-----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, EB48JL+4UJAHV+nMPpWvTw8QKOYlg45TdbYGZaK7CTwntDSi59mazq7qhGOnRAEU FEQORmCFjbVV6Ji0Nybt+g== 0000928385-97-001720.txt : 19971030 0000928385-97-001720.hdr.sgml : 19971030 ACCESSION NUMBER: 0000928385-97-001720 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 19971029 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: TIMBERLAND BANCORP INC CENTRAL INDEX KEY: 0001046050 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTIONS, NOT FEDERALLY CHARTERED [6036] STATE OF INCORPORATION: WA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-35817 FILM NUMBER: 97703140 BUSINESS ADDRESS: STREET 1: 624 SIMPSON AVE CITY: HOQUIAM STATE: WA ZIP: 98550 BUSINESS PHONE: 3605334747 MAIL ADDRESS: STREET 1: 624 SIMPSON AVE CITY: HOQUIAM STATE: WA ZIP: 98550 S-1/A 1 AMENDMENT NO. 1 TO FORM S-1 As filed with the Securities and Exchange Commission on October 29, 1997 Registration No. 333-35817 - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (INCLUDING EXHIBITS) TIMBERLAND BANCORP, INC. -------------------------------------------------------------------- (Exact name of registrant as specified in charter) Washington 6036 91-1863696 - ----------------------------- ----------------- ----------------- (State or other jurisdiction of (Primary SICC No.) (I.R.S. Employer incorporation or organization) Identification No.) 624 SIMPSON AVENUE HOQUIAM, WASHINGTON 98550 (360) 533-4747 -------------------------------------------------------------- (Address and telephone number of principal executive offices) John F. Breyer, Jr., Esquire Victor L. Cangelosi, Esquire BREYER & AGUGGIA Suite 470 East 1300 I Street, N.W. Washington, D.C. 20005 -------------------------------------------- (Name and address of agent for service) APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this registration statement becomes effective. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, 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 of 1933, 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 - ------------------------------------------------------------------------------- Title of Each Class of Securities Proposed Maximum Proposed Offering Proposed Maximum Amount of Being Registered Amount Being Price(1) Aggregate Offering Registration Fee Registered(1) Price(1) - ----------------------------------------------------------------------------------------------------------------------------- Common Stock, $0.01 Par Value 6,612,500 $10.00 $66,125,000 $20,038(2) Participation interests 196,945 -- -- (3) =============================================================================================================================
(1) Estimated solely for purposes of calculating the registration fee. As described in the Prospectus, the actual number of shares to be issued and sold are subject to adjustment based upon the estimated pro forma market value of the registrant and market and financial conditions. (2) Previously paid. (3) The securities of Timberland Bancorp, Inc., to be purchased by the Timberland Savings Bank, SSB 401(k) Plan are included in the amount shown for Common Stock. Accordingly, pursuant to Rule 457(h) of the Securities Act of 1933, as amended, no separate fee is required for the participation interests. Pursuant to such rule, the amount being registered has been calculated on the basis of the number of shares of Common Stock that may be purchased with the current assets of such Plan. The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration 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. Cross Reference Sheet showing the location in the Prospectus of the Items of Form S-1 1. Forepart of the Registration Forepart of the Registration Statement and Outside Front Statement; Outside Front Cover Page Cover of Prospectus 2. Inside Front and Outside Back Inside Front Cover Page; Outside Cover Pages of Prospectus Back Cover Page 3. Summary Information, Risk Factors Prospectus Summary; Risk Factors and Ratio of Earnings to Fixed Charges 4. Use of Proceeds Use of Proceeds; Capitalization 5. Determination of Offering Price Market for Common Stock 6. Dilution * 7. Selling Security Holders * 8. Plan of Distribution The Conversion 9. Description of Securities to be Description of Capital Stock Registered 10. Interests of Named Experts and Legal and Tax Opinions; Experts Counsel 11. Information with Respect to the Registrant (a) Description of Business Business of the Holding Company; Business of the Savings Bank (b) Description of Property Business of the Savings Bank -- Properties (c) Legal Proceedings Business of the Savings Bank -- Legal Proceedings (d) Market Price of and Dividends Outside Front Cover Page; Market for on the Registrant's Common Equity Common Stock; Dividend Policy and Related Stockholder Matters (e) Financial Statements Financial Statements; Pro Forma Data (f) Selected Financial Data Selected Financial and Other Data (g) Supplementary Financial * Information (h) Management's Discussion and Management's Discussion and Analysis of Financial Condition Analysis of Financial Condition and and Results of Operations Results of Operations (i) Changes in and Disagreements * with Accountants on Accounting and Financial Disclosure (j) Directors and Executive Management of the Holding Company; Officers Management of the Savings Bank (k) Executive Compensation Management of the Holding Company; Management of the Savings Bank -- Benefits -- Executive Compensation (l) Security Ownership of Certain * Beneficial Owners and Management (m) Certain Relationships and Management of the Savings Bank -- Related Transactions Transactions with the Savings Bank 12. Disclosure of Commission Position Part II - Item 17 on Indemnification for Securities Act Liabilities - ---------------- * Item is omitted because answer is negative or item inapplicable. PROSPECTUS SUPPLEMENT TIMBERLAND BANCORP, INC. TIMBERLAND SAVINGS BANK, SSB PROFIT SHARING PLAN This Prospectus Supplement relates to the offer and sale to participants ("Participants") in the Timberland Savings Bank, SSB Profit Sharing Plan ("Plan" or "Profit Sharing Plan") of participation interests and shares of Timberland Bancorp, Inc. common stock, par value $.01 per share ("Common Stock"), as set forth herein. In connection with the proposed conversion of Timberland Savings Bank, SSB ("Savings Bank" or "Employer") from a Washington chartered mutual savings bank to a state chartered stock savings bank, a holding company, Timberland Bancorp, Inc. ("Holding Company"), has been formed. The simultaneous conversion of the Savings Bank to stock form, the issuance of the Savings Bank's common stock to the Holding Company and the offer and sale of the Holding Company's Common Stock to the public are herein referred to as the "Conversion." Applicable provisions of the Profit Sharing Plan permit the investment of the Plan assets in Common Stock of the Holding Company at the direction of a Plan Participant. This Prospectus Supplement relates to the election of a Participant to direct the purchase of Common Stock in connection with the Conversion. The Prospectus, dated _________, 1997, of the Holding Company ("Prospectus"), which is attached to this Prospectus Supplement, includes detailed information with respect to the Conversion, the Common Stock and the financial condition, results of operation and business of the Savings Bank and the Holding Company. This Prospectus Supplement, which provides detailed information with respect to the Plan, should be read only in conjunction with the Prospectus. Terms not otherwise defined in this Prospectus Supplement are defined in the Plan or the Prospectus. A PARTICIPANT'S ELIGIBILITY TO PURCHASE COMMON STOCK IN THE CONVERSION THROUGH THE PLAN IS SUBJECT TO THE PARTICIPANT'S GENERAL ELIGIBILITY TO PURCHASE SHARES OF COMMON STOCK IN THE CONVERSION AND THE MAXIMUM AND MINIMUM LIMITATIONS SET FORTH IN THE PLAN OF CONVERSION. SEE "THE CONVERSION" AND "-- LIMITATIONS ON PURCHASES OF SHARES" IN THE PROSPECTUS. INVESTMENT IN THE COMMON STOCK IS SUBJECT TO CERTAIN RISKS, INCLUDING THE RISK OF LOSS OF PRINCIPAL VALUE INVESTED. FOR A DISCUSSION OF SUCH RISKS THAT SHOULD BE CONSIDERED BY EACH PARTICIPANT, SEE "RISK FACTORS" IN THE PROSPECTUS. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION ("SEC"), THE WASHINGTON DEPARTMENT OF FINANCIAL INSTITUTIONS, DIVISION OF BANKING ("DIVISION"), THE FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC") OR ANY OTHER FEDERAL AGENCY OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SEC, THE DIVISION, THE FDIC OR ANY OTHER AGENCY OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Prospectus Supplement is _________, 1997. No person has been authorized to give any information or to make any representations other than those contained in the Prospectus or this Prospectus Supplement in connection with the offering made hereby, and, if given or made, such information and representations must not be relied upon as having been authorized by the Holding Company, the Savings Bank or the Plan. This Prospectus Supplement does not constitute an offer to sell or solicitation of an offer to buy any securities in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation in such jurisdiction. Neither the delivery of this Prospectus Supplement and the Prospectus nor any sale made hereunder shall under any circumstances create any implication that there has been no change in the affairs of the Savings Bank or the Plan since the date hereof, or that the information herein contained or incorporated by reference is correct as of any time subsequent to the date hereof. This Prospectus Supplement should be read only in conjunction with the Prospectus that is attached herein and should be retained for future reference. TABLE OF CONTENTS
PAGE The Offering Securities Offered S- Election to Purchase Common Stock in the Conversion S- Value of Participation Interests S- Method of Directing Transfer S- Time for Directing Transfer S- Irrevocability of Transfer Direction S- Direction Regarding Common Stock After the Conversion S- Purchase Price of Common Stock S- Nature of a Participant's Interest in the Common Stock S- Voting and Tender Rights of Common Stock S- Description of the Plan Introduction S- Eligibility and Participation S- Contributions Under the Plan S- Limitations on Contributions S- Investment of Contributions S- The Employer Stock Fund S- Benefits Under the Plan S- Withdrawals and Distributions from the Plan S- Administration of the Plan S- Reports to Plan Participants S- Plan Administrator S- Amendment and Termination S- Merger, Consolidation or Transfer S- Federal Income Tax Consequences S- Restrictions on Resale S- Legal Opinions S- Investment Form S-
i THE OFFERING SECURITIES OFFERED The securities offered hereby are participation interests in the Plan and up to _______ shares, at the actual purchase price of $10.00 per share, of Common Stock which may be acquired by the Plan for the accounts of employees participating in the Plan. The Holding Company is the issuer of the Common Stock. Only employees and former employees of the Savings Bank and their beneficiaries may participate in the Plan. Information with regard to the Plan is contained in this Prospectus Supplement and information with regard to the Conversion and the financial condition, results of operation and business of the Savings Bank and the Holding Company is contained in the attached Prospectus. The address of the principal executive office of the Savings Bank is 624 Simpson Avenue, Hoquiam, Washington 98550. The Savings Bank's telephone number is (360) 533-4747. ELECTION TO PURCHASE COMMON STOCK IN THE CONVERSION In connection with the Savings Bank's Conversion, each Participant in the Profit Plan may direct the trustees of the Plan (collectively, the "Trustee") to transfer up to __% of a Participant's _______________ account balance to a newly created Employer Stock Fund and to use such funds to purchase Common Stock issued in connection with the Conversion. Amounts transferred may include salary deferral, matching and profit sharing contributions. The Employer Stock Fund may consist of investments in the Common Stock made on or after the effective date of the Conversion. Funds not transferred to the Employer Stock Fund may be invested at the Participant's discretion in the other investment options available under the Plan. See "DESCRIPTION OF THE PLAN -- INVESTMENT OF CONTRIBUTIONS" below. A PARTICIPANT'S ABILITY TO TRANSFER FUNDS TO THE EMPLOYER STOCK FUND IN THE CONVERSION IS SUBJECT TO THE PARTICIPANT'S GENERAL ELIGIBILITY TO PURCHASE SHARES OF COMMON STOCK IN THE CONVERSION. FOR GENERAL INFORMATION AS TO THE ABILITY OF THE PARTICIPANTS TO PURCHASE SHARES IN THE CONVERSION, SEE "THE CONVERSION -- THE SUBSCRIPTION, DIRECT COMMUNITY AND SYNDICATED COMMUNITY OFFERINGS" IN THE ATTACHED PROSPECTUS. VALUE OF PARTICIPATION INTERESTS The assets of the Plan are valued on an ongoing basis and each Participant is informed of the value of his or her beneficial interest in the Plan on a quarterly basis. This value represents the market value of past contributions to the Plan by the Savings Bank and by the Participants and earnings thereon, less previous withdrawals, and transfers from other plans. METHOD OF DIRECTING TRANSFER The last page of this Prospectus Supplement is an investment form to direct a transfer to the Employer Stock Fund ("Investment Form"). If a Participant wishes to transfer funds to the Employer Stock Fund to purchase Common Stock issued in connection with the Conversion, the S-1 Participant should indicate that decision in Part 2 of the Investment Form. If a Participant does not wish to make such an election, he or she does not need to take any action. TIME FOR DIRECTING TRANSFER THE DEADLINE FOR SUBMITTING A DIRECTION TO TRANSFER AMOUNTS TO THE EMPLOYER STOCK FUND IN ORDER TO PURCHASE COMMON STOCK ISSUED IN CONNECTION WITH THE CONVERSION IS ___________, 1997. The Investment Form should be returned to _________ at the Savings Bank no later than the close of business on such date. IRREVOCABILITY OF TRANSFER DIRECTION A Participant's direction to transfer amounts credited to such Participant's account in the Plan to the Employer Stock Fund in order to purchase shares of Common Stock in connection with the Conversion shall be irrevocable. Participants, however, will be able to direct the sale of Common Stock, as explained below. DIRECTION REGARDING COMMON STOCK AFTER THE CONVERSION It is not currently anticipated that Participants will be permitted to transfer additional funds from their existing account balances to the Employer Stock Fund following the Conversion. If Common Stock is sold, the proceeds will be credited to the Participant's account and may be reinvested in the other investment options available under the Plan. In addition, cash dividends, if any, paid on the Common Stock may be invested in the Plan's other investment options but may not be used to purchase additional shares of Common Stock. Special restrictions may apply to purchases or sales directed by those Participants who are executive officers, directors and principal stockholders of the Holding Company who are subject to the provisions of Section 16(b) of the Securities and Exchange Act of 1934, as amended ("Exchange Act"), or applicable OTS regulations. PURCHASE PRICE OF COMMON STOCK The funds transferred to the Employer Stock Fund for the purchase of Common Stock in connection with the Conversion will be used by the Trustee to purchase shares of Common Stock. The price paid for such shares of Common Stock will be the same price as is paid by all other persons who purchase shares of Common Stock in the Conversion. NATURE OF A PARTICIPANT'S INTEREST IN THE COMMON STOCK The Common Stock purchased for an account of a Participant will be held in the name of the Trustee of the Plan in the Employer Stock Fund. Any earnings, losses or expenses with respect to the Common Stock, including dividends and appreciation or depreciation in value, will be credited or debited to the account and will not be credited to or borne by any other accounts. S-2 VOTING AND TENDER RIGHTS OF COMMON STOCK The Trustee generally will exercise voting and tender rights attributable to all Common Stock held by the Trust as directed by Participants with an interest in the Employer Stock Fund. With respect to each matter as to which holders of Common Stock have the right to vote, each Participant will be allocated a number of voting instruction rights reflecting such Participant's proportionate interest in the Employer Stock Fund. The percentage of shares of Common Stock held in the Employer Stock Fund that are voted in the affirmative or negative on each matter shall be the same percentage of the total number of voting instruction rights that are exercised in either the affirmative or negative, respectively. DESCRIPTION OF THE PLAN INTRODUCTION The Savings Bank adopted the Plan effective October 1, 1987 as an amendment and restatement of the Savings Bank's prior defined contribution retirement plan. The Savings Bank intends that the Plan, in operation, will comply with the requirements under Section 401(a) of the Code. The Savings Bank will adopt any amendments to the Plan that may be necessary to ensure the qualified status of the Plan under the Code and applicable Treasury Regulations. The Savings Bank has received a determination from the Internal Revenue Service ("IRS") that the Plan is qualified under Section 401(a) of the Code. EMPLOYEE RETIREMENT INCOME SECURITY ACT. The Plan is an "individual account plan" other than a "money purchase pension plan" within the meaning of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). As such, the Plan is subject to all of the provisions of Title I (Protection of Employee Benefit Rights) and Title II (Amendments to the Internal Revenue Code Relating to Retirement Plans) of ERISA, except the funding requirements contained in Part 3 of Title I of ERISA, which by their terms do not apply to an individual account plan (other than a money purchase pension plan). The Plan is not subject to Title IV (Plan Termination Insurance) of ERISA. Neither the funding requirements contained in Title IV of ERISA nor the plan termination insurance provisions contained in Title IV will be extended to Participants or beneficiaries under the Plan. S-3 APPLICABLE FEDERAL LAW REQUIRES THE PLAN TO IMPOSE SUBSTANTIAL RESTRICTIONS ON THE RIGHT OF A PLAN PARTICIPANT TO WITHDRAW AMOUNTS HELD FOR HIS OR HER BENEFIT UNDER THE PLAN PRIOR TO THE PARTICIPANT'S TERMINATION OF EMPLOYMENT WITH THE SAVINGS BANK. A SUBSTANTIAL FEDERAL TAX PENALTY MAY ALSO BE IMPOSED ON WITHDRAWALS MADE PRIOR TO THE PARTICIPANT'S ATTAINMENT OF AGE 59 1/2, UNLESS A PARTICIPANT RETIRES AS PERMITTED UNDER THIS PLAN REGARDLESS OF WHETHER SUCH A WITHDRAWAL OCCURS DURING HIS OR HER EMPLOYMENT WITH THE SAVINGS BANK OR AFTER TERMINATION OF EMPLOYMENT. REFERENCE TO FULL TEXT OF PLAN. THE FOLLOWING STATEMENTS ARE SUMMARIES OF THE MATERIAL PROVISIONS OF THE PLAN. THEY ARE NOT COMPLETE AND ARE QUALIFIED IN THEIR ENTIRETY BY THE FULL TEXT OF THE PLAN, WHICH IS FILED AS AN EXHIBIT TO THE REGISTRATION STATEMENT FILED WITH THE SEC. COPIES OF THE PLAN ARE AVAILABLE TO ALL EMPLOYEES BY FILING A REQUEST WITH THE PLAN ADMINISTRATOR. EACH EMPLOYEE IS URGED TO READ CAREFULLY THE FULL TEXT OF THE PLAN. ELIGIBILITY AND PARTICIPATION Any employee of the Savings Bank is eligible to participate and will become a Participant in the Plan following completion of one year of service with the Savings Bank in which the employee completes at least 1,000 hours of service. The Plan year is a fiscal year ending September 30 ("Plan Year"). Directors who are not employees of the Savings Bank are not eligible to participate in the Plan. During 1996, approximately __ employees participated in the Plan. CONTRIBUTIONS UNDER THE PLAN All contributions to the Plan are Employer contributions. The amount of the contribution is discretionary and is determined annually by the Board of Directors of the Savings Bank. To receive an allocation of Employer contribution, a Participant must complete at least one hour of service during the Plan Year if the Participant is employed on the last day of the Plan Year. A Participant who terminated employment during the Plan Year must complete at least 501 hours of service in order to share in Employer contributions for the Plan Year. LIMITATIONS ON CONTRIBUTIONS LIMITATIONS ON ANNUAL ADDITIONS AND BENEFITS. Pursuant to the requirements of the Code, the Plan provides that the amount of contributions allocated to each Participant's Account during any Plan Year may not exceed the lesser of 25% of the Participant's "Section 415 Compensation" for the Plan Year or $30,000 (as adjusted under applicable Code provisions). A Participant's "Section 415 Compensation" is a Participant's Compensation, excluding any amount S-4 contributed to the Plan under a salary reduction agreement or any employer contribution to the Plan or to any other plan or deferred compensation or any distributions from a plan of deferred compensation. In addition, annual additions are limited to the extent necessary to prevent the limitations for the combined plans of the Savings Bank from being exceeded. To the extent that these limitations would be exceeded by reason of excess annual additions to the Plan with respect to a Participant, the excess must be reallocated to the remaining Participants who are eligible for an allocation of Employer contributions for the Plan Year. TOP-HEAVY PLAN REQUIREMENTS. If, for any Plan Year, the Plan is a Top- Heavy Plan (as defined below), then (i) the Savings Bank may be required to make certain minimum contributions to the Plan on behalf of non-key employees (as defined below), and (ii) certain additional restrictions would apply with respect to the combination of annual additions to the Plan and projected annual benefits under any defined plan maintained by the Savings Bank. In general, the Plan will be regarded as a "Top-Heavy Plan" for any Plan Year, if as of the last day of the preceding Plan Year, the aggregate balance of the accounts of all Participants who are key Employees exceeds 60% of the aggregate balance of the Accounts of the Participants. "Key Employees" generally include any employee, who at any time during the Plan Year or any other the four preceding Plan Years, if (1) an officer of the Savings Bank having annual compensation in excess of $60,000 who is in an administrative or policy-making capacity, (2) one of the ten employees having annual compensation in excess of $30,000 and owing, directly or indirectly, the largest interest in the employer, (3) a 5% owner of the employer (i.e., owns directly or indirectly ---- more than 5% of the stock of the employer, or stock possessing more than 5% of the total combined voting power of all stock of the employer), or (4) a 1% owner of the employer having compensation in excess of $150,000. INVESTMENT OF CONTRIBUTIONS All amounts credited to Participant's Accounts under the Plan are held in the Trust which is administered by the Trustee which is appointed by the Savings Bank's Board of Directors. The Plan provides that a Participant may direct the Trustee to invest all or a portion of his or her Accounts in various investment options, as listed below. A Participant may periodically elect to change his or her investment directions with respect to both past contributions and additions to the Participant's accounts invested in these investment options in accordance with rules established by the Trustee. Under the Plan, the Accounts of a Participant held in the Trust will be invested by the Trustee at the direction of the Participant in the following portfolios: Option A - Agressive Fund Option B - Balanced Fund Option C - Money Market Option D - Employer Stock Fund S-5 For additional information regarding investment options A-C, which are managed by the Frank Russell Investment Management Co., Tacoma, Washington. Please contact _________. In connection with the Conversion, a Participant may elect to have prior contributions and additions to the Participant's Account invested either in the Employer Stock Fund or in any of the other portfolios listed above. Any amounts credited to a Participant's Accounts for which investment directions are not given will be invested in Investment Option C. The net gain (or loss) in the Accounts from investments (including interest payments, dividends, realized and unrealized gains and losses on securities, and expenses paid from the Trust) are determined on a daily basis. For purposes of such allocation, all assets of the Trust are valued at their fair market value. THE EMPLOYER STOCK FUND The Employer Stock Fund will consist of investments in Common Stock made on and after the effective date of the Conversion. In connection with the Conversion, pursuant to the attached Investment Form, Participants will be able to change their investments at a time other than the normal election intervals. When Common Stock is sold, the cost or net proceeds are charged or credited to the Accounts of Participants affected by the purchase or sale. A Participant's Account will be adjusted to reflect changes in the value of shares of Common Stock resulting from stock dividends, stock splits and similar changes. To the extent dividends are not paid on Common Stock held in the Employer Stock Fund, the return on any investment in the Employer Stock Fund will consist only of the market value appreciation of the Common Stock subsequent to its purchase. Declarations and payments of any dividends (regular and special) by the Board of Directors will depend upon a number of factors, including the amount of the net proceeds retained by the Holding Company, capital requirements, regulatory limitations, the Savings Bank's and the Holding Company's financial condition and results of operations, tax considerations and general economic conditions. As of the date of this Prospectus Supplement, none of the shares of Common Stock have been issued or are outstanding and there is no established market for the Common Stock. Accordingly, there is no record of the historical performance of the Employer Stock Fund. INVESTMENTS IN THE EMPLOYER STOCK FUND MAY INVOLVE CERTAIN RISK FACTORS ASSOCIATED WITH INVESTMENTS IN COMMON STOCK OF THE HOLDING COMPANY. FOR A DISCUSSION OF THESE RISK FACTORS, SEE "RISK FACTORS" IN THE PROSPECTUS. S-6 BENEFITS UNDER THE PLAN VESTING. A Participant, has at all times a fully vested, nonforfeitable interest in all of his or her deferred contributions and the earnings thereon under the Plan. A Participant is 100% vested in his or her matching contributions account and employer discretionary contributions after the completion of six years of service under the Plan's graded vesting schedule (10% vested in each of the first two years of service and 20% per year in years three through six of service). WITHDRAWALS AND DISTRIBUTIONS FROM THE PLAN APPLICABLE FEDERAL LAW REQUIRES THE PLAN TO IMPOSE SUBSTANTIAL RESTRICTIONS ON THE RIGHT OF A PLAN PARTICIPANT TO WITHDRAW AMOUNTS HELD FOR HIS OR HER BENEFIT UNDER THE PLAN PRIOR TO THE PARTICIPANT'S ATTAINMENT OF AGE 59 1/2 UNLESS A PARTICIPANT RETIRES AS PERMITTED UNDER THE PLAN REGARDLESS OF WHETHER SUCH A WITHDRAWAL OCCURS DURING HIS OR HER EMPLOYMENT WITH THE SAVINGS BANK. DISTRIBUTION UPON RETIREMENT, DISABILITY OR TERMINATION OF EMPLOYMENT. Payment of benefits to a Participant who retires, incurs a disability, or otherwise terminates employment may be made in the form of a lump sum cash payment, installment payments over a specified period or in an annuity form. At the request of the Participant, the distribution may include an in-kind distribution of Common Stock of the Holding Company credited to the Participant's Account. Benefits payments ordinarily shall be made not later than 60 days following the end of the Plan Year in which occurs later of the Participant's: (i) termination of employment; (ii) attainment of age 65; or (iii) tenth anniversary of commencement of participation in the Plan; but in no event later than April 1 following the calendar year in which the Participant attains age 70 1/2 (if the Participant is retired). However, if the vested portion of the Participant's Account balances exceeds $3,500, no distribution shall be made from the Plan prior to the Participant's attaining age 65 unless the Participant consents to an earlier distribution. Special rules may apply to the distribution of Common Stock of the Holding Company to those Participants who are executive officers, directors and principal shareholders of the Holding Company who are subject to the provisions of Section 16(b) of the Exchange Act. DISTRIBUTION UPON DEATH. A Participant who dies prior to the benefit commencement date for retirement, disability or termination of employment, and who has a surviving spouse, shall have his or her benefits paid to the surviving spouse in a lump sum, or if the payment of his or her benefits had commenced before his or her death, in accordance with the distribution method in effect at his or her death. With respect to an unmarried Participant, and in the case of a married Participant with spousal consent to the designation of another beneficiary, payment of benefits to the beneficiary, or payments of benefits to the beneficiary of a deceased Participant shall be made in the form of a lump sum payment in cash or in Common Stock, or if the payment of his or her benefit had commenced before his or her death, in accordance with the distribution method if effect at death. S-7 NONALIENATION OF BENEFITS. Except with respect to federal income tax withholding and as provided with respect to a qualified domestic relations order (as defined in the Code), benefits payable under the Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution, or levy of any kind, either voluntary or involuntary, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or otherwise dispose of any rights to benefits payable under the Plan shall be void. ADMINISTRATION OF THE PLAN TRUSTEE. The Trustee with respect to Plan assets is U.S. Bank of Washington, N.A. Pursuant to the terms of the Plan, the Trustee receives and holds contributions to the Plan in trust and has exclusive authority and discretion to manage and control the assets of the Plan pursuant to the terms of the Plan and to manage, invest and reinvest the Trust and income therefrom. The Trustee has the authority to invest and reinvest the Trust and may sell or otherwise dispose of Trust investments at any time and may hold trust funds uninvested. The Trustee has authority to invest the assets of the Trust in "any type of property, investment or security" as defined under ERISA. The Trustee has full power to vote any corporate securities in the Trust in person or by proxy; provided, however, that the Participants will direct the Trustee as to voting and tendering of all Common Stock held in the Employer Stock Fund. The Trustee is entitled to reasonable compensation for its services and is also entitled to reimbursement for expenses properly and actually incurred in the administration of the Trust. The expenses of the Trustee and the compensation of the persons so employed is paid out of the Trust except to the extent such expenses and compensation are paid by the Savings Bank. The Trustee must render at least annual reports to the Savings Bank and to the Participants in such form and containing information that the Trustee deems necessary. Reports to Plan Participants The Plan Administrator furnishes to each Participant a statement at least quarterly showing (i) the balance in the Participant's Account as of the end of that period, (ii) the amount of contributions allocated to such Participant's Account for that period, and (iii) the adjustments to such Participant's Account to reflect earnings or losses (if any). PLAN ADMINISTRATOR The Savings Bank currently serves as the Plan Administrator. The Plan Administrator is responsible for the administration of the Plan, interpretation of the provisions of the Plan, prescribing procedures for filing applications for benefits, preparation and distribution of S-8 information explaining the Plan, maintenance of plan records, books of account and all other data necessary for the proper administration of the Plan, and preparation and filing of all returns and reports relating to the Plan which are required to be filed with the U.S. Department of Labor and the IRS, and for all disclosures required to be made to Participants, beneficiaries and others under Sections 104 and 105 of ERISA. AMENDMENT AND TERMINATION The Savings Bank may terminate the Plan at any time. If the Plan is terminated in whole or in part, then regardless of other provisions in the Plan, each employee who ceases to be a Participant shall have a fully vested interest in his or her Account. The Savings Bank reserves the right to make, from time to time, any amendment or amendments to the Plan which do not cause any part of the Trust to be used for, or diverted to, any purpose other than the exclusive benefit of the Participants or their beneficiaries. MERGER, CONSOLIDATION OR TRANSFER In the event of the merger or consolidation of the Plan with another plan, or the transfer of the Trust to another plan, the Plan requires that each Participant (if either the Plan or the other plan then terminated) receive a benefit immediately after the merger, consolidation or transfer which is equal to or greater than the benefit he or she would have been entitled to receive immediately before the merger, consolidation or transfer (if the Plan had then terminated). FEDERAL INCOME TAX CONSEQUENCES THE FOLLOWING IS ONLY A BRIEF SUMMARY OF CERTAIN FEDERAL INCOME TAX ASPECTS OF THE PLAN WHICH ARE OF GENERAL APPLICATION UNDER THE CODE AND IS NOT INTENDED TO BE A COMPLETE OR DEFINITIVE DESCRIPTION OF THE FEDERAL INCOME TAX CONSEQUENCES OF PARTICIPATING IN OR RECEIVING DISTRIBUTIONS FROM THE PLAN. THE SUMMARY IS NECESSARILY GENERAL IN NATURE AND DOES NOT PURPORT TO BE COMPLETE. MOREOVER, STATUTORY PROVISIONS ARE SUBJECT TO CHANGE, AS ARE THEIR INTERPRETATIONS, AND THEIR APPLICATION MAY VARY IN INDIVIDUAL CIRCUMSTANCES. FINALLY, THE CONSEQUENCES UNDER APPLICABLE STATE AND LOCAL INCOME TAX LAWS MAY NOT BE THE SAME AS UNDER THE FEDERAL INCOME TAX LAWS. PARTICIPANTS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO ANY DISTRIBUTION FROM THE PLAN AND TRANSACTIONS INVOLVING THE PLAN. The Plan has received a determination from the IRS that it is qualified under Sections 401(a) of the Code, and that the related Trust is exempt from tax under Section 501(a) of the Code. A plan that is "qualified" under these sections of the Code is afforded special tax treatment which include the following: (1) the sponsoring employer is allowed an immediate tax deduction for the amount contributed to the Plan of each year; (2) Participants pay no current income tax on amounts contributed by the employer on their behalf; and (3) earnings of the Plan are tax- S-9 exempt thereby permitting the tax-free accumulation of income and gains on investments. The Plan will be administered to comply in operation with the requirements of the Code as of the applicable effective date of any change in the law. The Savings Bank expects to timely adopt any amendments to the Plan that may be necessary to maintain the qualified status of the Plan under the Code. Following such an amendment, the Plan will be submitted to the IRS for a determination that the Plan, as amended, continues to qualify under Sections 401(a) and 501(a) of the Code and that it continues to satisfy the requirements for a qualified cash or deferred arrangement under Section 401(k) of the Code. Assuming that the Plan is administered in accordance with the requirements of the Code, participation in the Plan under existing federal income tax laws will have the following effects: (a) Amounts contributed to a Participant's account and the investment earnings are not subject to tax under such amounts actually distributed or withdrawn from the Plan. Special tax treatment may apply to the taxable portion of any distribution that includes Common Stock or qualified as a "Lump Sum Distribution" (as described below). (b) Income earned on assets held by the Trust will not be taxable to the Trust. LUMP SUM DISTRIBUTION. A distribution from the Plan to a Participant or the beneficiary of a Participant will qualify as a "Lump Sum Distribution" if it is made: (i) within a single taxable year of the Participant or beneficiary; (ii) on account of the Participant's death or separation from service, or after the Participant attains age 59 1/2; and (iii) consists of the balance to the credits of the Participant under the Plan and all other profit sharing plans, if any, maintained by the Savings Bank. The portion of any Lump Sum Distribution that is required to be included in the Participant's or beneficiary's taxable income for federal income tax purposes ("total taxable amount") consists of the entire amount of such Lump Sum Distribution less the amount of after-tax contributions, if any, made by the Participant to any other profit sharing plans maintained by the Savings Bank which is included in such distribution. AVERAGING RULES. The portion of the total taxable amount of a Lump Sum Distribution ("ordinary income portion") will be taxable generally as ordinary income for federal income tax purposes. However, for distributions occurring prior to January 1, 2000, a Participant who has completed at least five years of participation in the Plan before the taxable year in which the distribution is made, or a beneficiary who receives a Lump Sum Distribution on account of the Participant's death (regardless of the period of the Participant's participation in the Plan or any other profit sharing plan maintained by the Employer), may elect to have the ordinary income portion of such Lump Sum Distribution taxed according to a special averaging rule ("five-year averaging"). The election of the special averaging rules may apply only to one Lump Sum Distribution received by the Participant or beneficiary, provided such amount is received on or after the Participant turns 59 1/2 and the recipient elects to have any other Lump Sum Distribution from a qualified plan received in the same taxable year taxed under the special averaging rule. The special five-year averaging rule has been repealed for distributions occurring after December 31, 1999. Under a special grandfather rule, individuals who turned 50 by 1986 may elect to have S-10 their Lump Sum Distribution taxed under either the five-year averaging rule (if available) or the prior law ten-year averaging rule. Such individuals also may elect to have that portion of the Lump Sum Distribution attributable to the Participant's pre-1974 participation in the Plan taxed at a flat 20% rate as gain from the sale of a capital asset. COMMON STOCK INCLUDED IN LUMP SUM DISTRIBUTION. If a Lump Sum Distribution includes Common Stock, the distribution generally will be taxed in the manner described above, except that the total taxable amount will be reduced by the amount of any net unrealized appreciation with respect to such Common Stock, i.e., the excess of the value of such Common Stock at the time of the - ---- distribution over its cost to the Plan. The tax basis of such Common Stock to the Participant or beneficiary for purposes of computing gain or loss on its subsequent sale will be the value of the Common Stock at the time of distribution less the amount of net unrealized appreciation. Any gain on a subsequent sale or other taxable disposition of such Common Stock, to the extent of the amount of net unrealized appreciation at the time of distribution, will be considered long-term capital gain regardless of the holding period of such Common Stock. Any gain on a subsequent sale or other taxable disposition of the Common Stock in excess of the amount of net unrealized appreciation at the time of distribution will be considered either short-term capital gain or long-term capital gain depending upon the length of the holding period of the Common Stock. The recipient of a distribution may elect to include the amount of any net unrealized appreciation in the total taxable amount of such distribution to the extent allowed by the regulations by the IRS. DISTRIBUTIONS: ROLLOVERS AND DIRECT TRANSFERS TO ANOTHER QUALIFIED PLAN OR TO AN IRA. Pursuant to a change in the law, effective January 1, 1993, virtually all distributions from the Plan may be rolled over to another qualified Plan or to an individual retirement account ("IRA") without regard to whether the distribution is a Lump Sum Distribution or Partial Distribution. Effective January 1, 1993, Participants have the right to elect to have the Trustee transfer all or any portion of an "eligible rollover distribution" directly to another plan qualified under Section 401(a) of the Code or to an IRA. If the Participant does not elect to have an "eligible rollover distribution" transferred directly to another qualified plan of to an IRA, the distribution will be subject to a mandatory federal withholding tax equal to 20% of the taxable distribution. An "eligible rollover distribution" means any amount distributed from the Plan except: (1) a distribution that is (a) one of a series of substantially equal periodic payments made (not less frequently than annually) over the Participant's life of the joint life of the Participant and the Participant's designated beneficiary, or (b) for a specified period of ten years or more; (2) any amount that is required to be distributed under the minimum distribution rules; and (3) any other distributions excepted under applicable federal law. The tax law change described above did not modify the special tax treatment of Lump Sum Distributions, that are not rolled over or transferred, i.e., forward averaging, capital gains tax treatment and the ---- nonrecognition of net unrealized appreciation, discussed earlier. ADDITIONAL TAX ON EARLY DISTRIBUTIONS. A Participant who receives a distribution from the Plan prior to attaining age 59 1/2 will be subject to an additional income tax equal to 10% of the taxable amount of the distribution. The 10% additional income tax will not apply, however, S-11 to the extent the distribution is rolled over into an IRA or another qualified plan or the distribution is (i) made to a beneficiary (or to the estate of a Participant) on or after the death of the Participant, (ii) attributable to the Participant's being disabled within the meaning of Section 72(m)(7) of the Code, (iii) part of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Participant or the joint lives (or joint life expectancies) of the Participant and his or her beneficiary, (iv) made to the Participant after separation from service on account of early retirement under the Plan after attainment of age 55, (v) made to pay medical expenses to the extent deductible for federal income tax purposes, (vi) pursuant to a qualified domestic relations order, or (vii) made to effect the distribution of excess contributions or excess deferrals. THE FOREGOING IS ONLY A BRIEF SUMMARY OF CERTAIN FEDERAL INCOME TAX ASPECTS OF THE PLAN WHICH ARE OF GENERAL APPLICATION UNDER THE CODE AND IS NOT INTENDED TO BE A COMPLETE OR DEFINITIVE DESCRIPTION OF THE FEDERAL INCOME TAX CONSEQUENCES OF PARTICIPATING IN OR RECEIVING DISTRIBUTIONS FROM THE PLAN. ACCORDINGLY, EACH PARTICIPANT IS URGED TO CONSULT A TAX ADVISOR CONCERNING THE FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF PARTICIPATING IN AND RECEIVING DISTRIBUTIONS FROM THE PLAN. RESTRICTIONS ON RESALE Any person receiving shares of the Common Stock under the Plan who is an "affiliate" of the Savings Bank or the Holding Company as the term "affiliate" is used in Rules 144 and 405 under the Securities Act of 1933, as amended ("Securities Act") (e.g., directors, officers and substantial shareholders of the Savings Bank) may reoffer or resell such shares only pursuant to a registration statement filed under the Securities Act (the Holding Company and the Savings Bank having no obligation to file such registration statement) or, assuming the availability thereof, pursuant to Rule 144 or some other exemption from the registration requirements of the Securities Act. Any person who may be an "affiliate" of the Savings Bank or the Holding Company may wish to consult with counsel before transferring any Common Stock owned by him or her. In addition, Participants are advised to consult with counsel as to the applicability of the reporting and short-swing profit liability rules of Section 16 of the Exchange Act which may affect the purchase and sale of the Common Stock where acquired or sold under the Plan or otherwise. LEGAL OPINIONS The validity of the issuance of the Common Stock will be passed upon by Breyer & Aguggia, Washington, D.C., which firm is acting as special counsel for the Holding Company in connection with the Savings Bank's conversion from a state chartered mutual savings bank to a state chartered stock savings bank and the concurrent formation of the Holding Company. S-12 Investment Form (Employer Stock Fund) TIMBERLAND SAVINGS BANK, SSB PROFIT SHARING PLAN Name of Participant:_______________________________ Social Security Number:____________________________ 1. Instructions. In connection with the proposed conversion of Timberland Savings Bank, SSB ("Savings Bank") to a stock savings bank and the simultaneous formation of a holding company ("Conversion"), participants in the Timberland Savings Bank, SSB Profit Sharing Plan ("Plan") may elect to direct the investment of up to __% of their account balances into the Employer Stock Fund ("Employer Stock Fund"). Amounts transferred at the direction of Participants into the Employer Stock Fund will be used to purchase shares of the common stock of Timberland Bancorp, Inc. ("Common Stock"), the proposed holding company for the Savings Bank. A PARTICIPANT'S ELIGIBILITY TO PURCHASE SHARES OF COMMON STOCK IS SUBJECT TO THE PARTICIPANT'S GENERAL ELIGIBILITY TO PURCHASE SHARES OF COMMON STOCK IN THE CONVERSION AND THE MAXIMUM AND MINIMUM LIMITATIONS SET FORTH IN THE PLAN CONVERSION. SEE THE PROSPECTUS FOR ADDITIONAL INFORMATION. You may use this form to direct a transfer of funds credited to your account to the Employer Stock Fund, to purchase Common Stock in the Conversion. To direct such a transfer to the Employer Stock Fund, you should complete this form and return it to _________ at the Savings Bank, NO LATER THAN THE CLOSE OF BUSINESS ON ___________, 1997. The Savings Bank will keep a copy of this form and return a copy to you. (If you need assistance in completing this form, please contact _________). 2. Transfer Direction. I hereby direct the Plan Administrator to transfer $__________ (in increments of $10) to the Employer Stock Fund to be applied to the purchase of Common Stock in the Conversion. Transfer this amount from the following funds:__________________________________________________________________________ - -------------------------------------------------------------------------------- 3. Effectiveness of Direction. I understand that this Investment Form shall be subject to all of the terms and conditions of the Plan and the terms and conditions of the Conversion. I acknowledge that I have received a copy of the Prospectus and the Prospectus Supplement. - --------------------------------- --------------------------------- Signature Date * * * * * 4. Acknowledgement of Receipt. This Investment Form was received by the Plan Administrator and will become effective on the date noted below. - --------------------------------- --------------------------------- Plan Administrator Date S-13 PROSPECTUS TIMBERLAND BANCORP, INC. (PROPOSED HOLDING COMPANY FOR TIMBERLAND SAVINGS BANK, SSB) UP TO 5,750,000 SHARES OF COMMON STOCK (ANTICIPATED MAXIMUM) $10.00 PURCHASE PRICE PER SHARE Timberland Bancorp, Inc. ("Holding Company"), a Washington corporation, is offering between 4,250,000 and 5,750,000 shares of its common stock, $.01 par value per share ("Common Stock"), in connection with the conversion of Timberland Savings Bank, SSB ("Savings Bank") from a Washington-chartered mutual savings bank to a Washington-chartered capital stock savings bank and the simultaneous issuance of the Savings Bank's capital stock to the Holding Company. The simultaneous conversion of the Savings Bank to stock form, the issuance of the Savings Bank's capital stock to the Holding Company and the offer and sale of the Common Stock by the Holding Company are being undertaken pursuant to a Plan of Conversion ("Plan of Conversion"), and are referred to herein as the "Conversion." Nontransferable rights to subscribe for the Common Stock ("Subscription Rights") have been given, in order of priority, to (i) depositors with $50.00 or more on deposit at the Savings Bank as of December 31, 1995 ("Eligible Account Holders"), (ii) the Savings Bank's employee stock ownership plan ("ESOP"), a tax-qualified employee benefit plan, (iii) depositors with $50.00 or more on deposit at the Savings Bank as of September 30, 1997 ("Supplemental Eligible Account Holders"), and (iv) depositors and borrowers of the Savings Bank as of October 31, 1997 ("Voting Record Date") ("Other Members"), subject to the priorities and purchase limitations set forth in the Plan of Conversion ("Subscription Offering"). SUBSCRIPTION RIGHTS ARE NON-TRANSFERABLE. PERSONS FOUND TO BE TRANSFERRING SUBSCRIPTION RIGHTS OR ATTEMPTING TO PURCHASE SHARES ON BEHALF OF OTHER PERSONS WILL BE SUBJECT TO FORFEITURE OF SUCH RIGHTS AND POSSIBLE FURTHER SANCTIONS AND PENALTIES IMPOSED BY THE WASHINGTON DEPARTMENT OF FINANCIAL INSTITUTIONS, DIVISION OF BANKS ("DIVISION"). See "THE CONVERSION -- The Subscription, Direct Community and Syndicated Community Offerings" and "-- Limitations on Purchases of Shares." Concurrently, but subject to the prior rights of holders of Subscription Rights, the Holding Company is offering the Common Stock for sale through a direct community offering ("Direct Community Offering") to natural persons and trusts of natural persons who are permanent residents of Grays Harbor, Thurston, Pierce and King counties of Washington ("Local Community"), subject to the right of the Holding Company to accept or reject these orders in whole or in part. If any shares remain available on the Expiration Date (as hereinafter defined), the Direct Community Offering, in the discretion of the Holding Company and the Savings Bank, may be expanded to include other members of the general public. NO ORDERS WILL BE ACCEPTED IN THE DIRECT COMMUNITY OFFERING FROM NATURAL PERSONS OR TRUSTS OF NATURAL PERSONS RESIDING OUTSIDE THE LOCAL COMMUNITY UNLESS THE DIRECT COMMUNITY OFFERING IS EXPANDED TO INCLUDE SUCH PERSONS. The Subscription Offering and the Direct Community Offering are referred to herein as the "Subscription and Direct Community Offering." It is anticipated that shares of Common Stock not subscribed for or purchased in the Subscription and Direct Community Offering will be offered to eligible members of the general public on a best efforts basis by a selling group of broker-dealers managed by Charles Webb & Company ("Webb"), a division of Keefe, Bruyette & Woods, Inc. ("Keefe, Bruyette"), in a syndicated offering ("Syndicated Community Offering"). The Subscription and Direct Community Offering and the Syndicated Community Offering are referred to collectively as the "Offerings." FOR INFORMATION ON HOW TO SUBSCRIBE FOR SHARES OF COMMON STOCK, CALL THE STOCK INFORMATION CENTER AT (360) 537-6592. FOR A DISCUSSION OF CERTAIN RISKS THAT SHOULD BE CONSIDERED BY EACH PROSPECTIVE INVESTOR, SEE "RISK FACTORS" BEGINNING ON PAGE 1. THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND WILL NOT BE INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC"), THE SAVINGS ASSOCIATION INSURANCE FUND ("SAIF"), THE WASHINGTON DEPARTMENT OF FINANCIAL INSTITUTIONS, DIVISION OF BANKS ("DIVISION") OR ANY OTHER GOVERNMENT AGENCY, NOR ARE SUCH SHARES GUARANTEED BY THE HOLDING COMPANY OR THE SAVINGS BANK AND THERE CAN BE NO ASSURANCE THAT PURCHASERS WILL BE ABLE TO SELL THEIR SHARES AT OR ABOVE THE PURCHASE PRICE. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION ("SEC"), THE DIVISION, THE FDIC OR ANY OTHER GOVERNMENT AGENCY OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SEC, THE DIVISION, THE FDIC OR ANY OTHER GOVERNMENT AGENCY OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. (cover continued on following page) CHARLES WEBB & COMPANY, a Division of Keefe, Bruyette & Woods, Inc. The date of this Prospectus is ____________ __, 1997.
- --------------------------------------------------------------------------------------------------------------------- Estimated Underwriting Purchase Commissions and Estimated Net Price(1) Other Expenses(2) Proceeds to Issuer(3) - --------------------------------------------------------------------------------------------------------------------- Minimum Price Per Share.................. $ 10.00 $ 0.23 $ 9.77 - --------------------------------------------------------------------------------------------------------------------- Midpoint Price Per Share................. $ 10.00 $ 0.19 $ 9.81 - --------------------------------------------------------------------------------------------------------------------- Maximum Price Per Share.................. $ 10.00 $ 0.17 $ 9.83 - --------------------------------------------------------------------------------------------------------------------- Maximum Price Per Share, as adjusted(4).. $ 10.00 $ 0.15 $ 9.85 - --------------------------------------------------------------------------------------------------------------------- Minimum Total(5)......................... $42,500,000 $965,000 $41,535,000 - --------------------------------------------------------------------------------------------------------------------- Midpoint Total(6)........................ $50,000,000 $965,000 $49,035,000 - --------------------------------------------------------------------------------------------------------------------- Maximum Total(7)......................... $57,500,000 $965,000 $56,535,000 - --------------------------------------------------------------------------------------------------------------------- Maximum Total, as adjusted(4)(8)......... $66,125,000 $965,000 $65,160,000 - ---------------------------------------------------------------------------------------------------------------------
(1) Determined in accordance with an independent appraisal prepared by RP Financial, LC. ("RP Financial") as of August 29, 1997, which states that the estimated aggregate pro forma market value of the Holding Company and the Savings Bank ranged from $42.5 million to $57.5 million, with a midpoint of $50.0 million ("Estimated Valuation Range"). See "THE CONVERSION -- Stock Pricing and Number of Shares to be Issued." (2) Includes estimated costs to the Holding Company and the Savings Bank arising from the Conversion, including fees to be paid to Webb in connection with the Offerings. Such fees may be deemed to be underwriting fees and Webb may be deemed to be an underwriter. Actual expenses, and thus net proceeds, may be more or less than estimated amounts. The Holding Company and the Savings Bank have agreed to indemnify Webb against certain liabilities, including liabilities that may arise under the Securities Act of 1933, as amended ("Securities Act"). See "USE OF PROCEEDS" and "THE CONVERSION -- Plan of Distribution for the Subscription, Direct Community and Syndicated Community Offerings." (3) Actual net proceeds may vary substantially from the estimated amounts depending upon the relative number of shares sold in the Offerings. See "USE OF PROCEEDS" and "PRO FORMA DATA." (4) Gives effect to an increase in the number of shares that could be sold in the Offerings due to an increase in the pro forma market value of the Holding Company and the Savings Bank as converted up to 15% above the maximum of the Estimated Valuation Range, without the resolicitation of subscribers or any right of cancellation. The issuance of such additional shares will be conditioned on a determination of RP Financial that such issuance is compatible with its determination of the estimated pro forma market value of the Common Stock. See "THE CONVERSION -- Stock Pricing and Number of Shares to be Issued." (5) Assumes the issuance of 4,250,000 shares at $10.00 per share. (6) Assumes the issuance of 5,000,000 shares at $10.00 per share. (7) Assumes the issuance of 5,750,000 shares at $10.00 per share. (8) Assumes the issuance of 6,612,500 shares at $10.00 per share. Except for the ESOP, which is expected to purchase 8% of the Common Stock issued in the Conversion, subject to the approval of the Division, NO ELIGIBLE ACCOUNT HOLDER, SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDER OR OTHER MEMBER MAY SUBSCRIBE IN THEIR CAPACITY AS SUCH IN THE SUBSCRIPTION OFFERING FOR SHARES OF COMMON STOCK HAVING AN AGGREGATE PURCHASE PRICE OF MORE THAN $200,000 (20,000 SHARES BASED ON A PURCHASE PRICE OF $10.00 PER SHARE ("PURCHASE PRICE")); NO PERSON, EITHER ALONE OR TOGETHER WITH ASSOCIATES OF OR PERSONS ACTING IN CONCERT WITH SUCH PERSON, MAY PURCHASE IN EITHER THE DIRECT COMMUNITY OFFERING, IF ANY, OR IN THE SYNDICATED COMMUNITY OFFERING, IF ANY, SHARES OF COMMON STOCK HAVING AN AGGREGATE PURCHASE PRICE OF MORE THAN $200,000 (20,000 SHARES BASED ON THE PURCHASE PRICE); NO PERSON EITHER ALONE OR TOGETHER WITH ASSOCIATES OF OR PERSONS ACTING IN CONCERT WITH SUCH PERSON, MAY PURCHASE IN THE AGGREGATE MORE THAN THE OVERALL MAXIMUM PURCHASE LIMITATION OF 1% OF THE TOTAL NUMBER OF SHARES OF COMMON STOCK ISSUED IN THE CONVERSION (EXCLUSIVE OF ANY SHARES ISSUED PURSUANT TO AN INCREASE IN THE ESTIMATED VALUATION RANGE OF UP TO 15%). Under certain circumstances, the maximum purchase limitation may be increased at the sole discretion of the Savings Bank and the Holding Company. The minimum purchase is 25 shares. See "THE CONVERSION -- The Subscription, Direct Community and Syndicated Community Offerings," "-- Limitations on Purchases of Shares" and "-- Procedure for Purchasing Shares in the Subscription and Direct Community Offering" for other purchase and sale limitations. THE SUBSCRIPTION OFFERING WILL EXPIRE AT 5:00 P.M., PACIFIC TIME, ON _________ __, 1997 ("EXPIRATION DATE"), UNLESS EXTENDED BY THE SAVINGS BANK AND THE HOLDING COMPANY FOR UP TO __ DAYS TO _______ __, 1997. SUCH EXTENSION MAY BE GRANTED WITHOUT ADDITIONAL NOTICE TO SUBSCRIBERS. THE DIRECT COMMUNITY OFFERING IS ALSO EXPECTED TO TERMINATE AT 5:00 P.M., PACIFIC TIME, ON ________ __, 1997 OR AT A DATE THEREAFTER, HOWEVER, IN NO EVENT LATER THAN ________ __, 1998. The Holding Company must receive at an office of the Savings Bank the accompanying original Stock Order Form and a fully executed Certification Form (collectively, the "Stock Order Form") (facsimile copies and photocopies will not be accepted) along with full payment (or appropriate instructions authorizing a withdrawal from a deposit account at the Savings Bank) of $10.00 per share ("Purchase Price") for all shares subscribed for or ordered by the Expiration Date. Payment for shares of Common Stock by wire transfer will not be accepted. Funds so received will be placed in segregated accounts created for this purpose at the Savings Bank, and interest will be paid at the Savings Bank's passbook rate (____% per annum as of the date hereof) from the date payment is received until the Conversion is consummated or terminated. These funds will be otherwise unavailable to the depositor until such time. Payments authorized by withdrawals from deposit accounts will continue to earn interest at the contractual rate until the Conversion is consummated or terminated, although such funds will be unavailable for withdrawal until the Conversion is consummated or terminated. Shares of Common Stock issued in the Conversion are not deposit liabilities, will not earn interest, and will not be insured by the FDIC, the SAIF or any other government agency. ORDERS SUBMITTED ARE IRREVOCABLE UNTIL THE CONSUMMATION OR TERMINATION OF THE CONVERSION. If the Conversion is not consummated within 45 days after the last day of the Subscription and Direct Community Offering (which date will be no later than ________ __, 1998) and the Division consents to an extension of time to consummate the Conversion, subscribers will be notified in writing of the time period within which the subscriber must notify the Savings Bank of his or her intention to increase, decrease or rescind his or her subscription. If an affirmative response to any such resolicitation is not received by the Holding Company or the Savings Bank from subscribers, such orders will be rescinded and all funds will be returned promptly with interest. If such period is not extended or, in any event, if the Conversion is not consummated by __________ __, 1997, all subscription funds will be promptly returned, together with accrued interest, and all withdrawal authorizations terminated. The Savings Bank and the Holding Company have engaged Webb as their financial advisor and to assist the Holding Company in the sale of the Common Stock in the Offerings. Neither Webb nor any other registered broker-dealer is obligated to take or purchase any shares of Common Stock in the Offerings. See "THE CONVERSION -- Plan of Distribution for the Subscription, Direct Community and Syndicated Community Offerings." Webb is a registered broker-dealer and member of the National Association of Securities Dealers, Inc. ("NASD"). Prior to the Offerings, the Holding Company has not issued any capital stock and accordingly there has been no market for the shares offered hereby. There can be no assurance that an active and liquid trading market for the Common Stock will develop or, if developed, will be maintained. See "RISK FACTORS -- Absence of Prior Market for the Common Stock." The Holding Company has received conditional approval to list the Common Stock on the National Market System of the Nasdaq Stock Market under the symbol "____." Keefe, Bruyette has advised the Holding Company that it intends to act as a market maker for the Common Stock following the Conversion. See "MARKET FOR COMMON STOCK." TIMBERLAND SAVINGS BANK, SSB HOQUIAM, WASHINGTON [Map] THE SAVINGS BANK'S CONVERSION TO A STOCK ORGANIZATION IS CONTINGENT UPON APPROVAL OF THE SAVINGS BANK'S PLAN OF CONVERSION BY AT LEAST A MAJORITY OF ITS VOTING MEMBERS, THE SALE OF AT LEAST 4,250,000 SHARES OF COMMON STOCK PURSUANT TO THE PLAN OF CONVERSION AND RECEIPT OF ALL REGULATORY APPROVALS. - ------------------------------------------------------------------------------- THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS OR ACCOUNTS AND WILL NOT BE INSURED OR GUARANTEED BY THE FDIC, THE SAIF, THE DIVISION OR ANY OTHER GOVERNMENT AGENCY. - ------------------------------------------------------------------------------- PROSPECTUS SUMMARY The information set forth below should be read in conjunction with and is qualified in its entirety by the more detailed information and Consolidated Financial Statements (including the Notes thereto) presented elsewhere in this Prospectus. The purchase of Common Stock is subject to certain risks. See "RISK FACTORS." TIMBERLAND BANCORP, INC. The Holding Company is a Washington corporation organized on September 8, 1997 at the direction of the Savings Bank to acquire all of the capital stock that the Savings Bank will issue upon its conversion from the mutual to stock form of ownership. The Holding Company has not engaged in any significant business to date. Upon completion of the Conversion, the Holding Company will be regulated by the Federal Reserve. The Holding Company has filed an application with the Federal Reserve and the Division to become a bank holding company and for approval to acquire the Savings Bank. Immediately following the Conversion, the only significant assets of the Holding Company will be the capital stock of the Savings Bank, that portion of the net proceeds of the Offerings permitted by the Division to be retained by the Holding Company and a note receivable from the ESOP evidencing a loan from the Holding Company to fund the Savings Bank's ESOP. See "USE OF PROCEEDS." Management believes that the holding company structure and retention of proceeds may, should it decide to do so, facilitate the repurchase of its stock without adverse tax consequences. There are no present plans, arrangements, agreements, or understandings, written or oral, regarding any such repurchases. The office of the Holding Company is located at 624 Simpson Avenue, Hoquiam, Washington 98550, and its telephone number is (360) 533-4747. TIMBERLAND SAVINGS BANK, SSB The Savings Bank was established in 1915 as "Southwest Washington Savings and Loan Association." In 1935, the Savings Bank converted from a state- chartered mutual savings and loan association to a federally chartered mutual savings and loan association, and in 1972, changed its the name to "Timberland Federal Savings and Loan Association." In 1990, the Savings Bank converted to a federally-chartered mutual savings bank under the name "Timberland Savings Bank, FSB." In 1991, the Savings Bank converted to a Washington-chartered mutual savings bank and adopted its current name. The Savings Bank's deposits are insured by the FDIC up to applicable legal limits under the SAIF. The Savings Bank has been a member of the Federal Home Loan Bank ("FHLB") system since 1937. The Savings Bank is regulated by the Division and the FDIC. At June 30, 1997, the Savings Bank had total assets of $206.2 million, total deposit accounts of $167.1 million, and total capital of $23.9 million, on a consolidated basis. The Savings Bank is a community oriented savings bank which has traditionally offered a variety of savings products to its retail customers while concentrating its lending activities on real estate mortgage loans. Lending activities have been focused primarily on the origination of loans secured by one- to four-family residential dwellings, including an emphasis on construction and land development loans, as well as the origination of multi- family and commercial real estate loans. The Savings Bank actively originates adjustable rate residential mortgage loans that do not qualify for sale in the secondary market under Federal Home Loan Mortgage Corporation ("FHLMC") guidelines. At June 30, 1997, the Savings Bank's gross loan portfolio totaled $204.6 million, of which $100.1 million, or 48.9%, were one- to four- (i) family residential mortgage loans, $44.7million, or 21.9%, were construction and land development loans (the majority of which related to one- to four-family residences), and $41.5 million, or 20.3%, were multi-family or commercial real estate loans. Construction and commercial real estate loans generally involve a greater risk of loss than one- to- four family mortgage loans. See "RISK FACTORS -- Certain Lending Risks." The Savings Bank also invests in short- to- intermediate term U.S. Treasury securities and U.S. Government agency obligations and mortgage-backed securities issued by U.S. Government agencies. At June 30, 1997, the Savings Bank's investment and mortgage-backed securities portfolio had a carrying value of $5.7 million. See "BUSINESS OF THE SAVINGS BANK -- Investment Securities." Deposits have been the primary source of funds for the Savings Bank's investment and lending activities. The Savings Bank plans to continue to fund its operations primarily with deposits, although advances from the FHLB-Seattle have been used as a supplemental source of funds. See "BUSINESS OF THE SAVINGS BANK --Deposits and Other Sources of Funds." The Savings Bank conducts its operations from its main office, seven branch offices and a loan production office located in Western Washington State. See "BUSINESS OF THE SAVINGS BANK -- Properties." The Savings Bank's main office is located at 624 Simpson Avenue, Hoquiam, Washington, 98550 and its telephone number is (360) 533-4747. THE CONVERSION The Savings Bank is converting from a Washington-chartered mutual savings bank to a Washington-chartered capital stock savings bank and, in connection with the Conversion, has formed the Holding Company. As part of the Conversion, the Savings Bank will issue all of its capital stock to the Holding Company in exchange for 50% of the net proceeds from the sale of the Common Stock. Simultaneously, the Holding Company will sell its Common Stock in the Offerings. ORDERS SUBMITTED ARE IRREVOCABLE UNTIL THE COMPLETION OF THE CONVERSION. The Conversion is subject to the approval of the Division and the non-objection of the FDIC, as well as the approval of the Savings Bank's eligible voting members at a special meeting to be held on December 23, 1997. The Plan of Conversion requires that the aggregate purchase price of the Common Stock to be issued in the Conversion be based upon an independent appraisal of the estimated pro forma market value of the Holding Company and the Savings Bank. RP Financial has advised the Savings Bank that in its opinion, at August 29, 1997, the aggregate estimated pro forma market value of the Holding Company and the Savings Bank ranged from $42.5 million to $57.5 million or from 4,250,000 shares to 5,750,000 shares, assuming a $10.00 per share Purchase Price. The appraisal of the pro forma market value of the Holding Company and the Savings Bank is based on a number of factors and should not be considered a recommendation to buy shares of the Common Stock or any assurance that after the Conversion shares of Common Stock will be able to be resold at or above the Purchase Price. The appraisal will be updated or confirmed prior to the completion of the Conversion. The Board of Directors and management of the Savings Bank believe that the stock form of organization is preferable to the mutual form, especially in light of the competitive and heavily regulated environments within which the Savings Bank operates. The Board of Directors and management believe that the Conversion is in the best interests of the Savings Bank's members and its community. The Conversion is intended to: (i) support the Savings Bank's current lending and investment activities, (ii) support possible future expansion, merger and diversification of operations (currently, there are no specific plans, arrangements or understandings, written or oral, regarding any such activities); (iii) afford members of the Savings Bank and others the opportunity to become stockholders of the Holding Company and thereby participate more directly in, and contribute to, any future growth of the Holding Company and the Savings Bank; and (iv) provide future access to capital markets. See "THE CONVERSION --Purposes of Conversion." (ii) The Conversion will significantly increase the consolidated capital of the Savings Bank and the newly formed Holding Company and as a result the pro forma return on equity will be significantly less than the Savings Bank's pre- Conversion return on equity. See "RISK FACTORS -- Return on Average Equity After Conversion." THE SUBSCRIPTION, DIRECT COMMUNITY AND SYNDICATED COMMUNITY OFFERINGS The Holding Company is offering up to 5,750,000 shares of Common Stock (subject to adjustment) at $10.00 per share to holders of Subscription Rights in the following order of priority: (i) Eligible Account Holders; (ii) the Savings Bank's ESOP; (iii) Supplemental Eligible Account Holders; and (iv) Other Members. Concurrently, and subject to the prior rights of holders of Subscription Rights, any shares of Common Stock not subscribed for in the Subscription Offering are being offered in the Direct Community Offering to natural persons and trusts of natural persons who are permanent residents of the Local Community. If any shares remain available on the expiration date of the Direct Community Offering, in the discretion of the Holding Company and the Savings Bank, the Direct Community Offering may be expanded to include other members of the general public. NO ORDERS WILL BE ACCEPTED IN THE DIRECT COMMUNITY OFFERING FROM NATURAL PERSONS OR TRUSTS OF NATURAL PERSONS RESIDING OUTSIDE THE LOCAL COMMUNITY UNLESS THE DIRECT COMMUNITY OFFERING IS EXPANDED TO INCLUDE SUCH PERSONS. The Savings Bank has engaged Webb to consult with and advise the Holding Company and the Savings Bank in the Offerings, and Webb has agreed to use its best efforts to assist the Holding Company with the solicitation of subscriptions and purchase orders for shares of Common Stock in the Offerings. Webb is not obligated to take or purchase any shares of Common Stock in the Offerings. If all shares of Common Stock to be issued in the Conversion are not sold through the Subscription and Direct Community Offering, then the Holding Company expects to offer the remaining shares in a Syndicated Community Offering managed by Webb, which would occur as soon as practicable following the close of the Subscription and Direct Community Offering but may commence during the Subscription and Direct Community Offering, subject to the prior rights of subscribers in the Subscription and Direct Community Offering and to the right of the Holding Company to accept or reject these orders in whole or in part. All shares of Common Stock will be sold at the same price per share in the Syndicated Community Offering as in the Subscription and Direct Community Offering. See "USE OF PROCEEDS," "PRO FORMA DATA" and "THE CONVERSION - -- Stock Pricing and Number of Shares to be Issued." The Subscription Offering will expire at 5:00 p.m., Pacific Time, on _________ __, 1997, unless extended by the Savings Bank and the Holding Company for up to ___ days. The Direct Community Offering and Syndicated Community Offering, if any, are also expected to terminate on _________ __, 1997, and may terminate on any date thereafter, however, in no event later than ________ __, 1998. SUBSCRIPTION RIGHTS ARE NON-TRANSFERRABLE. PERSONS FOUND TO BE TRANSFERRING SUBSCRIPTION RIGHTS OR ATTEMPTING TO PURCHASE SHARES OF COMMON STOCK ON BEHALF OF OTHER PERSONS WILL BE SUBJECT TO FORFEITURE OF SUCH RIGHTS AND POSSIBLE FURTHER SANCTIONS AND PENALTIES. BENEFITS OF CONVERSION TO MANAGEMENT ESOP. In connection with the Conversion, the Savings Bank will adopt the ESOP, a tax-qualified employee benefit plan for officers and employees of the Holding Company and the Savings Bank, which intends to purchase 8% of the shares of Common Stock issued in the Offerings (460,000 shares of Common Stock, based on the issuance of the maximum of the Estimated Valuation Range). In the event that the ESOP's subscription is not filled in its entirety, the ESOP may purchase additional shares in the open market with cash contributed to it by the Savings Bank after the consummation of the Conversion. See "MANAGEMENT OF THE SAVINGS BANK -- Benefits --Employee Stock Ownership Plan." As a result of the adoption of the ESOP, the Holding Company will recognize compensation expense in an amount equal to the fair market value of the ESOP shares when such shares are committed to be released to participants' accounts. See "RISK FACTORS -- New Expenses Associated With ESOP and MRP" and "PRO FORMA DATA." MRP. The Holding Company expects to seek stockholder approval of the Timberland Bancorp, Inc. Management Recognition Plan ("MRP"), which will reserve a number of shares equal to 4% of the number of shares (iii) issued in the Conversion. Under current FDIC regulations, the approval of a majority vote of the Holding Company's outstanding shares of Common Stock is required prior to the implementation of the MRP within one year of the consummation of the Conversion. If stockholder approval of the MRP is obtained, it is expected that awards of up to 230,000 shares of Common Stock (based on the issuance of the maximum of the Estimated Valuation Range) will be made to key employees and directors of the Holding Company and the Savings Bank at no cost to the recipient. Although no specific award determinations have been made at this time, the Holding Company and the Savings Bank anticipate that if stockholder approval is obtained it would provide awards to its directors, officers and employees to the extent permitted by applicable regulations. Under current FDIC regulations, if the MRP is implemented within one year of the consummation of the Conversion, (i) no officer or employee could receive an award covering in excess of 25%, (ii) no nonemployee director may receive in excess of 5% and (iii) nonemployee directors, as a group, could not receive in excess of 30% of the number of shares reserved for issuance under the MRP. In addition, all awards would be subject to vesting at a minimum rate of 20% per year. The size of individual awards will be determined prior to submitting the MRP for stockholder approval, and disclosure of anticipated awards will be included in the proxy solicitation materials for such meeting. See "PRO FORMA DATA" and "MANAGEMENT OF THE SAVINGS BANK -- Benefits -- Management Recognition Plan." STOCK OPTION PLAN. The Holding Company expects to seek stockholder approval of the Timberland Bancorp, Inc. 1997 Stock Option Plan ("Stock Option Plan"), which will reserve a number of shares equal to 10% of the number of shares issued in the Conversion. Under current FDIC regulations, the approval of a majority vote of the Holding Company's outstanding shares of Common Stock is required prior to the implementation of the Stock Option Plan within one year of the consummation of the Conversion. If stockholder approval of the Stock Option Plan is obtained, it is expected that options to acquire up to 575,000 shares of Common Stock (based on the issuance of the maximum of the Estimated Valuation Range) will be awarded to key employees and directors of the Holding Company and the Savings Bank. The exercise price of such options will be 100% of the fair market value of the Common Stock on the date the option is granted. Although no specific award determinations have been made at this time, the Holding Company and the Savings Bank anticipate that if stockholder approval is obtained it would provide awards to its directors, officers and employees to the extent permitted by applicable regulations. Under current FDIC regulations, if the Stock Option Plan is implemented within one year of the consummation of the Conversion, (i) no officer or employees could receive an award of options covering in excess of 25%, (ii) no nonemployee director could receive in excess of 5% and (iii) nonemployee directors, as a group, could not receive in excess of 30% of the number of shares reserved for issuance under the Stock Option Plan. In addition, all awards would be subject to vesting at a minimum rate of 20% per year. The size of individual awards will be determined prior to submitting the Stock Option Plan for stockholder approval, and disclosure of anticipated awards will be included in the proxy solicitation materials for such meeting. Options are valuable only to the extent that they are exercisable and the market price for the underlying share of Common Stock is in excess of the exercise price. An option effectively eliminates the market risk of holding the underlying securities since no consideration is paid for the option until it is exercised. Therefore, the recipient may, within the limits of the term of the option, wait to exercise the option until the market price exceeds the exercise price. See "MANAGEMENT OF THE SAVINGS BANK -- Benefits -- 1997 Stock Option Plan." PROFIT SHARING BONUS PLAN. The Savings Bank maintains a discretionary bonus plan which is based on the Savings Bank's net income for each fiscal year. No assurances can be given that the Conversion will increase the Savings Bank's net income. However, to the extent, if any, that the Conversion results in higher net income to the Savings Bank, officers of the Savings Bank and other participating employees would benefit. The amount of such benefit, if any, is unquantifiable at this time because predictions of future income (or loss) levels is impossible. See "MANAGEMENT OF THE SAVINGS BANK -- Benefits -- Profit Sharing Bonus Plan." For information concerning the possible voting control of officers, directors and employees following the Conversion, see "RISK FACTORS -- Anti- takeover Considerations -- Voting Control by Insiders." (iv) PROSPECTUS DELIVERY AND PROCEDURE FOR PURCHASING COMMON STOCK To ensure that each purchaser receives a Prospectus at least 48 hours prior to the Expiration Date, in accordance with Rule 15c2-8 under the Exchange Act, no Prospectus will be mailed later than five days or hand delivered any later than two days prior to the Expiration Date. Execution of the Order Form will confirm receipt or delivery of a Prospectus in accordance with Rule 15c2-8. Order Forms will be distributed only with a Prospectus. Neither the Holding Company, the Savings Bank nor Webb is obligated to deliver a Prospectus and an Order Form by any means other than the U.S. Postal Service. To ensure that Eligible Account Holders, Supplemental Eligible Account Holders, and Other Members are properly identified as to their stock purchase priorities, such parties must list all deposit accounts on the Order Form giving all names on each deposit account and/or loan and the account and/or loan numbers at the applicable eligibility date. Full payment by check, cash (except by mail), money order, bank draft or withdrawal authorization (payment by wire transfer will not be accepted) must accompany an original Order Form. THE HOLDING COMPANY WILL NOT ACCEPT ORDERS SUBMITTED ON PHOTOCOPIED OR TELECOPIED STOCK ORDER FORMS. ORDERS CANNOT AND WILL NOT BE ACCEPTED WITHOUT THE EXECUTION OF THE CERTIFICATION FORM APPEARING ON THE REVERSE SIDE OF THE STOCK ORDER FORM. See "THE CONVERSION -- Procedure for Purchasing Shares in the Subscription and Direct Community Offering." PURCHASE LIMITATIONS Except for the ESOP, which is expected to subscribe for 8% of the shares of Common Stock issued in the Conversion, the Plan of Conversion provides for the following purchase limitations: (i) No Eligible Account Holder, Supplemental Eligible Account Holder or Other Member, including, in each case, all persons on a joint account, may purchase in the Subscription Offering shares of Common Stock with an aggregate purchase price of more than $200,000 (20,000 shares based on the Purchase Price), (ii) no person, either alone or together with associates of or persons acting in concert with such person, may purchase in the Direct Community Offering, if any, or in the Syndicated Community Offering, if any, shares of Common Stock with an aggregate purchase price of more than $200,000 (20,000 shares based on the Purchase Price), and (iii) no person, either alone or together with associates of or persons acting in concert with such person, may purchase in the aggregate more than the overall maximum purchase limitation of 1% of the total number of shares of Common Stock issued in the Conversion (exclusive of any shares issued pursuant to an increase in the Estimated Valuation Range of up to 15%). THIS MAXIMUM PURCHASE LIMITATION MAY BE INCREASED CONSISTENT WITH REGULATIONS OF THE DIVISION IN THE SOLE DISCRETION OF THE HOLDING COMPANY AND THE SAVINGS BANK SUBJECT TO ANY REQUIRED REGULATORY APPROVAL. The minimum purchase is 25 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 Holding Company and the Savings Bank 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 Securities and Exchange Commission ("SEC") with respect to other companies. The term "associate" of a person is defined in the Plan of Conversion to mean: (i) any corporation or organization (other than the Savings Bank or a majority- owned subsidiary of the Savings Bank) 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 Savings Bank or any of its parents or subsidiaries. THE HOLDING COMPANY AND THE SAVINGS BANK MAY (v) 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. Stock orders received either through the Direct Community Offering or the Syndicated Community Offering, if held, may be accepted or rejected, in whole or in part, at the discretion of the Holding Company and the Savings Bank. See "THE CONVERSION -- Limitations on Purchases of Shares." If an order is rejected in part, the purchaser does not have the right to cancel the remainder of the order. In the event of an oversubscription, shares will be allocated in accordance with the Plan of Conversion. See "THE CONVERSION -- The Subscription, Direct Community and Syndicated Community Offerings." STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED IN THE CONVERSION The Purchase Price in the Offerings is a uniform, fixed price for all subscribers, including the Savings Bank's Board of Directors, its management and tax-qualified employee plans, and was set by the Savings Bank's Board of Directors. The number of shares to be offered at the Purchase Price is based upon an independent appraisal of the aggregate pro forma market value of the Holding Company and the Savings Bank as converted. The aggregate pro forma market value was estimated by RP Financial to range from $42.5 million to $57.5 million as of August 29, 1997, or from 4,250,000 to 5,750,000 shares based on the Purchase Price. See "THE CONVERSION -- Stock Pricing and Number of Shares to be Issued." The appraisal of the pro forma value of the Holding Company and the Savings Bank as converted will be updated or confirmed immediately prior to the completion of the Offerings. The maximum of the Estimated Valuation Range may be increased by up to 15% and the number of shares of Common Stock to be issued in the Conversion may be increased to 6,612,500 shares due to regulatory considerations, material changes in the financial condition or performance of the Savings Bank, changes in market conditions or general financial and economic conditions. No resolicitation of subscribers will be made and subscribers will not be permitted to modify or cancel their subscriptions unless the gross proceeds from the sale of the Common Stock are more than 15% above the maximum of the current Estimated Valuation Range, or below the minimum of the Estimated Valuation Range. The appraisal of the Common Stock is not intended and should not be construed as a recommendation of any kind as to the advisability of purchasing such stock nor can any assurance be given that purchasers of the Common Stock in the Conversion will be able to sell such shares after the Conversion at a price that is equal to or above the Purchase Price. Further, the pro forma stockholders' equity is not intended to represent the fair market value of the Common Stock and may be greater than amounts that would be available for distribution to stockholders in the event of liquidation. CONDITIONS TO CLOSING OF THE OFFERINGS Consummation of the Offerings is subject to, among other things (i) consummation of the Conversion, which is conditioned on, among other things, approval of the Plan of Conversion by the eligible voting members of the Savings Bank, (ii) receipt by the Division of RP Financial's updated appraisal of the pro forma market value of the Holding Company and the Savings Bank, and authorization of the Division to sell the Common Stock within the estimated valuation range set forth in such updated appraisal, (iii) the non-objection of the FDIC to the Conversion, and (iv) Federal Reserve approval of the Holding Company's acquisition of the Savings Bank. There can be no assurances that all such conditions will be satisfied. See "RISK FACTORS -- Risk of Delayed Offering" and "THE CONVERSION -- General." USE OF PROCEEDS The net proceeds from the sale of the Common Stock are estimated to range from $41.5 million to $56.5 million, or to $65.2 million if the Estimated Valuation Range is increased by 15%, depending upon the number of shares sold and the expenses of the Conversion. The Holding Company plans to contribute to the Savings Bank 50% of the net proceeds of the Offerings in exchange for all of the issued and outstanding shares of common stock of the Savings Bank and retain the remaining net proceeds. This will result in the Holding Company retaining (vi) approximately $20.8 million to $28.3 million of the net proceeds, or up to $32.6 million if the Estimated Valuation Range is increased by 15%, and the Savings Bank receiving an equal amount. Receipt of 50% of the net proceeds of the sale of the Common Stock will increase the Savings Bank's capital and as a result its pro forma return on equity will be significantly less than its pre-Conversion return on equity. See RISK FACTORS -- Return on Equity After Conversion." The Savings Bank will use the funds contributed to it for general corporate purposes, including, initially, local lending, investment in short term U.S. government and agency obligations and the possible repayment of outstanding FHLB advances. The Savings Bank may also use a portion of the net proceeds contributed to it to acquire or establish additional branch offices within its primary market area. Currently, there are no specific plans, arrangements, agreements or understandings, written or oral, regarding any additional branching activities. Shares of Common Stock may be purchased with funds on deposit at the Savings Bank, which will reduce deposits by the amounts of such purchases. The net amount of funds available to the Savings Bank for investment following receipt of the Conversion proceeds will be reduced to the extent shares are purchased with funds on deposit. A portion of the net proceeds retained by the Holding Company will be used for a loan by the Holding Company to the Savings Bank's ESOP to enable it to purchase 8% of the shares of Common Stock issued in the Conversion. Such loan would fund the entire purchase price of the ESOP shares ($4.0 million at the maximum of the Estimated Valuation Range) and would be repaid principally from the Savings Bank's contributions to the ESOP and from dividends payable on the Common Stock held by the ESOP. The remaining proceeds retained by the Holding Company initially will be invested primarily in certificates of deposit and short term U.S. government and agency obligations. Such proceeds will be available for additional contributions to the Savings Bank in the form of debt or equity, to support possible future diversification or acquisition activities, as a source of dividends to the stockholders of the Holding Company and for future repurchases of Common Stock (including possible repurchases to fund the MRP) to the extent permitted under Washington law and regulations, and as a source of funds for the Holding Company to make tax-free distributions to stockholders in the form of returns of capital. Currently, as discussed below under "USE OF PROCEEDS," there are no specific plans, arrangements, agreements or understandings, written or oral, regarding any of such activities. MARKET FOR COMMON STOCK The Holding Company has never issued capital stock to the public and, consequently, there is no existing market for the Common Stock. The Holding Company has received conditional approval to have the Common Stock listed on the National Market System of the Nasdaq Stock Market under the symbol "____." Keefe, Bruyette has indicated its intention to act as a market maker in the Common Stock following the consummation of the Conversion, depending on trading volume and subject to compliance with applicable laws and regulatory requirements. Furthermore, Webb has agreed to use its best efforts to assist the Holding Company in obtaining additional market makers for the Common Stock. No assurance can be given that an active and liquid trading market for the Common Stock will develop. Further, no assurance can be given that purchasers will be able to sell their shares at or above the Purchase Price after the Conversion. See "RISK FACTORS -- Absence of Prior Market for the Common Stock" and "MARKET FOR COMMON STOCK." DIVIDENDS The Board of Directors of the Holding Company will consider a dividend policy following the consummation of the Conversion. Declarations and payments of dividends, regular or special, by the Board of Directors will depend upon a number of factors, including the amount of the net proceeds retained by the Holding Company, capital requirements, regulatory limitations, the Savings Bank's and the Holding Company's financial condition and results of operations, tax considerations and general economic conditions. In order to pay such cash dividends, however, the Holding Company must have available cash either from the net proceeds raised in the Conversion and retained by the Holding Company, dividends received from the Savings Bank or earnings on Holding Company assets. There are certain limitations on the payment of dividends from the Savings Bank to the Holding (vii) Company. See "DIVIDEND POLICY -- Current Regulatory Restrictions" and "REGULATION -- The Savings Bank -- Dividends." No assurances can be given that any dividends will be declared or, if declared, what the amount of dividends will be or whether such dividends, once declared, will continue. OFFICERS' AND DIRECTORS' COMMON STOCK PURCHASES AND BENEFICIAL OWNERSHIP Officers and directors of the Savings Bank (18 persons) are expected to subscribe for an aggregate of approximately $2.5 million of Common Stock, or 5.9% of the shares of Common Stock to be issued in the Conversion based on the minimum of the Estimated Valuation Range, and $2.8 million, or 4.9% of the shares to be issued in the Conversion based on the maximum of the Estimated Valuation Range. See "SHARES TO BE PURCHASED BY MANAGEMENT PURSUANT TO SUBSCRIPTION RIGHTS." In addition, purchases by the ESOP, allocations under the MRP, and the exercise of stock options issued under the Stock Option Plan, will increase the number of shares beneficially owned by officers, directors and employees. Allocations under the MRP will be at no cost to recipients. Stock options are valuable only to the extent that they are exercisable and to the extent that the market price for the underlying share of Common Stock exceeds the exercise price. An option effectively eliminates the market risk of holding the underlying security since the option holder pays no consideration for the option until it is exercised. Therefore, the option holder may, within the limits of the term of the option, wait to exercise the option until the market price exceeds the exercise price. Assuming (i) the receipt of stockholder approval for the MRP and the Stock Option Plan, (ii) the open market purchase of shares on behalf of the MRP, (iii) the purchase by the ESOP of 8% of the Common Stock sold in the Offerings, and (iv) the exercise of stock options equal to 10% of the number of shares of Common Stock issued in the Conversion, directors, officers and employees of the Holding Company and the Savings Bank would have voting control, on a fully diluted basis, of 25.37% and 24.45% of the Common Stock, based on the issuance of Common Stock at the minimum and maximum of the Estimated Valuation Range, respectively. See "RISK FACTORS -- Anti-takeover Considerations -- Voting Control by Insiders." The MRP and Stock Option Plan are subject to approval by the stockholders of the Holding Company at a meeting to be held no earlier than six months following consummation of the Stock Conversion. RISK FACTORS See "RISK FACTORS" for a discussion of certain risks related to the Offerings that should be considered by all prospective investors. (viii) SELECTED CONSOLIDATED FINANCIAL INFORMATION The following tables set forth certain information concerning the consolidated financial position and results of operations of the Savings Bank and its subsidiary at the dates and for the periods indicated. Information at and for the nine months ended June 30, 1996 and 1997 is unaudited, but, in the opinion of management, contains all adjustments (none of which were other than normal recurring entries) necessary for a fair statement of the results of such periods. This information is qualified in its entirety by reference to the detailed information contained in the Consolidated Financial Statements and Notes thereto presented elsewhere in this Prospectus.
At September 30, ---------------------------------------------- At June 30, 1992 1993 1994 1995 1996 1997 -------- -------- -------- -------- -------- ------------ (Dollars in thousands) SELECTED FINANCIAL CONDITION DATA: Total assets.............................. $123,889 $139,233 $151,044 $177,761 $194,357 $206,188 Loans receivable and loans held for sale, net............................... 103,045 106,259 121,558 156,523 176,495 187,488 Investment securities held-to-maturity.... 999 1,695 8,597 3,504 -- -- Investment securities available-for sale.. 1,013 1,172 1,330 1,449 1,572 1,555 Mortgage-backed securities held-.......... to-maturity............................. 3,411 2,268 7,402 6,352 4,951 4,172 Cash and due from financial institutions.. 12,002 24,122 7,360 4,860 5,055 5,833 Deposit accounts.......................... 112,301 125,404 128,669 143,084 156,549 167,140 FHLB advances............................. -- -- 5,753 14,958 14,354 13,771 Total capital............................. 10,387 13,005 15,638 18,653 21,329 23,866
Nine Months Ended Year Ended September 30, June 30, ------------------------------------------------ ------------------- 1992 1993 1994 1995 1996 1996 1997 -------- -------- -------- -------- -------- -------- ------- (Dollars in thousands) SELECTED OPERATING DATA: Interest and dividend income.............. $ 11,290 $ 11,220 $ 11,307 $ 14,454 $ 16,500 $ 12,154 $13,370 Interest expense.......................... 5,769 4,938 4,715 6,360 7,629 5,682 6,237 -------- -------- -------- -------- -------- -------- ------- Net interest income....................... 5,521 6,282 6,592 8,094 8,871 6,472 7,133 Provision for loan losses................. 185 175 -- -- 70 45 334 -------- -------- -------- -------- -------- -------- ------- Net interest income....................... after provision for loan losses.......... 5,336 6,107 6,592 8,094 8,801 6,427 6,799 Gains (losses) from sale of loans......... 97 144 145 44 34 (52) 180 Noninterest income........................ 619 726 673 554 654 480 657 Noninterest expense....................... 2,888 3,117 3,613 4,089 5,392 3,359 3,652 Income before income taxes................ 3,164 3,860 3,797 4,603 4,097 3,496 3,984 Provision for income taxes................ 1,042 1,241 1,163 1,603 1,419 1,216 1,434 -------- -------- -------- -------- -------- -------- ------- Net income $ 2,122 $ 2,619 $ 2,634 $ 3,000 $ 2,678 $ 2,280 $ 2,550 ======== ======== ======== ======== ======== ======== =======
(ix)
At September 30, -------------------------------------------- At June 30, 1992 1993 1994 1995 1996 1997 ------- ------- -------- -------- ------ ----------- OTHER DATA: Number of: Real estate loans outstanding............. 2,560 2,366 2,344 2,535 2,512 2,681 Deposit accounts.......................... 16,943 17,276 17,552 18,681 19,994 21,119 Full-service offices...................... 5 5 6 6 7 8
At or For Nine Months Ended Year Ended September 30, June 30, -------------------------------------------- ---------------- 1992 1993 1994 1995 1996 1996 1997 ------ ------ ------ ------ ------ ------ ------ (Dollars in thousands) KEY FINANCIAL RATIOS: Performance Ratios: Return on average assets(1)(2)............ 1.80% 1.99% 1.86% 1.82% 1.46% 1.67% 1.67% Return on average equity(1)(3)............ 22.53 22.11 18.27 17.44 13.21 15.27 14.95 Interest rate spread(1)(4)................ 4.38 4.47 4.32 4.56 4.34 4.25 4.17 Net interest margin(5).................... 4.93 4.97 4.78 5.08 4.97 4.88 4.85 Average interest-earning assets........... to average interest-bearing liabilities.. 110.97 113.09 113.41 113.05 114.76 114.89 115.94 Noninterest expense as a.................. percent of average total assets(1)....... 2.45 2.37 2.55 2.49 2.93 2.46 2.39 Efficiency ratio(1)(6).................... 47.72 44.68 48.76 47.04 56.82 49.00 47.83 Asset Quality Ratios:...................... Nonaccrual and 90 days or more............ past due loans as a percent.............. of loans receivable, net................. 1.39 0.76 0.45 0.66 0.86 0.63 4.28(7) Nonperforming assets as a................. percent of total assets.................. 1.87 0.93 0.63 0.70 0.85 0.64 4.05(8) Allowance for losses as a................. percent of loans receivable, net......... 0.94 1.07 0.92 0.71 0.64 0.67 0.78 Allowance for losses as a................. percent of nonperforming loans........... 67.69 140.84 204.95 107.91 74.54 97.90 18.10(9) Net charge-offs to average................ outstanding loans........................ 0.02 0.01 0.02 -- -- 0.01 0.01 Capital Ratios:............................ Total equity-to-assets ratio.............. 8.38 9.34 10.35 10.49 10.97 11.18 11.57 Average equity to average assets(10)...... 7.98 9.01 10.16 10.45 11.02 10.93 11.16 - ------------------
(1) Annualized for the nine months ended June 30, 1996 and 1997. (2) Net income divided by average total assets. (3) Net income divided by average equity. (4) Difference between weighted average yield on interest-earning assets and weighted average rate on interest-bearing liabilities. (5) Net interest income (before provision for loan losses) as a percentage of average interest-earning assets. (6) Other expenses (excluding federal income tax expense) divided by the sum of net interest income and noninterest income. (7) This ratio would be 1.21% excluding the loans discussed under "BUSINESS OF THE SAVINGS BANK -- Lending Activities --Nonperforming Assets and Delinquencies." (8) This ratio would be 1.25% excluding the loans discussed under "BUSINESS OF THE SAVINGS BANK -- Lending Activities --Nonperforming Assets and Delinquencies." (9) This ratio would be 63.22% excluding the loans discussed under "BUSINESS OF THE SAVINGS BANK -- Lending Activities --Nonperforming Assets and Delinquencies." (10) Average total equity divided by average total assets. (x) RECENT DEVELOPMENTS The following tables set forth certain information concerning the consolidated financial position and results of operations of the Savings Bank and its subsidiary at the dates and for the periods indicated. Information at June 30, 1997 and September 30, 1997, the three months ended September 30, 1996 and 1997, and the year ended September 30, 1997 are unaudited, but, in the opinion of management, contain all adjustments (none of which were other than normal recurring entries) necessary for a fair presentation of the results of such periods. This information should be read in conjunction with the Consolidated Financial Statements and Notes thereto presented elsewhere in this Prospectus.
At At At September 30, June 30, September 30, 1996 1997 1997 -------------- -------- ------------- (In thousands) SELECTED FINANCIAL CONDITION DATA: Total assets................................... $194,357 $206,188 $211,553 Loans receivable and loans held for sale, net.. 176,495 187,488 187,027 Investment securities available-for-sale....... 1,572 1,555 1,586 Mortgage-backed securities held-to-maturity.... 4,951 4,172 3,990 Cash and due from financial institutions....... 5,055 5,833 11,446 Deposit accounts............................... 156,549 167,140 173,003 FHLB advances.................................. 14,354 13,771 12,241 Total capital.................................. 21,329 23,866 24,645
Three Months Year Ended Ended September 30, September 30, ---------------------- ---------------------- 1996 1997 1996 1997 -------- ------ -------- -------- (In thousands) SELECTED OPERATING DATA: Interest and dividend income................... $ 4,346 $4,577 $ 16,500 $ 17,948 Interest expense............................... 1,947 2,149 7,629 8,386 -------- ------ -------- -------- Net interest income............................ 2,399 2,428 8,871 9,562 Provision for loan losses...................... 25 263 70 597 -------- ------ -------- -------- Net interest income after provision for loan losses..................... 2,374 2,165 8,801 8,965 Gains from sale of loans....................... 86 159 34 339 Noninterest income............................. 174 239 654 896 Noninterest expense............................ 2,033 1,387 5,392 5,041 -------- ------ -------- -------- Income before income taxes..................... 601 1,176 4,097 5,159 Provision for income taxes..................... 203 397 1,419 1,830 -------- ------ -------- -------- Net income..................................... $ 398 $ 779 $ 2,678 $ 3,329 ======== ====== ======== ========
(xi)
At or For the At or For the Three Months Years Ended Ended September 30, September 30, ---------------------------- ------------------------------ 1996 1997 1996 1997 -------------- ------------ -------------- -------------- KEY FINANCIAL RATIOS: Performance Ratios: Return on average assets(1)(2)......... 0.84% 1.49% 1.46% 1.62% Return on average equity(1)(3)......... 7.44 12.79 13.21 14.39 Interest rate spread(1)(4)............. 4.63 4.20 4.34 4.18 Net interest margin(5)................. 5.24 4.83 4.97 4.84 Average interest-earning assets to average interest-bearing liabilities.. 114.39 114.60 114.76 115.60 Noninterest expense as a percent of average total assets(1)............ 4.28 2.65 2.93 2.46 Efficiency ratio(1)(6)................. 77.18 54.12 56.82 49.42 Asset Quality Ratios: Nonaccrual and 90 days or more past due loans as a percent of loans receivable, net(7).............. 0.86 4.10 0.86 4.10 Nonperforming assets as a percent of total assets(8)............ 0.85 3.83 0.85 3.83 Allowance for losses as a percent of loans receivable, net...... 0.64 0.92 0.64 0.92 Allowance for losses as a percent of nonperforming loans(9)..... 74.54 22.39 74.54 22.39 Net charge-offs to average outstanding loans..................... -- -- -- 0.01 Capital Ratios: Total equity-to-assets ratio........... 10.97 11.65 10.97 11.65 Average equity to average assets(10)... 11.27 11.65 11.02 11.28
- ------------------------------- (1) Annualized for the three months ended September 30, 1996 and 1997. (2) Net income divided by average total assets. (3) Net income divided by average equity. (4) Difference between weighted average yield on interest-earning assets and weighted average rate on interest-bearing liabilities. (5) Net interest income (before provision for loan losses) as a percentage of average interest-earning assets. (6) Other expenses (excluding federal income tax expense) divided by the sum of net interest income and noninterest income. (7) This ratio would be 1.06% at September 30, 1997 excluding the loans discussed under "BUSINESS OF THE SAVINGS BANK -- Lending Activities -- Nonperforming Assets and Delinquencies." (8) This ratio would be 1.15% at September 30, 1997 excluding the loans discussed under "BUSINESS OF THE SAVINGS BANK -- Lending Activities -- Nonperforming Assets and Delinquencies." (9) This ratio would be 86.19% at September 30, 1997 excluding the loans discussed under "BUSINESS OF THE SAVINGS BANK -- Lending Activities -- Nonperforming Assets and Delinquencies." (10) Average total equity divided by average total assets. (xii) REGULATORY CAPITAL The table below sets forth the Savings Bank's capital position relative to its FDIC capital requirements at September 30, 1997. The definitions of the terms used in the table are those provided in the capital regulations issued by the FDIC. See "REGULATION -- The Savings Bank -- Capital Requirements."
At September 30, 1997 ------------------------------------ Percent of Adjusted Amount Total Assets(1) ------------- ------------------- (In Thousands) Tier 1 (leverage) capital................. $24,645 12.01% Tier 1 (leverage) capital requirement..... 8,205 4.00 ------- ----- Excess.................................... $16,440 8.01% ======= ===== Tier 1 risk adjusted capital.............. $26,361 17.43 Tier 1 risk adjusted capital requirement.. 6,049 4.00 ------- ----- Excess.................................... $20,312 13.43% ======= ===== Total risk-based capital.................. $26,361 17.43% Total risk-based capital requirement...... 12,099 8.00 ------- ----- Excess.................................... $14,262 9.43% ======= ===== - -----------------------
(1) For the Tier 1 (leverage) capital and Washington regulatory capital calculations, percent of total average assets of $205.1 million. For the Tier 1 risk-based capital and total risk-based capital calculations, percent of total risk-weighted assets of $151.2 million. (2) As a Washington-chartered savings bank, the Savings Bank is subject to the capital requirements of the FDIC and the Division. The FDIC requires state-chartered savings banks, including the Savings Bank, to have a minimum leverage ratio of Tier 1 capital to total assets of at least 3%, provided, however, that all institutions, other than those (i) receiving the highest rating during the examination process and (ii) not anticipating any significant growth, are required to maintain a ratio of 1% to 2% above the stated minimum, with an absolute total capital to risk-weighted assets of at least 8%. The Savings Bank has not been notified by the FDIC of any leverage capital requirement specifically applicable to it. NONPERFORMING ASSETS AND DELINQUENCIES At September 30, 1997, the Savings Bank had $7.6 million of loans accounted for on a non-accrual basis ($776,000 in one- to- four family mortgage loans, $2.9 in commercial loans, $3.9 million in construction and land development loans, and $2,000 in consumer loans) compared to $7.7 million at June 30, 1997. At September 30, 1997, the Savings Bank had $109,000 in accruing loans which were contractually past due 90 days or more, compared to $303,000 at June 30, 1997. At September 30, 1997, the Savings Bank had $434,000 in real estate owned and other repossessed assets, compared to $317,000 at June 30, 1997. At September 30, 1997, the Savings Bank had $70,000 in restructured loans, compared to $71,000 at June 30, 1997. The allowance for loan losses was $1.7 million at September 30, 1997. There were no charge-offs for the three months ended September 30, 1997, compared to $1,100 for the three months ended September 30, 1996. Charge-offs were $19,000 for the year ended September 30, 1997, compared to $1,000 for the year ended September 30, 1996. There were no recoveries for the three months ended September 30, 1997 and 1996. Recoveries were $8,500 for the year ended September 30, 1997, compared to none for the year ended September 30, 1996. (xiii) The following table sets forth the breakdown of the allowance for loan losses by category at September 30, 1997.
Percent of Loans in Each Category to Amount Total Loans ------ ------------- (in thousands) Mortgage loans: One- to- four family............... $ 311 48.76% Multi-family....................... 149 5.93 Commercial......................... 409 14.32 Construction and land development.. 646 21.93 Land............................... 138 3.38 Non-mortgage loans: Consumer loans..................... 50 5.34 Commercial business loans.......... 13 0.34 ------ ------ Total allowance for loan losses... $1,716 100.00% ====== ======
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1997 AND SEPTEMBER 30, 1997 Total assets increased 2.6% from $206.2 million at June 30, 1997 to $211.6 million at September 30, 1997 primarily as a result of an increase in cash and funds due from financial institutions resulting from an increase in deposit accounts. Deposit accounts increased 3.5% from $167.1 million to $173.0 million. Management attributes the increase in deposits to normal growth as no promotions or other advertising designed to attract deposit accounts were sponsored. Total capital increased 3.3% from $23.9 million to $24.6 million as a result of retained net income. COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 NET INCOME. Net income increased 95.7% from $398,000 for the three months ended September 30, 1996 to $779,000 for the three months ended September 30, 1997 primarily as a result of the legislatively-mandated, one-time assessment levied by the FDIC on all SAIF-insured institutions to recapitalize the SAIF. Without this assessment, which amounted to $875,000 ($571,000 after tax) and was accrued during the three months ended September 30, 1996, net income would have been $969,000 for the three months ended September 30, 1996. NET INTEREST INCOME. Net interest income remained stable at $2.4 million for both the three months ended September 30, 1996 and 1997. Total interest income increased 5.3% from $4.3 million for the three months ended September 30, 1996 to $4.6 million for the three months ended September 30, 1997 primarily as a result of an increase in the average balance of loans receivable, net, from $174.8 million to $192.6 million as a result of increased loan demand. The average yield earned on loans receivable, net, decreased from 9.66% for the three months ended September 30, 1996 to 9.10% for the three months ended September 30, 1997 primarily because of a decline in market interest rates and the balance of nonaccrual loans. See "-- Nonperforming Assets and Delinquencies" and "BUSINESS OF THE SAVINGS BANK -- Lending Activities -- Nonperforming Assets and Delinquencies." Total interest expense increased 10.4% from $1.9 million for the three months ended September 30, 1996 to $2.1 million for the three months ended September 30, 1997 primarily as a result of an increase in the average balance of deposit from $150.3 million to $161.6 million. (xiv) Interest rate spread decreased from 4.63% for the three months ended September 30, 1996 to 4.20% for the three months ended September 30, 1997 primarily as a result of declining market interest rates and the effect of nonaccrual loan balances during the three months ended September 30, 1997. PROVISION FOR LOAN LOSSES. The provision for loan losses increased from $25,000 for the three months ended September 30, 1996 to $263,000 for the three months ended September 30, 1997. Management increased the provision as a result of a change in the loan mix to include a larger percentage of non-residential mortgage loans, which are inherently riskier than one-to-four family mortgage loans, as well as its evaluation of non-accrual loans at September 30, 1997. The Savings Bank conducts a risk weighted analysis of its loan portfolio quarterly to determine the adequacy of the allowance for loan losses. Changes in the portfolio mix and the level of non-accrual loans affect the level of the allowance for loan losses. Management deemed the allowance for loan losses adequate at September 30, 1997. See "BUSINESS OF THE SAVINGS BANK -- Lending Activities -- Allowance for Loan Losses." NONINTEREST INCOME. Total noninterest income increased 37.4% from $174,000 for the three months ended September 30, 1996 to $239,000 for the three months ended September 30, 1997. The increase resulted primarily from increases in automated teller machine ("ATM") transaction fees and normal increases in other income categories. NONINTEREST EXPENSE. Total noninterest expense decreased 31.8% from $2.0 million for the three months ended September 30, 1996 to $1.4 million for the three months ended September 30, 1997 primarily as a result of the one-time SAIF assessment fee accrued during the three months ended September 30, 1996. Salaries and employee benefits increased from $642,000 to $751,000 and premises and fixed assets expense increased from $133,000 to $204,000, both as a result of the opening of the South Hill and Lacey branch offices. Noninterest expense can be expected to increase in subsequent periods following the consummation of the Conversion as a result of increased costs associated with operating as a public company and increased compensation expense as a result of the adoption of the ESOP and, if approved by the Holding Company's stockholders, the MRP. See "RISK FACTORS -- Return on Equity After Conversion" and "-- New Expenses Associated With ESOP and MRP." PROVISION FOR INCOME TAXES. The provision for income taxes increased from $203,000 for the three months ended September 30, 1996 to $397,000 for the three months ended September 30, 1997 as a result of higher income before income taxes. COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1997 NET INCOME. Net income increased 24.3% from $2.7 million for the year ended September 30, 1996 to $3.3 million for the year ended September 30, 1997 primarily as a result of the legislatively-mandated, one-time assessment levied by the FDIC on all SAIF-insured institutions to recapitalize the SAIF. Without this assessment, which amounted to $875,000 ($571,000 after tax) and was accrued during the year ended September 30, 1996, net income would have been $3.2 million for the year ended September 30, 1996. NET INTEREST INCOME. Net interest income increased from $8.9 million for the year ended September 30, 1996 to $9.6 million for the year ended September 30, 1997 as a result of total interest income increasing more than interest expense. Total interest income increased 8.8% from $16.5 million for the year ended September 30, 1996 to $17.9 million for the year ended September 30, 1997 primarily as a result of an increase in the average balance of loans receivable, net, from $168.0 million to $188.7 million as a result of increased loan demand. The average yield earned on loans receivable, net, decreased from 9.45% for year ended September 30, 1996 to 9.23% for the year ended September 30, 1997 primarily because of a decline in market interest rates and an increase in the balance of nonaccrual loans. See "-- Nonperforming Assets and Delinquencies" and "BUSINESS OF THE SAVINGS BANK -- Lending Activities -- Nonperforming Assets and Delinquencies." (xv) Total interest expense increased 9.9% from $7.6 million for the year ended September 30, 1996 to $8.4 million for the year ended September 30, 1997 primarily as a result of an increase in the average balance of deposit accounts from $144.4 million to $154.9 million. The interest rate spread decreased from 4.34% for the year ended September 30, 1996 to 4.18% for the year ended September 30, 1997 primarily as a result of declining market interest rates and the effect of deposit account promotions associated with the opening of the South Hill and Lacey branch offices. The Savings Bank also increased rates on deposit accounts in response to increased competition, which also contributed to the reduction in the interest rate spread. PROVISION FOR LOAN LOSSES. The provision for loan losses increased from $70,000 for the year ended September 30, 1996 to $597,000 for the year ended September 30, 1997. Management increased the provision as a result of a change in the loan mix to include a larger percentage of non-residential mortgage loans, which are inherently riskier than one-to-four family mortgage loans, as well as its evaluation of non-accrual loans at September 30, 1997. The Savings Bank conducts a risk weighted analysis of its loan portfolio quarterly to determine the adequacy of the allowance for loan losses. Management deemed the allowance for loan losses adequate at September 30, 1997. See "BUSINESS OF THE SAVINGS BANK -- Lending Activities -- Allowance for Loan Losses." NONINTEREST INCOME. Total noninterest income increased 37.0% from $654,000 for the year ended September 30, 1996 to $896,000 for the year ended September 30, 1997. The increase resulted primarily from the recognition of mortgage loan servicing income in accordance with Statement of Financial Institutions Accounting Standards ("SFAS") No. 125 beginning in January 1997 and normal increases in other income categories. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Impact of New Accounting Pronouncements." NONINTEREST EXPENSE. Total noninterest expense decreased 6.5% from $5.4 million for the year ended September 30, 1996 to $5.0 million for the year ended September 30, 1997 primarily as a result of the one-time SAIF assessment fee accrued during fiscal 1996. Salaries and employee benefits increased from $2.5 million to $2.9 million and premises and fixed assets expense increased from $554,000 to $723,000, both as a result of the opening of the South Hill and Lacey branch offices. PROVISION FOR INCOME TAXES. The provision for income taxes increased from $1.4 million for the year ended September 30, 1996 to $1.8 million for the year ended September 30, 1997 as a result of higher income before income taxes. The effective tax rate was 34.6% in fiscal 1996 and 35.5% in fiscal 1997. (xvi) RISK FACTORS Before investing in shares of the Common Stock offered hereby, prospective investors should carefully consider the matters presented below, in addition to matters discussed elsewhere in this Prospectus. CERTAIN LENDING RISKS RISKS OF CONSTRUCTION AND LAND DEVELOPMENT LENDING. At June 30, 1997, construction and land development loans totalled $44.7 million, or 21.9%, of the total loan portfolio. The majority of the construction loans were secured by one-to four-family residences. These loans afford the Savings Bank the opportunity to achieve higher interest rates and fees with shorter terms to maturity than do its one- to- four family mortgage loans; however, construction and land loans are generally considered to involve a higher degree of risk than one- to- four family mortgage lending because of (i) the increased difficulty at the time the loan is made of accurately estimating total building costs and the eventual selling price of the residence to be built, (ii) the increased difficulty and costs of monitoring the loan, (iii) the higher degree of sensitivity to increases in market rates of interest, and (iv) the increased difficulty of working out problem loans. Speculative construction loans have the added risk associated with identifying an end-purchaser for the finished home. At June 30, 1997 nonperforming construction and land development loans were $4.0 million compared to $771,000 at September 30, 1996. See "BUSINESS OF THE SAVINGS BANK --Lending Activities -- Nonperforming Assets and Delinquencies." Construction loans are more difficult to evaluate for potential loss exposure than are permanent loans. At the time the loan is made, the value of the collateral securing the loan must be estimated on the basis of a projected selling price for the completed residence, which is typically not established until six to 12 months later, and correlated with the estimated building and other costs (including interest costs). Changes in the demand for new housing in the area and higher-than-anticipated building costs may cause actual results to vary significantly from those estimated. Accordingly, the Savings Bank may be confronted, at the time the residence is completed, with a loan balance exceeding the value of the collateral. Because construction loans require active monitoring of the building process, including cost comparisons and on- site inspections, these loans are more difficult and costly to monitor. Increases in market rates of interest may have a more pronounced effect on construction loans by rapidly increasing the end-purchasers' borrowing costs, thereby reducing the overall demand for new housing. Additionally, working out of problem construction loans is complicated by the fact that in-process homes are difficult to sell and typically must be completed in order to be sold successfully. This may require the Savings Bank to advance additional funds and contract with another builder to complete the residence. Land development loans secured by land under development or improved lots involve greater risks than one-to- four family residential mortgage loans because such loans are advanced upon the predicted future value of the developed property. If the estimate of such future value proves to be inaccurate, in the event of default and foreclosure the Savings Bank may be confronted with a property the value of which is insufficient to assure full repayment. The Savings Bank has sought to address the foregoing risks of its construction and land development lending by developing and adhering to underwriting policies, disbursement procedures, and monitoring practices. Specifically, the Savings Bank (i) seeks to diversify loans among several market areas, (ii) evaluates and documents the creditworthiness of the borrower and the viability of the proposed project, (iii) limits loan-to-value ratios to specified levels, (iv) controls the disbursements of construction loan proceeds on the basis of on-site inspections by Savings Bank personnel and independent fee inspectors and (v) monitors economic conditions and housing inventory in each market. No assurances, however, can be given that these practices will be successful in mitigating the risks of construction and land development lending. RISKS OF COMMERCIAL REAL ESTATE AND MULTI-FAMILY LENDING. At June 30, 1997, the Savings Bank's loan portfolio included commercial real estate loans totalling $28.9 million, or 14.1% of total loans and multi-family loans totalling $12.6 million or 6.2% of total loans. Commercial real estate and multi-family loans are generally viewed 1 as exposing the lender to greater credit risk than one- to four-family residential loans and typically involve higher loan principal amounts. Repayment of these loans generally is dependent, in large part, on sufficient income from the property to cover operating expense and debt service. Economic events and government regulations, which are outside the control of the borrower or lender, could impact the value of the security for such loans or the future cash flow of the affected properties. Approximately $18.4 million, or 63.7%, of the Savings Bank's commercial real estate and multi-family loans are secured by properties located in King, Pierce and Thurston Counties. At June 30, 1997, nonperforming commercial real estate loans were $2.9 million, compared to none at September 30, 1996. See "BUSINESS OF THE SAVINGS BANK -- Lending Activities" and "-- Nonperforming Assets and Delinquencies." RISKS OF NON-CONFORMING RESIDENTIAL MORTGAGE LENDING. The Savings Bank actively originates adjustable rate mortgage loans that do not conform or satisfy the requirements for sale in the secondary market. These loans are secured by one- to four- family properties located in the Savings Bank's primary market area and are originated, in many instances, when the borrower's credit profile, or some aspect of the security property, do not meet secondary market guidelines. Because the Savings Bank retains in its portfolio the non-conforming loans that it originates, such loans expose the Savings Bank to additional risk or default by the borrower because the Savings Bank cannot readily transfer the credit risk to a third party by sale of the loan. Additional credit risk is incurred if the reason for the non-conforming classification is a borrower's substandard credit profile. The rates of delinquencies, foreclosures and losses on non-conforming loans could be higher under adverse economic conditions than on loans to conventional mortgage loan borrowers. To offset the additional risks of non-conforming loans, the Savings Bank may require a lower loan-to- value ratio, a co-signer and/or other compensating factors. The Savings Bank believes that the underwriting procedures and appraisal processes it employs enable it to mitigate the higher risks inherent in non-conforming lending, however, no assurance can be given that such procedures or processes will afford adequate protection against such risks. POTENTIAL ADVERSE IMPACT OF CHANGES IN INTEREST RATES The financial condition and operations of the Savings Bank, and of savings institutions in general, are influenced significantly by general economic conditions, by the related monetary and fiscal policies of the federal government and by the regulations of the Division, the FDIC and the Federal Reserve. Deposit flows and the cost of funds are influenced by interest rates of competing investments and general market rates of interest. Lending activities are affected by the demand for mortgage financing and for consumer and other types of loans, which in 2 turn is affected by the interest rates at which such financing may be offered and by other factors affecting the supply of housing and the availability of funds. The Savings Bank's profitability is substantially dependent on its net interest income, which is the difference between the interest income received from its interest-earning assets and the interest expense incurred in connection with its interest-bearing liabilities. When an institution's interest-bearing liabilities exceed its interest-earning assets which mature within a given period of time, material and prolonged increases in interest rates generally would adversely affect net interest income, while material and prolonged decreases in interest rates generally would have a favorable effect on net interest income. Changes in interest rates can affect the amount of loans originated by an institution, as well as the value of its loans and other interest-earning assets and the resultant ability to realize gains on the sale of such assets. Changes in interest rates also can result in disintermediation, which is the flow of funds away from savings associations into direct investments, such as U.S. Government and corporate securities, and other investment vehicles which, because of the absence of federal insurance premiums and reserve requirements, generally can pay higher rates of return than financial intermediaries such as commercial banks and thrift institutions. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Asset and Liability Management and Interest Rate Risk." RETURN ON AVERAGE EQUITY AFTER CONVERSION Return on average equity (net income for a given period divided by average equity during that period) is a ratio used by many investors to compare the performance of a particular financial institution to its peers. The Holding Company's post-Conversion return on equity will be less than the return on average equity for publicly traded thrift institutions and their holding companies. See "SELECTED CONSOLIDATED FINANCIAL INFORMATION" for numerical information regarding the Savings Bank's historical return on equity and "CAPITALIZATION" for a discussion of the Holding Company's estimated pro forma consolidated capitalization as a result of the Conversion. In order for the Holding Company to achieve a return on average equity comparable to the historical levels of the Savings Bank, the Holding Company either would have to increase net income or reduce stockholders' equity, or both, commensurate with the increase in equity resulting from the Conversion. Reductions in equity could be achieved by, among other things, the payment of regular or special cash dividends (although no assurances can be given as to their payment or, if paid, their amount and frequency), the repurchase of shares of Common Stock subject to applicable regulatory restrictions, or the acquisition of branch offices, other financial institutions or related businesses (neither the Holding Company nor the Savings Bank has any present plans, arrangements, or understandings, written or oral, regarding any repurchase or acquisitions). Achievement of increased net income levels will depend on several important factors outside management's control, such as general economic conditions, including the level of market interest rates, competition and related factors, among others. In addition, the expenses associated with the ESOP and the MRP (see "-- New Expenses Associated with ESOP and MRP") are expected to contribute initially to reduced earnings levels. Subject to market conditions, initially the Savings Bank intends to deploy the net proceeds of the Offerings to support its current lending and investment activities to increase earnings per share and book value per share, without assuming undue risk, with the goal of achieving a return on equity comparable to the average for publicly traded thrift institutions and their holding companies. This goal will likely take a number of years to achieve and no assurances can be given that this goal can be attained. Consequently, for the foreseeable future, investors should not expect a return on equity which will meet or exceed the average return on equity for publicly traded thrift institutions, many of which are not newly converted institutions and have had time to deploy their conversion capital. See "DIVIDEND POLICY" and "USE OF PROCEEDS." MARKET AREA RISK The Savings Bank has been and intends to continue as a community oriented financial institution, with a focus on serving customers in Grays Harbor, Thurston, Pierce and King Counties, Washington and, to a lesser extent, in adjoining Kitsap County. At June 30, 1997, most of the Savings Bank's loan portfolio consisted of loans 3 collateralized by properties located in this market area. The Savings Bank has attempted to establish a niche in this market area by originating owner/builder and custom construction loans, particularly in Thurston, Pierce, King and Kitsap Counties. The Savings Bank considers its primary market area to include three submarkets, each with its own risk characteristics. Grays Harbor County is the Savings Bank's historical market area and its economy is based primarily on the timber and fishing industries, which are subject to more frequent and more severe recessionary periods. Secondly, Ocean Shores is a coastal resort community in western Grays Harbor County whose economy depends heavily on tourism and vacation home residents. A recession typically affects a tourism and vacation based economy more significantly than other economies. Finally, in order to diversify its market area beyond Grays Harbor County, the Savings Bank has established branch offices in Thurston, Pierce and King Counties and a loan production office in Kitsap County. These counties are closer to the Olympia (Thurston County), Tacoma (Pierce County) and Seattle (King County) metropolitan areas and their economies are more diversified with the presence of state government (Olympia is the state capital) and the aerospace and computer industries. Workforce reductions in state government and/or a recession in the computer and aerospace industries would be expected to have a material adverse effect on the economies of Thurston, Pierce, King and Kitsap Counties. See "BUSINESS OF THE SAVINGS BANK --Market Area." DEPENDENCE ON KEY PERSONNEL The Holding Company's and the Savings Bank's future performance will depend significantly upon the performance of key executive officers in implementing future business strategy, the loss of one or more of whom could have a material adverse effect on the Holding Company's and the Savings Bank's operations. Mr. Hamre, President and Chief Executive Officer of the Savings Bank since 1969, and Mr. Sand, affiliated with the Savings Bank since 1997 and the Executive Vice President of the Savings Bank since 1986, have made significant policy decisions and have been instrumental in implementing the policies and procedures established by the Savings Bank's Board of Directors. Although the Board of Directors believes that other officers of the Savings Bank are fully experienced and capable, the loss of Messrs. Hamre's or Sand's services could have a material adverse impact on the Holding Company and the Savings Bank. Management believes that the future success of the Holding Company and the Savings Bank will also depend significantly upon the ability to attract and retain qualified personnel. There can be no assurance that the Holding Company and the Savings Bank will be successful in attracting and retaining such personnel. See "MANAGEMENT OF THE SAVINGS BANK." COMPETITION The Savings Bank has faced, and will continue to face, strong competition both in making loans and attracting deposits. Competition for loans principally comes from commercial banks, thrift institutions and mortgage banking companies. Historically, commercial banks, thrift institutions and credit unions have been the Savings Bank's most direct competition for deposits. The Savings Bank also competes with short-term money market funds and with other financial institutions, such as brokerage firms and insurance companies for deposits. In competing for loans, the Savings Bank may be forced to offer lower loan interest rates. Conversely, in competing for deposits, the Savings Bank may be forced to offer higher deposit interest rates. Either case or both cases could adversely affect net interest income. See "BUSINESS OF THE SAVINGS BANK -- Competition." NEW EXPENSES ASSOCIATED WITH ESOP AND MRP The Savings Bank expects to recognize additional material employee compensation and benefit expenses associated with the implementation of the ESOP and the MRP. The actual aggregate amount of these new expenses cannot be currently predicted because applicable accounting practices require that they be based on the fair market value of the shares of Common Stock when the expenses are recognized, which would occur when shares are committed to be released in the case of the ESOP and over the vesting period of awards made to recipients in the case of the MRP. These expenses have been reflected in the pro forma financial information under "PRO FORMA DATA" assuming the Purchase Price ($10.00 per share) as fair market value. Actual expenses, however, will be 4 based on the fair market value of the Common Stock at the time of recognition, which may be higher or lower than the Purchase Price. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Impact of Accounting Pronouncements and Regulatory Policies -- Accounting for Employee Stock Ownership Plans," "-- Accounting for Stock-Based Compensation," "MANAGEMENT OF THE SAVINGS BANK -- Benefits -- Employee Stock Ownership Plan" and "-- Benefits -- Management Recognition Plan." ANTI-TAKEOVER CONSIDERATIONS PROVISIONS IN THE HOLDING COMPANY'S GOVERNING INSTRUMENTS AND WASHINGTON AND FEDERAL LAW. Certain provisions included in the Holding Company's Articles of Incorporation and in the Washington Business Corporation, as amended ("WBCA") might discourage potential proxy contests and other potential takeover attempts, particularly those that have not been negotiated with the Board of Directors. As a result, these provisions may preclude takeover attempts that certain stockholders may deem to be in their best interest and may tend to perpetuate existing management. These provisions include, among other things, a provision limiting voting rights of beneficial owners of more than 10% of the Common Stock and supermajority voting requirements for certain business combinations. In addition, the Articles of Incorporation provides for the election of directors to staggered terms of three years, eliminates cumulative voting for directors, and permits the removal of directors without cause only upon the vote of holders of 80% of the outstanding voting shares. Certain provisions of the Articles of Incorporation of the Holding Company cannot be amended by stockholders unless an 80% stockholder vote is obtained. The Articles of Incorporation also contains provisions regarding the timing and content of stockholder proposals and nominations and limiting the calling of special meetings. The existence of these anti-takeover provisions could result in the Holding Company being less attractive to a potential acquiror and in stockholders receiving less for their shares than otherwise might be available in the event of a takeover attempt. Furthermore, regulations prohibit for three years after consummation of the Conversion and Reorganization the ownership of more than 10% of the Savings Bank or the Holding Company without prior Division approval. See "RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY." VOTING CONTROL BY INSIDERS. Directors and officers of the Savings Bank and the Holding Company expect to purchase 281,250 shares of Common Stock, or 4.9% of the shares issued in the Offerings at the maximum of the Estimated Valuation Range. Directors and officers are also expected to indirectly control the voting of approximately 8% of the shares of Common Stock issued in the Conversion at the maximum of the Estimated Valuation Range, through the ESOP. Under the terms of the ESOP, the unallocated shares will be voted by the ESOP trustees in the same proportion as the votes cast by participants with respect to the allocated shares. At a meeting of stockholders to be held no earlier than six months following the consummation of the Conversion, the Holding Company intends to seek stockholder approval of the Holding Company's MRP, which is a non-tax- qualified restricted stock plan for the benefit of key employees and directors of the Holding Company and the Savings Bank. Assuming the receipt of stockholder approval, the Holding Company expects to acquire common stock of the Holding Company on behalf of the MRP in an amount equal to 4% of the Common Stock issued in the Conversion, or 230,000 shares at the maximum of the Estimated Valuation Range. These shares will be acquired either through open market purchases or from authorized but unissued Common Stock. Under the terms of the MRP, the MRP committee or the MRP trustees will have the power to vote unallocated and unvested shares. In addition, the Holding Company intends to reserve for future issuance pursuant to the Stock Option Plan a number of authorized shares of Common Stock equal to 10% of the Common Stock issued in the Conversion (575,000 shares at the maximum of the Estimated Valuation Range). The Holding Company also intends to seek approval of the Stock Option Plan at a meeting of stockholders to be held no earlier than six months following the consummation of the Conversion. Assuming (i) the purchase of 281,250 shares of Common Stock by officers and directors of the Savings Bank in the Conversion, (ii) the receipt of stockholder approval for the MRP and the Stock Option Plan, (iii) the open market purchase of shares on behalf of the MRP, (iv) the purchase by the ESOP of 8% of the Common 5 Stock sold in the Offerings, and (v) the exercise of stock options equal to 10% of the number of shares of Common Stock issued in the Conversion (with the option shares issued from authorized but unissued shares), directors, officers and employees of the Holding Company and the Savings Bank would have voting control, on a fully diluted basis, of 28.08% of the Common Stock, based on the issuance of the maximum of the Estimated Valuation Range. Management's potential voting control could, together with additional stockholder support, preclude or make more difficult takeover attempts that certain stockholders deem to be in their best interest and may tend to perpetuate existing management. POSSIBLE DILUTIVE EFFECT OF BENEFIT PROGRAMS The MRP intends to acquire an amount of Common Stock of the Holding Company equal to 4% of the shares issued in the Conversion. Such shares of Common Stock of the Holding Company may be acquired by the Holding Company either in the open market or from authorized but unissued shares of Common Stock of the Holding Company, or a combination of both. In the event that the MRP acquires authorized but unissued shares of Common Stock from the Holding Company, the voting interests of existing stockholders will be diluted and net income per share and stockholders' equity per share will be decreased. See "PRO FORMA DATA" and "MANAGEMENT OF THE SAVINGS BANK -- Benefits -- Management Recognition Plan." The MRP is subject to approval by the Holding Company's stockholders. The Stock Option Plan will provide for options for up to a number of shares of Common Stock of the Holding Company equal to 10% of the shares issued in the Conversion. Such shares may be authorized but unissued shares of Common Stock of the Holding Company and, upon exercise of the options, will result in the dilution of the voting interests of existing stockholders and may decrease net income per share and stockholders' equity per share. See "MANAGEMENT OF THE SAVINGS BANK -- Benefits -- 1997 Stock Option Plan." The Stock Option Plan is subject to approval by the Holding Company's stockholders. Assuming the MRP and Stock Option Plan are funded entirely with authorized but unissued shares from the Holding Company, the voting interests of stockholders would be diluted by 12.3% at the minimum, midpoint, maximum and maximum, as adjusted, of the Estimated Valuation Range, respectively. If the ESOP is not able to purchase 8% of the shares of Common Stock issued in the Conversion as a result of an oversubscription, FDIC policy prohibits the Holding Company from funding the ESOP with newly issued shares. Accordingly, the ESOP would not have a dilutive effect on the voting interests of stockholders. ABSENCE OF PRIOR MARKET FOR THE COMMON STOCK The Holding Company has never issued capital stock and, consequently, there is no existing market for the Common Stock. Although the Holding Company has received conditional approval to list the Common Stock on National Market System of the Nasdaq Stock Market under the symbol "____," there can be no assurance that an active and liquid trading market for the Common Stock will develop, or once developed, will continue. Furthermore, there can be no assurance that purchasers will be able to sell their shares at or above the Purchase Price. See "MARKET FOR COMMON STOCK." 6 NO RECOMMENDATION BY FINANCIAL ADVISER The Holding Company and the Savings Bank have engaged Webb to consult with and advise them with respect to the Conversion and to assist, on a best-efforts basis, in the solicitation of subscriptions and purchase orders for shares of Common Stock in the Offerings. Webb has not prepared or delivered any opinion or recommendation with respect to the investment suitability of the Common Stock or the appropriateness of the independent appraisal prepared by RP Financial. Accordingly, Webb's engagement should not be construed by prospective investors in the Common Stock as constituting an opinion or recommendation relating to the Common Stock or as a verification of the accuracy or completeness of the information contained in this Prospectus. POSSIBLE INCREASE IN ESTIMATED VALUATION RANGE AND NUMBER OF SHARES ISSUED The Estimated Valuation Range may be increased up to 15% to reflect material changes in the financial condition or results of operations of the Savings Bank or changes in market conditions or general financial, economic or regulatory conditions following the commencement of the Offerings. If the Estimated Valuation Range is increased, it is expected that the Holding Company would increase the Estimated Price Range so that up to 6,612,500 shares of Common Stock at the Purchase Price would be issued for an aggregate price of up to $66.1 million. This increase in the number of shares would decrease a subscriber's pro forma net income per share and stockholders' equity per share, increase the Holding Company's pro forma consolidated stockholders' equity and net income, and increase the Purchase Price as a percentage of pro forma stockholders' equity per share and net earnings per share. See "PRO FORMA DATA." RISK OF DELAYED OFFERING The Holding Company and the Savings Bank expect to complete the Conversion within the time periods indicated in this Prospectus. Nevertheless, it is possible, although not anticipated, that there could be a significant delay in the completion of the Conversion as a result of delays in receiving approval of the Conversion by the Division, a notice of non-objection to the Conversion from the FDIC or the approval of the Federal Reserve of the Holding Company's acquisition of the Savings Bank. If the Conversion is not completed by ________ __, 1998 (45 days after the last day of the fully extended Subscription Offering) and the Division consents to an extension of time to complete the Conversion, subscribers will be given the right to modify or rescind their subscriptions. In such event, unless an affirmative indication is received from subscribers that they wish to continue to subscribe for shares, their funds will be returned promptly, together with interest at the Savings Bank's passbook rate, or their withdrawal authorizations will be terminated. POTENTIAL OPERATING RESTRICTIONS ASSOCIATED WITH REGULATORY OVERSIGHT The Savings Bank is, and the Holding Company upon consummation of the Conversion will be, subject to extensive government regulation and oversight. Such regulation and supervision govern the activities in which an institution can engage and is designed primarily to protect the federal deposit insurance fund and depositors. Regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the imposition of restrictions on the operation of an institution, the classification of assets by the institution and the determination of the adequacy of an institution's allowance for loan losses. The Holding Company will also be subject to regulatory restrictions governing stock repurchases and distributions to shareholders in the form of tax-free returns of capital. See "USE OF PROCEEDS" and "REGULATION." POSSIBLE ADVERSE INCOME TAX CONSEQUENCES OF THE DISTRIBUTION OF SUBSCRIPTION RIGHTS If the Subscription Rights granted to Eligible Account Holders, Supplemental Eligible Account Holders and Other Members of the Savings Bank are deemed to have an ascertainable value, receipt of such rights may be a taxable event (either as capital gain or ordinary income), which may be recognizable by all or only by those Eligible Account Holders, Supplemental Eligible Account Holders or Other Members who exercise the Subscription Rights 7 (either as capital gain or ordinary income) in an amount equal to such value. Additionally, the Savings Bank could be required to recognize a gain for tax purposes on such distribution. Whether Subscription Rights are considered to have ascertainable value is an inherently factual determination. The Savings Bank has been advised by RP Financial that such rights have no value; however, RP Financial's conclusion is not binding on the Internal Revenue Service ("IRS"). See "THE CONVERSION -- Effects of Conversion to Stock Form on Depositors and Borrowers of the Savings Bank -- Tax Effects." TIMBERLAND BANCORP, INC. The Holding Company was organized as a Washington corporation at the direction of the Savings Bank on September 8, 1997 to acquire all of the outstanding capital stock of the Savings Bank to be issued upon its Conversion. The Holding Company has filed an application with the Federal Reserve and the Division to become a bank holding company and for approval to acquire the Savings Bank. Prior to the Conversion, the Holding Company will not engage in any significant operations. After the Conversion, the Holding Company will be classified as a one-bank holding company subject to regulation by the Division and the Federal Reserve, and its principal business will be the ownership of the Savings Bank. Immediately following the Conversion, the only significant assets of the Holding Company will be the capital stock of the Savings Bank, that portion of the net proceeds of the Offerings to be retained by the Holding Company and a note receivable from the ESOP evidencing a loan from the Holding Company to fund the Savings Bank's ESOP. See "BUSINESS OF THE HOLDING COMPANY." The holding company structure will permit the Holding Company to expand the financial services currently offered through the Savings Bank. Management believes that the holding company structure and retention of a portion of the proceeds of the Offerings will, should it decide to do so, facilitate the repurchase of its stock without adverse tax consequences. There are no present plans, arrangements, agreements, or understandings, written or oral, regarding any such repurchases. See "REGULATION -- The Holding Company." TIMBERLAND SAVINGS BANK, SSB The Savings Bank was established in 1915 as "Southwest Washington Savings and Loan Association." In 1935, the Savings Bank converted from a state- chartered mutual savings and loan association to a federally chartered mutual savings and loan association, and in 1972, changed its name to "Timberland Federal Savings and Loan Association." In 1990, the Savings Bank converted to a federally-chartered mutual savings bank under the name "Timberland Savings Bank, FSB." In 1991, the Savings Bank converted to a Washington-chartered mutual savings bank and adopted its current name. In connection with the mutual to stock conversion, the Savings Bank will convert to a Washington-chartered capital stock savings bank and will become a subsidiary of the Holding Company. The Savings Bank is regulated by the Division, its primary regulator, and the FDIC, the insurer of its deposits. The Savings Bank's deposits are federally insured by the FDIC under the SAIF. The Savings Bank is a member of the FHLB System. At June 30, 1997, the Savings Bank had total assets of $206.2 million, total deposit accounts of $167.1 million and total capital of $23.9 million, or 11.6% of total assets, on a consolidated basis. The Savings Bank is a community oriented savings bank which has traditionally offered a variety of savings products to its retail customers while concentrating its lending activities on real estate mortgage loans. Lending activities have been focused primarily on the origination of loans secured by one- to four-family residential dwellings, including an emphasis on residential construction and land development loans, as well as the origination of multi-family and commercial real estate loans. The Savings Bank actively originates adjustable rate residential mortgage loans that do not qualify for sale in the secondary market under FHLMC guidelines. At June 30, 1997, the Savings Bank's gross loan portfolio totaled $204.6 million, of which $100.1 million, or 48.9%, were one- to four-family residential mortgage loans, $44.7 million, or 21.9%, were construction and land development loans (the majority of which related to one-to four-family residences), and $41.5 million, or 20.3%, were multi-family or commercial real estate loans. 8 Construction and commercial real estate loans generally involve a greater risk of loss than one- to- four family mortgage loans. See "RISK FACTORS -- Certain Lending Risks." The Savings Bank also invests in short- to- intermediate term U.S. Treasury securities and U.S. Government agency obligations, and mortgage-backed securities issued by U.S. Government agencies. At June 30, 1997, the Savings Bank's investment and mortgage-backed securities portfolio had a carrying value of $5.7 million. See "BUSINESS OF THE SAVINGS BANK -- Investment Securities." Deposits have been the primary source of funds for the Savings Bank's investment and lending activities. The Savings Bank plans to continue to fund its operations primarily with deposits, although advances from the FHLB-Seattle have been used as a supplemental source of funds. See "BUSINESS OF THE SAVINGS BANK --Deposits and Other Sources of Funds." The Savings Bank's primary market area is comprised of Grays Harbor, Thurston, Pierce and King Counties, Washington. The Savings Bank also originates loans in adjoining Kitsap County, Washington. The Savings Bank's main office is located at 624 Simpson Avenue, Hoquiam, Washington 98550, and its telephone number is (360) 533-4747. See "BUSINESS OF THE SAVINGS BANK -- Market Area." USE OF PROCEEDS The net proceeds from the sale of the Common Stock offered hereby are estimated to range from $41.5 million to $56.5 million, or up to $65.2 million if the Estimated Valuation Range is increased by 15%. See "PRO FORMA DATA" for the assumptions used to arrive at such amounts. The Holding Company plans to contribute to the Savings Bank 50% of the net proceeds from the sale of the Common Stock to the Savings Bank in exchange for all of the issued and outstanding shares of common stock of the Savings Bank, and retain the remaining net proceeds. This will result in the Holding Company retaining approximately $20.8 million to $28.3 million of net proceeds, or up to $32.6 million if the Estimated Valuation Range is increased by 15%, and the Savings Bank receiving an equal amount. Receipt of 50% of the net proceeds of the sale of the Common Stock will increase the Savings Bank's capital and will support the expansion of the Savings Bank's existing business activities. The Savings Bank will use the funds contributed to it for general corporate purposes, including, initially, local lending, investment in short term U.S. government and agency obligations and the possible repayment of outstanding FHLB advances. The Savings Bank may also use a portion of the net proceeds contributed to it to acquire or establish additional branch offices within its primary market area. Currently, there are no specific plans, arrangements, agreements or understandings, written or oral, regarding any additional branching activities. In connection with the Conversion and the establishment of the ESOP, the Holding Company intends to loan the ESOP the amount necessary to purchase 8% of the shares sold in the Conversion. The Holding Company's loan to fund the ESOP may range from $3.4 million to $4.6 million based on the sale of 340,000 shares to the ESOP (at the minimum of the Estimated Valuation Range) and 460,000 shares (at the maximum of the Estimated Valuation Range), respectively, at $10.00 per share. If 15% above the maximum of the Estimated Valuation Range, or 6,612,500 shares, are sold in the Conversion, the Holding Company's loan to the ESOP would be approximately $5.3 million. It is anticipated that the ESOP loan will have a 10-year term with interest payable at the prime rate as published in The Wall Street Journal on the closing date of the Conversion. The loan will be repaid principally from the Savings Bank's contributions to the ESOP and, if appropriate, from dividends payable on the Common Stock. The remaining net proceeds retained by the Holding Company initially will be invested primarily in short term U.S. government and agency obligations. Such proceeds will be available for additional contributions to the Savings Bank in the form of debt or equity, to support possible future diversification or acquisition activities, as a source of dividends to the stockholders of the Holding Company and for future repurchases of Common Stock to 9 the extent permitted under Washington law and federal regulations. Currently, there are no specific plans, arrangements, agreements or understandings, written or oral, regarding any such activities. Upon completion of the Conversion, the Board of Directors will have the authority to adopt stock repurchase plans, subject to statutory and regulatory requirements. Since the Holding Company has not yet issued stock, there is currently insufficient information upon which an intention to repurchase stock could be based. The facts and circumstances upon which the Board of Directors may determine to repurchase stock in the future 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 the ability to improve the Holding 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 Holding Company and its stockholders. Any stock repurchases will be subject to a determination by the Board of Directors that both the Holding Company and the Savings Bank will be capitalized in excess of all applicable regulatory requirements after any such repurchases and that capital will be adequate, taking into account, among other things, the level of nonperforming and other risk assets, the Holding Company's and the Savings Bank's current and projected results of operations and asset/liability structure, the economic environment and tax and other regulatory considerations. See "REGULATION -- The Holding Company -- Stock Repurchases." The consolidated capital levels of the Holding Company will be significant after the consummation of the Conversion as a result of the net proceeds from the Offerings. See "RISK FACTORS -- Return on Equity after Conversion," "CAPITALIZATION," and "HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE." In light of such capital levels, the Holding Company may consider a possible post- Conversion tax-free distribution to stockholders in the form of a return of capital. However, there are no current plans regarding such a distribution and the Holding Company has committed to the FDIC not to make any such distribution within the first year following the consummation of the Conversion. DIVIDEND POLICY GENERAL The Board of Directors of the Holding Company will consider a dividend policy following the consummation of the Conversion. Declarations or payments of dividends, regular or special, will be subject to determination by the Holding Company's Board of Directors, which will take into account the amount of the net proceeds retained by the Holding Company, the Holding Company's financial condition, results of operations, tax considerations, capital requirements, industry standards, economic conditions and other factors, including the regulatory restrictions which affect the payment of dividends by the Savings Bank to the Holding Company discussed below. No assurances can be given that any dividends will be declared or, if declared, what the amount of dividends will be or whether such dividends, once declared, will continue. CURRENT REGULATORY RESTRICTIONS Dividends from the Holding Company will depend, in part, upon receipt of dividends from the Savings Bank because the Holding Company initially will have no source of income other than dividends from the Savings Bank and earnings from the investment of the net proceeds from the Conversion retained by the Holding Company. Consequently, future declarations of cash dividends by the Holding Company may depend upon dividend payments by the Savings Bank to the Holding Company, which payments are subject to various restrictions. As a converted institution, the Savings Bank also will be subject to the regulatory restriction that it will not be permitted to declare or pay a dividend on or repurchase any of its capital stock if the effect thereof would be to cause its regulatory capital to be reduced below the amount required for the liquidation account established in connection with the Conversion. Under Washington law, the Holding Company is prohibited from paying a dividend if, as a result of 10 its payment, the Holding Company would be unable to pay its debts as they become due in the normal course of business, or if the Holding Company's total liabilities would exceed its total assets. See "REGULATION -- The Savings Bank - -- Dividends," "THE CONVERSION -- Effects of Conversion to Stock Form on Depositors and Borrowers of the Savings Bank -- Liquidation Account" and Note 15 of Notes to the Consolidated Financial Statements included elsewhere herein. TAX CONSIDERATIONS In addition to the foregoing, retained earnings of the Savings Bank appropriated to bad debt reserves and deducted for federal income tax purposes cannot be used by the Savings Bank to pay cash dividends to the Holding Company without the payment of federal income taxes by the Savings Bank 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 Taxation" and Note 11 of Notes to the Consolidated Financial Statements included elsewhere herein. The Holding Company does not contemplate any distribution by the Savings Bank that would result in a recapture of the Savings Bank's bad debt reserve or create the above-mentioned federal tax liabilities. MARKET FOR COMMON STOCK The Holding Company has never issued capital stock and, consequently, there is no existing market for the Common Stock. Although the Holding Company has received conditional approval to list the Common Stock on the National Market System of the Nasdaq Stock Market under the symbol "____," there can be no assurance that the Holding Company will meet Nasdaq National Market System listing requirements, which include a minimum market capitalization, at least three market makers and a minimum number of record holders. Keefe, Bruyette has indicated its intention to act as a market maker for the Holding Company's Common Stock following consummation of the Conversion and will assist the Holding Company in seeking to encourage at least two additional market makers to establish and maintain a market in the Common Stock. Making a market involves maintaining bid and ask quotations and being able, as principal, to effect transactions in reasonable quantities at those quoted prices, subject to various securities laws and other regulatory requirements. The Holding Company anticipates that prior to the completion of the Conversion it will be able to obtain the commitment from at least two additional broker-dealers to act as market maker for the Common Stock. Additionally, 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 Holding Company, the Savings Bank or any market maker. There can be no assurance that an active and liquid trading market for the Common Stock will develop or that, if developed, it will continue. The number of active buyers and sellers of the Common Stock at any particular time may be limited. Under such circumstances, investors in the Common Stock could have difficulty disposing of their shares on short notice and should not view the Common Stock as a short-term investment. Furthermore, there can be no assurance that purchasers will be able to sell their shares at or above the Purchase Price or that quotations will be available on the National Market System of the Nasdaq Stock Market as contemplated. 11 CAPITALIZATION The following table presents the historical deposits, borrowings and capitalization of the Savings Bank at June 30, 1997, and the pro forma consolidated capitalization of the Holding Company after giving effect to the assumptions set forth under "PRO FORMA DATA," based on (i) the sale of the number of shares of Common Stock set forth below in the Conversion at the minimum, midpoint and maximum of the Estimated Valuation Range, and based on (ii) the sale of 6,612,500 shares (representing the shares that would be issued in the Conversion after giving effect to an additional 15% increase in the maximum valuation in the Estimated Valuation Range, subject to receipt of an updated appraisal confirming such valuation and Division approval). A CHANGE IN THE NUMBER OF SHARES TO BE ISSUED IN THE CONVERSION MAY MATERIALLY AFFECT PRO FORMA CONSOLIDATED CAPITALIZATION.
Holding Company Pro Forma Consolidated Capitalization Based Upon the Sale of ------------------------------------------------------------------------ 4,250,000 5,000,000 5,750,000 6,612,500 Shares at Shares at Shares at Shares at Savings Bank $10.00 $10.00 $10.00 $10.00 Historical Per Share(1) Per Share(1) Per Share(1) Per Share(2) ------------ ---------- ---------- ------------- ---------- (In thousands) Deposits(3)............................ $ 167,140 $ 167,140 $ 167,140 $ 167,140 $ 167,140 ESOP borrowings (4).................... -- -- -- -- -- Borrowings............................. 13,771 13,771 13,771 13,771 13,771 ----------- ---------- ---------- ---------- ---------- Total deposits and borrowings.......... $ 180,911 $ 180,911 $ 180,911 $ 180,911 $ 180,911 =========== ========== ========== ========== ========== Capital Stock: Preferred Stock: 1,000,000 shares, $.01 par value per share, authorized; none issued or outstanding.................... $ -- -- -- -- -- Common Stock: 50,000,000 shares, $.01 par value per share, authorized; specified number of shares assumed to be issued and outstanding(5).................... -- 43 50 58 66 Additional paid-in capital.......... -- 41,492 48,985 56,477 65,094 Less: Common Stock acquired by ESOP(4).. -- (3,400) (4,000) (4,600) (5,290) Common Stock to be acquired by MRP(6)............... -- (1,700) (2,000) (2,300) (2,645) Undivided profits(7)................... 23,866 23,866 23,866 23,866 23,866 ----------- ---------- ---------- ---------- ---------- Total stockholders' equity............. $ 23,866 $ 60,301 $ 66,901 $ 73,501 $ 81,091 =========== ========== ========== ========== ==========
(footnotes on following page) 12 __________________ (1) Does not reflect the possible increase in the Estimated Valuation Range to reflect changes in market or financial conditions or the issuance of additional shares under the Stock Option Plan. (2) This column represents the pro forma capitalization of the Holding Company in the event the aggregate number of shares of Common Stock issued in the Conversion is 15% above the maximum of the Estimated Valuation Range as a result of changes in market or financial conditions. See "PRO FORMA DATA" and Footnote 1 thereto. (3) Withdrawals from deposit accounts for the purchase of Common Stock are not reflected. Such withdrawals will reduce pro forma deposits by the amounts thereof. (4) Assumes that 8% of the Common Stock sold in the Conversion will be acquired by the ESOP in the Conversion with funds borrowed from the Holding Company. In accordance with generally accepted accounting principles ("GAAP"), the amount of Common Stock to be purchased by the ESOP represents unearned compensation and is, accordingly, reflected as a reduction of capital. As shares are released to ESOP participant accounts, a corresponding reduction in the charge against capital will occur. Assuming shares of Common Stock appreciate in value over time, Statement of Position ("SOP") 93-6 requires that compensation expense be recorded based on the fair value of shares released with a corresponding increase in paid in capital. The effect of SOP 93-6 on net income and book value per share in future periods cannot be predicted due to the uncertainty of the fair value of the shares of Common Stock subsequent to their issue. Since the funds are borrowed from the Holding Company, the borrowing would not be separately reflected in the consolidated financial statements of the Holding Company. On an unconsolidated basis, however, the outstanding principal balance of the ESOP loan will be reflected as a liability on the balance sheet of the Savings Bank, offset by a contra equity account of equal amount representing unearned compensation. See "MANAGEMENT OF THE SAVINGS BANK --Benefits -- Employee Stock Ownership Plan." (5) The Savings Bank's authorized capital will consist solely of 1,000 shares of common stock, $1.00 par value per share, all of which will be issued to the Holding Company. (6) Assumes the purchase in the open market, pursuant to the proposed MRP, of a number of shares equal to 4% of the shares of Common Stock issued in the Conversion at the minimum, midpoint, maximum and 15% above the maximum of the Estimated Valuation Range. The issuance of an additional 4% of the shares of Common Stock for the MRP from authorized but unissued shares of Holding Company Common Stock would dilute the ownership interest of stockholders by 3.85%. The shares are reflected as a reduction of stockholders' equity. See "RISK FACTORS -- Possible Dilutive Effect of Benefit Programs," "PRO FORMA DATA" and "MANAGEMENT OF THE SAVINGS BANK -- Benefits -- Management Recognition Plan." The MRP is subject to stockholder approval and is expected to be adopted by stockholders at a meeting to be held no earlier than six months following consummation of the Conversion. (7) Undivided profits are substantially restricted by applicable regulatory capital requirements. Additionally, the Savings Bank will be prohibited from paying any dividend that would reduce its regulatory capital below the amount in the liquidation account, which will be established for the benefit of the Savings Bank's Eligible Account Holders and Supplemental Eligible Account Holders at the time of the Conversion and adjusted downward thereafter. See "THE CONVERSION -- Effects of Conversion to Stock Form on Depositors and Borrowers of the Savings Bank -- Liquidation Account." 13 HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE The following table presents the Savings Bank's historical and pro forma capital position relative to its capital requirements at June 30, 1997. The amount of capital infused into the Savings Bank for purposes of the following table is 50% of the net proceeds from the sale of the Common Stock. For a discussion of the assumptions underlying the pro forma capital calculations presented below, see "USE OF PROCEEDS," "CAPITALIZATION" and "PRO FORMA DATA." The definitions of the terms used in the table are those provided in the capital regulations issued by the Division. See "REGULATION -- The Savings Bank -- Capital Requirements" and "REGULATION -- The Holding Company -- Capital Requirements."
PRO FORMA AT JUNE 30, 1997 -------------------------------------------------------------------------------- 15% above Maximum of Midpoint of Maximum of Maximum of Estimated Estimated Estimated Estimated Valuation Range Valuation Range Valuation Range Valuation Range ------------------- ------------------- ------------------- ------------------ 4,250,000 Shares 5,000,000 Shares 5,750,000 Shares 6,612,500 Shares June 30, 1997 at $10.00 Per Share at $10.00 Per Share at $10.00 Per Share at $10.00 Per Share ------------------ ------------------- ------------------- ------------------- ------------------ Percent Percent Percent Percent Percent of of of of of Adjusted Adjusted Adjusted Adjusted Adjusted Total Total Total Total Total Amount Assets (1) Amount Assets (1) Amount Assets (1) Amount Assets(1) Amount Assets (1) ------- --------- ------- ---------- ------- ---------- -------- -------- ------ ---------- (Dollars in thousands) GAAP capital............... $23,866 11.57% $34,434 15.52% $36,384 16.19% $38,334 16.85% $40,576 17.58% ======= ===== ======= ===== ======= ===== ======= ===== ======= ===== Tier 1 (leverage) capital.. $23,866 11.71% $34,434 15.69% $36,384 16.36% $38,334 17.02% $40,576 17.76% Tier 1 (leverage) capital requirement............... 8,152 4.00 8,729 4.00 8,893 4.00 9,007 4.00 9,139 4.00 ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- Excess..................... $15,714 7.71% $25,655 11.69% $27,491 12.36% $29,327 13.02% $31,437 13.76% ======= ===== ======= ===== ======= ===== ======= ===== ======= ===== Tier 1 risk adjusted capital................... $23,866 15.96% $34,434 21.88% $36,384 22.91% $38,334 23.93% $40,576 25.07% Tier 1 risk adjusted capital requirement............... 5,981 4.00 6,294 4.00 6,351 4.00 6,408 4.00 6,474 4.00 ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- Excess..................... $17,885 11.96% $28,140 17.88% $30,033 18.91% $31,926 19.93% $34,102 21.07% ======= ===== ======= ===== ======= ===== ======= ===== ======= ===== Total risk based capital... $25,320 16.93% $35,888 22.81% $37,838 23.83% $39,788 24.83% $42,030 25.97% Total risk based capital requirement....... 11,962 8.00 12,589 8.00 12,703 8.00 12,817 8.00 12,948 8.00 ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- Excess..................... $13,358 8.93% $23,299 14.81% $25,135 15.83% $26,971 16.83% $29,082 17.97% ======= ===== ======= ===== ======= ===== ======= ===== ======= =====
___________________ (1) For the Tier 1 (leverage) capital and Washington regulatory capital calculations, percent of total average assets of $203.8 million. For the Tier 1 risk-based capital and total risk-based capital calculations, percent of total risk-weighted assets of $149.5 million. Net proceeds (after ESOP and MRP) were assumed to be invested in one- to four-family residential mortgage loans with a weighted average risk-weight of 50%. (2) As a Washington-chartered savings bank, the Savings Bank is subject to the capital requirements of the FDIC and the Division. The FDIC requires state- chartered savings banks, including the Savings Bank, to have a minimum leverage ratio of Tier 1 capital to total assets of at least 3%, provided, however, that all institutions, other than those (i) receiving the highest rating during the examination process and (ii) not anticipating any significant growth, are required to maintain a ratio of 1% to 2% above the stated minimum, with an absolute total capital to risk-weighted assets of at least 8%. The Savings Bank has not been notified by the FDIC of any leverage capital requirement specifically applicable to it. However, for the purposes of this table, the Savings Bank has assumed that its leverage capital requirement is 4% of total average assets. 14 PRO FORMA DATA Under the Plan of Conversion, the Common Stock must be sold at a price equal to the estimated pro forma market value of the Holding Company and the Savings Bank, based upon an independent valuation. The Estimated Valuation Range as of August 29, 1997 is from a minimum of $42.5 million to a maximum of $57.5 million with a midpoint of $50.0 million or, at a price per share of $10.00, a minimum number of shares of 4,250,000, a maximum number of shares of 5,750,000 and a midpoint number of shares of 5,000,000. 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 table are based upon the following assumptions: (i) Webb will receive a management fee of $25,000; (ii) all of the shares will be sold in the Subscription and Direct Community Offering for which Webb will receive a fee of 1.25% (no fee will be paid for shares purchased by the Savings Bank's directors, executive officers and members of their immediate families, and the ESOP); (iii) Webb's management fee shall be applied against the success fee, and the success fee shall not exceed $500,000; and (iv) Conversion expenses, excluding fees paid to Webb, will be approximately $465,000 at each of the minimum, midpoint, maximum and 15% above the maximum of the Estimated Valuation Range. Actual expenses may vary from this estimate, and the fees paid will depend upon the percentages and total number of shares sold in the Offerings and other factors. The pro forma consolidated net income of the Savings Bank for the year ended September 30, 1996 and for the nine months ended June 30, 1997 has been calculated as if the Conversion had been completed at the beginning of each period and the estimated net proceeds received by the Holding Company and the Savings Bank had been invested at the arithmetic average of the yield earned by the Savings Bank on its interest-earning assets and the rates paid on its deposits. As discussed under "USE OF PROCEEDS," the Holding Company expects to retain 50% of the net proceeds of the Offerings from which it will fund the ESOP loan. A pro forma after-tax return of 4.64% and 4.60% is used for both the Holding Company and the Savings Bank for the year ended September 30, 1996 and the nine months ended June 30, 1997, respectively, after giving effect to a federal tax rate of 34.0%. Historical and pro forma per share amounts have been calculated by dividing historical and pro forma amounts by the indicated number of shares of Common Stock. 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 per share historical or pro forma stockholders' equity to reflect the earnings on the estimated net proceeds. The following tables summarize the historical net income and total equity of the Savings Bank and the pro forma consolidated net income and stockholders' equity of the Holding Company for the periods and at the dates indicated, based on the minimum, midpoint and maximum of the Estimated Valuation Range and based on a 15% increase in the maximum of the Estimated Valuation Range. No effect has been given to (i) the shares to be reserved for issuance under the Holding Company's Stock Option Plan, which is expected to be adopted by stockholders at a meeting to be held no earlier than six months following consummation of the Conversion; (ii) withdrawals from deposit accounts for the purpose of purchasing Common Stock in the Conversion; (iii) the issuance of shares from authorized but unissued shares to the MRP, which is expected to be adopted by stockholders at a meeting to be held no earlier than six months following consummation of the Conversion; or (iv) the establishment of a liquidation account for the benefit of Eligible Account Holders and Supplemental Eligible Account Holders. See "MANAGEMENT OF THE SAVINGS BANK -- Benefits -- 1997 Stock Option Plan" and "THE CONVERSION -- Stock Pricing and Number of Shares to be Issued." Shares of Common Stock may be purchased with funds on deposit at the Savings Bank, which will reduce deposits by the amounts of such purchases. Accordingly, the net amount of funds available for investment will be reduced to the extent shares are purchased with funds on deposit. THE FOLLOWING PRO FORMA INFORMATION MAY NOT BE REPRESENTATIVE OF THE FINANCIAL EFFECTS OF THE CONVERSION AT THE DATE ON WHICH THE CONVERSION ACTUALLY OCCURS AND SHOULD NOT BE TAKEN AS INDICATIVE OF FUTURE RESULTS OF OPERATIONS. STOCKHOLDERS' EQUITY REPRESENTS THE DIFFERENCE BETWEEN THE STATED AMOUNTS OF CONSOLIDATED ASSETS AND LIABILITIES OF THE HOLDING COMPANY COMPUTED IN ACCORDANCE WITH GAAP. STOCKHOLDERS' EQUITY HAS NOT BEEN INCREASED OR DECREASED TO REFLECT THE DIFFERENCE BETWEEN THE CARRYING VALUE OF LOANS AND OTHER ASSETS AND MARKET VALUE. STOCKHOLDERS' EQUITY IS NOT INTENDED TO REPRESENT FAIR MARKET VALUE NOR DOES IT REPRESENT AMOUNTS THAT WOULD BE AVAILABLE FOR DISTRIBUTION TO STOCKHOLDERS IN THE EVENT OF LIQUIDATION. 15
At or For the Year Ended September 30, 1996 --------------------------------------------------------------------------- Minimum of Midpoint of Maximum of 15% Above Estimated Estimated Estimated Maximum of Valuation Valuation Valuation Estimated Range Range Range Valuation Range ----------- --------------------- ------------------- ------------------ 4,250,000 5,000,000 5,750,000 6,612,500(1) Shares Shares Shares Shares at $10.00 at $10.00 at $10.00 at $10.00 Per Share Per Share Per Share Per Share ---------- -------------------- ------------------ ------------------ (In thousands, except per share amounts) Gross proceeds...................................... $ 42,500 $ 50,000 $ 57,500 $ 66,125 Less: Estimated offering expenses......................... 965 965 965 965 ---------- ---------- ---------- ---------- Estimated net proceeds.............................. $ 41,535 $ 49,035 $ 56,535 $ 65,160 Less: ESOP shares......................................... (3,400) (4,000) (4,600) (5,290) MRP shares.......................................... (1,700) (2,000) (2,300) (2,645) ---------- ---------- ---------- ---------- Estimated net cash proceeds to the Holding Company........................... $ 36,435 $ 43,035 $ 49,635 $ 57,225 Consolidated net income: Historical......................................... $ 2,678 $ 2,678 $ 2,678 $ 2,678 Pro forma income on net proceeds(2)................ 1,691 1,997 2,303 2,655 Pro forma ESOP adjustments(3)...................... (224) (264) (304) (349) Pro forma MRP adjustments(4)....................... (224) (264) (304) (349) ---------- ---------- ---------- ---------- Pro forma........................................ $ 3,921 $ 4,147 $ 4,373 $ 4,635 ========== ========== ========== ========== Consolidated net income per share(5)(6): Historical......................................... $ 0.68 $ 0.58 $ 0.50 $ 0.44 Pro forma income on net proceeds................... 0.43 0.43 0.43 0.43 Pro forma ESOP adjustments(3)...................... (0.06) (0.06) (0.06) (0.06) Pro forma MRP adjustments(4)....................... (0.06) (0.06) (0.06) (0.06) ---------- ---------- ---------- ---------- Pro forma........................................ $ 0.99 $ 0.89 $ 0.81 $ 0.75 ========== ========== ========== ========== Consolidated stockholders' equity (book value)(7): Historical......................................... $ 21,329 $ 21,329 $ 21,329 $ 21,329 Estimated net proceeds............................. 41,535 49,035 56,535 65,160 Less: Common Stock acquired by ESOP...................... (3,400) (4,000) (4,600) (5,290) Common Stock to be acquired by MRP(4).............. (1,700) (2,000) (2,300) (2,645) ---------- ---------- ---------- ---------- Pro forma(7)..................................... $ 57,764 $ 64,364 $ 70,964 $ 78,554 ========== ========== ========== ========== Consolidated stockholders' equity per share(6)(8): Historical(6)...................................... $ 5.02 $ 4.27 $ 3.71 $ 3.23 Estimated net proceeds............................. 9.77 9.81 9.83 9.85 Common Stock acquired by ESOP...................... (0.80) (0.80) (0.80) (0.80) Common Stock to be acquired by MRP(4).............. (0.40) (0.40) (0.40) (0.40) ---------- ---------- ---------- ---------- Pro forma(9)..................................... $ 13.59 $ 12.88 $ 12.34 $ 11.88 ========== ========== ========== ========== Purchase Price as a percentage of pro forma stockholders' equity per share..................... 73.58% 77.64% 81.04% 84.18% ========== ========== ========== ========== Purchase Price as a multiple of pro forma net income per share............................... 10.10x 11.24x 12.35x 13.33x ========== ========== ========== ==========
16
At or For the Nine Months Ended June 30, 1997 --------------------------------------------------------------------------- Minimum of Midpoint of Maximum of 15% Above Estimated Estimated Estimated Maximum of Valuation Valuation Valuation Estimated Range Range Range Valuation Range ----------- --------------------- ------------------- ------------------ 4,250,000 5,000,000 5,750,000 6,612,500(1) Shares Shares Shares Shares at $10.00 at $10.00 at $10.00 at $10.00 Per Share Per Share Per Share Per Share ---------- -------------------- ------------------ ------------------ (In thousands, except per share amounts) Gross proceeds...................................... $ 42,500 $ 50,000 $ 57,500 $66,125 Less: Estimated offering expenses......................... 965 965 965 965 ---------- ---------- ---------- ------- Estimated net proceeds.............................. $ 41,535 $ 49,035 $ 56,535 $65,160 Less: ESOP shares......................................... (3,400) (4,000) (4,600) (5,290) MRP shares.......................................... (1,700) (2,000) (2,300) (2,645) ---------- ---------- ---------- ------- Estimated net cash proceeds to the Holding Company............................. $ 36,435 $ 43,035 $ 49,635 $57,225 Consolidated net income: Historical.......................................... $ 2,550 $ 2,550 $ 2,550 $ 2,550 Pro forma income on net proceeds(2)................. 1,257 1,485 1,712 1,974 Pro forma ESOP adjustments(3)....................... (168) (198) (228) (262) Pro forma MRP adjustments(4)........................ (168) (198) (228) (262) ---------- ---------- ---------- ------- Pro forma.......................................... $ 3,471 $ 3,639 $ 3,806 $ 4,000 ========== ========== ========== ======= Consolidated net income per share(5)(6): Historical.......................................... $ 0.65 $ 0.55 $ 0.48 $ 0.42 Pro forma income on net proceeds.................... 0.31 0.32 0.32 0.32 Pro forma ESOP adjustments(3)....................... (0.04) (0.04) (0.04) (0.04) Pro forma MRP adjustments(4)........................ (0.04) (0.04) (0.04) (0.04) ---------- ---------- ---------- ------- Pro forma.......................................... $ 0.88 $ 0.79 $ 0.72 $ 0.66 ========== ========== ========== ======= Consolidated stockholders' equity (book value)(7): Historical.......................................... $ 23,866 $ 23,866 $ 23,866 $23,866 Estimated net proceeds.............................. 41,535 49,035 56,535 65,160 Less: Common Stock acquired by ESOP....................... (3,400) (4,000) (4,600) (5,290) Common Stock to be acquired by MRP(4)............... (1,700) (2,000) (2,300) (2,645) ---------- ---------- ---------- ------- Pro forma(7)....................................... $ 60,301 $ 66,901 $ 73,501 $81,091 ========== ========== ========== ======= Consolidated stockholders' equity per share(6)(8): Historical(6)....................................... $ 5.62 $ 4.77 $ 4.15 $ 3.61 Estimated net proceeds.............................. 9.77 9.81 9.83 9.85 Common Stock acquired by ESOP....................... (0.80) (0.80) (0.80) (0.80) Common Stock to be acquired by MRP(4)............... (0.40) (0.40) (0.40) (0.40) ---------- ---------- ---------- ------- Pro forma(9)....................................... $ 14.19 $ 13.38 $ 12.78 $ 12.26 ========== ========== ========== ======= Purchase Price as a percentage of pro forma stockholders' equity per share(10).................. 70.47% 74.74% 78.25% 81.57% ========== ========== ========== ======= Purchase Price as a multiple of pro forma net income per share 8.52x 9.49x 10.42x 11.36x ========== ========== ========== =======
17 ___________________ (1) Gives effect to the sale of an additional 862,500 shares in the Conversion, which may be issued to cover an increase in the appraised value of the Common Stock or additional subscriptions, without the resolicitation of subscribers or any right of cancellation. The issuance of such additional shares will be conditioned on a determination of the independent appraiser that such issuance is compatible with its determination of the estimated pro forma market value of the Common Stock. See "THE CONVERSION -- Stock Pricing and Number of Shares to be Issued." (2) No effect has been given to withdrawals from savings accounts for the purpose of purchasing Common Stock in the Conversion. (3) It is assumed that 8% of the shares of Common Stock offered in the Conversion will be purchased by the ESOP. The funds used to acquire such shares will be borrowed by the ESOP (at an interest rate equal to the prime rate as published in The Wall Street Journal on the closing date of the Conversion, which rate is currently 8.50%), from the net proceeds from the Conversion retained by the Holding Company. The amount of this borrowing has been reflected as a reduction from gross proceeds to determine estimated net Conversion proceeds. The Savings Bank intends to make contributions to the ESOP in amounts at least equal to the principal and interest requirement of the debt. As the debt is paid down, stockholders' equity will be increased. The Savings Bank's payment of the ESOP debt is based upon equal installments of principal over a 10-year period and are recorded as an expense (tax effected assuming a federal income tax rate of 34.0%) to the Holding Company on a consolidated basis. Interest income earned by the Holding Company on the ESOP debt offsets the interest paid by the Savings Bank on the ESOP loan. No reinvestment is assumed on proceeds contributed to fund the ESOP. The ESOP expense reflects adoption of SOP 93-6, which will require recognition of expense based upon shares committed to be released and the exclusion of unallocated shares from earnings per share computations. The valuation of shares committed to be released would be based upon the average market value of the shares during the year, which, for purposes of this calculation, was assumed to be equal to the $10.00 per share Purchase Price. See "MANAGEMENT OF THE SAVINGS BANK -- Benefits -- Employee Stock Ownership Plan." (4) In calculating the pro forma effect of the MRP, it is assumed that the required stockholder approval has been received, that the shares were acquired by the MRP at the beginning of the period presented in open market purchases at the Purchase Price and that 20% of the amount contributed was an amortized expense during such period. The issuance of authorized but unissued shares of the Common Stock instead of open market purchases would dilute the voting interests of existing stockholders by approximately 3.85% and pro forma net income per share would be $0.98, $0.89, $0.81 and $0.76 and $0.86, $0.77, $0.70 and $0.64 at the minimum, midpoint, maximum and 15% above the maximum of the Estimated Valuation Range for the year ended September 30, 1996 and for the nine months ended June 30, 1997, respectively, and pro forma stockholders' equity per share would be $13.46, $12.76, $12.26 and $11.81 and $14.03, $13.25, $12.68 and $12.18 at the minimum, midpoint, maximum and 15% above the maximum of the Estimated Valuation Range at September 30, 1996 and June 30, 1997, respectively. Shares issued under the MRP vest 20% per year and, for purposes of this table, compensation expense is recognized on a straight-line basis over each vesting period. In the event the fair market value per share is greater than $10.00 per share on the date of stockholder approval of the MRP, total MRP expense would increase. See "RISK FACTORS -- New Expenses Associated with ESOP and MRP." The total estimated MRP expense was multiplied by 20% for the year ended September 30, 1996 (the total percent of shares for which expense is recognized in the first year) and 15% for the nine months ended June 30, 1997 resulting in pre-tax MRP expense of $340,000, $400,000, $460,000 and $529,000, and $255,000, $300,000, $345,000 and $396,750 at the minimum, midpoint, maximum and 15% above the maximum of the Estimated Valuation Range for the year ended September 30, 1996 and for the nine months ended June 30, 1997, respectively. No effect has been given to the shares reserved for issuance under the proposed Stock Option Plan. If stockholders approve the Stock Option Plan following the Conversion, the Holding Company will have reserved for issuance under the Stock Option Plan authorized but unissued shares of Common Stock representing an amount of shares equal to 10% of the shares sold in the Conversion. If all of the options were to be exercised utilizing these authorized but unissued shares rather than treasury shares which could be acquired, the voting interests of existing stockholders would be diluted by approximately 10%. The issuance 18 of authorized but unissued shares of the Common Stock assuming that all stock options are issued and exercised on the closing date, the pro forma net income per share would be $0.95, $0.86, $0.79 and $0.74, and $0.83, $0.75, $0.68 and $0.63 at the minimum, midpoint, maximum and 15% above the maximum of the Estimated Valuation Range for the year ending September 30, 1996 and for the nine months ending June 30, 1997, respectively. See "MANAGEMENT OF THE SAVINGS BANK -- Benefits -- 1997 Stock Option Plan" and "-- Management Recognition Plan" and "RISK FACTORS -- Possible Dilutive Effect of Benefit Programs." (5) Per share amounts are based upon shares outstanding of 3,927,000, 4,620,000, 5,313,000 and 6,109,950, and 3,922,750, 4,615,000, 5,307,250 and 6,103,338 at the minimum, midpoint, maximum and 15% above the maximum of the Estimated Valuation Range for the year ended September 30, 1996 and for the nine months ended June 30, 1997, respectively, which includes the shares of Common Stock sold in the Conversion less the number of shares assumed to be held by the ESOP not committed to be released within the first year following the Conversion. (6) Historical per share amounts have been computed as if the shares of Common Stock expected to be issued in the Conversion had been outstanding at the beginning of the period or on the date shown, but without any adjustment of historical net income or historical retained earnings to reflect the investment of the estimated net proceeds of the sale of shares in the Conversion, the additional ESOP expense or the proposed MRP expense, as described above. (7) "Book value" represents the difference between the stated amounts of the Savings Bank's assets and liabilities. The amounts shown do not reflect the liquidation account which will be established for the benefit of Eligible Account Holders and Supplemental Eligible Account Holders in the Conversion, or the federal income tax consequences of the restoration to income of the Savings Bank's special bad debt reserves for income tax purposes which would be required in the unlikely event of liquidation. See "THE CONVERSION -- Effects of Conversion to Stock Form on Depositors and Borrowers of the Savings Bank" and "TAXATION." The amounts shown for book value do not represent fair market values or amounts distributable to stockholders in the unlikely event of liquidation. (8) Per share amounts are based upon shares outstanding of 4,250,000, 5,000,000, 5,750,000 and 6,612,500 at the minimum, midpoint, maximum and 15% above the maximum of the Estimated Valuation Range, respectively. (9) Does not represent, nor intended to represent, possible future price appreciation or depreciation of the Common Stock. (10) Annualized. 19 SHARES TO BE PURCHASED BY MANAGEMENT PURSUANT TO SUBSCRIPTION RIGHTS The following table sets forth certain information as to the approximate purchases of Common Stock by each director and executive officer of the Savings Bank, including their associates, as defined by applicable regulations. No individual has entered into a binding agreement with respect to such intended purchases, and, therefore, actual purchases could be more or less than indicated below. Directors and officers of the Savings Bank and their associates may not purchase in excess of 31% of the shares sold in the Conversion. For purposes of the following table, it has been assumed that sufficient shares will be available to satisfy subscriptions in all categories. Directors, officers and employees will pay the same price for the shares for which they subscribe as the price that will be paid by all other subscribers.
Percent of Percent of Anticipated Anticipated Shares at Shares at Number of Dollar Minimum of Maximum of Name and Shares Amount Estimated Estimated Position Purchased(1) Purchased Valuation Range Valuation Range - ---------------------------- ---------------- ----------- ---------------- ---------------- Clarence E. Hamre 40,000 $ 400,000 * * Chairman of the Board, President, Chief Executive Officer and Director Michael R. Sand 20,000 200,000 * * Executive Vice President, Secretary and Director Andrea M. Clinton 1,000 10,000 * * Director Robert Backstrom 20,000 200,000 * * Director Richard R. Morris, Jr. 50,000 (2) 500,000 (2) 1.0 1.0 Director Alan E. Smith 13,500 135,000 * * Director Peter J. Majar 15,000 150,000 * * Director Jon C. Parker 20,000 200,000 * * Director James C. Mason 50,000 (2) 500,000 (2) 1.0 1.0 Director Other officers (9 persons) 36,750 367,500 * * ------- ----------- -------- --------------- Total 266,250 $2,662,500 5.9% 4.9% ======= =========== ======== =============== - -----------------
(1) Excludes any shares awarded pursuant to the ESOP and MRP and options to acquire shares pursuant to the Stock Option Plan. For a description of the number of shares to be purchased by the ESOP and intended awards under the MRP and Stock Option Plan, see "MANAGEMENT OF THE SAVINGS BANK -- Benefits -- Employee Stock Ownership Plan," "-- Benefits -- 1997 Stock Option Plan" and "-- Benefits -- Management Recognition Plan." (2) Based on the midpoint of the Estimated Valuation Range. The named individual and his associates intend to subscribe for up to the maximum purchase limitation of 1% of the total number of shares of Common Stock issued in the Conversion. * Less than 1%. 20 TIMBERLAND SAVINGS BANK, SSB AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME The following Consolidated Statements of Income of Timberland Savings Bank, SSB and Subsidiary for each of the three years in the period ended September 30, 1996 have been audited by Dwyer Pemberton & Coulson, P.C., independent certified public accountants, whose report thereon appears elsewhere herein. The Consolidated Statements of Income for the nine months ended June 30, 1996 and 1997, are unaudited but, in the opinion of management, reflect all adjustments necessary for a fair presentation of the results of operations for those periods. All such adjustments are of a normal recurring nature. The results of operations for the nine months ended June 30, 1997 are not necessarily indicative of the results of the Savings Bank which may be expected for the entire year or any other subsequent period. These consolidated statements of income should be read in conjunction with the Savings Bank's Consolidated Financial Statements and related Notes included elsewhere herein.
Nine Months Ended Year Ended September 30, June 30, --------------------------------------- ------------------------------- 1994 1995 1996 1996 1997 ----------- ------------ ------------ ------------ ----------------- (unaudited) Interest and dividend income: Loans receivable............................ $10,168,594 $13,602,716 $15,879,506 $11,659,940 $12,974,675 Investments and mortgage-backed securities.. 427,910 666,671 396,571 322,818 215,349 Dividends................................... 109,806 98,471 126,189 96,728 84,924 Financial institutions...................... 600,528 85,461 97,283 73,853 95,159 ----------- ----------- ----------- ----------- ----------- Total Interest Income................ 11,306,838 14,453,319 16,499,549 12,153,339 13,370,107 ----------- ----------- ----------- ----------- ----------- Interest expense: Deposits.................................... 4,616,078 5,695,604 6,949,485 5,147,148 5,565,230 FHLB advances and mortgage indebtedness............................... 99,350 663,918 679,075 534,488 671,384 ----------- ----------- ----------- ----------- ----------- Total interest expense............... 4,715,428 6,359,522 7,628,560 5,681,636 6,236,614 ----------- ----------- ----------- ----------- ----------- Net interest income.................. 6,591,410 8,093,797 8,870,989 6,471,703 7,133,493 Provision for loan losses..................... -- -- 70,000 45,000 334,282 ----------- ----------- ----------- ----------- ----------- Net interest income after provision for loan losses... 6,591,410 8,093,797 8,800,989 6,426,703 6,799,211 ----------- ----------- ----------- ----------- ----------- Non-interest income: Service charges on deposits................. 251,505 277,275 278,046 207,956 225,982 Gain (loss) on sale of loans (net).......... 144,971 44,512 33,908 (51,566) 179,502 Other fees.................................. 83,400 113,129 163,419 114,728 140,167 Income (loss) on operations of real estate (net).............................. 167,297 (17,216) (999) (12) 8,677 Escrow and annuity fees..................... 112,616 111,092 132,088 98,474 78,986 Servicing income on loans sold.............. -- -- -- -- 117,642 Other....................................... 57,888 69,490 81,927 58,617 85,056 ----------- ----------- ----------- ----------- ----------- Total non-interest income............ 817,677 598,282 688,389 428,197 836,012 ----------- ----------- ----------- ----------- ----------- Non-interest expense: Salaries and employee benefits.............. 2,076,275 2,328,768 2,505,717 1,863,389 2,143,259 Premises and fixed assets................... 394,001 505,924 554,084 420,701 519,767 Deposit insurance premiums.................. 281,177 295,252 1,202,535 241,202 50,558 Advertising................................. 79,851 132,638 136,496 103,726 179,024 Other....................................... 781,172 826,828 993,435 729,970 759,098 ----------- ----------- ----------- ----------- ----------- Total non-interest expenses.......... 3,612,476 4,089,410 5,392,267 3,358,988 3,651,706 ----------- ----------- ----------- ----------- ----------- Income before income taxes........... 3,796,611 4,602,669 4,097,111 3,495,912 3,983,517 Provision for income taxes.................... 1,163,124 1,602,976 1,419,307 1,215,890 1,433,629 ----------- ----------- ----------- ----------- ----------- Net income........................... $ 2,633,487 $ 2,999,693 $ 2,677,804 $ 2,280,022 $ 2,549,888 =========== =========== =========== =========== ===========
See accompanying Notes to Consolidated Financial Statements. 21 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Management's discussion and analysis of financial condition and results of operations is intended to assist in understanding the financial condition and results of operations of the Savings Bank. The information contained in this section should be read in conjunction with the Consolidated Financial Statements and accompanying Notes thereto and the other sections contained in this Prospectus. OPERATING STRATEGY The Savings Bank is a community oriented savings bank which has traditionally offered a wide variety of savings products to its retail customers while concentrating its lending activities on real estate loans. The primary elements of the Savings Bank's operating strategy include: . Emphasize Residential Mortgage Lending and Residential Construction Lending. The Savings Bank has attempted to establish itself as a niche lender in its primary market area by focusing its lending activities primarily on the origination of loans secured by one- to- four family residential dwellings, including an emphasis on loans for the construction of residential dwellings. In an effort to meet the credit needs of borrowers in its primary market area, the Savings Bank actively originates one-to- four family mortgage loans that do not qualify for sale in the secondary market under FHLMC guidelines. See "RISK FACTORS -- Certain Lending Risks -- Risks of Non- conforming Residential Mortgage Lending." The Savings Bank also originates loans secured by multi-family and commercial real estate properties and, to a lesser extent, originates consumer loans. While the Savings Bank's primary business has been that of a traditional thrift institution, originating loans for portfolio in its primary market area, the Savings Bank also has been an active participant in the secondary market, originating residential loans for sale to the FHLMC on a servicing retained basis. See "BUSINESS OF THE SAVINGS BANK -- Lending Activities." . Diversify Primary Market Area by Expanding Branch Office Network and Establishing A Loan Production Office. In an effort to lessen its dependence on the Grays Harbor County market whose economy has historically been tied to the timber and fishing industries, since 1994 the Savings Bank has opened branch offices in Pierce, King and Thurston Counties and a loan production office in Kitsap County. Thurston, Pierce, King and Kitsap Counties contain the Olympia and Seattle-Tacoma metropolitan areas and their economies are more diversified with the presence of state government and the aerospace and computer industries. See "RISK FACTORS -- Market Area Risk" and "BUSINESS OF THE SAVINGS BANK -- Properties." . Limit Exposure to Interest Rate Risk. In recent years the loans that the Savings Bank has retained in its portfolio generally have periodic interest rate adjustment features or have been relatively short-term in nature. Loans originated for portfolio primarily have included ARM loans, and short-term construction loans. Longer term fixed-rate mortgage loans have generally been originated for sale in the secondary market. Management believes the interest rate sensitivity of these adjustable rate and short- term loans more appropriately matches the interest rate sensitivity of the Savings Bank's funding sources than do other longer duration assets with fixed interest rates. See "-- Asset and Liability Management." 22 . Controlled Asset Growth and Controlling Operating Expenses. The Savings Bank has attempted to maintain a strong capital position through controlled asset growth and by controlling operating expenses. The Savings Bank's GAAP capital ratio was 11.6% at June 30, 1997. Nevertheless, declining market interest rates and competition have reduced the Savings Bank's net interest spread, which has contributed to lower returns on average assets and on average equity in recent periods. Deposits have been the Savings Bank's primary source of funds for its lending and investment activities and the Savings Bank has attempted to retain and expand its retail deposit base through competitive pricing and services. In addition to deposits, the Savings Bank has funded the increase in loans through the use of FHLB advances. The use of brokered deposits has been avoided. In addition, the Savings Bank closely monitors its operating expenses, seeking to control its operating expense ratio while maintaining a staff consistent with providing a high level of service to its communities and its customers. The Savings Bank's ratio of operating (noninterest) expenses to average assets was 2.49%, 2.46% (excluding one-time SAIF assessment of $875,000), and 2.39% respectively for the years ended September 30, 1995 and 1996 and the nine months ended June 30, 1997. COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1996 AND JUNE 30, 1997 Total assets increased 6.1% from $194.4 million at September 30, 1996 to $206.2 million at June 30, 1997, primarily as a result of an increase in loans receivable, net, which was funded by increased deposits, FHLB advances and retained net income. Cash and due from financial institutions increased 15.4% from $5.1 million at September 30, 1996 to $5.8 million at June 30, 1997, primarily as a result of an increase in public unit funds on deposit. Investments and mortgage-backed securities held to maturity decreased 15.7% from $5.0 million at September 30, 1996 to $4.2 million at June 30, 1997. This decrease was attributable primarily to prepayments. Loans receivable, including loans held for sale, net, increased 6.2% from $176.5 million at September 30, 1996 to $187.5 million at June 30, 1997, primarily as a result of an increase in one- to- four family mortgage loans from $96.0 million at September 30, 1996 to $100.1 million at June 30, 1997. Increases in commercial real estate loans (from $26.5 million to $28.9 million) and home equity and second mortgage loans (from $6.6 million to $7.9 million) also contributed to the increase in loans receivable, net. See "RISK FACTORS -- Certain Lending Risks." The increase in loans receivable, net, was attributable primarily to the opening of the South Hill branch office in October 1996 and the Lacey branch office in May 1997, both in the Pierce County market, as well as increased local loan demand. Construction and land development loans, however, decreased from $47.1 million at September 30, 1996 to $44.7 million at June 30, 1997 primarily as a result of construction loans being converted to permanent mortgage loans. Loans held for sale decreased from $6.1 million at September 30, 1996 to $5.4 million at June 30, 1997. This 11.7% decrease resulted primarily from increased loan sales. Premises and fixed assets, net, increased 13.1% from $4.9 million at September 30, 1996 to $5.5 million at June 30, 1997, primarily as a result of construction of the Lacey branch office, which opened in May 1997. See "BUSINESS OF THE SAVINGS BANK -- Properties." Deposits increased 6.8% from $156.5 million at September 30, 1996 to $167.1 million at June 30, 1997, primarily as a result of promotions associated with the opening of the South Hill and Lacey branch offices. The Savings Bank offered certificates of deposit with premium interest rates during a one month period after the opening 23 of each branch office as an incentive to attract depositors in light of increased competition in the Pierce County market. Total capital increased 11.9% from $21.3 million at September 30, 1996 to $23.9 million at June 30, 1997, primarily as a result of retained net income for the nine months ended June 30, 1997. COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1995 AND 1996 Total assets increased 9.3% from $177.8 million at September 30, 1995 to $194.4 million at September 30, 1996, primarily as a result of an increase in loans receivable, net, which was funded primarily by increased deposits, proceeds from the maturity of investment securities and prepayment of mortgage- backed securities held to maturity, FHLB advances, and retained net income. Cash and due from financial institutions increased 4.0% from $4.9 million at September 31, 1995 to $5.1 million at September 30, 1996, primarily as a result of the opening of three automated teller machines and an increase in deposits in transit. Investments and mortgage-backed securities held to maturity decreased 49.8% from $9.9 million at September 30, 1995 to $5.0 million at September 30, 1996. This decrease was attributable primarily to prepayments of mortgage-backed securities and maturities of U.S. Treasury securities. Loans receivable, including loans for sale, net, increased 12.8% from $156.5 million at September 30, 1995 to $176.5 million at September 30, 1996, primarily as a result of an increase in commercial real estate loans from $15.6 million at September 30, 1995 to $26.5 million at September 30, 1996 as a result of loan demand in the primary market area, primarily in Ocean Shores and Port Orchard. Increases in one- to- four family mortgage loans (from $93.6 million to $96.0 million), multi-family loans (from $11.0 to $12.6 million), construction and land development loans (from $42.8 million to $47.1 million) and home equity and second mortgage loans (from $5.2 million to $6.6 million) also contributed to the increase in loans receivable, net. See "RISK FACTORS -- Certain Lending Risks." Premises and fixed assets, net, increased 34.6% from $3.6 million at September 30, 1995 to $4.9 million at September 30, 1996, primarily as a result of the purchase of property for the South Hill branch office and the construction of the Lacey branch office. The South Hill branch office was opened in September 1996 and the Lacey branch office was opened in May 1997. See "BUSINESS OF THE SAVINGS BANK -- Properties." Deposits increased 9.4% from $143.1 million at September 30, 1995 to $156.5 million at September 30, 1996, primarily as a result of the opening of the Auburn branch office in September 1994 and the incorporation of the town of Edgewood and the deposit of town funds at the Savings Bank. Total capital increased 14.4% from $18.7 million at September 30, 1995 to $21.3 million at September 30, 1996, primarily as a result of retained net income for the fiscal year ended September 30, 1996. COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED JUNE 30, 1996 AND 1997 NET INCOME. Net income increased 11.8% from $2.3 million for the nine months ended June 30, 1996 to $2.5 million for the nine months ended June 30, 1997 primarily as a result of higher net interest income and higher noninterest income, partially offset by higher noninterest expense and an increase in the provision for loan losses. NET INTEREST INCOME. Net interest income increased 10.2% from $6.5 million for the nine months ended June 30, 1996 to $7.1 million for the same period in 1997 as total interest income increased more than total interest expense. 24 Total interest income increased 10.0% from $12.2 million for the nine months ended June 30, 1996 to $13.4 million for the nine months ended June 30, 1997 primarily as a result of an increase in the average balance of loans receivable, net, which more than offset a decline in the average yield. The average balance of loans receivable, net, increased from $165.8 million for the nine months ended June 30, 1996 to $187.4 million for the nine months ended June 30, 1997 as a result of increased loan demand and a decrease in loans-in- process. The average yield earned declined from 9.38% for the nine months ended June 30, 1996 to 9.23% for the nine months ended June 30, 1997 primarily as a result of loan refinancings and new loan originations at lower market interest rates. Interest earned on investment and mortgage-backed securities decreased from $323,000 for the nine months ended June 30, 1996 to $215,000 for the nine months ended June 30, 1997 as average balances decreased from $7.2 million for the nine months ended June 30, 1996 to $4.6 million for the nine months ended June 30, 1997 as a result of prepayments and the reinvestment of proceeds in loans receivable, net. Interest earned from financial institutions on interest- earning deposits increased from $74,000 for the nine months ended June 30, 1996 to $95,000 for the nine months ended June 30, 1997 as a result of an increase in average balances from $2.1 million for the nine months ended June 30, 1996 to $2.7 million for the nine months ended June 30, 1997, coupled with an increase in the average rate earned from 4.60% for the nine months ended June 30, 1996 to 4.71% for the nine months ended June 30, 1997. Total interest expense increased 9.8% from $5.7 million for the nine months ended June 30, 1996 to $6.2 million for the nine months ended June 30, 1997 primarily as a result of an increase in the average balance of certificates of deposit from $87.3 million for the nine months ended June 30, 1996 to $97.5 million for the nine months ended June 30, 1997 as a result of the promotion of certificates of deposit associated with new branch office openings and an increase in the average balance of FHLB advances from $11.4 million for the nine months ended June 30, 1996 to $13.7 million for the nine months ended June 30, 1997 to fund loan demand. The Savings Bank's interest rate spread was 4.25% for the nine months ended June 30, 1996 and 4.17% for the same period in 1997. PROVISION FOR LOAN LOSSES. Provisions for loan losses are charges to earnings to bring the allowance for loan losses to a level that management considers adequate to provide for estimated losses inherent in the loan portfolio. In evaluating the adequacy of the allowance for loan losses, management considers loan loss experience, prevailing market conditions and current portfolio performance. The provision for loan losses was $45,000 for the nine months ended June 30, 1996, compared to $334,000 for the nine months ended June 30, 1997. Management deemed the increased provision in 1997 necessary as a result of the growth of the loan portfolio and its changing mix to include more construction and land development, commercial real estate and multi-family loans that are inherently riskier than one- to- four family mortgage loans. The Savings Bank conducts a risk weight analysis of its loan portfolio quarterly to determine the adequacy of the allowance for loan losses. Changes in the portfolio mix affect the level of allowance for loan losses. See "BUSINESS OF THE SAVINGS BANK -- Lending Activities -- Allowance for Loan Losses." NONINTEREST INCOME. Total noninterest income increased 95.2% from $428,000 for the nine months ended June 30, 1996 to $836,000 for the nine months ended June 30, 1997. This increase resulted primarily from gain on sale of loans of $180,000 in 1997, compared to a loss of $52,000 in 1996, and servicing income on loans sold of $118,000 in 1997, compared to no such income in 1996 because of the adoption of SFAS No. 125 effective January 1, 1997. See "-- Impact of New Accounting Pronouncements." The loss on sale of loans in 1996 resulted from the write down of loans held for sale to market value. NONINTEREST EXPENSE. Total noninterest expense increased 8.7% from $3.4 million for the nine months ended June 30, 1996 to $3.7 million for the nine months ended June 30, 1997 primarily as a result of increases in salaries and employee benefits and premises and fixed assets, offset by a decrease in deposit insurance premiums. Salaries and employee benefits increased from $1.9 million for the nine months ended June 30, 1996 to $2.1 million for the nine months ended June 30, 1997 as a result of the opening of the Lacey branch office in May 1997, the 25 hiring of a sales marketing employee in May 1997, the hiring of a management trainee at the Auburn branch office in February 1997, and the implementation a dental insurance plan on January 1, 1997. Premises and fixed assets expense increased from $421,000 for the nine months ended June 30, 1996 to $520,000 for the nine months ended June 30, 1997 because of expenses associated with the opening of the South Hill branch office in September 1996. Deposit insurance premiums decreased from $241,000 for the nine months ended June 30, 1996 to $51,000 for the nine months ended June 30, 1997 as a result of lower premium rates implemented as a result of the SAIF recapitalization. Noninterest expense can be expected to increase in subsequent periods following the consummation of the Conversion as a result of increased costs associated with operating as a public company and increased compensation expense as a result of the adoption of the ESOP and, if approved by the Holding Company's stockholders, the MRP. See "RISK FACTORS -- Return on Equity After Conversion" and "-- New Expenses Associated With ESOP and MRP." PROVISION FOR INCOME TAXES. The provision for income taxes increased from $1.2 million for the nine months ended June 30, 1996 to $1.4 million for the nine months ended June 30, 1997 as a result of higher income before income taxes. The effective tax rate was 34.8% for the nine months ended June 30, 1996 and 36.0% for the nine months ended June 30, 1997. COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED SEPTEMBER 30, 1995 AND 1996 NET INCOME. Net income decreased 10.7% from $3.0 million in fiscal 1995 to $2.7 million in fiscal 1996 primarily as a result of the legislatively-mandated, one-time assessment levied by the FDIC on all SAIF-insured institutions to recapitalize the SAIF. Without this assessment, which amounted to $875,000 ($571,000 after tax), fiscal 1996 net income would have been $3.2 million. NET INTEREST INCOME. Net interest income increased 9.6% from $8.1 million in fiscal 1995 to $8.9 million in fiscal 1996 as total interest income increased more than total interest expense. Total interest income increased 14.2% from $14.5 million in fiscal 1995 to $16.5 million in fiscal 1996 primarily as a result of an increase in the average balance of loans receivable, net, from $143.1 million in fiscal 1995 to $168.1 million in fiscal 1996 as a result of increased loan demand. The average yield earned on loans receivable, net, decreased from 9.51% in fiscal 1995 to 9.45% in fiscal 1996 primarily because of a decline in market interest rates. Interest earned on investment and mortgage-backed securities decreased from $667,000 in fiscal 1995 to $397,000 in fiscal 1996 as average balances decreased from $12.7 million in fiscal 1995 to $6.7 million in fiscal 1996 as a result of prepayments of mortgage-backed securities and the maturity of U.S. Treasury securities. Dividend income from FHLB-Seattle and Financial Institution Insurance Group ("FIIG") stock increased from $98,000 in fiscal 1995 to $126,000 in fiscal 1996 primarily because of higher dividend rates. Interest earned from financial institutions on interest-earning deposits increased from $85,000 in fiscal 1995 to $97,000 in fiscal 1996 as a result of an increase in the average rate paid from 4.11% in fiscal 1995 to 4.68% in fiscal 1996. Total interest expense increased 20.0% from $6.4 million in fiscal 1995 to $7.6 million in fiscal 1996 primarily as a result of an increase in the average balance of certificates of deposit from $73.6 million in fiscal 1995 to $89.0 million in fiscal 1996, coupled with an increase in the average rate paid from 5.41% in fiscal 1995 to 5.92% in fiscal 1996, as a result of promotions associated with the opening of the South Hill branch office. Interest rate spread decreased from 4.56% in fiscal 1995 to 4.34% in fiscal 1996. This decrease is primarily attributable to higher interest expense on certificates of deposit associated with new branch office promotions. PROVISION FOR LOAN LOSSES. There was no provision for loan losses in fiscal 1995 compared to $70,000 in fiscal 1996. Management increased the provision in fiscal 1996 as a result of a larger loan portfolio and a change in the loan mix to include a larger percentage of non-residential mortgage loans, which are inherently riskier than one-to-four family mortgage loans. The Savings Bank conducts a risk weight analysis of its loan portfolio quarterly to determine the adequacy of the allowance for loan losses. Changes in the portfolio mix affect the level of the 26 allowance for loan losses. Management deemed the allowance for loan losses adequate at September 30, 1996. See "BUSINESS OF THE SAVINGS BANK -- Lending Activities -- Allowance for Loan Losses." NONINTEREST INCOME. Total noninterest income increased 15.1% from $598,000 in fiscal 1995 to $688,000 in fiscal 1996. The increase resulted primarily from an increase in other fees from $113,000 in fiscal 1995 to $163,000 in fiscal 1996 as a result of an increased number of automated teller machines ("ATM's"), together with increased escrow and annuity fees from $111,000 in fiscal 1995 to $132,000 in fiscal 1996 as a result of establishing a second escrow company division within the Savings Bank's service corporation subsidiary to service the Puget Sound area. This increase was partially offset by a decrease in gains on sales of loan from $45,000 in fiscal 1995 to $34,000 in fiscal 1996 because of lower sales volume resulting from higher market interest rates. NONINTEREST EXPENSE. Total noninterest expense increased 31.9% from $4.1 million in fiscal 1995 to $5.4 million in fiscal 1996 primarily as a result of an increase in deposit insurance premiums from $295,000 in fiscal 1995 to $1.2 million in fiscal 1996 attributable to the SAIF assessment. Prior to the SAIF recapitalization, the Savings Bank's total annual deposit insurance premiums amounted to 0.23% of assessable deposits. Effective January 1, 1997, the rate decreased to 0.065% of assessable deposits. See "REGULATION -- Federal Regulation of the Saving Bank -- Federal Deposit Insurance Corporation." Salaries and employee benefits increased from $2.3 million in fiscal 1995 to $2.5 million in fiscal 1996 as a result of adding and training of staff to operate the newly opened South Hill branch office. Premises and fixed assets expense increased from $506,000 in fiscal 1995 to $554,000 in fiscal 1996, also because of the opening of the South Hill branch office. Noninterest expense can be expected to increase in subsequent periods following the consummation of the Conversion as a result of increased costs associated with operating as a public company and increased compensation expense as a result of the adoption of the ESOP and, if approved by the Holding Company's stockholders, the MRP. See "RISK FACTORS -- Return on Equity After Conversion" and "-- New Expenses Associated With ESOP and MRP." PROVISION FOR INCOME TAXES. The provision for income taxes decreased from $1.6 million in fiscal 1995 to $1.4 million in fiscal 1996 as a result of lower income before income taxes. The effective tax rate was 34.8% in fiscal 1995 and 34.6% in fiscal 1996. COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED SEPTEMBER 30, 1994 AND 1995 NET INCOME. Net income increased 13.9% from $2.6 million in fiscal 1994 to $3.0 million in fiscal 1995 primarily as a result of higher net interest income, partially offset by lower noninterest income and higher noninterest expense. NET INTEREST INCOME. Net interest income increased 22.8% from $6.6 million in fiscal 1994 to $8.1 million in fiscal 1995 as total interest income increased more than total interest expense. Total interest income increased 27.8% from $11.3 million in fiscal 1994 to $14.5 million in fiscal 1995 primarily as a result of increases in the average balance of, and the average yield on, loans receivable, net. The average balance of loans receivable, net, increased from $112.0 million in fiscal 1994 to $143.1 million in fiscal 1995 as a result of a decrease in the amount of loans sold and an increased in the purchase of loan participation interests. The average yield earned increased from 9.08% in fiscal 1994 to 9.51% in fiscal 1995 primarily because of an increased proportion of higher yielding construction and land development, commercial real estate and multi-family loans, relative to one- to- four family mortgage loans. Interest earned on investment and mortgage-backed securities increased from $428,000 in fiscal 1994 to $667,000 in fiscal 1995 as average balances increased from $7.3 million in fiscal 1994 to $12.7 million in fiscal 1995 as a result of the purchase of mortgage-backed securities and U.S. Treasury securities. Interest earned from financial institutions decreased from $601,000 in fiscal 1994 to $85,000 in fiscal 1995 as a result of the investment of proceeds from maturing certificates of deposit in mortgage loans. Total interest expense increased 34.9% from $4.7 million in fiscal 1994 to $6.4 million in fiscal 1995 primarily as a result of an increase in the average balance of certificates of deposit from $61.8 million in fiscal 1994 27 to $73.6 million in fiscal 1995, coupled with an increase in the average rate paid from 4.62% in fiscal 1994 to 5.41% in fiscal 1995, as a result of promotions associated with the opening of the Auburn branch office. The average balance of FHLB advances and other borrowed money increased from $1.5 million in fiscal 1994 to $10.5 million in fiscal 1995 primarily because of increased loan demand and decreased proceeds from the sale of loans. The Savings Bank's interest rate spread increased from 4.32% in fiscal 1994 to 4.56% in fiscal 1995. This increase is primarily attributable to the higher proportion of construction and land development, commercial real estate and multi-family loans in portfolio, which generally carry higher interest rates than one- to- four family mortgage loans to compensate for the higher credit risk. PROVISION FOR LOAN LOSSES. The Savings Bank conducts a risk weight analysis of its loan portfolio quarterly to determine the adequacy of the allowance for loan losses. Changes in the portfolio mix affect the level of the allowance for loan losses. In light of the composition of the loan portfolio and the low level of loss experience, there was no provision for loan losses in either fiscal 1994 or fiscal 1995. Management deemed the allowance for loan losses adequate at September 30, 1995. See "BUSINESS OF THE SAVINGS BANK -- Lending Activities -- Allowance for Loan Losses." NONINTEREST INCOME. Total noninterest income decreased 26.8% from $818,000 in fiscal 1994 to $598,000 in fiscal 1995. Service charges on deposit accounts increased from $252,000 in fiscal 1994 to $277,000 in fiscal 1995 as a result of an increased number of checking accounts. Other fees increased from $83,000 in fiscal 1994 to $113,000 in fiscal 1995 as a result of the establishment of the Savings Bank's initial ATMs. Offsetting these increases were decreases in gain on sale of loans and in net income on operations of real estate. Gains on sale of loans decreased from $145,000 in fiscal 1994 to $45,000 in fiscal 1995 because of lower sales volume resulting from increasing market interest rates that decreased customer preference for fixed-rate residential mortgage loans. Net income on operations of real estate declined from $167,000 in fiscal 1994 to a net loss of $17,000 in fiscal 1995 as a result of the recognition of a $165,000 deferred gain on sale of real estate in fiscal 1994. NONINTEREST EXPENSE. Total noninterest expense increased 13.2% from $3.6 million in fiscal 1994 to $4.1 million in fiscal 1995 primarily as a result of increases in salaries and employee benefits, premises and fixed assets and advertising. Salaries and employee benefits increased from $2.1 million in fiscal 1994 to $2.3 million in fiscal 1995 as a result of adding and training staff at the newly opened Auburn branch office. Premises and fixed assets expense increased from $394,000 in fiscal 1994 to $506,000 in fiscal 1995 also because of the opening of the Auburn branch office. Advertising expense increased from $80,000 in fiscal 1994 to $133,000 in fiscal 1995 primarily because of increased advertising on regional television stations. PROVISION FOR INCOME TAXES. The provision for income taxes increased from $1.2 million in fiscal 1994 to $1.6 million in fiscal 1995 as a result of higher income before income taxes. The effective tax rate was 30.6% in fiscal 1994 and 34.8% in fiscal 1995. AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS/COST The following table sets forth certain information for the periods indicated regarding average balances of assets and liabilities as well as the total dollar amounts of interest income from average interest-earning assets and interest expense on average interest-bearing liabilities and average yields and costs. Such yields and costs for the periods indicated are derived by dividing income or expense by the average weekly balance of assets or liabilities, respectively, for the periods presented. Average balances are derived from weekly balances. Management does not believe that the use of weekly balances instead of daily balances has caused any material difference in the information presented. 28
Year Ended September 30, ------------------------------------------------------------------------------------------- 1994 1995 1996 --------------------------- ----------------------------- ----------------------------- Interest Interest Interest Average and Yield/ Average and Yield/ Average and Yield/ Balance Dividends Cost Balance Dividends Cost Balance Dividends Cost -------- ---------- ------- -------- ---------- ------- -------- ---------- ------- (Dollars in thousands) Interest-earning assets: Loans receivable(1)(2).... $111,979 $10,168 9.08% $143,103 $13,603 9.51% $168,060 $15,880 9.45% Mortgage-backed & investment securities.... 7,263 428 5.89 12,676 667 5.26 6,689 397 5.94 FHLB stock & equity securities............... 1,270 110 8.66 1,370 99 7.15 1,499 126 8.41 Interest Bearing Deposits. 17,299 601 3.47 2,069 85 4.11 2,072 97 4.68 -------- ------- -------- ------- -------- ------- Total interest-earning assets................. $137,811 $11,307 8.20 $159,218 $14,454 9.08 $178,320 $16,500 9.25 Non-interest-earning assets 4,097 5,294 5,674 -------- -------- -------- Total assets............ $141,908 $164,512 $183,994 ======== ======== ======== Interest-bearing liabilities: Passbook accounts......... $ 28,291 $ 955 3.38 $ 27,512 $ 821 2.98 $ 24,800 $ 738 2.98 Money market accounts..... 12,376 379 3.06 10,115 469 4.64 13,182 520 3.94 NOW accounts.............. 17,554 428 2.44 19,078 425 2.23 17,377 421 2.42 Certificates of deposit... 61,809 2,854 4.62 73,596 3,981 5.41 89,024 5,271 5.92 FHLB advances-other borrowed money........... 1,491 99 6.64 10,539 664 6.30 11,005 679 6.17 -------- ------- -------- ------- -------- ------- Total interest bearing liabilities............ 121,521 4,715 3.88 140,840 $ 6,360 4.52 $155,388 $ 7,629 4.91 Non-interest bearing liabilities.............. 5,973 6,474 8,330 -------- -------- Total liabilities....... $127,494 $147,314 $163,718 Retained earnings.......... 14,414 17,198 20,276 -------- -------- -------- Total liabilities and retained earnings...... $141,908 $164,512 $183,994 ======== ======== ======== Net interest income........ $ 6,592 $ 8,094 $ 8,871 Interest rate spread....... 4.32% 4.56% 4.34% Net interest margin(3)..... 4.78% 5.08% 4.97% Ratio of interest-earning assets to average interest- bearing liabilities....... 113.41% 113.05% 114.76% - -------------
(1) Does not include interest on loans 90 days or more past due. Includes loans originated for sale. (2) Average balance includes nonaccrual loans. (3) Net interest income divided by total interest earning assets.
