AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 5, 2002
REGISTRATION NO. 333-90828
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1 TO THE
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ATLANTIC LIBERTY FINANCIAL CORP.
(Name of Small Business Issuer in Its Charter)
DELAWARE 6712 161615014
(State or Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation or Industrial Classification Code Identification No.)
Organization) Number)
186 MONTAGUE STREET
BROOKLYN, NEW YORK 11201-3011
(718) 855-3555
(Address and Telephone Number of Principal Executive Offices)
186 MONTAGUE STREET
BROOKLYN, NEW YORK 11201-3011
(Address of Principal Place of Business or Intended Principal Place of Business)
BARRY M. DONOHUE
186 MONTAGUE STREET
BROOKLYN, NEW YORK 11201-3011
(718) 855-3555 (EXT. 234)
(Name, Address and Telephone Number of Agent for Service)
COPIES TO:
ERIC LUSE, ESQ.
ALAN SCHICK, ESQ.
LUSE 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 of the Securities Act of 1933,
check the following box: :
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: 9
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: 9
CALCULATION OF REGISTRATION FEE
========================================== ================ ================= ================ =====================
PROPOSED PROPOSED
AMOUNT TO BE MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF REGISTERED OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED PER SHARE OFFERING REGISTRATION FEE
PRICE (1)
- ------------------------------------------ ---------------- ----------------- ---------------- ---------------------
Common Stock, $0.10 par value per share 1,710,984 $10.00 $17,109,840 $1,574 (2)
shares
Participation Interests 65,000 -- -- -- (3)
Interests
========================================== ================ ================= ================ =====================
- -------------------------
(1) Estimated solely for the purpose of calculating the registration fee.
(2) $1,380 previously paid
(3) The securities of Atlantic Liberty Financial Corp. to be purchased by
the 401(k) Plan as adopted by Atlantic Liberty Savings, F.A. are
included in the amount shown for Common Stock. However, pursuant to
Rule 457(h) of the Securities Act of 1933, as amended, no separate fee
is required for the participation interests. Pursuant to such rule, the
amount being registered has been calculated on the basis of the number
of shares of Common Stock that may be purchased with the current assets
of such Plan.
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.
Atlantic Liberty Financial Corp.
Proposed Holding Company for Atlantic Liberty Savings, F.A.
1,487,813 Shares of common stock
Atlantic Liberty Financial Corp. is offering common stock for sale in
connection with the conversion of Atlantic Liberty Savings, F.A. from the mutual
to stock form of organization. Atlantic Liberty Financial Corp. will own all the
outstanding common stock of Atlantic Liberty Savings, F.A. after the conversion.
We expect that the common stock of Atlantic Liberty Financial Corp. will be
quoted on the Nasdaq National Market under the symbol "ALFC."
We are offering 1,487,813 shares of the common stock on a best efforts
basis, subject to certain conditions. We may sell up to 1,710,984 shares because
of regulatory considerations or changes in market or economic conditions without
the resolicitation of subscribers. We must sell a minimum of 1,099,688 shares in
order to complete the offering. We will terminate the offering if we do not sell
the minimum number of shares. Directors and executive officers intend to
purchase 74,500 shares of common stock, or 5.8% of the offering at the midpoint
of the offering. The offering will terminate on __________, 2002. We may extend
the termination date without notice to you, until __________, 2002, unless the
Office of Thrift Supervision approves a later date.
The minimum purchase is 25 shares. Once submitted, orders are irrevocable
unless the offering is terminated or extended beyond ___________, 2002. If the
offering is extended beyond __________, 2002, subscribers will have the right to
modify or rescind their purchase orders. Funds received prior to the completion
of the offering will be held in an account at Atlantic Liberty Savings, F.A. and
will bear interest at our passbook savings rate. If the offering is terminated,
subscribers will have their funds returned promptly, with interest.
Sandler O'Neill & Partners, L.P. will assist us in our selling efforts,
but is not obligated to purchase any of the common stock that is being offered
for sale. Subscribers will not pay any commissions to purchase common stock in
the offering.
This investment involves risk, including the possible loss of principal.
Please read the "Risk Factors" beginning on page 16
OFFERING SUMMARY
Price: $10.00 per share
Minimum Maximum
----------- -----------
Number of shares ............................... 1,099,688 1,487,813
Underwriting commissions and other expenses .... $ 750,000 $ 750,000
Net proceeds ................................... $10,246,880 $14,128,130
Net proceeds per share ......................... $ 9.32 $ 9.50
These securities are not deposits or savings accounts and are not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
governmental agency.
Neither of the Securities and Exchange Commission, the Office of Thrift
Supervision, the Federal Deposit Insurance Corporation, nor any state securities
regulator has approved or disapproved these securities or determined if this
prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
--------------------------------
SANDLER O'NEILL & PARTNERS, L.P.
--------------------------------
The date of this prospectus is August __, 2002
[MAP]
TABLE OF CONTENTS
SUMMARY ................................................................................. 1
SELECTED FINANCIAL AND OTHER DATA ....................................................... 10
RECENT DEVELOPMENTS ..................................................................... 11
RISK FACTORS ............................................................................ 16
FORWARD LOOKING STATEMENTS .............................................................. 21
HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING ..................................... 21
OUR POLICY REGARDING DIVIDENDS .......................................................... 23
MARKET FOR THE COMMON STOCK ............................................................. 24
REGULATORY CAPITAL COMPLIANCE ........................................................... 25
CAPITALIZATION .......................................................................... 26
PRO FORMA DATA .......................................................................... 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ... 31
BUSINESS OF ATLANTIC LIBERTY FINANCIAL CORP. ............................................ 41
BUSINESS OF ATLANTIC LIBERTY SAVINGS, F.A. .............................................. 41
FEDERAL AND STATE TAXATION .............................................................. 59
SUPERVISION AND REGULATION .............................................................. 60
MANAGEMENT .............................................................................. 68
THE CONVERSION .......................................................................... 77
RESTRICTIONS ON ACQUISITIONS OF STOCK AND RELATED TAKEOVER DEFENSIVE PROVISIONS ......... 97
DESCRIPTION OF CAPITAL STOCK ............................................................ 101
LEGAL AND TAX MATTERS ................................................................... 102
EXPERTS ................................................................................. 102
WHERE YOU CAN FIND MORE INFORMATION ..................................................... 103
REGISTRATION REQUIREMENTS ............................................................... 103
INDEX TO FINANCIAL STATEMENTS ........................................................... F-1
SUMMARY
The following summary explains selected information regarding the
conversion, the offering of Atlantic Liberty Financial Corp. common stock and
the business of Atlantic Liberty Savings, F.A. The summary may not contain all
the information that is important to you. For additional information, you should
read this prospectus carefully, including the financial statements and the notes
to financial statements of Atlantic Liberty Savings, F.A.
The Companies
Atlantic Liberty Financial Corp.
We formed Atlantic Liberty Financial Corp. in May 2002 as a Delaware
corporation. Atlantic Liberty Financial Corp. will be the holding company for
Atlantic Liberty Savings, F.A. following the conversion. Atlantic Liberty
Financial Corp. has not engaged in any significant business to date. Atlantic
Liberty Financial Corp.'s executive office is located at 186 Montague Street,
Brooklyn, New York 11201, and its telephone number is (718) 855-3555.
Atlantic Liberty Savings, F.A.
Atlantic Liberty Savings, F.A. is a federally chartered savings
association headquartered in Brooklyn, New York. Atlantic Liberty Savings, F.A.
was originally founded in 1888 as a New York building and loan association. We
became a federally chartered savings association in 1983. We conduct our
business from our main office and one branch office, both of which are located
in Brooklyn, New York. The telephone number at our main office is (718)
855-3555.
At March 31, 2002, we had total assets of $124.0 million, total deposits
of $111.0 million and retained earnings of $8.8 million. Our principal business
activity is the origination of mortgage loans secured by residential real
estate. We also originate loans secured by multi-family properties and
commercial real estate. We offer a variety of deposit accounts, including
checking, savings and certificates of deposit. We emphasize personal and
efficient service for our customers.
Business Strategy
Our business strategy is to grow and improve our profitability by:
o Continuing to emphasize one-to four-family residential real estate
lending;
o Using the additional capital raised in this offering to originate
loans secured by residential, multi-family and commercial real
estate;
o Offering new products and services to our customers; and
o Maintaining high asset quality.
A full description of our products and services begins on page __ of this
prospectus.
Reasons for the Conversion
The primary reasons for our decision to convert from a mutual to a stock
organization are to establish a structure that will enable us to (1) compete
more effectively in the financial services marketplace, (2) offer our
depositors, employees, management and directors an equity ownership interest in
Atlantic Liberty Savings, F.A. and thereby obtain an economic interest in its
future success, and (3) increase our capital base and provide additional sources
of capital to grow and increase profitability.
Our new structure will permit us to issue capital stock, which is a source
of capital not available to a mutual savings association.
The conversion and the capital raised in the offering are expected to:
o increase our lending capabilities, by providing us with
additional capital to support new loans and higher lending
limits;
o support the introduction of new financial products and
services;
o support growth and enhance our profitability;
o provide broader investment opportunities through the holding
company structure; and
o improve our capital management flexibility, including the
ability to pay cash dividends and repurchase shares of our
common stock, as appropriate.
The conversion also will allow us to establish stock benefit plans for
management and employees which will permit us to attract and retain qualified
personnel.
Terms of the Offering
We are offering between 1,099,688 and 1,487,813 shares of common stock of
Atlantic Liberty Financial Corp. to qualifying depositors, tax-qualified
employee plans and to the public to the extent shares remain available. The
maximum number of shares that we sell in the offering may increase by up to 15%,
to 1,710,984 shares, as a result of regulatory considerations, strong demand for
the shares in the offering, or positive changes in financial markets in general
and with respect to financial institution stocks in particular. Unless the pro
forma market value of Atlantic Liberty Financial Corp. decreases below
$10,996,880 or increases above $17,109,840, you will not have the opportunity to
change or cancel your stock order. The offering price is $10.00 per share.
Sandler O'Neill & Partners, L.P., our marketing advisor in connection with the
conversion, will use its best efforts to assist us in selling our stock, but
Sandler O'Neill & Partners, L.P. is not obligated to purchase any shares in the
offering.
Persons Who May Order Stock in the Offering
We are offering the shares of common stock of Atlantic Liberty Financial
Corp. in a "subscription offering" in the following descending order of
priority:
2
(1) Depositors who had accounts at Atlantic Liberty Savings, F.A. with
aggregate balances of at least $50 on March 31, 2001;
(2) The tax-qualified employee benefit plans of Atlantic Liberty
Savings, F.A. (including our employee stock ownership plan);
(3) Depositors who had accounts at Atlantic Liberty Savings, F.A. with
aggregate balances of at least $50 on June 30, 2002; and
(4) Other depositors and borrower members of Atlantic Liberty Savings,
F.A. on August 6, 2002.
If any shares of our common stock remain unsold in the subscription
offering, we will offer such shares for sale in a "community offering." Natural
persons residing in Kings County, New York will have a purchase preference in
any community offering. Shares also may be offered to the general public. The
community offering, if any, may commence concurrently with, during or promptly
after, the subscription offering. We also may offer shares of common stock not
purchased in the subscription offering or the community offering through a
syndicate of brokers in a "syndicated community offering" managed by Sandler
O'Neill & Partners, L.P. We have the right to accept or reject, in our sole
discretion, any orders received in the community offering and the syndicated
community offering.
How We Determined the Offering Range and the $10.00 Price Per Share
The amount of common stock we are offering is based on an independent
valuation of our pro forma market value assuming the conversion and offering are
completed. Feldman Financial Advisors, Inc. an appraisal firm experienced in
appraisals of financial institutions has estimated that as of June 11, 2002, as
updated on August 1, 2002, the pro forma market value of Atlantic Liberty
Financial Corp. ranged from a minimum of $10,996,880 to a maximum of
$14,878,130, with a midpoint of $12,937,500. This valuation results in an
offering price as a percentage of book value equal to 62.1% at the minimum,
66.6% at the midpoint of the offering and 70.4% at the maximum, and a price to
earnings ratio of 10.4x at the minimum, 11.9x at the midpoint and 13.4x at the
maximum of the offering.
The following table presents a summary of selected pricing ratios for
public thrift institutions used by Feldman Financial Advisors, Inc. to help
establish the market value of Atlantic Liberty Financial Corp. and the resulting
pricing ratios for Atlantic Liberty Financial Corp. Feldman Financial Advisors,
Inc. considered various criteria for selecting the peer group of thrift
institutions, including geographic market area, asset size and return on equity.
3
Pro Forma Pro Forma Pro Forma
price to price to book price to tangible
earnings multiple value ratio book value
----------------- ------------- -----------------
Atlantic Liberty Financial Corp.:
15% above maximum ...................... 15.0x 74.1% 74.1%
Maximum ................................ 13.4 70.4 70.4
Midpoint ............................... 11.9 66.6 66.6
Minimum ................................ 10.4 62.1 62.1
All fully converted thrifts publicly
traded on the NYSE, NASDAQ
and AMEX as of 6/10/02:
Averages ............................... 14.7x 122.8% 133.8%
Medians ................................ 13.8 111.8 115.2
Valuation of peer group institutions
as of 6/10/02:
Averages ............................... 15.5x 98.8% 101.6%
Medians ................................ 14.7 95.1 100.7
Based on this valuation and the $10.00 per share price, the number of
shares of common stock being offered for sale by Atlantic Liberty Financial
Corp. will range from 1,099,688 shares to 1,487,813 shares. The $10.00 price per
share was selected primarily because it is the price per share used most
commonly in stock offerings by mutual savings associations that convert to stock
form. Feldman Financial Advisors, Inc. will be paid a fee of $14,000 for
preparing the independent appraisal.
Two measures investors use to analyze an issuer's stock are the ratio of
the offering price to the issuer's book value per share and the ratio of the
offering price to the issuer's annual net earnings per share. Feldman Financial
Advisors, Inc. considered these ratios, among other factors, in preparing its
appraisal. Book value is the same as total equity, and represents the difference
between the value of the issuer's assets and liabilities. The following table
presents the ratio of the offering price to Atlantic Liberty Financial Corp.'s
pro forma book value and earnings per share at and for the year ended March 31,
2002. See "Pro Forma Data" for a description of the assumptions we used in
making these calculations.
At and For the Year Ended March 31, 2002
--------------------------------------------------------
1,099,688 1,293,750 1,487,813 1,710,984
Shares Sold Shares Sold Shares Sold Shares Sold
at $10.00 at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share Per Share
----------- ----------- ----------- -----------
Pro forma price to book value ratio............. 62.1% 66.6% 70.4% 74.1%
Pro forma price to earnings ratio............... 10.4x 11.9x 13.4x 15.0x
The independent appraisal does not indicate market value. Do not assume or
expect that the valuation of Atlantic Liberty Financial Corp. as indicated above
means that the common stock will trade at or above the $10.00 purchase price
after the conversion.
4
The independent appraisal will be updated prior to the completion of the
conversion. Any changes in the appraisal would be subject to Office of Thrift
Supervision approval. If the pro forma market value of Atlantic Liberty
Financial Corp. is either below $10,996,880 or above $17,109,840, subscribers
will be notified and provided with the opportunity to change or cancel their
orders.
We Have Not Determined When, or If, We Will Pay Dividends
We have not determined when, or if, we will pay dividends on the common
stock. Any future payment of dividends will depend upon a number of factors,
including the amount of net proceeds retained by us in the conversion,
investment opportunities available to us, capital requirements, our financial
condition and results of operations, tax considerations, statutory and
regulatory limitations, and general economic conditions. No assurances can be
given that any dividends will be paid, or that if paid, they will not be reduced
or eliminated in future periods.
Limits on Your Purchase of Common Stock
The minimum purchase is 25 shares. Generally, no individual, or
individuals through a single account, may purchase more than $100,000 (10,000
shares). If any of the following persons purchase common stock, their purchases
when combined with your purchases cannot exceed $200,000 (20,000 shares):
o your spouse, or relatives of you or your spouse living in your
house;
o companies, trusts or other entities in which you have an
interest or hold a position; or
o other persons who may be acting together with you.
Subject to Office of Thrift Supervision approval, we may increase or
decrease the purchase limitations at any time. In addition, in any direct
community offering or syndicated community offering, we will first fill orders
for our common stock up to a maximum of 1,000 shares. Thereafter, we will
allocate any remaining shares on an equal number of shares per order basis,
until we fill all orders. Our employee stock ownership plan is authorized to
purchase up to 8% of the shares sold in the offering without regard to these
purchase limitations. For example, our employee stock ownership plan may
purchase up to 87,975 and 119,025 shares of common stock, respectively, at the
minimum and maximum of the offering range.
How You May Pay for Your Shares
In the subscription offering and the community offering you may pay for
your shares only by:
(1) cash (if presented in person);
(2) personal check, bank check or money order; or
(3) authorizing us to withdraw money from your deposit accounts
maintained with Atlantic Liberty Savings, F.A.
5
If you wish to use your Atlantic Liberty Savings, F.A. individual
retirement account to pay for your shares, please be aware that federal law
requires that such funds first be transferred to a self-directed retirement
account with a trustee other than Atlantic Liberty Savings, F.A. The transfer of
such funds to a new trustee takes time, so please make arrangements as soon as
possible. Also, please be aware that Atlantic Liberty Savings, F.A. is not
permitted to lend funds to anyone for the purpose of purchasing shares of common
stock in the offering.
You can subscribe for shares of common stock in the offering by delivering
a signed and completed original stock order form, together with full payment,
provided we receive the stock order form before the end of the offering. We will
pay interest at Atlantic Liberty Savings, F.A.'s passbook rate from the date
funds are received until completion or termination of the conversion.
Withdrawals from certificates of deposit at Atlantic Liberty Savings, F.A. may
be made without incurring an early withdrawal penalty. All funds authorized for
withdrawal from deposit accounts with Atlantic Liberty Savings, F.A. must be in
the deposit accounts at the time the stock order form is received. However,
funds will not be withdrawn from the accounts until the offering is completed
and will continue to earn interest at the applicable deposit account rate until
the completion of the offering. A hold will be placed on those funds when your
stock order is received, making the designated funds unavailable to you. After
we receive an order, the order cannot be revoked or changed, except with our
consent. Payment may not be made by wire transfer or any other electronic
transfer of funds. In addition, we are not required to accept copies or
facsimiles of order forms.
You May Not Sell or Transfer Your Subscription Rights
If you order common stock in the subscription offering, you will be
required to state that you are purchasing the stock for yourself and that you
have no agreement or understanding to sell or transfer your subscription rights.
We intend to take legal action, including reporting persons to federal or state
regulatory agencies, against anyone who we believe sells or gives away his or
her subscription rights. We will not accept your order if we have reason to
believe that you sold or transferred your subscription rights. In addition,
joint stock registration will only be allowed if the qualifying account is so
registered.
Deadline for Orders of Common Stock
If you wish to purchase shares, we must receive your properly completed
stock order form, together with payment for the shares, no later than 5:00 p.m.,
New York time, on __________, 2002, unless we extend this deadline. You may
submit your order form by mail using the return envelope provided, by overnight
courier to the indicated address on the order form, or by bringing your order
form to one of our full-service branch offices. Once submitted, your order is
irrevocable unless the offering is terminated or extended beyond _______, 2002.
6
Termination of the Offering
The subscription offering will terminate at 5:00 p.m., New York time, on
_______, 2002. We expect that the community offering would terminate at the same
time. We may extend this expiration date without notice to you, until ________,
2002, unless regulators approve a later date. If the subscription offering
and/or community offerings extend beyond ________, 2002, we will be required to
resolicit subscriptions before proceeding with the offerings. All further
extensions, in the aggregate, may not last beyond __________, 2004.
Steps We May Take If We Do Not Receive Orders for the Minimum Number of Shares
If we do not receive orders for at least 1,099,688 shares of common stock,
we may take several steps in order to sell the minimum number of shares in the
offering range. Specifically, we may (i) increase the purchase limitations
and/or (ii) seek regulatory approval to extend the offering beyond the ________,
2002 expiration date, provided that any such extension will require us to
resolicit subscriptions received in the offering.
Market for the Common Stock
We expect to receive conditional approval for the common stock of Atlantic
Liberty Financial Corp. to be quoted on the Nasdaq National Market under the
symbol "ALFC." Sandler O'Neill & Partners, L.P. currently intends to make a
market in the common stock but it is under no obligation to do so. There can be
no assurance that the common stock will qualify for quotation on the Nasdaq
National Market. Should the common stock fail to be quoted on the Nasdaq
National Market, we will seek to have it quoted on the Nasdaq SmallCap Market or
electronic bulletin board.
How We Intend to Use the Proceeds We Raise from the Offering
Assuming we sell 1,487,813 shares in the offering, and we have net
proceeds of $14.1 million we intend to distribute the net proceeds as follows:
o $7.1 million (50.0% of the net proceeds) will be contributed
to Atlantic Liberty Savings, F.A.;
o $1.2 million (8.4% of the net proceeds) will be loaned to the
employee stock ownership plan to fund its purchase of common
stock; and
o $5.8 million (41.6% of the net proceeds) will be retained by
Atlantic Liberty Financial Corp.
We may use the net proceeds of the offering to invest in securities, to
finance the possible acquisition of other financial institutions or financial
service businesses, to pay dividends or for other general corporate purposes,
including repurchasing shares of our common stock. Atlantic Liberty Savings,
F.A. may use the proceeds it receives to make loans, to purchase securities, to
expand its banking franchise internally or through acquisitions, and for general
corporate purposes. See "How We Intend To Use The Proceeds From The Offering."
Neither Atlantic Liberty Savings, F.A. nor Atlantic Liberty Financial Corp. is
considering any specific acquisition transaction at this time.
7
Our Officers, Directors and Employees Will Receive Additional Compensation and
Benefit Programs After the Conversion
In order to align the interests of our officers, directors and employees
more closely to our stockholders' interests, we intend to establish an employee
stock ownership plan, a stock option plan and a stock recognition and retention
plan, each of which will use our common stock as compensation. The employee
stock ownership plan may purchase up to 8% of the shares sold in the offering.
The stock recognition and retention plan and stock option plan cannot be
established sooner than six months after the conversion. The employee stock
ownership plan and the recognition and retention plan will increase our future
compensation costs, thereby reducing our earnings. Additionally, stockholders
will experience a reduction in ownership interest if newly issued shares are
used to fund stock options and the recognition and retention plan. See "Risk
Factors--Our Stock Benefit Plans Will Increase Our Costs, Which Will Reduce Our
Income and Stockholders' Equity" and "Management-Future Stock Benefit Plans."
The following table summarizes the benefits that our officers, directors
and employees may receive as a result of the conversion, at the maximum of the
offering range:
Value of Benefits
Individuals Eligible % of Based on Maximum
Plan to Receive Awards Shares Sold of Offering Range
- ------------------------------ -------------------- ----------- -----------------
Employee stock ownership plan All employees 8% $1,190,250
Recognition and retention plan Directors, officers 4% $ 595,125
and employees
Stock option plan Directors, officers 10% --(1)
and employees
- --------------
(1) Stock options will be granted with a per share exercise price at least
equal to the market price of our common stock on the date of grant. The
value of a stock option will depend upon increases, if any, in the price
of our common stock during the period in which the stock option may be
exercised.
We intend to enter into three-year employment agreements with Barry M.
Donohue, our President and Chief Executive Officer, and William M. Gilfillan,
our Executive Vice President, Chief Financial Officer and Corporate Secretary.
Each agreement provides that the executive would receive severance payments
equal to three times their annual rate of base salary at termination of
employment, plus three times the average rate of bonus paid to the executive
during the prior three years (if the event of termination is other than a change
in control) or the highest rate of bonus awarded during the prior three years,
if Atlantic Liberty Financial Corp. or Atlantic Liberty Savings, F.A. is
acquired and the executive loses his job in the acquisition . In addition, both
executives would be entitled to a cash payment approximately equal to the amount
the executive would have received under our tax-qualified plans if the executive
continued to work for us during the remaining three year term of the employment
agreement. Atlantic Liberty Savings, F.A. intends to enter into substantially
similar agreements with both of these executives, although amounts paid to such
executive under the Atlantic Liberty Savings, F.A. employment agreement would
reduce proportionately the amounts paid under the employment agreements between
the executives and us. If severance payments were required to be paid in 2002
after completion of the conversion, Messrs. Donohue and Gilfillan would receive
aggregate severance payments of approximately $711,000 and $603,000,
respectively.
8
Once Submitted, Your Purchase Order May Not Be Revoked Unless the Stock Offering
is Terminated or Extended Beyond _________, 2002.
Funds that you use to purchase our common stock in the offering will be
held by Atlantic Liberty Financial Corp. in an interest bearing account until
the termination or completion of the offering, including any extension of the
expiration date. The Office of Thrift Supervision has approved the Plan of
Conversion; however, because completion of the conversion will be subject to an
update of the independent appraisal, among other factors, there may be one or
more delays in the completion of the conversion. Any orders that you submit to
purchase our common stock in the offering are irrevocable, and you will not have
access to subscription funds unless the stock offering is terminated, or
extended beyond __________, 2002.
How You May Obtain Additional Information Regarding the Conversion
If you have any questions regarding the conversion, please call the
Conversion Center at (___) ___-____, Monday through Friday between 10:00 a.m.
and 4:00 p.m., New York time.
9
SELECTED FINANCIAL AND OTHER DATA
The summary information presented below at or for each of the periods
presented is derived in part from the financial statements of Atlantic Liberty
Savings, F.A. The following information is only a summary, and you should read
it in conjunction with our financial statements and notes beginning on page F-1
of this prospectus.
At March 31,
---------------------
2002 2001
-------- --------
(In Thousands)
Selected Financial Condition Data:
Total assets ......................................... $124,044 $116,243
Loans receivable, net(1) ............................. 92,856 83,770
Mortgage-backed securities(2) ........................ 15,758 18,820
Investment securities(2) ............................. 1,032 4,000
Deposits ............................................. 110,990 106,123
Total borrowings ..................................... 2,000 --
Retained earnings - substantially restricted ......... 8,789 7,931
- ----------
(1) Net of allowance for loan losses and deferred loan fees.
(2) Mortgage-backed securities and investment securities are classified as
held to maturity.
Years Ended March 31,
---------------------
2002 2001
------- -------
(In Thousands)
Selected Operating Data:
Total interest income ............................................ $ 8,013 $ 8,073
Total interest expense ........................................... 3,819 4,456
------- -------
Net interest income ............................................ 4,194 3,617
Provision (recovery) for loan losses ............................. 70 (18)
------- -------
Net interest income after provision (recovery) for loan losses ... 4,124 3,635
Non-interest income .............................................. 222 769
Non-interest expense ............................................. 2,867 2,500
------- -------
Income before taxes .............................................. 1,479 1,904
Income tax provision ............................................. 621 854
------- -------
Net income ....................................................... $ 858 $ 1,050
======= =======
At or For Years Ended March 31,
-------------------------------
2002 2001
----- ------
Selected Financial Ratios and Other Data:
Performance Ratios:
Return on assets (ratio of net income to average total assets) ......... 0.71% 0.93%
Return on equity (ratio of net income to average equity) ............... 10.36 14.59
Interest rate spread (1) ............................................... 3.42 3.10
Net interest margin (2) ................................................ 3.67 3.36
Ratio of non-interest expense to average total assets .................. 2.38 2.22
Ratio of average interest-earning assets to average interest-bearing
liabilities ........................................................... 1.07 1.06
Asset Quality Ratios:
Non-performing assets to total assets at end of period ................. 0.65% 0.15%
Allowance for loan losses to non-performing loans ...................... 60.00% 380.85%
Allowance for loan losses to total loans receivable .................... 0.47% 0.43%
Capital Ratios:
Retained earnings to total assets at end of period ..................... 7.09% 6.82%
Average retained earnings to average assets ............................ 6.89 6.40
Other Data:
Number of full-service offices ......................................... 2 2
- ----------
(1) The difference between the yield on average interest-earning assets and
the cost of average interest-bearing liabilities.
(2) Net interest income divided by average interest-earning assets.
10
RECENT DEVELOPMENTS
The following tables set forth certain financial and other data of
Atlantic Liberty Savings, F.A. at and for the periods indicated. Financial data
and financial ratios and other data at March 31, 2002 have been derived from and
should be read in conjunction with the audited financial statements of Atlantic
Liberty Savings, F.A. and Notes thereto presented elsewhere in this prospectus.
Financial and operating data and financial ratios and other data at and for the
three months ended June 30, 2002 and 2001 were derived from unaudited financial
statements of Atlantic Liberty Savings, F.A. which, in the opinion of
management, include all adjustments (consisting of normal recurring accruals)
for a fair presentation of such information. The results of operations and
ratios and other data presented for the three months ended June 30, 2002 are not
necessarily indicative of the results of operations for the fiscal year ending
March 31, 2003.
At June 30, 2002 At March 31, 2002
---------------- -----------------
(In Thousands)
Selected Financial Condition Data:
Total assets ......................................... $125,448 $124,044
Loans receivable, net(1) ............................. 95,248 92,856
Mortgage-backed securities(2) ........................ 16,564 15,758
Investment securities(2) ............................. 1,030 1,032
Deposits ............................................. 111,431 110,990
Total borrowings ..................................... 2,000 2,000
Retained earnings - substantially restricted ......... 9,135 8,789
- ----------
(1) Net of allowance for loan losses and deferred loan fees.
(2) Mortgage-backed securities and investment securities are classified as
held to maturity.
Three Months Ended June 30,
---------------------------
2002 2001
------ ------
(In Thousands)
Selected Operating Data:
Total interest income .................................... $2,004 $2,005
Total interest expense ................................... 706 1,089
------ ------
Net interest income .................................... 1,298 916
Provision for loan losses ................................ -- --
------ ------
Net interest income after provision for loan losses ...... 1,298 916
Non-interest income ...................................... 100 67
Non-interest expense ..................................... 805 709
------ ------
Income before taxes ...................................... 593 274
Income tax provision ..................................... 247 211
------ ------
Net income ............................................... $ 346 $ 163
====== ======
- ----------
(1) Net of allowance for loan losses and deferred loan fees.
(2) Mortgage-backed securities and investment securities are classified as
held to maturity.
11
At or For the Three
Months Ended
June 30,
- --------------------------------
2002 2001
----- ------
Selected Financial Ratios and Other Data:
Performance Ratios:
Return on assets (ratio of net income to average total assets) ..................... 1.11% 0.56%
Return on equity (ratio of net income to average equity) ........................... 15.54 8.21
Interest rate spread ............................................................... 4.15 3.00
Net interest margin ................................................................ 4.32 3.29
Ratio of non-interest expense to average total assets .............................. 2.58 2.43
Ratio of average interest-earning assets to average interest-bearing liabilities ... 1.07 1.07
Asset Quality Ratios:
Non-performing assets to total assets at end of period ............................. 0.83% 0.12%
Allowance for loan losses to non-performing loans .................................. 41.91 257.63
Allowance for loan losses to total loans receivable ................................ 0.45 0.41
Capital Ratios:
Retained earnings to total assets at end of period ................................. 7.28% 6.87%
Average retained earnings to average assets ........................................ 7.14 6.78
Other Data:
Number of full-service offices ..................................................... 2 2
Management's Discussion and Analysis of Recent Developments
Comparison of Financial Condition at June 30, 2002 and March 31, 2002
Our total assets increased by $1.4 million, or 1.1%, to $125.4 million at
June 30, 2002 from $124.0 million at March 31, 2002. This increase reflects
growth in loans receivable and mortgaged-backed securities funded by an increase
in deposits and a decrease in cash and cash equivalents. Loans increased by $2.3
million, or 2.5%, to $95.2 million at June 30, 2002 from $92.9 million at March
31, 2002. Our increase in loans resulted principally from increased one-to
four-family mortgage loan originations as borrowers continued to take advantage
of low market interest rates. Mortgage-backed securities increased by $800,000
to $16.6 million at June 30, 2002 from $15.8 million at March 31, 2002,
reflecting new purchases of mortgage-backed securities of $2.6 million which
were offset by pre-payments and amortization of $1.8 million. Cash and cash
equivalents decreased $2.0 million, or 20.0%, to $7.9 million at June 30, 2002
from $9.9 million at March 31, 2002 as cash was used to fund loan originations.
Total deposits increased by $400,000, or 0.4% to $111.4 million at June
30, 2002 from $111.0 million at March 31, 2002. While deposit levels were
relatively stable, our transaction and saving deposits increased to $46.6
million from $45.9 million, and our certificate of deposit accounts decreased to
$64.8 million from $65.0 million.
Federal Home Loan Bank advances remained unchanged at $2.0 million at June
30, 2002 and March 31, 2002.
Equity increased $300,000, or 3.4%, to $9.1 million at June 30, 2002 from
$8.8 million at March 31, 2002, reflecting income of $300,000 for the three
months ended June 30, 2002.
12
Comparison of Operating Results for the three months ended June 30, 2002 and
June 30, 2001.
General. Net income for the three months ended June 30, 2002 was $346,000
which was an increase of $183,000, or 112.3%, from $163,000 for the three months
ended June 30, 2001. The increase in net income was primarily due to increases
of $382,000 in net interest income and $33,000 in non-interest income which were
partially offset by an increase of $96,000 in non-interest expense.
Interest Income. Interest income decreased by $1,000 during the
comparative three months ended June 30, 2002 and 2001. The decrease in interest
income resulted primarily from a $72,000 decrease in interest received on
mortgage-backed securities, a $14,000 decrease in interest received on
investment securities, and a $32,000 decrease in interest received on other
interest-earning assets. These decreases were substantially offset by an
increase of $117,000 in interest received from loans.
Interest income on loans increased $117,000, or 7.16%, to $1.7 million for
the three months ended June 30, 2002 from $1.6 million for the three months
ended June 30, 2001. The average yield on loans declined 21 basis points to
7.48% for the three months ended June 30, 2002 from 7.69% for the three months
ended June 30, 2001, reflecting a decrease in market interest rates generally.
The effect of the decline in average yield was more than offset by an $8.7
million increase in the average balance of loans outstanding for the same
period.
Interest income on mortgage-backed securities decreased $72,000, or 26.2%,
to $203,000 for the three months ended June 30, 2002 from $275,000 for the same
period in 2001. The decrease was due to a 110 basis point decrease in the
average yield, as well as prepayments of mortgage-backed securities.
Interest income on investment securities decreased $14,000, or 46.6%, to
$16,000 for the three months ended June 30, 2002 from $30,000 for the three
months ended June 30, 2001. The decrease was due to a decrease in the average
balance of investment securities to $1.0 million from $1.9 million.
Interest income on other interest earning assets decreased $32,000 or
42.2% to $42,000 for the three months ended June 30, 2002 from $74,000 for the
same period in 2001. The decrease was due to a decrease in the rates paid on
overnight deposits held at other financial institutions partially offset by an
increase in the average balance of interest bearing deposits to $9.9 million
from $7.0 million.
Interest Expense. Total interest expense decreased by $383,000, or 35.2%,
to $706,000 for the three months ended June 30, 2002 from $1,089,000 for the
three months ended June 30, 2001. The decrease in interest expense resulted
primarily from a decrease in the average cost of our interest bearing
liabilities to 2.52% from 4.21%, reflecting the decrease in market interest
rates during 2001 and 2002.
Interest expense on deposits decreased $406,000, or 37.4%, to $680,000 for
the three months ended June 30, 2002 from $1,086,000 for the three months ended
June 30, 2001. The average balance of certificate of deposit accounts remained
relatively stable, increasing $100,000 to $64.9 million for the three months
ended June 30, 2002, from $64.8 million for the three
13
months ended June 30, 2001. The average cost of certificates of deposit accounts
decreased to 3.32% from 5.31%. The average balance of transactions and savings
deposits increased $6.4 million, or 16.8%, to $44.4 million for the three months
ended June 30, 2002 from $38.0 million for the three months ended June 30, 2001.
The average cost of such accounts declined 113 basis points to 1.29% from 2.42%.
Interest expense on Federal Home Loan Bank advances was $22,000 for the
three months ended June 30, 2002. We did not have any Federal Home Loan Bank
borrowings during the three months ended June 30, 2001.
Net Interest Income. Net interest income increased $382,000 or 41.7% to
$1,298,000 for the three months ended June 30, 2002 from $916,000 for the three
months ended June 30, 2001. The primary reason for the increase was a 115 basis
points increase in our net interest rate spread to 4.15% for the three months
ended June 30, 2002, from 3.00% for the comparable period in 2001. Our net
interest margin increased 103 basis points to 4.32% for the three months ended
June 30, 2002 from 3.29% for the comparable period in 2001.
Provision for Loan Losses. We establish provisions for loan losses, which
are charged to operations, at a level management believes is appropriate to
absorb probable reasonably estimable incurred credit losses in the loan
portfolio. In evaluating the level of the allowance for loan losses, management
considers historical loss experience, the nature and volume of the loan
portfolio, adverse situations that may affect the borrower's ability to repay,
the estimated value of any underlying collateral, peer group information, and
prevailing economic conditions. This evaluation is inherently subjective as it
requires estimates that are susceptible to significant revision as more
information becomes available or as future events change. Based on our
evaluation of these factors, management made no provision for the three months
ended June 30, 2002 and 2001.
We used the same methodology and generally similar assumptions in
assessing the adequacy of the allowance for both periods. The allowance for loan
losses was $435,000 or 0.45% of loans outstanding at June 30, 2002 as compared
with $358,000 or 0.42% of loans outstanding at June 30, 2001. The level of the
allowance is based on estimates and the ultimate losses may vary from the
estimates.
Management assesses the allowance for loan losses on a quarterly basis and
makes provisions for loan losses as necessary in order to maintain the adequacy
of the allowance. While management uses available information to recognize
losses on loans, future loan loss provisions may be necessary based on changes
in economic conditions. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review the allowance for loan
losses and may require us to recognize additional provisions based on their
judgment of information available to them at the time of their examination. The
allowance for loan losses as of June 30, 2002 is maintained at a level that
represents management's best estimate of inherent losses in the loan portfolio,
and such losses that were both probable and reasonably estimable.
14
Non-Interest Income. Non-interest income increased $33,000 to $100,000 for
the three months ended June 30, 2002, as compared to $67,000 for the three
months ended June 30, 2001. The increase was attributable to an increase in loan
prepayment penalty fees of $34,000.
Non-interest Expense. Non-interest expense for the three months ended June
30, 2002 was $805,000 compared to $709,000 for the three months ended June 30,
2001, an increase of $96,000 or 13.5%. The increase was primarily attributable
to a $67,000 increase in salaries and employee benefits, and the inclusion in
the quarter ended June 30, 2002 of $67,000 in expenses related to the conversion
to a new data service provider, which is expected to be completed in the second
half of fiscal 2003, offset by a decrease of $33,000 in legal expenses.
Provision for Income taxes. The provision for income taxes increased to
$247,000 for the three months ended June 30, 2002 from $111,000 for the three
months ended June 30, 2001. The increase in the provision for income taxes is
primarily due to our higher level of income before taxes of $593,000 for the
three months ended June 30,2002 compared with income before taxes of $274,000
for the comparative 2001 period.
15
RISK FACTORS
- --------------------------------------------------------------------------------
You should consider carefully the following risk factors in evaluating an
investment in the common stock.
- --------------------------------------------------------------------------------
Our Board of Directors is Relatively New and Does Not Have Extensive Experience
as Directors of a Savings Association.
Three of our five directors were unaffiliated with Atlantic Liberty
Saving, F.A. prior to their appointment to the board in 2001 and 2002, and all
of our board members have been appointed since 1999. Prior to being appointed as
directors of Atlantic Liberty Savings, F.A. these individuals (with the
exception of our president and chief executive officer) did not have experience
as directors or officers of financial institutions.
The Future Price of the Common Stock May Be Less Than the Purchase Price in the
Offering.
We cannot assure you that if you purchase common stock in the offering you
will later be able to sell it at or above the purchase price in the offering.
