be in a stronger position to oppose such a transaction if the
Board concludes that the transaction would not be in the best interest of the
Holding Company, even if the price offered is significantly greater than the
then market price of any equity security of the Holding Company.
PROCEDURES FOR CERTAIN BUSINESS COMBINATIONS. The certificate of incorporation
of the Holding Company requires that certain business combinations between the
Holding Company (or any majority-owned subsidiary thereof) and a 10% or greater
stockholder either (I) be approved by at least 80% of the total number of
outstanding voting shares of the Holding Company or (ii) be approved by a
majority of certain directors unaffiliated with such 10% or greater stockholder
or (iii) involve consideration per share generally equal to the higher of (A)
the highest amount paid by such 10% stockholder or its affiliates in acquiring
any shares of the Common Stock or (B) the "Fair Market Value" (generally, the
highest closing bid paid on the Common Stock during the 30 days preceding the
date of the announcement of the proposed business combination or on the date the
10% or greater stockholder became such, whichever is higher).
AMENDMENT TO CERTIFICATE OF INCORPORATION AND BYLAWS. Amendments to the
Holding Company's certificate of incorporation must be approved by the Holding
Company's Board of Directors and also by a majority of the outstanding shares of
the Holding Company's voting stock; provided, however, that approval by at least
80% of the outstanding voting stock is generally required for certain provisions
(i.e., provisions relating to number, classification, election and removal of
directors, amendment of bylaws, call of special stockholder meetings, criteria
for evaluating certain offers, offers to acquire and acquisitions of control,
director liability, certain business combinations, power of indemnification, and
amendments to provisions relating to the foregoing in the certificate of
incorporation).
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The bylaws may be amended by the affirmative vote of the total number of
directors of the Holding Company or the affirmative vote of at least 80% of the
total votes eligible to be voted at a duly constituted meeting of stockholders.
PURPOSE AND TAKEOVER DEFENSIVE EFFECTS OF THE HOLDING COMPANY'S CERTIFICATE OF
INCORPORATION AND BYLAWS. The Board of Directors of the Association believes
that the provisions described above are prudent and will reduce the Holding
Company's vulnerability to takeover attempts and certain other transactions
which have not been negotiated with and approved by its Board of Directors.
These provisions will also assist the Association in the orderly deployment of
the Conversion proceeds into productive assets during the initial period after
the Conversion. The Board of Directors believes these provisions are in the best
interest of the Association and of the Holding Company and its stockholders. In
the judgment of the Board of Directors, the Holding Company's Board will be in
the best position to determine the true value of the Holding Company and to
negotiate more effectively for what may be in the best interests of its
stockholders. Accordingly, the Board of Directors believes that it is in the
best interests of the Holding Company and its stockholders to encourage
potential acquirors to negotiate directly with the Board of Directors of the
Holding Company and that these provisions will encourage such negotiations and
discourage hostile takeover attempts. It is also the view of the Board of
Directors that these provisions should not discourage persons from proposing a
merger or other transaction at prices reflective of the true value of the
Holding Company and which is in the best interests of all stockholders.
Attempts to take over financial institutions and their holding companies have
become increasingly common. Takeover attempts which have not been negotiated
with and approved by the Board of Directors present to stockholders the risk of
a takeover on terms which may be less favorable than might otherwise be
available. A transaction which is negotiated and approved by the Board of
Directors, on the other hand, can be carefully planned and undertaken at an
opportune time in order to obtain maximum value for the Holding Company and its
stockholders, with due consideration given to matters such as the management and
business of the acquiring corporation and maximum strategic development of the
Holding Company's assets.
An unsolicited takeover proposal can seriously disrupt the business and
management of a corporation and cause it great expense. Although a tender offer
or other takeover attempt may be made at a price substantially above then-
current market prices, such offers are sometimes made for less than all of the
outstanding shares of a target company. As a result, stockholders may be
presented with the alternative of partially liquidating their investment at a
time that may be disadvantageous or retaining their investment in an enterprise
which is under different management and whose objectives may not be similar to
those of the remaining stockholders. The concentration of control, which could
result from a tender offer or other takeover attempt, could also deprive the
Holding Company's remaining stockholders of the benefits of certain protective
provisions of the Exchange Act, if the number of beneficial owners becomes less
than the 300 required for Exchange Act registration.
POTENTIAL ANTI-TAKEOVER EFFECTS. Despite the belief of the Association and the
Holding Company as to the benefits to stockholders of these provisions of the
Holding Company's certificate of incorporation and bylaws, these provisions may
also have the effect of discouraging a future takeover attempt which would not
be approved by the Holding Company's Board, but pursuant to which stockholders
may receive a substantial premium for their shares over then-current market
prices. As a result, stockholders who might desire to participate in such a
transaction may not have any opportunity to do so. Such provisions will also
render the removal of the Holding Company's Board of Directors and of management
more difficult. The Boards of Directors of the Association and the Holding
Company, however, have concluded that the potential benefits outweigh the
possible disadvantages.
Pursuant to applicable law, at any annual or special meeting of its
stockholders after the Conversion, the Holding Company may adopt additional
provisions to its certificate of incorporation regarding the acquisition of its
equity securities that would be permitted to a Delaware corporation. The Holding
Company and the Association do not presently intend to propose the adoption of
further restrictions on the acquisition of the Holding Company's equity
securities.
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OTHER RESTRICTIONS ON ACQUISITIONS OF STOCK
DELAWARE ANTI-TAKEOVER STATUTE. The State of Delaware has enacted legislation
which provides that subject to certain exceptions a publicly held Delaware
corporation may not engage in any business combination with an "interested
stockholder" for three years after such stockholder became an interested
stockholder, unless, among other things, the interested stockholder acquired at
least 85% of the corporation's voting stock in the transaction that resulted in
the stockholder becoming an interested stockholder. This legislation generally
defines "interested stockholder" as any person or entity that owns 15% or more
of the corporation's voting stock. The term "business combination" is defined
broadly to cover a wide range of corporate transactions, including mergers,
sales of assets, issuances of stock, transactions with subsidiaries and the
receipt of disproportionate financial benefits. Under certain circumstances,
either the board of directors or both the board and two-thirds of the
stockholders other than the acquiror may approve a given business combination
and thereby exempt the corporation from the operation of the statute.
However, these statutory provisions do not apply to Delaware corporations with
fewer than 2,000 stockholders or which do not have voting stock listed on a
national exchange or listed for quotation with a registered national securities
association.
FEDERAL REGULATION. A federal regulation prohibits any person prior to the
completion of a conversion from transferring, or entering into any agreement or
understanding to transfer, the legal or beneficial ownership of the Subscription
Rights issued under a plan of conversion or the stock to be issued upon their
exercise. This regulation also prohibits any person prior to the completion of a
conversion from offering, or making an announcement of an offer or intent to
make an offer, to purchase such Subscription Rights or stock. For three years
following conversion, this regulation prohibits any person, without the prior
approval of the OTS, from acquiring or making an offer (if opposed by the
institution) to acquire more than 10% of the stock of any converted savings
institution if such person is, or after consummation of such acquisition would
be, the beneficial owner of more than 10% of such stock. In the event that any
person, directly or indirectly, violates this regulation, the securities
beneficially owned by such person in excess of 10% shall not be counted as
shares entitled to vote and shall not be voted by any person or counted as
voting shares in connection with any matter submitted to a vote of stockholders.
Federal law provides that no company "directly or indirectly or acting in
concert with one or more persons, or through one or more subsidiaries, or
through one or more transactions," may acquire "control" of a savings
association at any time without the prior approval of the OTS. "Acting in
concert" is defined very broadly. In addition, federal regulations require that,
prior to obtaining control of a savings association, a person, other than a
company, must give 60 days' prior notice to the OTS and have received no OTS
objection to such acquisition of control. Any company that acquires such control
becomes a "savings and loan holding company" subject to registration,
examination and regulation as a savings and loan holding company. Under federal
law (as well as the regulations referred to below) the term "savings
association" includes state and federally chartered SAIF-insured institutions
and federally chartered savings banks whose accounts are insured by the FDIC's
BIF and holding companies thereof.
Control, as defined under federal law, means ownership, control of or holding
irrevocable proxies representing more than 25% of any class of voting stock,
control in any manner of the election of a majority of the savings association's
directors, or a determination by the OTS that the acquiror has the power to
direct, or directly or indirectly to exercise a controlling influence over, the
management or policies of the institution. Acquisition of more than 10% of any
class of a savings association's voting stock, if the acquiror also is subject
to any one of eight "control factors," constitutes a rebuttable determination of
control under the regulations. Such control factors include the acquiror being
one of the two largest stockholders. The determination of control may be
rebutted by submission to the OTS, prior to the acquisition of stock or the
occurrence of any other circumstances giving rise to such determination, of a
statement setting forth facts and circumstances which would support a finding
that no control relationship will exist and containing certain undertakings. The
regulations provide that persons or companies which acquire beneficial ownership
exceeding 10% or more of any class of a savings association's stock must file
with the OTS a certification that the holder is not in control of such
institution, is not subject to a rebuttable determination of control and will
take no action which would result in a determination or rebuttable determination
of control without prior notice to or approval of the OTS, as applicable.
102
DESCRIPTION OF CAPITAL STOCK
HOLDING COMPANY CAPITAL STOCK
The 1,000,000 shares of capital stock authorized by the Holding Company
certificate of incorporation are divided into two classes, consisting of 900,000
shares of Common Stock ($.01 par value) and 100,000 shares of serial preferred
stock ($.01 par value). The Holding Company currently expects to issue between
212,500 and 287,500 shares of Common Stock in the Conversion. The aggregate
stated value of the issued shares will constitute the capital account of the
Holding Company on a consolidated basis. The balance of the Purchase Price of
Common Stock, less expenses of Conversion, will be reflected as paid-in capital
on a consolidated basis. See "Capitalization." Upon payment of the Purchase
Price for the Common Stock, in accordance with the Plan, all such stock will be
duly authorized, fully paid, validly issued and nonassessable.
Each share of the Common Stock will have the same relative rights and will be
identical in all respects with each other share of the Common Stock. The Common
Stock of the Holding Company will represent non-withdrawable capital, will not
be of an insurable type and will not be insured by the FDIC.
Under Delaware law, the holders of the Common Stock will possess exclusive
voting power in the Holding Company. Each stockholder will be entitled to one
vote for each share held on all matters voted upon by stockholders, subject to
the limitation discussed under "Restrictions on Acquisitions of Stock and
Related Takeover Defensive Provisions - Provisions of the Holding Company's
Certificate of Incorporation and Bylaws - Limitation on Voting Rights." If the
Holding Company issues preferred stock subsequent to the Conversion, holders of
the preferred stock may also possess voting powers.
LIQUIDATION OR DISSOLUTION. In the unlikely event of the liquidation or
dissolution of the Holding Company, the holders of the Common Stock will be
entitled to receive -- after payment or provision for payment of all debts and
liabilities of the Holding Company (including all deposits in the Association
and accrued interest thereon) and after distribution of the liquidation account
established upon Conversion for the benefit of Eligible Account Holders and
Supplemental Eligible Account Holders who continue their deposit accounts at the
Association -- all assets of the Holding Company available for distribution, in
cash or in kind. See "The Conversion - Effects of Conversion to Stock Form on
Depositors and Borrowers of the Association." If preferred stock is issued
subsequent to the Conversion, the holders thereof may have a priority over the
holders of Common Stock in the event of liquidation or dissolution.