Nine Months Ended June 30, ----------------------------------------------------------- 1996 1997 ----------------------------- ---------------------------- Interest Interest Average and Yield/ Average and Yield/ Balance Dividends Cost Balance Dividends Cost -------- ---------- ------- -------- ---------- ------- Interest-earning assets: Loans receivable(1)(2).... $165,827 $11,660 9.38% $187,435 $12,975 9.23% Mortgage-backed & investment securities.... 7,233 323 5.95 4,613 215 6.21 FHLB stock & equity securities............... 1,483 97 8.72 1,549 85 7.32 Interest Bearing Deposits. 2,145 74 4.60 2,690 95 4.71 -------- ------- -------- ------- Total interest-earning assets................. $176,688 $12,154 9.17 $196,287 $13,370 9.08 Non-interest-earning assets 5,352 7,504 -------- -------- Total assets............ $182,040 $203,791 ======== ======== Interest-bearing liabilities:.............. $ 24,699 $ 550 2.97 $ 24,769 $ 556 2.99 Passbook accounts......... 13,205 393 3.97 12,695 378 3.97 Money market accounts..... 17,181 311 2.41 17,707 330 2.48 NOW accounts.............. 87,333 3,893 5.94 97,472 4,302 5.88 Certificates of deposit... FHLB advances-other 11,372 535 6.27 16,657 671 5.37 borrowed money........... -------- ------- -------- ------- Total interest bearing $153,790 $ 5,682 4.92 $169,300 $ 6,237 4.91 liabilities............ Non-interest bearing 8,345 11,749 liabilities.............. $162,135 $181,049 Total liabilities....... 19,905 22,742 Retained earnings.......... -------- -------- Total liabilities and $182,040 $203,791 retained earnings...... ======== ======== $ 6,472 $ 7,133 Net interest income........ 4.25% 4.17% Interest rate spread....... 4.88% 4.85% Net interest margin(3)..... Ratio of interest-earning assets to average interest-bearing liabilities.............. 114.89% 115.94%
29 YIELDS EARNED AND RATES PAID The following table sets forth (on a consolidated basis) for the periods and at the dates indicated, the weighted average yields earned on the Savings Bank's assets, the weighted average interest rates paid on the Savings Bank's liabilities, together with the net yield on interest-earning assets.
Nine Months Ended Year Ended September 30, June 30, At --------------------------- ------------------- June 30, 1994 1995 1996 1996 1997 1997 -------- -------- ------- ------- ---------- --------- Weighted average yield on: Loans receivable(1)..................... 9.08% 9.51% 9.45% 9.38% 9.23% 8.80% Mortgage-backed securities and.......... investment securities................. 5.89 5.26 5.94 5.95 6.21 6.37 FHLB stock and equity securities........ 8.66 7.15 8.41 8.72 7.32 7.50 Interest-bearing deposits............... 3.47 4.11 4.68 4.60 4.71 4.88 All interest-earning assets............. 8.20 9.08 9.25 9.17 9.08 8.72 Weighted average rate paid on: Passbook savings accounts............... 3.38 2.98 2.98 2.97 2.99 2.98 Money market accounts................... 3.06 4.64 3.94 3.97 3.97 3.92 NOW accounts............................ 2.44 2.23 2.42 2.41 2.48 2.50 Certificate accounts.................... 4.62 5.41 5.92 5.94 5.88 5.75 FHLB advances and other borrowed money.................................. 6.64 6.30 6.17 6.27 5.37 5.60 All interest-bearing liabilities........ 3.88 4.52 4.91 4.93 4.91 4.87 Interest rate spread (spread between...... weighted average rate on all interest- earning assets and all interest-........ bearing liabilities).................... 4.32 4.56 4.34 4.25 4.17 3.85 Net interest margin (net interest income as a percentage of average.............. interest-earning assets)................ 4.78 5.08 4.97 4.88 4.85 N/A - ------------------
(1) Weighted average rate at June 30, 1997 excludes loan fees. 30 RATE/VOLUME ANALYSIS The following table sets forth the effects of changing rates and volumes on net interest income of the Savings Bank. Information is provided with respect to (i) effects on interest income attributable to changes in volume (changes in volume multiplied by prior rate); and (ii) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume); (iii) changes in rate/volume (change in rate multiplied by change in volume); and (iv) the net change (sum of the prior columns).
Year Ended September 30, Year Ended September 30, Nine Months Ended June 30, 1995 Compared to Year 1996 Compared to Year 1997 Compared to Nine Months Ended September 30, 1994 Ended September 30, 1995 Ended June 30, 1996 Increase (Decrease) Increase (Decrease) Increase (Decrease) Due to Due to Due to -------------------------------- -------------------------------- --------------------------------- Rate/ Net Rate/ Net Rate/ Net Rate Volume Volume Change Rate Volume Volume Change Rate Volume Volume Change ----- ------- ------- ------- ------ ------- ------- ------- ------ ------- ------- ------- (Dollars in thousands) Interest-earning assets: Loans receivable (1)(2)... $ 482 $2,820 $134 $3,436 $ (86) $2,377 $ (15) $2,276 $(187) $1,526 $(24) $1,315 Mortgage-backed securities and investment securities... (46) 319 (34) 239 86 (315) (41) (270) 14 (117) (5) (108) FHLB stock and equity securities............... (19) 9 (2) (12) 17 9 2 28 (15) 4 (1) (12) Interest-bearing deposits. 111 (528) (99) (516) 12 -- -- 12 2 19 -- 21 ----- ------ ---- ------ ----- ------ ----- ------ ----- ------ ---- ------ Total net change in income on interest-earning assets 528 2,620 (1) 3,147 29 2,071 (54) 2,046 (186) 1,432 (30) 1,216 Interest-bearing liabilities: Passbook accounts......... (104) (27) (3) (134) -- (83) -- (83) 4 2 -- 6 NOW accounts.............. (37) 37 (3) (3) 36 (37) (3) (4) 9 9 1 19 Money market accounts..... 195 (69) (36) 90 (71) 144 (22) 51 -- (15) -- (15) Certificate accounts...... 489 545 93 1,127 375 836 79 1,290 (39) 453 (5) 409 FHLB advances and other borrowed money.......... (5) 601 (31) 565 (14) 30 (1) 15 (77) 249 (36) 136 ----- ------ ---- ------ ----- ------ ----- ------ ----- ------ ---- ------ Total net change in expense on interest-bearing liabilities.............. 538 1,087 20 1,645 326 890 53 1,269 (103) 698 (40) 555 ----- ------ ---- ------ ----- ------ ----- ------ ----- ------ ---- ------ Net change in net interest income.................... $ (10) $1,533 $(21) $1,502 $(297) $1,181 $(107) $ 777 $ (83) $ 734 $ 10 $ 661 ===== ====== ==== ====== ===== ====== ===== ====== ===== ====== ==== ====== - ---------------
(1) Excludes interest on loans 90 days or more past due. Includes loans originated for sale. (2) Net change in interest income on loans includes loan fees of $37,000, $197,000 and $206,000 for the years ended September 30, 1995 and 1996 and the nine months ended June 30, 1997, respectively. 31 ASSET AND LIABILITY MANAGEMENT AND INTEREST RATE RISK The Savings Bank's principal financial objective is to achieve long-term profitability while reducing its exposure to fluctuating market interest rates. The Savings Bank has sought to reduce the exposure of its earnings to changes in market interest rates by attempting to manage the mismatch between asset and liability maturities and interest rates. The principal element in achieving this objective is to increase the interest-rate sensitivity of the Savings Bank's interest-earning assets by retaining for its portfolio loans with interest rates subject to periodic adjustment to market conditions and selling fixed-rate one- to four-family mortgage loans. The Savings Bank relies on retail deposits as its primary source of funds. Management believes retail deposits, compared to brokered deposits, reduce the effects of interest rate fluctuations because they generally represent a more stable source of funds. As part of its interest rate risk management strategy, the Savings Bank promotes transaction accounts and certificates of deposit with terms up to six years. The Savings Bank has adopted a strategy that is designed to maintain or improve the interest rate sensitivity of assets relative to its liabilities. The primary elements of this strategy involve the origination of ARM loans for its portfolio; maintaining residential construction loans as a portion of total net loans receivable because of their generally shorter terms and higher yields than other one- to four-family residential mortgage loans; matching asset and liability maturities; investing in short term securities; and the origination of fixed-rate loans for sale in the secondary market and the retention of the related loan servicing rights. Sharp decreases in interest rates may adversely affect the Savings Bank's earnings while increases in interest rates may beneficially affect the Savings Bank's earnings because a larger portion of the Savings Bank's interest rate sensitive assets than interest rate sensitive liabilities would reprice within a one year period. Management has sought to sustain the match between asset and liability maturities and rates, while maintaining an acceptable interest rate spread. Pursuant to this strategy, the Savings Bank actively originates adjustable rate loans for retention in its loan portfolio. Fixed-rate mortgage loans generally are originated for the intended purpose of resale in the secondary mortgage market. At June 30, 1997, adjustable rate loans and adjustable rate mortgage-backed securities constituted $131.9 million, or 63.2%, of the Savings Bank's total combined mortgage loan and mortgage-backed securities portfolio. Although the Savings Bank has sought to originate ARM loans, the ability to originate such loans depends to a great extent on market interest rates and borrowers' preferences. Particularly in lower interest rate environments, borrowers often prefer to obtain fixed rate loans. Consumer loans and construction and land development loans typically have shorter terms and higher yields than permanent residential mortgage loans, and accordingly reduce the Savings Bank's exposure to fluctuations in interest rates. At June 30, 1997, the construction and land development and consumer loan portfolios amounted to $44.7 million and $10.7 million, or 21.9% and 5.2% of total loans receivable, respectively. See "BUSINESS OF THE SAVINGS BANK -- Lending Activities -- Construction Lending" and "-- Lending Activities -- Consumer Lending." The Savings Bank also invests in short-term to medium-term U.S. Government securities as well as mortgage-backed securities issued or guaranteed by U.S. Government agencies. See "BUSINESS OF THE SAVINGS BANK -- Investment Activities." 32 The following table presents the Savings Bank's interest sensitivity gap between interest-earning assets and interest-bearing liabilities at June 30, 1997.
First Year Repricing Later Repricing ----------------------------- ------------------------------------------------ 0-3 4-6 7-12 1-3 3-5 5-10 10-20 Over 20 TOTAL Months Months Months Years Years Years Years Years -------- ------- ------- -------- ------- -------- ------- ------- ------- (Dollars in Thousands) LOANS(1) ARMs.............................. $ 92,980 $28,339 $23,885 $ 18,818 $20,350 $ 1,588 $ -- -- $ -- Fixed rate mortgages.............. 19,418 1,178 1,047 1,940 5,830 3,576 3,942 1,656 249 Home equity/security mortgage..... 7,847 2,737 627 994 2,035 833 538 83 -- Consumer.......................... 1,745 1,032 189 204 227 55 30 8 -- Automobile........................ 1,041 135 114 199 443 114 30 6 -- Construction...................... 31,484 15,405 6,227 4,140 5,712 -- -- -- -- Nonresidential mortgage (adjustable)..................... 21,696 3,614 4,923 4,954 8,205 -- -- -- -- Nonresidential mortgage (fixed)... 13,780 1,560 1,211 2,161 5,407 2,094 1,179 167 1 Commercial variable............... 9 9 -- -- -- -- -- -- -- Commercial fixed.................. 709 132 50 95 309 120 3 -- -- INVESTMENTS Investment securities............. 2,312 2,312 -- -- -- -- -- -- -- Mortgage securities............... 4,172 1,155 1,684 1,236 69 23 4 1 -- -------- ------- ------- -------- ------- -------- ------- ------- ------- Total rate sensitive assets........ $197,193 $57,608 $39,957 $ 34,741 $48,587 $ 8,403 $ 5,726 $ 1,921 $ 250 ======== ======= ======= ======== ======= ======== ======= ======= ======= LIABILITIES Money market deposits............. $ 13,667 $ 4,527 $ 3,028 $ 3,379 $ 2,624 $ 105 $ 4 $ -- $ -- Certificates of deposit........... 104,007 25,074 16,254 35,770 24,156 2,343 360 50 -- Passbook accounts................. 25,130 2,144 1,961 3,434 8,971 4,396 3,514 690 20 NOW accounts...................... 17,515 1,494 1,366 2,394 6,253 3,064 2,449 481 14 BORROWINGS FHLB advances..................... 13,771 1,500 -- -- 500 10,456 1,315 -- -- -------- ------- ------- -------- ------- -------- ------- ------- ------- Total rate sensitive liabilities... $174,090 $34,739 $22,609 $ 44,977 $42,504 $ 20,364 $ 7,642 $ 1,221 $ 34 ======== ======= ======= ======== ======= ======== ======= ======= ======= PERIODIC GAP....................... -- $22,869 $17,348 $(10,236) $ 6,083 $(11,961) $(1,916) $ 700 $ 216 Gap ratio......................... -- 1.66 1.77 0.77 1.14 0.41 0.75 1.57 7.34 Gap percentage total.............. -- 11.09% 8.41% (4.96)% 2.95% (5.80)% (0.93)% 0.34% 0.10% CUMULATIVE GAP..................... -- $22,869 $40,218 $ 29,982 $36,065 $ 24,105 $22,189 $22,889 $23,105 Gap ratio......................... -- 1.66 1.70 1.29 1.25 1.15 1.13 1.13 1.13 Gap percentage total.............. -- 11.09% 19.50% 14.54% 17.49% 11.69% 10.76% 11.10% 11.20% - --------------------
(1) Net of loans in process. 33 The Savings Bank's analysis of its interest-rate sensitivity, as illustrated in the preceding table, incorporates certain assumptions regarding the amortization of loans and other interest-earning assets and the withdrawal of deposits. The Savings Bank's interest-rate sensitivity analysis, as illustrated in the foregoing table, could vary substantially if different assumptions were used or if actual experience differs from the assumptions used. The assumptions used in preparing the table are based on market loan prepayment rates and market deposit decay rates observed by the FHLB-Seattle on or about June 30, 1997. The Savings Bank believes that the FHLB-Seattle assumptions are a realistic representation of its own portfolio. NET PORTFOLIO VALUE AND NET INTEREST INCOME ANALYSIS. In addition to the interest rate gap analysis as discussed above, management monitors the Savings Bank's interest rate sensitivity through the use of a model which estimates the change in NPV (net portfolio value) and net interest income in response to a range of assumed changes in market interest rates. The model first estimates the level of the Savings Bank's NPV (market value of assets, less market value of liabilities, plus or minus the market value of any off-balance sheet items) under the current rate environment. In general, market values are estimated by discounting the estimated cash flows of each instrument by appropriate discount rates. The model then recalculates the Savings Bank's NPV under different interest rate scenarios. The change in NPV under the different interest rate scenarios provides a measure of the Savings Bank's exposure to interest rate risk. The following information is presented as of June 30, 1997.
Net Interest Income Current Market Value Projected ------------------------------- ------------------------------- Interest Rate Estimated $ Change % Change Estimated $ Change % Change Scenario Value from Base from Base Value from Base from Base - --------------- --------- --------- --------- --------- --------- --------- (Dollars in thousands) 400 $8,860 $ 96 1.10% $22,437 $(2,213) (8.98)% 300 9,042 278 3.17 23,811 (838) (3.40) 200 9,211 447 5.10 24,996 346 1.40 100 9,090 326 3.71 25,273 624 2.53 BASE 8,764 -- -- 24,649 -- -- (100) 8,368 (396) (4.52) 23,402 (1,247) (5.06) (200) 7,925 (839) (9.58) 21,866 (2,783) (11.29) (300) 7,592 (1,172) (13.37) 20,836 (3,813) (15.47) (400) 7,324 (1,440) (15.43) 20,645 (4,004) (16.24)
Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, loan repayments and deposit decay, and should not be relied upon as indicative of actual results. Further, the computations do not reflect any actions management may undertake in response to changes in interest rates. In the event of a 200 basis point decrease in interest rates, the Savings Bank would be expected to experience an 11.3% decrease in NPV and a 9.6% decrease in net interest income. In the event of a 200 basis point increase in interest rates, a 1.4% increase in NPV and a 5.1% increase in net interest income would be expected. Based upon the modelling described above, the Savings Bank's asset and liability structure results in decreases in NPV and decreases in net interest income in a declining interest rate scenario and increases in NPV and increases in net interest income in a rising interest rate scenario. However, the amount of change in value of specific assets and liabilities due to changes in rates is not the same in a rising rate environment as in a falling rate environment. As with any method of measuring interest rate risk, certain shortcomings are inherent in the method of analysis presented in the foregoing table. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, 34 the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets have features which restrict changes in interest rates on a short-term basis and over the life of the asset. Further, in the event of a change in interest rates, expected rates of prepayments on loans and early withdrawals from certificates could likely deviate significantly from those assumed in calculating the table. LIQUIDITY AND CAPITAL RESOURCES The Savings Bank's primary sources of funds are customer deposits, proceeds from principal and interest payments on and the sale of loans, maturing securities and FHLB advances. While maturities and scheduled amortization of loans are a predictable source of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition. The Savings Bank must maintain an adequate level of liquidity to ensure the availability of sufficient funds to fund loan originations and deposit withdrawals, to satisfy other financial commitments and to take advantage of investment opportunities. The Savings Bank generally maintains sufficient cash and short-term investments to meet short-term liquidity needs. At June 30, 1997, the Savings Bank's regulatory liquidity ratio (net cash, and short term and marketable assets, as a percentage of net deposits and short term liabilities) was 8.8%. At June 30, 1997, the Savings Bank also maintained an uncommitted credit facility with the FHLB-Seattle that provided for immediately available advances up to an aggregate amount of $41.2 million, under which $13.8 million was outstanding. Liquidity management is both a short- and long-term responsibility of the Savings Bank's management. The Savings Bank adjusts its investments in liquid assets based upon management's assessment of (i) expected loan demand, (ii) projected loan sales, (iii) expected deposit flows, and (iv) yields available on interest-bearing deposits. Excess liquidity is invested generally in interest- bearing overnight deposits and other short-term government and agency obligations. If the Savings Bank requires funds beyond its ability to generate them internally, it has additional borrowing capacity with the FHLB and collateral for repurchase agreements. The Savings Bank's primary investing activity is the origination of one- to four-family mortgage loans and construction and land development loans. During the years ended September 30, 1994, 1995 and 1996 and the nine months ended June 30, 1997, the Savings Bank originated $28.3 million, $26.9 million, $24.5 million and $18.3 million of one- to- four family mortgage loans and $39.2 million, $33.2 million, $29.7 million and $26.2 million of construction and land development loans, respectively. At June 30, 1997, the Savings Bank had mortgage loan commitments totalling $4.7 million and undisbursed loans in process totalling $13.9 million. The Savings Bank anticipates that it will have sufficient funds available to meet current loan commitments. Certificates of deposit that are scheduled to mature in less than one year from June 30, 1997 totalled $77.1 million. Historically, the Savings Bank has been able to retain a significant amount of its deposits as they mature. Federally-insured state-chartered banks are required to maintain minimum levels of regulatory capital. Under current FDIC regulations, insured state- chartered banks generally must maintain (i) a ratio of Tier 1 leverage capital to total assets of at least 3.0% (4.0% to 5.0% for all but the most highly rated banks), (ii) a ratio of Tier 1 capital to risk weighted assets of at least 4.0% and (iii) a ratio of total capital to risk weighted assets of at least 8.0%. At June 30, 1997, the Savings Bank was in compliance with all applicable capital requirements. For a detailed discussion of regulatory capital requirements, see "REGULATION -- The Savings Bank -- Capital Requirements." See also "HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE." 35 IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS ACCOUNTING FOR EMPLOYEE STOCK OWNERSHIP PLANS. In November 1993 the American Institute of Certified Public Accountants issued SOP 93-6, which requires an employer to record compensation expense in an amount equal to the fair value of shares committed to be released to employees from an employee stock ownership plan and to exclude unallocated shares from earnings per share computations. The effect of SOP 93-6 on net income and book value per share in future periods cannot be predicted due to the uncertainty of the fair value of the shares at the time they will be committed to be released. See "PRO FORMA DATA." ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENT OF LIABILITIES. See Note 1 of Notes to the Consolidated Financial Statements for a discussion of Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities," and of SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of SFAS No. 125. SFAS No. 127 defers the effective date of the application of certain portions of SFAS No. 125 until January 1, 1998. Following the adoption of SFAS No. 125 on January 1, 1997, the Savings Bank recorded servicing income on loans sold of $118,000. EARNINGS PER SHARE. SFAS No. 128, "Earnings Per Share," issued in February 1997, establishes standards for computing and presenting earnings per share ("EPS") and applies to entities with publicly-held common stock or potential common stock. It replaces the presentation of primary EPS with a presentation of basic EPS and requires the dual presentation of basic and diluted EPS on the face of the income statement. SFAS No. 128 is effective for the financial statements for the periods ending after December 15, 1997. SFAS No. 128 requires restatement of all prior period EPS data presented. The impact of its adoption is not expected to be material to the Savings Bank. DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE. SFAS No. 129, "Disclosure of Information About Capital Structure," establishes standards for disclosing information about an entity's capital structure and applies to all entities. SFAS No. 129 continues the previous requirements to disclose certain information about an entity's capital structure found in Accounting Principles Board ("APB") Opinions No. 10, "Omnibus Opinion - 1966," and No. 15, "Earnings Per Share," and SFAS No. 47, "Disclosure of Long-Term Obligations," for entities that were subject to those standards. SFAS No. 129 is effective for financial statements for periods ending after December 15, 1997. SFAS No. 129 contains no change in disclosure requirements for entities that were previously subject to the requirements of APB Opinions Nos. 10 and 15 and SFAS No. 47. The adoption of the provisions of SFAS No. 129 is not expected to have a material impact on the Savings Bank. COMPREHENSIVE INCOME. SFAS No. 130, "Reporting Comprehensive Income," issued in July 1997, establishes standards for reporting and presenting of comprehensive income and its components (revenues, expenses, gains, and losses) in a full set of general-purpose financial statements. It requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is presented with the same prominence as other financial statements. SFAS No. 130 requires that companies (i) classify items of other comprehensive income by their nature in a financial statement and (ii) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of the statement of financial condition. SFAS No. 130 is effective for fiscal years beginning after December 15, 1997. Reclassification of financial statements for earlier periods provided for comprehensive purposes is required. DISCLOSURE ABOUT SEGMENTS. SFAS No. 131, "Disclosure About Segments of an Enterprise and Related Information," issued in June 1997, establishes standards for disclosure about operating segments in annual financial statements and selected information in interim financial reports. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. SFAS No. 131 supersedes SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise." SFAS No. 131 becomes effective for the Savings 36 Bank's fiscal year ending September 30, 1999, and requires that comparative information from earlier years be restated to conform to its requirements. The adoption of the provisions of SFAS No. 131 is not expected to have a material impact on the Savings Bank. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS. See Notes 1 and 14 of Notes to the Consolidated Financial Statements for a discussion of Statement of Financial Accounting Standards ("SFAS") No. 107, "Disclosures About Fair Value of Financial Instruments." The Savings Bank adopted SFAS No. 107 for the year ended September 30, 1996. ACCOUNTING FOR STOCK-BASED COMPENSATION. SFAS No. 123, "Accounting for Stock-Based Compensation," establishes financial accounting and reporting standards for stock-based employee compensation plans. This statement encourages all entities to adopt a new method of accounting to measure compensation cost of all employee stock compensation plans based on the estimated fair value of the award at the date it is granted. Companies are, however, allowed to continue to measure compensation cost for those plans using the intrinsic value based method of accounting, which generally does not result in compensation expense recognition for most plans. Companies that elect to remain with the existing accounting method are required to disclose in a footnote to the financial statements pro forma net income and, if presented, earnings per share, as if this statement had been adopted. The accounting requirements of this statement are effective for transactions entered into in fiscal years that begin after December 15, 1995; however, companies are required to disclose information for awards granted in their first fiscal year beginning after December 15, 1994. Management expects to use the intrinsic value method upon consummation of the Conversion and the adoption of stock based benefit plans. EFFECT OF INFLATION AND CHANGING PRICES The consolidated financial statements and related financial data presented herein have been prepared in accordance with GAAP, which require the measurement of financial position and operating results in terms of historical dollars, without considering the change in the relative purchasing power of money over time due to inflation. The primary impact of inflation is reflected in the increased cost of the Savings Bank's operations. Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution's performance than do general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services. See "RISK FACTORS -- Potential Adverse Impact of Changes in Interest Rates." BUSINESS OF THE HOLDING COMPANY GENERAL The Holding Company was organized as a Washington business corporation at the direction of the Savings Bank on September 8, 1997 for the purpose of becoming a holding company for the Savings Bank upon completion of the Conversion. Upon completion of the Conversion, the Savings Bank will be a wholly-owned subsidiary of the Holding Company. BUSINESS Prior to the Conversion, the Holding Company will not engage in any significant operations. Upon completion of the Conversion, the Holding Company's sole business activity will be the ownership of all of the outstanding capital stock of the Savings Bank. In the future, the Holding Company may acquire or organize other operating subsidiaries, although there are no current plans, arrangements, agreements or understandings, written or oral, to do so. 37 Initially, the Holding Company will neither own nor lease any property but will instead use the premises, equipment and furniture of the Savings Bank with the payment of appropriate rental fees, as required by applicable law. As the holding company for the Savings Bank, the competitive conditions applicable to the Holding Company will be the same as those confronting the Savings Bank. See "BUSINESS OF THE SAVINGS BANK -- Competition." BUSINESS OF THE SAVINGS BANK GENERAL The Savings Bank operates as a community oriented financial institution dedicated to serving the needs of its customers in its market area. The Savings Bank's business consists primarily of attracting deposits from the general public and using those funds to originate residential real estate loans and loans secured by multi-family, land development and commercial properties. MARKET AREA The Savings Bank considers Grays Harbor, Thurston, Pierce and King Counties and, to a lesser extent, adjoining Kitsap County as its primary market area. The Savings Bank conducts operations from its main office in Hoquiam (Grays Harbor County), three branch offices in Grays Harbor County (Aberdeen, Montesano and Ocean Shores), a branch office in King County (Auburn, opened in 1994), two branch offices in Pierce County (Edgewood, opened in 1980, and Puyallup, opened in 1996), a branch office in Thurston County (Lacey, opened in 1997) and a loan production office in Kitsap County (Port Orchard, opened in 1995). See"-- Properties." Hoquiam, population approximately 9,000, is located in Grays Harbor County which is situated along Washington State's central Pacific coast. Hoquiam is located approximately 110 miles southwest of Seattle and 145 miles northwest of Portland, Oregon. The Savings Bank considers its primary market area to include three submarkets -- primarily rural Grays Harbor County with its historical dependence on the timber and fishing industries; Ocean Shores with its dependence on tourism and vacation home residents; and Pierce, King, Thurston and Kitsap Counties with their dependence on state government in Olympia, the state capital, and the aerospace and computer industries in the Seattle-Tacoma metropolitan area. Each of these markets present operating risks to the Savings Bank. See "RISK FACTORS --Market Area Risk." The Savings Bank's recent expansion into Thurston, King and Kitsap Counties and recent opening of a second branch office in Pierce County represents the Savings Bank's attempt to diversify its primary market area to become less reliant on the economy of Grays Harbor County. Economic conditions vary in the three submarkets. Grays Harbor County, which includes the town of Ocean Shores, exhibits the weakest economic conditions with a population growth rate, median household income and per capita income levels all below the national and Washington State averages and unemployment above the national and Washington State averages according to recent published statistics. The economic conditions in Pierce, King, Thurston and Kitsap Counties are generally more favorable according to recent published statistics. Pierce County compares favorably to the national and Washington State averages in all categories except for population growth where it only lags the Washington State average and per capita income where it lags both the national and Washington State averages. King County compares favorably to the national and Washington State averages in all categories except for population growth where it only lags the Washington State average. Thurston County compares favorably to the national and Washington State averages in all categories except for per capita income where it lags both the national and Washington State averages. Kitsap County compares favorably to the national 38 and Washington State averages in all categories except for median household income where it lags only the national average and per capita income where it lags both the national and Washington State averages. LENDING ACTIVITIES GENERAL. Historically, the principal lending activity of the Savings Bank has consisted of the origination of loans secured by first mortgages on owner- occupied, one- to four-family residences and loans for the construction of one- to four-family residences. In recent years, the Savings Bank has increased its origination of loans secured by multi-family properties, construction and land development loans, land loans and commercial real estate loans. The Savings Bank's net loans receivable totalled approximately $187.5 million at June 30, 1997, representing approximately 90.9% of consolidated total assets and at that date construction and land development loans, land loans and loans secured by commercial and multi-family properties were $93.1 million, or 45.5%, of total loans. The Savings Bank's internal loan policy limits the maximum amount of loans to one borrower to 25% of its capital. At June 30, 1997, the maximum amount which the Savings Bank could have lent to any one borrower and the borrower's related entities was approximately $6.0 million under its policy. At June 30, 1997, the Savings Bank had no loans with an aggregate outstanding balance in excess of this amount. At that date, the Savings Bank had 18 borrowers or related borrowers with total loans outstanding in excess of $1.0 million. The largest amount outstanding to any one borrower and the borrower's related entities was approximately $2.9 million to developers for a condominium project, which was not performing according to its terms at June 30, 1997. See "-- Nonperforming Assets and Delinquencies." 39 LOAN PORTFOLIO ANALYSIS. The following table sets forth the composition of the Savings Bank's loan portfolio by type of loan as of the dates indicated.
At September 30, ------------------------------------------------------------------------------------------------- 1992 1993 1994 1995 1996 ------------------ ------------------ ------------------ ------------------ ------------------ Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- (Dollars in Thousands) Mortgage Loans: One- to four-family(1)(2). $ 67,872 59.43% $ 73,989 62.87% $ 73,754 52.94% $ 93,582 53.03% $ 95,978 48.51% Multi-family.............. 6,270 5.49 2,374 2.02 4,806 3.45 10,965 6.21 12,569 6.35 Commercial................ 11,767 10.30 11,242 9.55 11,784 8.46 15,592 8.83 26,529 13.41 Construction and land development.............. 21,296 18.65 23,202 19.72 40,113 28.79 42,752 24.23 47,140 23.83 Land(2)................... 2,181 1.91 2,277 1.94 4,118 2.96 6,118 3.47 6,115 3.09 -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ Total mortgage loans..... 109,386 95.78 113,034 96.10 134,575 96.60 169,009 95.77 188,331 95.19 Consumer Loans: Home equity and second mortgage................. 2,891 2.53 2,596 2.21 2,853 2.05 5,201 2.95 6,576 3.32 Other..................... 1,572 1.38 1,627 1.38 1,623 1.16 2,019 1.15 2,476 1.25 -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ 4,463 3.91 4,223 3.59 4,476 3.21 7,220 4.10 9,052 4.57 Commercial business loans.. 353 0.31 366 0.31 268 0.19 232 0.13 476 0.24 -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ Total loans............ 114,202 100.00% 117,673 100.00% 139,319 100.00% 176,461 100.00% 197,859 100.00% -------- ====== -------- ====== -------- ====== -------- ====== -------- ====== Less: Undisbursed portion of loans in process............... (9,260) (9,370) (15,316) (17,262) (18,434) (13,887) Unearned income........... (925) (906) (1,299) (1,554) (1,708) (1,704) Allowance for loan losses. (972) (1,138) (1,120) (1,119) (1,133) (1,454) Market value adjustment of loans held for sale........... -- -- (26) (3) (89) (63) -------- -------- -------- -------- -------- ------ Total loans receivable, net..................... $103,045 $106,259 $121,558 $156,523 $176,495 $187,488 ======== ======== ======== ======== ======== ========
______________ (1) Includes loans held-for-sale. (2) Includes real estate contracts totalling $1.4 million at June 30, 1997. See " -- Real Estate Contracts."
At June 30, 1997 --------------------- Amount Percent -------- ------- Mortgage Loans: One- to four-family(1)(2). $100,085 48.92% Multi-family.............. 12,644 6.18 Commercial................ 28,867 14.11 Construction and land 44,744 21.86 development Land(2)...... 6,855 3.35 -------- ------- Total mortgage loans..... 193,195 94.42 Consumer Loans: Home equity and second mortgage................. 7,898 3.86 Other..................... 2,785 1.37 -------- ------- 10,683 5.23 Commercial business loans.. 718 0.35 -------- ------- Total loans............ 204,596 100.00% -------- ======= Less: Undisbursed portion of loans in process.......... (13,887) Unearned income........... (1,704) Allowance for loan losses. (1,454) Market value adjustment of loans held for sale... (63) -------- Total loans receivable, net..................... $187,488 ========
40 RESIDENTIAL ONE- TO FOUR-FAMILY LENDING. At June 30, 1997, $100.1 million, or 48.9% of the Savings Bank's loan portfolio consisted of loans secured by one- to four-family residences. The Savings Bank originates both fixed-rate loans and adjustable-rate loans. Generally, 15- and 30-year fixed-rate loans are originated to meet the requirements for sale in the secondary market to the FHLMC, however, from time to time, a portion of these fixed-rate loans originated by the Savings Bank may be retained in the Savings Bank's loan portfolio to meet the Savings Bank's asset/liability management objectives. The Savings Bank has recently begun to utilize an automated underwriting program, which preliminarily qualifies a loan as conforming to FHLMC underwriting standards when the loan is originated. At June 30, 1997, $14.1 million, or 14.1% of the Savings Bank's one- to- four family loan portfolio consisted of fixed rate one- to- four family mortgage loans. The Savings Bank also offers ARM loans at rates and terms competitive with market conditions. All of the Savings Bank's ARM loans are retained in its loan portfolio and not with a view toward sale in the secondary market. The Savings Bank offers several ARM products which adjust annually after an initial period ranging from one to five years subject to a limitation on the annual increase of 2% and an overall limitation of 6%. These ARM products have utilized the weekly average yield on one-year U.S. Treasury securities adjusted to a constant maturity of one year plus a margin of 2.875% to 3.50%. ARM loans held in the Savings Bank's portfolio do not permit negative amortization of principal and carry no prepayment restrictions. Borrower demand for ARM loans versus fixed-rate mortgage loans is a function of the level of interest rates, the expectations of changes in the level of interest rates and the difference between the initial interest rates and fees charged for each type of loan. The relative amount of fixed-rate mortgage loans and ARM loans that can be originated at any time is largely determined by the demand for each in a competitive environment. At June 30, 1997, $86.0 million, or 85.9%, of the Savings Bank's one- to- four family loan portfolio consisted of ARM loans. The material portion of the Savings Bank's ARM loans are "non-conforming" because they do not satisfy minimum loan amount requirements, acreage limits, or various other requirements imposed by the FHLMC. Some of these loans are also originated to meet the needs of borrowers who cannot otherwise satisfy the FHLMC credit requirements because of personal and financial reasons (i.e., divorce, bankruptcy, length of time employed, etc.), and other aspects, which do not conform to the FHLMC's guidelines. Many of these borrowers have higher debt to income ratios, or the loans are secured by unique properties in rural markets for which there are no comparable sales of comparable properties to support value according to secondary market requirements. These loans are known as non-conforming loans and the Savings Bank may require additional collateral or lower loan to value ratios prior to the origination of the loan. The Savings Bank has historically found that its origination of these types of ARM loans has not resulted in a higher amount of nonperforming loans. Management of the Savings Bank attributes this low delinquency rate to its familiarity with its customers and its knowledge of its primary market area. In addition, the Savings Bank believes that these loans satisfy a need in its local market area. As a result, subject to market conditions, the Savings Bank intends to continue to originate such loans. See "RISK FACTORS -- Certain Lending Risks -- Risks Associated With Non-conforming Residential Mortgage Lending." The retention of ARM loans in the Savings Bank's loan portfolio helps reduce the Savings Bank's exposure to changes in interest rates. There are, however, unquantifiable credit risks resulting from the potential of increased interest to be paid by the customer due to increases in interest rates. It is possible that, during periods of rising interest rates, the risk of default on ARM loans may increase as a result of repricing and the increased costs to the borrower. Furthermore, because the ARM loans originated by the Savings Bank generally provide, as a marketing incentive, for initial rates of interest below the rates which would apply were the adjustment index used for pricing initially, these loans are subject to increased risks of default or delinquency. The Savings Bank attempts to reduce the potential for delinquencies and defaults on ARM loans by qualifying the borrower based on the borrower's ability to repay the ARM loan assuming that the maximum interest rate that could be charged at the first adjustment period remains constant during the loan term. See "RISK FACTORS -- Interest Rate Risk." Another consideration is that although ARM loans allow the Savings Bank to increase the sensitivity of its asset base due to changes in the interest rates, the extent of this interest sensitivity is limited by the periodic and lifetime interest rate adjustment limits. 41 Because of these considerations, the Savings Bank has no assurance that yields on ARM loans will be sufficient to offset increases in the Savings Bank's cost of funds. While fixed-rate, single-family residential mortgage loans are normally originated with 15 to 30 year terms, such loans typically remain outstanding for substantially shorter periods. This is because borrowers often prepay their loans in full upon sale of the property pledged as security or upon refinancing the original loan. In addition, substantially all mortgage loans in the Savings Bank's loan portfolio contain due-on-sale clauses providing that the Savings Bank may declare the unpaid amount due and payable upon the sale of the property securing the loan. Typically, the Savings Bank enforces these due-on-sale clauses to the extent permitted by law and as business judgment dictates. Thus, average loan maturity is a function of, among other factors, the level of purchase and sale activity in the real estate market, prevailing interest rates and the interest rates payable on outstanding loans. The Savings Bank requires fire and extended coverage casualty insurance (and on loans originated since 1994, if appropriate, generally requires flood insurance) be maintained on all of its real estate secured loans. The Savings Bank's lending policies generally limit the maximum loan-to- value ratio on mortgage loans secured by owner-occupied properties to 95% of the lesser of the appraised value or the purchase price. However, the Savings Bank usually obtains private mortgage insurance ("PMI") on the portion of the principal amount that exceeds 80% of the appraised value of the security property. The maximum loan-to-value ratio on mortgage loans secured by non- owner-occupied properties is generally 75% (70% for loans originated for sale in the secondary market to the FHLMC). CONSTRUCTION AND LAND DEVELOPMENT LENDING. Prompted by unfavorable economic conditions in its primary market area in 1980, the Savings Bank sought to establish a market niche and as a result initiated the origination of construction lending. In recent periods, construction lending activities have been primarily in the Pierce County and King County markets. Competition from other financial institutions has increased in recent periods and the Savings Bank expects that its margins on construction loans may be reduced in the future. The Savings Bank currently originates three types of residential construction loans: (i) speculative construction loans, (ii) custom construction loans and (iii) owner/builder loans. The Savings Bank initiated its construction lending with the origination of speculative construction loans. As a result, the Savings Bank began to establish contacts with the building community and increased the origination of custom construction and land development loans in rural market areas. The Savings Bank believes that its in- house computer system has enabled it to establish processing and disbursement procedures to meet the needs of these borrowers. To a lesser extent, the Savings Bank also originates construction loans for the development of multi- family and commercial properties. Annual originations of construction loans have been $39.2 million, $33.2 million and $29.7 million for the three years ended September 30, 1996 and $26.3 million for the nine months ended June 30, 1997. Subject to market conditions, the Savings Bank intends to continue to emphasize its residential construction lending activities. See "RISK FACTORS -- Certain Lending Risks." At June 30, 1997, the composition of the Savings Bank's construction loan portfolio was as follows:
Outstanding Percent of Balance Total ----------- ----------- (In thousands) Speculative construction............... $15,938 35.6% Custom and owner/builder construction.. 11,604 25.9 Multi-family........................... 11,033 24.7 Land development....................... 4,972 11.1 Commercial real estate................. 1,197 2.7 ------- ------ Total................................ $44,744 100.00% ======= ======
42 Speculative construction loans are made to home builders and are termed "speculative" because the home builder does not have, at the time of loan origination, a signed contract with a home buyer who has a commitment for permanent financing with either the Savings Bank or another lender for the finished home. The home buyer may be identified either during or after the construction period, with the risk that the builder will have to debt service the speculative construction loan and finance real estate taxes and other carrying costs of the completed home for a significant time after the completion of construction until the home buyer is identified. The Savings Bank lends to approximately 75 builders located in the Savings Bank's primary market area, each of which generally have three or four speculative loans outstanding from the Savings Bank during a twelve month period. Rather than originating lines of credit to home builders to construct several homes at once, the Savings Bank originates and underwrites a separate loan for each home. Speculative construction loans are originated for a term of 12 months, with fixed interest rates ranging from 9.5% to 10.0%, and with a loan-to-value ratio of no more than 80% of the appraised estimated value of the completed property. During this 12 month period, the borrower is required to make monthly payments of accrued interest on the outstanding loan balance. At June 30, 1997 speculative construction loans totalled $15.9 million, or 35.6%, of the total construction loan portfolio. At June 30, 1997, the Savings Bank had six borrowers each with aggregate outstanding speculative loan balances of more than $500,000, all of which were performing according to their respective terms and the largest of which amounted to $320,000. Unlike speculative construction loans, custom construction loans are made to home builders who, at the time of construction, have a signed contract with a home buyer who has a commitment for permanent financing for the finished home with the Savings Bank or another lender. Custom construction loans are generally originated for a term of 12 months, with fixed interest rates ranging from 9.0% to 9.5%, and with loan-to-value ratios of 80% of the appraised estimated value of the completed property or cost, whichever is less. During this 12 month period, the borrower is required to make monthly payments of accrued interest on the outstanding loan balance. Owner/builder construction loans are originated to the home owner rather than the home builder as a single loan that automatically converts to a permanent loan at the completion of construction. The construction phase of a owner/builder construction loan generally lasts six to nine months with fixed or adjustable interest rates ranging from 9.0% to 9.5%, and with loan-to-value ratios of 80% (or up to 95% with PMI) of the appraised estimated value of the completed property or cost, whichever is less. During this 12 month period, the borrower is required to make monthly payments of accrued interest on the outstanding loan balance. At the completion of construction, the loan converts automatically to either a fixed-rate mortgage loan, which conforms to secondary market standards, or an ARM loan for retention in the Savings Bank's portfolio. At June 30, 1997, custom and owner/builder construction loans totalled $11.6 million, or 25.9%, of the total construction loan portfolio. At June 30, 1997, the largest outstanding custom construction loan had an outstanding balance of $310,000 and was performing according to its terms. The Savings Bank originates loans to local real estate developers with whom it has established relationships for the purpose of developing residential subdivisions (i.e., installing roads, sewers, water and other utilities) ---- (generally with 10 to 50 lots). At June 30, 1997, subdivision development loans totalled $5.0 million, or 11.1% of construction and land development loans receivable. Land development loans are secured by a lien on the property and made for a period of two to five years with generally fixed interest rates, and are made with loan-to-value ratios not exceeding 75%. Monthly interest payments are required during the term of the loan. Land development loans are structured so that the Savings Bank is repaid in full upon the sale by the borrower of approximately 80% of the subdivision lots. Substantially all of the Savings Bank's land development loans are secured by property located in its primary market area. In addition, in the case of a corporate borrower, the Savings Bank also generally obtains personal guarantees from corporate principals and reviews of their personal financial statements. At June 30, 1997, the Savings Bank had no nonaccruing land development loans. Land development loans secured by land under development involve greater risks than one- to- four family residential mortgage loans because such loans are advanced upon the predicted future value of the developed property. If the estimate of such future value proves to be inaccurate, in the event of default and foreclosure the Savings Bank may be confronted with a property the value of which is insufficient to assure full repayment. The 43 Savings Bank attempts to minimize this risk by limiting the maximum loan-to- value ratio on land loans to 75% of the estimated developed value of the secured property. To a lesser extent, the Savings Bank also provides construction financing for multi-family and commercial properties. At June 30, 1997, such construction loans amounted to $12.2 million. These loans are secured by motels, apartment buildings, condominiums, office buildings and retail rental space located in the Savings Bank's primary market area and typically range in amount from $300,000 to $600,000. At June 30, 1997, the largest commercial construction loan was for $600,000, secured by retail space located in Lacey, Washington, and was performing according to its terms. Periodically, the Savings Bank purchases (without recourse to the seller other than for fraud) from other lenders participation interests in multi-family and commercial construction loans secured by properties located in the Savings Bank's primary market area. The Savings Bank underwrites such participation interests according to its own standards. At June 30, 1997, the largest participation interest had an outstanding balance of $2.6 million, which represented a 50% interest in a construction loan secured by a multi-family property located in Bremerton, Washington. The loan was performing according to its terms at June 30, 1997. All construction loans must be approved by the Savings Bank's Loan Committee. See "-- Loan Solicitation and Processing." Prior to preliminary approval of any construction loan application, an independent fee appraiser inspects the site and the Savings Bank reviews the existing or proposed improvements, identifies the market for the proposed project and analyzes the pro forma data and assumptions on the project. In the case of a speculative or custom construction loan, the Savings Bank reviews the experience and expertise of the builder. After preliminary approval has been given, the application is processed, which includes obtaining credit reports, financial statements and tax returns on the borrowers and guarantors, an independent appraisal of the project, and any other expert reports necessary to evaluate the proposed project. In the event of cost overruns, the Savings Bank requires that the borrower increase the funds available for construction by depositing its own funds into a loans in process account. Loan disbursements during the construction period are made to the builder based on a line item budget, which is assessed by periodic on-site inspections by qualified Savings Bank employees. For most builders, the Savings Bank disburses loan funds by providing vouchers to suppliers, which when used by the builder to purchase supplies are submitted by the supplier to the Savings Bank for payment. The Savings Bank regularly monitors the construction loan disbursements using an internal computer program. Property inspections are performed by Savings Bank personnel for properties located within the Savings Bank's primary market area and by independent inspectors for properties outside the primary market area. The Savings Bank believes that its internal monitoring system helps reduce many of the risks inherent in its construction lending. The Savings Bank originates construction loan applications through customer referrals, contacts in the business community and real estate brokers seeking financing for their clients. Construction lending affords the Savings Bank the opportunity to achieve higher interest rates and fees with shorter terms to maturity than does its single-family permanent mortgage lending. Construction lending, however, is generally considered to involve a higher degree of risk than single-family permanent mortgage lending because of the inherent difficulty in estimating both a property's value at completion of the project and the estimated cost of the project. The nature of these loans is such that they are generally more difficult to evaluate and monitor. If the estimate of construction cost proves to be inaccurate, the Savings Bank may be required to advance funds beyond the amount originally committed to permit completion of the project. If the estimate of value upon completion proves to be inaccurate, the Savings Bank may be confronted with a project whose value is insufficient to assure full repayment. Projects may also be jeopardized by disagreements between borrowers and builders and by the failure of builders to pay subcontractors. Loans to builders to construct homes for which no purchaser has been identified carry more risk because the payoff for the loan depends on the builder's ability to sell the property prior to the time that the construction loan is due. The Savings Bank has sought to address these risks by adhering to strict underwriting policies, disbursement procedures, and monitoring practices. In addition, because the Savings Bank's 44 construction lending is primarily secured by properties in its primary market area changes in the local and state economies and real estate markets could adversely affect the Savings Bank's construction loan portfolio. REAL ESTATE CONTRACTS. The Savings Bank purchases real estate contracts and deeds of trust from individuals who have privately sold their homes or property. These contracts are generally secured by one- to four-family properties, building lots and undeveloped land and range in principal amount from $10,000 to $200,000, but typically are in amounts between $20,000 and $40,000. Real estate contracts purchased by the Savings Bank are generally located within its primary market area. Prior to purchasing the real estate contract, the Savings Bank reviews the contract and analyzes and assesses the collateral for the loan, the downpayment made by the borrower and the credit history on the loan. As of June 30, 1997, the Savings Bank had outstanding $1.4 million of real estate contracts. MULTI-FAMILY LENDING. At June 30, 1997, the Savings Bank had $12.6 million, or 6.2% of the Savings Bank's total loan portfolio, secured by multi- family dwelling units (more than four units) located primarily in the Savings Bank's primary market area. Subject to market conditions, the Savings Bank intends to become a more active originator of multi-family loans within its primary market area. At June 30, 1997, approximately 40% of the Savings Bank's multi-family loans represent participation interests in loans, secured by properties located in the Savings Bank's primary market area, purchased from other lenders. Such participation interests are purchased without recourse to the seller other than for fraud. The Savings Bank underwrites such participation interests according to its own standards. Multi-family loans are generally originated with variable rates of interest equal to 3.25% over the one-year constant maturity U.S. Treasury Bill Index, with principal and interest payments fully amortizing over terms of up to 30 years. Multi-family loans generally range in principal balance from $300,000 to $3.6 million. At June 30, 1997, the largest multi-family loan was a purchased participation interest with an outstanding principal balance of $1.5 million and was secured by an apartment building located in the Savings Bank's primary market area. At June 30, 1997, this loan was performing according to its terms. The maximum loan-to-value ratio for multi-family loans is generally 75%. The Savings Bank requires its multi-family loan borrowers to submit financial statements and rent rolls on the subject property annually. The Savings Bank also inspects the subject property annually. The Savings Bank generally imposes a minimum debt coverage ratio of approximately 1.10 for loans secured by multi- family properties. Multi-family mortgage lending affords the Savings Bank an opportunity to receive interest at rates higher than those generally available from one- to- four family residential lending. However, loans secured by such properties usually are greater in amount, more difficult to evaluate and monitor and, therefore, involve a greater degree of risk than one- to- four family residential mortgage loans. Because payments on loans secured by multi-family properties are often dependent on the successful operation and management of the properties, repayment of such loans may be affected by adverse conditions in the real estate market or the economy. The Savings Bank seeks to minimize these risks by strictly scrutinizing the financial condition of the borrower, the quality of the collateral and the management of the property securing the loan. If the borrower is a corporation, the Savings Bank also generally obtains personal guarantees from corporate principals based on a review of personal financial statements. See "RISK FACTORS -- Certain Lending Risks -- Risks of Commercial Real Estate and Multi-Family Lending." COMMERCIAL REAL ESTATE LENDING. Commercial real estate loans totalled $28.9 million, or 14.1% of total loans receivable at June 30, 1997 and consisted of 122 loans. The Savings Bank originates commercial real estate loans generally at variable interest rates and secured by properties, such as restaurants, motels, office buildings and retail/wholesale facilities, located in its primary market area. The principal balance of an average commercial real estate loan generally ranges between $100,000 and $1.0 million. At June 30, 1997, the largest commercial real estate loan had an outstanding balance of $2.1 million and is secured by a motel located in the Savings Bank's primary market area. This loan was performing according to its terms at June 30, 1997, however, at June 30, 1997, $2.9 45 million of commercial real estate loans were not performing according to terms. See "--Nonperforming Assets and Delinquencies." The Savings Bank requires appraisals of all properties securing commercial real estate loans. Appraisals are performed by an independent appraiser designated by the Savings Bank, all of which are reviewed by management. The Savings Bank considers the quality and location of the real estate, the credit of the borrower, the cash flow of the project and the quality of management involved with the property. The Savings Bank generally imposes a minimum debt coverage ratio of approximately 1.10 for originated loans secured by income producing commercial properties. Loan-to-value ratios on commercial real estate loans are generally limited to 75%. The Savings Bank generally obtains loan guarantees from financially capable parties based on a review of personal financial statements. Commercial real estate lending affords the Savings Bank an opportunity to receive interest at rates higher than those generally available from one- to- four family residential lending. However, loans secured by such properties usually are greater in amount, more difficult to evaluate and monitor and, therefore, involve a greater degree of risk than one- to- four family residential mortgage loans. Because payments on loans secured by commercial properties often depend upon the successful operation and management of the properties, repayment of such loans may be affected by adverse conditions in the real estate market or the economy. The Savings Bank seeks to minimize these risks by limiting the maximum loan-to-value ratio to 75% and strictly scrutinizing the financial condition of the borrower, the quality of the collateral and the management of the property securing the loan. LAND LENDING. The Savings Bank occasionally originates loans for the acquisition of land upon which the purchaser can then build or make improvements necessary to build or to sell as improved lots. At June 30, 1997, the Savings Bank's land loan portfolio totalled $6.9 million and consisted of 160 loans. Land loans originated by the Savings Bank are generally fixed-rate loans and have maturities of five to ten years. Land loans generally range in principal amount from $40,000 to $60,000. The largest land loan had an outstanding balance of $298,000 at June 30, 1997 and was performing according to its terms. Loans secured by undeveloped land or improved lots involve greater risks than one- to four-family residential mortgage loans because such loans are more difficult to evaluate. If the estimate of value proves to be inaccurate, in the event of default and foreclosure the Savings Bank may be confronted with a property the value of which is insufficient to assure full repayment. The Savings Bank attempts to minimize this risk by limiting the maximum loan-to- value ratio on land loans to 75%. CONSUMER LENDING. Consumer lending has traditionally been a small part of the Savings Bank's business. Consumer loans generally have shorter terms to maturity and higher interest rates than mortgage loans. Consumer loans include home equity lines of credit, Title I home improvement loans, second mortgage loans, savings account loans, automobile loans, boat loans, motorcycle loans, recreational vehicle loans and unsecured loans. Consumer loans are made with both fixed and variable interest rates and with varying terms. At June 30, 1997, consumer loans amounted to $10.7 million, or 5.2% of the total loan portfolio. At June 30, 1997, the largest component of the consumer loan portfolio consisted of second mortgage loans and home equity lines of credit, which totalled $7.9 million, or 3.9% of the total loan portfolio. Home equity lines of credit and second mortgage loans are made for purposes such as the improvement of residential properties, debt consolidation and education expenses, among others. The majority of these loans are made to existing customers and are secured by a first or second mortgage on residential property. The Savings Bank occasionally solicits these loans. The loan-to-value ratio is typically 80% or less, when taking into account both the first and second mortgage loans. Second mortgage loans typically carry fixed interest rates with a fixed payment over a term between five and 20 years. Home equity lines of credit are generally for a one year term and the interest rate is tied to the 26 week Treasury Bill plus 4.0%. 46 Subsequent to June 30, 1997, the Savings Bank began issuing VISA credit cards to its existing customers. The Savings Bank does not engage in direct mailings of pre-approved credit cards. Consumer loans entail greater risk than do residential mortgage loans, particularly in the case of consumer loans that are unsecured or secured by rapidly depreciating assets such as automobiles. 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 beyond obtaining a deficiency judgment. In addition, consumer loan collections are dependent on the borrower's continuing financial stability, and 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 that can be recovered on such loans. The Savings Bank believes that these risks are not as prevalent in the case of the Savings Bank's consumer loan portfolio because a large percentage of the portfolio consists of second mortgage loans and home equity lines of credit that are underwritten in a manner such that they result in credit risk that is substantially similar to one- to- four family residential mortgage loans. Nevertheless, second mortgage loans and home equity lines of credit have greater credit risk than one- to- four family residential mortgage loans because they are secured by mortgages subordinated to the existing first mortgage on the property, which may or may not be held by the Savings Bank. At June 30, 1997, there were $1,000 of consumer loans delinquent in excess of 90 days. 47 LOAN MATURITY The following table sets forth certain information at June 30, 1997 regarding the dollar amount of loans maturing in the Savings Bank's portfolio based on their contractual terms to maturity, but does not include scheduled payments or potential prepayments. Demand loans, loans having no stated schedule of repayments and no stated maturity, and overdrafts are reported as due in one year or less.
Within One Year After 3 Years After 5 Years After One Year Through 3 Years Through 5 Years Through 10 Years 10 Years Total -------- --------------- --------------- ---------------- --------- -------- (Dollars in thousands) Mortgage loans: One-to four-family....................... $ 522 $ 781 $1,265 $ 3,763 $ 93,754 $100,085 Multi-family............................. -- 2 208 7,254 5,180 12,644 Commercial............................... 600 259 528 9,729 17,751 28,867 Construction and land development(1)..... 20,694 10,268 18 814 12,950 44,744 Land..................................... 435 1,706 4,248 323 143 6,855 Consumer loans: Home equity and second mortgage.......... 2,275 545 1,360 1,656 2,062 7,898 Other.................................... 1,190 583 650 167 195 2,785 Commercial business loans................. 81 22 600 15 -- 718 ------- ------- ------ ------- -------- -------- Total.................................. $25,797 $14,166 $8,877 $23,721 $132,035 $204,596 ======= ======= ====== ======= ======== Less: Undisbursed portion of loans in process.. (13,887) Unearned income.......................... (1,704) Allowance for loan losses................ (1,454) Market value adjustment on loans held for sale........................... (63) -------- Loans receivable, net.................. $187,488 ======== - --------------------
(1) Includes construction/permanent that convert to a permanent mortgage loan once construction is completed. 48 The following table sets forth the dollar amount of all loans due after June 30, 1997, which have fixed interest rates and have floating or adjustable interest rates.
Fixed Floating or Rates Adjustable Rates Total -------- ---------------- -------- (In thousands) Mortgage loans: One-to four-family................. $14,072 $ 86,013 $100,085 Multi-family....................... 5,411 7,233 12,644 Commercial......................... 7,030 21,837 28,867 Construction and land development.. 32,545 12,199 44,744 Land............................... 6,835 20 6,855 Consumer loans: Home equity and second mortgage.... 5,888 2,010 7,898 Other.............................. 2,690 95 2,785 ------- -------- -------- 8,578 2,150 10,683 ------- -------- -------- Commercial business loans........... 709 9 718 ------- -------- -------- Total............................ $75,180 $129,416 $204,596 ======= ======== ========
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 Savings Bank the right to declare loans 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, however, when current mortgage loan market rates are substantially higher than rates on existing mortgage loans and, conversely, decrease when rates on existing mortgage loans are substantially higher than current mortgage loan market rates. LOAN SOLICITATION AND PROCESSING. Loan originations are obtained from a variety of sources, including walk-in customers, and referrals from builders and realtors. Upon receipt of a loan application from a prospective borrower, a credit report and other data are obtained to verify specific information relating to the loan applicant's employment, income and credit standing. An appraisal of the real estate offered as collateral generally is undertaken by an appraiser retained by the Savings Bank and certified by the State of Washington. Mortgage loan applications are initiated by loan officers and are required to be approved by the Savings Bank's Loan Committee, which consists of the Savings Bank's President, Executive Vice President and Vice President. All loans up to and including $300,000 may be approved by any two of the Savings Bank's President, Executive Vice President or Vice President, without Board approval. Loans in excess of $300,000, as well as loans of any size granted to a single borrower whose aggregate lending relationship exceeds $300,000, must be approved by the Savings Bank's Board of Directors. LOAN ORIGINATIONS, PURCHASES AND SALES. During the year ended September 30, 1996 and the nine months ended June 30, 1997, the Savings Bank's total gross loan originations were $76.5 million and $55.5 million, respectively. Periodically, the Savings Bank purchases participation interests in construction and land development loans and multi-family loans, secured by properties located in the Savings Bank's primary market area, from other lenders. Such purchases are underwritten to the Savings Bank's underwriting guidelines and are without recourse to the seller other than for fraud. See "-- Construction and Land Development Lending" and "-- Multi-Family Lending." Consistent with its asset/liability management strategy, the Savings Bank's policy has been to retain in its portfolio all of the ARM loans and generally originates fixed rate loans with a view toward sale in the secondary market to FHLMC; however, from time to time, a portion of fixed-rate loans may be retained in the Savings Bank's 49 portfolio to meet its asset-liability objectives. Loans sold in the secondary market are generally sold on a servicing retained basis. At June 30, 1997, the Savings Bank's loan servicing portfolio totalled $54.0 million. The following table shows total loans originated, purchased, sold and repaid during the periods indicated.
Nine Months Ended Year Ended September 30, June 30, ------------------------------- -------------------- 1994 1995 1996 1996 1997 --------- --------- --------- --------- --------- (Dollars in thousands) Loans originated: Mortgage loans: One-to four family..................... $ 28,317 $ 26,883 $ 24,512 $ 19,852 $ 18,309 Multi-family........................... 1,058 518 3,946 3,793 1,267 Commercial............................. 921 2,798 10,100 8,880 2,066 Construction and land development...... 39,207 33,240 29,662 20,202 26,260 Land................................... 3,507 2,876 2,590 1,725 1,951 Consumer................................ 2,996 6,091 5,358 4,257 5,300 Commercial business loans............... 129 89 348 355 413 -------- -------- -------- -------- -------- Total loans originated................. 76,135 72,495 76,516 59,064 55,506 Loans purchased: Mortgage loans: One-to four family..................... -- 704 367 297 64 Multi-family........................... 1,500 3,318 1,163 1,163 -- Commercial............................. -- 1,091 -- -- 546 Construction........................... 1,500 3,050 4,300 1,675 -- Land................................... -- 802 83 59 131 -------- -------- -------- -------- -------- Total loans purchased................. 3,000 8,965 5,913 3,194 741 -------- -------- -------- -------- -------- Total loans originated and purchased.. 79,135 81,460 82,429 62,258 56,247 Loans sold: Total whole loans sold................. (22,154) (4,200) (9,153) (5,723) (11,256) Participation loans.................... (725) -- (3,229) -- -- -------- -------- -------- -------- -------- Total loans sold....................... (22,879) (4,200) (12,382) (5,723) (11,256) Mortgage loan principal repayments....... (34,610) (40,118) (48,649) (40,693) (38,254) Increase (decrease) in other items, net.. (6,347) (2,177) (1,426) (3,251) 4,256 -------- -------- -------- -------- -------- Net increase in loans receivable, net.... $ 15,299 $ 34,965 $ 19,972 $ 12,591 $ 10,993 ======== ======== ======== ======== ========
LOAN ORIGINATION AND OTHER FEES. The Savings Bank, in some instances, receives loan origination fees. Loan fees are a percentage of the principal amount of the mortgage loan which are charged to the borrower for funding the loan. The amount of fees charged by the Savings Bank is generally 1.0% to 2.0%. Current accounting standards require fees received (net of certain loan origination costs) for originating loans to be deferred and amortized into interest income over the contractual life of the loan. Net deferred fees or costs associated with loans that are prepaid are recognized as income at the time of prepayment. The Savings Bank had $1.6 million of net deferred mortgage loan fees at June 30, 1997. NONPERFORMING ASSETS AND DELINQUENCIES. The Savings Bank assesses late fees or penalty charges on delinquent loans of approximately 5% of the monthly loan payment amount. Substantially all fixed-rate and ARM 50 loan payments are due on the first day of the month; however, the borrower is given a 15 day grace period to make the loan payment. When a mortgage loan borrower fails to make a required payment when due, the Savings Bank institutes collection procedures. The first notice is mailed to the borrower eight days after the date the payment is due and, if necessary, a second written notice is sent on the 16th day giving the borrower 15 days to respond and correct the delinquency. Attempts to contact the borrower by telephone generally begin upon the thirtieth day of delinquency. If a satisfactory response is not obtained, continuous follow-up contacts are attempted until the loan has been brought current. Before the 90th day of delinquency, attempts to interview the borrower, preferably in person, are made to establish (i) the cause of the delinquency, (ii) whether the cause is temporary, (iii) the attitude of the borrower toward the debt, and (iv) a mutually satisfactory arrangement for curing the default. If the borrower is chronically delinquent and all reasonable means of obtaining payment on time have been exhausted, foreclosure is initiated according to the terms of the security instrument and applicable law. Interest income on loans is reduced by the full amount of accrued and uncollected interest. When a consumer loan borrower fails to make a required payment on a consumer loan by the payment due date, the Savings Bank institutes the same collection procedures as for its mortgage loan borrowers. The Savings Bank's Board of Directors is informed monthly as to the status of all mortgage and consumer loans that are delinquent by more than 30 days, the status on all loans currently in foreclosure, and the status of all foreclosed and repossessed property owned by the Savings Bank. The following table sets forth information with respect to the Savings Bank's non-performing assets at the dates indicated.
At September 30, ---------------------------------------- At June 30, 1992 1993 1994 1995 1996 1997 ------- ------ ----- ------- ------- ------------ (Dollars in thousands) Loans accounted for on a nonaccrual basis: Mortgage loans: One-to four-family........................ $ 469 $ 612 $ 392 $ 646 $ 735 $ 841 Commercial................................ -- -- -- -- -- 2,886(1) Construction and land development......... 966 196 125 391 771 3,991(2) Consumer loans............................ 1 -- 30 -- 14 1 Commercial business loans................. -- -- -- -- -- 11 ------ ------ ----- ------ ------ ------ Total.................................. 1,436 808 547 1,037 1,520 7,730 Accruing loans which are contractually past due 90 days or more: Mortgage loans:............................ Construction and land development......... -- -- -- -- -- 303 ------ ------ ----- ------ ------ ------ Total................................. -- -- -- -- -- 303 ------ ------ ----- ------ ------ ------ Total of nonaccrual and 90 days past due loans..................... $1,436 $ 808 $ 547 $1,037 $1,520 $8,033 Real estate owned and other................. repossessed assets......................... 879 484 407 209 125 317 ------ ------ ----- ------ ------ ------ Total nonperforming assets............. 2,315 1,292 954 1,246 1,645 8,350 Restructured loans.......................... -- 11 29 207 158 71
(table continued, and footnotes located, on following page) 51
At September 30, ----------------------------------------------------- At June 30, 1992 1993 1994 1995 1996 1997 --------- --------- --------- --------- --------- ------------ (Dollars in thousands) Nonaccrual and 90 days or more past due loans as a percentage of loans receivable, net................ 1.39% 0.76% 0.45% 0.66% 0.86% 4.28%(3) Nonaccrual and 90 days or more past due loans as a percentage of total assets... 1.16% 0.58% 0.36% 0.58% 0.78% 3.90%(4) Nonperforming assets as a percentage of total assets.............. 1.87% 0.93% 0.63% 0.70% 0.85% 4.05%(5) Loans receivable, net.................... $103,045 $106,259 $121,558 $156,523 $176,495 $187,488 ======== ======== ======== ======== ======== ======== Total assets............................. $123,889 $139,233 $151,044 $177,761 $194,357 $206,188 ======== ======== ======== ======== ======== ======== - ------------
(1) Includes two loans each with a balance of $1.4 million at June 30, 1997, as discussed below. (2) Includes two loans with balances of $1.9 million and $1.0 million at June 30, 1997, as discussed below. (3) This ratio would be 1.21% excluding the loans described in footnotes 1 and 2. (4) This ratio would be 1.10% excluding the loans described in footnotes 1 and 2. (5) This ratio would be 1.25% excluding the loans described in footnotes 1 and 2. Additional interest income, which would have been recorded for the year ended September 30, 1996 and the nine months ended June 30, 1997 had nonaccruing loans been current in accordance with their original terms, amounted to approximately $42,000 and $214,000, respectively. No interest income was included in the results of operations on such loans for the year ended September 30, 1996 and the nine months ended June 30, 1997. The following is a discussion of the Savings Bank's major problem assets included in commercial and construction and land development loans at June 30, 1997: Convenience store/retail space and mini-storage, Kitsap County, Washington. -------------------------------------------------------------------------- The Savings Bank has two loans that were originated in 1996 on two separate properties: a convenience store combined with retail space and a 436 unit mini storage facility. The original loan amounts (before additional advances) were $1.4 million for the convenience store and retail space and $1.2 million for the mini-storage facility. The convenience store is being operated by the borrowers with the retail space currently in the lease up stage, with two of the six spaces occupied. The mini-storage facility is in the lease up stage with approximately 140 units leased. These loans are delinquent primarily because of a dispute between the two borrowers. The Savings Bank does not expect to incur any losses from these loans based on a recent assessment of the real estate collateral. At June 30, 1997, the loans were classified "special mention" by the Savings Bank. See "-- Asset Classification." Condominium loan, Southern King County, Washington. The Savings Bank has --------------------------------------------------- two loans for the construction and sale of a 61-unit condominium complex. The original loan amounts were $3.9 million and $1.7 million, respectively, and were originated in 1994 and 1996. At June 30, 1997, 30 units had been sold, 15 units were available for sale, and 16 units were in various stages of completion. The Savings Bank does not expect to incur any material losses from these loans based on a recent assessment of the real estate collateral. At June 30, 1997, the loans were classified "substandard" by the Savings Bank. See "-- Asset Classification." 52 REAL ESTATE OWNED. Real estate acquired by the Savings Bank as a result of foreclosure or by deed-in-lieu of foreclosure is classified as real estate owned until sold. When property is acquired it is recorded at the lower of its cost, which is the unpaid principal balance of the related loan plus foreclosure costs, or fair market value. Subsequent to foreclosure, the property is carried at the lower of the foreclosed amount or fair value, less estimated selling costs. At June 30, 1997, the Savings Bank had $317,000 in real estate owned consisting primarily of one-to- four family properties. RESTRUCTURED LOANS. Under GAAP, the Savings Bank is required to account for certain loan modifications or restructuring as a "troubled debt restructuring." In general, the modification or restructuring of a debt constitutes a troubled debt restructuring if the Savings Bank for economic or legal reasons related to the borrower's financial difficulties grants a concession to the borrowers that the Savings Bank would not otherwise consider. Debt restructurings or loan modifications for a borrower do not necessarily always constitute troubled debt restructurings, however, and troubled debt restructurings do not necessarily result in nonaccrual loans. The Savings Bank had $71,000 of restructured loans as of June 30, 1997, which consisted of two one- to- four family mortgage loans and one consumer loan. ASSET CLASSIFICATION. Applicable regulations require that each insured institution review and classify its assets on a regular basis. In addition, in connection with examinations of insured institutions, regulatory examiners have authority to identify problem assets and, if appropriate, require them to be classified. There are three classifications for problem assets: substandard, doubtful and loss. Substandard assets have one or more defined weaknesses and are characterized by the distinct possibility that the insured institution will sustain some loss if the deficiencies are not corrected. Doubtful assets have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss. An asset classified as loss is considered uncollectible and of such little value that continuance as an asset of the institution is not warranted. When an insured institution classifies problem assets as either substandard or doubtful, it is required to establish general allowances for loan losses in an amount deemed prudent by management. These allowances represent loss allowances which have been established to recognize the inherent risk associated with lending activities and the risks associated with particular problem assets. When an insured institution classifies problem assets as loss, it charges off the balances of the asset. Assets which do not currently expose the insured institution to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are required to be designated as special mention. The Savings Bank's determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the FDIC and the Division which can order the establishment of additional loss allowances. The aggregate amounts of the Savings Bank's classified assets (as determined by the Savings Bank), and of the Savings Bank's general loss allowances at the dates indicated, were as follows:
At September 30, ---------------- At June 30, 1995 1996 1997 ------ -------- ----------- (In thousands) Loss...................... $ -- $ -- $ -- Doubtful.................. -- -- -- Substandard assets........ 1,371 2,061 5,510(1) Special mention........... -- 97 2,886(1) General loss allowances... 1,119 1,133 1,454 - --------------------
(1) For further information concerning the increase in classified assets, see "-- Nonperforming Assets and Delinquencies." 53 ALLOWANCE FOR LOAN LOSSES. The Savings Bank has established a systematic methodology for the determination of provisions for loan losses that takes into consideration the need for an overall general valuation allowance. In originating loans, the Savings Bank recognizes that 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. The Savings Bank increases its allowance for loan losses by charging provisions for loan losses against the Savings Bank's income. The general valuation allowance is maintained to cover losses inherent in the loan portfolio. Management reviews the adequacy of the allowance at least quarterly based on management's assessment of current economic conditions, past loss and collection experience, and risk characteristics of the loan portfolio. A provision for losses is charged against income monthly to maintain the allowances. At June 30, 1997, the Savings Bank had a general allowance for loan losses of $1.5 million. Management believes that the amount maintained in the allowances will be adequate to absorb losses inherent in the portfolio. Although management believes that it uses the best information available to make such determinations, future adjustments to the allowance for loan losses may be necessary and results of operations could be significantly and adversely affected if circumstances differ substantially from the assumptions used in making the determinations. While the Savings Bank believes it has established its existing allowance for loan losses in accordance with GAAP, there can be no assurance that regulators, in reviewing the Savings Bank's loan portfolio, will not request the Savings Bank to increase significantly its allowance for loan losses. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses is adequate or that substantial increases will not be necessary should the quality of any loans deteriorate as a result of the factors discussed above. Any material increase in the allowance for loan losses may adversely affect the Savings Bank's financial condition and results of operations. 54 The following table sets forth an analysis of the Savings Bank's gross allowance for possible loan losses for the periods indicated.
Nine Months Ended Year Ended September 30, June 30, ---------------------------------------------- -------------------- 1992 1993 1994 1995 1996 1996 1997 ------- -------- -------- -------- -------- -------- --------- (Dollars in thousands) Allowance at beginning of period....... $ 799 $ 972 $ 1,138 $ 1,120 $1,119 $1,119 $1,133 Provision for loan losses.............. 188 175 -- -- 70 45 334 Recoveries: Consumer loans: Automobile........................... -- 8 -- -- -- -- -- Other................................ -- -- -- -- -- -- 9 ------ ------- ------- ------- ------ ------ ------ Total recoveries.................... -- 8 -- -- -- -- 9 Charge-offs: Mortgage loans: One-to four-family................... -- 10 -- -- -- -- 19 Home equity and second mortgage...... 15 6 18 -- -- -- -- Other................................ -- 1 -- 1 1 -- -- ------ ------- ------- ------- ------ ------ ------ Total charge-offs................... 15 17 18 1 1 -- 19 Net charge-offs..................... 15 9 18 1 1 -- 10 Transfers........................... -- -- -- -- 55 19 3 ------ ------- ------- ------- ------ ------ ------ Balance at end of period.......... $ 972 $ 1,138 $ 1,120 $ 1,119 $1,133 $1,145 $1,454 ====== ======= ======= ======= ====== ====== ====== Allowance for loan losses as a percentage of total loans (net) outstanding at the end of the period.. 0.94% 1.07% 0.92% 0.71% 0.64% 0.67% 0.78% Net charge-offs as a percentage of average loans outstanding during the period..................... 0.02% 0.01% 0.02% --% --% 0.01% 0.01% Allowance for loan losses as a percentage of nonperforming loans at end of period................ 67.69% 140.84% 204.75% 107.91% 74.54% 97.90% 18.10%(1) - ---------------
(1) This ratio would be 63.22% excluding the loans discussed under " -- Nonperforming Assets and Delinquencies." 55 The following table sets forth the breakdown of the allowance for loan losses by loan category at the dates indicated.
At September 30, ------------------------------------- 1992 1993 1994 1995 ------------------- ------------------ ------------------ ------------------ Percent Percent Percent Percent of Loans of Loans of Loans of Loans in Category in Category in Category in Category to Total to Total to Total to Total Amount Loans Amount Loans Amount Loans Amount Loans ------ ----------- ------- --------- ------ ----------- ------ ----------- (Dollars in thousands) Mortgage loans: One- to four-family....... $ -- 59.43% $ -- 62.88% $ 333 52.94% $ 278 53.03% Multi-family.............. -- 5.49 -- 2.02 77 3.45 81 6.21 Commercial................ -- 10.30 -- 9.55 266 8.46 271 8.84 Construction.............. -- 18.65 -- 19.72 240 28.79 337 24.23 Land...................... -- 1.91 -- 1.94 158 2.96 98 3.47 Non-mortgage loans:........ Consumer loans............ -- 3.91 -- 3.58 39 3.21 44 4.09 Commercial business loans. -- 0.31 -- 0.31 7 0.19 10 0.13 Unallocated................ 972 N/A 1,138 N/A -- N/A -- N/A ------ ------ ------- ------ ------ ------ ------ ------ Total allowance for loan losses...... $972 100.00% $1,138 100.00% $1,120 100.00% $1,119 100.00% ====== ====== ======= ====== ====== ====== ====== ======
At June 30, 1996 1997 -------------------- -------------------- Percent Percent of Loans of Loans in Category in Category to total to total Amount Loans Amount Loans ------- ----------- ------- ----------- (Dollars in thousands) Mortgage loans: One- to four-family....... $ 261 48.51% $ 253 48.92% Multi-family.............. 83 6.35 130 6.18 Commercial................ 317 13.41 363 14.11 Construction.............. 316 23.83 510 21.86 Land...................... 102 3.09 136 3.35 Non-mortgage loans:........ Consumer loans............ 46 4.57 50 5.23 Commercial business loans. 8 0.24 50 0.35 Unallocated................ N/A -- N/A ------ ------ ------ ------ Total allowance for loan losses...... $1,133 100.00% $1,454 100.00% ====== ====== ====== ======
56 INVESTMENT ACTIVITIES Under Washington law, savings banks are permitted to invest in various types of liquid assets, including U.S. Treasury obligations, securities of various federal agencies, certain certificates of deposit of insured banks and savings institutions, banker's acceptances, repurchase agreements, federal funds, commercial paper, investment grade corporate debt securities and obligations of States and their political sub-divisions. As of June 30, 1997, the Savings Bank's investment securities portfolio consisted entirely of mortgage-backed securities and FHLB-Seattle stock. At June 30, 1997, the Savings Bank's investment in FHLB-Seattle stock totalled $1.6 million. The market value of the Savings Bank's investment securities portfolio amounted to $11.2 million, $6.4 million and $5.7 million at September 30, 1995 and 1996 and June 30, 1997, respectively. The Holding Company and the Savings Bank may invest a portion of the net proceeds from the Offerings in short term U.S. government and agency obligations. See "USE OF PROCEEDS." 57 The following table sets forth the investment securities portfolio and carrying values at the dates indicated.
At September 30, ---------------------------------------------------------------------------- At June 30, 1994 1995 1996 1997 ------------------------ ----------------------- ------------------------ ------------------------ Amortized Percent of Amortized Percent of Amortized Percent of Amortized Percent of Cost(1) Total Cost(1) Total Cost(1) Total Cost(1) Total ------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------- (In thousands) Held to Maturity (at amortized cost): Debt Securities: U.S. Treasury obligations $ 6,998 40.38% $ 2,504 22.15% $ -- --% $ -- --% U.S. Government agency obligations............. 1,000 5.77 1,000 8.84 -- -- -- -- Mortgage-backed securities. 7,402 42.71 6,352 56.19 4,951 75.91 4,172 72.85 Investment certificates of deposit................... 599 3.46 -- -- -- -- -- -- ------- ------ ------- ------ ------ ------ ------ ------ Total held to maturity securities................ 15,999 92.32 9,856 87.18 4,951 75.91 4,172 72.85 Available for Sale (at market value):............ Mortgage-backed securities. -- -- -- -- -- -- -- -- FHLB stock................. 1,280 7.39% 1,363 12.06% 1,470 22.54% 1,555 27.15% Other...................... 50 0.29 86 0.76 102 1.55 -- -- ------- ------ ------- ------ ------ ------ ------ ------ Total available for sale securities.............. 1,330 7.68 1,449 12.82 1,572 24.09 1,555 27.15 ------- ------ ------- ------ ------ ------ ------ ------ Total portfolio............ $17,329 100.00% $11,305 100.00% $6,522 100.00% $5,727 100.00% ======= ====== ======= ====== ====== ====== ====== ======
- ------------------ (1) The market value of the Savings Bank's investment portfolio amounted to $5.7 million as of June 30, 1997, $6.4 million as of September 30, 1996, $11.2 million as of September 30, 1995 and $16.9 million as of September 30, 1994. At June 30, 1997, the market values of the principal components of the Savings Bank's investment portfolio were: $4.1 million in mortgage- backed securities and $1.2 million in FHLB stock. 58 The following table sets forth the maturities and weighted average yields of the debt and mortgage-backed securities in the Savings Bank's investment securities portfolio at June 30, 1997.
Less Than One to Five to Over Ten One Year Five Years Ten Years Years -------------- -------------- --------------- --------------- Amount Yield Amount Yield Amount Yield Amount Yield ------ ------ ------ ------ ------- ------ ------- ------ (Dollars in thousands) Held to Maturity: Mortgage-backed securities........... $ -- --% $997 5.95% $ -- --% $3,175 6.50% ------ ------ ------- ------- Total held to maturity securities.... $ -- -- 997 5.95 $ -- -- 3,175 6.50 ====== ====== ======= ======= Available for Sale: FHLB Stock........................... 1,555 7.50 -- -- -- -- -- -- Other................................ -- -- -- -- -- -- -- -- ------ ------ ------- ------- Total available for sale securities.. 1,555 7.50 -- -- -- -- -- -- ------ ------ ------- ------- Total portfolio...................... $1,555 7.50 $997 5.95 $ -- -- $3,175 6.50 ====== ====== ======= =======
59 DEPOSIT ACTIVITIES AND OTHER SOURCES OF FUNDS GENERAL. Deposits and loan repayments are the major sources of the Savings Bank's funds for lending and other investment purposes. Scheduled loan repayments are a relatively stable source of funds, while deposit inflows and outflows and loan prepayments are influenced significantly by general interest rates and money market conditions. Borrowings through the FHLB-Seattle may be used to compensate for reductions in the availability of funds from other sources. Presently, the Savings Bank has no other borrowing arrangements. DEPOSIT ACCOUNTS. Substantially all of the Savings Bank's depositors are residents of Washington. Deposits are attracted from within the Savings Bank's market area through the offering of a broad selection of deposit instruments, including money market deposit accounts, regular savings accounts and certificates of deposit. Deposit account terms vary, according to the minimum balance required, the time periods the funds must remain on deposit and the interest rate, among other factors. In determining the terms of its deposit accounts, the Savings Bank considers current market interest rates, profitability to the Savings Bank, matching deposit and loan products and its customer preferences and concerns. In recent periods, the Savings Bank has used deposit interest rate promotions in connection with the opening of new branch offices. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." The Savings Bank has recently adopted a strategy to extend the term of its liabilities in the form of longer term certificate accounts and maintain adequate liquidity levels to address its interest rate risk exposure. The implementation of such strategy, however, is not reflected in the Savings Bank's recent financial data as most of its liabilities are still in the form of short term certificate accounts. See "RISK FACTORS -- Potential Adverse Impact of Changes in Interest Rates." At June 30, 1997 the Savings Bank had $22.8 million of jumbo certificates of deposit, which includes $8.0 million in public unit funds.. The Savings Bank does not solicit brokered deposits and believes that its jumbo certificates of deposit, which represented 13.6% of total deposits at June 30, 1997, present similar interest rate risk to its other deposit products. In the unlikely event the Savings Bank is liquidated after the Conversion, depositors will be entitled to full payment of their deposit accounts prior to any payment being made to the Holding Company, as the sole stockholder of the Savings Bank. See "THE CONVERSION -- Effects of Conversion to Stock Form on Depositors and Borrowers of the Savings Bank -- Liquidation Rights." 60 The following table sets forth information concerning the Savings Bank's time deposits and other interest-bearing deposits at June 30, 1997.
Weighted Average Percentage Interest Minimum of Total Rate Term Category Amount Balance Deposits - ---------- ---- -------- ------------- ------- ----------- (In thousands) --% Non-Interest Bearing $ 4,601 2.75% 2.50 NOW Checking 17,515 10.48 2.98 Passbook Savings 25,130 15.04 3.92 Money Market Accounts 13,667 8.18 Certificates of Deposit(1) -------------------------- 5.65 Maturing within 1 year 77,096 46.13 5.95 Maturing after 1 year but within 2 years 19,100 11.43 6.24 Maturing after 2 years but within 5 years 7,393 4.42 6.53 Maturing after 5 years 418 0.25 -------- ---------- 104,007 62.23 ------- --------- Other Deposits 2,220 1.32 -------- ---------- 4.61 TOTAL $167,140 100.00% ======== ==========
- ------------------ (1) Based on remaining maturity of certificates. The following table indicates the amount of the Savings Bank's jumbo certificates of deposit by time remaining until maturity as of June 30, 1997. Jumbo certificates of deposit have principal balances of $100,000 or more and the rates paid on such accounts are generally negotiable.
Maturity Period Amount - --------------- -------------- (In thousands) Three months or less............ $10,547 Over three through six months... 2,392 Over six through twelve months.. 5,913 Over twelve months.............. 3,937 ------- Total....................... $22,789 =======
61 DEPOSIT FLOW The following table sets forth the balances of savings deposits in the various types of savings accounts offered by the Savings Bank at the dates indicated.
At September 30, --------------------------------------------------------------------------------- 1994 1995 1996 ------------------ ------------------------------ ----------------------------- Percent Percent Percent of of Increase of Increase Amount Total Amount Total (Decrease) Amount Total (Decrease) -------- -------- -------- -------- ---------- -------- -------- ---------- (Dollars in thousands) Non-interest-bearing....... $ 2,408 1.87% $ 3,116 2.18% $ 708 $ 3,571 2.28% $ 455 NOW checking............... 17,391 13.52 17,525 12.25 134 18,003 11.50 478 Passbook savings accounts.. 30,319 23.56 25,553 17.86 (4,766) 25,400 16.22 (153) Money market deposit....... 11,948 9.29 12,734 8.90 786 13,364 8.54 630 Certificates of deposit which mature in the year ending: Within 1 year.............. 43,087 33.49 52,658 36.80 9,571 64,202 41.01 11,544 After 1 year, but within 2 years..................... 13,959 10.85 19,434 13.58 5,475 18,737 11.97 (697) After 2 years, but within 5 years................... 5,962 4.63 8,911 6.23 2,949 9,814 6.27 903 Certificates maturing thereafter................ 951 0.74 844 0.59 (107) 579 0.37 (265) Other...................... 2,644 2.05 2,309 1.61 (335) 2,879 1.84 570 -------- ------ -------- ------ ------- -------- ------ ------- Total................. $128,669 100.00% $143,084 100.00% $14,415 $156,549 100.00% $13,465 ======== ====== ======== ====== ======= ======== ====== =======
At June 30, 1997 ------------------------------ Percent of Increase Amount Total (Decrease) -------- -------- ---------- (Dollars in thousands) Non-interest-bearing....... $ 4,601 2.75% $ 1,030 NOW checking............... 17,515 10.48 (488) Passbook savings accounts.. 25,130 15.04 (270) Money market deposit....... 13,667 8.18 303 Certificates of deposit which mature in the year ending: Within 1 year.............. 77,096 46.13 12,894 After 1 year, but within 2 years..................... 19,100 11.43 363 After 2 years, but within 5 years................... 7,393 4.42 (2,421) Certificates maturing thereafter................ 418 0.25 (161) Other...................... 2,220 1.32 (659) -------- ------ ------- Total................. $167,140 100.00% $10,591 ======== ====== =======
62 TIME DEPOSITS BY RATES The following table sets forth the time deposits in the Savings Bank classified by rates as of the dates indicated.
At September 30, At -------------------------------- June 30, 1994 1995 1996 1997 ---------- --------- --------- ---------- (Dollars in thousands) 2.00 - 3.99%.................................... $12,641 $ 346 $ 171 $ 158 4.00 - 4.99%.................................... 23,797 3,220 6,802 -- 5.00 - 5.99%.................................... 24,003 39,921 53,278 83,766 6.00 - 6.99%.................................... 1,589 31,473 26,914 14,941 7.00% and over.................................. 1,929 6,887 6,167 5,142 -------- -------- -------- -------- Total........................................... $ 63,959 $81,847 $93,332 $104,007 ======== ======== ======== ========
TIME DEPOSITS BY MATURITIES The following table sets forth the amount and maturities of time deposits at June 30, 1997.
Amount Due --------------------------------------------- After One to Two to Less Than Two Five After One Year Years Years Five Years Total ---------- -------- -------- ---------- -------- (Dollars in thousands) 2.00 - 3.99%..................................... $ 158 $ -- $ -- $ -- $ 158 4.00 - 4.99%..................................... -- -- -- -- -- 5.00 - 5.99%..................................... 65,641 14,228 3,577 320 83,766 6.00 - 6.99%..................................... 10,843 1,902 2,195 1 14,941 7.00% and over................................... 454 2,970 1,621 97 5,142 -------- -------- -------- -------- -------- Total............................................ $77,096 $19,100 $7,393 $418 $104,007 ======== ======== ======== ======== ========
DEPOSIT ACTIVITIES The following table sets forth the savings activities of the Savings Bank for the periods indicated.
Nine Months Ended Year Ended September 30, June 30, -------------------------------- --------------------- 1994 1995 1996 1996 1997 -------- -------- -------- -------- -------- (In thousands) Beginning balance...................................... $125,402 $128,669 $143,084 $143,084 $156,549 Net deposits (withdrawals) before interest credited.... (1,349) 8,719 6,516 7,276 5,026 Interest credited...................................... 4,616 5,696 6,949 5,147 5,565 -------- -------- -------- -------- -------- Net increase in deposits............................... 3,267 14,415 13,465 12,423 10,591 -------- -------- -------- -------- -------- Ending balance......................................... $128,669 $143,084 $156,549 $155,507 $167,140 ======== ======== ======== ======== ========
63 BORROWINGS Savings deposits are the primary source of funds for the Savings Bank's lending and investment activities and for general business purposes. The Savings Bank has the ability to use advances from the FHLB-Seattle to supplement its supply of lendable funds and to meet deposit withdrawal requirements. The FHLB-Seattle functions as a central reserve bank providing credit for savings and loan associations and certain other member financial institutions. As a member of the FHLB-Seattle, the Savings Bank is required to own capital stock in the FHLB-Seattle and is authorized to apply for advances on the security of such stock and certain of its mortgage loans and other assets (principally securities which are obligations of, or guaranteed by, the U.S. Government) provided certain creditworthiness standards have been met. Advances are made pursuant to several different credit programs. Each credit program has its own interest rate and range of maturities. Depending on the program, limitations on the amount of advances are based on the financial condition of the member institution and the adequacy of collateral pledged to secure the credit. At June 30, 1997, the Savings Bank maintained an uncommitted credit facility with the FHLB-Seattle that provided for immediately available advances up to an aggregate amount of $41.2 million, under which $13.8 million was outstanding. The following table sets forth certain information regarding short-term borrowings by the Savings Bank at the end of and during the periods indicated using monthly average balance:
At or For the Nine Months At or For the Ended Year Ended September 30, June 30, ---------------------------- ---------------- 1994 1995 1996 1996 1997 ------ ------- ------- ------- ------- (In thousands) Maximum amount of short-term FHLB advances at any month end........... $3,200 12,500 $13,000 $13,000 $16,500 Approximate average short-term FHLB.. advances outstanding............... 267 8,992 9,500 9,444 5,333 Approximate weighted average rate paid on short-term FHLB advances.... 5.41% 6.16% 5.57% 5.64% 5.48% Total short-term FHLB advances at end of period....................... 3,200 12,500 12,000 7,000 2,000
COMPETITION The Savings Bank operates in an intensely competitive market for the attraction of savings deposits (its primary source of lendable funds) and in the origination of loans. Historically, its most direct competition for savings deposits has come from large commercial banks, thrift institutions and credit unions in its primary market area. Particularly in times of high interest rates, the Savings Bank has faced additional significant competition for investors' funds from short-term money market securities and other corporate and government securities. The Savings Bank's competition for loans comes principally from mortgage bankers, commercial banks and other thrift institutions. Such competition for deposits and the origination of loans may limit the Savings Bank's future growth and earnings prospects. 64 SUBSIDIARY ACTIVITIES The Savings Bank has one wholly-owned subsidiary, Timberland Service Corporation ("Timberland Service"), whose primary function is to act as the Savings Bank's escrow department. Additionally, Timberland Service's employees sell annuities through the Savings Bank. PROPERTIES The Savings Bank operates eight full-service facilities. The Savings Bank owns its all of its offices except for the Port Orchard Loan Center, which is leased. The lease expires in July 1998. The following table sets forth certain information regarding the Savings Bank's offices at June 30, 1997, all of which are owned except for the loan center, which is leased.
Approximate Location Year Opened Square Footage Deposits - ------------------------------- ----------- -------------- -------------- (In thousands) Main Office: 624 Simpson Avenue 1966 7,700 $55,986 Hoquiam, Washington 98550 Branch Offices: 300 N. Boone Street 1974 3,400 22,986 Aberdeen, Washington 98520 314 Main South 1975 2,800 23,251 Montesano, Washington 98563 361 Damon Road 1977 2,100 19,231 Ocean Shores, Washington 98569 2418 Meridian East 1980 2,400 31,895 Edgewood, Washington 98371 12814 Meridian East (South Hill) 1996 4,200 4,485 Puyallup, Washington 98373 202 Auburn Way South 1994 4,200 8,545 Auburn, Washington 98002 1201 Marvin Road, N.E. 1997 4,400 761 Lacey, Washington 98516 Loan Center: Port Orchard Loan Center 1995 444 N/A 700 Prospect Street, Suite #102 Port Orchard, Washington 98366
65 Data Center: 422 6th Street 1990 2,700 N/A Hoquiam, Washington 98550
The Savings Bank also operates 10 proprietary ATMs that are part of a nationwide cash exchange network. PERSONNEL As of June 30, 1997, the Savings Bank had 77 full-time employees and 17 part-time employees. The employees are not represented by a collective bargaining unit and the Savings Bank believes its relationship with its employees is good. LEGAL PROCEEDINGS Periodically, there have been various claims and lawsuits involving the Savings Bank, such as claims to enforce liens, condemnation proceedings on properties in which the Savings Bank holds security interests, claims involving the making and servicing of real property loans and other issues incident to the Savings Bank's business. The Savings Bank is not a party to any pending legal proceedings that it believes would have a material adverse effect on the financial condition or operations of the Savings Bank. MANAGEMENT OF THE HOLDING COMPANY Directors shall be elected by the stockholders of the Holding Company for staggered three-year terms, or until their successors are elected and qualified. The Holding Company's Board of Directors consists of nine persons divided into three classes, each of which contains one third of the Board. One class, consisting of Messrs. Richard R. Morris, Jon C. Parker and James C. Mason, has a term of office expiring at the first annual meeting of stockholders; a second class, consisting of Messrs. Clarence E. Hamre, Robert Backstrom and Ms. Andrea Clinton, has a term of office expiring at the second annual meeting of stockholders; and a third class, consisting of Messrs. Michael R. Sand, Alan E. Smith and Peter J. Majar, has a term of office expiring at the third annual meeting of stockholders. The executive officers of the Holding 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. The executive officers of the Holding Company are: Name Position With Holding Company ---- ----------------------------- Clarence E. Hamre Chairman of the Board, President and Chief Executive Officer Michael R. Sand Executive Vice President and Secretary Paul G. MacLeod Treasurer Since the formation of the Holding Company, none of the executive officers, directors or other personnel has received remuneration from the Holding Company. Information concerning the principal occupations, employment and compensation of the directors and officers of the Holding Company during the past five years is set forth under "MANAGEMENT OF THE SAVINGS BANK -- Biographical Information." 66 MANAGEMENT OF THE SAVINGS BANK DIRECTORS AND EXECUTIVE OFFICERS The Board of Directors of the Savings Bank is presently composed of nine members, who are elected for terms of three years, one third of whom are elected annually in accordance with the Bylaws of the Savings Bank. The executive officers of the Savings Bank are elected annually by the Board of Directors and serve at the Board's discretion. The following table sets forth information with respect to the Directors and executive officers of the Savings Bank.
Current Director Term Name Age (1) Position with Savings Bank Since Expires - ---- ------ --------------------------------- -------- ------- Clarence E. Hamre 63 Chairman of the Board, President, 1969 1999 Chief Executive Officer and Director Michael R. Sand 42 Executive Vice President, Secretary and Director 1993 2000 Andrea M. Clinton 40 Director 1996 1999 Robert Backstrom 68 Director 1992 1999 Richard R. Morris, Jr. 59 Director 1992 1998 Alan E. Smith 65 Director 1992 2000 Peter J. Majar 69 Director 1987 2000 Jon C. Parker 48 Director 1992 1998 James C. Mason 42 Director 1993 1998 - ----------------------
(1) As of June 30, 1997. BIOGRAPHICAL INFORMATION Set forth below is certain information regarding the Directors and executive officers of the Savings Bank. Unless otherwise stated, each Director and executive officer has held his or her current occupation for the last five years. All Directors and executive officers reside in Hoquiam, Washington, unless otherwise indicated. There are no family relationships among or between the directors or executive officers. Clarence E. Hamre has served as the Savings Bank's President and Chief Executive Officer since 1969. Mr. Hamre is President of the 7th Street Theater Rehabilitation Group and is a member of the Building Committee of the Saron Lutheran Church. He also serves on the Board of Directors of the Hoquiam Development Association and is past Chairman of the Board and a Board member of the Washington Savings League. Michael R. Sand is the Savings Bank's Executive Vice President. Mr. Sand is the President of the Aberdeen Neighborhood Housing Services, the former President of the Grays Harbor Chamber of Commerce and a member of the Hoquiam Lion's Club. Andrea M. Clinton is an interior designer and the owner of AMC Interiors. Ms. Clinton is a volunteer for the Olympia School District, the Black Hills Bambino Baseball League and the Christman Forest Auction. She resides in Olympia, Washington. Robert Backstrom is retired after serving as owner of Price & Price Real Estate and Insurance, Montesano, Washington for 31 years. He is a past President of the Montesano Chamber of Commerce and Montesano Little League. He resides in Montesano, Washington. 67 Richard R. Morris, Jr. is the owner of Dick's Food Centers, Inc., a retail grocery. Mr. Morris serves on the Boards of Directors of the Washington Food Industry and the Economic Development Council of Gray Harbor County. He is also a member of the Hoquiam Rotary Club. He resides in Ocean Shores, Washington. Alan E. Smith is the former owner of Harbor Drug, Inc., a retail pharmacy. Mr. Smith is past President of the Hoquiam Development Association and the Hoquiam Retail Trade Board and is a member of the Board of Directors of the Washington State Pharmaceutical Association. Peter J. Majar is retired as General Manager of Hoquiam Plywood Co., Inc., a plywood manufacturer, President of the Plywood Marketing Association and President of PMA Transportation Company, Vancouver, Washington. Mr. Majar is a member of the Aberdeen Lion's Club and is involved in various church, fraternal and mission activities. He was a long time member of the Board of Directors of Goodwill Industries when it was located in Grays Harbor, Washington. He resides in Aberdeen, Washington. Jon C. Parker is a member of the law firm of Parker, Johnson & Parker P.S., Hoquiam, Washington. Parker, Johnson & Parker P.S. serves as general counsel to the Savings Bank. Mr. Parker was admitted to practice in 1974 and is a member in good standing of the American, Washington State and Grays Harbor Bar Associations. Mr. Parker is also involved in charitable and civic organizations in Hoquiam and Grays Harbor County, Washington. James C. Mason is the President and owner of Mason Timber Co. Mr. Mason is past President of the Aberdeen YMCA and serves as a member of the Aberdeen School Board, the Grays Harbor Community Hospital Foundation Board, the Bishop Foundation Board, and the Aberdeen Rotary Club. He resides in Aberdeen, Washington. MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS The business of the Savings Bank is conducted through meetings and activities of the Board of Directors and its committees. During the fiscal year ended September 30, 1996, the Board of Directors held 24 meetings. No director attended fewer than 75% of the total meetings of the Board of Directors and of committees on which such director served. The Holding Company's Audit Committee also consists of Directors Backstrom, Majar, Smith, Hamre and Sand. The Audit Committee, consisting of Directors Backstrom, Majar, Smith, Hamre and Sand, is responsible for meeting with the Savings Bank's internal and external auditors to discuss the results of the annual audit and any related matters. The Audit Committee is also responsible for the Savings Bank's employee compliance issues. The Board also receives and reviews the reports and findings and other information presented to them by the Savings Bank's outside auditor. The Audit Committee meets as needed and met once during the nine months ended June 30, 1997. The Loan Committee, consisting of all of the Directors, meets bi-monthly and is responsible for reviewing and approving the Savings Bank's loans. The Loan Committee met 18 times during the nine months ended June 30, 1997. The Salary Committee, consisting of Directors Mason and Morris, makes recommendations to the full Board of Directors concerning employee compensation. The Salary Committee meets as needed and met once during the nine months ended June 30, 1997. The Nominating Committee, consisting of Directors Majar, Parker and Morris, meets as needed and is responsible for selecting qualified individuals to fill openings on the Board of Directors. The Nominating Committee met once during the nine months ended June 30, 1997. 68 The Savings Bank also maintains standing Community Reinvestment Act ("CRA") and Budget Committees. DIRECTORS' COMPENSATION BOARD FEES. Except for the Messrs. Hamre and Sand, Directors are paid $500 per month and $250 for each regular Board meeting that they attend. Directors also receive $200 for each special Board meeting or committee meeting that they attend. Director fees totalled $59,985 for the year ended September 30, 1996. It is currently anticipated that, after completion of the Conversion, directors' fees will be paid by the Holding Company and no separate fees will be paid for service on the Board of Directors of the Savings Bank. DEFERRED COMPENSATION PLAN. The Savings Bank maintains a deferred compensation plan for the benefit of directors who may elect to defer receipt of all or a portion of their fees until retirement or termination of service. At the director's election, benefits are distributed in a lump sum or installment payments. At June 30, 1997, none of the Savings Bank's directors had elected to participate in the plan. EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE. The following information is furnished for Mr. Hamre. No other executive officer of Savings Bank received salaries and bonuses in excess of $100,000 during the year ended September 30, 1996.
Annual Compensation ----------------------------------------- Name and Other Annual All Other Position Year Salary Bonus Compensation(1) Compensation(2) - -------- ---- -------- -------- --------------- --------------- Clarence E. Hamre 1996 $146,588 $29,997 -- $59,148 President and Chief Executive Officer
- --------------------------------- (1) Includes perquisites and other personal benefits, unless the aggregate amount of such compensation is the lesser of either $50,000 or 10% or total annual salary and bonus. (2) Includes amounts paid in connection with (i) any contract or arrangement with the Savings Bank, (ii) dollar value of amounts earned on long-term incentive plans; (iii) contributions made by the Savings Bank on behalf of the officer to vested and unvested defined contribution plans; DEFERRED COMPENSATION AGREEMENT. The Savings Bank has entered into a deferred compensation agreement with Mr. Hamre which provides that, commencing upon his retirement at or after age 65, Mr. Hamre will receive $2,000 per month for life. The monthly benefit is reduced to $1,600 per month in the event of Mr. Hamre's retirement prior to age 65. At Mr. Hamre's death, the monthly benefit would be payable to his surviving spouse until the earlier to occur of her death or 60 months. At June 30, 1997, the Savings Bank had accrued $166,000 in compensation expense with respect to its obligation to Mr. Hamre under the agreement. BENEFITS GENERAL. The Savings Bank currently pays 100% of the premiums for medical, life and disability insurance benefits for full-time employees, subject to certain deductibles. EMPLOYEE SEVERANCE COMPENSATION PLAN. In connection with the Conversion, the Board of Directors of the Savings Bank intends to adopt an Employee Severance Compensation Plan (the "Severance Plan") to provide benefits to eligible employees in the event of a change in control of the Holding Company or the Savings Bank (as defined in the Severance Plan). In general, all employees with two or more years of service will be eligible to participate in the Severance Plan. Under the Severance Plan, in the event of a change in control of the Holding 69 Company or the Savings Bank, eligible employees who are terminated or who terminate employment (but only upon the occurrence of events specified in the Severance Plan) within 12 months of the effective date of a change in control will be entitled to a payment based on years of service with the Savings Bank. The maximum payment for any eligible employee would be equal to 24 months of their current compensation. Assuming that a change in control had occurred at June 30, 1997 and the termination of all eligible employees, the maximum aggregate payment due under the Severance Plan would have been approximately $3.3 million. PROFIT SHARING PLAN. The Savings Bank maintains a tax-qualified profit sharing plan (the "Plan") for the benefit of employees with one year of service who have attained age 21. Eligible employees who are employed on the last day of the Plan year must complete at least 501 hours of service during the Plan year in order to share in the Savings Bank's annual discretionary contribution. Employees who terminate employment during the Plan year must complete at least 501 hours of service in order to share in the annual contribution. The Savings Bank's annual contribution is 10% of their individual compensation. For this purpose, "compensation" includes a participant's wages, salary, overtime, bonus, and commissions. However, under the Code only the first $160,000 (indexed) of compensation is taken into account in determining the contribution on behalf of each participant. The Savings Bank's contributions vest over a six-year period with 10 percent vested upon the completion of each of the first two years of service and an additional 20 percent vested for each additional year of service. A participant is fully vested at retirement, upon death or disability, or upon termination of the Plan. Distributions under the Plan are available, at the participant's option, in a lump sum or in annual installments over a period not exceeding the joint life expectancy of the participant and his or her designated beneficiary. Generally, the investment of Plan assets is directed by plan participants. In connection with the Conversion, the investment options available to participants will be expanded to include the opportunity to direct the investment of their Plan account balance to purchase shares of the Common Stock. A participant in the Plan who elects to purchase Common Stock in the Conversion through the Plan will receive the same subscription priority and be subject to the same individual purchase limitations as if the participant had elected to make such a purchase using other funds. See "THE CONVERSION -- Limitations on Purchases of Shares." During the year ended September 30, 1996, the Savings Bank contributed approximately $178,000 to the Plan. PROFIT SHARING BONUS PLAN. The Savings Bank maintains a discretionary bonus plan which is based on the Savings Bank's net income for each fiscal year. Under the Plan, Mr. Hamre receives 1% of the Savings Bank's net income and the remaining employees of the Savings Bank receive a total of 3.00% of net income, divided up based upon each employee's salary to total employees' salaries. During the year ended September 30, 1996, Mr. Hamre received $30,000 under the Plan. The Savings Bank intends to maintain this plan after the consummation of the Conversion. See "PROSPECTUS SUMMARY -- Benefits of Conversion to Management -- Profit Sharing Bonus Plan." EMPLOYEE STOCK OWNERSHIP PLAN. The Board of Directors has authorized the adoption by the Savings Bank of an ESOP for employees of the Savings Bank to become effective upon the completion of the Conversion. The ESOP is intended to satisfy the requirements for an employee stock ownership plan under the Code and the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). Employees of the Holding Company and the Savings Bank who have been credited with at least six months of service will be eligible to participate in the ESOP. In order to fund the purchase of up to 8% of the Common Stock to be issued in the Conversion, it is anticipated that the ESOP will borrow funds from the Holding Company. Such loan will equal 100% of the aggregate purchase price of the Common Stock. The loan to the ESOP will be repaid principally from the Savings Bank's contributions to the ESOP and dividends payable on Common Stock held by the ESOP over the anticipated 10 year term of the loan. The interest rate for the ESOP loan is expected to be the prime rate as published in The 70 Wall Street Journal on the closing date of the Conversion. See "PRO FORMA DATA." To the extent that the ESOP is unable to acquire 8% of the Common Stock issued in the Conversion, it is anticipated that such additional shares will be acquired following the Conversion through open market purchases. In any plan year, the Savings Bank may make additional discretionary contributions to the ESOP for the benefit of plan participants in either cash or shares of Common Stock, which may be acquired through the purchase of outstanding shares in the market or from individual stockholders or which constitute authorized but unissued shares or shares held in treasury by the Holding Company. The timing, amount, and manner of such discretionary contributions will be affected by several factors, including applicable regulatory policies, the requirements of applicable laws and regulations, and market conditions. Shares purchased by the ESOP with the proceeds of the loan will be held in a suspense account and released on a pro rata basis as the loan is repaid. Discretionary contributions to the ESOP and shares released from the suspense account will be allocated among participants on the basis of each participant's proportional share of total compensation. Forfeitures will be reallocated among the remaining plan participants. Participants will vest in their accrued benefits under the ESOP at the rate of 20% per year, beginning upon the completion of two years of participation. A participant is fully vested at retirement, in the event of disability or upon termination of the ESOP. Benefits are distributable upon a participant's retirement, early retirement, death, disability, or termination of employment. The Savings Bank's contributions to the ESOP are not fixed, so benefits payable under the ESOP cannot be estimated. It is anticipated that Messrs. ___________ and ______________ of the Savings Bank will be appointed by the Board of Directors of the Savings Bank to serve as trustees of the ESOP. Under the ESOP, the trustees must vote all allocated shares held in the ESOP in accordance with the instructions of plan participants and unallocated shares and allocated shares for which no instructions are received must be voted in the same ratio on any matter as those shares for which instructions are given. Pursuant to SOP 93-6, compensation expense for a leveraged ESOP is recorded at the fair market value of the ESOP shares when committed to be released to participants' accounts. See "PRO FORMA DATA" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Results of Operations -- Comparison of Operating Results for the Nine Months Ended June 30, 1996 and 1997." The ESOP will be subject to the requirements of ERISA and the regulations of the IRS and the Department of Labor issued thereunder. The Savings Bank intends to request a determination letter from the IRS regarding the tax- qualified status of the ESOP. Although no assurance can be given that a favorable determination letter will be issued, the Savings Bank expects that a favorable determination letter will be received by the ESOP. 1997 STOCK OPTION PLAN. The Board of Directors of the Holding Company intends to adopt the Stock Option Plan and to submit the Stock Option Plan to the stockholders for approval at a meeting held no earlier than six months following consummation of the Conversion. The approval of a majority vote of the Holding Company's outstanding shares is required prior to the implementation of the Stock Option Plan within one year of the consummation of the Conversion. The Stock Option Plan will comply with all applicable regulatory requirements. 71 The Stock Option Plan will be designed to attract and retain qualified management personnel and nonemployee directors, to provide such officers, key employees and nonemployee directors with a proprietary interest in the Holding Company as an incentive to contribute to the success of the Holding Company and the Savings Bank, and to reward officers and key employees for outstanding performance. The Stock Option Plan will provide for the grant of incentive stock options ("ISOs") intended to comply with the requirements of Section 422 of the Code and for nonqualified stock options ("NQOs"). Upon receipt of stockholder approval of the Stock Option Plan, stock options may be granted to key employees of the Holding Company and its subsidiaries, including the Savings Bank. Unless sooner terminated, the Stock Option Plan will continue in effect for a period of ten years from the date the Stock Option Plan is approved by stockholders. A number of authorized shares of Common Stock equal to 10% of the number of shares of Common Stock issued in connection with the Conversion will be reserved for future issuance under the Stock Option Plan (575,000 shares based on the issuance of 5,750,000 shares at the maximum of the Estimated Valuation Range). Shares acquired upon exercise of options will be authorized but unissued shares or treasury shares. In the event of a stock split, reverse stock split, stock dividend, or similar event, the number of shares of Common Stock under the Stock Option Plan, the number of shares to which any award relates and the exercise price per share under any option may be adjusted by the Board to reflect the increase or decrease in the total number of shares of Common Stock outstanding. The Stock Option Plan will be administered and interpreted by the Board of Directors. The Board will determine which nonemployee directors, officers and key employees will be granted options, whether, in the case of officers and employees, such options will be ISOs or NQOs, the number of shares subject to each option, and the exercisability of such options. All options granted to nonemployee directors will be NQOs. The per share exercise price of all options will equal at least 100% of the fair market value of a share of Common Stock on the date the option is granted. Under current regulations, if the Stock Option Plan is implemented within one year of the consummation of the Conversion, (i) no officer or employees could receive an award of options covering in excess of 25%, (ii) no nonemployee director could receive in excess of 5% and (iii) nonemployee directors, as a group, could not receive in excess of 30% of the number of shares reserved for issuance under the Stock Option Plan. It is anticipated that all options granted under the Stock Option Plan will be granted subject to a vesting schedule whereby the options become exercisable over a specified period following the date of grant. Under current regulations, if the Stock Option plan is implemented within the first year following consummation of the Conversion the minimum vesting period will be five years. All unvested options will be immediately exercisable in the event of the recipient's death or disability. Unvested options also will be exercisable following a change in control (as defined in the Stock Option Plan) of the Holding Company or the Savings Bank to the extent authorized or not prohibited by applicable law or regulations. Regulations currently provide that if the Stock Option Plan is implemented prior to the first anniversary of the Conversion, vesting may not be accelerated upon a change in control of the Holding Company or the Savings Bank. Each stock option that is awarded to an officer or key employee will remain exercisable at any time on or after the date it vests through the earlier to occur of the tenth anniversary of the date of grant or three months after the date on which the optionee terminates employment (one year in the event of the optionee's termination by reason of death or disability), unless such period is extended by the Committee. Each stock option that is awarded to a nonemployee director will remain exercisable through the earlier to occur of the tenth anniversary of the date of grant or one year (two years in the event of a nonemployee director's death or disability) following the termination of a nonemployee director's service on the Board. All stock options are nontransferable except by will or the laws of descent or distribution. Under current provisions of the Code, the federal tax treatment of ISOs and NQOs is different. With respect to ISOs, an optionee who satisfies certain holding period requirements will not recognize income at the time the 72 option is granted or at the time the option is exercised. If the holding period requirements are satisfied, the optionee will generally recognize capital gain or loss upon a subsequent disposition of the shares of Common Stock received upon the exercise of a stock option. If the holding period requirements are not satisfied, the difference between the fair market value of the Common Stock on the date of grant and the option exercise price, if any, will be taxable to the optionee at ordinary income tax rates. A federal income tax deduction generally will not be available to the Holding Company as a result of the grant or exercise of an ISO, unless the optionee fails to satisfy the holding period requirements. With respect to NQOs, the grant of an NQO generally is not a taxable event for the optionee and no tax deduction will be available to the Holding Company. However, upon the exercise of an NQO, the difference between the fair market value of the Common Stock on the date of exercise and the option exercise price generally will be treated as compensation to the optionee upon exercise, and the Holding Company will be entitled to a compensation expense deduction in the amount of income realized by the optionee. Although no specific award determinations have been made at this time, the Holding Company and the Savings Bank anticipate that if stockholder approval is obtained it would provide awards to its directors, officers and employees to the extent and under terms and conditions permitted by applicable regulations. The size of individual awards will be determined prior to submitting the Stock Option Plan for stockholder approval, and disclosure of anticipated awards will be included in the proxy materials for such meeting. MANAGEMENT RECOGNITION PLAN. Following the Conversion, the Board of Directors of the Holding Company intends to adopt an MRP for officers, employees, and nonemployee directors of the Holding Company and the Savings Bank, subject to shareholder approval. The MRP will enable the Holding Company and the Savings Bank to provide participants with a proprietary interest in the Holding Company as an incentive to contribute to the success of the Holding Company and the Savings Bank. The MRP will comply with all applicable regulatory requirements. Under current regulations, the approval of a majority vote of the Holding Company's outstanding shares is required prior to the implementation of the MRP within one year of the consummation of the Conversion. The MRP expects to acquire a number of shares of Common Stock equal to 4% of the Common Stock issued in connection with the Conversion (230,000 shares based on the issuance of 5,750,000 shares in the Conversion at the maximum of the Estimated Valuation Range). Such shares will be acquired on the open market, if available, with funds contributed by the Holding Company or the Savings Bank to a trust which the Holding Company may establish in conjunction with the MRP ("MRP Trust") or from authorized but unissued shares or treasury shares of the Holding Company. The Board of Directors of the Holding Company will administer the MRP, members of which will also serve as trustees of the MRP Trust, if formed. The trustees will be responsible for the investment of all funds contributed by the Holding Company or the Savings Bank to the MRP Trust. The Board of Directors of the Holding Company may terminate the MRP at any time and, upon termination, all unallocated shares of Common Stock will revert to the Holding Company. Shares of Common Stock granted pursuant to the MRP will be in the form of restricted stock payable ratably over a specified vesting period following the date of grant. During the period of restriction, all shares will be held in escrow by the Holding Company or by the MRP Trust. Under current regulations, if the MRP is implemented within the first year following consummation of the Conversion, the minimum vesting period will be five years. All unvested MRP awards will vest in the event of the recipient's death or disability. Unvested MRP awards will also vest following a change in control (as defined in the MRP) of the Holding Company or the Savings Bank to the extent authorized or not prohibited by applicable law or regulations. Regulations currently provide that, if the MRP is implemented prior to the first anniversary of the Conversion, vesting may not be accelerated upon a change in control of the Holding Company or the Savings Bank. A recipient of an MRP award in the form of restricted stock generally will not recognize income upon an award of shares of Common Stock, and the Holding Company will not be entitled to a federal income tax deduction, until the termination of the restrictions. Upon such termination, the recipient will recognize ordinary income in an 73 amount equal to the fair market value of the Common Stock at the time and the Holding Company will be entitled to a deduction in the same amount after satisfying federal income tax withholding requirements. However, the recipient may elect to recognize ordinary income in the year the restricted stock is granted in an amount equal to the fair market value of the shares at that time, determined without regard to the restrictions. In that event, the Holding Company will be entitled to a deduction in such year and in the same amount. Any gain or loss recognized by the recipient upon subsequent disposition of the stock will be either a capital gain or capital loss. Although no specific award determinations have been made at this time, the Holding Company and the Savings Bank anticipate that if stockholder approval is obtained it would provide awards to its directors, officers and employees to the extent and under terms and conditions permitted by applicable regulations. Under current regulations, if the MRP is implemented within one year of the consummation of the Conversion, (i) no officer or employees could receive an award covering in excess of 25%, (ii) no nonemployee director could receive in excess of 5% and (iii) nonemployee directors, as a group, could not receive in excess of 30% of the number of shares reserved for issuance under the MRP. The size of individual awards will be determined prior to submitting the MRP for stockholder approval, and disclosure of anticipated awards will be included in the proxy materials for such meeting. TRANSACTIONS WITH THE SAVINGS BANK Federal regulations require that all loans or extensions of credit to executive officers and directors must generally be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons (unless the loan or extension of credit is made under a benefit program generally available to all other employees and does not give preference to any insider over any other employee) and must not involve more than the normal risk of repayment or present other unfavorable features. The Savings Bank's policy is not to make any new loans or extensions of credit to the Savings Bank's executive officers and directors at different rates or terms than those offered to the general public. In addition, loans made to a director or executive officer in an amount that, when aggregated with the amount of all other loans to such person and his related interests, are in excess of the greater of $25,000 or 5% of the Savings Bank's capital and surplus (up to a maximum of $500,000) must be approved in advance by a majority of the disinterested members of the Board of Directors. See "REGULATION -- Federal Regulation of Savings Banks -- Transactions with Affiliates." The aggregate amount of loans by the Savings Bank to its executive officers and directors was $807,000 at June 30, 1997, or approximately 1.1% of pro forma stockholders' equity (based on the issuance of the maximum of the Estimated Valuation Range). Jon C. Parker, a director of the Holding Company and the Savings Bank, is a member of the law firm of Parker, Johnson & Parker, P.S., Hoquiam, Washington, which serves as general counsel to the Savings Bank. The Savings Bank pays an annual retainer of $11,090. During the year ended September 30, 1996, the Savings Bank paid legal fees of approximately $12,200 to the firm. REGULATION THE SAVINGS BANK GENERAL. As a state-chartered, federally insured savings bank, the Savings Bank is subject to extensive regulation. Lending activities and other investments must comply with various statutory and regulatory requirements, including prescribed minimum capital standards. The Savings Bank is regularly examined by the FDIC and the Division and files periodic reports concerning the Savings Bank's activities and financial condition with its regulators. The Savings Bank's relationship with depositors and borrowers also is regulated to a great extent by both federal law and the laws of Washington, especially in such matters as the ownership of savings accounts and the form and content of mortgage documents. 74 Federal and state banking laws and regulations govern all areas of the operation of the Savings Bank, including reserves, loans, mortgages, capital, issuance of securities, payment of dividends and establishment of branches. Federal and state bank regulatory agencies also have the general authority to limit the dividends paid by insured banks and bank holding companies if such payments should be deemed to constitute an unsafe and unsound practice. The respective primary federal regulators of the Holding Company and the Savings Bank have authority to impose penalties, initiate civil and administrative actions and take other steps intended to prevent banks from engaging in unsafe or unsound practices. STATE REGULATION AND SUPERVISION. As a state-chartered savings bank, the Savings Bank is subject to applicable provisions of Washington law and the regulations of the Division adopted thereunder. Washington law and regulations govern the Savings Bank's ability to take deposits and pay interest thereon, to make loans on or invest in residential and other real estate, to make consumer loans, to invest in securities, to offer various banking services to its customers, and to establish branch offices. Under state law, savings banks in Washington also generally have all of the powers that federal mutual savings banks have under federal laws and regulations. The Savings Bank is subject to periodic examination and reporting requirements by and of the Division. DEPOSIT INSURANCE. The FDIC insures deposits at the Savings Bank to the maximum extent permitted by law. The Savings Bank currently pays deposit insurance premiums to the FDIC based on a risk-based assessment system established by the FDIC for all SAIF-member institutions. Under applicable regulations, institutions are assigned to one of three capital groups which are based solely on the level of an institution's capital --"well capitalized," "adequately capitalized," and "undercapitalized" -- which are defined in the same manner as the regulations establishing the prompt corrective action system under the Federal Deposit Insurance Act ("FDIA"), as discussed below. The FDIC is authorized to raise assessment rates in certain circumstances. The Savings Bank's assessments expensed for the year ended September 30, 1996, equaled $1.2 million (including the FDIC SAIF assessment of $875,000). Pursuant to the Deposit Insurance Fund ("DIF") Act, which was enacted on September 30, 1996, the FDIC imposed a special assessment on each depository institution with SAIF-assessable deposits which resulted in the SAIF achieving its designated reserve ratio. In connection therewith, the FDIC reduced the assessment schedule for SAIF members, effective January 1, 1997, to a range of 0% to 0.27%, with most institutions, including the Savings Bank, paying 0%. This assessment schedule is the same as that for the BIF, which reached its designated reserve ratio in 1995. In addition, since January 1, 1997, SAIF members are charged an assessment of 0.065% of SAIF-assessable deposits for the purpose of paying interest on the obligations issued by the Financing Corporation ("FICO") in the 1980's to help fund the thrift industry cleanup. BIF-assessable deposits will be charged an assessment to help pay interest on the FICO bonds at a rate of approximately .013% until the earlier of December 31, 1999 or the date upon which the last savings association ceases to exist, after which time the assessment will be the same for all insured deposits. The DIF Act provides for the merger of the BIF and the SAIF into the Deposit Insurance Fund on January 1, 1999, but only if no insured depository institution is a savings association on that date. The DIF Act contemplates the development of a common charter for all federally chartered depository institutions and the abolition of separate charters for national banks and federal savings associations. It is not known what form the common charter may take and what effect, if any, the adoption of a new charter would have on the operation of the Savings Bank. The FDIC may terminate the deposit insurance of any insured depository institution if it determines after a hearing that the institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, order or any condition imposed by an agreement with the FDIC. It also may suspend deposit insurance temporarily during the hearing process for the permanent termination of insurance, if the institution has no tangible capital. If insurance of accounts is terminated, the accounts at the institution at the time of termination, less subsequent withdrawals, shall continue to be insured for a period of six months to two years, as determined by the FDIC. Management is aware of no existing circumstances which could result in termination of the deposit insurance of the Savings Bank. 75 PROMPT CORRECTIVE ACTION. The FDIA requires each federal banking agency to implement a system of prompt corrective action for institutions which it regulates. The federal banking agencies have promulgated substantially similar regulations to implement this system of prompt corrective action. Under the regulations, an institution shall be deemed to be: (i) "well capitalized" if it has a total risk-based capital ratio of 10.0% or more, has a Tier I risk-based capital ratio of 6.0% or more, has a Tier I leverage capital ratio of 5.0% or more and is not subject to specified requirements to meet and maintain a specific capital level for any capital measure; (ii) "adequately capitalized" if it has a total risk-based capital ratio of 8.0% or more, a Tier I risk-based capital ratio of 4.0% or more and a Tier I leverage capital ratio of 4.0% or more (3.0% under certain circumstances) and does not meet the definition of "well capitalized;" (iii) "undercapitalized" if it has a total risk-based capital ratio that is less than 8.0%, a Tier I risk-based capital ratio that is less than 4.0% or a Tier I leverage capital ratio that is less than 4.0% (3.0% under certain circumstances); (iv) "significantly undercapitalized" if it has a total risk-based capital ratio that is less than 6.0%, a Tier I risk-based capital ratio that is less than 3.0% or a Tier I leverage capital ratio that is less than 3.0%; and (v) "critically undercapitalized" if it has a ratio of tangible equity to total assets that is equal to or less than 2.0%. Section 38 of the FDIA and the implementing regulations also provide that a federal banking agency may, after notice and an opportunity for a hearing, reclassify a well capitalized institution as adequately capitalized and may require an adequately capitalized institution or an undercapitalized institution to comply with supervisory actions as if it were in the next lower category if the institution is in an unsafe or unsound condition or engaging in an unsafe or unsound practice. (The FDIC may not, however, reclassify a significantly undercapitalized institution as critically undercapitalized.) An institution generally must file a written capital restoration plan which meets specified requirements, as well as a performance guaranty by each company that controls the institution, with the appropriate federal banking agency within 45 days of the date that the institution receives notice or is deemed to have notice that it is undercapitalized, significantly undercapitalized or critically undercapitalized. Immediately upon becoming undercapitalized, an institution shall become subject to the provisions of Section 38 of the FDIA, which sets forth various mandatory and discretionary restrictions on its operations. At June 30, 1997, the Savings Bank was categorized as "well capitalized" under the prompt corrective action regulations of the FDIC. STANDARDS FOR SAFETY AND SOUNDNESS. The FDIA requires the federal banking regulatory agencies to prescribe, by regulation, standards for all insured depository institutions relating to: (i) internal controls, information systems and internal audit systems; (ii) loan documentation; (iii) credit underwriting; (iv) interest rate risk exposure; (v) asset growth; and (vi) compensation, fees and benefits. The federal banking agencies recently adopted final regulations and Interagency Guidelines Prescribing Standards for Safety and Soundness ("Guidelines") to implement safety and soundness standards required by the FDIA. The Guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. The agencies also proposed asset quality and earnings standards which, if adopted in final, would be added to the Guidelines. Under the final regulations, if the FDIC determines that the Savings Bank fails to meet any standard prescribed by the Guidelines, the agency may require the Savings Bank to submit to the agency an acceptable plan to achieve compliance with the standard, as required by the FDIA. The final regulations establish deadlines for the submission and review of such safety and soundness compliance plans. CAPITAL REQUIREMENTS. The FDIC's minimum capital standards applicable to FDIC-regulated banks and savings banks require the most highly-rated institutions to meet a "Tier 1" leverage capital ratio of at least 3% of total assets. Tier 1 (or "core capital") consists of common stockholders' equity, noncumulative perpetual preferred stock and minority interests in consolidated subsidiaries minus all intangible assets other than limited amounts of purchased mortgage servicing rights and certain other accounting adjustments. All other banks must have a Tier 1 leverage ratio of at least 100-200 basis points above the 3% minimum. The FDIC capital regulations establish a 76 minimum leverage ratio of not less than 4% for banks that are not the most highly rated or are anticipating or experiencing significant growth. The FDIC's capital regulations require higher capital levels for banks which exhibit more than a moderate degree of risk or exhibit other characteristics which necessitate that higher than minimum levels of capital be maintained. Any insured bank with a Tier 1 capital to total assets ratio of less than 2% is deemed to be operating in an unsafe and unsound condition pursuant to Section 8(a) of the FDIA unless the insured bank enters into a written agreement, to which the FDIC is a party, to correct its capital deficiency. Insured banks operating with Tier 1 capital levels below 2% (and which have not entered into a written agreement) are subject to an insurance removal action. Insured banks operating with lower than the prescribed minimum capital levels generally will not receive approval of applications submitted to the FDIC. Also, inadequately capitalized state nonmember banks will be subject to such administrative action as the FDIC deems necessary. FDIC regulations also require that banks meet a risk-based capital standard. The risk-based capital standard requires the maintenance of total capital (which is defined as Tier 1 capital and Tier 2 or supplementary capital) to risk weighted assets of 8% and Tier 1 capital to risk-weighted assets of 4%. In determining the amount of risk-weighted assets, all assets, plus certain off balance sheet items, are multiplied by a risk-weight of 0% to 100%, based on the risks the FDIC believes are inherent in the type of asset or item. The components of Tier 1 capital are equivalent to those discussed above under the 3% leverage requirement. The components of supplementary capital currently include cumulative perpetual preferred stock, adjustable-rate perpetual preferred stock, mandatory convertible securities, term subordinated debt, intermediate-term preferred stock and allowance for possible loan and lease losses. Allowance for possible loan and lease losses includable in supplementary capital is limited to a maximum of 1.25% of risk-weighted assets. Overall, the amount of capital counted toward supplementary capital cannot exceed 100% of Tier 1 capital. The FDIC includes in its evaluation of a bank's capital adequacy an assessment of the exposure to declines in the economic value of the bank's capital due to changes in interest rates. However, no measurement framework for assessing the level of a bank's interest rate risk exposure has been codified. In the future, the FDIC will issue a proposed rule that would establish an explicit minimum capital charge for interest rate risk, based on the level of a bank's measured interest rate risk exposure. An undercapitalized, significantly undercapitalized, or critically undercapitalized institution is required to submit an acceptable capital restoration plan to its appropriate federal banking agency. The plan must specify (i) the steps the institution will take to become adequately capitalized, (ii) the capital levels to be attained each year, (iii) how the institution will comply with any regulatory sanctions then in effect against the institution and (iv) the types and levels of activities in which the institution will engage. The banking agency may not accept a capital restoration plan unless the agency determines, among other things, that the plan "is based on realistic assumptions, and is likely to succeed in restoring the institution's capital" and "would not appreciably increase the risk...to which the institution is exposed." Under the FDIA, a bank holding company must guarantee that a subsidiary depository institution meet its capital restoration plan, subject to certain limitations. The obligation of a controlling bank holding company under the FDIA to fund a capital restoration plan is limited to the lesser of 5.0% of an undercapitalized subsidiary's assets and the amount required to meet regulatory capital requirements. The FDIA provides that the appropriate federal regulatory agency must require an insured depository institution that is significantly undercapitalized or is undercapitalized and either fails to submit an acceptable capital restoration plan within the time period allowed or fails in any material respect to implement a capital restoration plan accepted by the appropriate federal banking agency to take one or more of the following actions: (i) sell enough shares, including voting shares, to become adequately capitalized; (ii) merge with (or be sold to) another institution (or holding company), but only if grounds exist for appointing a conservator or receiver; (iii) restrict certain transactions with banking affiliates as if the "sister bank" requirements of Section 23A of the Federal Reserve Act ("FRA") did not exist; (iv) otherwise restrict transactions with bank or non-bank affiliates; (v) restrict interest rates that the institution pays on deposits to "prevailing rates" in the institution's region; (vi) restrict asset growth or reduce total assets; (vii) alter, reduce or terminate activities; (viii) hold a new election of directors; (ix) dismiss any director or senior executive officer who held office for more than 180 days immediately before the institution became 77 undercapitalized; (x) employ "qualified" senior executive officers; (xi) cease accepting deposits from correspondent depository institutions; (xii) divest certain non-depository affiliates which pose a danger to the institution; (xiii) be divested by a parent holding company; and (xiv) take any other action which the agency determines would better carry out the purposes of the Prompt Corrective Action provisions. See "-- Prompt Corrective Action." The Division requires that net worth equal at least 5% of total assets. Intangible assets must be deducted from net worth and assets when computing compliance with this requirement. At June 30, 1997, the Savings Bank had a Tier 1 leverage capital ratio of 11.7% and net worth of 11.6% of total assets. For a complete description of the Savings Bank's required and actual capital levels on June 30, 1997, see "HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE." The FDIC has adopted the Federal Financial Institutions Examination Council's recommendation regarding the adoption of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Specifically, the agencies determined that net unrealized holding gains or losses on available for sale debt and equity securities should not be included when calculating core and risk-based capital ratios. FDIC capital requirements are designated as the minimum acceptable standards for banks whose overall financial condition is fundamentally sound, which are well-managed and have no material or significant financial weaknesses. The FDIC capital regulations state that, where the FDIC determines that the financial history or condition, including off-balance sheet risk, managerial resources and/or the future earnings prospects of a bank are not adequate and/or a bank has a significant volume of assets classified substandard, doubtful or loss or otherwise criticized, the FDIC may determine that the minimum adequate amount of capital for that bank is greater than the minimum standards established in the regulation. The Savings Bank's management believes that, under the current regulations, the Savings Bank will continue to meet its minimum capital requirements in the foreseeable future. However, events beyond the control of the Savings Bank, such as a downturn in the economy in areas where the Savings Bank has most of its loans, could adversely affect future earnings and, consequently, the ability of the Savings Bank to meet its capital requirements. ACTIVITIES AND INVESTMENTS OF INSURED STATE-CHARTERED BANKS. Section 24 of the FDIA, as amended by the FDICIA, generally limits the activities and equity investments of FDIC-insured, state-chartered banks to those that are permissible for national banks. Under regulations dealing with equity investments, an insured state bank generally may not directly or indirectly acquire or retain any equity investment of a type, or in an amount, that is not permissible for a national bank. An insured state bank is not prohibited from, among other things, (i) acquiring or retaining a majority interest in a subsidiary, (ii) investing as a limited partner in a partnership the sole purpose of which is direct or indirect investment in the acquisition, rehabilitation or new construction of a qualified housing project, provided that such limited partnership investments may not exceed 2% of the bank's total assets, (iii) acquiring up to 10% of the voting stock of a company that solely provides or reinsures directors', trustees' and officers' liability insurance coverage or bankers' blanket bond group insurance coverage for insured depository institutions, and (iv) acquiring or retaining the voting shares of a depository institution if certain requirements are met. Subject to certain regulatory exceptions, FDIC regulations provide that an insured state-chartered bank may not, directly, or indirectly through a subsidiary, engage as "principal" in any activity that is not permissible for a national bank unless the FDIC has determined that such activities would pose no risk to the insurance fund of which it is a member and the bank is in compliance with applicable regulatory capital requirements. Any insured state-chartered bank directly or indirectly engaged in any activity that is not permitted for a national bank or for which the FDIC has granted and exception must cease the impermissible activity. ENVIRONMENTAL ISSUES ASSOCIATED WITH REAL ESTATE LENDING. The Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), a federal statute, generally imposes strict liability on, among other things, all prior and present "owners and operators" of hazardous waste sites. However, the U.S. 78 Congress created a safe harbor provision for secured creditors by providing that the term "owner and operator" excludes a person who, without participating in the management of the site, holds indicia of ownership primarily to protect its security interest in the site. Since the enactment of the CERCLA, this "secured creditor exemption" has been the subject of judicial interpretations which have left open the possibility that lenders could be liable for cleanup costs on contaminated property that they hold as collateral for a loan. In response to the uncertainty created by judicial interpretations, in April 1992, the United States Environmental Protection Agency ("EPA"), an agency within the Executive Branch of the government, promulgated a regulation clarifying when and how secured creditors could be liable for cleanup costs under the CERCLA. Generally, the regulation protected a secured creditor that acquired full title to collateral property through foreclosure as long as the creditor did not participate in the property's management before foreclosure and undertook certain due diligence efforts to divest itself of the property. However, in February 1994, the U.S. Court of Appeals for the District of Columbia Circuit held that the EPA lacked authority to promulgate such regulation on the grounds that Congress meant for decisions on liability under the CERCLA to be made by the courts and not the Executive Branch. In January 1995, the U.S. Supreme Court denied to review the U.S. Court of Appeal's decision. In light of this adverse court ruling, in October 1995 the EPA issued a statement entitled "Policy on CERCLA Enforcement Against Lenders and Government Entities that Acquire Property Involuntarily" explaining that as an enforcement policy, the EPA intended to apply as guidance the provisions of the EPA lender liability rule promulgated in 1992. To the extent that legal uncertainty exists in this area, all creditors, including the Savings Bank, that have made loans secured by properties with potential hazardous waste contamination (such as petroleum contamination) could be subject to liability for cleanup costs, which costs often substantially exceed the value of the collateral property. FEDERAL RESERVE SYSTEM. In 1980, Congress enacted legislation which imposed Federal Reserve requirements (under "Regulation D") on all depository institutions that maintain transaction accounts or nonpersonal time deposits. These reserves may be in the form of cash or non-interest-bearing deposits with the regional Federal Reserve Bank. NOW accounts and other types of accounts that permit payments or transfers to third parties fall within the definition of transaction accounts and are subject to Regulation D reserve requirements, as are any nonpersonal time deposits at a bank. Under Regulation D, a bank must establish reserves equal to 3% of the first $49.3 million of transaction accounts and for amounts greater than $49.3 million, the reserve requirement is 10% of that portion of total transaction accounts in excess of $49.3 million. The first $4.4 million of otherwise reservable balances are exempt from reserve requirements. The reserve requirement on nonpersonal time deposits with original maturities of less than 1-1/2 years is 0%. As of June 30, 1997, the Savings Bank met its reserve requirements. AFFILIATE TRANSACTIONS. The Holding Company and the Savings Bank will be legal entities separate and distinct. Various legal limitations restrict the Savings Bank from lending or otherwise supplying funds to the Holding Company (an "affiliate"), generally limiting such transactions with the affiliate to 10% of the bank's capital and surplus and limiting all such transactions to 20% of the bank's capital and surplus. Such transactions, including extensions of credit, sales of securities or assets and provision of services, also must be on terms and conditions consistent with safe and sound banking practices, including credit standards, that are substantially the same or at least as favorable to the bank as those prevailing at the time for transactions with unaffiliated companies. Federally insured banks are subject, with certain exceptions, to certain restrictions on extensions of credit to their parent holding companies or other affiliates, on investments in the stock or other securities of affiliates and on the taking of such stock or securities as collateral from any borrower. In addition, such banks are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit or the providing of any property or service. COMMUNITY REINVESTMENT ACT. Banks are also subject to the provisions of the Community Reinvestment Act of 1977 ("CRA"), which requires the appropriate federal bank regulatory agency, in connection with its regular examination of a bank, to assess the bank's record in meeting the credit needs of the community serviced by the 79 bank, including low and moderate income neighborhoods. The regulatory agency's assessment of the bank's record is made available to the public. Further, such assessment is required of any bank which has applied, among other things, to establish a new branch office that will accept deposits, relocate an existing office or merge or consolidate with, or acquire the assets or assume the liabilities of, a federally regulated financial institution. The Savings Bank received a "satisfactory" rating during its most recent CRA examination. DIVIDENDS. Dividends from the Savings Bank will constitute the major source of funds for dividends which may be paid by the Holding Company. The amount of dividends payable by the Savings Bank to the Holding Company will depend upon the Savings Bank's earnings and capital position, and is limited by federal and state laws, regulations and policies. According to Washington law, the Savings Bank may not declare or pay a cash dividend on its capital stock if it would cause its net worth to be reduced below (i) the amount required for liquidation accounts or (ii) the net worth requirements, if any, imposed by the Director of the Division. Dividends on the Savings Bank's capital stock may not be paid in an aggregate amount greater than the aggregate retained earnings of the Savings Bank, without the approval of the Director of the Division. The amount of dividends actually paid during any one period will be strongly affected by the Savings Bank's management policy of maintaining a strong capital position. Federal law further provides that no insured depository institution may make any capital distribution (which would include a cash dividend) if, after making the distribution, the institution would be "undercapitalized," as defined in the prompt corrective action regulations. Moreover, the federal bank regulatory agencies also have the general authority to limit the dividends paid by insured banks if such payments should be deemed to constitute an unsafe and unsound practice. THE HOLDING COMPANY GENERAL. The Holding Company, as the sole shareholder of the Savings Bank, will become a bank holding company and will register as such with the Federal Reserve. Bank holding companies are subject to comprehensive regulation by the Federal Reserve under the Bank Holding Company Act of 1956, as amended ("BHCA") and the regulations of the Federal Reserve. As a bank holding company, the Holding Company will be required to file with the Federal Reserve annual reports and such additional information as the Federal Reserve may require and will be subject to regular examinations by the Federal Reserve. The Federal Reserve also has extensive enforcement authority over bank holding companies, including, among other things, the ability to assess civil money penalties, to issue cease and desist or removal orders and to require that a holding company divest subsidiaries (including its bank subsidiaries). In general, enforcement actions may be initiated for violations of law and regulations and unsafe or unsound practices. Under the BHCA, a bank holding company must obtain Federal Reserve approval before: (1) acquiring, directly or indirectly, ownership or control of any voting shares of another bank or bank holding company if, after such acquisition, it would own or control more than 5% of such shares (unless it already owns or controls the majority of such shares); (2) acquiring all or substantially all of the assets of another bank or bank holding company; or (3) merging or consolidating with another bank holding company. Any direct or indirect acquisition by a bank holding company or its subsidiaries of more than 5% of the voting shares of, or substantially all of the assets of, any bank located outside of the state in which the operations of the bank holding company's banking subsidiaries are principally conducted, may not be approved by the Federal Reserve unless the laws of the state in which the bank to be acquired is located specifically authorize such an acquisition. Most states have authorized interstate bank acquisitions by out-of-state bank holding companies on either a regional or a national basis, and most such statutes require the home state of the acquiring bank holding company to have enacted a reciprocal statute. Washington law permits out-of-state bank holding companies to acquire banks or bank holding companies located in Washington so long as the laws of the state in which the acquiring bank holding company is located permit bank holding companies located in Washington to acquire banks or bank holding companies in the acquiror's state and the Washington bank sought to be acquired has been in existence for at least 80 three years. Beginning September 30, 1995, federal law permits well capitalized and well managed bank holding companies to acquire control of an existing bank in any state. The BHCA also prohibits a bank holding company, with certain exceptions, from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company that is not a bank or bank holding company and from engaging directly or indirectly in activities other than those of banking, managing or controlling banks, or providing services for its subsidiaries. Under the BHCA, the Federal Reserve is authorized to approve the ownership of shares by a bank holding company in any company, the activities of which the Federal Reserve has determined to be so closely related to the business of banking or managing or controlling banks as to be a proper incident thereto. The list of activities determined by regulation to be closely related to banking within the meaning of the BHCA includes, among other things: operating a savings institution, mortgage company, finance company, credit card company or factoring company; performing certain data processing operations; providing certain investment and financial advice; underwriting and acting as an insurance agent for certain types of credit-related insurance; leasing property on a full- payout, non-operating basis; selling money orders, travelers' checks and U.S. Savings Bonds; real estate and personal property appraising; providing tax planning and preparation services; and, subject to certain limitations, providing securities brokerage services for customers. INTERSTATE BANKING. In September 1994, Congress passed the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 ("Interstate Banking Act"). The Interstate Banking Act permits adequately capitalized bank and savings bank holding companies to acquire control of banks and savings banks in any state beginning on September 29, 1995, one year after the effectiveness of the Interstate Banking Act. Washington adopted nationwide reciprocal interstate acquisition legislation in 1994. Such interstate acquisitions are subject to certain restrictions. States may require the bank or savings bank being acquired to have been in existence for a certain length of time, but not for more than five years. In addition, no bank or savings bank may acquire more than 10% of the insured deposits in the United States or more than 30% of the insured deposits in any one state, unless the state specifically legislated a higher deposit cap. States are free to legislate stricter deposit caps and, at present, 18 states have deposit caps lower than 30%. The Interstate Banking Act also provides for interstate branching. The McFadden Act of 1927 established state lines as the ultimate barrier to geographic expansion of a banking network by branching. The Interstate Banking Act withdraws these barriers, effective June 1, 1997, allowing interstate branching in all states, provided that a particular state has not specifically prohibited interstate branching by legislation prior to such time. Unlike interstate acquisitions, a state may prohibit interstate branching if it specifically elects to do so by June 1, 1997. States may choose to allow interstate branching prior to June 1, 1997 by opting-in to a group of states that permits these transactions. These states generally allow interstate branching via a merger of an out-of-state bank with an in-state bank, or on a de novo basis. Washington has enacted legislation permitting interstate branching transactions. It is anticipated that the Interstate Banking Act will increase competition within the market in which the Holding Company and the Savings Bank operate, although the extent to which such competition will increase in such market or the timing of such increase cannot be predicted. In addition, there can be no assurance as to whether, or in what form, legislation may be enacted in Washington in reaction to the Interstate Banking Act or what impact such legislation or the Interstate Banking Act might have upon the Holding Company and the Savings Bank. DIVIDENDS. The Federal Reserve has issued a policy statement on the payment of cash dividends by bank holding companies, which expresses the Federal Reserve's view that a bank holding company should pay cash dividends only to the extent that the company's net income for the past year is sufficient to cover both the cash dividends and a rate of earnings retention that is consistent with the company's capital needs, asset quality and overall financial condition. The Federal Reserve also indicated that it would be inappropriate for a company experiencing serious financial problems to borrow funds to pay dividends. Furthermore, under the prompt corrective action regulations adopted by the Federal Reserve pursuant to FDICIA, the Federal Reserve may prohibit a bank 81 holding company from paying any dividends if the holding company's bank subsidiary is classified as "undercapitalized" under the prompt corrective action regulations. STOCK REPURCHASES. Bank holding companies, except for certain "well- capitalized" and highly rated bank holding companies, are required to give the Federal Reserve prior written notice of any purchase or redemption of its outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of their consolidated net worth. The Federal Reserve may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe or unsound practice or would violate any law, regulation, Federal Reserve order, or any condition imposed by, or written agreement with, the Federal Reserve. CAPITAL REQUIREMENTS. The Federal Reserve has established capital adequacy guidelines for bank holding companies that generally parallel the capital requirements of the FDIC for the Savings Bank. The Federal Reserve regulations provide that capital standards will be applied on a consolidated basis in the case of a bank holding company with $150 million or more in total consolidated assets. For bank holding companies with less than $150 million in consolidated assets the guidelines are applied on a bank-only basis unless the parent bank holding company (i) is engaged in nonbank activity involving significant leverage or (ii) has a significant amount of outstanding debt that is held by the general public. Bank holding companies subject to the Federal Reserve's capital adequacy guidelines are required to comply with the Federal Reserve's risk-based capital regulations. Under these regulations, the minimum ratio of total capital to risk-weighted assets (including certain off-balance sheet activities, such as standby letters of credit) is 8%. At least half of the total capital is required to be Tier 1 capital, principally consisting of common stockholders' equity, noncumulative perpetual preferred stock, and a limited amount of cumulative perpetual preferred stock, less certain goodwill items. The remainder, Tier II capital, may consist of a limited amount of subordinated debt, certain hybrid capital instruments and other debt securities, perpetual preferred stock, and a limited amount of the general loan loss allowance. In addition to the risk-based capital guidelines, the Federal Reserve has adopted a minimum Tier I (leverage) capital ratio, under which a bank holding company must maintain a minimum level of Tier 1 capital to average total consolidated assets of at least 3% in the case of a bank holding company which has the highest regulatory examination rating and is not contemplating significant growth or expansion. All other bank holding companies are expected to maintain a Tier 1 (leverage) capital ratio of at least 1% to 2% above the state minimum. FEDERAL SECURITIES LAWS The Holding Company has filed a registration statement on Form S-1 ("Registration Statement") with the SEC under the Securities Act for the registration of the Common Stock to be issued in the Conversion. See "ADDITIONAL INFORMATION." Upon completion of the Conversion, the Common Stock will be registered with the SEC under the Exchange Act and generally may not be deregistered for at least three years thereafter. The Holding Company will then 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 to be issued in the Conversion does not cover the resale of such shares. Shares of the Common Stock purchased by persons who are not affiliates of the Holding Company may be resold without registration. Shares purchased by an affiliate of the Holding Company may comply with the resale restrictions of Rule 144 under the Securities Act. If the Holding Company meets the current public information requirements of Rule 144 under the Securities Act, each affiliate of the Holding 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 Holding 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 Holding 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, 82 in the event the Holding Company, at some future time, determines to issue additional shares from its authorized but unissued shares, the Holding Company might offer registration rights to certain of its affiliates who want to sell their shares. TAXATION FEDERAL TAXATION GENERAL. The Holding Company and the Savings Bank will report their income on a fiscal year basis using the accrual method of accounting and will be subject to federal income taxation in the same manner as other corporations with some exceptions, including particularly the Savings Bank's reserve for bad debts discussed below. The following discussion of tax matters is intended only as a summary and does not purport to be a comprehensive description of the tax rules applicable to the Savings Bank or the Holding Company. BAD DEBT RESERVE. Historically, savings institutions such as the Savings Bank which met certain definitional tests primarily related to their assets and the nature of their business ("qualifying thrift") were permitted to establish a reserve for bad debts and to make annual additions thereto, which may have been deducted in arriving at their taxable income. The Savings Bank's deductions with respect to "qualifying real property loans," which are generally loans secured by certain interest in real property, were computed using an amount based on the Savings Bank's actual loss experience, or a percentage equal to 8% of the Savings Bank's taxable income, computed with certain modifications and reduced by the amount of any permitted additions to the non-qualifying reserve. Due to the Savings Bank's loss experience, the Savings Bank generally recognized a bad debt deduction equal to 8% of taxable income. The provisions repealing the current thrift bad debt rules were passed by Congress as part of "The Small Business Job Protection Act of 1996." The new rules eliminate the 8% of taxable income method for deducting additions to the tax bad debt reserves for all thrifts for tax years beginning after December 31, 1995. These rules also require that all institutions recapture all or a portion of their bad debt reserves added since the base year (last taxable year beginning before January 1, 1988). The Savings Bank has previously recorded a deferred tax liability equal to the bad debt recapture and as such the new rules will have no effect on the net income or federal income tax expense. For taxable years beginning after December 31, 1995, the Savings Bank's bad debt deduction will be determined under the experience method using a formula based on actual bad debt experience over a period of years or, if the Savings Bank is a "large" association (assets in excess of $500 million) on the basis of net charge-offs during the taxable year. The new rules allow an institution to suspend bad debt reserve recapture for the 1996 and 1997 tax years if the institution's lending activity for those years is equal to or greater than the institutions average mortgage lending activity for the six taxable years preceding 1996 adjusted for inflation. For this purpose, only home purchase or home improvement loans are included and the institution can elect to have the tax years with the highest and lowest lending activity removed from the average calculation. If an institution is permitted to postpone the reserve recapture, it must begin its six year recapture no later than the 1998 tax year. The unrecaptured base year reserves will not be subject to recapture as long as the institution continues to carry on the business of banking. In addition, the balance of the pre-1988 bad debt reserves continue to be subject to provisions of present law referred to below that require recapture in the case of certain excess distributions to shareholders. DISTRIBUTIONS. To the extent that the Savings Bank makes "nondividend distributions" to the Holding Company, such distributions will be considered to result in distributions from the balance of its bad debt reserve as of December 31, 1987 (or a lesser amount if the Savings Bank's loan portfolio decreased since December 31, 1987) and then from the supplemental reserve for losses on loans ("Excess Distributions"), and an amount based on the Excess Distributions will be included in the Savings Bank's taxable income. Nondividend distributions include distributions in excess of the Savings Bank's current and accumulated earnings and profits, distributions in redemption of stock and distributions in partial or complete liquidation. However, dividends paid out of the Savings Bank's current or accumulated earnings and profits, as calculated for federal income tax purposes, will not be considered to result in a distribution from the Savings Bank's bad debt reserve. The amount of additional taxable 83 income created from an Excess Distribution is an amount that, when reduced by the tax attributable to the income, is equal to the amount of the distribution. Thus, if, after the Conversion, the Savings Bank makes a "nondividend distribution," then approximately one and one-half times the Excess Distribution would be includable in gross income for federal income tax purposes, assuming a 34% corporate income tax rate (exclusive of state and local taxes). See "REGULATION" and "DIVIDEND POLICY" for limits on the payment of dividends by the Savings Bank. The Savings Bank does not intend to pay dividends that would result in a recapture of any portion of its tax bad debt reserve. CORPORATE ALTERNATIVE MINIMUM TAX. The Code imposes a tax on alternative minimum taxable income ("AMTI") at a rate of 20%. In addition, only 90% of AMTI can be offset by net operating loss carryovers. AMTI is increased by an amount equal to 75% of the amount by which the Savings Bank's adjusted current earnings exceeds its AMTI (determined without regard to this preference and prior to reduction for net operating losses). For taxable years beginning after December 31, 1986, and before January 1, 1996, an environmental tax of 0.12% of the excess of AMTI (with certain modification) over $2.0 million is imposed on corporations, including the Savings Bank, whether or not an Alternative Minimum Tax is paid. DIVIDENDS-RECEIVED DEDUCTION. The Holding Company may exclude from its income 100% of dividends received from the Savings Bank as a member of the same affiliated group of corporations. The corporate dividends-received deduction is generally 70% in the case of dividends received from unaffiliated corporations with which the Holding Company and the Savings Bank will not file a consolidated tax return, except that if the Holding Company or the Savings Bank owns more than 20% of the stock of a corporation distributing a dividend, then 80% of any dividends received may be deducted. AUDITS. The Savings Bank's federal income tax returns are being audited through September 30, 1996. The Savings Bank does not anticipate any material increase in tax liability as a result of the audit. WASHINGTON TAXATION The Savings Bank is subject to a business and occupation tax imposed under Washington law at the rate of 1.60% of gross receipts. Interest received on loans secured by mortgages or deeds of trust on residential properties is not subject to such tax. 84 THE CONVERSION THE BOARD OF DIRECTORS HAS ADOPTED AND THE DIVISION HAS GIVEN APPROVAL TO THE PLAN OF CONVERSION SUBJECT TO ITS APPROVAL BY THE MEMBERS OF THE SAVINGS BANK ENTITLED TO VOTE ON THE MATTER AND SUBJECT TO THE SATISFACTION OF CERTAIN OTHER CONDITIONS IMPOSED BY THE DIVISION IN ITS APPROVAL. APPROVAL BY THE DIVISION DOES NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE PLAN OF CONVERSION BY THE DIVISION. GENERAL On July 10, 1997, the Board of Directors of the Savings Bank unanimously adopted and on September 11, 1997 and October 23, 1997, unanimously amended, the Plan of Conversion, pursuant to which the Savings Bank will be converted from a Washington-chartered mutual savings bank to a Washington-chartered stock savings bank to be held as a wholly-owned subsidiary of the Holding Company, a newly formed Washington corporation. THE FOLLOWING DISCUSSION OF THE PLAN OF CONVERSION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE PLAN OF CONVERSION, WHICH IS ATTACHED AS EXHIBIT A TO THE SAVINGS BANK'S PROXY STATEMENT AND IS AVAILABLE FROM THE SAVINGS BANK UPON REQUEST. By letter dated __________ __, 1997, the Division has approved the Plan of Conversion, subject to its approval by the members of the Savings Bank entitled to vote on the matter at a special meeting called for that purpose to be held on December 23, 1997, and subject to the satisfaction of certain other conditions imposed by the Division in its approval. Consummation of the Conversion is contingent also upon receipt of the approvals of the Federal Reserve and the Division for the Holding Company to acquire the Savings Bank. Finally, consummation of the Conversion is contingent upon receipt from the FDIC of a final non-objection letter with respect to the transaction. If the Board of Directors of the Savings Bank decides for any reason, such as possible delays resulting from overlapping regulatory processing or policies or conditions which could adversely affect the Savings Bank's or the Holding Company's ability to consummate the Conversion and transact its business as contemplated herein and in accordance with the Savings Bank's operating policies, at any time prior to the issuance of the Common Stock, not to use the holding company form of organization in implementing the Conversion, the Plan of Conversion will be amended to not use the holding company form of organization in the Conversion. In the event that such a decision is made, the Savings Bank will promptly refund all subscriptions or orders received together with accrued interest, withdraw the Holding Company's Registration Statement from the SEC and will take all steps necessary to complete the Conversion and proceed with a new offering without the Holding Company, including filing any necessary documents with the Division. In such event, and provided there is no regulatory action, directive or other consideration upon which basis the Savings Bank determines not to complete the Conversion, the Savings Bank will issue and sell the common stock of the Savings Bank. There can be no assurance that the Division would approve the Conversion if the Savings Bank decided to proceed without the Holding Company. The following description of the Plan of Conversion assumes that a holding company form of organization will be utilized in the Conversion. In the event that a holding company form of organization is not utilized, all other pertinent terms of the Plan of Conversion as described below will apply to the Conversion of the Savings Bank from mutual to stock form of organization and the sale of the Savings Bank's common stock. The Conversion will be accomplished through adoption of Amended Articles of Incorporation and Bylaws to authorize the issuance of capital stock by the Savings Bank. Under the Plan of Conversion, 4,250,000 to 5,750,000 shares of Common Stock are being offered for sale by the Holding Company at the Purchase Price of $10.00 per share. As part of the Conversion, the Savings Bank will issue all of its newly issued common stock (1,000 shares) to the Holding Company in exchange for 50% of the net proceeds from the sale of Common Stock by the Holding Company. The Plan of Conversion provides generally that (i) the Savings Bank will convert from a Washington-chartered mutual savings bank to a Washington- chartered stock savings bank; (ii) the Common Stock will be offered by the Holding Company in the Subscription Offering to persons having Subscription Rights and in the Direct 85 Community Offering to certain members of the general public, with preference given to natural persons and trusts of natural persons residing in the Local Community; (iii) if necessary, shares of Common Stock not subscribed for in the Subscription and Direct Community Offering will be offered to certain members of the general public in a Syndicated Community Offering through a syndicate of registered broker-dealers pursuant to selected dealers agreements; and (iv) the Holding Company will purchase all of the capital stock of the Savings Bank to be issued in connection with the Conversion. The Conversion will be effected only upon completion of the sale of at least $42.5 million of Common Stock to be issued pursuant to the Plan of Conversion. As part of the Conversion, the Holding Company is making a Subscription Offering of its Common Stock to holders of Subscription Rights in the following order of priority: (i) Eligible Account Holders (depositors with $50.00 or more on deposit as of December 31, 1995); (ii) the Savings Bank's ESOP; (iii) Supplemental Eligible Account Holders (depositors with $50.00 or more on deposit as of September 30, 1997); and (iv) Other Members (depositors and borrowers of the Savings Bank as of October 31, 1997). Concurrent with the Subscription Offering and subject to the prior rights of holders of Subscription Rights, the Holding Company is offering the Common Stock for sale to certain members of the general public through a Direct Community Offering. Shares of Common Stock not subscribed in the Subscription and Direct Community Offering may be offered for sale in the Syndicated Community Offering. Regulations require that the Syndicated Community Offering be completed within 45 days after completion of the Subscription Offering unless extended by the Savings Bank or the Holding Company with the approval of the regulatory authorities. If the Syndicated Community Offering is determined not to be feasible, the Board of Directors of the Savings Bank will consult with the regulatory authorities to determine an appropriate alternative method for selling the unsubscribed shares of Common Stock. The Plan of Conversion provides that the Conversion must be completed within 24 months after the date of the approval of the Plan of Conversion by the members of the Savings Bank. No sales of Common Stock may be completed, either in the Subscription, Direct Community or Syndicated Community Offerings, unless the Plan of Conversion is approved by the members of the Savings Bank. The completion of the Offerings, however, is subject to market conditions and other factors beyond the Savings Bank's control. No assurance can be given as to the length of time after approval of the Plan of Conversion at the special meeting that will be required to complete the Director Community or the Syndicated Community Offerings or other sale of the Common Stock. If delays are experienced, significant changes may occur in the estimated pro forma market value of the Holding Company and the Savings Bank, as converted, together with corresponding changes in the net proceeds realized by the Holding Company from the sale of the Common Stock. In the event the Conversion is terminated, the Savings Bank would be required to charge all Conversion expenses against current income. Orders for shares of Common Stock will not be filled until at least 4,250,000 shares of Common Stock have been subscribed for or sold and the Division approves and the FDIC does not object to the final valuation and the Conversion closes. If the Conversion is not completed by _________ __, 1997 (45 days after the last day of the Subscription Offering) and the Division consents to an extension of time to complete the Conversion, subscribers will be given the right to increase, decrease or rescind their subscriptions. Unless an affirmative indication is received from subscribers that they wish to continue to subscribe for shares, the funds will be returned promptly, together with accrued interest at the Savings Bank's passbook rate (3.0% per annum as of the date hereof) from the date payment is received until the funds are returned to the subscriber. If such period is not extended, or in any event, if the conversion is completed, all withdrawal authorizations will be terminated and all funds held will be promptly returned together with accrued interest at the Savings Bank's passbook rate from the date payment is received until the Conversion is terminated. 86 PURPOSES OF CONVERSION The Board of Directors and management believe that the Conversion is in the best interests of the Savings Bank, its members and the communities it serves. The Savings Bank's Board of Directors has formed the Holding Company to serve as a holding company, with the Savings Bank as its subsidiary, upon the consummation of the Conversion. By converting to the stock form of organization, the Holding Company and the Savings Bank will be structured in the form used by holding companies of commercial banks and by a growing number of savings institutions. Management of the Savings Bank believes that the Conversion offers a number of advantages which will be important to the future growth and performance of the Savings Bank. The capital raised in the Conversion is intended to support the Savings Bank's current lending and investment activities and may also support possible future expansion and diversification of operations, although there are no current specific plans, arrangements or understandings, written or oral, regarding any such expansion or diversification. The Conversion is also expected to afford the Savings Bank's members and others the opportunity to become stockholders of the Holding Company and participate more directly in, and contribute to, any future growth of the Holding Company and the Savings Bank. The Conversion will also enable the Holding Company and the Savings Bank to raise additional capital in the public equity or debt markets should the need arise, although there are no current specific plans, arrangements or understandings, written or oral, regarding any such financing activities. EFFECTS OF CONVERSION TO STOCK FORM ON DEPOSITORS AND BORROWERS OF THE SAVINGS BANK GENERAL. Upon the Savings Bank's conversion to stock form, its Articles of Incorporation will be amended to authorize the issuance of capital stock to represent the ownership of the Savings Bank, including its net worth. THE CAPITAL STOCK WILL BE SEPARATE AND APART FROM DEPOSIT ACCOUNTS AND WILL NOT BE INSURED BY THE FDIC OR ANY OTHER GOVERNMENTAL AUTHORITY. Certificates will be issued to evidence ownership of the capital stock. All of the outstanding capital stock of the Savings Bank will be acquired by the Holding Company, which in turn will issue its Common Stock to purchasers in the Conversion. The stock certificates issued by the Holding Company will be transferable and, therefore, subject to applicable law, the stock could be sold or traded if a purchaser is available with no effect on any deposit account the seller may hold at the Savings Bank. VOTING RIGHTS. Savings members and borrowers will have no voting rights in the converted Savings Bank or the Holding Company and therefore will not be able to elect directors of the Savings Bank or the Holding Company or to control their affairs. Currently, these rights are accorded to savings members of the Savings Bank. Subsequent to the Conversion, voting rights will be vested exclusively in the Holding Company with respect to the Savings Bank and the holders of the Common Stock as to matters pertaining to the Holding Company. Each holder of Common Stock shall be entitled to vote on any matter to be considered by the stockholders of the Holding Company. A stockholder will be entitled to one vote for each share of Common Stock owned. SAVINGS ACCOUNTS AND LOANS. The Savings Bank's savings accounts, account balances and existing FDIC insurance coverage of savings accounts will not be affected by the Conversion. Furthermore, the Conversion will not affect the loan accounts, loan balances or obligations of borrowers under their individual contractual arrangements with the Savings Bank. TAX EFFECTS. The Savings Bank has received an opinion from Breyer & Aguggia, Washington, D.C., that the Conversion will constitute a nontaxable reorganization under Section 368(a)(1)(F) of the Code. Among other things, the opinion states that: (i) no gain or loss will be recognized to the Savings Bank in its mutual or stock form by reason of its Conversion; (ii) no gain or loss will be recognized to its account holders upon the issuance to them of accounts in the Savings Bank immediately after the Conversion, in the same dollar amounts and on the same terms and conditions as their accounts at the Savings Bank in its mutual form plus interest in the liquidation account; (iii) the tax basis of account holders' accounts in the Savings Bank immediately after the Conversion will be the same as the tax basis of their accounts immediately prior to Conversion; (iv) the tax basis of each account holder's interest in the liquidation account will be zero; (v) the tax basis of the Common Stock purchased in the Conversion will be the amount paid and the holding period for such stock will commence at the date of purchase; and (vi) no gain or 87 loss will be recognized to account holders upon the receipt or exercise of Subscription Rights in the Conversion, except to the extent Subscription Rights are deemed to have value as discussed below. Unlike a private letter ruling issued by the IRS, an opinion of counsel is not binding on the IRS and the IRS could disagree with the conclusions reached therein. In the event of such disagreement, no assurance can be given that the conclusions reached in an opinion of counsel would be sustained by a court if contested by the IRS. Based upon past rulings issued by the IRS, the opinion provides that the receipt of Subscription Rights by Eligible Account Holders, Supplemental Eligible Account Holders and Other Members under the Plan of Conversion will be taxable to the extent, if any, that the Subscription Rights are deemed to have a fair market value. RP Financial, a financial consulting firm retained by the Savings Bank, whose findings are not binding on the IRS, has indicated that the Subscription Rights do not have any value, based on the fact that such rights are acquired by the recipients without cost, are nontransferable 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 paid by purchasers in the Direct Community Offering for unsubscribed shares of Common Stock. If the Subscription Rights are deemed to have a fair market value, the receipt of such rights may only be taxable to those Eligible Account Holders, Supplemental Eligible Account Holders and Other Members who exercise their Subscription Rights. The Savings Bank could also recognize a gain on the distribution of such Subscription Rights. Eligible Account Holders, Supplemental Eligible Account Holders and Other Members are encouraged to consult with their own tax advisers as to the tax consequences in the event the Subscription Rights are deemed to have a fair market value. The Savings Bank has also received an opinion from Dwyer, Pemberton & Coulson, P.C., Tacoma, Washington, that, assuming the Conversion does not result in any federal income tax liability to the Savings Bank, its account holders, or the Holding Company, implementation of the Plan of Conversion will not result in any Washington income tax liability to such entities or persons. The opinions of Breyer & Aguggia and Dwyer, Pemberton & Coulson, P.C. and the letter from RP Financial are filed as exhibits to the Registration Statement. See "ADDITIONAL INFORMATION." PROSPECTIVE INVESTORS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS REGARDING THE TAX CONSEQUENCES OF THE CONVERSION PARTICULAR TO THEM. LIQUIDATION ACCOUNT. In the unlikely event of a complete liquidation of the Savings Bank in its present mutual form, each depositor in the Savings Bank would receive a pro rata share of any assets of the Savings Bank remaining after payment of claims of all creditors (including the claims of all depositors up to the withdrawal value of their accounts). Each depositor's pro rata share of such remaining assets would be in the same proportion as the value of his deposit account to the total value of all deposit accounts in the Savings Bank at the time of liquidation. After the Conversion when the Savings Bank is in stock form, holders of withdrawable deposit(s) in the Savings Bank, including certificates of deposit ("Savings Account(s)"), shall not be entitled to share in any residual assets in the event of liquidation of the Savings Bank. However, the Savings Bank shall, at the time of the Conversion, establish a liquidation account in an amount equal to its total equity as of the date of the latest statement of financial condition contained herein. The liquidation account shall be a memorandum account on the records of the Savings Bank and there shall be no segregation of assets of the Savings Bank related to it. The liquidation account shall be maintained by the Savings Bank subsequent to the Conversion for the benefit of Eligible Account Holders and Supplemental Eligible Account Holders who retain their Savings Accounts in the Savings Bank. 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 balance ("subaccount"). The initial subaccount balance for a Savings Account held by an Eligible Account Holder or a Supplemental Eligible Account Holder shall be determined by multiplying the opening balance in the liquidation account by a 88 fraction of which the numerator is the amount of such holder's "qualifying deposit" in the Savings Account and the denominator is the total amount of the "qualifying deposits" of all such holders. Such initial subaccount balance shall not be increased, and it 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 at the close of business on any annual closing day of the Savings Bank subsequent to December 31, 1995 or September 30, 1997 is less than the lesser of (i) the deposit balance in such Savings Account at the close of business on any other annual closing date subsequent to December 31, 1995 or September 30, 1997 or (ii) the amount of the "qualifying deposit" in such Savings Account on December 31, 1995 or September 30, 1997, 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, such 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 Savings Bank (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 balance(s) for Savings Account(s) then held by such holder before any liquidation distribution may be made to stockholders. No merger, consolidation, bulk purchase of assets with assumptions of Savings Accounts and other liabilities or similar transactions with another federally insured institution in which the Savings Bank is not the surviving institution shall be considered to be a complete liquidation. In any such transaction the liquidation account shall be assumed by the surviving institution. In the unlikely event the Savings Bank is liquidated after the Conversion, depositors will be entitled to full payment of their deposit accounts before any payment is made to the Holding Company as the sole stockholder of the Savings Bank. THE SUBSCRIPTION, DIRECT COMMUNITY AND SYNDICATED COMMUNITY OFFERINGS SUBSCRIPTION OFFERING. In accordance with the Plan of Conversion, nontransferable Subscription Rights to purchase the Common Stock have been issued to persons and entities entitled to purchase the Common Stock in the Subscription Offering. The amount of the Common Stock which these parties may purchase will be subject to the availability of the Common Stock for purchase under the categories set forth in the Plan of Conversion. Subscription priorities have been established for the allocation of stock to the extent that the Common Stock is available. These priorities are as follows: Category 1: Eligible Account Holders. Each depositor with $50.00 or more on deposit at the Savings Bank as of December 31, 1995 will receive nontransferable Subscription Rights to subscribe for up to the greater of $200,000 of Common Stock, one-tenth of one percent of the total offering of Common Stock or 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. If the exercise of Subscription Rights in this category results in an oversubscription, shares of Common Stock will be allocated among subscribing Eligible Account Holders so as to permit each Eligible Account Holder, to the extent possible, to purchase a number of shares sufficient to make such person's total allocation equal 100 shares or the number of shares actually subscribed for, whichever is less. Thereafter, unallocated shares will be allocated among subscribing Eligible Account Holders proportionately, based on the amount of their respective qualifying deposits as compared to total qualifying deposits of all Eligible Account Holders. Subscription Rights received by officers and directors in this category based on their increased deposits in the Savings Bank in the one year period preceding December 31, 1995 are subordinated to the Subscription Rights of other Eligible Account Holders. 89 Category 2: ESOP. The Plan of Conversion provides that the ESOP shall receive nontransferable Subscription Rights to purchase up to 10% of the shares of Common Stock issued in the Conversion. The ESOP intends to purchase 8% of the shares of Common Stock issued in the Conversion. Category 3: Supplemental Eligible Account Holders. Each depositor with $50.00 or more on deposit as of September 30, 1997 will receive nontransferable Subscription Rights to subscribe for up to the greater of $200,000 of Common Stock, one-tenth of one percent of the total offering of Common Stock or 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 qualifying deposits of the Supplemental Eligible Account Holder and the denominator is the total amount of qualifying deposits of all Supplemental Eligible Account Holders. If the exercise of Subscription Rights in this category results in an oversubscription, shares of Common Stock will be allocated among subscribing Supplemental Eligible Account Holders so as to permit each Supplemental Eligible Account Holder, to the extent possible, to purchase a number of shares sufficient to make his total allocation equal 100 shares or the number of shares actually subscribed for, whichever is less. Thereafter, unallocated shares will be allocated among subscribing Supplemental Eligible Account Holders proportionately, based on the amount of their respective qualifying deposits as compared to total qualifying deposits of all Supplemental Eligible Account Holders. Category 4: Other Members. Each depositor of the Savings Bank as of the Voting Record Date (October 31, 1997) will receive nontransferable Subscription Rights to purchase up to $200,000 of Common Stock in the Conversion to the extent shares are available following subscriptions by Eligible Account Holders, the Savings Bank's ESOP and Supplemental Eligible Account Holders. In the event of an oversubscription in this category, the available shares will be allocated proportionately based on the amount of the respective subscriptions. SUBSCRIPTION RIGHTS ARE NONTRANSFERABLE. PERSONS SELLING OR OTHERWISE TRANSFERRING THEIR RIGHTS TO SUBSCRIBE FOR COMMON STOCK IN THE SUBSCRIPTION OFFERING OR SUBSCRIBING FOR COMMON STOCK ON BEHALF OF ANOTHER PERSON WILL BE SUBJECT TO FORFEITURE OF SUCH RIGHTS AND POSSIBLE FURTHER SANCTIONS AND PENALTIES IMPOSED BY THE DIVISION OR ANOTHER AGENCY OF THE U.S. GOVERNMENT. EACH PERSON EXERCISING SUBSCRIPTION RIGHTS WILL BE REQUIRED TO CERTIFY THAT HE OR SHE IS PURCHASING SUCH SHARES SOLELY FOR HIS OR HER OWN ACCOUNT AND THAT HE OR SHE HAS NO AGREEMENT OR UNDERSTANDING WITH ANY OTHER PERSON FOR THE SALE OR TRANSFER OF SUCH SHARES. ONCE TENDERED, SUBSCRIPTION ORDERS CANNOT BE REVOKED WITHOUT THE CONSENT OF THE SAVINGS BANK AND THE HOLDING COMPANY. The Holding Company and the Savings Bank will make reasonable attempts to provide a Prospectus and related offering materials to holders of Subscription Rights. However, the Subscription Offering and all Subscription Rights under the Plan of Conversion will expire at 5:00 p.m., Pacific Time, on the Expiration Date, whether or not the Savings Bank has been able to locate each person entitled to such Subscription Rights. ORDERS FOR COMMON STOCK IN THE SUBSCRIPTION OFFERING RECEIVED IN HAND BY THE SAVINGS BANK AFTER THE EXPIRATION DATE WILL NOT BE ACCEPTED. The Subscription Offering may be extended by the Holding Company and the Savings Bank up to ______ __ , 1997 without the Division's approval. Regulations of the Division require that the Holding Company complete the sale of Common Stock within 45 days after the close of the Subscription Offering. If the Direct Community Offering and the Syndicated Community Offerings are not completed by _____ __, 1997 (or ______ __, 1997, if the Subscription Offering is fully extended), all funds received will be promptly returned with interest at the Savings Bank's passbook rate (3.0% per annum as of the date hereof) and all withdrawal authorizations will be canceled or, if regulatory approval of an extension of the time period has been granted, all subscribers and purchasers will be given the right to increase, decrease or rescind their orders. If an extension of time is obtained, all subscribers will be notified of such extension and of the duration of any extension that has been granted, and will be given the right to increase, decrease or rescind their orders. If an affirmative response to any resolicitation is not received by the Holding Company from a subscriber, the subscriber's order will be rescinded and all funds received will be promptly returned with interest (or withdrawal authorizations will be canceled). No single extension can exceed 90 days. 90 DIRECT COMMUNITY OFFERING. Concurrently with the Subscription Offering, the Holding Company is offering shares of the Common Stock to certain members of the general public in a Direct Community Offering, with preference given to natural persons and trusts of natural persons residing in the Local Community. Purchasers in the Direct Community Offering are eligible to purchase up to $200,000 of Common Stock in the Conversion. In the event an insufficient number of shares are available to fill orders in the Direct Community Offering, the available shares will be allocated on a pro rata basis determined by the amount of the respective orders. Orders for the Common Stock in the Direct Community Offering will be filled to the extent such shares remain available after the satisfaction of all orders received in the Subscription Offering. The Direct Community Offering may terminate on or at any time subsequent to the Expiration Date, but no later than 45 days after the close of the Subscription Offering, unless extended by the Holding Company and the Savings Bank, with approval of the Division. Any extensions beyond 45 days after the close of the fully extended Subscription Offering would require a resolicitation of orders, wherein subscribers for the maximum numbers of shares of Common Stock would be, and certain other large Subscribers in the discretion of the Holding Company and the Savings Bank may be, given the opportunity to continue their orders, in which case they will need to reconfirm affirmatively their subscriptions prior to the expiration of the resolicitation offering or their subscription funds will be promptly refunded with interest at the Savings Bank's passbook rate, or be permitted to modify or cancel their orders. THE RIGHT OF ANY PERSON TO PURCHASE SHARES IN THE DIRECT COMMUNITY OFFERING IS SUBJECT TO THE ABSOLUTE RIGHT OF THE HOLDING COMPANY AND THE SAVINGS BANK TO ACCEPT OR REJECT SUCH PURCHASES IN WHOLE OR IN PART. IF AN ORDER IS REJECTED IN PART, THE PURCHASER DOES NOT HAVE THE RIGHT TO CANCEL THE REMAINDER OF THE ORDER. THE HOLDING COMPANY PRESENTLY INTENDS TO TERMINATE THE DIRECT COMMUNITY OFFERING AS SOON AS IT HAS RECEIVED ORDERS FOR ALL SHARES AVAILABLE FOR PURCHASE IN THE CONVERSION. If all of the Common Stock offered in the Subscription Offering is subscribed for, no Common Stock will be available for purchase in the Direct Community Offering. SYNDICATED COMMUNITY OFFERING. The Plan provides that shares of Common Stock not purchased in the Subscription and Direct Community Offering, if any, may be offered for sale to certain members of the general public in a Syndicated Community Offering through a syndicate of registered broker-dealers to be managed by Webb acting as agent of the Holding Company. THE HOLDING COMPANY AND THE SAVINGS BANK HAVE THE RIGHT TO REJECT ORDERS, IN WHOLE OR PART, IN THEIR SOLE DISCRETION IN THE SYNDICATED COMMUNITY OFFERING. IF AN ORDER IS REJECTED IN PART, THE PURCHASER DOES NOT HAVE THE RIGHT TO CANCEL THE REMAINDER OF THE ORDER. Neither Webb nor any registered broker-dealer shall have any obligation to take or purchase any shares of the Common Stock in the Syndicated Community Offering; however, Webb has agreed to use its best efforts in the sale of shares in the Syndicated Community Offering. Stock sold in the Syndicated Community Offering will be sold at the $10.00 Purchase Price, the same price as all other shares in the Offerings. See "-- Stock Pricing and Number of Shares to be Issued." No person, together with any associate or group of persons acting in concert, will be permitted to subscribe in the Syndicated Community Offering for shares of Common Stock with an aggregate purchase price of more than $200,000. See "-- Plan of Distribution for the Subscription, Direct Community and Syndicated Community Offerings" for a description of the commission to be paid to any selected dealers and to Webb. Webb may enter into agreements with selected dealers to assist in the sale of shares in 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 Holding Company as of a certain date ("Order Date") for the purchase of shares of Conversion Stock. When and if Webb and the Holding Company believe that enough indications of interest and orders have been received in the Subscription Offering, the Direct Community Offering and the Syndicated Community Offering to consummate the Conversion, Webb 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 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 91 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 Holding Company established for each selected dealer. Each customer's funds so forwarded to the Holding Company, along with all other accounts held in the same title, will be insured by the FDIC up to the applicable $100,000 legal limit. After payment has been received by the Holding Company from selected dealers, funds will earn interest at the Savings Bank's passbook rate (3.0% per annum as of the date hereof) until the completion of the Offerings. At the consummation of the Conversion the funds received in the Offerings will be used to purchase the shares of Common Stock ordered. The shares of Common Stock issued in the Conversion cannot and will not be insured by the FDIC or any other government agency. 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 their customers' brokerage accounts. The Syndicated Community Offering may close as early as 5:00 p.m., Pacific Time, on ________ __, 1997, the Expiration Date, or any date thereafter at the discretion of the Holding Company. The Syndicated Community Offering will terminate no more than 45 days following the Expiration Date, unless extended by the Holding Company with any required regulatory approval, but in no case later than ______ __, 1997. The Syndicated Community Offering may run concurrent to the Subscription and Direct Community Offering or subsequent thereto. In the event the Savings Bank is unable to find purchasers from the general public for all unsubscribed shares, other purchase arrangements will be made by the Board of Directors of the Savings Bank, if feasible. Such other arrangements will be subject to the approval of the Division. The Division may grant one or more extensions of the offering period, provided that (i) no single extension exceeds 90 days, (ii) subscribers are given the right to increase, decrease or rescind their subscriptions during the extension period, and (iii) the extensions do not go more than two years beyond the date on which the members approved the Plan. If the Conversion is not consummated by ___________, 1997 (or, if the Offerings are fully extended, by ___________, 1997), either all funds received will be returned with interest (and withdrawal authorizations canceled) or, if the Division has granted an extension of such period, all subscribers will be given the right to increase, decrease or rescind their subscriptions at any time prior to 20 days before the end of the extension period. If an extension of time is obtained, all subscribers will be notified of such extension and of their rights to modify their orders. If an affirmative response to any resolicitation is not received by the Holding Company from a subscriber, the subscriber's order will be rescinded and all funds received will be promptly returned with interest (or withdrawal authorizations will be canceled). No single extension can exceed 90 days. PERSONS IN NON-QUALIFIED STATES. The Holding Company and the Savings Bank will make reasonable efforts to comply with the securities laws of all states in the United States in which persons entitled to subscribe for stock pursuant to the Plan of Conversion reside. However, the Holding Company and the Savings Bank are not required to offer stock in the Subscription Offering to any person who resides in a foreign country or resides in a state of the United States with respect to which (i) a small number of persons otherwise eligible to subscribe for shares of Common Stock reside in such state or (ii) the Holding Company or the Savings Bank determines that compliance with the securities laws of such state would be impracticable for reasons of cost or otherwise, including but not limited to a request or requirement that the Holding Company and the Savings Bank or their officers, directors or trustees register as a broker, dealer, salesman or selling agent, under the securities laws of such state, or a request or requirement to register or otherwise qualify the Subscription Rights or Common Stock for sale or submit any filing with respect thereto in such state. Where the number of persons eligible to subscribe for shares in one state is small, the Holding Company and the Savings Bank will base their decision as to whether or not to offer the Common Stock in such state on a number of factors, including the size of accounts held by account holders in the state, the cost of reviewing the registration and qualification requirements of the state (and of actually registering or qualifying the shares) or the need to register the Holding Company, its officers, directors or employees as brokers, dealers or salesmen. 