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FAIRFIELD SAVINGS BANK, F.S.B.
Long Grove, Illinois
CONVERSION VALUATION
APPRAISAL REPORT
AS OF:
SEPTEMBER 6, 1996
PREPARED BY:
CAPITAL RESOURCES GROUP, INC.
0000 XXXXXXXXXXX XXXXXX, XX
XXXXX 000
XXXXXXXXXX, X.X. 00000
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[LETTERHEAD]
September 6, 1996
Board of Directors
Fairfield Savings Bank, F.S. B.
0000 XXX
Xxxx Xxxxx, Xxxxxxxx 00000-0000
Dear Board Members:
At your request, we hereby provide an independent appraisal of the
estimated pro forma market value of the common stock of Big Foot Financial Corp.
("Holding Company") to be issued upon conversion of Fairfield Savings Bank, F.S.
B. ("Fairfield" or the "Bank") from a mutual to stock form and upon the issuance
of the Bank's common stock to the Holding Company, a newly formed corporation
which is a unitary savings and loan holding company. It is anticipated that,
initially, the sole subsidiary of the Holding Company will be the Bank. This
appraisal is furnished pursuant to the requirements of Regulation 563b.7 and the
"Guidelines for Appraisal Reports for the Valuation of Savings Institutions
Converting from Mutual to Stock Form of Organization" of the Office of Thrift
Supervision ("OTS").
Capital Resources Group, Inc. ("CRG") is an investment banking and
financial consulting firm that specializes in financial valuations and analyses
of business enterprises and securities. The background and experience of CRG is
detailed in Exhibit V-1. We believe that, except for the fee we will receive
for our appraisal, we are independent of the Bank.
In preparing our appraisal, we have reviewed Fairfield's Application for
Approval of Conversion, including the Proxy Statement, as filed with the OTS.
We have conducted an analysis of the Bank that has included discussions with the
Bank's management, with KPMG Peat Marwick LLP, the Bank's independent auditor,
and with the firm of Xxxxxxx Xxxxxxxx & Xxxx, the Bank's conversion counsel. In
addition, where appropriate, we have considered information based on other
available published sources that we believe are reliable; however, we cannot
guarantee the accuracy and completeness of such information.
We investigated the competitive environment within which Fairfield operates
and have assessed the Bank's relative strengths and weaknesses. Our analysis
included an examination of the potential effects of conversion on Fairfield's
operating characteristics and financial performance as they related to the pro
forma market value of the Holding Company. We also have reviewed, among other
things, the economy in Fairfield's primary market area and have compared the
Bank's financial performance and condition with that of companies in Illinois,
nationally and with that of a selected group of publicly-traded companies. We
have reviewed conditions in the securities markets in
CAPITAL RESOURCES GROUP, INC.
Board of Directors
September 6, 1996
Page 2
general and in the market for thrift stock in particular. We also have
considered the expected market for the Holding Company's common stock after
conversion.
In preparing our appraisal, we have relied upon and assumed the accuracy
and completeness of financial and statistical information provided by the Bank
and the Bank's independent auditors. We did not independently verify the
financial statements or other information provided by the Bank. Our appraisal is
based on the Bank's representation that the information contained in the
Prospectus and Proxy Statement and additional evidence furnished to us by the
Bank are truthful, accurate and complete.
It is our opinion that, as of September 6, 1996, the estimated pro forma
market value of the Holding Company's (and, therefore, the Bank's)
to-be-outstanding common stock was $17,500,000, or 1,750,000 shares at $10.00
per share. The resultant range of value was $14,875,000, or 1,487,500 shares at
$10.00 per share, to $20,125,000, or 2,012,500 shares at $10.00 per share.
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 to 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 conversion will thereafter be able to sell such
shares at prices related to the foregoing valuation of the pro forma market
value thereof.
The valuation will be updated as provided for in the OTS conversion
regulations and guidelines. Any updates will consider, among other things, any
developments or changes in the Bank's financial performance and condition,
management policies and current conditions in the equity markets for thrift
shares. 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 made. The reasons for any such
adjustments will be explained in detail at that time.
Respectfully submitted,
CAPITAL RESOURCES GROUP, INC.
/s/ Xxxxxxx X. Xxxxxx
------------------------------
Xxxxxxx X. Xxxxxx
Senior Vice President
MBS/cct
Enclosure
CAPITAL RESOURCES GROUP, INC.
TABLE OF CONTENTS
PAGE
CHAPTER DESCRIPTION NUMBER
------- ----------- ------
I. DESCRIPTION OF FAIRFIELD SAVINGS BANK, F.S.B. 1.1
Overview of Fairfield Savings Bank, F.S.B. 1.1
Balance Sheet Trends 1.3
Loan Portfolio 1.7
One-to-Four Family Residential Loans 1.7
Land, Construction and Development Loans 1.9
Home Equity Loans 1.10
Commercial and Multifamily Loans 1.10
Other Loans 1.11
Asset Quality 1.11
Real Estate Investment 1.12
Asset/Liability Management 1.13
Income and Expense Trends 1.14
Subsidiary Activity 1.18
Properties 1.18
Legal Proceedings and Miscellaneous 1.19
II. MARKET AREA ANALYSIS 2.1
III. COMPARISONS WITH PUBLICLY-HELD THRIFTS 3.1
Chapter Overview 3.1
Introduction 3.2
Selection Criteria 3.2
Selection Procedure 3.5
Review of Comparative Group Thrifts 3.7
Financial Comparisons 3.11
IV. MARKET VALUE DETERMINATION 4.1
Introduction 4.1
Quality and Predictability of Earnings/Earnings
Growth Potential 4.1
Financial Strength 4.4
Capital Levels 4.4
Asset/Liability Position 4.4
Asset Quality 4.6
Market Area 4.6
Dividend Payments 4.8
Management and Employee Staffing 4.8
Liquidity of the Issue 4.9
Subscription/Community Interest 4.10
Stock Market Environment 4.12
Valuation Approach 4.15
Valuation Conclusion 4.20
CAPITAL RESOURCES GROUP, INC.
LIST OF TABLES
TABLE PAGE
NUMBER DESCRIPTION NUMBER
------ ----------- ------
CHAPTER I
1.1 Selected Balance Sheet Items 1.4
1.2 Non-Performing Assets 1.12
1.3 Investment and Mortgage-Backed Securities Portfolio 1.15
1.4 Office Locations 1.19
CHAPTER III
3.1 Comparative Group Selection Criteria 3.6
3.2 Earning Asset Composition 3.8
3.3 Key Financial Indicators 3.12
CHAPTER IV
4.1 Thrift Stock Index 4.13
4.2 Comparative Pricing Analysis 4.19
4.3 Pro Forma Comparison 4.21
CAPITAL RESOURCES GROUP, INC.
I. DESCRIPTION OF FAIRFIELD SAVINGS BANK, F.S.B.
OVERVIEW OF FAIRFIELD SAVINGS BANK, F.S.B.
Fairfield Savings Bank, F.S.B. ("Fairfield" or the "Bank") is a federally
chartered mutual savings bank located in Long Grove, Illinois. The Bank was
organized in 1901 as an Illinois-chartered mutual savings and loan association.
Fairfield is a member of the Federal Home Loan Bank ("FHLB") System and its
deposits are insured up to the applicable limits by the Savings Association
Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation ("FDIC").
At July 31, 1996, the Bank had total assets of $194.6 million and equity, as
calculated under generally accepted accounting principles ("GAAP"), of $13.6
million or 7.0 percent of total assets.
The Bank conducts its business through three offices located in three
distinct markets in the Chicago metropolitan area. The Bank's original office
is in the City of Chicago and serves an older, ethnic blue-collar customer base.
This customer base serves as a strong source for core savings accounts, notably
passbook deposits. The Bank's largest office is located in Norridge in Xxxx
County, adjacent to X'Xxxx International Airport. This suburb is a generally
well developed mature market and features savers that seek convenient, basic
banking services. The main office in Long Grove which is approximately 35 miles
from downtown Chicago, serves, on average, a more affluent customer base. This
market is still developing and management believes it offers greater lending
opportunities than the Bank's two other primary market areas. The Bank is
primarily engaged in attracting deposits from the general public and uses such
deposits to originate loans secured primarily by one-to-four family residences
located in portions of Xxxx, Lake and DuPage Counties.
Fairfield is committed to meeting the residential mortgage and deposit
needs of its customers, emphasizing the origination of conventional mortgage
loans for the purpose of purchasing or
1.2
refinancing owner-occupied, one-to-four family residential properties in the
Bank's primary market areas. To a lesser extent, the Bank also originates home
equity and other types of secured consumer, multifamily, commercial real estate,
construction and commercial business loans. At July 31, 1996, Fairfield's net
loans receivable totaled $79.1 million (40.7 percent of total assets), and the
Bank's one-to-four family residential mortgage loan portfolio at such date
totaled $76.3 million (excludes home equity loans) or 95.6 percent of total
loans. At such date, approximately 95 percent of the residential loan portfolio
was comprised of fixed rate product.
Reflecting intense competition from other financial institutions in the
Chicago metropolitan area for loan originations and in order to meet liquidity
and other investment objectives of the Bank, Fairfield has supplemented its
locally originated loan production in recent years primarily with purchases of
mortgage-backed securities (or "MBS"). At July 31, 1996, MBS equaled
$102.4 million or 52.6 percent of total assets.
After generating losses for the fiscal year ended July 31, 1991, Fairfield
has reported positive earning streams since fiscal 1991. However after peaking
in fiscal 1992 when the Bank reported net income of $2.316 million or a return
on assets ("ROA") of 000 xxxxx xxxxxx, Xxxxxxxxx'x reported net income has
followed a generally downward pattern. It should be noted that Fairfield's net
income results have been impacted by the following items:
- Large gains on the sale of securities in fiscal year 1992 and 1994 and
securities losses in fiscal 1991.
- Large net gains on sale of real estate (Trails of Olympia Fields) in
fiscal 1994 and 1995.
- Large extraordinary gains in fiscal 1992 and 1994.
- Gains associated with a litigation settlement in fiscal 1996.
1.3
For the fiscal year 1996, Fairfield's net income declined to $226,000 or an ROA
of 11 basis points. After peaking in fiscal 1993, Fairfield's interest rate
spreads and net interest margins have consistently declined during the last
three fiscal years.
BALANCE SHEET TRENDS
Table 1.1 highlights Fairfield's balance sheet trends during the past six
years. As shown in the table, Fairfield's total assets increased from $180.4
million at July 31, 1991 to $200.3 million at July 31, 1995, before declining to
$194.6 million at July 31, 1996. Asset growth between July 31, 1991 and July
31, 1995 was funded through the expansion of Fairfield's deposit base and
through the utilization of FHLB borrowings.
The Bank's deposit balances remained relatively flat overall during the
period from July 31, 1991 to July 31, 1993. Reduced deposit balances between
fiscal 1992 and 1993 can be attributed to low interest rates on certificates of
deposits (or "CDs") and customers moving funds to other alternative investments
in search of higher returns. However, between July 31 1993 and 1995, deposit
balances increased by $16.8 million. During fiscal year 1995, the Bank
increased 13 and 19 month certificate of deposits by approximately $15 million
to fund the growth in five-year balloon mortgage-backed securities. The Bank
paid above market interest rates to attract CDs during fiscal 1995. Deposit
balances decreased $11.1 million to $137.2 million at July 31, 1996 due
primarily to an outflow of "hot" money which flowed into the Bank in fiscal
1995, after the Bank reduced its rates on time deposits resulting in a decrease
of CDs of $7.0 million. At July 31, 1996, time deposit accounts constituted 52.0
percent of total deposits. Fairfield has successfully attracted a large base
TABLE 1.1
FAIRFIELD SAVINGS BANK
SELECTED BALANCE SHEET ITEMS
(Dollars in Thousands)
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At July 31,
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1991 % Assets 1992 % Assets 1993 % Assets
----------------------------------------------------------------------------
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Total Assets $180,414 100.00% $188,739 100.00% $186,997 100.00%
Cash and Cash Equivalents 6,844 3.79% 8,866 4.70% 34,364 18.38%
Investment Securities 38,020 21.07% 26,512 14.05% 14,893 7.96%
FHLB Stock 1,603 0.89% 1,879 1.00% 1,930 1.03%
Mortgage-backed Securities (1) 18,056 10.01% 46,197 24.48% 47,524 25.41%
Loans Receivable, net 107,147 59.39% 96,030 50.88% 80,346 42.97%
Real Estate Owned 0 0.00% 118 0.06% 0 0.00%
Real estate held for sale & development 2,361 1.31% 2,051 1.09% 1,599 0.86%
Deposits 131,664 72.98% 135,857 71.98% 131,504 70.32%
Borrowings 35,254 19.54% 36,600 19.39% 36,600 19.57%
Retained Earnings 7,002 3.88% 9,317 4.94% 11,851 6.34%
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At July 31,
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1994 % Assets 1995 % Assets 1996 % Assets
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total Assets $195,207 100.00% $200,251 100.00% $194,624 100.00%
Cash and Cash Equivalents 5,256 2.69% 9,044 4.52% 4,609 2.37%
Investment Securities 0 0.00% 0 0.00% 0 0.00%
FHLB Stock 2,230 1.14% 2,264 1.13% 2,045 1.05%
Mortgage-backed Securities (1) 111,987 57.37% 111,283 55.57% 102,411 52.62%
Loans Receivable, net 68,426 35.05% 70,984 35.45% 79,144 40.67%
Real Estate Owned 0 0.00% 168 0.08% 0 0.00%
Real estate held for sale & development 919 0.47% 262 0.13% 262 0.13%
Deposits 141,830 72.66% 148,350 74.08% 137,177 70.48%
Borrowings 34,300 17.57% 32,300 16.13% 39,900 20.50%
Retained Earnings 13,441 6.89% 14,423 7.20% 13,579 6.98%
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(1) $58.3 million of mortgage backed securities were classified as "available
for sale" at July 31, 1996
Source: Fairfield Savings Bank's audited financial statements
1.5
of lower costing and less interest rate sensitive non-certificate accounts
including passbooks, money market demand accounts, interest-bearing NOW accounts
and non-interest bearing demand accounts. While passbook account balances have
moderately declined during the past few years, these deposit accounts equaled
just over 30 percent of total deposits at July 31, 1996. Fairfield has also
utilized wholesale funding sources for its asset growth. These wholesale
funding sources have included reverse repurchase agreements and FHLB of Chicago
advances. During fiscal year 1992 all reverse repurchase agreements were
repaid. The Bank then borrowed funds from the FHLB of Chicago with maturities
ranging from six months to seven years. At July 31, 1996, FHLB advances totaled
$39.9 million.
Mortgage-backed securities increased from $18.1 million (10.0 percent of
assets) at July 31, 1991 to $47.5 million (25.4 percent of assets) at July 31,
1993. The level of investment in MBS increased significantly to $112.0 million
at July 31, 1994. At July 31, 1996, the MBS portfolio equaled $102.4 million or
52.6 percent of assets. The investment securities portfolio (not including FHLB
stock and interest earning deposits) decreased from $38.0 million at July 31,
1991 to $0 at July 31, 1996. The changes in Fairfield's asset composition since
the early 1990s reflected managements efforts to restructure the portfolio and
reduce interest rate risk on the Bank's balance sheet. The initial
restructuring occurred when the Bank reclassified its long-term U.S. Government
securities from "held to maturity" to securities "held for sale" in fiscal 1991.
This resulted in a xxxx to market write-down of $7.6 million. This write-down
included approximately $3.0 million in deferred hedging losses. For the fiscal
year ended July 31, 1991, the net writedown on the securities
1.6
portfolio was approximately $6.1 million. During fiscal 1992, the held for sale
portfolio was sold for a cumulative profit of $2.3 million. The proceeds were
used to purchase MBS with fifteen year maturities.
At July 31, 1996, the MBS portfolio was directly insured or guaranteed by
FNMA or FHLMC and had a weighted average yield of 6.32 percent. The entire MBS
portfolio is fixed rate but a majority of the portfolio is comprised of 5 and 7
year balloon maturities. Approximately, $75.8 million of the MBS mature in
seven years or less. At July 31, 1996, $58.3 million of MBS were classified as
"available for sale". The Bank's portfolio of securities available for sale is
marked to market monthly and is carried on the books of the Bank at market.
Also, at July 31, 1996, the "held-to-maturity" portion of the MBS portfolio had
a carrying value of $44.1 million but an estimated fair value of $42.2 million.
At July 31, 1996, Fairfield held $2.0 million of FHLB stock and $4.6
million of cash and cash equivalents including interest earning deposits. Such
cash and cash equivalents equaled 2.4 percent of total assets.
Another significant development highlights the Bank's asset trends - the
Bank's holdings in real estate held for sale and development, TRAILS OF OLYMPIA
FIELDS. The Bank has shown a steady balance decline through lot sales for the
prior six years. Also, approximately one-half of the remaining commercial
parcel was sold in fiscal year 1995. Currently, there is only one commercial
parcel remaining in the Bank's real estate development in Olympia Fields. It
was recorded at a carrying value of $262,000 at July 31, 1996.
1.7
Fairfield's loan portfolio decreased from $107.1 million at July 31, 1991
to $71.0 million at July 31, 1995, before increasing to $79.1 million at July
31, 1996. During this six year period, the relative composition of the Bank's
loan portfolio has changed modestly. One-to-four family residential loans have
decreased by $23 million since July 31, 1992, to $76.3 million at July 31, 1996,
but increased to 95.6 percent of total loans. Land, construction and
development loans have experienced the largest percentage decrease since July
31, 1992, decreasing by $4.4 million to equal 0.5 percent of the total loan
portfolio at July 31, 1996.
By July 31, 1991, the Bank's capital was reduced to $7.0 million, or 3.9
percent of assets. The reduction in capital was primarily attributable to the
aforementioned $6.1 million write-down for fiscal 1991 that was part of the
Bank's restructuring and, secondarily, to annual operating losses. Since that
time period, Fairfield's level of retained earnings steadily improved to $14.4
million or 7.2 percent of assets at July 31, 1995. However, Fairfield's GAAP
capital declined to $13.6 million or just under 7 percent of assets at July 31,
1996 due to a $1.1 million change in unrealized loss on securities available for
sale (net of tax impact) during fiscal 1996. At July 31, 1996, the Bank's
capital level was substantially in excess of all three of the minimum regulatory
capital requirements.
LOAN PORTFOLIO
ONE-TO-FOUR FAMILY RESIDENTIAL LOANS
The Bank's primary lending activity consists of the origination of
permanent one-to-four family residential mortgage loans secured by property
located in the Bank's primary market areas. The Bank generally originates
owner-occupied one-to-four family residential mortgage loans in
1.8
amounts up to 80% of the lesser of the appraised value or selling price of the
mortgaged property without requiring mortgage insurance. The Bank will
originate a mortgage loan in an amount up to 95% of the lesser of the appraised
value or selling price of a mortgaged property. The Bank, on a very limited
basis, also originates construction permanent loans on one-to-four family
residences. In the past, the Bank has sold loans into the secondary market with
servicing retained and has the capacity and the underwriting standards to
continue this practice when necessary. Currently, the Bank retains all
mortgage loans that it originates. At July 31, 1996, 95.6 percent of the Bank's
$79.9 million gross loan portfolio consisted of permanent mortgages on one-to-
four family residential real estate, with original maturity terms of 15 or 30
years. While the Bank offers adjustable rate mortgage products, the Bank's
customer base has historically favored fixed-rate mortgages which are generally
priced off the FNMA delivery rate with adjustments relating to local competition
and the availability of funds.
At July 31, 1996, approximately 95 percent of the Bank's residential
mortgage portfolio was comprised of fixed-rate loans. The balance of the
residential mortgage portfolio is comprised of adjustable rate loans, the
majority of which are tied to the National Cost of Funds Index and adjust
annually to rates from 2.5 percent to 2.75 percent over the Index. These loans
carry 2 percent annual and 13 percent life-of-the-loan caps to protect borrowers
against sudden rate volatility. The Bank also offers an ARM loan which is fixed
for the first five years and then reprices every year and is indexed to the one-
year U.S. Treasury. Generally, adjustable-rate mortgage loans pose credit risks
somewhat greater than the credit risk inherent in fixed-rate loans primarily
because, as interest rates rise, the underlying payments of the borrowers rise,
increasing the potential for default. It is the
1.9
Bank's policy to underwrite its adjustable-rate mortgage loans based on the
fully-indexed rate. The Bank currently has no mortgage loans that are subject
to negative amortization. Permanent one-to-four family residential mortgage
loan origination volume for fiscal 1994, 1995 and 1996, equaled $10.8 million,
$11.5 million and $19.6 million respectively. This type of lending constituted
between 93 and 98 percent of annual total loan volume in each of these last
three years.
At July 31, 1996, the two largest dollar amounts of loans outstanding to
one borrower or group of related borrowers were approximately $299,000 and
$297,000. Both of these loans are secured by one-to-four family properties
located in Fairfield's market area and, at July 31, 1996, were performing in
accordance with their terms.
LAND, CONSTRUCTION AND DEVELOPMENT LOANS
Land, construction and development loan balances declined from $4.8 million
or 4.8 percent of total loans at July 31, 1992 to $404,000 or 0.5 percent at
July 31, 1996. The Bank offers a residential construction loan program for
customer home buyers and builders, who typically have a longstanding business
relationship with the Bank. The Bank has established additional guidelines and
progress payout procedures for these loans in recognition of the higher degree
of risk involved in making such loans.
