-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IaInI/skaLs/3ZOFiuAqSj9jmjshNcuPGuCiiUdZ3dBhagdu9G3/mp4VCdNtv+du 5ipFsFzSGrLnH2JaegVyIw== 0000950109-97-005533.txt : 19970825 0000950109-97-005533.hdr.sgml : 19970825 ACCESSION NUMBER: 0000950109-97-005533 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 24 FILED AS OF DATE: 19970822 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HIGH COUNTRY BANCORP INC CENTRAL INDEX KEY: 0001044676 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: CO FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: SB-2 SEC ACT: 1933 Act SEC FILE NUMBER: 333-34153 FILM NUMBER: 97668239 BUSINESS ADDRESS: STREET 1: 130 WEST 2ND STREET CITY: SALIDA STATE: CO ZIP: 81201 BUSINESS PHONE: 7195392516 MAIL ADDRESS: STREET 1: 130 WEST 2ND STREET CITY: SALIDA STATE: CO ZIP: 81201 SB-2 1 FORM SB-2 As filed with the Securities and Exchange Commission on August 22, 1997 Registration No. 333-_____ ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ HIGH COUNTRY BANCORP, INC. ---------------------------------------------- (Name of Small Business Issuer in Its Charter) Colorado 6035 Requested --------------- ---------------------------- ---------------------- (State or other (Primary standard industrial (I.R.S. employer jurisdiction of classification code number) identification number) incorporation or organization) 130 West 2nd Street, Salida, Colorado 81201 (719) 539-2516 - -------------------------------------------------------------------------------- (Address and telephone number of principal executive offices and principal place of business) Mr. Larry D. Smith, President High Country Bancorp, Inc. 130 West 2nd Street Salida, Colorado 81201 (719) 539-2516 - -------------------------------------------------------------------------------- (Name, address, and telephone number of agent for service) Please send copies of all communications to: Allan D. Housley, Esquire Howard S. Parris, Esquire Peter R. Lee, Esquire Housley Kantarian & Bronstein, P.C. 1220 19th Street, N.W., Suite 700 Washington, D.C. 20036 Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE - -------------------------------------------------------------------------------- Proposed Proposed Dollar Maximum Maximum Title of Each Class Amount Offering Aggregate Amount of of Securities to be Price Per Offering Registration to be Registered Registered Unit Price (1) Fee - -------------------------------------------------------------------------------- Common Stock, par value $.01 per share.......... $11,902,500 $10.00 $11,902,500 $3,606.46 - --------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee. The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. ================================================================================ PROSPECTUS High Country Bancorp, Inc. (HOLDING COMPANY FOR SALIDA BUILDING AND LOAN ASSOCIATION) Up to 1,035,000 Shares of Common Stock (Anticipated Maximum) $10.00 Per Share High Country Bancorp, Inc. (the "Company"), a Colorado corporation, is offering up to 1,035,000 shares, subject to adjustment, of its common stock, par value $.01 per share (the "Common Stock"), in connection with the conversion of Salida Building and Loan Association (the "Association") from a federal mutual savings and loan association to a federal stock savings and loan association (the "Converted Association") and the issuance of the Converted Association's capital stock to the Company pursuant to the Plan of Conversion (the "Plan") of the Association. The conversion of the Association to the Converted Association, the acquisition of control of the Converted Association by the Company and the issuance and sale of the Common Stock are collectively referred to herein as the "Conversion." The shares of the Common Stock are being offered pursuant to nontransferable subscription rights ("Subscription Rights") in a subscription offering (the "Subscription Offering"). Subscription Rights are not transferable, and persons who attempt to transfer their Subscription Rights may lose the right to subscribe for stock in the Conversion and may be subject to other sanctions and penalties imposed by the Office of Thrift Supervision ("OTS"). The Company may offer any shares of Common Stock not subscribed for in the Subscription Offering in a community offering (the "Community Offering") to certain members of the general public to whom the Company delivers a copy of this Prospectus and a stock order form (the "Stock Order Form"), with preference given to natural persons and trusts of natural persons who are permanent residents of Chaffee, Lake, Fremont and Saguache Counties in Colorado (the "Local Community"). The Association and the Company may, in their absolute discretion, reject orders in the Community Offering in whole or in part. It is anticipated that shares of the Common Stock not otherwise subscribed for in the Subscription and Community Offerings may be offered at the discretion of the Company (continued on following page) For information on how to subscribe, call the Stock Information Center at (719) ____-_______. PROSPECTIVE INVESTORS SHOULD CAREFULLY REVIEW AND CONSIDER THE DISCUSSION UNDER "RISK FACTORS" BEGINNING ON PAGE 1. THESE SHARES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION, THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY STATE SECURITIES COMMISSION, NOR HAS SUCH COMMISSION, OFFICE OR CORPORATION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY.
============================================================================================================================= Estimated Fees and Expenses, Including Underwriting Purchase Discounts and Estimated Net Price (1) Commissions (2) Proceeds (3) - ------------------------------------------------------- --------------------- ------------------------ ---------------------- Per Share (4)......................................... $10.00 $.58 $9.42 - ------------------------------------------------------- --------------------- ------------------------ ---------------------- Total Minimum......................................... $7,650,000 $499,000 $7,151,000 - ------------------------------------------------------- --------------------- ------------------------ ---------------------- Total Midpoint........................................ $9,000,000 $520,000 $8,480,000 - ------------------------------------------------------- --------------------- ------------------------ ---------------------- Total Maximum......................................... $10,350,000 $541,000 $9,809,000 - ------------------------------------------------------- --------------------- ------------------------ ---------------------- Total Maximum, as adjusted (5)........................ $11,902,500 $565,000 $11,337,500 ======================================================= ===================== ======================== ====================== (footnotes on following page)
TRIDENT SECURITIES, INC. The date of this Prospectus is ___________, 1997 (continued from preceding page) to certain members of the general public as part of a community offering on a best efforts basis by a selling group of selected broker-dealers to be managed by Trident Securities, Inc. (the "Syndicated Community Offering"). Neither Trident Securities, Inc. nor any selected broker-dealers will have any obligation to purchase any shares of the Common Stock. See "The Conversion -- Offering of Common Stock," " -- Subscription Offering," " -- Community Offering," and " -- Syndicated Community Offering." The total number of shares to be issued in the Conversion may be significantly increased or decreased to reflect market and financial conditions at the completion of the Conversion. The aggregate purchase price of all shares of the Common Stock will be based on the estimated pro forma market value of the Association, as converted, as determined by an independent appraisal. All shares of the Common Stock will be sold for $10.00 per share (the "Purchase Price"). With the exception of the ESOP, which intends to purchase 8.0% of the total number of shares of Common Stock issued in the Conversion, no Eligible Account Holder, Supplemental Eligible Account Holder or Other Member, nor person (together with associates of and persons acting in concert therewith) in the Community Offering and Syndicated Community Offering may purchase more than $250,000 of the shares of Common Stock issued in the Conversion. In addition, no person (together with associates and persons acting in concert therewith) may purchase in the aggregate more than $250,000 of the shares of Common Stock issued in the Conversion. The maximum overall purchase limitation and the amount permitted to be subscribed for may be increased or decreased under certain circumstances in the sole discretion of the Company. The minimum purchase is 25 shares. See "The Conversion -- Limitations on Purchase of Shares." The Subscription Offering will expire at 12:00 Noon, local time, on ___________, 1997, unless extended by the Company for up to an additional __ days. The Community Offering, if any, may commence without notice at any time after the commencement of the Subscription Offering and may terminate at any time without notice, (continued on following page) (footnotes from preceding table) - --------------- (1) The estimated aggregate value of the Common Stock is based on an independent appraisal by Ferguson & Company ("Ferguson") as of August 8, 1997. See "The Conversion -- Stock Pricing and Number of Shares to be Issued." Based on such appraisal, the Company has determined to offer up to 1,035,000 shares, subject to adjustment, at a purchase price of $10.00 per share (the "Purchase Price"). The final aggregate value will be determined at the time of closing of the Conversion and is subject to change due to changing market conditions and other factors. If a change in the final valuation is required, an appropriate adjustment will be made in the number of shares being offered within a range of 765,000 shares at the minimum of the Estimated Valuation Range (defined herein) to 1,035,000 shares at the maximum of the Estimated Valuation Range and, with OTS approval, to 1,190,250 shares at approximately 15% above the maximum of the Estimated Valuation Range. (2) Includes estimated printing, postage, legal, accounting and miscellaneous expenses which will be incurred in connection with the Conversion. Also includes estimated fees, sales commissions and reimbursable expenses to be paid to Trident Securities, Inc. ("Trident Securities") in connection with the Subscription and Community Offerings, estimated to be $152,000, $173,000, $194,000 and $218,000 at the minimum, midpoint, maximum and 15% above the maximum of the Estimated Valuation Range. The actual fees and expenses may vary from the estimates. See "Pro Forma Data" for the assumptions underlying these estimates. Trident Securities may be deemed to be an underwriter, and certain amounts to be paid to Trident Securities may be deemed to be underwriting compensation for purposes of the Securities Act of 1933, as amended. The Company and the Association have agreed to indemnify Trident Securities against certain liabilities arising out of its services as financial and sales advisor. (3) Includes the ESOP's expected purchase of 8% of the shares sold in the Conversion with funds borrowed from the Company. Does not reflect a possible purchase by a management recognition plan of a number of shares equal to up to 4% of the shares to be issued in the Conversion with funds contributed by the Converted Association. See "Capitalization" and "Pro Forma Data." (4) Based on the midpoint of the Estimated Valuation Range. At the minimum, maximum and 15% above the maximum of the Estimated Valuation Range, the estimated fees and expenses, including underwriting discounts and commissions, per share are expected to be $.65, $.52 and $.48, respectively, and the estimated net proceeds per share are expected to be $9.35, $9.48 and $9.52, respectively. (5) Gives effect to an increase in the number of shares which could occur without a resolicitation of subscribers or any right of cancellation due to an increase in the Estimated Valuation Range of up to 15% above the maximum of the Estimated Valuation Range to reflect changes in market and financial conditions. See "The Conversion -- Stock Pricing and Number of Shares to be Issued." (continued from preceding page) but may not terminate later than ___________, 1997. An executed Stock Order Form, once received by the Association, may not be modified, amended or rescinded without the consent of the Association. Subscriptions paid by check, cash or money order will be held in a separate account at the Association established specifically for this purpose, and interest will be paid at the Association's passbook rate from the date payment is received until the Conversion is completed or terminated. In the case of payments to be made through withdrawal from deposit accounts at the Association, all sums authorized for withdrawal will continue to earn interest at the contract rate until the date of the completion of the Conversion but, following completion of the Conversion, funds withdrawn from deposit accounts and used to purchase Common Stock will no longer be deposit accounts and will not be insured by the Federal Deposit Insurance Corporation, the Bank Insurance Fund, the Savings Association Insurance Fund or any other governmental agency. If the Conversion is not completed within 45 days after the last day of the Subscription Offering (which date will be no later than ________________, 199_) and the OTS consents to an extension of time to complete the Conversion, subscribers must affirmatively reconfirm their subscriptions prior to the expiration of the resolicitation offering and may, in the alternative, modify or cancel their subscriptions. See "The Conversion -- Subscription for Stock in Subscription and Community Offerings." The Association has retained Trident Securities, a broker-dealer registered with the Securities and Exchange Commission ("SEC") and a member of the National Association of Securities Dealers, Inc. ("NASD"), to provide financial advisory and sales assistance in connection with the Subscription and Community Offerings. Trident Securities has agreed to use its best efforts to assist the Company and the Association with the sale of the Common Stock in the Subscription Offering, the Community Offering and the Syndicated Community Offering, if any. HIGH COUNTRY BANCORP, INC. SALIDA BUILDING AND LOAN ASSOCIATION Salida, Colorado [INSERT MAP] THE ASSOCIATION'S CONVERSION TO A STOCK ORGANIZATION IS CONTINGENT UPON APPROVAL OF THE PLAN OF CONVERSION BY ITS MEMBERS, THE SALE OF AT LEAST THE MINIMUM NUMBER OF SHARES OFFERED PURSUANT TO THE PLAN OF CONVERSION AND THE SATISFACTION OF CERTAIN OTHER CONDITIONS IMPOSED BY THE OTS IN ITS APPROVAL. PROSPECTUS SUMMARY The following summary does not purport to be complete and is qualified in its entirety by the more detailed information and the Financial Statements and accompanying Notes appearing elsewhere in this Prospectus. This Prospectus contains forward-looking statements which involve risks and uncertainties. The Company's results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in "Risk Factors" beginning on page 1 of this Prospectus. High Country Bancorp, Inc. The Company was incorporated under the laws of the State of Colorado in August 1997 at the direction of the Board of Directors of the Association for the purpose of serving as a holding company of the Converted Association upon its conversion from mutual to stock form. The Company has received approval from the Office of Thrift Supervision ("OTS") to acquire control of the Converted Association subject to satisfaction of certain conditions. Prior to the Conversion, the Company has not engaged and will not engage in any material operations. Upon consummation of the Conversion, the Company will have no significant assets other than the outstanding capital stock of the Converted Association, a portion of the net proceeds of the Conversion and a note receivable from the ESOP. Following the Conversion, the Company's principal business will be overseeing and directing the business of the Converted Association and investing the net Conversion proceeds retained by it. The Company will register with the OTS as a savings and loan holding company. Salida Building and Loan Association The Association is a federal mutual savings and loan association operating through offices located in Salida, Colorado, Buena Vista, Colorado and Leadville, Colorado and serving Chaffee, Lake, Western Fremont and Saguache Counties in Colorado (the Association's "primary market area"). The Association was chartered in 1886 as the first state-chartered building and loan association in Colorado. The Association received federal insurance of deposit accounts in 1937, became a member of the Federal Home Loan Bank System in 1937, and converted to a federally-chartered association in 1993. At June 30, 1997, the Association had total assets of $76.3 million, loans receivable (net) of $63.1 million, total deposits of $56.2 million and retained earnings of $6.0 million. The Association is subject to examination and comprehensive regulation by the OTS, and the Association's savings deposits are insured up to applicable limits by the Savings Association Insurance Fund ("SAIF"), which is administered by the Federal Deposit Insurance Corporation ("FDIC"). The Association is a member of and owns capital stock in the Federal Home Loan Bank ("FHLB") of Topeka, which is one of 12 regional banks in the FHLB System. The Association is further subject to regulations of the Federal Reserve Board governing reserves to be maintained and certain other matters. Regulations significantly affect the operations of the Association. See "Regulation -- Depository Institution Regulation." Historically, the Association has operated as a traditional savings institution by emphasizing the origination of loans secured by one- to four-family (or "single-family") residences. At June 30, 1997, $49.6 million, or 78.57% of the Association's loan portfolio, consisted of one- to four-family residential mortgage loans, all of which were originated on properties in its market area. Substantially all of these loans have terms of 15 to 25 years, and a majority are fixed-rate loans. Since fiscal 1996, the Association has significantly increased its origination of consumer, commercial business and commercial real estate loans, including loans for the purchase and development of raw land, all of which loans have been (i) originated in its primary market area. Such loans provide for higher interest rates and have shorter terms than traditional one- to four-family residential mortgage loans. However, these types of loans also carry significantly greater risks than residential mortgage loans. While all of the Association's non-residential real estate loans are currently performing, potential investors should be aware of the additional risks associated with these types of lending. For more information, see "Risk Factors--Risks Posed by Certain Lending Activities." Financial and operating characteristics of the Association include the following: Community Orientation: The Association has been committed to meeting the financial needs of the communities in which it has operated for over 110 years. The Board of Directors believes that with its long-term presence in the community, the Association is well positioned to provide financial services on a personalized and efficient basis. The Association effectively services its customers and provides quick responses to customer needs and inquiries. Management plans to continue to emphasize the community orientation of the Association and believes that this emphasis will represent a continuing competitive advantage for the Association. Capital Strength: At June 30, 1997, the Association had $6.0 million of retained earnings, representing 7.81% of total assets. At such date, the Association exceeded all of its minimum regulatory capital requirements, with tangible and core capital of 7.80% of adjusted total assets and risk-based capital of 13.73% of total risk-weighted assets. See "Regulation -- Depository Institution Regulation -- Capital Requirements." As a result of the Conversion, assuming the Company retains 50% of the net proceeds of the Conversion at the midpoint of the Estimated Valuation Range, at June 30, 1997, the Association would have had pro forma stockholders' equity of approximately $9.1 million, or 11.37% of pro forma total assets, and the Company would have had pro forma consolidated stockholders' equity of $13.4 million, or approximately 15.95%, of total pro forma consolidated assets. See "Historical and Pro Forma Regulatory Capital Compliance." Asset Quality: At June 30, 1997, the Association had $175,000 in nonperforming assets representing .23% of total assets. The Association's allowance for loan losses at June 30, 1997 totaled $604,000 or .96% of net loans. The information set forth above should be considered in the context of the detailed information contained elsewhere herein. For additional information, see "Risk Factors" and "Business of the Association." The Conversion The Board of Directors of the Association adopted the Plan on May 15, 1997, pursuant to which the Association will convert from a federally chartered mutual savings and loan association to a federally chartered stock savings and loan association, (i.e., the Converted Association), and will thereafter operate as a wholly owned subsidiary of the Company. See "The Conversion -- General." Upon consummation of the Conversion, the Converted Association will issue all of its outstanding capital stock to the Company in exchange for at least 50% of the net proceeds from the sale of the Common Stock in the Conversion. The OTS has approved the Plan, subject to member approval and satisfaction of certain other conditions. The OTS has also approved the Company's application (ii) to acquire all of the capital stock of the Converted Association and thereby become a savings and loan holding company, as part of the Conversion. The Conversion is subject to certain conditions, including the prior approval of the Plan at a special meeting of members to be held on _________, 1997 (the "Special Meeting"). The portion of the net proceeds from the sale of Common Stock in the Conversion to be distributed to the Converted Association by the Company will substantially increase the Converted Association's capital position, which will in turn increase the amount of funds available for lending and investment and provide greater resources to support current operations by the Converted Association. This capital will also provide the Association with additional liquid assets for investment in adjustable-rate mortgage-backed securities, which investments would improve the Association's interest rate risk position and reduce the effect of a significant increase in interest rates. The holding company structure will provide greater flexibility than the Association alone would have for diversification of business activities and geographic expansion. Management believes that this increased capital will enable the Converted Association to compete more effectively with other types of financial services organizations. In addition, the Conversion will enhance the future access of the Company and the Converted Association to the capital markets and will afford depositors and others the opportunity to become stockholders of the Company and thereby participate in any future growth of the Converted Association. Stock Pricing and Number Federal regulations require that the of Shares to be Issued aggregate purchase price of the Common Stock to be issued in the Conversion be consistent with an independent appraisal of the estimated pro forma market value of the Common Stock following the Conversion. Ferguson, a firm experienced in valuing savings institutions, has made an independent appraisal of the estimated aggregate pro forma market value of the Common Stock to be issued in the Conversion. Ferguson has determined that as of August 8, 1997, such estimated pro forma market value was $9,000,000. See "The Conversion -- Stock Pricing and Number of Shares to be Issued." The resulting valuation range in Ferguson's appraisal, which under OTS regulations extends 15% below and above the estimated value, is from $7,650,000 to $10,350,000 (the "Estimated Valuation Range"). The Company, in consultation with its advisors, has determined to offer the shares of Common Stock in the Conversion at the Purchase Price of $10.00 per share. Such appraisal is not intended and must not be construed as a recommendation of any kind as to the advisability of purchasing such shares or as any form of assurance that, after the Conversion, such shares may be resold at or above the Purchase Price. The appraisal considered a number of factors and was based upon estimates derived from those factors, all of which are subject to change from time to time. In preparing the valuation, Ferguson relied upon and assumed the accuracy and completeness of financial and statistical information provided by the Association and the Company. Ferguson did not verify the financial statements provided or independently value the assets of the Association. The appraisal will be further updated immediately prior to the completion of the Conversion and could be increased to up to $11,902,500 without a resolicitation of subscribers based on market and financial conditions at the completion of the Conversion. Ferguson will receive fees and reimbursement of out-of-pocket expenses totaling not more (iii) than $32,500 for its appraisal and for assisting in the preparation of the Company's business plan. The total number of shares to be issued in the Conversion may be increased or decreased without a resolicitation of subscribers so long as the aggregate purchase price is not less than the minimum or more than 15% above the maximum of the Estimated Valuation Range. Based on the Purchase Price of $10.00 per share, the total number of shares which may be issued without a resolicitation of subscribers is from 765,000 to 1,035,000 (and up to 1,190,250 shares as adjusted). For further information, see "The Conversion -- Stock Pricing and Number of Shares to be Issued." The Subscription, Community The shares of Common Stock to be issued in and Syndicated Community the Conversion are being offered at the Offerings Purchase Price of $10.00 per share in the Subscription Offering pursuant to non- transferable Subscription Rights in the following order of priority: (i) Eligible Account Holders (the term "Eligible Account Holders" shall hereinafter mean depositors whose accounts in the Association totaled $50.00 or more on December 31, 1995); (ii) the ESOP (i.e., the Company's tax-qualified stock benefit plan); (iii) Supplemental Eligible Account Holders (i.e., depositors whose accounts in the Association totaled $50.00 or more on September 30, 1997, other than Eligible Account Holders); and (iv) Other Members (i.e., certain depositors and borrower members of the Association as of ________, 1997, other than Eligible Account Holders and Supplemental Eligible Account Holders). Subscription Rights received in any of the foregoing categories will be subordinated to the Subscription Rights received by those in a prior category, with the exception that any shares of Common Stock sold in excess of the maximum of the Estimated Valuation Range may first be sold to the ESOP. The Company may offer any shares of Common Stock not subscribed for in the Subscription Offering at the same price in the Community Offering to members of the general public to whom the Company delivers a copy of this Prospectus and the Stock Order Form. In the Community Offering, preference will be given to natural persons and trusts of natural persons who are permanent residents of the Local Community. Subscription Rights will expire if not exercised by 12:00 Noon, local time, on __________, 1997, unless extended (the "Expiration Date"). The Company and the Association reserve the absolute right to accept or reject any orders in the Community Offering, in whole or in part, either at the time of receipt of an order or as soon as practicable following the Expiration Date. It is anticipated that shares of Common Stock not otherwise subscribed for in the Subscription Offering and Community Offering, if any, may be offered at the discretion of the Company to certain members of the general public as part of a Syndicated Community Offering on a best efforts basis by a selling group of selected broker-dealers to be managed by Trident Securities. See "The Conversion -- Syndicated Community Offering." The Subscription and Community Offerings and Syndicated Community Offering are referred to collectively herein as the "Offerings." The Association and the Company have engaged Trident Securities to consult with and advise the Company and the Association with respect to the Offerings, and Trident Securities has agreed to solicit subscriptions and purchase orders for shares of Common Stock in the Offerings. Trident Securities will receive sales (iv) commissions with respect to shares sold in the Subscription and Community Offerings and Syndicated Community Offering, if necessary. The Company and the Association have agreed to indemnify Trident Securities against certain liabilities, including certain liabilities under the Securities Act of 1933, as amended (the "Securities Act"). See "The Conversion -- Plan of Distribution and Marketing Agent." The Association has established a Stock Information Center, which will be managed by Trident Securities, to coordinate the Offerings, including tabulation of orders and answering questions about the Offerings by telephone. All subscribers will be instructed to mail payment to the Stock Information Center or deliver payment directly to any office of the Association. Payment for shares of Common Stock may be made by cash (if delivered in person), check or money order or by authorization of withdrawal from deposit accounts maintained with the Association. If payment is made through such deposit account authorization, funds in the account to be used for such payment will not be available for withdrawal and will not be released until the Conversion is completed or terminated or if the subscriber fails to affirmatively confirm his or her order in the event of a resolicitation. See "The Conversion -- Subscriptions for Stock in Subscription and Community Offerings." The Plan provides that the Conversion must be completed within 24 months after the date of the approval of the Plan by the members of the Association. The Plan has been approved by the OTS and is subject to the approval of the Association's members at the Special Meeting to be held on _______, 1997. Purchase Limitations With the exception of the ESOP, which intends to purchase 8.0% of the total number of shares of Common Stock issued in the Conversion, no Eligible Account Holder, Supplemental Eligible Account Holder or Other Member nor person (together with associations of and persons acting in concert therewith) in the Community Offering and Syndicated Community Offering may purchase more than $250,000 of the shares of Common Stock sold in the Conversion. In addition, no person (together with associates and persons acting in concert therewith) may purchase in the aggregate more than $250,000 of the shares of Common Stock issued in the Conversion. The maximum overall purchase limitation and the amount permitted to be subscribed for may be increased or decreased under certain circumstances in the sole discretion of the Company. The minimum purchase is 25 shares. See "The Conversion -- Limitations on Purchase of Shares." In the event of an over subscription, shares will be allocated as provided in the Plan. See "The Conversion -- Subscription Offering," " --Community Offering" and "-- Syndicated Community Offering." In the event of an increase in the total number of shares up to the number issuable at 15% above the maximum of the Estimated Valuation Range, the additional shares may be distributed and allocated without the resolicitation of subscribers. See "The Conversion -- Limitations on Purchase of Shares." The term "acting in concert" is defined in the Plan of Conversion to mean: (i) knowing participation in a joint activity or interdependent conscious parallel action towards a common goal whether or not pursuant to an express agreement; or (ii) a combination or pooling of voting or other interests in the securities of an issuer for a common purpose pursuant to any contract, understanding, relationship, agreement or other arrangement, whether written or otherwise. The term (v) "associate" of a person is defined in the Plan of Conversion to mean: (i) any corporation or organization (other than the Association or a majority-owned subsidiary of the Association) of which such person is an officer or partner or is, directly or indirectly, the beneficial owner of 10% or more of any class of equity securities; (ii) any trust or other estate in which such person has a substantial beneficial interest or as to which such person serves as trustee or in a similar fiduciary capacity (excluding tax-qualified employee plans); and (iii) any relative or spouse of such person, or any relative of such spouse, who either has the same home as such person or who is a director or officer of the Association or any of its parents or subsidiaries. The Company and the Association may presume that certain persons are acting in concert based upon, among other things, joint account relationships and the fact that such persons have filed joint Schedules 13D with the SEC with respect to other companies. Potential Benefits of Option Plan. The Board of Directors of the Conversion to Management Company intends to implement the Option Plan, contingent upon receipt of OTS non- objection and stockholder approval at a meeting held no earlier than six months following completion of the Conversion, but which may be held more than one year following completion of the Conversion. Assuming 900,000 shares are issued in the Conversion (at the midpoint of the Estimated Valuation Range) and receipt of the required approvals, the Company currently plans to grant options to purchase 22,500 shares of the Common Stock to Larry D. Smith, Chief Executive Officer, and ______ shares of the Common Stock to all executive officers and directors as a group (7 persons, including the chief executive officer), respectively, under the Option Plan in the year following the Conversion. The exercise price of the options, which would be granted at no cost to the recipient thereof, would be the fair market value of the Common Stock subject to the option on the date the option is granted. See "Management of the Association --Certain Benefit Plans and Agreements." MRP. The Board of Directors of the Company intends to implement the High Country Bancorp, Inc. Management Recognition Plan ("MRP"), subject to receipt of OTS approval and to stockholder approval at a meeting of the Company's stockholders which may be held within one year but no earlier than six months following the Conversion or may be held more than one year following completion of the Conversion. Subject to such approvals, the MRP will purchase an amount of shares after the Conversion equal to up to 4% of the shares issued in the Conversion (36,000 shares at the midpoint of the Estimated Valuation Range), for issuance to executive officers and directors of the Association and the Company. At the Purchase Price in the Conversion of $10.00 per share, the shares to be awarded by the MRP to the directors and executive officers of the Company would have a value of $360,000. No shares will be awarded under the MRP prior to receipt of regulatory and stockholder approval. Awards under the MRP would be granted at no cost to the recipients thereof. See "Management of the Association -- Certain Benefit Plans and Agreements." Other Benefits. In addition to the Option Plan and the MRP, the following benefits may or will be realized as a result of the Conversion, subject in certain cases to approval of such plans by the OTS: (i) under the Association's Long-Term, Incentive Compensation Plan, each director will receive, after terminating service on the Board, an amount equal to their plan account balance, plus earnings over the distribution period; (ii) under the ESOP, employees of the Association, including the executive officers, will have shares of Common Stock allocated to their (vi) respective accounts in the ESOP; (iii) under the Association's Incentive Compensation Plan, annual cash bonuses based on the Association's performance; and (iv) the President and Vice President of the Association have entered into employment agreements with the Association, benefits which are guaranteed by the Company. In addition to the possible financial benefits under the benefit plans, management could benefit from certain statutory and regulatory provisions, as well as certain provisions in the Company's Articles of Incorporation and Bylaws, that may tend to promote the continuity of existing management. See "Management of the Association -- Director Compensation," "-- Executive Compensation" and " --Certain Benefit Plans and Agreements," "Certain Restrictions on Acquisitions of the Company and the Association" and "Certain Anti- takeover Provisions in the Certificate of Incorporation and Bylaws." Prospectus Delivery and To ensure that each subscriber receives a Procedure for Purchasing Prospectus at least 48 hours prior to the Shares Expiration Date in accordance with Rule 15c2-8 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), no Prospectus will be mailed any later than five days prior to the Expiration Date or hand delivered any later than two days prior to such date. Neither the Company, the Association, nor any of their agents shall be obligated to deliver a Prospectus and Stock Order Form by any means other than the U.S. Postal Service. Execution of a Stock Order Form will confirm receipt or delivery in accordance with Rule 15c2-8. Stock Order Form will be distributed only with a Prospectus. The executed Stock Order Form must be accompanied by payment by check, money order, bank draft or withdrawal authorization to an existing account at the Association. The Company is not obligated to accept orders submitted on photocopied or telecopied Stock Order Forms. To ensure that Eligible Account Holders, Supplemental Eligible Account Holders and Other Members are properly identified as to their stock purchase priorities, as well as for purposes of allocating shares based on subscribers' deposit balances in the event of over subscription, such persons must list all of their deposit accounts at the Association as of such qualifying record date on the Stock Order Form. Failure to list all such deposit accounts may result in the inability of the Company or the Association to fill all or part of a subscription order. Neither the Company, the Association nor any of their agents shall be responsible for any order on which all deposit accounts of the subscriber have not been fully and accurately disclosed. The Company will not accept orders registered "in care of," or instructed to be mailed to, a third party. Non-transferability of Applicable federal regulations provide that Subscription Rights prior to the completion of the Conver-sion, no person shall transfer or enter into any agreement or understanding to transfer the legal or beneficial ownership of the Subscription Rights issued under the Plan or the shares of Common Stock to be issued upon their exercise. Persons violating such prohibition may lose their right to subscribe for stock in the Conversion and may be subject to sanctions by the OTS. Each person exercising Subscription Rights will be required to certify that his or her purchase of Common Stock is solely for the purchaser's own account and that there is no agreement or understanding regarding the sale or transfer of such shares. Use of Proceeds The amount of proceeds from the sale of the Common Stock in the Conversion will depend upon the total number of shares actually sold, the number of shares of (vii) Common Stock sold in the Subscription Offering and the Community Offering and Syndicated Community Offering, if any, and the actual expenses of the Conversion. As a result, the actual net proceeds from the sale of the Common Stock cannot be determined until the Conversion is completed. Based on the sale of $9,000,000 of Common Stock at the midpoint of the Estimated Valuation Range, the net proceeds are estimated to be approximately $8,480,000. It is anticipated, however, that the net proceeds will be between approximately $7,151,000 and $9,809,000 if the aggregate purchase price is within the Estimated Valuation Range and the net proceeds will be approximately $11,337,500 if the aggregate purchase price is increased to 15% above the maximum of the Estimated Valuation Range. See "Pro Forma Data." The Company has received OTS approval to purchase all of the capital stock of the Converted Association to be issued in the Conversion in exchange for at least 50% of the net proceeds. Assuming the sale of 900,000 shares of the Common Stock at the midpoint, of the Estimated Valuation Range and the purchase of 8% of such shares by the ESOP, the Association would receive $4.2 million in cash, and the Company would retain approximately $3.5 million in cash and $720,000 in the form of a note receivable from the ESOP. The ESOP note receivable will be for a ten-year term and carry an interest rate, which adjusts annually, equal to the prime rate as published in The Wall Street Journal plus ----------------------- one percent. The proceeds retained by the Company after funding the ESOP initially will be invested in short-term and intermediate-term securities, including cash and cash equivalents and U.S. government and agency obligations. Also, such proceeds will be available for a variety of corporate purposes, including funding the MRP, if the MRP is implemented, future acquisitions and diversification of business, additional capital contributions, dividends to stockholders and future repurchases of the Common Stock to the extent permitted by applicable regulations. The Company currently has no specific plans, intentions, arrangements or understanding regarding any acquisitions, dividends or repurchases. The proceeds contributed to the Converted Association will substantially increase the capital of the Converted Association. The Converted Association intends to use such funds for general corporate purposes, such as the origination of loans (including consumer, commercial business and commercial real estate loans) and investment in securities (including adjustable-rate mortgage-backed securities.) It is expected that in the interim all or part of the proceeds will be invested in short-term and intermediate-term securities, including cash and cash equivalents and U.S. government and agency obligations. Market for the The Company has never issued capital stock Common Stock to the public and, consequently, there is no existing market for the Common Stock. Although the Company has received conditional approval to trade its Common Stock on the Nasdaq SmallCap Market under the symbol "_____" there can be no assurance that the Company will meet Nasdaq SmallCap Market listing requirements, which currently include a minimum of two market makers in the Common Stock. Trident Securities has indicated its intention to make a market in the Common Stock, and the Association anticipates that it will be able to secure at least one additional market maker for the Common Stock. (viii) The Nasdaq has proposed substantial changes to its listing requirements on the Nasdaq SmallCap Market which would, among other things, increase the minimum capitalization, stockholder and market maker requirements. If the proposed changes are approved by the SEC, the Company's Common Stock may not qualify for listing on the Nasdaq SmallCap Market. In the event, the Company's Common Stock would be traded on the over-the-counter market through the OTC "Electronic Bulletin Board." However, purchasers of Common Stock should have a long-term investment intent and recognize that the absence of an active and liquid trading market may make it difficult to sell the Common Stock, and may have an adverse effect on the price. The development of a public trading market depends upon the existence of willing buyers and sellers, the presence of which is not within the control of the Company, the Association or any market maker. There can be no assurance that an active and liquid market for the Common Stock will develop in the foreseeable future or, once developed, will continue. Even if a market develops, there can be no assurance that stockholders will be able to sell their shares at or above the initial Purchase Price after the completion of the Stock Conversion. Purchasers of Common Stock should consider the potentially illiquid and long-term nature of their investment in the shares being offered hereby. See "Risk Factors -- Potentially Limited and Illiquid Market for the Common Stock" and "Market for the Common Stock." Dividends The Board of Directors currently intends to adopt a policy of paying regular quarterly cash dividends on the Common Stock at an initial annual rate of 3.0% of the $10.00 per share purchase price of the Common Stock in the Conversion ($.30 per share), with the first dividend being declared and paid no earlier than for the quarter ending March 31, 1998. However, there can be no assurance that dividends will be paid or, if paid initially, will continue to be paid in the future. In addition, subject to regulatory approval, the Board of Directors may determine to pay special cash dividends. Special cash dividends, if paid, may be paid in addition to, or in lieu of, regular cash dividends. Like all possible dividend payments, there can be no assurance that special dividends will ever be paid. The payment of regular or special dividends will be subject to the requirements of applicable law and the determination by the Board of Directors of the Company that the net income, capital and financial condition of the Company and the Association, thrift industry trends and general economic conditions justify the payment of dividends. See "Dividend Policy" and "Regulation -- Depository Institution Regulation -- Dividend Restrictions." Risk Factors See "Risk Factors" for a discussion of certain factors that should be considered by prospective investors. (ix) SELECTED CONSOLIDATED FINANCIAL INFORMATION AND OTHER DATA The following summary of selected consolidated financial information and other data does not purport to be complete and is qualified in its entirety by reference to the detailed information and Financial Statements and accompanying Notes appearing elsewhere in this Prospectus. Selected Financial Condition Data:
At June 30, --------------------------------------------------------- 1997 1996 1995 1994 1993 -------- -------- -------- -------- ------ (Dollars in thousands) Total assets................................. $ 76,324 $ 63,185 $ 54,813 $ 49,204 $ 47,142 Cash......................................... 895 511 1,355 1,463 2,463 Interest bearing deposits.................... 2,381 1,577 513 639 1,882 Securities available for sale................ -- 989 1,385 1,454 2,169 Securities held to maturity................. 5,340 6,843 8,368 9,910 9,748 Loans receivable, net........................ 63,127 50,076 41,537 34,456 30,049 Savings deposits............................. 56,152 49,537 45,914 43,965 42,478 Retained earnings, substantially restricted.. 5,958 5,907 5,379 4,792 4,072 Number of: Real estate loans outstanding............ 1,137 1,054 965 890 867 Savings accounts......................... 9,126 7,828 7,324 7,217 7,238 Full-service offices..................... 3 2 2 2 2
Selected Operations Data:
Year Ended June 30, --------------------------------------------------------- 1997 1996 1995 1994 1993 -------- -------- -------- -------- ------ (In thousands) Interest income.............................. $ 5,764 $ 4,948 $ 3,911 $ 3,557 $ 3,858 Interest expense............................. 2,813 2,293 1,603 1,401 1,714 ------- -------- ------- -------- -------- Net interest income ..................... 2,951 2,655 2,308 2,156 2,144 Provision for loan losses.................... 282 59 59 60 62 ------- -------- ------- -------- -------- Net interest income after provision for loan losses........................ 2,669 2,596 2,249 2,096 2,082 ------- -------- ------- -------- -------- Noninterest income........................... 141 146 146 122 198 ------- -------- ------- -------- -------- Subtotal................................. 2,810 2,742 2,395 2,218 2,280 ------- -------- ------- -------- -------- Noninterest expense: Compensation and benefits.................. 1,345 868 730 626 544 Other...................................... 1,410 948 771 661 725 ------- -------- ------- -------- -------- Total noninterest expense.................. 2,755 1,816 1,501 1,287 1,269 ------- -------- ------- -------- -------- Income before taxes...................... 55 926 894 931 1,011 Income tax expense........................... 11 407 327 347 367 ------- -------- ------- -------- -------- Net income............................... $ 44 $ 519 $ 567 $ 584 $ 644 ======= ======== ======= ======== ========
(x) Operating Ratios
At or for the Year Ended June 30, ---------------------------------- 1997 1996 1995 ---- ---- ---- Performance Ratios: Return on assets (ratio of net earnings to average total assets) .......................................... 0.06% 0.86% 1.17% Return on equity (ratio of net earnings to average equity) ................................................ 0.75% 9.15% 11.94% Ratio of average interest-earning assets to average interest-bearing liabilities .............................. 104.64% 106.15% 110.81% Ratio of net interest income, after provision for loan losses, to noninterest expense ........................... 96.88% 142.95% 149.83% Net interest rate spread (difference between weighted average yield on interest-earning assets and weighted average cost of interest-bearing liabilities) .................... 4.19% 4.41% 4.48% Net yield on average interest-earning assets ......................... 4.38% 4.65% 4.71% Quality Ratios: Non-performing loans to total loans at end of period .................................................. 0.21% 0.14% 0.25% Non-performing loans to total assets ................................. 0.18% 0.12% 0.19% Non-performing assets to total assets at end of period .................................................. 0.23% 0.12% 0.19% Allowance for loan losses to non-performing loans at end of period ............................................ 431% 563% 379% Allowance for loan losses to total loans ............................. 0.93% 0.79% 0.93% Capital Ratios: Equity to total assets at end of period .............................. 7.81% 9.35% 9.81% Average equity to average assets ..................................... 8.32% 9.42% 9.77%
(xi) RISK FACTORS Before investing in the shares of the Common Stock offered by this Prospectus, prospective investors should carefully consider the matters presented below. Risks Posed by Certain Lending Activities The Association's primary lending activity is the origination of single-family residential mortgage loans. However, at June 30, 1997, $18.7 million, or 29% of the Association's gross loan portfolio at June 30, 1997 consisted of loans other than single-family mortgage loans. Such loans included $1.6 million in loans secured by commercial real estate, $2.4 million in loans for the development of raw land into single-family residential building lots, $4.3 million in commercial business loans and $6.5 million in consumer loans, $5.4 million of which are automobile loans. During recent years, the Association has significantly increased its level of commercial real estate, land development and commercial business lending, and consumer loans, all of which have been made in the Association's Primary Market Area, in order to increase interest income and make its loan portfolio more interest rate sensitive. Although these loans generally provide for higher interest rates and shorter terms than permanent single-family residential real estate loans, these loans generally have a higher degree of credit and other risks. Nonresidential real estate lending often involves larger loan balances to single borrowers or groups of related borrowers as compared to residential real estate lending. The payment experience on such loans typically is dependent on the successful operation of the real estate project or marketing of the residential building lots. These risks can be significantly affected by supply and demand conditions in the market for office and retail space and the residential real estate market, and, as such, may be subject to a greater extent to adverse conditions in the economy generally. The Association may be exposed to risk of loss on land development or construction loans if its initial estimate of the property's value at completion of development or construction proves to be inaccurate. Commercial business loans involve a greater degree of risk than other types of lending as payments on such loans are often dependent on the successful operation of the business involved which may be subject to a greater extent to adverse conditions in the economy. At June 30, 1997, however, none of the Association's nonresidential real estate, construction or land development, and commercial business loans were in nonaccrual status (except for $3,000 in nonaccrual commercial business loans). Consumer loans also entail greater risk than single-family residential loans, particularly in the case of consumer loans which are unsecured or secured by rapidly depreciable assets, such as automobiles. In such cases, any repossessed collateral for a defaulted consumer loans may not provide an adequate source of repayment of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation. At June 30, 1997, the Association had $137,000 in consumer loans which were non-performing. Also, as a result of the growth in the Association's loan portfolio in recent years, the Association's loan portfolio at June 30, 1997 includes a significant portion of relatively new loans. Although the Association currently has low levels of nonperforming assets, due to the increased level of nonresidential loans and the unseasoned nature of many of these loans, there can be no guarantee that the level of nonperforming assets will not increase in the future, and that corresponding losses from such activities may result therefrom. Anticipated Low Return on Equity Following Conversion As a result of the Conversion, the Association's equity will be substantially increased. At June 30, 1997, the Association's ratio of total equity to total assets was 7.81%, and, assuming the sale of 900,000 shares in the Conversion (i.e., the midpoint of the Estimated Valuation Range), such ratio is expected to increase to 15.95%. Absent an increase in consolidated net income that corresponds to the increase in the consolidated equity of the Company and the Association from the Conversion, the Company and the Association are unlikely to maintain a return on average equity (i.e., net income divided by average equity) at historical levels and, as a result, it is expected that the Company's return on equity initially will be below industry norms. Additionally, the increased costs resulting from the obligations associated with being a public company, including increased professional costs and compensation-related expenses, will have a negative effect on net income. Consequently, investors should carefully evaluate and consider the effect of a subpar return on equity on the market price of the Common Stock. Further, there can be no assurance that the Company 1 will be able to increase net income following the Conversion in amounts commensurate with the increase in equity resulting from the Conversion. Future of Thrift Industry The U.S. Congress has taken up legislation, and certain Congressional committees have passed proposed legislation, that may eliminate savings associations as a separate industry. Legislation enacted in September 1996 provides that the SAIF, the current federal insurer of the Association's deposit accounts, will be merged with the Bank Insurance Fund (the "BIF") which insures the deposits of commercial banks on January 1, 1999 but only if there are no thrift institutions left. The legislation directs the Department of the Treasury to submit a report to the Congress by March 31, 1997 with its findings with respect to the development of a common charter for banks and thrifts. This report has been submitted, but no action has, as yet, been taken. The Association cannot predict what the attributes of any such common charter would be or whether any legislation will result from this study. It is possible, however, that the common charter may not offer all the advantages which the Association now enjoys such as unrestricted nationwide branching and the absence of activities restrictions on savings and loan holding companies which do not control more than one savings association. If the Association were to become subject to the restrictions applicable to branching by banks headquartered in Colorado, its branching would generally be restricted to Colorado. If the Company were to become subject to the restrictions on bank holding companies, its activities would be limited to activities that have been determined by the Board of Governors of the Federal Reserve System to be so closely related to banking as to be a proper incident thereto. If Congress fails to take action to create a common charter for banks and thrift institutions or otherwise fails to end the thrift industry's separate existence, the currently contemplated merger of the deposit insurance funds would not take place and a shrinking thrift industry would be required to support a separate deposit fund with certain fixed costs with a shrinking assessment base. Potential Effects of Changes in Interest Rates and the Current Interest Rate Environment Effect on Net Interest Income. The operations of the Association are substantially dependent on its net interest income, which is the difference between the interest income earned on its interest-earning assets and the interest expense paid on its interest-bearing liabilities. Like most savings institutions, the Association's earnings are affected by changes in market interest rates and other economic factors beyond its control. Substantially all of the Association's residential mortgage loans have terms of 15 to 25 years, while deposit accounts have significantly shorter terms to maturity. If an institution's interest-earning assets (primarily loans) have longer effective maturities than its interest-bearing liabilities (deposits), the yield on the institution's interest-earning assets generally will adjust more slowly than the cost of its interest-bearing liabilities and, as a result, the institution's net interest income generally would be adversely affected by material and prolonged increases in interest rates and positively affected by comparable declines in interest rates. In addition, rising interest rates may negatively affect the Association's earnings due to diminished loan demand. At June 30, 1997, the Association's interest-bearing liabilities which were estimated to mature or reprice within one year exceeded the Association's interest-earning assets with the same characteristics by $34.7 million or 43.95%. This significant negative gap position exposes the Association to severe and adverse effects in the event of a prolonged and material increase in interest rates. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Asset and Liability Management" and "Business of the Association -- Lending Activities" and " -- Deposit Activities and Other Sources of Funds." Prepayment Risk. Changes in interest rates also can affect the average life of loans and mortgage-backed securities. Lower interest rates in recent periods have resulted in increased prepayments of loans and mortgage-backed securities, as borrowers refinanced to reduce borrowing costs. Under these circumstances, the Association is subject to reinvestment risk to the extent that it is not able to reinvest such prepayments at rates which are comparable to the rates on the maturing loans or securities. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." 2 Limited and Illiquid Market for the Common Stock Based on the midpoint of the Estimated Valuation Range, it is anticipated that, following completion of the Conversion, the Company will have approximately 900,000 shares of Common Stock issued and outstanding. Of such amount, 72,000 of such shares will be held by the ESOP and an additional 145,000 shares will be held by directors and executive officers of the Association and the Company, limiting the number of shares held by the general public. The Company has never issued stock before and, due to the relatively small size of the offering and the significant amount of stock expected to be held by Management and the ESOP, it is highly unlikely that an active market for the Common Stock will develop or, if developed, will be maintained, or that quotations for the Common Stock will be available. The presence of a sufficient number of buyers and sellers at any given time is a factor over which neither the Company nor any market maker has control. The Company intends to list the Common Stock on the Nasdaq SmallCap Market, subject to meeting the listing requirements. If the Company does not meet these listing requirements, the Company anticipates that the Common Stock will be traded on the over-the-counter market through the OTC "Electronic Bulletin Board." Trident Securities (and one other market maker, if a SmallCap listing is obtained) intends to make a market in the Common Stock. Such efforts are expected to include solicitation of potential buyers and sellers in order to match buy and sell orders. However, Trident Securities will not be subject to any continuing obligation to continue such efforts in the future. The development of a liquid public market depends on the existence of willing buyers and sellers, the presence of which is not within the control of the Company, the Association or any market maker. Due to the size of the Offering it is highly unlikely that a stockholder base sufficiently large to create an active trading market will develop and be maintained. Investors in the Common Stock could have difficulty disposing of their shares and should not view the Common Stock as a short-term and liquid investment. The absence of an active and liquid trading market for the Common Stock could affect the price and liquidity of the Common Stock. See "Market for the Common Stock." Articles of Incorporation, Bylaw and Statutory Provisions That Could Discourage Hostile Acquisitions of Control The Company's Articles of Incorporation and Bylaws contain certain provisions that could discourage nonnegotiated takeover attempts that certain stockholders might deem to be in their interests or through which stockholders might otherwise receive a premium for their shares over the then current market price and that may tend to perpetuate existing management. These provisions include: the classification of the terms of the members of the Board of Directors; supermajority voting provisions for the approval of certain business combinations; elimination of cumulative voting by stockholders in the election of directors; certain provisions relating to meetings of stockholders; restrictions on the acquisition of the Company's equity securities; and provisions allowing the Board of Directors to consider nonmonetary factors in evaluating a business combination or a tender or exchange offer. The provisions in the Company's Articles of Incorporation requiring a supermajority vote for the approval of certain business combinations and containing restrictions on acquisitions of the Company's equity securities provide that the supermajority voting requirements or acquisition restrictions do not apply to business combinations or acquisitions meeting specified Board of Directors approval requirements. The Articles of Incorporation also authorizes the issuance of 1,000,000 shares of serial preferred stock as well as additional shares of Common Stock up to a total of 4,000,000 outstanding shares of capital stock. These shares could be issued without stockholder approval on terms or in circumstances that could deter a future takeover attempt. The Articles of Incorporation, Bylaw and statutory provisions, as well as certain other provisions of state and federal law and certain provisions in the Company's and the Association's employee benefit plans and employment agreements and change in control severance agreements, may have the effect of discouraging or preventing a future takeover attempt in which stockholders of the Company otherwise might receive a substantial premium for their shares over then current market prices. For a detailed discussion of those provisions, see "Management of the Association -- Certain Benefit Plans and Agreements," "Description of Capital Stock," "Certain Restrictions on Acquisition of the Company, the Converted Association and the Association" and "Certain Anti-Takeover Provisions in the Articles of Incorporation and Bylaws." 3 Possible Income Tax Consequences of Distribution of Subscription Rights If the Subscription Rights granted to Eligible Account Holders, Supplemental Eligible Account Holders and Other Members are deemed to have an ascertainable value, the receipt of such rights would be taxable to recipients who exercise the Subscription Rights in an amount equal to such value and the Association could recognize a gain on such distribution. Whether Subscription Rights are considered to have ascertainable value is an inherently factual determination. The Association has received an opinion of Ferguson that such rights have no value. The opinion of Ferguson is not binding on the IRS. See "The Conversion -- Effect of Conversion to Stock Form on Depositors and Borrowers of the Association -- Tax Effects." Possible Dilutive Effect of MRP and Stock Options It is expected that, following the consummation of the Conversion, the Company will adopt the Option Plan and the MRP, both of which would be subject to stockholder approval, and that such plans would be considered and voted upon at a meeting of the Company's stockholders to be held within one year but not less than six months after the Conversion. Under the MRP, employees and directors could be awarded an aggregate amount of Common Stock equal to 4% of the shares issued in the Conversion, and under the Option Plan, employees and directors could be granted options to purchase an aggregate amount of Common Stock equal to 10% of the shares issued in the Conversion at exercise prices equal to the market price of the Common Stock on the date of grant. Under the MRP, the shares issued to directors and employees could be newly issued shares or shares purchased in the open market. In the event the shares issued under the MRP and the Option Plan consist of newly issued shares of Common Stock, the interests of existing stockholders would be diluted. If the shares to fund the MRP and Option Plan are assumed to come from newly issued shares purchased directly from the Company, and further assuming that all options granted under the Option Plan are exercised, existing stockholders' ownership interests will be diluted by 12.0%. At the midpoint of the Estimated Valuation Range, if all shares under the MRP and the Option Plan were newly issued and the exercise price for the option shares were equal to the Purchase Price per share in the Conversion, the number of outstanding shares of Common Stock would increase from 900,000 to 1,026,000, the pro forma stockholders' equity per share of the outstanding Common Stock at June 30, 1997 would have been $14.25, compared with $14.84 without such plans, and the pro forma net income per share of the outstanding Common Stock for the year ended June 30, 1997 would have been $.27, compared with $.26 without such plans. See "Pro Forma Data" and "Management of the Association -- Certain Benefit Plans and Agreements -- Management Recognition Plan" and "-- Stock Option and Incentive Plan." Potential Impact on Voting Control of Purchases by Management The level of ownership or control of the Common Stock after the Conversion by directors and officers of the Company is expected to be sufficiently high such that, if each member of management were to act consistently with each other, management as a whole would have significant influence over the outcome of any stockholder vote requiring a majority vote and in the election of directors, and would have veto power in matters requiring the approval of 80% of the Company's outstanding Common Stock. Thus, such level of ownership may tend to promote the continuity of existing management. Further, under such circumstances, management might have the power to authorize actions that could be viewed as contrary to the best interests of non-affiliated holders of the Common Stock and might have veto power over actions that such holders may deem to be in their best interests. In particular, it is currently expected that directors and executive officers will subscribe for approximately 145,000 shares, or 16.11% of the Common Stock (assuming the sale of 900,000 shares at the midpoint of the Estimated Valuation Range). Based upon the ESOP's purchase of 8.0% of the Common Stock in the Conversion (72,000 shares at the midpoint of the Estimated Valuation Range) and assuming the issuance to the MRP of newly issued shares of Common Stock equal to 4.0% of the Common Stock issued in the Conversion (36,000 shares at the midpoint of the Estimated Valuation Range), management would initially control 28.11% of the Common Stock outstanding (based upon the midpoint of the Estimated Valuation Range). If all of the options currently expected to be granted under the Option Plan (options for 90,000 shares at the midpoint of the Estimated Valuation Range) were exercised, the percentage 4 of shares controlled by such persons would be _____% of the total number of shares of Common Stock outstanding (based upon the midpoint of the Estimated Valuation Range). See "Pro Forma Data," "Proposed Management Purchases," "Management of the Association -- Certain Benefit Plans and Agreements," "The Conversion --Regulatory Restrictions on Acquisition of the Common Stock," "Certain Restrictions on Acquisition of the Company and the Association" and "Certain Anti-Takeover Provisions in the Articles of Incorporation and Bylaws." Potential Cost of ESOP and MRP It is anticipated that the ESOP will purchase 8% of the Common Stock sold in the Conversion with funds borrowed from the Company. The cost of acquiring the ESOP shares will be $612,000, $720,000, $828,000 and $952,000 at the minimum, midpoint, maximum and 15% above the maximum of the Estimated Valuation Range, respectively. In addition, following the Conversion, and subject to regulatory and stockholder approval, the Company intends to implement the MRP, under which employees and directors could be awarded (at no cost to them) an aggregate amount of Common Stock equal to 4% of the shares issued in the Conversion. Assuming the sale in the Conversion of the minimum, midpoint, maximum and 15% above the maximum of the Estimated Valuation Range, and assuming the shares of Common Stock to be awarded under the MRP have a cost equal to the Purchase Price of $10.00 per share, the reduction to stockholders' equity of funding the MRP would be $306,000, $360,000, $414,000 and $476,000, respectively. Accounting practices require an employer such as the Company to record compensation expense in an amount equal to the fair value of shares committed to be released from plans such as the ESOP. If shares of Common Stock appreciate in price over time, compensation expense related to the ESOP may be materially increased as a result, although the extent of such an increase in expense cannot be accurately quantified at this time. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Impact of New Accounting Standards." HIGH COUNTRY BANCORP, INC. High Country Bancorp, Inc. was incorporated under the laws of the State of Colorado in August 1997 at the direction of the Board of Directors of the Association for the purpose of serving as a savings and loan holding company of the Converted Association upon the acquisition of all of the capital stock issued by the Converted Association in the Conversion. The Company has received approval from the OTS to acquire control of the Converted Association, subject to satisfaction of certain conditions. Prior to the Conversion, the Company has not engaged and will not engage in any material operations. Upon consummation of the Conversion, the Company will have no significant assets other than the outstanding capital stock of the Converted Association, up to 50% of the net proceeds of the Conversion (after deducting amounts infused into the Association and used to fund the ESOP) and a note receivable from the ESOP. Upon consummation of the Conversion, the Company's principal business will be overseeing the business of the Converted Association and investing the portion of the net Conversion proceeds retained by it, and the Company will register with the OTS as a savings and loan holding company. As a holding company, the Company will have greater flexibility than the Association to diversify its business activities through existing or newly formed subsidiaries or through acquisition or merger with other financial institutions, although the Company currently does not have any plans, agreements, arrangements or understandings with respect to any such acquisitions or mergers. After the Conversion, the Company will be classified as a unitary savings and loan holding company and will be subject to regulation by the OTS. The Company's executive offices are located at 130 W. 2nd Street, Salida, Colorado 81201-0309, and its main telephone number is (719) 539-2516. SALIDA BUILDING AND LOAN ASSOCIATION The Association is a federal mutual savings and loan association operating through offices located in Salida, Colorado, Buena Vista, Colorado and Leadville, Colorado and serving Chaffee, Lake, Western Fremont and Saguache 5 Counties in Colorado. The Association was chartered in 1886 as the first state-chartered building and loan association in Colorado. The Association received federal insurance of its deposit accounts and became a member of the FHLB in 1937. The Association became a federally-chartered association on August 16, 1993 under its current name of Salida Building and Loan Association. At June 30, 1997, the Association had total assets of $76.3 million, loans receivable (net) of $63.1 million, total deposits of $56.1 million and equity of $6.0 million. Historically, the Association has operated as a traditional savings institution by emphasizing the origination of loans secured by one- to four-family residences. Since fiscal 1996, the Association has significantly increased its origination of consumer, commercial business and commercial real estate loans, including loans for the purchase and development of raw land, all of which loans have been originated in its market area. For more information, see "Risk Factors -- Risks Posed by Certain Lending Activities" and "Business of the Association." The Association is subject to examination and comprehensive regulation by the OTS, and the Association's savings deposits are insured up to applicable limits by the SAIF, which is administered by the FDIC. The Association is a member of and owns capital stock in the FHLB of Topeka, which is one of 12 regional banks in the FHLB System. The Association is further subject to regulations of the Federal Reserve Board governing reserves to be maintained and certain other matters. Regulations significantly affect the operations of the Association. See "Regulation -- Depository Institution Regulation." The Association's executive offices are located at 130 W. 2nd Street, Salida, Colorado 81201-0309, and its main telephone number is (719) 539-2516. USE OF PROCEEDS The amount of proceeds from the sale of the Common Stock in the Conversion will depend upon the total number of shares actually sold in the Subscription Offering and the Community Offering and the Syndicated Community Offering, if any, and the actual expenses of the Conversion. As a result, the actual net proceeds from the sale of the Common Stock cannot be determined until the Conversion is completed. Based on the sale of $9,000,000 of Common Stock at the midpoint of the Estimated Valuation Range, the net proceeds from the sale of the Common Stock are estimated to be approximately $8,480,000. The Company has received regulatory approval from the OTS to purchase all of the capital stock of the Converted Association to be issued in the Conversion in exchange for at least 50% of the net proceeds. Based on the foregoing assumption and the purchase of 8% of the shares to be issued in the Conversion by the ESOP, the Association would receive approximately $4,240,000 in cash, and the Company would retain approximately $3,520,000 in cash and $720,000 in the form of a note receivable from the ESOP. The ESOP note receivable will be for a ten-year term and carry an interest rate, which adjusts annually, equal to the prime rate as published in The Wall Street Journal plus one percent. ----------------------- The proceeds retained by the Company, after funding the ESOP, initially will be invested in short-term and intermediate-term securities including cash and cash equivalents and U.S. government and agency obligations. Such proceeds will be available for a variety of corporate purposes, including funding the MRP, if implemented, future acquisitions and diversification of business, additional capital contributions, dividends to stockholders and future repurchases of the Common Stock to the extent permitted by applicable regulations. The Company currently has no specific plans, intentions, arrangements or understandings regarding acquisitions, capital contributions, dividends or repurchases. Due to the limited nature of the Company's business activities, the Company believes that the net proceeds retained after the Conversion, earnings on such proceeds and payments on the ESOP note receivable will be adequate to meet the Company's financial needs until dividends are paid by the Converted Association. However, no assurance can be given that the Company will not have a need for additional funds in the future. For additional information, see "Regulation -- Depository Institution Regulation -- Dividend Restrictions." The proceeds contributed to the Converted Association will ultimately become part of the Converted Association's general corporate funds to be used for its business activities, such as the origination of loans (including consumer, commercial business and commercial real estate loans) and investments in securities (including adjustable- 6 rate mortgage-backed securities). Initially it is expected that the proceeds will be invested in short-term and intermediate-term securities including cash and cash equivalents and U.S. government and agency obligations. The additional capital will also provide the Association with additional liquidity to improve the Association's interest rate risk position and moderate the effect of a significant increase in interest rates. Following the one-year anniversary of the completion of the Conversion (or sooner if permitted by the OTS), and based upon then existing facts and circumstances, the Company's Board of Directors may determine to repurchase shares of Common Stock, subject to any applicable statutory and regulatory requirements. Such facts and circumstances may include, but are not limited to: (i) market and economic factors such as the price at which the stock is trading in the market, the volume of trading, the attractiveness of other investment alternatives in terms of the rate of return and risk involved in the investment, the ability to increase the book value and/or earnings per share of the remaining outstanding shares, and an improvement in the Company's return on equity; (ii) the avoidance of dilution to stockholders by not having to issue additional shares to cover the exercise of stock options or to fund employee stock benefit plans; and (iii) any other circumstances in which repurchases would be in the best interests of the Company and its stockholders. Any stock repurchases will be subject to the determination of the Company's Board of Directors that the Company and the Association will be capitalized in excess of all applicable regulatory requirements after any such repurchases. The payment of dividends or repurchasing of stock, however, would be prohibited if stockholders' equity would be reduced below the amount required for the liquidation account. See "Dividend Policy" and "The Conversion -- Certain Restrictions on Purchase or Transfer of Shares After the Conversion." Set forth below are the estimated investable net proceeds from the Conversion, assuming the sale of the Common Stock at the minimum, midpoint, maximum and maximum, as adjusted, of the Estimated Valuation Range and assuming that the ESOP purchases 8% of the shares issued in the Conversion and the MRP purchases 4% of the shares issued in the Conversion.
Maximum, as Minimum of Midpoint of Maximum of Adjusted, of 765,000 Shares 900,000 Shares 1,035,000 Shares 1,190,250 Shares at $10.00 at $10.00 at $10.00 at $10.00 Per Share Per Share Per Share Per Share --------- --------- --------- --------- (In thousands) Gross offering proceeds................ $ 7,650,000 $ 9,000,000 $10,350,000 $ 11,902,500 Less estimated offering expenses....... 499,000 520,000 541,000 565,000 ------------ ----------- ----------- ------------ Estimated net offering proceeds........................... 7,151,000 8,480,000 9,809,000 11,337,100 Less: ESOP funded by the Company...... 612,000 720,000 828,000 952,000 MRP............................ 306,000 360,000 414,000 476,000 ------------ ----------- ----------- ------------ Estimated investable net proceeds........................... $ 6,233,000 $ 7,400,000 $ 8,567,000 $ 9,909,000 ============ =========== =========== ============
DIVIDEND POLICY General The payment of dividends on the Common Stock will be subject to determination and declaration by the Board of Directors of the Company. The Board of Directors currently intends to establish a policy of paying regular semi-annual cash dividends on the Common Stock at an initial annual rate of 3.0% of the $10.00 per share purchase price of the Common Stock in the Conversion ($0.30 per share), with the first dividend being declared and paid no earlier than for the quarter ending March 31, 1998. In addition, from time to time, the Board of Directors may determine to pay special cash dividends. Special cash dividends, if paid, may be paid in addition to, or in lieu of, regular cash dividends. The payment of dividends, however, will be subject to the requirements of applicable law and the determination by the Board of Directors of the Company that the net income, capital and financial condition of the Company and the Association, thrift industry trends and general economic conditions justify the payment of dividends, and there can be no assurance that dividends will be paid or, if paid, will continue to be paid in the future. 7 Since the Company initially will have no significant source of income other than dividends from the Converted Association, principal and interest payments on the note payable from the ESOP and earnings from investment of the cash proceeds of the Conversion retained by the Company, the payment of dividends by the Company will depend in large part upon the amount of the proceeds from the Conversion retained by the Company and the Company's earnings thereon and the receipt of dividends from the Converted Association, which is subject to various tax and regulatory restrictions on the payment of dividends. At June 30, 1997, assuming the Association was a stock association and that the Conversion was completed at the midpoint of the Valuation Range, the amount that would have been available to be paid by the Association to the Company in the form of dividends under existing regulatory limitations and restrictions was approximately $2.8 million (this does not consider the need for the Association to maintain the liquidation account for Association members). Unlike the Converted Association, the Company is not subject to regulatory restrictions on the payment of dividends to stockholders. Under the Colorado General Corporation Law, dividends may be paid either out of surplus or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. For additional information, see "Regulation -- Depository Institution Regulation -- Capital Requirements," " -- Dividend Restrictions" and "Taxation." Tax Considerations In addition to the foregoing, earnings of the Association or the Converted Association appropriated for bad debt reserves and deducted for federal income tax purposes cannot be used by the Converted Association to pay cash dividends to the Company without the payment of federal income taxes by the Association at the then current income tax rate on the amount deemed distributed, which would include the amount of any federal income taxes attributable to the distribution. See "Taxation -- Federal Income Taxation" and Note 9 of the Notes to Financial Statements included elsewhere herein. The Company does not contemplate any distribution by the Association that would result in a recapture of the Association's bad debt reserve or create the above-mentioned federal tax liabilities. MARKET FOR THE COMMON STOCK It is anticipated that following completion of the Conversion the Company will have approximately 900,000 shares of Common Stock issued and outstanding based on the midpoint of the Estimated Valuation Range. The Company has never issued capital stock to the public and, consequently, there is no existing market for the Common Stock. Although the Company has received conditional approval to trade its Common Stock on the Nasdaq SmallCap Market under the symbol "_____" there can be no assurance that the Company will meet Nasdaq SmallCap Market listing requirements, which currently include a minimum of two market makers in the Common Stock. Trident Securities has indicated its intention to make a market in the Common Stock, and the Association anticipates that it will be able to secure at least one additional market maker for the Common Stock. The Nasdaq has proposed substantial changes to its listing requirements on the Nasdaq SmallCap Market which would, among other things, increase the minimum capitalization, stockholder and market maker requirements. If the proposed changes are approved by the SEC, the Company's Common Stock may not qualify for listing on the Nasdaq SmallCap Market. In the event, the Company's Common Stock would be traded on the over-the-counter market through the OTC "Electronize Bulletin Board." However, purchasers of Common Stock should have a long-term investment intent and recognize that the absence of an active and liquid trading market may make it difficult to sell the Common Stock, and may have an adverse effect on the price. 8 CAPITALIZATION The following table sets forth information regarding the historical capitalization, including deposits, of the Association at June 30, 1997 and the pro forma consolidated capitalization of the Company giving effect to the sale of the Common Stock at the minimum, midpoint, maximum and 15% above the maximum of the Estimated Valuation Range based upon the assumptions set forth under "Use of Proceeds" and below. For additional financial information regarding the Association, see the Financial Statements and related Notes appearing elsewhere herein. Depending on market and financial conditions, the total number of shares to be issued in the Conversion may be significantly increased or decreased above or below the midpoint of the Estimated Valuation Range. No resolicitation of subscribers and other purchasers will be made unless the aggregate purchase price of the Common Stock sold in the Conversion is below the minimum of the Estimated Valuation Range or is above 15% above the maximum of the Estimated Valuation Range. A change in the number of shares to be issued in the Conversion may materially affect the Company's pro forma capitalization. See "Pro Forma Data" and "The Conversion -- Stock Pricing and Number of Shares to be Issued."
Capitalization Pro Forma Consolidated Capitalization of of the the Company at June 30, 1997 Based on the Sale of ----------------------------------------------------------------- Association at 765,000 Shares 900,000 Shares 1,035,000 Shares 1,190,250 Shares June 30, at $10.00 at $10.00 at $10.00 at $10.00 1997 Per Share Per Share Per Share Per Share ------------ ----------- ----------- ----------- ----------- (Dollars in thousands) Deposits (1)....................................... $ 56,152 $ 56,152 $ 56,152 $ 56,152 $ 56,152 FHLB advances...................................... 13,520 13,520 13,520 13,520 13,520 --------- ---------- ---------- ---------- ---------- Total deposits and borrowed funds.............. $ 69,672 $ 69,672 $ 69,672 $ 69,672 $ 69,672 ========= ========== ========== ========== ========== Capital stock: Preferred stock, par value $.01 per share: authorized - 1,000,000 shares; assumed outstanding - none................... $ -- $ -- $ -- $ -- $ -- Common Stock, par value $.01 per share authorized - 3,000,000 shares; shares to be outstanding - as shown (2)(3)... -- 8 9 10 12 Paid-in capital (2)(3)........................... -- 7,143 8,471 9,799 11,325 Less: Common Stock acquired by ESOP (4)......... -- (612) (720) (828) (952) Common Stock acquired by MRP (3)....... -- (306) (360) (414) (476) Retained earnings (5)........................... 5,958 5,958 5,958 5,958 5,958 --------- ---------- ---------- ---------- ---------- Total stockholders' equity (6)............... $ 5,958 $ 12,191 $ 13,358 $ 14,525 $ 15,867 ========= ========== ========== ========== ==========
(footnotes on following page) 9 - ----------- (1) Does not reflect withdrawals from savings accounts for the purchase of Common Stock in the Conversion; any withdrawals will reduce pro forma capitalization by the amount of such withdrawals. (2) Does not reflect additional shares of Common Stock that possibly could be purchased by participants in the Option Plan, if implemented, under which directors, executive officers and other employees could be granted options to purchase an aggregate amount of Common Stock equal to 10% of the shares issued in the Conversion (90,000 shares at the midpoint of the Estimated Valuation Range) at exercise prices equal to the market price of the Common Stock on the date of grant. Implementation of the Option Plan will require regulatory and stockholder approval. See "Management of the Association -- Certain Benefit Plans and Agreements -- Stock Option and Incentive Plan" and "Risk Factors -- Possible Dilutive Effect of MRP and Stock Options." (3) Assumes a number of shares of Common Stock equal to 4% of the Common Stock to be sold in the Conversion will be purchased by the MRP through open market purchases. The dollar amount of the Common Stock to be purchased by the MRP is based on the $10.00 per share Purchase Price in the Conversion, represents unearned compensation and is reflected as a reduction of capital. Such amount does not reflect possible increases or decreases in the value of such stock relative to the Purchase Price in the Conversion. As the Association accrues compensation expense to reflect the vesting of such shares pursuant to the MRP, the charge against capital will be reduced accordingly. Implementation of the MRP will require regulatory and stockholder approval. If the shares to fund the MRP are assumed to come from authorized but unissued shares purchased by the MRP from the Company at the Purchase Price within the year following the Conversion, at the minimum, midpoint, maximum and 15% above the maximum of the Estimated Valuation Range, the number of outstanding shares would be 795,600 shares, 936,000 shares, 1,076,400 shares and 1,237,860 shares, respectively, and total stockholders' equity would be $15.71, $14.66, $13.88 and $13.20, respectively. If the MRP acquires authorized but unissued shares from the Company, stockholders' ownership in the Company would be diluted by approximately 3.8%. See "Management of the Association -- Certain Benefit Plans and Agreements -- Management Recognition Plan," "Pro Forma Data" and "Risk Factors -- Possible Dilutive Effect of MRP and Stock Options." (4) Assumes 8% of the shares of Common Stock to be sold in the Conversion are purchased by the ESOP, and that the funds used to purchase such shares are borrowed from the Company out of net proceeds. Although repayment of such debt will be secured solely by the shares purchased by the ESOP, the Association or the Company expects to make discretionary contributions to the ESOP in an amount at least equal to the principal and interest payments on the ESOP debt. The approximate amount expected to be borrowed by the ESOP is not reflected in this table as borrowed funds but is reflected as a reduction of capital. As the Association accrues compensation expense to reflect the allocation of such shares pursuant to the ESOP, the charge against capital will be reduced accordingly. See "Management of the Association -- Certain Benefit Plans and Agreements -- Employee Stock Ownership Plan." (5) The retained earnings of the Association are substantially restricted. All capital distributions by the Association are subject to regulatory restrictions tied to its regulatory capital level. In addition, after the Conversion, the Association will be prohibited from paying any dividend that would reduce its regulatory capital below the amount in the liquidation account to be provided for the benefit of the Association's Eligible Account Holders and Supplemental Eligible Account Holders at the time of the Conversion and adjusted downward thereafter. See "Regulation -- Depository Institution Regulation -- Dividend Restrictions" and "The Conversion -- Effect of Conversion to Stock Form on Depositors and Borrowers of the Association -- Liquidation Account." (6) Pro forma stockholders' equity information is not intended to represent the fair market value of the Common Stock, the current value of the Association's assets or liabilities or the amounts, if any, that would be available for distribution to stockholders in the event of liquidation. Such pro forma data may be materially affected by a change in the number of shares to be sold in the Conversion and by other factors. See "Pro Forma Data." 10 HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE The table below presents the Association's historical and pro forma capital position relative to its various minimum statutory and regulatory capital requirements at June 30, 1997 at the minimum, midpoint, maximum and maximum, as adjusted, of the Estimated Valuation Range. For a discussion of the assumptions underlying the pro forma capital calculations presented below, see "Use of Proceeds," "Capitalization," "Pro Forma Data" and the financial statements and related notes appearing elsewhere herein. For a detailed description of the regulatory capital requirements applicable to the Association, see "Regulation -- Regulation of the Association -- Regulatory Capital Requirements."
Pro Forma at June 30, 1997 (1) Assuming Issuance of Shares of Common Stock at the: ------------------------------------------------------------------------ Minimum of Midpoint of Historical at 765,000 Shares 900,000 Shares June 30, 1997 at $ Per Share at $ Per Share ----------------- --------------------- --------------------- Percent of Percent of Percent of Amount Assets (2) Amount Assets (2) Amount Assets (2) ------ ---------- -------------------- ------ ---------- (Dollars in thousands) Capital under generally accepted accounting principles................. $ 5,958 7.81% $ 8,616 10.82% $ 9,118 11.37% ======= ====== ======== ===== ========= ===== Tangible capital........................ $ 5,955 7.80% $ 8,613 10.82% $ 9,115 11.37% Tangible capital requirement............ 1,145 1.50 1,194 1.50 1,203 1.50 ------- ------ -------- ------ --------- ------ Excess............................... $ 4,810 6.30% $ 7,419 9.32% $ 7,912 9.87% ======= ====== ======== ====== ========= ====== Core capital............................ $ 5,955 7.80% $ 8,613 10.82% $ 9,115 11.37% Core capital requirement (3)............ 2,290 3.00 2,388 3.00 2,406 3.00 ------- ------ -------- ------ --------- ------ Excess............................... $ 3,665 4.80% $ 6,225 7.82% $ 6,709 8.37% ======= ====== ======== ====== ========= ====== Risk-based capital...................... $ 6,552 13.73% $ 9,208 18.55% $ 9,710 19.41% Risk-based capital requirement.......... 3,818 8.00 3,972 8.00 4,002 8.00 ------- ------ -------- ------ --------- ------ Excess............................... $ 2,734 5.73% $ 5,236 10.55 % $ 5,708 11.41% ======= ====== ======== ====== ========= ===== Pro Forma at June 30, 1997 (1) Assuming Issuance of Shares of Common Stock at the: --------------------------------------------------- Maximum of Maximum, as Adjusted, 1,035,000 Shares of 1,190,250 Shares at $ Per Share at $ Per Share ----------------------- ------------------------ Percent of Percent of Amount Assets (2) Amount Assets (2) ------ ---------- ------ ---------- Capital under generally accepted accounting principles................. $ 9,621 11.90% $10,199 12.51% ======== ===== ======= ===== Tangible capital........................ $ 9,618 11.90% $10,196 12.51% Tangible capital requirement............ 1,212 1.50 1,223 1.50 -------- ------ ------- ------ Excess............................... $ 8,406 10.40% $ 8,973 9.51% ======== ===== ======= ====== Core capital............................ $ 9,618 11.90% $10,196 12.51% Core capital requirement (3)............ 2,424 3.00 2,445 3.00 -------- ------ ------- ------ Excess............................... $ 7,194 8.90% $ 7,751 9.51% ======== ====== ======= ====== Risk-based capital...................... $ 10,213 20.26% $10,791 21.23% Risk-based capital requirement.......... 4,032 8.00 4,067 8.00 -------- ------ ------- ------ Excess............................... $ 6,181 12.26% $ 6,724 13.23 % ======== ===== ======= ======
- ------------------ (1) Assumes that the Company will purchase all of the capital stock of the Association to be issued upon Conversion in exchange for 50% of the net proceeds. Also assumes net proceeds distributed to the Association are initially invested in assets with an average risk weight of 62%. Further assumes that 8% of the Common Stock to be sold in the Conversion is acquired by the ESOP, and that the funds used to acquire such shares are borrowed from the Company. The amount of Common Stock to be purchased by the ESOP represents unearned compensation and is reflected in this table as a reduction of capital. Although repayment of such debt will be secured solely by the Common Stock purchased by the ESOP, the Association or the Company expects to make discretionary contributions to the ESOP in an amount at least equal to the principal and interest payments on the ESOP debt. As the Association makes contributions to the ESOP for simultaneous payment in an equal amount on the ESOP debt, there will be a corresponding reduction in the charge against capital. See "Management of the Association -- Certain Benefit Plans and Agreements -- Employee Stock Ownership Plan." Also assumes that the MRP will purchase in the open market Common Stock in an amount equal to 4% of the Common Stock issued in the Conversion. The implementation of the MRP is subject to regulatory and stockholder approvals. For purposes of this table, the cost of the Common Stock to be purchased by the MRP is assumed to be equal to the $10 price per share being offered in the Conversion. Such price may increase or decrease between the date of consummation of the Conversion and the date that, following receipt of regulatory and stockholder approvals, the shares are actually purchased by the MRP. The purchase of shares of Common Stock by the MRP following receipt of such approvals may be from authorized but unissued shares of Common Stock or in the open market. The amount of Common Stock to be purchased by the MRP represents unearned compensation and is reflected in this table as a reduction of capital. As the Association accrues compensation expense over the five year period following such purchase in accordance with generally accepted accounting principles to reflect the vesting of such shares of Common Stock pursuant to the MRP, there will be a corresponding reduction in the charge against capital. See "Management of the Association -- Certain Benefit Plans and Agreements --Management Recognition Plan." (2) Based on the Association's adjusted total assets for the purpose of the tangible and core capital requirements and risk-weighted assets for the purpose of the risk-based capital requirement. See "Regulation -- Depository Institution Regulation -- Capital Requirements." (3) Does not reflect potential increases in the Association's core capital requirement to between 4% and 5% of adjusted total assets in the event the OTS amends its capital requirements to conform to the more stringent leverage ratio adopted by the Office of the Comptroller of the Currency for national banks as described in "Regulation." 11 PRO FORMA DATA The following table sets forth the actual and, after giving effect to the Conversion for the periods and at the dates indicated, pro forma consolidated income, stockholders' equity and other data of the Association prior to the Conversion and of the Company following the Conversion. Unaudited pro forma consolidated income and related data have been calculated for the year ended June 30, 1997 as if the Common Stock had been sold at the beginning of such periods, and the estimated net proceeds had been invested at 5.65% at the beginning of the period. The foregoing yield approximates the yield on the One-Year U.S. Treasury bill at June 30, 1997. (While OTS regulations provide for the use of a yield representing the arithmetic average of the average yield on the Association's interest-earning assets and the average cost of deposits, the Association believes that the use of the One-year Treasury bill rate is more relevant in the current interest rate environment). The pro forma after-tax yield for the Company and the Association is assumed to be 3.50% for the year ended June 30, 1997, based on the effective tax rate of 38%. Unaudited pro forma consolidated stockholders' equity and related data have been calculated as if the Common Stock had been sold and was outstanding at the end of the periods, without any adjustment of historical or pro forma equity to reflect assumed earnings on estimated net proceeds. Per share amounts have been computed as if the Common Stock had been outstanding at the beginning of the period or at the dates shown, but without any adjustment of historical or pro forma stockholders' equity to reflect the earnings on estimated net proceeds. The pro forma data set forth below do not reflect withdrawals from deposit accounts to purchase shares, accruals expected to be made by the Association with regard to employee benefit plans to be adopted in connection with the Conversion or increases in capital and, in the case of newly issued shares, outstanding Common Stock upon the exercise of options by participants in the Option Plan, under which an aggregate amount of Common Stock equal to 10% of the shares issued in the Conversion (90,000 shares at the midpoint of the Estimated Valuation Range) are expected to be reserved for issuance to directors, executive officers and employees upon the exercise of stock options at exercise prices equal to the market price of the Common Stock on the date of grant. See "Management of the Association -- Certain Benefit Plans and Agreements." The estimated net proceeds to the Company, as set forth in the following tables, assume the sale of the Common Stock at the minimum, midpoint, maximum and 15% above the maximum of the Estimated Valuation Range. The actual net proceeds from the sale of the Common Stock cannot be determined until the Conversion is completed. However, net proceeds set forth on the following tables are estimated based upon the following assumptions: (i) 100% of the shares of Common Stock will be sold in the Subscription and Community Offerings as follows: (a) 8% will be sold to the ESOP and 145,000 shares will be sold to directors and officers of the Association and their associates, for which commissions will not be paid; and (b) the remaining shares will be sold to others in the Subscription and Community Offerings; and (ii) other Conversion expenses, not including sales commissions, will be approximately $392,000. The foregoing assumptions regarding estimated purchases in the Subscription and Community Offerings are based on reasonable market assumptions, market conditions, consultations between the Association and Trident Securities and planned purchases by the ESOP. Actual expenses may vary from those estimated. The stockholders' equity and related data presented herein are not intended to represent the fair market value of the Common Stock, the current value of assets or liabilities, or the amounts, if any, that would be available for distribution to stockholders in the event of liquidation. For additional information regarding the liquidation account, see "The Conversion -- Effect of Conversion to Stock Form on Depositors and Borrowers of the Association -- Liquidation Account." The pro forma income and related data derived from the assumptions set forth above should not be considered indicative of the actual results of operations of the Converted Association and the Company for any period. Such pro forma data may be materially affected by a change in the number of shares to be issued in the Conversion and other factors. See "The Conversion - -- Stock Pricing and Number of Shares to be Issued." 12
At or for the Year Ended June 30, 1997 ---------------------------------------------------------- 765,000 900,000 1,035,000 1,190,250 Shares Shares Shares Shares at $10.00 at $10.00 at $10.00 at $10.00 Per Share Per Share Per Share Per Share --------- --------- --------- --------- (Dollars in thousands, except share and per share amounts) Gross offering proceeds................................ $ 7,650 $ 9,000 $ 10,350 $ 11,903 Less estimated offering expenses....................... (499) (520) (541) (565) ---------- --------- ---------- ---------- Estimated net offering proceeds..................... 7,151 8,480 9,809 11,337 Less Common Stock acquired by ESOP.................. (612) (720) (828) (952) Less Common Stock acquired by MRP................... (306) (360) (414) (476) ---------- --------- ---------- ---------- Estimated investable net proceeds................... $ 6,233 $ 7,400 $ 8,567 $ 9,909 ========== ========= ========== ========== Net income Historical net income............................... $ 44 $ 44 $ 44 $ 44 Pro forma adjustments: Net income from proceeds.......................... 218 259 300 347 ESOP (1).......................................... (38) (45) (51) (59) MRP (2)........................................... (38) (45) (51) (59) ---------- --------- ---------- ---------- Pro Forma Net Income................................ $ 186 $ 214 $ 241 $ 273 ========== ========= ========== ========== Net Income Per share Historical.......................................... $ 0.06 $ 0.05 $ 0.05 $ 0.04 Pro forma adjustments: Net income from proceeds.......................... 0.31 0.31 0.31 0.31 ESOP (1).......................................... (0.05) (0.05) (0.05) (0.05) MRP (2)........................................... (0.05) (0.05) (0.05) (0.05) ---------- --------- ---------- ---------- Pro Forma -- Net Income Per Share..................................... $ 0.26 $ 0.26 $ 0.25 $ 0.25 ========== ========= ========== ========== Number of shares used in calculating earnings per share (1)(2)..................................... 709,920 835,200 960,480 1,104,552 ========== ========= ========== ========== Stockholders' equity (book value) (3) Historical........................................... $ 5,958 $ 5,958 $ 5,958 $ 5,958 Estimated net proceeds............................... 7,151 8,480 9,809 11,337 Less Common Stock acquired by: ESOP (1)........................................... (612) (720) (828) (952) MRP (2)............................................ (306) (360) (414) (476) ---------- --------- ---------- ---------- Pro Forma........................................ $ 12,191 $ 13,358 $ 14,525 $ 15,867 ========== ========= ========== ========== Per Share Historical........................................... $ 7.79 $ 6.62 $ 5.76 $ 5.01 Estimated net proceeds................................. 9.35 9.42 9.48 9.52 Less Common Stock acquired by: ESOP (1)............................................. (0.80) (0.80) (0.80) (0.80) MRP (2) ............................................. (0.40) (0.40) (0.40) (0.40) ---------- --------- ---------- ---------- Pro Forma.......................................... $ 15.94 $ 14.84 $ 14.03 $ 13.33 ========== ========= ========== ========== Number of shares used in calculating equity per share..................................... 765,000 900,000 1,035,000 1,190,250 ========== ========= ========== ========== Pro forma price to book value.......................... 62.8% 67.4% 71.3% 75.0% ========== ========= ========== ========== Pro forma price to earnings (P/E ratio)................ 38.5 38.5 40.0 40.0 ========== ========= ========== ==========
(Footnotes on succeeding page) 13 - ----------- (1) Assumes 8% of the shares to be sold in the Conversion are purchased by the ESOP under all circumstances, and that the funds used to purchase such shares are borrowed from the Company. The approximate amount expected to be borrowed by the ESOP is reflected as a reduction of capital. Although repayment of such debt will be secured solely by the shares purchased by the ESOP, the Association expects to make discretionary contributions to the ESOP in an amount at least equal to the principal and interest payments on the ESOP debt. Pro forma net income has been adjusted to give effect to such contributions, based upon a fully amortizing debt with a ten-year term. Because the Company will be providing the ESOP loan, only principal payments on the ESOP loan are reflected as employee compensation and benefits expense. For purposes of this table the Purchase Price of $10.00 was utilized to calculate the ESOP expense. The Association intends to record compensation expense related to the ESOP in accordance with American Institute of Certified Public Accountants ("AICPA") Statement of Position ("SOP") No. 93-6. As a result, to the extent the value of the Common Stock appreciates over time, compensation expense related to the ESOP will increase. SOP 93-6 also changes the earnings per share computations for leveraged ESOPs to include as outstanding only shares that have been committed to be released to participants. For purposes of the preceding table, it was assumed that 10% of the ESOP shares purchased in the Conversion were committed to be released at the beginning of the fiscal year. If it is assumed that 100% of the ESOP shares were committed to be released at the beginning of the fiscal year, the application of SOP 93-6 would result in net income per share of $.82, $.73, $.66 and $.60, respectively, based on the sale of shares at the minimum, midpoint, maximum and 15% above the maximum of the Estimated Valuation Range. See "Management of the Association -- Certain Benefit Plans and Agreements -- Employee Stock Ownership Plan." (2) Assumes a number of shares of Common Stock equal to 4% of the Common Stock to be sold in the Conversion will be purchased by the MRP in the open market in the year following the Conversion. The dollar amount of the Common Stock to be purchased by the MRP is based on the Purchase Price in the Conversion and represents unearned compensation and is reflected as a reduction of capital. Such amount does not reflect possible increases or decreases in the value of such stock relative to the Purchase Price in the Conversion. As the Association accrues compensation expense to reflect the vesting of such shares pursuant to the MRP, the charge against capital will be reduced accordingly. MRP adjustment is based on amortization of the MRP over five years. Implementation of the MRP would require stockholder approval at a meeting of the Company's stockholders to be held within one year but no earlier than six months after the Conversion. For purposes of this table, it is assumed that the MRP will be adopted by the Association's Board of Directors and approved by the Company's stockholders, and that the MRP will purchase the shares of Common Stock in the open market within the year following the Conversion. If the shares to be purchased by the MRP are assumed to be newly issued shares purchased from the Company by the MRP at the Purchase Price, at the minimum, midpoint, maximum and 15% above the maximum of the Estimated Valuation Range, the offering price as a percentage of pro forma stockholders' equity per share would be 63.6%, 68.2%, 72.0% and 75.8%, respectively, and pro forma net income per share would have been $.27, $.26, $.26 and $.25, respectively. As a result of the MRP, stockholders' interests will be diluted by approximately 3.8%. See "Management of the Association -- Certain Benefit Plans and Agreements -- Management Recognition Plan" and "Risk Factors -- Dilutive Effect of MRP and Stock Options." (3) Consolidated stockholders' equity represents the excess of the carrying value of the assets of the Company over its liabilities. The amounts shown do not reflect the federal income tax consequences of the potential restoration to income of the bad debt reserves for income tax purposes, which would be required in the event of liquidation. The amounts shown also do not reflect the amounts required to be distributed in the event of liquidation to eligible depositors from the liquidation account which will be established upon the consummation of the Conversion. Pro forma stockholders' equity information is not intended to represent the fair market value of the Common Stock, the current value of the Association's assets or liabilities or the amounts, if any, that would be available for distribution to stockholders in the event of liquidation. Such pro forma data may be materially affected by a change in the number of shares to be sold in the Conversion and by other factors. (4) It is expected that following the consummation of the Conversion the Company will adopt the Option Plan, which would be subject to stockholder approval, and that such plan would be considered and voted upon at a meeting of the Company's stockholders to be held within one year but no earlier than six months after the Conversion. Upon adoption of the Option Plan, employees and directors could be granted options to purchase an aggregate amount of Common Stock equal to 10% of the shares issued in the Conversion at exercise prices equal to the market price of the Common Stock on the date of grant. In the event the shares issued under the Option Plan consist of newly issued shares of Common Stock and all options available for award under the Option Plan were awarded, the interests of existing stockholders would be diluted. At the minimum, midpoint, maximum and 15% above the maximum of the Estimated Valuation Range, if all shares under the Option Plan were newly issued and the exercise price for the option shares were equal to the Purchase Price in the Conversion, net income per share would be $.27, $.27, $.26 and $.26, respectively, and the stockholders' equity per share would be $15.40, $14.40, $13.67 and $13.03, respectively. 14 PROPOSED MANAGEMENT PURCHASES The following table sets forth information regarding the approximate number of shares of the Common Stock intended to be purchased by each of the directors and executive officers of the Association and by all directors and executive officers as a group, including their associates. For purposes of the following table, it has been assumed that 900,000 shares of the Common Stock will be sold at $10.00 per share, the midpoint of the Estimated Valuation Range (see "-- Stock Pricing and Number of Shares to be Issued") and that sufficient shares will be available to satisfy subscriptions in all categories.
Percent Aggregate Purchase Total of Price of Name and Position Shares Total Proposed Purchases ----------------- ------ ----- ------------------ Robert B. Mitchell, Chairman of the Board 20,000 2.22% $ 200,000 Larry D. Smith, President and Director 25,000 2.78 250,000 Scott G. Erchul, Vice President and Director 12,500 1.39 125,000 Timothy G. Glenn, Director 25,000 2.78 250,000 Phillip W. Harsh, Director 25,000 2.78 250,000 Richard A. Young, Director 25,000 2.78 250,000 Frank L. DeLay, Chief Financial Officer 12,500 1.39 125,000 ------ ---- --------- All directors and executive officers, as a group (7 persons) and their associates 145,000 16.11 1,450,000 ESOP (1) 72,000 8.00 720,000 MRP (2) 36,000 4.00 360,000 ------- ----- ---------- Total (3) 253,000 28.11% $2,530,000 ======= ===== ==========
(Differences due to rounding) - ---------- (1) Consists of shares that could be allocated to participants in the ESOP, under which executive officers and other employees would be allocated in the aggregate 8% of the Common Stock issued in the Conversion. See "Management of the Association -- Certain Benefit Plans and Agreements -- Employee Stock Ownership Plan." (2) Consists of shares that are expected to be awarded to participants in the MRP, if implemented, under which directors, executive officers and other employees would be awarded an aggregate number of shares equal to 4% of the Common Stock sold in the Conversion (36,000 shares at the midpoint of the Estimated Valuation Range). The dollar amount of the Common Stock to be purchased by the MRP is based on the Purchase Price in the Conversion and does not reflect possible increases or decreases in the value of such stock relative to the Purchase Price per share in the Conversion. Implementation of the MRP would require stockholder approval. See "Management of the Association -- Certain Benefit Plans and Agreements -- Management Recognition Plan." Such shares could be newly issued shares or shares purchased in the open market following implementation of the MRP, in the sole discretion of the Company's Board of Directors. The percentage shown assumes the shares are purchased in the open market. If all shares acquired by the MRP are newly issued shares, the percentage of the outstanding Common Stock owned by the MRP would be 3.8%. Any sale of newly issued shares to the MRP would be dilutive to existing stockholders. See "Risk Factors --Possible Dilutive Effect of MRP and Stock Options." (3) Does not include shares that might be purchased by participants in an Option Plan, intended to be implemented, under which directors, executive officers and other employees would be granted options to purchase an aggregate amount of Common Stock equal to 10% of the shares issued in the Conversion (90,000 shares at the midpoint of the Estimated Valuation Range) at exercise prices equal to the market price of the Common Stock on the date of grant. Shares issued pursuant to the exercise of options could be from treasury stock or newly issued shares. Implementation of the Option Plan would require stockholder approval. See "Management of the Association -- Certain Benefit Plans and Agreements -- Stock Option and Incentive Plan." 15 SALIDA BUILDING AND LOAN ASSOCIATION STATEMENTS OF INCOME The following Statements of Income of Salida Building & Loan Association for each of the years in the two-year period ended June 30, 1997 have been audited by Grimsley, White & Company, independent certified public accountants, whose report thereon appears elsewhere herein. The Statements of Income should be read in conjunction with the Financial Statements and related notes included elsewhere in this Prospectus.
Year Ended June 30, ----------------------------- 1997 1996 ---------- ---------- Interest Income Interest on loans........................................................ $5,249,291 $4,326,277 Interest on securities available-for-sale................................ 18,171 73,845 Interest on securities held-to-maturity.................................. 412,386 506,463 Interest on other interest-bearing assets................................ 84,302 40,960 ---------- ----------- Total interest income............................................. 5,764,150 4,947,545 ---------- ----------- Interest Expense Deposits................................................................. 2,179,408 1,966,757 Federal Home Loan Bank advances.......................................... 633,923 325,843 ---------- ----------- Total interest expense............................................ 2,813,331 2,292,600 ---------- ----------- Net interest income.......................................................... 2,950,819 2,654,945 Provision for losses on loans................................................ 282,000 59,450 ---------- ----------- Net interest income after provision for loan losses....................... 2,668,819 2,595,495 ---------- ----------- Noninterest Income Service charges on deposits............................................... 123,955 118,798 Other..................................................................... 17,980 27,421 ---------- ----------- Total noninterest income........................................... 141,935 146,219 ---------- ----------- Noninterest Expense Compensation and benefits................................................. 1,345,030 868,903 Occupancy and equipment................................................... 482,360 355,699 Insurance and professional fees........................................... 169,937 205,298 Other..................................................................... 405,163 293,559 SAIF special assessment................................................... 296,578 -- Loss on sale of loans..................................................... 56,185 92,535 ---------- ----------- Total noninterest expense............................................ 2,755,253 1,815,994 ---------- ----------- Income before income taxes................................................... 55,501 925,720 Income tax expense........................................................... 11,085 407,018 ---------- ----------- Net income................................................................... $ 44,416 $ 518,702 ========== ===========
See Notes to Financial Statements 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General The Company has only recently been formed and, accordingly, has no results of operations at this time. As a result, this discussion relates to the financial condition and results of operations of the Association. The principal business of the Association consists of accepting deposits from the general public and investing these funds primarily in loans and in investment securities and mortgage-backed securities. The Association's loan portfolio consists primarily of loans secured by residential real estate located in its market area, with terms of 15 to 25 years, as well as commercial real estate, commercial business, land development and consumer loans. See "Business of the Association." The Association's net income is dependent primarily on its net interest income, which is the difference between interest income earned on its loan, investment securities and mortgage-backed securities portfolio and interest paid on interest-bearing liabilities. Net interest income is determined by (i) the difference between yields earned on interest-earning assets and rates paid on interest-bearing liabilities ("interest rate spread") and (ii) the relative amounts of interest-earning assets and interest-bearing liabilities. The Association's interest rate spread is affected by regulatory, economic and competitive factors that influence interest rates, loan demand and deposit flows. To a lesser extent, the Association's net income also is affected by the level of noninterest expenses such as compensation and employee benefits and FDIC insurance premiums. The operations of the Association are significantly affected by prevailing economic conditions, competition and the monetary, fiscal and regulatory policies of governmental agencies. Lending activities are influenced by the demand for and supply of housing, competition among lenders, the level of interest rates and the availability of funds. Deposit flows and costs of funds are influenced by prevailing market rates of interest, primarily on competing investments, account maturities and the levels of personal income and savings in the Association's market area. Asset/Liability Management The Association seeks to reduce its exposure to changes in interest rates by originating shorter term consumer and commercial business loans with maturities of no more than 10 years and by investing in adjustable-rate mortgage-backed securities. The matching of the Association's assets and liabilities may be analyzed by examining the extent to which its assets and liabilities are interest rate sensitive and by monitoring the expected effects of interest rate changes on the Association's net interest income. An asset or liability is interest rate sensitive within a specific time period if it will mature or reprice within that time period. If the Association's assets mature or reprice more quickly or to a greater extent than its liabilities, the Association's net portfolio value and net interest income would tend to increase during periods of rising interest rates but decrease during periods of falling interest rates. If the Association's assets mature or reprice more slowly or to a lesser extent than its liabilities, the Association's net portfolio value and net interest income would tend to decrease during periods of rising interest rates but increase during periods of falling interest rates. As a result of the interest rate risk inherent in the historical savings institution business of originating long-term loans funded by short-term deposits, the Association has pursued certain strategies designed to decrease the vulnerability of its earnings to material and prolonged changes in interest rates. 17 Interest Rate Sensitivity Analysis The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are "interest rate sensitive" and by monitoring an institution's interest rate sensitivity "gap." An asset or liability is said to be interest rate sensitive within a specific period if it will mature or reprice within that period. The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or repricing within a specific time period and the amount of interest-bearing liabilities maturing or repricing within that time period. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities, and is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets. Generally, during a period of rising interest rates, a negative gap would be expected to adversely affect net interest income while a positive gap would be expected to result in an increase in net interest income, while conversely during a period of declining interest rates, a negative gap would be expected to result in an increase in net interest income and a positive gap would be expected to adversely affect net interest income. As noted above, the Association is attempting to improve its significant negative gap by emphasizing the origination of shorter-term consumer and commercial business loans, and by investing a portion of the net proceeds of the Conversion in adjustable-rate mortgage-backed securities. Net Portfolio Value. In recent years, the Association has measured its interest rate sensitivity by computing the "gap" between the assets and liabilities which were expected to mature or reprice within certain periods, based on assumptions regarding loan prepayment and deposit decay rates formerly provided by the OTS. However, the OTS now requires the computation of amounts by which the net present value of an institution's cash flows from assets, liabilities and off balance sheet items (the institution's net portfolio value, or "NPV") would change in the event of a range of assumed changes in market interest rates. These computations estimate the effect on an institution's NPV from instantaneous and permanent 1% to 4% increases and decreases in market interest rates. In the Association's interest rate sensitive policy, the Board of Directors has established a maximum decrease in net interest income and maximum decreases in NPV given these instantaneous changes in interest rates. The following table sets forth the interest rate sensitivity of the Association's net portfolio value as of June 30, 1997 in the event of 1%, 2%, 3% and 4% instantaneous and permanent increases and decreases in market interest rates, respectively. These changes are set forth below as basis points, where 100 basis points equals one percentage point.
Net Portfolio Value NPV as % of Portfolio Value of Assets Change ------------------------------------ ------------------------------------- in Rates $ Amount $ Change % Change NPV Ratio Basis Point Change -------- -------- -------- -------- --------- ------------------ (Dollars in thousands) + 400 bp + 300 bp + 200 bp + 100 bp 0 bp [Table to be completed in amendment] - 100 bp - 200 bp - 300 bp - 400 bp
18 The following table sets forth the interest rate risk capital component for the Association at June 30, 1997 given a hypothetical 200 basis point rate change in market interest rates. See "Regulation -- Depository Institution Regulation -- Capital Requirements."
June 30, 1997 ------------- Pre-shock NPV Ratio: NPV as % of Portfolio Value of Assets....... % Exposure Measure: Post-Shock NPV Ratio........................... % Sensitivity Measure: Change in NPV Ratio......................... bp Interest Rate Risk Capital Component ($000)...................... (1)
- ---------- (1) Although this calculation is not applicable to the Association, the Association has a negative interest rate sensitivity gap which would adversely affect net interest income during a period of rising interest rates. The Association believes its high level of liquid assets would, however, allow the Association to address this negative impact. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates and loan prepayments, and should not be relied upon as indicative of actual results. Further, the computations do not contemplate any actions the Association may undertake in response to changes in interest rates. Certain shortcomings are inherent in the method of analysis presented in both the computation of NPV and in the analysis presented in prior tables setting forth the maturing and repricing of interest-earning assets and interest-bearing liabilities. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in differing degrees to changes in market interest rates. The interest rates on certain of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other assets and liabilities may lag behind changes in market rates. Based on the above, net interest income should decline with instantaneous increases in interest rates while net interest income should increase with instantaneous declines in interest rates. Further, in the event of a change in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in the tables. The Association originates fixed-rate and variable-rate real estate loans and holds most loans in portfolio until maturity, except as may be appropriate for asset/liability management purposes. Because the Association's interest-bearing liabilities which mature or reprice within short periods substantially exceed its earning assets with similar characteristics, material and prolonged increases in interest rates generally would adversely affect net interest income, while material and prolonged decreases in interest rates generally, but to a lesser extent because of their historically low levels, would have the opposite effect. Average Balance, Interest and Average Yields and Rates The following table sets forth certain information relating to the Association's average interest-earning assets and interest-bearing liabilities and reflects the average yield on assets and average cost of liabilities for the periods and at the date indicated. Such yields and costs are derived by dividing income or expense by the average monthly balance of assets or liabilities, respectively, for the periods presented. Management does not believe that the use of month-end balances instead of daily balances has caused any material difference in the information presented. The table also presents information for the periods and at the date indicated with respect to the difference between the average yield earned on interest-earning assets and average rate paid on interest-bearing liabilities, or "interest rate spread," which savings institutions have traditionally used as an indicator of profitability. Another indicator of an institution's net interest income is its "net yield on interest-earning assets," which is its net interest income divided by the average balance of interest-earning assets. Net interest income is affected by the interest rate spread and by the relative amounts of interest-earning assets and interest-bearing liabilities. When interest-earning assets approximate or exceed interest-bearing liabilities, any positive interest rate spread will generate net interest income. 19
Year Ended June 30, --------------------------------------------------------------- At June 30, 1997 1996 1997 ----------------------------- ------------------------------- ------------------ Average Average Yield/ Average Yield/ Average Yield/ Balance Cost Balance Interest Cost Balance Interest Cost ------- ----- ------- -------- ------- ------- -------- ------- (Dollars in thousands) Interest-earning assets: Interest-bearing deposits................ $ 2,381 3.53% $ 1,398 $ 84 6.01% $ 543 $ 41 7.55% Investments.............................. 6,328 6.81 7,234 431 5.96 9,081 581 6.40 Loans.................................... 63,129 8.31 58,752 5,249 8.93 47,442 4,326 9.12 ---------- ---------- ---------- --------- ---------- Total interest-earning assets ............. 71,836 8.02 67,384 5,764 8.55 57,066 4,948 8.67 ---------- ---------- Non-interest-earning assets................ 4,488 3,845 3,120 ---------- ---------- --------- Total assets............................... $ 76,324 $ 71,229 $ 60,186 ========== ========== ========= Interest-bearing liabilities: Savings deposits......................... $ 56,152 3.88 $ 53,890 2,179 4.04 $ 48,451 $ 1,967 4.06 FHLB advances............................ 13,520 4.69 10,508 634 6.03 5,308 326 6.14 ---------- ---------- ---------- --------- ---------- Total interest-bearing liabilities......... 69,672 4.04 64,398 2,813 4.37 53,759 2,293 4.27 ---------- ---------- Non-interest bearing liabilities........... 694 908 760 ---------- ---------- --------- Total liabilities.......................... 70,366 65,306 54,519 Equity..................................... 5,958 5,923 5,667 ---------- ---------- --------- Total liabilities and equity............... $ 76,324 $ 71,229 $ 60,186 ========== ========== ========= Net interest income........................ $ 2,951 $ 2,655 ========== ========== Net interest rate spread (1)............... 3.98% 4,19% 4.41% ==== ==== ==== Net interest\dividend earning assets....... $ 2,986 3,307 ========== ========= Net interest margin (2).................... 4.38% 4.65% ==== ==== Average interest-earning assets to average interest-bearing liabilities..... 104.64% 106.15% ========= =========
- -------------------- (1) Net interest rate spread represents the difference between the average yield on interest-earning assets and the average rate on interest-bearing liabilities. (2) Net interest margin represents net interest income divided by average interest-earning assets. 20 Rate/Volume Analysis The following table sets forth certain information regarding changes in interest income and interest expense of the Association for the periods indicated. For each category of interest-earning asset and interest-bearing liability, information is provided on changes attributable to: (i) changes in volume (changes in volume multiplied by old rate); (ii) changes in rate (changes in rate multiplied by old volume); and (iii) changes in rate/volume (changes in rate multiplied by changes in volume).
Year Ended June 30, ----------------------------------------------------------------------------------- 1997 vs. 1996 1996 vs. 1995 --------------------------------------- --------------------------------------- Increase (Decrease) Increase (Decrease) Due to Due to --------------------------------------- --------------------------------------- Rate/ Rate/ Volume Rate Volume Total Volume Rate Volume Total ------ ---- ------ ----- ------ ---- ------ ----- (In thousands) Interest-earning assets: Interest-bearing deposits ................ $ 66 $ (8) $ (13) $ 45 $ (8) $ -- $ -- $ (8) Investments .............................. (118) (40) 8 (150) (82) 81 (12) (13) Loans .................................... 1,033 (90) (21) 922 837 176 45 1,058 ------- ------- ------- ------- ------- ------- ------- ------- Total interest-earning assets .......... 981 (138) (26) 817 747 257 33 1,037 ------- ------- ------- ------- ------- ------- ------- ------- Interest-bearing liabilities: Deposits ................................. 221 (9) (1) 211 125 282 23 430 FHLB advances ............................ 321 (6) (5) 310 273 (3) (11) 259 ------- ------- ------- ------- ------- ------- ------- ------- Total interest-bearing liabilities .... 542 (15) (6) 521 398 279 12 689 ------- ------- ------- ------- ------- ------- ------- ------- Increase (decrease) in net interest income ................................. $ 439 $ (123) $ (20) $ 296 $ 349 $ (22) $ 21 $ 348 ======= ======= ======= ======= ======= ======= ======= =======
21 Comparison of Financial Condition at June 30, 1997 and June 30, 1996 The Association's total assets increased by $13.1 million from $63.2 million at June 30, 1996 to $76.3 million at June 30, 1997, with $13.0 million of the increase reported in loans receivable. The Association's market area is experiencing favorable population growth, resulting in increasing loan demand. The allowance for loan losses totaled $604,000 and $411,000 at June 30, 1997. and 1996. The loans charged off, net of recoveries, during the years ended June 30, 1997 and 1996 amounted to $89,000 and $53,000. At June 30, 1997, the ratio of the allowance for loan losses to net loans was .96%. as compared to .82% at June 30, 1996. The increase in the ratio is attributed to loan growth, and additional allowances established due to the increase in consumer, commercial real estate, commercial business and land development loans. At June 30, 1997 the Association's investment portfolio consisted of mortgage-backed securities and Federal Home Loan Bank stock. The mortgage-backed securities were reported as securities held-to-maturity, carried at amortized cost of $5.3 million, with an estimated fair value of $5.4 million. The Federal Home Loan Bank stock is carried at cost which is assumed to be equal to its market value, based on the fact the stock is only redeemable at par from the FHLB or another member institution. During the year ended June 30, 1997, the FHLB declared a stock dividend of $42,000. The Association completed construction of two new buildings located at the Association's two branch sites. The cost of the buildings and related equipment was approximately $1.3 million. At June 30, 1997 deposits had increased to $56.2 million, from $49.5 million at June 30, 1996 or a net increase of 13.5%. Part of the increase is attributed to the new branch building in Buena Vista, Colorado, and increased activity in the Association's market area. Certificates of deposit at June 30, 1997 and 1996 included approximately $8.7 million and $9.2 million of deposits with balances of $100,000 or more. Such time deposits may be risky because their continued presence in the Association is dependent partially upon the rates paid by the Association rather than any customer relationship and, therefore, may be withdrawn upon maturity if another institution offers higher interest rates. The Association may be required to resort to other funding sources such as borrowing or sales of its securities if the Association believes that increasing its rates to maintain such deposits would adversely affect its operating results. At this time, the Association does not believe that it will need to significantly increase its deposit rates to maintain such certificates of deposit, and therefore, does not anticipate resorting to alternative funding sources. Advances from the FHLB went from $7.2 million as of June 30, 1996 to $13.5 million as of June 30, 1997. The increase was used to fund the growth in loans originated during the year. Accounts payable and other liabilities increased by approximately $230,000 for the year ended June 30, 1997, due to the implementation of certain benefit plans. Comparison of Operating Results for the Year Ended June 30, 1997 to the Year Ended June 30, 1996 Net Income. The Association's net income for the year ended June 30, 1997 was $44,000 compared to $519,000 for the year ended June 30, 1996. The decrease for 1997 is attributed to the special SAIF assessment of $297,000, the adoption of certain benefit plans resulting in a one-time charge of $237,000, and an increase in the provision for losses on loans of approximately $223,000, which was offset by an increase in net interest income of approximately $296,000. Interest Income. Interest income increased by $817,000 from $5.0 million to $5.8 million or by 16.5%, during fiscal 1997. This change resulted in part from an overall increase of average interest-earning assets by $10.3 million from $57.1 million to $67.4 million or by 18.1% from fiscal 1996 to fiscal 1997. The Association experienced a decrease in the average yield on the interest-earning assets from 8.67% for fiscal 1996 to 8.55% for fiscal 1997. 22 Although loans were made at lower rates during fiscal 1997, it provided the Association with a competitive product that lead to growth in residential and other lending and earned a comparatively higher yield than short-term investments. Interest Expense. Interest expense increased $521,000 or 22.7% to $2.8 million for the year ended June 30 1997 from $2.3 million for the year ended June 30, 1996. For the year ended June 30, 1997, the average cost of deposits was 4.04%., compared to 4.06% for the year ended June 30, 1996. The interest expense for FHLB advances increased from $326,000 for the year ended June 30, 1996, to $634,000 for the year ended June 30, 1997. The increase is attributable to increased borrowings of $6.4 million. Provision for Loan Losses. The allowance for loan losses is established through a provision for loan losses based on management's evaluation of the risk inherent in its loan portfolio and the general economy. Such evaluation considers numerous factors including, general economic conditions, loan portfolio composition, prior loss experience, the estimated fair value of the underlying collateral and other factors that warrant recognition in providing for an adequate loan loss allowance. The provision for loan losses increased approximately $223,000 or 378% to $282,000 for the year ended June 30, 1997 from $59,000 for the year ended June 30, 1996. The increase in the provision for loan losses was the result of the increase in the Association's loan portfolio, including significant increases in: one- to four-family loans of $8.4 million; land development loans of $900,000; consumer loans (primarily auto loans) of $1.7 million; and commercial business loans of $2.0 million. Consumer, commercial business, and land development loans are generally considered to involve a higher degree of credit risk than one- to four-family residential mortgage loans. See "Risk Factors -- Risks Posed by Certain Lending Activities" and "Business of the Association." Noninterest Expense. Noninterest expense increased by $939,000 or 51.7% to $2.76 million for the year ended June 30, 1997 from $1.82 million for the year ended June 30, 1996. Compensation and benefits expenses increased by $476,000 or 54.8% to $1.34 million at June 30, 1997 from $869,000 at June 30, 1996. The increase in compensation and benefits expenses at June 30, 1997 was primarily the result of newly implemented benefit plans. Occupancy and equipment expense increased by $126,000 or 35.3%, to $482,000 at June 30, 1997 from $356,000 at June 30, 1996. The increase in occupancy and equipment expense was the result of the new branch office facilities in Leadville and Buena Vista. Pursuant to the Economic Growth and Paperwork Reduction Act of 1996 (the "Act"), the FDIC imposed a special assessment on SAIF members to capitalize the SAIF at the designated reserve level of 1.25% as of October 31, 1996. Based on the Association's deposits as of March 31, 1995, the date for measuring the amount of the special assessment pursuant to the Act, the Association's special assessment was $297,000. The assessment rate for the SAIF special assessment was 65.7 basis points, compared to 23 basis points for the regular assessment for the six months ended September 30, 1996, and 6.48 basis points for the regular assessment for the last two quarters of fiscal 1997. Income Taxes. The Association's effective tax rate for the years ended June 30, 1997 and 1996 was 20% and 44%, respectively. The change was due to rates used for the higher income level and State credits that were available. Liquidity and Capital Resources Following the completion of the Conversion, the Company initially will have no business other than that of the Converted Association and investing the net proceeds retained by it. Management believes that the net proceeds to be retained by the Company, earnings on such proceeds and principal and interest payments on the ESOP loan, together with dividends that may be paid from the Converted Association to the Company following the conversion, will provide sufficient funds for its initial operations and liquidity needs; however, no assurance can be given that the Company will not have a need for additional funds in the future. The Converted Association will be subject to certain regulatory limitations with respect to the payment of dividends to the Company. See "Dividend Policy " and "Regulation Depository Institution Regulation - Dividend Restrictions." The Company intends to lend a portion of the net proceeds retained from the Conversion to the ESOP to permit its purchase of Common Stock in the Conversion. See "Use of Proceeds." 23 At June 30, 1997, the Association exceeded all regulatory minimum capital requirements. For a detailed discussion of the OTS regulatory capital requirements, and for a tabular presentation of the Association's compliance with such requirements, see "Regulation - Depository Institution Regulation - Capital Requirements," and Note 11 of Notes to Financial Statements. The Association's primary sources of funds consists of deposits, repayment of loans and mortgage-backed securities, maturities of investments and interest-bearing deposits, and funds provided from operations. While scheduled repayments of loans and mortgage-backed securities and maturities of investment securities are predicable sources of funds, deposit flows and loan prepayments are greatly influenced by the general level of interest rates, economic conditions and competition. The Association uses its liquidity resources principally to fund existing and future loan commitments, to fund maturing certificates of deposit and demand deposit withdrawals, to invest in other interest-earning assets, to maintain liquidity, and to meet operating expenses. Management believes that loan repayments and other sources of funds will be adequate to meet the Association's liquidity needs for the immediate future. The Association is required to maintain minimum levels of liquid assets as defined by OTS regulations. This requirement, which may be varied at the direction of the OTS depending upon economic conditions and deposit flows, is based upon a percentage of deposits and short-term borrowings. The required minimum ratio is currently 5%. The Association has historically maintained a level of liquid assets in excess of regulatory requirements. The Association's liquidity ratios at June 30, 1997 and 1996 were 5.51% and 6.90%, respectively. The Association's liquidity ratios at June 30, 1997 and 1996 were reflective of the demand for new loans. A major portion of the Association's liquidity consists of cash and cash equivalents, which include investments in highly liquid, short-term deposits. The level of these assets is dependent on the Association's operating, investing, lending and financing activities during any given period. At June 30, 1997, cash and cash equivalents totaled $3.3 million. The primary investing activities of the Association include origination of loans and purchase of investment securities. During the year ended June 30, 1997 loan originations totaled $36.4 million. These originations were funded in part by loan and mortgage-backed prepayments, deposit growth, and by advances from the FHLB. Liquidity management is both a daily and long-term function of business management. If the Association requires funds beyond its ability to generate them internally, the Association borrows funds from the FHLB. At June 30, 1997, the Association had outstanding advances from the FHLB of $13.5 million. At June 30, 1997, the Association had $740,000 in outstanding commitments to originate loans. The Association anticipates that it will have sufficient funds available to meet its current loan origination commitments. Certificates of deposit which are scheduled to mature in one year or less totaled $25.3 million at June 30, 1997. Based on historical experience, management believes that a significant portion of such deposits will remain with the Association. Impact of Inflation and Changing Prices The financial statements and related data presented herein have been prepared in accordance with generally accepted accounting principles, which require the measurement of financial position and results of operations in terms of historical dollars without considering changes in the relative purchasing power of money over time because of inflation. Unlike most industrial companies, virtually all of the assets and liabilities of the Association are monetary in nature. As a result, interest rates have a more significant impact on the Association's performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the extent as the price of goods and services. Impact of New Accounting Standards Accounting for ESOP. The Accounting Standards Division of the American Institute of Certified Public Accountants approved Statement of Position ("SOP") 93-6, "Employers' Accounting for Employee Stock Ownership 24 Plans," which is effective for fiscal years beginning after December 15, 1993. SOP 93-6 changed, among other things, the measure of compensation recorded by employers from the cost of ESOP shares to the fair value of ESOP shares. To the extent that the fair value of the common stock held by the ESOP that are committed to be released directly to compensate employees, differs from the cost of such shares, compensation expenses and a related charge or credit to additional paid-in capital will be reported in the Association's financial statements. The adoption of the ESOP by the Association and the application of SOP 93-6 is likely to result in fluctuations in compensation expense as a result of changes in the fair value of the common stock. However, any such compensation expense fluctuations will result in an offsetting adjustment to paid-in capital, and therefore, total capital will not be affected. Disclosure of Derivative Financial Instruments. In October, 1994, the Financial Accounting Standards Board ("FASB) issued SFAS No. 119 "Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments." This statement addresses the disclosure of derivative financial instruments including the face amount, nature and terms. For derivatives held for trading, disclosure of objectives, strategies, policies on reporting and income recognition method is required. This statement is effective for financial statements for fiscal years ending after December 15, 1995. Currently the Association does not own any derivative financial instruments and therefore SFAS No. 119 does not have any impact on the financial statements. Accounting for Stock-Based Compensation. In October, 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation to Employees." This statement encourages entities to adopt the fair value based method of accounting for employee stock options or other stock compensation plans. However, it allows an entity to measure compensation cost for those plans using the intrinsic value based method of accounting prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees." Under the fair value based method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. Under the intrinsic value based method, compensation cost is the excess of the quoted market price of the stock at the grant date over the amount an employee must pay to acquire the stock. Most fixed stock option plans - the most common type of stock compensation plan - have no intrinsic value at grant date and under Opinion No. 25 no compensation cost is recognized for them. Compensation cost is recognized for other types of stock based compensation plans under Opinion No. 25, including plans with variable, usually performance-based features. This Statement requires that an employer's financial statements include certain disclosures about stock-based employee compensation arrangements regardless of the method used to account for them. This Statement is effective for transactions entered into in fiscal years that begin after December 15, 1995. The Association will adopt the Statement on the date the Association converts from a federal mutual to a federal stock savings and loan association. The Association has not determined which method it will use to account for the options at this time and has not estimated the effect of adoption on the Association's financial statements. Earnings Per Share. In March 1997, the Financial Accounting Standards Board ("FASB") issued Statement No. 128. The Statement establishes standards for computing and presenting earnings per share and applies to entities with publicly held common stock or potential common stock. This Statement simplifies the standards for computing earnings per share and makes them comparable to international EPS standards. It replaces the presentation of primary EPS with a presentation of basic EPS. It also requires dual presentations of basic and diluted EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Diluted EPS is computed similarly to fully diluted EPS pursuant to APB Opinion No. 15. This statement supersedes Opinion 15 and AICPA Accounting Interpretation 1-102 of Opinion 15. This statement is effective for financial statements issued for periods ending after December 15, 1997. Management believes that the impact of adopting SFAS No. 128 will not be material to the financial statements. 25 Disclosure of Information about Capital Structure. In February 1997, the Financial Accounting Standards Board issued Statement No. 129. The Statement incorporates the disclosure requirements of APB Opinion No. 15, Earnings Per Share and makes them applicable to all public and nonpublic entities that have issued securities addressed by the Statement. APB Opinion No. 15 requires disclosure of descriptive information about securities that is not necessarily related to the computation of earnings per share. This statement continues the previous requirements to disclose certain information about an entity's capital structure found in APB Opinions No. 10, Omnibus Opinion - 1966, and No. 15, Earnings Per Share, and FASB Statement No. 47, Disclosure of Long-Term Obligations, for entities that were subject to the requirements of those standards. This Statement eliminates the exemption of nonpublic entities from certain disclosure requirements of Opinion No. 15 as provided by FASB Statement No. 21, Suspension of the Reporting of Earnings per Share and Segment Information by Nonpublic Enterprises. It supersedes specific disclosure requirements of Opinions 10 and 15 and Statement 47 and consolidates them in this statement for ease of retrieval and for greater visibility to nonpublic entities. The Statement is effective for financial statements for periods ending after December 15, 1997. SFAS No. 129 will be adopted by the Association after December 15, 1997, the impact of adopting the Statement will not be material to the financial statements. Reporting Comprehensive Income. In June 1997, the Financial Accounting Standards board issued Statement No. 130. The Statement establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains, and losses) in a full set of general-purpose financial statements. This Statement requires that all items that are required to be recognized under accounting standards as components of comprehensive income to be reported in a financial statement that is displayed with the same prominence as other financial statements. This Statement does not require a specific format for that financial statement but requires that an enterprise display an amount representing total comprehensive income for the period in that financial statement. This Statement requires that an enterprise (a) classify items of other comprehensive income by their nature in a financial statement and (b) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. This Statement is effective for fiscal years beginning after December 15, 1997. FASB Statement No. 130 will be adopted by the Association after December 15, 1997, the impact of adopting the Statement will not be material to the financial statements. Disclosures about Segments of an Enterprise and Related Information. In June 1997 the Financial Accounting Standards board issued Statement No. 131. The Statement establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. This Statement supersedes FASB Statement No. 14, Financial reporting for segments of Business Enterprise, but retains the requirement to report information about major customers. It amends FASB Statement No. 94, Consolidation of all Majority-owned Subsidiaries, to remove the special disclosure requirements for previously unconsolidated subsidiaries. The Statement requires that a public business enterprise report financial and descriptive information about its reportable operating segments. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Generally, financial information is required to be reported on the basis that is used internally for evaluating segment performance and deciding how to allocate resources to segments. The Statement requires that a public business enterprise report a measure of segment profit or loss, certain specific revenue and expense items, and segment assets. It requires reconciliations of total segment revenues, total segment profit or loss, total segment assets and other amounts disclosed for segments to corresponding amounts in the enterprise's general-purpose financial statements. It requires that all public business enterprises report information about the revenues derived from the enterprise's products or services (or groups of similar products and services), about the 26 countries in which the enterprise earns revenues and holds assets, and about major customers regardless of whether that information is used in making operating decisions. The Statement also requires that a public business enterprise report descriptive information about the way that the operating segments were determined, the products and services provided by the operating segments, differences between the measurements used in reporting segment information and those used in the enterprise's general-purpose financial statements, and changes in the measurement of segment amounts from period to period. This Statement is effective for fiscal years beginning after December 15, 1997. FASB Statement No. 131 will be adopted by the Association after December 15, 1997, the impact of adopting the Statement will not be material to the financial statements. BUSINESS OF THE COMPANY The Company was organized at the direction of the Board of Directors of the Association in August 1997 for the purpose of becoming a holding company to own all of the outstanding capital stock of the Association. Upon completion of the Conversion, the Association will become a wholly owned subsidiary of the Company. For additional information, see "High Country Bancorp, Inc." The Company currently is not an operating company. Following the Conversion, the Company will be engaged primarily in the business of directing, planning and coordinating the business activities of the Association. In the future, the Company may become an operating company or acquire or organize other operating subsidiaries, including other financial institutions, though there are no current plans in this regard. Initially, the Company will not maintain offices separate from those of the Association or employ any persons other than its officers (all of whom are officers of the Association) who will not be separately compensated for such service. BUSINESS OF THE ASSOCIATION General Historically, the Association's principal business has consisted of attracting deposits from the general public and investing these funds in loans secured by first mortgages on owner-occupied, one- to four-family residences in the Association's market area. Since 1996, the Association has significantly increased its origination of consumer, commercial business and commercial real estate loans, including loans for the purchase and development of raw land, all of which loans have been originated in its market area. These types of loans carry significantly greater risks than one- to four-family residential real estate loans. While all of these loans are currently performing, potential investors should be aware of the additional risks inherent in these types of loans. For more information, see "Risk Factors--Risks Posed by Certain Lending Activities." The Association derives its income principally from interest earned on loans, as well as interest earned on mortgage-backed securities and other investments. The Association's principal expenses are interest expense on deposits and borrowings and noninterest expenses such as compensation and employee benefits, deposit insurance and other miscellaneous expenses. Funds for these activities are provided principally by deposits, repayments of outstanding loans and mortgage-backed securities and operating revenues. Market Area The Association's market area for gathering deposits and making loans is Chaffee, Lake, Western Fremont and Saguache Counties in Colorado, which is located in central Colorado. Tourism related businesses are the base of the market area's economy. The primary employers in the market area are the tourism industry and the government. As of 1990, the market area had a population of approximately 23,000. Major employers in the area include the Colorado Department of Corrections, the Heart of the Rockies Medical Center, Asarco mines, local school districts and governments and Wal Mart. In addition, the area is a frequent destination for retirees, self-employed individuals and telecommuters who wish to take advantage of the recreation and 27 beauty that the Rocky Mountains offer. Major towns (population) in the market area include Salida (4,737), Buena Vista (1,752) and Leadville (2,659). Lending Activities General. The Association's loan portfolio, net, totaled $63.1 million at June 30, 1997, representing 82.71% of total assets at that date. Substantially all loans are originated in the market area. At June 30, 1997, $49.6 million, or 78.57% of the Association's gross loan portfolio consisted of one- to four-family, residential mortgage loans. Other loans secured by real estate include commercial real estate loans which amounted to $1.6 million or 2.60% of the gross loan portfolio and land development loans, which amounted to $2.4 million or 3.79% of the gross loan portfolio at June 30, 1997. The Association also originates consumer loans, most of which are automobile loans, and commercial business loans. At June 30, 1997, consumer loans totaled $6.5 million, or 10.26% of the gross loan portfolio, and commercial business loans totaled $4.3 million or 6.79% of the gross loan portfolio. Analysis of Loan Portfolio Set forth below is selected data relating to the composition of the Association's loan portfolio by type of loan at the dates indicated. At June 30, 1997, the Association had no concentrations of loans exceeding 10% of total loans other than as disclosed below.
At June 30, -------------------------------------------------------- 1997 1996 ----------------------------- ------------------------ Amount % Amount % ------ ----- ------ ----- (Dollars in thousands) Mortgage Loans: One- to four-family..................................... $ 46,510 73.68% $ 38,704 77.29% Commercial.............................................. 1,644 2.60 1,381 2.76 Construction............................................ 3,092 4.90 2,544 5.08 Land development........................................ 2,390 3.79 1,500 3.00 ---------- ------- --------- ------- Total mortgage loans................................. 53,636 84.97 44,129 88.12 ---------- ------- --------- ------- Consumer loans............................................ 6,476 10.26 4,770 9.53 Loans on savings accounts................................. 765 1.21 824 1.65 Commercial loans.......................................... 4,287 6.79 2,285 4.56 Other loans............................................... 98 0.16 92 0.18 ---------- ------- --------- ------- Total loans............................................... 65,262 103.38 52,100 104.04 ---------- ------- --------- ------- Less: Undisbursed loans in process............................ 1,123 1.78 1,247 2.49 Deferred fees and discounts............................ 408 0.65 366 0.73 Allowance for losses.................................... 604 0.96 411 0.82 ---------- ------- --------- ------- Loan portfolio, net....................................... $ 63,127 100.00% $ 50,076 100.00% ========== ======= ========= =======
28 Loan Maturity Schedule The following table sets forth certain information at June 30, 1997 regarding the dollar amount of loans maturing in the Association's portfolio based on their contractual terms to maturity. Demand loans, loans having no stated schedule of repayments and no stated maturity, and overdrafts are reported as due in one year or less.
Three Three to One to Three to Five to Over Months Twelve Months Three Years Five Years Ten Years Ten Years Total ------ ------------- ----------- ---------- --------- --------- ----- (In thousands) Mortgage loans ................... $ 4,934 $ 8,340 $ 1,322 $ 2,222 $ 6,929 $28,783 $52,530 Commercial loans ................. 1,436 1,543 600 1,127 250 -- 4,956 Consumer loans ................... 232 941 2,022 3,214 244 -- 6,653 ------- ------- ------- ------- ------- ------- ------- Total ....................... $ 6,602 $10,824 $ 3,944 $ 6,563 $ 7,423 $28,783 $64,139 ======= ======= ======= ======= ======= ======= =======
The next table sets forth at June 30, 1997, the dollar amount of all loans which have predetermined interest rates and have floating or adjustable interest rates.
Predetermined Floating or Rate Adjustable Rates ----------- ---------------- (In thousands) Mortgage loans One- to four-family .................... $ 42,986 $ 5,510 Non-residential ........................ 3,278 756 Commercial ................................. 4,956 -- Consumer ................................... 6,653 -- --------- --------- Total .............................. $ 57,873 $ 6,266 ========= =========
29 Scheduled contractual principal repayments of loans do not reflect the actual life of such assets. The average life of loans is substantially less than their contractual terms because of prepayments. In addition, due-on-sale clauses on loans generally give the Association the right to declare a loan immediately due and payable in the event, among other things, that the borrower sells the real property subject to the mortgage and the loan is not repaid. The average life of mortgage loans tends to increase when current mortgage loan market rates are substantially higher than rates on existing mortgage loans and, conversely, decrease when current mortgage loan market rates are substantially lower than rates on existing mortgage loans. One-to Four-Family Real Estate Loans. The Association's primary lending activity consists of the origination of loans secured by owner-occupied, one- to four-family residential properties located in its primary market area. At June 30, 1997, $49.6 million, or 78.57%, of the Association's loan portfolio consisted of loans secured by one- to four-family residential properties, of which $5.5 million or 11.09% carried adjustable interest rates. The Association estimates that the average size of the residential mortgages that it currently originates is $85,000. The Association originates both fixed-rate mortgage loans and adjustable-rate mortgage loans ("ARMs"). Due to customer preferences for fixed-rate loans, the Association has had difficulty originating a large volume of ARMs in recent years. Most fixed-rate mortgage loans are originated for terms of 15 or 25 years. ARMs are originated for terms of up to 25 years. The Association's ARMs have interest rates that adjust every one year, with a maximum adjustment of two percentage points for any adjustment period and up to six percentage points over the life of the loan. These loans are indexed to the rate on one-year U.S. Treasury securities, adjusted to a constant maturity. The current margin is two and one-half percentage points. Historically, all loans originated by the Association have been retained in the Association's loan portfolio. However, in June 1997 and June, 1996, the Association sold two large blocks of fixed-rate loans of $3.9 million and $5.8 million, respectively, in order to manage interest rate risk. In future years, the Association may increase its origination and sale of mortgage loans, while retaining the servicing of such loans to generate fee income. The Association's lending policies generally limit the maximum loan-to-value ratio on residential mortgage loans to a maximum of 80% of the lesser of the appraised value of the underlying property or its purchase price. For those few loans where the loan-to-value ratio exceeds 80%, the Association requires private mortgage insurance. Originated loans in the Association's portfolio include due-on-sale clauses which provide the Association with the contractual right to deem the loan immediately due and payable in the event that the borrower transfers ownership of the property without the Association's consent. The retention of ARMs in portfolio helps reduce the Association's exposure to increases in interest rates. There are, however, unquantifiable credit risks resulting from potential increased costs to the borrower as a result of upward repricing of ARMs. It is possible that during periods of rising interest rates, the risk of default on ARMs may increase due to the upward adjustment of interest costs to the borrower. The Association does not originate ARM loans which provide for negative amortization. Although ARMs allow the Association to increase the sensitivity of its asset base to changes in interest rates, the extent of this interest sensitivity is limited by the periodic and lifetime interest rate ceilings contained in ARM contracts. In addition, since ARM interest rates can be adjusted no more frequently than annually, the yield on the Association's ARM portfolio does not adjust as rapidly as market interest rates. Accordingly, there can be no assurance that yields on the Association's ARMs will adjust sufficiently to compensate for increases in its cost of funds. The Association also originates second mortgage loans primarily for its existing one-to four-family first mortgage customers. At June 30, 1997, $4.6 million or 7.22% of the Association's loan portfolio consisted of second mortgage loans and home equity lines of credit. Second mortgage loans are generally underwritten on a fixed-rate basis with terms of up to 15 years and are fully amortizing over the term of the loan. Second mortgages are generally subject to an 80% combined loan-to-value limitation, including all other outstanding mortgages or liens. Construction Loans. The Association offers construction financing to qualified borrowers for construction primarily of single-family residential properties and to qualified developers for construction of small residential developments. The Association provides financing to one builder for the construction of no more than four homes at 30 a time. Construction loans are generally limited to a maximum loan-to-value ratio of 75% of the appraised value of the property on an "as-completed" basis. The Association attempts to structure its residential construction loans so that they convert to a permanent loan, although this is not necessarily the case. Loans to finance the construction of residential property on a speculative basis are offered on a fixed-rate basis only, with the rate indexed to the prime rate plus a negotiated increment. The Association limits the origination of construction loans to borrowers and developers with whom the Association has had substantial prior experience due to the significant time and other requirements associated with originating and monitoring construction loans. Loan proceeds are disbursed during the construction phase (a maximum of 12 months) according to a draw schedule based on the stage of completion. Construction loans are underwritten on the basis of the estimated value of the property as completed and loan-to-value ratios must conform to the requirements for the permanent loan. At June 30, 1997, $4.0 million, or 6.14% of the Association's gross loan portfolio consisted of construction loans to fund the construction of one- to four-family properties. The Association had an additional $200,000, or .31% of the Association's gross loan portfolio, in loans to finance the construction of commercial properties at June 30, 1997. Approximately 95% of all construction loans originated by the Association convert into permanent loans upon completion of the construction phase. Construction financing generally is considered to involve a higher degree of risk of loss than long-term financing on improved, occupied real estate. Risk of loss on a construction loan is dependent largely upon the accuracy of the initial estimate of the property's value at completion of construction or development and the estimated cost (including interest) of construction. During the construction phase, a number of factors could result in delays and cost overruns. If the estimate of construction cost proves to be inaccurate, the Association may be required to advance funds beyond the amount originally committed to permit completion of the development. If the estimate of the value proves to be inaccurate, the Association may be confronted, at or prior to the maturity of the loan, with a project having a value which is insufficient to assure full repayment. The ability of a developer to sell developed lots or completed dwelling units will depend on, among other things, demand, pricing, availability of comparable properties and economic conditions. The Association has sought to minimize this risk by limiting construction lending to qualified borrowers in the Association's market area, limiting the aggregate amount of outstanding construction loans and imposing a stricter loan-to-value ratio requirement than required for one- to four-family mortgage loans. Land Development Loans. The Association originates land loans to local developers for the purpose of developing the land (i.e., roads, sewer and water) for sale, and loans secured by raw land, such as cattle ranching acreage. Such loans are secured by a lien on the property, are generally limited to 70% of the developed value of the secured property and are typically made for a period of one-year, renewable based on negotiations with the Association. Most land development loans are expected to be fully paid off five years after the original date of the loan. The Association generally requires semi-annual interest payments during the term of the land loan. The amount of funds available under the Association's land loans usually include an amount from which the borrower can pay the stated interest due thereon until completion of the loan term. The principal of the loan is reduced as lots are developed, sold and released. All of the Association's land loans are secured by property located in its primary market area. In addition, the Association obtains personal guarantees from its borrowers and originates such loans to developers with whom it has established relationships. At June 30, 1997, the Association had $2.4 million of land development loans, which constituted 3.79% of the gross loan portfolio at such date. This total includes three loans of $545,000, $417,0000 and $413,000, respectively, which are three of the Association's four largest loans (the motel loan described below is the fourth). The Association originated $1.8 million and $1.6 million in land development loans during fiscal 1997 and fiscal 1996, respectively. Land development loans generally involve a higher degree of risk than residential mortgage lending in that there are large loan balances to single borrowers, and the initial estimate of the property value at completion may be inaccurate due to market variations and the difficulty in selling lots for home building. The success of such land development projects is sensitive to changes in supply and demand conditions in the local housing market, as well as regional and economic conditions generally. Although the Association has attempted to reduce these risks, as noted above, potential investors should be aware of these factors in making their investment decision. See "Risk Factors -- Risks Posed by Certain Lending Activities." 31 Commercial Real Estate Loans. At June 30, 1997, loans secured by commercial real estate properties totaled $1.6 million, and represented 2.60% of the Association's loan portfolio. Commercial real estate loans are secured by motels, small office buildings and retail stores and other non-residential property. Some of the Association's commercial real estate loans are made to local businesses connected to the tourism and recreational rafting industries, which predominate in the Association's primary market area. At June 30, 1997, the Association's largest outstanding commercial real estate loan was a $427,000 loan secured by a motel in Salida, Colorado. Substantially all of the Association's commercial real estate loans are secured by property located within the Association's market area and were current and performing at June 30, 1997. Commercial real estate loans generally have terms of up to 10 years and are underwritten on either a fixed or adjustable-rate basis. Commercial real estate loans have a maximum 20-year amortizing, although the term of the loan may be a fixed ten-year balloon loan. Adjustable-rate commercial and multi-family mortgages are indexed to the prime rate and adjust on an annual basis. Loan-to-value ratios may not exceed 70% of the appraised value of the underlying property. It is the Association's policy to obtain personal guarantees from all principals obtaining commercial real estate loans. In assessing the value of such guarantees, the Association reviews the individuals' personal financial statements, credit reports, tax returns and other financial information. Commercial real estate lending entails significant additional risks compared to residential property lending. These loans typically involve large loan balances to single borrowers or groups of related borrowers. The payment experience on such loans typically is dependent on the successful operation of the real estate project or business. These risks can be significantly affected by business conditions and by supply and demand conditions in the market for office and retail space, and, as such, may be subject to a greater extent to adverse conditions in the economy generally. To minimize these risks, the Association generally limits this type of lending to its market area and to borrowers with which it has substantial experience or who are otherwise well known to management. With certain limited exceptions, the maximum amount that the Association may lend to any borrower (including certain related entities of the borrower) at any one time may not exceed 15% of the unimpaired capital and surplus of the institution, plus an additional 10% of unimpaired capital and surplus for loans fully secured by readily marketable collateral. At June 30, 1997, the maximum amount that the Association could have loaned to any one borrower without prior OTS approval was $983,000. At June 30, 1997, the largest aggregate amount of loans that the Association had outstanding to any one borrower and their related interests was $930,000 and consisted of ten loans including two loans of $300,000 and $350,000, both secured by cattle ranching properties. The largest single commercial loan outstanding was a $427,000 loan secured by a motel discussed above. Commercial Business Loans. At June 30, 1997, the Association had $4.3 million in commercial business loans which represented 6.79% of the Association's gross loan portfolio. The Association is permitted to invest up to 20% of its assets in commercial loans. The Association's commercial business lending activities are directed towards small businesses located in its market area, including those connected to the tourism industry, such as recreational vehicle ("RV") dealers, rafting companies and other tourist-related businesses. Generally, the Association's commercial business loans are secured by assets such as inventory, equipment or other assets and are guaranteed by the principals of the business. From time to time, the Association has engaged in dealer floor-plan lending with a limited number of dealerships with which the Association has had substantial experience. Commercial business loans usually carry a fixed rate and generally are underwritten for a maximum of five years. The Association underwrites its commercial business loans on the basis of the borrower's cash flow and ability to service the debt from earnings rather than on the basis of the underlying collateral value, and seeks to structure such loans to have more than one source of repayment. The borrower is required to provide the Association with sufficient information to allow the Association to make its lending determination. In most instances, this information consists of at least three years of financial statements, a statement of projected cash flows, current financial information on any guarantor and any additional information on the collateral. For information regarding the risks associated with commercial lending, see "Risk Factors -- Risks Associated with Certain Lending Activities." 32 Consumer Loans. The Association's consumer loans, which totaled $7.3 million or 11.25% of the gross loan portfolio at June 30, 1997, includes primarily loans secured by deposit accounts, automobile loans and other personal loans, which represented 1.21%, 8.62%, and 1.80% of its total loan portfolio, respectively, at June 30, 1997. The Association also makes RV and boat loans, tractor loans and home improvement loans pursuant to its consumer lending authority. The Association has recently emphasized consumer lending because of the higher yields and shorter-terms of such loans. The Association makes deposit account loans up to 95% of the depositor's account balance. The interest rate is normally 2.0% above the rate paid on the account and the account must be pledged as collateral to secure the loan. Savings account loans are secured by demand notes and interest is due on a quarterly basis. The Association's automobile loans are generally underwritten in amount up to the purchase price of the automobile or the trading-in value as published by the National Automobile Dealers Association. The terms of such loans generally do not exceed 60 months and vary depending on the age of the vehicle securing the loan. The Association requires the borrower to insure the automobile under a policy listing the Association as loss payee. The Association also makes unsecured personal loans of up to $10,000. The terms of such loans do not exceed 12 months. Since fiscal 1995, the Association has increased its consumer lending by hiring a consumer loan officer. The Association intends to continue to emphasize the origination of consumer loans, especially automobile loans. Consumer loans entail greater risk than do residential mortgage loans, particularly in the case of consumer loans which are unsecured or secured by rapidly depreciable assets such as automobiles, RVs, boats and tractors. In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation. The remaining deficiency often does not warrant further substantial collection efforts against the borrower. In addition, consumer loan collections are dependent on the borrower's continuing financial stability, and thus are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans. Such loans may also give rise to claims and defenses by a consumer loan borrower against an assignee of such loans such as the Association, and a borrower may be able to assert against such assignee claims and defenses which it has against the seller of the underlying collateral. Loan Solicitation and Processing. The Association's mortgage loans have generally been originated by its loan officers, branch managers and senior management officials. Loan originations are obtained from a number of sources, including existing and past customers, members of the local community and established builders and realtors within the Association's market area. Upon receipt of a loan application from a prospective borrower, the Association reviews the information provided and makes an initial determination as to whether certain basic underwriting standards regarding the type of property, debt-to-income ratios and other credit concerns are satisfied. A credit report and employment and other verifications are obtained to verify certain specific information relating to the loan applicant's employment, income and credit standing. For real estate loans, an appraisal of the property intended to secure the loan is undertaken by an independent appraiser approved by the Association. It is the Association's policy to obtain appropriate insurance protection on all real estate first mortgage loans and to obtain a lawyer's opinion of title which insures that the property is free of prior encumbrances. The borrower must also obtain paid flood insurance when the property is located in a flood plain as designated by the Federal Government. It is the Association's policy to record a lien on the real estate securing the loan. Borrowers generally are required to advance funds for certain items such as real estate taxes, flood insurance and private mortgage insurance, when applicable. Secured loans in amounts of up to $200,000 may be approved by two members of the Association's loan committee. All loans in excess of $200,000 must be approved by the Board of Directors. Branch Managers may approve consumer loans of up to $10,000, or up to $20,000 with the approval of the consumer loan officer. Consumer loans of $20,000 to $100,000 may be approved by two members of the loan committee, while consumer loans over $100,000 must be approved by the full Board of Directors. Commercial loans of up to $100,000 may be approved by two members of the loan committee, while such loans over $100,000 to $200,000 are approved by two loan committee members and one outside Director and loans of $200,000 or over go to the full Board. 33 Loan applicants are promptly notified in writing of the Association's decision. If the loan is approved, the notification will provide that the Association's commitment will generally terminate within 30 days of the approval. It has been the Association's experience that substantially all approved loans are funded. Loan Originations, Purchases and Sales. Most loans originated by the Association are intended to be held in the Association's portfolio until maturity. The Association is a qualified seller/servicer for the Federal Home Loan Mortgage Corporation ("FHLMC"). The Association uses FHLMC documentation for its residential mortgages, and most of the loans in its portfolio would generally qualify for sale to FHLMC under standard programs. The Association, however, has selectively sold blocks of loans when appropriate for asset/liability management purposes. In June 1997 and June 1996, the Association sold $3.9 million and $5.8 million, respectively, in fixed-rate loans to FHLMC for this reason. The following table sets forth certain information with respect to the Association's loan origination activity for the periods indicated. The Association has not purchased any loans in the periods presented.
Year Ended June 30, ---------------------------- 1997 1996 ---------- ---------- (In thousands) Net loans, beginning of period................................. $ 50,076 $ 41,537 Origination by type: - ------------------- Mortgage loans: One- to four-family......................................... $ 19,174 $ 18,973 Commercial.................................................. 981 1,898 Land development............................................ 1,813 1,641 Consumer loans................................................. 9,179 6,323 Loans on savings accounts...................................... 604 694 Commercial loans............................................... 4,669 2,906 --------- --------- Total loans originated.................................... 36,420 32,435 --------- --------- Loans sold..................................................... 3,968 5,777 --------- --------- Repayments..................................................... 19,636 18,092 --------- --------- Decrease (increase) in other items, net........................ 235 (27) --------- --------- Net increase (decrease) in loans receivable, net.......... 13,051 8,539 --------- --------- Net loans, end of period....................................... $ 63,127 $ 50,076 ========= =========
Nonperforming Loans and Other Problem Assets. It is management's policy to continually monitor its loan portfolio to anticipate and address potential and actual delinquencies. When a borrower fails to make a payment on a loan, the Association takes immediate steps to have the delinquency cured and the loan restored to current status. Loans which are delinquent 15 days incur a late fee of 5.0% of principal and interest due. As a matter of policy, the Association will contact the borrower after the loan has been delinquent 30 days. If payment is not promptly received, the borrower is contacted again, and efforts are made to formulate an affirmative plan to cure the delinquency. Generally, after any loan is delinquent 90 days or more, formal legal proceedings are commenced to collect amounts owed. Loans are placed on nonaccrual status if the loan becomes past due more than 90 days unless such loans are well-secured and in the process of collection. Loans are charged off when management concludes that they are uncollectible. See Note 1 of Notes to Financial Statements. 34 Real estate acquired by the Association as a result of foreclosure is classified as real estate acquired through foreclosure until such time as it is sold. When such property is acquired, it is initially recorded at estimated fair value and subsequently at the lower of book value or fair value, less estimated costs to sell. Costs relating to holding such real estate are charged against income in the current period, while costs relating to improving such real estate are capitalized until a saleable condition is reached. Any required write-down of the loan to its fair value less estimated selling costs upon foreclosure is charged against the allowance for loan losses. See Note 1 of Notes to Financial Statements. The following table sets forth information with respect to the Association's nonperforming assets at the dates indicated. Further, no loans were recorded as restructured loans within the meaning of SFAS No. 15 at the dates indicated.