The final aggregate purchase price of the common stock in the conversion will be
based on an independent appraisal. The appraisal is not intended, and should not
be construed, as a recommendation of any kind as to the advisability of
purchasing shares of common stock. The valuation is based on estimates and
projections of a number of matters, all of which are subject to change from time
to time. For additional information see "Market for the Common Stock."
There is No Guarantee that an Active Trading Market in Our Common Stock Will
Develop, Which May Hinder Your Ability to Sell Our Common Stock.
Atlantic Liberty Financial Corp. has never issued stock and, therefore,
there is no current trading market for the common stock. Consequently, we cannot
assure or guarantee that an active trading market for our common stock will
develop or that, if developed, will continue. An active and orderly trading
market will depend on the existence of willing buyers and sellers at any given
time and neither we nor any market maker will have any control over such buyers
or sellers. If an active trading market does not develop or is sporadic, this
may hurt the market value of the common stock and make it difficult to buy or
sell our shares on short notice. For additional information see "Market for the
Common Stock."
Strong Competition Within Our Market Area May Limit Our Growth and
Profitability.
Competition in the banking and financial services industry is intense. In
our market area, we compete with commercial banks, savings institutions,
mortgage brokerage firms, credit unions, finance companies, mutual funds,
insurance companies, and brokerage and investment banking firms operating
locally and elsewhere. Many of these competitors have substantially greater
resources and lending limits than we have and may offer certain services that we
do not or cannot provide. Our profitability depends upon our continued ability
to successfully compete in our market area. For additional information see
"Business of Atlantic Liberty Savings, F.A.-Competition"
16
Multi-family and Commercial Real Estate Lending Increases the Risk that Some of
Our Loans Will Not Be Paid.
At March 31, 2002, multi-family real estate loans totaled $13.7 million,
or 14.6% of total loans, and commercial real estate loans totaled $15.1 million,
or 16.1% of total loans. These types of loans generally expose a lender to
greater credit risks than loans secured by one-to four-family real estate. As we
anticipate originating more of these loans, we may begin to experience higher
levels of non-performing loans. For additional information see "Business of
Atlantic Liberty Savings, F.A.-Lending Activities"
We Intend to Introduce New Products and Services Following the Conversion.
We intend to increase the products and services that we offer to our
customers. In particular, we intend to offer home equity lines of credit, sweep
accounts (which invest available funds in a deposit account into selected,
short-term investments) and internet banking services. The costs of introducing
these products and services is uncertain at this time and there can be no
assurance that diversifying our products and services will be profitable in the
near term, or that we will be successful in implementing these products and
services. For additional information see "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Business Strategy-Offering
New Products and Services."
If Our Allowance for Loan Losses is Not Sufficient to Cover Actual Loan Losses,
Our Earnings Could Decrease.
Our loan customers may not repay their loans according to their terms and
the collateral securing the payment of these loans may be insufficient to pay
any remaining loan balance. We may experience significant loan losses, which
could have a material adverse effect on our operating results. We make various
assumptions and judgments about the collectibility of our loan portfolio,
including the creditworthiness of our borrowers and the value of the real estate
and other assets serving as collateral for the repayment of many of our loans.
In determining the amount of the allowance for loan losses, we review our loans
and our loss and delinquency experience, and we evaluate economic conditions. If
our assumptions are incorrect, our allowance for loan losses may not be
sufficient to cover losses inherent in our loan portfolio, resulting in
additions to our allowance. In addition, following the conversion, and assuming
we raise proceeds of $14.1 million (the maximum of the offering range), our
maximum lending limit will increase to $2.1 million from $1.3 million. The
origination of loans with higher loan balances will require us to increase our
provision for loan losses to reflect the greater level of risk associated with
larger loan balances. Material additions to our allowance would materially
decrease our net income.
In addition, bank regulators periodically review our allowance for loan
losses and may require us to increase our provision for loan losses or recognize
further loan charge-offs. Any increase in our allowance for loan losses or loan
charge-offs as required by these regulatory authorities may have a material
adverse effect on our results of operations and financial condition.
17
If Economic Conditions Deteriorate, Our Results of Operations and Financial
Condition Could Be Adversely Affected as Borrowers' Ability to Repay Loans
Declines and the Value of the Collateral Securing Our Loans Decreases.
Our financial results may be adversely affected by changes in prevailing
economic conditions, including decreases in real estate values, changes in
interest rates which may cause a decrease in interest rate spreads, adverse
employment conditions, the monetary and fiscal policies of the federal
government and other significant external events. Because we have a significant
amount of real estate loans, decreases in real estate values could adversely
affect the value of property used as collateral. At June 30, 2002, loans secured
by real estate represented 99.7% of total loans, Adverse changes in the economy
also may have a negative effect on the ability of our borrowers to make timely
repayments of their loans, which would have an adverse impact on our earnings.
In addition, substantially all of our loans are to individuals and
businesses in the New York City metropolitan area. Consequently, any decline in
the New York economy could have an adverse impact on our earnings.
Changes in Interest Rates Could Adversely Affect Our Results of Operations and
Financial Condition.
Our results of operations and financial condition are significantly
affected by changes in interest rates. Our results of operations substantially
depend on our net interest income, which is the difference between the interest
income earned on our interest-earning assets and the interest expense paid on
our interest-bearing liabilities. Because our interest-bearing liabilities
reprice or mature more quickly than our interest-earning assets, an increase in
interest rates generally would result in a decrease in our average interest rate
spread and net interest income.
We are also subject to reinvestment risk associated with change in
interest rates. Changes in interest rates can affect the average life of loans
and mortgage related securities. Decreases in interest rates can result in
increased prepayments of loans and mortgage related securities, as borrowers
refinance to reduce borrowing costs. Under these circumstances, we are subject
to reinvestment risk to the extent that we are unable to reinvest such
prepayments at rates that are comparable to the rates on existing loans or
securities. For additional information see "Management's Discussion and Analysis
of Financial Condition and Results of Operations-Management of Market Risk."
Our Return on Equity Will Be Low Compared to Other Financial Institutions. This
Could Negatively Affect the Trading Price of Our Common Stock.
Net income divided by average equity, known as "return on equity," is a
ratio many investors use to compare the performance of a financial institution
to its peers. We expect our return on equity to decrease as compared to our
performance in recent years until we are able to leverage our increased equity
from the offering. Our return on equity will be reduced by the capital raised in
the offering, higher expenses from the costs of being a public company, added
expenses associated with our employee stock ownership plan and our recognition
and retention plan. Until we can increase our net interest income and
non-interest income, we expect our return on equity to be below the industry
average, which may negatively impact the value of our common stock. Assuming
that we sell the maximum number of shares offered, we expect that
18
our return on equity for the quarter ended December 31, 2002 will be 6.67%
(annualized) compared with a return on equity of 7.15% for peer group
institutions.
Our Stock Benefit Plans Will Increase Our Costs, Which Will Reduce Our Income
and Stockholders' Equity.
We anticipate that our employee stock ownership plan will purchase 8% of
the common stock sold in the offering with funds borrowed from Atlantic Liberty
Financial Corp. The cost of acquiring the employee stock ownership plan shares
will be between $765,000 at the minimum of the offering range and $1,190,250 at
the adjusted maximum of the offering range. We will record annual employee stock
ownership plan expenses in an amount equal to the fair value of shares committed
to be released to employees. If shares of common stock appreciate in value over
time, compensation expense relating to the employee stock ownership plan will
increase.
We also intend to adopt a recognition and retention plan after the
conversion. Under this plan, our officers, directors and employees may be
awarded, at no cost to them, shares of common stock in an aggregate amount equal
to 4% of the shares sold in the offering. The recognition and retention plan
cannot be implemented until at least six months after the conversion, and if it
is adopted within twelve months after the conversion, it is subject to Office of
Thrift Supervision regulations. Assuming the shares of common stock to be
awarded under the plan are repurchased in the open market and cost the same as
the purchase price in the offering, the reduction to stockholders' equity from
the plan would be between $440,000 at the minimum of the offering range and
$684,000 at the adjusted maximum of the offering range. In the event that a
portion of the shares used to (i) fund the recognition and retention plan or
(ii) satisfy the exercise of options from our stock option plan, is obtained
from authorized but unissued shares, the issuance of additional shares will
decrease our net income per share and stockholders' equity per share.
The Implementation of Stock-Based Benefit Plans May Dilute Your Ownership
Interest.
We intend to adopt a stock option plan and recognition and retention plan
following the conversion. These stock benefit plans will be funded through
either open market purchases, if permitted, or from the issuance of authorized
but unissued shares. Stockholders will experience a reduction in ownership
interest totaling 12.9% in the event newly issued shares are used to fund stock
options and awards made under the recognition and retention plan.
We Have Broad Discretion in Allocating the Proceeds of the Offering. Our Failure
to Effectively Utilize Such Proceeds Could Hurt Our Profits.
Atlantic Liberty Financial Corp. intends to contribute approximately 50%
of the net proceeds of the offering to Atlantic Liberty Savings, F.A. Atlantic
Liberty Financial Corp. will use a portion of the net proceeds to fund the
employee stock ownership plan and may use the remaining net proceeds as a
possible source of funds to finance the acquisition of other financial
institutions or financial services companies, pay dividends to stockholders,
repurchase common stock, purchase investment securities, or for other general
corporate purposes. Atlantic Liberty Savings, F.A. may use the proceeds it
receives to fund new loans, establish or acquire new branches, acquire financial
institutions or financial services companies, purchase investment securities, or
for general corporate purposes. We have not, however, allocated specific amounts
of proceeds for any of these purposes and we will have significant flexibility
in determining the
19
amount of net proceeds we apply to different uses and the timing of such
applications. Our failure to utilize these funds effectively could reduce our
profitability.
Expected Voting Control by Management and Employees Could Enable Insiders to
Prevent a Merger That May Provide Shareholders a Premium for Their Shares.
The shares of common stock that our directors and officers intend to
purchase in the conversion, when combined with the shares that may be awarded to
participants under our employee stock ownership plan and other stock benefit
plans, could result in management and employees controlling a significant
percentage of our common stock. It is expected that the executive officers and
directors as a group will purchase 74,500 shares in the offering, representing
6.8% of the shares offered at the minimum and 5.0% of the shares offered at the
maximum of the offering. If these individuals were to act together, they could
have significant influence over the outcome of any stockholder vote. This voting
power may discourage takeover attempts that other stockholders may desire. In
addition, the total voting power of management and employees could reach in
excess of 20% of our outstanding stock. That level would enable management and
employees as a group to defeat any stockholder matter that requires an 80% vote,
including removal of directors, approval of certain business combinations with
interested shareholders and certain amendments to our certificate of
incorporation and bylaws.
We Operate in a Highly Regulated Environment and May Be Adversely Affected by
Changes in Laws and Regulations.
We are subject to extensive regulation, supervision and examination by the
Office of Thrift Supervision, our chartering authority, and by the Federal
Deposit Insurance Corporation, as insurer of deposits. Such regulation and
supervision govern the activities in which an institution and its holding
company may engage and are intended primarily for the protection of the
insurance fund and depositors. Regulatory authorities have extensive discretion
in connection with their supervisory and enforcement activities, including the
imposition of restrictions on the operation of an institution, the
classification of assets by the institution and the adequacy of an institution's
allowance for loan losses. Any change in such regulation and oversight, whether
in the form of regulatory policy, regulations, or legislation, may have a
material impact on our operations.
Our Stock Value May Suffer Due to Our Ability to Impede Potential Takeovers.
Provisions in our corporate documents and in Delaware corporate law, as
well as certain federal banking regulations, would make it difficult and
expensive to pursue a tender offer, change in control or a takeover attempt that
our board of directors opposes. For example, our corporate documents require a
supermajority vote of stockholders to amend or repeal specific sections of
Atlantic Liberty Financial Corp.'s certificate of incorporation and bylaws, or
to remove directors from our board of directors. As a result, you may not have
an opportunity to participate in this type of transaction, and the trading price
of our common stock may not be as high as that of other institutions that are
more vulnerable to hostile takeovers.
These provisions also will make it more difficult for an outsider to
remove our current board of directors or management. See "Restrictions on
Acquisitions of Stock and Related Takeover Defensive Provisions" for a
description of anti-takeover provisions in our corporate documents and under
Delaware law and federal banking regulations.
20
FORWARD LOOKING STATEMENTS
This prospectus contains forward-looking statements, which can be
identified by the use of such words as estimate, project, believe, intend,
anticipate, plan, seek, expect and similar expressions. These forward-looking
statements include:
o statements of our goals, intentions and expectations;
o statements regarding our business plans and prospects and
growth and operating strategies;
o statements regarding the asset quality of our loan and
investment portfolios; and
o estimates of our risks and future costs and benefits.
These forward-looking statements are subject to significant risks,
assumptions and uncertainties, including, among other things, the following
important factors that could affect the actual outcome of future events:
o significantly increased competition among depository and other
financial institutions;
o inflation and changes in the interest rate environment that
reduce our margins or reduce the fair value of financial
instruments;
o general economic conditions, either nationally or in our
market areas, that are worse than expected;
o adverse changes in the securities markets;
o legislative or regulatory changes that adversely affect our
business;
o our ability to enter new markets successfully and capitalize
on growth opportunities;
o changes in consumer spending, borrowing and savings habits;
o changes in accounting policies and practices, as may be
adopted by the bank regulatory agencies and the Financial
Accounting Standards Board; and
o changes in our organization, compensation and benefit plans.
Because of these and other uncertainties, our actual future results may be
materially different from the results indicated by these forward-looking
statements. We discuss these and other uncertainties in "Risk Factors" beginning
on page 16.
HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING
Although we will not be able to determine the amount of actual net
proceeds we will receive from the sale of the common stock until the offering is
completed, we anticipate that the net proceeds will be between $10.2 million and
$14.1 million, or $16.4 million if the offering is increased by 15%.
21
Atlantic Liberty Financial Corp. intends to distribute the net proceeds
from the offering as follows:
Minimum Midpoint Maximum Adjusted Maximum
--------------------- --------------------- --------------------- ---------------------
(In thousands)
Percent of Percent of Percent of Percent of
Net Net Net Net
Amount Proceeds Amount Proceeds Amount Proceeds Amount Proceeds
------- ---------- ------- ---------- ------- ---------- ------- ----------
Offering proceeds ..................... $10,997 $12,938 $14,878 $17,110
Less: offering expenses ............... (750) (750) (750) (750)
------- ------- ------- -------
Net offering proceeds ................. 10,247 100.0% 12,188 100.0% 14,128 100.0% 16,360 100.0%
Less:
Proceeds contributed to Atlantic
Liberty Savings, F.A. ............. (5,124) 50.0% (6,094) 50.0% (7,064) 50.0% (8,180) 50.0%
Proceeds used for loan to
employee stock ownership plan ..... (880) 8.6% (1,035) 8.5% (1,190) 8.4% (1,369) 8.4%
------- ------- ------- -------
Proceeds retained by Atlantic
Liberty Financial Corp. .............. $ 4,243 41.4% $ 5,059 41.5% $ 5,874 41.6% $ 6,811 41.6%
======= ======= ======= =======
The net proceeds may vary because total expenses relating to the
conversion may be more or less than our estimates. For example, our expenses
would increase if a syndicated community offering were used to sell shares not
purchased in the subscription offering and any community offering. Payments for
shares made through withdrawals from existing deposit accounts will not result
in the receipt of new funds for investment but will result in a reduction of
Atlantic Liberty Savings, F.A.'s deposits. In all instances, Atlantic Liberty
Savings, F.A. will receive 50% of the net proceeds of the offering.
We are undertaking the conversion and offering at this time in order to
have the capital resources available to expand and diversify our business. For
further information, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Business Strategy." The offering proceeds
will increase our capital and the amount of funds available to us for lending
and investment. The proceeds will also give us greater flexibility to diversify
operations and expand the products and services we offer.
Atlantic Liberty Financial Corp. may use the proceeds it retains from the
offering:
o to finance the acquisition of financial institutions or
branches and other financial services businesses, although no
specific transactions are being considered at this time;
o to invest in securities;
o to repurchase its common stock;
o to pay dividends to stockholders; and
o for general corporate purposes.
Under current Office of Thrift Supervision regulations, we may not
repurchase shares of common stock during the first year following the
conversion, except when extraordinary circumstances exist and with prior
regulatory approval.
Atlantic Liberty Savings, F.A. may use the proceeds it receives from the
offering:
o to fund new loans, including one-to four-family mortgage
loans, multi-family real estate loans and commercial real
estate loans;
22
o to expand its retail banking franchise, by establishing or
acquiring new branches or by acquiring other financial
institutions, or other financial services companies, although
no transactions are specifically being considered at this
time;
o to support new products and services;
o to invest in securities; and
o for general corporate purposes.
The use of the proceeds outlined above may change based on changes in
interest rates, equity markets, laws and regulations affecting the financial
services industry, our relative position in the financial services industry, the
attractiveness of potential acquisitions to expand our operations, and overall
market conditions.
OUR POLICY REGARDING DIVIDENDS
We have not determined, when, or if we will pay dividends on the common
stock. Any future payment of dividends will depend upon a number of factors,
including the amount of net proceeds retained by us following the offering,
investment opportunities available to us, regulatory capital requirements, our
financial condition and results of operations, tax considerations, statutory and
regulatory limitations, and general economic conditions. We cannot assure you
that we will pay dividends, or that if paid, we will not reduce or eliminate
dividends in the future.
Under the rules of the Office of Thrift Supervision, Atlantic Liberty
Savings, F.A. will not be permitted to pay dividends on its capital stock to
Atlantic Liberty Financial Corp., its sole stockholder, if Atlantic Liberty
Savings, F.A.'s stockholder's equity would be reduced below the amount of the
liquidation account. In addition, Atlantic Liberty Savings, F.A. will not be
permitted to make a capital distribution if, after making the distribution, it
would be undercapitalized. For information concerning additional federal and
state law and regulations regarding the ability of Atlantic Liberty Savings,
F.A. to make capital distributions, including the payment of dividends, to
Atlantic Liberty Financial Corp., see "Legal and Tax Matters--Federal Taxation"
and "Supervision and Regulation--Federal Banking Regulation."
Unlike Atlantic Liberty Savings, F.A., Atlantic Liberty Financial Corp. is
not restricted by Office of Thrift Supervision regulations on the payment of
dividends to its stockholders, although the source of dividends will depend on
the net proceeds retained by Atlantic Liberty Financial Corp. and earnings
thereon, and upon dividends from Atlantic Liberty Savings, F.A. Atlantic Liberty
Financial Corp., however, is subject to the requirements of Delaware law, which
generally limit dividends to an amount equal to the excess of its stockholders'
equity over its statutory capital or, if there is no excess, to its net earnings
for the current and/or immediately preceding fiscal year.
Additionally, we have committed to the Office of Thrift Supervision that
during the one-year period following the completion of the conversion, we will
not take any action to declare an extraordinary dividend to our stockholders
that would be treated by such stockholders as a tax-free return of capital for
federal income tax purposes, without prior approval of the Office of Thrift
Supervision.
23
MARKET FOR THE COMMON STOCK
Atlantic Liberty Financial Corp. is a newly formed company and has never
issued capital stock. Atlantic Liberty Savings, F.A., as a mutual institution,
has never issued capital stock. Atlantic Liberty Financial Corp. expects to
receive conditional approval to have its common stock quoted on the Nasdaq
National Market under the symbol "ALFC" subject to the completion of the
offering and compliance with certain conditions, including the presence of at
least three registered and active market makers. There can be no assurance that
our common stock will qualify for quotation on the Nasdaq National Market. If
our common stock does not qualify for quotation on the Nasdaq National Market,
we will seek to have it quoted on the Nasdaq SmallCap Market or the electronic
bulletin board. We will try to get at least three market makers to make a market
in our common stock. Sandler O'Neill & Partners, L.P. has advised us that it
intends to make a market in our common stock following the conversion, but it is
under no obligation to do so. While we anticipate that before completion of the
offering we will obtain a commitment from at least two other broker-dealers to
make a market in our common stock, there can be no assurance that this will
occur.
The development of an active trading market depends on the existence of
willing buyers and sellers, the presence of which is not within our control, or
that of any market maker. The number of active buyers and sellers of the common
stock at any particular time may be limited. Under such circumstances, you could
have difficulty selling your shares on short notice, and, therefore, you should
not view the common stock as a short-term investment. We cannot assure you that
an active trading market for the common stock will develop or that, if it
develops, it will continue. Nor can we assure you that, if you purchase shares,
you will be able to sell them at or above $10.00 per share.
24
REGULATORY CAPITAL COMPLIANCE
At March 31, 2002, Atlantic Liberty Savings, F.A. exceeded all regulatory
capital requirements. Set forth below is a summary of our compliance, as of
March 31, 2002, with the regulatory capital standards, on a historical and pro
forma basis assuming that the indicated number of shares were sold as of such
date at $10.00 per share and Atlantic Liberty Savings, F.A. received 50% of the
net proceeds. For a discussion of the applicable capital requirements, see
"Supervision and Regulation--Federal Banking Regulation--Capital Requirements."
Pro Forma at March 31, 2002, Based Upon the Sale of
-----------------------------------------------------------------------------
1,710,984 Shares
1,099,688 Shares 1,293,750 Shares 1,487,813 Shares at Adjusted
Historical at at Minimum of at Midpoint of at Maximum of Maximum of
March 31, 2002 Offering Range Offering Range Offering Range Offering Range(1)
----------------- ------------------ ------------------ ------------------ -----------------
Percent Percent Percent Percent Percent
of of of of of
Amount Assets(2) Amount Assets(2) Amount Assets(2) Amount Assets(2) Amount Assets(2)
------ --------- ------- --------- ------- --------- ------- --------- ------ ---------
(Dollars in Thousands)
GAAP capital .................. $8,789 7.09% $13,033 10.16% $13,848 10.73% $14,663 11.29% $15,600 11.92%
Tangible capital:
Tangible capital ............ $8,789 7.09% $13,033 10.16% $13,848 10.73% $14,663 11.29% $15,600 11.92%
Requirement ................. 1,861 1.50 1,924 1.50 1,937 1.50 1,949 1.50 1,963 1.50
------ ----- ------- ----- ------- ----- ------- ----- ------- -----
Excess ..................... $6,928 5.59% $11,109 8.66% $11,912 9.23% $12,714 9.79% $13,638 10.42%
====== ===== ======= ===== ======= ===== ======= ===== ======= =====
Core capital:
Core capital (3) ............ $8,789 7.09% $13,033 10.16% $13,848 10.73% $14,663 11.29% $15,600 11.92%
Requirement (4) ............. 4,962 4.00 5,131 4.00 5,164 4.00 5,197 4.00 5,234 4.00
------ ----- ------- ----- ------- ----- ------- ----- ------- -----
Excess ..................... $3,827 3.09% $ 7,901 6.16% $ 8,684 6.73% $ 9,466 7.29% $10,366 7.92%
====== ===== ======= ===== ======= ===== ======= ===== ======= =====
Risk-based capital:
Risk-based capital (3)(5) ... $9,146 14.02% $13,390 19.85% $14,205 20.93% $15,020 21.99% $15,957 23.19%
Requirement ................. 5,218 8.00 5,397 8.00 5,431 8.00 5,465 8.00 5,505 8.00
------ ----- ------- ----- ------- ----- ------- ----- ------- -----
Excess ..................... $3,928 6.02% $ 7,993 11.85% $ 8,774 12.93% $ 9,555 13.99% $10,453 15.19%
====== ===== ======= ===== ======= ===== ======= ===== ======= =====
- ----------
(1) As adjusted to give effect to a 15% increase in the number of shares
outstanding after the offering which could occur due to an increase in the
maximum of the independent valuation as a result of regulatory
considerations, demand for the shares, or changes in market conditions or
general economic conditions following the commencement of the offering.
(2) Tangible capital levels are shown as a percentage of tangible assets. 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.
(3) Pro forma capital levels assume that Atlantic Liberty Financial Corp.
funds the recognition and retention plan, which purchases in the open
market 4% of the common stock sold in the stock offering at a price equal
to the price for which the shares are sold in the offering, and that the
employee stock ownership plan purchases 8% of the shares sold in the stock
offering. See "Management" for a discussion of the recognition and
retention plan and employee stock ownership plan.
(4) The current core capital requirement for savings associations that receive
the highest supervisory rating for safety and soundness is 3% of total
adjusted assets and 4% to 5% of total adjusted assets for all other
savings associations. See "Supervision and Regulation--Standards for
Safety and Soundness--Capital Requirements."
(5) Assumes net proceeds are invested in assets that carry a risk-weighting
equal to the average risk weighting of Atlantic Liberty Savings, F.A.'s
risk weighted assets as of March 31, 2002.
25
CAPITALIZATION
The following table presents the historical consolidated capitalization of
Atlantic Liberty Financial Corp. at March 31, 2002, and the pro forma
consolidated capitalization after giving effect to the offering, based upon the
sale of the number of shares indicated in the table and the other assumptions
set forth under "Pro Forma Data."
Pro Forma Consolidated Capitalization
Based Upon the Sale for $10.00 Per Share of
----------------------------------------------------------
1,710,984
1,099,688 1,293,750 1,487,813 Shares at
Shares at Shares at Shares at Adjusted
Minimum of Midpoint of Maximum Maximum of
Historical Offering Offering Offering Offering
Capitalization Range Range Range Range(1)
-------------- ---------- ----------- --------- ----------
(Dollars In Thousands)
Deposits (2) ...................................... $110,990 $110,990 $110,990 $110,990 $110,990
FHLB borrowings ................................... 2,000 2,000 2,000 2,000 2,000
-------- -------- -------- -------- --------
Total deposits and borrowed funds ................. $112,990 $112,990 $112,990 $112,990 $112,990
======== ======== ======== ======== ========
Stockholders' equity:
Preferred Stock, $0.10 par value per share,
500,000 shares authorized; none to be issued ... $ -- $ -- $ -- $ -- $ --
Common Stock, $0.10 par value per share:
6,000,000 shares authorized; shares to be
issued as reflected .......................... -- 110 129 149 171
Additional paid-in capital (3) ................. -- 10,137 12,059 13,979 16,189
Retained earnings ............................... 8,789 8,789 8,789 8,789 8,789
Less:
Common Stock acquired by ESOP (4) ............. -- (880) (1,035) (1,190) (1,369)
Common Stock acquired by recognition and
retention plan (5) ........................... -- (440) (518) (595) (684)
-------- -------- -------- -------- --------
Total stockholders' equity .................. $ 8,789 $ 17,716 $ 19,424 $ 21,132 $ 23,096
======== ======== ======== ======== ========
Total stockholders' equity as a percentage of
pro forma total assets .......................... 7.09% 13.32% 14.42% 15.49% 16.69%
- ----------
(1) As adjusted to give effect to a 15% increase in the number of shares
outstanding after the offering which could occur due to an increase in the
maximum of the independent valuation as a result of regulatory
considerations, demand for the shares, or changes in market conditions or
general financial and economic conditions following the commencement of
the offering.
(2) Does not reflect withdrawals from deposit accounts for the purchase of
common stock in the offering. Such withdrawals would reduce pro forma
deposits by the amount of such withdrawals.
(3) Reflects the sale of shares in the offering. Does not include proceeds
from the offering that will be loaned to the employee stock ownership plan
to enable it to purchase shares in the offering. No effect has been given
to the issuance of additional shares of common stock pursuant to the stock
option plan that Atlantic Liberty Financial Corp. expects to adopt. If
such plan is approved by stockholders, an amount equal to 10% of the
shares of common stock issued in the offering will be reserved for
issuance upon the exercise of options. See "Management."
(4) Assumes that 8% of the shares sold in the offering will be purchased by
the employee stock ownership plan and that the funds used to acquire the
employee stock ownership plan shares will be borrowed from Atlantic
Liberty Financial Corp. The common stock acquired by the employee stock
ownership plan is reflected as a reduction of stockholders' equity.
Atlantic Liberty Savings, F.A. will provide the funds to repay the
employee stock ownership plan loan. See "Management--Benefit Plans."
(5) Assumes that subsequent to the stock offering, 4% of the shares of common
stock sold in the stock offering are purchased by the recognition and
retention plan in the open market. The common stock to be purchased by the
recognition and retention plan is reflected as a reduction of
stockholders' equity. See "Pro Forma Data" and "Management." The
recognition and retention plan will not be implemented for at least six
months after the stock offering and until it has been approved by
stockholders.
26
PRO FORMA DATA
We cannot determine the actual net proceeds from the sale of the common
stock until the offering is completed. However, we estimate that net proceeds
will be between $10.2 million and $14.1 million, or $16.4 million if the
offering range is increased by 15%, based upon the following assumptions:
o we will sell all shares of common stock in the subscription
offering;
o our employee stock ownership plan will purchase 8% of the
shares of common stock sold in the offering with a loan from
Atlantic Liberty Financial Corp. The loan will be repaid in
substantially equal principal payments over a period of ten
years;
o we will pay Sandler O'Neill & Partners, L.P. fees and expenses
of approximately $255,000; and
o total expenses, excluding fees and expenses paid to Sandler
O'Neill & Partners, L.P., will be approximately $495,000.
We calculated the pro forma consolidated net income and stockholders'
equity of Atlantic Liberty Financial Corp. for the year ended March 31, 2002, as
if the common stock had been sold at the beginning of the fiscal year and the
net proceeds had been invested at 4.36% for the fiscal year ended March 31,
2002. We chose these yields because they represent the yields on five-year
United States Government securities for the fiscal year. We believe these rates
more accurately reflect pro forma reinvestment rates than the arithmetic average
method, which assumes reinvestment of the net proceeds at a rate equal to the
average of the yield on interest-earning assets and the cost of deposits for the
fiscal year. We assumed a tax rate of 42.7%. This results in an annualized
after-tax yield of 2.50% for the fiscal year ended March 31, 2002.
We calculated historical and pro forma per share amounts by dividing
historical and pro forma amounts of consolidated net income and stockholders'
equity by the indicated number of shares of common stock. We adjusted these
figures to give effect to the shares purchased by the employee stock ownership
plan. We computed per share amounts for each period as if the common stock was
outstanding at the beginning of the fiscal year, but we did not adjust per share
historical or pro forma stockholders' equity to reflect the earnings on the
estimated net proceeds.
The pro forma table gives effect to the implementation of a recognition
and retention plan. Subject to the receipt of stockholder approval, the
recognition and retention plan will acquire an amount of common stock equal to
4% of the shares of common stock sold in the offering. In preparing the table
below, we assumed that stockholder approval has been obtained and that the
recognition and retention plan purchases in the open market a number of shares
equal to 4% of the shares sold in the offering at the same price for which they
were sold in the stock offering. We assume that shares of stock are granted
under the plan in awards that vest over five years.
As discussed under "How We Intend to Use the Proceeds from the Offering,"
Atlantic Liberty Financial Corp. intends to contribute 50% of the net proceeds
from the offering to Atlantic Liberty Savings, F.A., make a loan to the employee
stock ownership plan, and retain the rest of the proceeds for future use.
27
The pro forma table does not give effect to:
o shares to be reserved for issuance under the stock option
plan;
o withdrawals from deposit accounts for the purpose of
purchasing common stock in the offering;
o Atlantic Liberty Financial Corp.'s results of operations after
the conversion; or
o changes in the market price of the common stock after the
conversion.
The following pro forma information may not represent the financial
effects of the conversion at the date on which the conversion actually occurs
and you should not use the table to indicate future results of operations. Pro
forma stockholders' equity represents the difference between the stated amount
of assets and liabilities of Atlantic Liberty Savings, F.A. computed in
accordance with generally accepted accounting principles. We did not increase or
decrease stockholders' equity to reflect the difference between the carrying
value of loans and other assets and their market value. Pro forma stockholders'
equity is not intended to represent the fair market value of the common stock,
and may be different than the amounts that would be available for distribution
to stockholders if we liquidated. Pro forma stockholders' equity does not give
effect to the liquidation account or to the impact of tax bad debt reserves in
the event we are liquidated.
28
At or For the Year Ended March 31, 2002
Based Upon the Sale at $10.00 Per Share of
-----------------------------------------------------------------
1,710,984
1,099,688 1,293,750 1,487,813 Shares
Shares Shares Shares 15% Above
Minimum of Midpoint of Maximum of Maximum of
Estimated Estimated Estimated Estimated
Offering Offering Offering Offering
Range Range Range Range(1)
---------- ----------- ---------- ----------
(Dollars in Thousands, Except Per Share Amounts)
Gross proceeds ............................................. $ 10,997 $ 12,938 $ 14,878 $ 17,110
Expenses ................................................... (750) (750) (750) (750)
---------- ---------- ---------- ----------
Estimated net proceeds .................................. 10,247 12,188 14,128 16,360
Common stock acquired by employee stock ownership plan(2) .. (880) (1,035) (1,190) (1,369)
Common stock acquired by recognition and retention
plan (2) ................................................ (440) (518) (595) (684)
---------- ---------- ---------- ----------
Estimated net proceeds, as adjusted ..................... $ 8,927 $ 10,635 $ 12,343 $ 14,307
========== ========== ========== ==========
For the year ended March 31, 2002
Consolidated net income:
Historical .............................................. $ 858 $ 858 $ 858 $ 858
Pro forma adjustments:
Income on adjusted net proceeds ......................... 223 266 309 358
Employee stock ownership plan(2) ........................ (50) (59) (68) (78)
Recognition and retention plan (2) ...................... (50) (59) (68) (78)
---------- ---------- ---------- ----------
Pro forma net income .................................. $ 981 $ 1,006 $ 1,031 $ 1,060
========== ========== ========== ==========
Net Income per share (3):
Historical .............................................. $ 0.84 $ 0.71 $ 0.62 $ 0.54
Pro forma adjustments:
Income on adjusted net proceeds ......................... 0.22 0.22 0.23 0.23
Employee stock ownership plan(2) ........................ (0.05) (0.05) (0.05) (0.05)
Recognition and retention plan (2) ...................... (0.05) (0.05) (0.05) (0.05)
---------- ---------- ---------- ----------
Pro forma net income per share (3) (4) ................ $ .96 $ 0.83 $ 0.75 $ 0.67
========== ========== ========== ==========
Pro forma price to earnings ratio .......................... 10.40x 11.94x 13.39x 14.98x
Number of shares used in per share calculations ............ 1,020,510 1,200,600 1,380,690 1,587,794
At March 31, 2002
Stockholders' equity:
Historical .............................................. $ 8,789 $ 8,789 $ 8,789 $ 8,789
Estimated net proceeds .................................. 10,247 12,188 14,128 16,360
Common stock acquired by employee stock ownership
plan(2) .............................................. (880) (1,035) (1,190) (1,369)
Common stock acquired by recognition and retention
plan (2) ............................................. (440) (518) (595) (684)
---------- ---------- ---------- ----------
Pro forma stockholders' equity (5) .................. $ 17,716 $ 19,424 $ 21,132 $ 23,096
========== ========== ========== ==========
Stockholders' equity per share (6):
Historical .............................................. $ 7.99 $ 6.79 $ 5.91 $ 5.24
Estimated net proceeds ................................. 9.32 9.42 9.50 9.56
Common stock acquired by employee stock ownership
plan(2) .............................................. (0.80) (0.80) (0.80) (0.80)
Common stock acquired by recognition and retention
plan (2) ............................................. (0.40) (0.40) (0.40) (0.40)
---------- ---------- ---------- ----------
Pro forma stockholders' equity per share (5) (6) .... $ 16.11 $ 15.01 $ 14.21 $ 13.50
========== ========== ========== ==========
Offering price as percentage of pro forma
stockholders' equity per share .......................... 62.1% 66.6% 70.4% 74.1%
Offering price as percentage of pro forma tangible
stockholders' equity per share .......................... 62.1% 66.6% 70.4% 74.1%
Number of shares used in book value per share
calculations ............................................ 1,099,688 1,293,750 1,487,813 1,710,984
(Footnotes on next page)
29
- ----------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to a 15% increase in the offering range to reflect changes
in market and financial conditions following the commencement of the
offering.
(2) Assumes 87,975, 103,506, 119,025 and 136,879 shares of common stock will
be acquired in the offering by the employee stock ownership plan at the
minimum, midpoint, maximum and maximum as adjusted, respectively, of the
offering range. We also assumed that the funds used to acquire the shares
will be borrowed from Atlantic Liberty Financial Corp. If the employee
stock ownership plan purchases 8% of the common stock sold in the offering
at the minimum, midpoint, maximum and maximum as adjusted, respectively of
the offering range, (and excluding the impact of any purchase of shares by
the recognition and retention plan) pro forma stockholders' equity per
share would be $16.51, $15.41, $14.60 and $13.90, respectively. Atlantic
Liberty Savings, F.A. will provide the funds to repay the employee stock
ownership plan loan. If approved by Atlantic Liberty Financial Corp.'s
stockholders, the recognition and retention plan intends to purchase an
aggregate number of shares of common stock equal to 4% of the shares to be
sold in the offering. Stockholder approval of the recognition and
retention plan and purchases by the plan may not occur earlier than six
months after the completion of the conversion. The shares may be acquired
directly from Atlantic Liberty Financial Corp. or through open market
purchases. The funds to be used by the recognition and retention plan to
purchase the shares will be provided by Atlantic Liberty Financial Corp.
The table assumes that (i) the recognition and retention plan acquires the
shares through open market purchases at $10.00 per share, (ii) 20% of the
amount contributed to the recognition and retention plan is amortized as
an expense during the year ended March 31, 2002 and (iii) the recognition
and retention plan expense reflects an effective combined federal and
state tax rate of 42.7%. Assuming stockholder approval of the recognition
and retention plan and that the plan shares are awarded through the use of
authorized but unissued shares of common stock, stockholders would have
their voting interests diluted by approximately 3.85%.
(3) Net income per share computations are determined by taking the number of
shares assumed to be sold in the offering and, in accordance with
Statement of Position 93-6, subtracting the recognition and retention plan
shares and the employee stock ownership plan shares which have not been
committed for release during the year. See note 2 above. The number of
shares of common stock actually sold may be more or less than the assumed
amounts.
(4) No effect has been given to the issuance of additional shares of common
stock pursuant to the stock option plan, which is expected to be adopted
by Atlantic Liberty Financial Corp. following the offering and presented
to stockholders for approval not earlier than six months after the
completion of the conversion. If the stock option plan is approved by
stockholders, a number of shares equal to 10% of the shares sold in the
offering will be reserved for future issuance upon the exercise of options
to be granted under the stock option plan. The issuance of authorized but
previously unissued shares of common stock pursuant to the exercise of
options under the stock option plan would dilute existing stockholders'
interests by approximately 9.09%.
(5) The retained earnings of Atlantic Liberty Financial Corp. will be
substantially restricted after the conversion. See "Our Policy Regarding
Dividends," "The Conversion-Liquidation Rights in the Converted
Association" and "Supervision and Regulation-Federal Banking
Regulation-Capital Distributions."
(6) Stockholders' equity per share calculations are based upon the number of
subscription shares assumed to be sold in the offering.
30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This discussion and analysis reflects Atlantic Liberty Savings, F.A.'s
financial statements and other relevant statistical data, and is intended to
enhance your understanding of our financial condition and results of operations.
The information in this section has been derived from the audited financial
statements which appear beginning on page F-1 of this prospectus. You should
read the information in this section in conjunction with the business and
financial information regarding Atlantic Liberty Savings, F.A. provided in this
prospectus.
General
Our results of operations depend primarily on our net interest income. Net
interest income is the difference between the interest income we earn on our
interest-earning assets, consisting primarily of loans, mortgage-backed
securities, investment securities and other interest-earning deposits, and the
interest we pay on our interest-bearing liabilities, consisting primarily of
savings accounts and time deposits. Our results of operations are also affected
by our provisions for loan losses, non-interest income and non-interest expense.
Non-interest income consists primarily of fees and service charges and gains on
the sale of assets. Non-interest expense consists primarily of salaries and
employee benefits, occupancy, equipment, data processing and deposit insurance
premiums, professional fees, and other operating expenses. Our results of
operations also may be affected significantly by general and local economic and
competitive conditions, changes in market interest rates, governmental policies
and actions of regulatory authorities.
