- --------------------------------------------------------------------------------
PRO FORMA VALUATION UPDATE REPORT
ATLANTIC COAST FEDERAL CORPORATION
HOLDING COMPANY FOR
ATLANTIC COAST FEDERAL
Waycross, Georgia
Dated As Of:
July 27, 2004
- --------------------------------------------------------------------------------
Prepared By:
RP(R) Financial, LC.
1700 North Moore Street
Suite 2210
Arlington, Virginia 22209
[LETTERHEAD]
RP(R) FINANCIAL, LC.
- ---------------------------------------------
Financial Services Industry Consultants
July 27, 2004
Board of Directors
Atlantic Coast Federal Mutual Holding Company
Atlantic Coast Federal Corporation
Atlantic Coast Federal
505 Haines Avenue
Waycross, Georgia 31501
Members of the Boards:
At your request, we have completed and hereby provide an updated
independent appraisal ("Update") of the estimated pro forma market value of the
Common Stock which is to be offered in connection with the Plan of Stock
Issuance (the "Plan"), described below.
This Update is furnished pursuant to the requirements of 563b.7 and has
been prepared in accordance with the "Guidelines for Appraisal Reports for the
Valuation of Savings and Loan Associations Converting from Mutual to Stock Form
of Organization" of the Office of Thrift Supervision ("OTS"), including the most
recent revisions as of October 21, 1994, and applicable interpretations thereof.
Our Original Appraisal report, dated March 5, 2004 (the "Original
Appraisal"), is incorporated herein by reference. As in the preparation of our
Original Appraisal, we believe the data and information used herein is reliable;
however, we cannot guarantee the accuracy and completeness of such information.
This update has been prepared to reflect: changes in stock market
conditions for thrifts since the Original Appraisal, including the market for
all publicly-traded thrifts in mutual holding company form and the new issue
market for converting thrifts (including standard conversions, second step
conversions and initial offerings by mutual holding companies); and Atlantic
Coast Federal Corporation's recent financial developments as of June 30, 2004.
As noted in the Original Appraisal, the valuation will be updated at least once
more prior to the close of the Conversion to reflect such factors.
Description of Plan of Stock Issuance
- -------------------------------------
Atlantic Coast Federal Mutual Holding Company (the "MHC") is a
federally chartered mutual holding company regulated by the OTS. The MHC was
formed in 2003 in conjunction with the mutual holding company reorganization of
Atlantic Coast Federal, Waycross, Georgia, ("Atlantic Coast Federal" or the
"Bank"); no stock was issued publicly in the mutual holding company
reorganization. Simultaneous with the mutual holding company reorganization, a
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Washington Headquarters
Rosslyn Center Telephone: (703) 528-1700
1700 North Moore Street, Suite 2210 Fax No.: (703) 528-1788
Arlington, VA 22209 Toll-Free No.: (866) 723-0594
www.rpfinancial.com E-Mail: mail@rpfinancial.com
Board of Directors
July 27, 2004
Page 2
wholly-owned mid-tier stock holding company was formed known as Atlantic Coast
Federal Corporation ("ACFC" or the "Company") and Atlantic Coast Federal became
a wholly-owned subsidiary of the Company. Pursuant to the Plan, the Company will
offer for sale up to 49.0% of its common stock (the "Minority Stock Issuance")
to the Bank's Eligible Account Holders, Supplemental Eligible Account Holders
and tax-qualified plans of the Bank (including the employee stock ownership
plan, or "ESOP"). Any shares that are not sold in the Subscription Offering may
be offered for sale in the Direct Community Offering and subsequently, if
appropriate, to the public in a Syndicated Community Offering. The number of
shares of common stock to be sold in the Offering will approximate 40% of the
total shares. The number of shares issued to the MHC will approximate 60% of the
total shares.
Immediately following the Minority Stock Issuance, the primary assets
of the Company will be the capital stock of the Bank and the net offering
proceeds remaining after contributing proceeds to the Bank. The Company will
retain up to 50% of the net offering proceeds. The Company intends to use a
portion of the proceeds to make a loan directly to the ESOP to enable the ESOP
to purchase up to 8.0% of the shares of common stock sold in the offering.
Limiting Factors and Considerations
- -----------------------------------
Our valuation is not intended, and must not be construed, as a
recommendation of any kind as to the advisability of purchasing shares of the
Common Stock. Moreover, because such valuation is necessarily based upon
estimates and projections of a number of matters, all of which are subject to
change from time to time, no assurance can be given that persons who purchase
shares of Common Stock in the Offering will thereafter be able to buy or sell
such shares at prices related to the foregoing valuation of the pro forma market
value thereof.
RP Financial's valuation was determined based on the financial
condition and operations of the Company as of June 30, 2004, the date of the
supplemental financial data included in the regulatory applications and
prospectus.
RP Financial is not a seller of securities within the meaning of any
federal and state securities laws and any report prepared by RP Financial shall
not be used as an offer or solicitation with respect to the purchase or sale of
any securities. RP Financial maintains a policy which prohibits the company, its
principals or employees from purchasing stock of its client institutions.
The valuation will be updated as provided for in the conversion
regulations and guidelines. These updates will consider, among other things, any
developments or changes in the Company's financial performance and condition,
management policies, and current conditions in the equity markets for thrift
shares. These updates may also consider changes in other external factors which
impact value including, but not limited to: various changes in the legislative
and regulatory environment, the stock market and the market for thrift stocks,
and interest rates. Should any such new developments or changes be material, in
our opinion, to the valuation of the shares, appropriate adjustments to the
estimated pro forma market value will be
Board of Directors
July 27, 2004
Page 3
made. The reasons for any such adjustments will be explained in the update at
the date of the release of the update.
Discussion of Relevant Considerations
- -------------------------------------
1. Financial Results
-----------------
Following the preparation of the Original Appraisal, the Company's
June 30, 2004 financial data became available in supplemental form in the
prospectus. The following discussion is based on such data. In this regard,
Table 1 presents summary balance sheet and income statement data through June
30, 2004, as well as comparable data for the period ending December 31, 2003, as
set forth in the Original Appraisal report.
Growth Trends
-------------
The Company's total assets increased by approximately $80.6 million
over the six months ended June 30, 2004, which was primarily funded by an
increase in deposits and, to a lesser extent, borrowed funds. A portion of the
increase in deposits (management estimates approximately $19 million) reflects
some depositors interest in gaining subscription rights or a higher qualifying
deposit following the announcement of the Minority Stock Issuance. The balance
of loans increased during the six month period reflecting a comparatively strong
level of loan originations.
Equity increased during the six months ended June 30, 2004, as a
result of interim earnings and a modest increase in the net valuation on AFS
securities.
Loans Receivable
----------------
Loans receivable increased from $435.6 million, as of December 31,
2003, to $499.4 million, as of June 30, 2004, to equal 87.2% of assets. As
described in the Original Appraisal, growth in the loan portfolio has been
primarily focused in the mortgage portfolio, including 1-4 family mortgage loans
as well as multi-family and commercial mortgage loans.
Cash and Investment Securities
------------------------------
As would be expected given the significant short-term deposit inflow
referenced above, the balance of cash and cash equivalents increased
significantly over the most recent six month period, from $9.0 million, or 1.8%
of assets, as of December 31, 2003, to $29.3 million, or 5.1% of assets, as of
June 30, 2004. Conversely, investment securities classified as available for
sale ("AFS") decreased from $26.0 million, or 5.2% of assets, as of December 31,
2003, to $21.9 million, or 3.8% of assets, as of June 30, 2004, partially
reflecting the redemption of callable securities in the Company's portfolio.
Board of Directors
July 27, 2004
Page 4
Table 1
Atlantic Coast Federal
Recent Financial Data
At Dec. 31, 2003 At June 30, 2004
----------------------- --------------------------
% of % of
Amount Assets Amount Assets
------ ------ ------ ------
($000) (%) ($000) (%)
Balance Sheet Data
- ------------------
Assets $499,040 100.00% $579,629 100.00%
Cash and Cash Equivalents 8,978 1.80% 29,264 5.05%
Loans Receivable (net) 435,614 87.29% 499,423 86.16%
Investment Securities - AFS 26,039 5.22% 21,861 3.77%
FHLB Stock 3,082 0.62% 4,549 0.78%
Intangible Assets 2,661 0.53% 2,661 0.46%
Deposits 392,256 78.60% 440,380 75.98%
Borrowed Funds 60,971 12.22% 90,971 15.69%
Total Equity 43,218 8.66% 45,019 7.77%
12 Months Ended 12 Months Ended
Dec. 31, 2003 June 30, 2004
---------------------- --------------------------
% of Avg. % of Avg.
Amount Assets Amount Assets
------ ------ ------ ------
($000) (%) ($000) (%)
Summary Income Statement
- ------------------------
Interest Income $31,213 6.43% $30,353 5.82%
Interest Expense (11,781) -2.43% (11,222) -2.15%
------- ----- ------- -----
Net Interest Income $19,432 4.00% $19,131 3.67%
Provision for Loan Losses (4,238) -0.87% (1,979) -0.38%
------- ----- ------- -----
Net Interest Income after Provisions $15,194 3.13% $17,152 3.29%
Other Operating Income 4,893 1.01% 5,055 0.97%
Operating Expense (15,911) -3.28% (16,294) -3.13%
------- ----- ------- -----
Net Operating Income $4,176 0.86% $5,913 1.13%
Net Non-Operating Income 2,640 0.54% 2,617 0.50%
------- ----- ------- -----
Net Income Before Tax $6,816 1.40% $8,530 1.63%
Income Taxes (2,399) -0.49% (3,071) -0.59%
------- ----- ------- -----
Net Income (Loss) Before Extraord. Items $4,417 0.91% $5,459 1.04%
Less: Non-Recurring Income (2,640) -0.54% (2,617) -0.50%
Tax Effect (1) 1,003 0.21% 994 0.18%
------- ----- ------- -----
Estimated Core Net Income $2,780 0.58% $3,836 0.72%
(1) Reflects a 38% effective tax rate.
Source: Atlantic Coast Federal's audited and unaudited financial statements and
RP Financial calculations.
Board of Directors
July 27, 2004
Page 5
Funding
-------
Total deposits increased by nearly $48.1 million to total $440.4
million, reflecting both the impact of the influx of funds from both in-state
and out-of-state depositors seeking to gain subscription rights and growth in
core customer deposits. In this regard, $13.8 million of the growth was
attributable to the introduction of a new tiered checking account while CDs
increased by $12.2 million.
For the six months ended June 30, 2004, borrowed funds increased by
$30 million, to total $91.0 million, equal to 15.7% of total assets. The
additional borrowings were utilized for interest rate risk management and
liquidity purposes. ACFC may continue to utilize borrowings as a supplemental
funding source in the future, generally on a short-to-intermediate term basis.
Equity
------
Total equity increased over the six months ended June 30, 2004, to
equal $45.0 million, or 7.8% of total assets. In this regard, the change to the
Company's equity was largely attributable to the retention of earnings during
the six month period as the change to accumulated comprehensive income was
comparatively modest. Since asset growth outstripped the growth of equity, the
capital ratio diminished. The Bank remains classified as "Well Capitalized" for
regulatory capital purposes.