NO PREEMPTIVE RIGHTS. Holders of the Common Stock will not be entitled to
preemptive rights with respect to any shares which may be issued. The Common
Stock will not be subject to call for redemption, and, upon receipt by the
Holding Company of the full purchase price therefor, each share of the Common
Stock will be fully paid and nonassessable.
PREFERRED STOCK. After Conversion, the Board of Directors of the Holding
Company will be authorized to issue preferred stock in series and to fix and
state the voting powers, designations, preferences and relative, participating,
optional or other special rights of the shares of each such series and the
qualifications, limitations and restrictions thereof. Preferred stock may rank
prior to the Common Stock as to dividend rights, liquidation preferences, or
both, and may have full or limited voting rights. The holders of preferred stock
will be entitled to vote as a separate class or series under certain
circumstances, regardless of any other voting rights which such holders may
have.
Except as discussed herein, the Holding Company has no present plans for the
issuance of the additional authorized shares of Common Stock or for the issuance
of any shares of preferred stock. In the future, the authorized but unissued and
unreserved shares of Common Stock will be available for general corporate
purposes including but not limited to possible issuance as stock dividends or
stock splits, in future mergers or acquisitions, under a cash dividend
reinvestment and stock purchase plan, in a future underwritten or other public
offering or under an employee stock ownership plan, stock option or restricted
stock plan. The authorized but unissued shares of preferred stock will similarly
be available for issuance in future mergers or acquisitions, in a future
underwritten public offering or private placement or for other general corporate
purposes. Except as described above or as otherwise required to approve the
transaction
103
in which the additional authorized shares of Common Stock or authorized shares
of preferred stock would be issued, no stockholder approval will be required for
the issuance of these shares. Accordingly, the Board of Directors of the Holding
Company, without stockholder approval, can issue preferred stock with voting and
conversion rights which could adversely affect the voting power of the holders
of Common Stock.
RESTRICTIONS ON ACQUISITIONS. See "Restrictions on Acquisitions of Stock and
Related Takeover Defensive Provisions" for a description of certain provisions
of the Holding Company's certificate of incorporation and bylaws which may
affect the ability of the Holding Company's stockholders to participate in
certain transactions relating to acquisitions of control of the Holding Company.
DIVIDENDS. Upon consummation of the formation of the Holding Company, the
Holding Company's only asset will be the Association's Common Stock. Although it
is anticipated that the Holding Company will retain approximately 50% of the net
proceeds in the Conversion, dividends from the Association will be an important
source of income for the Holding Company. Should the Association elect to retain
its income, the ability of the Holding Company to pay dividends to its own
shareholders may be adversely affected. Furthermore, if at any time in the
future the Holding Company owns less than 80% of the outstanding stock of the
Association, certain tax benefits under the Code as to inter-company
distributions will not be fully available to the Holding Company and it will be
required to pay federal income tax on a portion of the dividends received from
the Association, thereby reducing the amount of income available for
distribution to the shareholders of the Holding Company. For further information
concerning the ability of the Association to pay dividends to the Holding
Company, see "Dividends."
LEGAL AND TAX MATTERS
The legality of the Common Stock and the federal income tax consequences of
the Conversion will be passed upon for the Association and the Holding Company
by the firm of Luse Lehman Gorman Pomerenk & Schick, P.C., Washington, D.C.
20015. The Louisiana state income tax consequences of the Conversion will be
passed upon for the Association and the Holding Company by Darnall, Sikes,
Kolder, Frederick & Rainey. Luse Lehman Gorman Pomerenk & Schick, P.C. and
Darnall, Sikes, Kolder, Frederick & Rainey have consented to the references
herein to their opinions. Certain legal matters regarding the Conversion will be
passed upon for Trident by Elias, Matz, Tiernan & Herrick, L.L.P., Washington,
D.C.
EXPERTS
The Financial Statements of the Association as of December 31, 1995 and 1994,
and for each of the years in the two-year period ended December 31, 1995 have
been included in this Prospectus in reliance on the report of Darnall, Sikes,
Kolder, Frederick & Rainey, certified public accountants, appearing elsewhere
herein, and upon the authority of that firm as experts in accounting and
auditing.
Ferguson has consented to the inclusion herein of the summary of its letter to
the Association setting forth its opinion as to the estimated pro forma market
value of the Association as converted and to the reference to its opinion that
Subscription Rights received by Eligible Account Holders and other eligible
subscribers do not have any economic value.
104
ADDITIONAL INFORMATION
The Holding Company has filed with the SEC a registration statement under the
Securities Act, with respect to the Common Stock offered hereby. As permitted by
the rules and regulations of the SEC, this Prospectus does not contain all the
information set forth in the registration statement. Such information can be
examined without charge at the public reference facilities of the SEC located at
450 Fifth Street, NW, Washington, D.C. 20549, and copies of such material can be
obtained from the SEC at prescribed rates. The statements contained herein as to
the contents of any contract or other document filed as an exhibit to the
registration statement are, of necessity, brief descriptions thereof and are not
necessarily complete but do contain all material information regarding such
documents; each such statement is qualified by reference to such contract or
document.
The Association has filed an Application for Conversion with the OTS with
respect to the Conversion. Pursuant to the rules and regulations of the OTS,
this Prospectus omits certain information contained in that Application. The
Application may be examined at the principal offices of the OTS, 1700 G Street,
N.W., Washington, D.C. 20552 and at the Midwest Regional Office of the OTS
located at 122 W. John Carpenter Freeway, Suite 600, Irving, Texas 75039.
In connection with the Conversion, the Holding Company will register the
Common Stock with the SEC under Section 12(g) of the Exchange Act; and, upon
such registration, the Holding Company and the holders of its Common Stock will
become subject to the proxy solicitation rules, reporting requirements and
restrictions on stock purchases and sales by directors, officers and greater
than 10% stockholders, the annual and periodic reporting and certain other
requirements of the Exchange Act. Under the Plan, the Holding Company has
undertaken that it will not terminate such registration for a period of at least
three years following the Conversion.
A copy of the certificate of incorporation and bylaws of the Holding Company
are available without charge from the Association.
105
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF ALLEN PARISH
OAKDALE, LOUISIANA
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Auditors......................................... F-2
Statements of Financial Condition as of March 31, 1996 (unaudited)
and December 31, 1995 and 1994....................................... F-3
Statements of Income for the three months ended March 31, 1996
and 1995 (unaudited) and the years ended December 31, 1995 and 1994.. 33
Statements of Changes in Retained Earnings for the three months ended
March 31, 1996 (unaudited) and for the years ended December 31, 1995
and 1994............................................................. F-4
Statements of Cash Flows for the three months ended March 31, 1996 and
1995 (unaudited) and for the years ended December 31, 1995 and 1994.. F-5
Notes to Financial Statements.......................................... F-7
######
All financial statements of First Allen Parish Bancorp, Inc. have been omitted
because First Allen Parish Bancorp, Inc. has not yet issued any stock, has no
assets and liabilities and has not conducted any business other than of an
organizational nature.
All schedules are omitted as the required information is not applicable or
because the required information is included in the financial statements or
related notes.
F-1
[DARNALL, SIKES, KOLDER, FREDERICK & RAINEY LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
First Federal Savings and Loan Association
of Allen Parish
Oakdale, Louisiana
We have audited the accompanying statements of financial condition of First
Federal Savings and Loan Association of Allen Parish as of December 31, 1995 and
1994, and the related statements of income, retained earnings and cash flows for
the years then ended. These financial statements are the responsibility of the
Association's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of First Federal Savings and
Loan Association of Allen Parish as of December 31, 1995 and 1994, and the
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
Darnall, Sikes, Kolder, Frederick & Rainey
A Corporation of Certified Public Accountants
Lafayette, Louisiana
January 18, 1996
MEMBER OF
AMERICAN INSTITUTE OF
CERTIFIED PUBLIC ACCOUNANTS
SOCIETY OF LOUISIANA
CERTIFIED PUBLIC ACCOUTANTS
F-2
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF ALLEN PARISH
Statements of Financial Condition
December 31,
March 31, 1996 ------------------------
(Unaudited) 1995 1994
-------------- ----------- -----------
ASSETS
Cash and cash equivalents
Interest-bearing $ 1,788,680 $ 1,040,626 $ 1,092,568
Non-interest bearing 437,770 321,969 299,615
Mortgage-backed and related securities -
held-to-maturity (estimated market value of $12,293,707,
$12,393,239 and $9,846,183) 12,397,874 12,433,279 10,383,140
Mortgage-backed and related securities - available-for-sale,
estimated market value 2,797,597 2,958,167 2,873,642
Loans receivable, net 11,305,909 11,230,728 11,466,294
Accrued interest receivable 191,010 198,584 159,336
Other receivables 37,340 47,120 -
Foreclosed real estate, net of allowance for losses
of $25,807, $25,807 and $25,807 38,568 38,568 44,767
Federal Home Loan Bank stock, at cost 259,200 259,600 247,500
Premises and equipment, at cost, less accumulated
depreciation 303,921 309,796 291,045
Other assets 47,514 19,677 58,305
----------- ----------- -----------
Total assets $29,605,383 $28,858,114 $26,916,212
=========== =========== ===========
LIABILITIES AND RETAINED EARNINGS
Deposits $27,283,396 $26,582,879 $24,523,182
Advances from Federal Home Loan Bank - - 500,000
Advances by borrowers for taxes and insurance 31,085 43,033 37,318
Federal income taxes:
Current 15,314 - 54,649
Deferred 127,174 116,982 75,612
Accrued expenses and other liabilities 31,097 41,462 32,999
Deferred income 14,261 15,172 23,151
----------- ----------- -----------
Total liabilities 27,502,327 26,799,528 25,246,911
----------- ----------- -----------
Commitments and contingencies (Note 19)
Retained earnings (substantially restricted) 2,113,937 2,063,367 1,772,871
Unrealized loss on mortgage-backed and related
securities held available-for-sale, net of
tax benefit of $5,606, $2,459 and $53,354 (10,881) (4,781) (103,570)
----------- ----------- -----------
Total retained earnings 2,103,056 2,058,586 1,669,301
----------- ----------- -----------
Total liabilities and retained earnings $29,605,383 $28,858,114 $26,916,212
=========== =========== ===========
The accompanying notes are an integral part of this statement.
F-3
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF ALLEN PARISH
Statements of Changes in Retained Earnings
Unrealized loss on
Retained Mortgage-Backed and
Earnings Related Securities
Substantially Available-for-Sale,
Restricted Net of Tax Benefit
--------------- -------------------
Balance, December 31, 1993 $1,530,993 $ (359)
Net income, as restated for the
year ended December 31, 1994 241,878 -
Change in unrealized loss on securities
available-for-sale (net of tax
benefit of $53,169) - (103,211)
---------- ---------
Balance, December 31, 1994 1,772,871 (103,570)
Net income, as restated for the year
ended December 31, 1995 290,496 -
Change in unrealized loss on securities
available-for-sale (net of tax benefit
of $50,895) - 98,789
---------- ---------
Balance, December 31, 1995 2,063,367 (4,781)
Net income for three months ended
March 31, 1996 (unaudited) 50,570 -
Change in unrealized loss on securities
available-for-sale (net of tax
benefit of $3,147) (unaudited) - (6,100)
---------- ---------
Balance, March 31, 1996
(unaudited) $2,113,937 $ (10,881)
========== =========
The accompanying notes are an integral part of this statement.