92 PLAN OF DISTRIBUTION FOR THE SUBSCRIPTION, DIRECT COMMUNITY AND SYNDICATED COMMUNITY OFFERINGS The Holding Company and the Savings Bank have retained Webb to consult with and to advise the Savings Bank and the Holding Company, and to assist the Holding Company on a best efforts basis, in the distribution of the shares of Common Stock in the Subscription and Community Offering. The services that Webb will provide include, but are not limited to (i) training the employees of the Savings Bank who will perform certain ministerial functions in the Subscription and Community Offering regarding the mechanics and regulatory requirements of the stock offering process, (ii) managing the Stock Information Center by assisting interested stock subscribers and by keeping records of all stock orders, (iii) preparing marketing materials, and (iv) assisting in the solicitation of proxies from the Savings Bank's members for use at the Special Meeting. For its services, Webb will receive a management fee of $25,000 and a success fee of 1.25% of the aggregate Purchase Price of the shares of Common Stock sold in the Subscription and Direct Community Offerings, excluding shares purchased by the ESOP and officers and directors of the Savings Bank. Webb's management fee shall be applied to its success fee, and the success fee shall not exceed $500,000. In the event that selected dealers are used to assist in the sale of shares of Common Stock in the Community Offering, such dealers will be paid a fee of up to 5.5% of the aggregate Purchase Price of the shares sold by such dealers. The Holding Company and the Savings Bank have agreed to reimburse Webb for its out-of-pocket expenses, and its legal fees up to a total of $35,000, and to indemnify Webb against certain claims or liabilities, including certain liabilities under the Securities Act, and will contribute to payments Webb may be required to make in connection with any such claims or liabilities. Sales of shares of Common Stock will be made primarily by registered representatives affiliated with Webb or by the broker-dealers managed by Webb. A Stock Information Center will be established at the main office of the Savings Bank. The Holding Company will rely on Rule 3a4-1 of the Exchange Act and sales of Common Stock will be conducted within the requirements of such Rule, so as to permit officers, directors and employees to participate in the sale of the Common Stock in those states where the law so permits. No officer, director or employee of the Holding Company or the Savings Bank will be compensated directly or indirectly by the payment of commissions or other remuneration in connection with his or her participation in the sale of Common Stock. DESCRIPTION OF SALES ACTIVITIES The Common Stock will be offered in the Subscription and Direct Community Offering principally by the distribution of this Prospectus and through activities conducted at the Savings Bank's Stock Information Center at its office facility. The Stock Information Center is expected to operate during normal business hours throughout the Subscription and Direct Community Offering. It is expected that at any particular time, one or more Webb employees will be working at the Stock Information Center. Such employees of Webb will be responsible for mailing materials relating to the Subscription and Direct Community Offering, responding to questions regarding the Conversion and the Subscription and Direct Community Offering and processing stock orders. Sales of Common Stock will be made by registered representatives affiliated with Webb or by the selected dealers managed by Webb. The management and employees of the Savings Bank may participate in the Offerings in clerical capacities, providing administrative support in effecting sales transactions or, when permitted by state securities laws, answering questions of a mechanical nature relating to the proper execution of the Order Form. Management of the Savings Bank may answer questions regarding the business of the Savings Bank when permitted by state securities laws. Other questions of prospective purchasers, including questions as to the advisability or nature of the investment, will be directed to registered representatives. The management and employees of the Savings Bank have been instructed not to solicit offers to purchase Common Stock or provide advice regarding the purchase of Common Stock. No officer, director or employee of the Savings Bank or the Holding Company will be compensated, directly or indirectly, for any activities in connection with the offer or sale of securities issued in the Conversion. 93 None of the Savings Bank's personnel participating in the Subscription and Direct Community Offering is registered or licensed as a broker or dealer or an agent of a broker or dealer. The Savings Bank's personnel will assist in the above-described sales activities pursuant to an exemption from registration as a broker or dealer provided by Rule 3a4-1 ("Rule 3a4-1") promulgated under the Exchange Act. Rule 3a4-1 generally provides that an "associated person of an issuer" of securities shall not be deemed a broker solely by reason of participation in the sale of securities of such issuer if the associated person meets certain conditions. Such conditions include, but are not limited to, that the associated person participating in the sale of an issuer's securities not be compensated in connection therewith at the time of participation, that such person not be associated with a broker or dealer and that such person observe certain limitations on his participation in the sale of securities. For purposes of this exemption, "associated person of an issuer" is defined to include any person who is a director, officer or employee of the issuer or a company that controls, is controlled by or is under common control with the issuer. PROCEDURE FOR PURCHASING SHARES IN THE SUBSCRIPTION AND DIRECT COMMUNITY OFFERING To ensure that each purchaser receives a prospectus at least 48 hours prior to the Expiration Date in accordance with Rule 15c2-8 under the Exchange Act, no Prospectus will be mailed any later than five days prior to such date or hand delivered any later than two days prior to such date. Execution of the Order Form will confirm receipt or delivery in accordance with Rule 15c2-8. Order Forms will only be distributed with a Prospectus. The Savings Bank will accept for processing only orders submitted on Order Forms. To purchase shares in the Subscription and Direct Community Offering, an executed Order Form with the required payment for each share subscribed for, or with appropriate authorization for withdrawal from the subscriber's deposit account with the Savings Bank (which may be given by completing the appropriate blanks in the Order Form), must be received by the Savings Bank by 5:00 p.m., Pacific Time, on the Expiration Date. Order Forms which are not received by such time or are executed defectively or are received without full payment (or appropriate withdrawal instructions) are not required to be accepted. In addition, the Savings Bank is not obligated to accept orders submitted on photocopied or telecopied Order Forms. The Holding Company and the Savings Bank have the right to waive or permit the correction of incomplete or improperly executed Order Forms, but do not represent that they will do so. PURSUANT TO THE PLAN OF CONVERSION, THE INTERPRETATION BY THE HOLDING COMPANY AND THE SAVINGS BANK OF THE TERMS AND CONDITIONS OF THE PLAN OF CONVERSION AND OF THE ORDER FORM WILL BE FINAL. Once received, an executed Order Form may not be modified, amended or rescinded without the consent of the Savings Bank unless the Conversion has not been completed within 45 days after the end of the Subscription Offering, unless such period has been extended. In order to ensure that Eligible Account Holders, Supplemental Eligible Account Holders and Other Members are properly identified as to their stock purchase priorities, depositors as of the Eligibility Record Date (December 31, 1995) and/or the Supplemental Eligibility Record Date (September 30, 1997) and/or the Voting Record Date (October 31, 1997) must list all accounts on the Order Form giving all names in each account, the account number and the approximate account balance as of such date. Payment for subscriptions may be made (i) in cash if delivered in person at the Savings Bank, (ii) by check, bank draft, or money order, or (iii) by authorization of withdrawal from deposit accounts maintained with the Savings Bank. Appropriate means by which such withdrawals may be authorized are provided on the Order Form. No wire transfers will be accepted. Interest will be paid on payments made by cash, check, bank draft or money order at the Savings Bank's passbook rate (3.0% per annum as of the date hereof) from the date payment is received until the completion or termination of the Conversion. Such interest checks will be mailed at the completion of the Conversion in payment of interest earned on subscription funds. If payment is made by authorization of withdrawal from deposit accounts, the funds authorized to be withdrawn from a deposit account will continue to accrue interest at the contractual rates until completion or termination of the Conversion (unless the certificate matures after the date of receipt of the Order Form but prior to closing, in which case funds will earn interest at the passbook rate from the date of maturity until consummation of the Conversion), but a hold will be placed on such funds, thereby making them unavailable to the depositor until completion or termination of the Conversion. At the completion of the 94 Conversion the funds received in the Offerings will be used to purchase the shares of Common Stock ordered. THE SHARES ISSUED IN THE CONVERSION CANNOT AND WILL NOT BE INSURED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY. In the event that the Conversion is not consummated for any reason, all funds submitted will be promptly refunded with interest as described above. If a subscriber authorizes the Savings Bank to withdraw the amount of the Purchase Price from his deposit account, the Savings Bank will do so as of the effective date of Conversion. The Savings Bank will waive any applicable penalties for early withdrawal from certificate accounts. If the remaining balance in a certificate account is reduced below the applicable minimum balance requirement at the time that the funds actually are transferred under the authorization the certificate will be canceled at the time of the withdrawal, without penalty, and the remaining balance will earn interest at the Savings Bank's passbook rate. If the ESOP subscribes for shares during the Subscription Offering, the ESOP will not be required to pay for the shares subscribed for at the time it subscribes, but rather may pay for such shares of Common Stock subscribed for at the Purchase Price upon consummation of the Conversion, provided that there is in force from the time of its subscription until such time, a loan commitment from an unrelated financial institution or the Holding Company to lend to the ESOP, at such time, the aggregate Purchase Price of the shares for which it subscribed. IRAs maintained in the Savings Bank do not permit investment in the Common Stock. A depositor interested in using his or her IRA funds to purchase Common Stock must do so through a self-directed IRA. Since the Savings Bank does not offer such accounts, it will allow such a depositor to make a trustee-to-trustee transfer of the IRA funds to a trustee offering a self-directed IRA program with the agreement that such funds will be used to purchase the Common Stock in the Offerings. There will be no early withdrawal or IRS interest penalties for such transfers. The new trustee would hold the Common Stock in a self-directed account in the same manner as the Savings Bank now holds the depositor's IRA funds. An annual administrative fee may be payable to the new trustee. Depositors interested in using funds in an Savings Bank IRA to purchase Common Stock should contact the Stock Information Center at the Savings Bank as soon as possible so that the necessary forms may be forwarded for execution and returned prior to the Expiration Date. In addition, the provisions of ERISA and IRS regulations require that officers, directors and 10% shareholders who use self- directed IRA funds to purchase shares of Common Stock in the Subscription and Direct Community Offering make such purchases for the exclusive benefit of IRAs. Certificates representing shares of Common Stock purchased, and any refund due, will be mailed to purchasers at such address as may be specified in properly completed Order Forms to or the last address of such persons appearing on the records of the Savings Bank as soon as practicable following consummation of the sale of all shares of Common Stock. Any certificates returned as undeliverable will be disposed of in accordance with applicable law. Until certificates for the Common Stock are available and delivered to subscribers and purchasers, subscribers and purchasers may not be able to sell the shares of Common Stock for which they subscribed or purchased. STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED The Purchase Price of shares of the Common Stock sold in the Subscription Offering, Community Offering and Syndicated Community Offering was determined by the Boards of Directors of the Holding Company and the Savings Bank in consultation with the Savings Bank's financial advisor and sales agent, Webb, and was based upon a number of factors, including the market price per share of the stock of other financial institutions. The Washington regulations governing conversion of Washington-chartered mutual savings banks to stock form require that the aggregate purchase price of the shares of Common Stock of the Holding Company sold in connection with the Conversion be equal to not less than the minimum, nor more than the maximum, of the Estimated Valuation Range which is established by an independent appraisal in the Conversion and is described below; provided however, that with the consent of the Division and the FDIC, the aggregate purchase price of the Common Stock sold may be increased to up to 15% above the maximum of the Estimated Valuation Range, without a resolicitation of subscribers 95 or any right to cancel, rescind or change subscription orders, to reflect changes in market and financial conditions following commencement of the Subscription Offering. FDIC rules with respect to the appraisal require that the independent appraisal must include a complete and detailed description of the elements of the appraisal report, justification for the methodology employed and sufficient support for the conclusions reached. The appraisal report must include a full discussion of each peer group member and documented analytical evidence supporting variances from peer group statistics. The appraisal report must also include a complete analysis of the converting institution's pro forma earnings, which should include the institution's full potential once it fully deploys the capital from the conversion pursuant to its business plan. The Savings Bank and the Holding Company have retained RP Financial to prepare an appraisal of the pro forma market value of the common stock of the Holding Company to be issued in connection with the Conversion, as well as a business plan. RP Financial will receive a fee expected to total approximately $27,500 for its appraisal services and preparation of a business plan, plus reasonable out-of-pocket expenses incurred in connection with the appraisal. The Savings Bank has agreed to indemnify RP Financial under certain circumstances against liabilities and expenses (including legal fees) arising out of, related to, or based upon the Conversion. RP Financial has prepared an appraisal of the estimated pro forma market value of the Savings Bank as converted taking into account the formation of the Holding Company as the holding company for the Savings Bank. For its analysis, RP Financial undertook substantial investigations to learn about the Savings Bank's business and operations. Management supplied financial information, including annual financial statements, information on the composition of assets and liabilities, and other financial schedules. In addition to this information, RP Financial reviewed the Savings Bank's Application to Convert a Mutual Savings Bank to a Stock Owned Savings Bank and the Holding Company's Form S-1 Registration Statement. Further, RP Financial visited the Savings Bank's facilities and had discussions with the Savings Bank's management and its special conversion legal counsel, Breyer & Aguggia. No detailed individual analysis of the separate components of the Holding Company's or the Savings Bank's assets and liabilities was performed in connection with the evaluation. In estimating the pro forma market value of the Holding Company's Common Stock, as required by applicable regulatory guidelines, RP Financial's analysis utilized three selected valuation procedures, the Price/Book ("P/B") method, the Price/Earnings ("P/E") method, and Price/Assets ("P/A") method, all of which are described in its report. RP Financial placed the greatest emphasis on the P/E and P/B methods in estimating pro forma market value. In applying these procedures, RP Financial reviewed among other factors, the economic make-up of the Savings Bank's primary market area, the Savings Bank's financial performance and condition in relation to publicly-traded institutions that RP Financial deemed comparable to the Savings Bank, the specific terms of the offering of the Holding Company's Common Stock, the pro forma impact of the additional capital raised in the Conversion, conditions of securities markets in general, and the market for thrift institution common stock in particular. RP Financial's analysis provides an approximation of the pro forma market value of the Holding Company's Common Stock based on the valuation methods applied and the assumptions outlined in its report. Included in its report were certain assumptions as to the pro forma earnings of the Holding Company after the Conversion that were utilized in determining the appraised value. These assumptions included expenses of $965,000 at the midpoint of the Estimated Valuation Range, an assumed after-tax rate of return on the net conversion proceeds of 4.64% for the year ended September 30, 1996 and 4.60% for the nine months ended June 30, 1997, purchases by the ESOP of 8% of the Common Stock sold in the Conversion and purchases in the open market by the MRP of a number of shares equal to 4% of the Common Stock sold in the Conversion at the Purchase Price. See "PRO FORMA DATA" for additional information concerning these assumptions. The use of different assumptions may yield somewhat different results. On the basis of the foregoing, RP Financial has advised the Holding Company and the Savings Bank that, in its opinion, as of August 29, 1997, the aggregate estimated pro forma market value of the Holding Company and, therefore, the Common Stock was within the valuation range of $42.5 million to $57.5 million with a midpoint of $50.0 million. After reviewing the methodology and the assumptions used by RP Financial in the preparation of the 96 appraisal, the Board of Directors established the Estimated Valuation Range which is equal to the valuation range of $42.5 million to $57.5 million with a midpoint of $50.0 million. Assuming that the shares are sold at $10.00 per share in the Conversion, the estimated number of shares would be between 4,250,000 and 5,750,000 with a midpoint of 5,000,000 shares. The Purchase Price of $10.00 was determined by discussion among the Boards of Directors of the Savings Bank and the Holding Company and Webb, taking into account, among other factors (i) the requirement under Washington regulations that the Common Stock be offered in a manner that will achieve the widest distribution of the stock and (ii) desired liquidity in the Common Stock subsequent to the Conversion. Since the outcome of the Offerings relate in large measure to market conditions at the time of sale, it is not possible to determine the exact number of shares that will be issued by the Holding Company at this time. The Estimated Valuation Range may be amended, with the approval of the Division, if necessitated by developments following the date of such appraisal in, among other things, market conditions, the financial condition or operating results of the Savings Bank, regulatory guidelines or national or local economic conditions. RP Financial's appraisal report is filed as an exhibit to the Registration Statement. A copy of the appraisal is also available for inspection at the Savings Bank. See "ADDITIONAL INFORMATION." If, upon completion of the Subscription and Direct Community Offering, at least the minimum number of shares are subscribed for, RP Financial, after taking into account factors similar to those involved in its prior appraisal, will determine its estimate of the pro forma market value of the Savings Bank and the Holding Company upon Conversion, as of the close of the Subscription and Direct Community Offering. No sale of the shares will take place unless prior thereto RP Financial confirms to the Division and the FDIC that, to the best of RP Financial's knowledge and judgment, nothing of a material nature has occurred which would cause it to conclude that the actual total purchase price on an aggregate basis was incompatible with its estimate of the total pro forma market value of the Holding Company and the Savings Bank as converted at the time of the sale. If, however, the facts do not justify such a statement, the Subscription, Direct Community and Syndicated Community Offerings or other sale may be canceled, a new Estimated Valuation Range and price per share set and new Subscription, Direct Community and Syndicated Community Offerings held. Under such circumstances, subscribers would have the right to modify or rescind their subscriptions and to have their subscription funds returned promptly with interest and holds on funds authorized for withdrawal from deposit accounts would be released or reduced. Depending upon market and financial conditions, the number of shares issued may be more or less than the range in number of shares shown above. In the event the total amount of shares issued is less than 4,250,000 or more than 6,612,500 (15% above the maximum of the Estimated Valuation Range), for aggregate gross proceeds of less than $42.5 million or more than $66.1 million, subscription funds will be returned promptly with interest to each subscriber unless he indicates otherwise. In the event a new valuation range is established by RP Financial, such new range will be subject to approval by the Division. If purchasers cannot be found for an insignificant residue of unsubscribed shares from the general public, other purchase arrangements will be made by the Boards of Directors of the Savings Bank and the Holding Company, if possible. Such other purchase arrangements will be subject to the approval of the Division and may provide for purchases for investment purposes by directors, officers, their associates and other persons in excess of the limitations provided in the Plan of Conversion and in excess of the proposed director purchases set forth herein, although no such purchases are currently intended. If such other purchase arrangements cannot be made, the Plan of Conversion will terminate. In formulating its appraisal, RP Financial relied upon the truthfulness, accuracy and completeness of all documents the Savings Bank furnished it. RP Financial also considered financial and other information from regulatory agencies, other financial institutions, and other public sources, as appropriate. While RP Financial believes this information to be reliable, RP Financial does not guarantee the accuracy or completeness of such information and did not independently verify the financial statements and other data provided by the Savings Bank and the 97 Holding Company or independently value the assets or liabilities of the Holding Company and the Savings Bank. THE APPRAISAL BY RP FINANCIAL IS NOT INTENDED TO BE, AND MUST NOT BE INTERPRETED AS, A RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF VOTING TO APPROVE THE CONVERSION OR OF PURCHASING SHARES OF COMMON STOCK. MOREOVER, BECAUSE THE APPRAISAL IS NECESSARILY BASED ON MANY FACTORS WHICH CHANGE FROM TIME TO TIME, THERE IS NO ASSURANCE THAT PERSONS WHO PURCHASE SUCH SHARES IN THE CONVERSION WILL LATER BE ABLE TO SELL SHARES THEREAFTER AT PRICES AT OR ABOVE THE PURCHASE PRICE. LIMITATIONS ON PURCHASES OF SHARES The Plan of Conversion provides for certain limitations to be placed upon the purchase of Common Stock by eligible subscribers and others in the Conversion. Each subscriber must subscribe for a minimum of 25 shares. With the exception of the ESOP, which is expected to subscribe for 8% of the shares of Common Stock issued in the Conversion, the Plan of Conversion provides for the following purchase limitations: (i) No Eligible Account Holder, Supplemental Eligible Account Holder or Other Member, including, in each case, all persons on a joint account, may purchase shares of Common Stock with an aggregate purchase price of more than $200,000 (20,000 shares based on the Purchase Price), (ii) no person, either alone or together with associates of or persons acting in concert with such person, may purchase in either the Direct Community Offering, if any, or in the Syndicated Community Offering, if any, shares of Common Stock with an aggregate purchase price of more than $200,000 (20,000 shares based on the Purchase Price), and (iii) no person, either alone or together with associates of or persons acting in concert with such person, may purchase in the aggregate more than the overall maximum purchase limitation of 1% of the total number of shares of Common Stock issued in the Conversion (exclusive of any shares issued pursuant to an increase in the Estimated Valuation Range of up to 15%). For purposes of the Plan of Conversion, the directors are not deemed to be acting in concert solely by reason of their Board membership. Pro rata reductions within each Subscription Rights category will be made in allocating shares to the extent that the maximum purchase limitations are exceeded. The Savings Bank's and the Holding Company's Boards of Directors may, in their sole discretion, increase the maximum purchase limitation set forth above up to 9.99% of the shares of Common Stock sold in the Conversion, provided that orders for shares which exceed 5% of the shares of Common Stock sold in the Conversion may not exceed, in the aggregate, 10% of the shares sold in the Conversion. The Savings Bank and the Holding Company do not intend to increase the maximum purchase limitation unless market conditions are such that an increase in the maximum purchase limitation is necessary to sell a number of shares in excess of the minimum of the Estimated Valuation Range. If the Boards of Directors decide to increase the purchase limitation, all persons who subscribed for the maximum number of shares will be given the opportunity to increase their subscriptions accordingly, subject to the rights and preferences of any person who has priority Subscription Rights. 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. In general, a person who acts in concert with another party shall also be deemed to be acting in concert with any person who is also acting in concert with that other party. The term "associate" of a person is defined in the Plan of Conversion to mean (i) any corporation or organization (other than the Savings Bank or a majority-owned subsidiary of the Savings Bank, 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 (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 Savings Bank, its subsidiary, or the Holding Company. For example, a corporation of which a person serves as an officer would be an associate of such person, 98 and, therefore, all shares purchased by such corporation would be included with the number of shares which such person could purchase individually under the above limitations. The term "officer" is defined in the Plan of Conversion to mean an executive officer of the Savings Bank, including its Chairman of the Board, President, Executive Vice Presidents, Senior Vice Presidents, Vice Presidents in charge of principal business functions, the Secretary and Treasurer as well as any other person performing similar functions. Common Stock purchased pursuant to the Conversion will be freely transferable, except for shares purchased by directors and officers of the Savings Bank and the Holding Company and by NASD members. See "--Restrictions on Transferability by Directors and Officers and NASD Members." RESTRICTIONS ON TRANSFERABILITY BY DIRECTORS AND OFFICERS AND NASD MEMBERS Shares of Common Stock purchased by directors and officers of the Holding Company may not be sold for a period of one year following completion of the Conversion, except in the event of the death of the stockholder or in any exchange of the Common Stock in connection with a merger or acquisition of the Holding Company. Shares of Common Stock received by directors or officers upon exercise of options issued pursuant to the Stock Option Plan are not subject to this restriction. Accordingly, shares of Common Stock issued by the Holding Company to directors and officers shall bear a legend giving appropriate notice of the restriction, and, in addition, the Holding Company will give appropriate instructions to the transfer agent for the Holding Company's Common Stock with respect to the restriction on transfers. Any shares issued to directors and officers as a stock dividend, stock split or otherwise with respect to restricted Common Stock shall be subject to the same restrictions. Purchases of outstanding shares of Common Stock of the Holding Company by directors, executive officers (or any person who was an executive officer or director of the Savings Bank after adoption of the Plan of Conversion) and their associates during the three-year period following Conversion may be made only through a broker or dealer registered with the SEC, except with the prior written approval of the Division. This restriction does not apply, however, to negotiated transactions involving more than 1% of the Holding Company's outstanding Common Stock or to the purchase of stock pursuant to the Stock Option Plan. The Holding Company has filed with the SEC a Registration Statement under the Securities Act for the registration of the Common Stock to be issued pursuant to the Conversion. The registration under the Securities Act of shares of the Common Stock to be issued in the Conversion does not cover the resale of such shares. Shares of Common Stock purchased by persons who are not affiliates of the Holding Company may be resold without registration. Shares purchased by an affiliate of the Holding Company will be subject to the resale restrictions of Rule 144 under the Securities Act. If the Holding Company meets the current public information requirements of Rule 144 under the Securities Act, each affiliate of the Holding 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 Holding 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 Holding Company to permit affiliates to have their shares registered for sale under the Securities Act under certain circumstances. 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. 99 RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY The following discussion is a summary of certain provisions of federal law and regulations and Washington corporate law, as well as the Articles of Incorporation and Bylaws of the Holding Company, relating to stock ownership and transfers, the Board of Directors and business combinations, all of which may be deemed to have "anti-takeover" effects. The description of these provisions is necessarily general and reference should be made to the actual law and regulations and to the Articles of Incorporation and Bylaws of the Holding Company. See "ADDITIONAL INFORMATION" as to how to obtain a copy of these documents. CHANGE OF CONTROL REGULATIONS The Change in Bank Control Act, together with Washington regulations, require that the consent of the Division and the Federal Reserve be obtained prior to any person or company acquiring "control" of a Washington-chartered savings bank or a Washington-chartered savings bank holding company. Upon acquiring control, such acquiror will be deemed to be a bank holding company. Control is conclusively presumed to exist if, among other things, an individual or company acquires the power, directly or indirectly, to direct the management or policies of the Holding Company or the Savings Bank or to vote 25% or more of any class of voting stock. Control is rebuttably presumed to exist under the Change in Bank Control Act if, among other things, a person acquires more than 10% of any class of voting stock, and the issuer's securities are registered under Section 12 of the Exchange Act or the person would be the single largest stockholder. Restrictions applicable to the operations of bank holding companies and conditions imposed by the Federal Reserve in connection with its approval of such acquisitions may deter potential acquirors from seeking to obtain control of the Holding Company. See "REGULATION -- The Holding Company." ANTI-TAKEOVER PROVISIONS IN THE HOLDING COMPANY'S ARTICLES OF INCORPORATION AND BYLAWS The Articles of Incorporation and Bylaws of the Holding Company contain certain provisions that are intended to encourage a potential acquiror to negotiate any proposed acquisition of the Holding Company directly with the Holding Company's Board of Directors. An unsolicited non-negotiated takeover proposal can seriously disrupt the business and management of a corporation and cause it great expense. Accordingly, the Board of Directors believes it is in the best interests of the Holding Company and its stockholders to encourage potential acquirors to negotiate directly with management. The Board of Directors believes that these provisions will encourage such negotiations and discourage hostile takeover attempts. It is also the Board of Directors' view that these provisions should not discourage persons from proposing a merger or transaction at prices reflective of the true value of the Holding Company and that otherwise is in the best interests of all stockholders. However, these provisions may have the effect of discouraging offers to purchase the Holding Company or its securities which are not approved by the Board of Directors but which certain of the Holding Company's stockholders may deem to be in their best interests or pursuant to which stockholders would receive a substantial premium for their shares over the 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 and management more difficult. The Boards of Directors of the Savings Bank and the Holding Company believe these provisions are in the best interests of the stockholders because they will assist the Holding Company's Board of Directors in managing the affairs of the Holding Company in the manner they believe to be in the best interests of stockholders generally and because a company's board of directors is often best able in terms of knowledge regarding the company's business and prospects, as well as resources, to negotiate the best transaction for its stockholders as a whole. The following description of certain of the provisions of the Articles of Incorporation and Bylaws of the Holding Company is necessarily general and reference should be made in each instance to such Articles of Incorporation and Bylaws. See "ADDITIONAL INFORMATION" regarding how to obtain a copy of these documents. 100 BOARD OF DIRECTORS. The Articles of Incorporation provide that the number of directors shall not be less than five nor more than 15. The initial number of directors is nine, but such number may be changed by resolution of the Board of Directors. These provisions have the effect of enabling the Board of Directors to elect directors friendly to management in the event of a non- negotiated takeover attempt and may make it more difficult for a person seeking to acquire control of the Holding Company to gain majority representation on the Board of Directors in a relatively short period of time. The Holding Company believes these provisions to be important to continuity in the composition and policies of the Board of Directors. The Articles of Incorporation provide that there will be staggered elections of directors so that the directors will each be initially elected to one, two or three-year terms, and thereafter all directors will be elected to terms of three years each. This provision also has the effect of making it more difficult for a person seeking to acquire control of the Holding Company to gain majority representation on the Board of Directors. CUMULATIVE VOTING. The Articles of Incorporation do not provide for cumulative voting in an election of directors. Cumulative voting in election of directors entitles a stockholder to cast a total number of votes equal to the number of directors to be elected multiplied by the number of his or her shares and to distribute that number of votes among such number of nominees as the stockholder chooses. The absence of cumulative voting for directors limits the ability of a minority stockholder to elect directors. Because the holder of less than a majority of the Holding Company's shares cannot be assured representation on the Board of Directors, the absence of cumulative voting may discourage accumulations of the Holding Company's shares or proxy contests that would result in changes in the Holding Company's management. The Board of Directors believes that (i) elimination of cumulative voting will help to assure continuity and stability of management and policies; (ii) directors should be elected by a majority of the stockholders to represent the interests of the stockholders as a whole rather than be the special representatives of particular minority interests; and (iii) efforts to elect directors representing specific minority interests are potentially divisive and could impair the operations of the Holding Company. SPECIAL MEETINGS. The Articles of Incorporation of the Holding Company provide that special meetings of stockholders of the Holding Company may be called by the President or by the Board of Directors. If a special meeting is not called by such person or entity, stockholder proposals cannot be presented to the stockholders for action until the next annual meeting. Stockholders are not permitted to call special meetings under the Holding Company's Articles of Incorporation. AUTHORIZED CAPITAL STOCK. The Articles of Incorporation of the Holding Company authorize the issuance of 50,000,000 shares of common stock and 1,000,000 shares of preferred stock. The shares of Common Stock and Preferred Stock were authorized in an amount greater than that to be issued in the Conversion to provide the Holding Company's Board of Directors with flexibility to effect, among other transactions, financings, acquisitions, stock dividends, stock splits and employee stock options. However, these additional authorized shares may also be used by the Board of Directors consistent with its fiduciary duty to deter future attempts to gain control of the Holding Company. The Board of Directors also has sole authority to determine the terms of any one or more series of Preferred Stock, including voting rights, conversion rates, and liquidation preferences. As a result of the ability to fix voting rights for a series of Preferred Stock, the Board has the power, to the extent consistent with its fiduciary duty, to issue a series of Preferred Stock to persons friendly to management in order to attempt to block a post tender offer merger or other transaction by which a third party seeks control, and thereby assist management to retain its position. The Holding Company's Board currently has no plan for the issuance of additional shares, other than the issuance of additional shares pursuant to stock benefit plans. DIRECTOR NOMINATIONS. The Articles of Incorporation of the Holding Company require a stockholder who intends to nominate a candidate for election to the Board of Directors at a stockholders' meeting to give written notice to the Secretary of the Holding Company at least 30 days (but not more than 60 days) in advance of the date of the meeting at which such nominations will be made. The nomination notice is also required to include specified information concerning the nominee and the proposing stockholder. The Board of Directors of the Holding Company believes that it is in the best interests of the Holding Company and its stockholders to provide sufficient time for the 101 Board of Directors to study all nominations and to determine whether to recommend to the stockholders that such nominees be considered. SUPERMAJORITY VOTING PROVISIONS. The Holding Company's Articles of Incorporation require the affirmative vote of 80% of the outstanding shares entitled to vote to approve a merger, consolidation, or other business combination, unless the transaction is approved, prior to consummation, by the vote of at least 80% of the number of the Continuing Directors (as defined in the Articles of Incorporation) on the Holding Company's Board of Directors. "Continuing Directors" generally includes all members of the Board of Directors who are not affiliated with any individual, partnership, trust or other person or entity (or the affiliates and associates of such person or entity) which is a beneficial owner of 10% or more of the voting shares of the Holding Company. This provision could tend to make the acquisition of the Holding Company more difficult to accomplish without the cooperation or favorable recommendation of the Holding Company's Board of Directors. AMENDMENT OF ARTICLES OF INCORPORATION AND BYLAWS. The Holding Company's Articles of Incorporation may be amended by the vote of the holders of a majority of the outstanding shares of Holding Company Common Stock, except that the provisions of the Articles of Incorporation governing (i) the duration of the corporation, (ii) the purpose and powers of the corporation, (iii) authorized capital stock, (iv) denial of preemptive rights, (v) the number and staggered terms of directors, (vi) removal of directors, (vii) approval of certain business combinations, (viii) the evaluation of certain business combinations, (ix) elimination of directors' liability, (x) indemnification of officers and directors, (xi) calling of special meetings of shareholders, (xii) the authority to repurchase shares and (xiii) the manner of amending the Articles of Incorporation may not be repealed, altered, amended or rescinded except by the vote of the holders of at least 80% of the outstanding shares of the Holding Company. This provision is intended to prevent the holders of a lesser percentage of the outstanding stock of the Holding Company from circumventing any of the foregoing provisions by amending the Articles of Incorporation to delete or modify one of such provisions. The Holding Company's Bylaws may only be amended by a majority vote of the Board of Directors of the Holding Company or by the holders of at least 80% of the outstanding stock by the Holding Company. PURPOSE AND TAKEOVER DEFENSIVE EFFECTS OF THE HOLDING COMPANY'S ARTICLES OF INCORPORATION AND BYLAWS. The Board of Directors believes that the provisions described above are prudent and will reduce the Holding Company's vulnerability to takeover attempts and certain other transactions that have not been negotiated with and approved by its Board of Directors. These provisions will also assist in the orderly deployment of the Conversion proceeds into productive assets during the initial period after the Conversion. The Board of Directors believes these provisions are in the best interest of the Savings Bank and the Holding Company and its stockholders. In the judgment of the Board of Directors, the Holding Company's Board will be in the best position to determine the true value of the Holding Company and to negotiate more effectively for what may be in the best interests of its stockholders. Accordingly, the Board of Directors believes that it is in the best interest of the Holding Company and its stockholders to encourage potential acquirors to negotiate directly with the Board of Directors of the Holding Company and that these provisions will encourage such negotiations and discourage hostile 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 a price reflective of the true value of the Holding Company and that is in the best interest of all stockholders. Attempts to acquire control of financial institutions and their holding companies have recently become increasingly common. Takeover attempts that have not been negotiated with and approved by the Board of Directors present to stockholders the risk of a takeover on terms that may be less favorable than might otherwise be available. A transaction that 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 of the Holding Company for its stockholders, with due consideration given to matters such as the management and business of the acquiring corporation and maximum strategic development of the Holding Company's assets. 102 An unsolicited takeover proposal can seriously disrupt the business and management of a corporation and cause it great expense. Although a tender offer or other takeover attempt may be made at a price substantially above the current market prices, such offers are sometimes made for less than all of 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 that is under different management and whose objectives may not be similar to those of the remaining stockholders. The concentration of control, which could result from a tender offer or other takeover attempt, could also deprive the Holding Company's remaining stockholders of benefits of certain protective provisions of the Exchange Act, if the number of beneficial owners became less than 300, thereby allowing for deregistration under the Exchange Act. Despite the belief of the Savings Bank and the Holding Company as to the benefits to stockholders of these provisions of the Holding Company's Articles of Incorporation and Bylaws, these provisions may also have the effect of discouraging a future takeover attempt that would not be approved by the Holding Company's Board, but pursuant to 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 any opportunity to do so. Such provisions will also render the removal of the Holding Company's Board of Directors and of management more difficult. The Board of Directors of the Savings Bank and the Holding Company, however, have concluded that the potential benefits outweigh the possible disadvantages. Following the Conversion, pursuant to applicable law and, if required, following the approval by stockholders, the Holding Company may adopt additional anti-takeover charter provisions or other devices regarding the acquisition of its equity securities that would be permitted for a Washington business corporation. The cumulative effect of the restriction on acquisition of the Holding Company contained in the Articles of Incorporation and Bylaws of the Holding Company and in Federal and Washington law may be to discourage potential takeover attempts and perpetuate incumbent management, even though certain stockholders of the Holding Company may deem a potential acquisition to be in their best interests, or deem existing management not to be acting in their best interests. DESCRIPTION OF CAPITAL STOCK OF THE HOLDING COMPANY GENERAL The Holding Company is authorized to issue 50,000,000 shares of Common Stock having a par value of $.01 per share and 1,000,000 shares of preferred stock having a par value of $.01 per share. The Holding Company currently expects to issue up to 5,750,000 shares of Common Stock (subject to adjustment up to 6,612,500 shares) and no shares of preferred stock in the Conversion. Each share of the Holding Company's Common Stock will have the same relative rights as, and will be identical in all respects with, each other share of Common Stock. Upon payment of the Purchase Price for the Common Stock, in accordance with the Plan of Conversion, all such stock will be duly authorized, fully paid and nonassessable. THE COMMON STOCK OF THE HOLDING COMPANY WILL REPRESENT NONWITHDRAWABLE CAPITAL, WILL NOT BE AN ACCOUNT OF ANY TYPE, AND WILL NOT BE INSURED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY. COMMON STOCK DIVIDENDS. The Holding Company can pay dividends out of statutory surplus or from certain net profits if, as and when declared by its Board of Directors. The payment of dividends by the Holding Company is subject to limitations which are imposed by law and applicable regulation. See "DIVIDEND POLICY" and "REGULATION." The holders of Common Stock of the Holding Company will be entitled to receive and share equally in such dividends as may be declared by the Board of Directors of the Holding Company out of funds legally 103 available therefor. If the Holding Company issues preferred stock, the holders thereof may have a priority over the holders of the Common Stock with respect to dividends. STOCK REPURCHASES. Federal Reserve regulations place certain limitations on the repurchase of the Holding Company's capital stock. See "REGULATION -- The Holding Company -- Stock Repurchases" and "USE OF PROCEEDS." VOTING RIGHTS. Upon Conversion, the holders of Common Stock of the Holding Company will possess exclusive voting rights in the Holding Company. They will elect the Holding Company's Board of Directors and act on such other matters as are required to be presented to them under Washington law or as are otherwise presented to them by the Board of Directors. Except as discussed in "RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY," each holder of Common Stock will be entitled to one vote per share and will not have any right to cumulate votes in the election of directors. If the Holding Company issues preferred stock, holders of the Holding Company preferred stock may also possess voting rights. Certain matters require a vote of 80% of the outstanding shares entitled to vote thereon. See "RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY." As a state mutual savings bank, corporate powers and control of the Savings Bank are vested in its Board of Directors, who elect the officers of the Savings Bank and who fill any vacancies on the Board of Directors as it exists upon Conversion. Subsequent to the Conversion, voting rights will be vested exclusively in the owners of the shares of capital stock of the Savings Bank, all of which will be owned by the Holding Company, and voted at the direction of the Holding Company's Board of Directors. Consequently, the holders of the Common Stock will not have direct control of the Savings Bank. LIQUIDATION. In the event of any liquidation, dissolution or winding up of the Savings Bank, the Holding Company, as holder of the Savings Bank's capital stock would be entitled to receive, after payment or provision for payment of all debts and liabilities of the Savings Bank (including all deposit accounts and accrued interest thereon) and after distribution of the balance in the special liquidation account to Eligible Account Holders and Supplemental Eligible Account Holders (see "THE CONVERSION"), all assets of the Savings Bank available for distribution. In the event of liquidation, dissolution or winding up of the Holding Company, the holders of its common stock would be entitled to receive, after payment or provision for payment of all its debts and liabilities, all of the assets of the Holding Company available for distribution. If Holding Company preferred stock is issued, the holders thereof may have a priority over the holders of the Common Stock in the event of liquidation or dissolution. PREEMPTIVE RIGHTS. Holders of the Common Stock of the Holding Company will not be entitled to preemptive rights with respect to any shares that may be issued. The Common Stock is not subject to redemption. PREFERRED STOCK None of the shares of the authorized Holding Company preferred stock will be issued in the Conversion there are no plans to issue the preferred stock. Such stock may be issued with such designations, powers, preferences and rights as the Board of Directors may from time to time determine. The Board of Directors can, without stockholder approval, issue preferred stock with voting, dividend, liquidation and conversion rights that could dilute the voting strength of the holders of the Common Stock and may assist management in impeding an unfriendly takeover or attempted change in control. RESTRICTIONS ON ACQUISITION Acquisitions of the Holding Company are restricted by provisions in its Articles of Incorporation and Bylaws and by the rules and regulations of various regulatory agencies. See "REGULATION" and "RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY." 104 REGISTRATION REQUIREMENTS The Holding Company will register the Common Stock with the SEC pursuant to Section 12(g) of the Exchange Act upon the completion of the Conversion and will not deregister its Common Stock 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 requirements and restrictions, annual and periodic reporting and other requirements of the Exchange Act will be applicable to the Holding Company. LEGAL AND TAX OPINIONS The legality of the Common Stock has been passed upon for the Holding Company by Breyer & Aguggia, Washington, D.C. The federal tax consequences of the Offerings have been opined upon by Breyer & Aguggia and the Washington tax consequences of the Offerings have been opined upon by Dwyer Pemberton and Coulson, P.C., Tacoma, Washington. Breyer & Aguggia and Dwyer Pemberton & Coulson, P.C. have consented to the references herein to their opinions. Certain legal matters will be passed upon for Webb by Muldoon, Murphy & Faucette, Washington, D.C. EXPERTS The consolidated financial statements of the Savings Bank as of September 30, 1995 and 1996, and for each of the years in the three year period ended September 30, 1996 included in this Prospectus have been so included in reliance upon the report of Dwyer Pemberton & Coulson, P.C., independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. RP Financial has consented to the publication herein of the summary of its letter to the Savings Bank setting forth its opinion as to the estimated pro forma market value of the Holding Company and the Savings Bank and to the use of its name and statements with respect to it appearing herein. ADDITIONAL INFORMATION The Holding Company has filed with the SEC a Registration Statement on Form S-1 (File No. 333-35817) under the Securities Act with respect to the Common Stock offered in the Conversion. The Registration Statement may be inspected at the public reference facilities maintained by the SEC at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549; 500 West Madison Street, Suite 1400, Room 1100, Chicago, Illinois 60661; and 75 Park Place, New York, New York 10007. 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 Registration Statement is also available through the SEC's World Wide Web site on the Internet (www.sec.gov) The Savings Bank has filed with the Division an Application to Convert a Mutual Savings Bank to a Stock Owned Savings Bank. The Application, which contains a copy of RP Financial's appraisal report, may be inspected at the office of the Division, Department of Financial Institutions, General Administration Building, 3rd Floor, Room 300, 210 11th Avenue, Olympia, Washington 98504. The Savings Bank has also filed a copy of such Application with the FDIC. Copies of the Plan of Conversion, which includes a copy of the Savings Bank's proposed Amended Articles of Incorporation and Stock Bylaws, and copies of the Holding Company's Articles of Incorporation and Bylaws are available for inspection at any of the Savings Bank's offices and may be obtained by writing to the Savings Bank at 624 Simpson Avenue, Hoquiam, Washington 98550; Attention: Clarence E. Hamre, Chief Executive Officer, or by telephoning the Savings Bank at (360) 533-4747. A copy of RP Financial's independent appraisal report is also available for inspection at any of the Savings Bank's offices. 105 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS TIMBERLAND SAVINGS BANK, SSB AND SUBSIDIARY
Page Independent Accountant's Report...................................... F-1 Consolidated Balance Sheets as of September 30, 1995 and 1996 and June 30, 1997 (unaudited)....................................... F-2 Consolidated Statements of Income for the Years Ended September 30, 1994, 1995 and 1996 and for the Nine Months Ended June 30, 1996 and 1997 (unaudited).................................. 21 Consolidated Statements of Capital for the Years Ended September 30, 1994, 1995 and 1996 and for the Nine Months Ended June 30, 1997 (unaudited)........................................... F-3 Consolidated Statements of Cash Flows for the Years Ended September 30, 1994, 1995 and 1996 and for the Nine Months Ended June 30, 1996 and 1997 (unaudited).................................. F-4 Notes to Consolidated Financial Statements........................... F-5
* * * All schedules are omitted as the required information either is not applicable or is included in the Consolidated Financial Statements or related Notes. Separate financial statements for the Holding Company have not been included since it will not engage in material transactions, if any, until after the Conversion. The Holding Company, which has only engaged in organizational activities to date, has no significant assets, liabilities (contingent or otherwise), revenues or expenses. 106 [LETTERHEAD OF DWYER PEMBERTON AND COULSON, P.C.] Board of Trustees Timberland Savings Bank, S.S.B. We have audited the accompanying consolidated balance sheets of Timberland Savings Bank, S.S.B. and subsidiary as of September 30, 1995 and 1996, and the related consolidated statements of income, capital, and cash flows for each of the three years in the period ended September 30, 1996. These consolidated financial statements are the responsibility of the Savings Bank's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. 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 consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Timberland Savings Bank, S.S.B. and subsidiary as of September 30, 1995 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1996, in conformity with generally accepted accounting principles. As discussed in Note 1 to the consolidated financial statements, the Savings Bank adopted Statement of Financial Accounting Standards No. 115, Accounting For Certain Investments in Debt and Equity Securities, as of October 1, 1994, and adopted Statement of Financial Accounting Standards No. 107, Disclosures About Fair Value of Financial Instruments, as of September 30, 1996. /s/ Dwyer Pemberton and Coulson, P.C. - --------------------------------------- Dwyer Pemberton and Coulson, P.C. November 22, 1996 Tacoma, Washington F-1 TIMBERLAND SAVINGS BANK, S.S.B. CONSOLIDATED BALANCE SHEETS September 30, 1995, and 1996 and June 30, 1997 (Unaudited)
=================================================================================================== ASSETS SEPTEMBER 30 --------------------------- JUNE 30 1995 1996 1997 --------------------------- ------------ Cash and due from financial institutions: Noninterest bearing deposits $ 3,913,209 $ 3,930,641 $ 5,076,349 Interest bearing deposits 947,111 1,124,684 756,569 --------------------------- ------------ 4,860,320 5,055,325 5,832,918 --------------------------- ------------ Investments and mortgage-backed securities: Held to maturity, market value: 1995 - $9,761,569; 1996 - $4,865,614; 1997 - $4,147,656 9,855,642 4,950,794 4,171,739 Available for sale, cost: 1995 - $1,427,380; 1996 - $1,551,540 - 1997 - $1,555,100 1,449,100 1,571,676 1,555,100 --------------------------- ------------ 11,304,742 6,522,470 5,726,839 --------------------------- ------------ Loans receivable - net 150,999,204 170,368,073 182,077,908 Loans held for sale - at market value 5,523,736 6,126,870 5,409,767 --------------------------- ------------ 156,522,940 176,494,943 187,487,675 --------------------------- ------------ Accrued interest receivable 1,019,918 1,056,885 973,057 Premises and fixed assets - net 3,608,003 4,856,347 5,492,102 Other real estate owned - net 209,029 124,533 317,407 Other assets 235,972 246,301 357,552 --------------------------- ------------ TOTAL ASSETS $177,760,924 $194,356,804 $206,187,550 =========================== ============ LIABILITIES AND CAPITAL LIABILITIES Deposits $143,084,223 $156,549,417 $167,140,412 Federal Home Loan Bank advances 14,958,128 14,354,380 13,770,579 Other liabilities and accrued expenses 1,066,030 2,123,705 1,410,681 --------------------------- ------------ TOTAL LIABILITIES 159,108,381 173,027,502 182,321,672 --------------------------- ------------ CAPITAL Undivided profits 18,638,186 21,315,990 23,865,878 Net unrealized appreciation in equity investments, net of deferred federal income taxes of $6,824 in 1996 and $7,363 in 1995 14,357 13,312 -0- --------------------------- ------------ TOTAL CAPITAL 18,652,543 21,329,302 23,865,878 --------------------------- ------------ TOTAL LIABILITIES AND CAPITAL $177,760,924 $194,356,804 $206,187,550 =========================== ============
See accompanying notes. F-2 TIMBERLAND SAVINGS BANK, S.S.B. CONSOLIDATED STATEMENTS OF CAPITAL For the years ended September 30, 1994, 1995 and 1996 and for the nine months ended June 30, 1997 (Unaudited) ================================================================================
NET UNREALIZED APPRECIATION UNDIVIDED IN EQUITY TOTAL PROFITS INVESTMENTS CAPITAL ----------------------------------------- BALANCE, October 1, 1993 $13,005,006 $ -0- $13,005,006 Net income 2,633,487 2,633,487 ----------------------------------------- BALANCE, September 30, 1994 15,638,493 15,638,493 Net income 2,999,693 2,999,693 Unrealized appreciation in available-for-sale investments, net of deferred income taxes of $7,363 14,357 14,357 ----------------------------------------- BALANCE, September 30, 1995 18,638,186 14,357 18,652,543 Net income 2,677,804 2,677,804 Unrealized depreciation in available-for-sale investments, net of deferred income taxes of $539 (1,045) (1,045) ----------------------------------------- BALANCE, September 30, 1996 21,315,990 13,312 21,329,302 Net income (unaudited) 2,549,888 2,549,888 Realized gain on sale of investments, net of deferred income taxes of $6,824 (13,312) (13,312) ----------------------------------------- BALANCE, June 30, 1997 (unaudited) $23,865,878 $ -0- $23,865,878 =========================================
See accompanying notes. F-3 TIMBERLAND SAVINGS BANK, S.S.B. CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended September 30, 1994, 1995 and 1996 and for the nine months ended June 30, 1996 and 1997 (Unaudited)
====================================================================================================================== SEPTEMBER 30 JUNE 30 --------------------------------------------- ----------------------------- 1994 1995 1996 1996 1997 --------------------------------------------- ----------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 2,633,487 $ 2,999,693 $ 2,677,804 $ 2,280,021 $ 2,549,888 -------------------------------------------- ---------------------------- Noncash revenues, expenses, gains and losses included in income: Depreciation 164,857 223,346 243,291 171,269 210,320 Deferred federal income taxes 76,000 180,000 (188,000) 20,000 118,000 Federal Home Loan Bank stock dividends (108,500) (82,900) (107,000) (78,000) (84,800) Market value adjustment - loans held for sale 26,082 (23,502) 86,793 117,801 (26,631) Loss (gain) on sale of other real estate owned, net (168,324) 20,591 (28) (28) (12,358) FIIG stock dividends -0- (14,080) (17,160) (17,160) -0- Provision for loan and other real estate owned losses -0- -0- 72,000 45,000 334,282 Net (increase) decrease in loans originated for sale 6,996,855 (2,294,988) (689,927) (1,750,904) 743,734 Increase in other assets, net (90,453) (288,707) (47,296) (60,736) (27,423) Increase (decrease) in other liabilities and accrued expenses, net 246,254 (104,412) 1,245,675 349,006 (831,024) -------------------------------------------- ---------------------------- 7,142,771 (2,384,652) 598,348 (1,203,752) 424,100 -------------------------------------------- ---------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 9,776,258 615,041 3,276,152 1,076,269 2,973,988 -------------------------------------------- ---------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of held-to-maturity investments andmortgage- backed securities (13,822,695) (2,552,775) -0- -0- -0- Sales of held-to-maturity investments and principal repayments on mortgage- backed securities 1,787,106 8,695,567 4,905,387 4,702,684 765,743 Sale of available-for-sale investments -0- -0- -0- -0- 101,376 Increase in loans receivable, net (22,340,198) (32,646,646) (19,438,869) (10,960,248) (12,044,117) Additions to premises and fixed assets, net (1,211,200) (370,912) (1,491,635) (591,593) (846,075) Additions to other real estate owned (48,064) (14,830) (98,759) (60,767) (450,998) Dispositions of other real estate owned 128,606 191,726 181,283 145,221 270,482 Investment in limited partner- ship (45,398) (36,898) -0- -0- -0- -------------------------------------------- ---------------------------- NET CASH USED BY INVESTING ACTIVITIES (35,551,843) (26,734,768) (15,942,593) (6,764,703) (12,203,589) -------------------------------------------- ----------------------------
F-4
SEPTEMBER 30 JUNE 30 ------------------------------------------- --------------------------- 1994 1995 1996 1996 1997 ------------------------------------------- --------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Increase in certificates of deposit, net 3,233,385 17,888,549 11,485,062 12,892,996 10,674,853 Increase (decrease) in other deposits, net 33,363 (3,473,501) 1,980,132 (468,938) (83,858) Increase (decrease) in Federal Home Loan Bank advances, net 5,753,318 9,204,810 (603,748) (5,576,888) (583,801) ------------------------------------------ -------------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 9,020,066 23,619,858 12,861,446 6,847,170 10,007,194 ------------------------------------------ -------------------------- NET INCREASE (DECREASE) IN CASH (16,755,519) (2,499,869) 195,005 1,158,736 777,593 CASH AND DUE FROM FINAN- CIAL INSTITUTIONS, Beginning 24,115,708 7,360,189 4,860,320 4,860,320 5,055,325 ------------------------------------------ -------------------------- CASH AND DUE FROM FINAN- CIAL INSTITUTIONS, Ending $ 7,360,189 $ 4,860,320 $ 5,055,325 $ 6,019,056 $ 5,832,918 ========================================== ========================== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Income taxes paid $ 1,075,095 $ 1,450,000 $ 1,545,000 $ 1,095,000 $ 1,303,367 Interest paid $ 4,689,237 $ 6,255,112 $ 7,628,336 $ 5,127,058 $ 6,232,147 SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES Market value adjustment of investments held for sale $ -0- $ 21,720 $ (1,584) $ (3,960) $ (20,136) Deferred federal income taxes on market value adjustment of investments held for sale $ -0- $ (7,363) $ 539 $ 1,347 $ 6,824 Loans transferred to other real estate owned $ 273,653 $ -0- $ 85,253 $ 66,309 $ 390,838
See accompanying notes. F-5 TIMBERLAND SAVINGS BANK, S.S.B. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended September 30, 1995 and 1996 and for the nine months ended June 30, 1996 and 1997 (Unaudited) NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Timberland Savings Bank, S.S.B. (the Savings Bank) was established in 1915 and provides financial services to borrowers and depositors located primarily in Western Washington. The accounting principles followed by the Savings Bank and its wholly- owned subsidiary, Timberland Service Corp., and the methods of applying them conform with generally accepted accounting principles and with general industry practice. The more significant accounting policies are summarized below. Principles of Consolidation: All significant intercompany balances and transactions between the Savings Bank and its subsidiary have been eliminated in consolidation. Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Financial Instruments: For the year ended September 30, 1996, the Savings Bank has adopted Statement of Financial Accounting Standards (SFAS) No. 107, Disclosures About Fair Value of Financial Instruments. Under SFAS No. 107, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties (Note 14). Investments and Mortgage-Backed Securities: In accordance with Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities, the Savings Bank has classified its investments and mortgage-backed securities as follows: Held-to-Maturity: Debt securities that management has the positive ---------------- intent and ability to hold until maturity are classified as held-to- maturity and are stated at their remaining unpaid principal balance, net of unamortized premiums or unaccreted discounts. Premiums are amortized and discounts are accreted using the interest method. Available-for-Sale: Debt and equity securities that will be held for ------------------ indefinite periods of time, including securities that may be sold in response to changes in market interest rates, prepayment rates, need for liquidity, and changes in the availability of and the yield of alternative investments are classified as available-for-sale. These assets are stated at market value. Market value is determined using published quotes as of the close of business. Unrealized gains and losses are excluded from earnings and reported as a separate component of capital until realized. Trading Securities: Debt and equity securities that are bought and held ------------------ principally for the purpose of selling them in the near term are classified as trading securities and stated at market value with unrealized gains and losses included in earnings. The Savings Bank has no investments or mortgage-backed securities classified for trading purposes. F-6 NOTE 1. (CONTINUED) Gains or losses upon disposition of securities, regardless of classification, are based on the net proceeds and the adjusted stated amount of the securities sold, using the specific-identification method. Loans Receivable: ---------------- Loans receivable are reported at the principal amount outstanding, net of loans in process of completion, unearned income, an allowance for loans losses and participating interests sold. Allowance for Losses: Allowances for losses on specific problem loans and other real estate owned are charged to earnings when it is determined that the value of these loans and properties, in the judgment of management, is impaired. In addition to specific reserves, the Savings Bank also maintains general provisions for loan losses based on evaluating known and inherent risks in the loan portfolio, including management's continuing analysis of the factors and trends underlying the quality of the loan portfolio. These factors include changes in the size and composition of the loan portfolio, actual loan loss experience, current and anticipated economic conditions, detailed analysis of individual loans for which full collectibility may not be assured, and determination of the existence and realizable value of the collateral and guarantees securing the loans. The ultimate recovery of loans is susceptible to future market factors beyond the Savings Bank's control, which may result in losses or recoveries differing significantly from those provided in the consolidated financial statements. The Savings Bank accounts for impaired loans in accordance with SFAS No. 114, Accounting by Creditors for Impairment of a Loan, as amended by SFAS No. 118, Accounting by Creditors for Impairment of a Loan- Income Recognition and Disclosures. These statements address the disclosure requirements and allocations of the allowance for loan losses for certain impaired loans. A loan within the scope of these statements is considered impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement, including scheduled interest payments. The Savings Bank excludes smaller balance homogeneous loans, including single family residential and consumer loans from the scope of this statement. When a loan has been identified as being impaired, the amount of the impairment is measured by using discounted cash flows, except when it is determined that the sole source of repayment for the loan is the operation or liquidation of the underlying collateral. In such case, impairment is measured at current fair value of the collateral, reduced by estimated selling costs. When the measurement of the impaired loan is less than the recorded investment in the loan (including accrued interest and net deferred loan fees or costs), loan impairment is recognized by establishing or adjusting an allocation of the allowance for loan losses. SFAS No. 114, as amended, does not change the timing of charge-offs of loans to reflect the amount ultimately expected to be collected. At September 30, 1995 and 1996, and at June 30, 1997, respectively, the Savings Bank had no loans deemed to be impaired as defined by SFAS No. 114. Loans Held for Sale: Mortgage loans originated and intended for sale in the secondary market are stated at the lower of cost or estimated market value in the aggregate. Gains or losses on sales of loans are recognized at the time of sale and include adjustments to record such loans at the lower of cost or market. The gain or loss is determined by the difference between the net sales proceeds and the recorded value of the loans, including any remaining deferred loan fees. F-7 NOTE 1. (CONTINUED) Premises and Fixed Assets: Premises and fixed assets are recorded at cost. Depreciation is computed on the straight-line method over the following estimated useful lives: buildings - thirty to forty years; furniture and equipment - three to five years; automobile - five years. The cost of maintenance and repairs is charged to expense as incurred. Other Real Estate Owned: Other real estate owned consists of properties acquired through loan foreclosure and are initially recorded at fair value at the date of foreclosure. Costs relating to development and improvement of property are capitalized, whereas costs relating to holding property are expensed. Valuations are periodically performed by management, and an allowance for losses is established by a charge to operations if the recorded value of a property exceeds its estimated net realizable value. Interest on Loans and Loan Fees: Interest on loans is recorded as income as borrowers' monthly payments become due. Allowances are established for uncollected interest on loans for which the interest is determined to be uncollectible. All loans past due three or more payments are placed on nonaccrual status and internally classified as substandard. Any interest income recorded in the current reporting period is fully reserved. Subsequent collections are applied proportionately to past due principal and interest. Loans are removed from nonaccrual status only when the loan is deemed current, and collectibility of principal and interest is no longer doubtful. The Savings Bank charges fees for originating and servicing loans. These fees are for inspection of property and other miscellaneous services. That portion of loan fees exceeding the estimated cost of initiating and closing loans is deferred and amortized to income, on the level-yield basis, over the loan term. If the loan is repaid prior to maturity, the remaining balance is credited to income at the time of repayment. Loan Servicing Fees: Fees earned for servicing loans for the Federal Home Loan Mortgage Corporation ("FHLMC") are reported as income when the related mortgage loan payments are collected. Loan servicing costs are charged to expense as incurred. Income Taxes: The Savings Bank files a consolidated federal income tax return with its subsidiary. The Savings Bank qualifies under provisions of the Internal Revenue Code which permit, as a deduction from taxable income, an allowance for bad debts based on a percentage of taxable income. The percentage method bad debt deduction available was 8 percent for the years ended September 30, 1994, 1995 and 1996. Due to the passage of the Small Business Job Protection Act, effective October 1, 1996, the percentage-of-income bad debt deduction for federal tax purposes was eliminated. In addition, federal tax bad debt reserves which have been accumulated since October 1, 1988, that exceed the reserves which would have been accumulated based on actual experience, are subject to recapture over a six-year recapture period effective for tax years beginning October 1, 1996. However, the six- year recapture period may be postponed for up to two years provided the Savings Bank satisfies a mortgage origination test. As of September 30, 1996, the Savings Bank's federal tax bad debt reserves subject to recapture approximated $1,700,000. F-8 NOTE 1. (CONTINUED) Deferred federal income taxes result from temporary differences between the tax basis of assets and liabilities and their reported amounts on the financial statements. These will result in differences between income for tax purposes and income for financial statement purposes in future years (Note 11). Advertising: The Savings Bank expenses all advertising costs as incurred. Direct- response advertising costs incurred will be capitalized and amortized over the estimated period to be benefited. Statement of Cash Flows: Cash and due from financial institutions include cash, funds due from financial institutions, and certificates of deposit with maturities of ninety days or less. Recently Adopted Accounting Standards: In June 1996, the FASB issued SFAS No. 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. This Statement amends SFAS Nos. 65 and 115 and supersedes SFAS Nos. 76, 77 and 122 and provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. It requires that liabilities and derivatives incurred or obtained by transferors as part of financial assets be initially measured at fair value, if practicable. It also requires that servicing assets and other retained interests in the transferred assets be measured by allocating the previous carrying amount between the assets sold, if any, and retained interests, if any, based on their relative fair values at the date of the transfer. Servicing assets and liabilities must be subsequently measured by amortization in proportion to and over the period of estimated net servicing income or loss and assessment for asset impairment or increased obligation based on their fair values. This Statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after December 31, 1996. In December 1996, the FASB issued SFAS No. 127, Deferral of the Effective Date of Certain Provision of FASB Statement No. 125. This Statement defers the effective date of application of certain transfer and collateral provisions of SFAS No. 125 until January 1, 1998. The adoption of the provisions of SFAS Nos. 125 and 127 on January 1, 1997, is not expected to have a significant impact on the Savings Bank's financial position or results of operations. Unaudited Financial Information: Information as of June 30, 1997 and for the nine-month periods ended June 30, 1996 and 1997 is unaudited. The unaudited information furnished reflects all adjustments, which consist solely or normal recurring accruals, which are , in the opinion of management, necessary for a fair presentation of the financial position at June 30, 1997, and the results of operations and cash flows for the nine-month periods ended June 30, 1996 and 1997. The results of the nine-month periods are not necessarily indicative of the results of the Savings Bank which may be expected for the entire year. Reclassifications: Certain September 30, 1994, 1995 and 1996 amounts have been reclassified to conform to the June 30, 1997 presentation. F-9 NOTE 2. INVESTMENTS AND MORTGAGE-BACKED SECURITIES The following tables summarize the amortized cost, gross unrealized gains and losses, and the estimated market value of the Bank's investments and mortgage-backed securities at September 30, 1995 and 1996, and at June 30, 1997:
GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED MARKET 1995 COST GAINS LOSSES VALUE ---- -------------------------------------------------- HELD-TO-MATURITY U.S. Government and agencies $3,503,549 $ -0- $ (9,644) $3,493,905 Mortgage-backed securities: FHLMC 2,505,635 2,860 (42,732) 2,465,763 FNMA 2,019,508 2,091 (47,591) 1,974,008 GNMA 1,826,950 3,283 (2,340) 1,827,893 -------------------------------------------------- TOTAL HELD-TO- MATURITY $9,855,642 $ 8,234 $(102,307) $9,761,569 ================================================== AVAILABLE-FOR-SALE FHLB stock $1,363,300 $ -0- $ -0- $1,363,300 FIIG stock 64,080 21,720 85,800 -------------------------------------------------- TOTAL AVAILABLE- FOR-SALE $1,427,380 $21,720 $ -0- $1,449,100 ================================================== 1996 ---- HELD-TO-MATURITY Mortgage-backed securities: FHLMC $1,848,550 $ 2,356 $ (28,472) $1,822,434 FNMA 1,536,235 5,095 (58,637) 1,482,693 GNMA 1,566,009 -0- (5,522) 1,560,487 -------------------------------------------------- TOTAL HELD-TO- MATURITY $4,950,794 $ 7,451 $ (92,631) $4,865,614 ================================================== AVAILABLE-FOR-SALE FHLB stock $1,470,300 $ -0- $ -0- $1,470,300 FIIG stock 81,240 20,136 101,376 -------------------------------------------------- TOTAL AVAILABLE-FOR- SALE $1,551,540 $20,136 $ -0- $1,571,676 ================================================== 1997 (Unaudited) ---------------- HELD-TO-MATURITY Mortgage-backed securities: FHLMC $1,457,816 $ 6,327 $ (15,973) $1,448,170 FNMA 1,307,476 9,754 (47,937) 1,269,293 GNMA 1,406,447 23,746 -0- 1,430,193 -------------------------------------------------- TOTAL HELD-TO- MATURITY $4,171,739 $39,827 $ (63,910) $4,147,656 ================================================== AVAILABLE-FOR-SALE FHLB stock $1,555,100 $ -0- $ -0- $1,555,100 ==================================================
The FHLB stock has a par value of $100 per share and is recorded at cost. Stock owned in excess of required amounts can only be redeemed by the Federal Home Loan Bank of Seattle. Mortgage-backed securities pledged as collateral for public fund deposits totaled $1,320,000, $1,161,000 and $1,747,000 at September 30, 1995 and 1996, and at June 30, 1997, respectively. F-10 NOTE 2. (CONTINUED) The contractual maturity of investments and mortgage-backed securities at June 30, 1997 follows. Expected maturities may differ from contractual maturities due to the prepayment of principal or call provision.
GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE ------------------------------------------------------------------------------- Held-To-Maturity: ---------------- Due after 1 year through 5 years $ 997,155 $ 584 $ (15,973) $ 981,766 Due after 10 years 3,174,584 39,243 (47,937) 3,165,890 --------------------------------------------------------------------- 4,171,739 39,827 (63,910) 4,147,656 --------------------------------------------------------------------- Available-For-Sale: ------------------ FHLB stock 1,555,100 1,555,100 --------------------------------------------------------------------- TOTAL $ 5,726,839 $ 39,827 $ (63,910) $ 5,702,756 =====================================================================
NOTE 3. LOANS RECEIVABLE - NET AND LOANS HELD FOR SALE Loans receivable including loans held for sale consisted of the following:
September 30 June 30, 1997 ---------------------------- 1995 1996 (Unaudited) ---------------------------- ------------ Mortgage loans: One-to-four family $ 88,055,913 $ 89,761,659 $ 94,611,583 Multi-family 10,964,753 12,569,371 12,644,422 Commercial 15,591,521 26,529,011 28,867,220 Construction and land development 42,751,879 47,140,084 44,744,044 Land 6,117,622 6,115,264 6,854,959 ---------------------------- ------------ TOTAL MORTGAGE LOANS 163,481,688 182,115,389 187,722,228 ---------------------------- ------------ Consumer loans: Home equity and second mortgage 5,201,378 6,576,284 7,897,564 Other 2,020,050 2,474,958 2,784,813 ---------------------------- ------------ TOTAL CONSUMER LOANS 7,221,428 9,051,242 10,682,377 ---------------------------- ------------ Commercial business loans 231,050 475,731 718,184 ---------------------------- ------------ TOTAL LOANS RECEIVABLE 170,934,166 191,642,362 199,122,789 ---------------------------- ------------ Less: Undisbursed portion of loans in process 17,261,784 18,433,608 13,887,111 Unearned income 1,554,019 1,707,718 1,704,160 Allowance for loan losses 1,119,159 1,132,963 1,453,610 ---------------------------- ------------ 19,934,962 21,274,289 17,044,881 ---------------------------- ------------ LOANS RECEIVABLE - NET 150,999,204 170,368,073 182,077,908 ------------ ------------ ------------ Loans held for sale (one-to-four family) 5,526,316 6,216,243 5,472,509 Market-value adjustment (2,580) (89,373) (62,742) ------------ ------------ ------------ LOANS HELD FOR SALE - NET 5,523,736 6,126,870 5,409,767 ------------ ------------ ------------ LOANS RECEIVABLE AND LOANS HELD FOR SALE - NET $156,522,940 $176,494,943 $187,487,675 ============ ============ ============
F-11 NOTE 3. (CONTINUED) The composition of loans receivable including loans held for sale by interest rate type at June 30, 1997(unaudited), is as follows:
FIXED ADJUSTABLE RATE RATE TOTAL ----------------------------------------- Mortgage loans: One-to-four family $14,071,305 $ 86,012,787 $100,084,092 Multi-family 5,411,504 7,232,918 12,644,422 Commercial 7,630,452 21,236,768 28,867,220 Construction and land development 32,544,567 12,199,477 44,744,044 Land 6,835,272 19,687 6,854,959 ----------------------------------------- TOTAL MORTGAGE LOANS 66,493,100 126,701,637 193,194,737 ----------------------------------------- Consumer loans: Home equity and second mortgage 5,887,285 2,010,279 7,897,564 Other 2,689,433 95,380 2,784,813 ----------------------------------------- TOTAL CONSUMER LOANS 8,576,718 2,105,659 10,682,377 ----------------------------------------- Commercial business loans 709,072 9,112 718,184 ----------- ------------ ------------ TOTAL LOANS $75,778,890 $128,816,408 204,595,298 ========================== ------------ Less: Undisbursed portion of loans in process 13,887,111 Unearned income 1,704,160 Allowance for loan losses 1,453,610 Market-value adjustment - loans held for sale 62,742 ------------ 17,107,623 ------------ LOANS RECEIVABLE AND LOANS HELD FOR SALE - NET $187,487,675 ============
F-12 NOTE 3. (CONTINUED) The contractual maturity of loans receivable including loans held for sale at June 30, 1997 (unaudited), is as follows:
ONE YEAR THREE YEARS FIVE YEARS WITHIN TO TO TO AFTER ONE YEAR THREE YEARS FIVE YEARS TEN YEARS TEN YEARS TOTAL -------------------------------------------------------------------------------------- Mortgage loans: One-to-four family $ 521,972 $ 780,830 $ 1,264,477 $ 3,763,292 $ 93,753,521 $100,084,092 Multi-family 58 2,088 207,564 7,254,424 5,180,288 12,644,422 Commercial 600,174 259,388 527,524 9,729,003 17,751,131 28,867,220 Construction and land development 20,694,392 10,268,007 17,883 814,000 12,949,762 44,744,044 Land 434,727 1,706,356 4,248,317 322,429 143,130 6,854,959 ----------- ----------- ------------ ----------- ------------ ------------ TOTAL MORT- GAGE LOANS 22,251,323 13,016,669 6,265,765 21,883,148 129,777,832 193,194,737 ----------- ----------- ------------ ----------- ------------ ------------ Consumer loans: Home equity and second mortgage 2,274,615 545,389 1,359,752 1,656,378 2,061,430 7,897,564 Other 1,190,040 583,301 649,050 167,775 194,647 2,784,813 ----------- ----------- ------------ ----------- ------------ ------------ TOTAL CON- SUMER LOANS 3,464,655 1,128,690 2,008,802 1,824,153 2,256,077 10,682,377 ----------- ----------- ------------ ----------- ------------ ------------ Commercial business loans 80,634 22,625 599,919 15,006 -0- 718,184 ----------- ----------- ------------ ----------- ------------ ------------ TOTAL LOANS $25,796,612 $14,167,984 $ 8,874,486 $23,722,307 $132,033,909 204,595,298 =========== =========== ============ =========== ============ ------------ Less: Undisbursed portion of loans in process 13,887,111 Unearned income 1,704,160 Allowance for loan losses 1,453,610 Market-value adjustment - loans held for sale 62,742 ------------ 17,107,623 ------------ LOANS RECEIVABLE AND LOANS HELD FOR SALE - NET $187,487,675 ============
The weighted average interest rate on all loans at September 30, 1995 and 1996, and at June 30, 1997, was 8.60 percent, 8.77 percent and 8.80 percent respectively. Loans serviced for the Federal Home Loan Mortgage Corporation and others at September 30, 1995 and 1996, and at June 30, 1997, totaled $43,531,000, $45,859,000 and $53,968,000 respectively. At September 30, 1995 and 1996, and at June 30, 1997, the Savings Bank had commitments outstanding to originate mortgage loans at current market rates totaling $8,000,000, $2,642,000 and $4,731,000 respectively. At September 30, 1995 and 1996, and at June 30, 1997, the Savings Bank had commitments outstanding for nonmortgage loans totaling $1,396,000, $1,621,000 and $1,869,000 respectively. Officers, employees and trustees of the Savings Bank have outstanding loans which were made in the ordinary course of business. At September 30, 1995 and 1996, and at June 30, 1997, such loans approximated $1,606,000, $1,862,000 and $1,883,000 respectively. An analysis of loans outstanding to executive officers and trustees, net of percentage sold, follows:
September 30 June 30, 1997 ----------------------- 1995 1996 (Unaudited) ---------------------- -------------- BALANCE, Beginning of period $ 499,786 $ 702,392 $845,444 New loans 381,190 377,150 17,500 Repayments/sales (178,584) (234,098) (56,027) ---------------------- -------- BALANCE, End of period $ 702,392 $ 845,444 $806,917 ====================== ========
F-13 NOTE 3. (CONTINUED) At September 30, 1995 and 1996, and at June 30, 1997, the Savings Bank had non-accruing loans totaling approximately $1,037,000, $1,520,000 and $7,730,000 respectively. At June 30, 1997, approximately $303,000 of loans were past due ninety days or more and still accruing. Unrecorded interest on the non-accrual loans totaled approximately $214,000 at June 30, 1997. No interest income was recorded on non- accrual loans for the nine months ended June 30, 1997. An analysis of the allowance for loan losses follows:
Nine months ended ------------------------------ Year ended September 30 June 30, 1996 June 30, 1997 --------------------------------------- 1994 1995 1996 (Unaudited) (Unaudited) --------------------------------------- ------------------------------ BALANCE, Beginning of period $1,137,983 $1,120,108 $1,119,159 $1,119,159 $1,132,963 Provision for loan losses 70,000 45,000 334,282 Transfers (54,718) (18,656) (3,000) Loans charged off (17,875) (949) (1,478) (422) (19,160) Recoveries 8,525 --------------------------------------- ------------------------------ BALANCE, End of period $1,120,108 $1,119,159 $1,132,963 $1,145,081 $1,453,610 ====================================== ===========================
Mortgage servicing rights totaling $117,642 were capitalized subsequent to the adoption of SFAS Nos. 125 and 127 on January 1, 1997. Amortization of these rights was $3,616 for the period ended June 30, 1997. The balance of $114,026 is included in "other assets" in the consolidated balance sheet. NOTE 4. PREMISES AND FIXED ASSETS Premises and fixed assets consisted of the following:
September 30 June 30, 1997 ----------------------- 1995 1996 (Unaudited) ----------------------- ------------- Land $1,130,286 $1,130,286 $1,426,586 Office buildings and improvements 3,035,138 3,073,018 3,566,258 Furniture and equipment 1,578,558 1,680,731 1,705,723 Automobiles 35,181 21,883 21,883 Property held for future expansion 20,584 20,584 20,584 Construction and purchases in progress 14,931 1,230,679 1,237,765 --------------------------------------- 5,814,678 7,157,181 7,978,799 Less accumulated depreciation 2,206,675 2,300,834 2,486,697 --------------------------------------- TOTAL $3,608,003 $4,856,347 $5,492,102 =======================================
The construction and purchases in progress account includes the expenditures for the South Hill and Lacey branch offices which are substantially completed at June 30, 1997. NOTE 5. OTHER REAL ESTATE OWNED Other real estate owned consisted of the following:
September 30 June 30, 1997 -------------------- 1995 1996 (Unaudited) -------------------- ------------- Real estate acquired through foreclosure $222,543 $194,765 $349,577 Allowance for possible losses (13,514) (70,232) (32,170) -------- -------- -------- TOTAL $209,029 $124,533 $317,407 ======== ======== ========
F-14 NOTE 5. (CONTINUED) An analysis of the allowance for possible losses follows:
Nine months ended ----------------------------- Year ended September 30 June 30, 1996 June 30, 1997 ----------------------------------------- ----------------------------- 1994 1995 1996 (Unaudited) (Unaudited) ----------------------------------------- ----------------------------- BALANCE, Beginning of period $ 24,147 $ 13,514 $ 13,514 $ 13,514 $ 70,232 Provision for additional losses 105 17,550 2,000 Transfers 54,718 18,656 3,000 Charged off (10,738) (17,550) (41,062) -------------------------------------------------------------------------- BALANCE, End of period $ 13,514 $ 13,514 $ 70,232 $ 32,170 $ 32,170 ========================================= =============================
NOTE 6. ACCRUED INTEREST RECEIVABLE Accrued interest receivable consisted of the following:
September 30 June 30, 1997 -------------------------- 1995 1996 (Unaudited) -------------------------- ------------ Loans receivable $ 939,752 $ 1,102,107 $ 1,226,698 Less reserve for uncollected interest 31,852 84,204 291,485 -------------------------- ------------ 907,900 1,017,903 935,213 Interest bearing deposits and securities 112,018 38,982 37,844 -------------------------- ------------ TOTAL $1,019,918 $ 1,056,885 $ 973,057 ========================== ============
NOTE 7. DEPOSITS Deposits consisted of the following:
September 30 June 30, 1997 ---------------------------- 1995 1996 (Unaudited) ---------------------------- ------------ Noninterest bearing $ 3,116,078 $ 3,571,060 $ 4,601,368 N.O.W. checking 17,524,549 18,002,534 17,514,549 Passbook savings 25,552,625 25,400,165 25,130,455 Money market accounts 12,734,336 13,364,304 13,666,733 Certificates of deposit 81,847,159 93,332,220 104,007,073 Other 2,309,476 2,879,134 2,220,234 ---------------------------- ------------ TOTAL $143,084,223 $156,549,417 $167,140,412 ============================ ============
The weighted-average interest rate on all deposits at September 30, 1995 and 1996, and at June 30, 1997, was 4.60 percent, 4.55 percent and 4.61 percent respectively. Officers, employees and trustees of the Savings Bank have deposits totaling $1,083,650, $1,089,823 and $1,024,895 at September 30, 1995 and 1996, and at June 30, 1997 respectively. Deposits of $100,000 or greater totaled $14,771,000, $17,721,000 and $24,577,000 at September 30, 1995 and 1996, and at June 30, 1997 respectively. F-15 NOTE 7. (CONTINUED) Scheduled maturities of certificates of deposit accounts are as follows:
September 30 ------------------------- June 30, 1997 1995 1996 (Unaudited) ------------------------- ------------ Within one year $52,658,051 $64,201,806 $ 77,096,398 One to two years 19,434,194 18,737,200 19,100,079 Two to five years 8,911,170 9,814,221 7,392,986 After five years 843,744 578,993 417,610 ------------------------- ------------ TOTAL $81,847,159 $93,332,220 $104,007,073 ========================= ============
Certificates of deposit by scheduled maturity and interest rate at June 30, 1997 (unaudited), are as follows:
WITHIN ONE TO TWO TO OVER FIVE INTEREST RATE RANGE ONE YEAR TWO YEARS FIVE YEARS YEARS TOTAL ------------------- ------------------------------------------------------------------------- 2.00 - 3.99% $ 158,181 $ -0- $ -0- $ -0- $ 158,181 5.00 - 5.99% 65,640,923 14,228,048 3,576,988 319,414 83,765,373 6.00 - 6.99% 10,843,217 1,901,576 2,195,512 1,095 14,941,400 7.00 and over 454,077 2,970,455 1,620,486 97,101 5,142,119 ------------------------------------------------------------------------- TOTAL $77,096,398 $19,100,079 $7,392,986 $417,610 $104,007,073 =========================================================================
Interest expense, by account type, is as follows:
Nine months ended ----------------------------- Year ended September 30 June 30, 1996 June 30, 1997 ----------------------------------------- 1994 1995 1996 (Unaudited) (Unaudited) ---------- ---------- ---------- ---------- ---------- Certificates of deposit $2,854,986 $3,980,879 $5,270,398 $3,892,999 $4,302,246 Money market accounts 379,040 468,575 520,235 392,546 377,370 Passbook savings 954,096 820,657 737,665 550,266 555,880 N.O.W. checking 427,956 425,493 421,187 311,337 329,734 ---------- ---------- ---------- ---------- ---------- TOTAL $4,616,078 $5,695,604 $6,949,485 $5,147,148 $5,565,230 ========== ========== ========== ========== ==========
NOTE 8. FEDERAL HOME LOAN BANK ADVANCES The Savings Bank has been approved for participation in the Federal Home Loan Bank of Seattle Cash Management Advance Program, maturing September 19, 1997, with a maximum facility of $9,244,000. Advances requested under this program are payable on demand or, if no demand is made, in one year from the date of advance and bear interest at the rate in effect at that time. Advances are subject to the existing Advances, Security and Deposit Agreement and are granted at the sole discretion of the Federal Home Loan Bank of Seattle. There were no advances outstanding under the Cash Management Advance Program at September 30, 1995 and 1996, or at June 30, 1997. Under the Advances, Security and Deposit Agreement which, including the Cash Management Advance Program, is maintained at 20 percent of total assets, the Savings Bank had advances at June 30, 1997, as follows:
Balance Borrowing Interest Rate Maturity Date (Unaudited) ------------- ------------- ------------- ------------ Fixed rate 5.60% 07/25/97 $ 1,500,000 Fixed rate 6.70% 04/28/98 500,000 Fixed rate (monthly amortization) 6.11% 02/22/02 455,318 Fixed rate callable 5.39% 06/03/02 10,000,000 Fixed rate (monthly amortization) 6.55% 02/22/06 1,315,261 ----------- $13,770,579 ===========
The weighted average rate for all advances at June 30, 1997 was 5.60 percent. Under the Advances, Security and Deposit Agreement, virtually all of the Savings Bank's assets, not otherwise encumbered, are pledged as collateral for advances. At June 30, 1997, annual repayments of FHLB advances, through June 30, 2002, and thereafter, totaled $2,120,601; $131,455; $143,274; $156,157; $10,310,407; and $908,676 respectively. F-16 NOTE 9. OTHER LIABILITIES AND ACCRUED EXPENSES Other liabilities and accrued expenses consisted of the following:
September 30 June 30, 1997 ----------------------- 1995 1996 (Unaudited) ----------------------- ------------- S.A.I.F. special assessment $ -0- $ 874,917 $ -0- Federal income taxes 363,967 237,735 361,173 Accrued pension and profit sharing 208,284 417,137 411,403 Accrued interest on deposits and FHLB advances 138,022 138,246 142,714 Accounts payable and accrued expenses - other 355,757 455,670 495,391 ----------------------- ---------- TOTAL $1,066,030 $2,123,705 $1,410,681 ======================= ==========
NOTE 10. CAPITAL The Savings Bank is required to maintain minimum risk-based capital of 8 percent of its adjusted total assets. At September 30, 1995 and 1996, and at June 30, 1997, the Savings Bank's capital to risk weighted assets was 17.0 percent, 16.8 percent and 16.9 percent respectively. The Savings Bank's total capital to total assets at September 30, 1995 and 1996, and at June 30, 1997, was 10.5 percent, 11.0 percent and 11.6 percent respectively, compared to a minimum requirement of 6.0 percent. NOTE 11. FEDERAL INCOME TAXES The Savings Bank has qualified under provisions of the Internal Revenue Code that permit federal income taxes to be computed after deduction of additions to bad debt reserves. Accordingly, capital includes approximately $2,100,000 for which no provision for federal income taxes has been made. If in the future capital is used for any purpose other than to absorb bad debt losses, federal income taxes at the current applicable rates would be imposed. The components of the provision for income taxes are as follows:
September 30 June 30, 1997 -------------------------------------- 1994 1995 1996 (Unaudited) ---------- ----------- ----------- -------------- Current $1,087,124 $1,422,976 $1,607,307 $1,315,629 Deferred (credit) 76,000 180,000 (188,000) 118,000 ---------- ---------- ---------- ------------- TOTAL $1,163,124 $1,602,976 $1,419,307 $1,433,629 ========== ========== ========== ============= The components of federal income taxes are as follows: September 30 June 30, 1997 ------------------------ 1995 1996 (Unaudited) ---------- ---------- --------- Current (receivable) $ (13,396) $ 48,911 $ 61,173 Deferred 370,000 182,000 300,000 Deferred, available-for-sale securities 7,363 6,824 -0- ---------- ---------- --------- TOTAL $ 363,967 $ 237,735 $ 361,173 ========== ========== =========
F-17 NOTE 11. (CONTINUED) The components of the Bank's deferred tax assets and liabilities are as follows:
September 30 June 30, 1997 -------------------- 1995 1996 (Unaudited) ------- ---------- ------------- Deferred tax assets: S.A.I.F. special assessment -0 $ 297,472 $ -0- Depreciation 20,723 22,620 32,450 Accrued vacation 16,046 18,112 24,806 Deferred compensation 15,010 30,021 41,278 Loans held for sale market value adjustment 877 30,387 21,332 ------ ---------- ---------- TOTAL DEFERRED TAX ASSETS 52,656 398,612 119,866 ------ ---------- ---------- Deferred tax liabilities: FHLB and FIIG stock dividends 35,477 277,692 295,902 Federal income tax bad debt deduction 53,644 269,274 85,361 Real estate sale, installment basis 33,535 33,212 32,872 Unrealized securities gains 7,363 6,824 -0- Other -0- 434 5,731 ------ ---------- ---------- TOTAL DEFERRED TAX LIABILITIES 430,019 587,436 419,866 ------ ---------- ---------- DEFERRED TAX LIABILITY - NET $377,363 $188,824 $ 300,000 ====================== ==========
The provision for federal income taxes differs from that computed at the statutory corporate tax rate as follows:
Year Ended September 30 June 30, 1997 ---------------------------------------- 1994 1995 1996 (Unaudited) ---------------------------------------- ---------- Tax provision at statutory rate $1,290,848 $1,564,907 $1,393,018 $1,354,396 Bad debt deduction (51,381) Gain on sale of other real estate owned (32,744) Nondeductible losses/ expenses - net (1,799) 10,021 27,659 12,372 Other - net (45,398) 28,048 (1,370) 66,861 ---------- ---------- ---------- ---------- TOTAL TAX EXPENSE $1,163,124 $1,602,976 $1,419,307 $1,433,629 ========== ========== ========== ==========
NOTE 12. PROFIT SHARING PLANS The Savings Bank maintains a tax-qualified profit sharing plan for the benefit of all eligible employees who are at least twenty-one years of age and work a minimum of 501 hours. The Savings Bank contributed $133,750, $148,976 and $177,581 to the plan in 1994, 1995 and 1996 respectively. Contributions are made on a discretionary basis. In addition, the Savings Bank has an employee bonus plan based on net income. Bonuses accrued for the years ended September 30, 1994, 1995 and 1996, totaled $105,336, $119,988 and $107,112 respectively. NOTE 13. DEFERRED COMPENSATION/NONCOMPETITION AGREEMENT The Savings Bank has a deferred compensation/noncompetition arrangement with its chief executive officer which will provide monthly payments of $1,600 per month if retirement occurs at age sixty-two or $2,000 per month if retirement occurs at age sixty-five. Once payments have commenced they will continue until his death, at which time payments will continue to his surviving spouse until her death or for sixty months. The present value of the payments based upon the life expectancy of the chief executive officer are being accrued based on a retirement age of sixty-five and are included in other liabilities in the consolidated financial statements. As of September 30, 1995 and 1996, and at June 30, 1997, $88,296, $132,444 and $165,555 respectively, has been accrued under the agreement. F-18 NOTE 14. FAIR VALUE OF FINANCIAL INSTRUMENTS The Savings Bank has adopted Statement of Financial Accounting Standards No. 107, Disclosure About Fair Value of Financial Instruments, which requires disclosure of estimated fair values for financial instruments. Such estimates are subjective in nature and significant judgment is required regarding the risk characteristics of various financial instruments at a discrete point in time. Therefore, such estimates could vary significantly if assumptions regarding uncertain factors were to change. Major assumptions, methods, and fair value estimates for the Savings Bank's significant financial instruments are set forth below. Cash and Due from Financial Institutions: The recorded amount is a reasonable estimate of fair value. Investments and Mortgage-backed Securities and Loans Held for Sale: The fair value of investments and mortgage-backed securities and loans held for sale have been based upon quoted market prices or dealer quotes. Loans Receivable - Net: Fair values for loans are estimated for portfolios of loans with similar financial characteristics. Fair value is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers for the same remaining maturities. Prepayments are based upon the historical experience of the Savings Bank. Other Assets, Other Liabilities and Accrued Expenses: The recorded amount is a reasonable estimate of fair value because of the short-term nature of these items. Deposits: The fair value of deposits with no stated maturity date are included at the amount payable on demand. The fair value of fixed- maturity certificates of deposit is estimated by discounting future cash flows using the rates currently offered by the Savings Bank for deposits of similar remaining maturities. Federal Home Loan Bank Advances: The fair value of borrowed funds is estimated by discounting the future cash flows of the borrowings at a rate which approximates the current offering rate of the borrowings with a comparable remaining life. The estimated fair values of financial instruments at September 30, 1996, are as follows:
RECORDED FAIR AMOUNT VALUE ------------ ------------ Financial assets: Cash and due from financial institutions $ 5,055,325 $ 5,055,000 Investments and mortgage-backed securities 6,522,470 6,437,000 Loans receivable - net and loans held for sale 176,494,943 179,491,000 Other assets 1,226,469 1,226,000 Financial liabilities: Deposits 156,549,309 157,126,000 Federal Home Loan Bank advances 14,354,380 14,412,000 Other liabilities and accrued expenses 2,123,705 2,124,000
F-19 NOTE 15. CONVERSION TO CAPITAL STOCK FORM OF OWNERSHIP (UNAUDITED): Subsequent to the issuance of the auditors' report on November 22, 1996, the Board of Trustees of the Savings Bank adopted a Plan of Conversion on July 10, 1997, to convert from a Washington-chartered mutual savings bank to a Washington-chartered capital stock savings bank with the concurrent formation of a holding company, subject to approval by the regulatory authorities and members of the Savings Bank. The conversion is expected to be accomplished through amendment of the Savings Bank's Washington charter and the sale of the holding company's common stock in an amount equal to the consolidated proforma market value of the holding company and the Savings Bank after giving effect to the conversion. The shares of common stock will be offered initially to the Savings Bank's depositors, employee benefit plans and to certain other eligible subscribers in a subscription offering. It is anticipated that any shares not purchased in the subscription offering will be offered in a direct community offering, and then any remaining shares offered to the general public in a syndicated community offering. At the time of the conversion, the Savings Bank will establish a liquidation account in an amount equal to its capital as of the last date of the consolidated statement of financial condition appearing in the final prospectus. The liquidation account will be maintained for the benefit of eligible account holders who continue to maintain their accounts at the Savings Bank after conversion. The liquidation account will be reduced annually to the extent that eligible account holders have reduced their qualifying deposits as of each anniversary date. Subsequent increases will not restore an eligible account holder's interest in the liquidation account. In the event of a complete liquidation of the Savings Bank, each eligible account holder will be entitled to receive a distribution from the liquidation account in an amount proportionate to the current adjusted qualifying balances for accounts then held. Under Washington law, the holding company is prohibited from paying a dividend if, as a result of its payment, the holding company would be unable to pay its debts as they become due in the normal course of business, or if the Holding Company's total liabilities would exceed its total assets. As a converted institution, the Savings Bank also will be subject to the regulatory restriction that it will not be permitted to declare or pay a dividend on or repurchase any of its capital stock if the effect thereof would be to cause its regulatory capital to be reduced below the amount required for the liquidation account established in connection with the conversion. Conversion costs will be deferred and reduce the proceeds from the shares sold in the conversion. If the conversion is not completed, all costs will be charged as an expense. Conversion costs incurred for the nine months ended June 30, 1997, were immaterial. F-20 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 other information or representation must not be relied upon as having been authorized by the Holding Company, the Savings Bank or Webb. 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 or 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 to make such offer or solicitation in such jurisdiction. 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 Holding Company, or the Savings Bank since any of the dates as of which information is furnished herein or since the date hereof.
Table of Contents Page ----------------- ---- Prospectus Summary ................................ Selected Consolidated Financial Information ....... Risk Factors ...................................... Timberland Bancorp, Inc. .......................... Timberland Savings Bank, SSB ...................... Use of Proceeds ................................... Dividend Policy ................................... Market for Common Stock ........................... Capitalization .................................... Historical and Pro Forma Capital Compliance ....... Pro Forma Data .................................... Timberland Savings Bank, SSB and Subsidiary ....... Consolidated Statements of Income ................. Management's Discussion and Analysis of Financial Condition and Results of Operations ..... Business of the Holding Company ................... Business of the Savings Bank ...................... Management of the Holding Company ................. Management of the Savings Bank .................... Regulation ........................................ Taxation .......................................... The Conversion .................................... Restrictions on Acquisition of the Holding Company Description of Capital Stock of the Holding Company Registration Requirements ......................... Legal and Tax Opinions ............................ Experts ........................................... Additional Information ............................ Index to Consolidated Financial Statements ........
UNTIL THE LATER OF ___________ __, 1997, OR 25 DAYS AFTER COMMENCEMENT OF THE SYNDICATED COMMUNITY OFFERING OF COMMON STOCK, IF ANY, 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. TIMBERLAND BANCORP, INC. [Logo] (Proposed Holding Company for Timberland Savings Bank, SSB) 4,250,000 to 5,750,000 Shares of Common Stock ---------------- PROSPECTUS ---------------- CHARLES WEBB AND COMPANY, a division of Keefe, Bruyette & Woods, Inc. _________ __, 1997 PART II: INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Distribution(1) Legal fees and expenses......................... $150,000 Securities Marketing Firm legal fees............ 35,000 EDGAR, printing, postage, copying and mailing... 100,000 Appraisal/business plan fees.................... 27,500 Accounting fees................................. 85,000 Securities marketing fees....................... 500,000(1) Data processing fees and expenses............... 7,500 SEC filing fee.................................. 20,000 Washington filing fee........................... 2,000 Blue sky legal fees and expenses................ 5,000 Other........................................... 33,000 -------- Total....................................... $965,000 ======== - ----------
(1) Equal to 1.25% of the aggregate dollar amount of stock sold (excluding shares sold to officers, directors, their associates and the ESOP), not to exceed $500,000. Item 14. Indemnification of Officers and Directors In accordance with the Washington Business Corporation Law, RCW (S)23B.08.570, Article XIII of the Registrant's Articles of Incorporation provides as follows: "ARTICLE XIII. INDEMNIFICATION. The corporation shall indemnify and advance expenses to its directors, officers, agents and employees as follows: A. Directors and Officers. In all circumstances and to the full ---------------------- extent permitted by the Washington Business Corporation Act now or hereafter in force, the corporation shall indemnify any person who is or was a director, officer or agent of the corporation and who was or 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 and whether formal or informal (including an action by or in the right of the corporation), by reason of the fact that he is or was an agent of the corporation, against expenses, judgments, fines, and amounts paid in settlement and incurred by him in connection with such action, suit or proceeding. However, such indemnity shall not apply on account of: (a) acts or omissions of the director and officer finally adjudged to be in violation of law; (b) conduct of the director and officer finally adjudged to be in violation of RCW 23B.08.310, or (c) any transaction with respect to which it was finally adjudged that such director and officer personally received a benefit in money, property, or services to which the director was not legally entitled. The corporation shall advance expenses incurred in a proceeding for such persons pursuant to the terms set forth in a separate directors' resolution or contract. B. Implementation. The Board of Directors may take such action as -------------- is necessary to carry out these indemnification and expense advancement provisions. It is expressly empowered to adopt, approve and amend from time to time such Bylaws, resolutions, contracts or further indemnification and expense advancement arrangements as may be permitted by law, implementing these provisions. Such Bylaws, resolutions, contracts, or further arrangements shall include, but not be limited to, implementing the manner in which determinations as to any indemnity or advancement of expenses shall be made. C. Survival of Indemnification Rights. No amendment or repeal of ---------------------------------- this Article shall apply to or have any effect on any right to indemnification provided hereunder with respect to acts or omissions occurring prior to such amendment or repeal. II-1 D. Service for Other Entities. The indemnification and advancement -------------------------- of expenses provided under this Article shall apply to directors, officers, employees, or agents of the corporation for both (a) service in such capacities for the corporation, and (b) service at the corporations's request as a director, officer, partner, trustee, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise. A person is considered to be serving an employee benefit plan at the corporation's request if such person's duties to the corporation also impose duties on, or otherwise involve services by, the director to the plan or to participants in or beneficiaries of the plan. E. Insurance. The corporation may purchase and maintain insurance --------- on behalf of any person who 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, trustee, officer, employee, or agent of another corporation, partnership, joint venture, trust or other enterprise against liability asserted against him and incurred by him in such capacity or arising out of his status as such, whether or not the corporation would have had the power to indemnify him against such liability under the provisions of this bylaw and Washington law. F. Other Rights. The indemnification provided by this section shall ------------ not be deemed exclusive of any other right to which those indemnified may be entitled under any other bylaw, agreement, vote of stockholders, or disinterested directors, or otherwise, both as to action in his official capacity and as to action in another capacity while holding such an office, and shall continue as to a person who has ceased to be a director, trustee, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such person." Item 15. Recent Sales of Unregistered Securities. Not Applicable Item 16. Exhibits and Financial Statement Schedules: The financial statements and exhibits filed as part of this Registration Statement are as follows: (a) List of Exhibits 1.1 - Form of proposed Agency Agreement among Timberland Bancorp, Inc., Timberland Savings Bank, SSB and Charles Webb & Co. 1.2 - Engagement Letter between Timberland Savings Bank, SSB and Charles Webb & Co. (a) 2 - Plan of Conversion of Timberland Savings Bank, SSB (attached as an exhibit to the Proxy Statement included herein as Exhibit 99.5) 3.1 - Articles of Incorporation of Timberland Bancorp, Inc. (a) 3.2 - Bylaws of Timberland Bancorp, Inc. (a) 4 - Form of Certificate for Common Stock (a) 5 - Opinion of Breyer & Aguggia regarding legality of securities registered (a) 8.1 - Federal Tax Opinion of Breyer & Aguggia (a) 8.2 - State Tax Opinion of Dwyer Pemberton and Coulson, P.C. (a) 8.3 - Opinion of RP Financial, LP as to the value of subscription rights (a)
II-2 10.1 - Proposed Form of Employee Stock Ownership Plan (a) 10.2 - Timberland Savings Bank, SSB 401(k) Plan 10.3 - Proposed Form of Timberland Savings Bank, SSB Employee Severance Compensation Plan (a) 21 - Subsidiaries of Timberland Bancorp, Inc. (a) 23.1 - Consent of Dwyer Pemberton and Coulson, P.C. 23.2 - Consent of Breyer & Aguggia (contained in opinion included as Exhibit 5) (a) 23.3 - Consent of Breyer & Aguggia as to its Federal Tax Opinion (contained in opinion included as Exhibit 8.1) (a) 23.4 - Consent of Dwyer Pemberton and Coulson, P.C. as to its State Tax Opinion (contained in opinion included in Exhibit 8.2) (a) 23.5 - Consent of RP Financial, LC. (a) 24 - Power of Attorney (contained in signature page to the Registration Statement) (a) 99.1 - Order and Certification Form (contained in the marketing materials included as Exhibit 99.2) (a) 99.2 - Solicitation and Marketing Materials (a) 99.3 - Appraisal Agreement with RP Financial, LC. (a) 99.4 - Appraisal Report of RP Financial, LC. 99.5 - Proxy Statement for Special Meeting of Members of Timberland Savings Bank, SSB
- --------------------- (a) Previously filed. II-3 Financial Statements and Schedules TIMBERLAND SAVINGS BANK, SSB AND SUBSIDIARY
Pages Independent Auditors' Report - Dwyer Pemberton and Coulson, P.C........ F-1 Consolidated Balance Sheets as of June 30, 1997 and September 30, 1996................................................ F-2 Consolidated Statements of Income for the Nine Months Ended June 30, 1997 and the Years Ended September 30, 1996 and 1995....................... 21 Consolidated Statements of Equity for the Nine Months Ended June 30, 1997 and for the Years Ended September 30, 1996 and 1995............................... F-3 Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 1997 and the Years Ended September 30, 1996 and 1995....................... F-4 Notes to Consolidated Financial Statements............................. F-5
All schedules are omitted because the required information is either not applicable or is included in the financial statements or related notes. Item 17. Undertakings The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933, as amended ("Securities Act"); (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post- effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high and of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. II-4 (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended ("Exchange Act") (and, where applicable, each filing of any employee benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant 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 liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant 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 Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the questions whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Amended Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Hoquiam, Washington on the 29th day of October 1997. TIMBERLAND BANCORP, INC. By: /s/ Clarence E. Hamre ------------------------------------------ Clarence E. Hamre President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, as amended, this Amended Registration Statement has been signed below by the following persons in the capacities and on the dates indicated. Signatures Title Date - ---------- ----- ---- /s/Clarence E. Hamre Chairman of the Board, October 29, 1997 - ----------------------------- President and Chief Clarence E. Hamre Executive Officer (Principal Executive Officer) /s/Michael R. Sand* Executive Vice President, October 29, 1997 - ----------------------------- Secretary, and Director Michael R. Sand (Principal Financial and Accounting Officer) /s/Andrea M. Clinton* Director October 29, 1997 - ----------------------------- Andrea M. Clinton /s/Robert Backstrom* Director October 29, 1997 - ----------------------------- Robert Backstrom /s/Richard R. Morris* Director October 29, 1997 - ----------------------------- Richard R. Morris /s/Alan E. Smith* Director October 29, 1997 - ----------------------------- Alan E. Smith /s/Peter J. Majar* Director October 29, 1997 - ----------------------------- Peter J. Majar /s/Jon C. Parker* Director October 29, 1997 - ----------------------------- Jon C. Parker /s/James C. Mason* Director October 29, 1997 - ----------------------------- James C. Mason - ----------------- * By power of attorney dated September 17, 1997. As filed with the Securities and Exchange Commission on October 29, 1997 Registration No. 333-35817 - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 EXHIBITS TO AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 TIMBERLAND BANCORP, INC. ------------------------------------------------------ (Exact name of registrant as specified in charter) Washington 6036 91-1863696 - ------------------------------- ------------------ ------------------ (State or other jurisdiction of (Primary SICC No.) (I.R.S. Employer incorporation or organization) Identification No.) 624 SIMPSON AVENUE HOQUIAM, WASHINGTON 98550 (360) 533-4747 ------------------------------------------------------------- (Address and telephone number of principal executive offices) John F. Breyer, Jr., Esquire Victor L. Cangelosi, Esquire BREYER & AGUGGIA Suite 470 East 1300 I Street, N.W. Washington, D.C. 20005 --------------------------------------- (Name and address of agent for service) INDEX TO EXHIBITS 1.1 - Form of proposed Agency Agreement among Timberland Bancorp, Inc., Timberland Savings Bank, SSB and Charles Webb & Co. 1.2 - Engagement Letter between Timberland Savings Bank, SSB and Charles Webb & Co. (a) 2 - Plan of Conversion of Timberland Savings Bank, SSB (attached as an exhibit to the Proxy Statement included herein as Exhibit 99.5) 3.1 - Articles of Incorporation of Timberland Bancorp, Inc. (a) 3.2 - Bylaws of Timberland Bancorp, Inc. (a) 4 - Form of Certificate for Common Stock (a) 5 - Opinion of Breyer & Aguggia regarding legality of securities registered (a) 8.1 - Federal Tax Opinion of Breyer & Aguggia (a) 8.2 - State Tax Opinion of Dwyer Pemberton and Coulson, P.C. (a) 8.3 - Opinion of RP Financial, LP as to the value of subscription rights (a) 10.1 - Proposed Form of Employee Stock Ownership Plan (a) 10.2 - Timberland Savings Bank, SSB 401(k) Plan 10.3 - Proposed Form of Timberland Savings Bank, SSB Employee Severance Compensation Plan (a) 21 - Subsidiaries of Timberland Bancorp, Inc. (a) 23.1 - Consent of Dwyer Pemberton and Coulson, P.C. 23.2 - Consent of Breyer & Aguggia (contained in opinion included as Exhibit 5)(a) 23.3 - Consent of Breyer & Aguggia as to its Federal Tax Opinion (contained in opinion included as Exhibit 8.1)(a) 23.4 - Consent of Dwyer Pemberton and Coulson, P.C. as to its State Tax Opinion (contained in opinion included in Exhibit 8.2)(a) 23.5 - Consent of RP Financial, LC. (a) 24 - Power of Attorney (contained in signature page to the Registration Statement) (a) 99.1 - Order and Certification Form (contained in the marketing materials included as Exhibit 99.2) (a) 99.2 - Solicitation and Marketing Materials (a) 99.3 - Appraisal Agreement with RP Financial, LC. (a) 99.4 - Appraisal Report of RP Financial, LC. 99.5 - Proxy Statement for Special Meeting of Members of Timberland Savings Bank, SSB
- --------------------- (a) Previously filed. EX-1.1 2 FORM OF PROPOSED AGENCY AGREEMENT EXHIBIT 1.1 FORM OF PROPOSED AGENCY AGREEMENT AMONG TIMBERLAND BANCORP, INC., TIMBERLAND SAVINGS BANK, SSB AND CHARLES WEBB & CO. TIMBERLAND BANCORP, INC. Up to 6,612,500 Shares COMMON STOCK ($0.01 Par Value) Subscription Price $10.00 Per Share AGENCY AGREEMENT ---------------- ____________, 1997 Charles Webb & Company 211 Bradenton Drive Dublin, Ohio 43017-5034 Ladies and Gentlemen: Timberland Bancorp, Inc., a Washington corporation (the "Company") and Timberland Savings Bank, S.S.B., Hoquiam, Washington, a Washington state chartered mutual savings bank (the "Bank," which shall include all references to the Bank in the mutual or stock form, as indicated by the context), with its deposit accounts insured by the Savings Association Insurance Fund ("SAIF") administered by the Federal Deposit Insurance Corporation ("FDIC"), hereby confirm their agreement with Charles Webb & Company, a division of Keefe, Bruyette & Woods, Inc. ("Webb") as follows: SECTION 1. THE OFFERING. The Bank, in accordance with its plan of ------------ conversion adopted by its Board of Trustees of the Bank (the "Plan"), intends to convert from a state chartered mutual savings bank to a state chartered stock savings bank, and to issue all of its issued and outstanding capital stock to the Company. In addition, pursuant to the Plan, the Company will offer and sell up to 6,612,500 shares of its common stock, par value $0.01 per share (the "Shares" or "Common Stock"), in a subscription offering (the "Subscription Offering") to (1) depositors of the Bank with savings accounts of $50 or more as of December 31, 1995 ("Eligible Account Holders"), (2) the Bank's Employee Stock Ownership Plan ("ESOP"), (3) depositors of the Bank with savings accounts of $50 or more as of ____________, 1997 ("Supplemental Eligible Account Holders") and (4) depositors of the Bank as of the Voting Record date, __________, 1997 ("Other Members"). Subject to the prior subscription rights of the above-listed parties, the Company is offering for sale in a direct community offering (the "Community Offering" and, when referred to together with the Subscription Offering, the "Subscription and Community Offering") conducted concurrently with the Subscription Offering, the Shares not so subscribed for or ordered in the Subscription Offering to certain members of the general public to whom a copy of the Prospectus (as hereinafter defined) is delivered, with a preference given to natural persons and trusts of natural persons who are permanent residents of Grays Harbor, Thurston, Pierce and King Counties of Washington (the "Local Community") ("Other Subscribers") (all such offerees being referred to in the aggregate as "Eligible Offerees"). It is anticipated that shares not subscribed for in the Subscription and Community Offering will be offered to members of the general public on a best efforts basis by a selling group of broker-dealers managed by Webb (the "Syndicated Community Offering") (the Subscription Offering, Community Offering and Syndicated Community Offering are collectively referred to as the "Offering"). It is acknowledged that the purchase of Shares in the Offering is subject to the maximum and minimum purchase limitations as described in the Plan and that the Company and the Bank may reject, in whole or in part, any orders received in the Community Offering or Syndicated Community Offering. Collectively, these transactions are referred to herein as the "Conversion." The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-1 (File No. 333-35817) (the "Registration Statement") containing a prospectus relating to the Offering for the registration of the Shares under the Securities Act of 1933 (the "1933 Act"), and has filed such amendments thereof, if any, and such amended prospectuses as may have been required to the date hereof. The prospectus, as amended, on file with the Commission at the time the Registration Statement initially became effective is hereinafter called the "Prospectus," except that if any prospectus is filed by the Company pursuant to Rule 424(b) or (c) of the rules and regulations of the Commission under the 1933 Act (the "1933 Act Regulations") differing from the prospectus on file at the time the Registration Statement initially becomes effective, the term "Prospectus" shall refer to the prospectus filed pursuant to Rule 424(b) or (c) from and after the time said prospectus is filed with the Commission. In accordance with the Revised Code of Washington (the "RCW"), the Bank has filed with the Washington Department of Financial Institutions, Division of Banks (the "Division") an Application for Conversion (the "Conversion Application"), including the prospectus, and has filed such amendments thereto, if any, as may have been required by the Division. The Conversion Application has been approved by the Division and the related Prospectus has been authorized for use by the Division. The Bank has also filed a Notice of Conversion (the "Notice") with the FDIC and has filed such amendments thereto as may have been required by the FDIC. The FDIC has provided the Bank with a Notice of Non- Objection (the "Non-Objection Notice") to the Conversion. In addition, the Company has filed with the Board of Governors of the Federal Reserve System ("FRB") and the Division an application (the "Holding Company Application") to become a bank holding company and for approval to acquire the Bank. SECTION 2. RETENTION OF WEBB; COMPENSATION; SALE AND DELIVERY OF THE --------------------------------------------------------- SHARES. Subject to the terms and conditions herein set forth, the Company and - ------ the Bank hereby appoint Webb (ii) as their exclusive financial advisory and marketing agent to utilize its best efforts to solicit subscriptions for Shares of the Common Stock and to advise and assist the Company and the Bank 2 with respect to the Company's sale of the Shares in the Offering and (ii) to participate in the Offering in the areas of market making, research coverage and syndicate formation (if necessary). On the basis of the representations, warranties, and agreements herein contained, but subject to the terms and conditions herein set forth, Webb accepts such appointment and agrees to consult with and advise the Company and the Bank as to the matters set forth in the letter agreement ("Letter Agreement"), dated July 28, 1997, between the Bank and Webb (a copy of which is attached hereto as Exhibit A). It is acknowledged by the Company and the Bank that Webb shall not be required to purchase any Shares and shall not be obligated to take any action which is inconsistent with all applicable laws, regulations, decisions or orders. In the event of a Syndicated Community Offering, Webb will assemble and manage a selling group of broker-dealers which are members of the National Association of Securities Dealers, Inc. (the "NASD") to participate in the solicitation of purchase orders for shares under a selected dealers' agreement ("Selected Dealers' Agreement"), the form of which is set forth as Exhibit B to this Agreement. The obligations of Webb pursuant to this Agreement shall terminate upon the completion or termination or abandonment of the Plan by the Company or upon termination of the Offering, but in no event later than March 31, 1998 (the "End Date"). All fees or expenses due to Webb but unpaid will be payable to Webb in next day funds at the earlier of the Closing Date (as hereinafter defined) or the End Date. In the event the Offering is extended beyond the End Date, the Company, the Bank and Webb may agree to renew this Agreement under mutually acceptable terms. In the event the Company is unable to sell a minimum of 4,250,000 Shares (or such lesser amount approved by the Division) within the period herein provided, this Agreement shall terminate and the Company shall refund to any persons who have subscribed for any of the Shares, the full amount which it may have received from them plus accrued interest as set forth in the Prospectus; and none of the parties to this Agreement shall have any obligation to the other parties hereunder, except as otherwise set forth in this Section 2 and in Sections 6, 8 and 9 hereof. In the event the Offering is terminated for any reason not attributable to the action or inaction of Webb, Webb shall be paid the fees and expenses due to the date of such termination pursuant to subparagraphs (a) and (d) below. If all conditions precedent to the consummation of the Conversion, including, without limitation, the sale of all Shares required by the Plan to be sold, are satisfied, the Company agrees to issue, or have issued, the Shares sold in the Offering and to release for delivery certificates for such Shares on the Closing Date (as hereinafter defined) against payment to the Company by any means authorized by the Plan, provided however, that no funds shall be released to the Company until the conditions specified in Section 7 hereof shall have been complied with to the reasonable satisfaction of Webb and its counsel. The release of Shares against payment therefor shall be made at _____ _.m., Pacific Time, on a date and at a place acceptable to the Company, the Bank and Webb (it being understood that such date shall not be more than ten business days after termination of the Offering) or such other time or place as shall be agreed upon by the Company, the Bank and Webb. 3 Certificates for shares shall be delivered directly to the purchasers in accordance with their directions. The date upon which the Company shall release or deliver, or have released or delivered, the Shares sold in the Offering, in accordance with the terms herein, is called the "Closing Date." Webb shall receive the following compensation for their services hereunder: (a) A management fee to Webb in the amount of $25,000 payable in four consecutive monthly installments of $6,250 commencing on August 1, 1997. Should the Conversion be terminated for any reason not attributable to the action or inaction of Webb, Webb shall have earned and be entitled to be paid fees accruing through the stage at which point the termination occurred. (b) A success fee of 1.25% of the dollar amount of Common Stock sold in the Subscription and Community Offering, excluding Common Stock purchased by directors, officers and employees (and members of their immediate families) of the Bank and by the ESOP and any tax-qualified or stock-based compensation plan (excluding individual retirement plans ("IRAs")) and any similar plan created by the Bank for some or all of its directors or employees, payable on the Closing Date. Such success fee shall not exceed $500,000. (c) If any shares of the Company's stock remain available after the Subscription and Community Offering, at the request of the Bank, Webb will seek to form a syndicate of registered broker-dealers to assist in the sale of such shares of Common Stock on a best efforts basis, subject to the terms and conditions set forth in the selected dealers agreement. Webb will endeavor to distribute the Common Stock among dealers in a fashion which best meets the distribution objectives of the Bank and the Plan of Conversion. Webb will be paid a fee not to exceed 5.5% of the aggregate Purchase Price of the shares of Common Stock sold pursuant to the selected dealers agreement and then will pass on to selected broker-dealers who assist in the syndicated community an amount competitive with gross underwriting discounts charged at such time for comparable amounts of stock sold at a comparable price per share in a similar market environment. Fees with respect to purchases affected with the assistance of a broker/dealer shall be transmitted by Webb to such broker/dealer. The decision to utilize selected broker-dealers will be made by the Bank upon consultation with Webb. In the event, with respect to any stock purchases, fees are paid pursuant to this subparagraph 2(c), such fees shall be in lieu of, and not in addition to, payment pursuant to subparagraphs 2(a) and 2(b). (d) The Bank and the Company hereby agree to reimburse Webb, from time to time upon Webb's request, for its reasonable out-of-pocket expenses and the reasonable fees and expenses of its counsel (such fees of counsel will not be incurred without the prior approval of the Bank). Such reimbursement of legal fees shall not exceed $35,000. The Bank will bear the expenses of the Offering customarily borne by issuers including, without limitation, Division, SEC, "Blue Sky," and NASD filing and registration fees; the fees of the Bank's accountants, conversion agent, attorneys, appraiser, transfer agent and registrar, printing, mailing and marketing expenses associated with the Conversion; and the fees set forth under this Section 2. 4 Full payment of Webb's actual and accountable expenses, advisory fees and compensation shall be made in next day funds on the earlier of the Closing Date or a determination by the Bank to terminate or abandon the Plan. The Bank shall pay Webb $7,500, plus reimbursement of reasonable out-of pocket expenses, for the performance of conversion agent and other data processing duties related to the Conversion. Webb shall subcontract such duties. Webb will provide financial advisory assistance for a period of one year following completion of the Conversion as set forth in the Letter Agreement. Following this initial one-year term, if Webb and the Company wish to continue the relationship, a fee will be negotiated and an agreement entered into at that time. SECTION 3. PROSPECTUS: OFFERING. The Shares are to be initially offered -------------------- in the Offering at the Purchase Price as defined and set forth on the cover page of the Prospectus. SECTION 4. REPRESENTATIONS AND WARRANTIES. The Company and the Bank ------------------------------ jointly and severally represent and warrant to Webb on the date hereof as follows: (a) The Registration Statement was declared effective by the Commission on __________, 1997. At the time the Registration Statement, including the Prospectus contained therein (including any amendment or supplement thereto), became effective, the Registration Statement complied in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations and the Registration Statement, including the Prospectus contained therein (including any amendment or supplement thereto), and any information regarding the Company or the Bank contained in Sales Information (as such term is defined in Section 8 hereof) authorized by the Company or the Bank for use in connection with the Offering, 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, in light of the circumstances under which they were made, not misleading, and at the time any Rule 424(b) or (c) Prospectus was filed with the Commission; provided, however, that the representations and warranties in this Section 4(a) shall not apply to statements or omissions made in reliance upon and in conformity with written information furnished to the Company or the Bank by Webb expressly regarding Webb for use in the Prospectus under the captions "The Conversion-Plan of Distribution for the Subscription, Direct Community and Syndicated of Community Offerings" and "-Description of Sales Activities" or statements in or omissions from any Sales Information or information filed pursuant to state securities or blue sky laws or regulations regarding Webb. (b) The Bank has filed with the Division, pursuant to the RCW, the Conversion Application and filed the FDIC Notice, including the Conversion Application, with the FDIC and has filed such amendments thereto and supplementary materials as may have been required to the date hereof including copies of the Bank's Proxy Statement, to be dated ______________, 1997 5 relating to the Conversion (the "Proxy Statement"), and the Prospectus. The Division has, by order dated ______________, 1997, approved the Conversion Application, such order remains in full force and effect and no order has been issued by the Division suspending or revoking such order and no proceedings therefor have been initiated or, to the knowledge of the Company or the Bank, threatened by the Division. At the date of such approval and at the Closing Date referred to in Section 2, the Conversion Application complied and will comply in all material respects with the applicable provisions of the RCW. The FDIC has, by letter dated __________, 1997, issued the Non-Objection Notice, such letter remains in full force and effect and no letter or order has been issued by the FDIC suspending or revoking such letter and no proceedings therefor have been initiated or, to the knowledge of the Company or the Bank, threatened by the FDIC. At the date of such approval, the FDIC Notice complied in all material respects with the applicable provisions of the FDIC conversion regulations (the "Conversion Regulations"). The Conversion Application and the FDIC Notice, including the Prospectus (including any amendment or supplement thereto), do not include any untrue statement of a 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; provided, however, that the representations and warranties in this Section 4(b) shall not apply to statements or omissions made in reliance upon and in conformity with written information furnished to the Company or the Bank by Webb expressly regarding Webb for use in the Prospectus contained in the Conversion Application under the caption "The Conversion-Plan of Distribution for the Subscription, Direct Community and Syndicated Community Offerings" or statements in or omissions from any sales information or information filed pursuant to state securities or blue sky laws or regulations regarding Webb. (c) The Company has filed with the FRB the Company's application for approval of its acquisition of the Bank on Form FR Y-3 (the "FR Y-3 Application") pursuant to Section 3(a) of the Bank Holding Company Act of 1956, as amended ("BHCA") and the regulations promulgated thereunder. (d) No order has been issued by the Commission, the FDIC, the FRB or the Division preventing or suspending the use of the Prospectus and no action by or before any such government entity to revoke any approval, authorization or order of effectiveness related to the Conversion is, to the best knowledge of the Company or the Bank, pending or threatened. (e) To the best knowledge of the Company, no person has sought to obtain review of the final action of the FDIC, the FRB or the Division in approving or taking no objection to the Plan or in approving the Conversion or the Holding Company Application pursuant to the RCW, the Conversion Regulations, the BHCA, or any other applicable statute or regulation. (f) At the time of their use, the Proxy Statement and any other proxy solicitation materials will complying all material respects with the applicable provisions of the RCW and will 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 the light of the circumstances under which they were made, not 6 misleading. The Company and the Bank will promptly file the Prospectus and any supplemental sales literature with the Division and the FDIC. The Prospectus and all supplemental sales literature, as of the date the Registration Statement became effective and at the Closing Date referred to in Section 2, complied and will comply in all material respects with the applicable requirements of the RCW and the Conversion Regulations and, at or prior to the time of their first use, will have received all required authorizations of the Division and the FDIC for use in final form. (g) The Bank has been duly organized and is a validly existing state chartered savings bank in the mutual form of organization under the laws of the State of Washington and upon consummation of the Conversion will become a duly organized and validly existing state chartered savings bank in the capital stock form of organization under the laws of the State of Washington, in both instances duly authorized to conduct its business and own its property as described in the Registration Statement and the Prospectus; the Bank has obtained all material licenses, permits and other governmental authorizations currently required for the conduct of its business; all such licenses, permits and governmental authorizations are in full force and effect, and the Bank is in all material respects complying with all laws, rules, regulations and orders applicable to the operation of its business; the Bank is existing under the laws of the State of Washington and is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which its ownership of property or leasing of property or the conduct of its business requires such qualification, unless the failure to be so qualified in one or more of such jurisdictions would not have a material adverse effect on the financial condition, or the business, operations or income of the Bank. The Bank does not own equity securities or any equity interest in any other business enterprise except as described in the Prospectus or as would not be material to the operations of the Bank. (h) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Washington with corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement and the Prospectus, and the Company is qualified to do business as a foreign corporation in each jurisdiction in which the conduct of its business requires such qualification, except where the failure to so qualify would not have a material adverse effect on the financial condition, or the business, operations or income of the Company. The Company has obtained all material licenses, permits and other governmental authorizations currently required for the conduct of its business; all such licenses, permits and ,governmental authorizations are in full force and effect, and the Company is in all material respects complying with all laws, rules, regulations and orders applicable to the operation of its business. (i) The Bank's wholly owned subsidiary, Timberland Service Corporation (the "Subsidiary"), is duly incorporated and validly existing as a corporation in good standing under the laws of the State of Washington, and is duly licensed and possessed of full corporate power and authority to own its properties and conduct its business as described in the Prospectus and is duly qualified to transact business and is in good standing in each jurisdiction in which the failure to so qualify would have a material adverse effect on the financial condition, results of operations or 7 business prospects of the Company, the Bank and the Subsidiary, taken as a whole; the activities of the Subsidiary are permitted to subsidiaries of a Washington state chartered savings bank by the rules, regulations, resolutions and practices of the Division; all of the issued and outstanding capital stock of the Subsidiary has been duly authorized and validly issued, is fully paid and nonassessable and is owned by the Bank, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equitable claim. (j) The Bank is a member of the Federal Home Loan Bank of Seattle ("FHLB- Seattle"). The deposit accounts of the Bank are insured by the FDIC up to the applicable limits; and no proceedings for the termination or revocation of such insurance are pending or, to the best knowledge of the Bank, threatened. Upon consummation of the Conversion, the liquidation account for the benefit of Eligible Account Holders and Supplemental Eligible Account Holders will be duly established in accordance with the requirements of the RCW and the Conversion Regulations. (k) The Company and the Bank have good and marketable title to all real property and other assets material to the business of the Company and the Bank and to those properties and assets described in the Registration Statement and Prospectus as owned by them, free and clear of all liens, charges, encumbrances or restrictions, except such as are described in the Registration Statement and Prospectus or are not material to the business of the Company and the Bank taken as a whole; and all of the leases and subleases material to the business of the Company and the Bank under which the Company or the Bank hold properties, including those described in the Registration Statement and Prospectus, are valid and binding agreements of the Company, the Bank or the Subsidiary, enforceable in accordance with their terms, subject, as to enforceability, to bankruptcy, insolvency, reorganization, moratorium and other laws of general applicability relating to or affecting creditors' rights, and to general principles of equity. (l) The Company and the Bank have all such power, authority, authorizations, approvals and orders as may be required to enter into this Agreement, to carry out the provisions and conditions hereof and to issue and sell (i) the capital stock of the Bank to the Company and (ii) the Shares to be sold by the Company as provided herein and as described in the Prospectus. (m) The Company and the Bank are not in violation of any directive received from the FDIC, the FRB or the Division to make any material change in the method of conducting their businesses so as to comply in all material respects with all applicable statutes and regulations (including, without limitation, regulations, decisions, directives and orders of the FDIC, the FRB and the Division), and, except as set forth in the Registration Statement and the Prospectus, there is no action, suit or proceeding before or by any court, regulatory authority or governmental agency or body, pending or, to the knowledge of the Company and the Bank, threatened, which would materially and adversely affect the Conversion, the performance of this Agreement or the consummation of the transactions contemplated in the Plan and as described in the Registration Statement and the Prospectus or which would result in any material adverse change in the financial condition, results of operations or business prospects of the Company, or the Bank. 8 (n) The Bank has obtained opinions of its special counsel, Breyer & Aguggia, with respect to the legality of the Securities issued and the federal income tax consequences of the Conversion copies of which are filed as exhibits to the Registration Statement; the summaries of the aforesaid opinions as disclosed in the Prospectus are accurate and complete in all material respects; and the facts and representations upon which such opinions are based are truthful, accurate and complete in all material respects, and neither the Bank nor the Company has taken or will take any action inconsistent therewith. (o) The consolidated financial statements which are included in the Prospectus fairly present the financial condition, results of operations, retained earnings and cash flows of the Bank at the respective dates thereof and for the respective periods covered thereby and comply as to form in all material respects with the applicable accounting requirements of the Commission, and the rules and regulations of the FDIC and the Division. Such financial statements have been prepared in accordance with generally accepted accounting principles consistently applied through the periods involved except as noted therein, present fairly in all material respects the information required to be stated therein and are consistent with the most recent financial statements and other reports filed by the Bank with the Division and the FDIC. The other financial, statistical and pro forma information and related notes (except the appraisal data) included in the Prospectus present fairly the information shown therein on a basis consistent with the audited and unaudited consolidated financial statements of the Bank included in the Prospectus, and as to the pro forma adjustments, the adjustments made therein have been properly applied on the basis described therein. (p) Since the respective dates as of which information is given in the Registration Statement and the Prospectus: (i) there has not been any material adverse change, in the financial condition of the Company, the Bank or the Subsidiary considered as one enterprise, or in the financial condition, results of operation or business prospects of the Company or the Bank, whether or not arising in the ordinary course of business; (ii) there has not been any material increase in the long term debt of the Bank or in loans past due 90 days or more or real estate acquired by foreclosure, by deed-in-lieu of foreclosure or deemed in-substance foreclosure or early material decrease in surplus and reserves or total assets of the Bank nor has the Company or the Bank issued any securities (other than as contemplated by this Agreement) or incurred any liability or obligation for borrowing other than in the ordinary course of business and (iii) there have not been any material transactions entered into by the Company or the Bank, except with respect to those transactions entered into in the ordinary course of business. (q) The capitalization, liabilities, assets, properties and business of the Company and the Bank conform in all material respects to the descriptions thereof contained in the Prospectus. (r) Neither the Company nor the Bank has any material contingent liabilities, except as set forth in the Prospectus. (s) As of the date hereof, neither the Company, the Bank nor the Subsidiary is in violation of its articles of incorporation or bylaws or charter or bylaws, as applicable (and the Bank will not be in violation of its charter or bylaws in capital stock form at the time of consummation of 9 the Conversion), or in default in the performance or observance of any material obligation, agreement, covenant, or condition contained in any material contract, lease, loan agreement, indenture or other instrument to which it is a party or by which it or any other instrument to which it is a party or by which it or any of its property may be bound; the consummation of the Conversion, the execution, delivery and performance of this Agreement and the consummation of the transactions herein contemplated have been duly and validly authorized by all necessary corporate action on the part of the Company and the Bank and this Agreement has been validly executed and delivered by the Company and the Bank and is the valid, legal and binding Agreement of the Company and the Bank enforceable in accordance with its terms, except as the enforceability thereof may be limited by (i) bankruptcy, insolvency, or other laws now or hereafter in effect affecting the enforceability of the rights of creditors generally or the rights of creditors of Washington state chartered savings banks and their holding companies, (ii) general equitable principles, and (iii) applicable law with respect to the indemnification and/or contribution provisions contained herein (regardless of whether such enforceability is considered in a proceeding in equity or at law). The consummation of the transactions herein contemplated will not: (i) conflict with or constitute a breach of, or default under, the articles of incorporation and bylaws of the Company or the charter and bylaws of the Bank (in either mutual or capital stock form), or any material contract, lease or other instrument to which the Company or the Bank is a party, or any applicable law, rule, regulation or order; (ii) violate any authorization, approval, judgement, decree, order, statute, rule or regulation applicable to the Company or the Bank, except for such violation which would not have a material adverse effect on the financial condition and results of operations of the Company and the Bank on a consolidated basis; or (iii) with the exception of the liquidation account established in the Conversion, result in the creation of any material lien, charge or encumbrance upon any property of the Company or the Bank. (t) No default exists, and no event has occurred which with notice or lapse of time, or both, would constitute a default on the part of the Company, the Bank or the Subsidiary, in the due performance and observance of any term, covenant or condition of any indenture, mortgage, deed of trust, note, bank loan or credit agreement or any other instrument of agreement to which the Company, the Bank or the Subsidiary is a party or by which any of them or any of their property is bound or affected except such defaults which would not have a material adverse effect on the financial condition or results of operations of the Company, the Bank and the Subsidiary on a consolidated basis; such agreements are in full force and effect; and no other party to any such agreements has instituted or, to the best knowledge of the Company, the Bank and the Subsidiary, threatened any action or proceeding wherein the Company, the Bank or the Subsidiary would be alleged to be in default thereunder under circumstances where such action or proceeding, if determined adversely to the Company, the Bank or the Subsidiary would have a material adverse effect on the Company, the Bank and the Subsidiary, taken as a whole. (u) Upon consummation of the Conversion, the authorized, issued and outstanding equity capital of the Company will be within the range set forth in the Prospectus under the caption "Capitalization," and no shares of Common Stock have been or will be issued and outstanding prior to the Closing Date referred to in Section 2; the Shares will have been duly and validly authorized 10 for issuance and, when issued and delivered by the Company pursuant to the Plan against payment of the consideration calculated as set forth in the Plan and in the Prospectus, will be duly and validly issued, fully paid and non-assessable; no preemptive rights exist with respect to the Shares; and the terms and provisions of the Shares will conform in all material respects to the description thereof contained in the Registration Statement and the Prospectus. To the best knowledge of the Company and the Bank, upon the issuance of the Shares, good title to the Shares will be transferred from the Company to the purchasers thereof against payment therefor, subject to such claims as may be asserted against the purchasers thereof by third-party claimants. (v) Neither the Company nor the Bank is required to obtain any approval or notice of non-objection from any regulatory or supervisory or other public authority in connection with the execution and delivery of this Agreement or the issuance of the Shares, except for the approval of the Commission, the Division, the FRB and the FDIC and any necessary qualification, notification, registration or exemption under the securities or blue sky laws of the various states in which the Shares are to be offered, and except as may be required under the rules and regulations of the NASD and/or the National Market System of the Nasdaq Stock Market. (w) Dwyer, Pemberton & Coulsen, P.C., which has certified the consolidated financial statements of the Bank included in the Prospectus as of September 30, 1996 and 1995 and for each of the years in the two-year period ended September 30, 1996, has advised the Company and the Bank in writing that they are, with respect to the Company and the Bank, independent public accountants within the meaning of the Code of Professional Ethics of the American Institute of Certified Public Accountants as required by the 1933 Act and the 1933 Act Regulations. (x) R.P. Financial, LC, which has prepared the Bank's Conversion Valuation Appraisal Report as of ___________, 1997 (as amended or supplemented, if so amended or supplemented) (the "Appraisal"), has advised the Company in writing that it is independent of the Company and the Bank within the meaning of the Conversion Regulations. (y) The Company and the Bank have timely filed all required federal, state and local tax returns; the Company and the Bank have paid all taxes that have become due and payable in respect of such returns, except where permitted to be extended; and no deficiency has been asserted with respect thereto by any taxing authority and, to the best knowledge of the Bank, adequate reserves have been made for similar future tax liabilities. (z) The Company and the Bank are in compliance in all material respects with the applicable financial record-keeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, and the regulations and rules thereunder. (aa) To the knowledge of the Company and the Bank, neither the Company, the Bank nor employees of the Company or the Bank have made any payment of funds of the Company or the Bank as a loan for the purchase of the Shares. 11 (bb) To the knowledge of the Company and the Bank, all of the loans represented as assets on the most recent consolidated financial statements or consolidated selected financial information of the Company and the Bank 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 requirements of Regulations Z and 12 C.F.R. Part 226), 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 result in a material adverse effect on the financial condition, results of operations or business of the Company, the Bank and the Subsidiary, taken as a whole. (cc) Prior to the Conversion, the Bank was not authorized to issue shares of capital stock and neither the Company nor the Bank has: (i) issued any securities within the last 18 months (except for notes to evidence other bank loans and reverse repurchase agreements or other liabilities in the ordinary course of business or as described in the Prospectus); (ii) had any material dealings within the 12 months prior to the date hereof with any member of the NASD, or any person related to or associated with such member, other than discussions and meetings relating to the proposed Offering and routine purchases and sales of United States government and agency securities; (iii) entered into a financial or management consulting agreement except as contemplated hereunder and except for the Letter Agreement set forth in Exhibit A; and (iv) engaged any intermediary between Webb and the Company and the Bank in connection with the offering of the Shares, and no person is being compensated in any manner for such service. (dd) The Company and the Bank have not relied upon Webb or Webb's counsel for any legal, tax or accounting advice in connection with the Conversion. (ee) The Company is not required to be registered under the Investment Company Act of 1940, as amended. Any certificates signed by an officer of the Company or the Bank pursuant to the conditions of this Agreement and delivered to Webb or its counsel that refers to this Agreement shall be deemed to be a representation and warranty by the Company or the Bank to Webb as to the matters covered thereby with the same effect as if such representation and warranty were set forth herein. SECTION 5. REPRESENTATIONS AND WARRANTIES OF WEBB. -------------------------------------- (a) Webb represents and warrants to the Company and the Bank that: (i) Webb is a corporation and is validly existing in good standing under the laws of the State of Ohio with full power and authority to provide the services to be furnished to the Bank and the Company hereunder. (ii) The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by 12 all necessary action on the part of Webb, and this Agreement has been duly and validly executed and delivered by Webb and is the legal, valid and binding agreement of Webb, enforceable in accordance with its terms, except as may be limited by bankruptcy, insolvency or other laws affecting the enforceability of the rights of creditors generally and judicial limitations on the right of specific performance and except as the enforceability of indemnification and contribution provisions may be limited by applicable securities laws. (iii) Each of Webb and its employees, agents and representatives who shall perform any of the services hereunder shall be duly authorized and empowered, and shall have all licenses, approvals and permits necessary to perform such services. (iv) The execution and delivery of this Agreement by Webb, the consummation of the transactions contemplated hereby and compliance with the terms and provisions hereof will not conflict with, or result in a breach of, any of the terms, provisions or conditions of, or constitute a default (or event which with notice or lapse of time or both would constitute a default) under, the articles of incorporation of Webb or any agreement, indenture or other instrument to which Webb is a party or by which it or its property is hound. (v) No approval of any regulatory or supervisory or other public authority is required in connection with Webb's execution and delivery of this Agreement, except as may have been received. (vi) There is no suit or proceeding or charge or action before or by any court, regulatory authority or government agency or body or, to the best knowledge of Webb, pending or threatened, which might materially adversely affect Webb's performance under this Agreement. SECTION 5.1 COVENANTS OF THE COMPANY AND THE BANK. The Company and the ------------------------------------- Bank hereby jointly and severally covenant with Webb as follows: (a) The Company will not, at any time after the date the Registration Statement is declared effective, file any amendment or supplement to the Registration Statement without providing Webb and its counsel an opportunity to review such amendment or supplement or file any amendment or supplement to which amendment or supplement Webb or its counsel shall reasonably object. (b) The Bank will not, at any time after the Conversion Application is approved by the Division, file any amendment or supplement to such Conversion Application without providing 13 Webb and its counsel an opportunity to review such amendment or supplement or file any amendment or supplement to which amendment or supplement Webb or its counsel shall reasonably object. (c) The Bank will not, at any time after the FDIC issues its Notice of Objection, file any amendment or supplement to the FDIC Notice without providing Webb and its counsel an opportunity to review such amendment or supplement or file any amendment or supplement to which amendment or supplement Webb or its counsel shall reasonably object. (d) The Company will not, at any time before the Holding Company Application is approved by the FRB, file any amendment or supplement to such Holding Company Application without providing Webb and its counsel an opportunity to review such amendment or supplement or file any amendment or supplement to which amendment or supplement Webb or its counsel shall reasonably object. (e) The Company and the Bank will use their best efforts to cause any post- effective amendment to the Registration Statement to be declared effective by the Commission and any post-effective amendment to the Conversion Application to be approved by the Division and will immediately upon receipt of any information concerning the events listed below notify Webb: (i) when the Registration Statement, as amended, has become effective; (ii) when the Conversion Application, as amended, has been approved by the Division; (iii) when the Holding Company Application, as amended, has been approved by the FRB; (iv) when the Notice of Non-Objection, as amended, has been received from the FDIC; (v) of any comments from the Commission, the Division, the FRB, the FDIC or any other governmental entity with respect to the Conversion or the transactions contemplated by this Agreement; (vi) of the request by the Commission, the Division, the FRB, or the FDIC or any other governmental entity for any amendment or supplement to the Registration Statement, the Conversion Application, the FDIC Notice or the Holding Company Application or for additional information; (vii) of the issuance by the Commission, the Division, the FRB, the FDIC or any other governmental entity of any order or other action suspending the Offering or the use of the Registration Statement or the Prospectus or any other filing of the Company or the Bank under the Conversion Regulations, or other applicable law, or the threat of any such action; (viii) the issuance by the Commission, the Division, the FRB, the FDIC or any state authority of any stop order suspending the effectiveness of the Registration Statement or the approval of the Conversion Application or Holding Company Application, or of the initiation or threat of initiation or threat of any proceedings for any such purpose; or (ix) of the occurrence of any event mentioned in paragraph (i) below. The Company and the Bank will make every reasonable effort (i) to prevent the issuance by the Commission, the Division, the FRB, the FDIC or any state authority of any such order and, if any such order shall at any time be issued, (ii) to obtain the lifting thereof at the earliest possible time. (f) The Company and the Bank will deliver to Webb and to its counsel two conformed copies of the Registration Statement, the Conversion Application, the FDIC Notice and the Holding Company Application, as originally filed and of each amendment or supplement thereto, including 14 all exhibits. Further, the Company and the Bank will deliver such additional copies of the foregoing documents to counsel to Webb as may be required for any NASD filings. (g) The Company and the Bank will furnish to Webb, from time to time during the period when the Prospectus (or any later prospectus related to this offering) is required to be delivered under the 1933 Act or the Securities Exchange Act of 1934, (the "1934 Act"), such number of copies of such Prospectus (as amended or supplemented) as Webb may reasonably request for the purposes contemplated by the 1933 Act, the 1933 Act Regulations, the 1934 Act or the rules and regulations promulgated under the 1934 Act (the "1934 Act Regulations"). The Company authorizes Webb to use the Prospectus (as amended or supplemented, if amended or supplemented) in any lawful manner contemplated by the Plan in connection with the sale of the Shares by Webb. (h) The Company and the Bank will comply with any and all material terms, conditions, requirements and provisions with respect to the Conversion imposed by the Commission, the Division, the FRB, the FDIC, the Conversion Regulations, the RCW or the BHCA, and by the 1933 Act, the 1933 Act Regulations, the 1934 Act and the 1934 Act Regulations to be complied with prior to or subsequent to the Closing Date and when the Prospectus is required to be delivered, the Company and the Bank will comply, at their own expense, with all material requirements imposed upon them by the Commission, the Division, the FRB, the FDIC, the Conversion Regulations, the RCW or the BHCA, and by the 1993 Act, the 1933 Act Regulations, the 1934 Act and the 1934 Act Regulations, in each case as from time to time in force, so far as necessary to permit the continuance of sales or dealing in shares of Common Stock during such period in accordance with the provisions hereof and the Prospectus. (i) If, at any time during the period when the Prospectus relating to the Shares is required to be delivered, any event relating to or affecting the Company, the Bank or the Subsidiary shall occur, as a result of which it is necessary or appropriate, in the opinion of counsel for the Company and the Bank to amend or supplement the Registration Statement or Prospectus in order to make the Registration Statement or Prospectus not misleading in light of the circumstances existing at the time the Prospectus is delivered to a purchaser, the Company and the Bank will, at their expense, prepare and file with the Commission, the Division, the FRB and the FDIC and furnish to Webb a reasonable number of copies of an amendment or amendments of, or a supplement or supplements to, the Registration Statement and Prospectus (in form and substance satisfactory to Webb and its counsel after a reasonable time for review) which will amend or supplement the Registration Statement and Prospectus so that as amended or supplemented it will 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, not misleading. For the purpose of this Agreement, the Company and the Bank each will timely furnish to Webb such information with respect to itself as Webb may from time to time reasonably request. (j) At the Closing Date referred to in Section 2, the Plan will have been adopted by the Board of Directors of the Company and the Board of Trustees of the Bank and the offer and sale of the Shares will have been conducted in all material respects in accordance with the Plan, the 15 Conversion Regulations, the RCW, the BHCA and all other applicable laws, regulations, decisions and orders, including all terms, conditions, requirements and provisions precedent to the Conversion imposed upon the Company or the Bank by the Commission, Division, the FRB, the FDIC or any other regulatory authority and in the manner described in the Prospectus. (k) Upon completion of the sale by the Company of the Shares contemplated by the Prospectus, (i) the Bank will be converted pursuant to the Plan to a Washington state chartered stock savings bank, (ii) all of the authorized and outstanding capital stock of the Bank will be owned by the Company, and (iii) the Company will have no direct subsidiaries other than the Bank. The Conversion will have been effected in all material respects in accordance with all applicable statutes, regulations, decisions and orders; and, except with respect to the filing of certain post-sale, post-Conversion reports, and documents in compliance with the 1933 Act Regulations, and all terms, conditions, requirements and provisions with respect to the Conversion (except those that are conditions subsequent) imposed by the Commission, the Division, the FRB and the FDIC, if any, will have been complied with by the Company and the Bank in all material respects or appropriate waivers will have been obtained and all material notice and waiting periods will have been satisfied, waived or elapsed. (l) The Company and the Bank will take all necessary actions, in cooperation with Webb, and furnish to whomever Webb may direct, such information as may be required to qualify or register the Shares for offering and sale by the Company or to exempt such Shares from registration, or to exempt the Company as a broker-dealer and its officers, directors and employees as broker-dealers or agents under the applicable securities or blue sky laws of such jurisdictions in which the Shares are to be offered and sold as Webb and the Company and the Bank may reasonably agree upon; provided, however, that the Company shall not be obligated to file any general consent to service of process or to qualify to do business in any jurisdiction in which it is not so qualified. In each jurisdiction where any of the Shares shall have been qualified or registered as above provided, the Company will make and file such statements and reports in each fiscal period as are or may be required by the laws of such jurisdiction. (m) The liquidation account for the benefit of Eligible Account Holders and Supplemental Eligible Account Holders will be duly established and maintained in accordance with the requirements of the Division, and such Eligible Account Holders and Supplemental Eligible Account Holders who continue to maintain their savings accounts in the Bank will have an inchoate interest in their pro rata portion of the liquidation account which shall have a priority superior to that of the holders of shares of Common Stock in the event of a complete liquidation of the Bank. (n) The Company and the Bank will not sell or issue, contract to sell or otherwise dispose of, for a period of 180 days after the Closing Date, without Webb's prior written consent, any shares of Common Stock other than the Shares or other than in connection with any plan or arrangement described in the Prospectus 16 (o) The Company shall register its Common Stock under Section 12(g) of the 1934 Act concurrent with the Offering pursuant to the Plan and shall request that such registration be effective upon completion of the Conversion. The Company shall maintain the effectiveness of such registration for not less than three (3) years or such shorter period as may be required by the Division. (p) During the period during which the Company's Common Stock is registered under the 1934 Act or for three years from the date hereof, whichever period is greater, the Company will furnish to its stockholders as soon as practicable after the end of each fiscal year an annual report of the Company (including a consolidated balance sheet and statements of consolidated income, stockholders' equity and cash flows of the Company and its subsidiaries as at the end of and for such year, certified by independent public accountants in accordance with Regulation S-X under the 1933 Act and the 1934 Act). (q) During the period of three years from the date hereof, the Company will furnish to Webb: (i) as soon as practicable after such information is publicly available, a copy of each report of the Company furnished to or filed with the Commission under the 1934 Act or any national securities exchange or system on which any class of securities of the Company is listed or quoted (including, but not limited to, reports on Forms 10-K, 10-Q and 8-K and all proxy statements and annual reports to stockholders), (ii) a copy of each other non-confidential report of the Company mailed to its stockholders or filed with the Commission, the Division, or the FDIC or any other supervisory or regulatory authority or any national securities exchange or system on which any class of securities of the Company is listed or quoted, each press release and material news items and additional documents and information with respect to the Company or the Bank as Webb may reasonably request; and (iii) from time to time, such other nonconfidential information concerning the Company or the Bank as Webb may reasonably request. (r) The Company and the Bank will use the net proceeds from the sale of the Shares in the manner set forth in the Prospectus under the caption "Use of Proceeds." (s) Other than as permitted by the Conversion Regulations, the RCW, the BHCA, the 1933 Act, the 1933 Act Regulations, and the laws of any state in which the Shares are registered or qualified for sale or exempt from registration, neither the Company nor the Bank will distribute any prospectus or other offering material in connection with the offer and sale of the Shares. (t) The Company will use its best efforts to (i) encourage and assist three market makers to establish and maintain a market for the Shares and (ii) list the Shares on a national or regional securities exchange or on the Nasdaq National Market of the Nasdaq Stock Market effective on or prior to the Closing Date. (u) The Bank will maintain appropriate arrangements for depositing all funds received from persons mailing subscriptions for or orders to purchase Shares in the Offering on an interest bearing basis at the rate described in the Prospectus until the Closing Date and satisfaction of all 17 conditions precedent to the release of the Bank's obligation to refund payments received from persons subscribing for or ordering Shares in the Offering in accordance with the Plan and as described in the Prospectus or until refunds of such funds have been made to the persons entitled thereto or withdrawal authorizations cancelled in accordance with the Plan and as described in the Prospectus. The Bank will maintain such records of all funds received to permit the funds of each subscriber to be separately insured by the FDIC (to the maximum extent allowable) and to enable the Bank to make the appropriate refunds of such funds in the event that such refunds are required to be made in accordance with the Plan and as described in the Prospectus. (v) Prior to the Closing Date, the Holding Company Application shall have been approved by the FRB. The Company will promptly take all necessary action to register as a savings and loan holding company under the BHCA within 90 days of the Closing Date. (w) The Company and the Bank will take such actions and furnish such information as are reasonably requested by Webb in order for Webb to ensure compliance with the NASD's "Interpretation Relating to Free Riding and Withholding." (x) The Bank will not amend the Plan of Conversion without notifying Webb prior thereto. (w) The Company shall assist Webb, if necessary, in connection with the allocation of the Shares in the event of an oversubscription and shall provide Webb with any information necessary in allocating the Shares in such event. (z) Prior to the Closing Date, the Company and the Bank will inform Webb of any event or circumstances of which it is aware as a result of which the Registration Statement, the Conversion Application and/or Prospectus, as then amended or supplemented, would contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading. SECTION 5.2 COVENANTS OF WEBB. Webb hereby covenants with the Company and ----------------- the Bank as follows: (a) During the period when the Prospectus is delivered, Webb will comply, in all material respects and at its own expense, with all requirements imposed upon it by the Commission and the NASD, including to the extent applicable, by the 1933 Act and the 1934 Act and the rules and regulations promulgated thereunder. (b) Webb will distribute copies of the Prospectus and Sales Information in connection with the sales of the Common Stock only in accordance with NASD and SEC regulations, the 1933 Act and the rules and regulations promulgated thereunder. 18 (c) Webb shall use its best efforts to assist the Company in obtaining at least three market makers for the shares of Common Stock. SECTION 6. PAYMENT OF EXPENSES. Whether or not the Conversion is ------------------- completed or the sale of the Shares by the Company is consummated, the Company and the Bank jointly and severally agree to pay or reimburse Webb for: (a) all filing fees in connection with all filings with the NASD; (b) any stock issue or transfer taxes which may be payable with :respect to the sale of the Shares; (c) all reasonable expenses of the Conversion, including but not limited to, the Company's and the Bank's attorneys' fees, transfer agent, registrar and other agent charges, fees relating to auditing and accounting or other advisors and costs of printing all documents necessary in connection with the Conversion and (d) all reasonable out-of-pocket expenses incurred by Webb. Such out-of-pocket expenses include, but are not limited to, travel, communications and postage and reasonable legal fees of counsel, which legal fees shall not exceed $35,000. However, such out-of-pocket expenses do not include expenses incurred with respect to the matters set forth in (a) and (b) above. In the event the Company is unable to sell a minimum of 4,250,000 Shares or the Conversion is terminated or otherwise abandoned, the Company and the Bank shall reimburse Webb in accordance with Section 2 hereof. SECTION 7. CONDITIONS TO WEBB'S OBLIGATIONS. Webb's obligations -------------------------------- hereunder, as to the Shares to be issued at the Closing Date, are subject, to the extent not waived by Webb, to the condition that all representations and warranties of the Company and the Bank herein are, at and as of the commencement of the Offering and at and as of the Closing Date, true and correct in all material respects, the condition that the Company and the Bank shall have performed all of their obligations hereunder to be performed on or before such dates, and to the following further conditions: (a) At the Closing Date, the Company and the Bank shall have conducted the Conversion in all material respects in accordance with the Plan, the Conversion Regulations, the RCW and all other applicable laws, regulations, decisions and orders, including all terms, conditions, requirements and provisions precedent to the Conversion imposed upon them by the Division, the FDIC and the FRB. (b) The Registration Statement shall have been declared effective by the Commission, the Conversion Application approved by the Division, the Holding Company Application approved by the FRB and the Notice of Non-Objection received from the FDIC not later than 5:30 p.m. on the date of this Agreement, or with Webb's consent at a later time and date; and at the Closing Date, no stop order suspending the effectiveness of the Registration Statement shall have been issued under the 1933 Act or proceedings therefore initiated or threatened by the Commission, or any state authority and no order or other action suspending the authorization of the Prospectus or the consummation of the Conversion shall have been issued or proceedings therefore initiated or, to the Company's or the Bank's knowledge threatened by the Commission, the Division, the FRB, the FDIC or any other federal or state authority. 19 (c) At the Closing Date, Webb shall have received: (1) The favorable opinion, dated as of the Closing Date and addressed to Webb and for its benefit, of Breyer & Aguggia, special counsel for the Company and the Bank, in form and substance to the effect that: (i) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Washington and has full corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement and the Prospectus and to enter into and perform its obligations under this Agreement. The Company is duly qualified as a foreign corporation to transact business and is in good standing in each other jurisdiction in which the failure to so qualify would have a material adverse effect on the financial condition, results of operations or business of the Company. (ii) The Bank is organized and is validly existing as a state chartered savings bank under the laws of the State of Washington in mutual form of organization and upon the Conversion will become a duly organized and validly existing state chartered savings bank in capital stock form of organization under the laws of the State of Washington, in both instances duly authorized to conduct its business and own its property as described in the Registration Statement and Prospectus. The Bank is duly qualified as a foreign corporation in each jurisdiction in which the failure to so qualify would have a material adverse effect upon the financial condition, results of operations or business of the Bank. All of the outstanding capital stock of the Bank will be duly authorized and, upon payment therefor, will be validly issued, fully paid and non-assessable and, to the best of such counsel's knowledge, will be owned by the Company, free and clear of any liens, encumbrances, claims or other restrictions. (iii) The Bank is a member of the FHLB-Seattle. The Bank is an insured depository institution under the provisions of Section 4(a) of the FDI Act, as amended, and no proceedings for the termination or revocation of such insurance are pending or, to the best of such counsel's knowledge, threatened; the description of the liquidation account as set forth in the Prospectus under the caption "The Conversion-Liquidation Account" to the extent that such information constitutes matters of law and legal conclusions has been reviewed by such counsel and is accurate in all material respects. 20 (iv) Upon consummation of the Conversion, the authorized, issued and outstanding capital stock of the Company will be within the range set forth in the Prospectus under the caption "Capitalization," and except for shares issued upon incorporation of the Company, no shares of Common Stock have been issued prior to the Closing Date; at the time of the Conversion, the Shares subscribed for pursuant to the Offering will have been duly and validly authorized for issuance, and when issued and delivered by the Company pursuant to the Plan against payment of the consideration calculated as set forth in the Plan and the Prospectus, will be duly and validly issued and fully paid and non- assessable; the issuance of the Shares is not subject to statutory preemptive rights and the terms and provisions of the Shares conform in all material respects to the description thereof contained in the Prospectus. To the best of such counsel's knowledge, upon the issuance of the Shares, good title to the Shares will be transferred from the Company to the purchasers thereof against payment therefor, subject to such claims as may be asserted against the purchasers thereof by third-party claimants. (v) The Subsidiary has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Washington, has full corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement and is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which the failure to so qualify would have a material adverse effect upon the financial condition, results of operations or business of the Company, the Bank and the Subsidiary, taken as a whole; the activities of the Subsidiary as described in the Prospectus are permitted to subsidiaries of a bank holding company and of a Washington state chartered savings bank by the rules, regulations, resolutions and practices of the Division, the FRB and the FDIC; all of the issued and outstanding capital stock of such Subsidiary has been duly authorized and validly issued, is fully paid and non-assessable and is owned directly by the Bank free and clear of any security interest, mortgage, pledge, lien, encumbrance or claim. (vi) The FRB has duly approved the Holding Company Application and, to the best of such counsel's knowledge, no action is pending or threatened respecting the Holding Company Application or the acquisition by the Company of all of the Bank's issued and outstanding capital stock; the Holding Company Application complies as to form in all material respects with the BHCA and all 21 other applicable requirements of the FRB, to the best of such counsel's knowledge, includes all documents required to be filed as exhibits thereto, and is complete in all material respects; the Company is duly authorized to become a bank holding company and is duly authorized to own all of the issued and outstanding capital stock of the Bank pursuant to the Plan. (vii) The Division has duly approved the Conversion Application and, to the best of such counsel's knowledge, no action is pending or threatened respecting the Division's approval of the Conversion Application; the Conversion Application complies in all material respects with the RCW and all other applicable requirements of the Division and, to the best of such counsel's knowledge, includes all documents required to be filed as exhibits thereto. (viii) The FDIC has issued a Notice of Non-Objection to the Conversion and, to the best of such counsel's knowledge, no action is pending or threatened respecting the FDIC's Notice of Non-Objection to the Conversion; the FDIC Notice complies in all material respects with the rules and regulations and all other applicable requirements of the FDIC, to the best of such counsel's knowledge; and includes all documents required to be filed as exhibits thereto. (ix) The execution and delivery of the Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary action on the part of the Company and the Bank; and the Agreement is a valid and binding obligation of the Company and the Bank, enforceable in accordance with its terms, except as the enforceability thereof may be limited by (i) bankruptcy, insolvency, or other laws now or hereafter in effect affecting the enforceability of the rights of creditors generally or the rights of creditors of Washington state chartered savings banks and their holding companies, (ii) general principles of equity, (iii) applicable law with respect to the indemnification and/or contribution provisions contained herein, (regardless of whether such enforceability is considered in a proceeding in equity or at law); the execution and delivery of the Agreement, the occurrence of the obligations therein set forth and the consummation of the transactions contemplated therein will not conflict with or constitute a breach of, or default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or the Bank pursuant to any contract, indenture, mortgage, loan agreement, note, lease or other instrument described in the Prospectus or filed as 22 an exhibit to the Registration Statement to which the Company or the Bank is a party or by which any of them may be bound, or to which any of the property or assets of the Company or the Bank is subject (other than the establishment of a liquidation account), and such action will not result in any violation of the provisions of the articles of incorporation, bylaws or charter, as applicable, of the Company or the Bank or any applicable federal law, act, regulation (except that no opinion need be rendered with respect to the securities or blue sky laws of various jurisdictions or the rules and regulations of the NASD and/or the National Market System of the Nasdaq Stock Market) or order or court order, writ, injunction or decree naming the Company or the Bank. (x) The Conversion Application has been approved by the Division and the Prospectus has been authorized for use by the Division. The FRB has approved the Holding Company Application and issued its letter of approval under the BHCA, and the purchase by the Company of all of the issued and outstanding capital stock of the Bank has been authorized by the FRB and the Division. The FDIC has issued its Notice of Non-Objection and no action has been taken, and to the best such counsel's knowledge none is pending or threatened, to revoke any such authorization, approval or non-objection. (xi) The Plan has been duly adopted by the required vote of the directors of the Company and the Trustees of the Bank and, based upon the certificate of the inspector of election, by the members of the Bank. (xii) Subject to the satisfaction of the conditions to the Division's, the FRB's and the FDIC's approval of the Conversion, the Company and the Bank are not required to receive any further approval, authorization, consent or other order of, register with, or submit a notice to any other federal or state agency in connection with the execution and delivery of the Agreement, the issuance of the Shares and the consummation of the Conversion, except as may be required under the securities or blue sky laws of various jurisdictions (as to which no opinion need be rendered), except as may be required under the rules and regulations of the NASD and/or the National Market System of the Nasdaq Stock Market (as to which no opinion need be rendered) and except for the registration of the Company as a savings bank holding company. 23 (xiii) The Registration Statement is effective under the 1933 Act and no stop order suspending the effectiveness has been issued under the 1933 Act or proceedings therefor initiated or, to the best of such counsel's knowledge, threatened by the Commission. (xiii) At the time that the Registration Statement became effective, (i) the Registration Statement (as amended or supplemented, if so amended or supplemented) (other than the financial statements, the notes thereto and other tabular, financial, statistical and appraisal data included therein or omitted therefrom, as to which no opinion need be rendered) complied as to form in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations, and (ii) the Prospectus (other than the financial statements, the notes thereto and other tabular, financial, statistical and appraisal data included therein or omitted therefrom, as to which no opinion need be rendered) complied as to form in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations. (xiv) The terms and provisions of the Shares of the Company conform, in all material respects, to the description thereof contained in the Registration Statement and Prospectus, and the form of certificate used to evidence the Shares complies with applicable law. (xv) There are no legal or governmental proceedings pending or to the best of such counsel's knowledge, threatened which are required to be disclosed in the Registration Statement and Prospectus, other than those disclosed therein, and to the best of such counsel's knowledge, all pending legal and governmental proceedings to which the Company, the Bank or the Subsidiary is a party or of which any of their property is the subject, which are not described in the Registration Statement and the Prospectus, including ordinary routine litigation incidental to the Company's, the Bank's or the Subsidiary's business, are, considered in the aggregate, not material. (xvi) The descriptions in the Conversion Application, the Registration Statement and the Prospectus of the contracts, indentures, mortgages, loan agreements, notes, leases or other instruments filed as exhibits thereto are accurate in all material respects and fairly present the information required to be shown; and to the best of such counsel's knowledge, there are no contracts, indentures, mortgages, loan agreements, notes leases or other instruments required to be described or referred to in the Registration Statement or to be filed as exhibits thereto other than those described or referred to therein or filed as exhibits thereto. 24 (xvii) The Plan has been duly authorized by the Board of Directors of the Company and the Board of Trustees of the Bank and, to the best of such counsel's knowledge and information, the Division's and the FDIC's approval and non-objection, respectively, of the Plan remains in full force and effect; to the best of such counsel's knowledge the Company and the Bank have conducted the Conversion in all material respects in accordance with applicable requirements of the Plan, the Conversion Regulations, the RCW and all other applicable regulations, decisions and orders thereunder, including all material applicable terms, conditions, requirements and conditions precedent to the Conversion imposed upon the Company or the Bank by the FRB, the Division or the FDIC and, to the best of such counsel's knowledge, no order has been issued by the FRB, the Division or the FDIC to suspend the Offerings and no action for such purpose has been instituted or threatened by the FRB, the Division or the FDIC; and, to the best of such counsel's knowledge, no person has sought to obtain review of the final action of the Division or the FDIC in approving the Plan. (xviii) To the best of such counsel's knowledge, the Company, the Bank and the Subsidiary have obtained all material federal licenses, permits and other governmental authorizations currently required under the HOLA and the FDI Act and all applicable rules and regulations promulgated thereunder for the conduct of their businesses and to the best of such counsel's knowledge all such licenses, permits and other governmental authorizations are in full force and effect, and the Company, the Bank and the Subsidiary are in all material respects complying therewith, except whether the failure to have such licenses, permits and other governmental authorizations or the failure to be in compliance therewith would not have a material adverse affect on the business or operations of the Bank, the Company and the Subsidiary, taken as a whole). (xix) Neither the Company, the Bank nor the Subsidiary is in violation of its articles of incorporation, bylaws or charter nor, to the best of such counsel's knowledge, in default (nor has any event occurred which, with notice or lapse of time or both, would constitute a default) in the performance or observance of any obligation, agreement, covenant or condition contained in any material contract, indenture, mortgage, loan agreement, note, lease or other instrument to which the Company, the Bank or the Subsidiary is a party or by which the Company, the Bank or the Subsidiary or any of their property may be bound (in any respect that would have a material adverse effect upon 25 the financial condition, results of operations or business of the Company, the Bank or the Subsidiary, taken as a whole). (xx) The Company' certificate of incorporation and bylaws comply in all material respects with the RCW. The Bank's charter and bylaws in mutual form and, upon the completion of the Conversion, in stock form, comply in all material respects with the RCW. (xxi) To the best of such counsel's knowledge, neither the Company nor the Bank is in violation of any directive from the Division, the FDIC or the FRB to make any material change in the method of conducting its respective business. (xxii) The information in the Prospectus under the captions "Regulation," "The Conversion," "Restrictions on Acquisition of the Holding Company" and "Description of Capital Stock of the Holding Company," to the extent that such information constitutes matters of law, summaries of legal matters, documents or proceedings, or legal conclusions, has been reviewed by such counsel and is correct in all material respects. The description of the Conversion process under the caption "The Conversion" in the Prospectus has been reviewed by such counsel and is in all material respects correct. The discussion of statutes or regulations described or referred to in the Prospectus are accurate summaries. The information regarding the federal tax opinion under the caption "The Conversion-Tax Effects" has been reviewed by such counsel and constitutes an accurate summary of the opinion rendered by such counsel to the Company and the Bank with respect to such matters subject to the qualifications and limitations noted therein. In rendering such opinion, such counsel may rely as to all matters of fact on certificates of officers or directors of the Company and the Bank and certificates of public officials. In addition, such counsel shall provide a letter to Webb stating that nothing has come to their attention that would lead them to believe that the Conversion Application and the Registration Statement, or any amendment or supplement thereto (other than the financial statements, the notes thereto, and other tabular, financial, statistical and appraisal data included therein or omitted therefrom as to which no statement need be made), as of the date of approval or effectiveness, as the case may be, and the Prospectus, as of its date and as of the Closing Date, contained an untrue statement of a material fact or omitted to state a 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. 26 (2) The favorable opinion, dated as of the Closing Date and addressed to Webb and for their benefit, of Parker, Johnson & Parker, P.S., the Bank's local counsel, in form and substance to the effect that, to the best of such counsel's knowledge, (i) the Company and the Bank have good and marketable title to all properties and assets which are material to the business of the Company and the Bank and to those properties and assets described in the Registration Statement and Prospectus, as owned by them, free and clear of all liens, charges, encumbrances or restrictions, except such as are described in the Registration Statement and Prospectus, or are not material in relation to the business of the Company and the Bank considered as one enterprise; (ii) all of the leases and subleases material to the business of the Company and the Bank under which the Company and the Bank hold properties, as described in the Registration Statement and Prospectus, are in full force and effect; (iii) the Bank is duly qualified to transact business in each jurisdiction in which its ownership of property or leasing of property or the conduct of its business requires such qualification, unless the failure to be so qualified in one or more of such jurisdictions would not have a material adverse effect on the financial condition, or the business, operations or income of the Bank; (iv) the Subsidiary's articles of incorporation and bylaws comply in all material respects with laws of the State of Washington; (v) the Subsidiary has been duly incorporated and is validly existing as a corporation under the laws of the State of Washington and has corporate power and authority to own, lease and operate its properties and conduct its business as described in the Registration Statement and the Prospectus; (vi) to the best of such counsel's knowledge, the Company, the Bank and the Subsidiary have obtained all material Washington licenses, permits and other governmental authorizations currently required for the conduct of their businesses and to the best of such counsel's knowledge all such licenses, permits and other governmental authorizations are in full force and effect, and the Company, the Bank and the Subsidiary are in all material respects complying therewith, except where the failure to have such licenses, permits and other governmental authorizations or the failure to be in compliance therewith would not have a material adverse affect on the business or operations of the Bank, the Company and the Subsidiary, taken as a whole; and (vii) to the best of such counsel's knowledge, the Subsidiary is not in violation of its articles of incorporation or bylaws, or, to the best of such counsel's knowledge, in default or violation of any obligation, agreement, covenant or condition contained in any material contract, indenture, mortgage, loan agreement, note, lease or other instrument to which it is a party or by which it or its property may be bound except for such defaults or violations which would not have a material adverse impact on the financial condition or results of operations of the Company, the Bank and the Subsidiary on a consolidated basis. 27 (3) The favorable opinion, dated as of the Closing Date, of Muldoon, Murphy & Faucette, Webb's counsel, with respect to such matters as Webb may reasonably require. Such opinion may rely upon the opinions of counsel to the Company and the Bank, and as to matters of fact, upon certificates of officers and directors of the Company and the Bank delivered pursuant hereto or as such counsel shall reasonably request. (d) At the Closing Date, Webb shall receive a certificate of the Chief Executive Officer and the Chief Financial Officer of the Company and a certificate of the Chief Executive Officer and the Chief Financial Officer of the Bank, both dated as of such Closing Date, to the effect that: (i) they have reviewed the Prospectus and, in their opinion, at the time the Prospectus became authorized for final use, the Prospectus did not contain any 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; (ii) since the date the Prospectus became authorized for final use, no material adverse change in the financial condition, or in the earnings, capital, properties or business of the Company, the Bank and the Subsidiary has occurred and, to their knowledge, no other event has occurred, which should have been set forth in an amendment or supplement to the Prospectus which has not been so set forth, and the conditions set forth in this Section 7 have been satisfied; (iii) since the respective dates as of which information is given in the Registration Statement and Prospectus, there has been no material adverse change in the financial condition, results of operations or business prospects of the Company, the Bank or the Subsidiary, independently, or of the Company, the Bank and the Subsidiary considered as one enterprise, whether or not arising in the ordinary course of business; (iv) the representations and warranties in Section 4 are true and correct with the same force and effect a though expressly made at and as of the Closing Date; (v) the Company and the Bank have complied in all material respects with all agreements and satisfied all conditions on their part to be performed or satisfied at or prior to the Closing Date and will comply in all material respects with all obligations to be satisfied by them after Conversion; (vi) no stop order suspending the effectiveness of the Registration Statement has been initiated or, to the best knowledge of the Company or the Bank, threatened by the Commission or any state authority; (vii) no order suspending the Offering, the Conversion, the acquisition of all of the shares of the Bank by the Company or the effectiveness of the Prospectus has been issued and no proceedings for that purpose are pending or, to the best knowledge of the Company or the Bank, threatened by the Division the FRB, the FDIC, the Commission or any other federal or state authority; and (viii) to the best knowledge of the Company or the Bank, no person has sought to obtain review of the final action of the Division or the FDIC approving the Plan. (e) Prior to and at the Closing Date: (i) in the reasonable opinion of Webb, there shall have been no material adverse change in the financial condition, or in the earnings or business of the Bank independently, or of the Company, the Bank and the Subsidiary considered as one enterprise, from that as of the latest dates as of which such condition is set forth in the Prospectus other than transactions referred to or contemplated therein; (iii) the Company or the Bank shall not have received from the Division, the FRB or the FDIC any direction (oral or written) to make any material change in the method of conducting their business with which it has not complied (which direction, 28 if any, shall have been disclosed to Webb) or which materially and adversely would affect the business, operations or financial condition or income of the Company and the Bank considered as one enterprise; (iv) the Company, the Bank and the Subsidiary shall not have been in material default (nor shall an event have occurred which, with notice or lapse of time or both, would constitute a default) under any material provision of any agreement or instrument relating to any outstanding indebtedness; (v) no action, suit or proceedings, at law or in equity or before or by any federal or state commission, board or other administrative agency, shall be pending or, to the knowledge of the Company, the Bank or the Subsidiary, threatened against the Company, the Bank or the Subsidiary or affecting any of their properties wherein an unfavorable decision, ruling or finding would materially and adversely affect the business operations, financially condition or income of the Company, the Bank and the Subsidiary considered as one enterprise; and (vi) the Shares have been qualified or registered for offering and sale or exempted therefore under the securities or blue sky laws of the jurisdictions as Webb shall have requested and as agreed to by the Company and the Bank. (f) Concurrently with the execution of this Agreement, Webb shall receive a letter from Dwyer, Pemberton and Coulson, P.C. dated as of the date of the Prospectus and addressed to Webb: (i) confirming that Dwyer, Pemberton and Coulson, P.C. is a firm of independent public accountants within the meaning of Rule 101 of the Code of Professional Ethics of the American Institute of Certified Public Accountants and stating in effect that in Dwyer, Pemberton and Coulson, P.C.'s opinion the consolidated financial statements of the Bank as of September 30, 1995 and 1996 and for each of the two years in the period ended September 30, 1996, as are included in the Prospectus and covered by its opinion included therein, comply as to form in all material respects with the applicable accounting requirements and related published rules and regulations of the 1933 Act; (ii) a statement from Dwyer, Pemberton and Coulson, P.C. in effect that, on the basis of certain agreed upon procedures (but not an audit in accordance with generally accepted auditing standards) consisting of a reading of the latest available unaudited interim consolidated financial statements of the Bank prepared by the Bank, a reading of the minutes of the meetings of the Board of Directors and members of the Bank and consultations with officers of the Bank responsible for financial and accounting matters, nothing came to their attention which caused them to believe that: (A) the unaudited consolidated financial statements included in the Prospectus, are not in conformity with the 1933 Act and generally accepted accounting principles applied on a basis substantially consistent with that of the audited consolidated financial statements included in the Prospectus; or (B) during the period from the date of the latest unaudited consolidated financial statements included in the Prospectus to a specified date not more than three business days prior to the date of the Prospectus, except as has been described in the Prospectus, there was any material increase in borrowings, other than normal deposit fluctuations, by the Bank; or (C) there was any decrease in consolidated net assets of the Bank at the date of such letter as compared with amounts shown in the latest unaudited consolidated statement of condition included in the Prospectus; and (iii) a statement from Dwyer, Pemberton and Coulson, P.C. that, in addition to the audit referred to in their opinion included in the Prospectus and the performance of the procedures referred to in clause (ii) of this subsection (f), they have compared with the general accounting records of the Bank, which are subject to the internal controls of the Bank, the accounting system and other data prepared by the Bank, directly from such 29 accounting records, to the extent specified in such letter, such amounts and/or percentages set forth in the Prospectus as Webb may reasonably request; and they have reported on the results of such comparisons. (g) At the Closing Date, Webb shall receive a letter from Dwyer, Pemberton and Coulson, P.C. dated the Closing Date, addressed to Webb, confirming the statements made by them in the letter delivered by it pursuant to subsection (f) of this Section 7, the "specified date" referred to in clause (ii) of subsection (f) thereof to be a date specified in such letter, which shall not be more than three business days prior to the Closing Date. (h) At the Closing Date, Webb shall receive a letter from R.P. Financial, LC, dated the date thereof and addressed to counsel for Webb, (i) confirming that said firm is independent of the Company and the Bank and is experienced and expert in the area of corporate appraisals and (ii) stating that its opinion of the aggregate pro forma market value of the Company and the Bank expressed in its Appraisal dated as of _________, 1997, and most recently updated, remains in effect. (i) The Company and the Bank shall not have sustained since the date of the latest audited financial statements included in the Prospectus any material loss or interference with their businesses from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Registration Statement and Prospectus. (j) At or prior to the Closing Date, Webb shall receive: (i) a copy of the letter from the Division approving the Conversion Application and authorizing the use of the Prospectus; (ii) a copy of the order from the Commission declaring the Registration Statement effective; (iii) a certificate from the Division evidencing the existence of the Bank; (iv) certificates of good standing from the State of Washington evidencing the good standing of the Company; (v) a certificate of good standing from the State of Washington evidencing the good standing of the Subsidiary; (vi) a certificate from the FDIC evidencing the Bank's insurance of accounts; (vii) a certificate of the FHLB- Seattle evidencing the Bank's membership thereof; (viii) a copy of the letter from the FRB approving the Company's Holding Company Application; and (ix) a copy of the Notice of Non-Objection to the Conversion Application from the FDIC. (k) As soon as available after the Closing Date, Webb shall receive, upon request, a copy of the Bank's Washington state stock charter. (l) Subsequent to the date hereof, there shall not have occurred any of the following: (i) a suspension or limitation in trading in securities generally on the New York Stock; Exchange or in the over-the-counter market, or quotations halted generally on the Nasdaq National Market, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices for securities have been required by either of such exchanges or the NASD or by order of the Commission or any other governmental authority; (ii) a general moratorium on the operations of 30 commercial banks or federal savings associations or a general moratorium on the withdrawal of deposits from commercial banks or federal savings associations declared by federal or Washington authorities; (iii) the engagement by the United States in hostilities which have resulted in the declaration, on or after the date hereof, of a national emergency or war; or (iv) a material decline in the price of equity or debt securities if the effect of such a decline, in Webb's reasonable judgment, makes it impracticable or inadvisable to proceed with the Offering or the delivery of the shares on the terms and in the manner contemplated in the Registration Statement and Prospectus. SECTION 8. INDEMNIFICATION. ---------------- (a) The Company and the Bank jointly and severally agree to indemnify and hold harmless Webb, its officers, directors, agents, servants and employees and each person, if any, who controls Webb within the meaning of Section 15 of the 1933 Act or Section 20(a) of the 1934 Act, against any and all loss, liability, claim, damage or expense whatsoever (including but not limited to reasonable and documented settlement expenses), joint or several, that Webb or any of them may suffer or to which Webb and any such persons may become subject under all applicable federal or state laws or otherwise, and to promptly reimburse Webb and any such persons upon written demand for any expense (including reasonable and documented fees and disbursements of counsel) incurred by Webb or any of them in connection with investigating, preparing or defending any actions, proceedings or claims (whether commenced or threatened) to the extent such losses, claims, damages, liabilities or actions: (i) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment or supplement thereto), preliminary or final Prospectus (or any amendment or supplement thereto), the Conversion Application (or any amendment or supplement thereto), the Holding Company Application or any blue sky application or other instrument or document executed by the Company or the Bank or based upon written information supplied by the Company or the Bank filed in any state or jurisdiction to register or qualify any or all of the Shares or to claim an exemption therefrom, or provided to any state or jurisdiction to exempt the Company as a broker-dealer or its officers, directors and employees as broker- dealers or agents, under the securities laws thereof (collectively, the "Blue Sky Application"), or any application or other document, advertisement, oral statement or communication ("Sales Information") prepared, made or executed by or on behalf of the Company or the Bank with their consent or based upon written or oral information furnished by or on behalf of the Company or the Bank, whether or not filed in any jurisdiction, in order to qualify or register the Shares or to claim an exemption therefrom under the securities laws thereof; (ii) arise out of or based upon the omission or alleged omission to state in any of the foregoing documents or information, a 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; or (iii) arise from any theory of liability whatsoever relating to or arising from or based upon the Registration Statement (or any amendment or supplement thereto), preliminary or final Prospectus (or any amendment or supplement thereto), the Conversion Application (or any amendment or supplement thereto), any Blue Sky Application or Sales Information or other documentation distributed in connection with the Conversion; provided, however, that no indemnification is required under this ------------------ paragraph (a) to the extent such losses, claims, damages, liabilities or actions arise out of or are based upon Webb's 31 gross negligence, bad faith or willful misconduct (as determined in a final judgment by a court of competent jurisdiction) or upon any untrue material statement or alleged untrue material statements in, or material omission or alleged material omission from, the Registration Statement (or any amendment or supplement thereto), preliminary or final Prospectus (or any amendment or supplement thereto), the Conversion Application, any Blue Sky Application or Sales Information made in reliance upon and in conformity with information furnished in writing to the Company or the Bank by Webb regarding Webb or statistical information regarding national averages provided by Webb for the Sales Information and provided further that such indemnification shall be to the ---------------- extent permitted by the Division. (b) Webb agrees to indemnify and hold harmless the Company and the Bank, their directors and officers and each person, if any, who controls the Company or the Bank within the meaning of Section 15 of the 1933 Act or Section 20(a) of the 1934 Act against any and all loss, liability, claim, damage or expense whatsoever (including but not limited to reasonable and documented settlement expenses), joint or several, which it, or any of them, may suffer or to which it, or any of them may become subject under all applicable federal and state laws or otherwise, and to promptly reimburse the Company, the Bank, and any such persons upon written demand for any expenses (including reasonable and documented fees and disbursements of counsel) incurred by it, or any of them, in connection with investigating, preparing or defending any actions, proceedings or claims (whether commenced or threatened) to the extent such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment or supplement thereto), the Conversion Application (or any amendment or supplement thereto) or the preliminary or final Prospectus (or any amendment or supplement thereto), or are based upon the omission or alleged omission to state in any of the foregoing documents a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that Webb's obligations under this Section 8(b) --------- -------- shall exist only if and only to the extent that such untrue statement or alleged untrue statement was made in, or such material fact or alleged material fact was omitted from, the Registration Statement (or any amendment or supplement thereto), the preliminary or final Prospectus (or any amendment or supplement thereto) or the Conversion Application (or any amendment or supplement thereto), any Blue Sky Application or Sales Information in reliance upon and in conformity with information furnished in writing to the Company or the Bank by Webb regarding Webb or statistical information regarding national averages provided by Webb for the Sales Information. (c) Each indemnified party shall give prompt written notice to each indemnifying party of any action, proceeding, claim (whether commenced or threatened), or suit instituted against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve it from any liability which it may have on account of this Section 8 or otherwise. An indemnifying party may participate at its own expense in the defense of such action. In addition, if it so elects within a reasonable time after receipt of such notice, an indemnifying party, jointly with any other indemnifying parties receiving such notice, may assumed defense of such action with counsel chosen by it and approved by the indemnified parties that are defendants in such action, 32 unless such indemnified parties reasonably object to such assumption on the ground that there may be legal defenses available to them that are different from or in addition to those available to such indemnifying party. If an indemnifying party assumes the defense of such action, the indemnifying parties shall not be liable for any fees and expenses of counsel for the indemnified parties incurred thereafter in connection with such action, proceeding or claim, other than reasonable costs of investigation. In no event shall the indemnifying parties be liable for the fees and expenses of more than one separate firm of attorneys (and any special counsel that said firm may retain) for each indemnified party in connection with any one action, proceeding or claim or separate but similar or related actions, proceeding or claim or separate but similar or related actions, proceedings or claims in the same jurisdiction arising out of the same general allegations or circumstances. (d) The agreements contained in this Section 8 and in Section 9 hereof and the representations and warranties of the Company and the Bank set forth in this Agreement shall remain operative and in full force and effect regardless of: (i) any investigation made by or on behalf of Webb or its officers, directors or controlling persons, agents or employees or by or on behalf of the Company or the Bank or any officers, directors or controlling persons, agents or employees of the Company or the Bank; (ii) delivery of and payment hereunder for the Shares; or (iii) any termination of this Agreement. SECTION 9. CONTRIBUTION. In order to provide for just and equitable ------------ contribution in circumstances in which the indemnification provided for in Section 8 is due in accordance with its terms but is for any reason held by a court to be unavailable from the Company, the Bank or Webb, the Company, the Bank and Webb shall contribute to the aggregate losses, claims, damages and liabilities (including any investigation, legal and other expenses incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding of any claims asserted, but after deducting any contribution received by the Company, the Bank or Webb from persons other than the other party thereto, who may also be liable for contribution) in such proportion so that Webb are responsible for that portion represented by the percentage that the fees paid to Webb pursuant to Section 2 of this Agreement (not including expenses) bears to the gross proceeds received by the Company from the sale of the Shares in the Offering and the Company and the Bank shall be responsible for the balance. If, however, the allocation provided above is not permitted by applicable law or if the indemnified party failed to give the notice required under Section 8 above, then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative fault of the Company and the Bank on the one hand and Webb on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions, proceedings or claims in respect thereto), but also the relative benefits received by the Company and the Bank on the one hand and Webb on the other from the Offering (before deducting expenses). The relative fault 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 and/or the Bank on the one hand or Webb on the other and the parties' relative intent, good faith, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, the Bank and Webb agree that it would not be just and 33 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 into account the equitable considerations referred to above in this Section 9. The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions, proceedings or claims in respect thereof) referred to above in this Section 9 shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action, proceeding or claim. It is expressly agreed that Webb shall not be required to contribute any amount which in the aggregate exceeds the amount paid (excluding reimbursable expenses) to Webb under this Agreement. It is understood that the above stated limitation on Webb's liability for contribution is essential to Webb and that Webb would not have entered into this Agreement if such limitation had not been agreed to by the parties to this Agreement. No person found guilty of any fraudulent misrepresentation (within the meaning of Section ll(f) of the 1933 Act) shall be entitled to contribution from any person who was not found guilty of such fraudulent misrepresentation. The obligations of the Company and the Bank under this Section 9 and under Section 8 shall be in addition to any liability which the Company and the Bank may otherwise have. For purposes of this Section 9, each of Webb's, the Company's or the Bank's officers and directors and each person, if any, who controls Webb or the Company or the Bank within the meaning of the 1933 Act and the 1934 Act shall have the same rights to contribution as Webb, the Company or the Bank. Any party entitled to contribution, promptly after receipt of notice of commencement of any action, suit, claim or proceeding against such party in respect of which a claim for contribution may be made against another party under this Section 9, will notify such party from whom contribution may be sought, but the omission to so notify such party shall not relieve the party from whom contribution may be sought from any other obligation it may have hereunder or otherwise than under this Section 9. SECTION 10. SURVIVAL OF AGREEMENTS REPRESENTATIONS AND INDEMNITIES. The ------------------------------------------------------ respective indemnities of the Company, the Bank and Webb and the representations and warranties and other statements of the Company, the Bank and Webb 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 Webb, the Company, the Bank or any controlling person referred to in Section 8 hereof, and shall survive the issuance of the Shares, and any legal representative, successor or assign of Webb, the Company, the Bank, and any such controlling person shall be entitled to the benefit of the respective agreements, indemnities, warranties and representations. SECTION 11. TERMINATION. Webb may terminate its obligations under this ----------- Agreement by giving the notice indicated below in this Section 11 at any time after this Agreement becomes effective as follows: (a) In the event the Company fails to sell all of the Shares by __________, 1998, and in accordance with the provisions of the Plan or as required by the Conversion Regulations, and applicable law, this Agreement shall terminate upon refund by the Bank to each person who has subscribed for or ordered any of the Shares the full amount which it may have received from such person, together with interest as provided in the Prospectus, and no party to this Agreement shall 34 have any obligation to the other hereunder, except for payment by the Company and/or the Bank as set forth in Sections 2(a) and (d), 6, 8 and 9 hereof. (b) If any of the conditions specified in Section 7 shall not have been fulfilled when and as required by this Agreement unless waived in writing, or by the Closing Date, this Agreement and all of Webb's obligations hereunder may be cancelled by Webb by notifying the Company and the Bank of such cancellation in writing at any time at or prior to the Closing Date, and any such cancellation shall be without liability of any party to any other party except as otherwise provided in Sections 2, 6, 8 and 9 hereof. (c) If Webb elects to terminate this Agreement with respect to it as provided in this Section, the Company and the Bank shall be notified promptly by such Agent by telephone or telegram, confirmed by letter. The Company and the Bank may terminate this Agreement with respect to Webb in the event Webb is in material breach of the representations and warranties or covenants contained in Section 5 and such breach has not been cured after the Company and the Bank have provided Webb with notice of such breach. This Agreement may also be terminated by mutual written consent of the parties hereto. SECTION 12. NOTICES. All communications hereunder, except as herein ------- otherwise specifically provided, shall be mailed in writing and if sent to Webb shall be mailed, delivered or telegraphed and confirmed to Charles Webb & Company, 211 Bradenton, Dublin, Ohio 43017-5034, Attention: Patricia A. McJoynt (with a copy to Muldoon, Murphy & Faucette, 5101 Wisconsin Avenue, N.W., Washington, D.C. 20016, Attention: Mary M. Sjoquist, Esq.) and, if sent to the Company and the Bank, shall be mailed, delivered or telegraphed and confirmed to the Company and the Bank at Timberland Bancorp, Inc., 624 Simpson Avenue, Hoquiam, Washington 98550, Attention: Clarence E. Hamre, President and Chief Executive Officer (with a copy to Breyer & Aguggia, 1300 I Street, N.W., Suite 470 East, Washington, D.C. 20005, Attention: John F. Breyer, Jr., Esq.). SECTION 13. PARTIES. The Company and the Bank shall be entitled to act ------- and rely on any request, notice, consent, waiver or agreement purportedly given on behalf of Webb when the same shall have been given by the undersigned. Webb shall be entitled to act and rely on any request, notice, consent, waiver or agreement purportedly given on behalf of the Company or the Bank, when the same shall have been given by the undersigned or any other officer of the Company or the Bank. This Agreement shall inure solely to the benefit of, and shall be binding upon, Webb, the Company, the Bank, 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. It is understood and agreed that this Agreement, including Exhibit A thereto, is the exclusive agreement among the parties hereto, and supersedes any prior agreement among the parties and may not be varied except in writing signed by all the parties. 35 SECTION 14. CLOSING. The closing for the sale of the Shares shall take ------- place on the Closing Date at such location as mutually agreed upon by Webb and the Company and the Bank. At the closing, the Company and the Bank shall deliver to Webb in next day funds the commissions, fees and expenses due and owing to Webb as set forth in Sections 2 and 6 hereof and the opinions and certificates required hereby and other documents deemed reasonably necessary by Webb shall be executed and delivered to effect the sale of the Shares as contemplated hereby and pursuant to the terms of the Prospectus. SECTION 15. PARTIAL INVALIDITY. In the event that any term, provision or ------------------ covenant herein or the application thereof to any circumstance or situation shall be invalid or unenforceable, in whole or in part, the remainder hereof and the application of said term, provision or covenant to any other circumstances or situation shall not be affected thereby, and each term, provision or covenant herein shall be valid and enforceable to the full extent permitted by law. SECTION 16. CONSTRUCTION. This Agreement shall be construed in accordance ------------ with the laws of the State of Ohio. SECTION 17. COUNTERPARTS. This Agreement may be executed in separate ------------ counterparts, each of which so executed and delivered shall be an original, but all of which together shall constitute a binding agreement. 36 If the foregoing correctly sets forth the arrangement among the Company, the Bank and Webb, please indicate acceptance thereof in the space provided below for that purpose, whereupon this letter and Webb's acceptance shall constitute a binding agreement. Very truly yours, TIMBERLAND BANCORP, INC. TIMBERLAND SAVINGS BANK, S.S.B. By: _________________________ By: ____________________________________ President and Chief President and Chief Executive officer Executive officer Accepted as of the date first above written CHARLES WEBB & COMPANY A DIVISION OF KEEFE, BRUYETTE & WOODS, INC. By: ____________________________ Patricia A. McJoynt Executive Vice President 37 EX-10.2 3 TIMBERLAND SAVINGS BANK, SSB 401(K) PLAN EXHIBIT 10.2 TIMBERLAND SAVINGS BANK, SSB 401(k) PLAN STANDARDIZED PROFIT SHARING PLAN ADOPTION AGREEMENT #003 STANDARDIZED PROFIT SHARING PLAN (PAIRED PROFIT SHARING PLAN) The undersigned, Timberland Savings Bank (F.S.B.) ("Employer"), by executing this Adoption Agreement, elects to become a participating Employer in the United States National Bank of Oregon Defined Contribution Master Plan (basic plan document #01) by adopting the accompanying Plan and Trust in full as if the Employer were a signatory to that Agreement. The Employer makes the following elections granted under the provisions of the Master Plan. ARTICLE I DEFINITIONS 1.02 TRUSTEE. The Trustee executing this Adoption Agreement is: (Choose ------- (a) or (b)) [x] (a) A discretionary Trustee. See Section 10.03[A] of the Plan. [ ] (b) A nondiscretionary Trustee. See Section 10.03[B] of the Plan. [Note: The Employer may not elect Option (b) if a Custodian executes the Adoption Agreement.] 1.03 PLAN. The name of the Plan as adopted by the Employer is Timberland ----- ---------- Savings Bank (F.S.B.) Profit Sharing Plan. ----------------------------------------- 1.07 EMPLOYEE. The following Employees are not eligible to participate -------- in the Plan: (Choose (a) or at least one of (b) or (c)) [ ] (a) No exclusions. [x] (b) Collective bargaining employees (as defined in Section 1.07 of the Plan). [Note: If the Employer excludes union employees from the Plan, the Employer must be able to provide evidence that retirement benefits were the subject of good faith bargaining.] [ ] (c) Nonresident aliens who do not receive any earned income (as defined in Code (S)911(d)(2) from the Employer which constitutes United States source income (as defined in Code (S)861(a)(3)). RELATED EMPLOYERS/LEASED EMPLOYEES. An Employee of any member of the Employer's related group (as defined in Section 1.30 of the Plan), and any Leased Employee treated As an Employee under Section 1.31 of the Plan, is eligible to participate in the Plan, unless excluded by reason of Options (b) or (c). [Note: A related group member may not contribute to this Plan unless it executes a Participation Agreement, even if its Employees are Participants in the Plan.] 1.12 COMPENSATION. ------------- TREATMENT OF ELECTIVE CONTRIBUTIONS. (Choose (a) or (b)) [ ] (a) "Compensation" includes elective contributions made by the Employer on the Employee's behalf. [x] (b) "Compensation" does not include elective contributions. MODIFICATIONS TO COMPENSATION DEFINITION. (Choose (c) or at least one of (d) and (e)) [x] (c) No modifications other than as elected under Options (a) or (b). [ ] (d) The Plan excludes Compensation in excess of $ . -------------- 1 [ ] (e) In lieu of the definition in Section 1.12 of the Plan. Compensation means any earnings reportable as W-2 wages for Federal income tax withholding purposes, subject to any other election under this Adoption Agreement Section 1.12. 1.17 PLAN YEAR/LIMITATION YEAR. ------------------------- PLAN YEAR. Plan Year means: (Choose (a) or (b)) [X] (a) The 12 consecutive month period ending every September 30. ------------ [ ] (b) (Specify) ----------------------------------------------------------- . - ------------------------------------------------------------------------------ LIMITATION YEAR. The Limitation Year is: (Choose (c) or (d)) [X] (c) The Plan Year. [ ] (d) The 12 consecutive month period ending every . ------------------------ 1.18 EFFECTIVE DATE. -------------- NEW PLAN. The "Effective Date" of the Plan is . ------------------------------- RESTATED PLAN. The restated Effective Date is October 1, 1987. -------------- This Plan is a substitution and amendment of an existing retirement plan(s) originally established December 4, 1970. [Note: See the Effective Date ---------------- Addendum.] 1.27 HOUR OF SERVICE. The crediting method for Hours of Service is: --------------- (Choose (a) or (b)) [X] (a) The actual method. [ ] (b) The equivalency method, except: --------------------- [ ] (1) No exceptions. [ ] (2) The actual method applies for purposes of: (Choose at least one) [ ] (i) Participation under Article II. [ ] (ii) Vesting under Article V. [ ] (iii) Accrual of benefits under Section 3.06. [Note: On the blank line, insert "daily," "weekly," "semi-monthly payroll periods" or monthly."] 1.29 SERVICE FOR PREDECESSOR EMPLOYER. In addition to the predecessor -------------------------------- service the Plan must credit by reason of Section 1.29 of the Plan, the Plan credits Service with the following predecessor employer(s): N/A. Service ------ with the designated predecessor employer(s) applies: (Choose at least one of (a) or (b)) [ ] (a) For purposes of participation under Article II. [ ] (b) For purposes of vesting under Article V. [Note: If the Plan does not credit any predecessor service under this provision, insert "N/A" in the first blank line. The Employer may attach a schedule to this Adoption Agreement, in the same format as this Section 1.29, designating additional predecessor employers and the applicable service crediting elections.] 1.31 LEASED EMPLOYEES. If a Leased Employee participates in a safe harbor ---------------- money purchAse plan (as described in Section 1.31) maintained by the leasing organization, but the Employer is not eligible for the safe harbor plan exception: (Choose (a) or (b)) 2 [x] (a) The Advisory Committee will determine the Leased Employee's allocation of Employer contributions under Article III without taking into account the Leased Employee's allocation under the safe harbor plan. [ ] (b) The Advisory Committee will reduce the Leased Employee's allocation of Employer contributions under this Plan by the Leased Employee's allocation under the safe harbor plan, but only to the extent that allocation is attributable to the Leased Employee's service provided to the Employer. [Note: The Employer may not elect Option (b) if a Paired Plan or any other plan of the Employer makes a similar reduction for the same plan of the leasing organization.] ARTICLE II EMPLOYEE PARTICIPANTS 2.01 ELIGIBILITY. ----------- ELIGIBILITY CONDITIONS. To become a Participant in the Plan, an Employee must satisfy the following eligibility conditions: (Choose (a) or (b) or both) [x] (a) Attainment of age 21 (specify age, not exceeding 21). [x] (b) Service requirement. (Choose one of (1) through (4)) [x] (1) One Year of Service. [ ] (2) Two Years of Service, without an intervening Break in Service. See Section 2.03(A) of the Plan. [ ] (3) months (not exceeding 24) following the Employee's -------- Employment Commencement Date. [ ] (4) One Hour of Service. PLAN ENTRY DATE. "Plan Entry Date" means the Effective Date and: (Choose (c), (d) or (e)) [x] (c) Semi-annual Entry Dates. The first day of the Plan Year and the first day of the seventh month of the Plan Year. [ ] (d) The first day of the Plan Year. [ ] (e) (Specify entry dates) -------------------------------------------------- . -------------------------------------------------------------------------- TIME OF PARTICIPATION. An Employee will become a Participant, unless excluded under Adoption Agreement Section 1.07, on the Plan Entry Date (if employed on that date): (Choose (f), (g) or (h)) [x] (f) immediately following [ ] (g) immediately preceding [ ] (h) nearest the date the Employee completes the eligibility conditions described in Options (a) and (b) of this Adoption Agreement Section 2.01. [Note: The Employer must coordinate the selection of (f), (g) or (h) with the "Plan Entry Date" selection in (c), (d) or (e). Unless otherwise excluded under Section 1.07, the Employee must become a Participant by the earlier of: (1) the first day of the Plan Year beginning after the date the Employee completes the age and service requirements of Code (S)410(a); or (2) 6 months after the date the Employee completes those requirements.] DUAL ELIGIBILITY. The eligibility conditions of this Section 2.01 apply to: (Choose (i) or (j)) [x] (i) All Employees of the Employer, except: (Choose (1) or (2)) [x] (1) No exceptions. [ ] (2) Employees who are Participants in the Plan as of the Effective Date. 3 [ ] (j) Solely to an Employee employed by the Employer after . -------------- If the Employee was employed by the specified date, the Employee will become a Participant: (Choose (1) or (2)) [ ] (1) On the latest of the Effective Date, his Employment Commencement Date or the date he attains age (not to exceed 21) -------- [ ] (2) Under the eligibility conditions in effect under the Plan prior to the restated Effective Date. [For restated plans only] 2.02 YEAR OF SERVICE - PARTICIPATION. ------------------------------- HOURS OF SERVICE. An Employee must complete: (Choose (a) or (b)) [x] (a) 1,000 Hours of Service [ ] (b) Hours of Service ----------- during an eligibility computation period to receive credit for a Year of service. [Note: The Hours of Service requirements may not exceed 1,000.] ELIGIBILITY COMPUTATION PERIOD. After the initial eligibility computation period described in Section 2.02 of the Plan, the Plan measures the eligibility computation period as: (Choose (c) or (d)) [x] (c) The 12 consecutive month period beginning with each anniversary of an Employee's Employment Commencement Date. [ ] (d) The Plan Year, beginning with the Plan Year which includes the first anniversary of the Employee's Employment Commencement Date. 2.03 BREAK IN SERVICE - PARTICIPATION. The Break in Service rule described -------------------------------- in Section(B) of the Plan: (Choose (a) or (b)) [x] (a) Does not apply to the Employer's Plan. [ ] (b) Applies to the Employer's Plan. ARTICLE III EMPLOYER CONTRIBUTIONS AND FORFEITURES 3.01 AMOUNT. The amount of the Employer's annual contribution to the Trust ------ will equal: (Choose (a), (b), (c) or (d)) [x] (a) The amount (or additional amount) the Employer may from time to time deem advisable. [ ] (b) % of the Compensation of all Participants under the Plan, ---------- determined for the Employer's taxable year for which it makes the contribution. [Note: The percentage selected may not exceed 15%] [ ] (c) % of Net Profits but not more than $ . ---------- ------------ [ ] (d) This Plan is a frozen Plan effective . The -------------------------- Employer will not contribute to the Plan with respect to any period following the stated date. NET PROFITS. THE EMPLOYER: (Choose (e) or (f)) [ ] (e) Need not have Net Profits to make its annual contribution under this Plan. [x] (f) Must have current or accumulated Net Profits exceeding $0.00 to make the contributions described in Option . ------ The term "Net Profits" means the Employer's net income or profits for any taxable year determined by the Employer upon the basis of its books of account in accordance with generally accepted accounting practices consistently applied without any deductions for Federal and state taxes upon income or for contributions made by the Employer under this Plan or under any other employee 4 benefit plan the Employer maintains. If more than one member of a related group (as defined in Section 1.30) execute this Adoption Agreement, each participating member separately will determine Net Profits. "Net Profits" includes both current and accumulated Net Profits. The term "Net Profits" specifically excludes: ----------------------------------------------------------------------- [Note: Enter "N/A" if no exclusions apply.] - ------------------------------------ 3.04 CONTRIBUTION ALLOCATION. ----------------------- METHOD OF ALLOCATION. Subject to any restoration allocation required under Section 5.04, the Advisory Committee will allocate and credit each annual Employer contribution (and Participant forfeitures, if any) to the Account of each Participant who satisfies the conditions of Section 3.06, in accordance with the allocation method selected under this Section 3.04. (Choose an allocation method under (a), (b), (c) or (d); (e) is mandatory if the Employer elects (b), (c) or (d) [x] (a) NONINTEGRATED ALLOCATION FORMULA. The Advisory Committee will allocate the annual Employer contributions (and Participant forfeitures) in the same ratio that each ParticipAnt's Compensation for the Plan Year bears to the total Compensation of all Participants for the Plan Year. [ ] (b) TWO-TIERED INTEGRATED ALLOCATION FORMULA - MAXIMUM DISPARITY. First, the Advisory Committee will allocate the annual Employer contributions (and Participant forfeitures) in the same ratio that each Participant's Compensation plus Excess Compensation for the Plan Year bears to the total Compensation plus Excess Compensation of all Participants for the Plan Year. The allocation under this paragraph, as a percentage of each Participant's compensation plus Excess Compensation, must not exceed the applicable percentage (5.7%, 5.4% or 4.3%) listed under the Maximum Disparity Table following Option (e). The Advisory Committee then will allocate any remaining Employer contributions (and Participant forfeitures) in the same ratio that each Participant's Compensation for the Plan Year bears to the total Compensation of all Participants for the Plan Year. [ ] (c) THREE-TIERED INTEGRATED ALLOCATION FORMULA. First, the Advisory Committee will allocate the annual Employer contributions (and Participant forfeitures) in the same ratio that each Participant's Compensation for the Plan Year bears to the total Compensation of all Participants for the Plan Year. The allocation under this paragraph, as a percentage of each Participant's Compensation may not exceed the applicable percentage (5.7%, 5.4% or 4.3%) listed under the Maximum Disparity Table following Option (e). As a second tier allocation, the Advisory Committee will allocate the annual Employer contributions (and Participant forfeitures) in the same ratio that each Participant's Excess Compensation for the Plan Year bears to the total Excess Compensation of all Participants for the Plan Year. The allocation under this paragraph, as a percentage of each Participant's Excess Compensation, may not exceed the allocation percentage in the first paragraph. Finally, the Advisory Committee will allocate any remaining annual Employer contributions (and Participant forfeitures) in the same ratio that each Participant's Compensation for the Plan Year bears to the total Compensation of all Participants for the Plan Year. [ ] (d) FOUR-TIERED INTEGRATED ALLOCATION FORMULA. First, the Advisory Committee will allocate the annual Employer contributions (and Participant forfeitures) in the same ratio that each Participant's Compensation for the Plan Year bears to the total Compensation of all Participants for the Plan Year, but not exceeding 3% of each Participant's Compensation. As a second tier allocation, the Advisory Committee will allocate the annual Employer contributions (and Participant forfeitures) in the same ratio that each Participant's Excess Compensation for the Plan Year bears to the total Excess Compensation of all Participants for the Plan Year, but not exceeding 3% of each Participant's Excess Compensation. As a third tier allocation, the Advisory Committee will allocate the annual Employer contributions (and Participant forfeitures) in the same ratio that each Participant's Compensation plus Excess Compensation for the Plan Year bears to the total Compensation 5 plus Excess Compensation of all Participants for the Plan Year. The allocation under this paragraph as a percentage of each Participant's Compensation plus Excess Compensation, must not exceed the applicable percentage (2.7%, 2.4% or 1.3%) listed under the Maximum Disparity Table following Option (e). The Advisory Committee then will allocate any remaining Employer contributions (and Participant forfeitures) in the same ratio that each Participant's CompensAtion for the Plan Year bears to the total Compensation of all Participants for the Plan Year. [ ] (e) EXCESS COMPENSATION. For purposes of Option (b), (c) or (d), "Excess Compensation" means Compensation in excess of the following Integration Level: (Choose (1) or (2)) [ ] (1) % (not exceeding 100%) of the taxable wage base, --------------- as determined under Section 230 of the Social Security Act, in effect on the first day of the Plan Year: (Choose any combination of (i) and (ii) or choose (iii)) [ ] (i) Rounded to -------------------------------------------------- (but not exceeding the taxable wage base). ---------------- [ ] (ii) But not greater than $ . --------------- [ ] (iii) Without any further adjustment or limitation. [ ] (2) $ [Note: Not exceeding the taxable wage base ------------------- for the Plan Year in which this Adoption Agreement first is effective.] MAXIMUM DISPARITY TABLE. For purposes of Options (b), (c) and (d), the applicable percentage is:
Integration Level (as Applicable Percentages for Applicable Percentages percentage of taxable wage base) Option (b) or Option (c) for Option (d) - -------------------------------- -------------------------- ---------------------- 100% 5.7% 2.7% More than 80% but less than 100% 5.4% 2.4% More than 20% (but less than $10,001) and not more than 80% 4.3% 1.3% 20% (or $10,000, if greater) or less 5.7% 2.7%
TOP HEAVY MINIMUM ALLOCATION - ELIGIBLE PARTICIPANT. A Participant is entitled to the top heavy minimum allocation in Section 3.04(B) of the Plan if he is employed by the Employer on the last day of the Plan Year, unless: (Choose (f) or (g)) [x] (f) No exceptions. [ ] (g) The Participant is a Key Employee for the Plan Year. [Note: If the Employer selects this Option (g), it will have to determine for each Plan Year who are the Key Employees under the Plan.] TOP HEAVY MINIMUM ALLOCATION - METHOD OF COMPLIANCE. If a Participant's allocation under this Section 3.04 is less than the top heavy minimum allocation to which he is entitled under Section 3.04(B): (Choose (h) or (i)) [x] (h) The Employer will make any necessary additional contribution to the Participant's Account, as described in Section 3.04(B)(7)(a) of the Plan. [ ] (i) The Employer will satisfy the top heavy minimum allocation under the Paired Pension Plan the Employer also maintains under this Master Plan. However, the Employer will make any necessary additional contribution to satisfy the top heavy minimum allocation for an Employee covered only under this Plan and not under the Paired Pension Plan. See Section 3.04(B)(7)(b) of the Plan. If the Employer maintains another plan which is not a Paired Pension Plan offered under this Master Plan, the Employer may provide in an addendum to this Adoption Agreement, numbered 6 Section 3.04, any modifications to the Plan necessary to satisfy the top heavy requirements under Code (S)416. RELATED EMPLOYERS. If two or more related employers (as defined in Section 1.30) contribute to this Plan, the Advisory Committee must allocate all Employer contributions and forfeitures to each Participant in the Plan, in accordance with the elections in this Adoption Agreement Section 3.04, without regard to which contributing related group member employs the Participant. A Participant's Compensation includes Compensation from all related employers, irrespective of which related employers are contributing to the Plan. 3.05 FORFEITURE ALLOCATION. Subject to any restoration allocation required --------------------- under Sections 5.04 or 9.14, the Advisory Committee will allocate a Participant forfeiture in accordance with Section 3.04: (Choose (a) or (b); (c) is optional in addition to (a) or (b)) [x] (a) As an Employer contribution for the Plan Year in which the forfeiture occurs, as if the Participant forfeiture were an additional Employer contribution for that Plan Year. [ ] (b) To reduce the Employer contribution for the Plan Year: (Choose (1) or (2)) [ ] (1) in which the forfeiture occurs. [ ] (2) immediately following the Plan Year in which the forfeiture occurs. [ ] (c) First to reduce the Plan's ordinary and necessary administrative expenses for the Plan Year and then will allocate any remaining forfeitures in the manner described in Option (a) or in Option (b), whichever applies. 3.06 ACCRUAL OF BENEFIT. ------------------ COMPENSATION TAKEN INTO ACCOUNT. For the Plan Year in which the Employee first becomes a Participant, the Advisory Committee will determine the allocation under Adoption Agreement Section 3.04 by taking into account: (Choose (a) or (b)) [ ] (a) The Employee's Compensation for the entire Plan Year. [x] (b) The Employee's Compensation only for the portion of the Plan Year in which the Employee actually is a Participant in the Plan, except: (Choose (1) or (2)) [x] (1) No exceptions. [ ] (2) For purposes of the first 3% of Compensation allocated to all Participants under Options (a), (c) or (d) of Adoption Agreement Section 3.04, whichever applies, the Advisory Committee will take into account the Employee's Compensation for the entire Plan Year. ACCRUAL REQUIREMENTS. To receive an allocation of Employer contributions And Participant forfeitures, if any, for the Plan Year, a Participant must satisfy the accrual requirements of this paragraph. If the Participant is employed by the Employer on the last day of the Plan Year, the Participant must complete at least one Hour of Service for that Plan Year. If the Participant terminates employment with the Employer during the Plan Year, the Participant must complete at least 501 Hours of Service (not exceeding 501) during the Plan Year, except: (Choose (c) or (d)) [x] (c) No exceptions. [ ] (d) No Hour of Service requirement if the Participant terminates employment during the Plan Year on account of: (Choose at least one of (1), (2) and (3)) [ ] (1) Death. [ ] (2) Disability. [ ] (3) Attainment of Normal Retirement Age in the current Plan Year or in a prior Plan Year. 7 3.15 MORE THAN ONE PLAN LIMITATION. If the provisions of Section 3.15 ----------------------------- apply, the Excess Amount attributed to this Plan equals: (Choose (a), (b) or (c)) [ ] (a) The product of: (i) the total Excess Amount allocated as of such date (including any amount which the Advisory Committee would have allocated but for the limitations of Code (S)415), times (ii) the ratio of (1) the amount allocated to the Participant as of such date under this Plan divided by (2) the total amount allocated as of such date under all qualified defined contribution plans (determined without regard to the limitations of Code (S)415). [ ] (b) The total Excess Amount. [ ] (c) None of the Excess Amount. [Note: If the Employer adopts Paired Plans available under this Master Plan, the Employer must coordinate its elections under Section 3.15 of each Adoption Agreement.] 3.18 DEFINED BENEFIT PLAN LIMITATION. ------------------------------- APPLICATION OF LIMITATION. The limitation under Section 3.18 of the Plan: (Choose (a) or (b)) [x] (a) Does not apply to the Employer's Plan because the Employer does not maintain and never has maintained a defined benefit plan covering any Participant in this Plan. [ ] (b) Applies to the Employer's Plan. To the extent necessary to satisfy the limitation under Section 3.18, the Employer will reduce: (Choose (1) or (2)) [ ] (1) The Participant's projected annual benefit under the defined benefit plan under which the Participant participates. [ ] (2) Its contribution or allocation on behalf of the Participant to the defined contribution plan under which the Participant participates and then, if necessary, the Participant's projected annual benefit under the defined benefit plan under which the Participant participates. [Note: If the Employer selects (a), the remaining options in this Section 3.18 do not apply to the Employer's Plan.] OVERRIDE OF 100% LIMITATION. The Employer elects: (Choose (c) or (d)) [ ] (c) To apply the 100% limitation described in Section 3.19(1) of the Plan in all Limitation Years. [Note: This election will avoid having to calculate the Plan's top heavy ratio for any year.] [ ] (d) Not to apply the 100% Limitation for Limitation Years in which the Plan's top heavy ratio (as determined under Section 1.33 of the Plan) does not exceed 90%, but only if the defined benefit plan satisfies the extra minimum benefit requirements of Code (S)416(h)(2) (and the applicable Treasury regulations) after taking into account the Employer's election under Options (e), (f), (g) or (h) of this Section 3.18. To determine the top heavy ratio, the Advisory Committee will use the following interest rate and mortality assumptions to value accrued benefits under a defined benefit plan: -------------------------------------------------------------- [Note: This election will require the -----------------------------------. Advisory Committee to calculate the Plan's top heavy ratio.] COORDINATION WITH TOP HEAVY MINIMUM ALLOCATION. The Advisory Committee will apply the top heavy minimum allocation provisions of Section 3.04(B) of the Plan with the following modifications: (Choose (e), (f), (g) or (h)) [ ] (e) No modifications. 8 [ ] (f) By substituting 4% for 3% in Paragraph (b) of Section 3.04(B)(1) of the Plan, but only for any Plan Year in which Option (d) applies to override the 100% limitation. [ ] (g) By increasing the top heavy minimum allocation to 5% for any Plan Year in which the 100% limitation applies, and to 7-1/2% for any Plan Year in which Option (d) applies to override the 100% limitation. The increased percentage under this Option (g) applies irrespective of whether the highest Participant contribution rate for the Plan Year is less than that increased percentage. [ ] (h) By eliminating the top heavy minimum allocation. [Note: The Employer may not select this Option (h) if the defined benefit plan does not guarantee the top heavy minimum benefit under Code (S)416 for every Participant in this Plan who is a Non-Key Employee.] If the elections under this Section 3.18 are not appropriate to satisfy the Limitations of Section 3.18, or the top heavy requirements under Code (S)416, the Employer must provide the appropriate provisions in an addendum to this Adoption Agreement. ARTICLE V TERMINATION OF SERVICE - PARTICIPANT VESTING 5.01 NORMAL RETIREMENT. Normal Retirement Age under the Plan is: (Choose ----------------- (a) or (b)) [x] (a) 65 [State age, but may not exceed age 65]. -- [ ] (b) The later of the date the Participant attains years of age --------- or the anniversary of the first day of the Plan Year in which the -------- Participant commenced participation in the Plan. [The age selected may not exceed age 65 and the anniversary selected may not exceed the 5th.] 5.02 PARTICIPANT DEATH OR DISABILITY. The 100% vesting rule under Section ------------------------------- 5.02 of the Plan: (Choose (a) or choose one or both of (b) and (c)) [ ] (a) Does not apply. [x] (b) Applies to death. [x] (c) Applies to disability. 5.03 VESTING SCHEDULE. The Employer elects the following vesting -------------------- schedule: (Choose (a) or (b); (c) is available only in addition to (b)) [ ] (a) Immediate vesting, 100% Nonforfeitable at all times. [Note: The Employer must elect Option (a) if the eligibility conditions under Adoption Agreement Section 2.01(b) require 2 years of service or more than 12 months of employment.] [x] (b) Graduated Vesting Schedule. (Choose (1), (2) or (3)) [ ](1) 6-YEAR GRADED [ ](2) 3-YEAR CLIFF [x] (3) MODIFIED TOP HEAVY SCHEDULE
Year of Nonforfeitable Year of Nonforfeitable Year of Nonforfeitable Service Percentage Service Percentage Service Percentage - ------------- --------------- ------------- -------------- ----------- ------------------- Less than 2................ 0% Less than 3............... 0% Less than 1.................. none 2................... 20% 3 or more................. 100% 1......................... 10 3................... 40% 2......................... 20 4................... 60% 3......................... 40 5................... 80% 4......................... 60 6 or more........... 100% 5......................... 80 6 or more................. 100%
9 [Note: Under Option (b)(3), the vesting schedule must satisfy the top heavy requirements of Code (S)416.] [ ] (c) Minimum vesting. A Participant's Nonforfeitable Accrued Benefit will never be less than the lesser of $ or his entire Accrued -------------- Benefit, even if the application of the graduated vesting schedule under Option (b) would result in a smaller Nonforfeitable Accrued Benefit. 5.04 CASH-OUT DISTRIBUTIONS TO PARTIALLY-VESTED PARTICIPANTS/RESTORATION OF ---------------------------------------------------------------------- FORFEITED ACCRUED BENEFIT. The deemed cash-out rule described in Section - ------------------------- 5.04(C) of the Plan: (Choose (a) or (b)) [x] (a) Does not apply. [ ] (b) Will apply to determine the timing of forfeitures for 0% vested Participants. 5.06 YEAR OF SERVICE - VESTING. ------------------------- VESTING COMPUTATION PERIOD. The Plan measures a Year of Service on the basis of the following 12 consecutive month periods: (Choose (a) or (b)) [x] (a) Plan Years. [ ] (b) Employment Years. An Employment Year is the 12 consecutive month period measured from the Employee's Employment Commencement Date and each successive 12 consecutive month period measured from each anniversary of that Employment Commencement Date. HOURS OF SERVICE. The minimum number of Hours of Service an Employee must complete during a vesting computation period to receive credit for a Year of Service is: (Choose (c) or (d)) [x] (c) 1,000 Hours of Service. [ ] (d) Hours of Service. [Note: The Hours of Service requirement ------- may not exceed 1,000.] 5.08 INCLUDED YEARS OF SERVICE - VESTING. The Employer specifically ----------------------------------- excludes the following Years of Service: (Choose (a) or at least one of (b), (c) and (d)) [x] (a) None other than as specified in Section 5.08(a) of the Plan. [ ] (b) Any Year of Service before the Participant attained the age of . -- [Note: The age selected may not exceed age 18.] [ ] (c) Any Year of Service during the period the Employer did not maintain this Plan or a predecessor plan. [ ] (d) Any Year of Service before a Break in Service if the number of consecutive Breaks in Service equals or exceeds the greater of 5 or the aggregate number of the Years of Service prior to the Break. This exception applies only if the Participant is 0% vested in his Accrued Benefit derived from Employer contributions at the time he has a Break in Service. Furthermore, the aggregate number of Years of Service before a Break in Service do not include any Years of Service not required to be taken into account under this exception by reason of any prior Break in Service. ARTICLE VI TIME AND METHOD OF PAYMENTS OF BENEFITS CODE (S)411(D)(6) PROTECTED BENEFITS. The elections under this Article VI may not eliminate Code (S)411(d)(6) protected benefits. To the extent the elections would eliminate a Code (S)411(d)(6) protected benefit, see Section 13.02 of the Plan. Furthermore, if the elections liberalize the optional forms of benefit under the Plan, the more liberal options apply on the later of the adoption date or the Effective Date of this Adoption Agreement. 10 6.01 TIME OF PAYMENT OF ACCRUED BENEFIT. ---------------------------------- DISTRIBUTION DATE. A distribution date under the Plan means daily - no restrictions. [Note: The Employer must specify the appropriate date(s). The specified distribution dates primarily establish annuity starting dates and the notice and consent periods prescribed by the Plan. The Plan allows the Trustee an administratively practicable period of time to make the actual distribution relating to a particular distribution date.] NONFORFEITABLE ACCRUED BENEFIT NOT EXCEEDING $3,500. Subject to the limitations of Section 6.01(A)(1), the distribution date for distribution of a Nonforfeitable Accrued Benefit not exceeding $3,500 is: (Choose (a), (b), (c) or (d)) [ ] (a) of the Plan Year --------------- ---------------------------- beginning after the Participant's Separation from Service. [x] (b) as soon as administratively feasible following the Participant's Separation from Service. [ ] (c) of the Plan Year after the Participant ------------------------- incurs Break(s) in Service (as defined in Article V). -------------- [ ] (d) following the Participant's attainment of Normal Retirement Age, ------ but not earlier than days following his Separation from Service. ------ NONFORFEITABLE ACCRUED BENEFIT EXCEEDS $3,500. See the elections under Section 6.03. DISABILITY. The distribution date, subject to the limitations of Section 6.01(A)(3), is: Choose (e) or (f) [ ] (e) ---------------------------------------------------------------------- after the Participant terminates employment because of disability. [x] (f) The same as if the Participant had terminated employment without disability. HARDSHIP. (Choose (g) or (h)) [x] (g) The Plan does not permit a hardship distribution to a Participant who has separated from Service. [ ] (h) The Plan permits a hardship distribution to a Participant who has separated from Service in accordance with the hardship distribution policy stated in Section 6.01(A)(4) of the Plan. DEFAULT ON A LOAN. If a Participant or Beneficiary defaults on a loan made pursuant to a loan policy adopted by the Advisory Committee pursuant to Section 9.04, the Plan: (Choose (i) or (j)) [ ] (i) Treats the default as a distributable event. The Trustee, at the time of the default, will reduce the Participant's Nonforfeitable Accrued Benefit by the lesser of the amount in default (plus accrued interest) or the Plan's security interest in that Nonforfeitable Accrued Benefit. [ ] (j) Does not treat the default as a distributable event. When an otherwise distributable event first occurs pursuant to Section 6.01 or Section 6.03 of the Plan, the Trustee will reduce the Participant's Nonforfeitable Accrued Benefit by the lesser of the amount in default (plus accrued interest) or the Plan's security interest in that Nonforfeitable Accrued Benefit. 6.02 METHOD OF PAYMENT OF ACCRUED BENEFIT. The Advisory Committee will ------------------------------------ apply Section 6.02 of the Plan with the following modifications: (Choose (a) or (b)) [x] (a) No modifications. 11 [ ] (b) The Plan permits the following annuity options: ----------------------- . Any Participant who elects a life annuity -------------------------------- option is subject to the requirements of Section 6.04(A), (B), (C) and (D) of the Plan. See Section 6.04(E). [Note: The Employer may specify additional annuity options in an addendum to this Adoption Agreement, numbered 6.02(b).] 6.03 BENEFIT PAYMENT ELECTIONS. ------------------------- PARTICIPANT ELECTIONS AFTER SEPARATION FROM SERVICE. A Participant who is eligible to make distribution elections under Section 6.03 of the Plan may elect to commence distribution of his Nonforfeitable Accrued Benefit: (Choose (a) or (b)) [ ] (a) As of any distribution date, but not earlier than -------------------- of the ---- --------------------------------------------------------------- Plan Year beginning after the Participant's Separation from Service. ------ [x] (b) As of the following date(s): (Choose at least one of Options (1) through (5)) [ ] (1) As of any distribution date after the close of the Plan Year in which the Participant attains Normal Retirement Age. [x] (2) Any distribution date following his Separation from Service. [ ] (3) Any distribution date in the Plan ----------------------------------------------------------- Year(s) beginning after his Separation from Service. [ ] (4) Any distribution date in the Plan Year after the Participant incurs Break(s) in Service (as defined in Article V). ------------ [ ] (5) Any distribution date following attainment of age and ----- completion of at least Years of Service (as defined in ---------- Article V). PARTICIPANT ELECTIONS PRIOR TO SEPARATION FROM SERVICE. Subject to the restrictions of Article VI, the following distribution options apply under the Employer's Plan prior to a Participant's Separation from Service. (Choose (c) or at least one of (d) through (f)) [X] (c) No distribution options prior to Separation from Service. [ ] (d) Attainment of Specified Age. Until he retires, the Participant has a continuing election to receive all or any portion of his Nonforfeitable Accrued Benefits after he attains: (Choose (1) or (2)) [ ] (1) Normal Retirement Age. [ ] (2) years of age and is at least % ------------------------- ----- vested in his Accrued Benefit. [Note: If the percentage is less than 100%. see the special vesting formula in Section 5.03] [ ] (e) After a Participant has participated in the Plan for a period of not less than years and he is 100% vested in his Accrued Benefit until he ----- retires, the Participant has a continuing election to receive all or any portion of his Accrued Benefits. [Note: The number in the blank space may not be less than 5.] [ ] (f) Hardship. A Participant may elect a hardship distribution prior to his Separation from Service in accordance with the hardship distribution policy under Section 6.01(A)(4) of the Plan. In no event may a Participant receive a hardship distribution under this Option (f) before he is at least % vested in his Accrued Benefit. [Note: If the percentage in the ----- blank space is less than 100%, see special vesting formula in Section 5.03] 6.04 ANNUITY DISTRIBUTIONS TO PARTICIPANTS AND SURVIVING SPOUSES. The ----------------------------------------------------------- annuity distribution requirements of Section 6.04: (Choose (a) or (b)) [x] (a) Apply only to a Participant described in Section 6.04(E) of the Plan (relating to the profit sharing exception to the joint and survivor requirements). 12 [ ] (b) Apply to all Participants. ARTICLE IX ADVISORY COMMITTEE - DUTIES WITH RESPECT TO PARTICIPANT'S ACCOUNTS 9.10 VALUE OF PARTICIPANT'S ACCRUED BENEFIT. If a distribution (other than -------------------------------------- a distribution from a segregated Account) occurs more than 90 days after the most recent valuation date, the distribution will include interest at: (Choose (a) or (b)) [x] (a) 0% per annum. [Note: The percentage may equal 0%.] [ ] (b) The 90 day Treasury bill rate in effect at the beginning of the current valuation period. ARTICLE X TRUSTEE AND CUSTODIAN, POWERS AND DUTIES 10.14 VALUATION OF TRUST. In addition to each Accounting Date, the ------------------ Trustee must value the Trust Fund on the following valuation date(s): (Choose (a) or (b)) [x] (a) No other mandatory valuation dates. [ ] (b) (Specify) ------------------------------------------------------------- --------------------------------------------------------------------------- --------------------------------------------------------------------------- EFFECTIVE DATE ADDENDUM (RESTATED PLANS ONLY) The Employer must complete this addendum only if the restated Effective Date specified in Adoption Agreement Section 1.18 is different than the restated effective date for at least one of the provisions listed in this addendum. In lieu of the restated Effective Date in Adoption Agreement Section 1.18, the following special effective dates apply: (Choose whichever elections apply) [ ] (a) COMPENSATION DEFINITION. The Compensation definition of Section 1.12 (other than the $200,000 limitation) is effective for Plan Years beginning after . [Note: May not be effective later than the ----------------------- first day of the first Plan Year beginning after the Employer executes this Adoption Agreement to restate the Plan for the Tax Reform Act of 1986, if applicable.] [ ] (b) ELIGIBILITY CONDITIONS. The eligibility conditions specified in Adoption Agreement Section 2.01 are effective for Plan Years beginning after . ------------------------------------ [ ] (c) SUSPENSION OF YEARS OF SERVICE. The suspension of Years of Service rule elected under Adoption Agreement Section 2.03 is effective for Plan Years beginning after . ------------------------- [ ] (d) CONTRIBUTION/ALLOCATION FORMULA. The contribution formula elected under Adoption Agreement Section 3.01 and the method of allocation elected under Adoption Agreement Section 3.04 is effective for Plan Years beginning after . -------------------------------------- [x] (e) ACCRUAL REQUIREMENTS. The Accrual requirements of Section 3.06 are effective for Plan Years beginning after October 1, 1989. [Note: If the effective date is later than Plan Year beginning after December 31, 1989, the accrual requirements in the Plan prior to its restatement may not be more restrictive for post-1989 Plan years than the requirements permitted under Adoption Agreement Section 3.06] [ ] (f) ELIMINATION OF NET PROFITS. The requirement for the Employer not to have net profits to contribute to this Plan is effective for Plan Years beginning after . [Note: The date specified may not be -------------- earlier than December 31, 1985.] [ ] (g) VESTING SCHEDULE. The vesting schedule elected under Adoption Agreement Section 5.03 is effective for Plan Years beginning after . ------------------------------ For Plan Years prior to the special Effective Date, the terms of the Plan prior to its restatement under this Adoption Agreement will control for purposes of the designated provisions. A special Effective Date may not result in the delay of a Plan provision beyond the permissible Effective Date under any applicable law requirements. 13 EXECUTION PAGE The Trustee (and Custodian, if applicable), by executing this Adoption Agreement, accepts it position and agrees to all of the obligations, responsibilities and duties imposed upon the trustee (or Custodian) under the Master Plan and Trust. The Employer hereby agrees to the provisions of this Plan and Trust, and in witness of its agreement, the Employer by its duly authorized officers, has executed this Adoption Agreement, and the Trustee (and Custodian, if applicable) signified its acceptance on the 28th day of February, 1991. Name and EIN of Employer: Timberland Savings Bank (F.S.B.) ------------------------------------------------------- 91-0260220 - -------------------------------------------------------------------------------- Signed: Clarence E. Hamre, Pres. ------------------------------------------------------------------------- Name(s) of Trustee: U.S. Bank of Washington, National Association ----------------------------------------------------------- Signed: ------------------------------------------------------------------------- ------------------------------------------------------------------------- Name of Custodian: -------------------------------------------------------------- Signed: ------------------------------------------------------------------------- [Note: A Trustee is mandatory, but a Custodian is options. See Section 10.03 of the Plan.] PLAN NUMBER. The 3-digit plan number the Employer assigns to this Plan for ERISA reporting purposes (Form 5500 Series) is : 001. ----- USE OF ADOPTION AGREEMENT. Failure to complete properly the elections in this Adoption Agreement may result in disqualification of the Employer's Plan. The 3-digit number assigned to this Adoption Agreement (see page 1) is solely for the Master Plan Sponsor's recordkeeping purposes and does not necessarily correspond to the plan number the Employer designated in the prior paragraph. The Master Plan Sponsor offers the following Paired Pension Plan(s) with this Paired Profit Sharing Plan, identified by 3-digit adoption agreement number: 001. MASTER PLAN SPONSOR. The Master Plan Sponsor identified on the first page of the basic plan document will notify all adopting employers of any amendment of this Master Plan or of any abandonment or discontinuance by the Master Plan Sponsor of its maintenance of this Master Plan. For inquiries regarding the adoption of the Master Plan, the Master Plan Sponsor's intended meaning of any plan provisions or the effect of the opinion letter issued to the Master Plan Sponsor, please contact the Master Plan Sponsor at the following address and telephone number: United States National Bank of Oregon Trust Employees ----------------------------------------------------------- Benefits 309 S.W. Sixth (11th Floor), Portland, Oregon 97204 (503) 275-7346. - ------------------------------------------------------------------------------ - ------------------------------------------------------- RELIANCE ON OPINION LETTER. If the Employee does not maintain (and has never maintained) any other plan that this Plan and Paired Pension Plan, it may rely on the Master Plan Sponsor's opinion letter covering this Plan for purposes of plan qualification. For this purpose, the Employer has not maintained another plan if this Plan, or the Paired Pension Plan, amended and restated that prior plan and the prior plan was the same type of plan as the restated plan. If the Employer maintains or has maintained another plan other than a Paired Pension Plan, including a welfare benefit fund, as defined in Code (S)419(e), which provides post-retirement medical benefits for key employees (as defined in Code (S)419(d)(3)), or an individual medical account (as defined in Code (S)415(l)(2)), the Employer may not rely on the Plan's qualified status unless it obtains a determination letter from the applicable IRS Key District office. 14 UNITED STATES NATIONAL BANK OF OREGON DEFINED CONTRIBUTION MASTER PLAN AND TRUST AGREEMENT 15
TABLE OF CONTENTS ALPHABETICAL LISTING OF DEFINITIONS....................................... iii ARTICLE I, DEFINITIONS 1.01 Employer............................................................ 1.01 1.02 Trustee............................................................. 1.01 1.03 Plan................................................................ 1.01 1.04 Adoption Agreement.................................................. 1.01 1.05 Plan Administrator.................................................. 1.01 1.06 Advisory Committee.................................................. 1.02 1.07 Employee............................................................ 1.02 1.08 Self-Employed Individual/Owner-Employee............................. 1.02 1.09 Highly Compensated Employee......................................... 1.02 1.10 Participant......................................................... 1.03 1.11 Beneficiary......................................................... 1.03 1.12 Compensation........................................................ 1.03 1.13 Earned Income....................................................... 1.05 1.14 Account............................................................. 1.05 1.15 Accrued Benefit..................................................... 1.05 1.16 Nonforfeitable...................................................... 1.05 1.17 Plan Year/Limitation Year........................................... 1.05 1.18 Effective Date...................................................... 1.05 1.19 Plan Entry Date..................................................... 1.05 1.20 Accounting Date..................................................... 1.05 1.21 Trust............................................................... 1.05 1.22 Trust Fund.......................................................... 1.05 1.23 Nontransferable Annuity............................................. 1.05 1.24 ERISA............................................................... 1.05 1.25 Code................................................................ 1.05 1.26 Service............................................................. 1.05 1.27 Hour of Service..................................................... 1.05 1.28 Disability.......................................................... 1.07 1.29 Service for Predecessor Employer.................................... 1.07 1.30 Related Employees................................................... 1.07 1.31 Leased Employees.................................................... 1.08 1.32 Special Rules for Owner-Employees................................... 1.08 1.33 Determination of Top Heavy Status................................... 1.09 1.34 Paired Plans........................................................ 1.10 ARTICLE II, EMPLOYEE PARTICIPANTS 2.01 Eligibility......................................................... 2.01 2.02 Year of Service - Participation..................................... 2.01 2.03 Break in Service - Participation.................................... 2.01 2.04 Participation....................................................... 2.01 2.05 Change in Employee Status........................................... 2.02 2.06 Election Not to Participate......................................... 2.02 ARTICLE III, EMPLOYER CONTRIBUTIONS AND FORFEITURES 3.01 Amount.............................................................. 3.01 3.02 Determination of Contribution 3.03 Time of Payment of Contribution..................................... 3.01 3.04 Contribution Allocation............................................. 3.01 3.05 Forfeiture Allocation............................................... 3.03 3.06 Accrual of Benefit.................................................. 3.03 3.07 - 3.16 Limitations on Allocations.................................. 3.05 3.17 Special Allocation Limitation....................................... 3.07 3.18 Defined Benefit Plan Limitation..................................... 3.07 3.19 Definitions - Article III........................................... 3.07 ARTICLE IV, PARTICIPANT CONTRIBUTIONS 4.01 Participant Nondeductible Contributions............................. 4.01 4.02 Participant Deductible Contributions................................ 4.01 4.03 Participant Rollover Contributions.................................. 4.01 4.04 Participant Contribution - Forfeitability........................... 4.02 4.05 Participant Contributions - Withdrawal/Distribution................. 4.02 4.06 Participant Contribution - Accrued Benefit.......................... 4.02 ARTICLE V - TERMINATION OF SERVICE - PARTICIPANT VESTING 5.01 Normal Retirement Age............................................... 5.01 5.02 Participant Disability or Death..................................... 5.01 5.03 Vesting Schedule.................................................... 5.01 5.04 Cash-out Distributions to Partially - Vested Participants/Restoration of Forfeited Accrued Benefit........................................ 5.01 5.05 Segregated Account for Repaid Amount................................ 5.02 5.06 Year of Service - Vesting........................................... 5.03 5.07 Break in Service - Vesting.......................................... 5.03 5.08 Included Years of Service - Vesting................................. 5.03 5.09 Forfeiture Occurs................................................... 5.03 ARTICLE VI, TIME AND METHOD OF PAYMENT OF BENEFITS 6.01 Time of Payment of Accrued Benefit.................................. 6.01 6.02 Method of Payment of Accrued Benefit................................ 6.02 6.03 Benefit Payment Elections........................................... 6.04 6.04 Annuity Distributions to Participants and Surviving Spouses......... 6.06 6.05 Waiver Election - Qualified Joint and Survivor Annuity.............. 6.07 6.06 Waiver Election - Preretirement Survivor Annuity.................... 6.08 6.07 Distributions Under Domestic Relations Orders....................... 6.08 ARTICLE VII, EMPLOYER, ADMINISTRATIVE PROVISIONS 7.01 Information to Committee............................................ 7.01 7.02 No Liability........................................................ 7.01 7.03 Indemnity of Certain Fiduciaries.................................... 7.01 7.04 Employer Direction of Investment.................................... 7.01 7.05 Amendment to Vesting Schedule....................................... 7.01 ARTICLE VIII, PARTICIPANT ADMINISTRATIVE PROVISIONS 8.01 Beneficiary Designation............................................. 8.01 8.02 No Beneficiary Designation/Death of Beneficiary..................... 8.01 8.03 Personal Data to Committee.......................................... 8.02
16
8.04 Address for Notification........................................... 8.02 8.05 Assignment or Alienation........................................... 8.02 8.06 Notice of Change in Terms.......................................... 8.02 8.07 Litigation Against the Trust....................................... 8.02 8.08 Information Available.............................................. 8.02 8.09 Appeal Procedure for Denial of Benefits............................ 8.02 8.10 Participant Direction of Investment................................ 8.03 ARTICLE IX, ADVISORY COMMITTEE - DUTIES WITH RESPECT TO PARTICIPANTS' ACCOUNTS 9.01 Members' Compensation, Expenses.................................... 9.01 9.02 Term............................................................... 9.01 9.03 Powers............................................................. 9.01 9.04 General............................................................ 9.01 9.05 Funding Policy..................................................... 9.02 9.06 Manner of Action................................................... 9.02 9.07 Authorized Representative.......................................... 9.02 9.08 Interested Member.................................................. 9.02 9.09 Individual Accounts................................................ 9.02 9.10 Value of Participant's Accrued Benefit............................. 9.02 9.11 Allocation and Distribution of Net Income Gain or Loss............. 9.03 9.12 Individual Statement............................................... 9.03 9.13 Account Charged.................................................... 9.04 9.14 Unclaimed Account Procedure........................................ 9.04 ARTICLE X, TRUSTEE AND CUSTODIAN, POWERS AND DUTIES 10.01 Acceptance......................................................... 10.01 10.02 Receipt of Contributions........................................... 10.01 10.03 Investment Powers.................................................. 10.01 10.04 Records and Statements............................................. 10.06 10.05 Fees and Expenses from Fund........................................ 10.06 10.06 Parties to Litigation.............................................. 10.06 10.07 Professional Agents................................................ 10.06 10.08 Distribution of Cash or Property................................... 10.06 10.09 Distribution Directions............................................ 10.06 10.10 Third Party/Multiple Trustees...................................... 10.06 10.11 Resignation........................................................ 10.07 10.12 Removal............................................................ 10.07 10.13 Interim Duties and Successor Trustee............................... 10.07 10.14 Valuation of Trust................................................. 10.07 10.15 Limitation on Liability - If Investment Manager, Ancillary Trustee or Independent Fiduciary Appointed................................. 10.07 10.16 Investment in Group Trust Fund..................................... 10.07 10.17 Appointment of Ancillary Trustee or Independent Fiduciary.......... 10.08 ARTICLE XI, PROVISIONS RELATING TO INSURANCE AND INSURANCE COMPANY 11.01 Insurance Benefit.................................................. 11.01 11.02 Limitation on Life Insurance Protection............................ 11.01 11.03 Definitions........................................................ 11.02 11.04 Dividend Plan...................................................... 11.02 11.05 Insurance Company Not a Party to Agreement......................... 11.03 11.06 Insurance Company Not Responsible for Trustee's Actions............ 11.03 11.07 Insurance Company Reliance on Trustee's Signature.................. 11.03 11.08 Acquittance........................................................ 11.03 11.09 Duties of Insurance Company........................................ 11.03 ARTICLE XII, MISCELLANEOUS 12.01 Evidence........................................................... 12.01 12.02 No Responsibility for Employer Action.............................. 12.01 12.03 Fiduciaries Not Insurers........................................... 12.01 12.04 Waiver of Notice................................................... 12.01 12.05 Successors......................................................... 12.01 12.06 Word Usage......................................................... 12.01 12.07 State Law.......................................................... 12.01 12.08 Employer's Right to Participate.................................... 12.01 12.09 Employment Not Guaranteed.......................................... 12.02 ARTICLE XIII, EXCLUSIVE BENEFIT, AMENDMENT, TERMINATION 13.01 Exclusive Benefit.................................................. 13.01 13.02 Amendment by Employer.............................................. 13.01 13.03 Amendment by Master Plan Sponsor................................... 13.02 13.04 Discontinuance..................................................... 13.02 13.05 Full Vesting on Termination........................................ 13.02 13.06 Merger/Direct Transfer............................................. 13.02 13.07 Termination........................................................ 13.03 ARTICLE XIV, CODE (S)401(k) and (S)401(m) ARRANGEMENTS 14.01 Application........................................................ 14.01 14.02 Code (S)401(k) Arrangement......................................... 14.01 14.03 Definitions........................................................ 14.01 14.04 Matching Contributions/Employee Contributions...................... 14.03 14.05 Time of Payment of Contributions................................... 14.03 14.06 Special Allocation Provisions - Deferral Contributions, Matching Contributions and Qualified Nonelective Contributions.............. 14.04 14.07 Annual Elective Deferral Limitation................................ 14.05 14.08 Actual Deferral Percentage ("ADP") Test............................ 14.06 14.09 Nondiscrimination Rules for Employer Matching Contributions/Participant Nondeductible Contributions.............. 14.08 14.10 Multiple Use Limitation............................................ 14.10 14.11 Distribution Restrictions.......................................... 14.10 14.12 Special Allocation Rules........................................... 14.11
17 ALPHABETICAL LISTING OF DEFINITIONS SECTION REFERENCE PLAN DEFINITION (PAGE NUMBER) 100% Limitation....................................................3.19(1)(3.10) Account...............................................................1.14(1.05) Accounting Date.......................................................1.20(1.05) Accrued Benefit.......................................................1.15(1.05) Actual Deferral Percentage ("ADP") Test.............................14.08(14.06) Adoption Agreement....................................................1.04(1.01) Advisory Committee....................................................1.06(1.02) Annual Addition....................................................3.19(a)(3.07) Average Contribution Percentage Test................................14.09(14.08) Beneficiary...........................................................1.11(1.03) Break in Service for Eligibility Purposes.............................2.03(2.01) Break in Service for Vesting Purposes.................................5.07(5.03) Cash-out Distribution.................................................5.04(5.01) Code..................................................................1.25(1.06) Code (S)411(d)(6) Protected Benefits................................13.02(13.01) Compensation..........................................................1.12(1.03) Compensation for Code (S)401(k) Purposes.........................14.03(f)(14.02) Compensation for Code (S)415 Purposes..............................3.19(b)(3.08) Compensation for Top Heavy Purposes.............................1.33(B)(3)(1.09) Contract(s)......................................................11.03(c)(11.02) Custodian Designation............................................10.03[B](10.03) Deemed Cash-out Rule...............................................5.04(C)(5.02) Deferral Contributions...........................................14.03(g)(14.02) Deferral Contributions Account...................................14.06(A)(14.04) Defined Benefit Plan...............................................3.19(i)(3.09) Defined Benefit Plan Fraction......................................3.19(j)(3.09) Defined Contribution Plan..........................................3.19(h)(3.08) Defined Contribution Plan Fraction.................................3.19(k)(3.09) Determination Date..............................................1.33(B)(7)(1.10) Disability............................................................1.28(1.07) Distribution Date.....................................................6.01(6.01) Distributions Restrictions.......................................14.03(m)(14.03) Earned Income.........................................................1.13(1.05) Effective Date........................................................1.18(1.05) Elective Deferrals...............................................14.03(h)(14.02) Elective Transfer................................................13.06(A)(13.03) Eligible Employee................................................14.03(c)(14.02) Employee..............................................................1.07(1.02) Employee Contributions...........................................14.03(n)(14.03) Employer..............................................................1.01(1.01) Employer Contribution Account.......................................14.06(14.04) Employer for Code (S)415 Purposes..................................3.19(c)(3.08) Employer for Top Heavy Purposes.................................1.33(B)(6)(1.10) Employment Commencement Date..........................................2.02(2.01) ERISA.................................................................1.24(1.06) Excess Aggregate Contributions...................................14.09(D)(14.09) Excess Amount......................................................3.19(d)(3.08) Excess Contributions................................................14.08(14.07) Exempt Participant....................................................8.01(8.01) Forfeiture Break in Service...........................................5.08(5.03) Group Trust Fund....................................................10.16(10.07) Hardship........................................................6.01(A)(4)(6.01) Hardship for Code (S)401(k) Purposes.............................14.11(A)(14.11) Highly Compensated Employee...........................................1.09(1.02) Highly Compensated Group.........................................14.03(d)(14.02) Hour of Service.......................................................1.27(1.06) Incidental Insurance Benefits....................................11.01(A)(11.01) Insurable Participant............................................11.03(d)(11.02) Investment Manager.................................................9.04(i)(9.01) Issuing Insurance Company........................................11.03(b)(11.02) Joint and Survivor Annuity.........................................6.04(A)(6.06) Key Employee....................................................1.33(B)(1)(1.09) Leased Employees......................................................1.31(1.08) Limitation Year..................................1.17 and 3.19(e)(1.05 and 3.08) Loan Policy........................................................9.04(A)(9.02) Mandatory Contributions..........................................14.04(A)(14.03) Mandatory Contributions Account..................................14.04(A)(14.03) Master or Prototype Plan...........................................3.19(f)(3.08) Matching Contributions...........................................14.03(i)(14.02) Maximum Permissible Amount.........................................3.19(g)(3.08) Minimum Distribution Incidental Benefit............................6.02(A)(6.03) Multiple Use Limitation.............................................14.10(14.10) Named Fiduciary..................................................10.03[D](10.05) Nonelective Contributions........................................14.03(j)(14.02) Nonforfeitable........................................................1.16(1.05) Nonhighly Compensated Employee...................................14.03(b)(14.02) Nonhighly Compensated Group......................................14.03(e)(14.02) Non-Key Employee................................................1.33(B)(2)(1.09) Nontransferable Annuity...............................................1.23(1.05) Normal Retirement Age.................................................5.01(5.01) Owner-Employee........................................................1.08(1.02) Paired Plans..........................................................1.34(1.10) Participant...........................................................1.10(1.03) Participant Deductible Contributions..................................4.02(4.01) Participant Forfeiture................................................3.05(3.03) Participant Loans................................................10.03[E](10.04) Participant Nondeductible Contributions...............................4.01(4.01) Permissive Aggregation Group....................................1.33(B)(5)(1.10) Plan..................................................................1.03(1.01) Plan Administrator....................................................1.05(1.01) Plan Entry Date.......................................................1.19(1.05) Plan Year.............................................................1.17(1.05) Policy...........................................................11.03(a)(11.02) Predecessor Employer..................................................1.29(1.07) Preretirement Survivor Annuity.....................................6.04(B)(6.06) Qualified Domestic Relations Order....................................6.07(6.08) Qualified Matching Contributions.................................14.03(k)(14.02) Qualified Nonelective Contributions..............................14.03(l)(14.03) Qualifying Employer Real Property................................10.03[F](10.05) Qualifying Employer Securities...................................10.03[F](10.05) 18 SECTION REFERENCE PLAN DEFINITION (PAGE NUMBER) Related Employers.....................................................1.30(1.07) Required Aggregation Group......................................1.33(B)(4)(1.09) Required Beginning Date............................................6.01(B)(6.02) Rollover Contributions................................................4.03(4.01) Self-Employed Individual..............................................1.08(1.02) Service...............................................................1.26(1.06) Term Life Insurance Contract........................................11.03(11.02) Top Heavy Minimum Allocation.......................................3.04(B)(3.01) Top Heavy Ratio.......................................................1.33(1.09) Trust.................................................................1.21(1.05) Trustee...............................................................1.02(1.01) Trustee Designation..............................................10.03[A](10.01) Trust Fund............................................................1.22(1.05) Weighted Average Allocation Method..................................14.12(14.11) Year of Service for Eligibility Purposes..............................2.02(2.01) Year of Service for Vesting Purposes..................................5.06(5.03) * * * * * 19 UNITED STATES NATIONAL BANK OF OREGON DEFINED CONTRIBUTION MASTER PLAN AND TRUST AGREEMENT BASIC PLAN DOCUMENT #01 United States National Bank of Oregon, in its capacity as Master Plan Sponsor, establishes this Master Plan intended to conform to and qualify under (S)401 and (S)501 of the Internal Revenue Code of 1986, as amended. An Employer establishes a Plan and Trust under this Master Plan by executing an Adoption Agreement. If the Employer adopts this Plan as a restated Plan in substitution for, and in amendment of, an existing plan, the provisions of this Plan, as a restated Plan, apply solely to an Employee whose employment with the Employer terminates on or after the restated Effective Date of the Employer's Plan. If an Employee's employment with the Employer terminates prior to the restated Effective Date, that Employee is entitled to benefits under the Plan as the Plan existed on the date of the Employee's termination of employment. ARTICLE I DEFINITIONS 1.01 "Employer" means each employer who adopts this Plan by executing an Adoption Agreement. 1.02 "Trustee" means the person or persons who as Trustee execute the Employer's Adoption Agreement, or any successor in office who in writing accepts the position of Trustee. The Employer must designate in its Adoption Agreement whether the Trustee will administer the Trust as a discretionary Trustee or as a nondiscretionary Trustee. If a person acts as a discretionary Trustee, the Employer also may appoint a Custodian. See Article X. If the Master Plan Sponsor is a bank savings and loan, credit union or similar financial institution, a person other than the Master Plan Sponsor (or its affiliate) may not serve as Trustee or as Custodian of the Employer's Plan without the written consent of the Master Plan Sponsor. 1.03 "Plan" means the retirement plan established or continued by the Employer in the form of this Agreement, including the Adoption Agreement under which the Employer has elected to participate in this Master Plan. The Employer must designate the name of the Plan in its Adoption Agreement. An Employer may execute more than one Adoption Agreement offered under this Master Plan, each of which will constitute a separate Plan and Trust established or continued by that Employer. The Plan and the Trust created by each adopting Employer is a separate Plan and a separate Trust, independent from the plan and the trust of any other employer adopting this Master Plan. All section references within the Plan are Plan section references unless the context clearly indicates otherwise. 1.04 "Adoption Agreement" means the document executed by each Employer adopting this Master Plan. The terms of this Master Plan as modified by the terms of an adopting Employer's Adoption Agreement constitute a separate Plan and Trust to be construed as a single Agreement. Each elective provision of the Adoption Agreement corresponds by section reference to the section of the Plan which grants the election. Each Adoption Agreement offered under this Master Plan is either a Nonstandardized Plan or a Standardized Plan, as identified in the preamble to that Adoption Agreement. The provisions of this Master Plan apply equally to Nonstandardized Plans and to Standardized Plans unless otherwise specified. 1.05 "Plan Administrator" is the Employer unless the Employer designates another person to hold the position of Plan Administrator. In addition to his other duties, the Plan Administrator has full responsibility for compliance with the reporting and disclosure rules under ERISA as respects this Agreement. 1.06 "Advisory Committee" means the Employer's Advisory Committee as from time to time constituted. 20 1.07 "Employee" means any employee (including a Self-Employed Individual) of the Employer. The Employer must specify in its Adoption Agreement any Employee, or class of Employees, not eligible to participate in the Plan. If the Employer elects to exclude collective bargaining employees, the exclusion applies to any employee of the Employer included in a unit of employees covered by an agreement which the Secretary of Labor finds to be a collective bargaining agreement between employee representatives and one or more employers unless the collective bargaining agreement requires the employee to be included within the Plan. The term "employee representatives" does not include any organization more than half the members of which are owners, officers, or executives of the Employer. 1.08 "Self-Employed Individual/Owner-Employee." "Self-Employed Individual" means an individual who has Earned Income (or who would have had Earned Income but for the fact that the trade or business did not have net earnings) for the taxable year from the trade or business for which the Plan is established. "Owner-Employee" means a Self-Employed Individual who is the sole proprietor in the case of a sole proprietorship. If the Employer is a partnership, "Owner- Employee" means a Self-Employed Individual who is a partner and owns more than 10% of either the capital or profits interest of the partnership. 1.09 "Highly Compensated Employee" means an Employee who, during the Plan Year or during the preceding 12-month period: (a) is a more than 5% owner of the Employer (applying the constructive ownership rule of Code (S)318, and applying the principles of Code (S)318, for an unincorporated entity); (b) has Compensation in excess of $75,000 (as adjusted by the Commissioner of Internal Revenue for the relevant year); (c) has Compensation in excess of $50,000 (as adjusted by the Commissioner of Internal Revenue for the relevant year) and is part of the top-paid 20% group of employees (based on Compensation for the relevant year); or (d) has Compensation in excess of 50% of the dollar amount prescribed in Code (S)415(b)(1)(A) (relating to defined benefit plans) and is an officer of the Employer. If the Employee satisfies the definition in clause (b), (c) or (d) in the Plan Year but does not satisfy clause (b), (c) or (d) during the preceding 12- month period and does not satisfy clause (a) in either period, the Employee is a Highly Compensated Employee only if he is one of the 100 most highly compensated Employees for the Plan Year. The number of officers taken into account under clause (d) will not exceed the greater of 3 or 10% of the total number (after application of the Code (S)414(q) exclusions) of Employees, but no more than 50 officers. If no Employee satisfies the Compensation requirement in clause (d) for the relevant year, the Advisory Committee will treat the highest paid officer as satisfying clause (d) for that year. For purposes of this Section 1.09, "Compensation" means Compensation as defined in Section 1.12, except any exclusions from Compensation elected in the Employer's Adoption Agreement Section 1.12 do not apply, and Compensation must include "elective contributions" (as defined in Section 1.12). The Advisory Committee must make the determination of who is a Highly Compensated Employee, including the determinations of the number and identity of the top paid 20% group, the top 100 paid Employees, the number of officers includible in clause (d) and the relevant Compensation, consistent with Code (S)414(q) and regulations issued under that Code section. The Employer may make a calendar year election to determine the Highly Compensated Employees for the Plan Year, as prescribed by Treasury regulations. A calendar year election must apply to all 21 plans and arrangements of the Employer. For purposes of applying any nondiscrimination test required under the Plan or under the Code, in a manner consistent with applicable Treasury regulations, the Advisory Committee will treat a Highly Compensated Employee and all family members (a spouse, a lineal ascendant or descendant, or a spouse of a lineal ascendant or descendant) as a single Highly Compensated Employee, but only if the Highly Compensated Employee is a more than 5% owner or is one of the 10 Highly Compensated Employee with the greatest Compensation for the Plan Year. This aggregation rule applies to a family member even if that family member is a Highly Compensated Employee without family aggregation. The term "Highly Compensated Employee" also includes any former Employee who separated from Service (or has a deemed Separation from Service, as determined under Treasury regulations) prior to the Plan Year, performs no Service for the Employer during the Plan Year, and was a Highly Compensated Employee either for the separation year or any Plan Year ending on or after his 55th birthday. If the former Employee's Separation from Service occurred prior to January 1, 1987, he is a Highly Compensated Employee only if he satisfied clause (a) of this Section 1.09 or received Compensation in excess of $50,000 during (1) the year of his Separation from Service (or the prior year); or (2) any year ending after his 54th birthday. 1.10 "Participant" is an Employee who is eligible to be and becomes a Participant in accordance with the provisions of Section 2.01. 1.11 "Beneficiary" is a person designated by a Participant who is or may become entitled to a benefit under the Plan. A Beneficiary who becomes entitled to a benefit under the Plan remains a Beneficiary under the Plan until the Trustee has fully distributed his benefit to him. A Beneficiary's right to (and the Plan Administrator's, the Advisory Committee's or a Trustee's duty to provide to the Beneficiary) information or data concerning the Plan does not arise until he first becomes entitled to receive a benefit under the Plan. 1.12 "Compensation" means, except as provided in the Employer's Adoption Agreement, the Participant's Earned Income, wages, salaries, fees for professional service and other amounts received for personal services actually rendered in the course of employment with the Employer maintaining the plan (including, but not limited to, commissions paid salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips and bonuses). The Employer must elect in its Adoption Agreement whether to include elective contributions in the definition of Compensation. "Elective contributions" are amounts excludible from the Employee's gross income under Code (S)(S)125, 402(a)(8), 402(h) or 403(b), and contributed by the Employer, at the Employee's election, to a Code (S)401(k) arrangement, a Simplified Employee Pension, cafeteria plan or tax-sheltered annuity. The term "Compensation" does not include: (a) Employer contributions (other than "elective contributions," if includible in the definition of Compensation under Section 1.12 of the Employer's Adoption Agreement) to a plan of deferred compensation to the extent the contributions are not included in the gross income of the Employee for the taxable year in which contributed, on behalf of an Employee to a Simplified Employee Pension Plan to the extent such contributions are excludible from the Employee's gross income, and any distributions from a plan of deferred compensation, regardless of whether such amounts are includible in the gross income of the Employee when distributed. (b) Amounts realized from the exercise of a nonqualified stock option, or when restricted stock (or property) held by an Employee either becomes freely transferable or is no longer subject to a substantial risk of forfeiture. (c) Amounts realized from the sale, exchange or other disposition of stock acquired under a stock option described in Part II Subchapter D, Chapter 1 of the Code. 22 (d) Other amounts which receive special tax benefits, such as premiums for group term life insurance (but only to the extent that the premiums are not includible in the gross income of the Employee), or contributions made by an Employer (whether or not under a salary reduction agreement) towards the purchase of an annuity contract described in Code (S)403(b) (whether or not the contributions are excludible from the gross income of the Employee), other than "elective contributions," if elected in the Employer's Adoption Agreement. Any reference in this Plan to Compensation is a reference to the definition in this Section 1.12, unless the Plan reference specifies a modification to this definition. The Advisory Committee will take into account only Compensation actually paid for the relevant period. A Compensation payment includes Compensation by the Employer through another person under the common paymaster provisions in Code (S)(S)3121 and 3306. (A) LIMITATIONS ON COMPENSATION. (1) COMPENSATION DOLLAR LIMITATION. For any Plan Year beginning after December 31, 1988, the Advisory Committee must take into account only the first $200,000 (or beginning January 1, 1990, such larger amount as the Commissioner of Internal Revenue may prescribe) of any Participant's Compensation. For any Plan Year beginning prior to January 1, 1989, this $200,000 limitation (but not the family aggregation requirement described in the next paragraph) applies only if the Plan is top heavy for such Plan Year or operates as a deemed top heavy plan for such Plan Year. (2) APPLICATION OF COMPENSATION LIMITATION TO CERTAIN FAMILY MEMBERS. The $200,000 Compensation limitation applies to the combined Compensation of the Employee and of any family member aggregated with the Employee under Section 1.09 who is either (i) the Employee's spouse; or (ii) the Employee's lineal descendant under the age of 19. If, for a Plan Year, the combined Compensation of the Employee and such family members who are Participants entitled to an allocation for that Plan Year exceeds the $200,000 (or adjusted) limitation, "Compensation" for each such Participant, for purposes of the contribution and allocation provisions of Article II, means his Adjusted Compensation. Adjusted Compensation is the amount which bears the same ratio to the $200,000 (or adjusted) limitation as the affected Participant's Compensation (without regard to the $200,000 Compensation limitation) bears to the combined Compensation of all the affected Participants in the family unit. If the Plan uses permitted disparity, the Advisory Committee must determine the integration level of each affected family member Participant prior to the proration of the $200,000 Compensation limitation but the combined integration level of the affected Participants may not exceed $200,000 (or the adjusted limitation). The combined Excess Compensation of the affected Participants in the family unit may not exceed $200,000 (or the adjusted limitation) minus the affected Participants' combined integration level (as determined under the preceding sentence). If the combined Excess Compensation exceeds this limitation, the Advisory Committee will prorate the Excess Compensation limitation among the affected Participants in the family unit in proportion to each such individual's Adjusted Compensation minus his integration level. If the Employer's Plan is a Nonstandardized Plan, the Employer may elect to use a different method in determining the Adjusted- Compensation of the affected Participants by specifying that method in an addendum to the Adoption Agreement, numbered Section 1.12. (B) NONDISCRIMINATION. For purposes of determining whether the Plan discriminates in favor of Highly Compensated Employees, Compensation means Compensation as defined in this Section 1.12, except: (1) the Employer may elect to include or to exclude elective contributions, irrespective of the Employer's election in its Adoption Agreement regarding elective contributions; and (2) the 23 Employer will not give effect to any elections made in the "modifications to Compensation definition" section of Adoption Agreement Section 1.12. The Employer's election described in clause (1) must be consistent and uniform with respect to all Employees and all plans of the Employer for any particular Plan Year. If the Employer's Plan is a Nonstandardized Plan, the Employer, irrespective of clause (2), may elect to exclude from this nondiscrimination definition of Compensation any items of Compensation excludible under Code (S)414(s) and the applicable Treasury regulations, provided such adjusted definition conforms to the nondiscrimination requirements of those regulations. 1.13 "Earned Income" means net earnings from self-employment in the trade or business with respect to which the Employer has established the Plan, provided personal services of the individual are a material income producing factor. The Advisory Committee will determine net earnings without regard to items excluded from gross income and the deductions allocable to those items. The Advisory Committee will determine net earnings after the deduction allowed to the Self-Employed Individual for all contributions made by the Employer to a qualified plan and, for Plan Years beginning after December 31, 1989, the deduction allowed to the Self-Employed under Code (S)164(f) for self-employment taxes. 1.14 "Account" means the separate account(s) which the Advisory Committee or the Trustee maintains for a Participant under the Employer's Plan. 1.15 "Accrued Benefit" means the amount standing in a Participant's Account(s) as of any date derived from both Employer contributions and Employee contributions, if any. 1.16 "Nonforfeitable" means a Participant's or Beneficiary's unconditional claim, legally enforceable against the Plan, to the Participant's Accrued Benefit. 1.17 "Plan Year" means the fiscal year of the Plan, the consecutive month period specified in the Employer's Adoption Agreement. The Employer's Adoption Agreement also must specify the "Limitation Year" applicable to the limitations on allocations described in Article III. If the Employer maintains Paired Plans, each Plan must have the same Plan Year. 1.18 "Effective Date" of this Plan is the date specified in the Employer's Adoption Agreement. 1.19 "Plan Entry Date" means the date(s) specified in Section 2.01 of the Employer's Adoption Agreement. 1.20 "Accounting Date" is the last day of an Employer's Plan Year. Unless otherwise specified in the Plan, the Advisory Committee will make all Plan allocations for a particular Plan Year as of the Accounting Date of that Plan Year. 1.21 "Trust" means the separate Trust created under the Employer's Plan. 1.22 "Trust Fund" means all property of every kind held or acquired by the Employer's Plan, other than incidental benefit insurance contract. 1.23 "Nontransferable Annuity" means an annuity which by its terms provides that it may not be sold, assigned, discounted, pledged as collateral for a loan or security for the performance of an obligation or for any purpose to any person other than the insurance company. If the Plan distributes an annuity contract, the contract must be a Nontransferable Annuity. 1.24 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. 24 1.25 "Code" means the Internal Revenue Code of 1986, as amended. 1.26 "Service" means any period of time the Employee is in the employ of the Employer, including any period the Employee is on an unpaid leave of absence authorized by the Employer under a uniform, nondiscriminatory policy applicable to all Employees. "Separation from Service" means the Employee no longer has an employment relationship with the Employer maintaining this Plan. 1.27 "Hour of Service" means: (a) Each Hour of Service for which the Employer, either directly or indirectly, pay an Employee, or for which the Employee is entitled to payment, for the performance of duties. The Advisory Committee credits Hours of Service under this paragraph (a) to the Employee for the computation period in which the Employee performs the duties, irrespective of when paid; (b) Each Hour of Service for back pay, irrespective of mitigation of damages, to which the Employer has agreed or for which the Employee has received an award. The Advisory Committee credits Hours of Service under this paragraph (b) to the Employee for the computation period(s) to which the award or the agreement pertains rather than for the computation period in which the award, agreement or payment is made; and (c) Each Hour of Service for which the Employer, either directly or indirectly, pays an Employee, or for which the Employee is entitled to payment (irrespective of whether the employment relationship is terminated), for reasons other than for the performance of duties during a computation period, such as leave of absence, vacation, holiday, sick leave, illness, incapacity (including disability), layoff, jury duty or military duty. The Advisory Committee will credit no more than 501 Hours of Service under this paragraph (c) to an Employee on account of any single continuous period during which the Employee does not perform any duties (whether or not such period occurs during a single computation period). The Advisory Committee credits Hours of Service under this paragraph (c) in accordance with the rules of paragraph (b) and (c) of Labor Reg. (S)2530.200b-2, which the Plan, by this reference, specifically incorporates in full within this paragraph (c). The Advisory Committee will not credit an Hour of Service under more than one of the above paragraphs. A computation period for purposes of this Section 1.27 is the Plan Year, Year of Service period, Break in Service period or other period, as determined under the Plan provision for which the Advisory Committee is measuring an Employee's Hours of Service. The Advisory Committee will resolve any ambiguity with respect to the crediting of an Hour of Service in favor of the Employee. (A) METHOD OF CREDITING HOURS OF SERVICE. The Employer must elect in its Adoption Agreement the method the Advisory Committee will use in crediting an Employee with Hours of Service. For purposes of the Plan, "actual" method mean the determination of Hours of Service from records of hours worked and hours for while the Employer makes payment or for which payment is due from the Employer. If the Employer elects to apply an "equivalency" method, for each equivalency period for which the Advisory Committee would credit the Employee with at least one Hour of Service, the Advisory Committee will credit the Employee with: (i) 10 Hours of Service for a daily equivalency; (ii) 48 Hours of Service for a weekly equivalency; (iii) 95 Hours of Service for a semimonthly payroll period equivalency; and (iv) 190 Hours of Service for a monthly equivalency. (B) MATERNITY/PATERNITY LEAVE. Solely for purposes of determining whether the Employee incurs a Break in Service under any provision of this Plan, the Advisory Committee must credit Hours of Service during an Employee's unpaid absence period due to maternity or paternity leave. The Advisory Committee considers an Employee on maternity or paternity leave if the Employee's absence is due to the Employee's pregnancy, the birth of the Employee's child, the placement with 25 the Employee of an adopted child, or the care of the Employee's child immediately following the child's birth or placement. The Advisory Committee credits Hours of Service under this paragraph on the basis of the number of Hours of Service the Employee would receive if he were paid during the absence period or, if the Advisory Committee cannot determine the number of Hours of Service the Employee would receive, on the basis of 8 hours per day during the absence period The Advisory Committee will credit only the number (not exceeding 501) of Hours of Service necessary to prevent an Employee's Break in Service. The Advisory Committee credits all Hours of Service described in this paragraph to the computation period in which the absence period begins or, if the Employee does not need these Hours of Service to prevent a Break in Service in the computation period in which his absence period begins, the Advisory Committee credits these Hours of Service to the immediately following computation period. 1.28 "Disability" means the Participant, because of a physical or mental disability, will be unable to perform the duties of his customary position of employment (or is unable to engage in any substantial gainful activity) for an indefinite period which the Advisory Committee considers will be of long continued duration. A Participant also is disabled if he incurs the permanent loss or loss of use of a member or function of the body, or is permanently disfigured, and incurs a Separation from Service. The Plan considers a Participant disabled on the date the Advisory Committee determines the Participant satisfies the definition of disability. The Advisory Committee may require a Participant to submit to a physical examination in order to confirm disability. The Advisory Committee will apply the provisions of this Section 1.28 in a nondiscriminatory, consistent and uniform manner. If the Employer's Plan is a Nonstandardized Plan, the Employer may provide an alternate definition of disability in an addendum to its Adoption Agreement, numbered Section 1.28. 1.29 SERVICE FOR PREDECESSOR EMPLOYER. If the Employer maintains the plan -------------------------------- of a predecessor employer, the Plan treats service of the Employee with the predecessor employer as service with the Employer. If the Employer does not maintain the plan of a predecessor employer, the Plan does not credit service with the predecessor employer, unless the Employer identifies the predecessor in its Adoption Agreement and specifies the purposes for which the Plan will credit service with that predecessor employer. 1.30 RELATED EMPLOYERS A related group is a controlled group of ----------------- corporations (as defined in Code (S)414(b)), trades or businesses (whether or not incorporated) which are under common control (as defined in Code (S)414(c)) or an affiliated service group (as defined in Code (S)414(m) or in Code (S)414(o)). If the Employer is a member of a related group, the term "Employer" includes the related group members for purposes of crediting Hours of Service, determining Years of Service and Breaks in Service under Articles II and V, applying the Participation Test and the Coverage Test under Section 3.06(E), applying the limitations on allocations in Part 2 of Article III applying the top heavy rules and the minimum allocation requirements of Article III, the definitions of Employee, Highly Compensated Employee, Compensation and Leased Employee and for any other purpose required by the applicable Code section or by a Plan provision. However, an Employer may contribute to the Plan only, by being a signatory to the Execution Page of the Adoption Agreement or to a Participation Agreement to the Employer's Adoption Agreement. If one or more of the Employer's related group members become Participating Employers by executing a Participation Agreement to the Employer's Adoption Agreement, the term "Employer" includes the participating related group members for all purposes of the Plan, and "Plan Administrator" means the Employer that is the signatory to the Execution Page of the Adoption Agreement. If the Employer's Plan is a Standardized Plan, all Employees of the Employer or of any member of the Employer's related group, are eligible to participate in the Plan, irrespective of whether the related group member directly employing the Employee is a Participating Employer. If the Employer's Plan is a Nonstandardized Plan, the Employer must specify in Section 1.07 of its Adoption Agreement, whether the Employees of related group members that are not Participating 26 Employers are eligible to participate in the Plan Under a Nonstandardized Plan, the Employer may elect to exclude from the definition of "Compensation" for allocation purposes any Compensation received from a related employer that has not executed a Participation Agreement and whose Employees are not eligible to participate in the Plan. 1.31 LEASED EMPLOYEES. The Plan treats a Leased Employee as an Employee of ---------------- the Employer. A Leased Employee is an individual (who otherwise is not an Employee of the Employer) who, pursuant to a leasing agreement between the Employer and any other person, has performed services for the Employer (or for the Employer and any persons related to the Employer within the meaning of Code (S)144(a)(3)) on a substantially full time basis for at least one year and who performs services historically performed by employees in the Employer's business field. If a Leased Employee is treated as an Employee by reason of this Section 1.31 of the Plan, "Compensation" includes Compensation from the leasing organization which is attributable to services performed for the Employer. (A) SAFE HARBOR PLAN EXCEPTION. The Plan does not treat a Leased Employee as an Employee if the leasing organization covers the employee in a safe harbor plan and, prior to application of this safe harbor plan exception, 20% or less of the Employer's Employees (other than Highly Compensated Employees) are Leased Employees. A safe harbor plan is a money purchase pension plan providing immediate participation, full and immediate vesting, and a nonintegrated contribution formula equal to at least 10% of the employee's compensation without regard to employment by the leasing organization on a specified date. The safe harbor plan must determine the 10% contribution on the basis of compensation as defined in Cote (S)415(c)(3) plus elective contributions (as defined in Section 1.12). (B) OTHER REQUIREMENTS. The Advisory Committee must apply this Section 131 in a manner consistent with Code (S)(S)414(n) and 414(o) and the regulations issued under those Code sections. The Employer must specify in the Adoption Agreement the manner in which the Plan will determine the allocation of Employer contributions and Participant forfeitures on behalf of a Participant if the Participant is a l~ed Employee covered by a plan maintained by the leasing organization. 1.32 SPECIAL RULES FOR OWNER-EMPLOYEES. The following special provisions --------------------------------- and restrictions apply to Owner-Employees: (a) If the Plan provides contributions or benefits for an Owner-Employee or for a group of Owner-Employees who controls the trade or business with respect to which this Plan is established and the Owner-Employee or Owner- Employees also control as Owner-Employees one or more other trades or businesses, plans must exist or be established with respect to all the controlled trades or businesses so that when the plans are combined they form a single plan which satisfies the requirements of Code (S)401(a) and Code (S)401(d) with respect to the employees of the controlled trades or businesses. (b) The Plan excludes an Owner-Employee or group of Owner-Employees if the Owner-Employee or group of Owner-Employee controls any other trade or business, unless the employees of the other controlled trade or business participate in a plan which satisfy the requirements of Code (S)401(a) and Code (S)401(d). The other qualified plan must provide contributions and benefits which are not less favorable than the contributions and benefits provided for the Owner-Employee or group of Owner-Employees under this Plan, or if an Owner-Employee is covered under another qualified plan as an Owner-Employee, then the plan established with respect to the trade or business he doa control must provide contributions or benefits as favorable aa those provided under the most favorable plan of the trade or business he does not control. If the exclusion of this paragraph (b) applies and the Employer's Plan is a Standardized Plan, the Employer may not participate or continue to participate in this Master Plan and the Employers Plan become an individually-designed plan for purposes of qualification reliance. 27 (c) For purposes of paragraphs (a) and (b) of this Section 132, an Owner- Employee or group of Owner-Employees controls a trade or business if the Owner-Employee or Owner-Employees together (1) own the entire interest in an unincorporated trade or business, or (2) in the case of a partnership, own more than 50% of either the capital interest or the profits interest in the partnership. 1.33 DETERMINATION OF TOP HEAVY STATUS. If this Plan is the only qualified --------------------------------- plan maintained by the Employer, the Plan is top heavy for a Plan Year if the top heavy ratio as of the Determination Date exceeds 60%. The top heavy ratio is a fraction, the numerator of which is the sum of the present value of Accrued Benefits of all Key Employees as of the Determination Date and the denominator of which is a similar sum determined for all Employees. The Advisory Committee must include in the top heavy ratio, as part of the present value of Accrued Benefits' any contribution not made as of the Determination Date but includible under Code (S)416 and the applicable Treasury regulations, and distributions made within the Determination Period. The Advisory Committee must cal~late the top heavy ratio by disregarding the Accrued Benefit (and distributions, if any, of the Accrued Benefit) of any Non-Key Employee who was formerly a Key Employee, and by disregarding the Accrued Benefit (including distributions, if any, of the Accrued Benefit) of an individual who has not received credit for at least one Hour of Service with the Employer during the Determination Period. The Advisory Committee must calculate the top heavy ratio, including the extent to which it must take into account distributions, rollovers and transfers, in accordance with Code (S)416 and the regulations under that Code section. If the Employer maintains other qualified plans (including a simplified employee pension plan), or maintained another such plan which now is terminated, this Plan is top heavy only if it is part of the Required Aggregation Group, and the top heavy ratio for the Required Aggregation Group and for the Permissive Aggregation Group, if any, each exceeds 60%. The Advisory Committee will calculate the top heavy ratio in the same manner as required by the first paragraph of this Section 1.33, taking into account all plans within the Aggregation Group. To the extent the Advisory Committee must take into account distributions to a Participant, the Advisory Committee must include distributions from a terminated plan which would have been part of the Required Aggregation Group if it were in existence on the Determination Date. The Advisory Committee will calculate the present value of accrued benefits under defined benefit plans or simplified employee pension plans included within the group in accordance with the terms of those plans, Code (S)416 and the regulations under that Code section. If a Participant in a defined benefit plan is a Non-Key Employee, the Advisory Committee will determine his accrued benefit under the accrual method, if any, which is applicable uniformly to all defined benefit plans maintained by the Employer or, if there is no uniform method, in accordance with the slowest accrual rate permitted under the fractional rule accrual method described in Code (S)411(b)(1)(C). If the Employer maintains a defined benefit plan, the Employer must specify in Adoption Agreement Section 3.18 the actuarial assumptions (interest and morality only) the Advisory Committee will use to calculate the present value of benefits from a defined benefit plan. If an aggregated plan does not have a valuation date coinciding with the Determination Date the Advisory Committee must value the Accrued Benefits in the aggregated plan as of the most recent valuation date falling within the twelve-month period ending on the Determination Date except as Code (S)416 and applicable Treasury regulations require for the first and second plan year of a defined benefit plan. The Advisory Committee will calculate the top heavy ratio with reference to the Determination Dates that fall within the same calendar year. (A) STANDARDIZED PLAN. If the Employer's Plan is a Standardized Plan, the Plan operates as a deemed top heavy plan in all Plan Years, except, if the Standardized Plan includes a Code (S)401(k) arrangement, the Employer may elect to apply the top heavy requirements only in Plan Years for which the Plan actually is top heavy. Under a deemed top heavy plan, the Advisory Committee need not determine whether the Plan actually is top heavy. However, if the Employer, in Adoption 28 Agreement Section 3.18, elects to override the 100% limitation, the Advisory Committee will need to determine whether a deemed top heavy Plan's top heavy ratio for a Plan Year exceeds 90%. (B) DEFINITIONS. For purposes of applying the provisions of this Section 1.33: (1) "Key Employee" means, as of any Determination Date, any Employee or former Employee (or Beneficiary of such Employee) who, for any Plan Year in the Determination Period (i) has Compensation in excess of 50% of the dollar amount prescribed in Code (S)415(b)(1)(A) (relating to defined benefit plans) and is an officer of the Employer; (ii) has Compensation in excess of the dollar amount prescribed in Code (S)415(c)(1)(A) (relating to defined contribution plans) and is one of the Employees owning the ten largest interests in the Employer; (iii) is a more than 5% owner of the Employer; or (vi) is a more than l% owner of the Employer and has Compensation of more than $150,000. The constructive ownership rules of Code (S)318 (or the principles of that section, in the case of an unincorporated Employer,) will apply to determine ownership in the Employer. The number of officers taken into account under clause (i) will not exceed the greater of 3 or 1096 of the total number (after application of the Code (S)414(q) exclusions) of Employees, but no more than 50 officers. The Advisory Committee will make the determination of who is a Key Employee in accordance with Code (S)416(i)(1) and the regulations under that Code section. (2) "Non-Key Employee" is an employee who doa not meet the definition of Key Employee. (3) "Compensation" means Compensation as determined under Section 1.09 for purposes of identifying Highly Compensated Employees. (4) "Required Aggregation Group" means: (i) each qualified plan of the Employer in which at least one Key Employee participates at any time during the Determination Period; and (ii) any other qualified plan of the Employer which enables a plan described in clause (i) to meet the requirements of Code (S)401(a)(4) or of Code (S)410. (5) "Permissive Aggregation Group" is the Required Aggregation Group plus any other qualified plans maintained by the Employer, but only if such group would satisfy in the aggregate the requirements of Code (S)401(a)(4) and of Code (S)410. The Advisory Committee will determine the Permissive Group. (6) "Employer" means the Employer that adopts this Plan and any related employers described in Section 130. (7) "Determination Date" for any Plan Year is the Accounting Date of the preceding Plan Year or, in the case of the first Plan Year of the Plan, the Accounting Date of that Plan Year. The "Determination Period" is the 5 year period ending on the Determination Date. 1.34 "Paired Plans" means the Employer has adopted two Standardized Plan Adoption Agreements offered with this Master Plan, one Adoption Agreement being a Paired Profit Sharing Plan and one Adoption Agreement being a Paired Pension Plan. A Paired Profit Sharing Plan may include a Code (S)401(k) arrangement. A Paired Pension Plan must be a money purchase pension plan or a target benefit pension plan. Paired Plans must be the subject of a favorable opinion letter issued by the National Office of the Internal Revenue Service. This Master Plan does not pair any of its Standardized Plan Adoption Agreements with Standardized Plan Adoption Agreements under a defined benefit master plan. * * * * * 29 ARTICLE II EMPLOYEE PARTICIPANTS 2.01 ELIGIBILITY. Each Employee becomes a Participant in the Plan in ----------- accordance with the participation option selected by the Employer in its Adoption Agreement. If this Plan is a restated Plan, each Employee who was a Participant in the Plan on the day before the Effective Date continues as a Participant in the Plan, irrespective of whether he satisfies the participation conditions in the restated Plan, unless otherwise provided in the Employer's Adoption Agreement. 2.02 YEAR OF SERVICE - PARTICIPATION. For purposes of an Employee's ------------------------------- participation in the Plan under Adoption Agreement Section 2.01, the Plan takes into account all of his Years of Service with the Employer, except as provided in Section 2.03. "Year of Service" means an eligibility computation period during which the Employee completes not less than the number of Hours of Service specified in the Employer's Adoption Agreement. The initial eligibility computation period is the first 12 consecutive month period measured from the Employment Commencement Date. The Plan measures succeeding eligibility computation periods in accordance with the option selected by the Employer in its Adoption Agreement. If the Employer elects to measure subsequent periods on a Plan Year basis, an Employee who receives credit for the required number of Hours of Service during the initial eligibility computation period and during the first applicable Plan Year will receive credit for two Years of Service under Article II. "Employment Commencement Date" means the date on which the Employee first performs an Hour of Service for the Employer. If the Employer elects a service condition under Adoption Agreement Section 2.01 based on months, the Plan does not apply any Hour of Service requirement after the completion of the first Hour of Service. 2.03 BREAK IN SERVICE - PARTICIPATION. An Employee incurs a "Break in -------------------------------- Service" if during any 12 consecutive month period he did not complete more than 500 Hours of Service with the Employer. The 12 consecutive month period. under this Section 2.03 is the same 12 consecutive month period for which the Plan measures "Years of Service" under Section 2.02. (A) 2-YEAR ELIGIBILITY. If the Employer elects a 2 years of service condition for eligibility purposes under Adoption Agreement Section 2.01, the Plan treats an Employee who incurs a one year Break in Service and who has never become a Participant as a new Employee on the date he first performs an Hour of Service for the Employer after the Break in Service. (B) SUSPENSION OF YEARS OF SERVICE. The Employer must elect in its Adoption Agreement whether a Participant will incur a suspension of Years of Service after incurring a one year Break in Service. If this rule applies under the Employer's Plan, the Plan disregards a Participant's Years of Service (as defined in Section 2.02) earned prior to a Break in Service until the Participant completes another Year of Service and the Plan suspends the Participant's participation in the Plan. If the Participant completes a Year of Service following his Break in Service, the Plan restores that Participant's pre-Break Years of Service (and the Participant resume active participation in the Plan) retroactively to the first day of the computation period in which the Participant earns the first post-Break Year of Service. The initial computation period under this Section 2.03(B) is the 12 consecutive month period measured from the date the Participant first receives credit for an Hour of Service following the one year Break in Service period. The Plan measures any subsequent periods, if necessary, in a manner consistent with the computation period selection in Adoption Agreement Section 2.02. Ibis Section 2.03(B) does not affect a Participant's vesting credit under Article V and, during a suspension period, the Participant's Account continues to share fully in Trust Fund allocations under Section 9.11. Furthermore, this Section 2.03(B) will not result in the restoration of any Year of Service disregarded under the Break in Service rule of Section 2.03(A). 2.04 PARTICIPATION UPON RE-EMPLOYMENT. A Participant whose employment with -------------------------------- the Employer terminates will re-enter the Plan as a Participant on the date of his re-employment, subject to the Break in Service rule, if applicable, under Section 2.03(B). An Employee who satisfy the Plan's eligibility conditions but who terminates employment with the 30 Employer prior to becoming a Participant will become a Participant on the later of the Plan Entry Date on which he would have entered the Plan had he not terminated employment or the date of his re-employment, subject to the Break in Service rule, if applicable, under Section 2.03(B). Any Employee who terminates employment prior to satisfying the Plan's eligibility conditions becomes a Participant in accordance with Adoption Agreement Section 2.01. 2.05 CHANGE IN EMPLOYEE STATUS. If a Participant has not incurred a ------------------------- Separation from Service but ceases to be eligible to participate in the Plan, by reason of employment within an employment classification excluded by the Employer under Adoption Agreement Section 1.07, the Advisory Committee must treat the Participant as an Excluded Employee during the period such a Participant is subject to the Adoption Agreement exclusion. The Advisory Committee determines a Participant's sharing in the allocation of Employer contributions and Participant forfeitures, if applicable, by disregarding his Compensation paid by the Employer for services rendered in his capacity as an Excluded Employee. However, during such period of exclusion, the Participant, without regard to employment classification, continues to receive credit for vesting under Article V for each included Year of Service and the Participant's Account continues to share fully in Trust Fund allocations under Section 9.11. If an Excluded Employee who is not a Participant becomes eligIble to participate in the Plan by reason of a change in employment classification he will participate in the Plan immediately if he has satisfied the eligibility conditions of Section 2.01 and would have been a Participant had he not been an Excluded Employee during his period of Service. Furthermore, the Plan takes into account all of the Participant's Included Years of Service with the Employer as an Excluded Employee for purposes of vesting credit under Article V. 2.06 ELECTION NOT TO PARTICIPATE. If the Employer's Plan is a Standardized --------------------------- Plan, the Plan does not permit an otherwise eligible Employee nor any Participant to elect not to participate in the Plan. If the Employer's Plan is a Nonstandardized Plan, the Employer must specify in its Adoption Agreement whether an Employee eligible to participate, or any present Participant, may elect not to participate in the Plan. For an election to be effective for a particular Plan Year, the Employee or Participant must file the election in writing with the Plan Administrator not later than the time specified in the Employer's Adoption Agreement. The Employer may not make a contribution under the Plan for the Employee or for the Participant for the Plan Year for which the election is effective, nor for any succeeding Plan Year, unless the Employee or Participant re-elects to participate in the Plan. After an Employee's or Participant's election not to participate has been effective for at least the minimum period prescribed by the Employer's Adoption Agreement, the Employee or Participant may re-elect to participate in the Plan for any Plan Year and subsequent Plan Years. An Employee or Participant may re-elect to participate in the Plan by filing his election in writing with the Plan Administrator not later than the time specified in the Employer's Adoption Agreement. An Employee or Participant who re-elects to participate may again elect not to participate only as permitted in the Employer's Adoption Agreement. If an Employee is a Self- Employed Individual, the Employee's election (except as permitted by Treasury regulations without creating a Code (S)401(k) arrangement with respect to that Self-Employed Individual) must be effective no later than the date the Employee first would become a Participant in the Plan and the election is irrevocable. The Plan Administrator must furnish an Employee or a Participant any form required for purposes of an election under this Section 2.06. An election timely filed is effective for the entire Plan Year. A Participant who elects not to participate may not receive a distribution of his Accrued Benefit attributable either to Employer or to Participant contributions except as provided under Article IV or under Article VI. However, for each Plan Year for which a Participant's election not to participate is effective the Participant's Account, if any, continues to share in Trust Fund allocations under Article IX Furthermore, the Employee or the Participant receives vesting credit under Article V for each included Year of Service during the period the election not to participate is effective. * * * * * 31 ARTICLE III EMPLOYER CONTRIBUTIONS AND FORFEITURES PART 1. AMOUNT OF EMPLOYER CONTRIBUTIONS AND PLAN ALLOCATIONS: SECTIONS 3.01 -------------------------------------------------------------------- THROUGH 3.06 - ------------ 3.01 AMOUNT. For each Plan Year, the Employer contributes to the Trust the ------ amount determined by application of the contribution option selected by the Employer in its Adoption Agreement. The Employer may not make a contribution to the Trust for any Plan Year to the extent the contribution would exceed the Participants' Maximum Permissible Amounts. The Employer contributes to this Plan on the condition its contribution is not due to a mistake of fact and the Revenue Service will not disallow the deduction for its contribution. The Trustee, upon written request from the Employer, must return to the Employer the amount of the Employer's contribution made by the Employer by mistake of fact or the amount of the Employer's contribution disallowed as a deduction under Code (S)404. The Trustee will not return any portion of the Employer's contribution under the provisions of this paragraph more than one year after: (a) The Employer made the contribution by mistake of fact; or (b) The disallowance of the contribution as a deduction, and then, only to the extent of the disallowance. The Trustee will not increase the amount of the Employer contribution returnable under this Section 3.01 for any earnings attributable to the contribution, but the Trustee will decrease the Employer contribution returnable for any losses attributable to it. The Trustee may require the Employer to furnish it whatever evidence the Trustee deems necessary to enable the Trustee to confirm the amount the Employer has requested be returned is properly returnable under ERISA. 3.02 DETERMINATION OF CONTRIBUTION. The Employer, from its records, ----------------------------- determines the amount of any contributions to be made by it to the Trust under the terms of the Plan. 3.03 TIME OF PAYMENT OF CONTRIBUTION. The Employer may pay its contribution ------------------------------- for each Plan Year in one or more installments without interest. The Employer must make its contribution to the Plan within the time prescribed by the Code or applicable Treasury regulations. Subject to the consent of the Trustee, the Employer may make its contribution in property rather than in cash, provided the contribution of property is not a prohibited transaction under the Code or under ERISA. 3.04 CONTRIBUTION ALLOCATION ----------------------- (A) METHOD OF ALLOCATION. The Employer must specify in its Adoption Agreement the manner of allocating each annual Employer contribution to this Trust. (B) TOP HEAVY MINIMUM ALLOCATION. The Plan must comply with the provisions of this Section 3.04(B), subject to the elections in the Employer's Adoption Agreement. (1) TOP HEAVY MINIMUM ALLOCATION UNDER STANDARDIZED PLAN. Subject to the Employer's election under Section 3.04(B)(3), the top heavy minimum allocation requirement applies to a Standardized Plan for each Plan Year, irrespective of whether the Plan is top heavy. (a) Each Participant employed by the Employer on the last day of the Plan Year will receive a top heavy minimum allocation for that Plan Year. The Employer may elect in Section 3.04 of its Adoption Agreement to apply the paragraph (a) only to a Participant who is a Non-Key Employee. 32 (b) Subject to any overriding elections in Section 3.18 of the Employer's Adoption Agreement, the top heavy minimum allocation is the lesser of 3% of the Participant's Compensation for the Plan Year or the highest contribution rate for the Plan Year made on behalf of any Participant for the Plan Year. However, if the Employee participates in Paired Plans, the top heavy minimum allocation is 3% of his Compensation. I$, under Adoption Agreement Section 3.04, the Employer elects to apply paragraph (a) only to a Participant who Is a Non-Key Employee, the Advisory Committee will determine the "highest contribution rate" described in the first sentence of this paragraph (b) by reference only to the contribution rates of Participants who are Key Employees for the Plan Year. (2) TOP HEAVY MINIMUM ALLOCATION UNDER NONSTANDARDIZED PLAN. The top heavy minimum allocation requirement applies to a Nonstandardized Plan only in Plan Years for which the Plan is top heavy. Except as provided in the Employer's Adoption Agreement, if the Plan is top heavy in any Plan Year: (a) Each Non Key Employee who is a Participant and is employed by the Employer on the last day of the Plan Year will receive a top heavy minimum allocation for that Plan Year, irrespective of whether he satisfies the Hours of Service condition under Section 3.06 of the Employer's Adoption Agreement; and (b) The top heavy minimum allocation is the lesser of 3% of the Non- Key Employee's Compensation for the Plan Year or the highest contribution rate for the Plan Year made on behalf of any Key Employee. However, if a defined benefit plan maintained by the Employer which benefits a Key Employee depends on this Plan to satisfy the antidiscrimination rules of Code (S)401(a)(4) or the coverage rules of Code (S)410 (or another plan benefiting the Key Employee so depends on such defined benefit plan), the top heavy minimum allocation is 3% of the Non-Key Employee's Compensation regardless of the contribution rate for the Key Employee. (3) SPECIAL ELECTION FOR STANDARDIZED CODE (S)401(K) PLAN. If the Employer's Plan is a Standardized Code 6401(k) Plan, the Employer may elect in Adoption Agreement Section 3.04 to apply the top heavy minimum allocation requirements of Section 3.04(B)(1) only for Plan Years in which the Plan actually is a top heavy plan. (4) SPECIAL DEFINITIONS. For purposes of this Section 3.04(B), the term "Participant" includes any Employee otherwise eligible to participate in the Plan but who is not a Participant because of his Compensation level or because of his failure to make elective deferrals under a Code (S)401(k) arrangement or because of his failure to make mandatory contributions. For purposes of subparagraph (1)(b) or (2)(b), "Compensation. means Compensation as defined in Section 1.12, except Compensation does not include elective contributions, irrespective of whether the Employer has elected to include these amounts in Section 1.12 of its Adoption Agreement, any exclusion selected in Section 1.12 of the Adoption Agreement (other than the exclusion of elective contributions) does not apply, and any modification to the definition of Compensation in Section 3.06 does not apply. (5) DETERMINING CONTRIBUTION RATES. For purposes of this Section 3.04(B), a Participant's contribution rate is the sum of all Employer contributions (not including Employer contributions to Social Security) and forfeitures allocated to the Participant's Account for the Plan Year divided by his Compensation for the entire Plan Year. However, for purposes of satisfying a Participant's top heavy minimum allocation in Plan Years beginning after December 31, 1988, the Participant's contribution rate does not include any elective contributions under a Code (S)401(k) arrangement nor any Employer matching contributions allocated on the basis of those elective contributions or on 33 the basis of employee contributions, except a Nonstandardized Plan may include in the contribution rate any matching contributions not necessary to satisfy the nondiscrimination requirements of Code (S)401(k) or of Code (S)401(m). If the Employee is a Participant in Paired Plans, the Advisory Committee will consider the Paired Plans as a single Plan to determine a Participant's contribution rate and to determine whether the Plans satisfy this top heavy minimum allocation requirement. To determine a Participant's contribution rate under a Nonstandardized Plan, the Advisory Committee must treat all qualified top heavy defined contribution plans maintained by the Employer (or by any related Employers described in Section 130) as a single plan. (6) NO ALLOCATIONS. If, for a Plan Year, there are no allocations of Employer contributions or forfeitures for any Participant (for purposes of Section 3.04 (B)(1)(b)) or for any Key Employee (for purposes of Section 3.04(B)(2)(b)), the Plan does not require any top heavy minimum allocation for the Plan Year, unless a top heavy minimum allocation applies because of the maintenance by the Employer of more than one plan. (7) ELECTION OF METHOD. The Employer must specify in its Adoption Agreement the manner in which the Plan will satisfy the top heavy minimum allocation requirement. (a) If the Employer elects to make any necessary additional contribution to this Plan, the Advisory Committee first will allocate the Employer contributions (and Participant forfeitures, if any) for the Plan Year in accordance with the provisions of Adoption Agreement Section 3.04. The Employer then will contribute an additional amount for the Account of any Participant entitled under this Section 3.04(B) to a top heavy minimum allocation and whose contribution rate for the Plan Year, under this Plan and any other plan aggregated under paragraph (5), is less than the top heavy minimum allocation. The additional amount is the amount necessary to increase the Participant's contribution rate to the top heavy minimum allocation. The Advisory Committee will allocate the additional contribution to the Account of the Participant on whose behalf the Employer makes the contribution. (b) If the Employer elects to guarantee the top heavy minimum allocation under another plan, this Plan does not provide the top heavy minimum allocation and the Advisory Committee will allocate the annual Employer contributions (and Participant forfeitures) under the Plan solely in accordance with the allocation method selected under Adoption Agreement Section 3.04. 3.05 FORFEITURE ALLOCATION. The amount of a Participant's Accrued Benefit --------------------- forfeited under the Plan is a Participant forfeiture. The Advisory Committee will allocate Participant forfeitures in the manner specified by the Employer in its Adoption Agreement. The Advisory Committee will continue to hold the undistributed, non-vested portion of a terminated Participant's Accrued Benefit in his Account solely for his benefit until a forfeiture occurs at the time specified in Section 5.09 or if applicable, until the time specified h Section 9.14. Except as provided under Section 5.04, a Participant will not share in the allocation of a forfeiture of any portion of his Accrued Benefit. 3.06 ACCRUAL OF BENEFIT. The Advisory Committee will determine the accrual ------------------ of benefit (Employer contributions and Participant forfeitures) on the basis of the Plan Year in accordance with the Employer's elections in its Adoption Agreement. (A) COMPENSATION TAKEN INTO ACCOUNT. The Employer must specify in its Adoption Agreement the Compensation the Advisory Committee is to take into account in allocating an Employer contribution to a Participant's Account for the Plan Year in which the Employee first becomes a Participant. For all other Plan Years, the Advisory Committee will take into account only the 34 Compensation determined for the portion of the Plan Year in which the Employee actually is a Participant. The Advisory Committee must take into account the Employee's entire Compensation for the Plan Year to determine whether the Plan satisfies the top heavy minimum allocation requirement of Section 3.04(B). The Employer, m an addendum to its Adoption Agreement numbered 3.06(A), may elect to measure Compensation for the Plan Year for allocation purposes on the basis of a specified period other than the Plan Year. (B) HOURS OF SERVICE REQUIREMENT. Subject to the applicable minimum allocation requirement of Section 3.04, the Advisory Committee will not allocate any portion of an Employer contribution for a Plan Year to any Participant's Account if the Participant does not complete the applicable minimum Hours of Service requirement specified in the Employer's Adoption Agreement. (C) EMPLOYMENT REQUIREMENT. If the Employer's Plan is a Standardized Plan, a Participant who, during a particular Plan Year, completes the accrual requirements of Adoption Agreement Section 3.06 will share in the allocation of Employer contributions for that Plan Year without regard to whether he is employed by the Employer on the Accounting Date of that Plan Year. If the Employer's Plan is a Nonstandardized Plan, the Employer must specify in its Adoption Agreement whether the Participant will accrue a benefit if he is not employed by the Employer on the Accounting Date of the Plan Year. If the Employer's Plan is a money purchase plan or a target benefit plan, whether Nonstandardized or Standardized, the Plan conditions benefit accrual on employment with the Employer on the last day of the Plan Year for the Plan Year in which the Employer terminates the Plan. (D) OTHER REQUIREMENTS. If the Employer's Adoption Agreement includes options for other requirements affecting the Participant's accrual of benefits under the Plan, the Advisory Committee will apply this Section 3.06 in accordance with the Employer's Adoption Agreement selections. (E) SUSPENSION OF ACCRUAL REQUIREMENTS UNDER NONSTANDARDIZED PLAN. If the Employer's Plan is a Nonstandardized Plan, the Employer may elect in its Adoption Agreement to suspend the accrual requirements elected under Adoption Agreement Section 3.06 if, for any Plan Year beginning after December 31, 1989, the Plan fails to satisfy the Participation Test or the Coverage Test. A Plan satisfies the Participation Test if, on each day of the Plan Year, the number of Employees who benefit under the Plan is at least equal to the lesser of 50 or 40% of the total number of Includible Employees as of such day. A Plan satisfies the Coverage Test if, on the last day of each quarter of the Plan Year, the number of Nonhighly Compensated Employees who benefit under the Plan is at least equal to 70% of the total number of Includible Nonhighly Compensated Employees as of such day. "Includible" Employees are all Employees other than: (1) those Employees excluded from participating in the Plan for the entire Plan Year by reason of the collective bargaining unit exclusion or the nonresident alien exclusion under Adoption Agreement Section 1.07 or by reason of the participation requirements of Sections 2.01 and 2.03; and (2) any Employee who incurs a Separation from Service during the Plan Year and fails to complete at least 501 Hours of Service for the Plan Year. A "Nonhighly Compensated Employee" is an Employee who is not a Highly Compensated Employee and who is not a family member aggregated with a Highly Compensated Employee pursuant to Section 1.09 of the Plan. For purposes of the Participation Test and the Coverage Test, an Employee is benefiting under the Plan on a particular date if, under Adoption Agreement Section 3.04, he is entitled to an allocation for the Plan Year. Under the Participation Test, when determining whether an Employee is entitled to an allocation under Adoption Agreement Section 3.04, the Advisory Committee will disregard any allocation required solely by reason of the top heavy minimum allocation, unless the top heavy minimum allocation is the only allocation made under the Plan for the Plan Year. 35 If this Section 3.06(E) applies for a Plan Year, the Advisory Committee will suspend the accrual requirements for the Includible Employees who are Participants, beginning first with the Includible Employee(s) employed with the Employer on the last day of the Plan Year, then the Includible Employee(s) who have the latest Separation from Service during the Plan Year, and continuing to suspend in descending order the accrual requirements for each Includible Employee who incurred an earlier Separation from Service, from the latest to the earliest Separation from Service date, until the Plan satisfies both the Participation Test and the Coverage Test for the Plan Year. If two or more Includible Employees have a Separation from Service on the same day, the Advisory Committee will suspend the accrual requirements for all such Includible Employees, irrespective of whether the Plan can satisfy the Participation Test and the Coverage Test by accruing benefits for fewer than all such Includible Employees. If the Plan suspends the accrual requirements for an Includible Employee, that Employee will share in the allocation of Employer contributions and Participant forfeitures, if any, without regard to the number of Hours of Service he has earned for the Plan Year and without regard to whether he is employed by the Employer on the last day of the Plan Year. If the Employer's Plan includes Employer matching contributions subject to Code (S)401(m), this suspension of accrual requirements applies separately to the Code (S)401(m) portion of the Plan, and the Advisory Committee will treat an Employee as benefiting under that portion of the Plan if he is an Eligible Employee for purposes of the Code (S)401(m) nondiscrimination test. The Employer may modify the operation of this Section 3.06(E) by electing appropriate modifications in Section 3.06 of its Adoption Agreement. PART 2. LIMITATIONS ON ALLOCATIONS: SECTIONS 3.07 THROUGH 3.19. - --------------------------------------------------------------- [Note: Sections 3.07 through 3.10 apply only, to Participants in this Plan who do not participate, and who have never participated, in another qualified plan or in a welfare benefit fund (as defined in Code (S)419(e)) maintained by the Employer.] 3.07 The amount of Annual Additions which the Advisory Committee may allocate under this Plan on a Participant's behalf for a Limitation Year may not exceed the Maximum Permissible Amount. If the amount the Employer otherwise would contribute to the Participant's Account would cause the Annual Additions for the Limitation Year to exceed the Maximum Permissible Amount, the Employer will reduce the amount of its contribution so the Annual Additions for the Limitation Year will equal the Maximum Permissible Amount. If an allocation of Employer contributions, pursuant to Section 3.04, would result in an Excess Amount (other than an Excess Amount resulting from the circumstances described in Section 3.10) to the Participant's Account, the Advisory Committee will reallocate the Excess Amount to the remaining Participants who are eligible for an allocation of Employer contributions for the Plan Year in which the Limitation Year ends. The Advisory Committee will make this reallocation on the team of the allocation method under the Plan as if the Participant whose Account otherwise would receive the Excess Amount is not eligible for an allocation of Employer contributions. 3.08 Prior to the determination of the Participant's actual Compensation for a Limitation Year, the Advisory Committee may determine the Maximum Permissible Amount on the basis of the Participant's estimated annual Compensation for such Limitation Year. The Advisory Committee must make this determination on a reasonable and uniform basis for all Participants similarly situated. The Advisory Committee must reduce any Employer contributions (including any allocation of forfeitures) based on estimated annual Compensation by any Excess Amounts carried over from prior years. 3.09 As soon as is administratively feasible after the end of the Limitation Year, the Advisory Committee will determine the Maximum Permissible Amount for such Limitation Year on the basis of the Participant's actual Compensation for such Limitation Year. 36 3.10 If, pursuant to Section 3.09, or because of the allocation of forfeitures, there is an Excess Amount with respect to a Participant for a Limitation Year, the Advisory Committee will dispose of such Excess Amount as follows: (a) The Advisory Committee will return any nondeductible voluntary Employee contributions to the Participant to the extent the return would reduce the Excess Amount. (b) If, after the application of paragraph (a), an Excess Amount still exists, and the Plan covers the Participant at the end of the Limitation Year, then the Advisory Committee will use the Excess Amount(s) to reduce future Employer contributions (including any allocation of forfeitures) under the Plan for the next Limitation Year and for each succeeding Limitation Year, as is necessary, for the Participant. If the Employers Plan is a profit sharing plan, the Participant may elect to limit his Compensation for allocation purposes to the extent necessary to reduce his allocation for the Limitation Year to the Maximum Permissible Amount and eliminate the Excess Amount. (c) If after the application of paragraph (a), an Excess Amount still exists, and the Plan does not cover the Participant at the end of the Limitation Year, then the Advisory Committee will hold the Excess Amount unallocated in a suspense account. The Advisory Committee will apply the suspense account to reduce Employer Contributions (including allocation of forfeitures) for all remaining Participants in the next T imitation Year, and in each succeeding Limitation Year if necessary. Neither the Employer nor any Employee may contribute to the Plan for any Limitation Year in which the Plan is unable to allocate fully a suspense account maintained pursuant to this paragraph (c). (d) The Advisory Committee will not distribute any Excess Amount(s) to Participants or to former Participants. [Note: Section 3.11 through 3.16 apply only to Participants who, in addition to this Plan, participate in one or more plans (including Paired Plans), all of which are qualified Master or Prototype defined contribution plan or welfare benefit funds (as defined in Code (S)419(e)) maintained by the Employer during the Limitation Year.] 3.11 The amount of Annual Additions which the Advisory Committee may allocate under this Plan on a Participant's behalf for a Limitation Year may not exceed the Maximum Permissible Amount, reduced by the sum of any Annual Additions allocated to the Participant's Accounts for the same Limitation Year under this Plan and such other defined contribution plan. If the amount the Employer otherwise would contribute to the Participant's Account under this Plan would cause the Annual Additions for the Limitation Year to exceed this limitation, the Employer will reduce the amount of its contribution so the Annual Additions under all such plans for the Limitation Year will equal the Maximum Permissible Amount. If an allocation of Employer contributions, pursuant to Section 3.04, would result in an Excess Amount (other than an Excess Amount resulting from the circumstances described in Section 3.10) to the Participant's Account, the Advisory Committee will reallocate the Excess Amount to the remaining Participants who are eligible for an allocation of Employer contributions for the Plan Year in which the Limitation Year ends. The Advisory Committee will make this reallocation on the basis of the allocation method under the Plan as if the Participant whose Account otherwise would receive the Excess Amount is not eligible for an allocation of Employer contributions. 3.12 Prior to the determination of the Participant's actual Compensation for the Limitation Year, the Advisory Committee may determine the amounts referred to in 3.11 above on the basis of the Participant's estimated annual Compensation for such Limitation Year. The Advisory Committee will make this determination on a reasonable and uniform basis for all Participants similarly 37 situated. The Advisory Committee must reduce any Employer contribution (including allocation of forfeitures) based on estimated annual Compensation by any Excess Amounts carried over from prior years. 3.13 As soon as is administratively feasible after the end of the Limitation Year, the Advisory Committee will determine the amounts referred to in 3.11 on the basis of the Participant's actual Compensation for such Limitation Year. 3.14 If pursuant to Section 3.13, or because of the allocation of forfeitures, a Participant's Annual Additions under this Plan and all such other plans result in an Excess Amount, such Excess Amount will consist of the Amounts last allocated. The Advisory Committee will determine the Amounts last allocated by treating the Annual Additions attributable to a welfare benefit fund as allocated first, irrespective of the actual allocation date under the welfare benefit fund. 3.15 The Employer must specify in its Adoption Agreement the Excess Amount attributed to this Plan, if the Advisory Committee allocates an Excess Amount to a Participant on an allocation date of this Plan which coincides with an allocation date of another plan. 3.16 The Advisory Committee will dispose of any Excess Amounts attributed to this Plan as provided in Section 3.10. [Note: Section 3.17 applies only to Participants who, in addition to this Plan, participate in one or more qualified plans which are qualified defined contribution plans other than a Master or Prototype plan maintained by the Employer during the Limitation Year.] 3.17 SPECIAL ALLOCATION LIMITATION. The amount of Annual Additions which ----------------------------- the Advisory Committee may allocate under this Plan on behalf of any Participant are limited in accordance with the provisions of Section 3.11 through 3.16, as though the other plan were a Master or Prototype plan, unless the Employer provides other limitations in an addendum to the Adoption Agreement, numbered Section 3.17. 3.18 DEFINED BENEFIT PLAN LIMITATION. If the Employer maintains a defined ------------------------------- benefit plan, or has ever maintained a defined benefit plan which the Employer has terminated, then the sum of the defined benefit plan fraction and the defined contribution plan fraction for any Participant for any Limitation Year must not exceed 1.0. The Employer must provide in Adoption Agreement Section 3.18 the manner in which the Plan will satisfy this limitation. The Employer also must provide in its Adoption Agreement Section 3.18 the manner in which the Plan will satisfy the top heavy requirements of Code (S)416 after taking into account the existence (or prior maintenance) of the defined benefit plan. 3.19 DEFINITIONS - ARTICLE III. For purposes of Article III, the following ------------------------- terms mean: (a) "Annual Addition" - The sum of the following amounts allocated on behalf of a Participant for a Limitation Year, of (i) all Employer contributions; (ii) all forfeitures; and (iii) all Employee contributions Except to the extent provided in Treasury regulations, Annual Additions include excess contributions described in Code (S)401(k), excess aggregate contributions described in Code (S)401(m) and excess deferrals described in Code (S)402(g), irrespective of whether the plan distributes or forfeits such excess amounts. Annual Additions also include Excess Amounts reapplied to reduce Employer contributions under Section 3.10. Amounts allocated after March 31, 1984, to an individual medical account (as defined in Code (S)415(1)(2)) included as part of a defined benefit plan maintained by the Employer are Annual 38 Additions. Furthermore, Annual Additions include contributions paid or accrued after December 31, 1985, for taxable years ending after December 31, 1985, attributable to post-retirement medical benefits allocated to the separate account of a key employee (as defined in Code (S)419A(d)(3)) under a welfare benefit fund (as defined in Code (S)419(e)) maintained by the Employer. (b) "Compensation" - For purposes of applying the limitations of Part 2 of this Article III, "Compensation" means Compensation as defined in Section 1.12, except Compensation does not include elective contributions, irrespective of whether the Employer has elected to include these amounts as Compensation under Section 1.12 of its Adoption Agreement, and any exclusion selected in Section 1.12 of the Adoption Agreement (other than the exclusion of elective contributions) does not apply. (c) "Employer" - The Employer that adopts this Plan and any employers described in Section 130. Solely for purposes of applying the limitations of Part 2 of this Article III the Advisory Committee will determine related employers described in Section 1.30 by modifying Code (S)(S)414(b) and (c) in accordance with Code (S)415(h). (d) "Excess Amount" - The excess of the Participant's Annual Additions for the Limitation Year over the Maximum Permissible Amount. (e) "Limitation Year" - The period elected by the Employer under Adoption Agreement Section 1.17. All qualified plans of the Employer must use the same Limitation Year. If the Employer amends the Limitation Year to a different 12 consecutive month period, the new Limitation Year must begin on a date within the Limitation Year for which the Employer makes the amendment, creating a short Limitation Year. (f) "Master or Prototype Plan" - A plan the form of which is the subject of a favorable notification letter or a favorable opinion letter from the Internal Revenue Service. (g) "Maximum Permissible Amount" - The lesser of (i) $30,000 (or, if greater, one-fourth of the defined benefit dollar limitation under Code (S)415(b)(1)(A)), or (ii) 25% of the Participant's Compensation for the Limitation Year. If there is a short Limitation Year because of a change in Limitation Year, the Advisory Committee will multiply the $30,000 (or adjusted) limitation by the following fraction: Number of months in the short Limitation Year --------------------------------------------- 12 (h) "Defined contribution plan" - A retirement plan which provides for an individual account for each participant and for benefits based solely on the amount contributed to the participant's account, and any income, expenses, gains and losses, and any forfeitures of accounts of other participants which the plan may allocate to such participant's account. The Advisory Committee must treat all defined contribution plans (whether or not terminated) maintained by the Employer as a single plan. Solely for purposes of the limitations of Part 2 of this Article m, the Advisory Committee will treat employee contributions made to a defined benefit plan maintained by the Employer as a separate defined contribution plan. The Advisory Committee also will treat as a defined contribution plan an individual medical account (as defined in Code (S)415(1)(2)) included as part of a defined benefit plan maintained by the Employer and, for taxable years ending after December 31, 1985, a welfare benefit fund under Code (S)419(e) maintained by the Employer to the extent there are post- retirement medical benefits allocated to the separate account of a key employee (as defined in Code (S)419A(d)(3)). 39 (i) "Defined benefit plan" - A retirement plan which does not provide for individual accounts for Employer contributions. The Advisory Committee must treat all defined benefit plans (whether or not terminated) maintained by the Employer as a single plan. [Note: The definitions in paragraphs G). (k) and (l) apply only if the limitation described in Section 3.18 applies to the Employer's Plan] (j) "Defined benefit plan fraction" - Projected annual benefits of the Participant under the defined benefit plan(s) ------------------------------------------------------------------------------ The lesser of (i) 125% (subject to the "100% limitation" in paragraph (l)) of the dollar limitation in effect under Code (S)415(b)(1)(A) for the Limitation Year, or (ii) 140% of the Participant's average Compensation for his high three (3) Consecutive Years of Service To determine the denominator of this fraction, the Advisory Committee will make any adjustment required under Code (S)415(b) and will determine a Year of Service, unless otherwise provided in an addendum to Adoption Agreement Section 3.18, as a Plan Year in which the Employee completed at least 1,000 Hours of Service. The "projected annual benefit. is the annual retirement benefit (adjusted to an actuarially equivalent straight life annuity if the plan expresses such benefit in a form other than a straight life annuity or qualified joint and survivor annuity) of the Participant under the terms of the defined benefit plan on the assumptions he continues employment until his normal retirement age (or current age, if later) as stated in the defined benefit plan, his compensation continues at the same rate as in effect in the Limitation Year under consideration until the date of his normal retirement age and all other relevant factors used to determine benefits under the defined benefit plan remain constant as of the current Limitation Year for all future Limitation Years. CURRENT ACCRUED BENEFIT. If the Participant accrued benefits in one or more defined benefit plans maintained by the Employer which were in existence on May 6, 1986, the dollar limitation used in the denominator of this fraction will not be less than the Participant's Current Accrued Benefit. A Participant's Current Accrued Benefit is the sum of the annual benefits under such defined benefit plans which the Participant had accrued as of the end of the 1986 Limitation Year (the last Limitation Year beginning before January 1, 1987), determined without regard to any change in the terms or conditions of the Plan made after May 5, 1986, and without regard to any cost of living adjustment occurring after May 5, 1986. This Current Accrued Benefit rule applies only if the defined benefit plans individually and in the aggregate satisfied the requirements of Code (S)415 as in effect at the end of the 1986 Limitation Year. (k) "Defined contribution plan fraction" The sum, as of the close of the Limitation Year, of the Annual Additions to the Participant's Account under the defined contribution plan(s) ------------------------------------------------------------------- The sum of the lesser of the following amounts determined for the Limitations Year and for each prior Year of Service with the Employer: (i) 125% (subject to the "100% limitation" in paragraph (l) of the dollar limitation in effect under Code (S)415(c)(1)(a) for the Limitation Year (determined without regard to the special dollar limitations for employee stock ownership plans), or (ii) 35% of the Participant's Compensation for the Limitation Year. For purposes of determining the defined contribution plan fraction, the Advisory Committee will not recompute Annual Additions in Limitation Years beginning prior to 40 January 1, 1987, to treat all Employee contributions as Annual Additions. If the Plan satisfied Code (S)415 for Limitation Years beginning prior to January 1, 1987, the Advisory Committee will redetermine the defined contribution plan fraction and the defined benefit plan fraction as of the end of the 1986 Limitation Year, in accordance with this Section 3.19. If the sum of the redetermined fractions exceeds 1.0, the Advisory Committee will subtract permanently from the numerator of the defined contribution plan fraction an amount equal to the product of (1) the excess of the sum of the fractions over 1.0, times (2) the denominator of the defined contribution plan fraction. In making the adjustment, the Advisory Committee must disregard any accrued benefit under the defined benefit plan which is in excess of the Current Accrued Benefit. This Plan continues any transitional rules applicable to the determination of the defined contribution plan fraction under the Employer's Plan as of the end of the 1986 Limitation Year. (l) "100% limitation." If the 100% limitation applies, the Advisory Committee must determine the denominator of the defined benefit plan fraction and the denominator of the defined contribution plan fraction by substituting 100% for 125%. If the Employer's Plan is a Standardized Plan, the 100% limitation applies in all Limitation Years, subject to any override provisions under Section 3.18 of the Employer's Adoption Agreement. If the Employer overrides the 100% limitation under a Standardized Plan, the Employer must specify in its Adoption Agreement the manner in which the Plan satisfies the extra minimum benefit requirement of Code (S)416(h) and the 100% limitation must continue to apply if the Plan's top heavy ratio exceeds 90%. If the Employer's Plan is a Nonstandardized Plan, the 100% limitation applies only if: (i) the Plan's top heavy ratio exceeds 90%; or (ii) the Plan's top heavy ratio is greater than 60%, and the Employer does not elect in its Adoption Agreement Section 3.18 to provide extra minimum benefits which satisfy Code (S)416(h)(2). * * * * * 41 ARTICLE IV PARTICIPANT CONTRIBUTIONS 4.01 PARTICIPANT NONDEDUCTIBLE CONTRIBUTIONS. This Plan does not permit --------------------------------------- Participant nondeductible contributions unless the Employer maintains its Plan under a Code (S)401(k) Adoption Agreement. If the Employer does not maintain its Plan under a Code (S)401(k) Adoption Agreement and, prior to the adoption of this Master Plan, the Plan accepted Participant nondeductible contributions for a Plan Year beginning after December 31, 1986, those contributions must satisfy the requirements of Code (S)401(m). This Section 4.01 does not prohibit the Plan's acceptance of Participant nondeductible contributions prior to the first Plan Year commencing after the Plan Year in which the Employer adopts this Master Plan. 4.02 PARTICIPANT DEDUCTIBLE CONTRIBUTIONS. A qualified Plan may not accept ------------------------------------ Participant deductible contributions after April 15, 1987. If the Employer's Plan includes Participant deductible contributions ("DECs") made prior to April 16, 1987, the Advisory Committee must maintain a separate accounting for the Participant's Accrued Benefit attributable to DECs, including DECs which are part of a rollover contribution described in Section 4.03. The Advisory Committee will treat the accumulated DECs as part of the Participant's Accrued Benefit for all purposes of the Plan, except for purposes of determining the top heavy ratio under Section 1.33. The Advisory Committee may not use DECs to purchase life insurance on the Participant's behalf. 4.03 PARTICIPANT ROLLOVER CONTRIBUTIONS. Any Participant, with the ---------------------------------- Employer's written consent and after filing with the Trustee the form prescribed by the Advisory Committee, may contribute cash or other property to the Trust other than as a voluntary contribution if the contribution is a "rollover contribution" which the Code permits an employee to transfer either directly or indirectly from one qualified plan to another qualified plan. Before accepting a rollover contribution, the Trustee may require an Employee to furnish satisfactory evidence that the proposed transfer is in fact a "rollover contribution" which the Code permits an employee to make to a qualified plan. A rollover contribution is not an Annual Addition under Part 2 of Article III. The Trustee will invest the rollover contribution in a segregated investment Account for the Participant's sole benefit unless the Trustee (or the Named Fiduciary, in the case of a nondiscretionary Trustee designation), in its sole discretion, agrees to invest the rollover contribution as part of the Trust Fund. The Trustee will not have any investment responsibility with respect to a Participant's segregated rollover Account. The Participant, however, from time to time, may direct the Trustee in writing as to the investment of his segregated rollover Account in property, or property interests, of any kind, real personal or mixed; provided however, the Participant may not direct the Trustee to make loans to his Employer. A Participant's segregated rollover Account alone will bear any extraordinary expenses resulting from investments made at the direction of the Participant. As of the Accounting Date (or other valuation date) for each Plan Year, the Advisory Committee will allocate and credit the net income (or net loss) from a Participant's segregated rollover Account and the increase or decrease in the fair market value of the assets of a segregated rollover Account solely to that Account. The Trustee is not liable nor responsible for any loss resulting to any Beneficiary, nor to any Participant, by reason of any sale or investment made or other action taken pursuant to and in accordance with the direction of the Participant. In all other respects, the Trustee will hold, administer and distribute a rollover contribution in the same manner as any Employer contribution made to the Trust. An eligible Employee, prior to satisfying the Plan's eligibility conditions, may make a rollover contribution to the Trust to the same extent and in the same manner as a Participant. If an Employee makes a rollover contribution to the Trust prior to satisfying the Plan's eligibility conditions, the Advisory Committee and Trustee must treat the Employee as a Participant for all 42 purposes of the Plan except the Employee is not a Participant for purposes of sharing in Employer contributions or Participant forfeitures under the Plan until he actually becomes a Participant in the Plan. If the Employee has a Separation from Service prior to becoming a Participant, the Trustee will distribute his rollover contribution Account to him if it were an Employer contribution Account. 4.04 PARTICIPANT CONTRIBUTION - FORFEITABILITY. A Participant's Accrued ----------------------------------------- Benefit is, at all times, 100% Nonforfeitable to the extent the value of his Accrued Benefit is derived from his Participant contributions described in this Article IV. 4.05 PARTICIPANT CONTRIBUTION - WITHDRAWAL/DISTRIBUTION. A Participant, by -------------------------------------------------- giving prior written notice to the Trustee. may withdraw all or any part of the value of his Accrued Benefit derived from his Participant contributions described in this Article IV. A distribution of Participant contributions must comply with the joint and survivor requirements described in Article VI, if those requirements apply to the Participant. A Participant may not exercise his right to withdraw the value of his Accrued Benefit derived from his Participant contributions more than once during any Plan Year. The Trustee, in accordance with the direction of the Advisory Committee, will distribute a Participant's unwithdrawn Accrued Benefit attributable to his Participant contributions in accordance with the provisions of Article VI applicable to the distribution of the Participant's Nonforfeitable Accrued Benefit. 4.06 PARTICIPANT CONTRIBUTION - ACCRUED BENEFIT. The Advisory Committee ------------------------------------------ must maintain a separate Account(s) in the name of each Participant to reflect the Participant's Accrued Benefit under the Plan derived from his Participant contributions. A Participant's Accrued Benefit derived from his Participant contributions as of any applicable date is the balance of his separate Participant contribution Account(s). * * * * * 43 ARTICLE V TERMINATION OF SERVICE - PARTICIPANT VESTING 5.01 NORMAL RETIREMENT AGE. The Employer must define Normal Retirement Age --------------------- in its Adoption Agreement. A Participant's Accrued Benefit derived from Employer contributions is 100% Nonforfeitable upon and after his attaining Normal Retirement Age (if employed by the Employer on or after that date). 5.02 PARTICIPANT DISABILITY OR DEATH. The Employer may elect in its ------------------------------- Adoption Agreement to provide a Participant's Accrued Benefit derived from Employer contributions will be 100% Nonforfeitable if the Participant's Separation from Service is a result of his death or his disability. 5.03 VESTING SCHEDULE. Except as provided in Sections 5.01 and 5.02, for ---------------- each Year of Service, a Participant's Nonforfeitable percentage of his Accrued Benefit derived from Employer contribution equals the percentage in the vesting schedule completed by the Employer in its Adoption Agreement. (A) ELECTION OF SPECIAL VESTING FORMULA. If the Trustee makes a distribution (other than a cash-out distribution described in Section 5.04) to a partially- vested Participant, and the Participant has not incurred a Forfeiture Break in Service at the relevant time, the Advisory Committee will establish a separate Account for the Participant's Accrued Benefit. At any relevant time following the distribution, the Advisory Committee will determine the Participant's Nonforfeitable Accrued Benefit derived from Employer contributions in accordance with the following formula: P(AB + (R s D)) - (R x D). To apply this formula, "P" is the Participant's current vesting percentage at the relevant time, "AB" is the Participant's Employer-derived Accrued Benefit at the relevant time, "R" is the ratio of "AB" to the Participant's Employer- derived Accrued Benefit immediately following the earlier distribution and "D" is the amount of the earlier distribution. If, under a restated Plan, the Plan has made distribution to a partially-vested Participant prior to its restated Effective Date and is unable to apply the cash-out provisions of Section 5.04 to that prior distribution, this special vesting formula also applies to that Participant's remaining Account. The Employer, in an addendum to its Adoption Agreement, numbered Section 5.03, may Blest to modify this formula to read as follows: P(AB + D) - D. 5.04 CASH OUT DISTRIBUTIONS TO PARTIALLY-VESTED PARTICIPANTS/RESTORATION OF ---------------------------------------------------------------------- FORFEITED ACCRUED BENEFIT. If, pursuant to Article VI, a partially-vested - ------------------------- Participant receives a cash-out distribution before he incurs a Forfeiture Break in Service (as defined in Section 5.08), the cash-out distribution will result in an immediate forfeiture of the nonvested portion of the Participant's Accrued Benefit derived from Employer contribution. See Section 5.09. A partially-vested Participant is a Participant whose Nonforfeitable Percentage determined under Section 5.03 is less than 100%. A cash-out distribution is a distribution of the entire present value of the Participant's Nonforfeitable Accrued Benefit. (A) RESTORATION AND CONDITIONS UPON RESTORATION. A partially-vested Participant who is re-employed by the Employer after receiving a cash-out distribution of the Nonforfeitable percentage of his Accrued Benefit may repay the Trustee the amount of the cash-out distribution attributable to Employer contributions, unless the Participant no longer has a right to restoration by reason of the conditions of this Section 5.04(A). If a partially-vested Participant makes the cash-out distribution repayment, the Advisory Committee, subject to the conditions of this Section 5.04(A), must restore his Accrued Benefit attributable to Employer contributions to the same dollar amount as the dollar amount of his Accrued Benefit on the Accounting Date, or other valuation date, immediately preceding the date of the cash-out distribution, unadjusted for any gains or losses occurring subsequent to that Accounting Date, or other valuation date. Restoration of the Participant's 44 Accrued Benefit includes restoration of all Code (S)411(d)(6) protected benefits with respect to that restored Accrued Benefit, in accordance with applicable Treasury regulations. The Advisory Committee will not restore a re-employed Participant's Accrued Benefit under this paragraph if: (1) 5 years have elapsed since the Participant's first re-employment date with the Employer following the cash-out distribution; or (2) The Participant incurred a Forfeiture Break in Service (as defined in Section 5.08). This condition also applies if the Participant makes repayment within the Plan Year in which he incurs the Forfeiture Break in Service and that Forfeiture Break in Service would result in a complete forfeiture of the amount the Advisory Committee otherwise would restore. (B) TIME AND METHOD OF RESTORATION. If neither of the two conditions preventing restoration of the Participant's Accrued Benefit applies; the Advisory Committee will restore the Participant's Accrued Benefit as of the Plan Year Accounting Date coincident with or immediately following the repayment. To restore the Participant's Accrued Benefit, the Advisory Committee, to the extent necessary, will allocate to the Participant's Account: (1) First, the amount, if any, of Participant forfeitures the Advisory Committee would otherwise allocate under Section 3.05; (2) Second, the amount, if any, of the Trust Fund net income or gain for the Plan Year; and (3) Third, the Employer contribution for the Plan Year to the extent made under a discretionary formula. In an addendum to its Adoption Agreement numbered 5.04(B), the Employer may eliminate as a means of restoration any of the amounts described in clauses (1), (2) and (3) or may change the order of priority of these amounts. To the extent the amounts described in clauses (1), (2) and (3) are insufficient to enable the Advisory Committee to make the required restoration, the Employer must contribute, without regard to any requirement or condition of Section 3.01, the additional amount necessary to enable the Advisory Committee to make the required restoration. If, for a particular Plan Year, the Advisory Committee must restore the Accrued Benefit of more than one re-employed Participant, then the Advisory Committee will make the restoration allocations to each such Participant's Account in the same proportion that a Participant's restored amount for the Plan Year bears to the restored amount for the Plan Year of all re-employed Participants. The Advisory Committee will not take into account any allocation under this Section 5.04 un applying the limitation on allocations under Part 2 of Article III. (C) 0% VESTED PARTICIPANT. The Employer must specify in its Adoption Agreement whether the deemed cash-out rule applies to a 0% vested Participant. A 0% vested Participant is a Participant whose Accrued Benefit derived from Employer contributions is entirely forfeitable at the time of his Separation from Service. If the Participant's Account is not entitled to an allocation of Employer contributions for the Plan Year in which he has a Separation from Service, the Advisory Committee will apply the deemed cash-out rule as if the 0% vested Participant received a cash-out distribution on the date of the Participant's Separation from Service. If the Participant's Account is entitled to an allocation of Employer contributions or Participant forfeitures for the Plan Year in which he has a Separation from Service, the Advisory Committee will apply the deemed cash-out rule as if the 0% vested Participant received a cash- out distribution on the first day of the first Plan Year beginning after his Separation from Service. For purposes of applying the restoration provisions of this Section 5.04, the Advisory Committee will treat the 0% vested Participant as repaying his cash-out distribution on the first date of his re-employment with the Employer. If the deemed cash-out rule does not apply to the Employer's Plan, a 0% vested Participant will not incur a forfeiture until he incurs a Forfeiture Break in Service. 5.05 SEGREGATED ACCOUNT FOR REPAID AMOUNT. Until the Advisory Committee ------------------------------------ restores the Participant's Accrued Benefit, as described in Section 5.04, the Trustee will invest the cash-out amount the Participant has repaid in a segregated Account maintained solely for that 45 Participant. The Trustee must invest the amount in the Participant's segregated Account in Federally insured interest bearing savings account(s) or time deposit(s) (or a combination of both), or in other fixed income investments. Until commingled with the balance of the Trust Fund on the date the Advisory Committee restores the Participant's Accrued Benefit, the Participant's segregated Account remains a part of the Trust, but it alone shares in any income it earns and it alone bears any expense or loss it incurs. Unless the repayment qualifies as a rollover contribution, the Advisory Committee will direct the Trustee to repay to the Participant as soon as is administratively practicable the full amount of the Participant's segregated Account if the Advisory Committee determines either of the conditions of Section 5.04(A) prevents restoration as of the applicable Accounting Date, notwithstanding the Participant's repayment. 5.06 YEARS OF SERVICE - VESTING. For purposes of vesting under Section -------------------------- 5.03, Year of Service means any 12-consecutive month period designated in the Employer's Adoption Agreement during which an Employee completes not less than the number of Hours of Service (not exceeding 1,000) specified in the Employer's Adoption Agreement. A Year of Service includes any Year of Service earned prior to the Effective Date of the Plan, except as provided in Section 5.08. 5.07 BREAK IN SERVICE - VESTING. For purposes of this Article V, a -------------------------- Participant incurs a "Break in Service" if during any vesting computation period he does not complete more than 500 Hours of Service. If, pursuant to Satan 5.06, the Plan does not require more than 500 Hours of Service to receive credit for a Year of Service, a Participant incurs a Break in Service in a vesting computation period in which he fails to complete a Year of Service. 5.08 INCLUDED YEAR OF SERVICE - VESTING. For purposes of determining "Years ---------------------------------- of Service" under Section 5.06, the Plan takes into account all Years of Service an Employee completes with the Employer except: (a) For the sole purpose of determining a Participant's Nonforfeitable percentage of his Accrued Benefit derived from Employer contributions which accrued for his benefit prior to a Forfeiture Break in Service, the Plan disregards any Year of Service after the Participant first incurs a Forfeiture Break in Service. The Participant incurs a Forfeiture Break in Service when he incurs 5 consecutive Breaks in Service. (b) The Plan disregards any Year of Service excluded under the Employer's Adoption Agreement. The Plan does not apply the Break in Service rule under Code (S)411(a)(6)(B). Therefore, an Employee need not complete a Year of Service after a Break in Service before the Plan takes into account the Employee's otherwise includible Years of Service under this Article V. 5.09 FORFEITURE OCCURS. A Participant's forfeiture, if any, of his Accrued ----------------- Benefit derived from Employer contributions occur under the Plan on the earlier of: (a) The last day of the vesting computation period in which the Participant first incurs a Forfeiture Break in Service; or (b) The date the Participant receives a cash-out distribution. The Advisory Committee determines the percentage of a Participant's Accrued Benefit forfeiture, of any, under this Section 5.09 solely by reference to the vesting schedule of Section 5.03. A Participant does not forfeit any portion of his Accrued Benefit for any other reason or cause except as expressly provided by this Section 5.09 or as provided under Section 9.14. * * * * * 46 ARTICLE VI TIME AND METHOD OF PAYMENT OF BENEFITS 6.01 TIME OF PAYMENT OF ACCRUED BENEFIT. Unless, pursuant to Section 6.03, ---------------------------------- the Participant or the Beneficiary elects in writing to a different time or method of payment, the Advisory Committee will direct the Trustee to commence distribution of a Participant's Nonforfeitable Accrued Benefit in accordance with this Section 6.01. A Participant must consent, in writing, to any distribution required under this Section 6.01 if the present value of the Participant's Nonforfeitable Accrued Benefit, at the time of the distribution to the Participant, exceeds $3,500 and the Participant has not attained the later of Normal Retirement Age or age 62. Furthermore, the Participant's spouse also must consent, in writing, to any distribution, for which Section 6.04 requires the spouse's consent. For all purposes of this Article VI the term "annuity starting date" means the first day of the first period for which the Plan pays an amount as an annuity or in any other form. A distribution date under this Article VI, unless otherwise specified within the Plan, is the date or dates the Employer specifies in the Adoption Agreement, or as soon as administratively practicable following that distribution date. For purposes of the consent requirements under this Article VI, if the present value of the Participant's Nonforfeitable Accrued Benefit, at the time of any distribution, exceeds $3,500, the Advisory Committee must treat that present value as exceeding $3,500 for purposes of all subsequent Plan distributions to the Participant. (A) SEPARATION FROM SERVICE FOR A REASON OTHER THAN DEATH. (1) PARTICIPANT'S NONFORFEITABLE ACCRUED BENEFIT NOT EXCEEDING $3,500. If the Participant's Separation from Service is for any reason other than death, the Advisory Committee will direct the Trustee to distribute the Participant's Nonforfeitable Accrued Benefit in a lump sum, on the distribution date the Employer specifies in the Adoption Agreement, but in no event later than the 60th day following the close of the Plan Year in which the Participant attains Normal Retirement Age. If the Participant has attained Normal Retirement Age at the time of his Separation from Service, the distribution under this paragraph will occur no later than the 60th day following the close of the Plan Year in which the Participant's Separation from Service occurs. (2) PARTICIPANT'S NONFORFEITABLE ACCRUED BENEFIT EXCEEDS $3,500. If the Participant's Separation from Service is for any reason other than death, the Advisory Committee will direct the Trustee to commence distribution of the Participant's Nonforfeitable Accrued Benefit in a form and at the time elected by the Participant, pursuant to Section 6.03. In the absence of an election by the Participant, the Advisory Committee will direct the Trustee to distribute the Participant's Nonforfeitable Accrued Benefit in a lump sum (or, if applicable, the normal annuity form of distribution required under Section 6.04), on the 60th day following the close of the Plan Year in which the latest of the following events occurs: (a) the Participant attains Normal Retirement Age; (b) the Participant attains age 62; or (c) the Participant's Separation from Service. (3) DISABILITY. If the Participant's Separation from Service is because of his disability, the Advisory Committee will direct the Trustee to pay the Participant's Nonforfeitable Accrued Benefit lump sum, on the distribution date the Employer specifies in the Adoption Agreement, subject to the notice and consent requirements of this Article VI and subject to the applicable mandatory commencement dates described in Paragraphs (1) and (2). (4) HARDSHIP. Prior to the time at which the Participant may receive distribution under Paragraphs (1), (2) or (3), the Participant may request a distribution from his Nonforfeitable Accrued Benefit in an amount necessary to satisfy a hardship, if the Employer elects in the Adoption Agreement to permit hardship distribution. Unless the Employer elects otherwise in the Adoption Agreement, a hardship distribution must be on account of any of the following (a) medical expenses; (b) the purchase (excluding mortgage payments) of the Participant's principal residence; (c) post-secondary education tuition, for the next semester or quarter, for the Participant or for the Participant's spouse, children or dependents; (d) to prevent the eviction of the Participant from his principal residence or the foreclosure on the mortgage of the Participant's 47 principal residence; (e) funeral expenses of the Participant's family member; or (f) the Participant's disability. A partially-vested Participant may not receive a hardship distribution described in this Paragraph (A)(4) prior to incurring a Forfeiture Break in Service, unless the hardship distribution is a cash-out distribution (as defined in Article V). The Advisory Committee will direct the Trustee to make the hardship distribution as soon as administratively practicable after the Participant makes a valid request for the hardship distribution. (B) REQUIRED BEGINNING DATE. If any distribution commencement date described under Paragraph (A) of this Section 6.01, either by Plan provision or by Participant election (or nonelection), is later than the Participant's Required Beginning Date, the Advisory Committee instead must direct the Trustee to make distribution on the Participant's Required Beginning Date, subject to the transitional election, if applicable, under Section 6.03(D). A Participant's Required Beginning Date is the April 1 following the dose of the calendar year in which the Participant attains age 70 1/2. However, if the Participant, prior to incurring a Separation from Service, attained age 70 1/2 by January 1, 1988, and, for the five Plan Year period ending in the calendar year in which he attained age 70 1/2 and for all subsequent years, the Participant was not a more than 5% owner, the Required Beginning Date is the April 1 following the dose of the calendar year in which the Participant separates from Service or, if earlier, the April 1 following the close of the calendar year in which the Participant becomes a more than 5% owner. Furthermore, if a Participant who was not a more than 5% owner attained age 70 1/2 during 1988 and did not incur a Separation from Service prior to January 1, 1989, his Required Beginning Date is April 1, 1990. A mandatory distribution at the Participant's Required Beginning Date will be in lump sum (or, if applicable, the normal annuity form of distribution required under Section 6.04) unless the Participant, pursuant to the provisions of this Article VI, makes a valid election to receive an alternative form of payment. (C) DEATH OF THE PARTICIPANT. The Advisory Committee will direct the Trustee, in accordance with this Section 6.01(C), to distribute to the Participant's Beneficiary the Participant's Nonforfeitable Accrued Benefit remaining in the Trust at the tune of the Participant's death. Subject to the requirements of Section 6.04, the Advisory Committee will determine the death benefit by reducing the Participant's Nonforfeitable Accrued Benefit by any security interest the Plan has against that Nonforfeitable Accrued Benefit by reason of an outstanding Participant loan. (1) DECEASED PARTICIPANT'S NONFORFEITABLE ACCRUED BENEFIT DOES NOT EXCEED $3,500. The Advisory Committee, subject to the requirements of Section 6.04, must direct the Trustee to distribute the deceased Participant's Nonforfeitable Accrued Benefit in a single sum, as soon as administratively practicable following the Participant's death or, if later, the date on which the Advisory Committee receives notification of or otherwise confirms the Participant's death. (2) DECEASED PARTICIPANT'S NONFORFEITABLE ACCRUED BENEFIT EXCEEDS $3,500. The Advisory Committee will direct the Trustee to distribute the deceased Participant's Nonforfeitable Accrued Benefit at the time and in the form elected by the Participant or, if applicable by the Beneficiary, as permitted under this Article VI. In the absence of an election, subject to the requirements of Section 6.04, the Advisory Committee will direct the Trustee to distribute the Participant's undistributed Nonforfeitable Accrued Benefit in a lump sum on the first distribution date following the close of the Plan Year in which the Participant's death occurs or, if later, the first distribution date following the date the Advisory Committee receives notification of or otherwise confirms the Participant's death. If the death benefit is payable in full to the Participant's surviving spouse, the surviving spouse, in addition to the distribution options provided in this Section 6.01(C), may elect distribution at any time or in any form (other than a joint and survivor annuity) this Article VI would permit for a Participant. 6.02 METHOD OF PAYMENT OF ACCRUED BENEFIT. Subject to the annuity ------------------------------------ distribution requirements, if any, prescribed by Section 6.04, and any restrictions prescribed by Section 6.03, a 48 Participant or Beneficiary may elect distribution under one, or any combination, of the following methods: (a) by payment in a lump sum; or (b) by payment in monthly, quarterly or annual installments over a fixed reasonable period of time, not exceeding the life expectancy of the Participant, or the joint life and last survivor expectancy of the Participant and his Beneficiary. The Employer may elect in irs Adoption Agreement to modify the methods of payment available under this Section 6.02. The distribution options permitted under this Section 6.02 are available only if the present value of the Participant Nonforfeitable Accrued Benefit, at the time of the distribution to the Participant, exceeds $3,500. To facilitate installment payments under this Article VI, the Advisory Committee may direct the Trustee to segregate all or any part of the Participant's Accrued Benefit on a separate Account. The Trustee will invest the Participant's segregated Account in Federally insured interest bearing savings account(s) or time deposit(s) (or a combination of both), or in other fixed income investment. A segregated Account remains a part of the Trust, but it alone shares in any income it earns, and it alone bears any expense or loss it incurs. A Participant or Beneficiary may elect to receive an installment distribution in the form of a Nontransferable Annuity Contract. Under an installment distribution, the Participant or Beneficiary, at any time, may elect to accelerate the payment of all or any portion, of the Participant's unpaid Nonforfeitable Accrued Benefit, subject to the requirements of Section 6.04. (A) MINIMUM DISTRIBUTION REQUIREMENTS FOR PARTICIPANTS. The Advisory Committee may not direct the Trustee to distribute the Participant's Nonforfeitable Accrued Benefit, nor may the Participant elect to have the Trustee distribute his Nonforfeitable Accrued Benefit, under a method of payment which, as of the Required Beginning Date, does not satisfy the minimum distribution requirements under Code (S)401(a)(9) and the applicable Treasury regulations. The minimum distribution for a calendar year equals the Participant's Nonforfeitable Accrued Benefit as of the latest valuation date preceding the beginning of the calendar year divided by the Participant's life expectancy or, if applicable, the joint and last survivor equity of the Participant and his designated Beneficiary (as determined under Article VII, subject to the requirements of the Code (S)401(a)(9) regulations). The Advisory Committee will increase the Participant's Nonforfeitable Accrued Benefit, as determined on the relevant valuation date, for contributions or forfeitures allocated after the valuation date and by December 31 of the valuation calendar year, and will decrease the valuation by distributions made after the valuation date and by December 31 of the valuation calendar year. For purposes of this valuation, the Advisory Committee will treat any portion of the minimum distribution for the first distribution calendar year made after the close of that year aa a distribution occurring in that first distribution calendar year. In computing a minimum distribution, the Advisory Committee must use the unisex life expectancy multiples under Treas. Reg. (S)1.72-9. The Advisory Committee, only upon the Participant's written request, will compute the minimum distribution for a calendar year subsequent to the first calendar year for which the Plan requires a minimum distribution by redetermining the applicable life expectancy. However, the Advisory Committee may not redetermine the joint life and last survivor expectancy of the Participant and a nonspouse designated Beneficiary in a manner which takes into account any adjustment to a life expectancy other than the Participant's life expectancy. If the Participant's spouse is not his designated Beneficiary, a method of payment to the Participant (whether by Participant election or by Advisory Committee direction) may not provide more than incidental benefits to the Beneficiary. For Plan Years beginning after December 31, 1988, the Plan must satisfy the minimum distribution incidental benefit ("MDIB") requirement in the Treasury regulations issued under Code (S)401(a)(9) for distributions made on or after the Participant's Required Beginning Date and before the Participant's death. To satisfy the MDIB requirement. The Advisory Committee will compute the minimum distribution required by this Section 6.02(A) by substituting the applicable MDIB divisor for the applicable life expectancy factor, if the divisor is a lesser number. Following the Participant's death, the Advisory Committee will compute the minimum distribution required by this Section 6.02(A) solely on the basis of the applicable life expectancy factor and will disregard the MDIB factor. For Plan Years beginning prior to January 1, 1989, the Plan satisfies the incidental benefits requirement if the distributions to the Participant satisfied the MDIB requirement or if the present value of the retirement benefits 49 payable solely to the Participant is greater than 50% of the present value of the total benefits payable to the Participant and his Beneficiaries. The Advisory Committee must determine whether benefits to the Beneficiary are incidental as of the date the Trustee is to commence payment of the retirement benefits to the Participant, or as of any date the Trustee redetermines the payment period to the Participant. The minimum distribution for the first distribution calendar year is due by the Participant's Required Beginning Date. The minimum distribution for each subsequent distribution calendar year, including the calendar year in which the Participant's Required Beginning Date occurs, is due by December 31 of that year. If the Participant receives distribution in the form of a Nontransferable Annuity Contract, the distribution satisfies this Section 6.02(A) if the contract complies with the requirements of Code (S)401(a)(9) and the applicable Treasury regulations. (B) MINIMUM DISTRIBUTION REQUIREMENTS FOR BENEFICIARIES. The method of distribution to the Participant's Beneficiary must satisfy Code (S)401(a)(9) and the applicable Treasury regulations. If the Participant's death occurs after his Required Beginning Date or, if earlier, the date the Participant commences an irrevocable annuity pursuant to Section 6.04, the method of payment to the Beneficiary must provide for completion of payment over a period which does not exceed the payment period which had commenced for the Participant. If the Participant's death occurs prior to his Required Beginning Date, and the Participant had not commenced an irrevocable annuity pursuant to Section 6 .04, the method of payment to the Beneficiary, subject to Section 6.04, must provide for completion of payment to the Beneficiary over a period not exceeding. (i) 5 years after the date of the Participant's death; or (ii) if the Beneficiary is a designated Beneficiary, the designated Beneficiary's life expectancy. The Advisory Committee may not direct payment of the Participant's Nonforfeitable Accrued Benefit over a period described in clause (ii) unless the Trustee will commence payment to the designated Beneficiary no later than the December 31 following the close of the calendar year in which the Participant's death occurred or, if later, and the designated Beneficiary is the Participant's Surviving Spouse, December 31 of the calendar year in which the Participant would have attained age 70 1/2. If the Trustee will make distribution in accordance with clause (ii), the minimum distribution for a calendar year equals the Participant's Nonforfeitable Accrued Benefit as of the latest valuation date preceding the beginning of the calendar year divided by the designated Beneficiary's life expectancy. The Advisory Committee must use the minimum life expectancy multiples under Treas. Reg. (S)1.72-9 for purposes of applying this paragraph. The Advisory Committee, only upon the written request of the Participant or of the Participant's surviving spouse, will recalculate the life expectancy of the Participant's surviving spouse not more frequently than annually, but may not recalculate the life expectancy of a nonspouse designated Beneficiary after the Trustee commences payment to the designated Beneficiary. The Advisory Committee will apply this paragraph by treating any amount paid to the Participant's child, which become payable to the Participant's surviving spouse upon the child's attaining the age of majority, as paid to the Participant's surviving spouse. Upon the Beneficiary's written request, the Advisory Committee must direct the Trustee to accelerate payment of all or any portion, of the Participant's unpaid Accrued Benefit, as soon as administratively practicable following the effective date of that request. 6.03 BENEFIT PAYMENT ELECTIONS. Not earlier than 90 days, but not later ------------------------- than 30 days, before the Participant's annuity starting date, the Advisory Committee must provide a benefit notice to a Participant who is eligible to make an election under this Section 6.03. The benefit notice must be in the optional forms of benefit in the Plan, the material features and relative values of those options, and the Participant's right to defer distribution until he attains the later of Normal Retirement Age or age 62. If a Participant or Beneficiary makes an election prescribed by this Section 6.03, the Advisory Committee will direct the Trustee to distribute the Participant's Nonforfeitable Accrued Benefit in accordance with that election. Any election under this Section 6.03 is subject to the requirement of Section 6.02 and of Section 6.04. The Participant or Beneficiary must make an election under this Section 6.03 by filing his election with the Advisory Committee at any time before the 50 Trustee otherwise would commence to pay a Participant's Accrued Benefit in accordance with the requirement of Article VI. (A) PARTICIPANT ELECTIONS AFTER SEPARATION FROM SERVICE. If the present value of a Participant's Nonforfeitable Accrued Benefit exceeds $3,500, he may elect to have the Trustee commence distribution as of any distribution date permitted under Employer's Adoption Agreement Section 6.03. The Participant may reconsider an election at any time prior to the annuity starting date and elect to commence distribution as of any other distribution date permitted under the Employer's Adoption Agreement Section 6.03. If the Participant is partially- vested in his Accrued Benefit, an election under this Paragraph (A) to distribute prior to the Participant's incurring a Forfeiture Break in Service (as defined in Section 5.08), must be in the form of a cash-out distribution if, prior to the time the Trustee actually make the cash-out distribution, the Participant returns to employment with the Employer. Following his attainment of Normal Retirement Age, a Participant who has separated from Service may elect distribution as of any distribution date, irrespective of the elections under Adoption Agreement Section 6.03. (B) PARTICIPANT ELECTIONS PRIOR TO SEPARATION FROM SERVICE. The Employer must specify in its Adoption Agreement the distribution election rights, if any, a Participant has prior to his Separation from Service. A Participant must make an election under this Section 6.03(B) on a form prescribed by the Advisory Committee at any time during the Plan Year for which his election is the be effective. In his written election, the Participant must specify the percentage or dollar amount be wishes the Trustee to distribute to him. The Participant's election relates solely to the percentage or dollar amount specified in his election form and his right to elect to receive an amount, if any, for a particular Plan Year greater than the dollar amount or percentage specified in his election form terminated on the Accounting Date. The Trustee must make a distribution to a Participant in accordance with his election under this Section 6.03(b) within the 90 day period (or as soon as administratively practicable) after the Participant files his written election with the Trustee. The Trustee will distribute the balance of the Participant's Accrued Benefit not distributed pursuant to his election(s) in accordance with the other distribution provisions of this Plan. (C) DEATH BENEFIT ELECTIONS. If the present value of the deceased Participant's Nonforfeitable Accrued Benefit exceeds $3,500, the Participant's Beneficiary may elect to have the Trustee distribute the Participant's Nonforfeitable Accrued Benefit in a form and within a period permitted under Section 6.02. The Beneficiary's election is subject to any restrictions designated in writing by the Participant and not revoked as of his date of death. (D) TRANSITIONAL ELECTIONS. Notwithstanding the provisions of Sections 6.01 and 6.02, if the Participant (or Beneficiary) signed a written distribution designation prior to January 1, 1984, the Advisory Committee must distribute the Participant's Nonforfeitable Accrued Benefit in accordance with that designation, subject however, to the survivor requirements, if applicable, of Section 6.04, 6.05 and 6.06. This Section 6.03(D) does not apply to a pre-1984 distribution designation, and the Advisory Committee will not comply with that designation, if any of the following applies: (1) the method of distribution would have disqualified the Plan under Code (S)401(a)(9) as in effect on December 31, 1983; (2) the Participant did no have an Accrued Benefit as of December 31, 1983; (3) the distribution designation does not specify the timing and form of the distribution and the death Beneficiaries (in order of priority); (4) the substitution of a Beneficiary modifies the payment period of the distribution; or (5) the Participant (or Beneficiary) modifies or revokes the distribution designation. In the event of a revocation, the Plan must distribute, no later than December 31 of the calendar year following the year of revocation, the amount which the Participant would have received under Section 6.02(A) if the distribution designation had not been in effect or, if the Beneficiary revokes the distribution designation, the amount which the Beneficiary would have received under Section 6.02(B) if the distribution designation had not been in effect. The Advisory Committee will apply this Section 6.03(D) to rollovers and transfers in accordance with Part J of the Code (S)401(a)(9) Treasury regulations. 51 6.04 ANNUITY DISTRIBUTIONS TO PARTICIPANTS AND SURVIVING SPOUSES. ----------------------------------------------------------- (A) JOINT AND SURVIVOR ANNUITY. The Advisory Committee must direct the Trustee to distribute a married or unmarried Participant's Nonforfeitable Accrued Benefit in the form of a qualified joint and survivor annuity, unless the Participant makes a valid waiver election (described in Section 6.05) within the 90 day period ending on the annuity starting date. It as of the annuity starting date, the Participant is married, a qualified joint and survivor annuity is an immediate annuity which is purchasable with the Participant's Nonforfeitable Accrued Benefit and which provides a life annuity for the Participant and a survivor annuity payable for the remaining life of the Participant's surviving spouse equal to 50% of the amount of the annuity payable during the life of the Participant. If, as of the annuity starting date, the Participant is not married, a qualified joint and survivor annuity is an immediate life annuity for the Participant which is purchasable with the Participant's Nonforfeitable Accrued Benefit. On or before the annuity starting date, the Advisory Committee without Participant or spousal consent, must direct the Trustee to pay the Participant's Nonforfeitable Accrued Benefit in a lump sum, in lieu of a qualified joint and survivor annuity, in accordance with Section 6.01, if the Participant's Nonforfeitable Accrued Benefit is not greater than $3,500. This Section 6.04(A) applies only to a Participant who has completed at least one Hour of Service with the Employer after August 22, 1984. (B) PRERETIREMENT SURVIVOR ANNUITY. If a married Participant dies prior to his annuity starting date, the Advisory Committee will direct the Trustee to distribute a portion of the Participant's Nonforfeitable Accrued Benefit to the Participant's surviving spouse in the form of a preretirement survivor annuity, unless the Participant has a valid waiver election (as described in Section 6.06) in effect, or unless the Participant and his spouse were not married throughout the one year period ending on the date of his death. A preretirement survivor annuity is an annuity which is purchasable with 50% of the Participant's Nonforfeitable Accrued Benefit (determined as of the date of the Participant's death) and which is payable for the life of the Participant's surviving spouse. The value of the preretirement survivor annuity is attributable to Employer contributions and to Employee contributions in the same proportion as the Participant's Nonforfeitable Accrued Benefit is attributable to those contributions. The portion of the Participant's Nonforfeitable Accrued Benefit not payable under the paragraph is payable to the Participant's Beneficiary, in accordance with the other provisions of this Article VI. If the present value of the preretirement survivor annuity does not exceed $3,500, the Advisory Committee, on or before the annuity starting date, must direct the Trustee to make a lump sum distribution to the Participant's surviving spouse, in lieu of a preretirement survivor annuity. This Section 6.04(B) applies only to a Participant who dies after August 22, 1984, and either (i) completes at least one Hour of Service with the Employer after August 22, 1984, or (ii) separated from Service with at least 10 Years of Service (as defined in Section S.06) and completed at least one Hour of Service with the Employer in a Plan Year beginning after December 31, 1975. (C) SURVIVING SPOUSE ELECTIONS. If the present value of the preretirement survivor annuity exceeds $3,500, the Participant's surviving spouse may elect to have the Trustee commence payment of the preretirement survivor annuity at any time following the date of the Participant's death, but not later than the mandatory distribution periods described ln Section 6.02, and may elect any of the forms of payment described in Section 6.02, in lieu of the preretirement survivor annuity. In the absence of an election by the survivor spouse, the Advisory Committee must direct the Trustee to distribute the preretirement survivor annuity on the first distribution date following the close of the Plan Year in which the later of the following events occurs: (i) the Participant's death; (ii) the date the Advisory Committee receives notification of or otherwise confirms the Participant's death; (iii) the date the Participant would have attained Normal Retirement Age; or (iv) the date the Participant would have attained age 62. (D) SPECIAL RULES. If the Participant has in effect a valid waiver election regarding the qualified joint and survivor annuity or the preretirement survivor annuity, the Advisory Committee may direct the Trustee to distribute the Participant's Nonforfeitable Accrued Benefit in accordance with Sections 6.01, 6.02 and 6.03. The Advisory Committee will reduce the Participant's Nonforfeitable Accrued Benefit by any security interest (pursuant to any offset rights authorized by Section 52 10.03[E]) held by the Plan by reason of a Participant loan to determine the value of the Participant's Nonforfeitable Accrued Benefit distributable in the form of a qualified joint and survivor annuity or preretirement survivor annuity, provided any post-August 18, 1985, loan satisfied the spousal consent requirement described in Section 10.03[E] of the Plan. For purposes of applying this Article VI the Advisory Committee treats a former spouse as the Participant's spouse or surviving spouse to the extent provided under a qualified domestic relations order described in Section 6.07. The provisions of this Section 6.04, and of Sections 6.05 and 6.06, apply separately to the portion of the Participant's Nonforfeitable Accrued Benefit subject to the qualified domestic relations order and to the portion of the Participant's Nonforfeitable Accrued Benefit not subject to that order. (E) PROFIT SHARING PLAN ELECTION. If this Plan is a profit sharing plan, the Employer must elect the extent to which the preceding provisions of Section 6.04 apply. If the Employer elects to apply this Section 6.04 only to a Participant described in this Section 6.04(E), the preceding provisions of this Section 6.04 apply only to the following Participants: (1) a Participant as respects whom the Plan is a direct or indirect transferee from a plan subject to the Code (S)417 requirements and the Plan received the transfer after December 31, 1984, unless the transfer is an elective transfer described in Section 13.06; (2) a Participant who elects a life annuity distribution (if Section 6.02 or Section 13.02 of the Plan requires the Plan to provide a life annuity distribution option); and (3) a Participant whose benefits under a defined benefit plan maintained by the Employer are offset by benefits provided under this Plan. If the Employer elects to apply this Section 6.04 to all Participants, the preceding provisions of this Section 6.04 apply to all Participants described in the first two paragraphs of this Section 6.04, without regard to the limitations of this Section 6.04(E). Sections 6.05 and 6.06 only apply to Participants to whom the preceding provisions of this Section 6.04 apply. 6.05 WAIVER ELECTION - QUALIFIED JOINT AND SURVIVOR ANNUITY. Not earlier ------------------------------------------------------ than 90 days, but not later than 30 days, before the Participant's annuity starting date the Advisory Committee must provide the Participant a written explanation of the terms and conditions of the qualified joint and survivor annuity, the Participant's right to make, and the effect of, an election to waive the joint and survivor form of benefit, the rights of the Participant's spouse regarding the waiver election and the Participant's right to make, and the effect of, a revocation of a waiver election. The Plan does not limit the number of times the Participant may revoke a waiver of the qualified joint and survivor annuity or make a new waiver during the election period. A married Participant's waiver election is not valid unless (a) the Participant's spouse (to whom the survivor annuity is payable under the qualified joint and survivor annuity), after the Participant has received the written explanation described in this Section 6.05, has consented in writing to the waiver election, the spouse's consent acknowledges the effect of the election, and a notary public or the Plan Administrator (or his representative) witnesses the spouse's consent, (b) the spouse consents to the alternate form of payment designated by the Participant or to any change in that designated form of payment, and (c) unless the spouse is the Participant's sole primary Beneficiary, the spouse consents to the Participant's Beneficiary designation or to any change in the Participant's Beneficiary designation. The spouse's consent to a waiver of the qualified joint and survivor annuity is irrevocable, unless the Participant revokes the waiver election. The spouse may execute a blanket consent to any form of payment designation or to any Beneficiary designation made by the Participant, if the spouse acknowledges the right to limit that consent to a specific designation but, in writing, waives that right. The consent requirements of this Section 6.05 apply to a former spouse of the Participant, to the extent required under a qualified domestic relations order described in Section 6.07. The Advisory Committee will accept as valid a waiver election which does not satisfy the spousal consent requirements if the Advisory Committee establishes the Participant does not have a spouse, the Advisory Committee is not able to locate the Participant's spouse, the Participant is legally separated or has been abandoned (within the meaning of State law) and the Participant has a court order to that effect, or other circumstances exist under which the Secretary of the 53 Treasury will excuse the consent requirement. If the Participant's spouse is legally incompetent to give consent, the spouse's legal guardian (even if the guardian is the Participant) may give consent. 6.06 WAIVER ELECTION - PRERETIREMENT SURVIVOR ANNUITY. The Advisory ------------------------------------------------ Committee must provide a written explanation of the preretirement survivor annuity to each married Participant, within the following period which ends last: (1) the period beginning on the first day of the Plan Year in which the Participant attains age 32 and ending on the last day of the Plan Year in which the Participant attains age 34; (2) a reasonable period after an Employee becomes a Participant; (3) a reasonable period after the joint and survivor rules become applicable to the Participant; or (4) a reasonable period after a fully subsidized preretirement survivor annuity no longer satisfies the requirements for a fully subsidized benefit. A reasonable period described in clauses (2), (3) and (4) is the period beginning one year before and ending one year after the applicable event. If the Participant separates from Service before attaining age 35, clauses (1), (2), (3) and (4) do not apply and the Advisory Committee must provide the written explanation within the period beginning one year before and ending one year after the Separation from Service. The written explanation must describe, in a manner consistent with Treasury regulations, the terms and conditions of the preretirement survivor annuity comparable to the explanation of the qualified joint and survivor annuity required under Section 6.05. The Plan does not limit the number of times the Participant may revoke a waiver of the preretirement survivor annuity or make a new waiver during the election period. A Participant's waiver election of the preretirement survivor annuity is not valid unless (a) the Participant makes the waiver election no earlier than the first day of the Plan Year in which he attains age 35 and (b) the Participant's spouse (to whom the preretirement survivor annuity is payable) satisfies the consent requirements described in Section 6.05, except the spouse need not consent to the form of benefit payable to the designated Beneficiary. The spouse's consent to the waiver of the preretirement survivor annuity is irrevocable, unless the Participant revokes the waiver election. Irrespective of the time of election requirement described in clause (a), if the Participant separates from Service prior to the first day of the Plan Year in which he attains age 35, the Advisory Committee will accept a waiver election as respects the Participant's Accrued Benefit attributable to his Service prior to his Separation from Service. Furthermore, if a Participant who has not separated from Service makes a valid waiver election, except for the timing requirement of clause (a), the Advisory Committee will accept that election as valid, but only until the first day of the Plan Year in which the Participant attains age 35. A waiver election described in this paragraph is not valid unless made after the Participant has received the written explanation described in this Section 6.06. 