In addition to financing customer construction of homes, the Bank finances
detached residential subdivision and condominium land acquisition and
development projects. For these loans, the Bank requires feasibility studies
and economic analyses which address a property's proposed gross sale or rental
income, market absorption rate, occupancy estimate and marketing and operating
expenses in order to ascertain the discounted net sales or capitalized rental
value
1.10
projections. As a general guideline, actual or projected net cash flows from
these types of lending activities should equal or exceed 120 percent of the debt
service (excluding condominium properties). A builder or developer's experience
in constructing and marketing properties is also evaluated by the Bank. Each
borrower must demonstrate that it has the financial capacity to fund a project's
deficit debt service.
HOME EQUITY LOANS
Fairfield originates home equity loans secured by first and second
mortgages on one-to-four family owner occupied residences. These loans are
divided into two categories. The equity line of credit loan allows the customer
to make periodic draws up to the loan's credit limit. The loan reprices monthly
based on the prime rate. The closed equity loan is for a fixed single disbursed
amount and is repriced quarterly based on the prime rate. In light of the
recent surge in mortgage loan refinancing in the local and national markets,
management believes that this type of financing may be very attractive.
Borrowers can obtain funds at a lower rate and better tax benefits than a
personal, auto or credit card loan. At July 31, 1996, the Bank had $1.4 million
(1.8 percent of total loans) of such home equity loans outstanding.
COMMERCIAL AND MULTIFAMILY LOANS
The Bank originates a limited amount of commercial real estate loans
including multifamily loans collateralized by small apartment buildings.
Commercial real estate loans totaled $411,000 or 0.5 percent of the loan
portfolio and multifamily loans totaled $979,000 or 1.2 percent at July 31,
1996. These loans are tied to the prime rate with actual pricing based on
market conditions.
1.11
OTHER LOANS
The Bank also makes short-term fixed-rate and adjustable-rate consumer
loans, such as loans secured by savings accounts and home improvement loans.
The shorter terms to maturity and the short-term repricing periods are helpful
in managing the Bank's interest rate risk. At July 31, 1996, these loans
totaled only $192,000 and are not expected to comprise a significant portion of
the Bank's loan portfolio. In addition, the Bank had $150,000 of loans
outstanding under commercial credit lines.
ASSET QUALITY
Fairfield's level of non-performing assets (non-accrual loans, accruing
loans delinquent more than 90 days and foreclosed assets) has decreased overall
between July 31 1992 and 1996 (see Table 1.2). At July 31, 1996, non-performing
assets equaled $118,000 or 0.06 percent of total assets, versus $5.508 million
or 2.92 percent of assets at July 31, 1992. In 1992, at the direction of
Fairfield's primary regulator, the Bank was required to adversely classify a
$4.2 million large loan and establish reserves for it. Subsequently, the Bank
reversed such classification and reserves when it became apparent that the loan
would repay in full.
The Bank's non-performing assets consisted of two one-to-four family
residential loans. At July 31, 1996, Fairfield had no classified assets and no
potential problem loans based on management's review. As of such date, the
Bank's allowance for loan losses equaled $300,000 or 0.38 percent of total
loans.
1.12
TABLE 1.2
FAIRFIELD SAVINGS BANK
NON-PERFORMING ASSETS
AT JULY 31,
--------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(Dollars in Thousands)
NON-PERFORMING LOANS:
Mortgage loans:
One-to-four family $1,055 $ 828 $ 511 $ 193 $ 69
Multifamily 19 84 -- -- --
Commercial real estate -- -- -- -- --
Land, construction & development 4,296 -- -- -- --
Home equity -- -- -- -- 49
Other loans 20 -- -- -- --
------ ------ ------ ------ ------
Total non-performing loans 5,390 912 511 193 118
------ ------ ------ ------ ------
Real estate owned 118 -- -- 168 --
------ ------ ------ ------ ------
Total non-performing assets $5,508 $ 912 $ 511 $ 361 $ 118
====== ====== ====== ====== ======
Total non-performing loans
to total loans 5.58% 1.13% 0.74% 0.27% 0.15%
Total non-performing assets
to total assets 2.92% 0.49% 0.26% 0.18% 0.06%
Source: Fairfield's Prospectus.
REAL ESTATE INVESTMENT
The investment in real estate held for sale and development originally
consisted of 158 single family detached home sites and a 15-acre commercial
parcel in a Planned Unit Development named the Trails of Olympia Fields.
However, the Bank has nearly liquidated this investment through sales. At July
31, 1996, one five acre commercial parcel with a book value of $262,000 remained
unsold. Upon consummation of the Conversion, the Holding Company will acquire
this parcel from the Bank. At July 31, 1992, 1993, 1994, 1995 and 1996, the
investment in the Trails of Olympia Fields
1.13
was $2.1 million, $1.6 million, $919,000, $262,000 and $262,000 respectively.
Sales during the three fiscal years ended July 31, 1994, 1995 and 1996 resulted
in gross profits of $574,000, $557,000 and $0 respectively. These gross profits
were offset by development costs of $511,000, $237,000 and $140,000 in the
fiscal years ended July 31, 1994, 1995 and 1996 respectively.
The Bank is currently the plaintiff in litigation against the Village of
Olympia Fields, its trustees, The Home Owners Association of the Trails of
Olympia Fields and individual members of The Home Owners Association over
matters that impeded the orderly development of the Trails of Olympia Fields
(see "Income and Expense Trends").
ASSET/LIABILITY MANAGEMENT
In an effort to reduce interest rate risk and protect itself from the
negative effects of rapid or prolonged changes in interest rates, Fairfield has
instituted certain asset and liability management measures to maintain "natural"
xxxxxx within its balance sheet which includes the following:
- Purchase for portfolio a large base of mortgage-backed-securities having
balloon maturities of five or seven years. At July 31, 1996, the Bank had
$102.4 million of MBS, of which $75.8 million mature in seven years or
less. Also, liquidity is enhanced by the fact that 57 percent of
Fairfield's MBS portfolio is classified available for sale and is carried
on the books at estimated fair value.
- Originate for portfolio fixed-rate loans with terms of fifteen years or
less. Due to competitive factors the Bank makes a minimal level of
adjustable rate loans. At July 31, 1996, the Bank had $26.1 million or
32.8 percent of mortgage loans with terms of 15 years or less.
- Maintain a high proportion of lower-costing and less rate sensitive non-
certificate accounts in the Bank's deposit portfolio. At July 31, 1996,
the Bank had $41.3 million of passbook accounts or 30.2 percent of total
deposits.
1.14
Despite the efforts taken by the Bank to seek to reduce its level of
interest rate risk, the Bank has remained vulnerable to increases in interest
rates and has experienced reduced levels of net income and net interest income
in the fiscal years ended 1994, 1995 and 1996 as a result of, among other
things, the Bank's level of interest rate risk. There can be no assurance that
the Bank will not continue to experience reduced levels of net income and net
interest income during periods of increasing interest rates, unless the Bank's
sensitivity to increases in interest rates is reduced.
Based on a net portfolio value ("NPV") analysis prepared by the OTS, and as
revised by Fairfield, at June 30, 1996, a 400 basis point interest rate shock
increase would result in a 52 percent NPV decrease for the Bank while a 400
basis point interest rate decrease would result in a 3 percent NPV decrease.
Smaller interest rate decreases (of 100, 200 and 300 basis points) would result
in modest NPV increases of between 5 and 8 percent.
INCOME AND EXPENSE TRENDS
After generating losses for the fiscal years ended July 31, 1989, 1990 and
1991, Fairfield has reported positive earnings streams since fiscal 1991.
However, after peaking in fiscal 1992, the Bank's reported net income has
followed a generally downward pattern. It should be noted that the high level
of net income reported in fiscal 1992 included $2.6 million of gains on sale of
securities. The Bank's reported net income equaled $2.316 million in fiscal
1992 or an ROA of 125 basis points.
TABLE 1.3
FAIRFIELD SAVINGS BANK
INCOME AND EXPENSE TRENDS
(Dollars in Thousands)
----------------------------------------------------------------------------
For the Fiscal Year Ended July 31,
----------------------------------------------------------------------------
1991 1992 1993
($000) (%) ($000) (%) ($000) (%)
----------------------------------------------------------------------------
Average Assets 183,704 184,577 187,868
Interest Income 15,595 8.49% 14,338 7.77% 13,995 7.45%
Interest Expense (11,313) 6.16% (9,198) 4.99% (7,454) 3.97%
-------- ------- ------- ----- ------- ------
Net Interest Income 4,282 2.33% 5,140 2.78% 6,541 3.48%
Loan Loss Provision (Credit) 193 0.10% 397 0.21% (392) (0.21%)
------- ------- ------ ----- ------- ------
Net Interest Inc. after Prov. 4,089 2.23% 4,743 2.57% 6,933 3.69%
Gain (Loss) on Sale of Securities (6,087) (3.31%) 2,616 1.42% 0 0.00%
Gain (Loss) on real estate held for sale (115) (0.06%) 308 0.17% 307 0.16%
Other Non-Interest Income (1) 4,278 2.32% 240 0.13% 434 0.23%
------- ------- ------ ----- ------- ------
Total Non-Interest Income (1,924) (1.05%) 3,164 1.71% 741 0.39%
Total Non-Interest Operating Exp 4,372 2.38% 5,242 2.84% 4,683 2.49%
------- ------- ------ ----- ------- ------
Income (Loss) before Taxes & Ext. Items (2,207) (1.20%) 2,665 1.44% 2,991 1.59%
Provision for Income Taxes 100 0.06% 975 0.52% 978 0.52%
Income (Loss) bef Extraordinary Items (2,307) (1.26%) 1,690 0.92% 2,013 1.07%
Extraordinary Items (2)(3) 0 0.00% 626 0.33% 0 0.00%
------- ------- ------ ----- ------- ------
Net Income (Loss) ($2,307) (1.26%) $2,316 1.25% $2,013 1.07%
------- ------- ------ ----- ------- ------
------- ------- ------ ----- ------- ------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
For the Fiscal Year Ended July 31,
----------------------------------------------------------------------------
1994 1995 1996
($000) (%) ($000) (%) ($000) (%)
----------------------------------------------------------------------------
Average Assets 191,102 197,729 197,438
Interest Income 13,052 6.83% 12,674 6.41% 13,154 6.66%
Interest Expense (6,923) 3.62% (7,333) 3.71% (8,450) 4.28%
-------- ----- ------- ----- ------- -----
Net Interest Income 6,129 3.21% 5,341 2.70% 4,704 2.38%
Loan Loss Provision (Credit) (18) (0.01%) 0 0.00% 138 0.07%
Net Interest Inc. after Prov. 6,147 3.22% 5,341 2.70% 4,566 2.31%
Gain (Loss) on Sale of Securities 616 0.32% 0 0.00% 0 0.00%
Gain (Loss) on real estate held for sale 574 0.30% 557 0.28% 0 0.00%
Other Non-Interest Income (1) 325 0.17% 289 0.15% 485 0.25%
-------- ----- ------- ----- ------- -----
Total Non-Interest Income 1,515 0.79% 846 0.43% 485 0.25%
Total Non-Interest Operating Exp 5,097 2.67% 4,766 2.41% 4,708 2.38%
-------- ----- ------- ----- ------- -----
Income (Loss) before Taxes & Ext. Items 2,565 1.34% 1,421 0.72% 343 0.17%
Provision for Income Taxes 894 0.47% 439 0.22% 117 0.06%
Income (Loss) bef Extraordinary Items 1,671 0.87% 982 0.50% 226 0.11%
Extraordinary Items (2)(3) 439 0.23% 0 0.00% 0 0.00%
Net Income (Loss) $2,110 1.10% $982 0.50% $226 0.11%
-------- ----- ------- ----- ------- -----
-------- ----- ------- ----- ------- -----
----------------------------------------------------------------------------
(1) For the fiscal year ended July 31, 1991, non-interest income includes a
$4.05 million gain on termination of pension plan; and for fiscal year
ended July 31, 1996, $184,000 of gains associated with litigation
settlement related to Trails of Olympia Fields
(2) For the fiscal year ended July 31, 1992, net operating loss carryforwards
caused an extraordinary reduction of income taxes by $625,600
(3) For the fiscal year ended July 31, 1994, includes cumulative effect of
change in accounting for income taxes.
Source: Fairfield Savings Bank's audited financial statements
1.16
During the past six years, Fairfield's reported net income has been
significantly impacted by securities losses in fiscal 1991 and gains on sale
of securities in fiscal 1992 and 1994. The Bank recorded sizeable gains on
sale of real estate related to Trails of Olympia Fields in fiscal 1994 and
1995. Also, Fairfield recorded large extraordinary gains in fiscal 1992 and
1994.
In the fiscal year ended July 31, 1991, the Bank began the process of
restructuring its balance sheet by, as noted previously, electing to designate a
portion of its long-term U.S. Government securities portfolio as held for sale.
The subsequent xxxx to market resulted in a net write-down of $6.1 million for
the year. Partially offsetting those losses was a gain of $4.05 million on the
termination of the Bank's pension plan.
It should be noted that during fiscal 1991, lower interest rates resulted
in significant net interest margin improvements. The Bank's net interest margin
rose to 2.33 percent of average assets during fiscal 1991. Net interest margin
continued to improve during fiscal year 1992 to 278 basis points, and further
to 348 basis points during fiscal 1993. Also, during fiscal year ended July 31,
1992, net operating loss carry forwards caused an extraordinary reduction of
income taxes of $625,600.
In fiscal year 1994, net interest margin decreased to 321 basis points as
the level of higher earning loan balances was reduced and replaced with
mortgage-backed securities. However, offsetting the narrower net interest
margin, the Bank realized $616,000 of gains on sale of securities and $574,000
of gains on real estate held for sale. Fiscal 1994 results were impacted by a
significant increase in the Bank's operating expense ratio, which partially
reflected high real estate operating costs. Fiscal 1994 results were also
heavily impacted by a $439,000 cumulative effect stemming from the change in
accounting for income taxes.
1.17
In fiscal year 1995, the Bank's net interest margin decreased to 270 basis
points and lower levels of non-interest income led to the Bank reporting net
income of $982,000 or an ROA of 50 basis points, versus $2.110 million or an ROA
of 110 basis points in fiscal 1994. In fiscal 1996, Fairfield's net income
declined to $226,000 or an ROA of 11 basis points. Net income results for this
latest fiscal year reflected a lower net interest margin and the absence of any
gains on securities or real estate. The Bank also recorded $138,000 of loan
loss provisions in fiscal 1996. No provisions were recorded in 1995. However,
in fiscal 1996, the Bank did record $184,000 (9 basis points as a percent of
average assets) of gains stemming from litigation settlements of two claims in
connection with development of the Trails of Olympia Fields.
In fiscal 1996, the net interest margin further decreased to 238 basis
points as interest expenses increased at a higher rate than interest income as
the average yield on interest earning assets remained constant whereas cost of
funds increased by 51 basis points. It should be noted that between fiscal 1993
and 1996, the Bank's interest rate spread declined from 352 to 211 basis points.
As a result of Fairfield's higher level of MBS since 1993, the Banks's net
interest margin has been adversely affected as the yield on MBS is lower than
the yield on mortgage loans.
Fairfield has not traditionally generated high levels of non-interest
operating income, which excludes gains on securities and real estate. The
Bank's non-interest operating income (excluding 9 basis points of litigation
settlement income) totaled $301,000 or 15 basis points in fiscal 1996. Such
operating income has included loan fees, loan servicing fees and deposit service
charges.
The Bank's operating expenses have fluctuated since fiscal year 1991.
Operating expenses increased from $4.4 million (238 basis points) during the
fiscal year ended July 31, 1991 to
1.18
$5.2 million (284 basis points) during the fiscal year ended July 31, 1992. The
Bank's operating expense ratio has fluctuated since fiscal 1992 but has
decreased overall. Between the fiscal year ended July 31, 1995 and 1996,
operating expenses decreased modestly, to $4.7 million (238 basis points). It
is important to note that past operating expenses include substantial costs
related to the Bank's Trails of Olympia Fields development. Excluding the
impact of non-operating costs related to real estate activities, Fairfield has
successfully limited any increase in normal operating expenses during the last
five years. The decline in fiscal 1996 operating expenses reflected lower
compensation expenses, largely due to the elimination of an officer long-term
bonus program in 1996, and lower real estate expenses.
SUBSIDIARY ACTIVITY
The Bank had historically maintained a wholly owned subsidiary, Fairfield
Service Corporation ("FSC"), as a service corporation for the purpose of owning
the Bank's office building in Norridge. FSC was dissolved in the fiscal year
ended July 31, 1996.
PROPERTIES
The Bank's headquarters is located at the intersection of Illinois 83 and
Old XxXxxxx Road in Long Grove, Illinois. This facility serves as a full-scale
retail banking office as well as headquarters for the Bank's lending and savings
operations. Senior management also is headquar-tered in this facility. The
Bank also owns a parcel of unimproved land adjacent to this facility. The Bank
has no current plans to develop this parcel and believes that its existing
corporate offices and
1.19
retail banking facilities are adequate to meet the needs of its customer base.
The Bank's two branch offices are located in Chicago and Norridge.
TABLE 1.4
FAIRFIELD SAVINGS BANK
OFFICE LOCATIONS
LEASED/ NET BOOK VALUE AT
LOCATION OWNED JULY 31, 1996
-------- ----- -------------
(In thousands)
MAIN OFFICE:
Old XxXxxxx Road Owned $3,676
Long Grove, Illinois
BRANCH OFFICES:
0000 Xxxx Xxxxxxxx Xxxxxx (1) Leased 16
Norridge, Illinois
0000 X. Xxxxxxxxx Xxxxxx Owned 513
Chicago, Illinois
(1) Land Leased, building owned by Bank
LEGAL PROCEEDINGS AND MISCELLANEOUS
In the ordinary course of its operations, the Bank is a party to routine
litigation involving claims incidental to the savings bank business. Management
believes that no current litigation, threatened or pending, to which the Bank or
its assets is or may become a party poses a substantial likelihood of potential
loss or exposure which would have a material adverse effect on the financial
position of the Bank. Also, management believes that, while the outcome is
uncertain, the pending litigation related to the Trails of Olympia Fields
development will not have a material impact on Fairfield's financial position.
1.20
At July 31, 1996, the Bank employed 48 full-time and 17 part-time
employees. At July 31, 1996, 45 percent of the Bank's employees had been with
the Bank for more than ten years.
II. MARKET AREA ANALYSIS
MARKET AREA REVIEW
Fairfield conducts business from its main office in Long Grove (Lake
County), approximately 35 miles northwest of downtown Chicago. The Bank's other
two offices are located in Chicago and Norridge (Xxxx County). Approximately 75
percent of Fairfield's deposit base is generated from its branch offices in Xxxx
County. Based on Fairfield's branch locations and deposit activity, the Bank's
primary market areas encompass the northern portions of Chicago and the
northwest suburbs.
The Bank's deposit and lending base is concentrated in Xxxx County.
However, since the Bank's customer base for loans and deposits are drawn from
portions of Lake and DuPage Counties as well, this section also provides
economic and demographic data on these two counties.
The Chicago metropolitan area is among the nation's most economically
diverse communities. For this reason, the region is relatively insulated from
the economic cycles of any one industrial or commercial sector. The service
sector is the largest sector of the local economy (in Xxxx, Lake and DuPage
Counties). Manufacturing, trade and government related industries comprise the
other major components of the Bank's primary market economy.
The Bank serves three distinct markets within its northwest focus. The
inner city Chicago markets are surrounded by generally older ethnic communities
offering limited lending oppurtunities. This market is comprised of blue collar
savers who either rent or own small houses and apartments. These customers are
excellent sources of core savings accounts, notably passbook accounts, and seek
convenient settings in which to conduct banking services. Their emphasis is on
basic banking products. The loans originated are generally low credit risk,
profitable loans on one-
2.2
to-four family residential properties. In addition to these loans, the Bank has
modest amounts of small apartment loans and commercial real estate loans in this
area.
The second market, Norridge, is a middle class Chicago suburb. Like the
inner city neighborhoods, this suburb is generally well-developed and features
customers that seek basic banking services. Customers banking at this branch
are rate sensitive and this is reflected in the higher level of certificates of
deposits.
The Bank's Long Grove market is an affluent northwest suburb that is still
developing. This market has considerable lending opportunities as well as
affluent savers seeking the yield advantages of certificates of deposits.
Overall, the population of DuPage and Lake Counties has increased during
the 1990's at a faster rate than the population growth of Illinois and the U.S.,
while Xxxx County experienced a smaller population increase. Between 1990 and
1996, DuPage County (population count 867,774) and Lake County (population count
575,848) experienced a 11.0 percent and 11.5 percent population increase,
respectively. Over the same period, Xxxx County experienced a smaller population
increase from 5,105,067 in 1990 to 5,153,261 in 1996. The U.S. and State of
Illinois growth rate was 4.1 percent and 3.9 percent, respectively. Population
projections for the five year period between 1996 and 2001 indicate that Lake,
DuPage'and Xxxx Counties will experience a growth of 8.2 percent, 8.0 percent
and 0.5 percent respectively.
The per capita income in Xxxx, DuPage and Lake Counties grew at a faster
rate than the per capita growth experienced by Illinois and U.S. In 1996 the
per capita income for Lake, DuPage and Xxxx counties was $30,724, $27,391 and
20,342 respectively. The per capita income of Lake,
2.3
DuPage and Xxxx Counties has grown by approximately, 41 percent, 30 percent and
30 percent respectively in the last six years. Per capita income levels in the
Bank's primary market areas are well above the national and state averages of
$20,302 and $19,705 respectively.
In 1994 (latest available data), industries which accounted for the largest
percentage of earnings in Xxxx County were the service sector (29.9 percent)
followed by the manufacturing sector (18.2 percent). Government and the
wholesale and retail trade also accounted for a noteworthy percentage of
earnings in Xxxx County. Of the industries that accounted for at least 5
percent of earnings in 1993, the slowest growing between 1990 and 1994 was
transportation and public utilities, which increased by 12.0 percent; the
fastest growing was service sector, which increased by 24.4 percent. Xxxx
County serves as headquarters for several national corporations and most large
retail stores are represented.