Income and Expense Trends
-------------------------
The Company's trailing 12 month earnings increased in the most recent
period, from $4.4 million for the 12 months ended December 31, 2003, to $5.5
million for the 12 months ended June 30, 2004, with the increase driven by a
reduction in the provision for loans losses, which was partially offset by a
reduction in net interest income and increase to operating expenses on a more
limited basis. At the same time, we note that the Company's earnings have been
relatively volatile and the core components of net income were trending less
favorable as net interest income declined and operating expenses increased for
the six months ended June 30, 2004, relative to the same six month period one
year earlier. Moreover, the Company's annualized earnings for the six months
ended June 30, 2004, equaled $3.4 million, which is below the level for the
trailing twelve month period of $5.5 million.
Net Interest Income
-------------------
The Company's net interest income decreased slightly for the most
recent trailing 12 month period, both in dollar terms and as a percent of
average assets. Specifically, net interest income decreased modestly to equal
$19.1 million, while the net interest income ratio decreased by 33 basis points
to 3.67% for the most recent period. The recent reduction in the net interest
margin is reflective of asset yields declining at a more rapid pace than the
cost of funds. Moreover, the increase in the average balance was insufficient to
offset the impact of diminishing spreads.
Board of Directors
July 27, 2004
Page 6
Loan Loss Provisions
--------------------
Provision for loan losses decreased by $2.2 million, to equal $2.0
million for the 12 months ended June 30, 2004, equal to 0.38% of average assets.
The reduction in the loan loss provision is primarily attributable to the
elimination of relatively high provisions for the six months ended June 30,
2003, of $3.9 million from trailing twelve month earnings. A substantial portion
of the loan loss provision for the first six months of fiscal 2003 was
attributable to the delinquency of the Company's largest loan, with a balance of
$4.0 million.
Non-Interest Income
-------------------
Non-interest income increased slightly relative to the level reflected
in the Original Appraisal, and totaled $5.1 million, equal to 0.97% of average
assets for the twelve months ended June 30, 2004. Non-interest income generated
by the Company through various sources including: the Company's deposit
accounts, including various service and non-sufficient fund ("NSF") charges and
interchange fees; and ATM related fees, reflecting foreign transactions at its
ATMs and interchange income resulting from the Company's customers utilizing
foreign ATMs.
Operating Expenses
------------------
Non-interest expense increased modestly for the twelve months ended
June 30, 2004 (by $383,000), to total $16.3 million, equal to 3.13% of average
assets. Operating costs have continued to increase (a trend noted in the
Original Appraisal) as a result of the costs related to the acquisition of
branches and the related staffing costs. Additionally, the Company has incurred
expenses as it sought to resolve problem assets (including the related
litigation costs) and bolster its staff and credit administration processes and
procedures in response to the Resolution adopted in May 2003.
Operating expenses are expected to increase on a post-offering basis
as a result of the expense of the stock-related benefit plans and the costs
related to operating as a public company. At the same time, continued balance
sheet growth and reinvestment of the offering proceeds should at least partially
offset the anticipated expense increase.
Non-Operating Income/Expense
----------------------------
Non-operating income and expense items remain a significant factor in
the Company's operations. In this regard, gains on the sale of loans have been
the most significant contributor to the Company's non-operating revenues
reflecting the impact of the sale of the credit card portfolio in fiscal 2003.
For the 12 months ended June 30, 2004, net non-operating income totaled $2.6
million, equal to 0.50% of average assets, which approximates the level reported
for the twelve months ended December 31, 2004. From a valuation perspective, we
will continue to give less weight to non-recurring gains.
Taxes
-----
The Company's tax rate approximated 36% for the 12 months ended June
30, 2004, which is comparable relative to the average tax rate of 35% reported
for the 12 months ended December 31, 2003.
Board of Directors
July 27, 2004
Page 7
2. Asset Quality
-------------
Nonperforming loans decreased from $7.6 million as of December 31,
2003, to $4.0 million as of June 30, 2004, while total classified loans remained
relatively unchanged at $19.8 million as of June 30, 2004, compared to the level
of $19.9 million prevailing as of December 31, 2003. Total non-performing assets
decreased from $8.6 million, equal to 1.73% of assets as of December 31, 2003,
to $4.2 million, equal to 0.73% of assets as of June 30, 2004.
As of December 31, 2003, approximately $2.8 million of the allowance
for loan losses balance was allocated to an individual problem loan
relationship. The outstanding loan balance for this loan relationship was
approximately $4.9 million as of June 30, 2004. This loan was made to finance
the acquisition of land and the construction of a water treatment plant for
commercial and industrial customers. There is a facility in each of Waycross,
Georgia and Jacksonville, Florida. A related company, also in the waste water
treatment business, provided a guarantee for the debt. As a result of
environmental contamination on the Jacksonville property, the borrower has been
delayed in getting construction permits to build the facility. The borrower has
filed suit against the seller of the property seeking damages in excess of $2.5
million alleging fraud, among other things. The Company has taken an assignment
of any judgment proceeds as additional collateral. In early May, 2004,
management learned that key business permits had been revoked by the
municipality where the borrower operated and thus its operations had essentially
ceased. Accordingly, management determined that this event, although subsequent
to March 31, 2004, is of a nature which should be recognized in the first
quarter and thus ACFC has charged the loan down to the fair market value of its
collateral. The chargeoff on this loan approximated $4 million for the quarter
ended March 31, 2004.
3. Regulatory Issues
-----------------
On April 14, 2004, the Office of Thrift Supervision informed
management during the exit interview that all previously imposed commercial
lending restrictions were being lifted as a result of the completed examination.
Management intends to re-focus efforts on the growth of the commercial loan
portfolio with particular emphasis on commercial real estate loans.
4. Peer Group Financial Comparisons
--------------------------------
Tables 2 and 3 present the most updated financial characteristics and
operating results available for Company, the Peer Group and all publicly-traded
savings institutions. The Peer Group is comprised of the same ten
publicly-traded companies operating within the mutual holding company structure
as were employed in the Original Appraisal.
Board of Directors
July 27, 2004
Page 8
Table 2
Balance Sheet Composition and Growth Rates
Comparable Institution Analysis
As of March 31, 2004
Balance Sheet as a Percent of Assets
---------------------------------------------------------------
Cash & MBS & Borrowed
Equivalents Invest Loans Deposits Funds
----------- ------ ----- -------- --------
Atlantic Coast Financial Corporation
- ------------------------------------
June 30, 2004 5.1% 4.6% 86.2% 76.0% 15.7%
All Public Companies 4.5% 23.7% 67.2% 66.9% 20.3%
Comparable Group Average 6.5% 30.4% 57.9% 76.0% 9.6%
Mid-Atlantic Companies 5.0% 29.2% 60.2% 74.9% 11.5%
Midwest Companies 11.0% 28.5% 56.7% 78.6% 5.0%
New England Companies 8.2% 42.9% 44.5% 77.9% 5.7%
Comparable Group
- ----------------
Mid-Atlantic Companies
- ----------------------
ALLB Alliance Bank MHC of PA (20.0) 7.5% 31.9% 54.9% 73.5% 16.2%
BCSB BCSB Bankcorp MHC of MD (36.4) 2.2% 44.5% 49.3% 79.0% 6.7%
GOV Gouverneur Bcp MHC of NY(42.5) 3.1% 15.8% 74.8% 61.6% 18.2%
GCBC Green Co Bcrp MHC of NY (43.9) 8.4% 36.6% 52.4% 84.1% 4.4%
ONFC Oneida Fincl MHC of NY (42.2) 3.8% 39.9% 47.0% 71.7% 15.2%
PBHC Pathfinder BC MHC of NY (36.8) 5.4% 25.8% 61.9% 76.4% 13.5%
ROME Rome Bncp Inc MHC of NY (38.9) 4.5% 10.1% 81.1% 78.1% 6.6%
Midwest Companies
- -----------------
JXSB Jcksnville Bcp MHC of IL(46.3) 4.1% 41.9% 48.2% 89.7% 0.7%
WCFB Wbstr Cty Fed MHC of IA (39.0) 17.9% 15.0% 65.1% 67.5% 9.2%
New England Companies
- ---------------------
WFD Westfield Finl MHC of MA(46.5) 8.2% 42.9% 44.5% 77.9% 5.7%
Balance Sheet as a Percent of Assets
----------------------------------------------------------
Subd. Net Goodwill Tng Net MEMO:
Debt Worth & Intang Worth Pref.Stock
----- ----- -------- ------- ----------
Atlantic Coast Financial Corporation
- ------------------------------------
June 30, 2004 0.0% 7.8% 0.5% 7.3% 0.0%
All Public Companies 0.7% 10.8% 0.7% 10.1% 0.0%
Comparable Group Average 0.5% 12.4% 0.6% 11.8% 0.0%
Mid-Atlantic Companies 0.7% 11.2% 0.7% 10.5% 0.0%
Midwest Companies 0.0% 14.8% 0.7% 14.2% 0.0%
New England Companies 0.0% 15.7% 0.0% 15.7% 0.0%
Comparable Group
- ----------------
Mid-Atlantic Companies
- ----------------------
ALLB Alliance Bank MHC of PA (20.0) 0.0% 9.4% 0.0% 9.4% 0.0%
BCSB BCSB Bankcorp MHC of MD (36.4) 3.2% 6.3% 0.4% 5.9% 0.0%
GOV Gouverneur Bcp MHC of NY(42.5) 0.0% 18.6% 0.0% 18.6% 0.0%
GCBC Green Co Bcrp MHC of NY (43.9) 0.0% 11.0% 0.0% 11.0% 0.0%
ONFC Oneida Fincl MHC of NY (42.2) 0.0% 12.1% 3.0% 9.2% 0.0%
PBHC Pathfinder BC MHC of NY (36.8) 1.7% 7.4% 1.5% 5.8% 0.0%
ROME Rome Bncp Inc MHC of NY (38.9) 0.0% 13.6% 0.0% 13.6% 0.0%
Midwest Companies
- -----------------
JXSB Jcksnville Bcp MHC of IL(46.3) 0.0% 7.9% 1.2% 6.8% 0.0%
WCFB Wbstr Cty Fed MHC of IA (39.0) 0.0% 21.6% 0.1% 21.5% 0.0%
New England Companies
- ---------------------
WFD Westfield Finl MHC of MA(46.5) 0.0% 15.7% 0.0% 15.7% 0.0%
Balance Sheet Annual Growth Rates
------------------------------------------------------------------------------------
MBS, Cash & Borrows. Net Tng Net
Assets Investments Loans Deposits & Subdebt Worth Worth
------ ----------- ----- -------- --------- ----- -------
Atlantic Coast Financial Corporation
- ------------------------------------
June 30, 2004 17.17% -1.95% 21.06% 8.03% 115.13% 10.27% 12.42%
All Public Companies 8.70% 3.34% 10.09% 6.64% 19.03% 4.37% 4.62%
Comparable Group Average 5.28% 3.00% 4.90% 3.86% 25.97% 3.02% 3.52%
Mid-Atlantic Companies 7.54% 1.49% 8.54% 6.16% 18.22% 3.43% 4.01%
Midwest Companies 1.09% 12.25% -6.60% 0.54% 25.75% 1.82% 2.26%
New England Companies -2.15% -4.90% 2.40% -5.63% 72.97% 2.59% 2.59%
Comparable Group
- ----------------
Mid-Atlantic Companies
- ----------------------
ALLB Alliance Bank MHC of PA (20.0) 3.04% -9.97% 13.38% 3.64% 0.32% 3.04% 3.04%
BCSB BCSB Bankcorp MHC of MD (36.4) 16.29% 48.56% -5.72% 6.77% N.M. -0.14% 0.00%
GOV Gouverneur Bcp MHC of NY(42.5) 10.73% -36.26% 29.21% 7.46% 37.80% 2.69% 2.69%
GCBC Green Co Bcrp MHC of NY (43.9) 12.51% 16.23% 9.75% 12.01% 50.00% 6.96% 6.96%
ONFC Oneida Fincl MHC of NY (42.2) 1.68% 2.65% -0.03% 3.12% -9.23% 7.08% 7.68%
PBHC Pathfinder BC MHC of NY (36.8) 6.96% 22.64% 1.10% 9.22% 10.16% 6.35% 9.66%
ROME Rome Bncp Inc MHC of NY (38.9) 1.56% -33.41% 12.09% 0.90% 20.26% -1.98% -1.98%
Midwest Companies
- -----------------
JXSB Jcksnville Bcp MHC of IL(46.3) 2.47% 20.70% -10.85% 2.24% 51.49% 2.11% 2.95%
WCFB Wbstr Cty Fed MHC of IA (39.0) -0.30% 3.79% -2.34% -1.16% 0.00% 1.52% 1.57%
New England Companies
- ---------------------
WFD Westfield Finl MHC of MA(46.5) -2.15% -4.90% 2.40% -5.63% 72.97% 2.59% 2.59%
Regulatory Capital
-----------------------------------------------
Tangible Core Reg.Cap.