At June 30, --------------------------- 1997 1996 -------- -------- (In thousands) Loans accounted for on a non-accrual basis: (1) Real estate: One-to four-family......................................... $ -- $ -- Commercial................................................. -- -- Land development........................................... -- -- Consumer....................................................... 137 73 Commercial..................................................... 3 -- Other.......................................................... -- -- -------- -------- Total.................................................. 140 73 -------- -------- Accruing loans delinquent 90 days or more: Real estate: One-to four-family......................................... $ -- $ -- Commercial................................................. -- -- Land development........................................... -- -- Consumer..................................................... -- -- Commercial..................................................... -- -- Other.......................................................... -- -- -------- -------- Total.................................................. -- -- -------- -------- Total nonperforming loans.......................... 140 73 -------- -------- Repossed assets................................................ 35 -- -------- -------- Total non-performing assets.................................... $ 175 $ 73 ======== ======== Total non-performing loans as a percentage of total net loans................................ 0.22% 0.15% ======== ======== Total non-performing assets as a percentage of total assets................................... 0.23% 0.12% ======== ========
At June 30, 1997, the Association had $140,000 in loans outstanding that were classified as non-accrual, of which $137,000 were consumer loans, including $77,000 in automobile loans. At that date, the Association had no loans outstanding that were not classified as non-accrual, 90 days past due or restructured, but as to which known information about possible credit problems of borrowers caused management to have serious concerns as to the ability of the borrowers to comply with present loan repayment terms and may result in disclosure as non-accrual, 90 days past due or restructured. 35 Federal regulations require savings institutions to classify their assets on the basis of quality on a regular basis. An asset meeting one of the classification definitions set forth below may be classified and still be a performing loan. An asset is classified as substandard if it is determined to be inadequately protected by the current retained earnings and paying capacity of the obligor or of the collateral pledged, if any. An asset is classified as doubtful if full collection is highly questionable or improbable. An asset is classified as loss if it is considered uncollectible, even if a partial recovery could be expected in the future. The regulations also provide for a special mention designation, described as assets which do not currently expose a savings institution to a sufficient degree of risk to warrant classification but do possess credit deficiencies or potential weaknesses deserving management's close attention. Such assets designated as special mention may include nonperforming loans consistent with the above definition. Assets classified as substandard or doubtful require a savings institution to establish general allowances for loan losses. If an asset or portion thereof is classified loss, a savings institution must either establish a specific allowance for loss in the amount of the portion of the asset classified loss, or charge off such amount. Federal examiners may disagree with a savings institution's classifications. If a savings institution does not agree with an examiner's classification of an asset, it may appeal this determination to the OTS Regional Director. The Association regularly reviews its assets to determine whether any assets require classification or re- classification. At June 30, 1997, the Association had $514,000 in assets classified as special mention, $420,000 in assets classified as substandard, $0 in assets classified as doubtful and no assets classified as loss. The special mention classification is primarily used by management as a "watch list" to monitor loans that exhibit any potential deviation in performance from the contractual terms of the loan. Allowance for Loan Losses. In originating loans, the Association recognizes that credit losses will be experienced and that the risk of loss will vary with, among other things, the type of loan being made, the creditworthiness of the borrower over the term of the loan, general economic conditions and, in the case of a secured loan, the quality of the security for the loan. It is management's policy to maintain an adequate allowance for loan losses based on, among other things, the Association's and the industry's historical loan loss experience, evaluation of economic conditions, regular reviews of delinquencies and loan portfolio quality and evolving standards imposed by federal bank examiners. The Association increases its allowance for loan losses by charging provisions for loan losses against the Association's income. During fiscal 1997, the Association increased its allowance for loan losses by $282,000 to $604,000 at June 30, 1997. The Association took this action due to the significant increase in commercial real estate, commercial business, consumer and land development loans originated by the Association during fiscal 1997, and due to the additional risks inherent in these types of lending. For more information see "Management's Discussion and Analysis of Financial Condition and Results of Operations." Management will continue to actively monitor the Association's asset quality and allowance for loan losses. Management will charge off loans and properties acquired in settlement of loans against the allowances for losses on such loans and such properties when appropriate and will provide specific loss allowances when necessary. Although management believes it uses the best information available to make determinations with respect to the allowances for losses and believes such allowances are adequate, future adjustments may be necessary if economic conditions differ substantially from the economic conditions in the assumptions used in making the initial determinations. The Association's methodology for establishing the allowance for loan losses takes into consideration probable losses that have been identified in connection with specific assets as well as losses that have not been identified but can be expected to occur. Management conducts regular reviews of the Association's assets and evaluates the need to establish allowances on the basis of this review. Allowances are established by the Board of Directors on a quarterly basis based on an assessment of risk in the Association's assets taking into consideration the composition and quality of the portfolio, delinquency trends, current charge-off and loss experience, loan concentrations, the state of the real estate market, regulatory reviews conducted in the regulatory examination process and economic conditions generally. Specific reserves will be provided for individual assets, or portions of assets, when ultimate collection is considered improbable by management based on the current payment status of the assets and the fair value of the security. At the date of foreclosure or other repossession, the Association would transfer the property to real estate acquired in settlement of loans initially at the lower of cost or estimated fair value and subsequently at the lower of book value or fair value less estimated selling costs. Any portion of the outstanding loan balance in excess of fair value less estimated selling costs would be charged off against the allowance for loan losses. If, upon ultimate disposition of the property, net sales proceeds exceed the net carrying value of the property, a gain on sale of real estate would be recorded. 36 Banking regulatory agencies, including the OTS, have adopted a policy statement regarding maintenance of an adequate allowance for loan and lease losses and an effective loan review system. This policy includes an arithmetic formula for determining the reasonableness of an institution's allowance for loan loss estimate compared to the average loss experience of the industry as a whole. Examiners will review an institution's allowance for loan losses and compare it against the sum of: (i) 50% of the portfolio that is classified doubtful; (ii) 15% of the portfolio that is classified as substandard; and (iii) for the portions of the portfolio that have not been classified (including those loans designated as special mention), estimated credit losses over the upcoming 12 months given the facts and circumstances as of the evaluation date. This amount is considered neither a "floor" nor a "safe harbor" of the level of allowance for loan losses an institution should maintain, but examiners will view a shortfall relative to the amount as an indication that they should review management's policy on allocating these allowances to determine whether it is reasonable based on all relevant factors. The following table sets forth an analysis of the Association's allowance for loan losses for the periods indicated.
Year Ended June 30, ---------------------------- 1997 1996 -------- -------- (Dollars in thousands) Balance at beginning of period................................. $ 411 $ 405 -------- --------- Charge-offs: One- to four-family.......................................... (32) (26) Multi-family................................................. -- -- Non-residential.............................................. -- -- Construction................................................. -- -- Consumer..................................................... (64) (27) Commercial................................................... -- -- Other........................................................ -- -- -------- --------- (96) (53) -------- --------- Recoveries..................................................... 7 -- -------- --------- Net recoveries (charge-offs)................................... (89) (53) -------- --------- Additions charged to operations................................ 282 59 -------- --------- Balance at end of period....................................... $ 604 $ 411 ======== ========= Allowance for loan losses to total non-performing loans at end of period........................ 431.00% 563.00% ======== ========= Allowance for loan losses to net loans at end of period............................................. 0.96% 0.82% ======== =========
37 The following table allocates the allowance for loan losses by loan category at the dates indicated. The allocation of the allowance to each category is not necessarily indicative of future losses and does not restrict the use of the allowance to absorb losses in any category.
June 30, ---------------------------------------------------- 1997 1996 ----------------------- ----------------------- Percent Percent of Loans of Loans in Category in Category to Total to Total Amount Loans Amount Loans ------ ------- ------ ------- (Dollars in thousands) Mortgage loans: Residential..................................... $ 143 30.82% $ 184 80.72% Commercial...................................... 40 8.62 26 4.02 Land............................................ 120 25.86 -- -- Consumer loans..................................... 161 34.70 137 15.26 ------- ------ ------- ------ $ 464 100.00% $ 411 100.00% ======= ====== ======= ======
Loan Delinquencies at June 30, 1997
June 30, ---------------------------------------------------- 1997 1996 ----------------------- ----------------------- Percent Percent of Gross of Gross Amount Loans Amount Loans ------ ------- ------ ------- (Dollars in thousands) Mortgage loans..................................... $ -- --% $ -- --% Non-residential................................. -- -- -- -- Consumer........................................... 137 0.21 73 0.14 Commercial loans................................... 3 -- -- -- Other loans........................................ -- -- -- -- ------- ------ ------- ----- Total allowance for loan losses................ $ 140 0.21% $ 73 0.14% ======= ====== ======= =====
Investment Activities General. The Association is permitted under federal law to make certain investments, including investments in securities issued by various federal agencies and state and municipal governments, deposits at the FHLB of Topeka, certificates of deposit in federally insured institutions, certain bankers' acceptances and federal funds. It may also invest, subject to certain limitations, in commercial paper rated in one of the two highest investment rating categories of a nationally recognized credit rating agency, and certain other types of corporate debt securities and mutual funds. Federal regulations require the Association to maintain an investment in FHLB stock and a minimum amount of liquid assets which may be invested in cash and specified securities. From time to time, the OTS adjusts the percentage of liquid assets which savings banks are required to maintain. See "Regulation -- Depository Institution Regulation -- Liquidity Requirements." The Association makes investments in order to maintain the levels of liquid assets required by regulatory authorities and manage cash flow, diversify its assets, obtain yield, for asset/liability management purposes and to satisfy certain requirements for favorable tax treatment. The investment activities of the Association consist primarily of investments in mortgage-backed securities and other investment securities, consisting primarily of interest-bearing deposits and securities issued by the U.S. Treasury. Typical investments include federally sponsored agency mortgage pass-through and federally sponsored agency and mortgage-related securities. Investment and aggregate investment limitations and credit quality parameters of each class of investment are prescribed in the Association's investment 38 policy. The Association performs analyses on mortgage-related securities prior to purchase and on an ongoing basis to determine the impact on earnings and market value under various interest rate and prepayment conditions. Under the Association's current investment policy, securities purchases must be approved by the Association's Investment Committee. The Board of Directors reviews all securities transactions on a monthly basis. Pursuant to SFAS No. 115, the Association has classified securities with an amortized cost of $1.0 million and an approximate market value of $990,000 at June 30, 1996 as available for sale. The Association had no securities classified as "available for sale" at June 30, 1997. Management of the Association presently does not intend to sell such securities and, based on the Association's current liquidity level and the Association's access to borrowings through the FHLB of Topeka, management currently does not anticipate that the Association will be placed in a position of having to sell securities with material unrealized losses. Securities designated as "held to maturity" are those assets which the Association has the ability and intent to hold to maturity. Upon acquisition, securities are classified as to the Association's intent, and a sale would only be effected due to deteriorating investment quality. The held to maturity investment portfolio is not used for speculative purposes and is carried at amortized cost. In the event the Association sells securities from this portfolio for other than credit quality reasons, all securities within the investment portfolio with matching characteristics may be reclassified as assets available for sale. Securities designated as "available for sale" are those assets which the Association may not hold to maturity and thus are carried at market value with unrealized gains or losses, net of tax effect, recognized in retained earnings. Mortgage-Backed and Related Securities. Mortgage-backed securities represent a participation interest in a pool of single-family or multi-family mortgages, the principal and interest payments on which are passed from the mortgage originators through intermediaries that pool and repackage the participation interest in the form of securities to investors such as the Association. Such intermediaries include quasi-governmental agencies such as FHLMC, FNMA and GNMA which guarantee the payment of principal and interest to investors, and from all of whom the Association has purchased mortgage-backed securities. Mortgage-backed securities generally increase the quality of the Association's assets by virtue of the guarantees that back them, are more liquid than individual mortgage loans and may be used to collaterize borrowings or other obligations of the Association. Mortgage-related securities typically are issued with stated principal amounts and the securities are backed by pools of mortgages that have loans with interest rates that are within a range and have similar maturities. The underlying pool of mortgages can be composed of either fixed-rate or adjustable-rate mortgage loans. Mortgage-backed securities generally are referred to as mortgage participation certificates or pass-through certificates. As a result, the interest rate risk characteristics of the underlying pool of mortgages, i.e., fixed-rate or adjustable-rate, as well as prepayment risk, are passed on to the certificate holder. The life of a mortgage-backed pass-through security is equal to the life of the underlying mortgages. The actual maturity of a mortgage-backed security varies, depending on when the mortgagors prepay or repay the underlying mortgages. Prepayments of the underlying mortgages may shorten the life of the investment, thereby adversely affecting its yield to maturity and the related market value of the mortgage-backed security. The yield is based upon the interest income and the amortization of the premium or accretion of the discount related to the mortgage-backed security. Premiums and discounts on mortgage-backed securities are amortized or accredited over the estimated term of the securities using a level yield method. The prepayment assumptions used to determine the amortization period for premiums and discounts can significantly affect the yield of the mortgage-backed security, and these assumptions are reviewed periodically to reflect the actual prepayment. The actual prepayments of the underlying mortgages depend on many factors, including the type of mortgage, the coupon rate, the age of the mortgages, the geographical location of the underlying real estate collateralizing the mortgages and general levels of market interest rates. The difference between the interest rates on the underlying mortgages and the prevailing mortgage interest rates is an important determinant in the rate of prepayments. During periods of falling mortgage interest rates, prepayments generally increase, and, conversely, during periods of rising mortgage interest rates, prepayments generally decrease. If the coupon rate of the underlying mortgage significantly exceeds the prevailing market interest rates offered for 39 mortgage loans, refinancing generally increases and accelerates the prepayment of the underlying mortgages. Prepayment experience is more difficult to estimate for adjustable-rate mortgage-backed securities. The Association's mortgage-backed securities portfolio consists solely of $5.3 million in mortgage-backed securities of which $300,000 had fixed interest rates and $5.0 million had adjustable interest rates at June 30, 1997. The Association makes such investments in order to manage cash flow, mitigate interest rate risk, diversify assets, obtain yield, to satisfy certain requirements for favorable tax treatment and to satisfy the qualified thrift lender test. See "Regulation -- Depository Institution Regulation -- Qualified Thrift Lender Test." The following table sets forth the carrying value of the Association's investment securities at the dates indicated.
At June 30, --------------------------------- 1997 1996 -------- -------- (In thousands) U.S. Treasury securities.................................................... $ -- $ 989 Interest-bearing deposits................................................... 2,381 1,577 Mortgage-backed securities.................................................. 5,340 6,843 Federal Home Loan Bank stock................................................ 988 564 -------- -------- Total................................................................. $ 8,709 $ 9,973 ======== ========
The following table sets forth information in the scheduled maturities, amortized cost, market values and average yields for the Association's investment portfolio at June 30, 1997.
One Year or Less One to Five Years Five to Ten Years ----------------------- ---------------------- ----------------------- Weighted Weighted Weighted Book Average Book Average Book Average Value Yield Value Yield Value Yield ----- ------- ----- ------- ----- ------- (Dollars in thousands) Interest-bearing deposits.............. $ 2,381 5.50% $ -- --% $ -- --% Mortgage-backed securities............. 460 6.77 1,340 6.77 3,540 6.77 Federal Home Loan Bank stock........... -- -- -- -- 988 6.68 -------- ------- ------- Total investment securities............ $ 2,841 5.71 $ 1,340 6.77 $ 4,528 6.76 ======== ======= ======= Total Investment Portfolio -------------------------- Weighted Book Average Value Yield ----- ------- (Dollars in thousands) Interest-bearing deposits.............. $2,381 5.56% Mortgage-backed securities............. 5,340 6.77 Federal Home Loan Bank stock........... 988 6.68 ------ Total investment securities............ $8,709 6.41 ======
The Association is required to maintain average daily balances of liquid assets (cash, deposits maintained pursuant to Federal Reserve Board requirements, time and savings deposits in certain institutions, obligations of state and political subdivisions thereof, shares in mutual funds with certain restricted investment policies, highly rated corporate debt, and mortgage loans and mortgage-backed securities with less than one year to maturity or subject to repurchase within one year) equal to a monthly average of not less than a specified percentage (currently 5%) of its net withdrawable savings deposits plus short-term borrowings. Monetary penalties may be imposed for failure to meet liquidity requirements. The average liquidity ratio of the Association for the month ending June 30, 1997 was 5.51%. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." Deposit Activity and Other Sources of Funds General. Deposits are the primary source of the Association's funds for lending, investment activities and general operational purposes. In addition to deposits, the Association derives funds from loan principal and interest repayments, maturities of investment securities and mortgage-backed securities and interest payments thereon. Although loan repayments are a relatively stable source of funds, deposit inflows and outflows are significantly influenced by 40 general interest rates and money market conditions. Borrowings may be used on a short-term basis to compensate for reductions in the availability of funds, or on a longer term basis for general operational purposes. The Association has access to borrow from the FHLB of Topeka, and the Converted Association will continue to have access to FHLB of Topeka advances. Deposits. The Association attracts deposits principally from within its market area by offering competitive rates on its deposit instruments, including money market accounts, passbook savings accounts, Individual Retirement Accounts, and certificates of deposit which range in maturity from three months to eight years. Deposit terms vary according to the minimum balance required, the length of time the funds must remain on deposit and the interest rate. Maturities, terms, service fees and withdrawal penalties for its deposit accounts are established by the Association on a periodic basis. The Association reviews its deposit mix and pricing on a weekly basis. In determining the characteristics of its deposit accounts, the Association considers the rates offered by competing institutions, lending and liquidity requirements, growth goals and federal regulations. The Association does not accept brokered deposits, but does accept jumbo deposits from its regular customers. The Association attempts to compete for deposits with other institutions in its market area by offering competitively priced deposit instruments that are tailored to the needs of its customers. Additionally, the Association seeks to meet customers' needs by providing convenient customer service to the community, efficient staff and convenient hours of service. Substantially all of the Association's depositors are Colorado residents who reside in the Association's market area. Savings deposits in the Association at June 30, 1997 were represented by the various types of savings programs described below.
Interest Minimum Minimum Percentage of Rate(1) Term Category Amount Balances Total Savings - ------- ------- -------- ------ -------- ------------- Savings and Transactions Accounts --------------------------------- 1.67 % None NOW accounts $ 0 $ 8,225 14.65% 2.97 None Passbook accounts 10 10,691 19.04 0.00 None Demand 0 2,361 4.20 2.93 None Money market accounts 0 3,347 5.96 ---------- ------- 24,624 43.85 ---------- ------- Certificates of Deposit ----------------------- 3.70 3 months Fixed-Term, Fixed-Rate 2,500 187 0.33 5.16 6 months Fixed-Term, Fixed-Rate 1,000 4,039 7.19 5.19 9 months Fixed-Term, Fixed-Rate 10,000 1,586 2.82 5.45 10 months Fixed-Term, Fixed-Rate 10,000 3,963 7.06 5.78 12 months Fixed-Term, Fixed-Rate 500 7,958 14.17 5.53 15 months Fixed-Term, Fixed-Rate 10,000 2,893 5.15 5.38 18 months Fixed-Term, Fixed-Rate 500 4,590 8.17 6.37 24 months Fixed-Term, Fixed-Rate 500 536 1.07 5.64 30 months Fixed-Term, Fixed-Rate 500 2,295 4.09 6.40 36 months Fixed-Term, Fixed-Rate 500 306 0.54 5.88 48 months Fixed-Term, Fixed-Rate 500 2,458 4.38 7.20 Other varies 717 1.28 ---------- -------- Total certificates of deposit 31,528 56.15 ---------- ------- Total savings deposits $ 56,152 100.00% ========== ======
- ----------------- (1) Indicates weighted average interest rate at June 30, 1997. 41 The following table sets forth the change in dollar amount of deposits in the various types of accounts offered by the Association between the dates indicated.
Balance at Balance at June 30, % of Increase June 30, % of 1997 Deposits (Decrease) 1996 Deposits ---------- -------- ---------- ---------- -------- (Dollars in thousands) NOW accounts........................... $ 10,586 18.85% $ 2,836 $ 7,750 15.64% Money market deposit................... 14,038 25.00 875 13,163 26.57 Certificates of deposit................ 22,860 40.71 3,423 19,437 39.24 Jumbo certificates..................... 8,668 15.44 (519) 9,187 18.55 -------- ------- --------- --------- ------- $ 56,152 100.00% $ 6,615 $ 49,537 100.00% ======== ====== ========= ========= ======
The following table sets forth the time deposits in the Association classified by rates at the dates indicated.
At June 30, -------------------------- 1997 1996 ------ ------ (In thousands) 3.00 - 4.00%............................... $ 187 $ 906 4.01 - 5.00%............................... 3,156 5,948 5.01 - 6.00%............................... 22,629 17,788 6.01 - 7.00%............................... 4,946 3,111 Over 7.00%................................. 610 871 ---------- ---------- $ 31,528 $ 28,624 ========== ==========
The following table sets forth the amount and maturities of time deposits at June 30, 1997.
3.00- 4.01- 5.01- Over Percent 4.00% 5.00% 7.00% 7.00% Total of Total ----- ----- ----- ----- ----- -------- (In thousands) Certificate maturing in: One year....................... $ 187 $ 2,996 $ 18,468 $ 3,659 $ 25,310 80.28% One to two years............... -- 161 3,123 1,042 4,326 13.72 Two to three years............. -- -- 768 300 1,068 3.39 Over three years............... -- -- 604 220 824 2.61 ------ -------- -------- -------- -------- ------- Total............... $ 187 $ 3,157 $ 22,963 $ 5,221 $ 31,528 100.00% ====== ======== ======== ======== ======== ====== Percent of total......... 0.59% 10.01% 72.83% 16.56% 100.00% ====== ======== ======== ======== ========
The following table indicates the amount of the Association's certificates of deposit of $100,000 or more by time remaining until maturity as of June 30, 1997.
Certificates Maturity Period of Deposits --------------- ----------- (In thousands) Three months or less....................... $ 2,562 Over three through six months.............. 2,411 Over six through 12 months................. 2,347 Over 12 months............................. 1,348 ------- Total.... ............................... $ 8,668 =======
42 The following table sets forth the savings activities of the Association for the periods indicated.
Year Ended June 30, ------------------ 1997 1996 ------ ------ (Dollars in thousands) Opening balance ...................................... $ 49,537 $ 45,914 Net increase (decrease) before interest credited ..... 4,797 2,026 Interest credited .................................... 1,818 1,597 -------- -------- Ending balance ................................... $ 56,152 $ 49,537 ======== ======== Net increase (decrease) .............................. $ 6,615 $ 3,623 ======== ======== Percent increase (decrease) .......................... 13.35% 7.89% ======== ========
In the unlikely event the Association is liquidated after the Conversion, depositors will be entitled to full payment of their deposit accounts prior to any payment being made to the sole stockholder of the Converted Association or the Association, which is the Company. Borrowings. Savings deposits historically have been the primary source of funds for the Association's lending, investments and general operating activities. The Association is authorized, however, to use advances from the FHLB of Topeka to supplement its supply of lendable funds and to meet deposit withdrawal requirements. The FHLB of Topeka functions as a central reserve bank providing credit for savings institutions and certain other member financial institutions. As a member of the FHLB System, the Association is required to own stock in the FHLB of Topeka and is authorized to apply for advances. Advances are pursuant to several different programs, each of which has its own interest rate and range of maturities. The Association has a Blanket Agreement for advances with the FHLB under which the Association may borrow up to 25% of assets (approximately $19 million), subject to normal collateral and underwriting requirements. Advances from the FHLB of Topeka are secured by mortgage-backed securities, investments and residential first mortgage loans. At June 30, 1997, the Association had an approved line of credit for $10.0 million with the FHLB, of which the Association had drawn on $1.0 million at that date. In addition, as of June 30, 1997, the Association had $12.5 million in FHLB advances outstanding of which $8.5 million was at interest rates which range from $5.81% to 8.12% and mature within one year; $3.0 million were at interest rates which range from 5.81% to 6.72% and mature in 1999; $500,000 were at an interest rate of 6.79% and mature in 2000; and $520,000 were at an interest rate of 6.80% and mature in 2001. Subsidiary Activities As a federally chartered savings bank, the Association is permitted to invest an amount equal to 2% of its assets in subsidiaries, with an additional investment of 1% of assets where such investment serves primarily community, inner-city and community development purposes. Under such limitations, as of June 30, 1997, the Association was authorized to invest up to approximately $2.3 million in the stock of or loans to subsidiaries, including the additional 1% investment for community inner-city and community development purposes. Institutions meeting their applicable minimum regulatory capital requirements may invest up to 50% of their regulatory capital in conforming first mortgage loans to subsidiaries in which they own 10% or more of the capital stock. The Association does not have any subsidiaries. 43 Competition The Association faces strong competition both in originating real estate and consumer loans and in attracting deposits. The Association competes for real estate and other loans principally on the basis of interest rates, the types of loans it originates, the deposit products it offers and the quality of services it provides to borrowers. The Association also competes by offering products which are tailored to the local community. Its competition in originating real estate loans comes primarily from other commercial banks and mortgage bankers making loans secured by real estate located in the Association's market area. Commercial banks, credit unions and finance companies provide vigorous competition in consumer lending. Competition may increase as a result of the continuing reduction of restrictions on the interstate operations of financial institutions. The Association attracts its deposits through its offices primarily from the local communities of the offices. Consequently, competition for deposits is principally from other savings institutions, commercial banks and brokers in the local communities as well as from the corporate credit unions sponsored by the large private employers in the Association's market area. The Association competes for deposits and loans by offering what it believes to be a variety of deposit accounts at competitive rates, convenient business hours, a commitment to outstanding customer service and a well-trained staff. The Association believes it has developed strong relationships with local realtors and the community in general. Management considers its market area for gathering deposits to be Chaffee, Lake, Western Fremont and Saguache counties in Colorado. The Association estimates that it competes with six banks, and two credit unions for deposits and loans. Based on data provided by a private marketing firm, the Association estimates that as of June 1996, the latest date for which information was available, it had 21.76% of deposits held by all financial institutions in its market area. Offices and Other Material Properties The following table sets forth information regarding the Association's offices at June 30, 1997.
Book Value at Year Owned or June 30, Approximate Opened Leased 1997 (1) Square Footage ------ ------ ------------- -------------- Main Office 130 West 2nd Salida, Colorado 1886 (2) Owned $763 10,750 Branch Offices 600 Harrison (3) Leadville, Colorado 1978 Owned 805 3,800 713 East Main (3) Buena Vista, Colorado 1996 Owned 480 2,400
- --------- (1) Cost less accumulated depreciation and amortization. (2) The current location and building in Salida, Colorado was occupied in 1974. (3) The Association constructed new building facilities at each of these locations in 1996. The book value of the Association's investment in premises and equipment totaled approximately $2.5 million at June 30, 1997. See Note 6 of Notes to Financial Statements. 44 Employees As of June 30, 1997, the Association had 36 full-time and one part-time employees, none of whom were represented by a collective bargaining agreement. Management considers the Association's relationships with its employees to be good. Legal Proceedings From time to time, the Association is a party to various legal proceedings incident to its business. At June 30, 1997, there were no legal proceedings to which the Company or the Association was a party, or to which any of their property was subject, which were expected by management to result in a material loss to the Company or the Association. There are no pending regulatory proceedings to which the Company, the Association or its subsidiaries is a party or to which any of their properties is subject which are currently expected to result in a material loss. REGULATION General As a federally chartered savings association, the Association is subject to extensive regulation by the OTS. The lending activities and other investments of the Association must comply with such regulatory requirements, and the OTS periodically examines the Association for compliance with various regulatory requirements. The FDIC also has the authority to conduct special examinations. The Association must file reports with the OTS describing its activities and financial condition and is also subject to certain reserve requirements promulgated by the Federal Reserve Board. This supervision and regulation is intended primarily for the protection of depositors. Certain of these regulatory requirements are referred to below or appear elsewhere herein. Regulation of the Association Regulatory Capital Requirements. Under OTS capital standards, savings associations must maintain "tangible" capital equal to 1.5% of adjusted total assets, "core" capital equal to 3.0% of adjusted total assets and a combination of core and "supplementary" capital equal to 8.0% of "risk-weighted" assets. In addition, the OTS has recently adopted regulations which impose certain restrictions on savings associations that have a total risk-based capital ratio that is less than 8.0%, a ratio of Tier 1 capital to risk-weighted assets of less than 4.0% or a ratio of Tier 1 capital to adjusted total assets of less than 4.0% (or 3.0% if the institution is rated Composite 1 under the OTS examination rating system). See " -- Prompt Corrective Regulatory Action." For purposes of this regulation, Tier 1 capital has the same definition as core capital, which is defined as common stockholders' equity (including retained earnings), noncumulative perpetual preferred stock and related surplus, minority interests in the equity accounts of fully consolidated subsidiaries, certain nonwithdrawable accounts and pledged deposits and "qualifying supervisory goodwill." Core capital is generally reduced by the amount of the savings association's intangible assets for which no market exists. Limited exceptions to the deduction of intangible assets are provided for purchased mortgage servicing rights and qualifying supervisory goodwill. Tangible capital is given the same definition as core capital but does not include an exception for qualifying supervisory goodwill and is reduced by the amount of all the savings association's intangible assets with only a limited exception for purchased mortgage servicing rights and purchased credit card relationship. Both core and tangible capital are further reduced by an amount equal to a savings association's debt and equity investments in subsidiaries engaged in activities not permissible to national banks, other than subsidiaries engaged in activities undertaken as agent for customers, or in mortgage banking activities and subsidiary depository institutions or their holding companies. At June 30, 1997, the Association had no such investments. Adjusted total assets are a savings association's total assets as determined under GAAP, adjusted for certain goodwill amounts and increased by a pro rated portion of the assets of subsidiaries in which the savings association holds a minority interest, and which are not engaged in activities for which the capital rules require deduction of its debt 45 and equity investments. Adjusted total assets are reduced by the amount of assets that have been deducted from capital, the portion of the savings association's investments in subsidiaries that must be netted against capital under the capital rules and, for purposes of the core capital requirement, qualifying supervisory goodwill. In determining compliance with the risk-based capital requirement, a savings association is allowed to use both core capital and supplementary capital provided the amount of supplementary capital used does not exceed the savings association's core capital. Supplementary capital is defined to include certain preferred stock issues, nonwithdrawable accounts and pledged deposits that do not qualify as core capital, certain approved subordinated debt, certain other capital instruments and a portion of the savings association's general loss allowances. Total core and supplementary capital are reduced by the amount of capital instruments held by other depository institutions pursuant to reciprocal arrangements, the savings association's high loan-to-value ratio land loans and non-residential construction loans and equity investments other than those deducted from core and tangible capital. At June 30, 1997, the Association had no high ratio land or nonresidential construction loans and had no equity investments for which OTS regulations require a deduction from total capital. The risk-based capital requirement is measured against risk-weighted assets, which equal the sum of each asset, and the credit-equivalent amount of each off-balance sheet item after being multiplied by an assigned risk weight. Under the OTS risk-weighting system, one-to four-family first mortgages that are not more than 90 days past due with loan-to-value ratios under 80% are assigned a risk weight of 50%. Consumer and residential construction loans are assigned a risk weight of 100%. Mortgage-backed securities issued, or fully guaranteed as to principal and interest by the FHLMC, are assigned a 20% risk weight. Cash and U.S. Government securities backed by the full faith and credit of the U.S. Government are given a 0% risk weight. The table below presents the Association's capital position relative to its various regulatory capital requirements at June 30, 1997.
Percent of Amount Assets(1) ------ --------- (Dollars in thousands) Tangible capital............................ $ 5,955 7.80% Tangible capital requirement................ 1,145 1.50 --------- ------ Excess (deficit)......................... $ 4,810 6.30% ========= ====== Core capital................................ $ 5,955 7.80% Core capital requirement.................... 2,290 3.00 --------- ------ Excess (deficit)......................... $ 3,665 4.80% ========= ====== Risk-based capital.......................... $ 6,552 13.73% Risk-based capital requirement.............. 3,818 8.00 --------- ------ Excess (deficit)......................... $ 2,734 5.73% ========= ======
- ------------------ (1) Based on adjusted total assets for purposes of the tangible capital and core capital requirements and risk-weighted assets for purpose of the risk-based capital requirement. The OTS requires savings institutions with more than a "normal" level of interest rate risk to maintain additional total capital. A savings institution's interest rate risk is measured in terms of the sensitivity of its "net portfolio value" to changes in interest rates. Net portfolio value is defined, generally, as the present value of expected cash inflows from existing assets and off- balance sheet contracts less the present value of expected cash outflows from existing liabilities. A savings institution will be considered to have a "normal" level of interest rate risk exposure if the 46 decline in its net portfolio value, after an immediate 200 basis point increase or decrease in market interest rates (whichever results in the greater decline), is less than two percent of the current estimated economic value of its assets. A savings institution with a greater than normal interest rate risk is required to deduct from total capital, for purposes of calculating its risk-based capital requirement, an amount (the "interest rate risk component") equal to one-half the difference between the institution's measured interest rate risk and the normal level of interest rate risk, multiplied by the economic value of its total assets. The OTS calculates the sensitivity of a savings institution's net portfolio value based on data submitted by the institution in a schedule to its quarterly Thrift Financial Report, and using the interest rate risk measurement model adopted by the OTS. The amount of the interest rate risk component, if any, to be deducted from a savings institution's total capital is based on the institution's Thrift Financial Report filed two quarters earlier. Savings institutions with less than $300 million in assets and a risk-based capital ratio above 12% are generally exempt from filing the interest rate risk schedule with their Thrift Financial Reports. However, the OTS will require any exempt savings institution that it determines may have a high level of interest rate risk exposure to file such schedule on a quarterly basis. The OTS has not yet implemented these requirements. In addition to requiring generally applicable capital standards for savings institutions, the OTS is authorized to establish the minimum level of capital for a savings institution at such amount or at such ratio of capital-to-assets as the OTS determines to be necessary or appropriate for such institution in light of the particular circumstances of the institution. The OTS may treat the failure of any savings institution to maintain capital at or above such level as an unsafe or unsound practice, and may issue a directive requiring any savings institution which fails to maintain capital at or above the minimum level required by the OTS to submit and adhere to a plan for increasing capital. Such an order may be enforced in the same manner as an order issued by the FDIC. Prompt Corrective Regulatory Action. Under the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), the federal banking regulators are required to take prompt corrective action if an insured depository institution fails to satisfy certain minimum capital requirements. All institutions, regardless of their capital levels, are restricted from making any capital distribution or paying any management fees if the institution would thereafter fail to satisfy the minimum levels for any of its capital requirements. An institution that fails to meet the minimum level for any relevant capital measure (an "undercapitalized institution") may be: (i) subject to increased monitoring by the appropriate federal banking regulator; (ii) required to submit an acceptable capital restoration plan within 45 days; (iii) subject to asset growth limits; and (iv) required to obtain prior regulatory approval for acquisitions, branching and new lines of businesses. A "significantly undercapitalized" institution, as well as any undercapitalized institution that does not submit an acceptable capital restoration plan, may be subject to regulatory demands for recapitalization, broader application of restrictions on transactions with affiliates, limitations on interest rates paid on deposits, asset growth and other activities, possible replacement of directors and officers, and restrictions on capital distributions by any bank holding company controlling the institution. Any company controlling the institution could also be required to divest the institution, or the institution could be required to divest subsidiaries. The senior executive officers of a significantly undercapitalized institution may not receive bonuses or increases in compensation without prior approval and the institution is prohibited from making payments of principal or interest on its subordinated debt. In their discretion, the federal banking regulators may also impose the foregoing sanctions on an undercapitalized institution if the regulators determine that such actions are necessary to carry out the purposes of the prompt corrective action provisions. If an institution's ratio of tangible capital to total assets falls below a "critical capital level," the institution will be subject to conservatorship or receivership within 90 days, unless periodic determinations are made that forbearance from such action would better protect the deposit insurance fund. Unless appropriate findings and certifications are made by the appropriate federal bank regulatory agencies, a critically undercapitalized institution must be placed in receivership if it remains critically undercapitalized on average during the calendar quarter, beginning 270 days after the date it became critically undercapitalized. Under implementing regulations, the federal banking regulators, including the OTS, generally measure a depository institution's capital adequacy on the basis of the institution's total risk-based capital ratio (the ratio of its total 47 capital to risk-weighted assets), Tier 1 risk-based capital ratio (the ratio of its core capital to risk-weighted assets) and leverage ratio (the ratio of its core capital to adjusted total assets). Under the regulations, a savings institution that is not subject to an order or written directive to meet or maintain a specific capital level will be deemed "well capitalized" if it also has: (i) a total risk-based capital ratio of 10% or greater; (ii) a Tier 1 risk- based capital ratio of 6.0% or greater; and (iii) a leverage ratio of 5.0% or greater. An "adequately capitalized" savings institution is a savings institution that does not meet the definition of well capitalized and has: (i) a total risk-based capital ratio of 8.0% or greater; (ii) a Tier 1 capital risk- based ratio of 4.0% or greater; and (iii) a leverage ratio of 4.0% or greater (or 3.0% or greater if the savings institution has a composite 1 CAMEL rating). An "undercapitalized institution" is a savings institution that has (i) a total risk-based capital ratio less than 8.0%; or (ii) a Tier 1 risk-based capital ratio of less than 4.0%; or (iii) a leverage ratio of less than 4.0% (or 3.0% if the institution has a composite 1 CAMEL rating). A "significantly undercapitalized" institution is defined as a savings institution that has: (i) a total risk-based capital ratio of less than 6.0%; or (ii) a Tier 1 risk-based capital ratio of less than 3.0%; or (iii) a leverage ratio of less than 3.0%. A "critically undercapitalized" savings institution is defined as a savings institution that has a ratio of "tangible equity" to total assets of less than 2.0%. Tangible equity is defined as core capital plus cumulative perpetual preferred stock (and related surplus) less all intangibles other than qualifying supervisory goodwill and certain purchased mortgage servicing rights. The OTS may reclassify a well capitalized savings institution as adequately capitalized and may require an adequately capitalized or undercapitalized institution to comply with the supervisory actions applicable to institutions in the next lower capital category (but may not reclassify a significantly undercapitalized institution as critically under-capitalized) if the OTS determines, after notice and an opportunity for a hearing, that the savings institution is in an unsafe or unsound condition or that the institution has received and not corrected a less-than-satisfactory rating for any CAMEL rating category. At June 30, 1997 the Association was classified as "well capitalized" under OTS Regulations, and Management of the Association believes that the Converted Association will, immediately after the Conversion, also be classified as "well capitalized." Qualified Thrift Lender Test. A savings institution that does not meet the Qualified Thrift Lender test ("QTL Test") must either convert to a bank charter or comply with the following restrictions on its operations: (i) the institution may not engage in any new activity or make any new investment, directly or indirectly, unless such activity or investment is permissible for a national bank; (ii) the branching powers of the institution shall be restricted to those of a national bank; (iii) the institution shall not be eligible to obtain any advances from its FHLB; and (iv) payment of dividends by the institution shall be subject to the rules regarding payment of dividends by a national bank. Upon the expiration of three years from the date the institution ceases to be a QTL, it must cease any activity, and not retain any investment not permissible for a national bank and immediately repay any outstanding FHLB advances (subject to safety and soundness considerations). To qualify as a QTL, a savings institution must either qualify as a "domestic building and loan association" under the Internal Revenue Code or maintain at least 65% of its "portfolio" assets in Qualified Thrift Investments. Portfolio assets are defined as total assets less intangibles, property used by a savings institution in its business and liquidity investments in an amount not exceeding 20% of assets. Qualified Thrift Investments consist of: (i) loans, equity positions, or securities related to domestic, residential real estate or manufactured housing, and educational, small business and credit card loans; (ii) 50% of the dollar amount of residential mortgage loans subject to sale under certain conditions but do not include any intangible assets. Subject to a 20% of portfolio assets limit, however, savings institutions are able to treat as Qualified Thrift Investments 200% of their investments in loans to finance "starter homes" and loans for construction, development or improvement of housing and community service facilities or for financing small businesses in "credit-needy" areas. A savings institution must maintain its status as a QTL on a monthly basis in nine out of every 12 months. A savings institution that fails to maintain Qualified Thrift Lender status will be permitted to requalify once, and if it fails the QTL Test a second time, it will become immediately subject to all penalties as if all time limits on such penalties had expired. Failure to qualify as a QTL results in a number of sanctions, including the imposition of certain operating 48 restrictions imposed on national banks and a restriction on obtaining additional advances from the FHLB System. Upon failure to qualify as a QTL for two years, a savings association must convert to a commercial bank. At June 30, 1997, approximately 96.54% of the Association's assets were invested in Qualified Thrift Investments. Dividend Limitations. Under OTS regulations, the Association is not permitted to pay dividends on its capital stock if its regulatory capital would thereby be reduced below the amount then required for the liquidation account established for the benefit of certain depositors of the Association at the time of its conversion to stock form. In addition, savings institution subsidiaries of savings and loan holding companies are required to give the OTS 30 days' prior notice of any proposed declaration of dividends to the holding company. Federal regulations impose limitations on the payment of dividends and other capital distributions (including stock repurchases and cash mergers) by the Association. Under these regulations, a savings institution that, immediately prior to, and on a pro forma basis after giving effect to a proposed capital distribution, has total capital (as defined by OTS regulation) that is equal to or greater than the amount of its fully phased-in capital requirements (a "Tier 1 Association"), is generally permitted without OTS approval, after notice, to make capital distributions during a calendar year in the amount equal to the greater of (i) 75% of net income for the previous four quarters or (ii) up to 100% of its net income to date during the calendar year plus an amount that would reduce by one-half the amount by which its capital-to-assets ratio exceeded its fully phased-in capital requirement to assets ratio at the beginning of the calendar year. A savings institution with total capital in excess of current minimum capital requirements but not in excess of the fully phased-in requirements (a "Tier 2 Association") is permitted, after notice, to make capital distributions without OTS approval of up to 75% of its net income for the previous four quarters, less dividends already paid for such period. A savings institution that fails to meet current minimum capital requirements (a "Tier 3 Association") is prohibited from making any capital distributions without the prior approval of the OTS. Tier 1 Associations that have been notified by the OTS that they are in need of more than normal supervision will be treated as either a Tier 2 or Tier 3 Association. Unless the OTS determines that the Association is an institution requiring more than normal supervision, the Association is authorized to pay dividends, in accordance with the provisions of the OTS regulations discussed above, as a Tier 1 Association. Under the OTS' prompt corrective action regulations, the Association is also prohibited from making any capital distributions if, after making the distribution, the Association would have: (i) a total risk-based capital ratio of less than 8.0%; (ii) a Tier 1 risk-based capital ratio of less than 4.0%; or (iii) a leverage ratio of less than 4.0%. However, the OTS, after consultation with the FDIC, may permit an otherwise prohibited stock repurchase if it is made in connection with the issuance of additional shares in an equivalent amount, and the repurchase will reduce the institution's financial obligations or otherwise improve the institution's financial condition. In addition to the foregoing, earnings of the Association appropriated to bad debt reserves and deducted for Federal income tax purposes are not available for payment of cash dividends or other distributions to stockholders without payment of taxes at the then current tax rate by the Association on the amount of earnings removed from the reserves for such distributions. See "Taxation." Safety and Soundness Standards. Under FDICIA, as amended by the Riegle Community Development and Regulatory Improvement Act of 1994 (the "CDRI Act"), each Federal banking agency is required to establish safety and soundness standards for institutions under its authority. On July 10, 1995, the Federal banking agencies, including the OTS, released Interagency Guidelines Establishing Standards for Safety and Soundness and published a final rule establishing deadlines for submission and review of safety and soundness compliance plans. The final rule and the guidelines went into effect on August 9, 1995. The guidelines require savings institutions to maintain internal controls, information systems and audit systems that are appropriate for the size, nature and scope of the institution's business. The guidelines also establish certain basic standards for loan documentation, credit underwriting, interest rate risk exposure, and asset growth. The guidelines further provide that savings institutions should maintain safeguards to prevent the payment of compensation, fees and benefits that are excessive or that could lead to material financial loss, 49 and should take into account factors such as comparable compensation practices at comparable institutions. If the OTS determines that a savings institution is not in compliance with the safety and soundness guidelines, it may require the institution to submit an acceptable plan to achieve compliance with the guidelines. A savings institution must submit an acceptable compliance plan to the OTS within 30 days of receipt of a request for such a plan. Failure to submit or implement a compliance plan may subject the institution to regulatory sanctions. Management believes that the Association already meets substantially all the standards adopted in the interagency guidelines, and therefore does not believe that implementation of these regulatory standards will materially affect the Association's operations. Additionally, under FDICIA, as amended by the CDRI Act, the Federal banking agencies are required to establish standards relating to the asset quality and earnings that the agencies determine to be appropriate. On July 10, 1995, the federal banking agencies, including the OTS, issued proposed guidelines relating to asset quality and earnings. Under the proposed guidelines, a savings institution should maintain systems, commensurate with its size and the nature and scope of its operations, to identify problem assets and prevent deterioration in those assets, as well as to evaluate and monitor earnings and ensure that earnings are sufficient to maintain adequate capital and reserves. Management believes that the asset quality and earnings standards, in the form proposed by the banking agencies, would not have a material effect on the Association's operations. Deposit Insurance. The Association is required to pay assessments, based on a percentage of its insured deposits, to the FDIC for insurance of its deposits by the FDIC through the SAIF. Under the Federal Deposit Insurance Act, the FDIC is required to set semi-annual assessments for SAIF-insured institutions at a level necessary to maintain the designated reserve ratio of the SAIF at 1.25% of estimated insured deposits, or at a higher percentage of estimated insured deposits that the FDIC determines to be justified for that year by circumstances indicating a significant risk of substantial future losses to the SAIF. Under the FDIC's risk-based deposit insurance assessment system, the assessment rate for an insured depository institution depends on the assessment risk classification assigned to the institution by the FDIC, which is determined by the institution's capital level and supervisory evaluations. Based on the data reported to regulators for the date closest to the last day of the seventh month preceding the semi-annual assessment period, institutions are assigned to one of three capital groups -- well capitalized, adequately capitalized or undercapitalized -- using the same percentage criteria as under the prompt corrective action regulations. See " -- Prompt Corrective Regulatory Action." Within each capital group, institutions are assigned to one of three subgroups on the basis of supervisory evaluations by the institution's primary supervisory authority, and such other information as the FDIC determines to be relevant to the institution's financial condition and the risk posed to the deposit insurance fund. Subgroup A consists of financially sound institutions with only a few minor weaknesses. Subgroup B consists of institutions that demonstrate weaknesses which, if not corrected, could result in significant deterioration of the institution and increased risk of loss to the deposit insurance fund. Subgroup C consists of institutions that pose a substantial probability of loss to the deposit insurance fund unless effective corrective action is taken. For the past several semi-annual periods, institutions with SAIF-assessable deposits, like the Association, have been required to pay higher deposit insurance premiums than institutions with deposits insured by the BIF. In order to recapitalize the SAIF and address the premium disparity, the recently-enacted Deposit Insurance Funds Act of 1996 authorized the FDIC to impose a one-time special assessment on institutions with SAIF-assessable deposits, based on the amount determined by the FDIC to be necessary to increase the reserve levels of the SAIF to the designated reserve ratio of 1.25% of insured deposits. Institutions were assessed at the rate of 65.7 basis points based on the amount of their SAIF-assessable deposits as of March 31, 1995. As a result of the special assessment the Association incurred a pre-tax expense of $297,000, during the fiscal year ended June 30, 1997. The FDIC has proposed a rule that would lower the regular semi-annual SAIF assessment rates by establishing a base assessment rate schedule ranging from 4 to 31 basis points effective October 1, 1996. The rule widens the range between the lowest and highest assessment rates among healthy and troubled institutions with the intent of creating an incentive for savings institutions to control risk-taking behavior. The rule also prevents the FDIC from collecting more funds than needed to maintain the SAIF's capitalization at 1.25% of insured deposits. Until December 31, 1999, however, SAIF-insured institutions will be required to pay assessments to the FDIC at the rate of 6.44 basis points to 50 help fund interest payments on certain bonds issued by the Financing Corporation ("FICO"), an agency of the federal government established to finance takeovers of insolvent thrifts. During this period, BIF members will be assessed for these obligations at the rate of 1.3 basis points. After December 31, 1999, both BIF and SAIF members will be assessed at the same rate for FICO payments. SAIF members are generally prohibited from converting to BIF, also administered by the FDIC, or merging with or transferring assets to a BIF member before the date on which the SAIF first meets or exceeds the designated reserve ratio of 1.25% of insured deposits. However, the FDIC may approve such a transaction in the case of a SAIF member in default or if the transaction involves an insubstantial portion of the deposits of each participant. In addition, mergers, transfers of assets and assumptions of liabilities may be approved by the appropriate bank regulator so long as deposit insurance premiums continue to be paid to the SAIF for deposits attributable to the SAIF members, plus an adjustment for the annual rate of growth of deposits in the surviving bank without regard to subsequent acquisitions. Each depository institution participating in a SAIF-to-BIF conversion transaction is required to pay an exit fee to SAIF equal to 0.90% of the deposits transferred and an entrance fee to BIF based on the current reserve ratio of the BIF. A savings institution is not prohibited from adopting a commercial bank or savings bank charter if the resulting bank remains a SAIF member. Transactions with Affiliates. Transactions between savings institutions and any affiliate are governed by Sections 23A and 23B of the Federal Reserve Act. An affiliate of a savings institution is any company or entity which controls, is controlled by or is under common control with the savings institution. In a holding company context, the parent holding company of a savings institution (such as the Company) and any companies which are controlled by such parent holding company are affiliates of the savings institution. Generally, Sections 23A and 23B (i) limit the extent to which the savings institution or its subsidiaries may engage in "covered transactions" with any one affiliate to an amount equal to 10% of such institution's capital stock and surplus, and contain an aggregate limit on all such transactions with all affiliates to an amount equal to 20% of such capital stock and surplus, and (ii) require that all such transactions be on terms substantially the same, or at least as favorable, to the institution or subsidiary as those provided to a non-affiliate. The term "covered transaction" includes the making of loans, purchase of assets, issuance of a guarantee and other similar types of transactions. In addition to the restrictions imposed by Sections 23A and 23B, no savings institution may (i) loan or otherwise extend credit to an affiliate (except for any affiliate which engages only in activities which are permissible for savings and loan holding companies), or (ii) purchase or invest in any stocks, bonds, debentures, notes or similar obligations of any affiliate (except for affiliates which are subsidiaries of the savings institution). Section 106 of the Bank Holding Company Act ("BHCA"), which also applies to the Association, prohibits the Association from extending credit to or offering any other services, or fixing or varying the consideration for such extension of credit or service, on the condition that the customer obtain some additional service from the institution or certain of its affiliates or not obtain services of a competitor of the institution, subject to certain exceptions. Loans to Directors, Executive Officers and Principal Stockholders. Savings institutions are also subject to the restrictions contained in Section 22(h) of the Federal Reserve Act on loans to executive officers, directors and principal stockholders. Under Section 22(h), loans to an executive officer and to a greater than 10% stockholder of a savings institution, and certain affiliated entities of either, may not exceed, together with all other outstanding loans to such person and affiliated entities, the institution's loan to one borrower limit (generally equal to 15% of the institution's unimpaired capital and surplus and an additional 10% of such capital and surplus for loans fully secured by certain readily marketable collateral). Section 22(h) also prohibits loans, above amounts prescribed by the appropriate federal banking agency, to directors, executive officers and greater than 10% stockholders of a savings institution, and their respective affiliates, unless such loan is approved in advance by a majority of the board of directors of the institution with any "interested" director not participating in the voting. The Federal Reserve Board has prescribed the loan amount (which includes all other outstanding loans to such person), as to which such prior board of director approval is required, as being the greater of $25,000 or 5% of capital and surplus (up to $500,000). Further, the Federal Reserve Board, pursuant to Section 22(h), requires that loans to directors, executive officers and principal stockholders be made on terms substantially the same as offered in comparable transactions to other persons. Section 22(h) also generally prohibits a depository institution from paying the overdrafts of any of its executive officers or directors. Section 22(g) of the Federal Reserve Act requires that loans to executive officers of depository institutions not be made on terms more favorable than those afforded to other borrowers, requires approval for such extensions of credit by the board of 51 directors of the institution, and imposes reporting requirements for and additional restrictions on the type, amount and terms of credits to such officers. In addition, Section 106 of the BHCA prohibits extensions of credit to executive officers, directors, and greater than 10% stockholders of a depository institution by any other institution which has a correspondent banking relationship with the institution, unless such extension of credit is on substantially the same terms as those prevailing at the time for comparable transactions with other persons and does not involve more than the normal risk of repayment or present other unfavorable features. Liquidity Requirements. The Association is required to maintain average daily balances of liquid assets (cash, certain time deposits, bankers' acceptances, highly rated corporate debt and commercial paper, securities of certain mutual funds, and specified United States government, state or federal agency obligations) equal to the monthly average of not less than a specified percentage (currently 5%) of its net withdrawable savings deposits plus short- term borrowings. The Association is also required to maintain average daily balances of short-term liquid assets at a specified percentage (currently 1%) of the total of its net withdrawable savings accounts and borrowings payable in one year or less. Monetary penalties may be imposed for failure to meet liquidity requirements. The average regulatory liquidity ratio of the Association for the month of June 1997 was 5.51%. Federal Home Loan Bank System. The Association is a member of the FHLB, which consists of 12 Federal Home Loan Banks subject to supervision and regulation by the Federal Housing Finance Board ("FHFB"). The FHLBs provide a central credit facility primarily for member institutions. As a member of the FHLB of Topeka, the Association is required to acquire and hold shares of capital stock in the FHLB of Topeka in an amount at least equal to 1% of the aggregate unpaid principal of its home mortgage loans, home purchase contracts and similar obligations at the beginning of each year, or 1/20 of its advances from the FHLB of Topeka, whichever is greater. The Association was in compliance with this requirement with investment in FHLB of Topeka stock at June 30, 1997, of $988,500. The FHLB of Topeka is funded primarily from proceeds derived from the sale of consolidated obligations of the FHLB System. It makes advances to members in accordance with policies and procedures established by the FHFB and the Board of Directors of the FHLB of Topeka. As of June 30, 1997, the Association had $13.5 million in advances and other borrowings from the FHLB of Topeka. See "Business of the Association -- Deposit Activities and Other Sources of Funds -- Borrowings." Federal Reserve System. Pursuant to regulations of the Federal Reserve Board, a thrift institution must maintain average daily reserves equal to 3% on the first $49.3 million of transaction accounts, plus 10% on the remainder. This percentage is subject to adjustment by the Federal Reserve Board. Because required reserves must be maintained in the form of vault cash or in a non- interest bearing account at a Federal Reserve Bank, the effect of the reserve requirement is to reduce the amount of the institution's interest-earning assets. As of June 30, 1997, the Association met its reserve requirements. Regulation of the Company General. Following the Conversion, the Company will be a savings and loan holding company within the meaning of the Home Owners' Loan Act, as amended ("HOLA"). As such, the Company will be registered with the OTS and subject to OTS regulations, examinations, supervision and reporting requirements. As a subsidiary of a savings and loan holding company, the Association will be subject to certain restrictions in its dealings with the Company and affiliates thereof. The Company also will be required to file certain reports with, and otherwise comply with the rules and regulations of the SEC under the federal securities laws. Activities Restrictions. The Board of Directors of the Company presently intends to operate the Company as a unitary savings and loan holding company. There are generally no restrictions on the activities of a unitary savings and loan holding company. However, if the Director of OTS determines that there is reasonable cause to believe that the continuation by a savings and loan holding company of an activity constitutes a serious risk to the financial safety, soundness, or stability of its subsidiary savings association, the Director of OTS may impose such restrictions as deemed necessary to address such risk, including limiting: (i) payment of dividends by the savings institution, (ii) transactions between the savings institution and its affiliates; and (iii) any activities of the savings institution that might create a serious risk that the liabilities of the holding company and its affiliates may be imposing on the savings institution. 52 Notwithstanding the above rules as to permissible business activities of unitary savings and loan holding companies, if the savings institution subsidiary of such a holding company fails to meet the QTL Test, then such unitary holding company shall also presently become subject to the activities restrictions applicable to multiple holding companies and unless the savings association requalifies as a QTL within one year thereafter, register as, and become subject to, the restrictions applicable to a bank holding company. See " -- Regulation of the Association -- Qualified Thrift Lender Test." If the Company were to acquire control of another savings association, other than through merger or other business combination with the Association, the Company would thereupon become a multiple savings and loan holding company. Except where such acquisition is pursuant to the authority to approve emergency thrift acquisitions and where each subsidiary savings institution meets the QTL Test, the activities of the Company and any of its subsidiaries (other than the Association or other subsidiary savings institutions) would thereafter be subject to further restrictions. Among other things, no multiple savings and loan holding company, or subsidiary thereof which is not a savings institution, may commence or continue for a limited period of time after becoming a multiple savings and loan holding company or subsidiary thereof, any business activity, upon prior notice to, and no objection by the OTS, other than: (i) furnishing or performing management services for a subsidiary savings institution; (ii) conducting an insurance agency or escrow business; (iii) holding, managing, or liquidating assets owned by or acquired from a subsidiary savings institution; (iv) holding or managing properties used or occupied by a subsidiary savings institution; (v) acting as trustee under deeds of trust; (vi) those activities previously directly authorized by regulation as of March 5, 1987 to be engaged in by multiple holding companies; or (vii) those activities authorized by the Federal Reserve Board as permissible for savings and loan holding companies, unless the Director of OTS by regulation prohibits or limits such activities for savings and loan holding companies. Those activities described in (vii) above must also be approved by the Director of OTS prior to being engaged in by a multiple holding company. Restrictions on Acquisitions. The HOLA generally prohibits savings and loan holding companies from acquiring, without prior approval of the Director of OTS, (i) control of any other savings institution or savings and loan holding company or substantially all the assets thereof, or (ii) more than 5% of the voting shares of a savings institution or holding company thereof which is not a subsidiary. Except with the prior approval of the Director of OTS, no director or officer of a savings and loan holding company or person owning or controlling by proxy or otherwise more than 25% of such company's stock, may also acquire control of any savings institution, other than a subsidiary savings institution, or of any other savings and loan holding company. The Director of OTS may only approve acquisitions resulting in the formation of a multiple savings and loan holding company which controls savings institutions in more than one state if: (i) the multiple savings and loan holding company involved controls a savings institution which operated a home or branch office in the state of the institution to be acquired as of March 5, 1987; (ii) the acquiror is authorized to acquire control of the savings institution pursuant to the emergency acquisition provisions of the Federal Deposit Insurance Act; or (iii) the statutes of the state in which the institution to be acquired is located specifically permit institutions to be acquired by state-chartered institutions or savings and loan holding companies located in the state where the acquiring entity is located (or by a holding company that controls such state-chartered savings institutions). The OTS regulations permit federal associations to branch in any state or states of the United States and its territories. Except in supervisory cases, or when interstate branching is otherwise permitted by state law or other statutory provision, a federal association may not establish an out-of-state branch unless (i) the federal association qualifies as a QTL or as a "domestic building and loan association" under ss.7701(a)(19) of the Code and the total assets attributable to all branches of the association in the state would qualify such branches taken as a whole as a QTL or for treatment as a domestic building and loan association and (ii) such branch would not result in (a) formation of a prohibited multi-state multiple savings and loan holding company or (b) a violation of certain statutory restrictions on branching by savings association subsidiaries of banking holding companies. Federal associations generally may not establish new branches unless the association meets or exceeds minimum regulatory capital requirements. The OTS will also consider the association's record of compliance with the Community Reinvestment Act of 1977 in connection with any branch application. 53 Under the BHCA, bank holding companies are specifically authorized to acquire control of any savings association. Pursuant to rules promulgated by the Federal Reserve Board, owning, controlling or operating a savings institution is a permissible activity for savings and loan holding companies, if the savings institution engages only in deposit-taking activities and lending and other activities that are permissible for bank holding companies. A bank holding company that controls a savings institution may merge or consolidate the assets and liabilities of the savings institution with, or transfer assets and liabilities to, any subsidiary bank which is a member of the BIF with the approval of the appropriate federal banking agency and the Federal Reserve Board. The resulting bank will be required to continue to pay assessments to the SAIF at the rates prescribed for SAIF members on the deposits attributable to the merged savings institution plus an annual growth increment. In addition, the transaction must comply with the restrictions on interstate acquisitions of commercial banks under the BHCA. Federal Securities Law. The Company has filed with the SEC a Registration Statement under the Securities Act of 1933, as amended (the "Securities Act"), for the registration of the Common Stock to be issued in the Conversion. Upon completion of the Conversion, the Common Stock will be registered with the SEC under the Exchange Act and, under OTS regulations, generally may not be deregistered for at least three years thereafter. The Company will be subject to the information, proxy solicitation, insider trading restrictions and other requirements of the Exchange Act. The registration under the Securities Act of the Common Stock does not cover the resale of such shares. Shares of the Common Stock purchased by persons who are not affiliates of the Company may be resold without registration. Shares purchased by an affiliate of the Company will be subject to the resale restrictions of Rule 144 under the Securities Act. If the Company meets the current public information requirements of Rule 144 under the Securities Act, each affiliate of the Company who complies with the other conditions of Rule 144 (including those that require the affiliate's sale to be aggregated with those of certain other persons) would be able to sell in the public market, without registration, a number of shares not to exceed, in any three-month period, the greater of (i) 1% of the outstanding shares of the Company or (ii) the average weekly volume of trading in such shares during the preceding four calendar weeks. Provision may be made in the future by the Company to permit affiliates to have their shares registered for sale under the Securities Act under certain circumstances. There are currently no demand registration rights outstanding. However, in the event the Company at some future time determines to issue additional shares from its authorized but unissued shares, the Company might offer registration rights to certain of its affiliates who want to sell their shares. TAXATION General The Association files a consolidated federal income tax return based on the fiscal year. After the Conversion, it is expected that the Company and the Association, together with the Association's subsidiary, will file a consolidated federal income tax return based on a fiscal year ending June 30. Consolidated returns have the effect of deferring gain or loss on intercompany transactions and allowing companies included within the consolidated return to offset income against losses under certain circumstances. Federal Income Taxation The Company and the Association will file a consolidated federal income tax return. Thrift institutions are subject to the provisions of the Code in the same general manner as other corporations. Prior to recent legislation, institutions such as the Association which met certain definitional tests and other conditions prescribed by the Code benefitted from certain favorable provisions regarding their deductions from taxable income for annual additions to their bad debt reserve. For purposes of the bad debt reserve deduction, loans were separated into "qualifying real property loans," which generally are loans secured by interests in certain real property, and nonqualifying loans, which are all other loans. The bad debt reserve deduction with respect to nonqualifying loans was based on actual loss experience, however, the amount of the bad debt reserve deduction with respect to qualifying real property loans could be based upon actual loss experience (the "experience method") or a percentage of taxable income determined without regard to such deduction (the "percentage of taxable income method"). Legislation recently signed 54 by the President repealed the percentage of taxable income method of calculating the bad debt reserve. The Association historically has elected to use the percentage method. Earnings appropriated to an institution's bad debt reserve and claimed as a tax deduction were not available for the payment of cash dividends or for distribution to shareholders (including distributions made on dissolution or liquidation), unless such amount was included in taxable income, along with the amount deemed necessary to pay the resulting federal income tax. Beginning with the first taxable year beginning after December 31, 1995, savings institutions, such as the Association, will be treated the same as commercial banks. Institutions with $500 million or more in assets will only be able to take a tax deduction when a loan is actually charged off. Institutions with less than $500 million in assets will still be permitted to make deductible bad debt additions to reserves, but only using the experience method. In 1996 the Association's federal corporate income tax returns for 1995 were audited with no significant correction. The Association's tax returns have not been otherwise audited in the last five years. Under provisions of the Revenue Reconciliation Act of 1993 ("RRA"), enacted on August 10, 1993, the maximum federal corporate income tax rate was increased from 34% to 35% for taxable income over $10.0 million, with a 3% surtax imposed on taxable income over $15.0 million. Also under provisions of RRA, a separate depreciation calculation requirement has been eliminated in the determination of adjusted current earnings for purposes of determining alternative minimum taxable income, rules relating to payment of estimated corporate income taxes were revised, and certain acquired intangible assets such as goodwill and customer-based intangibles were allowed a 15-year amortization period. Beginning with tax years ending on or after January 1, 1993, RRA also provides that securities dealers must use mark-to-market accounting and generally reflect changes in value during the year or upon sale as taxable gains or losses. The IRS has indicated that financial institutions which originate and sell loans will be subject to the rule. State Income Taxation The State of Colorado imposes no income or franchise taxes on savings institutions. The State of Colorado taxes the Association's federal taxable income, adjusted for interest income received directly from federal agencies, at a 5% rate. MANAGEMENT OF THE COMPANY The Board of Directors of the Company consists of the same individuals who serve as directors of the Association. Their biographical information is set forth under "Management of the Association." The Board of Directors of the Company is divided into three classes. Directors of the Company will serve for three year terms or until their successors are elected and qualified, with approximately one-third of the directors being elected at each annual meeting of stockholders, beginning with the first annual meeting of stockholders following the Conversion. The following individuals hold the offices in the Company set forth below opposite their names.
Name Title ---- ----- Larry D. Smith President Scott G. Erchul Vice President Frank L. DeLay Chief Financial Officer
The executive officers of the Company are elected annually and hold office until their respective successors have been elected and qualified or until death, resignation or removal by the Board of Directors of the Company. 55 Since the formation of the Company, none of the executive officers, directors or other personnel have received remuneration from the Company. Information concerning the principal occupations, employment and compensation of the directors and officers of the Company during the past five years is set forth under "Management of the Association." Executive officers and directors of the Company will be compensated as described below under "Management of the Association." MANAGEMENT OF THE ASSOCIATION Directors Because the Association is a mutual savings and loan association, its members have elected its Board of Directors. Upon completion of the Conversion, each director of the Association immediately prior to the Conversion will continue to serve as directors of the Converted Association. The term of each director is three years, and approximately one-third of the members of the Board of Directors are elected each year. The Conversion will not affect the classes or terms of the existing directors. Because the Company will own all the issued and outstanding capital stock of the Converted Association following the Conversion, the Board of Directors of the Company will elect the directors of the Converted Association. Following the Conversion, Mr. Mitchell, who currently serves as Chairman of the Board of Directors of the Association, will become Chairman of the Board of Directors of the Converted Association. Mr. Smith, who currently serves as President of the Association, will become President and Chief Executive Officer of the Converted Association. They each will serve in these same capacities for the Company. The following table sets forth certain information with respect to the individuals who serve currently as members of the Association's Board of Directors. There are no arrangements or understandings between the Association and any director pursuant to which such person has been elected a director of the Association, and no director is related to any other director or executive officer by blood, marriage or adoption.
Age at June 30, Name 1997 Director Since Term to Expire - ---- ------- -------------- -------------- Richard A. Young 43 1992 1998 Philip W. Harsh 52 1995 1998 Larry D. Smith 39 1987 1999 Robert B. Mitchell 71 1972 2000 Timothy R. Glenn 39 1991 2000 Scott G. Erchul 35 1997 2000
Presented below is certain information concerning the directors of the Association. Unless otherwise stated, all directors have held the positions indicated for at least the past five years. Richard A. Young has served as a Director of the Association since 1992 and will serve as Secretary and Treasurer of the Company and the Converted Association. He is a Certified Public Accountant and a partner in the accounting firm of Swartz & Young P.C. He is a high school football coach, treasurer and board member of the local Pop Warner Football League and youth leader for a LDS church scouting troop. Philip W. Harsh has been an owner and agent of the Fredrickson Brown Insurance Agency since 1990 and a Director of the Association since 1995. He is a member of the Salida Chamber of Commerce and the Chamber of Commerce Business Development Group. Also, he has served as President of the ruling group for the Salida Public Golf Course and is active in the Independent Insurance Agents of America's Insurance Youth Golf Classic. Larry D. Smith has been President of the Association since 1991 and a Director of the Association since 1987. He will serve as the President and Chief Executive Officer of the Company and the Converted Association. From 1978 to 1991, he served as Controller of the Association. He is active in the Salida school system and youth sports by serving 56 as a coach for various sports teams and by serving on the High School Building Accountability and Business Advisory Committees. He is also involved with several organizations which promote the academic and athletic development of the youth of Salida. Robert B. Mitchell has served as a Director of the Association since 1972. He is retired after 20 years as the Post Master of Salida, Colorado. Timothy R. Glenn has served as a Director of the Association since 1991. He is the Funeral Director and Owner of the Lewis & Glenn Funeral Home and the Coroner for Chaffee County, Colorado. His civic activities include the Salida Rotary Club, Elks Lodge, 4-H Club and the St. Joseph Catholic Church. He has also served as President and a member of the Board of Directors of the Colorado Association of Cemeteries. Scott G. Erchul has been a member of the Board of Directors of the Association since 1997. He has served as Vice President of the Association since 1991 and will serve as Vice President of the Company and the Converted Association. His past and current community involvement include the Rotary Club, Academic Booster Club committee member and youth sports coach for football, baseball and soccer. Executive Officers Who Are Not Directors Frank L. DeLay has served as the Chief Financial Officer of the Association since 1992 and he will serve in a similar capacity for the Company. He is a member and current President of the Kiwanis Club. Also, he is a member of the Board of Directors of the Heart of the Rockies Chamber of Commerce. Committees of the Board of Directors The Board of Directors of the Association meets monthly and may have additional special meetings, as required. During the year ended June 30, 1997, the Board met 28 times. No director attended fewer than 75% in the aggregate of the total number of Board meetings held during the year ended June 30, 1997 and the total number of meetings held by committees on which he served during such fiscal year. The Board of Directors' Audit Committee consists of Directors Mitchell and Young. The Audit Committee, met two times during the year ended June 30, 1997 to examine and approve the audit report prepared by the independent auditors of the Association to review and recommend the independent auditors to be engaged by the Association, to review the internal audit function and internal accounting controls, and to review and approve conflict of interest and audit policies. Following the Conversion, it is expected that the Audit Committee will be comprised of two non-employee directors. The Association's full Board of Directors serves as the Nominating Committee, and is responsible for considering potential nominees to the Board of Directors. During the year ended June 30, 1997, the Board of Directors met one time as a nominating committee. Following the Conversion, it is expected that the Company's full Board of Directors will act as a nominating committee for selecting the management nominees for election as directors of the Company in accordance with the Company's Bylaws. The Board of Directors' Compensation Committee consists of the full Board of Directors. The Compensation Committee evaluates the compensation and benefits of the directors, officers and employees, recommends changes, and monitors and evaluates employee performance. All compensation decisions are made by the full Board of Directors. The Board of Directors met four times as the Compensation Committee during the fiscal year ended June 30, 1997. 57 Executive Compensation The following table sets forth the cash and noncash compensation for the last fiscal year awarded to or earned by the Chief Executive Officer. No executive officer of the Company earned salary and bonus in fiscal year 1997 exceeding $100,000 for services rendered in all capacities to the Association.
Annual Compensation ---------------------------------------- Other Annual All Other Name Year Salary Bonus Compensation(1) Compensation - ---- --- ------ ----- --------------- ------------ Larry D. Smith 1997 $70,142 $ 7,500 $7,000 (2) $ -- President
- --------------- (1) Executive officers of the Association receive indirect compensation in the form of certain perquisites and other personal benefits. The amount of such benefits received by the named executive officers in fiscal 1997 did not exceed 10% of each of the executive officer's respective salary and bonus. (2) Compensation for serving on the Board of Directors. Director Compensation Effective May 1997, the Association's directors receive fees of $1,000 per month. It is expected that Directors will receive no additional fees for serving on the Board of Directors of the Company as well as the Board of Directors of the Converted Association. Prior to May 1997, directors received fees of $500 per month. No fees are paid for serving on committees of the Board of Directors. During fiscal year 1997, the Association's directors' fees paid totaled $65,500. Certain Benefit Plans and Agreements In connection with the Conversion, the Company's and the Association's Boards of Directors have approved certain stock incentive plans, employment agreements, change-in-control severance agreements, and incentive compensation plans. Basis for Awards of Benefits and Compensation. The Company's and the Association's Boards of Directors have evaluated and approved the terms of the employment agreements and other benefits described below. In its review of the benefits and compensation of the executive officers and the terms of the employment agreements, the Boards of Directors considered a number of factors, including the experience, tenure and ability of the executive officers, their performance for the Association during their tenure and the various legal and regulatory requirements regarding the levels of compensation which may be paid to employees of savings associations. Stock Option Plan. The Board of Directors of the Company intends to implement the Option Plan more than six months after completion of the Conversion. The purpose of the Option Plan is to provide additional incentive to directors and employees by facilitating their acquisition of Common Stock. The Option Plan will have a term of ten years, after which no awards may be made. A number of shares equal to 10% of the shares of Conversion Stock sold to the public in the Offering would be reserved for future issuance by the Company -- in the form of newly issued shares, or treasury shares, or shares held in a grantor trust -- upon exercise of stock options ("Options") or stock appreciation rights ("SARs"). Options and SARs are collectively referred to herein as "Awards." The exercise price of shares subject to outstanding Awards will be equitably adjusted upon a stock split, recapitalization, or similar event (including a return of capital). If Awards should expire, become unexercisable, or be forfeited for any reason without having been exercised or having become vested in full, the shares of Common Stock subject to such Awards would be available for the grant of additional Awards under the Option Plan. 58 It is expected that the Option Plan will be administered by a committee (the "Option Committee") of at least two directors who are designated by the Board of Directors and are "non-employee directors" within the meaning of the federal securities laws. Directors Mitchell, Glenn, Harsh, and Young are currently expected to serve as the Option Committee. Directors and employees will be eligible to receive Awards, and the Option Committee will select the recipients of Awards, the number of shares to be subject to such Awards, and the terms and conditions of such Awards (subject to the terms of the Option Plan). The Options to be awarded to employees pursuant to the Option Plan may or may not qualify as incentive stock options ("ISOs") that afford favorable tax treatment to recipients upon compliance with certain restrictions pursuant to Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") and that do not result in tax deductions to the Company unless optionees fail to comply with Section 422 of the Code. Subject to the regulatory requirements explained below under the heading "OTS Rules Applicable to the Option Plan and MRP" each Option will have an exercise price not less than 50% of the market value of the underlying shares on the date of the grant, will become exercisable upon terms determined by the Option Committee, and will become immediately exercisable upon a change in control (within the meaning of the Employment Agreements) or an optionee's termination of employment due to retirement, death, or disability. Nevertheless, each Option will expire no later than ten years from the date it is granted, and will expire earlier, unless otherwise determined by the Option Committee, upon (i) an employee's termination of employment for "just cause" (as defined in the Option Plan), (ii) the date two years after termination of such service due to the employee's death, (iii) the date one year after an employee terminates service due to disability, or (iv) the date one year after an employee terminates service for a reason other than just cause, death, or disability. Otherwise unexpired Options granted to non-employee directors will automatically expire one year after termination of service on the Board of Directors (two years in the event of death). An SAR may be granted in tandem with all or any part of any Option or without any relationship to any Option. Whether or not an SAR is granted in tandem with an Option, exercise of the SAR will entitle the optionee to receive, as the Option Committee prescribes in the grant, all or a percentage of the excess of the then fair market value of the shares of Common Stock subject to the SAR at the time of its exercise over the aggregate exercise price of the shares subject to the SAR when granted. Payment to the optionee may be made in cash or shares of Common Stock, as determined by the Option Committee. The Company will receive no monetary consideration for the granting of Awards under the Option Plan, and will receive no monetary consideration other than the Option exercise price for each share issued to optionees upon the exercise of Options. The Option Committee will have the discretion to impose transfer restrictions, such as a right of first refusal, on the Common Stock subject to Awards. Optionees will be permitted to transfer Awards to family members or trusts under specified circumstances, but awards may not otherwise be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent and distribution. Upon an optionee's exercise of an Option, the Company may, if provided by the Option Committee in the underlying Option agreement, pay to the optionee a cash amount up to but not exceeding the amount of dividends, if any, declared on the underlying shares between the date of grant and the date of exercise of the Option. It is expected that upon the implementation of the Option Plan, Mr. Smith will receive an Award with respect to 25% of the shares of Conversion Stock reserved under the Option Plan, and each director at that time who is not then an employee will receive an Award with respect to 5% of such shares. No SARs are expected to be granted when the Option Plan becomes effective. At any time following consummation of the Conversion, the Bank or the Company may contribute sufficient funds to a grantor trust to purchase, and such trust may purchase, a number of shares of Common Stock equal to 10% of the shares sold to the public in the Offering. Such shares would be held by the trust for issuance to Option holders upon the exercise of Options in the event the Option Plan is implemented. Whether such shares are purchased, and the timing of such purchases, will depend on market and other conditions and the alternative uses of capital available to the Company. Management Recognition Plan. The Board of Directors of the Company intends to implement the MRP more than six months after completion of the Conversion. The purpose of the MRP is to enable the Company and the Bank to retain personnel of experience and ability in key positions of responsibility. 59 A number of shares equal to 4% of the shares of Conversion Stock sold in the Offering would be reserved for future issuance under the MRP. The same non-employee directors who are appointed to the Option Committee are expected to act, by majority, as the committee (the "MRP Committee") responsible for selecting the directors and employees who will receive MRP awards, as well as making general decisions associated with the MRP's operation. The directors serving as the MRP Committee are also expected to serve as trustee of the trust associated with the MRP (the "MRP Trust"). In that capacity, they will have the responsibility to hold and invest all funds contributed to the MRP Trust. Shares held in the MRP Trust will be voted by the MRP trustees in the same proportion as the shares held by the Company's employee stock ownership plan, and will be distributed as each award vests. The compensation expense for the Company for MRP awards will equal the fair market value of the Common Stock on the date of the grant pro rated over the years during which vesting occurs. The Company's Board of Directors can terminate the MRP at any time, and, if it does so, any shares not subject to outstanding awards will revert to the Company. The shares awarded pursuant to the MRP will be in the form of awards which may be transferred to family members or trusts under specified circumstances, but may not otherwise be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent and distribution. Subject to the regulatory requirements explained below under the heading "OTS Rules Applicable to the Option Plan and MRP" each MRP award will vest in accordance with conditions determined by the MRP Committee, with an acceleration of vesting to 100% upon a participant's death, disability, or retirement or a "change in control" within the meaning of the Employment Agreement. Dividends on unvested shares will be held in the MRP Trust for payment as vesting occurs. Participants in the MRP may elect to defer all or a percentage of their MRP awards that would have otherwise been transferred to the participants upon vesting of said awards. If, however, a participant terminates employment before becoming fully vested in an MRP award, he or she forfeits all rights to the allocated shares under restriction. It is expected that upon the implementation of the MRP, Mr. Smith will receive an award with respect to 25% of the shares reserved for MRP awards, and each director who is not an employee but is a director on the effective date shall receive an award with respect to 5% of such shares. At any time following consummation of the Conversion the Bank or the Company will contribute sufficient funds to the MRP Trust so that the trust can purchase a number of shares of Common Stock equal to 4% of those sold in the Offering. Whether those shares will be purchased in the open market or newly issued by the Company, and the timing of such purchases, will depend on market and other conditions and the alternative uses of capital available to the Company. OTS Rules Applicable to the Option Plan and MRP. Current OTS regulations require that, if the Option Plan or MRP is implemented within one year following completion of the Conversion, (i) no employee will receive awards covering more than 25% of the shares subject to the plan, (ii) non-employee directors will not receive awards exceeding 30% in the aggregate, and 5% individually, of such shares, (iii) awards will vest over a period of at least five years and vesting will not accelerate upon an individual's retirement or a corporate change in control, (iv) the exercise price for Options will at least equal the fair market value of the underlying shares on its grant date, and (v) the plan will not be implemented before, or in the absence of, its receipt of stockholder approval, and no awards will be made prior to the receipt of such approval. 401(k) Plan. The Association maintains a defined contribution plan, which is designed to qualify under Sections 401(a) and 401(k) of the Code (the "401(k) Plan"). An employee is eligible to participate in the 401(k) Plan on or after attaining age 18 and completion of one year of service. The 401(k) Plan permits a participant to make before-tax contributions through regular salary reductions of up to 15% of salary payable. The 401(k) Plan is intended to comply with all the rights and protection afforded employees pursuant to the Employee Retirement Income Security Act of 1974, as amended. Participants are at all times fully vested in their elective salary deferrals under the 401(k) Plan. Employer matching and discretionary contributions to the 401(k) Plan vest based on years of service, with participants becoming 20% vested after 3 years of service, 40% after 4 years of service, 60% after 5 years of service, 80% after 6 years of service, and 100% after 7 years of service. Benefits are paid following a participant's termination of employment. 60 Participants will be permitted to direct, on a one-time basis, that all or part of their 401(k) Plan account balances be invested in Common Stock. Voting rights for such stock, to be held in trust for participants, are expected to be exercisable by participants. Employee Stock Ownership Plan. In connection with the Conversion, the Company's Board of Directors intends to adopt an employee stock ownership plan ("ESOP"), effective as of July 1, 1997. Employees of the Company and its subsidiaries who have attained age 18 and completed one year of service will be eligible to participate in the ESOP. The Company will submit an application to the IRS for a letter of determination as to the tax-qualified status of the ESOP. Although no assurances can be given, the Company expects the ESOP to receive a favorable letter of determination from the IRS. The ESOP is to be funded by contributions made by the Company or the Association in cash or shares of Common Stock. The ESOP intends to borrow funds from the Company in an amount sufficient to purchase 8% of the Common Stock issued in the Conversion. This loan will be secured by the shares of Common Stock purchased and earnings thereon. Shares purchased with such loan proceeds will be held in a suspense account for allocation among participants as the loan is repaid. The Company expects to contribute sufficient funds to the ESOP to repay such loan over a ten-year period, plus such other amounts as the Company's Board of Directors may determine in its discretion. Upon the occurrence of a "change in control" (as defined in the ESOP), the outstanding balance of any outstanding securities acquisition loans under the ESOP will be discharged through a transfer or sale of shares held as collateral under such loan, with any remaining shares allocated to participant accounts pro rata based on their account balances. Participants terminating employment on or after the change in control will be entitled to receive a cash payment from the Company equal to the amount, if any, plus earnings thereon, which would have been allocated to the participant's account immediately following the change in control but was precluded from allocation based on allocation limits applicable under federal tax laws. Contributions to the ESOP and shares released from the suspense account will be allocated among participants on the basis of their annual wages subject to federal income tax withholding, plus any amounts withheld under a plan qualified under Sections 125 or 401(k) of the Code and sponsored by the Company or the Association. Participants must be employed at least 500 hours in a plan year in order to receive an allocation. Each participant's interest under the ESOP becomes vested at the rate of 20% for each of the participant's years of service with the company or the Association, and thereby becomes 100% vested upon a participant's completion of five years of service. For vesting purposes, a year of service means any plan year in which an employee completes at least 1,000 hours of service (whether before or after the ESOP's July 1, 1997 effective date). Vesting accelerates to 100% upon a participant's attainment of age 65, death or disability. Forfeitures will be reallocated to participants on the same basis as other contributions. Benefits are payable upon a participant's retirement, death, disability or separation from service and will be paid in a lump sum in whole shares of Common Stock (with cash paid in lieu of fractional shares). Benefits paid to a participant in Common Stock that is not publicly traded on an established securities market will be subject both to a right of first refusal by the Company and to a put option by the participant. Dividends paid on allocated shares are expected to be paid to participants or used to repay the ESOP loan, and dividends on unallocated shares are expected to be used to repay the ESOP loan. It is expected that the Company will administer the ESOP and that Directors Mitchell, Glenn, Harsh, and Young will be appointed as trustees of the ESOP (the "ESOP Trustees"). The ESOP Trustees must vote all allocated shares held in the ESOP in accordance with the instructions of the participants. Unallocated shares and allocated shares for which no timely direction is received are expected to be voted by the ESOP Trustees in the same proportion as the participant-directed voting of allocated shares. Long-Term Incentive Plan. The Association's Board of Directors has adopted the Salida Building and Loan Association Long-Term Incentive Plan (the "LTIP") effective June 10, 1997 (the "Effective Date"), for its directors who are members of the Association's Board of Directors (the "Board") at some time on or after the plan's effective date. 61 On the Effective Date, a bookkeeping account was established by the Association in the name of each participant, and each participant who was a non-employee director on the Effective Date had his account credited with an amount equal to the product of (i) $2,846, and (ii) his full years of service as a director prior to the Effective Date. On each June 30 following the Effective Date, each participant who is a non-employee director on such date shall have his or her account credited with an amount equal to the product of $2,846 and the safe performance factor. The safe performance factor is determined based on the Association's actual performance as compared to budgeted goals for return on average assets, non-performing assets, and CAMEL rating, provided that the safe performance factor may not exceed 1.2. Also on the Effective Date, the LTIP accounts of Messrs. Smith and Erchul (the "Employee Directors"), were credited with amounts equal to $11,076 and $5,342, respectively, (the "Annual Credits") for each full year of their service with the Association prior to such date. On the June 30 occurring during each of the years following 1997 until termination of employment, each Employee Director's account will be credited with an additional amount equal to the Annual Credit times the safe performance factor. Amounts credited to participants' accounts will be fully vested at all times. Until distributed in accordance with the terms of the LTIP, each participant's account will be credited with a rate of return on any amounts previously credited. Prior to the Conversion, this rate of return equals the highest rate of interest paid by the Association on certificates of deposit having a term of one year. After the Conversion that rate of return will equal the dividend-adjusted rate of return on the Company's common stock. In the event of an Employee Director's disability or death, his account will be credited with an amount equal to the difference (if any) between (i) 50% of the present value of all benefits which would have been credited to his account if he had otherwise remained employed by the Association to age 65, and (ii) the benefits which are actually credited to his account at the time of his termination. If his employment terminates in connection with or following a change in control, his account will be credited with an amount equal to the difference (if any) between (i) 100% of the present value of all benefits which would have been credited to his account if he had otherwise remained employed by the Association to age 65, and (ii) the benefits which are actually credited to his account at the time of his termination, subject to applicable "golden parachute" limitations under (S)280G of the Internal Revenue Code. "Change in control" is defined the same as under the Employment Agreement described below. Participants' accounts under the LTIP will be paid, in cash, in ten substantially equal annual installments, beginning during the first quarter of the calendar year which next follows the calendar year in which the participant ceases to be a director. Notwithstanding the foregoing, a participant may elect to receive LTIP benefits in a lump sum or over a period shorter than ten years. In the event of a participants' death, the balance of his LTIP account will be paid in a lump sum (unless the participant elects a distribution period up to ten years) to his designated beneficiary, or if none, his estate. Any benefits accrued under the LTIP will be paid from the Association's general assets. The Association has established a trust in order to hold assets with which to pay benefits. Trust assets will be subject to the claims of the Association's general creditors. In the event a participant prevails over the Association in a legal dispute as to the terms or interpretation of the LTIP, he or she will be reimbursed for his or her legal and other expenses. Incentive Compensation Plan. The Association's Board of Directors adopted the Incentive Compensation Plan, effective July 1, 1997. The Incentive Compensation Plan is administered by a committee (the "Incentive Compensation Committee") which is expected to consist of the Association's non-employee directors. Under the plan, employees will receive annual cash bonus awards from a bonus pool determined under a performance-based formula. The bonus pool will equal the multiple of (i) 30% of net income in excess of 80% of targeted net income, times (ii) the NPA factor, times (iii) the CAMEL factor. The NPA factor will equal 1.0 as long as the ratio of the Association's non-performing assets and real-estate-owned to its total loans and real-estate-owned ("NPA Ratio") is less than or equal to 1%, and will be reduced ratably to 0 for NPA Ratios equaling or exceeding 2%. The CAMEL Factor will equal 1.2 for a CAMEL rating of 1, 1.0 for a CAMEL rating of 2, and 0 for CAMEL ratings of 3 or higher. In determining performance for a fiscal year, the Incentive Compensation Committee will have the discretion to take into account or disregard extraordinary financial events. Mr. Smith is expected to receive approximately 25% of the annual bonus pool, with the remaining 75% divided among the Association's other employees, based on a schedule approved by the Incentive Compensation Committee. 62 The Incentive Compensation Plan has an indefinite term, and the Association has the right at any time to terminate or amend the Incentive Compensation Plan for any reason; provided, that no amendment or termination may, without the consent of the participant or, if applicable, the participant's beneficiary, adversely affect such participant's or beneficiary's rights with respect to benefits accrued as of the date of such amendment or termination. Employment Agreements. The Company and the Association has entered into employment agreements (the "Employment Agreements") under which Larry D. Smith would serve as President and Scott G. Erchul will serve as Vice President of the Association and the Company (the "Employees"). In such capacities, the Employees are responsible for overseeing all operations of the Association and the Company, and for implementing the policies adopted by the Boards of Directors. Such Boards believe that the Employment Agreements assure fair treatment of the Employees in their career with the Company and the Association by assuring them of some financial security. The Employment Agreements will become effective upon their execution and will provide for a term of three years, with an annual base salary equal to each Employee's existing base salary rate in effect on the effective date. On each anniversary date of the commencement of the Employment Agreements, the term of each Employee's employment may be extended for an additional one-year period beyond the then effective expiration date, upon a determination by the Board of Directors that the performance of the Employee has met the required performance standards and that such Employment Agreements should be extended. The Employment Agreements provide each Employee with a salary review by the Board of Directors not less often than annually, as well as with inclusion in any discretionary bonus plans, retirement and medical plans, customary fringe benefits, vacation and sick leave. An Employment Agreement shall terminate upon the Employee's death, may terminate upon the Employee's disability and are terminable by the Association for "just cause" (as defined in the Employment Agreements). In the event of termination for just cause, no severance benefits are available. If the Company or the Association terminates an Employee without just cause, the Employee will be entitled to a continuation of his salary and benefits from the date of termination through the remaining term of the Employment Agreements plus an additional 12 month's salary and, at the Employee's election, either continued participation in benefit plans which the Employee would have been eligible to participate in through the Employment Agreements' expiration date or the cash equivalent thereof. If the Employment Agreements are terminated due to the Employee's "disability" (as defined in the Employment Agreements), the Employee will be entitled to a continuation of his salary and benefits through the date of such termination, including any period prior to the establishment of the Employee's disability. In the event of an Employee's death during the term of his Employment Agreement, his estate will be entitled to receive his salary through the last day of the calendar month in which the Employee's death occurred. An Employee is able to voluntarily terminate his Employment Agreement by providing 90 days' written notice to the Boards of Directors of the Association and the Company, in which case the Employee is entitled to receive only his compensation, vested rights, and benefits up to the date of termination. If an Employee's employment terminates for a reason other than just cause, the Employee will, until he first becomes eligible for Medicare, be entitled to purchase from the Association, at a rate not greater than that applicable under COBRA, family medical insurance through any group health plan maintained by the Association. In the event of (i) the Employee's involuntary termination of employment other than for "just cause" during the period beginning six months before a change in control and ending on the later of the first anniversary of the change in control or the expiration date of the Employment Agreements (the "Protected Period"), (ii) the Employee's voluntary termination within 90 days of the occurrence of certain specified events occurring during the Protected Period which have not been consented to by the Employee, or (iii) the Employee's voluntary termination of employment for any reason within the 30-day period beginning on the date of the change in control, the Employee will be paid within 10 days of such termination (or the date of the change in control, whichever is later) an amount equal to the difference between (i) 2.99 times his "base amount," as defined in Section 280G(b)(3) of the Internal Revenue Code, and (ii) the sum of any other parachute payments, as defined under Section 280G(b)(2) of the Internal Revenue Code, that the Employee receives on account of the change in control. "Change in Control" means any one of the following events: (i) the acquisition of ownership, holding or power to vote more than 25% of the voting stock of the Association or the Holding Company thereof, (ii) the acquisition of the ability to control the election of a majority of the Association's or the Company's Directors, (iii) the acquisition of a controlling influence over the management or policies of the Association or of the Company by any person or by 63 persons acting as a "group" (within the meaning of Section 13(d) of the Securities Exchange Act of 1934), or (iv) during any period of two consecutive years, individuals (the "Continuing Directors") who at the beginning of such period constitute the Board of Directors of the Association or of the Company (the "Existing Board") cease for any reason to constitute at least two-thirds thereof, provided that any individual whose election or nomination for election as a member of the Existing Board was approved by a vote of at least two-thirds of the Continuing Directors then in office shall be considered a Continuing Director. Notwithstanding the foregoing, the Company's ownership of the Association shall not of itself constitute a Change in Control for purposes of the Agreement. For purposes of this paragraph only, the term "person" refers to an individual or a corporation, partnership, trust, association, joint venture, pool, syndicate, sole proprietorship, unincorporated organization or any other form of entity not specifically listed herein. Notwithstanding the foregoing, a "Change in Control" shall not be deemed to occur solely by reason of a transaction in which the Association converts to the stock form of organization, or creates an independent holding company in connection therewith. The decision of the Board as to whether a Change in Control has occurred shall be conclusive and binding. Each Employment Agreement with the Association provides that within 10 business days of a change in control, the Association shall fund, or cause to be funded, a trust in the amount of 2.99 times the Employee's base amount, that will be used to pay the Employee amounts owed to him. The payments that would be made to Messrs. Smith and Erchul assuming their termination of employment under the foregoing circumstances at June 30, 1997 would have been approximately $197,000 and $127,000, respectively. These provisions may have an anti-takeover effect by making it more expensive for a potential acquiror to obtain control of the Company. For more information, see "Certain Anti-Takeover Provisions in the Articles of Incorporation and Bylaws -- Additional Anti-Takeover Provisions." In the event that the Employee prevails over the Company and the Association, or obtains a written settlement, in a legal dispute as to the Employment Agreement, he will be reimbursed for his legal and other expenses. Change-in-Control Protective Agreements. The Company and the Association intend to enter into change-in-control severance agreements (the "Severance Agreements") with Frank L. DeLay, and Linda C. Rush (collectively, the "Employees"), effective upon the closing of the Conversion. The Severance Agreements will have a term beginning on the date of completion of the Conversion and ending on the earlier of (a) three years after the date of completion of the Conversion, and (b) the date on which one of these individuals terminates employment with the Company and the Association, provided that the Employee's rights under the Severance Agreement will continue, provided the Agreement is in effect upon a Change in Control through the later of (i) the first annual anniversary of the Change in Control, or (ii) the expiration of the term of the Severance Agreement. On each annual anniversary date from the date of commencement of the Severance Agreements, the term of the Severance Agreements may be extended for additional one-year periods beyond the then effective expiration date, upon a determination by the Board of Directors that the performance of these individuals has met the required performance standards and that such Severance Agreements should be extended. Under the Severance Agreements, in the event of an Employee's involuntary termination of employment in connection with, or within one year after, any change in control of the Association or the Company, other than for "just cause," the Employee will be paid within 10 days of such termination an amount equal to his or her annual salary then in effect provided that no amount shall be paid in excess of the difference between (i) 2.99 times his or her "base amount" as defined in Section 280G(b)(3) of the Internal Revenue Code, and (ii) the sum of any other parachute payments, as defined under Section 280G(b)(2) of the Internal Revenue Code, that he or she receives on account of the change in control. "Change in Control" has the same meaning under the Severance Agreements that it has under the Employment Agreements (see above). Each Severance Agreement also provides for a similar lump sum payment to be made in the event of an Employee's voluntary termination of employment within one year following a change in control, upon the occurrence, or within 90 days thereafter, of certain specified events following the change in control, which have not been consented to in writing by one of them. The Severance Agreements with the Association provides that within 10 business days of a change in control, the Association shall fund, or cause to be funded, a trust in the amount of 2.99 times the base amount that will be used to pay amounts owed to him or her upon termination other than for just cause within one year of the change in control. The amount to be paid to an employee from this trust upon his or her termination is determined according to the 64 procedures outlined in the Severance Agreements with the Association, and any money not paid to the employee is returned to the Association. The aggregate payments that would be made to Employees DeLay and Rush, assuming termination of employment under the foregoing circumstances at June 30, 1997, would have been approximately $________ and $________, respectively. These provisions may have an anti-takeover effect by making it more expensive for a potential acquiror to obtain control of the Company. For more information, see "Certain Anti-Takeover Provisions in the Charter and Bylaws -- Additional Anti-Takeover Provisions." In the event that one of these individuals prevails over the Company and the Association in a legal dispute as to the Severance Agreement, he or she will be reimbursed for his or her legal and other expenses. Transactions with Management The Association offers loans to its directors and officers. These loans currently are made in the ordinary course of business with the same collateral, interest rates and underwriting criteria as those of comparable transactions prevailing at the time and to not involve more than the normal risk of collectibility or present other unfavorable features. Under current law, the Association's loans to directors and executive officers are required to be made on substantially the same terms, including interest rates, as those prevailing for comparable transactions and must not involve more than the normal risk of repayment or present other unfavorable features. Furthermore, all loans to such persons must be approved in advance by a disinterested majority of the Board of Directors. At June 30, 1997, the Association had $689,000 in loans outstanding to directors and executive officers, which is 5.61% of pro forma stockholders equity at the midpoint of the Estimated Valuation Range. None of these loans had favorable terms. THE CONVERSION The OTS has approved the Plan, subject to the Plan's approval by the members of the Association entitled to vote on the matter and subject to the satisfaction of certain other conditions imposed by the OTS in its approval. Approval by the OTS, however, does not constitute a recommendation or endorsement of the Plan. General On May 15, 1997, the Board of Directors of the Association unanimously adopted, subject to approval by the OTS and the members of the Association, the Plan, pursuant to which the Association would convert from a federal mutual savings and loan association to a federal capital stock savings and loan association as a wholly owned subsidiary of the Company. The OTS has approved the Plan, subject to its approval by the members of the Association at the Special Meeting called for that purpose to be held on _________, 1997. The Conversion will be accomplished through the amendment of the Association's existing Federal Mutual Charter and Bylaws to read in the form of a Federal Stock Charter and Bylaws to authorize the issuance of capital stock by the Converted Association, the issuance of all the Converted Association's capital stock to be outstanding upon consummation of the Conversion to the Company and the offer and sale of the Common Stock of the Company. Upon issuance of the Converted Association's shares of capital stock to the Company, the Converted Association will be a wholly owned subsidiary of the Company. The Company has received approval from the OTS to become the holding company of the Converted Association subject to the satisfaction of certain conditions and to acquire all of the common stock of the Converted Association to be issued in the Conversion in exchange for at least 50% of the net proceeds from the sale of Common Stock in the Conversion. The Conversion will be effected only upon completion of the sale of all of the shares of Common Stock to be issued by the Company pursuant to the Plan. The aggregate purchase price of the Common Stock to be issued in the Conversion will be within the Estimated Valuation Range of between $7,650,000 and $10,350,000, which may be increased to $11,902,500, based upon an independent appraisal of the estimated pro forma market value of the Common Stock prepared by Ferguson. All shares 65 of the Common Stock to be issued and sold in the Conversion will be sold at the same price. The independent appraisal will be updated, if necessary, and the final price of the shares of the Common Stock will be determined at the completion of the Subscription and Community Offerings. Ferguson is experienced in the valuation and appraisal of financial institutions. For additional information, see " -- Stock Pricing and Number of Shares to be Issued." The following is a brief summary of material aspects of the Conversion. The summary is qualified in its entirety by reference to the provisions of the Plan. A copy of the Plan is available for inspection at the office of the Association and at the office of the OTS. The Plan is also filed as an exhibit to the Registration Statement of which this Prospectus is a part, copies of which may be obtained from the SEC. See "Additional Information." Offering of Common Stock Under the Plan, the Company is offering shares of the Common Stock first to the Association's Eligible Account Holders, second to the ESOP, third to Supplemental Eligible Account Holders and fourth to its Other Members who are not Eligible Account Holders or Supplemental Eligible Account Holders in the Subscription Offering. Subscription Rights received in any of the foregoing categories will be subordinated to the Subscription Rights received by those in a prior category, with the exception that any shares of Common Stock sold in excess of the maximum of the Estimated Valuation Range may first be sold to the ESOP. To the extent shares remain available for purchase after the Subscription Offering, the Company may offer any such remaining shares to the general public in the Community Offering. In the Community Offering, preference will be given to natural persons and trusts of natural persons who are permanent residents of the Local Community. The term "resident" as used in relation to the preference afforded natural persons in the Local Community means any natural person who occupies a dwelling within the Local Community, has an intention to remain within the Local Community for a period of time (manifested by establishing a physical, ongoing, nontransitory presence within the Local Community) and continues to reside in the Local Community at the time of the Subscription and Community Offerings. The Association may utilize deposit or loan records or such other evidence provided to it to make the determination whether a person is residing in the Local Community. To the extent the person is a corporation or other business entity, the principal place of business or headquarters shall be within the Local Community. To the extent the person is a personal benefit plan, the circumstance of the beneficiary shall apply with respect to this definition. In the case of all other benefit plans, circumstances of the trustee shall be examined for purposes of this definition. In all cases, however, such determination shall be in the sole discretion of the Association. The occurrence of the Community Offering is subject to the availability of shares of the Common Stock for purchase after satisfaction of all subscriptions in the Subscription Offering. Additionally, all purchases in the Community Offering are subject to the maximum and minimum purchase limitations set forth in the Plan and the right of the Company to reject any such orders, in whole or in part. As part of the Community Offering, the Plan provides that, if feasible, all shares of Common Stock not purchased in the Subscription and Community Offerings, if any, may be offered for sale to the general public in a Syndicated Community Offering through selected dealers to be formed and managed by Trident Securities. See " -- Syndicated Community Offering." If the Community Offering and Syndicated Community Offering are determined not to be feasible, the Association will immediately consult with the OTS to determine the most viable alternative available to effect the completion of the Conversion. Should no viable alternative exist, the Association may terminate the Conversion with the concurrence of OTS. The Plan provides that the Conversion must be completed within 24 months after the date of the approval of the Plan by the members of the Association. In the event that the Conversion is not effected, the Association will remain a federal mutual savings and loan association, all subscription funds will be promptly returned to subscribers with interest earned thereon and all withdrawal authorizations will be cancelled. The completion of the Conversion is subject to market conditions and other factors beyond the Association's control. No assurance can be given as to the length of time after approval of the Plan at the Special Meeting that will be required to complete the sale of the Common Stock to be offered in the Conversion. If delays are experienced, significant changes may occur in the estimated pro forma market value of the Company and the Converted Association upon consummation of the Conversion, together with corresponding changes in the offering price and the net proceeds realized by the Association from the sale of the Common Stock. The Association would also incur substantial additional printing, legal and 66 accounting expenses in completing the Conversion. In the event the Conversion is terminated, the Association would be required to charge all Conversion-related expenses against current income. Business Purposes The Association's Board of Directors has formed the Company to serve upon consummation of the Conversion as a holding company with the Converted Association as its subsidiary. The portion of the net proceeds from the sale of the Common Stock in the Conversion to be distributed to the Converted Association by the Company will substantially increase the Converted Association's capital position which will in turn increase the amount of funds available for lending and investment, provide a "cushion" to compensate for the Association's negative interest rate risk position, and provide greater resources to support both current operations and future expansion by the Association, although there are no current agreements or understandings for such expansion. The holding company structure will provide greater flexibility than the Association alone would have for diversification of business activities and geographic expansion. Management believes that this increased capital and operating flexibility will enable the Association to compete more effectively with other types of financial services organizations. In addition, the Conversion will also enhance the future access of the Company and the Association to the capital markets. The potential impact of Conversion upon the Association's capital base is significant. The Association had retained earnings in accordance with generally accepted accounting principles of $6.0 million, or 7.81% of assets, at June 30, 1997. Assuming approximately $8.5 million (based on the sale of 900,000 shares of Common Stock at the midpoint of the Estimated Valuation Range) of net proceeds are realized from the sale of the Common Stock (see "Pro Forma Data"), and after deducting amounts necessary to fund the ESOP and MRP, the Company's consolidated stockholders' equity would have been approximately $13.4 million as of June 30, 1997. The Company's ratio of tangible capital to total assets would increase to 15.95% after the Conversion. See "Historical and Pro Forma Regulatory Capital Compliance." The investment of the net proceeds from the sale of the Common Stock will provide the Converted Association with additional income to further increase its capital position. The additional capital may also assist the Converted Association in offering new programs and expanded services to its customers. After completion of the Conversion, the unissued Common Stock and preferred stock authorized by the Company's Articles of Incorporation will permit the Company, subject to market conditions, to raise additional equity capital through further sales of securities and to issue securities in connection with possible acquisitions. At the present time, the Company has no plans with respect to additional offerings of securities, other than the issuance of additional shares under the MRP or Option Plan, if implemented. Following completion of Conversion, the Company also will be able to use stock-related incentive programs to attract and retain executive and other personnel for itself and its subsidiaries. See "Management of the Association-- Certain Benefit Plans and Agreements." Effect of Conversion to Stock Form on Depositors and Borrowers of the Association General. Each depositor in a mutual savings institution such as the Association has both a deposit account and a pro rata interest in the retained earnings of that institution based upon the balance in his or her deposit account. However, this interest is tied to the depositor's account and has no tangible market value separate from such deposit account. Any other depositor who opens a deposit account obtains a pro rata interest in the retained earnings of the institution without any additional payment beyond the amount of the deposit. A depositor who reduces or closes his or her account receives a portion or all of the balance in the account but nothing for his or her ownership interest, which is lost to the extent that the balance in the account is reduced. Consequently, depositors normally do not have a way to realize the value of their ownership, which has realizable value only in the unlikely event that the mutual institution is liquidated. In such event, the depositors of record at that time, as owners, would share pro rata if any residual retained earnings remained, after other claims are paid. Upon consummation of the Conversion, permanent nonwithdrawable capital stock will be created to represent the ownership of the institution. The stock is separate and apart from deposit accounts and is not and cannot be insured 67 by the FDIC. Transferable certificates will be issued to evidence ownership of the stock, which will enable the stock to be sold or traded, if a purchaser is available, with no effect on any account held in the Association. Under the Plan, all of the capital stock of the Converted Association will be acquired by the Company in exchange for a portion of the net proceeds from the sale of the Common Stock in the Conversion. The Common Stock will represent an ownership interest in the Company and will be issued upon consummation of the Conversion to persons who elect to participate in the Conversion by purchasing the shares being offered. Continuity. During the Conversion process, the normal business of the Association of accepting deposits and making loans will continue without interruption. The Converted Association will continue to be subject to regulation by the OTS and the FDIC, and FDIC insurance of accounts will continue without interruption. After the Conversion, the Converted Association will continue to provide services for depositors and borrowers under current policies and by its present management and staff. The Board of Directors serving the Association at the time of the Conversion will serve as the Board of Directors of the Converted Association after the Conversion. Following the Conversion, the Board of Directors of the Company will consist of the individuals serving on the Board of Directors of the Association. All officers of the Association at the time of the Conversion will retain their positions with the Converted Association after the Conversion. Voting Rights. Upon the completion of the Conversion, depositor and borrower members as such will have no voting rights in the Converted Association or the Company and, therefore, will not be able to elect directors of the Converted Association or the Company or to control their affairs. Currently these rights are accorded to depositors of the Association. Subsequent to the Conversion, voting rights will be vested exclusively in the stockholders of the Company which, in turn, will own all of the stock of the Converted Association. Each holder of Common Stock shall be entitled to vote on any matter to be considered by the stockholders of the Company, subject to the provisions of the Company's Articles of Incorporation. After the Conversion, holders of Savings Accounts in and obligors on loans of the Converted Association will not have voting rights in the Association. Exclusive voting rights with respect to the Company shall be vested in the holders of the Common Stock, holders of Savings Accounts in and obligors on loans of the Converted Association and the Association will not have any voting rights in the Company except and to the extent that such persons become stockholders of the Company, and the Company will have exclusive voting rights with respect to the Converted Association's capital stock. Deposit Accounts and Loans. The Association's deposit accounts, the balances of individual accounts and existing federal deposit insurance coverage will not be affected by the Conversion. Furthermore, the Conversion will not affect the loan accounts, the balances of these accounts and the obligations of the borrowers under their individual contractual arrangements with the Association. Tax Effects. The Association has received an opinion from its special counsel, Housley Kantarian & Bronstein, P.C., Washington, D.C., as to the material federal income tax consequences of the Conversion to the Association, and as to the generally applicable material federal income tax consequences of the Conversion to the Association's account holders and to persons who purchase Common Stock in the Conversion. The opinion provides that the Conversion will constitute a reorganization for federal income tax purposes under Section 368(a)(1)(F) of the Internal Revenue Code of 1986, as amended ("Code"). Among other things, the opinion also provides that: (i) no gain or loss will be recognized by the Association in its mutual or stock form by reason of the Conversion; (ii) no gain or loss will be recognized by its account holders upon the issuance to them of accounts in the Converted Association in stock form immediately after the Conversion, in the same dollar amounts and on the same terms and conditions as their accounts at the Association immediately prior to the Conversion; (iii) the tax basis of each account holder's interest in the liquidation account will be equal to the value, if any, of that interest; (iv) the tax basis of the Common Stock purchased in the Conversion will be equal to the amount paid therefor increased, in the case of Common Stock acquired pursuant to the exercise of Subscription Rights, by the fair market value, if any, of the Subscription Rights exercised; (v) the holding period for the Common Stock purchased in the Conversion will commence upon the exercise of such holder's Subscription Rights and otherwise on the day following the date of such purchase; and (vi) gain or loss will be recognized to account holders 68 upon the receipt of liquidation rights or the receipt or exercise of Subscription Rights in the Conversion, to the extent such liquidation rights and Subscription Rights are deemed to have value, as discussed below. The opinion of Housley Kantarian & Bronstein, P.C., is based in part upon, and subject to the continuing validity in all material respects through the date of the Conversion of, various representations of the Association and upon certain assumptions and qualifications, including that the Conversion is consummated in the manner and according to the terms provided in the Plan. Such opinion is also based upon the Code, regulations now in effect or proposed thereunder, current administrative rulings and practice and judicial authority, all of which are subject to change and such change may be made with retroactive effect. Unlike private letter rulings received from the Internal Revenue Service ("IRS"), an opinion is not binding upon the IRS and there can be no assurance that the IRS will not take a position contrary to the positions reflected in such opinion, or that such opinion will be upheld by the courts if challenged by the IRS. Housley Kantarian & Bronstein, P.C. has advised the Association that an interest in a liquidation account has been treated by the IRS, in a series of private letter rulings which do not constitute formal precedent, as having nominal, if any, fair market value and therefore it is likely that the interests in the liquidation account established by the Association as part of the Conversion will similarly be treated as having nominal, if any, fair market value. Accordingly, it is likely that such depositors of the Association who receive an interest in such liquidation account established by the Association pursuant to the Conversion will not recognize any gain or loss upon such receipt. Housley Kantarian & Bronstein, P.C. has further advised the Association that the federal income tax treatment of the receipt of Subscription Rights pursuant to the Conversion is uncertain, and recent private letter rulings issued by the IRS have been in conflict. For instance, the IRS adopted the position in one private ruling that Subscription Rights will be deemed to have been received to the extent of the minimum pro rata distribution of such rights, together with the rights actually exercised in excess of such pro rata distribution, and with gain recognized to the extent of the combined fair market value of the pro rata distribution of Subscription Rights plus the Subscription Rights actually exercised. Persons who do not exercise their Subscription Rights under this analysis would recognize gain upon receipt of rights equal to the fair market value of such rights, regardless of exercise, and would recognize a corresponding loss upon the expiration of unexercised rights that may be available to offset the previously recognized gain. Under another IRS private ruling, Subscription Rights were deemed to have been received only to the extent actually exercised. This private ruling required that gain be recognized only if the holder of such rights exercised such rights, and that no loss be recognized if such rights were allowed to expire unexercised. There is no authority that clearly resolves this conflict among these private rulings, which may not be relied upon for precedential effect. However, based upon express provisions of the Code and in the absence of contrary authoritative guidance, Housley Kantarian & Bronstein, P.C. has provided in its opinion that gain will be recognized upon the receipt rather than the exercise of Subscription Rights. Further, also based upon a published IRS ruling and consistent with recognition of gain upon receipt rather than exercise of the Subscription Rights, Housley Kantarian & Bronstein, P.C. has provided in its opinion that the subsequent exercise of the Subscription Rights will not give rise to gain or loss. Regardless of the position eventually adopted by the IRS, the tax consequences of the receipt of the Subscription Rights will depend, in part, upon their valuation for federal income tax purposes. If the Subscription Rights are deemed to have a fair market value, the receipt of such rights will be taxable to Eligible Account Holders, Supplemental Eligible Account Holders and other eligible members who exercise their Subscription Rights, even though such persons would not have received any cash from which to pay taxes on such taxable income. The Association could also recognize a gain on the distribution of such Subscription Rights in an amount equal to their aggregate value. In the opinion of Ferguson & Company, whose opinion is not binding upon the IRS, the Subscription Rights do not have any value, based on the fact that such rights are acquired by the recipients without cost, are non-transferable and of short duration and afford the recipients the right only to purchase shares of the Common Stock at a price equal to its estimated fair market value, which will be the same price as the price paid by purchasers in the Community Offering for unsubscribed shares of Common Stock. Eligible Account Holders, Supplemental Eligible Account Holders and Other Members are encouraged to consult with their own tax advisors as to the tax consequences in the event that the Subscription Rights are deemed to have a fair market value. Because the fair market value, if any, of the Subscription Rights issued in the Conversion depends primarily upon the existence of 69 certain facts rather than the resolution of legal issues, Housley Kantarian & Bronstein, P.C., has neither adopted the opinion of Ferguson & Company, as its own nor incorporated such opinion of Ferguson & Company in its opinion issued in connection with Conversion. The Association has also received the opinion of Grimsley, White & Company that no gain or loss will be recognized as a result of the Conversion for purposes of Colorado income tax laws. THE FEDERAL AND STATE INCOME TAX DISCUSSION SET FORTH ABOVE DOES NOT PURPORT TO CONSIDER ALL ASPECTS OF FEDERAL AND STATE INCOME TAXATION WHICH MAY BE RELEVANT TO EACH ELIGIBLE ACCOUNT HOLDER, SUPPLEMENTAL ACCOUNT HOLDER AND OTHER MEMBER ENTITLED TO SPECIAL TREATMENT UNDER THE INTERNAL REVENUE CODE, SUCH AS TRUSTS, INDIVIDUAL RETIREMENT ACCOUNTS, OTHER EMPLOYEE BENEFIT PLANS, INSURANCE COMPANIES AND ELIGIBLE ACCOUNT HOLDERS, SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS AND OTHER MEMBERS WHO ARE NOT CITIZENS OR RESIDENTS OF THE UNITED STATES. DUE TO THE INDIVIDUAL NATURE OF TAX CONSEQUENCES, EACH ELIGIBLE ACCOUNT HOLDER, SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDER AND OTHER MEMBER IS URGED TO CONSULT HIS OR HER OWN TAX AND FINANCIAL ADVISOR AS TO THE EFFECT OF SUCH FEDERAL AND STATE INCOME TAX CONSEQUENCES ON HIS OR HER OWN PARTICULAR FACTS AND CIRCUMSTANCES, INCLUDING THE RECEIPT AND EXERCISE OF SUBSCRIPTION RIGHTS, AND ALSO AS TO ANY OTHER TAX CONSEQUENCES ARISING OUT OF THE CONVERSION. Liquidation Account. In the unlikely event of a complete liquidation of the Association in its present mutual form, each holder of a deposit account in the Association would receive his pro rata share of any assets of the Association remaining after payment of claims of all creditors (including the claims of all depositors to the withdrawal value of their accounts). His pro rata share of such remaining assets would be the same proportion of such assets as the value of his deposit account was to the total of the value of all deposit accounts in the Association at the time of liquidation. After the Conversion, each deposit account holder on a complete liquidation would have a claim of the same general priority as the claims of all other general creditors of the Association. Therefore, except as described below, a claim of such account holder would be solely in the amount of the balance in the related deposit account plus accrued interest, and the account holder would not have any interest in the value of the Association above that amount. The Plan provides for the establishment, upon the completion of the Conversion, of a special "liquidation account" for the benefit of Eligible Account Holders and Supplemental Eligible Account Holders in an amount equal to the net worth of the Association as of the date of its latest statement of financial condition contained in the final Prospectus. Each Eligible Account Holder (a qualifying depositor of the Association on December 31, 1995) and each Supplemental Eligible Account Holder (a person with a qualifying deposit in the Association on September 30, 1997) would be entitled, on a complete liquidation of the Converted Association after completion of the Conversion, to an interest in the liquidation account. Each Eligible Account Holder would have an initial interest in such liquidation account for each deposit account held in the Association on December 31, 1995 and each Supplemental Eligible Account Holder would have an initial interest in such liquidation account for each qualifying deposit held in the Association on September 30, 1997. The interest as to each qualifying deposit account would be in the same proportion of the total liquidation account as the balance of such qualifying deposit account was to the balance in all deposit accounts of Eligible Account Holders and Supplemental Eligible Account Holders on such respective date. However, if the amount in the qualifying deposit account on any annual closing date (September 30) of the Association subsequent to the relevant eligibility date is less than the amount in such account on the relevant eligibility date, or any subsequent closing date, then the Eligible Account Holder's or Supplemental Eligible Account Holder's interest in the liquidation account would be reduced from time to time by an amount proportionate to any such reductions, and such interest would cease to exist if he or she ceases to maintain an account at the Converted Association that has the same Social Security number as appeared on his or her account(s) at the relevant eligibility date. The interest in the liquidation account would never be increased, notwithstanding any increase in the related deposit account after the Conversion. 70 Any assets remaining after the above liquidation rights of Eligible Account Holders and Supplemental Eligible Account Holders were satisfied would be distributed to the entity or persons holding the Converted Association's capital stock at that time. A merger, consolidation, sale of bulk assets or similar combination or transaction with an FDIC-insured institution in which the Converted Association is not the surviving insured institution would not be considered to be a "liquidation" under which distribution of the liquidation account could be made. In such a transaction, the liquidation account would be assumed by the surviving institution. The creation and maintenance of the liquidation account will not restrict the use or application of any of the capital accounts of the Converted Association, except that the Converted Association may not declare or pay a cash dividend on, or repurchase any of, its capital stock if the effect of such dividend or repurchase would be to cause its retained earnings to be reduced below the aggregate amount then required for the liquidation account. Subscription Offering Nontransferable Subscription Rights to subscribe for shares of the Common Stock have been issued to all persons entitled to subscribe for stock in the Subscription Offering at no cost to such persons. The amount of the Common Stock which these parties may subscribe for will be determined, in part, by the total stock to be issued, and the availability of stock for purchase under the categories set forth in the Plan. Preference categories have been established for the allocation of the Common Stock to the extent that shares are available. These categories are as follows: Subscription Category No. 1 is reserved for the Association's Eligible Account Holders, (i.e., qualifying depositors of the Association on December 31, 1995) who will each receive nontransferable Subscription Rights to subscribe for Common Stock in the Subscription Offering. Pursuant to the Plan, an Eligible Account Holder may purchase Common Stock in the Conversion in an amount equal to the greater of (i) $250,000 of the Common Stock, (ii) one-tenth of one percent of the total offering of shares of Common Stock, or (iii) 15 times the product (rounded down to the next whole number) obtained by multiplying the total number of shares of Common Stock to be issued by a fraction of which the numerator is the amount of the Qualifying Deposit of the Eligible Account Holder and the denominator is the total amount of Qualifying Deposits of all Eligible Account Holders in the Converted Association in each case on the Eligibility Record Date (i.e., December 31, 1995). The Plan further provides that no person (together with associates and persons acting in concert therewith) may purchase in the aggregate more than $250,000 of the aggregate value of shares of Common Stock offered in the Conversion. See "-- Limitations on Purchases of Shares." If the exercise of Subscription Rights in this category results in an oversubscription, shares shall be allocated among subscribing Eligible Account Holders so as to permit each such Eligible Account Holder, to the extent possible, to purchase a number of shares sufficient to make his total allocation equal 100 shares or the amount subscribed for, whichever is less. Any shares not so allocated shall be allocated among the subscribing Eligible Account Holders on an equitable basis related to the amounts of their respective qualifying deposits, as compared to the total qualifying deposits of all subscribing Eligible Account Holders. To ensure a proper allocation of Common Stock, each Eligible Account Holder must list on his Stock Order Form all accounts in which he has an ownership interest as of December 31, 1995. Failure to list all such qualifying deposit accounts may result in the inability of the Company or the Association to fill all or part of a subscription order. Neither the Company, the Association nor any of their agents shall be responsible for orders on which all qualifying deposit accounts have not been fully and accurately disclosed. A qualifying deposit is the amount (required to be at least $50.00) contained in a deposit account in the Association on December 31, 1995. Subscription Rights received by directors and officers of the Association in this category based on their increased deposits in the Association in the one-year period preceding December 31, 1995 are subordinated to the Subscription Rights of other Eligible Account Holders. 71 Subscription Category No. 2 is reserved for the Association's tax-qualified employee stock benefit plans, i.e., the ESOP, which shall receive nontransferable Subscription Rights to purchase in the aggregate up to 10% of the shares issued in the Conversion and which is expected to purchase 8% of the Common Stock offered in the Conversion. Any shares of Common Stock sold in excess of the maximum of the Estimated Valuation Range may be first sold to the ESOP. Subscription Category No. 3 is reserved for the Association's Supplemental Eligible Account Holders, i.e., qualifying depositors of the Association on the last day of the calendar quarter preceding OTS approval of the Plan (September 30, 1997) who will each receive nontransferable Subscription Rights to subscribe for Common Stock in the Subscription Offering. Pursuant to the Plan, a Supplemental Eligible Account Holder may purchase Common Stock in the Conversion in an amount equal to the greater of (i) $250,000 of the Common Stock, (ii) one-tenth of one percent of the total offering of shares of Common Stock, or (iii) 15 times the product (rounded down to the next whole number) obtained by multiplying the total number of shares of Common Stock to be issued by a fraction of which the numerator is the amount of the Qualifying Deposit of the Supplemental Eligible Account Holder and the denominator is the total amount of Qualifying Deposits of all Supplemental Eligible Account Holders in the Converted Association in each case on the Supplemental Eligibility Record Date (i.e., September 30, 1997). The Plan further provides that no person (together with associates and persons acting in concert therewith) may purchase in the aggregate more than $250,000 of the aggregate value of shares of Common Stock offered in the Conversion. See " -- Limitations on Purchases of Shares." If the exercise of Subscription Rights in this category results in an oversubscription, shares shall be allocated among subscribing Supplemental Eligible Account Holders, so as to permit each such Supplemental Eligible Account Holder, to the extent possible, to purchase a number of shares sufficient to make his total allocation equal 100 shares or the amount subscribed for, whichever is less, and any shares not so allocated shall be allocated among the subscribing Supplemental Eligible Account Holders on an equitable basis related to the amounts of their respective qualifying deposits, as compared to the total qualifying deposits of all subscribing Supplemental Eligible Account Holders. To ensure a proper allocation of Common Stock, each Supplemental Eligible Account Holder must list on his Stock Order Form all accounts in which he has an ownership interest as of September 30, 1997. Failure to list all such deposit accounts may result in the inability of the Company or the Association to fill all or part of a subscription order. Neither the Company, the Association nor any of their agents shall be responsible for orders on which all qualifying deposit accounts have not been fully and accurately disclosed. A qualifying deposit is the amount (required to be at least $50.00) contained in a deposit account in the Association on September 30, 1997. Subscription Rights received by directors and officers of the Association in this category based on their increased deposits in the Association in the one-year period preceding September 30, 1997 are subordinated to the Subscription Rights of other Supplemental Eligible Account Holders. Subscriptions in this Category No. 3 will be filled only to the extent that there are sufficient shares of Common Stock remaining after satisfaction of subscriptions by Category Nos. 1 and 2. Subscription Category No. 4 is reserved for Other Members, i.e., certain depositors and borrowers who are members of the Association as of the Voting Record Date entitled to vote at the Special Meeting but who are not otherwise Eligible Account Holders or Supplemental Eligible Account Holders. To the extent then available following subscriptions by Eligible Account Holders, tax-qualified employee stock benefit plans and Supplemental Eligible Account Holders, Other Members will receive, without payment therefor, nontransferable Subscription Rights to subscribe for Common Stock in the Subscription Offering up to $250,000 of the Common Stock. See "-- Limitations on Purchases of Shares." In the event that Other Members subscribe for a number of shares which, when added to the shares subscribed for by Eligible Account Holders, tax-qualified employee stock benefit plans and Supplemental Eligible Account Holders, is in excess of the total number of shares offered in the Conversion, the subscriptions of such Other Members will be allocated pro rata among subscribing Other Members on an equitable basis as determined by the Board of Directors. The Company will make reasonable efforts to comply with the securities laws of all states in the United States in which persons entitled to subscribe for the Common Stock pursuant to the Plan reside. However, no person will be 72 offered or allowed to purchase any Common Stock under the Plan if he resides in a foreign country or in a state of the United States with respect to which any or all of the following apply: (i) a small number of persons otherwise eligible to subscribe for shares under the Plan reside in such state or foreign country; (ii) the granting of Subscription Rights or the offer or sale of shares of Common Stock to such persons would require the Company or the Association or their employees or agents to register, under the securities laws of such state, as a broker, dealer, salesman or agent or to register or otherwise qualify its securities for sale in such state or foreign country; and (iii) such registration or qualification would be impracticable for reasons of cost or otherwise. No payments will be made in lieu of the granting of Subscription Rights to any such person. Community Offering To the extent shares remain available for purchase after the Subscription Offering, the Company may offer any such remaining shares of the Common Stock to members of the general public to whom the Company delivers a copy of this Prospectus and a Stock Order Form in the Community Offering. The occurrence of the Community Offering is subject to the availability of shares of Common Stock for purchase after satisfaction of all orders received in the Subscription Offering. The Community Offering, if any, may commence without notice at any time after the commencement of the Subscription Offering and may terminate at any time without notice, but may not terminate later than ____________, 1997. The right of any person to purchase shares in the Community Offering, if any, is subject to the absolute right of the Company and the Association to accept or reject such purchases in whole or in part. The Company presently intends to terminate the Community Offering, if any, as soon as it has received orders for sufficient shares available for purchase in the Conversion. If all of the Common Stock offered in the Subscription Offering is subscribed for, there will be no Community Offering. In the event an insufficient number of shares are available to fill orders in the Community Offering, the available shares will be allocated by the Company in its discretion and a preference shall be given to natural persons and trusts of natural persons who are permanent residents of the Local Community. If the Community Offering extends beyond 45 days following the expiration of the Subscription Offering, subscribers will have the right to increase, decrease or rescind subscriptions for stock previously submitted. Purchasers in the Community Offering, together with their associates and groups acting in concert, are each eligible to purchase up to $250,000 of the Common Stock issued in the Conversion. Except as noted below, cash and checks received in the Community Offering will be placed in segregated savings accounts (each insured by the FDIC up to the applicable $100,000 limit) established specifically for this purpose. Interest will be paid on orders made by check, in cash or by money order at the Association's passbook rate from the date the payment is received by the Company until the consummation of the Conversion. In the event that the Conversion is not consummated for any reason, all funds submitted pursuant to the Community Offering will be promptly refunded with interest as described above. Syndicated Community Offering As part of the Community Offering, all shares of Common Stock not purchased in the Subscription and Community Offerings, if any, may be offered for sale to the general public in a Syndicated Community Offering through selected dealers to be formed and managed by Trident Securities. The Syndicated Community Offering, if any, will be conducted to achieve the widest distribution of Common Stock subject to the Company and the Association having the right to reject orders in whole or in part in their sole discretion in the Syndicated Community Offering. Neither Trident Securities nor any registered broker-dealer shall have any obligation to take or purchase any shares of the Common Stock in the Syndicated Community Offering. Common Stock sold in the Syndicated Community Offering will be sold at the same price as in the Subscription and Community Offerings. Individual purchasers in the Syndicated Community Offering may purchase up to $250,000 of the Common Stock in the Conversion when aggregated with any associate or group of persons acting in concert. The Association shall be responsible for the payment of selling commissions to other NASD firms and licensed brokers participating in the Syndicated Community Offering. Other firms may participate under selected dealers agreements, and Trident 73 Securities and such selected dealers may receive fees which are not expected to exceed 4.5% of the amount of the stock sold by the selected dealers in the Syndicated Community Offering. In addition, Trident would receive a fee of 1.0% for managing the Syndicated Community Offering. During the Syndicated Community Offering, selected dealers may only solicit indications of interest from their customers to place orders with the Company as of a certain date ("Order Date") for the purchase of shares of common Stock. When and if Trident Securities and the Company believe that enough indications and orders have been received in the Offerings to consummate the Conversion, Trident Securities will request, as of the Order Date, selected dealers to submit orders to purchase shares for which they have received indications of interest from their customers. Selected dealers will send confirmations of the orders to such customers on the next business day after the Order Date. Selected dealers may debit the accounts of their customers on a date which will be three business days from the Order Date ("Settlement Date"). Customers who authorize selected dealers to debit their brokerage accounts are required to have the funds for payment in their account on but not before the Settlement Date. On the Settlement Date, selected dealers will remit funds to the account that the Company established for each selected dealer. After payment has been received by the Company from selected dealers, funds will earn interest at the Association's passbook savings rate until the consummation of the Conversion. In the event the Conversion is not consummated as described above, funds with interest will be returned promptly to the selected dealers, who, in turn, will promptly credit its customers' brokerage account. The Syndicated Community Offering, if any, will terminate no more than 45 days following the completion of the Subscription Offering, unless extended by the Company with the approval of the OTS. The Syndicated Community Offering may run concurrently with the Subscription and Community Offerings or subsequent to such offerings. Subscriptions for Stock in Subscription and Community Offerings Expiration Date. The Subscription Offering will expire at 12:00 Noon, local time, on ________, 1997 unless extended by the Board of Directors of the Association for up to an additional ___ days, to no later than ________, 1997. Such date and time are referred to herein as the "Expiration Date." Subscription rights not exercised prior to the Expiration Date will be void. The Community Offering, if any, may terminate at any time without notice, but may not terminate later than _________, 1998. Orders will not be executed by the Company until at least the minimum number of shares of Common Stock offered hereby have been subscribed for or sold. If all shares of Common Stock have not been subscribed for or sold within 45 days of the end of the Subscription Offering (unless such period is extended with consent of the OTS), all funds delivered to the Company pursuant to the Subscription Offering will be promptly returned to the subscribers with interest and all charges to savings accounts will be rescinded. Use of Stock Order Forms and Certification Forms. Rights to subscribe may only be exercised by completion of Stock Order Forms and certification forms. Any person receiving a Stock Order Form who desires to subscribe for shares of stock must do so prior to the Expiration Date by delivering (by mail or in person) to the office of the Association a properly executed and completed Stock Order Form and certification form, together with full payment for all shares for which the subscription is made. All checks or money orders must be made payable to "High Country Bancorp, Inc." The Stock Order Form and certification form must be received by the Expiration Date. All subscription rights under the Plan will expire on the Expiration Date, whether or not the Company has been able to locate each person entitled to such subscription rights. Once tendered, subscription orders cannot be revoked. Each subscription right may be exercised only by the person to whom it is issued and only for his or her own account. The subscription rights granted under the Plan are nontransferable; persons who attempt to transfer their subscription rights may lose the right to subscribe for stock in the Conversion and may be subject to other sanctions and penalties imposed by the OTS. Each person subscribing for shares is required to represent to the Company that he or she is purchasing such shares for his or her own account and that he or she has no agreement or understanding with any other person for the sale or transfer of such shares. 74 In the event Stock Order Forms (i) are not delivered and are returned to the Company by the United States Postal Service or the Company is unable to locate the addressee, or (ii) are not returned or are received after the Expiration Date, or (iii) are defectively completed or executed, or (iv) are not accompanied by the full required payment for the shares subscribed for (including instances where a savings account or certificate balance from which withdrawal is authorized is insufficient to fund the amount of such required payment), the subscription rights of the person to whom such rights have been granted will lapse as though such person failed to return the completed Stock Order Form within the time period specified. However, the Company or the Association may, but will not be required to, waive any irregularity on any Stock Order Form or require the submission of corrected Stock Order Forms or the remittance of full payment for subscribed shares by such date as the Company or the Association may specify. The interpretation by the Company and the Association of the terms and conditions of the Plan and of the Stock Order Form will be final. Payment for Shares. Payment for all subscribed shares of Common Stock will be required to accompany all completed Stock Order Forms for subscriptions to be valid. Payment for subscribed shares may be made (i) in cash, if delivered in person, (ii) by check or money order, or (iii) by authorization of withdrawal from deposit accounts maintained with the Association. Appropriate means by which such withdrawals may be authorized are provided in the Stock Order Form. Once such a withdrawal has been authorized, none of the designated withdrawal amount may be used by a subscriber for any purpose other than to purchase stock for which subscription has been made while the Plan remains in effect. In the case of payments authorized to be made through withdrawal from deposit accounts, all sums authorized for withdrawal will continue to earn interest at the contract rate until the date of consummation of the sale. In the case of payments made in cash or by check or money order such funds will be placed in a segregated savings account established for each subscriber specifically for this purpose (each insured by the FDIC up to the applicable $100,000 limit) and interest will be paid at the Association's passbook rate from the date payment is received until the Conversion is completed or terminated. Interest penalties for early withdrawal applicable to certificate accounts will not apply to withdrawals authorized for the purchase of shares; however, if a partial withdrawal results in a certificate account with a balance less than the applicable minimum balance requirement, the certificate evidencing the remaining balance will earn interest at the Association's passbook rate subsequent to the withdrawal. An executed Stock Order Form, once received by the Company, may not be modified, amended or rescinded without the consent of the Company, unless the Conversion is not completed within 45 days of the termination of the Subscription Offering. If an extension of the period of time to complete the Conversion is approved by the OTS, subscribers will be resolicited and must affirmatively reconfirm their orders prior to the expiration of the resolicitation offering, or their subscription funds will be promptly refunded. Subscribers may, through such extension, also modify or cancel their subscriptions. Interest will be paid on such funds at the Association's passbook rate during the 45-day period and any approved extension period. Wired funds will not be accepted for the payment for shares of Common Stock. Owners of self-directed IRAs or other self-directed tax-qualified retirement plans, may use the assets of such IRAs or plans to purchase shares of Common Stock in the Subscription and Community Offerings, provided that such IRAs or plans are not maintained at the Association. Persons with IRAs or plans maintained at the Association must have their accounts transferred to an unaffiliated institution or broker to purchase shares of Common Stock in the Subscription and Community Offerings. Depositors interested in using funds in an Association IRA or plan to purchase Common Stock should contact the Association's Stock Information Center at (719) __________ as soon as possible but in no event later than seven days prior to closing of the offering period, so that the necessary forms may be forwarded for execution and returned at least one week prior to the Expiration Date of the Subscription Offering. The ESOP will not be required to pay for the shares subscribed for at the time it subscribes, but may pay for such shares upon consummation of the Subscription and Community Offerings, if all shares are sold, or upon consummation of any subsequent offering, if shares remain to be sold in such an offering. Shares Purchased. Certificates representing shares of the Common Stock will be delivered to subscribers as soon as practicable after closing of the Conversion. Purchasers may not be able to sell the shares of Common Stock which they purchased until certificates for the Common Stock are available and delivered to them, even though trading of the Common Stock may have commenced. Shares sold prior to the receipt of a stock certificate are the responsibility of the purchaser. 75 Plan of Distribution and Marketing Agent Officers of the Association are available at the Association's office to provide offering materials to prospective investors, to answer their questions (but only to the extent such information is derived from this Prospectus) and to receive completed Stock Order Forms and certification forms from prospective investors interested in subscribing for shares of the Common Stock. None of the Association's directors, officers or employees will receive any commissions or other compensation for their efforts in connection with sales of shares of the Common Stock. Although information regarding the stock offering is available at the Association's office, an investment in the Common Stock is not a deposit, and the Common Stock is not federally insured. The directors, officers and employees of the Association who will be involved in selling stock are expected to be exempt from the requirement to register with the SEC as broker-dealers within the meaning of Rule 3a4-1 under the Exchange Act. Such persons will qualify under the safe harbor provisions of that rule on the basis of paragraphs (a)(4)(ii) and/or (iii), i.e., management of the Association expects that such persons either (x) will perform substantial duties for the Company in its business, will not otherwise be broker-dealers and are not expected to participate in another offering in the next twelve months or (y) will limit their activities to preparing written communications, responding to customer inquiries and/or performing ministerial/clerical functions. The Association and the Company have engaged Trident Securities as financial advisor to provide sales assistance in connection with the Subscription and Community Offerings of the Common Stock. The services of Trident Securities will include, but are not limited to, (i) training and educating the Association's employees who will be performing certain ministerial functions in the Subscription and Community Offerings regarding the mechanics and regulatory requirements of the stock sales process and the solicitation of proxies from members, (ii) providing employees to manage the Stock Information Center, assisting Association customers and interested stock purchasers and keeping records of orders for shares of Common Stock, and (iii) supervising the Association's sales efforts, including preparation of marketing materials. For all its services rendered in the Conversion, Trident Securities will receive a commission equal to 1.70% of the aggregate dollar amount of Common Stock sold to residents of Colorado, and 1.20% of the aggregate dollar amount of Common Stock sold to non-residents of Colorado, excluding any shares of stock sold to the Association's directors, executive officers, and the ESOP. Additionally, commissions will be excluded on shares sold to "associates" (as defined in the Plan) of the Association's directors and executive officers. In the event Common Stock is sold by other NASD member firms under selected dealer's agreements, the aggregate commissions to be received by Trident Securities and selected dealers shall not exceed a fee to be set by the Association to reflect market requirements at the time of the stock allocation in a Syndicated Community Offering. Trident Securities will also be reimbursed for its reasonable out-of-pocket expenses in an amount not to exceed $10,000 and its legal fees in an amount not to exceed $25,000. The Company and the Association have agreed to indemnify Trident Securities for reasonable costs and expenses in connection with certain claims or liabilities, including certain liabilities under the Securities Act. Stock Pricing and Number of Shares to be Issued Ferguson, which is experienced in the evaluation and appraisal of savings institutions involved in the conversion process, has been retained by the Association to prepare an appraisal of the estimated pro forma market value of the Common Stock to be sold pursuant to the Conversion. Prior to the Conversion, the Association did not have any business relationship with Ferguson. Ferguson will receive a fixed fee of $27,500 for its appraisal and other services, and reimbursement for related expenses up to $5,000. The Association has agreed to indemnify Ferguson under certain circumstances against any losses, damages, expenses or liability arising out of the Association's engagement of Ferguson for the appraisal. Ferguson has determined as of August 5, 1997 that the estimated pro forma market value of the stock to be issued by the Company in the Conversion was $9,000,000. In determining the reasonableness and adequacy of the appraisal submitted by Ferguson, the Boards of Directors of the Association and the Company reviewed with Ferguson the methodology and the appropriateness of assumptions used by Ferguson in preparing the appraisal. The Company, in consultation with Trident Securities, has determined to offer the shares in the Conversion at the Purchase Price of 76 $10.00 per share. The price per share was determined based on a number of factors, including the market price per share of the stock of other financial institutions. Regulations administered by the OTS require, however, that the appraiser establish a range of value for the stock of approximately 15% on either side of the estimated value to allow for fluctuations in the aggregate value of the stock due to changes in the market and other factors from the time of commencement of the Subscription Offering until completion of the Community Offering. Accordingly, Ferguson has established a range of value of from $7,650,000 to $10,350,000 for the Conversion. Ferguson will either confirm the continuing validity of its appraisal or provide an updated appraisal immediately prior to the completion of the Conversion. Should it be determined at the close of the offering that the aggregate pro forma market value of the Common Stock is higher or lower than $9,000,000, but is nonetheless within the Estimated Valuation Range or within 15% of the maximum of such range, the Company will make an appropriate adjustment by raising or lowering by no more than 15% the total number of shares being offered (within a range from 765,000 shares to 1,035,000 shares). Unless permitted by the Company or otherwise required by the OTS, no resolicitation of subscribers and other purchasers will be made because of any such change in the number of shares to be issued unless the aggregate purchase price of the Common Stock sold in the Conversion is below the minimum of the Estimated Valuation Range or is more than $11,902,500 (i.e., 15% above the maximum of the Estimated Valuation Range). If the aggregate purchase price falls outside the range of from $7,650,000 to $11,902,500, subscribers and other purchasers will be resolicited and given the opportunity to continue their orders, in which case they will need to affirmatively reconfirm their subscriptions prior to the expiration of the resolicitation, or their subscription funds will be promptly refunded with interest at the Association's passbook rate. Subscribers will also be given the opportunity to increase, decrease or rescind their orders. Any change in the Estimated Valuation Range must be approved by the OTS. The establishment of any new price range may be effected without a resolicitation of votes from the Association's members to approve the Conversion. The appraisal is not intended, and must not be construed, as a recommendation of any kind as to the advisability of purchasing the Common Stock. In preparing the valuation, Ferguson has relied upon and assumed the accuracy and completeness of financial and statistical information provided by the Association and the Company. Ferguson did not independently verify the financial statements and other information provided by the Association and the Company, nor did Ferguson value independently the assets and liabilities of the Association and the Company. The valuation considers the Association and the Company only as a going concern and should not be considered as an indication of the liquidation value of the Association and the Company. Moreover, because such valuation is necessarily based upon estimates and projections of a number of matters, all of which are subject to change from time to time, no assurance can be given that persons purchasing the Common Stock will thereafter be able to sell such shares at prices equal to or above the price or prices paid for it. Copies of the appraisal report of Ferguson setting forth the method and assumptions for such appraisal are on file and available for inspection at the offices set forth in "Additional Information" and at the office of the Association. Further, any subsequent updated appraisal also will be filed with the SEC and will be available for inspection. Limitations on Purchase of Shares Purchases of shares of Common Stock are subject to limitations as set forth in the Plan. All shares are offered to persons subscribing in the Subscription Offering, and shares are only offered to persons in the Community Offering and Syndicated Community Offering, if any, to the extent available after filling subscriptions in the Subscription Offering. Within the Subscription Offering, the maximum purchases by subscribers are limited under the Plan. Eligible Account Holders may only subscribe up to an amount equal to the greater (i) $250,000 of the Common Stock, (ii) one-tenth of one percent of the total offering of shares of Common Stock, or (iii) 15 times the product (rounded down to the next whole number) obtained by multiplying the total number of shares of Common Stock to be issued by a fraction of which the numerator is the amount of the Qualifying Deposit of the Eligible Account Holder and the denominator is the total amount of Qualifying Deposits of all Eligible Account Holders in the Converted Association in each case on the Eligibility Record Date (i.e., December 31, 1995). Supplemental Eligible Account Holders may only subscribe 77 up to an amount equal to the greater of (i) $250,000 of the Common Stock, (ii) one-tenth of one percent of the total offering of shares of Common Stock, or (iii) 15 times the product (rounded down to the next whole number) obtained by multiplying the total number of shares of Common Stock to be issued by a fraction of which the numerator is the amount of the Qualifying Deposit of the Supplemental Eligible Account Holder and the denominator is the total amount of Qualifying Deposits of all Supplemental Eligible Account Holders in the Converted Association in each case on the Supplemental Eligibility Record Date (i.e., September 30, 1997). The Plan further provides that no person (together with associates and persons acting in concert therewith) may purchase in the aggregate more than $250,000 of the aggregate value of shares of Common Stock offered in the Conversion. The Plan provides for certain additional limitations to be placed upon the purchase of shares by eligible subscribers and others in the Conversion. Each subscriber must subscribe for a minimum of 25 shares. The ESOP may purchase up to an aggregate of 10% of the shares of the Common Stock to be issued in the Conversion and is expected to purchase 8% of such shares. No person, including associates (as defined below) of and persons acting in concert (as defined below) with such person (other than the ESOP), may purchase in the Subscription or Community Offerings more than $250,000 of the Common Stock. Shares purchased by the ESOP and attributable to a participant thereunder shall not be aggregated with shares purchased by such participant or any other purchaser of Common Stock in the Conversion. Officers and directors and their associates may not purchase, in the aggregate, more than 35% of the shares to be issued in the Conversion. For purposes of the Plan, the directors of the Company and the Association are not deemed to be associates or a group acting in concert solely by reason of their Board membership. Subject to any required regulatory approval and the requirements of applicable laws and regulations, but without further approval of the Association's members, purchase limitations may be increased or decreased at the sole discretion of the Company and the Association at any time. If such amount is increased, subscribers for the maximum amount will be given the opportunity to increase their subscriptions up to the then applicable limit, subject to the rights and preferences of any person who has priority Subscription Rights. In the event that the purchase limitation is decreased after commencement of the Subscription and Community Offerings, the orders of any person who subscribed for the maximum number of shares of Common Stock shall be decreased by the minimum amount necessary so that such person shall be in compliance with the then maximum number of shares permitted to be subscribed for by such person. The term "acting in concert" is defined in the Plan to mean (i) knowing participation in a joint activity or interdependent conscious parallel action towards a common goal, whether or not pursuant to an express agreement, or (ii) a combination or pooling of voting or other interests in the securities of an issuer for a common purpose pursuant to any contract, understanding, relationship, agreement or other arrangement, whether written or otherwise. The Company and the Association may presume that certain persons are acting in concert based upon, among other things, joint account relationships and the fact that such persons have filed joint Schedules 13D with the SEC with respect to other companies. The term "associate" of a person is defined in the Plan to mean: (i) any corporation or organization (other than the Association, the Company, or a majority-owned subsidiary of the Association or the Company) of which such person is an officer or partner or is directly or indirectly the beneficial owner of 10% or more of any equity securities; (ii) any trust or other estate in which such person has a substantial beneficial interest or as to which such person serves as a trustee or in a similar fiduciary capacity, provided, however, such term shall not include any employee stock benefit plan of the Association in which such person has a substantial beneficial interest or serves as a trustee or in a similar fiduciary capacity; and (iii) any relative or spouse of such person, or any relative of such spouse, who either has the same home as such person or who is a director of the Association or the Company or any of their subsidiaries. Directors are not treated as associates solely because of their Board membership. Each person purchasing Common Stock in the Conversion shall be deemed to confirm that such purchase does not conflict with the purchase limitations under the Plan or otherwise imposed by law, rule or regulation. In the event that such purchase limitations are violated by any person (including any associate or group of persons affiliated or otherwise acting in concert with such person), the Company shall have the right to purchase from such person at the aggregate purchase price all shares acquired by such person in excess of such purchase limitations or, if such excess shares have been sold by such person, to receive the difference between the aggregate purchase price paid for such excess shares and the price at which such excess shares were sold by such person. This right of the Company to 78 purchase such excess shares shall be assignable by the Company. In addition, persons who violate the purchase limitations may be subject to sanctions and penalties imposed by the OTS. Stock purchased pursuant to the Conversion will be freely transferable, except for shares purchased by directors and officers of the Association and the Company. See "-- Limitations on Resales by Management." In addition, under guidelines of the NASD, members of the NASD and their associates are subject to certain restrictions on the transfer of securities purchased in accordance with Subscription Rights and to certain reporting requirements upon purchase of such securities. Depending upon market conditions, the Boards of Directors of the Company and the Association, with the approval of the OTS, may increase or decrease any of the above purchase limitations. In the event of such an increase or decrease, no further approval of members of the Association would be required. OTS regulations authorize a plan of conversion to provide a minimum purchase limitation of a percentage as low as 1% and a maximum purchase limitation of a percentage not to exceed 10%, provided that orders for shares exceeding 5% of the shares being offered in the Conversion shall not exceed in the aggregate 10% of the shares being offered in the Conversion. Regulatory Restrictions on Acquisition of the Common Stock Current federal regulations prohibit any person from making an offer, announcing an intent to make an offer, entering into any other arrangement to purchase Common Stock or acquiring Common Stock or Subscription Rights in the Company from another person prior to completion of the Conversion. Further, no person may make an offer or announcement of an offer to purchase shares or actually acquire shares in the Company for a period of three years from the date of the completion of the Conversion, if, upon the completion of such offer or acquisition, that person would become the beneficial owner of more than 10% of the Company's outstanding stock, without the prior written approval of the OTS. The OTS has defined the word "person" to include any individual, group acting in concert, corporation, partnership, association, joint stock company, trust, unincorporated organization or similar company, a syndicate or any group formed for the purpose of acquiring, holding or disposing of securities of an insured institution. However, offers made exclusively to the Company or underwriters or members of a selling group acting on behalf of the Company for resale to the general public are excepted. The regulations also provide civil penalties for willful violation or assistance of any such violation of the regulation by any person connected with the management of the Company following the Conversion. Moreover, when any person, directly or indirectly, acquires beneficial ownership of more than 10% of the Company's capital stock following the Conversion within such three-year period without the prior approval of the OTS, the Company's Common Stock beneficially owned by such person in excess of 10% shall not be counted as shares entitled to vote and shall not be voted by any person or counted as voting shares in connection with any matter submitted to the stockholders for a vote. The Articles of Incorporation of the Company include a similar 10% beneficial ownership limitation. See "Certain Anti-Takeover Provisions in the Articles of Incorporation and Bylaws." In addition to the foregoing restrictions, any person or group of persons acting in concert who propose to acquire 10% or more of the Company's outstanding shares will be presumed under OTS regulations, to be acquiring control of the Company and will be required to submit prior notice to the OTS under the Change in Control Act. Restrictions on Repurchase of Stock Subject to the exceptions described herein, for a period of three years following the Conversion, the Company may not repurchase any of its stock from any person, except (i) repurchases on a pro rata basis pursuant to an offer, approved by the OTS, made to all stockholders, and (ii) repurchases of qualifying shares of a director. However, upon 10 days' written notification to the OTS Regional Director for the Converted Association and the Chief Counsel of the Business Transactions Division of the OTS, if the Regional Director and Chief Counsel do not object, the Company may make open market repurchases of its outstanding Common Stock, provided that: (i) no repurchases may occur in the first year following the Conversion without OTS approval; (ii) in the second and third years after the Conversion, repurchases must be part of an open-market program that does not allow for the repurchase of more than 5% of the Company's outstanding Common Stock during a 12-month (a waiver may be obtained from the OTS which would allow 79 for additional purchases); (iii) the repurchases would not cause the Converted Association to become "undercapitalized" (as defined for regulatory purposes); (iv) the repurchases would not materially adversely affect the Converted Association's financial condition; and (v) there is a valid business purpose for the repurchases. The Company may not repurchase any of its stock if the effect thereof would cause the Converted Association's regulatory capital to be reduced below the amount required for the liquidation account. Regulatory dividend limitations may provide further restrictions on stock repurchases. Limitations on Resales by Management Shares of the Common Stock purchased by directors or officers of the Company and the Association in the Conversion will be subject to the restriction that such shares may not be sold for a period of one year following completion of the Conversion, except in the event of the death of the original purchaser or in any exchange of such shares in connection with a merger or acquisition of the Company approved by the OTS. Accordingly, shares of the Common Stock issued by the Company to directors and officers shall bear a legend giving appropriate notice of the restriction imposed upon it and, in addition, the Company will give appropriate instructions to the transfer agent for the Common Stock with respect to the applicable restriction for transfer of any restricted stock. Any shares issued to directors and officers as a stock dividend, stock split or otherwise with respect to restricted stock shall be subject to the same restrictions. Shares acquired otherwise than in the Conversion, such as under the Company's Option Plan, would not be subject to such restrictions. To the extent directors and officers are deemed affiliates of the Company, all shares of the Common Stock acquired by such directors and officers will be subject to certain resale restrictions and may be resold pursuant to Rule 144 under the Securities Act. See "Regulation -- Regulation of the Company Following the Conversion -- Federal Securities Law." Interpretation and Amendment of the Plan To the extent permitted by law, all interpretations of the Plan by the Association will be final. The Plan provides that the Association's Board of Directors shall have the sole discretion to interpret and apply the provisions of the Plan to particular facts and circumstances and to make all determinations necessary or desirable to implement such provisions, including but not limited to matters with respect to giving preference in the Community Offering to natural persons and trusts of natural persons who are permanent residents of the Local Community, and any and all interpretations, applications and determinations made by the Board of Directors in good faith and on the basis of such information and assistance as was then reasonably available for such purpose shall be conclusive and binding upon the Association and its members and subscribers in the Subscription and Community Offerings, subject to the authority of the OTS. The Plan provides that, if deemed necessary or desirable by the Board of Directors, the Plan may be substantively amended by a two-thirds vote of the Board of Directors at any time prior to submission of the Plan and proxy materials to the Association's members. After submission of the Plan and proxy materials to the members, the Plan may be amended by a two-thirds vote of the Board of Directors at any time prior to the Special Meeting and at any time following the Special Meeting with the concurrence of the OTS. In its discretion, the Board of Directors may generally modify or terminate the Plan upon the order of the regulatory authorities without resoliciting proxies or otherwise obtaining approval of the amended Plan by members at another Special Meeting. However, any modification of the Plan that results in a material change in the terms of the Conversion would require such a resolicitation of proxies and another meeting of members. The Plan further provides that in the event that mandatory new regulations pertaining to conversions are adopted by the OTS or any successor agency prior to completion of the Conversion, the Plan will be amended to conform to such regulations without a resolicitation of proxies or another Special Meeting. In the event that such new conversion regulations contain optional provisions, the Plan may be amended to utilize such optional provisions at the discretion of the Board of Directors without a resolicitation of proxies or another Special Meeting. By adoption of the Plan, the Association's members will be deemed to have authorized amendment of the Plan under the circumstances described above. 