In 1994, industries which accounted for the largest percentage of earnings
in DuPage County were the service sector (33.2 percent) followed by the
wholesale and retail trade sector (22.5 percent). Of the industries that
accounted for at least 5 percent of earnings in 1994, the slowest growing
between 1990 and 1994 was construction, which increased by 18.6 percent; the
fastest growing were the government sector, which increased by 42.6 percent.
In 1994, industries which accounted for the largest percentage of earnings
in Lake County were the manufacturing industry (27.1 percent) followed by the
service (23.5 percent). Of the industries that accounted for at least 5 percent
of earnings in 1993, the slowest growing between 1990 and 1994 was Government
and government enterprises, which increased by 12.8 percent; the fastest growing
was transportation and public utilities sector, which increased by 69.7 percent.
2.4
Set forth is a list of Chicago area's top 25 employers:
EMPLOYER # OF EMPLOYEES
-------- --------------
U.S. Government 74,155
Chicago Public Schools 43,404
City of Chicago 40,257
Xxxx County 26,809
Jewel Food Stores 24,637
Ameritech Corp. 22,222
State of Illinois 22,147
Motorola, Inc. 20,000
Dominicks's Finer foods, Inc. 18,000
AT&T Corp. 16,600
UAL Corp. 15,679
First Chicago Corp. 15,632
Xxxxxx Laboratories 15,304
Sears, Xxxxxxx and Company 14,350
Commonwealth Edison 13,310
AMR Corp. (American Airlines) 12,000
University of Illinois at Chicago 11,733
EHS Health Care 11,300
Walgreen Co. 10,515
Allstate Corp. 9,200
Loyola University Chicago 9,000
Rush-Presbyterian St. Luke's Medical Center 8,364
Xxxxxxxxxx Xxxx & Co. 8,123
Xxxxxx Xxxxxxxx & Co. S.C. 7,947
Xxxxxx International, Inc. 7,300
Source: XXXXX'X CHICAGO BUSINESS, November 1994.
The unemployment rate for Xxxx County at June 1996 (most recent available
data) was 5.6 percent. DuPage and Lake County's unemployment rates were 3.6
percent and 4.0 percent, respectively, at June 1996. These figures compare to
the state and U.S. unemployment rates of 5.5 and 5.5 percent at June 1996,
respectively.
2.5
Fairfield competes with many larger financial institutions for originating
loans and attracting deposits in Xxxx, Lake and DuPage County. There were 1255
other thrift, savings bank, commercial bank and credit union offices in Xxxx
County at June 30, 1995, 167 in Lake County and 280 in DuPage County.
Historically, thrifts and savings banks in Xxxx County have held a smaller
percentage of deposits than commercial banks. However, between June 30, 1993
and June 30, 1995, total deposits held by thrifts and savings banks in Xxxx
County increased by approximately $530 million or 2.76 percent. At June 30,
1995, the Bank held 0.58 percent of all thrift and savings banks deposits in
Xxxx County where its two offices are located, up slightly from 0.54 percent at
June 30, 1993. Like Xxxx County, thrift and savings banks in both Lake and
DuPage Counties have held a smaller percentage of deposits than commercial
banks. At June 30, 1995, the Bank's estimated market share of total thrift and
savings bank deposits in Lake County was 4.43 percent. Fairfield's estimated
share of total deposits in Lake County was 0.48 percent.
III. COMPARISONS WITH PUBLICLY-HELD THRIFTS
CHAPTER OVERVIEW
An important aspect in our fair market valuation of Fairfield involves a
financial comparison of the Bank with a selected group of publicly-traded peer
thrifts. Significant differences between Fairfield and a selected comparative
group of ten thrift institutions (the selection process is detailed in the
following sections) are summarized below:
- Fairfield reported a lower net income level over the most recent twelve
month period (ROA of 11 basis points) versus the comparative group (ROA of
70 basis points) and all publicly traded group (ROA of 88 basis points).
Fairfield's lower earnings relative to the comparative group reflects a
lower net interest margin level, lower level of other operating income,
which was partially offset by a modestly lower level of non-interest
operating expenses and loan loss provisions.
- For the most recent twelve month period, Fairfield's net interest margin
was 2.38 percent of average assets versus 3.22 percent for the comparative
group and 3.22 percent for the all publicly traded SAIF-insured group. The
Bank's lower net interest margin versus the comparative group reflects a
lower interest rate spread ("yield/cost spread") (2.11 percent for the Bank
versus 2.74 for the peer group) and a substantially lower net earning asset
position (4.40 percent for the Bank versus 12.79 percent for the peer
group). The Bank's net earning asset position on a post-conversion basis
will approach that of the peer group.
- Fairfield's non-interest operating income of 25 basis points was lower than
that of the peer group (33 basis points) and moderately lower than that of
the all publicly-traded group (44 basis points). The Bank's non-interest
income in fiscal 1996 consisted of service charges on deposit accounts,
loans fees, litigation settlement and other miscellaneous income.
- The Bank recorded a modestly lower level of overhead expenses compared to
the peer group. For the most recent twelve months, the Bank's non-interest
expenses to average assets was 2.38 percent compared to 2.44 percent for
the comparative group.
- Fairfield's net worth (equity) ratio of 7.0 percent was well below the peer
group's tangible capital ratio of 14.7 percent. After conversion,
Fairfield will (on a consolidated basis) have a net worth ratio which will
approach that of the comparative group.
3.2
- In recent years, Fairfield has experienced relatively low levels of
non-performing assets ("NPA"). The Bank's NPAs to assets ratio of 0.06
percent was lower than the peer group's ratio of 0.73 percent and the all
publicly traded group's ratio of 0.89 percent.
INTRODUCTION
The ideal approach to estimating the fair market value of Fairfield entails
a comparison of the Bank's operating characteristics to those of actively-traded
stock thrifts possessing similar characteristics, to the extent that such can be
identified. While we feel that prices of a properly selected peer group are
useful in determining the pro forma market value, considerable adjustments will
still be required in pricing Fairfield's common stock in terms of its fair
market value, owing to differences in asset size, market area, financial
strength, earnings potential, operating strategies, the anticipated offering
size, the market for conversion offerings and secondary market liquidity of the
issue.
The remainder of this chapter will consist of the selection of an
appropriate group of similar thrift institutions and a comparative financial
analysis of this peer group with the Bank. The following chapter will then
detail the process by which the Bank's appropriate fair market value has been
determined and will demonstrate the estimated pro forma effects of the
conversion on Fairfield and its related pricing ratios at the determined market
price.
SELECTION CRITERIA
We have limited our analysis to thrift companies listed on the major stock
exchanges (New York and American) and those companies listed on NASDAQ (National
Association of Securities Dealers Automated Quotation System) due to the
relative liquidity of their common stock. This
3.3
limitation is necessary, in our opinion, since published market data for
companies not qualifying for such listing may not accurately reflect their true
market values due to their limited trading volume, often coupled with
considerable time elapsing between trades (which may be executed at widely
varying prices) and the correspondingly large bid-ask spreads often associated
with such issues. Comparison to thinly-traded stocks could thus be especially
misleading with regard to current market conditions. We have, therefore,
excluded these companies from comparative group consideration. The Bank has
applied to have its common stock approved for quotation on the NASDAQ National
Market. Therefore, it is very useful to compare the Bank to publicly-traded
thrifts in order to determine its market value relative to prevailing market
conditions.
An important factor bearing on the likely reception of Fairfield's initial
stock offering is the initial pricing and market price performance of recently
converted thrifts, especially if these companies possess similar characteristics
as Fairfield. Hence, we have examined other recently completed conversion
offerings for other thrift institutions in order to assess the general market
reception of new thrift offerings. Based on these findings, we can make any
adjustments deemed necessary to Fairfield's estimated pro forma fair market
value.
We have excluded from consideration companies whose prices appear to be
materially influenced by announced or rumored acquisitions. In order to avoid
potential distortion to market pricing data, we have also eliminated from the
comparative group companies that are experiencing unusual market and/or
operating conditions.
Recognizing that operating environments for thrifts vary greatly from state
to state, as well as from region to region, due to different economic, legal,
regulatory and investment characteristics,
3.4
we have attempted to select comparative companies operating in regions similar
to that in which Fairfield is located. We have, therefore, selected a group of
thrifts located within the Midwest region which we believe are comparable to the
Bank and which have experienced similar economic conditions in their market
areas.
Institution size and operating strategy are also major factors in assessing
institution comparability since they both affect expected rates of return and
investors' general perception of the quality, risk and attractiveness of a given
institution. Due to significantly increased interest rate volatility and
expanded asset and liability powers for thrift institutions, operating
strategies have become increasingly diverse and this may dramatically impact a
company's profitability and market value. Five distinct operating strategies
have been identified from the data base we maintain on approximately 399
publicly-traded thrifts: mortgage banker, diversified thrift, real estate
orientation (construction lending and development), retail banker (commercial
banking services, heavy consumer and commercial business lending) and
traditional thrift (traditional role without specializing in non-traditional
activities). We were sensitive to the operating strategy of Fairfield, which we
identified as a traditional thrift and have given this factor considerable
weight in selecting an appropriate comparative group. Furthermore, to the
extent feasible, we have attempted to select companies with small to moderate
asset sizes (subject to market area and financial characteristic
considerations), below average earnings levels and, for the most part, moderate
capital levels in order to encompass companies which have a similar amount of
resources and available opportunities.
While it is not possible to select a public company group exactly
comparable to Fairfield, we believe that the group selected is comprised of a
representative group of companies which provides
3.5
a good illustration of current industry market values based on three measures:
price/book value, price/earnings and price/assets. We will discuss these
valuation approaches in considerable detail in Chapter IV. Individually and in
the aggregate, the comparative group of thrifts share common characteristics to
Fairfield.
SELECTION PROCEDURE
Using the criteria discussed above, we have identified ten companies from
Exhibit III-1 ("General Characteristics -- Publicly-Traded Thrifts")
demonstrating characteristics similar to those of Fairfield. In Table 3.1, we
have listed the comparative group companies. In terms of location, all ten of
the comparative group companies are located in the Midwest region. Seven of the
comparative group companies are located in the state of Illinois, with four of
the companies operating in or around the City of Chicago. Subject to certain
asset size restrictions, we attempted to identify thrifts which share similar
financial characteristics and operate in markets demonstrating similar
characteristics as that in which Fairfield operates.
Given limitations of including institutions with similar financial
characteristics, market areas, comparable business strategies and sufficient
trading volumes, the overall mean and median asset size of the ten thrifts in
the comparative group is $325 million and $330 million, respectively. The ten
comparative institutions all pursue a traditional operating strategy and most,
like Fairfield, have a below average asset size.
TABLE 3.1
FAIRFIELD SAVINGS BANK
COMPARATIVE GROUP SELECTION CRITERIA
Total Market Number
Date Assets Value (1) of Operating Ticker
Institution State Converted ($Mil) ($Mil) Offices Strategy(2) Exchange Symbol
----------- ----- --------- ------ ------ ------- ----------- -------- ------
Fairfield Savings Bank IL --- 195 --- 3 Traditional --- ---
Avondale Financial Corp. IL 04/07/95 593 50.0 6 Traditional OTC AVND
Calumet Bancorp, Inc. IL 02/20/92 501 68.1 5 Traditional OTC CBCI
Damen Financial Corp. IL 10/02/95 237 43.1 3 Traditional OTC DFIN
First Mutual Bancorp, Inc. IL 07/05/95 302 54.7 8 Traditional OTC FMBD
Glenway Financial Corp. OH 11/30/90 274 23.2 6 Traditional OTC GFCO
Great American Bancorp IL 06/30/95 120 23.6 3 Traditional OTC GTPS
Horizon Financial Svcs Corp. IA 06/30/94 73 6.3 3 Traditional OTC HZFS
Kankakee Bancorp, Inc. IL 01/06/93 359 29.8 10 Traditional AMEX KNK
Permanent Bancorp, Inc. IN 04/04/94 411 34.7 11 Traditional OTC PERM
SuburbFed Financial Corp. IL 03/04/92 378 21.7 12 Traditional OTC SFSB
(1) Market Value as of September 6, 1996
(2) From CRG's database maintained on 399 publicly-traded thrifts which has
identified five distinct operating strategies
Source: Fairfield Savings Bank's financial statements, SNL Securities, corporate
reports and offering circulars for publicly-traded companies
3.7
REVIEW OF COMPARATIVE GROUP THRIFTS
Exhibits III-2 through III-4 highlight the key financial ratios for each of
the ten comparative group thrifts. Also, Table 3.2 highlights each
institution's relative earning asset composition. The following provides a
description of each member of the comparative group:
- AVONDALE FINANCIAL CORP. is located in Chicago, Illinois and operates
through six offices in Chicago (Xxxx County), Niles (Xxxx County) and Lake
Forest (Lake County). The population of Xxxx County was 5,153,261 and the
population of Lake County was 575,848 respectively, as of June, 1996. The
latest per capita income available for Xxxx and Lake Counties was $20,342
and $30,724, respectively. The unemployment rates for Xxxx and Lake
Counties were 5.6 and 4.0 percent respectively, as of June 1996. Avondale
Financial Corp. was included in the peer group due to its proximity to
Fairfield, its similar levels of net loans (44.2 percent of assets versus
40.7 percent for Fairfield), above average mortgage-backed securities (21.6
percent of assets), above average levels of borrowings (33.6 percent of
assets) and similar non-operating expenses (2.31 percent of assets versus
2.38 percent for Fairfield)
- CALUMET BANCORP, INC., is located in Dolton, Illinois and operates through
a network of five offices in Xxxx County. Calumet Bancorp is located
approximately 15 miles south of Chicago. Calumet Bancorp was included in
the peer group given the location of its offices in the Chicago
metropolitan area, its similar level of deposits (73.8 percent of assets
versus 70.5 percent for Fairfield) and similar levels of non-interest
income (23 basis points versus 25 basis points for Fairfield). However,
Calumet Bancorp has placed a greater emphasis on lending. Loans comprise
73.3 percent of Calumet Bancorp's asset base versus 40.7 percent for
Fairfield.
- DAMEN FINANCIAL CORP., is located in Schaumburg, Illinois, a suburb of
Chicago and operates three offices in Xxxx County. Damen Fin. Corp was
included in the peer group due to its proximity to Fairfield, similar size
branch network, similar level of net loans (38.3 percent of assets compared
to 40.7 percent for Fairfield), similar level of borrowings (22.8 percent
of assets compared to 20.5 percent for Fairfield), below average net
interest margin (273 basis points), similar level of one-to-four
residential loans (35.3 percent of assets compared to 39.2 percent for
Fairfield) and below average yield/cost spread (168 basis points).
- FIRST MUTUAL BANCORP, INC. is located in Decatur, Illinois and operates
through eight offices in four counties of Macon County (population
115,862), Shelby County (population 22,555), XxXxxx County (population
17,058), and Champaign County (population 165,055). The latest per capita
income available for Xxxxx, Xxxxxx, XxXxxx and Champaign Counties was
$17,655, $13,678, $17,211 and $16,666 respectively. The unemployment rates
for Xxxxx, Xxxxxx,
TABLE 3.2
EARNING ASSET COMPOSITION *
Cash & Total ----Construction---- --------Permanent-------- --Non Mortgage--
Ticker Name Invest. MBS Mortgages 1-4 mtg >5 mtg NonRes 1-4 mtg >5 mtg NonRes Land Commcl Consumer
------ ---- ------- --- --------- ------- ------ ------ ------- ------ ------ ---- ------ --------
(%) (%) (%) (%) (%) (%) (%) (%) (%) (%) (%) (%)
(As a percent of total assets)
-Fairfield 3.4 52.6 40.1 0.1 0.0 0.0 39.2 0.5 0.2 0.1 0.1 0.8
-Comparative Group (10) 21.5 13.4 56.1 1.4 0.3 0.2 43.6 4.9 5.3 0.4 2.0 5.1
-All SAIF-Insured (316) 19.4 12.7 60.8 2.8 0.2 0.3 47.7 4.1 5.0 0.8 1.3 4.8
AVND AvondaleFinCorp-IL 31.1 21.6 34.0 0.2 0.5 0.0 28.5 4.9 0.1 0.0 0.0 6.4
CBCI CalumetBancorp-IL 17.8 3.7 81.4 4.2 2.4 0.5 42.9 10.7 17.9 2.9 0.5 0.2
DFIN DamenFinCorp-IL 39.6 19.7 41.7 0.0 0.0 0.0 35.3 6.0 0.4 0.0 0.0 0.1
FMBD FirstMutualBanc-IL 14.9 0.0 81.3 1.0 0.0 0.0 69.1 8.8 2.5 0.0 1.8 3.3
GFCO GlenwayFinCrp-OH 7.7 10.3 79.3 3.1 0.0 0.0 65.8 5.8 4.6 0.0 0.0 0.3
GTPS GreatAmrcnBncrp-IL 21.0 4.9 52.5 0.9 0.0 0.0 35.5 3.0 12.2 1.0 7.6 8.2
HZFS HorizonFinSvcs-IA 30.1 0.0 53.0 1.7 0.0 0.0 45.0 1.2 5.2 0.1 6.5 10.4
KNK KankakeeBancorp-IL 22.3 9.1 54.7 0.6 0.3 1.0 41.8 3.6 7.5 0.0 2.6 7.5
PERM PermanentBncrp-IN 24.8 20.9 41.9 0.4 0.2 0.0 37.0 3.0 1.2 0.0 0.0 11.1
SFSB SuburbFedFinCrp-IL 5.4 43.5 40.9 1.7 0.0 0.0 35.3 2.4 1.3 0.1 0.5 3.9
*Per Regulatory Call Report detail as of 03/31/96; Cash, Investments
and MBS are derived from audited and unaudited numbers as per SNL
Securities and public reports.
(Call Report source data may have timing and classification differences
and may exclude certain consolidating entries. Loan percentages
are based on gross balances.)
3.9
XxXxxx and Champaign Counties were 8.7, 5.5, 5.6, and 3.3 percent,
respectively, as of June 1996. First Mutual Bancorp's primary market areas
provides major employment opportunities in the agriculture, agriculture-
related industries, construction equipment, auto-motive, manufacturing and
service businesses. Major employers in the Bank's primary market areas
include Caterpillar Tractor Co.. Inc., X.X. Xxxxxx Co., Inc., The Xxxxxx
Xxxxxxx Midland Company, The University of Illinois, Firestone Tire &
Rubber Company, and Illinois Power Company. First Mutual Bancorp was
included in the peer group due to its location in Illinois, similar level
of deposits (66.7 percent of assets), below average yield/cost spread (2.55
percent versus 2.11 percent for Fairfield), similar non-interest operating
expenses (239 basis points versus 238 basis points for Fairfield), below
average non-performing assets (0.20 percent of assets versus 0.06 percent
for Fairfield), and similar loan allowances (36 basis points versus 38
basis points for Fairfield).
- GLENWAY FINANCIAL CORP., is located in Cincinnati, Ohio and operates
through a network of six offices in Cincinnati in Xxxxxxxx County
(population 866,155). Xxxxxxxx County's latest per capita income level was
$20,703. The unemployment rate for Xxxxxxxx County, as of June 1996, was
4.5 percent. Glenway Financial Corp., was included in the peer group as it
operates in a similar diversified economic market area, below average
levels of cash and investments (7.7 percent of assets), below average net
income (56 basis points), below average net interest margin (291 basis
points), and similar levels of non-interest operating income (29 basis
points versus 25 basis points for Fairfield) and non-interest operating
expenses (223 basis points versus 238 basis points for Fairfield)
- GREAT AMERICAN BANCORP is located in Champaign, Illinois and operates a
network of three offices located in Champaign County (population 165,055).
Champaign is located approximately 100 miles south of Chicago. Champaign
County's latest available per capita income was $16,666. The unemployment
rate for Champaign was 3.3 percent as of June 1996. The economy in the
Champaign-Urbana metropolitan area has historically benefitted from the
presence of the University of Illinois, two medical centers, a food
processing operation and the Chanute Air Force Base, which was closed in
1990. Great American Bancorp. was selected as a peer due to its moderately
small asset size ($119.7 million), similar size branch network, similar
level of permanent one-to-four family residential mortgages (35.5 percent
of assets versus 39.2 percent for Fairfield), below average levels of non-
performing assets (0.19 percent of total assets) and below average reserves
to loans (30 basis points).
- HORIZON FINANCIAL SERVICES, CORP., operates through a network of 3 offices
in Oskaloosa and Knoxville in Mahaska County (population 21,849) in Iowa.
Oskaloosa is approximately 75 miles southeast of Des Moines. Mahaska
County's per capita income as of June 1996 was $13,028. The economy in
Mahaska County is considered agricultural with small retail and light
industrial base. Horizon Financial Services was included in the peer group
due to its small asset size and similarly sized office network, below
average earnings level (ROA of 53 basis points) as well as the company's
midwest location.
3.10
- KANKAKEE BANCORP, INC. is located in Kankakee, Illinois which is
approximately 35 miles south of the metropolitan Chicago area. The company
operates eight offices in the Kankakee County (population 98,600) and has a
single office in Champaign, Illinois (approximately 75 miles south of
Kankakee) and an office in Carlyle, Illinois (approximately 00 xxxxx xxxx
xx xxx Xx. Xxxxx xxxxxxxxxxxx xxxx). Kankakee County has a mixed
agricultural and industrial economy. Champaign is the location of the
University of Illinois, several major medical centers and agricultural and
industrial businesses. The economy of the Carlyle area includes a mix of
recreational, agricultural and manufacturing businesses. The unemployment
rate for Kankakee County was 5.7 percent as of June 1996. Kankakee Bancorp
was included in the peer group due to its below average earnings level (56
basis points).