-------- ---- --------
Atlantic Coast Financial Corporation
- ------------------------------------
June 30, 2004 7.20% 7.20% 10.70%
All Public Companies 9.57% 9.49% 16.92%
Comparable Group Average 12.99% 11.87% 20.09%
Mid-Atlantic Companies 11.15% 10.84% 19.65%
Midwest Companies 19.65% 13.14% 13.25%
New England Companies 15.55% 15.55% 29.56%
Comparable Group
- ----------------
Mid-Atlantic Companies
- ----------------------
ALLB Alliance Bank MHC of PA (20.0) N.M. 9.30% 16.70%
BCSB BCSB Bankcorp MHC of MD (36.4) 7.43% 7.43% 16.43%
GOV Gouverneur Bcp MHC of NY(42.5) 17.90% 17.90% 32.50%
GCBC Green Co Bcrp MHC of NY (43.9) 8.87% 8.87% 19.62%
ONFC Oneida Fincl MHC of NY (42.2) 8.21% 8.21% 13.93%
PBHC Pathfinder BC MHC of NY (36.8) N.M. N.M. N.M.
ROME Rome Bncp Inc MHC of NY (38.9) 13.34% 13.34% 18.70%
Midwest Companies
- -----------------
JXSB Jcksnville Bcp MHC of IL(46.3) N.M. 6.62% 13.25%
WCFB Wbstr Cty Fed MHC of IA (39.0) 19.65% 19.65% N.M.
New England Companies
- ---------------------
WFD Westfield Finl MHC of MA(46.5) 15.55% 15.55% 29.56%
Source: Audited and unaudited financial statements, corporate reports and
offering circulars, and RP(R)Financial, LC. calculations. The
information provided in this table has been obtained from sources we
believe are reliable, but we cannot guarantee the accuracy or
completeness of such information.
Copyright (c) 2004 by RP(R) Financial, LC.
Board of Directors
July 27, 2004
Page 9
Table 3
Income as Percent of Average Assets and Yields, Costs, Spreads
Comparable Institution Analysis
For the Twelve Months Ended March 31, 2004
Net Interest Income
--------------------------------------
Loss NII
Net Provis. After
Income Income Expense NII on IEA Provis.
------ ------ ------- --- ------ -------
Atlantic Coast Financial Corporation
- ------------------------------------
June 30, 2004 1.04% 5.82% 2.15% 3.67% 0.38% 3.29%
All Public Companies 0.83% 5.10% 2.08% 3.02% 0.16% 2.86%
Comparable Group Average 0.65% 5.09% 1.87% 3.23% 0.17% 3.06%
Mid-Atlantic Companies 0.61% 5.19% 1.84% 3.34% 0.14% 3.20%
Midwest Companies 0.67% 5.17% 2.10% 3.08% 0.29% 2.79%
Other Comparable Companies 0.85% 4.29% 1.57% 2.71% 0.09% 2.63%
Comparable Group
- ----------------
Mid-Atlantic Companies
- ----------------------
ALLB Alliance Bank MHC of PA (20.0) 0.60% 5.25% 2.19% 3.07% 0.13% 2.94%
BCSB BCSB Bankcorp MHC of MD (36.4) 0.06% 4.70% 2.36% 2.34% 0.18% 2.16%
GOV Gouverneur Bcp MHC of NY (42.5) 0.83% 5.73% 1.86% 3.87% 0.10% 3.77%
GCBC Green Co Bcrp MHC of NY (43.9) 1.03% 5.05% 1.36% 3.69% 0.06% 3.63%
ONFC Oneida Fincl MHC of NY (42.2) 0.70% 4.78% 1.82% 2.96% 0.13% 2.83%
PBHC Pathfinder BC MHC of NY (36.8) 0.52% 5.18% 1.99% 3.19% 0.24% 2.95%
ROME Rome Bncp Inc MHC of NY (38.9) 0.56% 5.61% 1.33% 4.28% 0.16% 4.12%
Midwest Companies
- -----------------
JXSB Jcksnville Bcp MHC of IL (46.3) 0.23% 4.79% 2.05% 2.73% 0.58% 2.15%
WCFB Wbstr Cty Fed MHC of IA (39.0) 1.11% 5.56% 2.14% 3.42% 0.00% 3.42%
New England Companies
- ---------------------
WFD Westfield Finl MHC of MA (46.5) 0.85% 4.29% 1.57% 2.72% 0.09% 2.63%
Other Income G&A/Other Exp. Non-Op. Items
------------------------ Total ------------------ ----------------
Loan R.E. Other Other G&A Goodwill Net Extrao.
Fees Oper. Income Income Expense Amort. Gains Items
---- ----- ------ ------ ------- -------- ----- -------
Atlantic Coast Financial Corporation
- ------------------------------------
June 30, 2004 0.00% 0.00% 0.97% 0.97% 3.13% 0.00% 0.50% 0.00%
All Public Companies 0.07% -0.01% 0.54% 0.60% 2.45% 0.02% 0.25% 0.01%
Comparable Group Average 0.03% 0.00% 0.65% 0.69% 2.91% 0.02% 0.07% 0.00%
Mid-Atlantic Companies 0.02% 0.01% 0.75% 0.78% 3.14% 0.02% 0.04% 0.00%
Midwest Companies 0.08% -0.01% 0.47% 0.54% 2.45% 0.02% 0.18% 0.00%
Other Comparable Companies 0.01% 0.00% 0.31% 0.33% 2.16% 0.00% 0.10% 0.00%
Comparable Group
- ----------------
Mid-Atlantic Companies
- ----------------------
ALLB Alliance Bank MHC of PA (20.0) 0.01% 0.04% 0.33% 0.38% 2.69% 0.00% 0.00% 0.00%
BCSB BCSB Bankcorp MHC of MD (36.4) 0.03% 0.01% 0.17% 0.21% 2.33% 0.01% 0.04% 0.00%
GOV Gouverneur Bcp MHC of NY (42.5) 0.00% -0.05% 0.35% 0.30% 2.81% 0.00% 0.07% 0.00%
GCBC Green Co Bcrp MHC of NY (43.9) 0.00% 0.00% 1.04% 1.04% 3.18% 0.00% -0.01% 0.00%
ONFC Oneida Fincl MHC of NY (42.2) 0.00% 0.00% 2.36% 2.36% 4.44% 0.02% 0.21% 0.00%
PBHC Pathfinder BC MHC of NY (36.8) 0.10% 0.04% 0.54% 0.68% 3.05% 0.08% 0.21% 0.00%
ROME Rome Bncp Inc MHC of NY (38.9) 0.00% 0.00% 0.48% 0.48% 3.50% 0.00% -0.25% 0.00%
Midwest Companies
- -----------------
JXSB Jcksnville Bcp MHC of IL (46.3) 0.15% -0.01% 0.58% 0.72% 2.82% 0.03% 0.35% 0.00%
WCFB Wbstr Cty Fed MHC of IA (39.0) 0.00% 0.00% 0.37% 0.37% 2.07% 0.01% 0.02% 0.00%
New England Companies
- ---------------------
WFD Westfield Finl MHC of MA (46.5) 0.01% 0.00% 0.31% 0.33% 2.17% 0.00% 0.10% 0.00%
Yields, Costs, and Spreads
------------------------------- MEMO: MEMO:
Yield Cost Yld-Cost Assets/ Effective
On Assets Of Funds Spread FTE Emp. Tax Rate
--------- -------- -------- -------- ---------
Atlantic Coast Financial Corporation
- ------------------------------------
June 30, 2004 6.29% 2.58% 3.71% $3,471 36.00%
All Public Companies 5.19% 2.30% 2.89% $5,068 34.12%
Comparable Group Average 5.35% 2.17% 3.18% $3,507 23.97%
Mid-Atlantic Companies 5.46% 2.12% 3.35% $3,360 23.33%
Midwest Companies 5.38% 2.52% 2.86% $3,148 35.88%
Other Comparable Companies 4.49% 1.87% 2.62% $5,247 4.67%
Comparable Group
- ----------------
Mid-Atlantic Companies
- ----------------------
ALLB Alliance Bank MHC of PA (20.0) 5.54% 2.43% 3.11% $4,809 4.57%
BCSB BCSB Bankcorp MHC of MD (36.4) 4.86% 2.62% 2.25% $4,176 2.35%
GOV Gouverneur Bcp MHC of NY (42.5) 5.96% 2.36% 3.60% $3,094 37.79%
GCBC Green Co Bcrp MHC of NY (43.9) 5.18% 1.54% 3.64% $3,231 31.23%
ONFC Oneida Fincl MHC of NY (42.2) 5.28% 2.08% 3.19% $2,922 25.41%
PBHC Pathfinder BC MHC of NY (36.8) 5.57% 2.20% 3.37% $2,907 27.35%
ROME Rome Bncp Inc MHC of NY (38.9) 5.86% 1.58% 4.28% $2,382 34.61%
Midwest Companies
- -----------------
JXSB Jcksnville Bcp MHC of IL (46.3) 5.08% 2.26% 2.82% $2,247 35.94%
WCFB Wbstr Cty Fed MHC of IA (39.0) 5.67% 2.77% 2.89% $4,051 35.82%
New England Companies
- ---------------------
WFD Westfield Finl MHC of MA (46.5) 4.49% 1.87% 2.62% $5,247 4.67%
Source: Audited and unaudited financial statements, corporate reports and
offering circulars, and RP(R) Financial, LC. calculations. The
information provided in this table has been obtained from sources we
believe are reliable, but we cannot guarantee the accuracy or
completeness of such information.