6.07 DISTRIBUTIONS UNDER DOMESTIC RELATIONS ORDERS. Nothing contained in --------------------------------------------- this Plan prevents the Trustee, in accordance with the direction of the Advisory Committee, from complying with the provisions of a qualified domestic relations order (as defined in Code (S)414(p)). This Plan specifically permits distribution to an alternate payee under a qualified domestic relations order at any time, irrespective of whether the Participant has attained his earliest retirement age (as defined under Code (S)414(p)) under the Plan. A distribution to an alternate payee prior to the Participant's attainment of earliest retirement age is available only if: (1) the order specifies distribution at that time or permits an agreement between the Plan and the alternate payee to authorize an earlier distribution; and (2) if the present value of the alternate payee's benefits under the Plan exceeds $3,500, and the order requires, the alternate payee consents to any distribution occurring prior to the Participant's attainment of earliest retirement age. The Employer, in an addendum to its Adoption Agreement numbered 6.07, may elect to limit distribution to an alternate payee only when the Participant has attained his earliest retirement age under the Plan. Nothing in this Section 6.07 gives a Participant a right to receive distribution at a time otherwise not permitted under the Plan nor does it permit the alternate payee to receive a form of payment not otherwise permitted under the Plan. 54 The Advisory Committee must establish reasonable procedures to determine the qualified status of a domestic relations order. Upon receiving a domestic relations order, the Advisory Committee promptly will notify the Participant and any alternate payee named in the order, in writing, of the receipt of the order and the Plan's procedure for determining the qualified status of the order. Within a reasonable period of time after receiving the domestic relations order, the Advisory Committee must determine the qualified status of the order and must notify the Participant and each alternate payee, in writing, of its determination. The Advisory Committee must provide notice under this paragraph by mailing to the individual's address specified in the domestic relations order, or in a manner consistent with Department of Labor regulations. If any portion of the Participant's Nonforfeitable Accrued Benefit is payable during the period the Advisory Committee is making its determination of the qualified status of the domestic relations order, the Advisory Committee must make a separate accounting of the amounts payable. If the Advisory Committee determines the order is a qualified domestic relations order within 18 months of the date amounts first are payable following receipt of the order, the Advisory Committee will direct the Trustee to distribute the payable amounts in accordance with the order. If the Advisory Committee does not make its determination of the qualified status of the order within the 18-month determination period. the Advisory Committee will direct the Trustee to distribute the payable amounts in the manner the Plan would distribute if the order did not exist and will apply the order prospectively if the Advisory Committee later determines the order is a qualified domestic relations order. To the extent it is not inconsistent with the provisions of the qualified domestic relations order, the Advisory Committee may direct the Trustee to invest any partitioned amount in a segregated subaccount or separate account and to invest the account in Federally insured, interest-bearing savings account(s) or time deposit(s) (or a combination of both), or in other fixed income investments. A segregated subaccount remains a part of the Trust, but it alone shares in any income it earns, and it alone bears any expense or loss it incurs. The Trustee will make any payments or distributions required under this Section 6.07 by separate benefit checks or other separate distribution to the alternate payee(s). * * * * * 55 ARTICLE VII EMPLOYER ADMINISTRATIVE PROVISIONS 7.01 INFORMATION TO COMMITTEE. The Employer must supply current information ------------------------ to the Advisory Committee as to the name, date of birth, date of employment, annual compensation, leave of absence, Years of Service and date of termination of employment of each Employee who is, or who will be eligible to become, a Participant under the Plan, together with any other information which the Advisory Committee considers necessary. The Employer's records as to the current information the Employer furnishes to the Advisory Committee are conclusive as to all persons. 7.02 NO LIABILITY. The Employer assumes no obligation or responsibility to ------------ any of its Employees, Participants or Beneficiaries for any act of, or failure to act, on the part of its Advisory Committee (unless the Employer is the Advisory Committee), the Trustee, the Custodian, if any, or the Plan Administrator (unless the Employer is the Plan Administrator). 7.03 INDEMNITY OF CERTAIN FIDUCIARIES. The Employer indemnifies and saves -------------------------------- harmless the Plan Administrator and the members of the Advisory Committee, and each of them, from and against any and all loss resulting from liability to which the Plan Administrator and the Advisory Committee, or the members of the Advisory Committee, may be subjected by reason of any act or conduct (except willful misconduct or gross negligence) in their official capacities in the administration of this Trust or Plan or both, including all expenses reasonably incurred in their defense, in case the Employer fails to provide such defense. The indemnification provisions of this Section 7.03 do not relieve the Plan Administrator or any Advisory Committee member from any liability he may have under ERISA for breach of a fiduciary duty. Furthermore, the Plan Administrator and the Advisory Committee members and the Employer may execute a letter agreement further delineating the indemnification agreement of this Section 7.03, provided the letter agreement must be consistent with and does not violate ERISA. The indemnification provisions of this Section 7.03 extend to the Trustee (or to a Custodian, if any) solely to the extent provided by a letter agreement executed by the Trustee (or Custodian) and the Employer. 7.04 EMPLOYER DIRECTION OF INVESTMENT. The Employer has the right to direct -------------------------------- the Trustee with respect to the investment and re-investment of assets comprising the Trust Fund only if the Trustee consents in writing to permit such direction. If the Trustee consents to Employer direction of investment, the Trustee and the Employer must execute a letter agreement as a part of this Plan containing such conditions, limitations and other provisions they deem appropriate before the Trustee will follow any Employer direction as respects the investment or re-investment of any part of the Trust Fund. 7.05 AMENDMENT TO VESTING SCHEDULE. Though the Employer reserves the right ----------------------------- to amend the vesting schedule at any time, the Advisory Committee will not apply the amended vesting schedule to reduce the Nonforfeitable percentage of any Participant's Accrued Benefit derived from Employer contributions (determined as of the later of the date the Employer adopts the amendment, or the date the amendment becomes effective) to a percentage less than the Nonforfeitable percentage computed under the Plan without regard to the amendment. An amended vesting schedule will apply to a Participant only if the Participant receives credit for at least one Hour of Service after the new schedule becomes effective. If the Employer makes a permissible amendment to the vesting schedule, each Participant having at least 3 Years of Service with the Employer may elect to have the percentage of his Nonforfeitable Accrued Benefit computed under the Plan without regard to the amendment. For Plan Years beginning prior to January 1, 1989, the election described in the preceding sentence 56 applies only to Participants having at least 5 Years of Service with the Employer. The Participant must file his election with the Advisory Committee within 60 days of the latest of (a) the Employer's adoption of the amendment; (b) the effective date of the amendment; or (c) his receipt of a copy of the amendment. The Advisory Committee as soon as practicable, must forward a true copy of any amendment to the vesting schedule to each affected Participant, together with an explanation of the effect of the amendment, the appropriate form upon which the Participant may make an election to remain under the vesting schedule provided under the Plan prior to the amendment and notice of the time within which the Participant must make an election to remain under the prior vesting schedule. The election described in this Section 7.05 does not apply to a Participant if the amended vesting schedule provides for vesting at least as rapid at all times as the vesting schedule in effect prior to the amendment. For purposes of this Section 7.05, an amendment to the vesting schedule includes any Plan amendment which directly or indirectly affects the computation of the Nonforfeitable percentage of an Employee's rights to his Employer derived Accrued Benefit. Furthermore, the Advisory Committee must treat any shift in the vesting schedule, due to a change in the Plan's top heavy status, as an amendment to the vesting schedule for purposes of this Section 7.05. * * * * * 57 ARTICLE VIII PARTICIPANT ADMINISTRATIVE PROVISIONS 8.01 BENEFICIARY DESIGNATION. Any Participant may from time to time ----------------------- designate, in writing, any person or persons, contingently or successively, to whom the Trustee will pay his Nonforfeitable Accrued Benefit (including any life insurance proceeds payable to the Participant's Account) in the event of his death and the Participant may designate the form and method of payment. The Advisory Committee will prescribe the form for the written designation of Beneficiary and, upon the Participant's filing the form with the Advisory Committee, the form effectively revokes all designations filed prior to that date by the same Participant. (A) COORDINATION WITH SURVIVOR REQUIREMENTS. If the joint and survivor requirements of Article VI apply to the Participant, this Section 8.01 does not impose any special spousal consent requirements on the Participant's Beneficiary designation. However, in the absence of spousal consent (as required by Article VI) to the Participant's Beneficiary designation: (1) any waiver of the joint and survivor annuity or of the preretirement survivor annuity is not valid; and (2) if the Participant dies prior to his annuity starting date, the Participant's Beneficiary designation will apply only to the portion of the death benefit which is not payable as a preretirement survivor annuity. Regarding clause (2), if the Participant's surviving spouse is a primary Beneficiary under the Participant's Beneficiary designation, the Trustee will satisfy the spouse's interest in the Participant's death benefit first from the portion which is payable as a preretirement survivor annuity. (B) PROFIT SHARING PLAN EXCEPTION. If the Plan is a profit sharing plan, the Beneficiary designation of a married Exempt Participant is not valid unless the Participant's spouse consents (in a manner described in Section 6.05) to the beneficiary designation. An "Exempt Participant" is a Participant who is not subject to the joint and survivor requirements of Article VI The spousal consent requirement in this paragraph does not apply if the Exempt Participant and his spouse are not married throughout the one year period ending on the date of the Participant's death, or if the Participant's spouse is the Participant's sole primary Beneficiary. 8.02 NO BENEFICIARY DESIGNATION/DEATH OF BENEFICIARY. If a Participant ----------------------------------------------- fails to name a Beneficiary in accordance with Section 8.01, or if the Beneficiary named by a Participant predeceases him, then the Trustee will pay the Participant's Nonforfeitable Accrued Benefit in accordance with Section 6.02 in the following order of priority, unless the Employer specifies a different order of priority in an addendum to its Adoption Agreement, to: (a) The Participant's surviving spouse, (b) The Participant's surviving children, including adopted children, in equal shares; (c) The Participant's surviving parents, in equal shares; or (d) The Participant's estate. If the beneficiary does not predecease the Participant, but dies prior to distribution of the Participant's entire Nonforfeitable Accrued Benefit, the Trustee will pay the remaining Nonforfeitable Accrued Benefit to the Beneficiary's estate unless the Participant's Beneficiary designation provides otherwise or unless the Employer provides otherwise in its Adoption Agreement. If the Plan is a profit sharing plan, and the Plan includes Exempt Participants, the Employer may not specify a different order of priority in the Adoption Agreement unless the Participant's surviving spouse will be first in the different order of priority. The Advisory Committee will direct the Trustee as to the method and to whom the Trustee will make payment under this Section 8.02. 58 8.03 PERSONAL DATA TO COMMITTEE. Each Participant and each Beneficiary of a -------------------------- deceased Participant must furnish to the Advisory Committee such evidence, date or information as the Advisory Committee considers necessary or desirable for the purpose of administering the Plan. The provisions of this Plan are effective for the benefit of each Participant upon the condition precedent that each Participant will furnish promptly full, true and complete evidence, data and information when requested by the Advisory Committee, provided the Advisory Committee advises each Participant of the effect of his failure to comply with its request. 8.04 ADDRESS FOR NOTIFICATION. Each Participant and each Beneficiary of a ------------------------ deceased Participant must file with the Advisory Committee from time to time, in writing, his post office address and any change of post office address. Any communication, statement or notice addressed to a Participant, or Beneficiary, at his last post office address filed with the Advisory Committee, or as shown on the records of the Employer, binds the Participant, or Beneficiary, for all purposes of this Plan. 8.05 ASSIGNMENT OR ALIENATION. Subject to Code (S)414(p) relating to ------------------------ qualified domestic relations orders, neither a Participant nor a Beneficiary may anticipate, assign or alienate (either at law or in equity) any benefit provided under the Plan, and the Trustee will not recognize any such anticipation, assignment or alienation. Furthermore, a benefit under the Plan is not subject to attachment, garnishment, levy, execution or other legal or equitable process. 8.06 NOTICE OF CHANGE IN TERMS. The Plan Administrator, within the time ------------------------- prescribed by ERISA and the applicable regulations, must furnish all Participants and Beneficiaries a summary description of any material amendment to the Plan or notice of discontinuance of the Plan and all other information required by ERISA to be furnished without charge. 8.07 LITIGATION AGAINST THE TRUST. A court of competent jurisdiction may ---------------------------- authorize any appropriate equitable relief to redress violations of ERISA or to enforce any provisions of ERISA or the terms of the Plan. A fiduciary may receive reimbursement of expenses properly and actually incurred in the performance of his duties with the Plan. 8.08 INFORMATION AVAILABLE. Any Participant in the Plan or any Beneficiary --------------------- may examine copies of the Plan description, latest annual report, any bargaining agreement, this Plan and Trust, contract or any other instrument under which the Plan was established or is operated. The Plan Administrator will maintain all of the items listed in this Section 8.08 in his office, or in such other place or places as he may designate from tune to time in order to comply with the regulations issued under ERISA for examination during reasonable business hours. Upon the written request of a Participant or Beneficiary the Plan Administrator must furnish him with a copy of any item listed in this Section 8.08. The Plan Administrator may make a reasonable charge to the requesting person for the copy so furnished. 8.09 APPEAL PROCEDURE FOR DENIAL OF BENEFITS. A Participant or a --------------------------------------- Beneficiary ("Claimant") may file with the Advisory Committee a written claim for benefits, if the Participant or Beneficiary determine the distribution procedures of the Plan have not provided him his proper Nonforfeitable Accrued Benefit. The Advisory Committee must render a decision on the claim within 60 days of the Claimant's written claim for benefits. The Plan Administrator must provide adequate notice in writing to the Claimant whose claim for benefits under the Plan the Advisory Committee has denied. The Plan Administrator's notice to the Claimant must set forth: (a) The specific reason for the denial; 59 (b) Specific references to pertinent Plan provisions on which the Advisory Committee based its denial; (c) A description of any additional material and information needed for the Claimant to perfect his claim and an explanation of why the material or information is needed; and (d) That any appeal the Claimant wishes to make of the adverse determination must be in writing to the Advisory Committee within 75 days after receipt of the Plan Administrator's notice of denial of benefits. The Plan Administrator's notice must further advise the Claimant that his failure to appeal the action to the Advisory Committee in writing within the 75-day period will render the Advisory Committee's determination final binding and conclusive. If the Claimant should appeal to the Advisory Committee, he, or his duly authorized representative may submit, in writing whatever issues and comments he, or his duly authorized representative feels are pertinent. The Claimant, or his duly authorized representative may review pertinent Plan documents. The Advisory Committee will re-examine all facts related to the appeal and make a final determination as to whether the denial of benefits is justified under the circumstances. The Advisory Committee must advise the Claimant of its decision within 60 days of the Claimant's written request for review, unless special circumstances (such as a hearing) would make the rendering of a decision within the 60-day limit unfeasible, but in no event may the Advisory Committee render a decisions respecting a denial for a claim for benefits later than 120 days after its receipt of a request for review. The Plan Administrator's notice of denial of benefits must identify the name of each member of the Advisory Committee and the name and address of the Advisory Committee member to whom the Claimant may forward his appeal. 8.10 PARTICIPANT DIRECTION OF INVESTMENT. A Participant has the right to ----------------------------------- direct the Trustee with respect to investment or re-investment of the assets comprising the Participant's individual Account only if the Trustee consents in writing to permit such direction. If the Trustee consents to Participant direction of investment, the Trustee will accept direction from each Participant on a written election form (or other written agreement), as a part of this Plan, containing such conditions, limitations and other provisions the parties deem appropriate. The Trustee or, with the Trustee's consent, the Advisory Committee, may establish written procedures, incorporated specifically as part of this Plan, relating to Participant direction of investment under this Section 8.10. The Trustee will maintain a segregated investment Account to the extent a Participant's Account is subject to Participant self-direction. The Trustee is not liable for any loss, nor is the Trustee liable for any breach, resulting from a Participant's direction of the investment of any part of his directed Account. The Advisory Committee, to the extent provided in a written loan policy adopted under Section 9.04, will treat a loan made to a Participant as a Participant direction of investment under this Section 8.10. To the extent of the loan outstanding at any time, the borrowing Participant's Account alone shares in any interest paid on the loan, and it alone bears any expense or loss it incurs in connection with the loan. The Trustee may retain any principal or interest paid on the borrowing Participant's loan in an interest bearing segregated Account on behalf of the borrowing Participant until the Trustee (or the Named Fiduciary, in the case of a nondiscretionary Trustee) deems it appropriate to add the amount paid to the Participant's separate Account under the Plan. If the Trustee consents to Participant direction of investment of his Account, the Plan treats any post-December 31, 1981, investment by a Participant's directed Account in collectibles (as defined by Code (S)408(m)) as a deemed distribution to the Participant for Federal income tax purposes. * * * * * 60 ARTICLE IX ADVISORY COMMITTEE- DUTIES WITH RESPECT TO PARTICIPANTS' ACCOUNTS 9.01 MEMBERS' COMPENSATION, EXPENSES. The Employer must appoint an Advisory ------------------------------- Committee to administer the Plan, the members of which may or may not be Participants in the Plan, or which may be the Plan Administrator acting alone. In the absence of an Advisory Committee appointment, the Plan Administrator assumes the powers, duties and responsibilities of the Advisory Committee The members of the Advisory Committee will serve without compensation for services as such, but the Employer will pay all expenses of the Advisory Committee, except to the extent the Trust properly pays for such expenses, pursuant to Article X. 9.02 TERM. Each member of the Advisory Committee serves until the ---- appointment of his successor. 9.03 POWERS. In case of a vacancy in the membership of the Advisory ------ Committee, the remaining members of the Advisory Committee may exercise any and all of the powers, authority, duties and discretion conferred upon the Advisory Committee pending the filling of the vacancy. 9.04 GENERAL. The Advisory Committee has the following powers and duties: ------- (a) To select a Secretary, who need not be a member of the Advisory Committee; (b) To determine the rights of eligibility of an Employee to participate in the Plan, the value of a Participant's Accrued Benefit and the Nonforfeitable percentage of each Participant's Accrued Benefit; (c) To adopt rules of procedure and regulations necessary for the proper and efficient administration of the Plan provided the rules are not inconsistent with the terms of this Agreement; (d) To construe and enforce the terms of the Plan and the rules and regulations it adopts, including interpretation of the Plan documents and documents related to the Plan's operation; (e) To direct the Trustee as respects the crediting and distribution of the Trust; (f) To review and render decisions respecting a claim for (or denial of a claim for) a benefit under the Plan; (g) To furnish the Employer with information which the Employer may require for tax or other purposes; (h) To engage the service of agents whom it may deem advisable to assist it with the performance of its duties; (i) To engage the services of an Investment Manager or Managers (as defined in ERISA (S)3(38)), each of whom will have full power and authority to manage, acquire or dispose (or direct the Trustee with respect to acquisition or disposition) of any Plan asset under its control; (j) To establish, in its sole discretion, a nondiscriminatory policy (see Section 9.04(A)) which the Trustee must observe in making loans, if any, to Participants and Beneficiaries; and 61 (k) To establish and maintain a funding standard account and to make credits and charges to the account to the extent required by and in accordance with the provisions of the Code. The Advisory Committee must exercise all of its powers, duties and discretion under the Plan in a uniform and nondiscriminatory manner. (A) LOAN POLICY. If the Advisory Committee adopts a loan policy, pursuant to paragraph (j), the loan policy must be a written document and must include: (1) the identity of the person or positions authorized to administer the participant loan program; (2) a procedure for applying for the loan; (3) the criteria for approving or denying a loan; (4) the limitations, if any, on the types and amounts of loans available; (5) the procedure for determining a reasonable rate of interest; (6) the types of collateral which may secure the loan; and (7) the events constituting default and the steps the Plan will take to preserve plan assets in the event of default. This Section 9.04 specifically incorporates a written loan policy as part of the Employer's Plan. 9.05 FUNDING POLICY. The Advisory Committee will review, not less often -------------- than annually, all pertinent Employee information and Plan data in order to establish the funding policy of the Plan and to determine the appropriate methods of carrying out the Plan's objectives. The Advisory Committee must communicate periodically, as it deems appropriate, to the Trustee and to any Plan Investment Manager the Plan's short-term and long-term financial needs so investment policy can be coordinated with Plan financial requirements. 9.06 MANNER OF ACTION. The decision of a majority of the members appointed ---------------- and qualified controls. 9.07 AUTHORIZED REPRESENTATIVE. The Advisory Committee may authorize any ------------------------- one of its members, or its Secretary, to sign on its behalf any notices, directions, applications, certificates, consents, approvals, waivers, letters or other documents. The Advisory Committee must evidence this authority by an instrument signed by all members and filed with the Trustee. 9.08 INTERESTED MEMBER. No member of the Advisory Committee may decide or ----------------- determine any matter concerning the distribution, nature or method of settlement of his own benefits under the Plan, except in exercising an election available to that member in his capacity as a Participant, unless the Plan Administrator is acting alone in the capacity of the Advisory Committee. 9.09 INDIVIDUAL ACCOUNTS. The Advisory Committee will maintain, or direct ------------------- the Trustee to maintain, a separate Account, or multiple Accounts, in the name of each Participant to reflect the Participant's Accrued Benefit under the Plan. If a Participant re-enters the Plan subsequent to his having a Forfeiture Break in Service, the Advisory Committee, or the Trustee, must maintain a separate Account for the Participant's pre-Forfeiture Break in Service Accrued Benefit and a separate Account for his post-Forfeiture Break in Service Accrued Benefit, unless the Participant's entire Accrued Benefit under the Plan is 100% Nonforfeitable. The Advisory Committee will make its allocations, or request the Trustee to make its allocations, to the Accounts of the Participants in accordance with the provisions of Section 9.11. The Advisory Committee may direct the Trustee to maintain a temporary segregated investment Account in the name of a Participant to prevent a distortion of income, gain or loss allocations under Section 9.11. The Advisory Committee must maintain records of its activities. 9.10 VALUE OF PARTICIPANT'S ACCRUED BENEFIT. The value of each -------------------------------------- Participant's Accrued Benefit consists of that proportion of the net worth (at fair market value) of the Employer's Trust Fund which the net credit balance in his Account (exclusive of the cash value of 62 incidental benefit insurance contracts) bears to the total net credit balance in the Accounts (exclusive of the cash value of the incidental benefit insurance contracts) of all Participants plus the cash surrender value of any incidental benefit insurance contracts held by the Trustee on the Participant's life. For purposes of a distribution under the Plan, the value of a Participant's Accrued Benefit is its value as of the valuation date immediately preceding the date of the distribution. Any distribution (other than a distribution from a segregated Account) made to a Participant (or to his Benefit) more than 90 days after the most recent valuation date may include interest on the amount of the distribution as an expense of the Trust Fund. The interest, if any, accrues from such valuation date to the date of the distribution at the rate established in the Employer's Adoption Agreement. 9.11 ALLOCATION AND DISTRIBUTION OF NET INCOME GAIN OR LOSS. A "valuation ------------------------------------------------------ date" under this Plan is each Accounting Date and each interim valuation date determined under Section 10.14. As of each valuation date the Advisory Committee must adjust Accounts to reflect net income, gain or loss since the last valuation date. The valuation period is the period beginning the day after the last valuation date and ending on the current valuation date. (A) TRUST FUND ACCOUNTS. The allocation provisions of this paragraph apply to all Participant Accounts other than segregated investment Accounts. The Advisory Committee first will adjust the Participant Accounts, as those Accounts stood at the beginning of the current valuation period, by reducing the Accounts for any forfeitures arising under Section 5.09 or under Section 9.14, for amounts charged during the valuation period to the Accounts in accordance with Section 9.13 (relating to distributions) and Section 11.01 (relating to insurance premiums), and for the cash value of incidental benefit insurance contract. The Advisory Committee then, subject to the restoration allocation requirements of Section 5.04 or of Section 9.14, will allocate the net income, gain or loss pro rata to the adjusted Participant Accounts. The allocable net income, gain or loss is the net income (or net loss), including the increase or decrease in the fair market value of assets, since the last valuation date. (B) SEGREGATED INVESTMENT ACCOUNTS. A segregated investment Account receives all income it earns and bears all expense or loss it incurs. The Advisory Committee will adopt uniform and nondiscriminatory procedures for determining income or loss of a segregated investment Account in a manner which reasonably reflects investment directions relating to pooled investments and investment directions occurring during a valuation period. As of the valuation date, the Advisory Committee must reduce a segregated Account for any forfeiture arising under Section 5.09 after the Advisory Committee has made all other allocations, changes or adjustments to the Account for the Plan Year. (C) ADDITIONAL RULES. An Excess Amount or suspense account described in Part 2 of Article III does not share in the allocation of net income, gain or loss described in this Section 9.11. If the Employer maintains its Plan under a Code (S)401(k) Adoption Agreement, the Employer may specify in its Adoption Agreement alternate valuation provisions authorized by that Adoption Agreement. This Section 911 applies solely to the allocation of net income, gain or loss of the Trust. The Advisory Committee will allocate the Employer contributions and Participant forfeitures, if any, in accordance with Article III. 9.12 INDIVIDUAL STATEMENT. As soon as practicable after the Accounting Date -------------------- of each Plan Year, but within the time prescribed by ERISA and the regulations under ERISA, the Plan Administrator will deliver to each Participant (and to each Beneficiary) a statement reflecting the condition of his Accrued Benefit in the Trust as of that date and such other information ERISA requires be furnished the Participant or Beneficiary. No Participant, except a member of the 63 Advisory Committee, has the right to inspect the records reflecting the Account of any other Participant. 9.13 ACCOUNT CHARGED. The Advisory Committee will charge a Participant's --------------- Account for all distributions made from that Account to the Participant, to his Beneficiary or to an alternate payee. The Advisory Committee also will charge a Participant's Account for any administrative expenses incurred by the Plan directly related to that Account. 9.14 UNCLAIMED ACCOUNT PROCEDURE. The Plan does not require either the --------------------------- Trustee or the Advisory Committee to search for, or to ascertain the whereabouts of, any Participant or Beneficiary. At the time the Participant's or Beneficiary's benefit becomes distributable under Article VI the Advisory Committee, by certified or registered mail addressed to his last known address of record with the Advisory Committee or the Employer, must notify any Participant, or Beneficiary, that he is entitled to a distribution under this Plan. The notice must quote the provisions of this Section 9.14 and otherwise must comply with the notice requirements of Article VI If the Participant, or Beneficiary, fails to claim his distributive share or make his whereabouts known in writing to the Advisory Committee within 6 months from the date of mailing of the notice, the Advisory Committee will treat the Participant's or Beneficiary s unclaimed payable Accrued Benefit as forfeited and will reallocate the unclaimed payable Accrued Benefit in accordance with Section 3.05. A forfeiture under this paragraph will occur at the end of the notice period or, if later, the earliest date applicable Treasury regulations would permit the forfeiture. Pending forfeiture, the Advisory Committee, following the expiration of the notice period, may direct the Trustee to segregate the Nonforfeitable Accrued Benefit in a segregated Account and to invest that segregated Account in Federally insured interest bearing savings accounts or time deposits (or in a combination of both), or in other fixed income investments. If a Participant or Beneficiary who has incurred a forfeiture of his Accrued Benefit under the provisions of the first paragraph of this Section 9.14 makes a claim, at any time, for his forfeited Accrued Benefit, the Advisory Committee must restore the Participant's or Beneficiary's forfeited Accrued Benefit to the same dollar amount as the dollar amount of the Accrued Benefit forfeited, unadjusted for any gains or losses occurring subsequent to the date of the forfeiture. The Advisory Committee will make the restoration during the Plan Year in which the Participant or Beneficiary makes the claim first from the amount, if any, of Participant forfeitures the Advisory Committee otherwise would allocate for the Plan Year, then from the amount, if any, of the Trust Fund net income or gain for the Plan Year and then from the amount, or additional amount, the Employer contributes to enable the Advisory Committee to make the required restoration. The Advisory Committee must direct the Trustee to distribute the Participant's or Beneficiary's restored Accrued Benefit to him not later than 60 days after the close of the Plan Year in which the Advisory Committee restores the forfeited Accrued Benefit. The forfeiture provisions of this Section 9.14 apply solely to the Participant's or to the Beneficiary's Accrued Benefit derived from Employer contributions. * * * * * 64 ARTICLE X TRUSTEE AND CUSTODIAN, POWERS AND DUTIES 10.01 ACCEPTANCE. The Trustee accepts the Trust created under the Plan and ---------- agrees to perform the obligations imposed. The Trustee must provide bond for the faithful performance of its duties under the Trust to the extent required by ERISA. 10.02 RECEIPT OF CONTRIBUTIONS. The Trustee is accountable to the Employer ------------------------ for the funds contributed to it by the Employer, but does not have any duty to see that the contributions received comply with the provisions of the Plan. The Trustee is not obliged to collect any contributions from the Employer, nor is obliged to see that funds deposited with it arc deposited according to the provisions of the Plan. 10.03 INVESTMENT POWERS. ----------------- [A] DISCRETIONARY TRUSTEE DESIGNATION. If the Employer, in Adoption Agreement Section 1.02, designates the Trustee to administer the Trust as a discretionary Trustee, then the Trustee has full discretion and authority with regard to the investment of the Trust Fund, except with respect to a Plan asset under the control or direction of a properly appointed Investment Manager or with respect to a Plan asset properly subject to Employer, Participant or Advisory Committee direction of investment. The Trustee must coordinate its investment policy with Plan financial needs as communicated to it by the Advisory Committee. The Trustee is authorized and empowered, but no, by way of limitation, with the following powers, rights and duties: (a) To invest any part or all of the Trust Fund in any common or preferred stocks, open-end or closed-end mutual funds, put and call options traded on a national exchange, United States retirement plan bonds, corporate bonds, debentures, convertible debentures, commercial paper, U.S. Treasury bills, U.S. Treasury notes and other direct or indirect obligations of the United States Government or its agencies, improved or unimproved real estate situated in the United States, limited partnerships, insurance contracts of any type, mortgages, notes or other property of any kind, real or personal to buy or sell options on common stock on a nationally recognized exchange with or without holding the underlying common stock, to buy and sell commodities, commodity options and contracts for the future delivery of commodities, and to make any other investments the Trustee deems appropriate, as a prudent man would do under like circumstances with due regard for the purposes of this Plan. Any investment made or retained by the Trustee in good faith is proper but must be of a kind constituting a diversification considered by law suitable for trust investments. (b) To retain in cash so much of the Trust Fund as it may deem advisable to satisfy liquidity needs of the Plan and to deposit any cash held in the Trust Fund in a bank account at reasonable interest. (c) To invest, if the Trustee is a bank or similar financial institution supervised by the United States or by a State, in any type of deposit of the Trustee (or of a bank related to the Trustee within the meaning of Code (S)414(b)) at a reasonable rate of interest or in a common trust fund as described in Code (S)584, or in a collective investment fund, the provisions of which govern the investment of such assets and which the Plan incorporates by this reference, which the Trustee (or its affiliate, as defined in Code (S)1504) maintains exclusively for the collective investment of money contributed by the bank (or the affiliate) in its capacity as trustee and which conforms to the rules of the Comptroller of the Currency. 65 (d) To manage, sell, contract to sell, grant options to purchase, convey, exchange, transfer, abandon, improve, repair, insure, lease for any term even though commencing in the future or extending beyond the term of the Trust, and otherwise deal with all property, real or personal, in such manner, for such considerations and on such terms and conditions as the Trustee decides. (e) To credit and distribute the Trust as directed by the Advisory Committee. The Trustee is not obliged to inquire as to whether any payee or distributee is entitled to any payment or whether the distribution is proper or within the terms of the Plan, or as to the manner of making any payment or distribution. The Trustee is accountable only to the Advisory Committee for any payment or distribution made by it in good faith on the order or direction of the Advisory Committee. (f) To borrow money, to assume indebtedness, extend mortgages and encumber by mortgage or pledge. (g) To compromise, contest, arbitrate or abandon claims and demands, in its discretion. (h) To have with respect to the Trust all of the rights of an individual owner, including the power to give proxies, to participate in any voting trusts, mergers, consolidations or liquidations, and to exercise or sell stock subscriptions or conversion rights. (i) To lease for oil, gas and other mineral purposes and to create mineral severances by grant or reservation; to pool or unitize interests in oil gas and other minerals; and to enter into operating agreements and to execute division and transfer orders. (j) To hold any securities or other property in the name of the Trustee or its nominee, with depositories or agent depositories or in another form as it may deem best, with or without disclosing the trust relationship. (k) To perform any and all other acts in its judgment necessary or appropriate for the proper and advantageous management, investment and distribution of the Trust. (l) To retain any funds or property subject to any dispute without liability for the payment of interest, and to decline to make payment or delivery of the funds or property until final adjudication is made by a court of competent jurisdiction. (m) To file all tax returns required of the Trustee. (n) To furnish to the Employer, the Plan Administrator and the Advisory Committee an annual statement of account showing the condition of the Trust Fund and all investments, receipts, disbursements and other transactions effected by the Trustee during the Plan Year covered by the statement and also stating the assets of the Trust held at the end of the Plan Year, which accounts are conclusive on all persons, including the Employer, the Plan Administrator and the Advisory Committee, except as to any act or transaction concerning which the Employer, the Plan Administrator or the Advisory Committee files with the Trustee written exceptions or objections within 90 days after the receipt of the accounts or for which ERISA authorizes a longer period within which to object. (o) To begin, maintain or defend any litigation necessary in connection with the administration of the Plan, except that the Trustee is not obliged or required to do so unless indemnified to its satisfaction. 66 [B] NONDISCRETIONARY TRUSTEE DESIGNATION/APPOINTMENT OF CUSTODIAN. If the Employer, in its Adoption Agreement Section 1.02, designates the Trustee to administer the Trust as a nondiscretionary Trustee, then the Trustee will not have any discretion or authority with regard to the investment of the Trust Fund, but must act solely as a directed trustee of the funds contributed to it. A nondiscretionary Trustee, as directed trustee of the funds held by it under the Employer's Plan, is authorized and empowered, by way of limitation, with the following powers, rights and duties, each of which the nondiscretionary Trustee exercises solely as directed trustee h accordance with the written direction of the Named Fiduciary (except to the extent a Plan asset is subject to the control and management of a properly appointed Investment Manager or subject to Advisory Committee or Participant direction of investment): (a) To invest any part or all of the Trust Fund in any common or preferred stocks, open-end or dosed-end mutual funds, put and call options traded on a national exchange, United States retirement plan bonds, corporate bonds, debentures, convertible debentures, commercial paper, U.S. Treasury bills, U.S. Treasury notes and other direct or indirect obligations of the United States Government or its agencies, improved or unimproved real estate situated in the United States, limited partnerships, insurance contracts of any type, mortgages, notes or other property of any kind, real or personaL to buy or sell options on common stock on a nationally recognized options exchange with or without holding the underlying common stock to buy and sell commodities, commodity options and contracts for the future delivery of commodities, and to make any other investments the Named Fiduciary deems appropriate. (b) To retain in cash so much of the Trust Fund as the Named Fiduciary may direct in writing to satisfy liquidity needs of the Plan and to deposit any cash held in the Trust Fund in a bank account at reasonable interest, including, specific authority to invest in any type of deposit of the Trustee (or of a bank related to the Trustee within the meaning of Code (S)414(b)) at a reasonable rate of interest. (c) To sell, contract to sell, grant options to purchase, convey, exchange, transfer, abandon, improve, repair, insure, lease for any term even though commencing in the future or extending beyond the term of the Trust, and otherwise deal with all property, real or personal, in such manner, for such considerations and on such terms and conditions as the Named Fiduciary directs in writing. (d) To credit and distribute the Trust as directed by the Advisory Committee. The Trustee is not obliged to inquire as to whether any payee or distributee is entitled to any payment or whether the distribution is proper or within the terms of the Plan, or as to the manner of making any payment or distribution. The Trustee is accountable only to the Advisory Committee for any payment or distribution made by it in good faith on the order or direction of the Advisory Committee. (e) To borrow money, to assume indebtedness, extend mortgages and encumber by mortgage or pledge. (f) To have with respect to the Trust all of the rights of an individual owner, including the power to give proxies, to participate in any voting trusts, mergers, consolidations or liquidations, and to exercise or sell stock subscriptions or conversion rights, provided the exercise of any such powers is in accordance with and at the written direction of the Named Fiduciary. (g) To lease for oil, gas and other mineral purposes and to create mineral severances by grant or reservation; to pool or unitize interests in oil, gas and other minerals; and to enter into operating agreements and to execute division and transfer orders, provided the exercise 67 of any such powers is in accordance with and at the written direction of the Named Fiduciary. (h) To hold any securities or other property in the name of the nondiscretionary Trustee or its nominee, with depositories or agent depositories or in another form as the Named Fiduciary may deem best, with or without disclosing the custodial relationship. (i) To retain any funds or property subject to any dispute without liability for the payment of interest, and to decline to make payment or delivery of the funds or property until a court of competent jurisdiction makes final adjudication. (j) To file all tax returns required of the Trustee. (k) To furnish to the Named Fiduciary, the Employer, the Plan Administrator and the Advisory Committee an annual statement of account showing the condition of the Trust Fund and all investments, receipts, disbursements and other transactions effected by the nondiscretionary Trustee during the Plan Year covered by the statement and also stating the assets of the Trust held at the end of the Plan Year, which accounts are conclusive on all persons, including the Named Fiduciary, the Employer, the Plan Administrator and the Advisory Committee, except as to any act or transaction concerning which the Named Fiduciary, the Employer, the Plan Administrator or the Advisory Committee files with the nondiscretionary Trustee written exceptions or objections within 90 days after the receipt of the accounts or for which ERISA authorizes a longer period within which to object. (l) To begin, maintain or defend any litigation necessary in connection with the administration of the Plan, except that the Trustee is not obliged or required to do so unless indemnified to its satisfaction. APPOINTMENT OF CUSTODIAN. The Employer may appoint a Custodian under the Plan, the acceptance by the Custodian indicated on the execution page of the Employer's Adoption Agreement. If the Employer appoints a Custodian, the Employer's Plan must have a discretionary Trustee, as described in Section 10.03[A]. A Custodian has the same powers, rights and duties as a nondiscretionary Trustee, as described in this Section 10.03[B]. The Custodian accepts the teens of the Plan and Trust by executing the Employer's Adoption Agreement. Any reference in the Plan to a Trustee also is a reference to a Custodian where the context of the Plan dictates. A limitation of the Trustee's liability by Plan provision also acts as a limitation of the Custodian's liability. Any action taken by the Custodian at the discretionary Trustee's direction satisfies any provision in the Plan referring to the Trustee's taking that action. MODIFICATION OF POWERS/LIMITED RESPONSIBILITY. The Employer and the Custodian or nondiscretionary Trustee, by letter agreement, may limit the powers of the Custodian or nondiscretionary Trustee to any combination of powers listed within this Section 10.03[B]. If there is a Custodian or a nondiscretionary Trustee under the Employer's Plan, then the Employer, in adopting this Plan acknowledges the Custodian or nondiscretionary Trustee has no discretion with respect to the investment or re-investment of the Trust Fund and that the Custodian or nondiscretionary Trustee is acting solely as custodian or as directed trustee with respect to the assets comprising the Trust Fund. [C] LIMITATION OF POWERS OF CERTAIN CUSTODIANS. If a Custodian is a bank which, under its governing state law, does not possess trust powers, then paragraphs (a), (c), (e), (f), (g) of Section 10.03[B], Section 10.16 and Article XI do not apply to that bank and that bank only has the power and authority to exercise the remaining powers, rights and duties under Section 10.03[B]. 68 [D] NAMED FIDUCIARY/LIMITATION OF LIABILITY OF NONDISCRETIONARY TRUSTEE OR CUSTODIAN. Under a nondiscretionary Trustee designation, the Named Fiduciary under the Employer's Plan has the sole responsibility for the management and control of the Employer's Trust Fund, except with respect to a Plan asset under the control or direction of a properly appointed Investment Manager or with respect to a Plan asset properly subject to Participant or Advisory Committee direction of investment. If the Employer appoints a Custodian, the Named Fiduciary is the discretionary Trustee. Under a nondiscretionary Trustee designation, unless the Employer designates in writing another person or persons to serve as Named Fiduciary, the Named Fiduciary under the Plan is the president of a corporate Employer, the managing partner of a partnership Employer or the sole proprietor, as appropriate. The Named Fiduciary will exercise its management and control of the Trust Fund through its written direction to the nondiscretionary Trustee or to the Custodian, whichever applies to the Employer's Plan. The nondiscretionary Trustee or Custodian has no duty to review or to make recommendations regarding investments made at the written direction of the Named Fiduciary. The nondiscretionary Trustee or Custodian must retain any investment obtained at the written direction of the Named Fiduciary until further directed in writing by the Named Fiduciary to dispose of such investment. The nondiscretionary Trustee or Custodian is not liable in any manner or for any reason for making, retaining or disposing of any investment pursuant to any written direction described in this paragraph. Furthermore, the Employer agrees to indemnify and to hold the nondiscretionary Trustee or Custodian harmless from any damages, costs or expenses, including reasonable counsel fees, which the nondiscretionary Trustee or Custodian may incur as a result of any claim asserted against the nondiscretionary Trustee, the Custodian or the Trust arising out of the nondiscretionary Trustee's or Custodian's compliance with any written direction described in this paragraph. [E] PARTICIPANT LOANS. This Section 10.03[E] specifically authorizes the Trustee to make loans on a nondiscriminatory basis to a Participant or to a Beneficiary in accordance with the loan policy established by the Advisory Committee, provided: (1) the loan policy satisfies the requirements of Section 9.04; (2) loans are available to all Participants and Beneficiaries on a reasonably equivalent basis and are not available in a greater amount for Highly Compensated Employees than for other Employees; (3) any loan is adequately secured and bears a reasonable rate of interest; (4) the loan provides for repayment within a specified time; (5) the default provisions of the note prohibit offset of the Participant's Nonforfeitable Accrued Benefit prior to the time the Trustee otherwise would distribute the Participant's Nonforfeitable Accrued Benefit; (6) the amount of the loan does not exceed (at the time the Plan extends the loan) the present value of the Participant's Nonforfeitable Accrued Benefit; and (7) the loan otherwise conforms to the exemption provided by Code (S)4975(d)(1). If the joint and survivor requirements of Article VI apply to the Participant, the Participant may not pledge any portion of his Accrued Benefit as security for a loan made after August 18, 1985, unless, within the 90 day period ending on the date the pledge becomes effective, the Participant's spouse, if any, consents (in a manner described in Section 6.05 other than the requirement relating to the consent of a subsequent spouse) to the security or, by separate consent, to an increase in the amount of security. If the Employer is an unincorporated trade or business, a Participant who is an Owner-Employee may not receive a loan from the Plan, unless he has obtained a prohibited transaction exemption from the Department of Labor. If the Employer is an "S Corporation," a Participant who is a shareholder-employee (an employee or an officer) who, at any time during the Employer's taxable year, owns more than 5%, either directly or by attribution under Code (S)318(a)(1), of the Employer's outstanding stock may not receive a loan from the Plan, unless he has obtained a prohibited transaction exemption from the Department of Labor. If the Employer is not an unincorporated trade or business nor an "S Corporation," this Section 10.03[E] does not impose any restrictions on the class of Participants eligible for a loan from the Plan. [F] INVESTMENT IN QUALIFYING EMPLOYER SECURITIES AND QUALIFYING EMPLOYER REAL PROPERTY. The investment options in this Section 10.03[F] include the ability to invest in qualifying Employer securities or qualifying Employer real property, as defined in and as limited by ERISA. If the Employers Plan is a Nonstandardized profit sharing plan, it may elect in its Adoption Agreement to 69 permit the aggregate investments in qualifying Employer securities and in qualifying Employer real property to exceed 10% of the value of Plan assets. 10.04 RECORDS AND STATEMENTS. The records of the Trustee pertaining to the ---------------------- Plan must be open to the inspection of the Plan Administrator, the Advisory Committee and the Employer at all reasonable times and may be audited from time to time by any person or persons as the Employer, Plan Administrator or Advisory Committee may specify in writing. The Trustee must furnish the Plan Administrator or Advisory Committee with whatever information relating to the Trust Fund the Plan Administrator or Advisory Committee considers necessary. 10.05 FEES AND EXPENSES FROM FUND. A Trustee or Custodian will receive --------------------------- reasonable annual compensation as may be agreed upon from time to time between the Employer and the Trustee or Custodian. No person who is receiving full pay from the Employer may receive compensation for services as Trustee or as Custodian. The Trustee will pay from the Trust Fund all fees and expenses reasonably incurred by the Plan, to the extent such fees and expenses are for the ordinary and necessary administration and operation of the Plan, unless the Employer pays such fees and expenses. Any fee or expense paid, directly or indirectly, by the Employer is not an Employer contribution to the Plan, provided the fee or expense relates to the ordinary and necessary administration of the Fund. 10.06 PARTIES TO LITIGATION. Except as otherwise provided by ERISA, no --------------------- Participant or Beneficiary is a necessary party or is required to receive notice of process in any court proceeding involving the Plan, the Trust Fund or any fiduciary of the Plan. Any final judgment entered in any proceeding will be conclusive upon the Employer, the Plan Administrator, the Advisory Committee, the Trustee, Custodian, Participants and Beneficiaries. 10.07 PROFESSIONAL AGENTS. The Trustee may employ and pay from the Trust ------------------- Fund reasonable compensation to agents, attorneys, accountants and other persons to advise the Trustee as in its opinion may be necessary. The Trustee may delegate to any agent, attorney, accountant or other person selected by it any non-Trustee power or duty vested in it by the Plan, and the Trustee may act or refrain from acting on the advice or opinion of any agent, attorney, accountant or other person so selected. 10.08 DISTRIBUTION OF CASH OR PROPERTY. The Trustee may make distribution -------------------------------- under the Plan in cash or property, or partly in each, at its fair market value as determined by the Trustee. For purposes of a distribution to a Participant or to a Participant's designated Beneficiary or surviving spouse, "property" includes a Nontransferable Annuity Contract, provided the contract satisfies the requirements of this Plan. 10.09 DISTRIBUTION DIRECTIONS. If no one claims a payment or distribution ----------------------- made from the Trust the Trustee must promptly notify the Advisory Committee and then dispose of the payment in accordance with the subsequent direction of the Advisory Committee. 10.10 THIRD PARTY/MULTIPLE TRUSTEES. No person dealing with the Trustee is ----------------------------- obligated to see to the proper application of any money paid or property delivered to the Trustee, or to inquire whether the Trustee has acted pursuant to any of the terms of the Plan. Each person dealing with the Trustee may act upon any notice, request or representation in writing by the Trustee, or by the Trustee's duly authorized agent, and is not liable to any person in so acting. The certificate of the Trustee that it is acting in accordance with the Plan will be conclusive in favor of any person relying on the certificate. If more than two persons act as Trustee, a decision of the majority of such persons controls with respect to any decision regarding the administration or investment of the Trust Fund or of any portion of the Trust Fund with respect to which such persons act as Trustee. However, the signature of only one Trustee is necessary to effect any transaction on behalf of the Trust. 70 10.11 RESIGNATION. The Trustee or Custodian may resign its position at any ----------- time by giving 30 days' written notice in advance to the Employer and to the Advisory Committee. If the Employer fails to appoint a successor Trustee within 60 days of its receipt of the Trustee's written notice of resignation, the Trustee will treat the Employer as having appointed itself as Trustee and as having filed its acceptance of appointment with the former Trustee. The Employer, in its sole discretion, may replace a Custodian. If the Employer does not replace a Custodian, the discretionary Trustee will assume possession of Plan assets held by the former Custodian. 10.12 REMOVAL. The Employer, by giving 30 days written notice in advance to ------- the Trustee, may remove any Trustee or Custodian. In the event of the resignation or removal of a Trustee, the Employer must appoint a successor Trustee if it intends to continue the Plan. If two or more persons hold the position of Trustee, in the event of the removal of one such person, during any period the selection of a replacement is pending, or during any period such person is unable to serve for any reason, the remaining person or persons will act as the Trustee. 10.13 INTERIM DUTIES AND SUCCESSOR TRUSTEE. Each successor Trustee succeeds ------------------------------------ to the title to the Trust vested in his predecessor by accepting in writing his appointment as successor Trustee and by filing the acceptance with the former Trustee and the Advisory Committee without the signing or filing of any further statement. The resigning or removed Trustee, upon receipt of acceptance in writing of the Trust by the successor Trustee, must execute all documents and do all acts necessary to vest the title of record in any successor Trustee. Each successor Trustee has and enjoys all of the powers, both discretionary and ministerial conferred under this Agreement upon his predecessor. A successor Trustee is not personally liable for any act or failure to act of any predecessor Trustee, except as required under ERISA. With the approval of the Employer and the Advisory Committee, a successor Trustee, with respect to the Plan, may accept the account rendered and the property delivered to it by a predecessor Trustee without incurring any liability or responsibility for so doing. 10.14 VALUATION OF TRUST. The Trustee must value the Trust Fund as of each ------------------ Accounting Date to determine the fair market value of each Participant's Accrued Benefit in the Trust. The Trustee also must value the Trust Fund on such other valuation dates as directed in writing by the Advisory Committee or as required by the Employer's Adoption Agreement. 10.15 LIMITATION ON LIABILITY - IF INVESTMENT MANAGER, ANCILLARY TRUSTEE OR --------------------------------------------------------------------- INDEPENDENT FIDUCIARY APPOINTED. The Trustee is not liable for the acts or - ------------------------------- omissions of any Investment Manager the Advisory Committee may appoint, nor is the Trustee under any obligation to invest or otherwise manage any asset of the Plan which is subject to the management of a properly appointed Investment Manager. The Advisory Committee, the Trustee and any properly appointed Investment Manager may execute a letter agreement as a part of this Plan delineating the duties, responsibilities and liabilities of the Investment Manager with respect to any part of the Trust Fund under the control of the Investment Manager. The limitation on liability described in this Section 10.15 also applies to the acts or omissions of any ancillary trustee or independent fiduciary properly appointed under Section 10.17 of the Plan. However, if a discretionary Trustee, pursuant to the delegation described in Section 10.17 of the Plan, appoints an ancillary trustee, the discretionary Trustee is responsible for the periodic reviews of the ancillary trustee's actions and must exercise its delegated authority in accordance with the terms of the Plan and in a manner consistent with ERISA. The Employer, the discretionary Trustee and an ancillary trustee may execute a letter agreement as a part of this Plan delineating any indemnification agreement between the parties. 10.16 INVESTMENT IN GROUP TRUST FUND. The Employer, by adopting this Plan, ------------------------------ specifically authorizes the Trustee to invest all or any portion of the assets comprising the Trust Fund in any group trust fund which at the time of the investment provides for the pooling of the assets of plans qualified under Code (S)401(a). This authorization applies solely to a group trust fund 71 exempt from taxation under Cote (S)501(a) ant the trust agreement of which satisfies the requirements of Revenue Ruling 81-100. The provisions of the group trust fund agreement, as amended from time to time, are by this reference incorporated within this Plan and Trust. The provisions of the group trust fund will govern any investment of Plan assets in that fund. The Employer must specify in an attachment to its adoption agreement the group trust fund(s) to which this authorization applies. If the Trustee is acting as a nondiscretionary Trustee, the investment in the group trust fund is available only in accordance with a proper direction, by the Named Fiduciary, in accordance with Section 10.03[B]. Pursuant to paragraph (c) of Section 10.03[A] of the Plan, a Trustee has the authority to invest in certain common trust funds and collective investment funds without the next for the authorizing addendum described in this Section 10.16. Furthermore, at the Employer's direction, the Trustee, for collective investment purposes, may combine into one trust fund the Trust created under this Plan with the Trust created under any other qualified retirement plan the Employer maintains. However, the Trustee must maintain separate records of account for the assets of each Trust in order to reflect properly each Participant's Accrued Benefit under the plan(s) in which he is a Participant. 10.17 APPOINTMENT OF ANCILLARY TRUSTEE OR INDEPENDENT FIDUCIARY. The --------------------------------------------------------- Employer, in writing, may appoint any person in any State to act as ancillary trustee with respect to a designated portion of the Trust Fund, subject to the consent required under Section 1.02 if the Master Plan Sponsor is a financial institution. An ancillary trustee must acknowledge in writing its acceptance of the terms and conditions of its appointment as ancillary trustee and its fiduciary status under ERISA. The ancillary trustee has the rights, powers, duties and discretion as the Employer may delegate, subject to any limitations or directions specified in the instrument evidencing appointment of the ancillary trustee and to the terms of the Plan or of ERISA. The investment powers delegated to the ancillary trustee may include any investment powers available under Section 10.03 of the Plan including the right to invest any portion of the assets of the Trust Fund in a common trust fund, as described in Code (S)584, or in any collective investment fund, the provisions of which govern the investment of such assets and which the Plan incorporates by this reference, but only if the ancillary trustee is a bank or similar financial institution supervised by the United States or by a State and the ancillary trustee (or its affiliate, as defined in Code (S)1504) maintains the common trust fund or collective investment fund exclusively for the collective investment of money contributed by the ancillary trustee (or its affiliate) in a trustee capacity and which conforms to the rules of the Comptroller of the Currency. The Employer also may appoint as an ancillary trustee, the trustee of any group trust fund designated for investment pursuant to the provisions of Section 10.16 of the Plan. The ancillary trustee may resign its position at any time by providing at least 30 days advance written notice to the Employer' unless the Employer waives this notice requirement. The Employer, in writing, may remove an ancillary trustee at any time. In the event of resignation or removal, the Employer may appoint another ancillary trustee, return the assets to the control and management of the Trustee or receive such assets in the capacity of ancillary trustee. The Employer may delegate its responsibilities under this Section 10.17 to a discretionary Trustee under the Plan, but not to a nondiscretionary Trustee or to a Custodian, subject to the acceptance by the discretionary Trustee of that delegation. If the US. Department of Labor ("the Department:) requires engagement of an independent fiduciary to have control or management of all or a portion of the Trust Fund, the Employer will appoint such independent fiduciary, as directed by the Department. The independent fiduciary will have the duties, responsibilities and powers prescribed by the Department and will exercise those duties, responsibilities and powers in accordance with the terms, restrictions and conditions established by the Department and, to the extent not inconsistent with ERISA, the terms of the Plan. The independent fiduciary must accept its appointment in writing and must acknowledge its status as a fiduciary of the Plan. * * * * * 72 ARTICLE XI PROVISIONS RELATING TO INSURANCE AND INSURANCE COMPANY 11.01 INSURANCE BENEFIT. The Employer may elect to provide incidental life ----------------- insurance benefits for insurable Participants who consents to life insurance benefits by signing the appropriate insurance company application form. The Trustee will not purchase any incidental life insurance benefit for any Participant prior to an allocation to the Participant's Account. At an insured Participant's written direction, the Trustee will use all or any portion of the Participant's nondeductible voluntary contribution, if any, to pay insurance premiums covering the Participant's life. This Section 11.01 also authorizes the purchase of life insurance, for the benefit of the Participant, on the life of a family member of the Participant or on any person in whom the Participant has an insurable interest. However, if the policy is on the joint lives of the Participant and another person, the Trustee may not maintain that policy if that other person predeceases the Participant. The Employer will direct the Trustee as to the insurance company and insurance agent through which the Trustee is to purchase the insurance contracts, the amount of the coverage and the applicable dividend plan. Each application for a policy, and the policies themselves, must designate the Trustee as sole owner, with the right reserved to the Trustee to exercise any right or option contained in the policies, subject to the terms and provisions of this Agreement. The Trustee must be the named beneficiary for the Account of the insured Participant. Proceeds of insurance contracts paid to the Participant's Account under this Article XI are subject to the distribution requirements of Article V and of Article VI. The Trustee will not retain any such proceeds for the benefit of the Trust. The Trustee will charge the premiums on any incidental benefit insurance contract covering the life of a Participant against the Account of that Participant. The Trustee will hold all incidental benefit insurance contracts issued under the Plan as assets of the Trust created under the Plan. (A) INCIDENTAL INSURANCE BENEFITS. The aggregate of life insurance premiums paid for the benefit of a Participant, at all times, may not exceed the following percentages of the aggregate of the Employer's contributions allocated to any Participant's Account: (i) 49% in the case of the purchase of ordinary life insurance contracts; or (ii) 25% in the case of the purchase of term life insurance or universal life insurance contracts. If the Trustee purchases a combination of ordinary life insurance contract(s) and term life insurance or universal life insurance contract(s), then the sum of one-half of the premiums paid for the ordinary life insurance contract(s) and the premiums paid for the term life insurance or universal life insurance contract(s) may not exceed 25% of the Employer contributions allocated to any Participant's Account. (B) EXCEPTION FOR CERTAIN PROFIT SHARING PLANS. If the Employer's Plan is a profit sharing plan, the incidental insurance benefits requirement does not apply to the Plan if the Plan purchases life insurance benefits only from Employer contributions accumulated in the Participant's Account for at least two years (measured from the allocation date). 11.02 LIMITATION ON LIFE INSURANCE PROTECTION. The Trustee will not --------------------------------------- continue any life insurance protection for any Participant beyond his annuity starting date (as defined in Article VI). If the Trustee holds any incidental benefit insurance contract(s) for the benefit of a Participant when he terminates his employment (other than by reason of death), the Trustee must proceed as follows: 73 (a) If the entire cash value of the contract(s) is vested in the terminating Participant, or if the contract(s) will have no cash value at the end of the policy year in which termination of employment occurs, the Trustee will transfer the contract(s) to the Participant endorsed so as to vest in the transferee all right, title and interest to the contract(s), free and clear of the Trust; subject however, to restrictions as to surrender or payment of benefits as the issuing insurance company may permit and as the Advisory Committee directs; (b) If only part of the cash value of the contract(s) is vested in the terminating Participant, the Trustee, to the extent the Participant's interest in the cash value of the contract(s) is not vested, may adjust the Participant's interest in the value of his Account attributable to Trust assets other than incidental benefit insurance contracts and proceed as in (a), or the Trustee must effect a loan from the issuing insurance company on the sole security of the contract(s) for an amount equal to the difference between the cash value of the contract(s) at the end of the policy year in which termination of employment occurs and the amount of the cash value that is vested in the terminating Participant, and the Trustee must transfer the contract(s) endorsed so as to vest in the transferee ad right, title and interest to the contract(s), free and clear of the Trust; subject however, to the restrictions as to surrender or payment of benefits as the issuing insurance company may permit and the Advisory Committee directs; (c) If no part of the cash value of the contract(s) is vested in the terminating Participant, the Trustee must surrender the contract(s) for cash proceeds as may be available. In accordance with the written direction of the Advisory Committee, the Trustee will make any transfer of contract(s) under this Section 11.02 on the Participant's annuity starting date (or as soon as administratively practicable after that date). The Trustee may not transfer any contract under this Section 11.02 which contains a method of payment not specifically authorized by Article VI or which fails to comply with the joint and survivor annuity requirements, if applicable, of Article VI. In this regard, the Trustee either must convert such a contract to cash and distribute the cash instead of the contract, or before making the transfer, require the issuing company to delete the unauthorized method of payment option from the contract. 11.03 DEFINITIONS. For purposes of this Article XI: ----------- (a) "Policy" means an ordinary life insurance contract or a term life Insurance contract issued by an insurer on the life of a participant. (b) "Issuing insurance company" is any life insurance company which has issued a policy upon application by the Trustee under the terms of this Agreement. (c) "Contract" or "Contracts" means a policy of insurance. In the event of any conflict between the provisions of this Plan and the terms of any contract or policy of insurance issued in accordance with this Article XI the provisions of the Plan control (d) "Insurable Participant" means a Participant to whom an insurance company, upon an application being submitted in accordance with the Plan, will issue insurance coverage, either as a standard risk or as a risk in an extra mortality classification. 11.04 DIVIDEND PLAN. The dividend plan is premium reduction unless the ------------- Advisory Committee directs the Trustee to the contrary. The Trustee must use all dividends for a contract to purchase insurance benefits or additional insurance benefits for the Participant on whose life the insurance company has issued the contract. Furthermore, the Trustee must arrange, where possible, for all policies issued on the lives of Participants under the Plan to have the same premium due 74 date and all ordinary life insurance contracts to contain guaranteed cash values with as uniform basic options as are possible to obtain. The term "dividends" includes policy dividends, refunds of premiums and other credits. 11.05 INSURANCE COMPANY NOT A PARTY TO AGREEMENT. No insurance company, ------------------------------------------ solely in its capacity as an issuing insurance company, is a party to this Agreement nor is the company responsible for its validity. 11.06 INSURANCE COMPANY NOT RESPONSIBLE FOR TRUSTEE'S ACTIONS. No insurance ------------------------------------------------------- company, solely in its capacity as an issuing insurance company, need examine the terms of this Agreement nor is responsible for any action taken by the Trustee. 11.07 INSURANCE COMPANY RELIANCE ON TRUSTEE'S SIGNATURE. For the purpose of ------------------------------------------------- making application to an insurance company and in the exercise of any right or option contained in any policy, the insurance company may rely upon the signature of the Trustee and is saved harmless and completely discharged in acting at the direction and authorization of the Trustee. 11.08 ACQUITTANCE. An insurance company is discharged from all liability ----------- for any amount paid to the Trustee or paid in accordance with the direction of the Trustee, and is not obliged to see to the distribution or further application of any moneys it so pays. 11.09 DUTIES OF INSURANCE COMPANY. Each insurance company must keep such --------------------------- records, make such identification of contracts, funds and accounts within funds, and supply such information as may be necessary for the proper administration of the Plan under which it is carrying insurance benefits. Note: The provisions of this Article XI are not applicable, and the Plan may not invest in insurance contracts, if a Custodian signatory to the Adoption Agreement is a bank which has not acquired trust powers from its governing state banking authority. * * * * * 75 ARTICLE XII MISCELLANEOUS 12.01 EVIDENCE. Anyone required to give evidence under the terms of the -------- Plan may do so by certificate of affidavit, document or other information which the person to act in reliance may consider pertinent, reliable and genuine and to have been signed, made or presented by the proper party or parties. The Advisory Committee and the Trustee are fully protected in acting and relying upon any evidence described under the immediately preceding sentence. 12.02 NO RESPONSIBILITY FOR EMPLOYER ACTION. Neither the Trustee nor the ------------------------------------- Advisory Committee has any obligation or responsibility with respect to any action required by the Plan to be taken by the Employer, any Participant or eligible Employee, or for the failure of any of the above persons to act or make any payment or contribution, or to otherwise provide any benefit contemplated under this Plan. Furthermore, the Plan does not require the Trustee or the Advisory Committee to collect any contribution required under the Plan, or to determine the correctness of the amount of any Employer contribution. Neither the Trustee nor the Advisory Committee need inquire into or be responsible for any action or failure to act on the part of the others, or on the part of any other person who has any responsibility regarding the management, administration or operation of the Plan, whether by the express terms of the Plan or by a separate agreement authorized by the Plan or by the applicable provisions of ERISA. Any action required of a corporate Employer must be by Its Board of Directors or its designate. 12.03 FIDUCIARIES NOT INSURERS. The Trustee, the Advisory Committee the ------------------------ Plan Administrator and the Employer in no way guarantee the Trust Fund from loss or depreciation. The Employer does not guarantee the payment of any money which may be or becomes due to any person from the Trust Fund. The liability of the Advisory Committee and the Trustee to make any payment from the Trust Fund at any time and all times is limited to the then available assets of the Trust. 12.04 WAIVER OF NOTICE. Any person entitled to notice under the Plan may ---------------- waive the notice, unless the Code or Treasury regulations prescribe the notice or ERISA specifically or impliedly prohibits such a waiver. 12.05 SUCCESSORS. The Plan is binding upon all persons entitled to benefits ---------- under the Plan their respective heirs and legal representatives, upon the Employer, its successors and assigns, and upon the Trustee, the Advisory Committee, the Plan Administrator and their successors. 12.06 WORD USAGE. Words used in the masculine also apply to the feminine ---------- where applicable, and wherever the context of the Employer's Plan dictates, the plural includes the singular and the singular includes the plural 12.07 STATE LAW. The law of the state of the Employer's principal place of --------- business (unless otherwise designated in an addendum to the Employer's Adoption Agreement) will determine all questions arising with respect to the provisions of this Agreement except to the extent superseded by Federal law. 12.08 EMPLOYER'S RIGHT TO PARTICIPATE. If the Employer's Plan fails to ------------------------------- qualify or to maintain qualification or if the Employer makes any amendment or modification to a provision of this Plan (other than a proper completion of an elective provision under the Adoption Agreement or the attachment of an addendum authorized by the Plan or by the Adoption Agreement), the Employer may no longer participate under this Master Plan. The Employer also may not participate (or continue to participate) in this Master Plan if the Trustee or Custodian (or a change in the Trustee or Custodian) does not satisfy the requirements of Section 1.02 of the Plan. If the 76 Employer is not entitled to participate under this Master Plan, the Employer's Plan is an individually-designed plan and the reliance procedures specified in the applicable Adoption Agreement no longer will apply. 12.09 EMPLOYMENT NOT GUARANTEED. Nothing contained in this Plan, or with ------------------------- respect to the establishment of the Trust, or any modification or amendment to the Plan or Trust, or in the creation of any Account, or the payment of any benefit, gives any Employee, Employee-Participant or any Beneficiary any right to continue employment, any legal or equitable right against the Employer, or Employee of the Employer, or against the Trustee, or its agents or employees, or against the Plan Administrator except as expressly provided by the Plan, the Trust, ERISA or by a separate agreement. * * * * * 77 ARTICLE XIII EXCLUSIVE BENEFIT, AMENDMENT, TERMINATION 13.01 EXCLUSIVE BENEFIT. Except as provided under Article III, the Employer ----------------- has no beneficial interest in any asset of the Trust and no part of any asset in the Trust may ever revert to or be repaid to an Employer, either directly or indirectly; nor, prior to the satisfaction of all liabilities with respect to the Participants and their beneficiaries under the Plan, may any part of the corpus or income of the Trust Fund, or any asset of the Trust, be (at any time) used for, or diverted to, purposes other than the exclusive benefit of the Participants or their Beneficiaries. However, if the Commissioner of Internal Revenue. upon the Employer's request for initial approval of this Plan, determines the Trust created under the Plan is not a qualified trust exempt from Federal income tax, then (and only then) the Trustee, upon written notice from the Employer, will return the Employer's contributions (and increment attributable to the contributions) to the Employer. The Trustee must make the return of the Employer contribution under this Section 13.01 within one year of a final disposition of the Employer's request for initial approval of the Plan. The Employer's Plan and Trust will terminate upon the Trustee's return of the Employer's contributions. 13.02 AMENDMENT BY EMPLOYER. The Employer has the right at any time and --------------------- from time to time: (a) To amend the elective provisions of the Adoption Agreement in any manner it deems necessary or advisable in order to qualify (or maintain qualification of) this Plan and the Trust created under it under the provisions of Code (S)401(a); (b) To amend the Plan to allow the Plan to operate under a waiver of the minimum funding requirement; and (c) To amend this Agreement in any other manner. No amendment may authorize or permit any of the Trust Fund (other than the part which is required to pay taxes and administration expenses) to be used for or diverted to purposes other than for the exclusive benefit of the Participants or their beneficiaries or estates. No amendment may cause or permit any portion of the Trust Fund to revert to or become a property of the Employer. The Employer also may not make any amendment which affects the rights, duties or responsibilities of the Trustee, the Plan Administrator or the Advisory Committee without the written consent of the affected Trustee, the Plan Administrator or the affected member of the Advisory Committee. The Employer must make all amendments in writing. Each amendment must state the date to which it is either retroactively or prospectively effective. See Section 12.08 for the effect of certain amendments adopted by the Employer. (A) CODE (S)411(D)(6) PROTECTED BENEFITS. An amendment (including the adoption of this Plan as a restatement of an existing plan) may not decrease a Participant's Accrued Benefit, except to the extent permitted under Code (S)412(c)(8), and may not reduce or eliminate Code (S)411(d)(6) protected benefits determined immediately prior to the adoption date (or, if later, the effective date) of the amendment. An amendment reduces or eliminates Code (S)411(d)(6) protected benefits if the amendment has the effect of either (1) eliminating or reducing an early retirement benefit or a retirement-type subsidy (as defined in Treasury regulations), or (2) except as provided by Treasury regulations, eliminating an optional form of benefit. The Advisory Committee must disregard an amendment to the extent application of the amendment would fail to satisfy this paragraph. If the Advisory Committee must disregard an amendment because the amendment would violate clause (1) 78 or clause (2), the Advisory Committee must maintain a schedule of the early retirement option or other optional forms of benefit the Plan must continue for the affected Participants. 13.03 AMENDMENT BY MASTER PLAN SPONSOR. The Master Plan Sponsor (or PPD, as -------------------------------- agent of the Master Plan Sponsor), without the Employer's consent, may amend the Plan and Trust, from time to time, in order to conform the Plan and Trust to any requirement for qualification of the Plan and Trust under the Internal Revenue Code. The Master Plan Sponsor may not amend the Plan in any manner which would modify any election made by the Employer under the Plan without the Employer's written consent. Furthermore, the Master Plan Sponsor may not amend the Plan in any manner which would violate the proscription of Section 13.02. A Trustee does not have the power to amend the Plan or Trust. 13.04 DISCONTINUANCE. The Employer has the right, at any time, to suspend -------------- or discontinue its contributions under the Plan, and to terminate, at any time, this Plan and the Trust created under this Agreement. The Plan will terminate upon the first to occur of the following: (a) The date terminated by action of the Employer; (b) The dissolution or merger of the Employer, unless the successor makes provision to continue the Plan, in which event the successor must substitute itself as the Employer under this Plan. Any termination of the Plan resulting from this paragraph (b) is not effective until compliance with any applicable notice requirements under ERISA. 13.05 FULL VESTING ON TERMINATION. Upon either full or partial termination --------------------------- of the Plan, or, if applicable, upon complete discontinuance of profit sharing plan contributions to the Plan, an affected Participant's right to his Accrued Benefit is 100% Nonforfeitable, irrespective of the Nonforfeitable percentage which otherwise would apply under Article V. 13.06 MERGER/DIRECT TRANSFER. The Trustee may not consent to, or be a party ---------------------- to, any merger or consolidation with another plan, or to a transfer of assets or liabilities to another plan, unless immediately after the merger, consolidation or transfer, the surviving Plan provides each Participant a benefit equal to or greater than the benefit each Participant would have received had the Plan terminated immediately before the merger or consolidation or transfer. The Trustee possesses the specific authority to enter into merger agreements or direct transfer of assets agreements with the trustees of other retirement plans described in Code (S)401(a), including an elective transfer, and to accept the direct transfer of plan assets, or to transfer plan assets, as a party to any such agreement. The Trustee may accept a direct transfer of plan assets on behalf of an Employee prior to the date the Employee satisfies the Plan's eligibility conditions. If the Trustee accepts such a direct transfer of plan assets, the Advisory Committee and Trustee must treat the Employee as a Participant for all purposes of the Plan except the Employee is not a Participant for purposes of sharing in Employer contributions or Participant forfeitures under the Plan until he actually becomes a Participant in the Plan. (A) ELECTIVE TRANSFERS. The Trustee, after August 9, 1988, may not consent to, or be a party to a merger, consolidation or transfer of assets with a defined benefit plan, except with respect to an elective transfer, or unless the transferred benefits are in the form of paid-up individual annuity contracts guaranteeing the payment of the transferred benefits in accordance with the terms of the transferor plan and in a manner consistent with the Code and with ERISA. The Trustee will hold, administer and distribute the transferred assets as a part of the Trust Fund and the Trustee must maintain a separate Employer contribution Account for the benefit of the Employee on whose behalf the Trustee accepted the transfer in order to reflect the value of the transferred assets. Unless a transfer of assets to this Plan is an elective transfer, the Plan will preserve all Code (S)411(d)(6) 79 protected benefits with respect to those transferred assets, in the manner described in Section 13.02. A transfer is an elective transfer if: (1) the transfer satisfies the first paragraph of this Section 13.06; (2) the transfer is voluntary, under a fully informed election by the Participant; (3) the Participant has an alternative that retains his Code (S)411(d)(6) protected benefits (including an option to leave his benefit in the transferor plan, if that plan is not terminating); (4) the transfer satisfies the applicable spousal consent requirements of the Code; (5) the transferor plan satisfies the joint and survivor notice requirements of the Code, if the Participant's transferred benefit is subject to those requirements; (6) the Participant has a right to immediate distribution from the transferor plan, in lieu of the elective transfer; (7) the transferred benefit is at least the greater of the single sum distribution provided by the transferor plan for which the Participant is eligible or the present value of the Participant's accrued benefit under the transferor plan payable at that plan's normal retirement age; (8) the Participant has a 100% Nonforfeitable interest in the transferred benefit; and (9) the transfer otherwise satisfies applicable Treasury regulation. An elective transfer may occur between qualified plans of any type Any direct transfer of assets from a defined benefit plan after August 9, 1988, which does not satisfy the requirements of this paragraph will render the Employer's Plan individually- designed. See Section 12.08. (B) DISTRIBUTION RESTRICTIONS UNDER CODE (S)401(K). If the Plan receives a direct transfer (by merger or otherwise) of elective contributions (or amounts treated as elective contributions) under a Plan with a Code (S)401(k) arrangement, the distribution restrictions of Code (S)(S)401(k)(2) and (10) continue to apply to those transferred elective contributions. 13.07 TERMINATION. ----------- (A) PROCEDURE. Upon termination of the Plan, the distribution provisions of Article VI remain operative, with the following exceptions: (1) if the present value of the Participant's Nonforfeitable Accrued Benefit does not exceed $3,500, the Advisory Committee will direct the Trustee to distribute the Participant's Nonforfeitable Accrued Benefit to him in lump sum as soon as administratively practicable after the Plan terminates; and (2) if the present value of the Participant's Nonforfeitable Accrued Benefit exceeds $3,500, the Participant or the Beneficiary, in addition to the distribution events permitted under Article VI, may elect to have the Trustee commence distribution of his Nonforfeitable Accrued Benefit as soon as administratively practicable after the Plan terminates. To liquidate the Trust, the Advisory Committee will purchase a deferred annuity contract for each Participant which protect the Participant's distribution rights under the Plan, if the Participant's Nonforfeitable Accrued Benefit exceeds $3,500 and the Participant does not elect an immediate distribution pursuant to Paragraph (2). If the Employer's Plan is a profit sharing plan, m lieu of the preceding provisions of this Section 13.07 and the distribution provisions of Article VI, the Advisory Committee will direct the Trustee to distribute each Participant's Nonforfeitable Accrued Benefit, in lump sum, as soon as administratively practicable after the termination of the Plan, irrespective of the present value of the Participant's Nonforfeitable Accrued Benefit and whether the Participant consents to that distribution. This paragraph does not apply if: (1) the Plan provides an annuity option; or (2) as of the period between the Plan termination date and the final distribution of assets, the Employer maintains any other defined contribution plan (other than an ESOP). The Employer, in an addendum to its Adoption Agreement numbered 13.07, may elect not to have this paragraph apply. 80 The Trust will continue until the Trustee in accordance with the direction of the Advisory Committee has distributed all of the benefits under the Plan. On each valuation date, the Advisory Committee will credit any part of a Participant's Accrued Benefit retained in the Trust with its proportionate share of the Trust's income, expenses, gams and losses, both realized and unrealized. Upon termination of the Plan, the amount, if any, in a suspense account under Article m will revert to the Employer, subject to the conditions of the Treasury regulations permitting such a reversion. A resolution or amendment to freeze all future benefit accrual but otherwise to continue maintenance of this Plan, is not a termination for purposes of this Section 13.07. (B) DISTRIBUTION RESTRICTIONS UNDER CODE (S)401(K). If the Employer's Plan includes a Code (S)401(k) arrangement or if transferred assets described in Section 13.06 are subject to the distribution restrictions of Code (S)(S)401(k)(2) and (10), the special distribution provisions of this Section 13.07 are subject to the restrictions of this paragraph. The portion of the Participant's Nonforfeitable Accrued Benefit attributable to elective contributions (or to amounts treated under the Code (S)401(k) arrangement as elective contributions) is not distributable on account of Plan termination, as described in this Section 13.07, unless: (a) the Participant otherwise is entitled under the Plan to a distribution of that portion of his Nonforfeitable Accrued Benefit; or (b) the Plan termination occurs without the establishment of a successor plan. A successor plan under clause (b) is a defined contribution plan (other than an ESOP) maintained by the Employer (or by a related employer) at the time of the termination of the Plan or within the period ending twelve months after the final distribution of assets. A distribution made after March 31, 1988, pursuant to clause (b), must be part of a lump sum distribution to the Participant of his Nonforfeitable Accrued Benefit. * * * * * 81 ARTICLE XIV CODE (S)401(K) AND CODE (S)401(M) ARRANGEMENTS 14.01 APPLICATION. This Article XIV applies to an Employer's Plan only if ----------- the Employer is maintaining its Plan under a Code (S)401(k) Adoption Agreement. 14.02 CODE (S)401(k) ARRANGEMENT. The Employer will elect in Section 3.01 -------------------------- of its Adoption Agreement the terms of the Code (S)401(k) arrangement, if any, under the Plan. If the Employer's Plan is a Standardized Plan, the Code (S)401(k) arrangement must be a salary reduction arrangement. If the Employer's Plan is a Nonstandardized Plan, the Code (S)401(k) arrangement may be a salary reduction arrangement or a cash or deferred arrangement. (A) SALARY REDUCTION ARRANGEMENT. If the Employer elects a salary reduction arrangement, any Employee eligible to participate in the Plan may file a salary reduction agreement with the Advisory Committee. The salary reduction agreement may not be effective earlier than the following date which occurs last: (i) the Employee's Plan Entry Date (or, in the case of a reemployed Employee, his reparticipation date under Article II); (ii) the execution date of the Employee's salary reduction agreement; (iii) the date the Employer adopts the Code (S)401(k) arrangement by executing the Adoption Agreement: or (iv) the effective date of the Code (S)401(k) arrangement, as specified in the Employer's Adoption Agreement. Regarding clause (i), an Employee subject to the Break in Service rule of Section 2.03(B) of the Plan may not enter into a salary reduction agreement until the Employee has completed a sufficient number of Hours of Service to receive credit for a Year of Service (as defined in Section 2.02) following his reemployment commencement date. A salary reduction agreement must specify the amount of Compensation (as defined in Section 1.12) or percentage of Compensation the Employee wishes to defer. The salary reduction agreement will apply only to Compensation which becomes currently available to the Employee after the effective date of the salary reduction agreement. The Employer will apply a reduction election to all Compensation (and to increases in such Compensation) unless the Employee specifies in his salary reduction agreement to limit the election to certain Compensation. The Employer will specify in Adoption Agreement Section 3.01 the rules and restrictions applicable to the Employees salary reduction agreements. (B) CASH OR DEFERRED ARRANGEMENT. If the Employer elects a cash or deferred arrangement, a Participant may elect to make a cash election against his proportionate share of the Employer's Cash or Deferred Contribution, in accordance with the Employer's elections in Adoption Agreement Section 3.01. A Participant's proportionate share of the Employer's Cash or Deferred Contribution is the percentage of the total Cash or Deferred Contribution which bears the same ratio that the Participant's Compensation for the Plan Year bears to the total Compensation of all Participants for the Plan Year. For purposes of determining each Participant's proportionate share of the Cash or Deferred Contribution, a Participant's Compensation is his Compensation as determined under Section 1.12 of the Plan (as modified by Section 3.06 for allocation purposes), excluding any effect the proportionate share may have on the Participant's Compensation for the Plan Year. The Advisory Committee will determine the proportionate share prior to the Employer's actual contribution to the Trust, to provide the Participants the opportunity to file cash elections. The Employer will pay directly to the Participant the portion of his proportionate share the Participant has elected to receive in cash. (C) ELECTION NOT TO PARTICIPATE. A Participant's or Employee's election not to participate, pursuant to Section 2.06, includes his right to enter into a salary reduction agreement or to share in the allocation of a Cash or Deferred Contribution, unless the Participant or Employee limits the effect of the election to the non-401(k) portions of the Plan. 14.03 DEFINITIONS. For purposes of this Article XIV: ----------- (a) "Highly Compensated Employee" means an Eligible Employee who satisfies the definition in Section 1.09 of the Plan. Family members aggregated as a single Employee under Section 1.09 constitute a single Highly Compensated Employee, whether a particular family member is a 82 Highly Compensated Employee or a Nonhighly Compensated Employee without the application of family aggregation. (b) "Nonhighly Compensated Employee" means an Eligible Employee who is not a Highly Compensated Employee and who is not a family member treated as a Highly Compensated Employee. (c) "Eligible Employee" means, for purposes of the ADP test described in Section 14.08, an Employee who is eligible to enter into a salary reduction agreement for the Plan Year, irrespective of whether he actually enters into such an agreement, and a Participant who is eligible for an allocation of the Employer's Cash or Deferred Contribution for the Plan Year. For purposes of the ACP test described in Section 14.09, an "Eligible Employee" means a Participant who is eligible to receive an allocation of matching contributions (or would be eligible if he made the type of contributions necessary to receive an allocation of matching contributions) and a Participant who is eligible to make nondeductible contributions, irrespective of whether he actually makes nondeductible contributions. An Employee continues to be an Eligible Employee during a period the Plan suspends the Employee's right to make elective deferrals or nondeductible contributions following a hardship distribution. (d) "Highly Compensated Group" means the group of Eligible Employees who are Highly Compensated Employees for the Plan Year. (e) "Nonhighly Compensated Group" means the group of Eligible Employees who are Nonhighly Compensated Employees for the Plan Year. (f) "Compensation" means, except as specifically provided in this Article XIV, Compensation as defined for nondiscrimination purposes in Section 1.12(B) of the Plan. To compute an Employee's ADP or ACP, the Advisory Committee may limit Compensation taken into account to Compensation received only for the portion of the Plan Year in which the Employee was an Eligible Employee and only for the portion of the Plan Year in which the Plan or the Code (S)401(k) arrangement was in effect. (g) "Deferral contributions" are Salary Reduction Contributions and Cash or Deferred Contributions the Employer contributes to the Trust on behalf of an Eligible Employee, irrespective of whether, in the case of Cash or Deferred Contributions, the contribution is at the election of the Employee. For Salary Reduction Contributions, the terms "deferral contributions" and "elective deferrals" have the same meaning. (h) "Elective deferrals" are all Salary Reduction Contributions and that portion of any Cash or Deferred Contribution which the Employer contributes to the Trust at the election of an Eligible Employee. Any portion of a Cash or Deferred Contribution contributed to the Trust because of the Employee's failure to make a cash election is an elective deferral. However, any portion of a Cash or Deferred Contribution over which the Employee does not have a cash election is not an elective deferral Elective deferrals do not include amounts which have become currently available to the Employee prior to the election nor amounts designated as nondeductible contributions at the time of deferral or contribution. (i) "Matching contributions" are contributions made by the Employer on account of elective deferrals under a Code (S)401(k) arrangement or on account of employee contributions. Matching contributions also include Participant forfeitures allocated on account of such elective deferrals or employee contributions. (j) "Nonelective contributions" are contributions made by the Employer which are not subject to a deferral election by an Employee and which are not matching contributions. (k) "Qualified matching contributions" are matching contributions which are 100% Nonforfeitable at all times and which are subject to the distribution restrictions described in paragraph (m). Matching contributions are not 100% Nonforfeitable at all times if the Employee has a 100% Nonforfeitable interest because of his Years of Service taken into account under a vesting schedule. Any matching contributions allocated to a Participant's 83 Qualified Matching Contributions Account under the Plan automatically satisfy the definition of qualified matching contributions. (l) "Qualified nonelective contributions" are nonelective contributions which are 100% Nonforfeitable at all times and which are subject to the distribution restrictions described in paragraph (m). Nonelective contributions are not 100% Nonforfeitable at all times if the Employee has a 100% Nonforfeitable interest because of his Years of Service taken into account under a vesting schedule. Any nonelective contributions allocated to a Participant's Qualified Nonelective Contributions Account under the Plan automatically satisfy the definition of qualified nonelective contributions. (m) "Distribution restrictions" means the Employee may not receive a distribution of the specified contributions (nor earnings on those contributions) except in the event of (1) the Participant's death or disability, termination of employment or attainment of age 59 1/2, (2) financial hardship satisfying the requirements of Code (S)401(k) and the applicable Treasury regulations, (3) a plan termination, without establishment of a successor defined contribution plan (other than an ESOP), (4) a sale of substantially all of the assets (within the meaning of Code (S)409(d)(2)) used in a trade or business, but only to an employee who continues employment with the corporation acquiring those assets, or (5) a sale by a corporation of its interest in a subsidiary (within the meaning of Code (S)409(d)(3)), but only to an employee who continues employment with the subsidiary. For Plan Years beginning after December 31, 1988, a distribution on account of financial hardship, as described in clause (2), may not include earnings on elective deferrals credited as of a date later than December 31, 1988, and may not include qualified matching contributions and qualified nonelective contributions, nor any earnings on such contributions, credited after December 31, 1988. A plan does not violate the distribution reelections if, instead of the December 31, 1988, date in the preceding sentence the plan specifies a date not later than the end of the last Plan Year ending before July 1, 1989. A distribution described in clauses (3), (4) or (5), if made after March 31, 1988, must be a lump sum distribution, as required under Code (S)401(k)(10). (n) "Employee contributions" are contributions made by a Participant on an after-tax basis, whether voluntary or mandatory, and designated, at the time of contribution, as an employee (or nondeductible) contribution. Elective deferrals and deferral contributions are not employee contributions. Participant nondeductible contributions, made pursuant to Section 4.01 of the plan are employee contributions. 14.04 MATCHING CONTRIBUTIONS/EMPLOYEE CONTRIBUTIONS. The Employer may elect --------------------------------------------- in Adoption Agreement Section 3.01 to provide matching contributions. The Employer also may elect in Adoption Agreement Section 4.01 to permit or to require a Participant to make nondeductible contributions. (A) MANDATORY CONTRIBUTIONS. Any Participant nondeductible contributions eligible for matching contributions are mandatory contributions. The Advisory Committee will maintain separate accounting, pursuant to Section 4.06 of the Plan to reflect the Participant's Accrued Benefit derived from his mandatory contributions. The Employer, under Adoption Agreement Section 4.05, may prescribe special distribution restrictions which will apply to the Mandatory Contributions Account prior to the Participant's Separation from Service. Following his Separation from Service the general distribution provisions of Article VI apply to the distribution of the Participant's Mandatory Contributions Account. 14.05 TIME OF PAYMENT OF CONTRIBUTIONS. The Employer must make Salary -------------------------------- Reduction Contributions to the Trust within an administratively reasonable period of time after withholding the corresponding Compensation from the Participant. Furthermore, the Employer must make Salary Reduction Contributions, Cash or Deferred Contributions, Employer matching contributions (including qualified Employer matching contributions) and qualified Employer nonelective contributions no later than the time prescribed by the Code or by applicable Treasury regulations. Salary Reduction Contributions and Cash or Deferred Contributions are Employer contributions for all purposes under this Plan, except to the extent the Code or Treasury 84 regulations prohibit the use of these contributions to satisfy the qualification requirements of the Code. 14.06 SPECIAL ALLOCATION PROVISIONS - DEFERRAL CONTRIBUTIONS, MATCHING ---------------------------------------------------------------- CONTRIBUTIONS AND QUALIFIED NONELECTIVE CONTRIBUTIONS. To make allocations under - ----------------------------------------------------- the Plan. the Advisory Committee must establish a Deferral Contributions Account, a Qualified Matching Contributions Account, a Regular Matching Contributions Account, a Qualified Nonelective Contributions Account and an Employer Contributions Account for each Participant. (A) DEFERRAL CONTRIBUTIONS. The Advisory Committee will allocate to each Participant's Deferral Contribution Account the amount of Deferral Contributions the Employer makes to the Trust on behalf of the Participant. The Advisory Committee will make this allocation as of the last day of each Plan Year unless, in Adoption Agreement Section 3.04, the Employer elects more frequent allocation dates for salary reduction contributions. (B) MATCHING CONTRIBUTIONS. The Employer must specify in its Adoption Agreement whether the Advisory Committee will allocate matching contributions to the Qualified Matching Contributions Account or to the Regular Matching Contributions Account of each Participant. The Advisory Committee will make this allocation as of the last day of each Plan Year unless, in Adoption Agreement Section 3.04, the Employer elects more frequent allocation dates for matching contributions. (1) To the extent the Employer makes matching contributions under a fixed matching contribution formula the Advisory Committee will allocate the matching contribution to the Account of the Participant on whose behalf the Employer makes that contribution. A fixed matching contribution formula is a formula under which the Employer contributes a certain percentage or dollar amount on behalf of a Participant based on that Participant's deferral contributions or nondeductible contributions eligible for a match, as specified in Section 3.01 of the Employers Adoption Agreement. The Employer may contribute on a Participant's behalf under a specific matching contribution formula only if the Participant satisfies the accrual requirements for matching contributions specified in Section 3.06 of the Employer's Adoption Agreement and only to the extent the matching contribution does not exceed the Participant's annual additions limitation in Part 2 of Article III. (2) To the extent the Employer makes matching contributions under a discretionary formula, the Advisory Committee will allocate the discretionary matching contributions to the Account of each Participant who satisfies the accrual requirements for matching contributions specified in Section 3.06 of the Employer's Adoption Agreement. The allocation of discretionary matching contributions to a Participant's Account is in the same proportion that each Participant's eligible contributions bear to the total eligible contributions of all Participants. If the discretionary formula is a tiered formula, the Advisory Committee will make this allocation separately with respect to each tier of eligible contributions, allocating in such manner the amount of the matching contributions made with respect to that tier. "Eligible contributions" are the Participant's deferral contributions or nondeductible contributions eligible for an allocation of matching contributions, as specified in Section 3.01 of the Employer's Adoption Agreement. If the matching contribution formula applies both to deferral contributions and to Participant nondeductible contributions, the matching contributions apply first to deferral contributions. Furthermore, the matching contribution formula does not apply to deferral contributions that are excess deferrals under Section 14.07. For this purpose: (a) excess deferrals relate first to deferral contributions for the Plan Year not otherwise eligible for a matching contribution; and (2) if the Plan Year is not a calendar year, the excess deferrals for a Plan Year are the last elective deferrals made for a calendar year. Under a Standardized Plan. an Employee forfeits any matching contribution attributable to an excess contribution or to an excess aggregate contribution unless distributed pursuant to Sections 14.08 or 14.09. Under a Nonstandardized Plan, this forfeiture rule applies only if specified in Adoption Agreement Section 3.06. The provisions of Section 3.05 govern 85 the treatment of any forfeiture described in this paragraph, and the Advisory Committee will compute a Participant's ACP under 14.09 by disregarding the forfeiture. (C) QUALIFIED NONELECTIVE CONTRIBUTIONS. If the Employer, at the time of contribution, designates a contribution to be a qualified nonelective contribution for the Plan Year, the Advisory Committee will allocate that qualified nonelective contribution to the Qualified Nonelective Contributions Account of each Participant eligible for an allocation of that designated contribution, as specified in Section 3.04 of the Employer's Adoption Agreement. The Advisory Committee will make the allocation to each eligible Participant's Account in the same ratio that the Participant's Compensation for the Plan Year bears to the total Compensation of all eligible Participants for the Plan Year. The Advisory Committee will determine a Participant's Compensation in accordance with the general definition of Compensation under Section 1.12 of the Plan, as modified by the Employer in Sections 1.12 and 3.06 of its Adoption Agreement. (D) NONELECTIVE CONTRIBUTIONS. To the extent the Employer makes nonelective contributions for the Plan Year which, at the time of contribution, it does not designate as qualified nonelective contributions, the Advisory Committee will allocate those contributions in accordance with the elections under Section 3.04 of the Employer's Adoption Agreement. For purposes of the special nondiscrimination tests described in Sections 14.08 and 14.09, the Advisory Committee may treat nonelective contributions allocated under this paragraph as qualified nonelective contributions, if the contributions otherwise satisfy the definition of qualified nonelective contributions. 14.07 ANNUAL ELECTIVE DEFERRAL LIMITATION. ----------------------------------- (A) ANNUAL ELECTIVE DEFERRAL LIMITATION. An Employee's elective deferrals for a calendar year beginning after December 31, 1986, may not exceed the 402(g) limitation. The 402(g) limitation is the greater of $7,000 or the adjusted amount determined by the Secretary of the Treasury. If, pursuant to a salary reduction agreement or pursuant to a cash or deferral election, the Employer determines the Employee's elective deferrals to the Plan for a calendar year would exceed the 402(g) limitation, the Employer will suspend the Employee's salary reduction agreement, if any, until the following January 1 and pay in cash the portion of a cash or deferral election which would result in the Employee's elective deferrals for the calendar year exceeding the 402(g) limitation. If the Advisory Committee determines an Employee's elective deferrals already contributed to the Plan for a calendar year exceed the 402(g) limitation, the Advisory Committee will distribute the amount in excess of the 402(g) limitation (the "excess deferral"), as adjusted for allocable income, no later than April 15 of the following calendar year. If the Advisory Committee distributes the excess deferral by the appropriate April 15, it may make the distribution irrespective of any other provision under this Plan or under the Code. The Advisory Committee will reduce the amount of excess deferrals for a calendar year distributable to the Employee by the amount of excess contributions (as determined in Section 14.08), if any, previously distributed to the Employee for the Plan Year beginning in that calendar year. If an Employee participates in another plan under which he makes elective deferrals pursuant to a Code (S)401(k) arrangement, elective deferrals under a Simplified Employee Pension, or salary reduction contributions to a tax- sheltered annuity, irrespective of whether the Employer maintains the other plan, he may provide the Advisory Committee a written claim for excess deferrals made for a calendar year. The Employee must submit the claim no later than the March 1 following the close of the particular calendar year and the claim must specify the amount of the Employee's elective deferrals under this Plan which are excess deferrals. If the Advisory Committee receives a timely claim, it will distribute the excess deferral (as adjusted for allocable income) the Employee has assigned to this Plan in accordance with the distribution procedure described in the immediately preceding paragraph. (B) ALLOCABLE INCOME. For purposes of making a distribution of excess deferrals pursuant to this Section 14.07, allocable income means net income or net loss allocable to the excess deferrals for the calendar year in which the Employee made the excess deferral, determined in a manner which is uniform, nondiscriminatory and reasonably reflective of the manner used by the Plan to allocate income to Participants' Accounts. 86 14.08 ACTUAL DEFERRAL PERCENTAGE ("ADP") TEST. For each Plan Year, the --------------------------------------- Advisory Committee must determine whether the Plan's Code (S)401(k) arrangement satisfies either of the following ADP tests: (i) The average ADP for the Highly Compensated Group does not exceed 1.25 times the average ADP of the Nonhighly Compensated Group; or (ii) The average ADP for the Highly Compensated Group does not exceed the average ADP for the Nonhighly Compensated Group by more than two percentage points (or the lesser percentage permitted by the multiple use limitation in Section 14.10) and the average ADP for the Highly Compensated Group is not more than twice the average ADP for the Nonhighly Compensated Group. (A) CALCULATION OF ADP. The average ADP for a group is the average of the separate ADPs calculated for each Eligible Employee who is a member of that group. An Eligible Employee's ADP for a Plan Year is the ratio of the Eligible Employee's deferral contributions for the Plan Year to the Employee's Compensation for the Plan Year. For aggregated family members treated as a single Highly Compensated Employee, the ADP of the family unit is the ADP determined by combining the deferral contributions and Compensation of all aggregated family members. A Nonhighly Compensated Employee's ADP does not include elective deferrals made to this Plan or to any other Plan maintained by the Employer, to the extent such elective deferrals exceed the 402(g) limitation described in Section 14.07(A). The Advisory Committee, in a manner consistent with Treasury regulations, may determine the ADPs of the Eligible Employees by taking into account qualified nonelective contributions or qualified matching contributions, or both, made to this Plan or to any other qualified Plan maintained by the Employer. The Advisory Committee may not include qualified nonelective contributions in the ADP test unless the allocation of nonelective contributions is nondiscriminatory when the Advisory Committee takes into account all nonelective contributions (including the qualified nonelective contributions) and also when the Advisory Committee takes into account only the nonelective contributions not used in either the ADP test described in this Section 14.08 or the ACP test described in Section 14.09. For Plan Years beginning after December 31, 1989, the Advisory Committee may not include in the ADP test any qualified nonelective contributions or qualified matching contributions under another qualified plan unless that plan has the same plan year as this Plan. The Advisory Committee must maintain records to demonstrate compliance with the ADP test, including the extent to which the Plan used qualified nonelective contributions or qualified matching contributions to satisfy the test. For Plan Years beginning prior to January 1, 1992. the Advisory Committee may elect to apply a separate ADP test to each component group under the Plan. Each component group separately must satisfy the commonality requirement of the Code (S)401(k) regulations and the minimum coverage requirements of Code (S)410(b). A component group consists of all the allocations and other benefits, rights and features provided that group of Employee. An Employee may not be part of more than one component group. The correction rules described in this Section 14.08 apply separately to each component group. (B) SPECIAL AGGREGATION RULE FOR HIGHLY COMPENSATED EMPLOYEES. To determine the ADP of any Highly Compensated Employee, the deferral contributions taken into account must include any elective deferrals made by the Highly Compensated Employee under any other Code (S)401(k)arrangement maintained by the Employer, unless the elective deferrals are to an ESOP. If the plans containing the Code (S)401(k) arrangements have different plan years, the Advisory Committee will determine the combined deferral contributions on the basis of the plan years ending in the same calendar year. (C) AGGREGATION OF CODE (S)401(K) ARRANGEMENTS. If the Employer treats two plans as a unit for coverage or nondiscrimination purposes, the Employer must combine the Code (S)401(k) arrangements under such plans to determine whether either plan satisfies the ADP test. 87 This aggregation rule applies to the ADP determination for all Eligible Employees, irrespective of whether an Eligible Employee is a Highly Compensated Employee or a Nonhighly Compensated Employee. For Plan Years beginning after December 31, 1989, an aggregation of Code (S)401(k) arrangements under this paragraph does not apply to plans which have different plan years and, for Plan Years beginning after December 31, 1988. the Advisory Committee may not aggregate an ESOP (or the ESOP portion of a plan) with a non-ESOP plan (or non- ESOP portion of a plan). (D) CHARACTERIZATION OF EXCESS CONTRIBUTIONS. If, pursuant to this Section 14.08, the Advisory Committee has elected to include qualified matching contributions in the average ADP, the Advisory Committee will treat excess contributions as attributable proportionately to deferral contributions and to qualified matching contributions allocated on the basis of those deferral contributions. If the total amount of a Highly Compensated Employee's excess contributions for the Plan Year exceeds his deferral contributions or qualified matching contributions for the Plan Year, the Advisory Committee will treat the remaining portion of his excess contributions as attributable to qualified nonelective contributions. The Advisory Committee will reduce the amount of excess contributions for a Plan Year distributable to a Highly Compensated Employee by the amount of excess deferrals (as determined in Section 14.07), if any, previously distributed to that Employee for the Employee's taxable year ending in that Plan Year. (E) DISTRIBUTION OF EXCESS CONTRIBUTIONS. If the Advisory Committee determines the Plan fails to satisfy the ADP test for a Plan Year, it must distribute the excess contributions, as adjusted for allocable income, during the next Plan Year. However, the Employer will incur an excise tax equal to 10% of the amount of excess contributions for a Plan Year not distributed to the appropriate Highly Compensated Employees during the first 2 1/2 months of that next Plan Year. The excess contributions are the amount of deferral contributions made by the Highly Compensated Employees which causes the Plan to fail to satisfy the ADP test. The Advisory Committee will distribute to each Highly Compensated Employee his respective share of the excess contributions. The Advisory Committee will determine the respective shares of excess contributions by starting with the Highly Compensated Employee(s) who has the greatest ADP, reducing his ADP (but not below the next highest ADP), then, if necessary, reducing the ADP of the Highly Compensated Employee(s) at the next highest ADP level (including the ADP of the Highly Compensated Employee(s) whose ADP the Advisory Committee already has reduced), and continuing in this manner until the average ADP for the Highly Compensated Group satisfies the ADP test. If the Highly Compensated Employee is part of an aggregated family group, the Advisory Committee, in accordance with the applicable Treasury regulations, will determine each aggregated family member's allocable share of the excess contributions assigned to the family unit. (F) ALLOCABLE INCOME. To determine the amount of the corrective distribution required under this Section 14.08, the Advisory Committee must calculate the allocable income for the Plan Year in which the excess contributions arose. "Allocable income" means net income or net loss. To calculate allocable income for the Plan Year, the Advisory Committee will use a uniform and nondiscriminatory method which reasonably reflects the manner used by the Plan to allocate income to Participants' Accounts. 14.09 NONDISCRIMINATION RULES FOR EMPLOYER MATCHING --------------------------------------------- CONTRIBUTIONS/PARTICIPANT NONDEDUCTIBLE CONTRIBUTIONS. For Plan Years beginning - ----------------------------------------------------- after December 31, 1986, the Advisory Committee must determine whether the annual Employer matching contributions (other than qualified matching contributions used in the ADP under Section 14.08), if any, and the Employee contributions, if any, satisfy either of the following average contribution percentage ("ACP") tests: (i) The ACP for the Highly Compensated Group does not exceed 1.25 times the ACP of the Nonhighly Compensated Group; or (ii) The ACP for the Highly Compensated Group doa not exceed the ACP for the Nonhighly Compensated Group by more than two percentage points (or the lesser percentage permitted by the multiple use limitation in Section 14.10) and the ACP for the Highly Compensated Group is not more than twice the ACP for the Nonhighly Compensated Group. 88 (A) CALCULATION OF ACP. The average contribution percentage for a group is the average of the separate contribution percentages calculated for each Eligible Employee who is a member of that group. An Eligible Employee's contribution percentage for a Plan Year is the ratio of the Eligible Employee s aggregate contributions for the Plan Year to the Employee's Compensation for the Plan Year. "Aggregate contributions" are Employer matching contributions (other than qualified matching contributions used in the ADP test under Section 14.08) and employee contributions (as defined in Section 14.03). For aggregated family members treated as a single Highly Compensated Employee, the contribution percentage of the family unit is the contribution percentage determined by combining the aggregate contributions and Compensation of all aggregated family members. The Advisory Committee, in a manner consistent with Treasury regulations, may determine the contribution percentages of the Eligible Employees by taking into account qualified nonelective contributions (other than qualified nonelective contributions used in the ADP test under Section 14.08) or elective deferrals, or both, made to this Plan or to any other qualified Plan maintained by the Employer. The Advisory Committee may not include qualified nonelective contributions in the ACP test unless the allocation of nonelective contributions is nondiscriminatory when the Advisory Committee takes into account all nonelective contributions (including the qualified nonelective contributions) and also when the Advisory Committee takes into account only the nonelective contributions not used in either the ADP test described in Section 14.08 or the ACP test described in this Section 14.09. The Advisory Committee may not include elective deferrals in the ACP test, unless the Plan which includes the elective deferrals satisfies the ADP test both with and without the elective deferrals included in this ACP test. For Plan Years beginning after December 31, 1989, the Advisory Committee may not include in the ACP test any qualified nonelective contributions or elective deferrals under another qualified plan unless that plan has the same plan year as this Plan. The Advisory Committee must maintain records to demonstrate compliance with the ACP test, including the extent to which the Plan used qualified nonelective contributions or elective deferrals to satisfy the test. For Plan Years beginning prior to January 1, 1992, the component group testing rule permitted under Section 14.08(A) also applies to the ACP test under this Section 14.09. (B) SPECIAL AGGREGATION RULE FOR HIGHLY COMPENSATED EMPLOYEES. To determine the contribution percentage of any Highly Compensated Employee, the aggregate contributions taken into account must include any matching contributions (other than qualified matching contributions used in the ADP test) and any Employee contributions made on his behalf to any other plan maintained by the Employer, unless the other plan is an ESOP. If the plans have different plan years. the Advisory Committee will determine the combined aggregate contributions on the basis of the plan years ending in the same calendar year. (C) AGGREGATION OF CERTAIN PLANS. If the Employer treats two plans as a unit for coverage or nondiscrimination purposes, the Employer must combine the plans to determine whether either plan satisfies the ACP test. This aggregation rule applies to the contribution percentage determination for all Eligible Employees, irrespective of whether an Eligible Employee is a Highly Compensated Employee or a Nonhighly Compensated Employee. For Plan Years beginning after December 31, 1989, an aggregation of plans under this paragraph does not apply to plans which have different plan years and, for Plan Years beginning after December 31, 1988, the Advisory Committee may not aggregate an ESOP (or the ESOP portion of a plan) with a non-ESOP plan (or non-ESOP portion of a plan). (D) DISTRIBUTION OF EXCESS AGGREGATE CONTRIBUTIONS. The Advisory Committee will determine excess aggregate contributions after determining excess deferrals under Section 14.07 and excess contributions under Section 14.08. If the Advisory Committee determines the Plan fails to satisfy the ACP test for a Plan Year, it must distribute the excess aggregate contributions, as adjusted for allocable income, during the next Plan Year. However, the Employer will incur an excise tax equal to 10% of the amount of excess aggregate contributions for a Plan Year not distributed to the appropriate Highly Compensated Employees during the first 2 1/2 months of that next Plan Year. The excess aggregate contributions are the amount of aggregate contributions allocated on behalf of the Highly Compensated Employees which causes the Plan to fail to satisfy the ACP test. The Advisory 89 Committee will distribute to each Highly Compensated Employee his respective share of the excess aggregate contributions. The Advisory Committee will determine the respective shares of excess aggregate contributions by starting with the Highly Compensated Employee(s) who has the greatest contribution percentage, reducing his contribution percentage (but not below the next highest contribution percentage), then, if necessary, reducing the contribution percentage of the Highly Compensated Employee(s) at the next highest contribution percentage level (including the contribution percentage of the Highly Compensated Employee(s) whose contribution percentage the Advisory Committee already has reduced), and continuing in this manner until the ACP for the Highly Compensated Group satisfies the ACP test. If the Highly Compensated Employee is part of an aggregated family group, the Advisory Committee, in accordance with the applicable Treasury regulations, will determine each aggregated family member's allocable share of the excess aggregate contributions assigned to the family unit. (E) ALLOCABLE INCOME. To determine the amount of the corrective distribution required under this Section 14.09, the Advisory Committee must calculate the allocable income for the Plan Year in which the excess aggregate contributions arose. "Allocable income" means net income or net loss. The Advisory Committee will determine allocable income in the same manner as described in Section 14.08(E;) for excess contributions. (F) CHARACTERIZATION OF EXCESS AGGREGATE CONTRIBUTIONS. The Advisory Committee will treat a Highly Compensated Employee's allocable share of excess aggregate contributions in the following priority: (1) first as attributable to his Employee contributions which are voluntary contributions, if any; (2) then as matching contributions allocable with respect to excess contributions determined under the ADP test described in Section 14.08; (3) then on a pro rata basis to matching contributions and to the deferral contributions relating to those matching contributions which the Advisory Committee has included in the ACP test; (4) then on a pro rata basis to Employee contributions which are mandatory contributions, if any, and to the matching contributions allocated on the basis of those mandatory contributions; and (5) last to qualified nonelective contributions used in the ACP test. To the extent the Highly Compensated Employee's excess aggregate contribution are attributable to matching contributions, and he is not 100% vested in his Accrued Benefit attributable to matching contributions, the Advisory Committee will distribute only the vested portion and forfeit the nonvested portion. The vested portion of the Highly Compensated Employee's excess aggregate contributions attributable to Employer matching contributions is the total amount of such excess aggregate contributions (as adjusted for allocable income) multiplied by his vested percentage (determined as of the 1st day of the Plan Year for which the Employer made the matching contribution). The Employer will specify in Adoption Agreement Section 3.05 the manner in which the Plan will allocate forfeited excess aggregate contributions. 14.10 MULTIPLE USE LIMITATION. For Plan Years beginning after December 31, ----------------------- 1988, if at least one Highly Compensated Employee is includible in the ADP test under Section 14.08 and in the ACP test under Section 14.09, the sum of the Highly Compensated Group's ADP and ACP my not exceed the multiple use limitation. The multiple use limitation is the sum of (i) and (ii): (i) 125% of the greater of: (a) the ADP of the Nonhighly Compensated Group under the Code (S)401(k) arrangement; or (b) the ACP of the Nonhighly Compensated Group for the Plan Year beginning with or within the Plan Year of the Code (S)401(k) arrangement. (ii) 2% plus the lesser of (i)(a) or (i)(b), but no more than twice the lesser of (i)(a) or (i)(b). The Advisory Committee, in lieu of determining the multiple use limitation as the sum of (i) and (ii), may elect to determine the multiple use limitation as the sum of (iii) and (iv): (iii) 125% of the lesser of: (a) the ADP of the Nonhighly Compensated Group under the Code (S)401(k) arrangement; or (b) the ACP of the Nonhighly Compensated Group for the Plan Year beginning with or within the Plan Year of the Code (S)401(k) arrangement. 90 (iv) 2% plus the greater of (iii)(a) or (iii)(b), but no more than twice the greater of (iii)(a) The Advisory Committee will determine whether the Plan satisfies the multiple use limitation after applying the ADP test under Section 14.08 and the ACP test under Section 14.09 and after making any corrective distributions required by those Sections. If, after applying this Section 14.10, the Advisory Committee determines the Plan has failed to satisfy the multiple use limitation' the Advisory Committee will correct the failure by treating the excess amount as excess contributions under Section 14.08 or as excess aggregate contributions under Section 14.09, as it determines in its sole discretion. This Section 14.10 does not apply unless, prior to application of the multiple use limitation, the ADP and the ACP of the Highly Compensated Group each exceeds 125% of the respective percentages for the Nonhighly Compensated Group. 14.11 DISTRIBUTION RESTRICTIONS. The Employer must elect in Section 6.03 ------------------------- the Adoption Agreement the distribution events permitted under the Plan. The distribution events applicable to the Participant's Deferral Contributions Account, Qualified Nonelective Contributions Account and Qualified Matching Contributions Account must satisfy the distribution restrictions described in paragraph (m) of Section 14.03. (A) HARDSHIP DISTRIBUTIONS FROM DEFERRAL CONTRIBUTIONS ACCOUNT. The Employer must elect in Adoption Agreement Section 6.03 whether a Participant may receive hardship distributions from his Deferral Contributions Account prior to the Participant's Separation from Service. Hardship distributions from the Deferral Contributions Account must satisfy the requirements of this Section 14.11. A hardship distribution option may not apply to the Participant's Qualified Nonelective Contributions Account or Qualified Matching Contributions Account, except as provided in paragraph (3). (1) DEFINITION OF HARDSHIP. A hardship distribution under this Section 14.11 must be on account of one or more of the following immediate and heavy financial needs: (1) medical care described in Code (S)213(d) incurred by the Participant, by the Participant's spouse, or by any of the Participant's dependents, or necessary to obtain such medical care; (2) the purchase (excluding mortgage payments) of a principal residence for the Participant; (3) the payment of post-secondary education tuition and related educational fees, for the next 12- month period, for the Participant, for the Participant's spouse, or for any of the Participant's dependents (as defined in Code (S)152); (4) to prevent the eviction of the Participant from his principal residence or the foreclosure on the mortgage of the Participant's principal residence; or (5) any need prescribed by the Revenue Service in a revenue ruling, notice or other document of general applicability which satisfies the safe harbor definition of hardship. (2) RESTRICTIONS. The following restrictions apply to a Participant who receives a hardship distribution: (a) the Participant may not make elective deferrals or employee contributions to the Plan for the 12-month period following the date of his hardship distribution; (b) the distribution is not in excess of the amount of the immediate and heavy financial need (including any amounts necessary to pay any federal state or local income taxes or penalties reasonably anticipated to result from the distribution); (c) the Participant must have obtained all distributions, other than hardship distributions, and all nontaxable loans (determined at the time of the loan) currently available under this Plan and all other qualified plans maintained by the Employer; and (d) the Participant agrees to limit elective deferrals under this Plan and under any other qualified Plan maintained by the Employer, for the Participant's taxable year immediately following the taxable year of the hardship distribution to the 402(g) limitation (as described in Section 14.07), reduced by the amount of the Participant's elective deferrals made in the taxable year of the hardship distribution. The suspension of elective deferrals and employee contributions described in clause (a) also must apply to all other qualified plans and to all nonqualified plans of deferred compensation maintained by the Employer, other than any mandatory employee contribution portion of a defined benefit plan, including stock option, stock purchase and other similar plans, but not including health or welfare benefit plans (other than the cash or deferred arrangement portion of a cafeteria plan). 91 (3) EARNINGS. For Plan Years beginning after December 31, 1988, a hardship distribution under Section 14.11 may not include earnings on an Employee's elective deferrals credited after December 31, 1998. Qualified matching contributions and qualified nonelective contributions, and any earnings on such contributions, credited as of December 31, 1988, are subject to the hardship withdrawal only if the Employer specifies in an addendum to this Section 14.11. The addendum may modify the December 31, 1988, date for purposes of determining credited amounts provided the date is not later than the end of the last Plan Year ending before July 1, 1989. (B) DISTRIBUTIONS AFTER SEPARATION FROM SERVICE. Following the Participant's Separation from Service, the distribution events applicable to the Participant apply equally to all of the Participant's Accounts, except as elected in Section 6.03 of he Employer's Adoption Agreement. (C) CORRECTION OF ANNUAL ADDITIONS LIMITATION. If, as a result of a reasonable error in determining the amount of elective deferrals an Employer may make without violating the limitations in Part 2 of Article III, an Excess Amount results, the Advisory Committee will return the Excess Amount (as adjusted for allocable income) attributable to the elective deferrals. The Advisory Committee will make this distributions before taking any corrective steps pursuant to Section 3.10 or to Section 3.16. The Advisory Committee will disregard any elective deferrals returned under this Section 14.11(C) for purposes of Section 14.07,14.08 and 14.09. 14.12 SPECIAL ALLOCATION RULES. If the Code (S)401(k) arrangement ------------------------ provides for salary reduction contributions, if the Plan accepts Employee contributions, pursuant to Adoption Agreement Section 4.01, or if the Plan allocates matching contributions as of any date other than the last day of the Plan Year, the Employer must elect in Adoption Agreement 9.11 whether any special allocation provisions will apply under Section 9.11 of the Plan. For purposes of the elections: (a) A "segregated Account" direction means the Advisory Committee will establish a segregated Account for the applicable contributions made on the Participant's behalf during the Plan Year. The Trustee must invest the segregated Account in Federally insured interest bearing savings account(s) or time deposits, or a combination of both, or in any other fixed income investments, unless otherwise specified in the Employer/s Adoption Agreement. As of the last day of each Plan Year (or, if earlier, an allocation date coinciding with a valuation date described in Section 9.11), the Advisory Committee will reallocated the segregated Account to the Participant's appropriate Account, in accordance with Section 3.04 or Section 4.06, whichever applies to the contributions. (b) A "weighted average allocation" method will treat a weighted portion of the applicable contributions as if includible in the Participant's Account as of the beginning of the valuation period. The weighted portion is a fraction, the numerator of which is the number of months in the valuation period, excluding each month in the valuation period which begins prior to the contribution date of the applicable contributions, and the denominator of which is the number of months in the valuation period. The Employer may elect in its Adoption Agreement to substitute a weighting period other than months for purposes of this weighted average allocation. * * * * * 92 ARTICLE A APPENDIX TO BASIC PLAN DOCUMENT This Article is necessary to comply with the Unemployment Compensation Amendments Act of 1992 and is an integral part of the basic plan document. Section 12.08 applies to any modification or amendment of this Article. A-1. APPLICATIONS. This Article applies to distributions made on or after ------------ January 1, 1993. Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributee's election under this Article, a distributee may elect, at the time and in the manner prescribed by the Plan Administrator, to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the distributee in a direct rollover. A-2. DEFINITIONS. ----------- (a) "Eligible rollover distribution." An eligible rollover distribution is any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributee's designated beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Code (S)401(a)(9); and the portion of any distribution that is not includible in gross income (determined without regard to the exclusion of net unrealized appreciation with respect to employer securities). (b) "Eligible retirement plan." An eligible retirement plan is an individual retirement account described in Code (S)408(a), an individual retirement annuity described in Code (S)408(b), an annuity plan described in Code (S)403(a), or a qualified trust described in Code (S)401(a), that accepts the distributee's eligible rollover distribution. However, in the case of an eligible rollover distribution to the surviving spouse, an eligible retirement plan is an individual retirement account or individual retirement annuity. (c) "Distributee." A distributee includes an Employee or former Employee. In addition, the Employee's or former Employee's surviving spouse and the employee's or former Employee's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Code (S)414(p), are distributees with regard to the interest of the spouse or former spouse. (d) "Direct rollover." A direct rollover is a payment by the Plan to the eligible retirement plan specified by the distributee. 93 ARTICLE B APPENDIX TO BASIC PLAN DOCUMENT This Article is necessary to comply with the Omnibus Budget Reconciliation Act of 1993 (OBRA '93) and is an integral part of the basic plan document. Section 12.08 applies to any modification or amendment of this Article In addition to other applicable limitations set forth in the plan, and notwithstanding any other provision of the plan to the contrary, for plan years beginning on or after January 1, 1994, the annual compensation of each employee taken into account under the plan shall not exceed the OBRA '93 annual compensation limit. The OBRA '93 annual compensation limit is $150,000, as adjusted by the Commissioner for increases in the cost of living in accordance with Section 401(a)(17)(B) of the Internal Revenue Code. The cost-of-living adjustment in effect for a calendar year applies to any period, not exceeding 12 months, over which compensation is determined (determination period) beginning in such calendar year. If a determination period consists of fewer than 12 months, the OBRA '93 annual compensation limit will be multiplied by a fraction, the numerator of which is the number of months in the determination period, and the denominator of which is 12. For plan years beginning on or after January 1, 1994, any reference in this plan to the limitation under Section 401(a)(17) of the Code shall mean the OBRA '93 annual compensation limit set forth in this provision. If compensation for any prior determination period is taken into account in determining an employee's benefits accruing in the current plan year, the compensation for that prior determination period is subject to the OBRA '93 annual compensation limit in effect for that prior determination period. For this purpose, for determination periods beginning before the first day of the first plan year beginning on or after January 1, 1994, the OBRA '93 annual compensation limit is $150,000. 94 EX-23 4 CONSENT OF DWYER PEMBERTON AND COULSON, P.C. EXHIBIT 23.1 CONSENT OF DWYER PEMBERTON AND COULSON, P.C. [Logo] Dwyer Pemberton 945 Fawcett P.O. Box 1614 and Coulson, P.C. Tacoma, Washington 98401-1614 Certified Public Accountants Tacoma 206/572-9922 Established 1936 Seattle 206/292-9922 Fax: 206/572-1447 CONSENT OF INDEPENDENT AUDITORS The Board of Directors Timberland Bancorp, Inc. Timberland Savings Bank, SSB Hoquiam, Washington We consent to the use in this Registration Statement on Form S-1 on behalf of Timberland Bancorp, Inc., of our report dated November 22, 1996, relating to the consolidated financial statements of Timberland Savings Bank, SSB and subsidiary contained in the Prospectus, which is part of such Registration Statement. We also consent to the reference to us under the headings "Legal and Tax Opinions" and "Experts" contained in this Prospectus, which is a part of such Registration Statement. /s/ Dwyer Pemberton & Coulson, P.C. DWYER PEMBERTON & COULSON, P.C. Tacoma, Washington October 27, 1997 EX-99.4 5 APPRAISAL REPORT OF RP FINANCIAL, LC EXHIBIT 99.4 APPRAISAL REPORT OF RP FINANCIAL, LC. ---------------------------------------- CONVERSION APPRAISAL REPORT TIMBERLAND BANCORP, INC. PROPOSED HOLDING COMPANY FOR TIMBERLAND SAVINGS BANK HOQUIAM, WASHINGTON STOCK PRICES AS OF: AUGUST 29, 1997 ---------------------------------------- Prepared By: RP Financial, LC. 1700 North Moore Street Suite 2210 Arlington, Virginia 22209 [LETTERHEAD APPEARS HERE] August 29, 1997 Board of Directors Timberland Savings Bank 624 Simpson Avenue Hoquiam, Washington 98550 Gentlemen: At your request, we have completed and hereby provide an independent appraisal ("Appraisal") of the estimated pro forma market value of the common stock which is to be issued in connection with the mutual-to-stock conversion of Timberland Savings Bank, Hoquiam, Washington ("Timberland" or the "Bank"). The common stock issued in connection with the Bank's conversion will simultaneously be acquired by a holding company, Timberland Bancorp, Inc. ("Timberland Bancorp" or the "Holding Company"). The conversion involves the issuance of shares of common stock to depositors, tax-qualified employee plans of Timberland and the Holding Company, including Timberland Bancorp's newly-formed employee stock ownership plan ("ESOP"), borrowers, members of the local community and the public at large. This appraisal is furnished pursuant to the requirements of 563b.7 and has been prepared in accordance with the "Guidelines for Appraisal Reports for the Valuation of Savings and Loan Associations Converting from Mutual to Stock Form of Organization" (Valuation Guidelines) of the Office of Thrift Supervision ("OTS"), including the most recent revisions as of October 21, 1994, and applicable regulatory interpretations thereof. Such Valuation Guidelines are relied upon by the Washington Department of Financial Institutions, Division of Banks (the "Division") and the Federal Deposit Insurance Corporation (FDIC) in evaluating conversion appraisals in the absence of separate written valuation guidelines by the respective agencies. Description of Reorganization - ----------------------------- The Board of Directors of the Bank has adopted a Plan of Conversion pursuant to which the Bank will convert from a federally chartered mutual savings bank to a federally chartered capital stock savings bank and issue all of its outstanding shares to the Holding Company. The Holding Company will sell in a Subscription Offering and a concurrent Community Offering, Holding Company stock in the amount equal to the appraised value of the Bank. Immediately following the conversion, the primary assets of the Holding Company will be the capital stock of the Bank and the net conversion proceeds remaining after purchase of the Bank's common stock by the Holding Company. The Holding Company will use up to 50 percent of the net conversion proceeds to purchase the Bank's common stock. The remaining net conversion proceeds, retained at the Holding Company, will be used to fund a loan to the ESOP with the remainder to be used as general working capital. RP Financial, LC. - ----------------- RP Financial, LC. ("RP Financial") is a financial consulting firm serving the financial services industry nationwide that, among other things, specializes in financial valuations and analyses of business enterprises and securities, including the pro forma valuation for savings institutions converting from mutual-to-stock form. The background and experience of RP Financial is detailed in Exhibit V-1. We believe that, except for the fee we RP FINANCIAL, LC. Board of Directors August 29, 1997 Page 2 will receive for our appraisal and assisting the Bank in the preparation of its business plan, we are independent of the Bank and the other parties engaged by the Bank to assist in the stock conversion process. Valuation Methodology - --------------------- In preparing our appraisal, we have reviewed Timberland's application for Approval of Conversion, including the Proxy Statement, as filed with the OTS, and the Holding Company's Form S-1 registration statement as filed with the Securities Exchange Commission ("SEC"). We have conducted a financial analysis of the Bank that has included due diligence related discussions with the Bank's management; Dwyer Pemberton and Coulson, P.C., the Bank's independent auditor; Breyer & Aguggia, the Bank's conversion counsel; and Charles Webb & Company, a division of Keefe, Bruyette & Woods, Inc., which has been retained by the Bank as financial and marketing advisor in connection with the Holding Company's stock offering. All conclusions set forth in the appraisal were reached independently from such discussions. In addition, where appropriate, we have considered information based on other available published sources that we believe are reliable. While we believe the information and data gathered from all these sources are reliable, we cannot guarantee the accuracy and completeness of such information. We have investigated the competitive environment within which the Bank operates and have assessed the Bank's relative strengths and weaknesses. We have kept abreast of the changing regulatory and legislative environment and analyzed the potential impact on the Bank and the industry as a whole. We have analyzed the potential effects of conversion on the Bank's operating characteristics and financial performance as they relate to the pro forma market value of Timberland. We have reviewed the economy in the Bank's primary market area and have compared the Bank's financial performance and condition with selected publicly-traded thrift institutions with similar characteristics as the Bank's, as well as all publicly-traded thrifts. We have reviewed conditions in the securities markets in general and in the market for thrift stocks in particular, including the market for existing thrift issues and the market for initial public offerings by thrifts. Our appraisal is based on the Bank's representation that the information contained in the regulatory applications and additional information furnished to us by the Bank and its independent auditors are truthful, accurate and complete. We did not independently verify the financial statements and other information provided by the Bank and its independent auditors, nor did we independently value the assets or liabilities of the Bank. The valuation considers the Bank only as a going concern and should not be considered as an indication of the liquidation value of Timberland. Our appraised value is predicated on a continuation of the current operating environment for the Bank and for all thrifts. Changes in the local and national economy, the legislative and regulatory environment, the stock market, interest rates, and other external forces (such as natural disasters or significant world events) may occur from time to time, often with great unpredictability, and may materially impact the value of thrift stocks as a whole or the Bank's value alone. It is our understanding Timberland intends to remain an independent institution and there are no current plans for selling control of the Bank as a converted institution. To the extent that such factors can be foreseen, they have been factored into our analysis. Pro forma market value is defined as the price at which Timberland's stock, immediately upon completion of the conversion offering, would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts. RP Financial, LC. Board of Directors August 29, 1997 Page 3 Valuation Conclusion - -------------------- It is our opinion that, as of August 29, 1997, the aggregate pro forma market value of the shares to be issued was $50,000,000 at the midpoint, equal to 5,000,000 shares offered at a per share value of $10.00. Pursuant to the regulatory conversion guidelines, the 15 percent offering range indicates a minimum value of $42,500,000 and a maximum value of $57,500,000. Based on the $10.00 per share offering price, this valuation range equates to an offering of 4,250,000 shares at the minimum to 5,750,000 shares at the maximum. In the event that the Bank's appraised value is subject to an increase, up to 6,612,500 shares may be sold at an issue price of $10.00 per share, for an aggregate market value of $66,125,000, without a resolicitation. Limiting Factors and Considerations - ----------------------------------- Our valuation is not intended, and must not be construed, as a recommendation of any kind as to the advisability of purchasing shares of the common stock. Moreover, because such valuation is necessarily based upon estimates and projections of a number of matters, all of which are subject to change from time to time, no assurance can be given that persons who purchase shares of common stock in the conversion will thereafter be able to buy or sell such shares at prices related to the foregoing valuation of the pro forma market value thereof. RP Financial's valuation was determined based on the financial condition and operations of the Bank as of June 30, 1997, the date of the financial data included in the Holding Company's prospectus. RP Financial is not a seller of securities within the meaning of any federal and state securities laws and any report prepared by RP Financial shall not be used as an offer or solicitation with respect to the purchase or sale of any securities. RP Financial maintains a policy which prohibits the company, its principals or employees from purchasing stock of its client institutions. The valuation will be updated as provided for in the conversion regulations and guidelines. These updates will consider, among other things, any developments or changes in the Bank's financial performance and condition, management policies, and current conditions in the equity markets for thrift shares. These updates may also consider changes in other external factors which impact value including, but not limited to: various changes in the legislative and regulatory environment, the stock market and the market for thrift stocks, and interest rates. Should any such new developments or changes be material, in our opinion, to the valuation of the shares, appropriate adjustments to the estimated pro forma market value will be made. The reasons for any such adjustments will be explained in the update at the date of the release of the update. Respectfully submitted, RP FINANCIAL, LC. /s/ Ronald S. Riggins Ronald S. Riggins President /s/ James P. Hennessey James P. Hennessey Senior Vice President RP Financial LC. TABLE OF CONTENTS TIMBERLAND BANCORP, INC. TIMBERLAND SAVINGS BANK
PAGE DESCRIPTION NUMBER ----------- ------ CHAPTER ONE OVERVIEW AND FINANCIAL ANALYSIS - ----------- Introduction 1.1 Strategic Overview 1.2 Balance Sheet Trends 1.4 Income and Expense Trends 1.7 Interest Rate Risk Management 1.11 Lending Activities and Strategy 1.11 Asset Quality 1.15 Funding Composition and Strategy 1.16 Subsidiary 1.17 Legal Proceedings 1.17 CHAPTER TWO MARKET AREA - ----------- Introduction 2.1 Market Area Demographics 2.2 Economy 2.4 Unemployment 2.6 Competition 2.6 CHAPTER THREE PEER GROUP ANALYSIS - ------------- Selection of Peer Group 3.1 Financial Condition 3.5 Income and Expense Components 3.8 Loan Composition 3.11 Credit Risk 3.11 Interest Rate Risk 3.14 Summary 3.16
RP Financial, LC. TABLE OF CONTENTS TIMBERLAND BANCORP, INC. TIMBERLAND SAVINGS BANK (CONTINUED)
PAGE DESCRIPTION NUMBER ----------- ------ CHAPTER FOUR VALUATION ANALYSIS - ------------ Introduction 4.1 Appraisal Guidelines 4.1 RP Financial Approach to the Valuation 4.1 Valuation Analysis 4.2 1. Financial Condition 4.2 2. Profitability, Growth and Viability of Earnings 4.3 3. Asset Growth 4.5 4. Primary Market Area 4.5 5. Dividends 4.5 6. Liquidity of the Shares 4.7 7. Marketing of the Issue 4.7 A. The Public Market 4.8 B. The New Issue Market 4.11 C. The Acquisition Market 4.14 8. Management 4.14 9. Effect of Government Regulation and Regulatory Reform 4.15 Summary of Adjustments 4.15 Valuation Approaches 4.15 1. Price-to-Tangible Book ("P/TB") 4.17 2. Price-to-Earnings ("P/E") 4.17 3. Price-to-Assets ("P/A") 4.18 Comparison to Recent Conversions 4.18 Valuation Conclusion 4.19
RP Financial, LC. LIST OF TABLES TIMBERLAND BANCORP, INC. TIMBERLAND SAVINGS BANK
TABLE NUMBER DESCRIPTION PAGE - ------ ----------- ---- 1.1 Historical Balance Sheets 1.5 1.2 Historical Income Statements 1.8 2.1 Summary Demographic Data 2.3 2.2 Major Employers in the Timberland Savings Bank's Markets 2.5 2.3 Market Area Unemployment Trends 2.6 2.4 Deposit Summary 2.7 3.1 Peer Group of Publicly-Traded Thrifts 3.4 3.2 Balance Sheet Composition and Growth Rates 3.6 3.3 Income as a Percent of Average Assets and Yields, Costs, Spreads 3.9 3.4 Loan Portfolio Composition Comparative Analysis 3.12 3.5 Credit Risk Measures and Related Information 3.13 3.6 Interest Rate Risk Comparative Analysis 3.15 4.1 Peer Group Market Area Comparative Analysis 4.6 4.2 Conversion Pricing Characteristics 4.12 4.3 Market Pricing Comparatives 4.13 4.4 Public Market Pricing 4.20
7 RP Financial, LC. Page 1.1 I. OVERVIEW AND FINANCIAL ANALYSIS Introduction - ------------ Timberland Savings Bank ("Timberland" or the "Bank") is a state chartered mutual savings bank headquartered in Hoquiam, Washington. Hoquiam is located in Grays Harbor County, which is situated along the central Washington Pacific coast. Hoquiam and Aberdeen are two small-sized cities (population of 8,940 and 16,750 as of 1994, respectively) located approximately 110 miles southwest of Seattle and 145 miles northwest of Portland, Oregon. In addition to its main office in Hoquiam, the Bank operates three additional office in Grays Harbor County (Aberdeen, Montesano and Ocean Shores). Additionally, the Bank has extended its market into the Seattle-Tacoma metropolitan area through the opening of offices in Auburn (King County) and Puyallup (Pierce County). Moreover, in May 1997, Timberland opened its newest office in Lacey (near Olympia). The Bank has further sought to extend its lending operations into the Seattle metropolitan area through the operation of a loan center in Port Orchard. Timberland was organized in 1915 and has a long history of service to its primary market. Timberland is a member of the Federal Home Loan Bank ("FHLB") system, with its deposits insured up to the regulatory maximums by the Federal Deposit Insurance Corporation ("FDIC") under the Savings Association Insurance Fund ("SAIF"). The Bank's primary regulators are the Washington Department of Financial Institutions, Division of Banks (the "Division") and the FDIC. At June 30, 1997, Timberland had total assets of $206.2 million, total deposits of $167.1 million, and equity of $23.9 million, equal to 11.6 percent of total assets. For the twelve months ended June 30, 1997, the Bank reported net income of $2.9 million, for a return of 1.58 percent of average assets. Timberland Bancorp, Inc. ("Timberland Bancorp" or the "Holding Company"), was recently organized to facilitate the conversion of Timberland. In the course of the conversion, the Holding Company will acquire all of the capital stock that the Bank will issue upon its conversion from the mutual-to-stock form of ownership. Going forward, Timberland Bancorp will own 100 percent of the Bank's stock, and the Bank will be Timberland Bancorp's sole subsidiary. Up to 50 percent of the net proceeds received from the sale of common stock will be used to purchase all of the then to-be-issued and outstanding capital stock of the Bank, with the balance of the proceeds being retained by the Holding Company. At this time, no other activities are contemplated for Timberland Bancorp other than the ownership of the Bank, a loan to the employee stock ownership plan ("ESOP"), the possible payment of dividends and investment of the cash retained at the Holding Company in investment securities consistent with the Bank's current investment practices and procedures. In the future, Timberland Bancorp may repurchase shares, diversify its business possibly through RP Financial, LC. Page 1.2 existing or newly-formed subsidiaries, and through acquisitions or mergers of other insured financial institutions as well as other related companies. There are currently no arrangements, understandings or agreements regarding any such activities. Strategic Overview - ------------------ Throughout much of its corporate history, Timberland's strategic focus has been that of a community oriented financial institution, i.e., meeting the borrowing and savings needs of its local customers in the central coastal areas of the State of Washington. While the Bank continues to originate permanent residential mortgage loans consistent with its historical roots, Timberland has taken significant steps to diversify its loan portfolio to include construction loans and, to a lesser extent, commercial and multi-family mortgage loans as well as consumer installment loans, a strategy which has increased the credit risk profile. The Bank has sought to diversify its loan portfolio with the objective of enhancing asset yields, improving earnings, and reducing interest rate risk exposure. In this regard, loans secured by one-to-four family residential properties comprised approximately 49.8 percent of total loans as of June 30, 1997, which represents a decline from 59.4 percent of the portfolio as of the fiscal 1992 year end. Moreover, as of June 30, 1997, construction, development and land loans totaled approximately 24.3 percent of total loans and commercial and multi-family mortgage loans comprised an additional 20.3 percent of total loans, an increase from 20.6 percent and 15.8 percent, respectively. Such loans involve major lending or borrower relationships with larger principal balances and credit concentrations than traditional single family lending. To further support earnings growth in a highly competitive environment for loans and deposits, the Bank has sought to reduce the level of cash and investments and mortgage securities in favor of higher yielding loans. This strategy coupled with increased borrowings utilization has led to rapid growth in the loan/deposits ratio. The Bank has employed a growth and expansion strategy with the objective of building the franchise and leveraging its relatively strong capital position. In this regard, Timberland's compound annual growth rate approximated 11.3 percent for assets since fiscal year end 1992. In order to accomplish the Bank's growth objectives, Timberland has increased the number of branches from a total of five prevailing in fiscal 1993 to eight currently, with the new branches located in more rapidly growing areas. It is management's belief that the Bank's new markets in southern King County as well as the Tacoma and Olympia metropolitan areas present a greater opportunity for growth, particularly in the area of construction and commercial lending. RP Financial, LC. Page 1.3 In order to further develop the Bank's construction and land development lending as well as commercial and multi-family mortgage lending, the Bank is planning to employ an experienced loan officer at the senior management level who will specialize in underwriting and originating major loans (i.e., loans with balances of $300,000 or more) in Timberland's central and southern Puget Sound markets. This individual will be based out of the Lacey office (Olympia area) and direct efforts to originate loans in Thurston County and north through southern King County. In the future, Timberland may seek to broaden the array of products it offers by employing commercial loan officers to originate commercial loans (real estate secured, loans secured by inventory and other collateral, as well as unsecured loans). Timberland's operating strategy has provided the Bank with strong asset yields and net interest margin, which have supported the Bank's earnings, however, the strategy entails some risks as well. The Bank's increased emphasis on high risk-weight lending and reduced liquidity levels has resulted in greater credit risk exposure for Timberland. In this regard, the level of non-performing assets ("NPAs") has been subject to a notable increase in the most recent fiscal year, primarily as a result of the delinquency of several large assets. There are several other credit related risks associated with the Bank's operations, as follows: (1) the Bank's reserve coverage ratio is low relative to industry averages both in relation to NPAs and to total loans, particularly given the risk profile of the loan portfolio; (2) the limited seasoning of the Bank's newer loans, particularly given the types of lending dominating recent growth; (3) the concentration of loan growth in the Tacoma and Olympia metropolitan areas where the Bank has less experience as compared to its traditional markets in coastal Washington; and (4) the increased concentration of loans characterized with greater credit risk. Retail deposits have served as the primary funding source for the Bank, however, borrowed funds have been utilized over the last few years to fund loan growth. The Bank's deposit growth over the last several years has been primarily in the form of certificates of deposit ("CDs"). Timberland's funding costs have increased as a result over the last three fiscal years, coupled with rate pressures resulting from the Bank's growth objectives. The Bank's operating strategy has been successful to date, leading to earnings growth and generally high profitability. The ability to maintain such earnings growth is largely dependent on retail growth, a continuation of limited credit losses and a strong economy in the markets where the Bank operates. The Board of Directors of the Bank has elected to convert to the stock form of ownership to support the continued expansion of the Bank. The additional capital realized from conversion proceeds is expected to increase liquidity to support loan growth, increase the capital cushion to absorb unanticipated loss, enhance overall profitability and provide the capital for additional growth through existing branches or acquisition. The additional funds realized from the conversion stock offering will also serve as an alternative funding source to RP Financial, LC. Page 1.4 facilitate the Bank's ability to offer competitive rates. The projected use of conversion proceeds are highlighted below. Timberland Bancorp. Timberland is expected to retain up to 50 percent of ------------------ the net conversion proceeds. At present, the Holding Company funds, net of the loan to the ESOP, are expected to be invested initially into short- and intermediate-term investment securities with maturities ranging up to three years. Over time, the Holding Company funds are anticipated to be utilized for various corporate purposes, possibly including acquisitions, infusing additional equity into the Bank, repurchases of common stock, and the payment of regular and/or special cash dividends. Timberland. At least 50 percent of the net conversion proceeds will be ---------- infused into the Bank in exchange for all of the Bank's newly issued stock. The increase in capital will be less, as the amount to be borrowed by the ESOP to fund an 8 percent stock purchase will be deducted from capital. Cash proceeds (i.e., net proceeds less deposits withdrawn to fund stock purchases) infused into the Bank are anticipated to become part of general operating funds, and are expected to initially be invested in short-term investments, used to repay short-term borrowings and/or to fund loan commitments or loans in the pipeline. On a pro forma basis, Timberland will be in an overcapitalized position. The Board of Directors has determined to pursue a strategy of controlled growth in its southern Puget Sound markets in order to leverage capital and, over time, to diversify Timberland's product lines. The Bank may also seek to expand by branching into southwest Washington (i.e., the Portland metropolitan area). Asset growth is expected to be funded through internal deposit growth, branching and borrowings. The Board recognizes that asset growth is a long term strategy, however, and that the Bank will operate in the near term in an overcapitalized position. The Company may also consider various capital management strategies if appropriate to assist in the long-run objective of increasing return on equity. Balance Sheet Trends - -------------------- Over the last several years, Timberland pursued a growth strategy, reflecting a combination of retail deposits (including de novo branching) and, to a lesser extent, borrowed funds. The impact of this strategy is evidenced in the summary balance sheet data set forth in Table 1.1 which shows that Timberland's total assets increased from $123.9 million at the end of fiscal 1992 to $206.2 million as of June 30, 1997, which reflects a 11.3 percent compounded annual growth rate. Notwithstanding the increase in total assets, Timberland's capital ratio increased from 8.4 percent of assets as of the end of fiscal 1992 to 11.6 percent as of June 30, 1997, as the Bank's strong earnings levels resulted in a more rapid equity growth pace than total assets. All of Timberland's capital consisted of tangible capital as of the fiscal year ended June 30, 1997. With the balance sheet growth realized by Timberland, the mixture of interest-earning assets has also undergone change. Loans receivable comprise the largest segment of interest-earning assets, totaling $187.5 RP Financial, LC. Timberland Savings Bank, S.S.B. Historical Balance Sheets (Amount and Percent of Assets)
For the Fiscal Year Ended September 30, ------------------------------------------------------------------------------------ 1992 1993 1994 ------------------ ----------------------- --------------------- Amount Pct Amount Pct Amount Pct ------ --- ------ --- ------ --- ($000) (%) ($000) (%) ($000) (%) Total Amount of: Assets $123,889 100.00% $139,233 100.00% $151,044 100.00% Loans Receivable (net) 103,045 83.18% 106,259 76.32% 121,558 80.48% Investment Securities (Held to Maturity) 999 0.81% 1,695 1.22% 8,597 5.69% Investment Securities (Available for Sale) 1,013 0.82% 1,172 0.84% 1,330 0.88% Mortgage-Backed Securities (MBS) 3,411 2.75% 2,268 1.63% 7,402 4.90% Cash and Interest-Earning Deposits 12,002 9.69% 24,122 17.32% 7,360 4.87% Deposits 112,301 90.65% 125,404 90.07% 128,669 85.19% Borrowed Funds 20 0.02% 18 0.01% 5,768 3.82% Total Equity 10,387 8.38% 13,005 9.34% 15,638 10.35% Loans Serviced for Others 30,412 32,396 44,134 Loans/Deposits 91.76% 84.73% 94.47% Average Interest-Earning Assets/ Avergage Interest-Bearing Liabilities 110.97% 113.09% 113.41% Non-Performing Assets/Assets 1.39% 0.76% 0.45% Allowances for Loan Losses as a Percent of: Loans Receivable, net 0.93% 1.06% 0.91% Non-Performing Loans 67.69% 140.84% 204.97% Full Service Offices 5 5 6 Compounded As of Annual ------------------------------------------- 1995 1996 June 30, 1997 Growth Rate ---------------------- -------------------- -------------------- ----------- Amount Pct Amount Pct Amount Pct Pct ------ --- ------ --- ------ --- --- ($000) (%) ($000) (%) ($000) (%) (%) Total Amount of: Assets $177,761 100.00% $194,357 100.00% $206,188 100.00% 11.32% Loans Receivable (net) 156,523 88.05% 176,495 90.81% 187,488 90.93% 13.43% Investment Securities (Held to Maturity) 3,504 1.97% 0 0.00% 0 0.00% N.M. Investment Securities (Available for Sale) 1,449 0.82% 1,572 0.81% 1,555 0.75% 9.44% Mortgage-Backed Securities (MBS) 6,352 3.57% 4,951 2.55% 4,172 2.02% 4.33% Cash and Interest-Earning Deposits 4,860 2.73% 5,055 2.60% 5,833 2.83% -14.09% Deposits 143,084 80.49% 156,549 80.55% 167,140 81.06% 8.73% Borrowed Funds 14,958 8.41% 14,354 7.39% 13,771 6.68% 295.79% Total Equity 18,653 10.49% 21,329 10.97% 23,866 11.57% 19.14% Loans Serviced for Others 43,531 45,859 53,968 Loans/Deposits 109.39% 112.74% 112.17% Average Interest-Earning Assets/ Avergage Interest-Bearing Liabilities 113.05% 114.76% 115.94% Non-Performing Assets/Assets 0.66% 0.86% 4.28% Allowances for Loan Losses as a Percent of: Loans Receivable, net 0.71% 0.64% 0.77% Non-Performing Loans 107.91% 74.54% 18.10% Full Service Offices 6 7 8
Source: Timberland's audited and unaudited financial reports. RP Financial, LC. Page 1.6 million, or 90.9 percent of total assets as of June 30, 1997. The balance of loans receivable has grown at a faster annual rate than assets, leading to a dramatic increase in the loans/deposits ratio. The fast loan growth has been partially funded by the redeployment of funds from cash, investments and mortgage-backed securities ("MBS") as well as utilization of borrowings. The loan portfolio composition has changed as well, with the proportion of permanent one-to-four family mortgage loans diminished given the emphasis of construction, land, multi-family and commercial mortgage lending, including both originations and purchases. In this regard since the beginning of fiscal year 1994, the proportion of multi-family, construction, land and commercial real estate loans have averaged 60 percent of total originations. Importantly, many such loans involve major lending or borrower relationships with large principal balances and credit concentrations, while the purchased loans are without recourse to the seller other than for fraud. In addition to portfolio loans, Timberland has also been originating loans for resale into the secondary market (particularly fixed rate mortgages), generally on a servicing retained basis, providing the Bank with fee income and the ability to offer a more comprehensive range of products while limiting interest rate risk. The Bank typically retains 1-4 family ARM loans for portfolio but currently finds the demand to be relatively limited. In this regard, borrowers seeking ARM loans generally include: (1) individuals anticipating a short ownership period for the property; or (2) borrowers not qualifying for a fixed rate loan (i.e., primarily non-conforming loans). The Bank also originates ARMs to "subprime" borrowers, i.e., borrowers not qualifying for conventional mortgage loans under FHLMC guidelines and who thus do not satisfy secondary market requirements for sale. Such borrowers are considered subprime because of deficient credit history or lack of sufficient credit history. To offset such risks, the Bank requires a lower loan-to-value ("LTV") ratio, a co-signer and/or other compensating factors. As will be explained in greater detail, until recently the Bank's level of non-performing assets averaged below one percent of assets. During fiscal 1997, the Bank has experienced an increase in large non-accrual loans, reflecting a few large commercial and construction loans. During the early 1990s, the Bank's allowance for loan losses approximated or exceeded one percent of total loans and exceeded the balance of non-performing assets, but subsequent loan growth and limited loan loss provisions led to a decline in the ratio of loan loss allowance to well below one percent. Also, the increase in non-accrual loans led to only a fractional loss coverage ratio in the most recent period. Timberland's investment securities equaled $1.6 million, or 0.8 percent of total assets, as of June 30, 1997, while cash and interest-bearing deposits totaled $5.8 million, or 2.8 percent of assets. As of June 30, 1997, the Bank's investment and mortgage-backed securities consisted of $1.6 million in FHLB stock (designated available for sale) and MBS totaled approximately $4.2 million, or 2.0 percent of assets (designated held to maturity). The Bank has not been an active purchaser of MBS and most of the securities in the portfolio were RP Financial, LC. Page 1.7 purchased prior to fiscal 1995. The Bank's philosophy with respect to the management of cash and investments has been to maintain liquidity levels just above regulatory minimums, primarily in short- to intermediate-term high quality securities. No major changes to the composition and practices with respect to the management of the investment portfolio are anticipated over the near term and, accordingly, the level of cash and investments is expected to remain at low to moderate levels. The level of cash and investments is expected to increase initially following conversion although it is management's expectation that such funds will gradually be redeployed into whole loans receivable and other specified uses. Deposit balances have grown at an 8.7 percent compounded annually with deposit growth facilitated by the opening of three new retail branch offices. In the future, the Bank will be seeking to continue to increase retail deposits by offering a competitive array of products and services. The Bank's deposit growth has been dominated by growth in CDs, which coupled with the slight erosion in the balance of core deposits, has led to a pronounced drop in the proportion of core deposits -- from 48.2 to 36.5 percent between September 30, 1994 and June 30, 1997, respectively, the key factor leading to the increase in funding costs. The Bank's ratio of average interest-bearing assets ("IEA") as a percent of average interest-bearing liabilities ("IBL") has steadily increased in line with the growth in equity. On a post-conversion basis, the increased capitalization should lead to IEA/IBL ratio improvement. Income and Expense Trends - ------------------------- Timberland's earnings have been relatively strong over the last several fiscal years, primarily as a result of relatively wide net interest margins (see Table 1.2). Furthermore, earnings have demonstrated a general upward trend on both a reported and core basis primarily attributable to growth in the Bank's assets, proportion of loans to assets and proportion of higher risk loans. Earnings growth in fiscal 1996 and the trailing twelve months through June 30, 1997, suffered due to the special SAIF assessment at the end of fiscal 1996 and the need to establish provisions for loan losses in fiscal 1997. Core or recurring earnings continued to trend upward over this time frame, although profitability appears to have previously peaked. Timberland's strong pre-conversion earnings are largely attributable to its lending strategy which focuses on (1) speculative and custom construction lending which provides high yielding, short-term assets; (2) portfolio residential adjustable mortgage lending which includes non-conforming loans and loans to subprime borrowers; (3) income producing property lending, which includes multi-family and commercial mortgage loans; and (4) secondary market operations in which fixed rate mortgages are originated for resale generally on a servicing retained basis. RP Financial, L.C. Timberland Savings Bank, S.S.B. Historical Income Statements (Amount and Percent of Assets)(1)
For the Fiscal Year Ended September 30, ----------------------------------------------------------------------------------------- 1992 1993 1994 1995 --------------------- --------------------- --------------------- --------------------- Amount Pct Amount Pct Amount Pct Amount Pct ------ --- ------ --- ------ --- ------ ------- ($000) (%) ($000) (%) ($000) (%) ($000) (%) Interest Income $11,290 9.58% $11,220 8.53% $11,307 7.99% $14,453 8.77% Interest Expense (5,769) -4.89% (4,938) -3.75% (4,715) -3.33% (6,359) -3.86% ------- ----- ------ ----- ------ ----- ------ ----- Net Interest Income $ 5,521 4.68% $ 6,282 4.77% $ 6,592 4.65% $ 6,094 4.91% Provision for Loan Losses (185) -0.16% (175) -0.13% 0 0.00% 0 0.00% ------- ----- ------ ----- ------ ----- ------ ----- Net Interest Income after Provisions $ 5,336 4.53% $ 6,107 4.64% $ 6,592 4.65% $ 6,094 4.91% Other Income $ 619 0.53% $ 726 0.55% $ 673 0.48% $ 554 0.34% Operating Expense (2,888) -2.45% (3,117) -2.37% (3,613) -2.55% (4,089) -2.48% ------- ----- ------ ----- ------ ----- ------ ----- Net Operating Income $ 3,067 2.60% $ 3,716 2.82% $ 3,652 2.58% $ 4,559 2.77% Net Gain(Loss) on Sale of Loans $ 97 0.08% $ 144 0.11% $ 145 0.10% $ 44 0.03% Capitalized Servicing Rights 0 0.00% 0 0.00% 0 0.00% 0 0.00% SAIF Assessment Fee 0 0.00% 0 0.00% 0 0.00% 0 0.00% ------- ----- ------ ----- ------ ----- ------ ----- Total Non-Operating Income/(Expense) $ 97 0.08% $ 144 0.11% $ 145 0.10% $ 44 0.03% Net Income Before Tax $ 3,164 2.68% $ 3,860 2.93% $ 3,797 2.68% $ 4,603 2.79% Income Taxes (1,042) -0.86% (1,241) -0.94% (1,163) -0.82% (1,603) -0.97% ------- ----- ------ ----- ------ ----- ------ ----- Net Inc.(Loss) Before Extaordinary terms $ 2,122 1.80% $ 2,619 1.99% $ 2,634 1.66% $ 3,000 1.82% Cumulative Effect of Change in Accounting For Income Taxes $ 0 0.00% $ 0 0.00% $ 0 0.00% $ 0 0.00% ------- ----- ------ ----- ------ ----- ------ ----- Net Income (Loss) $ 2,122 1.80% $ 2,619 1.99% $ 2,634 1.66% $ 3,000 1.82% Estimated Core Earnings - ----------------------- Net Income $ 2,122 1.80% $ 2,619 1.99% $ 2,634 1.66% $ 3,000 1.82% Addback (Deduct): Non-Recurring (Inc)/Exp (97) -0.08% (144) -0.11% (145) -0.10% (44) -0.03% Tax Effect (34.00%) 33 0.03% 49 0.04% 49 0.03% 15 0.01% ------- ----- ------ ----- ------ ----- ------ ----- Estimated Core Income $ 2,058 1.75% $ 2,524 1.92% $ 2,538 1.79% $ 2,971 1.80% Memo: Expense Coverage Ratio (2) 191.17% 201.54% 182.45% 197.95% Efficiency Ratio (3) 48.50% 45.62% 49.73% 47.28% Effective Tax Rate 32.93% 32.15% 30.63% 34.82% Twelve Months Ended ------------------- 1996 June 30, 1997 ------------------- --------------------- Amount Pct Amount Pct ------- ------ --------- ----- ($000) (%) ($000) (%) Interest Income $16,500 9.00% $17,716 9.49% Interest Expense (7,629) -4.16% (8,184) -4.38% ------ ----- ------- ----- Net Interest Income $ 8,871 4.84% $ 9,532 5.11% Provision for Loan Losses (70) -0.04% (359) -0.19% ------ ----- ------- ----- Net Interest Income after Provisions $ 8,801 4.80% $ 9,173 4.91% Other Income $ 654 0.36% $ 713 0.38% Operating Expense (4,517) -2.46% (4,810) -2.58% ------ ----- ------- ----- Net Operating Income $ 4,938 2.69% $ 5,076 2.72% Net Gain(Loss) on Sale of Loans $ 34 0.02% $ 266 0.14% Capitalized Servicing Rights 0 0.00% 118 0.06% SAIF Assessment Fee (875) -0.46% (875) -0.47% ------ ----- ------- ----- Total Non-Operating Income/(Expense) $ (841) -0.46% $ (491) -0.26% Net Income Before Tax $ 4,097 2.23% $ 4,585 2.46% Income Taxes (1,419) -0.77% (1,637) -0.88% ------ ----- ------- ----- Net Inc.(Loss) Before Extaordinary terms $ 2,678 1.46% $ 2,948 1.58% Cumulative Effect of Change in Accounting For Income Taxes $ 0 0.00% 0 0.00% ------ ----- ------- ----- Net Income (Loss) $ 2,678 1.46% $ 2,948 1.58% Estimated Core Earnings - ----------------------- Net Income $ 2,678 1.46% $ 2,958 1.58% Addback (Deduct): Non-Recurring (Inc)/Exp 841 0.46% 491 0.26% Tax Effect (34.00%) (286) -0.16% (167) -0.09% ------ ----- ------- ----- Estimated Core Income $ 3,233 1.76% $ 3,272 1.75% Memo: Expense Coverage Ratio (2) 195.39% 198.17% Efficiency Ratio (3) 47.77% 48.65% Effective Tax Rate 34.64% 35.71%
(1) Ratios are as a percent of average assets. (2) Net interest income divided by operating expenses (excluding special SAIF assessment). (3) Operating expenses (excluding special SAIF assessment) as a percent of the sum of net interest income and to her income (excluding gains on sale). Source: Timberland's audited and unaudited financial statements. RP Financial, LC. Page 1.9 The 105 basis point increase in interest expense from fiscal 1994 to present is primarily attributable to the Bank's increased proportion of CDs and increased utilization of borrowings. The CD growth in part reflects CD promotions at premium rates at the de novo branch offices and as an incentive to attract depositors in light of increased competition from other financial institutions including credit unions. Net interest income reflects an upward trend, measured in both dollar terms and as a percent of average assets, and equaled $9.5 million, or 5.11 percent of average assets for the twelve months ended June 30, 1997. The Bank's recent net interest margin has been supported by several factors, including: (1) the strong capital position; (2) modest reduction in the proportion of lower yielding investment securities; and (3) the increasing diversification of the loan portfolio into higher yielding, higher risk weight loans. Information pertaining to the Bank's yield/cost spread (set forth in Exhibit I-3) indicates that, notwithstanding the current strong net interest margin, the Bank has become subject to spread compression as its spread has declined from 4.56 percent in fiscal 1995 to 4.17 percent for the nine months ended June 30, 1997. The smaller decline in the net interest margin for the same two periods, from 5.08 percent to 4.85 percent, respectively, was attributable to capital growth benefit on an improving IEA/IBL ratio. The decline in the Bank's spread is the result of diminished asset yields, attributable to greater competition, and higher funding costs given the increased funding with CDs and borrowings. The Bank's interest rate spread at June 30, 1997 of 3.85 percent underscores the downward pressure on net interest income and overall profitability, a more than 30 basis point decline from the spread over the first nine months of fiscal 1997 -- the implied reduction in earnings approximates $0.4 million. While the Bank's moderate level of other income has averaged approximately $0.65 million over the last five fiscal years, the ratio as a percent of average assets has declined from a peak of 55 basis points to 38 basis points for the last 12 months, owing to limited growth in the portfolio of loans serviced for others and slight erosion in the level of core deposits over the last several years. The recent modest increase in other income has been attributable to higher fees from ATMs (as the number of ATMs increased), higher escrow fees (as a result of establishing a second escrow company division with the service corporation to service the Puget Sound area) and slight growth in loans serviced for others. Timberland's operating expenses have been subject to a general increase over the last several years, fluctuating in a range of 2.37 percent to 2.58 percent of average assets. Specifically, operating expenses have increased from $2.9 million, equal to 2.45 percent of average assets in fiscal 1992, to $4.8 million, equal to 2.58 percent of average assets for the twelve months ended June 30, 1997. The Bank's expenses reflect growth over the last several fiscal years as a result of growth in overall business volumes and the addition of three branches. In the future, management expects Timberland's expense levels to continue to rise as a result of the RP Financial, LC. Page 1.10 employment of a senior loan officer responsible for originating major loans including construction and commercial loans, and related support staff over the near term, while over the longer term possibly additional commercial loan officers. Furthermore, Timberland anticipates upward pressure on expense levels due to the cost of stock based benefit plans resulting from the conversion and operating as a public company. The operating expense increase has been limited by the substantial reduction in the deposit insurance premiums during fiscal 1997. The Bank's efficiency ratio (excluding gains and the special SAIF assessment) has fallen in the range of roughly 45 to 50 percent over the last several years. Non-operating items for Timberland have generally only had a small earnings impact primarily consisting of gains on the sale of loans. The more recent periods have been impacted by other non-operating items, including the $875,000 special SAIF assessment and the fiscal 1997 adoption of SFAS 125 which led to capitalizing servicing fees in conjunction with loans sold on a servicing retained basis (totaling $118,000 for the last 12 months). As previously noted, since Timberland's asset quality in the early to mid- 1990s was good, loan loss provisions were not a significant factor in the Bank's operating results for the period from fiscal 1992 through fiscal 1996. However, over this same time period, the Bank substantially increased its credit risk profile through the origination of construction, commercial and multi-family mortgage loans as well as through investment in non-conforming residential loans. Moreover, Timberland has recently experienced a significant increase in the level of NPAs, leading to the establishment of additional provisions for loan losses, equal to $359,000, or 0.19 percent of assets, for the twelve months ended June 30, 1997. As of June 30, 1997, the Bank maintained valuation allowances of $1.5 million, equal to 0.77 percent of net loans receivable and 18.10 percent of non-performing assets ("NPAs"). The coverage ratio currently is at relatively low levels given the recent increase in NPAs without a corresponding increase in the level of valuation allowances. Management anticipates that valuation allowances will be established in future periods per the Bank's adopted general reserve policy, and management will continue to assess the adequacy of valuation allowances relative to the performance of its loan portfolio on an ongoing basis. The Bank's current policy is to accrue $37,500 per month in valuation allowances. The Bank is in a fully taxable position with regard to federal income taxes and reported a 35.7 percent effective tax rate for the twelve months ended June 30, 1997. No significant changes are anticipated to the effective tax rate in future periods. RP Financial, LC. Page 1.11 Interest Rate Risk Management - ----------------------------- Timberland manages interest rate risk primarily from the asset side of the balance sheet. To control interest rate risk, Timberland has implemented several strategies, including: (1) diversifying the loan portfolio into shorter-term or adjustable rate loans; (2) selling long-term residential mortgages originated into the secondary market on a servicing retained basis; (3) striving to fund operations through comparatively lower cost retail deposits; and (4) maintaining strong capital levels. These strategies have generally served to increase the sensitivity of the Bank's assets to changes in interest rates and lengthen the duration of liabilities. Furthermore, the sale of fixed rate loans into the secondary market enhances the Bank's non-interest revenues, thereby reducing the reliance on net interest income for overall earnings. The gap analysis set forth in Exhibit I-9 reflects the impact of the foregoing strategies on the Bank's repricing structure. The gap measures indicate a asset sensitive position with a cumulative gap-to-assets ratio equal to positive 14.54 percent in the one year or less bucket and positive 11.69 percent in the five year or less period. Similarly, a rate shock analysis (see Exhibit I-8) also reflects an asset sensitive position with increases in net interest income and market value generally reflected under higher rate scenarios, and lower levels projected under declining rate scenarios. Overall, the data suggests the Bank's earnings would be favorably impacted by rising interest rates and that the Bank has been somewhat successful in reducing its exposure to interest rate risk. At the same time, there are numerous limitations inherent in such analyses, such as the credit risk of the Bank's loans under a higher interest rate environment. Lending Activities and Strategy - ------------------------------- In view of the strong competition, Timberland has sought to position itself in relatively less competitive market niches. In this regard, it is management's philosophy to seek to manage risks that other financial institutions are either: (1) unwilling to accept; or (2) price uncompetitively relative to the risks involved in making the loans. Within this context, Timberland offers a broad array of loan products with a variety of rates and terms. As referenced earlier, Timberland's lending operations consist of the following major segments: (1) speculative and custom construction lending which provides high yielding, short- term assets; (2) adjustable rate residential mortgage lending for portfolio (including loans to subprime borrowers); (3) commercial and multi-family mortgage lending; and (4) secondary market operations in which fixed rate mortgages are originated for resale generally on a servicing retained basis. Such strategy is consistent with Timberland's community bank orientation and is evidenced in the Bank's loan portfolio composition (see Exhibit I-10). RP Financial, LC. Page 1.12 Although permanent 1-4 family residential mortgage loans have represented a diminished proportion of the loan portfolio since fiscal 1992, they continue to represent the single largest element of the loan portfolio, totaling $102.0 million, or 49.8 percent of total loans, as of June 30, 1997. In contrast, 1-4 family mortgage loans represented 59.4 percent of total loans at fiscal year end 1992, as the portfolio of multi-family, commercial real estate, construction and land loans grew from 33.4 percent at fiscal year end 1992 to 44.6 percent. Importantly, higher risk weight loans typically involve major lending or borrower relationships with large principal balances and credit concentrations. Timberland originates both fixed rate and adjustable rate one-to-four family loans with the majority of longer term fixed rate loans originated for resale to the secondary market. However, the Bank may retain a portion of its longer term fixed rate loans, including non-conforming loans, with the objective of enhancing asset yields. The Bank typically retains 1-4 family ARM loans for portfolio but finds the demand to be relatively limited. In this regard, as discussed earlier, borrowers seeking ARM loans generally include: (1) individuals anticipating a short ownership period for the property; or (2) borrowers not qualifying for a fixed rate loan (i.e., primarily non-conforming loans). Timberland's market in Grays Harbor County on the central Washington coast has developed a tourism industry over the last several decades, as its proximity to Seattle and Portland coupled with the relatively unspoiled coastline has made it attractive for vacationers and second homes. Timberland has been relatively active in financing vacation rental properties and second homes in and near its market in conjunction with its niche lending strategy. The Bank originates one-to-four family loans up to a loan-to-value ("LTV") ratio of 95.0 percent, with private mortgage insurance ("PMI") being required for loans in excess of a 80.0 percent LTV ratio. The substantial portion of 1-4 family mortgage loans originated by Timberland are secured by residences in the defined normal lending territory. Construction lending is a key aspect of Timberland's overall operating strategy and has enabled the Bank to more actively participate in the growth occurring in its markets, particularly in southern King, Pierce and Thurston County areas, shorten the average duration of assets, and has helped to support the Bank's yields. The majority of the Bank's construction lending is in Thurston, Pierce and King Counties. The Bank's preference is to make construction loans for pre-sold homes or owner/builder loans, but it also provides financing on "spec" houses as well. Additionally, the Bank also originates land development loans as well as multi-family and commercial construction loans. The balance of the construction loan portfolio was $42.9 million, or 21.0 percent of total loans and the composition of the portfolio at that date was as follows: RP Financial, LC. Page 1.13
Outstanding Percent Balance Of Total ----------- --------- ($000) Speculative Construction $15,938 37.2% Custom and Owner/Builder Construction 11,604 27.1 Land Development 4,972 11.6 Commercial Real Estate 1,197 2.8 Multi-Family 9,161 21.3 ----- ---- Total $42,872 100.0%
Spec construction loans are typically made to approximately 70 to 80 local builders, typically at a fixed rate of interest, payable on interest only terms. Spec construction loans typically carry twelve month terms and maximum loan-to- value ratios of 80 percent. The Bank generally limits builders to a maximum of three or four construction loans outstanding at any one time, but may finance more loans to its strongest customers. Owner/builder loans (i.e., construction loans to the home owner rather than the home builder) consist of both a construction loan (for the construction phase) and a permanent loan once the construction phase is completed. The construction phase generally lasts six to nine months with either fixed or adjustable interest rates. At the completion of the construction phase, the loan automatically converts to either a fixed rate mortgage loan, which conforms to secondary market standards, or an ARM loan for retention in the Bank's portfolio. As a complement to its residential construction lending niche, Timberland also makes land loans as well as land development loans, generally to local real estate developers with established track records (most are builders who have previously taken down construction loans). Such loans are either for the purpose of acquiring buildable land or for financing improvements (i.e., developing residential lots, installing roads, sewers and other improvements). Land development loans generally have fixed interest rates and are made with terms ranging from two to five years. Land acquisition loans generally possess adjustable interest rates and carry terms ranging from five to ten years. The maximum LTV of land acquisition loans is 75 percent while the maximum LTV for loans originated for the purpose or developing subdivisions is 80 percent. Timberland also originates loans for the purpose of constructing multi- family and commercial properties. As of June 30, 1997, multi-family and commercial construction loans totaled $10.4 million, equal to 24.1 percent of total loans. These loans are typically secured by motels, offices, and retail space in the Bank's Washington markets. Timberland has and will continue to make loans for the purchase or financing of various types of multi-family and commercial real estate loans. Timberland's commercial real estate and multi-family loan portfolios are largely comprised of loans originated in-house and secured by properties in its coastal Washington and southern and central Puget Sound markets. At June 30, 1997, the balance of multi-family mortgage loans RP Financial, LC. Page 1.14 totaled $12.6 million, equal to 6.2 percent of total loans, and the balance of commercial mortgage loans equaled $28.9 million, equal to 14.1 percent of total loans.. Multi-family loans are generally originated with adjustable interest rates indexed to the one year U.S. Treasury Bill, and have principal balances which range from $300,000 to $3.6 million (the largest loan currently has a balance of $1.5 million). The typical balance of a commercial real estate loans averages $100,000 to $1,000,000 and carry rates and terms similar to multi- family mortgage loans. Diversification into consumer lending consists primarily of consumer loans, with home equity loans constituting the major areas of the Bank's consumer lending activities. Home equity loans serve as a complement to the Bank's 1-4 family mortgage lending activities, which include both lines of credit and amortizing loans. Home equity lines of credit and second mortgages account for most of the Bank's consumer loans. The balance of the portfolio is comprised of auto loans, loans on deposits, and credit card loans. Management expects that the level of consumer loans may continue to increase in the future at a moderate pace, but that it will not become a strategic focus of the Bank. Exhibit I-12, which shows the Bank's loan originations, purchases, sales and repayments over the past three fiscal years and fiscal year to date, highlights Timberland's lending emphasis on residential mortgage and construction loans. The origination of construction loans has consistently accounted for a notable portion of Timberland's loan volume and construction loan volume equaled $29.6 million in fiscal 1996 and $26.3 million for the first nine months of fiscal 1997. One-to-four family mortgage loans comprise the second largest segment of the Bank's loan volume, equaling $24.5 million in fiscal 1996, which is relatively consistent with the annualized rate for 1997. The balance of the Bank's loan volume consists of various other types of loans including multi-family and commercial mortgages and consumer loans. Loans are originated primarily in-house by salaried personnel. In order to facilitate loan originations in the Kitsap County markets, Timberland maintains a loan office in Port Orchard. In addition to originating loans in its markets through its in-house staff, Timberland has developed broker relationships wherein it originates construction loans secured by properties throughout the State of Washington. Additionally, the Bank will occasionally purchase participations in loans (primarily commercial and multi-family mortgage loans) originated by other lenders, without recourse to the seller except in cases of fraud. As discussed earlier, the Bank will be seeking to increase loan volumes (primarily construction, commercial and multi-family mortgage loans) through the employment of an experienced loan officer at the senior management level who will specialize in underwriting and originating major loans (i.e., loans with balances of $300,000 or more) in Timberland's southern Puget Sound markets. This individual will be based out of the Lacy office (Olympia area) to direct efforts to originate loans in Thurston County and north through RP Financial, LC. Page 1.15 the Seattle area. Over the longer term, the Bank anticipates that it may employ experienced commercial loan officers originate commercial loans (real estate secured, loans secured by inventory and other collateral, as well as unsecured loans). Loan sales by the Bank have been at relatively moderate levels and have primarily consisted of fixed rate residential loans (both conforming and jumbo loans). During fiscal 1996 and the nine months ended June 30, 1997, loan sales totaled $12.4 million and $11.3 million, respectively. The portfolio of loans serviced for others approximated $54 million at June 30, 1997. Asset Quality - ------------- As shown in Exhibit I-12, the Bank's credit quality was strong through the end of fiscal 1993 through 1996, as the level of non-performing assets to total assets remained below one percent. Subsequently, the level of non-performing assets has increased to a level of $8.4 million, equal to 4.05 percent of assets as of June 30, 1997. The increase in NPAs is primarily related to two specific assets. One of the non-performing assets consists of two delinquent condominium construction loans with an aggregate principal balance of $2.8 million. The property consists of a 61 unit complex of which, 30 units have been sold, 15 are available for sale, and 16 units are in various stages of construction. The delinquency of the property is primarily attributable to a dispute between the borrowers regarding cost overruns. The other large non-performing assets consists of two delinquent loans to a borrower group secured by retail space and mini-storage units with a principal balance of $2.9 million. The retail space consists of property leased to a convenience store and a total of six additional retail units, two of which are leased. The mini-storage facility is also in the lease-up phase with approximately 140 units out of a total of 436 units leased. This loan is primarily delinquent due to a dispute between the borrowers rather than the adverse performance of the property relative to anticipated results. The Bank has established allowances for loan losses in the normal course of operations to account for the inherent risk in its loan portfolio. As of June 30, 1997, Timberland maintained allowances for loan losses equal to $1.5 million, which represents 0.77 percent of gross loans receivable and 18.10 percent of the non-performing asset balance. Relative to standards for publicly-traded institutions, particularly institutions with a similar loan portfolio composition and level of NPAs, the Bank's reserve levels are very low. RP Financial, LC. Page 1.16 As described in the strategic discussion, the Bank's emphasis on high risk- weight lending has been a been a key factor in Timberland's earnings growth since fiscal 1992, but it has also increased the Bank's credit risk exposure as well. In addition to the recent increase in the level of NPAs, we believe there are several other credit related risk factors associated with the Bank's operations as follows: (1) the Bank's reserve coverage ratio is low relative to industry averages both in relation to NPAs and to total loans, particularly given the risk profile of the loan portfolio; (2) the limited seasoning of the Bank's newer loans, particularly given the types of lending dominating recent growth; (3) the concentration of loan growth in southern King County as well as the Tacoma and Olympia metropolitan areas where the Bank has less experience as compared to its traditional markets in coastal Washington; and (4) the increased concentration of loans characterized with greater credit risk. Funding Composition and Strategy - -------------------------------- Deposits have consistently been the Bank's primary source of funds, and as of June 30, 1997, totaled $167.1 million. Deposits have grown at an annual rate of 8.7 percent since the end of fiscal 1992. As discussed previously, Timberland has been seeking to grow and expand assets and deposits with the objective of building the franchise and leveraging capital. Growth and entry into new markets has been facilitated by the opening of three new offices which increased the number of retail branches to a total of eight. The Bank's deposit composition has consistently been concentrated in CDs, consisting mostly of short-term CDs. As of June 30, 1997, the CD portfolio totaled $104.0 million, or 62.2 percent of total deposits, with 74.1 percent of those CDs having maturities of one year or less. Jumbo CDs (CD accounts with balances of $100,000 or more) amounted to $22.8 million, or 21.9 percent of total CDs. The high level of CDs, coupled with the Bank's growth objectives and highly competitive market, have all contributed to a comparatively high degree of rate sensitivity, which is evidenced by Timberland's high cost of deposits. In fact, the Bank's deposit costs increased dramatically from fiscal 1994 to fiscal 1996, as Timberland pursued CD growth by paying attractive market rates on certain CDs in conjunction with the promotion of the Bank's new branches. Lower costing savings and transaction accounts comprise the remainder of Timberland's deposits, amounting to $63.1 million, or 37.8 percent of total deposits, at June 30, 1997. The balance of transaction and savings accounts has diminished modestly over the last several years as depositors have been attracted by the comparatively higher CD rates currently prevailing in the market. As of June 30, 1997, borrowed funds totaled $13.8 and consisted solely of FHLB advances. The Bank utilizes borrowings primarily for the purpose of generating additional liquidity when loan demand is strong and typically employs FHLB advances. RP Financial, LC. Page 1.17 Subsidiary - ---------- Timberland has one wholly-owned subsidiary, Timberland Service Corporation ("Timberland Service"). Timberland Service's primary function is to act as the Bank's escrow department. At June 30, 1997, the Bank's investment in Timberland Service was $135,000. Legal Proceedings - ----------------- Other than the routine legal proceedings that occur in the Bank's ordinary course of business, the Bank is not involved in litigation which is expected to have a material impact on the Bank's financial condition or operations. RP Financial, LC. Page 2.1 II. MARKET AREA Introduction - ------------ Timberland conducts operations out of its headquarters office in Hoquiam, Washington. Hoquiam is located in Grays Harbor County which is situated along the central Washington Pacific coast. Hoquiam and Aberdeen are two modest sized cities (population of 8,940 and 16,750 as of 1994) located approximately 110 miles southwest of Seattle and 145 miles northwest of Portland, Oregon. In addition to its main office in Hoquiam, the Bank operates three additional office in Grays Harbor County (Aberdeen, Montesano and Ocean Shores). Additionally, the Bank has extended its market into the Tacoma metropolitan area and southern King County through the opening of offices in Auburn (King County) and Puyallup (Pierce County). Moreover, in May, Timberland opened its newest office in Lacey (Olympia area) in May 1997. The Bank has further sought to extend its lending operations into the Puget Sound region owing to its substantially larger population, high growth and relatively affluent population. Accordingly, Timberland maintains a loan center in Port Orchard (Kitsap County). The market environment in the areas served by Timberland's branches and loan centers is highly diverse. Throughout much of the Bank's history, Timberland's operations were centered in Hoquiam and Aberdeen in Grays Harbor County. Grays Harbor County is a relatively rural market along the central Washington coast where the traditional industries were logging and fishing. The relatively small size of the market coupled with limited growth and a relatively volatile economy based on natural resources led Timberland to expand into the southern Puget Sound region (i.e., the Seattle-Tacoma metropolitan area as well as Olympia). In this regard, the Bank's markets in the Puget Sound region have benefited from a strong economy including strength in the aerospace sector and high-tech computer related industries, while the Olympia market is stable partially owing to the presence of large state and federal employers. Understanding the key characteristics and trends prevailing in Timberland's market is important to the valuation as they affect the relative risk level of an investment in the Bank's stock as well as its ability to generate future earnings and sustain earnings growth. Critical areas to be assessed included demographic statistics and the related growth trends, the nature and stability of the local economy including an analysis of major industries and/or employers and income and employment trends and the nature and intensity of the competitive environment. The focus of the analysis will be on the four counties where Timberland operates branch offices including Grays Harbor, King, Pierce and Thurston Counties, with particular emphasis on Grays Harbor County where approximately three-quarters of the Bank's deposit base is located and where four of its seven full service retail branches are situated. RP Financial, LC. Page 2.2 Market Area Demographics - ------------------------ The following section presents demographic details regarding Timberland's market area. Exhibit II-3 displays comparative demographic trends for all four counties where Timberland operates branch offices. Data for the State of Washington and the United States has been provided for comparative purposes. Demographic data including that pertaining to total population and households provides evidence of several noteworthy trends. First, the population base of the Pacific Northwest region in general, including the State of Washington experienced relatively rapid growth through the 1980s, with compounded annual growth rates exceeding the national average by 81 percent. Relatively high growth rates for the region have resulted from a variety of factors including growth of trade with Japan and other Asian nations, a perceived attractive lifestyle, and a relatively moderate cost of living (particularly in comparison to California), among other factors. There has been a dichotomy in the demographic and economic growth trends within the markets served by Timberland. The Bank's traditional markets in Grays Harbor County remain rural in character and population and household growth rates have trended below the average for the State of Washington and at or below the national average. In view of the small size and limited growth trends of its traditional markets in Grays Harbor County, the Bank has expanded into the larger more dynamic markets in the southern Puget Sound area including King, Pierce and Thurston Counties. These areas have benefited from a number of market and economic factors including the growth and stability of the state government (primarily in the Olympia area) as well as growth of the aerospace and technology-oriented industries in the Seattle-Tacoma metropolitan area. The relatively small size and rural character of Grays Harbor County is displayed in Table 2.1. Grays Harbor County population was estimated to equal 69,000 as of 1997, which reflects a 0.9 percent annual rate of growth since the beginning of the decade, while total households were estimated to equal 27,000, which reflects a 1.0 percent compounded annual growth rate over the corresponding time frame. By comparison, Timberland's southern Puget Sound markets are urban in character with a combined population estimated to equal 2.5 million as of 1997 and annualized population growth rates for the period from 1990 to 1997 ranging from 1.2 percent for King County to 3.2 percent for Thurston County, all of which exceed the national average. Income levels in Grays Harbor County reflect the rural nature of the market and the impact of the relatively heavy reliance on the timber, fishing and tourism industries for income. Specifically, per capita income equaled $12,382 in Grays Harbor County which is 32 percent below the national average and 29 percent below the average for the State of Washington. Likewise, median household income reported for Grays Harbor County is well below the state and U.S. average. Moreover, income growth rates for Grays Harbor Table 2.1 Timberland Savings Bank Summary Demographic Data
Year Growth Rate Growth Rate ------------------------------------- POPULATION (000) 1990 1997 2002 1990-97 1997-2002 - ---------------- ---- ---- ---- ------- --------- UNITED STATES 248,710 267,805 281,209 1.1% 1.0% WASHINGTON 4,867 5,622 6,143 2.1% 1.8% GRAYS HARBOR COUNTY 64 69 72 0.9% 0.9% KING COUNTY 1,507 1,634 1,722 1.2% 1.0% PIERCE COUNTY 586 666 721 1.8% 1.6% THURSTON COUNTY 161 202 229 3.2% 2.6% HOUSEHOLDS (000) - ---------------- UNITED STATES 91,947 99,020 104,001 1.1% 1.0% WASHINGTON 1,872 2,150 2,343 2.0% 1.7% GRAYS HARBOR COUNTY 26 27 29 1.0% 0.9% KING COUNTY 616 663 696 1.1% 1.0% PIERCE COUNTY 215 244 264 1.8% 1.6% THURSTON COUNTY 62 77 88 3.1% 2.6% MEDIAN HOUSEHOLD INCOME ($) - --------------------------- UNITED STATES $ 29,199 $ 36,961 $ 42,042 3.4% 2.6% WASHINGTON 31,938 36,073 38,812 1.8% 1.5% GRAYS HARBOR COUNTY 26,845 24,210 25,450 -1.5% 1.0% KING COUNTY 37,199 41,633 43,853 1.6% 1.0% PIERCE COUNTY 30,043 36,868 41,933 3.0% 2.6% THURSTON COUNTY 31,491 35,401 38,217 1.7% 1.5% PER CAPITA INCOME - ($) - ----------------------- UNITED STATES $ 13,179 $ 18,100 ---- 4.6% N/A WASHINGTON 14,455 17,434 ---- 2.7% N/A GRAYS HARBOR COUNTY 12,666 12,382 ---- -0.3% N/A KING COUNTY 17,882 21,960 ---- 3.0% N/A PIERCE COUNTY 12,647 16,543 ---- 3.9% N/A THURSTON COUNTY 13,825 15,967 ---- 2.1% N/A
1997 AGE DISTRIBUTION(%) 0-14 Years 15-24 Years 25-44 Years 45-64 Years 65+ Years Median Age - ------------------------ ---------- ----------- ------------ ----------- --------- ---------- UNITED STATES 21.7 13.6 31.4 20.5 12.7 34.8 WASHINGTON 22.0 13.7 30.9 21.5 11.9 35.1 GRAYS HARBOR COUNTY 21.8 13.4 26.1 22.8 15.9 37.4 KING COUNTY 20.2 11.9 34.6 22.2 11.0 36.1 PIERCE COUNTY 23.0 14.6 31.5 19.9 10.9 33.1 THURSTON COUNTY 21.3 14.2 29.9 22.7 11.9 35.7
Less Than $15,000 to $25,000 to $50,000 to $100,000 to 1997 HH INCOME DIST.(%) $15,000 25,000 $ 50,000 $100,000 $150,000 $150,000+ - ----------------------- ------- ------ -------- -------- -------- --------- UNITED STATES 17.7 14.4 33.5 26.5 5.4 2.6 WASHINGTON 16.8 15.4 36.1 25.7 4.2 1.8 GRAYS HARBOR COUNTY 30.9 20.2 34.0 12.9 1.3 0.8 KING COUNTY 12.6 12.9 34.7 30.3 6.3 3.3 PIERCE COUNTY 15.6 15.0 37.0 26.9 4.1 1.3 THURSTON COUNTY 15.7 16.5 38.7 25.3 3.0 0.8 Source: CACI.