Business Strategy
Our business strategy is to operate as a well-capitalized and profitable
community savings bank dedicated to providing quality customer service. Our
business strategy has been to emphasize one-to four-family residential mortgage
lending and we will continue to emphasize this type of lending. Management,
however, has determined to increase the assets of our savings bank and to
broaden the range of our loan products and services to enhance profitability,
consistent with safety and soundness. For example, we intend to introduce a home
equity line of credit product in early 2003. In addition, we are upgrading our
computer system. When this upgrade is completed, we will be able to offer
additional products and services, such as sweep accounts and internet banking.
There can be no assurances that we will successfully implement our business
strategy.
Highlights of our business strategy are as follows:
o Continuing to Emphasize One-to Four-Family Residential Real Estate
Lending. Historically, we have emphasized one-to four-family
residential lending within our market area. As of March 31, 2002,
$64.5 million, or 69.0%, of our total loan portfolio consisted of
one-to four-family residential mortgage loans. During the year ended
March 31, 2002, we originated $13.5 million of one-to four-family
residential mortgage loans. We intend to continue to originate
one-to four-family loans because of our expertise with this type of
lending.
o Increasing our real estate lending capacity. The additional capital
raised in the offering, will increase our lending capacity by
enabling us to originate more loans
31
and loans with larger balances. This will permit us to serve
borrowers with larger lending needs and to retain larger loans than
in the past.
o Offering new products and services. We are currently upgrading our
computer systems, and we will soon be able to offer new products and
services to our customers, such as home equity lines of credit,
sweep accounts and internet banking. We expect to be able to offer
these new products and services in early 2003. In addition, we have
begun recently to offer mutual fund and annuity products through a
third party service provider. We expect that these new products and
services we will increase our sources of income and our fee income.
o Maintaining high asset quality. Although our loan portfolio includes
higher risk loans (multi-family and commercial real estate mortgage
loans) as well as one-to four-family mortgage loans, we have focused
on improving and maintaining strong asset quality by following
conservative underwriting criteria. Despite our favorable loan loss
experience, we add to our allowance for loan losses in recognition
of the greater inherent losses, which are both probable and
reasonably estimable in multi-family and commercial real estate
mortgage loans .
Comparison of Financial Condition at March 31, 2002 and 2001
Our total assets increased by $7.8 million, or 6.7%, to $124.0 million at
March 31, 2002, from $116.2 million at March 31, 2001. The increase in our total
assets resulted primarily from increases in cash and cash equivalents, and net
loans receivable, which were partially offset by decreases in investment
securities and mortgage-backed securities. Cash and cash equivalents increased
$5.2 million, or 111.9%, to $9.9 million at March 31, 2002, from $4.7 million at
March 31, 2001, reflecting an increase in interest-earning deposits held at
other financial institutions. The increase in cash and cash equivalents at March
31, 2002 reflects the redeployment of cash received from investments and
mortgage-backed securities that were called during fiscal 2001 and 2002. Net
loans receivable increased $9.1 million, or 10.9%, to $92.9 million at March 31,
2002, from $83.8 million at March 31, 2001. The increase in loans reflects
greater originations of multi-family and commercial real estate loans during
fiscal 2002, and fewer prepayments of one-to four-family residential loans.
Investment securities decreased $3.0 million, or 74.2%, to $1.0 million at March
31, 2002, from $4.0 million at March 31, 2001. Mortgage-backed securities
decreased $3.1 million, or 16.3%, to $15.8 million at March 31, 2002, from $18.8
million at March 31, 2001. The decrease in both investment securities and
mortgage-backed securities reflects calls of investment securities and principal
repayments of mortgage-backed securities, which were reinvested in mortgage
loans and interest-bearing deposits.
Total deposits increased $4.9 million, or 4.6%, to $111.0 million at March
31, 2002, from $106.1 million at March 31, 2001. The increase in deposits
resulted primarily from a $4.6 million increase in transaction and savings
deposits reflecting customer preference for liquid deposit products. Federal
Home Loan Bank advances totaled $2.0 million at March 31, 2002. We did not have
any Federal Home Loan Bank advances at March 31, 2001. The Federal Home Loan
Bank advances were invested in mortgage-backed securities.
Retained earnings increased $858,000, or 10.8%, to $8.8 million at March
31, 2002, from $7.9 million at March 31, 2001, reflecting net income of
$858,000.
32
Comparison of Operating Results for the Years Ended March 31, 2002 and 2001
General. Net income decreased $191,000, or 18.2%, to $858,000 for the year
ended March 31, 2002, from $1.0 million for the year ended March 31, 2001. The
decrease in net income reflects a year-to-year increase in non-interest expense
and two events that occurred during the year ended March 31, 2001 that did not
recur during 2002: (i) a $500,000 one-time addition to income from an insurance
recovery relating to losses resulting from a customer fraud which was discovered
in 1998 ($274,000, net of applicable income taxes); and (ii) a $171,000 gain on
sale of foreclosed real estate. Excluding the impact to fiscal 2001 net income
of the insurance recovery and gain on sale of foreclosed real estate, net income
increased by $179,000 in fiscal 2002 as compared to fiscal 2001.
Interest Income. Interest income decreased by $60,000, or 0.7%, to $8.0
million for the year ended March 31, 2002, from $8.1 million for the year ended
March 31, 2001. The decrease in interest income resulted primarily from
decreases of $338,000 in interest income from mortgage-backed securities,
$325,000 from investment securities and $21,000 from other interest-earning
assets, partially offset by a $624,000 increase in interest income from loans
receivable. The decrease in interest income reflected a 50 basis point decrease
in the average yield on interest-earning assets to 7.00% for the year ended
March 31, 2002 from 7.50% for the year ended March 31, 2001, reflecting a
decrease in market interest rates generally. Partially offsetting the decrease
in the average yield was a $6.8 million, or 6.3% increase in the average balance
of interest-earning assets to $114.4 million from $107.6 million.
Interest income from loans receivable increased $624,000, or 10.2%, to
$6.8 million for the year ended March 31, 2002, from $6.1 million for the year
ended March 31, 2001. The increase was due to a $10.4 million increase in the
average balance of loans receivable during fiscal 2002 as compared to 2001 which
was partially offset by a decrease in the average yield to 7.61% from 7.82%. The
increases in loans receivable occurred primarily in one-to four-family and
commercial real estate loans, which increased by $5.0 million and $4.0 million,
respectively, during fiscal 2002. Interest income from mortgage-backed
securities decreased $322,000, or 25.9%, to $919,000 for the year ended March
31, 2002, from $1.3 million for the year ended March 31, 2001. The decrease
resulted from a $2.7 million decrease in the average balance of mortgage-backed
securities, reflecting mortgage-backed securities prepayments during the year,
as well as a decrease in the average yield to 5.78% from 6.66%. Interest income
from investment securities decreased $325,000, or 80.8%, to $77,000 for the year
ended March 31, 2002 from $402,000 for the year ended March 31, 2001. The
decrease resulted primarily from a $4.9 million decrease in the average balance
of investment securities to $1.2 million during fiscal 2002 from $6.1 million
during fiscal 2001. The decrease in the average balance of investment securities
reflects investments that were called by their issuers during fiscal 2002 and
2001. The average yield on investment securities decreased to 6.25% from 6.58%.
Interest income on other interest-earning assets, consisting of cash and cash
equivalents and Federal Home Loan Bank stock, decreased $21,000 to $254,000 for
fiscal 2002 from $291,000 for fiscal 2001. The decrease reflects a decline in
the average yield on other interest-earning assets to 3.03% from 6.68%, which
was partially offset by an increase in the average balance to $8.4 million from
$4.4 million. The $4.0 million increase in other interest-earning assets
reflects proceeds received from investments that were called during fiscal 2002,
and prepayments of mortgage-backed securities during fiscal 2002.
Interest Expense. Total interest expense decreased $637,000, or 14.3%, to
$3.8 million for fiscal 2002 from $4.5 million for fiscal 2001. The decrease in
interest expense resulted from
33
a decrease in the average cost of deposits and borrowed funds to 3.58% from
4.40%, reflecting lower market interest rates during fiscal 2002, which was
partially offset by a $5.5 million increase in the average balance of
interest-bearing liabilities. The average balance of NOW and money market
accounts increased by $2.0 million to $20.3 million from $18.3 million. The
average balance of certificates of deposit increased $3.4 million to $66.0
million from $62.6 million. Partially offsetting the increases in our deposits
was a $1.1 million decrease in the average balance of savings and club accounts
to $18.6 million from $19.7 million. Interest expense on borrowed funds
increased $52,000 to $62,000 for fiscal 2002 from $10,000 for fiscal 2001,
reflecting an increase in the average balance of borrowed funds to $1.7 million
from $529,000 and an increase in the average cost of borrowed funds to 3.59% for
fiscal 2002 from 1.89% for fiscal 2001. The increase in the average cost of
borrowed funds reflects the cost of $2.0 million in Federal Home Loan Bank
advances which we obtained during fiscal 2002. We used the borrowings to
purchase mortgage-backed securities. During fiscal 2001, our borrowings
consisted solely of mortgage escrow funds.
Net Interest Income. Net interest income increased $577,000, or 15.9%, to
$4.2 million for fiscal 2002 from $3.6 million for fiscal 2001, primarily as a
result of an improvement in our net interest rate spread to 3.42% from 3.10%.
The improvement in our net interest rate spread reflected the more rapid
repricing of our interest-bearing liabilities in a declining interest rate
environment as compared to our interest-earning assets. Our net interest margin
increased to 3.67% from 3.36%.
Provision for Loan Losses. We establish provisions for loan losses, which
are charged to operations, at a level management believes is appropriate to
absorb probable and reasonably estimable incurred credit losses in the loan
portfolio. In evaluating the level of the allowance for loan losses, management
considers historical loss experience, the types of loans and the amount of loans
in the loan portfolio, adverse situations that may affect the borrower's ability
to repay, estimated value of any underlying collateral, peer group information,
and prevailing economic conditions. This evaluation is inherently subjective as
it requires estimates that are susceptible to significant revision as more
information becomes available or as future events change. Based on our
evaluation of these factors, management made a provision of $70,000 for the year
ended March 31, 2002. We did not make a provision for loan losses for the year
ended March 31, 2001. We used the same methodology and generally similar
assumptions in assessing the allowance for both periods. The allowance for loan
losses was $435,000, or 0.47% of loans outstanding at March 31, 2002, as
compared with $358,000, or 0.43% of loans outstanding at March 31, 2001. The
level of the allowance is based on estimates and the ultimate losses may vary
from the estimates.
34
Non-interest Income. Non-interest income decreased $547,000, or 71.1%, to,
$222,000 for the year ended March 31, 2002, as compared to $769,000 for the year
ended March 31, 2001. The primary reason for the decrease in non-interest income
was a $500,000 insurance recovery associated with losses resulting from customer
fraud which occurred prior to 1998 and a $171,000 gain on foreclosed real
estate, both of which occurred during fiscal 2001. Income from fees and service
charges increased by $63,000, or 97.0%, to $128,000 from $75,000. Miscellaneous
non-interest income (consisting of safe deposit box rental fees, ATM fees, sale
of money orders and travelers checks) increased $18,000, or 24.2%, to $93,000
from $75,000. During fiscal 2001, we sold our portfolio of investment securities
classified as available for sale, incurring a loss of $42,000. Management
decided to sell our portfolio of investment securities classified as available
for sale, in order to prevent further losses in this investment as the net asset
value of the investment was decreasing.
Non-interest Expense. Non-interest expense for the year ended March 31,
2002 was $2.9 million, compared to $2.5 million for the year ended March 31,
2001, an increase of $367,000, or 14.7%. The increase was primarily attributable
to a $402,000 increase in salaries and employee benefits, which was due
primarily to a $200,000 increase in salaries and employee benefits reflecting
the addition of a new chief financial officer and normal salary increases, and a
$200,000 net change in pension expense for our non-contributory pension plan,
reflecting a credit of $169,000 in fiscal 2001 and an expense of $31,000 in
fiscal 2002. For further information regarding our pension plan expense see Note
9 to the Notes to Financial Statements. Miscellaneous expense increased $32,000,
or 5.8%, to $587,000 from $555,000. Miscellaneous expense consists of telephone,
postage, office supply and various other non-classifiable operating expenses.
Following completion of the conversion, non-interest expense is likely to
increase as a result of added expenses associated with being a public company,
such as preparing the financial and business reports required to be filed with
regulatory agencies, and provided to stockholders. In addition, compensation
expense would increase if we implement our employee stock ownership plan and
recognition and retention plan.
Income Tax Expense. The provision for income taxes decreased to $620,000
from $854,000. The decrease in the provision for income taxes is primarily due
to our lower level of income before taxes of $1.5 million in fiscal 2002
compared with $1.9 million in fiscal 2001.
35
Average Balance Sheet
The following tables present for the periods indicated the total dollar
amount of interest income on average interest-earning assets and the resultant
yields, as well as the interest expense on average interest-bearing liabilities,
expressed both in dollars and rates. All average balances are derived from daily
balances. Non-accruing loans have been included in the table as loans carrying a
zero yield.
Years Ended March 31,
At March 31, --------------------------------------------------------------
2002 2002 2001
----------------- ------------------------------ ------------------------------
Average Interest Average Interest
Actual Yield/ Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Rate Balance Paid Rate Balance Paid Rate
-------- ------ ----------- -------- ------ ----------- -------- ------
(Dollars in Thousands)
Interest-earning assets:
Loans receivable (1) ......................... $ 92,856 7.20% $ 88,887 $ 6,763 7.61% $ 78,517 $ 6,139 7.82%
Mortgage-backed securities ................... 15,758 5.33 15,912 919 5.78 18,644 1,257 6.74
Investment securities (2) .................... 1,032 6.28 1,233 77 6.25 6,111 402 6.58
Other interest earnings assets (3) ........... 10,058 1.79 8,385 254 3.03 4,357 291 6.31
-------- -------- -------- -------- --------
Total interest-earning assets .............. 119,704 6.49% 114,417 8,013 7.00% 107,629 8,073 7.50%
---- -------- ---- -------- ----
Non-interest earning assets .................. 4,340 5,806 4,778
-------- -------- --------
Total assets ................................. $124,044 $120,223 $112,407
======== ======== ========
Interest-bearing liabilities:
NOW and money market accounts ................ $ 23,621 1.33% $ 20,342 $ 169 0.83% $ 18,364 $ 186 1.01%
Savings and club accounts .................... 19,889 1.24 18,647 572 3.07 19,745 754 3.82
Certificates of deposit ...................... 65,052 3.53 65,998 3,016 4.57 62,627 3,506 5.60
Advances and other borrowed funds(4) ......... 2,000 4.46 1,728 62 3.59 529 10 1.89
-------- -------- -------- -------- --------
Total interest-bearing liabilities ........... 110,562 2.66% 106,715 3,819 3.58% 101,265 4,456 4.40%
-------- ---- -------- -------- ---- -------- -------- ----
Non-interest bearing deposits ................ 2,428 2,616 2,415
Non-interest bearing liabilities ............. 2,265 2,607 1,531
-------- -------- --------
Total liabilities ............................ 115,255 111,938 105,211
Retained earnings ............................ 8,789 8,285 7,196
-------- -------- --------
Total liabilities and retained earnings ...... $124,044 $120,223 $112,407
======== ======== ========
Net interest income/interest rate spread ..... 3.90% $ 4,194 3.42% $ 3,617 3.10%
==== ======== ==== ======== ====
Net interest-earning assets/net
yield on interest-bearing assets ............. $ 9,142 $ 7,702 3.67% $ 6,364 0.36%
======== ======== ==== ======== ====
Ratio of average interest-bearing assets
to average interest-bearing liabilities ...... 1.08x 1.07x 1.06x
- ----------
(1) Net of allowance for loan loss and net deferred fees and costs.
(2) Amounts shown are at amortized cost. For the year ended March 31, 2001,
average mortgage-backed securities included securities classified as
available for sale.
(3) Includes stock in the Federal Home Loan Bank of New York.
(4) Includes mortgage escrow funds.
36
Rate/Volume Analysis
The following table presents the dollar amount of changes in interest
income and interest expense for major components of interest-earning assets and
interest-bearing liabilities. It distinguishes between the changes related to
changes in outstanding balances and those due to the changes in interest rates.
For each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume (i.e.,
changes in volume multiplied by old rate) and (ii) changes in rate (i.e.,
changes in rate multiplied by old volume). For purposes of this table, changes
attributable to both rate and volume, which cannot be segregated, have been
allocated proportionately to the change due to volume and the change due to
rate.
Years Ended March 31,
---------------------------------
2002 vs. 2001
---------------------------------
Increase/(Decrease)
Due to Total
------------------- Increase
Volume Rate (Decrease)
------- ----- ----------
(In Thousands)
Interest-earning assets:
Loans receivable ........................ $ 812 $(188) $ 624
Mortgage-backed securities .............. (182) (140) (322)
Investment securities ................... (321) (4) (325)
Other interest-earnings assets .......... 269 (306) (37)
----- ----- -----
Total interest-earnings assets .......... 578 (638) (60)
----- ----- -----
Interest-bearing liabilities:
Transaction ............................. 20 (37) (17)
Savings ................................. (42) (140) (182)
Certificate accounts .................... 189 (679) (490)
Borrowings .............................. 23 29 52
----- ----- -----
Total interest-bearing liabilities ...... 190 (827) (637)
----- ----- -----
Net interest income ........................ $ 388 $ 189 $ 577
===== ===== =====
Management of Market Risk
General. The majority of our assets and liabilities are monetary in
nature. Consequently, our most significant form of market risk is interest rate
risk. Our assets, consisting primarily of mortgage loans, have longer maturities
than our liabilities, consisting primarily of deposits. As a result, a principal
part of our business strategy is to manage interest rate risk and reduce the
exposure of our net interest income to changes in market interest rates.
Accordingly, our board of directors has established an Asset/Liability
Management Committee which is responsible for evaluating the interest rate risk
inherent in our assets and liabilities, for determining the level of risk that
is appropriate given our business strategy, operating environment, capital,
liquidity and performance objectives, and for managing this risk consistent with
the guidelines approved by the board of directors. Senior management monitors
the level of interest rate risk on a regular basis and the Asset/Liability
Management Committee, which consists of senior management operating under a
policy adopted by the board of directors, meets as needed to review our
asset/liability policies and interest rate risk position.
We have sought to manage our interest rate risk by more closely matching
the maturities of our interest rate sensitive assets and liabilities. In
particular, we offer one, three and five year adjustable rate mortgage loans,
and a loan product that has a fixed rate of interest for seven years and which
adjusts annually thereafter, and three and five year balloon loans. We also
invest in
37
mortgage-backed securities which reprice within one and three years. We do not
solicit high-rate jumbo certificates of deposit or brokered funds.
Net Portfolio Value. In past years, many savings associations have
measured interest rate sensitivity by computing the "gap" between the assets and
liabilities which are expected to mature or reprice within certain time periods,
based on assumptions regarding loan prepayment and deposit decay rates formerly
provided by the Office of Thrift Supervision. However, the Office of Thrift
Supervision now requires the computation of amounts by which the net present
value of an institution's cash flow from assets, liabilities and off balance
sheet items (the institution's net portfolio value or "NPV") would change in the
event of a range of assumed changes in market interest rates. The Office of
Thrift Supervision provides all institutions that file a Consolidated
Maturity/Rate Schedule as a part of their quarterly Thrift Financial Report with
an interest rate sensitivity report of net portfolio value. The Office of Thrift
Supervision simulation model uses a discounted cash flow analysis and an
option-based pricing approach to measuring the interest rate sensitivity of net
portfolio value. Historically, the Office of Thrift Supervision model estimated
the economic value of each type of asset, liability and off-balance sheet
contract under the assumption that the United States Treasury yield curve
increases or decreases instantaneously by 100 to 300 basis points in 100 basis
point increments. However, given the current low level of market interest rates,
we did not receive a NPV calculation for an interest rate decrease of greater
than 100 basis points. A basis point equals one-hundredth of one percent, and
100 basis points equals one percent. An increase in interest rates from 3% to 4%
would mean, for example, a 100 basis point increase in the "Change in Interest
Rates" column below. The Office of Thrift Supervision provides us the results of
the interest rate sensitivity model, which is based on information we provide to
the Office of Thrift Supervision to estimate the sensitivity of our net
portfolio value.
The table below sets forth, as of March 31, 2002, the latest date for
which the Office of Thrift Supervision has provided Atlantic Liberty Savings,
F.A. an interest rate sensitivity report of net portfolio value, the estimated
changes in our net portfolio value that would result from the designated
instantaneous changes in the United States Treasury yield curve.
Net Portfolio Value as a % of
Present Value of
Net Portfolio Value Assets/Liabilities
- ----------------------------------------------------------------- ---------------------------------
Change in
Interest Rates Estimated Amount of
(basis points) NPV Change Percent NPV Ratio Change (1)
-------------- --- ------ ------- --------- ----------
(Dollars in Thousands)
+300 $10,074 $(5,590) (36)% 8.12% (385) basis points
+200 12,037 (3,627) (23) 9.53 (244) basis points
+100 13,940 (1,725) (11) 10.83 (114) basis points
0 15,664 -- -- 11.97 -- basis points
-100 16,768 1,103 +7 12.65 +68 basis points
- ----------
(1) Expressed in basis points.
The table above indicates that at March 31, 2002, in the event of a 100
basis point decrease in interest rates, we would experience a 7% increase in net
portfolio value. In the event of a 200 basis point increase in interest rates,
we would experience a 23% decrease in net portfolio value.
38
Certain shortcomings are inherent in the methodology used in the above
interest rate risk measurement. Modeling changes in net portfolio value require
making certain assumptions that may or may not reflect the manner in which
actual yields and costs respond to changes in market interest rates. In this
regard, the net portfolio value table presented assumes that the composition of
our interest-sensitive assets and liabilities existing at the beginning of a
period remains constant over the period being measured and assumes that a
particular change in interest rates is reflected uniformly across the yield
curve regardless of the duration or repricing of specific assets and
liabilities. Accordingly, although the net portfolio value table provides an
indication of our interest rate risk exposure at a particular point in time,
such measurements are not intended to and do not provide a precise forecast of
the effect of changes in market interest rates on its net interest income and
will differ from actual results.
Liquidity and Capital Resources
We maintain liquid assets at levels we consider adequate to meet our
liquidity needs. Our liquidity ratio averaged 24.0% for the year ended March 31,
2002, and averaged 28.0% for the year ended March 31, 2001. We adjust our
liquidity levels to fund deposit outflows, pay real estate taxes on mortgage
loans, repay our borrowings and to fund loan commitments. We also adjust
liquidity as appropriate to meet asset and liability management objectives.
Our primary sources of liquidity are deposits, amortization and prepayment
of loans and mortgage-backed securities, maturities of investment securities and
other short-term investments, and earnings and funds provided from operations.
While scheduled principal repayments on loans and mortgage-backed securities are
a relatively predictable source of funds, deposit flows and loan prepayments are
greatly influenced by market interest rates, economic conditions, and rates
offered by our competition. We set the interest rates on our deposits to
maintain a desired level of total deposits. In addition, we invest excess funds
in short-term interest-earning assets, which provide liquidity to meet lending
requirements. For additional information about cash flows from our operating,
financing, and investing activities, see "Statements of Cash Flows" included in
the Financial Statements.
A significant portion of our liquidity consists of cash and cash
equivalents, which are a product of our operating, investing and financing
activities. Our primary sources of cash are net income, principal repayments on
loans, mortgage-backed securities and investment securities and increases in
deposit accounts, along with advances from the Federal Home Loan Bank of New
York.
Liquidity management is both a daily and long-term function of business
management. If we require funds beyond our ability to generate them internally,
borrowing agreements exist with the Federal Home Loan Bank of New York which
provide an additional source of funds. At March 31 2002, we had $2.0 million in
advances from the Federal Home Loan Bank of New York, and had an available
lending limit of $18.0 million.
At March 31, 2002, we had outstanding commitments to originate loans of
$9.5 million. At March 31, 2002, certificates of deposit scheduled to mature in
less than one year totaled $46.4 million. Based on prior experience, management
believes that a significant portion of such deposits will remain with us,
although there can be no assurance that this will be the case. In addition, the
cost of such deposits may be significantly higher if market interest rates are
higher at the time of renewal. We intend to utilize our high levels of liquidity
to fund our lending activities.
39
Recent Accounting Pronouncements
In July 2001, the FASB issued SFAS 141, Business Combinations, which
requires that all business combinations entered into after June 30, 2001 be
accounted for under, the purchase method. Use of the pooling-of-interests method
is no longer permitted. This pronouncement will have no effect on our financial
statements unless we enter into a business combination transaction.
In July 2001, the FASB also issued SFAS 142, Goodwill and Other Intangible
Assets, which requires that goodwill no longer be amortized to earnings, but
instead that the assets received in a business combination transaction be
reviewed for impairment. The amortization of goodwill ceases upon adoption of
the Statement, which for most companies was January 1, 2002. This pronouncement
will not have any effect on our financial statements.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 is effective for
financial statements issued for fiscal years beginning after December 31, 2001.
The standard addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. Management does not expect the adoption of this
pronouncement to have a material impact on our results of operations of
financial condition.
In April 2002, the FASB issued SFAS No. 145 "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections"
which rescinds SFAS No. 4, Reporting Gains and Losses from Extinguishment of
Debt and an amendment of that Statement No. 64, Extinguishments of Debt Made to
Satisfy Sinking-Fund Requirements. This Statement also rescinds SFAS No. 44,
Accounting for Intangible Assets of Motor Carriers. This Statement amends SFAS
No. 13, Accounting for Leases to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. This Statement also amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions. SFAS No.145
is effective for fiscal years beginning and transactions occurring after May 15,
2002. Management does not expect the adoption of this pronouncement to have a
material impact on Atlantic Liberty Savings, F.A.'s results of operations or
financial condition.
Impact of Inflation and Changing Prices
The financial statements and related notes of Atlantic Liberty Savings,
F.A. have been prepared in accordance with accounting principles generally
accepted in the United States of America ("GAAP"). GAAP generally requires the
measurement of financial position and operating results in terms of historical
dollars without consideration for changes in the relative purchasing power of
money over time due to inflation. The impact of inflation is reflected in the
increased cost of our operations. Unlike industrial companies, our assets and
liabilities are primarily monetary in nature. As a result, changes in market
interest rates have a greater impact on performance than the effects of
inflation.
40
BUSINESS OF ATLANTIC LIBERTY FINANCIAL CORP.
We have not engaged in any business to date. Upon completion of the
conversion, we will own all of the issued and outstanding stock of Atlantic
Liberty Savings, F.A. We will retain up to 50% of the net proceeds from the
offering. A portion of the net proceeds we retain will be used to make a loan to
fund the purchase of our common stock by the Atlantic Liberty Savings, F.A.
employee stock ownership plan. We will contribute the remaining net proceeds to
Atlantic Liberty Savings, F.A. as additional capital. We intend to invest our
capital as discussed in "How We Intend to Use the Proceeds from the Offering."
In the future, Atlantic Liberty Financial Corp., as the holding company of
Atlantic Liberty Savings, F.A., will be authorized to pursue other business
activities permitted by applicable laws and regulations for savings and loan
holding companies, which may include the acquisition of banking and financial
services companies. We have no plans for any mergers or acquisitions, or other
diversification of the activities of Atlantic Liberty Financial Corp. at the
present time.
Our cash flow will depend on earnings from the investment of the net
proceeds we retain, and any dividends received from Atlantic Liberty Savings,
F.A. Initially, Atlantic Liberty Financial Corp. will neither own nor lease any
property, but will instead use the premises, equipment and furniture of Atlantic
Liberty Savings, F.A. At the present time, we intend to employ only persons who
are officers of Atlantic Liberty Savings, F.A. to serve as officers of Atlantic
Liberty Financial Corp. We will however, use the support staff of Atlantic
Liberty Savings, F.A. from time to time. These persons will not be separately
compensated by Atlantic Liberty Financial Corp. Atlantic Liberty Financial Corp.
may hire additional employees, as appropriate, to the extent it expands its
business in the future.
BUSINESS OF ATLANTIC LIBERTY SAVINGS, F.A.
General
Our principal business consists of attracting retail deposits from the
general public in the areas surrounding our two locations in Brooklyn, New York
and investing those deposits, together with funds generated from operations and
borrowings, primarily in one-to four-family residential mortgage loans,
multi-family and commercial real estate loans, mortgage related securities and
various other securities. Our revenues are derived principally from the interest
on loans, securities, loan origination and servicing fees, and service charges
and fees collected on deposit accounts. Our primary sources of funds are
deposits and principal and interest payments on loans and securities.
Competition
We face intense competition within our market both in making loans and
attracting deposits. The New York City area has a high concentration of
financial institutions including large money center and regional banks,
community banks and credit unions. Some of our competitors offer products and
services that we currently do not offer, such as trust services and private
banking. As of June 30, 2002, our market share of deposits represented less than
0.5% of deposits in Kings County and ranked us 23rd of 39 financial institutions
operating in Kings County.
41
Our competition for loans and deposits comes principally from commercial
banks, savings institutions, mortgage banking firms and credit unions. We face
additional competition for deposits from short-term money market funds,
brokerage firms, mutual funds and insurance companies. Our primary focus is to
build and develop profitable customer relationships across all lines of business
while maintaining our role as a community bank.
Market Area
We operate in an urban market area that has a stable population and
household base. During the past 11 years, the population and number of
households in Kings County increased by approximately 8%. In 2001 per capita
income for Kings County was $19,165 and the median household income was $37,132.
Our primary lending area is concentrated in the neighborhoods surrounding both
of our office locations in Brooklyn, New York. One-to four-family residential
real estate in our market area is characterized by a large number of attached
and semi-detached houses, including a number of two-and three-family homes and
cooperative apartments. Most of our deposit customers are residents of the
greater New York metropolitan area. The economy of our market area is
characterized by the large number of small retail establishments. Our customer
base is comprised of middle-income households, and to a lesser extent
low-to-moderate-income households. The median household income for Brooklyn is
below the median household income nationally, and in the State of New York. In
addition, the unemployment rate in the market area served by us is higher than
in the surrounding suburbs.
Lending Activities
Historically, our principal lending activity has been the origination of
first mortgage loans for the purchase or refinancing of one-to four-family
residential real property, and cooperative apartments. In recent years, we
retained all loans that we originated. One-to four-family residential real
estate mortgage loans represented $64.5 million, or 69.0%, of our loan portfolio
at March 31, 2002. We also offer multi-family and commercial real estate loans.
Multi-family real estate loans totaled $13.7 million, or 14.6%, of the loan
portfolio at March 31, 2002. Commercial real estate loans totaled approximately
$15.1 million, or 16.1% of the loan portfolio at March 31, 2002. We also offer
home equity loans to existing customers.
42
Loan Portfolio Composition. The following table sets forth the composition
of our loan portfolio by type of loan as of the dates indicated, including a
reconciliation of gross loans receivable after consideration of the allowance
for loan losses and net deferred fees.
At March 31,
-----------------------------------
2002 2001
---------------- ----------------
Amount Percent Amount Percent
------- ------- ------- -------
(Dollars in Thousands)
Real Estate Loans:
One-to four-family ....................... $64,500 69.0% $59,494 70.6%
Multi-family ............................. 13,653 14.6 13,334 15.8
Commercial ............................... 15,076 16.1 11,075 13.2
------- ----- ------- -----
Total real estate loans ................ $93,229 99.7% $83,903 99.6%
------- ===== ------- =====
Other Loans:
Home equity .............................. 190 0.3 355 0.4
Unsecured ................................ 26 -- -- --
------- ----- ------- -----
Total other loans ...................... 216 0.3 355 0.4
------- ----- ------- -----
Total loans ............................ $93,445 100.0% $84,258 100.0%
------- ===== ------- =====
Less:
Net deferred fees ........................ 154 130
Allowance for loan losses ................ 435 358
------- -------
Total loans receivable, net ............ $92,856 $83,770
======= =======
Loan Maturity Schedule. The following table shows the remaining
contractual maturity of our loans at March 31, 2002. The table does not include
the effect of possible prepayments or due on sale clause payments.
At March 31, 2002
-------------------------------------------------------------------------
One-to
Four-Family Commercial Home Equity
Amount Multi-family Real Estate and Unsecured Total
----------- ------------ ----------- ------------- -------
(In Thousands)
Amounts Due:
One year or less ........................ $ 23 $ 7 $ 181 $ 26 $ 237
------- ------- ------- ------- -------
After one year:
More than one year to three years ..... 144 148 354 -- 646
More than three years to five years ... 291 42 391 37 761
More than five years to 10 years ...... 11,463 4,873 4,226 153 20,715
More than 10 years to 20 years ........ 24,115 8,583 9,924 -- 42,622
More than 20 years .................... 28,464 -- -- -- 28,464
------- ------- ------- ------- -------
Total due after one year ................... 64,477 13,646 14,895 190 93,208
------- ------- ------- ------- -------
Total due .................................. $64,500 $13,653 $15,076 $ 216 $93,445
======= ======= ======= ======= =======
Less:
Deferred loan fees..................... 154
Allowance for loan losses ............. 435
-------
Loans receivable, net ................... $92,856
=======
The total amount of loans due after March 31, 2003 which have fixed
interest rates is $32.5 million, and the total amount of loans due after such
dates which have floating or adjustable interest rates is $60.7 million.
One-to four-Family Residential Loans. Our primary lending activity
consists of the origination of one-to four-family residential mortgage loans
secured by property located in our lending area. At March 31, 2002,
approximately $64.5 million, or 69.0% of our loan portfolio, consisted of one-to
four-family residential loans. Generally, one-to four-family residential
43
mortgage loans are originated in amounts up to 80% of the lesser of the
appraised value or purchase price of the property, with private mortgage
insurance required on loans with a loan-to-value ratio in excess of 80%. We
generally will not make loans with a loan to value ratio in excess of 90%.
Generally, fixed-rate loans are originated for terms of up to 15 years. We do
not sell the loans that we originate.
We also offer adjustable-rate mortgage loans with one, three, and five
year adjustment periods based on changes in a designated treasury index. We also
offer a loan product with a fixed rate of interest for seven years, which
adjusts annually thereafter. Notwithstanding the low interest rate environment
during the past two years, most of our new loan originations have had adjustable
interest rates. During fiscal 2002, we originated $12.9 million in adjustable
rate one-to four-family residential loans and $510,000 in fixed rate one-to
four-family residential loans. In an effort to increase our origination of
adjustable rate loans, we price our adjustable rate mortgages more aggressively
as compared to our fixed rate loans. A substantial portion of our adjustable
rate mortgage loans provide for maximum rate adjustments of 200 basis points per
adjustment, with a lifetime maximum adjustment of 500 basis points. Our
adjustable rate mortgage loans amortize over terms of up to 30 years.
Adjustable rate mortgage loans decrease the risk associated with changes
in market interest rates by periodically repricing, but involve other risks
because, as interest rates increase, the underlying payments by the borrower
increase, thus increasing the potential for default by the borrower. At the same
time, the marketability of the underlying collateral may be adversely affected
by higher interest rates. Upward adjustment of the contractual interest rate is
also limited by the maximum periodic and lifetime interest rate adjustments
permitted by our loan documents, and therefore, is potentially limited in
effectiveness during periods of rapidly rising interest rates. At March 31,
2002, 57.2% of our one-to four-family residential loans had adjustable rates of
interest.
All one-to four-family residential mortgage loans that we originate
include "due-on-sale" clauses, which give us the right to declare a loan
immediately due and payable in the event that, among other things, the borrower
sells or otherwise disposes of the real property subject to the mortgage and the
loan is not repaid.
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 of the property at the time the loan is originated. For all loans, we
utilize outside independent appraisers approved by the board of directors. All
borrowers are required to obtain title insurance. We also require homeowner's
insurance and fire and casualty insurance on properties securing real estate
loans.
44
Multi-Family Real Estate Loans. Loans secured by multi-family real estate
totaled approximately $13.7 million, or 14.6%, of the total loan portfolio at
March 31, 2002. Multi-family real estate loans generally are secured by rental
properties (including walk-up apartments). Substantially all multi-family real
estate loans are secured by properties located within our lending area. At March
31, 2002, we had 55 multi-family loans with an average principal balance of
$248,000, and the largest multi-family real estate loan had a principal balance
of $929,000. Multi-family real estate loans generally are offered with
adjustable interest rates. Multi-family loans are originated for terms of up to
10 years with a fixed rate of interest for the initial five year period and with
a five year renewal option. At the time of renewal, the loan's interest rate
will adjust to the five year Treasury Note rate plus 250 basis points.
Multi-family real estate loans have terms ranging from 5 and 10 years, and
amortize over a period of up to 20 years.
We consider a number of factors in originating multi-family real estate
loans. We evaluate the qualifications and financial condition of the borrower
(including credit history), profitability and expertise, as well as the value
and condition of the mortgaged property securing the loan. When evaluating the
qualifications of the borrower, we consider the financial resources of the
borrower, the borrower's experience in owning or managing similar property and
the borrower's payment history with us and other financial institutions. In
evaluating the property securing the loan, the factors we consider include the
net operating income of the mortgaged property before debt service and
depreciation, the debt service coverage ratio (the ratio of net operating income
to debt service) to ensure that it is at least 125% of the monthly debt service
and the ratio of the loan amount to the appraised value of the mortgaged
property. Multi-family real estate loans are originated in amounts up to 70% of
the appraised value of the mortgaged property securing the loan. All
multi-family loans are appraised by outside independent appraisers approved by
the board of directors. Personal guarantees are generally obtained from
multi-family real estate borrowers.
Loans secured by multi-family real estate generally involve a greater
degree of credit risk than one-to four-family residential mortgage loans and
carry larger loan balances. This increased credit risk is a result of several
factors, including the concentration of principal in a limited number of loans
and borrowers, the effects of general economic conditions on income producing
properties, and the increased difficulty of evaluating and monitoring these
types of loans. Furthermore, the repayment of loans secured by multi-family real
estate typically depends upon the successful operation of the real estate
property securing the loan. If the cash flow from the project is reduced, the
borrower's ability to repay the loan may be impaired.
Commercial Real Estate Loans. At March 31, 2002, $15.1 million, or 16.1%
of the total loan portfolio consisted of commercial real estate loans.
Commercial real estate loans are secured by office buildings, private schools,
religious facilities, restaurants, mixed use properties and other commercial
properties. We generally originate adjustable rate commercial real estate loans
with maximum terms of up to 10 years. The maximum loan-to-value ratio of
commercial real estate loans is 70%. At March 31, 2002, we had 54 commercial
real estate loans with an average outstanding balance of $279,000. At March 31,
2002, our largest commercial real estate loan had a principal balance of
$921,000 and was secured by a mixed use property. As of March 31, 2002,
non-performing loans included two commercial real estate loans totaling
$725,000, the largest of which had a principal balance of $580,000 at March 31,
2002 and was secured by a medical facility with an appraised value of $1.2
million.
45
In underwriting commercial real estate loans, we consider and evaluate the
same criteria as in underwriting multi-family real estate loans. Personal
guarantees are generally obtained from commercial real estate borrowers.
Loans secured by commercial real estate generally are larger than one-to
four-family residential loans and involve greater credit risk. Commercial real
estate loans often involve large loan balances to single borrowers or groups of
related borrowers. Repayment of these loans depends to a large degree on the
results of operations and management of the properties securing the loans or the
businesses conducted on such property, and may be affected to a greater extent
by adverse conditions in the real estate market or the economy in general.
Accordingly, the nature of these loans makes them more difficult for management
to monitor and evaluate.
Origination and Servicing of Loans. Historically, we have originated
mortgage loans pursuant to underwriting standards that generally conform with
the Fannie Mae and Freddie Mac guidelines. Loan origination activities are
primarily concentrated in Brooklyn, New York. New loans are generated primarily
from walk-in customers, customer referrals, brokers and other parties with whom
we do business, and from the efforts of employees and advertising. Loan
applications are underwritten and processed at our main office. We service all
loans that we originate.
The following table shows our loan origination and repayment activities
for the periods indicated. We did not purchase or sell any loans during the
periods indicated.