80 Conditions and Termination Completion of the Conversion requires the approval of the Plan by the affirmative vote of not less than a majority of the total outstanding votes of the members of the Association and the sale of all shares of the Common Stock within 24 months following approval of the Plan by the members. If these conditions are not satisfied, the Plan will be terminated, and the Association will continue its business in the mutual form of organization. The Plan may be terminated by the Board of Directors at any time prior to the Special Meeting and, with the approval of the OTS, by the Board of Directors at any time thereafter. CERTAIN RESTRICTIONS ON ACQUISITION OF THE COMPANY AND THE ASSOCIATION Conversion Regulations OTS regulations prohibit a person from making an offer, announcing an intent to make an offer or other arrangement to purchase stock, or acquiring stock or subscription rights in the Association or the Company from another person prior to completion of the Conversion. Further, no person may make such an offer or announcement of an offer to purchase shares or actually acquire shares in the Association or the Company for a period of three years from the date of the completion of the Conversion if, upon the completion of such offer or acquisition, that person would become the beneficial owner of more than 10% of the stock of the Association or the Company without the prior written approval of the Director of the OTS. For purposes of the regulations, "person" is defined to include any individual, group acting in concert, corporation, partnership, association, joint stock company, trust, unincorporated organization or similar company, a syndicate or any other group formed for the purpose of acquiring, holding or disposing of securities of the Association or the Company. Offers made exclusively to the Association or the Company, however, or underwriters or members of a selling group acting on the Association's or Company's behalf for resale to the general public, are excepted. Change in Association Control Act and Savings and Loan Holding Company Provisions of Home Owners' Loan Act Federal laws and regulations contain a number of provisions which affect the acquisition of insured institutions such as the Association, including a savings and loan holding company such as the Company. The Change in Bank Control Act provides that no person, acting directly or indirectly or through or in concert with one or more persons, may acquire control of a savings association unless the OTS has been given 60 days' prior written notice and the OTS does not issue a notice disapproving the proposed acquisition. In addition, certain provisions of the Home Owners Loan Act provide that no company may acquire control of a thrift without the prior approval of the OTS. Any company that acquires such control becomes a "savings and loan holding company" subject to registration, examination and regulation by the OTS. Pursuant to applicable regulations, control of a savings association is conclusively deemed to have been acquired by, among other things, the acquisition of more than 25% of any class of voting stock of a savings association or the ability to control the election of a majority of the directors of an institution. Moreover, control is presumed to have been acquired, subject to rebuttal, upon the acquisition of more than 10% of any class of voting stock, or more than 25% of any class of stock, of a savings association, where one or more enumerated "control factors" are also present in the acquisition. The OTS may prohibit an acquisition of control if it finds, among other things, that (i) the acquisition would result in a monopoly or substantially lessen competition, (ii) the financial condition of the acquiring person might jeopardize the financial stability of the savings association, or (iii) the competence, experience, or integrity of the acquiring person indicates that it would not be in the interest of the depositors or the public to permit the acquisition of control by such person. The foregoing restrictions do not apply to the acquisition of the Company's capital stock by one or more tax-qualified employee stock benefit plans, provided that the plan or plans do not have beneficial ownership in the aggregate of more than 25% of any class of equity security. 81 CERTAIN ANTI-TAKEOVER PROVISIONS IN THE ARTICLES OF INCORPORATION AND BYLAWS While the Boards of Directors of the Association and the Company are not aware of any effort that might be made to obtain control of the Company after Conversion, the Board of Directors, as discussed below, believes that it is appropriate to include certain provisions as part of the Company's Articles of Incorporation to protect the interests of the Company and its stockholders from hostile takeovers which the Board of Directors might conclude are not in the best interests of the Association, the Company or the Company's stockholders. These provisions may have the effect of discouraging a future takeover attempt which is not approved by the Board of Directors but which individual stockholders may deem to be in their best interests or in which stockholders may receive a substantial premium for their shares over then current market prices. As a result, stockholders who might desire to participate in such a transaction may not have an opportunity to do so. Such provisions will also render the removal of the current Board of Directors or management of the Company more difficult. The following discussion is a general summary of the material provisions of the Articles of Incorporation and Bylaws of the Company which may be deemed to have such an "anti-takeover" effect. The description of these provisions is necessarily general and reference should be made in each case to the Articles of Incorporation and Bylaws of the Company. For information regarding how to obtain a copy of these documents without charge, see "Additional Information." Board of Directors Certain provisions of the Company's Articles of Incorporation and Bylaws will impede changes in control of the Board of Directors of the Company. The Articles of Incorporation provides that the Board of Directors is to be divided into three classes, as nearly equal in number as possible, which shall be elected for staggered three-year terms. The Company's Articles of Incorporation provides that a director may be removed only for cause by the affirmative vote of the holders of at least 80% of the outstanding shares entitled to vote and that the size of the Board of Directors may be changed only by a vote of two-thirds of the directors then in office. The Articles of Incorporation further provides that any vacancy occurring in the Board of Directors, including a vacancy created by an increase in the number of directors, shall be filled for the remainder of the unexpired term by a two-thirds vote of the directors then in office. Stockholder Vote Required to Approve Business Combinations with Principal Stockholders The Company's Articles of Incorporation requires the approval of the holders of (i) at least 80% of the Company's outstanding shares of voting stock, and (ii) at least a majority of the Company's outstanding shares of voting stock, not including shares held by a "Related Person," to approve certain "Business Combinations" as defined therein, and related transactions. The increased voting requirements in the Company's Articles of Incorporation apply in connection with business combinations involving a "Related Person," except in cases where the proposed transaction has been approved in advance by two-thirds of those members of the Company's Board of Directors who are unaffiliated with the Related Person and who were directors prior to the time when the Related Person became a Related Person (the "Continuing Directors"). The term "Related Person" is defined to include any individual, corporation, partnership or other entity which owns beneficially or controls, directly or indirectly, 10% or more of the outstanding shares of voting stock of the Company. A "Business Combination" is defined to include (i) any merger or consolidation of the Company with or into any Related Person; (ii) any sale, lease exchange, mortgage, transfer, or other disposition of all or a substantial part of the assets of the Company or of a subsidiary to any Related Person (the term "substantial part" is defined to include more than 25% of the Company's total assets); (iii) any merger or consolidation of a Related Person with or into the Company or a subsidiary of the Company; (iv) any sale, lease, exchange, transfer or other disposition of all or any substantial part of the assets of a Related Person to the Company or a subsidiary of the Company; (v) the issuance of any securities of the Company or a subsidiary of the Company to a Related Person; (vi) the acquisition by the Company of any securities of the Related Person; (vii) any reclassification of the Common Stock, or any 82 recapitalization involving the Common Stock; and (viii) any agreement, contract or other arrangement providing for any of the above transactions. Limitations on Call of Meetings of Stockholders The Company's Articles of Incorporation provides that special meetings of stockholders may only be called by the Company's Board of Directors or an appropriate committee appointed by the Board of Directors. Stockholders are not authorized to call a special meeting, and stockholder action may be taken only at a special or annual meeting of stockholders and not by written consent. Absence of Cumulative Voting The Company's Articles of Incorporation provides that there shall not be cumulative voting by stockholders for the election of the Company's directors. The absence of cumulative voting rights effectively means that the holders of a majority of the shares voted at a meeting of stockholders may, if they so choose, elect all directors of the Company to be selected at that meeting, thus precluding minority stockholder representation on the Company's Board of Directors. Restrictions on Acquisitions of Securities The Articles of Incorporation provides that for a period of five years from the effective date of the Conversion, no person may acquire directly or indirectly acquire the beneficial ownership of more than 10% of any class of equity security of the Company, unless such offer or acquisition shall have been approved in advance by a two-thirds vote of the Company's Continuing Directors. This provision does not apply to any employee stock benefit plan of the Company. In addition, during such five-year period, no shares beneficially owned in violation of the foregoing percentage limitation, as determined by the Company's Board of Directors, shall be entitled to vote in connection with any matter submitted to stockholders for a vote. Additionally, the Articles of Incorporation provides for further restrictions on voting rights of shares owned in excess of 10% of any class of equity security of the Company beyond five years after the Conversion of the Association. Specifically, the Articles of Incorporation provides that if, at any time after five years from the Association's conversion to stock form, any person acquires the beneficial ownership of more than 10% of any class of equity security of the Company, then, with respect to each vote in excess of 10%, such person shall be entitled to cast only one-hundredth of one vote. An exception from the restriction is provided if the acquisition of more than 10% of the securities received the prior approval by a two-thirds vote of the Company's Continuing Directors. Under the Company's Articles of Incorporation, the restriction on voting shares beneficially owned in violation of the foregoing limitations is imposed automatically. In order to prevent the imposition of such restrictions, the Board of Directors must take affirmative action approving in advance a particular offer to acquire or acquisition. Unless the Board took such affirmative action, the provision would operate to restrict the voting by beneficial owners of more than 10% of the Company's Common Stock in a proxy contest. Board Consideration of Certain Nonmonetary Factors in the Event of an Offer by Another Party The Articles of Incorporation of the Company permits the Board of Directors, in evaluating a Business Combination or a tender or exchange offer, to consider, in addition to the adequacy of the amount to be paid in connection with any such transaction, certain specified factors and any other factors the Board deems relevant, including (i) the social and economic effects of the transaction on the Company and its subsidiaries, employees, depositors, loan and other customers, creditors and other elements of the communities in which the Company and its subsidiaries operate or are located; (ii) the business and financial condition and earnings prospects of the acquiring party or parties; and (iii) the competence, experience and integrity of the acquiring party or parties and its or their management. By having the standards in the Articles of Incorporation of the Company, the Board of Directors may be in a stronger position to oppose any proposed business combination, tender or exchange offer if the Board concludes that the transaction would not be in the best interest of the Company, even if the price offered is significantly greater than the then market price of any equity security of the Company. 83 Authorization of Preferred Stock The Company's Articles of Incorporation authorizes the issuance of up to 1,000,000 shares of preferred stock, which conceivably would represent an additional class of stock required to approve any proposed acquisition. The Company is authorized to issue preferred stock from time to time in one or more series subject to applicable provisions of law, and the Board of Directors is authorized to fix the designations, powers, preferences and relative participating, optional and other special rights of such shares, including voting rights (which could be multiple or as a separate class) and conversion rights. Issuance of the preferred stock could adversely affect the relative voting rights of holders of the Common Stock. In the event of a proposed merger, tender offer or other attempt to gain control of the Company that the Board of Directors does not approve, it might be possible for the Board of Directors to authorize the issuance of a series of preferred stock with rights and preferences that would impede the completion of such a transaction. An effect of the possible issuance of preferred stock, therefore, may be to deter a future takeover attempt. The Board of Directors has no present plans or understandings for the issuance of any preferred stock and does not intend to issue any preferred stock except on terms which the Board of Directors deems to be in the best interests of the Company and its stockholders. This preferred stock, none of which has been issued by the Company, together with authorized but unissued shares of Common Stock (the Articles of Incorporation authorizes the issuance of up to 3,000,000 shares of Common Stock), also could represent additional capital required to be purchased by the acquiror. Procedures for Stockholder Nominations The Company's Articles of Incorporation provides that any stockholder desiring to make a nomination for the election of directors or a proposal for new business at a meeting of stockholders must submit written notice to the Secretary of the Company not less than 30 or more than 60 days in advance of the meeting. "New business" within the meaning of this provision will be interpreted by the Company to exclude shareholder proposals which have been included in the Company's proxy solicitation materials pursuant to Rule 14a-8 under the Exchange Act. Amendment of Bylaws The Company's Articles of Incorporation provides that the Company's Bylaws may be amended either by a two-thirds vote of the Company's Board of Directors or by the affirmative vote of the holders of not less than 80% of the outstanding shares of the Company's stock entitled to vote generally in the election of directors, after giving effect to any limits on voting rights. Absent this provision, Colorado law provides that a corporation's bylaws may be amended by the holders of a majority of a corporation's outstanding capital stock. The Company's Bylaws contain numerous provisions concerning the Company's governance, such as fixing the number of directors and determining the number of directors constituting a quorum. By reducing the ability of a potential corporate raider to make changes in the Company's Bylaws and to reduce the authority of the Board of Directors or impede its ability to manage the Company, this provision could have the effect of discouraging a tender offer or other takeover attempt where the ability to make fundamental changes through bylaw amendments is an important element of the takeover strategy of the acquiror. Amendment of Articles of Incorporation The Company's Articles of Incorporation provides that specified provisions contained in the Articles of Incorporation may not be repealed or amended except upon the affirmative vote of not less than 80% of the outstanding shares of the Company's stock entitled to vote generally in the election of directors, after giving effect to any limits on voting rights. This requirement exceeds the majority vote of the outstanding stock that would otherwise be required by Colorado law for the repeal or amendment of an Articles of Incorporation provision. The specific provisions are those (i) governing the calling of special meetings, the absence of cumulative voting rights and the requirement that stockholder action be taken only at annual or special meetings, (ii) requiring written notice to the Company of nominations for the election of directors and new business proposals, (iii) governing the number of the Company's Board of Directors, the filling of vacancies on the Board of Directors and classification of the Board of Directors, (iv) providing the mechanism for removing directors, (v) limiting the acquisition of more than 10% of the capital stock of the Company or the Association (except, with the prior approval of the Continuing Directors of the Company), (vi) governing the requirement for the approval of certain Business Combinations involving a "Related Person," (vii) 84 regarding the consideration of certain nonmonetary factors in the event of an offer by another party, (viii) providing for the indemnification of directors, officers, employees and agents of the Company, (ix) pertaining to the elimination of the liability of the directors to the Company and its stockholders for monetary damages, with certain exceptions, for breach of fiduciary duty, and (x) governing the required stockholder vote for amending the Articles of Incorporation or Bylaws of the Company. This provision is intended to prevent the holders of less than 80% of the outstanding stock of the Company from circumventing any of the foregoing provisions by amending the Articles of Incorporation to delete or modify one of such provisions. This provision would enable the holders of more than 20% of the Company's voting stock to prevent amendments to the Company's Articles of Incorporation or Bylaws, even if such amendments were favored by the holders of a majority of the voting stock. Benefit Plans In addition to the provisions of the Company's Articles of Incorporation and Bylaws described above, certain benefit plans of the Company and the Association adopted in connection with the Conversion contain provisions which also may discourage hostile takeover attempts which the Boards of Directors of the Company and the Association might conclude are not in the best interests of the Company, the Association or the Company's stockholders. For a description of the benefit plans and the provisions of such plans relating to changes in control of the Company or the Association, see "Management of the Association -- Certain Benefit Plans and Agreements." The Purpose of and Anti-Takeover Effect of the Company's Articles of Incorporation and Bylaws The Boards of Directors of the Company and the Association believe that the provisions described above reduce the Company's vulnerability to takeover attempts and certain other transactions which have not been negotiated with and approved by its Board of Directors. These provisions will also assist the Company and the Association in the orderly deployment of the net proceeds of the Conversion into productive assets during the initial period after the Conversion. The Boards of Directors of the Company and the Association believe these provisions are in the best interests of the Association and of the Company and its stockholders. In the judgment of the Boards of Directors of the Company and the Association, the Company's Board is in the best position to consider all relevant factors and to negotiate for what is in the best interests of the stockholders and the Company's other constituents. Accordingly, the Boards of Directors of the Company and the Association believe that it is in the best interests of the Company and its stockholders to encourage potential acquirors to negotiate directly with the Company's Board of Directors and that these provisions will encourage such negotiations and discourage nonnegotiated takeover attempts. It is also the view of the Board of Directors that these provisions should not discourage persons from proposing a merger or other transaction at prices reflective of the true value of the Company and which is in the best interests of all stockholders. Attempts to acquire control of financial institutions and their holding companies have recently become increasingly common. Takeover attempts which have not been negotiated with and approved by the Board of Directors present to stockholders the risk of a takeover on terms which may be less favorable than might otherwise be available. A transaction which is negotiated and approved by the Board of Directors, on the other hand, can be carefully planned and undertaken at an opportune time in order to obtain maximum value for the Company and stockholders, with due consideration given to matters such as the management and business of the acquiring corporation and maximum strategic development of the Company's assets. An unsolicited takeover proposal can seriously disrupt the business and management of a corporation and cause great expense. Although a tender offer or other takeover attempt may be made at a price substantially above then current market prices, such offers are sometimes made for less than all the outstanding shares of a target company. As a result, stockholders may be presented with the alternative of partially liquidating their investment at a time that may be disadvantageous, or retaining their investment in an enterprise which is under different management and whose objectives may not be similar to those of the remaining stockholders. Despite the belief of the Association and the Company as to the benefits to stockholders of these provisions of the Company's Articles of Incorporation and Bylaws, these provisions may also have the effect of discouraging a future takeover attempt which would not be approved by the Company's Board, but pursuant to which the stockholders 85 may receive a substantial premium for their shares over then current market prices. As a result, stockholders who might desire to participate in such a transaction may not have any opportunity to do so. Such provisions will also render the removal of the Company's Board of Directors and management more difficult and may tend to stabilize the Company's stock price, thus limiting gains which might otherwise be reflected in price increases due to a potential merger or acquisition. The Board of Directors, however, has concluded that the potential benefits of these provisions outweigh the possible disadvantages. Pursuant to applicable regulations, at any annual or special meeting of its stockholders after the Conversion, the Company may adopt additional Articles of Incorporation provisions regarding the acquisition of its equity securities that would be permitted to a Colorado corporation. DESCRIPTION OF CAPITAL STOCK General The Company is authorized to issue 3,000,000 shares of Common Stock, par value $0.01 per share, and 1,000,000 shares of serial preferred stock, par value $0.01 per share. The Company currently expects to issue between 765,000 and 1,035,000 shares, subject to adjustment, of the Common Stock and no shares of serial preferred stock in the Conversion. The Company has reserved for future issuance under the Option Plan an amount of authorized but unissued shares of Common Stock equal to 10% of the shares to be issued in the Conversion. The capital stock of the Company will represent nonwithdrawable capital, will not be an account of an insurable type, and will not be insured by the FDIC or any other federal or state governmental agency. Common Stock Voting Rights. Each share of the Common Stock will have the same relative rights and will be identical in all respects with every other share of the Common Stock. The holders of the Common Stock will possess exclusive voting rights in the Company, except to the extent that shares of serial preferred stock issued in the future may have voting rights, if any. Each holder of shares of the Common Stock will be entitled to one vote for each share held of record on all matters submitted to a vote of holders of shares of the Common Stock. For information regarding a possible reduction in voting rights, see "Certain Anti-Takeover Provisions in the Articles of Incorporation and Bylaws -- Restrictions on Acquisitions of Securities." Dividends. The Company may, from time to time, declare dividends to the holders of the Common Stock, who will be entitled to share equally in any such dividends. For information as to cash dividends, see "Dividend Policy," "Regulation -- Dividend Restrictions," and "Taxation." Liquidation. In the event of any liquidation, dissolution or winding up of the Converted Association, the Company, as holder of all of the Association's capital stock, would be entitled to receive all assets of the Converted Association after payment of all debts and liabilities of the Converted Association and after distribution of the balance in the liquidation account to Eligible Account Holders and Supplemental Eligible Account Holders. In the event of a liquidation, dissolution or winding up of the Company, each holder of shares of the Common Stock would be entitled to receive, after payment of all debts and liabilities of the Company, a pro rata portion of all assets of the Company available for distribution to holders of the Common Stock. If any serial preferred stock is issued, the holders thereof may have a priority in liquidation or dissolution over the holders of the Common Stock. Restrictions on Acquisition of the Common Stock. For information regarding limitations on acquisition of shares of the Common Stock, see "Certain Restrictions on Acquisition of the Company, the Converted Association and the Association," "Certain Anti-Takeover Provisions in the Articles of Incorporation and Bylaws" and "The Conversion -- Regulatory Restrictions on Acquisition of the Common Stock." Other Characteristics. Holders of the Common Stock will not have preemptive rights with respect to any additional shares of the Common Stock which may be issued. The Common Stock is not subject to call for redemption, and the outstanding shares of the Common Stock, when issued and upon receipt by the Company of the full purchase price therefor, will be fully paid and nonassessable. 86 Serial Preferred Stock None of the 1,000,000 authorized shares of serial preferred stock of the Company will be issued in the Conversion. After the Conversion is completed, the Board of Directors of the Company will be authorized to issue serial preferred stock and to fix and state voting powers, designations, preferences or other special rights of such shares and the qualifications, limitations and restrictions thereof. The serial preferred stock may rank prior to the Common Stock as to dividend rights or liquidation preferences, or both, and may have full or limited voting rights. The Board of Directors has no present intention to issue any of the serial preferred stock. Should the Board of Directors of the Company subsequently issue serial preferred stock, no holder of any such stock shall have any preemptive right to subscribe for or purchase any stock or any other securities of the Company other than such, if any, as the Board of Directors, in its sole discretion, may determine and at such price or prices and upon such other terms as the Board of Directors, in its sole discretion, may fix. REGISTRATION REQUIREMENTS The Company will register its Common Stock with the SEC pursuant to the Exchange Act upon the completion of the Conversion and will not deregister said shares for a period of at least three years following the completion of the Conversion. Upon such registration, the proxy and tender offer rules, insider trading reporting and restrictions, annual and periodic reporting and other requirements of the Exchange Act will be applicable. The Company intends to have a June 30 fiscal year end. LEGAL OPINIONS The legality of the Common Stock will be passed upon for the Company by Housley Kantarian & Bronstein, P.C., Washington, D.C., which has consented to the references herein to its opinion. Certain legal matters will be passed upon for Trident Securities by Malizia, Spidi, Sloane & Fisch, P.C., Washington, D.C. TAX OPINIONS The federal income tax consequences of the Conversion will be passed upon by Housley Kantarian & Bronstein, P.C., Washington, D.C., which has consented to the references herein to its opinion. The Colorado income tax consequences of the Conversion will be opined upon by Grimsley, White & Company, which has consented to the references herein to its opinion. EXPERTS The financial statements of Salida Building and Loan Association at June 30, 1997 and 1996 and for the two years then ended have been included herein and elsewhere in the registration statement and the Association's application for conversion in reliance upon the report of Grimsley, White & Company, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. Ferguson has consented to the publication herein of the summary of its letter to the Association setting forth its opinion as to the estimated pro forma aggregate market value of the Common Stock to be issued in the Conversion and the value of Subscription Rights to purchase the Common Stock and to the use of its name and statements with respect to it appearing herein. ADDITIONAL INFORMATION The Company has filed with the SEC a Registration Statement with respect to the Common Stock offered hereby. This Prospectus does not contain all the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the SEC. Such information may be inspected at the public reference facilities maintained by the SEC at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. 87 Copies may be obtained at prescribed rates from the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. The SEC also maintains an internet address ("Web site") that contains reports, proxy and information statements and other information regarding registrants, including the Company, that file electronically with the SEC. The address for this Web site is "http://www.sec.gov." The Association has filed with the OTS an Application for Conversion. This document omits certain information contained in such application. The Application for Conversion can be inspected, without charge, at the offices of the OTS, 1700 G Street, N.W., Washington, D.C. 20552, and at the office of the OTS Regional Director, Midwest Regional Office, at 122 West John Carpenter Freeway, Irving, Texas 75039. 88 INDEX TO FINANCIAL STATEMENTS Page ---- Independent Auditors' Report F-1 Statements of Financial Condition as of June 30, 1997 and 1996 F-2 Statements of Income for the Years Ended June 30, 1997 and 1996 16 Statements of Equity for the Years Ended June 30, 1997 and 1996 F-3 Statement of Cash Flows for the Years Ended June 30, 1997 and 1996 F-4 Notes to Financial Statements F-5 Schedules - All schedules are omitted because the required information is not applicable or is presented in the financial statements or accompanying notes. All financial statements of High Country Bancorp, Inc. have been omitted because High Country Bancorp, Inc. has not yet issued any stock, has no assets and no liabilities and has not conducted any business other than of an organizational nature. 89 [Letterhead of Grimsley, White & Company Appears Here] INDEPENDENT AUDITORS' REPORT Board of Directors Salida Building and Loan Association Salida, Colorado We have audited the accompanying statements of financial condition of Salida Building and Loan Association as of June 30, 1997 and 1996, and the related statements of income, equity, and cash flows for the years then ended. These financial statements are the responsibility of the Association's management. Our responsibility is to express an opinion on these financial statements based on our 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 provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Salida Building and Loan Association as of June 30, 1997 and 1996 and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ GRIMSLEY, WHITE & COMPANY ------------------------------ GRIMSLEY, WHITE & COMPANY July 31, 1997 F-1 SALIDA BUILDING AND LOAN ASSOCIATION STATEMENTS OF FINANCIAL CONDITION JUNE 30, 1997 AND 1996
ASSETS 1997 1996 ----------- ----------- Cash and amounts due from banks $ 894,995 $ 511,119 Interest-bearing deposits at other institutions 2,381,315 1,576,878 Securities available-for-sale - 989,085 Securities held-to-maturity 5,339,762 6,843,218 Loans receivable, net 63,126,864 50,075,541 Federal Home Loan Bank stock 988,500 563,500 Accrued interest receivable 595,007 438,580 Property and equipment, net 2,507,398 2,060,920 Mortgage servicing rights 35,352 - Prepaid expenses and other assets 454,909 126,229 ----------- ----------- Total Assets $76,324,102 $63,185,070 =========== =========== LIABILITIES AND EQUITY Liabilities Deposits $56,152,178 $49,537,369 Advances by borrowers for taxes and insurance 127,175 134,075 Accounts payable and other liabilities 491,929 214,638 Advances from Federal Home Loan Bank 13,520,000 7,150,000 Deferred income taxes 74,600 242,000 ----------- ----------- Total Liabilities 70,365,882 57,278,082 ----------- ----------- Commitments Equity Retained earnings, substantially restricted 5,958,220 5,913,804 Net unrealized depreciation on securities available-for-sale, net of tax of $4,900 (1996) - (6,816) ----------- ----------- Total Equity 5,958,220 5,906,988 ----------- ----------- Total Liabilities and Equity $76,324,102 $63,185,070 =========== ===========
See Notes To Financial Statements F-2 SALIDA BUILDING AND LOAN ASSOCIATION STATEMENTS OF EQUITY JUNE 30, 1997 AND 1996
NET UNREALIZED LOSS ON SECURITIES RETAINED AVAILABLE EARNINGS FOR-SALE TOTAL ---------- ----------- ---------- BALANCES JULY 1, 1995 $5,395,102 $ (16,217) $5,378,885 Net income for the year 518,702 518,702 Change in net urealized loss on securities available - for - sale 9,401 9,401 ---------- ----------- ---------- BALANCES JUNE 30, 1996 5,913,804 (6,816) 5,906,988 Net income for the year 44,416 44,416 Change in net unrealized loss on securities available - for - sale 6,816 6,816 ---------- ----------- ---------- BALANCES JUNE 30, 1997 $5,958,220 $ - $5,958,220 ========== =========== ==========
See Notes To Financial Statements F-3 SALIDA BUILDING AND LOAN ASSOCIATION STATEMENT OF CASH FLOWS JUNE 30, 1997 AND 1996
1997 1996 ------------ ----------- Operating Activities Net income $ 44,416 $ 518,702 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 158,415 96,936 Net amortization of premiums and discounts on investments10,349 10,349 36,413 Net loss on sale of loans 56,185 92,535 Amortization of loan fees (109,739) (180,534) FHLB stock dividends (42,200) (21,400) Provision for losses on loans 282,000 59,450 Net loss on assets disposition 4,226 10,889 Deferred income taxes (162,500) 70,100 Net change in miscellaneous assets (460,107) (99,725) Net change in miscellaneous liabilities 277,291 45,437 ------------ ----------- Net cash provided by operating activities 58,336 628,803 ------------ ----------- Investing Activities Net change in loans receivable (17,192,492) (14,213,259) Proceeds from sale of loans 3,878,889 5,702,942 Proceeds from sale of securities available-for-sale 1,000,000 - Principal repayments of mortgage-backed securities held-to-maturity 1,482,590 1,487,979 Purchase of Federal Home Loan Bank stock (382,800) (130,900) Purchase of property and equipment (609,119) (988,042) Sale of assets - 8,200 ------------ ----------- Net cash used by investing activities (11,822,932) (8,133,080) ------------ ----------- Financing Activities Net increase in deposit accounts 6,614,809 3,623,530 Net increase (decrease) in mortgage escrow funds (6,900) (49,824) Conversion costs incurred (25,000) - Proceeds from borrowings 6,370,000 4,150,000 ------------ ----------- Net cash provided by financing activities 12,952,909 7,723,706 ------------ ----------- Net increase in cash and cash equivalents 1,188,313 219,429 Cash and cash equivalents, beginning of year 2,087,997 1,868,568 ------------ ----------- Cash and cash equivalents, end of year $ 3,276,310 $ 2,087,997 ============ =========== Supplemental disclosure of cash flow information Interest paid on deposits and borrowings $ 2,813,211 $ 2,289,500 Income taxes paid $ 208,624 $ 355,320
See Notes To Financial Statements F-4 SALIDA BUILDING AND LOAN ASSOCIATION NOTES TO FINANCIAL STATEMENTS NOTE -1 OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Salida Building and Loan Association (the Association) is a federally chartered mutual association with its main office in Salida, Colorado and with branch offices in Leadville and Buena Vista, Colorado. The Association provides a variety of financial services to the area it serves. Its primary deposit products are interest-bearing checking accounts and certificates of deposit, and its primary lending products are real estate mortgages, consumer and commercial loans. A summary of significant accounting policies follows: 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 reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Securities Held to Maturity Bonds and notes for which the Association has the positive intent and ability to hold to maturity are reported at cost, adjusted for premiums and discounts that are recognized in interest income using the interest method over the period to maturity. Securities Available for Sale Available-for-sale securities consist of bonds and notes not classified as trading securities nor as held-to-maturity securities. Unrealized holding gains and losses, net of tax, on available-for-sale securities are reported as a net amount in a separate component of shareholders' equity until realized. Gains and losses on the sale of available-for-sale securities are determined using the specific-identification method. Declines in the fair value of individual held-to-maturity and available-for-sale securities below their cost that are other than temporary would result in write-downs of the individual securities to their fair value. Should the Association incur write-downs they will be included in earnings as realized losses. Premiums and discounts are recognized in interest income using the interest method over the period to maturity. F-5 SALIDA BUILDING AND LOAN ASSOCIATION NOTES TO FINANCIAL STATEMENTS NOTE -1 OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Federal Home Loan Bank Stock The stock is an equity interest in the Federal Home Loan Bank of Topeka. The Association, as a member of the FHLB, is required to maintain an investment in capital stock of the FHLB. The stock is carried at cost, as its cost is assumed to equal its market value. FHLB stock can only be sold at par value to the FHLB or to another member institution. The FHLB declares cash and stock dividends. The stock dividends are recognized as income due to the fact they are redeemable at par value ($100 per share) from the FHLBs or another member institution. Loans Loans are stated at unpaid principal balances, less the allowance for loan losses, net of deferred loan fees and loans in process. Loan origination and commitment fees, as well as certain direct origination costs, are deferred and amortized as a yield adjustment over the lives of the related loans using the interest method. Amortization of deferred loan fees is discontinued when a loan is placed on nonaccrual status. Loans are placed on nonaccrual status when principal and interest is delinquent for 90 days or more. Uncollectible interest on these loans is charged off, or an allowance is established, based on management's periodic evaluation, by a charge to interest income equal to all interest previously accrued. Income is subsequently recognized only to the extent that cash payments are received. Effective July 1995, the Association adopted Statement of Financial Accounting Standards No. 114, Accounting by Creditors for Impairment of a Loan, as amended by Statement No. 118, Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures. These Statements prescribe recognition criteria for loan impairment, generally related to commercial loans, and multifamily real estate loans, and measurement methods for certain impaired loans and all loans whose terms are modified in trouble debt restructuring subsequent to the adoption of these statements. A loan is considered impaired when it is probable that the borrower will not repay the loan according to the original contractual terms of the loan agreement. Management has determined that first mortgage loans on one-to-four family properties, home equity, second mortgage loans, and all consumer loans are large groups of smaller-balance homogenous loans that are collectively evaluated. Accordingly, such loans are outside the scope of Statement Nos. 114 and 118. F-6 SALIDA BUILDING AND LOAN ASSOCIATION NOTES TO FINANCIAL STATEMENTS NOTE -1 OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Loans (continued) Management considers an insignificant delay, which is determined as 90 days by the Association, will not cause a loan to be classified as impaired. A loan is not impaired during a period of delay in payment if the Association expects to collect all amounts due including interest accrued at the contractual interest rate for the period of delay. All loans identified as impaired are evaluated independently by management. Under this Standard, the Association estimates credit losses on impaired loans based on the present value of expected cash flows or the fair value of the underlying collateral if the loan repayment is expected to come from the sale or operation of such collateral. Statement No. 118 amends Statement No. 114 to permit a creditor to use existing methods for recognizing interest income on impaired loans eliminating the income recognition provisions of Statement No. 114. Prior to adoption of this Standard the credit losses related to these loans were estimated based on undiscounted cash flows or the fair value of the underlying collateral. The adoption of the statements did not have a material effect on the Association's financial condition or results of operations. Allowance for Loan Losses The allowance for loan losses is maintained at a level which, in management's judgment, is adequate to absorb potential losses inherent in the loan portfolio. The amount of the allowance is based on management's evaluation of the collectibility of the loan portfolio, including the nature of the portfolio, credit concentrations, specific impaired loans, and economic conditions. The allowance is increased by a provision for loan losses, which is charged to expense, and reduced by charge-offs, net of recoveries. Such provisions are based on management's estimate of net realizable value or fair value of the collateral, as applicable. These estimates are susceptible to economic changes that could result in a material adjustment to results of operations in the near term. Recovery of the carrying value of such loans is dependent to a great extent on economic, operation, and other conditions that may be beyond the Association's control. Loan Servicing The cost of mortgage servicing rights is amortized in proportion to, and over the period of, estimated net servicing revenues. Impairment of mortgage servicing rights is assessed based on the fair value of those rights. Fair values are estimated using discounted cash flows based on a current market interest rate. F-7 SALIDA BUILDING AND LOAN ASSOCIATION NOTES TO FINANCIAL STATEMENTS NOTE -1 OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Property and Equipment Property and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using primarily the straight- line method over the estimated useful lives of the related assets. Estimated useful lives of furniture, fixtures, and equipment range from two to ten years; buildings and improvements range from five to forty years. Income Taxes Income taxes are provided in accordance with SFAS No. 109, Accounting for Income Taxes (See Note 9). Under the provisions of SFAS No. 109, deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates which will be in effect when these differences are expected to reverse. If appropriate, deferred tax assets are reduced by a valuation allowance which reflects expectations of the extent to which such assets will be realized. Financial Instruments Off-balance sheet instruments. In the ordinary course of business the Association has entered into off-balance sheet financial instruments consisting of commitments to extend credit, and standby letters of credit. Such financial instruments are recorded in the financial statements when they are funded. Fair Values of Financial Instruments The following methods and assumptions were used by the Association in estimating fair values of financial instruments as disclosed herein: Cash and short-term instruments. The carrying amounts of cash and short-term instruments approximate fair values. Available-for-sale and held-to-maturity securities. Fair values for securities, excluding restricted equity securities, are based on quoted market prices. The carrying values of restricted equity securities approximate fair values. Loans receivable. For variable-rate loans that reprice frequently and have no significant change in credit risk, fair values are based on carrying-values. Fair values for mortgage loans, consumer loans, commercial real estate and commercial loans are estimated using discounted cash flow analysis, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Fair values for impaired loans are estimated using discounted cash flow analysis or underlying collateral values, where applicable. F-8 SALIDA BUILDING AND LOAN ASSOCIATION NOTES TO FINANCIAL STATEMENTS NOTE -1 OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Deposit Liabilities. The fair values disclosed for demand deposits are, by definition, equal to the amount payable on demand at the reporting date. The carrying amounts of variable-rate, fixed-term money-market accounts and certificates of deposit (CDs) approximate their fair values at the reporting date. Fair values for fixed-rate CDs are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits. Advances from Federal Home Loan Bank. The fair values are based on the borrowing rates and remaining maturities. Cash Equivalents For the purpose of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, and interest-bearing deposits at other institutions. The Association considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. Reclassifications Certain amounts in 1996 have been reclassified to conform with the 1997 presentation. NOTE -2 SECURITIES Securities are classified in three categories and accounted for as follows: debt securities that the Association has the positive intent and ability to hold to maturity are classified as held-to-maturity and are measured at amortized cost; debt and equity securities bought and held principally for the purpose of selling in the near term are classified as trading securities and are measured at fair value, with unrealized gains and losses included in earnings; debt and equity securities not classified as either held-to-maturity or trading securities are deemed available-for-sale and are measured at fair- value, with unrealized gains and losses, net of applicable taxes, reported in a separate component of equity. Held-to-Maturity Securities The amortized cost and estimated fair value of held-to-maturity securities at June 30, 1997 and 1996 are as follows:
Gross Gross Amortized Unrealized Unrealized Fair 1997 Cost Gains Losses Value ---------- ---------- ---------- ---------- ---------- Mortgage-backed securities GNMA certificates $1,708,760 $22,801 $ 0 $1,731,561 FHLMC certificates 1,305,265 32,939 (12,170) 1,326,034 FNMA certificates 2,325,737 33,659 (4,855) 2,354,541 ---------- ---------- ---------- ---------- $5,339,762 $ 89,399 $ (17,025) $5,412,136 ========== ========== ========== ==========
F-9 SALIDA BUILDING AND LOAN ASSOCIATION ==================================== NOTES TO FINANCIAL STATEMENTS NOTE -2 SECURITIES (Continued) Held-to-Maturity Securities (Continued)
Gross Gross Amortized Unrealized Unrealized Fair 1996 Cost Gains Losses Value ---------- ---------- ---------- ---------- ---------- Mortgage-backed securities GNMA certificates $2,011,893 $ 1,127 $(14,602) $1,998,418 FHLMC certificates 1,775,407 31,314 (21,160) 1,785,561 FNMA certificates 3,055,918 49,396 (9,415) 3,095,899 ---------- ---------- ---------- ---------- $6,843,218 $ 81,837 $ (45,177) $6,879,878 ========== ========== ========== ==========
Available-for-Sale Securities The amortized cost and estimated fair value of available-for-sale securities at June 30, 1996, were as follows:
Gross Gross Amortized Unrealized Unrealized Fair 1996 Cost Gains Losses Value ---------- ---------- ---------- ---------- ---------- U.S. Government and Federal Agency Obligations: U.S. Agencies $ 999,501 $ 0 $ (10,416) $ 989,085 ========== ========== ========== ==========
The amortized cost and fair value of debt securities at June 30, 1997, by contractual maturity, are shown below. The Association's debt securities held-to-maturity are mortgage-backed securities whose expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Amortized Fair Held-to-Maturity Debt Securities Cost Value -------------------------------- ---------- ---------- Due after one year through five years $ 260,817 $ 258,729 Due after ten years 5,078,945 5,153,407 ---------- ---------- Total Held-to-Maturity Securities $5,339,762 $5,412,136 ========== ==========
Proceeds from the maturity or sale of securities available-for-sale during the years ended June 30 were $1,000,000 (1997) and $0 (1996) with no gains or losses realized. At June 30, investments with a carrying value of $1,744,847 (1997) and $609,524 (1996) were pledged as collateral for deposits of public funds. F-10 SALIDA BUILDING AND LOAN ASSOCIATION NOTES TO FINANCIAL STATEMENTS NOTE -3 LOANS RECEIVABLE Loans receivable at June 30, are summarized as follows
1997 1996 ----------- ----------- Loans secured by real estate: Residential real estate $46,509,985 $38,011,308 Commercial real estate 1,643,468 2,095,187 Construction 3,092,469 2,544,200 Land 2,390,040 1,500,311 ----------- ----------- Total Loans Secured by Real Estate 53,635,962 44,151,006 Consumer loans, net of discounts 6,476,354 3,926,450 Loans collateralized by savings accounts 764,450 849,183 Commercial loans 4,287,400 3,080,228 Other loans 98,427 92,093 ----------- ----------- Total Loans 65,262,593 52,098,960 Less: Undisbursed portion of loans in process 1,123,281 1,246,388 Deferred loan origination fees 408,043 365,906 Allowance for loan losses 604,405 411,125 ----------- ----------- Loans Receivable, Net $63,126,864 $50,075,541 =========== ===========
The changes in the allowance for loan losses were as follows: 1997 1996 ----------- ----------- Balance, beginning of year $ 411,125 $ 404,595 Provision for losses 282,000 60,000 Recoveries 7,450 16 Losses incurred (96,170) (53,486) ----------- ----------- Balance, end of year $ 604,405 $ 411,125 =========== ===========
At June 30, the Association had adjustable interest rate loans of approximately $6,266,000 (1997) and $6,145,000 (1996). The adjustable rate loans have interest rate adjustment limitations and are generally indexed to the 1-year U.S. Treasury Note rate. Future market factors may affect the correlation of the interest rate adjustment with the rates the Association pays on the short-term deposits that have been primarily utilized to fund these loans. Loans for which interest accruals had been discontinued at June 30 were approximately $140,000 (1997) and $73,000 (1996). If interest on these loans had been accrued, such interest would have increased income by immaterial amounts. Loans receivable at June 30 include loans to officers and directors of approximately $839,000 (1997) and $761,000 (1996). F-11 SALIDA BUILDING AND LOAN ASSOCIATION NOTES TO FINANCIAL STATEMENTS NOTE -4 LOAN SERVICING Mortgage loans serviced for others are not included in the accompanying statements of financial condition. The unpaid principal balances of these loans at June 30 are summarized as follows:
1997 1996 ---------- ---------- Mortgage loan portfolios serviced for: FHLMC $9,353,814 $6,260,125 Other investors 27,868 206,224 ---------- ---------- $9,381,682 $6,466,349 ========== ==========
In connection with these loans serviced for others at June 30, the Association held borrowers' escrow balances of $23,837 (1997) and $19,939 (1996). NOTE -5 ACCRUED INTEREST RECEIVABLE Interest receivable at June 30, relates to the following:
1997 1996 ---------- ---------- Loans $ 556,692 $ 379,647 Mortgage-backed securities 38,315 49,783 Other investments 0 9,150 ---------- ---------- $ 595,007 $ 438,580 ========== ==========
NOTE -6 PROPERTY AND EQUIPMENT Property and equipment and the related accumulated depreciation at June 30, are summarized as follows:
1997 1996 ---------- ---------- Land and improvements $ 316,035 $ 255,847 Buildings and improvements 2,043,519 940,032 Furniture, fixtures and equipment 783,742 628,012 Construction-in-progress 0 745,847 ---------- ---------- 3,143,296 2,569,738 Less accumulated depreciation (635,898) (508,818) ---------- ---------- $2,507,398 $2,060,920 ========== ==========
Depreciation expense for the years ended June 30, totaled $158,415 (1997) and $96,936 (1996). F-12 SALIDA BUILDING AND LOAN ASSOCIATION NOTES TO FINANCIAL STATEMENTS NOTE -7 DEPOSIT ACCOUNTS Deposit accounts at June 30 are summarized as follows:
1997 1996 ----------------------- ------------------------ Weighted Weighted Average Average Amount Rate Amount Rate ----------- ---------- ------------ ---------- NOW accounts, including non-interest bearing deposits of $2,361,034 (1997) and $2,275,661 (1996) $10,586,504 1.30% $ 7,749,722 1.35% Money market and savings accounts 14,037,595 2.96% 13,163,710 2.91% Certificate accounts 31,528,079 5.58% 28,623,937 5.43% ----------- ------------ $56,152,178 $ 49,537,369 =========== ============
At June 30, 1997, scheduled maturities of the above certificate accounts are summarized as follows:
Year ending June 30, -------------------------------------------------------------- 2002 and 1998 1999 2000 2001 thereafter ----------- ----------- ---------- ----------- ---------- 3.01-4.00 $ 187,271 4.01-5.00 2,995,455 $ 161,026 5.01-6.00 18,467,799 3,123,389 $ 618,764 $ 418,900 6.01-7.00 3,659,417 951,879 149,238 52,694 $ 132,400 7.01-8.00 90,000 300,000 5,211 214,636 ----------- ----------- ---------- ----------- ---------- $25,309,942 $ 4,326,294 $1,068,002 $ 476,805 $ 347,036 =========== =========== ========== =========== ==========
The aggregate amount of certificates of deposits with a minimum denomination of $100,000 at June 30, was $8,668,062 (1997) and $9,186,927 (1996). Deposits in excess of $100,000 are not insured by the Savings Association Insurance Fund (SAIF). Interest expense on deposits for the years ended June 30 is summarized as follows:
1997 1996 ---------- ---------- NOW and money market deposit accounts $ 224,126 $ 196,031 Passbook savings and certificate accounts 1,955,282 1,770,726 ---------- ---------- $2,179,408 $1,966,757 ========== ==========
F-13 SALIDA BUILDING AND LOAN ASSOCIATION ------------------------------------ NOTES TO FINANCIAL STATEMENTS NOTE -8 ADVANCES FROM FEDERAL HOME LOAN BANK Advances from the Federal Home Loan Bank (FHLB) at June 30 are summarized as follows:
Interest Rate 1997 1996 ---------- ----------- ----------- Maturing within one year 5.81-8.12% $ 9,500,000 $2,000,000 Maturing in 1999 5.81-6.72% 3,000,000 500,000 Maturing in 2000 6.79% 500,000 4,000,000 Maturing in 2001 6.80% 520,000 650,000 ----------- ---------- $13,520,000 $7,150,000 =========== ==========
Pursuant to collateral agreements with the FHLB, advances are secured by a blanket pledge agreement with the FHLB which includes real estate loans and other non-pledged securities. At June 30, 1996, the Association had an approved line of credit of $6,000,000 with the FHLB which expired May 5, 1997. At June 30, 1997, the Association has an approved line of credit for $10,000,000 with the FHLB. No amount was drawn on the line of credit at June 30, 1996. As of June 30, 1997, the Association had drawn $1,000,000 on the line of credit. NOTE -9 INCOME TAXES The provision for income taxes consists of the following:
1997 1996 ---------- -------- Current $ 182,085 $336,918 Deferred (171,000) 70,100 --------- -------- $ 11,085 $407,018 ========= ========
The effective tax rate on income before the provisions for income taxes differs from the federal statutory income tax rate for the following reasons:
1997 1996 -------- -------- Provision for income taxes at statutory rate $ 18,900 $314,700 Excess tax provision for bad debts over book provisions 0 49,800 State income taxes, net of federal income tax benefit 7,200 16,200 Other, net (15,015) 26,318 -------- -------- $ 11,085 $407,018 ======== ========
F-14 SALIDA BUILDING AND LOAN ASSOCIATION NOTES TO FINANCIAL STATEMENTS NOTE -9 INCOME TAXES (Continued) Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The net deferred tax liabilities as of June 30, are as follows:
1997 1996 --------- --------- Difference between tax basis and carrying basis of FHLB stock $ 127,100 $ 111,900 Tax depreciation in excess of financial statement amounts 76,700 75,400 Difference between tax basis and carrying basis of investments 0 4,900 Difference between tax basis and carrying basis of long term incentive plan (87,700) 0 Loan loss reserve (41,500) 49,800 --------- --------- $ 74,600 $ 242,000 ========= =========
The deferred tax expense (benefit) results from timing differences in the recognition of income and expense for tax and financial purposes. The sources and tax effects of these temporary timing differences are as follows:
1997 1996 --------- --------- FHLB stock dividends $ 15,500 $ 15,400 Accumulated depreciation 1,400 13,100 Allowance for loan losses - net (91,300) 49,800 Long-term incentive plan (87,700) 0 Other (8,900) (8,200) --------- --------- $(171,000) $ 70,100 ========= =========
The Association is permitted under the Internal Revenue Code to deduct an annual addition to reserve for bad debts in determining taxable income, subject to certain limitations. This deduction differs from the bad debt provision used for financial accounting purposes. Bad debt deductions for income tax purposes are included in taxable income of later years only if the bad debt reserve is used subsequently for purposes other than to absorb bad debt losses. Because the Association does not intend to use the reserve for purposes other than to absorb losses, no deferred income taxes have been provided. Retained earnings at June 30, 1997, includes approximately $1,169,000, representing such bad debt deductions for which no income taxes have been provided. NOTE -10 CONTINGENCIES In the normal course of business, the Association is involved in various legal actions arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material adverse effect on the financial position of the Association. F-15 SALIDA BUILDING AND LOAN ASSOCIATION NOTES TO FINANCIAL STATEMENTS NOTE -11 REGULATORY CAPITAL REQUIREMENTS The Association is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain actions by regulators that, if undertaken, could have a direct material effect on the Association's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Association must meet specific guidelines that involve quantitative measures of the Association's assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Association's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Association to maintain minimum amounts and ratios as outlined below. Management believes, as of June 30, 1997. The Association meet all capital adequacy requirements to which it is subject. As of November 14, 1995, the most recent notification from Office of Thrift Supervision categorized the Association as well capitalized under the regulatory framework for prompt corrective action. To be well capitalized the Association must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios. There are no conditions or events since that notification that management believes have changed the institution's category. The following is a reconciliation of capital computed under generally accepted accounting principles (GAAP) to regulatory capital. OTS regulations specify minimum capital requirements for the Association. The following reconciliation also compares the capital requirements as computed to the minimum capital requirements for the Association, as of June 30.
1997 1996 ----------- ----------- Equity Per GAAP $5,958,220 $5,913,804 Less Servicing Rights Plus Valuations (3,535) 2,000 ---------- ---------- Equity Per GAAP- Tier I Capital 5,954,685 5,915,804 Valuation Allowance 604,405 411,125 ---------- ---------- Regulatory Capital $6,559,090 $6,326,929 ========== ==========
F-16 SALIDA BUILDING AND LOAN ASSOCIATION NOTES TO FINANCIAL STATEMENTS NOTE -11 REGULATORY CAPITAL REQUIREMENTS (Continued)
Minimum Required To Be Well Capitalized For Capital Under Prompt Corrective Actual Adequacy Purposes Action Regulations Amount Ratio Amount Ratio Amount Ratio ----------- ------- ----------- ---------- -------------- -------- 1997 ---- Total Capital (to Risk Weighted Assets) $6,559,090 13.76% $3,814,320 8.00% $4,767,900 10.00% Tier I Capital (to Risk Weighted Assets) 5,954,685 12.49 1,430,370 3.00 2,860,740 6.00 Tier I Capital (to Average Assets) 5,954,685 8.25 1,082,820 1.50 3,609,400 5.00 Tangible Capital (to Tangible Assets) 5,954,685 8.25 1,082,820 1.50 N/A 1996 ---- Total Capital (to Risk Weighted Assets) $6,326,929 16.99% $2,979,360 8.00% $3,724,200 10.00% Tier I Capital (to Risk Weighted Assets) 5,915,804 15.88 1,117,260 3.00 2,234,520 6.00 Tier I Capital (to Average Assets) 5,915,804 9.69 919,170 1.50 3,053,900 5.00 Tangible Capital (to Tangible Assets) 5,915,804 9.69 919,170 1.50 N/A
F-17 SALIDA BUILDING AND LOAN ASSOCIATION NOTES TO FINANCIAL STATEMENTS NOTE -11 REGULATORY CAPITAL REQUIREMENTS (Continued) The Association's management believes that, under the current regulations, the Association will continue to meet its minimum capital requirements in the coming year. However, events beyond the control of the Association, such as increased interest rates or a downturn in the economy in the Association's operating area, could adversely affect future earnings and, consequently, the ability of the Association to meet its future minimum capital requirements. NOTE -12 BENEFIT PLANS The Association has a defined contribution plan (the Plan) for employees who have completed one year of service. The Association matches covered employee's contributions up to 5% of their compensation. In addition, the Association's Board of Directors may elect to contribute an additional amount based upon the Association's profit. Contributions to the Plan were $54,100 (1997) and $49,800 (1996). The Association adopted a Long-Term Incentive Plan in June, 1997 covering the directors and key employees of the Association. On June 30 of each year following 1997 the participants will have a contribution made to their account providing the participant continues to be an employee or director of the Association. Prior to distribution under the terms of the Plan, each participant's account shall be credited with a rate of return, on any amounts previously credited, equal to the highest rate of interest paid by the Association on one-year certificates of deposit, or after conversion the rate of return will equal the dividend-adjusted rate of return on the common stock. Amounts credited to Participant's Accounts on the effective date and thereafter shall be fully vested. Account balances shall be paid, in cash, in ten equal annual installments beginning during the first quarter of the calendar year which next follows the calendar year in which the participant ceases to be a director or employee for any reason, with subsequent payments being made by the last day of the first quarter of each subsequent calendar year until the participant has received the entire amount of his account. Notwithstanding the foregoing a participant may elect to have his account paid in lump sum distribution or in annual payments over a period less than ten years. Any benefits accrued under the plan will be paid from the Association's general assets. The Association has established a trust in order to hold assets with which to pay benefits. Trust assets will be subject to the claims of the Association's general creditors. The Association recognized an expense of $237,031 in the year ended June 30, 1997, which represented the funding of the plan for past services. F-18 SALIDA BUILDING AND LOAN ASSOCIATION NOTES TO FINANCIAL STATEMENTS NOTE -13 FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF CREDIT RISK The Association is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. At June 30, 1997, the Association has commitments to fund mortgage loans of $740,300, unfunded lines of credit of $978,900, and letters of credit of $270,400. The Association makes contractual commitments to extend credit, which are legally binding agreements to lend money to customers at prevailing interest rates for specified periods of time. The credit risk involved in issuing these commitments is essentially the same as that involved in extending loan facilities to customers. As such, the Association's exposure to credit loss, in the event of non-performance by the counterparty to the financial instrument, is represented by the contractual amount of those instruments. However, the Association applies the same credit standards used in the lending process when extending these commitments, and periodically reassesses the customers' credit worthiness. Additional risks associated with these commitments arise when they are drawn upon, such as the demands on liquidity that the Association could experience if a significant portion were drawn down at once. This is considered unlikely, however, as commitments may expire without having been drawn upon. The Association originates loans primarily in Chaffee and Lake Counties, Colorado. Although the Association has a diversified loan portfolio, a substantial portion of its borrower's ability to repay their loans is dependent upon economic conditions in the Association's market area. NOTE -14 FAIR VALUES OF FINANCIAL INSTRUMENTS The estimated fair values of the Association's financial instruments, as of June 30, 1997, are as follows:
Carrying Fair Amount Value ----------- ---------- Financial Assets: Cash and amounts due from banks $ 894,995 $ 894,995 Interest bearing deposits 2,381,315 2,381,315 Securities held-to-maturity 5,339,762 5,412,136 FHLB stock 988,500 988,500 Loans receivable - net 63,126,864 Financial liabilities: Deposits 56,152,178 Advances from FHLB 13,520,000
F-19 SALIDA BUILDING AND LOAN ASSOCIATION NOTES TO FINANCIAL STATEMENTS NOTE -15 OTHER NON-INTEREST EXPENSE
1997 1996 -------- -------- Advertising $ 74,292 $ 46,544 Stationery Supplies 90,893 60,202 Postage 66,675 48,737 Telephone 17,990 12,775 Dues and Subscriptions 22,102 21,477 Other 133,211 103,824 -------- -------- $405,163 $293,559 ======== ========
NOTE -16 PLAN OF CONVERSION On May 15, 1997, the Board of Directors of Salida Building and Loan Association adopted a Plan of Conversion whereby the Association would convert from a mutual savings institution to a stock savings and loan pursuant to the Rules and Regulations of the OTS. The Plan includes, as part of the conversion, the concurrent formation of a holding company. The Plan provides that non-transferable subscription rights to purchase holding company conversion stock will be offered first to eligible account holders of record as of the eligibility record date, then to the Association's tax qualified employee plan, then to other supplemental eligible account holders of record as of the supplemental eligibility record date, then to other members, and then to directors, officers and employees. Concurrently with, at any time during, or promptly after the subscription offering, and on a lowest priority basis, an opportunity to subscribe may also be offered to the general public in a direct community offering. The price of the holding company conversion stock will be based upon an independent appraisal of the Association and will reflect its estimated pro forma market value, as converted. It is the desire of the Board of Directors of the Association to attract new capital to the Association in order to increase its capital, support future savings growth and increase the amount of funds available for residential and other mortgage lending. The converted Association is also expected to benefit from its management and other personnel having a stock ownership in its business, since stock ownership is viewed as an effective performance incentive an a means of attracting, retaining and compensating management and other personnel. No change will be made in the Board of Directors or management as a result of the conversion. Upon consumption of the conversion, the Association will issue all of its outstanding capital stock to the holding company in exchange for at least 50% of the net proceeds from the sale of the common stock. The cost of issuing the common stock will be deferred and deducted from the sale proceeds. If the offering is unsuccessful for any reason, the deferred costs will be charged to operations. At June 30, 1997, the Association had incurred $25,000 of such costs. F-20 SALIDA BUILDING AND LOAN ASSOCIATION NOTES TO FINANCIAL STATEMENTS NOTE -16 PLAN OF CONVERSION (Continued) For the purpose of granting eligible members of the Association a priority in the event of future liquidation, the Association will, at the time of conversion, establish a liquidation account equal to its regulatory capital as of the date of the latest balance sheet used in the final conversion offering circular. In the event (and only in such event) of future liquidation of the converted Association, an eligible savings account holder who continues to maintain a savings account shall be entitled to receive a distribution from the liquidation account, in the proportionate amount of then-current adjusted balance of the savings deposits then held, before any distributions may be made with respect to capital stock. Present regulations provide that the Association may not declare or pay a cash dividend on or repurchase any of its capital stock if the result thereof would be to reduce the regulatory capital of the Association below the amount required for the liquidation account or the regulatory capital requirement. Further, any dividend declared or paid on or repurchase of, the Association's capital stock shall be in compliance with the rules and regulations of the Office of Thrift Supervision, or other applicable regulations. NOTE -17 IMPACT OF NEW ACCOUNTING STANDARDS Accounting for ESOP. The Accounting Standards Division of the American Institute of Certified Public Accountants approved Statement of Position ("SOP") 93-6, "Employers' Accounting for Employee Stock Ownership Plans," which is effective for fiscal years beginning after December 15, 1993. SOP 93-6 changed, among other things, the measure of compensation recorded by employers from the cost of ESOP shares to the fair value of ESOP shares. To the extent that the fair value of the common stock held by the ESOP that are committed to be released directly to compensate employees, differs from the cost of such shares, compensation expenses and a related charge or credit to additional paid-in capital will be reported in the Association's financial statements. The adoption of the ESOP by the Association and the application of SOP 93-6 is likely to result in fluctuations in compensation expense as a result of changes in the fair value of the common stock. However, any such compensation expense fluctuations will result in an offsetting adjustment to paid-in capital, and therefore, total capital will not be affected. Disclosure of Derivative Financial Instruments. In October, 1994, the Financial Accounting Standards Board ("FASB) issued SFAS No. 119 "Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments." This statement addresses the disclosure of derivative financial instruments including the face amount, nature and terms. F-21 SALIDA BUILDING AND LOAN ASSOCIATION NOTES TO FINANCIAL STATEMENTS NOTE -17 IMPACT OF NEW ACCOUNTING STANDARDS (Continued) For derivatives held for trading, disclosure of objectives, strategies, policies on reporting and income recognition method is required. This statement is effective for financial statements for fiscal years ending after December 15, 1995. Currently the Association does not own any derivative financial instruments and therefore SFAS No. 119 does not have any impact on the financial statements. Impairment of Long-Lived Assets. In March 1995, the Financial Accounting Standards Board ("FASB") issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed of." This statement establishes accounting standards for the impairment of long- lived assets and certain identifiable intangibles, and goodwill related to those assets to held and used and for long-lived assets and certain identifiable intangibles to be disposed of. This Statement requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicated that the carrying amount of an asset may not be recoverable. In performing the review for recoverability, the entity should estimate the future cash flows expected to result from the use of the asset and eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is recognized. Otherwise, and impairment loss is not recognized. Measurement of an impairment loss for long-lived assets and identifiable intangibles that an entity expects to hold and use should be based on the fair value of the assets. The Association adopted this statement in July, 1996 and it did not have an affect on the financial statements. Accounting for Stock-Based Compensation. In October, 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation to Employees." This statement encourages entities to adopt the fair value based method of accounting for employee stock options or other stock compensation plans. However, it allows an entity to measure compensation cost for those plans using the intrinsic value based method of accounting prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees." Under the fair value based method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. Under the intrinsic value based method, compensation cost is the excess of the quoted market price of the stock at the grant date over the amount an employee must pay to acquire the stock F-22 SALIDA BUILDING AND LOAN ASSOCIATION NOTES TO FINANCIAL STATEMENTS NOTE -17 IMPACT OF NEW ACCOUNTING STANDARDS (Continued) Most fixed stock option plans - the most common type of stock compensation plan - have no intrinsic value at grant date and under Opinion No. 25 no compensation cost is reconized for them. Compensation cost is recognized for other types of stock based compensation plans under Opinion No. 25, including plans with variable, usually performance-based features. This Statement requires that an employer's financial statements include certain disclosures about stock-based employee compensation arrangements regardless of the method used to account for them. This Statement is effective for transactions entered into in fiscal years that begin after December 15, 1995. The Association will adopt the Statement on the date the Association converts from a federal mutual to a federal stock savings and loan association. The Association has not determined which method it will use to account for the options at this time and has not estimated the effect of adoption on the Association's financial statements. Earnings Per Share. In March 1997, the Financial Accounting Standards Board ("FASB") issued Statement No. 128. The Statement establishes standards for computing and presenting earnings per share and applies to entities with publicly held common stock or potential common stock. This Statement simplifies the standards for computing earnings per share and makes them comparable to international EPS standards. It replaces the presentation of primary EPS with a presentation of basic EPS. It also requires dual presentations of basic and diluted EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Diluted EPS is computed similarly to fully diluted EPS pursuant to APB Opinion No. 15. This statement supersedes Opinion 15 and AICPA Accounting Interpretation 1- 102 of Opinion 15. This statement is effective for financial statements issued for periods ending after December 15, 1997. Management believes that the impact of adopting SFAS No. 128 will not be material to the financial statements. Disclosure of Information about Capital Structure. In February 1997, the Financial Accounting Standards Board issued Statement No. 129. F-23 SALIDA BUILDING AND LOAN ASSOCIATION NOTES TO FINANCIAL STATEMENTS NOTE -17 IMPACT OF NEW ACCOUNTING STANDARDS (Continued) The Statement incorporates the disclosure requirements of APB Opinion No. 15, Earnings Per Share and makes them applicable to all public and nonpublic entities that have issued securities addressed by the Statement. APB Opinion No. 15 requires disclosure of descriptive information about securities that is not necessarily related to the computation of earnings per share. This statement continues the previous requirements to disclose certain information about an entity's capital structure found in APB Opinions No. 10, Omnibus Opinion - 1966, and No. 15, Earnings Per Share, and FASB Statement No. 47, Disclosure of Long-Term Obligations, for entities that were subject to the requirements of those standards. This Statement eliminates the exemption of nonpublic entities from certain disclosure requirements of Opinion No. 15 as provided by FASB Statement No. 21, Suspension of the Reporting of Earnings per Share and Segment Information by Nonpublic Enterprises. It supersedes specific disclosure requirements of Opinions 10 and 15 and Statement 47 and consolidates them in this statement for ease of retrieval and for greater visibility to nonpublic entities. The Statement is effective for financial statements for periods ending after December 15, 1997. SFAS No. 129 will be adopted by the Association after December 15, 1997, the impact of adopting the Statement will not be material to the financial statements. Reporting Comprehensive Income. In June 1997, the Financial Accounting Standards board issued Statement No. 130. The Statement establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains, and losses) in a full set of general-purpose financial statements. This Statement requires that all items that are required to be recognized under accounting standards as components of comprehensive income to be reported in a financial statement that is displayed with the same prominence as other financial statements. This Statement does not require a specific format for that financial statement but requires that an enterprise display an amount representing total comprehensive income for the period in that financial statement. This Statement requires that an enterprise (a) classify items of other comprehensive income by their nature in a financial statement and (b) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. This Statement is effective for fiscal years beginning after December 15, 1997. FASB Statement No. 130 will be adopted by the Association after December 15, 1997, the impact of adopting the Statement will not be material to the financial statements. F-24 SALIDA BUILDING AND LOAN ASSOCIATION NOTES TO FINANCIAL STATEMENTS NOTE -17 IMPACT OF NEW ACCOUNTING STANDARDS (Continued) Disclosures about Segments of an Enterprise and Related Information. In June 1997 the Financial Accounting Standards board issued Statement No. 131. The Statement establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. This Statement supersedes FASB Statement No. 14, Financial reporting for segments of Business Enterprise, but retains the requirement to report information about major customers. It amends FASB Statement No. 94, Consolidation of all Majority-owned Subsidiaries, to remove the special disclosure requirements for previously unconsolidated subsidiaries. The Statement requires that a public business enterprise report financial and descriptive information about its reportable operating segments. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Generally, financial information is required to be reported on the basis that is used internally for evaluating segment performance and deciding how to allocate resources to segments. The Statement requires that a public business enterprise report a measure of segment profit or loss, certain specific revenue and expense items, and segment assets. It requires reconciliations of total segment revenues, total segment profit or loss, total segment assets and other amounts disclosed for segments to corresponding amounts in the enterprise's general-purpose financial statements. It requires that all public business enterprises report information about the revenues derived from the enterprise's products or services (or groups of similar products and services), about the countries in which the enterprise earns revenues and holds assets, and about major customers regardless of whether that information is used in making operating decisions. The Statement also requires that a public business enterprise report descriptive information about the way that the operating segments were determined, the products and services provided by the operating segments, differences between the measurements used in reporting segment information and those used in the enterprise's general-purpose financial statements, and changes in the measurement of segment amounts from period to period. F-25 SALIDA BUILDING AND LOAN ASSOCIATION NOTES TO FINANCIAL STATEMENTS NOTE -17 IMPACT OF NEW ACCOUNTING STANDARDS (Continued) This Statement is effective for fiscal years beginning after December 15, 1997. FASB Statement No. 131 will be adopted by the Association after December 15, 1997, the impact of adopting the Statement will not be material to the financial statements. F-26 No dealer, salesman or any other person has been authorized to give any information or to make any representation other than as contained in this Prospectus in connection with the offering made hereby, and, if given or made, such information shall not be relied upon as having been authorized by the Company, the Association or Trident Securities, Inc. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any of the securities offered hereby to any person in any jurisdiction in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so, or to any person to whom it is unlawful. Neither the delivery of this Prospectus nor any sale hereunder shall under any circumstances create any implication that there has been no change in the affairs of the Company or the Association since any of the dates as of which information is furnished herein or since the date hereof. TABLE OF CONTENTS Page ---- PROSPECTUS SUMMARY..................................................... (i) SELECTED CONSOLIDATED FINANCIAL INFORMATION AND OTHER DATA....................................................... (x) RISK FACTORS........................................................... 1 HIGH COUNTRY BANCORP, INC.............................................. 5 SALIDA BUILDING AND LOAN ASSOCIATION................................... 5 USE OF PROCEEDS........................................................ 6 DIVIDEND POLICY........................................................ 7 MARKET FOR THE COMMON STOCK............................................ 8 CAPITALIZATION......................................................... 9 HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE................................................... 11 PRO FORMA DATA......................................................... 12 PROPOSED MANAGEMENT PURCHASES.......................................... 15 STATEMENTS OF INCOME................................................... 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........................ 17 BUSINESS OF THE COMPANY................................................ 27 BUSINESS OF THE ASSOCIATION............................................ 27 REGULATION............................................................. 45 TAXATION............................................................... 54 MANAGEMENT OF THE COMPANY.............................................. 55 MANAGEMENT OF THE ASSOCIATION.......................................... 56 THE CONVERSION......................................................... 65 CERTAIN RESTRICTIONS ON ACQUISITION OF THE COMPANY AND THE ASSOCIATION.......................................... 81 CERTAIN ANTI-TAKEOVER PROVISIONS IN THE ARTICLES OF INCORPORATION AND BYLAWS.......................... 82 DESCRIPTION OF CAPITAL STOCK........................................... 86 REGISTRATION REQUIREMENTS.............................................. 87 LEGAL OPINIONS......................................................... 87 TAX OPINIONS........................................................... 87 EXPERTS................................................................ 87 ADDITIONAL INFORMATION................................................. 87 INDEX TO FINANCIAL STATEMENTS.......................................... 89 Until __________, 1997 (90 days after the date of this Prospectus), all dealers effecting transactions in the registered securities, whether or not participating in this distribution, may be required to deliver a prospectus. This is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. HIGH COUNTRY BANCORP, INC. (Holding Company for Salida Building & Loan Association) Up to 1,035,000 Shares COMMON STOCK ---------- PROSPECTUS ---------- TRIDENT SECURITIES, INC. __________, 1997 PART II: INFORMATION NOT REQUIRED IN PROSPECTUS Item 24. Indemnification of Directors and Officers Directors, officers and employees of the Company and/or the Association may be entitled to benefit from the indemnification provisions contained in the Colorado Business Corporation Act (the "CBCA"), the Company's Articles of Incorporation and federal regulations applicable to the Association. The general effect of these provisions is summarized below: Colorado Business Corporation Act Sections 7-109-102 and 7-109-107 of the CBCA permit a Colorado corporation to indemnify any person who was or is a party or is threatened to be made a party to any proceeding of any type, (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, may not, of itself, create a presumption that these standards have not been met. A Colorado corporation may also indemnify any person who was or is a party or is threatened to be made a party to any proceeding by or in the right of the corporation by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation. However, no indemnification may be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought determines upon application that such person is fairly and reasonably entitled to be indemnified. To the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any proceeding described above indemnification against expenses (including attorneys' fees) actually and reasonably incurred by him is mandatory. Any determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in subsections (a) and (b) must be made by a majority of the board of directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or by the stockholders. Expenses (including attorneys' fees) incurred by an officer or director in defending any civil, criminal, administrative or investigative action, suit or proceeding may be paid by the corporation in advance of the final disposition of or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation. The indemnification and advancement of expenses provided by, or granted pursuant to, the other subsections of this section is not exclusive. In addition, a corporation shall have power to purchase and maintain insurance against any liability of individuals whom the corporation is required to indemnify. II-1 Article XVII of the Articles of Incorporation A. Persons. The Corporation shall indemnify, to the extent provided in ------- paragraphs B, D or F: (1) any person who is or was a director, officer, employee, or agent of the Corporation; and (2) any person who served or served at the Corporation's request as a director, officer, employee, agent, partner or trustee of another corporation, partnership, joint venture, trust or other enterprise. B. Extent -- Derivative Suits. In case of a threatened, pending or -------------------------- completed action or suit by or in the right of the Corporation against a person named in paragraph A by reason of his holding a position named in paragraph A, the Corporation shall indemnify him if he satisfies the standard in paragraph C, for expenses (including attorneys' fees but excluding amounts paid in settlement) actually and reasonably incurred by him in connection with the defense or settlement of the action or suit. C. Standard -- Derivative Suits. In case of a threatened, pending or ---------------------------- completed action or suit by or in the right of the Corporation, a person named in paragraph A shall be indemnified only if: (1) he is successful on the merits or otherwise; or (2) he acted in good faith in the transaction which is the subject of the suit or action, and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Corporation, including, but not limited to, the taking of any and all actions in connection with the Corporation's response to any tender offer or any offer or proposal of another party to engage in a Business Combination (as defined in Article XV) not approved by the board of directors. However, he shall not be indemnified in respect of any claim, issue or matter as to which he has been adjudged liable to the Corporation unless (and only to the extent that) the court in which the suit was brought shall determine, upon application, that despite the adjudication but in view of all the circumstances, he is fairly and reasonably entitled to indemnity for such expenses as the court shall deem proper. D. Extent -- Nonderivative Suits. In case of a threatened, pending or ------------------------------ completed suit, action or proceeding (whether civil, criminal, administrative or investigative), other than a suit by or in the right of the Corporation, together hereafter referred to as a nonderivative suit, against a person named in paragraph A by reason of his holding a position named in paragraph A, the Corporation shall indemnify him if he satisfies the standard in paragraph E, for amounts actually and reasonably incurred by him in connection with the defense or settlement of the nonderivative suit, including, but not limited to (i) expenses (including attorneys' fees), (ii) amounts paid in settlement, (iii) judgments, and (iv) fines. E. Standard -- Nonderivative Suits. In case of a nonderivative suit, a ------------------------------- person named in paragraph A shall be indemnified only if: (1) he is successful on the merits or otherwise; or (2) he acted in good faith in the transaction which is the subject of the nonderivative suit and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Corporation, including, but not limited to, the taking of any and all actions in connection with the Corporation's response to any tender offer or any offer or proposal of another party to engage in a Business Combination (as defined in Article XV) not approved by the board of directors and, with respect to any criminal action or proceeding, he had no reasonable cause to believe his conduct was unlawful. The termination of a nonderivative suit by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent shall not, in itself, create a presumption - ---- ---------- that the person failed to satisfy the standard of this subparagraph E(2). II-2 F. Determination That Standard Has Been Met. A determination that the ---------------------------------------- standard of paragraph C or E has been satisfied may be made by a court, or, except as stated in subparagraph C(2) (second sentence), the determination may be made by: (1) the board of directors by a majority vote of a quorum consisting of directors of the Corporation who were not parties to the action, suit or proceeding; or (2) independent legal counsel (appointed by a majority of the disinterested directors of the Corporation, whether or not a quorum) in a written opinion; or (3) the stockholders of the Corporation. G. Proration. Anyone making a determination under paragraph F may --------- determine that a person has met the standard as to some matters but not as to others, and may reasonably prorate amounts to be indemnified. H. Advance Payment. The Corporation shall pay in advance any expenses --------------- (including attorneys' fees) which may become subject to indemnification under paragraphs A through G if: (1) the board of directors authorizes the specific payment; and (2) the person receiving the payment undertakes in writing to repay the same if it is ultimately determined that he is not entitled to indemnification by the Corporation under paragraphs A through G. I. Nonexclusive. The indemnification and advance payment of expenses ------------- provided by paragraphs A through H shall not be exclusive of any other rights to which a person may be entitled by law, bylaw, agreement, vote of stockholders or disinterested directors, or otherwise. J. Continuation. The indemnification provided by this Article XVII ------------ shall be deemed to be a contract between the Corporation and the persons entitled to indemnification thereunder, and any repeal or modification of this Article XVII shall not affect any rights or obligations then existing with respect to any state of facts then or theretofore existing or any action, suit or proceeding theretofore or thereafter brought based in whole or in part upon any such state of facts. The indemnification and advance payment provided by paragraphs A through H shall continue as to a person who has ceased to hold a position named in paragraph A and shall inure to his heirs, executors and administrators. K. Insurance. The Corporation may purchase and maintain insurance on --------- behalf of any person who holds or who has held any position named in paragraph A, against any liability incurred by him in any such position, or arising out of his status as such, whether or not the Corporation would have power to indemnify him against such liability under paragraphs A through H. L. Intention and Savings Clause. It is the intention of this Article ---------------------------- XVII to provide for indemnification to the fullest extent permitted by the Business Corporation Act of the State of Colorado, and this Article XVII shall be interpreted accordingly. If this Article XVII or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each director, officer, employee, and agent of the Corporation as to costs, charges, and expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement with respect to any action, suit, or proceeding, whether civil, criminal, administrative, or investigative, including an action by or in the right of the Corporation to the full extent permitted by any applicable portion of this Article XVII that shall not have been invalidated and to the full extent permitted by applicable law. If the Business Corporation Act of the State of Colorado is amended, or other Colorado law is enacted, to permit further or additional indemnification of the persons defined in this Article XVII A, then the indemnification of such persons shall be to the fullest extent permitted by the Business Corporation Act of the State of Colorado, as so amended, or such other Colorado law. II-3 Federal Regulations Providing for Indemnification of Directors and Officers of - ------------------------------------------------------------------------------ Salida Building & Loan Association - ---------------------------------- Federal regulations require that Salida Building & Loan Association (the "Association") indemnify any person against whom an action is brought by reason of that person's role as a director or officer of the Association for (i) any judgments resulting from the action; (ii) reasonable costs and expenses (including attorney's fees) incurred in connection with the defense or settlement of such action; and (iii) reasonable costs and expenses (including attorney's fees) incurred in connection with enforcing the individual's indemnification rights against the Association, assuming a final judgment is obtained in his favor. The mandatory indemnification provided for by federal regulations is limited to (i) actions where a final judgment on the merits is in favor of the officer or director and (ii) in the case of a settlement, final judgment against the director or officer or final judgment not on the merits, except as to where the director or officer is found negligent or to have committed misconduct in the performance of his or her duties, where a majority of the Board of Directors of the Association determines that the director or officer was acting in good faith within what he was reasonably entitled to believe was the scope of his or her employment or authority for a purpose that was in the best interests of the Association or its members or stockholders. In addition, the Association has a directors' and officers' liability policy providing for insurance against certain liabilities incurred by directors and officers of the Association while serving in their capacities as such. Item 25. Other Expenses of Issuance and Distribution * Underwriting Fees and Expenses................... $ 173,010 Legal Fees and Expenses.......................... 110,000 Printing, Postage and Mailing.................... 65,000 Accounting Fees and Expenses..................... 75,000 Appraisal and Business Plan Fees and Expenses.... 32,500 Blue Sky Filing Fees and Expenses (including legal counsel)...................... 25,000 Federal Filing Fees (OTS and SEC)................ 15,000 Conversion Agent Fees............................ 7,500 Stock Transfer Agent fees and certificates....... 7,500 Other Expenses................................... 9,490 --------- Total........................................ $ 520,000 =========
------------- * Estimated at the midpoint of the Estimated Valuation Range. Item 26. Recent Sales of Unregistered Securities. Not applicable. Item 27. Exhibits: The exhibits schedules filed as a part of this registration statement are as follows: 1.1 Engagement Letter with Trident Securities, Inc. 1.2 Form of Agency Agreement with Trident Securities, Inc. 2 Plan of Conversion (Exhibit A to Proxy Statement filed as Exhibit 99.1) 3.1 Articles of Incorporation of High Country Bancorp, Inc. 3.2 Bylaws of High Country Bancorp, Inc.
II-4 4 Form of Common Stock Certificate of High Country Bancorp, Inc. 5 Opinion of Housley Kantarian & Bronstein, P.C. regarding legality of securities being registered 8.1 Federal Tax Opinion of Housley Kantarian & Bronstein, P.C. 8.2 State Tax Opinion 8.3 Opinion of Ferguson & Co., LLP as to the value of subscription rights for tax purposes 10.1 Proposed Employment Agreement between Salida Building & Loan Association and Larry D. Smith 10.2 Proposed Guaranty Agreement between High Country Bancorp, Inc. and Larry D. Smith 10.3 Proposed High Country Bancorp, Inc. 1997 Stock Option and Incentive Plan 10.4 Proposed High Country Bancorp, Inc. Management Recognition Plan and Trust 10.5 Salida Building & Loan Association Long-Term Incentive Plan 10.6 Proposed Salida Building & Loan Association Incentive Compensation Plan 10.7 Proposed Employment Agreement between Salida Building & Loan Association and Scott G. Erchul 10.8 Proposed Guaranty Agreement between High Country Bancorp, Inc. and Scott G. Erchul 23.1 Consent of Grimsley, White & Company 23.2 Consent of Housley Kantarian & Bronstein, P.C. (in opinion filed as Exhibit 5) 23.3 Consent of Ferguson & Co., LLP 24 Power of Attorney (reference is made to the signature page) 27 Financial Data Schedule 99.1 Proxy Statement and Form of Proxy for Solicitation of Members of Salida Building & Loan Association * 99.2 Proposed Stock Order Form and Form of Certification 99.3 Miscellaneous Marketing Materials 99.4 Appraisal Report
- --------------- * To be filed by amendment. II-5 Item 28. Undertakings Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the small business issuer pursuant to the foregoing provisions, or otherwise, the small business issuer has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act, and is therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the small business issuer of expenses incurred or paid by a director, officer or controlling person of the small business issuer in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the small business issuer will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-6 SIGNATURES In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form SB-2 and authorized this registration statement to be signed on its behalf by the undersigned, in the Town of Salida, State of Colorado, on August 21, 1997. HIGH COUNTRY BANCORP, INC. By: /s/ Larry D. Smith ------------------------------- Larry D. Smith President (Duly Authorized Representative) We, the undersigned Directors of High Country Bancorp, Inc., hereby severally constitute and appoint Larry D. Smith, who may act, with full power of substitution, our true and lawful attorney and agent, to do any and all things in our names in the capacities indicated below which said Larry D. Smith, who may act, may deem necessary or advisable to enable High Country Bancorp, Inc. to comply with the Securities Act of 1933, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with the registration of High Country Bancorp, Inc. common stock, including specifically, but not limited to, power and authority to sign for us in our names in the capacities indicated below, the registration statement and any and all amendments (including post-effective amendments) thereto; and we hereby ratify and confirm all that said Larry D. Smith shall do or cause to be done by virtue thereof. In accordance with the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates stated.
Signatures Title Date ---------- ----- ---- /s/ Larry D. Smith President and Chief August 21, 1997 - ------------------------ Executive Officer and Director Larry D. Smith (Principal Executive Officer) /s/ Frank L. DeLay Chief Financial Officer August 21, 1997 - ------------------------ (Principal Financial and Frank L. DeLay Accounting Officer) /s/ Scott G. Erchul Vice President and Director August 21, 1997 - ------------------------ Scott G. Erchul /s/ Robert B. Mitchell Chairman of the Board August 21, 1997 - ------------------------ of Directors Robert B. Mitchell /s/ Timothy R. Glenn Director August 21, 1997 - ------------------------ Timothy R. Glenn /s/ Richard A. Young Director August 21, 1997 - ------------------------ Richard A. Young /s/ Philip W. Harsh Director August 21, 1997 - ------------------------ Philip W. Harsh
II-7 EX-1.1 2 EXHIBIT 1.1 EXHIBIT 1.1 [TRIDENT SECURITIES, INC. LETTERHEAD APPEARS HERE] May 13, 1997 Board of Directors Salida Building and Loan Association 130 West 2nd Street Salida, Colorado 81201 RE: Conversion Stock Marketing Services Gentlemen: This letter sets forth the terms of the proposed engagement between Trident Securities, Inc. ("Trident") and Salida Building and Loan Association (the "Association") concerning our investment banking services in connection with the conversion of the Association from a mutual to a capital stock form of organization. Trident is prepared to assist the Association in connection with the offering of its shares of common stock during the subscription offering and community offering as such terms are defined in the Association's Plan of Conversion (the "Plan"). The specific terms of the services contemplated hereunder shall be set forth in a definitive sales agency agreement (the "Agreement") between Trident and the Association to be executed on the date the prospectus is declared effective by the appropriate regulatory authorities. The price of the shares during the subscription offering and community offering will be the price established by the Association's Board of Directors, based upon an independent appraisal as approved by the appropriate regulatory authorities, provided such price is mutually acceptable to Trident and the Association. In connection with the subscription offering and community offering, Trident will act as financial advisor and exercise its best efforts to assist the Association in the sale of its common stock during the subscription offering and community offering. Additionally, Trident may enter into agreements with other National Association of Securities Dealers, Inc., ("NASD") member firms to act as selected dealers, assisting in the sale of the common stock. Trident and the Association will determine the selected dealers to assist the Association during the community offering. At the appropriate time, Trident in conjunction with its counsel, will conduct an examination of the relevant documents and records of the Association as Trident deems necessary and appropriate. The Association will make all documents, records and other information deemed necessary by Trident or its counsel available to them upon request. For its services hereunder, Trident will receive the following compensation and reimbursement from the Association: 1. A commission equal to 1.70% of the aggregate dollar amount of capital stock sold in the state of Colorado and 1.20% of the aggregate dollar amount of capital stock sold outside the state of Colorado in the subscription and community offerings, excluding any shares of conversion stock sold to the Association's directors, executive officers, employees and the benefit plans. Additionally, commissions will be excluded on those shares sold to "associates" of the Association's directors, employees and executive officers. The term "associates" as used herein shall have the same meaning as that found in the Association's Plan of Conversion. TRIDENT SECURITIES, INC. Board of Directors May 13, 1997 Page 2 2. For stock sold by other NASD member firms under selected dealer's agreements, the commission shall not exceed a fee to be set by the Association to reflect market requirements at the time of the stock allocation in a Syndicated Community Offering. 3. The foregoing fees and commissions are to be payable to Trident at closing as defined in the Agreement to be entered into between the Association and Trident. 4. Trident shall be reimbursed for allocable expenses incurred by them, including legal fees, whether or not the Agreement is consummated. Trident's out-of-pocket expenses will not exceed $10,000 and its legal fees will not exceed $25,000. Trident will use its best efforts to ensure that the expenses of its counsel are reasonable. The Association will forward to Trident a check in the amount of $10,000 as an advance payment to defray the allocable expenses of Trident. It further is understood that the Association will pay all other expenses of the conversion including but not limited to its attorneys' fees (including out-of- pocket expenses), NASD filing fees, and filing and registration fees and fees of either Trident's attorneys or the attorneys relating to any required state securities law filings, telephone charges, air freight, rental equipment, supplies, transfer agent charges, fees relating to auditing and accounting and costs of printing all documents necessary in connection with the foregoing. For purposes of Trident's obligation to file certain documents and to make certain representations to the NASD in connection with the conversion, the Association warrants that: (a) the Association has not privately placed any securities within the last 18 months; (b) there have been no material dealings within the last 12 months between the Association and any NASD member or any person related to or associated with any such member; (c) none of the officers or directors of the Association has any affiliation with the NASD; (d) except as contemplated by this engagement letter with Trident, the Association has no financial or management consulting contracts outstanding with any other person; (e) the Association has not granted Trident a right of first refusal with respect to the underwriting of any future offering of the Association stock; and (f) there has been no intermediary between Trident and the Association in connection with the public offering of the Association's shares, and no person is being compensated in any manner for providing such service. The Association agrees to indemnify and hold harmless Trident and each person, if any, who controls the firm against all losses, claims, damages or liabilities, joint or several and all legal or other expenses reasonably incurred by them in connection with the investigation or defense thereof (collectively, "Losses"), to which they may become subject under the securities laws or under the common law, that arise out of or are based upon the conversion or the engagement hereunder of Trident provided, however, that the Association will not be liable in any such case to the extent that any such loss, claim, damage, liability or expense (i) arises out of or is based upon any untrue statement of a material fact or the omission of a material fact required to be stated therein or necessary to make not misleading any statements contained in any prospectus, or any amendment or supplement thereto, made in reliance on and in conformity with information forwarded to the Association by Trident expressly for use therein, or (ii) is attributable to the gross negligence, willful misconduct or bad faith of Trident. If the foregoing indemnification is unavailable for any reason, the Association agrees to contribute to such Losses in the proportion that its financial interest in the conversion bears to that of the indemnified parties. If the Agreement is entered into TRIDENT SECURITIES, INC. Board of Directors May 13, 1997 Page 3 with respect to the common stock to be issued in the conversion, the Agreement will provide for indemnification, which will be in addition to any rights that Trident or any other indemnified party may have at common law or otherwise. The indemnification provision of this paragraph will be superseded by the indemnification provisions of the Agreement entered into by the Association and Trident. It is understood that if Trident's engagement hereunder is terminated prior to consummation of the subscription and community offering or the subject conversion is terminated for any reason, no fees shall be owed to Trident hereunder. This letter, therefore, is merely a statement of intent and is not a binding legal agreement except as to paragraph (4) above with regard to the obligation to reimburse Trident for allocable expenses to be incurred prior to the execution of the Agreement and the indemnity described in the preceding paragraph. While Trident and the Association agree in principle to the contents hereof and propose to proceed in good faith to work out the arrangements which respect to the proposed offering, any legal obligations between Trident and the Association shall be set forth in a duly executed Agreement. Such Agreement shall be in form and content, satisfactory to Trident and the Association, as well as their counsel, and Trident's obligations thereunder shall be subject to, among other things, there being in Trident's opinion no material adverse change in the condition or obligations of the Association or no market conditions which might render the sale of the shares by the Association hereby contemplated inadvisable. Please acknowledge your agreement to the foregoing by signing below and returning to Trident one copy of this letter. Trident acknowledges receipt of the advance payment of $10,000. Your very truly, TRIDENT SECURITIES, INC. By: /s/ Willis Smith, II -------------------------- Willis Smith, II Senior Vice President Agreed and accepted to this 15th day of May, 1997 SALIDA BUILDING AND LOAN ASSOCIATION By: /s/ Larry D. Smith ------------------------ Larry D. Smith President EX-1.2 3 EXHIBIT 1.2 Exhibit 1.2 HIGH COUNTRY BANCORP, INC. SALIDA BUILDING AND LOAN ASSOCIATION 765,000 to 1,035,000 Shares Common Stock (Par Value $0.01 Per Share) $10.00 Per Share SALES AGENCY AGREEMENT ---------------------- Trident Securities, Inc. 4601 Six Forks Road, Suite 400 Raleigh, North Carolina 27609 Dear Sirs: High Country Bancorp, Inc., a Colorado-chartered corporation (the "Company"), and Salida Building and Loan Association, a federally chartered and insured mutual savings association (the "Association"), hereby confirm, as of __________ _____, 1997, their respective agreements with Trident Securities, Inc. ("Trident"), a broker-dealer registered with the Securities and Exchange Commission ("Commission") and a member of the National Association of Securities Dealers, Inc. ("NASD"), as follows: 1. Introductory. The Association intends to convert from a federally ------------ chartered mutual savings association to a federally chartered stock savings association as a wholly owned subsidiary of the Company (together with the Offerings, as defined below, the issuance of shares of common stock of the Association to the Company and the incorporation of the Company, the "Conversion") pursuant to a plan of conversion adopted on May 15, 1997 (as amended, the "Plan"). In accordance with the Plan, the Company is offering shares of its common stock, par value $0.01 per share (the "Shares" and the "Common Stock"), pursuant to nontransferable subscription rights in a subscription offering (the "Subscription Offering") to certain depositors and borrowers of the Association and to the Association's tax-qualified employee benefit plans (i.e., the Association's Employee Stock Ownership Plan (the "ESOP")). Concurrently with the Subscription Offering, shares of the Common Stock not sold in the Subscription Offering are being offered to the general public in a community offering, with preference being given to natural persons and trusts of natural persons permanently residing in Chaffee, Lake, Fremont and Saguache Counties, Colorado (the "Community Offering") (the Subscription and Community Offerings are sometimes referred to collectively as the "Offerings"), subject to the right of the Company and the Association, in their absolute discretion, to reject orders in the Community Offering in whole or in part. In the Offerings, the Company is offering between 765,000 and 1,035,000 Shares, with the possibility of offering up to 1,190,250 Shares without a resolicitation of subscribers, as contemplated by Title 12 of the Code of Federal Regulations, Part 563b. With the exception of the ESOP, no person, individually or together with associates of and persons acting in concert with such person, may purchase in the aggregate more than $250,000 of the Shares issued in the Conversion. Trident Securities, Inc. Sales Agency Agreement Page 2 The Company and the Association have been advised by Trident that it will utilize its best efforts in assisting the Company and the Association with the sale of the Shares in the Offerings and, if deemed necessary by the Company in a syndicated community offering. Prior to the execution of this Agreement, the Company has delivered to Trident the Prospectus dated __________ ___, 1997 (as hereinafter defined) and all supplements thereto to be used in the Offerings. Such Prospectus contains information with respect to the Company, the Association and the Shares. 2. Representations and Warranties. ------------------------------ (a) The Company and the Association jointly and severally represent and warrant to Trident that: (i) The Company has filed with the Commission a registration statement, including exhibits and an amendment or amendments thereto, on Form SB-2 (No. 333-________), including a Prospectus relating to the Offerings, for the registration of the Shares under the Securities Act of 1933, as amended (the "Act"); and such registration statement has become effective under the Act and no stop order has been issued with respect thereto and no proceedings therefor have been initiated or, to the Company's best knowledge, threatened by the Commission. Except as the context may otherwise require, such registration statement, as amended or supplemented, on file with the Commission at the time the registration statement became effective, including the Prospectus, financial statements, schedules, exhibits and all other documents filed as part thereof, as amended and supplemented, is herein called the "Registration Statement," and the prospectus, as amended or supplemented, on file with the Commission at the time the Registration Statement became effective is herein called the "Prospectus," except that if the prospectus filed by the Company with the Commission pursuant to Rule 424(b) of the general rules and regulations of the Commission under the Act (together with the enforceable published policies and actions of the Commission thereunder, the "SEC Regulations") differs from the form of prospectus on file at the time the Registration Statement became effective, the term "Prospectus" shall refer to the Rule 424(b) prospectus from and after the time it is filed with or mailed for filing to the Commission and shall include any amendments or supplements thereto from and after their dates of effectiveness or use, respectively. If any Shares remain unsubscribed following completion of the Subscription Offering and, if any, the Community Offering, the Company (i) will promptly file with the Commission a post-effective amendment to such Registration Statement relating to the results of the Subscription Offering and, if any, the Community Offering, any additional information with respect to the proposed plan of distribution and any revised pricing information or (ii) if no such post-effective amendment is required, will file with, or mail for filing to, the Commission a prospectus or prospectus supplement containing information Trident Securities, Inc. Sales Agency Agreement Page 3 relating to the results of the Subscription and the Community Offerings and pricing information pursuant to Rule 424(c) of the Regulations, in either case in a form reasonably acceptable to the Company and Trident. (ii) The Association has filed an Application for Approval of Conversion on Form AC, including exhibits (as amended or supplemented, the "Form AC" and together with the Form H-(e)1-S referred to below, the "Conversion Application") with the Office of Thrift Supervision (the "Office") under the Home Owners' Loan Act, as amended (the "HOLA") and the enforceable rules and regulations, including published policies and actions, of the Office thereunder (the "OTS Regulations"), which has been approved by the Office; and the Prospectus and the proxy statement for the solicitation of proxies from members for the special meeting to approve the Plan (the "Proxy Statement") included as part of the Form AC have been approved for use by the Office. No order has been issued by the Office preventing or suspending the use of the Prospectus or the Proxy Statement; and no action by or before the Office revoking such approvals is pending or, to the Association's best knowledge, threatened. The Company has filed with the Office the Company's application on Form H-(e)1-S promulgated under the savings and loan holding company provisions of the Home Owners' Loan Act and the regulations promulgated thereunder ("HOLA") and has received approval of its acquisition of the Association from the Office. (iii) At the date of the Prospectus and at all times subsequent thereto through and including the Closing Date (i) the Registration Statement and the Prospectus (as amended or supplemented, if amended or supplemented) complied with the Act and the Regulations, (ii) the Registration Statement (as amended or supplemented, if amended or supplemented) did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and (iii) the Prospectus (as amended or supplemented, if amended or supplemented) did not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Representations or warranties in this subsection shall not apply to statements or omissions made in reliance upon and in conformity with written information furnished to the Company or the Association relating to Trident by or on behalf of Trident expressly for use in the Registration Statement or Prospectus. Trident Securities, Inc. Sales Agency Agreement Page 4 (iv) The Company has been duly incorporated as a Colorado corporation, and the Association has been duly organized as a mutual savings association under the laws of the United States, and each of them is validly existing and in good standing under the laws of the jurisdiction of its organization with full power and authority to own its property and conduct its business as described in the Registration Statement and Prospectus; the Association is a member in good standing of the Federal Home Loan Bank of Topeka; and the deposit accounts of the Association are insured by the Savings Association Insurance Fund ("SAIF") administered by the Federal Deposit Insurance Corporation ("FDIC") up to the applicable legal limits. Each of the Company and the Association is not required to be qualified to do business as a foreign corporation in any jurisdiction where non-qualification would have a material adverse effect on the Company and the Association, taken as a whole. The Association does not own equity securities of or an equity interest in any business enterprise except as described in the Prospectus. Upon amendment of the Association's charter and bylaws as provided in the rules and regulations of the Office and completion of the sale by the Company of the Shares as contemplated by the Prospectus, (i) the Association will be converted pursuant to the Plan to a federally chartered capital stock savings association with full power and authority to own its property and conduct its business as described in the Prospectus, (ii) all of the authorized and outstanding capital stock of the Association will be owned of record and beneficially by the Company, and (iii) the Company will have no direct subsidiaries other than the Association. (v) The Association has good, marketable and insurable title to all assets material to its business and to those assets described in the Prospectus as owned by it, free and clear of all material liens, charges, encumbrances or restrictions, except for liens for taxes not yet due, except as described in the Prospectus and except as could not in the aggregate have a material adverse effect upon the operations or financial condition of the Association; and all of the leases and subleases material to the operations or financial condition of the Association, under which it holds properties, including those described in the Prospectus, are in full force and effect as described therein. (vi) The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary actions on the part of each of the Company and the Association, and this Agreement is a valid and binding obligation with valid execution and delivery of each of the Company and the Association, enforceable in accordance with its terms (except as the enforceability thereof may be limited by bankruptcy, insolvency, moratorium, reorganization or similar laws relating to or affecting the enforcement of creditors' rights generally or the rights of Trident Securities, Inc. Sales Agency Agreement Page 5 creditors of savings and loan holding companies the accounts of whose subsidiaries are insured by the FDIC or by general equity principles, regardless of whether such enforceability is considered in a proceeding in equity or at law, and except to the extent that the provisions of Sections 8 and 9 hereof may be unenforceable as against public policy or pursuant to Section 23A of the Federal Reserve Act, 12 U.S.C. Section 371c ("Section 23A")). (vii) There is no litigation or governmental proceeding pending or, to the best knowledge of the Company or the Association, threatened against or involving the Company, the Association, or any of their respective assets which individually or in the aggregate would reasonably be expected to have a material adverse effect on the condition (financial or otherwise), results of operations and business, including the assets and properties, of the Company and the Association, taken as a whole. (viii) The Company and the Association have received the opinions of Housley Kantarian & Bronstein, P.C. with respect to federal tax consequences of the Conversion, and of Grimsley, White & Company with respect to the Colorado tax consequences of the Conversion, to the effect that the Conversion will constitute a tax-free reorganization under the Internal Revenue Code of 1986, as amended, and will not be a taxable transaction for the Association or the Company under the laws of Colorado, and the facts relied upon in such opinions are accurate and complete. (ix) Each of the Company and the Association has all such corporate power, authority, authorizations, approvals and orders as may be required to enter into this Agreement and to carry out the provisions and conditions hereof, subject to the limitations set forth herein and subject to the satisfaction of certain conditions imposed by the Office in connection with its approvals of the Form AC and the Application H-(e)1-S, and except as may be required under the securities, or "blue sky," laws of various jurisdictions, and in the case of the Company, as of the Closing Date, will have such approvals and orders to issue and sell the Shares to be sold by the Company as provided herein, and in the case of the Association, as of the Closing Date, will have such approvals and orders to issue and sell the Shares of its Common Stock to be sold to the Company as provided in the Plan, subject to the issuance of amended charter in the form required for federally chartered stock savings associations (the "Stock Charter"), the form of which Stock Charter has been approved by the Office. (x) Neither the Company nor the Association is in violation of any rule or regulation of the Office or the FDIC that could reasonably be expected to result in any enforcement action against the Company, the Association, or their Trident Securities, Inc. Sales Agency Agreement Page 6 officers or directors that might have a material adverse effect on the condition (financial or otherwise), operations, businesses, assets or properties of the Company and the Association, taken as a whole. (xi) The consolidated financial statements and any related notes or schedules which are included in the Registration Statement and the Prospectus fairly present the consolidated financial condition, income, retained earnings and cash flows of the Association at the respective dates thereof and for the respective periods covered thereby and comply as to form with the applicable accounting requirements of the Regulations and the applicable accounting regulations of the Office. Such financial statements have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods involved, except as set forth therein, and such financial statements are consistent with financial statements and other reports filed by the Association with supervisory and regulatory authorities except as such generally accepted accounting principles may otherwise require. The tables in the Prospectus accurately present the information purported to be shown thereby at the respective dates thereof and for the respective periods therein. (xii) There has been no material change in the condition (financial or otherwise), results of operations or business, including assets and properties, of the Company and the Association, taken as a whole, since the latest date as of which such condition is set forth in the Prospectus, except as set forth therein; and the capitalization, assets, properties and business of each of the Company and the Association conform to the descriptions thereof contained in the Prospectus. None of the Company nor the Association has any material liabilities of any kind, contingent or otherwise, except as set forth in the Prospectus. (xiii) There has been no breach or default (or the occurrence of any event which, with notice or lapse of time or both, would constitute a default) under, or creation or imposition of any lien, charge or other encumbrance upon any of the properties or assets of the Company and the Association pursuant to any of the terms, provisions or conditions of, any agreement, contract, indenture, bond, debenture, note, instrument or obligation to which the Company or the Association is a party or by which any of them or any of their respective assets or properties may be bound or is subject, or violation of any governmental license or permit or any enforceable published law, administrative regulation or order or court order, writ, injunction or decree, which breach, default, encumbrance or violation would have a material adverse effect on the condition (financial or otherwise), operations, business, assets or properties of the Company and the Association taken as a whole; all agreements which are material to the condition (financial or otherwise), results of operations or business of the Company and the Trident Securities, Inc. Sales Agency Agreement Page 7 Association taken as a whole are in full force and effect, and no party to any such agreement has instituted or, to the best knowledge of the Company and the Association, threatened any action or proceeding wherein the Company or the Association would be alleged to be in default thereunder. (xiv) None of the Company or the Association is in violation of its respective charter or bylaws. The execution and delivery hereof and the consummation of the transactions contemplated hereby by the Company and the Association do not conflict with or result in a breach of the charter or bylaws of the Company or the Association (in either mutual or stock form) or constitute a material breach of or default (or an event which, with notice or lapse of time or both, would constitute a default) under, give rise to any right of termination, cancellation or acceleration contained in, or result in the creation or imposition of any lien, charge or other encumbrance upon any of the properties or assets of the Company or the Association pursuant to any of the terms, provisions or conditions of, any material agreement, contract, indenture, bond, debenture, note, instrument or obligation to which the Company or the Association is a party or violate any governmental license or permit or any enforceable published law, administrative regulation or order or court order, writ, injunction or decree (subject to the satisfaction of certain conditions imposed by the Office in connection with its approval of the Conversion Application), which breach, default, encumbrance or violation would have a material adverse effect on the condition (financial or otherwise), operations or business of the Company and the Association taken as a whole. (xv) Subsequent to the respective dates as of which information is given in the Registration Statement and Prospectus and prior to the Closing Date (as hereinafter defined), except as otherwise may be indicated or contemplated therein, none of the Company or the Association has issued any securities which will remain issued at the Closing Date or incurred any liability or obligation, direct or contingent, or borrowed money, except borrowings in the ordinary course of business, or entered into any other transaction not in the ordinary course of business and consistent with prior practices, which is material in light of the business of the Company and the Association, taken as a whole. (xvi) Upon consummation of the Conversion, the authorized, issued and outstanding equity capital of the Company shall be within the range as set forth in the Prospectus under the caption "Capitalization," and no Common Stock of the Company shall be outstanding immediately prior to the Closing Date; the issuance and the sale of the Shares of the Company have been duly authorized by all necessary action of the Company and approved by the Office and, when issued in accordance with the terms of the Plan and paid for, shall be validly issued, Trident Securities, Inc. Sales Agency Agreement Page 8 fully paid and nonassessable and shall conform to the description thereof contained in the Prospectus; the issuance of the Shares is not subject to preemptive rights, except as set forth in the Prospectus; and good title to the Shares will be transferred by the Company upon issuance thereof against payment therefor, free and clear of all claims, encumbrances, security interests and liens against the Company whatsoever. The certificates representing the Shares will conform in all material respects with the requirements of applicable laws and regulations. The issuance and sale of the capital stock of the Association to the Company has been duly authorized by all necessary action of the Association and the Company and appropriate regulatory authorities (subject to the satisfaction of various conditions imposed by the Office in connection with its approval of the Conversion Application), and such capital stock, when issued in accordance with the terms of the Plan, will be fully paid and nonassessable and will conform in all material respects to the description thereof contained in the Prospectus. (xvii) No approval of any regulatory or supervisory or other public authority is required in connection with the execution and delivery of this Agreement or the issuance of the Shares, except for the declaration of effectiveness of any required post-effective amendment by the Commission and approval thereof by the Office and approval of the Company's application on Form H-(e)1-S by the Office, the issuance of the Stock Charter by the Office and as may be required under the securities laws of various jurisdictions. (xviii) All contracts and other documents required to be filed as exhibits to the Registration Statement or the Conversion Application have been filed with the Commission and/or the Office, as the case may be. (xix) Grimsley, White & Company, which has audited the financial statements of the Association at June 30, 1997 and 1996 and for the years ended June 30, 1997 and 1996 included in the Prospectus, is an independent public accountant within the meaning of the Code of Professional Ethics of the American Institute of Certified Public Accountants and Title 12 of the Code of Federal Regulations, Section 571.2(c)(3). (xx) For the past five years, the Company and the Association have timely filed all required federal, state and local franchise tax returns, and no material deficiency has been asserted with respect to such returns by any taxing authorities, and the Company and the Association have paid all taxes that have become due and, to the best of their knowledge, have made adequate reserves for similar future tax liabilities, except where any failure to make such filings, payments and reserves, or the assertion of such a deficiency, would not have a Trident Securities, Inc. Sales Agency Agreement Page 9 material adverse effect on the condition of the Company and the Association taken as a whole. (xxi) All of the loans represented as assets of the Association on the most recent financial statements of the Association included in the Prospectus meet or are exempt from all requirements of federal, state or local law pertaining to lending, including without limitation truth in lending (including the requirements of Regulation Z and 12 C.F.R. Part 226 and Section 563.99), real estate settlement procedures, consumer credit protection, equal credit opportunity and all disclosure laws applicable to such loans, except for violations which, if asserted, would not have a material adverse effect on the Company and the Association taken as a whole. (xxii) The records of account holders, depositors, borrowers and other members of the Association delivered to Trident by the Association or its agent for use during the Conversion have been prepared or reviewed by the Association and, to the best knowledge of the Company and the Association, are reliable and accurate. (xxiii) None of the Company, the Association, or the employees of the Company or the Association has made any payment of funds of the Company or the Association prohibited by law, and no funds of the Company or the Association have been set aside to be used for any payment prohibited by law. (xxiv) To the best knowledge of the Company and the Association, the Company and the Association are in compliance with all laws, rules and regulations relating to the discharge, storage, handling and disposal of hazardous or toxic substances, pollutants or contaminants and neither the Company nor the Association believes that the Company or the Association is subject to liability under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, or any similar law, except for violations which, if asserted, would not have a material adverse effect on the Company and the Association, taken as a whole. There are no actions, suits, regulatory investigations or other proceedings pending or, to the best knowledge of the Company or the Association, threatened against the Company or the Association relating to the discharge, storage, handling and disposal of hazardous or toxic substances, pollutants or contaminants. To the best knowledge of the Company and the Association, no disposal, release or discharge of hazardous or toxic substances, pollutants or contaminants, including petroleum and gas products, as any of such terms may be defined under federal, state or local law, has been caused by the Company or the Association or, to the best knowledge of the Company or the Association, has occurred on, in or at any of the facilities or Trident Securities, Inc. Sales Agency Agreement Page 10 properties of the Company or the Association, except such disposal, release or discharge which would not have a material adverse effect on the Company and the Association, taken as a whole. (xxv) At the Closing Date, the Company and the Association will have completed the conditions precedent to, and shall have conducted the Conversion in all material respects in accordance with, the Plan, the OTS Regulations and all other applicable laws, regulations, published decisions and orders, including all terms, conditions, requirements and provisions precedent to the Conversion imposed by the Office. (b) Trident represents and warrants to the Company and the Association that: (i) Trident is registered as a broker-dealer with the Commission, and is in good standing with the Commission and the NASD. (ii) Trident is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation, with full corporate power and authority to provide the services to be furnished to the Company and the Association hereunder. (iii) The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary action on the part of Trident, and this Agreement is a legal, valid and binding obligation of Trident, enforceable in accordance with its terms (except as the enforceability thereof may be limited by bankruptcy, insolvency, moratorium, reorganization or similar laws relating to or affecting the enforcement of creditors' rights generally or the rights of creditors of registered broker-dealers accounts of whose may be protected by the Securities Investor Protection Corporation or by general equity principles, regardless of whether such enforceability is considered in a proceeding in equity or at law, and except to the extent that the provisions of Sections 8 and 9 hereof may be unenforceable as against public policy or pursuant to Section 23A). (iv) Each of Trident and, to Trident's knowledge, its employees, agents and representatives who shall perform any of the services required hereunder to be performed by Trident shall be duly authorized and shall have all licenses, approvals and permits necessary to perform such services, and Trident is a registered selling agent in the jurisdictions listed in Exhibit A hereto and will remain registered in such jurisdictions in which the Company is relying on such registration for the sale of the Shares, until the Conversion is consummated or terminated. Trident Securities, Inc. Sales Agency Agreement Page 11 (v) The execution and delivery of this Agreement by Trident, the fulfillment of the terms set forth herein and the consummation of the transactions contemplated hereby shall not violate or conflict with the corporate charter or bylaws of Trident or violate, conflict with or constitute a breach of, or default (or an event which, with notice or lapse of time, or both, would constitute a default) under, any material agreement, indenture or other instrument by which Trident is bound or under any governmental license or permit or any law, administrative regulation, authorization, approval or order or court decree, injunction or order. (vi) Any funds received by Trident to purchase Common Stock will be handled in accordance with Rule 15c2-4 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). (vii) There is not now pending or, to Trident's knowledge, threatened against Trident any action or proceeding before the Commission, the NASD, any state securities commission or any state or federal court concerning Trident's activities as a broker- dealer. 3. Employment of Trident; Sale and Delivery of the Shares. On the ------------------------------------------------------ basis of the representations and warranties herein contained, but subject to the terms and conditions herein set forth, the Company and the Association hereby employ Trident as their agent to utilize its best efforts in assisting the Company with the Company's sale of the Shares in the Subscription Offering and Community Offering. The employment of Trident hereunder shall terminate (a) forty-five (45) days after the Subscription and Community Offering closes, unless the Company and the Association, with the approval of the Office, are permitted to extend such period of time, or (b) upon consummation of the Conversion, whichever date shall first occur. In the event the Company is unable to sell a minimum of 765,000 Shares (or such lesser amount as the Office may permit) within the period herein provided, this Agreement shall terminate, and the Company and the Association shall refund promptly to any persons who have subscribed for any of the Shares, the full amount which it may have received from them, together with interest as provided in the Prospectus, and no party to this Agreement shall have any obligation to the other party hereunder, except as set forth in Sections 6, 8(a) and 9 hereof. Appropriate arrangements for placing the funds received from subscriptions for Shares in special interest-bearing accounts with the Association until all Shares are sold and paid for were made prior to the commencement of the Subscription and Community Offering, with provision for prompt refund to the purchasers as set forth above, or for delivery to the Company if all Shares are sold. If all conditions precedent to the consummation of the Conversion are satisfied, including the sale of all Shares required by the Plan to be sold, the Company agrees to issue or have issued such Shares and to release for delivery certificates to subscribers thereof for such Shares Trident Securities, Inc. Sales Agency Agreement Page 12 on the Closing Date against payment to the Company by any means authorized pursuant to the Prospectus, at the principal office of the Company at 130 W. 2nd Street, Salida, Colorado or at such other place as shall be agreed upon between the parties hereto. The date upon which Trident is paid the compensation due hereunder is herein called the "Closing Date." Trident agrees either (a) upon receipt of an executed order form of a subscriber to forward the offering price of the Common Stock ordered on or before twelve noon on the next business day following receipt or execution of an order form by Trident to the Association for deposit in a segregated account or (b) to solicit indications of interest in which event (i) Trident will subsequently contact any potential subscriber indicating interest to confirm the interest and give instructions to execute and return an order form or to receive authorization to execute the order form on the subscriber's behalf, (ii) Trident will mail acknowledgements of receipt of orders to each subscriber confirming interest on the business day following such confirmation, (iii) Trident will debit accounts of such subscribers on the third business day ("debit date") following receipt of the confirmation referred to in (i), and (iv) Trident will forward completed order forms together with such funds to the Association on or before twelve noon on the next business day following the debit date for deposit in a segregated account. Trident acknowledges that if the procedure in (b) is adopted, subscribers' funds are not required to be in their accounts until the debit date. In addition to the expenses specified in Section 6 hereof, Trident shall receive the following compensation for its services hereunder: (a) A commission equal to 1.70% of the aggregate dollar amount of Common Stock sold to residents in the State of Colorado in the Subscription and Community Offerings, and a commission of 1.20% of the aggregate dollar amount of Common Stock sold to residents outside the State of Colorado in the Subscription and Community Offerings. All such fees are to be payable in next-day funds to Trident on the Closing Date. No commissions shall be payable on shares purchased by the Association's officers, directors, employees or their associates or employee plans. (b) For stock sold by other NASD member firms under selected dealer's agreements, the commission shall not exceed a fee to be agreed upon jointly by Trident and the Association to reflect market requirements at the time of the stock allocation in a Syndicated Community Offering. (c) Trident shall be reimbursed for allocable expenses, incurred by it whether or not the Offerings are successfully completed; provided, however, that reimbursable legal fees will not exceed $25,000 (excluding out of pocket expenses for which Trident will use its best efforts to ensure that such expenses are reasonable), that other reimbursable expenses will not exceed $10,000 and that neither the Company nor the Association shall pay or reimburse Trident for any of the foregoing expenses accrued Trident Securities, Inc. Sales Agency Agreement Page 13 after Trident shall have notified the Company or the Association of its election to terminate this Agreement pursuant to Section 11 hereof or after such time as the Company or the Association shall have given notice in accordance with Section 12 hereof that Trident is in breach of this Agreement. Full payment to defray Trident's reimbursable expenses shall be made in next-day funds on the Closing Date or, if the Conversion is not completed and is terminated for any reason, within ten (10) business days of receipt by the Company of a written request from Trident for reimbursement of its expenses. Trident acknowledges receipt of $10,000 advance payment from the Association which shall be credited against the total reimbursement due Trident hereunder. (d) Notwithstanding the limitations on reimbursement of Trident for allocable expenses provided in the immediately preceding paragraph (c), in the event that a resolicitation or other event causes the Offerings to be extended beyond their original expiration date, Trident shall be reimbursed for its allocable expenses incurred during such extended period, provided that the allowance for allocable expenses provided for in the immediately preceding paragraph (c) above have been exhausted and subject to the following. Such reimbursement shall be in amount equal to the product obtained by dividing $10,000 (original out-of-pocket expenses) by the total number of days of the unextended Subscription Offering (calculated from the date of the Prospectus to the intended close of the Subscription Offering as stated in the Prospectus) and multiplying such product by the number of days of the extension (that number of days from the date of the supplemental prospectus used in the extended Subscription Offering to the closing of the extension of the Subscription Offering described in such supplemental prospectus). The Company shall pay any stock issue and transfer taxes which may be payable with respect to the sale of the Shares. The Company and the Association shall also pay all expenses of the Conversion incurred by them or on their prior approval including but not limited to their attorneys' fees, NASD filing fees, and attorneys' fees relating to any required state securities laws research and filings, telephone charges, air freight, rental equipment, supplies, transfer agent charges, fees relating to auditing and accounting and costs of printing all documents necessary in connection with the Conversion. 4. Offering. Subject to the provisions of Section 7 hereof, Trident -------- is assisting the Company on a best efforts basis in offering a minimum of 765,000 and a maximum of 1,035,000 Shares, with the possibility of offering up to 1,190,250 Shares (except as the Office may permit to be decreased or increased) in the Subscription and Community Offerings. The Shares are to be offered to the public at the price set forth on the cover page of the Prospectus and the first page of this Agreement. 5. Further Agreements. The Company and the Association jointly and ------------------ severally covenant and agree that: Trident Securities, Inc. Sales Agency Agreement Page 14 (a) The Company shall deliver to Trident, from time to time, such number of copies of the Prospectus as Trident reasonably may request. The Company authorizes Trident to use the Prospectus in any lawful manner in connection with the offer and sale of the Shares. (b) The Company will notify Trident immediately upon discovery, and confirm the notice in writing, (i) when any post-effective amendment to the Registration Statement becomes effective or any supplement to the Prospectus has been filed, (ii) of the issuance by the Commission of any stop order relating to the Registration Statement or of the initiation or the threat of any proceedings for that purpose, (iii) of the receipt of any notice with respect to the suspension of the qualification of the Shares for offering or sale in any jurisdiction, and (iv) of the receipt of any comments from the staff of the Commission relating to the Registration Statement. If the Commission enters a stop order relating to the Registration Statement at any time, the Company will make every reasonable effort to obtain the lifting of such order at the earliest possible moment. (c) During the time when a prospectus is required to be delivered under the Act, the Company will comply so far as it is able with all requirements imposed upon it by the Act, as now in effect and hereafter amended, and by the Regulations, as from time to time in force, so far as necessary to permit the continuance of offers and sales of or dealings in the Shares in accordance with the provisions hereof and the Prospectus. If during the period when the Prospectus is required to be delivered in connection with the offer and sale of the Shares any event relating to or affecting the Company and the Association, taken as a whole, shall occur as a result of which it is necessary, in the opinion of counsel for Trident, with the concurrence of counsel to the Company, to amend or supplement the Prospectus in order to make the Prospectus not false or misleading in light of the circumstances existing at the time it is delivered to a purchaser of the Shares, the Company forthwith shall prepare and furnish to Trident a reasonable number of copies of an amendment or amendments or of a supplement or supplements to the Prospectus (in form and substance satisfactory to counsel for Trident) which shall amend or supplement the Prospectus so that, as amended or supplemented, the Prospectus shall not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances existing at the time the Prospectus is delivered to a purchaser of the Shares, not misleading. The Company will not file or use any amendment or supplement to the Registration Statement or the Prospectus of which Trident has not first been furnished a copy or to which Trident shall reasonably object after having been furnished such copy. For the purposes of this subsection the Company and the Association shall furnish such information with respect to themselves as Trident from time to time may reasonably request. (d) The Company and the Association have taken or will take all reasonably necessary action as may be required to qualify or register the Shares for offer and sale Trident Securities, Inc. Sales Agency Agreement Page 15 by the Company under the securities or blue sky laws of such jurisdictions as Trident and either the Company or its counsel may agree upon; provided, however, that the Company shall not be obligated to qualify as a foreign corporation to do business under the laws of any such jurisdiction. In each jurisdiction where such qualification or registration shall be effected, the Company, unless Trident agrees that such action is not necessary or advisable in connection with the distribution of the Shares, shall file and make such statements or reports as are, or reasonably may be, required by the laws of such jurisdiction. (e) Appropriate entries will be made in the financial records of the Association sufficient to establish a liquidation account for the benefit of eligible account holders as of December 31, 1995 and supplemental eligible account holders as of September 30, 1997 in accordance with the requirements of the Office. (f) The Company will file a registration statement for the Common Stock under Section 12(g) of the Exchange Act, prior to completion of the stock offering pursuant to the Plan. The Company shall maintain the effectiveness of such registration for a minimum period of three years or for such shorter period as may be required by applicable law. (g) The Company will make generally available to its security holders as soon as practicable, but not later than 45 days after the close of the period covered thereby, an earnings statement (in form complying with the provisions of Rule 158 of the regulations promulgated under the Act) covering a twelve-month period beginning not later than the first day of the Company's fiscal quarter next following the effective date (as defined in said Rule 158) of the Registration Statement. (h) For a period of three (3) years from the date of this Agreement (unless the Common Stock shall have been deregistered under the Exchange Act), the Company will furnish to Trident, as soon as publicly available after the end of each fiscal year, a copy of its annual report to shareholders for such year; and the Company will furnish to Trident (i) as soon as publicly available, a copy of each report or definitive proxy statement of the Company filed with the Commission under the Exchange Act or mailed to shareholders, and (ii) from time to time, such other public information concerning the Company as Trident may reasonably request. (i) The Company shall use the net proceeds from the sale of the Shares consistently with the manner set forth in the Prospectus. (j) The Company shall not deliver the Shares until each and every condition set forth in Section 7 hereof has been satisfied, unless such condition is waived by Trident. Trident Securities, Inc. Sales Agency Agreement Page 16 (k) The Company shall advise Trident, if necessary, as to the allocation of deposits, in the case of eligible account holders and supplemental eligible account holders and votes, in the case of other members, and of the Shares in the event of an oversubscription and shall provide Trident final instructions as to the allocation of the Shares ("Allocation Instructions") in such event and such information shall be accurate and reliable. Trident shall be entitled to rely on such instructions and shall have no liability in respect of its reliance thereon, including without limitation, no liability for or related to any denial or grant of a subscription in whole or in part. (l) The Company and the Association will take such actions and furnish such information as are reasonably requested by Trident in order for Trident to ensure compliance with the NASD's "Interpretation Relating to Free-Riding and Withholding." 6. Payment of Expenses. Whether or not the Conversion is consummated, ------------------- the Company and the Association shall pay or reimburse Trident for (a) all filing fees paid or incurred by Trident in connection with all filings with the NASD with respect to the Subscription and Community Offerings and, (b) in addition, if the Company is unable to sell a minimum of 765,000 Shares or such lesser amount as the Office may permit or the Conversion is otherwise terminated, the Company and the Association shall reimburse Trident for allocable expenses incurred by Trident relating to the offering of the Shares as provided in Section 3 hereof; provided, however, that neither the Company nor the Association shall pay or reimburse Trident for any of the foregoing expenses accrued after Trident shall have notified the Company or the Association of its election to terminate this Agreement pursuant to Section 11 hereof or after such time as the Company or the Association shall have given notice in accordance with Section 12 hereof that Trident is in breach of this Agreement. 7. Conditions of Trident's Obligations. Except as may be waived by ----------------------------------- Trident, the obligations of Trident as provided herein shall be subject to the accuracy of the representations and warranties contained in Section 2 hereof as of the date hereof and as of the Closing Date, to the performance by the Company and the Association of their obligations hereunder and to the following conditions: (a) At the Closing Date, Trident shall receive the favorable opinions of Housley Kantarian & Bronstein, P.C., special counsel for the Company and the Association, and _____________________, counsel to the Association, dated the Closing Date, addressed to Trident, substantially as set forth in Exhibits B and C, respectively, hereto. In rendering such opinions, such counsel may rely as to matters of fact on certificates of officers and directors of the Company and the Association and certificates of public officials delivered pursuant hereto. Such counsel may assume that any agreement is the valid and binding obligation of any parties to such agreement other than Trident Securities, Inc. Sales Agency Agreement Page 17 the Company and the Association. Such opinions may be governed by, and interpreted in accordance with, the Legal Opinion Accord (the "Accord") of the ABA Section of Business Law (1991), and, as a consequence, references in such opinions to such counsel's "knowledge" may be limited to "actual knowledge" as defined in the Accord (or knowledge based on certificates). Such opinions may be limited to present statutes, regulations and judicial interpretations and to facts as they presently exist; in rendering such opinions, such counsel need assume no obligation to revise or supplement them should the present laws be changed by legislative or regulatory action, judicial decision or otherwise; and such counsel need express no view, opinion or belief with respect to whether any proposed or pending legislation, if enacted, or any regulations or any policy statements issued by any regulatory agency, whether or not promulgated pursuant to any such legislation, would affect the validity of the execution and delivery by the Company and the Association of this Agreement or the issuance of the Shares. (b) At the Closing Date, Trident shall receive the letter of Housley Kantarian & Bronstein, P.C., special counsel for the Company and the Association, dated the Closing Date, addressed to Trident, substantially as set forth in Exhibit D, hereto. (c) Counsel for Trident shall have been furnished such documents as they reasonably may require for the purpose of enabling them to review or pass upon the matters required by Trident, and for the purpose of evidencing the accuracy, completeness or satisfaction of any of the representations, warranties or conditions herein contained, including but not limited to, resolutions of the Board of Directors of the Company and the Association regarding the authorization of this Agreement and the transactions contemplated hereby. (d) Prior to and at the Closing Date, in the reasonable opinion of Trident, (i) there shall have been no material change in the condition, financial or otherwise, business or results of operations of the Company and the Association, taken as a whole, since the latest date as of which such condition is set forth in the Prospectus, except as referred to therein; (ii) there shall have been no transaction entered into by the Company and the Association after the latest date as of which the financial condition of the Company or the Association is set forth in the Prospectus other than transactions referred to or contemplated therein, transactions in the ordinary course of business, and transactions which are not material to the Company and the Association, taken as a whole; (iii) none of the Company or the Association shall have received from the Office or Commission any direction (oral or written) to make any change in the method of conducting their respective businesses which is material to the business of the Company and the Association, taken as a whole, with which they have not complied; (iv) no action, suit or proceeding, at law or in equity or before or by any federal or state commission, board or other administrative agency, shall be pending or threatened against the Company or the Association or affecting any of their respective assets, wherein an unfavorable Trident Securities, Inc. Sales Agency Agreement Page 18 decision, ruling or finding would have a material adverse effect on the business, operations, financial condition or income of the Company and the Association, taken as a whole; and (v) the Shares shall have been qualified or registered for offering and sale by the Company under the securities or blue sky laws of such jurisdictions as Trident and the Company shall have agreed upon. (e) At the Closing Date, Trident shall receive a certificate of the principal executive officer and the principal financial officer of each of the Company and the Association, dated the Closing Date, to the effect that: (i) they have examined the Prospectus and, at the time the Prospectus became authorized by the Company for use, the Prospectus did not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading with respect to the Company or the Association; (ii) since the date the Prospectus became authorized by the Company for use, no event has occurred which should have been set forth in an amendment or supplement to the Prospectus which has not been so set forth, including specifically, but without limitation, any material change in the business, condition (financial or otherwise) or results of operations of the Company or the Association and, the conditions set forth in clauses (ii) through (iv) inclusive of subsection (d) of this Section 7 have been satisfied; (iii) to the best knowledge of such officers, no order has been issued by the Commission or the Office to suspend the Subscription Offering or the Community Offering or the effectiveness of the Prospectus, and no action for such purposes has been instituted or threatened by the Commission or the Office; (iv) to the best knowledge of such officers, no person has sought to obtain review of the final actions of the Office and division approving the Plan; and (v) all of the representations and warranties contained in Section 2 of this Agreement are true and correct, with the same force and effect as though expressly made on the Closing Date. (f) At the Closing Date, Trident shall receive, among other documents, (i) copies of the letters from the Office authorizing the use of the Prospectus and the Proxy Statement, (ii) a copy of the order of the Commission declaring the Registration Statement effective; (iii) copies of the letters from the Office evidencing the corporate existence of the Association; (iv) a copy of the letter from the appropriate Colorado authority evidencing the incorporation (and, if generally available from such authority, good standing) of the Company; (v) a copy of the Company's corporate charter certified by the appropriate Colorado governmental authority; and, (vi) if available, a copy of the letter from the Office approving the Association's Stock Charter. (g) As soon as available after the Closing Date, Trident shall receive a copy of the Association's certified Federal Stock Charter executed by the appropriate federal governmental authority. Trident Securities, Inc. Sales Agency Agreement Page 19 (h) Concurrently with the execution of this Agreement, Trident acknowledges receipt of a letter from Grimsley, White & Company, independent certified public accountants, addressed to Trident and the Company, in substance and form satisfactory to counsel for Trident, with respect to the financial statements and certain financial information contained in the Prospectus. (i) At the Closing Date, Trident shall receive a letter in form and substance satisfactory to counsel for Trident from Grimsley, White & Company, independent certified public accountants, dated the Closing Date and addressed to Trident and the Company, confirming the statements made by them in the letter delivered by them pursuant to the preceding subsection as of a specified date not more than five (5) days prior to the Closing Date. All such opinions, certificates, letters and documents shall be in compliance with the provisions hereof only if they are, in the reasonable opinion of Trident and its counsel, satisfactory to Trident and its counsel. Any certificates signed by an officer or director of the Company or the Association prepared for Trident's reliance and delivered to Trident or to counsel for Trident shall be deemed a representation and warranty by the Company and the Association to Trident as to the statements made therein. If any condition to Trident's obligations hereunder to be fulfilled prior to or at the Closing Date is not so fulfilled, Trident may terminate this Agreement or, if Trident so elects, may waive any such conditions which have not been fulfilled, or may extend the time of their fulfillment. If Trident terminates this Agreement as aforesaid, the Company and the Association shall reimburse Trident for its expenses as provided in Section 3(b) hereof. 8. Indemnification. --------------- (a) The Company and the Association jointly and severally agree to indemnify and hold harmless Trident, its officers, directors and employees and each person, if any, who controls Trident within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, against any and all loss, liability, claim, damage and expense whatsoever and shall further promptly reimburse such persons for any legal or other expenses reasonably incurred by each or any of them in investigating, preparing to defend or defending against any such action, proceeding or claim (whether commenced or threatened) arising out of or based upon (A) any misrepresentation by the Company or the Association in this Agreement or any breach of warranty by the Company or the Association with respect to this Agreement or arising out of or based upon any untrue or alleged untrue statement of a material fact or the omission or alleged omission of a material fact required to be stated or necessary to make not misleading any statements contained in (i) the Registration Statement or the Prospectus or (ii) any application (including the Form AC and the Form H-(e)1-S) or other document or communication (in this Section 8 collectively called "Application") prepared or executed by or on behalf Trident Securities, Inc. Sales Agency Agreement Page 20 of the Company or the Association or based upon written information furnished by or on behalf of the Company or the Association, whether or not filed in any jurisdiction, to effect the Conversion or qualify the Shares under the securities laws thereof or filed with the Office or Commission, unless such statement or omission was made in reliance upon and in conformity with written information furnished to the Company or the Association with respect to Trident by or on behalf of Trident expressly for use in the Prospectus or any amendment or supplement thereof or in any Application, as the case may be, or (B) the participation by Trident in the Conversion. This indemnity shall be in addition to any liability the Company and the Association may have to Trident otherwise. (b) The Company shall indemnify and hold Trident harmless for any liability whatsoever arising out of (i) the Allocation Instructions or (ii) any records of account holders, depositors, borrowers and other members of the Association delivered to Trident by the Association or its agents for use during the Conversion. (c) Trident agrees to indemnify and hold harmless the Company and the Association, their officers, directors and employees and each person, if any, who controls the Company and the Association within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, to the same extent as the foregoing indemnity from the Company and the Association to Trident, but only with respect to (A) statements or omissions, if any, made in the Prospectus or any amendment or supplement thereof, in any Application or to a purchaser of the Shares in reliance upon, and in conformity with, written information furnished to the Company or the Association with respect to Trident by or on behalf of Trident expressly for use in the Prospectus or in any Application; (B) any misrepresentation by Trident in Section 2(b) of this Agreement; or (C) any liability of the Company or the Association which is found in a final judgment by a court of competent jurisdiction (not subject to further appeal) to have principally and directly resulted from gross negligence or willful misconduct of Trident. (d) Promptly after receipt by an indemnified party under this Section 8 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 8, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise than under this Section 8. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with the other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section 8 for any legal or other expenses subsequently Trident Securities, Inc. Sales Agency Agreement Page 21 incurred by such indemnified party in connection with the defense thereof other than the reasonable cost of investigation except as otherwise provided herein. In the event the indemnifying party elects to assume the defense of any such action and retain counsel acceptable to the indemnified party, the indemnified party may retain additional counsel, but shall bear the fees and expenses of such counsel unless (i) the indemnifying party shall have specifically authorized the indemnified party to retain such counsel or (ii) the parties to such suit include such indemnifying party and the indemnified party, and such indemnified party shall have been advised by counsel that one or more material legal defenses may be available to the indemnified party which may not be available to the indemnifying party, in which case the indemnifying party shall not be entitled to assume the defense of such suit notwithstanding the indemnifying party's obligation to bear the fees and expenses of such counsel. An indemnifying party against whom indemnity may be sought shall not be liable to indemnify an indemnified party under this Section 8 if any settlement of any such action is effected without such indemnifying party's consent. To the extent required by law, this Section 9 is subject to and limited by the provisions of Section 23A. 9. Contribution. In order to provide for just and equitable ------------ contribution in circumstances in which the indemnity agreement provided for in Section 8 above is for any reason held to be unavailable to Trident, the Company and/or the Association other than in accordance with its terms, the Company or the Association and Trident shall contribute to the aggregate losses, liabilities, claims, damages, and expenses of the nature contemplated by said indemnity agreement incurred by the Company or the Association and Trident (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Association on the one hand and Trident on the other from the offering of the Shares or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above, but also the relative fault of the Company or the Association on the one hand and Trident on the other hand in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or judgments, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Association on the one hand and Trident on the other shall be deemed to be in the same proportions as the total net proceeds from the Conversion received by the Company and the Association bear to the total fees received by Trident under this Agreement. The relative fault of the Company or the Association on the one hand and Trident on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Association or by Trident and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. Trident Securities, Inc. Sales Agency Agreement Page 22 The Company and the Association and Trident agree that it would not be just and equitable if contribution pursuant to this Section 9 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities or judgments referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by the indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 9, Trident shall not be required to contribute any amount in excess of the amount by which fees owed Trident pursuant to this Agreement exceeds the amount of any damages which Trident has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who is not guilty of such fraudulent misrepresentation. To the extent required by law, this Section 9 is subject to and limited by the provisions of Section 23A. 10. Survival of Agreements, Representations and Indemnities. The ------------------------------------------------------- respective indemnities of the Company and the Association and Trident and the representation and warranties of the Company and the Association and of Trident set forth in or made pursuant to this Agreement shall remain in full force and effect, regardless of any termination or cancellation of this Agreement or any investigation made by or on behalf of Trident or the Company or the Association or any controlling person or indemnified party referred to in Section 8 hereof, and shall survive any termination or consummation of this Agreement and/or the issuance of the Shares, and any legal representative of Trident, the Company, the Association and any such controlling persons shall be entitled to the benefit of the respective agreements, indemnities, warranties and representations. 11. Termination. Trident may terminate this Agreement by giving the ----------- notice indicated below in this Section at any time after this Agreement becomes effective as follows: (a) If any domestic or international event or act or occurrence has materially disrupted the United States securities markets such as to make it, in Trident's reasonable opinion, impracticable to proceed with the offering of the Shares; or if trading on the New York Stock Exchange shall have suspended; or if the United States shall have become involved in a war or major hostilities; or if a general banking moratorium has been declared by a state or federal authority which has material effect on the Association or the Conversion; or if a moratorium in foreign exchange trading by major international associations or persons has been declared; or if there shall have been a material change in the capitalization, condition or business of the Company, or if the Association shall have sustained a material or substantial loss by fire, flood, accident, hurricane, earthquake, theft, sabotage or other calamity or malicious act, whether or not said loss Trident Securities, Inc. Sales Agency Agreement Page 23 shall have been insured; or if there shall have been a material change in the condition or prospects of the Company or the Association. (b) If Trident elects to terminate this Agreement as provided in this Section, the Company and the Association shall be notified promptly by Trident by telephone or telegram, confirmed by letter. (c) If this Agreement is terminated by Trident for any of the reasons set forth in subsection (a) above, and to fulfill its obligations, if any, pursuant to Sections 3, 6, 8(a) and 9 of this Agreement and upon demand, the Company and the Association shall pay Trident the full amount so owing thereunder. (d) The Association may terminate the Conversion in accordance with the terms of the Plan. Such termination shall be without liability to any party, except that the Company and the Association shall be required to fulfill their obligations pursuant to Sections 3(b), 3(c), 6, 8(a) and 9 of this Agreement. 12. Notices. All communications hereunder, except as herein otherwise ------- specifically provided, shall be in writing and if sent to Trident shall be mailed, delivered or telegraphed and confirmed to Trident Securities, Inc., 4601 Six Forks Road, Suite 400, Raleigh, North Carolina 27609, Attention: Mr. Willis Smith, II (with a copy to Malizia, Spidi, Sloane & Fisch, P.C., 1301 K Street, N.W., Suite 700 East, Washington, D.C. 20005, Attention: Charles E. Sloane, Esquire) and if sent to the Company or the Association shall be mailed, delivered or telegraphed and confirmed to Salida Building and Loan Association, 130 W. 2nd Street, Salida, Colorado 81201-0309, Attention: Larry D. Smith, President (with a copy to Housley Kantarian & Bronstein, P.C., Suite 700, 1220 - 19th Street, N.W., Washington, D.C. 20036, Attention: Howard S. Parris, Esquire). 13. Parties. This Agreement shall inure solely to the benefit of, and ------- shall be binding upon, Trident, the Company, the Association and the controlling and other persons referred to in Section 8 hereof, and their respective successors, legal representatives and assigns, and no other person shall have or be construed to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Agreement or any provision herein contained. 14. Construction. Unless governed by preemptive federal law, this ------------ Agreement shall be governed by and construed in accordance with the substantive laws of North Carolina. 