F-4
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF ALLEN PARISH
Statements of Cash Flows
Three Months Ended March 31,
---------------------------- Years Ended December 31,
1996 1995 --------------------------
(Unaudited) (Unaudited) 1995 1994
----------- ----------- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 50,570 $ 67,245 $ 290,496 $ 241,878
---------- ---------- ----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of premises and equipment 12,358 9,850 32,775 29,866
Provision for loan losses (9,461) (7,879) (21,020) 2,332
Provision for losses on real estate owned - - - 6,000
Loss (gain) on sale of foreclosed real estate (86) (1,252) (6,467) 1,986
Premium amortization net of discount accretion 2,785 11,690 36,945 61,512
Deferred income taxes 10,192 10,078 41,370 26,201
Stock dividend on FHLB stock (3,800) 400 (12,100) (11,300)
Changes in assets and liabilities -
(Increase) decrease in accrued interest
receivable 7,574 (7,888) (39,248) (3,711)
(Increase) decrease in prepaid assets (24,693) (24,517) (12,264) 7,917
Increase (decrease) in accrued expenses
and other liabilities (10,365) (11,507) 8,463 2,728
Increase (decrease) in current income
taxes payable 15,314 (27,356) (54,649) 54,649
(Increase) decrease in deferred income (911) 303 (7,979) (18,901)
---------- ---------- ----------- -----------
Total adjustments (1,093) (48,078) (34,174) 159,279
---------- ---------- ----------- -----------
Net cash provided by operating activities 49,477 19,167 256,322 401,157
---------- ---------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Principal repayment of mortgage-backed and related
securities - held-to-maturity 376,328 221,065 1,168,081 1,812,918
Principal repayments of mortgage-backed and related
securities - available-for-sale 152,427 305,999 990,909 934,845
Purchase of mortgage-backed and related
securities - held-to-maturity (343,181) (174,627) (3,244,087) (2,255,515)
Purchase of mortgage-backed and related
securities - available-for-sale - (606,929) (979,459) -
Net decrease (increase) in loans made to customers (54,797) (102,663) 262,428 (504,543)
Proceeds from sale of foreclosed real estate 100 7,300 7,300 91,300
Purchase of property and equipment (3,068) - (51,524) (46,569)
---------- ---------- ----------- -----------
Net cash provided (used) by investing
activities 127,809 (349,855) (1,846,352 32,436
---------- ---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits,
NOW accounts, passbook savings accounts, and
certificates of deposits 698,517 1,762,223 2,054,727 (1,001,485)
Increase (decrease) in advances from FHLB - (500,000) (500,000) 500,000
Net increase (decrease) in advances by borrowers
for taxes and insurance (11,948) 3,170 5,715 (622)
---------- ---------- ----------- -----------
Net cash provided (used) by financing
activities 686,569 1,265,393 1,560,442 (502,107)
---------- ---------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents 863,855 934,705 (29,588) (68,514)
CASH AND CASH EQUIVALENTS, beginning of period 1,362,595 1,392,183 1,392,183 1,460,697
---------- ---------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of period $2,226,450 $2,326,888 $ 1,362,595 $ 1,392,183
========== ========== =========== ===========
F-5
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF ALLEN PARISH
Statements of Cash Flows
Three Months Ended March 31,
----------------------------
1996 1995 Years Ended December 31,
------------------------
(Unaudited) (Unaudited) 1995 1994
----------- ----------- ---------- -----------
Supplemental Disclosures
- ------------------------
Cash paid for:
Interest on deposits, advances, and other
borrowings $297,277 $227,757 $1,081,451 $ 793,086
Income taxes - - 109,173 111,249
Transfers from loans to real estate acquired through
foreclosure - - - 35,480
Proceeds from sales of foreclosed real estate
financed through loans - - - 44,000
Total (increase) decrease in unrealized loss on
mortgage-backed and related securities
available-for-sale, net of tax benefit of $3,147,
$33,996, $50,895 and $53,169 (6,100) (65,993) 98,789 (103,211)
The accompanying notes are an integral part of this statement.
F-6
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF ALLEN PARISH
Notes to Financial Statements
(1) Summary of Significant Accounting Policies
------------------------------------------
The accounting and reporting policies of First Federal Savings and
Loan Association of Allen Parish (the Association) and the methods of
applying those policies conform with generally accepted accounting
principles. The accounting and reporting policies and the methods of
applying those policies which significantly affect the determination of
financial position, results of operations, and cash flows are summarized
below.
The statement of financial condition as of March 31, 1996 and the
related statement of income, retained earnings and cash flows for the three
months ended March 31, 1996 and the related statement of income and cash
flows for the three months ended March 31, 1995 are unaudited and have been
prepared in accordance with the requirements for a presentation of interim
financial statements and are in accordance with generally accepted
accounting principles. In the opinion of management, all adjustments,
consisting of normal recurring adjustments, that are necessary for a fair
presentation of the interim periods, have been reflected.
A. Cash and Cash Equivalents
-------------------------
Cash and cash equivalents consist of cash and interest-bearing
deposits due from other institutions. For purposes of the statements of
cash flows, the Association considers all of these highly liquid
financial instruments with original maturities, when purchased of three
months or less to be cash equivalents.
Cash and cash equivalents at March 31 and December 31 include the
following:
March 31, 1996 December 31,
----------------------
(Unaudited) 1995 1994
--------------- ---------- ----------
Interest-bearing deposits
in other institutions $1,788,680 $1,040,626 $1,092,568
Cash 437,770 321,969 299,615
---------- ---------- ----------
Total $2,226,450 $1,362,595 $1,392,183
========== ========== ==========
(B) Mortgage-Backed and Related Securities
--------------------------------------
The Association has adopted Statement of Financial Accounting
Standards No. 115 as of December 31, 1994, regarding classification of
all debt securities and certain equity securities.
F-7
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF ALLEN PARISH
Notes to Financial Statements (Continued)
Mortgage-backed and related securities that management has the
ability and intent to hold to maturity are classified as held-to-
maturity and carried at cost, adjusted for amortization of premium and
accretion of discounts using methods approximating the interest
method. Other mortgage-backed and related securities are classified as
available-for-sale and are carried at fair value. Unrealized holding
gains and losses, net of tax, on securities available-for-sale are
recognized as direct increases or decreases in retained earnings until
realized.
At December 31, 1995 and March 31, 1996, the Association had no
outstanding commitments to sell loans or securities. Should any be
sold, gains and losses are recognized based on the specific
identification method. All sales are made without recourse. Gross
unrealized losses in the held-to-maturity portfolio and in the
available-for-sale portfolio are as follows:
March 31, 1996 December 31,
--------------------------
(Unaudited) 1995 1994
Gross Gross Gross
Unrealized Unrealized Unrealized
Gain (Loss) Gain (Loss) Gain (Loss)
----------- ----------- --------------
Held-to-maturity
securities $(104,167) $(40,040) $(536,957)
Available-for-sale
securities (16,487) (7,240) (156,924)
C. Loans Receivable
----------------
Loans receivable are stated at unpaid principal balances, less
the allowance for loan losses, and net deferred loan origination fees
and discounts.
Discounts on consumer loans are recognized over the lives of the
loans using the interest method.
A loan (including a loan defined as impaired under SFAS 114) is
classified as nonaccrual when the loan becomes 90 days or more past
due. Any unpaid interest previously accrued on those loans is reversed
from income. Interest income generally is not recognized on specific
impaired loans unless the likelihood of further loss is remote.
Interest payments received on such loans
F-8
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF ALLEN PARISH
Notes to Financial Statements (Continued)
are applied as a reduction of the loan principal balances. Interest
income on other nonaccrual loans is recognized only to the extent of
interest payments received.
The allowance for loan losses is established through a provision
for loan losses based on management's evaluation of the risk inherent
in its loan portfolio and changes in the nature and volume of its loan
activity, including those loans which are being specifically monitored
by management. Such evaluation, which includes a review of loans for
which full collectibility may not be reasonably assured, considers
among other matters, the loan classifications discussed above, the
estimated fair value of the underlying collateral, economic
conditions, historical loan loss experience, the amount of loans
outstanding and other factors that warrant recognition in providing
for an adequate loan loss allowance. Allowances for impaired loans are
generally determined based on collateral values or the present value
of estimated cash flows.
In May 1993, the Financial Accounting Standards Board issued
Statement No. 114 Accounting by Creditors for Impairment of a Loan
which requires that impaired loans that are within the scope of this
statement be measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate or at the
loan's market price or the fair value of the collateral if the loan is
collateral dependent. The Association uses the loan-by-loan
measurement method for all loans, however, residential mortgage loans
and consumer installment loans are considered to be groups of smaller
balance homogenous loans and are collectively evaluated for impairment
and are not subject to SFAS 114 measurement criteria. A loan is
considered impaired when it is probable that all contractual amounts
due will not be collected in accordance with the terms of the loan.
A loan is not deemed to be impaired if a delay in receipt of payment
is expected to be less than 60 days or if, during a longer period of
delay, the Association expects to collect all amounts due, including
interest accrued at the contractual rate during the period of the
delay. Factors considered by management include the property location,
economic conditions and any unique circumstances affecting the loan.
Due to the composition of the Association's loan portfolio, the fair
value of collateral is utilized to measure virtually all of the
Association's impaired loans. If the fair value of an impaired loan is
less than the related recorded amount, a valuation allowance is
established or the writedown is charged against the allowance for loan
losses if the impairment is considered to be permanent.
F-9
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF ALLEN PARISH
Notes to Financial Statements (Continued)
The standard was adopted prospectively with the effect of
initially applying the standard to be reflected as an adjustment to
the Association's provision for loan losses in the year of adoption.
The Association adopted the standard effective January 1, 1995.
D. Loan Origination Fees, Commitment Fees and Related Costs
--------------------------------------------------------
FASB Statement No. 91, Accounting for Non-refundable Fees and
Costs Associated with Originating or Acquiring Loans and Initial
Direct Costs of Leases, states that loan fees and certain direct loan
origination costs are normally deferred and the net fee or cost is
recognized as an adjustment to interest income using a method which
does not differ materially from the interest method, over the
contractual life of the loans, adjusted for estimated prepayments
based on the Association's historical prepayment experience.
Commitment fees and costs relating to commitments whose likelihood of
exercise is remote should be recognized over the commitment period on
a straight-line basis. If the commitment is subsequently exercised
during the commitment period, the remaining unamortized commitment fee
at the time of exercise should be recognized over the life of the loan
as an adjustment of yield. Loan fees and certain direct loan
origination costs are not deferred at First Federal Savings and Loan
Association of Allen Parish, however, due to immateriality. These fees
are recognized in the period collected. The Association does not
charge commitment fees.
E. Foreclosed Real Estate
----------------------
Real estate properties acquired through, or in lieu of loan
foreclosures are initially recorded at the lower of cost or fair value
minus estimated costs to sell at the date of foreclosure. Costs
relating to development and improvement of property are capitalized,
whereas costs relating to the holding of property are expensed.
Valuations are periodically performed by management, and an
allowance for losses is established by a charge to operations if the
carrying value of a property exceeds its estimated net realizable
value.