Years Ended March 31,
----------------------
2002 2001
-------- --------
(In Thousands)
Loans receivable, net, at beginning of period ...... $ 83,770 $ 76,244
-------- --------
Originations by type:
Real estate - one-to four-family ................. 13,453 13,464
- multi-family ....................... 4,954 3,464
- commercial ......................... 6,455 1,970
Other - home equity and unsecured ................ 67 136
-------- --------
Total loans originated ......................... 24,929 19,034
Principal repayments ............................. (15,808) (11,557)
(Provision) recovery for loan losses ............. (70) 17
Amortization ..................................... 35 32
-------- --------
Net increase ................................... 9,086 7,526
-------- --------
Loans receivable, net, at end of period .......... $ 92,856 $ 83,770
======== ========
Loan Approval Procedures and Authority. The loan approval process is
intended to assess the borrower's ability to repay the loan, the viability of
the loan, and the adequacy of the value of the property that will secure the
loan. To assess the borrower's ability to repay, we review the employment and
credit history and information on the historical and projected income and
expenses of mortgagors. One-to four-family residential mortgage loans of up to
$350,000 may be approved by senior management and all other one-to four-family
residential mortgage loans in excess of $350,000 must be approved by the board
of directors. All multi-family and commercial real estate loans must be approved
by the board of directors. In addition, the board of directors ratifies all
loans approved by management.
46
We require appraisals of all real property securing loans. Appraisals are
performed by independent appraisers who are licensed by the state, and who are
approved by the board of directors annually. We require fire and extended
coverage insurance in amounts at least equal to the principal amount of the
loan. Where appropriate, flood insurance is also required.
Non-performing and Problem Assets
After a mortgage loan becomes eight days past due, we deliver a computer
generated delinquency notice to the borrower. A second delinquency notice is
sent once the loan becomes 16 days past due. When a loan becomes 30 days past
due, we send an additional delinquency notice to the borrower and attempt to
make personal contact with the borrower by letter or telephone to establish an
acceptable repayment schedule. In addition, with respect to loans secured by a
one-to four-family residence, after 45 days we will attempt to assist the
borrower in obtaining credit counseling. When a mortgage loan is 90 days
delinquent and no acceptable resolution has been reached, we send the borrower a
five-day demand letter. If the loan is not brought current within 120 days, we
will generally refer the matter to our attorney. Management is authorized to
begin foreclosure proceedings on any loan after determining that it is prudent
to do so.
Mortgage loans are reviewed on a regular basis and such loans are placed
on non-accrual status when they are specifically determined to be impaired or
when they become 90 days delinquent. When loans are placed on a non-accrual
status, unpaid accrued interest is fully reserved, and further income is
recognized only to the extent received.
Non-performing Loans. At March 31, 2002, $725,000 or 0.58% of our total
loans were non-performing loans. We had no accruing loans delinquent more than
90 days as of March 31, 2002 or March 31, 2001.
Non-performing Assets. The table below sets forth the amounts and
categories of our non-performing assets as of March 31, 2002 and 2001.
Delinquent loans that are 90 days or more past due are considered non-performing
assets. During the periods presented, we did not have any troubled debt
restructurings.
At March 31,
----------------------
2002 2001
----- -----
(Dollars in Thousands)
Non-performing loans:
One-to four-family ....................................... $ -- $ 94
Multi-family ............................................. -- --
Commercial real estate ................................... 725 --
Home equity .............................................. -- --
Unsecured ................................................ -- --
----- ------
Total non-performing loans ................................... 725 94
Other real estate (1) ...................................... 78 78
----- ------
Total non-performing assets .................................. $ 803 $ 172
===== -=====
Total non-performing assets as a percentage of total assets .. 0.65% 0.15%
===== ======
Allowance for loan losses as a percentage of
non-performing loans ......................................... 60.00% 380.85%
===== ======
Allowance for loan losses as a percentage of gross loans
receivable ................................................... 0.47% 0.43%
===== ======
- ----------
(1) Represents a $78,000 investment in real estate.
47
For the year ended March 31, 2002, gross interest income which would have
been recorded had our non-accruing loans been current in accordance with their
original terms amounted to $69,000. Interest income recognized on such loans for
the year ended March 31, 2002 was $44,000.
48
Delinquent Loans. The following table sets forth our loan delinquencies by
type, by amount and by percentage of type at March 31, 2002.
Loans Delinquent For:
-------------------------------------------------------------------------------------------
60-89 Days 90 Days and Over Total Delinquent Loans
-------------------------------------------------------------------------------------------
Percent of Percent of Percent of
Loan Loan Loan
Number Amount Category Number Amount Category Number Amount Category
------ ------ -------- ------ ------ -------- ------ ------ --------
(Dollars in Thousands)
One-to four-family ................. -- $ -- --% -- $ -- --% -- $ -- --%
Multi-family ....................... -- -- -- -- -- -- -- -- --
Commercial real estate ............. -- -- -- 2 725 4.8 2 725 4.8
Home equity and unsecured .......... -- -- -- -- -- -- -- -- --
---- ---- ---- ---- ---- ---- ---- ---- ----
Total ............................ -- $ -- 2 $725 2 $725
==== ==== ==== ==== ==== ====
Delinquent loans to total loans .... 0.8%
====
- --------------------
(1) Percentage of delinquent loans to total loans.
49
Classified Assets. Office of Thrift Supervision regulations and our Asset
Classification Policy provide that loans and other assets considered to be of
lesser quality be classified as "substandard," "doubtful" or "loss" assets. An
asset is considered "substandard" if it is inadequately protected by the current
net worth and paying capacity of the obligor or of the collateral pledged, if
any. "Substandard" assets include those characterized by the "distinct
possibility" that the 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. We classify an asset
as "special mention" if the asset has a potential weakness that warrants
management's close attention. While such assets are not impaired, management has
concluded that if the potential weakness in the asset is not addressed the value
of the asset may deteriorate, adversely affecting the repayment of the asset.
An insured institution is required to establish general allowances for
loan losses in an amount deemed prudent by management for loans classified
substandard or doubtful, as well as for other problem loans. 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 the amount 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 Office of Thrift Supervision which can
order the establishment of additional general or specific loss allowances.
On the basis of management's review of its assets, at March 31, 2002 we
had classified $1.2 million of our assets as substandard (which consisted of
three non-accruing loans secured by commercial real estate totaling $725,000,
and three accruing loans secured by one-to four-family properties totaling
$500,000) and $745,000 as special mention (which consisted of four loans secured
by one-to four-family properties). At March 31, 2002 none of our assets were
classified as doubtful or loss.
The loan portfolio is reviewed on a regular basis to determine whether any
loans require classification in accordance with applicable regulations. Not all
classified assets constitute non-performing assets.
Allowance for Loan Losses
Our allowance for loan losses is maintained at a level considered adequate
to absorb loan losses which are both probable and reasonably estimable.
Management, in determining the allowance for loan losses, considers the risks
inherent in its loan portfolio and changes in the nature and volume of loan
activities, along with the general economic and real estate market conditions.
We utilize a two tier approach: (1) identification of impaired loans and
establishment of specific loss allowances on such loans; and (2) establishment
of general valuation allowances on the remainder of our loan portfolio. We
maintain a loan review system, which allows for a periodic review of our loan
portfolio and the early identification of potential impaired loans. Such system
takes into consideration, among other things, delinquency status, size of loans,
type
50
and market value of collateral and financial condition of the borrowers.
Specific loan loss allowances are established for identified losses based on a
review of such information. A loan evaluated for impairment is considered to be
impaired when, based on current information and events, it is probable that we
will be unable to collect all amounts due according to the contractual terms of
the loan agreement. All loans identified as impaired are evaluated
independently. We do not aggregate such loans for evaluation purposes. Loan
impairment is measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate or, as a practical expedient,
at the loan's observable market price or the fair value of the collateral if the
loan is collateral dependent. General loan loss allowances are based upon a
combination of factors including, but not limited to, actual loan loss
experience, composition of the loan portfolio, current economic conditions ,
management's judgment and losses which are probable and reasonably estimable.
The allowance is increased through provisions charged against current earnings
and recoveries of previously charged-off loans. Loans which are determined to be
uncollectible are charged against the allowance. Although management believes
that adequate specific and general loan loss allowances are established, actual
losses are dependent upon future events and, as such, further additions to the
level of specific and general loan loss allowances may be necessary. Payments
received on impaired loans are applied first to accrued interest receivable and
then to principal. The allowance for loan losses as of March 31, 2002 is
maintained at a level that represents management's best estimate of losses in
the loan portfolio, and such losses were both probable and reasonably estimable.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review our allowance for loan losses. Such
agencies may require that we recognize additions to the allowance based on their
judgments of information available to them at the time of their examination.
51
Allowance of Loan Losses. The following table analyzes changes in the
allowance for the periods presented.
For the Years Ended March 31,
-----------------------------
2002 2001
----- -----
(Dollars in Thousands)
Balance at beginning of period ............................. $ 358 $ 401
----- -----
Charge-offs:
One-to four-family ....................................... -- 39
Multi-family ............................................. -- --
Commercial real estate ................................... -- --
Home equity .............................................. -- --
Unsecured ................................................ -- 4
----- -----
Total .................................................. -- 43
----- -----
Recoveries:
One-to four-family ....................................... 7 17
Multi-family ............................................. -- --
Commercial real estate ................................... -- --
Home equity .............................................. -- --
Unsecured ................................................ -- --
----- -----
Total .................................................. 7 17
----- -----
Net charge-offs(recoveries) ................................ (7) 26
Provisions charged to operations (recovery credited to
operations) .............................................. 70 (17)
----- -----
Balance at end of period ................................. $ 435 $ 358
===== =====
Ratio of (recoveries) net charge-offs during the period
to average loans outstanding during the period ............. (0.01)% 0.03%
===== =====
Allocation of Allowance for Loan Losses. The following table presents an
analysis of the allocation of the allowance for loan losses at the dates
indicated. The allocation of the allowance to each category is not necessarily
indicative of future loss in any particular category and does not restrict the
use of the allowance to absorb losses in other categories.
At March 31,
-----------------------------------------------------------------------------
2002 2001
------------------------------------ -------------------------------------
Percent of Percent of
Loans in Loans in
Amount of Each Amount of Each
Loan Loss Loan Amounts Category to Loan Loss Loan Amounts Category to
Allowance by Category Total Loans Allowance by Category Total Loans
--------- ----------- ----------- --------- ----------- -----------
(Dollars in Thousands)
One-to four-family ... $ 89 $64,500 69.0% $ 149 $59,494 70.6%
Multi-family ......... 68 13,653 14.6 33 13,334 15.8
Commercial ........... 266 15,076 16.1 139 11,075 13.2
Home equity .......... -- 190 0.3 -- 355 0.4
Unsecured ............ -- 26 -- -- -- --
Unallocated .......... 12 -- -- 37 -- --
------- ------- ------- ------- ------- -------
Total ............ $ 435 $93,445 100.0% $ 358 $84,258 100.0%
======= ======= ======= ======= ======= =======
Each quarter, management evaluates the total balance of the allowance for
loan losses based on several factors that are not loan specific, but are
reflective of the inherent losses in the loan portfolio. This process includes,
but is not limited to, a periodic review of loan collectibility in light of
historical experience, the nature and volume of loan activity, conditions that
may affect the ability of the borrower to repay, underlying value of collateral,
if applicable, and economic conditions in our immediate market area. First, we
group loans by delinquency status.
52
All loans 90 days or more delinquent are evaluated individually, based primarily
on the value of the collateral securing the loan. Specific loss allowances are
established as required by this analysis. All loans for which a specific loss
allowance has not been assigned are segregated by type and delinquency status
and a loss allowance is established by using loss experience data and
management's judgment concerning other matters it considers significant. The
allowance is allocated to each category of loan based on the results of the
above analysis. Small differences between the allocated balances and recorded
allowance is reflected as unallocated to absorb losses resulting from the
inherent imprecision involved in the loss analysis process.
This analysis process is inherently subjective, as it requires us to make
estimates that are susceptible to revisions as more information becomes
available. Although we believe that we have established the allowance at levels
to absorb probable and estimable losses, future additions may be necessary if
economic or other conditions in the future differ from the current environment.
Investments
Investments and Mortgage-Backed Securities. Our investment portfolio at
March 31, 2002 consisted of an investment of $1.0 million in corporate
obligations and an investment of $902,000 in Federal Home Loan Bank stock. At
March 31, 2002 we had $9.2 million in interest-earning deposits with other
financial institutions. Our investment policy objectives are to maintain
liquidity within the guidelines established by the board of directors.
We also invest in mortgage-backed securities, all of which are guaranteed
by the United States Government or agencies thereof, and all of which are
classified as held to maturity. Virtually all of our mortgage-backed securities
are adjustable rate instruments that reprice at one to three year intervals. At
March 31, 2002 mortgage-backed securities totaled $15.8 million, or 12.7% of
total assets.
The following table sets forth the carrying value of our investment
portfolio at the dates indicated. Our corporate bonds mature in 2006 and had an
average remaining life of 3.9 years at March 31, 2002. Our Federal Home Loan
Bank stock has no stated maturity, and our interest-bearing deposits with other
institutions are payable on demand.
At March 31,
---------------------------------------------
2002 2001
-------------------- --------------------
Carrying Percent Carrying Percent
Value of total Value of total
-------- -------- -------- --------
(Dollars in Thousands)
Investment securities
Federal agency obligations ... $ -- --% 4,000 82.8%
Corporate bonds .............. 1,032 53.3 -- --
FHLB stock ................... 902 46.7 832 17.2
------ ------ ------ ------
Total investment securities
and FHLB stock ........... $1,934 100.0% $4,832 100.0%
====== ====== ====== ======
Other interest-earning assets
Interest-earning deposits with
other institutions ......... $9,156 100.0% $3,197 100.0%
------ ====== ------ ======
Total ...................... $9,156 100.0% $3,197 100.0%
====== ====== ====== ======
53
The following table sets forth the composition of our mortgage-backed
securities at the dates indicated.
At March 31,
-------------------------------------
2002 2001
------------------ -----------------
Carrying Percent Carrying Percent
Value of Total Value of Total
-------- -------- -------- --------
(Dollars in Thousands)
Mortgage-backed securities
Ginnie Mae .............................. $ 1,143 7.2% $ 269 1.4%
Fannie Mae .............................. 6,973 44.3 9,103 48.4
Freddie Mac ............................. 6,587 41.8 6,985 37.1
Collateralized mortgage obligations ..... 1,055 6.7 2,463 13.1
------- ----- ------- -----
Total mortgage-backed securities ........ $15,758 100.0% $18,820 100.0%
======= ===== ======= =====
Set forth below are the carrying value and estimated fair value of
mortgage-backed securities at March 31, 2002 by contractual maturity.
Carrying Estimated
Value Fair Value
-------- ----------
(In Thousands)
Due after one year through five years .......... $ 10 $ 10
Due after five years through ten years ......... 1,429 1,435
Due after ten years ............................ 14,319 14,437
------- -------
$15,758 $15,882
======= =======
Sources of Funds
General. Deposits have traditionally been the primary source of funds for
use in lending and investment activities. In addition to deposits, funds are
derived from scheduled loan payments, investment maturities, loan prepayments,
retained earnings, income on earning assets and borrowings. While scheduled loan
payments and income on earning assets are relatively stable sources of funds,
deposit inflows and outflows can vary widely and are influenced by prevailing
interest rates, market conditions and levels of competition. Borrowings from the
Federal Home Loan Bank of New York may be used in the short-term to compensate
for reductions in deposits and to fund loan growth.
Deposits. Deposits are not actively solicited outside of the New York City
metropolitan area, and substantially all of our depositors are persons who work
or reside in Brooklyn, New York. We offer a selection of deposit instruments,
including passbook savings accounts, money market accounts, fixed-term
certificates of deposit, and individual retirement accounts. Deposit account
terms vary, with the principal differences being the minimum balance required,
the amount of time the funds must remain on deposit and the interest rate. We do
not pay broker fees for any deposits.
Interest rates paid, maturity terms, service fees and withdrawal penalties
are established on a periodic basis. Deposit rates and terms are based primarily
on current operating strategies and market rates, liquidity requirements, rates
paid by competitors and growth goals. Personalized customer service and
long-standing relationships with customers are relied upon to attract and retain
deposits.
54
The flow of deposits is influenced significantly by general economic
conditions, changes in money market and other prevailing interest rates and
competition. The variety of deposit accounts offered allows us to be competitive
in obtaining funds and responding to changes in consumer demand. In recent
years, we have become more susceptible to short-term fluctuations in deposit
flows as customers have become more interest rate conscious. Deposits are priced
to reflect our interest rate risk management and profitability objectives. Based
on experience, management believes that passbook accounts and money market
accounts are relatively stable sources of deposits. However, the ability to
attract and maintain certificates of deposit, and the rates paid on these
deposits, have been and will continue to be significantly affected by market
conditions. At March 31, 2002, $65.1 million, or 58.4% of our deposit accounts
were certificates of deposit, of which $46.4 million have maturities of one year
or less. A significant portion of the certificates of deposit consist of
accounts that were opened at the direction of the county or surrogate court for
the benefit of minors or others who are deemed to be incompetent to handle their
affairs. At March 31, 2002, $11.5 million of the certificates of deposit
consisted of such court-directed deposits. Court-directed deposits must remain
deposited at Atlantic Liberty Savings, F.A. until the intended beneficiary
attains his or her majority or is deemed competent to handle his or her own
affairs.
Deposit Accounts. The following table sets forth the dollar amount of
savings deposits in the various types of deposit programs we offered as of the
dates indicated.
At March 31,
--------------------------------------
2002 2001
----------------- ------------------
Amount Percent Amount Percent
-------- ------- -------- -------
(Dollars in Thousands)
Transactions and Savings Deposits:
Demand:
Non-interest-bearing ................ $ 2,428 2.2% $ 3,122 3.0%
Interest-bearing .................... 6,231 5.6 4,041 3.8
Regular Savings ....................... 19,889 17.9 19,139 18.0
Money Market Accounts ................. 17,390 15.9 14,965 14.1
-------- ----- -------- -----
Total Non-Certificates ................ $ 45,938 41.6% $ 41,267 38.9%
-------- ----- -------- -----
Certificates:
0.00 - 1.99% .......................... $ 13,964 12.5% $ -- --%
2.00 - 3.99% .......................... 24,890 22.3 1,022 1.0
4.00 - 5.99% .......................... 21,886 19.7 43,369 40.9
6.00 - 7.99% .......................... 4,276 3.9 20,430 19.2
8.00 - 9.99% .......................... 36 -- 35 --
-----
Total Certificates .................... 65,052 58.4 64,856 61.1
-------- ----- -------- -----
Total Deposits ..................... $110,990 100.0% $106,123 100.0%
======== ===== ======== =====
55
Time Deposit Maturity Schedule. The following table presents, by rate
category, the remaining period to maturity of time deposit accounts outstanding
as of March 31, 2002.
0.00 - 2.00% - 4.00% - 6.00% - 8.00% or Percent of
1.99% 3.99% 5.99% 7.99% greater Total Total
------- ------- ------- ------- ------- ------- ----------
(Dollars in Thousands)
Certificate accounts maturing in quarter ending:
June 30, 2002 ...................................... $ 8,772 $ 5,009 $ 5,792 $ 2,041 $ -- $21,614 33.2
September 30, 2002 ................................. 2,806 4,779 2,762 1,067 -- 11,414 17.6
December 31, 2002 .................................. 57 3,418 2,233 747 -- 6,455 9.9
March 31, 2003 ..................................... 2,301 2,910 1,637 110 -- 6,958 10.7
June 30, 2003 ...................................... 27 3,357 921 87 36 4,428 6.8
September 30, 2003 ................................. 1 2,011 830 3 -- 2,845 4.4
December 31, 2003 .................................. -- 12 682 97 -- 791 1.2
March 31, 2004 ..................................... -- 321 226 -- -- 547 0.8
June 30, 2004 ...................................... -- 132 467 -- -- 599 0.9
September 30, 2004 ................................. -- 203 828 -- -- 1,031 1.6
December 31, 2004 .................................. -- -- 510 -- -- 510 0.8
March 31, 2005 ..................................... -- 7 576 124 -- 707 1.1
Thereafter ......................................... -- 2,731 4,422 -- -- 7,153 11.0
------- ------- ------- ------- ------- ------- -----
Total .......................................... $13,964 $24,890 $21,886 $ 4,276 $ 36 $65,052 100.0
======= ======= ======= ======= ======= ======= =====
Percent of total ............................... 21.0% 38.0% 34.0% 7.0% --% 100.0%
======= ======= ======= ======= ======= =======
56
Deposit Activity. The following table sets forth the deposit activities
for the periods indicated.
Years Ended March 31,
------------------------------
2002 2001
--------- ---------
(Dollars in Thousands)
Opening balance ...................... $ 106,123 $ 101,301
Deposits ............................. 114,627 119,302
Withdrawals .......................... (113,516) (118,926)
Interest credited .................... 3,756 4,446
--------- ---------
Ending balance ....................... $ 110,990 $ 106,123
========= =========
Net increase ......................... $ 4,867 $ 4,822
========= =========
Percent increase ..................... 4.59% 4.76%
========= =========
Large Certificates. The following table indicates the amount of our
certificates of deposit by time remaining until maturity as of March 31, 2002.
Maturity
----------------------------------------------
3 Months Over 3 to 6 Over 6 to 12 Over 12
or Less Months Months Months Total
-------- ----------- ------------ ------- -------
(In Thousands)
Certificates of deposit less than $100,000 .... $12,052 $ 9,845 $10,953 $17,008 $49,858
Certificates of deposit of $100,000 or more ... 9,562 1,569 2,460 1,603 15,194
------- ------- ------- ------- -------
Total certificates of deposit ............. $21,614 $11,414 $13,413 $18,611 $65,052
======= ======= ======= ======= =======
Borrowings. We may obtain advances from the Federal Home Loan Bank of New
York upon the security of the common stock we own in the Federal Home Loan Bank
and our qualifying residential mortgage loans and mortgage-backed securities
provide certain standards related to creditworthiness are met. These advances
are made pursuant to several credit programs each of which has its own interest
rate and range of maturities. Federal Home Loan Bank advances are generally
available to meet seasonal and other withdrawals of deposit accounts and to
permit increased lending.
57
The following tables sets forth the maturity, interest rate and balances
of advances from the Federal Home Loan Bank of New York at March 31, 2002. There
were no borrowings outstanding at, or during the year ended March 31, 2001. The
average balance of our Federal Home Loan Bank advances during the year ended
March 31, 2002 was $1.2 million.
Maturity Interest Rate Amount
-------- ------------- ------
August 30, 2002 3.61% $ 400,000
September 30, 2003 4.15 400,000
August 30, 2004 4.63 600,000
August 30, 2005 4.94 300,000
August 30, 2006 5.16 300,000
----------
$2,000,000
==========
Weighted average rate .................. 4.46%
Properties
The following table provides certain information with respect to our
offices as of March 31, 2002:
Net Book Value of
Location Leased or Owned Year Acquired Real Property
-------- --------------- ------------- -------------
Main Office Owned 1983 $734,543
186 Montague Street
Brooklyn, NY 11201
Branch Office Owned 1978 $486,937
1402 Avenue J
Brooklyn, NY 11230
The net book value of our premises, land and equipment was approximately
$1.4 million at March 31, 2002.
Service Corporation Subsidiary
We do not have any subsidiary corporations. However, OTS regulations
permit federal savings associations to invest in the capital stock, obligations
or other specified types of securities of subsidiaries (referred to as "service
corporations") and to make loans to such subsidiaries and joint ventures in
which such subsidiaries are participants in an aggregate amount not exceeding 2%
of the association's assets, plus an additional 1% of assets if the amount over
2% is used for specified community or inner-city development purposes. In
addition, federal regulations permit associations to make specified types of
loans to such subsidiaries (other than special purpose finance subsidiaries) in
which the association owns more than 10% of the stock, in an aggregate amount
not exceeding 50% of the association's regulatory capital if the association's
regulatory capital is in compliance with applicable regulations.
58
Legal Proceedings
We are not involved in any pending legal proceedings as a defendant other
than routine legal proceedings occurring in the ordinary course of business. At
March 31, 2002, we were not involved in any legal proceedings, the outcome of
which would be material to our financial condition or results of operations.
Personnel
As of March 31, 2002, we had 20 full-time employees and seven part-time
employees. Our employees are not represented by any collective bargaining group.
Management believes that we have good relations with our employees.
FEDERAL AND STATE TAXATION
Federal Taxation
General. Atlantic Liberty Financial Corp. and Atlantic Liberty Savings,
F.A. will be subject to federal income taxation in the same general manner as
other corporations, with some exceptions discussed below. Atlantic Liberty
Savings, F.A.'s tax returns have not been audited during the past five years.
The following discussion of federal taxation is intended only to summarize
certain pertinent federal income tax matters and is not a comprehensive
description of the tax rules applicable to Atlantic Liberty Financial Corp. or
Atlantic Liberty Savings, F.A.
Method of Accounting. For Federal income tax purposes, Atlantic Liberty
Savings, F.A. currently reports its income and expenses on the accrual method of
accounting and uses a tax year ending December 31 for filing its Federal income
tax returns.
Bad Debt Reserves. Prior to the Small Business Protection Act of 1996 (the
"1996 Act"), Atlantic Liberty Savings, F.A. was permitted to establish a reserve
for bad debts and to make annual additions to the reserve. These additions
could, within specified formula limits, be deducted in arriving at our taxable
income. Atlantic Liberty Savings, F.A. was required to use the specific charge
off method in computing its bad debt deduction beginning with its 1996 federal
tax return. Savings institutions were required to recapture any excess reserves
over those established as of December 31, 1987 (base year reserve). Atlantic
Liberty Savings, F.A. had no reserves subject to recapture.
As more fully discussed below, Atlantic Liberty Savings, F.A. files a New
York State franchise tax return. New York State and New York City enacted
legislation in 1996, which among other things, decoupled the Federal tax laws
regarding thrift bad debt deductions and permits the continued use of the bad
debt provisions that applied under federal law prior to the enactment of the
1996 Act. Provided Atlantic Liberty Savings, F.A. continues to satisfy certain
definitional tests and other conditions, for New York State and New York City
income tax purposes, it is permitted to continue to use a reserve method for bad
debt deductions. The deductible annual addition to such reserves may be computed
using a specific formula based on an institution's loss history (the "experience
method") or a statutory percentage equal to 32% of its New York State and New
York City taxable income (the "percentage method") before bad debt deduction.
59
Taxable Distributions and Recapture. Prior to the 1996 Act, bad debt
reserves created prior to January 1, 1988 were subject to recapture into taxable
income should Atlantic Liberty Savings, F.A. fail to meet certain thrift asset
and definitional tests. Federal legislation has eliminated these thrift related
recapture rules.
At March 31, 2002, our total federal pre-1988 base year reserve was
approximately $1.3 million. However, under current law, pre-1988 base year
reserves remain subject to recapture should Atlantic Liberty Savings, F.A. make
certain non-dividend distributions, repurchase of any of its stock, pay
dividends in excess of tax earnings and profits, or cease to maintain a bank
charter.
Alternative Minimum Tax. The Internal Revenue Code of 1986, as amended
(the "Code") imposes an alternative minimum tax ("AMT") at a rate of 20% on a
base of regular taxable income plus certain tax preferences ("alternative
minimum taxable income" or "AMTI"). The AMT is payable to the extent such AMTI
is in excess of an exemption amount and the AMT exceeds the regular income tax.
Net operating losses can offset no more than 90% of AMTI. Certain payments of
alternative minimum tax may be used as credits against regular tax liabilities
in future years. Atlantic Liberty Savings, F.A. has not been subject to the
alternative minimum tax and has no such amounts available as credits for
carryover.
Net Operating Loss Carryovers. A financial institution may carry back net
operating losses to the preceding two taxable years and forward to the
succeeding 20 taxable years. At March 31, 2002, Atlantic Liberty Savings, F.A.
had no net operating loss carryforwards for federal income tax purposes.
Corporate Dividends-Received Deduction. Atlantic Liberty Financial Corp.
may exclude from its income 100% of dividends received from Atlantic Liberty
Savings, F.A. as a member of the same affiliated group of corporations. The
corporate dividends-received deduction is 80% in the case of dividends received
from corporations with which a corporate recipient does not file a consolidated
return, and corporations which own less than 20% of the stock of a corporation
distributing a dividend may deduct only 70% of dividends received or accrued on
their behalf.
State Taxation
New York State Taxation. Atlantic Liberty Financial Corp. and Atlantic
Liberty Savings, F.A. will report income on a consolidated calendar year basis
to New York State. New York State franchise tax on corporations is imposed in an
amount equal to the greater of (a) 8.0% (for 2002) and 7.5% (for 2003 and
forward) of "entire net income" allocable to New York State, (b) 3% of
"alternative entire net income" allocable to New York State, (c) 0.01 % of the
average value of assets allocable to New York State, or (d) nominal minimum tax.
Entire net income is based on Federal taxable income, subject to certain
modifications. Alternative entire net income is equal to entire net income
without certain modifications.
SUPERVISION AND REGULATION
General
Atlantic Liberty Savings, F.A. is examined and supervised by the Office of
Thrift Supervision and the Federal Deposit Insurance Corporation. This
regulation and supervision
60
establishes a comprehensive framework of activities in which an institution may
engage and is intended primarily for the protection of the Federal Deposit
Insurance Corporation's deposit insurance funds and depositors. Under this
system of federal regulation, financial institutions are periodically examined
to ensure that they satisfy applicable standards with respect to their capital
adequacy, assets, management, earnings, liquidity and sensitivity to market
interest rates. Following completion of its examination, the federal agency
critiques the institution's operations and assigns its rating (known as an
institution's CAMELS rating). Under federal law, an institution may not disclose
its CAMELS rating to the public. Atlantic Liberty Savings, F.A. also is a member
of and owns stock in the Federal Home Loan Bank of New York, which is one of the
twelve regional banks in the Federal Home Loan Bank System. Atlantic Liberty
Savings, F.A. also is regulated to a lesser extent by the Board of Governors of
the Federal Reserve System, governing reserves to be maintained against deposits
and other matters. The Office of Thrift Supervision examines Atlantic Liberty
Savings, F.A. and prepares reports for the consideration of its board of
directors on any operating deficiencies. Atlantic Liberty Savings, F.A.'s
relationship with its depositors and borrowers also is regulated to a great
extent by both federal and state laws, especially in matters concerning the
ownership of deposit accounts and the form and content of Atlantic Liberty
Savings, F.A.'s mortgage documents.
Any change in these laws or regulations, whether by the Federal Deposit
Insurance Corporation, Office of Thrift Supervision or Congress, could have a
material adverse impact on Atlantic Liberty Financial Corp. and Atlantic Liberty
Savings, F.A. and their operations.
Federal Banking Regulation
Business Activities. A federal savings association derives its lending and
investment powers from the Home Owners' Loan Act, as amended, and the
regulations of the Office of Thrift Supervision. Under these laws and
regulations, Atlantic Liberty Savings, F.A. may invest in mortgage loans secured
by residential and commercial real estate, commercial business and consumer
loans, certain types of debt securities and certain other assets. Atlantic
Liberty Savings, F.A. also may establish subsidiaries that may engage in
activities not otherwise permissible for Atlantic Liberty Savings, F.A.,
including real estate investment and securities and insurance brokerage.
Capital Requirements. Office of Thrift Supervision regulations require
savings associations to meet three minimum capital standards: a 1.5% tangible
capital ratio, a 4% leverage ratio (3% for associations receiving the highest
rating on the CAMELS rating system) and an 8% risk-based capital ratio. The
prompt corrective action standards discussed below, in effect, establish a
minimum 2% tangible capital standard.
61
The risk-based capital standard for savings associations requires the
maintenance of Tier 1 (core) and total capital (which is defined as core capital
and supplementary capital) to risk-weighted assets of at least 4% and 8%,
respectively. In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet assets, are multiplied by a risk-weight
factor of 0% to 100%, assigned by the Office of Thrift Supervision based on the
risks believed inherent in the type of asset. Core capital is defined as common
stockholders' equity (including retained earnings), certain noncumulative
perpetual preferred stock and related surplus and minority interests in equity
accounts of consolidated subsidiaries, less intangibles other than certain
mortgage servicing rights and credit card relationships. The components of
supplementary capital currently include cumulative preferred stock, long-term
perpetual preferred stock, mandatory convertible securities, subordinated debt
and intermediate preferred stock, the allowance for loan and lease losses
limited to a maximum of 1.25% of risk-weighted assets and up to 45% of net
unrealized gains on available-for-sale equity securities with readily
determinable fair market values. Overall, the amount of supplementary capital
included as part of total capital cannot exceed 100% of core capital.
At March 31, 2002, Atlantic Liberty Savings, F.A.'s capital exceeded all
applicable requirements.
Loans-to-One Borrower. A federal savings association generally may not
make a loan or extend credit to a single or related group of borrowers in excess
of 15% of unimpaired capital and surplus. An additional amount may be loaned,
equal to 10% of unimpaired capital and surplus, if the loan is secured by
readily marketable collateral, which generally does not include real estate. As
of March 31, 2002, Atlantic Liberty Savings, F.A. was in compliance with the
loans-to-one borrower limitations.
Qualified Thrift Lender Test. As a federal savings association, Atlantic
Liberty Savings, F.A. is subject to a qualified thrift lender, or "QTL," test.
Under the QTL test, Atlantic Liberty Savings, F.A. must maintain at least 65% of
its "portfolio assets" in "qualified thrift investments" in at least nine of the
most recent 12 month period. "Portfolio assets" generally means total assets of
a savings institution, less the sum of specified liquid assets up to 20% of
total assets, goodwill and other intangible assets, and the value of property
used in the conduct of the savings association's business.
"Qualified thrift investments" includes various types of loans made for
residential and housing purposes, investments related to such purposes,
including certain mortgage-backed and related securities, and loans for
personal, family, household and certain other purposes up to a limit of 20% of
portfolio assets. "Qualified thrift investments" also include 100% of an
institution's credit card loans, education loans and small business loans.
Atlantic Liberty Savings, F.A. also may satisfy the QTL test by qualifying as a
"domestic building and loan association" as defined in the Internal Revenue
Code.
A savings association that fails the qualified thrift lender test must
either convert to a bank charter or operate under specified restrictions. At
March 31, 2002, Atlantic Liberty Savings, F.A. maintained approximately 97% of
its portfolio assets in qualified thrift investments.
Capital Distributions. Office of Thrift Supervision regulations govern
capital distributions by a federal savings association, which include cash
dividends, stock repurchases
62
and other transactions charged to the capital account. A savings association
must file an application for approval of a capital distribution if:
o the total capital distributions for the applicable calendar
year exceed the sum of the association's net income for that
year to date plus the association's retained net income for
the preceding two years;
o the association would not be at least adequately capitalized
following the distribution;
o the distribution would violate any applicable statute,
regulation, agreement or Office of Thrift Supervision-imposed
condition; or
o the association is not eligible for expedited treatment of its
filings.
Even if an application is not otherwise required, every savings
association that is a subsidiary of a holding company must still file a notice
with the Office of Thrift Supervision at least 30 days before the board of
directors declares a dividend or approves a capital distribution.
The Office of Thrift Supervision may disapprove a notice or application
if:
o the association would be undercapitalized following the
distribution;
o the proposed capital distribution raises safety and soundness
concerns; or
o the capital distribution would violate a prohibition contained
in any statute, regulation or agreement.
In addition, the Federal Deposit Insurance Act provides that an insured
depository institution shall not make any capital distribution, if after making
such distribution the institution would be undercapitalized.
Liquidity. A federal savings association is required to maintain a
sufficient amount of liquid assets to ensure its safe and sound operation.
Community Reinvestment Act and Fair Lending Laws. All savings associations
have a responsibility under the Community Reinvestment Act and related
regulations of the Office of Thrift Supervision to help meet the credit needs of
their communities, including low- and moderate-income neighborhoods. In
connection with its examination of a federal savings association, the Office of
Thrift Supervision is required to assess the association's record of compliance
with the Community Reinvestment Act. In addition, the Equal Credit Opportunity
Act and the Fair Housing Act prohibit lenders from discriminating in their
lending practices on the basis of characteristics specified in those statutes.
An association's failure to comply with the provisions of the Community
Reinvestment Act could, at a minimum, result in regulatory restrictions on its
activities. The failure to comply with the Equal Credit Opportunity Act and the
Fair Housing Act could result in enforcement actions by the Office of Thrift
Supervision, as well as other federal regulatory agencies and the Department of
Justice. Atlantic Liberty Savings, F.A. received a satisfactory Community
Reinvestment Act rating in its most recent federal examination.
Transactions with Related Parties. A federal savings association's
authority to engage in transactions with its "affiliates" is limited by Office
of Thrift Supervision regulations and by
63
Sections 23A and 23B of the Federal Reserve Act (the "FRA"). The term
"affiliates" for these purposes generally means any company that controls or is
under common control with an institution. Atlantic Liberty Financial Corp. is an
affiliate of Atlantic Liberty Savings, F.A. In general, transactions with
affiliates must be on terms that are as favorable to the association as
comparable transactions with non-affiliates. In addition, certain types of these
transactions are restricted to an aggregate percentage of the association's
capital. Collateral in specified amounts must usually be provided by affiliates
in order to receive loans from the association. In addition, Office of Thrift
Supervision regulations prohibit a savings association from lending to any of
its affiliates that are engaged in activities that are not permissible for bank
holding companies and from purchasing the securities of any affiliate, other
than a subsidiary.
Atlantic Liberty Savings, F.A.'s authority to extend credit to its
directors, executive officers and 10% shareholders, as well as to entities
controlled by such persons, is currently governed by the requirements of
Sections 22(g) and 22(h) of the FRA and Regulation O of the Federal Reserve
Board. Among other things, these provisions require that extensions of credit to
insiders (i) be made on terms that are substantially the same as, and follow
credit underwriting procedures that are not less stringent than, those
prevailing for comparable transactions with unaffiliated persons and that do not
involve more than the normal risk of repayment or present other unfavorable
features, and (ii) not exceed certain limitations on the amount of credit
extended to such persons, individually and in the aggregate, which limits are
based, in part, on the amount of Atlantic Liberty Savings, F.A.'s capital. In
addition, extensions of credit in excess of certain limits must be approved by
Atlantic Liberty Savings, F.A.'s board of directors.
Enforcement. The Office of Thrift Supervision has primary enforcement
responsibility over federal savings institutions and has the authority to bring
enforcement action against all "institution-affiliated parties," including
stockholders, and attorneys, appraisers and accountants who knowingly or
recklessly participate in wrongful action likely to have an adverse effect on an
insured institution. Formal enforcement action may range from the issuance of a
capital directive or cease and desist order to removal of officers and/or
directors of the institution, receivership, conservatorship or the termination
of deposit insurance. Civil penalties cover a wide range of violations and
actions, and range up to $25,000 per day, unless a finding of reckless disregard
is made, in which case penalties may be as high as $1 million per day. The
Federal Deposit Insurance Corporation also has the authority to recommend to the
Director of the Office of Thrift Supervision that enforcement action be taken
with respect to a particular savings institution. If action is not taken by the
Director, the Federal Deposit Insurance Corporation has authority to take action
under specified circumstances.
64
Standards for Safety and Soundness. Federal law requires each federal
banking agency to prescribe certain standards for all insured depository
institutions. These standards relate to, among other things, internal controls,
information systems and audit systems, loan documentation, credit underwriting,
interest rate risk exposure, asset growth, compensation, and other operational
and managerial standards as the agency deems appropriate. The federal banking
agencies adopted Interagency Guidelines Prescribing Standards for Safety and
Soundness to implement the safety and soundness standards required under federal
law. The guidelines set forth the safety and soundness standards that the
federal banking agencies use to identify and address problems at insured
depository institutions before capital becomes impaired. The guidelines address
internal controls and information systems, internal audit systems, credit
underwriting, loan documentation, interest rate risk exposure, asset growth,
compensation, fees and benefits. If the appropriate federal banking agency
determines that an institution fails to meet any standard prescribed by the
guidelines, the agency may require the institution to submit to the agency an
acceptable plan to achieve compliance with the standard. If an institution fails
to meet these standards, the appropriate federal banking agency may require the
institution to submit a compliance plan.