15. Counterparts. This Agreement may be executed in separate ------------ counterparts, each of which when so executed and delivered shall be an original, but all of which together shall constitute but one and the same instrument. Trident Securities, Inc. Sales Agency Agreement Page 24 Please acknowledge your agreement to the foregoing by signing below and returning to the Company one copy of this letter. HIGH COUNTRY BANCORP, INC. SALIDA BUILDING AND LOAN ASSOCIATION By: By: ------------------------------- ------------------------------ Larry D. Smith Larry D. Smith President President Date: Date: ------------------------------- ------------------------------- Agreed to and accepted: TRIDENT SECURITIES, INC. By: ------------------------------- Date: Exhibit A Jurisdictions where Trident is a Registered Selling Agent Trident Securities, Inc. is a registered selling agent in the jurisdictions -- listed below: Alabama Missouri Arizona Nebraska Arkansas Nevada California New Hampshire Colorado New Jersey Connecticut New Mexico Delaware New York District of Columbia North Carolina Florida North Dakota (Trident Securities, Inc. only, no agents) Georgia Ohio Idaho Oklahoma Illinois Oregon Indiana Pennsylvania Iowa Rhode Island Kansas South Carolina Kentucky Tennessee Louisiana Texas Maine Vermont Maryland Virginia Massachusetts Washington Michigan West Virginia Minnesota Wisconsin Mississippi Wyoming Trident Securities, Inc. is not a registered selling agent in the jurisdictions --- listed below: Alaska Hawaii Montana South Dakota Utah Exhibit B __________ ____, 1997 Trident Securities, Inc. 4601 Six Forks Road Suite 400 Raleigh, North Carolina 27609 Re: Salida Building and Loan Association High Country Bancorp, Inc. ---------------------------------------- Ladies and Gentlemen: We are rendering this opinion to Trident Securities, Inc. ("Trident" or "you") as special counsel for Salida Building and Loan Association (the "Association") and High Country Bancorp, Inc. (the "Company"), pursuant to Section 7(a) of the Agency Agreement dated ____________ ____, 1997 (the "Agency Agreement") by and among the Association, the Company and you, as agent for the sale of up to 1,190,250 shares of common stock, par value $0.01 per share, of the Company (the "Common Stock") issued in connection with the conversion of the Association from a federally chartered mutual savings association to a federally chartered capital stock savings association and the simultaneous issuance of all of the issued and outstanding stock of the converted Association to the Company (collectively, the "Conversion") in accordance with the Association's Plan of Conversion (the "Plan"). All references in this opinion to instruments and other defined terms shall mean the instruments and other terms as defined in the Agency Agreement, except to the extent they are otherwise defined herein or the context otherwise requires. As special counsel for the Association and the Company, we have reviewed such corporate records, certificates, and other documents, and such questions of law, as we have considered necessary or appropriate for the purpose of rendering this opinion. In the course of our review, we have assumed the genuineness of all signatures on original documents, and the due execution and delivery of all documents requiring due execution and delivery for the effectiveness thereof, except with respect to execution and delivery of the Agency Agreement by the Company and the Association as to which we have relied upon representations of officers of the Association and the Company. With respect to questions of good standing of the Association and the Company, we have relied solely upon the official letters of appropriate governmental authorities and representations of officers of the Association and the Company. As to questions of fact material to the opinions hereinafter expressed, we have relied upon the representations and warranties of the Company and the Association made in the Agency B-2 Agreement and the certificates of officers delivered at the closing. We have made no examination or investigation for purposes of these opinions to verify the accuracy or completeness of any financial, accounting, pro forma, valuation, or statistical information or information with respect to Trident set forth in the Registration Statement, the Prospectus, the Agency Agreement, or any of the documents referred to herein or otherwise furnished to Trident or with respect to any other accounting or financial matters and express no opinion with respect thereto. We have also assumed for the purposes of the opinions expressed herein that the Agency Agreement is a valid and binding obligation of Trident. Anything to the contrary, expressly stated or implied, notwithstanding, each of the opinions hereinafter expressed is subject to the following further qualifications whether or not such opinions refer to such qualifications: (1) We offer no opinion and do not purport to opine as to the enforceability of provisions contained in any documents relating to the Conversion or contemplated by the Agency Agreement or documents as to which the Association or the Company is a party (a) relating to disclaimers, liability limitations with respect to third parties, releases, or legal or equitable rights, or discharges of defenses and remedies, (b) fixing the amount of liquidated damages, (c) requiring the payment of interest on interest, (d) providing for indemnification or contribution, and (e) relating to the payment of attorney's fees. (2) Our opinions below are limited to the matters expressly set forth in this opinion letter, and no opinion is to be implied or inferred beyond the matters stated. Without limiting the foregoing, we express no opinion as to the anti-fraud provisions of federal and state securities laws. (3) We have made no independent investigation for purposes of these opinions as to the accuracy or completeness of any representation, warranty, date, or other information, written or oral, made or furnished in connection with the Agency Agreement, and we have relied on the certificates of officers of the Company and the Association that none of such information contains any untrue statement of a material fact or omits a material fact necessary to make the statements made not misleading. (4) We are not required to be licensed to practice law in any jurisdiction other than the District of Columbia. The opinions expressed herein are limited solely to the federal banking and securities laws and regulations and Colorado corporate law applicable to the Agency Agreement and the transactions contemplated thereby, and we do not opine on any other federal law or the laws of any other applicable jurisdiction. (5) We have acted as special counsel in connection with the application of federal securities and banking law and regulations and Colorado corporate law applicable to the Agency Agreement and the Conversion and, consequently, there may exist matters of a legal nature concerning the Company, the Association, their subsidiary, or affiliated parties in connection with which we have not been consulted and have not represented the Company, the Association, or their subsidiary. B-3 (6) This opinion should in no way be construed as an opinion as to the materiality of the contents of the Registration Statement, the Prospectus, or the Conversion Application. (7) Except as otherwise expressly stated, this opinion shall be governed and interpreted in accordance with the Legal Opinion Accord of the American Bar Association Section of Business Law (1991). Based upon and subject to the foregoing and in reliance thereon, and subject to the assumptions, exceptions and qualifications set forth herein, it is our opinion that: (i) the Company has been duly incorporated, and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation, and the Association is validly existing as a mutual savings association in good standing under the laws of the United States, each with full power and authority to own its properties and conduct its business as described in the Prospectus; (ii) the Association is a member of the Federal Home Loan Bank of Topeka, and the deposit accounts of the Association are insured by the SAIF up to the applicable legal limits; (iii) to our actual knowledge, the activities of the Association as such activities are described in the Prospectus are permitted under federal and Colorado law to subsidiaries of a Colorado business corporation and the Association does not have any subsidiaries; (iv) the Plan complies with, and, to our actual knowledge, the Conversion of the Association from a federally chartered mutual savings association to a federally chartered stock savings association and the creation of the Company as a holding company for the Association have been effected in all material respects in accordance with, the HOLA and the OTS Regulations; to our actual knowledge, all of the terms, conditions, requirements and provisions with respect to the Plan and the Conversion imposed by the Office in its letters approving the Plan and the Conversion, except with respect to the filing or submission of certain required post-Conversion reports or other materials by the Company or the Association, have been complied with by the Company and the Association; and, to our actual knowledge, no person has sought to obtain regulatory or judicial review of the final action of the Office in approving the Plan; (v) the Company has authorized Common Stock as set forth in the Registration Statement and the Prospectus, and the description of such Common Stock in the Registration Statement and the Prospectus is accurate in all material respects; B-4 (vi) the issuance and sale of the Shares have been duly and validly authorized by all necessary corporate action on the part of the Company; the Shares, upon receipt of payment and issuance in accordance with the terms of the Plan and this Agreement, will be validly issued, fully paid, nonassessable and, except as disclosed in the Prospectus, free of preemptive rights, and purchasers of the Shares from the Company upon issuance thereof against payment therefore will acquire such Shares free and clear of all claims, encumbrances, security interests and liens created by the Company; (vii) the form of certificate used to evidence the Shares is in proper form and complies in all material respects with applicable Colorado law; (viii) the issuance and sale of the capital stock of the Association to the Company have been duly authorized by all necessary corporate action of the Association and the Company and have received the approval of the Office, and such capital stock, upon receipt of payment and issuance in accordance with the terms of the Plan, will be validly issued, fully paid and nonassessable and owned of record and, to our actual knowledge, beneficially by the Company; (ix) subject to the satisfaction of the conditions to the Office's approval of the Conversion Application, no further approval, authorization, consent or other order of any federal government board or body is required in connection with the execution and delivery of this Agreement, issuance of the Shares and the consummation of the Conversion, except with respect to the issuance to the Association of the Stock Charter by the Office and as may be required under the "blue sky" laws of various jurisdictions; (x) the execution and delivery of this Agreement and the consummation of the Conversion have been duly and validly authorized by all necessary corporate action on the part of each of the Company and the Association; (xi) the statements in the Prospectus and incorporated by reference in the Proxy Statement under the captions "Regulation," "Taxation," "Dividend Policy," "Certain Restrictions on Acquisition of the Company and the Association" and "Description of Capital Stock," insofar as they are, or refer to, statements of law or legal conclusions (excluding financial data included therein, as to which an opinion is not expressed), have been prepared or reviewed by us and are correct in all material respects; (xii) the Conversion Application has been approved by the Office, and the Prospectus and the Proxy Statement have been authorized for use by the Office; the Registration Statement and any post-effective amendment thereto has been declared effective by the Commission; and, to our actual knowledge, no proceedings are pending by or before the Commission or the Office seeking to revoke or rescind the orders declaring the Registration Statement effective or B-5 approving the Conversion Application or, to our actual knowledge, are contemplated or threatened; (xiii) the execution and delivery of this Agreement and the consummation of the Conversion by the Company and the Association do not conflict with or result in a breach of the charter or bylaws of the Company or the Association (in either mutual or stock form); and (xiv) the Conversion Application, the Registration Statement, the Prospectus and the Proxy Statement, in each case as amended, comply as to form in all material respects with the requirements of the Act, the HOLA, the SEC Regulations and the OTS Regulations, as the case may be (except as to information with respect to Trident included therein and financial statements, notes to financial statements, financial tables and other financial and statistical data, including the appraisal, included therein, as to which no opinion is expressed); to our actual knowledge, all documents and exhibits required to be filed with the Conversion Application and the Registration Statement have been so filed and the descriptions in the Conversion Application and the Registration Statement of such documents and exhibits are accurate in all material respects. This opinion is being rendered solely for the benefit of the addressee hereof and may not be relied upon by, nor may copies be delivered to, any other person without our prior written consent. The opinion may be delivered to your counsel. This opinion is given as of the date hereof and we assume no obligation to advise you of changes that may hereafter be brought to our attention. Very truly yours, Housley, Kantarian & Bronstein, P.C. B-6 Exhibit C --------- [Letterhead of Local Attorneys] __________ ____, 1997 Trident Securities, Inc. 4601 Six Forks Road Suite 400 Raleigh, North Carolina 27609 Re: Salida Building and Loan Association High Country Bancorp, Inc. ------------------------------------------ Ladies and Gentlemen: We are rendering this opinion to Trident Securities, Inc. ("Trident" or "you") as general counsel to Salida Building and Loan Association (the "Association") and High Country Bancorp, Inc. (the "Company") at the time of the conversion of the Association from a federally chartered mutual savings association to a federally chartered capital stock savings association and the simultaneous issuance of all of the issued and outstanding stock of the converted Association to the Company (the "Conversion") in accordance with the Association's Plan of Conversion (the "Plan"). Except to the extent they are otherwise defined herein or the context otherwise requires, all references in this opinion to instruments and other defined terms shall mean the instruments and other terms as defined in the Agency Agreement dated __________ _____, 1997 (the "Agreement") by and among the Association, the Company, and Trident. Our representation was limited solely to matters of Colorado law and this opinion is delivered to you pursuant to Section 7(a) of the Agreement. As general counsel to the Company and the Association, with respect to the Association and the Company, we have examined such corporate records, certificates, and other documents, and such questions of law, as we have considered necessary or appropriate for the purpose of rendering this opinion. In the course of our examination, we have assumed the genuineness of all signatures on original documents, and the due execution and delivery of all documents requiring due execution and delivery for the effectiveness thereof. As to matters of fact relating to our opinion, we have relied on certificates and written statements of officers of the Association and the Company. Based upon and subject to the foregoing and in reliance thereon, and subject to the assumptions, exceptions, and qualifications set forth herein, it is our opinion that: (i) to our actual knowledge, the Association has obtained all licenses, permits and other governmental authorizations currently required for the conduct of its business as such business is described in the Prospectus, all such licenses, C-1 permits and other governmental authorizations are in full force and effect and the Association is in all material respects complying therewith, except where the failure to hold such licenses, permits or governmental authorizations or the failure to so comply would not have a material adverse effect on the Company and the Association, taken as a whole; (ii) there are no material legal or governmental proceedings pending or, to our actual knowledge, threatened against or involving the assets of the Company or the Association (provided that for this purpose we do not regard any litigation or governmental procedure to be "threatened" unless the potential litigant or government authority has manifested to the management of the Company or the Association, or to us, a present intention to initiate such litigation or proceeding); (iii) to our actual knowledge, the execution and delivery of the Agreement and the consummation of the Conversion by the Company and the Association do not constitute a material breach of or default (or an event which, with notice or lapse of time or both, would constitute a default) under, give rise to any right of termination, cancellation or acceleration contained in, or result in the creation or imposition of any lien, charge or other encumbrance upon any of the properties or assets of the Company or the Association pursuant to any of the terms, provisions or conditions of, any material agreement, contract, indenture, bond, debenture, note, instrument or obligation to which the Company or the Association is a party or violate any governmental license or permit or any enforceable published law, administrative regulation or order or court order, writ, injunction or decree (subject to the satisfaction of certain conditions imposed by the Office in connection with its approval of the Conversion Application), which breach, default, encumbrance or violation would have a material adverse effect on the condition (financial or otherwise), operations, business, assets or properties of the Company and the Association taken as a whole; (iv) to our actual knowledge, there has been no material breach of any provision of the Company's or the Association's charter or bylaws or breach or default (or the occurrence of any event which, with notice or lapse of time or both, would constitute a default) under any agreement, contract, indenture, bond, debenture, note, instrument or obligation to which the Company or the Association is a party or by which any of them or any of their respective assets or properties may be bound, or any governmental license or permit, or a violation of any enforceable published law, administrative regulation or order, or court order, writ, injunction or decree which breach, default, encumbrance or violation would have a material adverse effect on the condition (financial or otherwise), operations, business, assets or properties of the Company and the Association taken as a whole; and, C-2 (v) the Agreement is a legal, valid and binding obligation of each of the Company and the Association, enforceable in accordance with its terms (except as the enforceability thereof may be limited by bankruptcy, insolvency, moratorium, reorganization, receivership, conservatorship or similar laws relating to or affecting the enforcement of creditors' rights generally or the rights of creditors of depository institutions whose accounts are insured by the FDIC or savings and loan holding companies the accounts of whose subsidiaries are insured by the FDIC or by general equity principles, regardless of whether such enforceability is considered in a proceeding in equity or at law, and except to the extent that the provisions of Sections 8 and 9 hereof may be unenforceable as against public policy or pursuant to Section 23A, as to which we render no opinion); This opinion is being rendered solely for the benefit of the addressee hereof and that of the addressee's and the Company's counsel and may not be relied upon by, nor may copies be delivered to, any other person without our prior written consent. We hereby consent to the delivery of this opinion to your counsel named in the Agreement and to the Company's counsel in connection with the consummation of the Conversion. This opinion is given as of the date hereof and we assume no obligation to advise you of changes that may hereafter be brought to our attention. Very truly yours, ---------------------------- C-3 Exhibit D --------- __________ ____, 1997 Trident Securities, Inc. 4601 Six Forks Road Suite 400 Raleigh, North Carolina 27609 Re: Salida Building and Loan Association High Country Bancorp, Inc. ------------------------------------------ Ladies and Gentlemen: We have acted as special counsel for High Country Bancorp, Inc. (the "Company") and Salida Building and Loan Association (the "Association") in connection with the preparation and filing with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Securities Act"), of the Company's Registration Statement on Form SB-2 (No. 333-______), as amended, and the Association's Application for Conversion on Form AC, as amended, relating to the offering of the Company's common stock (the "Common Stock") in a subscription offering in connection with the conversion of the Association from a federally chartered mutual savings association to a federally chartered stock savings association (the "Conversion") and the issuance of the Association's capital stock to the Company pursuant to the Association's plan of conversion, originally adopted by the Association's Board of Directors on May 15, 1997. Such registration statement, as amended, when it became effective is herein called the "Registration Statement," and the related Prospectus dated ____________ ____, 1997 is herein called the "Prospectus." Such application for conversion, as amended, when it received approval is herein called the "Conversion Application." This letter is furnished pursuant to Section 7(b) of the Agency Agreement dated ___________ ____, 1997 (the "Agency Agreement") among the Company, the Association, and Trident Securities, Inc. ("Trident" or "you"). Because the primary purpose of our professional engagement was not to establish or confirm factual matters or financial, accounting, or statistical matters and because of the wholly or partially non-legal character of many of the statements contained in the Conversion Application, the Registration Statement, and the Prospectus, for purposes of this letter, we are not passing upon and do not assume any responsibility for the accuracy, completeness, or fairness of the statements contained in the Conversion Application, the Registration Statement, or the Prospectus and we make no representation that we have independently verified the accuracy, completeness, or fairness of such statements. Without limiting the foregoing, for purposes of this letter, we assume no responsibility for, and have not independently verified, the accuracy, completeness, or fairness of the financial statements and schedules and other financial and statistical data and stock valuation information, or information regarding you included in the D-1 Conversion Application, the Registration Statement, and the Prospectus, and we have not examined the accounting, financial, or statistical records from which such financial statements, schedules, and data are derived. We note that, although certain portions of the Conversion Application, the Registration Statement, and the Prospectus (including financial statements and schedules and stock valuation information) have been included therein on the authority of "experts" within the meaning of the Securities Act, we are not such experts with respect to any portion of the Conversion Application or the Registration Statement, including without limitation such financial statements or schedules or the other financial or statistical data included therein. Based on such counsel's participation in conferences with representatives of the Company, the Association, its counsel, the independent appraiser, the independent certified public accountants, Trident and its counsel, review of documents and understanding of applicable law (including the requirements of Form SB-2 and the character of the Registration Statement contemplated thereby) and the experience such counsel has gained in its practice under the Act, nothing has come to such counsel's attention that would lead it to believe that the Registration Statement, as amended (except as to information in respect of Trident contained therein and except as to the financial statements, notes to financial statements, financial tables and other financial and statistical data contained therein, as to which such counsel need express no view), at the time it became effective contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements made therein not misleading, or that the Prospectus, as amended (except as to information in respect of Trident contained therein and except as to financial statements, notes to financial statements, financial tables and other financial and statistical data contained therein as to which such counsel need express no view), as of the date of the Prospectus and as of the date hereof, contained any untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (in making this statement such counsel may state that it has not undertaken to verify independently the information in the Registration Statement or Prospectus and, therefore, does not assume any responsibility for the accuracy or completeness thereof). We are furnishing this letter to you solely for your benefit. This letter is not to be used, circulated, quoted, or otherwise referred to for any other purpose, except that a copy may be provided to your counsel. Very truly yours, Housley, Kantarian & Bronstein, P.C. D-2 EX-3.1 4 EXHIBIT 3.1 EXHIBIT 3.1 ARTICLES OF INCORPORATION OF HIGH COUNTRY BANCORP, INC. ARTICLE I NAME The name of the corporation is High Country Bancorp, Inc. (hereinafter, the "Corporation"), and the address of the initial principal office of the Corporation is 130 West 2nd Street, Salida, Colorado 81201. ARTICLE II REGISTERED OFFICE The address of the Corporation's registered office in the State of Colorado is 130 West 2nd Street, Salida, Colorado 81201. The name of the Corporation's registered agent at such address is Larry D. Smith. ARTICLE III POWERS The purpose for which the Corporation is organized is to act as a savings institution holding company and to transact all other lawful business for which corporations may be incorporated pursuant to the laws of the State of Colorado. The Corporation shall have all the powers of a corporation organized under the Colorado Business Corporation Act. ARTICLE IV TERM The Corporation is to have perpetual existence. ARTICLE V INCORPORATOR The name and mailing address of the incorporator is as follows: Name Mailing Address ---- --------------- Larry D. Smith 130 West 2nd Street Salida, Colorado 81201 1 ARTICLE VI CAPITAL STOCK The aggregate number of shares of all classes of capital stock which the Corporation has authority to issue is 4,000,000 of which 3,000,000 are to be shares of common stock, $0.01 par value per share, and of which 1,000,000 are to be shares of serial preferred stock, $0.01 par value per share. The shares may be issued by the Corporation from time to time as approved by the board of directors of the Corporation without the approval of the stockholders except as otherwise provided in this Article VI or the rules of a national securities exchange, if applicable. The consideration for the issuance of the shares shall be paid to or received by the Corporation in full before their issuance and shall not be less than the par value per share. The consideration for the issuance of the shares shall be cash, services rendered, personal property (tangible or intangible), real property, leases of real property or any combination of the foregoing. In the absence of actual fraud in the transaction, the judgment of the board of directors as to the value of such consideration shall be conclusive. Upon payment of such consideration such shares shall be deemed to be fully paid and nonassessable. In the case of a stock dividend, the part of the surplus of the Corporation which is transferred to stated capital upon the issuance of shares as a stock dividend shall be deemed to be the consideration for their issuance. A description of the different classes and series (if any) of the Corporation's capital stock, and a statement of the relative powers, designations, preferences and rights of the shares of each class and series (if any) of capital stock, and the qualifications, limitations or restrictions thereof, are as follows: A. Common Stock. Except as provided in these Articles, the holders of ------------ the common stock shall exclusively possess all voting power. Each holder of shares of common stock shall be entitled to one vote for each share held by such holder, except as otherwise expressly set forth in these Articles. Whenever there shall have been paid, or declared and set aside for payment, to the holders of the outstanding shares of any class of stock having preference over the common stock as to the payment of dividends, the full amount of dividends and sinking fund or retirement fund or other retirement payments, if any, to which such holders are respectively entitled in preference to the common stock, then dividends may be paid on the common stock, and on any class or series of stock entitled to participate therewith as to dividends, out of any assets legally available for the payment of dividends, but only when and as declared by the board of directors of the Corporation. In the event of any liquidation, dissolution or winding up of the Corporation, after there shall have been paid, or declared and set aside for payment, to the holders of the outstanding shares of any class having preference over the common stock in any such event, the full preferential amounts to which they are respectively entitled, the holders of the common stock and of any class or series of stock entitled to participate therewith, in whole or in part, as to distribution of assets shall be entitled, after payment or provision for payment of all debts and liabilities of the Corporation, to receive the remaining assets of the Corporation available for distribution, in cash or in kind. Each share of common stock shall have the same relative powers, preferences and rights as, and shall be identical in all respects with, all the other shares of common stock of the Corporation, except as otherwise expressly set forth in these Articles. B. Serial Preferred Stock. Except as provided in these Articles, the ---------------------- board of directors of the Corporation is authorized, by resolution or resolutions from time to time adopted, to provide for the issuance of serial preferred stock in series and to fix and state the powers, designations, preferences and relative, participating, optional or other special rights of the shares of each such series, and the qualifications, limitations or restrictions thereof, including, but not limited to determination of any of the following: (1) the distinctive serial designation and the number of shares constituting such series; 2 (2) the dividend rates or the amount of dividends to be paid on the shares of such series, whether dividends shall be cumulative and, if so, from which date or dates, the payment date or dates for dividends, and the participating or other special rights, if any, with respect to dividends; (3) the voting powers, full or limited, if any, of the shares of such series; (4) whether the shares of such series shall be redeemable and, if so, the price or prices at which, and the terms and conditions upon which such shares may be redeemed; (5) the amount or amounts payable upon the shares of such series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation; (6) whether the shares of such series shall be entitled to the benefits of a sinking or retirement fund to be applied to the purchase or redemption of such shares, and, if so entitled, the amount of such fund and the manner of its application, including the price or prices at which such shares may be redeemed or purchased through the application of such funds; (7) whether the shares of such series shall be convertible into, or exchangeable for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation and, if so convertible or exchangeable, the conversion price or prices, or the rate or rates of exchange, and the adjustments thereof, if any, at which such conversion or exchange may be made, and any other terms and conditions of such conversion or exchange; (8) the subscription or purchase price and form of consideration for which the shares of such series shall be issued; and (9) whether the shares of such series which are redeemed or converted shall have the status of authorized but unissued shares of serial preferred stock and whether such shares may be reissued as shares of the same or any other series of serial preferred stock. Each share of each series of serial preferred stock shall have the same relative powers, preferences and rights as, and shall be identical in all respects with, all the other shares of the Corporation of the same series, except as otherwise expressly set forth in these Articles. ARTICLE VII PREEMPTIVE RIGHTS No holder of any of the shares of any class or series of stock or of options, warrants or other rights to purchase shares of any class or series of stock or of other securities of the Corporation shall have any preemptive right to purchase or subscribe for any unissued stock of any class or series, or any unissued bonds, certificates of indebtedness, debentures or other securities convertible into or exchangeable for stock of any class or series or carrying any right to purchase stock of any class or series; but any such unissued stock, bonds, certificates or indebtedness, debentures or other securities convertible into or exchangeable for stock or carrying any right to purchase stock may be issued pursuant to resolution of the board of directors of the Corporation to such persons, firms, corporations or associations, whether or not holders thereof, and upon such terms as may be deemed advisable by the board of directors in the exercise of its sole discretion. 3 ARTICLE VIII REPURCHASE OF SHARES The Corporation may from time to time, pursuant to authorization by the board of directors of the Corporation and without action by the stockholders, purchase or otherwise acquire shares of any class, bonds, debentures, notes, scrip, warrants, obligations, evidences of indebtedness, or other securities of the Corporation in such manner, upon such terms, and in such amounts as the board of directors shall determine; subject, however, to such limitations or restrictions, if any, as are contained in the express terms of any class of shares of the Corporation outstanding at the time of the purchase or acquisition in question or as are imposed by law. ARTICLE IX MEETINGS OF STOCKHOLDERS; CUMULATIVE VOTING A. Notwithstanding any other provision of these Articles or the bylaws of the Corporation, no action required to be taken or which may be taken at any annual or special meeting of stockholders of the Corporation may be taken without a meeting, and the power of stockholders to consent in writing, without a meeting, to the taking of any action is specifically denied. B. Special meetings of the stockholders of the Corporation for any purpose or purposes may be called at any time by the board of directors of the Corporation, or by a committee of the board of directors which has been duly designated by the board of directors and whose powers and authorities, as provided in a resolution of the board of directors or in the bylaws of the Corporation, include the power and authority to call such meetings, but such special meetings may not be called by any other person or persons, except as provided by Colorado law. C. Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for him by proxy, but no such proxy shall be voted or acted upon after 11 months from its date, unless the proxy provides for a longer period. Without limiting the manner in which a stockholder may authorize another person or persons to act for him as proxy, the following shall constitute a valid means by which a stockholder may grant such authority. 1. A shareholder may appoint a proxy by signing an appointment form, either personally or by the shareholder's attorney-in-fact. 2. A shareholder may appoint a proxy by transmitting or authorizing the transmission of a telegram, teletype, or other electronic transmission providing a written statement of the appointment to the proxy, to a proxy solicitor, proxy support service organization, or other person duly authorized by the proxy to receive appointments as agent for the proxy, or to the Corporation; except that the transmitted appointment shall set forth or be transmitted with written evidence from which it can be determined that the shareholder transmitted or authorized the transmission of the appointment. 3. Any complete copy, including an electronically transmitted facsimile, of an appointment of a proxy may be substituted for or used in lieu of the original appointment for any purpose for which the original appointment could be used. D. There shall be no cumulative voting by stockholders of any class or series in the election of directors of the Corporation. E. Meetings of stockholders may be held at such place as the bylaws may provide. 4 ARTICLE X NOTICE FOR NOMINATIONS AND PROPOSALS A. Nominations for the election of directors and proposals for any new business to be taken up at any annual or special meeting of stockholders may be made by the board of directors of the Corporation, by a committee appointed by the Board of Directors for this purpose, or by any stockholder of the Corporation entitled to vote generally in the election of directors. In order for a stockholder of the Corporation to make any such nominations and/or proposals, he or she shall give notice thereof in writing, delivered or mailed by first class United States mail, postage prepaid, to the Secretary of the Corporation not less than thirty days nor more than sixty days prior to the date of any such meeting; provided, however, that if less than forty days' notice of the meeting is given to stockholders, such written notice shall be delivered or mailed, as prescribed, to the Secretary of the Corporation not later than the close of business on the tenth day following the day on which notice of the meeting was mailed to stockholders. Each such notice given by a stockholder with respect to nominations for the election of directors shall set forth (i) the name, age, business address and, if known, residence address of each nominee proposed in such notice, (ii) the principal occupation or employment of each such nominee, and (iii) the number of shares of stock of the Corporation which are beneficially owned by each such nominee. In addition, the stockholder making such nomination shall promptly provide any other information reasonably requested by the Corporation. B. Each such notice given by a stockholder to the Secretary with respect to business proposals to be brought before a meeting shall set forth in writing as to each matter: (i) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting; (ii) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business; (iii) the class and number of shares of the Corporation which are beneficially owned by the stockholder; and (iv) any material interest of the stockholder in such business. Notwithstanding anything in these Articles to the contrary, no new business shall be conducted at the meeting except in accordance with the procedures set forth in this Article. C. The Chairman of the annual or special meeting of stockholders may, if the facts warrant, determine and declare to such meeting that a nomination or proposal was not made in accordance with the foregoing procedure, and, if he should so determine, he shall so declare to the meeting and the defective nomination or proposal shall be disregarded and laid over for action at the next succeeding special or annual meeting of the stockholders taking place thirty days or more thereafter. This provision shall not require the holding of any adjourned or special meeting of stockholders for the purpose of considering such defective nomination or proposal. ARTICLE XI DIRECTORS A. Number; Vacancies. The number of directors of the Corporation shall ----------------- be such number, not less than five nor more than fifteen (exclusive of directors, if any, to be elected by holders of preferred stock of the Corporation, voting separately as a class), as shall be set forth from time to time in the bylaws, provided that no decrease in the number of directors shall have the effect of shortening the term of any incumbent director, and provided further that no action shall be taken to decrease or increase the number of directors unless at least two-thirds of the directors then in office shall concur in said action. Vacancies in the board of directors of the Corporation, however caused, and newly created directorships shall be filled by a vote of two-thirds of the directors then in office, whether or not a quorum, and any director so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of the class to which the director has been chosen expires and when the director's successor is elected and qualified. B. Qualifications. Each director of the Corporation must at all times -------------- be a resident of the State of Colorado. For the purposes of this section, "resident" means any natural person who occupies a dwelling within Colorado, has an intention to remain within Colorado for a period of time (manifested by establishing a physical, on-going, non transitory presence within Colorado) and continues to reside in Colorado for the term of his or her directorship. 5 C. Classified Board. The board of directors of the Corporation shall be ---------------- divided into three classes of directors which shall be designated Class I, Class II and Class III. The members of each class shall be elected for a term of three years and until their successors are elected and qualified. Such classes shall be as nearly equal in number as the then total number of directors constituting the entire board of directors shall permit, with the terms of office of all members of one class expiring each year. Subject to the provisions of this Article XI, should the number of directors not be equally divisible by three, the excess director or directors shall be assigned to Classes III or II as follows: (i) if there shall be an excess of one directorship over a number equally divisible by three, such extra directorship shall be classified in Class III; and (ii) if there be an excess of two directorships over a number equally divisible by three, one shall be classified in Class III and the other in Class II. At the first annual meeting of stockholders, directors of Class I shall be elected to hold office for a term expiring at the third succeeding annual meeting thereafter. At the second annual meeting of stockholders, directors of Class II shall be elected to hold office for a term expiring at the third succeeding annual meeting thereafter. At the third annual meeting of stockholders, directors of Class III shall be elected to hold office for a term expiring at the third succeeding annual meeting thereafter. Thereafter, at each succeeding annual meeting, directors of each class shall be elected for three year terms. Notwithstanding the foregoing, the director whose term shall expire at any annual meeting shall continue to serve until such time as his successor shall have been duly elected and shall have qualified unless his position on the board of directors shall have been abolished by action taken to reduce the size of the board of directors prior to said meeting. Should the number of directors of the Corporation be reduced, the directorship(s) eliminated shall be allocated among classes as appropriate so that the number of directors in each class is as specified in the immediately preceding paragraph. The board of directors shall designate, by the name of the incumbent(s), the position(s) to be abolished. Notwithstanding the foregoing, no decrease in the number of directors shall have the effect of shortening the term of any incumbent director. Should the number of directors of the Corporation be increased, the additional directorships shall be allocated among classes as appropriate so that the number of directors in each class is as specified in the immediately preceding paragraph. Whenever the holders of any one or more series of preferred stock of the Corporation shall have the right, voting separately as a class, to elect one or more directors of the Corporation, the board of directors shall consist of said directors so elected in addition to the number of directors fixed as provided in this Article XI. Notwithstanding the foregoing, and except as otherwise may be required by law or by the terms and provisions of the preferred stock of the Corporation, whenever the holders of any one or more series of preferred stock of the Corporation shall have the right, voting separately as a class, to elect one or more directors of the Corporation, the terms of the director or directors elected by such holders shall expire at the next succeeding annual meeting of stockholders. ARTICLE XII REMOVAL OF DIRECTORS Notwithstanding any other provision of these Articles or the bylaws of the Corporation, no member of this board of directors of the Corporation may be removed, except for cause, and then only by the affirmative vote of the holders of at least 80% of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) cast at a meeting of the stockholders called for that purpose. Notwithstanding the foregoing, whenever the holders of any one or more series of preferred stock of the Corporation shall have the right, voting separately as a class, to elect one or more directors of the Corporation, the preceding provisions of this Article XII shall not apply with respect to the director or directors elected by such holders of preferred stock. 6 ARTICLE XIII ACQUISITION OF CAPITAL STOCK A. Five-Year Prohibition. For a period of five years from the --------------------- effective date of the completion of the conversion of Salida Building and Loan Association, Salida, Colorado, from mutual to stock form (which entity shall become a wholly owned subsidiary of the Corporation upon such conversion), no person shall directly or indirectly offer to acquire or acquire the beneficial ownership of more than 10% of any class of equity security of the Corporation, unless such offer or acquisition shall have been approved in advance by a two- thirds vote of the Continuing Directors, as defined in Article XIV hereof. In addition, for a period of five years from the completion of the conversion of Salida Building and Loan Association from mutual to stock form (which entity shall become a wholly owned subsidiary of the Corporation upon such conversion), and notwithstanding any provision to the contrary in these Articles or in the bylaws of the Corporation, where any person directly or indirectly acquires beneficial ownership of more than 10% of any class of equity security of the Corporation in violation of this Article XIII, the securities beneficially owned in excess of 10% shall not be counted as shares entitled to vote, shall not be voted by any person or counted as voting shares in connection with any matter submitted to the stockholders for a vote, and shall not be counted as outstanding for purposes of determining a quorum or the affirmative vote necessary to approve any matter submitted to the stockholders for a vote. B. Prohibition After Five Years. If, at any time after five years from ---------------------------- the effective date of the completion of the conversion of Salida Building and Loan Association from mutual to stock form (which entity shall become a wholly- owned subsidiary of the Corporation upon such conversion), any person shall acquire the beneficial ownership of more than 10% of any class of equity security of the Corporation without the prior approval by a two-thirds vote of the Continuing Directors, as defined in Article XIV hereof, then the record holders of Voting Stock, as defined in Article XIV hereof, of the Corporation beneficially owned by such acquiring person shall have only the voting rights set forth in this paragraph B on any matter requiring their vote or consent. With respect to each vote in excess of 10% of the voting power of the outstanding shares of Voting Stock of the Corporation which such record holders would otherwise be entitled to cast without giving effect to this paragraph B, such record holders in the aggregate shall be entitled to cast only one- hundredth (1/100) of a vote, and the aggregate voting power of such record holders, so limited for all shares of Voting Stock of the Corporation beneficially owned by such acquiring person, shall be allocated proportionately among such record holders. For each such record holder, this allocation shall be accomplished by multiplying the aggregate voting power, prior to imposing the limitations of this paragraph B, of the outstanding shares of Voting Stock of the Corporation beneficially owned by such record holder by a fraction whose numerator is the number of votes equal to 10% of the shares of Voting Stock of the Corporation and whose denominator is the total number of votes represented by the shares of Voting Stock of the Corporation that are beneficially owned by such acquiring person; any share held by such record holder in excess of the allocated amount as determined in accordance with the previous clause shall be entitled to cast one-hundredth of a vote. A person who is a record owner of shares of Voting Stock of the Corporation that are beneficially owned simultaneously by more than one person shall have, with respect to such shares, the right to cast the least number of votes that such person would be entitled to cast under this paragraph B by virtue of such shares being so beneficially owned by any of such acquiring persons. C. Definitions. The term "person" means an individual, a group acting in ----------- concert, a corporation, a partnership, an association, a joint stock company, a trust, an unincorporated organization or similar company, a syndicate or any other group acting in concert formed for the purpose of acquiring, holding, voting or disposing of securities of the Corporation. The term "acquire" includes every type of acquisition, whether effected by purchase, exchange, operation of law or otherwise. The term group "acting in concert" includes (a) knowing participation in a joint activity or conscious parallel action towards a common goal whether or not pursuant to an express agreement, and (b) a combination or pooling of voting or other interest in the Corporation's outstanding shares for a common purpose, pursuant to any contract, understanding, relationship, agreement or other arrangement, whether written or otherwise. The term "beneficial ownership" shall have the meaning defined in Rule 13d-3 of the General Rules and Regulations under the Securities and Exchange Act of 1934, as in effect on the date of filing of these Articles. 7 D. Exclusion for Employee Benefit Plans, Directors, Officers, Employees -------------------------------------------------------------------- and Certain Proxies. The restrictions contained in this Article XIII shall not - ------------------- apply to (i) any underwriter or member of an underwriting or selling group involving a public sale or resale of securities of the Corporation or a subsidiary thereof; provided, however, that upon completion of the sale or resale of such securities, no such underwriter or member of such selling group is a beneficial owner of more than 10% of any class of equity security of the Corporation, (ii) any proxy granted to one or more Continuing Directors, as defined in Article XIV hereof, by a stockholder of the Corporation or (iii) any employee benefit plans of the Corporation. In addition, the Continuing Directors, as defined in Article XIV hereof, the officers and employees of the Corporation and its subsidiaries, the directors of subsidiaries of the Corporation, the employee benefit plans of the Corporation and its subsidiaries, entities organized or established by the Corporation or any subsidiary thereof pursuant to the terms of such plans and trustees and fiduciaries with respect to such plans acting in such capacity shall not be deemed to be a group with respect to their beneficial ownership of voting stock of the Corporation solely by virtue of their being directors, officers or employees of the Corporation or a subsidiary thereof or by virtue of the Continuing Directors, as defined in Article XIV hereof, the officers and employees of the Corporation and its subsidiaries and the directors of subsidiaries of the Corporation being fiduciaries or beneficiaries of an employee benefit plan of the Corporation or a subsidiary of the Corporation. Notwithstanding the foregoing, no director, officer or employee of the Corporation or any of its subsidiaries or group of any of them shall be exempt from the provisions of this Article XIII should any such person or group become a beneficial owner of more than 10% of any class of equity security of the Corporation. E. Determinations. A majority of the Continuing Directors, as defined in -------------- Article XIV hereof, shall have the power to construe and apply the provisions of this Article XIII and to make all determinations necessary or desirable to implement such provisions, including but not limited to matters with respect to (a) the number of shares beneficially owned by any person, (b) whether a person has an agreement, arrangement or understanding with another as to the matters referred to in the definition of beneficial ownership, (c) the application of any other definition or operative provision of this Article XIII to the given facts or (d) any other matter relating to the applicability or effect of this Article XIII. Any constructions, applications, or determinations made by the Continuing Directors pursuant to this Article XIII in good faith and on the basis of such information and assistance as was then reasonably available for such purpose shall be conclusive and binding upon the Corporation and its stockholders. ARTICLE XIV APPROVAL OF CERTAIN BUSINESS COMBINATIONS The stockholder vote required to approve Business Combinations (as hereinafter defined) shall be as set forth in this section. A. (1) Except as otherwise expressly provided in this Article XIV, the affirmative vote of the holders of (i) at least 80% of the outstanding shares entitled to vote thereon (and, if any class or series of shares is entitled to vote thereon separately, the affirmative vote of the holders of at least 80% of the outstanding shares of each such class or series), and (ii) at least a majority of the outstanding shares entitled to vote thereon, not including shares deemed beneficially owned by a Related Person (as hereinafter defined), shall be required in order to authorize any of the following: (a) any merger or consolidation of the Corporation with or into a Related Person (as hereinafter defined); (b) any sale, lease, exchange, transfer or other disposition, including without limitation, a mortgage, or any other capital device, of all or any Substantial Part (as hereinafter defined) of the assets of the Corporation (including without limitation any voting securities of a subsidiary) or of a subsidiary, to a Related Person; 8 (c) any merger or consolidation of a Related Person with or into the Corporation or a subsidiary of the Corporation; (d) any sale, lease, exchange, transfer or other disposition of all or any Substantial Part of the assets of a Related Person to the Corporation or a subsidiary of the Corporation; (e) the issuance of any securities of the Corporation or a subsidiary of the Corporation to a Related Person; (f) the acquisition by the Corporation or a subsidiary of the Corporation of any securities of a Related Person; (g) any reclassification of the common stock of the Corporation, or any recapitalization involving the common stock of the Corporation; and (h) any agreement, contract or other arrangement providing for any of the transactions described in this Article XIV. (2) Such affirmative vote shall be required notwithstanding any other provision of these Articles, any provision of law, or any agreement with any regulatory agency or national securities exchange which might otherwise permit a lesser vote or no vote. (3) The term "Business Combination" as used in this Article XIV shall mean any transaction which is referred to in any one or more of subparagraphs A(1)(a) through (h) above. B. The provisions of paragraph A shall not be applicable to any particular Business Combination, and such Business Combination shall require only such affirmative vote as is required by any other provision of these Articles, any provision of law, or any agreement with any regulatory agency or national securities exchange, if the Business Combination shall have been approved by a two-thirds vote of the Continuing Directors (as hereinafter defined); provided, however, that such approval shall only be effective if obtained at a meeting at which a Continuing Director Quorum (as hereinafter defined) is present. C. For the purposes of this Article XIV the following definitions apply: (1) The term "Principal Shareholder" shall mean and include any individual, corporation, partnership, or other person or entity which, together with its "Affiliates" and "Associates" (as defined in Rule 12b-2 under the Securities Exchange Act of 1934), "beneficially owns" (as hereinafter defined) in the aggregate ten percent (10%) or more of the outstanding shares of Voting Stock, and any Affiliate or Associate of any such individual, corporation, partnership, or other person or entity. (2) The term "Related Person" shall mean and include (a) any individual, corporation, partnership or other person or entity which together with its "Affiliates" (as that term is defined in Rule 12b-2 under the Securities Exchange Act of 1934), "beneficially owns" (as that term is defined in Rule 13d-3 of the General Rules and Regulations under the Securities Act of 1934) in the aggregate 10% or more of the outstanding shares of the common stock of the Corporation; and (b) any "Affiliate" (as that term is defined in Rule 12b-2 under the Securities Exchange Act of 1934) of any such individual, corporation, partnership or other person or entity. Without limitation, any shares of the common stock of the Corporation which any Related Person has the right to acquire pursuant to any agreement, or upon exercise or conversion rights, warrants or options, or otherwise, shall be deemed "beneficially owned" by such Related Person. 9 (3) The term "Substantial Part" shall mean more than 25 percent of the total assets of the Corporation, as of the end of its most recent fiscal year ending prior to the time the determination is made. (4) The term "Voting Stock" shall mean the stock of the Corporation entitled to vote in the election of directors. (5) The term "Continuing Director" shall mean any member of the board of directors of the Corporation who is unaffiliated with the Related Person and was a member of the board prior to the time that the Related Person became a Related Person, and any successor of a Continuing Director who is unaffiliated with the Related Person and is recommended to succeed a Continuing Director by a majority of Continuing Directors then on the board. (6) The term "Continuing Director Quorum" shall mean two-thirds of the Continuing Directors capable of exercising the powers conferred on them. (7) Any corporation, partnership, person, or entity will be deemed to be a "Beneficial Owner" of or to own beneficially any share or shares of stock of the Corporation: (a) which it owns directly, whether or not of record; or (b) which it has the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement or arrangement or understanding or upon exercise of conversion rights, exchange rights, warrants or options, or otherwise, or which it has the right to vote pursuant to any agreement, arrangement, or understanding; or (c) which are owned directly or indirectly (including shares deemed to be owned through application of clause (b) above) by any Affiliate or Associate; or (d) which are owned directly or indirectly (including shares deemed to be owned through application of clause (b) above) by any other corporation, person, or entity with which it or any of its Affiliates or Associates have any agreement or arrangement or understanding for the purpose of acquiring, holding, voting or disposing of Voting Stock. For purpose only of determining the percentage of the outstanding shares of Voting Stock which any corporation, partnership, person, or other entity beneficially owns, directly or indirectly, the outstanding shares of Voting Stock will be deemed to include any shares of Voting Stock which such corporation, partnership, person or other entity beneficially owns pursuant to the foregoing provisions of this subsection (whether or not such shares of Voting Stock are in fact issued or outstanding), but shall not include any other shares of Voting Stock which may be issuable either immediately or at some future date pursuant to any agreement, arrangement, or understanding or upon exercise of conversion rights, exchange rights, warrants, options, or otherwise. ARTICLE XV FAIR PRICE REQUIREMENTS A. General Requirement. No "Business Combination" (as defined in ------------------- Article XIV hereof) shall be effected unless all of the following conditions, to the extent applicable, are fulfilled. 1. The ratio of (a) the aggregate amount of the cash and the fair market value of the other consideration to be received per share by the holders of the common stock of the Corporation in the Business Combination to (b) the "Market Price" (as hereinafter defined) of the common stock of the Corporation immediately prior to the announcement of the Business Combination or the solicitation of the holders of the common stock of the Corporation regarding the Business Combination, whichever is first, shall be at least as great as the ratio of (x) the highest price per share previously paid by the "Principal Shareholder" (whether before or after it became a Principal Shareholder) for any of the shares of common stock of the Corporation at any time Beneficially Owned, directly, or indirectly, by the Principal Shareholder to (y) the Market Price of the common stock of the Corporation on the trading date immediately prior to the earliest date on which the Principal Shareholder (whether before or after it became a 10 Principal Shareholder) purchased any shares of common stock of the Corporation during the two year period prior to the date on which the Principal Shareholder acquired the shares of common stock of the Corporation at any time owned by it for which it paid the highest price per share (or, if the Principal Shareholder did not purchase any shares of common stock of the Corporation during the two year period, the Market Price of the common stock of the Corporation on the date of two years prior to the date on which the Principal Shareholder acquired the shares of common stock of the Corporation at any time owned by it for which it paid the highest price per share). 2. The aggregate amount of the cash and the fair market value of the other consideration to be received per share by the holders of the common stock of the Corporation in the Business Combination shall be not less than the highest price per share previously paid by the Principal Shareholder (whether before or after it became a Principal Shareholder) for any of the shares of common stock of the Corporation at any time Beneficially Owned, directly or indirectly, by the principal Shareholder. 3. The consideration to be received by the holders of the common stock of the Corporation in the Business Combination shall be in the same form and of the same kind as the consideration paid by the Principal Shareholder in acquiring the majority of the shares of common stock of the Corporation already Beneficially Owned, directly or indirectly, by the Principal Shareholder. The conditions imposed by this Article XV shall be in addition to all other conditions (including, without limitation, the vote of the holders of any class or series of stock of the Corporation) otherwise imposed by law, by any other Article of these Articles, by any resolution of the board of directors providing for the issuance of a class or series of stock, or by any agreement between the Corporation and any national securities exchange or national securities quotation system. B. Certain Definitions. For the purpose of this Article XV, the ------------------- definitions of "Business Combination," "Principal Shareholder," "Substantial Part," "Voting Stock," and "Beneficial Owner" set forth in Article XIV hereof will apply to this Article XV. The "Market Price" of the common stock of the Corporation shall be the mean between the high "bid" and the low "asked" prices of the common stock in the over-the-counter market on the day on which such value is to be determined or, if no shares were traded on such date, on the next preceding day on which such shares were traded, as reported by the National Association of Securities Dealers Automated Quotation System ("Nasdaq"), the Nasdaq Bulletin Board or other national quotation service. If the common stock of the Corporation is not regularly traded in the over-the-counter market but is registered on a national securities exchange or traded in the national over-the-counter market, the market value of the common stock shall mean the closing price of the common stock on such national securities exchange or market on the day on which such value is to be determined or, if no shares were traded on such day, on the next preceding day on which shares were traded, as reported by National Quotation Bureau, Incorporated or other national quotation service. If no such quotations are available, the fair market value of the date in question of a share of such stock as determined by the board of directors in good faith; and in the case of property other than cash or stock, the fair market value of such property other than cash or stock, the fair market value of such property on the date in question as determined by the board of directors in good faith. C. Exceptions. The provisions of this Article XV shall not apply to a ---------- Business Combination which was approved by two-thirds of those members of the board of directors of the Corporation who were directors prior to the time when the Principal Shareholder became a principal Shareholder. The provisions of which this Article XV also shall not apply to a Business Combination which (a) does not change any shareholder's percentage ownership in the shares of stock entitled to vote in the election of directors of any successor of the Corporation from the percentage of the shares of Voting Stock Beneficially Owned by such shareholder; (b) provides for the provisions of this Article XV, without any amendment, change, alteration, or deletion, to apply to any successor to the Corporation; and (c) does not transfer all or a Substantial Part of the Corporation's assets other than to a wholly-owned subsidiary of the Corporation; provided, however, that nothing contained in this Article XV shall permit the Corporation to issue any of its shares of 11 Voting Stock or to transfer any of its assets to a wholly-owned subsidiary of the Corporation if such issuance of shares of Voting Stock or transfer of assets is part of a plan to transfer such shares of Voting Stock or assets to a Principal Shareholder. D. Additional Provisions. Nothing contained in this Article XV shall be --------------------- construed to relieve a Principal Shareholder from any fiduciary obligation imposed by law. In addition, nothing contained in this Article XV shall prevent any shareholders of the Corporation from objecting to any Business Combination and from demanding any appraisal rights which may be available to such shareholders. E. Notwithstanding Article XX or any other provisions of these Articles or the bylaws of the Corporation (and notwithstanding the fact that a lesser percentage may be specified by law, these Articles or the bylaws of the Corporation), the affirmative vote of the holders of at least 80% of the outstanding shares entitled to vote thereon (and, if any class or series is entitled to vote thereon separately, the affirmative vote of the holders of at least 80% of the outstanding shares of each such class or series) shall be required to amend or repeal or adopt any provisions inconsistent with this Article XV. ARTICLE XVI EVALUATION OF BUSINESS COMBINATIONS In connection with the exercise of its judgment in determining what is in the best interests of the Corporation and of the shareholders, when evaluating a Business Combination (as defined in Article XIV) or a tender or exchange offer, the board of directors of the Corporation may, in addition to considering the adequacy of the amount to be paid in connection with any such transaction, consider all of the following factors and any other factors which it deems relevant; (i) the social and economic effects of the transaction on the Corporation and its subsidiaries, employees, depositors, loan and other customers, creditors and other elements of the communities in which the Corporation and its subsidiaries operate or are located; (ii) the business and financial condition and earnings prospects of the acquiring person or entity, including, but not limited to, debt service and other existing financial obligations, financial obligations to be incurred in connection with the acquisition and other likely financial obligations of the acquiring person or entity and the possible effect of such conditions upon the Corporation and its subsidiaries and the other elements of the communities in which the Corporation and its subsidiaries operate or are located; and (iii) the competence, experience, and integrity of the acquiring person or entity and its or their management. ARTICLE XVII LIABILITY A. Elimination of Directors' Liability. Directors of the Corporation ----------------------------------- shall have no liability to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that this Article XVII shall not eliminate liability of a director (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not made in good faith or which involve intentional misconduct or a knowing violation of law, (iii) acts specified in Section 7-108-403 of the Colorado Business Corporation Act pertaining to unlawful distributions, or (iv) for any transaction from which a director derived an improper personal benefit. If the Colorado Business Corporation Act is amended after the effective date of these Articles to further eliminate or limit the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Colorado Business Corporation Act, as so amended. B. Limitation of Director's and Officer's Liability. No director or ------------------------------------------------ officer shall be personally liable for any injury to person or property arising out of a tort committed by an employee unless such director or officer was 12 personally involved in the situation giving rise to the litigation or unless such director or officer committed a criminal offense in connection with such situation. Any repeal or modification of the forgoing paragraphs by the stockholders of the Corporation shall not adversely affect any right or protection of a director or officer of the Corporation existing at the time of such repeal or modification. ARTICLE XVIII INDEMNIFICATION A. Indemnification. The Corporation shall indemnify any person who was --------------- or is a party or is threatened to be made a party to any threatened, pending, or completed action, suit, or proceeding, including actions by or in the right of the Corporation, whether civil, criminal, administrative, or investigative, by reason of the fact that such person is or was a director, officer, employee, fiduciary or agent of the Corporation, or was serving at the request of the Corporation as a director, officer, employee, fiduciary or agent of another corporation, partnership, joint venture, trust, or other enterprise, against expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit, or proceeding to the full extent permissible under Colorado law. B. Advancement of Expenses. Reasonable expenses incurred by an officer, ----------------------- director, employee, fiduciary or agent of the Corporation in defending any action, suit, or proceeding described in Section A of this Article XVIII may be paid by the Corporation in advance of the final disposition of such action, suit, or proceeding if authorized by the board of directors (without regard to whether participating members thereof are parties to such action, suit, or proceeding) or as otherwise required and to the fullest extent permitted by Colorado law, upon receipt of an undertaking by or on behalf of such person to repay such amount if it shall ultimately be determined that the person is not entitled to be indemnified by the Corporation. ARTICLE XIX AMENDMENT OF BYLAWS In furtherance and not in limitation of the powers conferred by statute, the board of directors of the Corporation is expressly authorized to adopt, repeal, alter, amend and rescind the bylaws of the Corporation by a vote of two- thirds of the board of directors. Notwithstanding any other provision of these Articles or the bylaws of the Corporation (and notwithstanding the fact that some lesser percentage may be specified by law), the bylaws shall not be adopted, repealed, altered, amended or rescinded by the stockholders of the Corporation except by the vote of the holders of not less than 80% of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) cast at a meeting of the stockholders called for that purpose (provided that notice of such proposed adoption, repeal, alteration, amendment or rescission is included in the notice of such meeting), or, as set forth above, by the board of directors. ARTICLE XX AMENDMENT OF ARTICLES OF INCORPORATION The Corporation reserves the right to repeal, alter, amend or rescind any provision contained in these Articles in the manner now or hereafter prescribed by law, and all rights conferred on stockholders herein are granted subject to this reservation. Notwithstanding the foregoing, the provisions set forth in Articles IX, X, XI, XII, XIII, XIV, XV, XVI, XVII, XVIII, XIX and this Article XX may not be repealed, altered, amended or rescinded in any respect unless the same is approved by the affirmative vote of the holders of not less than 80% of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as a single class) cast at a meeting of the stockholders called for that purpose (provided that notice of such proposed repeal, alteration, amendment or rescission is included in the notice of such meeting); except that such repeal, alteration, 13 amendment or rescission may be made by the affirmative vote of the holders of a majority of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as a single class) if the same is first approved by a majority of the Continuing Directors, as defined in Article XIV of these Articles. 14 I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the purpose of forming a corporation pursuant to the Corporation Act of the State of Colorado, do make these Articles, hereby declaring and certifying that this is our act and deed and the facts herein stated are true, and accordingly have hereunto set my hand this 19th day of August , 1997. /s/ Larry D. Smith --------------------------- Larry D. Smith Incorporator Attest: /s/ Richard A. Young -------------------- 15 EX-3.2 5 EXHIBIT 3.2 Exhibit 3.2 BYLAWS OF HIGH COUNTRY BANCORP, INC. ARTICLE I PRINCIPAL EXECUTIVE OFFICE The principal executive office of High Country Bancorp, Inc. (the "Corporation") shall be at 130 West 2/nd/ Street, Salida, Colorado 81201. The Corporation may also have offices at such other places within or without the State of Colorado as the board of directors shall from time to time determine. ARTICLE II STOCKHOLDERS SECTION 1. Place of Meetings. All annual and special meetings of ----------------- stockholders shall be held at the principal executive office of the Corporation or at such other place within or without the State of Colorado as the board of directors may determine and as designated in the notice of such meeting. SECTION 2. Annual Meeting. A meeting of the stockholders of the -------------- Corporation for the election of directors and for the transaction of any other business of the Corporation shall be held annually at such date and time as the board of directors may determine. SECTION 3. Special Meetings. Special meetings of the stockholders for any ---------------- purpose or purposes may be called at any time by the board of directors or by a committee of the board of directors, and only such persons as are specifically permitted to call meetings by the Colorado Business Corporation Act in accordance with the provisions of the Corporation's Articles of Incorporation. SECTION 4. Conduct of Meetings. Annual and special meetings shall be ------------------- conducted in accordance with these Bylaws or as otherwise prescribed by the board of directors. The chairman or the chief executive officer of the Corporation shall preside at such meetings. SECTION 5. Notice of Meeting. Written notice stating the place, day and ----------------- hour of the meeting and the purpose or purposes for which the meeting is called shall be mailed by the secretary or the officer performing his duties, not less than ten days nor more than sixty days before the meeting to each stockholder of record entitled to vote at such meeting, except that if the number of authorized shares is to be increased, at least thirty days notice will be given. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the stockholder at his address as it appears on the stock transfer books or records of the Corporation as of the record date prescribed in Section 6 of this Article II, with postage thereon prepaid. If a stockholder is present at a meeting, or in writing waives notice thereof before or after the meeting, notice of the meeting to such stockholder shall be unnecessary. When any stockholders' meeting, either annual or special, is adjourned for thirty days or more, notice of the adjourned meeting shall be given as in the case of an original meeting. It shall not be necessary to give any notice of the time and place of any meeting adjourned for less than thirty days or of the business to be transacted at such adjourned meeting, other than an announcement at the meeting at which such adjournment is taken. 1 SECTION 6. Fixing of Record Date. For the purpose of determining --------------------- stockholders entitled to notice of or to vote at any meeting of stockholders, or any adjournment thereof, or stockholders entitled to receive payment of any dividend, or in order to make a determination of stockholders for any other proper purpose, the board of directors shall fix in advance a date as the record date for any such determination of stockholders. Such date in any case shall be not more than seventy days prior to the date on which the particular action, requiring such determination of stockholders, is to be taken. When a determination of stockholders entitled to vote at any meeting of stockholders has been made as provided in this section, such determination shall apply to any adjournment thereof, unless the meeting is adjourned for more than one hundred and twenty days, in which case the board will fix a new record date. SECTION 7. Voting Lists. The officer or agent having charge of the stock ------------ transfer books for shares of the Corporation shall make, at least ten days before each meeting of stockholders, a complete record of the stockholders entitled to vote at such meeting or any adjournment thereof, arranged in alphabetical order, with the address of and the number of shares held by each. The record, for a period of ten days before such meeting, shall be kept on file at the principal office of the Corporation, and shall be subject to inspection by any stockholder for any purpose germane to the meeting at any time during usual business hours. Such record shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any stockholder for any purpose germane to the meeting during the whole time of the meeting. The original stock transfer books shall be prima facie evidence as to who are the stockholders entitled to examine such record or transfer books or to vote at any meeting of stockholders. SECTION 8. Quorum. A majority of the outstanding shares of the ------ Corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of stockholders. If less than a majority of the outstanding shares are represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. The stockholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. SECTION 9. Proxies. At all meetings of stockholders, a stockholder may ------- vote by proxy executed in writing by the stockholder or by his duly authorized attorney in fact. Proxies solicited on behalf of the management shall be voted as directed by the stockholder or, in the absence of such direction, as determined by a majority of the board of directors. No proxy shall be valid after eleven months from the date of its execution unless otherwise provided in the proxy. SECTION 10. Voting. Except as is otherwise specified in the Articles of ------ Incorporation, at each election for directors every stockholder entitled to vote at such election shall be entitled to one vote for each share of stock held. Unless otherwise provided by the Articles of Incorporation, by statute, or by these Bylaws, a majority of those votes cast by stockholders at a lawful meeting shall be sufficient to pass on a transaction or matter. SECTION 11. Voting of Shares in the Name of Two or More Persons. When --------------------------------------------------- ownership of stock stands in the name of two or more persons, in the absence of written directions to the Corporation to the contrary, at any meeting of the stockholders of the Corporation any one or more of such stockholders may cast, in person or by proxy, all votes to which such ownership is entitled. In the event an attempt is made to cast conflicting votes, in person or by proxy, by the several persons in whose name shares of stock stand, the vote or votes to which these persons are entitled shall be cast as directed by a majority of those holding such stock and present in person or by proxy at such meeting, but no votes shall be cast for such stock if a majority cannot agree. SECTION 12. Voting of Shares by Certain Holders. Shares standing in the ----------------------------------- name of another corporation may be voted by any officer, agent or proxy as the bylaws of such corporation may prescribe, or, in the absence of such provision, as the board of directors of such corporation may determine. Shares held by an administrator, executor, guardian trustee or conservator may be voted by him, either in person or by proxy, without a transfer of such shares into his name. Shares standing in the name of a trustee may be voted by him, either in person or by proxy, but no trustee 2 shall be entitled to vote shares held by him without a transfer of such shares into his name. Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his name if authority to do so is contained in an appropriate order of the court or other public authority by which such receiver was appointed. A stockholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee and thereafter the pledgee shall be entitled to vote the shares so transferred. Neither treasury shares of its own stock held by the Corporation, nor shares held by another corporation, if a majority of the shares entitled to vote for the election of directors of such other corporation are held by the Corporation, shall be voted at any meeting or counted in determining the total number of outstanding shares at any given time for purposes of any meeting. SECTION 13. Inspectors of Election. In advance of any meeting of ---------------------- stockholders, the chairman of the board or the board of directors may appoint any persons, other than nominees for office, as inspectors of election to act at such meeting or any adjournment thereof. The number of inspectors shall be either one or three. If the board of directors so appoints either one or three inspectors, that appointment shall not be altered at the meeting. If inspectors of election are not so appointed, the chairman of the board may make such appointment at the meeting. In case any person appointed as inspector fails to appear or fails or refuses to act, the vacancy may be filled by appointment in advance of the meeting or at the meeting by the chairman of the board or the president. Unless otherwise prescribed by applicable law, the duties of such inspectors shall include: determining the number of shares of stock and the voting power of each share, the shares of stock represented at the meeting, the existence of a quorum, the authenticity, validity and effect of proxies; receiving votes, ballots or consents; hearing and determining all challenges and questions in any way arising in connection with the right to vote; counting and tabulating all votes or consents; determining the result; and such acts as may be proper to conduct the election or vote with fairness to all stockholders. SECTION 14. Nominating Committee. The board of directors or a committee -------------------- appointed by the board of directors shall act as a nominating committee for selecting the nominees for election as directors. Except in the case of a nominee substituted as a result of the death or other incapacity of a management nominee, the nominating committee shall deliver written nominations to the secretary at least twenty days prior to the date of the annual meeting. Provided such committee makes such nominations, no nominations for directors except those made by the nominating committee shall be voted upon at the annual meeting unless other nominations by stockholders are made in writing and delivered to the secretary of the Corporation in accordance with the provisions of the Corporation's Articles of Incorporation. SECTION 15. New Business. Any new business to be taken up at the annual ------------ meeting shall be stated in writing and filed with the secretary of the Corporation in accordance with the provisions of the Corporation's Articles of Incorporation. This provision shall not prevent the consideration and approval or disapproval at the annual meeting of reports of officers, directors and committees, but in connection with such reports no new business shall be acted upon at such annual meeting unless stated and filed as provided in the Corporation's Articles of Incorporation. ARTICLE III BOARD OF DIRECTORS SECTION 1. General Powers. The business and affairs of the Corporation -------------- shall be under the direction of its board of directors. The chairman shall preside at all meetings of the board of directors. 3 SECTION 2. Number, Term and Election. The board of directors shall ------------------------- consist of six members and shall be divided into three classes as nearly equal in number as possible. The members of each class shall be elected for a term of three years and until their successors are elected or qualified. The board of directors shall be classified in accordance with the provisions of the Corporation's Articles of Incorporation. SECTION 3. Regular Meetings. A regular meeting of the board of directors ---------------- shall be held at such time and place as shall be determined by resolution of the board of directors without other notice than such resolution. SECTION 4. Special Meetings. Special meetings of the board of directors ---------------- may be called by or at the request of the chairman, the chief executive officer or one-third of the directors. The person calling the special meetings of the board of directors may fix any place as the place for holding any special meeting of the board of directors called by such persons. Members of the board of directors may participate in special meetings by means of conference telephone or similar communications equipment by which all persons participating in the meeting can hear each other. Such participation shall constitute presence in person. SECTION 5. Notice. Written notice of any special meeting shall be given ------ to each director at least two days previous thereto delivered personally or by telegram or at least seven days previous thereto delivered by mail at the address at which the director is most likely to be reached. Such notice shall be deemed to be delivered when deposited in the United States mail so addressed, with postage thereon prepaid if mailed or when delivered to the telegraph company if sent by telegram. Any director may waive notice of any meeting by a writing filed with the secretary. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any meeting of the board of directors need be specified in the notice or waiver of notice of such meeting. SECTION 6. Quorum. A majority of the number of directors fixed by Section ------ 2 of this Article III shall constitute a quorum for the transaction of business at any meeting of the board of directors, but if less than such majority is present at a meeting, a majority of the directors present may adjourn the meeting from time to time. Notice of any adjourned meeting shall be given in the same manner as prescribed by Section 5 of this Article III. SECTION 7. Manner of Acting. The act of the majority of the directors ---------------- present at a meeting at which a quorum is present shall be the act of the board of directors, unless a greater number is prescribed by these Bylaws, the Articles of Incorporation, or the Business Corporation Act of the State of Colorado. SECTION 8. Action Without a Meeting. Any action required or permitted to ------------------------ be taken by the board of directors at a meeting may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the directors. SECTION 9. Resignation. Any director may resign at any time by sending a ----------- written notice of such resignation to the home office of the Corporation addressed to the chairman of the board. Unless otherwise specified therein such resignation shall take effect upon receipt thereof by the chairman of the board. SECTION 10. Vacancies. Any vacancy occurring in the board of directors --------- shall be filled in accordance with the provisions of the Corporation's Articles of Incorporation. Any directorship to be filled by reason of an increase in the number of directors may be filled by the affirmative vote of two-thirds of the directors then in office or by election at an annual meeting or at a special meeting of the stockholders held for that purpose. The term of such director shall be in accordance with the provisions of the Corporation's Articles of Incorporation. 4 SECTION 11. Removal of Directors. Any director or the entire board of -------------------- directors may be removed only in accordance with the provisions of the Corporation's Articles of Incorporation. SECTION 12. Compensation. Directors, as such, and advisory or emeritus ------------ directors may receive compensation for service on the board of directors. Members of either standing or special committees may be allowed such compensation as the board of directors may determine. SECTION 13. Advisory and Emeritus Directors. The board of directors may ------------------------------- by resolution appoint as advisory directors individuals whom the board believes possess knowledge, experience and other qualifications which may prove valuable to the Corporation, and may appoint as emeritus directors individuals who have retired from the board after extended and faithful service. Advisory and emeritus directors may sit with the board of directors at regular and special meetings and discuss any question under consideration; provided, however, that advisory and emeritus directors shall cast no vote. The board of directors shall have the power to remove any advisory or emeritus director with or without cause at any time. ARTICLE IV COMMITTEES OF THE BOARD OF DIRECTORS The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, as they may determine to be necessary or appropriate for the conduct of the business of the Corporation, and may prescribe the duties, constitution and procedures thereof. Each committee shall consist of one or more directors of the Corporation appointed by a majority of the whole board. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. The board shall have power at any time to change the members of, to fill vacancies in, and to discharge any committee of the board. Any member of any such committee may resign at any time by giving notice to the Corporation; provided, however, that notice to the board, the chairman of the board, the chief executive officer, the chairman of such committee, or the secretary shall be deemed to constitute notice to the Corporation. Such resignation shall take effect upon receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, acceptance of such resignation shall not be necessary to make it effective. Any member of any such committee may be removed at any time, either with or without cause, by the affirmative vote of a majority of the authorized number of directors at any meeting of the board called for that purpose. ARTICLE V OFFICERS SECTION 1. Positions. The officers of the Corporation shall be a --------- president, one or more vice presidents, a secretary and a treasurer, each of whom shall be elected by the board of directors. The board of directors may designate one or more vice presidents as executive vice president or senior vice president. The board of directors may also elect or authorize the appointment of such other officers as the business of the Corporation may require. The officers shall have such authority and perform such duties as the board of directors may from time to time authorize or determine. In the absence of action by the board of directors, the officers shall have such powers and duties as generally pertain to their respective offices. 5 SECTION 2. Election and Term of Office. The officers of the Corporation --------------------------- shall be elected annually by the board of directors at the first meeting of the board of directors held after each annual meeting of the stockholders. If the election of officers is not held at such meeting, such election shall be held as soon thereafter as possible. Each officer shall hold office until his successor shall have been duly elected and qualified or until his death or until he shall resign or shall have been removed in the manner hereinafter provided. Election or appointment of an officer, employee or agent shall not of itself create contract rights. The board of directors may authorize the Corporation to enter into an employment contract with any officer in accordance with state law; but no such contract shall impair the right of the board of directors to remove any officer at any time in accordance with Section 3 of this Article V. SECTION 3. Removal. Any officer may be removed by vote of two-thirds of ------- the board of directors whenever, in its judgment, the best interests of the Corporation will be served thereby, but such removal, other than for cause, shall be without prejudice to the contract rights, if any, of the person so removed. SECTION 4. Vacancies. A vacancy in any office because of death, --------- resignation, removal, disqualification or otherwise, may be filled by the board of directors for the unexpired portion of the term. SECTION 5. Remuneration. The remuneration of the officers shall be fixed ------------ from time to time by the board of directors, and no officer shall be prevented from receiving such salary by reason of the fact that he is also a director of the Corporation. ARTICLE VI CONTRACTS, LOANS, CHECKS AND DEPOSITS SECTION 1. Contracts. To the extent permitted by applicable law, and --------- except as otherwise prescribed by the Corporation's Articles of Incorporation or these Bylaws with respect to certificates for shares, the board of directors or the executive committee may authorize any officer, employee, or agent of the Corporation to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation. Such authority may be general or confined to specific instances. SECTION 2. Loans. No loans shall be contracted on behalf of the ----- Corporation and no evidence of indebtedness shall be issued in its name unless authorized by the board of directors. Such authority may be general or confined to specific instances. SECTION 3. Checks, Drafts, Etc. All checks, drafts or other orders for ------------------- the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by one or more officers, employees or agents of the Corporation in such manner, including in facsimile form, as shall from time to time be determined by resolution of the board of directors. SECTION 4. Deposits. All funds of the Corporation not otherwise employed -------- shall be deposited from time to time to the credit of the Corporation in any of its duly authorized depositories as the board of directors may select. ARTICLE VII CERTIFICATES FOR SHARES AND THEIR TRANSFER SECTION 1. Certificates for Shares. The shares of the Corporation shall ----------------------- be represented by certificates signed by the chairman of the board of directors or the president or a vice president and by the treasurer or an assistant treasurer or the secretary or an assistant secretary of the Corporation, and may be sealed with the seal of the Corporation or a facsimile thereof. Any or all of the signatures upon a certificate may be facsimiles if the certificate is countersigned 6 by a transfer agent, or registered by a registrar, other than the Corporation itself or an employee of the Corporation. If any officer who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be such officer before the certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer at the date of its issue. SECTION 2. Form of Share Certificates. All certificates representing -------------------------- shares issued by the Corporation shall set forth upon the face or back that the Corporation will furnish to any stockholder upon request and without charge a full statement of the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof, and the qualifications, limitations or restrictions of such preferences and/or rights, so far as the same have been fixed and determined, and the authority of the board of directors to fix and determine the relative rights and preferences of subsequent series. Each certificate representing shares shall state upon the face thereof: that the Corporation is organized under the laws of the State of Colorado; the name of the person to whom issued; the number and class of shares, the designation of the series, if any, which such certificate represents; and the par value of each share represented by such certificate, or a statement that the shares are without par value. Other matters in regard to the form of the certificates shall be determined by the board of directors. SECTION 3. Payment for Shares. No certificate shall be issued for any ------------------ share until such share is fully paid. SECTION 4. Form of Payment for Shares. The consideration for the issuance -------------------------- of shares shall be paid in accordance with the provisions of the Corporation's Articles of Incorporation. SECTION 5. Transfer of Shares. Transfer of shares of capital stock of the ------------------ Corporation shall be made only on its stock transfer books. Authority for such transfer shall be given only the holder of record thereof or by his legal representative, who shall furnish proper evidence of such authority, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Corporation. Such transfer shall be made only on surrender for cancellation of the certificate for such shares. The person in whose name shares of capital stock stand on the books of the Corporation shall be deemed by the Corporation to be the owner thereof for all purposes. SECTION 6. Lost Certificates. The board of directors may direct a new ----------------- certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed. When authorizing such issue of a new certificate, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen, or destroyed certificate, or his legal representative, to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen, or destroyed. ARTICLE VIII FISCAL YEAR; ANNUAL AUDIT The fiscal year of the Corporation shall end on the last day of June of each year. The Corporation shall be subject to an annual audit as of the end of its fiscal year by independent public accountants appointed by and responsible to the board of directors. 7 ARTICLE IX DIVIDENDS Dividends upon the stock of the Corporation, subject to the provisions of the Articles of Incorporation, if any, may be declared by the board of directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property or in the Corporation's own stock. Dividends may be paid in cash, in property, in the Corporation's own stock, or through a dividend reinvestment plan, if such plan should be approved and adopted. ARTICLE X CORPORATION SEAL The corporate seal of the Corporation shall be in such form as the board of directors shall prescribe. ARTICLE XI AMENDMENTS In accordance with the Corporation's Articles of Incorporation, these Bylaws may be repealed, altered, amended or rescinded by the stockholders of the Corporation only by vote of not less than 80% of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) cast at a meeting of the stockholders called for that purpose (provided that notice of such proposed repeal, alteration, amendment or rescission is included in the notice of such meeting). In addition, the board of directors may repeal, alter, amend or rescind these Bylaws by vote of two-thirds of the board of directors at a legal meeting held in accordance with the provisions of these Bylaws. 8 EX-4 6 EXHIBIT 4 EXHIBIT 4 COMMON STOCK NUMBER ___ ___ SHARES HIGH COUNTRY BANCORP, INC. INCORPORATED UNDER THE LAWS OF THE STATE OF COLORADO This certifies that is the owner of CUSIP _________ fully paid and nonassessable shares of common stock, par value $0.01 per share, of High Country Bancorp, Inc. (the "Corporation"), a Colorado corporation. The shares represented by this certificate are transferable only on the stock transfer books of the Corporation by the holder of record hereof, or by his duly authorized attorney or legal representative, upon the surrender of this certificate properly endorsed. This certificate is not valid until countersigned and registered by the Corporation's transfer agent and registrar. THIS SECURITY IS NOT A DEPOSIT OR ACCOUNT AND IS NOT FEDERALLY INSURED OR GUARANTEED. IN WITNESS WHEREOF, the Corporation has caused this certificate to be executed by the facsimile signatures of its duly authorized officers and has caused a facsimile of its corporate seal to be hereunto affixed. Dated: - ------------------------- ------------------------- Richard A. Young Larry D. Smith Secretary President Countersigned and Registered: By: ----------------------------- Transfer Agent and Registrar ----------------------------- Authorized Signature [CORPORATE SEAL] - -------------------------------------------------------------------------------- RESTRICTIONS ON TRANSFER The Articles of Incorporation includes a provision which prohibits any person from directly or indirectly acquiring or offering to acquire the beneficial ownership of more than 10% of any class of equity security of the Corporation. Such provision eliminates the voting rights of securities acquired in violation of the provision. Such provision will expire five years from the date of completion of the conversion of Salida Building & Loan Association, Salida, Colorado (the "Association") from mutual to stock form. The Articles of Incorporation also impose certain restrictions on the voting rights of beneficial owners of more than 10% of any class of equity security of the Corporation after five years from the date of completion of the conversion of the Association from mutual to stock form. The Corporation will furnish without charge to each stockholder who so requests additional information with respect to such restrictions. Such request may be made in writing to the Secretary of the Corporation. - -------------------------------------------------------------------------------- The shares represented by this certificate are issued subject to all the provisions of the Articles of Incorporation and Bylaws of the Corporation as from time to time amended (copies of which are on file at the principal executive office of the Corporation), to all of which the holder by acceptance hereof assents. The Corporation will furnish without charge to each stockholder who so requests, a full statement of the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Such requests shall be made in writing to the Secretary of the Corporation. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common TEN ENT - as tenants by the entireties JT TEN - as joint tenants with right of survivorship and not as tenants in common UNIF TRANSFERS MIN ACT - ..........Custodian.......... under Uniform Transfers (Cust) (Minor) to Minors Act....................... (State) Additional abbreviations may also be used though not in the above list. For value received,______hereby sell(s), assign(s) and transfer(s) unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - --------------------- / / - -------------------- - -------------------------------------------------------------------------------- (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Shares - -------------------------------------------------------------------------- of the common stock evidenced by this certificate, and do hereby irrevocably constitute and appoint , Attorney, to transfer the said ------------------ shares on the books of the Corporation, with full power of substitution. Dated -------------- -------------------------------------- Signature -------------------------------------- Signature In presence of: ------------------- SEE REVERSE SIDE FOR RESTRICTIONS ON TRANSFER NOTE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME OF THE STOCKHOLDER(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. EX-5 7 EXHIBIT 5 EXHIBIT 5 [Letterhead of Housley Kantarian & Bronstein, P.C.] August 21, 1997 Board of Directors High Country Bancorp, Inc. 130 West 2/nd/ Street Salida, Colorado 81201 RE: Registration Statement on Form SB-2 Ladies and Gentlemen: You have requested our opinion as special counsel to High Country Bancorp, Inc. (the "Corporation") in connection with the Registration Statement on Form SB-2 to be filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "Registration Statement"). The Registration Statement relates to shares of common stock of the Corporation (the "Common Stock") to be issued in connection with the simultaneous conversion of Salida Building & Loan Association from mutual to stock form and reorganization into the holding company form of ownership as a wholly owned subsidiary of the Corporation (the "Conversion"). In rendering this opinion, we understand that the Common Stock will be offered and sold in the manner described in the Prospectus which is a part of the Registration Statement. We have examined such records and documents and made such examination as we have deemed relevant in connection with this opinion. Based upon the foregoing, it is our opinion that the shares of Common Stock will, when issued and sold as contemplated by the Registration Statement, be legally issued, fully paid and nonassessable. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to us in the Prospectus under the heading "Legal Opinions." Very truly yours, HOUSLEY KANTARIAN & BRONSTEIN, P.C. By: /s/ Howard S. Parris -------------------------- Howard S. Parris EX-8.1 8 EXHIBIT 8.1 8.1 [LETTERHEAD OF HOUSLEY KANTARIAN & BRONSTEIN, P.C. APPEARS HERE] August 21, 1997 Board of Directors Salida Building and Loan Association 130 W. 2nd Street Salida, Colorado 81201-0309 Re: Certain Federal Income Tax Consequences Relating to Proposed Holding Company Conversion ------------------------------------------------ Gentlemen: In accordance with your request, set forth hereinbelow is the opinion of this firm relating to certain federal income tax consequences of the proposed conversion of Salida Building and Loan Association (the "Association") from a federally chartered mutual savings and loan association to a federally chartered stock savings and loan association (the "Stock Association") and the concurrent acquisition of 100% of the outstanding capital stock of the Stock Association by High Country Bancorp, Inc. (the "Holding Company"), a Colorado corporation formed at the direction of the Board of Directors of the Association to become the parent holding company of the Stock Association (the "Conversion"). For purposes of this opinion, we have examined such documents and questions of law as we have considered necessary or appropriate, including but not limited to the Plan of Conversion as adopted by the Association's Board of Directors on May 15, 1997 (the "Plan"); the federal mutual charter and bylaws of the Association; the articles of incorporation and bylaws of the Holding Company; and the affidavit of the President of the Association supporting this federal tax opinion. In such examination, we have assumed, and have not independently verified, the genuineness of all signatures on original documents where due execution and delivery are requirements to the effectiveness thereof. Terms used but not defined herein, whether capitalized or not, shall have the same meaning as defined in the Plan. Board of Directors Salida Building and Loan Association August 21, 1997 Page 2 BACKGROUND ---------- Based solely upon our review of such documents, and upon such information as the Association has provided to us (which we have not attempted to verify in any respect), and in reliance upon such documents and information, we set forth hereinbelow a general summary of the relevant facts and proposed transaction, qualified in its entirety by reference to the documents cited above. The Association is a federally chartered mutual savings and loan association which was chartered as a federal savings and loan association in 1993 and is in the process of converting to a federally chartered stock savings and loan association. It is currently a member of the Federal Home Loan Bank system and its deposits are insured by the Federal Deposit Insurance Corporation ("FDIC") up to the applicable limits. The Association is subject to comprehensive regulation and supervision by the FDIC and the Office of Thrift Supervision ("OTS"), and to examination by the OTS. The Association operates through offices located in Salida, Buena Vista and Leadville, Colorado. The principal business of the Association historically has consisted of attracting deposits from the general public and investing these deposits in loans secured by first mortgages on single-family residences in the Association's market area. The Association derives its income principally from interest earned on loans and, to a lesser extent, interest earned on mortgage-backed securities and investment securities and noninterest income. Funds for these activities are provided principally by operating revenues, deposits and repayments of outstanding loans and investment securities and mortgage-backed securities. At June 30, 1997, the Association had total assets of $76.3 million, deposits of $56.2 million, and equity (substantially restricted) of $6.0 million. As a federally chartered mutual savings and loan association, the Association has no authorized capital stock. Instead, the Association, in mutual form, has a unique equity structure. A savings depositor of the Association is entitled to payment of interest on his or her account balance as declared and paid by the Association, but has no right to a distribution of any earnings of the Association except for interest paid on his deposit. Rather, such earnings become retained earnings (or equity) of the Association. However, a savings depositor does have a right to share pro rata, with respect to the withdrawal value of his respective savings account, in any liquidation proceeds distributed if the Association is ever liquidated. Further, savings depositors and certain borrowers are members of the Association and thereby have voting rights in the Association. Under the Association's federal mutual charter, as amended, each savings depositor is entitled to cast one vote for each $100 or fraction thereof held Board of Directors Salida Building and Loan Association August 21, 1997 Page 3 in a withdrawable deposit account of the Association, and each borrower member (hereinafter "borrower") is entitled to one vote in addition to the votes (if any) to which such person is otherwise entitled in such borrower's capacity as a savings depositor of the Association. Also under such federal mutual charter, no member is entitled to cast more than 1,000 votes. All of the interests held by a savings depositor in the Association cease when such depositor closes his or her accounts with the Association. The Holding Company was incorporated in August 1997 under the laws of the State of Colorado to act as the savings and loan holding company of the Stock Association upon consummation of the Conversion. Prior to consummation of the Conversion, the Holding Company has not been engaged in, and is not expected to engage in, any material operations. After the Conversion, the Holding Company's principal business will be the business of the Stock Association. The Holding Company has an authorized capital structure of 3,000,000 shares of common stock (the "Common Stock") and 1,000,000 shares of serial preferred stock, par value $0.01 per share. PROPOSED TRANSACTION -------------------- The Association's Board of Directors has determined that the Conversion will be beneficial to the communities within its primary market area and persons residing within those communities. The Conversion will provide those persons with an opportunity to be an equity owner of the Association through ownership in the Holding Company. The Association believes that, by combining quality service and products with a local ownership base, its customers and community members who become stockholders will be more inclined to do business with the Association. This is consistent with the Association's objective of being a locally owned financial institution servicing local needs. The Board of Directors also believes that equity ownership will enable local stockholders to participate in the Association's success and profitability through possible capital appreciation and dividends. In addition, the Board of Directors of the Association has decided that in order to attract new capital to the Association to increase its net worth, to support future savings growth, to increase the amount of funds available for other lending and investment, to provide greater resources for the expansion of customer services and to facilitate future expansion, it would be advantageous for the Association to undertake the Conversion. Further, the Board of Directors of the Association has determined that in order to enhance flexibility of operations, diversification of business activities and geographic operations, financial capability for business and regulatory purposes, and to enable the Stock Association to more effectively compete with other types of financial services organizations, it would be advantageous to have the stock of Stock Association held by a parent holding company. The Board of Directors Board of Directors Salida Building and Loan Association August 21, 1997 Page 4 has also determined that the Conversion would enhance the future access of the Holding Company and the Stock Association to the capital markets. Accordingly, pursuant to the Plan, the Association will be converted from a federally chartered mutual savings and loan association to a federally chartered stock savings and loan association. The Stock Association will then issue to the Holding Company 100,000 shares of the Stock Association's common stock, representing all of the shares of capital stock to be issued by the Stock Association in the Conversion, and the Holding Company will make payment to the Stock Association of an amount equal to at least 50% of the aggregate net proceeds realized by the Holding Company from the sale of its Common Stock sold pursuant to the Plan (after deducting the amount necessary to fund a loan to an Employee Stock Ownership Plan being established in connection with the Conversion), or such other portion of the aggregate net proceeds as may be authorized or required by the OTS. The Holding Company currently anticipates making such payment to the Stock Association of an amount equal to 50% of the aggregate net proceeds from the sale of the Common Stock. Also pursuant to the Plan, the Holding Company will offer its shares of Common Stock for sale in a Subscription Offering. Shares of Common Stock remaining, if any, may then be offered to the general public in a Community Offering. Shares of the Common Stock not otherwise subscribed for in the Subscription Offering and Community Offering may be offered at the discretion of the Holding Company to certain members of the general public as part of a community offering on a best efforts basis by a selling group of selected broker-dealers. The purchase price per share and total number of shares of Common Stock to be offered and sold pursuant to the Plan will be determined by the Boards of Directors of the Association and the Holding Company, on the basis of the estimated pro forma market value of the Stock Association, as a subsidiary of --- ----- the Holding Company, which will in turn be determined by an independent appraiser. The aggregate purchase price for all shares of the Common Stock will be equal to such estimated pro forma market value. Pursuant to the Plan, all --- ----- such shares of Common Stock will be issued and sold at a uniform price per share. The Conversion, including the sale of newly issued shares of the stock of the Stock Association to the Holding Company, will be deemed effective concurrently with the closing of the sale of the Common Stock. Under the Plan and in accordance with regulations of the OTS, the shares of Common Stock will first be offered through the Subscription Offering pursuant to non-transferable subscription rights on the basis of preference categories in the following order of priority: Board of Directors Salida Building and Loan Association August 21, 1997 Page 5 (1) Eligible Account Holders; (2) Tax-Qualified Employee Stock Benefit Plans (i.e., the ESOP); (3) Supplemental Eligible Account Holders; and (4) Other Members. However, any shares of Common Stock sold in excess of the high end of the Valuation Range may be first sold to Tax-Qualified Employee Stock Benefit Plans set forth in category (2) above. Any shares of Common Stock not subscribed for in the Subscription Offering will be offered in the Community Offering in the following order of priority: (a) Natural persons and trusts of natural persons who are permanent Residents of the Association's Local Community; and (b) The general public. Shares not sold in the Subscription Offering and the Community Offering, if any, may thereafter be offered for sale to certain members of the general public as part of a community offering on a best efforts basis by a selling group of selected broker-dealers. The sale of shares in the Subscription Offering, Community Offering, and as sold through the selected broker-dealers would be consummated at the same time. The Plan also provides for the establishment of a Liquidation Account by the Stock Association for the benefit of all Eligible Account Holders and Supplemental Eligible Account Holders in an amount equal to the net worth (or regulatory capital) of the Association as of the date of the latest statement of financial condition contained in the final prospectus issued in connection with the Conversion. The establishment of the Liquidation Account will not operate to restrict the use or application of any of the net worth accounts of the Stock Association, except that the Stock Association may not declare or pay cash dividends on or repurchase any of its stock if the result thereof would be to reduce its net worth below the amount required to maintain the Liquidation Account. All such account holders will have an inchoate interest in a proportionate amount of the Liquidation Account with respect to each savings account held and will be paid by the Stock Association in event of liquidation prior to any liquidating distribution being made with respect to capital stock. Under the Plan, the Conversion shall not be deemed to be a liquidation of the Association for purposes of distribution of the Liquidation Account. Instead, upon Board of Directors Salida Building and Loan Association August 21, 1997 Page 6 consummation of the Conversion, the Liquidation Account, together with the related rights and obligations of the Stock Association, shall be assumed by the Stock Association. Following the Conversion, voting rights in the Stock Association will rest exclusively with the sole holder of stock in the Stock Association, which will be the Holding Company. Voting rights in the Holding Company will rest exclusively in the holders of the Common Stock. The Conversion will not interrupt the business of the Association. The Stock Association will, after the Conversion, engage in the same business as that of the Association immediately prior to the Conversion, and will continue to be subject to regulation and supervision by the OTS and the FDIC. Further, the deposits of the Stock Association will continue to be insured by the FDIC. Each depositor will retain a withdrawable savings account or accounts equal in dollar amount to, and on the same terms and conditions as, the withdrawable account or accounts at the time of Conversion except to the extent funds on deposit are used to pay for Common Stock purchased in connection with the Conversion. All loans of the Association will remain unchanged and retain their same characteristics in the Stock Association immediately following the Conversion. The Plan must be approved by the OTS and by an affirmative vote of at least a majority of the total votes eligible to be cast at a meeting of the Association's members called to vote on the Plan. Immediately prior to the Conversion, the Association will have a positive net worth determined in accordance with generally accepted accounting principles. OPINION ------- Based on the foregoing and in reliance thereon, and subject to the conditions stated herein, it is our opinion that the following federal income tax consequences will result from the proposed transaction. 1. The Conversion will constitute a reorganization within the meaning of Section 368(a)(1)(F) of the Internal Revenue Code of 1986, as amended (the "Code"), and no gain or loss will be recognized to either the Association or to the Stock Association as a result of the Conversion (see Rev. Rul. 80- 105, 1980-1 C.B. 78). 2. The assets of the Association will have the same basis in the hands of the Stock Association as in the hands of the Association immediately prior to the Conversion (Section 362(b) of the Code). Board of Directors Salida Building and Loan Association August 21, 1997 Page 7 3. The holding period of the assets of the Association to be received by the Stock Association will include the period during which the assets were held by the Association prior to the Conversion (Section 1223(2) of the Code). 4. No gain or loss will be recognized by the Stock Association upon its receipt of money from the Holding Company in exchange for shares of common stock of Stock Association (Section 1032(a) of the Code). The Holding Company will be transferring solely cash to the Stock Association in exchange for all the outstanding capital stock of the Stock Association and therefore will not recognize any gain or loss upon such transfer. (Section 351(a) of the Code; see Rev. Rul. 69-357, 1969-1 C.B. 101). 5. No gain or loss will be recognized by the Holding Company upon its receipt of money in exchange for shares of the Common Stock (Section 1032(a) of the Code). 6. No gain or loss will be recognized by the Eligible Account Holders, Supplemental Eligible Account Holders or Other Members of the Association upon the issuance to them of deposit accounts in the Stock Association in the same dollar amount and on the same terms and conditions in exchange for their deposit accounts in the Association held immediately prior to the Conversion. (Section 1001(a) of the Code; Treas. Reg. ss.1.1001-1(a)). 7. The tax basis of the savings accounts of the Eligible Account Holders, Supplemental Eligible Account Holders, and Other Members in the Stock Association received as part of the Conversion will equal the tax basis of such account holders' corresponding deposit accounts in the Association surrendered in exchange therefor (Section 1012 of the Code). 8. Each depositor of the Association will recognize gain upon the receipt of his or her respective interest in the Liquidation Account established by the Stock Association pursuant to the Plan and the receipt of his or her subscription rights deemed to have been received for federal income tax purposes, but only to the extent of the excess of the combined fair market value of a depositor's interest in such Liquidation Account and subscription rights over the depositor's basis in the former interests in the Association other than deposit accounts. Persons who subscribe in the Conversion but who are not depositors of the Association will recognize gain upon the receipt of subscription rights deemed to have been received for federal income tax purposes, but only to the extent of the excess of the fair market value of such subscription rights over such person's former interests in the Association, if any. Board of Directors Salida Building and Loan Association August 21, 1997 Page 8 Any such gain realized in the Conversion would be subject to immediate recognition. 9. The basis of each account holder's interest in the Liquidation Account received in the Conversion and to be established by the Stock Association pursuant to the Conversion will be equal to the value, if any, of that interest. 10. No gain or loss will be recognized upon the exercise of a subscription right in the Conversion. (Rev. Rul. 56-572, 1956- 2 C.B.182). 11. The basis of the shares of Common Stock acquired in the Conversion will be equal to the purchase price of such shares, increased, in the case of such shares acquired pursuant to the exercise of subscription rights, by the fair market value, if any, of the subscription rights exercised (Section 1012 of the Code). 12. The holding period of the Common Stock acquired in the Conversion pursuant to the exercise of subscription rights will commence on the date on which the subscription rights are exercised (Section 1223(6) of the Code). The holding period of the Common Stock acquired in the Community Offering will commence on the date following the date on which such stock is purchased (Rev. Rul. 70-598, 1970-2 C.B. 168; Rev. Rul. 66-97, 1966-1 C.B. 190). SCOPE OF OPINION ---------------- Our opinion is limited to the federal income tax matters described above and does not address any other federal income tax considerations or any state, local, foreign, or other federal tax considerations. If any of the information upon which we have relied is incorrect, or if changes in the relevant facts occur after the date hereof, our opinion could be affected thereby. Moreover, our opinion is based on the case law, Code, Treasury Regulations thereunder and Internal Revenue Service rulings as they now exist. These authorities are all subject to change, and such change may be made with retroactive effect. We can give no assurance that, after such change, our opinion would not be different. We undertake no responsibility to update or supplement our opinion subsequent to consummation of the Conversion. Prior to that time, we undertake to update or supplement our opinion in the event of a material change in the federal income tax consequences set forth above and to file such revised opinion as an exhibit to the Registration Statement and the Association's Application for Conversion on Form AC ("Form AC"). This opinion is not binding on the Internal Revenue Service and there can be no assurance, and none is hereby given, that the Internal Revenue Service will not take a position contrary to one or more Board of Directors Salida Building and Loan Association August 21, 1997 Page 9 of the positions reflected in the foregoing opinion, or that our opinion will be upheld by the courts if challenged by the Internal Revenue Service. CONSENTS -------- We hereby consent to the filing of this opinion with the OTS as an exhibit to the Application H-(e)1-S filed by the Company with the OTS in connection with the Conversion and the reference to our firm in the Application H-(e)1-S under Item 110.55 therein. We also hereby consent to the filing of this opinion with the SEC and the OTS as exhibits to the Registration Statement and Form AC, respectively, and the references to our firm in the Prospectus, which is a part of both the Registration Statement and Form AC, under the headings "The Conversion -- Effect of Conversion to Stock Form on Depositors and Borrowers of the Association -- Tax Effects" and "Tax Opinion." Very truly yours, HOUSLEY KANTARIAN & BRONSTEIN, P.C. By: /s/ Howard S. Parris --------------------------------- Howard S. Parris EX-8.2 9 EXHIBIT 8.2 Exhibit 8.2 [LETTERHEAD OF GRIMSLEY, WHITE & COMPANY APPEARS HERE] August 21, 1997 Board of Directors Salida Building and Loan Association Board Members: You have requested our opinion as to the Colorado income tax consequences relating to the proposed conversion of Salida Building and Loan Association (the "Bank") from a federally chartered mutual savings bank to a federally chartered stock savings band ("Stock Bank") and the formation of High Country Bancorp, Inc. ("Holding Company") which will acquire all of the outstanding stock of Stock Bank. You have submitted to us a copy of the federal income tax opinion ("Federal Opinion") relating to the federal income tax consequences of the proposed transactions prepared by your counsel. Housley Kantarian & Bronstein, P.C., Washington, D.C. Our opinion regarding the Colorado income tax consequences of the proposed transaction is based on the same facts and conditions contained in the Federal Opinion dated August 21, 1997. It is also based on existing Colorado tax law which is subject to change. We have not reviewed the legal documents necessary to effectuate the steps to be undertaken, and we assume that all steps will be properly effectuated under state and federal law and will be consistent with the legal documentation. In our opinion, the Colorado income tax consequences of the proposed transaction are the same as the federal income tax consequences of the proposed transaction identified in the Federal Opinion. The State of Colorado has adopted federal taxable income, as currently amended, as the starting point for computing Colorado taxable income. Income tax terms are defined in relation to the Internal Revenue Code of 1986 as amended. Taxpayers are required to use the same taxable year and accounting methods as are used in computing federal taxable income (Colorado Revised Statutes L.1992, c330, Section 9, eff. 4-16-92) Several specific modifications to federal taxable income are enumerated in the Colorado Statutes in determining taxable income for Colorado purposes, however, there are no specific modifications which apply to the proposed transaction. Board of Directors Salida Building and Loan Association August 21, 1997 Page 2 Our opinion as expressed above is rendered only with respect to the Colorado income tax consequences of the specific matters discussed herein, and we express no opinion with respect to any other Colorado tax matter or any other federal, state, local or foreign tax matter relating to the proposed transaction. Our opinion is based on the facts and conditions as stated herein, whether directly or by reference to the Federal Opinion. If any of the foregoing is not entirely complete or accurate, it is imperative that we be informed immediately, as the inaccuracy or incompleteness could have a material effect on our conclusions. In rendering our opinion, we are relying upon the relevant provisions of the Internal Revenue Code of 1986, as amended, and Colorado Statutes, as amended, the regulations and rules thereunder and judicial and administrative interpretations thereof, which are subject to change or modification by subsequent legislative, regulatory, administrative, or judicial decisions. Any such changes could have an effect on the validity of our opinion. We undertake no responsibility to update or supplement our opinion. Our opinion is not binding on the Internal Revenue Service or the Colorado Department of Revenue, nor can any assurance be given that any of the foregoing parties will not take a contrary position or that our opinion will be upheld if challenged by such parties. Very truly yours /s/ Grimsley, White & Company EX-8.3 10 EXHIBIT 8.3 EXHIBIT 8.3 [LETTERHEAD OF FERGUSON & COMPANY APPEARS HERE] AUGUST 15, 1997 BOARD OF DIRECTORS SALIDA BUILDING AND LOAN ASSOCIATION 130 WEST 2ND STREET SALIDA, COLORADO 81201 PLAN OF CONVERSION, SUBSCRIPTION RIGHTS --------------------------------------- DEAR DIRECTORS: Terms used in this letter not otherwise defined herein have the same meanings for such terms in the Plan of Conversion adopted by the Board of Directors of Salida Building and Loan Association, Salida, Colorado (the "Association"), under which the Association will convert from a mutual savings and loan association to a stock savings and loan association and issue all of the Association's stock to High Country Bancorp, Inc. (the "Holding Company"). Simultaneously, the Holding Company will issue shares of common stock. We understand that in accordance with the Plan of Conversion, Subscription Rights to purchase shares of Common Stock in the Holding Company are to be issued to (1) Eligible Account Holders, (2) The Association's tax qualified employee plans, (3) Supplemental Eligible Account Holders, and (4) Other Members. Based solely upon our observation that the Subscription Rights will be available to such parties without cost, will be legally non-transferable and of short duration, and will afford such parties the right only to purchase shares of Common Stock at the same price to be paid by members of the general public in the Community Offering, but without undertaking any independent investigation of state or federal laws or the position of the Internal Revenue Service with respect to such issue, we are of the belief that: (1) the Subscription Rights will have no ascertainable market value; and (2) the price at which the Subscription Rights are exercisable will not be more or less than the pro forma market value of the shares upon issuance. Changes in the local and national economy, the legislative and regulatory environment, the stock market, interest rates and other external forces (e.g., natural disasters or significant global events) occur from time to time and may materially affect the value of thrift stocks as a whole or the holding Company's value. Accordingly, no assurance can be given that persons who subscribe to shares of Common Stock in the Conversion will thereafter be able to sell such shares at the same price paid in the Subscription Offering. Sincerely, Robin L. Fussell Principal EX-10.1 11 EXHIBIT 10.1 EX 10.1 SALIDA BUILDING & LOAN ASSOCIATION -------------------------- Employment Agreement with Lorin D. Smith -------------------------- AGREEMENT entered into and effective this day____ of_________ , 1997, by and between Salida Building & Loan Association (the "Association") and Lorin D. Smith (the "Employee"). WHEREAS, the Employee has heretofore been employed by the Association as its President and Chief Executive Officer and is experienced in all phases of the business of the Association; and WHEREAS, the Board of Directors (the "Board") of the Association believes it is in the best interests of the Association to enter into this Agreement with the Employee in order to assure continuity of management of the Association and to reinforce and encourage the continued attention and dedication of the Employee to his assigned duties; and WHEREAS, the parties desire by this writing to set forth the continuing employment relationship of the Association and the Employee. NOW, THEREFORE, it is AGREED as follows: 1. Defined Terms ------------- When used anywhere in this Agreement, the following terms shall have the meaning set forth herein. (a) "Change in Control" shall mean any one of the following events: (i) the acquisition of ownership, holding or power to vote more than 25% of the voting stock of the Association or the Holding Company thereof, (ii) the acquisition of the ability to control the election of a majority of the Association's or the Company's Directors, (iii) the acquisition of a controlling influence over the management or policies of the Association or of the Company by any person or by persons acting as a "group" (within the meaning of Section 13(d) of the Securities Exchange Act of 1934), or (iv) during any period of two consecutive years, individuals (the "Continuing Directors") who at the beginning of such period constitute the Board of Directors of the Association or of the Company (the "Existing Board") cease for any reason to constitute at least two-thirds thereof, provided that any individual whose election or nomination for election as a member of the Existing Board was approved by a vote of at least two-thirds of the Continuing Directors then in office shall be considered a Continuing Director. For purposes of this paragraph only, the term "person" refers to an individual or a corporation, partnership, trust, association, joint venture, pool, syndicate, sole proprietorship, unincorporated organization or any other form of entity not specifically listed herein. Notwithstanding the foregoing, a "Change in Control" shall not be deemed to occur solely by reason of a transaction in which the Association converts to the stock form of organization, or creates an independent holding company in connection therewith. The decision of the Board as to whether a Change in Control has occurred shall be conclusive and binding. (b) "Company" shall mean High Country Bancorp, Inc. (c) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, and as interpreted through applicable rulings and regulations in effect from time to time. (d) "Codes 280G Maximum" shall mean the product of 2.99 and the Employee's "base amount" as defined in Codess.280G(b)(3). (e) "Disability" shall mean a physical or mental infirmity which impairs the Employee's ability to substantially perform his duties under this Agreement and which results in the Employee becoming eligible for long-term disability benefits under the Association's long-term disability plan (or, if the Association has no such plan in effect, which impairs the Employee's ability to substantially perform his duties under this Agreement for a period of 180 consecutive days). (f) "Effective Date" shall mean the date referenced in the opening paragraph of this Agreement. (g) "Good Reason" shall mean any of the following events, which has not been consented to in advance by the Employee in writing: (i) the requirement that the Employee move his personal residence, or perform his principal executive functions, more than 30 miles from his primary office as of the later of the Effective Date and the most recent voluntary relocation by the Employee; (ii) a material reduction in the Employee's base compensation under this Agreement as the same may be increased from time to time; (iii) the failure by the Association or the Company to continue to provide the Employee with compensation and benefits provided under this Agreement as the same may be increased from time to time, or with benefits substantially similar to those provided to him under any of the employee benefit plans in which the Employee now or hereafter becomes a participant, or the taking of any action by the Association or the Company which would directly or indirectly reduce any of such benefits or deprive the Employee of any material fringe benefit enjoyed by him under this Agreement; (iv) the assignment to the Employee of duties and responsibilities materially different from those normally associated with his position; (v) a failure to reelect the Employee to the Board of Directors of the Association or the Company, if the Employee has served on such Board at any time during the term of the Agreement; or (vi) a material diminution or reduction in the Employee's responsibilities or authority (including reporting responsibilities) in connection with his employment with the Association. -2- (h) "Just Cause" shall mean, in the good faith determination of the Association's Board of Directors, the Employee's personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of this Agreement. The Employee shall have no right to receive compensation or other benefits for any period after termination for Just Cause. No act, or failure to act, on the Employee's part shall be considered "willful" unless he has acted, or failed to act, with an absence of good faith and without a reasonable belief that his action or failure to act was in the best interest of the Association and the Company. (i) "Protected Period" shall mean the period that begins on the date six months before a Change in Control and ends on the later of the first annual anniversary of the Change in Control or the expiration date of this Agreement. (j) "Trust" shall mean a grantor trust that is designed in accordance with Revenue Procedure 92-64 and has a trustee independent of the Association and the Company. 2. Employment. The Employee is employed as the President and Chief ---------- Executive Officer of the Association. The Employee shall render such administrative and management services for the Association as are currently rendered and as are customarily performed by persons situated in a similar executive capacity. The Employee shall also promote, by entertainment or otherwise, as and to the extent permitted by law, the business of the Association. The Employee's other duties shall be such as the Board may from time to time reasonably direct, including normal duties as an officer of the Association. 3. Base Compensation. The Association agrees to pay the Employee during the ----------------- term of this Agreement a salary at the rate of $______ per annum, payable in cash not less frequently than monthly. The Board shall review, not less often than annually, the rate of the Employee's salary, and in its sole discretion may decide to increase his salary. 4. Discretionary Bonuses. The Employee shall participate in an equitable --------------------- manner with all other senior management employees of the Association in discretionary bonuses that the Board may award from time to time to the Association's senior management employees. No other compensation provided for in this Agreement shall be deemed a substitute for the Employee's right to participate in such discretionary bonuses. 5. Participation in Retirement, Medical and Other Plans. ---------------------------------------------------- (a) The Employee shall be eligible to participate in any of the following plans or programs that the Association may now or in the future maintain: group hospitalization, disability, health, dental, sick leave, life insurance, travel and/or accident insurance, auto allowance/auto lease, retirement, pension, and/or other present or future qualified or nonqualified -3- plans provided by the Association, generally which benefits, taken as a whole, must be at least as favorable as those in effect on the Effective Date. (b) The Employee shall also be eligible to participate in any fringe benefits which are or may become available to the Association's senior management employees, including for example: any stock option or incentive compensation plans, and any other benefits which are commensurate with the responsibilities and functions to be performed by the Employee under this Agreement. The Employee shall be reimbursed for all reasonable out-of-pocket business expenses which he shall incur in connection with his services under this Agreement upon substantiation of such expenses in accordance with the policies of the Association. 6. Term. The Association hereby employs the Employee, and the Employee ---- hereby accepts such employment under this Agreement, for the period commencing on the Effective Date and ending 36 months thereafter (or such earlier date as is determined in accordance with Section 10 or 12 hereof). Additionally, on each annual anniversary date from the Effective Date, the Employee's term of employment shall be extended for an additional one-year period beyond the then effective expiration date, provided the Board determines in a duly adopted resolution that the performance of the Employee has met the Board's requirements and standards, and that this Agreement shall be extended. Only those members of the Board of Directors who have no personal interest in this Employment Agreement shall discuss and vote on the approval and subsequent review of this Agreement. 7. Loyalty; Noncompetition. ----------------------- (a) During the period of his employment hereunder and except for illnesses, reasonable vacation periods, and reasonable leaves of absence, the Employee shall devote all his full business time, attention, skill, and efforts to the faithful performance of his duties hereunder; provided, however, from time to time, Employee may serve on the boards of directors of, and hold any other offices or positions in, companies or organizations, which will not present any conflict of interest with the Association or any of its subsidiaries or affiliates, or unfavorably affect the performance of Employee's duties pursuant to this Agreement, or will not violate any applicable statute or regulation. "Full business time" is hereby defined as that amount of time usually devoted to like companies by similarly situated executive officers. During the term of his employment under this Agreement, the Employee shall not engage in any business or activity contrary to the business affairs or interests of the Association. (b) Nothing contained in this Section shall be deemed to prevent or limit the Employee's right to invest in the capital stock or other securities of any business dissimilar from that of the Association, or, solely as a passive or minority investor, in any business. 8. Standards. The Employee shall perform his duties under this Agreement in --------- accordance with such reasonable standards as the Board may establish from time to time. The Association will provide Employee with the working facilities and staff customary for similar executives and necessary for him to perform his duties. -4- 9. Vacation and Sick Leave. At such reasonable times as the Board shall ----------------------- in its discretion permit, the Employee shall be entitled, without loss of pay, to absent himself voluntarily from the performance of his employment under this Agreement, all such voluntary absences to count as vacation time, provided that: (a) The Employee shall be entitled to an annual vacation in accordance with the policies that the Board periodically establishes for senior management employees of the Association. (b) The Employee shall not receive any additional compensation from the Association on account of his failure to take a vacation or sick leave, and the Employee shall not accumulate unused vacation or sick leave from one fiscal year to the next, except in either case to the extent authorized by the Board. (c) In addition to the aforesaid paid vacations, the Employee shall be entitled without loss of pay, to absent himself voluntarily from the performance of his employment with the Association for such additional periods of time and for such valid and legitimate reasons as the Board may in its discretion determine. Further, the Board may grant to the Employee a leave or leaves of absence, with or without pay, at such time or times and upon such terms and conditions as such Board in its discretion may determine. (d) In addition, the Employee shall be entitled to an annual sick leave benefit as established by the Board. 10. Termination and Termination Pay. Subject to Section 12 hereof, the ------------------------------- Employee's employment hereunder may be terminated under the following circumstances: (a) Death. The Employee's employment under this Agreement shall terminate upon his death during the term of this Agreement, in which event the Employee's estate shall be entitled to receive the compensation due the Employee through the last day of the calendar month in which his death occurred. (b) Disability. (1) The Association may terminate the Employee's employment after having established the Employee's Disability, in which event the Employee shall be entitled to the compensation and benefits provided for under this Agreement for (i) any period during the term of this Agreement and prior to the establishment of the Employee's Disability during which the Employee is unable to work due to the physical or mental infirmity, and (ii) any period of Disability which is prior to the Employee's termination of employment pursuant to this Section 10(b); provided that any benefits paid pursuant to the Association's long term disability plan will continue as provided in such plan without reduction for payments made pursuant to this Agreement. (2) During any period that the Employee shall receive disability benefits and to the extent that the Employee shall be physically and mentally able to do so, he shall furnish -5- such information, assistance and documents so as to assist in the continued ongoing business of the Association and, if able, shall make himself available to the Association to undertake reasonable assignments consistent with his prior position and his physical and mental health. The Association shall pay all reasonable expenses incident to the performance of any assignment given to the Employee during the disability period. (c) Just Cause. The Board may, by written notice to the Employee, immediately terminate his employment at any time, for Just Cause. The Employee shall have no right to receive compensation or other benefits for any period after termination for Just Cause. (d) Without Just Cause; Constructive Discharge. The Board may, by written notice to the Employee, immediately terminate his employment at any time for a reason other than his Disability or Just Cause, in which event the Employee shall be entitled to receive the following compensation and benefits (unless such termination occurs during the Protected Period, in which event the benefits and compensation provided for in Section 12 shall apply): (i) the salary provided pursuant to Section 3 hereof, up to the expiration date of this Agreement, including any renewal term (the "Expiration Date"), plus said salary for an additional 12-month period, and (ii) at the Employee's election either (A) cash in an amount equal to the cost to the Employee of obtaining all health, life, disability and other benefits which the Employee would have been eligible to participate in through the Expiration Date based upon the benefit levels substantially equal to those that the Association provided for the Employee at the date of termination of employment or (B) continued participation under such Association benefit plans through the Expiration Date, but only to the extent the Employee continues to qualify for participation therein. All amounts payable to the Employee shall be paid, at the option of the Employee, either (I) in periodic payments through the Expiration Date, or (II) in one lump sum within ten days of such termination. (e) Good Reason. The Employee shall be entitled to receive the compensation and benefits payable under subsection 10(d) hereof in the event that the Employee voluntarily terminates employment within 90 days of an event that constitutes Good Reason, (unless such voluntary termination occurs during the Protected Period, in which event the benefits and compensation provided for in Section 12 shall apply). (f) Termination or Suspension Under Federal Law. (1) If the Employee is removed and/or permanently prohibited from participating in the conduct of the Association's affairs by an order issued under Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act ("FDIA") (12 U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Association under this Agreement shall terminate, as of the effective date of the order, but vested rights of the parties shall not be affected. (2) If the Association is in default (as defined in Section 3(x)(1) of FDIA), all obligations under this Agreement shall terminate as of the date of default; however, this Paragraph shall not affect the vested rights of the parties. -6- (3) If a notice served under Section 8(e)(3) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(3) or (g)(1)) suspends and/or temporarily prohibits the Employee from participating in the conduct of the Association's affairs, the Association's obligations under this Agreement shall be suspended as of the date of such service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Association may in its discretion (i) pay the Employee all or part of the compensation withheld while its contract obligations were suspended, and (ii) reinstate (in whole or in part) any of its obligations which were suspended. (4) Any payments made to the Employee pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with both 12 U.S.C. Section 1828(k) and any regulations promulgated thereunder, and Regulatory Bulletin 27A, but only to the extent required thereunder on the date any payment is required pursuant to this Agreement. (g) Voluntary Termination by Employee. Subject to Section 12 hereof, the Employee may voluntarily terminate employment with the Association during the term of this Agreement, upon at least 90 days' prior written notice to the Board of Directors, in which case the Employee shall receive only his compensation, vested rights and employee benefits up to the date of his termination (unless such termination occurs pursuant to Section 10(d) hereof or within the Protected Period, in Section 12(a) hereof, in which event the benefits and compensation provided for in Sections 10(d) or 12, as applicable, shall apply). (h) Post-termination Health Insurance. If the Employee's employment terminates with the Association or the Company for any reason other than Just Cause, the Employee shall be entitled to purchase from the Association, at the Employee's own expense which shall not exceed applicable COBRA rates, family medical insurance under any group health plan that the Association or the Company maintains for its employees. This right shall be (i) in addition to, and not in lieu of, any other rights that the Employee has under this Agreement, and (ii) shall continue until the Employee first becomes eligible for participation in Medicare. 11. No Mitigation. The Employee shall not be required to mitigate the amount ------------- of any payment provided for in this Agreement by seeking other employment or otherwise and no such payment shall be offset or reduced by the amount of any compensation or benefits provided to the Employee in any subsequent employment. 12. Change in Control. ----------------- (a) Trigger Events. The Employee shall be entitled to collect the severance benefits set forth in Subsection (b) hereof in the event that either (i) the Employee voluntarily terminates employment for any reason within the 30- day period beginning on the date of a Change in Control, (ii) the Employee voluntarily terminates employment within 90 days of an event that both occurs during the Protected Period and constitutes Good Reason, or (iii) the Association or the Company or their successor(s) in interest terminate the Employee's employment without his written consent and for any reason other than Just Cause during the Protected Period. -7- (b) Amount of Severance Benefit. If the Employee becomes entitled to collect severance benefits pursuant to Section 12(a) hereof, the Association shall pay the Employee a severance benefit equal to the difference between the Code ss.280G Maximum and the sum of any other "parachute payments" as defined under Code ss.280G(b)(2) that the Employee receives on account of the Change in Control. The amount payable under this Section 12(b) shall be paid either (i) in one lump sum within ten days of the later of the date of the Change in Control and the Employee's last day of employment with the Association or the Company, or (ii) if prior to the date which is 90 days before the date on which a Change in Control occurs, the Employee filed a duly executed irrevocable written election in the form attached hereto as Exhibit "A", payment of such amount shall be made according to the elected schedule. Deferred amounts shall bear interest from the date on which they would otherwise be payable until the date paid at a rate equal to 120% of the applicable federal rate, compounded semiannually, as determined under Code Section 1274(d) and the regulations thereunder. In the event that the Employee, the Association, and the Company jointly agree that the Employee has collected an amount exceeding the Code ss.280G Maximum, the parties may agree in writing that such excess shall be treated as a loan ab initio, which the Employee shall repay to the Association, on terms and conditions mutually agreeable to the parties, together with interest at the applicable federal rate provided for in Section 7872(f)(2)(B) of the Code. (c) Funding of Grantor Trust upon Change in Control. Not later than ten business days after a Change in Control, the Association shall (i) deposit in a Trust an amount equal to the Code ss.280G Maximum, unless the Employee has previously provided a written release of any claims under this Agreement, and (ii) provide the trustee of the Trust with a written direction to hold said amount and any investment return thereon in a segregated account for the benefit of the Employee, and to follow the procedures set forth in the next paragraph as to the payment of such amounts from the Trust. Upon the later of the Trust's final payment of all amounts payable to the Employee under Section 12(b) of this Agreement or the date 90 days following the expiration of the Protected Period, the trustee of the Trust shall pay to the Association the entire balance remaining in the segregated account maintained for the benefit of the Employee. The Employee shall thereafter have no further interest in the Trust. Prior to the date which is 90 days following the expiration of the Protected Period, the Employee may provide the trustee of the Trust with a written notice requesting that the trustee pay to the Employee an amount designated in the notice as being payable pursuant to this Agreement. Within three business days after receiving said notice, the trustee of the Trust shall send a copy of the notice to the Association via overnight and registered mail return receipt requested. Unless prior to the tenth (10th) business day after mailing said notice to the Association, the Association provides the trustee with a written notice directing the trustee to withhold payment, on such date the trustee of the Trust shall pay the Employee the amount designated therein according to the schedule elected by the Employee pursuant to Section 12(b) hereof, or in the absence of such an election, payment shall be made immediately. In the event the Association directs the trustee to -8- withhold payment, the trustee shall submit the dispute to non-appealable binding arbitration for a determination of the amount payable to the Employee pursuant to this Agreement, and the costs of such arbitration shall be paid by the Association. The trustee shall choose the arbitrator to settle the dispute, and such arbitrator shall be bound by the rules of the American Arbitration Association in making his determination. The parties and the trustee shall be bound by the results of the arbitration and, within 3 days of the determination by the arbitrator, the trustee shall pay from the Trust the amounts required to be paid to the Employee and/or the Association, and in no event shall the trustee be liable to either party for making the payments as determined by the arbitrator. 13. Indemnification. The Association and the Company agree that their --------------- respective Bylaws shall continue to provide for indemnification of directors, officers, employees and agents of the Association and the Company, including the Employee during the full term of this Agreement, and to at all times provide adequate insurance for such purposes. 14. Reimbursement of Employee for Enforcement Proceedings. In the event ----------------------------------------------------- that any dispute arises between the Employee and the Association as to the terms or interpretation of this Agreement, whether instituted by formal legal proceedings or otherwise, including any action that the Employee takes to defend against any action taken by the Association or the Company, the Employee shall be reimbursed for all costs and expenses, including reasonable attorneys' fees, arising from such dispute, proceedings or actions, provided that the Employee obtains either a written settlement or a final judgement by a court of competent jurisdiction substantially in his favor. Such reimbursement shall be paid within ten days of Employee's furnishing to the Association written evidence, which may be in the form, among other things, of a canceled check or receipt, of any costs or expenses incurred by the Employee. 15. Federal Income Tax Withholding. The Association may withhold all ------------------------------ federal and state income or other taxes from any benefit payable under this Agreement as shall be required pursuant to any law or government regulation or ruling. 16. Successors and Assigns. ---------------------- (a) Association. This Agreement shall not be assignable by the Association, provided that this Agreement shall inure to the benefit of and be binding upon any corporate or other successor of the Association which shall acquire, directly or indirectly, by merger, consolidation, purchase or otherwise, all or substantially all of the assets or stock of the Association. (b) Employee. Since the Association is contracting for the unique and personal skills of the Employee, the Employee shall be precluded from assigning or delegating his rights or duties hereunder without first obtaining the written consent of the Association; provided, however, that nothing in this paragraph shall preclude (i) the Employee from designating a beneficiary to receive any benefit payable hereunder upon his death, or (ii) the executors, administrators, or other legal representatives of the Employee or his estate from assigning any rights hereunder to the person or persons entitled thereunto. -9- (c) Attachment. Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or to exclusion, attachment, levy or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect. 17. Amendments. No amendments or additions to this Agreement shall be ---------- binding unless made in writing and signed by all of the parties, except as herein otherwise specifically provided. 18. Applicable Law. Except to the extent preempted by Federal law, the -------------- laws of the State of Colorado shall govern this Agreement in all respects, whether as to its validity, construction, capacity, performance or otherwise. 19. Severability. The provisions of this Agreement shall be deemed ------------ severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. 20. Entire Agreement. This Agreement, together with any understanding ---------------- or modifications thereof as agreed to in writing by the parties, shall constitute the entire agreement between the parties hereto and shall supersede any prior agreement between the parties. IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first hereinabove written. ATTEST: SALIDA BUILDING & LOAN ASSOCIATION By: - ----------------------------- ----------------------------------- Secretary Its Chairman of the Board WITNESS: - ----------------------------- -------------------------------------- Lorin D. Smith -10- EX-10.2 12 EXHIBIT 10.2 Ex 10.2 HIGH COUNTRY BANCORP, INC. -------------------------- Guaranty Agreement -------------------------- THIS AGREEMENT is entered into this ___ day of __________, 1997 (the "Effective Date"), by and between High Country Bancorp, Inc. (the "Company") and Lorin D. Smith (the "Employee"). WHEREAS, the Employee has heretofore been employed by Salida Building & Loan Association (the "Association") as its President and Chief Executive Officer, and has entered into an agreement (the "Association Agreement") dated _______________, 1997, with the Employee; and WHEREAS, the Board of Directors (the "Board") of the Company believes it is in the best interests of the Company to enter into this Agreement with the Employee in order to assure continuity of management of the Association and to reinforce and encourage the long-term retention of the Employee; and WHEREAS, the parties desire by this writing to set forth the Company's commitment to guarantee the Association's obligations under the Association Agreement with the Employee. NOW, THEREFORE, it is AGREED as follows: 1. Consideration from Company: Joint and Several Liability. The Company ------------------------------------------------------- hereby agrees that to the extent permitted by law, it shall be jointly and severally liable with the Association for the payment of all amounts due under the Association Agreement, provided that Section 10(f) of the Association Agreement shall be innaplicable to this Agreement. The Board may in its discretion at any time during the term of this Agreement agree to pay the Employee a base salary for the remaining term of this Agreement. If the Board agrees to pay such salary, the Board shall thereafter review, not less often than annually, the rate of the Employee's salary, and in its sole discretion may decide to increase his salary. 2. Discretionary Bonuses; Participation in Retirement, Medical and --------------------------------------------------------------- Other Plans. The Employee shall participate in an equitable manner with all - ----------- other senior management employees of the Company in discretionary bonuses that the Board may award from time to time to the Company's senior management employees, as well as in (i) any of the following plans or programs that the Company may now or in the future maintain: group hospitalization, disability, health, dental, sick leave, life insurance, travel and/or accident insurance, auto allowance/auto lease, retirement, pension, and/or other present or future qualified plans provided by the Company, generally which benefits, taken as a whole, must be at least as favorable as those in effect on the Effective Date; and (ii) any fringe benefits which are or may become available to the Company's senior management employees, including for example: any stock option or incentive compensation plans, and any other benefits which are commensurate with the responsibilities and functions to be performed by the Employee under this Agreement. 3. Indemnification. The Company agrees that its Bylaws shall continue to --------------- provide for indemnification of directors, officers, employees and agents of the Company, including the Employee, during the full term of this Agreement, and to at all times provide adequate insurance for such purposes. 4. Successors and Assigns. ---------------------- (a) Company. This Agreement shall inure to the benefit of and be binding upon any corporate or other successor of the Company which shall acquire, directly or indirectly, by merger, consolidation, purchase or otherwise, all or substantially all of the assets or stock of the Company. (b) Attachment. Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or to exclusion, attachment, levy or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect. 5. Amendments. No amendments or additions to this ---------- Agreement shall be binding unless made in writing and signed by all of the parties, except as herein otherwise specifically provided. 6. Applicable Law. Except to the extent preempted by --------------- Federal law, the laws of the State of Colorado shall govern this Agreement in all respects, whether as to its validity, construction, capacity, performance or otherwise. 7. Severability. The provisions of this Agreement shall be ------------ deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. 8. Entire Agreement. This Agreement, together with any ---------------- understanding or modifications thereof as agreed to in writing by the parties, shall constitute the entire agreement between the parties hereto. -2- IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first hereinabove written. ATTEST: HIGH COUNTRY BANCORP, INC. By - ------------------------------ -------------------------------- Secretary Its Chairman of the Board WITNESS: - ------------------------------ ---------------------------------- Lorin D. Smith -3- EX-10.3 13 EXHIBIT 10.3 EXHIBIT 10.3 HIGH COUNTRY BANCORP, INC. 1997 STOCK OPTION AND INCENTIVE PLAN 1. PURPOSE OF THE PLAN. The purpose of this Plan is to advance the interests of the Company through providing select key Employees and Directors of the Association, the Company, and their Affiliates with the opportunity to acquire Shares. By encouraging such stock ownership, the Company seeks to attract, retain and motivate the best available personnel for positions of substantial responsibility and to provide additional incentives to Directors and key Employees of the Company or any Affiliate to promote the success of the business. 2. DEFINITIONS. As used herein, the following definitions shall apply. (a) "Affiliate" shall mean any "parent corporation" or "subsidiary corporation" of the Company, as such terms are defined in Section 424(e) and (f), respectively, of the Code. (b) "Agreement" shall mean a written agreement entered into in accordance with Paragraph 5(c). (c) "Association" shall mean Salida Building & Loan Association. (d) "Awards" shall mean, collectively, Options and SARs, unless the context clearly indicates a different meaning. (e) "Board" shall mean the Board of Directors of the Company. (f) "Code" shall mean the Internal Revenue Code of 1986, as amended. (g) "Committee" shall mean both the Stock Option Committee appointed by the ---- Board in accordance with Paragraph 5(a) hereof, and the Board. --- (h) "Common Stock" shall mean the common stock of the Company. (i) "Company" shall mean High Country Bancorp, Inc. (j) "Continuous Service" shall mean the absence of any interruption or termination of service as an Employee or Director of the Company or an Affiliate. Continuous Service shall not be considered interrupted in the case of sick leave, military leave or any other leave of absence approved by the Company, in the case of transfers between payroll locations of the Company or between the Company, an Affiliate or a successor, or in the case of a Director's performance of services in an emeritus or advisory capacity. (k) "Director" shall mean any member of the Board, and any member of the board of directors of any Affiliate that the Board has by resolution designated as being eligible for participation in this Plan. (l) "Disability" shall mean a physical or mental condition, which in the sole and absolute discretion of the Committee, is reasonably expected to be of indefinite duration and to substantially prevent a Participant from fulfilling his or her duties or responsibilities to the Company or an Affiliate. (m) "Effective Date" shall mean the date specified in Paragraph 14 hereof. -1- (n) "Employee" shall mean any person employed by the Company, the Association, or an Affiliate. (o) "Exercise Price" shall mean the price per Optioned Share at which an Option or SAR may be exercised. (p) "ISO" shall mean an option to purchase Common Stock which meets the requirements set forth in the Plan, and which is intended to be and is identified as an "incentive stock option" within the meaning of Section 422 of the Code. (q) "Market Value" shall mean the fair market value of the Common Stock, as determined under Paragraph 7(b) hereof. (r) "Non-Employee Director" shall have the meaning provided in Rule 16b-3. (s) "Non-ISO" means an option to purchase Common Stock which meets the requirements set forth in the Plan but which is not intended to be and is not identified as an ISO. (t) "Option" means an ISO and/or a Non-ISO. (u) "Optioned Shares" shall mean Shares subject to an Award granted pursuant to this Plan. (v) "Participant" shall mean any person who receives an Award pursuant to the Plan. (w) "Plan" shall mean this 1997 Stock Option and Incentive Plan. (x) "Rule 16b-3" shall mean Rule 16b-3 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended. (y) "Share" shall mean one share of Common Stock. (z) "SAR" (or "Stock Appreciation Right") means a right to receive the appreciation in value, or a portion of the appreciation in value, of a specified number of shares of Common Stock. (aa) "Year of Service" shall mean a full twelve-month period, measured from the date of an Award and each annual anniversary of that date, during which a Participant has not terminated Continuous Service for any reason. 3. TERM OF THE PLAN AND AWARDS. (a) Term of the Plan. The Plan shall continue in effect for a term of ten years from the Effective Date, unless sooner terminated pursuant to Paragraph 16 hereof. No Award shall be granted under the Plan after ten years from the Effective Date. (b) Term of Awards. The term of each Award granted under the Plan shall be established by the Committee, but shall not exceed 10 years; provided, however, that in the case of an Employee who owns Shares representing more than 10% of the outstanding Common Stock at the time an ISO is granted, the term of such ISO shall not exceed five years . 4. SHARES SUBJECT TO THE PLAN. (a) General Rule. Except as otherwise required under Section 11, the aggregate number of Shares deliverable pursuant to Awards shall not exceed ________ Shares, which equals 10% of the Shares issued by the -2- Company in connection with the Association's conversion from mutual to stock form. Such Shares may be authorized but unissued Shares, Shares held in treasury, or Shares held in a grantor trust created by the Company. If any Awards should expire, become unexercisable, or be forfeited for any reason without having been exercised, the Optioned Shares shall, unless the Plan shall have been terminated, be available for the grant of additional Awards under the Plan. (b) Special Rule for SARs. The number of Shares with respect to which an SAR is granted, but not the number of Shares which the Company delivers or could deliver to an Employee or individual upon exercise of an SAR, shall be charged against the aggregate number of Shares remaining available under the Plan; provided, however, that in the case of an SAR granted in conjunction with an Option, under circumstances in which the exercise of the SAR results in termination of the Option and vice versa, only the number of Shares subject to the Option shall be charged against the aggregate number of Shares remaining available under the Plan. The Shares involved in an Option as to which option rights have terminated by reason of the exercise of a related SAR, as provided in Paragraph 10 hereof, shall not be available for the grant of further Options under the Plan. 5. ADMINISTRATION OF THE PLAN. (a) Composition of the Committee. The Plan shall be administered by the Committee, which shall consist of not less than two (2) members of the Board who are Non-Employee Directors. Members of the Committee shall serve at the pleasure of the Board. In the absence at any time of a duly appointed Committee, the Plan shall be administered by the Board. (b) Powers of the Committee. Except as limited by the express provisions of the Plan or by resolutions adopted by the Board, the Committee shall have sole and complete authority and discretion (i) to select Participants and grant Awards, (ii) to determine the form and content of Awards to be issued in the form of Agreements under the Plan, (iii) to interpret the Plan, (iv) to prescribe, amend and rescind rules and regulations relating to the Plan, and (v) to make other determinations necessary or advisable for the administration of the Plan. The Committee shall have and may exercise such other power and authority as may be delegated to it by the Board from time to time. A majority of the entire Committee shall constitute a quorum and the action of a majority of the members present at any meeting at which a quorum is present, or acts approved in writing by a majority of the Committee without a meeting, shall be deemed the action of the Committee. (c) Agreement. Each Award shall be evidenced by a written agreement containing such provisions as may be approved by the Committee. Each such Agreement shall constitute a binding contract between the Company and the Participant, and every Participant, upon acceptance of such Agreement, shall be bound by the terms and restrictions of the Plan and of such Agreement. The terms of each such Agreement shall be in accordance with the Plan, but each Agreement may include such additional provisions and restrictions determined by the Committee, in its discretion, provided that such additional provisions and restrictions are not inconsistent with the terms of the Plan. In particular, the Committee shall set forth in each Agreement (i) the Exercise Price of an Option or SAR, (ii) the number of Shares subject to the Award, and its expiration date, (iii) the manner, time, and rate (cumulative or otherwise) of exercise or vesting of such Award, and (iv) the restrictions, if any, to be placed upon such Award, or upon Shares which may be issued upon exercise of such Award. The Chairman of the Committee and such other Directors and officers as shall be designated by the Committee are hereby authorized to execute Agreements on behalf of the Company and to cause them to be delivered to the recipients of Awards. (d) Effect of the Committee's Decisions. All decisions, determinations and interpretations of the Committee shall be final and conclusive on all persons affected thereby. (e) Indemnification. In addition to such other rights of indemnification as they may have, the members of the Committee shall be indemnified by the Company in connection with any claim, action, suit or proceeding relating to any action taken or failure to act under or in connection with the Plan or any Award, granted hereunder -3- to the full extent provided for under the Company's governing instruments with respect to the indemnification of Directors. 6. GRANT OF OPTIONS. (a) General Rule. Only Employees shall be eligible to receive Awards. In selecting those Employees to whom Awards will be granted and the number of shares covered by such Awards, the Committee shall consider the position, duties and responsibilities of the eligible Employees, the value of their services to the Company and its Affiliates, and any other factors the Committee may deem relevant. Notwithstanding the foregoing, the Committee shall automatically make the Awards specified in Sections 6(b) and 9 hereof, and (ii) no Employee shall receive Options to purchase more than 25% of the Shares reserved under Paragraph 4(a), and no non-Employee Director shall receive Options on the Effective Date to purchase more than 5% of the Shares reserved under Paragraph 4(a), with all non-Employee Directors as a group receiving Options on the Effective Date to purchase no more than 30% of the Shares reserved under Paragraph 4(a). [THESE RESTRICTIONS WILL BE INAPPLICABLE IF THE PLAN IS ADOPTED MORE THAN ONE YEAR AFTER THE CONVERSION.] (b) Automatic Grants to Employees. On the Effective Date, each of the following Employees shall receive an Option (in the form of an ISO, to the extent permissible under the Code) to purchase the number of Shares listed below, at an Exercise Price per Share equal to the Market Value of a Share on the Effective Date; provided that such grant shall not be made to an Employee whose Continuous Service terminates on or before the Effective Date:
Percentage of Shares Participant Reserved under Paragraph 4(a) ----------- ----------------------------- Larry D. Smith 25%
With respect to each of the above-named Participants, the Option granted to the Participant hereunder (i) shall vest in accordance with the general rule set forth in Paragraph 8(a) of the Plan, (ii) shall have a term of ten years from the Effective Date, and (iii) shall be subject to the general rule set forth in Paragraph 8(c) with respect to the effect of a Participant's termination of Continuous Service on the Participant's right to exercise his Options. (c) Special Rules for ISOs. The aggregate Market Value, as of the date the Option is granted, of the Shares with respect to which ISOs are exercisable for the first time by an Employee during any calendar year (under all incentive stock option plans, as defined in Section 422 of the Code, of the Company or any present or future Affiliate of the Company) shall not exceed $100,000. Notwithstanding the foregoing, the Committee may grant Options in excess of the foregoing limitations, in which case Options granted in excess of such limitation shall be Non-ISOs. 7. EXERCISE PRICE FOR OPTIONS. (a) Limits on Committee Discretion. The Exercise Price as to any particular Option shall not be less than 100% of the Market Value of the Optioned Shares on the date of grant. In the case of an Employee who owns Shares representing more than 10% of the Company's outstanding Shares of Common Stock at the time an ISO is granted, the Exercise Price shall not be less than 110% of the Market Value of the Optioned Shares at the time the ISO is granted. (b) Standards for Determining Exercise Price. If the Common Stock is listed on a national securities exchange (including the NASDAQ National Market System) on the date in question, then the Market Value per Share shall be the average of the highest and lowest selling price on such exchange on such date, or if there were no sales on such date, then the Exercise Price shall be the mean between the bid and asked price on such date. If the Common Stock is traded otherwise than on a national securities exchange on the date in question, then the Market Value per -4- Share shall be the mean between the bid and asked price on such date, or, if there is no bid and asked price on such date, then on the next prior business day on which there was a bid and asked price. If no such bid and asked price is available, then the Market Value per Share shall be its fair market value as determined by the Committee, in its sole and absolute discretion. 8. EXERCISE OF OPTIONS. (a) Generally. Each Option shall become exercisable with respect to twenty percent (20%) of the Optioned Shares upon the Participant's completion of each of five Years of Service, provided that an Option shall become fully (100%) exercisable immediately upon termination of the Participant's Continuous Service due to the Participant's Disability or death. An Option may not be exercised for a fractional Share. IF THE PLAN IS ADOPTED MORE THAN ONE YEAR AFTER THE ASSOCIATION'S CONVERSION, OPTIONS MAY BECOME EXERCISABLE ACCORDING TO A DIFFERENT SCHEDULE, WITH VESTING ACCELERATED TO 100% UPON AN OPTIONEE'S RETIREMENT OR TERMINATION OF SERVICE IN CONNECTION WITH A CHANGE IN CONTROL. (b) Procedure for Exercise. A Participant may exercise Options, subject to provisions relative to its termination and limitations on its exercise, only by (1) written notice of intent to exercise the Option with respect to a specified number of Shares, and (2) payment to the Company (contemporaneously with delivery of such notice) in cash, in Common Stock, or a combination of cash and Common Stock, of the amount of the Exercise Price for the number of Shares with respect to which the Option is then being exercised. Each such notice (and payment where required) shall be delivered, or mailed by prepaid registered or certified mail, addressed to the Treasurer of the Company at its executive offices. Common Stock utilized in full or partial payment of the Exercise Price for Options shall be valued at its Market Value at the date of exercise, and may consist of Shares subject to the Option being exercised. Upon a Participant's exercise of an Option, the Company may, if provided by the Committee in the underlying Agreement, pay to the Participant a cash amount up to but not exceeding the amount of dividends, if any, declared on the underlying Shares between the date of grant and the date of exercise of the Option. (c) Period of Exercisability. Except to the extent otherwise provided in the terms of an Agreement, an Option may be exercised by a Participant only while he is an Employee and has maintained Continuous Service from the date of the grant of the Option, or within one year after termination of such Continuous Service (but not later than the date on which the Option would otherwise expire), except if the Employee's Continuous Service terminates by reason of -- (1) "Just Cause" which for purposes hereof shall have the meaning set forth in any unexpired employment or severance agreement between the Participant and the Association and/or the Company (and, in the absence of any such agreement, shall mean termination because of the Employee's personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease-and-desist order), then the Participant's rights to exercise such Option shall expire on the date of such termination; (2) death, then to the extent that the Participant would have been entitled to exercise the Option immediately prior to his death, such Option of the deceased Participant may be exercised within two years from the date of his death (but not later than the date on which the Option would otherwise expire) by the personal representatives of his estate or person or persons to whom his rights under such Option shall have passed by will or by laws of descent and distribution. (d) Effect of the Committee's Decisions. The Committee's determination whether a Participant's Continuous Service has ceased, and the effective date thereof, shall be final and conclusive on all persons affected thereby. -5- (e) Mandatory Six-Month Holding Period. Notwithstanding any other provision of this Plan to the contrary, common stock of the Company that is purchased upon exercise of an Option or SAR may not be sold within the six-month period following the grant of that Option or SAR. 9. GRANTS OF OPTIONS TO NON-EMPLOYEE DIRECTORS (a) Automatic Grants. Notwithstanding any other provisions of this Plan, each Director who is not an Employee but is a Director on the Effective Date shall receive, on said date, Non-ISOs to purchase a number of Shares equal to the lesser of five percent (5%) of the number of Shares reserved under Paragraph 4(a) hereof, and the quotient obtained by dividing -- (i) 30 percent (30%) of the number of Shares reserved under Paragraph 4(a) hereof, by (ii) the number of Directors entitled to receive an Option on the Effective Date, pursuant to this Paragraph 9(a). Such Non-ISOs shall have an Exercise Price per Share equal to the Market Value of a Share on the date of grant. Each Director, including each Director who joins the Board after the Effective Date and who is not then an Employee, is eligible to receive discretionary grants under the Plan. (b) Terms of Exercise. Options received under the provisions of this Paragraph (i) shall become exercisable in accordance with paragraph 8(a) of the Plan, and (ii) may be exercised from time to time by written notice of intent to exercise the Option with respect to all or a specified number of the Optioned Shares, and payment to the Company (contemporaneously with the delivery of such notice), in cash, in Common Stock, or a combination of cash and Common Stock, of the amount of the Exercise Price for the number of the Optioned Shares with respect to which the Option is then being exercised. Each such notice and payment shall be delivered, or mailed by prepaid registered or certified mail, addressed to the Treasurer of the Company at the Company's executive offices. Upon a Director's exercise of an Option, the Company may, if provided by the Committee in the underlying Agreement (which may not be utilized to pay out such dividends unless the Plan would maintain conformity with Rule 16b-3), pay to the Director a cash amount up to but not exceeding the amount of dividends, if any, declared on the underlying Shares between the date of grant and the date of exercise of the Option. A Director who exercises Options pursuant to this Paragraph may satisfy all applicable federal, state and local income and employment tax withholding obligations, in whole or in part, by irrevocably electing to have the Company withhold shares of Common Stock, or to deliver to the Company shares of Common Stock that he already owns, having a value equal to the amount required to be withheld; provided that to the extent not inconsistent herewith, such election otherwise complies with those requirements of Paragraphs 8 and 19 hereof. Options granted under this Paragraph shall have a term of ten years; provided that Options granted under this Paragraph shall expire one year after the date on which a Director terminates Continuous Service on the Board for a reason other than death, but in no event later than the date on which such Options would otherwise expire. In the event of such Director's death during the term of his directorship, Options granted under this Paragraph shall become immediately exercisable, and may be exercised within two years from the date of his death by the personal representatives of his estate or person or persons to whom his rights under such Option shall have passed by will or by laws of descent and distribution, but in no event later than the date on which such Options would otherwise expire. In the event of such Director's Disability during his or her directorship, the Director's Option shall become immediately exercisable, and such Option may be exercised within one year of the termination of directorship due to Disability, but not later than the date that the Option would otherwise expire. Unless otherwise inapplicable or inconsistent with the provisions of this Paragraph, the Options to be granted to Directors hereunder shall be subject to all other provisions of this Plan. -6- (c) Effect of the Committee's Decisions. The Committee's determination whether a Participant's Continuous Service has ceased, and the effective date thereof, shall be final and conclusive on all persons affected thereby. 10. SARS (STOCK APPRECIATION RIGHTS) (a) Granting of SARs. In its sole discretion, the Committee may from time to time grant SARs to Employees either in conjunction with, or independently of, any Options granted under the Plan. An SAR granted in conjunction with an Option may be an alternative right wherein the exercise of the Option terminates the SAR to the extent of the number of shares purchased upon exercise of the Option and, correspondingly, the exercise of the SAR terminates the Option to the extent of the number of Shares with respect to which the SAR is exercised. Alternatively, an SAR granted in conjunction with an Option may be an additional right wherein both the SAR and the Option may be exercised. An SAR may not be granted in conjunction with an ISO under circumstances in which the exercise of the SAR affects the right to exercise the ISO or vice versa, unless the SAR, by its terms, meets all of the following requirements: (1) The SAR will expire no later than the ISO; (2) The SAR may be for no more than the difference between the Exercise Price of the ISO and the Market Value of the Shares subject to the ISO at the time the SAR is exercised; (3) The SAR is transferable only when the ISO is transferable, and under the same conditions; (4) The SAR may be exercised only when the ISO may be exercised; and (5) The SAR may be exercised only when the Market Value of the Shares subject to the ISO exceeds the Exercise Price of the ISO. (b) Exercise Price. The Exercise Price as to any particular SAR shall not be less than the Market Value of the Optioned Shares on the date of grant. (c) Timing of Exercise. The provisions of Paragraph 8(c) regarding the period of exercisability of Options are incorporated by reference herein, and shall determine the period of exercisability of SARs. (d) Exercise of SARs. An SAR granted hereunder shall be exercisable at such times and under such conditions as shall be permissible under the terms of the Plan and of the Agreement granted to a Participant, provided that an SAR may not be exercised for a fractional Share. Upon exercise of an SAR, the Participant shall be entitled to receive, without payment to the Company except for applicable withholding taxes, an amount equal to the excess of (or, in the discretion of the Committee if provided in the Agreement, a portion of) the excess of the then aggregate Market Value of the number of Optioned Shares with respect to which the Participant exercises the SAR, over the aggregate Exercise Price of such number of Optioned Shares. This amount shall be payable by the Company, in the discretion of the Committee, in cash or in Shares valued at the then Market Value thereof, or any combination thereof. (e) Procedure for Exercising SARs. To the extent not inconsistent herewith, the provisions of Paragraph 8(b) as to the procedure for exercising Options are incorporated by reference, and shall determine the procedure for exercising SARs. -7- 11. EFFECT OF CHANGES IN COMMON STOCK SUBJECT TO THE PLAN. (a) Recapitalizations; Stock Splits, Etc. The number and kind of shares reserved for issuance under the Plan, and the number and kind of shares subject to outstanding Awards, and the Exercise Price thereof, shall be proportionately adjusted for any increase, decrease, change or exchange of Shares for a different number or kind of shares or other securities of the Company which results from a merger, consolidation, recapitalization, reorganization, reclassification, stock dividend, split-up, combination of shares, or similar event in which the number or kind of shares is changed without the receipt or payment of consideration by the Company. (b) Transactions in which the Company is Not the Surviving Entity. In the event of (i) the liquidation or dissolution of the Company, (ii) a merger or consolidation in which the Company is not the surviving entity, or (iii) the sale or disposition of all or substantially all of the Company's assets (any of the foregoing to be referred to herein as a "Transaction"), all outstanding Awards, together with the Exercise Prices thereof, shall be equitably adjusted for any change or exchange of Shares for a different number or kind of shares or other securities which results from the Transaction. (c) Special Rule for ISOs. Any adjustment made pursuant to subparagraphs (a) or (b)(1) hereof shall be made in such a manner as not to constitute a modification, within the meaning of Section 424(h) of the Code, of outstanding ISOs. (d) Conditions and Restrictions on New, Additional, or Different Shares or Securities. If, by reason of any adjustment made pursuant to this Paragraph, a Participant becomes entitled to new, additional, or different shares of stock or securities, such new, additional, or different shares of stock or securities shall thereupon be subject to all of the conditions and restrictions which were applicable to the Shares pursuant to the Award before the adjustment was made. (e) Other Issuances. Except as expressly provided in this Paragraph, the issuance by the Company or an Affiliate of shares of stock of any class, or of securities convertible into Shares or stock of another class, for cash or property or for labor or services either upon direct sale or upon the exercise of rights or warrants to subscribe therefor, shall not affect, and no adjustment shall be made with respect to, the number, class, or Exercise Price of Shares then subject to Awards or reserved for issuance under the Plan. 12. NON-TRANSFERABILITY OF AWARDS. Awards may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent and distribution. Notwithstanding the foregoing, or any other provision of this Plan, a Participant who holds Awards may transfer such Awards (but not Incentive Stock Options) to his or her spouse, lineal ascendants, lineal descendants, or to a duly established trust for the benefit of one or more of these individuals. Awards so transferred may thereafter be transferred only to the Participant who originally received the grant or to an individual or trust to whom the Participant could have initially transferred the Awards pursuant to this Paragraph 12. Awards which are transferred pursuant to this Paragraph 12 shall be exercisable by the transferee according to the same terms and conditions as applied to the Participant. 13. TIME OF GRANTING AWARDS. The date of grant of an Award shall, for all purposes, be the later of the date on which the Committee makes the determination of granting such Award, and the Effective Date. Notice of the determination shall be given to each Participant to whom an Award is so granted within a reasonable time after the date of such grant. -8- 14. EFFECTIVE DATE. The Plan shall become effective immediately upon its approval by a favorable vote of stockholders owning at least a majority of the total votes eligible to be cast at a duly called meeting of the Company's stockholders held in accordance with applicable laws, provided that the Plan shall not be submitted for such approval within the six-month period after the Association completes its mutual-to-stock conversion. No Awards may be made prior to approval of the Plan by the stockholders of the Company. 15. MODIFICATION OF AWARDS. At any time, and from time to time, the Board may authorize the Committee to direct execution of an instrument providing for the modification of any outstanding Award, provided no such modification shall confer on the holder of said Award any right or benefit which could not be conferred on him by the grant of a new Award at such time, or impair the Award without the consent of the holder of the Award. 16. AMENDMENT AND TERMINATION OF THE PLAN. The Board may from time to time amend the terms of the Plan and, with respect to any Shares at the time not subject to Awards, suspend or terminate the Plan. No amendment, suspension or termination of the Plan shall, without the consent of any affected holders of an Award, alter or impair any rights or obligations under any Award theretofore granted. 17. CONDITIONS UPON ISSUANCE OF SHARES. (a) Compliance with Securities Laws. Shares of Common Stock shall not be issued with respect to any Award unless the issuance and delivery of such Shares shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the rules and regulations promulgated thereunder, any applicable state securities law, and the requirements of any stock exchange upon which the Shares may then be listed. (b) Special Circumstances. The inability of the Company to obtain approval from any regulatory body or authority deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder shall relieve the Company of any liability in respect of the non-issuance or sale of such Shares. As a condition to the exercise of an Option or SAR, the Company may require the person exercising the Option or SAR to make such representations and warranties as may be necessary to assure the availability of an exemption from the registration requirements of federal or state securities law. (c) Committee Discretion. The Committee shall have the discretionary authority to impose in Agreements such restrictions on Shares as it may deem appropriate or desirable, including but not limited to the authority to impose a right of first refusal or to establish repurchase rights or both of these restrictions. 18. RESERVATION OF SHARES. The Company, during the term of the Plan, will reserve and keep available a number of Shares sufficient to satisfy the requirements of the Plan. 19. WITHHOLDING TAX. The Company's obligation to deliver Shares upon exercise of Options and/or SARs shall be subject to the Participant's satisfaction of all applicable federal, state and local income and employment tax withholding obligations. The Committee, in its discretion, may permit the Participant to satisfy the obligation, in whole or in part, by irrevocably electing to have the Company withhold Shares, or to deliver to the Company Shares that he already owns, -9- having a value equal to the amount required to be withheld. The value of the Shares to be withheld, or delivered to the Company, shall be based on the Market Value of the Shares on the date the amount of tax to be withheld is to be determined. As an alternative, the Company may retain, or sell without notice, a number of such Shares sufficient to cover the amount required to be withheld. 20. NO EMPLOYMENT OR OTHER RIGHTS. In no event shall an Employee's or Director's eligibility to participate or participation in the Plan create or be deemed to create any legal or equitable right of the Employee, Director, or any other party to continue service with the Company, the Association, or any Affiliate of such corporations. Except to the extent provided in Paragraphs 6(b) and 9(a), no Employee or Director shall have a right to be granted an Award or, having received an Award, the right to again be granted an Award. However, an Employee or Director who has been granted an Award may, if otherwise eligible, be granted an additional Award or Awards. 21. GOVERNING LAW. The Plan shall be governed by and construed in accordance with the laws of the State of Colorado, except to the extent that federal law shall be deemed to apply. -10- EX-10.4 14 EXHIBIT 10.4 EXHIBIT 10.4 HIGH COUNTRY BANCORP, INC. MANAGEMENT RECOGNITION PLAN ARTICLE I ESTABLISHMENT OF THE PLAN 1.01 The Company hereby establishes this Plan upon the terms and conditions hereinafter stated. 1.02 Through acceptance of their appointment to the Committee, each member of the Committee hereby accepts his or her appointment hereunder upon the terms and conditions hereinafter stated. ARTICLE II PURPOSE OF THE PLAN 2.01 The purpose of the Plan is to reward and retain personnel of experience and ability in key positions of responsibility by providing Employees and Directors of the Company, the Association, and their Affiliates with a proprietary interest in the Company, and as compensation for their past contributions to the Association, and as an incentive to make such contributions in the future. ARTICLE III DEFINITIONS The following words and phrases when used in this Plan with an initial capital letter, shall have the meanings set forth below unless the context clearly indicates otherwise. Wherever appropriate, the masculine pronoun shall include the feminine pronoun and the singular shall include the plural. 3.01 "Affiliate" shall mean any "parent corporation" or "subsidiary corporation" of the Company, as such terms are defined in Section 424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended. 3.02 "Association" means Salida Building & Loan Association. 3.03 "Beneficiary" means the person or persons designated by a Participant to receive any benefits payable under the Plan in the event of such Participant's death. Such person or persons shall be designated in writing on forms provided for this purpose by the Committee and may be changed from time to time by similar written notice to the Committee. In the absence of a written designation, the Beneficiary shall be the Participant's surviving spouse, if any or if none, his estate. 3.04 "Board" means the Board of Directors of the Company. 3.05 "Committee" means the Management Recognition Plan Committee appointed by the Board pursuant to Article IV hereof. 3.06 "Common Stock" means shares of the common stock of the Company. 3.07 "Company" means High Country Bancorp, Inc. 3.08 "Continuous Service" shall mean the absence of any interruption or termination of service as an Employee or Director of the Company or an Affiliate. Continuous Service shall not be considered interrupted in the case of sick leave, military leave or any other leave of absence approved by the Company in the case of transfers 1 between payroll locations of the Company or between the Company, an Affiliate or a successor, or in the case of a Director's performance of services in an emeritus or advisory capacity. 3.09 "Date of Conversion" means the date of the conversion of the Association from mutual to stock form. 3.10 "Director" means a member of the Board. 3.11 "Disability" shall mean a physical or mental condition, which in the sole and absolute discretion of the Committee, is reasonably expected to be of indefinite duration and to substantially prevent a Participant from fulfilling his or her duties or responsibilities to the Company or an Affiliate. 3.12 "Effective Date" means the date on which the Plan first becomes effective, as determined under Section 8.07 hereof. 3.13 "Employee" means any person who is employed by the Company or an Affiliate. 3.14 "Non-Employee Director" shall have the meaning provided in Rule 16b-3 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended. 3.15 "Participant" means an Employee or Director who holds a Plan Share Award. 3.16 "Plan" means this High Country Bancorp, Inc. Management Recognition Plan. 3.17 "Plan Shares" means shares of Common Stock held in the Trust which are awarded or issuable to a Participant pursuant to the Plan. 3.18 "Plan Share Award" means a right granted under this Plan to receive Plan Shares. 3.19 "Plan Share Reserve" means the shares of Common Stock held by the Trustee pursuant to Sections 5.02 and 5.03. 3.20 "Trust" and "Trust Agreement" mean that agreement entered into pursuant to the terms hereof between the Company and the Trustee, and "Trust" means the trust created thereunder. 3.21 "Trustee" means that person(s) or entity appointed by the Board pursuant to the Trust Agreement to hold legal title to the Plan assets for the purposes set forth herein. 3.22 "Year of Service" shall mean a full twelve-month period, measured from the date of a Plan Share Award and each annual anniversary of that date, during which a Participant's Continuous Service has not terminated for any reason. ARTICLE IV ADMINISTRATION OF THE PLAN 4.01 ROLE AND POWERS OF THE COMMITTEE. The Plan shall be administered and interpreted by the Committee, which shall consist of not less than two members of the Board who are Non-Employee Directors. In the absence at any time of a duly appointed Committee, the Plan shall be administered by those members of the Board who are Non-Employee Directors, and by the Board if there are less than two Non-Employee Directors. 2 The Committee shall have all of the powers allocated to it in this and other Sections of the Plan. Except as limited by the express provisions of the Plan or by resolutions adopted by the Board, the Committee shall have sole and complete authority and discretion (i) to make Plan Share Awards to such Employees as the Committee may select, (ii) to determine the form and content of Plan Share Awards to be issued under the Plan, (iii) to interpret the Plan, (iv) to prescribe, amend and rescind rules and regulations relating to the Plan, and (v) to make other determinations necessary or advisable for the administration of the Plan. The Committee shall have and may exercise such other power and authority as may be delegated to it by the Board from time to time. Subject to Section 4.02, the interpretation and construction by the Committee of any provisions of the Plan or of any Plan Share Award granted hereunder shall be final and binding. The Committee shall act by vote or written consent of a majority of its members, and shall report its actions and decisions with respect to the Plan to the Board at appropriate times, but in no event less than one time per calendar year. The Committee may recommend to the Board one or more persons or entity to act as Trustee(s) in accordance with the provisions of this Plan and the Trust. 4.02 ROLE OF THE BOARD. The members of the Committee shall be appointed or approved by, and will serve at the pleasure of, the Board. The Board may in its discretion from time to time remove members from, or add members to, the Committee. The Board shall have all of the powers allocated to it in this and other Sections of the Plan, may take any action under or with respect to the Plan which the Committee is authorized to take, and may reverse or override any action taken or decision made by the Committee under or with respect to the Plan, provided, however, that the Board may not revoke any Plan Share Award already made or impair a participant's vested rights under a Plan Share Award. Members of the Board who are eligible for or who have been granted Plan Share Awards (other than pursuant to Section 6.04) may not vote on any matters affecting the administration of the Plan or the grant of Plan Shares or Plan Share Awards (although such members may be counted in determining the existence of a quorum at any meeting of the Board during which actions with regard thereto are taken). Further, with respect to all actions taken by the Board in regard to the Plan, such action shall be taken by a majority of the Board where such a majority of the directors acting in the matter are Non-Employee Directors. 4.03 LIMITATION ON LIABILITY. No member of the Board or the Committee or the Trustee(s) shall be liable for any determination made in good faith with respect to the Plan or any Plan Shares or Plan Share Awards granted under it. If a member of the Board or the Committee or any Trustee is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of anything done or not done by him in such capacity under or with respect to the Plan, the Company shall indemnify such member, subject to the indemnification provisions of 12 C.F.R. Section 545.121, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in the best interests of the Company and its Affiliates and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. ARTICLE V CONTRIBUTIONS; PLAN SHARE RESERVE 5.01 AMOUNT AND TIMING OF CONTRIBUTIONS. The Board shall determine the amounts (or the method of computing the amounts) to be contributed by the Company to the Trust, provided that the Association may also make contributions to the Trust. Such amounts shall be paid to the Trustee at the time of contribution. No contributions to the Trust by Employees shall be permitted. 5.02 INVESTMENT OF TRUST ASSETS; MAXIMUM PLAN SHARE AWARDS. The Trustee shall invest Trust assets only in accordance with the Trust Agreement; provided that the Trust shall not purchase, and Plan Share Awards shall not be made with respect to, more than four percent (4%) of the number of Shares issued on the Date of Conversion. Common stock purchased by the Trust may be newly issued shares, treasury shares, or shares held in a grantor trust. 3 5.03 EFFECT OF ALLOCATIONS, RETURNS AND FORFEITURES UPON PLAN SHARE RESERVES. Upon the allocation of Plan Share Awards under Section 6.02, the Plan Share Reserve shall be reduced by the number of Shares subject to the Awards so allocated. Any Shares subject or attributable to an Award which may not be earned because of a forfeiture by the Participant pursuant to Section 7.01 shall be added to the Plan Share Reserve. ARTICLE VI ELIGIBILITY; ALLOCATIONS 6.01 ELIGIBILITY. Except as otherwise provided in Section 6.04 hereof, the Committee shall make Plan Share Awards only to Employees. In selecting those Employees to whom Plan Share Awards will be granted and the number of shares covered by such Awards, the Committee shall consider the position, duties and responsibilities of the eligible Employees, the value of their services to the Company and its Affiliates, and any other factors the Committee may deem relevant. Notwithstanding the foregoing, (i) the Committee shall automatically make the Plan Share Awards specified in Sections 6.04 and 6.05 hereof; and (ii) no Employee shall receive Plan Share Awards relating to more than 25% of the Plan Shares reserved under Section 5.02, and no non-employee Director shall receive Plan Share Awards relating to more than 5% of the Plan Shares reserved under Section 5.02, with all non-employee Directors as a group receiving Plan Share Awards on the Effective Date relating to no more than 30% of the Plan Shares reserved under Section 5.02. [THESE RESTRICTIONS WILL BE INAPPLICABLE IF THE PLAN RECEIVES STOCKHOLDER APPROVAL MORE THAN ONE YEAR AFTER THE DATE OF CONVERSION.] 6.02 ALLOCATIONS. The Committee will determine which Employees will be granted discretionary Plan Share Awards, and the number of Shares covered by each Plan Share Award, provided that in no event shall any Awards be made which will violate the governing instruments of the Association or its Affiliates or any applicable federal or state law or regulation. In the event Plan Shares are forfeited for any reason or additional shares of Common Stock are purchased by the Trustee, the Committee may, from time to time, determine which of the Employees referenced in Section 6.01 above will be granted additional Plan Share Awards to be awarded from the forfeited or acquired Plan Shares. 6.03 FORM OF ALLOCATION. As promptly as practicable after a determination is made pursuant to Section 6.02 that a Plan Share Award is to be made, the Committee shall notify the Participant in writing of the grant of the Award, the number of Plan Shares covered by the Award, and the terms upon which the Plan Shares subject to the Award may be earned. The date on which the Committee so notifies the Participant shall be considered the date of grant of the Plan Share Awards. The Committee shall maintain records as to all grants of Plan Share Awards under the Plan. 6.04 AUTOMATIC GRANTS TO NON-EMPLOYEE DIRECTORS. Notwithstanding any other provisions of this Plan, each Director who is not an Employee but is a Director on the Effective Date shall receive, on said date, a Plan Share Award for a number of Shares equal to the lesser of five (5%) of the number of Plan Shares which the Trust is authorized to purchase pursuant to Section 5.02 of the Plan and the quotient obtained by dividing -- (i) 30 percent (30%) of the number of Plan Shares which the Trust is authorized to purchase pursuant to Section 5.02 of the Plan, by (ii) the number of Directors entitled to receive Plan Share Awards on the Effective Date, pursuant to this Section 6.04. Directors, including Non-Employee Directors who join the Board after the Effective Date, are eligible to receive discretionary Awards under the Plan. Plan Share Awards received under the provisions of this Section shall become vested and nonforfeitable according to the general rules set forth in subsections (a), and (b) of Section 7.01, and the Committee shall have no discretion to alter or accelerate said vesting requirements. Unless otherwise inapplicable or inconsistent with the provisions of this Section, the Plan Share Awards to be granted hereunder shall be subject to all other provisions of this Plan. 4 6.05 AUTOMATIC GRANTS TO EMPLOYEES. On the Effective Date, each of the following individuals shall receive a Plan Share Award as to the number of Plan Shares listed below, provided that such award shall not be made to an individual who is not an Employee on the Effective Date:
Employee Shares Subject to Plan Share Award -------- ---------------------------------- Larry D. Smith 25%
Plan Share Awards received under the provisions of this Section shall become vested and nonforfeitable according to the general rules set forth in subsections (a) and (b) of Section 7.01, and the Committee shall have no discretion to alter said vesting requirements. Unless otherwise inapplicable or inconsistent with the provisions of this Section, the Plan Share Awards to be granted hereunder shall be subject to all other provisions of this Plan. 6.06 ALLOCATIONS NOT REQUIRED. Notwithstanding anything to the contrary in Sections 6.01 and 6.02, but subject to Sections 6.04 and 6.05, no Employee or Director shall have any right or entitlement to receive a Plan Share Award hereunder, such Awards being at the total discretion of the Committee, nor shall any Employees or Directors as a group have such a right. The Committee may, with the approval of the Board (or, if so directed by the Board) return all Common Stock in the Plan Share Reserve to the Company at any time, and cease issuing Plan Share Awards. ARTICLE VII EARNINGS AND DISTRIBUTION OF PLAN SHARES; VOTING RIGHTS 7.01 EARNING PLAN SHARES; FORFEITURES. (a) GENERAL RULES. Twenty percent (20%) of the Plan Shares subject to a Plan Share Award shall be earned and become non-forfeitable by a Participant upon his or her completion of each of five Years of Service. [MAY BE DIFFERENT IF PLAN RECEIVES STOCKHOLDER APPROVAL MORE THAN ONE YEAR AFTER THE DATE OF CONVERSION.] (b) EXCEPTION FOR TERMINATIONS DUE TO DEATH OR DISABILITY. Notwithstanding the general rule contained in Section 7.01(a) above, all Plan Shares subject to a Plan Share Award held by a Participant whose service with the Company or an Affiliate terminates due to the Participant's death or Disability shall be deemed earned as of the Participant's last day of service with the Company or an Affiliate and shall be distributed as soon as practicable thereafter. [IF THE PLAN RECEIVES STOCKHOLDER APPROVAL MORE THAN ONE YEAR AFTER THE DATE OF CONVERSION, VESTING WOULD ACCELERATE TO 100% UPON A PARTICIPANT'S RETIREMENT OR TERMINATION OF SERVICE IN CONNECTION WITH A CHANGE IN CONTROL.] 7.02 ACCRUAL OF DIVIDENDS. Whenever Plan Shares are paid to a Participant or Beneficiary under Section 7.03, such Participant or Beneficiary shall also be entitled to receive, with respect to each Plan Share paid, an amount equal to any cash dividends (including special large and nonrecurring dividends, including one that has the effect of a return of capital to the Company's stockholders) and a number of shares of Common Stock equal to any stock dividends, declared and paid with respect to a share of Common Stock between the date the relevant Plan Share Award was initially granted to such Participant and the date the Plan Shares are being distributed. There shall also be distributed an appropriate amount of net earnings, if any, of the Trust with respect to any cash dividends so paid out. 7.03 DISTRIBUTION OF PLAN SHARES. (a) TIMING OF DISTRIBUTIONS: GENERAL RULE. Except as provided in Subsections (c), and (d) below, the Trustee shall distribute Plan Shares and accumulated cash from dividends and interest to the Participant or his 5 Beneficiary, as the case may be, as soon as practicable after they have been earned. No fractional shares shall be distributed. (b) FORM OF DISTRIBUTION. The Trustee shall distribute all Plan Shares, together with any shares representing stock dividends, in the form of Common Stock. One share of Common Stock shall be given for each Plan Share earned. Payments representing cash dividends (and earnings thereon) shall be made in cash. (c) WITHHOLDING. The Trustee shall withhold from any cash payment made under this Plan sufficient amounts to cover any applicable withholding and employment taxes, and if the amount of such cash payment is not sufficient, the Trustee shall require the Participant or Beneficiary to pay to the Trustee the amount required to be withheld as a condition of delivering the Plan Shares. The Trustee shall pay over to the Company or Affiliate which employs or employed such Participant any such amount withheld from or paid by the Participant or Beneficiary. (d) TIMING: EXCEPTION FOR 10% SHAREHOLDERS. Notwithstanding Subsections (a) and (b) above, no Plan Shares may be distributed prior to the date which is five (5) years from the Date of Conversion to the extent the Participant or Beneficiary, as the case may be, would after receipt of such Shares own in excess of ten percent (10%) of the issued and outstanding shares of Common Stock unless such action is approved in advance by a majority vote of non-employee directors of the Board. To the extent this limitation would delay the date on which a Participant receives Plan Shares, the Participant may elect to receive from the Trust, in lieu of vested Plan Shares, a cash amount equal to the fair market value of such Plan Shares. Any Plan Shares remaining undistributed solely by reason of the operation of this Subsection (d) shall be distributed to the Participant or his Beneficiary on the date which is five years from the Date of Conversion. (e) REGULATORY EXCEPTIONS. No Plan Shares shall be distributed unless and until all of the requirements of all applicable law and regulation shall have been fully complied with, including the receipt of approval of the Plan by the stockholders of the Company by such vote, if any, as may be required by applicable law and regulations. 7.04 VOTING OF PLAN SHARES. All shares of Common Stock held by the Trust (whether or not subject to a Plan Share Award) shall be voted by the Trustee in the same proportion as the trustee of the Company's Employee Stock Ownership Plan votes Common Stock held in the trust associated therewith, and in the absence of any such voting, shall be voted in the manner directed by the Board. 7.05. DEFERRAL ELECTIONS BY PARTICIPANTS. At any time that is at least six months prior to the date on which a Participant becomes vested in the first 20% of his or her Plan Share Award, the Participant may irrevocably elect, on the form attached hereto as Exhibit "A" (the "Election Form"), to defer the receipt of all or a percentage of the Plan Shares that would otherwise be transferred to the Participant upon the vesting of such award (the "Deferred Shares"). The MRP Committee shall establish and maintain an individual account in the name of each Participant who files an Election Form for the purpose of tracking deferred earnings attributable to cash dividends paid on Deferred Shares (the "Cash Account"). On the last day of each fiscal year of the Company, the Committee shall credit to the Participant's Cash Account earnings on the balance of the Cash Account at a rate equal to the yield on Common Stock, as determined from time to time by the MRP Committee in its sole discretion. The Deferred Shares, together with any cash or stock dividends attributable thereto (the "Deferred Earnings"), will be distributed to the Participant in accordance with the deferral schedule (the "Deferral Schedule") selected by the Participant in his or her Election Form. The Trustees shall hold each Participant's Deferred Shares and Deferred Earnings in the Trust until distribution is required pursuant to the election set forth in the Participant's Election Form. The Trustee shall distribute a Participant's Deferred Shares and Deferred Earnings in accordance with the Participant's Election Form, unless the Participant terminates Continuous Service for a reason other than the Participant's (i) death, (ii) Disability, (iii) early retirement after age 55 and completion of 10 or more years of 6 Continuous Service, or (iv) normal retirement after age 65. Within 90 days after receiving notice of a Participant's death, the Trustee shall distribute any balance of the Participant's Deferred Shares and Deferred Earnings to the Participant's designated beneficiary, if living, or if such designated beneficiary is deceased or the Participant failed to designate a beneficiary, to the Participant's estate. Notwithstanding the preceding, at any time prior to his or her death, a Participant may elect to have the balance of his or her Deferred Shares and Deferred Earnings distributed to his or her beneficiary or estate over a period of time designated by the Participant. If, on the other hand, a Participant's Continuous Service terminates for a reason other than the Participant's death, Disability, early retirement, or normal retirement, the Participant's Deferred Shares and Deferred Earnings shall be distributed to the Participant in a lump sum occurring as soon as reasonably practicable. Notwithstanding any other provision of the Plan or a Participant's Election Form, in the event the Participant suffers an unforeseeable emergency hardship within the contemplation of this paragraph, the Participant may apply to the Committee for a distribution of all or a portion of his Deferred Shares and Deferred Earnings prior to the basis for any such distribution. The hardship must result from a sudden and unexpected illness or accident of the Participant or a dependent of the Participant, casualty loss of property, or other similar conditions beyond the control of the Participant. Examples of purposes which are not considered hardships include post-secondary school expenses or the desire to purchase a residence. In no event will a distribution be made to the extent the hardship could be relieved through reimbursement or compensation by insurance or otherwise, or by liquidation of the Participant's nonessential assets to the extent such liquidation would not itself cause a severe financial hardship. The amount of any distribution hereunder shall be limited to the amount necessary to relieve the Participant's financial hardship. The determination of whether a Participant has a qualifying hardship and the amount which qualifies for distribution, if any, shall be made by the Committee in its sole discretion. The Committee may require evidence of the purpose and amount of the need, and may establish such application or other procedures as it deems appropriate. No Participant may assign his or her claim to Deferred Shares and Deferred Earnings during his or her lifetime, and any deferral election made hereunder shall be irrevocable. A Participant's right to Deferred Shares and Deferred Earnings shall at all times constitute an unsecured promise of the Company to pay benefits as they come due. The right of the Participant or his or her beneficiary to receive benefits hereunder shall be solely an unsecured claim against the general assets of the Company. Neither the Participant nor his or her beneficiary shall have any claim against or rights in any specific assets or other fund of the Company, and any assets in the Trust shall be deemed general assets of the Company. All distributions made by the Company and/or the Trustees pursuant to elections made hereunder shall be subject to applicable federal, state, and local tax withholding and to such other deductions as shall at the time of such payment be required under any income tax or other law, whether of the United States or any other jurisdiction, and, in the case of payments to a beneficiary, the delivery to the Committee and/or Trustees of all necessary waivers, qualifications and other documentation. ARTICLE VIII MISCELLANEOUS 8.01 ADJUSTMENTS FOR CAPITAL CHANGES. (a) RECAPITALIZATIONS; STOCK SPLITS, ETC. The number and kind of shares which may be purchased under the Plan, and the number and kind of shares subject to outstanding Plan Share Awards, shall be proportionately adjusted for any increase, decrease, change or exchange of shares of Common Stock for a different number or kind of shares or other securities of the Company which results from a merger, consolidation, recapitalization, reorganization, reclassification, stock dividend, split-up, combination of shares, or similar event in which the number or kind of shares is changed without the receipt or payment of consideration by the Company. 7 (b) TRANSACTIONS IN WHICH THE COMPANY IS NOT THE SURVIVING ENTITY. In the event of (i) the liquidation or dissolution of the Company, (ii) a merger or consolidation in which the Company is not the surviving entity, or (iii) the sale or disposition of all or substantially all of the Company's assets (any of the foregoing to be referred to herein as a "Transaction"), all outstanding Plan Share Awards shall be adjusted for any change or exchange of shares of Common Stock for a different number or kind of shares or other securities which results from the Transaction. (c) CONDITIONS AND RESTRICTIONS ON NEW, ADDITIONAL, OR DIFFERENT SHARES OR SECURITIES. If, by reason of any adjustment made pursuant to this Section, a Participant becomes entitled to new, additional, or different shares of stock or securities, such new, additional, or different shares of stock or securities shall thereupon be subject to all of the conditions and restrictions which were applicable to the shares pursuant to the Plan Share Award before the adjustment was made. In addition, the Committee shall have the discretionary authority to impose on the Shares subject to Plan Share Awards to Employees such restrictions as the Committee may deem appropriate or desirable, including but not limited to a right of first refusal, or repurchase option, or both of these restrictions. (d) OTHER ISSUANCES. Except as expressly provided in this Section, the issuance by the Company or an Affiliate of shares of stock of any class, or of securities convertible into shares of Common Stock or stock of another class, for cash or property or for labor or services either upon direct sale or upon the exercise of rights or warrants to subscribe therefor, shall not affect, and no adjustment shall be made with respect to, the number or class of shares of Common Stock then subject to Plan Share Awards or reserved for issuance under the Plan. 8.02 AMENDMENT AND TERMINATION OF PLAN. The Board may, by resolution, at any time amend or terminate the Plan; provided that no amendment or termination of the Plan shall, without the written consent of a Participant, impair any rights or obligations under a Plan Share Award theretofore granted to the Participant. The power to amend or terminate the Plan in accordance with this Section 8.02 shall include the power to direct the Trustee to return to the Company all or any part of the assets of the Trust, including shares of Common Stock held in the Plan Share Reserve. However, the termination of the Trust shall not affect a Participant's right to earn Plan Share Awards and to receive a distribution of Common Stock relating thereto, including earnings thereon, in accordance with the terms of this Plan and the grant by the Committee or the Board. 8.03 NONTRANSFERABILITY. Plan Share Awards may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent and distribution. Notwithstanding the foregoing, or any other provision of this Plan, a Participant who holds Plan Share Awards may transfer such Awards to his or her spouse, lineal ascendants, lineal descendants, or to a duly established trust for the benefit of one or more of these individuals. Plan Share Awards so transferred may thereafter be transferred only to the Participant who originally received the grant or to an individual or trust to whom the Participant could have initially transferred the Awards pursuant to this Section 8.03. Plan Share Awards which are transferred pursuant to this Section 8.03 shall be exercisable by the transferee according to the same terms and conditions as applied to the Participant. 8.04 NO EMPLOYMENT OR OTHER RIGHTS. Neither the Plan nor any grant of a Plan Share Award or Plan Shares hereunder nor any action taken by the Trustee, the Committee or the Board in connection with the Plan shall create any right, either express or implied, on the part of any Employee or Director to continue in the service of the Company, the Association, or an Affiliate thereof. 8.05 VOTING AND DIVIDEND RIGHTS. No Participant shall have any voting or dividend rights or other rights of a stockholder in respect of any Plan Shares covered by a Plan Share Award prior to the time said Plan Shares are actually distributed to him. 8.06 GOVERNING LAW. The Plan and Trust shall be governed and construed under the laws of the State of Colorado to the extent not preempted by Federal law. 8 8.07 EFFECTIVE DATE. The Plan shall become effective immediately upon its approval by a favorable vote of stockholders of the Company who own at least a majority of the total votes eligible to be cast at a duly called meeting of the Company's stockholders held in accordance with applicable laws, provided that the Plan shall not be submitted for such approval within the six-month period after the Date of Conversion. Stockholder approval may be unnecessary, or involve a different vote requirement, if the Plan is implemented more than one year after the Conversion. In no event shall Plan Share Awards be made prior to the Effective Date. 8.08 TERM OF PLAN. This Plan shall remain in effect until the earlier of (i) termination by the Board, or (ii) the distribution of all assets of the Trust. Termination of the Plan shall not affect any Plan Share Awards previously granted, and such Awards shall remain valid and in effect until they have been earned and paid, or by their terms expire or are forfeited. 8.09 TAX STATUS OF TRUST. It is intended that (i) the Trust associated with the Plan be treated as a grantor trust of the Company under the provisions of Section 671 et seq. of the Code, as the same may be amended from time to -- --- time, and (ii) that in accordance with Revenue Procedure 92-65 (as the same may be amended from time to time), Participants have the status of general unsecured creditors of the Company, the Plan constitutes a mere unfunded promise to make benefit payments in the future, the Plan is unfunded for tax purposes and for purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended, and the Trust has been and will continue to be maintained in conformity with Revenue Procedure 92-64 (as the same may be amended from time to time). 9 TRUST AGREEMENT UNDER THE HIGH COUNTRY BANCORP, INC. MANAGEMENT RECOGNITION PLAN _______________ Trust Agreement _______________ This Agreement made this _____ day of _________, 1997 by and between High Country Bancorp, Inc. (the "Company") and Non-Employee Directors Mitchell, Glenn, Young, and Harsh (acting by majority, the "Trustee"). WHEREAS, the Company maintains the High Country Bancorp, Inc. Management Recognition Plan (the "Plan"), and has incurred or expects to incur liability under the terms of the Plan with respect to the individuals participating in the Plan ("Participants"); and WHEREAS, the Company wishes to establish a trust (the "Trust") and to contribute to the Trust assets that shall be held therein, subject to the claims of the Company's general creditors in the event of Insolvency, as defined in Section 3(a) hereof, until paid to Participants and their beneficiaries in such manner and at such times as specified in the Plan; WHEREAS, it is the intention of the parties that this Trust shall constitute an unfunded arrangement and shall not affect the status of the Plan as an unfunded plan maintained for the purpose of providing deferred compensation for a select group of management or highly compensated employees for purposes of Title I of the Employee Retirement Income Security Act of 1974; WHEREAS, it is the intention of the Company to make contributions to the Trust to provide itself with a source of funds to assist it in the meeting of its liabilities under the Plan; NOW, THEREFORE, the parties do hereby establish this Trust and agree that the Trust shall be comprised, held and disposed of as follows: Section 1. Establishment of Trust ---------------------------------- (a) The Company hereby deposits, or will shortly hereafter deposit, with the Trustee in trust (i) a number of shares of the Company's common stock ("Common Stock") equal to four percent (4%) of the number of shares of Common Stock issued by the Company in connection with the conversion of Salida Building & Loan Association (the "Association") from mutual-to-stock form, or (ii) an amount expected to be sufficient to permit the Trust to purchase said shares. Said shares or amount shall become the initial principal of the Trust to be held, administered and disposed of by the Trustee as provided in this Trust Agreement. (b) The Trust shall become irrevocable upon the effective date of the Plan. (c) The Trust is intended to be a grantor trust, of which the Company is the grantor, within the meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended (the "Code"), and shall be construed accordingly. (d) The principal of the Trust, and any earnings thereon, shall be held separate and apart from other funds of the Company and shall be used exclusively for the uses and purposes of Participants and general creditors 1 as herein set forth. Participants and their beneficiaries shall have no preferred claim on, or any beneficial ownership interest in, any assets of the Trust. Any rights created under the Plan and this Trust Agreement shall be mere unsecured contractual rights of Participants and their beneficiaries against the Company. Any assets held by the Trust will be subject to the claims of the Company's general creditors under federal and state law in the event of Insolvency, as defined in Section 3(a) herein. (e) The Company, in its sole discretion, may at any time, or from time to time, make additional deposits of cash or other property in trust with the Trustee to augment the principal to be held, administered and disposed of by Trustee as provided in this Trust Agreement. Neither the Trustee nor any Participant or beneficiary shall have any right to compel such additional deposits. Section 2. Payments to Plan Participants and Their Beneficiaries. ----------------------------------------------------------------- (a) The Company shall deliver to the Trustee a schedule (the "Payment Schedule") that indicates the amounts payable in respect of each Participant (and his or her beneficiaries), that provides a formula or other instructions acceptable to the Trustee for determining the amounts so payable, the form in which such amount is to be paid (as provided for or available under the Plan), and the time of commencement for payment of such amounts. Except as otherwise provided herein, the Trustee shall make payments to Participants and their beneficiaries in accordance with such Payment Schedule. The Trustee shall make provision for the reporting and withholding of any federal, state or local taxes that may be required to be withheld with respect to the payment of benefits pursuant to the terms of the Plan and shall pay amounts withheld to the appropriate taxing authorities or determine that such amounts have been reported, withheld and paid by the Company. (b) The entitlement of a Participant or his or her beneficiaries to benefits under the Plan shall be determined by the Company or such party as it shall designate under the Plan, and any claim for such benefits shall be considered and reviewed under the procedures set out in the Plan. (c) The Company may make payment of benefits directly to Participants or their beneficiaries as they become due under the terms of the Plan. The Company shall notify the Trustee of its decision to make payment of benefits directly prior to the time amounts are payable to Participants or their beneficiaries. In addition, if the principal of the Trust, and any earnings thereon, are not sufficient to make payments of benefits in accordance with the terms of the Plan, the Company shall make the balance of each such payment as it falls due. The Trustee shall notify the Company where principal and earnings are not sufficient. Section 3. Trustee Responsibility Regarding Payments to Trust Beneficiary -------------------------------------------------------------------------- When Company Is Insolvent. - ------------------------- (a) The Trustee shall cease payment of benefits to Participants and their beneficiaries if the Company is Insolvent. The Company shall be considered "Insolvent" for purposes of this Trust Agreement if (i) the Company is unable to pay its debts as they become due, or (ii) the Company becomes subject to a pending proceeding as a debtor under the United States Bankruptcy Code. (b) At all times during the continuance of this Trust, as provided in Section 1(d) hereof, the principal and income of the Trust shall be subject to claims of general creditors of the Company under federal and state law as set forth below. (c) The Board of Directors and the Chief Executive Officer of the Company shall have the duty to inform the Trustee in writing of the Company's Insolvency. If a person claiming to be a creditor of the Company alleges in writing to the Trustee that the Company has become Insolvent, the Trustee shall determine whether the Company is Insolvent and, pending such determination, the Trustee shall discontinue payment of benefits to Participants or their beneficiaries. 2 (1) Unless the Trustee has actual knowledge of the Company's Insolvency, or has received notice from the Company or a person claiming to be a creditor alleging that the Company is Insolvent, the Trustee shall have no duty to inquire whether the Company is Insolvent. The Trustee may in all events rely on such evidence concerning the Company's solvency as may be furnished to the Trustee and that provides the Trustee with a reasonable basis for making a determination concerning the Company's solvency. (2) If at any time the Trustee has determined that the Company is Insolvent, the Trustee shall discontinue payments to Plan participants or their beneficiaries, shall liquidate the Trust's investment in Common Stock, and shall hold the assets of the Trust for the benefit of the Company's general creditors. Nothing in this Trust Agreement shall in any way diminish any rights of Participants or their beneficiaries as general creditors of the Company with respect to benefits due under the Plan or otherwise. (3) The Trustee shall resume the payment of benefits to Participants or their beneficiaries in accordance with Section 2 of this Trust Agreement only after the Trustee has determined that the Company is not Insolvent (or is no longer Insolvent). (d) Provided that there are sufficient assets, if the Trustee discontinues the payment of benefits from the Trust pursuant to Section 3(b) hereof and subsequently resumes such payments, the first payment following such discontinuance shall include the aggregate amount of all payments due to Participants or their beneficiaries under the terms of the Plan for the period of such discontinuance, less the aggregate amount of any payments made to Participants or their beneficiaries by the Company in lieu of the payments provided for hereunder during any such period of discontinuance. Section 4. Payments to the Company. ----------------------------------- Except as provided in Section 3 hereof, after the Trust has become irrevocable, the Company shall have no right or power to direct the Trustee to return to the Company or to divert to others any of the Trust assets before all payment of benefits have been made to Plan Participants and their beneficiaries pursuant to the terms of the Plan. Section 5. Investment Authority. -------------------------------- (a) The Trustee shall have sole discretion as to the investment of Trust assets, except that to the extent reasonably practicable, the Trustee shall invest all assets of the Trust in Common Stock provided that the Trust shall not purchase from time to time a number of shares of Common Stock exceeding 4% of the shares of Common Stock issued in the Association's mutual-to-stock conversion. (b) All rights associated with assets of the Trust shall be exercised by the Trustee or the person designated by the Trustee, and shall in no event be exercisable by or rest with Participants, except that voting rights with respect to Common Stock will be exercised in accordance with the terms of the Plan. (c) Subject to applicable federal and state securities laws, if for any reason the Trustee will be selling shares of Common Stock, the Trustee shall sell such shares by (i) giving each Beneficiary 20 business days within which to purchase, at fair market value, all or part of the shares of Common Stock that the Trustee holds for the benefit of the Beneficiary, and (ii) to the extent purchases by Beneficiaries are insufficient to eliminate the Trusts' excess holdings of Common Stock, to offer to sell, and to sell, all or any part of the excess shares held by the Trust to the following purchasers, listed here by order of priority: first, the Company; second, any benefit plan maintained by the Company or the Association; third, directors of the Association; fourth, officers of the Association; fifth, members of the general public. 3 Section 6. - Disposition of Income. ---------------------------------- During the term of this Trust, all income received by the Trust, net of expenses and taxes, shall be accumulated and reinvested. Section 7. Accounting by Trustee. --------------------------------- The Trustee shall keep accurate and detailed records of all investments, receipts, disbursements, and all other transactions required to be made, including such specific records as shall be agreed upon in writing between the Company and the Trustee. Within 60 days following the close of each calendar year and within 20 days after the removal or resignation of the Trustee, the Trustee shall deliver to the Company a written account of its administration of the Trust during such year or during the period from the close of the last preceding year to the date of such removal or resignation, setting forth all investments, receipts, disbursements and other transactions effected by it, including a description of all securities and investments purchased and sold with the cost or net proceeds of such purchased and sold with the cost or net proceeds of such purchases or sales (accrued interest paid or receivable being shown separately), and showing all cash, securities and other property held in the Trust at the end of such year or as of the date of such removal or resignation, as the case may be. Section 8. Responsibility of Trustee. ------------------------------------- (a) The Trustee shall act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims, provided, however, that the Trustee shall incur no liability to any person for any action taken pursuant to a direction, request or approval given by the Company which is contemplated by, and in conformity, the terms of the Plan or this Trust and is given in writing by the Company. In the event of a dispute between the Company and a party, the Trustee may apply to a court of competent jurisdiction to resolve the dispute. (b) If the Trustee undertakes or defends any litigation arising in connection with this Trust, the Company agrees to indemnify the Trustee against Trustee's costs, expenses and liabilities (including, without limitation, attorneys' fees and expenses) relating thereto and to be primarily liable for such payments, except in those cases where the Trustee shall have been found by a court of competent jurisdiction to have acted with gross negligence or willful misconduct. If the Company does not pay such costs, expenses and liabilities in a reasonably timely manner, the Trustee may obtain payment from the Trust. (c) The Trustee may consult with legal counsel with respect to any of its duties or obligations hereunder. (d) The Trustee may hire agents, accountants, actuaries, investment advisors, financial consultants or other professionals to assist it in performing any of its duties or obligations hereunder. (e) The Trustee shall have, without exclusion, all powers conferred on trustees by applicable law, unless expressly provided otherwise herein, provided, however, that if an insurance policy is held as an asset of the Trust, the Trustee shall have no power to name a beneficiary of the policy other than the Trust, to assign the policy (as distinct from conversion of the policy to a different form) other than to a successor Trustee, or to loan to any person the proceeds of any borrowing against such policy. (f) Notwithstanding any powers granted to the Trustee pursuant to this Trust Agreement or to applicable law, the Trustee shall not have any power that could give this Trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of section 301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant to the Code. 4 Section 9. Compensation and Expenses of Trustee. ------------------------------------------------ The Company shall pay all administrative expenses and the Trustee's fees and expenses relating to the Plan and this Trust. If not so paid, the fees and expenses shall be paid from the Trust. Section 10. Resignation and Removal of Trustee. ----------------------------------------------- The Trustee (or any individual serving as one of the trustees who act by majority as the Trustee) may resign at any time by written notice to the Company, which resignation shall be effective 30 days after the Company receives such notice (unless the Company and the Trustee agree otherwise). The Trustee (or any individual serving as one of the trustees who act by majority as the Trustee) may be removed by the Company on 30 days notice or upon shorter notice accepted by the Trustee. If the Trustee (or any individual serving as one of the trustees who act by majority as the Trustee) resigns or is removed, a successor shall be appointed, in accordance with Section 11 hereof, by the effective date or resignation or removal under this section. If no such appointment has been made, the Trustee may apply to a court of competent jurisdiction for appointment of a successor or for instructions. All expenses of the Trustee in connection with the proceeding shall be allowed as administrative expenses of the Trust. Upon resignation or removal of the Trustee and appointment of a successor trustee, all assets shall subsequently be transferred to the successor trustee. The transfer shall be completed within 60 days after receipt of notice of resignation, removal or transfer, unless the Company extends the time limit. Section 11. Appointment of Successor. ------------------------------------- If the Trustee resigns or is removed in accordance with Section 10 hereof, the Company may appoint any other party as a successor to replace the Trustee upon resignation or removal. The appointment shall be effective when accepted in writing by the new trustee, who shall have all of the rights and powers of the former trustee, including ownership rights in the Trust assets. The former trustee shall execute any instrument necessary or reasonably requested by the Company or the successor trustee to evidence the transfer. A successor trustee need not examine the records and acts of any prior trustee and may retain or dispose of existing Trust assets, subject to Sections 7 and 8 hereof. The successor trustee shall not be responsible for, and the Company shall indemnify and defend the successor trustee from, any claim or liability resulting from any action or inaction of any prior trustee or from any other past event, or any condition existing at the time it becomes successor trustee. Section 12. Amendment or Termination. ------------------------------------- (a) This Trust Agreement may be amended by a written instrument executed by the Trustee and the Company, provided that no such amendment shall make the Trust revocable. (b) The Trust shall not terminate until the date on which Participants and their beneficiaries are no longer entitled to benefits pursuant to the terms hereof. Upon termination of the Trust, the Trustee shall return any assets remaining in the Trust to the Company. (c) Upon written approval of all Participants (or their beneficiaries if they are then entitled to payment of benefits), the Company may terminate this Trust prior to the time all benefit payments under the Plan have been made. All assets in the Trust at termination shall be returned to the Company. 5 Section 13. Miscellaneous. -------------------------- (a) Any provision of this Trust Agreement prohibited by law shall be ineffective to the extent of any such prohibition, without invalidating the remaining provisions hereof. (b) Benefits payable to Participants and their beneficiaries under this Trust Agreement may not be anticipated, assigned (either at law or in equity), alienated, pledged, encumbered or subjected to attachment, garnishment, levy, execution or other legal or equitable process, except pursuant to the terms of the Plan. (c) This Trust Agreement shall be governed by and construed in accordance with the laws of the State of Colorado, to the extent not preempted by federal law. (d) The Trustee agrees to be bound by the terms of the Plan, as in effect from time to time. (e) The Trustee shall act by vote or written consent of a majority of its duly appointed members. IN WITNESS WHEREOF, the Company, by its duly authorized officer, has caused this Agreement to be executed, and its corporate seal affixed, and the Trustees have executed this Agreement, this ___ day of August, 1997. ATTEST: HIGH COUNTRY BANCORP, INC. ______________________________ By: ____________________________________ Its President ATTEST: ______________________________ ____________________________________ Trustee ______________________________ ____________________________________ Trustee ______________________________ ____________________________________ Trustee ______________________________ ____________________________________ Trustee 6 EX-10.5 15 EXHIBIT 10.5 EXHIBIT 10.5 SALIDA BUILDING & LOAN ASSOCIATION LONG-TERM INCENTIVE PLAN The Board of Directors of Salida Building & Loan Association adopted this Long-Term Incentive Plan, effective June __, 1997, to recognize the contributions of the Board of Directors to the growth, success and profitability of the Association and to encourage the continued contributions of its Directors to the Association's long-term financial success through a performance-based incentive benefit plan. ARTICLE I DEFINITIONS ----------- The following words and phrases, when used in the Plan, shall have the meanings set forth below unless the context clearly indicates otherwise. "Account" shall mean a bookkeeping account maintained by the Association in the name of the Participant. "Affiliate" shall mean any "parent corporation" or "subsidiary corporation" of the Association, as the terms are defined in Section 424(e) and (f), respectively, of the Internal Revenue Code. "Association" shall mean Salida Building & Loan Association, and any successor to its interest. "Beneficiary" shall mean the person or persons whom a Participant may designate as the beneficiary of the Participant's Benefits under Articles II and III. A Participant's election of a Beneficiary shall be made on the Election Form, shall be revocable by the Participant during his lifetime, and shall be effective only upon its delivery to an executive officer of the Association and acceptance by the Board, which acceptance shall be presumed unless, within ten business days of delivery of the Participant's election, the Board provides the Participant with a written notice detailing the reasons for its rejection. "Benefits" shall mean, collectively, the benefits payable under Articles II and III of the Plan. "Board" shall mean the Board of Directors of the Association. "Change in Control" shall mean any of the following events: (a) When the Association is in the "mutual" form of organization, a "Change in Control" shall be deemed to have occurred if: (i) as a result of, or in connection with, any 1 exchange offer, merger or other business combination, sale of assets or contested election, any combination of the foregoing transactions, or any similar transaction, the persons who were Directors of the Association before such transaction cease to constitute a majority of the Board of Directors of the Association or any successor to the Association, (ii) the Association transfers substantially all of its assets to another corporation which is not an Affiliate of the Association, (iii) the Association sells substantially all of the assets of an Affiliate which accounted for 50% or more of the controlled group's assets immediately prior to such sale, (iv) any "person" including a "group", exclusive of the Board of Directors of the Association or any committee thereof, is or becomes the "beneficial owner", directly or indirectly, of proxies of the Association representing twenty-five percent (25%) or more of the combined voting power of the Association's members, or (v) the Association is merged or consolidated with another corporation and, as a result of the merger or consolidation, less than seventy percent (70%) of the outstanding proxies relating to the surviving or resulting corporation are given, in the aggregate, by the former members of the Association. (b) If the Association shall be in the "stock" form of organization, a "Change in Control" shall mean any one of the following events: (i) the acquisition of ownership, holding or power to vote more than 25% of the voting stock of the Association or the Holding Company thereof, (ii) the acquisition of the ability to control the election of a majority of the Association's or the Company's Directors, (iii) the acquisition of a controlling influence over the management or policies of the Association or of the Company by any person or by persons acting as a "group" (within the meaning of Section 13(d) of the Securities Exchange Act of 1934), or (iv) during any period of two consecutive years, individuals (the "Continuing Directors") who at the beginning of such period constitute the Board of Directors of the Association or of the Company (the "Existing Board") cease for any reason to constitute at least two-thirds thereof, provided that any individual whose election or nomination for election as a member of the Existing Board was approved by a vote of at least two-thirds of the Continuing Directors then in office shall be considered a Continuing Director. Notwithstanding the foregoing, the Company's ownership of the Association shall not of itself constitute a Change in Control for purposes of the Agreement. For purposes of this paragraph only, the term "person" refers to an individual or a corporation, partnership, trust, association, joint venture, pool, syndicate, sole proprietorship, unincorporated organization or any other form of entity not specifically listed herein. Notwithstanding the foregoing, a "Change in Control" shall not be deemed to --- occur solely by reason of a transaction in which the Association converts to the stock form of organization, or creates an independent holding company in connection therewith. The decision of the Board as to whether a Change in Control has occurred shall be conclusive and binding. "Director" shall mean a member of the Board. "Effective Date" shall mean the date on which the Plan first becomes effective, as referenced in the opening paragraph of this document. 2 "Election Form" shall mean the form attached hereto as Exhibit "A". "Employee" shall mean any person who is employed by the Association. "Employee Directors" shall mean Lorin D. Smith and Scott G. Erchul. "Participant" shall mean an individual who serves as a Director of the Association on or after the Effective Date. "Plan" shall mean the Salida Building & Loan Association Long-Term Incentive Plan. "Safe Performance Factor" shall mean a composite factor derived from an assessment of specific operating characteristics as determined by the Board, in its discretion, for each calendar year during the term of this Plan; provided that said Safe Performance Factor shall in no event be less than 0 or more than 1.2. Attached as Exhibit "B" is the formula that the Board has adopted for the purpose of making such determination. "Trust" shall mean the trust created under the Trust Agreement. "Trust Agreement" shall mean the agreement entered into between the Association and the Trustee, pursuant to the terms hereof. "Trustee" shall mean the person(s) or entity appointed by the Board pursuant to the Trust Agreement to hold legal title to the Plan Assets for the purposes set forth herein. ARTICLE II CREDITS TO ACCOUNTS ------------------- Non-Employee Directors. Each Participant who is a Non-Employee Director on the Effective Date shall have his Account credited with an amount equal to the product of $2,846 and his full years of service as a Director prior to the Effective Date. On each June 30 following 1997, each Participant who is a Non-Employee Director on such date shall have his Account credited with an additional amount equal to the product of $2,846 and the Safe Performance Factor. Employee Directors. The Accounts of Employee Directors Smith and Erchul shall be credited on the Effective Date with an amount equal to $99,684 and $32,049, respectively. An Employee Director's Account will be credited, on each June 30 following 1997, which the Employee Director's 65/th/ birthday, with an additional amount equal to the product of the Annual Credit set forth below and the Safe Performance Factor, provided the Employee Director continues to be an employee of the Association on such date. 3
Director Annual Credit -------- ------------- Smith $11,076 Erchul $ 5,342
Investment Return. Prior to distribution under the terms of the Plan, each Participant's Account shall be credited with a rate of return, on any amounts previously credited, equal to the highest rate of interest paid by the Association on one-year certificates of deposit. Notwithstanding the foregoing, if the Association converts to stock form, Participants may prospectively elect between the return of such certificates of deposit and the dividend-adjusted rate of return on the Association's common stock (or that of its holding company, as applicable). Vesting. Amounts credited to Participants' Accounts on the Effective Date and thereafter shall be fully vested. Final Year Adjustments. In the event of an Employee Director's disability or death, his Account shall be credited with an amount equal to the difference (if any) between (i) 50% of the present value of all benefits which would have been credited to his Account if he had otherwise remained employed by the Association to age 65, and (ii) the benefits which are actually credited to his Account at the time of his termination. If the Employee Director's employment terminates for any reason other than Just Cause in connection with or following a Change in Control, his Account shall be credited with an amount equal to the difference (if any) between (i) 100% of the present value of all benefits which would have been credited to his Account if he had otherwise remained employed by the Association to age 65, and (ii) the benefits which are actually credited to his Account at the time of his termination, subject to applicable "golden parachute" limitations under (S)280G of the Internal Revenue Code of 1986, as amended. ARTICLE III DISTRIBUTION FROM ACCOUNTS; ELECTION FORMS ------------------------------------------ General Rule. Account balances shall be paid, in cash, in ten equal annual installments beginning during the first quarter of the calendar year which next follows the calendar year in which the Participant ceases to be a Director for any reason, with any subsequent payments being made by the last day of the first quarter of each subsequent calendar year until the Participant has received the entire amount of his Account. Notwithstanding the foregoing: (i) a Participant may elect on his Election Form to have his Account paid in a single lump sum distribution, or in annual payments over a period of less than ten years, and (ii) to the extent required under federal banking law, the amounts otherwise payable to a Participant shall be reduced to the extent that on the date of a Participant's termination of employment, either (A) the present value of his Benefits exceeds the limitations that are set forth in Regulatory Bulletin 27a of the Office of Thrift Supervision, as in effect on the Effective Date, or (B) such reduction is necessary to avoid subjecting the Association to liability under Section 280G of the Internal Revenue Code of 1986, as amended. 4 Death Benefits. If a Participant dies before receiving all Benefits payable pursuant to the preceding paragraph, then the remaining balance of the Participant's Account shall be distributed in a lump sum to the Participant's designated Beneficiary (or estate, in the absence of a validly named or living Beneficiary) not later than the first day of the second month following the date of the Participant's death; provided that a Participant may specify on the Election Form a distribution period that effectuates the annual installment payments selected by the Participant (with payments made as though the Participant survived to collect all benefits and retired on the date of his death if payments had not previously commenced). Elections. To be effective, a Participant's initial Election Form must be submitted more than one year before the date on which the Participant first becomes entitled to receive benefits from the Plan. Elections made pursuant to this Article III shall be irrevocable, provided that beneficiary designations made pursuant to executed Election Forms shall be revocable during the Participant's lifetime and a Participant may, by submitting an effective superseding Election Form at any time and from time to time, prospectively change the designated Beneficiary and the manner of payment to a Beneficiary. ARTICLE IV SOURCE OF BENEFITS ------------------ General Rule. Benefits shall constitute an unfunded, unsecured promise by the Association to pay such payments in the future, as and to the extent such Benefits become payable. Benefits shall be paid from the general assets of the Association, and no person shall, by virtue of this Plan, have any interest in such assets, other than as an unsecured creditor of the Association. For any fiscal year during which a Trust is maintained, (i) the Trustee shall inform the Board annually prior to the commencement of each fiscal year as to the manner in which such Trust assets shall be invested, and (ii) the Board shall, as soon as practicable after the end of each fiscal year of the Association, provide the Trustee with a schedule specifying the amounts payable to each Participant, and the date for making such payments. Change in Control. In the event of a Change in Control, the Association shall contribute to the Trust an amount sufficient to provide the Trust with assets having an overall value equivalent to the value of the aggregate Account balances under the Plan. ARTICLE V ASSIGNMENT ---------- Except as otherwise provided by this Plan, it is agreed that neither the Participant nor his Beneficiary nor any other person or persons shall have any right to commute, sell, assign, transfer, encumber and pledge or otherwise convey the right to receive any Benefits hereunder, which Benefits and the rights thereto are expressly declared to be nontransferable. 5 ARTICLE VI NO RETENTION OF SERVICES ------------------------ The Benefits payable under this Plan shall be independent of, and in addition to, any other compensation payable by the Association to a Participant, whether in the form of fees, bonus, retirement income under employee benefit plans sponsored or maintained by the Association or otherwise. This Plan shall not be deemed to constitute a contract of employment between the Association and any Participant. ARTICLE VII RIGHTS OF DIRECTORS; -------------------- TERMINATION OR SUSPENSION UNDER FEDERAL LAW ------------------------------------------- The rights of the Participants and their Beneficiaries under this Plan shall be (if any) solely those rights of unsecured creditors of the Association. If the Participant is removed and/or permanently prohibited from participating in the conduct of the Association's affairs by an order issued under Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act ("FDIA") (12 U.S.C. 1818(e)(4) or (g)(1)), all obligations of the Association under this Plan shall terminate, as of the effective date of the order; vested rights of the parties shall not be affected. If the Association is in default (as defined in Section 3(x)(1) of FDIA), all obligations under this Plan shall terminate as of the date of default; however, the provisions of this Paragraph shall not affect the vested rights of the parties. All obligations under this Plan shall terminate, except to the extent that continuation of this Plan is necessary for the continued operation of the Association: (i) by the Director of the Office of Thrift Supervision ("Director of OTS"), or his designee, at the time that the Federal Deposit Insurance Corporation ("FDIC") or its successor enters into an agreement to provide assistance to or on behalf of the Association under the authority set forth in Section 13(c) of FDIA; or (ii) by the Director of the OTS, or his designee, at the time that the Director of the OTS, or his designee approves a supervisory merger to resolve problems related to operation of the Association or when the Association is determined by the Director of the OTS to be in an unsafe or unsound condition. Such action shall not affect any vested rights of the parties. If a notice served under Section 8(e)(3) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(3) or (g)(1)) suspends and/or temporarily prohibits the Participant from participating in the conduct of the Association's affairs, the Association's obligations under this Plan shall be suspended as of the date of such service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Association may in its discretion (i) pay the Participant all or part of the compensation withheld while its contract obligations were suspended, and (ii) reinstate (in whole or in part) any of its obligations which were suspended. 6 ARTICLE VIII REORGANIZATION -------------- The Association agrees that it will not merge or consolidate with any other corporation or organization, or permit its business activities to be taken over by any other organization, unless and until the succeeding or continuing corporation or other organization shall expressly assume the rights and obligations of the Association herein set forth. The Association further agrees that it will not cease its business activities or terminate its existence, other than as heretofore set forth in this Paragraph, without having made adequate provision for the fulfillment of its obligation hereunder. ARTICLE IX AMENDMENT AND TERMINATION ------------------------- The Board may amend or terminate the Plan at any time, provided that no such amendment or termination shall, without the written consent of an affected Participant, alter or impair any vested rights of the Participant under the Plan. ARTICLE X STATE LAW --------- This Plan shall be construed and governed in all respects under and by the laws of the State of Colorado, except to the extent preempted by federal law. If any provision of this Plan shall be held by a court of competent jurisdiction to be invalid or unenforceable, the remaining provisions hereof shall continue to be fully effective. ARTICLE XI HEADINGS; GENDER ---------------- Headings and subheadings in this Plan are inserted for convenience and reference only and constitute no part of this Plan. This Plan shall be construed, where required, so that the masculine gender includes the feminine. ARTICLE XII INTERPRETATION OF THE PLAN -------------------------- The Board shall have sole and absolute discretion to administer, construe, and interpret the Plan, and the decisions of the Board shall be conclusive and binding on all affected parties, unless such decisions are arbitrary and capricious. 7 ARTICLE XIII LEGAL FEES ---------- In the event any dispute shall arise between a Participant and the Association as to the terms or interpretation of this Plan, whether instituted by formal legal proceedings or otherwise, including any action taken by a Participant to enforce the terms of this Plan or in defending against any action taken by the Association, the Association shall reimburse the Participant for all costs and expenses, including reasonable attorneys' fees, arising from such dispute, proceedings or actions; provided that the Participant shall return such amounts to the Association if he fails to obtain a final judgment by a court of competent jurisdiction or obtain a settlement of such dispute, proceedings, or actions substantially in his favor. Such reimbursements to a Participant shall be paid within 10 days of the Participant furnishing to the Association written evidence, which may be in the form, among other things, of a canceled check or receipt, of any costs or expenses incurred by the Participant. Any such request for reimbursement by a Participant shall be made no more frequently than at 30 day intervals. ARTICLE XIV DURATION OF PLAN ---------------- Unless terminated earlier in accordance with Article IX, this Plan shall remain in effect during the term of service of the Participants and until all Benefits payable hereunder have been made. 8 EX-10.6 16 EXHIBIT 10.6 EXHIBIT 10.6 SALIDA BUILDING & LOAN ASSOCIATION INCENTIVE COMPENSATION PLAN ___________________ BASIC PLAN DOCUMENT ___________________ SALIDA BUILDING & LOAN ASSOCIATION INCENTIVE COMPENSATION PLAN ___________________________ BASIC PLAN DOCUMENT ___________________________ Table of Contents
Page ARTICLE I. General Provisions................................. 1 ARTICLE II. Definitions........................................ 1 ARTICLE III. Eligibility and Participation...................... 4 ARTICLE IV. Benefits........................................... 4 ARTICLE V. Deferred Compensation.............................. 8 ARTICLE VI. Plan Administration................................ 9 ARTICLE VII. Amendment and Termination.......................... 9 ARTICLE VIII. General Provisions................................. 10
SALIDA BUILDING & LOAN ASSOCIATION INCENTIVE COMPENSATION PLAN ___________________ BASIC PLAN DOCUMENT ___________________ ARTICLE I. GENERAL PROVISIONS 1.01 Purpose. This Basic Plan Document and the Adoption Agreement ------- executed by the Employer together establish the Plan, which is being implemented and maintained for the purpose of providing select Directors, Key Employees, and Employees with incentive compensation in the form of Bonuses, Stock Options, and Restricted Stock in the event the Employer meets certain performance goals indicative of its profitability and stability in comparison to other financial institutions in its Peer Group. 1.02 Construction. The Employer intends that the Plan be an unfunded ------------ plan maintained primarily for the purpose of providing Incentive Awards, and that the Plan not constitute an "employee benefit plan" within the meaning of --- ERISA. Notwithstanding the foregoing, it is intended that Article V of the Plan shall be maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees within the meaning of Section 201(2) of ERISA. The Plan shall be administered, construed, and interpreted in a manner consistent with the purpose and intent set forth in this Section. 1.03 Effective Date. The Plan shall become effective on July 1, 1997. -------------- ARTICLE II. DEFINITIONS Unless the context clearly requires otherwise, the terms defined in this Article II shall, for all purposes of this Plan, have the respective meanings specified in this Article II. 2.01 "Adoption Agreement" means the Adoption Agreement executed by the ------------------ Employer. 2.02 "Basic Plan Document" means this Basic Plan Document associated with ------------------- the Salida Building & Loan Association Incentive Compensation Plan. 2.03 "Beneficiary" means the person or persons designated as a ----------- Participant's beneficiary or beneficiaries in accordance with Section 4.07 hereof or a Participant's deferred compensation agreement. 2.04 "Board" means the Employer's Board of Directors. ----- -1- 2.05 "Bonus Pool" has the meaning set forth in the Adoption Agreement. ---------- 2.06 "Bonuses" mean cash bonuses payable to Participants pursuant to ------- Section 4.01 hereof. 2.07 "CAMEL Rating" means the most recent CAMEL rating given for its ------------ safety and soundness. 2.08 "Cause" means personal dishonesty, incompetence, willful misconduct, ----- breach of duty involving personal profits, intentional failure to perform stated duties, willful violation of a material provision of any law, rule or regulation (other than traffic violations or similar offense), or a material violation of a final cease-and-desist order or any other action which results in a substantial financial loss to the Employer. A determination of "Cause" shall be made by the Committee within its sole discretion. 2.09 "Change in Control" means (i) in the case of a stock institution, ----------------- the acquisition of beneficial ownership of 25% or more of any Employer's outstanding voting stock, and (ii) in the case of a mutual institution, a change in the Board such that as the result of a merger or other business combination, the persons who were Directors at any time during the one-year period before the transaction cease to constitute a majority of the Board of the Employer or its successor. 2.10 "Code" means the Internal Revenue Code of 1986, as amended from time ---- to time. References to a Code section shall include any comparable section or sections of future legislation that amends, supplements or supersedes such section. 2.11 "Committee" means the committee specified in the Adoption Agreement. --------- In the absence at any time of a duly appointed committee, the Plan shall be administered by those members of the Employer's Board who are "Non-Employee Directors" within the meaning of Rule 16b-3. 2.12 "Common Stock" means the common stock identified in the Adoption ------------ Agreement. 2.13 "Compensation" means (i) in the case of an Employee, the Employee's ------------ base salary for the Plan Year, as in effect on the last day of the Plan Year, and (ii) in the case of a Director who is not an Employee, the total fees that the Director receives for service on the Board during the Plan Year. 2.14 "CRA" means the rating that the Employer or its primary banking --- subsidiary receives for compliance with the Community Reinvestment Act, as amended from time to time, and for any particular Plan Year shall mean the most recent CRA Rating as of the last day of the Plan Year. 2.15 "Director" means any member of the Board. -------- -2- 2.16 "Disability" means a physical or mental condition that is expected ---------- to be of indefinite duration and to substantially impair the ability of a Participant to fulfill his duties to the Employer. 2.17 "Eligible Director", "Eligible Employee", and "Eligible Key ----------------- ----------------- ------------ Employee" shall have the meaning set forth in the Adoption Agreement. - -------- 2.18 "Employee" means any individual who performs service for any -------- Employer and who is treated as an employee for payroll tax purposes. 2.19 "Employer" has the meaning set forth in the Adoption Agreement. -------- 2.20 "ERISA" means the Employee Retirement Income Security Act of 1974, ----- as amended from time to time. 2.21 "Factors" mean, collectively, the factors identified in the Adoption ------- Agreement as being determinant of the Bonus Pool. When used in the singular, Factor means any Factor identified in the Adoption Agreement. - ------ 2.22 "Incentive Awards" mean any benefits provided pursuant to Article IV ---------------- hereof, as modified by the Adoption Agreement. 2.23 "Market Value" means the fair market value of a Share on the date of ------------ an Incentive Award, and shall be determined by the Committee in its discretion, provided that -- (i) if the Common Stock is listed on a national securities exchange (including the Nasdaq National Market or SmallCap Market), Market Value means the average of the highest and lowest selling prices on the exchange on the most recent date on which a sale occurred; and (ii) if the Common Stock is traded otherwise than on a national securities exchange but bid and asked prices are available, Market Value means the average of its bid and asked price on the most recent date on which there was a bid and asked price. 2.24 "NPA Ratio" means nonperforming loans (loans over 90 days delinquent --------- and real estate owned) as a percentage of the Employer's total assets as of the last day of the Plan Year, as determined by the Committee in accordance with generally accepted accounting principles. 2.25 "Option" a stock option that is granted pursuant to Section 4.03 ------ hereof. 2.26 "Participant" means an individual who has received an Incentive Award ----------- pursuant to Article IV hereof or has made a deferred compensation election pursuant to Article V hereof. -3- 2.27 "Participant Determination Date" has the meaning set forth in the ------------------------------ Adoption Agreement. 2.28 "Peer Group" means the group of publicly traded financial ---------- institutions identified in the Adoption Agreement. 2.29 "Peer Group Adjustment Factor" means with respect to each Factor ---------------------------- other than the NPA Factor, the ratio of the median Factor for the Peer Group for the current Plan Year to the median Factor for the Peer Group for the immediately preceding Plan Year, and the converse of this ratio for the NPA Factor. 2.30 "Plan" means the Employer's Incentive Compensation Plan, as ---- established by the Employer's execution of the Adoption Agreement. 2.31 "Restricted Stock Award" means an award pursuant to Section 4.02 ---------------------- hereof. 2.32 "ROAA" means return-on-average assets, as determined by the Committee ---- (i) in accordance with generally accepted accounting principles, and (ii) on a pre-dividend, pre-loan loss reserve, and pre-Plan payment basis. 2.33 "Safety and Soundness Factor" has the meaning set forth in the --------------------------- Adoption Agreement. 2.34 "Share" means one share of Common Stock. ----- 2.35 "Year of Service" means the number of full 12-month periods, measured --------------- from the date of an Incentive Award and each anniversary of that date during which a Participant has remained in the service of the Employer. ARTICLE III. ELIGIBILITY AND PARTICIPATION The Committee shall make determinations of eligibility and participation in accordance with the Adoption Agreement. The Committee shall have the discretion, before a new Plan Year begins, to change (i) the employees participating in the Plan, and/or (ii) the formula for calculating the Bonus Pool. ARTICLE IV. BENEFITS As soon as practicable after the end of the Plan Year, the Committee shall make the Incentive Awards provided for in this Article IV. 4.01 Bonuses. In accordance with the Adoption Agreement, the Committee ------- shall determine the Bonuses payable to Eligible Directors, Eligible Employees, and Eligible Key Employees, and shall promptly notify the Employer of the Bonuses to be paid to such individuals. -4- Notwithstanding the foregoing, the Committee shall, except under extraordinary circumstances, proportionately reduce the Bonuses paid hereunder for the Plan Year to the extent necessary to ensure that the aggregate amount paid as Bonuses does not jeopardize the status of the Employer (or its primary banking subsidiary) as a well-capitalized institution. 4.02 Restricted Stock Award. To the extent, if any, required under the ---------------------- Adoption Agreement, the Committee shall make Restricted Stock Awards to Eligible Directors and Eligible Key Employees, and shall promptly provide each recipient of an award with a notice thereof. (a) General Vesting Rule. The Shares subject to a Restricted Stock Award shall become vested and nonforfeitable according to the schedule set forth in the Adoption Agreement. The Employer shall deliver to the Committee all Shares subject to Restricted Stock Awards, and the Committee shall hold such Shares in escrow until they are transferred to Participants in accordance with this Section. In this regard, the relationship of the Committee to the Employer shall be that of agent to principal. (b) Exception for Change in Control or Termination due to Death or Disability. Notwithstanding the vesting schedule set forth in the Adoption Agreement, all Shares subject to a Participant's Restricted Stock Award shall become fully (100%) vested upon the date of a Change in Control, or the Participant's termination of service with the Employer due to his death or Disability. Such Shares shall be transferred to the Participant (or, in the event of his death, his Beneficiary) as soon as practicable after the event that accelerates vesting hereunder. (c) Accrual of Dividends. Whenever the Committee transfers Shares to a Participant or Beneficiary under this Section, such Participant or Beneficiary shall also be entitled to receive, with respect to each Share transferred, both an amount equal to any cash dividends declared and paid between the date the relevant Restricted Stock Award was initially granted to the Participant and the date the Shares are being transferred. The Participant shall also receive the net earnings, if any, that are attributable to any cash dividends so paid out. (d) Timing of Distributions. The Committee shall transfer the Shares subject to a Restricted Stock Award to the Participant or his Beneficiary, as the case may be, as soon as practicable after the later of (i) the date they have become fully vested and nonforfeitable, or (ii) the date of distribution that the Participant elects in writing on a form and in a manner that is both acceptable to the Committee and delivered to the Committee within the 30-day period after the Participant receives the Restricted Stock Award covering such Shares. Any election that a Participant makes hereunder shall be irrevocable. (e) Form of Distribution. Whenever a Participant becomes entitled to receive Shares in accordance herewith, the Committee shall transfer such Shares, together with any Shares representing stock dividends, in the form of Common Stock. One Share of Common Stock shall be given for each Share earned. Payments representing cash dividends (and earnings thereon) shall be made in cash. -5- (f) Voting of Shares held in Escrow. After a Restricted Stock Award has been granted hereunder, the Committee shall vote the Shares subject thereto in the manner directed by the Board, and otherwise in the manner determined by the Committee in its sole discretion. 4.03 Stock Options. To the extent, if any, required under the Adoption ------------- Agreement, the Committee shall grant Options to Eligible Directors and Eligible Key Employees, and shall promptly provide each recipient of an Option with a stock option agreement specifying the terms and conditions of the Option; provided that each Option shall have an exercise price per Share equal to its Market Value on the date of the grant, shall become exercisable in accordance with the schedule set forth in the Adoption Agreement, and shall expire on the earlier of ten years after the date of its grant, and -- (a) two years after a Participant's service with the Employer terminates due to his death; (b) immediately upon the Participant's termination of service for Cause; (c) three months after a Participant's service with the Employer terminates for a reason other than death or Cause. Notwithstanding the provision of any Option which provides for its exercise in installments, all Options outstanding on the date of a Change in Control shall become immediately exercisable. 4.04 Revocation for Cause. Notwithstanding anything herein to the -------------------- contrary, if the Participant is discharged from service with the Employer for Cause or is discovered after termination of service to have engaged in conduct that would have justified termination for Cause, the Committee may immediately revoke, rescind, and terminate any Incentive Award made under this Plan to the extent a Participant has not collected a Bonus, exercised an Option, or received Shares upon the vesting of a Restricted Stock Award. 4.05 Duty of the Committee. The Committee shall have no responsibility to --------------------- Participants other than (i) to inform the Employer, as soon as practicable after the end of each Plan Year, in writing, as to the Bonuses to be provided, (ii) to provide Eligible Directors and Eligible Key Employees with stock option agreements and Restricted Stock Awards, and (iii) to follow such reasonable directions as the Employer shall make as to the provision of such Incentive Awards to Participants. 4.06 Minority, Disability, or Incompetency. If any Incentive Award ------------------------------------- becomes payable or transferable under this Plan to a minor, to a person under legal disability or to a person not adjudicated incompetent but who the Committee in its discretion determines to be incapable by reason of illness or mental or physical disability of managing his financial affairs, the Committee may direct that such Incentive Award be paid or transferred to the legal representative or custodian -6- of such person or to any relative or friend of such person, or that such amount be paid directly for such person's support and maintenance. Payments so made in good faith shall completely discharge the Committee and the Employer of any and all obligations and liabilities with respect to such Incentive Awards. 4.07 Designation of Beneficiary. A Participant may file with the Committee -------------------------- a written designation of a Beneficiary who is to receive his or her vested benefits in the event of the Participant's death prior to his or her collection of said benefits. Such designation of Beneficiary may be changed at any time by written notice to the Committee. The designation last filed with the Committee shall be controlling. In the event of the death of a Participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of the Participant's death, the Participant's estate shall be deemed to be the Beneficiary for purposes of this Plan. 4.08 Source of Benefits. To the extent required under the Adoption ------------------ Agreement, the Employer shall pay Bonuses out of its general assets, provided that the Board may in its discretion establish and fund a grantor trust meeting the requirements of Revenue Procedure 92-64, as amended or revised from time to time. Nothing contained in the Plan itself shall constitute, or be treated as, a trust or create any fiduciary relationship (other than the Committee's retention of Shares in escrow pursuant to Section 4.02). Except to the extent provided in Section 4.02, the Employer shall not be under any obligation to segregate any assets for the purpose of providing Incentive Awards, and no person or entity which is entitled to payment under the terms of the Plan shall have any claim, right, security interest, or other interest in any fund, trust, account, insurance contract, or asset of the Employer. To the extent that a Participant or any other person acquires a right to receive any Benefit under the Plan, such right shall be limited to that of a recipient of an unfunded, unsecured promise to pay amounts in the future and the Participant's (or other person's) position with respect to such amounts shall be that of a general unsecured creditor. 4.09 Shares Subject to the Plan. Except as otherwise required hereunder, -------------------------- the aggregate number of Shares deliverable to Participants pursuant to the Plan shall not exceed the number of Shares designated in the Adoption Agreement. Such Shares may either be authorized but unissued Shares or Shares held in treasury. The number and kind of shares which may be purchased or issued under the Plan, and the number and kind of shares subject to outstanding Incentive Awards, shall be equitably adjusted for any increase, decrease, change, or exchange of Shares for a different number or kind of shares or other securities of the Company or another company which results from a merger, consolidation, recapitalization, reorganization, reclassification, stock dividend, split-up, combination of shares, or similar event in which the number or kind of shares is changed (including a transaction in which the Employer is not the surviving entity). In addition, the Committee shall have the discretionary authority to impose on the Shares subject to Incentive Awards such restrictions as the Committee may deem appropriate or desirable, including but not limited to a right of first refusal, or repurchase option, or both of these restrictions. If an Option should expire, become unexercisable or be forfeited for any reason without having been exercised in full, or if a Restricted Stock Award should be forfeited for any reason, -7- the Shares subject to such Options or Restricted Stock Award shall, unless the Plan shall have been terminated, be available for the grant of additional Options or Restricted Share Awards under the Plan. ARTICLE V. DEFERRED COMPENSATION This Article of the Plan establishes a deferred compensation program for Participants, subject to the terms and conditions provided in this Basic Plan Document and in the Adoption Agreement. In addition, the terms and conditions of the Deferred Compensation attached as Exhibit "A" are incorporated herein by reference, and may not be changed except through affirmative Board action in accordance with Article VII hereof. 5.01 General Deferral Procedure. In accordance with this Article, the -------------------------- individuals specified in the Adoption Agreement may elect, within 30 days of becoming a Participant or in advance of any July 1st, to defer all or any portion of the fees and/or salary otherwise payable to him from any Employer, in cash, for any future Plan Year in which the Plan is in effect. Deferred amounts shall be credited by the Employer at the end of each calendar quarter, in accordance with the terms of the deferred compensation agreement entered into between the Participants and the Employer that would otherwise pay the Participant cash compensation. The funds so credited quarter-annually shall be credited by the Employer to a bookkeeping account ("Deferral Account") in the name of each Participant according to the terms of the Participant's deferred compensation agreement. In addition to the funds deferred quarter-annually and credited to the Deferral Accounts of Participants, the Employer shall adjust each Account at the end of each Plan Year (i) to credit the Participant's Deferral Account with the appreciation or depreciation that would have occurred if the Deferral Account had been invested in the manner that the Participant selects in the deferred compensation agreement from among the measures selected by the Employer in the Adoption Agreement. 5.02 Distributions to Participants. A Participant's Deferral Account shall ----------------------------- be paid, in cash, in accordance with those terms set forth in his deferred compensation agreement which are applicable to the deferred amounts. If a Participant should die before receiving all deferred compensation benefits payable under this Article, then such payment(s) shall be made to the Participant's Beneficiary. 5.03 Agreements. Deferred compensation agreements made hereunder shall be ---------- prospective only and shall be irrevocable with respect to amounts deferred pursuant thereto, except that a Participant may at any time and from time to time (i) change the Beneficiary designated therein, (ii) prospectively change the investment selection applicable to his Deferral Account, and/or (iii) file a deferred compensation agreement which supersedes a prior deferred compensation agreement as to amounts deferred on or after the July 1st which coincides with or next follows execution of the superseding agreement. In addition, a Participant may at any time -8- file a written notice with the Employer pursuant to which the Participant ceases future accruals as soon as practicable after the Employer receives such notice. ARTICLE VI. PLAN ADMINISTRATION 6.01 The Committee. In its sole and absolute discretion, which discretion ------------- when exercised shall be final and binding on all parties affected thereby, the Committee shall have the authority and the responsibility to control the administration and operation of the Plan in accordance with its terms including, without limiting the generality of the foregoing, the powers and duties: (i) to interpret, apply, and administer the Plan, to decide all questions of eligibility, participation, status, benefits, and rights of Participants and Beneficiaries under the Plan; (ii) to establish and amend such rules and procedures as it deems necessary or appropriate to the proper administration of the Plan; (iii) to employ or retain such agents as it deems necessary or advisable to assist in the administration of the Plan, and to delegate to the extent permitted by applicable law such powers and duties as it deems necessary or advisable, (iv) to prepare and file all statements, returns, and reports required to be filed by the Plan with any agency of government; (v) to comply with all requirements of applicable state and federal law including applicable securities, labor, and tax law; and (vi) to perform all functions otherwise assigned to it under the terms of the Plan. 6.02 Claims Procedure. Claims for Benefits under the Plan shall be filed ---------------- in writing with the Committee. Written notice of the Committee's disposition of a claim generally shall be furnished to the claimant within 60 days after the application therefor is filed. However, if special circumstances exist of which the Committee notifies the claimant within such 60-day period, the Committee may extend such period to the extent necessary, but in no event beyond 180 days after the claim is filed. In the event the claim is denied, the reasons for the denial shall be specifically set forth in writing, pertinent provisions of the Plan shall be cited and, where appropriate, an explanation as to how the claimant can perfect the claim will be provided. Any claimant who has been denied a Benefit shall be entitled, upon request to the Committee, to appeal the denial of his claim within 60 days following the Committee's determination described in the preceding sentence. Upon such appeal, the claimant, or his representative, shall be entitled to examine pertinent documents, submit issues and comments in writing to the Committee, and meet with the Committee. The Committee shall review its decision and issue a final decision to the claimant in writing, generally within 60 days following such appeal. However, if special circumstances exist of which the Committee notifies the claimant within such 60- day period, the Committee may extend such period to the extent necessary, but in no event beyond 120 days following such appeal. ARTICLE VII. AMENDMENT AND TERMINATION The Employer, acting by its Board, reserves the right at any time to terminate or amend the Plan in any manner and for any reason; provided that no amendment or termination shall, without the consent of the Participant or, if applicable, the Beneficiary, either (i) adversely affect such Participant's or Beneficiary's rights with respect to Benefits accrued as of the date of such -9- amendment or termination, or (ii) suspend or terminate the Plan during a Plan Year without providing for both advance written notice to Participants and the payment of Benefits for the portion of the Plan Year during which the Plan was in effect. ARTICLE VIII. GENERAL PROVISIONS 8.01 Prohibition Against Alienation. Benefits payable to a Participant or ------------------------------ Beneficiary under the terms of this Plan shall not be subject in any manner to alienation, anticipation, sale, transfer, assignment, pledge, hypothecation, attachment, receivership, or encumbrance of any kind, nor shall it pass to any trustee in bankruptcy or be reached or applied by any legal process for the payment of any obligations of the Participant or Beneficiary, except at such times and in such manner as provided in this Plan. 8.02 No Enlargement of Employment Rights. Nothing contained in this Plan ----------------------------------- shall give or be construed as giving any Employee or Director the right to be retained in the service of any Employer, or shall interfere with the right of any Employer to discharge or otherwise terminate any Employee's or Director's service at any time. 8.03 Gender. Whenever any masculine terminology is used in this Plan, it ------ shall be taken to include the feminine, unless the context otherwise indicates. 8.04 Applicable Law. This Plan shall be construed and regulated, and its -------------- validity and effect and the rights hereunder of all parties interested shall at all times be determined, in accordance with the laws of the State of Colorado, except to the extent such state law is preempted by federal law. 8.05 Titles and Headings. The titles and headings included herein are ------------------- included for convenience only and shall not be construed as in any way affecting or modifying the text of this Plan, which text shall control. 8.06 Withholding. The Committee and each Employer reserve the right to ----------- withhold from payments of Bonuses and other Incentive Awards such amounts of income, payroll, and other taxes as it deems advisable or required, and if the amount of such cash payment is not sufficient, the Committee or any Employer may require that the Participant or Beneficiary pay the amount required to be withheld as a condition of delivering Bonuses or other Incentive Awards. 8.07 Stockholder Approval. The effectiveness of this Plan shall be -------------------- contingent on its approval by the favorable vote of the holders of the Common Stock, only to the extent required under federal or state law or the Adoption Agreement. Any Incentive Awards made prior to the receipt of such approval shall be contingent thereon. Section 4.01 and Article V of the Plan shall be effective whether or not the Plan receives stockholder approval. -10- Exhibit "A" SALIDA BUILDING & LOAN ASSOCIATION INCENTIVE COMPENSATION PLAN _______________________________ DEFERRED COMPENSATION AGREEMENT _______________________________ AGREEMENT, made this ____ day of ________, 199_, by and between _______________ (the "Participant"), and Salida Building & Loan Association (the "Employer"). WHEREAS, Salida Building & Loan Association has established the Salida Building & Loan Association Incentive Compensation Plan (the "Plan"), and the Participant is eligible to make a deferred compensation election pursuant to Article V of said Plan; NOW THEREFORE, it is mutually agreed as follows: 1. The Participant, by the execution hereof, agrees to participate in the Plan upon the terms and conditions set forth therein, and, in accordance therewith, makes the following elections: a. The Participant hereby elects to defer ______ percent (____%) of the fees/salary and _____ percent (____%) of bonus compensation otherwise earned from the date of this Agreement forward. b. Until distributed to the Participant, the amounts deferred pursuant hereto shall appreciate or depreciate for each Plan Year as though they were invested as follows: ___% in a fund having the highest interest rate which the Employer pays on certificates of deposit having a term of one year. ___% in a fund invested in common stock of [holding company]. c. The amounts deferred and any related accumulated income on such deferrals shall be distributed, in cash, beginning on the first day of the month following the Participant's _____ termination of service with the Employer,/*/ ______ attainment of age ______, OR ______ the later to occur of these events. d. The Participant hereby elects to have the amount deferred hereunder and any earnings attributable thereto be distributed as follows: _____ one lump sum, OR _____ substantially equal annual (____ monthly) payments over a period of ______ years. ________________ /*/ The Participant shall be treated as having terminated service upon ending all duties and positions with the Employer (including those of an honorary director). Deferred Compensation Agreement Page 2 2. The Participant hereby designates _______________________ to be his or her beneficiary and to receive the balance of any unpaid deferred compensation and related earnings. 3. With respect to amounts deferred while this Agreement is in effect, the elections made hereunder shall be irrevocable, except that a Participant may at any time and from time to time prospectively change (i) the investment election made in paragraph 1.b. hereof, and (ii) the beneficiary designation made in paragraph 2 hereof. A Participant may at any time file a new agreement that supersedes this Agreement with respect to amounts earned from the date of the superseding agreement forward. 4. The Employer agrees to make payment of the amount due the Participant in accordance with the terms of the Plan and the elections made by the Participant herein. IN WITNESS WHEREOF, the parties hereto have hereunto set their hands the day and year first above-written. PARTICIPANT ___________________________________________ Participant EMPLOYER SALIDA BUILDING & LOAN ASSOCIATION By_________________________________________ Its______________________________________ -2- EX-10.7 17 EXHIBIT 10.7 Ex 10.7 SALIDA BUILDING & LOAN ASSOCIATION -------------------------- Employment Agreement with Scott G. Erchul -------------------------- AGREEMENT entered into and effective this_____ day of__________, 1997, by and between Salida Building & Loan Association (the "Association") and Scott G. Erchul (the "Employee"). WHEREAS, the Employee has heretofore been employed by the Association as its Senior Vice President and is experienced in all phases of the business of the Association; and WHEREAS, the Board of Directors (the "Board") of the Association believes it is in the best interests of the Association to enter into this Agreement with the Employee in order to assure continuity of management of the Association and to reinforce and encourage the continued attention and dedication of the Employee to his assigned duties; and WHEREAS, the parties desire by this writing to set forth the continuing employment relationship of the Association and the Employee. NOW, THEREFORE, it is AGREED as follows: 1. Defined Terms ------------- When used anywhere in this Agreement, the following terms shall have the meaning set forth herein. (a) "Change in Control" shall mean any one of the following events: (i) the acquisition of ownership, holding or power to vote more than 25% of the voting stock of the Association or the Holding Company thereof, (ii) the acquisition of the ability to control the election of a majority of the Association's or the Company's Directors, (iii) the acquisition of a controlling influence over the management or policies of the Association or of the Company by any person or by persons acting as a "group" (within the meaning of Section 13(d) of the Securities Exchange Act of 1934), or (iv) during any period of two consecutive years, individuals (the "Continuing Directors") who at the beginning of such period constitute the Board of Directors of the Association or of the Company (the "Existing Board") cease for any reason to constitute at least two-thirds thereof, provided that any individual whose election or nomination for election as a member of the Existing Board was approved by a vote of at least two-thirds of the Continuing Directors then in office shall be considered a Continuing Director. For purposes of this paragraph only, the term "person" refers to an individual or a corporation, partnership, trust, association, joint venture, pool, syndicate, sole proprietorship, unincorporated organization or any other form of entity not specifically listed herein. Notwithstanding the foregoing, a "Change in Control" shall not be deemed to occur solely by reason of a transaction in which the Association converts to the stock form of organization, or creates an independent holding company in connection therewith. The decision of the Board as to whether a Change in Control has occurred shall be conclusive and binding. (b) "Company" shall mean High Country Bancorp, Inc. (c) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, and as interpreted through applicable rulings and regulations in effect from time to time. (d) "Codess.280G Maximum" shall mean the product of 2.99 and the Employee's "base amount" as defined in Codess.280G(b)(3). (e) "Disability" shall mean a physical or mental infirmity which impairs the Employee's ability to substantially perform his duties under this Agreement and which results in the Employee becoming eligible for long-term disability benefits under the Association's long-term disability plan (or, if the Association has no such plan in effect, which impairs the Employee's ability to substantially perform his duties under this Agreement for a period of 180 consecutive days). (f) "Effective Date" shall mean the date referenced in the opening paragraph of this Agreement. (g) "Good Reason" shall mean any of the following events, which has not been consented to in advance by the Employee in writing: (i) the requirement that the Employee move his personal residence, or perform his principal executive functions, more than 30 miles from his primary office as of the later of the Effective Date and the most recent voluntary relocation by the Employee; (ii) a material reduction in the Employee's base compensation under this Agreement as the same may be increased from time to time; (iii) the failure by the Association or the Company to continue to provide the Employee with compensation and benefits provided under this Agreement as the same may be increased from time to time, or with benefits substantially similar to those provided to him under any of the employee benefit plans in which the Employee now or hereafter becomes a participant, or the taking of any action by the Association or the Company which would directly or indirectly reduce any of such benefits or deprive the Employee of any material fringe benefit enjoyed by him under this Agreement; (iv) the assignment to the Employee of duties and responsibilities materially different from those normally associated with his position; (v) a failure to reelect the Employee to the Board of Directors of the Association or the Company, if the Employee has served on such Board at any time during the term of the Agreement; or (vi) a material diminution or reduction in the Employee's responsibilities or authority (including reporting responsibilities) in connection with his employment with the Association. -2- (h) "Just Cause" shall mean, in the good faith determination of the Association's Board of Directors, the Employee's personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of this Agreement. The Employee shall have no right to receive compensation or other benefits for any period after termination for Just Cause. No act, or failure to act, on the Employee's part shall be considered "willful" unless he has acted, or failed to act, with an absence of good faith and without a reasonable belief that his action or failure to act was in the best interest of the Association and the Company. (i) "Protected Period" shall mean the period that begins on the date six months before a Change in Control and ends on the later of the first annual anniversary of the Change in Control or the expiration date of this Agreement. (j) "Trust" shall mean a grantor trust that is designed in accordance with Revenue Procedure 92-64 and has a trustee independent of the Association and the Company. 2. Employment. The Employee is employed as the Senior Vice President ---------- of the Association. The Employee shall render such administrative and management services for the Association as are currently rendered and as are customarily performed by persons situated in a similar executive capacity. The Employee shall also promote, by entertainment or otherwise, as and to the extent permitted by law, the business of the Association. The Employee's other duties shall be such as the Board may from time to time reasonably direct, including normal duties as an officer of the Association. 3. Base Compensation. The Association agrees to pay the Employee ----------------- during the term of this Agreement a salary at the rate of $_____ per annum, payable in cash not less frequently than monthly. The Board shall review, not less often than annually, the rate of the Employee's salary, and in its sole discretion may decide to increase his salary. 4. Discretionary Bonuses. The Employee shall participate in an --------------------- equitable manner with all other senior management employees of the Association in discretionary bonuses that the Board may award from time to time to the Association's senior management employees. No other compensation provided for in this Agreement shall be deemed a substitute for the Employee's right to participate in such discretionary bonuses. 5. Participation in Retirement, Medical and Other Plans. ---------------------------------------------------- (a) The Employee shall be eligible to participate in any of the following plans or programs that the Association may now or in the future maintain: group hospitalization, disability, health, dental, sick leave, life insurance, travel and/or accident insurance, auto allowance/auto lease, retirement, pension, and/or other present or future qualified or nonqualified -3- plans provided by the Association, generally which benefits, taken as a whole, must be at least as favorable as those in effect on the Effective Date. (b) The Employee shall also be eligible to participate in any fringe benefits which are or may become available to the Association's senior management employees, including for example: any stock option or incentive compensation plans, and any other benefits which are commensurate with the responsibilities and functions to be performed by the Employee under this Agreement. The Employee shall be reimbursed for all reasonable out-of-pocket business expenses which he shall incur in connection with his services under this Agreement upon substantiation of such expenses in accordance with the policies of the Association. 6. Term. The Association hereby employs the Employee, and the ---- Employee hereby accepts such employment under this Agreement, for the period commencing on the Effective Date and ending 36 months thereafter (or such earlier date as is determined in accordance with Section 10 or 12 hereof). Additionally, on each annual anniversary date from the Effective Date, the Employee's term of employment shall be extended for an additional one-year period beyond the then effective expiration date, provided the Board determines in a duly adopted resolution that the performance of the Employee has met the Board's requirements and standards, and that this Agreement shall be extended. Only those members of the Board of Directors who have no personal interest in this Employment Agreement shall discuss and vote on the approval and subsequent review of this Agreement. 7. Loyalty; Noncompetition. ----------------------- (a) During the period of his employment hereunder and except for illnesses, reasonable vacation periods, and reasonable leaves of absence, the Employee shall devote all his full business time, attention, skill, and efforts to the faithful performance of his duties hereunder; provided, however, from time to time, Employee may serve on the boards of directors of, and hold any other offices or positions in, companies or organizations, which will not present any conflict of interest with the Association or any of its subsidiaries or affiliates, or unfavorably affect the performance of Employee's duties pursuant to this Agreement, or will not violate any applicable statute or regulation. "Full business time" is hereby defined as that amount of time usually devoted to like companies by similarly situated executive officers. During the term of his employment under this Agreement, the Employee shall not engage in any business or activity contrary to the business affairs or interests of the Association. (b) Nothing contained in this Section shall be deemed to prevent or limit the Employee's right to invest in the capital stock or other securities of any business dissimilar from that of the Association, or, solely as a passive or minority investor, in any business. 8. Standards. The Employee shall perform his duties under this --------- Agreement in accordance with such reasonable standards as the Board may establish from time to time. The Association will provide Employee with the working facilities and staff customary for similar executives and necessary for him to perform his duties. -4- 9. Vacation and Sick Leave. At such reasonable times as the Board ----------------------- shall in its discretion permit, the Employee shall be entitled, without loss of pay, to absent himself voluntarily from the performance of his employment under this Agreement, all such voluntary absences to count as vacation time, provided that: (a) The Employee shall be entitled to an annual vacation in accordance with the policies that the Board periodically establishes for senior management employees of the Association. (b) The Employee shall not receive any additional compensation from the Association on account of his failure to take a vacation or sick leave, and the Employee shall not accumulate unused vacation or sick leave from one fiscal year to the next, except in either case to the extent authorized by the Board. (c) In addition to the aforesaid paid vacations, the Employee shall be entitled without loss of pay, to absent himself voluntarily from the performance of his employment with the Association for such additional periods of time and for such valid and legitimate reasons as the Board may in its discretion determine. Further, the Board may grant to the Employee a leave or leaves of absence, with or without pay, at such time or times and upon such terms and conditions as such Board in its discretion may determine. (d) In addition, the Employee shall be entitled to an annual sick leave benefit as established by the Board. 10. Termination and Termination Pay. Subject to Section 12 hereof, the ------------------------------- Employee's employment hereunder may be terminated under the following circumstances: (a) Death. The Employee's employment under this Agreement shall terminate upon his death during the term of this Agreement, in which event the Employee's estate shall be entitled to receive the compensation due the Employee through the last day of the calendar month in which his death occurred. (b) Disability. (1) The Association may terminate the Employee's employment after having established the Employee's Disability, in which event the Employee shall be entitled to the compensation and benefits provided for under this Agreement for (i) any period during the term of this Agreement and prior to the establishment of the Employee's Disability during which the Employee is unable to work due to the physical or mental infirmity, and (ii) any period of Disability which is prior to the Employee's termination of employment pursuant to this Section 10(b); provided that any benefits paid pursuant to the Association's long term disability plan will continue as provided in such plan without reduction for payments made pursuant to this ------- Agreement. -5- (2) During any period that the Employee shall receive disability benefits and to the extent that the Employee shall be physically and mentally able to do so, he shall furnish such information, assistance and documents so as to assist in the continued ongoing business of the Association and, if able, shall make himself available to the Association to undertake reasonable assignments consistent with his prior position and his physical and mental health. The Association shall pay all reasonable expenses incident to the performance of any assignment given to the Employee during the disability period. (c) Just Cause. The Board may, by written notice to the Employee, immediately terminate his employment at any time, for Just Cause. The Employee shall have no right to receive compensation or other benefits for any period after termination for Just Cause. (d) Without Just Cause; Constructive Discharge. The Board may, by written notice to the Employee, immediately terminate his employment at any time for a reason other than his Disability or Just Cause, in which event the Employee shall be entitled to receive the following compensation and benefits (unless such termination occurs during the Protected Period, in which event the benefits and compensation provided for in Section 12 shall apply): (i) the salary provided pursuant to Section 3 hereof, up to the expiration date of this Agreement, including any renewal term (the "Expiration Date"), plus said salary for an additional 12-month period, and (ii) at the Employee's election either (A) cash in an amount equal to the cost to the Employee of obtaining all health, life, disability and other benefits which the Employee would have been eligible to participate in through the Expiration Date based upon the benefit levels substantially equal to those that the Association provided for the Employee at the date of termination of employment or (B) continued participation under such Association benefit plans through the Expiration Date, but only to the extent the Employee continues to qualify for participation therein. All amounts payable to the Employee shall be paid, at the option of the Employee, either (I) in periodic payments through the Expiration Date, or (II) in one lump sum within ten days of such termination. (e) Good Reason. The Employee shall be entitled to receive the compensation and benefits payable under subsection 10(d) hereof in the event that the Employee voluntarily terminates employment within 90 days of an event that constitutes Good Reason, (unless such voluntary termination occurs during the Protected Period, in which event the benefits and compensation provided for in Section 12 shall apply). (f) Termination or Suspension Under Federal Law. (1) If the Employee is removed and/or permanently prohibited from participating in the conduct of the Association's affairs by an order issued under Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act ("FDIA") (12 U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Association under this Agreement shall terminate, as of the effective date of the order, but vested rights of the parties shall not be affected. (2) If the Association is in default (as defined in Section 3(x)(1) of FDIA), all obligations under this Agreement shall terminate as of the date of default; however, this Paragraph shall not affect the vested rights of the parties. -6- (3) If a notice served under Section 8(e)(3) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(3) or (g)(1)) suspends and/or temporarily prohibits the Employee from participating in the conduct of the Association's affairs, the Association's obligations under this Agreement shall be suspended as of the date of such service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Association may in its discretion (i) pay the Employee all or part of the compensation withheld while its contract obligations were suspended, and (ii) reinstate (in whole or in part) any of its obligations which were suspended. (4) Any payments made to the Employee pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with both 12 U.S.C. Section 1828(k) and any regulations promulgated thereunder, and Regulatory Bulletin 27A, but only to the extent required thereunder on the date any payment is required pursuant to this Agreement. (g) Voluntary Termination by Employee. Subject to Section 12 hereof, the Employee may voluntarily terminate employment with the Association during the term of this Agreement, upon at least 90 days' prior written notice to the Board of Directors, in which case the Employee shall receive only his compensation, vested rights and employee benefits up to the date of his termination (unless such termination occurs pursuant to Section 10(d) hereof or within the Protected Period, in Section 12(a) hereof, in which event the benefits and compensation provided for in Sections 10(d) or 12, as applicable, shall apply). (h) Post-termination Health Insurance. If the Employee's employment terminates with the Association or the Company for any reason other than Just Cause, the Employee shall be entitled to purchase from the Association, at the Employee's own expense which shall not exceed applicable COBRA rates, family medical insurance under any group health plan that the Association or the Company maintains for its employees. This right shall be (i) in addition to, and not in lieu of, any other rights that the Employee has under this Agreement, and (ii) shall continue until the Employee first becomes eligible for participation in Medicare. 11. No Mitigation. The Employee shall not be required to mitigate the ------------- amount of any payment provided for in this Agreement by seeking other employment or otherwise and no such payment shall be offset or reduced by the amount of any compensation or benefits provided to the Employee in any subsequent employment. 12. Change in Control. ----------------- (a) Trigger Events. The Employee shall be entitled to collect the severance benefits set forth in Subsection (b) hereof in the event that either (i) the Employee voluntarily terminates employment for any reason within the 30-day period beginning on the date of a Change in Control, (ii) the Employee voluntarily terminates employment within 90 days of an event that both occurs during the Protected Period and constitutes Good Reason, or (iii) the Association or the Company or their successor(s) in interest terminate the Employee's employment without his written consent and for any reason other than Just Cause during the Protected Period. -7- (b) Amount of Severance Benefit. If the Employee becomes entitled to collect severance benefits pursuant to Section 12(a) hereof, the Association shall pay the Employee a severance benefit equal to the difference between the Code ss.280G Maximum and the sum of any other "parachute payments" as defined under Code ss.280G(b)(2) that the Employee receives on account of the Change in Control. The amount payable under this Section 12(b) shall be paid either (i) in one lump sum within ten days of the later of the date of the Change in Control and the Employee's last day of employment with the Association or the Company, or (ii) if prior to the date which is 90 days before the date on which a Change in Control occurs, the Employee filed a duly executed irrevocable written election in the form attached hereto as Exhibit "A", payment of such amount shall be made according to the elected schedule. Deferred amounts shall bear interest from the date on which they would otherwise be payable until the date paid at a rate equal to 120% of the applicable federal rate, compounded semiannually, as determined under Code Section 1274(d) and the regulations thereunder. In the event that the Employee, the Association, and the Company jointly agree that the Employee has collected an amount exceeding the Code ss.280G Maximum, the parties may agree in writing that such excess shall be treated as a loan ab initio, which the Employee shall repay to the Association, --------- on terms and conditions mutually agreeable to the parties, together with interest at the applicable federal rate provided for in Section 7872(f)(2)(B) of the Code. (c) Funding of Grantor Trust upon Change in Control. Not later than ten business days after a Change in Control, the Association shall (i) deposit in a Trust an amount equal to the Code ss.280G Maximum, unless the Employee has previously provided a written release of any claims under this Agreement, and (ii) provide the trustee of the Trust with a written direction to hold said amount and any investment return thereon in a segregated account for the benefit of the Employee, and to follow the procedures set forth in the next paragraph as to the payment of such amounts from the Trust. Upon the later of the Trust's final payment of all amounts payable to the Employee under Section 12(b) of this Agreement or the date 90 days following the expiration of the Protected Period, the trustee of the Trust shall pay to the Association the entire balance remaining in the segregated account maintained for the benefit of the Employee. The Employee shall thereafter have no further interest in the Trust. Prior to the date which is 90 days following the expiration of the Protected Period, the Employee may provide the trustee of the Trust with a written notice requesting that the trustee pay to the Employee an amount designated in the notice as being payable pursuant to this Agreement. Within three business days after receiving said notice, the trustee of the Trust shall send a copy of the notice to the Association via overnight and registered mail return receipt requested. Unless prior to the tenth (10th) business day after mailing said notice to the Association, the Association provides the trustee with a written notice directing the trustee to withhold payment, on such date the trustee of the Trust shall pay the Employee the amount designated therein according to the schedule elected by the Employee pursuant to Section 12(b) hereof, or in the absence of such an election, payment shall be made immediately. In the event the Association directs the trustee to -8- withhold payment, the trustee shall submit the dispute to non-appealable binding arbitration for a determination of the amount payable to the Employee pursuant to this Agreement, and the costs of such arbitration shall be paid by the Association. The trustee shall choose the arbitrator to settle the dispute, and such arbitrator shall be bound by the rules of the American Arbitration Association in making his determination. The parties and the trustee shall be bound by the results of the arbitration and, within 3 days of the determination by the arbitrator, the trustee shall pay from the Trust the amounts required to be paid to the Employee and/or the Association, and in no event shall the trustee be liable to either party for making the payments as determined by the arbitrator. 13. Indemnification. The Association and the Company agree that their --------------- respective Bylaws shall continue to provide for indemnification of directors, officers, employees and agents of the Association and the Company, including the Employee during the full term of this Agreement, and to at all times provide adequate insurance for such purposes. 14. Reimbursement of Employee for Enforcement Proceedings. In the ----------------------------------------------------- event that any dispute arises between the Employee and the Association as to the terms or interpretation of this Agreement, whether instituted by formal legal proceedings or otherwise, including any action that the Employee takes to defend against any action taken by the Association or the Company, the Employee shall be reimbursed for all costs and expenses, including reasonable attorneys' fees, arising from such dispute, proceedings or actions, provided that the Employee obtains either a written settlement or a final judgement by a court of competent jurisdiction substantially in his favor. Such reimbursement shall be paid within ten days of Employee's furnishing to the Association written evidence, which may be in the form, among other things, of a cancelled check or receipt, of any costs or expenses incurred by the Employee. 15. Federal Income Tax Withholding. The Association may withhold all ------------------------------ federal and state income or other taxes from any benefit payable under this Agreement as shall be required pursuant to any law or government regulation or ruling. 16. Successors and Assigns. ---------------------- (a) Association. This Agreement shall not be assignable by the Association, provided that this Agreement shall inure to the benefit of and be binding upon any corporate or other successor of the Association which shall acquire, directly or indirectly, by merger, consolidation, purchase or otherwise, all or substantially all of the assets or stock of the Association. (b) Employee. Since the Association is contracting for the unique and personal skills of the Employee, the Employee shall be precluded from assigning or delegating his rights or duties hereunder without first obtaining the written consent of the Association; provided, however, that nothing in this paragraph shall preclude (i) the Employee from designating a beneficiary to receive any benefit payable hereunder upon his death, or (ii) the executors, administrators, or other legal representatives of the Employee or his estate from assigning any rights hereunder to the person or persons entitled thereunto. -9- (c) Attachment. Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or to exclusion, attachment, levy or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect. 17. Amendments. No amendments or additions to this Agreement shall be ---------- binding unless made in writing and signed by all of the parties, except as herein otherwise specifically provided. 18. Applicable Law. Except to the extent preempted by Federal law, the -------------- laws of the State of Colorado shall govern this Agreement in all respects, whether as to its validity, construction, capacity, performance or otherwise. 19. Severability. The provisions of this Agreement shall be deemed ------------ severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. 20. Entire Agreement. This Agreement, together with any understanding ---------------- or modifications thereof as agreed to in writing by the parties, shall constitute the entire agreement between the parties hereto and shall supersede any prior agreement between the parties. IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first hereinabove written. ATTEST: SALIDA BUILDING & LOAN ASSOCIATION By: - --------------------------- ------------------------------- Secretary Its Chairman of the Board WITNESS: - --------------------------- ---------------------------------- Scott G. Erchul -10- EX-10.8 18 EXHIBIT 10.8 Ex 10.8 HIGH COUNTRY BANCORP, INC. -------------------------- Guaranty Agreement -------------------------- THIS AGREEMENT is entered into this day ____ of __________, 1997 (the "Effective Date"), by and between High Country Bancorp, Inc. (the "Company") and Scott G. Erchul (the "Employee"). WHEREAS, the Employee has heretofore been employed by Salida Building & Loan Association (the "Association") as its Senior Vice President, and has entered into an agreement (the "Association Agreement") dated _______________, 1997, with the Employee; and WHEREAS, the Board of Directors (the "Board") of the Company believes it is in the best interests of the Company to enter into this Agreement with the Employee in order to assure continuity of management of the Association and to reinforce and encourage the long-term retention of the Employee; and WHEREAS, the parties desire by this writing to set forth the Company's commitment to guarantee the Association's obligations under the Association Agreement with the Employee. NOW, THEREFORE, it is AGREED as follows: 1. Consideration from Company: Joint and Several Liability. The ------------------------------------------------------- Company hereby agrees that to the extent permitted by law, it shall be jointly and severally liable with the Association for the payment of all amounts due under the Association Agreement, provided that Section 10(f) of the Association Agreement shall be innaplicable to this Agreement. The Board may in its discretion at any time during the term of this Agreement agree to pay the Employee a base salary for the remaining term of this Agreement. If the Board agrees to pay such salary, the Board shall thereafter review, not less often than annually, the rate of the Employee's salary, and in its sole discretion may decide to increase his salary. 2. Discretionary Bonuses; Participation in Retirement, Medical and --------------------------------------------------------------- Other Plans. The Employee shall participate in an equitable manner with all - ----------- other senior management employees of the Company in discretionary bonuses that the Board may award from time to time to the Company's senior management employees, as well as in (i) any of the following plans or programs that the Company may now or in the future maintain: group hospitalization, disability, health, dental, sick leave, life insurance, travel and/or accident insurance, auto allowance/auto lease, retirement, pension, and/or other present or future qualified plans provided by the Company, generally which benefits, taken as a whole, must be at least as favorable as those in effect on the Effective Date; and (ii) any fringe benefits which are or may become available to the Company's senior management employees, including for example: any stock option or incentive compensation plans, and any other benefits which are commensurate with the responsibilities and functions to be performed by the Employee under this Agreement. 3. Indemnification. The Company agrees that its Bylaws shall continue --------------- to provide for indemnification of directors, officers, employees and agents of the Company, including the Employee, during the full term of this Agreement, and to at all times provide adequate insurance for such purposes. 4. Successors and Assigns. ---------------------- (a) Company. This Agreement shall inure to the benefit of and be binding upon any corporate or other successor of the Company which shall acquire, directly or indirectly, by merger, consolidation, purchase or otherwise, all or substantially all of the assets or stock of the Company. (b) Attachment. Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or to exclusion, attachment, levy or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect. 5. Amendments. No amendments or additions to this Agreement shall be ---------- binding unless made in writing and signed by all of the parties, except as herein otherwise specifically provided. 6. Applicable Law. Except to the extent preempted by Federal law, the -------------- laws of the State of Colorado shall govern this Agreement in all respects, whether as to its validity, construction, capacity, performance or otherwise. 7. Severability. The provisions of this Agreement shall be deemed ------------ severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. 8. Entire Agreement. This Agreement, together with any understanding ---------------- or modifications thereof as agreed to in writing by the parties, shall constitute the entire agreement between the parties hereto. -2- IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first hereinabove written. ATTEST: HIGH COUNTRY BANCORP, INC. By - --------------------------- --------------------------- Secretary Its Chairman of the Board WITNESS: - --------------------------- ----------------------------- Scott G. Erchul -3- EX-23.1 19 EXHIBIT 23.1 Exhibit 23.1 [LETTERHEAD OF GRIMSLEY, WHITE & COMPANY APPEARS HERE] CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT As the independent certified public accountant of Salida Building and Loan Association, we hereby consent to the use of our report and to all references to our Firm included in or made part of this Registration Statement. August 21, 1997 /s/ Grimsley, White & Company Grimsley, White & Company EX-23.3 20 EXHIBIT 23.3 EXHIBIT 23.3 [LETTERHEAD OF FERGUSON AND COMPANY APPEARS HERE] AUGUST 21, 1997 BOARD OF DIRECTORS SALIDA BUILDING AND LOAN ASSOCIATION 130 WEST 2ND STREET SALIDA, COLORADO 81201 DIRECTORS: We hereby consent to the use of our firm's name in the Form AC Application for Conversion of Salida Building and Loan Association, Salida, Colorado, and any amendments thereto, and in the Form SB-2 Registration Statement of High Country Bancorp, Inc., and any amendments thereto. We also hereby consent to the inclusion of, summary of, and references to our Appraisal Report and our opinion concerning subscription rights in such filings including the Prospectus of High Country Bancorp, Inc. Sincerely, Robin L. Fussell Principal EX-27 21 EXHIBIT 27
9 12-MOS JUN-30-1997 JUN-30-1997 894,995 2,381,315 0 0 0 5,339,762 5,412,136 63,126,864 604,000 76,324,102 56,152,178 9,500,000 693,704 4,020,000 0 0 0 5,958,220 76,324,102 5,249,291 430,557 84,302 5,764,150 2,179,408 2,813,331 2,950,819 282,000 0 2,755,253 55,501 55,501 0 0 44,416 0 0 8.02 140,000 0 0 0 0 96,000 7,000 604,000 604,000 0 0
EX-99.1 22 EXHIBIT 99.1 EX 99.1 THE SALIDA BUILDING AND LOAN ASSOCIATION 130 West 2nd Street Salida, Colorado 81201 (719) 539-2516 NOTICE OF SPECIAL MEETING OF MEMBERS Notice is hereby given that a Special Meeting of Members (the "Special Meeting") of The Salida Building and Loan Association (the "Association") will be held at the Association's office located at 130 West 2nd Street, Salida, Colorado, on _________, 1997 at __:__ _.m. Business to be taken up at the Special Meeting shall be: (1) To consider and vote upon the adoption of a Plan of Conversion providing for the conversion of the Association from a federally chartered mutual savings and loan association to a federally chartered stock savings and loan association (the "Converted Association") as a wholly owned subsidiary of High Country Bancorp, Inc., a newly organized Colorado corporation formed by the Association for the purpose of becoming the holding company for the Association, and the related transactions provided for in such plan, including the adoption of an amended Federal Stock Charter and Bylaws for the Converted Association pursuant to the laws of the United States and the Rules and Regulations administered by the Office of Thrift Supervision. (2) To consider and vote upon any other matters that may lawfully come before the Special Meeting. Note: As of the date of mailing of this Notice of Special Meeting of Members, the Board of Directors is not aware of any other matters that may come before the Special Meeting. The members entitled to vote at the Special Meeting shall be those members of the Association at the close of business on _________, 1997, who continue as members until the Special Meeting and, should the Special Meeting be, from time to time, adjourned to a later time, until the final adjournment thereof. BY ORDER OF THE BOARD OF DIRECTORS Richard A. Young Secretary , 1997 - -------------- Salida, Colorado -------------- YOUR BOARD OF DIRECTORS URGES YOU TO CONSIDER CAREFULLY THIS PROXY MATERIAL AND, WHETHER OR NOT YOU PLAN TO BE PRESENT IN PERSON AT THE SPECIAL MEETING, TO FILL IN, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD(S) AS SOON AS POSSIBLE TO ASSURE THAT YOUR VOTES WILL BE COUNTED. THIS WILL NOT PREVENT YOU FROM VOTING IN PERSON IF YOU ATTEND THE SPECIAL MEETING. THE SALIDA BUILDING AND LOAN ASSOCIATION 130 West 2nd Street Salida, Colorado 81201 (719) 539-2516 PROXY STATEMENT YOUR PROXY, IN THE FORM ENCLOSED, IS SOLICITED BY THE BOARD OF DIRECTORS OF SALIDA BUILDING AND LOAN ASSOCIATION FOR USE AT A SPECIAL MEETING OF ITS MEMBERS TO BE HELD ON , 1997 AND ANY ADJOURNMENT OF THAT ---------- MEETING, FOR THE PURPOSES SET FORTH IN THE FOREGOING NOTICE OF SPECIAL MEETING. YOUR BOARD OF DIRECTORS URGES YOU TO VOTE FOR THE PLAN OF CONVERSION. PURPOSE OF MEETING -- SUMMARY A Special Meeting of Members (the "Special Meeting") of The Salida Building and Loan Association (the "Association") will be held at the Association's office located at 130 West 2nd Street, Salida, Colorado on _________, ___________, 1997, at __:__ _.m., local time, for the purpose of considering and voting upon a Plan of Conversion (the "Plan"), which was unanimously adopted by the Association's Board of Directors and which, if approved by a majority of the total votes eligible to be cast by the members, will permit the Association to convert from a federal mutual savings and loan association to a federal stock savings and loan association (the "Converted Association") as a wholly owned subsidiary of High Country Bancorp, Inc. (the "Company"), a Colorado corporation formed by the Association for the purpose of becoming the holding company for the Association. The conversion of the Association to the Converted Association, the acquisition of control of the Converted Association by the Company and the issuance and sale of the Company's common stock, par value $.01 per share (the "Common Stock") are collectively referred to herein as the "Conversion." The Conversion is contingent upon the members' approval of the Plan at the Special Meeting or any adjournment thereof. The Plan provides in part that after receiving final authorization from the Office of Thrift Supervision ("OTS"), the Company will offer for sale shares of its Common Stock through the issuance of nontransferable subscription rights, first to depositors as of December 31, 1995, with $50.00 or more on deposit in the Association on that date ("Eligible Account Holders"), second to the Company's Employee Stock Ownership Plan (the "ESOP") (a tax-qualified employee stock benefit plan of the Company, as defined in the Plan), third to depositors with $50.00 or more on deposit in the Association on September 30, 1997, the last day of the calendar quarter preceding approval of the Plan by the OTS ("Supplemental Eligible Account Holders"), and fourth to other members entitled to vote at the Special Meeting ("Other Members") (the "Subscription Offering"). Subscription rights received in any of the foregoing categories will be subordinated to the subscription rights of those in a prior category, with the exception that any shares of Common Stock sold in excess of the high end of the estimated value range as established in an independent appraisal, as discussed below, may be first sold to the ESOP. The Company may offer any shares remaining after the Subscription Offering to certain members of the general public in a community offering (the "Community Offering"). In the Community Offering, preference will be given to natural persons and trusts of natural persons who are permanent residents of Chaffee, Lake, Fremont and Saguache Counties in Colorado (the "Local Community"). Any shares of Common Stock not purchased in the Subscription and Community Offerings may be sold as part of a community offering on a best efforts basis by a selling group of selected broker-dealers to be managed by Trident Securities, Inc. (the "Syndicated Community Offering"). The aggregate price of the Common Stock to be issued by the Company under the Plan is currently estimated to be between $7,650,000 and $10,350,000, subject to adjustment, as determined by an independent appraisal of the Association's estimated pro forma market value as converted and as a wholly owned subsidiary of the Company. See "The Conversion -- Stock Pricing and Number of Shares to be Issued" in the accompanying Prospectus. Adoption of the proposed Charter and Bylaws of the Converted Association is an integral part of the Plan. Copies of the Plan and the proposed Charter and Bylaws for the Converted Association are attached to this Proxy Statement as exhibits. These documents provide, among other things, for the termination of voting rights of members and creation of their rights to receive any surplus remaining in the event of liquidation of the Association. These rights, except for the rights of Eligible Account Holders and Supplemental Eligible Account Holders in the liquidation account established for their benefit upon completion of the Conversion, will vest exclusively in the Company as the sole holder of the Converted Association's outstanding capital stock. For further information, see "The Conversion -- Effect of Conversion to Stock Form on Depositors and Borrowers of the Association" in the accompanying Prospectus. RECOMMENDATION OF THE BOARD OF DIRECTORS THE BOARD OF DIRECTORS OF THE ASSOCIATION UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF THE PLAN OF CONVERSION. VOTING IN FAVOR OF THE PLAN OF CONVERSION WILL NOT OBLIGATE ANY PERSON TO PURCHASE STOCK. --- The Conversion will be accomplished through adoption of a new Charter and Bylaws to authorize the issuance of capital stock by the Association to the Company. Under the Plan, up to 1,035,000 shares of the Common Stock, subject to adjustment, are being offered for sale by the Company. Upon completion of the Conversion, the Converted Association will issue all of its newly issued shares of capital stock (100,000 shares) to the Company in exchange for at least 50% of the net proceeds of the Conversion. None of the Association's assets will be distributed in order to effect the Conversion other than to pay expenses incident thereto. The net proceeds from the sale of Common Stock in the Conversion will substantially increase the Association's capital, which will increase the amount of funds available for lending and investment, and support current operations and the continued growth of the Association's business. The holding company structure will provide greater flexibility than the Association alone would have for diversification of business activities and geographic operations. Management believes that this increased capital and operating flexibility will enable the Association to compete more effectively with other savings institutions and other types of financial service organizations. Management also believes that the Conversion will enhance the future access of the Company and the Converted Association to the capital markets. HIGH COUNTRY BANCORP, INC. High Country Bancorp, Inc. was incorporated under the laws of the State of Colorado in August 1997 at the direction of the Board of Directors of the Association for the purpose of serving as a savings and loan holding company of the Converted Association upon the acquisition of all of the capital stock issued by the Converted Association in the Conversion. The Company has received approval from the OTS to acquire control of the Converted Association, subject to satisfaction of certain conditions. Prior to the Conversion, the Company has not engaged and will not engage in any material operations. Upon consummation of the Conversion, the Company will have no significant assets other than the outstanding capital stock of the Converted Association, up to 50% of the net proceeds of the Conversion (after deducting amounts infused into the Association and used to fund the ESOP) and a note receivable from the ESOP. Upon consummation of the Conversion, the Company's principal business will be overseeing the business of the Converted Association and investing the portion of the net Conversion proceeds retained by it, and the Company will register with the OTS as a savings and loan holding company. As a holding company, the Company will have greater flexibility than the Association to diversify its business activities through existing or newly formed subsidiaries or through acquisition or merger with other financial institutions, although the Company currently does not have any plans, agreements, arrangements or understandings with respect to any such acquisitions or mergers. After the Conversion, the Company will be classified as a unitary savings and loan holding company and will be subject to regulation by the OTS. 2 The Company's executive offices are located at 130 West 2nd Street, Salida, Colorado 81201, and its main telephone number is (719) 539-2516. THE SALIDA BUILDING AND LOAN ASSOCIATION The Association is a federal mutual savings and loan association operating through offices located in Salida, Colorado, Buena Vista, Colorado and Leadville, Colorado and serving Chaffee, Lake, Fremont and Saguache Counties in Colorado. The Association was chartered in 1886 as the first state-chartered building and loan association in Colorado. The Association received federal insurance of its deposit accounts and became a member of the FHLB in 1937. The Association became a federally-chartered association on August 16, 1993 under its current name of Salida Building and Loan Association. At June 30, 1997, the Association had total assets of $76.3 million, loans receivable (net) of $63.1 million, total deposits of $561 million and equity of $6.0 million. Historically, the Association has operated as a traditional savings institution by emphasizing the origination of loans secured by one- to four-family residences. Since fiscal 1996, the Association has significantly increased its origination of consumer, commercial business and commercial real estate loans, including loans for the purchase and development of raw land, all of which loans have been originated in its market area. For more information, see "Risk Factors -- Risks Posed by Certain Lending Activities" and "Business of the Association" in the accompanying Prospectus. The Association is subject to examination and comprehensive regulation by the OTS, and the Association's savings deposits are insured up to applicable limits by the SAIF, which is administered by the FDIC. The Association is a member of and owns capital stock in the FHLB of Topeka, which is one of 12 regional banks in the FHLB System. The Association is further subject to regulations of the Federal Reserve Board governing reserves to be maintained and certain other matters. Regulations significantly affect the operations of the Association. See "Regulation -- Depository Institution Regulation" in the accompanying Prospectus. The Association's executive offices are located at 130 West 2nd Street, Salida, Colorado 81201, and its main telephone number is (719) 539-2516. INFORMATION RELATING TO VOTING AT THE SPECIAL MEETING The Board of Directors of the Association has fixed the close of business on _________, 1997 as the record date (the "Voting Record Date") for the determination of members entitled to notice of and to vote at the Special Meeting. All holders of the Association's deposits or other authorized accounts are members of the Association under its current mutual charter. Borrowers as of ___________, 1997, the date of the Association's adoption of its present federal mutual charter, are members of the Association for as long as such borrowings are in existence. However, persons who had borrowings at such date but who no longer had such borrowings on the Voting Record Date, as well as persons who became borrowers after such date, are not members of the Association. All members of record as of the close of business on the Voting Record Date who continue as such until the date of the Special Meeting will be entitled to vote at the Special Meeting or any adjournment thereof. Each depositor member will be entitled at the Special Meeting to cast one vote for each $100, or fraction thereof, of the aggregate withdrawal value of all of his savings accounts in the Association as of the Voting Record Date. Borrower members will be entitled to one vote at the Special Meeting in addition to any votes such borrower member may have as a result of being a depositor in the Association. No member may cast more than 1,000 votes. Approval of the Plan to be presented at the Special Meeting will require the affirmative vote of at least a majority of the total outstanding votes of the Association's members eligible to be cast at the Special Meeting. As of the Voting Record Date for the Special Meeting, there were approximately _______ votes eligible to be cast, of which _____ votes constitute a majority. 3 Members may vote at the Special Meeting or any adjournment thereof in person or by proxy. All properly executed proxies received by the Association will be voted in accordance with the instructions indicated thereon by the members giving such proxies. If no contrary instructions are given, such proxies will be voted in favor of the Plan. If any other matters are properly presented before the Special Meeting and may properly be voted upon, the proxies solicited hereby will be voted on such matters by the proxy holders named therein as directed by the Board of Directors of the Association. Valid, previously executed general proxies, which typically are obtained from members when they open their accounts at the Association, will not be used to vote for approval of the Plan of Conversion, even if the respective members do not execute another proxy or attend the Special Meeting and vote in person. Any member giving a proxy will have the right to revoke his proxy at any time before it is voted by delivering written notice or a duly executed proxy bearing a later date to the Secretary of the Association, provided that such written notice is received by the Secretary prior to the Special Meeting or any adjournment thereof, or by attending the Special Meeting and voting in person. Attendance at the Special Meeting, by itself, will not be sufficient to revoke a proxy. FAILURE TO RETURN AN EXECUTED PROXY FOR THE SPECIAL MEETING OR TO ATTEND THE SPECIAL MEETING AND VOTE IN PERSON WOULD HAVE THE SAME EFFECT AS VOTING AGAINST THE CONVERSION. Proxies may be solicited by officers, directors or other employees of the Association, in person, by telephone or through other forms of communication. Such persons will be reimbursed by the Association only for their expenses incurred in connection with such solicitation. The proxies solicited hereby will be used only at the Special Meeting and at any adjournment thereof; they will not be used at any other meeting. DESCRIPTION OF PLAN OF CONVERSION The OTS has approved the Plan, subject to the Plan's approval by the members of the Association entitled to vote on the matter and subject to the satisfaction of certain other conditions imposed by the OTS in its approval. Approval by the OTS, however, does not constitute a recommendation or endorsement of the Plan. Effect of Conversion to Stock Form on Depositors and Borrowers of the Association General. Each depositor in a mutual savings institution such as the Association has both a deposit account and a pro rata interest in the retained earnings of that institution based upon the balance in his or her deposit account. However, this interest is tied to the depositor's account and has no tangible market value separate from such deposit account. Any other depositor who opens a deposit account obtains a pro rata interest in the retained earnings of the institution without any additional payment beyond the amount of the deposit. A depositor who reduces or closes his or her account receives a portion or all of the balance in the account but nothing for his or her ownership interest, which is lost to the extent that the balance in the account is reduced. Consequently, depositors normally do not have a way to realize the value of their ownership, which has realizable value only in the unlikely event that the mutual institution is liquidated. In such event, the depositors of record at that time, as owners, would share pro rata if any residual retained earnings remained, after other claims are paid. Upon consummation of the Conversion, permanent nonwithdrawable capital stock will be created to represent the ownership of the institution. The stock is separate and apart from deposit accounts and is not and cannot be insured by the FDIC. Transferable certificates will be issued to evidence ownership of the stock, which will enable the stock to be sold or traded, if a purchaser is available, with no effect on any account held in the Association. Under the Plan, all of the capital stock of the Converted Association will be acquired by the Company in exchange for a portion of the 4 net proceeds from the sale of the Common Stock in the Conversion. The Common Stock will represent an ownership interest in the Company and will be issued upon consummation of the Conversion to persons who elect to participate in the Conversion by purchasing the shares being offered. Continuity. During the Conversion process, the normal business of the Association of accepting deposits and making loans will continue without interruption. The Converted Association will continue to be subject to regulation by the OTS and the FDIC, and FDIC insurance of accounts will continue without interruption. After the Conversion, the Converted Association will continue to provide services for depositors and borrowers under current policies and by its present management and staff. The Board of Directors serving the Association at the time of the Conversion will serve as the Board of Directors of the Converted Association after the Conversion. Following the Conversion, the Board of Directors of the Company will consist of the individuals serving on the Board of Directors of the Association. All officers of the Association at the time of the Conversion will retain their positions with the Converted Association after the Conversion. Voting Rights. Upon the completion of the Conversion, depositor and borrower members as such will have no voting rights in the Converted Association or the Company and, therefore, will not be able to elect directors of the Converted Association or the Company or to control their affairs. Currently these rights are accorded to depositors of the Association. Subsequent to the Conversion, voting rights will be vested exclusively in the stockholders of the Company which, in turn, will own all of the stock of the Converted Association. Each holder of Common Stock shall be entitled to vote on any matter to be considered by the stockholders of the Company, subject to the provisions of the Company's Articles of Incorporation. After the Conversion, holders of Savings Accounts in and obligors on loans of the Converted Association will not have voting rights in the Association. Exclusive voting rights with respect to the Company shall be vested in the holders of the Common Stock, holders of Savings Accounts in and obligors on loans of the Converted Association and the Association will not have any voting rights in the Company except and to the extent that such persons become stockholders of the Company, and the Company will have exclusive voting rights with respect to the Converted Association's capital stock. Deposit Accounts and Loans. The Association's deposit accounts, the balances of individual accounts and existing federal deposit insurance coverage will not be affected by the Conversion. Furthermore, the Conversion will not affect the loan accounts, the balances of these accounts and the obligations of the borrowers under their individual contractual arrangements with the Association. Tax Effects. The Association has received an opinion from its special counsel, Housley Kantarian & Bronstein, P.C., Washington, D.C., as to the material federal income tax consequences of the Conversion to the Association, and as to the generally applicable material federal income tax consequences of the Conversion to the Association's account holders and to persons who purchase Common Stock in the Conversion. The opinion provides that the Conversion will constitute a reorganization for federal income tax purposes under Section 368(a)(1)(F) of the Internal Revenue Code of 1986, as amended ("Code"). Among other things, the opinion also provides that: (i) no gain or loss will be recognized by the Association in its mutual or stock form by reason of the Conversion; (ii) no gain or loss will be recognized by its account holders upon the issuance to them of accounts in the Converted Association in stock form immediately after the Conversion, in the same dollar amounts and on the same terms and conditions as their accounts at the Association immediately prior to the Conversion; (iii) the tax basis of each account holder's interest in the liquidation account will be equal to the value, if any, of that interest; (iv) the tax basis of the Common Stock purchased in the Conversion will be equal to the amount paid therefor increased, in the case of Common Stock acquired pursuant to the exercise of Subscription Rights, by the fair market value, if any, of the Subscription Rights exercised; (v) the holding period for the Common Stock purchased in the Conversion will commence upon the exercise of such holder's Subscription Rights and otherwise on the day following the date of such purchase; and (vi) gain or loss will be recognized to account holders 5 upon the receipt of liquidation rights or the receipt or exercise of Subscription Rights in the Conversion, to the extent such liquidation rights and Subscription Rights are deemed to have value, as discussed below. The opinion of Housley Kantarian & Bronstein, P.C., is based in part upon, and subject to the continuing validity in all material respects through the date of the Conversion of, various representations of the Association and upon certain assumptions and qualifications, including that the Conversion is consummated in the manner and according to the terms provided in the Plan. Such opinion is also based upon the Code, regulations now in effect or proposed thereunder, current administrative rulings and practice and judicial authority, all of which are subject to change and such change may be made with retroactive effect. Unlike private letter rulings received from the Internal Revenue Service ("IRS"), an opinion is not binding upon the IRS and there can be no assurance that the IRS will not take a position contrary to the positions reflected in such opinion, or that such opinion will be upheld by the courts if challenged by the IRS. Housley Kantarian & Bronstein, P.C. has advised the Association that an interest in a liquidation account has been treated by the IRS, in a series of private letter rulings which do not constitute formal precedent, as having nominal, if any, fair market value and therefore it is likely that the interests in the liquidation account established by the Association as part of the Conversion will similarly be treated as having nominal, if any, fair market value. Accordingly, it is likely that such depositors of the Association who receive an interest in such liquidation account established by the Association pursuant to the Conversion will not recognize any gain or loss upon such receipt. Housley Kantarian & Bronstein, P.C. has further advised the Association that the federal income tax treatment of the receipt of Subscription Rights pursuant to the Conversion is uncertain, and recent private letter rulings issued by the IRS have been in conflict. For instance, the IRS adopted the position in one private ruling that Subscription Rights will be deemed to have been received to the extent of the minimum pro rata distribution of such rights, together with the rights actually exercised in excess of such pro rata distribution, and with gain recognized to the extent of the combined fair market value of the pro rata distribution of Subscription Rights plus the Subscription Rights actually exercised. Persons who do not exercise their Subscription Rights under this analysis would recognize gain upon receipt of rights equal to the fair market value of such rights, regardless of exercise, and would recognize a corresponding loss upon the expiration of unexercised rights that may be available to offset the previously recognized gain. Under another IRS private ruling, Subscription Rights were deemed to have been received only to the extent actually exercised. This private ruling required that gain be recognized only if the holder of such rights exercised such rights, and that no loss be recognized if such rights were allowed to expire unexercised. There is no authority that clearly resolves this conflict among these private rulings, which may not be relied upon for precedential effect. However, based upon express provisions of the Code and in the absence of contrary authoritative guidance, Housley Kantarian & Bronstein, P.C. has provided in its opinion that gain will be recognized upon the receipt rather than the exercise of Subscription Rights. Further, also based upon a published IRS ruling and consistent with recognition of gain upon receipt rather than exercise of the Subscription Rights, Housley Kantarian & Bronstein, P.C. has provided in its opinion that the subsequent exercise of the Subscription Rights will not give rise to gain or loss. Regardless of the position eventually adopted by the IRS, the tax consequences of the receipt of the Subscription Rights will depend, in part, upon their valuation for federal income tax purposes. If the Subscription Rights are deemed to have a fair market value, the receipt of such rights will be taxable to Eligible Account Holders, Supplemental Eligible Account Holders and other eligible members who exercise their Subscription Rights, even though such persons would not have received any cash from which to pay taxes on such taxable income. The Association could also recognize a gain on the distribution of such Subscription Rights in an amount equal to their aggregate value. In the opinion of Ferguson & Company, whose opinion is not binding upon the IRS, the Subscription Rights do not have any value, based on the fact that such rights are acquired by the recipients without cost, are non-transferable and of short duration and afford the recipients the right only to purchase shares of the Common Stock at a price equal to its estimated fair market value, which will be the same price as the price paid by purchasers in the Community Offering for unsubscribed shares of Common Stock. Eligible Account Holders, Supplemental Eligible Account Holders and Other Members are encouraged to consult with their own tax advisors as 6 to the tax consequences in the event that the Subscription Rights are deemed to have a fair market value. Because the fair market value, if any, of the Subscription Rights issued in the Conversion depends primarily upon the existence of certain facts rather than the resolution of legal issues, Housley Kantarian & Bronstein, P.C., has neither adopted the opinion of Ferguson & Company, as its own nor incorporated such opinion of Ferguson & Company in its opinion issued in connection with Conversion. The Association has also received the opinion of Grimsley, White & Company that no gain or loss will be recognized as a result of the Conversion for purposes of Colorado income tax laws. THE FEDERAL AND STATE INCOME TAX DISCUSSION SET FORTH ABOVE DOES NOT PURPORT TO CONSIDER ALL ASPECTS OF FEDERAL AND STATE INCOME TAXATION WHICH MAY BE RELEVANT TO EACH ELIGIBLE ACCOUNT HOLDER, SUPPLEMENTAL ACCOUNT HOLDER AND OTHER MEMBER ENTITLED TO SPECIAL TREATMENT UNDER THE INTERNAL REVENUE CODE, SUCH AS TRUSTS, INDIVIDUAL RETIREMENT ACCOUNTS, OTHER EMPLOYEE BENEFIT PLANS, INSURANCE COMPANIES AND ELIGIBLE ACCOUNT HOLDERS, SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS AND OTHER MEMBERS WHO ARE NOT CITIZENS OR RESIDENTS OF THE UNITED STATES. DUE TO THE INDIVIDUAL NATURE OF TAX CONSEQUENCES, EACH ELIGIBLE ACCOUNT HOLDER, SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDER AND OTHER MEMBER IS URGED TO CONSULT HIS OR HER OWN TAX AND FINANCIAL ADVISOR AS TO THE EFFECT OF SUCH FEDERAL AND STATE INCOME TAX CONSEQUENCES ON HIS OR HER OWN PARTICULAR FACTS AND CIRCUMSTANCES, INCLUDING THE RECEIPT AND EXERCISE OF SUBSCRIPTION RIGHTS, AND ALSO AS TO ANY OTHER TAX CONSEQUENCES ARISING OUT OF THE CONVERSION. Liquidation Account. In the unlikely event of a complete liquidation of the Association in its present mutual form, each holder of a deposit account in the Association would receive his pro rata share of any assets of the Association remaining after payment of claims of all creditors (including the claims of all depositors to the withdrawal value of their accounts). His pro rata share of such remaining assets would be the same proportion of such assets as the value of his deposit account was to the total of the value of all deposit accounts in the Association at the time of liquidation. After the Conversion, each deposit account holder on a complete liquidation would have a claim of the same general priority as the claims of all other general creditors of the Association. Therefore, except as described below, a claim of such account holder would be solely in the amount of the balance in the related deposit account plus accrued interest, and the account holder would not have any interest in the value of the Association above that amount. The Plan provides for the establishment, upon the completion of the Conversion, of a special "liquidation account" for the benefit of Eligible Account Holders and Supplemental Eligible Account Holders in an amount equal to the net worth of the Association as of the date of its latest statement of financial condition contained in the final Prospectus. Each Eligible Account Holder (a qualifying depositor of the Association on December 31, 1995) and each Supplemental Eligible Account Holder (a person with a qualifying deposit in the Association on September 30, 1997) would be entitled, on a complete liquidation of the Converted Association after completion of the Conversion, to an interest in the liquidation account. Each Eligible Account Holder would have an initial interest in such liquidation account for each deposit account held in the Association on December 31, 1995 and each Supplemental Eligible Account Holder would have an initial interest in such liquidation account for each qualifying deposit held in the Association on September 30, 1997. The interest as to each qualifying deposit account would be in the same proportion of the total liquidation account as the balance of such qualifying deposit account was to the balance in all deposit accounts of Eligible Account Holders and Supplemental Eligible Account Holders on such respective date. However, if the amount in the qualifying deposit account on any annual closing date (September 30) of the Association subsequent to the relevant eligibility date is less than the amount in such account on the relevant eligibility date, or any subsequent closing date, then the Eligible Account Holder's or Supplemental Eligible Account Holder's interest in the liquidation account would be reduced from time to time by an amount proportionate to any such reductions, and such interest would 7 cease to exist if he or she ceases to maintain an account at the Converted Association that has the same Social Security number as appeared on his or her account(s) at the relevant eligibility date. The interest in the liquidation account would never be increased, notwithstanding any increase in the related deposit account after the Conversion. Any assets remaining after the above liquidation rights of Eligible Account Holders and Supplemental Eligible Account Holders were satisfied would be distributed to the entity or persons holding the Converted Association's capital stock at that time. A merger, consolidation, sale of bulk assets or similar combination or transaction with an FDIC-insured institution in which the Converted Association is not the surviving insured institution would not be considered to be a "liquidation" under which distribution of the liquidation account could be made. In such a transaction, the liquidation account would be assumed by the surviving institution. The creation and maintenance of the liquidation account will not restrict the use or application of any of the capital accounts of the Converted Association, except that the Converted Association may not declare or pay a cash dividend on, or repurchase any of, its capital stock if the effect of such dividend or repurchase would be to cause its retained earnings to be reduced below the aggregate amount then required for the liquidation account. Interpretation and Amendment of the Plan To the extent permitted by law, all interpretations of the Plan by the Association will be final. The Plan provides that the Association's Board of Directors shall have the sole discretion to interpret and apply the provisions of the Plan to particular facts and circumstances and to make all determinations necessary or desirable to implement such provisions, including but not limited to matters with respect to giving preference in the Community Offering to natural persons and trusts of natural persons who are permanent residents of the Local Community, and any and all interpretations, applications and determinations made by the Board of Directors in good faith and on the basis of such information and assistance as was then reasonably available for such purpose shall be conclusive and binding upon the Association and its members and subscribers in the Subscription and Community Offerings, subject to the authority of the OTS. The Plan provides that, if deemed necessary or desirable by the Board of Directors, the Plan may be substantively amended by a two-thirds vote of the Board of Directors at any time prior to submission of the Plan and proxy materials to the Association's members. After submission of the Plan and proxy materials to the members, the Plan may be amended by a two-thirds vote of the Board of Directors at any time prior to the Special Meeting and at any time following the Special Meeting with the concurrence of the OTS. In its discretion, the Board of Directors may generally modify or terminate the Plan upon the order of the regulatory authorities without resoliciting proxies or otherwise obtaining approval of the amended Plan by members at another Special Meeting. However, any modification of the Plan that results in a material change in the terms of the Conversion would require such a resolicitation of proxies and another meeting of members. The Plan further provides that in the event that mandatory new regulations pertaining to conversions are adopted by the OTS or any successor agency prior to completion of the Conversion, the Plan will be amended to conform to such regulations without a resolicitation of proxies or another Special Meeting. In the event that such new conversion regulations contain optional provisions, the Plan may be amended to utilize such optional provisions at the discretion of the Board of Directors without a resolicitation of proxies or another Special Meeting. By adoption of the Plan, the Association's members will be deemed to have authorized amendment of the Plan under the circumstances described above. 8 Conditions and Termination Completion of the Conversion requires the approval of the Plan by the affirmative vote of not less than a majority of the total outstanding votes of the members of the Association and the sale of all shares of the Common Stock within 24 months following approval of the Plan by the members. If these conditions are not satisfied, the Plan will be terminated, and the Association will continue its business in the mutual form of organization. The Plan may be terminated by the Board of Directors at any time prior to the Special Meeting and, with the approval of the OTS, by the Board of Directors at any time thereafter. Review By Administrative and Judicial Authorities Federal law provides (i) that persons aggrieved by a final action of the OTS which approves, with or without conditions, a plan of conversion may obtain review of such final action only by filing a written petition in the United States Court of Appeals for the circuit in which the principal office or residence of such person is located, or in the United States Court of Appeals, for the District of Columbia Circuit, requesting that the final action of the OTS be modified, terminated or set aside, and (ii) that such petition must be filed within 30 days after publication of notice of such final action in the Federal Register, or 30 days after the date of mailing of the notice and proxy statement for the meeting of the converting institution's members at which the conversion is to be voted on, whichever is later. Other All statements made in this Proxy Statement are hereby qualified by the contents of the Plan which is attached hereto as Exhibit A and should be consulted for further information. In addition, attention is directed to the section entitled "The Conversion" in the accompanying Prospectus for a more detailed discussion of various aspects of the Plan. Adoption of the Plan by the Association's members shall be deemed approval of the authority of the Board of Directors to amend or terminate the Plan in accordance with its terms. CHARTER AND BYLAWS The following is a summary of certain provisions of the Charter and Bylaws which will become effective upon the conversion of the Association into a federally chartered stock savings and loan association. Complete copies of the Charter and Bylaws of the Converted Association are attached as Exhibits B and C, respectively, to this Proxy Statement. The Converted Association will be authorized to issue 3,000,000 shares of common stock with a par value of $1.00 per share. The Converted Association's common stock will not be insured by the FDIC. All of the Converted Association's outstanding common stock will be owned by the Company. Accordingly, exclusive voting rights with respect to the affairs of the Converted Association after the Conversion will be vested in the Board of Directors of the Company. The Converted Association's Charter will provide that the number of Directors shall be not fewer than five nor more than 15, with the exact number to be fixed in the Converted Association's Bylaws. The proposed Bylaws provide that the number of the Converted Association's directors shall be six. Directors generally will serve for terms of three years, and the terms of Directors will be staggered so that approximately one-third of the Board is elected each year. In addition to the common stock, the Converted Association will be authorized to issue 1,000,000 shares of serial preferred stock, par value $1.00 per share. The Board of Directors will be permitted, without further stockholder approval, to authorize the issuance of preferred stock in series and to fix the voting powers, designations, preferences and relative, participating, optional, conversion and other special rights of the shares of each series of the preferred stock 9 and the qualifications, limitations and restrictions thereof. Preferred stock may rank prior to common stock in dividend rights, liquidation preferences, or both, and may have voting rights. Neither the Charter nor the Bylaws of the Converted Association provide for indemnification of officers and directors. However, the Converted Association will be required by OTS regulations (as is currently required of the Association) to indemnify its directors, officers and employees against legal and other expenses incurred in defending lawsuits brought against them by reasons of the performance of their official duties. Indemnification may be made to any such person only if final judgment on the merits is in his or her favor or, in case of (i) settlement, (ii) final judgment against him or her, or (iii) final judgment in his or her favor, other than on the merits, if a majority of the directors of the Converted Association determines that he or she was acting in good faith within the scope of his or her employment or authority as he or she could reasonably have perceived it under the circumstances and for a purpose he or she could have reasonably believed under the circumstances was in the best interest of the Converted Association or its stockholders. If a majority of the directors of the Converted Association concludes that in connection with an action any person ultimately may become entitled to indemnification, the directors may authorize payment of reasonable costs and expenses arising from defense or settlement of such action. HOW TO ORDER STOCK The accompanying Prospectus contains information about the business and financial condition of the Association and additional information about the Conversion and the Subscription Offering and the Community Offering. Enclosed is a Stock Order Form to be used to subscribe for stock. You are not obligated to subscribe for stock, and voting to approve the Conversion will not obligate you to subscribe for stock. All Subscription Rights are nontransferable and will expire if not exercised by returning the accompanying Stock Order Form with full payment (or appropriate instructions authorizing withdrawal from a savings or certificate account at the Association) for all shares for which subscription is made to the Company by 12:00 p.m., local time, on ________, 1997, unless extended by the Association. A postage-paid reply envelope is provided for this purpose. Provided that not all of the shares are subscribed for in the Subscription Offering by members of the Association, the remaining shares may be offered to certain members of the general public in the Community Offering with preference given to natural persons and trusts of natural persons who are permanent residents of the Local Community. Any shares of Common Stock not purchased in the Subscription and Community Offerings may be offered, at the discretion of the Company, to certain members of the general public as part of a community offering on a best efforts basis by a selling group of broker-dealers to be managed by Trident Securities, Inc. The information contained in this Proxy Statement is limited in its scope to use in the solicitation of proxies for the Special Meeting to vote on the Plan of Conversion. It is not intended for use in the offering of the Common Stock. Such offering is made only by the Prospectus. ADDITIONAL INFORMATION The information contained in the accompanying Prospectus, including a more detailed description of the Plan, is intended to help you evaluate the Conversion and is incorporated herein by reference. All persons eligible to vote at the Special Meeting should review both this Proxy Statement and the accompanying Prospectus. YOUR BOARD OF DIRECTORS URGES YOU TO CONSIDER CAREFULLY THIS PROXY MATERIAL AND, WHETHER OR NOT YOU PLAN TO BE PRESENT IN PERSON AT THE SPECIAL MEETING, TO FILL IN, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD(S) AS SOON AS POSSIBLE TO ASSURE THAT YOUR VOTES WILL BE COUNTED. THIS WILL NOT PREVENT YOU 10 FROM VOTING IN PERSON IF YOU ATTEND THE SPECIAL MEETING. YOU MAY REVOKE YOUR PROXY BY WRITTEN INSTRUMENT DELIVERED TO THE SECRETARY OF THE ASSOCIATION AT ANY TIME PRIOR TO OR AT THE SPECIAL MEETING OR BY ATTENDING THE SPECIAL MEETING AND VOTING IN PERSON. 11 THIS PROXY STATEMENT IS NOT AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY THE COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS. BY ORDER OF THE BOARD OF DIRECTORS Richard A. Young Secretary _________, 1997 Salida, Colorado 12 EXHIBIT 99.1-EXA EXHIBIT A SALIDA BUILDING & LOAN ASSOCIATION SALIDA, COLORADO PLAN OF CONVERSION FROM MUTUAL TO STOCK ORGANIZATION I. GENERAL. On May 15, 1997, the Board of Directors of Salida Building & Loan Association, Salida, Colorado (the "Association"), after careful study and consideration, adopted by unanimous vote this Plan of Conversion from Mutual to Stock Organization (the "Plan"), whereby the Association will convert from a federal mutual savings and loan association to a federal capital stock savings bank (the "Converted Association") as a wholly owned subsidiary of a Holding Company to be formed at the direction of the Association (the "Conversion"). The Conversion is subject to regulations of the Office of Thrift Supervision of the United States Department of the Treasury ("OTS") pursuant to Section 5(i) of the Home Owners' Loan Act and Part 563b of the Rules and Regulations Applicable to All Savings Associations. The Plan is subject to the prior written approval of the OTS and must be adopted by the affirmative vote of at least a majority of the total outstanding votes of the Members of the Association. Pursuant to the Plan, shares of Conversion Stock in the Holding Company will be offered in a Subscription Offering pursuant to non-transferable Subscription Rights at a predetermined and uniform price first to the Association's Eligible Account Holders of record as of December 31, 1995, second to the Association's Tax-Qualified Employee Stock Benefit Plans, third to Supplemental Eligible Account Holders of record as of the last day of the calendar quarter preceding OTS approval of the Association's application to convert to stock form, and fourth to Other Members of the Association. Concurrently with the Subscription Offering, shares not subscribed for in the Subscription Offering may be offered by the Association to the general public in a Community Offering. Shares remaining, if any, may then be offered to the general public in an underwritten public offering or otherwise. The aggregate Purchase Price of the Conversion Stock will be based upon an independent appraisal of the Association and will reflect the estimated pro forma market value of the Converted Association, as a subsidiary of the Holding Company. It is the desire of the Board of Directors to attract new capital to the Converted Association to increase its net worth, to support future savings growth, to increase the amount of funds available for other lending and investment, to provide greater resources for the expansion of customer services and to facilitate future expansion. In addition, the Board of Directors currently intends to implement stock option plans and other stock benefit plans subsequent to the Conversion to better attract and retain qualified directors and officers. It is the further desire of the Board of Directors to reorganize the Converted Association as the wholly owned subsidiary of the Holding Company to enhance flexibility of operations, diversification of business opportunities and financial capability for business and regulatory purposes and to enable the Converted Association to compete more effectively with other financial service organizations. No change will be made in the Board of Directors or Management of the Association as a result of the Conversion. II. DEFINITIONS. Acting in Concert: The term "Acting in Concert" means (i) knowing ----------------- participation in a joint activity or interdependent conscious parallel action towards a common goal whether or not pursuant to an express agreement; or (ii) a combination or pooling of voting or other interests in the securities of an issuer for a common purpose pursuant to any contract, understanding, relationship, agreement or other arrangement, whether written or otherwise. A person (as defined by 12 C.F.R. (S)563b.2(a)(26)) who acts in concert with another person ("other party") shall also be deemed A-1 to be acting in concert with any person who is also acting in concert with that other party, except that any Tax-Qualified Employee Stock Benefit Plan will not be deemed to be acting in concert with its trustee or a person who serves in a similar capacity solely for the purpose of determining whether stock held by the trustee and stock held by the Tax-Qualified Employee Benefit Plan will be aggregated. Associate: The term "Associate," when used to indicate a relationship with --------- any person, means (i) any corporation or organization (other than the Association, the Holding Company or a majority-owned subsidiary of the Association or the Holding Company) of which such person is an officer or partner or is, directly or indirectly, the beneficial owner of 10% or more of any class of equity securities; (ii) any trust or other estate in which such person has a substantial beneficial interest or as to which such person serves as trustee or in a similar fiduciary capacity, except that such term shall not include a "Tax-Qualified Employee Stock Benefit Plan," as defined herein; and (iii) any relative or spouse of such person, or any relative of such spouse, who has the same home as such person or who is a director of the Association or the Holding Company, or any of their subsidiaries. Association: The term "Association" means Salida Building & Loan ----------- Association, in its present form as a federal mutual savings and loan association. Capital Stock: The term "Capital Stock" means any and all authorized ------------- shares of stock of the Converted Association. Community Offering: The term "Community Offering" means the offering of ------------------ shares of Conversion Stock to the general public by the Holding Company concurrently with or after commencement of the Subscription Offering, giving preference to natural persons and trusts of natural persons (including individual retirement and Keogh retirement accounts and personal trusts in which such natural persons have substantial interests) who are permanent Residents of the Association's Local Community. Conversion: The term "Conversion" means (i) the amendment of the ---------- Association's federal mutual charter and bylaws to authorize issuance of shares of Capital Stock by the Converted Association and to conform to the requirements of a federal capital stock savings bank under the laws of the United States and applicable regulations; (ii) the issuance and sale of Conversion Stock by the Holding Company in the Subscription and Community Offerings and/or in an underwritten public offering or otherwise; and (iii) the purchase by the Holding Company of all the Capital Stock of the Converted Association to be issued in the Conversion immediately following or concurrently with the close of the sale of the Conversion Stock. Conversion Stock: The term "Conversion Stock" means the shares of common ---------------- stock to be issued and sold by the Holding Company pursuant to the Plan. Converted Association: The term "Converted Association" means Salida --------------------- Building & Loan Association in its form as a federal capital stock savings bank resulting from the conversion of the Association to the stock form of organization in accordance with the terms of the Plan. Eligibility Record Date: The term "Eligibility Record Date" means the ----------------------- close of business on December 31, 1995. Eligible Account Holder: The term "Eligible Account Holder" means each ----------------------- holder of one or more Qualifying Deposits in the Association on the Eligibility Record Date. Holding Company: The term "Holding Company" means a corporation to be --------------- incorporated by the Association under state law for the purpose of becoming a holding company for the Converted Association through the issuance and sale of Conversion Stock under the Plan and the concurrent acquisition of 100% of the Capital Stock to be issued and sold pursuant to the Plan. A-2 Holding Company Stock: The term "Holding Company Stock" means any and all --------------------- authorized shares of stock of the Holding Company. Independent Appraiser: The term "Independent Appraiser" means a person --------------------- independent of the Association, experienced and expert in the area of corporate appraisal, and acceptable to the OTS, retained by the Association to prepare an appraisal of the pro forma market value of the Converted Association, as a subsidiary of the Holding Company. Local Community: The term "Local Community" means Chaffee, Lake, Fremont --------------- and Saquache Counties in Colorado. Market Maker: The term "Market Maker" means a dealer (i.e., any person who ------------ engages, either for all or part of such person's time, directly or indirectly, as agent, broker or principal in the business of offering, buying, selling or otherwise dealing or trading in securities issued by another person) who, with respect to a particular security, (i)(a) regularly publishes bona fide, competitive bid and offer quotations in a recognized interdealer quotation system or (b) furnishes bona fide competitive bid and offer quotations on request and (ii) is ready, willing and able to effect transactions in reasonable quantities at its quoted prices with other brokers or dealers. Member: The term "Member" means any person or entity who qualifies as a ------ member of the Association under its federal mutual charter and bylaws prior to the Conversion. Officer: The term "Officer" means an executive officer of the Holding ------- Company or the Association (as applicable), including the Chairman of the Board, President, Executive Vice Presidents, Senior Vice Presidents in charge of principal business functions, Secretary and Treasurer. Order Form: The term "Order Form" means the order form or forms to be used ---------- by Eligible Account Holders, Supplemental Eligible Account Holders and other persons eligible to purchase Conversion Stock pursuant to the Plan. Other Member: The term "Other Member" means any person, other than an ------------ Eligible Account Holder or a Supplemental Eligible Account Holder, who is a Member as of the Voting Record Date. OTS: The term "OTS" means the Office of Thrift Supervision of the United --- States Department of the Treasury or any successor agency having jurisdiction over the Conversion. Plan: The term "Plan" means this Plan of Conversion under which the ---- Association will convert from a federal mutual savings and loan association to a federal capital stock savings bank as a wholly owned subsidiary of the Holding Company, as originally adopted by the Board of Directors or amended in accordance with the terms hereof. Qualifying Deposit: The term "Qualifying Deposit" means each savings ------------------ balance in any Savings Account in the Association as of the close of business on the Eligibility Record Date, or the Supplemental Eligibility Record Date, as applicable, which is equal to or greater than $50.00. Registration Statement: The term "Registration Statement" means the ---------------------- Registration Statement on Form S-1 on Form SB-2, or such other form as may be appropriate, and any amendments thereto, filed by the Holding Company with the SEC pursuant to the Securities Act of 1933, as amended, to register shares of Conversion Stock. Resident: The term "Resident," as used in this Plan in relation to the -------- preference afforded natural persons and trusts of natural persons in the Local Community, means any natural person who occupies a dwelling within the Local Community, has an intention to remain within the Local Community for a period of time (manifested by establishing a physical, ongoing, non-transitory presence within the Local Community) and continues to reside therein at the time of the Subscription and Community Offerings. The Association may utilize deposit or loan records or such other A-3 evidence provided to it to make the determination as to whether a person is residing in the Local Community. To the extent the "person" is a corporation or other business entity, the principal place of business or headquarters shall be within the Local Community. To the extent the "person" is a personal benefit plan, the circumstances of the beneficiary shall apply with respect to this definition. In the case of all other benefit plans, circumstances of the trustee shall be examined for purposes of this definition. In all cases, such determination shall be in the sole discretion of the Association. Sale: The terms "sale" and "sell" mean every contract to sell or otherwise ---- dispose of a security or an interest in a security for value, but such terms do not include an exchange of securities in connection with a merger or acquisition approved by the OTS or any other federal agency having jurisdiction. Savings Account: The term "Savings Account" means a withdrawable deposit --------------- in the Association. SEC: The term "SEC" means the Securities and Exchange Commission or any --- successor agency. Special Meeting: The term "Special Meeting" means the Special Meeting of --------------- Members to be called for the purpose of submitting the Plan to the Members for their approval. Subscription Offering: The term "Subscription Offering" means the offering --------------------- of shares of Conversion Stock to Eligible Account Holders, Tax-Qualified Employee Stock Benefit Plans, Supplemental Eligible Account Holders and Other Members under the Plan, giving preference within each subscription priority category to natural persons and trusts of natural persons (including individual retirement and Keogh retirement accounts and personal trusts in which such natural persons have substantial interests) who are permanent Residents of the Local Community if such preference is permitted by applicable law and approved by the Association's Board of Directors in its sole discretion. Subscription and Community Prospectus: The term "Subscription and ------------------------------------- Community Prospectus" means the final prospectus to be used in connection with the Subscription and Community Offerings. Subscription Rights: The term "Subscription Rights" means non- ------------------- transferable, non-negotiable, personal rights of Eligible Account Holders, Tax- Qualified Employee Stock Benefit Plans, Supplemental Eligible Account Holders and Other Members to purchase Conversion Stock offered under the Plan. Supplemental Eligibility Record Date: The term "Supplemental Eligibility ------------------------------------ Record Date" means the last day of the calendar quarter preceding the approval of the Plan by the OTS. Supplemental Eligible Account Holder: The term "Supplemental Eligible ------------------------------------ Account Holder" means each holder of one or more Qualifying Deposits in the Association (other than Officers and directors of the Association and their Associates) on the Supplemental Eligibility Record Date. Tax-Qualified Employee Stock Benefit Plan: The term "Tax-Qualified ----------------------------------------- Employee Stock Benefit Plan" means any defined benefit plan or defined contribution plan of the Association or the Holding Company, such as an employee stock ownership plan, stock bonus plan, profit sharing plan or other plan, which, with its related trust, meets the requirements to be "qualified" under section 401 of the Internal Revenue Code of 1986, as amended. "Non-Tax- Qualified Employee Stock Benefit Plan" means any defined benefit plan or defined contribution plan which is not so qualified. Voting Record Date: The term "Voting Record Date" means the date fixed by ------------------ the Board of Directors of the Association to determine Members of the Association entitled to vote at the Special Meeting. A-4 III. STEPS PRIOR TO SUBMISSION OF THE PLAN TO THE MEMBERS FOR APPROVAL. Prior to submission of the Plan to its Members for approval, the Association must receive approval from the OTS of an Application for Approval of Conversion on Form AC, which includes the Plan to convert to the stock form of organization (the "Application"). The following steps must be taken prior to such regulatory approval: A. The Board of Directors shall adopt the Plan by not less than a two-thirds vote. B. Promptly after adoption of the Plan by the Board of Directors, the Association shall notify its Members of the adoption of the Plan by publishing a statement in a newspaper having a general circulation in each community in which the Association maintains an office and/or by mailing a letter to each of its Members. C. A press release relating to the proposed Conversion may be submitted to the local media. D. Copies of the Plan adopted by the Board of Directors shall be made available for inspection by Members at each office of the Association. E. The Association shall cause the Holding Company to be incorporated under state law, and the Board of Directors of the Holding Company shall concur in the Plan by at least a two-thirds vote. F. The Association shall submit or cause to be submitted the Application to the OTS. The Holding Company shall submit or cause to be submitted an Application H-(e)1 or Application H-(e)1-S to the OTS and the Registration Statement to the SEC. Upon receipt of advice from the regulatory authorities that the Application has been received and is in the prescribed form, the Association shall publish a "Notice of Filing of an Application for Conversion to a Stock Savings and Loan Association" in a newspaper of general circulation, as referred to in Paragraph III.B. herein. The Association also shall prominently display a copy of such notice in each of its offices. The Holding Company shall publish notice of the filing of the Application H-(e)1 or H-(e)1-S in accordance with applicable regulations. G. The Association shall obtain an opinion of its tax advisors or a favorable ruling from the United States Internal Revenue Service which shall state that the Conversion will not result in a taxable reorganization for federal income tax purposes to the Association. Receipt of a favorable opinion or ruling is a condition precedent to completion of the Conversion. H. The Plan shall be submitted to a vote of the Members at the Special Meeting after approval by the OTS . IV. MEETING OF MEMBERS. Following receipt of approval of the Plan by the OTS, the Special Meeting to vote on the Plan shall be scheduled in accordance with the Association's bylaws and applicable regulations. Notice of the Special Meeting will be given by means of a proxy statement authorized for use by the OTS. Promptly after receipt of approval and at least 20 days but not more than 45 days prior to the Special Meeting, the Association will distribute proxy solicitation materials to all voting Members as of the Voting Record Date established for voting at the Special Meeting. Proxy materials will also be sent to each beneficial holder of an Individual Retirement Account where the name of the beneficial holder is disclosed on the Association's records. The proxy solicitation materials will include a copy of the Proxy Statement and other documents authorized for use by the regulatory authorities and may also include a Subscription and Community Prospectus as provided in Paragraph VI. below. The Association will also advise each Eligible Account Holder and Supplemental Eligible Account Holder not entitled to vote at the Special Meeting of the proposed Conversion and the scheduled Special Meeting and provide a postage paid card on which to indicate whether A-5 he or she wishes to receive the Subscription and Community Prospectus, if the Subscription and Community Offerings are not held concurrently with the proxy solicitation. Pursuant to applicable regulations, an affirmative vote of at least a majority of the total outstanding votes of the Members will be required for approval of the Plan. Voting may be in person or by proxy. The OTS shall be promptly notified of the actions of the Members at the Special Meeting. V. SUMMARY PROXY STATEMENT. The Proxy Statement to be furnished to Members may be in summary form, provided that a statement is made in boldface type that a more detailed description of the proposed transaction may be obtained by returning an enclosed postage paid card or other written communication requesting a supplemental information statement. Without prior approval from the OTS, the Special Meeting shall not be held fewer than 20 days after the last day on which the supplemental information statement is mailed to Members requesting the same. The supplemental information statement may be combined with the Subscription and Community Prospectus if the Subscription and Community Offerings are commenced concurrently with the proxy solicitation of Members for the Special Meeting. VI. OFFERING DOCUMENTS. The Holding Company may commence the Subscription Offering and, provided that the Subscription Offering has commenced, may commence the Community Offering concurrently with or during the proxy solicitation of Members and may close the Subscription and Community Offerings before the Special Meeting, provided that the offer and sale of the Conversion Stock shall be conditioned upon approval of the Plan by the Members at the Special Meeting. The Association's proxy solicitation materials may require Eligible Account Holders, Supplemental Eligible Account Holders and Other Members to return to the Association by a reasonable date certain a postage-paid written communication requesting receipt of a Subscription and Community Prospectus in order to be entitled to receive a Subscription and Community Prospectus, provided that the Subscription Offering shall not be closed until the expiration of 30 days after mailing proxy solicitation materials to voting Members and a postage-paid written communication to non-voting Eligible Account Holders and Supplemental Eligible Account Holders. If the Subscription Offering is commenced within 45 days after the Special Meeting, the Association shall transmit, no more than 30 days prior to the commencement of the Subscription Offering, to each voting Member who had been furnished with proxy solicitation materials and to each non-voting Eligible Account Holder and Supplemental Eligible Account Holder, written notice of the commencement of the Subscription Offering which shall state that the Association is not required to furnish a Subscription and Community Prospectus to them unless they return by a reasonable date certain a postage-paid written communication requesting the receipt of the Subscription and Community Prospectus. Prior to commencement of the Subscription and Community Offerings, the Holding Company shall file the Registration Statement with the SEC pursuant to the Securities Act of 1933, as amended. The Holding Company shall not distribute the Subscription and Community Prospectus until the Registration Statement containing the same has been declared effective by the SEC and the aforementioned documents have been approved by the OTS. The Subscription and Community Prospectus may be combined with the Proxy Statement for the Special Meeting. VII. CONSUMMATION OF CONVERSION. The date of consummation of the Conversion will be the effective date of the amendment of the Association's federal mutual charter to read in the form of a federal stock charter, which shall be the date of the issuance and sale of the Conversion Stock. After receipt of all orders for Conversion Stock, and concurrently with the execution thereof, the amendment of the Association's federal mutual charter to authorize the issuance of shares of Capital Stock and to conform to the requirements of a federal capital stock savings bank will be declared effective by the OTS, and the amended bylaws approved by the Members will become effective. At such time, the Conversion Stock will be issued A-6 and sold by the Holding Company, the Capital Stock to be issued in the Conversion will be issued and sold to the Holding Company, and the Converted Association will become a wholly owned subsidiary of the Holding Company. The Converted Association will issue to the Holding Company 100,000 shares of its common stock, representing all of the shares of Capital Stock to be issued by the Converted Association in the Conversion, and the Holding Company will make payment to the Converted Association of at least 50 percent of the aggregate net proceeds realized by the Holding Company from the sale of the Conversion Stock under the Plan, or such other portion of the aggregate net proceeds as may be authorized or required by the OTS. VIII. STOCK OFFERING. A. General. ------- The aggregate purchase price of all shares of Conversion Stock which will be offered and sold will be equal to the estimated pro forma market value of the Converted Association, as a subsidiary of the Holding Company, as determined by an independent appraisal. The exact number of shares of Conversion Stock to be offered will be determined by the Board of Directors of the Association and the Board of Directors of the Holding Company, or their respective designees, in conjunction with the determination of the Purchase Price (as that term is defined in Paragraph VIII.B. below). The number of shares to be offered may be subsequently adjusted prior to completion of the Conversion as provided below. B. Independent Evaluation and Purchase Price of Shares. --------------------------------------------------- All shares of Conversion Stock sold in the Conversion will be sold at a uniform price per share referred to in this Plan as the "Purchase Price." The Purchase Price and the total number of shares of Conversion Stock to be offered in the Conversion will be determined by the Board of Directors of the Association and the Board of Directors of the Holding Company, or their respective designees, immediately prior to the simultaneous completion of all such sales contemplated by this Plan on the basis of the estimated pro forma market value of the Converted Association, as a subsidiary of the Holding Company, at such time. The estimated pro forma market value of the Converted Association, as a subsidiary of the Holding Company, will be determined for such purpose by an Independent Appraiser on the basis of such appropriate factors as are not inconsistent with applicable regulations. Immediately prior to the Subscription and Community Offerings, a subscription price range of shares for the offerings will be established (the "Valuation Range"), which will vary from 15% above to 15% below the midpoint of such range. The number of shares of Conversion Stock ultimately issued and sold will be determined at the close of the Subscription and Community Offerings and any other offering. The subscription price range and the number of shares to be offered may be changed subsequent to the Subscription and Community Offerings as the result of any appraisal updates prior to the completion of the Conversion, without notifying eligible purchasers in the Subscription and Community Offerings and without a resolicitation of subscriptions, provided the aggregate Purchase Price is not below the low end or more than 15 percent above the high end of the Valuation Range previously approved by the OTS or if, in the opinion of the Boards of Directors of the Association and the Holding Company, the new Valuation Range established by the appraisal update does not result in a materially different capital position of the Converted Association. Notwithstanding the foregoing, no sale of Conversion Stock may be consummated unless, prior to such consummation, the Independent Appraiser confirms to the Association and the Holding Company and to the OTS that, to the best knowledge of the Independent Appraiser, nothing of a material nature has occurred which, taking into account all relevant factors, would cause the Independent Appraiser to conclude that the aggregate value of the Conversion Stock at the Purchase Price is incompatible with its estimate of the aggregate consolidated pro forma market value of the Converted Association, as a subsidiary of the Holding Company. If such confirmation is not received, the Association may cancel the Subscription and Community Offerings A-7 and/or any other offering, extend the Conversion, establish a new Valuation Range, extend, reopen or hold new Subscription and Community Offerings and/or other offerings or take such other action as the OTS may permit. C. Subscription Offering. --------------------- Non-transferable Subscription Rights to purchase shares of Conversion Stock will be issued at no cost to Eligible Account Holders, Tax-Qualified Employee Stock Benefits Plans, Supplemental Eligible Account Holders and Other Members of the Association pursuant to priorities established by applicable regulations. All shares must be sold, and, to the extent that Conversion Stock is available, no subscriber will be allowed to purchase fewer than 25 shares of Conversion Stock, provided that this number shall be decreased if the aggregate purchase price exceeds $500. The priorities established by applicable regulations for the purchase of shares are as follows: 1. Category No. 1: Eligible Account Holders. a. Each Eligible Account Holder shall receive, without payment, non-transferable Subscription Rights to purchase Conversion Stock in an amount equal to the greater of (i) $250,000 of the Conversion Stock, (ii) one-tenth of one percent of the total offering of shares of Conversion Stock or (iii) 15 times the product (rounded down to the next whole number) obtained by multiplying the total number of shares of Conversion Stock to be issued by a fraction of which the numerator is the amount of the Qualifying Deposit of the Eligible Account Holder and the denominator is the total amount of Qualifying Deposits of all Eligible Account Holders in the Converted Association in each case on the Eligibility Record Date. b. Non-transferable Subscription Rights to purchase Conversion Stock received by Officers and directors of the Association and their Associates based on their increased deposits in the Association in the one year period preceding the Eligibility Record Date shall be subordinated to all other subscriptions involving the exercise of non-transferable Subscription Rights to purchase shares pursuant to this Subscription Category. c. In the event of an oversubscription for shares of Conversion Stock pursuant to this Category, shares of Conversion Stock shall be allocated among subscribing Eligible Account Holders, giving preference to natural persons and trusts of natural persons who are permanent Residents of the Local Community, if such preference is permitted by applicable law and approved by the Association's Board of Directors in its sole discretion, as follows: (I) Shares of Conversion Stock shall be allocated among subscribing Eligible Account Holders so as to permit each such Account Holder, to the extent possible, to purchase a number of shares of Conversion Stock sufficient to make its total allocation equal to 100 shares or the total amount of its subscription, whichever is less. (II) Any shares not so allocated shall be allocated among the subscribing Eligible Account Holders on an equitable basis, related to the amounts of their respective aggregate Qualifying Deposits, as compared to the total aggregate Qualifying Deposits of all subscribing Eligible Account Holders. 