F-10
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF ALLEN PARISH
Notes to Financial Statements (Continued)
F. Federal Home Loan Bank Stock
----------------------------
Investment securities, consisting of stock in Federal Home Loan
Bank, are carried at the lower of cost or estimated market value. If a
sale is made, gains and losses on the sale of investment securities
are determined using the specific identification method.
G. Income Taxes
------------
Provisions for income taxes are based on taxes payable for the
current year and include deferred income taxes on temporary
differences in the recognition of income and expenses for tax and
financial statement purposes, primarily from preparing tax returns on
the cash basis of accounting and preparing the financial statements on
the accrual basis. Deferred taxes are computed utilizing the method
prescribed in FASB Statement 109, Accounting for Income Taxes.
H. Retirement Plan
---------------
Full time employees are eligible to participate in a contributory
profit sharing plan. Annual contributions, determined as a percentage
of eligible employee's salaries, are charged to expense.
I. Premises and Equipment
----------------------
Land is carried at cost. Buildings, furniture, fixtures, and
equipment are carried at cost, less accumulated depreciation.
Maintenance, repairs, and minor renewals are expensed as incurred.
Property retired or sold, and the accumulated depreciation is removed
from the accounts in the year of sale or retirement. Gains or losses
on disposition are taken into income.
The Association computes depreciation by use of the straight-line
method over the following estimated useful lives:
Buildings 40 years
Furniture and fixtures 7-10 years
Automobiles 5 years
F-11
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF ALLEN PARISH
Notes to Financial Statements (Continued)
For income tax purposes, depreciation of assets acquired prior
to January 1, 1981 is calculated on the straight-line method, and
depreciation of assets acquired after December 31, 1980 is calculated
using the Accelerated Cost Recovery System (ACRS) and Modified
Accelerated Cost Recovery System (MACRS) of the Internal Revenue
Service. Provision is made for deferred income taxes applicable to
the difference in depreciation charges.
J. Deferred Income
---------------
Interest on loans collected in advance is deferred and is
recognized to interest income over the contractual life of the loans.
Profits from repossessed real estate sale transactions for which the
proceeds were financed by the Association are deferred and recognized
to income based upon the amount, composition, and source of the down
payment made by the buyer and periodic cash payments by the buyer.
K. New Accounting Pronouncements Not Yet Adopted
---------------------------------------------
In March 1995, the FASB issued SFAS 121 Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of. SFAS 121 is effective for fiscal years beginning after
December 15, 1995. The statement requires a company to assess whether
an asset (or group of assets) that will continue to be used is
impaired and whether an adjustment to the carrying value is required.
Certain events, such as a significant decrease in the asset's market
value, a physical change in the asset or the way the asset is used,
among others, are indicators that impairment may exist. If an asset is
determined to be impaired, and the estimated cash flows from the asset
are less than the carrying value of the asset, then fair market value
is calculated, and the carrying value is adjusted if it is less than
the fair market value. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less cost to sell. While
the Association has not yet adopted SFAS 121, such adoption is not
expected to have a material effect upon the Association's financial
condition or results of operations.
In May 1995, the FASB issued SFAS 122, Accounting for Mortgage
Servicing Rights. SFAS 122 is effective for fiscal years beginning
after December 15, 1995. SFAS 122 requires capitalization of servicing
rights for both purchased loans and in-house originations. Prior to
the issuance of this statement, only
F-12
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF ALLEN PARISH
Notes to Financial Statements (Continued)
servicing rights associated with purchased loans were capitalized.
When a financial institution sells a loan and retains the servicing
rights, SFAS 122 requires that the total cost of the loan (including
loan fees and origination costs) be allocated between the loan and the
mortgage servicing rights based on their relative fair values. The
cost of the mortgage servicing rights is recognized as a separate
asset and amortized in proportion to the estimated net servicing
income. If it is not practical to estimate fair values, the loan cost
is allocated entirely to the loan. The Association does not currently
sell loans, however, if it chooses to sell loans in the future, the
adoption of SFAS 122 is not expected to have a material effect upon
the Association's financial condition or results of operation.
SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" supersedes SFAS
No. 122 and will be effective for all transfers and servicing of
financial assets and extinguishments of liabilities occurring after
December 31, 1996. This statement provides accounting and reporting
standards for transfers and servicing of financial assets and
extinguishments of liabilities based on consistent application of a
financial-components approach that focuses on control. It
distinguished transfers of financial assets that are sales from
transfers that are secured borrowings. Under the financial-components
approach, after a transfer of financial assets, an entity recognizes
all financial assets it no longer controls and liabilities that have
been extinguished. The financial-components approach focuses on the
assets and liabilities that exist after the tranfer. Many of these
assets and liabilities are components of financial assets that existed
prior to the transfer. If a transfer does not meet the criteria for a
sale, the transfer is accounted for as a secured borrowing with a
pledge of collateral. The adoption of this statement is not expected
to have a material effect on the Association's financial statements.
L. Reclassified Items
------------------
Certain items of the prior years have been reclassified in order
to conform to current presentation.
F-13
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF ALLEN PARISH
Notes to Financial Statements (Continued)
(2) Federal Home Loan Bank Stock
----------------------------
The carrying values and estimated market values of the Federal Home
Loan Bank stock at March 31 and December 31 are summarized as follows:
December 31,
March 31, 1996 ---------------------------------------
(Unaudited) 1995 1994
----------------------------- ------------------- ------------------
Estimated Estimated Estimated
Carrying Market Carrying Market Carrying Market
Value Value Value Value Value Value
--------------- ------------ --------- -------- -------- --------
Equity securities:
Stock in Federal Home Loan Bank, at cost $259,200 $259,200 $259,600 $259,600 $247,500 $247,500
======== ======== ======== ======== ======== ========
There were no sales of Federal Home Loan Bank stock in 1995 or 1994;
however, $4,100 (unaudited) of stock was redeemed in the three months ended
March 31, 1996 and $4,100 was redeemed in the year ended December 31, 1995
at original cost.
(3) Mortgage-Backed and Related Securities
--------------------------------------
The carrying values and estimated market values of mortgage-backed and
related securities at March 31 and December 31 are summarized as follows:
Held-to-Maturity Securities March 31, 1996 (Unaudited)
-----------------------------------------------------------------
Net
Unamortized
Premium Gross Estimated
Principal (Unearned Carrying Unrealized Market
Balance Discounts) Value Gain (Loss) Value
----------- ------------ ---------- ----------- -----------
GNMA
certificates $ 401,737 $(203) $ 401,534 $(838) $ 400,696
FHLMC
certificates 4,373,483 (1,020) 4,372,463 6,111 4,378,574
FNMA
certificates 7,450,781 86,027 7,536,808 (102,503) 7,434,305
Collateralized
mortgage
obligations 80,738 6,331 87,069 (6,937) 80,132
----------- ------- ----------- --------- -----------
$12,306,739 $91,135 $12,397,874 $(104,167) $12,293,707
=========== ======= =========== ========= ===========
F-14
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF ALLEN PARISH
Notes to Financial Statements (Continued)
Available-for-Sale Securities March 31, 1996 (Unaudited)
-----------------------------------------------------------------
Net
Unamortized
Premium Gross Estimated
Principal (Unearned Carrying Unrealized Market
Balance Discounts) Value Gain (Loss) Value
--------- ----------- ---------- ----------- ---------
GNMA
certificates $ 580,751 $ 13,024 $ 593,775 $ (9,231) $ 584,544
FHLMC
certificates 779,009 2,827 781,836 (127) 781,709
FNMA
certificates 1,428,869 9,604 1,438,473 (7,129) 1,431,344
---------- ----------- ---------- ----------- ----------
$2,788,629 $ 25,455 $2,814,084 $ (16,487) $2,797,597
========== =========== ========== =========== ==========
Held-to-Maturity Securities December 31, 1995
------------------------------------------------------------------
Net
Unamortized
Premium Gross Estimated
Principal (Unearned Carrying Unrealized Market
Balance Discounts) Value Gain (Loss) Value
--------- ----------- ----------- ----------- ---------
GNMA
certificates $ 418,052 $ (581) $ 417,471 $ 1,887 $ 419,358
FHLMC
certificates 4,498,102 (1,915) 4,496,187 36,458 4,532,645
FNMA
certificates 7,337,799 89,590 7,427,389 (72,935) 7,354,454
Collateralized
mortgage
obligations 85,525 6,707 92,232 (5,450) 86,782
----------- ---------- ----------- --------- -----------
$12,339,478 $ 93,801 $12,433,279 $ (40,040) $12,393,239
=========== ========== =========== ========= ===========
F-15
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF ALLEN PARISH
Notes to Financial Statements (Continued)
Available-for-Sale Securities December 31, 1995
------------------------------------------------------
Net
Unamortized
Premium Gross Estimated
Principal (Unearned Carrying Unrealized Market
Balance Discounts) Value Gain (Loss) Value
--------- ----------- -------- ----------- ---------
GNMA
certificates $ 594,133 $13,332 $ 607,465 $(8,854) $ 598,611
FHLMC
certificates 827,686 2,741 830,427 3,791 834,218
FNMA
certificates 1,519,237 8,278 1,527,515 (2,177) 1,525,338
---------- ------- ---------- ------- ----------
$2,941,056 $24,351 $2,965,407 $(7,240) $2,958,167
========== ======= ========== ======= ==========
Held-to-Maturity Securities December 31, 1994
-----------------------------------------------------------------
Net
Unamortized
Premium Gross Estimated
Principal (Unearned Carrying Unrealized Market
Balance Discounts) Value Gain (Loss) Value
--------- ----------- -------- ----------- ---------
GNMA
certificates $ 325,160 $ 940 $ 326,100 $ 11,951 $ 314,149
FHLMC
certificates 3,423,907 51,694 3,475,601 159,987 3,315,614
FNMA
certificates 6,355,147 111,159 6,466,306 348,170 6,118,136
Collateralized
mortgage
obligations 106,761 8,372 115,133 16,849 98,284
----------- -------- ----------- --------- ----------
$10,210,975 $172,165 $10,383,140 $ 536,957 $9,846,183
=========== ======== =========== ========= ==========
F-16
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF ALLEN PARISH
Notes to Financial Statements (Continued)
Available-for-Sale Securities December 31, 1994
-----------------------------------------------------------------------------
Net
Unamortized
Premium Gross Estimated
Principal (Unearned) Carrying Unrealized Market
Balance Discounts Values Losses Value
---------- ----------- ---------- ----------- ----------
GNMA
certificates $ 556,878 $14,954 $ 571,832 $ 45,942 $ 525,890
FHLMC
certificates 1,198,296 29,445 1,227,741 51,319 1,176,422
FNMA
certificates 1,198,332 32,661 1,230,993 59,663 1,171,330
---------- ------- ---------- -------- ----------
$2,953,506 $77,060 $3,030,566 $156,924 $2,873,642
========== ======= ========== ======== ==========
The held-to-maturity collateralized mortgage obligations (CMOs) at
March 31, 1996, December 31, 1995 and December 31, 1994 are secured by
both FHLMC and GNMA certificates.