- PERMANENT BANCORP, INC., is located in Evansville, Indiana and operates
through a network of 11 offices in the Counties of Vanderburgh (population
168,250), Xxxxxxx (population 50,193), Xxxxxx (population 32,246) and
Xxxxxx (population 38,775). The latest per capita income available for
Vanderburgh, Warrick, Xxxxxx and Xxxxxx Counties was $17,960, $18,020,
$14,850 and $16,999 respectively. The unemployment rates for Vanderburgh,
Warrick, Xxxxxx and Xxxxxx Counties was 4.6, 4.3, 5.7 and 2.9 percent
respectively. Seven of the Bank's offices are located in Vanderburgh
County. Evansville has a diversified economy consisting of retail,
manufacturing and service enterprises serving the Evansville area. Major
employees include Whirlpool Corp., ALCOA Corp., Xxxxxxx-Xxxxx Squibb, St.
Mary's Medical Center, and Evansville-Vanderburgh SD. Permanent Bancorp
was included in the peer group because it operates in a similarly
diversified economy as Fairfield, although the population and industrial
base of Evansville is smaller than Chicago. Permanent Bancorp has a
similar concentration of permanent one-to-four family residential mortgage
loans (37.0 percent of assets versus 39.2 percent for Fairfield).
Permanent Bancorp, like Fairfield, has generated only modest earnings
levels (ROA of 38 basis points). Permanent Bancorp shows a similar earning
composition, with a below average net interest margin (260 basis points),
similar non-interest operating expenses (229 basis points versus 238 basis
points for Fairfield), below average yield/cost spread (228 basis points
versus 211 basis points for Fairfield), and below average net interest
margin to operating expense ratio (114 percent versus 100 percent for
Fairfield).
- SUBURBFED FINANCIAL CORP., is located in Flossmoor, Illinois and operates
through a network of 12 offices encompassing the south and southwest
Chicago metropolitan areas in Xxxx County, Will County (population
415,745), DuPage County (population 867,774) and Lake County, Indiana
(population 483,145). The latest per capita income available for Xxxx,
DuPage, Will and Lake Counties was $20,342, $27,391, $18,972 and $16,054
respectively. The unemployment rate for Xxxx, DuPage, Will and Lake
Counties was 5.6, 3.6, 4.8 and 5.8 percent respectively. SuburbFed
Financial Corp., was included as a peer due to its proximity to Fairfield,
below average level of cash and investments (5.4 percent of assets versus
3.4 percent for Fairfield), above average MBS (43.5 percent of assets
versus 52.6 percent for Fairfield), below average net interest margin (282
basis points), below average
3.11
level of profitability (ROA of 50 basis points) and similar emphasis on
one-to-four permanent mortgages (35.3 percent of assets versus 39.2 percent
for Fairfield).
We also reviewed the characteristics of other thrifts for inclusion in the
peer group. The company shown below is a company that has some close
similarities to Fairfield but was excluded from the comparative group for the
reasons noted.
- STANDARD FINANCIAL ,INC., is headquartered in Chicago, Illinois, and
operates in Xxxx and Lake Counties. The company operates a network of 13
branch offices, has total assets of approximately $2.3 billion, and
generated an ROA of 81 basis points. Although the company is
geographically close to Fairfield, we excluded it from the comparative
group based on its significantly greater asset size and branch office
network.
FINANCIAL COMPARISONS
Table 3.3 presents a comparison of Fairfield's recent operating results and
current financial condition to those of the comparative group and the universe
of all publicly-traded SAIF-insured thrifts for the most recent twelve-month
period. A detailed comparison can be found in Exhibits III-2 through III-4.
Significant differences between Fairfield and the comparative aggregates can be
observed through an analysis of the figures presented in the table.
(1) Fairfield's reported earnings over the most recent twelve month period
were lower than that of the comparative group and the all publicly traded group.
The Bank's reported ROA of 11 basis points compared to 70 basis points for the
comparative group and 88 basis points for the all publicly traded group.
Fairfield's lower earnings relative to the comparative group reflected a
substantially lower net interest margin level and a lower level of non-interest
operating income, partially offset
TABLE 3.3
FAIRFIELD SAVINGS BANK
KEY FINANCIAL INDICATORS
FOR THE MOST RECENT TWELVE MONTHS (1)
ALL
FAIRFIELD COMP. PUBLICLY TRADED
PROFITABILITY: SAVINGS BANK GROUP THRIFTS
-------------- ------------ ----- -------
(% OF AVERAGE ASSETS)
Net Income 0.11 0.70 0.88
Interest Income 6.66 7.28 7.42
Interest Expense 4.28 4.06 4.20
----- ----- -----
Net Interest Margin 2.38 3.22 3.22
Other Operating Income 0.25 0.33 0.44
Non-Interest Expense 2.38 2.44 2.27
Net Non-Operating Income(Loss)(2) (0.07) (0.05) 0.02
Extraordinary Items 0.00 0.00 0.00
Adjusted Net Income(3) 0.25 1.11 1.39
SELECTED SPREADS AND MARGINS:
Yield on Earning Assets 6.90 7.61 7.72
Cost of Funds 4.79 4.87 4.92
----- ----- -----
Yield-Cost Spread 2.11 2.74 2.80
Net Earning Asset Position (4) 4.40 12.79 10.85
NIM/G&A Expenses 100.0 133.7 150.1
FINANCIAL CONDITION:
(% OF ASSETS)
Cash and Investments 3.4 21.5 19.4
Loans and MBS 93.3 75.4 77.9
Deposits 70.5 70.4 71.8
Borrowings 20.5 13.6 13.7
Net Worth 7.0 14.8 13.1
Tangible Net Worth 7.0 14.7 12.7
RISK MEASUREMENTS:
NPA/Assets 0.06 0.73 0.89
NPA/Equity 0.87 6.35 10.09
Reserves/Loans 0.38 0.80 0.86
(1) COMPARATIVE GROUP FIGURES REPRESENT THE MOST RECENTLY REPORTED TRAILING
TWELVE MONTHS ENDED JUNE 30, 1996 RESULTS; FAIRFIELDS' FIGURES COVER THE
FISCAL YEAR ENDED JULY 31, 1996.
(2) INCLUDES NET GAINS (LOSSES) ON SALE OF LOANS AND OTHER ASSETS MINUS LOSS
PROVISIONS ON LOANS AND OTHER ASSETS PLUS NON-RECURRING ITEMS (PRE-TAX
BASIS).
(3) INCLUDES NET INTEREST MARGIN PLUS OTHER OPERATING INCOME LESS OPERATING
EXPENSES, ON A PRE-TAX BASIS.
(4) TOTAL INTEREST-EARNING ASSETS LESS TOTAL INTEREST-BEARING LIABILITIES, AS A
PERCENT OF ASSETS.
Source: Audited and unaudited financial statements. SNL Securities, corporate
reports and offering circulars for publicly-traded companies.
3.13
by a modestly lower level of non-interest operating expenses and loan loss
provisions. The comparative group also generated modest levels of non-operating
gains (7 basis points).
(2) Fairfield's "adjusted net income," which for purposes of this analysis
includes net interest income plus other non-interest operating income minus non-
interest expenses, on a pre-tax basis, was significantly lower than that of the
comparative peer group and the all publicly traded thrift group. The Bank's
adjusted net income of 25 basis points compared to 111 basis points for the
comparative group and 139 basis points for the all publicly traded group.
(3) Fairfield's net interest margin was 238 basis points versus 322 basis
points for the comparative group and for the all publicly traded group. The
Bank's lower net interest margin reflected a lower yield/cost spread (211 basis
points for Fairfield versus 274 basis points for the comparative group and 280
basis points for the all publicly traded group). The Bank's lower net interest
margin also reflected its substantially lower net earning asset position
relative to the comparative group's (4.40 percent for the Bank versus 12.79
percent for the peer group). After conversion, the Bank's net earning asset
position will increase, and approach that of the comparative group. Fairfield's
lower yield/cost spread relative to the comparative group reflects the Bank's
significantly lower yield on earning assets which more than offset its lower
cost of funds. The Bank has 52.6 percent of assets concentrated in lower
yielding mortgage backed securities and only 40.7 percent of assets concentrated
in loans. The comparative group had 62.0 percent of assets concentrated in
loans.
3.14
(4) Fairfield generated 25 basis points of non-interest operating income
compared to 33 and 44 basis points of non-interest operating income for the
comparative group and all publicly traded group, respectively. The Bank and the
comparative group have not been as successful in diversifying and expanding
their revenue streams as the all publicly traded group. The Bank generates non-
interest income from service charges, loan fees and other miscellaneous revenue
sources. The Bank does not generate revenue from service corporation
operations. Also, for the twelve months ended July 31, 1996, the Bank generated
gains of 9 basis points related to litigation settlements on the Trails of
Olympia Fields development.
(5) Fairfield's operating expense ratio was modestly below that of the
comparative group and industry average. The Bank's non-interest expense ratio
of 238 basis points compared to the comparative group's ratio of 244 basis
points and the all publicly traded group's ratio of 227 basis points. After
conversion, with the establishment of the proposed ESOP and Stock Programs,
additional expenses incident to being a public company, the Bank's overhead
expense ratio will likely modestly increase.
(6) Fairfield maintained a lower level of liquidity at July 31, 1996 when
compared to its peers. Cash, cash equivalents and investment securities equaled
3.4 percent of assets for Fairfield versus 21.5 percent for the comparative
group and 19.4 percent for the all publicly traded group. It is noted, however,
that the Bank had 74 percent of MBS which were due to mature within seven years.
Due to high levels of competition in the Bank's market area, the Bank had a
lower percentage of earning assets concentrated in generally higher yielding
loans. MBS and loans were 93.3 percent of total assets for Fairfield. This
compared to the comparative and all publicly traded group's loan balances
3.15
(including MBS) which equaled 75.4 percent and 77.9 percent of assets,
respectively. However, Fairfield's lower yielding MBS portfolio equaled 52.6
percent of assets versus 13.4 percent for the comparative group. Also, the
Bank's mortgage loans (excluding home equity loans) as a percent of assets (40.1
percent) was much smaller compared to that of the comparative group and all
publicly traded group (56.1 and 60.8 percent, respectively).
(7) Fairfield's tangible equity ratio of 7.0 percent of assets was well
below the 14.7 percent tangible net worth ratio of the comparative group and the
12.7 percent ratio for the all publicly traded group. Fairfield will have a net
worth ratio after conversion which will approximate that of the comparative
group. However, Fairfield's ratio (on a consolidated basis) will be modestly
higher than the industry average. The Bank's high MBS levels which partially
reflect the limited lending opportunities due to higher competition, can be
expected to result in limited earnings growth potential, which will likely
translate into a lower return on equity ("XXX") relative to the comparative
group.
(8) Fairfield's level of non-performing assets has declined during the
last four years. The Bank's ratio of non-performing assets ("NPA") as a
percentage of assets and equity at July 31, 1996, was 0.06 and 0.87 percent,
respectively, while the comparative group's NPAs as a percent of assets and
equity were 0.73 and 6.35 percent, respectively. Fairfield maintained a
reserves-to-loans ratio (0.38 percent) which was below that of the comparative
group (0.80 percent) and the industry average (0.86 percent).
IV. MARKET VALUE DETERMINATION
INTRODUCTION
As discussed earlier, certain adjustments might be required to Fairfield's
estimated market value relative to the comparative group to reflect the
differences between the Bank and the members of the comparative group. The
market value adjustments made are based upon certain financial and other
criteria, including: quality and predictability of earnings, earnings growth
potential, financial strength, market area, management, dividend payments, stock
liquidity, thrift equity market conditions, and the actual marketing of the
issue.
The final section of this chapter identifies the estimated pro forma market
value of the to-be-issued common shares and compares the resulting market value
of the Bank with members of the comparative group and all publicly-traded
companies as of the pricing date.
The pro forma market value determined herein is a preliminary value for the
Bank's common stock. Throughout the conversion process, any changes in
Fairfield's financial performance will be reviewed. Also, any changes in the
Bank's fundamental financial characteristics relative to the comparative group
will be analyzed. Future updates, if deemed necessary before or at the time of
the offering, will also consider current developments in the market for thrift
stocks. In addition, the results of the Bank's conversion offering plus the
results of pending conversion offerings in Fairfield's general region of the
U.S. will be closely monitored.
QUALITY AND PREDICTABILITY OF EARNINGS/EARNINGS GROWTH POTENTIAL
Market value adjustments to Fairfield's estimated pro forma market value
must reflect both the sustainability of the Bank's earnings stream and earnings
growth potential relative to the
4.2
comparative group. We believe that investors look at both factors in
determining an appropriate valuation of a company's stock.
During the fiscal year ended July 31, 1991, Fairfield implemented a major
restructuring of its securities portfolio. As a result of such restructuring
which resulted in a net writedown on the securities portfolio of approximately
$6.1 million, the Bank reported a large net loss in fiscal 1991. However, since
fiscal 1991, Fairfield has been successful in generating a positive, albeit
variable, net earnings stream. The Bank reported moderately high earnings
results in fiscal years 1992 through 1994, as a result of improved net interest
margins and gains on sale of real estate associated with Olympia Fields as well
as gains on sale of securities (in fiscal 1992 and 1994). Fairfield's reported
ROA ranged between 107 and 125 basis points during this three year time period.
It should be noted that Fairfield's investment in real estate has declined in
the last few years as the Bank has sold off most of the parcels of property in
the Olympia Fields project. As a result, real estate related non-interest
expenses have declined. Also, the extent of any future real estate gains is
uncertain.
Since fiscal 1993 Fairfield's core earnings levels have declined. In fact,
reported net income declined to $982,000 or an ROA of 50 basis points in fiscal
1995 and $226,000 or an ROA of 11 basis points in the latest fiscal year ended
July 31, 1996. After peaking at $6.541 million, or a net interest margin of 348
basis points in fiscal 1993, the Bank's net interest income has steadily
declined to $4.704 million, or a net interest margin of 238 basis points in
fiscal 1996. During this time period, Fairfield's interest rate spread has
declined 141 basis points.
The decline in Fairfield's net interest spreads and margins to below
average levels, particularly over the last two years, reflects the
characteristics of the Bank's earning asset portfolio:
4.3
- Approximately 91 percent of the Bank's loan portfolio is comprised of
fixed-rate one-to-four family residential mortgages versus generally higher
yielding loan types.
- Largely as a result of intense competition for loan originations, Fairfield
has supplemented its lending activities with investments in mortgage-backed
securities. The Bank maintains a high concentration of fixed-rate
mortgage-backed securities, including MBS with balloon maturities. At July
31, 1996, MBS equaled $102.4 million or almost 53 percent of total assets.
The high concentration of lower yielding MBS has served to reduce
Fairfield's earnings asset yield potential and interest rate spreads, as
the yield on the securities falls well below the yields on loans.
- Given the fixed rate nature of Fairfield's loan and MBS portfolios, the
Bank faces significant interest rate risk. The current rising interest
rate environment has resulted in the erosion of the Bank's interest rate
spreads and margins.
Both Fairfield's and the comparative group's profitability levels fall
below the thrift industry average. The comparative group's ROA of 70 basis
points compared to Fairfield's ROA of 11 basis points. The Bank's lower ROA
primarily reflected its lower net interest margin of 238 basis points (versus
322 basis points for the comparative group), but the Bank also reported a lower
level of non-interest income. However, Fairfield did generate a modestly lower
operating expense ratio. It is important to note that, while certain members of
the comparative group have also maintained high levels of mortgage-backed or
other investment securities in relation to loans, the comparative group, on the
whole, has been able to generate a notably higher net interest margin level.
In summary, notwithstanding Fairfield's strategy to increase loan balances
after conversion, given the existing balance sheet structure of the Bank and
competitive lending conditions in and around the Bank's primary market areas in
Xxxx and Lake Counties, net interest margin and overall earnings growth
potential will remain limited, at least over the near term. Therefore, based on
the
4.4
factors noted above, we believe a moderate discount to Fairfield's estimated pro
forma market value relative to the comparative group is appropriate.
FINANCIAL STRENGTH
CAPITAL LEVELS
Fairfield's pre-conversion equity to assets ratio of 7.0 percent is below
that of the comparative group and the all publicly traded thrifts. The
additional capital raised through conversion is expected to increase the Bank's
ratio (on a consolidated basis) to modestly above the industry average and
similar to that of the comparative group. With a post-conversion equity ratio
of between 13 and 14 percent, this will result in a company with a substantial
capital cushion and financial flexibility. However, as previously noted, it is
uncertain whether Fairfield will be able to effectively leverage its capital
position to enhance investor (shareholder) returns.
ASSET/LIABILITY POSITION
Fairfield has taken a number of steps to restructure its assets and
liabilities in order to mitigate interest rate risk. In recent years, the Bank
has attempted to invest in mortgage-backed securities having balloon maturities
of five or seven years. However, Fairfield currently maintains no adjustable-
rate MBS. Fairfield also maintains significant levels of available for sale
securities which serves to enhance the overall liquidity of the Bank's
securities portfolio. At July 31, 1996, approximately 95 percent of the Bank's
residential mortgage loan portfolio contained fixed-rate product. While the
Bank's fixed-rate lending program tries to focus on loans with terms of 15 years
or less, a substantial majority of existing loans have original maturities of 30
years. In summary,
4.5
given the heavy fixed-rate nature of Fairfield's loan and MBS portfolios, the
Bank has remained vulnerable to increases in interest rates.
Partially offsetting the interest rate risk of Fairfield's earnings asset
portfolio, Fairfield's deposit portfolio includes a relatively large percentage
of lower costing core deposits which can be more resistant to interest rate
changes than certificate accounts. At July 31, 1996, $65.8 million or 48.0
percent of the Bank's total deposits consisted of passbook savings, transaction
or other non-certificate accounts. However, as is the case with most of the
comparative group thrifts, the Bank's base of passbook savings and other lower
costing accounts has been replaced by higher balances of time deposit accounts
during the last two years. Fairfield has also relied heavily on wholesale
borrowings with various maturity structures to fund asset growth. At July 31,
1996, FHLB borrowings equaled 20.5 percent of assets.
Certain of the comparative group thrifts have also maintained a heavy base
of investment and mortgage-backed securities. Four of the comparative group
institutions in particular, SuburbFed, Avondale, Damen and Permanent, have
maintained heavy balances of MBS or other securities to supplement their lending
activities. However, on average, the comparative group maintains a greater
concentration of its assets in higher yielding loans versus securities. Also,
the comparative group, while also emphasizing one-to-four family residential
lending, has sought greater loan diversification. However, like Fairfield, the
comparative group thrifts' efforts to improve asset/liability mismatches have
also been limited due to the generally short-term nature of their deposit and
borrowing bases.
4.6
ASSET QUALITY
Fairfield has achieved low non-performing asset levels over the last four
years. The Bank's high asset quality is due to conservative loan underwriting
policies which is reflected by a loan portfolio dominated by local, one-to-four
family mortgage loans. At July 31, 1996, the Bank's non-performing assets
equaled 0.06 percent of total assets. This compared to a non-performing asset
ratio of 0.73 percent for the comparative group. At July 31, 1996, Fairfield's
allowance for loan losses equaled 0.38 percent of loans, which percentage is
below both the thrift industry average of 0.86 percent and the comparative group
average of 0.80 percent. However, management believes Fairfield's low ratio
reflects the Bank's strong asset quality.
On balance, based on all the factors discussed in this section, we believe
that no specific adjustment to Fairfield's estimated pro forma market value
relative to the comparative group is warranted.
MARKET AREA
Fairfield's three offices include its two largest deposit offices in
Chicago and another branch office in Norridge, both in Xxxx County, plus its
main office in Lake County. Based on Fairfield's branch locations and deposit
and lending activities, the Bank's primary market areas encompass the northern
portions of Chicago and the northwest suburbs. The Chicago metropolitan area is
among the nation's most economically and ethnically diverse communities.
Approximately 75 percent of Fairfield's deposit base is generated from its
branch offices in Xxxx County.
The Bank's branch offices in Xxxx County, particularly the Chicago office,
are surrounded by generally older ethnic communities offering limited lending
opportunities while the Long Grove
4.7
office in Lake County is surrounded by market areas that are experiencing
greater population and economic growth as well as greater lending potential.
The Bank's branch office network has expanded into the western portions of the
Chicago metropolitan area which has benefited from in influx of new industries
and workers into the area. While slowing over the last few years, Lake, DuPage
and some of the other counties west of Chicago have experienced active
residential development. The Bank's branch offices face competition from over
1,250 thrift, savings bank, commercial bank and credit union offices in Xxxx
County and almost 170 offices within Lake County. While Fairfield has
successfully established a strong core deposit base within its limited market
area within Xxxx County, it has only a very small percentage of the total
deposit base within Xxxx and Lake Counties, well below one percent. The Bank
will continue to face increasing competition from financial institutions in
Chicago and those institutions moving into the Lake County market area and the
other counties west and northwest of Chicago.
In general, the comparative group thrifts operate within market areas with
similar economic bases (although with varying degrees of economic and population
growth, with four of the comparative thrifts also operating in or close to the
Chicago marketplace and most of the other comparatives operating in large
metropolitan or suburban areas), although, on the whole, their surrounding
market areas have not experienced the same strong growth that portions of the
western suburbs in Chicago have. The comparative group thrifts also face strong
competition in their local markets. However, certain of the thrifts operate
over larger geographic bases due to larger branch office networks and also enjoy
strong core deposit bases.
Based on the above, we have made no adjustment to Fairfield's pro forma
market value for the factors discussed in this section.