RP Financial, LC. Page 2.4 County actually reflect a declining trend when adjusted for inflation. Timberland's markets in the southern Puget Sound area have comparatively higher income levels as a result of the abundance of white collar and technical jobs as compared to the blue collar job market which prevails in Grays Harbor County. Economy - ------- Historically, the economy of Timberland's markets have been based on timber, fishing and other natural resources. Logging and ancillary industries have traditionally provided a substantial portion of earnings with the area's renowned forests providing a large supply of relatively inexpensive and accessible wood. Likewise, Grays Harbor is an excellent natural harbor which, coupled with areas proximity to fishing grounds in coastal Washington, led to the development of the fisheries industry. Over the last several decades, the economy has become somewhat more diversified and in particular, tourism has come to play a much more important role in the Grays Harbor County market. Additionally, a number of large government employers have also moved or increased employment levels in the Grays Harbor County market in recent years; at present, a state prison is being built in Aberdeen which is expected to generate a significant number of new relatively high paying blue collar jobs (approximately 650). The state government plays a large role in the Thurston County market economy owing to its role as the state capitol. In this regard, growth occurring in the Thurston County has been facilitated by the centralization of state functions in Olympia since the 1960s. Furthermore, Fort Lewis and McChord Air Force Base have continued to play an important role in the local economy as a result of the large number of military personnel living off base and as a result of significant number of civilian jobs which have been created. More recently, economic growth has been the result of the growth of regional, national and international trade, continued expansion of Boeing (primarily affecting the Pierce and King County market) and growth of the high-tech sector. With respect to the high tech sector, Intel Corporation, the world's largest manufacturer of computer chips has begun the first stages of a massive manufacturing and research center in Dupont (Pierce County) near the Thurston County border. The plant will eventually employ 6,000 people directly, and it will create an estimated 16,000 additional support industry jobs. The Matsushita Electric Company has announced its intention to invest $600 million to build a new production line at its Puyallup plant, adding approximately 200 to 300 jobs in the process. Table 2.2 provides a list of the largest employers in the four counties where Timberland maintains full service retail offices. Weyerhaeuser is the largest employer in Grays Harbor County reflecting the important role that the timber industry continues to play in the Bank's largest depository market. RP Financial, LC. Page 2.5 Table 2.2 Timberland Savings Bank Major Employers in the Timberland Savings Bank's Markets
Employer Activity Employees - -------- -------- --------- Grays Harbor County - ------------------- Weyerhaeuser Forestry/Manufacturing 954 Grays Harbor County Government 525 Aberdeen School District Education 512 G.H. Community Hospital Health Care 437 Simpson Door Plan Manufacturing 320 Grays Harbor College Education 250 Thurston County - --------------- Washington State Employees Government 21,700 Local Public Education Education 5,700 Local Government (Exc. Education) Government 2,800 St. Peter Hospital Health Care 1,969 Federal Government Government 1,000 The Evergreen State College Education 592 Pierce County - ------------- U.S. Army (Fort Lewis) Government 25,400 U.S. Air Force (McChord Air Force Base) Government 5,400 Tacoma Public Schools Education 3,638 Madigan Army Medical Center Government 2,900 Pierce County Government 2,600 Multi-Care Medical Center Health Care 2,457 King County (1) - --------------- The Boeing Company Aerospace 83,300 U.S. Department of Defense Government 75,350 University of Washington Education 16,500 King County Government Government 11,462 U.S. Postal Service Government 10,500
(1) Includes central Puget Sound region. Source: Local chamber of commerce and economic development agencies. RP Financial, LC. Page 2.6 Unemployment - ------------ Data pertaining to unemployment rates reflect the relatively strong economy prevailing in King, Pierce, and Thurston Counties which are below the state and national averages. Unemployment rates are comparatively higher in Grays Harbor County although it is possible that some of those counted as unemployed in these areas are able to earn income on a contract or day basis in logging or from other sources. Table 2.3 Timberland Savings Bank Market Area Unemployment Trends(1)
May 1996 May 1997 Region Unemployment Unemployment ------ ------------ ------------ United States 5.4% 4.7% Washington 6.4 4.5 Grays Harbor County 11.2 8.3 Thurston County 6.1 4.6 Pierce County 6.3 4.4 King County 4.9 3.3
(1) Unemployment rates are not seasonally adjusted. Source: Bureau of Labor Statistics. Competition - ----------- Forecasts of increases in population, households and median household income should support deposit growth by financial institutions operating in the market area. Table 2.4 display deposit trends for savings institutions and commercial banks in the markets served by Timberland. The data indicates that since 1994 for Washington overall, commercial bank deposits grew at the expense of thrift deposits, with commercial bank deposits increasing at a 3.4 percent annual rate while deposits at savings institutions declined slightly. Overall, the thrift institution market share declined from 32.2 percent as of June 30, 1994, to 30.6 percent as of June 30, 1996. The deposit markets in the counties encompassing Timberland's markets reflect a similar trend as savings institutions generally lost market share at the expense of commercial banks. Overall, the market area is extremely competitive due to the number and size of financial institutions that operate within it. Additionally, not only does Timberland face substantial competition from large banks and savings institutions such as Washington Mutual Savings Bank, Wells Fargo and Key Corp., but there are numerous other community-oriented financial institutions operating in its markets as well. Since 1994, ------------------------------ Table 2.4 Timberland Savings Bank Deposit Summary ------------------------------ - --------------------------------------------------------------------------------
As of June 30, --------------------------------------------------------------- 1994 1996 Deposit ------------------------------ --------------------------- Market Number of Market No. of Growth Rate Deposits Share Branches Deposits Share Branches 1994-1996 -------- ----- -------- -------- ----- -------- ---------- (Dollars In Thousands) (%) A. Deposit Summary - ------------------ State of Washington $50,635,995 100.0% 1,733 $52,893,344 100.0% 1,745 2.2% Commercial Banks 34,312,879 67.8% 1,147 36,693,703 69.4% 1,168 3.4% Savings and Loans 16,323,116 32.2% 586 16,199,641 30.6% 577 -0.4% Grays Harbor County $ 664,723 100.0% 33 $ 709,326 100.0% 34 3.3% Commercial Banks 335,150 50.4% 18 344,947 48.6% 18 1.5% Savings and Loans 329,573 49.6% 15 364,379 51.4% 16 5.1% Timberland Savings (1) 103,684 31.5% 4 119,684 32.8% 4 7.4% Timberland Savings (2) 15.6% 16.9% King County $21,818,541 100.0% 538 $23,297,313 100.0% 515 3.3% Commercial Banks 14,975,266 68.6% 344 16,344,421 70.2% 337 4.5% Savings and Loans 6,843,275 31.4% 194 6,952,892 29.8% 178 0.8% Timberland Savings (1) 0 0.0% 0 6,662 0.1% 1 NA Timberland Savings (2) 0.0% 0.0% Pierce County $ 5,337,616 100.0% 198 $ 4,545,273 100.0% 193 -7.7% Commercial Banks 3,621,365 67.8% 135 3,702,053 81.4% 134 1.1% Savings and Loans 1,716,251 32.2% 63 843,220 18.6% 59 -29.9% Timberland Savings (1) 22,266 1.3% 1 29,161 3.5% 1 14.4% Timberland Savings (2) 0.4% 0.6%
(1) Percent of S&L deposits. (2) Percent of total deposits. Source: FDIC; OTS. - -------------------------------------------------------------------------------- RP Financial, LC. Page 2.8 Timberland has been seeking to actively grow both through internal growth through existing branches and by acquiring or building new branches. The Bank's efforts to grow through de novo branching have been relatively successful and most of the growth effort has been directed toward increasing market share in the southern Puget Sound area. RP Financial, LC. Page 3.1 III. PEER GROUP ANALYSIS This chapter presents an analysis of Bank's operations versus a group of comparable savings institutions (the "Peer Group") selected from the universe of all publicly-traded savings institutions. The basis of the pro forma market valuation of the Bank is provided by these institutions. Factors affecting the Bank's pro forma value such as financial condition, credit risk, interest rate risk, loan composition and recent operating results can be readily assessed in relation to the Peer Group. Current market pricing of the Peer Group, subject to appropriate adjustments to account for differences between Bank and the Peer Group, will then be used as a basis for the pro forma valuation of Bank's to-be- issued common stock. Selection of Peer Group - ----------------------- We consider the appropriate Peer Group to be comprised of only those publicly-traded savings institutions whose common stock is either listed on a national exchange or is NASDAQ listed, since the market for companies trading in this fashion is regular and reported. We believe non-listed institutions are inappropriate since the trading activity for thinly-traded stocks is typically highly irregular in terms of frequency and price and may not be a reliable indicator of market value. We have also excluded from the Peer Group those companies under acquisition, and recent conversions, since their pricing ratios are subject to distortion and/or do not have a seasoned trading history. We have considered only "fully converted" institutions, i.e., no mutual holding company subsidiaries, because on a pro forma basis after the completion of the conversion offering, Timberland will be a fully converted institution. From the universe of publicly-traded thrifts, we selected ten institutions with characteristics similar to those of Bank. In the selection process, we applied two primary "screens" to the universe of all public companies: o SCREEN #1. SAVINGS INSTITUTIONS BASED AND OPERATING IN THE STATE OF WASHINGTON. Given the importance of geographic location and similarity of markets incorporated into investor's investment decisions, we analyzed all Washington headquartered publicly-traded savings institutions for possible inclusion in Timberland's valuation Peer Group. Exhibit III-2 provides summary financial and pricing characteristics of all full stock publicly-traded savings institutions based in the State of Washington. Four companies, excluding Riverview Savings Bank which is also currently in mutual holding company form, had operations and markets sufficiently similar to warrant their inclusion in the Peer Group, including First Mutual Savings Bank (FMSB), First Savings Bank of Washington (FWWB), Horizon Financial Corp, and Interwest Savings Bank (IWBK). Washington savings institutions excluded from the Peer Group are as follows: RP Financial, LC. Page 3.2 - Cascade Savings Bank owing to its material pending acquisition of a local commercial bank; - FirstBank Corp. of Clarkston, WA, owing to its status as a recent conversion (July 1997); - Sterling Financial Corp. owing to its highly leveraged position (4.10 percent equity/assets) and its relatively complex capital structure which includes preferred stock, which distorts the pricing ratios; - Washington FS&LA due to its larger size ($5.8 billion of assets) and its unique operating strategy wherein the product line is relatively limited (e.g., Washington Federal only recently instituted checking accounts) and the primary asset investment is long-term fixed rate mortgages and the operating expense ratio is among the lowest in the industry; and - Washington Mutual, Inc. as result of its significantly greater size ($90 billion) and recently completed acquisition of Great Western Bank of California (the acquisition was completed as of July 1, 1997, making Washington Mutual the largest savings institution in the country). o SCREEN #2. NORTHWESTERN (OUTSIDE THE STATE OF WASHINGTON) AND WESTERN INSTITUTIONS, WITH ASSETS OF $100 MILLION TO $2 BILLION, EQUITY-TO- ASSETS RATIOS BETWEEN 10.0 PERCENT AND 25.0 PERCENT, AND POSITIVE CORE EARNINGS. Four companies met the criteria for Screen #2 and were included in the Peer Group including First Colorado Bancorp, Klamath First Bancorp of Oregon, WesterFed Financial Corp. of Montana, and United Financial Corp. of Montana. Exhibit III-3 details the financial characteristics of all publicly-traded Northwestern and Western institutions. o The above selection criteria yielded eight peer group companies, two short of the minimum required by the appraisal guidelines. Therefore, it was necessary to select institutions in less comparable markets, and in order to maintain the northwest orientation of the Peer Group, we limited the out-of-market companies to two institutions. Our selection criteria focused on well-capitalized Midwest institutions (with equity/assets ratios over 10 percent), relative comparability in terms of size ($200 million to $400 million in assets) and market capitalization (in the range of $50 million) and strong profitability (excluding the special SAIF assessment) We selected two institutions, denoted below, among the nine institutions meeting such criteria which, like Timberland, are emphasizing higher risk-weight lending. Given the relatively high level of NPAs at Timberland and the importance of asset quality in investors' evaluation of thrift stocks, our preference was to seek Peer Group companies which had a comparable level of non-performing assets and reserve coverage as Timberland. However, only a handful of publicly-traded companies maintain comparable asset quality ratios, and they vary widely in terms of size, operating strategy and markets. Accordingly, the focus of the Peer Group selection criteria was on similarity of operations, markets, etc., and the dissimilar credit risk exposure relative to the Peer Group will require an adjustment in the valuation section to follow. RP Financial, LC. Page 3.3 Table 3.1 on the following page shows the general characteristics of each of the Peer Group companies and Table 4.1 provides summary demographic data for the primary market areas served by each of the Peer Group companies. While there are some differences between the Peer Group companies and the Bank, we believe that the Peer Group provides a good representation of publicly-traded thrifts with operations comparable to those of the Bank and, thus, will provide a good basis for valuation. The following sections present a comparison of Bank's financial condition, income and expense trends, loan composition, interest rate risk and credit risk versus the Peer Group. The conclusions drawn from the comparative analysis are then factored into the valuation analysis discussed in the final chapter. A summary description of the key characteristics of each of the Peer Group companies, which we determined warranted their inclusion as a comparable institution to Bank, is detailed below. o Interwest SB of Oak Harbor, Washington. Included as a member of the Peer Group based primarily on its operations in the State of Washington, relatively diversified loan portfolio and comparable earnings levels. Interwest is larger in size ($1.8 billion in assets) and maintains a more leveraged capital position. o First Colorado Bancorp of Colorado. Selected based on its location in a healthy expanding market which has facilitated growth as well as strong earnings. Differences include First Colorado's comparatively greater investment in permanent residential mortgage loans and stronger asset quality and reserve coverage ratios. o First Savings Bancorp of Washington. Selected based on its location in the State of Washington and overall similarity of operations including a focus on residential lending supplemented by construction and other high risk weight loans. First Savings Bancorp also generates strong earnings, has a modest loan servicing portfolio, and maintains a high capital ratio; all the foregoing characteristics are similar to Timberland on a pro forma basis. o WesterFed Financial Corp. of Montana. Included in the Peer Group given its location in the West, and strong capital position. WesterFed Financial Corp. maintains comparatively lower profitability levels. o Klamath First Bancorp of OR. Selected due to its Northwest market area, strong capital and earnings levels and broadly similar interest-earning asset composition. Klamath First maintains a comparatively greater emphasis on residential mortgage lending for portfolio. o Horizon Financial Corp. of WA. Selected due to Horizon Financial's Northwest market area, strong capital position, similar interest-earning asset composition, strong net interest margin and secondary market activities. Horizon Financial maintains a comparatively larger mortgage loan servicing portfolio. RP FINANCIAL, LC. - ---------------------------------------- Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 22209 (703) 528-1700 Table 3.1 Peer Group of Publicly-Traded Thrifts September 1, 1997(1)
Primary Operating Total Fiscal Conv. Stock Market Ticker Financial Institution Exchg. Market Strat.(2) Assets Offices Year Date Price Value - ------ ---------------------------------- ------- -------------- --------- ------ ------- ---- ----- ------ ------- ($) ($Mil) IWBK Interwest SB of Oak Harbor WA OTC Western WA Div. 1,833 J 31 12-31 / 39.50 317 FFBA First Colorado Bancorp of Co OTC Denver CO Thrift 1,510 M 26 12-31 01/96 17.81 295 FWWB First Savings Bancorp of WA (3) OTC Central WA Thrift 1,008 M 16 03-31 11/95 24.12 254 WSTR WesterFed Fin. Corp. of MT OTC MT Thrift 956 J 35 06-30 01/94 21.75 121 KFBI Klamath First Bancorp of OR OTC Southern OR Thrift 728 J 7 09-30 10/95 19.00 190 HRZB Horizon Financial Corp. of WA (3) OTC Northwest WA Thrift 519 J 12 03-31 08/86 15.00 111 FMSB First Mutual SB of Bellevue WA (3) OTC Western WA M.B. 432 J 6 12-31 12/85 20.37 55 FFHH FSF Financial Corp. of MN OTC Southern MN Thrift 378 J 11 09-30 10/94 18.12 55 CMRN Cameron Fin. Corp. of MO OTC Northwest MO Thrift 208 J 3 09-30 04/95 17.62 46 UBMT United Fin. Corp. of MT OTC Central MT Thrift 108 M 4 12-31 09/86 23.50 29
NOTES: (1) Or most recent date available (M=March, S=September, D=December, J=June, E=Estimated, and P=Pro Forma) (2) Operating strategies are: Thrift=Traditional Thrift, M.B.=Mortgage Banker, R.E.=Real Estate Developer, Div.=Diversified, and Ret.=Retail Banking. (3) FDIC savings bank institution. Source: Corporate offering circulars, data derived from information published in SNL Securities Quarterly Thrift Report, and financial reports of publicly-traded thrifts. Date of Last Update: 09/01/97 RP Financial, LC. Page 3.5 o First Mutual SB of Bellevue WA. Included in the Peer Group primarily based on its location in the State of Washington and strong earnings and asset quality. Additionally, First Mutual has a high level of 100 percent risk- weight loans thereby enhancing its level of comparability to the Bank. First Mutual's risk-assets to total assets ratio equaled 61.71 percent, which was only modestly lower than the 72.52 percent ratio reported by the Bank. o FSF Financial Corp. of MN. Included in the Peer Group primarily based on its similar lending strategy including a significant investment in construction loans. FSF Financial Corp. also operates with a strong capital position, and maintains a modest portfolio of loans serviced for others. o Cameron Financial Corp. of MO. Cameron Financial Corp. maintains a similar asset size and equity level relative to Timberland on a pro forma basis. Cameron Financial also deploys a significant portion of interest-earning assets into construction loans. Cameron Financial maintains strong earnings due to its higher risk-weight lending emphasis. o United Financial Corp. of MT. Selected due to Western market area, strong capital and earnings levels. United maintains a relatively higher level of cash and investments and lower level of loans in comparison to Timberland. In aggregate, the Peer Group companies are more highly capitalized than the industry average (14.3 percent of assets versus 13.0 percent for the all SAIF average), generate higher earnings as a percent of average assets (1.13 percent core ROAA versus 0.76 percent for the all SAIF average), and generate a higher ROE (8.4 percent core ROE versus 7.5 percent for the all SAIF average). Overall, the Peer Group was priced at a modest premium to the all SAIF average based on the P/B ratio and the core P/E multiple. Financial Condition - ------------------- Table 3.2 shows comparative balance sheet measures for Bank and the Peer Group, reflecting the expected similarities and some differences given the selection procedures outlined above. The Bank's ratios reflect balances as of June 30, 1997, while the Peer Group's ratios reflect the latest publicly available information, either March 31, 1997 or June 30, 1997. The Bank's equity of 11.6 percent was below the Peer Group's average net worth ratio of 14.3 percent; however, with the addition of stock proceeds, the Bank's pro forma capital position (consolidated with the holding company) can be expected to be comparable to or exceed the Peer Group's ratio. All of Timberland's and substantially all of the Peer Group's capital was tangible capital, as intangible assets equaled only 0.4 percent of total assets for the Peer Group on average. Both the Bank's and the Peer Group's capital ratios reflected capital surpluses with respect to the regulatory capital requirements, with the Peer Group's ratios currently indicating slightly greater capital surpluses. On a pro forma basis, the Bank's capital surpluses are expected to exceed the Peer Group's ratios. RP FINANCIAL, LC. - ------------------------------------------ Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 22209 (703) 528-1700 Table 3.2 Balance Sheet Composition and Growth Rates Comparable Institution Analysis As of June 30, 1997
Balance Sheet as a Percent of Assets ---------------------------------------------------------------------------------------- Cash and Borrowed Subd. Net Goodwill Tng Net MEMO: Investments Loans MBS Deposits Funds Debt Worth & Intang Worth Pref.Stock ----------- ------ ------ -------- -------- ------- -------- -------- ------- ---------- Timberland Savings Bank ----------------------- June 30, 1997 3.6 90.9 2.0 81.1 6.7 0.0 11.6 0.0 11.6 0.0 SAIF-Insured Thrifts 18.1 67.0 11.6 70.9 14.7 0.2 12.6 0.2 12.3 0.0 All Public Companies 18.9 66.2 11.5 71.4 14.4 0.2 12.5 0.3 12.2 0.0 State of WA 15.6 69.4 11.2 68.0 20.3 0.1 9.9 0.4 9.5 0.2 Comparable Group Average 19.3 67.5 9.7 66.6 17.5 0.0 14.3 0.4 13.9 0.0 Mid-West Companies 22.1 74.5 0.0 57.4 25.1 0.0 16.5 0.0 16.5 0.0 North-West Companies 17.2 71.1 8.3 67.5 18.2 0.0 12.7 0.3 12.4 0.0 Western Companies (Excl CA) 21.0 57.0 17.6 71.3 11.3 0.0 15.4 0.7 14.7 0.0 Comparable Group ---------------- Mid-West Companies ------------------ CMRN Cameron Fin. Corp. of MO 11.4 84.0 0.0 60.0 16.9 0.0 21.7 0.0 21.7 0.0 FFHH FSF Financial Corp. of MN 32.7 65.1 0.0 54.7 33.3 0.0 11.4 0.0 11.4 0.0 North-West Companies -------------------- FMSB First Mutual SB of Bellevue WA 3.6 79.9 13.6 79.8 12.0 0.0 6.8 0.0 6.8 0.0 FWWB First Savings Bancorp of WA(1) 29.2 64.1 3.1 54.1 29.1 0.0 14.8 1.2 13.6 0.0 HRZB Horizon Financial Corp. of WA 9.2 78.1 10.5 82.6 0.0 0.0 15.6 0.0 15.6 0.0 IWBK Interwest SB of Oak Harbor WA 29.6 60.1 6.4 64.1 28.5 0.0 6.8 0.1 6.6 0.0 KFBI Klamath First Bancorp of OR 14.7 73.0 10.3 57.2 21.4 0.0 19.5 0.0 19.5 0.0 Western Companies (Excl CA) --------------------------- FFBA First Colorado Bancorp of Co 7.7 71.9 17.6 76.5 6.4 0.0 12.7 0.0 12.7 0.0 UBMT United Fin. Corp. of MT(1) 42.7 33.1 20.5 71.5 4.6 0.0 22.6 0.0 22.6 0.0 WSTR WesterFed Fin. Corp. of MT 12.6 66.0 14.5 66.0 20.8 0.0 10.9 2.2 8.7 0.0 Balance Sheet Annual Growth Rates Regulatory Capital ------------------------------------------------------------ ------------------------- Cash and Loans Borrows. Net Tng Net Assets Investments & MBS Deposits &Subdebt Worth Worth Tangible Core Reg.Cap. ------ ----------- ------ -------- -------- -------- ------- -------- -------- -------- Timberland Savings Bank ----------------------- June 30, 1997 8.20 15.31 7.51 9.02 -5.42 15.86 15.86 11.60 11.60 16.90 SAIF-Insured Thrifts 12.05 8.30 13.38 8.27 17.26 0.48 -0.05 10.91 10.97 22.56 All Public Companies 12.31 8.25 13.39 8.35 16.61 1.92 1.34 10.91 10.95 22.45 State of WA 15.79 14.90 13.74 18.58 6.58 9.63 8.69 8.08 9.74 18.87 Comparable Group Average 20.30 -4.05 25.41 20.51 18.47 2.87 -0.37 12.32 12.22 25.02 Mid-West Companies 16.24 1.98 20.23 5.58 34.25 -6.22 -6.22 13.71 13.71 22.85 North-West Companies 19.53 -1.38 18.60 22.12 -1.33 5.97 4.59 11.84 11.90 25.61 Western Companies (Excl CA) 24.53 -11.61 40.21 27.77 30.39 3.76 -4.75 11.72 11.77 25.68 Comparable Group ---------------- Mid-West Companies ------------------ CMRN Cameron Fin. Corp. of MO 18.35 2.30 18.47 1.28 NM -2.59 -2.59 17.11 17.11 25.59 FFHH FSF Financial Corp. of MN 14.13 1.66 22.00 9.88 34.25 -9.85 -9.65 10.30 10.30 20.10 North-West Companies -------------------- FMSB First Mutual SB of Bellevue WA 11.82 5.12 10.66 21.47 -26.73 15.38 15.38 6.90 6.90 11.94 FWWB First Savings Bancorp of WA(1) 35.58 19.16 41.09 45.69 NM -3.57 -11.30 NM 13.65 24.77 HRZB Horizon Financial Corp. of WA 5.10 -17.96 8.40 5.49 NM 1.19 1.19 NM 15.38 30.39 IWBK Interwest SB of Oak Harbor WA 29.61 NM 11.06 32.30 24.07 28.92 29.75 NM 6.79 NM KFBI Klamath First Bancorp of OR 15.55 -11.85 21.78 5.64 NM -12.07 -12.07 16.77 16.77 35.32 Western Companies (Excl CA) --------------------------- FFBA First Colorado Bancorp of Co 1.13 -71.72 30.03 5.49 2.45 -20.50 -19.52 11.41 11.56 22.10 UBMT United Fin. Corp. of MT(1) 3.01 -14.65 24.34 -2.31 NM -0.86 -0.86 15.20 15.20 40.40 WSTR WesterFed Fin. Corp. of MT 69.46 51.52 66.25 80.14 58.33 32.63 6.12 8.54 8.54 14.54
(1) Financial information is for the quarter ending March 31, 1997. Source: Audited and unaudited financial statements, corporate reports and offering circulars, and RP Financial, LC. calculations. The information provided in this table has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information. Copyright (c) 1997 by RP Financial, LC. RP Financial, LC. Page 3.7 The interest-earning asset compositions for the Bank and the Peer Group were broadly similar, with loans and mortgage-backed securities constituting the bulk of interest-earning assets for Bank and the Peer Group. The Bank's level of loans was much higher than the Peer Group's ratio (90.9 percent versus 67.5 percent for the Peer Group), while the Peer Group maintained a higher balance of MBS (9.7 percent versus 2.0 percent for the Bank. Comparatively, the Bank's cash and investments to assets ratio was lower than the comparable ratio for the Peer Group (3.6 percent versus 15.6 percent for the Peer Group). Immediately following the conversion, the Bank's cash and investments level will increase pending the longer run redeployment of funds. A more detailed analysis of the respective loan portfolios of Timberland and the Peer Group (detailed in a following section) shows that: (1) both Timberland and the Peer Group are primarily mortgage lenders; and (2) Timberland has diversified its loan portfolio to include a greater proportion of high risk weight loans, including construction, multi-family and commercial mortgage loans. Overall, the Bank's interest-earning assets amounted to 96.5 percent of assets, which was equivalent to the Peer Group average. On a post-conversion basis, the Bank's ratio of interest-earning assets will increase modestly. The Bank's funding liabilities reflect a funding strategy similar to that of the Peer Group's funding composition, with retail deposits constituting the major source of interest-bearing funds. The Bank's deposits equaled 81.1 percent of assets, which was higher than the Peer Group average of 66.6 percent. Partially offsetting Bank's much higher ratio of deposits was its lower level of borrowings, as indicated by borrowings-to-assets ratios of 6.7 percent and 17.5 percent for the Bank and the Peer Group, respectively. Total interest-bearing liabilities maintained by the Bank and the Peer Group, as a percent of assets, equaled 87.8 percent and 84.1 percent, respectively, with the Peer Group's lower ratio being supported by maintenance of a higher capital position, a situation which will largely be addressed with the completion of the conversion. A key measure of balance sheet strength for a thrift institution is its IEA/IBL ratio. Presently, the Bank's end of period IEA/IBL ratio is lower than the Peer Group's ratio, based on respective ratios of 109.9 percent and 114.7 percent. The additional capital realized from stock proceeds should serve to partially address the lower IEA/IBL ratio currently maintained by the Bank, as the interest free capital raised in the Bank's stock offering is expected to be deployed into interest-earning assets. The growth rate section of Table 3.2 shows annual growth rates for key balance sheet items. The Bank's growth rates are based on annualized growth for the nine months ended June 30, 1997, while the Peer Group's growth rates are based on annual growth for the most recent twelve month period available. Asset growth rates of positive 9.1 percent and 20.4 percent were posted by the Bank and the Peer Group, respectively. The Bank's asset growth measures reflect modest growth in loans while expansion of the cash and investment balance is rendered less meaningful given the limited balance of liquidity typically maintained by Timberland. Funding of Timberland's loan growth was primarily provided by expansion of the deposit base as RP Financial, LC. Page 3.8 the level of borrowed funds declined slightly. The Peer Group's stronger asset growth was skewed upward by the strong growth posted by First Savings Bancorp of Washington and WesterFed Financial, both of which completed acquisitions during the trailing twelve month period (the median growth rate for the Peer Group equaled 14.8 percent still exceeded the Bank's growth rate). Paralleling growth trends observed with respect to Timberland's operations, the Peer Group's growth was primarily realized in the loan and MBS portfolio with such growth funded with a reduction in cash and investments and increases to the deposit base. Timberland's asset growth was funded primarily through growth of deposits, which increased by 9.0 percent; the Peer Group's deposit growth was biased upward due to acquisition activity; the median deposit growth figure compares relatively closely to the Bank's deposit growth rate. The Peer Group's faster growth has also reflected an increased utilization of borrowed funds, whereas the Bank's borrowings declined slightly. Timberland posted a stronger rate of capital growth than the Peer Group based on the latest publicly available information (15.9 percent increase for the Bank versus an average increase of 2.9 percent for the Peer Group). The factors leading to Timberland's superior rate of capital growth are related both to its stronger ROA and lower equity level. Furthermore, the Peer Group companies, which are in stock form, have implemented various capital management strategies including dividend policies and stock repurchase plans, which have limited the rate of capital growth. Following the increase in capital realized from conversion proceeds, the Bank's capital growth rate will be depressed by (1) a higher pro forma capital position and comparatively lower marginal returns and (2) the implementation of a dividend policy. Income and Expense Components - ----------------------------- Reported profitability for the past 12 months for the Bank and the Peer Group approximated 1.58 percent and 0.97 percent, respectively (see Table 3.3). The Bank's stronger earnings performance is primarily attributable to its stronger spreads and net interest margin. Timberland's net interest income for the last 12 months equaled 5.11 percent of average assets versus an average of 3.44 percent reported by the Peer Group. A number of factors contribute to Timberland's comparatively higher level of net interest income, particularly a strong spread (4.17 percent for the Bank versus 2.81 percent on average for the Peer Group) supported by high yields and slightly lower cost of funds, despite a lower IEA/IBL ratio. Asset yields are supported by Timberland's greater proportionate investment in higher yielding loans and the composition of the loan portfolio which is heavily weighted toward comparatively higher yielding construction and multi-family/commercial mortgage loans. The yield on the loan portfolio is further enhanced as a portion of the residential mortgage loans in portfolio are non-conforming to secondary market standards and thus, carry a modest interest rate premium. RP FINANCIAL, LC. - --------------------------------------- Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 22209 (703) 528-1700 Table 3.3 Income as a Percent of Average Assets and Yields, Costs, Spreads Comparable Institution Analysis For the Twelve Months Ended June 30, 1997
Net Interest Income Other Income ---------------------------- ------------------- Loss NII Total Net Provis. After Loan R.E. Other Other Income Income Expense NII on IEA Provis. Fees Oper. Income Income ------ ------ ------- ------ ------- ------- ---- ----- ------ ------ Timberland Savings Bank ----------------------- June 30, 1997 1.58 9.49 4.38 5.11 0.19 4.91 0.00 0.00 0.38 0.38 SAIF-Insured Thrifts 0.56 7.38 4.10 3.28 0.13 3.15 0.12 0.01 0.31 0.44 All Public Companies 0.66 7.40 4.05 3.34 0.15 3.20 0.11 0.00 0.40 0.51 State of WA 0.83 7.68 4.39 3.28 0.15 3.13 0.12 0.01 0.37 0.50 Comparable Group Average 0.96 7.54 4.11 3.43 0.12 3.32 0.18 0.01 0.19 0.37 Mid-West Companies 0.86 7.70 4.17 3.53 0.13 3.39 0.06 0.00 0.18 0.24 North-West Companies 1.06 7.78 4.31 3.47 0.15 3.32 0.14 0.01 0.18 0.34 Western Companies (Excl CA) 0.87 7.03 3.72 3.31 0.05 3.26 0.31 0.01 0.20 0.52 Comparable Group ---------------- Mid-West Companies ------------------ CMRN Cameron Fin. Corp. of MO 1.06 8.01 3.99 4.03 0.24 3.78 0.08 0.00 0.02 0.10 FFHH FSF Financial Corp. of MN 0.66 7.39 4.36 3.03 0.03 3.00 0.05 0.00 0.33 0.38 North-West Companies -------------------- FMSB First Mutual SB of Bellevue WA 1.02 8.29 4.71 3.58 0.37 3.21 0.21 0.00 0.14 0.36 FWWB First Savings Bancorp of WA(1) 1.05 7.58 4.10 3.48 0.16 3.32 0.09 0.00 0.19 0.28 HRZB Horizon Financial Corp. of WA 1.56 7.73 4.16 3.56 0.03 3.53 0.21 0.00 0.05 0.27 IWBK Interwest SB of Oak Harbor WA 0.87 7.89 4.55 3.34 0.12 3.23 0.21 0.05 0.47 0.73 KFBI Klamath First Bancorp of OR 0.81 7.42 4.03 3.38 0.05 3.33 0.00 0.01 0.06 0.06 Western Companies (Excl CA) --------------------------- FFBA First Colorado Bancorp of Co 0.89 7.07 3.88 3.19 0.09 3.09 0.00 0.01 0.34 0.35 UBMT United Fin. Corp. of MT(1) 1.09 6.86 3.30 3.56 0.00 3.56 0.41 0.00 0.23 0.64 WSTR WesterFed Fin. Corp. of MT 0.63 7.16 3.97 3.19 0.06 3.13 0.52 0.00 0.04 0.56 G&A/Other Exp. Non-Op. Items Yields, Costs, and Spreads ---------------- --------------- --------------------------- MEMO: MEMO: G&A Goodwill Net Extrao. Yield Cost Yld-Cost Assets/ Effective Expense Amort. Gains Items On Assets Of Funds Spread FTE Emp. Tax Rate ------- -------- ------- ------- --------- -------- -------- -------- --------- Timberland Savings Bank ----------------------- June 30, 1997 2.58 0.00 -0.26 0.00 9.08 4.91 4.17 2,398 35.71 SAIF-Insured Thrifts 2.33 0.03 -0.31 0.00 7.42 4.65 2.77 4,554 37.04 All Public Companies 2.39 0.03 -0.26 0.00 7.47 4.61 2.86 4,509 36.66 State of WA 2.17 0.05 -0.13 0.00 6.98 4.42 2.55 4,079 35.27 Comparable Group Average 1.97 0.01 -0.22 0.00 7.79 4.98 2.81 4,095 35.48 Mid-West Companies 1.89 0.00 -0.34 0.00 7.94 5.19 2.75 4,102 38.67 North-West Companies 1.86 0.01 -0.19 0.00 8.00 5.16 2.84 4,256 34.23 Western Companies (Excl CA) 2.18 0.03 -0.20 0.00 7.34 4.55 2.78 3,820 35.44 Comparable Group ---------------- Mid-West Companies ------------------ CMRN Cameron Fin. Corp. of MO 1.78 0.00 -0.41 0.00 8.33 5.36 2.97 4,002 37.23 FFHH FSF Financial Corp. of MN 2.01 0.00 -0.27 0.00 7.56 5.02 2.54 4,203 40.12 North-West Companies -------------------- FMSB First Mutual SB of Bellevue WA 1.98 0.00 0.03 0.00 8.52 5.14 3.38 3,823 32.92 FWWB First Savings Bancorp of WA(1) 2.15 0.04 0.08 0.00 7.82 5.40 2.42 3,463 29.64 HRZB Horizon Financial Corp. of WA 1.47 0.00 0.04 0.00 7.91 5.05 2.86 4,322 33.89 IWBK Interwest SB of Oak Harbor WA 2.24 0.01 -0.47 0.00 8.22 4.92 3.30 3,117 34.31 KFBI Klamath First Bancorp of OR 1.47 0.00 -0.63 0.00 7.55 5.29 2.26 6,558 40.38 Western Companies (Excl CA) --------------------------- FFBA First Colorado Bancorp of Co 2.01 0.02 0.02 0.00 7.27 4.66 2.61 5,155 37.77 UBMT United Fin. Corp. of MT(1) 2.09 0.00 -0.38 0.00 7.15 4.36 2.79 3,715 37.16 WSTR WesterFed Fin. Corp. of MT 2.45 0.07 -0.25 0.00 7.59 4.65 2.95 2,590 31.40
(1) Financial information is for the quarter ending March 31, 1997. Source: Audited and unaudited financial statements, corporate reports and offering circulars, and RP Financial, LC. calculations. The information provided in this table has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information. Copyright (c) 1997 by RP Financial, LC. RP Financial, LC. Page 3.10 In another key area of core earnings strength, the Bank maintained a considerably higher level of operating expenses than the Peer Group. For the period covered in Table 3.3, the Bank and the Peer Group recorded operating expense to average assets ratios of 2.58 percent and 1.96 percent, respectively. The Bank's higher operating expense ratio can in part be explained by its higher risk weight loan portfolio, which are personnel intensive, and relatively large number of branches for its asset size (as the number of branches has increased from a total of five at the end of fiscal 1993 to eight currently). Overall, the relatively high level of personnel maintained by the Bank is indicated by an assets per full time equivalent employee measure of $2.4 million, which was well below the Peer Group average of $4.1 million. Furthermore, the Bank maintains a relatively small average branch size equal to $20.9 million versus the Peer Group average of $36.6 million. Sources of non-interest operating income (excluding net non-operating items) and gains realized made a similar contribution to the Bank's earnings than the Peer Group's, based on comparative non-interest operating income to average assets ratios of 0.38 percent and 0.37 percent, respectively. The higher non-interest income is attributable to many of the same factors which tend to increase Timberland's expenses relative to the Peer Group -- including fee income and charges from its lending and retail depository operations. The Bank maintained a slightly less favorable expense coverage than the Peer Group, reporting expense coverage ratios of 1.70 times and 1.76 times, respectively. After taking non-interest income into account (excluding non- operating gains), however, the Bank's efficiency ratio of 46.4 percent was more favorable than the Peer Group's average efficiency ratio of 51.4 percent. On a post-conversion basis, the Bank's operating expenses can be expected to increase with the addition of the expenses related to the stock benefit plans and operating as a public company. However, at the same time, the infusion of interest-earning assets following the completion of the stock offering will enhance overall earnings levels. Loss provisions had a larger impact on the Bank's earnings than the Peer Group's, amounting to 0.19 percent and 0.12 percent, respectively. An increase in non-performing assets and increased credit risk profile warranted the higher loss reserves established by the Bank. Given the Bank's loan portfolio composition including the level of non-performing assets and reserve coverage ratio in comparison to the Peer Group, Timberland's earnings may continue to be more significantly impacted by loan loss provisions. Net non-operating items had a more significant impact on Timberland's operating results in comparison to the Peer Group average. Specifically, net non-operating expense, comprised primarily of gains on the sale of loans offset by the special SAIF assessment equaled 0.33 percent of assets for the Bank whereas RP Financial, LC. Page 3.11 the Peer Group reported non-operating expenses equal to 0.22 percent of assets on average. The disparity is in part attributable to the fact that three of the Peer Group companies (First Mutual SB, First Savings Bancorp, and Horizon Financial) are insured by the Bank Insurance Fund ("BIF") and were therefore not subject to the special SAIF assessment. The Bank was in a fully taxable position in fiscal 1997 and reported an effective tax rate equal to 35.7 percent, which compares closely to the average of 35.4 percent reported by the Peer Group. Loan Composition - ---------------- Table 3.4 presents data related to the loan composition of Bank and the Peer Group. An emphasis on mortgage lending for both Timberland and the Peer Group is apparent as mortgage loans including MBS and construction loans, comprised 103.0 percent (the total is greater than 100 percent due to loans in process) and 96.5 percent of loans for the Bank and the Peer Group, respectively. One-to-four family mortgage loans and MBS comprised 55.4 percent of loans for Timberland and averaged 74.0 percent for the Peer Group. Timberland's loan portfolio reflects greater diversification into high risk-weight assets, with the Bank more heavily invested in construction and land loans while the Bank has also been an active multi-family and commercial mortgage lender. Based on the most recent available data, Timberland's multi- family/commercial mortgage portfolio equaled approximately 21.7 percent of loans and MBS which is well in excess of the Peer Group average of 13.3 percent. Similarly, the Bank's construction lending, construction and land loans approximated 25.6 percent of loans and MBS, well above the 9.2 percent average for the Peer Group. As a result of the foregoing, Timberland's risk weighted assets to total assets ratio of 72.57 percent well exceeded the Peer Group average 53.29 percent. Overall, the Timberland loan portfolio appears to provide the Bank with an avenue for growth and stronger yield potential than the Peer Group. At the same time, as will be described in the section to follow, the level of NPAs coupled with the composition of the loan portfolio provide the Bank with comparatively greater credit risk exposure as well. Credit Risk - ----------- Overall, Timberland's credit risk exposure appears to be significantly greater than the Peer Group's, as indicated by the Bank's greater diversification into higher risk types of lending and maintenance of a higher level of non-performing assets. As shown in Table 3.5, Timberland's ratio of non-performing assets and RP FINANCIAL, LC. - ------------------------------------------ Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 22209 (703) 528-1700 Table 3.4 Loan Portfolio Composition and Related Information Comparable Institution Analysis As of June 30, 1997
Portfolio Composition as a Percent of MBS and Loans -------------------------------------------------------------------- 1-4 Constr. 5+Unit Commerc. RWA/ Serviced Servicing Institution MBS Family & Land Comm RE Business Consumer Assets For Others Assets ----------- --------- ------- ------ ------- -------- -------- ------ ---------- ------ (%) (%) (%) (%) (%) (%) (%) ($000) ($000) Timberland Savings Bank 2.18 53.20 25.95 21.65 0.37 5.57 72.52 50,700 0 SAIF-Insured Thrifts 15.39 61.59 5.33 11.63 6.50 1.71 51.92 402,667 2,913 All Public Companies 15.15 60.54 4.83 13.24 6.11 1.96 52.38 400,615 2,970 State of WA 14.37 53.98 10.73 16.85 2.39 3.19 58.04 242,085 422 Comparable Group Average 11.94 62.07 9.21 13.27 4.94 0.94 53.29 139,791 208 Comparable Group ---------------- CMRN Cameron Fin. Corp. of MO 0.01 71.13 32.92 4.64 3.98 0.36 65.32 0 0 FFHH FSF Financial Corp. of MN 0.04 68.10 12.73 6.58 15.53 2.79 51.58 39,191 31 FFBA First Colorado Bancorp of Co 9.80 71.27 3.23 11.72 5.36 0.03 53.22 139,490 513 FMSB First Mutual SB of Bellevue WA 8.18 39.61 6.68 45.38 0.11 0.04 61.71 381,000 697 FWWB First Savings Bancorp of WA(1) 6.05 59.08 8.56 16.32 3.57 2.87 58.93 208,359 354 HRZB Horizon Financial Corp. of WA 5.59 82.29 2.45 11.11 0.08 0.00 52.24 90,622 0 IWBK Interwest SB of Oak Harbor WA 18.50 49.42 10.64 12.92 4.02 2.07 49.63 269,536 342 KFBI Klamath First Bancorp of OR 11.33 83.53 2.88 4.15 0.73 0.01 45.21 1,069 0 UBMT United Fin. Corp. of MT(1) 40.95 36.06 9.53 11.65 4.84 1.18 34.34 0 0 WSTR WesterFed Fin. Corp. of MT 18.95 60.18 2.47 8.21 11.15 0.00 60.72 268,647 142
(1) Financial information is for the quarter ending March 31, 1997. Source: Audited and unaudited financial statements, corporate reports and offering circulars, and RP Financial, LC. calculations. The information provided in this table has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information. Copyright (c) 1997 by RP Financial, LC. RP FINANCIAL, LC. - ---------------------------------------- Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 22209 (703) 528-1700 Table 3.5 Credit Risk Measures and Related Information Comparable Institution Analysis As of June 30, 1997 or Most Recent Date Available
NPAs & Rsrves/ REO/ 90+Del/ NPLs/ Rsrves/ Rsrves/ NPAs & Net Loan NLCs/ Institution Assets Assets Loans Loans NPLs 90+Del Chargoffs Loans ----------- ------ ------- ----- ------- ------- -------- --------- ------ (%) (%) (%) (%) (%) (%) ($000) (%) Timberland Savings Bank 0.15 4.05 4.28 0.77 18.10 17.41 0 0.00 SAIF-Insured Thrifts 0.28 0.79 0.86 0.82 177.09 130.18 386 0.16 All Public Companies 0.28 0.81 0.91 0.93 177.04 131.80 380 0.16 State of WA 0.26 0.73 0.83 0.87 163.00 91.88 470 0.08 Comparable Group Average 0.13 0.30 0.22 0.67 267.65 197.51 44 0.02 Comparable Group ---------------- CMRN Cameron Fin. Corp. of MO 0.00 0.73 0.28 0.97 347.55 111.82 0 0.00 FFHH FSF Financial Corp. of MN 0.02 0.03 0.02 0.34 NA 636.64 5 0.01 FFBA First Colorado Bancorp of Co(1) 0.08 0.23 0.20 0.38 191.75 121.82 52 -0.01 FMSB First Mutual SB of Bellevue WA 0.00 0.01 NA 1.27 NA NA 0 0.00 FWWB First Savings Bancorp of WA(1) 0.11 0.30 0.27 0.97 366.82 215.39 148 0.09 HRZB Horizon Financial Corp. of WA 0.00 NA NA 0.84 NA NA 0 0.00 IWBK Interwest SB of Oak Harbor WA 0.70 0.64 0.43 0.78 179.94 73.79 91 0.03 KFBI Klamath First Bancorp of OR 0.00 0.08 0.11 0.23 213.23 213.23 1 0.00 UBMT United Fin. Corp. of MT(1) 0.39 0.42 NA 0.21 NA 16.14 0 0.00 WSTR WesterFed Fin. Corp. of MT 0.01 0.25 0.24 0.73 306.59 191.01 142 0.09
(1) Financial information is for the quarter ending March 31, 1997. Source: Audited and unaudited financial statements, corporate reports and offering circulars, and RP Financial, LC. calculations. The information provided in this table has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information. Copyright (c) 1997 by RP Financial, LC. RP Financial, LC. Page 3.14 accruing loans that are more than 90 days past due equaled 4.05 percent of assets, versus a comparative ratio of 0.13 percent for the Peer Group. Similarly, Timberland's non-performing loans to loans ratio was higher than the Peer Group's ratio (4.28 percent versus 0.22 percent for the Peer Group). Loss reserve ratios as a percent of problem assets also indicated a potentially higher degree of credit risk exposure for the Bank, with the Bank and the Peer Group maintaining loss reserves as a percent of non-performing assets and accruing loans that are more than 90 days past due of 17.4 percent and 197.5 percent, respectively. Net loan charge-offs were not a material factor for either the Bank or the Peer Group during the period covered in Table 3.5. As described in Section One, the Bank's emphasis on high risk-weight lending has been a been a key factor in Timberland's earnings growth since fiscal 1992, but it has also increased the Bank's credit risk exposure as well. Relative to the Peer Group, we believe the Bank's earnings relative to the Peer Group's are subject to adjustment for the following credit related risk factors as follows: (1) the Bank maintains a higher level of NPAs; (2) the reserve coverage is comparatively lower; (3) the composition of the portfolio suggests in higher risk-weight loans suggests higher potential credit risk exposure; (4) the Bank's portfolio lacks seasoning, particularly given recent growth; (5) the Bank has concentrated loan growth in the southern King County as well as the Tacoma and Olympia metropolitan areas where it has less experience as compared to its traditional markets in coastal Washington; and (6) construction and commercial/multi-family mortgage lending frequently involve large loans and/or large borrower relationships which entail greater risk from a portfolio diversification standpoint. Interest Rate Risk - ------------------ Table 3.6 reflects various key ratios highlighting the relative interest rate risk exposure of the Bank versus the Peer Group companies. In terms of balance sheet composition, Bank's interest rate risk characteristics were considered to be less favorable than the Peer Group's. In particular, Bank's lower capital position and lower IEA/IBL ratio indicate a greater dependence on the yield-cost spread to sustain the net interest margin. At the same time, Timberland maintained a comparable level of interest-earning assets. On a pro forma basis, the infusion of stock proceeds should serve to address the Bank's lower equity-to-assets ratio and IEA/IBL ratio. Public companies are not required to report interest rate risk in a standard fashion and many do not specifically quantify their interest rate risk on a regular basis. Furthermore, the computation of interest rate risk is predicated on numerous assumptions, many of which are unique among institutions. As a result, we have sought to measure interest rate risk by evaluating balance sheet composition and recent quarterly changes in net interest income. Timberland's net interest income reflects a greater level of volatility than the Peer Group RP FINANCIAL, LC. - ----------------------------------------- Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 22209 (703) 528-1700 Table 3.6 Interest Rate Risk Measures and Net Interest Income Volatility Comparable Institution Analysis As of June 30, 1997 or Most Recent Date Available
Balance Sheet Measures -------------------------- Non-Earn. Quarterly Change in Net Interest Income ---------------------------------------------------------- Equity/ IEA/ Assets/ Institution Assets IBL Assets 06/30/97 03/31/97 12/31/96 09/30/96 06/30/96 03/31/96 - ----------- ------ ---- ------- -------- -------- -------- -------- -------- -------- (%) (%) (%) (change in net interest income is annualized in basis points) Timberland Savings Bank 11.6 109.9 3.5 -9 -4 -33 20 26 -28 SAIF-Insured Thrifts 12.2 112.7 3.3 0 0 0 -1 8 7 All Public Companies 12.1 112.6 3.4 -0 0 1 -0 8 6 State of WA 9.5 109.0 3.7 -3 -2 -2 12 1 19 Comparable Group Average 13.9 115.2 3.4 4 -8 -3 7 6 14 Comparable Group - ---------------- CMRN Cameron Fin. Corp. of MO 21.7 124.0 4.6 -2 -24 4 -6 6 10 FFHH FSF Financial Corp. of MN 11.4 111.2 2.1 6 -1 -10 8 22 -6 FFBA First Colorado Bancorp of Co 12.8 114.2 2.6 -3 9 2 -13 16 55 FMSB First Mutual SB of Bellevue WA 6.8 106.6 2.2 12 -0 4 4 2 26 FWWB First Savings Bancorp of WA(1) 13.6 115.9 3.6 NA -6 -5 27 -17 4 HRZB Horizon Financial Corp. of WA 15.6 118.4 2.2 1 -16 13 -3 2 21 IWBK Interwest SB of Oak Harbor WA 6.6 103.8 3.9 -10 -3 -28 39 2 24 KFBI Klamath First Bancorp of OR 19.5 124.7 2.0 -3 -7 -20 -8 -1 8 UBMT United Fin. Corp. of MT(1) 22.6 126.5 3.6 NA 6 7 16 9 -0 WSTR WesterFed Fin. Corp. of MT 8.7 107.1 7.0 29 -32 6 7 15 5
(1) Financial information is for the quarter ending March 31, 1997. NA=Change is greater than 100 basis points during the quarter. Source: Audited and unaudited financial statements, corporate reports and offering circulars, and RP Financial, LC. calculations. The information provided in this table has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information. Copyright (c) 1997 by RP Financial, LC. RP Financial, LC. Page 3.16 average, partially reflecting the seasonality of the construction lending business (i.e., greater demand in the second and third calendar quarters of the year). Furthermore, we believe that the Bank, given its growing level of high risk-weight assets, may be subject to a greater credit risk as rates increase as payment levels on adjustable rate loans increases the debt service requirements of its borrowers, perhaps beyond their ability to repay the loans. It is expected that the infusion of the stock proceeds will serve to enhance the level and stability of the Bank's net interest margin, as interest-sensitive liabilities will be funding a lower proportion of Bank's assets. Summary - ------- Based on the above analysis and the criteria employed by RP Financial in the selection of the companies for the Peer Group, RP Financial concluded that the Peer Group forms a reasonable basis for determining the pro forma market value of Bank. Such general characteristics as regional market area, asset size, capital position, interest-earning asset composition, and funding composition all tend to support the reasonability of the Peer Group from a financial standpoint. While the Bank differs from the Peer Group in several key respects, including credit risk exposure, such differences will be reconciled in the pro forma valuation through the application of valuation adjustments in the valuation section to follow. RP Financial, LC. Page 4.1 IV. VALUATION ANALYSIS Introduction - ------------ This chapter presents the valuation analysis, prepared pursuant to the regulatory valuation guidelines, and valuation adjustments and assumptions used to determine the estimate pro forma market value of the common stock to be issued in conjunction with the Bank's conversion transaction. Appraisal Guidelines - -------------------- The OTS appraisal guidelines, most recently amended in written form in October 1994, specify the methodology for estimating the pro forma market value of an institution. Such guidelines are relied upon by the Washington Department of Financial Institutions, Division of Banks (the "Division") and the Federal Deposit Insurance Corporation ("FDIC") in evaluating conversion appraisals in the absence of separate written valuation guidelines by the respective agencies. The valuation methodology provides for: (1) the selection of a peer group of comparable publicly-traded institutions, excluding those converted for less than a year, subject to acquisition or in MHC form; (2) a financial and operational comparison of the subject company to the selected peer group, identifying key differences and similarities; and (3) a valuation analysis in which the pro forma market value of the subject company is determined based on the market pricing of the peer group as of the date of the valuation, incorporating valuation adjustments for key differences. In addition, the pricing characteristics of recent conversion, both at conversion and in the aftermarket, must be considered. RP Financial Approach to the Valuation - -------------------------------------- RP Financial's valuation analysis complies with the above referenced guidelines. Accordingly, the valuation incorporates a detailed analysis based on the Peer Group discussed in Chapter III, incorporating "fundamental analysis" techniques. Additionally, the valuation incorporates a "technical analysis" of recently completed stock conversions, including closing pricing and aftermarket trading of such conversions. It should be noted that such analysis cannot possibly fully account for all the market forces which impact after-market trading activity and pricing characteristics of a stock on a given day. The pro forma market value determined herein is a preliminary value for the Holding Company's to-be-issued stock. Throughout the conversion process, RP Financial will: (1) review changes in the Bank's operations and financial condition; (2) monitor the Bank's operations and financial condition relative to the RP Financial, LC. Page 4.2 Peer Group to identify any fundamental changes; (3) monitor the external factors affecting value including, but not limited to, local and national economic conditions, interest rates, and the stock market environment, including the market for thrift stocks; and (4) monitor pending initial and second step conversion offerings (including those in the offering phase) both regionally and nationally. If material changes should occur during the conversion process, RP Financial will prepare updated valuation reports reflecting such changes and their related impact on value, if any, over the course of the conversion process. RP Financial will also prepare a final valuation update at the closing of the conversion offering to determine if the preliminary range of value continues to be appropriate. The appraised value determined herein is based on the current market and operating environment for the Bank and for all thrifts. Subsequent changes in the local and national economy, the legislative and regulatory environment, the stock market, interest rates, and other external forces (such as natural disasters or major world events), which may occur from time to time (often with great unpredictability), may materially impact the market value of all thrift stocks, including Timberland, or Timberland's value alone. To the extent a change in factors impacting the Bank's value can be reasonably anticipated and/or quantified, RP Financial has incorporated the estimated impact into its analysis. Valuation Analysis - ------------------ A fundamental analysis discussing similarities and differences relative to the Peer Group was presented in Chapter III. The following sections summarize such differences between the Bank and the Peer Group and how those differences affect the pro forma valuation. Emphasis is placed on the specific strengths and weaknesses of the Bank relative to the Peer Group in such key areas as financial condition, profitability, growth and viability of earnings, asset growth, primary market area, dividends, liquidity of the issue, marketing of the issue, management, and the effect of government regulations and/or regulatory reform. We have also considered the market for thrift stocks, and in particular new issues, including second step conversions, to assess the impact on value of Timberland coming to market at this time. 1. Financial Condition ------------------- The financial strength of an institution is an important determinant in pro forma market value, because investors typically look to such factors as liquidity, capital, asset composition and quality, and funding sources in assessing investment attractiveness. The similarities and differences in the Bank's financial strength can be summarized as follows: RP Financial, LC. Page 4.3 o Overall A/L Composition. While both the Bank and the Peer Group are ----------------------- oriented towards mortgage lending funded primarily by retail deposits, the composition of the Bank's assets is rather different, as explained more fully below. The Bank maintains a higher proportion overall of loans receivable than the Peer Group, offset by a lower level of cash and investments and mortgage-backed securities, leading to a much higher loans/deposits ratio. Timberland also reported a higher level of diversification into higher risk weight loans relative to the Peer Group, indicating higher yield potential but also greater potential credit risk. Both the Bank and the Peer Group have been supplementing deposits with higher borrowings utilization, reflecting capital leveraging strategies. o Credit Risk. The Bank has a greater level of credit risk exposure in ----------- comparison to the Peer Group based on its higher level of NPAs, lower reserve coverage ratio, and greater diversification into high risk- weight loans including primarily construction and land loans, multi- family and commercial mortgage loans and origination of non-conforming loans for portfolio. The credit risk profile is raised somewhat given the rapid growth of such loans, the limited seasoning and the rapid increase in non-performing assets during the past year. Furthermore, the Bank's emphasis on high risk-weight loans has increased the Bank's exposure to large borrowers, as major loans and borrower concentrations are a significant component of Timberland's recent loan portfolio growth. o Balance Sheet Liquidity. Timberland maintained a lower level of cash, ----------------------- investments and mortgage-backed securities than the Peer Group. The Bank's proportion of cash and investments is expected to initially increase on a pro forma basis. The Bank appears to have greater current borrowings capacity than the Peer Group, as the Bank has a much smaller balance of borrowed funds as of the most recent period. o Capital. While the Bank currently maintains a lower capital position ------- in relation to the Peer Group, following the infusion of conversion proceeds, the Bank's capital position is expected to exceed the Peer Group average. The increase in capital will depress the Bank's pro forma return on equity until the proceeds can be effectively reinvested and leveraged over time. On balance, the most distinguishing characteristic between the financial condition of the Bank and the Peer Group was credit quality and risk profile. Timberland's less favorable credit quality measures, as well as its comparatively higher risk weighted asset ratio indicate that the credit risk associated with the Bank's balance sheet is more significant than the Peer Group's credit risk exposure. Therefore, we concluded that a moderate downward valuation adjustment was warranted for the Bank's financial strength. 2. Profitability, Growth and Viability of Earnings ----------------------------------------------- Earnings are an important factor in determining pro forma market value, as the level and risk characteristics of an institution's earnings stream and the prospects and ability to generate future earnings heavily influence the multiple the investment community will pay for earnings. The major factors considered in the valuation are described below. o Reported Earnings. The Bank's reported earnings were above the Peer ----------------- Group average supported by the Bank's strong yields and spreads generated through its relatively greater construction and commercial/multi-family mortgage lending. Additionally, a portion of the RP Financial, LC. Page 4.4 Bank's residential mortgage portfolio is non-conforming and thus carries a modest rate premium. The yield benefit of Timberland's high risk-weight lending orientation is partially offset by higher operating expenses. Overall, the Bank maintains a slight advantage over the Peer Group in terms of the efficiency ratio. Given Timberland's higher risk weighted asset ratio, higher NPAs and lower reserve coverage ratios, the Bank may potentially continue to report higher loan loss provisions relative to the Peer Group as well. o Core Earnings. The Bank was slightly more impacted by net ------------- non-operating expenses than the Peer Group, however, the Bank maintains its earnings advantage with respect to the core earnings measure. While redeployment of conversion proceeds into interest- earning assets should enhance Timberland's net interest income, operating expenses for the Bank are expected to increase as well. On a pro forma basis, Timberland's core profitability is expected to exceed the Peer Group average. o Interest Rate Risk. Timberland's comparative interest rate risk ------------------ measures indicated greater exposure to interest rate risk than the Peer Group. The one interest rate risk related factor where we believe the Bank has significantly greater exposure is with respect to "payment shock" faced by borrowers with previously deficient credit histories. The Bank's interest rate risk exposure should be moderated by the anticipated redeployment of the stock proceeds into interest- earning assets. o Credit Risk. Timberland reported loan loss provisions only modestly ----------- above the Peer Group average for the most recent twelve month period. However, we believe the Bank has significantly greater exposure to credit risk and losses relative to the Peer Group based on Timberland's: (1) higher level of NPAs; (2) lower reserve coverage ratios; (3) the higher risk-weight loan portfolio; (4) the more limited seasoning of the portfolio; (5) lending in geographic markets outside of its historical focus; and (6) preponderance of large borrower relationships. Accordingly, the Bank's earnings appear to be subject to greater risk of potential future credit-related loss. o Earnings Growth Potential. Timberland's recent loan demand has been ------------------------- strong, the surrounding market area is exhibiting healthy growth trends, deposit and loan growth has been moderate to strong, and the Bank will have excess capital to leverage. Additionally, the Bank has been making investments in branches and personnel, which have caused expenses to increase but which are anticipated to provide long-term earnings benefits. At the same time, management has indicated that the level of competition has stepped up, and the Bank has noted that the interest rate spread has diminished. Furthermore, the long running implications on earnings resulting from the recent sharp increase in NPAs is uncertain. o Return on Equity. On a pro forma basis the Bank's pro forma return on ---------------- equity will be lower than the Peer Group average as a result of its higher pro forma capital position, despite higher pro forma profitability. Overall, a moderate downward valuation adjustment was warranted for profitability, growth and viability of the Bank's earnings, which takes into account the Bank's higher return on assets, but lower pro forma ROE and earnings growth potential as well as the Bank's greater exposure to credit risk and interest rate risk. RP Financial, LC. Page 4.5 3. Asset Growth ------------ The Bank's asset growth in recent periods has been well below the Peer Group median. The Peer Group companies operate in relatively healthy growing markets whereas the Bank's primary area provides less opportunity for growth. The Bank's capacity to grow will increase with the capital raised in the conversion, and the recent expansion into more populous markets. Conversely, the Bank's higher level of NPAs may possibly limit the Bank's future growth capacity. Overall, we concluded that a slight downward adjustment was warranted relative to the Peer Group for the Bank's asset growth potential. 4. Primary Market Area ------------------- The general condition of a financial institution's market area has an impact on value, as future success is in part dependent upon opportunities for profitable activities in the local market area. Summary demographic and deposit market share data for the Bank and the Peer Group is included in Table 4.1. The Bank's primary market area of Grays Harbor County, where the Bank is headquartered, reflects a small modest growth market with relatively lower income levels and higher unemployment. In comparison, the Peer Group's primary market areas are growing more rapidly (nearly 75 percent faster), their residents possess higher income levels (nearly 30 percent higher) and unemployment rates are much lower (at half the level). In order to participate in the more favorable growth trends prevailing the Seattle, Tacoma and Olympia markets, the Bank has opened full service branches and loan offices in King, Pierce and Thurston counties. Certain Peer Group companies which are headquartered in relatively rural markets have taken similar approaches: First Savings Bancorp makes loans in the Seattle and Portland areas while Cameron Financial originates construction loans in the Kansas City market. Overall, we believe the small size and low growth of the Grays Harbor County market is offset to an extent, by the Bank's participation in higher growth areas in the central and southern Puget Sound region. The longer term success of the Bank's recent entry into these markets, however, particularly in view of the premium pricing of CDs and the higher risk weight lending, casts uncertainty as to the ability to sustain the recent growth profitability. On balance, RP Financial concluded that a slight downward valuation adjustment was warranted for the primary market area. 5. Dividends --------- The Holding Company has indicated that it will not initially pay a dividend. As publicly-traded thrifts' capital levels and profitability have improved and as weak institutions have been resolved, the proportion of institutions with cash dividend policies has increased. All ten institutions in the Peer Group presently pay Table 4.1 Peer Group Market Area Comparative Analysis
Proj. Population Pop. 1990-97 1997-2002 ------------------ Institution County 1990 1997 2002 % Change % Change - ----------- ------ ---- ---- ---- -------- -------- (000) (000) Cameron Fin. Corp. of MO Clinton 17 18 20 10.8% 6.7% FSF Financial Corp. of MN McLeod 32 34 35 6.0% 3.9% First Colorado Bancorp of CO Jefferson 438 500 543 14.1% 8.5% First Mutual SB of Bellevue WA King 1,507 1,634 1,722 8.4% 5.4% First Savings Bancorp of WA Walla Walla 48 54 58 11.2% 6.9% Horizon Financial Corp. of WA Whatcom 128 156 175 21.9% 12.4% Interwest SB of Oak Harbor WA Island 60 70 77 17.0% 10.0% Klamath First Bancorp of OR Klamath 58 63 67 10.0% 6.3% United Financial Corp. of MT Cascade 78 81 84 4.6% 3.1% WesterFed Fin. Corp. of MT Missoula 79 90 97 14.1% 8.5% --- --- --- ----- ---- AVERAGES: 244 270 288 11.8% 7.2% MEDIANS: 69 76 81 11.0% 6.8% TIMBERLAND SAVINGS BANK GRAYS HARBOR 64 69 72 6.8% 4.4% 1997 Estimated 1997 Per Capita Income Deposit -------------------- Median % State Market July 1997 Institution County Age Amount Average Share(1) Unemployment Rates - ----------- ------ --- ------ ------- -------- ------------------ State County ----- ------ Cameron Fin. Corp. of MO Clinton 36.8 15,721 89.0% 39.4% 3.9% 4.0% FSF Financial Corp. of MN McLeod 34.1 19,509 93.7% 22.1% 2.9% 2.8% First Colorado Bancorp of CO Jefferson 35.9 28,823 114.4% 8.8% 3.1% 2.3% First Mutual SB of Bellevue WA King 36.1 21,960 126.0% 1.1% 4.4% 3.2% First Savings Bancorp of WA Walla Walla 35.0 14,165 81.2% 23.4% 4.4% 5.2% Horizon Financial Corp. of WA Whatcom 34.5 16,204 92.9% 18.7% 4.4% 5.4% Interwest SB of Oak Harbor WA Island 35.2 16,731 96.0% 37.3% 4.4% 3.4% Klamath First Bancorp of OR Klamath 36.7 13,879 81.9% 45.5% 4.9% 7.1% United Financial Corp. of MT Cascade 34.9 14,055 102.6% 4.6% 4.6% 4.7% WesterFed Fin. Corp. of MT Missoula 34.0 14,021 102.3% 17.0% 4.6% 4.2% ---- ------- ------ ----- ---- ---- AVERAGES: 35.3 17,507 98.0% 21.8% 4.2% 4.2% MEDIANS: 35.1 15,963 94.8% 20.4% 4.6% 4.2% TIMBERLAND SAVINGS BANK GRAYS HARBOR 37.4 $12,382 71.0% 16.9% 4.4% 8.5%
(1) Total institution deposits in headquarters county as percent of total county deposits at 6/30/97. Sources: CACI, Inc, SNL Securities RP Financial, LC. Page 4.7 regular cash dividends, with implied dividend yields ranging from 0.95 percent to 4.17 percent. The average dividend yield on the stocks of the Peer Group institutions was 2.08 percent as of August 29, 1997, representing an average earnings payout ratio of 35.84 percent. As of August 29, 1997, approximately 84 percent of all full stock publicly-traded SAIF-insured thrifts have adopted cash dividend policies (see Exhibit IV-2), exhibiting an average yield of 2.01 percent and an average payout ratio of 41.12 percent. Notwithstanding the Bank's decision not to establish a dividend policy initially, its comparable dividend paying capacity warrants the application of no valuation adjustment. The dividend paying thrifts generally maintain higher than average profitability ratios, facilitating their ability to pay cash dividends, which supports a market pricing premium on average relative to non-dividend paying thrifts. Timberland's planned initial dividend yield is comparable to the Peer Group's average dividend yield which, coupled with the Bank's dividend paying capacity, warrants no valuation adjustment. 6. Liquidity of the Shares ----------------------- The Peer Group is by definition composed of companies that are traded in the public markets, all of which trade on the NASDAQ system. It is anticipated that Timberland's stock will also be traded on the NASDAQ National Market System; at present there is very limited liquidity of the shares. The number of shares outstanding and market capitalization provides an indication of the potential liquidity there will be in a particular stock. The market capitalization of the Peer Group companies ranged from $28.7 million to $317.4 million as of August 29, 1997, with an average market value of $150.4 million. The shares outstanding of the Peer Group members ranged from 1.2 million to 14.6 million, with average shares outstanding of approximately 6.5 million. The Bank's pro forma market value will be materially lower than the Peer Group average, and pro forma shares outstanding will be lower than the Peer Group average --both factors which would suggest lower liquidity in the shares of Timberland stock. Accordingly, we applied a slight downward adjustment for this factor. 7. Marketing of the Issue ---------------------- We considered in the valuation the various market segments which exist for thrift stocks: (1) the after-market for public companies, in which trading activity is regular and investment decisions are made based upon financial condition, earnings, capital, ROE and dividends; (2) the new issue market in which converting thrifts are evaluated on the basis of the same factors but on a pro forma basis without the benefit of a stock trading history and reporting quarterly operating results as a publicly-held company; and (3) the acquisition market for thrift franchises. All three of these markets segments were considered in the valuation of the Bank's to-be-issued stock. RP Financial, LC. Page 4.8 A. Public Market ------------- The value of publicly-traded thrift stocks is easily measurable, and is tracked by most investment houses and related organizations. Exhibit IV-1 provides pricing and financial data on all publicly-traded thrifts. In general, thrift stock values react to market stimuli such as interest rates, inflation, perceived industry health, projected rates of economic growth, regulatory issues and stock market conditions in general. Exhibit IV-2 displays historical stock market trends for various indices and includes historical stock price index values for thrifts and commercial banks. Exhibit IV-3 displays historical stock price indices for thrifts only. In terms of assessing general stock market conditions, the stock market has generally trended higher over the past year. Expectations that the Federal Reserve would not tighten interest rates at its July 1996 meeting provided for a rally in the bond market in late-June, as the 30-year bond yield moved back below 7.0 percent. The positive interest rate outlook also served to boost the stock market in early-July, but the rally was cut short by a larger than expected drop in June unemployment. Bond and stock prices tumbled following the June unemployment report, as highlighted by a 115 point one-day decline in the DJIA and an increase in the 30-year bond yield to 7.18 percent. The release of second quarter earnings reports provided for a volatile stock market in mid- July, especially among the technology stocks. Overall, the stock market declined due to earnings disappointments, with a more severe decline occurring in the technology driven NASDAQ Composite Index. At the same time bond prices recovered, as the 30-year bond yield dropped below 7.0 percent following statements by the Federal Reserve Chairman which indicated he expected the economy to slow down in the second half of 1996. Stocks and bonds rallied in late-July and early-August, as economic data indicated a healthy but moderating economy. However, higher interest rates pushed stocks lower in late-August, reflecting increasing expectations that the Federal Reserve would tighten interest rates in September. The decline in the stock market was reversed in early-September, as investors reacted positively to the inflation data contained in the August employment report. Oil stocks sustained the upward trend in the stock market in early-September, as renewed tension between the U.S. and Iraq pushed crude oil prices to their highest level in five years. Both bond and stock prices surged higher in mid-September, as most of the economic data for August indicated that the economy was slowing down and investors became more optimistic that the Federal Reserve would not raise interest rates in September. The Federal Reserve's decision not to raise interest rates at its September 1996 meeting, and generally healthy third quarter earnings results sustained the upward momentum in the stock market during the beginning of the fourth quarter. Favorable inflation data and lower interest rates further spurred the upward trend in the stock market prior to the election. Investors were cheered by the "status quo" election results, as stocks rallied strongly immediately following the election with the DJIA posting ten consecutive advances through mid-November. Economic stability and a rising bond market sustained the stock market rally through RP Financial, LC. Page 4.9 the end of November. For the entire month of November, the DJIA increased 492.3 points, or 8.2 percent. Following the rapid rise in the stock market during November, stocks retreated during the first half of December. Profit taking, concern about speculative excesses in the stock market and higher interest rates all contributed to the decline in the stock market. The stock market resumed an upward trend during the end of 1996 and the first three weeks of 1997, with the DJIA establishing several new highs in the process. Factors contributing to the rally in the stock market included the Federal Reserve's decision to leave rates unchanged at its December meeting, economic data which reflected moderate growth and low inflation, and favorable fourth quarter earnings particularly in the technology sector. However, a disappointing fourth quarter earnings report by IBM ignited a sell-off in the stock market in late-January. Higher interest rates extended the downturn, as the 30-year bond approached 7.0 percent at the end of January. A high degree of market volatility was evident throughout most of February 1997, reflecting concern over speculative excesses in the stock market; particularly, as the DJIA closed above the 7000 mark in mid-February. Profit taking, growing expectations of a correction and comments by the Federal Reserve Chairman pulled the market lower in late-February. Following a downturn in late-February 1997, the market recovered in early-March. Despite increasing expectations of an interest rate hike by the Federal Reserve, the Dow Jones Industrial Average ("DJIA") closed to a new record high of 7085.16 on March 11, 1997. However, an upward revision to the January retail sales figure triggered a one day sell-off in stocks and bonds on March 13, 1997, as the stronger than expected growth heightened expectations of an interest rate increase by the Federal Reserve. Unease over higher interest rates, profitability concerns in the technology sector and litigation concerns for tobacco stocks pulled the stock market lower in mid-March. As expected, the Federal Reserve increased the rate on short-term funds by 0.25 percent at its late-March meeting. Following the rate increase, the sell-off in the stock market became more severe amid further signs of an accelerating economy. Stocks bottomed-out on news of a stronger than expected rise in core producer prices for March, with the DJIA closing at 6391.69 on April 11, 1997, or 9.8 percent below its all-time high recorded a month ago. Some favorable first quarter earnings reports and news of a possible settlement by tobacco companies to resolve the threat of liability lawsuits provided for a modest recovery in the stock market in mid-April. In late-April, the release of economic data which indicated mild inflationary pressures furthered the rally in bond and stock prices. News of a budget agreement and a favorable ruling for tobacco companies sent the stock market soaring to record highs in early-May. Non-threatening inflation data, such as declining retail sales and wholesale prices for May, provided for positive trends in stock and bond prices through in mid-June 1997. The stock market rally stalled in late-June, following remarks by Japan's Prime Minister which were interpreted as an indication that Japan would be a seller of U.S. stocks and bonds. However, the downturn was brief, as the Federal Reserve's decision to leave RP Financial, LC. Page 4.10 rates unchanged at the July 2 meeting, along with new economic data that indicated inflation was still under control, pushed stock and bond prices in early-July. Technology stocks rallied the stock market to new highs through the end of July, as a number of technology companies posted favorable second quarter earnings. Congressional testimony by the Federal Reserve Chairman on July 22 sent the financial markets soaring, as he indicated the state of the economy was favorable and an increase in interest rates was not imminent. A decline in the July 1997 unemployment rate reversed the positive bond and stock market trends in early-August, as inflation concerns became more prominent. A declining dollar against the yen and mark sharpened the decline in bond prices, with the 30-year U.S. Treasury bond increasing from 6.32 percent at the end of July to 6.66 percent as of August 8, 1997. The sell-off pulled stock prices lower as well. While bond prices firmed in mid-August, notable volatility was evident in the stock market. The DJIA moved 100 points for five consecutive days from August 18, 1997 through August 21, 1997, which set a record for volatility. Profit worries among some of the large blue chip companies and mixed inflation readings were factors contributing to the roller-coaster performance of the stock market. The following week, the DJIA fell 265.83 points to close at 7622.42 as of August 29, 1997, translating into a 7.7 percent reduction since the high reached earlier in the month. Thrift prices generally moved higher during October and November 1996. The upward trend in thrift prices was supported by lower interest rates, with the slow down in economic growth pushing the 30-year U.S. bond rate below 6.5 percent during the second half of November. Investors also reacted positively to the SAIF rescue legislation, in light of the reduction in deposit insurance premiums to be paid by SAIF-insured thrifts following the one time special assessment. Similar to the overall stock market, thrift prices traded lower in early-December. Profit taking and expectations of higher interest rates were factors contributing to the pull back in thrift issues. Bullish sentiment for thrift stocks heightened at the beginning of 1997, as investors reacted positively to the favorable inflation data and generally strong fourth quarter earnings. The rally in thrift issues was driven by the large California institutions, reflecting expectations that there would be further consolidation among the large California thrifts. The acquisition speculation for the large California thrifts became a reality in mid-February, as H.F. Ahamanson's unsolicited offer to acquire Great Western Financial sent the SNL Index soaring in mid-February. Stable interest rates and acquisition activity supported higher thrift prices in early-March, with the SNL Index posting a new high of 579.1 on March 11, 1997. Like the stock market in general, the peak in thrift prices was followed by a sharp sell-off in mid- March. In fact, interest-rate sensitive issues were among the sectors hardest hit by the revised January retail sales report, as the 30-year bond approached 7.0 percent. Interest-rate sensitive issues continued to experience selling pressure in late-March and early-April, as signs of a strengthening economy pushed interest rates higher. The sell-off in thrift stocks RP Financial, LC. Page 4.11 culminated on April 11, 1997, as interest rates increased sharply on news of the higher than expected rise in core producer prices for March. Thrift prices edged modestly higher in mid-April, reflecting generally favorable first quarter earnings and a slight decline in interest rates following the release of economic data which showed that inflation was low. Favorable inflation data and the budget agreement provided for a more substantial rally in thrift stocks in late-April and early-May, as interest-rate sensitive issues were bolstered by a decline in interest rates. Thrift stocks continued to trend higher through June and early-July 1997, based on the improved interest rate outlook and an overall positive outlook for the economy. Generally favorable second quarter earnings and the 30-year U.S. Treasury bond yield declining below 6.50 percent served to further boost thrift prices in mid-July, with the declining interest rate environment serving to sustain the rally in thrift prices through the end of July. Thrift prices generally declined during the first half of August, due to higher interest rates and profit taking. From July 31, 1997 to August 15, 1997, the SNL Index declined by 3.7 percent. Thrift prices recovered modestly the following week, as the Federal Reserve left short-term interest rates unchanged at its August meeting. The SNL Index for all publicly-traded thrifts closed at 664.6 on August 29, 1997, an increase of 62.8 percent from one year ago. B. The New Issue Market -------------------- In addition to thrift stock market conditions in general, the new issue market for converting thrifts, including second step conversions, is also an important consideration in determining the Bank's pro forma market value. The favorable market environment for converting thrift issues has generally been sustained during the first two quarters of 1997, with most offerings experiencing oversubscriptions and trading higher in initial post-conversion trading activity. As shown in Table 4.2, the median one week change in price for all recently conversion offerings completed during the latest three months equaled positive 45.6 percent, partially reflecting the overall market enthusiasm in general and for initial public offerings of non-financial services companies. In examining the current pricing characteristics of institutions completing their conversions during the last three months (see Table 4.3), we note there exists a considerable difference in pricing ratios compared to the universe of all publicly-traded thrifts, both at the time of conversion and in the aftermarket. The median pro forma price/tangible book ratio of recent conversions, excluding second step conversions, was 71.7 percent. The current average P/TB ratio of the four standard conversions completed in the most recent three month period (and are NASDAQ listed) of 119.2 percent reflects a discount of 17.8 percent from the average P/TB ratio of all publicly-traded SAIF-insured thrifts (equal to 144.94 percent). RP Financial, LC. September 3, 1997 ----------------------------------------------------------- Table 4 Recent Conversion (Last Three Months) Conversion Pricing Characteristics: Sorted Chronologically -----------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------- INSTITUTIONAL INFORMATION PRE-CONVERSION DATA OFFERING INSIDER PURCHASES ------------------------------- FINANCIAL INFO. ASSET QUALITY INFORMATION - ----------------------------------------------------------------------------------------------------------------------------------- BENEFIT PLANS CONVERSION Equity/ NP AS/ RES. GROSS % OF EXP. RECOG MGMT INSTITUTION STATE DATE TICKER ASSETS ASSETS ASSETS COV. PROC. MID. PRICE ESOP PLANS & DIB - ----------- ----- ---- ------ ------ ------- ------ ---- ----- ---- ----- ---------------------- (SM) (%) (%$2) (%) (SM ) (%) (%) (%) (%) (%$#) - ------------------------------------------------------------------------------------------------------------------------------------ WSB Holding Company PA 08/29/97 WSBH $33 6.04% 2.34% 26% 83.3 132% 8.5% 8.0% 4.0% 31.0% Bay? Bancshares(?) NJ 08/22/97 FSNJ 577 8.33% 0.81% 53% 48.7 132% 3.8% 8.0% 4.0% 10.0% First Spartan Fin. Corp. SC 07/09/97 FSPT 388 11.81% 0.75% 44% 83.6 132% 1.6% 8.0% 4.0% 1.5% GSH Financial Corp. NY 07/09/97 GOSB 96 12.68% 0.07% 188% 22.5 132% 4.1% 8.0% 4.0% 2.6% FristBank Corp. ID 07/02/97 FBNW 138 8.00% 0.99% 68% 19.8 132% 3.5% 8.0% 4.0% 8.2% Montgomery Fin. Corp (?) IN 07/01/97 MONT 94 9.83% 0.91% 20% 11.9 132% 4.5% 8.0% 4.0% 4.6% Community First Bankg Corp GA 07/01/97 CFBC 366 2.02% 1.68% 40% 48.3 132% 2.9% 8.0% 4.0% 1.0% First Robinson Fin. Corp.(9) IL 06/30/97 FRFC 72 6.78% 0.63% 89% 8.6 132% 4.7% 8.0% 4.0% ???% Security Bancorp TN 06/30/97 P.Sheet 46 5.46% 0.06% NM 4.4 132% 6.9% 8.0% 4.0% 2.0% Sistersville Bancorp WV 06/26/97 P.Sheet 27 17.91% 0.31% 198% 6.6 110% 6.8% 8.0% 4.0% 5.4% AVERAGES $184 9.39% 0.86% 81% $26.3 130% 4.7% 8.0% 4.0% 7.6% MEDIANS: 95 8.17% 0.78% 53% $15.9 132% 4.3% 8.0% 4.0% 5.0% AVERAGES, EXCLUDING 2ND STEPS $146 9.46% 0.85% 93% 25.3 130% 4.9% 8.0% 4.0% 7.7% MEDIANS, EXCLUDING 2ND STEPS $84 7.51% 0.69% 68% $14.2 132% 6.4% 8.0% 4.0% 4.0% PRO FORMA DATE POST-IPO PRICING TRENDS ------------------------------------------- ----------------------- PRICING RATIOS(4) FIN. CHARACTERISTICS CLOSING PRICE ------------------------------------------- ----------------------- FIRST AFTER IPO TRADING % FIRST INSTITUTION P/TB P/E(5) P/A ROA TE/A ROE PRICE DAY CHG WEEKS(6) - ----------- ---- ------ --- --- ---- --- ----- --- --- -------- (%) ($) (%) (%) (%) (%) ($) ($) (%) ($) - ------------------------------------------------------------------------------------------------------------------------------------ WSB Holding Company 71.4% 16.6 9.2% 0.6% 12.9% 4.3% $10.00 $13.50 35.0% $13.50 Bay? Bancshares(?) 100.9% NM 14.6% NM 14.4% NM 10.00 11.75 ?7.5% 11.88 First Spartan Fin. Corp. 72.4% 17.3 19.9% 1.1% 26.3% 4.2% 20.00 36.69 83.4% 36.62 GSH Financial Corp. 72.5% 22.5 19.6% 0.9% 27.1% 3.2% 10.00 14.63 46.3% 14.75 FristBank Corp. 71.4% 22.8 12.9% 0.6% 18.0% 3.1% 10.00 15.81 58.1% 15.56 Montgomery Fin. Corp (?) 89.1% 24.1 16.0% 0.7% 17.9% 3.7% 10.00 11.13 11.2% 11.25 Community First Bankg Corp 72.3% 24.5 11.9% 0.5% 16.4% 2.9% 20.00 31.8? 59.4% 33.00 First Robinson Fin. Corp.(9) 71.4% 16.7 10.9% 0.7% 15.2% 4.3% 10.00 14.50 45.0% 14.38 Security Bancorp 72.0% 14.1 8.8% 0.6% 12.2% 5.1% 10.00 14.50 45.0% 15.00 Sistersville Bancorp 65.0% 18.9 20.6% 1.1% 31.6% 3.4% 10.00 13.75 37.5% 13.88 AVERAGES 75.8% 19.7 14.3% 0.7% 19.2% 3.8% $12.00 $17.81 43.8% $17.98 MEDIANS: 72.1% 18.9 13.7% 0.7% 17.2% 3.6% $10.00 $14.50 45.0% $14.56 AVERAGES, EXCLUDING 2ND STEPS 71.1% 19.2 14.1% 0.7% 20.0% 3.8% $11.25 $19.41 51.2% $19.59 MEDIANS, EXCLUDING 2ND STEPS 71.7% 18.? 12.4% 0.6% 17.2% 3.8% $10.00 $14.56 45.6% $14.88 POST-IPO PRICING TRENDS ------------------------- CLOSING PRICE: ------------------------- AFTER % FIRST % INSTITUTION CHG MONTHS(7) CHG - ----------- --- --------- --- (%) ($) (%) - ------------------------------------------------------------------------------ WSB Holding Company 35.0% NA Bay? Bancshares(?) 18.8% $11.88 18.8% First Spartan Fin. Corp. 83.1% 35.63 78.1% GSH Financial Corp. 47.5% 14.38 43.8% FristBank Corp. 55.6% 17.88 78.8% Montgomery Fin. Corp (?) 12.5% 11.75 17.5% Community First Bankg Corp 65.0% 34.25 71.3% First Robinson Fin. Corp.(9) 43.8% 16.50 65.0% Security Bancorp 50.0% 15.25 52.5% Sistersville Bancorp 38.8% 14.00 40.0% AVERAGES 45.0% $19.06 51.7% MEDIANS: 45.6% $15.25 52.5% AVERAGES, EXCLUDING 2ND STEPS 52.3% $21.13 61.3% MEDIANS, EXCLUDING 2ND STEPS 48.8% $16.50 65.0%
Notes - Appraisal performed by RP Financial: "NT" - Not Traded "NA" - Not Applicable, Not Available. (1) Non-OTS regulated thrifts. September 3, 1997 (2) ?????? in summary pages of prospectus. (3) ?????? in prospectus. (4) ???? take into account the adoption of SOP 93-6. (5) ????? impact of special SAIF assessment on ????? (6) Latest price if offering less than one week old. (7) Latest price if offering more than one week but less than on month old. (8) Second-step conversions. (9) Simultaneously converted to commercial bank charter. - -------------------------------------------------------------------------------- RP FINANCIAL, LC. - --------------------------------------- Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 22209 (703) 528-1700 Market Pricing Comparatives Prices As of August 29, 1997
Market Per Share Data -------------- Capitalization Core Book Pricing Ratios(3) -------------- ---------------------------------------------- Price/ Market 12-Nth Value/ Financial Institution Share(1) Value EPS(2) Share P/E P/B P/A P/TB P/CORE - -------------------- -------- ------ ------ ----- ------- ------- ------- ------- --------- ($) ($Mil) ($) ($) (X) (%) (%) (%) (X) SAIF-Insured Thrifts 22.11 150.20 1.15 15.74 20.87 140.69 17.55 144.94 18.42 All Public Companies 22.46 160.22 1.23 15.72 19.51 143.57 17.60 148.03 17.91 Special Selection Grouping(B) 22.61 65.04 0.70 19.07 27.63 116.31 24.33 116.64 28.43 State of WA 23.36 310.97 1.34 13.21 18.21 174.37 18.41 183.01 17.81 Comparable Group - ---------------- Special Comparative Group(B) - ---------------------------- CFBC Community First Bnkg Co. of GA 33.87 81.76 1.06 28.74 NM 117.85 18.14 119.47 NM FBHN FirstBank Corp of Clarkston 17.50 34.72 0.44 14.00 NM 125.00 22.55 125.00 NM FSPT FirstSpartan Fin. Corp. of SC 35.37 156.69 1.16 27.63 NM 128.01 33.70 128.01 NM GOSB GSB Financial Corp. of NY 14.37 32.20 0.44 13.78 27.63 104.28 28.22 104.28 NM MONT Montgomery Fin. Corp. of IN 11.94 19.74 0.42 11.22 NM 106.42 19.06 106.42 28.43 Dividends(4) ---------------------------------- Amount/ Payout Financial Institution Share Yield Ratio(5) - --------------------- ------- ----- -------- ($) (%) (%) SAIF-Insured Thrifts 0.38 1.75 29.54 All Public Companies 0.39 1.76 29.54 Special Selection Grouping(B) 0.00 0.00 0.00 State of WA 0.34 1.38 21.70 Comparable Group - ---------------- Special Comparative Group(B) - ---------------------------- CFBC Community First Bnkg Co. of GA 0.00 0.00 0.00 FBHN FirstBank Corp of Clarkston 0.00 0.00 0.00 FSPT FirstSpartan Fin. Corp. of SC 0.00 0.00 0.00 GOSB GSB Financial Corp. of NY 0.00 0.00 0.00 MONT Montgomery Fin. Corp. of IN 0.00 0.00 0.00 Financial Characteristics(6) -------------------------------------------------------------------------------------------- Total Equity/ NPAs Reported Core ----------------------- ------------------------- Financial Institution Assets Assets Assets ROA ROE ROA ROE - --------------------- ------ ------ ------ ---------- ---------- ---------- ----------- ($Mil) (%) (%) (%) (%) (%) (%) SAIF-Insured Thrifts 1,149 12.86 0.79 0.54 5.50 0.75 7.55 All Public Companies 1,188 12.70 0.81 0.64 6.47 0.82 8.16 Special Selection Grouping(B) 258 20.95 1.67 0.73 3.44 0.75 3.59 State of WA 1,627 11.17 0.73 1.00 9.31 1.06 10.72 Comparable Group - ---------------- Special Comparative Group(B) - ---------------------------- CFBC Community First Bnkg Co. of GA 451 15.40 2.02 0.56 3.65 0.57 3.69 FBHN FirstBank Corp of Clarkston 154 18.04 2.07 0.70 3.86 0.57 3.14 FSPT FirstSpartan Fin. Corp. of SC 465 26.32 NA 0.95 3.62 1.11 4.20 GOSB GSB Financial Corp. of NY 114 27.06 NA 1.02 3.77 0.?5 3.19 MONT Montgomery Fin. Corp. of IN 104 17.91 0.91 0.42 2.32 0.67 3.74
(1) Average of High/Low or Bid/Ask price per share. (2) EPS (estimate core basis) is based on actual trailing twelve month data, adjusted to omit non-operating items (including the SAIF assessment) on a tax effected basis. (3) P/E = Price to earnings; P/B = Price to book; P/A = Price to assets; P/TB = Price to tangible book value; and P/CORE = Price to estimated core earnings. (4) Indicated twelve month dividend, based on last quarterly dividend declared. (5) Indicated dividend as a percent of trailing twelve month estimated core earnings. (6) ROA (return on assets) and ROE (return on equity) are indicated ratios based on trailing twelve month earnings and average equity and assets balances. (7) Excludes from averages those companies the suject of actual or rumored acquisition activities or unusual operating characteristics. (8) Includes Converted Last 3 Mths (no ??C): Source: Corporate reports, offering circulars, and RP Financial, LC. calculations. The information provided in this report has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information. Copyright (c) 1997 by RP Financial, LC. RP Financial, LC. Page 4.14 The pricing ratios of the better capitalized but lower earning recently converted thrifts (based on return on equity measures) suggest that the investment community has determined to discount their stocks on a book basis until the earnings improve through redeployment and leveraging of the proceeds over the longer term. In determining our valuation adjustment for marketing of the issue, we considered trends in both the overall thrift market and the new issue market. The overall market for thrift stocks is considered to be healthy, as thrift stocks are currently exhibiting pricing ratios that are approaching historically high levels. Investor interest in the new issue market has been favorable, as most of the recently completed offerings have been oversubscribed and have recorded healthy price increases in initial post-conversion trading activity. C. Acquisition Market ------------------ Also considered in the valuation was the potential impact on Timberland's stock price of recently completed and pending acquisitions of other thrifts operating in Timberland's market area. As shown in Exhibit IV-4, there were two thrifts based in the State of Washington acquired in 1996 and 1997, but the Washington market is home to several highly acquisitive financial institutions and Washington based institutions typically trade with some acquisition speculation built into their stock prices. The acquisition speculation involving Washington thrifts may imply a certain degree of acquisition speculation for the Bank's stock. To the extent that acquisition speculation may impact the Bank's offering, we have largely taken this into account by focusing on Washington and Northwest U.S. thrifts in the Peer Group selection process. * * * * * * * * * * * Taking these factors and trends into account, primarily recent trends in the new issue market, market conditions overall, and the recent trends in the acquisition market, RP Financial concluded that no adjustment was appropriate in the valuation analysis for purposes of marketing of the issue. 8. Management ---------- Timberland's management team has experience and expertise in all of the key areas of the Bank's operations. Exhibit IV-5 lists Timberland's Board of Directors and executive management with summary resumes. The Bank's operating performance including its ROA and ROE measures have been very strong, and the Bank's capital level has increased to relatively strong levels, even on a pre- conversion basis. The one area of concern we have is with respect to the depth of management relative to the Peer Group. Specifically, Timberland has expanded it operations significantly, particularly in the Seattle, Tacoma and Olympia metropolitan areas, where it relatively less experience than in its traditional markets in Grays Harbor County. RP Financial, LC. Page 4.15 Furthermore, given the Peer Group's larger asset size, the Peer Group companies are better able to maintain a deep management team at the mid-management level without a large adverse impact on the operating expense ratio. Based on the foregoing, we have therefore concluded that a slight downward adjustment is appropriate relative to the Peer Group companies for the factor. 9. Effect of Government Regulation and Regulatory Reform ----------------------------------------------------- The Bank and most of the Peer Group companies were similarly impacted by the recently enacted SAIF rescue legislation, as the affected institutions are SAIF-insured and subject to the same one time assessment and their deposits will be assessed at the same rate going forward. In summary, as a fully-converted SAIF-insured savings bank, Timberland will operate in substantially the same regulatory environment as the Peer Group members -- all of whom are adequately capitalized institutions and are operating with no apparent restrictions. Exhibit IV-6 reflects the Bank's pro forma regulatory capital ratios. On balance, RP Financial concluded that no adjustment to the Bank's value was warranted for this factor. Summary of Adjustments - ---------------------- Overall, we believe the Bank's pro forma market value should take into account the valuation adjustments relative to the Peer Group: Key Valuation Parameters: Valuation Adjustment ------------------------- -------------------- Financial Condition Moderate Downward Profitability, Growth and Viability of Earnings Moderate Downward Asset Growth Slight Downward Primary Market Area Slight Downward Dividends No Adjustment Liquidity of the Shares Slight Downward Marketing of the Issue No Adjustment Management Slight Downward Effect of Government Regulations and Regulatory Reform No Adjustment Valuation Approaches - -------------------- In applying the accepted valuation methodology promulgated by the regulatory agencies, i.e., the pro forma market value approach, we considered the three key pricing ratios in valuing Timberland's to-be-issued RP Financial, LC. Page 4.16 stock -- the price/earnings ("P/E"), price/book ("P/B"), and price/assets ("P/A") approaches-- all performed on a pro forma basis. In computing the pro forma impact of the conversion and the related pricing ratios, we have incorporated the assumptions disclosed in Timberland's prospectus for offering expenses, and the effective tax rate and stock benefit plan assumptions (summarized in Exhibits IV-7 and IV-8). Each of the assumptions are described more fully below. o Conversion Expenses. The Bank has estimated its fixed and variable ------------------- conversion expenses over the range of value incorporating the appraised value determined herein, based on the financial arrangements with the various third parties engaged by the Bank to assist in completing the conversion transaction. o Effective Tax Rate. The Bank, in consultation with its outside ------------------ auditors, has determined the marginal effective tax rate on the net reinvestment benefit of the conversion proceeds to be 34 percent based on the statutory Federal rate. o Reinvestment Rate. The pro forma section in the draft prospectus ----------------- incorporates a 6.97 percent reinvestment rate, equivalent to the arithmetic average of the yield on assets and the cost of deposits for the nine months ended June 30, 1997. This calculated rate is reasonably similar to the blended reinvestment rate in the first 12 months of the business plan post-conversion, reflecting the current anticipated use of conversion proceeds, incorporating a flat rate interest rate scenario and the estimated impact of deposit withdrawals to fund purchases equal to 20 percent of the stock issued in the conversion. o Stock Benefit Plans. The assumptions for the stock benefit plans, ------------------- i.e., the Employee Stock Ownership Plan ("ESOP") and Recognition Plan ("Recognition Plan"), are consistent with the structure as approved by the Bank's Board and the disclosure in the pro forma section of the prospectus. Specifically, the ESOP is assumed to purchase 8 percent of the stock in conversion at the initial public offering price, with the Holding Company funded ESOP loan amortized on a straight-line basis over 10 years. The Recognition Plan is assumed to purchase 4 percent of the stock in the aftermarket at a price equivalent to the initial public offering price (we also considered the impact of the issuance of Recognition Plan shares from authorized but unissued shares at a price equivalent to the initial public offering price), with the Recognition Plan cost expensed on a straight line basis in conjunction with the 5 year vesting schedule. RP Financial's valuation considered each of the following valuation approaches promulgated in the regulatory valuation guidelines, as described more fully below: o P/E Approach. The P/E approach is generally the best indicator of ------------ long-term value for a stock. Since the Bank and the Peer Group reported pro forma earnings on both a core and reported basis, the P/E approach was considered in this valuation. In applying this approach, we took into account both reported earnings and estimated core earnings. o P/B Approach. P/B ratios have generally served as a useful benchmark ------------ in the valuation of thrift stocks, with the greater determinant of long term value being earnings. We have also modified the P/B approach to exclude the impact of intangible assets (i.e., price/tangible book value or "P/TB"). Recognizing that the pro forma P/B ratio will result in a below market ratio due to the pro forma nature of the P/B computation, RP Financial considered the P/TB approach to be a reliable indicator of value given current market conditions, particularly the market for new conversions, which often exhibit a willingness to pay premium P/E multiples in the expectation that such institutions will implement leveraging strategies to promote earnings growth. At the same time, with lower ROE ratios, new conversions are typically discounted RP Financial, LC. Page 4.17 on a book value basis relative to the market at least until there is partial realization of leveraging strategies. o P/A Approach. Investors typically do not place significant weight on ------------ simply the size of total assets as a determinant of market value without making risk adjustments. This approach, as set forth in the regulatory guidelines, does not take into account the amount of stock purchases funded by deposit withdrawals, thus understating the pro forma P/A ratio. Investors generally place significantly greater weight on book value and earnings for established publicly-traded institutions. At the same time, the P/A ratio is an indicator of franchise value and, in the case of a highly capitalized institution, high P/A ratios may limit the investment community's willingness to pay market multiples for earnings and book value when ROE is expected to be low. The Bank intends to adopt Statement of Position ("SOP" 93-6), which will cause earnings per share computations to be based on shares issued and outstanding excluding shares owned by an ESOP where there is not a commitment to release such shares. For the purpose of preparing the pro forma pricing tables and exhibits, we have reflected all shares issued in the offering including shares purchased by the ESOP as outstanding to capture the full dilutive impact of such stock to the Bank's shareholders. However, we have considered the impact of adoption of SOP 93-6 on the Bank in the determination of the Bank's pro forma value . Based on the application of the three valuation approaches, taking into consideration the valuation adjustments discussed above, and placing the greatest weight on the P/TB and P/E approaches, followed by the P/A approach, RP Financial concluded that the pro forma market value of the Bank's conversion stock is $50,000,000 at the midpoint at this time. 1. Price-to-Tangible Book ("P/TB"). The application of the P/TB valuation ------------------------------- method requires calculating the Bank's pro forma market value by applying a valuation P/TB ratio to Timberland's pro forma tangible book value. The pre- conversion book value for Timberland of $23,866,000 as of June 30, 1997. Based on the $50,000,000 midpoint valuation, Timberland's pro forma P/TB ratio was 75.47 percent. In comparison to the Peer Group's median P/TB ratio equal to 140.37 percent, Timberland's valuation reflected a 46.3 percent discount. RP Financial considered the discount under the P/TB approach to be reasonable in light of the valuation adjustments discussed previously and particularly the risk to capital posed by the Bank's relatively higher credit risk exposure. 2. Price-to-Earnings ("P/E"). The application of the P/E valuation method ------------------------- requires calculating the Bank's pro forma market value by applying a valuation P/E multiple times the pro forma earnings base. Ideally, the pro forma earnings base is composed principally of the Bank's recurring earnings base, that is, earnings adjusted to exclude any one-time non-operating items, plus the estimated after-tax earnings benefit of RP Financial, LC. Page 4.18 the reinvestment of net conversion proceeds. The Bank's reported earnings were equal to $2.948 million for the twelve months ended June 30, 1997. In deriving the Bank's core earnings, the following adjustments were made to pre-tax earnings for the twelve months ended June 30, 1997 to account for one-time income and expenses: (1) net gains on the sale of loans ($266,000); (2) the gain from capitalization of servicing rights ($118,000); and (3) the special SAIF assessment ($875,000). On a tax-effected basis utilizing the Bank's effective federal tax rate of 34 percent, adjusted earnings equaled $3.272 million. (Note: the adjustments applied to the Peer Group's earnings in the calculation of core earnings are shown in Exhibit IV-9, including the SAIF assessment). Based on Timberland's trailing twelve month reported and core earnings, and incorporating the impact of the pro forma assumptions previously discussed, the Bank's pro forma P/E multiple based on reported and core earnings at the $50,000,000 midpoint value equaled 11.58 times and 10.80 times, respectively. Comparatively, the Peer Group posted a median P/E multiple based on reported and core earnings equal to 22.76 times and 19.09 times, respectively. The Bank's pro forma P/E multiple based on core and reported earnings is below the Peer Group average reflecting the Bank's greater risk exposure including credit risk and interest rate risk as well as the other downward adjustments applied for asset growth, primary market area and liquidity of the shares. 3. Price-to-Assets ("P/A"). The P/A valuation methodology determines ----------------------- market value by applying a valuation P/A ratio to the Bank's pro forma asset base, conservatively assuming no deposit withdrawals are made to fund stock purchases. In all likelihood there will be deposit withdrawals, which results in understating the pro forma P/A ratio which is computed herein. At the midpoint of the valuation range, Timberland's value equaled 20.70 percent of pro forma assets. Comparatively, the Peer Group companies exhibited an average P/A ratio of 20.07 percent, which is substantially equivalent to the Bank's ratio at the midpoint of the valuation range. Comparison to Recent Conversions - -------------------------------- As indicated at the beginning of this chapter, RP Financial's analysis of recent conversion pricing characteristics at conversion (excluding second step conversions) and in the aftermarket has been limited to a "technical" analysis and, thus, the pricing characteristics of recent conversions is not the primary determinate of value herein. Particular focus was placed on the P/B approach in this analysis since the P/E multiples do not reflect the actual impact of reinvestment and the source of the conversion funds (i.e., external funds vs. deposit withdrawals). The recent conversions on average closed their offerings at their supermaximum levels given the oversubscribed nature of their offerings and prevailing market conditions at closing, indicating an average price/tangible book ratio of 71.7 percent. On average, the prices of recent conversions appreciated by 45.6 RP Financial, LC. Page 4.19 percent after one week. In comparison, the Bank's P/TB ratio at the appraised midpoint reflects a premium relative to the closing ratios, but a discount to the aftermarket ratios. The closing and aftermarket P/TB ratios are not directly comparable in that the closing ratio reflects the pro forma impact of conversion on equity whereas the aftermarket ratio reflects only price (with no further impact on equity capital). Valuation Conclusion - -------------------- It is our opinion that, as of August 29, 1997, the aggregate pro forma market value of the shares to be issued was $50,000,000 at the midpoint, equal to 5,000,000 shares offered at a per share value of $10.00. Pursuant to regulatory conversion guidelines, the 15 percent offering range includes a minimum offering value of $42,500,000 and a maximum value of $57,500,000. Based on the $10.00 per share offering price, this range equates to an offering of 4,250,000 shares at the minimum to 5,750,000 shares at the maximum. The Holding Company's offering also includes a provision for a superrange, which if exercised, would result in an offering size of $66,125,000, equal to 6,612,500 shares at the $10.00 per share offering price. The comparative pro forma valuation ratios relative to the Peer Group are shown in Table 4.4, and the key valuation assumptions are detailed in Exhibit IV-7. The pro forma calculations for the range are detailed in Exhibit IV-8. RP FINANCIAL, LC. - ----------------------------------------- Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 22209 (703) 528-1700 Table 4.4 Public Market Pricing Timberland Savings Bank and the Comparables As of August 29, 1997
Market Per Share Data -------------- Capitalization Core Book Pricing Ratios(3) --------------- --------------------------------------- Price/ Market 12-Mth Value/ Share(1) Value EPS(2) Share P/E P/B P/A P/TB P/CORE -------- ------- ------- ------- ------- ------- ------- ------- ------- ($) ($Mil) ($) ($) (X) (%) (%) (%) (X) Timberland Savings Bank - ----------------------- Superrange 10.00 66.12 0.77 12.18 13.74 82.13 25.65 82.13 12.91 Range Maximum 10.00 57.50 0.85 12.68 12.64 78.89 23.17 78.89 11.83 Range Midpoint 10.00 50.00 0.93 13.25 11.58 75.47 20.70 75.47 10.80 Range Minimum 10.00 42.50 1.04 14.03 10.39 71.29 18.09 71.29 9.66 SAIF-Insured Thrifts(7) - ----------------------- Averages 22.11 150.20 1.15 15.74 20.87 140.69 17.55 144.94 18.42 Medians --- --- --- --- 20.75 132.99 15.45 134.05 17.88 All Non-MHC State of WA(7) - -------------------------- Averages 23.36 310.97 1.34 13.21 18.21 174.37 18.41 183.01 17.81 Medians --- --- --- --- 14.05 175.16 21.45 190.38 15.14 Comparable Group Averages - ------------------------- Averages 21.89 150.41 1.17 14.74 21.87 151.83 20.09 157.00 19.80 Medians --- --- --- --- 22.76 137.83 21.14 140.37 19.09 State of WA - ----------- CASB Cascade SB of Everett WA(7) 13.25 34.07 0.77 8.46 21.72 156.62 9.67 156.62 17.21 FMSB First Mutual SB of Bellevue WA 21.00 56.74 1.52 10.91 13.46 192.48 13.13 192.48 13.82 FWWB First Savings Bancorp of WA 24.75 260.35 0.84 14.13 27.81 175.16 25.84 190.38 29.46 FBNW FirstBank Corp of Clarkston WA 17.50 34.72 0.44 14.00 NM 125.00 22.55 125.00 NM HRZB Horizon Financial Corp. of WA 15.00 111.26 1.05 10.91 14.02 137.49 21.45 137.49 14.29 IWBK Interwest SB of Oak Harbor WA 39.50 317.42 2.47 15.46 21.70 255.50 17.32 261.24 15.99 STSA Sterling Financial Corp. of WA 18.50 102.99 0.90 12.41 NM 149.07 6.11 170.98 20.56 WFSL Washington FS&LA of Seattle WA 27.25 1293.34 2.14 14.66 14.05 185.88 22.45 203.51 12.73 WAMU Washington Mutual Inc. of WA(7) 59.87 7564.99 2.42 19.30 NM NM 15.51 NM 24.74 Comparable Group - ---------------- CMRN Cameron Fin. Corp. of MO 17.37 45.63 0.97 17.18 22.27 101.11 21.93 101.11 17.91 FFHH FSF Financial Corp. of MN 17.75 53.84 0.99 14.16 22.76 125.35 14.23 125.35 17.93 FFBA First Colorado Bancorp of Co 19.00 314.66 0.80 11.79 23.46 161.15 20.83 163.37 23.75 FMSB First Mutual SB of Bellevue WA 21.00 56.74 1.52 10.91 13.46 192.48 13.13 192.48 13.82 FWWB First Savings Bancorp of WA 24.75 260.35 0.84 14.13 27.81 175.16 25.84 190.38 29.46 HRZB Horizon Financial Corp. of WA 15.00 111.26 1.05 10.91 14.02 137.49 21.45 137.49 14.29 IWBK Interwest SB of Oak Harbor WA 39.50 317.42 2.47 15.46 21.70 255.50 17.32 261.24 15.99 KFBI Klamath First Bancorp of OR 19.62 196.57 0.83 14.20 NM 138.17 27.01 138.17 23.64 UBMT United Fin. Corp. of MT 23.50 28.74 1.16 19.95 25.00 117.79 26.68 117.79 20.26 WSTR WesterFed Fin. Corp. of MT 21.37 118.92 1.02 18.73 26.38 114.10 12.44 142.56 20.95 Dividends(4) Financial Characteristics(6) ----------------------- ------------------------------------------------------- Amount/ Payout Total Equity/ NPAs/ Reported Core ------------------------------- Share Yield Ratio(5) Assets Assets Assets ROA ROE ROA ROE ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ($) (%) (%) ($Mil) (%) (%) (%) (%) (%) Timberland Savings Bank - ----------------------- Superrange 0.00 0.00 0.00 265 31.47 3.14 1.88 5.98 2.00 6.36 Range Maximum 0.00 0.00 0.00 258 29.37 3.23 1.83 6.24 1.96 6.67 Range Midpoint 0.00 0.00 0.00 251 27.43 3.32 1.79 6.52 1.92 6.99 Range Minimum 0.00 0.00 0.00 244 25.38 3.42 1.74 6.86 1.87 7.38 SAIF-Insured Thrifts(7) - ----------------------- Averages 0.38 1.75 29.54 1,149 12.86 0.79 0.54 5.50 0.75 7.55 Medians --- --- --- --- --- --- --- --- --- --- All Non-MHC State of WA(7) - -------------------------- Averages 0.34 1.38 21.70 1,627 11.17 0.73 1.00 9.31 1.06 10.72 Medians --- --- --- --- --- --- --- --- --- --- Comparable Group Averages - ------------------------- Averages 0.44 2.08 35.84 768 14.30 0.28 0.97 7.39 1.11 8.42 Medians --- --- --- --- --- --- --- --- --- --- State of WA - ----------- CASB Cascade SB of Everett WA(7) 0.00 0.00 0.00 352 6.17 0.39 0.46 7.49 0.58 9.46 FMSB First Mutual SB of Bellevue WA 0.20 0.95 13.16 432 6.82 0.01 1.02 15.34 1.00 14.95 FWWB First Savings Bancorp of WA 0.28 1.13 33.33 1,008 14.75 0.30 1.05 6.25 1.00 5.90 FBNW FirstBank Corp of Clarkston WA 0.00 0.00 0.00 154 18.04 2.07 0.70 3.86 0.57 3.14 HRZB Horizon Financial Corp. of WA 0.40 2.67 38.10 519 15.60 NA 1.57 9.99 1.54 9.80 IWBK Interwest SB of Oak Harbor WA 0.60 1.52 24.29 1,833 6.78 0.64 0.87 12.91 1.18 17.52 STSA Sterling Financial Corp. of WA 0.00 0.00 0.00 1,686 4.10 0.61 0.10 2.46 0.32 7.91 WFSL Washington FS&LA of Seattle WA 0.92 3.38 42.99 5,760 12.08 0.73 1.67 14.37 1.84 15.85 WAMU Washington Mutual Inc. of WA(7) 1.08 1.80 44.63 48,764 5.00 0.81 0.35 6.81 0.74 14.45 Comparable Group - ---------------- CMRN Cameron Fin. Corp. of MO 0.28 1.61 28.87 208 21.69 0.73 1.07 4.43 1.33 5.51 FFHH FSF Financial Corp. of MN 0.50 2.82 50.51 378 11.35 0.03 0.66 5.22 0.84 6.63 FFBA First Colorado Bancorp of Co 0.44 2.32 55.00 1,510 12.93 0.23 0.89 6.25 0.88 6.17 FMSB First Mutual SB of Bellevue WA 0.20 0.95 13.16 432 6.82 0.01 1.02 15.34 1.00 14.95 FWWB First Savings Bancorp of WA 0.28 1.13 33.33 1,008 14.75 0.30 1.05 6.25 1.00 5.90 HRZB Horizon Financial Corp. of WA 0.40 2.67 38.10 519 15.60 NA 1.57 9.99 1.54 9.80 IWBK Interwest SB of Oak Harbor WA 0.60 1.52 24.29 1,833 6.78 0.64 0.87 12.91 1.18 17.52 KFBI Klamath First Bancorp of OR 0.30 1.53 36.14 728 19.55 0.08 0.81 3.67 1.23 5.54 UBMT United Fin. Corp. of MT 0.98 4.17 NM 108 22.65 NA 1.09 4.70 1.34 5.80 WSTR WesterFed Fin. Corp. of MT 0.44 2.06 43.14 956 10.91 0.25 0.63 5.09 0.79 6.41
(1) Average of high/low or bid/ask price per share. (2) EPS (core basis) is based on actual trailing twelve month data, adjusted to omit the impact of non-operating items (including the SAIF assessment) on a tax effected basis, and is shown on a pro forma basis where appropriate. (3) P/E = Price to Earnings; P/B = Price to Book; P/A = Price to Assets; P/TB = Price to Tangible Book; and P/CORE = Price to Core Earnings. (4) Indicated twelve month dividend, based on last quarterly dividend declared. (5) Indicated twelve month dividend as a percent of trailing twelve month estimated core earnings. (6) ROA (return on assets) and ROE (return on equity) are indicated ratios based on trailing twelve month common earnings and average common equity and total assets balances. (7) Excludes from averages and medians those companies the subject of actual or rumored acquisition activities or unusual operating characteristics. Source: Corporate reports, offering circulars, and RP Financial, Inc. calculations. The information provided in this report has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information. EXHIBITS RP FINANCIAL, LC. LIST OF EXHIBITS
Exhibit Number Description - ------- ----------- I-1 Map of Office Location I-2 Timberland's Audited Financial Statements I-3 Key Operating Ratios I-4 Investment Portfolio Composition I-5 Yields and Costs I-6 Loan Loss Allowance Activity I-7 Fixed Rate and Adjustable Rate Loans I-8 Market Value Analysis I-9 Gap Analysis I-10 Loan Portfolio Composition I-11 Contractual Maturity By Loan Type I-12 Loan Originations, Purchases, and Sales I-13 Non-Performing Assets I-14 Classified Assets I-15 Deposit Composition I-16 Time Deposit Rate/Maturity I-17 Borrowings II-1 List of Branch Offices II-2 Historical Interest Rates II-3 Demographic/Economic Reports II-4 Sources of Personal Income/Employment Sectors
RP FINANCIAL, LC. LIST OF EXHIBITS(continued)
Exhibit Number Description - ------- ----------- III-1 General Characteristics of Publicly-Traded Institutions III-2 State of Washington Peer Thrifts III-3 Northwest U.S. and Western U.S. Peer Thrifts IV-1 Stock Prices: August 29, 1997 IV-2 Historical Stock Price Indices IV-3 Historical Thrift Stock Indices IV-4 Market Area Acquisition Activity IV-5 Directors and Management Summary Resumes IV-6 Pro Forma Regulatory Capital Ratios IV-7 Pro Forma Analysis Sheet IV-8 Pro Forma Effect of Conversion Proceeds IV-9 Peer Group Core Earnings Analysis V-1 Firm Qualifications Statement
EXHIBIT I-1 Timberland Savings Bank Map of Office Location [MAP OF TIMBERLAND SAVINGS BANK APPEARS HERE] EXHIBIT I-13 Timberland Savings Bank Non-Performing Assets EXHIBIT I-13 TIMBERLAND SAVINGS BANK NON-PERFORMING ASSETS
At September 30 At June 30 ----------------------------------------------------- 1992 1993 1994 1995 1996 1997 ---- ---- ---- ---- ---- ---- (Dollars in thousands) Loans accounted for on a nonaccrual basis: Mortgage loans: One-to four-family............................. $ 469 $ 612 $ 392 $ 646 $ 735 $ 841 Commercial..................................... -- -- -- -- -- 2,886(1) Construction and land development.............. 966 196 125 391 771 3,991(2) Consumer loans................................. 1 -- 30 -- 14 1 Commercial business loans...................... -- -- -- -- -- 11 ---------- --------- --------- -------- -------- -------- Total......................................... $ 1,436 808 547 1,037 1,520 7,730 Accruing loans which are contractually past due 90 days or more: Mortgage loans: Construction and land development.............. -- -- -- -- -- 303 ---------- --------- --------- -------- -------- -------- Total......................................... -- -- -- -- -- 303 ---------- --------- --------- -------- -------- -------- Total of nonaccrual and 90 days past due loans.......................... $ 1,436 $ 808 $ 547 $ 1,037 $ 1,520 $ 8,033 Real estate owned and other repossessed assets.............................. 879 484 407 209 125 317 ---------- --------- --------- -------- -------- -------- Total nonperforming assets.................... 2,315 1,292 954 1,246 1,645 8,350 Restructured loans.............................. -- 11 29 207 158 71 Nonaccrual and 90 days or more past due loans as a percentage of loans receivable, net........................ 1.39% 0.76% 0.45% 0.66% 0.86% 4.28%(3) Nonaccrual and 90 days or more past due loans as a percentage of total assets........... 1.16% 0.58% 0.36% 0.58% 0.78% 3.90%(4) Nonperforming assets as a percentage of total assets...................... 1.87% 0.93% 0.63% 0.70% 0.85% 4.05%(5) Loans receivable, net........................... $ 103,045 $106,259 $121,558 $156,523 $176,495 $187,488 ========== ========= ========= ======== ======== ======== Total assets.................................... $ 123,889 $139,233 $151,044 $177,761 $194,357 $206,188 ========== ========= ========= ======== ======== ========
______________ (1) Includes two loans each with a balance of $ 1.4 million at June 30, 1997, descriptions of which are provided below. (2) Includes two loans with balances of $1.9 million and $1.0 million at June 30, 1997, descriptions of which are provided below. (3) 1.21% without the loans described in footnotes 1 and 2. (4) 1.10% without the loans described in footnotes 1 and 2. (5) 1.25% without the loans described in footnotes 1 and 2. EXHIBIT I-14 Timberland Savings Bank Classified Assets EXHIBIT I-14 TIMBERLAND SAVINGS BANK CLASSIFIED ASSETS
At September 30, At June 30, ------------------- 1995 1996 1997 ---- ---- ----------- (In thousands) Loss........................ $ - $ - $ - Doubtful.................... - - - Substandard assets.......... 1,371 2,061 5,510(1) Special mention............. - 97 2,886(1) General loss allowances..... 1,119 1,133 1,454 Specific loss allowances.... - - -
___________ (1) See discussion under "-Nonperforming Assets and Delinquencies." EXHIBIT I-2 Timberland Savings Bank Audited Financial Statements [Incorporated by Reference] EXHIBIT I-3 Timberland Savings Bank Key Operating Ratios EXHIBIT 1.3 TIMBERLAND SAVINGS BANK KEY OPERATING RATIOS
At or For Nine Months Ended Year Ended September 30, June 30, -------------------------------------------- -------------- 1992 1993 1994 1995 1996 1996 1997 ---- ---- ---- ---- ---- ---- ---- (Dollars in thousands) KEY FINANCIAL RATIOS(1): Performance Ratios: Return on average assets(2)............... 1.80% 1.99% 1.86% 1.82% 1.46% 1.67% 1.67% Return on average assets(3)............... 22.53 22.11 18.27 17.44 13.21 15.27 14.95 Interest rate spread(4)................... 4.38 4.47 4.32 4.56 4.34 4.25 4.17 Net interest margin(5).................... 4.93 4.97 4.78 5.08 4.97 4.88 4.85 Average interest-earning assets to average interest-bearing liabilities............................. 110.97 113.09 113.41 113.05 114.76 114.89 115.94 Noninterest expense as a percent of average total assets......... 2.45 2.37 2.55 2.49 2.93 2.46 2.39 Efficiency ratio(6)....................... 47.72 44.68 48.76 47.04 56.82 49.00 47.83 Asset Quality Ratios: Nonaccrual and 90 days or more past due loans as a percent of loans receivable, net................ 1.39 0.76 0.45 0.66 0.86 0.63 4.28(7) Nonperforming assets as a percent of total assets................. 1.87 0.93 0.63 0.70 0.85 0.64 4.05(8) Allowance for losses as a percent of loans receivable, net........ 0.94 1.07 0.92 0.71 0.64 0.67 0.78 Allowance for losses as a percent of nonperforming loans.......... 67.69 140.84 204.95 107.91 74.54 97.90 18.10(9) Net charge-offs to average outstanding loans....................... 0.02 0.01 0.02 - - 0.01 0.01 Capital Ratios: Total equity-to-assets ratio.............. 8.38 9.34 10.35 10.49 10.97 11.18 11.57 Average equity to average assets(10)...... 7.98 9.01 10.16 10.45 11.02 10.93 11.16
________________ (1) Annualized, where appropriate, for the nine months ended June 30, 1997 and 1996. (2) Net income divided by average total assets. (3) Net income divided by average equity. (4) Difference between weighted average yield on interest-earning assets and weighted average rate on interest-bearing liabilities. (5) Net interest income (before provision for loans losses) as a percentage of average interest-earning assets. (6) Other expenses (excluding federal income tax expense) divided by the sum of net interest income and noninterest income. (7) 1.21% without the loans discussed under "BUSINESS OF THE SAVINGS BANK -- Lending Activities -- Nonperforming Assets and Delinquencies." (8) 1.25% without the loans discussed under "BUSINESS OF THE SAVINGS BANK -- Lending Activities -- Nonperforming Assets and Delinquencies." (9) 63.22% without the loans discussed under "BUSINESS OF THE SAVINGS BANK -- Lending Activities -- Nonperforming Assets and Delinquencies." (10) Average total equity divided by average total assets. EXHIBIT I-4 Timberland Savings Bank Investment Portfolio Composition EXHIBIT I-4 TIMBERLAND SAVINGS BANK INVESTMENT PORTFOLIO COMPOSITION
AT SEPTEMBER 30, ---------------------------------------------------------------------- 1994 1995 1996 -------------------- -------------------- -------------------- Amortized Percent of Amortized Percent of Amortized Percent of Cost(1) Total Cost(1) Total Cost(1) Total --------- ------- --------- ------- --------- ------- (In thousands) Held to Maturity (at amortized cost): Data Securities: U.S. Treasury obligations ............ $ 6,998 40.38% $ 2,504 22.15% $ -- --% U.s. Government agency obligations ... 1,000 5.77 1,000 8.84 -- -- Mortgage-backed securities ............. 7,402 42.71 6,352 56.19 4,951 75.91 Investment certificates of deposit ..... 599 3.46 -- -- -- -- --------- ------- --------- ------- --------- ------- Total held to maturity securities ...... 15,999 92.32 9,856 87.18 4,951 75.91 Available for Sale (at market value): Mortgage-backed securities ............. -- -- -- -- -- -- FHLB stock ............................. 1,280 7.39% 1,363 12.06% 1,470 22.54% Other .................................. 50 0.29 86 0.76 102 1.55 --------- ------- --------- ------- --------- ------- Total available for sale securities..... 1,330 7.68 1,449 12.82 1,572 24.09 --------- ------- --------- ------- --------- ------- Total portfolio ........................ $ 17,329 100.00% $ 11,305 100.00% $ 6,522 100.00% ========= ======= ========= ======= ========= ======= AT JUNE 30, 1997 -------------------- Amortized Percent of Cost(1) Total --------- ------- Held to Maturity (at amortized cost): Data Securities: U.s. Treasury obligations ............ $ -- --% U.S. Government agency obligation .... -- -- Mortgage-backed securities ............. 4,172 72.85 Investment certificates of deposit ..... -- -- --------- ------- Total held to maturity securities .... 4,172 72.85 Available for Sale (at market value): Mortgage-backed securities ............. -- -- FHLB stock ............................. 1,555 27.15% Other .................................. -- -- --------- ------- Total available for sale securities... 1,555 27.15 --------- ------- Total portfolio ........................ $ 5,727 100.00% ========= =======
________________ (1) The market value of the Savings Bank's investment portfolio amounted to $5.7 million as of June 30, 1997, $6.4 million as of September 30, 1996, $11.2 million as of September 30, 1995 and $16.9 million as of September 30, 1994. At June 30, 1997, the market values of the principal components of the Savings Bank's investment portfolio were: $4.1 million in mortgage-backed securities and $1.2 million in FHLB stock. EXHIBIT I-5 Timberland Savings Bank Yields and Costs EXHIBIT 1-5 TIMBERLAND SAVINGS BANK YIELDS AND COSTS
Year Ended September 30, ----------------------------------------------------------------------- 1994 1995 ---------------------------------- ----------------------------------- Interest Interest Average and Yield/ Average and Yield/ Balance Dividends Cost Balance Dividends Cost ---------- --------- ------ ---------- --------- ----- (Dollars in thousands) Intrest earning assets Loans receivable(1) $111,979 $ 10,168 90.8% $ 143 103 $ 13,603 9.51% Mortgage backed and investment securities 7,263 428 5.69 12,676 667 5.26 TSB stock and equity securities 1,270 110 8.66 1,370 99 7.15 Interest Bearing Deposits 17,299 601 3.47 2,069 85 4.11 ---------- --------- ---------- --------- Total interest earning assets $137,811 $ 11,307 8.20 $ 159,218 $ 14,454 9.08 Each interest earning assets 4,079 5,294 ---------- ---------- Total assets $141,908 $ 164,512 ---------- ---------- Interest bearing balances Passbook accounts $ 28,291 $ 995 3.38 $ 27,512 $ 821 2.98 Money market accounts 12,376 379 3.06 10,115 469 4.64 NOW accounts 17,554 428 2.44 19,078 425 2.23 Certificates deposit 61,809 2,854 4.62 73,596 3,981 5.41 MHB advances other borrowed money 1,491 99 6.64 10,539 664 6.30 ---------- --------- ---------- --------- Total interest bearing liabilities 121,521 4,715 3.88 140,840 $ 6,360 4.52 Non-interest bearing liabilities 5,973 6,474 ---------- ----------- Total liabilities $127,494 $ 147,314 Retained earnings 14,414 17,198 ---------- ----------- Total liabilities and retained earnings $141,908 $164,512 ========== =========== Net interest income $ 6,592 $ 8,094 Interest rate spread 4.32% 4.56% Net interest margin(2) 4.78% 5.08% Ratio of interest earning assets to average interest bearing liabilities 113.41% 113.05% Year Ended September 30, ----------------------------------- 1996 ----------------------------------- Interest Average and Yield/ Balance Dividends Cost ----------- ----------- ------- (Dollars in thousands) Interest earning assets Loans receivable(1) $ 168,060 $ 15,880 9.45% Mortgage backed and investment securities 6,689 397 5.94 TSB stock and equity securities 1,499 126 8.41 Interest Bearing Deposits 2,072 97 4.68 ---------- ---------- Total interest earning assets 178,320 $ 16,500 9.25 Each interest earning assets 5,674 ---------- Total assets $ 183,994 Interest bearing balances ---------- Passbook accounts Money market accounts $ 24,800 $ 738 2.98 NOW accounts 13,182 520 3.94 Certificates deposit 17,377 421 2.42 MHB advances other borrowed money 89,024 5,271 5.92 11,005 679 6.17 Total interest bearing liabilities ---------- ---------- $ 155,388 $ 7,629 4.91 Non-interest bearing liabilities 8,330 Total liabilities $ 163,718 Retained earnings 20,276 Total liabilities and retained earnings $ 183,994 ========= Net interest income $ 8,871 Interest rate spread 4.34% Net interest margin(2) 4.97% Ratio of interest earning assets to average interest bearing liabilities 114.76% Nine Months Ended June 30, ---------------------------------------------------------------------- 1996 1997 --------------------------------- ----------------------------------- Interest Interest Average and Yield/ Average and Yield/ Balance Dividends Cost Balance Dividends Cost ---------- --------- ------ ---------- --------- ----- (Dollars in thousands) Interest earning assets Loans receivable(1) $ 165,827 $11,660 9.38% $187,435 $12,975 9.23% Mortgage backed and investment securities 7,233 323 5.95 4,613 215 6.21 TSB stock and equity securities 1,483 97 8.72 1,549 85 7.32 Interest Bearing Deposits 2,145 74 4.60 2,690 95 4.71 --------- -------- -------- ------- Total interest earning assets $ 176,688 $ 12,154 9.17 $196,287 $13,370 9.08 Each interest earning assets 5,352 7,504 --------- -------- Total assets $ 182,040 $203,791 ========= ======== Interest bearing balances Passbook accounts $ 24,699 $ 550 2.97 $ 74,769 $ 556 2.99 Money market accounts 13,205 391 3.97 12,695 378 3.97 NOW accounts 17,181 311 2.41 17,707 330 2.48 Certificates deposit 87,333 3,893 5.94 97,472 4,302 5.88 MHB advances other borrowed money 11,372 535 6.27 16,657 671 5.37 --------- ------- -------- ------ Total interest bearing liabilities $ 153,790 $ 5,682 4.92 $169,300 $6,237 4.91 Non-interest bearing liabilities 8,345 11,749 Total liabilities $ 162,135 $181,049 Retained earnings 19,905 22,742 Total liabilities and retained earnings $ 182,040 $203,791 ========= ======== Net interest income $ 6,472 $ 7,133 Interest rate spread 4.25% 4.17% Net interest margin(2) 4.88% 4.85% Ratio of interest earning assets to average interest bearing liabilities 114.89% 115.94%
EXHIBIT 1-5 TIMBERLAND SAVINGS BANK YIELDS AND COSTS (CONTINUED)
Nine Months Ended At Year Ended September 30, June 30, June 30, ---------------------------- ------------------- 1994 1995 1996 1996 1997 1997 ---- ---- ---- ---- ---- ---- Weight average yield on: Loans receivable(1)...................... 9.08% 9.51% 9.45% 9.38% 9.23% 8.80% Mortgage-backed securities and investment securities................... 5.89 5.26 5.94 5.95 6.21 6.37 FHLB stock and equity securities......... 8.66 7.15 8.41 8.72 7.32 7.50 Interest-bearing deposits................ 3.47 4.11 4.68 4.60 4.71 4.88 All interest-earning assets.............. 8.20 9.08 9.25 9.17 9.08 8.72 Weighted average rate paid on: Passbook savings accounts................ 3.38 2.98 2.98 2.97 2.99 2.98 Money market accounts.................... 3.06 4.64 3.94 3.97 3.97 3.92 NOW accounts............................. 2.44 2.23 2.42 2.41 2.48 2.50 Certificate accounts..................... 4.62 5.41 5.92 5.94 5.88 5.75 FHLB advances and other borrowed money................................... 6.64 6.30 6.17 6.27 5.37 5.60 All interest-bearing liabilities.......... 3.88 4.52 4.91 4.93 4.91 4.87 Interest rate spread (spread between weighted average rate on all interest- earning assets and all interest- bearing liabilities)..................... 4.32 4.56 4.34 4.25 4.17 3.85 Net interest margin (net interest income as a percentage of average interest-earning assets)................. 4.78 5.08 4.97 4.88 4.85 N/A
____________________ (1) Weighted average rate at June 30, 1997 excludes loan fees. EXHIBIT I-6 Timberland Savings Bank Loan Loss Allowance Activity EXHIBIT I-6 TIMBERLAND SAVINGS BANK LOAN LOSS ALLOWANCE ACTIVITY
Nine Months Ended Year Ended September 30, June 30, ----------------------------------- -------------- 1992 1993 1994 1995 1996 1996 1997 ---- ---- ---- ---- ---- ---- ---- (Dollars in thousands) Allowance at beginning of period............. $ 799 $ 972 $1,138 $1,120 $1,119 $1,119 $1,133 Provision for loan losses.................... 188 175 -- -- 70 45 334 Recoveries: Consumer loans: Automobile................................. -- 8 -- -- -- -- -- Other...................................... -- -- -- -- -- -- 9 ------ ------ ------ ------ ------ ------ ------ Total recoveries.......................... -- 8 -- -- -- -- 9 Charge-offs: Mortgage loans: One-to four-family.......................... -- -- -- -- -- 19 19 Home equity and second mortgage............. 15 6 18 -- -- -- -- Other....................................... -- 1 -- 1 1 -- -- ------ ------ ------ ------ ------ ------ ------ Total charge-offs.......................... 15 17 18 1 1 19 19 Net charge-offs............................ 15 9 18 1 1 19 10 Transfers.................................. -- -- -- -- 55 -- 3 ------ ------ ------ ------ ------ ------ ------ Balance at end of period.................. $ 972 $1,138 $1,120 $1,119 $1,133 $1,145 $1,454 ====== ====== ====== ====== ====== ====== ====== Allowance for loan losses as a percentage of total loans (net) outstanding at the end of the period........ 0.94% 1.07% 0.92% 0.71% 0.64% 0.67% 0.78% Net charge-offs as a percentage of average loans outstanding during the period........................... 0.02% 0.01% 0.02% -% -% 0.01% 0.01% Allowance for loan losses as a percentage of nonperforming loans at end of period...................... 67.69% 140.84% 204.75% 107.91% 74.54% 97.90% 18.10%(1)
______________ (1) 63.22% without the loans discussed under "- Nonperforming Assets and Delinquencies." EXHIBIT I-7 Timberland Savings Bank Fixed Rate and Adjustable Rate Loans EXHIBIT I-7 TIMBERLAND SAVINGS BANK FIXED RATE AND ADJUSTABLE RATE LOANS
Fixed Floating or Rates Adjustable Rates Total -------- ---------------- ----- (In thousands) Mortgage loans: One-to-four-family.................. $ 14,072 $ 87,885 $ 101,957 Multi-family........................ 5,411 7,233 12,644 Commercial.......................... 7,630 21,237 28,867 Construction and land development... 32,545 10,327 42,872 Land................................ 6,835 20 6,855 Consumer loans: Home equity and second mortgage..... 5,888 2,010 7,898 Other............................... 2,690 95 2,785 -------- ------------ --------- 8,578 2,150 10,683 -------- ------------ --------- Commercial business loans........... 709 9 718 -------- ------------ ---------- Total............................. $ 75,780 $ 128,816 $ 204,596 ======== ============ ==========
EXHIBIT I-8 Timberland Savings Bank Market Value Analysis EXHIBIT I-8 TIMBERLAND SAVINGS BANK MARKET VALUE ANALYSIS
Projected Net Interest Income Current Market Value --------------------------------------- --------------------------------------- Interest Rate Estimated $ Change % Change Estimated $ Change % Change Scenario Value from Base from Base Value from Base from Base - -------- ----- --------- --------- ----- --------- --------- (Dollars in thousands) 400 $8,860 $ 96 1.10% $22,437 $ (2,213) (8.98)% 300 9,042 278 3.17 23,811 (838) (3.40) 200 9,211 447 5.10 24,996 346 1.40 100 9,090 326 3.71 25,273 624 2.53 BASE 8,764 -- -- 24,649 -- -- (100) 8,368 (396) (4.52) 23,402 (1,247) (5.06) (200) 7,925 (839) (9.58) 21,866 (2,783) (11.29) (300) 7,592 (1,172) (13.37) 20,836 (3,813) (15.47) (400) 7,324 (1,440) (15.43) 20,645 (4,004) (16.24)
EXHIBIT I-9 Timberland Savings Bank Gap Analysis EXHIBIT I-9 Timberland Savings Bank Gap Analysis
First Year Repricing Later Repricing -------------------------------------- --------------------------------------------------- 0-3 4-6 7-12 1-3 3-5 5-10 10-20 Over 20 TOTAL Months Months Months Years Years Years Years Years ----- ------ ------ ------ ----- ----- ----- ----- ----- (Dollars in Thousands) LOANS(1) ARMs............................ $ 94,272 $26,339 $25,177 $ 18,818 $ 20,350 $ 1,588 $ -- -- $ -- Fixed rate mortgages............ 19,418 1,178 1,047 1,940 5,830 3,576 3,942 1,656 249 Home equity/security mortgage... 7,847 2,737 627 994 2,035 833 538 83 -- Consumer........................ 1,745 1,032 189 204 227 55 30 8 -- Automobile...................... 1,041 135 114 199 443 114 30 6 -- Construction.................... 30,192 15,405 4,935 4,140 5,712 -- -- -- -- Nonresidential mortgage (adjustable)................... 21,698 3,614 4,923 4,954 6,205 -- -- -- -- Nonresidential mortgage (fixed). 13,780 1,560 1,211 2,161 5,407 2,094 1,179 167 1 Commercial variable............. 9 9 -- -- -- -- -- -- -- Commercial fixed................ 709 132 50 95 309 120 3 -- -- INVESTMENTS Investment securities........... 2,312 2,312 -- -- -- -- -- -- -- Mortgage securities............. 4,172 1,155 1,684 1,238 69 23 4 1 -- -------- ------- ------- -------- -------- -------- ------- ------- -------- Total rate sensitive assets...... $197,193 $57,608 $39,967 $ 34,741 $ 48,587 $ 8,403 $ 5,728 $ 1,921 $ 250 ======== ======= ======= ======== ======== ======== ======= ======= ======== LIABILITIES Money market deposits........... $ 13,667 $ 4,527 $ 3,028 $ 3,379 $ 2,624 $ 105 $ 4 $ -- $ -- Certificates of deposit......... 104,007 25,074 16,254 35,770 24,156 2,343 360 50 -- Passbook accounts............... 25,130 2,144 1,961 3,434 8,971 4,396 3,514 690 20 NOW Accounts.................... 17,515 1,494 1,366 2,394 6,253 3,064 2,449 481 14 BORROWINGS FHLB advances................... 13,771 1,500 -- -- 500 10,456 1,315 -- -- -------- ------- ------- -------- ------- -------- ------- ------- -------- Total rate sensitive liabilities. $174,090 $34,739 $22,609 $ 44,977 $42,504 $ 20,384 $ 7,642 $ 1,221 $ 34 ======== ======= ======= ======== ======= ======== ======= ======= ======== PERIODIC GAP..................... -- $22,869 $17,348 $(10,236) $ 6,083 $(11,961) $(1,916) $ 700 $ 216 Gap Ratio....................... -- 1.66 1.77 0.77 1.14 0.41 0.75 1.57 7.34 Gap percentage total............ -- 11.09% 8.41% (4.96)% 2.95% (5.80) (0.93)% 0.34% 0.10% CUMULATIVE GAP................... -- $22,869 $40,218 $29,982 $36,065 $ 24,105 $22,189 $22,889 $ 23,105 Gap Ratio....................... -- 1.66 1.70 1.29 1.25 1.15 1.13 1.13 1.13 Gap percentage total............ -- 11.09% 19.50% 14.54% 17.49% 11.69% 10.76% 11.10% 11.20%
_______________________ (1) Net of loans in process. EXHIBIT I-10 Timberland Savings Bank Loan Portfolio Composition EXHIBIT I-10 TIMBERLAND SAVINGS BANK LOAN PORTFOLIO COMPOSITION
At September 30, - ---------------------------------------------------------------------------------------------------------------------------------- 1992 1993 1994 1995 ----------------- ---------------- ---------------- ---------------- Amount Percent Amount Percent Amount Percent Amount Percent ------ ------- ------ ------- ------ ------- ------ ------- (Dollar in thousands) Mortgage Loans: One- to four-family(1)(2).......... $ 67,872 59.43% $ 73,989 62.87% $ 73,754 52.94% $ 93,582 53.03% Multi-family....................... 6,270 5.49 2,374 2.02 4,806 3.45 10,965 6.21 Commercial......................... 11,767 10.30 11,242 9.55 11,784 8.46 15,592 8.83 Construction and land development.. 21,296 18.65 23,202 19.72 40,113 28.79 42,752 24.23 Land(2)............................ 2,181 1.91 2,277 1.94 4,118 2.96 6,118 3.47 -------- ----- -------- ----- -------- ----- -------- ----- Total mortgage loans.............. 109,386 95.78 113,034 96.10 134,575 96.60 169,009 95.77 Consumer Loans: Home equity and second mortgage.... 2,891 2.53 2,596 2.21 2,853 2.05 5,201 2.95 Other.............................. 1,572 1.38 1,627 1.38 1,623 1.16 2,019 1.15 -------- ----- -------- ----- -------- ----- -------- ----- 4,463 3.91 4,223 3.59 4,476 3.21 7,220 4.10 Commercial business loans.......... 353 0.31 366 0.31 268 0.19 232 0.13 -------- ----- -------- ----- -------- ----- -------- ----- Total loans....................... 114,202 100.00% 117,673 100.00% 139,319 100.00% 176,461 100.00% -------- ====== -------- ====== -------- ====== -------- ====== Less: Undisbursed portion of loans in process......................... (9,260) (9,370) (15,316) (17,262) Unearned income.................... (925) (906) (1,299) (1,554) Allowance for loan losses.......... (972) (1,138) (1,120) (1,119) Market value adjustment of loans held for sale..................... -- -- (26) (3) -------- -------- -------- -------- Total loans receivable, net........ $103,045 $106,259 $121,558 $156,523 ======== ======== ======== ======== ----------------- 1996 At June 30,1997 ----------------- ----------------- Amount Percent Amount Percent ------ ------- ------ ------- Mortgage Loans: One- to four-family(1)(2).......... $ 95,978 48.51% $ 101,957 49.83% Multi-family....................... 12,569 6.35 12,644 6.18 Commercial......................... 26,529 13.41 28,867 14.11 Construction and land development.. 47,140 23.83 42,872 20.95 Land(2)............................ 6,115 3.09 6,855 3.35 -------- ----- --------- ----- Total mortgage loans.............. 188,331 95.19 193,195 94.42 Consumer Loans: Home equity and second mortgage.... 6,576 3.32 7,898 3.86 Other.............................. 2,476 1.25 2,785 1.37 -------- ----- --------- ----- 9,052 4.57 10,683 0.35 Commercial business loans.......... 476 0.24 718 0.35 -------- ----- --------- ----- Total loans....................... 197,859 100.00% 204,596 100.00% -------- ====== --------- ====== Less: Undisbursed portion of loans in process......................... (18,434) (13,887) Unearned income.................... (1,708) (1,704) Allowance for loan losses.......... (1,133) (1,454) Market value adjustment of loans held for sale..................... (89) (63) -------- --------- Total loans receivable, net........ $176,495 $187,488 ======== =========
______________ (1) Includes loans held-for-sale. (2) Includes real estate contracts totaling $1.4 million at June 30,1997. See " -- Real Estate Contracts." EXHIBIT I-11 Timberland Savings Bank Contractual Maturity By Loan Type EXHIBIT I-11 TIMBERLAND SAVINGS BANK CONTRACTUAL MATURITY BY LOAN TYPE
Within One Year After 3 Years After 5 Years One Year Through 3 Years Through 5 Years Through 10 Years 10 Years Total -------- --------------- --------------- ---------------- -------- ----- (Dollars in thousands) Mortgage loans: One-to-four-family...................... $ 2,394 $ 781 $1,265 $ 3,763 $ 93,754 $101,957 Multi-family............................ - 2 208 7,254 5,180 12,644 Commercial.............................. 600 259 528 9,729 17,751 28,867 Construction and land development(1).... 18,822 10,268 18 814 12,950 42,872 Land.................................... 435 1,706 4,248 323 143 6,855 Consumer loans: Home equity and second mortgage......... 2,275 545 1,360 1,656 2,062 7,898 Other................................... 1,190 583 650 167 195 2,785 Commercial business loans................ 81 22 600 15 - 718 -------- --------------- --------------- ---------------- -------- -------- Total................................. $25,797 $14,166 $8,877 $23,721 $132,035 $204,596 ======== =============== =============== ================ ======== Less: Undisbursed portion of loans in process. (13,887) Unearned income......................... (1,704) Allowance for loan losses............... (1,454) Market value adjustment on loans held for sale.......................... (63) -------- Loans receivable, net................. $187,488 ========
__________________ (1) Includes construction/permanent that convert to a permanent mortgage loan once construction is completed. EXHIBIT I-12 Timberland Savings Bank Loan Originations, Purchases, and Sales EXHIBIT I-12 TIMBERLAND SAVINGS BANK LOAN ORIGINATIONS, PURCHASES, AND SALES
Nine Months Ended Year Ended September 30, June 30, ------------------------------------------------ ------------------------------- 1994 1995 1996 1996 1997 -------------- -------------- -------------- -------------- -------------- (Dollars in thousands) Loans originated: Mortgage loans: One-to four family.................... $ 28,317 $ 26,883 $ 24,512 $ 19,852 $ 18,309 Multi-family.......................... 1,058 518 3,946 3,793 1,267 Commercial............................ 921 2,798 10,100 8,880 2,066 Construction and land development..... 39,207 33,240 29,662 20,202 26,260 Land.................................. 3,507 2,876 2,590 1,725 1,951 Consumer............................... 2,996 6,091 5,358 4,257 5,300 Commercial business loans.............. 129 89 348 355 413 -------------- -------------- -------------- -------------- -------------- Total loans originated................ 76,135 72,495 76,516 59,064 55,506 Loans purchased Mortgage loans: One-to four family.................... - 704 367 297 64 Multi-family.......................... 1,500 3,318 1,163 1,163 - Commercial............................ - 1,091 - - 546 Construction.......................... 1,500 3,050 4,300 1,675 - Land.................................. - 802 83 59 131 -------------- -------------- -------------- -------------- -------------- Total loans purchased................ 3,000 8,965 5,913 3,194 741 -------------- -------------- -------------- -------------- -------------- Total loans originated and purchased.... 79,135 81,460 82,429 62,258 56,247 Loans sold: Total whole loans sold................ (22,154) (4,200) (9,153) (5,723) (11,256) Participation loans................... (725) - (3,229) - - -------------- -------------- -------------- -------------- -------------- Total loans sold...................... (22,879) (4,200) (12,382) (5,723) (11,256) Mortgage loan principal repayments...... (34,610) (40,118) (48,649) (40,693) (38,254) Increase (decrease) in other items, net. (6,347) (2,177) (1,426) (3,251) 4,256 -------------- -------------- -------------- -------------- -------------- Net increase in loans receivable, net... $ 15,299 $ 34,965 $ 19,972 $ 12,591 $ 10,993 ============== ============== ============== ============== ==============
EXHIBIT I-15 Timberland Savings Bank Deposit Composition EXHIBIT I-15 TIMBERLAND SAVINGS BANK DEPOSIT COMPOSITION
At September 30, ------------------------------------------------------------------------------------------- 1994 1995 1996 ------------------ ------------------------------- -------------------------------- Percent Percent Percent of of Increase of Increase Amount Total Amount Total (Decrease) Amount Total (Decrease) ------ ----- ------ ----- ---------- ------ ----- ---------- (Dollars in thousands) Non-interest bearing............... $ 2,408 1.87% $ 3,116 2.18% $ 708 $ 3,571 2.28% $ 455 NOW checking....................... 17,391 13.52 17,525 12.25 134 18,003 11.50 478 Passbook savings accounts.......... 30,319 23.56 25,553 17.86 (4,766) 25,400 16.22 (153) Money market deposit............... 11,948 9.29 12,734 8.90 786 13,364 8.54 630 Certificates of deposit which mature in the year ending: Within 1 year...................... 43,087 33.49 52,658 36.80 9,571 64,202 41.01 11,544 After 1 year, but within 2 years... 13,959 10.85 19,434 13.58 5,475 18,737 11.97 (697) After 2 years, but within 5 years.. 5,962 4.63 8,911 6.23 2,949 9,814 6.27 903 Certificates maturing thereafter... 951 0.74 844 0.59 (107) 579 0.37 (265) Other.............................. 2,644 2.05 2,309 1.61 (335) 2,879 1.84 570 -------- ------ -------- ------ ------- -------- ------ ------- Total.......................... $128,669 100.00% $143,084 100.00% $14,415 $156,549 100.00% $13,465 ======== ====== ======== ====== ======= ======== ====== ======= At June 30, 1997 ------------------------------- Percent of Increase Amount Total (Decrease) ------ ----- ---------- (Dollars in thousands) Non-interest bearing............... $ 4,601 2.75% $ 1,030 NOW checking....................... 17,515 10.48 (488) Passbook savings accounts.......... 25,130 15.04 (270) Money market deposit............... 13,667 8.18 303 Certificates of deposit which mature in the year ending: Within 1 year...................... 77,096 46.13 12,894 After 1 year, but within 2 years... 19,100 11.43 363 After 2 year, but within 5 years... 7,393 4.42 (2,421) Certificates maturing thereafter... 418 0.25 (161) Other.............................. 2,220 1.32 (659) -------- ------ ------- Total.......................... $167,140 100.00% $10,591 ======== ====== =======
EXHIBIT I-16 Timberland Savings Bank Time Deposit Rate/Maturity EXHIBIT I-16 TIMBERLAND SAVINGS BANK TIME DEPOSIT RATE/MATURITY
At At September 30, June 30, ---------------------------------------------------- 1994 1995 1996 1997 -------------- -------------- -------------- -------------- (Dollars in thousands) 2.00 - 3.99%....... $12,641 $ 346 $ 171 $ 158 4.00 - 4.99%....... 23,797 3,220 6,802 - 5.00 - 5.99%....... 24,003 39,921 53,278 83,766 6.00 - 6.99%....... 1,589 31,473 26,914 14,941 7.00% and over..... 1,929 6,887 6,167 5,142 -------------- -------------- -------------- -------------- Total.............. $63,959 $81,847 $93,332 $104,007 ============== ============== ============== ==============
Amount Due ----------------------------------------------------------------------- After One to Two to Less Than Two Five After One Year Years Years Five Years Total -------------- -------------- -------------- -------------- -------------- (Dollars in thousands) 2.00 - 3.99%....... $ 158 $ - $ - $ - $ 158 4.00 - 4.99%....... - - - - - 5.00 - 5.99%....... 65,641 14,228 3,577 320 83,766 6.00 - 6.99%....... 10,843 1,902 2,195 1 14,941 7.00% and over..... 454 2,970 1,621 97 5,142 -------------- -------------- -------------- -------------- -------------- Total.............. $77,096 $19,100 $7,393 $418 $104,007 ============== ============== ============== ============== ==============
EXHIBIT I-17 Timberland Savings Bank Borrowings EXHIBIT I-17 TIMBERLAND SAVINGS BANK BORROWINGS
At or For the Nine Months At or For the Ended Year Ended September 30, June 30, ------------------------ ------------- 1994 1995 1996 1996 1997 ---- ---- ---- ---- ---- (In thousands) Maximum amount of short-term FHLB advances at any month end.......................... $3,200 $12,500 $13,000 $13,000 $16,500 Approximate average short-term FHLB advances outstanding............................... 267 8,992 9,500 9,444 5,333 Approximate weighted average rate paid on short-term FHLB advances................... 5.41% 6.16% 5.57% 5.64% 5.48% Total short-term FHLB advances at end of period..................................... 3,200 12,500 12,000 7,000 2,000
EXHIBIT II-1 Timberland Savings Bank List of Office Locations EXHIBIT II-1 TIMBERLAND SAVINGS BANK LIST OF OFFICE LOCATIONS
Approximate Location Year Opened Square Footage Deposits - -------- ----------- -------------- -------- (In thousands) Main Office: 624 Simpson Avenue 1966 7,700 $55,986 Hoquiam, Washington 98550 Branch Offices: 300 N. Boone Street 1974 3,400 22,986 Aberdeen, Washington 98520 314 Main South 1975 2,800 23,251 Montesano, Washington 98563 361 Damon Road 1977 2,100 19,231 Ocean Shores, Washington 98569 2418 Meridian East 1980 2,400 31,895 Edgewood, Washington 98371 12814 Meridian East (South Hill) 1996 4,200 4,485 Puyallup, Washington 98373 202 Auburn Way South 1994 4,200 8,545 Auburn, Washington 98002 1201 Marvin Road, N.E. 1997 4,400 761 Lacey, Washington 98516 Loan Center: Port Orchard Loan Center 1995 444 N/A 700 Prospect Street, Suite #102 Port Orchard, Washington 98366 Data Center: 422 6th Street 1990 2,700 N/A Hoquiam, Washington 98550
EXHIBIT II-2 Historical Interest Rates HISTORICAL INTEREST RATES(1)
Prime 90 Day One Year 30 Year Year/Qtr. Ended Rate T-Bill T-Bill T-Bond - --------------- ---- ------ ------ ------ 1991: Quarter 1 8.75% 5.92% 6.24% 8.26% Quarter 2 8.50% 5.72% 6.35% 8.43% Quarter 3 8.00% 5.22% 5.38% 7.80% Quarter 4 6.50% 3.95% 4.10% 7.47% 1992: Quarter 1 6.50% 4.15% 4.53% 7.97% Quarter 2 6.50% 3.65% 4.06% 7.79% Quarter 3 6.00% 2.75% 3.06% 7.38% Quarter 4 6.00% 3.15% 3.59% 7.40% 1993: Quarter 1 6.00% 2.95% 3.18% 6.93% Quarter 2 6.00% 3.09% 3.45% 6.67% Quarter 3 6.00% 2.97% 3.36% 6.03% Quarter 4 6.00% 3.06% 3.59% 6.34% 1994: Quarter 1 6.25% 3.56% 4.44% 7.09% Quarter 2 7.25% 4.22% 5.49% 7.61% Quarter 3 7.75% 4.79% 5.94% 7.82% Quarter 4 8.50% 5.71% 7.21% 7.88% 1995: Quarter 1 9.00% 5.86% 6.47% 7.43% Quarter 2 9.00% 5.57% 5.63% 6.63% Quarter 3 8.75% 5.42% 5.68% 6.51% Quarter 4 8.50% 5.09% 5.14% 5.96% 1996: Quarter 1 8.25% 5.14% 5.38% 6.67% Quarter 2 8.25% 5.16% 5.68% 6.87% Quarter 3 8.25% 5.03% 5.69% 6.92% Quarter 4 8.25% 5.18% 5.49% 6.64% 1997: Quarter 1 8.50% 5.32% 6.00% 7.10% Quarter 2 8.50% 5.17% 5.66% 6.78% August 29, 1997 8.50% 5.22% 5.56% 6.61%
(1) End of period data. Source: SNL Securities. EXHIBIT II-3 Demographic/Economic Reports ================================================================================ COUNTY DEMOGRAPHIC REPORT ================================================================================ STATE/COUNTY 53027 COUNTY NAME GRAYS HARBOR WA
Population - ---------- 1980 66,314 1990 64,175 1997 68,512 2002 71,505 Population Growth Rate 0.9 Households - --------- 1990 25,514 1997 27,328 2002 28,553 Household Growth Rate 1 Average Household Size 2.48 Families - -------- 1990 17,423 1997 18,671 Family Growth Rate 1 Race 1990 1997 - ---- ---- ---- % White 93.9 93 % Black 0.2 0.2 % Asian /Pacific Isl. 1.1 1.5 % Hispanic* 1.8 2.3
1997 Age Distribution - --------------------- 0-4 7 5-9 7.2 10-14 7.6 15-19 7.6 20-24 5.8 25-44 26.1 45-64 22.8 65-84 14.1 85+ 1.8 18+ 73.4 Median Age - ---------- 1990 35.4 1997 37.4
Male/Female Ratio 98.9 Per Capita Income $12,382
1997 Household Income* - ---------------------- Base 27,328 % Less than $15K 30.9 % $15K-25K 20.2 % $25K-50K 34 % $50K-100K 12.9 % $100K-150K 1.3 % Greater than $150K 0.8 Medium Household Income - ----------------------- 1997 $24,210 2002 $25,450 1997 Average Disposable Income - ---------------------------------- Total $24,917 Householder less than 35 $21,721 Householder 35-44 $28,821 Householder 45-54 $32,106 Householder 55-64 $29,591 Householder 65-+ $16,205 Spending Potential Index* ----------------------------- Auto Loan 97 Home Loan 78 Investments 87 Retirement Plans 84 Home Repair 97 Lawn & Garden 94 Remodeling 108 Appliances 98 Electronics 93 Furniture 87 Restaurants 85 Sporting Goods 92 Theater/Concerts 87 Toys & Hobbies 95 Travel 86 Video Rental 96 Apparel 86 Auto Aftermarket 90 Health Insurance 101 Pets & Supplies 96
________________________________________________________________________________ * Persons of Hispanic Origin may be of any race. * Income represents the annual income for the preceding year in current dollars, including an adjustment for inflation or cost-of-living increase. * The Spending Potential Index (SPI) is calculated by CACI from the Consumer Expenditure Survey, Bureau of Labor Statistics. The index represents the ratio of the average amount spent locally to the average U.S. spending for a product or service, multiplied by 100. ________________________________________________________________________________ Copyright 1997 CACI (800) 292-CACI FAX:(703) 243-6272 9/8/97 ================================================================================ COUNTY DEMOGRAPHIC REPORT ================================================================================ STATE/COUNTY 53067 COUNTY NAME THURSTON WA
Population - ---------- 1980 124,264 1990 161,238 1997 201,629 2002 229,483 Population Growth Rate 3.1 Households - ---------- 1990 62,150 1997 77,102 2002 87,506 Household Growth Rate 3 Average Household Size 2.58 Families - -------- 1990 43,336 1997 55,301 Family Growth Rate 3.4 Race 1990 1997 - ---- ---- ---- % White 91.9 90 % Black 1.8 2.1 % Asian /Pacific Isl. 3.8 5.1 % Hispanic* 3 3.9
1997 Age Distribution - --------------------- 0-4 6.7 5-9 7.1 10-14 7.5 15-19 7.5 20-24 6.7 25-44 29.9 45-64 22.7 65-84 10.4 85+ 1.5 18+ 74 Median Age - ---------- 1990 33.7 1997 35.7 Male/Female Ratio 95.2 Per Capita Income $15,967 1997 Household Income* - -------------------------- Base 77,102 % less than $15K 15.7 % $15K-25K 16.5 % $25K-50K 38.7 % $50K-100K 25.3 % $100K-150K 3 % more than $150K 0.8 Median Household Income - --------------------------- 1997 $35,401 2002 $38,217
1997 Average Disposable Income - ----------------------------------- Total $32,832 Householder less than 35 $26,711 Householder 35-44 $36,292 Householder 45-54 $43,419 Householder 55-64 $36,763 Householder 65+ $21,759 Spending Potential Index* ------------------------- Auto Loan 100 Home Loan 96 Investments 95 Retirement Plans 95 Home Repair 98 Lawn & Garden 97 Remodeling 102 Appliances 100 Electronics 100 Furniture 99 Restaurants 100 Sporting Goods 98 Theater/Concerts 96 Toys & Hobbies 100 Travel 93 Video Rental 99 Apparel 99 Auto Aftermarket 98 Health Insurance 98 Pets & Supplies 99
- -------------------------------------------------------------------------------- * Persons of Hispanic Origin may be of any race. * Income represents the annual income for the preceding year in current dollars, including an adjustment for inflation or cost-of-living increase. * The Spending Potential Index (SPI) is calculated by CACI from the Consumer Expenditure Survey, Bureau of Labor Statistics. The index represents the ratio of the average amount spent locally to the average U.S. spending for a product or service, multiplied by 100. - -------------------------------------------------------------------------------- Copyright 1997 CACI (800) 292-CACI FAX: (703) 243-6272 9/8/97 ================================================================================ COUNTY DEMOGRAPHIC REPORT ================================================================================ STATE/COUNTY 53053 COUNTY NAME THURSTON WA
Population - ---------- 1980 485,667 1990 586,203 1997 666,121 2002 721,239 Population Growth Rate 1.8 Households - ---------- 1990 214,652 1997 243,653 2002 263,512 Household Growth Rate 1.8 Average Household Size 2.64 Families - -------- 1990 151,672 1997 176,019 Family Growth Rate 2.1 Race 1990 1997 - ---- ---- ---- % White 85.1 82.3 % Black 7.2 7.9 % Asian /Pacific Isl. 5 6.6 % Hispanic* 3.5 4.6
1997 Age Distribution - --------------------- 0-4 7.9 5-9 7.7 10-14 7.4 15-19 7.2 20-24 7.4 25-44 31.5 45-64 19.9 65-84 9.7 85+ 1.2 18+ 73 Median Age - ---------- 1990 31.3 1997 33.1 Male/Female Ratio 99,6 Per Capita Income $16,543 1997 Household Income* - -------------------------- Base 243,653 % less than $15K 15.6 % $15K-25K 15 % $25K-50K 37 % $50K-100K 26.9 % $100K-150K 4.1 % more than $150K 1.3 Median Household Income - --------------------------- 1997 $36,868 2002 $41,933
1997 Average Disposable Income - ----------------------------------- Total $34,984 Householder less than 35 $29,329 Householder 35-44 $38,302 Householder 45-54 $46,477 Householder 55-64 $40,712 Householder 65+ $23,108 Spending Potential Index* ------------------------- Auto Loan 98 Home Loan 96 Investments 95 Retirement Plans 94 Home Repair 98 Lawn & Garden 97 Remodeling 99 Appliances 98 Electronics 98 Furniture 98 Restaurants 98 Sporting Goods 96 Theater/Concerts 96 Toys & Hobbies 98 Travel 94 Video Rental 98 Apparel 97 Auto Aftermarket 97 Health Insurance 97 Pets & Supplies 98
- -------------------------------------------------------------------------------- * Persons of Hispanic Origin may be of any race. * Income represents the annual income for the preceding year in current dollars, including an adjustment for inflation or cost-of-living increase. * The Spending Potential Index (SPI) is calculated by CACI from the Consumer Expenditure Survey, Bureau of Labor Statistics. The index represents the ratio of the average amount spent locally to the average U.S. spending for a product or service, multiplied by 100. - -------------------------------------------------------------------------------- Copyright 1997 CACI (800) 292-CACI FAX: (703) 243-6272 9/8/97 ================================================================================ COUNTY DEMOGRAPHIC REPORT ================================================================================ STATE/COUNTY 53033 COUNTY NAME KING WA
Population - ---------- 1980 1,269,898 1990 1,507,319 1997 1,634,291 2002 1,721,886 Population Growth Rate 1.1 Households - ---------- 1990 615,792 1997 663,021 2002 696,406 Household Growth Rate 1 Average Household Size 2.42 Families - -------- 1990 378,290 1997 411,981 Family Growth Rate 1.2 Race 1990 1997 - ---- ---- ---- % White 84.8 81.3 % Black 5.1 5.7 % Asian /Pacific Lsl. 7.9 10.5 % Hispanic* 2.9 3.8
1997 Age Distribution - --------------------- 0-4 6.3 5-9 7.1 10-14 6.8 15-19 6 20-24 5.9 25-44 34.6 45-64 22.2 65-84 9.7 85+ 1.3 18+ 76.4 Median Age - ---------- 1990 33.7 1997 36.1 Male/Female Ratio 97.3 Per Capita Income $21,960 1997 Household Income* - --------------------------- Base 663,019 % less than $15k 12.6 % $15k-25k 12.9 % $25k-50k 34.7 % $50k-100k 30.3 % $1000k-150k 6.3 % more than $150k 3.3 Median Household Income - --------------------------- 1997 $41,633 2002 $43,853
1997 Average Disposable Income - ----------------------------------- Total $41,139 Householder less than 35 $33,403 Householder 35-44 $44,446 Householder 45-54 $52,829 Householder 55-64 $47,475 Householder 65+ $26,344 Spending Potential Index* ------------------------- Auto Loan 102 Home Loan 112 Investments 105 Retirement Plans 107 Home Repair 103 Lawn & Garden 105 Remodeling 99 Appliances 102 Electronics 104 Furniture 108 Restaurants 109 Sporting Goods 103 Theater/Concerts 105 Toys & Hobbies 102 Travel 105 Video Rental 100 Apparel 109 Auto Aftermarket 105 Health Insurance 99 Pets & Supplies 102
________________________________________________________________________________ * Persons of Hispanic Origin may be of any race. * Income represents the annual income for the preceding year in current dollars, including an adjustment for inflation or cost-of-living increase. * The Spending Potential Index (SPI) is calculated by CACI from the Consumer Expenditure Survey, Bureau of Labor Statistics. The index represents the ratio of the average amount spent locally to the average U.S. spending for a product or service, multiplied by 100. - -------------------------------------------------------------------------------- Copyright 1997 CACI (800) 292-CACI FAX: (703) 243-6272 9/8/97 EXHIBIT II-4 Sources of Personal Income/Employment Sectors September 15, 1997 PERSONAL INCOME BY MAJOR SOURCE AND EARNINGS BY INDUSTRY 1/ For Countries And Metropolitan Areas (thousands of dollars) (53-000) WASHINGTON
- ------------------------------------------------------------------------------------------------------------------------------ Item 1989 1990 1991 1992 1993 1994 - ------------------------------------------------------------------------------------------------------------------------------ Income by place of residence Total personal income ($000) 85,837,927 94,420,291 101,206,147 109,678,572 114,808,532 120,359,599 Nonfarm personal income 84,551,830 93,090,718 99,832,573 108,136,078 113,006,982 119,011,808 Farm income 2/ 1,286,097 1,329,573 1,373,574 1,542,494 1,801,550 1,347,791 Population (thousands) 3/ 4,746.3 4,901.2 5,018.2 5,146.1 5,258.7 5,343.2 Per capita personal income (dollars) 18,085 19,265 20,168 21,313 21,832 22,526 Derivation of total personal income Earnings by place of work 61,720,547 67,714,969 72,686,190 79,506,546 82,620,602 86,489,904 Less: Personal cont. for social insur. 4/ 3,943,060 4,348,410 4,604,523 4,949,475 5,152,453 5,531,690 Plus: Adjustment for residence 5/ 819,201 904,840 981,591 1,039,383 1,113,048 1,208,185 Equals: Net earn. by place of residence 58,596,688 64,271,399 69,063,258 75,596,454 78,581,197 82,166,399 Plus: Dividends, interest, and rent 6/ 14,705,624 16,268,165 16,519,752 16,953,333 17,756,682 18,765,320 Plus: Transfer payments 12,535,615 13,880,727 15,623,137 17,128,785 18,470,653 19,427,880 Earnings by place of work Components of Earnings: Wages and salaries 48,871,618 54,138,170 57,960,221 62,938,652 64,643,379 67,701,950 Other labor income 4,221,517 4,778,362 5,389,265 6,085,587 6,549,704 7,051,462 Proprietors' income 7/ 8,627,412 8,798,437 9,336,704 10,482,307 11,427,519 11,736,492 Farm proprietors' income 872,626 837,953 889,510 1,064,916 1,285,104 810,010 Nonfarm proprietors' income 7,754,786 7,960,484 8,447,194 9,417,391 10,142,415 10,926,482 Earnings by Industry: Farm earnings 1,286,097 1,329,573 1,373,574 1,542,494 1,801,550 1,347,791 Nonfarm earnings 60,434,450 66,385,396 71,312,616 77,964,052 80,819,052 85,142,113 Private earnings 49,446,842 54,365,159 58,078,596 63,632,562 65,780,047 69,619,370 Ag. serv.. for.. fish.. and other 8/ 901,691 1,068,518 1,189,304 1,160,267 1,134,947 1,214,162 Mining 160,853 169,335 176,685 169,823 163,915 182,024 Construction 3,985,418 4,509,377 4,776,033 5,194,479 5,365,643 5,763,916 Manufacturing 12,887,987 13,802,351 13,800,156 14,645,082 14,460,971 14,897,039 Nondurable goods 3,219,702 3,509,449 3,309,438 3,495,486 3,703,041 3,940,838 Durable goods 9,668,285 10,292,902 10,490,718 11,149,596 10,757,930 10,956,201 Transporation and public utilities 3,918,864 4,198,698 4,439,202 4,751,763 4,960,036 5,207,909 Wholesale trade 3,810,856 4,261,944 4,572,855 4,930,327 5,074,603 5,430,529 Retail trade 6,407,801 6,966,200 7,347,321 7,915,781 8,252,821 8,849,976 Finance insurance, and real estate 3,266,391 3,581,681 3,790,542 4,544,021 4,835,997 4,838,003 Services 14,106,981 15,807,055 17,959,498 20,321,019 21,531,114 23,235,812 Government and government enterprises 10,987,608 12,020,237 13,234,020 14,331,490 15,039,005 15,522,743 Federal civilian 2,246,275 2,447,024 2,598,514 2,734,296 2,864,954 2,943,175 Military 1,381,118 1,458,485 1,561,706 1,664,826 1,638,036 1,654,083 State and local 7,360,215 8,114,728 9,073,800 9,932,368 10,536,015 10,925,485 See footnotes at end of table. June 1996 REGIONAL ECONOMIC INFORMATION SYSTEM Table CA05 BUREAU OF ECONOMIC ANALYSIS
September 15,1997 PERSONAL INCOME BY MAJOR SOURCE AND EARNINGS BY INDUSTRY 1/ For Counties and Metropolitan Areas (thousands of dollars) (53-027) GRAYS HARBOR WASHINGTON
- ------------------------------------------------------------------------------------------------------------------------------------ Item 1989 1990 1991 1992 1993 1994 - ------------------------------------------------------------------------------------------------------------------------------------ Income by place of residence Total personal income ($000) 936,277 995,246 1,043,804 1,120,821 1,149,832 1,174,089 Nonfarm personal income 931,297 989,225 1,037,293 1,111,381 1,142,677 1,168,681 Farm income 2/ 4,980 6,021 6,511 9,440 7,155 5,408 Population (thousands) 3/ 63.4 64.4 64.7 65.5 66.2 66.9 Per capita personal income (dollars) 14,760 15,454 16,132 17,107 17,372 17,547 Derivation of total personal income Earnings by palace of work 606,800 632,231 650,779 700,289 702,365 708,477 Less: Personal cont. for social insur, 4/ 41,588 43,122 44,057 46.522 47,275 49,067 Plus: Adjustment for residence 5/ -7,155 -4,902 -2,090 -2,134 1,110 4,481 Equals: Net earn. by place of residence 558,057 584,207 604,632 651,633 656,200 663,891 Plus: Dividends, interest, and rent 6/ 167,097 175,031 169,478 172,979 171,598 180,789 Plus: Transfer payments 211,123 236,008 269,694 296,209 322,034 329,409 Earnings by place of work Components of Earnings: Wages and salaries 473,766 496,887 512,045 547,018 544,101 543,118 Other labor income 40,839 43,581 47,212 51,762 54,382 55,348 Proprietors' income 7/ 92,195 91,763 91,522 101,509 103,882 110,011 Farm proprietors' income 3,984 4,077 4,580 7,599 5,344 3,457 Nonfarm proprietors' income 88,211 87,686 86,942 93,910 98,538 106,554 Earnings by Industry: Farm earnings 4,980 6,021 6,511 9,440 7,155 5,408 Nonfarm earnings 601,820 626,210 644,268 690,849 695,210 703,069 Private earnings 504,577 520,214 528,433 563,897 562,868 565,966 Ag. serv.. for.. fish.. and other 8/ 18,109 19,445 (D) 18,354 19,710 20,993 Mining 3,339 4,295 (D) (D) (D) (D) Construction 30,965 36,576 35,042 45,098 43,640 40,930 Manufacturing 198,771 198,426 189,083 192,129 179,767 178,633 Nondurable goods 67,141 68,135 68,153 58,858 49,248 46,241 Durable goods 131,630 130,291 120,930 133,271 130,519 132,392 Transportation and public utilities 40,614 39,694 39,779 39,994 38,076 38,172 Wholesale trade 25,033 20,301 25,099 25,319 25,018 25,076 Retail trade 71,559 74,893 78,002 84,054 89,372 95,307 Finance, insurance, and real estate 13,428 14,889 16,836 (D) (D) (D) Services 102,759 111,696 123,026 136,265 141,704 138,794 Government and government enterprises 97,243 105,996 115,835 126,952 132,342 137,103 Federal, civilian 7,845 8,732 7,731 8,043 10,596 11,057 Military 3,114 3,153 3,037 3,141 3,297 3,368 State and local 86,284 94,111 105,067 115,768 118,449 122,678
See footnotes at end of table REGIONAL ECONOMIC INFORMATION Table CA05 June 1996 SYSTEM BUREAU OF ECONOMIC ANALYSIS September 15,1997 PERSONAL INCOME BY MAJOR SOURCE AND EARNINGS BY INDUSTRY 1/ For Counties and Metropolitan Areas (thousands of dollars) (53-033) KING WASHINGTON