(4) Loans Receivable
----------------
Major classification of loans at March 31 and December 31 are as
follows:
December 31,
March 31, 1996 ---------------------------
(Unaudited) 1995 1994
-------------- ------------- ------------
First mortgage loans (principally conventional):
Principal balances -
Secured by one-to-four family residences $ 7,768,023 $ 7,918,939 $ 8,710,621
Land loans 249,411 202,613 181,326
Commercial loans 1,293,972 1,208,388 880,601
Construction loans 317,825 260,000 162,000
Other real estate loans 104,497 131,281 234,962
----------- ----------- -----------
9,733,728 9,721,221 10,169,510
Less: Undisbursed portion of first mortgage
loans (133,940) (143,245) (81,576)
----------- ----------- -----------
Total first mortgage loans 9,599,788 9,577,976 10,087,934
----------- ----------- -----------
Consumer and other loans:
Principal balances -
Automobile 444,891 495,609 460,221
Manufactured home 10,557 11,666 20,685
Share loans 834,227 800,305 765,330
Lines of credit 415,040 440,040 165,000
Other consumer loans 504,763 414,639 344,293
----------- ----------- -----------
2,209,478 2,162,259 1,755,529
Less: Undisbursed portion of consumer loans (193,887) (192,024) (47,997)
Unearned discounts (36) (77) (786)
----------- ----------- -----------
Total consumer and other loans 2,015,555 1,970,158 1,706,746
----------- ----------- -----------
Less: Allowance for loan losses (309,434) (317,406) (328,386)
----------- ----------- -----------
Loans receivable, net $11,305,909 $11,230,728 $11,466,294
=========== =========== ===========
F-17
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF ALLEN PARISH
Notes to Financial Statements (Continued)
Activity in the allowance for loan losses for the periods ended March
31 and December 31 is summarized as follows:
Three Months Ended March 31,
---------------------------- Years Ended December 31,
1996 1995 ------------------------
(Unaudited) (Unaudited) 1995 1994
---------- ----------- -------- --------
Balance, beginning of period $317,406 $328,386 $328,386 $333,142
Provision charged to (recovery from)
operations (9,461) (7,879) (21,020) 2,332
Charge offs - (789) (7,021) (13,603)
Recoveries 1,489 14,900 17,061 6,515
-------- -------- -------- --------
Balance, end of period $309,434 $334,618 $317,406 $328,386
======== ======== ======== ========
The Association had loans with unpaid principal balances totaling
$70,139 (unaudited) at March 31, 1996 and $155,135 and $62,271 at December
31, 1995 and 1994, respectively, upon which interest was no longer being
accrued due to their delinquent status. Had the accrual of interest not
been discontinued on these loans, interest income would have been increased
by approximately $9,355 (unaudited), $11,399 and $6,062, respectively. The
Association is not committed to lend additional funds to debtors whose
loans have been modified.
(5) Troubled Debt Restructuring
---------------------------
At March 31, 1996 (unaudited), December 31, 1995 and December 31,
1994, the Association had loans totalling $186,486 (eleven loans), $190,805
(eleven loans) and $120,649 (nine loans), respectively, whose terms had
been modified as a troubled debt restructuring in accordance with Statement
of Financial Accounting Standards No. 114, Accounting by Creditors for
Impairment of a Loan as amended by statement of Financial Accounting
Standards No. 118, Accounting by Creditors for Impairment of a Loan: Income
Recognition and Disclosures. The interest income that would have been
recognized if those loans had been current with their original terms was
$4,798, $17,530 and $12,708 for the periods ended March 31, 1996
(unaudited), December 31, 1995 and December 31, 1994, respectively.
Interest income totalling $4,448, $15,839, and $10,792 was included in
income for the periods ended March 31, 1996 (unaudited), December 31, 1995
and December 31, 1994, respectively. The Association is not committed to
lend additional funds to debtors whose loans have been restructured. No
impaired loans existed at March 31, 1996, December 31, 1995 or December 31,
1994.
F-18
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF ALLEN PARISH
Notes to Financial Statements (Continued)
(6) Accrued Interest Receivable
---------------------------
Accrued interest receivable at March 31 and December 31 is summarized
as follows:
December 31,
March 31, 1996 ------------------
(Unaudited) 1995 1994
--------------- -------- --------
Mortgage-backed and related securities $109,806 $113,802 $ 84,158
Loans receivable 81,204 84,782 75,178
-------- -------- --------
$191,010 $198,584 $159,336
======== ======== ========
(7) Allowance for Losses on Foreclosed Real Estate
----------------------------------------------
Activity in the allowance for losses for foreclosed real estate for
the periods ended March 31 and December 31 is as follows:
Three Months Ended March 31,
---------------------------- Years Ended December 31,
1996 1995 ------------------------
(Unaudited) (Unaudited) 1995 1994
----------- ----------- ------- -------
Balance, beginning of period $25,807 $25,807 $25,807 $28,596
Provisions charged to operations - - - 6,000
Charge offs - - - (8,789)
------- ------- ------- -------
Balance, end of period $25,807 $25,807 $25,807 $25,807
======= ======= ======= =======
(8) Premises and Equipment
----------------------
Premises and equipment at March 31 and December 31 consisted of the
following:
December 31,
March 31, 1996 -----------------------
(Unaudited) 1995 1994
-------------- -------- --------
Land and buildings $342,138 $342,138 $342,138
Furniture, fixtures and equipment 271,846 268,778 228,639
-------- -------- --------
613,984 610,916 570,777
Less: Accumulated depreciation 310,063 301,120 279,732
-------- -------- --------
$303,921 $309,796 $291,045
======== ======== ========
F-19
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF ALLEN PARISH
Notes to Financial Statements (Continued)
Depreciation for the three months ended March 31, 1996 and 1995 was
$8,943 (unaudited) and $7,463 (unaudited), respectively. Depreciation for
the years ended December 31, 1995 and 1994 was $32,775 and $29,866,
respectively.
(9) Deposits
--------
Deposits at March 31 and December 31 are summarized as follows:
Weighted December 31,
Average March 31, 1996 Weighted ------------------------------------------
Rate at (Unaudited) Average 1995 1994
03/31/96 --------------------- Rate at -------------------- -------------------
(Unaudited) Amount Percent 12/31/95 Amount Percent Amount Percent
----------- ----------- ------- -------- ----------- ------- ---------- -------
Demand and NOW
accounts,
including
non-interest
bearing deposits
of $418,701,
$330,705 and
$291,587 1.83% $ 3,626,891 13.29 2.13% $ 3,305,082 12.43 $ 3,442,061 14.04
Money market 2.07% 939,000 3.44 2.39% 1,006,630 3.79 1,330,922 5.43
Passbook savings 2.20% 3,092,431 11.33 2.84% 2,913,566 10.96 3,402,516 13.87
----------- ------ ----------- ------ ----------- ------
7,658,322 28.06 7,225,278 27.18 8,175,499 33.34
----------- ------ ----------- ------ ----------- ------
Certificates
of deposit:
3.99% or less 3.75% 202,120 .74 3.28% 171,939 .65 8,551,595 34.87
4.00% to 5.99% 5.16% 17,627,855 64.61 5.33% 17,179,541 64.63 6,804,147 27.74
6.00% to 7.99% 6.03% 1,750,284 6.41 6.07% 1,961,306 7.38 945,979 3.86
8.00% to 9.99% 8.00% 44,815 .18 8.00% 44,815 .16 45,962 .19
----------- ------ ----------- ------ ----------- ------
19,625,074 71.94 19,357,601 72.82 16,347,683 66.66
----------- ------ ----------- ------ ----------- ------
$27,283,396 100.00 $26,582,879 100.00 $24,523,182 100.00
=========== ====== =========== ====== =========== ======
The aggregate amount of short-term jumbo certificates of deposit with
a minimum denomination of $100,000 was approximately $3,692,538
(unaudited), $3,485,098 and $736,652 at March 31, 1996, December 31, 1995
and December 31, 1994, respectively.
At March 31, 1996 scheduled maturities of certificates of deposit are
as follows:
Year Ending March 31,
---------------------------------------------------------
1997 1998 1999 2000 2001 Thereafter
----------- --------- -------- -------- -------- ----------
3.99 percent or less $ 202,120 $ - $ - $ - $ - $ -
4.00 to 5.99 percent 15,302,094 2,062,945 262,816 - - -
6.00 to 7.99 percent 799,264 589,023 100,000 24,201 110,425 127,371
8.00 to 9.99 percent 42,711 - 2,104 - - -
----------- ---------- -------- -------- -------- --------
$16,346,189 $2,651,968 $364,920 $ 24,201 $110,425 $127,371
=========== ========== ======== ======== ======== ========
F-20
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF ALLEN PARISH
Notes to Financial Statements (Continued)
At December 31, 1995 scheduled maturities of certificates of deposit
are as follows:
Year Ending December 31,
---------------------------------------------------------------------
1996 1997 1998 1999 2000
----------- ----------- ----------- ---------- ----------
3.99 percent or less $ 171,959 $ - $ - $ - $ -
4.00 to 5.99 percent 14,989,464 1,884,310 305,767 -
6.00 to 7.99 percent 921,890 663,329 114,016 65,701 196,370
8.00 to 8.99 percent - 42,711 2,104 -
----------- ---------- -------- ------ --------
$16,083,313 $2,590,350 $421,887 $65,701 $196,370
=========== ========== ======== ======= ========
Interest expense on deposits for the periods ended March 31 and
December 31 is summarized as follows:
Three Months Ended March 31,
---------------------------- Years Ended December 31,
1996 1995 -----------------------
(Unaudited) (Unaudited) 1995 1994
--------- ---------- ----------- ---------
Money market and NOW
accounts $ 20,896 $ 22,173 $ 91,928 $ 97,168
Passbook savings 16,015 16,530 66,777 73,220
Certificates of
deposits 260,091 187,734 915,993 617,700
-------- -------- ---------- --------
$297,002 $226,437 $1,074,698 $788,088
======== ======== ========== ========
Income from early withdrawal penalties amounted to $964 (unaudited),
$1,569 (unaudited), $6,753 and $5,081 for each period, respectively.
(10) Advances from Federal Home Loan Bank
------------------------------------
Borrowed funds at December 31, 1994 consisted of the following:
Rate Amount
------ --------
Advances from Federal Home Loan Bank 6.11% $500,000
Pursuant to a blanket floating lien with the Federal Home Loan Bank,
the advance at December 31, 1994 was secured by mortgage-backed securities.
At December 31, 1994, the $500,000 advance matured on January 4, 1995.