4.8
DIVIDEND PAYMENTS
While there is no specific plan to pay cash dividends immediately after
conversion, Fairfield may consider a policy of paying cash dividends on the
common stock in the future. However, no determination has been made at this
time as to the amount or timing of such dividends. Any payment of dividends
would be considered relative to management's intention to retain earnings for
future growth and to assure compliance with the increased capital requirements
mandated by The Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA"). Fairfield's post-conversion capital ratio, however, should
facilitate the payment of any future dividends.
Eight of the ten comparative group members are currently paying cash
dividends with dividend yields ranging from 1.9 percent to 3.2 percent.
Approximately 75 percent of all publicly-traded thrifts are paying dividends.
We believe that investors are more sensitive to dividend paying capacity and
look forward to at least a minimal cash dividend shortly after conversion,
especially given future price increases remains an unknown and investors are
seeking tangible returns on investments. However, it is also reasonable to
expect that investors will look favorably upon earnings retention policies in
light of increased capital requirements and need for capital to support growth
and revenue diversification strategies. Therefore, given the number of thrifts
(including the number of comparative group thrifts) currently paying cash
dividends, we have made a slight downward adjustment to Fairfield's pro forma
market value for this factor.
MANAGEMENT AND EMPLOYEE STAFFING
Fairfield's executive management team is concentrated in six individuals
who are responsible for the lending, finance and operations areas of the Bank.
These individuals have had a varying
4.9
number of years of experience in the thrift industry. The organization chart
and vesting of responsibility is typical of a moderately small savings
institution. However, the relatively small size of Fairfield requires that
multiple line responsibilities be concentrated in a small handful of people.
The management team is part of a total staff of 48 full-time and 17 part-time
employees (as of July 31, 1996). Fairfield's management appears to have
established a favorable reputation for the Bank in the communities in which it
operates. With the recent hiring, in September 1996, of a new Chief Lending
Officer, the Bank has no specific plans for staff increases after conversion.
However, any expansion or diversification of operating activities would likely
require that the size and experience of management and staff be expanded.
The comparative savings institutions, to varying degrees, have undertaken
expansion of their management teams and support staff as part of their expansion
and diversification strategies, many of which have had these strategies in place
for some time. Most savings institutions have been confronted with the need to
expand and restructure their management team in response to significant changes
in financial, regulatory and operational challenges.
On balance, we believe that no specific adjustment to Fairfield's pro forma
market value relative to that of the comparative group is warranted for
managerial factors.
LIQUIDITY OF THE ISSUE
The comparative group contains nine companies that trade on the NASDAQ
system and one on the American Stock Exchange. The Holding Company has applied
and expects to have the common stock quoted on the NASDAQ National Market.
Given the size of the offering and the level of market capitalization of
Fairfield's stock after conversion, it can be expected that the
4.10
Holding Company's common stock will have a moderate degree of trading activity
and liquidity. The comparative group of savings institutions has experienced
varying degrees of activity and, therefore, liquidity in their stocks. The
market capitalization of the comparative group can be expected to be only
modestly higher than that of Fairfield. Therefore, the Holding Company's stock
can be expected to have a roughly similar level of liquidity. Based on the
foregoing, we believe that no specific adjustment to the pro forma market value
of Fairfield relative to that of the comparative group is warranted.
SUBSCRIPTION/COMMUNITY INTEREST
In accordance with the Bank's Plan of Conversion, it is currently planned
that the shares of Fairfield's stock will be offered to certain priority groups,
in a Subscription Offering, in the following order: (i) Eligible Account
Holders; (ii) Tax-Qualified Employee Plans; (iii) Supplemental Eligible Account
Holders; (iv) Other Members; and, (v) Bank Employees. If any shares are
available at the conclusion of the Subscription Offering, Fairfield plans to
offers share in a Community Offering. Fairfield has retained Xxxxx Securities,
Inc., to consult with and advise the Bank in the stock offering and assist in
the distribution of shares, on a best efforts basis.
After an extended period of declining numbers of conversions during the end
of 1989 and into 1990, new conversion offerings increased during 1991 and 1992
as interest rates declined and thrift profitability improved, and a core group
of surviving and healthy thrifts emerged from the thrift industry's unfavorable
financial plight. New thrift equity offerings have generated mixed results.
Investors appear to be most interested in thrifts with: (1) strong capital
positions, (2) strong earnings levels, and (3) good asset quality. The more
marginal thrifts are experiencing less interest by
4.11
investors. Through the first quarter of 1996, new thrift issues also generated
increased interest due to the performance of stock prices of selected recently
converted thrifts. These thrift stock prices benefitted from (1) earnings and
earnings per share improvements as a result of lower interest rates and (2) the
repurchase of stock by several of the recently converted thrifts, which has
generally fueled stock price appreciation. Also, speculative interest, as a
result of the high level of merger and acquisition activities in the banking and
thrift industries, generated renewed demand for many of the recent conversion
offerings.
Notwithstanding a slow economic recovery and continued weak real estate
markets, investor demand for thrift conversion offerings remained generally
favorable in 1993 and the first eight months of 1994. In particular, during
this time frame, there was a notable increase in the number of successfully
completed conversion offerings by the better performing thrift institutions.
However, between November 1994 and January 1995, conversion offerings met
considerable resistance from the investment community as financial institution
stocks fell out of favor with many investors. At least 15 conversion offerings
were forced into resolicitations in late 1994 and early 1995. However, during
the second half of 1995 and first quarter of 1996, the interest in thrift
conversion offerings increased. However, during the second quarter of 1996,
interest rates increased and thrift stock prices remained essentially flat
overall. While thrift prices began to move up again during August and early
September, the number of and level of investor interest in conversion offerings
has not matched the number and level generated through the first quarter of
1996.
Also, the after-market price performance of recently converted thrifts has
not matched the price performance experienced by thrifts which converted prior
to 1996. The average and median price
4.12
increases for the 34 publicly traded thrifts which converted since the end of
March 1996 are 17.5 and 14.4 percent, respectively.
The recent uncertain environment for new thrift offerings has been factored
into our determination of the estimated pro forma market value of Fairfield.
STOCK MARKET ENVIRONMENT
In an attempt to define and monitor the market for publicly-traded thrift
institutions, we have utilized the SNL Index, which measures the relative price
movements of all publicly-traded thrifts and is compiled by SNL Securities.
Table 4.1 details the performance of the index since 1989, which reflects market
forces such as the supply of and demand for thrift stocks, expected inflation
levels, interest rate changes, thrift industry regulatory changes, and the
overall economic strength in the U.S. With minor exception, for an 18-month
period beginning with the second half of 1989, thrift prices followed a
generally downward trend reflecting investor concerns over the new capital
regulations stemming from FIRREA and the downturn in the real estate markets in
many portions of the country. At the beginning of 1990, thrift prices appeared
to have also been adversely impacted by a rise in long-term interest rates and
uncertainty regarding the continued financial viability of the thrift industry.
As a result, over the first few months of 1990, the number of conversion
offerings remained low. In the wake of continued negative press on the state of
the real estate markets across the country and the financial difficulties of
both commercial banks and thrifts, financial institution stock prices suffered
significant price erosion through 1990. Also, overall, thrift conversion
activity remained weak through most of 1990.
TABLE 4.1
THRIFT STOCK INDEX
RELATIVE TO LONG AND SHORT-TERM RATES
3-MONTH 12-MONTH LONG-TERM
PRIME T-XXXX T-XXXX T-SECUR. THRIFT
WEEK OF RATE (1) RATE (1) RATE (1) RATE (1) INDEX (2)
--------------------------------------------------------------------------------
(LAST DAY OF QUARTER)
03/31/89 11.50 9.00 8.94 9.31 170.7
06/29/89 11.00 8.03 7.35 8.23 231.6
09/29/89 10.50 7.84 7.78 8.41 210.0
12/29/89 10.50 7.68 7.30 8.09 162.5
03/30/90 10.00 7.85 7.75 8.68 149.6
06/29/90 10.00 7.77 7.33 8.63 144.4
09/28/90 10.00 7.29 7.25 9.14 96.2
12/28/90 10.00 6.48 6.37 8.35 96.6
03/29/91 9.00 5.82 5.94 8.35 127.6
06/28/91 8.50 5.56 5.96 8.53 130.8
09/27/91 8.00 5.16 5.20 7.86 142.0
12/27/91 9.50 3.81 3.97 7.38 140.0
03/27/92 9.00 4.03 4.40 7.91 155.2
06/26/92 8.50 3.64 3.94 7.65 168.2
09/25/92 8.00 2.69 3.38 7.11 165.3
12/31/92 6.50 3.18 3.49 7.19 201.1
03/26/93 6.50 2.93 3.16 6.60 227.8
06/25/93 6.00 3.09 3.37 6.44 216.7
09/24/93 6.00 2.93 3.26 5.99 252.1
12/31/93 6.00 3.02 3.45 6.22 252.5
(LAST WEEK OF MONTH)
01/28/94 6.00 2.93 3.35 6.16 257.2
02/25/94 6.00 3.34 4.08 6.54 248.0
03/25/94 6.25 3.31 4.15 6.90 249.4
04/29/94 6.75 3.59 4.72 7.24 248.3
05/27/94 7.25 4.18 5.00 7.44 262.6
06/24/94 7.25 4.17 5.00 7.47 267.5
07/29/94 7.25 4.42 5.22 7.57 276.7
08/26/94 7.68 4.55 5.31 7.58 285.9
09/30/94 7.68 4.68 5.58 7.58 279.7
10/28/94 7.68 5.01 5.86 8.08 262.0
11/25/94 8.50 5.31 6.22 8.10 240.5
12/30/94 8.50 5.52 6.74 7.93 244.7
01/27/95 8.50 5.78 6.56 7.98 256.5
02/24/95 9.00 5.72 6.15 7.61 278.7
03/31/95 9.00 5.68 5.94 7.43 278.4
04/28/95 9.00 5.65 5.82 7.32 295.44
05/25/95 9.00 5.69 5.59 6.81 306.43
06/30/95 9.00 5.43 5.33 6.53 313.45
07/28/95 8.75 5.45 5.39 6.82 328.68
08/25/96 8.75 5.41 5.37 6.62 362.29
09/29/95 8.75 5.26 5.37 6.62 362.29
10/27/95 8.75 5.24 5.29 6.34 355.46
11/24/95 8.75 5.35 5.14 6.26 368.62
12/29/95 8.50 4.89 4.94 5.97 365.18
01/16/96 8.25 4.97 4.79 6.00 365.10
02/23/96 8.25 4.82 4.78 6.35 376.23
03/29/96 8.25 5.00 5.13 6.70 382.13
(LAST DAY OF WEEK)
04/05/96 8.25 5.01 5.18 6.74 385.81
04/12/96 8.25 4.97 5.31 6.96 375.63
04/19/96 8.25 4.85 5.21 6.88 379.42
04/26/96 8.25 4.96 5.21 6.88 379.52
05/03/96 8.25 5.00 5.33 7.04 371.87
05/10/96 8.25 5.00 5.35 7.11 373.88
05/17/96 8.25 5.01 5.28 6.96 381.81
05/24/96 8.25 5.04 5.27 6.93 383.49
05/31/96 8.25 5.04 5.39 7.02 382.99
06/07/96 8.25 5.09 5.46 7.08 384.37
06/14/96 8.25 5.11 5.52 7.23 384.80
06/21/96 8.25 5.07 5.46 7.17 384.28
07/05/96 8.25 5.12 5.44 6.98 383.90
07/12/96 8.25 5.17 5.60 7.20 375.57
07/19/96 8.25 5.13 5.47 7.08 378.92
07/26/96 8.25 5.16 5.54 7.05 385.12
08/02/96 8.25 5.20 5.55 7.07 397.65
08/09/96 8.25 5.05 5.30 6.77 400.08
08/16/96 8.25 5.12 5.29 6.79 406.37
08/23/96 8.25 5.03 5.33 6.85 408.39
08/30/96 8.25 5.06 5.45 7.03 408.34
09/06/96 8.25 5.18 5.61 7.15 410.76
(1) U.S. Financial Data, The Federal Reserve of St. Louis
(2) SNL Securities - Thrift Stock Indexes
4.14
Beginning in January 1991, stock prices, in general, moved higher
reflecting a sharp rally in the financial markets. Financial institution stocks
led this rally which reflected lowering interest rates and market euphoria over
the successes in the Persian Gulf War. However, the financial markets continued
to experience notable instability reflecting the prevailing recessionary
conditions including depressed real estate markets. This adversely impacted the
operating results of certain financial institutions and simply served as a
destabilizing influence for the stock market. However, while thrift stock
prices experienced a limited level of variability, such prices generally moved
upward during much of 1992. The declining interest rate environment and
improving net interest margins resulted in generally favorably earnings reports
for financial institutions. In particular, reports of record earnings for the
thrift industry for 1992 and 1993 fueled moderate stock price appreciation
through much of 1993.
In the early portion of 1994, thrift stock prices remained relatively flat
as the general direction of interest rates was uncertain. However, any negative
impact caused by the rise in interest rates in the spring of 1994 was offset
apparently due to the announcement of interstate banking legislation. This
legislation has created speculation that thrifts will be more easily acquired
and the thrift industry will consolidate. While the market for thrift stocks
faltered in March and April of 1994, stock prices resumed their upward trend
until October 1994, when the rise in interest rates led to speculation that
financial institutions would generate less earnings in future periods. The
decline in thrift stock prices in the last quarter of 1994 was dramatic.
However, overall, thrift prices advanced during most of 1995, as the yield curve
flattened and long-term interest rates declined. Also, heavy merger and
acquisition activity in both the bank and thrift industries fueled speculative
4.15
trading in many thrift stocks during 1995 and early 1996. However, between the
first quarter of 1996 and end of July, thrift stocks did not experience any
upward pricing momentum and prices remained relatively flat overall. Thrift
stocks appeared to be adversely impacted by the rise in interest rates,
particularly during late spring and early summer. More recently, with the
relative stabilization of long-term interest rates in August and the
announcement of record earnings for the thrift industry during the first part of
1996, thrift prices have resumed their upward movement.
Chart 1 reflects the performance of the stock market since the passage of
the FIRREA legislation. As noted, the overall favorable performance of
financial institution stock prices during 1991 through the third quarter of 1994
reflects the recapture of losses sustained during 1989 and 1990. However, the
chart reflects a significant downturn in financial related stocks in the last
quarter of 1994, followed by a recovery during 1995. These factors, both
positive and negative, have been factored into our valuation considerations.
VALUATION APPROACH
Three approaches have been considered appropriate to determine the pro
forma market value estimate of a converting savings institution: (1)
price/earnings, (2) price/book value, and (3) price/assets. We believe that
investors place their primary emphasis on making purchase decisions based on
the recent earnings results and expected profitability of savings institutions.
Therefore, we believe it is appropriate to place considerable emphasis on the
pro forma price/earnings valuation approach in deriving a fair market value
for a converting savings institution. However, price/earnings ratios for
some savings institutions have become less meaningful over the last few years
as a result of the variability of reported earnings. Also, as in the case of
Fairfield, when an institu-
[CHART 1]
HOW FINANCIAL SERVICE COMPANIES HAVE FARED
RELATIVE TO THE MARKET
Line graph indicating the performance of the Dow Xxxxx Industrial, NYSE
Financial, NASDAQ Banks and S&L Index from September 1989 to September 1996.
4.17
tion generates a very low earnings level, an over emphasis on the use of the pro
forma price/earnings approach will not result in a totally meaningful estimated
market value. Therefore, we also generally give considerable weight to the pro
forma price/book value approach. This valuation method also is closely analyzed
by investors in making investment decisions. However, it is important to note
that the "book value" of a company is an accounting derived concept that
represents the historically accumulated retained earnings of such entity. Such
book value does not necessarily take into consideration the current earnings
power of the company. Obviously, a converting thrift institution has a base of
capital in place prior to the time of conversion. To attempt to value such
converting institution at a pro forma book/value ratio equal to or even close to
the price/book value ratios of publicly traded stock institutions will result,
in most instances, in an unrealistic valuation that is unacceptable in the
marketplace. Thus, a disproportionate reliance on a price/book value approach
may result in unrealistic estimated pro forma market value for the Bank. This
is particularly true since investors will be seeking a certain minimum, and thus
reasonable, return on equity ("XXX"). Therefore, we believe that in determining
an appropriate value for a converting institution such as Fairfield, the pro
forma price/book value ratio must be balanced against the pro forma
price/earnings ratio plus the pro forma price/assets ratio.
One other valuation method, the pro forma price/assets ratio, is most
applicable for valuing savings institutions with low net worth and/or very low
operating income or losses. Since Fairfield has generated declining earnings
levels in recent years and reported a very low earnings level for the latest
twelve months ended July 31, 1996, we have also looked closely at the
price/assets valuation approach.
4.18
In analyzing the appropriate pro forma pricing ratios and the resulting
estimated fair market value for the to-be-issued shares of common stock of
Fairfield, we have considered the following strengths and weaknesses of the
Bank:
- Fairfield's core earnings levels have declined since fiscal 1993. The Bank
reported a significantly lower level of profitability for the latest twelve
months ended July 31, 1996, relative to that of the comparative group. The
Bank's ROA of 11 basis points compared to an ROA of 70 basis points for the
comparative group. Fairfield's lower profitability primarily reflects a
lower interest rate spread and net interest margin.
- Given the fixed rate nature of Fairfield's loan and MBS portfolios, the
Bank faces significant interest rate risk. The current rising interest
rate environment has resulted in the erosion of the Bank's interest rate
spreads and margins. Also, the heavy concentration of lower yielding MBS
has served to reduce Fairfield's earning asset yield potential and interest
rate spreads. After conversion, Fairfield plans to gradually increase the
level of loan balances relative to MBS levels.
- Fairfield has achieved low non-performing asset levels over the last four
years and the Bank's asset quality level is favorable relative to the
comparative group.
- The infusion of capital through conversion will result in a strong equity
position for the Bank. The Bank's post-conversion consolidated equity
ratio of between 13 and 14 percent is expected to be modestly above the
average for all publicly traded thrifts and approximate the comparative
group average.
Based on Fairfield's fundamental financial and other characteristics
relative to the comparative group as discussed in this chapter, on balance, we
believe that a moderate valuation discount for the Bank is appropriate. Such
valuation adjustment reflects the Bank's lower core earnings level. Also, we
believe that, as a converting institution, a new issue discount is appropriate
for Fairfield.
Based on the above factors and the pricing ratios of the ten comparative
group thrifts, we believe that the following pro forma pricing ratios and
discounts (on a price/book value and price/assets basis) are appropriate for
Fairfield:
4.19
TABLE 4.2
COMPARATIVE PRICING ANALYSIS
FAIRFIELD SAVINGS BANK
DISCOUNT (PREMIUM) TO THE
PRICING RATIO COMPARATIVE GROUP
------------- -----------------
Price/Book Value 62.53% Mean 24.0%
Median 24.9%
Price/Earnings 25.39x(1) Mean (48.0%)
Median (53.1%)
Price/Assets 8.29 % Mean 30.8%
Median 2.9%
(1) Based on reported earnings of $226,000 for the twelve months ended July 31,
1996; assumes 1,750,000 shares outstanding (total shares issued in the
conversion at the midpoint value). Under SOP No. 93-6 there would be
1,624,000 shares outstanding for the earnings per share calculation,
resulting in a pro forma price/earnings ratio of 23.81x.
We believe that Fairfield's pro forma price/book value ratio, when analyzed
in conjunction with the Bank's pro forma price/earnings and price/assets ratios,
results in an appropriate estimated pro forma market value. We believe that
Fairfield's pricing ratios are appropriate for a newly converting thrift
institution, particularly based on the pricing characteristics of two Chicago
area institutions which either recently converted or is in the process of
converting, as shown below:
4.20
CONVERSION PRICING
PRICING
AT TIME OF CONVERSION AT MIDPOINT
------------------------------------ -------------------------------------
PRICE/BOOK PRICE/
EQUITY/ 12 MONTH OFFERING VALUE EARNINGS
INSTITUTION ASSETS ASSETS ROA AMOUNT RATIO RATIO
----------- ------ ------ --- ------ ----- -----
($000s) ($000s)
Park Federal
Savings Bank $149,387 11.8% 0.65% $24,000 63.0% 17.6x
Chicago, IL
Home Federal
of Elgin $306,688 12.1% 0.72% $53,000 64.5% 16.6x
Elgin, IL
Home Federal's conversion is currently in process. Park Federal converted on
August 12, 1996. Park Federal converted at $10.00 per share with a conversion
P/B ratio of 66.6 percent. Park Federal's stock was trading at $10.31 per share
on September 6, 1996, or a 3.1 percent increase over its IPO price.
VALUATION CONCLUSION
It is therefore our opinion that, as of September 6, 1996, the estimated
pro forma fair market value of Fairfield was $17,500,000, based on 1,750,000
shares at $10.00 per share. The resulting range of value was $14,875,000 or
1,487,500 shares, to $20,125,000 or 2,012,500 shares, both based on $10.00 per
share. Pro forma calculations which include the impact of an eight percent
purchase by Fairfield's Employee Stock Ownership Plan ("ESOP") and a four
percent purchase by the Stock Programs subsequent to conversion are shown in
Table 4.3 and in Exhibits IV-2 through IV-7. Subject to market conditions at
the time of the offering, an overallotment provision up to 15 percent above the
maximum value, or $23,143,750 could be made available.