Prompt Corrective Action Regulations. Under the prompt corrective action
regulations, the Office of Thrift Supervision is required and authorized to take
supervisory actions against undercapitalized savings associations. For this
purpose, a savings association is placed in one of the following five categories
based on the association's capital:
o well-capitalized (at least 5% leverage capital, 6% Tier 1
risk-based capital and 10% total risk-based capital);
o adequately capitalized (at least 4% leverage capital, 4% Tier
1 risk-based capital and 8% total risk-based capital);
o undercapitalized (less than 8% total risk-based capital, 4%
Tier 1 risk-based capital or 3% leverage capital);
o significantly undercapitalized (less than 6% total risk-based
capital, 3% Tier 1 risk-based capital or 3% leverage capital);
and
o critically undercapitalized (less than 2% tangible capital).
Generally, the banking regulator is required to appoint a receiver or
conservator for an association that is "critically undercapitalized." The
regulation also provides that a capital restoration plan must be filed with the
Office of Thrift Supervision within 45 days of the date an association receives
notice that it is "undercapitalized," "significantly undercapitalized" or
"critically undercapitalized." In addition, numerous mandatory supervisory
actions become immediately applicable to the association, including, but not
limited to, restrictions on growth, investment activities, capital distributions
and affiliate transactions. The Office of Thrift Supervision may also take any
one of a number of discretionary supervisory actions against undercapitalized
associations, including the issuance of a capital directive and the replacement
of senior executive officers and directors.
In 1998, as a result of losses incurred in connection with a customer
fraud and employee defalcation we became an undercapitalized institution under
the prompt corrective action regulations. Consequently, in August 1998, the
Office of Thrift Supervision issued a Prompt Corrective Action Directive
directing us to comply with the provisions of a capital plan which was
previously submitted to, and conditionally approved by, the Office of Thrift
Supervision.
65
The capital plan set forth detailed steps for us to follow to achieve capital
compliance. The Prompt Corrective Action Directive also contained restrictions
on our operations and required improvements in our internal controls with
respect to extensions of credit, among other things. We achieved capital
compliance in September 1998 and the Prompt Corrective Action Directive was
terminated by the Office of Thrift Supervision in November 2000.
At March 31, 2002, Atlantic Liberty Savings, F.A. met the criteria for
being considered "well-capitalized."
Insurance of Deposit Accounts. Deposit accounts in Atlantic Liberty
Savings, F.A. are insured by the Federal Deposit Insurance Corporation,
generally up to a maximum of $100,000 per separately insured depositor. Atlantic
Liberty Savings, F.A.'s deposits therefore are subject to Federal Deposit
Insurance Corporation deposit insurance assessments. The Federal Deposit
Insurance Corporation has adopted a risk-based system for determining deposit
insurance assessments. The Federal Deposit Insurance Corporation is authorized
to raise the assessment rates as necessary to maintain the required ratio of
reserves to insured deposits of 1.25%. In addition, all Federal Deposit
Insurance Corporation-insured institutions must pay assessments to the Federal
Deposit Insurance Corporation at an annual rate of approximately .02% of insured
deposits to fund interest payments on bonds maturing in 2017 issued by a federal
agency to recapitalize the predecessor to the Savings Association Insurance
Fund.
Prohibitions Against Tying Arrangements. Federal savings associations are
prohibited, subject to some exceptions, from extending credit to or offering any
other service, or fixing or varying the consideration for such extension of
credit or service, on the condition that the customer obtain some additional
service from the institution or its affiliates or not obtain services of a
competitor of the institution.
Federal Home Loan Bank System. Atlantic Liberty Savings, F.A. is a member
of the Federal Home Loan Bank System, which consists of 12 regional Federal Home
Loan Banks. The Federal Home Loan Bank System provides a central credit facility
primarily for member institutions. As a member of the Federal Home Loan Bank of
New York, Atlantic Liberty Savings, F.A. is required to acquire and hold shares
of capital stock in the Federal Home Loan Bank in an amount at least equal to 1%
of the aggregate principal amount of its unpaid residential mortgage loans and
similar obligations at the beginning of each year, or 1/20 of its borrowings
from the Federal Home Loan Bank, whichever is greater. As of March 31, 2002,
Atlantic Liberty Savings, F.A. was in compliance with this requirement.
Federal Reserve System
The Federal Reserve Board regulations require savings associations to
maintain non-interest-earning reserves against their transaction accounts, such
as negotiable order of withdrawal and regular checking accounts. At March 31,
2002, Atlantic Liberty Savings, F.A. 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
imposed by the Office of Thrift Supervision.
Holding Company Regulation
Upon completion of the conversion, Atlantic Liberty Financial Corp. will
be a unitary savings and loan holding company, subject to regulation and
supervision by the Office of Thrift
66
Supervision. The Office of Thrift Supervision has enforcement authority over
Atlantic Liberty Financial Corp. and its non-savings institution subsidiaries.
Among other things, this authority permits the Office of Thrift Supervision to
restrict or prohibit activities that are determined to be a risk to Atlantic
Liberty Savings, F.A.
Under prior law, a unitary savings and loan holding company generally had
no regulatory restrictions on the types of business activities in which it may
engage, provided that its subsidiary savings bank was a qualified thrift lender.
The Gramm-Leach-Bliley Act of 1999, however, restricts unitary savings and loan
holding companies not existing or applied for before May 4, 1999 to those
activities permissible for financial holding companies or for multiple savings
and loan holding companies. Atlantic Liberty Financial Corp. will not be a
grandfathered unitary savings and loan holding company and, therefore, will be
limited to the activities permissible for financial holding companies or for
multiple savings and loan holding companies. A financial holding company may
engage in activities that are financial in nature, including underwriting equity
securities and insurance, incidental to financial activities or complementary to
a financial activity. A multiple savings and loan holding company is generally
limited to activities permissible for bank holding companies under Section
4(c)(8) of the Bank Holding Company Act, subject to the prior approval of the
Office of Thrift Supervision, and certain additional activities authorized by
Office of Thrift Supervision regulations.
Federal law prohibits a savings and loan holding company, directly or
indirectly, or through one or more subsidiaries, from acquiring control of
another savings institution or holding company thereof, without prior written
approval of the Office of Thrift Supervision. It also prohibits the acquisition
or retention of, with specified exceptions, more than 5% of the equity
securities of a company engaged in activities that are not closely related to
banking or financial in nature or acquiring or retaining control of an
institution that is not federally insured. In evaluating applications by holding
companies to acquire savings institutions, the Office of Thrift Supervision must
consider the financial and managerial resources, future prospects of the savings
institution involved, the effect of the acquisition on the risk to the insurance
fund, the convenience and needs of the community and competitive factors.
Federal Securities Laws
Atlantic Liberty Financial Corp. has filed with the Securities and
Exchange Commission a registration statement under the Securities Act of 1933
for the registration of the common stock to be issued pursuant to the
conversion. Upon completion of the conversion, Atlantic Liberty Financial Corp.
common stock will be registered with the Securities and Exchange Commission
under the Securities Exchange Act of 1934. Atlantic Liberty Financial Corp. will
continue to be subject to the information, proxy solicitation, insider trading
restrictions and other requirements under the Securities Exchange Act of 1934.
The registration under the Securities Act of 1933 of shares of common
stock to be issued in the conversion does not cover the resale of those shares.
Shares of common stock purchased by persons who are not affiliates of Atlantic
Liberty Financial Corp. may be resold without registration. Shares purchased by
an affiliate of Atlantic Liberty Financial Corp. will be subject to the resale
restrictions of Rule 144 under the Securities Act of 1933. If Atlantic Liberty
Financial Corp. meets the current public information requirements of Rule 144
under the Securities Act of 1933, each affiliate of Atlantic Liberty Financial
Corp. that complies with the other conditions of Rule 144, including those that
require the affiliate's sale to be aggregated
67
with those of other persons, would be able to sell in the public market, without
registration, a number of shares not to exceed, in any three-month period, the
greater of 1% of the outstanding shares of Atlantic Liberty Financial Corp., or
the average weekly volume of trading in the shares during the preceding four
calendar weeks. In the future, Atlantic Liberty Financial Corp. may permit
affiliates to have their shares registered for sale under the Securities Act of
1933.
MANAGEMENT
Shared Management Structure
The directors of Atlantic Liberty Financial Corp. will be those same
persons who are the directors of Atlantic Liberty Savings, F.A. In addition,
both of the executive officers of Atlantic Liberty Financial Corp. will also be
an executive officer of Atlantic Liberty Savings, F.A. Although there are no
present plans to do so, both Atlantic Liberty Financial Corp. and Atlantic
Liberty Savings, F.A. may choose to appoint additional or different persons as
directors in the future. We expect that Atlantic Liberty Financial Corp. and
Atlantic Liberty Savings, F.A. will continue to have common executive officers
until there is a business reason to establish separate management structures. To
date, directors and executive officers have been compensated for their services
to Atlantic Liberty Savings, F.A. These individuals may receive additional
compensation for their services to Atlantic Liberty Financial Corp.
Directors of Atlantic Liberty Financial Corp.
The board of directors of Atlantic Liberty Financial Corp. will initially
consist of five members. Directors will serve three-year staggered terms so that
approximately one-third of the directors will be elected at each annual meeting
of stockholders. The class of directors whose term of office expires at the
first annual meeting of stockholders following completion of the conversion will
consist of Director De Martino. The class of directors whose term expires at the
second annual meeting of stockholders following completion of the conversion
will consist of Directors Mangano and Spanakos. The class of directors whose
term of office expires at the third annual meeting of stockholders following the
completion of the conversion will consist of Directors Arkwright and Donohue.
Executive Officers of Atlantic Liberty Financial Corp.
The following individuals will be the executive officers of Atlantic
Liberty Financial Corp. and will hold the offices set forth below opposite their
names.
Name Age(1) Position
- ---------------------- ------ -----------------------------------------------
Barry M. Donohue 61 President and Chief Executive Officer
William M. Gilfillan 57 Executive Vice President, Chief Financial
Officer and Corporate Secretary
- ----------
(1) As of March 31, 2002.
The executive officers of Atlantic Liberty Financial Corp. will be elected
annually and will hold office until their respective successors have been
elected or until death, resignation, retirement or removal by the board of
directors.
68
Directors of Atlantic Liberty Savings, F.A.
Composition of our Board. We have five directors. Directors of Atlantic
Liberty Savings, F.A. will be elected annually by Atlantic Liberty Financial
Corp. as its sole stockholder.
The following table states our directors' names, their ages as of March
31, 2002, and the calendar years when they began serving as directors:
Directors Age Position Director Since
- ---------------------- --- ----------------------- --------------
Richard T. Arkwright 68 Chairman of the Board 1999
Barry M. Donohue 61 President and Chief
Executive Officer 2001
Hon. Guy J. Mangano 72 Director 2001
Thomas M. De Martino 64 Director 2002
George M. Spanakos 65 Director 2001
The Business Background of Our Directors and Executive Officers. The
business experience for the past five years of each of our directors and
executive officers is set forth below. Unless otherwise indicated, directors and
executive officers have held their positions for the past five years.
Richard T. Arkwright is the Chairman of the Board of Atlantic Liberty
Savings, F.A., and has held this position since 2001. In 2002 Mr. Arkwright
became the Chairman and Chief Investment Officer of Analytic Asset Management,
an investment advisory firm located in New York City. From 1983 until joining
Analytic Asset Management in 2002, Mr. Arkwright was the Executive Vice
President of Gray Seifert & Co., an investment advisory firm.
Barry M. Donohue is the President and Chief Executive Officer of Atlantic
Liberty Savings, F.A. Until his appointment in 1999, Mr. Donohue was Vice
President of Mortgage Lending at Atlantic Liberty Savings, F.A. Mr. Donohue
previously was Senior Vice President of Crossland Savings Bank until 1992 when
he joined Atlantic Liberty Savings, F.A.
Hon. Guy J. Mangano is retired. Prior to his retirement in 2000, Mr.
Mangano was the Presiding Justice of the Appellate Division, Second Department
of the New York State Appellate Court.
Thomas M. De Martino is the owner of T.M. De Martino Consulting Services,
a business and government services consultant. Prior to founding T.M. De Martino
Consulting Services in 1998, Mr. De Martino was Vice President of External
Affairs with Brooklyn Union Gas.
George M. Spanakos is a self employed attorney. Mr. Spanakos is also an
owner of St. Georges Realty, a real estate management company located in
Brooklyn, New York.
William M. Gilfillan is the Executive Vice President and Chief Financial
Officer of Atlantic Liberty Savings, F.A. since September 2000. From 1979 until
January 2000, Mr. Gilfillan served as a Vice President with J.P. Morgan, a
financial services and investment banking company.
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Meetings of the Board of Directors and Committees
Our Board of Directors meets on a monthly basis and may hold additional
special meetings. During the year ended March 31, 2002, the Board of Directors
of Atlantic Liberty Savings, F.A. held 12 regular meetings and two special
meetings.
Committees of Atlantic Liberty Financial Corp.
Atlantic Liberty Financial Corp. will have standing Audit, Nominating and
Compensation Committees. Atlantic Liberty Financial Corp. was not incorporated
in fiscal 2002 and therefore no board or committee meetings were held during
2002.
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 Atlantic Liberty Financial Corp.'s annual audit,
and will act as a liaison between the auditors and the Board. The Audit
Committee is comprised of directors Arkwright, Mangano, De Martino and Spanakos.
The Nominating Committee will meet annually in order to nominate
candidates for membership on the Board of Directors. This committee is expected
to be comprised of the Board members who are not standing for election.
The Compensation Committee will establish Atlantic Liberty Financial
Corp.'s compensation policies and will review compensation matters. It is
expected that the Compensation Committee will consist of Atlantic Liberty
Financial Corp.'s non-employee directors.
Director Compensation
Director Fees. Atlantic Liberty Savings, F.A. pays each non-employee
director an annual retainer of $12,000, except for the Chairman of the Board who
receives a retainer of $16,000. In addition, directors receive $600 for
attendance at each regular meeting of the Board of Directors and $300 for each
committee meeting of the Board of Directors. An additional $100 per meeting is
paid to committee chairmen.
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Executive Officer Compensation
Summary Compensation Table. The following table sets forth for the year
ended March 31, 2002, certain information as to the total remuneration paid by
Atlantic Liberty Savings, F.A. to its Chief Executive Officer, as well as to the
other executive officer of Atlantic Liberty Savings, F.A., who received total
annual compensation in excess of $100,000.
Annual Compensation(1)
------------------------------------------------------
Other Annual All Other
Compensation Compensation
Name and Principal Position Year Salary($) Bonus($) ($)(2) LTIP Payouts (3)
- ------------------------------- ---- --------- -------- ------------ ------------ ------------
Barry M. Donohue, ............. 2002 $136,923 $77,000 -- -- $ 14,000
President and Chief Executive
Officer
William M. Gilfillan, ......... 2002 114,615 71,000 -- -- 20,000
Executive Vice President and
Chief Financial Officer
- ----------
(1) Summary compensation information is excluded for the fiscal years ended
March 31, 2001 and 2000, as Atlantic Liberty Savings, F.A. was not a
public company during those periods.
(2) Atlantic Liberty Savings, F.A. provides certain of its executive officers
with non-cash benefits and perquisites, such as the use of employer-owned
or leased automobiles. Management believes that the aggregate value of
these benefits for fiscal 2002 did not, in the case of any executive
officer, exceed $50,000 or 10% of the aggregate salary and annual bonus
reported for him in the Summary Compensation Table.
(3) Represents employer contributions under the 401(k) plan.
Benefit Plans
Employment Agreements. Atlantic Liberty Financial Corp. and Atlantic
Liberty Savings, F.A. plan to enter into substantially similar employment
agreements with Messrs. Donohue and Gilfillan. Each of these agreements will
have a term of three years. Commencing on January 31, 2004 and continuing on
January 31 of each year thereafter, the agreements will be renewed for an
additional year so that the remaining term will be three years, subject to
termination on notice as provided in the agreements. Under the agreements, the
initial base salaries for Messrs. Donohue and Gilfillan will be $160,000 and
$130,000, respectively. In addition to the base salary, each agreement provides
for, among other things, participation in bonus programs and other employee
pension benefit and fringe benefit plans applicable to executive employees. Mr.
Donohue's agreements provide that he will be entitled to the use of an
automobile and the payment of reasonable expenses associated with such use. The
executive's employment may be terminated for cause at any time, in which event
the executive would have no right to receive compensation or other benefits for
any period after termination.
Certain events resulting in the executive's termination or resignation
entitle the executive to payments of severance benefits following termination of
employment. In the event the executive's employment is terminated for reasons
other than for cause, disability or retirement, or in the event the executive
resigns during the term of the agreement following (i) failure to elect or
reelect or to appoint or reappoint the executive to his executive position, (ii)
a significant change in the nature or scope of the executive's authority, (iii)
the liquidation or dissolution of Atlantic Liberty Savings, F.A. or Atlantic
Liberty Financial Corp. that would affect the status of the executive, or (iv) a
breach of the employment agreement by the applicable corporation, then the
executive would be entitled to payment of an amount equal to three times the sum
of (i) the average annual rate of base salary paid to him in the last three
years ending in the year of termination and (ii) the average rate of bonus
awarded to him during the prior three years, payable, at the executive's
election, either in a lump sum or in bi-weekly installments during the remaining
term of the agreement. In the event of the executive's involuntary termination
by
71
Atlantic Liberty Savings, F.A. or voluntary resignation from Atlantic Liberty
Savings' employment upon a change in control or at any time following a change
in control, the executive would be entitled to the payment of a sum equal to
three times the sum of his base salary and the highest rate of bonus awarded to
him during the prior three years, payable, at his election, in a lump sum or
bi-weekly during the remaining term of the agreement. Also, the executive would
be entitled to a cash payment equal to the difference, if any, between (i) the
present value of benefits to which he would be entitled under Atlantic Liberty
Savings' pension plan if he continued working for Atlantic Liberty Savings, F.A.
for an additional 36 months, over (ii) the present value of the benefits to
which he is actually entitled under Atlantic Liberty Savings' pension plan due
to his termination. The executive also would be entitled to a cash payment equal
to the present value of Atlantic Liberty Savings' contributions that would have
been made on his behalf under Atlantic Liberty Savings 401(k) plan and employee
stock ownership plan and any other defined contribution plan maintained by
Atlantic Liberty Savings, F.A. if he had continued working for Atlantic Liberty
Savings, F.A. for 36 months following his termination. In addition, the
executive would be entitled to continuation of life, medical, dental and
disability benefits for a period of 36 months after termination. He also would
become vested in any outstanding unvested stock options or shares of restricted
stock Atlantic Liberty Financial Corp. that have been awarded to him. In the
event payments to the executive include an "excess parachute payment" as defined
in the Code, payments under the employment agreements with Atlantic Liberty
Savings, F.A. would be reduced in order to avoid this result. If Atlantic
Liberty Savings, F.A. or Atlantic Liberty Financial Corp. does not renew the
agreement prior to the agreement's anniversary date, the executive may resign
and will be entitled to three times his annual rate of base salary.
Upon termination of the executive's employment other than in connection
with a change in control, the executive agrees not to compete with Atlantic
Liberty Savings, F.A. within a 25-mile radius for a period of one year following
termination. Should the executive become disabled, he would be entitled to the
payment of his base salary for the remaining term of his employment agreement or
one year, whichever is longer, provided that any amount paid the executive
pursuant to any disability insurance would reduce the compensation he would
receive. In the event the executive dies while employed by Atlantic Liberty
Savings, F.A., the executive's estate will be paid the executive's base salary
for one year and the executive's family will be entitled to continuation of
health benefit coverage for one year. Any payment to the executive under the
agreements with Atlantic Liberty Savings, F.A. will reduce proportionately the
amounts due the executive under the agreements with Atlantic Liberty Financial
Corp.
Change in Control Agreements. Atlantic Liberty Savings, F.A. intends to
enter into severance agreements with two to three other officers of Atlantic
Liberty Savings, F.A., which would provide certain benefits in the event of a
change in control of Atlantic Liberty Savings, F.A. or Atlantic Liberty
Financial Corp. Each of the severance agreements provides for a term of up to 36
months. Commencing on each anniversary date, the Board of Directors may extend
any change in control agreement for an additional year. The change in control
agreements enable Atlantic Liberty Savings, F.A. to offer to designated officers
certain protections against termination without cause in the event of a change
in control (as defined in the agreements). These protections against termination
without cause in the event of a change in control are frequently offered by
other financial institutions, and Atlantic Liberty Savings, F.A. may be at a
competitive disadvantage in attracting and retaining key employees if it does
not offer similar protections.
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Following a change in control of Atlantic Liberty Financial Corp. or
Atlantic Liberty Savings, F.A., an officer is entitled to a payment under the
change in control agreement if the officer's employment is involuntarily
terminated during the term of such agreement, other than for cause, as defined,
or if the officer voluntarily terminates employment during the term of such
agreement as the result of a demotion, loss of title, office or significant
authority, reduction in his annual compensation or benefits, or relocation of
his principal place of employment by more than 30 miles from its location
immediately prior to the change in control. In the event that an officer who is
a party to a change in control agreement is entitled to receive payments
pursuant to the change in control agreement, he will receive a cash payment up
to a maximum of three times the sum of base salary and highest rate of bonuses
awarded to the executive over the prior three years, subject to applicable
withholding taxes. In addition to the severance payment, each covered officer is
entitled to receive life, health, dental and disability coverage for a period of
up to 36 months from the date of termination. Notwithstanding any provision to
the contrary in the change in control agreement, payments under the change in
control agreements are limited so that they will not constitute an excess
parachute payment under Section 280G of the Internal Revenue Code.
Executive Incentive Bonus Plan. Atlantic Liberty Savings, F.A. has adopted
an executive incentive bonus plan for the benefit of Messrs. Donohue and
Gilfillan. The Plan provides financial incentives based on bank level
performance criteria that reflect objective measurements of profitability and
efficiency and individual performance criteria that reflect the ability of the
executive to accomplish the goals set in a manner consistent with Atlantic
Liberty Savings, F.A. management philosophy. The various criteria are weighted
each year by the plan administrator and a bonus pool is established that is
based on approximately 5% of base salary and 40% of Atlantic Liberty Savings,
F.A.' s income exceeding core income (defined as net income before non-recurring
expense). The plan administrator will set a minimum core income threshold that
must be met in order for a bonus to be paid. Assuming the minimum threshold is
achieved, the maximum bonus payable increases as core income increases. Although
the maximum bonus pool increases as core income increases, the executive's
performance of the various criteria determines the executive's bonus each year,
which may or may not equal the maximum bonus. For the fiscal year ended March
31, 2002, Messrs. Donohue and Gilfillan received bonuses under the executive
incentive bonus plan of $77,000 and $71,000, respectively.
Insurance Plans. Our officers and employees are covered by a contributory
medical insurance plan.
Defined Benefit Pension Plan. We maintain a qualified noncontributory
defined benefit plan ("Retirement Plan") for employees. All employees age 21 or
older who have worked at Atlantic Liberty Savings, F.A. for a period of one year
and who have been credited with 1,000 or more hours of employment with Atlantic
Liberty Savings, F.A. during the year are eligible to accrue benefits under the
Retirement Plan. We make annual contributions to the Retirement Plan in order to
satisfy the actuarially determined minimum funding requirements in accordance
with the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
At the normal retirement age of 65, the plan is designed to provide a
single life annuity with no ancillary benefits. For a married participant, the
normal form of benefit is an actuarially reduced joint and survivor annuity
where, upon the participant's death, the participant's spouse is entitled to
receive a benefit equal to 50% of the amount paid during the participant's
lifetime. The joint and survivor annuity will be actuarially equivalent to the
single life annuity. The annual retirement benefit provided is an amount equal
to (i) 2% of a participant's average annual
73
compensation based on the average of the five consecutive years of the last 10
calendar years providing the highest average compensation, multiplied by (ii)
the participant's years of credited service to the normal retirement date (not
to exceed 30 years). Retirement benefits are also payable upon retirement due to
early and late retirement, disability or death. A reduced benefit is payable
upon early retirement at or after age 55 and the completion of 10 years of
service with Atlantic Liberty Savings, F.A. Upon termination of employment other
than as specified above, a participant who has a vested benefit under the
Retirement Plan is eligible to receive his or her accrued benefit reduced for
early retirement, if applicable, or a deferred retirement benefit commencing on
such participant's normal retirement date. Benefits are payable in various
annuity forms as well as in the form of a single lump sum payment. At March 31,
2002, the market value of the Retirement Plan trust fund equaled approximately
$1.3 million. For the fiscal year ended March 31, 2002, no contribution to the
Retirement Plan was made.
The following table indicates the annual retirement benefit that would be
payable under the Retirement Plan upon retirement at age 65 in calendar year
2002, expressed in the form of a single life annuity for the final average
salary and benefit service classification specified below.
YEARS OF BENEFIT SERVICE AT RETIREMENT
Final
Average
Compensation 15 20 25 30 35 40
------------ ------- ------- -------- -------- -------- --------
$ 25,000 $ 7,500 $10,000 $ 12,800 $ 15,000 $ 17,500 $ 20,000
$ 50,000 $15,000 $20,000 $ 25,000 $ 30,000 $ 35,000 $ 40,000
$ 75,000 $22,500 $30,000 $ 37,500 $ 45,000 $ 52,500 $ 60,000
$100,000 $30,000 $40,000 $ 50,000 $ 60,000 $ 70,000 $ 80,000
$150,000 $45,000 $60,000 $ 75,000 $ 90,000 $105,000 $120,000
$200,000 and above $60,000 $80,000 $100,000 $120,000 $120,000 $120,000
As of March 31, 2002, Mr. Donohue and Mr. Gilfillan had 10 years and one
year of service under the plan, respectively.
Salary Reduction Plan. We maintain a Salary Reduction Plan for employees,
which is a qualified, tax-exempt profit sharing plan with a cash-or-deferred
feature under Section 401(k) of the Code (the "401(k) Plan"). All employees who
have attained age 21 and have completed 12 consecutive months of employment in
which they completed 1,000 hours of service are eligible to participate on the
date that such requirements are first satisfied.
Under the 401(k) Plan, participants are permitted to make salary reduction
contributions to the plan from their compensation from 1% to 20% of
compensation. For these purposes, "compensation" includes regular salary, wages
and bonuses, including any salary reduction contributions made under the 401(k)
Plan, but does not include overtime and commissions, or compensation in excess
of the Code Section 401(a)(17) limits (in 2002, this limit is $200,000). The
participants' salary reduction contribution will be matched by us, up to 100% of
the participants first 6% of compensation contributed to the 401(k) Plan. All
employee contributions and earnings thereon are fully and immediately vested.
Atlantic Liberty Savings, F.A. may make discretionary employee contributions to
the 401(k) Plan. Employer discretionary contributions, if made will vest at the
rate of 20% per year beginning in the second year until a participant is 100%
vested after six years of service. Participants will also vest in employer
discretionary contributions upon the attainment of their normal retirement date
(i.e., age 65), death or disability regardless of their years of service. A
participant may also withdraw salary reduction contributions in the event the
participant suffers a financial hardship.
74
The 401(k) Plan permits employees to direct the investment of their own
accounts into various investment options. In connection with the offering, the
401(k) Plan will give participants the opportunity to invest in our common
stock.
Plan benefits will be paid to each participant in a lump sum payment. At
March 31, 2002, the market value of the 401(k) Plan trust fund equaled
approximately $677,000. The contribution to the 401(k) Plan for the Plan year
ended March 31, 2002 was $64,000. During the year ended March 31, 2002, we
contributed $14,000 and $20,000 to the 401(k) plan for the accounts of Mr.
Donohue and Mr. Gilfillan, respectively.
Future Stock Benefit Plans
Employee Stock Ownership Plan and Trust. We intend to implement an
employee stock ownership plan in connection with the reorganization and
offering. Employees who are at least 21 years old with at least one year of
employment with Atlantic Liberty Savings, F.A. are eligible to participate. As
part of the reorganization and offering, the employee stock ownership plan trust
intends to borrow funds from us and use those funds to purchase a number of
shares equal to up to 8% of the common stock sold in the offering. Collateral
for the loan will be the common stock purchased by the employee stock ownership
plan. The loan will be repaid principally from Atlantic Liberty Savings, F.A.
discretionary contributions to the employee stock ownership plan over a period
of up to 10 years. The loan documents will provide that the loan may be repaid
over a shorter period, without penalty for prepayments. It is anticipated that
the interest rate for the loan will be a floating rate equal to the prime rate.
Shares purchased by the employee stock ownership plan will be held in a suspense
account for allocation among participants as the loan is repaid.
Contributions to the employee stock ownership plan and shares released
from the suspense account in an amount proportional to the repayment of the
employee stock ownership plan loan will be allocated among employee stock
ownership plan participants on the basis of compensation in the year of
allocation. Benefits under the plan will become vested at the rate of 20% per
year, starting upon completion of two years of credited service, and be will
fully vested upon completion of six years of credited service, with credit given
to participants for years of credited service with Atlantic Liberty Savings,
F.A. mutual predecessor prior to the adoption of the plan. A participant's
interest in his account under the plan will also fully vest in the event of
termination of service due to a participant's early or normal retirement, death,
disability, or upon a change in control (as defined in the plan). Vested
benefits will be payable in the form of common stock and/or cash. Atlantic
Liberty Savings, F.A. contributions to the employee stock ownership plan are
discretionary, subject to the loan terms and tax law limits. Therefore, benefits
payable under the employee stock ownership plan cannot be estimated. Pursuant to
SOP 93-6, we will be required to record compensation expense each year in an
amount equal to the fair market value of the shares released from the suspense
account. In the event of a change in control, the employee stock ownership plan
will terminate.
Stock Option Plan. We intend to adopt a stock option plan for our
directors, officers and employees of Atlantic Liberty Financial Corp. and
Atlantic Liberty Savings, F.A. after the conversion. Office of Thrift
Supervision regulations prohibit us from implementing this plan until six months
after the conversion and offering. If the stock option plan is implemented
within the first 12 months after the conversion, Office of Thrift Supervision
regulations require that the plan be approved by a majority of the outstanding
shares of Atlantic Liberty Financial Corp.
75
We expect that the stock option plan will authorize a committee of
non-employee directors or the full board, to grant options to purchase up to 10%
of the shares sold in the offering. The stock option plan will have a term of 10
years. The committee will decide which directors, officers and employees will
receive options and the terms of those options. Generally, no stock option will
permit its recipient to purchase shares at a price that is less than the fair
market value of a share on the date the option is granted, and no option will
have a term that is longer than 10 years. If we implement a stock option plan
before the first anniversary of the conversion, current regulations will require
that:
o the total number of options available for grant to
non-employee directors be limited to 30% of the options
authorized under the plan;
o the number of options that may be granted to any one
non-employee director be limited to 5% of the options
authorized under the plan;
o the number of options that may be granted to any officer or
employee be limited to 25% of the options authorized for the
plan;
o the options may not vest more rapidly than 20% per year,
beginning on the first anniversary of stockholder approval of
the plan; and
o accelerated vesting is not permitted except for death or
disability.
Atlantic Liberty Financial Corp. may obtain the shares needed for this
plan by issuing additional shares or through stock repurchases.
Recognition and Retention Plan. We expect to implement a recognition and
retention plan for the directors, officers and employees of Atlantic Liberty
Savings, F.A. and Atlantic Liberty Financial Corp. after the conversion. Office
of Thrift Supervision regulations prohibit us from implementing this plan until
six months after the conversion. If the recognition plan is implemented within
the first 12 months after the conversion, Office of Thrift Supervision
regulations require that the plan be approved by a majority of the outstanding
shares of Atlantic Liberty Financial Corp.
In the event the recognition and retention plan is implemented within 12
months after the conversion, we expect that the plan will authorize a committee
of non-employee directors or our full board to make restricted stock awards of
up to 4% of the shares sold in the offering. In the event we implement the
recognition and retention plan more than 12 months after the conversion, the
recognition and retention plan will not be subject to regulations limiting the
plan to no more than 4% of the shares sold in the offering. The committee will
decide which directors, officers and employees will receive restricted stock and
the terms of those awards. We may obtain the shares needed for this plan by
issuing additional shares or through stock repurchases. If we implement a
recognition and retention plan before the first anniversary of the conversion,
current regulations will require that:
o the total number of shares that are awarded to non-employee
directors be limited to 30% of the shares authorized under the
plan;
o the number of shares that are awarded to any one non-employee
director be limited to 5% of the shares authorized under the
plan;
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o the number of shares that are awarded to any officer or
employee be limited to 25% of the shares authorized under the
plan;
o the awards may not vest more rapidly than 20% per year,
beginning on the first anniversary of stockholder approval of
the plan;
o accelerated vesting is not permitted except for death or
disability.
Restricted stock awards under this plan may feature employment
restrictions that require continued employment for a period of time for the
award to be vested. Awards are not vested unless the specified employment
restrictions are met. However, pending vesting, the award recipient may have
voting and dividend rights. When an award becomes vested, the recipient must
include the current fair market value of the vested shares in his or her income
for federal income tax purposes. We will be allowed a federal income tax
deduction in the same amount. We will have to recognize compensation expense for
accounting purposes ratably over the vesting period, equal to the fair market
value of the shares on the original award date.
Transactions with Certain Related Persons
In the ordinary course of business, Atlantic Liberty Savings, F.A. makes
loans available to its directors, officers and employees. These loans are made
in the ordinary course of business on substantially the same terms (other than
interest rate), including collateral, as comparable loans to other borrowers.
Management believes that these loans neither involve more than the normal risk
of collectibility nor present other unfavorable features. Federal regulations
permit executive officers and directors to participate in loan programs that are
available to other employees, as long as the director or executive officer is
not given preferential treatment compared to other participating employees.
Loans made to directors or executive officers, including any modification of
such loans, must be approved by a majority of disinterested members of the board
of directors. The interest rate on loans to directors and officers is the same
as that offered to other employees.
THE CONVERSION
The board of directors of Atlantic Liberty Savings, F.A. and the Office of
Thrift Supervision have approved the plan of conversion, subject to approval by
the members of Atlantic Liberty Savings, F.A. entitled to vote on the matter and
the satisfaction of certain other conditions. Office of Thrift Supervision
approval, however, is not a recommendation or endorsement of the plan. Certain
terms used in the following summary are defined in the plan of conversion, a
copy of which may be obtained by contacting Atlantic Liberty Savings, F.A.
General
In 1997 we began the process of reorganizing into the mutual holding
company form of organization. However, in 1998 we terminated our mutual holding
company reorganization upon discovery of a customer fraud. Shortly thereafter,
we discovered an employee defalcation. As a result of the customer fraud and
employee defalcation, we dismissed the employees involved in the employee
defalcation, imposed more stringent oversight practices in our internal
accounting procedures and dismissed the firm that acted as our independent
accountants.
On April 17, 2002 the board of directors unanimously adopted the plan of
conversion, subject to approval by the Office of Thrift Supervision and the
voting members of Atlantic
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Liberty Savings, F.A. Pursuant to the plan, Atlantic Liberty Savings, F.A. will
convert 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 Office of Thrift Supervision has approved the plan, subject to its
approval by the affirmative vote of the members of Atlantic Liberty Savings,
F.A. 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 October __,
2002.
The plan of conversion provides generally that Atlantic Liberty Savings,
F.A. will convert from a federally chartered mutual savings and loan association
to a federally chartered stock savings and loan association; the common stock
will be offered by Atlantic Liberty Financial Corp. in the subscription offering
to persons having subscription rights. If necessary, shares of common stock not
subscribed for in the subscription offering will be offered in a community
offering to certain members of the general public, with preference given to
natural persons residing in Kings County, New York and then to certain members
of the general public in a syndicated community offering through a syndicate of
registered broker-dealers under selected dealers agreements. The conversion will
be completed only upon the sale of a minimum of $10,996,880 of common stock.
As part of the conversion, Atlantic Liberty Financial Corp. is making a
subscription offering of its common stock to holders of subscription rights in
the following order of priority. First, depositors of Atlantic Liberty Savings,
F.A. with $50.00 or more on deposit as of the close of business on March 31,
2001. Second, Atlantic Liberty Savings, F.A.'s tax-qualified benefit plans which
include the employee stock ownership plan. Third, depositors of Atlantic Liberty
Savings, F.A. with $50.00 or more on deposit as of the close of business on June
30, 2002. Fourth, members of Atlantic Liberty Savings, F.A. as of the close of
business on August 6, 2002.
Shares of common stock not subscribed for in the subscription offering may
be offered for sale in the community offering. The community offering, if one is
held, is expected to begin immediately after the expiration of the subscription
offering, but may begin at any time during the subscription offering. Shares of
common stock not sold in the subscription and community offerings may be offered
in the syndicated community offering. Regulations require that the community and
syndicated community offerings be completed within 45 days after completion of
the fully extended subscription offering unless extended by Atlantic Liberty
Savings, F.A. or Atlantic Liberty Financial Corp. with the approval of the
regulatory authorities. If the syndicated community offering is determined not
to be feasible, the board of directors of Atlantic Liberty Savings, F.A. will
consult with the regulatory authorities to determine an appropriate alternative
method for selling the unsubscribed shares of common stock. The plan of
conversion provides that the conversion must be completed within 24 months after
the date of the approval of the plan of conversion by the members of Atlantic
Liberty Savings, F.A.
No sales of common stock may be completed, either in the subscription
offering, direct community offering or syndicated community offering unless the
plan of conversion is approved by the members of Atlantic Liberty Savings, F.A.
The completion of the offering, however, will also depend on market
conditions and other factors beyond Atlantic Liberty Savings, F.A.'s control. No
assurance can be given as to the length of time after approval of the plan of
conversion at the special meeting that will be required to complete the
community or syndicated community offerings or other sale of the common stock.
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Orders for shares of common stock will not be filled until at least
1,099,688 shares of common stock have been subscribed for or sold and the Office
of Thrift Supervision approves the final valuation and the conversion is
completed. If the conversion is not completed within 45 days after the
expiration date of the subscription offering and the Office of Thrift
Supervision consents to an extension of time to complete the conversion,
subscribers will be given the right to maintain, modify or rescind their
subscriptions. Unless an affirmative indication is received from subscribers
that they wish to continue to subscribe for shares, the funds will be returned
promptly, together with accrued interest at Atlantic Liberty Savings, F.A.'s
passbook rate from the date payment is received until the funds are returned to
the subscriber. If the period is not extended, or, in any event, if the
conversion is not completed, all withdrawal authorizations will be terminated
and all funds held will be promptly returned together with accrued interest at
Atlantic Liberty Savings, F.A.'s passbook rate from the date payment is received
until the conversion is terminated.
Purposes of Conversion
The board of directors and management believe that the conversion is in
the best interests of Atlantic Liberty Savings, F.A., its members and the
communities it serves. Atlantic Liberty Savings, F.A.'s board of directors has
formed Atlantic Liberty Financial Corp. to serve as a holding company, with
Atlantic Liberty Savings, F.A. as its subsidiary, after the conversion. By
converting to the stock form of organization, Atlantic Liberty Financial Corp.
and Atlantic Liberty Savings, F.A. will be structured in the form used by
holding companies of commercial banks, most business entities and by a growing
number of savings institutions. Management of Atlantic Liberty Savings, F.A.
believes that the conversion offers a number of advantages which will be
important to the future growth and performance of Atlantic Liberty Savings, F.A.
The capital raised in the conversion is intended to support Atlantic Liberty
Savings, F.A.'s current lending and investment activities and may also support
possible future expansion and diversification of operations, although there are
no current specific plans, arrangements or understandings, written or oral,
regarding any expansion or diversification. The conversion is also expected to
afford Atlantic Liberty Savings, F.A.'s management, members and others the
opportunity to become stockholders of Atlantic Liberty Financial Corp. and
participate more directly in, and contribute to, any future growth of Atlantic
Liberty Financial Corp. and Atlantic Liberty Savings, F.A. The conversion will
also enable Atlantic Liberty Financial Corp. and Atlantic Liberty Savings, F.A.
to raise additional capital in the public equity or debt markets should the need
arise, although there are no current specific plans, arrangements or
understandings, written or oral, regarding any financing activities.