F-21
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF ALLEN PARISH
Notes to Financial Statements (Continued)
(11) Deferred Income
---------------
Deferred income at March 31 and December 31 consisted of the
following:
December 31,
March 31, 1996 ------------------------
(Unaudited) 1995 1994
-------------- ----------- ----------
Interest on loans collected in advance $ 2,397 $ 3,222 $ 3,992
Unrealized profit from the sale of
repossessed property 11,864 11,950 19,159
------- ------- -------
Totals $14,261 $15,172 $23,151
======= ======= =======
(12) Interest Income on Other Interest Earning Assets
------------------------------------------------
Details of interest income on other interest earning assets included
in interest income for the periods ended March 31 and December 31 are provided
below:
Three Months Ended March 31,
------------------------------- Years Ended December 31,
1996 1995 ------------------------
(Unaudited) (Unaudited) 1995 1994
--------------- ------------- -------- -------
Interest on money market accounts and
certificates of deposits in other
institutions $ - $ - $ - $ 2,133
Interest on demand deposits in other
institutions 17,180 17,310 82,875 25,454
Federal Home Loan Bank dividends 3,799 3,845 16,371 11,389
------- ------- ------- -------
Totals $20,979 $21,155 $99,246 $38,976
======= ======= ======= =======
F-22
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF ALLEN PARISH
Notes to Financial Statements (Continued)
(13) Other Noninterest Expenses
--------------------------
Details of other expenses included in noninterest expenses for the
periods ended March 31 and December 31 are provided below:
Three Months Ended March 31,
---------------------------- Years Ended December 31,
1996 1995 ------------------------
(Unaudited) (Unaudited) 1995 1994
----------- ----------- -------- --------
Bank clearing charges $ 20,155 $17,308 $ 70,570 $ 69,059
Insurance 3,223 1,660 18,643 16,440
Professional fees 22,833 23,491 37,553 48,411
Telephone 2,740 2,620 10,940 14,166
Advertising 2,554 2,954 12,280 13,078
Property taxes - - 6,773 7,080
Dues and subscriptions 1,953 2,147 5,384 6,706
Miscellaneous other
expenses 2,003 1,685 6,160 7,799
---------- ------- -------- --------
Total $ 55,461 $51,865 $168,303 $182,739
========== ======= ======== ========
(14) Retirement Plan
---------------
In 1988, the Association adopted a contributory profit sharing plan for
all full time employees. Contributions are to be made annually based on
participants' salaries. The contributions for the three months ended March
31, 1996 and 1995 and for the years ended December 31, 1995 and 1994
included in compensation and employee benefits expense were $8,266
(unaudited), $6,245 (unaudited), $29,967 and $24,048, respectively.
(15) Officers Deferred Compensation Contract
---------------------------------------
During 1994, the Association established a deferred compensation
contract with one member of the Board of Directors. The agreement provides
for a lump sum payment to be made to the director upon retirement or to his
beneficiary in the event of death before retirement. The agreement is
terminated should the director resign before the stated date of retirement.
At March 31 and December 31 the following had been accrued as deferred
compensation payable.
F-23
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF ALLEN PARISH
Notes to Financial Statements (Continued)
December 31,
March 31, 1996 -------------------
(Unaudited) 1995 1994
------------- --------- --------
$18,740 $16,531 $8,018
======= ======= ======
(16) Income Taxes
------------
The Association utilizes FASB Statement 109 to account for
income taxes.
The components of income tax expense for the periods ended
March 31 and December 31 are as follows:
Three Months Ended March 31,
---------------------------- Year Ended December 31,
1996 1995 -----------------------
(Unaudited) (Unaudited) 1995 1994
----------- ------------ ------- ---------
Income taxes current:
Federal $17,421 $27,294 $109,173 $111,249
Deferred taxes due to
timing differences 10,192 10,077 41,370 26,201
------- ------- --------- --------
Total income tax
expense $27,613 $37,371 $150,543 $137,450
======= ======= ======== ========
The total provision for federal income taxes differs from that
computed by applying statutory corporate tax rates as follows for the
periods ending:
Three Months Ended March 31,
---------------------------- Years Ended December 31,
1996 1995 ------------------------
(Unaudited) (Unaudited) 1995 1994
--------------- ----------- ---------- ---------
Computed at the
expected statutory
rate 34.0% 34.0% 34.0% 34.0%
Other 1.3 1.7 .1 2.2
---- ---- ---- ----
35.3% 35.7% 34.1% 36.2%
==== ==== ==== ====
Temporary differences giving rise to the deferred tax amounts consist
primarily of converting the financial statements from accrual to cash basis
for tax purposes and by the excess of tax bad debts over book bad debts
since 1987.
F-24
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF ALLEN PARISH
Notes to Financial Statements (Continued)
Amounts for deferred tax liabilities are as follows:
December 31
March 31, 1996 -------------------
(Unaudited) 1995 1994
-------------- -------- --------
Deferred tax assets $ 12,102 $ 16,542 $ 12,967
Deferred tax liabilities 139,276 133,524 88,579
--------- -------- --------
Net deferred tax liabilities $ 127,174 $116,982 $ 75,612
========= ======== ========
No valuation allowances were recorded against deferred tax assets as
of March 31, 1996, December 31, 1995 and December 31, 1994.
The Association is allowed a special bad debt deduction based on a
percentage of taxable income (presently 8 percent) or on specified
experience formulas, subject to certain limitations based upon aggregate
loan balances at the end of the year. The Association used the percentage-
of-taxable income method in 1995 and 1994. If the amounts deducted are used
for purposes other than for loan losses, such as in a distribution in
liquidation or otherwise, or if the Association would cease to be a
qualified thrift lender under the tax law, the amounts deducted would be
subject to federal income tax at the then current corporate rate. Effective
with the adoption of SFAS No. 109, the Association was required to record,
and has recorded, a deferred tax liability for special bad debt deductions
after December 31, 1987. The Association, in accordance with SFAS No. 109,
has not recorded a deferred tax liability of approximately $41,825 as of
March 31, 1996 related to the cumulative special bad debt deduction prior
to December 31, 1987.
The accompanying statements of income for the years ended December 31,
1995 and 1994 have been restated to correct an error in income tax expense.
The effect of the restatement was to decrease net income for the two years
as follows:
As Originally Reported As Corrected Decrease in Net Income
---------------------- ------------ ----------------------
1995 $312,091 $290,496 $21,595
1994 262,134 241,878 20,256
(17) Related Party Transactions
--------------------------
In the ordinary course of business, the Association makes loans to its
directors, officers, and employees. These loans are made on the same terms
F-25
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF ALLEN PARISH
Notes to Financial Statements (Continued)
as loans to other customers. The balances of such loans outstanding at
March 31 and December 31 are as follows:
Three Years Ended
months ended -------------------------------------
March 31, 1996 December 31, 1995 December 31, 1994
-------------- ------------------ ------------------
(unaudited)
Balance, beginning
of period $293,138 $284,350 $241,963
Additions 11,297 143,281 126,011
Payments (25,643) (134,503) (83,624)
-------- --------- --------
Balance, end of
period $278,791 $293,138 $284,350
======== ======== ========
(18) Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) and
Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) of
1989
FDICIA was signed into law on December 19, 1991. Regulations
implementing the prompt corrective action provisions of FDICIA became
effective on December 19, 1992. In addition to the prompt corrective action
requirements, FDICIA includes significant changes to the legal and
regulatory environment for insured depository institutions, including
reductions in insurance coverage for certain kinds of deposits, increased
supervision by the federal regulatory agencies, increased reporting
requirements for insured institutions, and new regulations concerning
internal controls, accounting and operations.
The prompt corrective action regulations define specific capital
categories based on an institution's capital ratios. The capital
categories, in declining order, are "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized," and
"critically undercapitalized." Institutions categorized as
"undercapitalized" or worse are subject to certain restrictions, including
the requirement to file a capital plan with their primary federal
regulator, prohibitions on the payment of dividends and management fees,
restrictions on executive compensation, and increased supervisory
monitoring, among other things. Other restrictions may be imposed on the
institution either by its primary federal regulator, the Office of Thrift
Supervision (OTS), or by the Federal Deposit Insurance
F-26
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF ALLEN PARISH
Notes to Financial Statements (Continued)
Corporation (FDIC), including requirements to raise additional capital,
sell assets, or sell the entire institution. Once an institution becomes
"critically undercapitalized," it must generally be placed in receivership
or conservatorship within 90 days.
FIRREA was signed into law on August 9, 1989; regulations for savings
institutions' minimum capital requirements went into effect on December 7,
1989. In addition to its capital requirements, FIRREA includes provisions
for changes in the federal regulatory structure for institutions, including
a new deposit insurance system, increased deposit insurance premiums, and
restricted investment activities with respect to noninvestment grade
corporate debt and certain other investments. FIRREA also increases the
required ratio of housing-related assets in order to qualify as a savings
institution.
The regulations require institutions to have a minimum regulatory
tangible capital equal to 1.5 percent of adjusted total assets, a minimum 4
percent core/leverage capital ratio, a minimum 4 percent tier 1 risk-based
ratio, and a minimum 8 percent total risk-based capital ratio to be
considered "adequately capitalized." An institution is deemed to be
"critically undercapitalized" if it has a tangible equity ratio of 2
percent or less.
The following is a reconciliation of GAAP capital to regulatory
capital at March 31, 1996 (unaudited):
Unaudited
------------------------------------
Regulatory
------------------------------------
GAAP Tangible Core Risk Based
Capital Capital Capital Capital
---------- ---------- ---------- ----------
GAAP capital, before
adjustments $2,113,937
Unrealized loss on mortgage
backed and related
securities held available
for sale (10,881)
----------
Capital, as adjusted $2,103,056 $2,113,937 $2,113,937 $2,113,937
==========
F-27
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF ALLEN PARISH
Notes to Financial Statements (Continued)
Nonallowable assets:
Real estate owned and held for
branch expansion - - (18,500)
Additional capital items:
General valuation allowance - - 143,491
---------- ---------- ----------
Regulatory capital computed 2,113,937 2,113,937 2,238,928
Minimum capital requirement 444,081 888,161 909,040
---------- ---------- ----------
Regulatory capital - excess $1,669,856 $1,225,776 $1,329,888
========== ========== ==========
Regulatory
----------------------------
Tangible Core Risk-Based
Capital Capital Capital
-------- -------- ----------
Percent:
Regulatory capital -
computed 7.14% 7.14% 19.70%
Minimum capital requirement 1.50% 3.00% 8.00%
-------- -------- ----------
Regulatory capital excess 5.64% 4.14% 11.70%
======== ======== ==========
The following is a reconciliation of GAAP capital to regulatory
capital at December 31, 1995:
Regulatory
----------------------------------
GAAP Tangible Core Risk-Based
Capital Capital Capital Capital
---------- -------- ---------- ----------
GAAP capital, before
adjustments $2,063,367
Unrealized loss on mortgage
backed and related
securities held available
for sale (4,781)
----------
Capital, as adjusted $2,058,586 $2,063,367 $2,063,367 $2,063,367
========== ========== ========== ==========
F-28
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF ALLEN PARISH
Notes to Financial Statements (Continued)
Nonallowable assets:
Real estate owned and held for
branch expansion - - (18,500)
Additional capital items:
General valuation allowance - - 140,908
---------- ---------- ----------
Regulatory capital computed 2,063,367 2,063,367 2,185,775
Minimum capital requirement 432,872 865,743 888,720
---------- ---------- ----------
Regulatory capital - excess $1,630,495 $1,197,624 $1,297,055
---------- ---------- ----------
Regulatory
----------------------------
Tangible Core Risk-Based
Capital Capital Capital
-------- ------- ----------
Percent:
Regulatory capital -
computed 7.15% 7.15% 19.67%
Minimum capital requirement 1.50% 3.00% 8.00%
-------- ------- ----------
Regulatory capital excess 5.65% 4.15% 11.67%
======== ======= ==========
(19) Financial Instruments with Off-Balance-Sheet Risk/Commitments
-------------------------------------------------------------
The Association is a party to financial instruments with off-balance-
sheet risk in the normal course of business to meet the financing needs of
its customers and to reduce its own exposure to fluctuations in interest
rates. These financial instruments include commitments to extend credit and
standby letters of credit. Those instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount
recognized in the statement of financial position. The contract or notional
amount of those instruments reflect the extent of the Association's
involvement in particular classes of financial instruments.