Copyright (c) 2004 by RP(R) Financial, LC.
Board of Directors
July 27, 2004
Page 10
Financial Condition
-------------------
In general, the comparative balance sheet ratios for the Company and
the Peer Group did not vary significantly from the ratios examined in the
Original Appraisal analysis. The Company's asset composition continues to
reflect a comparatively higher concentration of loans to assets, at 86.2% versus
a 57.9% average for the Peer Group. Comparatively, the ratio of cash,
investments, and MBS for the Company was lower than for the Peer Group (9.7% of
assets versus 36.9% for the Peer Group), notwithstanding the recent influx of
funds which were largely reinvested into short-term investments. The ratio of
deposits/assets remained relative comparable for the Company in comparison to
the Peer Group (both were 76.0% of assets) while the ratio of borrowings
increased for the Company in comparison to the Peer Group (15.7% versus 9.6% for
the Peer Group on average).
The Company's capital continues to fall below the Peer Group average
based on their respective ratios of 7.8% and 12.4%, respectively. Intangible
assets remained comparable for both the Company and the Peer Group, equal to
0.5% and 0.6%, respectively. The increased equity is anticipated to enhance
ACFC's earnings potential through reinvestment of proceeds, lower funding costs
and potentially through profitable growth. However, at the same time, the
increased pro forma capital position is expected to result in a decline in the
Company's return on equity ("ROE"), based on both reported and core earnings.
Both the Company's and the Peer Group's current equity ratios reflect strong
surpluses over regulatory capital requirements; and on a post-offering basis the
Company's cushion over capital requirements will be enhanced.
Updated balance sheet growth rate comparisons are impacted by the
Company's deposit inflow as the asset, investment and deposit balances, which
made its higher core retail growth rate more pronounced. Overall, assets
increased by 17.2% versus an average of 5.3% for the Peer Group. Deposit and
borrowings growth were also well above the Peer Group average, with the deposit
growth rate reflecting both organic growth through the branches and the
aforementioned influx of deposits from depositors seeking subscription rights or
increased qualifying balances. Equity growth rates for the Company and the Peer
Group approximated 10.3% and 3.0%, respectively. The Peer Group's more limited
equity growth, notwithstanding higher profitability, reflects their dividend and
capital management strategies. On a post-offering basis, the Company's capital
growth rate should be diminished due to the increased equity level and
relatively low market reinvestment rates.
Income and Expense Trends
-------------------------
The Company's and the Peer Group reported profitability ratios of
1.04% and 0.65%, respectively, for the most recent 12 month period (see Table
3). Consistent with the characteristics noted in the Original Appraisal, the
Company's operations reflect a relatively favorable level of net interest income
and fee income, the benefits of which are offset by a comparatively higher level
of operating expenses and loan loss provisions. Moreover, reported earnings for
ACFC were supported by non-operating gains on sale while the Peer Group's
earnings primarily consisted of core earnings elements.
ACFC's ratio of net interest income to average assets diminished to
3.67% for the 12 months ended June 30, 2004, but nonetheless remains above the
Peer Group average of 3.23%.
Board of Directors
July 27, 2004
Page 11
The Company's updated interest income and expenses continue to reflect its
relatively strong asset yields, the benefits of which are offset by a
comparatively high cost of funds.
Non-interest income equaled 0.97% of average assets for ACFC versus an
average of 0.69% for the Peer Group. The Company's non-interest income ratio is
comparatively higher, primarily reflecting the high level of fee income
generated through the Company's deposit accounts and large ATM network. The
Company recently sold its credit card portfolio with a principal balance of
approximately $13.0 million for a $2.6 million gain, which is reflected as a
non-operating income item for purposes of this analysis. In the future, ACFC
expects that interchange income (and expense) will diminish as a result of the
sale of the credit card portfolio.
The operating expense ratios for ACFC and the Peer Group were 3.13%
and 2.91%, respectively, and thus, the Company remains at a disadvantage in this
regard. As noted in the Original Appraisal, several factors have caused ACFC to
operate with a high operating expense ratio including the additional
compensation, marketing, and other costs related to the growth and expansion
plans. In particular, operating costs have increased as a result of the costs
related to the acquisition of branches and the related staffing costs.
Additionally, the Company has incurred expenses as it sought to resolve problem
assets (including the related litigation costs) and bolster its staff and credit
administration processes and procedures in response to the Resolution adopted in
May 2003. On a post-offering basis, ACFC's operating expenses can be expected to
increase with the stock benefit plans and cost of operating as a public company,
but will be seeking to leverage its overhead and infrastructure through future
balance sheet growth.
Loan loss provisions for the Company diminished but remained in excess
of the Peer Group average, amounting to 0.38% and 0.17% of average assets for
ACFC and the Peer Group, respectively, based on updated financial data. The
comparatively higher level of loan loss provisions for the Company in recent
periods in comparison to the Peer Group reflects: (1) the high growth in total
loans, including income producing property loans; and (2) the Company's limited
experience historically with respect to income producing property lending and
the higher risk profile of such lending. Additionally, recent loan loss
provisions also reflect the increase in NPAs, including reserves allocated to
specific problem loans included in the balance of classified assets.
Non-operating income for the Company remains well above the Peer Group
average, primarily reflecting the gain on sale of ACFC's credit card portfolio.
Specifically, the Company reported net non-operating income equal to 0.50% of
average assets versus only 0.07% of average assets for the Peer Group. Such
gains are largely believed to be one-time non-recurring events. Accordingly,
they will be excluded from the calculation of the core valuation earnings base
on a tax effected basis.
ACFC's effective tax rate of 36.00% remains above the Peer Group's
average tax rate of 23.97% based on updated financial data.
3. Stock Market Conditions
-----------------------
Since the date of the Original Appraisal, the overall stock market has
moved lower. Stocks generally declined during the first half of March,
reflecting valuation concerns following
Board of Directors
July 27, 2004
Page 12
a year of strong gains and weaker than expected job growth during February.
Concerns about terrorism and higher oil prices caused stocks to tumble in
late-March, before rebounding at the close of the first quarter on more
attractive fundamentals and optimism about first quarter earnings. Stocks moved
higher in early April 2004, as investors reacted favorably to a strong
employment report for March. For the balance of April trading in the broader
market produced uneven results, as generally favorable first quarter earnings
and strong economic data weighed against the growing threat of inflation and
higher interest rates. The DJIA closed below 10000 for the first time in 2004 in
the second week of May, as strong job growth during April raised expectations of
a rate increase by the Federal Reserve. The downward trend in stocks prevailed
through most of May and into June, on concerns about higher oil prices, violence
in the Middle East and higher interest rates. Stock prices continued to trend
downward in July amid concerns regarding corporate earnings, which some analysts
are expecting to come in below their prior estimates.
As an indication of the general trends in the nation's stock markets
over the past year, as of July 27, 2004, the DJIA closed at 10085.14, a decrease
of 4.8% from the date of the Original Appraisal, and the NASDAQ closed at
1869.10, a decrease of 8.7% from the same date. The Standard & Poors 500 Index
closed at 1094.83 on July 27, 2004 a decrease of 5.4% from March 5, 2004.
Since the date of the Original Appraisal, the market for thrift issues
has moved significantly lower. Thrift issues generally experienced some selling
pressure during the first half of March, reflecting profit taking and weakness
in the broader stock market. Higher interest rates and weakness in the broader
market pressured thrift issues lower in late-March, which was followed by an
upward move in thrift prices at the close of the first quarter. Thrifts stocks
generally traded lower at the start of the second quarter of 2004, as a strong
employment report for March pushed interest rates higher. Higher interest rates
and inflation worries pressured interest rate sensitive issues lower through
most of April, with the sell-off sharpening in early-May following another
strong employment report for April. Thrift stocks recovered modestly in mid-May
as the yield on 10-year Treasury note declined slightly. Additional interest
rate worries, along with the uncertain economic outlook, resulted in continuing
weakness to banking industry stocks through June and July. On July 27, 2004, the
SNL Index for all publicly-traded thrifts closed at 1442.7, a decrease of 11.0%
from the date of the Original Appraisal. The SNL MHC Index closed at 2564.4 on
July 27, 2004, a decrease of 11.9% from March 5, 2004, the date of the Original
Appraisal.
The updated market prices and pricing ratios for the Peer Group and
all publicly-traded thrifts reflect the market weakness since the date of the
Original Appraisal. The P/B and P/TB ratios have decreased in a range of 6% on a
fully converted basis since the date of the Original Appraisal while reflecting
a decrease in the range of 20% to 21% on a reported basis, which slightly
exceeds the level of decrease in the price per share and market capitalization
of the Peer Group companies based on the median change. The reduction in the
Peer Group's pricing exceeded the range exhibited by the SNL Thrift Index and
the SNL MHC Index which decreased in a range of 11% to 12% (see Table 4).
Board of Directors
July 27, 2004
Page 13
Table 4
Average Pricing Characteristics
At March 5, At July 27, Percent
2004 2004 Change
----------- ----------- -------
Peer Group (Fully Converted Basis)
- ----------------------------------
Price/Earnings (x) 33.53x 28.69x (14.4)%
Price/Core Earnings (x) 37.29 32.08 (14.0)
Price/Book (%) 102.33% 95.68 (6.5)
Price/Tangible Book (%) 105.86 99.29 (6.2)
Price/Assets (%) 25.49 22.03 (13.6)
Price/Share ($) (1) -- -- (18.2)
Market Capitalization (1) -- -- (15.8)
Peer Group (Reported Basis)
- ---------------------------
Price/Earnings (x) 39.78x 34.52x (13.2)%
Price/Core Earnings (x) 44.05 35.96 (18.4)
Price/Book (%) 254.21% 203.15 (20.1)
Price/Tangible Book (%) 273.39 216.09 (21.0)
Price/Assets (%) 30.82 35.96 (16.7)
All Publicly-Traded Thrifts
- ---------------------------
Price/Earnings (x) 18.08x 17.19x (4.9)%
Price/Core Earnings (x) 20.65 19.12 (7.4)
Price/Book (%) 167.69% 153.75 (8.3)
Price/Tangible Book (%) 195.29 166.19 (7.8)
Price/Assets (%) 18.37 16.67 (9.1)
Other
- -----
SNL Thrift Index 1621.5 1442.7 (11.0)%
SNL MHC Index 2910.0 2564.4 (11.9)%
(1) Reflects the median of the percentage change for the Peer Group companies.
As set forth in the Original Appraisal, the "new issue" market is
separate and distinct from the market for seasoned issues like the Peer Group
companies in that the pricing ratios for converting issues are computed on a pro
forma basis, specifically: (1) the numerator and denominator are both impacted
by the conversion offering amount, unlike existing stock issues in which price
change affects only the numerator; and (2) the pro forma pricing ratio
incorporates assumptions regarding source and use of proceeds, effective tax
rates, stock plan purchases, etc. which impact pro forma financials, whereas
pricing for existing issues are based on reported financials. The distinction
between the pricing of converting and existing issues is perhaps most evident in
the case of the price/tangible book ("P/TB") ratio in that the P/TB ratio of a
converting thrift will typically result in a discount to tangible book value
whereas in the
Board of Directors
July 27, 2004
Page 14
current market for existing thrifts the P/TB often reflects a premium to
tangible book value. Therefore, it is appropriate to also consider the market
for new issues, both at the time of the conversion and in the aftermarket.