- ------------------------------------------------------------------------------------------------------------------------------------ Item 1989 1990 1991 1992 1993 1994 - ------------------------------------------------------------------------------------------------------------------------------------ Income by place of residence Total personal income ($000) 34,007,566 37,272,341 39,961,843 43,260,426 44,543,623 46,506,921 Nonfarm personal income 33,970,334 37,233,307 39,918,203 43,211,739 44,494,214 46,461,488 Farm income 2/ 37,232 39,034 43,640 48,687 49,409 45,433 Population (thousands) 3/ 1,466.9 1,515.9 1,535.2 1,559.5 1,578.1 1,587.5 Per capita personal income (dollars) 23,183 24,587 26,031 27,741 28,227 29,295 Derivation of total personal income Earnings by palace of work 29,662,707 32,601,459 34,833,540 38,185,447 38,595,422 40,237,815 Less: Personal cont. for social insur. 4/ 1,917,002 2,128,088 2,241,508 2,413,882 2,444,682 2,592,458 Plus: Adjustment for residence 5/ -3,251,684 -3,667,000 -3,874,937 -4,221,098 -4,046,817 -4,262,805 Equals: Net earn. by place of residence 24,494,021 26,806,371 28,717,095 31,550,467 32,103,923 33,382,552 Plus: Dividends, interest, and rent 6/ 5,876,679 6,448,880 6,824,026 6,892,559 7,258,589 7,674,152 Plus: Transfer payments 3,636,866 4,017,090 4,420,722 4,817,400 5,181,111 5,450,217 Earnings by place of work Components of Earnings: Wages and salaries 23,590,967 26,177,403 27,844,140 30,358,812 30,297,094 31,375,469 Other labor income 2,105,515 2,382,624 2,693,436 3,050,844 3,174,554 3,361,166 Proprietors' income 7/ 3,966,225 4,041,432 4,295,964 4,775,791 5,123,774 5,501,180 Farm proprietors' income 19,705 19,452 24,526 31,407 31,921 27,693 Nonfarm proprietors' income 3,946,520 4,021,980 4,271,438 4,744,384 5,091,853 5,473,487 Earnings by Industry: Farm earnings 37,232 39,034 43,640 48,687 49,409 45,433 Nonfarm earnings 29,625,475 32,562,425 34,789,900 38,136,760 38,546,013 40,192,382 Private earnings 26,257,181 28,877,443 30,757,564 33,764,954 33,920,279 35,411,592 Ag. serv.. for.. fish.. and other 8/ 407,031 496,430 574,993 528,672 472,881 489,735 Mining 22,296 21,440 24,678 23,117 24,194 29,443 Construction 1,859,994 2,051,137 2,087,503 2,273,008 2,264,326 2,344,628 Manufacturing 6,459,549 6,975,839 7,202,067 7,646,941 7,031,383 6,937,323 Nondurable goods 977,092 1,096,703 1,172,073 1,261,889 1,377,776 1,453,407 Durable goods 5,482,457 5,879,136 6,029,994 6,385,052 5,653,607 5,483,916 Transportation and public utilities 2,260,359 2,433,984 2,564,903 2,750,031 2,851,623 2,988,274 Wholesale trade 2,343,878 2,628,086 2,830,617 3,049,602 3,090,726 3,264,390 Retail trade 2,798,498 3,040,958 3,160,166 3,354,755 3,426,821 3,642,914 Finance, insurance, and real estate 2,202,709 2,339,042 2,459,828 2,862,019 3,003,119 2,970,321 Services 7,902,867 8,890,527 9,852,809 11,276,809 11,755,206 12,744,564 Government and government enterprises 3,368,294 3,684,982 4,032,336 4,371,806 4,625,734 4,780,790 Federal, civilian 674,390 733,935 789,034 835,662 884,951 929,660 Military 118,834 126,116 124,177 127,855 126,771 117,829 State and local 2,575,070 2,824,931 3,119,125 3,408,289 3,614,012 3,733,301
REGIONAL ECONOMIC INFORMATION SYSTEM See footnotes at end of table June 1996 BUREAU OF ECONOMIC ANALYSIS Table CA05 September 15, 1997 PERSONAL INCOME BY MAJOR SOURCE AND EARNINGS BY INDUSTRY 1/ FOR COUNTRIES AND METROPOLITAN AREAS (thousands of dollars) (53-053) PIERCE WASHINGTON
- ----------------------------------------------------------------------------------------------------------------------------------- Item 1989 1990 1991 1992 1993 1994 - ----------------------------------------------------------------------------------------------------------------------------------- Income by place of residence Total personal income ($000) 9,063,251 10,038,231 10,646,663 11,491,193 12,047,345 12,683,943 Nonfarm personal income 9,030,695 10,006,975 10,609,037 11,447,298 12,007,971 12,649,848 Farm income 2/ 32,556 31,256 37,626 43,895 39,374 34,095 Population (thousands) 3/ 570.5 590.5 605.0 619.5 631.9 638.3 Per capita personal income (dollars) 15,888 16,999 17,598 18,549 19,066 19,870 Derivation of total personal income Earnings by place of work 5,353,535 5,806,045 6,182,798 6,721,704 7,140,962 7,533,892 Less: Personal cont. for social insur. 4/ 344,913 374,581 392,793 420,794 449,970 486,065 Plus: Adjustment for residence 5/ 1,112,893 1,252,903 1,409,597 1,537,287 1,480,802 1,551,152 Equals: Net earn. by place of residence 6,121,515 6,684,367 7,199,602 7,838,197 8,171,794 8,598,979 Plus: Dividends, interest, and rent 6/ 1,318,219 1,567,263 1,440,662 1,454,826 1,507,665 1,594,945 Plus: Transfer payments 1,623,517 1,786,601 2,006,399 2,198,170 2,367,886 2,490,019 Earnings by place of work Components of Earnings: Wages and salaries 4,452,747 4,848,764 5,130,733 5,527,494 5,844,864 6,136,464 Other labor income 319,458 361,413 406,527 459,444 506,371 552,374 Proprietors' income 7/ 581,330 595,868 645,538 734,766 789,727 845,054 Farm proprietors' income 18,911 16,818 22,860 30,050 25,196 19,670 Nonfarm proprietors' income 562,419 579,050 622,678 704,716 764,531 825,384 Earnings by Industry: Farm earnings 32,556 31,256 37,626 43,895 39,374 34,095 Nonfarm earnings 5,320,979 5,774,789 6,145,172 6,677,809 7,101,588 7,499,797 Private earnings 3,679,999 4,050,321 4,303,062 4,740,781 5,025,112 5,377,204 Ag. serv.. for.. fish.. and other 8/ 41,802 52,093 57,086 65,436 69,812 73,479 Mining 4,855 5,153 6,266 6,848 7,177 7,549 Construction 380,892 434,418 451,479 478,054 518,380 569,690 Manufacturing 659,522 694,108 687,795 695,225 704,779 819,009 Nondurable goods 271,270 286,257 299,733 323,141 333,206 358,325 Durable goods 388,252 407,851 388,062 372,084 371,573 460,684 Transportation and public utilities 305,627 340,516 365,426 392,261 414,256 423,360 Wholesale trade 287,133 315,750 316,064 351,798 379,838 408,376 Retail trade 611,237 654,307 701,690 772,071 805,803 870,042 Finance, insurance, and real estate 227,745 249,866 272,902 359,481 395,984 387,995 Services 1,161,186 1,304,110 1,444,354 1,619,607 1,729,083 1,817,704 Government and government enterprises 1,640,980 1,724,468 1,842,110 1,937,028 2,076,476 2,122,593 Federal, civilian 291,809 306,527 327,861 307,866 348,465 354,124 Military 618,873 601,793 609,553 639,539 673,600 668,680 State and local 730,298 816,148 904,696 989,623 1,054,411 1,099,789
See footnotes at end of table. REGIONAL ECONOMIC INFORMATION Table CA05 June 1996 SYSTEM BUREAU OF ECONOMIC ANALYSIS September 15,1997 PERSONAL INCOME BY MAJOR SOURCE AND EARNINGS BY INDUSTRY 1/ For Counties and Metropolitan Areas (thousands of dollars) (53-067) THURSTON WASHINGTON
- ------------------------------------------------------------------------------------------------------------------------------------ Item 1989 1990 1991 1992 1993 1994 - ------------------------------------------------------------------------------------------------------------------------------------ Income by place of residence Total personal income ($000) 2,651,612 2,946,318 3,232,859 3,516,523 3,734,018 3,950,934 Nonfarm personal income 2,630,467 2,924,405 3,209,464 3,487,450 3,707,955 3,924,758 Farm income 2/ 21,145 21,913 23,395 29,073 26,063 26,176 Population (thousands) 3/ 156.4 163.0 169.5 176.6 183.4 187.2 Per capita personal income (dollars) 16,956 18,073 19,069 19,908 20,364 21,101 Derivation of total personal income Earnings by place of work 1,574,918 1,751,999 1,966,104 2,160,958 2,300.006 2,411,366 Less: Personal cont. for social insur. 4/ 95,757 107,337 117,827 127,192 136,247 146,445 Plus: Adjustment for residence 5/ 253,537 284,735 290,344 319,053 328,871 369,866 Equals: Net earn. by place of residence 1,732,698 1,929,397 2,138,621 2,352,819 2,492,630 2,634,787 Plus: Dividends, interest, and rent 6/ 452,559 494,193 501,028 522,128 544,760 575,846 Plus: Transfer payments 466,355 522,728 593,210 641,576 696,628 740,301 Earnings by place of work Components of Earnings: Wages and salaries 1,299,416 1,453,585 1,630,863 1,777,990 1,887,461 1,967,609 Other labor income 95,442 109,805 130,040 147,578 164,393 176,782 Proprietors' income 7/ 180,060 188,609 205,201 235,390 248,152 266,975 Farm proprietors' income 11,828 11,621 12,773 19,177 15,046 15,030 Nonfarm proprietors' income 168,232 176,988 192,428 216,213 233,106 251,945 Earnings by Industry: 21,145 21,913 23,395 29,073 26,063 26,176 Farm earnings 1,553,773 1,730,086 1,942,709 2,131,885 2,273,943 2,385,190 Nonfarm earnings 863,109 962,939 1,070,875 1,174,548 1,262,385 1,363,442 Private earnings Ag. serv., for., fish., and other 8/ 16,864 18,432 20,177 21,073 22,174 23,861 Mining 1,663 1,633 2,162 2,486 2,623 3,015 Construction 99,835 117,078 127,581 132,033 138,107 152,026 Manufacturing 109,887 114,747 123,710 138,127 145,548 160,113 Nondurable goods 55,914 59,491 60,284 67,353 70,073 75,418 Durable goods 53,973 55,256 63,426 70,774 75,475 84,695 Transportation and public utilities 60,011 60,244 59,815 62,734 69,602 72,167 Wholesale trade 46,892 60,514 69,936 67,613 66,492 70,644 Retail trade 174,194 188,430 211,929 230,218 244,397 265,456 Finance, insurance, and real estate 47,425 52,081 56,434 72,092 79,694 82,678 Services 306,338 349,780 399,431 448,172 493,748 533,482 Government and government enterprises 690,664 767,147 871,834 957,337 1,011,558 1,021,748 Federal, civilian 27,830 32,016 32,251 34,180 37,142 40,373 Military 7,919 8,042 8,617 10,374 10,358 10,849 State and local 654,915 727,089 830,966 912,783 964,058 970,526
See footnotes at end of table REGIONAL ECONOMIC INFORMATION SYSTEM Table CA05 June 1996 BUREAU OF ECONOMIC ANALYSIS Footnotes for Table CA05 1/ 1969-74 based on 1967 SIC. 1975-87 based on 1972 SIC. 1988-94 based on 1987 SIC. 2/ Farm income consists of proprietors' net farm income, the wages of hired farm labor, the pay-in-kind of hired farm labor, and the salaries of officers of corporate farms. 3/ Census Bureau midyear population estimates. Estimates for 1990-94 reflect county population estimates available as of October 1995. 4/ Personal contributions for social insurance are included in earnings by type and industry but excluded from personal income. 5/ U.S. adjustment for residence consists of adjustments for border workers; income of U.S. residents commuting outside U.S. borders to work less income of foreign residents commuting inside U.S. borders to work plus certain Caribbean seasonal workers. 6/ Includes the capital consumption adjustment for rental income of persons. 7/ Includes the inventory valuation and capital consumption adjustments. 8/ "Other" consists of wages and salaries of U.S. residents employed by international organizations and foreign embassies and consulates in the U.S. 13/ Estimates for 1979 forward reflect Alaska Census Areas as defined in the 1980 Decennial Census; those for prior years reflect Alaska Census Divisions as defined in the 1970 Decennial Census. Estimates from 1988 forward separate Aleutian Islands Census Area into Aleutians East Borough and Aleutians West Census Area. Denali and Lake + Peninsula Boroughs begin in 1991. Estimates from 1993 forward separate Skagway-Yakutat-Angoon Census Area into Skagway-Hoonah-Angoon Census Area and Yakutat Borough. 14/ Cibola, NM was separated from Valencia in June 1981, but in these estimates, Valencia includes Cibola through the end of 1981. 15/ La Paz county, AZ was separated from Yuma county on January 1, 1983. E The estimate shown here constitutes the major portion of the true estimate. (D) Not shown to avoid disclosure of confidential information. (L) Less than $50,000. Estimates are included in totals. (N) Data not available for this year. REGIONAL ECONOMIC INFORMATION SYSTEM Table CAO5 JUNE 1996 BUREAU OF ECONOMIC ANALYSIS September 15, 1997 FULL-TIME AND PART-TIME EMPLOYEES BY MAJOR INDUSTRY 1/ For Countries and Metropolitan Areas (number of jobs)
(53-000) WASHINGTON - ------------------------------------------------------------------------------------------------------------------------------------ Item 1989 1990 1991 1992 1993 1994 - ------------------------------------------------------------------------------------------------------------------------------------ Employment by Place of Work Total full- & part-time employment 2,709,394 2,849,112 2,899,285 2,954,509 3,001,833 3,071,025 By Type: Wage and salary employment 2,261,708 2,369,933 2,388,656 2,424,985 2,465,499 2,526,349 Proprietors' employment 447,686 479,179 510,629 529,524 536,334 544,676 Farm proprietors' employment 37,971 36,838 36,647 36,809 36,565 35,077 Nonfarm proprietors' employment 2/ 409,715 442,341 473,982 492,715 500,769 509,599 By Industry: Farm employment 78,800 82,364 78,769 70,304 74,373 78,495 Nonfarm employment 2,630,594 2,766,748 2,820,516 2,884,205 2,927,460 2,992,530 Private employment 2,173,067 2,291,854 2,336,034 2,387,944 2,427,505 2,486,235 Ag. serv..for.. fish.. and other 3/ 45,147 48,776 51,830 51,354 55,800 57,724 Mining 5,494 5,507 5,288 4,897 4,810 4,911 Construction 145,151 159,794 162,862 169,395 170,138 175,562 Manufacturing 380,605 388,741 370,157 366,230 361,537 359,011 Transportation and public utilities 121,821 126,936 128,141 128,755 130,564 134,290 Wholesale trade 134,486 141,816 144,706 148,993 148,793 155,508 Retail trade 449,430 470,056 478,678 494,467 501,757 518,825 Finance. Insurance, and real estate 213,507 219,959 223,535 226,232 231,400 232,587 Services 677,426 730,269 770,837 797,621 822,706 847,817 Government and government enterprises 457,527 474,894 484,482 496,261 499,955 506,295 Federal, civilian 71,827 74,794 72,965 73,471 72,205 72,188 Military 80,627 79,718 78,443 79,058 76,603 75,289 State and local 305,073 320,382 333,074 343,732 351,147 358,818
See footnotes at end of table. REGIONAL ECONOMIC INFORMATION Table CA25 June 1996 SYSTEM BUREAU OF ECONOMIC ANALYSIS September 15,1997 FULL-TIME AND PART-TIME EMPLOYEES BY MAJOR INDUSTRY 1/ FOR COUNTRIES AND METROPOLITAN AREAS (number of jobs) (53-027) GRAYS HARBOR WASHINGTON
- --------------------------------------------------------------------------------------------------------------- Item 1989 1990 1991 1992 1993 1994 - --------------------------------------------------------------------------------------------------------------- Employment by Place of Work Total full- & part-time employment 30,003 30,568 30,496 31,196 30,854 30,882 By Type: Wage and salary employment 24,492 24,635 24,327 24,959 24,438 24,332 Proprietors' employment 5,511 5,933 6,169 6,237 6,416 6,550 Farm proprietors' employment 467 454 453 454 439 433 Nonfarm proprietors' employment 2/ 5,044 5,479 5,716 5,783 5,977 6,117 By Industry: Farm employment 533 610 596 559 554 570 Nonfarm employment 29,470 29,958 29,900 30,637 30,300 30,312 Private employment 24,930 25,300 25,194 25,795 25,335 25,288 Ag. serv.. for.. fish.. and other 3/ 1,009 1,175 (D) 1,032 1,162 1,196 Mining 108 109 (D) (D) (D) (D) Construction 1,241 1,354 1,335 1,623 1,566 1,507 Manufacturing 6,435 6,218 5,561 5,531 4,944 4,859 Transportation and public utilities 1,442 1,346 1,365 1,263 1,263 1,220 Wholesale trade 905 748 818 805 772 765 Retail trade 5,512 5,580 5,689 6,002 6,106 6,286 Finance, insurance, and real estate 1,452 1,469 1,701 (D) (D) (D) Services 6,826 7,301 7,449 7,735 7,634 7,514 Government and government enterprises 4,540 4,658 4,706 4,842 4,965 5,024 Federal, civilian 280 308 242 238 309 310 Military 389 379 369 373 356 341 State and local 3,871 3,971 4,095 4,231 4,300 4,373
See footnotes at end of table. REGIONAL ECONOMIC INFORMATION SYSTEM Table CA25 June 1996 BUREAU OF ECONOMIC ANALYSIS September 15, 1997 FULL-TIME AND PART-TIME EMPLOYEES BY MAJOR INDUSTRY 1/ For Countries and Metropolitan Areas (number of jobs) (53-033) KING WASHINGTON
- ----------------------------------------------------------------------------------------------------------------------- Item 1989 1990 1991 1992 1993 1994 - ----------------------------------------------------------------------------------------------------------------------- Employment by Place of Work Total full - & part-time employment 1,111,570 1,164,617 1,171,214 1,181,960 1,182,980 1,192,869 By Type: Wage and salary employment 955,847 997,570 995,965 1,003,298 1,002,297 1,009,371 Proprietors' employment 155,723 167,047 175,249 178,662 180,683 183,498 Farm proprietors' employment 1,654 1,610 1,602 1,607 1,552 1,531 Nonfarm proprietors' employment 2/ 154,069 165,437 173,647 177,055 179,131 181,967 By Industry: Farm employment 2,850 2,735 2,631 2,364 2,348 2,423 Nonfarm employment 1,108,720 1,161,882 1,168,583 1,179,596 1,180,632 1,190,446 Private employment 977,073 1,023,974 1,028,167 1,035,321 1,035,374 1,045,103 Ag.serv.,for.,fish., and other 3/ 11,769 12,720 14,022 13,300 13,679 13,550 Mining 1,155 1,184 1,120 920 958 1,004 Construction 59,844 63,825 61,904 63,165 60,940 60,468 Manufacturing 173,336 176,851 172,543 168,322 157,637 149,275 Transporation and public utilities 63,266 66,686 66,911 67,519 67,206 69,169 Wholesale trade 72,500 76,424 77,583 79,426 78,631 80,748 Retail trade 175,339 181,362 181,332 182,999 184,941 189,795 Finance, insurance, and real estate 112,882 112,954 111,586 110,623 111,742 111,781 Services 306,982 331,968 341,166 349,047 359,640 369,313 Government and government enterprises 131,647 137,908 140,416 144,275 145,258 145,343 Federal, civilian 19,807 20,678 20,639 20,804 20,793 20,736 Military 10,577 10,539 10,159 10,202 9,693 8,859 State and local 101,263 106,691 109,618 113,269 114,772 115,748
See footnotes at end of table. REGIONAL ECONOMIC INFORMATION SYSTEM Table CA25 June 1996 BEREAU OF ECONOMIC ANALYSIS September 15, 1997 FULL-TIME AND PART- TIME EMPLOYEES BY MAJOR INDUSTRY 1/ FOR COUNTRIES AND METROPOLITAN AREAS (number of jobs) (53-053) PIERCE WASHINGTON
- ------------------------------------------------------------------------------------------------------------------------------ ITEM 1989 1990 1991 1992 1993 1994 - ------------------------------------------------------------------------------------------------------------------------------ Employment by Place of Work Total full- & part-time employment 269,376 278,439 279,827 286,894 294,628 302,747 By Type: Wage and salary employment 226,433 232,782 230,419 234,857 241,854 249,137 Proprietors' employment 42,943 45,657 49,408 52,037 52,774 53,610 Farm proprietors' employment 1,366 1,331 1,325 1,328 1,283 1,265 Nonfarm proprietors' employment 2/ 41,577 44,326 48,083 50,709 51,491 52,345 By Industry: Farm employment 2,639 2,515 2,405 2,139 2,128 2,166 Nonfarm employment 266,737 275,924 277,422 284,755 292,500 300,581 Private employment 194,889 204,397 208,114 215,405 221,349 228,659 Ag. serv.. for.. fish.. and other 3/ 2,745 2,938 3,226 3,312 3,758 3,860 Mining 232 244 238 260 273 267 Construction 15,208 16,742 16,545 17,003 17,519 18,322 Manufacturing 23,843 23,681 22,338 22,004 21,608 23,600 Transportation and public utilities 10,026 10,595 10,959 11,134 11,583 11,728 Wholesale trade 10,508 10,898 10,994 11,791 12,342 12,779 Retail trade 44,955 46,546 47,740 50,452 50,774 52,927 Finance, insurance, and real estate 20,315 21,103 21,894 22,530 23,559 23,460 Services 67,057 71,650 74,180 76,919 79,933 81,716 Government and government enterprises 71,848 71,527 69,308 69,350 71,151 71,922 Federal, civilian 11,154 11,215 10,905 10,606 11,063 11,166 Military 31,076 28,877 25,930 25,359 26,011 25,659 State and local 29,618 31,435 32,473 33,385 34,077 35,097
See footnotes at end of table REGIONAL ECONOMIC INFORMATION Table CA25 June 1996 SYSTEM BUREAU OF ECONOMIC ANALYSIS September 15, 1997 FULL-TIME AND PART-TIME EMPLOYEES BY MAJOR INDUSTRY 1/ For Counties and Metropolitan Areas (number of jobs) (53-067) THURSTON WASHINGTON
- ----------------------------------------------------------------------------------------------------------------------------------- Item 1989 1990 1991 1992 1993 1994 - ----------------------------------------------------------------------------------------------------------------------------------- Employment by Place of Work Total full- & part-time employment 79,225 84,094 88,142 91,120 93,653 96,222 By Type: Wage and salary employment 65,702 69,322 72,085 74,013 76,307 78,588 Proprietors' employment 13,523 14,772 16,057 17,107 17,346 17,634 Farm proprietors' employment 895 872 868 870 841 830 Nonfarm proprietors' employment 2/ 12,628 13,900 15,189 16,237 16,505 16,804 By Industry: Farm employment 1,619 1,489 1,496 1,348 1,388 1,438 Nonfarm employment 77,606 82,605 86,646 89,772 92,265 94,784 Private employment 50,549 54,054 56,730 59,215 61,385 63,777 Ag.serv..for..fish.. and other 3/ 1,370 1,387 1,427 1,494 1,738 1,751 Mining 104 96 96 121 130 136 Construction 4,139 4,638 4,999 5,051 5,106 5,244 Manufacturing 4,263 4,377 4,118 4,524 4,733 4,972 Transportation and public utilities 2,250 2,174 2,128 2,165 2,344 2,351 Wholesale trade 1,959 2,363 2,607 2,479 2,441 2,581 Retail trade 13,592 14,082 14,800 15,539 15,856 16,678 Finance, insurance, and real estate 4,626 4,985 5,222 5,463 5,672 5,749 Services 18,246 19,952 21,333 22,379 23,365 24,315 Government and government enterprises 27,057 28,551 29,916 30,557 30,880 31,007 Federal, civilian 833 913 855 877 908 960 Military 953 945 971 1,035 983 963 State and local 25,271 26,693 28,090 28,645 28,989 29,084
See footnotes at end of table. REGIONAL ECONOMIC INFORMATION SYSTEM Table CA25 June 1996 BUREAU OF ECONOMIC ANALYSIS Footnotes for Table CA25 1/ 1969-74 based on 1967 SIC. 1975-87 based on 1972 SIC. 1988-94 based on 1987 SIC. 2/ Excludes limited partners. 3/ "Other" consists of the number of jobs held by U.S. residents employed by international organizations and foreign embassies and consulates in the United States. 4/ Cibola, NM was separated from Valencia in June 1981, but in these estimates Valencia includes Cibola through the end of 1981. 5/ La Paz county, AZ was separated from Yuma county on January 1, 1983. 6/ Estimates for 1979 forward reflect Alaska Census Areas as defined in the 1980 Decennial Census: those for prior years reflect Alaska Census Divisions as defined in the 1970 Decennial Census. Estimates from 1988 forward separate Aleutian Islands Census Area into Aleutians East Bor, and Aleutians West Census Area. Denali and Lake + Peninsula Boroughs begin in 1991. Estimates from 1993 forward separate Skagway-Yakutat-Angoon Census Area into Skagway-Hoonah-Angoon Census Area and Yakutat Borough. E Estimate shown constitutes the major portion of the true estimate. (D) Not shown to avoid disclosure of confidential information. (L) Less than 10 jobs. Estimates are included in totals. (N) Data not available for this year. Table CA25 June 1996 REGIONAL ECONOMIC INFORMATION SYSTEM BUREAU OF ECONOMIC ANALYSIS September 15, 1997 REGIONAL ECONOMIC PROFILE For Countries and Metropolitan Areas (53-000) WASHINGTON
- ----------------------------------------------------------------------------------------------------------------------------------- ITEM 1989 1990 1991 1992 1993 1994 - ----------------------------------------------------------------------------------------------------------------------------------- Place of Residence Profile Total personal income ($000) 85,837,927 94,420,291 101,206,147 109,678,572 114,808,532 120,359,599 Nonfarm personal income 84,551,830 93,090,718 99,832,573 108,136,078 113,006,982 119,011,808 Farm income 1,286,097 1,329,573 1,373,574 1,542,494 1,801,550 1,347,791 Derivation of Total Personal Income Net earnings 1/ 58,596,688 64,271,399 69,063,258 75,596,454 78,581,197 82,166,399 Transfer payments 12,535,615 13,880,727 15,623,137 17,128,785 18,470,653 19,427,880 Income maintenance 2/ 936,599 1,033,494 1,269,911 1,463,732 1,595,315 1,675,315 Unemployment insurance 395,663 479,161 672,953 940,858 1,148,628 1,058,170 Retirement and other 11,203,353 12,368,072 13,680,273 14,724,195 15,726,710 16,694,395 Dividends, interest, and rent 14,705,624 16,268,165 16,519,752 16,953,333 17,756,682 18,765,320 Population (thousands) 3/ 4,746.3 4,901.2 5,018.2 5,146.1 5,258.7 5,343.2 Per Capita Incomes ($) 4/ Per capita personal income 18,085 19,265 20,168 21,313 21,832 22,526 Per capita net earnings 12,346 13,113 13,763 14,690 14,943 15,378 Per capita transfer payments 2,641 2,832 3,113 3,328 3,512 3,636 Per capita income maintenance 197 211 253 284 303 314 Per capita unemployment insurance 83 98 134 183 218 198 Per capita retirement & other 2,360 2,523 2,726 2,861 2,991 3,124 Per capita dividens, interest, & rent 3,098 3,319 3,292 3,294 3,377 3,512 Place of Work Profile Total earnings (place of work. $000) 61,720,547 67,714,969 72,686,190 79,505,546 82,620,602 86,489,904 Wages and salaries 48,871,618 54,138,170 57,960,221 62,938,652 64,643,379 67,701,950 Other labor income 4,221,517 4,778,362 5,389,265 6,085,587 6,549,704 7,051,462 Proprietors' income 8,627,412 8,798,437 9,336,704 10,482,307 11,427,519 11,736,492 Nonfarm proprietors' income 7,754,786 7,960,484 8,447,194 9,417,391 10,142,415 10,926,482 Farm proprietors' income 872,626 837,953 889,510 1,064,916 1,285,104 810,010 Total employment (full & part-time) 2,709,394 2,849,112 2,899,285 2,954,509 3,001,833 3,071,025 Wage and salary jobs 2,261,708 2,369,933 2,388,656 2,424,985 2,465,499 2,526,349 Number of proprietors 447,686 479,179 510,629 529,524 536,334 544,676 Number of nonfarm proprietors /5 409,715 442,341 473,982 492,715 500,769 509,599 Number of farm proprietors 37,971 36,838 36,647 36,809 35,565 35,077 Average earnings per job ($) 22,780 23,767 25,070 26,910 27,523 28,163 Wage & salary earnings per job ($) 21,608 22,844 24,265 25,954 26,219 26,798 Average earnings per nonfarm propietor ($) 18,927 17,996 17,822 19,113 20,254 21,441
See footnotes at end of table. REGIONAL ECONOMIC INFORMATION SYSTEM Table CA30 June 1996 BUREAU OF ECONOMIC ANALYSIS September 15, 1997 REGIONAL ECONOMIC PROFILE For Countries and Metropolitan Areas (53-027) GRAYS HARBOR WASHINGTON
- ----------------------------------------------------------------------------------------------------------------------- Item 1989 1990 1991 1992 1993 1994 - ----------------------------------------------------------------------------------------------------------------------- Place of Residence Profile Total personal income ($000) 936,277 995,246 1,043,804 1,120,821 1,149,832 1,174,089 Nonfarm personal income 931,297 989,225 1,037,293 1,111,381 1,142,677 1,168,681 Farm income 4,980 6,021 6,511 9,440 7,155 5,408 Derivation of Total Personal Income Net earnings 1/ 558,057 584,207 604,632 651,633 656,200 663,891 Transfer payments 211,123 236,008 269,694 296,209 322,034 329,409 Income maintenance 2/ 19,771 22,722 28,541 32,403 34,632 34,839 Unemployment insurance 7,217 9,306 12,623 15,996 22,741 19,790 Retirement and other 184,135 203,980 228,530 247,810 264,661 274,780 Dividends, interest, and rent 167,097 175,031 169,478 172,979 171,598 180,789 Population (thousands) 3/ 63.4 64.4 64.7 65.5 66.2 66.9 Per Capita Incomes ($) 4/ Per capita personal income 14,760 15,454 16,132 17,107 17,372 17,547 Per capita net earnings 8,798 9,071 9,344 9,946 9,914 9,922 Per capita transfer payments 3,328 3,665 4,168 4,521 4,865 4,923 Per capita income maintenance 312 353 441 495 523 521 Per capita unemployment insurance 114 144 195 244 344 296 Per capita retirement & other 2,903 3,167 3,532 3,782 3,999 4,107 Per capita dividends, interest, & rent 2,634 2,718 2,619 2,640 2,593 2,702 Place of Work Profile Total earnings (place of work. $000) 606,800 632,231 650,779 700,289 702,365 708,477 Wages and salaries 473,766 496,887 512,045 547,018 544,101 543,118 Other labor income 40,839 43,581 47,212 51,762 54,382 55,348 Proprietors' income 92,195 91,763 91,522 101,509 103,882 110,011 Nonfarm proprietors' income 88,211 87,686 86,942 93,910 98,538 106,554 Farm proprietors' income 3,984 4,077 4,580 7,599 5,344 3,457 Total employment (full & part-time) 30,003 30,568 30,496 31,196 30,854 30,882 Wage and salary jobs 24,492 24,635 24,327 24,959 24,438 24,332 Number of Proprietors 5,511 5,933 6,169 6,237 6,416 6,550 Number of nonfarm proprietors /5 5,044 5,479 5,716 5,783 5,977 6,117 Number of farm proprietors 467 454 453 454 439 433 Average earnings per job ($) 20,225 20,683 21,340 22,448 22,764 22,941 Wage & salary earnings per job ($) 19,344 20,170 21,048 21,917 22,265 22,321 Average earnings per nonfarm proprietor ($) 17,488 16,004 15,210 16,239 16,486 17,419
See footnotes at end of table. REGIONAL ECONOMIC INFORMATION SYSTEM Table CA30 June 1996 BUREAU OF ECONOMIC ANALYSIS September 15, 1997 REGIONAL ECONOMIC PROFILE For Counties and Metropolitan Areas (53-033) KING WASHINGTON
- ----------------------------------------------------------------------------------------------------------------------------- Item 1989 1990 1991 1992 1993 1994 - ----------------------------------------------------------------------------------------------------------------------------- Place of Residence Profile Total personal income ($000) 34,007,566 37,272,341 39,961,843 43,260,426 44,543,623 46,506,921 Nonfarm personal income 33,970,334 37,233,307 39,918,203 43,211,739 44,494,214 46,461,488 Farm income 37,232 39,034 43,640 48,687 49,409 55,433 Derivation of Total Personal Income Net earnings 1/ 24,494,021 26,806,371 28,717,095 31,550,467 32,103,923 33,382,552 Transfer payments 3,636,866 4,017,090 4,420,722 4,817,400 5,181,111 5,450,217 Income maintenance 2/ 227,840 252,162 309,050 363,817 410,088 437,946 Unemployment insurance 103,459 117,850 174,669 260,536 311,296 288,436 Retirement and other 3,305,567 3,647,078 3,937,003 4,193,047 4,459,727 4,723,835 Dividends, interest, and rent 5,876,679 6,448,880 6,824,026 6,892,559 7,258,589 7,674,152 Population (thousands) 3/ 1,466,9 1,515,9 1,535,2 1,559,5 1,578,1 1,587,5 Per Capita Incomes ($) 4/ Per capita personal income 23,183 24,587 26,031 27,741 28,227 29,295 Per capita net earnings 16,698 17,683 18,706 20,232 20,344 21,028 Per capita transfer payments 2,479 2,650 2,880 3,089 3,283 3,433 Per capita income maintenance 155 166 201 233 260 276 Per capita unemployment insurance 71 78 114 167 197 182 Per capita retirement & other 2,253 2,406 2,565 2,689 2,826 2,976 Per capita dividends, interest, & rent 4,006 4,254 4,445 4,420 4,600 4,834 Place of Work Profile Total earnings (place of work, $000) 29,662,707 32,601,459 34,833,540 38,185,447 38,595,422 40,237,815 Wages and salaries 23,590,967 26,177,403 27,844,140 30,297,094 30,358,812 31,375,469 Other labor income 2,105,515 2,382,624 2,693,436 3,050,844 3,174,554 3,361,166 Proprietors' income 3,966,225 4,041,432 4,295,964 4,775,791 5,123,774 5,501,180 Nonfarm proprietors' income 3,946,520 4,021,980 4,271,438 4,744,384 5,091,853 5,473,487 Farm proprietors' income 19,705 19,452 24,526 31,407 31,921 27,693 Total employment (full & part time) 1,111,570 1,164,617 1,171,214 1,181,960 1,182,980 1,192,869 Wage and salary jobs 955,847 997,570 995,965 1,003,298 1,002,297 1,009,371 Numbers of proprietors 155,723 167,047 175,249 178,662 180,683 183,498 Number of nonfarm proprietors /5 154,069 165,437 173,647 177,055 179,131 181,967 Number of farm proprietors 1,654 1,610 1,602 1,607 1,552 1,531 Average earnings per job ($) 26,685 27,993 29,741 32,307 32,626 33,732 Wage & salary earnings per job ($) 24,681 26,241 27,957 30,259 30,228 31,084 Average earnings per nonfarm proprietor ($) 25,615 24,311 24,598 26,796 28,425 30,080
See footnotes at end of table REGIONAL ECONOMIC INFORMATION SYSTEM Table CA30 June 1996 BUREAU OF ECONOMIC ANALYSIS September 15, 1997 REGIONAL ECONOMIC PROFILE For Counties and Metropolitan Areas (53-053) PIERCE WASHINGTON
- ------------------------------------------------------------------------------------------------------------------------------ Item 1989 1990 1991 1992 1993 1994 - ------------------------------------------------------------------------------------------------------------------------------ Place of Residence Profile Total personal income ($000) 9,063,251 10,038,231 10,646,663 11,491,193 12,047,346 12,683,943 Nonfarm personal income 9,030,695 10,006,975 10,609,037 11,447,298 12,007,971 12,649,848 Farm income 32,556 31,256 37,626 43,895 39,374 34,095 Derivation of Total Personal Income Net earnings 1/ 6,121,515 6,684,367 7,199,602 7,838,197 8,171,794 8,598,979 Transfer payments 1,623,517 1,786,601 2,006,399 2,198,170 2,367,886 2,490,019 Income maintenance 2/ 138,334 148,369 181,673 205,876 227,816 240,261 Unemployment insurance 42,313 48,796 70,233 101,596 126,556 120,201 Retirement and other 1,422,870 1,589,436 1,754,493 1,890,698 2,013,514 2,129,557 Dividends, interest, and rent 1,318,219 1,567,263 1,440,662 1,454,826 1,507,665 1,594,945 Population (thousands) 3/ 570.5 590.5 605.0 619.5 631.9 638.3 Per Capita Incomes ($) 4/ Per capita personal income 15,888 16,999 17,598 18,549 19,066 19,870 Per capita net earnings 10,731 11,319 11,900 12,652 12,932 13,471 Per capita transfer payments 2,486 3,025 3,316 3,548 3,747 3,901 Per capita income maintenance 242 251 300 332 361 376 Per capita unemployment insurance 74 83 116 164 200 188 Per capita retirement & other 2,529 2,692 2,900 3,052 3,187 3,336 Per capita dividends, interest & rent 2,311 2,654 2,381 2,348 2,386 2,499 Place of Work Profile Total earnings (place of work, $000) 5,353,535 5,806,045 6,182,798 6,721,704 7,140,962 7,533,892 Wages and salaries 4,452,747 4,848,764 5,130,733 5,527,494 5,844,864 6,136,464 Other labor income 319,458 361,413 406,527 459,444 506,371 552,374 Proprietors' income 581,330 595,868 645,538 734,766 789,727 845,054 Nonfarm proprietors' income 562,419 579,050 622,678 704,716 764,531 825,384 Farm proprietors' income 18,911 16,818 22,860 30,050 25,196 19,670 Total employment (full & part-time) 269,376 278,439 279,827 286,894 294,628 302,747 Wage and salary jobs 226,433 232,782 230,419 234,857 241,854 249,137 Number of proprietors 42,943 45,657 49,408 52,037 52,774 53,610 Number of nonfarm proprietors /5 41,577 44,326 48,083 50,709 51,491 52,345 Number of farm proprietors 1,366 1,331 1,325 1,326 1,283 1,265 Average earnings per job ($) 19,874 20,852 22,095 23,429 24,237 24,885 Wage & salary earnings per job ($) 19,665 20,830 22,267 23,536 24,167 24,631 Average earnings per nonfarm proprietor ($) 13,527 13,063 12,950 13,897 14,848 15,768 See footnotes at end of table. REGIONAL ECONOMIC INFORMATION SYSTEM Table CA30 June 1996 BUREAU OF ECONOMIC ANALYSIS
September 15,1997 REGIONAL ECONOMIC PROFILE For Countries and Metropolitan Areas
(53-067) THURSTON WASHINGTON - ----------------------------------------------------------------------------------------------------------------------------------- Item 1989 1990 1991 1992 1993 1994 - ----------------------------------------------------------------------------------------------------------------------------------- Place of Residence Profile Total personal income ($000) 2,651,612 2,946,318 3,232,859 3,316,523 3,734,018 3,950,934 Nonfarm personal income 2,630,467 2,924,405 3,209,464 3,487,450 3,707,955 3,924,758 Farm inco me 21,145 21,913 23,395 29,073 26,063 26,176 Derivation of Total Personal Income Net earnings 1/ 1,732,698 1,929,397 2,138,621 2,352,819 2,492,630 2,634,787 Transfer payments 466,355 522,728 593,210 641,576 696,628 740,301 Income maintenance 2/ 28,472 31,157 38,883 46,521 49,468 52,132 Unemployment insurance 12,949 16,138 21,181 28,927 37,156 35,074 Retirement and other 424,934 475,433 533,146 566,128 610,004 653,095 Dividends. interest, and rent 452,559 494,193 501,028 522,128 544,760 575,846 Population (thousands) 3/ 156.4 163.0 169.5 176.6 183.4 187.2 Per Capita Incomes ($) 4/ Per capita personal income 16,956 18,073 19,069 19,908 20,364 21,101 Per capita net earnings 11,080 11,835 12,615 13,320 13,594 14,072 Per capita transfer payments 2,982 3,206 3,499 3,632 3,799 3,954 Per capita income maintenance 182 191 229 263 270 278 Per capita unemployment insurance 83 99 125 164 203 187 Per capita retirement & other 2,717 2,916 3,145 3,205 3,327 3,488 Per capita dividends, interest. & rent 2,894 3,031 2,955 2,956 2,971 3,075 Place of Work Profile Total earnings (place of work. $000) 1,574,918 1,751,999 1,966,104 2,160,958 2,300,006 2,411,366 Wages and salaries 1,299,416 1,453,585 1,630,863 1,777,990 1,887,461 1,967,609 Other labor income 95,442 109,805 130,040 147,578 164,393 176,782 Proprietors' income 180,060 188,609 205,201 235,390 248,152 266,975 Nonfarm proprietors' income 168,232 176,988 192,428 216,213 233,106 251,945 Farm proprietors' income 11,828 11,621 12,773 19,177 15,046 15,030 Total employment (full & part-time) 79,225 84,094 88,142 91,120 93,653 96,222 Wage and salary jobs 65,702 69,322 72,085 74,013 76,307 78,588 Number of proprietors 13,523 14,772 16,057 17,107 17,346 17,634 Number of nonfarm proprietors /5 12,628 13,900 15,189 16,237 16,505 16,804 Number of farm proprietors 895 872 868 870 841 830 Average earnings per job ($) 19,879 20,834 22,306 23,716 24,559 25,060 Wage & salary earnings per job ($) 19,777 20,969 22,624 24,023 24,735 25,037 Average earnings per non farm proprietor ($) 13,332 12,733 12,669 13,316 14,123 14,993
See footnotes at end of table. REGIONAL ECONOMIC INFORMATION SYSTEM Table CA30 June 1996 BUREAU OF ECONOMIC ANALYSIS Footnotes for Table CA30 1/ Total earnings less personal contributions for social insurance adjusted to place of residence. 2/ Includes supplemental security income payments, payments to families with dependent children (AFDC), general assistance payments, food stamp payments, and other assistance payments, including emergency assistance. 3/ Census Bureau midyear population estimates. Estimates for 1990-94 reflect county population estimates available as of October 1995. 4/ Type of income divided by population yields a per capita for that type of income. 5/ Excludes limited partners. 6/ Cibola, NM was separated from Valencia in June 1981, but in these estimates Valencia includes Cibola through the end of 1981. 7/ La Paz county, AZ was separated from Yuma county on January 1, 1983. 8/ Estimates for 1979 forward reflect Alaska Census Areas as defined in the 1980 Decennial Census; those for prior years reflect Alaska Census Divisions as defined in the 1970 Decennial Census. Estimates from 1988 forward separate Aleutian Islands Census Area Into Aleutians East Bor, and Aleutians West Census Area. Denali and Lake + Peninsula Boroughs begin in 1991. Estimates from 1993 forward separate Skagway-Yakutat Angoon Census Area into Skagway-Hoonah-Angoon Census Area and Yakutat Borough. (L) Less than $50.000 or less than 10 jobs, as appropriate. Estimates are included in totals. (N) Data not available for this year. EXHIBIT III-1 General Characteristics of Publicly-Traded Institutions RP FINANCIAL, LC. --------------------------------------- Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 22209 (703) 528-1700 Exhibit III-1 Characteristics of Publicly-Traded Thrifts September 8, 1997(1)
Primary Operating Total Fiscal Conv. Stock Market Ticker Financial Institution Exchg. Market Strat.(2) Assets Offices Year Date Price Value ------ ----------------------------------- ------ ----------------- --------- ------- ------- ------ ------ -------- ------- ($Mil) ($) ($Mil) California Companies -------------------- AHM Ahmanson and Co. H.F. of CA NYSE Nationwide M.B. 47,532 391 12-31 10/72 50.75 4,940 GDW Golden West Fin. Corp. of CA NYSE Nationwide M.B. 39,095 246 12-31 05/59 82.31 4,670 GSB Glendale Fed. Bk, FSB of CA NYSE CA Div. 16,218 154 06-30 10/83 28.87 1,454 CSA Coast Savings Financial of CA NYSE California R.E. 9,103 92 12-31 12/85 46.06 857 DSL Downey Financial Corp. of CA NYSE Southern CA Thrift 5,886 82 12-31 01/71 22.12 591 FED FirstFed Fin. Corp. of CA NYSE Los Angeles CA R.E. 4,193 25 12-31 12/83 33.75 357 WES Westcorp Inc. of Orange CA NYSE California Div. 3,678 26 12-31 05/86 21.56 565 BPLS Bank Plus Corp. of CA OTC Los Angeles CA R.E. 3,534 33 12-31 / 10.87 210 BVCC Bay View Capital Corp. of CA OTC San Francisco CA M.B. 3,096 45 12-31 05/86 25.87 336 PFFB PFF Bancorp of Pomona CA OTC Southern CA Thrift 2,631 23 03-31 03/96 19.25 360 CENF CENFED Financial Corp. of CA OTC Los Angeles CA Thrift 2,295 18 12-31 10/91 33.00 189 FRC First Republic Bancorp of CA (3) NYSE CA,NV M.B. 2,238 13 12-31 / 23.62 229 AFFFZ America First Fin. Fund of CA OTC San Francisco CA Div. 2,191 36 12-31 / 39.37 237 HEMT HF Bancorp of Hemet CA OTC Southern CA Thrift 984 M 19 06-30 06/95 14.87 93 REDF RedFed Bancorp of Redlands CA OTC Southern CA Thrift 912 14 12-31 04/94 17.37 125 HTHR Hawthorne Fin. Corp. of CA OTC Southern CA Thrift 863 6 12-31 / 17.62 53 ITLA Imperial Thrift & Loan of CA (3) OTC Los Angeles CA R.E. 850 9 12-31 / 17.75 139 QCBC Quaker City Bancorp of CA OTC Los Angeles CA R.E. 801 8 06-30 12/93 20.50 96 PROV Provident Fin. Holdings of CA OTC Southern CA M.B. 615 9 06-30 06/96 19.25 95 HBNK Highland Federal Bank of CA OTC Los Angeles CA R.E. 504 8 12-31 / 29.25 67 MBBC Monterey Bay Bancorp of CA OTC West Central CA Thrift 413 7 12-31 02/95 16.62 54 SGVB SGV Bancorp of W. Covina CA OTC Los Angeles CA Thrift 409 8 06-30 06/95 15.12 35 PCCI Pacific Crest Capital of CA (3) OTC Southern CA R.E. 371 3 12-31 / 15.00 44 BYFC Broadway Fin. Corp. of CA OTC Los Angeles CA Thrift 122 3 12-31 01/96 11.00 9 PAMM PacificAmerica Money Ctr of CA (3) OTC Los Angeles CA Div. 112 M 1 12-31 06/96 23.50 45 Florida Companies ----------------- OCN Ocwen Financial Corp. of FL OTC Southeast FL Div. 2,787 1 12-31 / 42.69 1,144 BANC BankAtlantic Bancorp of FL OTC Southeastern FL M.B. 2,730 56 12-31 11/83 12.50 281
RP FINANCIAL, LC. --------------------------------------- Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 22209 (703) 528-1700 Exhibit III-1 Characteristics of Publicly-Traded Thrifts September 8, 1997(1)
Primary Operating Total Fiscal Conv. Stock Market Ticker Financial Institution Exchg. Market Strat.(2) Assets Offices Year Date Price Value ------ ---------------------------------- ------ ----------------- --------- ------- ------- ----- ------ ------ --------- ($Mil) ($) ($Mil) Florida Companies (continued) ----------------------------- BKUNA BankUnited SA of FL OTC Miami FL Thrift 1,807 14 09-30 12/85 12.00 106 FFPB First Palm Beach Bancorp of FL OTC Southeast FL Thrift 1,666 40 09-30 09/93 35.00 176 HARB Harbor FSB, MHC of FL (46.6) OTC Eastern FL Thrift 1,117 23 09-30 01/94 55.50 276 FFFL Fidelity FSB, MHC of FL (47.7) OTC Southeast FL Thrift 999 20 12-31 01/94 26.75 181 CMSV Commty. Svgs, MHC of FL (48.5) OTC Southeast FL Thrift 700 19 12-31 10/94 31.25 159 FFLC FFLC Bancorp of Leesburg FL OTC Central FL Thrift 387 9 12-31 01/94 30.50 71 FFFG F.F.O. Financial Group of FL OTC Central FL R.E. 320 M 11 12-31 10/88 6.06 51 Mid-Atlantic Companies ---------------------- DME Dime Bancorp, Inc. of NY (3) NYSE NY,NJ,FL M.B. 20,087 86 12-31 08/86 19.37 2,009 GPT GreenPoint Fin. Corp. of NY (3) NYSE New York City NY Thrift 13,300 74 12-31 01/94 61.56 2,773 SVRN Sovereign Bancorp of PA OTC PA,NJ,DE M.B. 10,898 120 12-31 08/86 15.50 1,085 ASFC Astoria Financial Corp. of NY OTC NY Thrift 7,665 45 12-31 11/93 48.12 1,009 LISB Long Island Bancorp, Inc of NY OTC Long Island NY M.B. 5,909 36 09-30 04/94 39.87 956 RCSB RCSB Financial, Inc. of NY (3) OTC NY M.B. 4,032 M 36 11-30 04/86 48.87 713 ALBK ALBANK Fin. Corp. of Albany NY OTC Upstate NY,MA,VT Thrift 3,602 70 12-30 04/92 38.50 494 ROSE T R Financial Corp. of NY (3) OTC New York City NY Thrift 3,552 15 12-31 06/93 27.62 484 NYB New York Bancorp, Inc. of NY NYSE Southeastern NY Thrift 3,284 29 09-30 01/88 30.50 659 RSLN Roslyn Bancorp, Inc. of NY (3) OTC Long Island NY M.B. 3,159 6 12-31 01/97 22.75 993 GRTR The Greater New York SB of NY (3) OTC New York NY Div. 2,571 M 14 12-31 06/87 22.94 315 BKCO Bankers Corp. of NJ (3) OTC Central NJ Thrift 2,567 15 12-31 03/90 28.25 350 CMSB Cmnwealth Bancorp of PA OTC Philadelphia PA M.B. 2,289 39 06-30 06/96 17.25 295 NWSB Northwest SB, MHC of PA (30.7) OTC Pennsylvania Thrift 2,091 53 06-30 11/94 22.00 514 MLBC ML Bancorp of Villanova PA OTC Philadelphia PA M.B. 2,071 18 03-31 08/94 20.50 217 HARS Harris SB, MHC of PA (24.3) OTC Southeast PA Thrift 2,044 31 12-31 01/94 38.00 426 RELY Reliance Bancorp, Inc. of NY OTC New York City NY Thrift 1,977 28 06-30 03/94 30.81 270 HAVN Haven Bancorp of Woodhaven NY OTC New York City NY Thrift 1,782 20 12-31 09/93 37.87 166 JSB JSB Financial, Inc. of NY AMEX New York City NY Thrift 1,531 M 13 12-31 06/90 45.31 446 WSFS WSFS Financial Corp. of DE (3) OTC DE Div. 1,509 16 12-31 11/86 15.12 188 QCSB Queens County Bancorp of NY (3) OTC New York City NY Thrift 1,467 13 12-31 11/93 53.87 548 OCFC Ocean Fin. Corp. of NJ OTC Eastern NJ Thrift 1,448 10 12-31 07/96 33.62 289
RP FINANCIAL, LC. --------------------------------------- Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 22209 (703) 528-1700 Exhibit III-1 Characteristics of Publicly-Traded Thrifts September 8, 1997(1)
Primary Operating Total Fiscal Conv. Stock Market Ticker Financial Institution Exchg. Market Strat.(2) Assets Offices Year Date Price Value ------ --------- ------------------------ ----- ----------------- --------- ------- ------- ----- ----- ------ ----- ($Mil) ($) ($Mil) Mid-Atlantic Companies (continued) ---------------------------------- PFSB PennFed Fin. Services of NJ OTC Northern NJ Thrift 1,322 17 06-30 07/94 28.75 139 DIME Dime Community Bancorp of NY OTC New York City NY Thrift 1,315 15 06-30 06/96 19.62 257 YFED York Financial Corp. of PA OTC PA,MD Thrift 1,162 22 06-30 02/84 23.75 166 MFSL Maryland Fed. Bancorp of MD OTC MD Thrift 1,157 25 02-28 06/87 43.00 138 FSLA First SB SLA MHC of NJ (47.5) OTC Eastern NJ Thrift 1,033 16 12-31 07/92 29.87 217 PVSA Parkvale Financial Corp of PA OTC Southwestern PA Thrift 991 28 06-30 07/87 29.25 119 PKPS Poughkeepsie Fin. Corp. of NY OTC Southeast NY Thrift 880 13 12-31 11/85 7.25 91 PSBK Progressive Bank, Inc. of NY (3) OTC Southeast NY Thrift 879 17 12-31 08/84 32.87 126 FFIC Flushing Fin. Corp. of NY (3) OTC New York City NY Thrift 860 7 12-31 11/95 20.00 160 PWBC PennFirst Bancorp of PA OTC Western PA Thrift 817 9 12-31 06/90 15.63 83 MBB MSB Bancorp of Middletown NY (3) AMEX Southeastern NY Thrift 814 16 12-31 09/92 23.25 66 GAF GA Financial Corp. of PA AMEX Pittsburgh PA Thrift 750 13 12-31 03/96 18.75 150 IBSF IBS Financial Corp. of NJ OTC Southwest NJ Thrift 733 10 09-30 10/94 17.12 189 FBBC First Bell Bancorp of PA OTC Pittsburgh PA Thrift 714 7 12-31 06/95 16.00 104 SFIN Statewide Fin. Corp. of NJ OTC Northern NJ Thrift 673 16 12-31 10/95 18.75 88 THRD TF Financial Corp. of PA OTC Philadelphia PA Thrift 641 14 06-30 07/94 19.25 79 TSBS Trenton SB,FSB MHC of NJ(35.9) OTC Central NJ Thrift 631 14 12-31 08/95 28.62 259 FSNJ Bayonne Banchsares of NJ OTC Northern NJ Thrift 577 M 4 03-31 01/95 11.87 36 FMCO FMS Financial Corp. of NJ OTC Southern NJ Thrift 555 18 12-31 12/88 25.25 60 FSPG First Home Bancorp of NJ OTC NJ,DE Thrift 522 10 12-31 04/87 20.12 54 PULS Pulse Bancorp of S. River NJ OTC Central NJ Thrift 520 4 09-30 09/86 20.50 63 ANBK American Nat'l Bancorp of MD OTC Baltimore MD R.E. 505 M 10 07-31 10/95 19.69 71 LVSB Lakeview SB of Paterson NJ OTC Northern NJ Thrift 482 M 8 07-31 12/93 32.25 74 AHCI Ambanc Holding Co., Inc. of NY (3) OTC East-Central NY Thrift 478 M 9 12-31 12/95 15.50 68 PFNC Progress Financial Corp. of PA OTC Southeastern PA M.B. 419 9 12-31 07/83 14.75 56 CNY Carver Bancorp, Inc. of NY AMEX New York, NY Thrift 414 7 03-31 10/94 12.37 29 SHEN First Shenango Bancorp of PA OTC Western PA Thrift 411 4 12-31 04/93 27.50 57 RARB Raritan Bancorp. of Raritan NJ (3) OTC Central NJ Thrift 379 6 12-31 03/87 22.25 54 PBCI Pamrapo Bancorp, Inc. of NJ OTC Northern NJ Thrift 371 8 12-31 11/89 20.75 59 FSBI Fidelity Bancorp, Inc. of PA OTC Southwestern PA Thrift 363 8 09-30 06/88 21.25 33 FOBC Fed One Bancorp of Wheeling WV OTC Northern WV,OH Thrift 357 9 12-31 01/95 20.00 47 HARL Harleysville SA of PA OTC Southeastern PA Thrift 337 4 09-30 08/87 26.00 43 CVAL Chester Valley Bancorp of PA OTC Southeastern PA Thrift 324 6 06-30 03/87 24.00 49
RP FINANCIAL, LC. --------------------------------------- Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 22209 (703) 528-1700 Exhibit III-1 Characteristics of Publicly-Traded Thrifts September 8, 1997(1)
Primary Operating Total Fiscal Conv. Stock Market Ticker Financial Institution Exchg. Market Strat.(2) Assets Offices Year Date Price Value ------ --------- ------------------------- ------ ----------------- --------- ------- -------- ----- ------ ------ --------- ($Mil) ($) ($Mil) Mid-Atlantic Companies (continued) ---------------------------------- FKFS First Keystone Fin. Corp of PA OTC Philadelphia PA Thrift 321 5 09-30 01/95 27.75 34 EQSB Equitable FSB of Wheaton MD OTC Central MD Thrift 308 4 09-30 09/93 37.94 23 LFBI Little Falls Bancorp of NJ OTC New Jersey Thrift 300 6 12-31 01/96 17.37 48 WVFC WVS Financial Corp. of PA (3) OTC Pittsburgh PA Thrift 295 5 06-30 11/93 27.00 47 YFCB Yonkers Fin. Corp. of NY OTC Yonkers NY Thrift 288 4 09-30 04/96 17.37 53 FBER First Bergen Bancorp of NJ OTC Northern NJ Thrift 285 4 09-30 04/96 17.75 53 CATB Catskill Fin. Corp. of NY (3) OTC Albany NY Thrift 284 4 09-30 04/96 16.37 77 FIBC Financial Bancorp, Inc. of NY OTC New York, NY Thrift 282 5 09-30 08/94 19.87 34 LFED Leeds FSB, MHC of MD (36.3) OTC Baltimore MD Thrift 282 M 1 06-30 05/94 26.25 91 IFSB Independence FSB of DC OTC Washington DC Ret. 263 M 2 12-31 06/85 13.03 17 WYNE Wayne Bancorp of NJ OTC Northern NJ Thrift 261 0 12-31 06/96 23.87 51 WSB Washington SB, FSB of MD AMEX Southeastern MD Thrift 258 M 4 07-31 / 6.75 29 PHFC Pittsburgh Home Fin. of PA OTC Pittsburgh PA Thrift 256 6 09-30 04/96 19.50 38 GDVS Greater DV SB,MHC of PA (19.9) (3) OTC Southeast PA Thrift 244 7 12-31 03/95 20.75 68 PHSB Ppls Home SB, MHC of PA (45.0) OTC Western PA Thrift 229 P 9 12-31 07/97 16.00 44 ESBK The Elmira SB FSB of Elmira NY (3) OTC NY,PA Thrift 228 6 12-31 03/85 23.44 17 SBFL SB Fngr Lakes MHC of NY (33.1) OTC Western NY Thrift 217 4 04-30 11/94 23.00 41 HRBF Harbor Federal Bancorp of MD OTC Baltimore MD Thrift 216 9 03-31 08/94 19.75 33 LARL Laurel Capital Group of PA OTC Southwestern PA Thrift 212 6 06-30 02/87 22.50 32 PEEK Peekskill Fin. Corp. of NY OTC Southeast NY Thrift 183 3 06-30 12/95 16.37 52 PLSK Pulaski SB, MHC of NJ (46.0) OTC New Jersey Thrift 177 6 12-31 04/97 16.62 34 SFED SFS Bancorp of Schenectady NY OTC Eastern NY Thrift 173 3 12-31 06/95 19.25 24 AFED AFSALA Bancorp, Inc. of NY OTC Central NY Thrift 159 4 09-30 10/96 16.06 23 SKBO First Carnegie,MHC of PA(45.0) OTC Western PA Thrift 150 P 3 03-31 04/97 15.50 36 PRBC Prestige Bancorp of PA OTC Thrift 136 0 12-31 06/96 17.12 16 TPNZ Tappan Zee Fin., Inc. of NY OTC Southeast NY Thrift 120 S 1 03-31 10/95 17.25 26 GOSB GSB Financial Corp. of NY OTC Southeast NY Thrift 114 P 2 09-30 07/97 14.37 32 WWFC Westwood Fin. Corp. of NJ OTC Northern NJ Thrift 111 2 03-31 06/96 24.25 16 AFBC Advance Fin. Bancorp of WV OTC Northern Neck WV Thrift 104 M 2 06-30 01/97 16.25 18 WHGB WHG Bancshares of MD OTC Baltimore MD Thrift 100 5 09-30 04/96 15.75 23 ALBC Albion Banc Corp. of Albion NY OTC Western NY Thrift 69 2 09-30 07/93 23.25 6 PWBK Pennwood SB of PA (3) OTC Pittsburgh PA Thrift 50 3 12-31 07/96 16.75 10
RP FINANCIAL, LC. - ------------------------------------------ Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 22209 (703) 528-1700 Exhibit III-1 Characteristics of Publicly-Traded Thrifts September 8, 1997(1)
Primary Operating Total Fiscal Conv. Stock Market Ticker Financial Institution Exchg. Market Strat.(2) Assets Offices Year Date Price Value - ------ ------------------------------ ------ -------------- --------- ------ ------- ------ ----- ----- ------ ($Mil) ($) ($Mil) COFI Charter One Financial of OH OTC OH,MI Div. 14,565 155 12-31 01/88 54.37 2,511 CFB Commercial Federal Corp. of NE NYSE NE,CO,KS,OK,IA M.B. 7,097 107 06-30 12/84 42.06 907 FFHC First Financial Corp. of WI OTC WI,IL Div. 5,931 129 12-31 12/80 32.25 1,168 SPBC St. Paul Bancorp, Inc. of IL OTC Chicago IL Div. 4,611 52 12-31 05/87 23.12 786 SECP Security Capital Corp. of WI OTC Wisconsin Div. 3,673 42 06-30 01/94 103.50 953 MAFB MAF Bancorp of IL OTC Chicago IL Thrift 3,236 M 20 12-31 01/90 30.75 473 CTZN CitFed Bancorp of Dayton OH OTC Dayton OH M.B. 3,098 33 03-31 01/92 44.00 380 GTFN Great Financial Corp. of KY OTC Kentucky M.B. 3,046 45 12-31 03/94 33.37 460 STND Standard Fin. of Chicago IL OTC Chicago IL Thrift 2,575 14 12-31 08/94 25.50 413 ABCW Anchor Bancorp Wisconsin of WI OTC Wisconsin M.B. 1,926 33 03-31 07/92 26.25 119 STFR St. Francis Cap. Corp. of WI OTC Milwaukee WI Thrift 1,646 13 09-30 06/93 34.50 183 DNFC D&N Financial Corp. of MI OTC MI Ret. 1,609 37 12-31 02/85 18.62 153 FTFC First Fed. Capital Corp. of WI OTC Southern WI M.B. 1,530 M 44 12-31 11/89 24.50 224 FISB First Indiana Corp. of IN OTC Central IN M.B. 1,521 28 12-31 08/83 20.50 217 FLGS Flagstar Bancorp, Inc of MI OTC MI Thrift 1,519 M 15 12/31 / 19.37 265 ABCL Allied Bancorp of IL OTC Chicago IL M.B. 1,404 14 09-30 07/92 31.12 166 JSBA Jefferson Svgs Bancorp of MO OTC St. Louis MO,TX Thrift 1,297 M 32 12-31 04/93 32.75 164 AADV Advantage Bancorp of WI OTC WI,IL Thrift 1,020 15 09-30 03/92 42.25 137 OFCP Ottawa Financial Corp. of MI OTC Western MI Thrift 861 26 12-31 08/94 25.37 125 CFSB CFSB Bancorp of Lansing MI OTC Central MI Thrift 845 17 12-31 06/90 26.00 132 NASB North American SB of MO OTC KS,MO M.B. 737 7 09-30 09/85 49.00 109 GSBC Great Southern Bancorp of MO OTC Southwest MO Thrift 708 25 06-30 12/89 17.00 138 HOMF Home Fed Bancorp of Seymour IN OTC Southern IN Thrift 683 16 06-30 01/88 30.00 102 MSBK Mutual SB, FSB of Bay City MI OTC Michigan M.B. 673 22 12-31 07/92 10.50 45 SFSL Security First Corp. of OH OTC Northeastern OH R.E. 653 13 03-31 01/88 18.25 138 FNGB First Northern Cap. Corp of WI OTC Northeast WI Thrift 638 20 12-31 12/83 12.75 113 AVND Avondale Fin. Corp. of IL OTC Chicago IL Ret. 607 5 12-31 04/95 14.25 50 EMLD Emerald Financial Corp of OH OTC Cleveland OH Thrift 603 13 12-31 / 14.50 73 FFYF FFY Financial Corp. of OH OTC Youngstown OH Thrift 599 10 06-30 06/93 27.12 112 HMNF HMN Financial, Inc. of MN OTC Southeast MN Thrift 567 7 12-31 06/94 24.50 103 HFFC HF Financial Corp. of SD OTC South Dakota Thrift 562 19 06-30 04/92 22.00 66 FDEF First Defiance Fin.Corp. of OH OTC Northwest OH Thrift 552 9 06-30 10/95 14.75 138 FFBH First Fed. Bancshares of AR OTC Northern AR Thrift 535 12 12-31 05/96 21.00 103 FFOH Fidelity Financial of OH OTC Cincinnati OH Thrift 525 4 12-31 03/96 15.25 85 CBCI Calumet Bancorp of Chicago IL OTC Chicago IL Thrift 497 5 06-30 02/92 42.50 90
RP FINANCIAL, LC. - ------------------------------------------ Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 22209 (703) 528-1700 Exhibit III-1 Characteristics of Publicly-Traded Thrifts September 8, 1997(1)
Primary Operating Total Fiscal Conv. Stock Market Ticker Financial Institution Exchg. Market Strat.(2) Assets Offices Year Date Price Value - ------ ------------------------------ ------ -------------- --------- ------ ------- ------ ----- ----- ------ ($Mil) ($) ($Mil) Mid-West Companies (continued) - ------------------------------ FBCI Fidelity Bancorp of Chicago IL OTC Chicago IL Thrift 490 5 09-30 12/93 21.25 59 CAFI Camco Fin. Corp. of OH OTC Eastern OH M.B. 490 7 12-31 / 17.78 57 FFSX First FS&LA. MHC of IA (46.1) OTC Western IA Thrift 469 13 06-30 07/92 29.00 82 HFGI Harrington Fin. Group of IN OTC Eastern IN Thrift 447 3 06-30 / 12.00 39 PERM Permanent Bancorp of IN OTC Southwest IN Thrift 433 12 03-31 04/94 22.75 46 SFSB SuburbFed Fin. Corp. of IL OTC IL,IN Thrift 427 12 12-31 03/92 27.50 35 FMBD First Mutual Bancorp of IL OTC Central IL Thrift 418 12 12-31 07/95 15.00 53 HALL Hallmark Capital Corp. of WI OTC Milwaukee WI Thrift 410 3 06-30 01/94 22.25 32 MCBS Mid Continent Bancshares of KS OTC Central KS M.B. 409 9 09-30 06/94 29.75 58 ASBI Ameriana Bancorp of IN OTC Eastern IN,OH Thrift 398 8 12-31 03/87 19.75 64 PMFI Perpetual Midwest Fin. of IA OTC EastCentral IA Thrift 397 5 12-31 03/94 21.50 40 WOFC Western Ohio Fin. Corp. of OH OTC Western OH Thrift 396 6 12-31 07/94 23.75 56 CBSB Charter Financial Inc. of IL OTC Southern IL Thrift 393 8 09-30 12/95 20.12 83 PFSL Pocahnts Fed, MHC of AR (47.0) OTC Northeast AR Thrift 379 6 09-30 04/94 27.00 44 SWBI Southwest Bancshares of IL OTC Chicago IL Thrift 378 6 12-31 06/92 20.25 54 FFHH FSF Financial Corp. of MN OTC Southern MN Thrift 378 11 09-30 10/94 17.75 54 FFKY First Fed. Fin. Corp. of KY OTC Central KY Thrift 377 8 06-30 07/87 21.50 90 CASH First Midwest Fin. Corp. of IA OTC IA,SD R.E. 375 12 09-30 09/93 18.19 50 PVFC PVF Capital Corp. of OH OTC Cleveland OH R.E. 356 M 9 06-30 12/92 21.37 55 HBEI Home Bancorp of Elgin IL OTC Northern IL Thrift 353 5 12-31 09/96 17.50 120 INBI Industrial Bancorp of OH OTC Northern OH Thrift 347 10 12-31 08/95 14.75 78 HVFD Haverfield Corp. of OH OTC Cleveland OH Thrift 346 10 12-31 03/85 26.75 51 KNK Kankakee Bancorp of IL AMEX Illinois Thrift 342 9 12-31 01/93 29.00 41 HBFW Home Bancorp of Fort Wayne IN OTC Northeast IN Thrift 335 9 09-30 03/95 22.00 56 HMCI Homecorp, Inc. of Rockford IL OTC Northern IL Thrift 332 9 12-31 06/90 15.25 26 SMFC Sho-Me Fin. Corp. of MO OTC Southwest MO Thrift 329 8 12-31 07/94 38.00 57 WFI Winton Financial Corp. of OH OTC Cincinnati OH R.E. 317 4 09-30 08/88 16.00 32 WCBI WestCo Bancorp of IL OTC Chicago IL Thrift 312 1 12-31 06/92 25.75 64 PFDC Peoples Bancorp of Auburn IN OTC Northeastern IN Thrift 288 6 09-30 07/87 23.50 53 GFCO Glenway Financial Corp. of OH OTC Cincinnati OH Thrift 287 6 06-30 11/90 25.00 29 CBK Citizens First Fin.Corp. of IL AMEX Central IL Thrift 272 6 12-31 05/96 16.00 42 FCBF FCB Fin. Corp. of Neenah WI OTC Eastern WI Thrift 271 M 6 03-31 09/93 26.75 109 FBCV 1st Bancorp of Vincennes IN OTC Southwestern IN M.B. 270 1 06-30 04/87 35.75 25
RP FINANCIAL, LC. - ------------------------------------------ Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 22209 (703) 528-1700 Exhibit III-1 Characteristics of Publicly-Traded Thrifts September 8, 1997(1)
Primary Operating Total Fiscal Conv. Stock Market Ticker Financial Institution Exchg. Market Strat.(2) Assets Offices Year Date Price Value - ------ ------------------------------ ------ -------------- --------- ------ ------- ------ ----- ----- ------ ($Mil) ($) ($Mil) Mid-West Companies (continued) - ------------------------------ EFBI Enterprise Fed. Bancorp of OH OTC Cincinnati OH Thrift 257 M 5 09-30 10/94 20.00 40 WAYN Wayne S&L Co. MHC of OH (47.8) OTC Central OH Thrift 254 6 03-31 06/93 21.00 47 FFED Fidelity Fed. Bancorp of IN OTC Southwestern IN Thrift 250 M 4 06-30 08/87 9.25 23 MFBC MFB Corp. of Mishawaka IN OTC Northern IN Thrift 248 4 09-30 03/94 23.50 40 CAPS Capital Savings Bancorp of MO OTC Central MO Thrift 243 7 06-30 12/93 15.75 30 MBLF MBLA Financial Corp. of MO OTC Northeast MO Thrift 235 2 06-30 06/93 23.75 31 OHSL OHSL Financial Corp. of OH OTC Cincinnati, OH Thrift 230 4 12-31 02/93 23.25 28 LARK Landmark Bancshares of KS OTC Central KS Thrift 228 5 09-30 03/94 24.25 41 FFHS First Franklin Corp. of OH OTC Cincinnati OH Thrift 227 7 12-31 01/88 19.75 24 FFFD North Central Bancshares of IA OTC Central IA Thrift 213 4 12-31 03/96 16.62 54 BFFC Big Foot Fin. Corp. of IL OTC Chicago IL Thrift 212 M 3 07-31 12/96 17.12 43 CMRN Cameron Fin. Corp. of MO OTC Northwest MO Thrift 208 3 09-30 04/95 17.37 46 MWFD Midwest Fed. Fin. Corp of WI OTC Central WI Thrift 207 9 12-31 07/92 20.75 34 WEFC Wells Fin. Corp. of Wells MN OTC Southcentral MN Thrift 202 7 12-31 04/95 16.50 32 FFBZ First Federal Bancorp of OH OTC Eastern OH Thrift 201 6 09-30 06/92 18.50 29 MFFC Milton Fed. Fin. Corp. of OH OTC Southwest OH Thrift 200 2 09-30 10/94 13.75 32 GFED Guarnty FS&LA,MHC of MO (31.0) OTC Southwest MO Thrift 200 4 06-30 04/95 19.00 59 HCBB HCB Bancshares of AR OTC Southern AR Thrift 199 P 6 06-30 05/97 13.75 36 LSBI LSB Fin. Corp. of Lafayette IN OTC Central IN Thrift 194 4 12-31 02/95 20.69 19 FFWC FFW Corporation of Wabash IN OTC Central IN Thrift 180 3 06-30 04/93 29.25 21 PULB Pulaski SB, MHC of MO (29.8) OTC St. Louis MO Thrift 178 M 5 09-30 05/94 24.75 52 NEIB Northeast Indiana Bncrp of IN OTC Northeast IN Thrift 176 3 12-31 06/95 16.75 30 PFED Park Bancorp of Chicago IL OTC Chicago IL Thrift 176 3 12-31 08/96 16.37 40 EGLB Eagle BancGroup of IL OTC Central IL Thrift 174 3 12-31 07/96 16.50 20 MARN Marion Capital Holdings of IN OTC Central IN Thrift 173 2 06-30 03/93 23.00 41 SMBC Southern Missouri Bncrp of MO OTC Southeast MO Thrift 166 M 8 06-30 04/94 17.25 28 HMLK Hemlock Fed. Fin. Corp. of IL OTC Chicago IL Thrift 165 3 12-31 04/97 15.37 32 FBSI First Bancshares of MO OTC Southcentral MO Thrift 164 6 06-30 12/93 24.25 27 FFWD Wood Bancorp of OH OTC Northern OH Thrift 164 6 06-30 08/93 16.62 35 JXSB Jcksnville SB,MHC of IL (45.6) OTC Central IL Thrift 163 4 12-31 04/95 21.50 27 BWFC Bank West Fin. Corp. of MI OTC Southeast MI Thrift 156 3 06-30 03/95 17.06 30 QCFB QCF Bancorp of Virginia MN OTC Northeast MN Thrift 150 M 2 06-30 04/95 26.00 37 MWBI Midwest Bancshares, Inc. of IA OTC Southeast IA Thrift 147 4 12-31 11/92 36.00 13
RP FINANCIAL, LC. --------------------------------------- Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 22209 (703) 528-1700 Exhibit III-1 Characteristics of Publicly-Traded Thrifts September 8, 1997(1)
Primary Operating Total Fiscal Conv. Stock Market Ticker Financial Institution Exchg. Market Strat.(2) Assets Offices Year Date Price Value ------ --------- ------------------------- ------ ----------------- --------- ------- ------- ------ ------ ------- ------- ($Mil) ($) ($Mil) Mid-West Companies (continued) ------------------------------ RIVR River Valley Bancorp of IN OTC Southeast IN Thrift 140 3 12-31 12/96 16.50 20 GTPS Great American Bancorp of IL OTC East Central IL Thrift 137 3 12-31 06/95 18.00 32 WEHO Westwood Hmstd Fin Corp of OH OTC Cincinnati OH Thrift 135 2 12-31 09/96 15.50 43 FKKY Frankfort First Bancorp of KY OTC Frankfort KY Thrift 132 3 06-30 07/95 10.87 36 CLAS Classic Bancshares of KY OTC Eastern KY Thrift 132 M 3 03-31 12/95 14.12 18 MFCX Marshalltown Fin. Corp. of IA OTC Central IA Thrift 128 3 09-30 03/94 16.75 24 MIFC Mid Iowa Financial Corp. of IA OTC Central IA Thrift 126 6 09-30 10/92 9.25 16 PTRS Potters Financial Corp of OH OTC Northeast OH Thrift 121 4 12-31 12/93 24.00 12 NBSI North Bancshares of Chicago IL OTC Chicago IL Thrift 120 2 12-31 12/93 22.00 22 ASBP ASB Financial Corp. of OH OTC Southern OH Thrift 112 1 06-30 04/95 13.12 23 FFSL First Independence Corp. of KS OTC Southeast KS Thrift 111 2 09-30 10/93 13.00 13 BDJI First Fed. Bancorp. of MN OTC Northern MN Thrift 111 5 09-30 04/95 21.00 14 HFFB Harrodsburg 1st Fin Bcrp of KY OTC Central KY Thrift 109 2 09-30 10/95 15.25 31 PSFC Peoples Sidney Fin. Corp of OH OTC WestCentral OH Thrift 108 P 2 06-30 04/97 16.00 29 HFSA Hardin Bancorp of Hardin MO OTC Western MO Thrift 108 3 03-31 09/95 16.50 14 DCBI Delphos Citizens Bancorp of OH OTC Northwest OH Thrift 107 1 09-30 11/96 16.00 33 MONT Montgomery Fin. Corp. of IN OTC Westcentral IN Thrift 104 P 4 06-30 07/97 11.94 20 FTNB Fulton Bancorp of MO OTC Central MO Thrift 99 M 2 06-30 10/96 21.00 36 CNSB CNS Bancorp of MO OTC Central MO Thrift 98 5 12-31 06/96 16.75 28 FTSB Fort Thomas Fin. Corp. of KY OTC Northern KY Thrift 97 2 09-30 06/95 12.00 18 NWEQ Northwest Equity Corp. of WI OTC Northwest WI Thrift 97 3 03-31 10/94 16.50 14 CBES CBES Bancorp of MO OTC Western MO Thrift 95 M 2 06-30 09/96 17.62 18 WCFB Wbstr Cty FSB MHC of IA (45.2) OTC Central IA Thrift 95 1 12-31 08/94 17.75 37 AMFC AMB Financial Corp. of IN OTC Northwest IN Thrift 94 4 12-31 04/96 14.50 14 CIBI Community Inv. Bancorp of OH OTC NorthCentral OH Thrift 92 3 06-30 02/95 16.00 15 GFSB GFS Bancorp of Grinnell IA OTC Central IA Thrift 92 1 06-30 01/94 14.25 14 INCB Indiana Comm. Bank, SB of IN OTC Central IN Ret. 91 M 3 06-30 12/94 15.75 15 THR Three Rivers Fin. Corp. of MI AMEX Southwest MI Thrift 91 M 4 06-30 08/95 15.75 13 KYF Kentucky First Bancorp of KY AMEX Central KY Thrift 89 2 06-30 08/95 12.50 16 PFFC Peoples Fin. Corp. of OH OTC Northeast OH Thrift 86 2 09-30 09/96 17.25 26 HZFS Horizon Fin'l. Services of IA OTC Central IA Thrift 86 3 06-30 06/94 18.87 8 SFFC StateFed Financial Corp. of IA OTC Des Moines IA Thrift 86 2 06-30 01/94 22.00 17 FFDF FFD Financial Corp. of OH OTC Northeast OH Thrift 85 M 1 06-30 04/96 14.75 21
RP FINANCIAL, LC. --------------------------------------- Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 22209 (703) 528-1700 Exhibit III-1 Characteristics of Publicly-Traded Thrifts September 8, 1997(1)
Primary Operating Total Fiscal Conv. Stock Market Ticker Financial Institution Exchg. Market Strat.(2) Assets Offices Year Date Price Value - ------ --------- ------------------------- ------ ----------------- --------- ------- ------- ------ ----- ------- ------- ($Mil) ($) ($Mil) Mid-West Companies (continued) - ------------------------------ FFBI First Financial Bancorp of IL OTC Northern IL M.B. 85 2 12-31 10/93 18.87 8 LOGN Logansport Fin. Corp. of IN OTC Northern IN Thrift 83 1 12-31 06/95 14.50 18 HHFC Harvest Home Fin. Corp. of OH OTC Southwest OH Thrift 83 M 3 09-30 10/94 11.75 11 PSFI PS Financial of Chicago IL OTC Chicago IL Thrift 83 1 12-31 11/96 14.75 32 SOBI Sobieski Bancorp of S. Bend IN OTC Northern IN Thrift 82 3 06-30 03/95 16.44 13 PCBC Perry Co. Fin. Corp. of MO OTC EastCentral MO Thrift 81 1 09-30 02/95 21.37 18 MSBF MSB Financial Corp. of MI OTC Southcentral MI Thrift 75 2 06-30 02/95 13.25 17 ATSB AmTrust Capital Corp. of IN OTC Northcentral IN Thrift 71 M 2 06-30 03/95 13.00 7 MIVI Miss. View Hold. Co. of MN OTC Central MN Thrift 70 1 09-30 03/95 15.50 13 HCFC Home City Fin. Corp. of OH OTC Southwest OH Thrift 68 M 1 06-30 12/96 15.50 15 GWBC Gateway Bancorp of KY OTC Eastern KY Thrift 64 2 12-31 01/95 17.62 19 CKFB CKF Bancorp of Danville KY OTC Central KY Thrift 61 1 12-31 01/95 19.00 18 NSLB NS&L Bancorp of Neosho MO OTC Southwest MO Thrift 60 2 09-30 06/95 18.47 13 LXMO Lexington B&L Fin. Corp. of MO OTC West Central MO Thrift 59 1 09-30 06/96 16.00 18 MRKF Market Fin. Corp. of OH OTC Cincinnati OH Thrift 57 2 09-30 03/97 14.19 19 CSBF CSB Financial Group Inc of IL (3) OTC Centralia IL Thrift 48 M 2 09-30 10/95 11.75 11 RELI Reliance Bancshares Inc of WI (3) OTC Milwaukee WI Thrift 47 1 June 04/96 8.37 21 HBBI Home Building Bancorp of IN OTC Southwest IN Thrift 45 2 09-30 02/95 20.50 6 HWEN Home Financial Bancorp of IN OTC Central IN Thrift 43 1 06-30 07/96 15.75 7 FLKY First Lancaster Bncshrs of KY OTC Central KY Thrift 40 M 1 06-30 07/96 15.69 15 LONF London Financial Corp. of OH OTC Central OH Thrift 38 1 09-30 04/96 15.00 8 JOAC Joachim Bancorp of MO OTC Eastern MO Thrift 35 1 03-31 12/95 14.50 10 New England Companies - --------------------- PBCT Peoples Bank, MHC of CT (40.1) (3) OTC Southwestern CT Div. 7,870 97 12-31 07/88 28.06 1,713 WBST Webster Financial Corp. of CT OTC Central CT Thrift 5,944 77 12-31 12/86 52.87 634 PHBK Peoples Heritage Fin Grp of ME (3) OTC ME,NH,MA Div. 5,591 132 12-31 12/86 37.25 1,020 EGFC Eagle Financial Corp. of CT OTC Western CT Thrift 2,013 19 09-30 02/87 34.00 213 CFX CFX Corp of NH (3) AMEX NH,MA M.B. 1,859 43 12-31 02/87 20.25 266 SISB SIS Bancorp Inc of MA (3) OTC Central MA Div. 1,435 24 12-31 02/95 29.25 163 ANDB Andover Bancorp, Inc. of MA (3) OTC MA,NH M.B. 1,251 12 12-31 05/86 30.50 157
RP FINANCIAL, LC. - --------------------------------------- Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 22209 (703) 528-1700 Exhibit III-1 Characteristics of Publicly-Traded Thrifts September 8, 1997(1)
Primary Operating Total Fiscal Conv. Stock Market Ticker Financial Institution Exchg. Market Strat.(2) Assets Offices Year Date Price Value - ------ --------- ------------------------- ------ ----------------- --------- ------- ------- ------ ------ -------- ------- ($Mil) ($) ($Mil) New England Companies (continued) - --------------------------------- FESX First Essex Bancorp of MA (3) OTC MA,NH Div. 1,245 15 12-31 08/87 16.75 126 AFCB Affiliated Comm BC, Inc of MA OTC MA Thrift 1,090 11 12-31 10/95 26.25 170 MDBK Medford Bank of Medford, MA (3) OTC Eastern MA Thrift 1,073 16 12-31 03/86 31.50 143 FAB FirstFed America Bancorp of MA AMEX MA,RI M.B. 1,021 12 03-31 01/97 20.06 175 FFES First FS&LA of E. Hartford CT OTC Central CT Thrift 984 12 12-31 06/87 32.50 87 BFD BostonFed Bancorp of MA AMEX Boston MA M.B. 976 10 12-31 10/95 18.87 112 MASB MassBank Corp. of Reading MA (3) OTC Eastern MA Thrift 905 14 12-31 05/86 51.25 137 DIBK Dime Financial Corp. of CT (3) OTC Central CT Thrift 874 11 12-31 07/86 28.25 145 MECH Mechanics SB of Hartford CT (3) OTC Hartford CT Thrift 824 14 12-31 06/96 22.50 119 NSSB Norwich Financial Corp. of CT (3) OTC Southeastern CT Thrift 713 19 12-31 11/86 27.75 150 NSSY Norwalk Savings Society of CT (3) OTC Southwest CT Thrift 617 M 7 12-31 06/94 34.87 84 CBNH Community Bankshares Inc of NH (3) OTC Southcentral NH M.B. 616 11 12-31 05/86 41.87 104 BKC American Bank of Waterbury CT (3) AMEX Western CT Thrift 606 15 12-31 12/81 37.62 87 MWBX MetroWest Bank of MA (3) OTC Eastern MA Thrift 566 11 12-31 10/86 6.25 87 PBKB People's SB of Brockton MA (3) OTC Southeastern MA Thrift 549 M 14 12-31 10/86 16.75 60 SOSA Somerset Savings Bank of MA (3) OTC Eastern MA R.E. 515 5 12-31 07/86 3.69 61 SWCB Sandwich Co-Op. Bank of MA (3) OTC Southeastern MA Thrift 502 11 12-31 07/86 32.00 61 ABBK Abington Savings Bank of MA (3) OTC Southeastern MA M.B. 501 7 12-31 06/86 30.50 56 PETE Primary Bank of NH (3) OTC Southern NH Thrift 432 9 12-31 10/93 25.56 53 BKCT Bancorp Connecticut of CT (3) OTC Central CT Thrift 428 3 12-31 07/86 30.75 78 EIRE Emerald Island Bancorp, MA (3) OTC Eastern MA R.E. 425 8 12-31 09/86 21.75 49 LSBX Lawrence Savings Bank of MA (3) OTC Northeastern MA Thrift 366 5 12-31 05/86 11.37 49 WRNB Warren Bancorp of Peabody MA (3) OTC Eastern MA R.E. 358 6 12-31 07/86 17.50 66 NMSB Newmil Bancorp. of CT (3) OTC Eastern CT Thrift 323 13 06-30 02/86 12.87 49 CEBK Central Co-Op. Bank of MA (3) OTC Eastern MA Thrift 321 M 8 03-31 10/86 19.50 38 NHTB NH Thrift Bancshares of NH OTC Central NH Thrift 315 10 12-31 05/86 18.50 38 POBS Portsmouth Bank Shrs Inc of NH (3) OTC Southeastern NH Thrift 259 3 12-31 02/88 18.25 108 NBN Northeast Bancorp of ME (3) OTC Eastern ME Thrift 248 M 8 06-30 08/87 14.50 18 TBK Tolland Bank of CT (3) AMEX Northern CT Thrift 238 7 12-31 12/86 17.12 27 HIFS Hingham Inst. for Sav. of MA (3) OTC Eastern MA Thrift 218 5 12-31 12/88 24.25 32 HPBC Home Port Bancorp, Inc. of MA (3) OTC Southeastern MA Thrift 199 2 12-31 08/88 22.37 41 IPSW Ipswich SB of Ipswich MA (3) OTC Northwest MA Thrift 189 5 12-31 05/93 13.00 15 BSBC Branford SB of CT (3) OTC New Haven CT R.E. 187 5 12-31 11/86 4.94 32
RP FINANCIAL, LC. - ------------------------------------------ Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 22209 (703) 528-1700 Exhibit III-1 Characteristics of Publicly-Traded Thrifts september 8, 1997(1)
Primary Operating Total Fiscal Conv. Stock Market Ticker Financial Institution Exchg. Market Strat.(2) Assets Offices Year Date Price Value - ------ ------------------------------- ------ --------------- -------- ------ ------- ---- ----- ----- ------ ($MIL) ($) ($MIL) New England Companies (continued) - --------------------------------- FCME First Coastal Corp. of ME (3) OTC Southern ME Thrift 152 7 12-31 / 10.87 15 KSBK KSB Bancorp of Kingfield ME (3) OTC Western ME M.B. 140 M 8 12-31 06/93 14.00 17 MFLR Mayflower Co-Op. Bank of MA (3) OTC Southeastern MA Thrift 126 4 04-30 12/87 17.50 16 NTMG Nutmeg FS&LA of CT OTC CT M.B. 102 3 12-31 / 10.75 8 FCB Falmouth Co-Op Bank of MA (3) AMEX Southeast MA Thrift 94 2 09-30 03/96 17.00 25 MCBN Mid-Coast Bancorp of ME OTC Eastern ME Thrift 60 2 03-31 11/89 25.50 6 North-West Companies - -------------------- WAMU Washington Mutual Inc. of WA (3) OTC WA,OR,ID,UT,MT Div. 48,764 290 12-31 03/83 59.87 7,565 WFSL Washington FS&LA of Seattle WA OTC Western US Thrift 5,760 89 09-30 11/82 27.25 1,293 IWBK Interwest SB of Oak Harbor WA OTC Western WA Div. 1,833 31 12-31 / 39.50 317 STSA Sterling Financial Corp. of WA OTC WA,OR M.B. 1,686 41 06-30 / 18.50 103 FWWB First Savings Bancorp of WA (3) OTC Central WA Thrift 1,008 M 16 03-31 11/95 24.75 260 KFBI Klamath First Bancorp of OR OTC Southern OR Thrift 728 7 09-30 10/95 19.62 197 HRZB Horizon Financial Corp. of WA (3) OTC Northwest WA Thrift 519 12 03-31 08/86 15.00 111 FMSB First Mutual SB of Bellevue WA (3) OTC Western WA M.B. 432 6 12-31 12/85 21.00 57 CASB Cascade SB of Everett WA OTC Seattle WA Thrift 352 M 6 06-30 08/92 13.25 34 RVSB Rvrview SB,FSB MHC of WA(41.7) OTC Southwest WA M.B. 230 9 03-31 10/93 27.00 65 FBNW FirstBank Corp of Clarkston WA OTC West. WA/East ID Thrift 154 P 5 03-31 07/97 17.50 35 EFBC Empire Federal Bancorp of MT OTC Southern MT Thrift 110 P 3 12-31 01/97 15.50 40 South-East Companies - -------------------- FFCH First Fin. Holdings Inc. of SC OTC CHARLESTON SC Div. 1,667 32 09-30 11/83 33.00 210 LIFB Life Bancorp of Norfolk VA OTC Southeast VA Thrift 1,488 20 12-31 10/94 24.25 239 MGNL Magna Bancorp of MS OTC MS,AL M.B. 1,353 63 06-30 03/91 25.37 349 FLFC First Liberty Fin. Corp. of GA OTC Georgia M.B. 1,289 31 09-30 12/83 22.50 174 ISBF ISB Financial Corp. of LA OTC SouthCentral LA Thrift 939 M 25 12-31 04/95 25.37 175 HFNC HFNC Financial Corp. of NC OTC Charlotte NC Thrift 895 8 06-30 12/95 16.12 277 EBSI Eagle Bancshares of Tucker GA OTC Atlanta GA Thrift 848 10 03-31 04/86 16.87 95
RP FINANCIAL, LC. --------------------------------------- Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 22209 (703) 528-1700 Exhibit III-1 Characteristics of Publicly-Traded Thrifts September 8, 1997(1)
Primary Operating Total Fiscal Conv. Stock Market Ticker Financial Institution Exchg. Market Strat.(2) Assets Offices Year Date Price Value ------ --------- ------------------------- ------ ----------------- --------- ------- -------- ----- ------ -------- ------- ($Mil) ($) ($Mil) South-East Companies (continued) -------------------------------- VFFC Virginia First Savings of VA OTC Petersburg VA M.B. 817 M 23 06-30 01/78 23.87 139 CNIT Cenit Bancorp of Norfolk VA OTC Southeastern VA Thrift 710 15 12-31 08/92 52.75 87 PALM Palfed, Inc. of Aiken SC OTC Southwest SC Thrift 665 19 12-31 12/85 16.62 88 VABF Va. Beach Fed. Fin. Corp of VA OTC Southeast VA M.B. 618 12 12-31 11/80 13.62 68 FFFC FFVA Financial Corp. of VA OTC Southern VA Thrift 559 11 12-31 10/94 29.31 133 CFCP Coastal Fin. Corp. of SC OTC SC Thrift 503 9 09-30 09/90 23.50 109 FSPT FirstSpartan Fin. Corp. of SC OTC Northwestern SC Thrift 465 P 5 06-30 07/97 35.37 157 CFBC Community First Bnkg Co. of GA OTC Westcentral GA Thrift 451 12 12-31 07/97 33.87 82 TSH Teche Holding Company of LA AMEX Southern LA Thrift 406 9 09-30 04/95 18.25 63 COOP Cooperative Bk.for Svgs. of NC OTC Eastern NC Thrift 352 17 03-31 08/91 27.00 40 FSFC First So.east Fin. Corp. of SC OTC Northwest SC Thrift 335 M 11 06-30 10/93 14.75 65 FSTC First Citizens Corp of GA OTC Western GA M.B. 326 M 9 03-31 03/86 32.00 59 SOPN First SB, SSB, Moore Co. of NC OTC Central NC Thrift 294 5 06-30 01/94 20.62 76 UFRM United FS&LA of Rocky Mount NC OTC Eastern NC M.B. 276 9 12-31 07/80 12.00 37 ANA Acadiana Bancshares of LA (3) AMEX Southern LA Thrift 262 M 4 12-31 07/96 21.50 59 PERT Perpetual of SC, MHC (46.8) OTC Northwest SC Thrift 256 5 09-30 10/96 40.63 61 SSFC South Street Fin. Corp. of NC (3) OTC South Central NC Thrift 242 2 09-30 10/96 18.75 84 MERI Meritrust FSB of Thibodaux LA OTC Southeast LA Thrift 228 8 12-31 / 41.03 32 FLAG Flag Financial Corp of GA OTC Western GA M.B. 222 4 12-31 12/86 14.75 30 CFTP Community Fed. Bancorp of MS OTC Northeast MS Thrift 209 1 09-30 03/96 18.00 83 ESX Essex Bancorp of VA AMEX VA,NC M.B. 190 12 12-31 / 1.88 2 CFFC Community Fin. Corp. of VA OTC Central VA Thrift 175 3 03-31 03/88 21.75 28 GSFC Green Street Fin. Corp. of NC OTC Southern NC Thrift 175 3 09-30 04/96 18.37 79 FTF Texarkana Fst. Fin. Corp of AR AMEX Southwest AR Thrift 171 5 09-30 07/95 22.37 40 FGHC First Georgia Hold. Corp of GA OTC Southeastern GA Thrift 156 9 09-30 02/87 7.75 24 BFSB Bedford Bancshares of VA OTC Southern VA Thrift 135 3 09-30 08/94 24.12 28 FFBS FFBS Bancorp of Columbus MS OTC Columbus MS Thrift 131 3 06-30 07/93 23.00 36 GSLA GS Financial Corp. of LA OTC New Orleans LA Thrift 123 3 12-31 04/97 15.75 54 PDB Piedmont Bancorp of NC AMEX Central NC Thrift 123 2 06-30 12/95 10.62 29 CFNC Carolina Fincorp of NC (3) OTC Southcentral NC Thrift 112 4 06-30 11/96 17.37 32 TWIN Twin City Bancorp of TN OTC Northeast TN Thrift 107 3 12-31 01/95 20.00 17 KSAV KS Bancorp of Kenly NC OTC Central NC Thrift 106 3 12-31 12/93 18.50 16 SSM Stone Street Bancorp of NC AMEX Central NC Thrift 106 2 12-31 04/96 21.25 40
RP FINANCIAL, LC. --------------------------------------- Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 22209 (703) 528-1700 Exhibit III-1 Characteristics of Publicly-Traded Thrifts September 8, 1997(1)
Primary Operating Total Fiscal Conv. Stock Market Ticker Financial Institution Exchg. Market Strat.(2) Assets Offices Year Date Price Value ------ --------- ------------------------- ------ -------------- --------- ------- ------- ----- ----- ------ ------ ($Mil) ($) ($Mil) South-East Companies (continued) -------------------------------- SRN Southern Banc Company of AL AMEX Northeast AL Thrift 105 M 4 06-30 10/95 15.50 19 CCFH CCF Holding Company of GA OTC Atlanta GA Thrift 101 4 12-31 07/95 17.00 14 CENB Century Bancshares of NC (3) OTC Charlotte NC Thrift 100 M 1 06-30 12/96 79.50 32 SZB SouthFirst Bancshares of AL AMEX Central AL Thrift 97 2 09-30 02/95 16.25 14 SFNB Security First Netwrk Bk of GA OTC GA (Internet) Div. 79 1 12-31 / 13.00 112 SCBS Southern Commun. Bncshrs of AL OTC NorthCentral AL Thrift 70 M 1 09-30 12/96 15.87 18 SSB Scotland Bancorp of NC AMEX S. Central NC Thrift 69 2 09-30 04/96 18.06 35 SCCB S. Carolina Comm. Bnshrs of SC OTC Central SC Thrift 46 M 1 06-30 07/94 21.50 15 MBSP Mitchell Bancorp of NC (3) OTC Western NC Thrift 33 1 12-31 07/96 16.62 15 South-West Companies -------------------- CBSA Coastal Bancorp of Houston TX OTC Houston TX M.B. 2,964 40 12-31 / 29.50 147 FBHC Fort Bend Holding Corp. of TX OTC Eastcentral TX M.B. 319 5 03-31 06/93 34.25 28 JXVL Jacksonville Bancorp of TX OTC East Central TX Thrift 226 6 09-30 04/96 16.75 42 FFDB FirstFed Bancorp of AL OTC Central AL Thrift 177 7 03-31 11/91 16.53 19 ETFS East Texas Fin. Serv. of TX OTC Northeast TX Thrift 113 2 09-30 01/95 18.75 19 AABC Access Anytime Bancorp of NM OTC Eastern NM Thrift 105 3 12-31 08/86 6.88 8 GUPB GFSB Bancorp of Gallup NM OTC Northwest NM Thrift 87 M 1 06-30 06/95 18.75 16 Western Companies (Excl CA) --------------------------- FFBA First Colorado Bancorp of Co OTC Denver CO Thrift 1,510 26 12-31 01/96 19.00 315 WSTR WesterFed Fin. Corp. of MT OTC MT Thrift 956 35 06-30 01/94 21.37 119 GBCI Glacier Bancorp of MT OTC Western MT Div. 568 16 12-31 03/84 17.75 121 UBMT United Fin. Corp. of MT OTC Central MT Thrift 108 M 4 12-31 09/86 23.50 29 TRIC Tri-County Bancorp of WY OTC Southeastern WY Thrift 89 2 12-31 09/93 22.75 14 CRZY Crazy Woman Creek Bncorp of WY OTC Northeast WY Thrift 54 1 09-30 03/96 14.37 14
Other Areas ----------- NOTES: (1) Or most recent date available (M=March, S=September, D=December, J=June, E=Estimated, and P=Pro Forma) (2) Operating strategies are: Thrift=Traditional Thrift, M.B.=Mortgage Banker, R.E.=Real Estate Developer, Div.=Diversified, and Ret. =Retail Banking. RP FINANCIAL, LC. --------------------------------------- Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 22209 (703) 528-1700 Exhibit III-1 Characteristics of Publicly-Traded Thrifts September 8, 1997(1)
Primary Operating Total Fiscal Conv. Stock Market Ticker Financial Institution Exchg. Market Strat.(2) Assets Offices Year Date Price Value ------ ----------------------------------- ------ ----------------- --------- ------ -------- ---- ----- ----- ------ ($Mil) ($) ($Mil)
(3) FDIC savings bank. Source: Corporate offering circulars, SNL Securities Quarterly Thrift Report, and financial reports of publicly Traded Thrifts. Date of Last Update: 10/21/97 EXHIBIT III-2 State of Washington Peer Thrifts RP FINANCIAL, LC. - ----------------------------------------- Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 22209 (703) 528-1700 Market Pricing Comparatives Prices As of August 29, 1997
Market Per Share Data --------------- Capitalization Core Book Pricing Ratios(3) --------------- --------------------------------------- Price/ Market 12-Mth Value/ Financial Institution Share(1) Value EPS(2) Share P/E P/B P/A P/TB P/CORE - --------------------- -------- ------- ------- ------- ------- ------- ------- ------- ------- ($) ($Mil) ($) ($) (X) (%) (%) (%) (x) SAIF-Insured Thrifts 22.11 150.20 1.15 15.74 20.87 140.69 17.55 144.94 18.42 All Public Companies 22.46 160.22 1.23 15.72 19.51 143.57 17.60 148.03 17.91 State of WA 23.36 310.97 1.34 13.21 18.21 174.37 18.41 183.01 17.81 Comparable Group - ---------------- State of WA - ----------- CASB Cascade SB of Everett WA(7) 13.25 34.07 0.77 8.46 21.72 156.62 9.67 156.62 17.21 FMSB First Mutual SB of Bellevue WA 21.00 56.74 1.52 10.91 13.46 192.48 13.13 192.48 13.82 FWWB First Savings Bancorp of WA 24.75 260.35 0.84 14.13 27.81 175.16 25.84 190.38 29.46 FBNW FirstBank Corp of Clarkston WA 17.50 34.72 0.44 14.00 NM 125.00 22.55 125.00 NM HRZB Horizon Financial Corp. of WA 15.00 111.26 1.05 10.91 14.02 137.49 21.45 137.49 14.29 IWBK Interwest SB of Oak Harbor WA 39.50 317.42 2.47 15.46 21.70 255.50 17.32 261.24 15.99 RVSB Rvrview SB,FSB MHC of WA(41.7)(7) 27.00 24.73 1.10 10.67 NM 253.05 28.44 277.21 24.55 STSA Sterling Financial Corp. of WA 18.50 102.99 0.90 12.41 NM 149.07 6.11 170.98 20.56 WFSL Washington FS&LA of Seattle WA 27.25 1293.34 2.14 14.66 14.05 185.88 22.45 203.51 12.73 WAMU Washington Mutual Inc. of WA(7) 59.87 7564.99 2.42 19.30 NM NM 15.51 NM 24.74 Dividends(4) Financial Characteristics(6) ----------------------- ------------------------------------------------------ Amount/ Payout Total Equity/ NPAs/ Reported Core ---------------- ------------- Financial Institution Share Yield Ratio(5) Assets Assets Assets ROA ROE ROA ROE - --------------------- -------- ------ ------- ------ ------- ------- ------- ------- ------- ------- ($) (%) (%) ($Mil) (%) (%) (%) (%) (%) (%) SAIF-Insured Thrifts 0.38 1.75 29.54 1,149 12.86 0.79 0.54 5.50 0.75 7.55 All Public Companies 0.39 1.76 29.54 1,188 12.70 0.81 0.64 6.47 0.82 8.16 State of WA 0.34 1.38 21.70 1,627 11.17 0.73 1.00 9.31 1.06 10.72 Comparable Group - ---------------- State of WA - ----------- CASB Cascade SB of Everett WA(7) 0.00 0.00 0.00 352 6.17 0.39 0.45 7.49 0.58 9.46 FMSB First Mutual SB of Bellevue WA 0.20 0.95 13.16 432 6.82 0.01 1.02 15.34 1.00 14.95 FWWB First Savings Bancorp of WA 0.28 1.13 33.33 1,008 14.75 0.30 1.05 6.25 1.00 5.90 FBNW FirstBank Corp of Clarkston WA 0.00 0.00 0.00 154 18.04 2.07 0.70 3.86 0.57 3.14 HRZB Horizon Financial Corp. of WA 0.40 2.67 38.10 519 15.60 NA 1.57 9.99 1.54 9.80 IWBK Interwest SB of Oak Harbor WA 0.60 1.52 24.29 1,833 6.78 0.64 0.87 12.91 1.18 17.52 RVSB Rvrview SB,FSB MHC of WA(41.7)(7) 0.24 0.89 8.26 230 11.24 0.14 0.95 8.70 1.20 10.87 STSA Sterling Financial Corp. of WA 0.00 0.00 0.00 1,685 4.10 0.61 0.10 2.46 0.32 7.91 WFSL Washington FS&LA of Seattle WA 0.92 3.38 42.99 5,760 12.08 0.73 1.67 14.37 1.84 15.85 WAMU Washington Mutual Inc. of WA(7) 1.08 1.80 44.63 48,764 5.00 0.81 0.35 6.81 0.74 14.45
(1) Average of High/Low or Bid/Ask price per share. (2) EPS (estimate core basis) is based on actual trailing twelve month data, adjusted to omit non-operating items (including the SAIF assessment) on a tax effected basis. (3) P/E = Price to earnings; P/B = Price to book; P/A = Price to assets; P/TB = Price to tangible book value; and P/CORE = Price to estimated core earnings. (4) Indicated twelve month dividend, based on last quarterly dividend declared. (5) Indicated dividend as a percent of trailing twelve month estimated core earnings. (6) ROA (return on assets) and ROE (return on equity) are indicated ratios based on trailing twelve month earnings and average equity and assets balances. (7) Excludes from averages those companies the subject of actual or rumored acquisition activities or unusual operating characteristics. Source: Corporate reports, offering circulars, and RP Financial, LC. calculations. The information provided in this report has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information. Copyright (c) 1997 by RP Financial, LC. EXHIBIT III-3 Northwest U.S. and Western U.S. Peer Thrifts RP FINANCIAL, LC. - ----------------------------------------- Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 22209 (703) 528-1700 Market Pricing Comparatives Prices As of August 29, 1997
Market Per Share Data ---------------- Capitalization Core Book Pricing Ratios(3) Dividends(4) ---------------- -------------------------------- --------------- Price/ Market 12-Mth Value/ Amount/ Financial Institution Share(1) Value EPS(2) Share P/E P/B P/A P/TB P/CORE Share Yield - --------------------- -------- ------ ------ ------ ----- ----- ----- ------ -------- ------- ----- ($) ($Mil) ($) ($) (X) (%) (%) (%) (x) ($) (%) SAIF-Insured Thrifts 22.11 150.20 1.15 15.74 20.87 140.69 17.55 144.94 18.42 0.38 1.75 All Public Companies 22.46 160.22 1.23 15.72 19.51 143.57 17.60 148.03 17.91 0.39 1.76 Special Selection Grouping(8) 22.07 268.17 1.18 13.49 18.21 162.64 21.39 169.36 18.64 0.33 1.46 State of WA 23.36 310.97 1.34 13.21 18.21 174.37 18.41 183.01 17.81 0.34 1.38 Comparable Group - ---------------- Special Comparative Group(8) - ---------------------------- CASB Cascade SB of Everett WA(7) 13.25 34.07 0.77 8.46 21.72 156.62 9.67 156.62 17.21 0.00 0.00 EFBC Empire Federal Bancorp of MT 15.50 40.18 0.46 14.76 NM 105.01 36.64 105.01 NM 0.30 1.94 FMSB First Mutual SB of Bellevue WA 21.00 56.74 1.52 10.91 13.46 192.48 13.13 192.48 13.82 0.20 0.95 FWWB First Savings Bancorp of WA 24.75 260.35 0.84 14.13 27.81 175.16 25.84 190.38 29.46 0.28 1.13 FBNW FirstBank Corp of Clarkston WA 17.50 34.72 0.44 14.00 NM 125.00 22.55 125.00 NM 0.00 0.00 HRZB Horizon Financial Corp. of WA 15.00 111.26 1.05 10.91 14.02 137.49 21.45 137.49 14.29 0.40 2.67 IWBK Interwest SB of Oak Harbor WA 39.50 317.42 2.47 15.46 21.70 255.50 17.32 261.24 15.99 0.60 1.52 KFBI Klamath First Bancorp of OR 19.62 195.57 0.83 14.20 NM 138.17 27.01 138.17 23.64 0.30 1.53 RVSB Rurview SB, FSB MHC of WA(41.7)(7) 27.00 24.73 1.10 10.67 NM 253.05 28.44 277.21 24.55 0.24 0.89 STSA Sterling Financial Corp. of WA 18.50 102.99 0.90 12.41 NM 149.07 6.11 170.98 20.56 0.00 0.00 WFSL Washington FS&LA of Seattle WA 27.25 1293.34 2.14 14.66 14.05 185.88 22.45 203.51 12.73 0.92 3.38 WAMU Washington Mutual Inc. of WA(7 ) 59.87 7564.99 2.42 19.30 NM NM 15.51 NM 24.74 1.08 1.80 Dividends Financial Characteristics(6) -------------- -------------------------------------------------------------------- Payout Total Equity/ NPAs/ Reported Core ---------------------------------------- Financial Institution Ratio(5 Assets Assets Assets ROA ROE ROA ROE - --------------------- -------- --------- ------ ------ -------- -------- -------- -------- (%) ($Mil) (%) (%) (%) (%) (%) (%) SAIF-Insured Thrifts 29.54 1,149 12.86 0.79 0.54 5.50 0.75 7.55 All Public Companies 29.54 1,188 12.70 0.81 0.64 6.47 0.82 8.16 Special Selection Grouping(8) 28.14 1,359 14.73 0.56 0.96 7.91 1.08 9.30 State of WA 21.70 1,627 11.17 0.73 1.00 9.31 1.06 10.72 Comparable Group - ---------------- Special Comparative Group(8) - ---------------------------- CASB Cascade SB of Everett WA(7) 0.00 352 6.17 0.39 0.46 7.49 0.58 9.46 EFBC Empire Federal Bancorp of MT 65.22 110 34.89 0.06 0.83 2.37 1.09 3.12 FMSB First Mutual SB of Bellevue WA 13.16 432 6.82 0.01 1.02 15.34 1.00 14.95 FWWB First Savings Bancorp of WA 33.33 1,008 14.75 0.30 1.05 6.25 1.00 5.90 FBNW FirstBank Corp of Clarkston WA 0.00 154 18.04 2.07 0.70 3.86 0.57 3.14 HRZB Horizon Financial Corp. of WA 38.10 519 15.60 NA 1.57 9.99 1.54 9.80 IWBK Interwest SB of Oak Harbor WA 24.29 1,833 6.78 0.64 0.87 12.91 1.18 17.52 KFBI Klamath First Bancorp of OR 36.14 728 19.55 0.08 0.81 3.67 1.23 5.54 RVSB Rvrview SB,FSB MHC of WA(41.7)(7) 8.26 230 11.24 0.14 0.96 8.70 1.20 10.87 STSA Sterling Financial Corp. of WA 0.00 1,686 4.10 0.61 0.10 2.46 0.32 7.91 WFSL Washington FS&LA of Seattle WA 42.99 5,760 12.08 0.73 1.67 14.37 1.84 15.85 WAMU Washington Mutual Inc. of WA(7) 44.63 48,764 5.00 0.81 0.35 6.81 0.74 14.45
(1) Average of High/Low or Bid/Ask price per share. (2) EPS (estimate core basis) is based on actual trailing twelve month data, adjusted to omit non-operating items (including the SAIF assessment) on a tax effected basis. (3) P/E = Price to earnings; P/B = Price to book; P/A = Price to assets; P/TB = Price to tangible book value; and P/CORE = Price to estimated core earnings. (4) Indicated twelve month dividend, based on last quarterly dividend declared. (5) Indicated dividend as a percent of trailing twelve month estimated core earnings. (6) ROA (return on assets) and ROE (return on equity) are indicated ratios based on trailing twelve month earnings and average equity and assets balances. (7) Excludes from averages those companies the subject of actual or rumored acquisition activities or unusual operating characteristics. (8) Includes North-West Companies; Source: Corporate reports, offering circulars, and RP Financial, LC. calculations. The information provided in this report has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information. Copyright (c) 1997 by RP Financial, LC. RP FINANCIAL, LC. - ----------------------------------------- Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 22209 (703) 528-1700 Market Pricing Comparatives Prices As of August 29, 1997
Market Per Share Data --------------- Capitalization Core Book Pricing Ratios(3) --------------- --------------------------------------- Price/ Market 12-Mth Value/ Financial Institution Share(1) Value EPS(2) Share P/E P/B P/A P/TB P/CORE - --------------------- ------- ------ ------ ------ ------ ------ ------ ------ ------- ($) ($Mil) ($) ($) (X) (%) (%) (%) (x) SAIF-Insured Thrifts 22.11 150.20 1.15 15.74 20.87 140.69 17.55 144.94 18.42 All Public Companies 22.46 160.22 1.23 15.72 19.51 143.57 17.60 148.03 17.91 Special Selection Grouping(8) 19.79 101.80 1.05 15.96 22.74 135.12 20.34 141.25 19.31 State of WA 23.36 310.97 1.34 13.21 18.21 174.37 18.41 183.01 17.81 Comparable Group - ---------------- Special Comparative Group(8) - ---------------------------- CRZY Crazy Woman Creek Bncorp of WY 14.37 13.72 0.71 14.67 24.78 97.96 25.29 97.96 20.24 FFBA First Colorado Bancorp of Co 19.00 314.66 0.80 11.79 23.46 161.15 20.83 163.37 23.75 GBCI Glacier Bancorp of MT 17.75 120.91 1.23 8.12 16.14 218.60 21.30 224.68 14.43 TRIC Tri-County Bancorp of WY 22.75 13.85 1.40 22.50 20.68 101.11 15.49 101.11 16.25 UBMT United Fin. Corp. of MT 23.50 28.74 1.16 19.95 25.00 117.79 26.68 117.79 20.26 WSTR WesterFed Fin. Corp. of MT 21.37 118.92 1.02 18.73 26.38 114.10 12.44 142.56 20.95 Dividends(4) Financial Characteristics(6) ----------------------- ------------------------------------------------------- Amount/ Payout Total Equity/ NPAs/ Reported Core --------------- -------------- Financial Institution Share Yield Ratio(5) Assets Assets Assets ROA ROE ROA ROE - --------------------- ------ ----- ------- ------ ------ ------ ------- ------- ------- ------ ($) (%) (%) ($Mil) (%) (%) (%) (%) (%) (%) SAIF-Insured Thrifts 0.38 1.75 29.54 1,149 12.86 0.79 0.54 5.50 0.75 7.55 All Public Companies 0.39 1.76 29.54 1,188 12.70 0.81 0.64 6.47 0.82 8.16 Special Selection Grouping(8) 0.56 2.78 47.27 548 16.23 0.29 0.98 6.66 1.16 7.72 State of WA 0.34 1.38 21.70 1,627 11.17 0.73 1.00 9.31 1.06 10.72 Comparable Group - ---------------- Special Comparative Group(8) - ---------------------------- CRZY Crazy Woman Creek Bncorp of WY 0.40 2.78 56.34 54 25.81 0.39 1.06 3.69 1.30 4.52 FFBA First Colorado Bancorp of Co 0.44 2.32 55.00 1,510 12.93 0.23 0.89 6.25 0.88 6.17 GBCI Glacier Bancorp of MT 0.48 2.70 39.02 568 9.74 0.27 1.44 15.09 1.61 16.87 TRIC Tri-County Bancorp of WY 0.60 2.64 42.86 89 15.32 NA 0.80 5.14 1.02 6.55 UBMT United Fin. Corp. of MT 0.98 4.17 NM 108 22.65 NA 1.09 4.70 1.34 5.80 WSTR WesterFed Fin. Corp. of MT 0.44 2.06 43.14 956 10.91 0.25 0.63 5.09 0.79 6.41
(1) Average of High/Low or Bid/Ask price per share. (2) EPS (estimate core basis) is based on actual trailing twelve month data, adjusted to omit non-operating items (including the SAIF assessment) on a tax effected basis.(3) P/E = Price to earnings; P/B = Price to book; P/A = Price to assets; P/TB = Price to tangible book value; and P/CORE = Price to estimated core earnings. (4) Indicated twelve month dividend, based on last quarterly dividend declared. (5) Indicated dividend as a percent of trailing twelve month estimated core earnings. (6) ROA (return on assets) and ROE (return on equity) are indicated ratios based on trailing twelve month earnings and average equity and assets balances. (7) Excludes from averages those companies the subject of actual or rumored acquisition activities or unusual operating characteristics. (8) Includes Western Companies (Excl CA); Source: Corporate reports, offering circulars, and RP Financial, LC. calculations. The information provided in this report has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information. Copyright (c) 1997 by RP Financial, LC. EXHIBIT IV-1 Stock Prices As of August 29, 1997 RP FINANCIAL, LC. - ------------------------------------------------ Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 22209 (703) 528-1700 Weekly Thrift Market Line - Part One Prices As Of August 29, 1997
Market Capitalization Price Change Data ----------------------- ----------------------------------------------- Shares Market 52 Week (1) % Change From --------------- ----------------------- Price/ Outst- Capital- Last Last Dec 31, Dec 31, Financial Institution Share(1) anding ization(9) High Low Week Week 1994(2) 1995(2) - --------------------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ($) (000) ($Mil) ($) ($) ($) (%) (%) (%) Market Averages. SAIF-Insured Thrifts(no MHC) - --------------------------------------------- SAIF-Insured Thrifts(304) 21.80 5,509 156.6 23.03 15.00 21.65 0.67 193.20 27.15 NYSE Traded Companies(9) 39.78 36,632 1,666.6 41.59 23.96 38.92 3.00 281.99 32.86 AMEX Traded Companies(17) 18.46 3,580 78.2 20.25 13.26 18.55 -0.65 255.48 21.08 NASDAQ Listed OTC Companies(278) 21.39 4,565 109.9 22.56 14.80 21.25 0.67 181.29 27.31 California Companies(21) 26.80 18,905 757.9 28.19 16.42 26.31 2.00 131.52 33.33 Florida Companies(6) 26.54 13,098 355.6 28.10 16.17 25.60 3.52 160.74 32.62 Mid-Atlantic Companies(59) 22.67 6,281 151.9 23.73 14.80 22.58 0.34 175.29 35.28 Mid-West Companies(147) 20.38 3,431 87.9 21.52 14.48 20.35 0.34 213.89 23.47 New England Companies(9) 26.59 5,009 160.3 27.00 16.90 26.04 1.81 359.13 37.78 North-West Companies(7) 22.98 12,610 330.9 23.92 17.06 22.69 1.34 161.76 22.80 South-East Companies(42) 21.71 3,657 76.0 23.72 15.88 21.50 0.94 164.23 24.37 South-West Companies(7) 20.20 1,785 39.8 20.93 13.20 19.90 1.21 1.93 23.98 Western Companies (Excl CA)(6) 19.79 5,288 101.8 21.10 15.19 19.78 0.15 289.02 17.63 Thrift Strategy(240) 20.78 3,614 82.8 21.89 14.61 20.65 0.67 170.23 25.94 Mortgage Banker Strategy(37) 26.73 13,313 489.5 28.07 17.27 26.67 0.30 253.99 33.45 Real Estate Strategy(11) 23.80 7,817 206.9 24.79 14.55 23.28 1.55 208.38 37.64 Diversified Strategy(12) 30.43 23,705 802.2 33.82 18.60 29.91 1.54 188.87 29.33 Retail Banking Strategy(4) 15.41 3,472 58.4 17.94 11.38 15.42 0.07 332.15 13.55 Companies Issuing Dividends(256) 21.92 5,362 156.4 23.16 15.16 21.79 0.68 203.71 26.35 Companies Without Dividends(48) 21.08 6,351 157.8 22.27 14.13 20.89 0.63 122.08 32.50 Equity/Assets less than 6%(23) 25.13 17,616 536.7 26.50 15.56 24.65 2.03 158.02 34.47 Equity/Assets 6-12%(146) 24.01 5,810 183.4 25.22 15.89 23.91 0.36 205.86 30.67 Equity/Assets greater than 12%(135) 18.98 3,184 65.9 20.20 14.01 18.84 0.76 162.71 21.91 Converted Last 3 Mths (no MHC)(5) 22.61 2,546 65.0 23.95 21.52 22.75 -0.81 0.00 -8.15 Actively Traded Companies(41) 29.98 17,223 641.5 31.61 19.37 29.55 1.42 213.89 33.75 Market Value Below $20 Million(62) 16.86 895 14.2 17.71 12.40 16.74 0.67 220.64 22.50 Holding Company Structure(269) 21.86 5,292 156.1 23.03 15.16 21.71 0.70 176.15 26.16 Assets Over $1 Billion(62) 31.12 17,328 595.7 32.78 20.09 30.75 1.33 226.56 29.90 Assets $500 Million-$1 Billion(49) 20.96 5,572 104.8 22.30 13.85 20.97 0.02 207.01 32.85 Assets $250-$500 Million(68) 21.99 2,538 52.6 23.05 15.18 21.93 0.34 176.96 29.80 Assets less than $250 Million(125) 17.66 1,498 25.1 18.74 12.99 17.52 0.78 124.84 22.01 Goodwill Companies(124) 25.03 9,047 265.8 26.48 16.51 24.88 0.54 220.30 29.62 Non-Goodwill Companies(178) 19.60 3,080 81.9 20.69 13.99 19.46 0.78 153.55 25.35 Acquirors of FSLIC Cases(10) 33.95 33,589 1,488.4 35.65 21.38 33.32 1.91 265.04 32.38 Current Per Shares Financials ---------------------------------------- Tangible Trailing 12 Mo. Book Book 12 Mo. Core Value/ Value/ Assets Financial Institution EPS(3) EPS(3) Share Share(4) Share - --------------------- -------- ------- ------- ------- ------- ($) ($) ($) ($) ($) Market Averages. SAIF-Insured Thrifts(no MH) - -------------------------------------------- SAIF-Insured Thrifts(304) 0.85 1.17 15.91 15.44 157.00 NYSE Traded Companies(9) 1.96 2.77 20.08 19.19 358.54 AMEX Traded Companies(17) 0.55 0.84 15.51 15.32 109.25 NASDAQ Listed OTC Companies(278) 0.83 1.13 15.79 15.32 153.02 California Companies(21) 0.96 1.43 17.01 16.41 262.00 Florida Companies(6) 0.98 0.88 13.56 12.84 185.50 Mid-Atlantic Companies(59) 0.98 1.39 16.27 15.61 172.56 Mid-West Companies(147) 0.84 1.11 15.89 15.56 138.70 New England Companies(9) 0.81 1.40 17.48 16.28 242.59 North-West Companies(7) 0.91 1.21 14.25 13.72 140.82 South-East Companies(42) 0.61 0.88 14.97 14.65 120.62 South-West Companies(7) 0.66 1.19 16.36 15.47 218.19 Western Companies (Excl CA)(6) 0.89 1.05 15.96 15.27 106.34 Thrift Strategy(240) 0.79 1.11 16.03 15.63 141.16 Mortgage Banker Strategy(37) 1.23 1.59 16.66 15.66 241.93 Real Estate Strategy(11) 0.90 1.39 14.30 14.00 220.08 Diversified Strategy(12) 1.06 1.28 12.79 12.29 177.81 Retail Banking Strategy(4) 0.18 -0.01 13.11 12.67 168.59 Companies Issuing Dividends(256) 0.92 1.24 16.02 15.50 154.29 Companies Without Dividends(48) 0.40 0.71 15.31 15.08 172.46 Equity/Assets less than 6%(23) 0.97 1.57 13.79 12.92 286.58 Equity/Assets 6-12%(146) 1.04 1.41 16.43 15.71 198.28 Equity/Assets greater than 12%(135) 0.63 0.85 15.73 15.58 93.17 Converted Last 3 Mths (no MHC)(5) 0.67 0.70 19.07 19.00 96.56 Actively Traded Companies(41) 1.46 2.01 17.56 16.92 236.50 Market Value Below $20 Million(62) 0.54 0.84 15.32 15.19 118.97 Holding Company Structure(269) 0.84 1.16 16.21 15.76 155.08 Assets Over $1 Billion(62) 1.36 1.87 18.14 16.86 256.85 Assets $500 Million-$1 Billion(49) 0.88 1.11 14.14 13.67 155.60 Assets $250-$500 Million(68) 0.87 1.21 16.68 16.17 167.71 Assets less than $250 Million(125) 0.58 0.83 15.15 15.07 105.35 Goodwill Companies(124) 1.06 1.40 16.56 15.40 204.37 Non-Goodwill Companies(178) 0.70 1.01 15.47 15.47 125.05 Acquirors of FSLIC Cases(10) 1.66 2.43 18.85 17.79 305.74
(1) Average of high/low or bid/ask price per share. (2) Or since offering price if converted or first listed in 1994 or 1995. Percent change figures are actual year-to-date and are not annualized (3) EPS (earnings per share) is based on actual trailing twelve month data and is not shown on a pro forma basis. (4) Excludes intangibles (such as goodwill, value of core deposits, etc.). (5) ROA (return on assets) and ROE (return on equity) are indicated ratios based on trailing twelve month common earnings and average common equity and assets balances. (6) Annualized, based on last regular quarterly cash dividend announcement. (7) Indicated dividend as a percent of trailing twelve month earnings. (8) Excluded from averages due to actual or rumored acquisition activities or unusual operating charteristics. (9) For MHC institutions, market value reflects share price multiplied by public (non-MHC) shares. * All thrifts are SAIF insured unless otherwise noted with an asterisk. Parentheses following market averages indicate the number of institutions included in the respective averages. All figures have been adjusted for stock splits, stock dividends, and secondary offerings. Source: Corporate reports and offering circulars for publicly traded companies, and RP Financial, Inc. calculations. The information provided in this report has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information. Copyright (c) 1997 by RP Financial, LC. RP FINANCIAL, LC - ----------------------------------------- Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 2209 (703) 528-1700
(continued) Weekly Thrift Market Line - Part One Prices As Of August 29, 1997 Market Capitalization Price Change Data ------------------------------- -------------------------------------- Shares Market 52 Week (1) % Change From ---------------- ----------------- Price/ Outst- Capital- Last Last Dec 31 Financial Institution Shares(1) anding ization (9) High Low Week Week 1994 (2) - --------------------- --------- ------ ----------- ------- ----- ------- ----- --------- ($) (ooo) ($Mil) ($) ($) ($) (%) (%) Market Averages, BIF-Insured Thrifts (no NHC) - --------------------------------------------- BIF-Insured Thrifts (69) 24.27 7,812 208.9 25.26 15.39 23.97 1.16 199.10 NYSE Traded Companies (3) 34.85 52,819 1,670.3 37.21 20.50 35.25 -0.36 258.72 ANEX Traded Companies (6) 22.79 4,007 88.2 23.59 14.42 22.58 0.62 109.86 NASDAQ Listed OTC Companies (6D) 23.80 5,530 134.2 24.73 15.20 23.45 1.30 207.90 California Companies (4) 19.97 5,592 114.2 21.11 11.09 20.05 -0.51 424.89 Mid-Atlantic Companies (18) 26.51 17,448 507.9 27.77 16.20 26.27 1.05 131.34 Mid-West Companies (2) 11.75 942 11.1 12.50 9.12 12.00 -2.08 0.00 New England Companies (36) 23.45 4,578 112.7 24.38 14.82 23.11 1.47 214.79 North-West Companies (4) 20.25 6,875 142.8 21.21 13.14 19.83 1.90 101.16 South-East Companies (5) 30.75 2,083 44.6 31.25 22.47 30.22 1.19 0.00 Thrift Strategy (46) 24.89 4,809 155.0 25.82 16.01 24.54 1.30 192.34 Mortgage Banker Strategy (10) 24.00 25,700 538.2 25.12 14.82 23.55 1.96 217.17 Real Estate Strategy (6) 18.00 4,200 74.5 18.59 11.31 18.03 -0.29 302.36 Diversified Strategy (7) 24.37 10,955 308.2 26.05 14.32 24.47 0.00 143.67 Companies Issuing Dividends (57) 25.63 8,302 230.2 26.65 16.46 25.28 1.37 193.54 Companies Without Dividends (12) 16.83 5,184 93.1 17.69 9.61 16.84 0.02 254.65 Equity/Assets Less than 6 ?? (5) 16.06 30,231 568.1 16.53 8.87 15.74 2.07 127.69 Equity/Assets 6-12% (47) 25.80 6,117 201.6 26.85 16.01 25.45 1.40 212.27 Equity/Assets More than 12% (17) 22.47 6,264 132.2 23.45 15.52 22.32 0.31 31.35 Actively Traded Companies (23) 25.62 11,723 274.1 26.82 16.15 25.12 1.92 243.42 Market Value Below $20 Million (9) 15.55 984 14.6 16.15 10.51 15.52 0.23 112.17 Holding Company Structure (46) 24.53 6,631 167.4 25.49 15.75 24.11 1.50 200.12 Assets Over $1 Billion (18) 29.58 22,573 668.5 30.89 17.85 29.35 1.09 194.04 Assets $500 Million-$1 Billion (17) 26.44 4,964 106.0 27.48 16.75 25.95 1.79 187.01 Assets $250-$500 Million (15) 19.41 3,098 56.5 20.42 12.50 19.36 0.21 234.58 Assets less than $250 Million (19) 21.52 1,418 27.2 22.17 14.32 21.15 1.40 180.68 Goodwill Companies (32) 25.21 12,018 339.3 26.37 15.97 24.90 1.26 191.27 Non-Goodwill Companies (37) 23.45 4,160 95.4 24.28 14.89 23.16 1.07 212.79 Current Per Share Financials ------------------------------------------------ % Change From Tangible -------------------- Trailing 12 No. Book Book Dec 31, 12 No. Core Value/ Value/ Assets/ Financial Institution 1995 (2) EPS (3) EPS(3) Share Share (4) Share - --------------------- -------------------- ----------- ------- ------- --------- -------- Market Averages, BIF-Insured Thrifts (no NHC) (%) ($) ($) ($) ($) ($) - --------------------------------------------- BIF-Insured Thrifts (69) 34.43 1.64 1.63 15.87 15.06 157.29 NYSE Traded Companies (3) 33.98 1.93 1.92 19.07 14.47 239.94 ANEX Traded Companies (6) 41.31 1.14 1.11 16.02 13.92 167.23 NASDAQ Listed OTC Companies (6D) 33.59 1.69 1.68 15.65 15.24 151.01 California Companies (4) 37.96 1.94 1.87 12.67 12.66 131.21 Mid-Atlantic Companies (18) 33.36 1.27 1.35 16.29 14.43 170.50 Mid-West Companies (2) 16.11 0.21 0.32 12.77 12.04 50.95 New England Companies (36) 36.18 1.95 1.88 14.79 14.23 172.44 North-West Companies (4) 31.50 1.17 1.14 11.98 11.61 108.54 South-East Companies (5) 29.47 1.28 1.33 26.59 26.59 98.18 Thrift Strategy (46) 34.56 1.58 1.57 16.90 15.96 154.39 Mortgage Banker Strategy (10) 35.07 1.51 1.57 14.44 14.00 187.42 Real Estate Strategy (6) 25.34 1.52 1.45 11.02 11.01 129.69 Diversified Strategy (7) 39.81 2.42 2.39 13.09 12.28 161.61 Companies Issuing Dividends (57) 33.81 1.58 1.57 16.67 15.74 164.74 Companies Without Dividends (12) 37.70 2.01 1.97 11.50 11.41 116.75 Equity/Assets Less than 6 ?? (5) 63.52 1.34 1.21 8.55 8.33 156.80 Equity/Assets 6-12% (47) 33.43 1.92 1.89 15.68 14.56 185.36 Equity/Assets More than 12% (17) 28.89 1.00 1.07 18.31 18.18 84.44 Actively Traded Companies (23) 32.29 1.93 1.86 15.82 15.06 184.62 Market Value Below $20 Million (9) 30.80 1.37 1.35 13.77 13.31 137.77 Holding Company Structure (46) 33.12 1.60 1.59 16.18 15.51 142.20 Assets Over $1 Billion (18) 36.30 1.85 1.85 15.65 14.14 186.03 Assets $500 Million-$1 Billion (17) 34.91 1.91 1.84 16.93 15.63 189.48 Assets $250-$500 Million (15) 29.81 1.21 1.21 13.09 12.93 127.95 Assets less than $250 Million (19) 36.21 1.58 1.58 17.33 17.08 125.81 Goodwill Companies (32) 34.11 1.60 1.58 15.68 13.95 187.78 Non-Goodwill Companies (37) 34.70 1.68 1.67 16.04 16.04 130.74
(1) Average of high/low or bid/ask price per share. (2) Or since offering price if converted or first listed in 1994 or 1995. Percent change figures are actual year-to-date and are not annualized (3) EPS (earnings per share) is based on actual trailing twelve month data and is not shown on a pro forma basis. (4) Excludes intangibles (such as goodwill, value of core deposits, etc.). (5) ROA (return on assets) and ROE (return on equity) are indicated ratios based on trailing twelve month common earnings and average common equity and assets balances. (6) Annualized, based on last regular quarterly cash dividend announcement. (7) Indicated dividend as a percent of trailing twelve month earnings. (8) Excluded from averages due to actual or rumored acquisition activities or unusual operating characteristics. (9) For NHC institutions, market value reflects share price multiplied by public (non-HHC) shares. * All thrifts are SAIF insured unless otherwise noted with an asterisk. Parentheses following market averages indicate the number of institutions included in the respective averages. All figures have been adjusted for stock splits, stock dividends, and secondary offerings. Source: Corporate reports and offering circulars for publicly traded companies, and RP Financial, Inc. calculations. The information provided in this report has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information. Copyright (c) 1997 by RP Financial, LC. RP FINANCIAL, LC. - ----------------------------------------- Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 22209 (703) 528-1700 (continued) Weekly Thrift Market Line - Part One Prices As Of August 29, 1997
Market Capitalization Price Change Data ----------------------- ----------------------------------------------- Shares Market 52 Week (1) % Change From ---------------- ------------------------ Price/ Outst- Capital- Last Last Dec 31, Dec 31, Financial Institution Share(1) anding ization(9) High Low Week Week 1994(2) 1995(2) - --------------------- ------- ------- ------- ------- ------- ------- ------- ------- -------- ($) (000) ($Mil) ($) ($) ($) (%) (%) (%) Market Averages, MHC Institutions - --------------------------------- SAIF-Insured Thrifts(21) 26.89 4,936 52.7 27.32 14.55 24.91 7.35 266.74 60.25 BIF-Insured Thrifts(2) 24.41 32,163 349.8 25.25 11.67 22.25 12.50 256.54 72.93 NASDAQ Listed OTC Companies(23) 26.65 7,529 81.0 27.12 14.27 24.65 7.84 263.34 61.66 Florida Companies(3) 37.83 5,160 97.3 37.83 18.50 32.87 13.86 0.00 52.80 Mid-Atlantic Companies(10) 23.65 6,654 56.8 23.89 12.55 22.21 6.95 198.70 77.79 Mid-West Companies(7) 23.50 2,029 21.0 24.54 14.07 21.71 8.04 334.78 48.94 New England Companies(1) 28.05 61,053 686.2 29.00 14.08 27.75 1.12 256.54 45.77 South-East Companies(1) 40.63 1,505 28.6 41.00 20.25 39.00 4.18 0.00 67.55 Thrift Strategy(21) 26.59 4,853 50.7 27.03 14.28 24.50 8.18 266.74 62.59 Diversified Strategy(1) 28.06 61,053 686.2 29.00 14.08 27.75 1.12 256.54 45.77 Companies Issuing Dividends(22) 27.19 7,767 84.0 27.68 14.31 25.08 8.27 263.34 61.66 Companies Without Dividends(1) 16.00 2,760 19.9 16.12 13.62 16.12 -0.74 0.00 0.00 Equity/Assets 6-12%(16) 28.73 9,091 100.4 29.33 14.83 26.22 9.58 263.34 61.94 Equity/Assets greater than 12%(7) 21.48 3,624 32.3 21.60 12.87 20.73 3.49 0.00 60.68 Actively Traded Companies(1) 29.87 7,264 101.7 30.00 14.37 28.50 4.81 198.70 61.46 Holding Company Structure(1) 29.87 7,264 101.7 30.00 14.37 28.50 4.81 198.70 61.46 Assets Over $1 Billion(5) 34.69 21,577 235.5 34.95 16.21 31.92 7.25 227.62 67.05 Assets $500 Million-$1 Billion(3) 28.87 6,966 85.5 29.08 14.08 26.87 7.55 0.00 60.67 Assets $250-$500 Million(5) 28.78 2,334 28.5 30.10 16.18 26.75 8.05 334.78 52.64 Assets less than $250 Million(10) 19.48 2,207 15.4 19.64 11.94 17.97 8.18 0.00 65.88 Goodwill Companies(9) 32.23 15,815 174.3 33.22 16.01 29.75 7.53 263.34 64.19 Non-Goodwill Companies(14) 23.23 2,429 23.5 23.37 13.20 21.52 8.03 0.00 59.63 MHC Institutions(23) 26.66 7,529 81.0 27.12 14.27 24.65 7.84 263.34 61.66 MHC Converted Last 3 Months(1) 16.00 2,760 19.9 16.12 13.62 16.12 -0.74 0.00 0.00 Current Per Share Financials ----------------------------------------------- Tangible Trailing 12 Mo. Book Book 12 Mo. Core Value/ Value/ Assets/ Financial Institution EPS(3) EPS(3) Share Share(4) Share - --------------------- -------- ------- -------- -------- -------- ($) ($) ($) ($) ($) Market Averages. MHC Institutions - --------------------------------- SAIF-Insured Thrifts(21) 0.67 0.99 13.09 12.79 124.70 BIF-Insured Thrifts(2) 0.81 0.73 9.79 9.79 101.80 NASDAQ Listed OTC Companies(23) 0.68 0.96 12.77 12.51 122.52 Florida Companies(3) 1.09 1.51 15.56 15.32 169.92 Mid-Atlantic Companies(10) 0.48 0.71 11.65 11.18 99.52 Mid-West Companies(7) 0.64 1.02 12.33 12.31 128.13 New England Companies(1) 1.39 1.03 10.93 10.92 128.90 South-East Companies(1) 1.00 1.41 20.13 20.13 170.24 Thrift Strategy(21) 0.65 0.96 12.86 12.58 122.20 Diversified Strategy(1) 1.39 1.03 10.93 10.92 128.90 Companies Issuing Dividends(22) 0.70 0.98 12.69 12.41 124.49 Companies Without Dividends(1) 0.32 0.67 14.36 14.36 82.97 Equity/Assets 6-12%(16) 0.75 1.07 13.14 12.83 142.88 Equity/Assets greater than 12%(7) 0.52 0.69 11.86 11.69 71.60 Actively Traded Companies(1) 0.80 1.25 13.39 11.94 142.18 Holding Company Structure(1) 0.80 1.25 13.39 11.94 142.18 Assets Over $1 Billion(5) 1.12 1.35 13.25 12.37 153.48 Assets $500 Million-$1 Billion(3) 0.70 0.87 13.20 12.85 118.29 Assets $250-$500 Million(5) 0.81 1.23 14.46 14.44 152.53 Assets less than $250 Million(10) 0.32 0.59 11.26 11.26 85.99 Goodwill Companies(9) 0.96 1.18 13.02 12.32 143.81 Non-Goodwill Companies(14) 0.51 0.83 12.62 12.62 109.41 MHC Institutions(23) 0.68 0.96 12.77 12.51 122.52 MHC Converted Last 3 Months(1) 0.32 0.67 14.36 14.36 82.97
(1) Average of high/low or bid/ask price per share. (2) Or since offering price if converted or first listed in 1994 or 1995. Percent change figures are actual year-to-date and are not annualized (3) EPS (earnings per share) is based on actual trailing twelve month data and is not shown on a pro forma basis. (4) Excludes intangibles (such as goodwill, value of core deposits, etc.). (5) ROA (return on assets) and ROE (return on equity) are indicated ratios based on trailing twelve month common earnings and average common equity and assets balances. (6) Annualized, based on last regular quarterly cash dividend announcement. (7) Indicated dividend as a percent of trailing twelve month earnings. (8) Excluded from averages due to actual or rumored acquisition activities or unusual operating characteristics. (9) For MHC Institutions, market value reflects share price mulitiplied by public (non-MHC) shares. * All thrifts are SAIF insured unless otherwise noted with an asterisk. Parentheses following market averages indicate the number of institutions included in the respective averages. All figures have been adjusted for stock splits, stock dividends, and secondary offerings. Source: Corporate reports and offering circulars for publicly traded companies, and RP Financial, Inc. calculations. The information provided in this report has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information. Copyright (c) 1997 by RP Financial, LC. RP FINANCIAL, LC. - ----------------------------------------- Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 22209 (703) 528-1700 (continued) Weekly Thrift Market Line - Part One Prices As Of August 29, 1997
Market Capitalization Price Change Data ------------------------ ----------------------------------------------- Shares Market 52 Week (1) % Change From --------------- ----------------------- Price/ Outst- Capital- Last Last Dec 31, Dec 31, Financial Institution Share(1) anding ization(9) High Low Week Week 1994(2) 1995(2) - --------------------- -------- ------ ---------- ------- ------- ------- ------- ------- ------- ($) (000) ($Mil) ($) ($) ($) (%) (%) (%) NYSE Traded Companies - --------------------- AHM Ahmanson and Co. H.F. of CA 50.75 97,336 4,939.8 54.12 25.12 50.75 0.00 170.67 56.15 CSA Coast Savings Financial of CA 46.06 18,616 857.5 48.75 30.25 44.44 3.65 298.44 25.78 CFB Commercial Federal Corp. of NE 42.06 21,553 906.5 42.06 25.92 40.37 4.19 ***.** 31.44 DME Dime Bancorp, Inc. of NY* 19.37 103,719 2,009.0 20.25 12.87 19.19 0.94 92.54 31.32 DSL Downey Financial Corp. of CA 22.12 26,733 591.3 23.75 15.40 21.50 2.88 103.68 18.35 FRC First Republic Bancorp of CA* 23.62 9,693 228.9 24.81 13.12 23.56 0.25 424.89 41.01 FED FirstFed Fin. Corp. of CA 33.75 10,575 356.9 34.62 18.12 32.56 3.65 108.98 53.41 GSB Glendale Fed. Bk, FSB of CA 28.87 50,349 1,453.6 30.56 17.50 28.37 1.76 77.66 24.17 GDW Golden West Fin. Corp. of CA 82.31 55,739 4,670.2 84.62 55.00 82.25 0.07 214.28 30.40 GPT GreenPoint Fin. Corp. of NY* 61.56 45,044 2,772.9 66.56 35.50 63.00 -2.29 N.A. 29.60 NYB New York Bancorp, Inc. of NY 30.50 21,591 658.5 32.00 15.12 30.75 -0.81 330.18 57.46 WES Westcorp Inc. of Orange CA 21.56 26,195 564.8 23.87 13.25 19.31 11.65 194.13 -1.46 AMEX Traded Companies - --------------------- ANA Acadiana Bancshares of LA* 21.50 2,731 58.7 22.25 13.12 21.50 0.00 N.A. 44.59 BKC American Bank of Waterbury CT* 37.62 2,306 86.8 39.00 25.87 37.00 1.68 100.64 34.36 BFD BostonFed Bancorp of MA 18.87 5,947 112.2 19.94 12.62 19.50 -3.23 N.A. 27.93 CFX CFX Corp of NH* 20.25 13,144 266.2 21.00 13.21 18.87 7.31 70.17 30.65 CNY Carver Bancorp, Inc. of NY 12.37 2,314 28.6 13.37 7.37 12.75 -2.98 97.92 49.94 CBK Citizens First Fin.Corp. of IL 16.00 2,594 41.5 16.87 10.50 16.50 -3.03 N.A. 11.34 ESX Essex Bancorp of VA(8) 1.88 1,057 2.0 2.37 1.00 1.88 0.00 -88.78 -14.16 FCB Falmouth Co-Op Bank of MA* 17.00 1,455 24.7 17.50 11.25 17.12 -0.70 N.A. 29.57 FAB FirstFed America Bancorp of MA 20.06 8,707 174.7 20.06 13.62 19.12 4.92 N.A. N.A. GAF GA Financial Corp. of PA 18.75 7,985 149.7 19.50 11.87 17.56 6.78 N.A. 24.01 JSB JSB Financial, Inc. of NY 45.31 9,845 446.1 46.50 33.12 44.69 1.39 294.00 19.24 KNK Kankakee Bancorp of IL 29.00 1,425 41.3 30.75 19.50 29.50 -1.69 190.00 17.17 KYF Kentucky First Bancorp of KY 12.50 1,319 16.5 15.12 10.56 12.37 1.05 N.A. 15.00 MBB MSB Bancorp of Middletown NY* 23.25 2,844 66.1 24.19 15.50 23.37 -0.51 132.50 18.50 PDB Piedmont Bancorp of NC 10.62 2,751 29.2 19.12 9.25 10.87 -2.30 N.A. 1.14 SSB Scotland Bancorp of NC 18.06 1,914 34.6 19.12 12.12 19.12 -5.54 N.A. 27.50 SZB SouthFirst Bancshares of AL 16.25 848 13.8 17.25 12.25 16.37 -0.73 N.A. 22.64 SRN Southern Banc Company of AL 15.50 1,230 19.1 15.75 12.25 15.50 0.00 N.A. 18.14 SSN Stone Street Bancorp of NC 21.25 1,898 40.3 27.25 17.25 21.50 -1.16 N.A. 3.66 TSH Teche Holding Company of LA 18.25 3,435 62.7 19.37 12.87 18.25 0.00 N.A. 27.00 FTF Texarkana Fst. Fin. Corp of AR 22.37 1,790 40.0 23.00 13.62 22.31 0.27 N.A. 43.12 THR Three Rivers Fin. Corp. of MI 15.75 824 13.0 16.62 12.62 16.37 -3.79 N.A. 12.50 TBK Tolland Bank of CT* 17.12 1,560 26.7 17.62 7.59 17.62 -2.84 136.14 90.22 WSB Washington SB, FSB of MD 6.75 4,247 28.7 7.37 4.38 6.75 0.00 440.00 38.60 NASDAQ Listed OTC Companies - --------------------------- FBCV 1st Bancorp of Vincennes IN 35.75 698 25.0 36.25 26.19 35.75 0.00 N.A. 25.44 AFED AFSALA Bancorp, Inc. of NY 16.06 1,455 23.4 16.25 11.31 15.87 1.20 N.A. 33.83 ALBK ALBANK Fin. Corp. of Albany NY 38.50 12,825 493.8 41.00 27.37 38.00 1.32 65.59 22.73 AMFC AMB Financial Corp. of IN 14.50 964 14.0 15.00 10.25 15.00 -3.33 N.A. 9.43 ASBP ASB Financial Corp. of OH 13.12 1,721 22.6 18.25 11.50 12.50 4.96 N.A. 0.92 ABBK Abington Savings Bank of MA* 30.50 1,852 56.5 31.00 16.75 29.25 4.27 360.73 56.41 AABC Access Anytime Bancorp of NM 6.88 1,193 8.2 6.88 5.25 6.75 1.93 1.93 25.09 AFBC Advance Fin. Bancorp of WV 16.25 1,084 17.6 16.25 12.75 16.00 1.56 N.A. N.A. AADV Advantage Bancorp of WI 42.25 3,234 136.6 44.75 31.25 44.25 -4.52 359.24 31.01 AFCB Affiliated Comm BC, Inc of MA 26.25 6,465 169.7 27.12 16.00 26.87 -2.31 N.A. 53.51 ALBC Albion Banc Corp. of Albion NY 23.25 250 5.8 24.25 16.50 23.25 0.00 78.85 38.81
Current Per Share Financials ---------------------------------------- Tangible Trailing 12 Mo. Book Book 12 Mo. Core Value/ Value/ Assets/ Financial Institution EPS(3) EPS(3) Share Share(4) Share - --------------------- -------- ------- ------- ------- ------- ($) ($) ($) ($) ($) NYSE Traded Companies - --------------------- AHM Ahmanson and Co. H.F. of CA 1.98 3.16 20.35 17.34 488.33 CSA Coast Savings Financial of CA 0.99 2.48 24.06 23.76 488.97 CFB Commercial Federal Corp. of NE 2.05 2.89 19.77 17.53 329.27 DME Dime Bancorp, Inc. of NY* 1.05 1.33 10.21 9.74 193.67 DSL Downey Financial Corp. of CA 0.86 1.43 15.26 15.05 220.16 FRC First Republic Bancorp of CA* 1.56 1.33 16.56 16.55 230.89 FED FirstFed Fin. Corp. of CA 1.13 2.07 19.14 18.93 396.52 GSB Glendale Fed. Bk, FSB of CA 0.79 1.85 17.81 15.83 322.12 GDW Golden West Fin. Corp. of CA 6.74 8.22 43.90 43.90 689.03 GPT GreenPoint Fin. Corp. of NY* 3.17 3.09 30.44 17.11 295.27 NYB New York Bancorp, Inc. of NY 1.98 2.32 7.73 7.73 152.08 WES Westcorp Inc. of Orange CA 1.11 0.55 12.71 12.67 140.42 AMEX Traded Companies - --------------------- ANA Acadiana Bancshares of LA* 0.47 0.47 16.70 16.70 95.82 BKC American Bank of Waterbury CT* 3.13 2.69 21.77 20.90 262.73 BFD BostonFed Bancorp of MA 0.74 0.96 14.42 13.94 164.10 CFX CFX Corp of NH* 1.10 1.31 10.52 9.84 141.44 CNY Carver Bancorp, Inc. of NY -0.74 0.01 14.93 14.32 178.81 CBK Citizens First Fin.Corp. of IL 0.30 0.59 14.74 14.74 104.69 ESX Essex Bancorp of VA(8) -0.05 0.05 0.49 0.31 179.83 FCB Falmouth Co-Op Bank of MA* 0.52 0.49 15.40 15.40 64.49 FAB FirstFed America Bancorp of MA -0.21 0.50 14.26 14.26 117.25 GAF GA Financial Corp. of PA 0.80 1.02 14.25 14.10 93.89 JSB JSB Financial, Inc. of NY 2.75 2.61 34.47 34.47 155.50 KNK Kankakee Bancorp of IL 1.62 2.02 26.59 24.99 239.77 KYF Kentucky First Bancorp of KY 0.58 0.75 11.17 11.17 67.44 MBB MSB Bancorp of Middletown NY* 0.49 0.51 21.15 10.38 286.18 PDB Piedmont Bancorp of NC -0.19 0.30 7.42 7.42 44.62 SSB Scotland Bancorp of NC 0.51 0.62 13.44 13.44 36.30 SZB SouthFirst Bancshares of AL -0.03 0.25 16.06 16.06 114.72 SRN Southern Banc Company of AL 0.13 0.44 14.42 14.27 85.35 SSN Stone Street Bancorp of NC 0.80 0.96 16.13 16.13 55.91 TSH Teche Holding Company of LA 0.78 1.08 15.53 15.53 118.17 FTF Texarkana Fst. Fin. Corp of AR 1.31 1.62 15.03 15.03 95.73 THR Three Rivers Fin. Corp. of MI 0.61 0.88 15.22 15.22 110.64 TBK Tolland Bank of CT* 1.11 1.16 10.60 10.30 152.71 WSB Washington SB, FSB of MD 0.30 0.44 5.05 5.05 60.83 NASDAQ Listed OTC Companies - --------------------------- FBCV 1st Bancorp of Vincennes IN 1.18 0.50 32.00 31.34 387.52 AFED AFSALA Bancorp, Inc. of NY 0.82 0.82 14.74 14.74 109.40 ALBK ALBANK Fin. Corp. of Albany NY 2.29 2.82 25.85 22.59 280.88 AMFC AMB Financial Corp. of IN 0.66 0.73 14.61 14.61 97.70 ASBP ASB Financial Corp. of OH 0.39 0.56 10.15 10.15 65.23 ABBK Abington Savings Bank of MA* 2.16 1.92 18.73 16.87 270.66 AABC Access Anytime Bancorp of NM -0.45 -0.11 6.53 6.53 87.72 AFBC Advance Fin. Bancorp of WV 0.35 0.71 14.76 14.76 95.55 AADV Advantage Bancorp of WI 1.27 2.81 29.05 27.16 315.25 AFCB Affiliated Comm BC, Inc of MA 1.53 1.74 16.49 16.40 168.67 ALBC Albion Banc Corp. of Albion NY 0.27 0.96 23.96 23.96 274.51
RP FINANCIAL, LC. - ---------------------------------------- Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 22209 (703) 528-1700 (continued) Weekly Thrift Market Line - Part One Prices As Of August 29, 1997
Market Capitalization Price Change Data ----------------------- ----------------------------------------------- Shares Market 52 Week (1) % Change From --------------- ----------------------- Price/ Outst- Capital- Last Last Dec 31, Dec 31, Financial Institution Share(1) anding ization(9) High Low Week Week 1994(2) 1995(2) --------------------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ($) (000) ($Mil) ($) ($) ($) (%) (%) (%) NASDAQ Listed OTC Companies (continued) --------------------------------------- ABCL Allied Bancorp of IL 31.12 5,345 166.3 31.87 23.25 31.62 -1.58 211.20 24.48 ATSB AmTrust Capital Corp. of IN 13.00 526 6.8 13.00 8.75 12.62 3.01 N.A. 30.00 AHCI Ambanc Holding Co., Inc. of NY* 15.50 4,392 68.1 16.62 9.75 15.63 -0.83 N.A. 37.78 ASBI Ameriana Bancorp of IN 19.75 3,230 63.8 20.50 13.25 18.50 6.76 113.98 23.44 AFFFZ America First Fin. Fund of CA(8) 39.37 6,011 236.7 39.56 28.00 39.25 0.31 109.97 30.15 ANBK American Nat'l Bancorp of MD(8) 19.69 3,613 71.1 19.87 11.31 19.69 0.00 N.A. 62.46 ABCW Anchor Bancorp Wisconsin of WI 26.25 4,524 118.8 27.75 16.50 27.00 -2.78 78.69 46.89 ANDB Andover Bancorp, Inc. of MA* 30.50 5,148 157.0 32.25 20.52 29.75 2.52 183.72 19.05 ASFC Astoria Financial Corp. of NY 48.12 20,978 1,009.5 48.75 26.75 46.75 2.93 83.31 30.51 AVND Avondale Fin. Corp. of IL 14.25 3,495 49.8 18.50 12.75 14.25 0.00 N.A. -16.76 BKCT Bancorp Connecticut of CT* 30.75 2,534 77.9 30.75 21.25 30.50 0.82 251.43 36.67 BPLS Bank Plus Corp. of CA 10.87 19,308 209.9 13.75 9.62 10.87 0.00 N.A. -5.48 BWFC Bank West Fin. Corp. of MI 17.06 1,753 29.9 17.25 10.25 16.25 4.98 N.A. 60.64 BANC BankAtlantic Bancorp of FL 12.50 22,473 280.9 17.12 12.12 12.75 -1.96 200.48 -6.51 BKUNA BankUnited SA of FL 12.00 8,869 106.4 12.12 7.62 11.50 4.35 120.99 20.00 BKCO Bankers Corp. of NJ(8)* 28.25 12,392 350.1 30.12 18.00 26.87 5.14 352.00 40.41 BVCC Bay View Capital Corp. of CA 25.87 12,979 335.8 28.62 17.50 25.62 0.98 30.99 22.09 FSNJ Bayonne Banchsares of NJ 11.87 3,064 16.7 12.27 5.03 11.75 1.02 N.A. 51.40 BFSB Bedford Bancshares of VA 24.12 1,142 27.5 25.25 16.50 25.25 -4.48 129.71 36.89 BFFC Big Foot Fin. Corp. of IL 17.12 2,513 43.0 17.50 12.31 17.12 0.00 N.A. 31.69 BSBC Branford SB of CT(8)* 4.94 6,559 32.4 5.00 3.00 4.94 0.00 133.02 27.65 BYFC Broadway Fin. Corp. of CA 11.00 835 9.2 11.25 9.00 11.00 0.00 N.A. 18.92 CBES CBES Bancorp of MO 17.62 1,025 18.1 17.87 12.62 17.87 -1.40 N.A. 23.65 CCFH CCF Holding Company of GA 17.00 820 13.9 17.12 12.37 16.78 1.31 N.A. 15.25 CENF CENFED Financial Corp. of CA 33.00 5,729 189.1 35.00 21.59 33.12 -0.36 110.46 24.11 CFSB CFSB Bancorp of Lansing MI 26.00 5,096 132.5 27.00 16.36 26.50 -1.89 188.89 46.64 CKFB CKF Bancorp of Danville KY 19.00 925 17.6 20.75 17.50 19.25 -1.30 N.A. -6.17 CNSB CNS Bancorp of MO 16.75 1,653 27.7 17.50 12.00 16.81 -0.36 N.A. 10.78 CSBF CSB Financial Group Inc of IL* 11.75 942 11.1 12.50 9.12 12.00 -2.08 N.A. 16.11 CBCI Calumet Bancorp of Chicago IL 42.50 2,111 89.7 42.50 27.75 41.75 1.80 109.88 27.82 CAFI Camco Fin. Corp. of OH 17.78 3,214 57.1 19.25 14.05 18.25 -2.58 N.A. 17.59 CMRN Cameron Fin. Corp. of MO 17.37 2,627 45.6 18.00 14.25 17.62 -1.42 N.A. 8.56 CAPS Capital Savings Bancorp of MO 15.75 1,892 29.8 18.25 9.62 15.87 -0.76 18.87 21.15 CFNC Carolina Fincorp of NC* 17.37 1,851 32.2 17.87 13.00 17.37 0.00 N.A. 29.92 CASB Cascade SB of Everett WA(8) 13.25 2,571 34.1 16.80 10.40 13.25 0.00 3.52 2.71 CATB Catskill Fin. Corp. of NY* 16.37 4,720 77.3 17.00 11.00 16.50 -0.79 N.A. 16.93 CNIT Cenit Bancorp of Norfolk VA 52.75 1,650 87.0 52.75 35.75 50.75 3.94 232.18 27.11 CEBK Central Co-Op. Bank of MA* 19.50 1,965 38.3 20.69 14.75 19.25 1.30 271.43 11.43 CENB Century Bancshares of NC* 79.50 407 32.4 79.50 62.00 77.50 2.58 N.A. 22.31 CBSB Charter Financial Inc. of IL 20.12 4,150 83.5 21.50 11.00 21.00 -4.19 N.A. 60.96 COFI Charter One Financial of OH 54.37 46,186 2,511.1 57.94 35.83 52.87 2.84 210.69 29.45 CVAL Chester Valley Bancorp of PA 24.00 2,059 49.4 24.00 14.40 24.00 0.00 111.83 62.16 CTZN CitFed Bancorp of Dayton OH 44.00 8,638 380.1 45.25 25.00 43.12 2.04 388.89 33.33 CLAS Classic Bancshares of KY 14.12 1,305 18.4 15.00 11.25 14.00 0.86 N.A. 21.51 CMSB Cmnwealth Bancorp of PA 17.25 17,096 294.9 17.50 10.62 17.12 0.76 N.A. 15.00 CBSA Coastal Bancorp of Houston TX 29.50 4,972 146.7 30.87 18.50 29.87 -1.24 N.A. 28.99 CFCP Coastal Fin. Corp. of SC 23.50 4,641 109.1 27.75 14.25 24.75 -5.05 135.00 49.21 CMSV Commty. Svgs, MHC of FL (48.5) 31.25 5,090 77.2 31.25 16.00 27.25 14.68 N.A. 52.44 CBNH Community Bankshares Inc of NH(8)* 41.87 2,489 104.2 41.87 18.50 38.81 7.88 ***.** 104.24 CFTP Community Fed. Bancorp of MS 18.00 4,629 83.3 20.00 13.25 17.75 1.41 N.A. 5.88 CFFC Community Fin. Corp. of VA 21.75 1,275 27.7 23.50 20.50 21.75 0.00 210.71 4.82 CFBC Community First Bnkg Co. of GA 33.87 2,414 81.8 34.87 31.87 33.75 0.36 N.A. N.A. CIBI Community Inv. Bancorp of OH 16.00 929 14.9 16.00 10.33 15.37 4.10 N.A. 41.22 COOP Cooperative Bk.for Svgs. of NC 27.00 1,492 40.3 27.00 17.50 26.50 1.89 170.00 33.33 CRZY Crazy Woman Creek Bncorp of WY 14.37 955 13.7 14.50 10.87 14.37 0.00 N.A. 19.75 Current Per Share Financials ---------------------------------------- Tangible Trailing 12 Mo. Book Book 12 Mo. Core Value/ Value/ Assets/ Financial Institution EPS(3) EPS(3) Share Share(4) Share --------------------- -------- ------- ------- ------- ------- ($) ($) ($) ($) ($) NASDAQ Listed OTC Companies (continued) --------------------------------------- ABCL Allied Bancorp of IL 0.91 1.33 23.40 23.11 262.72 ATSB AmTrust Capital Corp. of IN 0.40 0.26 13.73 13.58 135.04 AHCI Ambanc Holding Co., Inc. of NY* -0.65 -0.65 13.85 13.85 108.86 ASBI Ameriana Bancorp of IN 0.75 1.05 13.49 13.48 123.14 AFFFZ America First Fin. Fund of CA(8) 5.51 6.76 30.76 30.38 364.44 ANBK American Nat'l Bancorp of MD(8) 0.37 0.86 12.54 12.54 139.86 ABCW Anchor Bancorp Wisconsin of WI 3.10 3.99 26.49 25.99 425.70 ANDB Andover Bancorp, Inc. of MA* 2.57 2.65 19.59 19.59 243.00 ASFC Astoria Financial Corp. of NY 1.96 2.80 28.59 24.01 365.36 AVND Avondale Fin. Corp. of IL -0.85 -2.63 15.85 15.85 173.75 BKCT Bancorp Connecticut of CT* 2.15 2.03 17.32 17.32 169.05 BPLS Bank Plus Corp. of CA -0.46 0.04 9.27 9.26 183.03 BWFC Bank West Fin. Corp. of MI 0.53 0.47 12.89 12.89 88.80 BANC BankAtlantic Bancorp of FL 0.98 0.71 6.83 5.61 121.50 BKUNA BankUnited SA of FL 0.29 0.48 7.59 6.15 203.77 BKCO Bankers Corp. of NJ(8)* 2.12 2.27 16.42 16.18 207.14 BVCC Bay View Capital Corp. of CA 0.97 1.58 15.12 12.69 238.56 FSNJ Bayonne Banchsares of NJ -1.05 0.58 15.69 15.69 188.32 BFSB Bedford Bancshares of VA 1.14 1.46 16.80 16.80 118.61 BFFC Big Foot Fin. Corp. of IL 0.04 0.35 14.34 14.34 84.46 BSBC Branford SB of CT(8)* 0.32 0.32 2.64 2.64 28.44 BYFC Broadway Fin. Corp. of CA -0.19 0.29 14.65 14.65 146.40 CBES CBES Bancorp of MO 0.69 0.86 17.08 17.08 92.90 CCFH CCF Holding Company of GA 0.05 0.07 14.36 14.36 122.93 CENF CENFED Financial Corp. of CA 1.98 2.82 20.85 20.81 400.68 CFSB CFSB Bancorp of Lansing MI 1.37 1.73 12.65 12.65 165.90 CKFB CKF Bancorp of Danville KY 1.17 0.86 15.75 15.75 65.74 CNSB CNS Bancorp of MO 0.25 0.46 14.84 14.84 59.50 CSBF CSB Financial Group Inc of IL* 0.21 0.32 12.77 12.04 50.95 CBCI Calumet Bancorp of Chicago IL 2.72 3.45 36.46 36.46 235.23 CAFI Camco Fin. Corp. of OH 1.11 1.24 14.58 13.45 152.41 CMRN Cameron Fin. Corp. of MO 0.78 0.97 17.18 17.18 79.22 CAPS Capital Savings Bancorp of MO 0.82 1.15 11.28 11.28 128.18 CFNC Carolina Fincorp of NC* 0.68 0.65 13.75 13.75 60.25 CASB Cascade SB of Everett WA(8) 0.61 0.77 8.46 8.46 137.04 CATB Catskill Fin. Corp. of NY* 0.85 0.86 15.08 15.08 60.22 CNIT Cenit Bancorp of Norfolk VA 3.75 3.44 31.12 28.58 430.03 CEBK Central Co-Op. Bank of MA* 1.44 1.46 17.07 15.20 163.33 CENB Century Bancshares of NC* 4.31 4.36 73.51 73.51 245.57 CBSB Charter Financial Inc. of IL 1.05 1.47 13.71 12.13 94.76 COFI Charter One Financial of OH 2.98 3.73 21.15 19.80 315.35 CVAL Chester Valley Bancorp of PA 0.94 1.33 13.14 13.14 157.20 CTZN CitFed Bancorp of Dayton OH 1.94 2.73 22.83 20.57 358.59 CLAS Classic Bancshares of KY 0.45 0.63 14.84 12.52 100.81 CMSB Cmnwealth Bancorp of PA 0.69 0.88 12.89 10.08 133.89 CBSA Coastal Bancorp of Houston TX 1.45 2.52 19.85 16.50 596.15 CFCP Coastal Fin. Corp. of SC 0.95 1.04 6.68 6.68 108.33 CMSV Commty. Svgs, MHC of FL (48.5) 0.73 1.09 15.46 15.46 137.48 CBNH Community Bankshares Inc of NH(8)* 2.17 1.73 17.31 17.31 247.44 CFTP Community Fed. Bancorp of MS 0.59 0.72 12.40 12.40 45.16 CFFC Community Fin. Corp. of VA 1.32 1.67 18.86 18.86 137.58 CFBC Community First Bnkg Co. of GA 1.05 1.06 28.74 28.35 186.68 CIBI Community Inv. Bancorp of OH 0.63 0.96 11.96 11.96 99.36 COOP Cooperative Bk.for Svgs. of NC -1.80 0.45 18.03 18.03 236.22 CRZY Crazy Woman Creek Bncorp of WY 0.58 0.71 14.67 14.67 56.83
RP FINANCIAL, LC. ----------------------------------------- Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 22209 (703) 528-1700 (continued) Weekly Thrift Market Line - Part One Prices As Of August 29, 1997
Market Capitalization Price Change Data ----------------------- ----------------------------------------------- Shares Market 52 Week (1) % Change From --------------- ----------------------- Price/ Outst- Capital- Last Last Dec 31, Dec 31, Financial Institution Share(1) anding ization(9) High Low Week Week 1994(2) 1995(2) --------------------- ------- ------- ------- ------- ------- ------- ------- ------- -------- ($) (000) ($Mil) ($) ($) ($) (%) (%) (%) NASDAQ Listed OTC Companies (continued) --------------------------------------- DNFC D&N Financial Corp. of MI 18.62 8,191 152.5 19.50 12.75 19.00 -2.00 112.80 11.16 DCBI Delphos Citizens Bancorp of OH 16.00 2,039 32.6 16.62 11.75 16.62 -3.73 N.A. 33.33 DIME Dime Community Bancorp of NY 19.62 13,093 256.9 20.00 13.25 18.87 3.97 N.A. 33.02 DIBK Dime Financial Corp. of CT* 28.25 5,147 145.4 28.25 15.25 28.00 0.89 169.05 63.77 EGLB Eagle BancGroup of IL 16.50 1,238 20.4 16.87 11.50 16.62 -0.72 N.A. 10.96 EBSI Eagle Bancshares of Tucker GA 16.87 5,660 95.5 18.50 13.62 16.12 4.65 132.69 8.84 EGFC Eagle Financial Corp. of CT 34.00 6,279 213.5 34.50 24.25 33.75 0.74 288.57 11.48 ETFS East Texas Fin. Serv. of TX 18.75 1,025 19.2 19.25 14.50 18.75 0.00 N.A. 14.54 EMLD Emerald Financial Corp of OH 14.50 5,062 73.4 15.00 10.50 14.00 3.57 N.A. 28.89 EIRE Emerald Island Bancorp, MA* 21.75 2,246 48.9 21.75 12.00 21.50 1.16 185.43 35.94 EFBC Empire Federal Bancorp of MT 15.50 2,592 40.2 15.75 12.50 15.50 0.00 N.A. N.A. EFBI Enterprise Fed. Bancorp of OH 20.00 2,001 40.0 20.50 12.87 20.12 -0.60 N.A. 37.93 EQSB Equitable FSB of Wheaton MD 37.94 602 22.8 39.25 24.75 37.50 1.17 N.A. 34.30 FFFG F.F.O. Financial Group of FL(8) 6.06 8,446 51.2 6.06 2.62 5.81 4.30 -27.08 79.82 FCBF FCB Fin. Corp. of Neenah WI 26.75 4,073 109.0 28.00 17.00 27.37 -2.27 N.A. 44.59 FFBS FFBS Bancorp of Columbus MS 23.00 1,557 35.8 26.00 21.00 21.00 9.52 N.A. 0.00 FFDF FFD Financial Corp. of OH 14.75 1,455 21.5 15.63 10.12 15.00 -1.67 N.A. 11.32 FFLC FFLC Bancorp of Leesburg FL 30.50 2,318 70.7 31.50 18.25 28.25 7.96 N.A. 41.86 FFFC FFVA Financial Corp. of VA 29.31 4,521 132.5 31.00 17.25 29.37 -0.20 N.A. 42.98 FFWC FFW Corporation of Wabash IN 29.25 711 20.8 29.25 19.50 29.25 0.00 N.A. 33.68 FFYF FFY Financial Corp. of OH 27.12 4,145 112.4 28.25 24.00 27.37 -0.91 N.A. 7.15 FMCO FMS Financial Corp. of NJ 25.25 2,388 60.3 31.50 15.50 27.25 -7.34 180.56 38.36 FFHH FSF Financial Corp. of MN 17.75 3,033 53.8 18.50 11.50 18.12 -2.04 N.A. 17.39 FOBC Fed One Bancorp of Wheeling WV 20.00 2,373 47.5 22.00 14.87 20.75 -3.61 100.00 26.98 FBCI Fidelity Bancorp of Chicago IL 21.25 2,792 59.3 21.75 16.25 21.37 -0.56 N.A. 25.00 FSBI Fidelity Bancorp, Inc. of PA 21.25 1,550 32.9 21.70 15.23 21.25 0.00 174.90 16.89 FFFL Fidelity FSB, MHC of FL (47.7) 26.75 6,771 86.2 26.75 12.50 24.87 7.56 N.A. 50.70 FFED Fidelity Fed. Bancorp of IN 9.25 2,490 23.0 11.75 7.50 8.50 8.82 31.21 -5.13 FFOH Fidelity Financial of OH 15.25 5,579 85.1 16.37 9.62 16.00 -4.69 N.A. 32.61 FIBC Financial Bancorp, Inc. of NY 19.87 1,722 34.2 21.00 14.00 19.50 1.90 N.A. 32.47 FBSI First Bancshares of MO 24.25 1,096 26.6 25.25 15.00 24.25 0.00 90.20 45.91 FBBC First Bell Bancorp of PA 16.00 6,511 104.2 17.37 13.12 16.50 -3.03 N.A. 20.75 FBER First Bergen Bancorp of NJ 17.75 3,000 53.3 19.50 10.00 17.75 0.00 N.A. 54.35 SKBO First Carnegie,MHC of PA(45.0) 15.50 2,300 16.0 15.50 11.62 14.75 5.08 N.A. N.A. FSTC First Citizens Corp of GA 32.00 1,833 58.7 32.00 20.75 31.50 1.59 156.00 26.73 FCME First Coastal Corp. of ME* 10.87 1,359 14.8 11.25 6.00 10.75 1.12 N.A. 40.26 FFBA First Colorado Bancorp of Co 19.00 16,561 314.7 20.12 13.87 17.81 6.68 475.76 11.76 FDEF First Defiance Fin.Corp. of OH 14.75 9,341 137.8 15.50 10.50 15.00 -1.67 N.A. 19.24 FESX First Essex Bancorp of MA* 16.75 7,504 125.7 18.25 11.00 17.00 -1.47 179.17 27.67 FFES First FS&LA of E. Hartford CT 32.50 2,676 87.0 33.25 18.75 31.75 2.36 400.00 41.30 FFSX First FS&LA. MHC of IA (46.1) 29.00 2,828 37.8 35.00 20.75 25.00 16.00 334.78 48.72 BDJI First Fed. Bancorp. of MN 21.00 683 14.3 21.75 14.00 21.25 -1.18 N.A. 13.51 FFBH First Fed. Bancshares of AR 21.00 4,896 102.8 21.62 14.75 21.00 0.00 N.A. 32.33 FTFC First Fed. Capital Corp. of WI 24.50 9,141 224.0 26.50 13.17 24.50 0.00 226.67 56.35 FFKY First Fed. Fin. Corp. of KY 21.50 4,170 89.7 23.00 17.75 20.75 3.61 36.51 6.17 FFBZ First Federal Bancorp of OH 18.50 1,572 29.1 19.75 12.25 18.50 0.00 85.00 15.63 FFCH First Fin. Holdings Inc. of SC 33.00 6,357 209.8 34.50 18.75 31.00 6.45 169.39 46.67 FFBI First Financial Bancorp of IL 18.87 415 7.8 19.25 15.50 19.25 -1.97 N.A. 18.90 FFHC First Financial Corp. of WI(8) 32.25 36,209 1,167.7 32.25 18.40 31.44 2.58 104.76 31.63 FFHS First Franklin Corp. of OH 19.75 1,192 23.5 21.00 14.25 20.00 -1.25 50.53 19.70 FGHC First Georgia Hold. Corp of GA 7.75 3,052 23.7 8.25 4.17 7.50 3.33 102.35 36.68 FSPG First Home Bancorp of NJ 20.12 2,708 54.5 20.12 13.50 20.00 0.60 235.33 45.06 FFSL First Independence Corp. of KS 13.00 997 13.0 13.87 9.25 12.87 1.01 N.A. 25.36 FISB First Indiana Corp. of IN 20.50 10,561 216.5 24.30 17.37 20.50 0.00 51.85 -4.21 FKFS First Keystone Fin. Corp of PA 27.75 1,228 34.1 28.25 17.25 27.50 0.91 N.A. 44.16 ---------------------------------------- Tangible Trailing 12 Mo. Book Book 12 Mo. Core Value/ Value/ Assets/ Financial Institution EPS(3) EPS(3) Share Share(4) Share --------------------- ------- -------- ------ ------- ------- ($) ($) ($) ($) ($) NASDAQ Listed OTC Companies (continued) --------------------------------------- DNFC D&N Financial Corp. of MI 1.10 1.45 10.95 10.84 196.42 DCBI Delphos Citizens Bancorp of OH 0.72 0.72 14.93 14.93 52.56 DIME Dime Community Bancorp of NY 0.94 1.01 14.58 12.56 100.44 DIBK Dime Financial Corp. of CT* 2.82 2.83 13.52 13.08 169.78 EGLB Eagle BancGroup of IL -0.12 0.27 16.69 16.69 140.80 EBSI Eagle Bancshares of Tucker GA 0.64 0.87 12.45 12.45 149.91 EGFC Eagle Financial Corp. of CT 0.19 1.13 22.02 17.19 320.65 ETFS East Texas Fin. Serv. of TX 0.34 0.70 19.97 19.97 109.95 EMLD Emerald Financial Corp of OH 0.81 1.00 9.03 8.89 119.14 EIRE Emerald Island Bancorp, MA* 1.52 1.60 13.39 13.39 189.23 EFBC Empire Federal Bancorp of MT 0.35 0.46 14.76 14.76 42.30 EFBI Enterprise Fed. Bancorp of OH 0.82 0.91 15.82 15.80 128.29 EQSB Equitable FSB of Wheaton MD 2.20 3.51 25.80 25.80 511.96 FFFG F.F.O. Financial Group of FL(8) 0.25 0.36 2.46 2.46 37.89 FCBF FCB Fin. Corp. of Neenah WI 0.60 0.71 11.65 11.65 66.58 FFBS FFBS Bancorp of Columbus MS 0.95 1.20 16.15 16.15 83.98 FFDF FFD Financial Corp. of OH 0.44 0.61 14.50 14.50 58.62 FFLC FFLC Bancorp of Leesburg FL 1.06 1.53 22.51 22.51 167.00 FFFC FFVA Financial Corp. of VA 1.32 1.60 16.29 15.95 123.62 FFWC FFW Corporation of Wabash IN 1.89 2.36 24.11 21.72 253.24 FFYF FFY Financial Corp. of OH 1.28 1.82 19.82 19.82 144.57 FMCO FMS Financial Corp. of NJ 1.56 2.29 15.24 14.97 232.38 FFHH FSF Financial Corp. of MN 0.78 0.99 14.16 14.16 124.71 FOBC Fed One Bancorp of Wheeling WV 0.99 1.41 16.63 15.86 150.32 FBCI Fidelity Bancorp of Chicago IL 0.95 1.33 18.22 18.18 175.45 FSBI Fidelity Bancorp, Inc. of PA 1.08 1.72 15.83 15.83 234.39 FFFL Fidelity FSB, MHC of FL (47.7) 0.50 0.79 12.36 12.27 147.58 FFED Fidelity Fed. Bancorp of IN 0.17 0.30 5.17 5.17 100.52 FFOH Fidelity Financial of OH 0.51 0.75 12.17 10.74 94.06 FIBC Financial Bancorp, Inc. of NY 0.87 1.55 15.35 15.28 164.04 FBSI First Bancshares of MO 1.29 1.56 20.26 20.23 149.61 FBBC First Bell Bancorp of PA 1.06 1.23 10.78 10.78 109.72 FBER First Bergen Bancorp of NJ 0.38 0.66 13.47 13.47 94.92 SKBO First Carnegie,MHC of PA(45.0) 0.24 0.35 10.21 10.21 65.23 FSTC First Citizens Corp of GA 1.45 1.43 16.26 12.20 178.05 FCME First Coastal Corp. of ME* 4.50 4.36 10.35 10.35 112.13 FFBA First Colorado Bancorp of Co 0.81 0.80 11.79 11.63 91.20 FDEF First Defiance Fin.Corp. of OH 0.43 0.59 12.60 12.60 59.12 FESX First Essex Bancorp of MA* 1.32 1.15 11.57 10.05 165.97 FFES First FS&LA of E. Hartford CT 1.52 2.50 23.63 23.63 367.56 FFSX First FS&LA. MHC of IA (46.1) 0.69 1.19 13.74 13.63 165.69 BDJI First Fed. Bancorp. of MN 0.47 1.00 17.60 17.60 161.92 FFBH First Fed. Bancshares of AR 0.81 1.11 16.36 16.36 109.31 FTFC First Fed. Capital Corp. of WI 1.18 1.37 10.64 9.97 167.40 FFKY First Fed. Fin. Corp. of KY 1.14 1.36 12.40 11.68 90.50 FFBZ First Federal Bancorp of OH 0.88 1.23 9.66 9.65 128.03 FFCH First Fin. Holdings Inc. of SC 1.43 2.10 16.03 16.03 262.26 FFBI First Financial Bancorp of IL -0.85 0.94 17.63 17.63 203.69 FFHC First Financial Corp. of WI(8) 1.51 2.03 11.67 11.37 163.81 FFHS First Franklin Corp. of OH 0.36 1.21 17.17 17.06 190.39 FGHC First Georgia Hold. Corp of GA 0.32 0.25 4.21 3.86 51.24 FSPG First Home Bancorp of NJ 1.64 2.14 12.85 12.64 192.91 FFSL First Independence Corp. of KS 0.47 0.75 11.60 11.60 111.21 FISB First Indiana Corp. of IN 1.17 1.43 13.77 13.60 144.00 FKFS First Keystone Fin. Corp of PA 1.35 1.93 19.09 19.09 261.24
RP FINANCIAL, LC. - ----------------------------------------- Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 22209 (703) 528-1700 (continued) Weekly Thrift Market Line - Part One Prices As Of August 29, 1997
Market Capitalization Price Change Data ----------------------- ----------------------------------------------- Shares Market 52 Week (1) % Change From ---------------- ---------------------------- Price/ Outst- Capital- Last Last Dec 31, Dec 31, Financial Institution Share(1) anding ization(9) High Low Week Week 1994(2) 1995(2) - --------------------- ------- ------- ------- ------- ------- ------- ------- ------- -------- ($) (000) ($Mil) ($) ($) ($) (%) (%) (%) NASDAQ Listed OTC Companies (continued) - --------------------------------------- FLKY First Lancaster Bncshrs of KY 15.69 959 15.0 16.25 13.87 15.25 2.89 N.A. 7.32 FLFC First Liberty Fin. Corp. of GA 22.50 7,725 173.8 23.75 14.67 22.75 -1.10 342.91 22.48 CASH First Midwest Fin. Corp. of IA 18.19 2,734 49.7 18.25 15.00 18.00 1.06 N.A. 18.66 FMBD First Mutual Bancorp of IL 15.00 3,507 52.6 16.12 12.87 15.50 -3.23 N.A. 0.00 FMSB First Mutual SB of Bellevue WA* 21.00 2,702 56.7 22.25 12.27 20.37 3.09 170.97 31.99 FNGB First Northern Cap. Corp of WI 12.75 8,834 112.6 13.50 7.62 12.75 0.00 75.62 56.83 FFPB First Palm Beach Bancorp of FL 35.00 5,031 176.1 35.00 22.62 32.25 8.53 N.A. 48.18 FSLA First SB SLA NHC of NJ (47.5) 29.87 7,264 101.7 30.00 14.37 28.50 4.81 198.70 61.46 SOPN First SB, SSB, Moore Co. of NC 20.62 3,679 75.9 24.00 16.75 20.37 1.23 N.A. 9.97 FWWB First Savings Bancorp of WA* 24.75 10,519 260.3 24.87 16.50 24.12 2.61 N.A. 34.73 SHEN First Shenango Bancorp of PA 27.50 2,072 57.0 29.25 20.25 28.50 -3.51 N.A. 22.22 FSFC First So.east Fin. Corp. of SC(8) 14.75 4,388 64.7 15.12 9.12 14.69 0.41 N.A. 57.25 FBNW FirstBank Corp of Clarkston WA 17.50 1,984 34.7 19.00 15.50 17.87 -2.07 N.A. N.A. FFDB FirstFed Bancorp of AL 16.53 1,148 19.0 18.50 12.50 16.53 0.00 N.A. 32.24 FSPT FirstSpartan Fin. Corp. of SC 35.37 4,430 156.7 37.00 35.00 35.50 -0.37 N.A. N.A. FLAG Flag Financial Corp of GA 14.75 2,037 30.0 14.87 9.75 14.50 1.72 50.51 37.21 FLGS Flagstar Bancorp, Inc of NI 19.37 13,670 264.8 20.00 13.00 18.75 3.31 N.A. N.A. FFIC Flushing Fin. Corp. of NY* 20.00 7,979 159.6 23.50 17.37 20.25 -1.23 N.A. 10.38 FBHC Fort Bend Holding Corp. of TX 34.25 827 28.3 34.25 16.87 32.00 7.03 N.A. 34.31 FTSB Fort Thomas Fin. Corp. of KY 12.00 1,495 17.9 14.75 9.25 10.69 12.25 N.A. -17.92 FKKY Frankfort First Bancorp of KY 10.87 3,280 35.7 12.25 8.00 9.75 11.49 N.A. -4.40 FTNB Fulton Bancorp of MO 21.00 1,719 36.1 21.00 12.50 20.75 1.20 N.A. 36.63 GFSB GFS Bancorp of Grinnell IA 14.25 988 14.1 14.50 10.12 14.50 -1.72 N.A. 34.18 GUPB GFSB Bancorp of Gallup NM 18.75 839 15.7 19.75 13.50 18.75 0.00 N.A. 18.15 GSLA GS Financial Corp. of LA 15.75 3,438 54.1 16.12 13.37 15.25 3.28 N.A. N.A. GOSB GSB Financial Corp. of NY 14.37 2,248 32.3 14.87 14.25 14.75 -2.58 N.A. N.A. GWBC Gateway Bancorp of KY(8) 17.62 1,076 19.0 18.25 13.25 17.62 0.00 N.A. 23.65 GBCI Glacier Bancorp of MT 17.75 6,812 120.9 20.25 15.33 18.50 -4.05 267.49 8.70 GFCO Glenway Financial Corp. of OH 25.00 1,140 28.5 27.00 18.25 26.00 -3.85 N.A. 21.95 GTPS Great American Bancorp of IL 18.00 1,760 31.7 18.00 13.37 17.62 2.16 N.A. 21.54 GTFN Great Financial Corp. of KY 33.37 13,791 460.2 35.12 27.62 33.87 -1.48 N.A. 14.59 GSBC Great Southern Bancorp of MO 17.00 8,105 137.8 18.00 14.12 16.87 0.77 482.19 -4.55 GDVS Greater DV SB,MHC of PA (19.9)* 20.75 3,272 13.5 21.50 9.25 16.75 23.88 N.A. 100.10 GSFC Green Street Fin. Corp. of NC 18.37 4,298 79.0 19.00 13.75 17.25 6.49 N.A. 18.52 GFED Guarnty FS&LA,MHC of MO (31.0)(8) 19.00 3,125 18.4 20.50 9.75 19.00 0.00 N.A. 57.55 HCBB HCB Bancshares of AR 13.75 2,645 36.4 14.12 12.62 13.50 1.85 N.A. N.A. HEMT HF Bancorp of Hemet CA 14.87 6,282 93.4 15.87 9.25 14.75 0.81 N.A. 33.72 HFFC HF Financial Corp. of S? 22.00 2,979 65.5 22.75 14.75 22.50 -2.22 340.00 27.09 HFNC HFNC Financial Corp. of NC 16.12 17,192 277.1 22.06 14.87 15.37 4.88 N.A. -9.79 HMNF HMN Financial, Inc. of MN 24.50 4,212 103.2 25.75 15.75 24.50 0.00 N.A. 35.21 HALL Hallmark Capital Corp. of WI 22.25 1,443 32.1 23.75 15.00 21.50 3.49 N.A. 25.35 HARB Harbor FSB, NHC of FL (46.6) 55.50 4,970 128.5 55.50 27.00 46.50 19.35 N.A. 55.24 HABF Harbor Federal Bancorp of ND 19.75 1,693 33.4 20.00 13.50 19.12 3.29 97.50 25.40 HFSA Hardin Bancorp of Hardin NO 16.50 859 14.2 16.75 11.25 16.50 0.00 N.A. 32.00 HARL Harleysville SA of PA 26.00 1,652 43.0 27.25 14.00 27.25 -4.59 46.48 64.56 HFGI Harrington Fin. Group of IN 12.00 3,257 39.1 13.00 9.75 12.12 -0.99 N.A. 11.63 HARS Harris SB, NHC of PA (24.3) 38.00 11,223 103.5 38.00 14.75 36.00 5.56 N.A. 108.22 HFFB Harrodsburg 1st Fin Bcrp of KY 15.25 2,025 30.9 19.00 14.75 15.25 0.00 N.A. -19.18 HHFC Harvest Home Fin. Corp. of OH 11.75 915 10.8 13.75 9.25 11.75 0.00 N.A. 20.51 HAVN Haven Bancorp of Woodhaven NY 37.87 4,377 165.8 38.37 25.56 37.12 2.02 N.A. 32.32 HVFD Haverfield Corp. of OH(8) 26.75 1,906 51.0 27.37 17.00 26.25 1.90 72.58 39.91 HTHR Hawthorne Fin. Corp. of CA 17.62 3,035 53.5 17.75 6.62 16.44 7.18 -35.93 116.73 HNLK Hemlock Fed. Fin. Corp. of IL 15.37 2,076 31.9 15.50 12.50 15.37 0.00 N.A. N.A. HBNK Highland Federal Bank of CA 29.25 2,300 67.3 29.25 14.25 26.50 10.38 N.A. 72.06 HIFS Hingham Inst. for Sav. of MA* 24.25 1,303 31.6 25.25 14.50 23.62 2.67 431.80 29.33 Current Per Share Financials ----------------------------------------------- Tangible Trailing 12 Mo. Book Book 12 Mo. Core Value/ Value/ Assets/ Financial Institution EPS(3) EPS(3) Share Share(4) Share - --------------------- -------- ------- -------- -------- -------- ($) ($) ($) ($) ($) NASDAQ Listed OTC Companies (continued) - --------------------------------------- FLKY First Lancaster Bncshrs of KY 0.46 0.56 14.44 14.44 42.18 FLFC First Liberty Fin. Corp. of GA 1.32 1.08 12.30 11.09 166.85 CASH First Midwest Fin. Corp. of IA 1.00 1.27 15.62 13.84 137.10 FMBD First Mutual Bancorp of IL 0.10 0.32 15.30 11.59 119.10 FMSB First Mutual SB of Bellevue WA* 1.56 1.52 10.91 10.91 159.89 FNGB First Northern Cap. Corp of WI 0.44 0.63 8.14 8.14 72.19 FFPB First Palm Beach Bancorp of FL -0.09 0.08 21.76 21.23 331.23 FSLA First SB SLA MHC of NJ (47.5) 0.80 1.25 13.39 11.94 142.18 SOPN First SB, SSB, Moore Co. of NC 1.06 1.27 18.26 18.26 79.97 FWWB First Savings Bancorp of WA* 0.89 0.84 14.13 13.00 95.79 SHEN First Shenango Bancorp of PA 1.69 2.20 21.75 21.75 198.56 FSFC First So.east Fin. Corp. of SC(8) 0.01 0.70 7.80 7.80 76.29 FBNW FirstBank Corp of Clarkston WA 0.54 0.44 14.00 14.00 77.62 FFDB FirstFed Bancorp of AL 0.95 1.45 14.48 13.20 153.77 FSPT FirstSpartan Fin. Corp. of SC 1.00 1.16 27.63 27.63 104.97 FLAG Flag Financial Corp of GA -0.03 0.17 10.44 10.44 108.95 FLGS Flagstar Bancorp, Inc of NI 0.00 0.00 6.07 6.07 111.13 FFIC Flushing Fin. Corp. of NY* 0.93 0.97 16.68 16.68 107.79 FBHC Fort Bend Holding Corp. of TX 0.74 1.71 23.24 21.64 385.33 FTSB Fort Thomas Fin. Corp. of KY 0.33 0.50 10.40 10.40 64.84 FKKY Frankfort First Bancorp of KY -0.11 0.22 6.94 6.94 40.38 FTNB Fulton Bancorp of MO 0.41 0.58 14.47 14.47 57.86 GFSB GFS Bancorp of Grinnell IA 0.88 1.08 10.66 10.66 93.18 GUPB GFSB Bancorp of Gallup NM 0.69 0.87 16.88 16.88 103.59 GSLA GS Financial Corp. of LA 0.34 0.34 16.36 16.36 35.85 GOSB GSB Financial Corp. of NY 0.52 0.44 13.78 13.78 50.92 GWBC Gateway Bancorp of KY(8) 0.52 0.72 16.04 16.04 59.32 GBCI Glacier Bancorp of MT 1.10 1.23 8.12 7.90 83.33 GFCO Glenway Financial Corp. of OH 1.06 1.78 23.89 23.57 251.83 GTPS Great American Bancorp of IL 0.19 0.24 16.68 16.68 77.83 GTFN Great Financial Corp. of KY 1.59 1.51 20.40 19.53 220.89 GSBC Great Southern Bancorp of MO 1.15 1.30 7.45 7.45 87.33 GDVS Greater DV SB,MHC of PA (19.9)* 0.23 0.42 8.64 8.64 74.69 GSFC Green Street Fin. Corp. of NC 0.56 0.68 14.73 14.73 40.62 GFED Guarnty FS&LA,MHC of ?O (31.0)(8) 0.37 0.56 8.80 8.80 63.86 HCBB HCB Bancshares of AR -0.08 0.29 13.73 13.16 75.24 HEMT HF Bancorp of Hemet CA -0.40 -2.74 12.87 10.53 156.71 HFFC HF Financial Corp. of SD 1.23 1.67 17.78 17.78 188.54 HFNC HFNC Financial Corp. of NC 0.43 0.59 9.37 9.37 52.08 HMNF HMN Financial, Inc. of MN 0.94 1.17 19.42 19.42 134.58 HALL Hallmark Capital Corp. of WI 1.33 1.68 20.56 20.56 284.01 HARB Harbor FSB, NHC of FL (46.6) 2.05 2.64 18.85 18.23 224.69 HABF Harbor Federal Bancorp of ND 0.58 0.90 16.48 16.48 127.80 HFSA Hardin Bancorp of Hardin NO 0.58 0.89 15.69 15.69 125.75 HARL Harleysville SA of PA 1.46 2.00 13.31 13.31 203.79 HFGI Harrington Fin. Group of IN 0.61 0.51 7.67 7.67 137.18 HARS Harris SB, NHC of PA (24.3) 0.79 0.99 14.59 12.76 182.15 HFFB Harrodsburg 1st Fin Bcrp of KY 0.55 0.73 14.49 14.49 53.80 HHFC Harvest Home Fin. Corp. of OH 0.23 0.50 11.35 11.35 90.82 HAVN Haven Bancorp of Woodhaven NY 2.09 3.11 24.20 24.12 407.02 HVFD Haverfield Corp. of OH(8) 1.02 1.94 15.52 15.52 181.61 HTHR Hawthorne Fin. Corp. of CA 0.64 1.38 13.07 13.07 284.38 HNLK Hemlock Fed. Fin. Corp. of IL 0.10 0.55 14.57 14.57 79.44 HBNK Highland Federal Bank of CA 0.96 1.41 16.39 16.39 219.30 HIFS Hingham Inst. for Sav. of MA* 1.86 1.86 15.62 15.62 166.99
RP FINANCIAL, LC. - ----------------------------------- Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 22209 (703) 528-1700 (continued) Weekly Thrift Market Line - Part One Prices As Of August 29, 1997
Market Capitalization Price Change Data ----------------------- ----------------------------------------------- Shares Market 52 Week (1) % Change From --------------- ----------------------- Price/ Outst- Capital- Last Last Dec 31, Dec 31, Financial Institution Share(1) anding ization(9) High Low Week Week 1994(2) 1995(2) --------------------- ------- ------- ------- ------- ------- ------- ------- ------- -------- ($) (000) ($Mil) ($) ($) ($) (%) (%) (%) NASDAQ Listed OTC Companies (continued) --------------------------------------- HBEI Home Bancorp of Elgin IL 17.50 6,856 120.0 19.31 11.81 17.50 0.00 N.A. 29.63 HBFW Home Bancorp of Fort Wayne IN 22.00 2,525 55.6 22.25 15.87 21.37 2.95 N.A. 15.79 HBBI Home Building Bancorp of IN 20.50 312 6.4 22.00 17.00 20.50 0.00 N.A. 3.80 HCFC Home City Fin. Corp. of OH 15.50 952 14.8 15.75 12.00 15.75 -1.59 N.A. 16.98 HOMF Home Fed Bancorp of Seymour IN 30.00 3,396 101.9 31.00 17.50 29.75 0.84 198.51 16.50 HWEN Home Financial Bancorp of IN 15.75 470 7.4 15.75 12.00 14.87 5.92 N.A. 23.53 HPBC Home Port Bancorp, Inc. of MA* 22.37 1,842 41.2 22.37 14.50 19.50 14.72 179.63 35.58 HMCI Homecorp, Inc. of Rockford IL 15.25 1,693 25.8 16.00 11.83 15.75 -3.17 52.50 19.61 HZFS Horizon Fin'l. Services of IA 18.87 426 8.0 19.75 14.12 18.87 0.00 N.A. 24.80 HRZB Horizon Financial Corp. of WA* 15.00 7,417 111.3 16.50 10.65 15.00 0.00 31.35 27.77 IBSF IBS Financial Corp. of NJ 17.12 11,012 188.5 18.75 12.50 17.25 -0.75 N.A. 25.97 ISBF ISB Financial Corp. of LA 25.37 6,901 175.1 26.25 14.75 24.75 2.51 N.A. 40.94 ITLA Imperial Thrift & Loan of CA* 17.75 7,836 139.1 18.25 13.00 17.87 -0.67 N.A. 18.33 IFSB Independence FSB of DC 13.03 1,281 16.7 14.75 6.75 13.16 -0.99 551.50 62.87 INCB Indiana Comm. Bank, SB of IN 15.75 922 14.5 19.00 13.25 15.25 3.28 N.A. -3.08 INBI Industrial Bancorp of OH 14.75 5,277 77.8 15.12 10.50 15.12 -2.45 N.A. 15.69 IWBK Interwest SB of Oak Harbor WA 39.50 8,036 317.4 40.12 27.50 39.50 0.00 295.00 22.48 IPSW Ipswich SB of Ipswich MA* 13.00 1,188 15.4 13.12 4.87 13.00 0.00 N.A. 116.67 JXVL Jacksonville Bancorp of TX 16.75 2,490 41.7 17.00 11.25 16.62 0.78 N.A. 14.57 JXSB Jcksnville SB,MHC of IL (45.6) 21.50 1,272 12.5 21.50 11.50 19.50 10.26 N.A. 62.26 JSBA Jefferson Svgs Bancorp of MO 32.75 5,005 163.9 33.00 22.25 32.50 0.77 N.A. 25.96 JOAC Joachim Bancorp of MO 14.50 722 10.5 15.25 12.50 14.37 0.90 N.A. 0.00 KSAV KS Bancorp of Kenly NC 18.50 885 16.4 19.12 13.59 18.50 0.00 N.A. 24.08 KSBK KSB Bancorp of Kingfield ME(8)* 14.00 1,238 17.3 16.00 7.00 12.75 9.80 N.A. 82.53 KFBI Klamath First Bancorp of OR 19.62 10,019 196.6 20.12 13.94 19.00 3.26 N.A. 24.57 LSBI LSB Fin. Corp. of Lafayette IN 20.69 932 19.3 21.25 15.24 20.62 0.34 N.A. 11.42 LVSB Lakeview SB of Paterson NJ 32.25 2,302 74.2 33.87 20.45 32.25 0.00 N.A. 29.67 LARK Landmark Bancshares of KS 24.25 1,711 41.5 24.25 15.50 21.50 12.79 N.A. 34.72 LARL Laurel Capital Group of PA 22.50 1,443 32.5 22.50 14.75 21.50 4.65 75.78 36.36 LSBX Lawrence Savings Bank of MA* 11.37 4,274 48.6 12.87 6.00 11.37 0.00 230.52 39.85 LFED Leeds FSB, MHC of MD (36.3) 26.25 3,455 32.9 26.25 13.00 24.50 7.14 N.A. 64.06 LXMO Lexington B&L Fin. Corp. of MO 16.00 1,138 18.2 16.62 10.00 15.87 0.82 N.A. 18.52 LIFB Life Bancorp of Norfolk VA 24.25 9,847 238.8 26.62 15.25 24.62 -1.50 N.A. 34.72 LFBI Little Falls Bancorp of NJ 17.37 2,745 47.7 17.50 10.37 17.37 0.00 N.A. 36.24 LOGN Logansport Fin. Corp. of IN 14.50 1,260 18.3 15.00 11.12 14.25 1.75 N.A. 28.89 LONF London Financial Corp. of OH 15.00 515 7.7 17.50 10.25 15.00 0.00 N.A. 6.23 LISB Long Island Bancorp, Inc of NY 39.87 23,968 955.6 41.00 27.75 38.87 2.57 N.A. 13.91 MAFB MAF Bancorp of IL 30.75 15,393 473.3 34.75 17.17 31.00 -0.81 261.76 32.71 MBLF MBLA Financial Corp. of MO 23.75 1,298 30.8 24.75 19.00 23.50 1.06 N.A. 25.00 MFBC MFB Corp. of Mishawaka IN 23.50 1,690 39.7 23.50 15.50 21.00 11.90 N.A. 41.40 MLBC ML Bancorp of Villanova PA 20.50 10,566 216.6 21.00 12.69 21.00 -2.38 N.A. 45.18 MSBF MSB Financial Corp. of MI 13.25 1,249 16.5 16.50 8.62 13.50 -1.85 N.A. 39.47 MGNL Magna Bancorp of MS(8) 25.37 13,754 348.9 27.37 16.75 25.00 1.48 407.40 44.97 MARN Marion Capital Holdings of IN 23.00 1,768 40.7 23.75 19.25 23.00 0.00 N.A. 19.48 MRKF Market Fin. Corp. of OH 14.19 1,336 19.0 14.75 12.25 14.12 0.50 N.A. N.A. MFCX Marshalltown Fin. Corp. of IA(8) 16.75 1,411 23.6 16.87 14.25 16.75 0.00 N.A. 12.64 MFSL Maryland Fed. Bancorp of MD 43.00 3,210 138.0 50.50 28.09 43.56 -1.29 309.52 23.74 MASB MassBank Corp. of Reading MA* 51.25 2,681 137.4 53.00 32.62 51.50 -0.49 315.65 34.44 MFLR Mayflower Co-Op. Bank of MA* 17.50 890 15.6 19.75 14.75 18.00 -2.78 250.00 2.94 MECH Mechanics SB of Hartford CT* 22.50 5,290 119.0 22.75 13.25 22.75 -1.10 N.A. 42.86 MDBK Medford Bank of Medford, MA* 31.50 4,541 143.0 32.00 23.00 30.25 4.13 350.00 22.33 MERI Meritrust FSB of Thibodaux LA 41.03 774 31.8 41.50 30.75 40.50 1.31 N.A. 29.76 MWBX MetroWest Bank of MA* 6.25 13,953 87.2 6.81 3.75 6.25 0.00 51.70 16.39 MCBS Mid Continent Bancshares of KS 29.75 1,958 58.3 31.75 18.50 30.00 -0.83 N.A. 27.30 MIFC Mid Iowa Financial Corp. of IA 9.25 1,676 15.5 10.00 6.00 9.62 -3.85 85.00 45.21
Current Per Share Financial ---------------------------------------- Tangible Trailing 12 Mo. Book Book 12 Mo. Core Value/ Value/ Assets/ Financial Institution EPS(3) EPS(3) Share Share(4) Share --------------------- -------- ------- ------- ------- ------- ($) ($) ($) ($) ($) NASDAQ Listed OTC Companies (continued) --------------------------------------- HBEI Home Bancorp of Elgin IL 0.25 0.43 13.73 13.73 51.43 HBFW Home Bancorp of Fort Wayne IN 0.72 1.15 17.62 17.62 132.62 HBBI Home Building Bancorp of IN 0.29 0.74 18.51 18.51 144.44 HCFC Home City Fin. Corp. of OH 0.51 0.77 14.77 14.77 71.68 HOMF Home Fed Bancorp of Seymour IN 2.02 2.35 17.05 16.53 201.06 HWEN Home Financial Bancorp of IN 0.54 0.68 15.31 15.31 90.44 HPBC Home Port Bancorp, Inc. of MA* 1.72 1.71 11.39 11.39 107.90 HMCI Homecorp, Inc. of Rockford IL 0.27 0.85 12.81 12.81 195.87 HZFS Horizon Fin'l. Services of IA 0.65 1.04 19.75 19.75 201.81 HRZB Horizon Financial Corp. of WA* 1.07 1.05 10.91 10.91 69.93 IBSF IBS Financial Corp. of NJ 0.33 0.58 11.59 11.59 66.59 ISBF ISB Financial Corp. of LA 0.77 1.04 16.58 14.06 136.06 ITLA Imperial Thrift & Loan of CA* 1.45 1.45 11.92 11.87 108.50 IFSB Independence FSB of DC 0.29 0.66 13.38 11.73 205.12 INCB Indiana Comm. Bank, SB of IN 0.16 0.50 12.27 12.27 99.06 INBI Industrial Bancorp of OH 0.45 0.88 11.63 11.63 65.68 IWBK Interwest SB of Oak Harbor WA 1.82 2.47 15.46 15.12 228.05 IPSW Ipswich SB of Ipswich MA* 1.68 1.32 9.11 9.11 159.41 JXVL Jacksonville Bancorp of TX 0.90 1.18 13.55 13.55 90.84 JXSB Jcksnville SB,MHC of IL (45.6) 0.36 0.79 13.43 13.43 127.94 JSBA Jefferson Svgs Bancorp of MO 0.69 1.63 21.24 16.18 259.13 JOAC Joachim Bancorp of MO 0.23 0.38 13.63 13.63 48.39 KSAV KS Bancorp of Kenly NC 1.08 1.40 16.22 16.21 119.91 KSBK KSB Bancorp of Kingfield ME(8)* 1.04 1.08 8.10 7.62 113.08 KFBI Klamath First Bancorp of OR 0.55 0.83 14.20 14.20 72.65 LSBI LSB Fin. Corp. of Lafayette IN 1.51 1.33 18.44 18.44 208.28 LVSB Lakeview SB of Paterson NJ 2.78 1.93 19.91 15.92 209.23 LARK Landmark Bancshares of KS 1.13 1.33 18.38 18.38 133.31 LARL Laurel Capital Group of PA 1.61 2.03 14.73 14.73 146.91 LSBX Lawrence Savings Bank of MA* 1.40 1.38 7.45 7.45 85.71 LFED Leeds FSB, MHC of MD (36.3) 0.63 0.90 13.20 13.20 81.59 LXMO Lexington B&L Fin. Corp. of MO 0.55 0.71 14.74 14.74 52.05 LIFB Life Bancorp of Norfolk VA 1.01 1.23 15.94 15.49 151.14 LFBI Little Falls Bancorp of NJ 0.29 0.51 14.51 13.40 109.29 LOGN Logansport Fin. Corp. of IN 0.74 0.96 12.67 12.67 65.99 LONF London Financial Corp. of OH 0.48 0.73 14.60 14.60 74.25 LISB Long Island Bancorp, Inc of NY 1.44 1.67 22.17 21.95 246.53 MAFB MAF Bancorp of IL 1.51 2.10 16.57 14.39 210.25 MBLF MBLA Financial Corp. of MO 1.11 1.42 21.98 21.98 180.91 MFBC MFB Corp. of Mishawaka IN 0.77 1.16 20.05 20.05 146.89 MLBC ML Bancorp of Villanova PA 1.36 1.23 13.68 13.44 196.03 MSBF MSB Financial Corp. of MI 0.65 0.80 10.16 10.16 59.81 MGNL Magna Bancorp of MS(8) 1.35 1.49 10.06 9.79 98.39 MARN Marion Capital Holdings of IN 1.38 1.65 22.10 22.10 98.02 MRKF Market Fin. Corp. of OH 0.32 0.32 14.82 14.82 42.35 MFCX Marshalltown Fin. Corp. of IA(8) 0.30 0.65 14.23 14.23 90.38 MFSL Maryland Fed. Bancorp of MD 2.17 3.14 30.22 29.84 360.57 MASB MassBank Corp. of Reading MA* 3.64 3.45 35.92 35.92 337.72 MFLR Mayflower Co-Op. Bank of MA* 1.39 1.31 13.67 13.44 141.20 MECH Mechanics SB of Hartford CT* 2.76 2.76 15.93 15.93 155.69 MDBK Medford Bank of Medford, MA* 2.45 2.29 21.24 19.79 236.19 MERI Meritrust FSB of Thibodaux LA 1.99 3.10 24.22 24.22 295.20 MWBX MetroWest Bank of MA* 0.52 0.52 3.02 3.02 40.60 MCBS Mid Continent Bancshares of KS 1.87 2.12 19.59 19.59 208.68 MIFC Mid Iowa Financial Corp. of IA 0.71 1.00 7.00 7.00 74.91
RP FINANCIAL, LC. _________________________________________ Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 22209 (703) 528-1700 (continued) Weekly Thrift Market Line -Part One Prices As Of August 29, 1997
Market Capital ization Price Change Data _______ ________________ ______ _________________________________________ Shares Market 52Week (1) % Change From ______ _________ _______________________ Price/ Outst- Capital- Last Last Dec 31, Dec 31, Financial Institution Share(1 ) andingization(9) High Low Week Week 1994(2) 1995(2) _____________________ _______ _______ _______ ______ _____ _______ _______ _______ ________ ($) 0($Mil) ($) ($) ($) (%) (%) (%) NASDAQ Listed OTC Companies (continued) _______________________________________ MCBN Mid-Coast Bancorp of ME 25.5 233 5.9 25.75 18.00 25.75 -0.97 346.58 34.21 MWBI Midwest Bancshares, Inc. of IA 36 348 12.5 360 24.50 33.876 .29 260.00 35.85 MWFD Midwest Fed. Fin. Corp of WI 20.75 1,628 33.8 24.50 16.00 21 -1.19 315.00 12.16 MFFC Milton Fed. Fin. Corp. of OH 13.75 2,310 31.8 160 12.75 13.62 0.95 N.A. -5.17 MIVI Miss. View Hold. Co. of MN 15.5 819 12.7 15.75 11.75 15.5 0.00 N.A. 29.17 MBSP Mitchell Bancorp of NC* 16.62 931 15.5 17.12 12.12 16.75 -0.78 N.A. 16.63 MBBC Monterey Bay Bancorp of CA 16.62 3,242 53.9 18.25 13.25 16.62 0.00 N.A. 12.68 MONT Montgomery Fin. Corp. of IN 11.94 1,653 19.7 140 11.00 11.87 0.59 N.A. -8.15 MSBK Mutual SB, FSB of Bay City MI 10.5 4,274 44.9 11.25 5.12 10.5 0.00 20.00 90.91 NHTB NH Thrift Bancshares of NH 18.5 2,048 37.9 18.50 9.87 16.62 11.31 300.43 46.59 NSLB NS&L Bancorp of Neosho MO 18.47 707 13.1 18.75 12.00 18.62 -0.81 N.A. 35.61 NMSB Newmil Bancorp. of CT* 12.87 3,834 49.3 13.62 7.00 12.75 0.94 102.04 32.00 NASB North American SB of MO 49 2,229 109.2 550 30.75 51.75 -5.31 ***.** 43.07 NBSI North Bancshares of Chicago IL 22 997 21.9 22.75 15.75 22.75 -3.30 N.A. 33.33 FFFD North Central Bancshares of IA 16.62 3,258 54.1 170 11.50 17 -2.24 N.A. 22.57 NBN Northeast Bancorp of ME* 14.5 1,275 18.5 14.94 12.75 14.62 -0.82 23.40 3.57 NEIB Northeast Indiana Bncrp of IN 16.75 1,763 29.5 180 12.00 16.75 0.00 N.A. 22.98 NWEQ Northwest Equity Corp. of WI 16.5 839 13.8 16.50 10.25 16.5 0.00 N.A. 36.14 NWSB Northwest SB, MHC of PA (30.7) 22 23,376 157.9 22.25 10.87 20.87 5.41 N.A. 64.55 NSSY Norwalk Savings Society of CT* 34.87 2,410 84 36.50 20.87 34.25 1.81 N.A. 49.21 NSSB Norwich Financial Corp. of CT* 27.75 5,413 150.2 27.75 15.50 25 11.00 296.43 41.44 NTMG Nutmeg FS&LA of CT 10.75 738 7.9 110 7.00 11 -2.27 N.A. 43.33 OHSL OHSL Financial Corp. of OH 23.25 1,196 27.8 25.25 19.50 23.25 0.00 N.A. 8.80 OCFC Ocean Fin. Corp. of NJ 33.62 8,606 289.3 35.75 22.37 33.5 0.36 N.A. 31.84 OCN Ocwen Financial Corp. of FL 42.69 26,800 1,144.10 44.75 20.25 43.25 -1.29 N.A. 59.59 OFCP Ottawa Financial Corp. of MI 25.37 4,911 124.6 25.62 16.00 25.25 0.48 N.A. 50.92 PFFB PFF Bancorp of Pomona CA 19.25 18,716 360.3 19.75 11.50 19.37 -0.62 N.A. 29.46 PSFI PS Financial of Chicago IL 14.75 2,182 32.2 15.50 11.62 15 -1.67 N.A. 25.53 PVFC PVF Capital Corp. of OH 21.37 2,556 54.6 21.75 12.27 21.37 0.00 385.68 49.23 PCCI Pacific Crest Capital of CA* 15 2,938 44.1 15.37 8.13 15.25 -1.64 N.A. 30.43 PAMM PacificAmerica Money Ctr of CA* 23.5 1,900 44.7 260 10.12 23.5 0.00 N.A. 62.07 PALM Palfed, Inc. of Aiken SC 16.62 5,284 87.8 17.50 13.00 15.87 4.73 8.13 18.71 PBCI Pamrapo Bancorp, Inc. of NJ 20.75 2,843 59 23.75 18.50 20.75 0.00 268.56 3.75 PFED Park Bancorp of Chicago IL 16.37 2,431 39.8 16.87 10.31 16.37 0.00 N.A. 25.92 PVSA Parkvale Financial Corp of PA 29.25 4,055 118.6 29.75 21.35 29.25 0.00 253.26 12.50 PEEK Peekskill Fin. Corp. of NY 16.37 3,193 52.3 170 12.50 16.25 0.74 N.A. 14.88 PFSB PennFed Fin. Services of NJ 28.75 4,822 138.6 30.50 17.50 29 -0.86 N.A. 41.98 PWBC PennFirst Bancorp of PA 15.63 5,306 82.9 16.59 12.27 16.37 -4.52 95.86 26.15 PWBK Pennwood SB of PA* 16.75 580 9.7 16.75 9.75 15.75 6.35 N.A. 21.82 PBKB People's SB of Brockton MA* 16.75 3,595 60.2 17.37 10.00 16.25 3.08 181.99 57.72 PFDC Peoples Bancorp of Auburn IN 23.5 2,274 53.4 270 19.25 24.75 -5.05 34.29 16.05 PBCT Peoples Bank, MHC of CT (40.1)* 28.06 61,053 686.2 290 14.08 27.75 1.12 256.54 45.77 PFFC Peoples Fin. Corp. of OH 17.25 1,491 25.7 17.37 10.87 17.37 -0.69 N.A. 27.78 PHBK Peoples Heritage Fin Grp of ME* 37.25 27,371 1,019.60 40.25 21.88 37.37 -0.32 143.31 33.04 PSFC Peoples Sidney Fin. Corp of OH 16 1,785 28.6 16.50 12.56 16 0.00 N.A. N.A. PERM Permanent Bancorp of IN 22.75 2,011 45.8 26.50 16.25 23 -1.09 N.A. 12.35 PMFI Perpetual Midwest Fin. of IA 21.5 1,883 40.5 220 17.25 20.12 6.86 N.A. 11.69 PERT Perpetual of SC, MHC (46.8) 40.63 1,505 28.6 410 20.25 39 4.18 N.A. 67.55 PCBC Perry Co. Fin. Corp. of MO 21.37 828 17.7 22.25 17.00 20.5 4.24 N.A. 25.71 PHFC Pittsburgh Home Fin. of PA 19.5 1,969 38.4 19.50 10.25 19.37 0.67 N.A. 45.85 PFSL Pocahnts Fed, MHC of AR (47.0) 27 1,632 20.8 27.25 14.25 26 3.85 N.A. 54.29 POBS Portsmouth Bank Shrs Inc of NH(8) 18.25 5,907 107.8 18.50 12.50 17.25 5.80 75.31 33.02 PTRS Potters Financial Corp of OH 24 487 11.7 24.75 15.50 24 0.00 N.A. 20.00 PKPS Poughkeepsie Fin. Corp. of NY 7.25 12,595 91.3 8.13 4.75 7.44 -2.55 -6.45 38.10 PHSB Ppls Home SB, MHC of PA (45.0) 16 2,760 19.9 16.12 13.62 16.12 -0.74 N.A. N.A. Current Per Share Financials ________________________________________ Tangible Trailing12 Mo. Book Book 12 Mo. Core Value/ Value/ Assets/ Financial Institution EPS(3) EPS(3) Share Share(4) Share _____________________ _______ _______ _______ _______ _______ ($) ($) ($) ($) ($) NASDAQ Listed OTC Companies (continued) _______________________________________ MCBN Mid-Coast Bancorp of ME 1.06 1.66 22.06 22.06 256.39 MWBI Midwest Bancshares, Inc. of IA 1.81 3.01 29.09 29.09 421.1 MWFD Midwest Fed. Fin. Corp of WI 1.79 1.37 11.21 10.81 127.18 MFFC Milton Fed. Fin. Corp. of OH 0.39 0.54 11.37 11.37 86.53 MIVI Miss. View Hold. Co. of MN 0.59 0.88 16.08 16.08 85.2 MBSP Mitchell Bancorp of NC* 0.51 0.6 15.39 15.39 35.49 MBBC Monterey Bay Bancorp of CA 0.29 0.55 14.43 13.3 127.33 MONT Montgomery Fin. Corp. of IN 0.26 0.42 11.22 11.22 62.63 MSBK Mutual SB, FSB of Bay City MI 0.18 0.07 9.57 9.57 157.56 NHTB NH Thrift Bancshares of NH 0.54 0.8 11.78 10.03 153.95 NSLB NS&L Bancorp of Neosho MO 0.41 0.64 16.52 16.52 84.46 NMSB Newmil Bancorp. of CT* 0.68 0.65 8.27 8.27 84.26 NASB North American SB of MO 4.1 3.86 25.37 24.52 330.46 NBSI North Bancshares of Chicago IL 0.58 0.81 16.95 16.95 119.95 FFFD North Central Bancshares of IA 1.02 1.18 14.81 14.81 65.34 NBN Northeast Bancorp of ME* 0.93 0.86 13.49 11.66 194.14 NEIB Northeast Indiana Bncrp of IN 0.98 1.15 15.19 15.19 100.01 NWEQ Northwest Equity Corp. of WI 0.88 1.11 13.22 13.22 115.48 NWSB Northwest SB, MHC of PA (30.7) 0.58 0.82 8.49 8 89.47 NSSY Norwalk Savings Society of CT* 2.42 2.76 20.64 19.9 256.17 NSSB Norwich Financial Corp. of CT* 1.42 1.35 14.7 13.27 131.66 NTMG Nutmeg FS&LA of CT 0.33 0.45 7.72 7.72 138.8 OHSL OHSL Financial Corp. of OH 1.12 1.57 21.21 21.21 192.34 OCFC Ocean Fin. Corp. of NJ 0.06 1.49 27.35 27.35 168.27 OCN Ocwen Financial Corp. of FL 2.65 1.6 9.1 8.69 103.99 OFCP Ottawa Financial Corp. of MI 0.82 1.32 15.31 12.29 175.39 PFFB PFF Bancorp of Pomona CA 0.21 0.61 14.51 14.36 140.6 PSFI PS Financial of Chicago IL 0.7 0.71 14.66 14.66 37.88 PVFC PVF Capital Corp. of OH 1.4 1.8 9.79 9.79 139.38 PCCI Pacific Crest Capital of CA* 1.11 1.04 8.95 8.95 126.32 PAMM PacificAmerica Money Ctr of CA* 3.64 3.64 13.26 13.26 59.13 PALM Palfed, Inc. of Aiken SC 0.13 0.76 10.37 10.37 125.83 PBCI Pamrapo Bancorp, Inc. of NJ 1.16 1.6 16.62 16.49 130.49 PFED Park Bancorp of Chicago IL 0.62 0.86 16.27 16.27 72.22 PVSA Parkvale Financial Corp of PA 1.72 2.54 18.54 18.4 244.45 PEEK Peekskill Fin. Corp. of NY 0.57 0.75 14.71 14.71 57.18 PFSB PennFed Fin. Services of NJ 1.43 2.09 20.17 16.87 274.11 PWBC PennFirst Bancorp of PA 0.63 0.91 12.44 11.63 153.97 PWBK Pennwood SB of PA* 0.57 0.92 15.04 15.04 86.17 PBKB People's SB of Brockton MA* 1.16 0.69 8.56 8.2 152.65 PFDC Peoples Bancorp of Auburn IN 1.39 1.82 19.23 19.23 126.46 PBCT Peoples Bank, MHC of CT (40.1)* 1.39 1.03 10.93 10.92 128.9 PFFC Peoples Fin. Corp. of OH 0.53 0.53 15.78 15.78 58.01 PHBK Peoples Heritage Fin Grp of ME* 2.36 2.39 15.77 13.29 204.27 PSFC Peoples Sidney Fin. Corp of OH 0.56 0.73 14.09 14.09 60.57 PERM Permanent Bancorp of IN 0.72 1.3 19.74 19.45 215.43 PMFI Perpetual Midwest Fin. of IA 0.25 0.61 18 18 210.96 PERT Perpetual of SC, MHC (46.8) 1 1.41 20.13 20.13 170.24 PCBC Perry Co. Fin. Corp. of MO 0.9 1.04 18.8 18.8 97.95 PHFC Pittsburgh Home Fin. of PA 0.69 0.88 14.21 14.06 130.15 PFSL Pocahnts Fed, MHC of AR (47.0) 1.39 1.93 14.76 14.76 232.05 POBS Portsmouth Bank Shrs Inc of NH(8) 1.03 0.91 11.39 11.39 43.92 PTRS Potters Financial Corp of OH 1.16 2.06 21.97 21.97 248.85 PKPS Poughkeepsie Fin. Corp. of NY 0.24 0.37 5.85 5.85 69.88 PHSB Ppls Home SB, MHC of PA (45.0) 0.32 0.67 14.36 14.36 82.97
RP FINANCIAL, LC. - ----------------------------------------- Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 22209 (703) 528-1700 (continued) Weekly Thrift Market Line - Part One Prices As Of August 29, 1997
Market Capitalization Price Change Data ----------------------- ----------------------------------------------- Shares Market 52 Week (1) % Change From --------------- ----------------------- Price/ Outst- Capital- Last Last Dec 31, Dec 31, Financial Institution Share(1) anding ization(9) High Low Week Week 1994(2) 1995(2) --------------------- ------- ------- ------- ------- ------- ------- ------- ------- -------- ($) (000) ($Mil) ($) ($) ($) (%) (%) (%) NASDAQ Listed OTC Companies (continued) --------------------------------------- PRBC Prestige Bancorp of PA 17.12 915 15.7 17.50 10.25 17.50 -2.17 N.A. 26.81 PETE Primary Bank of NH(8)* 25.56 2,089 53.4 26.75 11.43 26.25 -2.63 N.A. 67.72 PFNC Progress Financial Corp. of PA 14.75 3,814 56.3 14.75 5.95 14.25 3.51 33.97 84.84 PSBK Progressive Bank, Inc. of NY* 32.87 3,821 125.6 32.87 19.83 29.75 10.49 145.85 44.48 PROV Provident Fin. Holdings of CA 19.25 4,920 94.7 20.12 11.12 19.50 -1.28 N.A. 37.50 PULB Pulaski SB, MHC of MO (29.8) 24.75 2,094 15.4 24.75 12.75 23.00 7.61 N.A. 70.69 PLSK Pulaski SB, MHC of NJ (46.0) 16.62 2,070 15.8 17.00 11.50 16.62 0.00 N.A. N.A. PULS Pulse Bancorp of S. River NJ 20.50 3,071 63.0 21.00 15.50 20.50 0.00 65.72 30.16 QCFB QCF Bancorp of Virginia MN 26.00 1,426 37.1 26.00 15.00 25.50 1.96 N.A. 42.47 QCBC Quaker City Bancorp of CA 20.50 4,703 96.4 20.75 11.40 20.75 -1.20 173.33 34.87 QCSB Queens County Bancorp of NY* 53.87 10,181 548.5 53.87 24.50 52.00 3.60 N.A. 70.58 RCSB RCSB Financial, Inc. of NY(8)* 48.87 14,591 713.1 51.75 26.37 48.06 1.69 296.99 68.52 RARB Raritan Bancorp. of Raritan NJ* 22.25 2,412 53.7 25.50 14.17 22.25 0.00 245.50 43.55 REDF RedFed Bancorp of Redlands CA 17.37 7,174 124.6 17.37 10.00 16.75 3.70 N.A. 28.67 RELY Reliance Bancorp, Inc. of NY 30.81 8,776 270.4 30.81 17.12 30.00 2.70 N.A. 58.00 RELI Reliance Bancshares Inc of WI(8)* 8.37 2,528 21.2 10.12 6.50 8.62 -2.90 N.A. 24.00 RIVR River Valley Bancorp of IN 16.50 1,190 19.6 17.25 13.25 16.87 -2.19 N.A. 20.00 RSLN Roslyn Bancorp, Inc. of NY* 22.75 43,642 992.9 24.31 15.00 23.87 -4.69 N.A. N.A. RVSB Rvrview SB,FSB MHC of WA(41.7)(8) 27.00 2,419 24.7 27.50 13.18 27.50 -1.82 N.A. 69.70 SCCB S. Carolina Comm. Bnshrs of SC 21.50 704 15.1 25.25 15.00 21.31 0.89 N.A. 43.33 SBFL SB Fngr Lakes MHC of NY (33.1) 23.00 1,785 13.6 23.00 12.75 19.50 17.95 N.A. 67.27 SFED SFS Bancorp of Schenectady NY 19.25 1,236 23.8 19.50 12.50 19.47 -1.13 N.A. 30.51 SGVB SGV Bancorp of W. Covina CA 15.12 2,342 35.4 15.75 8.75 15.63 -3.26 N.A. 34.40 SISB SIS Bancorp Inc of MA* 29.25 5,577 163.1 30.37 20.87 30.00 -2.50 N.A. 27.90 SWCB Sandwich Co-Op. Bank of MA* 32.00 1,915 61.3 34.50 21.00 32.75 -2.29 271.23 7.56 SECP Security Capital Corp. of WI(8) 103.50 9,208 953.0 103.50 60.50 100.87 2.61 N.A. 40.34 SFSL Security First Corp. of OH 18.25 7,574 138.2 19.25 8.83 19.25 -5.19 75.48 51.08 SFNB Security First Netwrk Bk of GA 13.00 8,620 112.1 28.00 5.50 13.87 -6.27 N.A. 26.83 SMFC Sho-Me Fin. Corp. of MO(8) 38.00 1,499 57.0 40.25 18.87 36.75 3.40 N.A. 74.71 SOBI Sobieski Bancorp of S. Bend IN 16.44 775 12.7 16.50 12.00 16.25 1.17 N.A. 13.38 SOSA Somerset Savings Bank of MA(8)* 3.69 16,652 61.4 4.00 1.50 3.62 1.93 -27.93 87.31 SSFC South Street Fin. Corp. of NC* 18.75 4,496 84.3 19.50 12.12 18.00 4.17 N.A. 33.93 SCBS Southern Commun. Bncshrs of AL 15.87 1,137 18.0 15.87 13.00 15.87 0.00 N.A. 19.77 SMBC Southern Missouri Bncrp of MO 17.25 1,638 28.3 18.00 13.50 17.25 0.00 N.A. 15.00 SWBI Southwest Bancshares of IL 20.25 2,652 53.7 21.75 17.83 20.87 -2.97 102.50 10.96 SVRN Sovereign Bancorp of PA 15.50 70,010 1,085.2 16.50 8.85 14.69 5.51 246.76 41.68 STFR St. Francis Cap. Corp. of WI 34.50 5,308 183.1 38.75 25.00 35.50 -2.82 N.A. 32.69 SPBC St. Paul Bancorp, Inc. of IL 23.12 33,988 785.8 24.37 13.47 22.50 2.76 107.73 47.54 STND Standard Fin. of Chicago IL(8) 25.50 16,210 413.4 25.87 16.25 25.50 0.00 N.A. 29.97 SFFC StateFed Financial Corp. of IA 22.00 784 17.2 22.75 16.00 22.00 0.00 N.A. 33.33 SFIN Statewide Fin. Corp. of NJ 18.75 4,710 88.3 19.12 12.37 18.75 0.00 N.A. 30.48 STSA Sterling Financial Corp. of WA 18.50 5,567 103.0 19.25 13.00 17.87 3.53 103.52 31.02 SFSB SuburbFed Fin. Corp. of IL 27.50 1,262 34.7 27.50 16.25 27.50 0.00 312.29 44.74 ROSE T R Financial Corp. of NY* 27.62 17,519 483.9 28.25 14.19 27.37 0.91 N.A. 55.61 THRD TF Financial Corp. of PA 19.25 4,083 78.8 20.50 14.50 19.62 -1.89 N.A. 18.46 TPNZ Tappan Zee Fin., Inc. of NY 17.25 1,497 25.8 17.62 12.00 17.44 -1.09 N.A. 26.65 ESBK The Elmira SB FSB of Elmira NY* 23.44 706 16.5 23.75 14.75 23.25 0.82 63.12 28.44 GRTR The Greater New York SB of NY(8)* 22.94 13,717 314.7 22.94 11.37 22.25 3.10 146.40 68.43 TSBS Trenton SB,FSB MHC of NJ(35.9) 28.62 9,037 92.9 29.25 13.75 28.50 0.42 N.A. 78.88 TRIC Tri-County Bancorp of WY 22.75 609 13.9 24.25 18.00 22.75 0.00 N.A. 26.39 TWIN Twin City Bancorp of TN 20.00 853 17.1 20.50 16.25 19.75 1.27 N.A. 15.94 UFRM United FS&LA of Rocky Mount NC 12.00 3,074 36.9 12.50 7.00 11.50 4.35 269.23 41.18 UBMT United Fin. Corp. of MT 23.50 1,223 28.7 24.00 18.00 23.50 0.00 123.81 22.08 VABF Va. Beach Fed. Fin. Corp of VA 13.62 4,976 67.8 15.00 7.75 14.00 -2.71 190.41 44.28 VFFC Virginia First Savings of VA(8) 23.87 5,805 138.6 24.00 12.00 23.87 0.00 ***.** 87.22 Current Per Share Financials ---------------------------------------- Tangible Trailing 12 Mo. Book Book 12 Mo. Core Value/ Value/ Assets/ Financial Institution EPS(3) EPS(3) Share Share(4) Share --------------------- -------- ------- ------- ------- ------- ($) ($) ($) ($) ($) NASDAQ Listed OTC Companies (continued) --------------------------------------- PRBC Prestige Bancorp of PA 0.47 0.83 16.51 16.51 148.33 PETE Primary Bank of NH(8)* 1.24 1.47 14.33 14.31 206.65 PFNC Progress Financial Corp. of PA 0.54 0.65 5.78 5.10 109.77 PSBK Progressive Bank, Inc. of NY* 2.30 2.26 19.67 17.57 230.00 PROV Provident Fin. Holdings of CA 0.39 0.34 17.37 17.37 125.10 PULB Pulaski SB, MHC of MO (29.8) 0.59 0.82 11.04 11.04 84.92 PLSK Pulaski SB, MHC of NJ (46.0) 0.21 0.51 10.20 10.20 85.68 PULS Pulse Bancorp of S. River NJ 1.20 1.80 13.63 13.63 169.39 QCFB QCF Bancorp of Virginia MN 1.41 1.41 18.98 18.98 104.93 QCBC Quaker City Bancorp of CA 0.60 0.98 14.94 14.93 170.40 QCSB Queens County Bancorp of NY* 2.15 2.18 17.08 17.08 144.08 RCSB RCSB Financial, Inc. of NY(8)* 2.64 2.61 21.69 21.14 276.36 RARB Raritan Bancorp. of Raritan NJ* 1.46 1.55 12.48 12.27 157.31 REDF RedFed Bancorp of Redlands CA 0.31 0.80 10.75 10.71 127.16 RELY Reliance Bancorp, Inc. of NY 1.25 1.85 18.54 13.36 225.25 RELI Reliance Bancshares Inc of WI(8)* 0.16 0.17 9.08 9.08 18.60 RIVR River Valley Bancorp of IN 0.46 0.62 14.63 14.41 118.02 RSLN Roslyn Bancorp, Inc. of NY* 0.59 0.93 14.58 14.51 72.39 RVSB Rvrview SB,FSB MHC of WA(41.7)(8) 0.88 1.10 10.67 9.74 94.94 SCCB S. Carolina Comm. Bnshrs of SC 0.52 0.70 17.11 17.11 65.93 SBFL SB Fngr Lakes MHC of NY (33.1) 0.15 0.51 11.63 11.63 121.40 SFED SFS Bancorp of Schenectady NY 0.60 1.07 17.44 17.44 139.85 SGVB SGV Bancorp of W. Covina CA 0.31 0.75 12.77 12.56 174.78 SISB SIS Bancorp Inc of MA* 3.31 3.29 18.52 18.52 257.23 SWCB Sandwich Co-Op. Bank of MA* 2.34 2.39 20.83 19.94 262.09 SECP Security Capital Corp. of WI(8) 4.88 5.82 64.62 64.62 398.94 SFSL Security First Corp. of OH 0.88 1.10 8.13 7.99 86.25 SFNB Security First Netwrk Bk of GA -3.30 -3.38 3.02 2.97 9.12 SMFC Sho-Me Fin. Corp. of MO(8) 2.08 2.35 19.81 19.81 219.35 SOBI Sobieski Bancorp of S. Bend IN 0.32 0.61 15.95 15.95 105.49 SOSA Somerset Savings Bank of MA(8)* 0.25 0.24 1.96 1.96 30.90 SSFC South Street Fin. Corp. of NC* 0.45 0.57 13.58 13.58 53.77 SCBS Southern Commun. Bncshrs of AL 0.19 0.47 13.54 13.54 61.66 SMBC Southern Missouri Bncrp of MO 0.70 0.69 15.85 15.85 101.15 SWBI Southwest Bancshares of IL 1.05 1.44 15.69 15.69 142.66 SVRN Sovereign Bancorp of PA 0.62 0.96 6.25 4.71 155.67 STFR St. Francis Cap. Corp. of WI 1.77 1.95 24.43 21.59 310.01 SPBC St. Paul Bancorp, Inc. of IL 0.93 1.34 11.67 11.64 135.68 STND Standard Fin. of Chicago IL(8) 0.74 1.07 17.11 17.08 158.83 SFFC StateFed Financial Corp. of IA 1.17 1.42 19.43 19.43 109.28 SFIN Statewide Fin. Corp. of NJ 0.76 1.29 13.90 13.88 142.93 STSA Sterling Financial Corp. of WA 0.28 0.90 12.41 10.82 302.93 SFSB SuburbFed Fin. Corp. of IL 1.23 1.79 21.92 21.84 338.12 ROSE T R Financial Corp. of NY* 1.84 1.66 12.58 12.58 202.74 THRD TF Financial Corp. of PA 0.84 1.13 17.44 15.30 156.93 TPNZ Tappan Zee Fin., Inc. of NY 0.53 0.49 14.35 14.35 80.07 ESBK The Elmira SB FSB of Elmira NY* 1.13 1.10 20.32 19.48 322.70 GRTR The Greater New York SB of NY(8)* 1.38 0.74 11.75 11.75 187.40 TSBS Trenton SB,FSB MHC of NJ(35.9) 0.86 0.73 11.79 10.81 69.82 TRIC Tri-County Bancorp of WY 1.10 1.40 22.50 22.50 146.89 TWIN Twin City Bancorp of TN 0.66 0.93 16.18 16.18 125.84 UFRM United FS&LA of Rocky Mount NC 0.19 0.33 6.70 6.70 89.63 UBMT United Fin. Corp. of MT 0.94 1.16 19.95 19.95 88.08 VABF Va. Beach Fed. Fin. Corp of VA 0.26 0.58 8.50 8.50 124.16 VFFC Virginia First Savings of VA(8) 1.81 1.66 11.35 10.96 140.79