TABLE 4.3
PRO FORMA COMPARISON
CONVERTING INSTITUTION VERSUS THE COMPARATIVE GROUP
FAIRFIELD SAVINGS BANK
As of September 6, 1996
Ticker Name & State Price(1) Mk Value P/E (3,4) P/Book P/TBook P/Assets DivYld
------- ------------ -------- -------- --------- ------ ------- -------- ------
($) ($Mil) (x) (%) (%) (%) (%)
FAIRFIELD SAVINGS BANK (2)
--------------------------
Before Conversion 10.00 X/X X/X X/X X/X X/X X/X
Pro Forma SuperMaximum 10.00 23.14 27.27 70.43 70.43 10.68 0.00
Pro Forma Maximum 10.00 20.13 26.36 66.52 66.52 9.42 0.00
Pro Forma Midpoint 10.00 17.50 25.39 62.53 62.53 8.29 0.00
Pro Forma Minimum 10.00 14.88 24.18 57.84 57.84 7.13 0.00
COMPARATIVE GROUP (10)
-----------------------
Averages 16.89 35.52 17.16 82.27 83.28 11.98 1.83
Medians 15.19 32.23 16.58 83.25 84.19 8.54 2.01
ALL SAIF-INSURED THRIFTS (329)
-------------------------------
Averages 17.33 125.39 14.22 108.99 112.11 13.74 1.99
Medians 15.50 37.77 13.33 100.85 103.12 11.85 2.05
COMPARATIVE GROUP
-----------------
AVND AvondaleFinCorp-IL 13.875 50.0 14.92 85.0 85.0 8.43 0.00
CBCI Calumet Bancorp-IL 28.125 68.1 12.02 84.6 84.6 13.61 0.00
DFIN DamenFinCorp-IL 11.500 43.1 22.55 83.0 83.0 19.23 2.09
FMBD FirstMutualBanc-IL 13.250 54.7 20.07 78.7 78.7 18.12 2.11
GFCO GlenwayFinCp-OH 20.250 23.2 15.00 87.6 89.7 8.47 3.20
GTPS GreatAmrcnBncrp-IL 13.500 23.6 NA 75.0 75.0 20.88 2.96
HZFS HorizonFinSvcs-IA 14.125 6.3 16.82 75.4 75.4 8.61 2.27
KNK KankakeeBancorp-IL 20.750 29.8 16.34 83.8 90.2 8.28 1.93
PERM PermanentBancp-IN 16.250 34.7 23.90 86.3 87.5 8.46 1.85
SFSB SuburbFedFinCp-IL 17.250 21.7 12.87 83.3 83.7 5.73 1.86
Ticker Name & State Ttl Assets Eq/Asst TgEq/A EPS(3) ROAA(3) ROAE(3)
------- ------------ ---------- ------- ------ ------ ------- -------
($000) (%) (%) ($) (%) (%)
FAIRFIELD SAVINGS BANK (2)
--------------------------
Before Conversion 194,624 6.98 6.98 N/A 0.12 1.68
Pro Forma SuperMaximum 216,684 15.17 15.17 0.37 0.41 2.62
Pro Forma Maximum 213,714 14.16 14.16 0.38 0.37 2.56
Pro Forma Midpoint 211,131 13.26 13.26 0.39 0.34 2.49
Pro Forma Minimum 208,548 12.33 12.33 0.41 0.31 2.42
COMPARATIVE GROUP (10)
-----------------------
Averages 324,836 14.77 14.67 1.04 0.70 5.01
Medians 330,431 10.68 10.68 0.89 0.59 4.88
ALL SAIF-INSURED THRIFTS (329)
-------------------------------
Averages 1,316,246 13.08 12.75 1.34 0.88 8.03
Medians 317,315 10.33 10.25 1.24 0.89 7.36
COMPARATIVE GROUP
-----------------
AVND AvondaleFinCorp-IL 592,771 9.93 9.93 0.93 0.62 5.82
CBCI Calumet Bancorp-IL 500,814 16.08 16.08 2.34 1.31 7.85
DFIN DamenFinCorp-IL 237,296 23.16 23.16 0.51 0.89 4.28
FMBD FirstMutualBanc-IL 301,690 23.02 23.02 0.66 0.98 3.80
GFCO GlenwayFinCp-OH 273,890 9.67 9.46 1.35 0.56 5.82
GTPS GreatAmrcnBncrp-IL 119,662 27.85 27.85 0.43 0.70 2.44
HZFS HorizonFinSvcs-IA 73,464 11.42 11.42 0.84 0.53 4.38
KNK KankakeeBancorp-IL 359,171 9.88 9.25 1.27 0.56 5.37
PERM PermanentBancp-IN 411,213 9.78 9.67 0.68 0.38 3.47
SFSB SuburbFedFinCp-IL 378,388 6.88 6.85 1.34 0.50 6.91
(1) Closing or Last Trade.
(2) Based on $10.00 per share.
(3) Excludes extraordinary items.
(4) Market average P/E ratios exclude firms with P/E ratios in excess of 30
times earnings.
Sources: Audited and unaudited financial statements for Fairfield Savings Bank
SNL Securities and the publicly traded companies' reported stock
prices.
CAPITAL RESOURCES GROUP, INC.
LIST OF EXHIBITS
FAIRFIELD SAVINGS BANK, F.S.B.
EXHIBIT
NUMBER DESCRIPTION
I-1 Map of Office Locations
I-2 Audited Financial Statements
I-3 Loan Portfolio
I-4 Loan Originations and Sales
I-5 Loan Maturities
I-6 Allowance for Loan Losses
I-7 Mortgage-Backed Securities Portfolio
I-8 Deposit Portfolio
I-9 Borrowings
I-10 Yield-Cost Spreads
I-11 Board of Directors and Management Biographical Information
I-12 Pending and Completed Thrift Acquisitions in Illinois
II-1 Economic and Demographic Data
II-2 Earnings By Industry
II-3 Economic and Demographic Projections
II-4 Deposit Summary
II-5 Construction Authorized By Building Permits
III-1 General Characteristics of Publicly-Traded Thrifts
III-2 Financial Condition
III-3 Income and Expense Trends
III-4 Selected Spreads and Risk Margins
IV-1 Market Value Characteristics of Publicly-Traded Thrifts
IV-2 Pro Forma Effect of Conversion Proceeds - At the Minimum
IV-3 Pro Forma Effect of Conversion Proceeds - At the Midpoint
IV-4 Pro Forma Effect of Conversion Proceeds - At the Maximum
IV-5 Pro Forma Effect of Conversion Proceeds - At the Supermax
IV-6 Pro Forma Analysis Sheet
IV-7 Pro Forma Calculation
V-1 Firm Qualifications Statement
Exhibit I-1
MAP OF OFFICE LOCATIONS
[MAP SHOWING OFFICE LOCATIONS OF
FAIRFIELD SAVINGS BANK, F.S.B. AND COUNTY LINES]
4
Exhibit I-2
Audited Financial Statements
Source: Fairfield's Prospectus
[Letterhead of KPMG Peat Marwick LLP]
Independent Auditors' Report
The Board of Directors
Fairfield Savings Bank, F.S.B.
Long Grove, Illinois:
We have audited the accompanying statements of financial condition of Fairfield
Savings Bank, F.S.B. (Savings Bank) as of July 31, 1996 and 1995, and the
related statements of earnings, retained earnings, and cash flows for each of
the years in the three-year period ended July 31, 1996. These financial
statements are the responsibility of the Savings Bank's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in notes 1 and 8 to the financial statements, the Savings Bank
adopted the provisions of the Financial Accounting Standards Board's Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes," in
1994.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Fairfield Savings Bank, F.S.B.
as of July 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the years in the three-year period ended July 31, 1996, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
August 16, 0000
Xxxxxxx, Xxxxxxxx
F-2
FAIRFIELD SAVINGS BANK, F.S.B
Statement of Financial Condition
July 31, 1996 and 1995
================================================================================
Assets 1996 1995
--------------------------------------------------------------------------------
Cash and due from banks $ 2,568,612 2,088,202
Interest-earning deposits 2,040,308 6,956,242
Mortgage-backed securities held-to-maturity (note 2 44,133,079 111,282,775
Mortgage-backed securities available-for-sale,
at fair value (note 2) 58,277,886 --
Loans receivable, net (note 3) 79,143,572 70,984,459
Accrued interest receivable (note 4) 963,823 943,126
Investment in real estate held for sale and
development 262,259 262,259
Real estate owned -- 167,802
Stock in Federal Home Loan Bank of Chicago, at cost 2,045,000 2,264,300
Office properties and equipment, net (note 5) 4,801,007 4,993,182
Prepaid expenses and other assets 388,891 308,757
--------------------------------------------------------------------------------
Total assets $ 194,624,437 200,251,104
================================================================================
Liabilities and Retained Earnings
--------------------------------------------------------------------------------
Savings deposits (note 6) 137,176,770 148,349,978
Borrowed money (note 7) 39,900,000 32,300,000
Advance payments by borrowers for taxes and
insurance 1,800,216 2,317,015
Accrued interest payable and other liabilities 2,167,964 2,861,318
--------------------------------------------------------------------------------
Total liabilities 181,044,950 185,828,311
Retained earnings - substantially restricted 14,648,789 14,422,793
Unrealized loss on mortgage-backed securities
available-for-sale, net of tax (1,069,302) --
--------------------------------------------------------------------------------
Total retained earnings 13,579,487 14,422,793
--------------------------------------------------------------------------------
Total liabilities and retained earnings $ 194,624,437 200,251,104
================================================================================
See accompanying notes to financial statements.
F-3
FAIRFIELD SAVINGS BANK, F.S.B.
STATEMENTS OF EARNINGS
The following Statements of Earnings of the Bank for each of the years in
the three year period ended July 31, 1996 have been audited by KPMG Peat Marwick
LLP, independent certified public accountants, whose report thereon appears
elsewhere herein. These statements should be read in conjunction with the other
financial statements and notes thereto included elsewhere in this Prospectus.
For the Year Ended July 31,
-------------------------------------------
1996 1995 1994
---- ---- ----
Interest income:
Mortgage-backed securities held-to-maturity ...................... $ 2,755,626 $ 6,493,643 $ 6,020,746
Mortgage-backed securities available-for-sale .................... 4,088,066 -- --
Loans receivable ................................................. 6,026,328 5,663,087 6,086,876
Interest-earning deposits ........................................ 136,222 296,037 332,361
FHLB of Chicago stock ............................................ 147,302 142,609 128,645
Investment securities available-for-sale and repurchase agreements -- 78,691 482,897
------------ ------------ ------------
Total interest income ........................................ 13,153,544 12,674,067 13,051,525
------------ ------------ ------------
Interest expense:
Savings deposits ................................................. 5,924,074 5,063,988 4,493,680
Borrowed money ................................................... 2,525,598 2,268,816 2,429,480
------------ ------------ ------------
Total interest expense ....................................... 8,449,672 7,332,804 6,923,160
------------ ------------ ------------
Net interest income before provision (credit) for loan losses ....... 4,703,872 5,341,263 6,128,365
Provision (credit) for loan losses .................................. 137,558 -- (18,000)
------------ ------------ ------------
Net interest income after provision (credit) for loan losses . 4,566,314 5,341,263 6,146,365
------------ ------------ ------------
Noninterest income:
Gain on sale of investment securities available-for-sale ......... -- -- 615,588
Gain on sale of real estate held for sale and development ........ -- 556,880 574,183
Service fees ..................................................... 212,109 225,733 193,781
Litigation settlements ........................................... 184,415 51,671 --
Other ............................................................ 88,448 11,449 131,526
------------ ------------ ------------
Total noninterest income ..................................... 484,972 845,733 1,515,078
------------ ------------ ------------
Noninterest expense:
Compensation and benefits ........................................ 2,226,288 2,455,579 2,449,494
Office occupancy ................................................. 1,032,676 951,018 922,842
Federal deposit insurance premiums ............................... 337,220 325,463 330,878
Real estate held for development ................................. 139,847 237,148 510,549
Professional services ............................................ 359,217 197,151 229,579
Other ............................................................ 613,042 600,082 653,703
------------ ------------ ------------
Total noninterest expense .................................... 4,708,290 4,766,441 5,097,045
------------ ------------ ------------
Income before income taxes and cumulative effect of change in
accounting principle .............................................. 342,996 1,420,555 2,564,398
Income tax expense .................................................. 117,000 438,400 894,100
------------ ------------ ------------
Income before cumulative effect of change in accounting principle ... 225,996 982,155 1,670,298
Cumulative effect of change in accounting for income taxes .......... -- -- 439,470
------------ ------------ ------------
Net income .................................................. $ 225,996 $ 982,155 $ 2,109,768
============ ============ ============
See accompanying "Notes to Financial Statements" presented elsewhere in this
Prospectus.
37
FAIRFIELD SAVINGS BANK, F.S.B.
Statements of Retained Earnings
Years ended July 31, 1996, 1995, and 1994
===============================================================================================
Unrealized gain (loss)
on securities
Retained available-for-sale,
earnings net of tax Total
-----------------------------------------------------------------------------------------------
Balance at July 31, 1993 $11,330,870 519,957 11,850,827
Net income 2,109,768 -- 2,109,768
Change in unrealized loss on securities
available-for-sale, net of tax of $233,600 -- (519,957) (519,957)
-----------------------------------------------------------------------------------------------
Balance at July 31, 1994 13,440,638 -- 13,440,638
Net income 982,155 -- 982,155
-----------------------------------------------------------------------------------------------
Balance at July 31, 1995 14,422,793 -- 14,422,793
Net income 225,996 -- 225,996
Change in unrealized loss on securities
available-for-sale, net of tax of
$550,819 -- (1,069,302) (1,069,302)
-----------------------------------------------------------------------------------------------
Balance at July 31, 1996 $14,648,789 (1,069,302) 13,579,487
===============================================================================================
See accompanying notes to financial statements.
F-4
FAIRFIELD SAVINGS BANK, F.S.B.
Statements of Cash Flows Years ended July 31, 1996, 1995 and 1994
=======================================================================================================================
1996 1995 1994
-----------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 225,996 982,155 2,109,768
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 404,019 407,599 388,916
(Benefit) provision for deferred income taxes (65,595) 90,263 (126,784)
Gain on sale of real estate held for sale and development -- (556,880) (574,183)
Gain on sale of investment securities available-for-sale -- -- (615,588)
Gain on sale of real estate owned (35,448) -- (8,491)
Net amortization of deferred loan fees (1,705) (116,429) (359,407)
Net amortization of discounts and premiums 228,490 195,038 331,338
Provision (credit) for loan losses 137,558 -- (18,000)
(Increase) decrease in prepaid expenses and other assets (80,134) 411,417 22,746
(Increase) decrease in accrued interest receivable (20,697) 90,339 278,904
Decrease in accrued interest payable and other liabilities (627,759) (595,430) (1,106,838)
-----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 164,725 908,072 322,381
-----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Net (increase) decrease in loans receivable, net (8,296,671) (2,866,170) 12,241,669
Purchases of mortgage-backed securities held-to-maturity -- (10,305,299) (83,244,345)
Purchases of mortgage-backed securities available-for-sale (10,081,249) -- --
Principal repayments on mortgage-backed securities
held-to-maturity 10,482,665 10,817,987 18,827,663
Principal repayments on mortgage-backed securities
available-for-sale 7,174,307 -- --
Proceeds from sales of investment securities available-for-sale -- -- 14,371,004
Proceeds from sale of real estate owned 203,250 -- 151,000
Purchase of stock in Federal Home Loan Bank of Chicago (100,000) (34,300) (300,100)
Proceeds from sale of stock in Federal Home Loan Bank of Chicago 319,300 -- --
Proceeds from sales of investment in real estate held for sale
and development -- 1,213,570 1,254,225
Purchase of office properties and equipment (211,844) (467,537) (344,434)
-----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (510,242) (1,641,749) (37,043,318)
-----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase (decrease) in savings deposits (11,173,208) 6,520,009 10,326,113
Net increase (decrease) in borrowed money 7,600,000 (2,000,000) (2,300,000)
Increase (decrease) in advance payments by borrowers for
taxes and insurance (516,799) 1,752 (412,936)
-----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (4,090,007) 4,521,761 7,613,177
-----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (4,435,524) 3,788,084 (29,107,760)
Cash and cash equivalents at beginning of year 9,044,444 5,256,360 34,364,120
-----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 4,608,920 9,044,444 5,256,360
=======================================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 8,391,152 7,352,599 6,852,178
Income taxes 133,000 485,000 911,877
Noncash investing activities -
Transfer of loans to real estate owned -- 167,802 142,509
Transfer of securities to available-for-sale 56,446,621 -- --
=======================================================================================================================
See accompanying notes to financial statements.
F-5
FAIRFIELD SAVINGS BANK, F.S.B.
Notes to Financial Statements
July 31, 1996, 1995, and 1994
================================================================================
(1) Summary of Significant Accounting Policies
Fairfield Savings Bank, F.S.B. (Savings Bank) prepares its financial
statements on the basis of generally accepted accounting principles. The
following is a description of the more significant of those policies which
the Savings Bank follows in preparing and presenting its financial
statements.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from these estimates.
Dissolution of Subsidiary
Effective July 31, 1996, Fairfield Service Corporation was dissolved and
its operations were transferred to the Savings Bank.
Mortgage-backed Securities
Mortgage-backed securities which the Savings Bank has the positive intent
and ability to hold to maturity are carried at amortized cost. All other
mortgage-backed securities are designated as available-for-sale, and are
carried at fair value. The difference between amortized cost and fair value
is reflected as a separate component of retained earnings, net of related
tax effects. Unearned premiums and discounts are amortized over the
estimated life of the security using the interest method. Gains and losses
on the sale of mortgage-backed securities are determined using the specific
identification method.
Investment Securities Available-for-sale
Investment securities available-for-sale are securities which management
may sell in the future. Investment securities available-for-sale are
recorded at fair value. The difference between amortized cost and fair
value is reflected as a separate component of retained earnings, net of
related tax effects. Gains and losses on the sale of securities
available-for-sale are determined using the specific identification method.
Loans Receivable
Loans receivable are stated at unpaid principal balances less loans in
process, deferred loan fees and allowance for loan losses. The Savings Bank
defers all loan origination fees and certain direct costs associated with
loan originations. Net deferred fees are amortized as yield adjustments
over the contractual life of the related loans using the interest method.
It is the policy of the Savings Bank to provide valuation allowances for
estimated losses on loans when any significant and permanent decline in
value is identified. Periodic reviews are made to identify potential
problems. In addition to specific allowances, the Savings Bank maintains a
general allowance for losses on loans. Additions to the allowance for
losses on loans are charged to
(Continued)
F-6
FAIRFIELD SAVINGS BANK, F.S.B.
Notes to Financial Statements
================================================================================
operations. Also, various regulatory agencies, as an integral part of their
examination process, periodically review the Savings Bank's allowance for
losses on loans. Such agencies may require the Savings Bank to recognize
additions to the allowance based on their judgments using information
available to them at the time of their examination. In the opinion of
management, the allowance, when taken as a whole, is adequate to absorb
foreseeable losses.
The accrual of interest income is suspended and previously accrued interest
income is reversed when a loan is contractually delinquent for 90 days or
more and where collection of interest is doubtful. Accrual is resumed when
the loan becomes less than 90 days contractually delinquent and collection
of interest is probable.
The Savings Bank adopted Statement of Financial Accounting Standards No.
114, "Accounting By Creditors for Impairment of a Loan," (Statement 114)
and No. 118, "Accounting by Creditors for Impairment of a Loan - Income
Recognition Disclosures," (Statement 118), effective August 1, 1995.
Statement 114 requires that impaired loans be measured at the present value
of expected future cash flows discounted at the loan's effective interest
rate, or, as a practical expedient, at the loan's observable market price
or the fair value of the collateral if the loan is collateral dependent.
Statement 118 eliminates the provisions in Statement 114 that describe how
a creditor should report interest income on an impaired loan and allows a
creditor to use existing methods to recognize and measure interest income
on an impaired loan. Homogeneous loans that are collectively evaluated for
impairment, including real estate loans and consumer loans, are excluded
from the provisions of Statement 114.
Depreciation and Amortization
Depreciation of office properties and equipment and amortization of
leasehold improvements are recorded using the straight-line method over the
estimated useful lives of the related assets. Estimated useful lives range
between 3 and 40 years.
Deferred Income Taxes
The Savings Bank adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" (Statement 109), effective August 1,
1993 on a prospective basis. The effect of adopting Statement 109 increased
earnings by $439,470 and is presented as the cumulative effect of change in
accounting for income taxes in the 1994 statement of earnings. The adoption
of Statement 109 required a change from the deferred method under
Accounting Principles Board Opinion 11 (APB 11) to the asset and liability
method of accounting for income taxes. Under the asset and liability method
of Statement 109, deferred income taxes are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under
Statement 109, the effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date.
(Continued)
F-7
FAIRFIELD SAVINGS BANK, F.S.B.
Notes to Financial Statements
================================================================================
Cash and Cash Equivalents
For purposes of reporting cash flows, the Savings Bank considers all highly
liquid debt instruments with an original maturity of three months or less
to be cash equivalents. Cash and cash equivalents also include cash on hand
and due from banks.
(2) Mortgage-backed Securities
The amortized cost and estimated fair value of mortgage-backed securities
held-to-maturity and available-for-sale at July 31 are summarized as
follows:
==============================================================================================
1996
--------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
Description cost gains losses value
----------------------------------------------------------------------------------------------
Held-to-maturity:
Federal National Mortgage Association $39,135,520 -- 1,940,789 37,194,731
Federal Home Loan Mortgage
Corporation 4,997,559 48 37,641 4,959,966
----------------------------------------------------------------------------------------------
Total held-to-maturity $44,133,079 48 1,978,430 42,154,697
==============================================================================================
Available-for-sale:
Federal National Mortgage Association $37,454,501 7,504 865,986 36,596,019
Federal Home Loan Mortgage
Corporation 22,443,506 2,788 764,427 21,681,867
----------------------------------------------------------------------------------------------
Total available-for-sale $59,898,007 10,292 1,630,413 58,277,886
==============================================================================================
1995
--------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
Description cost gains losses value
----------------------------------------------------------------------------------------------
Held-to-maturity:
Federal National Mortgage Association $ 78,831,004 309,275 2,023,108 77,117,171
Federal Home Loan Mortgage
Corporation 32,451,771 39,955 491,959 31,999,767
----------------------------------------------------------------------------------------------
$111,282,775 349,230 2,515,067 109,116,938
==============================================================================================
There were no sales of mortgage-backed securities during 1996, 1995, and
1994.