As shown in Table 5, two standard conversions and two MHC offerings
have been completed during since the beginning of March. The MHC offerings were
deemed to be most relevant to the Bank's offering. The closing pro forma
price/tangible book ratio of the recent MHC offerings equaled 78.7% on a fully
converted basis, while the core price/earnings multiple was 23.7 times for the
one company reporting a meaningful multiple. These four conversion offerings
exhibited an average price increase of 6.7% during the first month of trading.
As an indicator of weakness in the market for thrift stocks, including the new
issue market, two of the companies completing conversions during the last three
months are currently below their IPO prices in aftermarket trading.
Specifically, SE Financial Corp of PA completing its standard conversion
offering as of May 6, 2004, at the supermaximum of the offering range, at a pro
forma P/B of 85.7% and 41.7 times earnings. SE Financial Corp. traded down
nominally on the first day of trading and closed at 6% below its IPO price after
the first month of trading. Monadnock Community Bancorp of NH completed its
minority stock offering as of June 29, 2004, at the midpoint of the offering
range, at a pro forma fully converted P/B of 84.1% and at an earnings multiple
which was not meaningful. Monadnock Community Bancorp traded up modestly on the
first day of trading and was trading 5% below its IPO price as of July 23, 2004.
Valuation Approaches: Fully Converted Basis
- --------------------------------------------
In applying the accepted valuation methodology promulgated by the OTS
and adopted by the FDIC, i.e., the pro forma market value approach, including
the fully-converted analysis described above, we considered the three key
pricing ratios in valuing ACFC's to-be-issued stock -- price/earnings ("P/E"),
price/book ("P/B"), and price/assets ("P/A") approaches -- all performed on a
pro forma basis including the effects of the stock proceeds. In computing the
pro forma impact of the conversion and the related pricing ratios, we have
incorporated the valuation parameters disclosed in ACFC's prospectus for
reinvestment rate, effective tax rate and stock benefit plan assumptions
(summarized in Exhibits 2 and 3). Pursuant to the minority stock offering, we
have also incorporated the valuation parameters disclosed in ACFC's prospectus
for offering expenses. The assumptions utilized in the pro forma analysis in
calculating the Company's full conversion value, described in the Original
Appraisal have not changed; however, we did update the valuation bases to the
June 30, 2004 period.
In examining the valuation adjustments made relative to the Peer Group
in the Original Appraisal, we concluded that no adjustment for financial
condition were necessary, as the Company's pro forma balance sheet based on
updated financial data through June 30, 2004, reflected limited change from the
Peer Group comparison contained in the Original Appraisal overall. For the
valuation parameter of profitability, growth and viability of earnings, we
considered that earnings have increased in relation to the Peer Group. At the
same time, the improvement in earnings was primarily attributable to a reduction
in loan loss provisions which was anticipated in the Original Appraisal, as a
substantial portion of the loan loss provisions
Board of Directors
July 27, 2004
Page 15
RP Financial, LC.
Table 5
Pricing Characteristics and After-Market Trends
Recent Conversions Completed (Last Three Months)
- -------------------------------------------------------------------------------------------------------------------------------
Pre-Conversion Data
Institutional Information ------------------------------------
Financial Info. Asset Quality
- -------------------------------------------------------------------------------------------------------------------------------
Conversion Equity/ NPAs/ Res. Gross
Institution ST. Date Ticker Assets Assets Assets Cov. Proc.
- ----------- --- ---- ------ ------ ------ ------ ---- -----
($Mil) (%) (%) (%) ($Mil.)
- -------------------------------------------------------------------------------------------------------------------------------
Standard Conversions
- --------------------
Third Century Bancorp IN 6/30/04 TDCB-OTS BB $ 107 7.62% 0.47% 662% $ 16.5
SE Financial Corp. PA 5/6/2004 SEFL-OTS BB $ 86 9.22% 0.22% 150% $ 25.8
Averages - Standard Conversions: $ 97 8.42% 0.35% 406% $ 21.2
Medians - Standard Conversions: $ 97 8.42% 0.35% 406% $ 21.2
Second Step Conversions
- -----------------------
Partners Trust Financial Group, Inc.*(7) NY 7/15/04 PRTR-NASDAQ $3,628 11.01% 0.59% 264% 148.8
Averages - Second Step Conversions: $3,628 11.01% 0.59% 264% 148.8
Medians - Second Step Conversions: $3,628 11.01% 0.59% 264% 148.8
Mutual Holding Company Conversions
- ----------------------------------
First Federal Financial Services, Inc. IL 6/29/04 FFFS-NASDAQ $ 123 15.62% 0.07% 471% $ 17.6
Monadnock Community Bncp, Inc.*(9) NH 6/29/04 MNCK-OTC BB $ 45 5.64% 0.37% 207% $ 3.4
Averages - Mutual Holding Company Conversions: $ 84 10.63% 0.22% 339% $ 10.5
Medians - Mutual Holding Company Conversions: $ 84 10.63% 0.22% 339% $ 10.5
Averages - All Conversions: $ 798 9.82% 0.34% 351% $ 42.4
Medians - All Conversions: $ 107 9.22% 0.37% 264% $ 17.6
- -------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Institutional Information Offering Information Contribution to
Charitable Found.
- ----------------------------------------------------------------------------------------------------------------------------------
Conversion % % of Exp./ % of
Institution ST. Date Ticker Offered Mid. Proc. Form Offering
- ----------- --- ---- ------ ------- ---- ----- ---- --------
(%) (%) (%) (%)
- ----------------------------------------------------------------------------------------------------------------------------------
Standard Conversions
- --------------------
Third Century Bancorp IN 6/30/04 TDCB-OTS BB 100% 132% 3.8% NA NA
SE Financial Corp. PA 5/6/2004 SEFL-OTS BB 100% 132% 2.2% NA NA
Averages - Standard Conversions: 100% 132% 3.0% N.A. N.A.
Medians - Standard Conversions: 100% 132% 3.0% N.A. N.A.
Second Step Conversions
- -----------------------
Partners Trust Financial Group, Inc.*(7) NY 7/15/04 PRTR-NASDAQ 54% 85% 3.6% N.A N.A
Averages - Second Step Conversions: 54% 85% 3.6% NA NA
Medians - Second Step Conversions: 54% 85% 3.6% NA NA
Mutual Holding Company Conversions
- ----------------------------------
First Federal Financial Services, Inc. IL 6/29/04 FFFS-NASDAQ 45% 92% 3.9% N.A N.A
Monadnock Community Bncp, Inc.*(9) NH 6/29/04 MNCK-OTC BB 45% 100% 14.8% N.A N.A
Averages - Mutual Holding Company Conversions: 45% 96% 9.3% NA NA
Medians - Mutual Holding Company Conversions: 45% 96% 9.3% NA NA
Averages - All Conversions: 69% 108% 5.6% NA NA
Medians - All Conversions: 54% 100% 3.8% NA NA
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Institutional Information Insider Purchases
- -------------------------------------------------------------------------------------------------------
Benefit Plans
-------------
Initial
Conversion Recog. Mgmt.& Dividend
Institution ST. Date Ticker ESOP Plans Dirs. Yield
- ----------- --- ---- ------ ---- ------ ------ --------
(%) (%) (%)(2) (%)
- ----------------------------------------------------------------------------------------------------------------------
Standard Conversions
- --------------------
Third Century Bancorp IN 6/30/04 TDCB-OTS BB 8.0% 4.0% 9.6% 0.00%
SE Financial Corp. PA 5/6/2004 SEFL-OTS BB 8.0% 4.0% 3.9% 0.00%
Averages - Standard Conversions: 8.0% 4.0% 6.8% 0.00%
Medians - Standard Conversions: 8.0% 4.0% 6.8% 0.00%
Second Step Conversions
- -----------------------
Partners Trust Financial Group, Inc.*(7) NY 7/15/04 PRTR-NASDAQ 8.0% 4.0% 0.7% 2.50%
Averages - Second Step Conversions: 8.0% 4.0% 0.7% 2.50%
Medians - Second Step Conversions: 8.0% 4.0% 0.7% 2.50%
Mutual Holding Company Conversions
- ----------------------------------
First Federal Financial Services, Inc. IL 6/29/04 FFFS-NASDAQ 5.0% 4.0% 8.6% 2.40%
Monadnock Community Bncp, Inc.*(9) NH 6/29/04 MNCK-OTC BB 4.0% 4.0% 13.5% 0.00%
Averages - Mutual Holding Company Conversions: 4.5% 4.0% 11.0% 1.20%
Medians - Mutual Holding Company Conversions: 4.5% 4.0% 11.0% 1.20%
Averages - All Conversions: 6.6% 4.0% 7.3% 0.98%
Medians - All Conversions: 8.0% 4.0% 8.6% 0.00%
- ----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Pro Forma Data
Institutional Information -------------------------------------------------
Pricing Ratios(3) Financial Charac.