2. Category No.2: Tax-Qualified Employee Stock Benefit Plans. a. Tax-Qualified Employee Stock Benefit Plans of the Converted Association shall receive, without payment, non- transferable Subscription Rights to purchase up to 10% of the shares of Conversion Stock issued in the Conversion. A-8 b. Subscription rights received in this Category shall be subordinated to the Subscription Rights received by Eligible Account Holders pursuant to Category No. 1, provided that any shares of Conversion Stock sold in excess of the high end of the Valuation Range may be first sold to Tax-Qualified Employee Stock Benefit Plans. 3. Category No. 3: Supplemental Eligible Account Holders. a. In the event that the Eligibility Record Date is more than 15 months prior to the date of the latest amendment of the Application filed prior to OTS approval, then each Supplemental Eligible Account Holder shall receive, without payment, non- transferable Subscription Rights to purchase Conversion Stock in an amount equal to the greater of (i) $250,000 of the Conversion Stock, (ii) one-tenth of one percent of the total offering of shares of Conversion Stock or (iii) 15 times the product (rounded down to the next whole number) obtained by multiplying the total number of the shares of Conversion Stock to be issued by a fraction of which the numerator is the amount of the Qualifying Deposit of the Supplemental Eligible Account Holder and the denominator is the total amount of the Qualifying Deposits of all Supplemental Eligible Account Holders on the Supplemental Eligibility Record Date. b. Subscription Rights received pursuant to this Category shall be subordinated to the Subscription Rights received by the Eligible Account Holders and by Tax-Qualified Employee Stock Benefit Plans pursuant to Category Nos. 1 and 2. c. Any non-transferable Subscription Rights to purchase shares received by an Eligible Account Holder in accordance with Category No. 1 shall reduce to the extent thereof the Subscription Rights to be distributed to such Eligible Account Holder pursuant to this Category. d. In the event of an oversubscription for shares of Conversion Stock pursuant to this Category, shares of Conversion Stock shall be allocated among the subscribing Supplemental Eligible Account Holders, giving preference to natural persons and trusts of natural persons who are permanent Residents of the Local Community, if such preference is permitted by applicable law and approved by the Association's Board of Directors in its sole discretion, as follows: (I) Shares of Conversion Stock shall be allocated among subscribing Supplemental Eligible Account Holders so as to permit each such Supplemental Eligible Account Holder, to the extent possible, to purchase a number of shares of Conversion Stock sufficient to make its total allocation (including the number of shares of Conversion Stock, if any, allocated in accordance with Category No. 1) equal to 100 shares of Conversion Stock or the total amount of its subscription, whichever is less. (II) Any shares of Conversion Stock not allocated in accordance with subparagraph (I) above shall be allocated among the subscribing Supplemental Eligible Account Holders on an equitable basis, related to the amounts of their respective aggregate Qualifying Deposits on the Supplemental Eligibility Record Date as compared to the total aggregate Qualifying Deposits of all subscribing Supplemental Eligible Account Holders in each case on the Supplemental Eligibility Record Date. 4. Category No. 4: Other Members. a. Each Other Member, other than those Members who are Eligible Account Holders or Supplemental Eligible Account Holders, shall receive, without payment, non-transferable A-9 Subscription Rights to purchase Conversion Stock in an amount equal to the greater of (i) $250,000 of the Conversion Stock or (ii) one- tenth of one percent of the total offering of shares of Conversion Stock. b. Subscription Rights received pursuant to this Category shall be subordinated to the Subscription Rights received by Eligible Account Holders, Tax-Qualified Employee Stock Benefit Plans and Supplemental Eligible Account Holders pursuant to Category Nos. 1, 2 and 3. c. In the event of an oversubscription for shares of Conversion Stock pursuant to this Category, the shares of Conversion Stock available shall be allocated among subscribing Other Members, giving preference to natural persons and trusts of natural persons who are permanent Residents of the Local Community, if such preference is permitted by applicable law and approved by the Association's Board of Directors in its sole discretion, so as to permit each subscribing Other Member, to the extent possible, to purchase a number of shares sufficient to make his or her total allocation of Conversion Stock equal to the lesser of 100 shares or the number of shares subscribed for by the Other Member. The shares remaining thereafter will be allocated among subscribing Other Members whose subscriptions remain unsatisfied on an equitable basis as determined by the Board of Directors. Order Forms may provide that the maximum purchase limitation shall be based on the midpoint of the Valuation Range. In the event the aggregate Purchase Price of the Conversion Stock issued and sold is below the midpoint of the Valuation Range, that portion of subscriptions in excess of the maximum purchase limitation will be refunded. In the event the aggregate Purchase Price of Conversion Stock issued and sold is above the midpoint of the Valuation Range, persons who have subscribed for the maximum purchase limitation may be given the opportunity to increase their subscriptions so as to purchase the maximum number of shares subject to the availability of shares. The Association will not otherwise notify subscribers of any change in the number of shares of Conversion Stock offered. D. Community Offering. ------------------ 1. Any shares of Conversion Stock not purchased through the exercise of Subscription Rights in the Subscription Offering may be sold in a Community Offering, which may commence concurrently with the Subscription Offering. Shares of Conversion Stock will be offered in the Community Offering to the general public, giving preference to natural persons and the trusts of natural persons (including individual retirement and Keogh retirement accounts and personal trusts in which such natural persons have substantial interests) who are permanent Residents of the Local Community. The Community Offering may commence concurrently with or as soon as practicable after the completion of the Subscription Offering and must be completed within 45 days after the last day of the Subscription Offering, unless extended by the Holding Company with the approval of the OTS. The offering price of the Conversion Stock to the general public in the Community Offering will be the same price paid for such stock by Eligible Account Holders and other persons in the Subscription Offering. If sufficient shares are not available to satisfy all orders in the Community Offering, the shares available will be allocated by the Holding Company in its discretion. The Holding Company shall have the right to accept or reject orders in the Community Offering in whole or in part. 2. Orders accepted in the Community Offering shall be filled up to a maximum of 2% of the Conversion Stock, and thereafter remaining shares shall be allocated on an equal number of shares basis per order until all orders have been filled. A-10 3. The Conversion Stock to be offered in the Community Offering will be offered and sold in a manner that will achieve the widest distribution of the Conversion Stock. E. Other Offering. -------------- In the event a Community Offering does not appear feasible, the Association will immediately consult with the OTS to determine the most viable alternative available to effect the completion of the Conversion. Should no viable alternative exist, the Association may terminate the Conversion with the concurrence of the OTS. F. Limitations Upon Purchases of Shares of Conversion Stock. -------------------------------------------------------- The following additional limitations and exceptions shall apply to all purchases of Conversion Stock: 1. No Person may purchase fewer than 25 shares of Conversion Stock in the Conversion, to the extent such shares are available. 2. Purchases of Conversion Stock in the Community Offering by any person, when aggregated with purchases by an Associate of that person, or a group of persons Acting in Concert, shall not exceed $250,000 of the Conversion Stock, except that Tax-Qualified Employee Stock Benefit Plans may purchase up to 10% of the total shares of Conversion Stock to be issued in the Conversion, and shares to be held by the Tax-Qualified Employee Stock Benefit Plans and attributable to a participant thereunder shall not be aggregated with shares of Conversion Stock purchased by such participant or any other purchaser of Conversion Stock in the Conversion. 3. Officers and directors of the Association and the Holding Company, and Associates thereof, may not purchase in the aggregate more than 34% of the shares of Conversion Stock issued in the Conversion, or such greater amount as may be permitted under applicable legal limits. 4. Directors of the Holding Company and the Association shall not be deemed to be Associates or a group Acting in Concert with other directors solely as a result of membership on the Board of Directors of the Holding Company or the Association or any of their subsidiaries. 5. Purchases of shares of Conversion Stock in the Conversion by any person, when aggregated with purchases by an Associate of that person, or a group of persons Acting in Concert, shall not exceed $250,000 of the Conversion Stock, except that Tax- Qualified Employee Stock Benefit Plans may purchase up to 10% of the total shares of Conversion Stock to be issued in the Conversion, and shares purchased by the Tax-Qualified Employee Stock Benefit Plans and attributable to a participant thereunder shall not be aggregated with shares purchased by such participant or any other purchaser of Conversion Stock in the Conversion. Subject to any required regulatory approval and the requirements of applicable laws and regulations, the Holding Company and the Association may increase or decrease any of the purchase limitations set forth herein at any time. In the event that the individual purchase limitation is increased after commencement of the Subscription and Community Offerings, the Holding Company and the Association shall permit any person who subscribed for the maximum number of shares of Conversion Stock to purchase an additional number of shares, such that such person shall be permitted to subscribe for the then maximum number of shares permitted to be subscribed for by such person, subject to the rights and preferences of any person who has priority Subscription Rights. In the event that either the individual purchase limitation or the number of shares of Conversion Stock to be sold in the Conversion is decreased after commencement of the Subscription and A-11 Community Offerings, the orders of any person who subscribed for the maximum number of shares of Conversion Stock shall be decreased by the minimum amount necessary so that such person shall be in compliance with the then maximum number of shares permitted to be subscribed for by such person. Each person purchasing Conversion Stock in the Conversion shall be deemed to confirm that such purchase does not conflict with the purchase limitations under the Plan or otherwise imposed by law, rule or regulation. In the event that such purchase limitations are violated by any person (including any Associate or group of persons affiliated or otherwise Acting in Concert with such person), the Holding Company shall have the right to purchase from such person at the actual Purchase Price per share all shares acquired by such person in excess of such purchase limitations or, if such excess shares have been sold by such person, to receive the difference between the actual Purchase Price per share paid for such excess shares and the price at which such excess shares were sold by such person. This right of the Holding Company to purchase such excess shares shall be assignable by the Holding Company. G. Restrictions on and Other Characteristics of Stock Being Sold. ------------------------------------------------------------- 1. Transferability. --------------- Except as provided in Paragraph XIII. below, Conversion Stock purchased by persons other than directors and Officers of the Association and directors and Officers of the Holding Company will be transferable without restriction. Conversion Stock purchased by such directors or Officers shall not be sold for a period of one year from the date of Conversion except for any sale of such shares (i) following the death of the original purchaser or (ii) resulting from an exchange of securities in a merger or acquisition approved by the applicable regulatory authorities. The Conversion Stock issued by the Holding Company to such directors and Officers shall bear the following legend giving appropriate notice of the one-year holding period restriction: "The shares of stock evidenced by this Certificate are restricted as to transfer for a period of one year from the date of this Certificate pursuant to applicable regulations of the Office of Thrift Supervision of the United States Department of the Treasury. Except in the event of the death of the registered holder, the shares represented by this Certificate may not be sold prior thereto without a legal opinion of counsel for the Holding Company that said sale is permissible under the provisions of applicable laws and regulations." In addition, the Holding Company shall give appropriate instructions to the transfer agent for the Holding Company Stock with respect to the applicable restrictions relating to the transfer of restricted stock. Any shares of Holding Company Stock subsequently issued as a stock dividend, stock split or otherwise, with respect to any such restricted stock, shall be subject to the same holding period restrictions for such directors and Officers as may be then applicable to such restricted stock. 2. Repurchase and Dividend Rights. ------------------------------ Pursuant to present regulations, except as otherwise permitted by the OTS, the Holding Company may not, for a period of three years from the date of Conversion, repurchase Holding Company Stock from any person, with the exception of (i) repurchases on a pro rata basis pursuant to offers approved by the OTS and made to all stockholders, (ii) repurchases of qualifying shares of directors or, (iii) unless prohibited by the OTS, repurchases of shares to fund employee stock benefit plans of the Holding Company or the Association. Upon 10 days' written notification to the OTS Regional Director for the Converted Association and the Chief Counsel of the Corporate and Securities Division of the OTS, however, the Holding Company may make open market repurchases A-12 of outstanding Holding Company Stock, provided that (i) such Regional Director and Chief Counsel do not object based on a determination that (a) the repurchases would materially adversely affect the financial condition of the Converted Association, (b) the information submitted by the Converted Association is insufficient upon which to base a conclusion as to whether the Converted Association's financial condition would be materially adversely affected, or (c) the Converted Association does not demonstrate a valid purpose for the repurchases. Except as otherwise permitted by the OTS, (i) no repurchases may occur in the first year following the Conversion; (ii) any repurchases in the second and third years following the Conversion must be part of an open-market stock repurchase program that allows no more than five percent (5%) of the outstanding Holding Company Stock to be purchased during any 12 month period; and (iii) any repurchases within the first three years following the Conversion must not cause the Converted Association to become "undercapitalized," as defined pursuant to 12 C.F.R. (S)565.4 or a successor regulation. Present regulations also provide that the Converted Association may not declare or pay a cash dividend on or repurchase any of its Capital Stock if the result thereof would be to reduce the regulatory capital of the Converted Association below the amount required for the Liquidation Account. Further, any dividend declared or paid on, or repurchase of, the Capital Stock shall be in compliance with the Rules and Regulations of the OTS, or other applicable regulations. The above limitations shall not preclude payment of dividends on, or repurchases of, Holding Company Stock in the event applicable federal regulatory limitations are liberalized subsequent to the Conversion. 3. Voting Rights. ------------- After Conversion, holders of Savings Accounts and obligors on loans will not have voting rights in the Converted Association. Exclusive voting rights with respect to the Holding Company shall be vested in the holders of Holding Company Stock, and the Holding Company will have exclusive voting rights with respect to the Capital Stock. Each stockholder of the Holding Company will be entitled to vote on any matters coming before the stockholders of the Holding Company for consideration and will be entitled to one vote for each share of stock owned by said stockholder. 4. Purchases by Officers, Directors and Associates Following --------------------------------------------------------- Conversion. ---------- Without the prior approval of the OTS, Officers and directors of the Converted Association and Officers and directors of the Holding Company, and their Associates, shall be prohibited for a period of three years following completion of the Conversion from purchasing outstanding shares of Holding Company Stock, except from a broker or dealer registered with the SEC. Notwithstanding this restriction, negotiated transactions involving more than 1% of the total outstanding shares of Holding Company Stock and purchases made and shares held by a Tax-Qualified Employee Stock Benefit Plan or Non-Tax-Qualified Employee Stock Benefit Plan which may be attributable to Officers or directors may be made without OTS permission or the use of a broker or dealer. H. Mailing of Offering Materials and Collation of Subscriptions. ------------------------------------------------------------ The sale of all shares of Conversion Stock offered pursuant to the Plan must be completed within 24 months after approval of the Plan at the Special Meeting. After approval of the Plan by the OTS and the declaration of the effectiveness of the Subscription and Community Prospectus by the SEC, the Holding Company shall distribute such Subscription and Community Prospectus and Order Forms for the purchase of shares in accordance with the terms of the Plan. A-13 The recipient of an Order Form will be provided neither fewer than 20 days nor more than 45 days from the date of mailing, unless extended, to complete, execute and return properly the Order Form to the Holding Company or the Association. Self-addressed, postage paid return envelopes will accompany these forms when mailed. The Association or Holding Company will collate the returned executed Order Forms upon completion of the Subscription Offering. Failure of any eligible subscriber to return a properly completed and executed Order Form within the prescribed time limits shall be deemed a waiver and a release by such person of any rights to purchase shares of Conversion Stock hereunder. The sale of all shares of Conversion Stock shall be completed within 45 days after the last day of the Subscription Offering unless extended by the Holding Company and the Association with the approval of the OTS. I. Method of Payment. ----------------- Payment for all shares of Conversion Stock subscribed for in the Subscription and Community Offerings must be received in full by the Association or the Holding Company, together with properly completed and executed Order Forms, indicating thereon the number of shares being subscribed for and such other information as may be required thereon, on or prior to the expiration date specified on the Order Form, unless such date is extended by the Holding Company and the Association; provided, however, that payments by Tax-Qualified Employee Stock Benefit Plans for Conversion Stock may be made to the Association concurrently with the completion of the Conversion. Payment for all shares of Conversion Stock may be made in cash (if delivered in person) or by check or money order, or, if the subscriber has a Savings Account in the Association (including a certificate of deposit), the subscriber may authorize the Association to charge the subscriber's Savings Account for the purchase amount. The Association shall pay interest at not less than the passbook rate on all amounts paid in cash or by check or money order to purchase shares of Conversion Stock in the Subscription and Community Offerings from the date payment is received until the Conversion is completed or terminated. The Association shall not knowingly loan funds or otherwise extend credit to any person for the purpose of purchasing Conversion Stock. If a subscriber authorizes the Association to charge its Savings Account, the funds will remain in the subscriber's Savings Account and will continue to earn interest, but may not be used by the subscriber until all Conversion Stock has been sold or the Conversion is terminated, whichever is earlier. The withdrawal will be given effect only concurrently with the sale of all shares of Conversion Stock in the Conversion and only to the extent necessary to satisfy the subscription at a price equal to the Purchase Price. The Association will allow subscribers to purchase shares of Conversion Stock by withdrawing funds from certificate accounts without the assessment of early withdrawal penalties. In the case of early withdrawal of only a portion of such account, the certificate evidencing such account shall be cancelled if the remaining balance of the account is less than the applicable minimum balance requirement. In that event, the remaining balance will earn interest at the passbook rate. This waiver of the early withdrawal penalty is applicable only to withdrawals made in connection with the purchase of Conversion Stock under the Plan. Tax-Qualified Employee Stock Benefit Plans may subscribe for shares by submitting an Order From, and in the case of an employee stock ownership plan, together with evidence of a loan commitment from the Holding Company or an unrelated financial institution for the purchase of the shares of Conversion Stock, during the Subscription Offering and by making payment for the shares of Conversion Stock on the date of the closing of the Conversion. A-14 J. Undelivered, Defective or Late Order Forms; Insufficient Payment. ---------------------------------------------------------------- In the event an Order Form (i) is not delivered and is returned to the Holding Company or the Association by the United States Postal Service (or the Holding Company or the Association is unable to locate the addressee); (ii) is not received by the Holding Company or the Association, or is received by the Holding Company or the Association after termination of the date specified thereon; (iii) is defectively completed or executed; or (iv) is not accompanied by the total required payment for the shares of Conversion Stock subscribed for (including cases in which the subscribers' Savings Accounts are insufficient to cover the authorized withdrawal for the required payment), the Subscription Rights of the person to whom such rights have been granted will not be honored and will be treated as though such person failed to return the completed Order Form within the time period specified therein. Alternatively, the Holding Company or the Association may, but will not be required to, waive any irregularity relating to any Order Form or require the submission of a corrected Order Form or the remittance of full payment for subscribed shares of Conversion Stock by such date as the Holding Company or the Association may specify. Subscription orders, once tendered, cannot be revoked. The Holding Company's and the Association's interpretation of the terms and conditions of this Plan and acceptability of the Order Forms will be final and conclusive. K. Members in Non-Qualified States or in Foreign Countries. ------------------------------------------------------- The Holding Company will make reasonable efforts to comply with the securities laws of all states in the United States in which persons entitled to subscribe for Conversion Stock pursuant to the Plan reside. However, no such person will be offered or receive any Conversion Stock under this Plan who resides in a foreign country or who resides in a state of the United States with respect to which any or all of the following apply: (i) a small number of persons otherwise eligible to subscribe for shares of Conversion Stock under this Plan reside in such state or foreign country; (ii) the granting of Subscription Rights or the offer or sale of shares of Conversion Stock to such person would require the Holding Company or the Association or their employees to register, under the securities laws of such state, as a broker, dealer, salesman or agent or to register or otherwise qualify its securities for sale in such state or foreign country; and (iii) such registration qualification would be impracticable for reasons of cost or otherwise. No payments will be made in lieu of the granting of Subscription Rights to any such person. L. Sales Commissions. ----------------- Sales commissions may be paid as determined by the Boards of Directors of the Association and the Holding Company or their designees to securities dealers assisting subscribers in making purchases of Conversion Stock in the Subscription Offering or in the Community Offering, if the securities dealer is named by the subscriber on the Order Form. In addition, a sales commission may be paid to a securities dealer for advising and consulting with respect to, or for managing the sale of Conversion Stock in, the Subscription Offering, the Community Offering or any other offering. IX. CHARTER AND BYLAWS. As part of the Conversion, a federal stock charter and bylaws will be adopted to authorize the Converted Association to operate as a federal capital stock savings bank. By approving the Plan, the Members of the Association will thereby approve amending the Association's existing federal mutual charter and bylaws to read in the form of a federal stock charter and bylaws. Prior to completion of the Conversion, the proposed federal stock charter and bylaws may be amended in accordance with the provisions and limitations for amending the Plan under Paragraph XIV. below. The effective date of the amendment of the Association's federal mutual charter and bylaws to read in the form of a federal stock charter and bylaws shall be the date of the issuance of the Conversion Stock, which shall be the date of consummation of the Conversion. A-15 X. REGISTRATION AND MARKET MAKING. In connection and concurrently with the Conversion, the Holding Company shall register the Holding Company Stock with the SEC pursuant to the Securities Exchange Act of 1934, as amended, and shall undertake not to deregister the Holding Company Stock for a period of three years thereafter. The Holding Company shall use its best efforts to encourage and assist various Market Makers to establish and maintain a market for the Holding Company Stock. The Holding Company shall also use its best efforts to have the Holding Company Stock quoted on the National Association of Securities Dealers, Inc. Automated Quotation System or listed on a national or regional securities exchange. XI. STATUS OF SAVINGS ACCOUNTS AND LOANS SUBSEQUENT TO CONVERSION. All Savings Accounts in the Association will retain the same status after Conversion as these accounts had prior to Conversion. Subject to Paragraph VIII.I. hereof, each holder of a Savings Account in the Association shall retain, without payment, a withdrawable Savings Account or Savings Accounts in the Converted Association, equal in dollar amount and on the same terms and conditions as in effect prior to Conversion. All Savings Accounts will continue to be insured by the Savings Association Insurance Fund of the Federal Deposit Insurance Corporation up to the applicable limits of insurance coverage. All loans shall retain the same status after Conversion as these loans had prior to Conversion. After Conversion, holders of Savings Accounts and obligors on loans of the Association will not have voting rights in the Converted Association. Exclusive voting rights with respect to the Holding Company shall be vested in the holders of the Conversion Stock issued by the Holding Company, and the Holding Company will have exclusive voting rights with respect to the Converted Association's Capital Stock. XII. LIQUIDATION ACCOUNT. After the Conversion, holders of Savings Accounts will not be entitled to share in the residual assets after liquidation of the Converted Association. However, pursuant to applicable regulations, the Association shall, at the time of the Conversion, establish a Liquidation Account in an amount equal to its regulatory capital as of the date of the latest statement of financial condition contained in the final prospectus to be used in connection with the Conversion. The function of the Liquidation Account is to establish a priority on liquidation, and, except as provided in Paragraph VIII.G.2. above, the existence of the Liquidation Account shall not operate to restrict the use or application of any of the net worth accounts of the Converted Association. The Liquidation Account shall be maintained by the Converted Association subsequent to Conversion for the benefit of Eligible Account Holders and Supplemental Eligible Account Holders who retain their Savings Accounts in the Converted Association. Each Eligible Account Holder and Supplemental Eligible Account Holder shall, with respect to each Savings Account held, have a related inchoate interest in a portion of the Liquidation Account ("subaccount balance"). The initial subaccount balance for a Savings Account held by an Eligible Account Holder and/or a Supplemental Eligible Account Holder shall be determined by multiplying the opening balance in the Liquidation Account by a fraction of which the numerator is the amount of the qualifying deposit in the related Savings Account and the denominator is the total amount of the qualifying deposits of all Eligible Account Holders and Supplemental Eligible Account Holders in the Association. Such initial subaccount balance shall not be increased but shall be subject to downward adjustment as provided below. If the deposit balance in any Savings Account of an Eligible Account Holder or Supplemental Eligible Account Holder to which the subaccount relates at the close of business on any annual closing date subsequent to the Eligibility Record Date or Supplemental Eligibility Record Date is less than the lesser of (i) the deposit balance in such Savings Account at the close of business on any annual closing date subsequent to the Eligibility Record Date or the A-16 Supplemental Eligibility Record Date, or (ii) the amount of the Qualifying Deposit in such Savings Account on the Eligibility Record Date or the Supplemental Eligibility Record Date, then the subaccount balance for such Savings Account shall be adjusted by reducing such subaccount balance in an amount proportionate to the reduction in such deposit balance. In the event of a downward adjustment, the subaccount balance shall not be subsequently increased, notwithstanding any increase in the deposit balance of the related Savings Account. If any such Savings Account is closed, the related subaccount balance shall be reduced to zero. In the event of a complete liquidation of the Converted Association (and only in such event), each Eligible Account Holder and Supplemental Eligible Account Holder shall be entitled to receive a liquidation distribution from the Liquidation Account in the amount of the then-current adjusted subaccount balances for Savings Accounts then held before any liquidation distribution may be made to stockholders. No merger, consolidation, sale of bulk assets or similar combination or transaction with another institution insured by the Federal Deposit Insurance Corporation shall be considered to be a complete liquidation for these purposes. In such transactions, the Liquidation Account shall be assumed by the surviving institution. XIII. RESTRICTIONS ON ACQUISITION OF HOLDING COMPANY. A. Present regulations provide that for a period of three years following completion of the Conversion, no person (i.e., an individual, a group acting in concert, a corporation, a partnership, an association, a joint stock company, a trust or any unincorporated organization or similar company, a syndicate or any other group formed for the purpose of acquiring, holding or disposing of securities of an insured institution or its holding company) shall directly, or indirectly, offer to purchase or actually acquire the beneficial ownership of more than 10% of any class of Holding Company Stock without the prior approval of the OTS. However, approval is not required for purchases directly from the Holding Company or underwriters or a selling group acting on its behalf with a view towards public resale, or for purchases not exceeding 1% per annum of the shares outstanding, or for the acquisition of securities by one or more Tax-Qualified Employee Stock Benefit Plans of the Holding Company or the Converted Association, provided that the plan or plans do not have beneficial ownership in the aggregate of more than 25% of any class of Holding Company Stock. Civil penalties may be imposed by the OTS for willful violation or assistance of any violation. Where any person, directly or indirectly, acquires beneficial ownership of more than 10% of any class of Holding Company Stock within such three-year period, without the prior approval of the OTS, Holding Company Stock beneficially owned by such person in excess of 10% shall not be counted as shares entitled to vote and shall not be voted by any person or counted as voting shares in connection with any matter submitted to the stockholders for a vote. B. The Holding Company may provide in its Articles of Incorporation a provision that, for a period of five years following the date of the completion of the Conversion, no person shall directly or indirectly offer to acquire or actually acquire the beneficial ownership of more than 10% of any class of Holding Company Stock except with respect to purchases by one or more Tax- Qualified Employee Stock Benefit Plans of the Holding Company or Converted Association. The Holding Company may provide in its Articles of Incorporation for such other provisions affecting the acquisition of Holding Company Stock as shall be determined by its Board of Directors. XIV. INTERPRETATION AND AMENDMENT OR TERMINATION OF THE PLAN. The Association's Board of Directors shall have the sole discretion to interpret and apply the provisions of the Plan to particular facts and circumstances and to make all determinations necessary or desirable to implement such provisions, including but not limited to matters with respect to giving preference to natural persons and trusts of natural persons who are permanent Residents of the Association's Local Community, and any and all interpretations, applications and determinations made by the Board of Directors in good faith and on the basis of such information and assistance as was then reasonably available for such purpose shall be conclusive and binding upon the Association and its members and subscribers in the Subscription and Community Offerings, subject to the authority of the OTS. A-17 If deemed necessary or desirable, the Plan may be substantively amended at any time prior to submission of the Plan and proxy materials to the Members by a two-thirds vote of the Association's Board of Directors. After submission of the Plan and proxy materials to the Members, the Plan may be amended by a two- thirds vote of the Association's Board of Directors at any time prior to the Special Meeting and at any time following such Special Meeting with the concurrence of the OTS. In its discretion, the Board of Directors may modify or terminate the Plan upon the order of the regulatory authorities without a resolicitation of proxies or another Special Meeting. In the event that mandatory new regulations pertaining to conversions are adopted by the OTS or any successor agency prior to the completion of the Conversion, the Plan will be amended to conform to the new mandatory regulations without a resolicitation of proxies or another Special Meeting. In the event that new conversion regulations adopted by the OTS or any successor agency prior to completion of the Conversion contain optional provisions, the Plan may be amended to utilize such optional provisions at the discretion of the Board of Directors without a resolicitation of proxies or another Special Meeting. By adoption of the Plan, the Association's Members authorize the Board of Directors to amend and/or terminate the Plan under the circumstances set forth above. XV. EXPENSES OF THE CONVERSION. The Holding Company and the Association will use their best efforts to assure that expenses incurred in connection with the Conversion shall be reasonable. XVI. CONTRIBUTIONS TO TAX-QUALIFIED EMPLOYEE STOCK BENEFIT PLANS. The Holding Company and the Converted Association may make scheduled discretionary contributions to their Tax-Qualified Employee Stock Benefit Plans, provided such contributions do not cause the Converted Association to fail to meet its then-applicable regulatory capital requirements. A-18 EXHIBIT B SALIDA BUILDING & LOAN ASSOCIATION FEDERAL STOCK CHARTER SECTION 1. CORPORATE TITLE. The full corporate title of the association is Salida Building & Loan Association (the "association"). SECTION 2. OFFICE. The home office shall be located at 130 West 2nd Street, in the Town of Salida, in the State of Colorado. SECTION 3. DURATION. The duration of the association is perpetual. SECTION 4. PURPOSE AND POWERS. The purpose of the association is to pursue any or all of the lawful objectives of a Federal association chartered under Section 5 of the Home Owners' Loan Act and to exercise all of the express, implied, and incidental powers conferred thereby and by all acts amendatory thereof and supplemental thereto, subject to the Constitution and laws of the United States as they are now in effect, or as they may hereafter be amended, and subject to all lawful and applicable rules, regulations, and orders of the Office of Thrift Supervision ("Office"). SECTION 5. CAPITAL STOCK. The total number of shares of all classes of the capital stock which the association has authority to issue is 4,000,000 of which 3,000,000 shares shall be common stock, of par value of $1.00 per share and of which 1,000,000 shares shall be serial preferred stock of par value of $1.00 per share. The shares may be issued from time to time as authorized by the board of directors without approval of its stockholders except as otherwise provided in this Section 5 or to the extent that such approval is required by governing law, rule, or regulation. The consideration for the issuance of the shares shall be paid in full before their issuance and shall not be less than the par value. Neither promissory notes nor future services shall constitute payment or part payment for the issuance of shares of the association. The consideration for the shares shall be cash, tangible or intangible property (to the extent direct investment in such property would be permitted), labor, or services actually performed for the association, or any combination of the foregoing. In the absence of actual fraud in the transaction, the value of such property, labor, or services, as determined by the board of directors of the association, shall be conclusive. Upon payment of such consideration, such shares shall be deemed to be fully paid and nonassessable. In the case of a stock dividend, that part of the surplus of the association which is transferred to stated capital upon the issuance of shares as a share dividend shall be deemed to be the consideration for their issuance. Except for shares issuable in connection with the conversion of the association from the mutual to the stock form of capitalization, no shares of capital stock (including shares issuable upon conversion, exchange, or exercise of other securities) shall be issued, directly or indirectly, to officers, directors, or controlling persons of the association other than as part of a general public offering or as qualifying shares to a director, unless their issuance or the plan under which they would be issued has been approved by a majority of the total votes eligible to be cast at a legal meeting. Nothing contained in this Section 5 (or in any supplementary sections hereto) shall entitle the holders of any class or series of capital stock to vote as a separate class or series or to more than one vote per share, provided, that this restriction on voting separately by class or series shall not apply: (i) To any provision which would authorize the holders of preferred stock, voting as a class or series, to elect some members of the board of directors, less than a majority thereof, in the event of default in the payment of dividends on any class or series of preferred stock; (ii) To any provision which would require the holders of preferred stock, voting as a class or series, to approve the merger or consolidation of the association with another corporation or the sale, lease, or conveyance (other than by mortgage or pledge) of properties or business in exchange for securities of a corporation other than the B-1 association if the preferred stock is exchanged for securities of such other corporation: Provided, That no provision may require such approval for transactions undertaken with the assistance or pursuant to the direction of the Office, the Federal Deposit Insurance Corporation, or the Resolution Trust Corporation; (iii) To any amendment which would adversely change the specific terms of any class or series of capital stock as set forth in this Section 5 (or in any supplementary sections hereto), including any amendment which would create or enlarge any class or series ranking prior thereto in rights and preferences. An amendment which increases the number of authorized shares of any class or series of capital stock, or substitutes the surviving association in a merger or consolidation for the association, shall not be considered to be such an adverse change. A description of the different classes and series (if any) of the association's capital stock and a statement of the designations, and the relative rights, preferences, and limitations of the shares of each class of and series (if any) of capital stock are as follows: A. COMMON STOCK. Except as provided in this Section 5 (or in any supplementary sections thereto), the holders of common stock shall exclusively possess all voting power. Each holder of shares of common stock shall be entitled to one vote for each share held by such holder. Whenever there shall have been paid, or declared and set aside for payment, to the holders of the outstanding shares of any class of stock having preference over the common stock as to the payment of dividends, the full amount of dividends and of sinking fund, retirement fund, or other retirement payments, if any, to which such holders are respectively entitled in preference to the common stock, then dividends may be paid on the common stock and on any class or series of stock entitled to participate therewith as to dividends out of any assets legally available for the payment of dividends. In the event of any liquidation, dissolution, or winding up of the association, the holders of the common stock (and the holders of any class or series of stock entitled to participate with the common stock in the distribution of assets) shall be entitled to receive, in cash or in kind, the assets of the association available for distribution remaining after: (i) payment or provision for payment of the association's debts and liabilities; (ii) distributions or provisions for distributions in settlement of its liquidation account; and (iii) distributions or provisions for distributions to holders of any class or series of stock having preference over the common stock in the liquidation, dissolution, or winding up of the association. Each share of common stock shall have the same relative rights as and be identical in all respects with all the other shares of common stock. B. PREFERRED STOCK. The association may provide in supplementary sections to its charter for one or more classes of preferred stock, which shall be separately identified. The shares of any class may be divided into and issued in series, with each series separately designated so as to distinguish the shares thereof from the shares of all other series and classes. The terms of each series shall be set forth in a supplementary section to the charter. All shares of the same class shall be identical except as to the following relative rights and preferences, as to which there may be variations between different series: (a) The distinctive serial designation and the number of shares constituting such series; (b) The dividend rate or the amount of dividends to be paid on the shares of such series, whether dividends shall be cumulative and, if so, from which date(s) the payment date(s) for dividends, and the participating or other special rights, if any, with respect to dividends; B-2 (c) The voting powers, full or limited, if any, of shares of such series; (d) Whether the shares of such series shall be redeemable and, if so, the price(s) at which, and the terms and conditions on which, such shares may be redeemed; (e) The amount(s) payable upon the shares of such series in the event of voluntary or involuntary liquidation, dissolution, or winding up of the association; (f) Whether the shares of such series shall be entitled to the benefit of a sinking or retirement fund to be applied to the purchase or redemption of such shares, and if so entitled, the amount of such fund and the manner of its application, including the price(s) at which such shares may be redeemed or purchased through the application of such fund; (g) Whether the shares of such series shall be convertible into, or exchangeable for, shares of any other class or classes of stock of the association and, if so, the conversion price(s) or the rate(s) of exchange, and the adjustments thereof, if any, at which such conversion or exchange may be made, and any other terms and conditions of such conversion or exchange; (h) The price or other consideration for which the shares of such series shall be issued; and (i) Whether the shares of such series which are redeemed or converted shall have the status of authorized but unissued shares of serial preferred stock and whether such shares may be reissued as shares of the same or any other series of serial preferred stock. Each share of each series of serial preferred stock shall have the same relative rights as and be identical in all respects with all the other shares of the same series. The board of directors shall have authority to divide, by the adoption of supplementary charter sections, any authorized class of preferred stock into series, and, within the limitations set forth in this section and the remainder of this charter, fix and determine the relative rights and preferences of the shares of any series so established. Prior to the issuance of any preferred shares of a series established by a supplementary charter section adopted by the board of directors, the association shall file with the Secretary to the Office a dated copy of that supplementary section of this charter establishing and designating the series and fixing and determining the relative rights and preferences thereof. SECTION 6. PREEMPTIVE RIGHTS. Holders of the capital stock of the association shall not be entitled to preemptive rights with respect to any shares of the association which may be issued. SECTION 7. LIQUIDATION ACCOUNT. Pursuant to the requirements of the Office's regulations (12 C.F.R. Subchapter D), the association shall establish and maintain a liquidation account for the benefit of its savings account holders as of December 31, 1995 and September 30, 1997 ("eligible savers"). In the event of a complete liquidation of the association, it shall comply with such regulations with respect to the amount and the priorities on liquidation of each of the association's eligible savers' inchoate interest in the liquidation account, to the extent it is still in existence; provided, that an eligible -------- savers' inchoate interest in the liquidation account shall not entitle such eligible saver to any voting rights at meetings of the association's stockholders. SECTION 8. CERTAIN PROVISIONS APPLICABLE FOR FIVE YEARS. Notwithstanding anything contained in the association's charter or bylaws to the contrary, for a period of five years from the date of completion of the conversion of the association from a mutual savings and loan association to a stock association, the following provisions shall apply: B-3 A. BENEFICIAL OWNERSHIP LIMITATION. No person shall directly or indirectly offer to acquire or acquire the beneficial ownership of more than 10 percent of any class of an equity security of the association. This limitation shall not apply to a transaction in which the association forms a holding company without change in the respective beneficial ownership interests of its stockholders other than pursuant to the exercise of any dissenter and appraisal rights, the purchase of shares by underwriters in connection with a public offering, or the purchase of shares by a tax-qualified employee stock benefit plan which is exempt from the approval requirements under (S)574.3(c)(1)(vi) of the Office's regulations. In the event shares are acquired in violation of this Section 8, all shares beneficially owned by any person in excess of 10 percent shall be considered "excess shares" and shall not be counted as shares entitled to vote and shall not be voted by any person or counted as voting shares in connection with any matters submitted to the stockholders for a vote. For purposes of this Section 8, the following definitions apply: (1) The term "person" includes an individual, a group acting in concert, a corporation, a partnership, an association, a joint stock company, a trust, an unincorporated organization or similar company, a syndicate or any other group formed for the purpose of acquiring, holding or disposing of the equity securities of the association. (2) The term "offer" includes every offer to buy or otherwise acquire, solicitation of an offer to sell, tender offer for, or request or invitation for tenders of, a security or interest in a security for value. (3) The term "acquire" includes every type of acquisition, whether effected by purchase, exchange, operation of law or otherwise. (4) The term "acting in concert" means (a) knowing participation in a joint activity or conscious parallel action towards a common goal whether or not pursuant to an express agreement, or (b) a combination or pooling of voting or other interests in the securities of an issuer for a common purpose pursuant to any contract, understanding, relationship, agreement or other arrangements, whether written or otherwise. B. CUMULATIVE VOTING LIMITATION. Stockholders shall not be permitted to cumulate their votes for election of directors. C. CALL FOR SPECIAL MEETINGS. Special meetings of stockholders relating to changes in control of the association or amendments to its charter shall be called only upon direction of the board of directors. SECTION 9. DIRECTORS. The association shall be under the direction of a board of directors. The authorized number of directors, as stated in the association's bylaws, shall not be fewer than five or more than fifteen except when a greater number is approved by the Director of the Office. B-4 SECTION 10. AMENDMENT OF CHARTER. Except as provided in Section 5, no amendment, addition, alteration, change, or repeal of this charter shall be made, unless such is first proposed by the board of directors of the association, then preliminarily approved by the Office, which preliminary approval may be granted by the Office pursuant to regulations specifying preapproved charter amendments, and thereafter approved by the stockholders by a majority of the total votes eligible to be cast at a legal meeting. Any amendment, addition, alteration, change, or repeal so acted upon shall be effective upon filing with the Office in accordance with regulatory procedures or on such other date as the Office may specify in its preliminary approval. Attest: ____________________________ By: ________________________________ Richard A. Young Larry D. Smith Secretary President and Chief Executive Salida Building & Loan Officer Salida Building & Association Loan Association Attest: ____________________________ By: ________________________________ Secretary Director of the Office of Thrift Office of Thrift Supervision Supervision Declared effective as of _________________________. B-5 EXHIBIT C BYLAWS SALIDA BUILDING & LOAN ASSOCIATION ARTICLE I - HOME OFFICES The home office of the association shall be 130 West 2nd Street, in the Town of Salida in the State of Colorado. ARTICLE II - SHAREHOLDERS SECTION 1. PLACE OF MEETINGS. All annual and special meetings of shareholders shall be held at the home office of the association or at such other place in the State of Colorado in which the principal place of business of the association is located as the board of directors may determine. SECTION 2. ANNUAL MEETING. A meeting of the shareholders of the association for the election of directors and for the transaction of any other business of the association shall be held annually within 120 days after the end of the association's fiscal year on the Third Thursday in October if not a legal holiday, and, if a legal holiday, then on the next day following which is not a legal holiday, at 10:00 a.m., or at such other date and time within such 120-day period as the board of directors may determine. SECTION 3. SPECIAL MEETINGS. Special meetings of the shareholders for any purpose or purposes, unless otherwise prescribed by the regulations of the Office of Thrift Supervision ("Office"), may be called at any time by the chairman of the board, the president, or a majority of the board of directors, and shall be called by the chairman of the board, the president, or the secretary upon the written request of the holders of not less than one-tenth of all of the outstanding capital stock of the association entitled to vote at the meeting. Such written request shall state the purpose or purposes of the meeting and shall be delivered to the home office of the association addressed to the chairman of the board, the president, or the secretary. SECTION 4. CONDUCT OF MEETINGS. Annual and special meetings shall be conducted in accordance with the most current edition of Robert's Rules of Order unless otherwise prescribed by regulations of the Office or these bylaws. The board of directors shall designate, when present, either the chairman of the board or the president to preside at such meetings. SECTION 5. NOTICE OF MEETINGS. Written notice stating the place, day, and hour of the meeting and the purpose(s) for which the meeting is called shall be delivered not fewer than 10 nor more than 50 days before the date of the meeting, either personally or by mail, by or at the direction of the chairman of the board, the president, or the secretary, or the directors calling the meeting, to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the mail, addressed to the shareholder at the address as it appears on the stock transfer books or records of the association as of the record date prescribed in Section 6 of this Article II with postage prepaid. When any shareholders' meeting, either annual or special, is adjourned for 30 days or more, notice of the adjourned meeting shall be given as in the case of an original meeting. It shall not be necessary to give any notice of the time and place of any meeting adjourned for less than 30 days or of the business to be transacted at the meeting, other than an announcement at the meeting at which such adjournment is taken. SECTION 6. FIXING OF RECORD DATE. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment, or shareholders entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the board of directors shall fix in advance a date as the record date for any such determination of shareholders. Such date in any case shall be not more than 60 days and, in case of a meeting of shareholders, not fewer than 10 days prior to the date on which the particular action, C-1 requiring such determination of shareholders, is to be taken. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment. SECTION 7. VOTING LISTS. At least 20 days before each meeting of the shareholders, the officer or agent having charge of the stock transfer books for shares of the association shall make a complete list of the shareholders entitled to vote at such meeting, or any adjournment, arranged in alphabetical order, with the address and the number of shares held by each. This list of shareholders shall be kept on file at the home office of the association and shall be subject to inspection by any shareholder at any time during usual business hours for a period of 20 days prior to such meeting. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to inspection by any shareholder during the entire time of the meeting. The original stock transfer book shall constitute prima facie evidence of the shareholders entitled to examine such list or transfer books or to vote at any meeting of shareholders. In lieu of making the shareholder list available for inspection by shareholders as provided in the preceding paragraph, the board of directors may elect to follow the procedures prescribed in (S)552.6(d) of the Office's regulations as now or hereafter in effect. SECTION 8. QUORUM. A majority of the outstanding shares of the association entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of shareholders. If less than a majority of the outstanding shares is represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. The shareholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough shareholders to constitute less than a quorum. SECTION 9. PROXIES. At all meetings of shareholders, a shareholder may vote by proxy executed in writing by the shareholder or by his or her duly authorized attorney in fact. Proxies solicited on behalf of the management shall be voted as directed by the shareholder or, in the absence of such direction, as determined by a majority of the board of directors. No proxy shall be valid more than eleven months from the date of its execution except for a proxy coupled with an interest. SECTION 10. VOTING OF SHARES IN THE NAME OF TWO OR MORE PERSONS. When ownership stands in the name of two or more persons, in the absence of written directions to the association to the contrary, at any meeting of the shareholders of the association, any one or more of such shareholders may cast, in person or by proxy, all votes to which such ownership is entitled. In the event an attempt is made to cast conflicting votes, in person or by proxy, by the several persons in whose names shares of stock stand, the vote or votes to which those persons are entitled shall be cast as directed by a majority of those holding such stock and present in person or by proxy at such meeting, but no votes shall be cast for such stock if a majority cannot agree. SECTION 11. VOTING OF SHARES OF CERTAIN HOLDERS. Shares standing in the name of another corporation may be voted by any officer, agent, or proxy as the bylaws of such corporation may prescribe, or, in the absence of such provision, as the board of directors of such corporation may determine. Shares held by an administrator, executor, guardian, or conservator may be voted by him or her, either in person or by proxy, without a transfer of such shares into his or her name. Shares standing in the name of a trustee may be voted by him or her, either in person or by proxy, but no trustee shall be entitled to vote shares held by him or her, without a transfer of such shares into his or her name. Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer into his or her name if authority to do so is contained in an appropriate order of the court or other public authority by which such receiver was appointed. A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred. C-2 Neither treasury shares of its own stock held by the association nor shares held by another corporation, if a majority of the shares entitled to vote for the election of directors of such other corporation are held by the association, shall be voted at any meeting or counted in determining the total number of outstanding shares at any given time for purposes of any meeting. SECTION 12. CUMULATIVE VOTING. Unless otherwise provided in the association's charter, every shareholder entitled to vote at an election for directors shall have the right to vote, in person or by proxy, the number of shares owned by the shareholder for as many persons as there are directors to be elected and for whose election the shareholder has a right to vote, or to cumulate the votes by giving one candidate as many votes as the number of such directors to be elected multiplied by the number of shares shall equal or by distributing such votes on the same principle among any number of candidates. SECTION 13. INSPECTORS OF ELECTION. In advance of any meeting of shareholders, the board of directors may appoint any persons other than nominees for office as inspectors of election to act at such meeting or any adjournment. The number of inspectors shall be either one or three. Any such appointment shall not be altered at the meeting. If inspectors of election are not so appointed, the chairman of the board or the president may, or on the request of not fewer than 10 percent of the votes represented at the meeting shall, make such appointment at the meeting. If appointed at the meeting, the majority of the votes present shall determine whether one or three inspectors are to be appointed. In case any person appointed as inspector fails to appear or fails or refuses to act, the vacancy may be filled by appointment by the board of directors in advance of the meeting or at the meeting by the chairman of the board or the president. Unless otherwise prescribed by regulations of the Office, the duties of such inspectors shall include: determining the number of shares and the voting power of each share, the shares represented at the meeting, the existence of a quorum, and the authenticity, validity, and effect of proxies; receiving votes, ballots, or consents; hearing and determining all challenges and questions in any way arising in connection with the rights to vote; counting and tabulating all votes or consents; determining the result; and such acts as may be proper to conduct the election or vote with fairness to all shareholders. SECTION 14. NOMINATING COMMITTEE. The board of directors shall act as a nominating committee for selecting the management nominees for election as directors. Except in the case of a nominee substituted as a result of the death or other incapacity of a management nominee, the nominating committee shall deliver written nominations to the secretary at least 20 days prior to the date of the annual meeting. Upon delivery, such nominations shall be posted in a conspicuous place in each office of the association. No nominations for directors except those made by the nominating committee shall be voted upon at the annual meeting unless other nominations by shareholders are made in writing and delivered to the secretary of the association at least five days prior to the date of the annual meeting. Upon delivery, such nominations shall be posted in a conspicuous place in each office of the association. Ballots bearing the names of all persons nominated by the nominating committee and by shareholders shall be provided for use at the annual meeting. However, if the nominating committee shall fail or refuse to act at least 20 days prior to the annual meeting, nominations for directors may be made at the annual meeting by any shareholder entitled to vote and shall be voted upon. SECTION 15. NEW BUSINESS. Any new business to be taken up at the annual meeting shall be stated in writing and filed with the secretary of the association at least five days before the date of the annual meeting, and all business so stated, proposed, and filed shall be considered at the annual meeting; but no other proposal shall be acted upon at the annual meeting. Any shareholder may make any other proposal at the annual meeting and the same may be discussed and considered, but unless stated in writing and filed with the secretary at least five days before the meeting, such proposal shall be laid over for action at an adjourned, special, or annual meeting of the shareholders taking place 30 days or more thereafter. This provision shall not prevent the consideration and approval or disapproval at the annual meeting of reports of officers, directors, and committees; but in connection with such reports, no new business shall be acted upon at such annual meeting unless stated and filed as herein provided. C-3 SECTION 16. INFORMAL ACTION BY SHAREHOLDERS. Any action required to be taken at a meeting of the shareholders, or any other action which may be taken at a meeting of shareholders, may be taken without a meeting if consent in writing, setting forth the action so taken, shall be given by all of the shareholders entitled to vote with respect to the subject matter. ARTICLE III - BOARD OF DIRECTORS SECTION 1. GENERAL POWERS. The business and affairs of the association shall be under the direction of its board of directors. The board of directors shall annually elect a chairman of the board and a president from among its members and shall designate, when present, either the chairman of the board or the president to preside at its meetings. SECTION 2. NUMBER AND TERM. The board of directors shall consist of six (6) members and shall be divided into three classes as nearly equal in number as possible. The members of each class shall be elected for a term of three years and until their successors are elected and qualified. One class shall be elected by ballot annually. SECTION 3. REGULAR MEETINGS. A regular meeting of the board of directors shall be held without other notice than this bylaw immediately after, and at the same place as, the annual meeting of shareholders. The board of directors may provide, by resolution, the time and place, within the association's normal lending territory, for the holding of additional regular meetings without other notice than such resolution. SECTION 4. QUALIFICATION. Each director shall at all times be the beneficial owner of not less than 100 shares of capital stock of the association unless the association is a wholly owned subsidiary of a holding company. SECTION 5. SPECIAL MEETINGS. Special meetings of the board of directors may be called by or at the request of the chairman of the board, the president, or one-third of the directors. The persons authorized to call special meetings of the board of directors may fix any place, within the association's normal lending territory, as the place for holding any special meeting of the board of directors called by such persons. Members of the board of directors may participate in special meetings by means of conference telephone or similar communications equipment by which all persons participating in the meeting can hear each other. Such participation shall constitute presence in person but shall not constitute attendance for the purpose of compensation pursuant to Section 12 of this Article III. SECTION 6. NOTICE. Written notice of any special meeting shall be given to each director at least two days prior thereto when delivered personally or by telegram or at least five days prior thereto when delivered by mail at the address at which the director is most likely to be reached. Such notice shall be deemed to be delivered when deposited in the mail so addressed, with postage prepaid if mailed or when delivered to the telegraph company if sent by telegram. Any director may waive notice of any meeting by a writing filed with the secretary. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any meeting of the board of directors need be specified in the notice of waiver or notice of such meeting. SECTION 7. QUORUM. A majority of the number of directors fixed by Section 2 of this Article III shall constitute a quorum for the transaction of business at any meeting of the board of directors; but if less than such majority is present at a meeting, a majority of the directors present may adjourn the meeting from time to time. Notice of any adjourned meeting shall be given in the same manner as prescribed by Section 6 of this Article III. SECTION 8. MANNER OF ACTING. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors, unless a greater number is prescribed by regulation of the Office or by these bylaws. C-4 SECTION 9. ACTION WITHOUT A MEETING. Any action required or permitted to be taken by the board of directors at a meeting may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the directors. SECTION 10. RESIGNATION. Any director may resign at any time by sending a written notice of such resignation to the home office of the association addressed to the chairman of the board or the president. Unless otherwise specified, such resignation shall take effect upon receipt by the chairman of the board or the president. More than three consecutive absences from regular meetings of the board of directors, unless excused by resolution of the board of directors, shall automatically constitute a resignation, effective when such resignation is accepted by the board of directors. SECTION 11. VACANCIES. Any vacancy occurring on the board of directors may be filled by the affirmative vote of a majority of the remaining directors although less than a quorum of the board of directors. A director elected to fill a vacancy shall be elected to serve until the next election of directors by the shareholders. Any directorship to be filled by reason of an increase in the number of directors may be filled by election by the board of directors for a term of office continuing only until the next election of directors by the shareholders. SECTION 12. COMPENSATION. Directors, as such, may receive a stated salary for their services. By resolution of the board of directors, a reasonable fixed sum, and reasonable expenses of attendance, if any, may be allowed for actual attendance at each regular or special meeting of the board of directors. Members of either standing or special committees may be allowed such compensation for actual attendance at committee meetings as the board of directors may determine. SECTION 13. PRESUMPTION OF ASSENT. A director of the association who is present at a meeting of the board of directors at which action on any association matter is taken shall be presumed to have assented to the action taken unless his or her dissent or abstention shall be entered in the minutes of the meeting or unless he or she shall file a written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the secretary of the association within five days after the date a copy of the minutes of the meeting is received. Such right to dissent shall not apply to a director who voted in favor of such action. SECTION 14. REMOVAL OF DIRECTORS. At a meeting of shareholders called expressly for that purpose, any director may be removed for cause by a vote of the holders of a majority of the shares then entitled to vote at an election of directors. If less than the entire board is to be removed, no one of the directors may be removed if the votes cast against the removal would be sufficient to elect a director if then cumulatively voted at an election of the class of directors of which such director is a part. Whenever the holders of the shares of any class are entitled to elect one or more directors by the provisions of the charter or supplemental sections thereto, the provisions of this section shall apply, in respect to the removal of a director or directors so elected, to the vote of the holders of the outstanding shares of that class and not to the vote of the outstanding shares as a whole. ARTICLE IV - EXECUTIVE AND OTHER COMMITTEES SECTION 1. APPOINTMENT. The board of directors, by resolution adopted by a majority of the full board, may designate the chief executive officer and two or more of the other directors to constitute an executive committee. The designation of any committee pursuant to this Article IV and the delegation of authority shall not operate to relieve the board of directors, or any director, of any responsibility imposed by law or regulation. SECTION 2. AUTHORITY. The executive committee, when the board of directors is not in session, shall have and may exercise all of the authority of the board of directors except to the extent, if any, that such authority shall be limited by the resolution appointing the executive committee; and except also that the executive committee shall not have the C-5 authority of the board of directors with reference to: the declaration of dividends; the amendment of the charter or bylaws of the association, or recommending to the stockholders a plan of merger, consolidation, or conversion; the sale, lease, or other disposition of all or substantially all of the property and assets of the association otherwise than in the usual and regular course of its business; a voluntary dissolution of the association; a revocation of any of the foregoing; or the approval of a transaction in which any member of the executive committee, directly or indirectly, has any material beneficial interest. SECTION 3. TENURE. Subject to the provisions of Section 8 of this Article IV, each member of the executive committee shall hold office until the next regular annual meeting of the board of directors following his or her designation and until a successor is designated as a member of the executive committee. SECTION 4. MEETINGS. Regular meetings of the executive committee may be held without notice at such times and places as the executive committee may fix from time to time by resolution. Special meetings of the executive committee may be called by any member thereof upon not less than one day's notice stating the place, date, and hour of the meeting, which notice may be written or oral. Any member of the executive committee may waive notice of any meeting and no notice of any meeting need be given to any member thereof who attends in person. The notice of a meeting of the executive committee need not state the business proposed to be transacted at the meeting. SECTION 5. QUORUM. A majority of the members of the executive committee shall constitute a quorum for the transaction of business at any meeting thereof, and action of the executive committee must be authorized by the affirmative vote of a majority of the members present at a meeting at which a quorum is present. SECTION 6. ACTION WITHOUT A MEETING. Any action required or permitted to be taken by the executive committee at a meeting may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the members of the executive committee. SECTION 7. VACANCIES. Any vacancy in the executive committee may be filled by a resolution adopted by a majority of the full board of directors. SECTION 8. RESIGNATIONS AND REMOVAL. Any member of the executive committee may be removed at any time with or without cause by resolution adopted by a majority of the full board of directors. Any member of the executive committee may resign from the executive committee at any time by giving written notice to the president or secretary of the association. Unless otherwise specified, such resignation shall take effect upon its receipt; the acceptance of such resignation shall not be necessary to make it effective. SECTION 9. PROCEDURE. The executive committee shall elect a presiding officer from its members and may fix its own rules of procedure which shall not be inconsistent with these bylaws. It shall keep regular minutes of its proceedings and report the same to the board of directors for its information at the meeting held next after the proceedings shall have occurred. SECTION 10. OTHER COMMITTEES. The board of directors may by resolution establish an audit, loan, or other committee composed of directors as it may determine to be necessary or appropriate for the conduct of the business of the association and may prescribe the duties, constitution, and procedures thereof. C-6 ARTICLE V - OFFICERS SECTION 1. POSITIONS. The officers of the association shall be a president, one or more vice presidents, a secretary, and a treasurer, each of whom shall be elected by the board of directors. The board of directors may also designate the chairman of the board as an officer. The president shall be the chief executive officer, unless the board of directors designates the chairman of the board as chief executive officer. The president shall be a director of the association. The offices of the secretary and treasurer may be held by the same person and a vice president may also be either the secretary or the treasurer. The board of directors may designate one or more vice presidents as executive vice president or senior vice president. The board of directors may also elect or authorize the appointment of such other officers as the business of the association may require. The officers shall have such authority and perform such duties as the board of directors may from time to time authorize or determine. In the absence of action by the board of directors, the officers shall have such powers and duties as generally pertain to their respective offices. SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the association shall be elected annually at the first meeting of the board of directors held after each annual meeting of the stockholders. If the election of officers is not held at such meeting, such election shall be held as soon thereafter as possible. Each officer shall hold office until a successor has been duly elected and qualified or until the officer's death, resignation, or removal in the manner hereinafter provided. Election or appointment of an officer, employee, or agent shall not of itself create contractual rights. The board of directors may authorize the association to enter into an employment contract with any officer in accordance with regulations of the Office, but no such contract shall impair the right of the board of directors to remove any officer at any time in accordance with Section 3 of this Article V. SECTION 3. REMOVAL. Any officer may be removed by the board of directors whenever in its judgment the best interests of the association will be served thereby, but such removal, other than for cause, shall be without prejudice to the contractual rights, if any, of the person so removed. SECTION 4. VACANCIES. A vacancy in any office because of death, resignation, removal, disqualification, or otherwise may be filled by the board of directors for the unexpired portion of the term. SECTION 5. REMUNERATION. The remuneration of the officers shall be fixed from time to time by the board of directors. ARTICLE VI - CONTRACTS, LOANS, CHECKS, AND DEPOSITS SECTION 1. CONTRACTS. To the extent permitted by regulations of the Office, and except as otherwise prescribed by these bylaws with respect to certificates for shares, the board of directors may authorize any officer, employee, or agent of the association to enter into any contract or execute and deliver any instrument in the name of and on behalf of the association. Such authority may be general or confined to specific instances. SECTION 2. LOANS. No loans shall be contracted on behalf of the association and no evidence of indebtedness shall be issued in its name unless authorized by the board of directors. Such authority may be general or confined to specific instances. SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts, or other orders for the payment of money, notes, or other evidences of indebtedness issued in the name of the association shall be signed by one or more officers, employees, or agents of the association in such manner as shall from time to time be determined by the board of directors. SECTION 4. DEPOSITS. All funds of the association not otherwise employed shall be deposited from time to time to the credit of the association in any duly authorized depositories as the board of directors may select. C-7 ARTICLE VII - CERTIFICATES FOR SHARES AND THEIR TRANSFER SECTION 1. CERTIFICATES FOR SHARES. Certificates representing shares of capital stock of the association shall be in such form as shall be determined by the board of directors and approved by the Office. Such certificates shall be signed by the chief executive officer or by any other officer of the association authorized by the board of directors, attested by the secretary or an assistant secretary, and sealed with the corporate seal or a facsimile thereof. The signatures of such officers upon a certificate may be facsimiles if the certificate is manually signed on behalf of a transfer agent or a registrar other than the association itself or one of its employees. Each certificate for shares of capital stock shall be consecutively numbered or otherwise identified. The name and address of the person to whom the shares are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the association. All certificates surrendered to the association for transfer shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares has been surrendered and canceled, except that in the case of a lost or destroyed certificate, a new certificate may be issued upon such terms and indemnity to the association as the board of directors may prescribe. SECTION 2. TRANSFER OF SHARES. Transfer of shares of capital stock of the association shall be made only on its stock transfer books. Authority for such transfer shall be given only by the holder of record or by his or her legal representative, who shall furnish proper evidence of such authority, or by his or her attorney authorized by a duly executed power of attorney and filed with the association. Such transfer shall be made only on surrender for cancellation of the certificate for such shares. The person in whose name shares of capital stock stand on the books of the association shall be deemed by the association to be the owner for all purposes. ARTICLE VIII - FISCAL YEAR; ANNUAL AUDIT The fiscal year of the association shall end on the 30th day of June of each year. The association shall be subject to an annual audit as of the end of its fiscal year by independent public accountants appointed by and responsible to the board of directors. The appointment of such independent accountants shall be subject to annual ratification by the shareholders. ARTICLE IX - DIVIDENDS Subject to the terms of the association's charter and the regulations and orders of the Office, the board of directors may, from time to time, declare, and the association may pay, dividends on its outstanding shares of capital stock. ARTICLE X - CORPORATE SEAL The board of directors shall provide an association seal which shall be two concentric circles between which shall be the name of the association. The year of incorporation or an emblem may appear in the center. ARTICLE XI - AMENDMENTS These bylaws may be amended in a manner consistent with regulations of the Office at any time by a majority of the full board of directors or by a majority of the votes cast by the stockholders of the association at any legal meeting. C-8 REVOCABLE PROXY (SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE SALIDA BUILDING AND LOAN ASSOCIATION FOR A SPECIAL MEETING OF MEMBERS TO BE HELD ON ____________, 1997) The undersigned member of The Salida Building and Loan Association (the "Association") hereby appoints _______________, _______________ and _______________ or any one of them, with full powers of substitution, as attorneys-in-fact and agents for and in the name of the undersigned, to vote such votes as the undersigned may be entitled to cast at the Special Meeting of Members (the "Meeting") of Salida Building and Loan Association to be held at the Association's office located at 130 West 2nd Street, Salida, Colorado, on _________, ___________, 1997, at __:__ _.m., local time, and at any adjournments thereof. They are authorized to cast all votes to which the undersigned is entitled, as follows: Adoption of the Plan of Conversion, providing for the conversion of the Association from a federally chartered mutual savings and loan association to a federally chartered stock savings and loan association (the "Converted Association"), as a wholly owned subsidiary of High Country Bancorp, Inc., and the related transactions provided for in such plan, including the adoption of an amended Charter and Bylaws for the Converted Association. FOR AGAINST --- ------- [_] [_] In their discretion, on any other matters that may lawfully come before the meeting. NOTE: The Board of Directors is not aware of any other matter that may come before the Meeting. THIS PROXY WILL BE VOTED FOR THE PLAN IF NO CHOICE IS MADE HEREON Should the undersigned be present and elect to vote at said Meeting or at any adjournment thereof and, after notification to the Secretary of The Salida Building and Loan Association at said Meeting of the member's decision to terminate this Proxy, then the power of said attorneys-in-fact or agents shall be deemed terminated and of no further force and effect. The undersigned hereby revokes any and all proxies heretofore given. The undersigned acknowledges receipt of a Notice of Special Meeting of the Members of The Salida Building and Loan Association to be held on ____________, 1997 and a Proxy Statement dated ________, 1997 and a Prospectus dated __________, 1997 prior to the execution of this Proxy. --------------------- Date --------------------- Signature Note: Only one signature is required in the case of a joint account. EX-99.3 23 EXHIBIT 99.3 EXHIBIT 99.3 HIGH COUNTRY BANCORP, INC. PROPOSED HOLDING COMPANY FOR SALIDA BUILDING AND LOAN ASSOCIATION SALIDA, COLORADO PROPOSED MARKETING MATERIALS 8-15-97 [DRAFT] Marketing Materials High Country Bancorp, Inc. Salida, Colorado Table of Contents ----------------- I. Press Releases A. Explanation B. Schedule C. Distribution List D. Press Release Examples II. Advertisements A. Explanation B. Schedule C. Advertisement Examples III. Question and Answer Brochure A. Explanation B. Method of Distribution C. Example IV. Cover Letters A. Explanation B. Examples V. IRA Mailing A. Explanation B. Quantity C. IRA Mailing Example VI. Individual Letters and Community Meeting Invitation A. Explanation B. Method of Distribution C. Examples VII. Counter Cards and Lobby Posters A. Explanation B. Quantity VIII. Proxy Reminder A. Explanation B. Example 1 I. Press Releases A. Explanation In an effort to assure that all customers receive prompt accurate information in a simultaneous manner, Trident advises the Association to forward press releases to area newspapers, radio stations, etc. at various points during the conversion process. Only press releases approved by Conversion Counsel and the OTS will be forwarded for publication in any manner. B. Schedule 1. OTS Approval of Conversion 2. Close of Stock Offering 2 C. Distribution List National Distribution List -------------------------- National Thrift News Wall Street Journal - -------------------- ------------------- 212 West 35th Street World Financial Center 13th Floor 200 Liberty New York, New York 10001 New York, NY 10004 Richard Chang American Banker SNL Securities - --------------- -------------- One State Street Plaza Post Office Box 2124 New York, New York 10004 Charlottesville, Virginia 22902 Michael Weinstein Barrons Investors Business Daily - ------- ------------------------ Dow Jones & Company 12655 Beatrice Street Barrons Statistical Information Post Office Box 661750 200 Burnett Road Los Angeles, California 90066 Chicopee, Massachusetts 01020 New York Times - -------------- 229 West 43rd Street New York, NY 10036 3 Local Media List ---------------- (To be provided) Newspaper - --------- Radio - ----- 4 D. Press Release Examples PRESS RELEASE FOR IMMEDIATE RELEASE --------------------- For More Information Contact: Larry D. Smith (719) 539-2516 SALIDA BUILDING AND LOAN ASSOCIATION ------------------------------------- CONVERSION TO STOCK FORM APPROVED --------------------------------- Salida, Colorado (____________, 1997) - Larry D. Smith, President and CEO of Salida Building and Loan Association ("Salida Building and Loan" or the "Association"), Salida, Colorado, announced that Salida Building and Loan has received approval from the Office of Thrift Supervision to convert from a federally-chartered mutual savings and loan association to a federally-chartered stock savings and loan association. In connection with the Conversion, Salida Building and Loan has formed a holding company, High Country Bancorp, Inc., to hold all of the outstanding capital stock of Salida Building and Loan. High Country Bancorp, Inc. is offering up to 1,035,000 shares of its common stock, subject to adjustment, at a price of $10.00 per share. Certain account holders and borrowers of the Association will have an opportunity to subscribe for stock through a Subscription Offering that closes on ___________, 1997. Shares that are not subscribed for during the Subscription Offering may be offered to certain members of the general public in a Community Offering, with first preference given to natural persons and trusts of natural persons who are residents of Chaffer, Lake, Fremont and Saguache Counties. The Subscription Offering and Community Offering, if conducted, will be managed by Trident Securities, Inc. of Raleigh, North Carolina. Copies of the Prospectus relating to the offerings and describing the Plan of Conversion will be mailed to customers on or about ____________, 1997. As a result of the Conversion, Salida Building and Loan will be structured in the stock form 5 as are all commercial banks and an increasing number of savings institutions and will be a wholly-owned subsidiary of High Country Bancorp, Inc. According to Mr. Smith, "Our day to day operations will not change as a result of the Conversion and deposits will continue to be insured by the FDIC up to the applicable legal limits." Customers with questions concerning the stock offering should call Salida Building and Loan's Stock Information Center at (719) ________, or visit one of Salida Building and Loan's offices. 6 PRESS RELEASE FOR IMMEDIATE RELEASE --------------------- For More Information Contact: Larry D. Smith (719) 539-2516 SALIDA BUILDING AND LOAN COMPLETES INITIAL STOCK OFFERING --------------------------------------------------------- Salida, Colorado - (____________, 1997) Larry D. Smith, President and CEO of Salida Building and Loan Association ("Salida Building and Loan" or the "Association"), announced today that High Country Bancorp, Inc., the proposed holding company for Salida Building and Loan, has completed its initial stock offering in connection with the Association's conversion from mutual to stock form. A total of ____________ shares were sold at the price of $10.00 per share. On ____________, 1997, Salida Building and Loan's Plan of Conversion was approved by the Association's voting members at a special meeting of members. Mr. Smith said that the officers and boards of directors of High Country Bancorp, Inc. and Salida Building and Loan wished to express their thanks for the response to the stock offering and that Salida Building and Loan looks forward to serving the needs of its customers and new stockholders as a community-based stock institution. The stock is anticipated to commence trading on ____________, 1997 on the OTC "Small Cap." Trident Securities, Inc. of Raleigh, North Carolina managed the stock offering. 7 II. Advertisements A. Explanation The intended use of the attached advertisement "A" is to notify Salida Building and Loan's customers and members of the local community that the conversion offering is underway. The intended use of advertisement "B" is to remind Salida Building and Loan's customers of the closing date of the Subscription Offering. B. Media Schedule 1. Advertisement A - To be run immediately following OTS approval and possibly run weekly for the first three weeks. 2. Advertisement B - To be run during the last week of the subscription offering. Trident may feel it is necessary to run more ads in order to remind customers of the close of the Subscription Offering and the Community Offering, if conducted. Alternatively, Trident may, depending upon the response from the customer base, choose to run fewer ads or no ads at all. These ads will run in the local newspapers. The ad size will be as shown or smaller. 8 - -------------------------------------------------------------------------------- THIS ANNOUNCEMENT IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY THESE SECURITIES. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THESE SHARES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION OR THE FEDERAL DEPOSIT INSURANCE CORPORATION, NOR HAS SUCH COMMISSION, OFFICE OR CORPORATION PASSED UPON THE ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. NEW ISSUE __________, 1997 1,035,000 SHARES These shares are being offered pursuant to a Plan of Conversion whereby SALIDA BUILDING AND LOAN ASSOCIATION Salida, Colorado, will convert from a federal mutual savings and loan association to a federal capital stock savings and loan association and become a wholly owned subsidiary of HIGH COUNTRY BANCORP, INC. COMMON STOCK _______________ PRICE $10.00 PER SHARE _______________ TRIDENT SECURITIES, INC. For a copy of the prospectus call (719) ________. Copies of the prospectus may be obtained in any State in which this announcement is circulated from Trident Securities, Inc. or such other brokers and dealers as may legally offer these securities in such state. THE STOCK WILL NOT BE INSURED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY. - ------------------------------------------------------------------------------- 9 - ------------------------------------------------------------------------------- SALIDA BUILDING AND LOAN ASSOCIATION __________ __, 1997 IS THE DEADLINE TO ORDER STOCK OF HIGH COUNTRY BANCORP, INC. Customers of Salida Building and Loan Association have the opportunity to invest in Salida Building and Loan Association by subscribing for common stock in its proposed holding company HIGH COUNTRY BANCORP, INC. A Prospectus relating to these securities is available at our office or by calling our Stock Information Center at (719) ________. This announcement is neither an offer to sell nor a solicitation of an offer to buy the stock of High Country Bancorp, Inc. The offer is made only by the Prospectus. The shares of common stock are not deposits or savings accounts and will not be insured by the Federal Deposit Insurance Corporation or any other government agency. Copies of the Prospectus may be obtained in any State in which this announcement is circulated from Trident Securities, Inc. or such other brokers and dealers as may legally offer these securities in such state. - ------------------------------------------------------------------------------- 10 III. Question and Answer Brochure A. Explanation The Question and Answer brochure is an essential marketing piece in any conversion. It serves two purposes: a) to answer some of the most commonly asked questions in "plain, everyday language"; and b) to highlight in brochure form the purchase commitments of the Association's officers and directors shown in the Prospectus. Although most of the answers are taken verbatim from the Prospectus, it saves the individual from searching for the answer to a simple question. B. Method of Distribution There are four primary methods of distribution of the Question and Answer brochure. However, regardless of the method the brochures are always accompanied by a Prospectus. 1. A Question and Answer brochure is sent out in the initial mailing to all members of the Association. 2. Question and Answer brochures are available in Salida Building and Loan's offices. 3. Question and Answer brochures may be sent out in a standard information packet to all interested investors who phone the Stock Information Center requesting information. 11 PROPOSED OFFICER AND DIRECTOR PURCHASES
Percent of Shares Aggregate Price of Purchased Based Name and Position Total Shares Amount of Purchase on Midpoint of Offer - ----------------- ------------ ------------------ ------------------- Robert B. Mitchell, Chairman of the Board Larry D. Smith, President and Director Scott G. Erchul, Vice President and Director Timothy G. Glenn, Director Phillip W. Harsh, Director Richard A. Young, Director Frank L. DeLay, Chief Financial Officer -------- $------- Total ============ ================== ===================
THIS INFORMATION DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY HIGH COUNTRY BANCORP, INC. COMMON STOCK. SUCH OFFERS AND SOLICITATIONS MAY BE MADE ONLY BY MEANS OF THE PROSPECTUS. COPIES OF THE PROSPECTUS MAY BE OBTAINED BY CALLING THE STOCK INFORMATION CENTER AT (719) ______________. THE SHARES OF HIGH COUNTRY BANCORP, INC. COMMON STOCK BEING OFFERED ARE NOT SAVINGS OR DEPOSIT ACCOUNTS AND ARE NOT INSURED BY THE SAVINGS ASSOCIATION INSURANCE FUND OF THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. 12 HIGH COUNTRY BANCORP, INC. (HOLDING COMPANY FOR SALIDA BUILDING AND LOAN ASSOCIATION) QUESTIONS AND ANSWERS REGARDING THE PLAN OF CONVERSION On May 15, 1997, the Board of Directors of Salida Building and Loan Association ("Salida Building and Loan" or the "Association") unanimously adopted the Plan of Conversion (the "Plan"), pursuant to which Salida Building and Loan will convert from a federally-chartered mutual savings and loan association to a federally-chartered stock savings and loan association (the "Conversion"). In addition, all of Salida Building and Loan's outstanding capital stock will be issued to High Country Bancorp, Inc. (the "Holding Company"), which was organized by Salida Building and Loan to own Salida Building and Loan as a subsidiary. This brochure is provided to answer general questions you might have about the Conversion. Following the Conversion, Salida Building and Loan will continue to provide financial services to its depositors, borrowers and other customers as it has in the past and will operate with its existing management and employees. The Conversion will not affect the terms, balances, interest rates or existing federal insurance coverage on Salida Building and Loan's deposits or the terms or conditions of any loans to existing borrowers under their individual contract arrangements with Salida Building and Loan. For complete information regarding the Conversion, see the Prospectus and the Proxy Statement dated __________, 1997 and the Proxy Statement dated __________, 1997. Copies of each of the Prospectus and the Proxy Statement may be obtained by calling the Stock Information Center at (719) ________. THIS INFORMATION DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY HIGH COUNTRY BANCORP, INC. COMMON STOCK. OFFERS TO BUY OR TO SELL MAY BE MADE ONLY BY THE PROSPECTUS. PLEASE READ THE PROSPECTUS PRIOR TO MAKING AN INVESTMENT DECISION. THE SHARES OF HIGH COUNTRY BANCORP, INC. COMMON STOCK BEING OFFERED IN THE SUBSCRIPTION AND COMMUNITY OFFERINGS ARE NOT SAVINGS OR DEPOSIT ACCOUNTS AND ARE NOT INSURED BY THE SAVINGS ASSOCIATION INSURANCE FUND OF THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. 13 QUESTIONS AND ANSWERS Questions and Answers Regarding the Subscription and Community Offerings MUTUAL TO STOCK CONVERSION -------------------------- 1. Q. WHAT IS A "CONVERSION"? A. Conversion is a change in the legal form of organization. Salida Building and Loan currently operates as a federally-chartered mutual savings and loan association with no stockholders. Through the Conversion, Salida Building and Loan will become a federally-chartered stock savings and loan association, and the stock of its holding company, High Country Bancorp, Inc. will be held by stockholders who purchase stock in the Subscription and Community Offerings or in the open market following the Offerings. 2. Q. WHY IS SALIDA BUILDING AND LOAN CONVERTING? A. Salida Building and Loan, as a mutual savings and loan association, does not have stockholders and has no authority to issue capital stock. By converting to the stock form of organization, the Association will be structured in the form used by commercial banks, most business entities and a growing number of savings institutions. The Conversion will be important to the future growth and performance of the Salida Building and Loan by providing a larger capital base from which the Association may operate, the ability to attract and retain qualified management through stock-based employee benefit plans, enhanced ability to diversify into other financial services related activities and expanded ability to render services to the public. Salida Building and Loan believes that converting to the stock form of organization will allow Salida Building and Loan to more effectively compete with local community banks, thrifts, and with statewide and regional banks, which are in stock form. Salida Building and Loan believes that by combining its existing quality service and products with a local ownership base the Association's customers and community members who become stockholders will be inclined to do more business with Salida Building and Loan. Furthermore, because Salida Building and Loan competes with local and regional banks not only for customers, but also for employees. Salida Building and Loan believes that the stock form of organization will better afford the Association the opportunity to attract and retain employees, management and directors through various stock benefit plans which are not available to mutual savings institutions. 14 3. Q. IS SALIDA BUILDING AND LOAN'S MUTUAL TO STOCK CONVERSION BENEFICIAL TO THE COMMUNITIES THAT THE ASSOCIATION SERVES? A. Management believes that the structure of the Subscription and Community Offerings is in the best interest of the communities that Salida Building and Loan serves because following the Conversion it is anticipated that a significant portion of the Common Stock will be owned by local residents desiring to share in the ownership of a local community financial institution. Management desires that a significant portion of the shares of common stock sold in the Offerings will be sold to residents of the Association's Local Community (Chaffee, Lake, Fremont and Saguache Counties, Colorado). 4. Q. WHAT EFFECT WILL THE CONVERSION HAVE ON DEPOSIT ACCOUNTS AND LOANS? A. Terms and balances of accounts in Salida Building and Loan and interest rates paid on such accounts will not be affected by the Conversion. Insurable accounts will continue to be insured by the Federal Deposit Insurance Corporation ("FDIC") up to the maximum amount permitted by law. The Conversion also will not affect the terms or conditions of any loans to existing borrowers or the rights and obligations of these borrowers under their individual contractual arrangements with Salida Building and Loan. 5. Q. WILL THE CONVERSION CAUSE ANY CHANGES IN SALIDA BUILDING AND LOAN'S PERSONNEL? A. No. Both before and after the Conversion, Salida Building and Loan's business of accepting deposits, making loans and providing financial services will continue without interruption with the same board of directors, management and staff. 6. Q. WHAT APPROVALS MUST BE RECEIVED BEFORE THE CONVERSION BECOMES EFFECTIVE? A. First, the Board of Directors of Salida Building and Loan must adopt the Plan of Conversion, which occurred on May 15, 1997. Second, the Office of Thrift Supervision must approve the applications required to effect the Conversion. These approvals have been obtained. Third, the Plan of Conversion must be approved by a majority of all votes eligible to be cast by Salida Building and Loan's voting members. A Special Meeting of voting members will be held on __________ __, 1997, to consider and vote upon the Plan of Conversion. THE HOLDING COMPANY ------------------- 7. Q. WHAT IS A HOLDING COMPANY? A. A holding company is a company that owns another entity. Concurrent with the Conversion, Salida Building and Loan will become a subsidiary of High Country Bancorp, Inc., a company organized by Salida Building and Loan to acquire all of the capital stock of Salida Building and Loan to be outstanding after the Conversion. 15 8. Q. IF I DECIDE TO BUY STOCK IN THIS OFFERING, WILL I OWN STOCK IN THE HOLDING COMPANY OR SALIDA BUILDING AND LOAN? A. You will own stock in High Country Bancorp, Inc. However, High Country Bancorp, Inc., as a holding company, will own all of the outstanding capital stock of Salida Building and Loan. 9. Q. WHY DID THE BOARD OF DIRECTORS FORM THE HOLDING COMPANY? A. The Board of Directors believes that the Conversion of Salida Building and Loan and the formation of the Holding Company will result in a stronger financial institution with the ability to provide additional flexibility to diversify the Association's business activities. The Holding Company will also be able to use stock-based incentive programs to attract and retain executive and other personnel. ABOUT BECOMING A STOCKHOLDER ---------------------------- 10. Q. WHAT ARE THE SUBSCRIPTION AND COMMUNITY OFFERINGS? A. Under the Plan of Conversion adopted by Salida Building and Loan, the Holding Company is offering shares of stock in the Subscription Offering, to certain current and former customers of the Association and to the Association's Employee Stock Ownership Plan ("ESOP"). Shares which are not subscribed for in the Subscription Offering, if any, may be offered to the general public in a Community Offering with preference given to natural persons who are permanent residents of the Association's Local Community (Chaffee, Lake, Fremont and Saguache Counties). These Offerings are consistent with the board's objective of High Country Bancorp, Inc. being a locally owned financial institution. The Subscription Offering and Community Offering, if conducted, are being managed by Trident Securities, Inc. It is anticipated that any shares not subscribed for in either the Subscription or Community Offerings may be offered for sale in a Syndicated Community Offering, which is an offering on a best efforts basis by a selling group of broker-dealers. 11. Q. MUST I PAY A COMMISSION TO BUY STOCK IN CONJUNCTION WITH THE SUBSCRIPTION, COMMUNITY OR COMMUNITY OFFERINGS? A. No. You will not pay a commission to buy the stock if the stock is purchased in the Subscription Offering or Community Offering, if conducted. 12. Q. HOW MANY SHARES OF HIGH COUNTRY BANCORP, INC. STOCK WILL BE ISSUED IN THE CONVERSION? A. It is currently expected that between 765,000 shares and 1,035,000 shares of common stock will be sold at a price of $10.00 per share. As a result of changes in market and financial conditions prior to the completion of the conversion or to fill orders of the ESOP and subject to the Office of Thrift supervision approval, the offering may be increased to 1,190,250 shares without further notice to you. 13. Q. HOW WAS THE PRICE DETERMINED? A. The aggregate price of the common stock was determined by Ferguson & Company, 16 an independent appraisal firm specializing in the thrift industry, and was approved by the Office of Thrift Supervision. The price is based on the pro forma market value of Salida Building and Loan and the Holding Company as determined by the independent valuation. 14. Q. WHO IS ENTITLED TO BUY STOCK IN THE CONVERSION? A. The shares of High Country Bancorp, Inc. to be issued in the Conversion are being offered in the Subscription Offering in the following order of priority to: (i) Eligible Account Holder (The term "Eligible Account Holders" shall hereinafter mean depositors whose accounts in the Association total $50.00 or more as of December 31, 1995), (ii) the Association's ESOP, (iii) depositors with $50.00 or more on deposit at the Association as of September 30, 1997, other than Eligible Account Holders, ("Supplemental Eligible Account Holders"), (iv) depositors and borrowers of the Association as of _____________, 1997, other than Eligible Account Holders and Supplemental Eligible Account Holders ("Other Members"), subject to the priorities and purchase limitations set forth in the Plan of Conversion. Subject to the prior rights of holders of subscription rights, Common Stock not subscribed for in the Subscription Offering may be offered in the Community Offering to certain members of the general public, with preference given to natural persons and trusts of natural persons residing in the Association's Local Community (Chaffee, Lake, Fremont and Saguache Counties). Shares, if any, not subscribed for in the Subscription or Community Offerings may be offered to the general public in a Syndicated Community Offering. 15. Q. ARE THE SUBSCRIPTION RIGHTS TRANSFERABLE? A. No. Subscription rights granted to Salida Building and Loan's Eligible Account Holders, Supplemental Eligible Account Holders and Other Members in the Conversion are not transferable. Persons violating such prohibition, directly or indirectly, may lose their right to purchase stock in the Conversion and be subject to other possible sanctions. 16. Q. WHAT ARE THE MINIMUM AND MAXIMUM NUMBERS OF SHARES THAT I CAN PURCHASE IN THE CONVERSION? A. The minimum number of shares is 25. The maximum number of shares that may be purchased in aggregate in the Conversion by any person or entity other than the ESOP, together with any associate or persons or entities acting in concert with such person, currently is $250,000 of common stock issued in the conversion. 17. Q. ARE THE BOARD OF DIRECTORS AND MANAGEMENT OF SALIDA BUILDING AND LOAN BUYING A SIGNIFICANT AMOUNT OF THE STOCK OF THE HOLDING COMPANY? A. Directors and executive officers of the Association are expected to subscribe for _________ shares. The purchase price paid by directors and executive officers will be the same $10.00 per share price as that paid by all other persons who order stock in the Subscription or Community Offerings. 17 18. Q. HOW DO I SUBSCRIBE FOR SHARES OF STOCK? A. To subscribe for shares of stock in the Subscription Offering, you should send or deliver a stock order form together with full payment (or appropriate instructions for withdrawal from permitted deposit accounts as described below) to Salida Building and Loan in the postage-paid envelope provided. The stock order form and payment or withdrawal authorization instructions must be received prior to the close of the Subscription Offering, which will terminate at 12:00 p.m., Local Time, on __________ __, 1997, unless extended. Payment for shares may be made in cash (if made in person) or by check or money order. Subscribers who have deposit accounts with Salida Building and Loan may include instructions on the stock order form requesting withdrawal from such deposit account(s) to purchase shares of High Country Bancorp, Inc. Withdrawals from certificates of deposit may be made without incurring an early withdrawal penalty. IT IS THE RESPONSIBILITY OF EACH SUBSCRIBER QUALIFYING AS AN ELIGIBLE ACCOUNT HOLDER, SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDER OR OTHER MEMBER TO LIST COMPLETELY ALL ACCOUNT NUMBERS FOR QUALIFYING SAVINGS ACCOUNTS OR LOANS AS OF THE QUALIFYING DATE ON THE STOCK ORDER FORM. If shares remain available for sale after the expiration of the Subscription Offering, they may be offered in the Community Offering, which may commence at any time after the commencement of the Subscription Offering and may terminate at any time without notice, but may not terminate later than ______________, 1998. Persons who wish to order stock in the Community Offering should return their stock order form as soon as possible after the Community Offering begins. Members of the general public should contact the Stock Information Center at (719) ________ for additional information. 19. Q. MAY I USE FUNDS IN A RETIREMENT ACCOUNT TO PURCHASE STOCK? A. Yes. If you are interested in using funds held in your retirement account at Salida Building and Loan, the Stock Information Center can assist you in transferring those funds to a self-directed IRA, if necessary, and directing the trustee to purchase the stock. This process may be done without an early withdrawal penalty and generally without a negative tax consequence to your retirement account. Due to the additional paperwork involved, IRA transfers must be completed by _________. For additional information, call the Stock Information Center at (719) __________. 20. Q. WILL I RECEIVE INTEREST ON FUNDS I SUBMIT FOR A STOCK PURCHASE? A. Yes. Salida Building and Loan will pay interest at its passbook rate from the date the funds are received until completion of the stock offering or termination of the Conversion. All funds authorized for withdrawal from deposit accounts with Salida Building and Loan will continue to earn interest at the contractual rate until the date of the completion of the Conversion. 21. Q. MAY I OBTAIN A LOAN FROM SALIDA BUILDING AND LOAN TO PAY FOR SHARES 18 PURCHASED IN THE CONVERSION? A. No. Federal regulations prohibit Salida Building and Loan from making loans for this purpose. However, federal regulations do not prohibit you from obtaining a loan from another source for the purpose of purchasing stock in the Conversion. 22. Q. IF I BUY STOCK IN THE CONVERSION, HOW WOULD I GO ABOUT BUYING ADDITIONAL SHARES OR SELLING SHARES IN THE AFTERMARKET? A. The Holding Company has never issued capital stock to the public and, consequently, there is no existing market for the Common Stock. Although the Holding Company has received conditional approval to trade its Common Stock on the Nasdaq SmallCap Market under the symbol "___" there can be no assurance that the Holding Company will meet Nasdaq SmallCap Market listing requirements, which currently include a minimum of two market makers in the Common Stock. Trident Securities has indicated its intention to make a market in the Common Stock, and the Association anticipates that it will be able to secure at least one additional market maker for the Common Stock. However, it is unlikely that an active trading market for the Common Stock will develop, and there can be no assurance that the shares of Common Stock being offered in the Conversion can be resold at or above the $10.00 purchase price. 23. Q. WHAT IS THE HOLDING COMPANY'S DIVIDEND POLICY? A. The Board of Directors of the Holding Company intends to adopt a policy of paying regular cash dividends at an annual rate of $0.30 per share (3.0%) commencing no earlier than the quarter ending March 31, 1998. Dividends will be subject to determination and declaration by the Board of Directors, which will take into account a number of factors, including the operating results and financial condition of the Holding Company, net worth and capital requirements and regulatory restrictions on the payment of dividends by the Association to the Holding Company upon which dividends paid by the Holding Company eventually will be primarily dependent. There can be no assurance that dividends will in fact be paid on the Common Stock or that, if paid, such dividends will not be reduced or eliminated in future periods. 24. Q. WILL THE FDIC INSURE THE SHARES OF THE HOLDING COMPANY? A. No. The shares of High Country Bancorp, Inc. are not savings deposits or savings accounts and are not insured by the FDIC or any other government agency. 25. Q. IF I SUBSCRIBE FOR SHARES AND LATER CHANGE MY MIND, WILL I BE ABLE TO GET A REFUND OR MODIFY MY ORDER? A. No. Your order cannot be canceled, withdrawn or modified once it has been received by Salida Building and Loan without the consent of the Holding Company. 19 ABOUT VOTING "FOR" THE PLAN OF CONVERSION ----------------------------------------- 26. Q. AM I ELIGIBLE TO VOTE AT THE SPECIAL MEETING OF MEMBERS TO BE HELD TO CONSIDER THE PLAN OF CONVERSION? A. You are eligible to vote at the Special Meeting of Members to be held on __________ __, 1997 if you were a depositor or borrower of Salida Building and Loan at the close of business on the Voting Record Date (_______, 1997) or as a borrower of Salida Building and Loan on (________, ____) and continue as such until the Special Meeting. If you were a member on the Voting Record Date, you should have received a proxy statement and a proxy card with which to vote. 27. Q. HOW MANY VOTES DO I HAVE? A. Each account holder is entitled to one vote for each $100, or fraction thereof, on deposit in such account(s). Each borrower member is entitled to cast one vote in addition to the number of votes, if any, he or she is entitled to cast as an account holder. No member may cast more than 1,000 votes. 28. Q. IF I VOTE "AGAINST" THE PLAN OF CONVERSION AND IT IS APPROVED, WILL I BE PROHIBITED FROM BUYING STOCK DURING THE SUBSCRIPTION OFFERING? A. No. Voting against the Plan of Conversion in no way restricts you from purchasing High Country Bancorp, Inc. stock in the Subscription Offering. 29. Q. DID THE BOARD OF DIRECTORS OF SALIDA BUILDING AND LOAN UNANIMOUSLY ADOPT THE PLAN OF CONVERSION? A. Yes. Salida Building and Loan's Board of Directors unanimously adopted the Plan of Conversion and urges that all members vote "FOR" approval of such Plan. 30. Q. WHAT HAPPENS IF SALIDA BUILDING AND LOAN DOES NOT GET ENOUGH VOTES TO APPROVE THE PLAN OF CONVERSION? A. The Conversion would not take place, and Salida Building and Loan would remain a mutual savings institution. 31. Q. AS A QUALIFYING DEPOSITOR OR BORROWER OF SALIDA BUILDING AND LOAN, AM I REQUIRED TO VOTE? A. No. However, failure to return your proxy card or otherwise vote will have the same effect as a vote AGAINST the Plan of Conversion. 32. Q. WHAT IS A PROXY CARD? A. A proxy card gives you the ability to vote without attending the Special Meeting in person. If you received more than one informational packet, then you should vote the proxy cards in all packets. Your proxy card is located in the window sleeve of your informational packet(s). You may attend the meeting and vote, even if you have returned your proxy card, if you choose to do so. However, if you are unable to attend, you still are represented by proxy. Previously executed proxies, other than those proxies sent pursuant to the 20 Conversion, will not be used to vote for approval of the Plan of Conversion, even if the respective members do not execute another proxy or attend the Special Meeting and vote in person. 33. Q. HOW CAN I GET FURTHER INFORMATION CONCERNING THE STOCK OFFERING? A. You may call the Stock Information Center at (719) ________ for further information or to request a copy of the Prospectus, a stock order form, a proxy statement or a proxy card. THIS INFORMATION DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY HIGH COUNTRY BANCORP, INC. COMMON STOCK. SUCH OFFERS AND SOLICITATIONS MAY BE MADE ONLY BY MEANS OF THE PROSPECTUS. COPIES OF THE PROSPECTUS MAY BE OBTAINED BY CALLING THE STOCK INFORMATION CENTER AT (719) ______________. THE SHARES OF HIGH COUNTRY BANCORP, INC. COMMON STOCK BEING OFFERED ARE NOT SAVINGS OR DEPOSIT ACCOUNTS AND ARE NOT INSURED BY THE SAVINGS ASSOCIATION INSURANCE FUND OF THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. 21 IV. Cover Letters for Initial Mailing A. Explanation These cover letters are used as an introduction for the Offering and Proxy materials mailed to potential investors. B. Examples 22 (Salida Building and Loan Letterhead) ____________, 1997 Dear Valued Customer: Salida Building and Loan Association ("Salida Building and Loan" or the "Association") is pleased to announce that it has received regulatory approval to proceed with its plan to convert to a federally-chartered stock savings and loan association. This stock conversion is the most significant event in the history of Salida Building and Loan in that it allows customers, community members, directors and employees an opportunity to own stock in High Country Bancorp, Inc., the proposed holding company for the Association. Since 1886, the Association has successfully operated as a mutual company. We want to assure you that the Conversion will not affect the terms, balances, interest rates or existing FDIC insurance coverage deposits at the Association, or the terms or conditions of any loans to existing borrowers under their individual contract arrangements with the Association. Let us also assure you that the Conversion will not result in any changes in the management, personnel or the Board of Directors of the Association. As one of our valued members, you have the opportunity to invest in the Association's future by purchasing stock in High Country Bancorp, Inc. without paying a sales commission. If you decide to exercise your subscription rights to purchase shares, you must return the properly completed stock order form together with full payment for the subscribed shares so that it is received by the Association not later than 12:00 p.m. Local Time on __________, 1997. Enclosed is a proxy card. Your Board of Directors solicits your vote "FOR" the Association's Plan of Conversion. A vote in favor of the Plan does not obligate you to purchase stock. Please sign and return your proxy card promptly; your vote is important to us. We have also enclosed a Prospectus and Proxy Statement which fully describes the Association, its management, board and financial strength and the Plan of Conversion. Please review it carefully before you vote or invest. For your convenience we have established a Stock Information Center. If you have any questions, please call the Stock Information Center collect at (719) _____. We look forward to continuing to provide quality financial services to you in the future. Sincerely, Larry D. Smith President and CEO This does not constitute an offer to sell, or the solicitation of an offer to buy, shares of High Country Bancorp, Inc. common stock offered in the conversion, nor does it constitute the solicitation of a proxy in connection with the conversion. Such offers and solicitations of proxies are made only by means of the Prospectus and Proxy Statement. There shall be no sale of stock in any state in which any offer, solicitation of an offer or sale of stock would be unlawful. THE STOCK WILL NOT BE INSURED BY THE FDIC OR ANY GOVERNMENTAL AGENCY. 23 (Salida Building and Loan Letterhead) ____________, 1997 Dear Interested Investor: Salida Building and Loan Association ("Salida Building and Loan" or the "Association") is pleased to announce that it has received regulatory approval to proceed with its plan to convert to a federally-chartered stock savings and loan association. This stock conversion is the most significant event in the history of the Association in that it allows customers, community members, directors and employees an opportunity to own stock in High Country Bancorp, Inc., the proposed holding company for the Association. Since 1886, the Association has successfully operated as a mutual company. We want to assure you that the Conversion will not affect the terms, balances, interest rates or existing FDIC insurance coverage on the Association deposits, or the terms or conditions of any loans to existing borrowers under their individual contract arrangements with the Association. Let us also assure you that the Conversion will not result in any changes in the management, personnel or the Board of Directors of the Association. Enclosed is a Prospectus which fully describes the Association, its management, board and financial strength. Please review it carefully before you make an investment decision. If you decide to invest, please return to the Association a properly completed stock order form together with full payment for shares at your earliest convenience but not later than 12:00 p.m. Local Time on _________, 1997. For your convenience we have established a Stock Information Center. If you have any questions, please call the Stock Information Center collect at (719) ________. We look forward to continuing to provide quality financial services to you in the future. Sincerely, Larry D. Smith President and CEO This does not constitute an offer to sell, or the solicitation of an offer to buy, shares of High Country Bancorp, Inc. common stock offered in the conversion, nor does it constitute the solicitation of a proxy in connection with the conversion. Such offers and solicitations of proxies are made only by means of the Prospectus and Proxy Statement. There shall be no sale of stock in any state in which any offer, solicitation of an offer or sale of stock would be unlawful. THE STOCK WILL NOT BE INSURED BY THE FDIC OR ANY GOVERNMENTAL AGENCY. 24 (Salida Building and Loan Letterhead) _____________, 1997 Dear Friend: Salida Building and Loan Association ("Salida Building and Loan" or the "Association") is pleased to announce that we have received regulatory approval to proceed with its plan to convert to a federally-chartered stock savings and loan association. This stock conversion is the most significant event in the history of Salida Building and Loan in that it allows customers, community members, directors and employees an opportunity to own stock in High Country Bancorp, Inc., the proposed holding company for the Association. Since 1886, the Association has successfully operated as a mutual company. We want to assure you that the Conversion will not affect the terms, balances, interest rates or existing FDIC insurance coverage on the Association deposits, or the terms or conditions of any loans to existing borrowers under their individual contract arrangements with the Association. Let us also assure you that the Conversion will not result in any changes in the management, personnel or the Board of Directors of the Association. Our records indicate that you were a depositor of the Association on __________, but that you were not a member on _____________, 1997. Therefore, under applicable law, you are entitled to subscribe for Common Stock in High Country Bancorp, Inc.'s Subscription Offering. Orders submitted by you and others in the Subscription Offering are contingent upon the current members' approval of the Plan of Conversion at a special meeting of members to be held on _________, 1997 and upon receipt of all required regulatory approvals. Since you are no longer a current member, you are not entitled to vote at the special meeting of members. If you decide to exercise your subscription rights to purchase shares, you must return the properly completed stock order form together with full payment for the subscribed shares so that it is received at the Association not later than 12:00 p.m. Local Time on _________, 1997. Enclosed is a Prospectus which fully describes the Association, its management, board and financial strength. Please review it carefully before you invest. For your convenience we have established a Stock Information Center. If you have any questions, please call the Stock Information Center collect at (719) ________. We look forward to providing quality financial services to you in the future. Sincerely, Larry D. Smith President and CEO This does not constitute an offer to sell, or the solicitation of an offer to buy, shares of High Country Bancorp, Inc. common stock offered in the conversion, nor does it constitute the solicitation of a proxy in connection with the conversion. Such offers and solicitations of proxies are made only by means of the Prospectus and Proxy Statement. There shall be no sale of stock in any state in which any offer, solicitation of an offer or sale of stock would be unlawful. THE STOCK WILL NOT BE INSURED BY THE FDIC OR ANY GOVERNMENTAL 25 AGENCY. 26 (Salida Building and Loan Letterhead) ___________, 1997 Dear Member: As a qualified member of Salida Building and Loan Association ("Salida Building and Loan" or the "Association"), you have the right to vote upon the Association's proposed Plan of Holding Company Conversion and also generally have the right to subscribe for shares of common stock of High Country Bancorp, Inc., the proposed holding company for Salida Building and Loan through the mutual to stock conversion of the Association. However, the proposed plan of Holding Company Conversion provides that High Country Bancorp, Inc. will not offer stock in any state in which compliance with the securities laws would be impracticable for reasons of cost or otherwise. Unfortunately, the securities laws of your state would require High Country Bancorp, Inc. to register its common stock and /or its employees in order to sell the common stock to you. Such registration would be prohibitively expensive or otherwise impracticable in light of the few members residing in your state. You may vote on the proposed Plan of Holding Company Conversion and we urge you to read the enclosed Summary Proxy Statement and execute the enclosed Revocable Proxy. Questions regarding the execution of the Revocable Proxy should be directed to Salida Building and Loan's Stock Information Center at (719)______________. Sincerely, Larry D. Smith President and CEO This does not constitute an offer to sell, or the solicitation of an offer to buy, shares of High Country Bancorp, Inc. common stock offered in the conversion, nor does it constitute the solicitation of a proxy in connection with the conversion. Such offers and solicitations of proxies are made only by means of the Prospectus and Proxy Statement. There shall be no sale of stock in any state in which any offer, solicitation of an offer or sale of stock would be unlawful. THE STOCK WILL NOT BE INSURED BY THE FDIC OR ANY GOVERNMENTAL AGENCY. 27 (Trident Letterhead) ___________,1997 To Members and Friends of Salida Building and Loan Association: At the request of High Country Bancorp, Inc. (the "Holding Company") and Salida Building and Loan Association ("Salida Building and Loan") we have enclosed their Prospectus and a Stock Order Form for your use should you decide to subscribe for shares of Common Stock of the Holding company being issued in connection with the conversion of Salida Building and Loan from a federally- charted mutual savings bank to a federally-chartered stock savings bank and the formation of the Holding Company as the parent holding company for Salida Building and Loan. If you decide to exercise your subscription rights to purchase shares, you must return the properly completed Stock Order Form together with full payment for the subscribed shares (or appropriate instructions authorizing withdrawal in such amount from your authorized deposit account(s) at Salida Building and Loan) so that it is received at Salida Building and Loan's office no later than 12:00 noon, Eastern Time on ________, 1997. The Holding Company has asked us to forward these documents to you in view of certain requirements of the securities laws in your state. Should you have any questions you may contact the Stock Information Center at (__) ___________. Sincerely, TRIDENT SECURITIES, INC. The shares of common stock offered in the conversion are not savings accounts or deposits and will not be insured by the Federal Deposit Insurance Corporation or any other government agency. This is not an offer to sell or a solicitation of an offer to buy stock. The offer will be made only by the Prospectus. There shall be no sale of stock in any state in which any offer, solicitation of an offer or sale of stock would be unlawful. 28 V. IRA Mailing A. Explanation A special IRA mailing is proposed to be sent to all IRA customers of the Association in order to alert the customers that funds held in an IRA can be used to purchase stock. Since this transaction is not as simple as designating funds from a certificate of deposit like a normal stock purchase, this letter informs the customer that this process is slightly more detailed and involves a personal visit to the Association. B. Quantity One IRA letter is proposed to be mailed to each IRA customer of the Association. These letters would be mailed following OTS approval for the conversion and after each customer has received the initial mailing containing a Proxy Statement and a Prospectus. C. Example - See following page. 29 (Salida Building and Loan Letterhead) _____________, 1997 Dear Individual Retirement Account Participant: As you know, Salida Building and Loan Association is in the process of converting from a federally-chartered mutual savings and loan association to a federally-chartered stock savings and loan association and has formed High Country Bancorp, Inc. to hold all of the stock of Salida Building and Loan (the "Conversion"). Through the Conversion, certain current and former depositors and borrowers of Salida Building and Loan have the opportunity to purchase shares of common stock of High Country Bancorp, Inc. in a Subscription Offering. High Country Bancorp, Inc. currently is offering up to 1,035,000 shares, subject to adjustment, of High Country Bancorp, Inc. at a price of $10.00 per share. As the holder of an individual retirement account ("IRA") at Salida Building and Loan, you have an opportunity to become a shareholder in High Country Bancorp, Inc. using funds being held in your IRA. If you desire to purchase shares of common stock of High Country Bancorp, Inc. through your IRA, Salida Building and Loan can assist you in self-directing those funds. This process can be done without an early withdrawal penalty and generally without a negative tax consequence to your retirement account. If you are interested in ordering High Country Bancorp, Inc. Common Stock utilizing IRA funds, you must contact our Conversion Center at (719) __________ no later than __________, 1997. Sincerely, Larry D. Smith President and CEO This letter is neither an offer to sell nor a solicitation of an offer to buy High Country Bancorp, Inc. common stock. The offer is made only by the Prospectus, which was recently mailed to you. THE SHARES OF HIGH COUNTRY BANCORP, INC. COMMON STOCK ARE NOT DEPOSITS AND WILL NOT BE INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. 30 VI. Individual Letters and Community Meeting Invitations A. Explanation In order to educate the public about the stock offering, Trident suggests holding Community meetings in various locations. In an effort to target a group of interested investors, Trident requests that each Director of the Association submit a list of acquaintances that he or she would like to invite to a community meeting. B. Method of Distribution of Invitations and Prospect Letters Each Director submits his list of prospects. Invitations are sent to each Director's prospects through the mail. All invitations are preceded by a Prospectus and all attendees are given a Prospectus at the meeting. Letters will be sent to prospects to thank them for their attendance and to remind them of closing dates. C. Examples enclosed. 31 - -------------------------------------------------------------------------------- The Directors and Officers of Salida Building and Loan Association cordially invite you to attend a brief presentation regarding the stock offering of High Country Bancorp, Inc., our proposed holding company Please join us at the ______________________ ___________________ _________________________ __________________ _____________________ for refreshments YOU MUST RESPOND BY ____________ TO RESERVE A SEAT R.S.V.P. (719) _____________ This is not an offer to sell or a solicitation of an offer to buy stock. The offer will be made only by a Prospectus! There shall be no sale of stock in any state in which any offer, solicitation of an offer or sales of stock would be unlawful. THE STOCK WILL NOT BE INSURED BY THE FDIC OR ANY GOVERNMENTAL AGENCY. - -------------------------------------------------------------------------------- 32 Sent to prospects who are customers* _______________, 1997 &salutation& &firstname& &last name& &address& &city&, &state& &zip& Dear &prefername& Recently you may have read in the newspaper that Salida Building and Loan Association ("The Association") will convert from a federally-chartered mutual savings and loan association to a federally-chartered stock savings and loan association. This is the most significant event in the history of the Association in that it allows customers, employees and directors the opportunity to share in Salida Building and Loan's future by becoming charter stockholders of the Association's newly-formed holding company, High Country Bancorp, Inc. As a customer of Salida Building and Loan, you should have received a packet of information regarding the conversion, including a Prospectus and a Proxy Statement. In addition, we are holding several presentations for friends of the officers and directors to discuss the stock offering in more detail. You will receive an invitation in the near future. Please feel free to call me or the Salida Building and Loan's Stock Information Center at (719) ________ if you have any questions. I look forward to seeing you at one of our informational presentations. Sincerely, Larry D. Smith President and CEO This does not constitute an offer to sell, or the solicitation of an offer to buy, shares of High Country Bancorp, Inc. common stock offered in the conversion, nor does it constitute the solicitation of a proxy in connection with the conversion. Such offers and solicitations of proxies are made only by means of the Prospectus and the Summary Proxy Statement, respectively. There shall be no sale of stock in any state in which any offer, solicitation of an offer or sale of stock would be unlawful. THE STOCK WILL NOT BE INSURED BY THE FDIC OR ANY GOVERNMENTAL AGENCY. 33 *Sent to prospects who are not customers* ____________, 1997 &salutation& &firstname& &lastname& &address& &city&, &state& &zip& Dear &prefername&: Recently you may have read in the newspaper that Salida Building and Loan Association ("The Association") will be converting from a federally-chartered mutual savings and loan association to a federally-chartered stock savings and loan association. This is the most significant event in the history of the Association in that it allows customers, employees and directors the opportunity to share in Salida Building and Loan's future by becoming charter stockholders of the Association's holding company, High Country Bancorp, Inc. [Director] has asked that you be sent a Prospectus and stock order form which will allow you to become a charter stockholder, should you desire. In addition, we are holding several presentations for friends of the officers and directors of Salida Building and Loan to discuss the stock offering in more detail. You will receive an invitation in the near future. Please feel free to call me or the Salida Building and Loan's Stock Information Center at (719) _______ if you have any questions. I look forward to seeing you at one of our information presentations. Sincerely, Larry D. Smith President and CEO This does not constitute an offer to sell, or the solicitation of an offer to buy, shares of High Country Bancorp, Inc. common stock offered in the conversion, nor does it constitute the solicitation of a proxy in connection with the conversion. Such offers and solicitations of proxies are made only by means of the Prospectus and the Summary Proxy Statement, respectively. There shall be no sale of stock in any state in which any offer, solicitation of an offer or sale of stock would be unlawful. THE STOCK WILL NOT BE INSURED BY THE FDIC OR ANY GOVERNMENTAL AGENCY. 34 *Sent to those attending a community meeting* ____________, 1997 &salutation& &firstname& &lastname& &address& &City&, &state& &zip& Dear &prefername&: Thank you for attending our informational presentation relating to Salida Building and Loan Association's conversion to a stock company. The information presented at the meeting and the Prospectus you recently received should assist you in making an informed investment decision. Obviously, we are excited about this stock offering and the opportunity to share in the future of Salida Building and Loan. This conversion is the most important event in our history and it gives the Association the strength to compete in the future and will provide the Association additional corporate flexibility. We may contact you in the near future to get an indication of your interest in our offering. If you make a decision to invest, please return your order form no later than ___________, 1997. If you have any questions, please call the Stock Information Center at (719) ________. Sincerely, Larry D. Smith President and CEO This does not constitute an offer to sell, or the solicitation of an offer to buy, shares of High Country Bancorp, Inc. common stock offered in the conversion, nor does it constitute the solicitation of a proxy in connection with the conversion. Such offers and solicitations of proxies are made only by means of the Prospectus and the Summary Proxy Statement, respectively. There shall be no sale of stock in any state in which any offer, solicitation of an offer or sale of stock would be unlawful. THE STOCK WILL NOT BE INSURED BY THE FDIC OR ANY GOVERNMENTAL AGENCY. 35 * Sent to those not attending a community meeting * _________, 1997 &salutation& &firstname& &lastname& &address& &city&, &state& &zip& Dear &prefername&: I am sorry you were unable to attend our recent presentation regarding Salida Building and Loan Association's mutual to stock conversion. The Board of Directors and management team of Salida Building and Loan are committed to contributing to long term shareholder value and as a group we are personally investing approximately $_________ of our own funds. We are enthusiastic about the stock offering and the opportunity to share in the future of Salida Building and Loan. We have established a Stock Information Center to assist you with any questions regarding the stock offering. Should you require any assistance between now and ___________, 1997, I encourage you to either stop by our Stock Information Center or call (719) __________. I hope you will join me as a charter stockholder in High Country Bancorp, Inc. Sincerely, Larry D. Smith President and CEO This does not constitute an offer to sell, or the solicitation of an offer to buy, shares of High Country Bancorp, Inc. common stock offered in the conversion, nor does it constitute the solicitation of a proxy in connection with the conversion. Such offers and solicitations of proxies are made only by means of the Prospectus and the Summary Proxy Statement, respectively. There shall be no sale of stock in any state in which any offer, solicitation of an offer or sale of stock would be unlawful. THE STOCK WILL NOT BE INSURED BY THE FDIC OR ANY GOVERNMENTAL AGENCY. 36 * Final Reminder Letter * _________, 1997 &salutation&firstname&lastname& &address& &city&, &state& &zip& Dear &prefername&: I am writing to remind you that the deadline for purchasing stock in High Country Bancorp, Inc. is quickly approaching. I hope you will join me in becoming a charter stockholder in one of Colorado's newest publicly owned financial institutions. The deadline for becoming a charter stockholder is ____________, 1997. If you have any questions, please call our Stock Information Center at (719) __________. Once again, I look forward to having you join me as a charter stockholder in High Country Bancorp, Inc. Sincerely, Larry D. Smith President and CEO This does not constitute an offer to sell, or the solicitation of an offer to buy, shares of High Country Bancorp, Inc. common stock offered in the conversion, nor does it constitute the solicitation of a proxy in connection with the conversion. Such offers and solicitations of proxies are made only by means of the Prospectus and the Summary Proxy Statement, respectively. There shall be no sale of stock in any state in which any offer, solicitation of an offer or sale of stock would be unlawful. THE STOCK WILL NOT BE INSURED BY THE FDIC OR ANY GOVERNMENTAL AGENCY. 37 VII. Counter Cards and Lobby Posters A. Explanation Counter cards and lobby posters serve two purposes: (1) As a notice to Salida Building and Loan's customers and members of the local community that the stock sale is underway and (2) to remind the customers of the end of the Subscription Offering. Trident has learned in the past that many people forget the deadline for subscribing and therefore we suggest the use of these simple reminders. B. Quantity Approximately 2 - 3 Counter cards will be used at teller windows and on customer service representatives' desk. Approximately 1 - 2 Lobby posters will be used at Salida Building and Loan's office. C. Example D. Size The counter card will be approximately 8 1/2" x 11". The lobby poster will be approximately 16" x 20". 38 C. POSTER OR COUNTER CARD ================================================================================ "TAKE STOCK IN OUR FUTURE" "HIGH COUNTRY BANCORP, INC. STOCK OFFERING MATERIALS AVAILABLE HERE" SALIDA BUILDING AND LOAN ASSOCIATION This is not an offer to sell or a solicitation of an offer to buy stock. This offer will be made only by a Prospectus. There shall be no sale of stock in any state in which any offer, solicitation of an offer or sale of stock will be unlawful. THE STOCK WILL NOT BE INSURED BY THE FDIC OR ANY GOVERNMENTAL AGENCY. ================================================================================ 39 VIII. Proxy Reminder A. Explanation A proxy reminder is used when the majority of votes needed to adopt the Plan of Conversion is still outstanding. The proxy reminder is mailed to those "target vote" depositors who have not previously returned their signed proxy. The target vote depositors are determined by the conversion agent. B. Example C. Size Proxy reminder is approximately 8 1/2" x 11". 40 B. Example - -------------------------------------------------------------------------------- P R O X Y R E M I N D E R SALIDA BUILDING AND LOAN ASSOCIATION YOUR VOTE ON OUR STOCK CONVERSION PLAN HAS NOT BEEN RECEIVED. YOUR VOTE IS VERY - --------- --------------------- ----------------- IMPORTANT, PARTICULARLY SINCE FAILURE TO VOTE IS EQUIVALENT TO VOTING AGAINST - --------- THE PLAN. VOTING FOR THE CONVERSION WILL NOT AFFECT THE INSURANCE OF YOUR ACCOUNTS. DEPOSIT ACCOUNTS WILL CONTINUE TO BE FEDERALLY INSURED UP TO THE APPLICABLE LIMITS. YOU MAY PURCHASE STOCK IF YOU WISH, BUT VOTING DOES NOT OBLIGATE YOU TO BUY STOCK. PLEASE ACT PROMPTLY! SIGN THE ENCLOSED PROXY CARD AND MAIL, OR DELIVER, THE ---------------------------- PROXY CARD TO SALIDA BUILDING AND LOAN TODAY. PLEASE VOTE ALL PROXY CARDS RECEIVED. --- WE RECOMMEND THAT YOU VOTE TO APPROVE THE PLAN OF CONVERSION. THANK YOU. THE BOARD OF DIRECTORS AND MANAGEMENT OF SALIDA BUILDING AND LOAN ASSOCIATION - -------------------------------------------------------------------------------- IF YOU RECENTLY MAILED THE PROXY, PLEASE ACCEPT OUR THANKS AND DISREGARD THIS REQUEST. FOR FURTHER INFORMATION CALL (719) _______. This does not constitute an offer to sell, or the solicitation of an offer to buy, shares of High Country Bancorp, Inc. common stock offered in the conversion, nor does it constitute the solicitation of a proxy in connection with the conversion. Such offers and solicitations of proxies are made only by means of the Prospectus and the Summary Proxy Statement, respectively. There shall be no sale of stock in any state in which any offer, solicitation of an offer or sale of stock would be unlawful. THE STOCK WILL NOT BE INSURED BY THE FDIC OR ANY GOVERNMENTAL AGENCY. 41 EX-99.4 24 EXHIBIT 99.4 Exhibit 99.4 CONVERSION VALUATION REPORT ______________________________________________ Valued as of August 8, 1997 SALIDA BUILDING AND LOAN ASSOCIATION Salida, Colorado Prepared By: Ferguson & Company Suite 550 122 W. John Carpenter Freeway Irving, TX 75039 972/869-1177 [LETTERHEAD OF FERGUSON & COMPANY APPEARS HERE] STATEMENT OF APPRAISER'S INDEPENDENCE SALIDA BUILDING AND LOAN ASSOCIATION ------------------------------------ SALIDA, COLORADO ---------------- We are the appraiser for Salida Building and Loan Association in connection with its mutual to stock conversion. We are submitting our independent estimate of the pro forma market value of the Association's stock to be issued in the conversion. In connection with our appraisal of the Association's to-be-issued stock, we have received a fee which was not related to the estimated final value. The estimated pro forma market value is solely the opinion of our company and it was not unduly influenced by the Association, its conversion counsel, its selling agent, or any other party connected with the conversion. We also received a fixed fee for assisting the Association in connection with the preparation of its business plan to be submitted with the conversion application. Salida Building and Loan Association has agreed to indemnify Ferguson & Company under certain circumstances against liabilities arising out of our services. Specifically, we are indemnified against liabilities arising from our appraisal except to the extent such liabilities are determined to have arisen because of our negligence or willful conduct. Ferguson & Company Robin L. Fussell Principal August 15, 1997 [LETTERHEAD OF FERGUSON & COMPANY APPEARS HERE] AUGUST 15, 1997 BOARD OF DIRECTORS SALIDA BUILDING AND LOAN ASSOCIATION 130 WEST 2ND STREET SALIDA, COLORADO 81201 DEAR DIRECTORS: We have completed and hereby provide, as of August 8, 1997, an independent appraisal of the estimated pro forma market value of Salida Building and Loan Association ("SB&LA" or the "Association"), Salida, Colorado, in connection with the conversion of SB&LA from the mutual to stock form of organization ("Conversion"). This appraisal report is furnished pursuant to the regulatory filing of the Association's Application for Conversion ("Form AC") with the Office of Thrift Supervision ("OTS"). Ferguson & Company ("F&C") is a consulting firm that specializes in providing financial, economic, and regulatory services to financial institutions. The background and experience of F&C is presented in Exhibit I. We believe that, except for the fees we will receive for preparing the appraisal and assisting with SB&LA's business plan, we are independent. F&C personnel are prohibited from owning stock in conversion clients for a period of at least one year after conversion. In preparing our appraisal, we have reviewed SB&LA's Application for Approval of Conversion, including the Proxy Statement as filed with the OTS. We conducted an analysis of SB&LA that included discussions with Grimsley, White & Company, CPA's, the Association's independent auditors, and with Housley Kantarian and Bronstein, P.C., the Association's conversion counsel. In addition, where appropriate, we considered information based on other available published sources that we believe is reliable; however, we cannot guarantee the accuracy or completeness of such information. We also reviewed the economy in SB&LA's primary market area and compared the Association's financial condition and operating results with that of selected publicly traded thrift institutions. We reviewed conditions in the securities markets in general and in the market for thrifts stocks in particular. Our appraisal is based on SB&LA's representation that the information contained in the Form AC and additional evidence furnished to us by the Association and its independent auditors are truthful, accurate, and complete. We did not independently verify the financial statements and other information provided by SB&LA and its auditors, nor did we independently value the Association's assets or liabilities. The valuation considers SB&LA only as a going concern and should not be considered an indication of its liquidation value. It is our opinion that, as of August 8, 1997, the estimated pro forma market value of Salida Building and Loan Association was $9,000,000, or 900,000 shares at $10.00 per share. The resultant valuation range was $7,650,000 at the minimum (765,000 shares at $10.00 per share) to $10,350,000 at the maximum (1,035,000 shares at $10.00 per share), based on a range of 15 percent below and above the midpoint valuation. The supermaximum was $11,902,500 (1,190,250 shares at $10.00 per share). BOARD OF DIRECTORS AUGUST 15, 1997 PAGE 2 Our valuation is not intended, and must not be construed, as a recommendation of any kind as to the advisability of purchasing shares of common stock in the conversion. Moreover, because such valuation is necessarily based upon estimates and projections of a number of matters, all of which are subject to change from time to time, no assurance can be given that persons who purchase shares of common stock in the conversion will thereafter be able to sell such shares at prices related to the foregoing estimate of the Association's pro forma market value. F&C is not a seller of securities within the meaning of any federal or state securities laws and any report prepared by F&C shall not be used as an offer or solicitation with respect to the purchase or sale of any securities. Our opinion is based on circumstances as of the date hereof, including current conditions in the United States securities markets. Events occurring after the date hereof, including, but not limited to, changes affecting the United States securities markets and subsequent results of operations of SB&LA, could materially affect the assumptions used in preparing this appraisal. The valuation reported herein will be updated as provided in the OTS conversion regulations and guidelines. Any updates will consider, among other things, any developments or changes in SB&LA'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 will be made to the estimated pro forma market value. The reasons for any such adjustments will be explained in detail at the time. Respectfully, FERGUSON & COMPANY Robin L. Fussell Principal FERGUSON & COMPANY - ------------------- TABLE OF CONTENTS SALIDA BUILDING AND LOAN ASSOCIATION SALIDA, COLORADO
PAGE ---- INTRODUCTION 1 SECTION I. - FINANCIAL CHARACTERISTICS 1 PAST & PROJECTED ECONOMIC CONDITIONS 1 FINANCIAL CONDITION OF INSTITUTION 2 BALANCE SHEET TRENDS 2 ASSET/LIABILITY MANAGEMENT 2 INCOME AND EXPENSE TRENDS 2 REGULATORY CAPITAL REQUIREMENTS 3 LENDING 3 NONPERFORMING ASSETS 3 CLASSIFIED ASSETS 3 LOAN LOSS ALLOWANCE 3 MORTGAGE-BACKED SECURITIES AND INVESTMENTS 3 SAVINGS DEPOSITS 3 BORROWINGS 4 SUBSIDIARIES 4 LEGAL PROCEEDINGS 4 EARNINGS CAPACITY OF THE INSTITUTION 4 ASSET-SIZE-EFFICIENCY OF ASSET UTILIZATION 4 INTANGIBLE VALUES 4 EFFECT OF GOVERNMENT REGULATIONS 4 OFFICE FACILITIES 5 SECTION II - MARKET AREA 1 DEMOGRAPHICS 1
i FERGUSON & COMPANY - ------------------ TABLE OF CONTENTS - CONTINUED SALIDA BUILDING AND LOAN ASSOCIATION SALIDA, COLORADO
PAGE ---- SECTION III - COMPARISON WITH PUBLICLY TRADED THRIFTS 1 COMPARATIVE DISCUSSION 1 SELECTION CRITERIA 1 PROFITABILITY 2 BALANCE SHEET CHARACTERISTICS 2 RISK FACTORS 2 SUMMARY OF FINANCIAL COMPARISON 3 FUTURE PLANS 3 SECTION IV - CORRELATION OF MARKET VALUE 1 MARKETABILITY & LIQUIDITY OF STOCK TO BE ISSUED 1 FINANCIAL ASPECTS 1 MARKET AREA 2 MANAGEMENT 2 DIVIDENDS 2 LIQUIDITY 3 THRIFT EQUITY MARKET CONDITIONS 3 COLORADO ACQUISITIONS 3 EFFECT OF INTEREST RATES ON THRIFT STOCK 4 ADJUSTMENTS CONCLUSION 6 VALUATION APPROACH 6 VALUATION CONCLUSION 7
ii FERGUSON & COMPANY - ------------------- TABLE OF CONTENTS - CONTINUED SALIDA BUILDING AND LOAN ASSOCIATION SALIDA, COLORADO
TABLE NUMBER TABLE TITLE PAGE - ---- ----------- ---- SECTION I - FINANCIAL CHARACTERISTICS 1 Selected Financial Data 6 2 Operating Ratios 7 3 Interest Rate Shock 8 4 Interest Rate Sensitivity Analysis 9 5 Regulatory Capital Compliance 10 6 Loan Portfolio Composition 11 7 Loan Maturities 12 8 Loan Origination, Purchase, and Repayment Activity 13 9 Average Balances, Rates, and Yields 14 10 Rate/Volume Analysis 15 11 Loan Delinquencies at June 30, 1997 16 12 Non-Performing Assets 17 13 Analysis of the Allowance for Loan Losses 18 14 Allocation of the Allowance for Loan Losses 19 15 Investment Securities 20 16 Investments at June 30, 1997 21 17 Deposit Portfolio 22 18 Savings Deposits Details 23 19 Certificates of Deposits Maturities 24 20 Savings Flows 25 21 Jumbo CD Maturities 26 22 Borrowings 26 23 Offices 27 SECTION II - MARKET AREA 1 Demographic Trends 3 2 Percent Employment by Industry 4 3 Market Area Deposits 5 4 Summary of Building Permits 6 SECTION III - COMPARISON WITH PUBLICLY TRADED THRIFTS 1 Comparatives General Characteristics 4 2 Key Financial Indicators 5 3 Pro Forma Comparisons 6
iii FERGUSON & COMPANY - ------------------- TABLE OF CONTENTS - CONTINUED SALIDA BUILDING AND LOAN ASSOCIATION SALIDA, COLORADO
TABLE NUMBER TABLE TITLE PAGE - ------ ----------- ---- SECTION IV - CORRELATION OF MARKET VALUE 1 Appraisal Earnings Adjustments 2 2 Colorado Acquisitions 8 3 Recent Conversions 11 4 Comparison of Pricing Ratios 14
FIGURE NUMBER LIST OF FIGURES - ------ --------------- PAGE ---- SECTION IV - CORRELATION OF MARKET VALUE 1 SNL Index 15 2 Interest Rates 16
EXHIBIT TITLE -------------- Exhibit I - Ferguson & Company Qualifications Exhibit II - Selected Region, State, and Comparatives Information Exhibit III - Salida Building and Loan Association TAFS Report Exhibit IV - Comparative Group TAFS and BankSource Reports Exhibit V - Selected Publicly Traded Thrifts Exhibit VI - Comparative Group Selection Exhibit VII - Pro Forma Calculations Pro Forma Assumptions Pro Forma Effect of Conversion Proceeds At the Minimum of the Range Pro Forma Effect of Conversion Proceeds At the Midpoint of the Range Pro Forma Effect of Conversion Proceeds At the Maximum of the Range Pro Forma Effect of Conversion Proceeds At the SuperMax of the Range Pro Forma Analysis Sheet iv SECTION I FINANCIAL CHARACTERISTICS FERGUSON & COMPANY SECTION 1 - ------------------ --------- INTRODUCTION Salida Building and Loan Association ("SB&LA" or "Association") is a federally chartered, federally insured mutual savings association located in Salida, Colorado. It was chartered in 1886 as the first state chartered building and loan association in Colorado. It received its federal insurance of accounts and joined the Federal Home Loan Bank system in 1937, and converted to a federal charter in 1993. In May 1997, the Board of Directors adopted a plan to convert to a stock owned savings association via a standard mutual to stock conversion. In connection with the conversion, the Association will form a holding company, High Country Bancorp, Inc., ("HCBI" or (Holding Company"). At June 30, 1997, SB&LA had total assets of $76.3 million, loans of $63.1 million, mortgage-backed securities of $5.3 million, interest-bearing deposits in other banks of $2.4 million, deposits of $56.2 million, borrowings of $13.5 million, and net worth of $6.0 million, or 7.8% of assets. The Association has three offices. The main office is located in Salida and the Association has branches in Buena Vista and Leadville. Salida and Buena Vista are in Chaffee County and Leadville is in Lake County. Colorado is in the southwestern portion of the United States. SB&LA's offices are located in the western half of Colorado. SB&LA is a traditional thrift with a growing emphasis on loans other than 1-4 dwelling units. It invests primarily in (1) 1-4 family loans, (2) consumer and commercial loans, (3) mortgage backed securities, and (4) temporary cash investments. It is funded principally by savings deposits and borrowings. The Association offers a full spectrum of real estate loan products to accommodate its customer base and single family loans dominate the Association's loan portfolio. At June 30, 1997, loans on 1-4 family dwellings made up 65.0% of total assets and 76.0% of the gross loan portfolio. Consumer loans were 11.2% of the loan portfolio and commercial real estate and non-real estate loans were 12.8% of the loan portfolio. Mortgage backed securities made up 7.0% of total assets. Cash and cash equivalents made up 4.3% of SB&LA's assets at June 30, 1997. SB&LA had $175,000 in non-performing assets at June 30, 1997, as compared to $73,000 at June 30, 1996. Savings deposits increased $13.67 million during the period from June 30, 1993 to 1997, a compound annual growth rate of 7.23%. Savings increased $3.62 million (7.89%) from June 30, 1995 to 1996, and increased $6.62 million (13.35%) from June 30, 1996 to 1997. SB&LA has also relied extensively on borrowings during recent years. It had $3.00 million in borrowings at June 30, 1995, $7.15 million at June 30, 1996, and $13.52 million at June 30, 1997. The Association's capital to assets ratio has decreased slightly during the period of four years ending June 30, 1997. Equity capital, as a percentage of assets, has decreased from 8.64% at June 30, 1993, to 7.81% at June 30, 1997. The compound annual asset growth rate was 12.80% during the period, while the compound annual rate of growth for equity was 9.98%. SB&LA's profitability, as measured by return on average assets ("ROAA"), has been at the top of its peer group average of thrifts filing TFR's with the OTS, consisting of OTS supervised thrifts with assets between $50 million and $100 million. For the years ending December 31, 1994, 1995, and 1996, and the three months ending March 31, 1997, SB&LA ranked in the 88th, 74th, 33rd, and 58th percentile, respectively, in ROAA, based on information derived from the TAFS thrift database published by Sheshunoff Information Services Inc. (See Exhibit III, page 2). In return on equity for the same periods, SB&LA ranked in the 87th, 79th, 40th, and 80th percentile, respectively. I. FINANCIAL CHARACTERISTICS PAST & PROJECTED ECONOMIC CONDITIONS Fluctuations in thrift earnings in recent years have occurred within the time frames as a result of changing temporary trends in interest rates and other economic factors. However, the year-to-year results have been upward while the general trends in the thrift industry have been improving as interest rates declined. Interest rates began a 1 FERGUSON & COMPANY SECTION 1 - ------------------ --------- general upward movement during late 1993, followed by a decline in interest margins and profitability. Rates began a general decline in mid 1995 and then leveled off on the short end and increased on the long end. SB&LA's spread was 4.41% for the year ended June 30, 1996 and 4.19% for the year ended June 30, 1997. The thrift industry generally is better equipped to cope with changing interest rates than it was in the past, and investors have recognized the demonstrated ability of the thrift industry to maintain interest margins in spite of rising interest rates. However, rate increases and the shortening of the time elapsed between increases during 1994 placed pressure on portfolio managers to shorten maturities, which negatively impacts the future earnings of financial institutions. SB&LA has a much higher exposure to interest rate risk than the thrift industry in general. FINANCIAL CONDITION OF INSTITUTION BALANCE SHEET TRENDS As Table I.1 shows, SB&LA experienced healthy growth in assets during the two years ending June 30, 1997. Assets increased $21.51 million during the period. Loans increased $21.59 million, or 52.0%. Mortgage-backed securities, interest-earning cash, and investment securities combined decreased $1.69 million, or 17.9% during the period. Savings deposits increased by $10.24 million, or 22.3%. Equity increased $579 thousand, or 10.8%. ASSET/LIABILITY MANAGEMENT Managing interest rate risk is a major component of the strategy used in operating a thrift. Most of a thrift's interest earning assets are long-term, while most of the interest bearing liabilities have short to intermediate terms to contractual maturity. To compensate, asset/liability management techniques include (1) making long term loans with interest rates that adjust to market periodically, (2) investing in assets with shorter terms to maturity, (3) lengthening the terms to maturities of liabilities, and (4) seeking to employ any combination of the aforementioned techniques artificially through the use of synthetic hedge instruments. Table I.3 provides asset and liability repricing gap information and table I.4 provides rate shock information at varying levels of interest rate change. The Association has significant exposure to interest rate increases, but its exposure will be reduced through the equity raised in the conversion. Notwithstanding the Association's interest rate risk position, it has maintained a healthy interest rate spread consistently in recent years. Assets have become more rate sensitive as intermediate term loans have assumed a larger percentage of the loan portfolio and a significant portion (43.85%) of the Association's deposits are in passbook and transaction accounts, which are not generally as rate sensitive as CD's. SB&LA's basic approach to interest rate risk management has been to emphasize shorter term loans, sell long term fixed rate loans in the secondary market, and develop a deposit portfolio of transaction accounts. SB&LA currently is not utilizing synthetic hedge instruments. It has used borrowings extensively in recent years, and at June 30, 1997, it had over $4.0 million in borrowings with maturities beyond one year. SB&LA's business plan calls for continued emphasis on shorter term and adjustable rate loans. INCOME AND EXPENSE TRENDS SB&LA was profitable for each of the two fiscal years ended June 30, 1997. Fluctuations in income over the period have resulted principally from (1) changes in non-interest expense, principally the SAIF assessment of approximately $297,000 in 1997, and (2) previous service funding of $237,000 for a directors' benefit plan in 1997, (3) losses on loan sales of $56,000 in 1997 and $93,000 in 1996, and (4) higher than normal loan loss provisions. In addition, opening a new branch office in Buena Vista in early fiscal 1997, and the completion of a new office for the Leadville branch during the fiscal 1996 year, both impacted earnings. The new branch and the new office required a transfer of funds from earning assets to non-earning assets and, in addition, added to overhead costs because of additional maintenance, depreciation, insurance, taxes, utilities, and personnel costs. These additional expenses will become less relevant as the Association grows in size. Net interest income increased in the year ended June 30, 1997 and 1996, as compared to the prior years, principally as a result of growth. 2 FERGUSON & COMPANY SECTION 1 - ------------------ --------- REGULATORY CAPITAL REQUIREMENTS As Table I.5 demonstrates, SB&LA meets all regulatory capital requirements, and meets the regulatory definition of a "Well Capitalized" institution. Moreover, the additional capital raised in the stock conversion will add to the existing capital cushion. LENDING Table I.6 provides an analysis of the Association's loan portfolio by type of loan and security. This analysis shows that, at June 30, 1996 and 1997, SB&LA's loan composition was dominated by 1-4 family dwelling loans. Table I.7 provides information on loan maturities and repricing opportunities at June 30, 1997. The schedule shows that, at that date, approximately 56% of the portfolio was scheduled to mature in more than five years and 45% was scheduled to mature in more than ten years. Table I.8 provides information with respect to loan originations. It indicates that loan origination activity was extremely healthy for both 1996 and 1997, with total originations for each year in excess of 70% of the amount of net loans at the beginning of the year. Table I.9 provides rates, yields, and average balances for each of the two years ended June 30, 1997. Interest rates earned on interest-earning assets decreased from 8.67% in 1996 to 8.55% in 1997. Interest rates paid on interest- bearing liabilities increased from 4.27% in 1996 to 4.37% for 1997. SB&LA's spread decreased from 4.41% in 1996 to 4.19% in 1997. Net interest margin decreased 27 basis points from 4.65% in 1996 to 4.38% in 1997, as a result of the 22 basis points spread compression combined with the decline in net earning assets resulting from the investments in non-earning office premises. Table I.10 provides a rate volume analysis, measuring differences in interest earning assets and interest costing liabilities and the interest rates thereon during the years ended June 30, 1995 versus 1996, and June 30, 1996 versus 1997. The table shows that most of the increase in net interest income for each year resulted from volume. NON-PERFORMING ASSETS As shown in Table I.11, the Association had $140,000 in loans that were over 90 days delinquent at June 30, 1997. The Association had discontinued interest accrual on these loans at June 30, 1997. As shown in Table I.12, SB&LA had $175 thousand in nonperforming assets at June 30, 1997, and $73 thousand at June 30, 1996. CLASSIFIED ASSETS SB&LA had $420 thousand in classified assets at June 30, 1997. All of the classified assets were classified as substandard. The Association had a loan loss allowance of $604,000, or 143.8% of classified assets at June 30, 1997. LOAN LOSS ALLOWANCE Table I.13 provides an analysis of SB&LA's loan loss allowance. Table I.14 shows the allocation of the loan loss allowance among the various loan categories as of June 30, 1996, and 1997. MORTGAGE-BACKED SECURITIES AND INVESTMENTS Table I.15 provides a breakdown of investments as of June 30, 1995, 1996, and 1997. Table I.16 provides maturity information for investments as of June 30, 1997. SAVINGS DEPOSITS At June 30, 1997, SB&LA's deposit portfolio was composed as follows: Checking, NOW, and MMDA accounts--$13.933 million or 24.81%; passbook accounts-- $10.691 million or 19.04%; and certificate accounts--$31.528 million or 56.15% (see Table I.17). Table I.18 provides a break down of transaction accounts and time deposits by rate ranges as of June 30, 1995, 1996, and 1997. Table I.19 provides maturity information by rate range for time deposits as of June 30, 1997. It shows that, as of June 30, 1997, 80.28% of SB&LA's time deposits were maturing within one year and 94.00% were maturing within two years. Table I.20 provides savings flow information 3 FERGUSON & COMPANY SECTION 1 - ------------------ --------- for the years ended June 30, 1996 and 1997. It shows that the Association experienced healthy deposit growth rates for both years. SB&LA is not overly dependent on jumbo certificates of deposit. At June 30, 1997, the Association had $8.668 million in certificates that were issued for $100 thousand or more, or 15.44% of its total deposits (see Table I.21). BORROWINGS SB&LA had $13.52 million in borrowings at June 30, 1997. Rates on the borrowings ranged from 5.81% to 8.12% and maturities extended to the year 2002 (see Table I.22). SUBSIDIARIES SB&LA has no subsidiaries. LEGAL PROCEEDINGS From time to time, SB&LA becomes involved in legal proceedings principally related to the enforcement of its security interest in real estate loans. In the opinion of Management of the Association, no legal proceedings are in process or pending that would have a material effect on SB&LA's financial position, results of operations, or liquidity. EARNINGS CAPACITY OF THE INSTITUTION As in any interest sensitive industry, the future earnings capacity of SB&LA will be affected by the interest rate environment. Historically, the thrift industry has performed at less profitable levels in periods of rising interest rates. This performance is due principally to the general composition of the assets and the limited repricing opportunities afforded even the adjustable rate loans. The converse earnings situation (falling rates) does not afford the same degree of profitability potential for thrifts due to the tendency of borrowers to refinance both high rate fixed rate loans and adjustable loans as rates decline. SB&LA is no exception to the aforementioned phenomenon. With its current asset and liability structure, however, its exposure to rising interest rates is significant. The addition of capital through the conversion will encourage SB&LA to grow. The business plan projects healthy asset growth over the three year period ending June 30, 2000. As growth is attained, the leverage of that new capital should, from a ratio of expenses to total assets standpoint, reduce the operating expense ratio. ASSET-SIZE-EFFICIENCY OF ASSET UTILIZATION At its current size and in its current asset configuration, SB&LA is not an efficient operation. With total assets of approximately $76.3 million at June 30, 1997, SB&LA has approximately 37 full time equivalent employees. The Association should become more efficient as growth is attained and recent office premise expansion is absorbed. INTANGIBLE VALUES SB&LA's greatest intangible value lies in its loyal deposit base. SB&LA has a 111 year history of sound operations. At June 30, 1996, the Association had 21.76% of the deposit market in its area (up from 20.94% at June 30, 1994), and it has the ability to increase market share. SB&LA has no significant intangible values that could be attributed to unrecognized asset gains on investments and real estate. It had approximately $9.4 million in loan servicing at June 30, 1997. EFFECT OF GOVERNMENT REGULATIONS SB&LA's business plan calls for a continuation of its current strategies. Government regulations will have the greatest impact in the area of cost of compliance and reporting. The conversion will create an additional layer of regulations and reporting and thereby increase the cost to the Association. 4 FERGUSON & COMPANY SECTION 1 - ------------------ --------- OFFICE FACILITIES SB&LA's main office is a well maintained facility that the Association occupied in 1974. It is adequate for customer service and convenience, but it is not currently adequate for the Association's internal needs. Management is contemplating either adding a branch in Salida, expanding the existing main office, or acquiring another main office. Table I.23 provides information on SB&LA's offices. The two branch offices are new. 5 FERGUSON & COMPANY SECTION 1 - ------------------ ---------
TABLE I.1 - SELECTED FINANCIAL DATA Compound At June 30 Growth ------------------------------------------------------- 1997 1996 1995 1994 1993 Rate ---- ---- ---- ---- ---- -------- ($000's) SELECTED FINANCIAL CONDITION DATA: - ---------------------------------- Total assets $ 76,324 $ 63,185 $ 54,813 $ 49,204 $ 47,142 12.80% Cash 895 511 1,355 1,463 2,463 -22.37% Interest bearing deposits 2,381 1,577 513 639 1,882 6.06% Securities available for sale - 989 1,385 1,454 2,169 NM Securities held to maturity 5,340 6,843 8,368 9,910 9,748 -13.97% Loans receivable, net 63,127 50,076 41,537 34,456 30,049 20.39% Savings deposits 56,152 49,537 45,914 43,965 42,478 7.23% Borrowings 13,520 7,150 3,000 - - NM Equity substantially restricted 5,958 5,907 5,379 4,792 4,072 9.98%
YEAR ENDED SEPTEMBER 30, ---------------------------------------------------- 1997 1996 1995 1994 1993 ----- ---- ---- ---- ---- ($000'S) SELECTED OPERATIONS DATA: - ------------------------- Interest income $ 5,764 $ 4,948 $ 3,911 $ 3,557 $ 3,858 Interest expense 2,813 2,293 1,603 1,401 1,714 -------------------------------------------------- NET INTEREST INCOME 2,951 2,655 2,308 2,156 2,144 Provision for loan losses 282 59 59 60 62 -------------------------------------------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,669 2,596 2,249 2,096 2,082 -------------------------------------------------- Noninterest income 141 146 146 122 198 -------------------------------------------------- SUB-TOTAL 2,810 2,742 2,395 2,218 2,280 -------------------------------------------------- Noninterest expense: Compensation and benefits 1,345 868 730 626 544 Other 1,410 948 771 661 725 ---------------------------------------------------- Total noninterest expense 2,755 1,816 1,501 1,287 1,269 ---------------------------------------------------- INCOME BEFORE TAXES 55 926 894 931 1,011 Income tax expense 11 407 327 347 367 ---------------------------------------------------- NET INCOME $44 $519 $567 $584 $644 ====================================================
SOURCE: OFFERING CIRCULAR 6 FERGUSON & COMPANY TABLE 1.2 - OPERATING RATIOS SECTION I - ------------------ ---------
AT OR FOR THE YEARS ENDED JUNE 30, ------------------------ 1997 1996 ---- ---- PERFORMANCE RATIOS: - ------------------- Return on assets (ratio of net earnings to average total assets) 0.06% 0.86% Return on equity (ratio of net earnings to average equity) 0.75% 9.15% Ratio of average interest-earning assets to average interest-bearing liabilities 104.64% 106.15% Ratio of net interest income, after provision for loan losses, to noninterest expense 96.88% 142.95% Net interest rate spread 4.19% 4.41% Net yield on average interest-earning assets 4.38% 4.65% QUALITY RATIOS: - --------------- Non-performing loans to total loans at end of period 0.21% 0.14% Non-performing loans to total assets 0.18% 0.12% Non-performing assets to total assets at end of period 0.23% 0.12% Allowance for loan losses to non-performing loans at end of period 431.00% 563.00% Allowance for loan losses to total loans, net 0.96% 0.82% CAPITAL RATIOS: - --------------- Equity to total assets at end of period 7.81% 9.35% Average equity to average assets 8.32% 9.42% OTHER DATA: - ----------- Number of full service offices 3 2
SOURCE: OFFERING CIRCULAR 7 FERGUSON & COMPANY SECTION I - ------------------ --------- TABLE I.3 - INTEREST RATE SHOCK
NET PORTFOLIO VALUE MARCH 31, 1997 --------------------------------------------------------------- ESTIMATED NPV AS A CHANGE ESTIMATED PERCENT IN RATES NPV OF ASSETS $ CHANGE % CHANGE - -------------------- ---------------- ----------------- ---------- ---------- ($000's) +400 bp $ 4,498 6.26% (4,542) -50% +300 bp 5,679 7.75% (3,361) -37% +200 bp 6,886 9.21% (2,154) -24% +100 bp 8,029 10.55% (1,011) -11% 0 bp 9,040 11.68% - - --100 bp 9,769 12.46% 729 8% --200 bp 9,997 12.67% 957 11% --300 bp 10,092 12.73% 1,052 12% --400 bp 10,314 12.92% 1,274 14%
SOURCE: OFFICE OF THRIFT SUPERVISION, RISK MANAGEMENT DIVISION 8 FERGUSON & COMPANY SECTION I - ------------------ ---------
TABLE I.4 - INTEREST RATE SENSITIVITY ANALYSIS AT JUNE 30, 1997 ------------------------------------------------------------------------------------- Over Three Over One Over Three Over Five Three Months Months to to Three to Five to Ten Over Ten or Less One Year Years Years Years Years Total ------------------------------------------------------------------------------------- ($000's) INTEREST-EARNING ASSETS: - ----------------------- Mortgage loans $ 4,934 $8,340 $1,322 $2,222 $6,929 $28,783 $52,530 Commercial loans 1,435 1,543 600 1,127 250 - 4,955 Consumer loans 229 941 2,022 3,214 244 - 6,650 Interest-bearing deposits 2,381 - - - - - 2,381 FHLB stock - - - - - 989 989 Mortgage-backed securities 1,887 3,184 261 - - 8 5,340 ---------------------------------------------------------------------------------- Total interest-earning assets $10,866 $14,008 $4,205 $6,563 $7,423 $29,780 $72,845 ================================================================================== INTEREST-BEARING LIABILITIES: - ---------------------------- NOW accounts $ 8,225 $ - $ - $ - $ - - $8,225 Money market deposit accounts 3,347 - - - - - 3,347 Savings accounts 10,691 - - - - - 10,691 Certificates of deposit 7,749 17,561 5,394 773 51 - 31,528 FHLB advances 2,000 7,630 3,760 130 - - 13,520 ----------------------------------------------------------------------------------- $32,012 $ 25,191 $ 9,154 $ 903 $ 51 $ - $67,311 =================================================================================== Interest-earning assets less interest-bearing liabilities $(21,146) $(11,183) $ (4,949) $ 5,660 $7,372 $29,780 ====================================================================== Cumulative interest-rate sensitivity gap $(21,146) $(32,329) $(37,278) $(31,618) $(24,246) $ 5,534 ====================================================================== Cumulative interest-rate sensitivity gap as a percentage of interest-earning assets -29.03% -44.38% -51.17% -43.40% -33.28% 7.60% ======================================================================= Cumulative ratio of interest earning assets to interest-bearing liabilities 33.94% 43.48% 43.82% 52.99% 63.98% 108.22% ======================================================================= Cumulative interest rate sensitivity gap as a percent of total assets -27.71% -42.36% -48.84% -41.43% -31.77% 7.25% =======================================================================
SOURCE: OFFERING CIRCULAR 9 FERGUSON & COMPANY SECTION I - ------------------ --------- TABLE I.5 - REGULATORY CAPITAL COMPLIANCE
Percent of Amount Assets ------------------- ($000's) Tangible capital $5,955 7.80% Tangible capital requirement 1,145 1.50% ------------------ Excess (deficit) $4,810 6.30% ================== Core capital $5,955 7.80% Core capital requirement 2,290 3.00% ------------------ Excess (deficit) $3,665 4.80% ================== Risk-based capital $6,550 13.76% Risk-based capital requirement 3,809 8.00% ------------------ Excess (deficit) $2,741 5.76% ==================
SOURCE: OFFERING CIRCULAR 10 FERGUSON & COMPANY TABLE I.6 - LOAN PORTFOLIO COMPOSITION SECTION I - ------------------ ---------
AT JUNE 30, --------------------------------------------- 1997 1996 ---------------------- ---------------------- Amount Percent Amount Percent ------ ------- ------ ------- ($000'S) MORTGAGE LOANS: 1-4 family 49,602 76.00% 41,248 79.17% Commercial 1,644 2.52% 1,381 2.65% Land development 2,390 3.66% 1,500 2.88% ---------------------- ---------------------- Total mortgage loans 53,636 82.19% 44,129 84.70% ---------------------- ---------------------- Consumer loans 6,476 9.92% 4,770 9.16% Loans on savings accounts 765 1.17% 824 1.58% Commercial loans 4,287 6.57% 2,285 4.39% Other loans 98 0.15% 92 0.18% ---------------------- ---------------------- TOTAL LOANS 65,262 100.00% 52,100 100.00% ---------------------- ---------------------- Less: Undisbursed loans in process 1,123 1,247 Deferred fees and discounts 408 366 Allowance for losses 604 411 ------- ------- LOAN PORTFOLIO, NET 63,127 50,076 ======= =======
SOURCE: OFFERING CIRCULAR 11 FERGUSON & COMPANY TABLE I.7 - LOAN MATURITIES SECTION I - ------------------ --------------------------- --------- The following table sets forth certain information at June 30, 1997, regarding the amount of loans maturing in the loan portfolio, based on contractual terms to maturity.