(Continued)
X-0
XXXXXXXXX SAVINGS BANK, F.S.B.
Notes to Financial Statements
================================================================================
In 1995, the Financial Accounting Standards Board (FASB) issued a special
report allowing the transfer of securities from held-to-maturity to the
available-for-sale classification during the period from November 15, 1995
to December 31, 1995, with no recognition of any related unrealized gain or
loss in current earnings. On December 31, 1995 mortgage-backed securities
held to maturity with an amortized cost of approximately $56,447,000 were
transferred to the available-for-sale classification. The gross unrealized
gain related to the transferred securities was approximately $609,000.
Mortgage-backed securities with an amortized cost of approximately $423,000
and $640,000, have been pledged to secure certain savings deposits of local
municipal agencies as of July 31, 1996 and 1995, respectively.
(3) Loans Receivable
Loans receivable at July 31 are summarized as follows:
================================================================================
1996 1995
--------------------------------------------------------------------------------
Real estate loans:
Mortgage loans:
One to four family residential $ 76,324,314 68,080,553
Multi-family 978,572 1,034,773
Commercial 410,951 440,825
Land, construction, and development loans 403,743 166,000
Home equity 1,271,114 1,560,285
--------------------------------------------------------------------------------
79,388,694 71,282,436
Commercial credit lines 150,356 131,261
Consumer loans 342,563 357,944
--------------------------------------------------------------------------------
Gross loans receivable 79,881,613 71,771,641
Less:
Loans in process -- (110,936)
Deferred loan fees (438,041) (510,246)
Allowance for loan losses (300,000) (166,000)
--------------------------------------------------------------------------------
$ 79,143,572 70,984,459
================================================================================
(Continued)
F-9
FAIRFIELD SAVINGS BANK, F.S.B.
Notes to Financial Statements
================================================================================
Activity in the allowance for loan losses is summarized as follows for the
years ended July 31:
================================================================================
1996 1995 1994
--------------------------------------------------------------------------------
Balance at beginning of year $ 166,000 166,000 184,000
Provision (credit) for loan losses 137,558 - (18,000
Charge-offs (3,588) -- --
--------------------------------------------------------------------------------
Balance at end of year $ 300,000 166,000 166,000
================================================================================
Loans receivable delinquent three months or more at July 31 are as follows:
================================================================================
Number Percentage
of of gross
loans Amount loans receivable
--------------------------------------------------------------------------------
1996 2 $ 118,303 .15%
1995 1 193,209 .27
1994 4 510,872 .74
================================================================================
The Savings Bank discontinues recognizing interest on loans 90 days and
greater delinquent where collection of interest is doubtful. The reduction
in interest income associated with loans 90 days and greater delinquent
where collection of interest is doubtful was approximately $1,000 and
$47,000 for the years ended July 31, 1995 and 1994, respectively. There was
no reduction in interest income associated with loans 90 days and greater
delinquent where collection of interest is doubtful for the year ended July
31, 1996. Both loans 90 days and greater delinquent at July 31, 1996
continue to accrue interest.
The Savings Bank adopted Statement 114 and Statement 118 on August 1, 1995.
These statements establish procedures for determining the appropriate
allowance required for loans deemed impaired. The calculation of allowance
levels is based upon the discounted present value of expected future cash
flows received from the debtor or the fair value of the collateral if the
loan is collateral dependent. No loans were identified as impaired by the
Savings Bank at July 31, 1996. Additionally, no loans were considered
impaired during the year ended July 31, 1996.
The Savings Bank serviced loans for others with principal balances
approximating $2,021,000, $2,556,000, and $3,452,000 at July 31, 1996,
1995, and 1994, respectively. As part of the loan sale agreements to the
Federal National Mortgage Association, the Savings Bank is required to
repurchase loans which become contractually delinquent. The Savings Bank
was not required to repurchase loans during 1996, 1995, and 1994.
Real estate mortgage loans, aggregating approximately $4,538,000,
$6,043,000, and $3,837,000 at July 31, 1996, 1995, and 1994, respectively,
have interest rates which adjust based on the movement of various economic
indices.
(Continued)
F-10
FAIRFIELD SAVINGS BANK, F.S.B.
Notes to Financial Statements
================================================================================
(4) Accrued Interest Receivable
Accrued interest receivable at July 31 is summarized as follows:
================================================================================
1996 1995
--------------------------------------------------------------------------------
Loans receivable $ 555,626 341,612
Mortgage-backed securities 396,569 589,824
Federal Home Loan Bank of Chicago stock 11,628 11,690
--------------------------------------------------------------------------------
$ 963,823 943,126
================================================================================
(5) Office Properties and Equipment
A comparative summary of office properties and equipment at July 31 at
cost, less accumulated depreciation and amortization, is as follows:
================================================================================
1996 1995
--------------------------------------------------------------------------------
Land $ 888,394 810,806
Buildings 5,975,757 5,884,990
Furniture, fixtures, and equipment 4,369,816 4,338,289
--------------------------------------------------------------------------------
11,233,967 11,034,085
Less accumulated depreciation and amortization 6,432,960 6,040,903
--------------------------------------------------------------------------------
$ 4,801,007 4,993,182
================================================================================
Depreciation and amortization expense was $404,019, $407,599, and $388,916
for the years ended July 31, 1996, 1995, and 1994, respectively.
(Continued)
F-11
FAIRFIELD SAVINGS BANK, F.S.B.
Notes to Financial Statements
================================================================================
(6) Savings Deposits
Savings deposits at July 31 are summarized as follows:
==================================================================================================
1996 1995
Stated or weighted ------------------ ------------------
average interest rate Amount Percent Amount Percent
===================================================================================================
1996 1995
---- ----
Noninterest-bearing NOW accounts - % - % $ 4,165,325 3.0% $ 3,799,372 2.6%
NOW accounts 2.02 2.02 7,310,099 5.3 7,294,210 4.9
Money market demand accounts 3.12 3.16 13,034,800 9.5 14,717,201 9.9
Passbook accounts 2.50 2.50 41,323,998 30.2 44,241,199 29.8
65,834,222 48.0 70,051,982 47.2
---------------------------------------------------------------------------------------------------
Certificate accounts 5.48 5.52 71,342,548 52.0 78,297,996 52.8
---------------------------------------------------------------------------------------------------
4.01% 4.07% $137,176,770 100.0% $148,349,978 100.0%
===================================================================================================
1996 1995
------------------ ------------------
Amount Percent Amount Percent
---------------------------------------------------------------------------------------------------
Contractual maturity of certificate
accounts:
Under 12 months $ 53,295,390 74.7% $ 47,545,652 60.7%
12 to 36 months 17,110,166 24.0 28,897,616 36.9
Over 36 months 936,992 1.3 1,854,728 2.4
---------------------------------------------------------------------------------------------------
$ 71,342,548 100.0% $ 78,297,996 100.0%
===================================================================================================
The aggregate amount of certificate accounts with a balance of $100,000 or
greater was approximately $6,143,000 and $6,401,000 at July 31, 1996 and
1995, respectively.
Interest expense on savings deposits is summarized as follows for the years
ended July 31:
===================================================================================================
1996 1995 1994
---------------------------------------------------------------------------------------------------
NOW accounts $ 146,390 155,549 183,614
Money market demand accounts 437,098 467,172 519,951
Passbook accounts 1,054,003 1,129,942 1,279,945
Certificate accounts 4,286,583 3,311,325 2,510,170
---------------------------------------------------------------------------------------------------
$ 5,924,074 5,063,988 4,493,680
===================================================================================================
(Continued)
F-12
FAIRFIELD SAVINGS BANK, F.S.B.
Notes to Financial Statements
================================================================================
(7) Borrowed Money
Borrowed money at July 31 consisted of the following:
============================================================================================
Interest
rate at
Due date July 31 1996 1995
--------------------------------------------------------------------------------------------
Advances from the Federal Home
Loan Bank of Chicago:
- 6.70% $ 12,600,000 --
7/31/96 6.60 -- 3,000,000
1/16/96 6.50 -- 2,000,000
2/20/96 6.85 -- 3,000,000
7/26/96 4.96 -- 1,000,000
8/20/96 7.05 1,300,000 1,300,000
10/25/96 6.79 4,300,000 4,300,000
11/20/96 5.65 4,000,000 --
2/20/97 7.15 7,000,000 7,000,000
7/26/97 5.38 1,000,000 1,000,000
2/20/98 7.30 7,700,000 7,700,000
7/26/98 5.63 1,000,000 1,000,000
7/19/99 6.64 1,000,000 1,000,000
--------------------------------------------------------------------------------------------
$ 39,900,000 32,300,000
============================================================================================
Weighted average interest rate 6.75% 6.83%
============================================================================================
The $12,600,000 represents borrowings on an open line of credit which has a
floating rate of interest, and for which there is no stated due date. The
unused portion on the open line of credit was approximately $6,015,000 at
July 31, 1996.
The Savings Bank has a collateral pledge agreement whereby the Savings Bank
has agreed to keep on hand at all times, free of all other pledges, liens,
and encumbrances, home mortgages with unpaid principal balances aggregating
no less than 167% of the outstanding advances from the Federal Home Loan
Bank of Chicago. At July 31, 1996 and 1995, all stock in the Federal Home
Loan Bank of Chicago was also pledged as collateral for advances from that
bank.
The Savings Bank at times sells securities under agreements to repurchase
which are treated as financings, and the obligation to repurchase
securities sold is reflected as a liability in the statements of financial
condition. The dollar amount of securities underlying the agreements
remains in the asset account and are held in safekeeping. During 1994 there
was an agreement for securities sold under agreements to repurchase in the
amount of approximately $20,600,000 at a rate of 5.50%. There were no
securities sold under agreements to repurchase outstanding at July 31, 1996
and 1995.
(Continued)
F-13
FAIRFIELD SAVINGS BANK, F.S.B.
Notes to Financial Statements
================================================================================
(8) Income Taxes
Income tax expense (benefit) is summarized as follows for the years ended
July 31:
================================================================================
1996 1995 1994
--------------------------------------------------------------------------------
Current:
Federal $ 182,595 393,137 1,020,884
State -- (45,000) --
--------------------------------------------------------------------------------
182,595 348,137 1,020,884
--------------------------------------------------------------------------------
Deferred:
Federal (65,595) 90,263 (126,784)
State -- -- --
--------------------------------------------------------------------------------
(65,595) 90,263 (126,784)
--------------------------------------------------------------------------------
Total income tax expense $ 117,000 438,400 894,100
================================================================================
Income tax expense amounted to $117,000, $438,400 and $894,100 in 1996,
1995, and 1994, an effective tax rate of 34.1%, 30.9%, and 34.9%,
respectively. The reasons for the difference between the effective income
tax rate and the corporate Federal income tax rate of 34% are as follows:
================================================================================
1996 1995 1994
--------------------------------------------------------------------------------
Federal income tax rate of 34% 34.0% 34.0 34.0
Other .1 (3.1) .9
Effective income tax rate 34.1% 30.9 34.9
================================================================================
Effective August 1, 1993 the Savings Bank adopted the provisions of
Statement 109 prospectively. The cumulative effect of the change in method
of accounting for income taxes increased earnings by $439,470 for the year
ended July 31, 1994, and is reported separately in the 1994 statement of
earnings.
(Continued)
F-14
FAIRFIELD SAVINGS BANK, F.S.B.
Notes to Financial Statements
================================================================================
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at July
31, 1996 and 1995 are presented below:
================================================================================
1996 1995
--------------------------------------------------------------------------------
Deferred tax assets:
Depreciation $ 20,172 45,888
General loan loss allowance 138,159 68,359
Accrued bonus -- 15,662
Deferred loss on intercompany sales of real estate 143,822 153,151
Capitalized interest 19,174 19,174
Illinois net operating loss carryforwards 810,960 888,313
Unrealized loss on securities available-for-sale 550,819 --
Other -- 4,991
--------------------------------------------------------------------------------
1,683,106 1,195,538
Less valuation allowance 747,228 810,757
--------------------------------------------------------------------------------
Total deferred tax assets, net of valuation allowance 935,878 384,781
--------------------------------------------------------------------------------
Deferred tax liabilities:
Excess of tax bad debt reserve over base year amount 236,361 189,578
Federal Home Loan Bank stock dividends not currently
taxable 115,227 134,143
Deferred loan fees 329,102 422,020
Other 6,035 6,301
--------------------------------------------------------------------------------
Total gross deferred tax liabilities 686,725 752,042
--------------------------------------------------------------------------------
Net deferred tax asset (liability) $ 249,153 (367,261)
================================================================================
The Savings Bank has Illinois net operating loss carryforwards in the
amount of $11,295,000, which will expire in varying amounts beginning July
31, 1997 through July 31, 2011.
The valuation allowance for deferred tax assets was $747,228 and $810,757
as of July 31, 1996 and 1995, respectively, resulting in a decrease of
$63,529 for the year ended July 31, 1996. The valuation allowance relates
to state net operating loss carryforwards and certain deductible temporary
differences which may not generate future state tax benefits.
Retained earnings at July 31, 1996 and 1995 include $6,149,000 for which no
provision for Federal income tax has been made. These amounts represent
allocations of income to bad debt deductions for tax purposes only.
Reduction of amounts so allocated for purposes other than tax bad debt
losses will create income for tax purposes only, which will be subject to
the then-current federal and state corporate income tax rates.
(Continued)
F-15
FAIRFIELD SAVINGS BANK, F.S.B.
Notes to Financial Statements
================================================================================
(9) Employee Benefit Plans
The Savings Bank has a qualified noncontributory pension plan covering
substantially all of its full-time employees over 21 years of age,
including part-time employees working over 1,000 hours per year. The
Savings Bank's policy is to fund pension costs accrued.
The following table sets forth the plan's funded status at July 31, 1996
and 1995:
================================================================================
1996 1995
--------------------------------------------------------------------------------
Actuarial present value of accumulated benefit
obligations, including vested benefits of $482,990
in 1996 and $391,206 in 1995 $ 533,599 432,893
================================================================================
Plan assets at fair value (consisting primarily of
common stock) 611,916 478,061
Less projected benefit obligation for services
rendered to date 644,879 530,610
--------------------------------------------------------------------------------
Projected benefit obligation in excess of plan assets (32,963) (52,549)
Unrecognized net transition asset at August 1, 1991
being recognized over 11.65 years (109,340) (126,425)
Unrecognized net loss 80,972 70,750
--------------------------------------------------------------------------------
Accrued pension cost $ (61,331) (108,224)
================================================================================
Net pension expense for the year ended July 31, 1996, 1995, and 1994
includes the following:
================================================================================
1996 1995 1994
--------------------------------------------------------------------------------
Service cost-benefits earned during the period $ 48,802 43,201 38,289
Interest cost on projected benefit obligation 41,757 34,046 27,576
Actuarial return on plan assets (54,552) (67,827) (10,100)
Net amortization and deferral 1,294 29,759 (25,248)
--------------------------------------------------------------------------------
Net periodic pension expense $ 37,301 39,179 30,517
================================================================================
The rate of increase in future compensation levels used is determined by
the age of the participants. The discount rate used in determining the
actuarial present value of the projected benefit obligation was 7.50% at
July 31, 1996, 1995, and 1994. The expected long-term rate of return was
8.00% at July 31, 1996, 1995, and 1994.
(Continued)
F-16
FAIRFIELD SAVINGS BANK, F.S.B.
Notes to Financial Statements
================================================================================
The Savings Bank also has a contributory profit-sharing plan covering
substantially all full-time employees. The Savings Bank makes annual
contributions to the plan equal to a percentage of each participant's
compensation for the plan year. The contribution was 15% in 1996, 1995, and
1994. Profit-sharing expense was approximately $110,000, $114,000 and
$124,000 for the years ended July 31, 1996, 1995, and 1994, respectively.
(10) Management Bonus Program
The Board of Directors of the Savings Bank adopted an annual and a
long-term management bonus program for Senior Management Officers (SMO)
during 1995 on a retrospective basis. The individual amounts to be awarded
under both the annual and long-term bonus programs were based on the
Savings Bank's return on average assets for that year. The retrospective
award of approximately $253,000 was accrued for at July 31, 1994 and was
distributed during 1995. The accrual for the annual and long-term bonus as
of July 31, 1995 was approximately $106,000. During 1996, the long-term SMO
was terminated. No accrual was made for the annual bonus at July 31, 1996
as the minimum benchmarks established were not achieved.
(11) Regulatory Capital Compliance
The Savings Bank is subject to regulatory capital requirements administered
by Federal regulatory agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Savings Bank's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Savings Bank must meet specific capital guidelines
that involve quantitative measures of the Savings Bank's assets,
liabilities and certain off-balance sheet items as calculated under
regulatory accounting practices. The Savings Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure adequacy require
the Savings Bank to maintain minimum amounts and ratios as set forth below.
Management believes, as of July 31, 1996, that the Savings Bank meets all
capital adequacy requirements to which it is subject.
As of July 31, 1996, the most recent notification from the Office of Thrift
Supervision categorized the Savings Bank as well capitalized under the
regulatory framework for prompt corrective action. There are no conditions
or events since that notification that management believes have changed the
institution's category.
(Continued)
F-17
FAIRFIELD SAVINGS BANK, F.S.B.
Notes to Financial Statements
================================================================================
The Savings Bank's actual capital amounts and ratios are as follows as of
July 31, 1996:
================================================================================
Actual For Capital Adequacy
------------------ --------------------
Amount Ratio Amount Ratio
--------------------------------------------------------------------------------
Tangible capital $ 14,386,000 7.35% $ 2,936,000 1.50%
Core capital 14,386,000 7.35 5,872,000 3.00
Risk-based capital 14,686,000 21.59 5,441,000 8.00
================================================================================
(12) Credit Concentration and Financial Instruments with Off-Balance Sheet Risk
The Savings Bank is a party to financial instruments with off-balance sheet
risk in the normal course of its business. These instruments are
commitments to originate loans and involve credit and interest rate risk in
excess of the amount recognized in the statements of financial condition.
The majority of the Savings Bank's loans are secured by residential real
estate in the Chicago metropolitan area. Management believes the Savings
Bank has a diversified loan portfolio and the concentration of lending
activities in these local communities does not result in an acute
dependency upon economic conditions of the lending region.
Commitments to originate mortgage loans of approximately $851,000 at July
31, 1996 represent amounts which the Savings Bank plans to fund within the
normal commitment period. Commitments to fund available home equity lines
of credit of approximately $614,000 at July 31, 1996 represent amounts
which the Savings Bank has committed to fund if requested by the borrower
within the normal commitment period. Because the creditworthiness of each
customer is reviewed prior to extension of credit, the Savings Bank
adequately controls its credit risk on these commitments as it does for
loans recorded on the statements of financial condition.
(13) Commitments and Contingencies
The Savings Bank is involved in various legal proceedings incidental to the
normal course of business. Although the outcome of such litigation cannot
be predicted with any certainty, management is of the opinion, based on the
advice of legal counsel, that final disposition of any litigation should
not have a material effect on the financial statements of the Savings Bank.
In connection with the development of the Trails of Olympia Fields (a
planned unit development of homesites and commercial land developed by
Fairfield and its subsidiary in prior years), the Bank initiated action
against a municipality and certain parties involved in the development and
for the years ended July 31, 1996 and 1995, the Bank settled two of these
claims and received $184,415 and $51,671, respectively.
(Continued)
F-18
FAIRFIELD SAVINGS BANK, F.S.B.
Notes to Financial Statements
================================================================================
(14) Fair Values of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosure about Fair
Value of Financial Instruments" (Statement 107), requires the disclosure of
estimated fair values of all asset, liability, and off-balance sheet
financial instruments. Statement 107 defines fair value as the amount at
which the instrument could be exchanged in a current transaction between
willing parties. Fair value estimates, methods, and assumptions are set
forth below for the Savings Bank's financial instruments at July 31.
==========================================================================================
1996 1995
----------------------- -----------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
------------------------------------------------------------------------------------------
Financial assets:
Cash and due from banks $ 2,568,612 2,568,612 2,088,202 2,088,202
Interest-earning deposits 2,040,308 2,040,308 6,956,242 6,956,242
Mortgage-backed securities 102,410,965 100,432,583 111,872,599 109,706,762
Loans receivable, net 79,143,572 78,182,029 70,984,459 71,499,742
Accrued interest receivable 963,823 963,823 943,126 943,126
Federal Home Loan Bank
of Chicago stock 2,045,000 2,045,000 2,264,300 2,264,300
------------------------------------------------------------------------------------------
Total financial assets $189,172,280 186,232,355 195,450,540 193,458,374
==========================================================================================
1996 1995
----------------------- -----------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
------------------------------------------------------------------------------------------
Financial liabilities:
Nonmaturing savings deposits $ 65,834,222 65,834,222 70,051,982 70,051,982
Savings deposits with
stated maturities 71,342,548 71,306,373 78,297,996 78,409,575
Borrowed money 39,900,000 40,065,320 32,300,000 32,300,000
Accrued interest payable 351,693 351,693 193,161 193,161
------------------------------------------------------------------------------------------
Total financial liabilities $177,428,463 177,557,608 180,843,139 180,954,718
==========================================================================================
Cash and Due from Banks and Interest-Earning Deposits
The carrying value of cash and due from banks and interest-earning deposits
approximates fair value due to the short period of time between origination
of the instruments and their expected realization.
Mortgage-Backed Securities
The fair value of mortgage-backed securities is estimated based on quoted
market prices.
