August 1, 2002
Board of Directors
Atlantic Liberty Savings, F.A.
186 Montague Street
Brooklyn, New York 11201
Gentlemen:
Feldman Financial Advisors, Inc. ("Feldman Financial") has completed and
hereby provides an updated independent appraisal of the aggregate estimated pro
forma market value of Atlantic Liberty Savings, F.A. ("Atlantic Liberty" or the
"Association") in connection with its conversion from a federally chartered
mutual savings and loan association to a federally chartered stock savings and
loan association (the "Conversion"). Our original appraisal dated June 10, 2002
is incorporated herein by reference. This updated appraisal is being furnished
pursuant to discussions with the OTS and a review of current market conditions
for new thrift conversions.
The Conversion will include the formation of a Delaware corporation,
Atlantic Liberty Financial Corp. (the "Stock Company"), to be the holding
company for Atlantic Liberty. The Stock Company will offer shares of its common
stock for sale to eligible depositors and to the Association's employee stock
benefit plans in a Subscription Offering. Shares not subscribed for in the
Subscription Offering will be offered for sale to certain members of the general
public in a Community Offering.
In preparing this update, we conducted an analysis of the Association that
included discussions with its management and a review of its Offering Prospectus
dated June 20, 2002. In addition, where appropriate, we considered information
based upon other available public sources that we believe are reliable; however,
we cannot guarantee the accuracy and completeness of such information. We also
reviewed conditions in the securities markets in general and the market for
thrift stocks in particular and discuused the Association's recent financial
performance with management. Our update is based on representations by the
Association that information contained in the Offering Prospectus and furnished
to us by the Association and its independent auditor is truthful, accurate, and
complete. We did not independently verify the financial statements or any of the
other information provided to us by the Association or its independent auditor.
This updated valuation and our previous valuation are not intended, and
must not be construed to be a recommendation of any kind as to the advisability
of purchasing shares of common stock in the Offering. Moreover, because such
valuations are necessarily based upon estimates and projections of a number of
matters, all of which are subject to change from time to time, no assurance can
be given that persons who purchase shares of stock in the Offering will
Board of Directors
Atlantic Liberty Savings, FA
August 1, 2002
Page 2
thereafter be able to sell such shares at prices related to our estimate of the
Association's pro forma market value. Feldman Financial is not a seller of
securities within the meaning of any federal or state securities laws and any
report prepared by Feldman Financial shall not be used as an offer or
solicitation with respect to the purchase or sale of any securities.
RECENT FINANCIAL PERFORMANCE
Our original appraisal discussed the Association's financial performance
for the twelve months ended March 31, 2002. The Association has not issued new
financial reports since the initial appraisal, therefore, there is no analysis
of recent performance by the Association nor is there an update comparing the
Association's financial performance with the Comparative Group. A discussion
with management indicates that the Association continues to perform in a manner
consistent with the performance detailed in the original appraisal. Please refer
to our original appraisal for a comparison of the Association's financial
performance with the Comparative Group.
STOCK MARKET CONDITIONS AND COMPARATIVE GROUP PRICE PERFORMANCE
Since our original appraisal date as of June 10, 2002, stock valuations of
thrifts have been relatively stable while the current overall stock market has
shown rapid price movements, but with a bias toward the downside.
While general economic conditions continue to remain unstable, the market
for small and mid-size financial institutions continues to remain positive.
Interests rates remain at 30-year lows and no increase is anticipated in the
near future due to the sluggish nature of the overall economy.
Exhibit 1 displays the net change in various market indexes between June
10, 2002 and August 1, 2002. During this time span, the S&P 500 Stock Index
decreased 14.2%. The SNL Thrift Index, while declining, outperformed the broader
market index with a decrease of only 3.9%. The SNL Small Thrift Index declined
2.8% over the same period. While the general markets have continued the decline
that started in 2000, thrift stocks have managed to remain relatively flat due
to low interest rates and a strong housing market.
There has been one announced acquisition in the state of New York since
June 10, 2002. First Niagara Financial Group, Inc. (MHC) announced on June 27,
2002 that it intended to acquire Finger Lakes Bancorp, Inc. The announced price
to book ratio was 170.9% and the announced price to trailing twelve months
earnings ratio was 25.0X. The Mid-Atlantic Thrift Index declined by 2.7% between
June 10, 2002 and August 1, 2002.
Board of Directors
Atlantic Liberty Savings, FA
August 1, 2002
Page 3
As discussed in our original appraisal, the selection criteria for
Comparative Group members exclude companies whose trading valuations are
influenced by announced acquisitions since stock prices of these companies tend
to gravitate toward acquisition offer prices.
Exhibit 2 displays the relative price change of the Comparative Group
companies between June 10, 2002 and August 1, 2002. The Comparative Group posted
an average price decline of 0.8%. One of the thrifts in the Comparative Group
posted a decline of 16.0%. Nine of the thrifts in the Comparative Group posted
price increases while nine thrifts in the Comparative Group posted price
declines.
VALUATION APPROACH
Since our original appraisal, thrift stock valuations in general have
remained relatively flat, while the overall market has continued to decline.
Since the original appraisal, only one conversion has been completed, Miden
Bancorp, Inc. MHC ("Miden"). Miden was a mutual holding company conversion as
opposed to full conversion, which the Association is performing. Miden was
priced at 87.12% of pro forma book value with a price to earnings multiple of
34.6X. Following the conversion, the stock increased 19.5%.
Based on the Association's continued operating performance, and current
market conditions for thrift stocks and thrift conversions (including strong
subscription interest), we have concluded that the Association's pro forma
market value at the midpoint should increase 15%, reflecting a new midpoint of
$12.9 million.
Exhibit 3 presents a comparative valuation summary of the Association's
pro forma valuation ratios with those of the Comparative Group. Exhibits 4
through 6 present additional detail on the pro forma valuation calculations. The
Association's historical financial data is presented through the period ending
March 31, 2002.
At the maximum valuation of $14.9 million, the Association's pro forma
fully converted price-to-book ratio is 70.4%, its price-to-LTM earnings ratios
is 13.4x, and its price-to-assets ratio is 10.91%. The price-to-book ratio at
the adjusted maximum (a ratio reviewed by many investors as a likely final
pricing ratio) is 74.1% and the price-to-LTM earnings ratio is 15.7X. Consistent
with the valuation relationships expounded upon in our original appraisal and
initial update, the Association's price-to-book ratio at the maximum represents
a discount to the Comparative Group median price-to-book ratio of 97.4%. The
price-to-LTM earnings ratio trails the Comparative Group median price-to-LTM
earnings ratio of 15.0x, while the resulting price-to-assets ratio is in line
with the Comparative Group median price-to-assets ratio of 10.6%.
Board of Directors
Atlantic Liberty Savings, FA
August 1, 2002
Page 4
VALUATION CONCLUSION
Based on current market conditions, it is our opinion that, as of August
1, 2002, the aggregate estimated pro forma market value of the Association
should increase 15% from the original valuation, with an updated valuation range
of $10,966,880 to $14,878,130 with a midpoint of $12,937,500. The valuation
range was based upon a 15 percent decrease from the midpoint to determine the
minimum and a 15 percent increase to establish the maximum. Assuming an
additional 15 percent increase above the maximum value results in an adjusted
maximum of $17,109,840.
Sincerely,
FELDMAN FINANCIAL ADVISORS, INC.
/s/ Trent R. Feldman
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By: Trent R. Feldman
President