3 to 12 1 to 3 3 to 5 5 to 10 Over 3 Months Months Years Years Years 10 Years Total ------------ ------------ ------------ ------------ ------------ ------------ ------------ ($000,s) Mortgage loans $ 4,934 $ 8,340 $ 1,322 $ 2,222 $ 6,929 $ 28,783 $ 52,530 Commercial loans 1,435 1,543 600 1,127 250 4,955 Consumer loans 229 941 2,022 3,214 244 6,650 ------------ ------------ ------------ ------------ ------------ ------------ ------------ Total $ 6,598 $ 10,824 $ 3,944 $ 6,563 $ 7,423 $ 28,783 $ 64,135 ============ ============ ============ ============ ============ ============ ============
12 FERGUSON & COMPANY SECTION I - ------------------ --------- Table I.8 - Loan Origination, Purchase, and Repayment Activity
For the Year Ended June 30, ---------------------------- 1997 1996 ($000's) Net loans, beginning of period $50,076 $41,537 ORIGINATIONS BY TYPE: Mortgage loans: 1-4 family 19,174 18,973 Commercial 981 1,898 Land development 1,813 1,641 Consumer loans 9,179 6,323 Loans on savings accounts 604 694 Commercial loans 4,669 2,906 ---------------------------- Total loans originated 36,420 32,435 ---------------------------- LOANS SOLD 3,968 3,398 ---------------------------- REPAYMENTS: 19,636 20,525 ---------------------------- DECREASE (INCREASE) IN OTHER ITEMS, NET: 235 (27) ---------------------------- Net increase (decrease) in loans receivable, net 13,051 8,539 ---------------------------- Net loans, end of period $63,127 $50,076 ============== =============
SOURCE: OFFERING CIRCULAR 13 FERGUSON & COMPANY TABLE I.9-AVERAGE BALANCES, RATES, AND YIELDS SECTION I - ------------------ ---------
Year Ended June 30, ----------------------------------------------------------------------- 1997 1996 -------------------------------- --------------------------------- Average Interest Average Interest Outstanding Earned/ Average Outstanding Earned/ Average Balance Paid Yield/Rate Balance Paid Yield/Rate -------------------------------- -------------------------------- ($000's) INTEREST/DIVIDEND-EARNING ASSETS: - -------------------------------- Interest-bearing deposits $ 1,398 $ 84 6.01% $ 543 $ 41 7.55% Investments 7,234 431 5.96% 9,081 581 6.40% Loans 58,752 5,249 8.93% 47,442 4,326 9.12% ----------------------------- ----------------------------- Total interest\dividend-earning assets 67,384 $5,764 8.55% 57,066 $ 4,948 8.67% ================= ================= Non-interest earning assets 3,845 3,120 ---------- ---------- Total assets $ 71,229 $ 60,186 ========== ========== INTEREST-BEARING LIABILITIES: - ---------------------------- Savings deposits $ 53,890 2,179 4.04% $ 48,451 $ 1,967 4.06% FHLB advances 10,508 634 6.03% 5,308 326 6.14% ----------------------------- ----------------------------- Total interest-bearing liabilities 64,398 $2,813 4.37% 53,759 $ 2,293 4.27% ================= ================= Non-interest bearing liabilities 908 760 ----------- ----------- Total liabilities 65,306 54,519 ----------- ----------- Equity 5,923 5,667 ----------- ----------- Total liabilities and equity $ 71,229 $ 60,186 =========== =========== Net interest\dividend income $2,951 $ 2,655 ========= ========= Net interest\dividend rate spread (1) 4.19% 4.41% ======= ======= Net interest\dividend earnings assets $ 2,986 $ 3,307 =========== =========== Net interest\dividend margin (2) 4.38% 4.65% ======= ======= Average interest\dividend-earning assets to average interest-bearing liabilities 104.64% 106.15% ========= =========
(1) Net interest rate spread represents the difference between the average yield on interest-earning assets and the average rate on interest- bearing liabilities. (2) Net interest margin represents net interest income divided by average interest-earning assets. SOURCE: OFFERING CIRCULAR 14 FERGUSON & COMPANY TABLE I.10 - RATE/VOLUME ANALYSIS SECTION I - ------------------ ---------
Year Ended June 30, ---------------------------------------------------------------------------------- 1997 vs. 1996 1996 vs. 1995 ---------------------------------------- ----------------------------------------- Increase Increase (Decrease) (Decrease) Due to Total Due to Total ------------------------------ ------------------------------ Rate/ Increase Rate/ Increase Volume Rate Volume (Decrease) Volume Rate Volume (Decrease) ------ ---- ------ --------- ------ ---- ------- --------- ($000's) INTEREST-EARNING ASSETS: Interest-bearing deposits $66 $(8) $(13) $45 $(8) $ - $ - $(8) Investments (118) (40) 8 (150) (82) 81 (12) (13) Loans 1,033 (90) (21) 922 837 176 45 1,058 ---------------------------------------- ----------------------------------------- Total interest-earning assets 981 (138) (26) 817 747 257 33 1,037 ---------------------------------------- ----------------------------------------- INTEREST-BEARING LIABILITIES: Deposits 221 (9) (1) 211 125 282 23 430 FHLB advances 321 (6) (5) 310 273 (3) (11) 259 ---------------------------------------- ----------------------------------------- Total interest - bearing liabilities 542 (15) (6) 521 398 279 12 689 ---------------------------------------- ----------------------------------------- Increase (decrease) in net interest income $439 $(123) $(20) $296 $349 $(22) $21 $348 ======================================== =========================================
SOURCE: OFFERING CIRCULAR 15 FERGUSON & COMPANY SECTION I - ------------------ --------- TABLE I.11 - LOAN DELINQUENCIES AT JUNE 30, 1997
1997 1996 ---------------------- -------------------- Percent Percent of Gross of Gross Amount Loans Amount Loans ------ ----- ------ ----- ($000'S) Mortgage loans $ - 0.00% $ - 0.00% Non-residential - 0.00% - 0.00% Consumer loans 136 0.21% 73 0.14% Commercial loans 4 0.00% - 0.00% Other loans - 0.00% - 0.00% -------------------- --------------------- Total $ 140 0.21% $ 73 0.14% ==================== =====================
SOURCE: OFFERING CIRCULAR 16 FERGUSON & COMPANY SECTION I - ------------------ --------- TABLE I.12 - NON-PERFORMING ASSETS The table below sets forth the amounts and categories of non-performing assets. Loans are placed on non-accrual status when the collection of principal or interest becomes doubtful.
JUNE 30, --------------------------- 1997 1996 ---- ---- ($000'S) Non-accruing loans: Real estate: One- to four-family - - Multi-family - - Non-residential - - Construction - - Consumer 136 73 Commercial 4 - Other - - --------------------------- Total 140 73 --------------------------- Accruing loans delinquent 90 days or more: Real estate: One- to four-family - - Multi-family - - Non-residential - - Construction - - Consumer - - Commercial - - Other - - --------------------------- Total - - --------------------------- Total non-performing loans 140 73 --------------------------- Repossessed assets 35 - --------------------------- Total non-performing assets 175 73 =========================== Total non-performing loans as a percentage of total net loans 0.22% 0.15% =========================== Total non-performing assets as a percentage of total assets 0.23% 0.12% ===========================
SOURCE: OFFERING CIRCULAR 17 FERGUSON & COMPANY SECTION I - ------------------ --------- TABLE I.13 - ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
YEAR ENDED JUNE 30, ------------------- 1997 1996 ---- ---- ($000's) Balance at beginning of period $ 411 $ 405 --------- --------- Charge-offs: One- to four-family (32) (26) Multi-family - - Non-residential - - Construction - - Consumer (64) (27) Commercial - - Other - - --------- --------- (96) (53) --------- --------- Recoveries: 7 - --------- --------- Net (charge-offs) (89) (53) --------- --------- Additions charged to operations 282 59 --------- --------- Balance at end of period $ 604 $ 411 ========= ========= Allowance for loan losses to total non-performing loans at end of period 431.00% 563.00% ========= ========= Allowance for loan losses to net loans at end of period 0.96% 0.82% ========= =========
SOURCE: OFFERING CIRCULAR 18 FERGUSON & COMPANY SECTION I - ------------------ --------- TABLE I.14 - ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
AT JUNE 30, ------------------------------------------------ 1997 1996 ----------------------- ----------------------- Percent Percent of Loans of Loans in Each in Each Amount of Category Amount of Category Loan Loss to Gross Loan Loss to Gross Allowance Loans Allowance Loans --------- ----- --------- ----- ($000's) Mortgage Loans Residential $ 203 76.00% $ 203 77.84% Commercial 7 2.52% 7 4.02% Land 100 3.66% 0 0.00% Consumer Loans 294 17.82% 201 15.26% ---------------------- ---------------------- $ 604 100.00% $ 411 100.00% ====================== ======================
SOURCE: OFFERING CIRCULAR 19 FERGUSON & COMPANY SECTION 1 - ------------------ --------- TABLE I.15 - INVESTMENT SECURITIES
At June 30, ------------------------------- 1997 1996 1995 --------- --------- ----------- ($000's) U.S. Treasury securities $ - $ 989 $ 974 Interest-bearing deposits 2,381 1,577 513 Mortgage-backed securities 5,340 6,843 8,368 Federal Home Loan Bank stock 988 564 411 --------- --------- ----------- TOTAL $8,709 $ 9,973 $ 10,266 ========= ========= ===========
SOURCE: OFFERING CIRCULAR 20 FERGUSON & COMPANY SECTION I - ------------------ ---------
TABLE I.16 - INVESTMENTS AT JUNE 30, 1997 MATURITY PERIOD AT JUNE 30, 1997 ------------------------------------ ------------------ --------------- One Year or Less One to Five Years Over Five Years Total ----------------- ------------------ ------------------ --------------- Book Book Book Book Value Yield Value Yield Value Yield Value Yield ----- ----- ----- ----- ----- ----- ----- ----- ($000's) Interest-bearing deposits $2,381 5.50% $ - $ - $2,381 5.50% Mortgage-backed securities 460 6.77% 1,340 6.77% 3,540 6.77% 5,340 6.77% FHLB stock - - 988 6.68% 988 6.68% ------- ----- ------- ------ ------- ------ ------ ----- Total investment securities $2,841 5.71% $1,340 6.77% $4,528 6.76% $8,709 6.41% ======= ===== ======= ====== ======= ====== ====== =====
SOURCE: OFFERING CIRCULAR 21 FERGUSON & COMPANY SECTION I - ------------------ --------- TABLE I.17 - DEPOSIT PORTFOLIO
Balance Percent Interest June 30, of Category Term Rate (1) 1997 Deposits - -------- ---- -------- ---- -------- ($000's) ------ SAVINGS AND TRANSACTIONS ACCOUNTS - --------------------------------- Now accounts None 1.67% $ 8,225 14.65% Passbook accounts None 2.97% 10,691 19.04% Demand None 0.00% 2,361 4.20% Money market accounts None 2.93% 3,347 5.96% ------------ ----------- 24,624 43.85% ------------ ----------- CERTIFICATES OF DEPOSIT - --------------------------------- FIXED TERM, FIXED RATE 3 months 3.70% 187 0.33% Fixed term, fixed rate 6 months 5.16% 4,039 7.19% Fixed term, fixed rate 9 months 5.19% 1,586 2.82% Fixed term, fixed rate 10 months 5.45% 3,963 7.06% Fixed term, fixed rate 12 months 5.78% 7,958 14.17% Fixed term, fixed rate 15 months 5.53% 2,893 5.15% Fixed term, fixed rate 18 months 5.38% 4,590 8.17% Fixed term, fixed rate 24 months 6.37% 536 1.07% Fixed term, fixed rate 30 months 5.64% 2,295 4.09% Fixed term, fixed rate 36 months 6.40% 306 0.54% Fixed term, fixed rate 48 months 5.88% 2,458 4.38% Other 7.20% 717 1.28% ------------ ----------- TOTAL CERTIFICATES OF DEPOSIT 31,528 56.15% ------------ ----------- TOTAL SAVINGS DEPOSITS $ 56,152 100.00% ============ ===========
(1) Indicates weighted average interest rate at June 30, 1997. SOURCE: OFFERING CIRCULAR 22 FERGUSON & COMPANY SECTION I - ------------------ --------- Table I.18 - Savings Deposits Detail
At June 30, -------------------------------------------------------------------- 1997 1996 1995 ---------------------- ---------------------- ---------------------- Percent of Percent of Percent of Amount Total Amount Total Amount Total ------ ----- ------ ----- ------ ----- ($000's) Transactions and Savings Deposits: - --------------------------------- NOW and money market accounts $13,933 24.81% $10,938 22.08% $6,277 13.67% Passbook accounts 10,691 19.04% 9,975 20.14% 14,442 31.46% ---------------------- ---------------------- ---------------------- Total transaction accounts 24,624 43.85% 20,913 42.22% 20,719 45.13% ---------------------- ---------------------- ---------------------- Certificates: - ------------ 3.00 - 4.00 187 0.33% 906 1.83% 3,631 7.91% 4.01 - 5.00% 3,156 5.62% 5,948 12.01% 8,362 18.21% 5.01 - 6.00% 22,629 40.30% 17,788 35.91% 6,010 13.09% 6.01 - 7.00 4,946 8.81% 3,111 6.28% 6,215 13.54% Over 7.00% 610 1.09% 871 1.76% 976 2.13% ---------------------- ---------------------- ---------------------- Total certificates 31,528 56.15% 28,624 57.78% 25,194 54.87% ---------------------- ---------------------- ---------------------- Total deposits $56,152 100.00% $49,537 100.00% $45,913 100.00% ====================== ====================== ======================
SOURCE: OFFERING CIRCULAR 23 FERGUSON & COMPANY TABLE I.19 - CERTIFICATES OF DEPOSIT MATURITIES SECTION I - ------------------ --------- The table below provides CD maturities at June 30, 1997, by year in rate ranges.
3.00 - 4.01- 5.01- OVER PERCENT 4.00% 5.00% 7.00% 7.00% TOTAL OF TOTAL ----- ----- ----- ----- ----- -------- ($000's) Certificates maturing in: One year $ 187 $ 2,996 $ 18,468 $ 3,659 $ 25,310 80.28% One to two years - 161 3,123 1,042 4,326 13.72% Two to three years - - 768 300 1,068 3.39% Over three years - - 604 220 824 2.61% ----------------------------------------------------------- Total $ 187 $ 3,157 $ 22,963 $ 5,221 $ 31,528 100.00% =========================================================== Percent of total 0.59% 10.01% 72.83% 16.56% 100.00% =================================================
SOURCE: OFFERING CIRCULAR 24 FERGUSON & COMPANY SECTION I - ------------------ --------- TABLE I.20 - SAVINGS FLOWS The following table sets forth the savings flows for the periods indicated.
YEAR ENDED JUNE 30, ----------------------- 1997 1996 ---- ---- ($000's) Opening balance $ 49,537 $ 45,914 Net increase (decrease) before interest credited 4,797 2,026 Interest credited 1,818 1,597 ---------- ---------- Ending Balance $ 56,152 $ 49,537 ========== ========== Net increase (decrease) $ 6,615 $ 3,623 ========== ========== Percent increase (decrease) 13.35% 7.89% ========== ==========
SOURCE: OFFERING CIRCULAR 25 FERGUSON & COMPANY Section I - ------------------ --------- TABLE I.21-JUMBO CD MATURITIES
JUMBO CERTIFICATES OF DEPOSIT MATURING IN PERIOD ENDING: Amount - ----------------------------------- ----------- ($000's) Within three months or less $2,562 Three through six months 2,411 Six through twelve months 2,347 Over 12 months 1,348 ----------- Total $8,668 ==========
TABLE I.22 - BORROWINGS
Rate Amount Range ------------------------ ($000's) Due within one year 9,500 6.40-8.12% Due within one to two years 3,000 5.18-6.72% Due within two to three years 500 6.79% Due within three to five years 520 6.80% --------- 13,520 =========
SOURCE: OFFERING CIRCULAR 26 FERGUSON & COMPANY SECTION I - ------------------ --------- TABLE I.23 - OFFICES
Net Book Year Owned or Square Physical address Value (1) Occupied Leased Footage - ---------------- --------- -------- -------- ------- ($000's) 130 West 2nd $763 1974 Owned 10,750 Salida, Colorado Main Office 600 Harrison $805 1996 Owned 3,800 Leadville, Colorado Branch Office 713 East Main $480 1996 Owned 2,400 Buena Vista, Colorado Branch Office
(1) Cost less accumulated depreciation and amortization. SOURCE: OFFERING CIRCULAR 27 SECTION II MARKET AREA FERGUSON & COMPANY SECTION II - ------------------ ---------- II. MARKET AREA DEMOGRAPHICS Salida Building and Loan Association ("SB&LA" or "Association") conducts its operations through three offices located in Chaffee County (Salida and Buena Vista) and Lake County (Leadville), Colorado. Colorado is in the southwestern region of the United States. Chaffee County and Lake County are in the western half of Colorado. SB&LA has determined that its principal trade area is the two counties in which its offices are located--Chaffee and Lake. Table II.1 presents historical and projected trends for the United States, Colorado, Lake County, Chaffee County, and zip codes 81201 (Salida), 80461 (Leadville), and 81211 (Buena Vista), which include the Association's home office and branches, respectively. The information addresses population, income, employment, and housing trends. As indicated in Table II.1, population growth rates for Chaffee County and the State of Colorado are well above the United States rate. Growth rates for Chaffee County and Colorado are close, with Chaffee County having a slight edge. Household income growth for Chaffee County is projected to be above that of the State of Colorado and the United States for the period 1996 to 2001. Population growth rates for Lake County are slightly below the United States and well below Colorado and Chaffee County. Projected household income growth for Lake County is flat, but well above that of the United States, and below Colorado and Chaffee County. In the period from 1990 until 1996, the population of the State of Colorado grew 16.49%. During the same period, the Chaffee County population increased 17.60%, Lake county population increased 6.18%, and the United States population increased 6.67%. The population of zip code 81201 increased 22.36%, 81211 grew 17.41%, and the population of zip code 80461 increased 6.49% from 1990 to 1996. Projections of population growth from 1996 through 2001 indicate that the State of Colorado will increase 11.33%, Chaffee County is projected to increase by 11.97%, Lake County is projected to increase by 4.64%, and the United States population is projected to increase by 5.09%. The population of zip code 81201 is projected to increase 14.81%, 81211 is projected to grow 11.62%, and the population of zip code 80461 is projected to increase 4.79% from 1996 to 2001. Household income is projected to increase by 5.78% for Chaffee County and decrease by .24% for Lake County from 1996 to 2001. For the same period, household income is projected to increase by 2.89% for the State of Colorado and decline by 3.88% for the United States. Per capita and household income levels for the State of Colorado are slightly higher than those of the United States, but per capita and household income levels for Chaffee County, Lake County, and zip codes 80461, 81201, and 81211 are well below both the State of Colorado and the United States. The 2001 estimate shows that, for Chaffee County, households with incomes less than $15,000 are expected to be 25%; those with incomes between $15,000 and $25,000 are estimated at 23%; those with incomes between $25,000 and $50,000 are estimated at 35%; those with incomes between $50,000 and $100,000 are estimated at 15%; and households with incomes in excess of $100,000 are projected to be 3%. The 2001 estimates for Lake County are projected to be 15%, 22%, 37%, 23%, and 3%, respectively. The 2001 estimates for Colorado are 17%, 15%, 35%, 26%, and 7%, respectively. The number of households in Chaffee County is projected to increase by 12.93% from 1996 to 2001, above the projection for the State of Colorado which calls for an increase of 11.00% and well above the projected growth rate for the United States at 5.14%. The number of households in Lake County is projected to increase 4.63% from 1996 to 2001, well below Chaffee County and the State of Colorado, but in line with the United States. With projections of healthy growth in population and number of households, combined with projections of a growing household income, the market for housing units will be good. Chaffee County has approximately 6,500 housing units, of which 52.53% are owner occupied, and a vacancy rate of 25.95%. Lake County has approximately 3,500 housing units, of which 43.49% are owner occupied, and a vacancy rate of 32.46%. 1 FERGUSON & COMPANY SECTION II - ------------------ ---------- The principal sources of employment in Chaffee County are services--27.2%; trade--25.4%; and public administration--24.1%. The principal sources of employment in Lake County are services--29.5%; trade--21.0%; and public administration--25.5%. Analysis of the data presented above presents a picture of healthy economic opportunity, suggesting that SB&LA's growth opportunities within its current market area will be good. Based on information publicly available on deposits as of June 30, 1996 (see Table II.3), Chaffee and Lake Counties had $233.8 million in deposits and SB&LA had 21.76% of the deposit market, up from 19.82% at June 30, 1995 and also up from 20.94% of the market at June 30, 1994. SB&LA's recent deposit growth rate has been good, slightly better than the overall market. SB&LA's competition consists of six commercial bank offices, two credit union offices, and one thrift office. SB&LA's growth has occurred as a result of SB&LA providing superior service, building a new branch office in Leadville, and opening a new office in Buena Vista. Table II.3 shows that from June 30, 1994 to 1996, SB&LA's deposits increased by $6.89 million (15.7%) while the overall market gained $23.79 million in deposits (11.3%). SB&LA's business plan projects that its deposits will grow at a healthy pace during the business plan period. Building permit information (See Table II.4) coupled with high projected population, household, and household income growth rates in SB&LA's market area portend a healthy level of building. SB&LA has limited competition from other financial institutions for the residential loan opportunities. Growth opportunities for SB&LA can be assessed by reviewing economic factors in its market area. The salient factors include growth trends, economic trends, and competition from other financial institutions. We have reviewed these factors to assess the potential for the market area. In assessing the growth potential of SB&LA, we must also assess the willingness and flexibility of management to respond to the competitive factors that exist in the market area. Our analysis of the economic potential and the potential of management affects the valuation of the Association. Management has demonstrated its flexibility through the change in operations in recent years from a traditional thrift to a hybrid thrift/commercial bank operation. SB&LA has retained the traditional residential lending and it has expanded its portfolio to include increasing amounts of consumer loans, commercial non-real estate loans, and commercial real estate loans. It has expanded its deposit products and now has over $2.0 million in interest free checking accounts. It built a new office for its Leadville branch in fiscal 1996, and it opened a new branch in Buena Vista in fiscal 1997. Management has positioned the Association to serve all facets of the market. 2 FERGUSON & COMPANY SECTION II - ------------------ ---------- TABLE II.1 - DEMOGRAPHIC TRENDS KEY ECONOMIC INDICATORS
================================================================================================================================= UNITED LAKE CHAFFEE ZIP CODE ZIP CODE ZIP CODE KEY ECONOMIC INDICATOR STATES COLORADO COUNTY COUNTY 80461 (1) 81201 (2) 81211 (3) - --------------------------------------------------------------------------------------------------------------------------------- Total Population, 2001 Est. 278,802,003 4,272,336 6,674 16,703 6,187 10,754 6,841 1996 - 2001 Percent Change, Est. 5.09 11.33 4.64 11.97 4.79 14.81 11.62 Total Population, 1996 Est. 265,294,885 3,837,552 6,378 14,917 5,904 9,367 6,129 1990 - 96 Percent Change, Est. 6.67 16.49 6.18 17.60 6.49 22.36 17.41 Total Population, 1990 248,709,873 3,294,394 6,007 12,684 5,544 7,655 5,220 - --------------------------------------------------------------------------------------------------------------------------------- Household Income, 2001 Est. 33,189 37,521 30,478 27,464 30,535 26,244 30,458 1996 - 2001 Percent Change, Est. (3.88) 2.89 (0.24) 5.78 (0.13) 4.80 7.36 Household Income, 1996 Est. 34,530 36,468 30,551 25,963 30,576 25,041 28,370 - --------------------------------------------------------------------------------------------------------------------------------- Per Capita Income, 1990 16,738 18,076 14,746 13,566 14,747 13,343 10,824 - --------------------------------------------------------------------------------------------------------------------------------- Household Inc. Dist.-2001 Est. (%) $15,000 and less 20 17 15 25 15 26 21 $15,000 - $25,000 16 15 22 23 22 24 22 $25,000 - $50,000 34 35 37 35 37 35 38 $50,000 - $100,000 24 26 23 15 23 13 17 $100,000 - $150,000 4 5 3 2 3 2 2 $150,000 and over 2 2 0 1 0 1 0 - --------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------- Unemployment rate, 1990 6.24 4.12 6.73 7.41 6.51 7.05 4.58 - --------------------------------------------------------------------------------------------------------------------------------- Median Age of Population, 1996 Est. 34.3 34.1 33.2 39.5 33.4 42.0 36.8 Median Age of Population, 1990 32.9 32.5 31.2 37.1 31.5 40.2 33.7 - --------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------- Average Housing Value, 1990 79,098 91,930 52,487 70,203 51,694 65,674 77,353 - --------------------------------------------------------------------------------------------------------------------------------- Total Households, 2001 Est. 103,293,062 1,646,503 2,643 6,523 2,461 4,570 2,325 1996 - 2001 Percent Change, Est. 5.14 11.00 4.63 12.93 4.77 14.85 13.80 Total Households, 1996 98,239,161 1,483,326 2,526 5,776 2,349 3,979 2,043 1990 - 96 Percent Change, Est. 6.84 15.66 6.05 19.14 6.39 22.36 21.25 Total Households, 1990 91,947,410 1,282,489 2,382 4,848 2,208 3,252 1,685 - --------------------------------------------------------------------------------------------------------------------------------- Total Housing Units, 1990 101,641,260 1,696,270 3,527 6,547 3,192 3,965 2,704 % Vacant 10.07 14.14 32.46 25.95 31.01 20.10 37.68 % Occupied 89.93 85.86 67.54 74.05 69.99 79.90 62.32 % By Owner 57.78 54.25 43.49 52.53 44.36 55.84 45.93 % By Renter 32.15 31.61 24.04 21.52 25.63 24.06 16.38 =================================================================================================================================
(1) Leadville; (2) Salida; and (3) Buena Vista SOURCE: SCAN/US, INC. 3 FERGUSON & COMPANY SECTION II - ------------------ ---------- TABLE 11.2 - PERCENT EMPLOYMENT BY INDUSTRY
UNITED CHAFFEE LAKE INDUSTRY STATES COLORADO COUNTY COUNTY ================================= ======== ========== ========= ======== Construction/Agriculture/Mini 9.5 9.9 8.1 14.8 Manufacturing 17.7 8.8 6.1 1.5 Transportation/Utilities 7.1 5.2 3.1 2.6 Trade 21.2 21.9 25.4 21.0 Finance/Insurance 6.9 8.1 6.0 5.1 Services 32.7 30.7 27.2 29.5 Public Administration 4.8 15.4 24.1 25.5
SOURCE: STATE OF COLORADO ESC. 4 FERGUSON & COMPANY SECTION II - ------------------ ---------- TABLE II.3 - MARKET AREA DEPOSITS
- ---------------------------------------------------------------------------------------- 1996 1995 1994 --------------- --------------- ------------- (in Thousands) LAKE AND CHAFFEE COUNTY DEPOSITS TOTAL SALIDA BUILDING AND LOAN $ 50,884 $ 46,779 $ 43,996 ------------- ------------ ------------ Number of Branches 2 2 2 OTHER THRIFTS 24,192 42,977 36,770 ------------- ------------ ------------ Number 1 1 1 Number of branches 1 1 1 TOTAL THRIFTS 75,076 89,756 80,766 ------------- ------------ ------------ Number 2 2 2 Number of branches 3 3 3 TOTAL BANK DEPOSITS $ 155,754 $ 143,477 $ 126,372 ------------- ------------ ------------ Number 5 5 5 Number of Branches 6 5 5 TOTAL CREDIT UNION DEPOSITS $ 3,019 $ 2,792 $ 2,918 ------------- ------------ ------------ Number 2 2 2 Number of Branches 2 2 2 TOTAL DEPOSITS $ 233,849 $ 236,025 $ 210,056 ============= ============ ============ PERCENT OF DEPOSITS HELD BY SALIDA BUILDING AND LOAN 21.76% 19.82% 20.94% ============= ============ ============ - -----------------------------------------------------------------------------------------
SOURCE: BRANCHSOURCE, A PRODUCT OF SHESHUNOFF INFORMATION SERVICES, INC. 5 FERGUSON & COMPANY SECTION II - ------------------ TABLE II.4-BUILDING PERMITS
YEAR NUMBER AMOUNT ------ -------- -------------- 1990 241 4,540,309 1991 274 7,242,909 1992 330 10,414,490 1993 389 10,287,358 1994 460 20,054,665 1995 577 21,664,331 1996 609 22,001,601 1996 Break Down - ---------------------------- Residential 538 16,491,601 Commercial 71 5,510,000 -------- -------------- 609 22,001,601 ======== ============== 1996 Geographical Break Down: - ---------------------------- Chaffee County 12,000,575 Salida 5,304,333 Buena Vista 3,500,722 Poncha Springs 1,195,971 -------------- 22,001,601 ==============
SOURCE: CHAFFEE COUNTY DEPARTMENT OF BUILDING, SANITATION, AND ZONING 6 SECTION III COMPARISON WITH PUBLICLY TRADED THRIFTS FERGUSON & COMPANY SECTION III - ------------------ ----------- III. COMPARISON WITH PUBLICLY TRADED THRIFTS COMPARATIVE DISCUSSION This section presents an analysis of Salida Building and Loan Association ("SB&LA" or "Association") relative to a group of twelve publicly traded thrift institutions ("Comparative Group"). Such analysis is necessary to determine the adjustments that must be made to the pro forma market value of SB&LA's stock. Table III.1 presents a listing of the comparative group with general information about the group. Table III.2 presents key financial indicators relative to profitability, balance sheet composition and strength, and risk factors. Table III.3 presents a pro forma comparison of SB&LA to the comparative group. Exhibits III and IV contain selected financial information on SB&LA and the comparative group. This information is derived from quarterly TFR's filed with the OTS and call reports filed with the FDIC. The selection criteria and comparison with the Comparative Group are discussed below. SELECTION CRITERIA Ideally, the comparative group would consist of thrifts in the same geographic region with identical local economies, asset size, capital level, earnings performance, asset quality, etc. However, there are few comparably sized institutions with stock that is liquid enough to provide timely, meaningful market values. Therefore, we have selected a group of comparatives that are either listed on the New York Stock Exchange ("NYSE"), the American Stock Exchange ("AMEX"), or Nasdaq. We excluded companies that are apparent takeover targets and companies with unusual characteristics that tend to distort both mean and median calculations. For example, we have excluded all companies with losses during the trailing twelve months. We have also excluded mutual holding companies (see Exhibit VI). Because of the limited number of similar size thrifts with sufficient trading volume, we looked for members of the comparative group among thrifts with assets under $100 million in the Southwest, Midwest, and Southeast regions. The Southwest Region, which includes Colorado, had 2 thrifts that met the size requirements. We found 42 thrifts in the regions named above that met the asset size requirements (we consider 10 to be the minimum number), and we retained 12 and eliminated 30 for the following reasons: (a) One was a mutual holding company; (b) Five had no price to earnings ratio for the most recent quarter; (c) One had agreed to be acquired; (d) Nine had non-performing assets in excess of 1.00% of total assets; (e) Fifteen had less than 60% of their assets in loans; and (f) Four had loans serviced in excess of 30% of assets. After eliminating the thrifts described above, there were 12 left. The principal source of data was SNL Securities, Charlottesville, Virginia. There are approximately 410 publicly traded thrifts listed on NYSE, AMEX, or Nasdaq. In developing statistics for the entire country, we eliminated certain institutions that skewed the results, in order to make the data more meaningful: . We eliminated companies with losses, . We eliminated indicated acquisition targets, . We eliminated companies with price/earnings ratios in excess of 25, and . We eliminated companies that had not reported as a stock institution for one complete year. The resulting group of 254 publicly traded thrifts is included in Exhibit V. The selected group of comparatives has sufficient trading volume to provide meaningful price data. Nine of the comparative group members are located in the Midwest and the other three are located in the Southeast Region. With total assets of approximately $76.3 million, SB&LA is slightly below the group selected, which has average assets of $80.8 million and median assets of $84.4 million. However, SB&LA's 1 FERGUSON & COMPANY SECTION III - ------------------ ----------- assets after conversion will be in line with the comparative group. Pro forma assets at the midpoint are $83.7 million. PROFITABILITY Using the comparison of profitability components as a percentage of average assets, SB&LA was below the comparative group in net income, .68% to .73%; loss provisions, .40% to .08%; other income, .20% to .33%; operating expense, 3.04% to 2.53%; efficiency ratio, 70.00% to 61.90%; and core income, .68% to .96%. SB&LA was above the comparative group in net interest income, 4.14% to 3.73%. SB&LA's operating expense minus other income was 2.84% versus 2.20% for the comparative group. After conversion, deployment of the proceeds will provide additional income, and SB&LA will compare more favorably with the comparative group in terms of return on average assets, with a return of .85% at the midpoint of the appraisal range. Pro forma return on average equity is 4.90% at the midpoint, versus a mean of 4.78% and median of 4.62% for the comparative group. The Comparative group's net income of .73% on average assets and its return on equity percentages are after the SAIF assessment. The Comparative group's core income of .96% on average assets factors out the SAIF assessment. As compared with the Comparative group, SB&LA has a better interest spread and it has less noninterest income. SB&LA's loan loss provision and operating expenses are higher. SB&LA's loss provision ratio is higher because its loan portfolio has a higher level of risk than the comparative group. SB&LA's earnings are currently being impeded by a new branch that opened in Buena Vista during fiscal year 1997 and a new branch building in Leadville completed during fiscal year 1996. Transferring earning assets to office premises, coupled with the increased overhead associated with additional premises and staff, will impede earnings until the additional facilities are utilized through asset growth. BALANCE SHEET CHARACTERISTICS The general asset composition of SB&LA is similar to that of the comparative group, but more retail oriented. SB&LA has a lower level of passive investments with 11.42% of its assets invested in cash, investments, and mortgage-backed securities, versus 21.57% for the comparative group. SB&LA has a higher percentage of its assets in loans, at 82.71% versus 75.33% for the comparative group. SB&LA's percentage of earning assets to interest costing liabilities is much lower than that of the group. SB&LA has 107.62% and the comparative group averages 123.07%. After conversion, SB&LA's ratio will be closer to that of the group of comparatives; however, it will continue to be lower than that of the comparative group because of SB&LA's investment in premises. The liability side differs mainly in that SB&LA has a higher percentage of borrowings and a lower percentage of equity. SB&LA has borrowings equal to 17.71% of assets versus 7.13% for the comparative group and SB&LA has deposits equal to 73.57% of assets versus 72.63% for the comparative group. SB&LA's equity is 7.81% of assets versus 18.84% for the comparative group. SB&LA's equity ratio after conversion will be closer to that of the comparative group. SB&LA's pro forma equity ratio at the midpoint is 16.0%. RISK FACTORS Both SB&LA and the comparative group have low levels of nonperforming assets, with SB&LA's being slightly lower than the comparative group. SB&LA's loan loss allowance is .96% of net loans, which compares favorably with the comparative group, which is .63%. SB&LA's one year gap to assets is negative 42.36% versus positive 9.18% for the comparative group. However, the comparative group average is based on information provided by only two of the twelve members of the group. SB&LA's interest rate risk position exposes it to interest rate increases. 2 FERGUSON & COMPANY SECTION III - ------------------ ----------- SUMMARY OF FINANCIAL COMPARISON Based on the above discussion of operational, balance sheet, and risk characteristics of SB&LA compared with the group, we believe that SB&LA's performance is level with that of the comparative group. While SB&LA's capital level is below the comparative group, the conversion proceeds will increase its capital to that of the comparatives. Otherwise, SB&LA's earnings are hindered by its new branch building in Leadville and its new branch in Buena Vista. Future asset growth is needed to reduce the drag on earnings created by the buildings. What is most impressive about SB&LA is its interest rate spread. Its spread has ranged between 4.53% and 4.14% during 1994 to 1997 (see Exhibit III). FUTURE PLANS SB&LA's future plans are to remain a well capitalized but leveraged, profitable institution with good asset quality and a commitment to serving the needs of its trade area, emphasizing lending. The business plan emphasizes growth in mortgage lending, consumer lending, and commercial non-real estate lending in ratios that are close to the current composition of the loan portfolio. Management recognizes that it will take time to invest the proceeds of its capital infusion in a manner consistent with its historic performance and current policy. During that period of time, management is willing to accept a lower return on equity. In recent years, SB&LA has experienced healthy growth. The Association's business plan projects that it will continue to experience growth in loans, savings deposits, and liquidity at a healthy pace. The additional capital raised by the sale of Common Stock will initially be used to purchase short term investment securities. Adjustable rate and short to intermediate term loans will be emphasized. The Association will continue to sell some of its long term, fixed rate loans. SB&LA has no current plans to open or acquire branches. However, the additional capital and the formation of a holding company would make acquisition of branches or another financial institution a viable option. Management intends to expand and will open additional full service branches and loan production offices if necessary to meet the Association's growth plans. Increasing market penetration by increasing the number of services and products available, coupled with opening additional offices, are the most likely methods to be employed to achieve growth on a long-term basis. 3
FERGUSON & COMPANY TABLE III.1 - COMPARATIVES GENERAL CHARACTERISTICS SECTION III - ------------------ ----------- Number Assets Stock Market Type of ($000) Price Value Ticker Short Name City State Thrift (1) Offices MRQ ($) ($M) AMFC AMB Financial Corp. Munster IN Traditional 4 94,179 15.000 14.46 CCFH CCF Holding Company Jonesboro GA Traditional 4 86,940 17.125 14.12 CIBI Community Investors Bancorp Bucyrus OH Traditional 3 97,446 15.250 14.17 CKFB CKF Bancorp Inc. Danville KY Traditional 1 60,197 20.000 18.54 INCB Indiana Community Bank SB Lebanon IN Traditional 3 91,329 15.250 14.06 LOGN Logansport Financial Corp. Logansport IN Traditional 1 83,152 14.000 17.65 LXMO Lexington B&L Financial Corp. Lexington MO Traditional 1 59,748 16.125 17.54 MIVI Mississippi View Holding Co. Little Falls MN Traditional 1 69,755 15.125 12.38 SFFC StateFed Financial Corporation Des Moines IA Traditional 2 85,679 21.750 17.05 SOBI Sobieski Bancorp Inc. South Bend IN Traditional 3 79,080 16.375 12.44 SSB Scotland Bancorp Inc Laurinburg NC Traditional 2 69,479 17.188 32.89 SZB SouthFirst Bancshares Inc. Sylacauga AL Traditional 2 92,910 17.000 14.40 Maximum 4 97,446 21.750 32.89 Minimum 1 59,748 14.000 12.38 Average 2 80,825 16.682 16.64 Median 2 84,416 16.250 14.43
(1) Determined by reference to TAFS and Banksource reports published by Sheshunoff. TAFS reports are derived from TFR reports filed with the OTS and BankSource reports are derived from call reports filed with the FDIC. SOURCE: SNL & F&C CALUCATIONS 4 FERGUSON & COMPANY SECTION III - ------------------ ----------- TABLE III.2 - KEY FINANCIAL INDICATORS
SALIDA BUILDING AND COMPARATIVE LOAN ASSOCIATION GROUP ---------------- ----------- PROFITABILITY (% of average assets) Net income (1) 0.68 0.73 Net interest income 4.14 3.73 Loss (recovery) provisions 0.40 0.08 Other operating income 0.20 0.33 Operating expense (2) 3.04 2.53 Efficiency ratio (2) 70.00 61.90 Core income (excluding gains and losses on asset sales) (1) 0.68 0.96 BALANCE SHEET FACTORS (% of assets) Cash and investments 4.42 16.69 Mortgage-backed securities (including CMO's) 7.00 4.88 Loans 82.71 75.33 Savings deposits 73.57 72.63 Borrowings 17.71 7.13 Equity 7.81 18.84 Tangible equity 7.81 18.84 RISK FACTORS (%) Earning assets/costing liabilities 107.62 123.07 Non-performing assets/assets 0.23 0.50 Loss allowance/non performing assets 345.14 131.12 Loss allowance/loans 0.96 0.63 One year gap/assets (3) (42.36) 9.18
(1) Used appraisal earnings. (2) Excluded SAIF assessment, loss on loan sales, and directors' benefit plan cost. (3) Only two of the 12 in the group reported one year gap. SOURCE: SNL SECURITIES, F&C CALCULATIONS, AND OFFERING CIRCULAR 5 FERGUSON & COMPANY TABLE III.3 - PRO FORMA COMPARISONS SECTION III - ------------------ ----------- SALIDA BULIDING AND LOAN ASSOCIATION AS OF AUGUST 8, 1997
Ticker Name Price Mk Value PE P/Book P/TBook P/Assets Div Yld Assets ($) ($Mil) (X) (%) (%) (%) (%) ($000) SALIDA B&LA ----------- Before Conversion N/A N/A N/A N/A N/A N/A 3.00 76,324 Pro Forma Supermax 10.000 11.90 16.7 75.0 75.0 13.8 3.00 86,233 Pro Forma Maximum 10.000 10.35 15.2 71.3 71.3 12.2 3.00 84,891 Pro Forma Midpoint 10.000 9.00 13.8 67.4 67.4 10.7 3.00 83,724 Pro Forma Minimum 10.000 7.65 12.2 62.8 62.8 9.3 3.00 82,557 COMPARATIVE GROUP ----------------- Averages 16.682 16.64 31.4 112.5 112.5 21.6 2.15 80,825 Medians 16.250 14.43 23.9 111.2 111.2 17.4 1.98 84,416 COLORADO THRIFTS ---------------- Averages 17.750 293.97 16.1 150.6 152.6 19.5 2.48 1,510,376 Medians 17.750 293.97 16.1 150.6 152.6 19.5 2.48 1,510,376 SOUTHWEST REGION THRIFTS ------------------------ Averages 24.672 98.50 16.4 137.3 145.8 14.6 2.08 833,404 Medians 21.688 51.66 16.0 136.0 147.4 17.0 1.92 356,112 ALL PUBLIC THRIFTS ------------------ Averages 23.572 192.05 16.7 148.4 156.4 15.3 1.87 1,453,495 Medians 21.344 61.85 16.4 141.9 148.2 14.0 1.82 414,239 COMPARATIVE GROUP ----------------- AMFC AMBFinancial-IN 15.000 14.46 22.1 102.6 102.6 15.4 1.60 94,179 CCFH CCFHoldingCo-GA 17.125 14.12 51.9 119.1 119.1 17.0 3.21 86,940 CIBI CommunityInvrs-OH 15.250 14.17 15.4 129.0 129.0 14.9 2.10 97,446 CKFB CKFBancorp-KY 20.000 18.54 23.3 120.6 120.6 30.8 2.50 60,197 INCB IndianaCommBkSB-IN 15.250 14.06 31.8 124.3 124.3 15.4 2.36 91,329 LOGN LogansprtFinCrp-IN 14.000 17.65 14.9 110.6 110.6 21.2 2.86 83,152 LXMO LexingtonB&LFin-MO 16.125 17.54 31.0 106.3 106.3 29.4 1.86 59,748 MIVI MissViewHoldCo-MN 15.125 12.38 17.8 97.3 97.3 17.8 1.06 69,755 SFFC StateFedFinCorp-IA 21.750 17.05 15.0 111.9 111.9 19.9 1.84 85,679 SOBI SobieskiBancorp-IN 16.375 12.44 28.7 93.5 93.5 15.7 1.71 79,080 SSB ScotlandBancorp-NC 17.188 32.89 24.6 127.8 127.8 47.3 1.75 69,479 SZB SouthFstBncshrs-AL 17.000 14.40 100.0 107.5 107.5 15.0 2.94 92,910
6 FERGUSON & COMPANY TABLE III.3 - PRO FORMA COMPARISONS SECTION III - ------------------ ----------- SALIDA BUILDING AND LOAN ASSOCIATION AS OF AUGUST 8, 1997
Ticker Name Eq/A TEq/A EPS ROAA ROAE (%) (%) ($) (%) (%) SALIDA B&LA ----------- Before Conversion 7.8 7.8 N/A 0.68 8.15 Pro Forma Supermax 18.4 18.4 0.60 0.89 4.49 Pro Forma Maximum 17.1 17.1 0.66 0.87 4.69 Pro Forma Midpoint 16.0 16.0 0.73 0.85 4.90 Pro Forma Minimum 14.8 14.8 0.82 0.82 5.14 COMPARATIVE GROUP ----------------- Averages 18.8 18.8 0.71 0.96 4.78 Medians 16.6 16.6 0.69 1.00 4.62 COLORADO THRIFTS ---------------- Averages 12.9 12.8 1.10 1.21 8.59 Medians 12.9 12.8 1.10 1.21 8.59 SOUTHWEST REGION THRIFTS ------------------------ Averages 10.9 10.6 1.65 0.92 8.61 Medians 12.6 11.7 1.31 0.97 8.26 ALL PUBLIC THRIFTS ------------------ Averages 11.0 10.7 1.52 1.00 9.98 Medians 9.4 9.0 1.31 0.95 9.22 COMPARATIVE GROUP ----------------- AMFC AMBFinancial-IN 15.0 15.0 0.68 0.80 4.54 CCFH CCFHoldingCo-GA 14.3 14.3 0.33 0.42 2.37 CIBI CommunityInvrs-OH 11.5 11.5 0.99 0.99 8.18 CKFB CKFBancorp-KY 23.7 23.7 0.86 1.29 5.05 INCB IndianaCommBkSB-IN 12.4 12.4 0.48 0.50 3.92 LOGN LogansprtFinCrp-IN 19.2 19.2 0.94 1.51 7.40 LXMO LexingtonB&LFin-MO 27.6 27.6 0.52 1.18 3.91 MIVI MissViewHoldCo-MN 18.3 18.3 0.85 1.01 5.56 SFFC StateFedFinCorp-IA 17.8 17.8 1.45 1.37 7.36 SOBI SobieskiBancorp-IN 15.4 15.4 0.57 0.57 3.28 SSB ScotlandBancorp-NC 37.0 37.0 0.70 1.71 4.69 SZB SouthFstBncshrs-AL 14.0 14.0 0.17 0.16 1.13
Note: Stock prices are closing prices or last trade. Pro forma calculations for Salida are based on sales at $10 a share with a midpoint of $9,000,000, minimum of $7,650,000, and maximum of $10,350,000. SOURCES: SALIDA'S AUDITED AND UNAUDITED FINANCIAL STATEMENTS, SNL SECURITIES, AND F&C CALCULATIONS. 7 SECTION IV CORRELATION OF MARKET VALUE FERGUSON & COMPANY SECTION IV - ------------------ ---------- IV CORRELATION OF MARKET VALUE MARKETABILITY & LIQUIDITY OF STOCK TO BE ISSUED Certain factors must be considered to determine whether adjustments are required in correlating SB&LA's market value to the comparative group. Those factors include financial aspects, market area, management, dividends, liquidity, thrift equity market conditions, and subscription interest. This section addresses the aforementioned factors and the estimated pro forma market value of the to-be-issued common shares and compares the resulting market value of the Association to the members of its comparative group and the selected group of publicly held thrifts. FINANCIAL ASPECTS Section III includes a discussion regarding a comparison of SB&LA's earnings, balance sheet characteristics, and risk factors with its comparative group. Table III.2 presents a comparison of certain key indicators, and Table III.3 presents certain key indicators on a pro forma basis after conversion. As shown in Table III.2, from an earnings viewpoint, SB&LA is below its comparative group in core income as a percentage of average assets. SB&LA's core income is based on appraisal earnings which factors out unusual or nonrecurring items and the comparative group's core income is computed on the same basis. SB&LA's net interest income as a percent of assets is 4.14% versus 3.73% for the comparatives. The difference is attributable to 1) the loan mix (i.e., SB&LA has more in consumer and commercial loans, which have higher yields); 2) SB&LA's higher ratio of loans to assets and lower ratio of investments to assets versus the comparative group; and 3) SB&LA's deposit mix, which includes more transaction accounts. SB&LA's spread is sufficient for its net interest income as a percent of assets to exceed that of the comparative group, despite the group having significantly higher equity and therefore a much higher ratio of interest earning assets to interest bearing liabilities. SB&LA's loan loss provisions are well above its comparative group, with loss provisions of .40% of assets versus .08% of assets for the comparative group. This results from SB&LA having higher levels of consumer and commercial loans, which generally entail more risk. SB&LA's other operating income is .20% of average assets, versus .33% for the comparative group. SB&LA's lower ratio results from its highly competitive pricing of services. SB&LA's operating expense ratio, at 3.04% of average assets, is well above that of the comparative group, which is 2.53%. SB&LA's higher ratio results from its generally higher level of commercial bank type loans and deposits and from its new building in Leadville and new branch in Buena Vista, as discussed more fully in Section III. After SB&LA completes its stock conversion, its core income as a percentage of average assets will increase. Table III.3 projects that SB&LA's return on assets will be .85% at the midpoint, versus a mean of .96% and median of 1.00% for the comparative group. SB&LA's pro forma equity to assets ratio at the midpoint is 16.0%, versus a mean of 18.8% and median of 16.6% for the comparative group.. SB&LA's pro forma return on equity is 4.90% at the midpoint versus a mean of 4.78% and median of 4.62% for the comparative group. SB&LA's recorded earnings have been adjusted for appraisal purposes. The Association recorded higher than normal loan loss provisions, losses on loan sales, higher than normal directors' retirement expense, and the SAIF resolution assessment. 1 FERGUSON & COMPANY SECTION IV - ------------------ ---------- TABLE IV.1 - APPRAISAL EARNINGS ADJUSTMENTS Net income, year ended June 30, 1997 $ 44,000 Plus SAIF assessment 297,000 Plus previous service cost of 237,000 directors' benefit plan Plus loan loss provisions in excess of 107,000 normal amount--282,000 - 175,000 Plus losses on loan sales 56,000 Plus estimated costs of branch opening 10,000 Less applicable taxes on above adjustments at 38% -268,000 ---------- Appraisal earnings, year ended June 30, 1997 $ 483,000 ==========
SB&LA's asset composition is less passive than the comparative group. SB&LA has a higher ratio of loans to assets, lower ratio of investments and mortgage- backed securities to assets, higher ratio of borrowings to assets, and lower ratio of equity to assets. From the risk factor viewpoint, SB&LA is below the comparative group. SB&LA has a slightly lower level of non performing assets, though its loan composition is riskier. SB&LA's loan loss allowance is .96% of net loans, comparing favorably with the comparative group, which is .63%. SB&LA has a higher level of consumer and commercial loans, which entail a higher level of risk. Its ratio of interest earning assets to interest bearing liabilities (107.62%) is well below the comparative group (123.07%). SB&LA's ratio will be much closer to the comparative group after conversion. From an interest rate risk factor, SB&LA has more exposure than the comparative group. We believe that NO ADJUSTMENT is necessary relative to financial aspects of ------------- SB&LA. MARKET AREA Section II describes SB&LA's market area. We believe that NO ADJUSTMENT is required for sb&la's market area. ------------- MANAGEMENT The President, who functions as CEO, has been with SB&LA 19 years, serving as CEO since 1991. The Vice President and Chief Lending Officer has been with the Association for 6 years. The CFO has been with the Association for 5 years. Compared with the comparative group, SB&LA's management has done a better job of planning and preparing for the Association's future. SB&LA has a management succession plan. We believe an UPWARD ADJUSTMENT is required for SB&LA's management. ----------------- DIVIDENDS Table III.3 provides dividend information relative to the comparative group and the thrift industry as a whole. The comparative group is paying a mean yield on price of 2.15% and a median of 1.98%, while all public thrifts are paying a mean of 1.87% and median of 1.82%. SB&LA intends to pay a dividend at an initial annual rate of 3.00%. We believe that NO ADJUSTMENT is required relative to SB&LA'S intention ------------- to pay dividends. 2 FERGUSON & COMPANY SECTION IV - ------------------ ---------- LIQUIDITY The Holding Company has never issued capital stock to the public, and as a result, no existing market for the Common Stock exists. Although the Holding Company has applied to list its Common Stock on the Nasdaq Small Cap market, there can be no assurance that a liquid trading market will develop. A public market having the desirable characteristics of depth, liquidity, and orderliness depends upon the presence, in the market place, of both willing buyers and sellers of the Common Stock. These characteristics are not within the control of the Association or the market. The peer group includes companies with sufficient trading volume to develop meaningful pricing characteristics for the stock. The market value of the comparative group ranges from $12.38 million to $32.89 million, with a mean value of $16.64 million. The midpoint of SB&LA's valuation range is $9.0 million at $10 a share, or 900,000 shares. We believe that NO ADJUSTMENT is required relative to the liquidity of ------------- SB&LA'S stock. THRIFT EQUITY MARKET CONDITIONS The SNL Thrift Index is summarized in Figure IV.1. As the table demonstrates, the Thrift Index has performed well since the end of 1990. The Index has grown as follows: Year ended December 31, 1991--increased 49.0% from 96.6 to 143.9; Year ended December 31, 1992--increased 39.7% to 201.1; Year ended December 31, 1993--increased 25.6% to 252.5; Year ended December 31, 1994--decreased 3.1% to 244.7; Year ended December 31, 1995--increased 53.9% to 376.5; Year ended December 31, 1996--increased 28.4% to 483.6; and Period ended August 8, 1997--increased 37.4% to 664.6. It is market value weighted with a base value of 100 as of March 31, 1984. As shown in Figure IV.1, which is a graph of the SNL Thrift Index covering from December 31, 1990 through August 8, 1997, the market, as depicted by the index, has experienced fluctuations recently. It dipped in the latter part of 1994, but recovered during the first quarter of 1995. During 1995, the Index continued a more robust increase and moved from 244.7 at year end 1994 to 376.5 by December 31, 1995, an increase of 53.9%. However, the Index was flat for the first six months of 1996, but it has picked up since June 30, 1996. It closed 1996 at 483.6, up 28.4% from 1995. It is up 37.4% (to 664.6) from December 31, 1996 to August 8, 1997. The increase in the SNL Index, in general, has been parallel with the increases in other equity markets with some interim fluctuations caused by changes or anticipated changes in interest rates. Another factor, however, is also notable. In other markets, increased prices are responding to improved profits, with price to earnings ratios increasing as earnings potentials are anticipated. However, the thrift IPO market has been affected by speculation that the majority of the institutions will become viable consolidation candidates and sell at some expanded multiple of book value. COLORADO ACQUISITIONS Table IV.2 provides information relative to acquisitions of financial institutions in Colorado between January 1, 1996 and May 31, 1997. There were two thrift acquisitions and ten bank acquisitions announced during that time frame. Currently, there is one publicly held thrift in the State of Colorado. There are 13 publicly held thrifts in the southwest region of the country. Bank acquisitions in Colorado since January 1, 1996, have averaged 216.3% of tangible book value and 13.1 times earnings. The median price has been 210.0% of tangible book value and 14.4 times earnings. Thrifts generally sell at lower price/book multiples than do banks. Thrifts in Colorado during that period have averaged 167.0% of tangible book value and 24.6 times earnings. 3 FERGUSON & COMPANY SECTION IV - ------------------ ---------- EFFECT OF INTEREST RATES ON THRIFT STOCK The current interest rate environment and the anticipated rate environment will affect the pricing of thrift stocks and all other interest sensitive stocks. As the economy continues to expand, the fear of inflation can return. The Federal Reserve, in its resolve to curb inflation, has increased rates in the past, but has more recently relented and passed several opportunities to increase rates until March 25, 1997, when the Federal Open Market Committee ("FOMC") increased the discount rate 25 basis points. In some minds, this was an attempt to head off inflationary trends. According to the FOMC, "This action was taken in light of persisting strength in demand, which is progressively increasing the risk of inflationary imbalances developing in the economy that would eventually undermine the long expansion."/1/ This increase was clearly telegraphed by Chairman Greenspan who voiced concern about the levels of the equity markets. Following the March 25 increase, unemployment rates were announced at the 5.2% level, down from the 5.5% level at the beginning of 1996, and significantly down from the 6.7% level at the beginning of 1994./2/ The good news about unemployment gave way to speculation that the March 25th increase was just the first of at least two or three increases, and the speculation was given some credence at that time by rises in the Employment Cost index, an increase in Unit Labor Cost, and an upward trend in the price of crude oil. By April 1, 1997, following the rate increase, the equities markets lost all of the gains registered since the first of the year. By the end of April 1997, the market had begun a rebound and has trended upward since then. There have been specific days of price adjustment, but the overall trend is up. Chairman Greenspan, in recent public appearances, has not articulated concerns about market levels and inflation. The thrift equities market is following the market in general. However, the thrift equities market can continue to be influenced by the speculation that there will eventually be a buyout, and the fact that thrift IPO stock can be purchased at significant discounts from book value. These two facts could keep the thrift equities market from falling as much as the other general markets if there is a period of adjustment. However, if the mergers and acquisitions levels drop, if there were another sharp and sustained rise in the interest rates, or if other equity markets have protracted adjustment, the market in thrift equities would also adjust. Recent earnings reports by financial institutions that have made major acquisitions in the recent past have been disappointing. Even Wells Fargo, the master at merger profitability, had to admit that its latest acquisition produced losses. What is likely to happen in the short to intermediate term is that rates will float around current levels for the next few months. The yield curve will continue to be of normal configuration. Most economists feel that a rise of three quarters of one percent on the short side and less on the long side could severely dampen the economy, but such increases are highly unlikely at this time. Following the March increase in rates, additional data has caused the concerns about rising inflation to moderate. Since lower rates benefit corporate earnings, the housing and stock markets, and the bond market, the economy has continued its expansion, but at a slightly slower rate. With the Federal Reserve always ready to raise (or lower) rates as economic conditions warrant, it is likely that before this expansion cycle is over, interest rates will rise. The supply and demand portion of the equation is nicely balanced, and a continuation of such equilibrium will probably restrain rising rates in the near term. It is even possible that in the short-term, interest rates might ease a bit. The consumer seems to be happier now than in the past. Job markets remain strong and the unemployment rate is at 4.8%--the lowest since November 1973. Consumer confidence is at a 28 year high. Our continuing economic health has always been dependent upon meaningful consumer participation, because consumers (household sector) actually account for 68% of the Gross Domestic Product ("GDP"). ________________________ /1/ US Financial Data, published by the Research Division of the Federal Reserve Bank of St. Louis, MO. /2/ National Economic Trends, the Federal Reserve Bank of St. Louis, MO. 4 FERGUSON & COMPANY SECTION IV - ------------------ ---------- In the second quarter of 1997, consumers seemed to rein in their consumption. This lowering of consumption may be only to catch their economic breath and repay credit card debt, and other personal debt which has accumulated. Manufacturing is still strong, even with the slight drop in retail sales, home purchases and other big ticket items. With consumer confidence at a high level, jobs plentiful, inflation seemingly in check, and the economy healthy and continuing to expand, why shouldn't the economy continue to roll onward and upward? From an analytical view, there is little on the economic horizon, at this time, that would interfere with continuing economic expansion for at least another 12 to 18 months. Thrift net interest margins have remained stable. The equilibrium in the supply and demand portion of the interest rate market has helped continue the profitability mode of the industry that started in 1993. Access to mortgage- backed securities and derivatives has made it possible for many to be profitable without making loans in significant volumes. With reduced deposit insurance premiums, perhaps they will become more willing to compete for customer deposits. However, even with portfolios replete with adjustable rate loans and adjustable MBS's, there remains a real fear that a quickly rising rate environment can cause the cost of funds to rise faster than the adjustable assets can accommodate, and accordingly, spreads would narrow. If rates rise in a slow and orderly manner, then the negative impact on spreads will be less, and the adjustable rate assets will have time to rise and protect rate spreads. As clearly illustrated, the SNL Thrift Index has performed well over the last six years. It moved in tandem with all interest sensitive stocks and reflected the weakness in the market as investors began to consider the importance of increases in rates and their impact on the net interest margins of thrifts. The clear implication is that rising interest rates will have a negative impact on earnings. Figure IV.2 graphically displays the rate environment since December 31, 1996. At that time, the yield curve was relatively flat, with only a 110 basis point ("BP") difference between the federal funds rate and the 30 year treasury. Since that time, the yield curve has changed very little with a 103 BP spread between the federal funds rate and the 30 year treasury rate at August 8, 1997. At December 31, 1996, the spread between the 1 year T-Bill and the 5 year T-Note was 73 BP, and the spread between the 5 year T-Note and the 30 year bond was 48 BP. On August 8, 1997, the spreads were 75 and 41 BP, respectively. From December 31, 1996 to August 8, 1997, the Fed Funds rate increased 32 BP and the Prime Rate increased 25 BP. Increased cost of funds will serve to narrow the net interest margins of thrifts. A thrift's ability to maintain net interest margins through business cycles is important to investors, unless thrifts can offset the decline in net interest income by other sources of revenue or reductions in noninterest expense. The former is difficult and the latter is unlikely. SB&LA, with its interest rate risk, is more vulnerable to rising rates than most. However, Management of SB&LA has paid more attention to spread management than gap management, and the Association has maintained a healthy spread in recent years. Its continuing growth in short to intermediate term loans continues to mitigate its rate risk position. During 1993, conversion stocks often experienced first day 30% or more increases in value. As Table IV.3 shows, recent price appreciation has become quite robust, approaching 1993 levels. Table IV.3 provides information on nine conversions completed since January 31, 1997. The average change in price since conversion is a gain of 58.4% and the median change is a gain of 52.5%. Within that group, all have increased in value with a range of a low of 38.8% to a high of 82.5%. The average increase in value at one day, one week, and one month after conversion has been 43.4%, 44.4%, and 47.4%, respectively. The 5 FERGUSON & COMPANY SECTION IV - ------------------ ---------- median increase in value at one day, one week, and one month after conversion has been 33.8%, 37.5%, and 40.0%, respectively. Because of the lack of complete earnings information on recent conversions, a meaningful comparison of the price earnings ratios is difficult to make. However, there is sufficient information to review the price to book ratio. The average price-to-book ratio, as of August 8, 1997, is 98.0% and the median is 96.1%. That compares to the offering price to pro forma book, where the average was 71.2% and the median was 71.9%. We believe a DOWNWARD ADJUSTMENT is required for the new issue discount. ------------------- ADJUSTMENTS CONCLUSION ADJUSTMENTS SUMMARY
- -------------------------------------------------------------------------------- NO CHANGE UPWARD DOWN Financial Aspects X Market Area X Management X Dividends X Liquidity X Thrift Equity Market Conditions X - --------------------------------------------------------------------------------
VALUATION APPROACH Typically, investors rely on the price/earnings ratio as the most appropriate indicator of value. We consider price/earnings to be one of the important pricing methods in valuing a thrift stock. Price/book is a well recognized yardstick for measuring the value of financial institution stocks in general. Another method of viewing thrift values is price/assets, which is more meaningful in situations where the subject is thinly capitalized. Given the healthy condition of the thrift industry today, more emphasis is placed on price/earnings and price/book. Generally, price/earnings and price/book should be considered in tandem. Table III.3 presents SB&LA's pro forma ratios and compares them to the ratios of its comparative group and the publicly held thrift industry as a whole. SB&LA's earnings for the twelve months ended June 30, 1997, were approximately $44,000, with adjustments of $439,000 required to determine appraisal earnings of $483,000. Management has indicated an intention, through its diversification of deposit and loan products, to exhibit the flexibility in operations needed to serve both the public and the institution. The Association is positioned to manage reasonable interest rate variations. The Association projects healthy growth. The comparative group traded at an average of 31.4 times earnings at August 8, 1997, and at 112.5% of book value. The comparative group traded at a median of 23.9 times earnings and a median of 111.2% of book value. At the midpoint of the valuation range, SB&LA is priced at 13.8 times earnings and 67.4% of book value. At the maximum end of the range, SB&LA is priced at 15.2 times earnings and 71.3% of book value. At the supermaximum, SB&LA is priced at 16.7 times earnings and 75.0% of book value. The midpoint valuation of $9,000,000 represents a discount of 40.1% from the average and a discount of 39.4% from the median of the comparative group on a price/book basis. The price/earnings ratio 6 FERGUSON & COMPANY SECTION IV - ------------------ ---------- for SB&LA at the midpoint represents a discount of 56.1% from the comparative group's mean and a discount of 42.3% from the median price/earnings ratio. The maximum valuation of $10,350,000 represents a discount of 36.6% from the average and 35.9% from the median of the comparative group on a price/book basis. The price/earnings ratio for SB&LA at the maximum represents a discount of 51.6% from the average and a discount of 36.4% from the median of the comparative group. As shown in Table IV.3, conversions closing since January 31, 1997, have closed at an average price to book ratio of 71.2% and median of 71.9%. SB&LA's pro forma price to book ratio is 67.4% at the midpoint, 71.3% at the maximum, and 75.0% at the supermaximum of the range. At the midpoint, SB&LA is 5.3% below the average and 6.3% below the median. At the maximum of the range, SB&LA is .1% above the average and .8% below the median. At the supermaximum of the range, SB&LA's pro forma price to book ratio is 5.3% above the average and 4.3% above the median. VALUATION CONCLUSION We believe that as of August 8, 1997, the estimated pro forma market value of SB&LA was $9,000,000. The resulting valuation range was $7,650,000 at the minimum to $10,350,000 at the maximum, based on a range of 15% below and 15% above the midpoint valuation. The supermaximum is $11,902,500, based on 1.15 times the maximum. Pro forma comparisons with the comparative group are presented in Table III.3 based on calculations shown in Exhibit VII. 7 FERGUSON & COMPANY TABLE IV.2 - COLORADO ACQUISITIONS SECTION IV - ------------------ ---------- (ANNOUNCED SINCE JANUARY 1, 1996)
Bank/ Bank/ Buyer City ST Thrift Seller City ST Thrift - ----- ---- -- ------ ------ ---- -- ------ Zions Bancorporation Salt Lake City UT Bank Aspen Bancshares, Inc. Aspen CO Bank Community Bankshares, Inc Denver CO Bank First Western Bancorporation La Jara CO Bank ColoEast Bankshares Inc Lamar CO Bank 405 Corporation La Junta CO Bank Community First Bankshares, Inc Fargo ND Bank Mountain Parks Financial Corp. Denver CO Bank Dickinson Financial Corporation Kansas City MO Bank Air Academy National Bancorp USAF Academy CO Bank First National of Nebraska, Inc Omaha NE Bank Boulder Bancorp Boulder CO Bank Mountain Parks Financial Corp. Denver CO Bank High Plains Bank Corp. Kiowa CO Bank Community First Bankshares, Inc Fargo ND Bank Financial Bancorp, Inc. Trinidad CO Bank Mountain Parks Financial Corp. Denver CO Bank Charter Bancorp Englewood CO Bank Southern Colorado Bank HC Pagosa Springs CO Bank Mancos Bancorporation, Inc. Mancos CO Bank First Colorado Bancorp Lakewood CO Thrift Delta Federal Savings FSB Delta CO Thrift Peoples National Bank Monument CO Bank Colorado Springs S&LA Colorado Springs CO Thrift Maximun--banks and thrifts Minimum--banks and thrifts Average--banks and thrifts Median--banks and thrifts Average--banks only Median--banks only Average--thrifts only Median--thrifts only
SOURCE: SNL & F&C CALCUATIONS 8 FERGUSON & COMPANY TABLE IV.2 - COLORADO ACQUISITIONS SECTION IV - ------------------ ---------- (ANNOUNCED SINCE JANUARY 1, 1996)
Buyer Seller Ann'd Ann'd Ann'd Ann'd Total Total Completed/ Deal Deal Deal Pr/ Deal Pr/ Assets Assets Announce Terminated Value Pr/Bk Tg Bk 4-Qtr Seller ($000) ($000) Date Status Date ($M) (%) (%) EPS (x) - ------ ------ ------ ---- ------ ---- ----- ----- ----- -------- Aspen Bancshares, Inc. 6,783,341 450,944 11/19/96 Completed 5/16/97 72.50 237.1 276.2 16.5 First Western Bancorporation NA 39,875 11/8/96 Pending NA 6.30 185.3 185.3 7.7 405 Corporation 104,973 20,968 7/1/96 Pending NA NA NA NA NA Mountain Parks Financial Corp. 2,293,703 462,892 6/25/96 Completed 12/18/96 115.50 224.3 300.1 14.4 Air Academy National Bancorp 1,394,400 61,078 6/4/96 Completed 9/12/96 6.50 234.7 234.7 14.4 Boulder Bancorp 6,143,890 125,929 4/16/96 Completed 8/6/96 32.00 165.1 165.1 NM High Plains Bank Corp. 421,239 39,611 3/18/96 Completed 7/31/96 NA NA NA NA Financial Bancorp, Inc. 2,326,787 66,719 3/11/96 Completed 10/1/96 12.00 136.7 136.7 12.4 Charter Bancorp 421,239 17,642 1/10/96 Completed 7/3/96 4.00 NA NA NA Mancos Bancorporation, Inc. 18,663 15,281 1/1/96 Completed 4/10/96 NA NA NA NA Delta Federal Savings FSB 1,509,514 38,153 5/21/97 Pending NA 5.80 167.0 167.0 24.6 Colorado Springs S&LA 51,033 70,786 6/30/96 Completed 1/10/97 NA NA NA NA Maximun--banks and thrifts 6,783,341 462,892 115.50 237.1 300.1 24.6 Minimum--banks and thrifts 18,663 15,281 4.00 136.7 136.7 7.7 Average--banks and thrifts 1,951,707 117,490 31.83 192.9 209.3 15.0 Median--banks and thrifts 1,394,400 50,477 9.25 185.3 185.3 14.4 Average--banks only 2,212,026 130,094 35.54 197.2 216.3 13.1 Median--banks only 1,394,400 50,477 12.00 204.8 210.0 14.4 Average--thrifts only 780,274 54,470 5.80 167.0 167.0 24.6 Median--thrifts only 780,274 54,470 5.80 167.0 167.0 24.6
SOURCE: SNL & F&C CALCULATIONS 9 FERGUSON & COMPANY TABLE IV.2 - COLORADO ACQUISITIONS SECTION IV - ------------------ (ANNOUNCED SINCE JANUARY 1, 1996) ----------
Final Final Final Final Deal Deal Deal Pr/ Deal Pr/ Value Pr/Bk Tg Bk 4-Qtr Seller ($M) (%) (%) EPS (x) - ------ ------ ----- ------- ------- Aspen Bancshares, Inc. 91.90 280.7 323.0 22.2 First Western Bancorporation NA NA NA NA 405 Corporation NA NA NA NA Mountain Parks Financial Corp. 140.60 240.2 357.4 18.0 Air Academy National Bancorp 6.50 269.3 269.3 13.3 Boulder Bancorp 32.00 165.1 165.1 NA High Plains Bank Corp. NA NA NA NA Financial Bancorp, Inc. 12.70 131.1 131.1 12.4 Charter Bancorp 4.00 NA NA NA Mancos Bancorporation, Inc. NA NA NA NA Delta Federal Savings FSB NA NA NA NA Colorado Springs S&LA NA NA NA NA Maximun--banks and thrifts 140.60 280.7 357.4 22.2 Minimum--banks and thrifts 4.00 131.1 131.1 12.4 Average--banks and thrifts 47.95 217.3 249.2 16.5 Median--banks and thrifts 22.35 240.2 269.3 15.6 Average--banks only 47.95 217.3 249.2 16.5 Median--banks only 22.35 240.2 269.3 15.6 Average--thrifts only NA NA NA NA Median--thrifts only NA NA NA NA
SOURCE: SNL & F&C CALCULATIONS 10 FERGUSON & COMPANY TABLE IV.3 - RECENT CONVERSIONS SECTION IV - ------------------ (COMPLETED SINCE JANUARY 31,1997) ----------
Conversion Gross Offering Assets Proceeds Price Ticker Short Name State IPO Date ($000) ($000) ($) C> FSPT FirstSpartan Financial Corp. SC 07/09/97 375,526 88,608 20.000 GOSB GSB Financial Corp. NY 07/09/97 96,323 22,483 10.000 FBNW FirstBank Corp. ID 07/02/97 133,194 19,838 10.000 CFBC Community First Banking Co. GA 07/01/97 352,532 48,271 20.000 HCBB HCB Bancshares Inc. AR 05/07/97 171,241 26,450 10.000 PSFC Peoples-Sidney Financial Corp. OH 04/28/97 86,882 17,854 10.000 HMLK Hemlock Federal Financial Corp IL 04/02/97 146,595 20,763 10.000 GSLA GS Financial Corp. LA 04/01/97 86,521 34,385 10.000 MRKF Market Financial Corp. OH 03/27/97 45,547 13,357 10.000 Maximum 375,526 88,608 20.000 Minimum 45,547 13,357 10.000 Average 166,040 32,445 12.222 Median 133,194 22,483 10.000
SOURCE: SNL & F&C CALCULATIONS 11 FERGUSON & COMPANY TABLE IV.3 - RECENT CONVERSION SECTION IV - ------------------ (COMPLETED SINCE JANUARY 31, 1997) ----------
CONVERSION PRICING RATIOS -------------------------------------------- Price/ Price/ Price/ Price/ Current Current Current Pro-Forma Pro-Forma Pro-Forma Adjusted Stock Price/ Price/Tang Book Value Tang. Book Earnings Assets Price Book Value Book Value Ticker (%) (%) (x) (%) ($) (%) (%) FSPT 73.0 73.0 26.0 19.1 35.625 NA NA GOSB 73.4 73.4 23.2 18.9 14.375 NA NA FBNW 71.9 71.9 19.2 13.0 18.250 NA NA CFBC 72.7 72.7 36.1 12.0 34.000 NA NA HCBB 72.0 72.0 29.0 13.4 13.875 NA NA PSFC 71.2 71.2 11.5 17.0 16.500 NA NA HMLK 71.6 71.6 37.5 12.4 15.250 104.7 104.7 GSLA 63.8 63.8 38.7 28.4 15.250 93.2 93.2 MRKF 71.1 71.1 26.2 22.7 14.250 96.1 96.1 Maximum 73.4 73.4 38.7 28.4 35.625 104.7 104.7 Minimum 63.8 63.8 11.5 12.0 13.875 93.2 93.2 Average 71.2 71.2 27.5 17.4 19.708 98.0 98.0 Median 71.9 71.9 26.2 17.0 15.250 96.1 96.1
SOURCE: SNL & F&C CALCULATIONS 12 FERGUSON & COMPANY TABLE IV.3 - RECENT CONVERSIONS SECTION IV - ------------------ (COMPLETED SINCE JANUARY 31,1997) ----------
Price One Price One Price One POST CONVERSION INCREASE (DECREASE) ----------------------------------- Day After Week After Month After One One One To Conversion Conversion Conversion Day Week Month Date Ticker ($) ($) ($) (%) (%) (%) (%) FSPT 36.688 37.000 35.625 83.4 85.0 78.1 78.1 GOSB 14.625 14.875 14.375 46.3 48.8 43.8 43.8 FBNW 15.813 15.563 17.750 58.1 55.6 77.5 82.5 CFBC 31.875 33.000 34.000 59.4 65.0 70.0 70.0 HCBB 12.625 12.750 12.875 26.3 27.5 28.8 38.8 PSFC 12.563 12.875 13.250 25.6 28.8 32.5 65.0 HMLK 12.875 12.875 13.000 28.8 28.8 30.0 52.5 GSLA 13.375 13.750 14.000 33.8 37.5 40.0 52.5 MRKF 12.938 12.250 12.625 29.4 22.5 26.3 42.5 Maximum 36.688 37.000 35.625 83.4 85.0 78.1 82.5 Minimum 12.563 12.250 12.625 25.6 22.5 26.3 38.8 Average 18.153 18.326 18.611 43.4 44.4 47.4 58.4 Median 13.375 13.750 14.000 33.8 37.5 40.0 52.5
SOURCE: SNL F&C CALUCATIONS 13 FERGUSON & COMPANY TABLE IV.4 SECTION IV - ------------------ ---------- COMPARISON OF PRICING RATIOS
Salida Group Percent Premium Building Compared to (Discount) Versus ----------------- ------------------ and Loan Average Median Average Median -------- ------- ------ ------- ------ COMPARISON OF PE RATIO AT MIDPOINT TO: - ---------------------------- Comparative group 13.8 31.4 23.9 (56.1) (42.3) Colorado thrifts 13.8 16.1 16.1 (14.3) (14.3) Southwest Region thrifts 13.8 16.4 16.0 (15.9) (13.8) All public thrifts 13.8 16.7 16.4 (17.4) (15.9) Recent conversions 13.8 27.5 26.2 (49.8) (47.3) COMPARISON OF PE RATIO AT MAXIMUM TO: - ---------------------------- Comparative group 15.2 31.4 23.9 (51.6) (36.4) Colorado thrifts 15.2 16.1 16.1 (5.6) (5.6) Southwest Region thrifts 15.2 16.4 16.0 (7.3) (5.0) All public thrifts 15.2 16.7 16.4 (9.0) (7.3) Recent conversions 15.2 27.5 26.2 (44.7) (42.0) COMPARISON OF PE RATIO AT SUPERMAXIMUM TO: - ---------------------------- Comparative group 16.7 31.4 23.9 (46.8) (30.1) Colorado thrifts 16.7 16.1 16.1 3.7 3.7 Southwest Region thrifts 16.7 16.4 16.0 1.8 4.4 All public thrifts 16.7 16.7 16.4 - 1.8 Recent conversions 16.7 27.5 26.2 (39.3) (36.3) COMPARISON OF PB RATIO AT MIDPOINT TO: - ---------------------------- Comparative group 67.4 112.5 111.2 (40.1) (39.4) Colorado thrifts 67.4 150.6 150.6 (55.2) (55.2) Southwest Region thrifts 67.4 137.3 136.0 (50.9) (50.4) All public thrifts 67.4 148.4 141.9 (54.6) (52.5) Recent conversions 67.4 71.2 71.9 (5.3) (6.3) COMPARISON OF PB RATIO AT MAXIMUM TO: - ---------------------------- Comparative group 71.3 112.5 111.2 (36.6) (35.9) Colorado thrifts 71.3 150.6 150.6 (52.7) (52.7) Southwest Region thrifts 71.3 137.3 136.0 (48.1) (47.6) All public thrifts 71.3 148.4 141.9 (52.0) (49.8) Recent conversions 71.3 71.2 71.9 0.1 (0.8) COMPARISON OF PB RATIO AT SUPERMAXIMUM TO: - ---------------------------- Comparative group 75.0 112.5 111.2 (33.3) (32.6) Colorado thrifts 75.0 150.6 150.6 (50.2) (50.2) Southwest Region thrifts 75.0 137.3 136.0 (45.4) (44.9) All public thrifts 75.0 148.4 141.9 (49.5) (47.1) Recent conversions 75.0 71.2 71.9 5.3 4.3
SOURCE: SNL & F&C CALCULATIONS 14 FERGUSON & COMPANY FIGURE IV.1 - SNL INDEX SECTION IV - ------------------ ----------
% CHANGE SINCE --------------------- SNL PREVIOUS DATE INDEX DATE 12/31/96 ---- ----- ---- -------- 12/31/90 96.6 12/31/91 143.9 49.0% 12/31/92 201.1 39.7% 12/31/93 252.5 25.6% 12/31/94 244.7 -3.1% 12/31/95 376.5 53.9% 12/31/96 483.6 28.4% 3/31/97 527.7 9.1% 9.1% 4/30/97 537.2 1.8% 11.1% 5/30/97 577.9 7.6% 19.5% 6/30/97 624.6 8.1% 29.2% 7/31/97 684.5 9.6% 41.5% 8/8/97 664.6 -2.9% 37.4%
[GRAPH APPEARS HERE] SOURCE: SNL & F&C CALCULATIONS 15 FERGUSON & COMPANY FIGURE IV.2 - INTEREST RATES SECTION IV - ------------------ ----------
----------------------------------------------------------------------- ----------------- 1 Year 5 Year 10 Year 30 Year 1 to 30 Fed Fds (*) T-bill Treas. Treas. Treas. Yr. Spread ----------------------------------------------------------------------- ----------------- 31-Dec-96 5.18 5.48 6.12 6.34 6.58 1.10 ----------------------------------------------------------------------- ----------------- 17-Jan-97 5.19 5.60 6.33 6.56 6.81 31-Jan-97 5.18 5.60 6.36 6.62 6.89 1.29 ------------------------------------------------------------------------ ----------------- 14-Feb-97 5.05 5.48 6.14 6.37 6.65 27-Feb-97 5.16 5.52 6.25 6.45 6.71 1.19 ------------------------------------------------------------------------- ---------------- 14-Mar-97 5.19 5.69 6.41 6.58 6.85 31-Mar-97 5.40 5.91 6.75 6.96 7.15 1.24 ------------------------------------------------------------------------- ---------------- 18-Apr-97 5.48 6.00 6.80 6.92 7.13 30-Apr-97 5.45 5.89 6.57 6.71 6.95 1.06 -------------------------------------------------------------------------- --------------- 16-May-97 5.49 5.85 6.54 6.68 6.90 30-May-97 5.43 5.85 6.60 6.75 6.99 1.14 -------------------------------------------------------------------------- --------------- 13-Jun-97 5.48 5.71 6.40 6.52 6.80 27-Jun-97 5.42 5.64 6.33 6.45 6.75 1.11 -------------------------------------------------------------------------- -------------- 18-Jul-97 5.44 5.53 6.14 6.23 6.52 8-Aug-97 5.50 5.57 6.22 6.37 6.63 1.06 -------------------------------------------------------------------------- -------------- RATES DECEMBER 31, 1996 THROUGH AUGUST 8, 1997
[GRAPH APPEARS HERE]
--------------------------------------------------------------------------- --------------- 1 Year 5 Year 10 Year 30 Year 1 to 30 Fed Fds(*) T-bill Treas. Treas. Treas. Yr. Spread --------------------------------------------------------------------------- -------------- 8-Aug-97 5.50 5.57 6.22 6.37 6.63 1.06 --------------------------------------------------------------------------- -------------- Current Yield Curve
[GRAPH APPEARS HERE] SOURCE: FINANCIAL DATA, FEDERAL RESERVE BANK OF ST. LOUIS, MO. 16 EXHIBITS EXHIBIT I FERGUSON & COMPANY - ------------------ EXHIBIT I - FIRM QUALIFICATIONS EXHIBIT I Ferguson & Company (F&C), is a financial, economic, and regulatory consulting firm providing services to financial institutions. It is located in Irving, Texas. Its services to financial institutions include: . Mergers and acquisition services . Business plans . Fairness opinions and conversion appraisals . Litigation support . Operational and efficiency consulting . Human resources evaluation and management F&C developed several financial institution databases of information derived from periodic financial reports filed with regulatory authorities by financial institutions. For example, F&C developed TAFS and BankSource. TAFS includes thrifts filing TFR's with the OTS and BankSource includes banks and savings banks filing call reports with the FDIC. Both databases include information from the periodic reports plus numerous calculations derived from F&C's analysis. In addition, both databases are interactive, permitting the user to conduct merger analysis, do peer group comparisons, and a number of other items. In 1994, F&C sold its electronic publishing segment to Sheshunoff Information Services Inc., Austin, Texas. Brief biographical information is presented below on F&C's principals: WILLIAM C. FERGUSON, MANAGING PARTNER - ------------------------------------- Mr. Ferguson has approximately 30 years of experience providing various services to financial institutions. He was a partner in a CPA firm prior to founding F&C in 1984. Mr. Ferguson is a frequent speaker for financial institution seminars and he has testified before Congressional Committees several times on his analysis of the state of the thrift industry. Mr. Ferguson has a B.A. degree from Austin Peay University and an M.S. degree from the University of Tennessee. He is a CPA. CHARLES M. HEBERT, PRINCIPAL - ---------------------------- Mr. Hebert has over 30 years of experience providing services to and managing financial institutions. He spent 7 years as a national bank examiner, 14 years in bank management, 5 years in thrift management, and has spent the last 8 years on the F&C consulting staff. Mr. Hebert holds a B.S. degree from Louisiana State University. ROBIN L. FUSSELL, PRINCIPAL - --------------------------- Mr. Fussell has over 25 years of experience providing professional services to and managing financial institutions. He worked on the audit staff of a "Big Six" accounting firm for 12 years, served as CFO of a thrift for 3 years, and has worked in financial institution consulting for the last 13 years. He is a co-founder of F&C. He holds a B.S. degree from East Carolina University. He is a CPA. 1 EXHIBIT II FERGUSON COMPANY - ---------------- EXHIBIT II.1 - SELECTED PUBLICLY HELD SOUTHWEST THRIFTS
Deposit Current Insurance Stock Agency Price Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($) CBSA Coastal Bancorp Inc. Houston TX SW SAIF NASDAQ NA 30.250 FBHC Fort Bend Holding Corp. Rosenberg TX SW SAIF NASDAQ 06/30/93 30.750 FFBA First Colorado Bancorp Inc. Lakewood CO SW SAIF NASDAQ 01/02/96 17.750 GUPB GFSB Bancorp Inc. Gallup NM SW SAIF NASDAQ 06/30/95 19.000 ISBF ISB Financial Corporation New Iberia LA SW SAIF NASDAQ 04/07/95 24.375 JXVL Jacksonville Bancorp Inc. Jacksonville TX SW SAIF NASDAQ 04/01/96 16.625 MERI Meritrust Federal SB Thibodaux LA SW SAIF NASDAQ NA 40.500 TSH Teche Holding Co. Franklin LA SW SAIF AMSE 04/19/95 18.125 Maximum 40.500 Minimum 16.625 Average 24.672 Median 21.688
SOURCE: SNL & F&C CALCULATIONS 1 FERGUSON & COMPANY - ------------------ EXHIBIT II.1 - SELECTED PUBLICLY HELD SOUTHWEST THRIFTS
Tangible Current Price/ Current Current Current Total Equity/ Equity/ Core Core Market LTM Price/ Price/ T Price/ Dividend Assets Assets T Assets EPS ROAA Value Core EPS Book V Book V Assets Yield ($000) (%) (%) ($) (%) Ticker ($M) (x) (%) (%) (%) (%) MRQ MRQ MRQ LTM LTM CBSA 150.39 13.1 154.1 185.4 5.1 1.59 2,964,082 3.3 2.8 2.31 0.41 FBHC 25.44 20.8 132.4 142.1 8.0 1.30 318,668 6.0 5.6 1.48 0.51 FFBA 293.97 16.1 150.6 152.6 19.5 2.48 1,510,376 12.9 12.8 1.10 1.21 GUPB 15.28 22.6 112.6 112.6 18.4 2.11 86,911 16.3 16.3 0.84 0.93 ISBF 168.22 22.0 139.7 164.7 18.2 1.64 938,968 12.2 10.5 1.11 0.92 JXVL 41.00 7.3 122.7 122.7 18.3 3.01 226,182 14.9 14.9 2.28 1.33 MERI 31.35 13.8 167.3 167.3 13.7 1.73 228,485 8.2 8.2 2.94 1.05 TSH 62.31 15.9 119.0 119.0 15.8 2.76 393,556 13.3 13.3 1.14 1.00 Maximum 293.97 22.6 167.3 185.4 19.5 3.01 2,964,082 16.3 16.3 2.94 1.33 Minimum 15.28 7.3 112.6 112.6 5.1 1.30 86,911 3.3 2.8 0.84 0.41 Average 98.50 16.4 137.3 145.8 14.6 2.08 833,404 10.9 10.6 1.65 0.92 Median 51.66 16.0 136.0 147.4 17.0 1.92 356,112 12.6 11.7 1.31 0.97
SOURCE: SNL & F&C CALCULATIONS 2 FERGUSON & COMPANY - ------------------ EXHIBIT II.1 SELECTED PUBLICLY HELD SOUTHWEST THRIFTS
Core NPAs/ Price/ Core Core Core ROAE Merger Current Assets Core EPS ROAA ROAE (%) Target? Pricing (%) EPS ($) (%) (%) Ticker LTM (Y/N) Date MRQ (x) MRQ MRQ MRQ CBSA 12.30 N 08/08/97 0.54 13.8 0.55 0.39 11.51 FBHC 8.10 N 08/08/97 0.37 17.9 0.43 0.60 9.70 FFBA 8.59 N 08/08/97 0.23 15.9 0.28 1.19 9.25 GUPB 4.89 N 08/08/97 0.18 22.6 0.21 0.81 4.74 ISBF 6.15 N 08/08/97 0.33 21.0 0.29 0.77 6.29 JXVL 8.42 N 08/08/97 0.78 10.1 0.41 1.75 11.48 MERI 13.46 N 08/08/97 0.22 11.4 0.89 1.27 15.91 TSH 6.93 N 08/08/97 0.27 14.6 0.31 0.99 7.48 Maximum 13.46 0.78 22.6 0.89 1.75 15.91 Minimum 4.89 0.18 10.1 0.21 0.39 4.74 Average 8.61 0.37 15.9 0.42 0.97 9.55 Median 8.26 0.30 15.2 0.36 0.90 9.48
SOURCE: SNL & F&C CALCULATIONS 3 FERGUSON & COMPANY - ------------------ EXHIBIT II.2 - SELECTED PUBLICLY HELD COLORADO THRIFTS
Deposit Current Insurance Stock Agency Price Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($) FFBA First Colorado Bancorp Inc. Lakewood CO SW SAIF NASDAQ 01/02/96 17.750 Maximum 17.750 Minimum 17.750 Average 17.750 Median 17.750
SOURCE: SNL & F&C CALCULATIONS 4 FERGUSON & COMPANY - ------------------ EXHIBIT II.2-SELECTED PUBLICLY HELD COLORADO THRIFTS
Tangible Current Price/ Current Current Current Total Equity/ Equity/ Core Core Market LTM Price/ Price/ T Price/ Dividend Assets Assets T Assets EPS ROAA Value Core EPS Book V Book V Assets Yield ($000) (%) (%) ($) (%) Ticker ($M) (x) (%) (%) (%) (%) MRQ MRQ MRQ LTM LTM FFBA 293.97 16.1 150.6 152.6 19.5 2.48 1,510,376 12.9 12.8 1.10 1.21 Maximum 293.97 16.1 150.6 152.6 19.5 2.48 1,510,376 12.9 12.8 1.10 1.21 Minimum 293.97 16.1 150.6 152.6 19.5 2.48 1,510,376 12.9 12.8 1.10 1.21 Average 293.97 16.1 150.6 152.6 19.5 2.48 1,510,376 12.9 12.8 1.10 1.21 Median 293.97 16.1 150.6 152.6 19.5 2.48 1,510,376 12.9 12.8 1.10 1.21
SOURCE: SNL & F&C CALCULATIONS 5 FERGUSON & COMPANY - ------------------ EXHIBIT II.2-SELECTED PUBLICLY HELD COLORADO THRIFTS
Core NPAs/ Price/ Core Core Core ROAE Merger Current Assets Core EPS ROAA ROAE (%) Target? Pricing (%) EPS ($) (%) (%) Ticker LTM (Y/N) Date MRQ (x) MRQ MRQ MRQ FFBA 8.59 N 08/08/97 0.23 15.9 0.28 1.19 9.25 Maximum 8.59 0.23 15.9 0.28 1.19 9.25 Minimum 8.59 0.23 15.9 0.28 1.19 9.25 Average 8.59 0.23 15.9 0.28 1.19 9.25 Median 8.59 0.23 15.9 0.28 1.19 9.25
Source: SNL & F&C calculations 6 FERGUSON & COMPANY - ------------------ EXHIBIT II.3-COMPARATIVES GENERAL
Total Current Current Number Assets Stock Market of ($000) Price Value Ticker Short Name City State Offices MRQ IPO Date ($) ($M) AMFC AMB Financial Corp. Munster IN 4 94,179 04/01/96 15.000 14.46 CCFH CCF Holding Company Jonesboro GA 4 86,940 07/12/95 17.125 14.12 CIBI Community Investors Bancorp Bucyrus OH 3 97,446 02/07/95 15.250 14.17 CKFB CKF Bancorp Inc. Danville KY 1 60,197 01/04/95 20.000 18.54 INCB Indiana Community Bank SB Lebanon IN 3 91,329 12/15/94 15.250 14.06 LOGN Logansport Financial Corp. Logansport IN 1 83,152 06/14/95 14.000 17.65 LXMO Lexington B&L Financial Corp. Lexington MO 1 59,748 06/06/96 16.125 17.54 MIVI Mississippi View Holding Co. Little Falls MN 1 69,755 03/24/95 15.125 12.38 SFFC StateFed Financial Corporation Des Moines IA 2 85,679 01/05/94 21.750 17.05 SOBI Sobieski Bancorp Inc. South Bend IN 3 79,080 03/31/95 16.375 12.44 SSB Scotland Bancorp Inc Laurinburg NC 2 69,479 04/01/96 17.188 32.89 SZB SouthFirst Bancshares Inc. Sylacauga AL 2 92,910 02/14/95 17.000 14.40 Maximum 4 97,446 21.750 32.89 Minimum 1 59,748 14.000 12.38 Average 2 80,825 16.682 16.64 Median 2 84,416 16.250 14.43
SOURCE: SNL & F&C CALCULATIONS 7 FERGUSON & COMPANY - ------------------ EXHIBIT II.4 - COMPARATIVES BALANCE SHEETS
Total Mortgage- Investment & Loan Total Cash and Backed Net Foreclosed Servicing Total Other Assets Investments Securities Loans Real Estate Rights Intangibles Assets ($000) ($000) ($000) ($000) ($000) ($000) ($000) ($000) Short Name MRQ MRQ MRQ MRQ MRQ MRQ MRQ MRQ AMB Financial Corp. 94,179 20,936 3,827 70,890 99 - - 2,254 CCF Holding Company 86,940 13,177 3,821 70,600 - - - 3,163 Community Investors Bancorp 97,446 21,990 1,952 74,110 57 - - 1,289 CKF Bancorp Inc. 60,197 5,004 456 54,035 86 - - 972 Indiana Community Bank SB 91,329 16,913 2,828 71,330 - - - 3,086 Logansport Financial Corp. 83,152 19,871 8,032 59,490 8 - - 3,783 Lexington B&L Financial Corp. 59,748 13,794 1,959 NA 11 - - 1,315 Mississippi View Holding Co. 69,755 23,944 4,942 43,978 34 - - 1,750 StateFed Financial Corporation 85,679 12,496 - NA 2,703 - - 2,302 Sobieski Bancorp Inc. 79,080 18,771 14,182 57,698 - - - 2,611 Scotland Bancorp Inc 69,479 19,979 442 47,923 - - - 1,577 SouthFirst Bancshares Inc. 92,910 21,973 5,235 66,757 157 - - 3,920 Maximum 97,446 23,944 14,182 74,110 2,703 - - 3,920 Minimum 59,748 5,004 - 43,978 - - - 972 Average 80,825 17,404 3,973 61,681 271 - - 2,335 Median 84,416 19,321 3,325 63,124 23 - - 2,278
SOURCE: SNL & F&C CALCULATIONS 8 FERGUSON & COMPANY - ------------------ EXHIBIT II.4 - COMPARATIVES BALANCE SHEETS
Total Total Subordinated Other Total Preferred Common Deposits Borrowings Debt Liabilities Liabilities Equity Equity ($000) ($000) ($000) ($000) ($000) ($000) ($000) Short Name MRQ MRQ MRQ MRQ MRQ MRQ MRQ AMB Financial Corp. 65,483 13,500 - 1,109 80,092 - 14,087 CCF Holding Company 72,194 1,500 - 801 74,495 - 12,445 Community Investors Bancorp 72,015 13,631 - 579 86,225 - 11,221 CKF Bancorp Inc. 42,853 2,243 - 847 45,943 - 14,254 Indiana Community Bank SB 79,413 - - 604 80,017 - 11,312 Logansport Financial Corp. 60,400 4,500 - 2,292 67,192 - 15,960 Lexington B&L Financial Corp. 42,359 - - 884 43,243 - 16,505 Mississippi View Holding Co. 55,943 - - 1,077 57,020 - 12,735 StateFed Financial Corporation 50,346 19,000 - 1,100 70,446 - 15,233 Sobieski Bancorp Inc. 58,996 7,100 - 803 66,899 - 12,181 Scotland Bancorp Inc 42,451 - - 1,298 43,749 - 25,730 SouthFirst Bancshares Inc. 63,817 14,083 - 2,022 79,922 - 12,988 Maximum 79,413 19,000 - 2,292 86,225 - 25,730 Minimum 42,359 - - 579 43,243 - 11,221 Average 58,856 6,296 - 1,118 66,270 - 14,554 Median 59,698 3,372 - 981 68,819 - 13,538
Regulatory Total Tangible Equity Capital ($000) ($000) Short Name MRQ MRQ AMB Financial Corp. 14,087 11,500 CCF Holding Company 12,445 NA Community Investors Bancorp 11,221 10,200 CKF Bancorp Inc. 14,254 12,224 Indiana Community Bank SB 11,312 NA Logansport Financial Corp. 15,960 16,011 Lexington B&L Financial Corp. 16,505 13,027 Mississippi View Holding Co. 12,735 10,848 StateFed Financial Corporation 15,233 NA Sobieski Bancorp Inc. 12,181 8,800 Scotland Bancorp Inc 25,730 NA SouthFirst Bancshares Inc. 12,988 12,988 Maximum 25,730 16,011 Minimum 11,221 8,800 Average 14,554 11,950 Median 13,538 11,862
SOURCE: SNL & F&C CALCULATIONS 9 FERGUSON & COMPANY - ------------------ EXHIBIT II.4 - COMPARATIVE BALANCE SHEETS
Regulatory Regulatory Loan Loss Core Total Tangible Core Risk-Based NPAs/ Reserves/ Reserves/ Capital Capital Capital/ Capital/ Capital/ Assets Assets NPLs ($000) ($000) Tangible Adj Tangible Risk-Weightd (%) (%) (%) Short Name MRQ MRQ Assets (%) Assets (%) Assets (%) MRQ MRQ MRQ AMB Financial Corp. 11,500 11,900 13.4 13.4 26.6 0.81 0.40 56.74 CCF Holding Company NA NA 15.5 15.5 37.3 0.34 0.65 189.90 Community Investors Bancorp 10,200 10,600 10.2 10.2 20.4 0.72 0.47 71.32 CKF Bancorp Inc. 12,224 12,353 20.9 20.9 36.8 0.89 0.18 30.66 Indiana Community Bank SB NA NA NA NA NA NA 0.56 NA Logansport Financial Corp. 16,011 16,239 21.8 21.8 41.6 0.61 0.27 45.60 Lexington B&L Financial Corp. 13,027 13,189 22.8 22.8 46.4 0.63 0.37 60.05 Mississippi View Holding Co. 10,848 11,280 14.9 14.9 31.7 0.21 1.24 772.32 StateFed Financial Corporation NA NA 13.2 13.2 22.7 NA NA NA Sobieski Bancorp Inc. 8,800 9,000 11.9 11.9 28.5 0.25 0.25 102.04 Scotland Bancorp Inc 18,008 18,251 NA NA NA - 0.35 NM SouthFirst Bancshares Inc. 12,988 13,256 12.7 12.7 23.5 0.50 0.29 86.73 Maximum 18,008 18,251 22.8 22.8 46.4 0.89 1.24 772.32 Minimum 8,800 9,000 10.2 10.2 20.4 - 0.18 30.66 Average 12,623 12,896 15.7 15.7 31.6 0.50 0.46 157.26 Median 12,224 12,353 14.2 14.2 30.1 0.56 0.37 71.32
SOURCE: SNL & F&C CALCULATION 10 FERGUSON & COMPANY - ------------------ EXHIBIT II.4 - COMPARATIVES BALANCE SHEETS
Publicly Tangible Earn Assets/ Full-Time Loans Cash & Reported Publicly Rep Int Bearing Equivalent Serviced Investments MBS/ Book V Book Value Liabilities Employees For Others (ex MBS) Assets ($) ($) (%) (Actual) - Assets (%) (%) Short Name MRQ MRQ MRQ MRQ MRQ MRQ MRQ AMB Financial Corp. 14.62 14.62 117.82 NA NA 18.17 4.06 CCF Holding Company 14.38 14.38 110.17 NA 9,845 10.76 4.39 Community Investors Bancorp 11.82 11.82 112.79 NA NA 20.56 2.00 CKF Bancorp Inc. 16.59 16.59 132.43 8 - 7.56 0.76 Indiana Community Bank SB 12.27 12.27 112.01 NA NA 15.42 3.10 Logansport Financial Corp. 12.66 12.66 122.75 13 - 14.24 9.66 Lexington B&L Financial Corp. 15.17 15.17 140.79 NA NA 19.81 3.28 Mississippi View Holding Co. 15.55 15.55 123.03 21 - 27.24 7.08 StateFed Financial Corporation 19.44 19.44 116.34 NA NA 14.58 - Sobieski Bancorp Inc. 17.52 17.52 117.19 22 - 5.80 17.93 Scotland Bancorp Inc 13.45 13.45 160.05 14 - 28.12 0.64 SouthFirst Bancshares Inc. 15.82 15.82 111.43 45 - 18.02 5.63 Maximum 19.44 19.44 160.05 45 9,845 28.12 17.93 Minimum 11.82 11.82 110.17 8 - 5.80 - Average 14.94 14.94 123.07 21 1,406 16.69 4.88 Median 14.90 14.90 117.51 18 - 16.72 3.67
SOURCE: SNL & F&C CALCULATIONS 11 FERGUSON & COMPANY - ------------------ EXHIBIT II.5 - COMPARATIVES OPERATIONS
Net Income ROAA ROAE Average Before Before Core Before Core Assets Net Income Extra Items ROAA Extra ROAA ROAE Extra ROAE ($000) ($000) ($000) (%) (%) (%) (%) (%) (%) Short Name LTM LTM LTM LTM LTM LTM LTM LTM LTM AMB Financial Corp. 87,520 640 640 0.73 0.73 0.80 4.14 4.14 4.54 CCF Holding Company 82,207 220 220 0.27 0.27 0.42 1.49 1.49 2.37 Community Investors Bancorp 93,497 626 626 0.67 0.67 0.99 5.53 5.53 8.18 CKF Bancorp Inc. 59,529 775 775 1.30 1.30 1.29 5.08 5.08 5.05 Indiana Community Bank SB 90,855 150 150 0.17 0.17 0.50 1.29 1.29 3.92 Logansport Financial Corp. 79,217 931 931 1.18 1.18 1.51 5.74 5.74 7.40 Lexington B&L Financial Corp. 61,284 553 553 0.90 0.90 1.18 2.98 2.98 3.91 Mississippi View Holding Co. 69,520 474 474 0.68 0.68 1.01 3.76 3.76 5.56 StateFed Financial Corporation 81,192 921 921 1.13 1.13 1.37 6.11 6.11 7.36 Sobieski Bancorp Inc. 79,053 225 225 0.28 0.28 0.57 1.64 1.64 3.28 Scotland Bancorp Inc 68,900 974 974 1.41 1.41 1.71 3.88 3.88 4.69 SouthFirst Bancshares Inc. 91,348 38 38 0.04 0.04 0.16 0.29 0.29 1.13 Maximum 93,497 974 974 1.41 1.41 1.71 6.11 6.11 8.18 Minimum 59,529 38 38 0.04 0.04 0.16 0.29 0.29 1.13 Average 78,677 544 544 0.73 0.73 0.96 3.49 3.49 4.78 Median 80,205 590 590 0.71 0.71 1.00 3.82 3.82 4.62
SOURCE: SNL & F&C CALCULATIONS 12 FERGUSON & COMPANY - ------------------ EXHIBIT II.5 - COMPARATIVES OPERATIONS
Loan Total Total Net Loan Loss Noninterest Noninterest Chargeoffs/ Provision Income Expense Avg Loans ($000) ($000) ($000) (%) Short Name LTM LTM LTM LTM AMB Financial Corp. 31 406 2,593 0.02 CCF Holding Company 141 523 3,147 - Community Investors Bancorp 140 109 1,872 0.16 CKF Bancorp Inc. 1 57 1,071 - Indiana Community Bank SB 460 870 3,546 0.54 Logansport Financial Corp. 14 124 1,252 0.03 Lexington B&L Financial Corp. 21 90 1,047 - Mississippi View Holding Co. 1 187 1,687 0.04 StateFed Financial Corporation 36 108 1,138 NA Sobieski Bancorp Inc. - 189 2,030 - Scotland Bancorp Inc 24 70 1,363 - SouthFirst Bancshares Inc. 18 518 3,333 0.02 Maximum 460 870 3,546 0.54 Minimum - 57 1,047 - Average 74 271 2,007 0.07 Median 23 156 1,780 0.02 Common Dividend Interest LTM EPS Dividends Payout Income/ After Extra Per Share Ratio Avg Assets ($) ($) (%) (%) Short Name LTM LTM LTM LTM AMB Financial Corp. 0.67 0.24 35.82 7.51 CCF Holding Company 0.22 0.70 318.18 7.17 Community Investors Bancorp 0.67 0.23 33.85 7.70 CKF Bancorp Inc. 0.87 1.44 165.52 7.39 Indiana Community Bank SB 0.15 3.36 NM 7.77 Logansport Financial Corp. 0.73 3.40 465.75 7.46 Lexington B&L Financial Corp. NA NA NA 7.21 Mississippi View Holding Co. 0.58 0.24 41.38 7.40 StateFed Financial Corporation 1.20 0.40 33.33 7.89 Sobieski Bancorp Inc. 0.29 0.07 24.14 7.14 Scotland Bancorp Inc 0.57 0.30 52.63 7.44 SouthFirst Bancshares Inc. 0.04 0.50 NM 7.53 Maximum 1.20 3.40 465.75 7.89 Minimum 0.04 0.07 24.14 7.14 Average 0.54 0.99 130.07 7.47 Median 0.58 0.40 41.38 7.45
SOURCE: SNL & F&C CALCULATIONS 13 FERGUSON & COMPANY - ------------------ EXHIBIT II.5 - COMPARATIVES OPERATIONS
Interest Net Interest Gain on Real Noninterest G&A Noninterest Expense/ Income/ Sale/ Estate Income/ Expense/ Expense/ Avg Assets Avg Assets Avg Assets Expense Avg Assets Avg Assets Avg Assets (%) (%) (%) ($000) (%) (%) (%) Short Name LTM LTM LTM LTM LTM LTM LTM AMB Financial Corp. 3.73 3.78 0.34 (28) 0.46 2.99 2.96 CCF Holding Company 3.28 3.89 0.24 (30) 0.64 3.86 3.83 Community Investors Bancorp 4.17 3.53 - 121 0.12 1.87 2.00 CKF Bancorp Inc. 3.69 3.69 0.47 42 0.10 1.73 1.80 Indiana Community Bank SB 3.54 4.23 - - 0.96 3.90 3.90 Logansport Financial Corp. 3.68 3.78 (0.11) (2) 0.16 1.58 1.58 Lexington B&L Financial Corp. 3.80 3.41 0.03 - 0.15 1.71 1.71 Mississippi View Holding Co. 3.64 3.76 0.02 (15) 0.27 2.45 2.43 StateFed Financial Corporation 4.47 3.43 - (562) 0.13 2.09 1.40 Sobieski Bancorp Inc. 3.91 3.23 0.09 (3) 0.24 2.57 2.57 Scotland Bancorp Inc 2.87 4.57 0.35 - 0.10 1.98 1.98 SouthFirst Bancshares Inc. 4.06 3.48 0.16 (10) 0.57 3.66 3.65 Maximum 4.47 4.57 0.47 121 0.96 3.90 3.90 Minimum 2.87 3.23 (0.11) (562) 0.10 1.58 1.40 Average 3.74 3.73 0.13 (41) 0.33 2.53 2.48 Median 3.71 3.73 0.06 (3) 0.20 2.27 2.22 Net Oper Expenses/ Avg Assets (%) Short Name LTM AMB Financial Corp 2.53 CCF Holding Company 3.23 Community Bancorp 1.76 CKF Bancorp Inc. 1.63 Indiana Community Bank SB 2.95 Logansport Financial Corp. 1.43 Lexington B&L Financial Corp. 1.56 Mississippi View Holding Co. 2.18 StateFed Financial Corporation 1.96 Sobieski Bancorp Inc. 2.33 Scotland Bancorp Inc 1.88 SouthFirst Bancshares Inc. 3.09 Maximun 3.23 Minimum 1.43 Average 2.21 Median 2.07
SOURCE: SNL & F&C CALCULATIONS 14 FERGUSON & COMPANY - ------------------ EXHIBIT II.5 - COMPARATIVES OPERATIONS
Total Amortization Extra and Yield on Nonrecurring of Tax After Tax Efficiency Preferred Int Earning Expense Intangibles Provision Items Ratio Dividends Assets ($000) ($000) ($000) ($000) (%) ($000) (%) Short Name LTM LTM LTM LTM LTM LTM LTM 7.68 AMB Financial Corp. 389 - 360 - 70.51 - 7.39 CCF Holding Company 398 - 13 - 85.40 - 7.78 Community Investors Bancorp 461 - 310 - 51.36 - 7.50 CKF Bancorp Inc. 274 - 416 - 45.63 - 8.06 Indiana Community Bank SB 474 - 80 - 75.29 - 7.68 Logansport Financial Corp. 334 - 514 - 40.17 - 7.33 Lexington B&L Financial Corp. 281 - 297 - 47.98 NA 7.49 Mississippi View Holding Co. 363 - 291 - 60.70 - 8.34 StateFed Financial Corporation 291 - 503 - 58.84 - 7.37 Sobieski Bancorp Inc. 414 - 143 - 74.09 - 7.61 Scotland Bancorp Inc 551 - 545 - 42.34 - 8.04 SouthFirst Bancshares Inc. 430 - 135 - 90.52 - 8.34 Maximum 551 - 545 - 90.52 - 7.33 Minimum 274 - 13 - 40.17 - 7.69 Average 388 - 301 - 61.90 - 7.65 Median 394 - 304 - 59.77 - Cost of Int Bearing Liabilities (%) Short Name LTM AMB Financial Corp. 4.59 CCF Holding Company 4.06 Community Investors Bancorp 4.78 CKF Bancorp Inc. 5.07 Indiana Community Bank SB 4.11 Logansport Financial Corp. 4.79 Lexington B&L Financial Corp. 5.51 Mississippi View Holding Co. 4.50 StateFed Financial Corporation 5.58 Sobieski Bancorp Inc. 4.78 Scotland Bancorp Inc 4.63 SouthFirst Bancshares Inc. 4.93 Maximum 5.58 Minimum 4.06 Average 4.78 Median 4.78
SOURCE: SNL & F&C CALCULATIONS 15 FERGUSON & COMPANY - ------------------ EXHIBIT II.5 - COMPARATIVES OPERATIONS
Interest Loan Loss Effective Yield Provision/ Tax Rate Spread Avg Assets (%) (%) (%) Short Name LTM LTM LTM AMB Financial Corp. 36.00 3.09 0.04 CCF Holding Company 5.58 3.33 0.17 Community Investors Bancorp 33.12 3.00 0.15 CKF Bancorp Inc. 34.93 2.43 0.00 Indiana Community Bank SB 34.78 3.95 0.51 Logansport Financial Corp. 35.57 2.89 0.02 Lexington B&L Financial Corp. 34.94 1.82 0.03 Mississippi View Holding Co. 38.04 2.99 0.00 StateFed Financial Corporation 35.32 2.76 0.04 Sobieski Bancorp Inc. 38.86 2.59 - Scotland Bancorp Inc 35.88 2.98 0.03 SouthFirst Bancshares Inc. 78.03 3.11 0.02 Maximum 78.03 3.95 0.51 Minimum 5.58 1.82 - Average 36.75 2.91 0.08 Median 35.45 2.99 0.03
SOURCE: SNL & F&C CALCULATIONS 16 FERGUSON & COMPANY - ------------------ EXHIBIT II.6 - COMPARATIVES PRICING CHARACTERISTICS
Current Current Price/ Current Stock Market LTM Price/ Abbreviated Price Value Core EPS Book V Ticker Name City State ($) ($M) (x) (%) AMFC AMBFinancial-IN Munster IN 15.000 14.46 22.1 102.6 CCFH CCFHoldingCo-GA Jonesboro GA 17.125 14.12 51.9 119.1 CIBI CommunityInvrs-OH Bucyrus OH 15.250 14.17 15.4 129.0 CKFB CKFBancorp-KY Danville KY 20.000 18.54 23.3 120.6 INCB IndianaCommBkSB-IN Lebanon IN 15.250 14.06 31.8 124.3 LOGN LogansprtFinCrp-IN Logansport IN 14.000 17.65 14.9 110.6 LXMO LexingtonB&LFin-MO Lexington MO 16.125 17.54 NA 106.3 MIVI MissViewHoldCo-MN Little Falls MN 15.125 12.38 17.8 97.3 SFFC StateFedFinCorp-IA Des Moines IA 21.750 17.05 15.0 111.9 SOBI SobieskiBancorp-IN South Bend IN 16.375 12.44 28.7 93.5 SSB ScotlandBancorp-NC Laurinburg NC 17.188 32.89 24.6 127.8 SZB SouthFstBncshrs-AL Sylacauga AL 17.000 14.40 100.0 107.5 Maximum 21.750 32.89 100.0 129.0 Minimum 14.000 12.38 14.9 93.5 Average 16.682 16.64 31.4 112.5 Median 16.250 14.43 23.3 111.2
SOURCE: SNL & F&C CALCUATIONS 17 FERGUSON & COMPANY - ------------------ EXHIBIT II.6 - COMPARATIVES PRICING CHARACTETISTICS
Tangible Current Current Total Equity/ Equity/ Core Core Core Price/ T Price/ Dividend Assets Assets T Assets EPS ROAA ROAE Book V Assets Yield ($000) (%) (%) ($) (%) (%) Ticker (%) (%) (%) MRQ MRQ MRQ LTM LTM LTM AMFC 102.6 15.4 1.60 94,179 15.0 15.0 0.68 0.80 4.54 CCFH 119.1 17.0 3.21 86,940 14.3 14.3 0.33 0.42 2.37 CIBI 129.0 14.9 2.10 97,446 11.5 11.5 0.99 0.99 8.18 CKFB 120.6 30.8 2.50 60,197 23.7 23.7 0.86 1.29 5.05 INCB 124.3 15.4 2.36 91,329 12.4 12.4 0.48 0.50 3.92 LOGN 110.6 21.2 2.86 83,152 19.2 19.2 0.94 1.51 7.40 LXMO 106.3 29.4 1.86 59,748 27.6 27.6 NA 1.18 3.91 MIVI 97.3 17.8 1.06 69,755 18.3 18.3 0.85 1.01 5.56 SFFC 111.9 19.9 1.84 85,679 17.8 17.8 1.45 1.37 7.36 SOBI 93.5 15.7 1.71 79,080 15.4 15.4 0.57 0.57 3.28 SSB 127.8 47.3 1.75 69,479 37.0 37.0 0.70 1.71 4.69 SZB 107.5 15.0 2.94 92,910 14.0 14.0 0.17 0.16 1.13 Maximum 129.0 47.3 3.21 97,446 37.0 37.0 1.45 1.71 8.18 Minimum 93.5 14.9 1.06 59,748 11.5 11.5 0.17 0.16 1.13 Average 112.5 21.6 2.15 80,825 18.8 18.8 0.73 0.96 4.78 Median 111.2 17.4 1.98 84,416 16.6 16.6 0.70 1.00 4.62
SOURCE: SNL & F&C CALCULATIONS 18 FERGUSON & COMPANY - ------------------ EXHIBIT II.6 - COMPARATIVES PRICING CHARACTERISTICS
ROACE Before NPAs/ Price/ Core Core Core Extra Merger Current Assets Core EPS ROAA ROAE (%) Target? Pricing (%) EPS ($) (%) (%) Ticker LTM (Y/N) Date MRQ (x) MRQ MRQ MRQ AMFC 4.14 N 08/08/97 0.81 22.1 0.17 0.67 4.28 CCFH 1.49 N 08/08/97 0.34 NM (0.13) (0.47) (3.13) CIBI 5.53 N 08/08/97 0.72 14.1 0.27 1.01 8.86 CKFB 5.08 N 08/08/97 0.89 23.8 0.21 1.21 4.96 INCB 1.29 N 08/08/97 NA 25.4 0.15 0.60 4.77 LOGN 5.74 N 08/08/97 0.61 14.6 0.24 1.46 7.53 LXMO NA N 08/08/97 0.63 31.0 0.13 1.00 3.40 MIVI 3.76 N 08/08/97 0.21 18.0 0.21 1.01 5.86 SFFC 6.11 N 08/08/97 NA 12.7 0.43 1.55 8.78 SOBI 1.64 N 08/08/97 0.25 22.7 0.18 0.67 4.04 SSB 3.88 N 08/08/97 - 28.7 0.15 1.47 4.00 SZB 0.29 N 08/08/97 0.50 32.7 0.13 0.47 3.35 Maximum 6.11 0.89 32.7 0.43 1.55 8.86 Minimum 0.29 - 12.7 (0.13) (0.47) (3.13) Average 3.54 0.50 22.3 0.18 0.89 4.73 Median 3.88 0.56 22.7 0.18 1.01 4.53
SOURCE: SNL & F&C CALCULATIONS 19 FERGUSON & COMPANY - ------------------ EXHIBIT II.7 - COMPARATIVE RISK CHARACTERISTICS
NPAs + Loans Net Loan NPAs/ 90+ Pst Due/ NPAs/ Reserves/ Reserves/ Chargeoffs/ Assets Assets Equity Loans NPAs Avg Loans (%) (%) (%) (%) (%) (%) Short Name MRQ MRQ MRQ MRQ MRQ MRQ AMB Financial Corp. 0.81 0.81 5.44 0.53 49.41 (0.02) CCF Holding Company 0.34 0.34 2.39 0.79 189.90 0.01 Community Investors Bancorp 0.72 0.72 6.26 0.62 65.53 0.10 CKF Bancorp Inc. 0.89 1.48 3.75 0.20 20.00 - Indiana Community Bank SB NA NA NA 0.71 NA 0.91 Logansport Financial Corp. 0.61 0.61 3.18 0.38 44.88 0.11 Lexington B&L Financial Corp. 0.63 0.63 2.30 0.49 58.31 - Mississippi View Holding Co. 0.21 0.25 1.15 1.93 592.47 0.11 StateFed Financial Corporation NA NA NA NA NA NA Sobieski Bancorp Inc. 0.25 0.25 1.61 0.35 102.04 - Scotland Bancorp Inc - - - 0.50 NM - SouthFirst Bancshares Inc. 0.50 0.64 3.59 0.40 57.51 - Maximum 0.89 1.48 6.26 1.93 592.47 0.91 Minimum - - - 0.20 20.00 (0.02) Average 0.50 0.57 2.97 0.63 131.12 0.11 Median 0.56 0.62 2.79 0.50 58.31 -
SOURCE: SNL & F&C CALCULATIONS 20 FERGUSON & COMPANY - ------------------ EXHIBIT II.7 - COMPARATIVE RISK CHARACTERISTICS
Intangible One Year Earn Assets/ Loans/ Assets/ Cum Gap/ Net Int Bearing Assets Equity Assets Loans Liabilities (%) (%) (%) ($000) (%) Short Name MRQ MRQ MRY MRQ MRQ AMB Financial Corp. 75.67 - NA 70,890 117.82 CCF Holding Company 81.85 - NA 70,600 110.17 Community Investors Bancorp 76.52 - NA 74,110 112.79 CKF Bancorp Inc. 89.94 - NA 54,035 132.43 Indiana Community Bank SB 78.66 - 25.59 71,330 112.01 Logansport Financial Corp. 71.82 - NA 59,490 122.75 Lexington B&L Financial Corp. 75.06 - NA NA 140.79 Mississippi View Holding Co. 64.36 - NA 43,978 123.03 StateFed Financial Corporation NA - NA NA 116.34 Sobieski Bancorp Inc. 73.21 - NA 57,698 117.19 Scotland Bancorp Inc 69.32 - NA 47,923 160.05 SouthFirst Bancshares Inc. 72.25 - (7.23) 66,757 111.43 Maximum 89.94 - 25.59 74,110 160.05 Minimum 64.36 - (7.23) 43,978 110.17 Average 75.33 - 9.18 61,681 123.07 Median 75.06 - 9.18 63,124 117.51
SOURCE: SNL & F&C CALCULATIONS 21 EXHIBIT III FERGUSON & COMPANY EXHIBIT III - ------------------ SALIDA BUILDING AND LOAN ASSOCIATION SALIDA, CO