(Continued)
F-19
FAIRFIELD SAVINGS BANK, F.S.B.
Notes to Financial Statements
================================================================================
Loans Receivable
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type and then further segmented
into fixed and variable rate interest terms and by performing and
nonperforming categories. The fair value of performing fixed rate loans is
calculated by discounting contractual cash flows adjusted for prepayment
estimates using discount rates based on new loan rates adjusted to reflect
differences in servicing and credit costs. For variable rate loans, fair
value is estimated to be book value as these loans reprice frequently or
have a relatively short term to maturity and there has been little or no
change in credit quality since origination. Fair value for nonperforming
loans is calculated by discounting estimated future cash flows using a
C-rated bond yield with principal and interest assumed paid in 18 months.
Accrued Interest Receivable
The carrying amount of accrued interest receivable approximates its fair
value due to the relatively short period of time between accrual and
expected realization.
Federal Home Loan Bank of Chicago Stock
The fair value of this stock is based on its redemption value.
Savings Deposits
Under Statement 107, the fair value of savings deposits with no stated
maturity, such as noninterest-bearing demand deposits, NOW accounts, money
market accounts, and passbook accounts, is equal to the amount payable on
demand as of July 31, 1996 and 1995. The fair value of certificates of
deposit is based on the discounted value of contractual cash flows. The
fair value estimates do not include the benefit that results from the
low-cost funding provided by the deposit liabilities compared to the cost
of borrowing funds in the market.
Borrowed Money
The fair value of advances from the Federal Home Loan Bank of Chicago is
equal to the amount payable on demand as of July 31, 1996 and 1995, due to
the variable interest rate on the debt.
Accrued Interest Payable
The carrying amount of accrued interest payable approximates its fair value
due to the relatively short period of time between accrual and expected
realization.
Limitations
The fair value estimates are made at a specific point in time based on
relevant market information and information about the financial instrument.
Because no market exists for a significant portion of the Savings Bank's
financial instruments, fair value estimates are subjective in nature and
involve uncertainties and matters of significant judgment and therefore
cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
(Continued)
F-20
FAIRFIELD SAVINGS BANK, F.S.B.
Notes to Financial Statements
================================================================================
In addition, the fair value estimates are based on existing on- and
off-balance sheet financial instruments without attempting to estimate the
value of anticipated future business and the value of assets and
liabilities that are not considered financial instruments. Significant
assets and liabilities that are not considered financial assets or
liabilities include the mortgage origination operation, deferred taxes, and
property, plant, and equipment. In addition, the tax ramifications related
to the realization of unrealized gains and losses can have a significant
effect on fair value estimates and have not been considered in any of the
estimates.
(15) Conversion to Stock Form of Ownership
On May 21, 1996, the Board of Directors adopted a Plan of Conversion (Plan)
whereby the Savings Bank will convert from a federally chartered mutual
savings bank to a federally chartered stock savings bank. The Plan is
subject to approval of regulatory authorities and members at a special
meeting. The stock of the Savings Bank will be issued to a holding company
formed in connection with the conversion. Pursuant to the Plan, shares of
capital stock of the holding company are expected to be offered initially
for subscription by eligible members of the Savings Bank and certain other
persons as of specified dates subject to various subscription priorities as
provided in the Plan. The capital stock will be offered at a price to be
determined by the Board of Directors based upon an appraisal to be made by
an independent appraisal firm. The exact number of shares to be offered
will be determined by the Board of Directors in conjunction with the
determination of the price at which the shares will be sold. At least the
minimum number of shares offered in the conversion must be sold. Any stock
not purchased in the subscription offering will be sold in a community
offering.
The Plan provides that when the conversion is completed, a "Liquidation
Account" will be established in an amount equal to the retained earnings of
the Savings Bank as of the date of the most recent financial statements
contained in the final conversion prospectus. The Liquidation Account is
established to provide a limited priority claim on the assets of the
Savings Bank to qualifying depositors (Eligible Account Holders) who
continue to maintain deposits in the Savings Bank after conversion. In the
unlikely event of a complete liquidation of the Savings Bank, and only in
such an event, each Eligible Account Holder would receive from the
Liquidation Account a liquidation distribution based on his proportionate
share of the then total remaining qualifying deposits.
Current regulations allow the Savings Bank to pay dividends on its stock
after the conversion if its regulatory capital would not thereby be reduced
below the amount then required for the aforementioned Liquidation Account.
Also, capital distribution regulations limit the Savings Bank's ability to
make capital distributions which include dividends, stock redemptions or
repurchases, cash-out mergers, interest payments on certain convertible
debt and other transactions charged to the capital account based on their
capital level and supervisory condition. Federal regulations also preclude
any repurchase of the stock of the Savings Bank or its holding company for
three years after conversion except for repurchases of qualifying shares of
a director and repurchases pursuant to an offer made on a pro rata basis to
all stockholders and with prior approval of the Office of
(Continued)
F-21
FAIRFIELD SAVINGS BANK, F.S.B.
Notes to Financial Statements
================================================================================
Thrift Supervision; or pursuant to an open-market stock repurchase program
that complies with certain regulatory criteria. The Savings Bank has
retained the services of both an underwriting firm and legal counsel for
the specific purpose of implementing the Savings Bank's plan of conversion.
At July 31, 1996, the Savings Bank had incurred approximately $113,000 in
costs relating to these services. These costs have been deferred and, upon
conversion, such costs and any additional costs will be charged against the
proceeds from the sale of stock. If the conversion is not completed, these
deferred costs will be charged to operations.
F-22
Exhibits I-3 through I-10
and Exhibit I-12
Filed in paper format under cover of Form SE pursuant to SEC exemption
dated October 15, 1996.
Exhibit I-11
Board of Directors and
Management Biographical
Information
The following table sets forth certain information regarding the Board of
Directors of the Bank.
Positions Held With Director Term
Name Age(1) the Bank Since Expires
---- ------ ---------------------- -------- -------
Xxxxxx X. Xxxxxx....... 69 President, Director 1951 1997
F. Xxxxxxx Xxxxxx...... 68 Executive Vice 1972 1997
President, Director
Xxxxxxx X. Xxxxx....... 66 Director 1978 1999
Xxxxxx X. Xxxxxxxx..... 73 Director 1990 1998
Xxxxxx X. Xxxxxx....... 67 Director 1978 1997
Xxxxxx X. Xxxxxx, M.D.. 68 Director 1977 1998
Xxxxxxx X. X'Xxxxxxx... 73 Director 1989 1999
----------
(1) At July 31, 1996.
Biographical Information
Positions held by a director or executive officers have been held for at
least the past five years unless stated otherwise.
Directors
Xxxxxx X. Xxxxxx serves as the President and a director of the Bank. Xx.
Xxxxxx has been involved in the financial institutions industry for more than 40
years and has served as President of the Bank since 1966 and as a director since
1951. He also has served as a director of the Chicago Area Council, the Illinois
Savings and Loan League, the FHLB of Chicago, the U.S. League of Savings
Institutions, Inc. and Electronic Funds Transfer Corporations I and II. Xx.
Xxxxxx is currently a member of the Central Savings and Loan Group. He is also a
member of the Illinois and Chicago Bar Associations. He is a past president of
the Central Savings and Loan Group and the Illinois Savings and Loan League. Xx.
Xxxxxx and Xx. Xxxxxx are brothers-in-law.
F. Xxxxxxx Xxxxxx serves as the Executive Vice President and a director of
the Bank. Xx. Xxxxxx joined the Bank in 1954 and has served as a director since
1972. He is a member of the Appraisal Institute and holds Member, Senior Real
Estate Analyst, and Senior Residential Appraiser designations. He is currently a
director of the Market Data Center and an appraisal consultant authoring
"Appraisal Report," a quarterly article for the America's Community Banker's
member magazine. Xx. Xxxxxx and Xx. Xxxxxx are brothers-in-law.
Exhibit I-11
Board of Directors and
Management Biographical
Information - continued
Xxxxxxx X. Xxxxx has been a director of the Bank since 1978. Now retired,
he was an account executive for P.M.P. Sales, Inc., a meat and poultry broker.
Previously he owned and operated a meat and poultry retail business for more
than 25 years.
Xxxxxx X. Xxxxxxxx joined the Bank in 1949. Now retired, he had served as
Senior Vice President of the Bank from 1987 to 1992. Prior to this promotion, he
served as Vice President and Senior Loan Officer. He was elected to the Board of
Directors in September, 1990. Xx. Xxxxxxxx is a member of the Chicago Bar
Association. Xx. Xxxxxxxx and Xx. Xxxxxx are brothers.
Xxxxxx X. Xxxxxx has been a director of the Bank since 1978. Mr. Nimrod is
the owner of Xxxxxx Xxxxxx Decorating Inc., a painting and paperhanging
business. He also serves as an officer and a director of the Painters and
Decorators Contractors Association and is Chairman of the Xxxxxxxx Apprentice
School of Painting.
Xxxxxx X. Xxxxxx, M.D. has served as a director of the Bank since 1977. Xx.
Xxxxxx, now retired, was a radiologist-flight surgeon for United Airlines, Inc.
from 1973 to 1985. He is a member of the American Medical Association, Illinois
State Medical Society, Chicago Medical Society, American College of Radiology,
Radiology Society of North America and Illinois Radiology Society. Xx. Xxxxxx
and Xx. Xxxxxxxx are brothers.
Xxxxxxx X. X'Xxxxxxx has served as a director of the Bank since November,
1989. Immediately prior thereto, Xx. X'Xxxxxxx served as a Chairman of U.S.
League Management Services, Inc. (the "League"), a coordinating organization for
the special service projects of the U.S. League of Savings Institutions, Inc. He
served as President of the League from 1980 to 1988.
Executive Officers who are not Directors
Xxxxxxx X. XxXxx, age 51, has served as the Bank's Vice President, Chief
Financial Officer since December 1984. He is a member of the American Institute
of Certified Public Accountants and the Illinois CPA Society. Xx. XxXxx is the
Regional District Director for Financial Managers Society.
Xxxxxx Xxxxx, age 53, has served as the Bank's Vice President, Chief
Savings Officer since April 1987.
Xxxxxxx Xxxxxx, age 42, has served as Vice President, Controller of the
Bank since 1986.
Xxxxxx X. Xxxxx, age 61, became the Bank's Vice President and Chief Lending
Officer in September 1996. He served as a Vice President and director of
Covenant Mortgage Corporation from March 1994 to September 1996 and as Senior
Vice President of Hanover Capital Mortgage Corporation from July 1993 to
February 1994. Prior to that, Xx. Xxxxx was an Executive Vice President and
director of Labe Federal Savings and Loan Association.
Exhibits II-1 through II-5
Filed in paper format under cover of Form SE pursuant to SEC exemption
dated October 15, 1996.
Exhibits III-1 through III-4
Filed in paper format under cover of Form SE pursuant to SEC exemption
dated October 15, 1996.
Exhibits IV-1 through IV-7
Filed in paper format under cover of Form SE pursuant to SEC exemption
dated October 15, 1996.
Exhibit V-1
Firm Qualifications Statement
[LETTERHEAD OF CAPITAL RESOURCES GROUP, INC.]
FIRM QUALIFICATIONS STATEMENT
[caad 214]
THE CAPITAL RESOURCES COMPANIES combine investment banking and diversified
financial and management consulting with securities trading and brokerage.
CAPITAL RESOURCES GROUP provides a wide variety of consulting and investment
banking services to clients throughout the U.S., designed to raise capital and
enhance profitability in a highly-competitive, deregulated financial and
economic environment. CAPITAL RESOURCES INC. is an NASD member broker-dealer
that specializes in initial public offerings through sales of stock to members
of organization and others in the community. Capital Resources International
focuses on investments in emerging markets. The firm is headquartered in
Washington, D.C. with an office in New York City.
SECURITIES ACTIVITIES:
CAPITAL RESOURCES, INC. serves firms, primarily financial institutions,
nationally in raising capital in initial public offerings and secondary
offerings. The primary areas in which services are provided are as follows:
SUBSCRIPTION AND COMMUNITY STOCK OFFERINGS
CAPITAL RESOURCES' expertise in subscription and community offerings of
securities provide a cost effective way for companies to raise capital while
promoting future business and cementing customer loyalties. Each offering is
specially designed to spark community interest. All sales efforts are managed
on-site by Capital Resources' registered principals and representatives.
Offerings may include local and regional brokerage firms in a syndicate as well.
STOCK CENTER MANAGEMENT AND STAFF TRAINING
CAPITAL RESOURCES trains your staff and manages all detailed and technical back
office operations required for a stock offering. The latest technology is
incorporated into our proprietary data processing applications to provide you
complete control and information on the offering. Coupled with our
comprehensive, personalized training techniques with notebooks and visual
presentations, your board of directors, management and employees are fully
prepared to deal with the company's customers and their questions during the
offering.
MARKET-MAKING
CAPITAL RESOURCES also has an active trading desk that makes markets in NASDAQ
stocks, primarily financial institutions. Capital Resources acts as principal
in trading activities, and clears transactions through National Financial
Services Corporation.
INVESTMENTS
CAPR INVESTMENTS, INC. is a general partner in a variety of limited partnerships
designed to invest in financial institutions with high growth and earnings
potential.
CORPORATE FINANCE SERVICES:
CAPITAL RESOURCES GROUP, INC. provides services in a number of major areas
involving financial strategy and evaluation, including:
STRATEGIC AND FINANCIAL PLANNING
Our consultants work with your management team to develop, evaluate and assist
in the implementation of strategic plans; analyze new business lines; perform
profitability analysis; prepare financial forecasts for quantitative analysis of
business plans; provide computer analysis of operating strategies with different
economic scenarios; perform "what if" scenarios; provide pre-offering and
post-offering planning assistance.
VALUATION APPRAISALS
Serve as qualified appraisers for mutual institutions converting to stock form
of organization; experienced in public underwritings, community offerings and
private placements. Serve as qualified appraisers for financial service
companies, including mortgage banking companies, insurance agencies, title
agencies, real estate brokerage firms, investment advisory firms, commercial
banks, and other business enterprises. Perform core deposit valuations and
servicing rights appraisals for purchased loan servicing. Capital Resources has
performed over 150 appraisals of successful stock conversions.
MERGERS AND ACQUISITIONS
Provide comprehensive merger and acquisition assistance for voluntary mergers,
merger-conversions, voluntary supervisory conversions and RTC-assisted
mergers/acquisitions; identify and evaluate potential merger/acquisition
candidates; perform computerized financial analysis and make appropriate
strategic recommendations; prepare regulatory applications and business plans;
structure and negotiate bids for financially assisted cases and provide fairness
opinions for stock companies. We have been involved in over 200 merger and
acquisition cases.
EQUITY RESEARCH
Perform equity research on publicly-traded thrifts and thrift holding
companies. Provide analysis of potential company operating performance and
project likely stock price trend. Identify under- and/or over-valued
situations. Research reports provided to clients on regular basis.
LITIGATION AND SPECIAL STUDIES
Capital Resources' expertise in the field of financial services provides an
experienced resource for developing testimony and serving as expert witness.
Also, Capital Resources' staff is able to draw upon its unique blend of talents
to address broad or narrow issues in the financial services industry in
preparing special studies.
ASSET/LIABILITY MANAGEMENT
Perform analysis on market value of portfolio equity and design strategies to
improve interest rate risk posture associated with earning assets and costing
liabilities; develop and implement plans to restructure loan portfolio.
BRANCH SALE/PURCHASE TRANSACTIONS
Perform analysis for financial institutions to identify offices for
sale/purchase; structure financial terms of transaction and perform analysis on
impact of sale on both seller and buyer as required by regulators; prepare
materials for regulatory application and core deposit valuation.
SENIOR PERSONNEL: CORPORATE FINANCE
XXXXX X. ROCHESTER is co-founder, Chairman and Managing Director of the Capital
Resources Companies. He leads Capital Resources' strategic planning and
corporate finance activities and is a frequent speaker on industry programs in
these areas. He has been actively involved in several hundred merger and
acquisition situations and initial public offerings. He serves as advisor to
boards of directors and senior management. Prior experience includes private
consulting with financial institutions and other companies, serving as Visiting
Scholar at the Federal Home Loan Bank Board, Senior Economist at the Federal
Savings and Loan Insurance Corporation and serving on the faculties of banking
and finance graduate programs at several major universities. Dr. Rochester
holds a Ph.D. in Banking and Finance from the University of Georgia.
XXXXXXXXX X. ROCHESTER is co-founder and President of the Capital Resources
Companies. She oversees the securities trading and marketing activities of
Capital Resources, Inc. and holds a principal's designation securities license.
Mrs. Rochester has been actively involved in raising capital for the financial
institutions industry for the past ten years. Prior to founding Capital
Resources, she was Senior Vice President and Chief Financial Officer for a
billion dollar plus interstate institution in New York. Her previous experience
includes serving as a consultant to the thrift industry. She holds a M.S. in
Finance from American University in Washington, D.C.
XXXXXX X. XXXX is Managing Director and heads the firm's activities in the
Northeast in our New York City office. His vast experience includes serving as
financial and regulatory advisor to financial institutions, boards of directors
and senior management in strategic planning, mergers and acquisitions and
capital raising activities, including stock conversions. He was formerly New
York Regional Director of Supervision of the FDIC. Xx. Xxxx holds an M.B.A in
Finance from American University in Washington, D.C.
XXXXXX X. XXXXXXXXX is Managing Director and leads the firm's activities in the
Midwest from Chicago. He is also owner of Parliment Consulting, which
specializes in asset/liability management consulting for thrift institutions.
Xx. Xxxxxxxxx is noted throughout the industry for his speeches and articles
concerning a wide range of financial and economic issues. He currently serves
the faculties of various national and state banking schools. He earned his Ph.D.
in Economics at the State University of New York.
XXXXXXX X. XXXXXX is Senior Vice President and heads the firm's appraisal and
business planning activities. He was formerly employed with Equitable Bank in
Baltimore, Maryland, in the areas of financial planning and analysis. Prior
experience also includes service with the Securities and Exchange Commission
where Xx. Xxxxxx specialized in the areas of thrift and commercial banking. At
the SEC, he had responsibilities for public offering prospectuses and Form 10-K
Reports as well as other periodic reports. Xx. Xxxxxx is a Certified Public
Accountant and holds an M.B.A. in Finance from the State University of New York
at Albany.
XXXXXXX X. XXXXXXX, Senior Vice President, is responsible for new business
development in the financial institutions sector, primarily thrift
mutual-to-stock conversions, mergers and acquisitions, public offerings and
private placements. Prior to Capital Resources, Xx. Xxxxxxx held executive
marketing positions in the financial industry with Everen Securities and GEAC
for over ten years, with a focus on savings institutions. Xx. Xxxxxxx holds a
B.A. in Business Economics from the University of California.
XXXXX X. XXXX is Vice President and has a broad background with more than 20
years of thrift industry experience including thrift and mortgage banking
operations. He was formerly a senior officer of a large mortgage banking
company, where he oversaw all areas of the company's operations with special
emphasis on finance and loan administration. He also has held senior management
positions at a large savings institution. Xx. Xxxx holds a B.S. in Mathematics
from Michigan State University.
XXXXXXX X. XXXXXXXXX, XX. is a Consultant with Capital Resources and has a broad
background of experience with financial institutions serving in senior
management positions and as a consultant to the industry. He is also President
of Bedford Consulting in New York which specializes in real estate and loan
consulting services. He holds a B.S. in Business Management from St. John's
University.
J. XXXXX XXXXXXXXX is Vice President, involved in underwritings, heads
institutional brokerage and equity research. Prior experience includes mergers
and acquisitions, appraisals, and business plans for thrifts, and employment by
a Fortune 500 company as cost analyst for feasibility studies. Xx. XxXxxxxxx
holds a B.B.A. in Finance from the University of Kentucky and is a registered
general securities principal.
XXXXXXXX X. XXXXXX is a Securities Analyst, primarily involved with equity
research for the financial institutions industry. Previous experience includes
research for the financial institutions division of a prominent Washington, D.C.
law firm. She worked at the IFC/World Bank prior to attending Columbia Business
School where she earned an M.B.A. in Finance. She received a B.S. in Finance
from the University of Delaware.
XXXX X. XXXXXXX is Senior Associate responsible for corporate marketing,
securities compliance and thrift conversion administration. She has over 14
years experience in the financial industry during which time she served as a
financial consultant for Xxxxxxx Xxxxx, Shearson Xxxxxx Brother's and Xxxx
Xxxxxx Xxxxxxxx. Additionally, she has served as the Regional Marketing Manager
for a major California banking institution.
XXXXXXXX X. XXXXXXX is Senior Financial Analyst involved in underwritings and
securities research. Prior experience includes work as financial consultant,
international trade consultant and stockbroker. Xxxxx holds an M.B.A. in
Finance from The Xxxxxx Xxxxxxxxxx University.
XXXXXX X. XXXXXXX is Senior Financial Analyst involved in developing business
plans and valuation appraisals and providing financial analysis with the support
of financial projection models. He graduated from Xxxxx Xxxxxxx University with
a B.B.A. degree in Finance and Economics.
SECURITIES DIVISION
J. Xxxxx XxXxxxxxx Xxxxxx X. Xxxxxx Xxxxxxx Xxxxx
Vice President Senior NASDAQ Trader Senior Associate
Xxxxxxxx X. Xxxxxx Xxxx X. Xxx Xxxxxxxxxx X. Xxxxxxx
Securities Analyst NASDAQ Trader Assistant to Traders
ASSOCIATES
Xxxx X. Xxxxxxxx Xxxxxxx X. Xxxxxx
Xxxxxxxxx X. Xxxxxxx Xxxxx X. Xxxxxxx
Xxxxxxxxxx X. Xxxxxx