Effects of Conversion to Stock Form on Depositors and Borrowers of Atlantic
Liberty Savings, F.A.
Voting Rights. Upon conversion, neither deposit account holders nor
borrower members will have voting rights in Atlantic Liberty Savings, F.A. or
Atlantic Liberty Financial Corp. 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 and borrower members with regard
to Atlantic Liberty Savings, F.A. Subsequent to conversion, voting rights will
be vested exclusively in Atlantic Liberty Financial Corp. as the sole
stockholder of Atlantic Liberty Savings, F.A. Voting rights as to Atlantic
Liberty Financial Corp. will be held exclusively by its stockholders. Each
purchaser of Atlantic Liberty Financial Corp. common stock shall be entitled to
vote on matters considered by Atlantic Liberty Financial Corp. stockholders. A
stockholder will be entitled to
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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." Atlantic Liberty Financial Corp. intends to supply each stockholder
with annual reports and proxy statements.
Deposit Accounts and Loans. The terms of Atlantic Liberty Savings, F.A.'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 Atlantic Liberty Savings, F.A.
Tax Effects. Atlantic Liberty Savings, F.A. has received an opinion from
Luse Gorman Pomerenk & Schick, P.C. with regard to federal income taxation, and
an opinion from Radics & Co., LLC, with regard to New York taxation, to the
effect that the adoption and implementation of the plan of conversion will not
be taxable for federal or New York tax purposes to Atlantic Liberty Savings,
F.A. or Atlantic Liberty Financial Corp. See "-Income Tax Consequences."
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 Atlantic Liberty Savings, F.A.
in its present mutual form would receive his pro rata share of any assets of
Atlantic Liberty Savings, F.A. remaining after payment of claims of all
creditors, including the claims of all depositors in the amount of the
withdrawal value of their accounts. Each depositor's pro rata share of the
remaining assets would be in the same proportion as the balance in his or her
deposit account to the aggregate balance in all deposit accounts in Atlantic
Liberty Savings, F.A. at the time of liquidation.
Liquidation Rights in the Converted Association. After the 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 Atlantic Liberty Savings, F.A., in addition to the protection of
FDIC insurance up to applicable limits. 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 Atlantic Liberty Savings, F.A. 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 and supplemental eligible account holders in an amount
equal to the net worth of Atlantic Liberty Savings, F.A. as of the date of its
latest statement of financial condition contained in the final prospectus
relating to the conversion. Each eligible account holder and supplemental
eligible account holder would have an initial interest in the liquidation
account for each qualifying deposit account held in Atlantic Liberty Savings,
F.A. on the qualifying date. An eligible account holder's or supplemental
eligible account holder's interest as to each deposit account would be in the
same proportion as the balance in his or her account on the applicable
eligibility date was to the aggregate balance in all qualifying deposit accounts
on that date. For accounts in existence on both dates, separate subaccounts
shall be determined on the basis of the qualifying deposits in the accounts on
the record dates. However, if an eligible account holder or supplemental
eligible account holder reduces the amount in the qualifying deposit account on
any annual closing date of Atlantic Liberty Savings, F.A. to a level less than
the lowest amount in the account on the applicable eligibility date, and on any
subsequent closing date, then the account holder's interest in this special
liquidation account would be reduced by an amount
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proportionate to any such reduction, and the account holder's interest would
cease to exist if the qualifying deposit account were closed.
The interest in the special liquidation account would never be increased
despite any increase in the balance of the account holders' related accounts
after the conversion.
Any assets remaining after the above liquidation rights of eligible
account holders and supplemental eligible account holders were satisfied would
be distributed to Atlantic Liberty Financial Corp. as the sole stockholder of
Atlantic Liberty Savings, F.A.
No merger, consolidation, purchase of bulk assets with assumption of
deposit accounts and other liabilities, or similar transaction, whether Atlantic
Liberty Savings, F.A., or another federally insured institution is the surviving
institution, is deemed to be a complete liquidation for purposes of distribution
of the liquidation account. In any such transaction, the liquidation account
would be assumed by the surviving institution. The Office of Thrift Supervision
has stated that the completion of a transaction of the type described in the
preceding sentence in which the surviving entity is not a federally 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.
Common Stock. For information as to the characteristics of the common
stock to be issued under the plan of conversion, see "Our Policy Regarding
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.
Offering of Common Stock
Under the plan of conversion, up to 1,487,813 shares of Atlantic Liberty
Financial Corp. common stock will be offered for sale, subject to certain
restrictions described below, through a subscription and community offering.
Subscription Offering. The subscription offering will expire at
___________, New York time, on ______________, 2002, unless otherwise extended
by Atlantic Liberty Savings, F.A. and Atlantic Liberty Financial Corp.
Regulations of the Office of Thrift Supervision require that all shares to be
offered in the conversion be sold within a period ending not more than 45 days
after the expiration date of the subscription offering or a longer period as may
be approved by the Office of Thrift Supervision or, despite approval of the plan
of conversion by members, the conversion will not be effected. This period
expires on ________, 2002, unless extended with the approval of the Office of
Thrift Supervision. If the conversion is not completed by ___________, 2002, 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
an extension of this type, all subscribers will be notified in writing of the
time period within which subscribers must notify Atlantic Liberty Savings, F.A.
of their intention to maintain, modify or rescind their subscriptions. If the
subscriber rescinds or does not respond in any manner to Atlantic Liberty
Savings, F.A.'s notice, the funds submitted will be refunded to the subscriber
with interest at Atlantic Liberty Savings, F.A.'s current passbook savings rate,
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 Atlantic Liberty Savings,
F.A.'s current passbook savings rate, and all withdrawal authorizations will be
terminated.
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Subscription Rights. Under the plan of conversion, nontransferable
subscription rights to purchase the common stock have been issued to persons and
entities entitled to purchase the common stock in the subscription offering. The
amount of the common stock which these parties may purchase will depend on the
availability of the common stock for purchase under the categories described in
the plan of conversion. Subscription priorities have been established for the
allocation of stock to the extent that the common stock is available. These
priorities are as follows:
Category 1: Eligible Account Holders. Subject to the maximum purchase
limitations, each depositor with $50.00 or more on deposit at Atlantic Liberty
Savings, F.A. as of the close of business on March 31, 2001 will receive
nontransferable subscription rights to subscribe for up to the greater of the
following:
(i) $100,000 of common stock;
(ii) one-tenth of one percent of the total offering of common stock; or
(iii) 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, the numerator of which is the amount of
the qualifying deposit of the eligible account holder and the
denominator is the total amount of qualifying deposits of all
eligible account holders.
The following example illustrates how the maximum subscription limitation
is calculated. Assuming that shares are sold at the maximum of the offering
range (1,487,813 shares), a depositor had $25,000 on deposit as of March 31,
2001, and there were $106.1 million of qualifying deposits as of that date, then
the depositor would receive subscription rights to subscribe for up to $100,000
of common stock, which is equal to the greater of:
(i) $100,000 of common stock;
(ii) $14,878 of common stock, which is one-tenth of one percent of a
$14,878,130 offering; and
(iii) $5,258 of common stock, or 526 shares, which is the product of: 15 x
1,487,813 shares of common stock x ($25,000/$106.1 million).
If the exercise of subscription rights in this category results in an
oversubscription, shares of common stock will be allocated among subscribing
eligible account holders so as to permit each one, to the extent possible, to
purchase a number of shares sufficient to make the person's total allocation
equal 100 shares or the number of shares actually subscribed for, whichever is
less. Thereafter, unallocated shares will be allocated among the remaining
subscribing eligible account holders whose subscriptions remain unfilled in the
proportion that the amounts of their respective qualifying deposits bear to the
total amount of qualifying deposits of all remaining eligible account holders
whose subscriptions remain unfilled; however, no fractional shares shall be
issued. If the amount so allocated exceeds the amount subscribed for by any one
or more eligible account holders, the excess shall be reallocated, one or more
times as necessary, among those eligible account holders whose subscriptions are
still not fully satisfied on the same principle until all available shares have
been allocated or all subscriptions satisfied. Subscription
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rights received by officers and directors in this category based on their
increased deposits in Atlantic Liberty Savings, F.A. in the one-year period
preceding March 31, 2001 are subordinated to the subscription rights of other
eligible account holders.
Category 2: Tax-Qualified Employee Plans. The plan of conversion provides
that tax-qualified employee plans of Atlantic Liberty Savings, F.A., such as the
employee stock ownership plan, shall receive nontransferable subscription rights
to purchase up to 10% of the shares of common stock issued in the conversion.
The employee stock ownership plan intends to purchase 8% of the shares of common
stock issued in the conversion. In the event the number of shares offered in the
conversion is increased above the maximum of the valuation range, the plan shall
have a priority right to purchase any shares exceeding that amount up to 8% of
the common stock. If the plan's subscription is not filled in its entirety, the
employee stock ownership plan may purchase shares in the open market or may
purchase shares directly from the holding company.
Category 3: Supplemental Eligible Account Holders. To the extent that
there are sufficient shares remaining after satisfaction of subscriptions by
eligible account holders and the tax-qualified plans, and subject to the maximum
purchase limitations, each depositor with $50.00 or more on deposit as of the
close of business on June 30, 2002 will receive nontransferable subscription
rights to subscribe for up to the greater of
(i) $100,000 of common stock;
(ii) one-tenth of one percent of the total offering of common stock; or
(iii) 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, the numerator of which is the amount of
qualifying deposits of the supplemental eligible account holder and
the denominator is the total amount of qualifying deposits of all
supplemental eligible account holders.
If the exercise of subscription rights in this category results in an
oversubscription, shares of common stock will be allocated among subscribing
supplemental eligible account holders so as to permit each supplemental eligible
account holder, to the extent possible, to purchase a number of shares
sufficient to make his or her total allocation equal 100 shares or the number of
shares actually subscribed for, whichever is less. Thereafter, unallocated
shares will be allocated among subscribing supplemental eligible account holders
whose subscriptions remain unfilled in the proportion that the amounts of their
respective qualifying deposits bear to total qualifying deposits of all
subscribing supplemental eligible account holders.
Category 4: Other Members. To the extent that there are sufficient shares
remaining after satisfaction of subscriptions by eligible account holders, the
tax-qualified plans and supplemental eligible account holders, and subject to
the maximum purchase limitations, each member of Atlantic Liberty Savings, F.A.
as of the close of business on ___________, 2002 will receive nontransferable
subscription rights to purchase up to the greater of:
(i) $100,000 of common stock or
(ii) one-tenth of one percent of the total offering of common stock.
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If there is an oversubscription in this category, the available shares
will be allocated proportionately based on the amount of the other members'
number of votes as compared to the total number of votes of all subscribing
other members.
Atlantic Liberty Savings, F.A. and Atlantic Liberty Financial Corp. 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 person who resides in a foreign country or 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 Atlantic Liberty Savings, F.A. and Atlantic Liberty Financial Corp.
determine that compliance with the securities laws of the state would be
impracticable for reasons of cost or otherwise, including, but not limited to, a
requirement that Atlantic Liberty Savings, F.A. or Atlantic Liberty Financial
Corp. or any of their officers, directors or employees register, under the
securities laws of the state, as a broker, dealer, salesman or agent. No
payments will be made in lieu of the granting of subscription rights to any
person.
Community Offering. Any shares of common stock which remain unsubscribed
for in the subscription offering will be offered by Atlantic Liberty Financial
Corp. in a community offering to members of the general public to whom Atlantic
Liberty Financial Corp. delivers a copy of this prospectus and a stock order
form, with preference given to natural persons residing in Kings County, New
York. Subject to the maximum purchase limitations, these persons, together with
associates of and persons acting in concert with these persons, may purchase up
to $100,000 of common stock. The community offering, if any, may be concurrent
with, during, or promptly after the subscription offering, and may terminate at
any time without notice, but may not terminate later than ____________, 2002,
unless extended with the approval of the Office of Thrift Supervision. Subject
to any required regulatory approvals, Atlantic Liberty Financial Corp. will
determine the advisability of a community offering, the commencement and
termination dates of any community offering, and the methods of finding
potential purchasers in such offering, in its discretion based upon market
conditions. The opportunity to subscribe for shares of common stock in the
community offering category is subject to the right of Atlantic Liberty
Financial Corp. and Atlantic Liberty Savings, F.A., in their sole discretion, to
accept or reject these 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, the stock will be allocated first to each natural person
residing in Kings County whose order is accepted by Atlantic Liberty Savings,
F.A., in an amount equal to the lesser of 1,000 shares or the number of shares
subscribed for by each subscriber residing in Kings County, if possible.
Thereafter, unallocated shares will be allocated among the subscribers residing
in Kings County, whose orders remain unsatisfied, in the same proportion that
the unfilled subscription of each bears to the total unfilled subscriptions of
all subscribers residing in Kings County 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 residing in Kings County.
Syndicated 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 to be formed and managed by Sandler O'Neill &
Partners, L.P. Atlantic Liberty Financial Corp. and Atlantic
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Liberty Savings, F.A. expect to market any shares which remain unsubscribed
after the subscription and community offerings through a syndicated community
offering. Atlantic Liberty Financial Corp. and Atlantic Liberty Savings, F.A.
have the right to reject orders in whole or part in their sole discretion in the
syndicated community offering. Neither Sandler O'Neill & Partners, L.P. nor any
registered broker-dealer shall have any obligation to take or purchase any
shares of common stock in the syndicated community offering; however, in the
event Sandler O'Neill & Partners, L.P. agrees to participate in a syndicated
community offering, it will 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 the overall purchase limitations, no person by himself or herself or
persons together with an associate, and no group of persons acting in concert,
may subscribe for or purchase more than will be permitted to subscribe in the
syndicated community offering for more than $200,000 or 20,000 shares of common
stock.
Sandler O'Neill & Partners, L.P. may enter into agreements with selected
dealers to assist in the sale of the shares in the syndicated community
offering. No orders may be placed or filled by or for a selected dealer during
the subscription offering. After the close of the subscription offering, Sandler
O'Neill & Partners, L.P. 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 Atlantic Liberty Financial Corp. as of
a certain order date for the purchase of shares of common stock. When and if
Atlantic Liberty Financial Corp., in consultation with Sandler O'Neill &
Partners, L.P., believes that enough indications of interest and orders have not
been received in the subscription and community offerings to consummate the
conversion, it will instruct Sandler O'Neill & Partners, L.P. to 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 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 Atlantic Liberty Savings, F.A.
for each selected dealer. Each customer's funds so forwarded to Atlantic Liberty
Savings, F.A., 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 Atlantic Liberty Savings, F.A.
from selected dealers, funds will earn interest at Atlantic Liberty Savings,
F.A.'s passbook rate until the completion or termination of the conversion.
Funds will be promptly returned, with interest, in the event the conversion is
not completed as described above.
The syndicated community offering will terminate no more than 45 days
following the subscription expiration date, unless extended by Atlantic Liberty
Financial Corp. and Atlantic Liberty Savings, F.A. with the approval of the
Office of Thrift Supervision.
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, the maximum purchase of common stock in the
subscription offering by a person or group of
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persons acting through a single account is $100,000, and no person, other than
Atlantic Liberty Savings, F.A.'s employee stock ownership plan, by himself or
herself or with an associate, and no group of persons acting in concert, may
subscribe for or purchase more than $200,000 of common stock offered in the
conversion. Officers and directors and their associates may not purchase, in the
aggregate, more than 33% 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. 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 Atlantic Liberty Savings, F.A.,
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:
o any corporation or organization, other than Atlantic Liberty
Financial Corp. or Atlantic Liberty Savings, F.A. or a
majority-owned subsidiary of Atlantic Liberty Financial Corp. or
Atlantic Liberty Savings, F.A., 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;
o any trust or other estate in which the person has a substantial
beneficial interest or as to which the person serves as trustee or
in a similar fiduciary capacity; and
o any relative or spouse of the person or any relative of the spouse
who has the same home as the person or who is a director or officer
of Atlantic Liberty Financial Corp. or Atlantic Liberty Savings,
F.A. or any subsidiary of Atlantic Liberty Financial Corp. or
Atlantic Liberty Savings, F.A.
As used above, the term "acting in concert" means:
o knowing participation in a joint activity or interdependent
conscious parallel action towards a common goal whether or not
pursuant to an express agreement;
o 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; or
o a person or company which acts in concert with another person or
company ("other party") shall also be deemed to be acting in concert
with any person or company who is also acting in concert with that
other party, except that any tax-qualified employee plan will not be
deemed to be acting in concert with its trustee or a person who
serves in a similar capacity solely for the purpose of determining
whether stock held by the trustee and stock held by the plan will be
aggregated.
Persons or companies who file jointly a Form 13-D or Form 13-G with any
regulatory agency will be deemed to be acting in concert.
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The boards of directors of Atlantic Liberty Financial Corp. and Atlantic
Liberty Savings, F.A. 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 Atlantic Liberty
Financial Corp. 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
Atlantic Liberty Financial Corp. and Atlantic Liberty Savings, F.A., with the
approval of the Office of Thrift Supervision 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 Atlantic
Liberty Savings, F.A. or Atlantic Liberty Financial Corp. and except as
described below. 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 these
securities.
Restrictions on Transferability of Subscription Rights
Subscription rights are nontransferable. Atlantic Liberty Savings, F.A.
may reasonably investigate to determine compliance with this restriction.
Persons selling or otherwise transferring their rights to subscribe for common
stock in the subscription offering or subscribing for common stock on behalf of
another person may forfeit those rights and may face possible further sanctions
and penalties imposed by the Office of Thrift Supervision or another agency of
the United States Government. Atlantic Liberty Savings, F.A. and Atlantic
Liberty Financial Corp. 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 these rights. Each person
exercising subscription rights will be required to certify that he or she is
purchasing shares solely for his or her own account and that he or she has no
agreement or understanding with any other person for the sale or transfer of the
shares. In addition, joint stock registration will be allowed only if the
qualifying account is so registered. Once tendered, subscription orders cannot
be revoked without the consent of Atlantic Liberty Savings, F.A. and Atlantic
Liberty Financial Corp.
Plan of Distribution and Marketing Arrangements
Offering materials for the offering initially have been distributed to
certain persons by mail, with additional copies made available through our
conversion center and Sandler O'Neill & Partners, L.P. All prospective
purchasers are to send payment directly to Atlantic Liberty Savings, F.A., where
such funds will be held in a segregated savings account and not released until
the offering is completed or terminated.
To assist in the marketing of the common stock, we have retained Sandler
O'Neill & Partners, L.P., which is a broker-dealer registered with the NASD.
Sandler O'Neill & Partners, L.P. will assist us in the offering as follows: (i)
in training and educating our employees
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regarding the mechanics of the offering; (ii) in conducting informational
meetings for employees, customers and the general public; (iii) in coordinating
the selling efforts in our local communities; and (iv) in soliciting orders for
common stock. For these services, Sandler O'Neill & Partners, L.P. will receive
a fee of $200,000. If there is a syndicated offering, Sandler O'Neill &
Partners, L.P. will receive a fee in an amount competitive with gross
underwriting discounts charged at such time for underwritings of comparable
amounts of common stock sold at a comparable price per share in a similar market
environment. However, the total fees payable to Sandler O'Neill & Partners, L.P.
and other NASD member firms in the syndicated offering shall not exceed 7.0% of
the aggregate dollar amount of the common stock sold in the syndicated community
offering.
We also will reimburse Sandler O'Neill & Partners, L.P. for its reasonable
legal fees and expenses associated with its marketing effort, up to a maximum of
$55,000. We will indemnify Sandler O'Neill & Partners, L.P. against liabilities
and expenses (including legal fees) incurred in connection with certain claims
or litigation arising out of or based upon untrue statements or omissions
contained in the offering material for the common stock, including liabilities
under the Securities Act of 1933.
Sandler O'Neill & Partners, L.P. will also perform proxy solicitation
services, conversion agent services and records management services for Atlantic
Liberty Savings, F.A. in the conversion and will receive a fee of $10,000 for
these services and the associated expenses.
Our directors and executive officers may participate in the solicitation
of offers to purchase common stock. Other trained employees may participate in
the offering in ministerial capacities, providing clerical work in effecting a
sales transaction or answering questions of a ministerial nature. Other
questions of prospective purchasers will be directed to executive officers or
registered representatives. We will rely on Rule 3a4-1 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), so as to permit officers,
directors, and employees to participate in the sale of the common stock. No
officer, director, or employee will be compensated for his participation by the
payment of commissions or other remuneration based either directly or indirectly
on the transactions in the common stock.
How We Determined Stock Pricing and The Number of Shares to be Issued
The plan of conversion and federal regulations require that the aggregate
purchase price of the common stock sold in the offering be based on the
appraised pro forma market value of the common stock, as determined on the basis
of an independent valuation. We retained Feldman Financial Advisors, Inc. to
make the independent valuation. Feldman Financial Advisors, Inc. will receive a
fee of $14,000, which amount does not include a fee of $8,500 to be paid to
Feldman Financial Advisors, Inc. for assistance in the preparation of a business
plan. We have agreed to indemnify Feldman Financial Advisors, Inc. and its
employees and affiliates against certain losses (including any losses in
connection with claims under the federal securities laws) arising out of its
services as appraiser, except where Feldman Financial Advisors, Inc.'s liability
results from its negligence or bad faith.
The independent valuation was prepared by Feldman Financial Advisors, Inc.
in reliance upon the information contained in the prospectus, including the
financial statements. Feldman Financial Advisors, Inc. also considered the
following factors, among others:
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o the present and projected operating results and financial
condition of Atlantic Liberty Savings, F.A. and the economic
and demographic conditions in our existing market area;
o historical, financial and other information relating to
Atlantic Liberty Savings, F.A.;
o a comparative evaluation of the operating and financial
statistics of Atlantic Liberty Savings, F.A. with those of
other publicly traded subsidiaries of holding companies;
o the aggregate size of the offering;
o the impact of the conversion on our stockholders' equity and
earnings potential;
o the proposed dividend policy of Atlantic Liberty Financial
Corp.; and
o the trading market for securities of comparable institutions
and general conditions in the market for such securities.
On the basis of the foregoing, Feldman Financial Advisors, Inc. advised us
that as of June 11, 2002, as updated on August 1, 2002 the estimated pro forma
market value of the common stock ranged from a minimum of $10,996,880 to a
maximum of $14,878,130, with a midpoint of $12,937,500 (the estimated valuation
range). The board determined to offer the shares in the offering at the purchase
price of $10.00 per share, the price most commonly used in stock offerings
involving mutual to stock conversions. Based on the estimated valuation range
and the purchase price of $10.00 per share, the number of shares of common stock
that Atlantic Liberty Financial Corp. will issue will range from between
1,099,688 shares to 1,487,813 shares, with a midpoint of 1,293,750 shares.
The board reviewed the independent valuation and, in particular,
considered (i) our financial condition and results of operations for the year
ended March 31, 2002, (ii) financial comparisons in relation to other financial
institutions, and (iii) stock market conditions generally and, in particular,
for financial institutions, all of which are set forth in the independent
valuation. The board also reviewed the methodology and the assumptions used by
Feldman Financial Advisors, Inc. in preparing the independent valuation. The
estimated valuation range may be amended with the approval of the Office of
Thrift Supervision, if necessitated by subsequent developments in our financial
condition or market conditions generally.
Following commencement of the subscription offering, the maximum of the
estimated valuation range may be increased by up to 15%, to up to $17,109,840,
to reflect changes in market and financial conditions, demand for the shares, or
regulatory considerations, without the resolicitation of subscribers. The
minimum of the estimated valuation range and the minimum of the offering range
may not be decreased without a resolicitation of subscribers. The purchase price
of $10.00 per share will remain fixed. See "-Limitations On Purchases Of Common
Stock" as to the method of distribution and allocation of additional shares that
may be issued in the event of an increase in the offering range to fill unfilled
orders in the subscription and community offerings.
The independent valuation is not intended, and must not be construed, as a
recommendation of any kind as to the advisability of purchasing shares. Feldman
Financial Advisors, Inc. did not independently verify the financial statements
and other information provided by Atlantic Liberty Savings, F.A., nor did
Feldman Financial Advisors, Inc. value
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independently the assets or liabilities of Atlantic Liberty Savings, F.A. The
independent valuation considers Atlantic Liberty Savings, F.A. as a going
concern and should not be considered as an indication of liquidation value.
Moreover, because the valuation is necessarily based upon estimates and
projections of a number of matters, all of which are subject to change from time
to time, no assurance can be given that persons purchasing shares in the
offering will thereafter be able to sell such shares at prices at or above the
purchase price.
The independent valuation will be updated at the time of the completion of
the offering. If the update to the independent valuation at the conclusion of
the offering results in an increase in the maximum of the estimated valuation
range to more than $17,109,840 or a decrease in the minimum of the estimated
valuation range to less than $10,996,880, then Atlantic Liberty Financial Corp.,
after consulting with the Office of Thrift Supervision, may terminate the plan
of conversion and return all funds promptly, with interest on payments made by
check, certified or teller's check, bank draft or money order, extend or hold a
new subscription offering, community offering, or both, establish a new offering
range, commence a resolicitation of subscribers or take such other actions as
permitted by the Office of Thrift Supervision in order to complete the
conversion. In the event that a resolicitation is commenced, unless an
affirmative response is received within a reasonable period of time, all funds
will be promptly returned to investors as described above. A resolicitation, if
any, following the conclusion of the subscription and community offerings would
not exceed 45 days unless further extended by the Office of Thrift Supervision
for periods of up to 90 days not to extend beyond 24 months following the
special meeting of members, or _______________, 2004.
An increase in the independent valuation and the number of shares to be
issued in the offering would decrease both a subscriber's ownership interest and
Atlantic Liberty Financial Corp.'s pro forma earnings and stockholders' equity
on a per share basis while increasing pro forma earnings and stockholders'
equity on an aggregate basis. A decrease in the independent valuation and the
number of shares to be issued in the offering would increase both a subscriber's
ownership interest and Atlantic Liberty Financial Corp.'s pro forma earnings and
stockholders' equity on a per share basis while decreasing pro forma net income
and stockholders' equity on an aggregate basis. For a presentation of the
effects of such changes, see "Pro Forma Data."
Copies of the appraisal report of Feldman Financial Advisors, Inc. and the
detailed memorandum of the appraiser setting forth the method and assumptions
for such appraisal are available for inspection at the main office of Atlantic
Liberty Savings, F.A. and the other locations specified under "Where You Can
Obtain Additional Information."
No sale of shares of common stock may occur unless, prior to such sale,
Feldman Financial Advisors, Inc. confirms to Atlantic Liberty Savings, F.A. and
the Office of Thrift Supervision that, to the best of its knowledge, nothing of
a material nature has occurred that, taking into account all relevant factors,
would cause Feldman Financial Advisors, Inc. to conclude that the independent
valuation is incompatible with its estimate of the pro forma market value of the
common stock of Atlantic Liberty Financial Corp. at the conclusion of the
offering. Any change that would result in an aggregate purchase price that is
below the minimum or above the maximum of the estimated valuation range would be
subject to Office of Thrift Supervision's approval. If such confirmation is not
received, we may extend the offering, reopen or commence a new offering,
establish a new estimated valuation range and commence a resolicitation of all
purchasers with the approval of the Office of Thrift Supervision or take such
other actions as permitted by the Office of Thrift Supervision in order to
complete the offering.
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Procedure for Purchasing Shares
Prospectus Delivery. To ensure that each purchaser receives a prospectus
at least 48 hours before the expiration date, prospectuses may not be mailed any
later than five days prior to such date or be hand delivered any later than two
days prior to such date. Order forms may only be distributed with a prospectus.
Expiration Date. The offering will terminate at 5:00 p.m., New York time
on _________, 2002, unless extended by us for up to an additional 45 days or, if
approved by the Office of Thrift Supervision, for an additional period after
such 45-day extension (as so extended, the "expiration date"). We are not
required to give purchasers notice of any extension unless the expiration date
is later than _________, 2002, in which event purchasers will be given the right
to increase, decrease, confirm, or rescind their orders.
Use of Order Forms. In order to purchase the common stock, each purchaser
must complete an order form except for certain persons purchasing in the
syndicated community offering as more fully described below. Any person
receiving an order form who desires to purchase common stock may do so by
delivering (by mail or in person), to a full service branch of Atlantic Liberty
Savings, F.A., a properly executed and completed order form, together with full
payment for the shares purchased. The order form must be received prior to 5:00
p.m., New York time on ________, 2002. Each person ordering shares is required
to represent that they are purchasing such shares for their own account. Our
interpretation of the terms and conditions of the plan of conversion and of the
acceptability of the order forms will be final. We are not required to accept
copies of order forms.
Payment for Shares. Payment for all shares will be required to accompany a
completed order form for the purchase to be valid. Payment for shares may be
made by (i) cash, if delivered in person, (ii) check or money order, or (iii)
authorization of withdrawal from a deposit account maintained with Atlantic
Liberty Savings, F.A. Third party checks will not be accepted as payment for a
subscriber's order. Appropriate means by which such withdrawals may be
authorized are provided in the order forms.
Once such a withdrawal amount has been authorized, a hold will be placed
on such funds, making them unavailable to the depositor until the offering has
been completed or terminated. In the case of payments authorized to be made
through withdrawal from deposit accounts, all funds authorized for withdrawal
will continue to earn interest at the contract rate until the offering is
completed or terminated.
Interest penalties for early withdrawal applicable to certificate of
deposit accounts at Atlantic Liberty Savings, F.A. will not apply to withdrawals
authorized for the purchase of shares. However, if a withdrawal results in a
certificate of deposit account with a balance less than the applicable minimum
balance requirement, the certificate of deposit shall be canceled at the time of
withdrawal without penalty, and the remaining balance will earn interest at our
passbook rate subsequent to the withdrawal.
Payments received by Atlantic Liberty Savings, F.A. will be placed in a
segregated savings account and will be paid interest at our passbook rate from
the date payment is received until the offering is completed or terminated. Such
interest will be paid by check, on all funds held, including funds accepted as
payment for shares of common stock, promptly following completion or termination
of the offering.
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The employee stock ownership plan will not be required to pay for the
shares it intends to purchase until consummation of the offering.
Owners of self-directed IRAs may use the assets of such IRAs to purchase
shares of common stock in the offering, provided that the IRA accounts are not
maintained at Atlantic Liberty Savings, F.A. Persons with IRAs maintained with
us must have their accounts transferred to a self-directed IRA account with an
unaffiliated trustee in order to purchase shares of common stock in the offering
In addition, the provisions of ERISA and IRS regulations require that executive
officers, trustees, and 10% stockholders who use self-directed IRA funds and/or
Keogh plan accounts to purchase shares of common stock in the offering, make
such purchase for the exclusive benefit of the IRA and/or Keogh plan
participant. Assistance on how to transfer IRAs maintained at Atlantic Liberty
Savings, F.A. can be obtained from the Conversion Center. Depositors interested
in using funds in an IRA maintained at the bank should contact the Conversion
Center as soon as possible.
Once submitted, an order cannot be modified or revoked unless the offering
is terminated or extended beyond ________, 2002.
Depending on market conditions, the common stock may be offered for sale
to the general public on a best efforts basis in a syndicated community offering
by a selling group of broker-dealers to be managed by Sandler O'Neill &
Partners, L.P. Sandler O'Neill & Partners, L.P., in their discretion, will
instruct selected broker-dealers as to the number of shares to be allocated to
each selected broker-dealer. Only upon allocation of shares to selected
broker-dealers may they take orders from their customers. Investors who desire
to purchase shares in the community offering directly through a selected
broker-dealer, which may include Sandler O'Neill & Partners, L.P., will be
advised that the members of the selling group are required either (a) upon
receipt of an executed order form or direction to execute an order form on
behalf of an investor, to forward the appropriate purchase price to us for
deposit in a segregated account on or before twelve noon, prevailing time, of
the business day next following such receipt or execution; or (b) upon receipt
of confirmation by such member of the selling group of an investor's interest in
purchasing shares, and following a mailing of an acknowledgment by such member
to such investor on the business day next following receipt of confirmation, to
debit the account of such investor on the third business day next following
receipt of confirmation and to forward the appropriate purchase price to us for
deposit in the segregated account on or before twelve noon, prevailing time, of
the business day next following such debiting. Payment for any shares purchased
pursuant to alternative (a) above must be made by check in full payment
therefor. Payment for shares purchased pursuant to alternative (b) above may be
made by wire transfer to Atlantic Liberty Savings, F.A.
Delivery of Stock Certificates. Certificates representing common stock
issued in the offering will be mailed to the persons entitled thereto at the
registration address noted on the order form, as soon as practicable following
consummation of the offering. Any certificates returned as undeliverable will be
held by us until claimed by persons legally entitled thereto or otherwise
disposed of in accordance with applicable law. Until certificates for the common
stock are available and delivered to purchasers, purchasers may not be able to
sell the shares of stock which they ordered.
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Restrictions on Sale of Stock by Directors and Officers
All shares of the common stock purchased by our directors and officers in
the offering will be subject to the restriction that such shares may not be sold
or otherwise disposed of for value for a period of one year following the date
of purchase, except for any disposition of such shares (i) following the death
of the original purchaser or (ii) by reason of an exchange of securities in
connection with a merger or acquisition approved by the applicable regulatory
authorities. Sales of shares of the common stock by Atlantic Liberty Financial
Corp.'s directors and officers will also be subject to certain insider trading
and other transfer restrictions under the federal securities laws. See
"Supervision and Regulation--Federal Securities Laws."
Purchases of outstanding shares of common stock of Atlantic Liberty
Financial Corp. by directors, executive officers, or any person who was an
executive officer or director of Atlantic Liberty Savings, F.A. after adoption
of the plan of conversion, and their associates during the three-year period
following the conversion may be made only through a broker or dealer registered
with the Securities and Exchange Commission, except with the prior written
approval of the Office of Thrift Supervision. This restriction does not apply,
however, to negotiated transactions involving more than 1% of Atlantic Liberty
Financial Corp.'s outstanding common stock or to the purchase of stock under the
stock option plan.
Atlantic Liberty Financial Corp. has filed with the Securities and
Exchange Commission a registration statement under the Securities Act of 1933,
as amended, for the registration of the common stock to be issued in the
conversion. The registration under the Securities Act of shares of the common
stock to be issued in the conversion does not cover the resale of the shares.
Shares of common stock purchased by persons who are not affiliates of Atlantic
Liberty Financial Corp. may be resold without registration. Shares purchased by
an affiliate of Atlantic Liberty Financial Corp. will have resale restrictions
under Rule 144 of the Securities Act. If Atlantic Liberty Financial Corp. meets
the current public information requirements of Rule 144 under the Securities
Act, each affiliate of Atlantic Liberty Financial Corp. who complies with the
other conditions of Rule 144, including those that require the affiliate's sale
to be aggregated with those of certain other persons, would be able to sell in
the public market, without registration, a number of shares not to exceed, in
any three-month period, the greater of 1% of the outstanding shares of Atlantic
Liberty Financial Corp. or the average weekly volume of trading in the shares
during the preceding four calendar weeks. Provision may be made in the future by
Atlantic Liberty Financial Corp. to permit affiliates to have their shares
registered for sale under the Securities Act under certain circumstances.
Under guidelines of the NASD, members of the NASD and their associates
face certain restrictions on the transfer of securities purchased in accordance
with subscription rights and to certain reporting requirements upon purchase of
the securities.
Income Tax Consequences
Completion of the conversion is expressly conditioned upon prior receipt
by Atlantic Liberty Savings, F.A. of either a ruling from the Internal Revenue
Service or an opinion of Luse Gorman Pomerenk & Schick, P.C. with respect to
federal taxation, and a ruling of the New York taxation authorities or an
opinion with respect to New York taxation, to the effect that consummation of
the conversion will not be taxable to the converted association or Atlantic
Liberty Financial Corp.
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Luse Gorman Pomerenk & Schick, P.C. has issued an opinion with respect to
the proposed conversion of Atlantic Liberty Savings, F.A. to the effect that:
1. the conversion of Atlantic Liberty Savings, F.A.'s charter to a stock
savings association charter will qualify as a reorganization under Section
368(a)(1)(F) of the Code, and no gain or loss will be recognized by
Atlantic Liberty Savings, F.A. in its mutual or stock form by reason of
the conversion;
2. no gain or loss will be recognized by Atlantic Liberty Savings, F.A. or
Atlantic Liberty Financial Corp. on the receipt by Atlantic Liberty
Savings, F.A. of money from Atlantic Liberty Financial Corp. in exchange
for shares of Atlantic Liberty Savings, F.A.'s capital stock or by
Atlantic Liberty Financial Corp. upon the receipt of money from the sale
of its common stock;
3. the basis of the assets of Atlantic Liberty Savings, F.A. in the stock
form will be the same as immediately prior to the conversion;
4. the holding period of the assets of Atlantic Liberty Savings, F.A. in
the stock form will include the holding period of Atlantic Liberty
Savings, F.A. in the mutual form;
5. no gain or loss will be recognized by Atlantic Liberty Savings, F.A.'s
account holders upon the issuance to them of accounts in Atlantic Liberty
Savings, F.A. immediately after the conversion, in the same dollar amounts
and on the same terms and conditions as their accounts at Atlantic Liberty
Savings, F.A. in its mutual form, plus interest in the liquidation
account;
6. it is more likely than not that the fair market of the nontransferable
subscription rights to purchase of Atlantic Liberty Financial Corp.'s
common stock is zero. Accordingly, no gain or loss will be recognized by
eligible account holders and supplemental eligible account holders upon
the receipt of nontransferable subscription rights in the conversion, and
no taxable income will be realized upon the exercise by them of the
nontransferable subscription rights;
7. the tax basis of account holders' accounts in Atlantic Liberty Savings,
F.A. immediately after the conversion will be the same as the tax basis of
their accounts immediately before conversion;
8. the tax basis of each account holder's interest in the liquidation
account will be zero; and
9. it is more likely than not that the tax basis of the common stock
purchased in the conversion will be the amount paid for such stock and the
holding period for the stock will begin on the date of purchase.
The opinion addresses all material federal income tax consequences of the
conversion. The tax opinion as to item (6) above is based on the position that
subscription rights to be received by eligible account holders and supplemental
eligible account holders do not have any economic value at the time of
distribution or the time the subscription rights are exercised. In this regard,
Luse Gorman Pomerenk & Schick, P.C. noted that the subscription rights will be
94
granted at no cost to the recipients, are legally non-transferable and of short
duration, and will provide the recipient with the right only to purchase shares
of common stock at the same price to be paid by members of the general public in
any community offering. The firm also noted that Atlantic Liberty Financial
Corp. has received a letter from Feldman Financial Advisors, Inc. stating that
the subscription rights do not have any value. Feldman Financial Advisors, Inc.
should not be viewed as a tax expert, since its opinion states it did not
undertake any independent investigation of state or federal law or the position
of the Internal Revenue Service. Based on the foregoing, Luse Gorman Pomerenk &
Schick, P.C. believes that it is more likely than not that the nontransferable
subscription rights to purchase common stock have no value. However, the issue
of whether or not the nontransferable subscription rights have value is based on
all the facts and circumstances. If the nontransferable subscription rights
granted to eligible subscribers are subsequently found to have an ascertainable
value greater than zero, income may be recognized by various recipients of the
nontransferable subscription rights (in certain cases, whether or not the rights
are exercised) and we could recognize gain on the distribution of the
nontransferable subscription rights. The federal and state tax opinions,
respectively, referred to in this prospectus are filed as exhibits to the
registration statement. See "Where You Can Find More Information."
With respect to New York taxation, Atlantic Liberty Savings, F.A. has
received an opinion from Radics & Co., LLC to the effect that, assuming the
conversion does not result in any federal taxable income, gain or loss to
Atlantic Liberty Savings, F.A. in its mutual or stock form, Atlantic Liberty
Financial Corp., the account holders, borrowers, officers, directors and
employees and tax-qualified employee plans of Atlantic Liberty Savings, F.A.,
the conversion should not result in any New York income tax liability to these
entities or persons.