- -------------------------------------------------------------------------------------------------------------------------------
Conversion Core Core Core
Institution ST. Date Ticker P/TB P/E P/A ROA TE/A ROE
- ----------- --- ---- ------ ---- --- --- --- ---- ---
(%) (x) (%) (%) (%) (%)
- -----------------------------------------------------------------------------------------------------------------------------------
Standard Conversions
- --------------------
Third Century Bancorp IN 6/30/04 TDCB-OTS BB 74.9% 39.1x 13.7% 0.4% 18.3% 1.9%
SE Financial Corp. PA 5/6/2004 SEFL-OTS BB 85.7% 41.7x 23.8% 0.6% 27.8% 2.1%
Averages - Standard Conversions: 80.3% 40.4x 18.7% 0.5% 23.0% 2.0%
Medians - Standard Conversions: 80.3% 40.4x 18.7% 0.5% 23.0% 2.0%
Second Step Conversions
- -----------------------
Partners Trust Financial Group, Inc.*(7) NY 7/15/04 PRTR-NASDAQ 188.9% 17.2x 12.7% 0.7% 6.7% 11.0%
Averages - Second Step Conversions: 188.9% 17.2x 12.7% 0.7% 6.7% 11.0%
Medians - Second Step Conversions: 188.9% 17.2x 12.7% 0.7% 6.7% 11.0%
Mutual Holding Company Conversions
- ----------------------------------
First Federal Financial Services, Inc. IL 6/29/04 FFFS-NASDAQ 73.4% 23.7x 24.9% 1.2% 25.0% 4.8%
Monadnock Community Bncp, Inc.*(9) NH 6/29/04 MNCK-OTC BB 84.1% 458.9x 14.7% 0.0% 10.7% 0.0%
Averages - Mutual Holding Company Conversions: 78.7% 241.3x 19.8% 0.6% 17.9% 2.4%
Medians - Mutual Holding Company Conversions: 78.7% 241.3x 19.8% 0.6% 17.9% 2.4%
Averages - All Conversions: 101.4% 116.1x 18.0% 0.6% 17.7% 4.0%
Medians - All Conversions: 84.1% 39.1x 14.7% 0.6% 18.3% 2.1%
- ------------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Post-IPO Pricing Trends
Institutional Information ---------------------------
Closing Price:
- ----------------------------------------------------------------------------- ---------------------------
First After
Conversion IPO Trading % First
Institution ST. Date Ticker Price Day Change Week(4)
- ----------- --- ---- ------ ----- ------- ------ -------
($) ($) (%) ($)
- -------------------------------------------------------------------------------------------------------------------
Standard Conversions
- --------------------
Third Century Bancorp IN 6/30/04 TDCB-OTS BB $10.00 $11.32 13.2% $11.05
SE Financial Corp. PA 5/6/2004 SEFL-OTS BB $10.00 $ 9.95 -0.5% $ 9.85
Averages - Standard Conversions: $10.00 $10.64 6.4% $10.45
Medians - Standard Conversions: $10.00 $10.64 6.4% $10.45
Second Step Conversions
- -----------------------
Partners Trust Financial Group, Inc.*(7) NY 7/15/04 PRTR-NASDAQ $10.00 $ 9.99 -0.1% $ 9.98
Averages - Second Step Conversions: $10.00 $ 9.99 -0.1% $ 9.98
Medians - Second Step Conversions: $10.00 $ 9.99 -0.1% $ 9.98
Mutual Holding Company Conversions
- ----------------------------------
First Federal Financial Services, Inc. IL 6/29/04 FFFS-NASDAQ $10.00 $11.50 15.0% $12.25
Monadnock Community Bncp, Inc.*(9) NH 6/29/04 MNCK-OTC BB $ 8.00 $ 8.30 3.8% $ 8.00
Averages - Mutual Holding Company Conversions: $ 9.00 $ 9.90 9.4% $10.13
Medians - Mutual Holding Company Conversions: $ 9.00 $ 9.90 9.4% $10.13
Averages - All Conversions: $ 9.60 $10.21 6.3% $10.23
Medians - All Conversions: $10.00 $ 9.99 3.8% $ 9.98
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Post-IPO Pricing Trends
Institutional Information ----------------------------
Closing Price:
- ----------------------------------------------------------------------------- ----------------------------
After
Conversion % First %
Institution ST. Date Ticker Change Month(5) Change
- ----------- --- ---- ------ ------ -------- ------
(%) ($) (%)
- --------------------------------------------------------------------------------------------------------------
Standard Conversions
- --------------------
Third Century Bancorp IN 6/30/04 TDCB-OTS BB 10.5% $11.25 12.5%
SE Financial Corp. PA 5/6/2004 SEFL-OTS BB -1.5% $ 9.40 -6.0%
Averages - Standard Conversions: 4.5% $10.33 3.3%
Medians - Standard Conversions: 4.5% $10.33 3.3%
Second Step Conversions
- -----------------------
Partners Trust Financial Group, Inc.*(7) NY 7/15/04 PRTR-NASDAQ -0.2% $ 9.94 -0.6%
Averages - Second Step Conversions: -0.2% $ 9.94 -0.6%
Medians - Second Step Conversions: -0.2% $ 9.94 -0.6%
Mutual Holding Company Conversions
- ----------------------------------
First Federal Financial Services, Inc. IL 6/29/04 FFFS-NASDAQ 22.5% $12.50 25.0%
Monadnock Community Bncp, Inc.*(9) NH 6/29/04 MNCK-OTC BB 0.0% $ 7.60 -5.0%
Averages - Mutual Holding Company Conversions: 11.3% $10.05 10.0%
Medians - Mutual Holding Company Conversions: 11.3% $10.05 10.0%
Averages - All Conversions: 6.3% $10.14 5.2%
Medians - All Conversions: 0.0% $ 9.94 -0.6%
- --------------------------------------------------------------------------------------------------------------
Note: * - Appraisal performed by RP Financial; "NT" - Not Traded; "NA" - Not
Applicable, Not Available; C/S-Cash/Stock.
(1) Non-OTS regulated thrift.
(2) As a percent of MHC offering for MHC transactions.
(3) Does not take into account the adoption of SOP 93-6.
(4) Latest price if offering is less than one week old.
(5) Latest price if offering is more than one week but less than one month old.
(6) Mutual holding company pro forma data on full conversion basis.
(7) Simultaneously completed acquisition of another financial institution.
(8) Simultaneously converted to a commercial bank charter.
(9) Former credit union.
July 23, 2004
- --------------------------------------------------------------------------------
Board of Directors
July 27, 2004
Page 16
were related to a single large problem asset. In this regard, the core elements
of net income (i.e., primarily net interest income and operating expense)
continue to trend less favorable from a core earnings perspective. Overall we
have concluded that the parameter of profitability, growth and viability of
earnings should be upgraded to a moderate upward adjustment.
In terms of other valuation adjustments relative to the Peer Group,
except for the valuation parameters of "Marketing of the Issue" and "Effect of
Government Regulation and Regulatory Reform", there was no new information that
would lead us to a different conclusion other than that reached in our Original
Appraisal. For example, there was no significant change in market area, dividend
paying capacity or management. With respect to marketing of the issue, however,
we believe that it is appropriate to change our previous adjustment from
"moderate upward adjustment" to "no adjustment" in view of the selloff in the
market generally, the Peer Group specifically, and the recent trading in new
issues.
The general market for thrift stocks has moved lower since the date of
the Original Appraisal, as indicated by the decreases recorded in the SNL Index
for all publicly-traded thrifts and SNL MHC Index for all publicly-traded MHCs.
Specifically, the market for all publicly traded thrifts declined in a range of
5% to 9% while the SNL Index of all thrifts and the SNL MHC index decreased by
11% and 12%, respectively. On a reported basis, the pricing of the Peer Group
companies declined by approximately 13% to 21% and on a fully converted basis,
the pricing of the Peer Group declined by between 6% to 14%. Activity in the new
issue market reflects a lower level of aftermarket in appreciation relative to
the average over the last several years and SE Financial and Monadnock Community
Bancorp are currently trading below their respective IPO prices. Taking into
account the foregoing, we have changed the valuation parameter of Marketing of
the Issue from a moderate upward adjustment applied in the Original Appraisal to
no adjustment in this updated valuation.
In the Original Appraisal, we noted that as a federally-insured
savings bank operating in the MHC form of ownership, ACFC will operate in
substantially the same regulatory environment as the Peer Group members -- all
of whom are adequately capitalized institutions and are operating with no
apparent restrictions. While the Company's lending operations have been a source
of scrutiny of and identified as an area of criticism in the regulatory safety
and soundness examination completed in 2003, such scrutiny has had a beneficial
impact on the Company's risk profile, by mandating the employment of qualified
and experienced lending personnel and the adoption of more stringent policies
and procedures. Accordingly, the previously commercial lending restrictions
which were previously imposed on the Company have been lifted. On balance, we
believe that no adjustment for the valuation parameter of Effect of Government
Regulation and Regulatory Reform is appropriate and have revised this valuation
parameter from a slight downward adjustment applied in the Original Appraisal.
Board of Directors
July 27, 2004
Page 17
Valuation Adjustment
--------------------
Key Valuation Parameters: Original Appraisal Updated Appraisal
- ------------------------ ------------------ -----------------
Financial Condition Slight Downward Slight Downward
Profitability, Growth and Viability of Earnings Slight Upward Moderate Upward
Asset Growth Slight Upward Slight Upward
Primary Market Area No Adjustment No Adjustment
Dividends No Adjustment No Adjustment
Liquidity of the Shares Slight Upward Slight Upward
Marketing of the Issue Moderate Upward No Adjustment
Management No Adjustment No Adjustment
Effect of Government Regulations and Regulatory Reform Slight Downward No Adjustment
Based on the application of the three valuation approaches, taking
into consideration the updated valuation adjustments discussed above, RP
Financial concluded that as of July 27, 2004 the pro forma market value of
ACFC's full conversion offering equaled $110,000,000 at the midpoint, equal to
11,000,000 shares at $10.00 per share. The valuation reflects an approximate 8%
decrease relative to the midpoint pro forma value established in the Original
Appraisal. This adjustment is less than the indicated reduction in the Peer
Group's price per share in the range of 18% and reflects the changes in the
valuation parameters including the changes in the Peer Group's pricing on a
reported and fully converted basis, and the improvement in the Company's
regulatory environment following its recent examination and the lifting of
lending restrictions. Furthermore, the pricing takes into account the Company's
improved earnings, albeit tempered by the fact that the improvement is the
result of diminished loan loss provisions as the core elements of income (net
interest income and non-interest income net of operating expenses) have
diminished based on updated earnings.
1. P/E Approach. The application of the P/E valuation method requires
calculating the Company's pro forma market value by applying a valuation P/E
multiple (fully-converted basis) to the pro forma earnings base. In applying
this technique, we considered both reported earnings and a recurring earnings
base, that is, earnings adjusted to exclude any one-time non-operating items,
plus the estimated after-tax earnings benefit of the reinvestment of the net
proceeds. The Company's reported earnings equaled $5,459,000 for the 12 months
ended June 30, 2004. In deriving ACFC's core earnings, there were three
adjustments made to reported earnings was to eliminate non-recurring gains on
the sale of loans and AFS investments, net of losses on foreclosed assets. As
shown below, on a tax effected basis, assuming an effective marginal tax rate of
38.00% for the gains eliminated, the Company's core earnings were determined to
equal $3,836,000 for the 12 months ended June 30, 2004.
Board of Directors
July 27, 2004
Page 18
Amount
------
($000)
Net income $5,459,000
Adjustment for non-recurring items(1) (1,623,000)
----------
Core earnings estimate $3,836,000
(1) Non-recurring expense of $2,617,000, tax effected at 38.00%.
Based on ACFC's reported and estimated core earnings, and
incorporating the impact of the pro forma assumptions discussed previously, the
Company's pro forma reported and core P/E multiples (fully-converted basis) at
the $110.0 million midpoint value equaled 21.72 times and 31.97 times,
respectively, indicating a discount of 24.3% relative to the Peer Group's
average reported P/E multiple (fully-converted basis) of 28.69 times the Core
P/E multiple was substantially equivalent to the Peer Group's core P/E multiple
(see Table 6, excludes P/E ratios over 50 times). By comparison, the Company's
value at the midpoint in the Original Appraisal indicated a discount of 11.0%
and a premium of 34.8% relative to the Peer Group's average reported and core
P/E multiples (fully-converted basis), respectively. The implied discounts or
premiums reflected in the Company's pro forma P/E multiples take into
consideration the Company's pro forma P/B and P/A ratios.
On an MHC basis, the Company's pro forma P/E multiples based on
reported and core earnings equaled 20.75 and 29.91 times at the midpoint,
respectively (see Table 7, excludes P/E ratios over 50 times). At the
supermaximum of the range, the Company's reported and core earnings multiples
based on the minority stock offering equaled 27.70 and 40.08 times,
respectively. In comparison, the Peer Group average multiples on an MHC basis
based on reported and core earnings equaled 34.52 and 35.96 times, respectively
(excluding P/E ratios over 50 times).