The Association's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for loan
commitments to extend credit and standby letters of credit is represented
by the contractual notional amount of those instruments. The Association
uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments.
F-29
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF ALLEN PARISH
Notes to Financial Statements (Continued)
Unless noted otherwise, the Association does not require collateral or
other security to support financial instruments with credit risk.
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses. Since many of the commitments are expected to expire without being
drawn upon, the total commitment amounts do not necessarily represent
future cash requirements. The Association evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if
it is deemed necessary by the Association upon extension of credit, is
based on management's credit evaluation of the counterparty. Collateral
held varies but may include accounts receivable; inventory, property,
plant, and equipment; and income-producing commercial properties. In
addition to undisbursed loan proceeds, outstanding mortgage commitments
amounted to:
Ranges
-----------------------------
Variable Interest Commitment
Rate Rates Terms
-------- ------------ -----------
March 31, 1996 (unaudited) $144,684 9.00%-10.50% 58-167 days
December 31, 1995 $124,945 9.00%-10.00% 44-150 days
December 31, 1994 $580,991 8.25%-10.50% 1-180 days
Ranges
-----------------------------
Fixed Interest Commitment
Rate Rates Terms
-------- ------------ -----------
March 31, 1996 (unaudited) $132,300 8.50%-12.00% 22-115 days
December 31, 1995 $124,945 8.00%-12.00% 44-150 days
December 31, 1994 $580,991 8.50%-12.00% 1-160 days
Standby letters of credit are conditional commitments issued by the
Association to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support public and private
borrowing arrangements, including commercial paper, bond financing, and
similar transactions. The Association had short-term standby letters of
credit outstanding of $6,970 at March 31, 1996 (unaudited) and $4,970
and $ -0- at December 31, 1995 and 1994, respectively.
F-30
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF ALLEN PARISH
Notes to Financial Statements (Continued)
(20) Concentration of Credit
-----------------------
The majority of the Association's loans and its standby letters of
credit have been granted to customers in the Association's market area,
which is primarily Allen Parish, Louisiana. The Parish is largely a rural
area and relies heavily on the agricultural industry and government
employment. The concentrations of credit by type of loan are set forth in
the note on loans receivable as presented earlier in this report. The
Association, as a matter of policy, does not extend credit to any borrower
or group of related borrowers in excess of its legal lending limit of
$500,000.
(21) Estimated Fair Value of Financial Instruments
---------------------------------------------
The following methods and assumptions were used by the Association in
estimating fair values of financial instruments as disclosed herein:
Cash and cash equivalents - The carrying amounts of cash and short-
term instruments approximate their fair value.
Securities to be held to maturity and securities available-for-sale -
Fair values for investment securities, excluding restricted equity
securities, are based on quoted market prices. The carrying values of
restricted equity securities approximate fair values.
Loans receivable - Fair values for variable and fixed rate loans are
estimated using discounted cash flow analysis, using interest rates
currently being offered for loans with similar terms to borrowers of
similar credit quality.
Deposit liabilities - The fair values disclosed for demand deposits
are, by definition, equal to the amount payable on demand at the
reporting date (that is, their carrying amounts). The carrying amounts
of variable-rate, fixed-term money market accounts and certificates of
deposit approximate their fair values at the reporting date. Fair
values for fixed-rate certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently
being offered on the certificates to a schedule of aggregated expected
monthly maturities on time deposits.
Short-term borrowings - Fair values of borrowed funds are estimated
using discounted cash flow analyses based on the Association's current
incremental borrowing rates for similar types of borrowing
arrangements.
F-31
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF ALLEN PARISH
Notes to Financial Statements (Continued)
Accrued interest - The carrying amounts of accrued interest
approximate their fair values.
Off-balance sheet items - The fair value of these items approximate
their contractual amounts.
The estimated fair values of the Association's financial instruments
were as follows:
March 31, 1996
(Unaudited) December 31, 1995 December 31, 1994
---------------------------- ------------------------ ------------------------
Carrying Fair Carrying Fair Carrying Fair
Value Value Value Value Value Value
----------- ----------- ----------- ----------- ----------- -----------
Financial assets:
Cash and due from banks $ 2,226,450 $ 2,226,450 $ 1,362,595 $ 1,362,595 $ 1,392,183 $ 1,392,183
Investment securities 259,200 259,200 259,600 259,600 247,500 247,500
Securities to be held to
maturity 12,397,874 12,293,707 12,433,279 12,393,239 10,383,140 9,846,183
Securities available for
sale 2,797,597 2,797,597 2,958,167 2,958,167 2,873,642 2,873,642
Loans 11,305,909 11,406,698 11,230,728 11,331,594 11,466,294 11,568,344
Accrued interest receivable 191,010 191,010 198,584 198,584 159,336 159,336
Other receivables 37,340 37,340 47,120 47,120 - -
Financial liabilities:
Deposit liabilities 27,283,396 27,316,000 26,582,579 26,653,000 24,523,182 24,567,324
Borrowed funds - - - - 500,000 475,200
Advances by borrowers for
taxes and insurance 31,085 31,085 43,033 43,033 37,318 37,318
Current federal income
taxes payable 15,314 15,314 - - 54,649 54,649
Accrued expenses and other
liabilities 31,097 31,097 41,462 41,462 32,999 32,999
Off-balance sheet items
Standby letters of credit 6,970 6,970 4,970 4,970 - -
Commitments to extend
credit 276,984 276,984 344,502 344,502 604,991 604,991
(22) Plan of Conversion (Unaudited)
------------------------------
On June 3, 1996, the Board of Directors of First Federal Savings &
Loan Association adopted a Plan of Conversion whereby the Association would
covert from a mutual savings institution to a stock savings and loan
pursuant to the Rules and Regulations of the OTS. The Plan includes, as
part of the conversion, the concurrent formation of a holding company. The
Plan provides that non-transferable subscription rights to purchase Holding
Company Conversion Stock will be offered first to Eligible Account Holders
of record as of the Eligibility Record Date, then to the Association's Tax-
Qualified Employee Plans, then to Supplemental Eligible Account Holders of
record as of the Supplemental Eligibility Record Date, then to other
members, and then to
F-32
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF ALLEN PARISH
Notes to Financial Statements (Continued)
directors, officers and employees. Concurrently with, at any time during,
or promptly after the Subscription Offering, and on a lowest priority
basis, an opportunity to subscribe may also be offered to the general
public in a Direct Community Offering. The price of the Holding Company
Conversion Stock will be based upon an independent appraisal of the
Association and will reflect its estimated pro forma market value, as
converted. It is the desire of the Board of Directors of the Association to
attract new capital to the Association in order to increase its capital,
support future savings growth and increase the amount of funds available
for residential and other mortgage lending. The Converted Association is
also expected to benefit from its management and other personnel having a
stock ownership in its business, since stock ownership is viewed as an
effective performance incentive and a means of attracting, retaining and
compensating management and other personnel. No change will be made in the
Board of Directors or management as a result of the Conversion.
The costs of issuing the common stock will be deferred and deducted
from the sale proceeds. If the offering is unsuccessful for any reason, the
deferred costs will be charged to operations. At March 31, 1996, the
Association had incurred no such costs (unaudited).
For the purpose of granting eligible members of the Association a
priority in the event of future liquidation, the Association will, at the
time of conversion, establish a liquidation account equal to its regulatory
capital as of the date of the latest balance sheet used in the final
conversion offering circular. In the event (and only in such event) of
future liquidation of the converted Association, an eligible savings
account holder who continues to maintain a savings account shall be
entitled to receive a distribution from the liquidation account, in the
proportionate amount of the then-current adjusted balance of the savings
deposits then held, before any distributions may be made with respect to
capital stock.
Present regulations provide that the Association may not declare or
pay a cash dividend on or repurchase any of its capital stock if the result
thereof would be to reduce the regulatory capital of the Association below
the amount required for the liquidation account or the regulatory capital
requirement. Further, any dividend declared or paid on or repurchase of,
the Association's capital stock shall be in compliance with the rules and
regulations of the Office of Thrift Supervision, or other applicable
regulations.
F-33
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN AS CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE
OFFERING MADE HEREBY, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE HOLDING
COMPANY OR FIRST FEDERAL. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED
OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION
IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE HOLDING COMPANY OR FIRST FEDERAL SINCE ANY
OF THE DATES AS OF WHICH INFORMATION IS FURNISHED HEREIN OR SINCE THE DATE
HEREOF.
_____________
TABLE OF CONTENTS
Page
-------
Prospectus Summary ...............................................
Selected Financial Information
and Other Data ..................................................
Recent Financial Data ............................................
Risk Factors .....................................................
First Federal Savings and Loan Association
of Allen Parish .................................................
First Allen Parish Bancorp, Inc. .................................
Capitalization ...................................................
Pro Forma Data ...................................................
Use of Proceeds ..................................................
Dividends ........................................................
Market for Common Stock ..........................................
First Federal Savings and Loan Association
of Allen Parish Statement of Earnings ...........................
Management's Discussion and Analysis of
Financial Condition and Results of Operations ...................
Business .........................................................
Regulation .......................................................
Management .......................................................
The Conversion ...................................................
Restrictions on Acquisitions of Stock and Related
Takeover Defensive Provisions ..................................
Description of Capital Stock .....................................
Legal and Tax Matters ............................................
Experts ..........................................................
Additional Information ...........................................
Index to Financial Statements ....................................
UNTIL THE LATER OF SEPTEMBER __, 1996, OR 25 DAYS AFTER COMMENCEMENT
OF THE OFFERING OF COMMON STOCK, ALL DEALERS EFFECTING TRANSACTIONS IN THE
REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
287,500 Shares
FIRST ALLEN PARISH
BANCORP, INC.
(Holding Company for First Federal
Savings and Loan Association of Allen Parish)
Common Stock
_____________
PROSPECTUS
_____________
TRIDENT SECURITIES, INC.
August __, 1996
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS OF FIRST FEDERAL SAVINGS AND
LOAN ASSOCIATION OF ALLEN PARISH
Generally, federal regulations define areas for indemnity coverage for federal
savings associations, as follows:
(a) Any person against whom any action is brought by reason of the
fact that such person is or was a director or officer of the savings association
shall be indemnified by the savings association for:
(i) Reasonable costs and expenses, including reasonable attorneys'
fees, actually paid or incurred by such person in connection with proceedings
related to the defense or settlement of such action;
(ii) Any amount for which such person becomes liable by reason of any
judgment in such action;
(iii) Reasonable costs and expenses, including reasonable attorneys'
fees, actually paid or incurred in any action to enforce his rights under this
section, if the person attains a final judgment in favor of such person in such
enforcement action.
(b) Indemnification provided for in subparagraph (a) shall be made to
such officer or director only if the requirements of this subsection are met:
(i) The savings association shall make the indemnification provided by
subparagraph (a) in connection with any such action which results in a final
judgment on the merits in favor of such officer or director.
(ii) The savings association shall make the indemnification provided
by subparagraph (a) in case of settlement of such action, final judgment against
such director or officer or final judgment in favor of such director or officer
other than on the merits except in relation to matters as to which he shall be
adjudged to be liable for negligence or misconduct in the performance of duty,
only if a majority of the directors of the savings association determines that
such a director or officer was acting in good faith within what he was
reasonably entitled to believe under the circumstances was the scope of his
employment or authority and for a purpose which he was reasonably entitled to
believe under the circumstances was in the best interest of the savings
association or its members.