FINANCIAL HIGHLIGHTS 1994 1995 1996 YTD 3/97 ($000's) BALANCE SHEET: Total Assets 51,139 59,290 70,615 74,699 % Change in Assets 3.65 15.94 19.10 5.78 Total Loans 37,401 46,476 58,557 62,320 Deposits 44,480 47,927 53,946 55,700 Broker Originated Deposits - - - - CAPITAL: Equity Capital 5,048 5,652 5,843 6,019 Tangible Capital 5,048 5,662 5,840 6,019 Core Capital 5,048 5,662 5,840 6,019 Risk-Based Capital 5,365 6,062 6,292 6,459 Equity Capital/Total Assets 9.87 9.53 8.27 8.06 Core Capital/Risk Based Assets 19.89 17.65 13.71 13.22 Core Capital/Adj Tang Assets 9.87 9.55 8.27 8.06 Tangible Cap/Tangible Assets 9.87 9.55 8.27 8.06 Risk-Based Cap/Risk-Wt Assets 21.13 18.89 14.78 14.19 PROFITABILITY: Net Income(Loss) 715 576 178 179 Ret on Avg Assets Bef Ext Item 1.31 1.04 0.27 0.99 Return on Average Equity 13.96 10.77 3.06 12.07 Net Interest Income/Avg Assets 4.36 4.25 4.30 3.91 Noninterest Income/Avg Assets 0.38 0.44 0.30 0.43 Noninterest Expense/Avg Assets 2.89 2.96 3.60 2.94 Yield/Cost Spread 4.53 4.34 4.38 4.14 LIQUIDITY: Int Earn Assets/Int Bear Liab 105.50 105.25 102.79 100.83 Brokered Deposits/Tot Deposits - - - - ASSET QUALITY: Nonperf Lns+REO/Total Lns+REO 0.70 0.39 0.31 0.49 Nonaccrual Loans/Gross Loans 0.68 0.39 0.18 0.44 Nonaccrual Lns/Ln Loss Reserve 67.96 42.30 23.89 61.82 Repos Assets/Tot Assets - - - 0.03 Net Chrg-Off/Av Adj Lns 0.06 0.03 0.11 0.29 Nonmtg 1-4 Constr&Conv Lns/TA 5.18 6.62 7.99 7.48
SOURCE: TAFS, PUBLISHED BY SHESHUNOFF 1 FERGUSON & COMPANY EXHIBIT III - ------------------ SALIDA BUILDING AND LOAN ASSOCIATION SALIDA, CO
SELECTED PEER GROUP RATIOS & RANKINGS 1994 1995 1996 3/31/97 PEER GROUP CATEGORY 3 3 3 3 CAPITAL: Equity Capital/Total Assets 9.87 9.53 8.27 8.06 Peer Group Percentile 63 50 36 33 Core Cap/Adj Tangible Assets 9.87 9.55 8.27 8.06 Peer Group Percentile 64 53 40 35.00 Tangible Cap/Tangible Assets 9.87 9.55 8.27 8.06 Peer Group Percentile 64 53 40 35 Risk-Based Cap/Risk-Wt Assets 21.13 18.89 14.78 14.19 Peer Group Percentile 63.00 50.00 33.00 26.00 ASSET QUALITY: Risk Assets/Total Assets 5.18 6.62 8.05 7.51 Peer Group Percentile 60 50 46 47 Risk Weighted Assts/Tot Assts 49.64 54.11 60.31 60.94 Peer Group Percentile 52 36 20 20 Nonaccrual Loans/Gross Loans 1 0 0 0 Peer Group Percentile 32 44 53 40 Repos Assets/Tot Assets - - - 0.03 Peer Group Percentile 100 100 39 47 90+ Day Del Loans/Gross Loans - - - - Peer Group Percentile 100 100 100 100 90Day P Due+NonAccr-(1-4)/LLR 40.57 41.84 23.89 61.82 Peer Group Percentile 28 31 39 22 LIQUIDITY: Avg Reg Liquidity Ratio 9.08 7.49 5.62 5.54 Peer Group Percentile 31 14 6 5 PROFITABILITY: Ret on Avg Assets Bef Ext Item 1.31 1.04 0.27 0.99 Peer Group Percentile 88 74 33 58 Return on Equity Capital 13.05 10.19 3.05 11.90 Peer Group Percentile 87 79 40 80 Int Earn Assets/Int Bear Liab 105.50 105.25 102.79 100.83 Peer Group Percentile 47 38 20 13 Yield on Earning Assts 7.56 8.35 8.69 8.40 Peer Group Percentile 75 81 92 86 Cost of Funds 3.03 4.00 4.31 4.26 Peer Group Percentile 93 91 81 78 Yield/Cost Spread 4.53 4.34 4.38 4.14 Peer Group Percentile 94 95 95 92
SOURCE: TAFS, PUBLISHED BY SHESHUNOFF 2 FERGUSON & COMPANY EXHIBIT III - ------------------ SALIDA BUILDING AND LOAN ASSOCIATION SALIDA, CO FINANCIAL HIGHLIGHTS
6/30/96 9/30/96 12/31/96 3/31/97 ($000's) BALANCE SHEET: Total Assets 64,439 67,112 70,615 74,699 % Change in Assets 2.78 4.15 5.22 5.78 Total Loans 50,945 54,928 58,557 62,320 Deposits 50,884 52,722 53,946 55,700 Broker Originated Deposits - - - - CAPITAL: Equity Capital 5,936 5,750 5,843 6,019 Tangible Capital 5,938 5,749 5,840 6,019 Core Capital 5,938 5,749 5,840 6,019 Risk-Based Capital 6,349 6,183 6,292 6,459 Equity Capital/Total Assets 9.21 8.57 8.27 8.06 Core Capital/Risk Based Assets 15.94 14.39 13.71 13.22 Core Capital/Adj Tang Assets 9.21 8.57 8.27 8.06 Tangible Cap/Tangible Assets 9.21 8.57 8.27 8.06 Risk-Based Cap/Risk-Wt Assets 17.05 15.48 14.78 14.19 PROFITABILITY: Net Income(Loss) 116 (188) 90 179 Ret on Avg Assets Bef Ext Item 0.73 (1.14) 0.52 0.99 Return on Average Equity 7.90 (12.87) 6.21 12.07 Net Interest Income/Avg Assets 4.71 4.12 4.08 3.91 Noninterest Income/Avg Assets (0.06) 0.44 0.37 0.43 Noninterest Expense/Avg Assets 3.07 4.90 3.44 2.94 Yield/Cost Spread 4.73 4.20 4.26 4.14 LIQUIDITY: Int Earn Assets/Int Bear Liab 105 104 103 101 Brokered Deposits/Tot Deposits - - - - ASSET QUALITY: Nonperf Lns+REO/Total Lns+REO 0.14 0.20 0.31 0.49 Nonaccrual Loans/Gross Loans 0.14 0.19 0.18 0.44 Nonaccrual Lns/Ln Loss Reserve 17.76 24.88 23.89 61.82 Repos Assets/Tot Assets - - - 0.03 Net Chrg-Off/Av Adj Lns 0.34 - 0.03 0.29 Nonmtg 1-4 Constr&Conv Lns/TA 8.22 8.42 7.99 7.48
SOURCE: TAFS, PUBLISHED BY SHESHUNOFF 3 FERGUSON & COMPANY EXHIBIT III - ------------------ SALIDA BUILDING AND LOAN ASSOCIATION SALIDA, CO SELECTED PEER GROUP RATIOS & RANKINGS
6/30/96 9/30/96 12/31/96 3/31/97 Peer Group Category 3 3 3 3 CAPITAL: Equity Capital/Total Assets 9.21 8.57 8.27 8.06 Peer Group Percentile 46 42 36 33 Core Cap/Adj Tangible Assets 9.21 8.57 8.27 8.06 Peer Group Percentile 46 44 40 35 Tangible Cap/Tangible Assets 9.21 8.57 8.27 8.06 Peer Group Percentile 46 44 40 35 Risk-Based Cap/Risk-Wt Assets 17.05 15.48 14.78 14.19 Peer Group Percentile 41 36 33 26 ASSET QUALITY: Risk Assets/Total Assets 8.22 8.42 8.05 7.51 Peer Group Percentile 45 44 46 47 Risk Weighted Assts/Tot Assts 57.79 59.52 60.31 60.94 Peer Group Percentile 25 22 20 20 Nonaccrual Loans/Gross Loans 0.14 0.19 0.18 0.44 Peer Group Percentile 61 54 53 40 Repos Assets/Tot Assets - - - 0.03 Peer Group Percentile 100 100 39 47 90+ Day Del Loans/Gross Loans - - - - Peer Group Percentile 100 100 100 100 90Day P Due+NonAccr-(1-4)/LLR 17.76 24.42 23.89 61.82 Peer Group Percentile 46 41 39 22 LIQUIDITY: Avg Reg Liquidity Ratio 6.90 7.71 5.62 5.54 Peer Group Percentile 15 25 6 5 PROFITABILITY: Ret on Avg Assets Bef Ext Item 0.73 (1.14) 0.52 0.99 Peer Group Percentile 43 20 26 58 Return on Equity Capital 7.82 (13.08) 6.16 11.90 Peer Group Percentile 53 24 36 80 Int Earn Assets/Int Bear Liab 105.29 103.68 102.79 100.83 Peer Group Percentile 36 26 20 13 Yield on Earning Assts 9.12 8.51 8.58 8.40 Peer Group Percentile 97 85 86 86 Cost of Funds 4.40 4.31 4.32 4.26 Peer Group Percentile 75 80 80 78 Yield/Cost Spread 4.73 4.20 4.26 4.14 Peer Group Percentile 97 93 92 92
SOURCE: TFAS, PUBLISHED BY SHESHUNOFF 4 EXHIBIT IV FERGUSON & COMPANY EXHIBIT IV - ------------------ AMERICAN SAVINGS, FSB MUNSTER, IN TICKER AMFC FINANCIAL HIGHLIGHTS - -----------
1994 1995 1996 YTD 3/97 ($000's) BALANCE SHEET: Total Assets 65,575 69,829 85,390 92,961 % Change in Assets 0.66 6.49 22.28 8.87 Total Loans 52,091 54,932 67,562 69,227 Deposits 58,289 59,599 60,894 68,637 Broker Originated Deposits - - - 695 CAPITAL: Equity Capital 5,633 6,314 11,192 11,274 Tangible Capital 5,807 6,195 11,162 11,342 Core Capital 5,807 6,195 11,162 11,342 Risk-Based Capital 6,122 6,540 11,502 11,677 Equity Capital/Total Assets 8.59 9.04 13.11 12.13 Core Capital/Risk Based Assets 16.39 16.62 24.13 22.17 Core Capital/Adj Tang Assets 8.83 8.89 13.08 12.19 Tangible Cap/Tangible Assets 8.83 8.89 13.08 12.19 Risk-Based Cap/Risk-Wt Assets 17.28 17.55 24.86 22.82 PROFITABILITY: Net Income(Loss) 384 375 389 196 Ret on Avg Assets Bef Ext Item 0.59 0.55 0.49 0.88 Return on Average Equity 6.97 6.28 3.77 6.98 Net Interest Income/Avg Assets 3.97 3.69 3.47 3.56 Noninterest Income/Avg Assets 0.59 0.48 0.68 0.54 Noninterest Expense/Avg Assets 3.77 3.20 3.44 2.66 Yield/Cost Spread 4.22 3.91 3.21 3.34 LIQUIDITY: Int Earn Assets/Int Bear Liab 102.03 103.09 111.46 109.05 Brokered Deposits/Tot Deposits - - - 1.01 ASSET QUALITY: Nonperf Lns+REO/Total Lns+REO 1.75 1.26 0.89 1.21 Nonaccrual Loans/Gross Loans 0.98 0.66 0.44 0.79 Nonaccrual Lns/Ln Loss Reserve 126.68 102.50 85.92 155.71 Repos Assets/Tot Assets - - - - Net Chrg-Off/Av Adj Lns (0.18) 0.13 0.01 0.06 Nonmtg 1-4 Constr&Conv Lns/TA 14.00 12.94 15.87 14.26
SOURCE: TAFS, PUBLISHED BY SHESHUNOFF 1 FERGUSON & COMPANY EXHIBIT IV - ------------------ HERITAGE BANK JONESBORO, GA TICKER CCFH FINANCIAL HIGHLIGHTS - -----------
1994 1995 1996 YTD 3/97 ($000's) BALANCE SHEET: Total Assets 67,917 78,822 87,898 86,409 % Change in Assets (4.49) 16.06 11.51 (1.69) Total Loans 44,468 47,263 64,699 72,012 Deposits 60,766 61,182 66,767 72,217 Broker Originated Deposits - - - - CAPITAL: Equity Capital 6,325 12,224 12,533 10,405 Tangible Capital 6,325 12,212 12,514 10,447 Core Capital 6,325 12,212 12,514 10,447 Risk-Based Capital 6,678 12,619 13,065 10,769 Equity Capital/Total Assets 9.31 15.51 14.26 12.04 Core Capital/Risk Based Assets 22.44 37.51 26.50 20.59 Core Capital/Adj Tang Assets 9.31 15.50 14.24 12.08 Tangible Cap/Tangible Assets 9.31 15.50 14.24 12.08 Risk-Based Cap/Risk-Wt Assets 23.69 38.76 27.67 21.22 PROFITABILITY: Net Income(Loss) 632 562 306 (68) Ret on Avg Assets Bef Ext Item 0.91 0.77 0.38 (0.31) Return on Average Equity 10.37 6.06 2.47 (2.37) Net Interest Income/Avg Assets 3.64 3.33 3.65 3.50 Noninterest Income/Avg Assets 0.66 0.71 0.72 1.14 Noninterest Expense/Avg Assets 2.87 2.88 3.76 5.01 Yield/Cost Spread 3.71 3.13 3.39 3.41 LIQUIDITY: Int Earn Assets/Int Bear Liab 105.19 114.00 109.96 106.84 Brokered Deposits/Tot Deposits - - - - ASSET QUALITY: Nonperf Lns+REO/Total Lns+REO 0.45 0.76 0.58 0.46 Nonaccrual Loans/Gross Loans 0.44 0.72 0.56 0.46 Nonaccrual Lns/Ln Loss Reserve 46.77 86.36 69.10 59.40 Repos Assets/Tot Assets - - - - Net Chrg-Off/Av Adj Lns - 0.05 (0.01) 0.01 Nonmtg 1-4 Constr&Conv Lns/TA 2.53 2.60 14.32 15.21
SOURCE: TAFS, PUBLISHED BY SHESHUNOFF 2 FERGUSON & COMPANY EXHIBIT IV - ------------------ FIRST FS&LA BUCYRUS, OH TICKER CIBI FINANCIAL HIGHLIGHTS - -----------
1994 1995 1996 YTD 3/97 ($000's) BALANCE SHEET: Total Assets 79,922 82,948 95,274 97,007 % Change in Assets 5.42 3.79 14.86 1.82 Total Loans 58,297 62,038 72,268 73,654 Deposits 70,751 71,230 70,358 72,133 Broker Originated Deposits - - - - CAPITAL: Equity Capital 5,570 9,784 9,846 10,196 Tangible Capital 5,570 9,772 9,708 10,164 Core Capital 5,570 9,772 9,708 10,164 Risk-Based Capital 5,918 10,143 10,123 10,574 Equity Capital/Total Assets 6.97 11.80 10.33 10.51 Core Capital/Risk Based Assets 14.32 24.10 21.91 19.64 Core Capital/Adj Tang Assets 6.97 11.78 10.20 10.48 Tangible Cap/Tangible Assets 6.97 11.78 10.20 10.48 Risk-Based Cap/Risk-Wt Assets 15.21 25.01 22.84 20.43 PROFITABILITY: Net Income(Loss) 682 787 612 257 Ret on Avg Assets Bef Ext Item 0.88 0.97 0.68 1.07 Return on Average Equity 13.00 10.25 6.17 10.26 Net Interest Income/Avg Assets 3.22 3.23 3.48 3.24 Noninterest Income/Avg Assets 0.18 0.27 0.28 0.26 Noninterest Expense/Avg Assets 1.81 1.82 2.51 1.80 Yield/Cost Spread 3.07 2.91 3.13 3.01 LIQUIDITY: Int Earn Assets/Int Bear Liab 107.32 110.86 108.62 107.02 Brokered Deposits/Tot Deposits - - - - ASSET QUALITY: Nonperf Lns+REO/Total Lns+REO 1.06 1.09 0.91 0.95 Nonaccrual Loans/Gross Loans 0.74 0.87 - - Nonaccrual Lns/Ln Loss Reserve 110.91 131.58 - - Repos Assets/Tot Assets - - - 0.06 Net Chrg-Off/Av Adj Lns 0.17 0.30 0.41 - Nonmtg 1-4 Constr&Conv Lns/TA 4.39 4.92 4.72 4.71
SOURCE: TAFS, PUBLISHED BY SHESHUNOFF 3 FERGUSON & COMPANY EXHIBIT IV - ------------------ CENTRAL KENTUCKY FSB DANVILLE, KY TICKER CKFB FINANCIAL HIGHLIGHTS - -----------
1994 1995 1996 YTD 3/97 ($000's) BALANCE SHEET: Total Assets 56,377 56,545 60,014 60,222 % Change in Assets 12.64 0.30 6.13 0.35 Total Loans 45,441 49,997 53,544 54,397 Deposits 44,273 43,126 44,762 43,732 Broker Originated Deposits - - - - CAPITAL: Equity Capital 11,290 12,295 12,431 12,682 Tangible Capital 10,989 11,781 11,967 12,224 Core Capital 10,989 11,781 11,967 12,224 Risk-Based Capital 11,065 11,881 12,074 12,353 Equity Capital/Total Assets 20.03 21.74 20.71 21.06 Core Capital/Risk Based Assets 39.04 33.63 35.07 35.22 Core Capital/Adj Tang Assets 19.65 21.03 20.10 20.45 Tangible Cap/Tangible Assets 19.65 21.03 20.10 20.45 Risk-Based Cap/Risk-Wt Assets 39.31 33.92 35.38 35.59 PROFITABILITY: Net Income(Loss) 542 764 827 205 Ret on Avg Assets Bef Ext Item 1.02 1.35 1.40 1.36 Return on Average Equity 6.39 6.48 6.55 6.53 Net Interest Income/Avg Assets 2.98 3.83 3.71 3.64 Noninterest Income/Avg Assets 0.16 0.16 0.65 0.19 Noninterest Expense/Avg Assets 1.60 1.87 2.27 1.62 Yield/Cost Spread 2.46 3.08 2.87 2.76 LIQUIDITY: Int Earn Assets/Int Bear Liab 123.66 125.92 123.97 124.83 Brokered Deposits/Tot Deposits - - - - ASSET QUALITY: Nonperf Lns+REO/Total Lns+REO 1.48 1.09 1.25 1.20 Nonaccrual Loans/Gross Loans - 0.00 0.16 0.14 Nonaccrual Lns/Ln Loss Reserve - 2.00 81.31 58.91 Repos Assets/Tot Assets - - - 0.50 Net Chrg-Off/Av Adj Lns - - - - Nonmtg 1-4 Constr&Conv Lns/TA 10.51 13.09 12.79 12.79
SOURCE: TAFS, PUBLISHED BY SHESHUNOFF 4 FERGUSON & COMPANY EXHIBIT IV - ------------------ INDIANA COMMTY BK SB LEBANON, IN TICKER INCB FINANCIAL HIGHLIGHTS - -----------
1994 1995 1996 YTD 3/97 ($000's) BALANCE SHEET: Total Assets 88,347 90,666 89,476 91,582 % Change in Assets (0.41) 2.62 (1.31) 2.35 Securities-Book Value 10,314 9,320 5,657 7,769 Securities-Fair Value 10,045 9,409 5,711 7,793 Total Loans & Leases 69,380 72,948 72,836 71,839 Total Deposits 73,660 75,566 77,062 79,222 Loan/Deposit Ratio 94.19 96.54 94.52 90.68 Provision for Loan Losses 92 245 303 72 CAPITAL: Equity Capital 13,736 14,105 11,316 11,311 Total Qualifying Capital(Est) 14,135 14,609 11,918 11,821 Equity Capital/Average Assets 15.52 15.76 12.37 12.49 Tot Qual Cap/Rk Bsd Asts(Est) 23.85 23.66 18.85 19.00 Tier 1 Cap/Rsk Bsed Asts(Est) 23.02 22.94 17.90 18.18 T1 Cap/Avg Assets(Lev Est) 15.74 15.40 12.57 12.49 Dividends Declared/Net Income - 38.38 2,305.22 122.06 PROFITABILITY: Net Income(Loss) 78 693 134 136 Return on Average Assets 0.09 0.77 0.15 0.60 Return on Average Equity Cap 0.80 4.98 1.07 4.81 Net Interest Margin 3.67 4.61 4.53 4.65 Net Int Income/Avg Assets 3.43 4.35 4.24 4.40 Noninterest Income/Avg Assets 0.59 0.78 0.88 0.79 Noninterest Exp/Avg Assets 3.14 3.64 4.55 3.91 ASSET QUALITY: NPL+Frcl RE/Lns+Frcl RE 0.37 0.27 0.16 0.20 NPA's/Equity + LLR 1.82 1.36 0.95 1.24 LLR/Nonperf & Restrcd Lns 188.80 225.25 532.74 346.94 Foreclosed RE/Total Assets - - - - 90+ Day Del Loans/Total Loans 0.37 0.27 0.16 0.02 Loan Loss Reserves/Total Lns 0.70 0.61 0.83 0.71 Net Charge-Offs/Average Loans 0.13 0.40 0.51 0.23 Dom Risk R/E Lns/Tot Dom Lns 6.47 7.33 10.96 8.53 LIQUIDITY: Brokered Dep/Total Dom Deps - - - - $100M+ Time Dep/Total Dom Dep 3.32 7.66 8.99 9.38 Int Earn Assets/Int Bear Liab 116.06 115.56 112.52 112.47 Pledged Sec/Total Sec - 26.82 22.98 38.62 Fair Value Sec/Amort Cost Sec 97.39 100.33 100.56 100.17
SOURCE: BANKSOURCE, PUBLISHED BY SHESHUNOFF 5 FERGUSON & COMPANY EXHIBIT IV - ------------------ LOGANSPORT SAVINGS BANK, FSB LOGANSPORT, IN TICKER LOGN FINANCIAL HIGHLIGHTS - -----------
1994 1995 1996 YTD 3/97 ($000's) BALANCE SHEET: Total Assets 59,452 70,750 77,574 78,772 % Change in Assets 5.73 19.00 9.65 1.54 Total Loans 43,691 49,058 57,068 57,126 Deposits 51,202 52,502 57,396 59,389 Broker Originated Deposits - - - - CAPITAL: Equity Capital 6,935 16,672 16,861 15,162 Tangible Capital 7,131 16,671 17,018 15,337 Core Capital 7,131 16,671 17,018 15,337 Risk-Based Capital 7,337 16,894 17,254 15,576 Equity Capital/Total Assets 11.66 23.56 21.74 19.25 Core Capital/Risk Based Assets 21.31 42.94 40.57 36.17 Core Capital/Adj Tang Assets 11.93 23.56 21.89 19.43 Tangible Cap/Tangible Assets 11.93 23.56 21.89 19.43 Risk-Based Cap/Risk-Wt Assets 21.93 43.51 41.13 36.74 PROFITABILITY: Net Income(Loss) 734 851 869 289 Ret on Avg Assets Bef Ext Item 1.27 1.31 1.17 1.48 Return on Average Equity 11.01 7.21 5.24 7.22 Net Interest Income/Avg Assets 3.27 3.19 3.53 3.60 Noninterest Income/Avg Assets 0.30 0.48 0.33 0.24 Noninterest Expense/Avg Assets 1.66 1.58 2.03 1.48 Yield/Cost Spread 3.09 2.69 2.77 2.92 LIQUIDITY: Int Earn Assets/Int Bear Liab 108.43 125.00 124.78 118.92 Brokered Deposits/Tot Deposits - - - - ASSET QUALITY: Nonperf Lns+REO/Total Lns+REO 0.64 0.63 0.71 0.62 Nonaccrual Loans/Gross Loans - - - - Nonaccrual Lns/Ln Loss Reserve - - - - Repos Assets/Tot Assets - - - - Net Chrg-Off/Av Adj Lns - 0.01 (0.00) - Nonmtg 1-4 Constr&Conv Lns/TA 3.71 5.36 7.22 6.34
SOURCE: TAFS, PUBLISHED BY SHESHUNOFF 6 FERGUSON & COMPANY EXHIBIT IV - ------------------ B&L BANK LEXINGTON, MO TICKER LXMO FINANCIAL HIGHLIGHTS - -----------
1994 1995 1996 YTD 3/97 ($000's) BALANCE SHEET: Total Assets 46,467 50,525 59,569 57,636 % Change in Assets (2.21) 8.73 17.90 (3.25) Total Loans 40,094 41,115 45,593 44,852 Deposits 39,373 42,864 45,457 43,310 Broker Originated Deposits - - - - CAPITAL: Equity Capital 6,671 7,339 13,810 13,045 Tangible Capital 6,671 7,315 13,805 13,027 Core Capital 6,671 7,315 13,805 13,027 Risk-Based Capital 6,826 7,426 13,940 13,189 Equity Capital/Total Assets 14.36 14.53 23.18 22.63 Core Capital/Risk Based Assets 27.93 29.05 46.46 44.48 Core Capital/Adj Tang Assets 14.36 14.48 23.18 22.61 Tangible Cap/Tangible Assets 14.36 14.48 23.18 22.61 Risk-Based Cap/Risk-Wt Assets 28.58 29.49 46.92 45.03 PROFITABILITY: Net Income(Loss) 609 430 426 147 Ret on Avg Assets Bef Ext Item 1.30 0.89 0.76 1.00 Return on Average Equity 9.51 6.14 3.77 4.38 Net Interest Income/Avg Assets 3.57 3.30 2.97 3.46 Noninterest Income/Avg Assets 0.29 0.09 0.23 0.22 Noninterest Expense/Avg Assets 1.79 1.72 2.12 1.98 Yield/Cost Spread 3.20 2.75 2.11 2.47 LIQUIDITY: Int Earn Assets/Int Bear Liab 114.52 114.11 127.10 124.91 Brokered Deposits/Tot Deposits - - - - ASSET QUALITY: Nonperf Lns+REO/Total Lns+REO 0.91 1.30 1.28 1.10 Nonaccrual Loans/Gross Loans 0.91 1.23 1.28 1.06 Nonaccrual Lns/Ln Loss Reserve 206.18 252.74 292.54 293.21 Repos Assets/Tot Assets - - - 0.02 Net Chrg-Off/Av Adj Lns - - - - Nonmtg 1-4 Constr&Conv Lns/TA 3.37 2.77 3.00 3.27
SOURCE: TAFS, PUBLISHED BY SHESHUNOFF 7 FERGUSON & COMPANY EXHIBIT IV - ------------------ COMMUNITY FS&LA LITTLE FALLS, MN TICKER MIVI FINANCIAL HIGHLIGHTS - -----------
1994 1995 1996 YTD 3/97 ($000's) BALANCE SHEET: Total Assets 62,111 69,212 70,306 69,756 % Change in Assets (4.36) 11.43 1.58 (0.78) Total Loans 44,310 43,438 44,095 44,270 Deposits 55,312 54,689 56,426 55,957 Broker Originated Deposits - - - - CAPITAL: Equity Capital 6,137 10,912 11,504 11,703 Tangible Capital 6,043 10,692 10,639 10,848 Core Capital 6,043 10,692 10,639 10,848 Risk-Based Capital 6,419 11,092 11,068 11,280 Equity Capital/Total Assets 9.88 15.77 16.36 16.78 Core Capital/Risk Based Assets 18.90 32.13 31.25 31.80 Core Capital/Adj Tang Assets 9.74 15.50 15.32 15.74 Tangible Cap/Tangible Assets 9.74 15.50 15.32 15.74 Risk-Based Cap/Risk-Wt Assets 20.08 33.33 32.51 33.06 PROFITABILITY: Net Income(Loss) 414 837 520 197 Ret on Avg Assets Bef Ext Item 0.65 1.27 0.74 1.13 Return on Average Equity 7.03 9.82 4.81 6.79 Net Interest Income/Avg Assets 3.40 3.80 3.47 3.64 Noninterest Income/Avg Assets 0.40 0.55 0.43 0.31 Noninterest Expense/Avg Assets 2.40 2.26 2.70 1.96 Yield/Cost Spread 3.23 3.47 2.94 3.05 LIQUIDITY: Int Earn Assets/Int Bear Liab 108.61 115.61 118.25 117.67 Brokered Deposits/Tot Deposits - - - - ASSET QUALITY: Nonperf Lns+REO/Total Lns+REO 0.09 0.22 0.59 0.47 Nonaccrual Loans/Gross Loans 0.05 - 0.38 0.18 Nonaccrual Lns/Ln Loss Reserve 2.06 - 19.73 9.36 Repos Assets/Tot Assets - - - 0.05 Net Chrg-Off/Av Adj Lns (0.03) 0.33 0.02 0.11 Nonmtg 1-4 Constr&Conv Lns/TA 5.96 2.47 2.85 2.80
SOURCE: TAFS, PUBLISHED BY SHESHUNOFF 8 FERGUSON & COMPANY EXHIBIT IV - ------------------ ---------- STATE FS&LA OF DES MOINES DES MOINES, IA TICKER SFFC FINANCIAL HIGHLIGHTS - -----------
1994 1995 1996 YTD 3/97 ($000's) BALANCE SHEET: Total Assets 64,977 71,246 79,668 81,709 % Change in Assets 0.12 9.65 11.82 2.56 Total Loans 54,307 60,444 67,706 67,318 Deposits 46,043 46,201 49,422 51,482 Broker Originated Deposits - 396 1,584 1,683 CAPITAL: Equity Capital 10,101 10,067 9,883 10,144 Tangible Capital 9,641 9,537 9,489 9,079 Core Capital 9,641 9,537 9,489 9,079 Risk-Based Capital 9,845 9,765 9,741 9,333 Equity Capital/Total Assets 15.55 14.13 12.41 12.41 Core Capital/Risk Based Assets 27.98 24.47 20.28 18.92 Core Capital/Adj Tang Assets 15.14 13.63 12.08 11.27 Tangible Cap/Tangible Assets 15.14 13.63 12.08 11.27 Risk-Based Cap/Risk-Wt Assets 28.57 25.05 20.82 19.45 PROFITABILITY: Net Income(Loss) 803 729 709 234 Ret on Avg Assets Bef Ext Item 1.24 1.07 0.95 1.16 Return on Average Equity 9.56 7.23 6.85 9.35 Net Interest Income/Avg Assets 3.83 3.46 3.32 3.14 Noninterest Income/Avg Assets 0.28 0.35 0.44 0.39 Noninterest Expense/Avg Assets 2.05 2.02 2.27 1.62 Yield/Cost Spread 3.51 2.90 2.91 2.85 LIQUIDITY: Int Earn Assets/Int Bear Liab 117.65 114.08 109.89 109.26 Brokered Deposits/Tot Deposits - 0.86 3.21 3.27 ASSET QUALITY: Nonperf Lns+REO/Total Lns+REO 0.22 0.64 2.27 2.39 Nonaccrual Loans/Gross Loans 0.21 - 0.95 0.89 Nonaccrual Lns/Ln Loss Reserve 57.84 - 260.71 233.86 Repos Assets/Tot Assets - - - - Net Chrg-Off/Av Adj Lns 0.07 - - 0.02 Nonmtg 1-4 Constr&Conv Lns/TA 28.11 27.78 27.96 26.17
SOURCE: TAFS, PUBLISHED BY SHESUNOFF 9 FERGUSON & COMPANY EXHIBIT IV - ------------------ SOBIESKI FS&LA SOUTH BEND, IN TICKER SOBI FINANCIAL HIGHLIGHTS - -----------
1994 1995 1996 YTD 3/97 ($000's) BALANCE SHEET: Total Assets 70,694 72,595 75,773 76,285 % Change in Assets (4.11) 2.69 4.38 0.68 Total Loans 49,594 45,893 52,234 55,213 Deposits 64,309 61,399 59,714 59,045 Broker Originated Deposits - - - - CAPITAL: Equity Capital 5,917 10,002 9,321 8,803 Tangible Capital 5,917 9,964 9,331 8,814 Core Capital 5,917 9,964 9,331 8,814 Risk-Based Capital 6,117 10,164 9,531 9,014 Equity Capital/Total Assets 8.37 13.78 12.30 11.54 Core Capital/Risk Based Assets 19.89 35.15 29.37 27.61 Core Capital/Adj Tang Assets 8.37 13.73 12.31 11.55 Tangible Cap/Tangible Assets 8.37 13.73 12.31 11.55 Risk-Based Cap/Risk-Wt Assets 20.56 35.86 30.00 28.24 PROFITABILITY: Net Income(Loss) 686 363 74 106 Ret on Avg Assets Bef Ext Item 0.95 0.57 0.10 0.56 Return on Average Equity 12.25 5.09 0.76 4.68 Net Interest Income/Avg Assets 3.53 3.02 2.92 3.04 Noninterest Income/Avg Assets 0.22 0.23 0.37 0.27 Noninterest Expense/Avg Assets 2.20 2.40 3.08 2.41 Yield/Cost Spread 3.45 2.84 2.69 2.88 LIQUIDITY: Int Earn Assets/Int Bear Liab 105.04 109.97 107.58 108.24 Brokered Deposits/Tot Deposits - - - - ASSET QUALITY: Nonperf Lns+REO/Total Lns+REO 0.30 0.17 0.38 0.37 Nonaccrual Loans/Gross Loans - - - - Nonaccrual Lns/Ln Loss Reserve - - - - Repos Assets/Tot Assets - - - - Net Chrg-Off/Av Adj Lns - - - - Nonmtg 1-4 Constr&Conv Lns/TA 0.50 3.57 4.53 4.85
SOURCE: TAFS, PUBLISHED BY SHESUNOFF 10 FERGUSON & COMPANY EXHIBIT IV - ------------------ SCOTLAND SVGS BK LAURINBURG, NC TICKER SSB FINANCIAL HIGHLIGHTS - ----------
1994 1995 1996 YTD 3/97 ($000's) BALANCE SHEET: Total Assets 57,740 58,049 60,714 61,900 % Change in Assets 4.30 0.54 4.59 1.95 Securities-Book Value 14,250 11,806 11,018 10,424 Securities-Fair Value 14,086 11,912 11,081 10,472 Total Loans & Leases 37,296 42,003 46,305 47,559 Total Deposits 49,124 48,346 42,432 43,616 Loan/Deposit Ratio 76 87 109 109 Provision for Loan Losses 25 12 24 6 CAPITAL: Equity Capital 7,921 8,860 17,136 17,236 Total Qualifying Capital(Est) 7,897 8,609 16,834 16,983 Equity Capital/Average Assets 14.01 15.30 26.95 28.21 Tot Qual Cap/Rk Bsd Asts(Est) 30.02 30.65 57.41 56.52 Tier 1 Cap/Rsk Bsed Asts(Est) 29.25 29.89 56.62 55.73 T1 Cap/Avg Assets(Lev Est) 13.05 14.11 27.12 27.40 Dividends Declared/Net Income - - 30.14 40.60 PROFITABILITY: Net Income(Loss) 577 700 647 234 Return on Average Assets 1.02 1.21 1.02 1.53 Return on Average Equity Cap 7.69 8.34 4.08 5.45 Net Interest Margin 3.89 3.82 4.30 4.70 Net Int Income/Avg Assets 3.82 3.73 4.11 4.48 Noninterest Income/Avg Assets 0.27 0.11 0.09 0.07 Noninterest Exp/Avg Assets 2.44 1.96 2.58 2.05 ASSET QUALITY: NPL+Frcl RE/Lns+Frcl RE - - 0.07 - NPA's/Equity + LLR - - 0.18 - LLR/Nonperf & Restrcd Lns - - 745.16 - Foreclosed RE/Total Assets - - - - 90+ Day Del Loans/Total Loans - - 0.07 - Loan Loss Reserves/Total Lns 0.54 0.51 0.50 0.50 Net Charge-Offs/Average Loans - - 0.02 - Dom Risk R/E Lns/Tot Dom Lns 7.58 6.59 6.50 6.28 LIQUIDITY: Brokered Dep/Total Dom Deps - - - - $100M+ Time Dep/Total Dom Dep 7.36 8.60 6.66 5.60 Int Earn Assets/Int Bear Liab 115.85 118.12 142.09 139.70 Pledged Sec/Total Sec 2.55 6.02 5.95 6.16 Fair Value Sec/Amort Cost Sec 101.29 107.31 108.53 108.16
SOURCE: BANKSOURCE, PUBLISHED BY SHESHUNOFF 11 FERGUSON & COMPANY EXHIBIT IV - ------------------ FIRST FEDERAL OF THE SOUTH SYLACAUGA, AL TICKER SZB FINANCIAL HIGHLIGHTS - ----------
1994 1995 1996 YTD 3/97 ($000's) BALANCE SHEET: Total Assets 83,109 84,825 92,006 91,683 % Change in Assets 3.76 2.06 8.47 (0.35) Total Loans 50,193 55,220 66,513 67,215 Deposits 68,743 65,110 64,887 63,824 Broker Originated Deposits - - - - CAPITAL: Equity Capital 7,606 11,681 12,565 12,678 Tangible Capital 7,606 11,041 11,785 11,962 Core Capital 7,606 11,041 11,785 11,962 Risk-Based Capital 7,805 11,243 11,988 12,180 Equity Capital/Total Assets 9.15 13.77 13.66 13.83 Core Capital/Risk Based Assets 21.51 24.82 22.98 22.18 Core Capital/Adj Tang Assets 9.15 13.12 12.92 13.15 Tangible Cap/Tangible Assets 9.15 13.12 12.92 13.15 Risk-Based Cap/Risk-Wt Assets 22.08 25.27 23.37 22.58 PROFITABILITY: Net Income(Loss) 333 625 331 (9) Ret on Avg Assets Bef Ext Item 0.41 0.74 0.37 (0.04) Return on Average Equity 4.49 6.48 2.76 (0.29) Net Interest Income/Avg Assets 3.52 3.46 3.56 3.80 Noninterest Income/Avg Assets 0.78 1.37 0.92 0.74 Noninterest Expense/Avg Assets 3.49 3.62 3.92 3.92 Yield/Cost Spread 3.50 3.26 3.17 3.50 LIQUIDITY: Int Earn Assets/Int Bear Liab 106.07 112.86 112.33 112.53 Brokered Deposits/Tot Deposits - - - - ASSET QUALITY: Nonperf Lns+REO/Total Lns+REO 0.91 0.69 0.73 0.69 Nonaccrual Loans/Gross Loans 0.41 0.22 0.18 0.27 Nonaccrual Lns/Ln Loss Reserve 98.68 51.50 53.39 67.04 Repos Assets/Tot Assets - - - 0.17 Net Chrg-Off/Av Adj Lns (0.32) 0.25 0.02 0.01 Nonmtg 1-4 Constr&Conv Lns/TA 0.06 0.05 0.04 0.69
SOURCE: TAFS, PUBLISHED BY SHESHUNOFF 12 EXHIBIT V FERGUSON & COMPANY EXHIBIT V - SELECTED PUBLICLY HELD THRIFTS - ------------------
Deposit Current Insurance Stock Agency Price Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($) AADV Advantage Bancorp Inc. Kenosha WI MW SAIF NASDAQ 03/23/92 42.000 ABBK Abington Bancorp Inc. Abington MA NE BIF NASDAQ 06/10/86 30.250 ABCL Alliance Bancorp Inc. Hinsdale IL MW SAIF NASDAQ 07/07/92 31.375 ABCW Anchor BanCorp Wisconsin Madison WI MW SAIF NASDAQ 07/16/92 50.500 AFCB Affiliated Community Bancorp Waltham MA NE SAIF NASDAQ 10/19/95 24.750 AHM Ahmanson & Company (H.F.) Irwindale CA WE SAIF NYSE 10/25/72 49.688 ALBK ALBANK Financial Corp. Albany NY MA SAIF NASDAQ 04/01/92 37.250 AMFC AMB Financial Corp. Munster IN MW SAIF NASDAQ 04/01/96 15.000 ANDB Andover Bancorp Inc. Andover MA NE BIF NASDAQ 05/08/86 30.125 ASBI Ameriana Bancorp New Castle IN MW SAIF NASDAQ 03/02/87 18.500 ASBP ASB Financial Corp. Portsmouth OH MW SAIF NASDAQ 05/11/95 12.250 ASFC Astoria Financial Corp. Lake Success NY MA SAIF NASDAQ 11/18/93 47.125 BANC BankAtlantic Bancorp Inc. Fort Lauderdale FL SE SAIF NASDAQ 11/29/83 16.625 BDJI First Federal Bancorporation Bemidji MN MW SAIF NASDAQ 04/04/95 21.000 BFD BostonFed Bancorp Inc. Burlington MA NE SAIF AMSE 10/24/95 19.625 BFSB Bedford Bancshares Inc. Bedford VA SE SAIF NASDAQ 08/22/94 24.250 BKC American Bank of Connecticut Waterbury CT NE BIF AMSE 12/01/81 37.875 BKCT Bancorp Connecticut Inc. Southington CT NE BIF NASDAQ 07/03/86 27.250 BKUNA BankUnited Financial Corp. Coral Gables FL SE SAIF NASDAQ 12/11/85 10.875 BVCC Bay View Capital Corp. San Mateo CA WE SAIF NASDAQ 05/09/86 25.750 CAFI Camco Financial Corp. Cambridge OH MW SAIF NASDAQ NA 18.500 CAPS Capital Savings Bancorp Inc. Jefferson City MO MW SAIF NASDAQ 12/29/93 16.000 CASB Cascade Financial Corp. Everett WA WE SAIF NASDAQ 09/16/92 14.000 CASH First Midwest Financial Inc. Storm Lake IA MW SAIF NASDAQ 09/20/93 17.375 CATB Catskill Financial Corp. Catskill NY MA BIF NASDAQ 04/18/96 17.000 CBCI Calumet Bancorp Inc. Dolton IL MW SAIF NASDAQ 02/20/92 41.375 CBSA Coastal Bancorp Inc. Houston TX SW SAIF NASDAQ NA 30.250 CBSB Charter Financial Inc. Sparta IL MW SAIF NASDAQ 12/29/95 21.438 CEBK Central Co-operative Bank Somerville MA NE BIF NASDAQ 10/24/86 19.250 CENF CENFED Financial Corp. Pasadena CA WE SAIF NASDAQ 10/25/91 34.375 CFB Commercial Federal Corp. Omaha NE MW SAIF NYSE 12/31/84 39.438 CFFC Community Financial Corp. Staunton VA SE SAIF NASDAQ 03/30/88 22.750 CFSB CFSB Bancorp Inc. Lansing MI MW SAIF NASDAQ 06/22/90 27.000 CFTP Community Federal Bancorp Tupelo MS SE SAIF NASDAQ 03/26/96 17.750 CFX CFX Corp. Keene NH NE BIF AMSE 02/12/87 19.000 CIBI Community Investors Bancorp Bucyrus OH MW SAIF NASDAQ 02/07/95 15.250 CKFB CKF Bancorp Inc. Danville KY MW SAIF NASDAQ 01/04/95 20.000 CLAS Classic Bancshares Inc. Ashland KY MW SAIF NASDAQ 12/29/95 14.750 CMRN Cameron Financial Corp Cameron MO MW SAIF NASDAQ 04/03/95 17.500 CMSB Commonwealth Bancorp Inc. Norristown PA MA SAIF NASDAQ 06/17/96 16.750 CMSV Community Savings FA (MHC) North Palm Beach FL SE SAIF NASDAQ 10/24/94 25.750 CNIT CENIT Bancorp Inc. Norfolk VA SE SAIF NASDAQ 08/06/92 51.250 COFI Charter One Financial Cleveland OH MW SAIF NASDAQ 01/22/88 52.375 CRZY Crazy Woman Creek Bancorp Buffalo WY WE SAIF NASDAQ 03/29/96 13.875 CSA Coast Savings Financial Los Angeles CA WE SAIF NYSE 12/23/85 45.813 CTZN CitFed Bancorp Inc. Dayton OH MW SAIF NASDAQ 01/23/92 41.750 CVAL Chester Valley Bancorp Inc. Downingtown PA MA SAIF NASDAQ 03/27/87 24.000 DIBK Dime Financial Corp. Wallingford CT NE BIF NASDAQ 07/09/86 26.625 DIME Dime Community Bancorp Inc. Brooklyn NY MA BIF NASDAQ 06/26/96 18.938 DME Dime Bancorp Inc. New York NY MA BIF NYSE 08/19/86 19.563 DNFC D & N Financial Corp. Hancock MI MW SAIF NASDAQ 02/13/85 19.250 DSL Downey Financial Corp. Newport Beach CA WE SAIF NYSE 01/01/71 21.750 EBSI Eagle Bancshares Tucker GA SE SAIF NASDAQ 04/01/86 17.500 EFBI Enterprise Federal Bancorp West Chester OH MW SAIF NASDAQ 10/17/94 20.500 Current Market Value Ticker Short Name ($M) AADV Advantage Bancorp Inc. 135.82 ABBK Abington Bancorp Inc. 56.01 ABCL Alliance Bancorp Inc. 167.70 ABCW Anchor BanCorp Wisconsin 228.48 AFCB Affiliated Community Bancorp 160.02 AHM Ahmanson & Company (H.F.) 4,836.42 ALBK ALBANK Financial Corp. 477.73 AMFC AMB Financial Corp. 14.46 ANDB Andover Bancorp Inc. 155.10 ASBI Ameriana Bancorp 59.76 ASBP ASB Financial Corp. 21.09 ASFC Astoria Financial Corp. 988.60 BANC BankAtlantic Bancorp Inc. 381.96 BDJI First Federal Bancorporation 14.71 BFD BostonFed Bancorp Inc. 116.72 BFSB Bedford Bancshares Inc. 27.70 BKC American Bank of Connecticut 87.33 BKCT Bancorp Connecticut Inc. 69.04 BKUNA BankUnited Financial Corp. 96.45 BVCC Bay View Capital Corp. 334.22 CAFI Camco Financial Corp. 59.47 CAPS Capital Savings Bancorp Inc. 30.27 CASB Cascade Financial Corp. 35.95 CASH First Midwest Financial Inc. 47.50 CATB Catskill Financial Corp. 80.24 CBCI Calumet Bancorp Inc. 87.33 CBSA Coastal Bancorp Inc. 150.39 CBSB Charter Financial Inc. 88.96 CEBK Central Co-operative Bank 37.83 CENF CENFED Financial Corp. 196.92 CFB Commercial Federal Corp. 850.00 CFFC Community Financial Corp. 29.01 CFSB CFSB Bancorp Inc. 137.59 CFTP Community Federal Bancorp 82.16 CFX CFX Corp. 249.73 CIBI Community Investors Bancorp 14.17 CKFB CKF Bancorp Inc. 18.54 CLAS Classic Bancshares Inc. 19.25 CMRN Cameron Financial Corp 46.39 CMSB Commonwealth Bancorp Inc. 286.35 CMSV Community Savings FA (MHC) 131.07 CNIT CENIT Bancorp Inc. 84.72 COFI Charter One Financial 2,418.99 CRZY Crazy Woman Creek Bancorp 13.25 CSA Coast Savings Financial 852.85 CTZN CitFed Bancorp Inc. 360.66 CVAL Chester Valley Bancorp Inc. 49.29 DIBK Dime Financial Corp. 137.04 DIME Dime Community Bancorp Inc. 247.95 DME Dime Bancorp Inc. 2,029.05 DNFC D & N Financial Corp. 157.68 DSL Downey Financial Corp. 581.45 EBSI Eagle Bancshares 99.04 EFBI Enterprise Federal Bancorp 41.22
SOURCE: SNL & F&C CALCULATIONS 1 FERGUSON & COMPANY EXHIBIT V - SELECTED PUBLICLY HELD THRIFTS - ------------------
Deposit Current Insurance Stock Agency Price Ticker Short Name City State Region (BIF/SAIF)Exchange IPO Date ($) EGFC Eagle Financial Corp. Bristol CT NE SAIF NASDAQ 02/03/87 33.313 EIRE Emerald Isle Bancorp Inc. Quincy MA NE BIF NASDAQ 09/08/86 20.375 EMLD Emerald Financial Corp. Strongsville OH MW SAIF NASDAQ NA 14.250 EQSB Equitable Federal Savings Bank Wheaton MD MA SAIF NASDAQ 09/10/93 38.750 FBBC First Bell Bancorp Inc. Pittsburgh PA MA SAIF NASDAQ 06/29/95 16.375 FBCI Fidelity Bancorp Inc. Chicago IL MW SAIF NASDAQ 12/15/93 21.500 FBHC Fort Bend Holding Corp. Rosenberg TX SW SAIF NASDAQ 06/30/93 30.750 FBSI First Bancshares Inc. Mountain Grove MO MW SAIF NASDAQ 12/22/93 24.250 FCME First Coastal Corp. Westbrook ME NE BIF NASDAQ NA 11.000 FED FirstFed Financial Corp. Santa Monica CA WE SAIF NYSE 12/16/83 33.375 FESX First Essex Bancorp Inc. Andover MA NE BIF NASDAQ 08/04/87 16.625 FFBA First Colorado Bancorp Inc. Lakewood CO SW SAIF NASDAQ 01/02/96 17.750 FFBI First Financial Bancorp Inc. Belvidere IL MW SAIF NASDAQ 10/04/93 18.250 FFBS FFBS BanCorp Inc. Columbus MS SE SAIF NASDAQ 07/01/93 24.000 FFBZ First Federal Bancorp Inc. Zanesville OH MW SAIF NASDAQ 07/13/92 18.000 FFCH First Financial Holdings Inc. Charleston SC SE SAIF NASDAQ 11/10/83 31.250 FFDB FirstFed Bancorp Inc. Bessemer AL SE SAIF NASDAQ 11/19/91 16.531 FFES First Federal of East Hartford East Hartford CT NE SAIF NASDAQ 06/23/87 31.250 FFFC FFVA Financial Corp. Lynchburg VA SE SAIF NASDAQ 10/12/94 30.000 FFFD North Central Bancshares Inc. Fort Dodge IA MW SAIF NASDAQ 03/21/96 16.500 FFHH FSF Financial Corp. Hutchinson MN MW SAIF NASDAQ 10/07/94 17.750 FFHS First Franklin Corporation Cincinnati OH MW SAIF NASDAQ 01/26/88 20.000 FFIC Flushing Financial Corp. Flushing NY MA BIF NASDAQ 11/21/95 20.313 FFKY First Federal Financial Corp. Elizabethtown KY MW SAIF NASDAQ 07/15/87 21.750 FFLC FFLC Bancorp Inc. Leesburg FL SE SAIF NASDAQ 01/04/94 27.750 FFOH Fidelity Financial of Ohio Cincinnati OH MW SAIF NASDAQ 03/04/96 15.625 FFSL First Independence Corp. Independence KS MW SAIF NASDAQ 10/08/93 12.750 FFSX First Fed SB of Siouxland(MHC) Sioux City IA MW SAIF NASDAQ 07/13/92 24.250 FFWC FFW Corp. Wabash IN MW SAIF NASDAQ 04/05/93 28.750 FFWD Wood Bancorp Inc. Bowling Green OH MW SAIF NASDAQ 08/31/93 16.500 FFYF FFY Financial Corp. Youngstown OH MW SAIF NASDAQ 06/28/93 27.500 FGHC First Georgia Holding Inc. Brunswick GA SE SAIF NASDAQ 02/11/87 7.063 FIBC Financial Bancorp Inc. Long Island City NY MA SAIF NASDAQ 08/17/94 20.250 FKFS First Keystone Financial Media PA MA SAIF NASDAQ 01/26/95 26.375 FLFC First Liberty Financial Corp. Macon GA SE SAIF NASDAQ 12/06/83 23.250 FMCO FMS Financial Corporation Burlington NJ MA SAIF NASDAQ 12/14/88 26.000 FMSB First Mutual Savings Bank Bellevue WA WE BIF NASDAQ 12/17/85 20.625 FNGB First Northern Capital Corp. Green Bay WI MW SAIF NASDAQ 12/29/83 25.750 FOBC Fed One Bancorp Wheeling WV SE SAIF NASDAQ 01/19/95 22.000 FRC First Republic Bancorp San Francisco CA WE BIF NYSE NA 24.125 FSBI Fidelity Bancorp Inc. Pittsburgh PA MA SAIF NASDAQ 06/24/88 21.250 FSLA First Savings Bank (MHC) Woodbridge NJ MA SAIF NASDAQ 07/10/92 29.000 FSPG First Home Bancorp Inc. Pennsville NJ MA SAIF NASDAQ 04/20/87 19.875 FSTC First Citizens Corp. Newnan GA SE SAIF NASDAQ 03/01/86 29.500 FTF Texarkana First Financial Corp Texarkana AR SE SAIF AMSE 07/07/95 22.375 FTFC First Federal Capital Corp. La Crosse WI MW SAIF NASDAQ 11/02/89 24.000 FTSB Fort Thomas Financial Corp. Fort Thomas KY MW SAIF NASDAQ 06/28/95 11.000 FWWB First SB of Washington Bancorp Walla Walla WA WE SAIF NASDAQ 11/01/95 24.625 GAF GA Financial Inc. Pittsburgh PA MA SAIF AMSE 03/26/96 17.000 GBCI Glacier Bancorp Inc. Kalispell MT WE SAIF NASDAQ 03/30/84 18.500 GDW Golden West Financial Oakland CA WE SAIF NYSE 05/29/59 79.063 GFCO Glenway Financial Corp. Cincinnati OH MW SAIF NASDAQ 11/30/90 27.000 GFSB GFS Bancorp Inc. Grinnell IA MW SAIF NASDAQ 01/06/94 13.375 GPT GreenPoint Financial Corp. New York NY MA BIF NYSE 01/28/94 64.125 Current Market Value Ticker Short Name ($M) EGFC Eagle Financial Corp. 209.17 EIRE Emerald Isle Bancorp Inc. 45.76 EMLD Emerald Financial Corp. 72.13 EQSB Equitable Federal Savings Bank 23.34 FBBC First Bell Bancorp Inc. 106.61 FBCI Fidelity Bancorp Inc. 60.03 FBHC Fort Bend Holding Corp. 25.44 FBSI First Bancshares Inc. 27.71 FCME First Coastal Corp. 14.95 FED FirstFed Financial Corp. 352.95 FESX First Essex Bancorp Inc. 124.42 FFBA First Colorado Bancorp Inc. 293.97 FFBI First Financial Bancorp Inc. 7.58 FFBS FFBS BanCorp Inc. 37.38 FFBZ First Federal Bancorp Inc. 28.29 FFCH First Financial Holdings Inc. 198.65 FFDB FirstFed Bancorp Inc. 19.03 FFES First Federal of East Hartford 83.63 FFFC FFVA Financial Corp. 135.62 FFFD North Central Bancshares Inc. 53.76 FFHH FSF Financial Corp. 53.83 FFHS First Franklin Corporation 23.84 FFIC Flushing Financial Corp. 162.07 FFKY First Federal Financial Corp. 90.70 FFLC FFLC Bancorp Inc. 64.31 FFOH Fidelity Financial of Ohio 87.41 FFSL First Independence Corp. 12.71 FFSX First Fed SB of Siouxland(MHC) 68.59 FFWC FFW Corp. 20.04 FFWD Wood Bancorp Inc. 36.94 FFYF FFY Financial Corp. 113.17 FGHC First Georgia Holding Inc. 21.56 FIBC Financial Bancorp Inc. 34.87 FKFS First Keystone Financial 32.39 FLFC First Liberty Financial Corp. 179.60 FMCO FMS Financial Corporation 62.08 FMSB First Mutual Savings Bank 55.73 FNGB First Northern Capital Corp. 113.74 FOBC Fed One Bancorp 52.21 FRC First Republic Bancorp 233.84 FSBI Fidelity Bancorp Inc. 32.93 FSLA First Savings Bank (MHC) 210.17 FSPG First Home Bancorp Inc. 53.83 FSTC First Citizens Corp. 54.07 FTF Texarkana First Financial Corp 40.06 FTFC First Federal Capital Corp. 219.38 FTSB Fort Thomas Financial Corp. 15.57 FWWB First SB of Washington Bancorp 259.03 GAF GA Financial Inc. 135.74 GBCI Glacier Bancorp Inc. 126.01 GDW Golden West Financial 4,485.92 GFCO Glenway Financial Corp. 30.78 GFSB GFS Bancorp Inc. 13.21 GPT GreenPoint Financial Corp. 2,888.45
SOURCE: SNL & F&C CALCULATION 2 FERGUSON & COMPANY EXHIBIT V - SELECTED PUBLICLY HELD THRIFTS - ------------------
Deposit Current Current Insurance Stock Market Agency Price Value Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($) ($M) GSB Golden State Bancorp Inc. Glendale CA WE SAIF NYSE 10/01/83 29.125 1,466.40 GSBC Great Southern Bancorp Inc. Springfield MO MW SAIF NASDAQ 12/14/89 16.750 136.18 GSFC Green Street Financial Corp. Fayetteville NC SE SAIF NASDAQ 04/04/96 17.250 74.14 GTFN Great Financial Corporation Louisville KY MW SAIF NASDAQ 03/31/94 33.250 458.54 GUPB GFSB Bancorp Inc. Gallup NM SW SAIF NASDAQ 06/30/95 19.000 15.28 HALL Hallmark Capital Corp. West Allis WI MW SAIF NASDAQ 01/03/94 22.750 32.83 HARB Harbor Florida Bancorp Inc. Fort Pierce FL SE SAIF NASDAQ 01/06/94 44.500 221.18 HARL Harleysville Savings Bank Harleysville PA MA SAIF NASDAQ 08/04/87 25.000 41.31 HAVN Haven Bancorp Inc. Woodhaven NY MA SAIF NASDAQ 09/23/93 36.250 158.68 HBFW Home Bancorp Fort Wayne IN MW SAIF NASDAQ 03/30/95 21.250 53.65 HBNK Highland Federal Bank FSB Burbank CA WE SAIF NASDAQ NA 25.625 58.94 HBS Haywood Bancshares Inc. Waynesville NC SE BIF AMSE 12/18/87 18.500 23.16 HFFB Harrodsburg First Fin Bancorp Harrodsburg KY MW SAIF NASDAQ 10/04/95 15.750 31.89 HFFC HF Financial Corp. Sioux Falls SD MW SAIF NASDAQ 04/08/92 21.875 65.17 HFGI Harrington Financial Group Richmond IN MW SAIF NASDAQ NA 11.750 38.27 HFNC HFNC Financial Corp. Charlotte NC SE SAIF NASDAQ 12/29/95 16.250 279.38 HFSA Hardin Bancorp Inc. Hardin MO MW SAIF NASDAQ 09/29/95 16.750 14.39 HIFS Hingham Instit. for Savings Hingham MA NE BIF NASDAQ 12/20/88 23.250 30.31 HMCI HomeCorp Inc. Rockford IL MW SAIF NASDAQ 06/22/90 14.250 24.13 HMNF HMN Financial Inc. Spring Valley MN MW SAIF NASDAQ 06/30/94 24.750 104.24 HOMF Home Federal Bancorp Seymour IN MW SAIF NASDAQ 01/23/88 30.500 103.59 HPBC Home Port Bancorp Inc. Nantucket MA NE BIF NASDAQ 08/25/88 20.750 38.22 HRBF Harbor Federal Bancorp Inc. Baltimore MD MA SAIF NASDAQ 08/12/94 20.000 35.09 HRZB Horizon Financial Corp. Bellingham WA WE BIF NASDAQ 08/01/86 15.375 114.03 HZFS Horizon Financial Svcs Corp. Oskaloosa IA MW SAIF NASDAQ 06/30/94 18.875 8.03 IFSB Independence Federal Savings Washington DC MA SAIF NASDAQ 06/06/85 14.375 18.40 INBI Industrial Bancorp Bellevue OH MW SAIF NASDAQ 08/01/95 14.500 76.51 IPSW Ipswich Savings Bank Ipswich MA NE BIF NASDAQ 05/26/93 22.250 26.43 ISBF ISB Financial Corporation New Iberia LA SW SAIF NASDAQ 04/07/95 24.375 168.22 ITLA ITLA Capital Corp. La Jolla CA WE BIF NASDAQ 10/24/95 18.125 141.91 IWBK InterWest Bancorp Inc. Oak Harbor WA WE SAIF NASDAQ NA 39.625 318.43 JSB JSB Financial Inc. Lynbrook NY MA BIF NYSE 06/27/90 44.563 438.71 JSBA Jefferson Savings Bancorp Ballwin MO MW SAIF NASDAQ 04/08/93 32.000 160.17 JXVL Jacksonville Bancorp Inc. Jacksonville TX SW SAIF NASDAQ 04/01/96 16.625 41.00 KFBI Klamath First Bancorp Klamath Falls OR WE SAIF NASDAQ 10/05/95 19.188 192.24 KNK Kankakee Bancorp Inc. Kankakee IL MW SAIF AMSE 01/06/93 29.500 42.04 KSAV KS Bancorp Inc. Kenly NC SE SAIF NASDAQ 12/30/93 18.500 16.38 KSBK KSB Bancorp Inc. Kingfield ME NE BIF NASDAQ 06/24/93 14.375 17.80 KYF Kentucky First Bancorp Inc. Cynthiana KY MW SAIF AMSE 08/29/95 12.250 16.16 LARK Landmark Bancshares Inc. Dodge City KS MW SAIF NASDAQ 03/28/94 21.500 36.78 LARL Laurel Capital Group Inc. Allison Park PA MA SAIF NASDAQ 02/20/87 21.375 30.82 LFED Leeds Federal Savings Bk (MHC) Baltimore MD MA SAIF NASDAQ 05/02/94 20.875 72.12 LIFB Life Bancorp Inc. Norfolk VA SE SAIF NASDAQ 10/11/94 26.000 256.02 LISB Long Island Bancorp Inc. Melville NY MA SAIF NASDAQ 04/18/94 39.000 934.76 LOGN Logansport Financial Corp. Logansport IN MW SAIF NASDAQ 06/14/95 14.000 17.65 LSBI LSB Financial Corp. Lafayette IN MW BIF NASDAQ 02/03/95 21.250 20.08 LSBX Lawrence Savings Bank North Andover MA NE BIF NASDAQ 05/02/86 11.875 50.76 LVSB Lakeview Financial West Paterson NJ MA SAIF NASDAQ 12/22/93 32.250 73.13 MAFB MAF Bancorp Inc. Clarendon Hills IL MW SAIF NASDAQ 01/12/90 32.375 498.33 MARN Marion Capital Holdings Marion IN MW SAIF NASDAQ 03/18/93 23.000 40.67 MASB MASSBANK Corp. Reading MA NE BIF NASDAQ 05/28/86 51.875 139.09 MBB MSB Bancorp Inc. Goshen NY MA BIF AMSE 09/03/92 23.500 66.67 MBB MSB Bancorp, Inc. Goshen NY MA BIF AMSE NA 23.500 66.67 MBLF MBLA Financial Corp. Macon MO MW SAIF NASDAQ 06/24/93 23.500 30.93
SOURCE: SNL & F&C CALCULATIONS 3 FERGUSON & COMPANY EXHIBIT V - SELECTED PUBLICLY HELD THRIFTS - ------------------
Deposit Current Current Insurance Stock Market Agency Price Value Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($) ($M) MCBN Mid-Coast Bancorp Inc. Waldoboro ME NE SAIF NASDAQ 11/02/89 25.000 5.79 MCBS Mid Continent Bancshares Inc. El Dorado KS MW SAIF NASDAQ 06/27/94 29.250 57.28 MDBK Medford Savings Bank Medford MA NE BIF NASDAQ 03/18/86 30.063 136.52 MECH Mechanics Savings Bank Hartford CT NE BIF NASDAQ 06/26/96 21.750 115.06 MERI Meritrust Federal SB Thibodaux LA SW SAIF NASDAQ NA 40.500 31.35 MFBC MFB Corp. Mishawaka IN MW SAIF NASDAQ 03/25/94 20.500 34.65 MFFC Milton Federal Financial Corp. West Milton OH MW SAIF NASDAQ 10/07/94 13.625 31.47 MFLR Mayflower Co-operative Bank Middleboro MA NE BIF NASDAQ 12/23/87 18.000 16.03 MFSL Maryland Federal Bancorp Hyattsville MD MA SAIF NASDAQ 06/02/87 47.500 152.48 MIVI Mississippi View Holding Co. Little Falls MN MW SAIF NASDAQ 03/24/95 15.125 12.38 MLBC ML Bancorp Inc. Villanova PA MA SAIF NASDAQ 08/11/94 20.250 213.97 MSBF MSB Financial Inc. Marshall MI MW SAIF NASDAQ 02/06/95 13.000 16.23 MWBI Midwest Bancshares Inc. Burlington IA MW SAIF NASDAQ 11/12/92 35.000 12.19 MWBX MetroWest Bank Framingham MA NE BIF NASDAQ 10/10/86 6.688 93.32 MWFD Midwest Federal Financial Baraboo WI MW SAIF NASDAQ 07/08/92 21.750 35.34 NASB North American Savings Bank Grandview MO MW SAIF NASDAQ 09/27/85 50.000 112.72 NBN Northeast Bancorp Portland ME NE BIF AMSE 08/19/87 14.750 18.81 NEIB Northeast Indiana Bancorp Huntington IN MW SAIF NASDAQ 06/28/95 17.000 29.97 NHTB New Hampshire Thrift Bncshrs New London NH NE SAIF NASDAQ 05/22/86 16.313 33.41 NMSB NewMil Bancorp Inc. New Milford CT NE BIF NASDAQ 02/01/86 12.625 48.40 NSSB Norwich Financial Corp. Norwich CT NE BIF NASDAQ 11/14/86 22.250 120.44 NWEQ Northwest Equity Corp. Amery WI MW SAIF NASDAQ 10/11/94 15.250 12.79 NWSB Northwest Savings Bank (MHC) Warren PA MA SAIF NASDAQ 11/07/94 17.375 406.16 NYB New York Bancorp Inc. Douglaston NY MA SAIF NYSE 01/28/88 31.063 670.69 OFCP Ottawa Financial Corp. Holland MI MW SAIF NASDAQ 08/19/94 25.625 125.90 OHSL OHSL Financial Corp. Cincinnati OH MW SAIF NASDAQ 02/10/93 24.500 29.59 PALM Palfed Inc. Aiken SC SE SAIF NASDAQ 12/15/85 15.500 81.90 PBCI Pamrapo Bancorp Inc. Bayonne NJ MA SAIF NASDAQ 11/14/89 20.500 58.28 PBKB People's Bancshares Inc. New Bedford MA NE BIF NASDAQ 10/30/86 16.750 54.40 PCBC Perry County Financial Corp. Perryville MO MW SAIF NASDAQ 02/13/95 20.500 16.57 PCCI Pacific Crest Capital Agoura Hills CA WE BIF NASDAQ NA 15.125 44.44 PEEK Peekskill Financial Corp. Peekskill NY MA SAIF NASDAQ 12/29/95 16.000 51.09 PERM Permanent Bancorp Inc. Evansville IN MW SAIF NASDAQ 04/04/94 25.250 52.95 PFDC Peoples Bancorp Auburn IN MW SAIF NASDAQ 07/07/87 25.250 57.42 PFNC Progress Financial Corporation Blue Bell PA MA SAIF NASDAQ 07/18/83 13.250 50.54 PFSB PennFed Financial Services Inc West Orange NJ MA SAIF NASDAQ 07/15/94 29.813 143.76 PFSL Pocahontas FS&LA (MHC) Pocahontas AR SE SAIF NASDAQ 04/05/94 22.250 36.32 PHBK Peoples Heritage Finl Group Portland ME NE BIF NASDAQ 12/04/86 38.875 1,064.04 PHFC Pittsburgh Home Financial Corp Pittsburgh PA MA SAIF NASDAQ 04/01/96 17.125 33.73 PKPS Poughkeepsie Financial Corp. Poughkeepsie NY MA SAIF NASDAQ 11/19/85 8.000 100.76 PRBC Prestige Bancorp Inc. Pleasant Hills PA MA SAIF NASDAQ 06/27/96 16.000 14.64 PSBK Progressive Bank Inc. Fishkill NY MA BIF NASDAQ 08/01/84 30.375 116.06 PTRS Potters Financial Corp. East Liverpool OH MW SAIF NASDAQ 12/31/93 24.125 11.85 PULS Pulse Bancorp South River NJ MA SAIF NASDAQ 09/18/86 20.500 62.95 PVFC PVF Capital Corp. Bedford Heights OH MW SAIF NASDAQ 12/30/92 19.500 49.84 PVSA Parkvale Financial Corporation Monroeville PA MA SAIF NASDAQ 07/16/87 28.000 113.54 PWBC PennFirst Bancorp Inc. Ellwood City PA MA SAIF NASDAQ 06/13/90 16.375 70.45 QCBC Quaker City Bancorp Inc. Whittier CA WE SAIF NASDAQ 12/30/93 20.000 94.06 QCFB QCF Bancorp Inc. Virginia MN MW SAIF NASDAQ 04/03/95 23.500 33.52 RARB Raritan Bancorp Inc. Raritan NJ MA BIF NASDAQ 03/01/87 24.000 57.88 RELY Reliance Bancorp Inc. Garden City NY MA SAIF NASDAQ 03/31/94 28.750 252.32 ROSE TR Financial Corp. Garden City NY MA BIF NASDAQ 06/29/93 27.000 475.44 RVSB Riverview Savings Bank (MHC) Camas WA WE SAIF NASDAQ 10/26/93 25.500 61.62 SFED SFS Bancorp Inc. Schenectady NY MA SAIF NASDAQ 06/30/95 19.031 23.38
SOURCE: SNL & F&C CALCULATIONS 4 FERGUSON & COMPANY EXHIBIT V - SELECTED PUBLICLY HELD THRIFTS - ------------------
Deposit Current Current Insurance Stock Market Agency Price Value Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($) ($M) SFFC StateFed Financial Corporation Des Moines IA MW SAIF NASDAQ 01/05/94 21.750 17.05 SFIN Statewide Financial Corp. Jersey City NJ MA SAIF NASDAQ 10/02/95 19.125 90.95 SFSB SuburbFed Financial Corp. Flossmoor IL MW SAIF NASDAQ 03/04/92 27.500 34.70 SFSL Security First Corp. Mayfield Heights OH MW SAIF NASDAQ 01/22/88 16.000 120.07 SISB SIS Bancorp Inc. Springfield MA NE BIF NASDAQ 02/08/95 30.375 169.40 SKAN Skaneateles Bancorp Inc. Skaneateles NY MA BIF NASDAQ 06/02/86 22.875 21.81 SMBC Southern Missouri Bancorp Inc. Poplar Bluff MO MW SAIF NASDAQ 04/13/94 17.250 28.25 SOPN First Savings Bancorp Inc. Southern Pines NC SE SAIF NASDAQ 01/06/94 21.250 78.56 SOSA Somerset Savings Bank Somerville MA NE BIF NASDAQ 07/09/86 3.969 66.09 SPBC St. Paul Bancorp Inc. Chicago IL MW SAIF NASDAQ 05/18/87 22.375 760.48 SSB Scotland Bancorp Inc Laurinburg NC SE SAIF AMSE 04/01/96 17.188 32.89 SSM Stone Street Bancorp Inc. Mocksville NC SE SAIF AMSE 04/01/96 21.313 40.45 STFR St. Francis Capital Corp. Milwaukee WI MW SAIF NASDAQ 06/21/93 35.000 185.78 STSA Sterling Financial Corp. Spokane WA WE SAIF NASDAQ NA 18.250 101.59 SWBI Southwest Bancshares Hometown IL MW SAIF NASDAQ 06/24/92 20.750 55.00 SWCB Sandwich Co-operative Bank Sandwich MA NE BIF NASDAQ 07/25/86 33.750 64.33 TBK Tolland Bank Tolland CT NE BIF AMSE 12/19/86 16.125 25.16 THR Three Rivers Financial Corp. Three Rivers MI MW SAIF AMSE 08/24/95 16.000 13.18 THRD TF Financial Corporation Newtown PA MA SAIF NASDAQ 07/13/94 19.125 78.09 TPNZ Tappan Zee Financial Inc. Tarrytown NY MA SAIF NASDAQ 10/05/95 17.625 26.39 TRIC Tri-County Bancorp Inc. Torrington WY WE SAIF NASDAQ 09/30/93 22.750 13.85 TSH Teche Holding Co. Franklin LA SW SAIF AMSE 04/19/95 18.125 62.31 TWIN Twin City Bancorp Bristol TN SE SAIF NASDAQ 01/04/95 19.500 16.64 UBMT United Financial Corp. Great Falls MT WE SAIF NASDAQ 09/23/86 23.875 29.21 VABF Virginia Beach Fed. Financial Virginia Beach VA SE SAIF NASDAQ 11/01/80 14.000 69.66 WBST Webster Financial Corp. Waterbury CT NE SAIF NASDAQ 12/12/86 51.750 701.80 WCBI Westco Bancorp Westchester IL MW SAIF NASDAQ 06/26/92 26.000 64.39 WEFC Wells Financial Corp. Wells MN MW SAIF NASDAQ 04/11/95 16.000 31.35 WFI Winton Financial Corp. Cincinnati OH MW SAIF AMSE 08/04/88 16.000 31.78 WFSL Washington Federal Inc. Seattle WA WE SAIF NASDAQ 11/17/82 28.375 1,346.74 WRNB Warren Bancorp Inc. Peabody MA NE BIF NASDAQ 07/09/86 17.750 67.12 WSB Washington Savings Bank, FSB Waldorf MD MA SAIF AMSE NA 6.688 28.41 WSFS WSFS Financial Corporation Wilmington DE MA BIF NASDAQ 11/26/86 14.250 177.01 WSTR WesterFed Financial Corp. Missoula MT WE SAIF NASDAQ 01/10/94 22.875 127.30 WVFC WVS Financial Corp. Pittsburgh PA MA SAIF NASDAQ 11/29/93 26.875 46.96 WYNE Wayne Bancorp Inc. Wayne NJ MA SAIF NASDAQ 06/27/96 21.625 45.84 YFCB Yonkers Financial Corporation Yonkers NY MA SAIF NASDAQ 04/18/96 16.750 52.61 YFED York Financial Corp. York PA MA SAIF NASDAQ 02/01/84 25.500 178.71 Maximum 79.063 4.836.42 Minimum 3.969 5.79 Average 23.572 192.05 Median 21.344 61.85
SOURCE: SNL & F&C CALCULATIONS 5 FERGUSON & COMPANY EXHIBIT V SELECTED PUBLICLY HELD THRIFTS - ------------------
Tangible Price/ Current Current Current Total Equity/ Equity/ Core Core Core LTM Price/ Price/ T Price/ Dividend Assets Assets T Assets EPS ROAA ROAE Merger Current Core EPS Book V Book V Assets Yield ($000) (%) (%) ($) (%) (%) Target? Pricing Ticker (x) (%) (%) (%) (%) MRQ MRQ MRQ LTM LTM LTM (Y/N) Date AADV 16.3 144.6 154.7 13.3 0.95 1,019,510 9.2 8.7 2.58 0.89 9.89 N 08/08/97 ABBK 16.9 161.5 179.3 11.2 1.32 501,256 6.9 6.3 1.79 0.73 10.71 N 08/08/97 ABCL 17.7 134.1 135.8 11.9 2.07 1,404,263 8.9 8.8 1.77 0.76 8.48 N 08/08/97 ABCW 14.7 190.6 194.3 11.9 1.27 1,925,866 6.2 6.1 3.44 0.96 15.09 N 08/08/97 AFCB 14.5 147.8 148.7 14.7 1.94 1,090,431 9.8 9.7 1.71 1.10 11.14 N 08/08/97 AHM 17.7 244.2 286.6 10.2 1.77 47,532,068 5.2 4.6 2.81 0.70 13.79 N 08/08/97 ALBK 14.4 144.1 164.9 13.3 1.61 3,602,227 9.2 8.1 2.59 1.04 11.23 N 08/08/97 AMFC 22.1 102.6 102.6 15.4 1.60 94,179 15.0 15.0 0.68 0.80 4.54 N 08/08/97 ANDB 11.3 153.9 153.9 12.4 2.26 1,250,943 8.1 8.1 2.66 1.13 14.33 N 08/08/97 ASBI 18.1 137.1 137.2 15.0 3.24 397,730 11.0 11.0 1.02 0.84 7.64 N 08/08/97 ASBP 20.8 115.4 115.4 19.3 3.27 109,414 15.7 15.7 0.59 0.86 4.31 N 08/08/97 ASFC 16.7 164.8 196.3 12.9 1.27 7,664,495 7.8 6.7 2.83 0.79 10.05 N 08/08/97 BANC 22.2 194.7 237.5 11.0 0.70 2,730,474 5.6 4.7 0.75 0.64 10.88 N 08/08/97 BDJI 20.4 122.2 122.2 13.7 - 107,716 11.2 11.2 1.03 0.65 5.35 N 08/08/97 BFD 20.2 127.7 NA 12.0 1.43 975,922 8.8 NA 0.97 0.66 6.51 N 08/08/97 BFSB 15.5 136.6 136.6 20.5 2.31 135,455 14.2 14.2 1.56 1.28 8.90 N 08/08/97 BKC 14.4 174.0 181.2 14.4 3.80 605,857 8.3 8.0 2.63 1.10 12.98 N 08/08/97 BKCT 14.7 157.2 157.2 16.1 3.67 428,362 10.3 10.3 1.86 1.25 12.07 N 08/08/97 BKUNA 19.1 143.3 176.8 5.3 - 1,807,192 5.6 4.9 0.57 0.58 8.04 N 08/08/97 BVCC 17.3 170.3 202.9 10.8 1.24 3,096,213 6.3 5.4 1.49 0.63 10.26 N 08/08/97 CAFI 13.9 129.8 141.1 12.6 2.68 472,430 9.7 9.0 1.33 0.86 9.55 N 08/08/97 CAPS 14.4 146.9 146.9 12.7 1.50 237,915 8.7 8.7 1.11 0.92 10.27 N 08/08/97 CASB 20.0 165.3 165.3 10.2 - 352,321 6.2 6.2 0.70 0.58 9.43 N 08/08/97 CASH 12.6 111.2 125.5 12.7 2.07 374,824 11.4 10.2 1.38 0.93 8.12 N 08/08/97 CATB 21.0 112.7 112.7 28.2 1.65 284,238 25.0 25.0 0.81 1.41 5.10 N 08/08/97 CBCI 14.7 113.5 113.5 17.6 - 496,561 15.5 15.5 2.81 1.37 8.66 N 08/08/97 CBSA 13.1 154.1 185.4 5.1 1.59 2,964,082 3.3 2.8 2.31 0.41 12.30 N 08/08/97 CBSB 20.2 156.4 176.7 22.6 1.49 393,268 14.5 13.0 1.06 1.16 7.78 N 08/08/97 CEBK 13.0 112.8 126.6 11.8 1.66 320,950 10.5 9.4 1.48 0.91 8.88 N 08/08/97 CENF 12.6 164.9 165.2 8.6 1.05 2,295,523 5.2 5.2 2.74 0.73 14.27 N 08/08/97 CFB 13.9 199.5 225.0 12.0 0.71 7,096,665 6.0 5.4 2.84 0.91 14.83 N 08/08/97 CFFC 13.5 120.6 120.6 16.5 2.46 175,414 13.7 13.7 1.69 1.28 9.23 N 08/08/97 CFSB 17.0 213.4 213.4 16.3 2.22 845,438 7.6 7.6 1.59 1.07 13.83 N 08/08/97 CFTP 22.5 110.0 110.0 39.9 1.69 206,049 33.5 33.5 0.79 1.70 5.11 N 08/08/97 CFX 14.0 180.6 193.1 13.4 4.63 1,859,030 7.4 7.0 1.36 0.98 11.60 N 08/08/97 CIBI 15.4 129.0 129.0 14.9 2.10 97,446 11.5 11.5 0.99 0.99 8.18 N 08/08/97 CKFB 23.3 120.6 120.6 30.8 2.50 60,197 23.7 23.7 0.86 1.29 5.05 N 08/08/97 CLAS 22.4 100.6 119.1 14.8 1.90 131,554 14.7 12.7 0.66 0.88 4.49 N 08/08/97 CMRN 17.5 103.4 103.4 23.7 1.60 197,693 23.0 23.0 1.00 1.38 5.52 N 08/08/97 CMSB 20.2 130.0 166.2 12.5 1.67 2,288,986 9.6 7.7 0.83 0.64 6.15 N 08/08/97 CMSV 20.6 165.4 165.4 19.2 3.50 682,314 11.2 11.2 1.25 0.96 8.19 N 08/08/97 CNIT 16.8 164.7 179.3 11.9 1.95 709,550 7.2 6.7 3.06 0.75 10.46 N 08/08/97 COFI 14.4 247.6 264.5 16.6 1.91 14,564,703 6.7 6.3 3.65 1.23 18.22 N 08/08/97 CRZY 19.8 94.5 94.5 24.4 2.88 54,275 25.8 25.8 0.70 1.30 4.54 N 08/08/97 CSA 19.3 190.4 192.9 9.4 - 9,102,743 4.9 4.9 2.38 0.52 10.65 N 08/08/97 CTZN 15.9 182.9 203.1 11.6 0.86 3,097,515 6.4 5.8 2.63 0.82 12.75 N 08/08/97 CVAL 18.9 188.7 188.7 16.2 1.83 305,187 8.6 8.6 1.27 0.92 10.26 N 08/08/97 DIBK 10.2 214.5 222.6 16.8 1.50 814,431 7.8 7.6 2.61 1.88 22.83 N 08/08/97 DIME 19.3 129.9 150.8 18.9 0.95 1,315,026 14.5 12.8 0.98 1.04 6.20 N 08/08/97 DME 15.2 191.6 200.9 10.1 0.82 20,087,176 5.3 5.0 1.29 0.70 13.30 N 08/08/97 DNFC 13.8 177.6 179.6 9.8 1.04 1,608,837 5.6 5.5 1.40 0.81 14.09 N 08/08/97 DSL 15.3 142.5 144.5 9.9 1.47 5,885,670 6.9 6.8 1.42 0.73 9.65 N 08/08/97 EBSI 16.4 146.0 NA 12.0 3.43 666,166 8.7 8.7 1.07 0.79 8.99 N 08/08/97 EFBI 21.4 130.2 130.4 16.1 4.88 256,704 12.3 12.3 0.96 0.79 5.70 N 08/08/97
SOURCE: SNL & F&C CALCULATIONS 6 FERGUSON & COMPANY EXHIBIT V SELECTED PUBLICLY HELD THRIFTS - ------------------
Tangible Price/ Current Current Current Total Equity/ Equity/ Core Core Core LTM Price/ Price/ T Price/ Dividend Assets Assets T Assets EPS ROAA ROAE Merger Current Core EPS Book V Book V Assets Yield ($000) (%) (%) ($) (%) (%) Target? Pricing Ticker (x) (%) (%) (%) (%) MRQ MRQ MRQ LTM LTM LTM (Y/N) Date EGFC 17.3 151.3 193.8 10.4 3.00 2,013,359 6.9 5.4 1.93 0.63 8.79 N 08/08/97 EIRE 12.8 152.2 152.2 10.8 1.37 425,014 7.1 7.1 1.59 0.89 12.99 N 08/08/97 EMLD 14.3 157.8 160.3 12.0 1.68 603,080 7.6 7.5 1.00 0.90 11.63 N 08/08/97 EQSB 11.6 155.6 155.6 7.9 - 296,002 5.1 5.1 3.33 0.76 14.87 N 08/08/97 FBBC 14.2 151.9 151.9 14.9 2.44 714,366 9.8 9.8 1.15 1.23 8.92 N 08/08/97 FBCI 16.4 118.0 118.3 12.3 1.49 489,843 10.4 10.4 1.31 0.77 7.37 N 08/08/97 FBHC 20.8 132.4 142.1 8.0 1.30 318,668 6.0 5.6 1.48 0.51 8.10 N 08/08/97 FBSI 16.5 122.5 122.7 17.6 0.83 160,048 14.4 14.3 1.47 1.12 7.33 N 08/08/97 FCME 2.3 111.2 111.2 9.9 - 151,143 8.9 8.9 4.71 4.17 67.90 N 08/08/97 FED 16.4 174.4 176.3 8.4 - 4,193,203 4.8 4.8 2.03 0.52 11.28 N 08/08/97 FESX 12.9 148.4 172.3 10.9 2.89 1,146,854 7.3 6.4 1.29 0.91 12.11 N 08/08/97 FFBA 16.1 150.6 152.6 19.5 2.48 1,510,376 12.9 12.8 1.10 1.21 8.59 N 08/08/97 FFBI 18.8 104.3 104.3 8.1 - 93,156 7.8 7.8 0.97 0.45 5.63 N 08/08/97 FFBS 19.5 141.1 141.1 29.1 2.08 128,676 19.4 19.4 1.23 1.49 7.62 N 08/08/97 FFBZ 17.0 204.3 204.6 14.1 1.33 201,262 7.6 7.5 1.06 0.96 12.66 N 08/08/97 FFCH 15.0 195.0 195.0 11.9 2.30 1,667,178 6.1 6.1 2.08 0.84 13.67 N 08/08/97 FFDB 12.5 114.2 125.2 10.8 3.03 176,528 9.4 8.7 1.32 0.94 9.54 N 08/08/97 FFES 12.7 132.3 132.3 8.5 1.92 983,594 6.4 6.4 2.46 0.70 11.12 N 08/08/97 FFFC 20.0 172.3 176.1 24.3 1.60 558,886 13.2 12.9 1.50 1.34 9.56 N 08/08/97 FFFD 14.9 111.4 111.4 25.3 1.52 212,869 22.7 22.7 1.11 1.91 7.43 N 08/08/97 FFHH 17.8 110.7 110.7 14.2 2.82 378,233 11.4 11.4 1.00 0.84 6.65 N 08/08/97 FFHS 17.0 116.5 117.2 10.5 1.60 226,944 9.0 9.0 1.18 0.64 7.08 N 08/08/97 FFIC 20.9 121.8 121.8 18.8 1.18 860,030 15.5 15.5 0.97 0.94 5.62 N 08/08/97 FFKY 16.1 175.4 186.4 24.0 2.39 377,380 13.7 13.0 1.35 1.53 11.20 N 08/08/97 FFLC 19.1 123.2 123.2 16.6 1.73 387,097 13.5 13.5 1.45 1.01 6.56 N 08/08/97 FFOH 20.6 129.9 147.8 17.0 1.79 513,079 13.1 11.7 0.76 0.96 6.08 N 08/08/97 FFSL 18.0 109.9 109.9 11.5 1.96 110,876 10.4 10.4 0.71 0.69 6.20 N 08/08/97 FFSX 20.4 176.5 178.1 14.6 1.98 468,568 8.3 8.2 1.19 0.73 8.81 N 08/08/97 FFWC 12.0 126.4 126.4 12.7 2.50 158,441 10.0 10.0 2.40 1.10 10.78 N 08/08/97 FFWD 13.0 118.6 118.6 15.1 2.42 163,498 12.7 12.7 1.27 1.23 9.24 N 08/08/97 FFYF 16.5 138.7 138.7 19.0 2.55 599,249 13.7 13.7 1.67 1.27 8.06 N 08/08/97 FGHC 19.1 167.8 183.0 13.8 0.76 156,383 8.2 7.6 0.37 0.79 9.54 N 08/08/97 FIBC 12.8 131.9 132.6 12.3 1.98 282,485 9.4 9.3 1.58 1.00 10.16 N 08/08/97 FKFS 13.5 145.6 145.6 10.3 0.76 314,637 7.1 7.1 1.96 0.77 10.01 N 08/08/97 FLFC 16.2 195.9 218.9 14.4 1.72 1,248,033 7.3 6.6 1.44 0.91 12.24 N 08/08/97 FMCO 11.7 170.6 173.7 11.2 0.77 554,925 6.6 6.5 2.22 1.02 15.76 N 08/08/97 FMSB 14.2 189.1 189.1 12.9 0.97 432,034 6.8 6.8 1.45 1.00 15.01 N 08/08/97 FNGB 20.9 158.3 158.3 17.8 2.49 637,725 11.3 11.3 1.23 0.90 7.86 N 08/08/97 FOBC 15.9 127.5 133.7 14.6 2.64 356,718 11.1 10.6 1.38 0.97 8.35 N 08/08/97 FRC 18.6 145.7 145.8 10.5 - 2,238,033 7.2 7.2 1.30 0.60 9.49 N 08/08/97 FSBI 12.7 134.2 134.2 9.1 1.69 363,302 6.8 6.8 1.67 0.83 11.94 N 08/08/97 FSLA 24.2 223.1 251.7 20.5 1.66 1,024,715 9.2 8.2 1.20 0.89 9.56 N 08/08/97 FSPG 11.2 154.7 157.2 10.3 2.01 522,396 6.7 6.6 1.77 0.97 14.79 N 08/08/97 FSTC 18.8 181.1 241.4 16.5 1.49 326,365 9.1 7.0 1.57 1.21 11.69 N 08/08/97 FTF 13.4 148.9 148.9 23.4 2.50 171,358 15.7 15.7 1.67 1.73 10.43 N 08/08/97 FTFC 15.2 216.6 230.3 14.0 2.00 1,571,981 6.4 6.1 1.58 0.90 13.96 N 08/08/97 FTSB 23.4 108.0 108.0 17.4 2.27 94,681 16.1 16.1 0.47 0.77 3.83 N 08/08/97 FWWB 23.2 161.5 175.5 25.7 1.14 1,007,633 14.8 13.7 1.06 1.17 7.04 N 08/08/97 GAF 19.1 119.3 120.6 18.1 2.82 749,748 15.2 15.0 0.89 1.12 5.80 N 08/08/97 GBCI 15.0 227.8 233.9 22.2 2.60 567,610 9.7 9.5 1.23 1.54 16.25 N 08/08/97 GDW 9.9 180.1 180.1 11.5 0.56 39,095,082 6.4 6.4 7.98 1.23 19.73 N 08/08/97 GFCO 16.1 115.0 116.9 11.0 2.96 280,813 9.6 9.4 1.68 0.68 7.14 N 08/08/97 GFSB 12.9 129.5 129.5 15.0 1.94 88,154 11.6 11.6 1.04 1.20 10.24 N 08/08/97 GPT 19.6 187.1 332.8 21.7 1.56 13,300,046 10.3 6.1 3.27 1.03 9.59 N 08/08/97
SOURCE: SNL & F&C CALCULATIONS 7 FERGUSON & COMPANY EXHIBIT V - SELECTED PUBLICLY HELD THRIFTS - ------------------
Tangible Price/ Current Current Current Total Equity/ Equity/ Core Core Core LTM Price/ Price/ T Price/ Dividend Assets Assets T Assets EPS ROAA ROAE Merger Current Core EPS Book V Book V Assets Yield ($000) (%) (%) ($) (%) (%) Target? Pricing Ticker (x) (%) (%) (%) (%) MRQ MRQ MRQ LTM LTM LTM (Y/N) Date GSB 20.1 186.3 209.7 9.0 - 16,218,259 6.2 5.7 1.45 0.68 10.56 N 08/08/97 GSBC 14.1 227.9 227.9 20.4 2.39 679,153 9.0 9.0 1.19 1.54 15.89 N 08/08/97 GSFC 24.0 117.1 117.1 42.5 2.55 174,605 36.3 36.3 0.72 1.66 4.72 N 08/08/97 GTFN 22.0 163.0 170.2 15.1 1.81 3,046,227 9.2 8.9 1.51 0.72 7.50 N 08/08/97 GUPB 22.6 112.6 112.6 18.4 2.11 86,911 16.3 16.3 0.84 0.93 4.89 N 08/08/97 HALL 13.5 110.7 110.7 8.0 - 409,820 7.2 7.2 1.68 0.61 8.62 N 08/08/97 HARB 16.9 236.1 244.1 19.8 3.15 1,116,718 8.4 8.1 2.63 1.22 14.82 N 08/08/97 HARL 12.8 187.8 187.8 12.3 1.60 336,666 6.5 6.5 1.95 1.02 16.03 N 08/08/97 HAVN 11.5 149.8 150.4 8.9 1.66 1,781,545 6.0 5.9 3.16 0.84 13.80 N 08/08/97 HBFW 18.2 120.6 120.6 16.0 0.94 334,862 13.3 13.3 1.17 0.89 6.29 N 08/08/97 HBNK 18.4 156.4 156.4 11.7 - 504,381 7.5 7.5 1.39 0.67 9.20 N 08/08/97 HBS 15.3 112.0 116.3 15.8 3.03 146,331 14.1 13.7 1.21 1.12 7.43 N 08/08/97 HFFB 21.0 100.5 100.5 29.3 2.54 108,950 26.9 26.9 0.75 1.35 4.99 N 08/08/97 HFFC 13.7 123.0 123.0 11.6 1.92 561,664 9.4 9.4 1.60 0.89 9.66 N 08/08/97 HFGI 17.3 153.2 153.2 8.6 1.02 446,797 5.6 5.6 0.68 0.44 9.25 N 08/08/97 HFNC 22.6 176.1 176.1 33.1 1.72 842,917 18.8 18.8 0.72 1.38 4.71 N 08/08/97 HFSA 19.3 106.8 106.8 13.3 2.87 108,018 12.5 12.5 0.87 0.79 5.37 N 08/08/97 HIFS 12.5 148.9 148.9 13.9 2.07 217,586 9.4 9.4 1.86 1.22 12.54 N 08/08/97 HMCI 18.0 111.2 111.2 7.3 - 331,608 6.5 6.5 0.79 0.42 6.80 N 08/08/97 HMNF 21.0 127.5 127.5 18.4 - 566,865 14.4 14.4 1.18 0.88 5.90 N 08/08/97 HOMF 13.4 178.9 184.6 15.2 1.64 682,796 8.5 8.2 2.28 1.22 14.67 N 08/08/97 HPBC 12.1 182.2 182.2 19.2 3.86 198,748 10.6 10.6 1.72 1.68 15.76 N 08/08/97 HRBF 23.5 124.3 124.3 16.0 2.00 219,462 12.9 12.9 0.85 0.68 5.10 N 08/08/97 HRZB 14.6 140.9 140.9 22.0 2.60 518,661 15.6 15.6 1.05 1.54 9.82 N 08/08/97 HZFS 17.8 97.7 97.7 10.3 1.70 78,368 10.5 10.5 1.06 0.60 5.41 N 08/08/97 IFSB 22.1 107.4 122.4 7.0 1.53 262,753 6.5 5.8 0.65 0.33 4.92 N 08/08/97 INBI 17.9 124.7 124.7 22.1 3.31 346,596 17.7 17.7 0.81 1.27 6.78 N 08/08/97 IPSW 17.5 244.2 244.2 14.0 1.08 189,379 5.7 5.7 1.27 0.97 16.21 N 08/08/97 ISBF 22.0 139.7 164.7 18.2 1.64 938,968 12.2 10.5 1.11 0.92 6.15 N 08/08/97 ITLA 13.3 154.0 154.7 17.5 - 810,494 11.4 11.3 1.36 1.45 12.48 N 08/08/97 IWBK 17.2 256.3 261.9 17.4 1.51 1,832,582 6.8 6.6 2.31 1.10 16.39 N 08/08/97 JSB 17.6 125.4 125.4 28.7 3.14 1,531,115 22.9 22.9 2.53 1.70 7.77 N 08/08/97 JSBA 16.2 137.8 180.9 12.3 1.25 1,296,929 8.2 6.4 1.97 0.70 9.29 N 08/08/97 JXVL 7.3 122.7 122.7 18.3 3.01 226,182 14.9 14.9 2.28 1.33 8.42 N 08/08/97 KFBI 22.6 123.2 123.2 26.4 1.56 727,903 19.6 19.6 0.85 1.19 5.38 N 08/08/97 KNK 15.1 110.9 118.1 12.3 1.63 341,678 11.1 10.5 1.96 0.82 7.89 N 08/08/97 KSAV 12.0 114.1 114.2 15.4 3.24 106,121 13.5 13.5 1.54 1.24 8.86 N 08/08/97 KSBK 11.3 169.9 179.7 12.2 0.56 145,888 7.2 6.8 1.27 1.08 15.21 N 08/08/97 KYF 17.8 112.8 112.8 18.2 4.08 88,923 16.1 16.1 0.69 1.07 5.23 N 08/08/97 LARK 16.8 116.9 116.9 16.1 1.86 228,100 13.8 13.8 1.28 1.04 7.00 N 08/08/97 LARL 11.9 147.3 147.3 15.4 2.43 208,577 10.4 10.4 1.80 1.43 13.48 N 08/08/97 LFED 23.5 158.0 158.0 25.6 3.64 281,899 16.2 16.2 0.89 1.12 6.93 N 08/08/97 LIFB 19.7 163.1 NA 17.2 1.85 1,488,257 10.6 NA 1.32 0.86 8.04 N 08/08/97 LISB 23.1 175.9 177.7 15.8 1.54 5,908,737 9.0 8.9 1.69 0.72 7.63 N 08/08/97 LOGN 14.9 110.6 110.6 21.2 2.86 83,152 19.2 19.2 0.94 1.51 7.40 N 08/08/97 LSBI 24.4 109.4 109.4 10.7 1.60 188,027 9.1 9.1 0.87 0.42 4.44 N 08/08/97 LSBX 8.7 159.4 159.4 13.9 - 366,318 8.7 8.7 1.36 1.73 20.78 N 08/08/97 LVSB 18.4 162.0 202.6 15.4 0.78 481,646 9.5 7.8 1.75 0.95 9.52 N 08/08/97 MAFB 14.2 192.8 NA 15.0 0.87 3,321,464 7.8 NA 2.28 1.16 14.83 N 08/08/97 MARN 14.8 104.1 104.1 23.5 3.83 173,304 22.5 22.5 1.55 1.67 7.28 N 08/08/97 MASB 15.3 144.4 144.4 15.4 2.47 905,417 10.6 10.6 3.39 1.04 10.20 N 08/08/97 MBB 23.5 119.2 277.5 8.2 2.55 810,679 8.4 4.7 1.00 0.48 5.70 N 08/08/97 MBB 23.5 119.2 277.5 8.2 2.55 810,679 8.4 4.7 1.00 0.48 5.70 N 08/08/97 MBLF 18.4 109.3 109.3 14.7 1.70 209,783 13.5 13.5 1.28 0.85 6.32 N 08/08/97
SOURCE: SNL & F&C CALCULATIONS 8 FERGUSON & COMPANY EXHIBIT V - SELECTED PUBLICLY HELD THRIFTS - ------------------
Price/ Current Current Current Total LTM Price/ Price/ T Price/ Dividend Assets Core EPS Book V Book V Assets Yield ($000) Ticker (x) (%) (%) (%) (%) MRQ MCBN 15.2 114.0 114.0 9.8 2.08 58,925 MCBS 13.8 146.8 146.8 14.0 1.37 408,590 MDBK 13.7 141.5 151.9 12.7 2.40 1,072,557 MECH 7.7 136.5 136.5 14.0 - 823,575 MERI 13.8 167.3 167.3 13.7 1.73 228,485 MFBC 18.8 102.2 102.2 14.0 1.56 248,241 MFFC 24.3 111.1 111.1 15.7 4.40 199,886 MFLR 14.6 136.3 138.7 12.9 3.33 124,688 MFSL 15.0 157.2 159.2 13.2 1.68 1,157,445 MIVI 17.8 97.3 97.3 17.8 1.06 69,755 MLBC 17.9 148.0 150.7 10.3 1.98 2,071,285 MSBF 8.0 63.9 63.9 10.9 2.15 74,698 MWBI 12.8 126.5 126.5 8.8 1.71 139,006 MWBX 13.1 221.5 221.5 16.5 1.79 566,517 MWFD 18.1 204.0 212.4 17.6 1.56 201,070 NASB 13.3 205.3 212.2 16.4 1.60 689,246 NBN 22.4 109.3 126.5 7.6 2.17 247,525 NEIB 14.7 111.9 111.9 17.0 1.88 176,309 NHTB 23.0 142.4 168.0 10.6 3.07 313,038 NMSB 21.8 152.7 152.7 15.0 1.90 323,061 NSSB 17.1 151.4 167.7 16.9 2.52 712,699 NWEQ 14.4 107.5 107.5 13.5 3.41 95,097 NWSB 20.9 204.7 217.5 19.4 1.84 2,091,363 NYB 16.1 401.9 401.9 20.4 1.93 3,283,653 OFCP 20.0 167.4 208.5 14.6 1.56 861,334 OHSL 16.7 116.7 116.7 12.9 3.59 229,812 PALM 21.0 149.5 149.5 12.3 0.77 664,863 PBCI 14.0 123.4 124.3 15.7 4.88 370,987 PBKB 20.9 179.9 186.9 10.3 2.63 585,678 PCBC 15.8 113.5 113.5 20.8 1.95 79,714 PCCI 15.1 169.0 169.0 12.0 - 371,126 PEEK 21.6 108.8 108.8 28.0 2.25 182,560 PERM 22.5 132.6 133.7 12.2 1.58 423,698 PFDC 13.6 131.3 131.3 20.0 2.38 287,564 PFNC 20.4 227.3 257.3 12.1 0.91 418,658 PFSB 14.3 136.6 163.3 10.9 0.94 1,321,751 PFSL 14.3 150.8 150.8 9.6 4.05 378,700 PHBK 15.8 246.5 292.5 19.0 1.96 5,591,180 PHFC 18.6 120.5 121.9 13.2 1.40 256,265 PKPS 22.2 136.8 136.8 11.5 1.25 880,196 PRBC 18.4 96.9 96.9 10.8 0.75 135,721 PSBK 13.6 154.4 172.9 13.2 2.24 878,823 PTRS 12.1 109.8 109.8 9.7 1.49 121,189 PULS 12.0 150.4 150.4 12.1 3.42 520,203 PVFC 8.0 181.1 181.1 12.7 - 356,251 PVSA 11.5 151.0 152.2 11.5 1.86 991,239 PWBC 15.2 141.0 154.6 10.0 2.00 706,237 QCBC 20.0 133.9 134.0 11.7 - 801,402 QCFB 13.1 123.8 123.8 22.4 - 149,637 RARB 15.9 192.3 195.4 15.3 2.00 379,428 RELY 16.1 155.1 215.2 12.8 2.23 1,976,764 ROSE 16.4 200.7 200.7 13.4 2.22 3,551,783 RVSB 23.6 246.1 271.3 27.5 0.94 224,385 SFED 17.2 110.3 110.3 14.3 1.47 168,841 Tangible Equity/ Equity/ Core Core Core Assets T Assets EPS ROAA ROAE Merger Current (%) (%) ($) (%) (%) Target? Pricing Ticker MRQ MRQ LTM LTM LTM (Y/N) Date MCBN 8.6 8.6 1.64 0.67 7.33 N 08/08/97 MCBS 9.4 9.4 2.12 1.17 11.06 N 08/08/97 MDBK 9.0 8.4 2.19 1.01 11.31 N 08/08/97 MECH 10.2 10.2 2.82 1.95 19.68 N 08/08/97 MERI 8.2 8.2 2.94 1.05 13.46 N 08/08/97 MFBC 13.7 13.7 1.09 0.86 5.51 N 08/08/97 MFFC 13.1 13.1 0.56 0.69 4.30 N 08/08/97 MFLR 9.4 9.3 1.23 0.93 9.66 N 08/08/97 MFSL 8.4 8.3 3.17 0.89 10.76 N 08/08/97 MIVI 18.3 18.3 0.85 1.01 5.56 N 08/08/97 MLBC 7.0 6.9 1.13 0.68 9.23 N 08/08/97 MSBF 17.0 17.0 1.63 1.46 7.85 N 08/08/97 MWBI 6.9 6.9 2.74 0.74 10.69 N 08/08/97 MWBX 7.5 7.5 0.51 1.37 17.82 N 08/08/97 MWFD 8.6 8.3 1.20 1.09 12.42 N 08/08/97 NASB 8.0 7.7 3.75 1.18 16.39 N 08/08/97 NBN 7.8 6.9 0.66 0.50 6.24 N 08/08/97 NEIB 15.2 15.2 1.16 1.21 7.43 N 08/08/97 NHTB 7.5 6.4 0.71 0.51 6.82 N 08/08/97 NMSB 9.8 9.8 0.58 0.80 7.67 N 08/08/97 NSSB 11.2 10.2 1.30 1.05 9.60 N 08/08/97 NWEQ 11.4 11.4 1.06 0.99 7.91 N 08/08/97 NWSB 9.5 9.0 0.83 0.96 9.84 N 08/08/97 NYB 5.1 5.1 1.93 1.45 27.70 N 08/08/97 OFCP 8.7 7.1 1.28 0.76 8.36 N 08/08/97 OHSL 11.0 11.0 1.47 0.86 7.31 N 08/08/97 PALM 8.2 8.2 0.74 0.60 7.44 N 08/08/97 PBCI 12.7 12.7 1.46 1.24 8.63 N 08/08/97 PBKB 5.7 5.5 0.80 0.53 9.27 N 08/08/97 PCBC 18.3 18.3 1.30 1.03 5.45 N 08/08/97 PCCI 7.1 7.1 1.00 0.98 12.40 N 08/08/97 PEEK 25.7 25.7 0.74 1.28 4.47 N 08/08/97 PERM 9.2 9.2 1.12 0.60 6.14 N 08/08/97 PFDC 15.2 15.2 1.86 1.46 9.55 N 08/08/97 PFNC 5.3 4.7 0.65 0.64 12.31 N 08/08/97 PFSB 7.4 6.2 2.09 0.83 10.66 N 08/08/97 PFSL 6.4 6.4 1.56 0.69 11.23 N 08/08/97 PHBK 7.7 6.6 2.46 1.31 16.17 N 08/08/97 PHFC 10.9 10.8 0.92 0.80 6.03 N 08/08/97 PKPS 8.4 8.4 0.36 0.54 6.52 N 08/08/97 PRBC 11.1 11.1 0.87 0.65 4.97 N 08/08/97 PSBK 8.6 7.7 2.24 0.97 11.84 N 08/08/97 PTRS 8.8 8.8 2.00 0.84 9.48 N 08/08/97 PULS 8.1 8.1 1.71 1.06 13.51 N 08/08/97 PVFC 7.0 7.0 2.43 1.35 19.93 N 08/08/97 PVSA 7.6 7.5 2.44 1.08 14.91 N 08/08/97 PWBC 7.1 6.5 1.08 0.64 8.73 N 08/08/97 QCBC 8.8 8.8 1.00 0.60 6.66 N 08/08/97 QCFB 18.1 18.1 1.79 1.66 8.76 N 08/08/97 RARB 7.9 7.8 1.51 1.03 13.25 N 08/08/97 RELY 8.2 6.1 1.79 0.86 10.24 N 08/08/97 ROSE 6.2 6.2 1.65 0.89 14.28 N 08/08/97 RVSB 11.2 10.2 1.08 1.17 10.66 N 08/08/97 SFED 13.0 13.0 1.11 0.82 6.26 N 08/08/97
SOURCE: SNL & F&C CALCULATIONS 9 FERGUSON & COMPANY EXHIBIT V - SELECTED PUBLICLY HELD THRIFTS - ------------------
Price/ Current Current Current Total LTM Price/ Price/ T Price/ Dividend Assets Core EPS Book V Book V Assets Yield ($000) Ticker (x) (%) (%) (%) (%) MRQ SFFC 15.0 111.9 111.9 19.9 1.84 85,679 SFIN 14.9 144.8 145.1 13.5 2.09 677,384 SFSB 16.3 125.5 125.9 8.1 1.16 426,705 SFSL 10.9 134.7 137.1 12.6 2.00 634,761 SISB 9.2 165.9 165.9 11.8 1.84 1,434,545 SKAN 13.4 128.6 132.7 8.8 1.75 247,697 SMBC 16.9 108.8 108.8 17.1 2.90 165,688 SOPN 18.8 117.8 117.8 29.0 3.77 271,121 SOSA 15.9 202.5 202.5 12.8 - 514,502 SPBC 17.0 191.7 192.2 16.5 1.79 4,611,394 SSB 24.6 127.8 127.8 47.3 1.75 69,479 SSM 21.1 132.1 132.1 38.1 2.11 106,115 STFR 18.1 144.8 163.8 11.3 1.37 1,645,539 STSA 22.0 150.0 172.0 6.0 - 1,686,395 SWBI 15.2 132.3 132.3 14.6 3.66 378,325 SWCB 15.2 164.2 172.3 13.5 3.56 475,245 TBK 14.4 152.1 156.6 10.6 1.24 238,227 THR 17.2 105.1 105.5 14.5 2.25 91,165 THRD 16.9 101.4 115.6 12.2 2.09 640,746 TPNZ 21.2 124.9 124.9 21.3 1.59 124,150 TRIC 16.5 101.1 101.1 15.5 2.64 89,457 TSH 15.9 119.0 119.0 15.8 2.76 393,556 TWIN 20.1 120.6 120.6 15.5 3.28 107,345 UBMT 20.6 119.7 119.7 27.1 4.11 107,723 VABF 24.6 164.7 164.7 11.3 1.43 617,818 WBST 16.4 207.8 243.2 10.4 1.55 5,943,766 WCBI 16.4 135.6 135.6 20.7 2.31 311,613 WEFC 14.7 109.4 109.4 15.5 3.00 202,035 WFI 12.7 140.9 143.9 10.0 2.88 317,392 WFSL 13.0 193.6 211.9 23.4 3.24 5,760,385 WRNB 10.8 180.8 180.8 18.8 2.93 358,021 WSB 16.3 132.4 132.4 11.0 1.50 258,330 WSFS 10.3 225.5 227.3 11.7 - 1,508,540 WSTR 18.9 122.1 152.6 13.3 1.92 955,639 WVFC 12.8 142.8 142.8 15.9 2.98 294,693 WYNE 19.5 131.5 131.5 17.6 0.93 261,027 YFCB 16.3 122.6 122.6 18.3 1.43 288,089 YFED 20.2 178.6 178.6 15.4 2.35 1,162,393 Maximum 24.6 401.9 401.9 47.3 4.88 47,532,068 Minimum 2.3 63.9 63.9 5.1 - 54,275 Average 16.7 148.4 156.4 15.3 1.87 1,453,495 Mediam 16.4 141.9 148.2 14.0 1.82 414,239 Tangible Equity/ Equity/ Core Core Core Assets T Assets EPS ROAA ROAE Merger Current (%) (%) ($) (%) (%) Target? Pricing Ticker MRQ MRQ LTM LTM LTM (Y/N) Date SFFC 17.8 17.8 1.45 1.37 7.36 N 08/08/97 SFIN 9.3 9.3 1.28 0.87 8.80 N 08/08/97 SFSB 6.5 6.5 1.69 0.56 8.52 N 08/08/97 SFSL 9.4 9.2 1.47 1.35 13.81 N 08/08/97 SISB 7.2 7.2 3.30 1.38 18.99 N 08/08/97 SKAN 6.9 6.7 1.71 0.68 10.07 N 08/08/97 SMBC 15.7 15.7 1.02 1.01 6.29 N 08/08/97 SOPN 24.6 24.6 1.13 1.68 6.59 N 08/08/97 SOSA 6.3 6.3 0.25 0.79 13.61 N 08/08/97 SPBC 8.6 8.6 1.32 1.04 11.66 N 08/08/97 SSB 37.0 37.0 0.70 1.71 4.69 N 08/08/97 SSM 28.9 28.9 1.01 1.71 4.84 N 08/08/97 STFR 7.9 7.0 1.93 0.71 8.11 N 08/08/97 STSA 5.5 5.0 0.83 0.44 7.84 N 08/08/97 SWBI 11.0 11.0 1.37 1.01 9.54 N 08/08/97 SWCB 8.2 7.9 2.22 0.96 11.82 N 08/08/97 TBK 6.9 6.8 1.12 0.79 11.78 N 08/08/97 THR 13.8 13.7 0.93 0.83 5.71 N 08/08/97 THRD 11.1 9.9 1.13 0.73 6.42 N 08/08/97 TPNZ 17.0 17.0 0.83 1.00 5.63 N 08/08/97 TRIC 15.3 15.3 1.38 1.02 6.79 N 08/08/97 TSH 13.3 13.3 1.14 1.00 6.93 N 08/08/97 TWIN 12.9 12.9 0.97 0.75 5.88 N 08/08/97 UBMT 22.7 22.7 1.16 1.34 5.74 N 08/08/97 VABF 6.9 6.9 0.57 0.46 6.82 N 08/08/97 WBST 5.0 4.3 3.15 0.71 13.33 N 08/08/97 WCBI 15.2 15.2 1.59 1.41 9.13 N 08/08/97 WEFC 14.2 14.2 1.09 1.06 7.56 N 08/08/97 WFI 7.1 7.0 1.26 0.88 12.23 N 08/08/97 WFSL 12.1 11.2 2.18 1.84 15.84 N 08/08/97 WRNB 10.4 10.4 1.64 1.83 18.86 N 08/08/97 WSB 8.3 8.3 0.41 0.73 8.66 N 08/08/97 WSFS 5.2 5.2 1.39 1.34 23.57 N 08/08/97 WSTR 10.9 8.9 1.21 0.75 6.20 N 08/08/97 WVFC 11.2 11.2 2.10 1.32 10.73 N 08/08/97 WYNE 13.4 13.4 1.11 0.92 6.16 N 08/08/97 YFCB 14.9 14.9 1.03 1.15 6.81 N 08/08/97 YFED 8.6 8.6 1.26 0.77 9.46 N 08/08/97 Maximum 37.0 37.0 7.98 4.17 67.90 Minimum 3.3 2.8 0.25 0.33 3.83 Average 11.0 11.0 1.52 1.00 9.98 Median 9.4 9.4 1.31 0.95 9.22
SOURCE: SNL & F&C CALCULATIONS 10 FERGUSON & COMPANY EXHIBIT V - SELECTED PUBLICLY HELD THRIFTS - ------------------
NPAs/ Price/ Core Core Core Assets Core EPS ROAA ROAE (%) EPS ($) (%) (%) Ticker MRQ (x) MRQ MRQ MRQ AADV 0.44 14.6 0.72 0.98 10.77 ABBK 0.17 15.1 0.50 0.81 11.68 ABCL 0.15 17.4 0.45 0.77 8.35 ABCW 0.92 13.9 0.91 0.91 13.93 AFCB 0.39 14.1 0.44 1.10 11.18 AHM 1.90 16.6 0.75 0.73 14.74 ALBK 0.71 13.9 0.67 1.05 11.37 AMFC 0.81 22.1 0.17 0.67 4.28 ANDB 1.01 12.6 0.60 1.00 12.54 ASBI 0.40 18.5 0.25 0.83 7.60 ASBP 1.56 21.9 0.14 0.85 5.43 ASFC 0.45 17.3 0.68 0.75 9.80 BANC NA 20.8 0.20 0.65 11.70 BDJI 0.21 26.3 0.20 0.46 4.01 BFD NA 18.2 0.27 0.64 7.27 BFSB - 16.0 0.38 1.22 8.52 BKC 1.81 13.0 0.73 1.16 14.12 BKCT 1.19 13.6 0.50 1.29 12.72 BKUNA 0.60 19.4 0.14 0.48 8.00 BVCC 0.79 18.4 0.35 0.60 9.52 CAFI 0.36 13.6 0.34 0.92 9.52 CAPS 0.16 13.8 0.29 0.93 10.89 CASB 0.59 21.9 0.16 0.54 8.80 CASH 0.85 14.0 0.31 0.92 7.98 CATB 0.47 20.2 0.21 1.35 5.24 CBCI 1.16 11.9 0.87 1.60 10.40 CBSA 0.54 13.8 0.55 0.39 11.51 CBSB 0.56 21.4 0.25 1.08 7.67 CEBK NA 12.3 0.39 0.96 9.24 CENF 1.28 15.1 0.57 0.60 11.72 CFB 0.89 12.6 0.78 0.97 16.25 CFFC 0.39 14.6 0.39 1.16 8.41 CFSB 0.17 14.4 0.47 1.22 15.91 CFTP 0.35 22.2 0.20 1.70 5.05 CFX 0.72 14.8 0.32 0.96 12.20 CIBI 0.72 14.1 0.27 1.01 8.86 CKFB 0.89 23.8 0.21 1.21 4.96 CLAS 0.70 NA NA 0.79 5.34 CMRN 0.28 19.0 0.23 1.20 5.11 CMSB 0.50 24.6 0.17 0.48 5.01 CMSV 0.57 23.8 0.27 0.81 7.05 CNIT 0.42 15.4 0.83 0.81 11.22 COFI 0.22 13.6 0.96 1.27 18.76 CRZY 0.39 17.3 0.20 1.34 5.07 CSA 1.40 17.6 0.65 0.56 11.43 CTZN 0.41 13.9 0.75 0.89 13.88 CVAL 0.47 17.7 0.34 0.96 10.98 DIBK 0.44 9.4 0.71 1.94 23.80 DIME 0.73 27.9 0.17 0.70 47.43 DME 1.57 19.6 0.25 0.54 10.16 DNFC 0.34 13.4 0.36 0.79 13.92 DSL 0.95 18.1 0.30 0.57 8.03 EBSI 0.88 NA 0.28 0.77 8.71 EFBI 0.01 19.7 0.26 0.83 6.48
SOURCE: SNL & F&C CALCULATIONS 11 FERGUSON & COMPANY EXHIBIT V - SELECTED PUBLICLY HELD THRIFTS - ------------------
NPAs/ Price/ Core Core Core Assets Core EPS ROAA ROAE (%) EPS ($) (%) (%) Ticker MRQ (x) MRQ MRQ MRQ EGFC NA 55.5 0.15 0.22 3.22 EIRE 0.40 12.1 0.42 0.93 13.30 EMLD NA 12.3 0.29 0.98 13.07 EQSB 0.68 9.7 1.00 0.88 17.51 FBBC 0.07 14.6 0.28 0.98 10.10 FBCI 0.80 14.5 0.37 0.84 8.12 FBHC 0.37 17.9 0.43 0.60 9.70 FBSI 0.08 15.5 0.39 1.14 7.96 FCME 1.62 21.2 0.13 0.49 5.53 FED 1.39 16.7 0.50 0.51 10.73 FESX 0.62 17.3 0.24 0.67 9.01 FFBA 0.23 15.9 0.28 1.19 9.25 FFBI 0.27 18.3 0.25 0.43 5.54 FFBS 0.03 17.7 0.34 1.62 8.37 FFBZ 0.47 14.1 0.32 1.11 14.72 FFCH 1.61 14.5 0.54 0.84 13.68 FFDB 0.72 12.2 0.34 0.98 10.05 FFES 0.31 14.0 0.56 0.64 10.10 FFFC 0.18 18.3 0.41 1.35 10.37 FFFD 0.12 13.8 0.30 1.84 7.80 FFHH 0.03 15.3 0.29 0.87 7.55 FFHS 0.41 14.7 0.34 0.73 8.16 FFIC 0.32 17.5 0.29 1.02 6.47 FFKY 0.23 14.3 0.38 1.68 12.28 FFLC 0.19 17.8 0.39 0.96 6.91 FFOH 0.18 18.6 0.21 0.89 6.71 FFSL 0.37 17.7 0.18 0.64 6.17 FFSX - 20.9 0.29 0.71 8.70 FFWC 0.22 11.4 0.63 1.12 10.98 FFWD 0.02 11.5 0.36 1.37 10.72 FFYF 0.67 13.8 0.50 1.33 9.62 FGHC 1.41 14.7 0.12 1.00 12.04 FIBC 1.71 12.7 0.40 0.96 10.04 FKFS 2.45 12.7 0.52 0.77 10.73 FLFC 0.82 16.6 0.35 0.91 11.92 FMCO 1.06 10.8 0.60 1.05 16.36 FMSB - 13.6 0.38 0.99 14.73 FNGB 0.06 20.8 0.31 0.89 7.82 FOBC 0.15 16.2 0.34 0.93 8.36 FRC 1.01 17.7 0.34 0.65 8.73 FSBI 0.31 13.3 0.40 0.75 10.90 FSLA 0.60 21.3 0.34 0.98 10.65 FSPG 0.64 12.4 0.40 0.86 12.91 FSTC NA 81.9 0.09 0.21 2.30 FTF 0.12 11.9 0.47 1.86 11.74 FTFC NA 16.7 0.36 0.93 14.48 FTSB 2.02 18.3 0.15 0.97 5.58 FWWB 0.31 20.5 0.30 1.17 7.76 GAF 0.12 16.4 0.26 1.10 6.97 GBCI 0.12 13.6 0.34 1.64 17.10 GDW 1.31 13.2 1.50 0.88 13.91 GFCO 0.16 14.1 0.48 0.79 8.23 GFSB 1.54 11.9 0.28 1.27 11.06 GPT 2.89 17.8 0.90 1.12 10.49
SOURCE: SNL & F&C CALCULATIONS 12 FERGUSON & COMPANY EXHIBIT V - SELECTED PUBLICLY HELD THRIFTS - ------------------
NPAs/ Price/ Core Core Core Assets Core EPS ROAA ROAE (%) EPS ($) (%) (%) Ticker MRQ (x) MRQ MRQ MRQ GSB 1.46 16.9 0.43 0.74 11.55 GSBC 1.83 12.3 0.34 1.66 18.62 GSFC 0.16 25.4 0.17 1.66 4.85 GTFN 0.36 19.8 0.42 0.77 8.37 GUPB 0.18 22.6 0.21 0.81 4.74 HALL 0.15 12.1 0.47 0.67 9.40 HARB 0.46 16.6 0.67 1.21 14.61 HARL - 11.8 0.53 1.09 16.89 HAVN 0.74 18.1 0.50 0.53 8.81 HBFW - 17.1 0.31 0.89 6.61 HBNK 3.09 11.1 0.58 1.10 14.97 HBS 2.09 18.5 0.25 0.89 6.02 HFFB - 19.7 0.20 1.39 5.23 HFFC 0.33 12.2 0.45 0.99 10.56 HFGI 0.25 26.7 0.11 0.30 5.89 HFNC 0.99 23.9 0.17 1.15 4.36 HFSA 0.09 17.5 0.24 0.76 6.00 HIFS 0.41 11.4 0.51 1.27 13.18 HMCI 2.91 15.5 0.23 0.51 7.88 HMNF 0.08 20.0 0.31 0.87 5.99 HOMF 0.45 14.1 0.54 1.13 13.40 HPBC - 11.5 0.45 1.68 15.74 HRBF 0.13 20.8 0.24 0.72 5.62 HRZB - 13.7 0.28 1.57 10.19 HZFS 1.02 13.5 0.35 0.76 7.11 IFSB NA 18.0 0.20 0.39 5.96 INBI 0.22 13.9 0.26 1.51 8.43 IPSW 1.52 15.0 0.37 1.03 17.52 ISBF 0.33 21.0 0.29 0.77 6.29 ITLA 1.78 12.6 0.36 1.42 12.81 IWBK 0.64 16.2 0.61 1.10 16.36 JSB NA 16.2 0.69 1.85 8.24 JSBA 0.52 13.8 0.58 0.85 10.53 JXVL 0.78 10.1 0.41 1.75 11.48 KFBI 0.08 21.8 0.22 1.16 5.81 KNK 0.61 14.8 0.50 0.88 8.12 KSAV 0.35 12.2 0.38 1.39 10.15 KSBK NA 12.0 0.30 0.98 13.70 KYF - 15.3 0.20 1.17 7.02 LARK NA 17.3 0.31 0.97 6.83 LARL 0.51 11.6 0.46 1.41 13.36 LFED 0.02 20.9 0.25 1.23 7.61 LIFB NA 19.7 0.33 0.88 8.25 LISB 1.03 22.2 0.44 0.71 7.78 LOGN 0.61 14.6 0.24 1.46 7.53 LSBI 1.34 14.8 0.36 0.68 7.38 LSBX 0.30 9.3 0.32 1.60 18.57 LVSB 0.98 14.7 0.55 1.14 11.56 MAFB NA 12.7 0.64 1.24 15.73 MARN 0.81 14.4 0.40 1.72 7.53 MASB 0.16 14.1 0.92 1.13 10.85 MBB 0.70 23.5 0.25 0.49 5.53 MBB 0.70 23.5 0.25 0.49 5.53 MBLF 0.25 19.6 0.30 0.77 5.77
SOURCE: SNL & F&C CALCULATION 13 FERGUSON & COMPANY EXHIBIT V - SELECTED PUBLICLY HELD THRIFTS - ------------------
NPAs/ Price/ Core Core Core Assets Core EPS ROAA ROAE (%) EPS ($) (%) (%) Ticker MRQ (x) MRQ MRQ MRQ MCBN 0.40 17.4 0.36 0.57 6.61 MCBS 0.15 12.4 0.59 1.18 11.85 MDBK 0.37 13.4 0.56 1.00 11.31 MECH 1.13 3.9 1.38 3.60 36.83 MERI 0.22 11.4 0.89 1.27 15.91 MFBC NA 17.1 0.30 0.84 6.00 MFFC 0.15 22.7 0.15 0.70 5.11 MFLR 1.02 12.2 0.37 1.08 11.33 MFSL NA 16.7 0.71 0.81 9.61 MIVI 0.21 18.0 0.21 1.01 5.86 MLBC 0.46 22.0 0.23 0.52 7.41 MSBF 0.06 7.2 0.45 1.43 8.39 MWBI 0.82 13.3 0.66 0.72 10.23 MWBX 0.70 11.9 0.14 1.36 18.35 MWFD 0.14 17.0 0.32 1.11 12.90 NASB 3.34 12.1 1.03 1.30 17.21 NBN 1.37 14.2 0.26 0.66 8.48 NEIB NA 13.3 0.32 1.20 7.88 NHTB 0.74 14.1 0.29 0.89 11.96 NMSB 0.87 21.0 0.15 0.81 8.07 NSSB 1.29 16.9 0.33 1.06 9.55 NWEQ NA 13.6 0.28 0.92 7.76 NWSB 0.72 19.7 0.22 0.99 10.33 NYB 1.09 13.4 0.58 1.63 32.18 OFCP 0.16 16.9 0.38 0.87 10.01 OHSL 0.01 14.6 0.42 0.94 8.32 PALM 2.12 15.5 0.25 0.82 9.99 PBCI 2.14 11.7 0.44 1.37 10.69 PBKB 0.82 22.0 0.19 0.50 8.86 PCBC 0.05 16.5 0.31 1.18 6.34 PCCI 1.29 12.6 0.30 1.04 14.25 PEEK NA 23.5 0.17 1.12 4.38 PERM 1.11 20.4 0.31 0.66 6.99 PFDC 0.34 13.2 0.48 1.53 10.08 PFNC 1.46 15.1 0.22 0.84 15.89 PFSB NA 13.6 0.55 0.82 10.99 PFSL 0.10 14.6 0.38 0.66 10.39 PHBK 0.83 15.2 0.64 1.30 16.19 PHFC 1.60 17.1 0.25 0.73 6.50 PKPS 3.81 22.2 0.09 0.58 6.85 PRBC 0.30 14.8 0.27 0.68 5.98 PSBK 0.84 13.6 0.56 0.97 11.59 PTRS 0.50 9.3 0.65 1.06 11.83 PULS 0.57 11.4 0.45 1.10 13.79 PVFC 0.90 11.1 0.44 1.24 17.94 PVSA 0.27 11.3 0.62 1.07 14.75 PWBC 0.58 15.2 0.27 0.67 9.11 QCBC 1.31 16.7 0.30 0.70 7.90 QCFB NA 13.1 0.45 1.55 8.53 RARB 0.29 16.2 0.37 0.99 12.53 RELY NA 15.0 0.48 0.89 10.93 ROSE 0.45 15.3 0.44 0.88 14.63 RVSB 0.10 21.3 0.30 1.28 11.56 SFED 0.68 25.0 0.19 0.54 4.19
SOURCE: SNL & F&C CALCULATIONS 14 FERGUSON & COMPANY EXHIBIT V -SELECTED PUBLICLY HELD THRIFTS - ------------------
NPAs/ Price/ Core Core Core Assets Core EPS ROAA ROAE (%) EPS ($) (%) (%) Ticker MRQ (x) MRQ MRQ MRQ SFFC NA 12.7 0.43 1.55 8.78 SFIN 0.41 14.9 0.32 0.82 8.57 SFSB 0.48 16.0 0.43 0.55 8.49 SFSL 0.26 10.3 0.39 1.38 14.86 SISB 0.43 14.6 0.52 0.83 11.63 SKAN 1.46 12.4 0.46 0.72 10.38 SMBC 1.10 17.3 0.25 0.96 6.06 SOPN 0.08 18.3 0.29 1.73 6.96 SOSA 6.28 9.9 0.10 1.33 21.58 SPBC 0.21 15.5 0.36 1.11 12.61 SSB - 28.7 0.15 1.47 4.00 SSM - 38.1 0.14 0.98 2.77 STFR 0.16 15.4 0.57 0.79 9.57 STSA 0.61 18.3 0.25 0.49 8.97 SWBI 0.30 14.8 0.35 1.02 9.50 SWCB 1.08 16.2 0.52 0.88 10.78 TBK 2.13 13.4 0.30 0.83 11.73 THR 1.21 18.2 0.22 0.77 5.49 THRD 0.33 16.5 0.29 0.73 6.60 TPNZ NA 24.5 0.18 0.84 4.87 TRIC - 14.6 0.39 1.08 7.09 TSH 0.27 14.6 0.31 0.99 7.48 TWIN 0.08 16.3 0.30 0.91 7.08 UBMT NA 19.9 0.30 1.39 5.81 VABF 0.68 20.6 0.17 0.54 7.98 WBST 0.85 13.5 0.96 0.82 16.31 WCBI 0.60 15.9 0.41 1.43 9.40 WEFC NA 14.3 0.28 1.06 7.44 WFI 0.29 11.8 0.34 0.86 12.00 WFSL 0.73 12.7 0.56 1.87 15.71 WRNB 1.08 10.8 0.41 1.85 18.09 WSB NA 16.7 0.10 0.72 8.67 WSFS 1.66 10.8 0.33 1.12 21.27 WSTR NA 16.3 0.35 0.83 7.58 WVFC 0.30 13.4 0.50 1.21 10.88 WYNE 0.91 20.0 0.27 0.83 6.02 YFCB 0.57 15.5 0.27 1.13 7.48 YFED 1.24 18.8 0.34 0.84 9.96 Maximum 6.28 81.9 1.50 3.60 47.43 Minimum - 3.9 0.09 0.21 2.30 Average 0.71 16.5 0.39 1.00 10.25 Median 0.48 15.3 0.34 0.96 9.25
SOURCE: SNL & F&C CALCULATIONS 15 EXHIBIT VI FERGUSON & COMPANY - ------------------ EXHIBIT VI - COMPARATIVE GROUP SELECTION To search for a comparative group for Salida, we selected all thrifts from the entire U.S. with assets between $40 million and $100 million that have sufficient trading volume to produce meaningful market information. All of these thrifts are listed on either AMEX, NYSE, or Nasdaq. We eliminated thrifts from the Western, Mid-Atlantic, and Northeast Regions. We kept those selected from the Midwest, Southeast, and Southwest under the belief that Salida's operations would be more comparable to operations of thrifts in those regions. We found 42 thrifts in the asset size and regions described above. We eliminated 30 and retained a group of 12. Normally, we consider 10 to 12 to be the desired sample size. We eliminated thrifts for the following reasons: 1) Mutual holding company; 2) Has not been stock long enough to have one complete quarter as a reporting stock; 3) Merger agreement has been executed; 4) Non-performing assets of 1.00% or more of total assets; 5) Loans under 60% of total assets; and 6) Loans serviced more than 30% of assets. The group of 42 from which the comparative group was selected is listed on Exhibit VI.1 and the selected comparative group is listed on Exhibit VI.2. On Exhibit VI.1, we have underlined the cells that indicate which ones were not selected and why. Set forth below is a legend for the column summarizing reasons individual thrifts were not selected. A Mutual holding company. B Has not reported as a stock for a full quarter. C Merger agreement has been executed. D 1% or more of assets are non-performing. E Loans are less than 60% of assets. F Loans serviced exceeds 30% of assets. 1 FERGUSON & COMPANY EXHIBIT VI.1 - COMPARATIVE GROUP SELECTION - ------------------
Deposit Current Current Price/ Insurance Stock Market LTM Agency Price Value Core EPS Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($) ($M) (x) AMFC AMB Financial Corp. Munster IN MW SAIF NASDAQ 04/01/96 13.813 14.75 NA - ---- ATSB AmTrust Capital Corp. Peru IN MW SAIF NASDAQ 03/28/95 12.125 6.44 46.6 - ---- CBES CBES Bancorp, Inc. Excelsior Springs MO MW SAIF NASDAQ 09/30/96 16.813 17.23 NA - ---- CCFH CCF Holding Company Jonesboro GA SE SAIF NASDAQ 07/12/95 16.250 14.88 27.1 - ---- -------- CENB Century Bancorp, Inc. Thomasville NC SE SAIF NASDAQ 12/23/96 69.500 28.31 NA - ---- -------- CIBI Community Investors Bancorp Bucyrus OH MW SAIF NASDAQ 02/07/95 17.250 10.92 12.4 CKFB CKF Bancorp, Inc. Danville KY MW SAIF NASDAQ 01/04/95 18.000 16.69 22.0 - ---- CNSB CNS Bancorp, Inc. Jefferson City MO MW SAIF NASDAQ 06/12/96 15.750 26.04 NA - ---- CSBF CSB Financial Group, Inc. Centralia IL MW SAIF NASDAQ 10/09/95 11.375 10.71 32.5 - ---- CZF CitiSave Financial Corp Baton Rouge LA SW SAIF AMSE 07/14/95 19.500 18.76 29.1 - ---- FFBI First Financial Bancorp, Inc. Belvidere IL MW SAIF NASDAQ 10/04/93 16.500 7.01 22.3 - ---- FFDF FFD Financial Corp. Dover OH MW SAIF NASDAQ 04/03/96 14.000 20.37 NA - ---- -------- FTNB Fulton Bancorp, Inc. Fulton MO MW SAIF NASDAQ 10/18/96 17.875 30.73 NA - ---- -------- FTSB Fort Thomas Financial Corp. Fort Thomas KY MW SAIF NASDAQ 06/28/95 11.250 17.70 23.4 - ---- GFSB GFS Bancorp, Inc. Grinnell IA MW SAIF NASDAQ 01/06/94 23.000 11.36 12.0 - ---- GUPB GFSB Bancorp, Inc. Gallup NM SW SAIF NASDAQ 06/30/95 17.500 15.77 21.6 - ---- GWBC Gateway Bancorp, Inc. Catlettsburg KY MW SAIF NASDAQ 01/18/95 15.250 16.41 22.4 - ---- HBBI Home Building Bancorp Washington IN MW SAIF NASDAQ 02/08/95 21.000 6.54 NM - ---- -------- HCFC Home City Financial Corp. Springfield OH MW SAIF NASDAQ 12/30/96 13.500 12.85 NA - ---- -------- HFSA Hardin Bancorp, Inc. Hardin MO MW SAIF NASDAQ 09/29/95 15.500 13.40 20.4 - ---- HHFC Harvest Home Financial Corp. Cheviot OH MW SAIF NASDAQ 10/10/94 11.500 10.75 25.0 - ---- HZFS Horizon Financial Svcs Corp. Oskaloosa IA MW SAIF NASDAQ 06/30/94 17.500 7.45 31.8 - ---- INCB Indiana Community Bank, SB Lebanon IN MW SAIF NASDAQ 12/15/94 16.500 15.21 35.1 - ---- KYF Kentucky First Bancorp, Inc. Cynthiana KY MW SAIF AMSE 08/29/95 11.500 15.39 16.0 - ---- LOGN Logansport Financial Corp. Logansport IN MW SAIF NASDAQ 06/14/95 13.250 16.65 15.2 LXMO Lexington B&L Financial Corp. Lexington MO MW SAIF NASDAQ 06/06/96 15.250 19.29 NA MIVI Mississippi View Holding Co. Little Falls MN MW SAIF NASDAQ 03/24/95 15.250 13.03 18.4 -------- MRKF Market Financial Corporation Mount Healthy OH MW SAIF NASDAQ 03/27/97 12.625 16.86 NA - ---- -------- MSBF MSB Financial, Inc. Marshall MI MW SAIF NASDAQ 02/06/95 20.750 13.33 13.2 NSLB NS&L Bancorp, Inc. Neosho MO MW SAIF NASDAQ 06/08/95 16.375 12.05 31.5 - ---- NWEQ Northwest Equity Corp. Amery WI MW SAIF NASDAQ 10/11/94 14.125 13.13 15.2 - ---- PCBC Perry County Financial Corp. Perryville MO MW SAIF NASDAQ 02/13/95 19.750 16.34 16.3 - ---- PFFC Peoples Financial Corp. Massillon OH MW SAIF NASDAQ 09/13/96 15.250 22.74 NA - ---- RELI Reliance Bancshares, Inc. Milwaukee WI MW SAIF NASDAQ 04/19/96 7.250 18.33 NA - ---- -------- SCBS Southern Community Bancshares Cullman AL SE SAIF NASDAQ 12/23/96 13.563 15.43 NA - ---- -------- SCCB S. Carolina Community Bancshrs Winnsboro SC SE SAIF NASDAQ 07/07/94 19.000 13.40 26.0 - ---- SFFC StateFed Financial Corporation Des Moines IA MW SAIF NASDAQ 01/05/94 18.500 14.60 14.6 SOBI Sobieski Bancorp, Inc. South Bend IN MW SAIF NASDAQ 03/31/95 14.750 13.01 30.7 SSB Scotland Bancorp, Inc Laurinburg NC SE SAIF AMSE 04/01/96 15.500 28.52 NA SZB SouthFirst Bancshares, Inc. Sylacauga AL SE SAIF AMSE 02/14/95 14.250 11.70 NM - ---- THR Three Rivers Financial Corp. Three Rivers MI MW SAIF AMSE 08/24/95 14.375 12.24 16.7 - ------------------------------------- WCFB Webster City Federal SB, MHC Webster City IA MW SAIF NASDAQ 08/15/94 14.250 29.93 24.2 - ------------------------------------- Maximum 69.500 30.73 46.6 Minimum 7.250 6.44 12.0 Average 16.829 15.86 23.0 Median 15.375 15.05 22.3
S0URCE: SNL & F&C CALCULATION 2 FERGUSON & COMPANY EXHIBIT VI.1 - COMPARATIVE GROUP SELECTION - ------------------
Tangible ROAA ROAA ROACE Price/ Current Current Current Total Equity/ Equity/ Core Core Before Before Before Core Price/ Price/ T Price/ Dividend Assets Assets Tang Assets EPS EPS Extra Extra Extra EPS Book V Book V Assets Yield ($000) (%) (%) ($) ($) (%) (%) (%) Ticker (x) (%) (%) (%) (%) MRQ MRQ MRQ LTM MRQ LTM MRQ LTM AMFC 21.6 95.9 95.9 18.6 1.74 83,542 19.4 19.4 NA 0.16 0.49 (0.06) NA - ---- ATSB 37.9 87.4 88.3 8.9 1.65 72,219 10.2 10.1 0.26 0.08 0.30 0.33 3.00 - ---- CBES 14.5 99.5 99.5 18.8 2.38 91,672 18.9 18.9 NA 0.29 NA 1.28 NA - ---- CCFH 40.6 113.3 113.3 16.8 3.08 88,509 14.8 14.8 0.60 0.10 0.47 0.42 2.39 - --------------- CENB NA 95.9 95.9 28.9 - 98,115 30.1 30.1 NA NA NA 1.14 NA - --------------- CIBI 12.0 100.1 100.1 11.4 2.32 95,787 11.4 11.4 1.39 0.36 0.64 0.91 4.99 CKFB 20.5 105.8 105.8 27.8 2.44 60,038 25.2 25.2 0.82 0.22 1.29 1.31 4.90 CNSB 39.4 107.9 107.9 26.3 1.27 98,898 24.4 24.4 NA 0.10 NA (0.70) NA - ---- CSBF 31.6 89.6 95.3 22.5 - 47,527 25.2 24.0 0.35 0.09 0.51 0.89 1.78 - ---- CZF 97.5 152.7 152.7 24.9 2.05 75,286 16.3 16.3 0.67 0.05 0.56 0.39 3.21 - ---- FFBI 17.9 95.7 95.7 7.4 - 94,533 7.8 7.8 0.74 0.23 (0.17) (0.59) (2.04) - ---- FFDF 20.6 95.2 95.2 23.6 1.43 86,159 24.8 24.8 NA 0.17 0.76 1.07 NA - --------------- FTNB NA 124.5 124.5 30.9 1.12 99,462 24.8 24.8 NA NA NA 1.16 NA - --------------- FTSB 15.6 112.8 112.8 19.4 2.22 91,109 17.2 17.2 0.48 0.18 0.51 1.16 2.32 - ---- GFSB 11.7 114.3 114.3 13.1 1.74 87,625 11.5 11.5 1.91 0.49 0.96 1.14 8.10 - ---- GUPB 25.7 108.4 108.4 19.3 2.29 81,775 17.8 17.8 0.81 0.17 0.76 0.72 3.68 - ---- GWBC 21.2 96.3 96.3 24.7 2.62 66,439 25.6 25.6 0.68 0.18 0.76 1.10 2.99 - ---- HBBI 21.9 110.1 110.1 14.7 1.43 44,564 12.5 12.5 (0.06) 0.24 (0.36) 0.63 (2.60) - --------------- HCFC NA 92.0 92.0 18.9 2.37 68,140 20.5 20.5 NA NA NA 1.22 NA - --------------- HFSA 16.2 103.4 103.4 15.3 2.58 97,015 14.8 14.8 0.76 0.24 0.49 0.93 2.82 - ---- HHFC 16.0 103.4 103.4 12.9 3.48 83,659 12.4 12.4 0.46 0.18 0.21 0.77 1.36 - ---- HZFS 15.1 92.0 92.0 10.1 1.83 74,043 10.9 10.9 0.55 0.29 0.14 0.83 1.27 - ---- INCB 27.5 134.5 134.5 17.1 2.18 89,215 12.7 12.7 0.47 0.15 0.15 0.62 1.13 KYF 16.0 106.0 106.0 18.2 4.35 87,874 17.2 17.2 0.72 0.18 0.87 1.05 3.88 - ---- LOGN 15.1 107.9 107.9 21.4 3.02 77,668 19.9 19.9 0.87 0.22 1.20 1.40 5.09 LXMO 21.2 101.5 101.5 31.3 - 61,650 30.8 30.8 NA 0.18 0.88 1.33 NA MIVI 18.2 100.0 100.0 18.5 1.05 70,329 18.5 18.5 0.83 0.21 0.68 0.98 3.63 - --------------- MRKF NA NA NA NA - 45,729 16.7 NA NA NA NA 0.65 NA - --------------- MSBF 12.7 105.9 105.9 20.2 2.41 66,541 19.1 19.1 1.57 0.41 1.29 1.54 6.07 - ---- NSLB 29.2 101.3 101.3 21.3 3.05 58,394 21.0 21.0 0.52 0.14 0.51 0.85 2.29 - ---- NWEQ 12.6 102.2 102.2 13.6 3.12 96,518 12.3 12.3 0.93 0.28 0.76 1.04 5.88 - ---- PCBC 19.0 107.8 107.8 20.3 2.03 80,408 18.9 18.9 1.21 0.26 0.71 1.43 3.69 - ---- PFFC 22.4 94.3 94.3 25.5 1.97 89,242 27.0 27.0 NA 0.17 0.29 1.09 NA - ---- RELI 18.1 82.1 NA 41.1 - 44,605 50.1 NA NA 0.10 NA 2.19 NA - --------------- SCBS NA 96.6 96.6 21.4 2.21 72,151 22.1 22.1 NA NA NA 0.94 NA - --------------- SCCB 23.8 112.8 112.8 29.2 3.16 45,919 25.9 25.9 0.73 0.20 0.90 1.20 3.21 - ---- SFFC 13.6 98.5 98.5 17.5 2.16 82,809 17.8 17.8 1.27 0.34 1.01 1.24 5.29 SOBI 33.5 86.5 86.5 16.5 1.90 78,978 17.7 17.7 0.48 0.11 0.21 0.66 1.18 SSB 21.5 113.6 113.6 41.9 1.94 68,067 36.9 36.9 NA 0.18 1.31 1.77 3.86 SZB 32.4 90.1 90.1 12.6 3.51 93,110 14.0 14.0 0.05 0.11 (0.06) 0.55 (0.43) - ---- THR 14.4 95.6 96.0 13.7 2.50 89,271 14.3 14.3 0.86 0.25 0.53 0.91 3.59 - ---- WCFB 22.3 137.4 137.4 31.9 5.61 93,811 23.2 23.2 0.59 0.16 0.95 1.35 4.19 - ---- Maximum 97.5 152.7 152.7 41.9 5.61 99,462 50.1 36.9 1.91 0.49 1.31 2.19 8.10 Minimum 11.7 82.1 86.5 7.4 - 4,564 7.8 7.8 (0.06) 0.05 (0.36) (0.70) (2.60) Average 23.5 104.2 104.9 20.7 2.05 78,057 19.8 19.1 0.74 0.20 0.60 0.92 3.02 Median 20.6 101.5 101.8 19.3 2.17 82,292 18.7 18.7 0.72 0.18 0.60 1.01 3.21
SOURCE: SNL & F&C CALCULATION 3 FERGUSON & COMPANY EXHIBIT VI.1 - COMPARATIVE GROUP SELECTION - ------------------
ROACE Before NPAs/ Loans/ Loans/ Deposits/ Extra Merger Current Assets Deposits Assets Assets (%) Target? Pricing (%) (%) (%) (%) Ticker MRQ (Y/N) Date MRQ MRQ MRQ MRQ AMFC (0.30) N 03/31/97 0.43 97.63 75.30 77.13 - ---- ---- ATSB 3.30 N 03/31/97 2.59 103.00 70.99 68.93 - ---- ---- CBES 7.02 N 03/31/97 0.68 128.57 90.86 70.67 - ---- CCFH 2.58 N 03/31/97 0.43 97.24 73.35 75.44 - ---- ----- CENB 5.02 N 03/31/97 0.46 85.12 59.15 69.49 - ---- ----- CIBI 7.81 N 03/31/97 0.69 103.25 75.83 73.45 CKFB 5.19 N 03/31/97 0.52 124.50 88.82 71.34 - ---- ----- CNSB (2.85) N 03/31/97 0.33 78.83 58.59 - ---- ----- CSBF 3.49 N 03/31/97 0.78 78.77 58.56 74.35 - ---- ---- ----- CZF 2.40 Y 03/31/97 0.31 74.23 60.59 81.63 - ---- ---- FFBI (7.34) N 03/31/97 0.14 112.83 78.58 69.65 - ---- FFDF 4.30 N 03/31/97 0.06 94.55 59.75 63.20 - ---- ----- FTNB NA N 03/31/97 NA 127.70 86.96 68.09 - ---- FTSB 6.58 N 03/31/97 1.68 125.39 89.57 71.43 - ---- ---- GFSB 9.93 N 03/31/97 1.65 131.02 87.40 66.71 - ---- ---- GUPB 3.99 N 03/31/97 0.15 79.87 52.60 65.86 - ---- ----- GWBC 4.34 N 03/31/97 0.12 38.94 28.83 74.05 - ---- ---- ----- HBBI 4.92 N 03/31/97 1.14 81.84 63.83 77.99 - ---- ---- HCFC 7.96 N 03/31/97 0.34 102.82 74.78 72.73 - ---- HFSA 5.92 N 03/31/97 0.18 77.31 54.08 69.95 - ---- ----- HHFC 6.24 N 03/31/97 0.26 74.16 51.20 69.04 - ---- ---- ----- HZFS 7.70 N 03/31/97 1.35 92.92 69.58 74.88 - ---- ---- ----- INCB 4.95 N 03/31/97 NA 94.33 81.64 86.55 KYF 5.33 N 03/31/97 - 88.09 54.65 62.03 - ---- ----- LOGN 7.02 N 03/31/97 0.52 99.38 73.44 73.90 LXMO 4.34 N 03/31/97 0.92 107.66 73.93 68.67 MIVI 5.32 N 03/31/97 0.26 79.40 63.61 80.11 - ---- MRKF NA N 03/31/97 NA NA NA 81.84 - ---- MSBF 7.93 N 03/31/97 0.47 151.88 94.31 62.10 - ---- NSLB 4.04 N 03/31/97 - 74.65 54.19 72.60 - ---- ---- ----- NWEQ 8.47 N 03/31/97 1.52 126.07 81.56 64.69 - ---- ---- PCBC 7.65 N 03/31/97 - 19.49 15.13 77.66 - ---- ----- PFFC 4.08 N 03/31/97 0.01 71.94 51.72 71.89 - ---- ----- RELI 3.92 N 03/31/97 - 140.69 56.55 40.19 - ---- ---- ----- SCBS 5.91 N 03/31/97 2.20 70.87 55.02 77.64 - ---- ---- ----- SCCB 4.42 N 03/31/97 1.83 106.77 77.89 72.95 - ---- ---- SFFC 6.96 N 03/31/97 0.79 141.57 82.43 58.23 SOBI 3.78 N 03/31/97 0.24 94.17 70.33 74.69 SSB 4.84 N 03/31/97 0.05 110.81 68.03 61.39 SZB 3.97 N 03/31/97 0.53 102.64 71.32 69.48 - ---- ---- THR 6.35 N 03/31/97 1.23 98.58 66.67 67.63 - ---- ---- WCFB 5.86 N 03/31/97 0.14 77.06 58.47 75.88 - ---- ----- Maximum 9.93 2.59 151.88 94.31 86.55 Minimum (7.34) - 19.49 15.13 40.19 Average 4.83 0.64 96.74 67.32 70.96 Median 4.99 0.43 97.24 69.58 71.66 Loans Loans Borrowings/ Serviced Serviced/ Assets For Others Assets (%) ($000) (%) Ticker MRQ MRQ MRQ Reasons for Exclusion ---------------------- AMFC 1.20 - - SELECTED - ---- ---- ATSB 20.30 28,300 39.2 B, F - ---- ---- CBES 9.27 31,455 34.3 F - ---- CCFH 8.47 NA NA SELECTED CENB - NA NA B, E - ---- CIBI 14.61 NA NA SELECTED CKFB 2.09 - - SELECTED CNSB - 23,244 23.5 E - ---- CSBF - - - E - ---- CZF - 1,249 1.7 C - ---- ---- FFBI 21.63 52,602 55.6 F - ---- ---- FFDF 10.54 - - E - ---- FTNB 6.54 NA NA B - ---- FTSB 10.32 NA NA D - ---- GFSB 20.87 15,618 17.8 D - ---- GUPB 15.31 - - E - ---- GWBC - - - E - ---- HBBI 8.93 - - D - ---- HCFC 6.02 2,410 3.5 B - ---- HFSA 14.43 3,291 3.4 E - ---- HHFC 17.93 NA NA E - ---- HZFS 13.68 1,688 2.3 D - ---- INCB - NA NA SELECTED KYF 19.83 - - E - ---- LOGN 4.38 - - SELECTED LXMO - NA NA SELECTED MIVI - - - SELECTED - ---- MRKF - NA NA B - ---- ---- MSBF 18.03 33,183 49.9 F - ---- NSLB 5.14 - - E - ---- NWEQ 22.54 24,642 25.5 D - ---- PCBC 3.11 - - E - ---- PFFC - - - E - ---- RELI 8.97 NA NA E - ---- SCBS - - - B, D, E - ---- SCCB - NA NA D - ---- SFFC 22.94 - - SELECTED SOBI 7.22 - - SELECTED SSB - - - SELECTED SZB 15.04 - - SELECTED - ---- THR 16.63 14,361 16.1 D - ---- WCFB 0.33 - - A, E - ---- Maximum 22.94 52,602 55.6 Minimum - - - Average 8.25 7,485 8.8 Median 6.88 - -
SOURCE: SNL & F&C CALCULATIONS 4 FERGUSON & COMPANY EXHIBIT VI.2 - COMPARATIVE GROUP SELECTED - ------------------
Deposit Current Current Price/ Insurance Stock Market LTM Agency Price Value Core EPS Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($) ($M) (x) AMFC AMB Financial Corp. Munster IN MW SAIF NASDAQ 04/01/96 13.813 14.75 NA CCFH CCF Holding Company Jonesboro GA SE SAIF NASDAQ 07/12/95 16.250 14.88 27.1 CIBI Community Investors Bancorp Bucyrus OH MW SAIF NASDAQ 02/07/95 17.250 10.92 12.4 CKFB CKF Bancorp, Inc. Danville KY MW SAIF NASDAQ 01/04/95 18.000 16.69 22.0 INCB Indiana Community Bank, SB Lebanon IN MW SAIF NASDAQ 12/15/94 16.500 15.21 35.1 LOGN Logansport Financial Corp. Logansport IN MW SAIF NASDAQ 06/14/95 13.250 16.65 15.2 LXMO Lexington B&L Financial Corp. Lexington MO MW SAIF NASDAQ 06/06/96 15.250 19.29 NA MIVI Mississippi View Holding Co. Little Falls MN MW SAIF NASDAQ 03/24/95 15.250 13.03 18.4 SFFC StateFed Financial Corporation Des Moines IA MW SAIF NASDAQ 01/05/94 18.500 14.60 14.6 SOBI Sobieski Bancorp, Inc. South Bend IN MW SAIF NASDAQ 03/31/95 14.750 13.01 30.7 SSB Scotland Bancorp, Inc Laurinburg NC SE SAIF AMSE 04/01/96 15.500 28.52 NA SZB SouthFirst Bancshares, Inc. Sylacauga AL SE SAIF AMSE 02/14/95 14.250 11.70 NM Maximum 18.500 28.52 35.1 Minimum 13.250 10.92 12.4 Average 15.714 15.77 21.9 Median 15.375 14.82 20.2
SOURCE: SNL & F&C CALCULATIONS 5 FERGUSON & COMPANY EXHIBIT VI.2 - COMPARATIVE GROUP SELECTED - ------------------
Tangible ROAA ROAA ROACE Price/ Current Current Current Total Equity/ Equity/ Core Core Before Before Before Core Price/ Price/ T Price/ Dividend Assets Assets Tang Assets EPS EPS Extra Extra Extra EPS Book V Book V Assets Yield ($000) (%) (%) ($) ($) (%) (%) (%) Ticker (x) (%) (%) (%) (%) MRQ MRQ MRQ LTM MRQ LTM MRQ LTM AMFC 21.6 95.9 95.9 18.6 1.74 83,542 19.4 19.4 NA 0.16 0.49 (0.06) NA CCFH 40.6 113.3 113.3 16.8 3.08 88,509 14.8 14.8 0.60 0.10 0.47 0.42 2.39 CIBI 12.0 100.1 100.1 11.4 2.32 95,787 11.4 11.4 1.39 0.36 0.64 0.91 4.99 CKFB 20.5 105.8 105.8 27.8 2.44 60,038 25.2 25.2 0.82 0.22 1.29 1.31 4.90 INCB 27.5 134.5 134.5 17.1 2.18 89,215 12.7 12.7 0.47 0.15 0.15 0.62 1.13 LOGN 15.1 107.9 107.9 21.4 3.02 77,668 19.9 19.9 0.87 0.22 1.20 1.40 5.09 LXMO 21.2 101.5 101.5 31.3 - 61,650 30.8 30.8 NA 0.18 0.88 1.33 NA MIVI 18.2 100.0 100.0 18.5 1.05 70,329 18.5 18.5 0.83 0.21 0.68 0.98 3.63 SFFC 13.6 98.5 98.5 17.5 2.16 82,809 17.8 17.8 1.27 0.34 1.01 1.24 5.29 SOBI 33.5 86.5 86.5 16.5 1.90 78,978 17.7 17.7 0.48 0.11 0.21 0.66 1.18 SSB 21.5 113.6 113.6 41.9 1.94 68,067 36.9 36.9 NA 0.18 1.31 1.77 3.86 SZB 32.4 90.1 90.1 12.6 3.51 93,110 14.0 14.0 0.05 0.11 (0.06) 0.55 (0.43) Maximum 40.6 134.5 134.5 41.9 3.51 95,787 36.9 36.9 1.39 0.36 1.31 1.77 5.29 Minimum 12.0 86.5 86.5 11.4 - 60,038 11.4 11.4 0.05 0.10 (0.06) (0.06) (0.43) Average 23.1 104.0 104.0 20.9 2.11 79,142 19.9 19.9 0.75 0.20 0.69 0.93 3.20 Median 21.4 100.8 100.8 18.0 2.17 80,894 18.2 18.2 0.82 0.18 0.66 0.95 3.75
SOURCE: SNL & F&C CALCULATIONS 6 FERGUSON & COMPANY EXHIBIT VI.2 - COMPARATIVE GROUP SELECTED - ------------------
ROACE Loans Loans Before NPAs/ Loans/ Loans/ Deposits/ Borrowings/ Serviced Serviced/ Extra Merger Current Assets Deposits Assets Assets Assets For Others Assets (%) Target? Pricing (%) (%) (%) (%) (%) ($000) (%) Ticker MRQ (Y/N) Date MRQ MRQ MRQ MRQ MRQ MRQ MRQ AMFC (0.30) N 03/31/97 0.43 97.63 75.30 77.13 1.20 - - CCFH 2.58 N 03/31/97 0.43 97.24 73.35 75.44 8.47 NA NA CIBI 7.81 N 03/31/97 0.69 103.25 75.83 73.45 14.61 NA NA CKFB 5.19 N 03/31/97 0.52 124.50 88.82 71.34 2.09 - - INCB 4.95 N 03/31/97 NA 94.33 81.64 86.55 - NA NA LOGN 7.02 N 03/31/97 0.52 99.38 73.44 73.90 4.38 - - LXMO 4.34 N 03/31/97 0.92 107.66 73.93 68.67 - NA NA MIVI 5.32 N 03/31/97 0.26 79.40 63.61 80.11 - - - SFFC 6.96 N 03/31/97 0.79 141.57 82.43 58.23 22.94 - - SOBI 3.78 N 03/31/97 0.24 94.17 70.33 74.69 7.22 - - SSB 4.84 N 03/31/97 0.05 110.81 68.03 61.39 - - - SZB 3.97 N 03/31/97 0.53 102.64 71.32 69.48 15.04 - - Maximum 7.81 0.92 141.57 88.82 86.55 22.94 - - Minimum (0.30) 0.05 79.40 63.61 58.23 - - - Average 4.71 0.49 104.38 74.84 72.53 6.33 - - Median 4.90 0.52 101.01 73.69 73.68 3.24 - -
SOURCE: SNL & F&C CALCULATIONS 7 EXHIBIT VII FERGUSON & COMPANY EXHIBIT VII - ------------------ PRO FORMA ASSUMPTIONS 1. Net proceeds from the conversion were invested at the beginning of the period at 5.65%, which was the approximate rate on the one-year treasury bill on June 30, 1997. This rate was selected because it is considered more representative of the rate the Association is likely to earn. 2. Salida's ESOP will acquire 8% of the conversion stock with loan proceeds obtained from the Holding Company; therefore, there will be no interest expense. We assumed that the ESOP expense is 10% annually of the initial purchase. 3. Salida's RP will acquire 4% of the stock through open market purchases at $10 per share and the expense is recognized ratably over five years as the shares vest. 4. All pro forma income and expense items are adjusted for income taxes at a combined state and federal rate of 38.0%. 5. In calculating the pro forma adjustments to net worth, the ESOP and RP are deducted in accordance with generally accepted accounting principles. 6. Earnings per share ("EPS") calculations have ignored AICPA SOP 93-6. Calculating EPS under SOP 93-6 and assuming 10% of the ESOP shares are committed to be released and allocated to the individual accounts at the beginning of the period would yield EPS of $.88, $.78, $.71, and $.64, and price to earnings ratios of 11.4, 12.8, 14.1, and 15.5, at the minimum, midpoint, maximum, and supermaximum of the range, respectively. 1 FERGUSON & COMPANY - ------------------ EXHIBIT VII PRO FORMA EFFECT OF CONVERSION PROCEEDS AT THE MINIMUM OF THE CONVERSION VALUATION RANGE VALUATION DATE AS OF AUGUST 8, 1997
SALIDA BUILDING AND LOAN ASSOCIATION - -------------------------------------------------- 1. Conversion Proceeds Pro Forma Market Value $ 7,650,000 Less: Estimated Expenses (499,000) --------------- Net Conversion Proceeds $ 7,151,000 2. Estimated Additional Income From Conversion Proceeds Net Conversion Proceeds $ 7,151,000 Less: ESOP Contributions (612,000) RP Contributions (306,000) --------------- Net Conversion Proceeds after ESOP & RP $ 6,233,000 Estimated Incremental Rate of Return(1) 3.50% --------------- Estimated Additional Income $ 218,342 Less: ESOP Expense (37,944) RP Expense (37,944) --------------- $ 142,454 ===============
3. Pro Forma Calculations
Before Conversion After Period Conversion Results Conversion -------------------------------------------- a. Pro Forma Earnings Twelve Months Ended June 30, 1997 $ 483,000 $ 142,454 $ 625,454 b. Pro Forma Net Worth June 30, 1997 $ 5,958,000 $6,233,000 $12,191,000 c. Pro Forma Net Assets June 30, 1997 $76,124,000 $6,233,000 $82,357,000
(1) Assumes Proceeds can be reinvested at 5.65 percent and earnings taxed at a rate of 38.0 percent. 2 FERGUSON & COMPANY - ------------------ EXHIBIT VII PRO FORMA EFFECT OF CONVERSION PROCEEDS AT THE MIDPOINT OF THE CONVERSION VALUATION RANGE VALUATION DATE AS OF AUGUST 8, 1997
SALIDA BUILDING AND LOAN ASSOCIATION - ------------------------------------------ 1. Conversion Proceeds Pro Forma Market Valuation $9,000,000 Less: Estimated Expenses (520,000) --------------- Net Conversion Proceeds $8,480,000 2. Estimated Additional Income From Conversion Proceeds Net Conversion Proceeds $8,480,000 Less: ESOP Contributions (720,000) RP Contributions (360,000) --------------- Net Conversion Proceeds after ESOP & RP $7,400,000 Estimated Incremental Rate of Return(1) 3.50% --------------- Estimated Additional Income $ 259,222 Less: ESOP Expense (44,640) RP Expense (44,640) --------------- $ 169,942 ===============
3. Pro Forma Calculations
Before Conversion After Period Conversion Results Conversion ----------------------------------------------------- a. Pro Forma Earnings Twelve Months Ended June 30, 1997 $ 483,000 $ 169,942 $ 652,942 b. Pro Forma Net Worth June 30, 1997 $ 5,958,000 $ 7,400,000 $ 13,358,000 c. Pro Forma Net Assets June 30, 1997 $76,124,000 $ 7,400,000 $ 83,524,000
(1) Assumes Proceeds can be reinvested at 5.65 percent and earnings taxed at a rate of 38.0 percent. 3 FERGUSON & COMPANY - ------------------ EXHIBIT VII PRO FORMA EFFECT OF CONVERSION PROCEEDS AT THE MAXIMUM OF THE CONVERSION VALUATION RANGE VALUATION DATE AS OF AUGUST 8, 1997
SALIDA BUILDING AND LOAN ASSOCIATION - --------------------------------------------------- 1. Conversion Proceeds Pro Forma Market Valuation $ 10,350,000 Less: Estimated Expenses (541,000) --------------- Net Conversion Proceeds $ 9,809,000 2. Estimated Additional Income From Conversion Proceeds Net Conversion Proceeds $ 9,809,000 Less: ESOP Contributions (828,000) RP Contributions (414,000) --------------- Net Conversion Proceeds after ESOP & RP $ 8,567,000 Estimated Incremental Rate of Return (1) 3.50% --------------- Estimated Additional Income $ 300,102 Less: ESOP Expense (51,336) RP Expense (51,336) --------------- $ 197,430 ===============
3. Pro Forma Calculations
Before Conversion After Period Conversion Results Conversion --------------------------------------------------- a. Pro Forma Earnings Twelve Months Ended June 30, 1997 $ 483,000 $ 197,430 $ 680,430 b. Pro Forma Net Worth June 30, 1997 $ 5,958,000 $ 8,567,000 $ 14,525,000 c. Pro Forma Net Assets June 30, 1997 $ 76,124,000 $ 8,567,000 $ 84,691,000
(1) Assumes Proceeds can be reinvested at 5.65 percent and earnings taxed at a rate of 38.0 percent. 4 FERGUSON & COMPANY - ------------------ EXHIBIT VII PRO FORMA EFFECT OF CONVERSION PROCEEDS AT THE SUPERMAX OF THE CONVERSION VALUATION RANGE VALUATION DATE AS OF AUGUST 8, 1997
SALIDA BUILDING AND LOAN ASSOCIATION - ------------------------------------------------------ 1. Conversion Proceeds Pro Forma Market Valuation $ 11,902,500 Less: Estimated Expenses $ (565,000) --------------- Net Conversion Proceeds $ 11,337,500 2. Estimated Additional Income From Conversion Proceeds Net Conversion Proceeds $ 11,337,500 Less: ESOP Contributions $ (952,200) RP Contributions $ (476,100) --------------- Net Conversion Proceeds after ESOP & RP $ 9,909,200 Estimated Incremental Rate of Return(1) 3.50% --------------- Estimated Additional Income $ 347,119 Less: ESOP Expense $ (59,036) RP Expense $ (59,036) --------------- $ 229,046 ===============
3. Pro Forma Calculations
Before Conversion After Period Conversion Results Conversion --------------------------------------------------------- a. Pro Forma Earnings Twelve Months Ended June 30, 1997 $ 483,000 $ 229,046 $ 712,046 b. Pro Forma Net Worth June 30, 1997 $ 5,958,000 $ 9,909,200 $ 15,867,200 c. Pro Forma Net Assets June 30, 1997 $ 76,124,000 $ 9,909,200 $ 86,033,200
(1) Assumes Proceeds can be reinvested at 5.65 percent and earnings taxed at a rate of 38.0 percent. 5 FERGUSON & COMPANY - ------------------ EXHIBIT VII PRO FORMA ANALYSIS SHEET
Name of Association: SALIDA BUILDING AND LOAN ASSOCIATION Date of Market Prices: August 8, 1997 Colorado Publicly All Publicly Comparatives Held Thrifts Held Thrifts ------------ ------------ ------------ SYMBOLS VALUE Mean Median Mean Median Mean Median ------------------- ---- ------ ---- ------ ---- ------ Price-Earnings Ratio P/E - -------------------- Last Twelve Months N/A At Minimum of Range 12.2 At Midpoint of Range 13.8 31.4 23.9 16.1 16.1 16.7 16.4 At Maximum of Range 15.2 At Supermax of Range 16.7 Price-Book Ratio P/B - ---------------- At Minimum of Range 62.8% At Midpoint of Range 67.4% 112.5 111.2 150.6 150.6 148.4 141.9 At Maximum of Range 71.3% At Supermax of Range 75.0% Price-Asset Ratio P/A - ----------------- At Minimum of Range 9.3% At Midpoint of Range 10.8% 21.6 17.4 19.5 19.5 15.3 14.0 At Maximum of Range 12.2% At Supermax of Range 13.8% Twelve Mo. Earnings Base Y $ 483,000 Period Ended June 30, 1997 Book Value B $ 5,958,000 As of June 30, 1997 Total Assets A $76,124,000 As of June 30, 1997 Return on Money (1) R 3.50% Conversion Expense X $ 520,000 Underwriting Commission C 0.00% Percentage Underwritten S 0.00% Estimated Dividend Dollar Amount DA $ 270,000 Yield DY 3.00% ESOP Contributions P $ 720,000 RP Contributions I $ 360,000 ESOP Annual Expense E $ 44,640 RP Annual Contributions M $ 44,640 Cost of ESOP Borrowings F 0.00%
(1) Assumes Proceeds can be reinvested at 5.65 percent and earnings taxed at a rate of 38.0 percent. 6 FERGUSON & COMPANY - ------------------ EXHIBIT VII PRO FORMA ANALYSIS SHEET Calculation of Estimated Value (V) at Midpoint Value
1. V= P/A(A-X-P-I) $ 9,000,000 --------------------------- 1-P/A(1-(CxS)) 2. V= P/B(B-X-P-I) $ 9,000,000 --------------------------- 1-P/B(1-(CxX)) 3. V= P/E(Y-R(X+P+I)-(E+M)) $ 9,000,000 --------------------------- 1-P/E(R(1-(CxX)) Value Estimated Value Per Share Total Shares Date --------------- --------- -------------- ---------------------- $9,000,000 $10.00 900,000 August 8, 1997 Range of Value $9.0 million x 1.15 = $10.35 million or 1,035,000 shares at $10.00 per share $9.0 million x 0.85 = $7.65 million or 765,000 shares at $10.00 per share Value Final Value Per Share Total Shares Date ---------------- --------- -------------- --------------------- $11,902,500 $10.00 1,190,250 August 8, 1997
7 -----END PRIVACY-ENHANCED MESSAGE-----