2. P/B Approach. The application of the P/B valuation method requires
calculating the Company's pro forma market value by applying a valuation P/B
ratio, as derived from the Peer Group's P/B ratio (fully-converted basis), to
ACFC's pro forma book value (fully-converted basis). Based on the $110.0 million
midpoint valuation (fully converted basis), ACFC's updated pro forma P/B and
P/TB ratios equaled 79.41% and 80.97%, respectively. In comparison to the
average fully converted P/B and P/TB ratios for the Peer Group of 95.68% and
99.29%, the Company's ratios reflected a discount of 17.0% on a P/B basis and a
discount of 18.5% on a P/TB basis. By comparison, the Company's ratios reflected
a discount of 19.3% on a P/B basis and a discount of 20.5% on a P/TB basis at
the midpoint of the of the valuation range on a fully converted basis in the
Original Appraisal (based on the Peer Group averages).
On an MHC basis, the Company's pro forma P/B and P/TB ratios equaled
133.41% and 137.85%, respectively, at the midpoint, which reflects a discount
from the Peer Group average on an MHC basis of 34.3% to 36.2%, respectively. At
the supermaximum of the range, the Company's P/B and P/TB ratios equaled 153.41%
and 157.84%, respectively, which reflects a 24.5% and 27.0% discount relative to
the Peer Group average P/B and P/TB ratios.
Board of Directors
July 27, 2004
Page 19
A detailed comparison of these P/B ratios relative to the Peer Group,
on both a fully-converted basis and an MHC basis, appears below.
Price/Book Price/Tangible
Value Book Value
---------- --------------
I. Fully Converted Basis (See Table 6)
-----------------------------------
ACFC Updated Midpoint - 79.41% 80.97%
Peer Group (At 7/27/04)
Average 95.68% 99.29%
Median 90.45% 96.58%
ACFC Midpoint Discount Relative to Peer Group
Updated Appraisal as of July 27, 2004
-------------------------------------
Peer Group Average 17.00% 18.45%
Peer Group Median 12.21% 16.16%
Original Appraisal as of March 5, 2004
--------------------------------------
Peer Group Average 19.25% 20.48%
Peer Group Median 19.52% 21.49%
II. MHC Basis (see Table 7)
-----------------------
ACFC Updated Midpoint 133.41% 137.85%
ACFC Updated Supermaximum 153.41% 157.84%
Peer Group (At 7/27/04)
Average 203.15% 216.09%
Median 177.43% 205.11%
ACFC Midpoint Discount Relative to Peer Group
Updated Appraisal as of July 27, 2004
-------------------------------------
Peer Group Average 34.33% 36.21%
Peer Group Median 24.81% 32.79%
Original Appraisal as of March 5, 2004
--------------------------------------
Peer Group Average 43.90% 46.13%
Peer Group Median 39.52% 44.94%
ACFC Supermaximum Discount Relative to
Updated Appraisal as of July 27, 2004
-------------------------------------
Peer Group Average 24.48% 26.96%
Peer Group Median 13.54% 23.05%
Original Appraisal as of March 5, 2004
--------------------------------------
Peer Group Average 36.06% 38.88%
Peer Group Median 31.08% 37.53%
Board of Directors
July 27, 2004
Page 20
3. P/A Approach. The P/A valuation methodology determines market value by
applying a valuation P/A ratio to the Company's pro forma asset base,
conservatively assuming no deposit withdrawals are made to fund stock purchases.
In all likelihood there will be deposit withdrawals, which results in
understating the pro forma P/A ratio which is computed herein. Moreover, any
withdrawal of deposits will result in a further increase in the post-offering
P/A ratio. At the midpoint of the updated valuation range, the Company's value
equaled 16.34 pro forma fully converted assets. Comparatively, the Peer Group
companies exhibited an average P/A ratio (fully-converted basis) of 22.03 which
implies a discount of 26% to the Company's pro forma P/A ratio (fully-converted
basis), as compared to a discount of 22% indicated at the midpoint in the
Original Appraisal. On an MHC basis, the Peer Group companies exhibited an
average P/A ratio of 25.59%, which provides for a discount of 30% to the
Company's pro forma P/A ratio of 17.83% (the discount was 28% in the Original
Appraisal).
Valuation Conclusion
- --------------------
Based on the foregoing, it is our opinion that, as of July 27, 2004,
the estimated aggregate pro forma market value of the shares to be issued
immediately following the conversion, including the shares issued publicly, as
well as to the MHC, equaled $110,000,000 at the midpoint, equal to 11,000,000
shares offered at a per share value of $10.00. The updated valuation reflects an
approximate 8% reduction relative to the fully converted midpoint valuation
established in the Original Appraisal.
Pursuant to conversion guidelines, the 15% offering range indicates a
minimum value of $93.5 million and a maximum value of $126.5 million. Based on
the $10.00 per share offering price determined by the Board, this valuation
range equates to total shares outstanding of 9,350,000 at the minimum and
12,650,000 at the maximum. In the event the appraised value is subject to an
increase, the aggregate pro forma market value may be increased up to a
supermaximum value of $145,475,000 without a resolicitation. Based on the $10.00
per share offering price, the supermaximum value would result in total shares
outstanding of 14,547,500.
Board of Directors
July 27, 2004
Page 21
The Board of Directors has established a public offering range such
that the public ownership of the Company will constitute a 40.0% ownership
interest. Accordingly, the offering to the public of the minority stock, will
equal $37.4 million at the minimum, $44.0 million at the midpoint, $50.6 million
at the maximum and $58.2 million at the supermaximum of the valuation range. The
pro forma valuation calculations relative to the Peer Group (fully-converted
basis) are shown in Table 6 and are detailed in Exhibit 2 and Exhibit 3; the pro
forma valuation calculations relative to the Peer Group based on MHC financials
are shown in Table 7 and are detailed in Exhibits 4 and 5.
Respectfully submitted,
/s/ William E. Pommerening
--------------------------
William E. Pommerening
Chief Executive Officer and
Managing Director
James P. Hennessey
Senior Vice President
Board of Directors
July 27, 2004
Page 22
Table 6
MHC Institutions -- Implied Pricing Ratios, Full Conversion Basis
Atlantic Coast Federal Corporation
As of July 27, 2004
Fully Converted
Implied Value Per Share(8)
------------------- --------------------------
Price/ Market Core 12 Mo. Book Value/
Financial Institution Share(1) Value EPS(2) Share
- --------------------- -------- ------ ----------- -----------
($) ($Mil) ($) ($)
Atlantic Coast Federal Corporation
- ----------------------------------
Superrange $10.00 $145.48 $0.23 $11.59
Maximum $10.00 $126.50 $0.27 $12.06
Midpoint $10.00 $110.00 $0.31 $12.59
Minimum $10.00 $ 93.50 $0.37 $13.31
All Public Companies(7)
- -----------------------
Averages 21.49 435.60 0.91 14.26
Medians -- -- -- --
Publicly-Traded MHC Institutions, Full Conversion Basis
- -------------------------------------------------------
Averages $19.02 $ 81.06 $0.55 $19.57
Medians -- -- -- --
Publicly-Traded MHC Institutions, Full Conversion Basis
- -------------------------------------------------------
ALLB Alliance Bank MHC of PA (20.0) 26.99 99.57 0.85 30.31
BCSB BCSB Bankcorp MHC of MD (36.4) 14.00 82.59 0.12 15.43
GOV Gouverneur Bcp MHC of NY (42.5) 12.25 27.95 0.38 13.85
GCBC Green Co Bcrp MHC of NY (43.9) 32.00 65.70 1.48 30.14
JXSB Jcksnville Bcp MHC of IL (46.3) 14.85 28.99 0.08 17.61
ONFC Oneida Fincl MHC of NY (42.2) 10.05 75.25 0.37 11.94
PBHC Pathfinder BC MHC of NY (36.8) 15.86 38.83 0.53 17.59
ROME Rome Bncp Inc MHC of NY (38.9) 30.00 127.29 0.61 24.17
WCFB Wbstr Cty Fed MHC of IA (39.0) 14.00 52.81 0.39 13.38
WFD Westfield Finl MHC of MA (46.5) 20.18 211.57 0.70 21.24
Dividends(4)
Pricing Ratios(3) ---------------------------
------------------------------------------ Amount/ Payout
Financial Institution P/E P/B P/A P/TB P/Core Share Yield Ratio(5)
- --------------------- --- --- --- ---- ------ ----- ----- --------
(x) (%) (%) (%) (x) ($) (%) (%)
Atlantic Coast Federal Corporation
- ----------------------------------
Superrange 29.47 86.25 20.69 87.63 43.91 $0.00 0.00% 0.00%
Maximum 25.28 82.93 18.41 84.40 37.41 $0.00 0.00% 0.00%
Midpoint 21.72 79.41 16.34 80.97 31.97 $0.00 0.00% 0.00%
Minimum 18.25 75.10 14.19 76.74 26.72 $0.00 0.00% 0.00%
All Public Companies(7)
- -----------------------
Averages 17.19 153.75 16.67 166.19 19.12 0.47 2.24 36.92
Medians 15.98 144.48 14.59 156.64 17.60 --- --- ---
Publicly-Traded MHC Institutions, Full Conversion Basis
- -------------------------------------------------------
Averages 28.69x 95.68 22.03 99.29 32.08x 0.45 2.58 49.03
Medians 28.77x 90.45 21.65 96.58 30.84x -- -- --
Publicly-Traded MHC Institutions, Full Conversion Basis
- -------------------------------------------------------
ALLB Alliance Bank MHC of PA (20.0) 31.38 89.05 21.84 89.05 31.75 0.36 1.33 42.35
BCSB BCSB Bankcorp MHC of MD (36.4) N.M. 90.73 10.64 93.52 N.M. 0.50 3.57 NM
GOV Gouverneur Bcp MHC of NY (42.5) 30.63 88.45 25.48 88.45 32.24 0.26 2.12 68.42
GCBC Green Co Bcrp MHC of NY (43.9) 21.62 106.17 21.45 106.17 21.62 0.84 2.63 56.76
JXSB Jcksnville Bcp MHC of IL (46.3) 38.08 84.33 10.40 92.58 N.M. 0.30 2.02 NM
ONFC Oneida Fincl MHC of NY (42.2) 22.33 84.17 16.21 98.14 27.16 0.38 3.78 NM
PBHC Pathfinder BC MHC of NY (36.8) 22.66 90.16 12.01 101.02 29.92 0.40 2.52 NM
ROME Rome Bncp Inc MHC of NY (38.9) N.M. 124.12 38.96 124.12 49.18 0.60 2.00 NM
WCFB Wbstr Cty Fed MHC of IA (39.0) 35.90 104.63 39.71 104.87 35.90 0.68 4.86 NM
WFD Westfield Finl MHC of MA (46.5) 26.91 95.01 23.64 95.01 28.83 0.20 0.99 28.57
Financial Characteristics(6)
---------------------------------------------------------------
Reported Core
Total Equity/ NPAs/ ------------ ------------
Financial Institution Assets Assets Assets ROA ROE ROA ROE
- --------------------- ------ ------ ------ --- --- --- ---
($Mil) (%) (%) (%) (%) (%) (%)
Atlantic Coast Federal Corporation
- ----------------------------------
Superrange $703 23.98 0.60 0.70 2.93 0.47 1.96
Maximum $687 22.20 0.62 0.73 3.28 0.49 2.22
Midpoint $673 20.58 0.63 0.75 3.66 0.51 2.48
Minimum $659 18.89 0.64 0.78 4.11 0.53 2.81
All Public Companies(7)
- -----------------------
Averages 2829.00 10.90 0.64 0.83 8.99 0.65 7.17
Medians -- -- -- -- -- -- --
Publicly-Traded MHC Institutions, Full Conversion Basis
- -------------------------------------------------------
Averages 407 22.44 0.71 0.69 3.04 0.64 2.68
Medians -- -- -- -- -- -- --
Publicly-Traded MHC Institutions, Full Conversion Basis
- -------------------------------------------------------
ALLB Alliance Bank MHC of PA (20.0) 456.00 24.53 1.61 0.70 2.86 0.69 2.82
BCSB BCSB Bankcorp MHC of MD (36.4) 776.00 11.73 0.17 0.12 0.98 0.10 0.78
GOV Gouverneur Bcp MHC of NY (42.5) 110.00 28.81 0.86 0.87 2.90 0.83 2.76
GCBC Green Co Bcrp MHC of NY (43.9) 306.00 20.20 0.15 1.04 4.99 1.04 4.99
JXSB Jcksnville Bcp MHC of IL (46.3) 279.00 12.34 1.20 0.28 2.25 0.06 0.46
ONFC Oneida Fincl MHC of NY (42.2) 464.00 19.26 NA 0.73 3.85 0.60 3.16
PBHC Pathfinder BC MHC of NY (36.8) 323.00 13.32 1.07 0.56 4.04 0.42 3.06
ROME Rome Bncp Inc MHC of NY (38.9) 327.00 31.39 0.54 0.66 2.09 0.79 2.50
WCFB Wbstr Cty Fed MHC of IA (39.0) 133.00 37.95 0.46 1.10 2.93 1.10 2.93
WFD Westfield Finl MHC of MA (46.5) 895.00 24.89 0.37 0.87 3.55 0.81 3.31
(1) Current stock price of minority stock. Average of High/Low or Bid/Ask price
per share.