(c) As used in this paragraph:
(i) "Action" means any action, suit or other judicial or
administrative proceeding, or threatened proceeding, whether civil, criminal, or
otherwise, including any appeal or other proceeding for review;
(ii) "Court" includes, without limitation, any court to which or in
which any appeal or any proceeding for review is brought;
(iii) "Final Judgment" means a judgment, decree, or order which is
appealable and as to which the period for appeal has expired and no appeal has
been taken;
(iv) "Settlement" includes the entry of a judgment by consent or by
confession or upon a plea of guilty or of nolo contendere.
The Savings Association maintains directors and officers liability policy
with USF&G Insurance. Such policy provides for an aggregate liability coverage
of $500,000.
INDEMNIFICATION OF DIRECTORS AND OFFICERS OF FIRST ALLEN PARISH BANCORP, INC.
Article ELEVENTH of First Allen Parish Bancorp, Inc.'s (the "Corporation")
Certificate of Incorporation sets forth circumstances under which directors,
officers, employees and agents of the Corporation may be insured or indemnified
against liability which they may incur in their capacities as such.
ELEVENTH:
A. Each person who was or is made a party or is threatened to be made a
party to or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a "proceeding"),
by reason of the fact that he or she is or was a director or an officer of the
Corporation or is or was serving at the request of the Corporation as a director
or officer of another corporation, including, without limitation, any Subsidiary
(as defined in Article EIGHTH of the Certificate of Incorporation of the
Corporation), partnership, joint venture, trust or other enterprise, including
service with respect to an employee benefit plan (hereinafter an "indemnitee"),
whether the basis of such proceeding is alleged action in an official capacity
as a director or officer or in any other capacity while serving as a director or
officer, shall be indemnified and held harmless by the Corporation to the
fullest extent authorized by the Delaware General Corporation Law, as the same
exists or may hereafter be amended (but, in the case of any such amendment, only
to the extent that such amendment permits the Corporation to provide broader
indemnification rights than such law permitted the Corporation to provide prior
to such amendment), against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid in settlement) reasonably incurred or suffered by such indemnitee in
connection therewith; provided, however, that, except as provided in Section C
hereof with respect to proceedings to enforce rights to indemnification, the
Corporation shall indemnify any such indemnitee in connection with a proceeding
(or part thereof) initiated by such indemnitee only if such proceeding (or part
thereof) was authorized by the Board of Directors of the Corporation.
B. The right to indemnification conferred in Section A of this
Article ELEVENTH shall include the right to be paid by the Corporation the
expenses incurred in defending any such proceeding in advance of its final
disposition (hereinafter an "advancement of expenses"); provided, however, that,
if the Delaware General Corporation Law requires, an advancement of expenses
incurred by an indemnitee in his or her capacity as a director or officer (and
not in any other capacity in which service was or is rendered by such
indemnitee, including, without limitation, service to an employee benefit plan)
shall be made only upon delivery to the Corporation of an undertaking
(hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all
amounts so advanced if it shall ultimately be determined by final judicial
decision from which there is no further right to appeal (hereinafter a "final
adjudication"), that such indemnitee is not entitled to be indemnified for such
expenses under this Section or otherwise. The rights to indemnification and to
the advancement of expenses conferred in Sections A and B of this Article
ELEVENTH shall be contract rights and such rights shall continue as to an
indemnitee who has ceased to be a director or officer and shall inure to the
benefit of the indemnitee's heirs, executors and administrators.
C. If a claim under Section A or B of this Article ELEVENTH is not
paid in full by the Corporation within sixty days after a written claim has been
received by the Corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be twenty days, the
indemnitee may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim. If successful in whole or in part in any
such suit, or in a suit brought by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the indemnitee shall also be
entitled to be paid the expense of prosecuting or defending such suit. In (i)
any suit brought by the indemnitee to enforce a right to indemnification
hereunder (but not in a suit brought by the indemnitee to enforce a right to an
advancement of expenses) it shall be a defense that, and (ii) in any suit by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking the Corporation shall be entitled to recover such expenses upon a
final adjudication that, the indemnitee has not met any applicable standard for
indemnification set forth in the Delaware General Corporation Law. Neither the
failure of the Corporation (including its Board of Directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such suit that indemnification of the indemnitee is proper in
the circumstances because the indemnitee has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses, under this
Article ELEVENTH or otherwise shall be on the Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Article ELEVENTH shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, the
Corporation's Certificate of Incorporation, Bylaws, agreement, vote of
stockholders or Disinterested Directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the Delaware General Corporation Law.
F. The Corporation may, to the extent authorized from time to time by
a majority vote of the Disinterested Directors, grant rights to indemnification
and to the advancement of expenses to any employee or agent of the Corporation
to the fullest extent of the provisions of this Article with respect to the
indemnification and advancement of expenses of directors and officers of the
Corporation.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Amount
------
* Legal Fees and Expenses...................... $100,000
* Printing and Mailing......................... 30,000
* Appraisal and Business Plan Fees and Expenses 26,500
* Accounting Fees and Expenses................. 30,000
* Blue Sky Filing Fees and Expenses
(including counsel fees)..................... 10,000
Conversion Agent and Proxy Solicitation Fees. 6,000
* Stock Transfer Agent and Certificates........ 5,000
** Marketing Fees and Expenses.................. 110,000
* Federal Filing Fees (OTS and SEC)............ 11,000
Expenses..................................... 21,500
--------
** Total........................................ $350,000
========
- ----------
* Estimated
** First Allen Parish Bancorp, Inc. has retained Trident Securities, Inc.
("Trident Securities") to assist in the sale of common stock on a best
efforts basis in the Subscription and Community Offerings. Trident
Securities will receive fees of approximately $75,000, exclusive of
estimated expenses (including attorneys' fees) of $25,000.
ITEM 26. RECENT SALES OF REGISTERED SECURITIES.
Not Applicable.
ITEM 27. EXHIBITS:
The exhibits filed as part of this registration statement are as
follows:
1.1 Engagement Letter between First Federal Savings and Loan Association of
Allen Parish and Trident Securities, Inc.*
1.2 Agency Agreement among First Allen Parish Bancorp, Inc., First Federal
Savings and Loan Association of Allen Parish and Trident Securities, Inc.
2 Plan of Conversion*
3.1 Certificate of Incorporation of First Allen Parish Bancorp, Inc.*
3.2 Bylaws of First Allen Parish Bancorp, Inc.*
3.3 Charter of First Federal Savings and Loan Association of Allen Parish*
3.4 Bylaws of First Federal Savings and Loan Association of Allen Parish*
4 Form of Common Stock Certificate of First Allen Parish Bancorp, Inc.*
5 Opinion of Luse Lehman Gorman Pomerenk & Schick regarding legality of
securities being registered
8.1 Federal Tax Opinion of Luse Lehman Gorman Pomerenk & Schick, P.C.
8.2 State Tax Opinion of Darnall, Sikes, Kolder, Frederick & Rainey*
8.3 Opinion of Ferguson & Co., LLP with respect to Subscription Rights*
10.1 Form of Employment Agreement
10.2 Employee Stock Ownership Plan*
23.1 Consent of Darnall, Sikes, Kolder, Frederick & Rainey
23.2 Consent of Ferguson & Co., LLP*
24 Power of Attorney (set forth on signature page)*
99.1 Appraisal Agreement between First Federal Savings and Loan Association of
Allen Parish and Ferguson & Co., LLP*
99.2 Appraisal Report of Ferguson & Co., LLP*
99.3 Proxy Statement*
99.4 Marketing Materials*
99.5 Order and Acknowledgement Form* and Certification Form
- ---------------------
* Previously filed.
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any duration from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in the
effective registration statement;
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each post-
effective amendment as a new registration statement of the securities offered,
and the offering of the securities at that time to be the initial bona fide
offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
The small business issuer will provide to the underwriter at the closing
specified in the Underwriting Agreement certificates in such documentation and
registered in such names as required by the underwriter to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the small business issuer pursuant to the foregoing provisions, or otherwise,
the small business issuer has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act, and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the small business
issuer will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
questions whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Oakdale,
State of Louisiana, on August 7, 1996.
First Allen Parish Bancorp, Inc.
(Registrant)
By: /s/ Charles L. Galligan
-----------------------
Charles L. Galligan
President and Chief Executive Officer
(Duly Authorized Representative)
In accordance with the requirements of the Securities Act of 1933,
this registration statement was signed by the following persons in the
capacities and as of the dates stated.
Signatures Title Date
------------ ----- ----
/s/ Charles L. Galligan President, Chief Executive August 7, 1996
- ----------------------- Officer and Director (Principal --------------
Charles L. Galligan Executive Officer)
/s/Betty Jean Parker Chief Financial Officer and August 7, 1996
- ----------------------- Secretary (Principal Financial --------------
Betty Jean Parker and Accounting Officer)
* Director
- -----------------------
Jesse Boyd, Jr.
* Director
- -----------------------
James E. Riley
* Director
- -----------------------
Dr. James D. Sandefur
* Director
- -----------------------
Leslie A. Smith
* Director
- -----------------------
J.C. Smith
*By: /s/ Charles L. Galligan
----------------------------------------
Charles L. Galligan
President and Chief Executive Officer
(Power of Attorney, signed June 25, 1996)
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 7, 1996
REGISTRATION NO. 333-6803
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------
EXHIBITS
TO
PRE-EFFECTIVE AMENDMENT NO. 1
TO THE REGISTRATION STATEMENT
ON
FORM SB-2
------------------------
FIRST ALLEN PARISH BANCORP, INC.
OAKDALE, LOUISIANA
EXHIBIT INDEX
1.1 Engagement Letter between First Federal Savings and Loan Association of
Allen Parish and Trident Securities, Inc.*
1.2 Agency Agreement among First Allen Parish Bancorp, Inc., First Federal
Savings and Loan Association of Allen Parish and Trident Securities, Inc.
2 Plan of Conversion*
3.1 Certificate of Incorporation of First Allen Parish Bancorp, Inc.*
3.2 Bylaws of First Allen Parish Bancorp, Inc.*
3.3 Charter of First Federal Savings and Loan Association of Allen Parish*
3.4 Bylaws of First Federal Savings and Loan Association of Allen Parish*
4 Form of Common Stock Certificate of First Allen Parish Bancorp, Inc.*
5 Opinion of Luse Lehman Gorman Pomerenk & Schick regarding legality of
securities being registered
8.1 Federal Tax Opinion of Luse Lehman Gorman Pomerenk & Schick, P.C.
8.2 State Tax Opinion of Darnall, Sikes, Kolder, Frederick & Rainey*
8.3 Opinion of Ferguson & Co., LLP with respect to Subscription Rights*
10.1 Form of Employment Agreement
10.2 Employee Stock Ownership Plan*
23.1 Consent of Darnall, Sikes, Kolder, Frederick & Rainey
23.2 Consent of Ferguson & Co., LLP*
24 Power of Attorney (set forth on signature page)*
99.1 Appraisal Agreement between First Federal Savings and Loan Association of
Allen Parish and Ferguson & Co., LLP*
99.2 Appraisal Report of Ferguson & Co., LLP*
99.3 Proxy Statement*
99.4 Marketing Materials*
99.5 Order and Acknowledgment Form* and Certification Form
- ---------------------------
* Previously filed.