Unlike a private letter ruling, the opinions of Luse Gorman Pomerenk &
Schick, P.C. and Radics & Co., LLC 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 New York
tax authorities.
Interpretation, Amendment and Termination
All interpretations of the plan of conversion by the board of directors
will be final, subject to the authority of the Office of Thrift Supervision. The
plan of conversion provides that, if deemed necessary or desirable by the board
of directors of Atlantic Liberty Savings, F.A., the plan of conversion may be
substantively amended by a majority vote of the board of directors as a result
of comments from regulatory authorities or otherwise, at any time prior to
submission of proxy materials to Atlantic Liberty Savings, F.A.'s members.
Amendment of the plan of conversion thereafter requires a majority vote of the
board of directors, with the concurrence of the Office of Thrift Supervision.
The plan of conversion may be terminated by a majority vote of the board of
directors of Atlantic Liberty Savings, F.A. at any time prior to the earlier of
approval of the plan by the Office of Thrift Supervision and the date of the
special meeting of members, and may be terminated at any time thereafter with
the concurrence of the Office of Thrift Supervision. The plan of conversion
shall be terminated if the conversion is not completed within 24 months from the
date on which the members of Atlantic Liberty Savings, F.A. approve the plan of
conversion, and may not be extended by Atlantic Liberty Savings, F.A. or the
Office of Thrift Supervision.
95
Conversion Center
If you have any questions regarding the offering or the conversion, please
call the Conversion Center at (___) ____-_____, from 10:00 a.m. to 4:00 p.m.,
New York Time, Monday through Friday.
Participation By Management in the Offering
The following table sets forth information regarding intended common stock
purchases by each of the directors and executive officers of Atlantic Liberty
Savings, F.A. and their associates, and by all directors and executive officers
as a group. In the event the individual maximum purchase limitation is
increased, persons subscribing for the maximum amount may increase their
purchase order. This table excludes shares to be purchased by the employee stock
ownership plan, as well as any recognition and retention plan awards or stock
option grants that may be made no earlier than six months after the completion
of the conversion. The directors and officers have indicated their intention to
purchase in the offering an aggregate of $745,000 of common stock, equal to
6.8%, 5.8%, 5.0%, and 4.4% of the number of shares to be sold in the offering,
at the minimum, midpoint, maximum and adjusted maximum of the estimated
valuation range, respectively.
Aggregate
Purchase Number of Percent at
Name Price(1) Shares(1) Midpoint
- -------------------------------- ---------- --------- ----------
Richard T. Arkwright ........... $200,000 20,000 1.5%
Barry M. Donohue ............... 100,000 10,000 0.8
Hon. Guy J. Mangano ............ 100,000 10,000 0.8
Thomas M. De Martino ........... 100,000 10,000 0.8
George M. Spanakos ............. 200,000 20,000 1.5
William M. Gilfillan ........... 45,000 4,500 0.3
-------- ------ ---
All directors and executive
officers as a group .......... $745,000 74,500 5.8%
======== ====== ===
- ----------
(1) Includes purchases by associates.
96
RESTRICTIONS ON ACQUISITIONS OF STOCK AND RELATED TAKEOVER
DEFENSIVE PROVISIONS
Although the boards of directors of Atlantic Liberty Savings, F.A. and
Atlantic Liberty Financial Corp. are not aware of any effort that might be made
to obtain control of Atlantic Liberty Financial Corp. after conversion, the
boards of directors, as discussed below, believe that it is appropriate to
include certain provisions as part of Atlantic Liberty Financial Corp.'s
certificate of incorporation to protect the interests of Atlantic Liberty
Financial Corp. and its stockholders from takeovers which the board of directors
of Atlantic Liberty Financial Corp. might conclude are not in the best interests
of Atlantic Liberty Savings, F.A., Atlantic Liberty Financial Corp. or Atlantic
Liberty Financial Corp.'s stockholders.
The following discussion is a general summary of the material provisions
of Atlantic Liberty Financial Corp.'s certificate of incorporation and bylaws,
Atlantic Liberty Savings, F.A.'s charter 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 Atlantic Liberty Financial Corp.'s
certificate of incorporation and bylaws and Atlantic Liberty Savings, F.A.'s
proposed stock charter and bylaws, reference should be made in each case to the
document in question, each of which is part of Atlantic Liberty Savings, F.A.'s
application to the Office of Thrift Supervision and Atlantic Liberty Financial
Corp.'s Registration Statement filed with the Securities and Exchange
Commission. See "Where You Can Find Additional Information."
Provisions of Atlantic Liberty Financial Corp.'s Certificate of Incorporation
and Bylaws
Restrictions on Call of Special Meetings. The certificate of incorporation
provides that a special meeting of stockholders may be called by the Chairman of
the Board of Atlantic Liberty Financial Corp. or pursuant to a resolution
adopted by a majority of the board of directors. Stockholders are not authorized
to call a special meeting of stockholders.
Absence of Cumulative Voting. The 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
authorizes 500,000 shares of preferred stock, par value $0.10 per share.
Atlantic Liberty Financial Corp. 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 fix the designations, and relative
preferences, limitations, voting rights, if any, including without limitation,
offering rights of these shares (which could be a multiple or as a separate
class). In the event of a proposed merger, tender offer or other attempt to gain
control of Atlantic Liberty Financial Corp. 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 preferred stock on terms which the board
deems to be in the best interests of Atlantic Liberty Financial Corp. and its
stockholders.
Limitation on Voting Rights. The certificate of incorporation provides
that (i) no person shall directly or indirectly offer to acquire or acquire the
beneficial ownership of more than 10%
97
of any class of equity security of Atlantic Liberty Financial Corp.; 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.
Restrictions on Removing Directors from Office. The certificate of
incorporation provides that directors may only be removed for cause, and only by
the affirmative vote of the holders of at least 80% of the voting power of all
of our then-outstanding stock entitled to vote (after giving effect to the
limitation on voting rights discussed above in -"Limitation on Voting Rights.")
Amendments to Certificate of Incorporation and Bylaws. Amendments to the
certificate of incorporation must be approved by Atlantic Liberty Financial
Corp.'s board of directors and also by a majority of the outstanding shares of
Atlantic Liberty Financial Corp.'s voting stock; provided, however, that
approval by at least 80% of the outstanding voting stock is generally required
to amend the following provisions:
(i) The limitation on voting rights of persons who directly or
indirectly offer to acquire or acquire the beneficial ownership
of more than 10% of any class of equity security of Atlantic
Liberty Financial Corp.;
(ii) The inability of stockholders to act by written consent;
(iii) The inability of stockholders to call special meetings of
stockholders;
(iv) The division of the board of directors into three staggered
classes;
(v) The ability of the board of directors to fill vacancies on the
board;
(vi) The inability to deviate from the manner prescribed in the
bylaws by which stockholders nominate directors and bring other
business before meetings of stockholders;
(vii) The requirement that at least 80% of stockholders must vote to
remove directors, and can only remove directors for cause;
(viii) The ability of the board of directors to amend and repeal the
bylaws; and
(ix) The ability of the board of directors to evaluate a variety of
factors in evaluating offers to purchase or otherwise acquire
Atlantic Liberty Financial Corp.
The bylaws may be amended by the affirmative vote of the total number of
directors of Atlantic Liberty Financial Corp. or the affirmative vote of at
least 80% of the total votes eligible to be voted at a duly constituted meeting
of stockholders.
The shares of common stock that our directors and officers intend to
purchase in the conversion, when combined with the shares that may be awarded to
participants under our employee stock ownership plan and other stock benefit
plans, could result in management and
98
employees controlling in excess of 20% of our outstanding stock. See "Proposed
Management Purchases." That level would enable management and employees as a
group to defeat any stockholder matter that requires an 80% vote, including
amending the certificate of incorporation and bylaws, or removing directors from
office, discussed above in "- Restrictions on Removing Directors from Office."
Restrictions in Atlantic Liberty Savings, F.A.'s Federal Stock Charter and
Bylaws
Although the board of directors of Atlantic Liberty Savings, F.A. is not
aware of any effort that might be made to obtain control of Atlantic Liberty
Savings, F.A. after the conversion, the board of directors believes that it is
appropriate to adopt provisions permitted by federal regulation to protect the
interests of the converted association and its stockholders from any hostile
takeover. These provisions may, indirectly, inhibit a change in control of
Atlantic Liberty Financial Corp., as Atlantic Liberty Savings, F.A.'s sole
stockholder.
Atlantic Liberty Savings, F.A.'s charter will contain a provision whereby
the acquisition of beneficial ownership of more than 10% of the issued and
outstanding shares of any class of equity securities of Atlantic Liberty
Savings, F.A. by any person (i.e., any individual, corporation, group acting in
concert, trust, partnership, joint stock company or similar organization),
either directly or through an affiliate, will be prohibited for a period of five
years following the date of completion of the conversion. If shares are acquired
in violation of this provision of Atlantic Liberty Savings, F.A.'s charter, all
shares beneficially owned by any person in excess of 10% will be considered
"excess shares" and will not be counted as shares entitled to vote and will not
be voted by any person or counted as voting shares in connection with any
matters submitted to the stockholders for a vote. If holders of revocable
proxies for more than 10% of the shares of the common stock of Atlantic Liberty
Financial Corp. seek, among other things, to elect one-third or more of Atlantic
Liberty Financial Corp.'s board of directors, to cause Atlantic Liberty
Financial Corp.'s stockholders to approve the acquisition or corporate
conversion of Atlantic Liberty Financial Corp. or to exert a continuing
influence on a material aspect of the business operations of Atlantic Liberty
Financial Corp., which actions could indirectly result in a change in control of
Atlantic Liberty Savings, F.A., the board of directors of Atlantic Liberty
Savings, F.A. will be able to assert this provision of Atlantic Liberty Savings,
F.A.'s charter against these holders. Although the board of directors of
Atlantic Liberty Savings, F.A. is not currently able to determine when and if it
would assert this provision of Atlantic Liberty Savings, F.A.'s charter, the
board, in exercising its fiduciary duty, may assert this provision if it were
deemed to be in the best interests of Atlantic Liberty Savings, F.A., Atlantic
Liberty Financial Corp. and its stockholders. It is unclear, however, whether
this provision, if asserted, would be successful against such persons in a proxy
contest which could result in a change in control of Atlantic Liberty Savings,
F.A. indirectly through a change in control of Atlantic Liberty Financial Corp.
In addition, stockholders will not be permitted to cumulate their votes in
the election of directors. Furthermore, Atlantic Liberty Savings, F.A.'s bylaws
provide for the election of three classes of directors to staggered terms.
Finally, the charter provides for the issuance of shares of preferred
stock on terms, including conversion and voting rights, as may be determined by
Atlantic Liberty Savings, F.A.'s board of directors without stockholder
approval. Although Atlantic Liberty Savings, F.A. has no arrangements,
understandings or plans at the present time for the issuance or use of the
shares of undesignated preferred stock proposed to be authorized, the board
believes that the
99
availability of these shares will provide Atlantic Liberty Savings, F.A. with
increased flexibility in structuring possible future financings and acquisitions
and in meeting other corporate needs that may arise. If a proposed merger,
tender offer or other attempt to gain control of Atlantic Liberty Savings, F.A.
occurs of which management does not approve, the board can authorize the
issuance of one or more series of preferred stock with rights and preferences
which could 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 does not intend to issue any preferred stock except
on terms which the board deems to be in the best interest of Atlantic Liberty
Savings, F.A. and its then existing stockholders.
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 Office of Thrift Supervision, 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 the person is, or after consummation of the acquisition
would be, the beneficial owner of more than 10% of the stock. In the event that
any person, directly or indirectly, violates this regulation, the securities
beneficially owned by the 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 and loan
association at any time without the prior approval of the Office of Thrift
Supervision. "Acting in concert" is defined very broadly. In addition, federal
regulations require that, prior to obtaining control of a savings and loan
association, a person, other than a company, must give 60 days' prior notice to
the Office of Thrift Supervision and have received no Office of Thrift
Supervision objection to the acquisition of control. Any company that acquires
this 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 and loan association" includes state and federally chartered
institutions whose accounts are insured by the Savings Association Insurance
Fund and federally chartered savings banks whose accounts are insured by the
FDIC's Bank Insurance Fund and holding companies thereof. Furthermore, the
Office of Thrift Supervision has indicated that as a condition to its approval
of the conversion that Atlantic Liberty Savings, F.A. must have a charter that
subjects it to Office of Thrift Supervision jurisdiction for a least three
years.
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 and
loan association's directors, or a determination by the Office of Thrift
Supervision that the acquirer 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 and loan
association's voting stock, if the acquirer
100
also is subject to any one of eight "control factors," constitutes a rebuttable
determination of control under the regulations. These control factors include
the acquirer being one of the two largest stockholders. The determination of
control may be rebutted by submission to the Office of Thrift Supervision, prior
to the acquisition of stock or the occurrence of any other circumstances giving
rise to the 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 and loan association's stock must file with the Office of Thrift
Supervision a certification that the holder is not in control of the
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 Office of Thrift
Supervision, as applicable.
DESCRIPTION OF CAPITAL STOCK
General
Atlantic Liberty Financial Corp. is authorized to issue 6.0 million shares
of common stock having a par value of $0.10 per share and 500,000 shares of
preferred stock. Atlantic Liberty Financial Corp. currently expects to issue in
the conversion up to 1,487,813, subject to adjustment, shares of common stock in
the offering. Atlantic Liberty Financial Corp. does not intend to issue shares
of preferred stock in the conversion. Each share of Atlantic Liberty Financial
Corp. common stock will have the same relative rights as, and will be identical
in all respects with, each other share of common stock. Upon payment of the
$10.00 per share subscription price for the common stock, in accordance with the
plan of conversion, all of the common stock will be duly authorized, fully paid
and nonassessable.
The common stock of Atlantic Liberty Financial Corp. will represent
nonwithdrawable capital, will not be an account of an insurable type, and will
not be insured by the Federal Deposit Insurance Corporation or any other
government agency.
Common Stock
Dividends. Atlantic Liberty Financial Corp. can pay dividends out of
statutory surplus or from net profits if, as and when declared by its board of
directors. The payment of dividends by Atlantic Liberty Financial Corp. is
subject to limitations that are imposed by law and applicable regulation. The
holders of common stock of Atlantic Liberty Financial Corp. will be entitled to
receive and share equally in dividends as may be declared by the board of
directors of Atlantic Liberty Financial Corp. out of funds legally available
therefor. If Atlantic Liberty Financial Corp. issues preferred stock, the
holders thereof may have a priority over the holders of the common stock with
respect to dividends.
Voting Rights. Upon the conversion, the holders of common stock of
Atlantic Liberty Financial Corp. will possess exclusive voting rights in
Atlantic Liberty Financial Corp. They will elect Atlantic Liberty Financial
Corp.'s board of directors and act on other matters as are required to be
presented to them under Delaware law or as are otherwise presented to them by
the board of directors. Generally, each holder of common stock will be entitled
to one vote per share and will not have any right to cumulate votes in the
election of directors. If Atlantic Liberty Financial Corp. issues preferred
stock, holders of the preferred stock may also possess voting rights. Certain
matters require an 80% stockholder vote.
101
As a federal stock savings and loan association, corporate powers and
control of Atlantic Liberty Savings, F.A. are vested in its board of directors,
who elect the officers of Atlantic Liberty Savings, F.A. and who fill any
vacancies on the board of directors as it exists upon the conversion. Voting
rights of Atlantic Liberty Savings, F.A. are vested exclusively in the owners of
the shares of capital stock of Atlantic Liberty Savings, F.A., which will be
Atlantic Liberty Financial Corp., and voted at the direction of Atlantic Liberty
Financial Corp.'s board of directors. Consequently, the holders of the common
stock will not have direct control of Atlantic Liberty Savings, F.A.
Liquidation. In the event of any liquidation, dissolution or winding up of
Atlantic Liberty Financial Corp., Atlantic Liberty Financial Corp., as holder of
Atlantic Liberty Savings, F.A.'s capital stock, would be entitled to receive,
after payment or provision for payment of all debts and liabilities of Atlantic
Liberty Savings, F.A., including all deposit accounts and accrued interest
thereon, and after distribution of the balance in the special liquidation
account to eligible account holders and supplemental eligible account holders,
all assets of Atlantic Liberty Savings, F.A. available for distribution. In the
event of liquidation, dissolution or winding up of Atlantic Liberty Financial
Corp., the holders of its common stock would be entitled to receive, after
payment or provision for payment of all its debts and liabilities, all of the
assets of Atlantic Liberty Financial Corp. available for distribution. If
preferred stock is issued, the holders thereof may have a priority over the
holders of the common stock in the event of liquidation or dissolution.
Preemptive Rights. Holders of the common stock of Atlantic Liberty
Financial Corp. will not be entitled to preemptive rights with respect to any
shares which may be issued. The common stock is not subject to redemption.
Preferred Stock
None of the shares of Atlantic Liberty Financial Corp.'s authorized
preferred stock will be issued in the conversion. Preferred stock may be issued
with preferences and designations as the board of directors may from time to
time determine. The board of directors can, without stockholder approval, issue
preferred stock with voting, dividend, liquidation and conversion rights that
could dilute the voting strength of the holders of the common stock and may
assist management in impeding an unfriendly takeover or attempted change in
control.
LEGAL AND TAX MATTERS
The legality of the common stock and the federal income tax consequences
of the conversion will be passed upon for Atlantic Liberty Savings, F.A. and
Atlantic Liberty Financial Corp. by the firm of Luse Gorman Pomerenk & Schick,
P.C., Washington, D.C. The New York state income tax consequences of the
conversion will be passed upon for Atlantic Liberty Savings, F.A. and Atlantic
Liberty Financial Corp. by Radics & Co., LLC, Pine Brook, New Jersey. Luse
Gorman Pomerenk & Schick, P.C. and Radics & Co., LLC have consented to the
references in this prospectus to their opinions. Certain legal matters regarding
the conversion will be passed upon for Sandler O'Neill Partners, L.P. by Muldoon
Murphy & Faucette LLP, Washington, D.C.
EXPERTS
The consolidated financial statements of Atlantic Liberty Savings, F.A. at
March 31, 2002 and 2001 and for the years then ended, appearing in this
prospectus and registration
102
statement have been audited by Radics & Co., LLC, independent auditors, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given on the authority of such firm as experts in
accounting and auditing.
Feldman Financial Advisors, Inc. has consented to the publication in this
prospectus of the summary of its report to Atlantic Liberty Savings, F.A. and
Atlantic Liberty Financial Corp. setting forth its opinion as to the estimated
pro forma market value of the common stock upon the completion of the conversion
and its valuation with respect to subscription rights.
WHERE YOU CAN FIND MORE INFORMATION
Atlantic Liberty Financial Corp. has filed a registration statement with
the Securities and Exchange Commission under the Securities Act, with respect to
the common stock offered hereby. As permitted by the rules and regulations of
the Securities and Exchange Commission, this prospectus does not contain all the
information set forth in the registration statement. This information can be
examined without charge at the public reference facilities of the Securities and
Exchange Commission located at 450 Fifth Street, NW, Washington, D.C. 20549, and
copies of the material can be obtained from the Securities and Exchange
Commission at prescribed rates. The registration statement also is available
through the Securities and Exchange Commission's world wide web site on the
internet at http://www.sec.gov. The statements contained in this prospectus 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 the
documents; each statement is qualified by reference to the contract or document.
Atlantic Liberty Savings, F.A. has filed an Application for Conversion
with the Office of Thrift Supervision with respect to the conversion. Pursuant
to the rules and regulations of the Office of Thrift Supervision, this
prospectus omits certain information contained in that Application. The
Application may be examined at the principal offices of the Office of Thrift
Supervision, 1700 G Street, N.W., Washington, D.C. 20552 and at the Northeast
Regional Office of the Office of Thrift Supervision located at 10 Exchange
Place, 18th Floor, Jersey City, New Jersey 07302.
A copy of the certificate of incorporation and bylaws of Atlantic Liberty
Financial Corp. are available without charge from Atlantic Liberty Savings, F.A.
REGISTRATION REQUIREMENTS
In connection with the conversion, Atlantic Liberty Financial Corp. will
register the common stock with the Securities and Exchange Commission under
Section 12(g) of the Securities Exchange Act of 1934; and, upon this
registration, Atlantic Liberty Financial Corp. 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 Securities Exchange Act of 1934. Under the
plan, Atlantic Liberty Financial Corp. has undertaken that it will not terminate
this registration for a period of at least three years following the conversion.
103
ATLANTIC LIBERTY SAVINGS, F.A.
FINANCIAL STATEMENTS
(With Independent Auditors' Report Thereon)
March 31, 2002
ATLANTIC LIBERTY SAVINGS, F.A.
FINANCIAL STATEMENTS
(With Independent Auditors' Report Thereon)
March 31, 2002
----------------------------------------------------
INDEX
Page
-------------
Independent Auditors' Report F-2
Statements of Financial Condition as of March 31, 2002 and 2001 F-3
Statements of Income for the Years Ended March 31, 2002 and 2001 F-4
Statements of Comprehensive Income
for the Years Ended March 31, 2002 and 2001 F-5
Statements of Retained Earnings
for the Years Ended March 31, 2002 and 2001 F-6
Statements of Cash Flows for
the Years Ended March 31, 2002 and 2001 F-7 - F-8
Notes to Financial Statements F-9 - F-28
All schedules are omitted as the required information is either not applicable
or is presented in the financial statements.
SEPARATE FINANCIAL STATEMENTS FOR ATLANTIC LIBERTY FINANCIAL CORP. HAVE NOT BEEN
INCLUDED IN THIS PROSPECTUS BECAUSE ATLANTIC LIBERTY FINANCIAL CORP. HAS NO
ASSETS, CONTINGENT OR OTHER LIABILITIES, REVENUES OR EXPENSES AS IT WAS NOT
FORMED AS OF THE DATE OF THESE FINANCIAL STATEMENTS.
F-1
RADICS & CO., LLC
Certified Public Accountants & Consultants
INDEPENDENT AUDITORS' REPORT
----------------------------
To The Board of Directors
Atlantic Liberty Savings, F.A.
We have audited the accompanying statements of financial condition of Atlantic
Liberty Savings, F.A. (the "Association") as of March 31, 2002 and 2001, and the
related statements of income, comprehensive income, retained earnings and cash
flows for the years then ended. The financial statements are the responsibility
of the Association's management. Our responsibility is to express an opinion on
the financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits 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 audits provide 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 Atlantic Liberty Savings, F.A.
as of March 31, 2002 and 2001, and the results of its operations and cash flows
for the years then ended, in conformity with accounting principles generally
accepted in the United States of America.
/s/ Radics & Co., LLC
---------------------
Radics & Co., LLC
May 3, 2002
55 US Highway 46 East, Post Office Box 676, Pine Brook, NJ 07058-0676
Voice: 973-575-9696 Fax: 973-575-9695
Internet: www.radics.com
F-2
ATLANTIC LIBERTY SAVINGS, F.A.
STATEMENTS OF FINANCIAL CONDITION
---------------------------------
March 31,
------------------------------------
ASSETS Notes 2002 2001
------------------ ---------------- ----------------
Cash and amounts due from depository institutions $ 784,705 $ 1,492,348
Interest-bearing deposits 9,156,143 3,197,070
------------- -------------
Cash and cash equivalents 1 and 13 9,940,848 4,689,418
Investment securities held to maturity 1, 2 and 13 1,032,433 3,999,583
Mortgage-backed securities held to maturity 1, 3 and 13 15,757,853 18,820,359
Loans receivable, net 1, 4, 8 and 13 92,855,712 83,769,845
Premises and equipment 1, 6 and 12 1,352,844 1,367,259
Federal Home Loan Bank of New York stock 8 902,400 831,600
Interest receivable 1, 5 and 13 697,495 777,206
Deferred income tax 1 and 10 304,273 304,835
Investment in real estate 78,468 78,468
Other assets 1, 9, 10 and 12 1,121,330 1,604,547
------------- -------------
Total assets $ 124,043,656 $ 116,243,120
------------- -------------
LIABILITIES AND RETAINED EARNINGS
LIABILITIES
Deposits 7 and 13 $ 110,990,185 $ 106,122,883
Advances from Federal Home Loan Bank of New York 8 and 13 2,000,000 -
Advance payments by borrowers for taxes and insurance 968,644 961,862
Other liabilities 10 1,295,662 1,227,388
------------- -------------
Total liabilities 115,254,491 108,312,133
------------- -------------
Commitments and contingencies 12 and 13 - -
RETAINED EARNINGS 10, 11, and 15
Retained earnings - substantially restricted 8,789,165 7,930,987
------------- -------------
Total retained earnings 8,789,165 7,930,987
------------- -------------
Total liabilities and retained earnings $ 124,043,656 $ 116,243,120
============= =============
See notes to financial statements.
F-3
ATLANTIC LIBERTY SAVINGS, F.A.
STATEMENTS OF INCOME
------------------------------
Year Ended March 31,
----------------------------------
Notes 2002 2001
------------- --------------- ---------------
Interest income:
Loans 1 and 4 $ 6,763,439 $ 6,139,300
Mortgage-backed securities 1 918,522 1,159,336
Investments held to maturity 1 76,753 401,805
Securities available for sale - 81,626
Other interest-earning assets 253,834 290,991
------------ ------------
Total interest income 8,012,548 8,073,058
------------ ------------
Interest expense:
Deposits 7 3,756,053 4,445,808
Advances 52,251 -
Escrow 10,613 10,203
------------ ------------
Total interest expense 3,818,917 4,456,011
------------ ------------
Net interest income 4,193,631 3,617,047
Provision for (recovery of) loan losses 1 and 4 69,712 (17,705)
------------ ------------
Net interest income after provision for (recovery of)
loan losses 4,123,919 3,634,752
------------ ------------
Non-interest income:
Fees and service charges 128,430 65,209
Gain on foreclosed real estate - 171,165
(Loss) on sale of securities available for sale - (42,384)
Recovery of defalcation losses - 500,000
Miscellaneous 93,437 75,220
------------ ------------
Total non-interest income 221,867 769,210
------------ ------------
Non-interest expenses:
Salaries and employee benefits 9 1,591,560 1,189,152
Directors' compensation 9 214,320 218,123
Occupancy expenses, net 44,867 52,678
Equipment 1 276,752 267,189
Advertising 46,418 48,254
Federal insurance premium 27,365 51,257
Legal fees 78,673 118,365
Miscellaneous 587,166 555,047
------------ ------------
Total non-interest expenses 2,867,121 2,500,065
------------ ------------
Income before income taxes 1,478,665 1,903,897
Income tax expense 1 and 10 620,487 854,381
------------ ------------
Net income $ 858,178 $ 1,049,516
============ ============
See notes to financial statements.
F-4
ATLANTIC LIBERTY SAVINGS, F.A.
STATEMENTS OF COMPREHENSIVE INCOME
----------------------------------
Year Ended March 31,
------------------------------
2002 2001
------------- -------------
Net income $ 858,178 $ 1,049,516
------------- -------------
Other comprehensive income:
Unrealized holding (loss) on securities
available for sale - (2,872)
Reconciliation adjustment for realized losses - 42,384
------------- -------------
Total other comprehensive income - 39,512
------------- -------------
Comprehensive income $ 858,178 $ 1,089,028
============= =============
See notes to financial statements.
F-5
ATLANTIC LIBERTY SAVINGS, F.A.
STATEMENTS OF RETAINED EARNINGS
-------------------------------
Accumulated Other
Comprehensive
Retained Income -
Earnings - Unrealized Loss
Substantially on Securities
Restricted Available For Sale Total
--------------- --------------------- ---------------
Balance - March 31, 2000 $ 6,881,471 $ (39,512) $ 6,841,959
Net income for the year ended March 31, 2001 1,049,516 - 1,049,516
Unrealized gain on securities available for sale - 39,512 39,512
------------- ------------- -------------
Balance - March 31, 2001 7,930,987 - 7,930,987
Net income for the year ended March 31, 2002 858,178 - 858,178
------------- ------------- -------------
Balance - March 31, 2002 $ 8,789,165 $ - $ 8,789,165
============= ============= =============
See notes to financial statements.
F-6
ATLANTIC LIBERTY SAVINGS, F.A.
STATEMENTS OF CASH FLOWS
------------------------
Year Ended March 31,
----------------------------------
2002 2001
---------------- ----------------
Cash flows from operating activities:
Net income $ 858,178 $ 1,049,516
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation of premises and equipment 118,217 126,662
Net accretion of premiums,
discounts and deferred loan fees 21,011 (12,413)
Deferred income taxes 562 380,148
Provision for (recovery of) loan losses 69,712 (17,705)
(Gain) from sale of real estate owned - (166,034)
Loss on sale of securities available for sale - 42,384
Decrease (increase) in interest receivable 79,711 (42,043)
Decrease (increase) in other assets 483,217 (744,828)
Increase in other liabilities 68,274 89,257
------------- --------------
Net cash provided by operating activities 1,698,882 704,944
------------- --------------
Cash flows from investing activities:
Proceeds from sales of securities available
for sale - 3,855,383
Purchases of:
Securities available for sale - (81,625)
Investment securities held to maturity (1,038,495) -
Mortgage-backed securities held to maturity (5,205,490) (6,933,797)
Proceeds of maturities, calls and principal repayments on:
Investment securities held to maturity 4,000,000 2,700,000
Mortgage-backed securities held to maturity 8,217,730 3,420,681
Net change in loans receivable (9,120,679) (7,476,875)
Proceeds from sales of real estate owned - 632,446
Additions to premises and equipment (103,802) (55,812)
Purchases of Federal Home Loan Bank of New York stock (70,800) (61,500)
------------- --------------
Net cash (used in) investing activities (3,321,536) (4,001,099)
------------- --------------
Cash flows from financing activities:
Increase in deposits 4,867,302 4,822,287
Advances from Federal Home Loan Bank of New York 2,000,000 -
Increase (decrease) in advance payments
by borrowers for taxes and insurance 6,782 (19,565)
------------- --------------
Net cash provided by financing activities 6,874,084 4,802,722
------------- --------------
Net increase in cash and cash equivalents 5,251,430 1,506,567
Cash and cash equivalents - beginning 4,689,418 3,182,851
------------- --------------
Cash and cash equivalents - ending $ 9,940,848 $ 4,689,418
============= ==============
See notes to financial statements.
F-7
ATLANTIC LIBERTY SAVINGS, F.A.
STATEMENTS OF CASH FLOWS
------------------------
Year Ended March 31,
----------------------------------
2002 2001
---------------- ----------------
Supplemental disclosures of cash flow information: Cash paid for:
Interest $ 3,818,917 $ 4,456,011
============= ==============
Federal, state and city income taxes $ 836,248 $ 320,414
============= ==============
See notes to financial statements.
F-8
ATLANTIC LIBERTY SAVINGS, F.A.
NOTES TO FINANCIAL STATEMENTS
-----------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS AND BASIS OF FINANCIAL STATEMENT PRESENTATION
THE ASSOCIATION'S PRINCIPAL BUSINESS CONSISTS OF ATTRACTING RETAIL
DEPOSITS FROM THE GENERAL PUBLIC IN THE AREAS SURROUNDING ITS TWO
LOCATIONS IN BROOKLYN, NEW YORK AND INVESTING THOSE DEPOSITS, TOGETHER
WITH FUNDS GENERATED FROM OPERATIONS AND BORROWINGS, PRIMARILY IN
ONE-TO FOUR-FAMILY RESIDENTIAL MORTGAGE LOANS, MULTI-FAMILY AND
COMMERCIAL REAL ESTATE LOANS, MORTGAGE RELATED SECURITIES AND VARIOUS
OTHER SECURITIES. ONE-TO FOUR-FAMILY RESIDENTIAL REAL ESTATE IN THE
ASSOCIATION'S MARKET AREAS IS CHARACTERIZED BY A LARGE NUMBER OF
ATTACHED AND SEMI-DETACHED HOUSES, INCLUDING A NUMBER OF TWO-AND
THREE-FAMILY HOMES AND COOPERATIVE APARTMENTS. REVENUES ARE DERIVED
PRINCIPALLY FROM THE INTEREST ON LOANS, SECURITIES, LOAN ORIGINATION
AND SERVICING FEES, AND SERVICE CHARGES AND FEES COLLECTED ON DEPOSIT
ACCOUNTS. THE PRIMARY SOURCES OF FUNDS ARE DEPOSITS AND PRINCIPAL AND
INTEREST PAYMENTS ON LOANS AND SECURITIES.
THE ASSOCIATION'S LENDING AREAS IS CONCENTRATED IN THE NEIGHBORHOODS
SURROUNDING BOTH THE ASSOCIATION'S OFFICE LOCATIONS IN BROOKLYN, NEW
YORK. MOST OF THE DEPOSIT CUSTOMERS ARE RESIDENTS OF THE GREATER NEW
YORK METROPOLITAN AREA.
The financial statements of the Association have been prepared in
conformity with accounting principles generally accepted in the United
States of America ("GAAP"). In preparing the financial statements,
management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities as of the date of the
statement of financial condition and revenues and expenses for the
period then ended. Actual results could differ significantly from those
estimates.
Material estimates that are particularly susceptible to significant
change relate to the determination of the allowance for loan losses and
the amount of deferred taxes which are more likely than not to be
realized. Management believes that the allowance for loan losses is
adequate and that all deferred taxes are more likely than not to be
realized. While management uses available information to recognize
losses on loans, future additions to the allowance for loan losses may
be necessary based on changes in economic conditions in the
Association's market area. The assessment of the amount of deferred tax
assets more likely than not to be realized is based upon projected
future taxable income, which is subject to continual revisions for
updated information.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Association's allowance
for loan losses. Such agencies may require the Association to recognize
additions to the allowance based on their judgments about information
available to them at the time of their examination.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and amounts due from depository
institutions and interest-bearing deposits in other banks with original
maturities of three months or less.
F-9
ATLANTIC LIBERTY SAVINGS, F.A.
NOTES TO FINANCIAL STATEMENTS
-----------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
INVESTMENT AND MORTGAGE-BACKED SECURITIES
Investments in debt securities that the Association has the positive
intent and ability to hold to maturity are classified as
held-to-maturity securities and reported at amortized cost. Debt and
equity securities that are bought and held principally for the purpose
of selling them in the near term are classified as trading securities
and reported at fair value, with unrealized holding gains and losses
included in earnings. Debt and equity securities not classified as
trading securities nor as held-to-maturity securities are classified as
available for sale securities and reported at fair value, with
unrealized holding gains or losses, net of deferred income taxes, if
applicable, reported in the accumulated other comprehensive income
component of retained earnings.
Premiums and discounts on all securities are amortized or accreted to
income using the level-yield method. Gain or loss on sales of
securities is based on the specific identification method.
LOANS RECEIVABLE
Loans receivable are stated at unpaid principal balances less the
allowance for loan losses and net deferred loan fees. Interest is
calculated by the use of the actuarial method.
Recognition of interest income is discontinued and existing accrued
interest receivable reversed on loans that are more than ninety days
delinquent or where management, through its loan review process, feels
such interest is uncollectible. Income is subsequently recognized only
to the extent that cash payments are received until, in management's
judgment, the borrower's ability to make periodic interest and
principal payments is probable, in which case the loan is returned to
an accrual status.
Loan origination fees and certain direct loan origination costs are
deferred and accreted to income as an adjustment of yield over the
contractual lives of the related loans by use of the interest method.
ALLOWANCE FOR LOAN LOSSES
An allowance for loan losses is maintained at a level considered
adequate to absorb loan losses WHICH ARE BOTH PROBABLE AND REASONABLY
ESTIMABLE Management, in determining the allowance for loan losses,
considers the risks inherent in its loan portfolio and changes in the
nature and volume of loan activities, along with the general economic
and real estate market conditions. The Association utilizes a two tier
approach: (1) identification of impaired loans and establishment of
specific loss allowances on such loans; and (2) establishment of
general valuation allowances on the remainder of its loan portfolio.
The Association maintains a loan review system which allows for a
periodic review of its loan portfolio and the early identification of
potential impaired loans. Such system takes into consideration, among
other things, delinquency status, size of loans, types of collateral
and financial condition of the borrowers. Specific loan loss allowances
are established for identified losses based on a review of such
information. A loan evaluated for impairment is deemed to be impaired
when, based on current information and events, it is probable that the
Association will be unable to collect all amounts
F-10
ATLANTIC LIBERTY SAVINGS, F.A.
NOTES TO FINANCIAL STATEMENTS
-----------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd.)
ALLOWANCE FOR LOAN LOSSES (CONT'D.)
due according to the contractual terms of the loan agreement. All loans
identified as impaired are evaluated independently. The Association
does not aggregate such loans for evaluation purposes. Loan impairment
is measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate or, as a practical
expedient, at the loan's observable market price or the fair value of
the collateral if the loan is collateral dependent. General loan loss
allowances are based upon a combination of factors including, but not
limited to, actual loan loss experience, composition of the loan
portfolio, current economic conditions and management's judgment. The
allowance is increased through provisions charged against current
earnings and recoveries of previously charged off loans. Loans which
are determined to be uncollectible are charged against the allowance.
Although management believes that ^ specific and general loan loss
allowances are established ^TO ABSORB LOSSES WHICH ARE PROBABLE AND
REASONABLY ESTIMABLE actual losses are dependent upon future events
and, as such, further additions to the level of specific and general
loan loss allowances may be necessary. Payments received on impaired
loans are applied first to accrued interest receivable and then to
principal.
CONCENTRATION OF RISK
The Association's lending activities are concentrated in loans secured
by real estate primarily located in the State of New York.
PREMISES AND EQUIPMENT
Premises and equipment are comprised of land, at cost, and buildings
and improvements and furnishings and equipment, at cost, less
accumulated depreciation. Depreciation charges are computed on the
straight-line method over the following estimated useful lives:
Buildings and improvements 30 years
Furnishings and equipment 3 to 5 years
Significant renewals and betterments are charged to the premises and
equipment account. Maintenance and repairs are charged to expense in
the year incurred. Rental income is netted against occupancy expense in
the statements of income.
INCOME TAXES
Federal, state and city income taxes have been provided on the basis of
reported income. The amounts reflected on the income tax returns differ
from these provisions due principally to temporary differences in the
reporting of certain items for financial reporting and tax reporting
purposes. Deferred income taxes are recorded to recognize such
temporary differences and net operating loss carryforwards. The
realization of deferred tax assets is assessed and a valuation
allowance provided, when necessary, for that portion of the asset which
more likely than not will not be realized. Management believes, based
upon current facts, that it is more likely than not that there will be
sufficient taxable income in future years to realize all deferred tax
assets.
F-11
ATLANTIC LIBERTY SAVINGS, F.A.
NOTES TO FINANCIAL STATEMENTS
-----------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd.)
INTEREST RATE RISK
The Association is principally engaged in the business of attracting
deposits from the general public and using these deposits, together
with other funds, to make loans secured by real estate and, to a lesser
extent, to purchase investment and mortgage-backed securities. The
potential for interest-rate risk exists as a result of the shorter
duration of interest-sensitive liabilities compared to the longer
duration of interest-sensitive assets. In a rising rate environment,
liabilities will reprice faster than assets, thereby reducing net
interest income. For this reason, management regularly monitors the
maturity structure of interest sensitive assets and liabilities in
order to measure its level of interest-rate risk and to plan for future
volatility.
RECLASSIFICATION
Certain amounts for the year ended March 31, 2001 have been
reclassified to conform to the current year's presentation.
2. INVESTMENT SECURITIES HELD TO MATURITY
March 31, 2002
-------------------------------------------------------------------
Carrying Gross Unrealized Estimated
-------------------------------
Value Gains Losses Fair Value
-------------- ------------ ----------- ---------------
Corporate bonds:
Due after one year through five years $ 1,032,433 $ - $ 5,543 $ 1,026,890
=========== ======== ========= ===========
March 31, 2001
-------------------------------------------------------------------
Carrying Gross Unrealized Estimated
-------------------------------
Value Gains Losses Fair Value
-------------- ------------ ----------- ---------------
U.S. Government agencies:
Due after one year through five years,
callable before June 1, 2001 $ 3,999,583 $ 6,958 $ - $ 4,006,541
=========== ======== ========= ===========
There were no sales of investment securities held to maturity during the years
ended March 31, 2002 and 2001.