(2) EPS (estimated core earnings) is based on reported trailing 12 month data,
adjusted to omit non-operating gains and losses on a tax-effected basis.
Public MHC data reflects additional earnings from reinvestment of proceeds
of second step conversion.
(3) P/E = Price to Earnings; P/B = Price to Book; P/A = Price to Assets; P/TB =
Price to Tangible Book; and P/Core = Price to Core Earnings. Ratios are pro
forma assuming a second step conversion to full stock form.
(4) Indicated 12 month dividend, based on last quarterly dividend declared.
(5) Indicated 12 month dividend as a percent of trailing 12 month estimated
core earnings (earnings adjusted to reflect second step conversion).
(6) ROA (return on assets) and ROE (return on equity) are indicated ratios
based on trailing 12 month earnings and average equity and assets balances.
(7) Excludes from averages and medians those companies the subject of actual or
rumored acquisition activities or unusual operating characteristics.
(8) Figures estimated by RP Financial to reflect a second step conversion of
the MHC to full stock form.
Source: Corporate reports, offering circulars, and RP(R) Financial, LC.
calculations. The information provided in this report has been obtained
from sources we believe are reliable, but we cannot guarantee the
accuracy or completeness of such information.
Copyright (c) 2003 by RP(R) Financial, LC.
Board of Directors
July 27, 2004
Page 23
Table 7
Public Market Pricing
Atlantic Coast Federal Corporation
As of July 27, 2004
MHC Pricing - 40% Minority Stock Issuance
Fully Converted
Implied Value Per Share
------------------- --------------------------
Price/ Market Core 12 Mo. Book Value/
Financial Institution Share(1) Value EPS(2) Share
- --------------------- -------- ------ ----------- -----------
($) ($Mil) ($) ($)
Atlantic Coast Federal Corporation
- ----------------------------------
Superrange $10.00 $145.48 $0.25 $6.52
Maximum $10.00 $126.50 $0.29 $6.97
Midpoint $10.00 $110.00 $0.33 $7.50
Minimum $10.00 $93.50 $0.40 $8.20
All Public Companies(7)
- -----------------------
Averages 21.49 435.60 0.91 14.26
Medians -- -- -- --
Comparable Group Averages
- -------------------------
Averages $19.02 $31.72 $0.44 $9.38
Medians -- -- -- --
Comparable Group
- ----------------
ALLB Alliance Bank MHC of PA (20.0) 26.99 18.57 0.65 10.43
BCSB BCSB Bankcorp MHC of MD (36.4) 14.00 30.02 0.04 7.77
GOV Gouverneur Bcp MHC of NY (42.5) 12.25 11.89 0.31 7.80
GCBC Green Co Bcrp MHC of NY (43.9) 32.00 28.83 1.31 14.70
JXSB Jcksnville Bcp MHC of IL (46.3) 14.85 13.41 0.01 10.75
ONFC Oneida Fincl MHC of NY (42.2) 10.05 31.59 0.32 6.92
PBHC Pathfinder BC MHC of NY (36.8) 15.86 14.61 0.44 9.08
ROME Rome Bncp Inc MHC of NY (38.9) 30.00 49.23 0.44 8.35
WCFB Wbstr Cty Fed MHC of IA (39.0) 14.00 20.61 0.31 6.04
WFD Westfield Finl MHC of MA (46.5) 20.18 98.42 0.60 11.96
Dividends(4)
Pricing Ratios(3) ----------------------------
-------------------------------------------- Amount/ Payout
Financial Institution P/E P/B P/A P/TB P/Core Share Yield Ratio(5)
- --------------------- --- --- --- ---- ------ ------- ----- --------
(x) (%) (%) (%) (x) ($) (%) (%)
Atlantic Coast Federal Corporation
- ----------------------------------
Superrange 27.70 153.41 23.11 157.84 40.08 $0.00 0.00% 0.00%
Maximum 23.97 143.41 20.31 147.87 34.61 $0.00 0.00% 0.00%
Midpoint 20.75 133.41 17.83 137.85 29.91 $0.00 0.00% 0.00%
Minimum 17.56 121.90 15.29 126.28 25.27 $0.00 0.00% 0.00%
All Public Companies(7)
- -----------------------
Averages 17.19 153.75 16.67 166.19 19.12 0.47 2.24 36.92
Medians 15.98 144.48 14.59 156.64 17.6 -- -- --
Comparable Group Averages
- -------------------------
Averages 34.52x 203.15 25.59 216.09 35.96x 0.45 2.58 18.24
Medians 34.08x 177.43 24.18 205.11 36.05x -- -- --
Comparable Group
- ----------------
ALLB Alliance Bank MHC of PA (20.0) 40.89 258.77 24.44 258.77 41.52 0.36 1.33 11.07
BCSB BCSB Bankcorp MHC of MD (36.4) N.M. 180.18 11.30 191.52 N.M. 0.50 3.57 NM
GOV Gouverneur Bcp MHC of NY (42.5) 37.12 157.05 29.15 157.05 39.52 0.26 2.12 NM
GCBC Green Co Bcrp MHC of NY (43.9) 24.43 217.69 23.92 217.69 24.43 0.84 2.63 28.14
JXSB Jcksnville Bcp MHC of IL (46.3) 46.41 138.14 10.93 161.76 N.M. 0.30 2.02 NM
ONFC Oneida Fincl MHC of NY (42.2) 25.13 145.23 17.64 192.53 31.41 0.38 3.78 NM
PBHC Pathfinder BC MHC of NY (36.8) 26.00 174.67 12.84 220.58 36.05 0.40 2.52 NM
ROME Rome Bncp Inc MHC of NY (38.9) N.M. 359.28 49.03 359.28 N.M. 0.60 2.00 NM
WCFB Wbstr Cty Fed MHC of IA (39.0) 45.16 231.79 50.14 232.95 45.16 0.68 4.86 NM
WFD Westfield Finl MHC of MA (46.5) 31.05 168.73 26.53 168.73 33.63 0.20 0.99 15.51
Financial Characteristics(6)
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Reported Core
Total Equity/ NPAs/ ------------- --------------- Offering
Financial Institution Assets Assets Assets ROA ROE ROA ROE Size
- --------------------- ------ ------ ------ --- --- --- --- --------
($Mil) (%) (%) (%) (%) (%) (%) ($Mil)
Atlantic Coast Federal Corporation
- ----------------------------------
Superrange $629 15.07 0.67 0.83 5.54 0.58 3.83 58.19
Maximum $623 14.16 0.68 0.85 5.98 0.59 4.14 50.60
Midpoint $617 13.36 0.69 0.86 6.43 0.60 4.46 44.00
Minimum $611 12.55 0.69 0.87 6.94 0.61 4.82 37.40
All Public Companies(7)
- -----------------------
Averages 2,829 10.9 0.64 0.83 8.99 0.65 7.17
Medians -- -- -- -- -- -- --
Comparable Group Averages
- -------------------------
Averages 364 12.37 0.71 0.65 5.15 0.60 4.54
Medians -- -- -- -- -- -- --
Comparable Group
- ----------------
ALLB Alliance Bank MHC of PA (20.0) 380 9.45 1.61 0.60 6.46 0.59 6.37
BCSB BCSB Bankcorp MHC of MD (36.4) 731 6.27 0.17 0.06 0.91 0.04 0.52
GOV Gouverneur Bcp MHC of NY (42.5) 96 18.56 0.86 0.83 4.27 0.78 4.02
GCBC Green Co Bcrp MHC of NY (43.9) 275 10.99 0.15 1.03 9.22 1.03 9.22
JXSB Jcksnville Bcp MHC of IL (46.3) 265 7.91 1.20 0.24 3.06 0.01 0.10
ONFC Oneida Fincl MHC of NY (42.2) 427 12.14 NA 0.70 5.99 0.56 4.79
PBHC Pathfinder BC MHC of NY (36.8) 302 7.35 1.07 0.52 6.92 0.38 4.99
ROME Rome Bncp Inc MHC of NY (38.9) 260 13.65 0.54 0.55 3.98 0.72 5.15
WCFB Wbstr Cty Fed MHC of IA (39.0) 105 21.63 0.46 1.11 5.18 1.11 5.18
WFD Westfield Finl MHC of MA (46.5) 798 15.72 0.37 0.84 5.48 0.78 5.06
(1) Current stock price of minority stock. Average of High/Low or Bid/Ask price
per share.
(2) EPS (estimated core earnings) is based on reported trailing 12 month data,
adjusted to omit non-operating gains and losses on a tax-effected basis.
Public MHC data reflects additional earnings from reinvestment of proceeds
of second step conversion.
(3) P/E = Price to Earnings; P/B = Price to Book; P/A = Price to Assets; P/TB =
Price to Tangible Book; and P/Core = Price to Core Earnings. Ratios are pro
forma assuming a second step conversion to full stock form.
(4) Indicated 12 month dividend, based on last quarterly dividend declared.
(5) Indicated 12 month dividend as a percent of trailing 12 month estimated
core earnings (earnings adjusted to reflect second step conversion).
(6) ROA (return on assets) and ROE (return on equity) are indicated ratios
based on trailing 12 month earnings and average equity and assets balances.
(7) Excludes from averages and medians those companies the subject of actual or
rumored acquisition activities or unusual operating characteristics.
Source: Corporate reports, offering circulars, and RP(R) Financial, LC.
calculations. The information provided in this report has been obtained
from sources we believe are reliable, but we cannot guarantee the
accuracy or completeness of such information.
Copyright (c) 2003 by RP(R) Financial, LC.