F-12
ATLANTIC LIBERTY SAVINGS, F.A.
NOTES TO FINANCIAL STATEMENTS
-----------------------------
3. MORTGAGE-BACKED SECURITIES HELD TO MATURITY
March 31, 2002
-------------------------------------------------------------------
Carrying Gross Unrealized Estimated
-------------------------------
Value Gains Losses Fair Value
-------------- ------------ ----------- ---------------
Government National Mortgage Association $ 1,142,624 $ 9,210 $ 21,810 $ 1,130,024
Federal Home Loan Mortgage Corporation 6,587,251 85,117 30,416 6,641,952
Federal National Mortgage Association 6,972,627 92,801 9,651 7,055,777
Collateralized Mortgage Obligations:
Federal Home Loan Mortgage Corporation 764,073 1,931 3,111 762,893
Federal National Mortgage Association 291,278 156 66 291,368
------------ ---------- ---------- -------------
$ 15,757,853 $ 189,215 $ 65,054 $ 15,882,014
============ ========== ========== =============
March 31, 2001
-------------------------------------------------------------------
Carrying Gross Unrealized Estimated
-------------------------------
Value Gains Losses Fair Value
-------------- ------------ ----------- ---------------
Government National Mortgage Association $ 269,214 $ 10,726 $ - $ 279,940
Federal Home Loan Mortgage Corporation 6,985,119 120,075 1,077 7,104,117
Federal National Mortgage Association 9,102,988 95,271 12,915 9,185,344
Collateralized Mortgage Obligations:
Federal Home Loan Mortgage Corporation 990,354 5,234 79 995,509
Federal National Mortgage Association 1,472,684 5,840 - 1,478,524
------------ ---------- ---------- -------------
$ 18,820,359 $ 237,146 $ 14,071 $ 19,043,434
============ ========== ========== =============
The unamortized cost and estimated fair value of mortgage-backed securities at
March 31, 2002, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
prepay obligations.
Carrying Estimated
Value Fair Value
--------- ----------
(In Thousands)
Due after one year through five years $ 10 $ 10
Due after five years through ten years 1,429 1,435
Due after ten years 14,319 14,437
-------- --------
$ 15,758 $ 15,882
======== ========
There were no sales of mortgage-backed securities held to maturity during the
years ended March 31, 2002 and 2001.
F-13
ATLANTIC LIBERTY SAVINGS, F.A.
NOTES TO FINANCIAL STATEMENTS
-----------------------------
4. LOANS RECEIVABLE
March 31,
----------------------------------
2002 2001
-------------- --------------
Real estate mortgage:
One to four family $ 64,499,214 $ 59,493,800
Multi-family 13,653,288 13,334,123
Commercial and land 15,076,351 11,074,895
-------------- --------------
93,228,853 83,902,818
-------------- --------------
Consumer:
Home equity loans 189,453 355,275
Unsecured 26,205 285
-------------- --------------
215,658 355,560
-------------- --------------
Total loans 93,444,511 84,258,378
-------------- --------------
Less:
Allowance for loan losses 435,104 358,104
Net deferred loan fees 153,695 130,429
-------------- --------------
588,799 488,533
-------------- --------------
$ 92,855,712 $ 83,769,845
============== ==============
At March 31, 2002 and 2001, loans for which the accrual of interest had been
discontinued totalled approximately $725,000 and $94,000, respectively. During
the years ended March 31, 2002 and 2001, the Association recognized interest
income of approximately $44,000 and $100, respectively, on these loans. Interest
income that would have been recorded, had the loans been performing in
accordance with their original terms, amounted to approximately $69,000 and
$8,000, respectively, for the years ended March 31, 2002 and 2001.
The Association has granted loans to its officers and managers and to their
associates. Related party loans are made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with unrelated persons and do not involve more than
normal risk of collectibility. The activity in such loans is as follows:
March 31,
----------------------------------
2002 2001
-------------- --------------
Balance - beginning $ 1,226 $ 1,214
Newly associated 194 -
New loans - 50
Loans no longer associated (596) -
Repayments (44) (38)
-------------- --------------
Balance - ending $ 780 $ 1,226
============== ==============
F-14
ATLANTIC LIBERTY SAVINGS, F.A.
NOTES TO FINANCIAL STATEMENTS
-----------------------------
4. LOANS RECEIVABLE (CONT'D.)
The following is an analysis of the allowance for loan losses:
Year Ended March 31,
-------------------------------------
2002 2001
----------------- ------------------
Balance - beginning $ 358,104 $ 401,274
Provision charged (recovery credited) to operations 69,712 (17,705)
Loans (charged off) (481) (43,170)
Loan recoveries 7,769 17,705
--------------- ----------------
Balance - ending $ 435,104 $ 358,104
=============== ================
Impaired loans and related amounts recorded in the allowance for loan losses are
summarized as follows: (in - thousands):
Year Ended March 31,
-------------------------------------
2002 2001
----------------- ------------------
Balance - beginning $ 358,104 $ 401,274
Provision charged (recovery credited) to operations 69,712 (17,705)
Loans (charged off) (481) (43,170)
Loan recoveries 7,769 17,705
--------------- ----------------
Balance - ending $ 435,104 $ 358,104
=============== ================
For the years ended March 31, 2002 and 2001, the average recorded investment in
impaired loans totalled $257,000 and $58,000, respectively. Cash basis interest
income of approximately $6,000 and $7,000, respectively, for the years ended
March 31, 2002 and 2001, was recognized on such loans during the time such loans
were impaired.
5. INTEREST RECEIVABLE
March 31,
-------------------------------------
2002 2001
--------------- ------------------
Loans, net of allowance for uncollected interest
of $19,721 (2002) and $18,734 (2001) $ 568,294 $ 525,022
Mortgage-backed securities 103,051 156,311
Investment securities 26,150 95,873
------------- ----------------
$ 697,495 $ 777,206
============= ================
F-15
ATLANTIC LIBERTY SAVINGS, F.A.
NOTES TO FINANCIAL STATEMENTS
-----------------------------
6. PREMISES AND EQUIPMENT
March 31,
-----------------------------------
2002 2001
---------------- ----------------
Land $ 400,000 $ 400,000
Buildings and improvements 1,999,229 1,977,219
Furnishings and equipment 442,111 557,907
-------------- --------------
2,841,340 2,935,126
Less accumulated depreciation 1,488,496 1,567,867
-------------- --------------
$ 1,352,844 $ 1,367,259
============== ==============
7. DEPOSITS
2002 2001
------------------------------------------------ ----------------------------------------------
Weighted Weighted
Average Average
Rate Amount Percent Rate Amount Percent
------------- ------------------- ------------ ----------- ------------------- -----------
Demand accounts:
Non-interest bearing 0.00% $ 2,427,596 2.19% 0.00% $ 3,122,424 2.94%
Interest bearing 0.74% 6,231,428 5.61% 0.99% 4,040,842 3.81%
Regular savings 1.24% 19,889,116 17.92% 2.16% 19,138,586 18.03%
Money Market 1.54% 17,389,828 15.67% 3.66% 14,965,359 14.11%
Certificates of deposit 3.53% 65,052,217 58.61% 5.53% 64,855,672 61.11%
----------------- -------- ----------------- -------
Total deposits 2.43% $ 110,990,185 100.00% 4.32% $ 106,122,883 100.00%
================= ======== ================= =======
A summary of certificates of deposit by maturity follows (in thousands):
March 31,
------------------------------------
2002 2001
----------------- -----------------
One year or less $ 46,440 $ 48,240
After one to two years 8,612 9,141
After two to three years 2,847 2,748
After three years 7,153 4,727
--------------- ---------------
$ 65,052 $ 64,856
=============== ===============
F-16
ATLANTIC LIBERTY SAVINGS, F.A.
NOTES TO FINANCIAL STATEMENTS
-----------------------------
7. DEPOSITS (CONT'D.)
Interest expense on deposits consist of the following:
Year Ended March 31,
------------------------------------
2002 2001
----------------- -----------------
Demand deposits $ 168,576 $ 185,880
Savings and money market 571,665 753,484
Certificate of deposits 3,026,669 3,518,368
--------------- ---------------
3,766,910 4,457,732
Early withdrawal penalties (10,857) (11,924)
--------------- ---------------
$ 3,756,053 $ 4,445,808
=============== ===============
At March 31, 2002 and 2001, time deposits with denominations of $100,000 or more
amounted to approximately $15,194,000 and $17,980,000, respectively. DEPOSITS IN
EXCESS OF $100,000 ARE NOT FEDERALLY INSURED.
8. ADVANCES FROM FEDERAL HOME LOAN BANK OF NEW YORK ("FHLB")
March 31,
--------------------------------------
Maturity Interest Rate 2002 2001
- --------------------------- ----------------- ----------------- -----------------
August 30, 2002 3.61% $ 400,000 $ -
September 30, 2003 4.15% 400,000 -
August 30, 2004 4.63% 600,000 -
August 30, 2005 4.94% 300,000 -
August 30, 2006 5.16% 300,000 -
--------------- ---------------
$ 2,000,000 $ -
=============== ===============
The advances are secured by stock of the FHLB in the amount of $902,400 and a
blanket assignment of qualifying loans at March 31, 2002.
F-17
ATLANTIC LIBERTY SAVINGS, F.A.
NOTES TO FINANCIAL STATEMENTS
-----------------------------
9. BENEFIT PLANS
PENSION PLAN
The Association has a non-contributory pension plan covering all
eligible employees. The plan is a defined benefit plan which provides
benefits based on a participant's years of service and compensation.
The Association's funding policy is to contribute annually the maximum
amount that can be deducted for federal income tax purposes.
The following table sets forth the plan's funded status:
March 31,
-----------------------------------
2002 2001
-------------- --------------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation - beginning $ 799,601 $ 1,310,370
Service cost 96,048 67,186
Interest cost 57,971 103,825
Actuarial loss 7,683 54,898
Settlements (7,606) (736,678)
------------ ------------
Benefit obligation - ending $ 953,697 $ 799,601
============ ============
CHANGE IN PLAN ASSETS
Fair value of assets - beginning $ 1,418,239 $ 2,265,762
Actual return on plan assets (97,172) (110,845)
Settlements (7,606) (736,678)
------------ ------------
Fair value of assets - ending $ 1,313,461 $ 1,418,239
============ ============
RECONCILIATION OF FUNDED STATUS
Accumulated benefit obligation $ (649,870) $ (530,525)
============ ============
Projected benefit obligation $ (953,697) $ (799,601)
Fair value of assets 1,313,461 1,418,239
------------ ------------
Funded status 359,764 618,638
Unrecognized transition (asset) (15,411) (23,116)
Unrecognized loss (gain) 127,915 (104,582)
Unrecognized past service liability 106,014 117,872
------------ ------------
Prepaid expense included in other assets $ 578,282 $ 608,812
============ ============
F-18
ATLANTIC LIBERTY SAVINGS, F.A.
NOTES TO FINANCIAL STATEMENTS
-----------------------------
9. BENEFIT PLANS (Cont'd.)
Year Ended March 31,
----------------------------------------
2002 2001
------------------ ------------------
NET PERIODIC PENSION EXPENSE
Service cost $ 96,048 $ 67,186
Interest cost 57,971 103,825
Expected return on assets (127,642) (183,604)
Amortization of:
Unrecognized past service liability 11,858 11,858
Unrecognized transition (asset) (7,705) (14,804)
Unrecognized (gain) - (36,010)
Settlement (credit) - (117,640)
----------------- ----------------
Total pension expense (credit) included in salaries
and employee benefits $ 30,530 $ (169,189)
================= ================
VALUATION ASSUMPTIONS
Discount rate 7.25% 8.00%
Long term rate 9.00% 8.00%
Salary increase rate 4.75% 6.00%
SAVINGS AND INVESTMENT PLAN (THE "PLAN")
The Association sponsors a Plan, pursuant to Section 401(k) of the
Internal Revenue Code, for all eligible employees. Employees may elect
to save up to 10% of their compensation of which the Association will
match 100% of employees contribution up to 6% of eligible compensation.
The Plan expense, which is included in salaries and employee benefits,
amounted to approximately $64,000 and $32,000 for the years ended March
31, 2002 and 2001, respectively.
OFFICERS' SUPPLEMENTAL PENSION PLAN
Effective October 17, 1995, the Association adopted a NON-QUALIFIED
supplemental pension plan to provide a supplemental pension benefit to
the Association's former deceased Chief Executive Officer (the
"Officer"). The plan provides for payments to be made in the amount of
$20,000 per year, adjusted by the consumer price index, for fifteen
years commencing with the Officer attaining age sixty-five and
commencing retirement or date of death. Such benefit is paid to the
Officer's designated beneficiaries ^. Effective April 1, 1996, the
Association began making payments to the beneficiaries and has accrued
$124,000 and $137,000 as of March 31, 2002 and 2001, respectively,
towards this liability. Expense recorded for this plan totalled
approximately $7,000 and $9,000 during the years ended March 31, 2002
and 2001, respectively.
F-19
ATLANTIC LIBERTY SAVINGS, F.A.
NOTES TO FINANCIAL STATEMENTS
-----------------------------
10. INCOME TAXES
The Association qualifies as a savings institution under the provisions of the
Internal Revenue Code and therefore, must calculate its tax bad debt deduction
using either the experience method or the specific charge off method. Retained
earnings at March 31, 2002 includes approximately $1.3 million of pre-1988 (base
year) bad debt allowance for which federal income taxes have not been provided.
In addition, deferred New York State and New York City taxes have not been
provided on bad debt allowances in the amount of $2.3 million and $2.4 million,
respectively. If such amount is used for purposes other than to absorb bad
debts, including distributions in liquidation, it will be subject to income tax
at the then current rate.
The components of income tax expense are summarized as follows:
Year Ended March 31,
-------------------------------------
2002 2001
----------------- -----------------
Current income tax expense:
Federal $ 434,768 $ 271,454
State and city 185,157 202,779
--------------- ---------------
619,925 474,233
--------------- ---------------
Deferred income tax expense:
Federal:
Utilization of Federal net operating
loss carryforward - 317,112
Other 10,717 178
--------------- ---------------
10,717 317,290
State and city (10,155) 62,858
--------------- ---------------
562 380,148
--------------- ---------------
$ 620,487 $ 854,381
=============== ===============
F-20
ATLANTIC LIBERTY SAVINGS, F.A.
NOTES TO FINANCIAL STATEMENTS
-----------------------------
10. INCOME TAXES (CONT'D.)
The components of the net deferred income tax asset are as follows:
March 31,
-----------------------------------
2002 2001
----------------- ----------------
Deferred income tax assets:
Deferred compensation $ 301,850 $ 297,893
Deferred loan fees 8,086 9,853
Allowance for loan losses 203,082 165,633
Uncollected interest 9,065 6,047
Officers supplemental pension 56,995 62,589
Other 31,996 81,163
--------------- --------------
611,074 623,178
--------------- --------------
Deferred income tax liabilities:
Prepaid pension (265,801) (276,434)
Depreciation (41,000) (41,909)
--------------- --------------
(306,801) (318,343)
--------------- --------------
Net deferred income tax asset $ 304,273 $ 304,835
=============== ==============
The following table presents a reconciliation between the reported income tax
expense and the income tax expense which would be computed by applying the
normal federal income tax rate of 34% to income before income taxes:
Year Ended March 31,
-------------------------------------
2002 2001
----------------- -----------------
Federal income tax expense $ 502,746 $ 647,325
Increases in taxes resulting from:
New York state and city income tax,
net of federal income tax effect 115,501 175,321
Other items, net 2,240 31,735
--------------- ---------------
Effective income tax expense $ 620,487 $ 854,381
=============== ===============
Effective income tax rate 41.96% 44.88%
------ ------
At March 31, 2002, refundable income taxes of $67,798 are included in other
assets. At March 31, 2001, current income tax liabilities of $139,812 are
included in other liabilities.
F-21
ATLANTIC LIBERTY SAVINGS, F.A.
NOTES TO FINANCIAL STATEMENTS
-----------------------------
11. REGULATORY CAPITAL
The Association is subject to various regulatory capital requirements
administered by federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Association's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Association must meet specific capital guidelines that involve quantitative
measures of the Association's assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The Association's
capital amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weighting, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Association to maintain minimum amounts and ratios of Total and Tier
1 capital (as defined in the regulations) to risk-weighted assets (as defined),
and of Tier 1 capital to adjusted total assets (as defined). The following
tables present a reconciliation of capital per GAAP and regulatory capital and
information as to the Association's capital levels at the dates presented:
March 31,
------------------------------
2002 2001
------------ -------------
(In Thousands)
GAAP capital (core and tangible capital) $ 8,789 $ 7,931
Add: general valuation allowance 435 358
Less: investment in real estate (78) (78)
---------- -----------
Total regulatory capital $ 9,146 $ 8,211
========== ===========
F-22
ATLANTIC LIBERTY SAVINGS, F.A.
NOTES TO FINANCIAL STATEMENTS
-----------------------------
11. REGULATORY CAPITAL (CONT'D.)
As of March 31, 2002
----------------------------------------------------------------------------------------
To Be Well Capitalized
Minimum Capital Under Prompt Corrective
Actual Requirements Actions Provisions
--------------------------- --------------------------- ---------------------------
Amount Ratio Amount Ratio Amount Ratio
------------ ------------ ------------ ----------- ----------- ------------
(Dollars in Thousands)
Total Capital
(to risk-weighted assets) $ 9,146 14.02% $ 5,218 8.00% $ 6,522 10.00%
Tier 1 Capital
(to risk-weighted assets) $ 8,789 13.48% - - $ 3,913 6.00%
Core (Tier 1) Capital
(to adjusted total assets) $ 8,789 7.09% $ 4,962 4.00% $ 6,202 5.00%
Tangible Capital
(to adjusted total assets) $ 8,789 7.09% $ 1,861 1.50% - -
As of March 31, 2001
----------------------------------------------------------------------------------------
To Be Well Capitalized
Minimum Capital Under Prompt Corrective
Actual Requirements Actions Provisions
--------------------------- --------------------------- ---------------------------
Amount Ratio Amount Ratio Amount Ratio
------------ ------------ ------------ ----------- ----------- ------------
(Dollars in Thousands)
Total Capital
(to risk-weighted assets) $ 8,211 13.82% $ 4,752 8.00% $ 5,941 10.00%
Tier 1 Capital
(to risk-weighted assets) $ 7,931 13.35% - - $ 3,564 6.00%
Core (Tier 1) Capital
(to adjusted total assets) $ 7,931 6.82% $ 4,650 4.00% $ 5,812 5.00%
Tangible Capital
(to adjusted total assets) $ 7,931 6.82% $ 1,744 1.50% - -
As of September 30, 2000, the most recent notification from the Office of Thrift
Supervision (the "OTS"), the Association was categorized as well capitalized
under the regulatory framework for prompt corrective action. There are no
conditions existing or events which have occurred since notification that
management believes have changed the Association's category.
12. COMMITMENTS AND CONTINGENCIES
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.
These commitments include commitments to originate loans and purchase
securities. These financial instruments primarily include commitments to extend
credit and involve, to varying degrees, elements of credit and interest rate
risk in excess of amounts recognized in the statements of financial condition.
F-23
ATLANTIC LIBERTY SAVINGS, F.A.
NOTES TO FINANCIAL STATEMENTS
-----------------------------
12. COMMITMENTS AND CONTINGENCIES (CONT'D.)
The Association's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual notional amount of those instruments. The
Association uses the same credit policies in making commitments as it does for
on-balance-sheet instruments.
Commitments to originate loans 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 and may
require payment of a fee. Since commitments may expire without being drawn upon,
the total commitment amounts do not necessarily represent future cash
requirements. The Association evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary by
the Association, upon extension of credit is based on management's credit
evaluation of the counterparty. Collateral held varies but primarily includes
residential real estate and income-producing commercial properties.
Commitments to purchase securities are contacts for delayed delivery of
securities in which seller agrees to make delivery at a specified future date of
a specified instrument, at a specified price or yield. Risks arise from possible
inability of counterparties to meet the terms of their contracts and from
movement in securities values and interest rates.
The Association had the following commitments outstanding:
March 31,
-------------------------------------
2002 2001
----------------- -----------------
To originate loans $ 9,487,000 $ 5,613,000
=============== ===============
To purchase mortgage-backed securities $ 865,000 $ -
=============== ===============
At March 31, 2002, of the $9,487,000 in outstanding commitments to originate
loans, $625,000 are at fixed rate of 6.25% and $8,862,000 in adjustable rates
with initial rates ranging from 4.75% to 10.25%. At March 31, 2002, the
outstanding commitment to purchase mortgage-backed securities were securities
having an aggregate face value of $838,000 with an adjustable rate of 6.96%.
At March 31, 2002 the Association has commitments to purchase equipment and
building improvements in the amount of $516,000 and contracts for data
processing conversion services in the amount of $173,000. In addition, the
Association also has, in the normal course of business, commitments for services
and supplies. Management does not anticipate losses on any of these
transactions.
The Association is a party to various litigation which arises primarily in the
ordinary course of business. In the opinion of management, the ultimate
disposition of such litigation should not have a material effect on the
financial position OR RESULTS OF OPERATIONS of the Association.
F-24
ATLANTIC LIBERTY SAVINGS, F.A.
NOTES TO FINANCIAL STATEMENTS
-----------------------------
13. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument is defined as the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than a forced or liquidation sale. Significant estimations were used by
the Association for the purposes of this disclosure. Estimated fair values have
been determined by the Association using the best available data and estimation
methodology suitable for each category of financial instruments. Fair value
estimates, methods and assumptions are set forth below for the association's
financial instruments.
CASH AND CASH EQUIVALENTS AND INTEREST RECEIVABLE
The carrying amounts for cash and cash equivalents and interest
receivable approximate fair value because they mature in three months
or less.
SECURITIES
The fair value of securities, both available for sale and held to
maturity, are based on quoted market or dealer prices, if available. If
quoted market or dealer prices are not available, fair value is
estimated using quoted market prices for similar securities.
LOANS RECEIVABLE
Fair value is estimated by discounting future cash flows, using the
current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities, of such
loans.
DEPOSITS
The fair value of demand and savings deposit accounts is equal to the
amount payable on demand at the reporting date. The fair value of
certificates of deposit is estimated by discounting future cash flow
using rates currently offered for deposits of similar remaining
maturities. The fair value estimates do not include the benefit that
results from the low-cost funding provided by deposit liabilities
compared to the cost of borrowing funds in the market.
ADVANCES FROM FEDERAL HOME LOAN BANK OF NEW YORK
The fair value is estimated using rates currently offered for
liabilities of similar remaining maturities, or when available, quoted
market prices.
F-25
ATLANTIC LIBERTY SAVINGS, F.A.
NOTES TO FINANCIAL STATEMENTS
-----------------------------
13. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS (CONT'D.)
COMMITMENTS
The fair value of commitments is estimated using fees currently charged to
enter into similar agreements taking into account the remaining terms of
the agreements and the present creditworthiness of the counterparties. For
fixed rate loan commitments, fair value also considers the difference
between current levels of interest and the committed rates.
March 31,
--------------------------------------------------------------
2002 2001
----------------------------- ------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------------ ------------- ------------- -------------
(In Thousands)
FINANCIAL ASSETS
Cash and cash equivalents $ 9,941 $ 9,941 $ 4,689 $ 4,689
Investment securities held to maturity 1,032 1,027 4,000 4,007
Mortgage-backed securities held to maturity 15,758 15,882 18,820 19,043
Loans receivable 92,856 93,823 83,770 85,321
Interest receivable 697 697 777 777
FINANCIAL LIABILITIES
Deposits 110,990 111,573 106,123 106,837
Advances 2,000 2,018 - -
COMMITMENTS
To originate loans 9,487 9,487 5,613 5,613
To purchase securities 865 865 - -
The fair value estimates are made at a discrete point in time based on relevant
market information and information about the financial instruments. Because no
market exists for a significant portion of the Association's financial
instruments, fair value estimates are based on judgments regarding future
expected loss experience, current economic conditions, risk characteristics of
various financial instruments, and other factors. These estimates are subjective
in nature and involve uncertainties and matters of significant judgment and,
therefore, cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
In addition, fair value estimates are based on existing on-and-off balance sheet
financial instruments, without attempting to estimate the value of anticipated
future business, and exclude the value of assets and liabilities that are not
considered financial instruments. Other significant assets that are not
considered financial assets and liabilities include premises and equipment. In
addition, the tax ramifications related to the realization of the unrealized
gains and losses can have a significant effect on fair value estimates and have
not been considered in any of the estimates.
F-26
ATLANTIC LIBERTY SAVINGS, F.A.
NOTES TO FINANCIAL STATEMENTS
-----------------------------
13. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS (CONT'D.)
Finally, reasonable comparability between financial institutions may not be
likely due to the wide range of permitted valuation techniques and numerous
estimates which must be made given the absence of active secondary markets for
many of the financial instruments. This lack of uniform valuation methodologies
introduces a greater degree of subjectivity to these estimated fair values.
14. RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") 141, Business Combinations,
which requires that all business combinations entered into after June 30, 2001
be accounted for under, the purchase method. Use of the pooling-of-interests
method is no longer permitted. This pronouncement will have no effect on the
Association's financial statements unless we enter into a business combination
transaction.
In July 2001, the FASB also issued SFAS 142, Goodwill and Other Intangible
Assets, which requires that goodwill no longer be amortized to earnings, but
instead that the assets received in a business combination transaction be
reviewed for impairment. The amortization of goodwill ceases upon adoption of
the Statement, which for most companies was January 1, 2002. This pronouncement
will not have any effect on the Association's financial statements.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the impairment or
Disposal of Long-Lived Assets." SFAS No. 144 is effective for financial
statements issued for fiscal years beginning after December 31, 2001. The
standard addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. Management does not expect the adoption of this
pronouncement to have a material impact on the Association's results of
operations OR financial condition.
IN APRIL 2002, THE FASB ISSUED SFAS NO. 145 "RESCISSION OF FASB STATEMENTS NO.
4, 44, AND 64, AMENDMENT OF FASB STATEMENT NO. 13 AND TECHNICAL CORRECTIONS"
WHICH RESCINDS SFAS NO. 4, REPORTING GAINS AND LOSSES FROM EXTINGUISHMENT OF
DEBT, AND AN AMENDMENT OF THAT STATEMENT, NO. 64, EXTINGUISHMENTS OF DEBT MADE
TO SATISFY SINKING-FUND REQUIREMENTS. THIS STATEMENT ALSO RESCINDS SFAS NO. 44,
ACCOUNTING FOR INTANGIBLE ASSETS OF MOTOR CARRIERS. THIS STATEMENT AMENDS SFAS
NO. 13, ACCOUNTING FOR LEASES, TO ELIMINATE AN INCONSISTENCY BETWEEN THE
REQUIRED ACCOUNTING FOR SALE-LEASEBACK TRANSACTIONS AND THE REQUIRED ACCOUNTING
FOR CERTAIN LEASE MODIFICATIONS THAT HAVE ECONOMIC EFFECTS THAT ARE SIMILAR TO
SALE-LEASEBACK TRANSACTIONS. THIS STATEMENT ALSO AMENDS OTHER EXISTING
AUTHORITATIVE PRONOUNCEMENTS TO MAKE VARIOUS TECHNICAL CORRECTIONS, CLARIFY
MEANINGS, OR DESCRIBE THEIR APPLICABILITY UNDER CHANGED CONDITIONS. SFAS NO. 145
IS EFFECTIVE FOR FISCAL YEARS BEGINNING AND TRANSACTIONS OCCURRING AFTER MAY 15
2002. MANAGEMENT DOES NOT EXPECT THE ADOPTION OF THIS PRONOUNCEMENT TO HAVE A
MATERIAL IMPACT ON THE ASSOCIATION'S RESULTS OF OPERATIONS OR FINANCIAL
CONDITION.
F-27
ATLANTIC LIBERTY SAVINGS, F.A.
NOTES TO FINANCIAL STATEMENTS
-----------------------------
15. STOCK CONVERSION
On April 17, 2002, the Board of Directors of the Association approved a plan to
convert the Association from a federally chartered mutual savings association to
a federally chartered stock savings association. The Plan of Conversion ("Plan")
is subject to approval by the OTS and the Association's members. Concurrent with
the conversion, a holding company is expected to be formed which will acquire
all the stock of the Association. The shares of holding company capital stock
are expected to be offered initially for subscription to eligible members of the
Association and certain other persons subject to various subscription
priorities. The exact terms for the stock offering have not been finalized but
may include subscription, community and public offerings.
At the time of conversion, the Association will establish a liquidation account
in an amount equal to its total retained earnings as of the latest statement of
financial condition appearing in the final offering circular. The liquidation
account will be maintained by the Association for the benefit of eligible
accountholders who continue to maintain deposit accounts at the Association
after the conversion. Each eligible accountholder shall, with respect to his
savings account, hold a related inchoate interest in a portion of the
liquidation account balance, in relation to his savings account balance at the
eligibility record date or to such balance as it may be subsequently reduced. In
the unlikely event of a complete liquidation of the Association (and only in
such event), following all liquidation payments to creditors (including those to
accountholders to the extent of their savings accounts) each eligible
accountholder shall be entitled to receive a liquidation distribution from the
liquidation account, in the amount of the then adjusted subsequent balance for
his savings account then held, before any liquidation distribution may be made
to any holders of the Association's capital stock. The Association shall not
declare or pay a dividend on, or repurchase any of its capital stock, if the
effect thereof would cause its net worth to be reduced below (i) the amount
required for the liquidation account; or (ii) the net worth requirements
contained in Section 563.13(b) of the Rules and Regulations of the OTS.
Conversion costs will be deferred and deducted from the proceeds of the shares
sold in the conversion. If the conversion does not take place, all costs
incurred will be charged to operations. AT MARCH 31, 2002, NO CONVERSION COSTS
HAVE BEEN INCURRED.
F-28
You should rely only on the information contained in this document or that
to which we have referred you. We have not authorized anyone to provide you with
information that is different. This document does not constitute an offer to
sell, or the solicitation of an offer to buy, any of the securities offered
hereby to any person in any jurisdiction in which such offer or solicitation
would be unlawful. The affairs of Atlantic Liberty Savings, F.A. or Atlantic
Liberty Financial Corp. may change after the date of this prospectus. Delivery
of this document and the sales of shares made hereunder does not mean otherwise.
Atlantic Liberty Financial Corp.
Proposed Holding Company for Atlantic Liberty Savings, F.A.
1,487,813 Shares of Common Stock
(Subject to Increase to up to 1,710,984 Shares)
---------------
PROSPECTUS
---------------
Sandler O'Neill & Partners, L.P.
_____________, 2002
Until the later of ____________, 2002 or 25 days after the commencement of the
offering, 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.
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article NINTH of the Certificate of Incorporation of Atlantic Liberty
Financial Corp. (the "Corporation") sets forth circumstances under which
directors, officers, employees and agents of the Corporation may be insured or
indemnified against liability which they incur in their capacities as such:
NINTH:
------
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, Officer, employee or agent of another corporation or of a 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, Officer,
employee or agent or in any other capacity while serving as a Director, Officer,
employee or agent, 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
NINTH 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 NINTH shall be
contract rights and such rights shall continue as to an indemnitee who has
ceased to be a Director, Officer, employee or agent 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 NINTH 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 be
entitled to be paid also 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
II-1
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 NINTH or otherwise shall be on the Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Article NINTH 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
the Board of 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 NINTH with respect to the indemnification and
advancement of expenses of Directors and Officers of the Corporation.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Payable to Type of Fee Total
---------- ----------- ------
Luse Gorman Pomerenk & Legal Fees and Expenses
Schick, P.C. (including Blue Sky fees)*............... $ 150,000
Sandler O'Neill & Partners, L.P.** Selling Agent fees*......................... 220,000
Financial Printer (to be selected) Printing, Postage, EDGAR and Mailing*....... 125,000
Feldman Financial Advisors, Inc. Appraisal and Business Plan Fees
and Expenses*............................ 22,500
Radics & Co., LLC Accounting Fees and Expenses*............... 50,000
Office of Thrift Supervision Filing Fees................................. 8,400
Securities and Exchange
Commission Filing Fees................................. 1,400
Nasdaq Filing Fees................................. 100,000
Muldoon Murphy & Faucette LLP Selling Agent Counsel Fees*................. 35,000
Sandler O'Neill & Partners, L.P. Conversion Agent/Transfer Agent Fees*....... 10,000
Blue Sky Fees............................... 2,500
Other Expenses*............................. 22,500
------
Total ...................................... $ 747,300
===========
II-2
- --------------------------
* Estimated
** Atlantic Liberty Financial Corp. has retained Sandler O'Neill & Partners,
L.P. to assist in the sale of common stock on a best efforts basis in the
offering.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Not Applicable.
ITEM 27. EXHIBITS:
The exhibits filed as part of this registration statement are
as follows:
(a) LIST OF EXHIBITS
1.1 Engagement Letters between Atlantic Liberty Savings, F.A. and Sandler
O'Neill & Partners, L.P.*
1.2 Form of Agency Agreement among Atlantic Liberty Financial Corp., Atlantic
Liberty Savings, F.A. and Sandler O'Neill & Partners, L.P.
2 Plan of Conversion*
3.1 Certificate of Incorporation of Atlantic Liberty Financial Corp.*
3.2 Bylaws of Atlantic Liberty Financial Corp.*
4 Form of Common Stock Certificate of Atlantic Liberty Financial Corp.*
5 Opinion of Luse Gorman Pomerenk & Schick regarding legality of securities
being registered
8.1 Federal Tax Opinion of Luse Gorman Pomerenk & Schick
8.2 State Tax Opinion of Radics & Co., LLC
10.1 Form of Atlantic Liberty Savings, F.A. Employment Agreement for Barry M.
Donohue*
10.2 Form of Atlantic Liberty Financial Corp. Employment Agreement for Barry
M. Donohue*
10.3 Form of Atlantic Liberty Savings, F.A. Employment Agreement for William
M. Gilfillan*
10.4 Form of Atlantic Liberty Financial Corp. Employment Agreement for William
M. Gilfillan*
10.5 Form of Employee Stock Ownership Plan*
10.6 Form of Atlantic Liberty Savings, F.A. Change in Control Agreements*
10.7 Atlantic Liberty Savings, F.A. Executive Incentive Bonus Plan*
10.8 Atlantic Liberty Savings, F.A. 401(k) Plan*
21 Subsidiaries of Registrant*
23.1 Consent of Luse Gorman Pomerenk & Schick (contained in Opinions included
on Exhibits 5 and 8.1)
II-3
23.2 Consent of Radics & Co., LLC
23.3 Consent of Feldman Financial Advisors, Inc.
24 Power of Attorney (set forth on signature page)
99.1 Appraisal and Business Plan Agreement between Atlantic Liberty Savings,
F.A. and Feldman Financial Advisors, Inc.*
99.2 Appraisal Report of Feldman Financial Advisors, Inc.*
99.3 Marketing Materials
99.4 Order and Acknowledgment Form*
99.5 Prospectus Supplement*
99.6 Opinion of Feldman Financial Advisors, Inc. with respect to Subscription
Rights
99.7 Appraisal Update
- -------------------------------------
* Previously filed
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To 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, to 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) To 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.
II-4
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.
II-5
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 for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the city of New
York, State of New York on August 1, 2002.
ATLANTIC LIBERTY FINANCIAL CORP.
By: /s/ Barry M. Donohue
-------------------------------------
Barry M. Donohue
President and Chief Executive Officer
(Duly Authorized Representative)
POWER OF ATTORNEY
We, the undersigned directors and officers of Atlantic Liberty
Financial Corp. (the "Company") hereby severally constitute and appoint Barry M.
Donohue as our true and lawful attorney and agent, to do any and all things in
our names in the capacities indicated below which said Barry M. Donohue may deem
necessary or advisable to enable the Company to comply with the Securities Act
of 1933, and any rules, regulations and requirements of the Securities and
Exchange Commission, in connection with the registration statement on Form SB-2
relating to the offering of the Company's Common Stock, including specifically,
but not limited to, power and authority to sign for us in our names in the
capacities indicated below the registration statement and any and all amendments
(including post-effective amendments) thereto; and we hereby approve, ratify and
confirm all that said Barry M. Donohue shall do or cause to be done by virtue
thereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates stated.
Signatures Title Date
---------- ----- ----
/s/ Barry M. Donohue President, Chief Executive Officer August 1, 2002
--------------------------------------- and Director (Principal Executive
Barry M. Donohue Officer)
/s/ William M. Gilfillan Chief Financial Officer (Principal August 1, 2002
--------------------------------------- Financial and Accounting Officer)
William M. Gilfillan
/s/ Richard T. Arkwright Chairman of the Board and Director August 1, 2002
---------------------------------------
Richard T. Arkwright
/s/ Thomas M. De Martino Director August 1, 2002
---------------------------------------
Thomas M. De Martino
II-6
/s/ Hon. Guy J. Mangano Director August 1, 2002
---------------------------------------
Hon. Guy J. Mangano
/s/ George M. Spanakos Director August 1, 2002
---------------------------------------
George M. Spanakos
II-7
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 5, 2002
REGISTRATION NO. 333-90828
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE
AMENDMENT NO. 1 TO THE
EXHIBITS
TO
REGISTRATION STATEMENT
ON
FORM SB-2
ATLANTIC LIBERTY FINANCIAL CORP.
BROOKLYN, NEW YORK
EXHIBIT INDEX
1.1 Engagement Letters between Atlantic Liberty Savings, F.A. and Sandler
O'Neill & Partners, L.P.*
1.2 Form of Agency Agreement among Atlantic Liberty Financial Corp., Atlantic
Liberty Savings, F.A. and Sandler O'Neill & Partners, L.P.
2 Plan of Conversion*
3.1 Certificate of Incorporation of Atlantic Liberty Financial Corp.*
3.2 Bylaws of Atlantic Liberty Financial Corp.*
4 Form of Common Stock Certificate of Atlantic Liberty Financial Corp.*
5 Opinion of Luse Gorman Pomerenk & Schick regarding legality of securities
being registered
8.1 Federal Tax Opinion of Luse Gorman Pomerenk & Schick
8.2 State Tax Opinion of Radics & Co., LLC
10.1 Form of Atlantic Liberty Savings, F.A. Employment Agreement for Barry M.
Donohue*
10.2 Form of Atlantic Liberty Financial Corp. Employment Agreement for Barry
M. Donohue*
10.3 Form of Atlantic Liberty Savings, F.A. Employment Agreement for William
M. Gilfillan*
10.4 Form of Atlantic Liberty Financial Corp. Employment Agreement for William
M. Gilfillan*
10.5 Form of Employee Stock Ownership Plan*
10.6 Form of Atlantic Liberty Savings, F.A. Change in Control Agreements*
10.7 Atlantic Liberty Savings, F.A. Executive Incentive Bonus Plan*
10.8 Atlantic Liberty Savings, F.A. 401(k) Plan*
21 Subsidiaries of Registrant*
23.1 Consent of Luse Gorman Pomerenk & Schick (contained in Opinions included
on Exhibits 5 and 8.1)
23.2 Consent of Radics & Co., LLC
23.3 Consent of Feldman Financial Advisors, Inc.
24 Power of Attorney (set forth on signature page)
99.1 Appraisal and Business Plan Agreement between Atlantic Liberty Savings,
F.A. and Feldman Financial Advisors, Inc.*
99.2 Appraisal Report of Feldman Financial Advisors, Inc.*
99.3 Marketing Materials
99.4 Order and Acknowledgment Form*
99.5 Prospectus Supplement*
99.6 Opinion of Feldman Financial Advisors, Inc. with respect to Subscription
Rights
99.7 Appraisal Update
- -------------------------------------
* Previously filed