RP FINANCIAL, LC. --------------------------------------- Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 22209 (703) 528-1700 (continued) Weekly Thrift Market Line - Part One Prices As Of August 29, 1997
Market Capitalization Price Change Data -------------------------- ------------------------------------------------- Shares Market 52 Week (1) % Change From ------------------ ------------------------ Price/ Outst- Capital- Last Last Dec 31, Dec 31, Financial Institution Share(1) anding ization(9) High Low Week Week 1994(2) 1995(2) --------------------- -------- ------ ---------- ---------- ------- -------- ---- ------- -------- ($) (000) ($Mil) ($) ($) ($) (%) (%) (%) NASDAQ Listed OTC Companies (continued) --------------------------------------- WHGB WHG Bancshares of MD 15.75 1,462 23.0 15.75 11.50 15.25 3.28 N.A. 20.05 WSFS WSFS Financial Corp. of DE* 15.12 12,421 187.8 15.37 7.75 14.50 4.28 108.55 48.38 WVFC WVS Financial Corp. of PA* 27.00 1,747 47.2 27.75 21.00 27.37 -1.35 N.A. 9.67 WRNB Warren Bancorp of Peabody MA* 17.50 3,781 66.2 19.00 12.12 17.50 0.00 419.29 16.67 WFSL Washington FS&LA of Seattle WA 27.25 47,462 1,293.3 29.25 19.89 26.37 3.34 86.77 13.12 WAMU Washington Mutual Inc. of WA(8)* 59.87 126,357 7,565.0 69.12 35.00 62.56 -4.30 222.58 38.24 WYNE Wayne Bancorp of NJ 23.87 2,120 50.6 24.50 13.25 24.00 -0.54 N.A. 56.52 WAYN Wayne S&L Co. MHC of OH (47.8) 21.00 2,248 22.6 21.00 12.67 19.25 9.09 N.A. 28.60 WCFB Wbstr Cty FSB MHC of IA (45.2) 17.75 2,100 16.9 17.75 12.50 17.50 1.43 N.A. 29.09 WBST Webster Financial Corp. of CT 52.87 11,985 633.6 52.87 32.00 50.00 5.74 460.06 43.86 WEFC Wells Fin. Corp. of Wells MN 16.50 1,959 32.3 16.50 12.00 16.12 2.36 N.A. 25.76 WCBI WestCo Bancorp of IL 25.75 2,476 63.8 26.75 20.00 26.00 -0.96 157.50 19.77 WSTR WesterFed Fin. Corp. of MT 21.37 5,565 118.9 23.50 15.06 21.75 -1.75 N.A. 17.10 WOFC Western Ohio Fin. Corp. of OH 23.75 2,339 55.6 24.50 19.62 23.37 1.63 N.A. 9.20 WWFC Westwood Fin. Corp. of NJ 24.25 645 15.6 24.25 10.50 21.25 14.12 N.A. 46.97 WEHO Westwood Hmstd Fin Corp of OH 15.50 2,795 43.3 16.00 10.37 15.37 0.85 N.A. 27.89 WFI Winton Financial Corp. of OH 16.00 1,986 31.8 16.75 11.25 15.75 1.59 N.A. 39.13 FFWD Wood Bancorp of OH 16.62 2,119 35.2 17.00 9.33 16.50 0.73 N.A. 46.69 YFCB Yonkers Fin. Corp. of NY 17.37 3,036 52.7 17.62 11.00 17.25 0.70 N.A. 34.97 YFED York Financial Corp. of PA 23.75 7,008 166.4 26.75 14.54 24.00 -1.04 151.32 46.15 Current Per Share Financials ------------------------------------------- Tangible Trailing 12 Mo. Book Book 12 Mo. Core Value/ Value/ Assets/ Financial Institution EPS(3) EPS(3) Share Share(4) Share --------------------- -------- ------- ------- -------- --------- ($) ($) ($) ($) ($) NASDAQ Listed OTC Companies (continued) --------------------------------------- WHGB WHG Bancshares of MD 0.34 0.34 14.16 14.16 68.56 WSFS WSFS Financial Corp. of DE* 1.47 1.48 6.32 6.27 121.45 WVFC WVS Financial Corp. of PA* 1.69 2.11 18.83 18.83 168.69 WRNB Warren Bancorp of Peabody MA* 2.01 1.71 9.82 9.82 94.69 WFSL Washington FS&LA of Seattle WA 1.94 2.14 14.66 13.39 121.37 WAMU Washington Mutual Inc. of WA(8)* 1.14 2.42 19.30 18.32 385.92 WYNE Wayne Bancorp of NJ 0.50 0.50 16.44 16.44 123.13 WAYN Wayne S&L Co. MHC of OH (47.8) 0.35 0.74 10.46 10.46 113.09 WCFB Wbstr Cty FSB MHC of IA (45.2) 0.48 0.64 10.53 10.53 45.09 WBST Webster Financial Corp. of CT 1.60 2.86 24.91 21.28 495.93 WEFC Wells Fin. Corp. of Wells MN 0.73 1.08 14.64 14.64 103.13 WCBI WestCo Bancorp of IL 1.41 1.78 19.18 19.18 125.85 WSTR WesterFed Fin. Corp. of MT 0.81 1.02 18.73 14.99 171.72 WOFC Western Ohio Fin. Corp. of OH 0.52 0.72 23.38 21.79 169.51 WWFC Westwood Fin. Corp. of NJ 0.78 1.34 15.76 14.04 172.70 WEHO Westwood Hmstd Fin Corp of OH 0.30 0.45 14.17 14.17 48.18 WFI Winton Financial Corp. of OH 1.60 1.34 11.36 11.12 159.81 FFWD Wood Bancorp of OH 0.79 0.94 9.52 9.52 77.36 YFCB Yonkers Fin. Corp. of NY 0.76 1.02 14.14 14.14 94.89 YFED York Financial Corp. of PA 1.01 1.29 14.28 14.28 165.87
RP FINANCIAL, LC. --------------------------------------- Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 22209 (703) 528-1700 Weekly Thrift Market Line - Part Two Prices As Of August 29, 1997
Key Financial Ratios ----------------------------------------------------------- Tang. Reported Earnings Core Earnings Equity/ Equity/ --------------------- ----------------- Financial Institution Assets Assets ROA(5) ROE(5) ROI(5) ROA(5) ROE(5)7) --------------------- ------- ------- ----- ----- ----- ----- ------- (%) (%) (%) (%) (%) (%) (%) Market Averages. SAIF-Insured Thrifts(no MHCs) --------------------------------------------- SAIF-Insured Thrifts(304) 12.93 12.68 0.53 5.52 3.51 0.74 7.54 NYSE Traded Companies(9) 5.88 5.64 0.61 10.41 4.53 0.80 14.37 AMEX Traded Companies(17) 16.06 15.96 0.55 2.86 2.34 0.87 5.19 NASDAQ Listed OTC Companies(278) 12.98 12.72 0.53 5.52 3.54 0.74 7.45 California Companies(21) 7.44 7.18 0.30 4.48 2.45 0.43 6.99 Florida Companies(6) 7.63 7.18 0.92 11.46 3.94 0.74 9.13 Mid-Atlantic Companies(59) 10.82 10.47 0.62 6.32 3.94 0.86 8.94 Mid-West Companies(147) 14.01 13.82 0.68 5.42 3.87 0.90 7.15 New England Companies(9) 7.87 7.46 0.36 4.81 3.01 0.63 8.58 North-West Companies(7) 15.91 15.62 0.83 6.61 3.56 1.04 8.85 South-East Companies(42) 16.34 16.14 -0.11 4.72 2.17 0.11 6.62 South-West Companies(7) 10.80 10.54 0.38 2.90 2.45 0.66 6.39 Western Companies (Excl CA)(6) 16.23 15.79 0.98 6.66 4.52 1.16 7.72 Thrift Strategy(240) 14.11 13.89 0.65 5.00 3.55 0.89 7.02 Mortgage Banker Strategy(37) 7.47 7.03 0.51 7.22 4.02 0.65 9.47 Real Estate Strategy(11) 7.33 7.14 0.55 7.01 3.82 0.76 10.31 Diversified Strategy(12) 10.49 10.22 -2.32 13.44 1.48 -2.38 14.25 Retail Banking Strategy(4) 8.40 8.19 0.11 2.23 0.80 0.03 1.72 Companies Issuing Dividends(256) 13.14 12.88 0.68 5.93 3.94 0.91 7.95 Companies Without Dividends(48) 11.69 11.56 -0.33 3.14 1.04 -0.21 5.14 Equity/Assets (less than) 6%(23) 4.94 4.65 0.38 7.53 3.57 0.56 11.40 Equity/Assets 6-12%(146) 8.61 8.28 0.56 6.57 3.89 0.75 8.81 Equity/Assets (greater than) 12%(135) 18.67 18.53 0.53 4.11 3.11 0.77 5.59 Converted Last 3 Mths (no MHC)(5) 20.95 20.90 0.73 3.44 2.96 0.75 3.59 Actively Traded Companies(41) 8.64 8.40 0.72 8.67 4.59 0.95 11.96 Market Value Below $20 Million(62) 15.20 15.10 0.55 3.58 3.03 0.81 5.61 Holding Company Structure(269) 13.33 13.10 0.63 5.29 3.54 0.85 7.31 Assets Over $1 Billion(62) 7.82 7.30 0.62 8.15 4.16 0.80 10.87 Assets $500 Million-$1 Billion(49) 10.11 9.82 0.62 6.26 3.62 0.79 8.10 Assets $250-$500 Million(68) 11.09 10.76 0.59 5.40 3.75 0.81 7.55 Assets less than $250 Million(125) 17.35 17.28 0.43 4.06 3.03 0.66 5.75 Goodwill Companies(124) 9.23 8.62 0.37 7.09 3.94 0.53 9.13 Non-Goodwill Companies(178) 15.35 15.35 0.65 4.46 3.22 0.90 6.49 Acquirors of FSLIC Cases(10) 7.19 6.79 0.57 7.79 4.22 0.82 11.71 Asset Quality Ratios Pricing Ratios ---------------------- ---------------------------------------- Price/ Price/ NPAs Resvs/ Resvs/ Price/ Price/ Price/ Tang. Core Financial Institution Assets NPAs Loans Earning Book Assets Book Earnings --------------------- ------ ------ ------- ------- ------ ------- ----- -------- (%) (%) (%) (X) (%) (%) (%) (x) Market Averages. SAIF-Insured Thrifts(no MHCs) --------------------------------------------- SAIF-Insured Thrifts(304) 0.81 127.83 0.82 20.84 136.48 17.17 141.15 18.06 NYSE Traded Companies(9) 1.25 74.44 1.28 21.25 186.76 11.94 198.97 14.97 AMEX Traded Companies(17) 0.62 158.98 0.72 22.57 119.97 19.70 121.07 19.54 NASDAQ Listed OTC Companies(278) 0.80 128.28 0.81 20.72 135.95 17.20 140.60 18.10 California Companies(21) 1.95 66.78 1.33 22.97 150.39 10.63 157.55 16.65 Florida Companies(6) 1.52 73.71 0.80 19.21 159.36 17.21 179.57 22.31 Mid-Atlantic Companies(59) 0.85 98.99 0.93 20.66 138.90 14.57 143.62 17.06 Mid-West Companies(147) 0.64 150.53 0.70 20.53 130.10 17.35 133.22 18.01 New England Companies(9) 0.63 116.41 1.00 22.02 149.64 11.55 162.13 18.37 North-West Companies(7) 0.70 128.29 0.61 17.87 159.77 22.01 167.32 18.23 South-East Companies(42) 0.91 127.78 0.87 21.58 143.12 24.89 147.45 20.18 South-West Companies(7) 0.65 100.15 0.71 20.88 120.58 12.29 128.03 17.61 Western Companies (Excl CA)(6) 0.29 169.72 0.72 22.74 135.12 20.34 141.25 19.31 Thrift Strategy(240) 0.72 133.98 0.74 21.15 129.33 17.68 133.24 18.22 Mortgage Banker Strategy(37) 1.03 98.51 1.01 19.87 163.54 11.78 174.33 17.77 Real Estate Strategy(11) 1.42 97.48 1.35 18.81 166.75 12.11 169.70 16.41 Diversified Strategy(12) 1.31 120.54 1.14 19.94 209.55 32.60 216.79 17.18 Retail Banking Strategy(4) 1.85 101.37 1.82 16.93 121.42 9.98 125.28 16.29 Companies Issuing Dividends(256) 0.70 133.05 0.78 20.79 137.57 17.09 142.52 17.89 Companies Without Dividends(48) 1.52 95.36 1.07 21.59 129.84 17.66 132.82 19.45 Equity/Assets (less than) 6%(23) 1.41 83.13 1.03 20.96 174.60 9.47 184.94 16.82 Equity/Assets 6-12%(146) 0.92 122.64 0.93 19.85 145.76 12.65 153.03 16.32 Equity/Assets (greater than) 12%(135) 0.57 142.45 0.67 22.27 121.24 23.08 122.74 20.34 Converted Last 3 Mths (no MHC)(5) 1.67 25.74 0.58 27.63 116.31 24.33 116.64 28.43 Actively Traded Companies(41) 1.17 106.77 0.96 20.21 170.80 14.21 176.53 16.03 Market Value Below $20 Million(62) 0.78 103.26 0.66 22.22 110.84 16.69 111.93 19.78 Holding Company Structure(269) 0.80 123.77 0.81 21.24 134.20 17.13 138.31 18.25 Assets Over $1 Billion(62) 1.01 95.06 0.99 20.23 168.40 13.57 181.64 16.91 Assets $500 Million-$1 Billion(49) 0.98 167.85 1.07 20.90 147.92 15.02 152.71 17.93 Assets $250-$500 Million(68) 0.72 135.60 0.73 20.10 136.83 14.84 142.20 16.75 Assets less than $250 Million(125) 0.68 123.70 0.69 21.70 117.69 20.89 118.47 19.45 Goodwill Companies(124) 0.86 113.68 0.90 20.07 151.28 14.46 162.90 16.83 Non-Goodwill Companies(178) 0.77 137.27 0.77 21.54 126.42 18.92 126.42 18.99 Acquirors of FSLIC Cases(10) 1.53 51.85 0.89 20.74 170.17 11.88 182.83 16.12 Dividend Data(6) ---------------------- Ind. Divi- Div./ dend Payout Financial Institution Share Yield Ratio(7) --------------------- ----- ----- ------- ($) (%) (%) Market Averages. SAIF-Insured Thrifts(no MHCs) --------------------------------------------- SAIF-Insured Thrifts(304) 0.36 1.71 35.06 NYSE Traded Companies(9) 0.32 0.91 18.69 AMEX Traded Companies(17) 0.40 2.13 45.65 NASDAQ Listed OTC Companies(278) 0.36 1.71 35.27 California Companies(21) 0.15 0.52 12.75 Florida Companies(6) 0.24 0.85 14.38 Mid-Atlantic Companies(59) 0.38 1.68 37.15 Mid-West Companies(147) 0.36 1.82 35.81 New England Companies(9) 0.46 1.59 34.62 North-West Companies(7) 0.35 1.39 26.99 South-East Companies(42) 0.41 1.97 40.81 South-West Companies(7) 0.35 1.71 52.02 Western Companies (Excl CA)(6) 0.56 2.78 55.16 Thrift Strategy(240) 0.37 1.84 37.83 Mortgage Banker Strategy(37) 0.33 1.23 26.90 Real Estate Strategy(11) 0.13 0.73 12.64 Diversified Strategy(12) 0.40 1.31 29.94 Retail Banking Strategy(4) 0.20 1.26 18.18 Companies Issuing Dividends(256) 0.42 2.01 41.12 Companies Without Dividends(48) 0.00 0.00 0.00 Equity/Assets (less than) 6%(23) 0.22 0.82 15.16 Equity/Assets 6-12%(146) 0.38 1.59 33.13 Equity/Assets (greater than) 12%(135) 0.37 1.97 41.76 Converted Last 3 Mths (no MHC)(5) 0.00 0.00 0.00 Actively Traded Companies(41) 0.49 1.73 31.65 Market Value Below $20 Million(62) 0.33 1.96 41.77 Holding Company Structure(269) 0.37 1.76 36.42 Assets Over $1 Billion(62) 0.43 1.36 29.65 Assets $500 Million-$1 Billion(49) 0.33 1.57 35.85 Assets $250-$500 Million(68) 0.36 1.77 31.45 Assets less than $250 Million(125) 0.34 1.89 40.19 Goodwill Companies(124) 0.39 1.57 32.10 Non-Goodwill Companies(178) 0.34 1.80 37.50 Acquirors of FSLIC Cases(10) 0.38 1.41 23.87
(1) Average of high/low or bid/ask price per share. (2) Or since offering price if converted or first listed in 1994 or 1995. Percent change figures are actual year-to-date and are not annualized (3) EPS (earnings per share) is based on actual trailing twelve month data and is not shown on a pro forma basis. (4) Excludes intangibles (such as goodwill, value of core deposits, etc.). (5) ROA (return on assets) and ROE (return on equity) are indicated ratios based on trailing twelve month common earnings and average common equity and assets balances; ROI (return on investment) is current EPS divided by current price. Recent change figures are actual year-to- date and are not annualized (6) Annualized, based on last regular quarterly cash dividend announcement. (7) Indicated dividend as a percent of trailing twelve month earnings. (8) Excluded from averages due to actual or rumored acquisition activities or unusual operating characteristics. * All thrifts are SAIF insured unless otherwise noted with an asterisk. Parentheses following market averages indicate the number of institutions included in the respective averages. All figures have been adjusted for stock splits, stock dividends, and secondary offerings. Source: Corporate reports and offering circulars for publicly traded companies, and RP Financial, Inc. calculations. The information provided in this report has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information. Copyright (c) 1997 by RP Financial, LC. RP FINANCIAL, LC. --------------------------------------- Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 22209 (703) 528-1700 (continued) Weekly Thrift Market Line - Part Two Prices As Of August 29, 1997
Key Financial Ratios Asset Quality Ratios --------------------------------------------------------- --------------------- Tang. Equity/ Equity/ Reported Earnings Core Earnings NPAs Resvs/ ----------------------- --------------- Financial Institution Assets Assets ROA(5) ROE(5) ROI(5) ROA(5) ROE(5) Assets NPAs --------------------- ------- ------- ----- ----- ----- ------ ----- ------ ------ (%) (%) (%) (%) (%) (%) (%) (%) (%) Market Averages. BIF-Insured Thrifts(no MHCs) -------------------------------------------- BIF-Insured Thrifts(69) 11.88 11.51 1.19 11.58 7.15 1.20 11.42 0.91 143.16 NYSE Traded Companies(3) 7.58 6.00 0.77 10.55 5.72 0.78 10.86 1.88 43.17 AMEX Traded Companies(6) 11.89 11.10 0.74 7.96 4.60 0.74 8.04 0.99 209.73 NASDAQ Listed OTC Companies(60) 12.15 11.90 1.27 12.09 7.55 1.28 11.88 0.84 140.95 California Companies(4) 11.92 11.90 2.21 19.69 9.42 2.17 19.07 2.23 65.22 Mid-Atlantic Companies(18) 11.40 10.74 0.82 8.45 4.62 0.91 9.06 0.85 130.78 Mid-West Companies(2) 25.06 23.63 0.43 1.59 1.79 0.66 2.42 0.56 57.14 New England Companies(36) 8.99 8.69 1.27 13.76 9.02 1.22 13.17 0.87 162.82 North-West Companies(4) 12.39 12.00 1.21 10.53 6.05 1.18 10.22 0.16 215.39 South-East Companies(5) 27.76 27.76 1.14 4.44 3.40 1.23 4.77 0.67 135.35 Thrift Strategy(46) 12.92 12.49 1.12 9.95 6.83 1.12 9.74 0.83 150.36 Mortgage Banker Strategy(10) 8.83 8.62 0.86 11.23 6.14 0.95 11.87 0.71 135.17 Real Estate Strategy(6) 8.88 8.87 1.37 15.11 8.51 1.29 14.24 1.08 103.33 Diversified Strategy(7) 9.90 9.47 2.11 22.57 10.15 2.09 22.29 1.72 128.49 Companies Issuing Dividends(57) 11.90 11.49 1.03 10.52 6.11 1.04 10.37 0.77 149.98 Companies Without Dividends(12) 11.79 11.62 2.05 18.05 12.79 2.04 17.83 1.62 109.06 Equity/Assets less than 6%(5) 5.45 5.32 0.97 17.28 8.75 0.87 15.47 1.40 69.21 Equity/Assets 6-12%(47) 8.62 8.15 1.20 12.92 8.20 1.18 12.69 0.88 134.63 Equity/Assets More than 12%(17) 22.09 21.91 1.24 6.66 3.98 1.34 7.12 0.85 186.23 Actively Traded Companies(23) 8.85 8.44 1.18 13.70 7.76 1.13 13.05 0.79 144.52 Market Value Below $20 Million(9) 15.47 15.12 1.23 7.51 10.22 1.28 7.26 1.26 68.75 Holding Company Structure(46) 13.44 13.09 1.29 11.09 7.00 1.30 11.03 0.86 144.05 Assets Over $1 Billion(18) 9.09 8.43 1.06 12.66 6.49 1.09 12.80 0.94 129.97 Assets $500 Million-$1 Billion(17) 9.48 8.95 1.16 12.71 7.23 1.12 12.15 0.84 142.79 Assets $250-$500 Million(15) 11.14 11.04 1.01 10.72 6.25 1.00 10.55 0.65 165.99 Assets less than $250 Million(19) 17.18 17.00 1.49 10.18 8.37 1.52 10.15 1.16 137.54 Goodwill Companies(32) 9.27 8.47 0.93 11.19 6.33 0.94 11.05 0.99 125.67 Non-Goodwill Companies(37) 14.17 14.17 1.42 11.93 7.86 1.42 11.76 0.85 159.41 Pricing Ratios --------------------------------------------------- Price/ Price/ Resvs/ Price/ Price/ Price/ Tang. Core Financial Institution Loans Earning Book Assets Book Earnings --------------------- ------- ------- ------ ------ ----- -------- (%) (X) (%) (%) (%) (x) Market Averages. BIF-Insured Thrifts(no MHCs) -------------------------------------------- BIF-Insured Thrifts(69) 1.45 14.84 155.10 17.52 161.00 15.42 NYSE Traded Companies(3) 1.03 17.67 178.19 13.69 170.79 17.42 AMEX Traded Companies(6) 1.25 15.28 145.98 16.13 169.19 14.73 NASDAQ Listed OTC Companies(60) 1.50 14.61 154.80 17.93 159.57 15.33 California Companies(4) 1.58 11.84 159.09 19.55 159.27 12.72 Mid-Atlantic Companies(18) 1.37 18.72 155.18 17.67 163.40 17.80 Mid-West Companies(2) 0.57 0.00 92.01 23.06 97.59 0.00 New England Companies(36) 1.66 12.78 160.84 14.14 167.58 13.42 North-West Companies(4) 1.03 18.43 168.38 20.14 173.45 19.19 South-East Companies(5) 0.76 21.99 121.86 33.07 121.86 24.22 Thrift Strategy(46) 1.38 15.65 147.23 18.17 152.55 16.17 Mortgage Banker Strategy(10) 1.41 15.24 170.27 14.70 176.16 16.21 Real Estate Strategy(6) 1.46 12.19 164.29 14.55 164.44 12.62 Diversified Strategy(7) 2.09 10.81 191.08 18.38 204.65 11.14 Companies Issuing Dividends(57) 1.37 15.85 155.71 17.65 162.58 16.40 Companies Without Dividends(12) 1.88 9.54 151.83 16.79 152.74 10.00 Equity/Assets less than 6%(5) 1.56 12.73 191.83 10.39 196.75 14.73 Equity/Assets 6-12%(47) 1.54 13.91 162.21 14.41 170.22 14.15 Equity/Assets Mre than 12%(17) 1.19 20.30 127.29 27.51 128.73 20.52 Actively Traded Companies(23) 1.51 13.54 165.41 14.38 174.99 14.38 Market Value Below $20 Million(9) 1.20 14.74 113.74 16.79 117.45 15.68 Holding Company Structure(46) 1.51 15.13 154.06 19.72 162.25 16.08 Assets Over $1 Billion(18) 1.51 16.28 181.54 17.27 189.58 16.96 Assets $500 Million-$1 Billion(17) 1.54 13.90 161.72 14.93 175.65 14.82 Assets $250-$500 Million(15) 1.62 14.12 151.66 15.97 152.98 14.07 Assets less than $250 Million(19) 1.18 15.03 130.20 21.43 132.35 15.54 Goodwill Companies(32) 1.50 15.36 163.01 14.56 176.02 16.29 Non-Goodwill Companies(37) 1.41 14.35 147.98 20.10 147.98 14.61 Dividend Data(6) ---------------------- Ind. Divi- Div./ dend Payout Share Yield Ratio(7) ----- ----- ------- ($) (%) (%) Market Averages. BIF-Insured Thrifts(no MHCs) -------------------------------------------- BIF-Insured Thrifts(69) 0.47 1.78 26.97 NYSE Traded Companies(3) 0.39 0.82 15.59 AMEX Traded Companies(6) 0.61 2.46 34.16 NASDAQ Listed OTC Companies(60) 0.45 1.75 27.24 California Companies(4) 0.00 0.00 0.00 Mid-Atlantic Companies(18) 0.48 1.74 34.45 Mid-West Companies(2) 0.00 0.00 0.00 New England Companies(36) 0.52 2.07 27.28 North-West Companies(4) 0.29 1.58 27.22 South-East Companies(5) 0.68 2.02 40.85 Thrift Strategy(46) 0.52 1.94 31.32 Mortgage Banker Strategy(10) 0.37 1.53 18.95 Real Estate Strategy(6) 0.20 1.06 11.07 Diversified Strategy(7) 0.36 1.36 17.10 Companies Issuing Dividends(57) 0.55 2.10 32.61 Companies Without Dividends(12) 0.00 0.00 0.00 Equity/Assets Less than 6%(5) 0.18 1.09 15.08 Equity/Assets 6-12%(47) 0.53 1.96 26.96 Equity/Assets More than 12%(17) 0.37 1.48 31.32 Actively Traded Companies(23) 0.53 1.99 26.97 Market Value Below $20 Million(9) 0.31 1.76 29.04 Holding Company Structure(46) 0.48 1.80 27.12 Assets Over $1 Billion(18) 0.53 1.74 26.11 Assets $500 Million-$1 Billion(17) 0.54 1.94 26.78 Assets $250-$500 Million(15) 0.36 1.67 24.94 Assets less than $250 Million(19) 0.43 1.75 29.55 Goodwill Companies(32) 0.49 1.88 27.34 Non-Goodwill Companies(37) 0.44 1.69 26.63
(1) Average of high/low or bid/ask price per share. (2) Or since offering price if converted or first listed in 1994 or 1995. Percent change figures are actual year-to-date and are not annualized (3) EPS (earnings per share) is based on actual trailing twelve month data and is not shown on a pro forma basis. (4) Excludes intangibles (such as goodwill, value of core deposits, etc.). (5) ROA (return on assets) and ROE (return on equity) are indicated ratios based on trailing twelve month common earnings and average common equity and assets balances; ROI (return on investment) is current EPS divided by current price. (6) Annualized, based on last regular quarterly cash dividend announcement. (7) Indicated dividend as a percent of trailing twelve month earnings. (8) Excluded from averages due to actual or rumored acquisition activities or unusual operating characteristics. * All thrifts are SAIF insured unless otherwise noted with an asterisk. Parentheses following market averages indicate the number of institutions included in the respective averages. All figures have been adjusted for stock splits, stock dividends, and secondary offerings. Source: Corporate reports and offering circulars for publicly traded companies, and RP Financial, Inc. calculations. The information provided in this report has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information. Copyright (c) 1997 by RP Financial, LC. RP FINANCIAL, LC. - --------------------------------------- Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 22209 (703) 528-1700
(continued) Weekly Thrift Market Line - Part Two Prices As Of August 29, 1997 Key Financial Ratios Asset Quality Ratios --------------------------------------------------------------- ---------------------- Tang. Reported Earnings Core Earnings Equity/ Equity/ ---------------------- ---------------- NPAs Resvs/ Resvs/ Financial Institution Assets Assets ROA(5) ROE(5) ROI(5) ROA(5) ROE(5) Assets NPAs Loans - --------------------- ------- ------- ------ ------ ------ -------- ------ ------ ------ ------ (%) (%) (%) (%) (%) (%) (%) (%) (%) (%) Market Averages. MHC Institutions - --------------------------------- SAIF-Insured Thrifts(21) 11.84 11.61 0.57 5.10 2.35 0.84 7.64 0.47 200.14 0.78 BIF-Insured Thrifts(2) 10.02 10.02 0.72 8.22 3.03 0.71 7.56 1.85 82.27 1.77 NASDAQ Listed OTC Companies(23) 11.67 11.46 0.59 5.40 2.41 0.83 7.63 0.62 187.04 0.87 Florida Companies(3) 9.34 9.22 0.63 6.85 2.63 0.89 9.56 0.45 117.55 0.76 Mid-Atlantic Companies(10) 12.60 12.20 0.54 4.31 1.94 0.78 6.51 0.87 182.85 0.99 Mid-West Companies(7) 11.79 11.78 0.57 5.19 2.66 0.88 8.23 0.38 185.51 0.62 New England Companies(1) 8.48 8.47 1.12 13.72 4.95 0.83 10.17 0.90 121.39 1.60 South-East Companies(1) 11.82 11.82 0.59 4.97 2.46 0.83 7.00 0.12 502.32 0.87 Thrift Strategy(21) 11.83 11.61 0.56 4.98 2.28 0.83 7.51 0.61 190.90 0.84 Diversified Strategy(1) 8.48 8.47 1.12 13.72 4.95 0.83 10.17 0.90 121.39 1.60 Companies Issuing Dividends(22) 11.39 11.17 0.60 5.56 2.43 0.83 7.78 0.62 187.04 0.85 Companies Without Dividends(1) 17.31 17.31 0.39 2.23 2.00 0.81 4.67 0.00 0.00 1.40 Equity/Assets 6-12%(16) 9.51 9.31 0.51 5.76 2.44 0.76 8.34 0.68 145.38 0.95 Equity/Assets more than 12%(7) 17.06 16.83 0.77 4.50 2.34 1.00 5.86 0.34 395.38 0.68 Actively Traded Companies(1) 9.42 8.40 0.58 6.23 2.68 0.91 9.74 0.68 83.02 1.06 Holding Company Structure(1) 9.42 8.40 0.58 6.23 2.68 0.91 9.74 0.68 83.02 1.06 Assets Over $1 Billion(5) 8.76 8.19 0.77 8.86 3.21 0.91 10.39 0.68 116.42 1.18 Assets $500 Million-$1 Billion(3) 12.17 11.68 0.76 5.52 2.40 0.86 6.74 0.54 61.96 0.53 Assets $250-$500 Million(5) 10.38 10.37 0.54 5.65 2.81 0.84 8.75 0.23 436.29 0.65 Assets less than $250 Million(10) 14.11 14.11 0.44 3.04 1.67 0.75 5.55 1.01 83.46 0.95 Goodwill Companies(9) 9.67 9.12 0.75 7.65 2.91 0.88 9.24 0.57 130.37 0.92 Non-Goodwill Companies(14) 12.90 12.90 0.49 4.02 2.10 0.79 6.65 0.66 232.38 0.84 MHC Institutions(23) 11.67 11.46 0.59 5.40 2.41 0.83 7.63 0.62 187.04 0.87 MHC Converted Last 3 Months(1) 17.31 17.31 0.39 2.23 2.00 0.81 4.67 0.00 0.00 1.40 Pricing Ratios Dividend Data(6) ----------------------------------------- ----------------------- Price/ Price/ Ind. Divi- Price/ Price/ Price/ Tang. Core Div./ dend Payout Financial Institution Earning Book Assets Book Earnings Share Yield Ratio(7 - --------------------- ------- ------- ------ ------ -------- ----- ----- ------- (X) (%) (%) (%) (x) ($) (%) (%) Market Averages. MHC Institutions - --------------------------------- SAIF-Insured Thrifts(21) 23.25 203.72 23.34 204.55 25.33 0.65 2.36 53.99 BIF-Insured Thrifts(2) 20.19 248.44 24.78 248.56 27.24 0.52 2.08 48.92 NASDAQ Listed OTC Companies(23) 22.23 207.98 23.48 208.95 25.48 0.63 2.33 53.42 Florida Companies(3) 27.07 237.66 21.85 210.07 24.85 1.07 2.92 68.29 Mid-Atlantic Companies(10) 0.00 204.84 24.88 215.07 25.94 0.39 1.59 45.86 Mid-West Companies(7) 19.42 191.27 22.17 191.55 24.34 0.70 3.06 67.16 New England Companies(1) 20.19 256.72 21.77 256.96 27.24 0.68 2.42 48.92 South-East Companies(1) 0.00 201.84 23.87 201.84 28.82 1.40 3.45 0.00 Thrift Strategy(21) 23.25 205.54 23.56 206.42 25.33 0.63 2.32 53.99 Diversified Strategy(1) 20.19 256.72 21.77 256.96 27.24 0.68 2.42 48.92 Companies Issuing Dividends(22) 22.23 212.80 23.69 214.08 25.61 0.67 2.45 60.10 Companies Without Dividends(1) 0.00 111.42 19.28 111.42 23.88 0.00 0.00 0.00 Equity/Assets 6-12%(16) 22.23 217.99 20.55 218.52 25.04 0.67 2.29 62.87 Equity/Assets more than 12%(7) 0.00 182.93 30.79 186.60 26.93 0.54 2.43 20.35 Actively Traded Companies(1) 0.00 223.08 21.01 250.17 23.90 0.48 1.61 60.00 Holding Company Structure(1) 0.00 223.08 21.01 250.17 23.90 0.48 1.61 60.00 Assets Over $1 Billion(5) 23.63 258.76 22.59 269.98 24.75 0.69 1.91 61.16 Assets $500 Million-$1 Billion(3) 0.00 220.44 27.28 228.30 28.67 0.72 2.49 40.70 Assets $250-$500 Million(5) 19.42 199.09 20.75 199.43 24.94 0.83 2.86 67.16 Assets less than $250 Million(10) 0.00 177.12 24.31 177.12 26.28 0.45 2.20 0.00 Goodwill Companies(9) 23.63 245.51 23.69 253.64 24.67 0.65 1.97 59.44 Non-Goodwill Companies(14) 19.42 184.88 23.34 184.88 25.98 0.63 2.55 32.37 MHC Institutions(23) 22.23 207.98 23.48 208.95 25.48 0.63 2.33 53.42 MHC Converted Last 3 Months(1) 0.00 111.42 19.28 111.42 23.88 0.00 0.00 0.00
(1) Average of high/low or bid/ask price per share. (2) Or since offering price if converted or first listed in 1994 or 1995. Percent change figures are actual year-to-date and are not annualized (3) EPS (earnings per share) is based on actual trailing twelve month data and is not shown on a pro forma basis. (4) Excludes intangibles (such as goodwill, value of core deposits, etc.). (5) ROA (return on assets) and ROE (return on equity) are indicated ratios based on trailing twelve month common earnings and average common equity and assets balances; ROI (return on investment) is current EPS divided by current price. (6) Annualized, based on last regular quarterly cash dividend announcement. (7) Indicated dividend as a percent of trailing twelve month earnings. (8) Excluded from averages due to actual or rumored acquisition activities or unusual operating characteristics. * All thrifts are SAIF insured unless otherwise noted with an asterisk. Parentheses following market averages indicate the number of institutions included in the respective averages. All figures have been adjusted for stock splits, stock dividends, and secondary offerings. Source: Corporate reports and offering circulars for publicly traded companies, and RP Financial, Inc. calculations. The information provided in this report has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information. Copyright (c) 1997 by RP Financial, LC. RP FINANCIAL, LC. - ----------------------------------------- Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 22209 (703) 528-1700 (continued) Weekly Thrift Market Line - Part Two Prices As Of August 29, 1997
Key Financial Ratios Asset Quality Ratios ---------------------------------------------------------- ----------------------- Tang. Equity/ Equity/ Reported Earnings Core Earnings NPAs Resvs/ Resvs/ ---------------------- --------------- Financial Institution Assets Assets ROA(5) ROE(5) ROI(5) ROA(5) ROE(5) Assets NPAs Loans - --------------------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- (%) (%) (%) (%) (%) (%) (%) (%) (%) (%) NYSE Traded Companies - --------------------- AHM Ahmanson and Co. H.F. of CA 4.17 3.55 0.39 9.68 3.90 0.62 15.44 1.90 42.90 1.25 CSA Coast Savings Financial of CA 4.92 4.86 0.21 4.28 2.15 0.53 10.73 1.40 65.70 1.37 CFB Commercial Federal Corp. of NE 6.00 5.32 0.65 11.03 4.87 0.91 15.55 0.89 76.36 0.91 DME Dime Bancorp, Inc. of NY* 5.27 5.03 0.56 10.57 5.42 0.71 13.39 1.57 31.98 0.85 DSL Downey Financial Corp. of CA 6.93 6.84 0.44 5.82 3.89 0.73 9.68 0.95 55.76 0.58 FRC First Republic Bancorp of CA* 7.17 7.17 0.70 11.10 6.60 0.60 9.46 1.19 69.68 0.94 FED FirstFed Fin. Corp. of CA 4.83 4.77 0.29 6.19 3.35 0.53 11.34 1.39 134.39 2.46 GSB Glendale Fed. Bk, FSB of CA 5.53 4.91 0.26 4.71 2.74 0.61 11.03 1.46 69.38 1.36 GD? Golden West Fin. Corp. of CA 6.37 6.37 1.02 16.09 8.19 1.24 19.62 1.31 42.43 0.68 GPT GreenPoint Fin. Corp. of NY* 10.31 5.79 1.0? 9.99 5.15 1.03 9.74 2.89 27.84 1.30 NYB New York Bancorp, Inc. of NY 5.08 5.08 1.38 26.83 6.49 1.62 31.44 1.22 48.76 0.97 WES Westcorp Inc. of Orange CA 9.05 9.02 0.87 9.10 5.15 0.43 4.51 0.74 134.25 1.95 AMEX Traded Companies - --------------------- ANA Acadiana Bancshares of LA* 17.43 17.43 0.50 3.67 2.19 0.50 3.67 0.52 190.96 1.35 BKC American Bank of Waterbury CT* 8.29 7.95 1.27 15.35 8.32 1.10 13.19 1.81 48.13 1.45 BFD BostonFed Bancorp of MA 8.79 8.49 0.51 5.08 3.92 0.66 6.58 0.52 114.29 0.74 CFX CFX Corp of NH* 7.44 6.96 0.94 11.53 5.43 1.12 13.73 0.72 120.07 1.23 CNY Carver Bancorp, Inc. of NY 8.35 8.01 -0.44 -4.95 -5.98 0.01 0.07 1.37 42.60 1.02 CBK Citizens First Fin.Corp. of IL 14.08 14.08 0.29 1.95 1.88 0.58 3.84 0.59 37.65 0.26 ESX Essex Bancorp of VA(8) 0.27 0.17 -0.03 -16.67 -2.66 0.03 16.67 2.63 42.63 1.34 FCB Falmouth Co-Op Bank of MA* 23.68 23.88 0.84 3.43 3.06 0.79 3.23 0.07 806.45 0.98 FAB FirstFed America Bancorp of MA 12.16 12.16 -0.20 -2.35 -1.05 0.47 5.61 0.40 235.98 1.10 GAF GA Financial Corp. of PA 15.18 15.02 1.00 5.26 4.27 1.27 6.71 0.12 132.49 0.43 JSB JSB Financial, Inc. of NY 22.17 22.17 1.77 8.09 6.07 1.68 7.68 NA NA 0.62 KNK Kankakee Bancorp of IL 11.09 10.42 0.66 6.35 5.59 0.82 7.92 0.94 67.06 0.92 KYF Kentucky First Bancorp of KY 16.56 16.56 0.87 4.64 4.64 1.12 6.00 0.07 630.51 0.75 MBB MSB Bancorp of Middletown NY* 7.39 3.63 0.17 2.40 2.11 0.18 2.50 0.71 38.66 0.63 PDB Piedmont Bancorp of NC 16.63 16.63 -0.42 -1.94 -1.79 0.66 3.07 0.91 71.58 0.79 SSB Scotland Bancorp of NC 37.02 37.02 1.41 3.88 2.82 1.72 4.72 NA NA 0.50 SZB SouthFirst Bancshares of AL 14.00 14.00 -0.03 -0.19 -0.18 0.23 1.62 0.75 39.15 0.40 SRN Southern Banc Company of AL 16.90 16.72 0.15 0.82 0.84 0.51 2.77 NA NA NA SSM Stone Street Bancorp of NC 28.85 28.85 1.43 4.18 3.76 1.71 5.02 0.27 187.50 0.62 TSH Teche Holding Company of LA 13.14 13.14 0.69 5.03 4.27 0.96 6.96 0.27 304.97 0.96 FTF Texarkana Fst. Fin. Corp of AR 15.70 15.70 1.41 8.40 5.86 1.74 10.38 0.46 145.12 0.79 THR Three Rivers Fin. Corp. of MI 13.76 13.76 0.57 3.94 3.87 0.82 5.68 1.21 44.02 0.80 TBK Tolland Bank of CT* 6.94 6.74 0.75 11.37 6.48 0.78 11.89 2.13 54.09 1.87 WSB Washington SB, FSB of MD 8.30 8.30 0.50 6.00 4.44 0.73 8.80 NA NA 0.92 NASDAQ Listed OTC Companies - --------------------------- FBCV 1st Bancorp of Vincennes IN 8.26 8.09 0.31 3.80 3.30 0.13 1.61 0.94 45.77 0.66 AFED AFSALA Bancorp, Inc. of NY 13.47 13.47 0.79 6.46 5.11 0.79 6.46 0.45 150.77 1.43 ALBK ALBANK Fin. Corp. of Albany NY 9.20 8.04 0.84 9.16 5.95 1.04 11.28 0.91 78.77 0.99 AMFC AMB Financial Corp. of IN 14.95 14.95 0.73 4.14 4.55 0.81 4.57 0.81 49.41 0.53 ASBP ASB Financial Corp. of OH 15.56 15.56 0.60 3.25 2.97 0.86 4.67 1.02 71.62 1.09 ABBK Abington Savings Bank of MA* 6.92 6.23 0.82 12.05 7.08 0.73 10.71 0.20 211.97 0.69 AABC Access Anytime Bancorp of NM 7.44 7.44 -0.50 -8.75 -6.54 -0.12 -2.14 1.60 29.31 0.92 AFBC Advance Fin. Bancorp of WV 15.45 15.45 0.39 4.31 2.15 0.79 8.74 0.37 89.84 0.40 AADV Advantage Bancorp of WI 9.21 8.62 0.40 4.49 3.01 0.89 9.94 0.44 128.03 1.01 AFCB Affiliated Comm BC, Inc of MA 9.78 9.72 0.96 9.78 5.83 1.09 11.12 0.39 191.75 1.20 ALBC Albion Banc Corp. of Albion NY 8.73 8.73 0.11 1.14 1.16 0.38 4.07 0.72 53.94 0.54 ABCL Allied Bancorp of IL 8.91 8.80 0.52 5.86 2.92 0.76 8.56 0.15 257.09 0.53 Pricing Ratios Dividend Data(6) ---------------------------------------- ---------------------- Price/ Price/ Ind. Divi- Price/ Price/ Price/ Tang. Core Div./ dend Payout Financial Institution Earning Book Assets Book Earnings Share Yield Ratio(7) - --------------------- ------- ------- ------- ------- ------- ------- ------- ------- (X) (%) (%) (%) (x) ($) (%) (%) NYSE Traded Companies - --------------------- AHM Ahmanson and Co. H.F. of CA 25.63 249.39 10.39 292.68 16.06 0.88 1.73 44.44 CSA Coast Savings Financial of CA NM 191.44 9.42 193.86 18.57 0.00 0.00 0.00 CFB Commercial Federal Corp. of NE 20.52 212.75 12.77 239.93 14.55 0.28 0.67 13.66 DME Dime Bancorp, Inc. of NY* 18.45 189.72 10.00 198.87 14.56 0.16 0.83 15.24 DSL Downey Financial Corp. of CA 25.72 144.95 10.05 146.98 15.47 0.32 1.45 37.21 FRC First Republic Bancorp of CA* 15.14 142.63 10.23 142.72 17.76 0.00 0.00 0.00 FED FirstFed Fin. Corp. of CA 29.87 176.33 8.51 178.29 16.30 0.00 0.00 0.00 GSB Glendale Fed. Bk, FSB of CA NM 162.10 8.96 182.38 15.61 0.00 0.00 0.00 GD? Golden West Fin. Corp. of CA 12.21 187.49 11.95 187.49 10.01 0.44 0.53 6.53 GPT GreenPoint Fin. Corp. of NY* 19.42 202.23 20.85 NM 19.92 1.00 1.62 31.55 NYB New York Bancorp, Inc. of NY 15.40 NM 20.06 NM 13.15 0.60 1.97 30.30 WES Westcorp Inc. of Orange CA 19.42 169.63 15.35 170.17 NM 0.40 1.86 36.04 AMEX Traded Companies - --------------------- ANA Acadiana Bancshares of LA* NM 128.74 22.44 128.74 NM 0.36 1.67 NM BKC American Bank of Waterbury CT* 12.02 172.81 14.32 180.00 13.99 1.44 3.83 46.01 BFD BostonFed Bancorp of MA 25.50 130.86 11.50 135.37 19.66 0.28 1.48 37.84 CFX CFX Corp of NH* 18.41 192.49 14.32 205.79 15.46 0.88 4.35 NM CNY Carver Bancorp, Inc. of NY NM 82.85 6.92 86.38 NM 0.20 1.62 NM CBK Citizens First Fin.Corp. of IL NM 108.55 15.28 108.55 27.12 0.00 0.00 0.00 ESX Essex Bancorp of VA(8) NM NM 1.05 NM NM 0.00 0.00 NM FCB Falmouth Co-Op Bank of MA* NM 110.39 26.36 110.39 NM 0.20 1.18 38.46 FAB FirstFed America Bancorp of MA NM 140.67 17.11 140.67 NM 0.00 0.00 NM GAF GA Financial Corp. of PA 23.44 131.58 19.97 132.98 18.38 0.48 2.56 60.00 JSB JSB Financial, Inc. of NY 16.48 131.45 29.14 131.45 17.36 1.40 3.09 50.91 KNK Kankakee Bancorp of IL 17.90 109.06 12.09 116.05 14.36 0.48 1.66 29.63 KYF Kentucky First Bancorp of KY 21.55 111.91 18.53 111.91 16.67 0.50 4.00 NM MBB MSB Bancorp of Middletown NY* NM 109.93 8.12 223.99 NM 0.60 2.58 NM PDB Piedmont Bancorp of NC NM 143.13 23.80 143.13 NM 0.40 3.77 NM SSB Scotland Bancorp of NC NM 134.38 49.75 134.38 29.13 0.30 1.66 58.82 SZB SouthFirst Bancshares of AL NM 101.18 14.16 101.18 NM 0.50 3.08 NM SRN Southern Banc Company of AL NM 107.49 18.16 108.62 NM 0.35 2.26 NM SSM Stone Street Bancorp of NC 26.56 131.74 38.01 131.74 22.14 0.45 2.12 56.25 TSH Teche Holding Company of LA 23.40 117.51 15.44 117.51 16.90 0.50 2.74 64.10 FTF Texarkana Fst. Fin. Corp of AR 17.08 148.84 23.37 148.84 13.81 0.56 2.50 42.75 THR Three Rivers Fin. Corp. of MI 25.82 103.48 14.24 103.48 17.90 0.40 2.54 65.57 TBK Tolland Bank of CT* 15.42 161.51 11.21 16?.21 14.76 0.20 1.17 18.02 WSB Washington SB, FSB of MD 22.50 133.66 11.10 133.66 15.34 0.10 1.48 33.33 NASDAQ Listed OTC Companies - --------------------------- FBCV 1st Bancorp of Vincennes IN NM 111.72 9.23 114.07 NM 0.40 1.12 33.90 AFED AFSALA Bancorp, Inc. of NY 19.59 108.96 14.68 108.96 19.59 0.16 1.00 19.51 ALBK ALBANK Fin. Corp. of Albany NY 16.81 148.94 13.71 170.43 13.65 0.72 1.87 31.44 AMFC AMB Financial Corp. of IN 21.97 99.25 14.84 99.25 19.86 0.24 1.56 36.36 ASBP ASB Financial Corp. of OH NM 129.26 20.11 129.26 23.43 0.40 3.05 NM ABBK Abington Savings Bank of MA* 14.12 162.84 11.27 180.79 15.89 0.40 1.31 18.52 AABC Access Anytime Bancorp of NM NM 105.36 7.84 105.36 NM 0.00 0.00 NM AFBC Advance Fin. Bancorp of WV NM 110.09 17.01 110.09 22.89 0.32 1.97 NM AADV Advantage Bancorp of WI NM 145.44 13.40 155.56 15.04 0.40 0.95 31.50 AFCB Affiliated Comm BC, Inc of MA 17.16 159.19 15.56 160.06 15.09 0.48 1.83 31.37 ALBC Albion Banc Corp. of Albion NY NM 97.04 8.47 97.04 24.22 0.32 1.38 NM ABCL Allied Bancorp of IL NM 132.99 11.85 134.66 23.40 0.66 2.12 72.53
RP FINANCIAL, LC. - ----------------------------------------- Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 22209 (703) 528-1700 (continued) Weekly Thrift Market Line - Part Two Prices As Of August 29, 1997
Key Financial Ratios Asset Quality Ratios ---------------------------------------------------------- ----------------------- Tang. Equity/ Equity/ Reported Earnings Core Earnings NPAs Resvs/ Resvs/ ---------------------- --------------- Financial Institution Assets Assets ROA(5) ROE(5) ROI(5) ROA(5) ROE(5) Assets NPAs Loans - --------------------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- (%) (%) (%) (%) (%) (%) (%) (%) (%) (%) NASDAQ Listed OTC Companies (continued) - --------------------------------------- ATSB AmTrust Capital Corp. of IN 10.17 10.06 0.29 2.88 3.08 0.19 1.87 2.84 23.48 0.93 AHCI Ambanc Holding Co., Inc. of NY* 12.72 12.72 -0.62 -4.16 -4.19 -0.62 -4.16 0.63 124.04 1.40 ASBI Ameriana Bancorp of IN 10.96 10.95 0.61 5.52 3.80 0.85 7.73 0.40 71.19 0.38 AFFFZ America First Fin. Fund of CA(8) 8.44 8.34 1.49 19.31 14.00 1.83 23.69 0.40 81.55 0.49 ANBK American Nat'l Bancorp of HD(8) 8.97 8.97 0.28 2.90 1.88 0.65 6.74 0.74 102.82 1.17 ABCW Anchor Bancorp Wisconsin of WI 6.22 6.11 0.75 12.06 11.81 0.96 15.53 0.92 126.05 1.48 ANDB Andover Bancorp, Inc. of MA* 8.06 8.06 1.10 13.91 8.43 1.13 14.34 1.01 99.08 1.41 ASFC Astoria Financial Corp. of NY 7.83 6.57 0.56 7.09 4.07 0.79 10.12 0.51 37.96 0.48 AVND Avondale Fin. Corp. of IL 9.12 9.12 -0.49 -5.19 -5.96 -1.51 -16.06 3.18 96.19 5.33 BKCT Bancorp Connecticut of CT* 10.25 10.25 1.32 12.60 6.99 1.24 11.90 1.19 100.82 1.98 BPLS Bank Plus Corp. of CA 5.06 5.06 -0.26 -5.31 -4.23 0.02 0.46 2.88 58.99 2.11 BWFC Bank West Fin. Corp. of MI 14.52 14.52 0.64 3.91 3.11 0.57 3.47 0.28 51.72 0.20 BANC BankAtlantic Bancorp of FL 5.62 4.62 0.90 14.98 7.84 0.65 10.86 0.97 102.98 1.39 BKUNA BankUnited SA of FL 3.72 3.02 0.21 4.55 2.42 0.34 7.54 0.60 28.73 0.21 BKCO Bankers Corp. of NJ(8)* 7.93 7.81 1.08 13.59 7.50 1.16 14.55 1.14 26.36 0.50 BVCC Bay View Capital Corp. of CA 6.34 5.32 0.39 6.37 3.75 0.63 10.37 NA NA 1.51 FSNJ Bayonne Banchsares of NJ 8.33 8.33 -0.52 -6.60 -8.85 0.29 3.65 1.22 43.59 1.36 BFSB Bedford Bancshares of VA 14.16 14.16 1.01 6.98 4.73 1.29 8.94 0.60 79.85 0.56 BFFC Big Foot Fin. Corp. of IL 16.98 16.98 0.05 0.28 0.23 0.42 2.45 0.09 151.52 0.34 BSBC Branford SB of CT(8)* 9.28 9.28 1.16 12.75 6.48 1.16 12.75 1.42 141.26 3.06 BYFC Broadway Fin. Corp. of CA 10.01 10.01 -0.14 -1.23 -1.73 0.21 1.88 2.06 39.74 1.01 CBES CBES Bancorp of MO 18.39 18.39 0.77 5.22 3.92 0.96 6.51 0.77 54.05 0.46 CCFH CCF Holding Company of GA 11.68 11.68 0.05 0.30 0.29 0.07 0.42 0.18 325.68 0.72 CENF CENFED Financial Corp. of CA 5.20 5.19 0.51 10.04 6.00 0.73 14.30 1.28 58.93 1.10 CFSB CFSB Bancorp of Lansing MI 7.63 7.63 0.85 10.96 5.27 1.07 13.84 0.17 308.01 0.61 CKFB CKF Bancorp of Danville KY 23.96 23.96 1.81 7.25 6.16 1.33 5.33 1.26 14.79 0.20 CNSB CNS Bancorp of MO 24.94 24.94 0.42 1.70 1.49 0.77 3.13 0.53 72.14 0.58 CSBF CSB Financial Group Inc of IL* 25.06 23.63 0.43 1.59 1.79 0.66 2.42 0.56 57.14 0.57 CBCI Calumet Bancorp of Chicago IL 15.50 15.50 1.15 7.22 6.40 1.46 9.16 1.16 102.51 1.57 CAFI Camco Fin. Corp. of OH 9.57 8.82 0.82 9.11 6.24 0.92 10.18 0.49 54.74 0.32 CMRN Cameron Fin. Corp. of MO 21.69 21.69 1.07 4.43 4.49 1.33 5.51 0.73 111.82 0.97 CAPS Capital Savings Bancorp of MO 8.80 8.80 0.67 7.61 5.21 0.93 10.68 0.31 97.24 0.39 CFNC Carolina Fincorp of NC* 22.82 22.82 1.14 4.92 3.91 1.09 4.70 0.14 254.78 0.51 CASB Cascade SB of Everett WA(8) 6.17 6.17 0.46 7.49 4.60 0.58 9.46 0.39 203.69 0.95 CATB Catskill Fin. Corp. of NY* 25.04 25.04 1.43 5.21 5.19 1.45 5.27 0.47 140.85 1.48 CNIT Cenit Bancorp of Norfolk VA 7.24 6.65 0.87 12.05 7.11 0.80 11.05 0.51 103.23 0.76 CEBK Central Co-Op. Bank of MA* 10.45 9.31 0.88 8.78 7.38 0.90 8.90 0.85 97.49 1.21 CENB Century Bancshares of NC* 29.93 29.93 1.76 5.86 5.42 1.78 5.93 0.39 139.39 0.91 CBSB Charter Financial Inc. of IL 14.47 12.80 1.13 7.49 5.22 1.59 10.49 0.56 104.84 0.79 COFI Charter One Financial of OH 6.71 6.28 0.98 14.64 5.48 1.23 18.32 0.27 164.80 0.73 CVAL Chester Valley Bancorp of PA 8.36 8.36 0.66 7.47 3.92 0.93 10.57 0.23 381.68 1.10 CTZN CitFed Bancorp of Dayton OH 6.37 5.74 0.58 9.12 4.41 0.82 12.83 0.41 143.79 0.95 CLAS Classic Bancshares of KY 14.72 12.42 0.55 3.05 3.19 0.77 4.27 0.94 65.45 0.93 CMSB Cmnwealth Bancorp of PA 9.63 7.53 0.55 5.26 4.00 0.70 6.71 0.50 86.54 0.79 CBSA Coastal Bancorp of Houston TX 3.33 2.77 0.25 7.57 4.92 0.44 13.16 0.58 39.81 0.51 CFCP Coastal Fin. Corp. of SC 6.17 6.17 0.94 15.22 4.04 1.03 16.67 0.21 436.85 1.15 CMSV Commty. Svgs, MHC of FL (48.5) 11.25 11.25 0.56 4.87 2.34 0.84 7.27 0.55 67.15 0.63 CBNH Community Bankshares Inc of NH(8)* 7.00 7.00 0.95 13.33 5.18 0.76 10.63 0.49 141.22 1.01 CFTP Community Fed. Bancorp of MS 27.46 27.46 1.33 4.15 3.28 1.62 5.07 0.30 91.63 0.46 CFFC Community Fin. Corp. of VA 13.71 13.71 1.01 7.32 6.07 1.28 9.26 0.39 148.67 0.65 CFBC Community First Bnkg Co. of GA 15.40 15.19 0.56 3.65 3.10 0.57 3.69 2.02 26.10 0.83 CIBI Community Inv. Bancorp of OH 12.04 12.04 0.62 5.22 3.94 0.94 7.95 0.63 83.42 0.63 COOP Cooperative Bk. for Svgs. of NC 7.63 7.63 -0.80 -10.08 -6.67 0.20 2.52 0.46 50.09 0.29 CRZY Crazy Woman Creek Bncorp of WY 25.81 25.81 1.06 3.69 4.04 1.30 4.52 0.39 136.15 1.04 DNFC D&N Financial Corp. of MI 5.57 5.52 0.61 10.68 5.91 0.80 14.08 0.34 198.09 0.93 DCBI Delphos Citizens Bancorp of OH 28.41 28.41 1.45 6.45 4.50 1.45 6.45 0.35 27.76 0.13 Pricing Ratios Dividend Data(6) ---------------------------------------- ---------------------- Price/ Price/ Ind. Divi- Price/ Price/ Price/ Tang. Core Div./ dend Payout Financial Institution Earning Book Assets Book Earnings Share Yield Ratio(7) - --------------------- ------- ------- ------- ------- ------- ------- ------- ------- (X) (%) (%) (%) (x) ($) (%) (%) NASDAQ Listed OTC Companies (continued) - --------------------------------------- ATSB AmTrust Capital Corp. of IN NM 94.68 9.63 95.73 NM 0.20 1.54 50.00 AHCI Ambanc Holding Co., Inc. of NY* NM 111.91 14.24 111.91 NM 0.20 1.29 NM ASBI Ameriana Bancorp of IN 26.33 146.40 16.04 146.51 18.81 0.64 3.24 NM AFFFZ America First Fin. Fund of CA(8) 7.15 127.99 10.80 129.59 5.82 1.60 4.06 29.04 ANBK American Nat'l Bancorp of HD(8) NM 157.02 14.08 157.02 22.90 0.12 0.61 32.43 ABCW Anchor Bancorp Wisconsin of WI 8.47 99.09 6.17 101.00 6.58 0.32 1.22 10.32 ANDB Andover Bancorp, Inc. of MA* 11.87 155.69 12.55 155.69 11.51 0.68 2.23 26.46 ASFC Astoria Financial Corp. of NY 24.55 168.31 13.17 200.42 17.19 0.60 1.25 30.61 AVND Avondale Fin. Corp. of IL NM 89.91 8.20 89.91 NM 0.00 0.00 NM BKCT Bancorp Connecticut of CT* 14.30 177.54 18.19 177.54 15.15 1.00 3.25 46.51 BPLS Bank Plus Corp. of CA NM 117.26 5.94 117.39 NM 0.00 0.00 NM BWFC Bank West Fin. Corp. of MI NM 132.35 19.21 132.35 NM 0.28 1.64 52.83 BANC BankAtlantic Bancorp of FL 12.76 183.02 10.29 222.82 17.61 0.12 0.96 12.24 BKUNA BankUnited SA of FL NM 158.10 5.89 195.12 25.00 0.00 0.00 0.00 BKCO Bankers Corp. of NJ(8)* 13.33 172.05 13.64 174.60 12.44 0.64 2.27 30.19 BVCC Bay View Capital Corp. of CA 26.67 171.10 10.84 203.86 16.37 0.32 1.24 32.99 FSNJ Bayonne Banchsares of NJ NM 75.65 6.30 75.65 20.47 0.17 1.43 NM BFSB Bedford Bancshares of VA 21.16 143.57 20.34 143.57 16.52 0.56 2.32 49.12 BFFC Big Foot Fin. Corp. of IL NM 119.39 20.27 119.39 NM 0.00 0.00 0.00 BSBC Branford SB of CT(8)* 15.44 187.12 17.37 187.12 15.44 0.08 1.62 25.00 BYFC Broadway Fin. Corp. of CA NM 75.09 7.51 75.09 NM 0.20 1.82 NM CBES CBES Bancorp of MO 25.54 103.16 18.97 103.16 20.49 0.40 2.27 57.97 CCFH CCF Holding Company of GA NM 118.38 13.83 118.38 NM 0.55 3.24 NM CENF CENFED Financial Corp. of CA 16.67 158.27 8.24 158.58 11.70 0.36 1.09 18.18 CFSB CFSB Bancorp of Lansing MI 18.98 205.53 15.67 205.53 15.03 0.60 2.31 43.80 CKFB CKF Bancorp of Danville KY 16.24 120.63 28.90 120.63 22.09 0.50 2.63 42.74 CNSB CNS Bancorp of MO NM 112.87 28.15 112.87 NM 0.24 1.43 NM CSBF CSB Financial Group Inc of IL* NM 92.01 23.06 97.59 NM 0.00 0.00 0.00 CBCI Calumet Bancorp of Chicago IL 15.63 116.57 18.07 116.57 12.32 0.00 0.00 0.00 CAFI Camco Fin. Corp. of OH 16.02 121.95 11.67 132.19 14.34 0.49 2.76 44.14 CMRN Cameron Fin. Corp. of MO 22.27 101.11 21.93 101.11 17.91 0.28 1.61 35.90 CAPS Capital Savings Bancorp of MO 19.21 139.63 12.29 139.63 13.70 0.24 1.52 29.27 CFNC Carolina Fincorp of NC* 25.54 126.33 28.83 126.33 26.72 0.24 1.38 35.29 CASB Cascade SB of Everett WA(8) 21.72 156.62 9.67 156.62 17.21 0.00 0.00 0.00 CATB Catskill Fin. Corp. of NY* 19.26 108.55 27.18 108.55 19.03 0.28 1.71 32.94 CNIT Cenit Bancorp of Norfolk VA 14.07 169.51 12.27 184.57 15.33 1.00 1.90 26.67 CEBK Central Co-Op. Bank of MA* 13.54 114.24 11.94 128.29 13.36 0.32 1.64 22.22 CENB Century Bancshares of NC* 18.45 108.15 32.37 108.15 18.23 2.00 2.52 46.40 CBSB Charter Financial Inc. of IL 19.16 146.75 21.23 165.87 13.69 0.32 1.59 30.48 COFI Charter One Financial of OH 18.24 257.07 17.24 274.60 14.58 1.00 1.84 33.56 CVAL Chester Valley Bancorp of PA 25.53 182.65 15.27 182.65 18.05 0.44 1.83 46.81 CTZN CitFed Bancorp of Dayton OH 22.68 192.73 12.27 213.90 16.12 0.36 0.82 18.56 CLAS Classic Bancshares of KY NM 95.15 14.01 112.78 22.41 0.28 1.98 62.22 CMSB Cmnwealth Bancorp of PA 25.00 133.82 12.88 171.13 19.60 0.28 1.62 40.58 CBSA Coastal Bancorp of Houston TX 20.34 148.61 4.95 178.79 11.71 0.48 1.63 33.10 CFCP Coastal Fin. Corp. of SC 24.74 NM 21.69 NM 22.60 0.36 1.53 37.89 CMSV Commty. Svgs, MHC of FL (48.5) NM 202.13 22.73 202.13 28.67 0.90 2.88 NM CBNH Community Bankshares Inc of NH(8)* 19.29 241.88 16.92 241.88 24.20 0.64 1.53 29.49 CFTP Community Fed. Bancorp of MS NM 145.16 39.86 145.16 25.00 0.30 1.67 50.85 CFFC Community Fin. Corp. of VA 16.48 115.32 15.81 115.32 13.02 0.56 2.57 42.42 CFBC Community First Bnkg Co. of GA NM 117.85 18.14 119.47 NM 0.00 0.00 0.00 CIBI Community Inv. Bancorp of OH 25.40 133.78 16.10 133.78 16.67 0.32 2.00 50.79 COOP Cooperative Bk. for Svgs. of NC NM 149.75 11.43 149.75 NM 0.00 0.00 NM CRZY Crazy Woman Creek Bncorp of WY 24.78 97.96 25.29 97.96 20.24 0.40 2.78 68.97 DNFC D&N Financial Corp. of MI 16.93 170.05 9.48 171.77 12.84 0.20 1.07 18.18 DCBI Delphos Citizens Bancorp of OH 22.22 107.17 30.44 107.17 22.22 0.00 0.00 0.00
RP FINANCIAL, LC. - ----------------------------------------- Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 22209 (703) 528-1700 (continued) Weekly Thrift Market Line - Part Two Prices As Of August 29, 1997
Key Financial Ratios Asset Quality Ratios ---------------------------------------------------------- ----------------------- Tang. Equity/ Equity/ Reported Earnings Core Earnings NPAs Resvs/ Resvs/ ---------------------- --------------- Financial Institution Assets Assets ROA(5) ROE(5) ROI(5) ROA(5) ROE(5) Assets NPAs Loans - --------------------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- (%) (%) (%) (%) (%) (%) (%) (%) (%) (%) NASDAQ Listed OTC Companies (continued) - --------------------------------------- DIME Dime Community Bancorp of NY 14.52 12.50 0.96 5.96 4.79 1.04 6.41 0.73 112.22 1.43 DIBK Dime Financial Corp. of CT* 7.96 7.70 1.90 23.27 9.98 1.91 23.35 0.40 355.33 3.17 EGLB Eagle BancGroup of IL 11.85 11.85 -0.09 -0.77 -0.73 0.20 1.73 1.48 35.83 0.76 EBSI Eagle Bancshares of Tucker GA 8.30 8.30 0.43 5.14 3.79 0.58 6.99 1.07 63.66 0.95 EGFC Eagle Financial Corp. of CT 6.87 5.36 0.08 1.08 0.56 0.46 6.44 0.52 94.68 0.86 ETFS East Texas Fin. Serv. of TX 18.16 18.16 0.31 1.65 1.81 0.63 3.40 0.17 141.97 0.50 EMLD Emerald Financial Corp of OH 7.58 7.46 0.72 9.43 5.59 0.89 11.64 0.24 106.84 0.35 EIRE Emerald Island Bancorp, MA* 7.08 7.08 0.85 12.35 6.99 0.89 13.00 0.40 151.40 0.89 EFBC Empire Federal Bancorp of MT 34.89 34.89 0.83 2.37 2.26 1.09 3.12 0.06 312.50 0.46 EFBI Enterprise Fed. Bancorp of OH 12.33 12.32 0.71 5.16 4.10 0.79 5.73 0.03 576.09 0.29 EQSB Equitable FSB of Wheaton MD 5.04 5.04 0.46 9.09 5.80 0.74 14.50 0.49 36.72 0.26 FFFG F.F.O. Financial Group of FL(8) 6.49 6.49 0.68 10.82 4.13 0.97 15.58 3.28 52.54 2.40 FCBF FCB Fin. Corp. of Neenah WI 17.50 17.50 0.92 5.20 2.24 1.09 6.16 0.15 412.16 0.82 FFBS FFBS Bancorp of Columbus MS 19.23 19.23 1.16 5.96 4.13 1.47 7.53 0.37 118.76 0.62 FFDF FFD Financial Corp. of OH 24.74 24.74 0.78 3.42 2.98 1.08 4.74 NA NA 0.27 FFLC FFLC Bancorp of Leesburg FL 13.48 13.48 0.70 4.57 3.48 1.01 6.60 0.19 163.65 0.44 FFFC FFVA Financial Corp. of VA 13.18 12.90 1.11 7.86 4.50 1.34 9.52 0.18 318.63 0.98 FFWC FFW Corporation of Wabash IN 9.52 8.58 0.84 8.39 6.46 1.05 10.48 0.16 203.56 0.50 FFYF FFY Financial Corp. of OH 13.71 13.71 0.90 5.84 4.72 1.27 8.31 0.67 74.18 0.64 FMCO FMS Financial Corp. of NJ 6.56 6.44 0.69 10.76 6.18 1.02 15.79 1.06 48.60 0.92 FFHH FSF Financial Corp. of MN 11.35 11.35 0.66 5.22 4.39 0.84 6.63 0.03 636.64 0.34 FOBC Fed One Bancorp of Wheeling WV 11.06 10.55 0.68 5.85 4.95 0.97 8.33 0.40 101.18 0.93 FBCI Fidelity Bancorp of Chicago IL 10.38 10.36 0.55 5.34 4.47 0.78 7.48 0.80 21.76 0.22 FSBI Fidelity Bancorp, Inc. of PA 6.75 6.75 0.51 7.35 5.08 0.81 11.71 0.44 112.57 1.01 FFFL Fidelity FSB, MHC of FL (47.7) 8.38 8.31 0.38 4.15 1.87 0.60 6.56 0.34 62.82 0.29 FFED Fidelity Fed. Bancorp of IN 5.14 5.14 0.16 3.18 1.84 0.28 5.62 0.16 455.75 0.85 FFOH Fidelity Financial of OH 12.94 11.42 0.70 4.68 3.34 1.02 6.89 0.08 381.04 0.37 FIBC Financial Bancorp, Inc. of NY 9.36 9.31 0.56 5.74 4.38 1.00 10.23 1.81 26.91 0.89 FBSI First Bancshares of MO 13.54 13.52 0.91 6.15 5.32 1.10 7.44 0.56 52.51 0.36 FBBC First Bell Bancorp of PA 9.83 9.83 1.07 7.64 6.63 1.24 8.87 0.07 147.42 0.13 FBER First Bergen Bancorp of NJ 14.19 14.19 0.44 2.73 2.14 0.77 4.74 0.83 129.82 2.50 SKBO First Carnegie,MHC of PA(45.0) 15.65 15.65 0.37 2.35 1.55 0.54 3.43 NA NA 0.68 FSTC First Citizens Corp of GA 9.13 6.85 1.12 11.27 4.53 1.11 11.11 NA NA 1.47 FCME First Coastal Corp. of ME* 9.23 9.23 4.21 NM 41.40 4.08 NM 2.01 85.72 2.52 FFBA First Colorado Bancorp of Co 12.93 12.75 0.89 6.25 4.26 0.88 6.17 0.23 121.82 0.38 FDEF First Defiance Fin.Corp. of OH 21.31 21.31 0.75 3.36 2.92 1.03 4.61 0.45 96.96 0.57 FESX First Essex Bancorp of MA* 6.97 6.06 0.96 13.00 7.88 0.83 11.33 0.56 146.94 1.43 FFES First FS&LA of E. Hartford CT 6.43 6.43 0.42 6.80 4.68 0.70 11.19 0.37 71.33 1.42 FFSX First FS&LA. MHC of IA (46.1) 8.29 8.23 0.43 5.21 2.38 0.73 8.99 0.11 342.10 0.52 BDJI First Fed. Bancorp. of MN 10.87 10.87 0.30 2.56 2.24 0.63 5.44 0.27 137.04 0.76 FFBH First Fed. Bancshares of AR 14.97 14.97 0.77 4.84 3.86 1.06 6.63 0.19 119.50 0.30 FTFC First Fed. Capital Corp. of WI 6.36 5.96 0.74 11.34 4.82 0.86 13.16 NA NA 0.65 FFKY First Fed. Fin. Corp. of KY 13.70 12.91 1.30 9.44 5.30 1.55 11.27 0.64 71.13 0.52 FFBZ First Federal Bancorp of OH 7.55 7.54 0.73 9.58 4.76 1.02 13.38 0.53 163.59 1.01 FFCH First Fin. Holdings Inc. of SC 6.11 6.11 0.57 9.30 4.33 0.84 13.65 1.66 41.99 0.84 FFBI First Financial Bancorp of IL 8.66 8.66 -0.38 -4.73 -4.50 0.42 5.23 0.40 147.92 0.91 FFHC First Financial Corp. of WI(8) 7.12 6.94 0.96 13.35 4.68 1.28 17.95 0.26 148.86 0.64 FFHS First Franklin Corp. of OH 9.02 8.96 0.19 2.14 1.82 0.65 7.20 0.52 62.31 0.62 FGHC First Georgia Hold. Corp of GA 8.22 7.53 0.66 7.98 4.13 0.51 6.23 3.10 20.52 0.75 FSPG First Home Bancorp of NJ 6.66 6.55 0.89 13.61 8.15 1.16 17.76 0.64 114.23 1.39 FFSL First Independence Corp. of KS 10.43 10.43 0.43 3.84 3.62 0.69 6.12 0.87 69.37 0.91 FISB First Indiana Corp. of IN 9.56 9.44 0.83 8.86 5.71 1.01 10.83 1.50 91.12 1.62 FKFS First Keystone Fin. Corp of PA 7.31 7.31 0.54 7.21 4.86 0.77 10.30 1.60 30.58 0.84 FLKY First Lancaster Bncshrs of KY 34.23 34.23 1.15 3.72 2.93 1.40 4.52 0.75 32.89 0.29 FLFC First Liberty Fin. Corp. of GA 7.37 6.65 0.88 12.11 5.87 0.72 9.91 0.81 110.00 1.29 CASH First Midwest Fin. Corp. of IA 11.39 10.09 0.74 6.46 5.50 0.94 8.21 0.85 75.48 0.93 Pricing Ratios Dividend Data(6) ---------------------------------------- ----------------------- Price/ Price/ Ind. Divi- Price/ Price/ Price/ Tang. Core Div./ dend Payout Financial Institution Earning Book Assets Book Earnings Share Yield Ratio(7) - --------------------- ------- ------- ------- ------- ------- ------- ------- ------- (X) (%) (%) (%) (x) ($) (%) (%) NASDAQ Listed OTC Companies (continued) - --------------------------------------- DIME Dime Community Bancorp of NY 20.87 134.57 19.53 156.21 19.43 0.18 0.92 19.15 DIBK Dime Financial Corp. of CT* 10.02 208.95 16.64 215.98 9.98 0.40 1.42 14.18 EGLB Eagle BancGroup of IL NM 98.86 11.72 98.86 NM 0.00 0.00 NM EBSI Eagle Bancshares of Tucker GA 26.36 135.50 11.25 135.50 19.39 0.60 3.56 NM EGFC Eagle Financial Corp. of CT NM 154.41 10.60 197.79 NM 1.00 2.94 NM ETFS East Texas Fin. Serv. of TX NM 93.89 17.05 93.89 26.79 0.20 1.07 58.82 EMLD Emerald Financial Corp of OH 17.90 160.58 12.17 163.10 14.50 0.24 1.66 29.63 EIRE Emerald Island Bancorp, MA* 14.31 162.43 11.49 162.43 13.59 0.28 1.29 18.42 EFBC Empire Federal Bancorp of MT NM 105.01 36.64 105.01 NM 0.30 1.94 NM EFBI Enterprise Fed. Bancorp of OH 24.39 126.42 15.59 126.58 21.98 1.00 5.00 NM EQSB Equitable FSB of Wheaton MD 17.25 147.05 7.41 147.05 10.81 0.00 0.00 0.00 FFFG F.F.O. Financial Group of FL(8) 24.24 246.34 15.99 246.34 16.83 0.00 0.00 0.00 FCBF FCB Fin. Corp. of Neenah WI NM 229.61 40.18 229.61 NM 0.80 2.99 NM FFBS FFBS Bancorp of Columbus MS 24.21 142.41 27.39 142.41 19.17 0.50 2.17 52.63 FFDF FFD Financial Corp. of OH NM 101.72 25.16 101.72 24.18 0.30 2.03 68.18 FFLC FFLC Bancorp of Leesburg FL 28.77 135.50 18.26 135.50 19.93 0.48 1.57 45.28 FFFC FFVA Financial Corp. of VA 22.20 179.93 23.71 183.76 18.32 0.48 1.64 36.36 FFWC FFW Corporation of Wabash IN 15.48 121.32 11.55 134.67 12.39 0.72 2.46 38.10 FFYF FFY Financial Corp. of OH 21.19 136.83 18.76 136.83 14.90 0.70 2.58 54.69 FMCO FMS Financial Corp. of NJ 16.19 165.68 10.87 168.67 11.03 0.28 1.11 17.95 FFHH FSF Financial Corp. of MN 22.76 125.35 14.23 125.35 17.93 0.50 2.82 64.10 FOBC Fed One Bancorp of Wheeling WV 20.20 120.26 13.30 126.10 14.18 0.58 2.90 58.59 FBCI Fidelity Bancorp of Chicago IL 22.37 116.63 12.11 116.89 15.98 0.32 1.51 33.68 FSBI Fidelity Bancorp, Inc. of PA 19.68 134.24 9.07 134.24 12.35 0.36 1.69 33.33 FFFL Fidelity FSB, MHC of FL (47.7) NM 216.42 18.13 218.01 NM 0.90 3.36 NM FFED Fidelity Fed. Bancorp of IN NM 178.92 9.20 178.92 NM 0.40 4.32 NM FFOH Fidelity Financial of OH 29.90 125.31 16.21 141.99 20.33 0.28 1.84 54.90 FIBC Financial Bancorp, Inc. of NY 22.84 129.45 12.11 130.04 12.82 0.40 2.01 45.98 FBSI First Bancshares of MO 18.60 119.69 16.21 119.87 15.54 0.20 0.82 15.50 FBBC First Bell Bancorp of PA 15.09 148.42 14.58 148.42 13.01 0.40 2.50 37.74 FBER First Bergen Bancorp of NJ NM 131.77 18.70 131.77 26.89 0.20 1.13 52.63 SKBO First Carnegie,MHC of PA(45.0) NM 151.81 23.76 151.81 NM 0.30 1.94 NM FSTC First Citizens Corp of GA 22.07 196.80 17.97 262.30 22.38 0.44 1.38 30.34 FCME First Coastal Corp. of ME* 2.42 105.02 9.69 105.02 2.49 0.00 0.00 0.00 FFBA First Colorado Bancorp of Co 23.46 161.15 20.83 163.37 23.75 0.44 2.32 54.32 FDEF First Defiance Fin.Corp. of OH NM 117.06 24.95 117.06 25.00 0.32 2.17 74.42 FESX First Essex Bancorp of MA* 12.69 144.77 10.09 166.67 14.57 0.48 2.87 36.36 FFES First FS&LA of E. Hartford CT 21.38 137.54 8.84 137.54 13.00 0.60 1.85 39.47 FFSX First FS&LA. MHC of IA (46.1) NM 211.06 17.50 212.77 24.37 0.48 1.66 69.57 BDJI First Fed. Bancorp. of MN NM 119.32 12.97 119.32 21.00 0.00 0.00 0.00 FFBH First Fed. Bancshares of AR 25.93 128.36 19.21 128.36 18.92 0.24 1.14 29.63 FTFC First Fed. Capital Corp. of WI 20.76 230.26 14.64 245.74 17.88 0.48 1.96 40.68 FFKY First Fed. Fin. Corp. of KY 18.86 173.39 23.76 184.08 15.81 0.56 2.60 49.12 FFBZ First Federal Bancorp of OH 21.02 191.51 14.45 191.71 15.04 0.24 1.30 27.27 FFCH First Fin. Holdings Inc. of SC 23.08 205.86 12.58 205.86 15.71 0.72 2.18 50.35 FFBI First Financial Bancorp of IL NM 107.03 9.26 107.03 20.07 0.00 0.00 NM FFHC First Financial Corp. of WI(8) 21.36 276.35 19.69 283.64 15.89 0.60 1.86 39.74 FFHS First Franklin Corp. of OH NM 115.03 10.37 115.77 16.32 0.32 1.62 NM FGHC First Georgia Hold. Corp of GA 24.22 184.09 15.12 200.78 NM 0.05 0.65 15.63 FSPG First Home Bancorp of NJ 12.27 156.58 10.43 159.18 9.40 0.40 1.99 24.39 FFSL First Independence Corp. of KS 27.66 112.07 11.69 112.07 17.33 0.25 1.92 53.19 FISB First Indiana Corp. of IN 17.52 148.87 14.24 150.74 14.34 0.48 2.34 41.03 FKFS First Keystone Fin. Corp of PA 20.56 145.36 10.62 145.36 14.38 0.20 0.72 14.81 FLKY First Lancaster Bncshrs of KY NM 108.66 37.20 108.66 28.02 0.50 3.19 NM FLFC First Liberty Fin. Corp. of GA 17.05 182.93 13.49 202.89 20.83 0.40 1.78 30.30 CASH First Midwest Fin. Corp. of IA 18.19 116.45 13.27 131.43 14.32 0.36 1.98 36.00
RP FINANCIAL, LC. ----------------------------------------- Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 22209 (703) 528-1700 (continued) Weekly Thrift Market Line - Part Two Prices As Of August 29, 1997
Key Financial Ratios Asset Quality ---------------------------------------------------------- -------------- Tang. Equity/ Equity/ Reported Earnings Core Earnings NPAs Resvs/ ---------------------- --------------- Financial Institution Assets Assets ROA(5) ROE(5) ROI(5) ROA(5) ROE(5) Assets NPAs --------------------- ------ ------- ------ ------- ------ -------- ------ ------- ------ (%) (%) (%) (%) (%) (%) (%) (%) (%) NASDAQ Listed OTC Companies (continued) --------------------------------------- FMBD First Mutual Bancorp of IL 12.85 9.73 0.10 0.57 0.67 0.31 1.84 0.18 187.34 FMSB First Mutual SB of Bellevue WA* 6.82 6.82 1.02 15.34 7.43 1.00 14.95 0.01 NA FNGB First Northern Cap. Corp of WI 11.28 11.28 0.64 5.50 3.45 0.91 7.88 0.06 798.69 FFPB First Palm Beach Bancorp of FL 6.57 6.41 -0.03 -0.42 -0.26 0.03 0.37 0.73 55.75 FSLA First SB SLA MHC of NJ (47.5) 9.42 8.40 0.58 6.23 2.68 0.91 9.74 0.68 83.02 SOPN First SB, SSB, Moore Co. of NC 22.83 22.83 1.44 5.83 5.14 1.73 6.99 0.08 241.60 FWWB First Savings Bancorp of WA* 14.75 13.57 1.05 6.25 3.60 1.00 5.90 0.30 215.39 SHEN First Shenango Bancorp of PA 10.95 10.95 0.89 7.82 6.15 1.16 10.18 0.54 135.75 FSFC First So.east Fin. Corp. of SC(8) 10.22 10.22 0.01 0.11 0.07 0.92 7.48 0.11 362.15 FBNW FirstBank Corp of Clarkston WA 18.04 18.04 0.70 3.86 3.09 0.57 3.14 2.07 31.12 FFDB FirstFed Bancorp of AL 9.42 8.58 0.62 6.31 5.75 0.94 9.63 0.84 49.36 FSPT FirstSpartan Fin. Corp. of SC 26.32 26.32 0.95 3.62 2.83 1.11 4.20 NA NA FLAG Flag Financial Corp of GA 9.58 9.58 -0.03 -0.29 -0.20 0.15 1.65 4.27 47.62 FLGS Flagstar Bancorp, Inc of MI 5.46 5.46 0.00 0.00 0.00 0.00 0.00 3.41 8.26 FFIC Flushing Fin. Corp. of NY* 15.47 15.47 0.93 5.55 4.65 0.97 5.78 0.29 223.21 FBHC Fort Bend Holding Corp. of TX 6.03 5.62 0.19 3.18 2.16 0.44 7.36 0.37 141.08 FTSB Fort Thomas Fin. Corp. of KY 16.04 16.04 0.54 2.94 2.75 0.81 4.45 1.48 32.73 FKKY Frankfort First Bancorp of KY 17.19 17.19 -0.28 -1.14 -1.01 0.56 2.28 0.09 86.21 FTNB Fulton Bancorp of MO 25.01 25.01 0.74 3.81 1.95 1.05 5.39 0.81 106.69 GFSB GFS Bancorp of Grinnell IA 11.44 11.44 1.00 8.59 6.18 1.22 10.55 NA NA GUPB GFSB Bancorp of Gallup NM 16.30 16.30 0.74 3.86 3.68 0.93 4.86 0.18 199.36 GSLA GS Financial Corp. of LA 45.63 45.63 1.08 3.63 2.16 1.08 3.63 0.11 293.18 GOSB GSB Financial Corp. of NY 27.06 27.06 1.02 3.77 3.62 0.86 3.19 NA NA GWBC Gateway Bancorp of KY(8) 27.04 27.04 0.83 3.23 2.95 1.15 4.47 0.90 14.14 GBCI Glacier Bancorp of MT 9.74 9.48 1.44 15.09 6.20 1.61 16.87 0.27 229.89 GFCO Glenway Financial Corp. of OH 9.49 9.36 0.43 4.51 4.24 0.72 7.57 0.31 91.62 GTPS Great American Bancorp of IL 21.43 21.43 0.26 1.09 1.06 0.32 1.37 0.23 140.69 GTFN Great Financial Corp. of KY 9.24 8.84 0.75 7.89 4.76 0.71 7.50 3.06 15.68 GSBC Great Southern Bancorp of MO 8.53 8.53 1.38 14.76 6.76 1.56 16.69 1.91 114.73 GDVS Greater DV SB,MHC of PA (19.9)* 11.57 11.57 0.32 2.71 1.11 0.58 4.95 2.79 43.15 GSFC Green Street Fin. Corp. of NC 36.26 36.26 1.37 3.84 3.05 1.66 4.66 0.16 83.63 GFED Guarnty FS&LA,MHC of MO (31.0)(8) 13.78 13.78 0.61 4.30 1.95 0.92 6.51 0.50 216.62 HCBB HCB Bancshares of AR 18.25 17.49 -0.11 -0.58 -0.58 0.39 2.11 NA NA HEMT HF Bancorp of Hemet CA 8.21 6.72 -0.27 -3.07 -2.69 -1.88 -21.03 NA NA HFFC HF Financial Corp. of SD 9.43 9.43 0.66 7.12 5.59 0.89 9.66 0.33 244.25 HFNC HFNC Financial Corp. of NC 17.99 17.99 0.86 3.47 2.67 1.19 4.76 0.87 97.22 HMNF HMN Financial, Inc. of MN 14.43 14.43 0.71 4.79 3.84 0.88 5.96 0.08 531.97 HALL Hallmark Capital Corp. of WI 7.24 7.24 0.48 6.83 5.98 0.61 8.62 0.16 273.18 HARB Harbor FSB, MHC of FL (46.6) 8.39 8.11 0.95 11.52 3.69 1.23 14.84 0.46 222.68 HRBF Harbor Federal Bancorp of MD 12.90 12.90 0.46 3.52 2.94 0.71 5.46 0.05 379.63 HFSA Hardin Bancorp of Hardin MO 12.48 12.48 0.52 3.53 3.52 0.79 5.41 0.09 179.21 HARL Harleysville SA of PA 6.53 6.53 0.75 11.71 5.62 1.03 16.04 0.03 NA HFGI Harrington Fin. Group of IN 5.59 5.59 0.39 8.22 5.08 0.33 6.87 0.25 18.93 HARS Harris SB, MHC of PA (24.3) 8.01 7.01 0.49 5.78 2.08 0.62 7.24 0.65 64.15 HFFB Harrodsburg 1st Fin Bcrp of KY 26.93 26.93 1.03 3.77 3.61 1.36 5.01 0.47 59.81 HHFC Harvest Home Fin. Corp. of OH 12.50 12.50 0.27 1.87 1.96 0.58 4.07 0.11 117.00 HAVN Haven Bancorp of Woodhaven NY 5.95 5.93 0.56 9.27 5.52 0.83 13.79 0.74 86.28 HVFD Haverfield Corp. of OH(8) 8.55 8.55 0.57 6.82 3.81 1.08 12.97 1.04 82.48 HTHR Hawthorne Fin. Corp. of CA 4.60 4.60 0.23 5.32 3.63 0.51 11.47 7.17 19.99 HMLK Hemlock Fed. Fin. Corp. of IL 18.34 18.34 0.13 0.99 0.65 0.73 5.45 NA NA HBNK Highland Federal Bank of CA 7.47 7.47 0.46 6.25 3.28 0.68 9.17 3.09 55.00 HIFS Hingham Inst. for Sav. of MA* 9.35 9.35 1.21 12.60 7.67 1.21 12.60 0.41 165.13 HBEI Home Bancorp of Elgin IL 26.70 26.70 0.49 1.99 1.43 0.85 3.42 0.41 69.84 HBFW Home Bancorp of Fort Wayne IN 13.29 13.29 0.56 3.93 3.27 0.89 6.27 0.05 835.54 HBBI Home Building Bancorp of IN 12.82 12.82 0.20 1.59 1.41 0.52 4.05 0.38 47.98 HCFC Home City Fin. Corp. of OH 20.61 20.61 0.78 6.27 3.29 1.17 9.46 0.62 110.38 Ratios Pricing Ratios Dividend Data(6) ------- --------------------------------------- ----------------------- Price/ Price/ Ind. Divi- Resvs/ Price/ Price/ Price/ Tang. Core Div./ dend Payout Financial Institution Loans Earning Book Assets Book Earnings Share Yield Ratio(7) --------------------- ------- -------- ------ ------- ------ -------- ------- ------ ------- (%) (X) (%) (%) (%) (x) ($) (%) (%) NASDAQ Listed OTC Companies (continued) --------------------------------------- FMBD First Mutual Bancorp of IL 0.46 NM 98.04 12.59 129.42 NM 0.32 2.13 NM FMSB First Mutual SB of Bellevue WA* 1.27 13.46 192.48 13.13 192.48 13.82 0.20 0.95 12.82 FNGB First Northern Cap. Corp of WI 0.53 28.98 156.63 17.66 156.63 20.24 0.32 2.51 72.73 FFPB First Palm Beach Bancorp of FL 0.60 NM 160.85 10.57 164.86 NM 0.60 1.71 NM FSLA First SB SLA MHC of NJ (47.5) 1.06 NM 223.08 21.01 250.17 23.90 0.48 1.61 60.00 SOPN First SB, SSB, Moore Co. of NC 0.31 19.45 112.92 25.78 112.92 16.24 0.80 3.88 NM FWWB First Savings Bancorp of WA* 0.97 27.81 175.16 25.84 190.38 29.46 0.28 1.13 31.46 SHEN First Shenango Bancorp of PA 1.15 16.27 126.44 13.85 126.44 12.50 0.60 2.18 35.50 FSFC First So.east Fin. Corp. of SC(8) 0.50 NM 189.10 19.33 189.10 21.07 0.24 1.63 NM FBNW FirstBank Corp of Clarkston WA 0.78 NM 125.00 22.55 125.00 NM 0.00 0.00 0.00 FFDB FirstFed Bancorp of AL 0.59 17.40 114.16 10.75 125.23 11.40 0.50 3.02 52.63 FSPT FirstSpartan Fin. Corp. of SC 0.49 NM 128.01 33.70 128.01 NM 0.00 0.00 0.00 FLAG Flag Financial Corp of GA 2.91 NM 141.28 13.54 141.28 NM 0.34 2.31 NM FLGS Flagstar Bancorp, Inc of MI 0.32 NM NM 17.43 NM NM 0.00 0.00 NM FFIC Flushing Fin. Corp. of NY* 1.15 21.51 119.90 18.55 119.90 20.62 0.24 1.20 25.81 FBHC Fort Bend Holding Corp. of TX 1.03 NM 147.38 8.89 158.27 20.03 0.40 1.17 54.05 FTSB Fort Thomas Fin. Corp. of KY 0.54 NM 115.38 18.51 115.38 24.00 0.25 2.08 NM FKKY Frankfort First Bancorp of KY 0.08 NM 156.63 26.92 156.63 NM 0.36 3.31 NM FTNB Fulton Bancorp of MO 1.01 NM 145.13 36.29 145.13 NM 0.20 0.95 48.78 GFSB GFS Bancorp of Grinnell IA 0.82 16.19 133.68 15.29 133.68 13.19 0.26 1.82 29.55 GUPB GFSB Bancorp of Gallup NM 0.69 27.17 111.08 18.10 111.08 21.55 0.40 2.13 57.97 GSLA GS Financial Corp. of LA 0.84 NM 96.27 43.93 96.27 NM 0.28 1.78 NM GOSB GSB Financial Corp. of NY NA 27.63 104.28 28.22 104.28 NM 0.00 0.00 0.00 GWBC Gateway Bancorp of KY(8) 0.38 NM 109.85 29.70 109.85 24.47 0.40 2.27 NM GBCI Glacier Bancorp of MT 0.85 16.14 218.60 21.30 224.68 14.43 0.48 2.70 43.64 GFCO Glenway Financial Corp. of OH 0.34 23.58 104.65 9.93 106.07 14.04 0.80 3.20 NM GTPS Great American Bancorp of IL 0.44 NM 107.91 23.13 107.91 NM 0.40 2.22 NM GTFN Great Financial Corp. of KY 0.72 20.99 163.58 15.11 170.87 22.10 0.60 1.80 37.74 GSBC Great Southern Bancorp of MO 2.59 14.78 228.19 19.47 228.19 13.08 0.40 2.35 34.78 GDVS Greater DV SB,MHC of PA (19.9)* 1.93 NM 240.16 27.78 240.16 NM 0.36 1.73 NM GSFC Green Street Fin. Corp. of NC 0.18 NM 124.71 45.22 124.71 27.01 0.44 2.40 NM GFED Guarnty FS&LA,MHC of MO (31.0)(8) 1.36 NM 215.91 29.75 215.91 NM 0.44 2.32 NM HCBB HCB Bancshares of AR 1.47 NM 100.15 18.27 104.48 NM 0.00 0.00 NM HEMT HF Bancorp of Hemet CA NA NM 115.54 9.49 141.22 NM 0.00 0.00 NM HFFC HF Financial Corp. of SD 1.01 17.89 123.73 11.67 123.73 13.17 0.42 1.91 34.15 HFNC HFNC Financial Corp. of NC 1.14 NM 172.04 30.95 172.04 27.32 0.28 1.74 65.12 HMNF HMN Financial, Inc. of MN 0.71 26.06 126.16 18.20 126.16 20.94 0.00 0.00 0.00 HALL Hallmark Capital Corp. of WI 0.64 16.73 108.22 7.83 108.22 13.24 0.00 0.00 0.00 HARB Harbor FSB, MHC of FL (46.6) 1.37 27.07 294.43 24.70 NM 21.02 1.40 2.52 68.29 HRBF Harbor Federal Bancorp of MD 0.28 NM 119.84 15.45 119.84 21.94 0.40 2.03 68.97 HFSA Hardin Bancorp of Hardin MO 0.32 28.45 105.16 13.12 105.16 18.54 0.48 2.91 NM HARL Harleysville SA of PA 0.77 17.81 195.34 12.76 195.34 13.00 0.40 1.54 27.40 HFGI Harrington Fin. Group of IN 0.23 19.67 156.45 8.75 156.45 23.53 0.12 1.00 19.67 HARS Harris SB, MHC of PA (24.3) 0.97 NM 260.45 20.86 297.81 NM 0.58 1.53 73.42 HFFB Harrodsburg 1st Fin Bcrp of KY 0.38 27.73 105.24 28.35 105.24 20.89 0.40 2.62 72.73 HHFC Harvest Home Fin. Corp. of OH 0.26 NM 103.52 12.94 103.52 23.50 0.40 3.40 NM HAVN Haven Bancorp of Woodhaven NY 1.15 18.12 156.49 9.30 157.01 12.18 0.60 1.58 28.71 HVFD Haverfield Corp. of OH(8) 0.99 26.23 172.36 14.73 172.36 13.79 0.56 2.09 54.90 HTHR Hawthorne Fin. Corp. of CA 1.67 27.53 134.81 6.20 134.81 12.77 0.00 0.00 0.00 HMLK Hemlock Fed. Fin. Corp. of IL 1.30 NM 105.49 19.35 105.49 27.95 0.24 1.56 NM HBNK Highland Federal Bank of CA 2.13 NM 178.46 13.34 178.46 20.74 0.00 0.00 0.00 HIFS Hingham Inst. for Sav. of MA* 0.89 13.04 155.25 14.52 155.25 13.04 0.48 1.98 25.81 HBEI Home Bancorp of Elgin IL 0.36 NM 127.46 34.03 127.46 NM 0.40 2.29 NM HBFW Home Bancorp of Fort Wayne IN 0.51 NM 124.86 16.59 124.86 19.13 0.20 0.91 27.78 HBBI Home Building Bancorp of IN 0.29 NM 110.75 14.19 110.75 27.70 0.30 1.46 NM HCFC Home City Fin. Corp. of OH 0.87 NM 104.94 21.62 104.94 20.13 0.32 2.06 62.75
RP FINANCIAL, LC. - ---------------------------------------- Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 22209 (703) 528-1700 (continued) Weekly Thrift Market Line - Part Two Prices As Of August 29, 1997
Key Financial Ratios Asset Quality Ratios ---------------------------------------------------------- ----------------------- Tang. Equity/ Equity/ Reported Earnings Core Earnings NPAs Resvs/ Resvs/ ----------------------- --------------- Financial Institution Assets Assets ROA(5) ROE(5) ROI(5) ROA(5) ROE(5) Assets NPAs Loans - --------------------- ------- ------- ------- ------- ------ ------- ------- ------- ------ ------- (%) (%) (%) (%) (%) (%) (%) (%) (%) (%) NASDAQ Listed OTC Companies (continued) - --------------------------------------- HOMF Home Fed Bancorp of Seymour IN 8.48 8.22 1.05 12.65 6.73 1.22 14.72 0.46 117.33 0.62 HWEN Home Financial Bancorp of IN 16.93 16.93 0.64 3.78 3.43 0.80 4.76 1.74 31.30 0.67 HPBC Home Port Bancorp, Inc. of MA* 10.56 10.56 1.67 15.78 7.69 1.66 15.69 0.08 NA 1.56 HMCI Homecorp, Inc. of Rockford IL 6.54 6.54 0.14 2.17 1.77 0.43 6.83 3.35 14.24 0.59 HZFS Horizon Fin'l. Services of IA 9.79 9.79 0.36 3.35 3.44 0.57 5.36 1.22 25.93 0.52 HRZB Horizon Financial Corp. of WA* 15.60 15.60 1.57 9.99 7.13 1.54 9.80 NA NA 0.84 IBSF IBS Financial Corp. of NJ 17.41 17.41 0.49 2.68 1.93 0.86 4.71 0.08 171.10 0.52 ISBF ISB Financial Corp. of LA 12.19 10.33 0.69 4.59 3.04 0.93 6.20 NA NA 0.80 ITLA Imperial Thrift & Loan of CA* 10.99 10.94 1.47 12.75 8.17 1.47 12.75 1.47 84.20 1.50 IFSB Independence FSB of DC 6.52 5.72 0.14 2.19 2.23 0.33 4.98 2.02 9.82 0.32 INCB Indiana Comm. Bank, SB of IN 12.39 12.39 0.16 1.24 1.02 0.51 3.88 NA NA 0.71 INBI Industrial Bancorp of OH 17.71 17.71 0.72 3.87 3.05 1.42 7.57 0.30 156.98 0.55 IWBK Interwest SB of Oak Harbor WA 6.78 6.63 0.87 12.91 4.61 1.18 17.52 0.64 73.79 0.78 IPSW Ipswich SB of Ipswich MA* 5.71 5.71 1.21 20.41 12.92 0.95 16.04 1.52 56.87 1.18 JXVL Jacksonville Bancorp of TX 14.92 14.92 1.02 6.45 5.37 1.34 8.46 0.78 NA NA JXSB Jcksnville SB,MHC of IL (45.6) 10.50 10.50 0.30 2.72 1.67 0.66 5.97 0.66 72.96 0.61 JSBA Jefferson Svgs Bancorp of MO 8.20 6.24 0.30 3.91 2.11 0.70 9.25 0.46 140.15 0.84 JOAC Joachim Bancorp of MO 28.17 28.17 0.47 1.59 1.59 0.77 2.62 0.20 109.86 0.32 KSAV KS Bancorp of Kenly NC 13.53 13.52 0.96 6.86 5.84 1.25 8.89 0.35 80.53 0.33 KSBK KSB Bancorp of Kingfield ME(8)* 7.16 6.74 0.96 13.72 7.43 1.00 14.25 1.78 43.20 1.03 KFBI Klamath First Bancorp of OR 19.55 19.55 0.81 3.67 2.80 1.23 5.54 0.08 213.23 0.23 LSBI LSB Fin. Corp. of Lafayette IN 8.85 8.85 0.77 8.34 7.30 0.68 7.35 1.17 63.71 0.84 LVSB Lakeview SB of Paterson NJ 9.52 7.61 1.37 13.73 8.62 0.95 9.53 0.98 66.74 1.50 LARK Landmark Bancshares of KS 13.79 13.79 0.89 5.95 4.66 1.05 7.01 0.31 123.70 0.57 LARL Laurel Capital Group of PA 10.03 10.03 1.14 10.88 7.16 1.43 13.72 0.43 212.35 1.31 LSBX Lawrence Savings Bank of MA* 8.69 8.69 1.75 20.90 12.31 1.73 20.60 0.30 328.94 2.29 LFED Leeds FSB, MHC of MD (36.3) 16.18 16.18 0.79 4.89 2.40 1.13 6.98 0.02 977.36 0.30 LXMO Lexington B&L Fin. Corp. of MO 28.32 28.32 1.03 3.49 3.44 1.33 4.50 0.48 78.37 0.49 LIFB Life Bancorp of Norfolk VA 10.55 10.25 0.71 6.60 4.16 0.87 8.03 0.39 166.43 1.48 LFBI Little Falls Bancorp of NJ 13.28 12.26 0.27 1.94 1.67 0.48 3.41 1.04 33.93 0.82 LOGN Logansport Fin. Corp. of IN 19.20 19.20 1.17 5.64 5.10 1.52 7.31 0.61 44.88 0.38 LONF London Financial Corp. of OH 19.66 19.66 0.66 3.18 3.20 1.00 4.83 0.80 61.11 0.63 LISB Long Island Bancorp, Inc of NY 8.99 8.90 0.61 6.58 3.61 0.71 7.63 1.03 55.02 0.92 MAFB MAF Bancorp of IL 7.88 6.84 0.79 10.57 4.91 1.10 14.70 0.45 120.51 0.71 MBLF MBLA Financial Corp. of MO 12.15 12.15 0.67 5.10 4.67 0.85 6.52 0.25 109.19 0.50 MFBC MFB Corp. of Mishawaka IN 13.65 13.65 0.57 3.66 3.28 0.86 5.52 0.08 177.07 0.19 MLBC ML Bancorp of Villanova PA 6.98 6.86 0.74 10.26 6.63 0.67 9.28 0.46 163.34 1.71 MSBF MSB Financial Corp. of MI 16.99 16.99 1.19 6.43 4.91 1.47 7.91 0.66 61.34 0.44 MGNL Magna Bancorp of MS(8) 10.22 9.95 1.39 14.23 5.32 1.53 15.70 2.92 26.42 1.11 MARN Marion Capital Holdings of IN 22.55 22.55 1.39 6.09 6.00 1.67 7.28 0.81 144.01 1.35 MRKF Market Fin. Corp. of OH 34.99 34.99 0.84 3.14 2.26 0.84 3.14 0.75 12.24 0.20 MFCX Marshalltown Fin. Corp. of IA(8) 15.74 15.74 0.34 2.15 1.79 0.73 4.66 NA NA 0.19 MFSL Maryland Fed. Bancorp of MD 8.38 8.28 0.61 7.41 5.05 0.89 10.72 0.47 85.38 0.46 MASB MassBank Corp. of Reading MA* 10.64 10.64 1.10 10.79 7.10 1.04 10.23 0.16 149.80 0.87 MFLR Mayflower Co-Op. Bank of MA* 9.68 9.52 1.03 10.64 7.94 0.97 10.03 0.96 92.14 1.52 MECH Mechanics SB of Hartford CT* 10.23 10.23 1.92 19.45 12.27 1.92 19.45 1.13 152.02 2.58 MDBK Medford Bank of Medford, MA* 8.99 8.38 1.08 12.07 7.78 1.01 11.29 0.37 176.45 1.22 MERI Meritrust FSB of Thibodaux LA 8.20 8.20 0.67 8.71 4.85 1.05 13.56 0.37 83.87 0.58 MWBX MetroWest Bank of MA* 7.44 7.44 1.38 18.37 8.32 1.38 18.37 0.91 126.64 1.48 MCBS Mid Continent Bancshares of KS 9.39 9.39 1.02 9.79 6.29 1.16 11.10 0.15 71.76 0.19 MIFC Mid Iowa Financial Corp. of IA 9.34 9.34 1.00 10.76 7.68 1.40 15.15 0.02 NA 0.45 MCBN Mid-Coast Bancorp of ME 8.60 8.60 0.43 4.92 4.16 0.67 7.71 0.73 70.32 0.62 MWBI Midwest Bancshares, Inc. of IA 6.91 6.91 0.45 6.61 5.03 0.75 10.99 0.77 63.17 0.81 MWFD Midwest Fed. Fin. Corp of WI 8.81 8.50 1.43 16.39 8.63 1.09 12.55 0.12 658.13 1.05 MFFC Milton Fed. Fin. Corp. of OH 13.14 13.14 0.49 3.07 2.84 0.68 4.25 0.32 86.42 0.46 MIVI Miss. View Hold. Co. of MN 18.87 18.87 0.69 3.74 3.81 1.03 5.57 0.33 370.39 1.91 Pricing Ratios Dividend Data(6) ---------------------------------------- ------------------------ Price/ Price/ Ind. Divi- Price/ Price/ Price/ Tang. Core Div./ dend Payout Financial Institution Earning Book Assets Book Earnings Share Yield Ratio(7) - --------------------- ------- ------- ------- ------- -------- ------- ------- -------- (X) (%) (%) (%) (x) ($) (%) (%) NASDAQ Listed OTC Companies (continued) - --------------------------------------- HOMF Home Fed Bancorp of Seymour IN 14.85 175.95 14.92 181.49 12.77 0.50 1.67 24.75 HWEN Home Financial Bancorp of IN 29.17 102.87 17.41 102.87 23.16 0.20 1.27 37.04 HPBC Home Port Bancorp, Inc. of MA* 13.01 196.40 20.73 196.40 13.08 0.80 3.58 46.51 HMCI Homecorp, Inc. of Rockford IL NM 119.05 7.79 119.05 17.94 0.00 0.00 0.00 HZFS Horizon Fin'l. Services of IA 29.03 95.54 9.35 95.54 18.14 0.32 1.70 49.23 HRZB Horizon Financial Corp. of WA* 14.02 137.49 21.45 137.49 14.29 0.40 2.67 37.38 IBSF IBS Financial Corp. of NJ NM 147.71 25.71 147.71 29.52 0.40 2.34 NM ISBF ISB Financial Corp. of LA NM 153.02 18.65 180.44 24.39 0.40 1.58 51.95 ITLA Imperial Thrift & Loan of CA* 12.24 148.91 16.36 149.54 12.24 0.00 0.00 0.00 IFSB Independence FSB of DC NM 97.38 6.35 111.08 19.74 0.22 1.69 NM INCB Indiana Comm. Bank, SB of IN NM 128.36 15.90 128.36 NM 0.36 2.29 NM INBI Industrial Bancorp of OH NM 126.83 22.46 126.83 16.76 0.48 3.25 NM IWBK Interwest SB of Oak Harbor WA 21.70 255.50 17.32 261.24 15.99 0.60 1.52 32.97 IPSW Ipswich SB of Ipswich MA* 7.74 142.70 8.16 142.70 9.85 0.12 0.92 7.14 JXVL Jacksonville Bancorp of TX 18.61 123.62 18.44 123.62 14.19 0.50 2.99 55.56 JXSB Jcksnville SB,MHC of IL (45.6) NM 160.09 16.80 160.09 27.22 0.40 1.86 NM JSBA Jefferson Svgs Bancorp of MO NM 154.19 12.64 202.41 20.09 0.40 1.22 57.97 JOAC Joachim Bancorp of MO NM 106.38 29.96 106.38 NM 0.50 3.45 NM KSAV KS Bancorp of Kenly NC 17.13 114.06 15.43 114.13 13.21 0.60 3.24 55.56 KSBK KSB Bancorp of Kingfield ME(8)* 13.46 172.84 12.38 183.73 12.96 0.08 0.57 7.69 KFBI Klamath First Bancorp of OR NM 138.17 27.01 138.17 23.64 0.30 1.53 54.55 LSBI LSB Fin. Corp. of Lafayette IN 13.70 112.20 9.93 112.20 15.56 0.34 1.64 22.52 LVSB Lakeview SB of Paterson NJ 11.60 161.98 15.41 202.58 16.71 0.25 0.78 8.99 LARK Landmark Bancshares of KS 21.46 131.94 18.19 131.94 18.23 0.40 1.65 35.40 LARL Laurel Capital Group of PA 13.98 152.75 15.32 152.75 11.08 0.52 2.31 32.30 LSBX Lawrence Savings Bank of MA* 8.12 152.62 13.27 152.62 8.24 0.00 0.00 0.00 LFED Leeds FSB, MHC of MD (36.3) NM 198.86 32.17 198.86 29.17 0.76 2.90 NM LXMO Lexington B&L Fin. Corp. of MO 29.09 108.55 30.74 108.55 22.54 0.30 1.88 54.55 LIFB Life Bancorp of Norfolk VA 24.01 152.13 16.04 156.55 19.72 0.48 1.98 47.52 LFBI Little Falls Bancorp of NJ NM 119.71 15.89 129.63 NM 0.20 1.15 68.97 LOGN Logansport Fin. Corp. of IN 19.59 114.44 21.97 114.44 15.10 0.40 2.76 54.05 LONF London Financial Corp. of OH NM 102.74 20.20 102.74 20.55 0.24 1.60 50.00 LISB Long Island Bancorp, Inc of NY 27.69 179.84 16.17 181.64 23.87 0.60 1.50 41.67 MAFB MAF Bancorp of IL 20.36 185.58 14.63 213.69 14.64 0.28 0.91 18.54 MBLF MBLA Financial Corp. of MO 21.40 108.05 13.13 108.05 16.73 0.40 1.68 36.04 MFBC MFB Corp. of Mishawaka IN NM 117.21 16.00 117.21 20.26 0.32 1.36 41.56 MLBC ML Bancorp of Villanova PA 15.07 149.85 10.46 152.53 16.67 0.40 1.95 29.41 MSBF MSB Financial Corp. of MI 20.38 130.41 22.15 130.41 16.56 0.28 2.11 43.08 MGNL Magna Bancorp of MS(8) 18.79 252.19 25.79 259.14 17.03 0.60 2.36 44.44 MARN Marion Capital Holdings of IN 16.67 104.07 23.46 104.07 13.94 0.88 3.83 63.77 MRKF Market Fin. Corp. of OH NM 95.75 33.51 95.75 NM 0.28 1.97 NM MFCX Marshalltown Fin. Corp. of IA(8) NM 117.71 18.53 117.71 25.77 0.00 0.00 0.00 MFSL Maryland Fed. Bancorp of MD 19.82 142.29 11.93 144.10 13.69 0.80 1.86 36.87 MASB MassBank Corp. of Reading MA* 14.08 142.68 15.18 142.68 14.86 1.28 2.50 35.16 MFLR Mayflower Co-Op. Bank of MA* 12.59 128.02 12.39 130.21 13.36 0.68 3.89 48.92 MECH Mechanics SB of Hartford CT* 8.15 141.24 14.45 141.24 8.15 0.00 0.00 0.00 MDBK Medford Bank of Medford, MA* 12.86 148.31 13.34 159.17 13.76 0.72 2.29 29.39 MERI Meritrust FSB of Thibodaux LA 20.62 169.41 13.90 169.41 13.24 0.70 1.71 35.18 MWBX MetroWest Bank of MA* 12.02 206.95 15.39 206.95 12.02 0.12 1.92 23.08 MCBS Mid Continent Bancshares of KS 15.91 151.86 14.26 151.86 14.03 0.40 1.34 21.39 MIFC Mid Iowa Financial Corp. of IA 13.03 132.14 12.35 132.14 9.25 0.08 0.86 11.27 MCBN Mid-Coast Bancorp of ME 24.06 115.59 9.95 115.59 15.36 0.52 2.04 49.06 MWBI Midwest Bancshares, Inc. of IA 19.89 123.75 8.55 123.75 11.96 0.60 1.67 33.15 MWFD Midwest Fed. Fin. Corp of WI 11.59 185.10 16.32 191.95 15.15 0.34 1.64 18.99 MFFC Milton Fed. Fin. Corp. of OH NM 120.93 15.89 120.93 25.46 0.60 4.36 NM MIVI Miss. View Hold. Co. of MN 26.27 96.39 18.19 96.39 17.61 0.16 1.03 27.12
RP FINANCIAL, LC. - ------------------------------------------ Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 22209 (703) 528-1700 (continued) Weekly Thrift Market Line - Part Two Prices As Of August 29, 1997
Key Financial Ratios Asset Quality ---------------------------------------------------------- --------------- Tang. Reported Earnings Core Earnings Equity/ Equity/ ______________________ _______________ NPAs Resvs/ Financial Institution Assets Assets ROA(5) ROE(5) ROI(5) ROA(5) ROE(5) Assets NPAs - --------------------- ------- ------- ------- ------- ------- ------- ------- ------- ------- (%) (%) (%) (%) (%) (%) (%) (%) (%) NASDAQ Listed OTC Companies (continued) - --------------------------------------- MBSP Mitchell Bancorp of NC* 43.36 43.36 1.40 3.24 3.07 1.64 3.81 2.03 26.19 MBBC Monterey Bay Bancorp of CA 11.33 10.45 0.25 2.04 1.74 0.47 3.87 0.33 111.47 MONT Montgomery Fin. Corp. of IN 17.91 17.91 0.42 2.32 2.18 0.67 3.74 0.91 20.00 MSBK Mutual SB, FSB of Bay City MI 6.07 6.07 0.11 1.93 1.71 0.04 0.75 0.11 272.91 NHTB NH Thrift Bancshares of NH 7.65 6.52 0.39 5.25 2.92 0.58 7.77 0.70 125.20 NSLB NS&L Bancorp of Neosho MO 19.56 19.56 0.49 2.37 2.22 0.77 3.71 0.03 210.00 NMSB Newmil Bancorp. of CT* 9.81 9.81 0.83 8.14 5.28 0.79 7.78 1.11 152.08 NASB North American SB of MO 7.68 7.42 1.26 17.18 8.37 1.19 16.18 3.11 27.16 NBSI North Bancshares of Chicago IL 14.13 14.13 0.49 3.27 2.64 0.68 4.57 NA NA FFFD North Central Bancshares of IA 22.67 22.67 1.64 6.41 6.14 1.90 7.41 0.12 814.90 NBN Northeast Bancorp of ME* 6.95 6.01 0.51 6.99 6.41 0.47 6.47 1.37 77.15 NEIB Northeast Indiana Bncrp of IN 15.19 15.19 1.04 6.33 5.85 1.22 7.42 0.40 159.54 NWEQ Northwest Equity Corp. of WI 11.45 11.45 0.78 6.47 5.33 0.98 8.16 1.26 38.04 NWSB Northwest SB, MHC of PA (30.7) 9.49 8.94 0.69 7.05 2.64 0.98 9.96 0.72 90.87 NSSY Norwalk Savings Society of CT* 8.06 7.77 0.97 12.53 6.94 1.11 14.29 NA NA NSSB Norwich Financial Corp. of CT* 11.17 10.08 1.09 10.08 5.12 1.04 9.58 1.29 151.12 NTMG Nutmeg FS&LA of CT 5.56 5.56 0.26 4.60 3.07 0.35 6.28 1.19 40.69 OHSL OHSL Financial Corp. of OH 11.03 11.03 0.61 5.29 4.82 0.85 7.42 0.14 161.25 OCFC Ocean Fin. Corp. of NJ 16.25 16.25 0.04 0.24 0.18 0.98 5.97 0.55 79.68 OCN Ocwen Financial Corp. of FL 8.75 8.36 2.81 33.59 6.21 1.69 20.28 5.11 17.43 OFCP Ottawa Financial Corp. of MI 8.73 7.01 0.48 5.25 3.23 0.78 8.45 0.32 112.76 PFFB PFF Bancorp of Pomona CA 10.32 10.21 0.16 1.41 1.09 0.46 4.09 1.76 59.73 PSFI PS Financial of Chicago IL 38.70 38.70 1.94 4.74 4.75 1.96 4.81 0.79 28.66 PVFC PVF Capital Corp. of OH 7.02 7.02 1.05 15.56 6.55 1.35 20.00 1.20 61.53 PCCI Pacific Crest Capital of CA* 7.09 7.09 1.04 13.26 7.40 0.97 12.43 1.29 79.26 PAMM PacificAmerica Money Ctr of CA* 22.43 22.43 5.63 41.65 15.49 5.63 41.65 4.97 27.75 PALM Palfed, Inc. of Aiken SC 8.24 8.24 0.10 1.29 0.78 0.61 7.54 2.12 51.22 PBCI Pamrapo Bancorp, Inc. of NJ 12.74 12.64 0.90 6.37 5.59 1.24 8.78 2.77 26.10 PFED Park Bancorp of Chicago IL 22.53 22.53 0.87 4.19 3.79 1.21 5.81 0.21 134.41 PVSA Parkvale Financial Corp of PA 7.58 7.53 0.73 9.76 5.88 1.08 14.42 0.27 537.53 PEEK Peekskill Fin. Corp. of NY 25.73 25.73 0.98 3.54 3.48 1.29 4.65 1.22 27.98 PFSB PennFed Fin. Services of NJ 7.36 6.15 0.57 7.43 4.97 0.84 10.86 0.59 33.53 PWBC PennFirst Bancorp of PA 8.08 7.55 0.46 6.31 4.03 0.67 9.12 0.65 93.15 PWBK Pennwood SB of PA* 17.45 17.45 0.70 4.05 3.40 1.12 6.54 0.98 57.43 PBKB People's SB of Brockton MA* 5.61 5.37 0.80 14.41 6.93 0.47 8.57 0.82 91.19 PFDC Peoples Bancorp of Auburn IN 15.21 15.21 1.12 7.33 5.91 1.47 9.59 0.36 83.87 PBCT Peoples Bank, MHC of CT (40.1)* 8.48 8.47 1.12 13.72 4.95 0.83 10.17 0.90 121.39 PFFC Peoples Fin. Corp. of OH 27.20 27.20 0.90 3.32 3.07 0.90 3.32 NA NA PHBK Peoples Heritage Fin Grp of ME* 7.72 6.51 1.28 15.68 6.34 1.29 15.88 0.91 126.66 PSFC Peoples Sidney Fin. Corp of OH 23.26 23.26 0.92 3.97 3.50 1.21 5.18 1.00 42.00 PERM Permanent Bancorp of IN 9.16 9.03 0.34 3.64 3.16 0.62 6.57 1.09 45.43 PMFI Perpetual Midwest Fin. of IA 8.53 8.53 0.12 1.38 1.16 0.29 3.36 0.40 185.58 PERT Perpetual of SC, MHC (46.8) 11.82 11.82 0.59 4.97 2.46 0.83 7.00 0.12 502.32 PCBC Perry Co. Fin. Corp. of MO 19.19 19.19 0.93 4.93 4.21 1.07 5.70 NA NA PHFC Pittsburgh Home Fin. of PA 10.92 10.80 0.62 4.71 3.54 0.79 6.00 1.60 32.18 PFSL Pocahnts Fed, MHC of AR (47.0) 6.36 6.36 0.60 9.75 5.15 0.84 13.54 0.15 308.72 POBS Portsmouth Bank Shrs Inc of NH(8)* 25.93 25.93 2.29 9.13 5.64 2.02 8.07 0.50 53.09 PTRS Potters Financial Corp of OH 8.83 8.83 0.48 5.37 4.83 0.85 9.54 0.50 350.66 PKPS Poughkeepsie Fin. Corp. of NY 8.37 8.37 0.35 4.21 3.31 0.54 6.49 4.28 25.28 PHSB Ppls Home SB, MHC of PA (45.0) 17.31 17.31 0.39 2.23 2.00 0.81 4.67 NA NA PRBC Prestige Bancorp of PA 11.13 11.13 0.37 2.84 2.75 0.65 5.01 0.30 85.33 PETE Primary Bank of NH(8)* 6.93 6.92 0.61 9.35 4.85 0.73 11.09 0.82 75.47 PFNC Progress Financial Corp. of PA 5.27 4.65 0.54 10.19 3.66 0.65 12.26 1.46 51.92 PSBK Progressive Bank, Inc. of NY* 8.55 7.64 0.99 12.02 7.00 0.98 11.81 0.85 131.46 PROV Provident Fin. Holdings of CA 13.88 13.88 0.32 2.24 2.03 0.28 1.95 NA NA PULB Pulaski SB, MHC of MO (29.8) 13.00 13.00 0.69 5.42 2.38 0.96 7.53 NA NA Ratios Pricing Ratios Dividend Data(6) -------- --------------------------------------- ------------------------ Price/ Price/ Ind. Divi- Resvs/ Price/ Price/ Price/ Tang. Core Div./ dend Payout Financial Institution Loans Earning Book Assets Book Earnings Share Yield Ratio(7) - --------------------- ---------- ------- ------- ------- ------ -------- ------ ------ --------- (%) (X) (%) (%) (%) (x) ($) (%) (%) NASDAQ Listed OTC Companies (continued) - --------------------------------------- MBSP Mitchell Bancorp of NC* 0.62 NM 107.99 46.83 107.99 27.70 0.40 2.41 NM MBBC Monterey Bay Bancorp of CA 0.60 NM 115.18 13.05 124.96 NM 0.12 0.72 41.38 MONT Montgomery Fin. Corp. of IN 0.20 NM 106.42 19.06 106.42 28.43 0.00 0.00 0.00 MSBK Mutual SB, FSB of Bay City MI 0.67 NM 109.72 6.66 109.72 NM 0.00 0.00 0.00 NHTB NH Thrift Bancshares of NH 1.05 NM 157.05 12.02 184.45 23.13 0.50 2.70 NM NSLB NS&L Bancorp of Neosho MO 0.13 NM 111.80 21.87 111.80 28.86 0.50 2.71 NM NMSB Newmil Bancorp. of CT* 3.18 18.93 155.62 15.27 155.62 19.80 0.24 1.86 35.29 NASB North American SB of MO 0.98 11.95 193.14 14.83 199.84 12.69 0.80 1.63 19.51 NBSI North Bancshares of Chicago IL 0.27 NM 129.79 18.34 129.79 27.16 0.48 2.18 NM FFFD North Central Bancshares of IA 1.19 16.29 112.22 25.44 112.22 14.08 0.25 1.50 24.51 NBN Northeast Bancorp of ME* 1.32 15.59 107.49 7.47 124.36 16.86 0.32 2.21 34.41 NEIB Northeast Indiana Bncrp of IN 0.71 17.09 110.27 16.75 110.27 14.57 0.32 1.91 32.65 NWEQ Northwest Equity Corp. of WI 0.59 18.75 124.81 14.29 124.81 14.86 0.52 3.15 59.09 NWSB Northwest SB, MHC of PA (30.7) 0.88 NM 259.13 24.59 275.00 26.83 0.32 1.45 55.17 NSSY Norwalk Savings Society of CT* 1.54 14.41 168.94 13.61 175.23 12.63 0.40 1.15 16.53 NSSB Norwich Financial Corp. of CT* 2.83 19.54 188.78 21.08 209.12 20.56 0.56 2.02 39.44 NTMG Nutmeg FS&LA of CT 0.55 NM 139.25 7.74 139.25 23.89 0.00 0.00 0.00 OHSL OHSL Financial Corp. of OH 0.31 20.76 109.62 12.09 109.62 14.81 0.88 3.78 NM OCFC Ocean Fin. Corp. of NJ 0.87 NM 122.93 19.98 122.93 22.56 0.80 2.38 NM OCN Ocwen Financial Corp. of FL 1.34 16.11 NM 41.05 NM 26.68 0.00 0.00 0.00 OFCP Ottawa Financial Corp. of MI 0.42 NM 165.71 14.46 206.43 19.22 0.40 1.58 48.78 PFFB PFF Bancorp of Pomona CA 1.46 NM 132.67 13.69 134.05 NM 0.00 0.00 0.00 PSFI PS Financial of Chicago IL 0.51 21.07 100.61 38.94 100.61 20.77 0.32 2.17 45.71 PVFC PVF Capital Corp. of OH 0.79 15.26 218.28 15.33 218.28 11.87 0.00 0.00 0.00 PCCI Pacific Crest Capital of CA* 1.67 13.51 167.60 11.87 167.60 14.42 0.00 0.00 0.00 PAMM PacificAmerica Money Ctr of CA* 2.22 6.46 177.22 39.74 177.22 6.46 0.00 0.00 0.00 PALM Palfed, Inc. of Aiken SC 1.32 NM 160.27 13.21 160.27 21.87 0.12 0.72 NM PBCI Pamrapo Bancorp, Inc. of NJ 1.29 17.89 124.85 15.90 125.83 12.97 1.00 4.82 NM PFED Park Bancorp of Chicago IL 0.73 26.40 100.61 22.67 100.61 19.03 0.00 0.00 0.00 PVSA Parkvale Financial Corp of PA 1.97 17.01 157.77 11.97 158.97 11.52 0.52 1.78 30.23 PEEK Peekskill Fin. Corp. of NY 1.35 28.72 111.28 28.63 111.28 21.83 0.36 2.20 63.16 PFSB PennFed Fin. Services of NJ 0.28 20.10 142.54 10.49 170.42 13.76 0.28 0.97 19.58 PWBC PennFirst Bancorp of PA 1.49 24.81 125.64 10.15 134.39 17.18 0.33 2.11 52.38 PWBK Pennwood SB of PA* 1.03 29.39 111.37 19.44 111.37 18.21 0.32 1.91 56.14 PBKB People's SB of Brockton MA* 1.57 14.44 195.68 10.97 204.27 24.28 0.44 2.63 37.93 PFDC Peoples Bancorp of Auburn IN 0.38 16.91 122.20 18.58 122.20 12.91 0.60 2.55 43.17 PBCT Peoples Bank, MHC of CT (40.1)* 1.60 20.19 256.72 21.77 256.96 27.24 0.68 2.42 48.92 PFFC Peoples Fin. Corp. of OH 0.39 NM 109.32 29.74 109.32 NM 0.50 2.90 NM PHBK Peoples Heritage Fin Grp of ME* 1.66 15.78 236.21 18.24 280.29 15.59 0.76 2.04 32.20 PSFC Peoples Sidney Fin. Corp of OH 0.45 28.57 113.56 26.42 113.56 21.92 0.20 1.25 35.71 PERM Permanent Bancorp of IN 0.99 NM 115.25 10.56 116.97 17.50 0.40 1.76 55.56 PMFI Perpetual Midwest Fin. of IA 0.95 NM 119.44 10.19 119.44 NM 0.30 1.40 NM PERT Perpetual of SC, MHC (46.8) 0.87 NM 201.84 23.87 201.84 28.82 1.40 3.45 NM PCBC Perry Co. Fin. Corp. of MO 0.19 23.74 113.67 21.82 113.67 20.55 0.40 1.87 44.44 PHFC Pittsburgh Home Fin. of PA 0.76 28.26 137.23 14.98 138.69 22.16 0.24 1.23 34.78 PFSL Pocahnts Fed, MHC of AR (47.0) 1.12 19.42 182.93 11.64 182.93 13.99 0.90 3.33 64.75 POBS Portsmouth Bank Shrs Inc of NH(8)* 0.76 17.72 160.23 41.55 160.23 20.05 0.60 3.29 58.25 PTRS Potters Financial Corp of OH 2.78 20.69 109.24 9.64 109.24 11.65 0.36 1.50 31.03 PKPS Poughkeepsie Fin. Corp. of NY 1.45 NM 123.93 10.37 123.93 19.59 0.10 1.38 41.67 PHSB Ppls Home SB, MHC of PA (45.0) 1.40 NM 111.42 19.28 111.42 23.88 0.00 0.00 0.00 PRBC Prestige Bancorp of PA 0.38 NM 103.69 11.54 103.69 20.63 0.12 0.70 25.53 PETE Primary Bank of NH(8)* 1.08 20.61 178.37 12.37 178.62 17.39 0.00 0.00 0.00 PFNC Progress Financial Corp. of PA 1.08 27.31 255.19 13.44 289.22 22.69 0.11 0.75 20.37 PSBK Progressive Bank, Inc. of NY* 1.65 14.29 167.11 14.29 187.08 14.54 0.68 2.07 29.57 PROV Provident Fin. Holdings of CA 1.31 NM 110.82 15.39 110.82 NM 0.00 0.00 0.00 PULB Pulaski SB, MHC of MO (29.8) 0.33 NM 224.18 29.15 224.18 NM 1.00 4.04 NM
RP FINANCIAL, LC. --------------------------------------- Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 22209 (703) 528-1700 (continued) Weekly Thrift Market Line - Part Two Prices As Of August 29, 1997
Key Financial Ratios ---------------------------------------------------------- Tang. Reported Earnings Core Earnings Equity/ Equity/ ---------------------- --------------- Financial Institution Assets Assets ROA(5) ROE(5) ROI(5) ROA(5) ROE(5) --------------------- ------- ------- ------- ------- ------- ------- ------- (%) (%) (%) (%) (%) (%) (%) NASDAQ Listed OTC Companies (continued) --------------------------------------- PLSK Pulaski SB, MHC of NJ (46.0) 11.90 11.90 0.25 2.97 1.26 0.61 7.21 PULS Pulse Bancorp of S. River NJ 8.05 8.05 0.72 9.24 5.85 1.08 13.86 QCFB QCF Bancorp of Virginia MN 18.09 18.09 1.36 7.11 5.42 1.36 7.11 QCBC Quaker City Bancorp of CA 8.77 8.76 0.37 4.12 2.93 0.60 6.74 QCSB Queens County Bancorp of NY* 11.85 11.85 1.60 10.80 3.99 1.63 10.95 RCSB RCSB Financial, Inc. of NY(8)* 7.85 7.65 0.95 12.54 5.40 0.94 12.40 RARB Raritan Bancorp. of Raritan NJ* 7.93 7.80 0.96 12.55 6.56 1.02 13.33 REDF RedFed Bancorp of Redlands CA 8.45 8.42 0.25 3.24 1.78 0.65 8.37 RELY Reliance Bancorp, Inc. of NY 8.23 5.93 0.58 7.07 4.06 0.86 10.46 RELI Reliance Bancshares Inc of WI(8)* 48.82 48.82 0.86 1.78 1.91 0.92 1.89 RIVR River Valley Bancorp of IN 12.40 12.21 0.46 4.24 2.79 0.62 5.72 RSLN Roslyn Bancorp, Inc. of NY* 20.14 20.04 0.86 4.12 2.59 1.35 6.49 RVSB Rvrview SB,FSB MHC of WA(41.7)(8) 11.24 10.26 0.96 8.70 3.26 1.20 10.87 SCCB S. Carolina Comm. Bnshrs of SC 25.95 25.95 0.82 2.99 2.42 1.10 4.03 SBFL SB Fngr Lakes MHC of NY (33.1) 9.58 9.58 0.13 1.32 0.65 0.44 4.49 SFED SFS Bancorp of Schenectady NY 12.47 12.47 0.44 3.41 3.12 0.79 6.09 SGVB SGV Bancorp of W. Covina CA 7.31 7.19 0.20 2.37 2.05 0.47 5.74 SISB SIS Bancorp Inc of MA* 7.20 7.20 1.38 18.82 11.32 1.37 18.70 SWCB Sandwich Co-Op. Bank of MA* 7.95 7.61 0.95 11.65 7.31 0.97 11.90 SECP Security Capital Corp. of WI(8) 16.20 16.20 1.25 7.87 4.71 1.50 9.38 SFSL Security First Corp. of OH 9.43 9.26 1.07 11.49 4.82 1.34 14.36 SFNB Security First Netwrk Bk of GA 33.11 32.57 -29.36 NM -25.38 -30.07 NM SNFC S?o-?e Fin. Corp. of MO(8) 9.03 9.03 1.04 10.44 5.47 1.17 11.79 SOBI Sobieski Bancorp of S. Bend IN 15.12 15.12 0.31 1.87 1.95 0.59 3.56 SOSA Somerset Savings Bank of MA(8)* 6.34 6.34 0.81 13.81 6.78 0.78 13.26 SSFC South Street Fin. Corp. of NC* 25.26 25.26 0.92 4.51 2.40 1.17 5.71 SCBS Southern Commun. Bncshrs of AL 21.96 21.96 0.32 2.52 1.20 0.79 6.23 SMBC Southern Missouri Bncrp of MO 15.67 15.67 0.71 4.42 4.06 0.70 4.35 SWBI Southwest Bancshares of IL 11.00 11.00 0.75 6.94 5.19 1.02 9.52 SVRN Sovereign Bancorp of PA 4.01 3.03 0.44 11.07 4.00 0.68 17.14 STFR St. Francis Cap. Corp. of WI 7.88 6.96 0.64 7.35 5.13 0.70 8.09 SPBC St. Paul Bancorp, Inc. of IL 8.60 8.58 0.72 8.22 4.02 1.03 11.84 STND Standard Fin. of Chicago IL(8) 10.77 10.75 0.50 4.46 2.90 0.72 6.44 SFFC StateFed Financial Corp. of IA 17.78 17.78 1.11 6.16 5.32 1.35 7.47 SFIN Statewide Fin. Corp. of NJ 9.73 9.71 0.54 5.46 4.05 0.91 9.26 STSA Sterling Financial Corp. of WA 4.10 3.57 0.10 2.46 1.51 0.32 7.91 SFSB SuburbFed Fin. Corp. of IL 6.48 6.46 0.39 5.87 4.47 0.56 8.55 ROSE T R Financial Corp. of NY* 6.20 6.20 0.98 15.73 6.66 0.89 14.19 THRD TF Financial Corp. of PA 11.11 9.75 0.55 4.76 4.36 0.74 6.40 TPNZ Tappan Zee Fin., Inc. of NY 17.92 17.92 0.70 4.22 3.07 0.65 3.90 ESBK The Elmira SB FSB of Elmira NY* 6.30 6.04 0.36 5.66 4.82 0.35 5.51 GRTR The Greater New York SB of NY(8)* 6.27 6.27 0.74 12.34 6.02 0.40 6.62 TSBS Trenton SB,FSB MHC of NJ(35.9) 16.89 15.48 1.34 7.53 3.00 1.14 6.39 TRIC Tri-County Bancorp of WY 15.32 15.32 0.80 5.14 4.84 1.02 6.55 TWIN Twin City Bancorp of TN 12.86 12.86 0.53 4.13 3.30 0.75 5.82 UFRM United FS&LA of Rocky Mount NC 7.48 7.48 0.22 2.87 1.58 0.38 4.98 UBMT United Fin. Corp. of MT 22.65 22.65 1.09 4.70 4.00 1.34 5.80 VABF Va. Beach Fed. Fin. Corp of VA 6.85 6.85 0.21 3.15 1.91 0.47 7.02 VFFC Virginia First Savings of VA(8) 8.06 7.78 1.36 17.14 7.58 1.25 15.72 WHGB WHG Bancshares of MD 20.65 20.65 0.51 2.23 2.16 0.51 2.23 WSFS WSFS Financial Corp. of DE* 5.20 5.16 1.31 23.71 9.72 1.32 23.87 WVFC WVS Financial Corp. of PA* 11.16 11.16 1.07 8.59 6.26 1.34 10.72 WRNB Warren Bancorp of Peabody MA* 10.37 10.37 2.13 22.09 11.49 1.81 18.79 WFSL Washington FS&LA of Seattle WA 12.08 11.03 1.67 14.37 7.12 1.84 15.85 WAMU Washington Mutual Inc. of WA(8)* 5.00 4.75 0.35 6.81 1.90 0.74 14.45 WYNE Wayne Bancorp of NJ 13.35 13.35 0.44 2.94 2.09 0.44 2.94 Asset Quality Ratios Pricing Ratios ----------------------- ----------------------------------------- Price/ Price/ NPAs Resvs/ Resvs/ Price/ Price/ Price/ Tang. Core Financial Institution Assets NPAs Loans Earning Book Assets Book Earnings --------------------- ------- ------- ------- ------- ------- ------- ------- -------- (%) (%) (%) (X) (%) (%) (%) (x) NASDAQ Listed OTC Companies (continued) --------------------------------------- PLSK Pulaski SB, MHC of NJ (46.0) 0.65 71.47 0.81 NM 162.94 19.40 162.94 NM PULS Pulse Bancorp of S. River NJ 0.69 65.20 1.93 17.08 150.40 12.10 150.40 11.39 QCFB QCF Bancorp of Virginia MN 0.40 221.49 2.24 18.44 136.99 24.78 136.99 18.44 QCBC Quaker City Bancorp of CA 1.31 74.10 1.19 NM 137.22 12.03 137.31 20.92 QCSB Queens County Bancorp of NY* 0.68 95.23 0.74 25.06 NM 37.39 NM 24.71 RCSB RCSB Financial, Inc. of NY(8)* 0.76 83.90 1.18 18.51 225.31 17.68 231.17 18.72 RARB Raritan Bancorp. of Raritan NJ* 0.29 297.45 1.29 15.24 178.29 14.14 181.34 14.35 REDF RedFed Bancorp of Redlands CA 2.19 45.70 1.15 NM 161.58 13.66 162.18 21.71 RELY Reliance Bancorp, Inc. of NY 0.79 33.33 0.57 24.65 166.18 13.68 230.61 16.65 RELI Reliance Bancshares Inc of WI(8)* NA NA 0.53 NM 92.18 45.00 92.18 NM RIVR River Valley Bancorp of IN 0.49 170.62 1.03 NM 112.78 13.98 114.50 26.61 RSLN Roslyn Bancorp, Inc. of NY* 0.27 278.21 3.46 NM 156.04 31.43 156.79 24.46 RVSB Rvrview SB,FSB MHC of WA(41.7)(8) 0.14 278.46 0.56 NM 253.05 28.44 277.21 24.55 SCCB S. Carolina Comm. Bnshrs of SC 1.78 35.52 0.81 NM 125.66 32.61 125.66 NM SBFL SB Fngr Lakes MHC of NY (33.1) 0.69 76.89 1.16 NM 197.76 18.95 197.76 NM SFED SFS Bancorp of Schenectady NY 0.73 57.17 0.57 NM 110.38 13.76 110.38 17.99 SGVB SGV Bancorp of W. Covina CA NA NA 0.44 NM 118.40 8.65 120.38 20.16 SISB SIS Bancorp Inc of MA* 0.47 244.29 2.48 8.84 157.94 11.37 157.94 8.89 SWCB Sandwich Co-Op. Bank of MA* 0.83 92.55 1.09 13.68 153.62 12.21 160.48 13.39 SECP Security Capital Corp. of WI(8) 0.12 918.65 1.44 21.21 160.17 25.94 160.17 17.78 SFSL Security First Corp. of OH 0.28 273.91 0.85 20.74 224.48 21.16 228.41 16.59 SFNB Security First Netwrk Bk of GA NA NA 1.28 NM NM 142.54 NM NM SNFC S?o-?e Fin. Corp. of MO(8) 0.14 425.11 0.66 18.27 191.82 17.32 191.82 16.17 SOBI Sobieski Bancorp of S. Bend IN 0.15 158.73 0.33 NM 103.07 15.58 103.07 26.95 SOSA Somerset Savings Bank of MA(8)* 6.28 22.01 1.81 14.76 188.27 11.94 188.27 15.38 SSFC South Street Fin. Corp. of NC* 0.27 65.44 0.39 NM 138.07 34.87 138.07 NM SCBS Southern Commun. Bncshrs of AL 2.48 46.17 1.94 NM 117.21 25.74 117.21 NM SMBC Southern Missouri Bncrp of MO 1.10 37.60 0.64 24.64 108.83 17.05 108.83 25.00 SWBI Southwest Bancshares of IL 0.30 67.34 0.28 19.29 129.06 14.19 129.06 14.06 SVRN Sovereign Bancorp of PA 0.57 78.85 0.72 25.00 248.00 9.96 NM 16.15 STFR St. Francis Cap. Corp. of WI 0.19 181.58 0.80 19.49 141.22 11.13 159.80 17.69 SPBC St. Paul Bancorp, Inc. of IL 0.32 232.75 1.09 24.86 198.11 17.04 198.63 17.25 STND Standard Fin. of Chicago IL(8) 0.22 136.61 0.50 NM 149.04 16.05 149.30 23.83 SFFC StateFed Financial Corp. of IA NA NA NA 18.80 113.23 20.13 113.23 15.49 SFIN Statewide Fin. Corp. of NJ 0.43 95.58 0.83 24.67 134.89 13.12 135.09 14.53 STSA Sterling Financial Corp. of WA 0.61 79.43 0.82 NM 149.07 6.11 170.98 20.56 SFSB SuburbFed Fin. Corp. of IL 0.48 41.27 0.31 22.36 125.46 8.13 125.92 15.36 ROSE T R Financial Corp. of NY* 0.46 90.99 0.80 15.01 219.55 13.62 219.55 16.64 THRD TF Financial Corp. of PA 0.33 92.84 0.62 22.92 110.38 12.27 125.82 17.04 TPNZ Tappan Zee Fin., Inc. of NY 1.73 31.27 1.18 NM 120.21 21.54 120.21 NM ESBK The Elmira SB FSB of Elmira NY* 0.66 97.39 0.85 20.74 115.35 7.26 120.33 21.31 GRTR The Greater New York SB of NY(8)* NA NA 1.71 16.62 195.23 12.24 195.23 NM TSBS Trenton SB,FSB MHC of NJ(35.9) 0.73 55.92 0.67 NM 242.75 40.99 264.75 NM TRIC Tri-County Bancorp of WY NA NA 1.11 20.68 101.11 15.49 101.11 16.25 TWIN Twin City Bancorp of TN 0.16 130.95 0.29 NM 123.61 15.89 123.61 21.51 UFRM United FS&LA of Rocky Mount NC 0.58 135.44 0.98 NM 179.10 13.39 179.10 NM UBMT United Fin. Corp. of MT NA NA 0.22 25.00 117.79 26.68 117.79 20.26 VABF Va. Beach Fed. Fin. Corp of VA 1.26 56.59 0.93 NM 160.24 10.97 160.24 23.48 VFFC Virginia First Savings of VA(8) 2.29 47.29 1.19 13.19 210.31 16.95 217.79 14.38 WHGB WHG Bancshares of MD 0.15 160.96 0.29 NM 111.23 22.97 111.23 NM WSFS WSFS Financial Corp. of DE* 1.70 96.79 2.65 10.29 239.24 12.45 241.15 10.22 WVFC WVS Financial Corp. of PA* 0.30 230.13 1.25 15.98 143.39 16.01 143.39 12.80 WRNB Warren Bancorp of Peabody MA* 1.15 98.45 1.79 8.71 178.21 18.48 178.21 10.23 WFSL Washington FS&LA of Seattle WA 0.73 59.65 0.60 14.05 185.88 22.45 203.51 12.73 WAMU Washington Mutual Inc. of WA(8)* 0.81 93.26 1.12 NM NM 15.51 NM 24.74 WYNE Wayne Bancorp of NJ 0.91 83.50 1.15 NM 145.19 19.39 145.19 NM Dividend Data(6) ----------------------- Ind. Divi- Div./ dend Payout Financial Institution Share Yield Ratio(7) --------------------- ------- ------- ------- ($) (%) (%) NASDAQ Listed OTC Companies (continued) --------------------------------------- PLSK Pulaski SB, MHC of NJ (46.0) 0.30 1.81 NM PULS Pulse Bancorp of S. River NJ 0.70 3.41 58.33 QCFB QCF Bancorp of Virginia MN 0.00 0.00 0.00 QCBC Quaker City Bancorp of CA 0.00 0.00 0.00 QCSB Queens County Bancorp of NY* 1.00 1.86 46.51 RCSB RCSB Financial, Inc. of NY(8)* 0.60 1.23 22.73 RARB Raritan Bancorp. of Raritan NJ* 0.48 2.16 32.88 REDF RedFed Bancorp of Redlands CA 0.00 0.00 0.00 RELY Reliance Bancorp, Inc. of NY 0.64 2.08 51.20 RELI Reliance Bancshares Inc of WI(8)* 0.00 0.00 0.00 RIVR River Valley Bancorp of IN 0.16 0.97 34.78 RSLN Roslyn Bancorp, Inc. of NY* 0.24 1.05 40.68 RVSB Rvrview SB,FSB MHC of WA(41.7)(8) 0.24 0.89 27.27 SCCB S. Carolina Comm. Bnshrs of SC 0.60 2.79 NM SBFL SB Fngr Lakes MHC of NY (33.1) 0.40 1.74 NM SFED SFS Bancorp of Schenectady NY 0.28 1.45 46.67 SGVB SGV Bancorp of W. Covina CA 0.00 0.00 0.00 SISB SIS Bancorp Inc of MA* 0.56 1.91 16.92 SWCB Sandwich Co-Op. Bank of MA* 1.20 3.75 51.28 SECP Security Capital Corp. of WI(8) 1.20 1.16 24.59 SFSL Security First Corp. of OH 0.32 1.75 36.36 SFNB Security First Netwrk Bk of GA 0.00 0.00 NM SMFC Sho-Me Fin. Corp. of MO(8) 0.00 0.00 0.00 SOBI Sobieski Bancorp of S. Bend IN 0.32 1.95 NM SOSA Somerset Savings Bank of MA(8)* 0.00 0.00 0.00 SSFC South Street Fin. Corp. of NC* 0.40 2.13 NM SCBS Southern Commun. Bncshrs of AL 0.30 1.89 NM SMBC Southern Missouri Bncrp of MO 0.50 2.90 71.43 SWBI Southwest Bancshares of IL 0.76 3.75 72.38 SVRN Sovereign Bancorp of PA 0.08 0.52 12.90 STFR St. Francis Cap. Corp. of WI 0.48 1.39 27.12 SPBC St. Paul Bancorp, Inc. of IL 0.40 1.73 43.01 STND Standard Fin. of Chicago IL(8) 0.40 1.57 54.05 SFFC StateFed Financial Corp. of IA 0.40 1.82 34.19 SFIN Statewide Fin. Corp. of NJ 0.44 2.35 57.89 STSA Sterling Financial Corp. of WA 0.00 0.00 0.00 SFSB SuburbFed Fin. Corp. of IL 0.32 1.16 26.02 ROSE T R Financial Corp. of NY* 0.60 2.17 32.61 THRD TF Financial Corp. of PA 0.40 2.08 47.62 TPNZ Tappan Zee Fin., Inc. of NY 0.28 1.62 52.83 ESBK The Elmira SB FSB of Elmira NY* 0.64 2.73 56.64 GRTR The Greater New York SB of NY(8)* 0.20 0.87 14.49 TSBS Trenton SB,FSB MHC of NJ(35.9) 0.35 1.22 40.70 TRIC Tri-County Bancorp of WY 0.60 2.64 54.55 TWIN Twin City Bancorp of TN 0.64 3.20 NM UFRM United FS&LA of Rocky Mount NC 0.24 2.00 NM UBMT United Fin. Corp. of MT 0.98 4.17 NM VABF Va. Beach Fed. Fin. Corp of VA 0.20 1.47 NM VFFC Virginia First Savings of VA(8) 0.10 0.42 5.52 WHGB WHG Bancshares of MD 0.20 1.27 58.82 WSFS WSFS Financial Corp. of DE* 0.00 0.00 0.00 WVFC WVS Financial Corp. of PA* 0.80 2.96 47.34 WRNB Warren Bancorp of Peabody MA* 0.52 2.97 25.87 WFSL Washington FS&LA of Seattle WA 0.92 3.38 47.42 WAMU Washington Mutual Inc. of WA(8)* 1.08 1.80 NM WYNE Wayne Bancorp of NJ 0.20 0.84 40.00
RP FINANCIAL, LC. - --------------------------------------- Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 22209 (703) 528-1700 (continued) Weekly Thrift Market Line - Part Two Prices As Of August 29, 1997
Key Financial Ratios Asset Quality Ratios --------------------------------------------------------- ----------------------- Tang. Reported Earnings Core Earnings Equity/ Equity/ ---------------------- --------------- NPAs Resvs/ Resvs/ Financial Institution Assets Assets ROA(5) ROE(5) ROI(5) ROA(5) ROE(5) Assets NPAs Loans --------------------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- (%) (%) (%) (%) (%) (%) (%) (%) (%) (%) NASDAQ Listed OTC Companies (continued) --------------------------------------- WAYN Wayne S&L Co. MHC of OH (47.8) 9.25 9.25 0.31 3.42 1.67 0.66 7.23 0.73 50.94 0.45 WCFB Wbstr Cty FSB MHC of IA (45.2) 23.35 23.35 1.06 4.61 2.70 1.42 6.15 0.26 152.85 0.69 WBST Webster Financial Corp. of CT 5.02 4.29 0.41 8.14 3.03 0.74 14.55 0.85 103.47 1.45 WEFC Wells Fin. Corp. of Wells MN 14.20 14.20 0.72 5.07 4.42 1.06 7.49 0.28 121.72 0.37 WCBI WestCo Bancorp of IL 15.24 15.24 1.12 7.29 5.48 1.42 9.20 0.60 47.07 0.38 WSTR WesterFed Fin. Corp. of MT 10.91 8.73 0.63 5.09 3.79 0.79 6.41 0.25 191.01 0.73 WOFC Western Ohio Fin. Corp. of OH 13.79 12.85 0.33 2.24 2.19 0.45 3.10 NA NA 0.58 WWFC Westwood Fin. Corp. of NJ 9.13 8.13 0.49 5.12 3.22 0.85 8.80 0.13 159.15 0.55 WEHO Westwood Hmstd Fin Corp of OH 29.41 29.41 0.70 2.41 1.94 1.04 3.62 0.06 255.81 0.21 WFI Winton Financial Corp. of OH 7.11 6.96 1.00 14.08 10.00 0.84 11.80 0.35 78.21 0.32 FFWD Wood Bancorp of OH 12.31 12.31 1.07 8.25 4.75 1.27 9.81 0.24 143.64 0.44 YFCB Yonkers Fin. Corp. of NY 14.90 14.90 0.86 5.06 4.38 1.16 6.79 0.57 65.11 1.02 YFED York Financial Corp. of PA 8.61 8.61 0.62 7.41 4.25 0.79 9.46 2.39 23.05 0.64 Pricing Ratios Dividend Data(6) ----------------------------------------- ------------------------- Price/ Price/ Ind. Divi- Price/ Price/ Price/ Tang. Core Div./ dend Payout Financial Institution Earning Book Assets Book Earnings Share Yield Ratio(7) --------------------- ------- ------- ------- ------- --------- ------- ------- --------- (X) (%) (%) (%) (x) ($) (%) (%) NASDAQ Listed OTC Companies (continued) --------------------------------------- WAYN Wayne S&L Co. MHC of OH (47.8) NM 200.76 18.57 200.76 28.38 0.62 2.95 NM WCFB Wbstr Cty FSB MHC of IA (45.2) NM 168.57 39.37 168.57 27.73 0.80 4.51 NM WBST Webster Financial Corp. of CT NM 212.24 10.66 248.45 18.49 0.80 1.51 50.00 WEFC Wells Fin. Corp. of Wells MN 22.60 112.70 16.00 112.70 15.28 0.48 2.91 65.75 WCBI WestCo Bancorp of IL 18.26 134.25 20.46 134.25 14.47 0.60 2.33 42.55 WSTR WesterFed Fin. Corp. of MT 26.38 114.10 12.44 142.56 20.95 0.44 2.06 54.32 WOFC Western Ohio Fin. Corp. of OH NM 101.58 14.01 108.99 NM 1.00 4.21 NM WWFC Westwood Fin. Corp. of NJ NM 153.87 14.04 172.72 18.10 0.20 0.82 25.64 WEHO Westwood Hmstd Fin Corp of OH NM 109.39 32.17 109.39 NM 0.28 1.81 NM WFI Winton Financial Corp. of OH 10.00 140.85 10.01 143.88 11.94 0.46 2.88 28.75 FFWD Wood Bancorp of OH 21.04 174.58 21.48 174.58 17.68 0.40 2.41 50.63 YFCB Yonkers Fin. Corp. of NY 22.86 122.84 18.31 122.84 17.03 0.24 1.38 31.58 YFED York Financial Corp. of PA 23.51 166.32 14.32 166.32 18.41 0.60 2.53 59.41
EXHIBIT IV-2 Historical Stock Price Indices HISTORICAL STOCK PRICE INDICES(1)
SNL SNL NASDAQ Thrift Bank Year/Qtr. Ended DJIA S&P 500 Composite Index Index - --------------- ---- ------- --------- ----- ----- 1991: Quarter 1 2881.1 375.2 482.3 125.5 66.0 Quarter 2 2957.7 371.2 475.9 130.5 82.0 Quarter 3 3018.2 387.9 526.9 141.8 90.7 Quarter 4 3168.0 417.1 586.3 144.7 103.1 1992: Quarter 1 3235.5 403.7 603.8 157.0 113.3 Quarter 2 3318.5 408.1 563.6 173.3 119.7 Quarter 3 3271.7 417.8 583.3 167.0 117.1 Quarter 4 3301.1 435.7 677.0 201.1 136.7 1993: Quarter 1 3435.1 451.7 690.1 228.2 151.4 Quarter 2 3516.1 450.5 704.0 219.8 147.0 Quarter 3 3555.1 458.9 762.8 258.4 154.3 Quarter 4 3754.1 466.5 776.8 252.5 146.2 1994: Quarter 1 3625.1 445.8 743.5 241.6 143.1 Quarter 2 3625.0 444.3 706.0 269.6 152.6 Quarter 3 3843.2 462.6 764.3 279.7 149.2 Quarter 4 3834.4 459.3 752.0 244.7 137.6 1995: Quarter 1 4157.7 500.7 817.2 278.4 152.1 Quarter 2 4556.1 544.8 933.5 313.5 171.7 Quarter 3 4789.1 584.4 1,043.5 362.3 195.3 Quarter 4 5117.1 615.9 1,052.1 376.5 207.6 1996: Quarter 1 5587.1 645.5 1,101.4 382.1 225.1 Quarter 2 5654.6 670.6 1,185.0 387.2 224.7 Quarter 3 5882.2 687.3 1,226.9 429.3 249.2 Quarter 4 6442.5 737.0 1,280.7 483.6 280.1 1997: Quarter 1 6583.5 757.1 1,221.7 527.7 292.5 Quarter 2 7672.8 885.1 1,442.1 624.5 333.3 August 29, 1997 7622.4 899.5 1,587.3 664.6 365.0
(1) End of period data. Sources: SNL Securities; Wall Street Journal. EXHIBIT IV-3 Historical Thrift Stock Indices [LOGO APPEARS HERE] INDEX VALUES
INDEX VALUES PERCENT CHANGE SINCE ---------------------------------------- ------------------------------- 07/31/97 1 MONTH YTD 52 WEEK 1 MONTH YTD 52 WEEK - ----------------------------------------------------------------------------------------------------------------------- All Pub. Traded Thrifts 684.5 624.5 483.6 388.4 9.60 41.45 76.24 MHC Index 751.0 683.8 538.0 416.1 9.84 39.59 80.48 INSURANCE INDICES - ----------------------------------------------------------------------------------------------------------------------- SAIF Thrifts 608.2 555.0 439.2 356.2 9.59 38.47 70.76 BIF Thrifts 908.5 832.1 616.3 485.0 9.18 47.28 87.31 STOCK EXCHANGE INDICES - ----------------------------------------------------------------------------------------------------------------------- AMEX Thrifts 197.0 192.7 156.2 132.1 2.20 26.10 49.07 NYSC Thrifts 421.4 368.3 277.3 219.7 14.41 51.96 91.75 OTC Thrifts 779.9 721.8 569.7 462.5 8.05 36.39 68.62 GEOGRAPHIC INDICES - ----------------------------------------------------------------------------------------------------------------------- Mid-Atlantic Thrifts 1,342.6 1,267.3 970.7 738.4 5.94 38.31 81.82 Midwestern Thrifts 1,455.2 1,369.4 1,159.3 951.7 6.26 25.52 52.90 New England Thrifts 592.0 553.2 428.9 330.3 7.00 38.02 79.21 Southeastern Thrifts 608.6 561.4 447.2 375.6 8.40 36.10 62.03 Southwestern Thrifts 416.4 419.8 315.9 255.8 0.82 31.84 62.80 Western Thrifts 730.2 635.1 474.7 392.0 14.97 53.83 86.25 ASSET SIZE INDICES - ----------------------------------------------------------------------------------------------------------------------- Less than $250M 721.9 676.0 586.6 539.7 6.79 23.06 33.75 $250M to $500M 1,011.5 947.0 789.8 673.2 6.81 28.07 50.25 $500M to $1B 672.1 639.2 521.8 436.0 5.15 28.82 54.15 $1B to $5B 747.6 704.8 546.0 429.6 6.08 36.92 74.03 Over $5B 453.3 403.6 305.8 241.6 12.32 48.23 87.66 COMPARATIVE INDICES - ----------------------------------------------------------------------------------------------------------------------- Dow Jones Industrials 8,222.6 7,672.3 6,448.3 5,528.9 7.17 27.52 48.72 S&P 500 954.3 885.2 740.7 640.0 7.81 28.83 49.12
All SNL indices are market-value weighted: i.e on institution's effect on an index is proportionate to that institution's market capitalization. All SNL thrift indices, except for the SNL MHC Index began at 100 on March 30, 1984. The SNL MHC Index began at 201.082 on Dec 31, 1992 the level of the SNL Thrift index on that date. On March 30, 1984. the S&P 500 closed at 159.2 and the Dow Jones industrials stood at 1164.9. EXHIBIT IV-4 Timberland Savings Bank Market Area Acquisition Activity WASHINGTON STATE MERGER AND ACQUISITION ACTIVITY 1995-PRESENT
SELLER FINANCIALS AT COMPLETION ------------------------------------------------------ Total TgEq/ YTD YTD NPAs/ Rsrvs/ Ann'd Comp Assets Assets ROAA ROAE Assets NPLs Date Date Buyer ST Seller ST ($000) (%) (%) (%) (%) (%) - ----------------------------------------------------------------------------------------------------------------------------------- 07/12/98 11/29/98 Washington Federal WA Metropolitan Bancorp WA 761,014 8.14 0.85 12.85 NA NA 07/13/94 01/06/95 First Interstate CA University SB WA 1,118,973 9.42 1.20 12.58 0.80 NA Average 938,994 7.78 1.03 12.71 0.80 NA Median 938,994 7.78 1.03 12.71 0.80 NA DEAL TERMS -------------------------------------------------- Deal Deal Ann'd Comp Value Price Per Date Date Buyer ST Seller ST ($M) Shares ($) - ---------------------------------------------------------------------------------------------------------------------------------- 07/12/98 11/29/98 Washington Federal WA Metropolitan Bancorp WA 67.5 19.834 Stock 07/13/94 01/06/95 First Interstate CA University SB WA 205.1 NA Cash Average 138.3 19.834 Median 138.3 19.834 DEAL PRICING AT COMPLETION ------------------------------------------------------- Deal Deal Pr/ Deal Pr/ Deal Pr/ TgBk Pram/ Ann'd Comp Pr/Bk Tg Bk Assets 4-Qtr CoreDeps Date Date Buyer ST Seller ST (%) (%) (%) EPS (x) (%) - ----------------------------------------------------------------------------------------------------------------------------------- 07/12/98 11/29/98 Washington Federal WA Metropolitan Bancorp WA 149.98 149.98 8.95 NA 7.09 07/13/94 01/06/95 First Interstate CA University SB WA 151.37 188.17 17.58 14.15 11.18 Average 150.68 169.08 13.27 14.15 9.14 Median 150.68 169.08 13.27 14.15 9.14
Source: SNL Securities, LC. EXHIBIT IV-5 Timberland Savings Bank Directors and Management Summary Resumes Exhibit IV-5 Director Resumes CLARENCE E. HAMRE has served as the Bank's President and Chief Executive Officer since 1969. Mr. Hamre is President of the 7th Street Theater Rehabilitation Group and is a member of the Building Committee of the Saron Lutheran Church. He also serves on the Board of Directors of the Hoquiam Development Association and is past Chairman of the Board and a Board member of the Washington Savings League. MICHAEL R. SAND is the Bank's Executive Vice President. Mr. Sand is the President of the Aberdeen Neighborhood Housing Services, the former President of the Grays Harbor chamber of Commerce and a member of the Hoquiam Lion's Club. ANDREA M. CLINTON is an interior designer and the owner of AMC Interiors. Ms. Clinton is a volunteer for the Olympia School District, the Black Hills Bambino Baseball League and the Christman Forest Auction. She resides in Olympia, Washington. ROBERT BACKSTROM is retired after serving as owneer of Price & Price Real Estate and Insurance of Montesano, Washington, for 31 years. He is a past President of the Montesano Chamber of Commerce and Montesano Little League. RICHARD R. MORRIS, JR. is the owner of Dick's Food Centers, Inc., a retail grocery. Mr. Morris serves on the Boards of Directors of the Washington Food Industry and the Economic Development Council of Gray Harbor County. He is also a member of the Hoquiam Rotary Club. He resides in Ocean Shores, Washington. ALAN E. SMITH is the owner of Harbor Drug, Inc., a retail pharmacy. Mr. Smith is President of the Hoquiam Development Association and the Hoquiam Retail Trade Board and is a member of the Board of Directors of the Washington State Pharmaceutical Association. PETER J. MAJAR is retired as general manager of Hoquiam Plywood Co., Inc., a plywood manufacturer. , President of the Plywood Marketing Association and President of PMA Transportation Company, Vancouver, Washington. Mr. Majar is a member of the Aberdeen Lion's Club and is involved in various church, fraternal and mission activities. He was a long time member of the Board of Directors of Goodwill Industries when it was located in Grays Harbor, Washington. JON C. PARKER is a Partner in the law firm of Parker, Johnson & Parker P.S. Mr. Parker is an officer and director of the Hoquiam Youth Baseball League and the Hoquiam Babe Ruth Baseball League. He also is volunteer counsel to the Hoquiam YMCA, the Polson Museum and the Historical Society. Mr. Parker is a member of the Washington State Bar Association and serves as Special District Disciplinary Counsel. JAMES C. MASON is the President and owner of Mason Timber Co. Mr. Mason is President of the Aberdeen YMCA and serves as a member of the Aberdeen School Board, the Grays Harbor Community Hospital Foundation Board, the Bishop Foundation Board and the Aberdeen Rotary Club. He resides in Aberdeen, Washington. Exhibit IV-5 Senior Management Resumes CLARENCE E. HAMRE has served as the Bank's President and Chief Executive Officer since 1969. Mr. Hamre is President of the 7th Street Theater Rehabilitation Group and is a member of the Building Committee of the Saron Lutheran Church. He also serves on the Board of Directors of the Hoquiam Development Association and is past Chairman of the Board and a Board member of the Washington Savings Leage. MICHAEL R. SAND is the Bank's Executive Vice President. Mr. Sand is the President of the Aberdeen Neighborhood Housing Services, the former President of the Grays Harbor chamber of Commerce and a member of the Hoquiam Lion's Club. EXHIBIT IV-6 Timberland Savings Bank Pro Forma Regulatory Capital Ratios EXHIBIT IV-6 Timberland Savings Bank Pro Forma Regulatory Capital Ratios
PRO FORMA AT JUNE 30, 1997 ------------------------------------------------------------------------- Minimum of Estimated Midpoint of Estimated Maximum of Estimated Valuation Range Valuation Range Valuation Range ----------------------- ----------------------- ---------------------- 4,250,000 Shares 5,000,000 Shares 5,750,000 Shares June 30, 1997 at $10.00 Per Share at $10.00 Per Share at $10.00 Per Share ---------------------- ----------------------- ----------------------- ---------------------- Percent of Percent of Percent of Percent of Adjusted Adjusted Adjusted Adjusted Total Total Total Total Amount Assets (1) Amount Assets (1) Amount Assets (1) Amount Assets (1) ------ ---------- ------ ---------- ------ ---------- ------ ---------- (Dollars in thousands) GAAP capital................ $23,866 11.57% $34,434 15.52% $36,384 16.19% $38,334 16.85% ======= ===== ======= ===== ======= ===== ======= ===== Tier 1 (leverage) capital... $23,866 11.71% $34,434 15.69% $36,384 16.36% $38,334 17.02% Tier 1 (leverage) capital requirement................ 6,114 3.00 6,584 3.00 6,670 3.00 6,755 3.00 ------- ----- ------- ----- ------- ----- ------- ----- Excess...................... $17,752 8.71% $27,850 12.69% $29,714 13.36% $31,579 14.02% ======= ===== ======= ===== ======= ===== ======= ===== Tier 1 risk adjusted capital.................... $23,866 15.96% $34,434 21.88% $36,384 22.91% $38,334 23.93% Tier 1 risk adjusted capital requirement................ 5,981 4.00 6,294 4.00 6,351 4.00 6,408 4.00 ------- ----- ------- ----- ------- ----- ------- ----- Excess...................... $17,885 11.96% $28,140 17.88% $30,033 18.91% $31,926 19.93% ======= ===== ======= ===== ======= ===== ======= ===== Total risk based capital.... $25,320 16.93% $35,888 22.81% $37,838 23.83% $39,788 24.83% Total risk based capital requirement........ 11,962 8.00 12,589 8.00 12,703 8.00 12,817 8.00 ------- ----- ------- ----- ------- ----- ------- ----- Excess...................... $13,358 8.93% $23,299 14.81% $25,135 15.83% $26,971 16.83% ======= ===== ======= ===== ------- ----- ------- ----- -------------------- 15% above Maximum of Estimated Valuation Range -------------------- 6,612,500 Shares at $10.00 Per Share -------------------- Percent of Adjusted Total Amount Assets (1) ------ ---------- (Dollars in Thousands) GAAP capital................ $40,576 17.58% ======= ===== Tier 1 (leverage) capital... $40,576 17.76% Tier 1 (leverage) capital requirement................ 6,854 3.00 ------- ----- Excess...................... $33,722 14.76% ======= ===== Tier 1 risk adjusted capital.................... $40,576 25.07% Tier 1 risk adjusted capital requirement................ 6,474 4.00 ------- ----- Excess...................... $34,102 21.07% ======= ===== Total risk based capital.... $42,030 25.97% Total risk based capital requirement........ 12,948 8.00 ------- ----- Excess...................... $29,082 17.97% ======= =====
________________________ (1) For the Tier 1 (leverage) capital and Washington regulatory capital calculations, percent of total average assets. For the Tier 1 risk-based capital and total risk-based capital calculations, percent of total risk- weighted assets. Net proceeds (after ESOP and MRP) were assumed to be invested in one-to four-family residential mortgage loans with a weighted average risk-weight of 50% . (2) As a Washington-chartered savings bank, the Savings Bank is subject to the capital requirements of the FDIC and the Division. The FDIC requires state- chartered savings bank, including the Savings Bank, to have a minimum leverage ratio of Tier 1 capital to total assets of at least 3%, provided, however, that all institutions, other than those (i) receiving the highest rating during the examination process and (ii) not anticipating any significant growth, are required to maintain a ratio of 1% to 2% above the stated minimum, with an absolute total capital to risk-weighted assets of at least 8%. The Savings Bank has not been notified by the FDIC of any leverage capital requirement specifically applicable to it. However, for the purposes of this table, the Savings Bank has assumed that its leverage capital requirement is 4% of total average assets. EXHIBIT IV-7 Pro Forma Analysis Sheet RP Financial, LC. - --------------------------------------- Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 22209 (703) 528-1700 Exhibit IV-7 PRO FORMA ANALYSIS SHEET -- PAGE 1 Timberland Savings Bank Prices as of August 29, 1997
Comparable All WA All SAIF Companies Companies Companies ---------------- ----------------- ----------------- Price Multiple: Symbol Subject(1) Mean Median Mean Median Mean Median - -------------- ------ ---------- ---- ------ ---- ------ ---- ------ Price-earnings ratio = P/E 11.58x 21.87x 22.76x 18.21x 14.05x 20.87x 20.75x Price-core earnings = P/CORE 10.80x 19.80x 19.09x 17.81x 15.14x 18.42x 17.88x Price-book ratio = P/B 75.47% 151.83% 137.83% 174.37% 175.16% 140.69% 132.99% Price-tng book ratio = P/TB 75.47% 157.00% 140.37% 183.01% 190.38% 144.94% 134.05% Price-assets ratio = P/A 20.70% 20.09% 21.14% 18.41% 21.45% 17.55% 15.45%
Valuation Parameters - -------------------- Pre-Conv Earnings (Y) $ 2,948,000 Est ESOP Borrowings (E) $4,000,000 Pre-Conv Book Value (B) $ 23,866,000 Cost of ESOP Borrowings (S) 0.00% (4) Pre-Conv Assets (A) $206,188,000 Amort of ESOP Borrowings (T) 10 Years Reinvestment Rate(2) (R) 4.60% Recognition Plans Amount (M) $2,000,000 Est Conversion Exp(3) (X) 965,000 Recognition Plans Expense ($) $ 400,000 Proceeds Not Reinvested (Z) $ 4,000,000
Calculation of Pro Forma Value After Conversion (5) - -------------------------------------------------- 1. V = P/E (Y-R(X+Z)-ES-(1-TAX)E/T-(1-TAX)N))-M V = $ 50,029,717 -------------------------------------------- 1-(P/E)R 2. V = P/B (B-X-E) - M V = $ 49,998,307 ------------------------ 1-P/B 3. V = P/A (A-X-E) - M V = $ 50,003,986 ------------------------- 1-P/A
Total Price Total Conclusion Shares Per Share Value - ---------- ------ --------- ----- Appraised Value 5,000,000 $10.00 $50,000,000 RANGE: - ----- - - Minimum 4,250,000 $10.00 $42,500,000 - - Maximum 5,750,000 $10.00 $57,500,000 - - Superrange 6,612,500 $10.00 $66,125,000
(1) Pricing ratios shown reflect the midpoint appraised value. (2) Net return assumes a reinvestment rate of 6.97 percent, and a tax rate of 34.00 percent. (3) Conversion expenses reflect estimated expenses as presented in offering document. (4) Assumes a borrowings cost of 0.00 percent and a tax rate of 34.00 percent. (5) Assumes Recognition Plans installed on a post-conversion basis with authorized but unissued shares. RP Financial, Inc. - ----------------------------------------- Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 22209 (703) 528-1700 Exhibit IV-7 PRO FORMA ANALYSIS SHEET -- PAGE 2 Timberland Savings Bank Prices as of August 29, 1997
Mean Pricing Median Pricing ------------------- ------------------- Valuation Approach Subject Peers (Disc) Peers (Disc) - ------------------ ------- ----- ------ ----- ------ P/E Price-earnings 11.58x 21.87x -47.07% 22.76x -49.13% P/CORE Price-core earnings 10.80x 19.80x -45.46% 19.09x -43.45% P/B Price-book 75.47% 151.83% NM% 137.83% -45.24% P/TB Price-tang. book 75.47% 157.00% NM% 140.37% -46.23% P/A Price-assets 20.70% 20.09% 3.05% 21.14% -2.10% Average Premium (Discount) -29.83% -37.23%
EXHIBIT IV-8 Pro Forma Effect of Conversion Proceeds RP Financial, LC. - ---------------------------------------- Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 22209 (703) 528-1700 Exhibit IV-8 PRO FORMA EFFECT OF CONVERSION PROCEEDS Timberland Savings Bank At the Minimum of the Range 1. Conversion Proceeds Pro-forma market value................................$ 42,500,000 Less: Estimated offering expenses................. 965,000 ----------- Net Conversion Proceeds...............................$ 41,535,000 2. Estimated Additional Income from Conversion Proceeds Net Conversion Proceeds...............................$ 41,535,000 Less: Held in Non-Earning Assets(5)(1)............ 3,400,000 ----------- Net Proceeds Reinvested...............................$ 38,135,000 Estimated net incremental rate of return.............. 4.60 % ------------ Earnings Increase.....................................$ 1,754,286 Less: Estimated cost of ESOP borrowings(1)........ 0 Less: Amortization of ESOP borrowings(2).......... 224,400 Less: Recognition Plans Expense(4)................ 224,400 ----------- Net Earnings Increase.................................$ 1,305,486
3. Pro-Forma Earnings (rounded)
Period Before Conversion After Conversion ------ ----------------- ----------------- 12 Months ended June 30, 1997 $ 2,948,000 $ 4,253,486 12 Months ended June 30, 1997 (Core) $ 3,272,000 $ 4,577,486
4. Pro-Forma Net Worth (rounded)
Date Before Conversion Conversion Proceeds After Conversion ---- ----------------- ------------------- ---------------- June 30, 1997 $ 23,866,000 $ 38,135,000 (3) $ 62,001,000
5. Pro-Forma Net Assets (rounded)
Date Before Conversion Conversion Proceeds After Conversion ---- ----------------- ------------------- ---------------- June 30, 1997 $ 206,188,000 $ 38,135,000 $ 244,323,000
NOTE: Shares for calculating per share amounts: 4,420,000 (1) Estimated ESOP borrowings of $ 3,400,000 with an after-tax cost of 0.00 percent, assuming a borrowing cost of 0.00 percent and a tax rate of 34.00 percent. ESOP financed by holding company - excluded from reinvestment and total assets. (2) ESOP borrowings are amortized over 10 years, amortization is tax-effected. (3) ESOP borrowings of $ 3,400,000 are omitted from net worth. (4) $1,700,000 purchased by the Recognition Plans with an estimated pre-tax expense of $ 340,000 and a tax rate of 34.00 percent. (5) Stock purchased by Recognition Plans is purchased on post conversion basis, but the related expense and ownership dilution have been factored in the valuation. RP Financial, LC. - ---------------------------------------- Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 22209 (703) 528-1700 Exhibit IV-8 PRO FORMA EFFECT OF CONVERSION PROCEEDS Timberland Savings Bank At the Midpoint of the Range 1. Conversion Proceeds Pro-forma market value............................... $ 50,000,000 Less: Estimated offering expenses................ 965,000 ------------ Net Conversion Proceeds.............................. $ 49,035,000 2. Estimated Additional Income from Conversion Proceeds Net Conversion Proceeds.............................. $ 49,035,000 Less: Held in Non-Earning Assets(5)(1)........... 4,000,000 ----------- Net Proceeds Reinvested.............................. $ 45,035,000 Estimated net incremental rate of return............. 4.60 % ----------- Earnings Increase ................................... $ 2,071,700 Less: Estimated cost of ESOP borrowings(1) ...... 0 Less: Amortization of ESOP borrowings(2) ........ 264,000 Less: Recognition Plans Expense(4)............... 264,000 ----------- Net Earnings Increase ............................... $ 1,543,700
3. Pro-Forma Earnings (rounded)
Period Before Conversion After Conversion ------ ----------------- ----------------- 12 Months ended June 30, 1997 $ 2,948,000 $ 4,491,700 12 Months ended June 30, 1997 (Core) $ 3,272,000 $ 4,815,700
4. Pro-Forma Net Worth (rounded)
Date Before Conversion Conversion Proceeds After Conversion ---- ----------------- ------------------- ---------------- June 30, 1997 $ 23,866,000 $ 45,035,000 (3) $ 68,901,000
5. Pro-Forma Net Assets (rounded)
Date Before Conversion Conversion Proceeds After Conversion ---- ----------------- ------------------- ---------------- June 30, 1997 $ 206,188,000 $ 45,035,000 $ 251,223,000
NOTE: Shares for calculating per share amounts: 5,200,000 (1) Estimated ESOP borrowings of $ 4,000,000 with an after-tax cost of 0.00 percent, assuming a borrowing cost of 0.00 percent and a tax rate of 34.00 percent. ESOP financed by holding company - excluded from reinvestment and total assets. (2) ESOP borrowings are amortized over 10 years, amortization is tax-effected. (3) ESOP borrowings of $ 4,000,000 are omitted from net worth. (4) $2,000,000 purchased by the Recognition Plans with an estimated pre-tax expense of $ 400,000 and a tax rate of 34.00 percent. (5) Stock purchased by Recognition Plans is purchased on post conversion basis, but the related expense and ownership dilution have been factored in the valuation. RP Financial, LC. - ---------------------------------------- Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 22209 (703) 528-1700 Exhibit IV-8 PRO FORMA EFFECT OF CONVERSION PROCEEDS Timberland Savings Bank At the Maximum of the Range 1. Conversion Proceeds Pro-forma market value .............................. $ 57,500,000 Less: Estimated offering expenses ............... 965,000 ___________ Net Conversion Proceeds ............................. $ 56,535,000 2. Estimated Additional Income from Conversion Proceeds Net Conversion Proceeds ............................. $ 56,535,000 Less: Held in Non-Earning Assets(5)(1) .......... 4,600,000 ___________ Net Proceeds Reinvested ............................. $ 51,935,000 Estimated net incremental rate of return ............ 4.60 % ___________ Earnings Increase ................................... $ 2,389,114 Less: Estimated cost of ESOP borrowings(1) ...... 0 Less: Amortization of ESOP borrowings(2) ........ 303,600 Less: Recognition Plans Expense(4)............... 303,600 ___________ Net Earnings Increase ............................... $ 1,781,914
3. Pro-Forma Earnings (rounded)
Period Before Conversion After Conversion ------ ----------------- ----------------- 12 Months ended June 30, 1997 $ 2,948,000 $ 4,729,914 12 Months ended June 30, 1997 (Core) $ 3,272,000 $ 5,053,914
4. Pro-Forma Net Worth (rounded)
Date Before Conversion Conversion Proceeds After Conversion ---- ----------------- ------------------- ---------------- June 30, 1997 $ 23,866,000 $ 51,935,000 (3) $ 75,801,000
5. Pro-Forma Net Assets (rounded)
Date Before Conversion Conversion Proceeds After Conversion ---- ----------------- ------------------- ---------------- June 30, 1997 $ 206,188,000 $ 51,935,000 $ 258,123,000
NOTE: Shares for calculating per share amounts: 5,980,000 (1) Estimated ESOP borrowings of $ 4,600,000 with an after-tax cost of 0.00 percent, assuming a borrowing cost of 0.00 percent and a tax rate of 34.00 percent. ESOP financed by holding company - excluded from reinvestment and total assets. (2) ESOP borrowings are amortized over 10 years, amortization is tax-effected. (3) ESOP borrowings of $ 4,600,000 are omitted from net worth. (4) $2,300,000 purchased by the Recognition Plans with an estimated pre-tax expense of $ 460,000 and a tax rate of 34.00 percent. (5) Stock purchased by Recognition Plans is purchased on post conversion basis, but the related expense and ownership dilution have been factored in the valuation. RP Financial, LC. - ----------------------------------------- Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 22209 (703) 528-1700 Exhibit IV-8 PRO FORMA EFFECT OF CONVERSION PROCEEDS Timberland Savings Bank At the Superrange Maximum 1. Conversion Proceeds Pro-forma market value............................... $ 66,125,000 Less: Estimated offering expenses................ 965,000 ___________ Net Conversion Proceeds.............................. $ 65,160,000 2. Estimated Additional Income from Conversion Proceeds Net Conversion Proceeds.............................. $ 65,160,000 Less: Held in Non-Earning Assets(5)(1)........... 5,290,000 ___________ Net Proceeds Reinvested.............................. $ 59,870,000 Estimated net incremental rate of return............. 4.60 % ___________ Earnings Increase.................................... $ 2,754,140 Less: Estimated cost of ESOP borrowings(1)....... 0 Less: Amortization of ESOP borrowings(2)......... 349,140 Less: Recognition Plans Expense(4)............... 349,140 ___________ Net Earnings Increase................................ $ 2,055,860
3. Pro-Forma Earnings (rounded)
Period Before Conversion After Conversion ------ ----------------- ----------------- 12 Months ended June 30, 1997 $ 2,948,000 $ 5,003,860 12 Months ended June 30, 1997 (Core) $ 3,272,000 $ 5,327,860
4. Pro-Forma Net Worth (rounded)
Date Before Conversion Conversion Proceeds After Conversion ---- ----------------- ------------------- ---------------- June 30, 1997 $ 23,866,000 $ 59,870,000 (3) $ 83,736,000
5. Pro-Forma Net Assets (rounded)
Date Before Conversion Conversion Proceeds After Conversion ---- ----------------- ------------------- ---------------- June 30, 1997 $ 206,188,000 $ 59,870,000 $ 266,058,000
NOTE: Shares for calculating per share amounts: 6,877,000 (1) Estimated ESOP borrowings of $ 5,290,000 with an after-tax cost of 0.00 percent, assuming a borrowing cost of 0.00 percent and a tax rate of 34.00 percent. ESOP financed by holding company - excluded from reinvestment and total assets. (2) ESOP borrowings are amortized over 10 years, amortization is tax-effected. (3) ESOP borrowings of $ 5,290,000 are omitted from net worth. (4) $2,645,000 purchased by the Recognition Plans with an estimated pre-tax expense of $ 529,000 and a tax rate of 34.00 percent. (5) Stock purchased by Recognition Plans is purchased on post conversion basis, but the related expense and ownership dilution have been factored in the valuation. EXHIBIT IV-9 Peer Group Core Earnings Analysis RP FINANCIAL, LC. - --------------------------------------- Financial Services Industry Consultants 1700 North Moore Street, Suite 2210 Arlington, Virginia 22209 (703) 528-1700 Core Earnings Analysis Comparable Institution Analysis For the Twelve Months Ended June 30, 1997
Estimated Net Income Less: Net Tax Effect Less: Extd Core Income Estimated To Common Gains (Loss) @ 34% Items To Common Shares Core EPS ---------- ----------- ---------- ---------- ----------- ------ --------- ($000) ($000) ($000) ($000) ($000) ($000) ($) Comparable Group - ---------------- CMRN Cameron Fin. Corp. of MO 2,037 793 -270 0 2,560 2,627 0.97 FFHH FSF Financial Corp. of MN 2,373 977 -332 0 3,018 3,033 0.99 FFBA First Colorado Bancorp of Co 13,452 -251 85 0 13,286 16,561 0.80 FMSB First Mutual SB of Bellevue WA 4,210 -137 47 0 4,120 2,702 1.52 FWWB First Savings Bancorp of WA (1) 9,314 -701 238 0 8,851 10,519 0.84 HRZB Horizon Financial Corp. of WA 7,912 -208 71 0 7,775 7,417 1.05 IWBK Interwest SB of Oak Harbor WA 14,629 7,910 -2,689 0 19,850 8,036 2.47 KFBI Klamath First Bancorp of OR 5,494 4,252 -1,446 0 8,300 10,019 0.83 UBMT United Fin. Corp. of MT (1) 1,150 400 -136 0 1,414 1,223 1.16 WSTR WesterFed Fin. Corp. of MT 4,507 1,784 -607 0 5,684 5,565 1.02
(1) Financial information is for the quarter ending March 31, 1997. Source: Audited and unaudited financial statements, corporate reports and offering circulars, and RP Financial, LC. calculations. The information provided in this table has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information. Copyright (c) 1997 by RP Financial, LC. EXHIBIT V-1 RP Financial, LC. Firm Qualifications Statement RP FINANCIAL, LC. - ------------------------------------------ Financial Services Industry Consultants FIRM QUALIFICATION STATEMENT RP Financial provides financial and management consulting and valuation services to the financial services industry nationwide, particularly federally-insured financial institutions. RP Financial establishes long-term client relationships through its wide array of services, emphasis on quality and timeliness, hands-on involvement by our principals and senior consulting staff, and careful structuring of strategic plans and transactions. RP Financial's staff draws from backgrounds in consulting, regulatory agencies and investment banking, thereby providing our clients with considerable resources. STRATEGIC AND CAPITAL PLANNING RP Financial's strategic and capital planning services are designed to provide effective workable plans with quantifiable results. Through a program known as SAFE (Strategic Alternatives Financial Evaluations), RP Financial analyzes strategic options to enhance shareholder value or other established objectives. Our planning services involve conducting situation analyses; establishing mission statements, strategic goals and objectives; and identifying strategies for enhancement of franchise value, capital management and planning, earnings improvement and operational issues. Strategy development typically includes the following areas: capital formation and management, asset/liability targets, profitability, return on equity and market value of stock. Our proprietary financial simulation model provides the basis for evaluating the financial impact of alternative strategies and assessing the feasibility/compatibility of such strategies with regulations and/or other guidelines. MERGER AND ACQUISITION SERVICES RP Financial's merger and acquisition (M&A) services include targeting candidates and potential acquirors, assessing acquisition merit, conducting detailed due diligence, negotiating and structuring transactions, preparing merger business plans and financial simulations, rendering fairness opinions and assisting in implementing post-acquisition strategies. Through our financial simulations, comprehensive in-house data bases, valuation expertise and regulatory knowledge, RP Financial's M&A consulting focuses on structuring transactions to enhance shareholder returns. VALUATION SERVICES RP Financial's extensive valuation practice includes valuations for a variety of purposes including mergers and acquisitions, mutual-to-stock conversions, ESOPs, subsidiary companies, mark-to-market transactions, loan and servicing portfolios, non-traded securities, core deposits, FAS 107 (fair market value disclosure), FAS 122 (loan servicing rights) and FAS 123 (stock options). Our principals and staff are highly experienced in performing valuation appraisals which conform with regulatory guidelines and appraisal industry standards. RP Financial is the nation's leading valuation firm for mutual-to-stock conversions of thrift institutions. OTHER CONSULTING SERVICES AND DATA BASES RP Financial offers a variety of other services including branching strategies, feasibility studies and special research studies, which are complemented by our quantitative and computer skills. RP Financial's consulting services are aided by its in-house data base resources for commercial banks and savings institutions and proprietary valuation and financial simulation models. YEAR 2000 SERVICES RP Financial, through a relationship with a computer research and development company with a proprietary methodology, offers Year 2000 advisory and conversion services to financial institutions which are more cost effective and less disruptive than most other providers of such service. RP Financial's Key Personnel (Years of Relevant Experience) Ronald S. Riggins, Managing Director (17) William E. Pommerening, Managing Director (13) Gregory E. Dunn, Senior Vice President (15) James P. Hennessey, Senior Vice President (12) James J. Oren, Vice President (10) EX-99.5 6 PROXY STATEMENT FOR SPECIAL MEETING EXHIBIT 99.5 PROXY STATEMENT FOR SPECIAL MEETING OF MEMBERS OF TIMBERLAND SAVINGS BANK, SSB TIMBERLAND SAVINGS BANK, SSB 624 SIMPSON AVENUE HOQUIAM, WASHINGTON 98550 (360) 533-4747 NOTICE OF SPECIAL MEETING OF MEMBERS TO BE HELD ON DECEMBER 23, 1997 Notice is hereby given that a special meeting of members ("Special Meeting") of Timberland Savings Bank, SSB ("Savings Bank") will be held at the Savings Bank's office at 624 Simpson Avenue, Hoquiam, Washington, on Tuesday, December 23, 1997, at 1:00 p.m., Pacific Time. Business to be taken up at the Special Meeting shall be: (1) To consider and vote upon an Amended Plan of Conversion ("Plan of Conversion") pursuant to which (i) the Savings Bank will convert from a Washington-chartered mutual savings bank to a Washington-chartered capital stock savings bank, and in connection therewith will adopt an Amended Articles of Incorporation and Bylaws, (ii) the Savings Bank will sell its capital stock to Timberland Bancorp, Inc. ("Holding Company"), a Washington corporation, and become the wholly-owned subsidiary of the Holding Company and (iii) the Holding Company will offer and sell shares of its common stock in a subscription offering and, if necessary, in a community offering and, if necessary, in a syndicated community offering (collectively, the "Conversion"), all as more specifically set forth in the Plan of Conversion; and (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, 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 and any adjournments thereof shall be those members of the Savings Bank as of the close of business on October 31, 1997. BY ORDER OF THE BOARD OF DIRECTORS MICHAEL R. SAND SECRETARY Hoquiam, Washington _________ __, 1997 PLEASE SIGN AND RETURN PROMPTLY EACH PROXY CARD YOU RECEIVE IN THE ENCLOSED POSTAGE-PAID ENVELOPE. THIS WILL ASSURE NECESSARY REPRESENTATION AT THE SPECIAL MEETING, BUT WILL NOT PREVENT YOU FROM VOTING IN PERSON IF YOU SO DESIRE. THE PROXY IS SOLICITED ONLY FOR THIS SPECIAL MEETING (AND ANY ADJOURNMENTS THEREOF) AND WILL NOT BE USED FOR ANY OTHER MEETING. YOU MAY REVOKE YOUR WRITTEN PROXY BY WRITTEN INSTRUMENT DELIVERED TO MICHAEL R. SAND, SECRETARY, TIMBERLAND SAVINGS BANK, SSB, AT THE ABOVE ADDRESS AT ANY TIME PRIOR TO OR AT THE SPECIAL MEETING. CAPSULE SUMMARY The information set forth below should be read in conjunction with and is qualified in its entirety by the more detailed information and Consolidated Financial Statements (including the Notes thereto) presented elsewhere in this Proxy Statement and in the Prospectus. The purchase of Common Stock is subject to certain risks. See "RISK FACTORS" in the Prospectus. TIMBERLAND SAVINGS BANK, SSB The Savings Bank, a Washington-chartered mutual savings bank, is a community oriented financial institution engaged primarily in the business of attracting deposits from the general public and using these funds to originate one- to- four family mortgage loans, construction and land development loans, multi-family loans and commercial real estate loans. At June 30, 1997, the Savings Bank had total assets of $206.2 million, total deposit accounts of $167.1 million and total capital of $23.9 million, on a consolidated basis. See "TIMBERLAND SAVINGS BANK, SSB." TIMBERLAND BANCORP, INC. The Holding Company is a Washington corporation organized on September 8, 1997 to become the holding company for the Savings Bank upon consummation of the Conversion. To date, the Holding Company has not engaged in any significant business. See "TIMBERLAND BANCORP, INC." THE CONVERSION The Savings Bank is converting from a Washington- chartered mutual savings bank to a Washington- chartered capital stock savings bank, and in connection with the Conversion, has formed the Holding Company. As part of the Conversion, the Savings Bank will issue all of its capital stock to the Holding Company in exchange for 50% of the net proceeds from the sale of the Common Stock. See "THE CONVERSION." THE SUBSCRIPTION, DIRECT The Holding Company is offering up to 5,750,000 COMMUNITY AND SYNDICATED shares of Common Stock (subject to adjustment) COMMUNITY OFFERINGS at $10.00 per share to holders of Subscription Rights in the following order of priority: (i) Eligible Account Holders; (ii) the Savings Bank's ESOP; (iii) Supplemental Eligible Account Holders; and (iv) Other Members. Concurrently, and subject to the prior rights of holders of Subscription Rights, any shares of Common Stock not subscribed for in the Subscription Offering are being offered in the Direct Community Offering to natural persons and trusts of natural persons who are permanent residents of the Local Community (Grays Harbor, Thurston, Pierce and King Counties of Washington). If any shares remain available on the Expiration Date of the Direct Community Offering, in the discretion of the Holding Company and the Savings Bank, the Direct Community Offering may be expanded to include other members of the general public. NO ORDERS WILL BE ACCEPTED IN THE DIRECT COMMUNITY OFFERING FROM NATURAL PERSONS OR TRUSTS OF NATURAL PERSONS RESIDING OUTSIDE THE LOCAL COMMUNITY UNLESS THE DIRECT COMMUNITY OFFERING IS EXPANDED TO INCLUDE SUCH PERSONS. The Subscription (i) Offering will expire at Noon, Pacific Time, on ___________ __, 1997, unless extended by the Savings Bank and the Holding Company for up to __ days. The Direct Community Offering and Syndicated Community Offering, if any, are also expected to terminate on ______________ __, 1997, and may terminate on any date thereafter, however, in no event later than _____________ __, 1998. See "THE CONVERSION --The Subscription, Direct Community and Syndicated Community Offerings." NON-TRANSFERABILITY OF SUBSCRIPTION RIGHTS ARE NON-TRANSFERRABLE. PERSONS SUBSCRIPTION RIGHTS FOUND TO BE TRANSFERRING SUBSCRIPTION RIGHTS OR ATTEMPTING TO PURCHASE SHARES OF COMMON STOCK ON BEHALF OF OTHER PERSONS WILL BE SUBJECT TO FORFEITURE OF SUCH RIGHTS AND POSSIBLE FURTHER SANCTIONS AND PENALTIES. PROSPECTUS DELIVERY AND To ensure that each purchaser receives a PROCEDURE FOR Prospectus at least 48 hours prior to the PURCHASING COMMON STOCK Expiration Date, in accordance with Rule 15c2-8 under the Securities Exchange Act of 1934, as amended ("Exchange Act"), no Prospectus will be mailed later than five days or hand delivered any later than two days prior to the Expiration Date. Execution of the Order Form will confirm receipt or delivery of a Prospectus in accordance with Rule 15c2-8. Order Forms will be distributed only with a Prospectus. Neither the Holding Company, the Savings Bank nor Webb is obligated to deliver a Prospectus and an Order Form by any means other than the U.S. Postal Service. PURCHASE LIMITATIONS Except for the ESOP, which is expected to subscribe for 8% of the shares of Common Stock issued in the Conversion, no Eligible Account Holder, Supplemental Eligible Account Holder or Other Member may purchase shares of Common Stock with an aggregate purchase price of more than $200,000 (20,000 shares based on the Purchase Price); no person, either alone or together with associates of and persons acting in concert with such person, may purchase in either the Direct Community Offering, if any, or in the Syndicated Community Offering, if any, shares of Common Stock with an aggregate purchase price of more than $200,000 (20,000 shares based on the Purchase Price); and no person, either alone or together with associates and persons acting in concert with such person, may purchase in the aggregate more than the overall purchase limitation of 1% of the total number of shares of Common Stock issued in the Conversion (exclusive of any shares purchased pursuant to an increase in the Estimated Valuation Range of up to 15%). See "THE CONVERSION -- Limitations on Purchases of Shares." STOCK PRICING AND NUMBER OF The Purchase Price for the shares of Common Stock SHARES TO BE ISSUED IN THE is a uniform, fixed price for all subscribers, CONVERSION including the Savings Bank's Board of Directors, its management and tax-qualified employee plans, and was set by the Board of Directors. The (ii) number of shares to be offered at the Purchase Price is based upon an independent appraisal of the aggregate pro forma market value of the Holding Company and the Savings Bank as converted. The aggregate pro forma market value was estimated by RP Financial to range from $42.5 million to $57.5 million as of August 29, 1997, or from 4,250,000 to 5,750,000 shares based on the Purchase Price. See "THE CONVERSION -- Stock Pricing and Number of Shares to be Issued." PAYMENT FOR SHARES OF Payment for subscriptions for shares of COMMON STOCK Common Stock may be made (i) in cash (if delivered in person), (ii) by check, bank draft or money order, or (iii) by withdrawal authorization from deposit account(s) maintained at the Savings Bank. See "THE CONVERSION -- Procedure for Purchasing Shares in the Subscription and Direct Community Offering." CONDITIONS TO CLOSING OF Consummation of the Offerings is subject to, THE OFFERINGS among other things (i) consummation of the Conversion, which is conditioned on, among other things, approval of the Plan of Conversion by the eligible voting members of the Savings Bank, (ii) receipt by the Division of RP Financial's updated appraisal of the pro forma market value of the Holding Company and the Savings Bank, and authorization of the Division to sell the Common Stock within the estimated valuation range set forth in such updated appraisal, (iii) the non- objection of the FDIC to the Conversion, and (iv) the Board of Governors of the Federal Reserve System's ("Federal Reserve") approval of the Holding Company's acquisition of the Savings Bank. There can be no assurances that all such conditions will be satisfied. See "RISK FACTORS -- Risk of Delayed Offering" and "THE CONVERSION -- General." USE OF PROCEEDS The net proceeds from the sale of the Common Stock are estimated to range from $41.5 million to $56.5 million, or to $65.2 million if the Estimated Valuation Range is increased by 15%, depending upon the number of shares sold and the expenses of the Conversion. The Holding Company plans to contribute to the Savings Bank 50% of the net proceeds of the Offerings in exchange for all of the issued and outstanding shares of common stock of the Savings Bank and retain the remaining net proceeds. This will result in the Holding Company retaining approximately $20.8 million to $28.3 million of the net proceeds, or up to $32.6 million if the Estimated Valuation Range is increased by 15%, and the Savings Bank receiving an equal amount. See "USE OF PROCEEDS." MARKET FOR COMMON STOCK The Holding Company has never issued capital stock to the public and, consequently, there is no existing market for the Common Stock. The Holding Company has received conditional approval to have the Common Stock listed on the (iii) National Market System of the Nasdaq Stock Market under the symbol "____." See "RISK FACTORS -- Absence of Prior Market for the Common Stock" and "MARKET FOR COMMON STOCK." DIVIDENDS Declarations and payments of dividends, regular or special, by the Board of Directors will depend upon a number of factors. See "DIVIDEND POLICY -- Current Regulatory Restrictions" and "REGULATION -- The Savings Bank -- Dividends." No assurances can be given that any dividends will be declared or, if declared, what the amount of dividends will be or whether such dividends, once declared, will continue. OFFICERS' AND DIRECTORS' Officers and directors of the Savings Bank (18 COMMON STOCK PURCHASES AND persons) are expected to subscribe for BENEFICIAL OWNERSHIP approximately $2.5 million of Common Stock, or 5.9% at the minimum of the Estimated Valuation Range, and $2.8 million, or 4.9% of the shares based on the maximum of the Estimated Valuation Range. See "SHARES TO BE PURCHASED BY MANAGEMENT PURSUANT TO SUBSCRIPTION RIGHTS." In addition, purchases by the ESOP and allocations under the Timberland Bancorp, Inc. Management Recognition Plan and Trust ("MRP") and the exercise of stock options issued under the Timberland Bancorp, Inc. 1997 Stock Option Plan ("Stock Option Plan"), will increase the number of shares beneficially owned by officers, directors and employees. See "RISK FACTORS -- Anti-takeover Considerations -- Voting Control by Insiders." BENEFITS OF CONVERSION TO The Holding Company's and the Savings Bank's MANAGEMENT directors and executive officers will receive certain benefits as a result of the Conversion. See "BENEFITS OF CONVERSION TO MANAGEMENT." NO BOARD OR FINANCIAL Neither Webb nor the Boards of Directors of the ADVISOR RECOMMENDATIONS Holding Company and the Savings Bank make any recommendations to anyone regarding the suitability of an investment in the Common Stock. An investment in the Common Stock must only be made pursuant to each investor's evaluation of his or her own best interests. RISK FACTORS See "RISK FACTORS" in the Prospectus for a discussion of certain risks related to the Offerings that should be considered by all prospective investors. STOCK INFORMATION CENTER If you have any questions regarding the Conversion or the Offerings, call the Stock Information Center at (360) 537-6592. (iv) TIMBERLAND SAVINGS BANK, SSB 624 SIMPSON AVENUE HOQUIAM, WASHINGTON 98550 (360) 533-4747 PROXY STATEMENT _________ __, 1997 YOUR PROXY, IN THE FORM ENCLOSED, IS SOLICITED BY THE BOARD OF DIRECTORS OF TIMBERLAND SAVINGS BANK, SSB FOR USE AT A SPECIAL MEETING OF MEMBERS TO BE HELD ON TUESDAY, DECEMBER 23, 1997, AND ANY ADJOURNMENT OF THAT MEETING, FOR THE PURPOSES SET FORTH IN THE FOREGOING NOTICE OF SPECIAL MEETING. YOUR BOARD OF DIRECTORS AND MANAGEMENT URGE YOU TO VOTE FOR THE PLAN OF CONVERSION. PURPOSE OF MEETING -- SUMMARY A special meeting of members ("Special Meeting") of Timberland Savings Bank, SSB ("Savings Bank") will be held at the Savings Bank's office at 624 Simpson Avenue, Hoquiam, Washington, on Tuesday, December 23, 1997, at 1:00 p.m., Pacific Time, for the purpose of considering and voting upon an Amended Plan of Conversion ("Plan of Conversion"), which provides for the conversion of the Savings Bank from a Washington-chartered mutual savings bank to a Washington-chartered capital stock savings bank and the formation of a Holding Company, which, if approved by a majority of the total votes of the members eligible to be cast at the Special Meeting or any adjournments thereof, will permit the Savings Bank to convert from a Washington-chartered mutual savings bank to a Washington-chartered capital stock savings bank, to be held as a subsidiary of Timberland Bancorp, Inc. ("Holding Company"), a newly organized Washington corporation formed by the Savings Bank. The conversion of the Savings Bank and the acquisition of control of the Savings Bank by the Holding Company are collectively referred to herein as the "Conversion." Members entitled to vote on the Plan of Conversion are members of the Savings Bank as of October 31, 1997. The Conversion requires the approval of not less than a majority of the total votes eligible to be cast at the Special Meeting. The Plan of Conversion provides in part that, after receiving final authorization from the Washington Department of Financial Institutions, Division of Banks ("Division") and the non-objection of the Federal Deposit Insurance Corporation ("FDIC"), the Savings Bank will offer for sale shares of common stock of the Holding Company ("Common Stock"), through the issuance of nontransferable subscription rights ("Subscription Rights"), first to depositors with $50.00 or more on deposit at the Savings Bank as of December 31, 1995 ("Eligible Account Holders"), then to the Savings Bank's employee stock ownership plan ("ESOP"), a tax-qualified employee benefit plan, then to depositors with $50.00 or more on deposit at the Savings Bank as of September 30, 1997 ("Supplemental Eligible Account Holders"), and then to depositors and borrowers of the Savings Bank as of October 31, 1997 ("Other Members"), in a subscription offering ("Subscription Offering"), and concurrently, but subject to the prior rights of holders of Subscription Rights, to certain members of the general public in a direct community offering ("Direct Community Offering"). The Subscription and Direct Community Offerings are referred to herein as the "Subscription and Direct Community Offering." It is anticipated that shares of Common Stock not subscribed for in the Subscription and Direct Community Offering will be offered to the general public with the assistance of Charles Webb & Company ("Webb"), a division of Keefe, Bruyette & Woods, Inc. ("Keefe, Bruyette") and, if necessary, a selling group of broker-dealers managed by Webb in a syndicated community offering ("Syndicated Community Offering"). The Subscription, Direct Community and Syndicated Community Offerings are referred to herein as the "Offerings." 1 Adoption of an Amended Articles of Incorporation and Bylaws of the Savings Bank is an integral part of the Plan of Conversion. Copies of the Plan of Conversion and the proposed Amended Articles of Incorporation and the Bylaws for the Savings Bank are attached to this Proxy Statement as exhibits. They provide, among other things, for the termination of voting rights of members and their rights to receive any surplus remaining after liquidation of the Savings Bank. These rights, except for the rights of Eligible Account Holders and Supplemental Eligible Account Holders in the liquidation account, will vest exclusively in the holders of the stock in the Savings Bank. See "THE CONVERSION -- Effects of Conversion to Stock Form on Depositors and Borrowers of the Savings Bank." The Common Stock is being offered by the Holding Company at a fixed price of $10.00 per share ("Purchase Price"). The Purchase Price was established by the Savings Bank's Board of Directors based on an independent appraisal prepared by RP Financial LP. ("RP Financial") as of August 29, 1997, which states that the estimated aggregate pro forma market value of the Holding Company and the Savings Bank ranged from $42.5 million to $57.5 million, or 4,250,000 and 5,750,000 shares of Common Stock, with a mid point of $50.0 million, or 5,000,000 shares of Common Stock. See "THE CONVERSION -- Stock Pricing and Number of Shares to be Issued" contained in the Prospectus. BENEFITS OF CONVERSION TO MANAGEMENT Management of the Savings Bank have a personal interest in the Conversion because they will receive certain benefits as a result of the Conversion pursuant to the ESOP, the Timberland Bancorp, Inc. 1997 Stock Option Plan ("Stock Option Plan"), the Timberland Bancorp, Inc. Management Recognition Plan ("MRP"), and the Savings Bank's Profit Sharing Bonus Plan. EMPLOYEE STOCK OWNERSHIP PLAN The Savings Bank intends to adopt the ESOP, a tax-qualified employee benefit plan, for the benefit of officers and employees of the Holding Company and the Savings Bank. Officers of the Savings Bank are expected to participate in the ESOP, which intends to subscribe for 8% of the shares of Common Stock issued in the Conversion (460,000 shares based on the issuance of the maximum of the Estimated Valuation Range). See "MANAGEMENT OF THE SAVINGS BANK -- Benefits - -- Employee Stock Ownership Plan" in the Prospectus. 1997 STOCK OPTION PLAN The Holding Company intends to seek stockholder approval of the 1997 Stock Option Plan ("Stock Option Plan") at a meeting of stockholders occurring no earlier than six months following consummation of the Conversion. If stockholder approval of the Stock Option Plan is obtained, it is expected that options to acquire up to 10% of the number of shares of Common Stock issued in the Conversion (575,000 shares based on the issuance of the maximum of the Estimated Valuation Range) will be reserved under the Stock Option Plan and will be awarded to key employees and directors of the Holding Company and the Savings Bank, subject to certain restrictions, including required vesting periods. Options are valuable only to the extent they are exercisable and to the extent the market price for the underlying shares of capital stock exceed the exercise price of the option. An option effectively eliminates the market risk of holding the underlying security since no consideration is paid for the option until it is exercised and, therefore, the recipient may, within the limits of the term of the option, wait to exercise the option until the market price exceeds the exercise price. See "MANAGEMENT OF THE SAVINGS BANK -- Benefits -- 1997 Stock Option Plan" in the Prospectus. MANAGEMENT RECOGNITION PLAN The Holding Company intends to seek approval of the MRP at a meeting of stockholders occurring no earlier than six months following consummation of the Conversion. The MRP will be funded with a number of shares of Common Stock equal to 4% of the number of shares issued in the Conversion (230,000 shares based on 2 the issuance of the maximum of the Estimated Valuation Range) for the benefit of key employees and directors of the Holding Company and the Savings Bank. If stockholder approval of the MRP is obtained, it is expected that shares of Common Stock will be awarded thereunder to key employees and directors of the Holding Company and the Savings Bank, subject to certain restrictions, including required vesting periods. Awards under the MRP will be granted at no cost to recipients. See "MANAGEMENT OF THE SAVINGS BANK -- Benefits -- Management Recognition Plan" in the Prospectus. PROFIT SHARING BONUS PLAN The Savings Bank maintains a discretionary bonus plan which is based on the Savings Bank's net income for each fiscal year. No assurances can be given that the Conversion will result in an increase in the Savings Bank's net income. However, to the extent, if any, that the Conversion results in higher net income to the Savings Bank, officers of the Savings Bank and other participating employees would benefit. The amount of such benefit, if any, is unquantifiable at this time because predictions of future income (or loss) levels is impossible. See "MANAGEMENT OF THE SAVINGS BANK -- Benefits -- Profit Sharing Bonus Plan" in the Prospectus. TIMBERLAND SAVINGS BANK, SSB The Savings Bank was established in 1915 as "Southwest Washington Savings and Loan Association." In 1935, the Savings Bank converted from a state- chartered mutual savings and loan association to a federally chartered mutual savings and loan association, and in 1972, changed its the name to "Timberland Federal Savings and Loan Association." In 1990, the Savings Bank converted to a federally-chartered mutual savings bank under the name "Timberland Savings Bank, FSB." In 1991, the Savings Bank converted to a Washington-chartered mutual savings bank and adopted its current name. The Savings Bank's deposits are insured by the FDIC up to applicable legal limits under the SAIF. The Savings Bank has been a member of the Federal Home Loan Bank ("FHLB") system since 1937. The Savings Bank is regulated by the Division and the FDIC. At June 30, 1997, the Savings Bank had total assets of $206.2 million, total deposit accounts of $167.1 million, and total capital of $23.9 million, on a consolidated basis. The Savings Bank is a community oriented savings bank which has traditionally offered a variety of savings products to its retail customers while concentrating its lending activities on real estate mortgage loans. Lending activities have been focused primarily on the origination of loans secured by one- to four-family residential dwellings, including an emphasis on construction and land development loans, as well as the origination of multi- family and commercial real estate loans. The Savings Bank actively originates adjustable rate residential mortgage loans that do not qualify for sale in the secondary market under Federal Home Loan Mortgage Corporation guidelines. At June 30, 1997, the Savings Bank's gross loan portfolio totaled $204.6 million, of which $100.1 million, or 48.9%, were one- to four-family residential mortgage loans, $44.7 million, or 21.9%, were construction and land development loans (the majority of which related to one- to four-family residences), and $41.5 million, or 20.3%, were multi-family or commercial real estate loans. Construction and commercial real estate loans generally involve a greater risk of loss than one- to- four family mortgage loans. See "RISK FACTORS -- Certain Lending Risks" contained in the Prospectus. The Savings Bank also invests in short- to- intermediate term U.S. Treasury securities and U.S. Government agency obligations and mortgage-backed securities issued by U.S. Government agencies. At June 30, 1997, the Savings Bank's investment and mortgage-backed securities portfolio had a carrying value of $5.7 million. See "BUSINESS OF THE SAVINGS BANK -- Investment Securities" contained in the Prospectus. Deposits have been the primary source of funds for the Savings Bank's investment and lending activities. The Savings Bank plans to continue to fund its operations primarily with deposits, although advances from the FHLB-Seattle have been used as a supplemental source of funds. See "BUSINESS OF THE SAVINGS BANK --Deposits and Other Sources of Funds" contained in the Prospectus. 3 The Savings Bank conducts its operations from its main office, seven branch offices and a loan production office located in Western Washington State. See "BUSINESS OF THE SAVINGS BANK -- Properties" contained in the Prospectus. The Savings Bank's main office is located at 624 Simpson Avenue, Hoquiam, Washington, 98550 and its telephone number is (360) 533-4747. VOTING RIGHTS AND VOTE REQUIRED FOR APPROVAL The Board of Directors of the Savings Bank has fixed the close of business on October 31, 1997, as the record date ("Voting Record Date") for the determination of members entitled to notice of and to vote at the Special Meeting. All holders of the Savings Bank's savings or other authorized accounts are members of the Savings Bank under its current Certificate of Incorporation. All members of record as of the close of business on the Voting Record Date will be entitled to notice of and to vote at the Special Meeting or any adjournment thereof. Each eligible 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 or her savings accounts in the Savings Bank as of the Voting Record Date. Borrowers with loans outstanding as of the Voting Record Date will be entitled to cast one vote in addition to the number of votes he or she may be entitled to as a depositor. No member is entitled to cast more than 1,000 votes. Any number of members present in person or by proxy at the Special Meeting will constitute a quorum for the transaction of business. Approval of the Plan of Conversion will require the affirmative vote of a majority of the total outstanding votes of the Savings Bank'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 constitutes a majority. PROXIES Members may vote at the Special Meeting or any adjournment thereof in person or by proxy. Enclosed is a proxy which may be used by any member to vote on the Plan of Conversion. All properly executed proxies received by management will be voted in accordance with the instructions indicated thereon by the members giving such proxies. If no instructions are given, such proxies will be voted in favor of the Plan of Conversion. If any other matters are properly presented at the Special Meeting and may properly be voted on, all proxies will be voted on such matters in accordance with the best judgment of the proxy holders named therein. If the enclosed proxy is returned, it may be revoked at any time before it is voted by written notice to the Secretary of the Savings Bank, by submitting a later dated proxy, or by attending and voting in person at the Special Meeting. The proxies being solicited are only for use at the Special Meeting and at any and all adjournments thereof and will not be used for any other meeting. Management is not aware of any other business to be presented at the Special Meeting. The trustees for individual retirement accounts at the Savings Bank will vote in favor of the Plan of Conversion, unless the beneficial owner executes and returns the enclosed proxy for the Special Meeting or attends the Special Meeting and votes in person. To the extent necessary to permit approval of the Plan of Conversion, proxies may be solicited by officers, directors or regular employees of the Savings Bank, in person, by telephone or through other forms of communication and, if necessary, the Special Meeting may be adjourned to an alternative date. Such persons will be reimbursed by the Savings Bank for their reasonable out-of- pocket expenses incurred in connection with such solicitation. 4 RECOMMENDATION OF THE BOARD OF DIRECTORS THE BOARD OF DIRECTORS OF THE SAVINGS BANK UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE PLAN OF CONVERSION. VOTING IN FAVOR OF THE PLAN OF CONVERSION WILL NOT OBLIGATE ANY VOTER TO PURCHASE ANY STOCK. VOTING AGAINST THE PLAN OF CONVERSION DOES NOT PRECLUDE ANY VOTER FROM PURCHASING STOCK. THE CONVERSION THE BOARD OF DIRECTORS HAS ADOPTED AND THE DIVISION HAS GIVEN APPROVAL TO THE PLAN OF CONVERSION SUBJECT TO ITS APPROVAL BY THE MEMBERS OF THE SAVINGS BANK ENTITLED TO VOTE ON THE MATTER AND SUBJECT TO THE SATISFACTION OF CERTAIN OTHER CONDITIONS IMPOSED BY THE DIVISION IN ITS APPROVAL. APPROVAL BY THE DIVISION DOES NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE PLAN OF CONVERSION BY THE DIVISION. CONSUMMATION OF THE CONVERSION IS CONTINGENT ALSO UPON RECEIPT OF THE APPROVALS OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM AND THE DIVISION FOR THE HOLDING COMPANY TO ACQUIRE THE SAVINGS BANK. CONSUMMATION OF THE CONVERSION IS ALSO CONTINGENT UPON RECEIPT FROM THE FDIC OF A FINAL NON- OBJECTION LETTER WITH RESPECT TO THE TRANSACTION. APPROVAL BY THE FEDERAL RESERVE SYSTEM AND THE NON-OBJECTION OF THE FDIC DO NOT CONSTITUTE RECOMMENDATIONS OR ENDORSEMENTS OF THE CONVERSION. GENERAL On July 10, 1997, the Board of Directors of the Savings Bank unanimously adopted and on September 11, 1997 and October 23, 1997, unanimously amended, the Plan of Conversion, pursuant to which the Savings Bank will be converted from a Washington-chartered mutual savings bank to a Washington-chartered stock savings bank to be held as a wholly-owned subsidiary of the Holding Company, a newly formed Washington corporation. THE FOLLOWING DISCUSSION OF THE PLAN OF CONVERSION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE PLAN OF CONVERSION, WHICH IS ATTACHED AS EXHIBIT A TO THE SAVINGS BANK'S PROXY STATEMENT AND IS AVAILABLE FROM THE SAVINGS BANK UPON REQUEST. By letter dated __________ __, 1997, the Division has approved the Plan of Conversion, subject to its approval by the members of the Savings Bank entitled to vote on the matter at a special meeting called for that purpose to be held on December 23, 1997, and subject to the satisfaction of certain other conditions imposed by the Division in its approval. Consummation of the Conversion is contingent also upon receipt of the approvals of the Federal Reserve and the Division for the Holding Company to acquire the Savings Bank. Finally, consummation of the Conversion is contingent upon receipt from the FDIC of a final non-objection letter with respect to the transaction. If the Board of Directors of the Savings Bank decides for any reason, such as possible delays resulting from overlapping regulatory processing or policies or conditions which could adversely affect the Savings Bank's or the Holding Company's ability to consummate the Conversion and transact its business as contemplated herein and in accordance with the Savings Bank's operating policies, at any time prior to the issuance of the Common Stock, not to use the holding company form of organization in implementing the Conversion, the Plan of Conversion will be amended to not use the holding company form of organization in the Conversion. In the event that such a decision is made, the Savings Bank will promptly refund all subscriptions or orders received together with accrued interest, withdraw the Holding Company's Registration Statement from the SEC and will take all steps necessary to complete the Conversion and proceed with a new offering without the Holding Company, including filing any necessary documents with the Division. In such event, and provided there is no regulatory action, directive or other 5 consideration upon which basis the Savings Bank determines not to complete the Conversion, the Savings Bank will issue and sell the common stock of the Savings Bank. There can be no assurance that the Division would approve the Conversion if the Savings Bank decided to proceed without the Holding Company. The following description of the Plan of Conversion assumes that a holding company form of organization will be utilized in the Conversion. In the event that a holding company form of organization is not utilized, all other pertinent terms of the Plan of Conversion as described below will apply to the Conversion of the Savings Bank from mutual to stock form of organization and the sale of the Savings Bank's common stock. The Conversion will be accomplished through adoption of Amended Articles of Incorporation and Bylaws to authorize the issuance of capital stock by the Savings Bank. Under the Plan of Conversion, 4,250,000 to 5,750,000 shares of Common Stock are being offered for sale by the Holding Company at the Purchase Price of $10.00 per share. As part of the Conversion, the Savings Bank will issue all of its newly issued common stock (1,000 shares) to the Holding Company in exchange for 50% of the net proceeds from the sale of Common Stock by the Holding Company. The Plan of Conversion provides generally that (i) the Savings Bank will convert from a Washington-chartered mutual savings bank to a Washington- chartered stock savings bank; (ii) the Common Stock will be offered by the Holding Company in the Subscription Offering to persons having Subscription Rights and in the Direct Community Offering to certain members of the general public, with preference given to natural persons and trusts of natural persons residing in the Local Community; (iii) if necessary, shares of Common Stock not subscribed for in the Subscription and Direct Community Offering will be offered to certain members of the general public in a Syndicated Community Offering through a syndicate of registered broker-dealers pursuant to selected dealers agreements; and (iv) the Holding Company will purchase all of the capital stock of the Savings Bank to be issued in connection with the Conversion. The Conversion will be effected only upon completion of the sale of at least $42.5 million of Common Stock to be issued pursuant to the Plan of Conversion. As part of the Conversion, the Holding Company is making a Subscription Offering of its Common Stock to holders of Subscription Rights in the following order of priority: (i) Eligible Account Holders (depositors with $50.00 or more on deposit as of December 31, 1995); (ii) the Savings Bank's ESOP; (iii) Supplemental Eligible Account Holders (depositors with $50.00 or more on deposit as of September 30, 1997); and (iv) Other Members (depositors and borrowers of the Savings Bank as of October 31, 1997). Concurrent with the Subscription Offering and subject to the prior rights of holders of Subscription Rights, the Holding Company is offering the Common Stock for sale to certain members of the general public through a Direct Community Offering. Shares of Common Stock not subscribed in the Subscription and Direct Community Offering may be offered for sale in the Syndicated Community Offering. Regulations require that the Syndicated Community Offering be completed within 45 days after completion of the Subscription Offering unless extended by the Savings Bank or the Holding Company with the approval of the regulatory authorities. If the Syndicated Community Offering is determined not to be feasible, the Board of Directors of the Savings Bank will consult with the regulatory authorities to determine an appropriate alternative method for selling the unsubscribed shares of Common Stock. The Plan of Conversion provides that the Conversion must be completed within 24 months after the date of the approval of the Plan of Conversion by the members of the Savings Bank. No sales of Common Stock may be completed, either in the Subscription, Direct Community or Syndicated Community Offerings, unless the Plan of Conversion is approved by the members of the Savings Bank. The completion of the Offerings, however, is subject to market conditions and other factors beyond the Savings Bank's control. No assurance can be given as to the length of time after approval of the Plan of Conversion at the special meeting that will be required to complete the Direct Community or the Syndicated Community Offerings or other sale of the Common Stock. If delays are experienced, significant changes may occur in the estimated pro forma market value of the Holding Company and the Savings Bank, as converted, together with corresponding changes in the net proceeds realized by the Holding Company from the sale of the Common Stock. 6 In the event the Conversion is terminated, the Savings Bank would be required to charge all Conversion expenses against current income. Orders for shares of Common Stock will not be filled until at least 4,250,000 shares of Common Stock have been subscribed for or sold and the Division approves and the FDIC does not object to the final valuation and the Conversion closes. If the Conversion is not completed by _________ __, 1998 (45 days after the last day of the Subscription Offering) and the Division consents to an extension of time to complete the Conversion, subscribers will be given the right to increase, decrease or rescind their subscriptions. Unless an affirmative indication is received from subscribers that they wish to continue to subscribe for shares, the funds will be returned promptly, together with accrued interest at the Savings Bank's passbook rate (3.00% per annum as of the date hereof) from the date payment is received until the funds are returned to the subscriber. If such period is not extended, or in any event, if the conversion is completed, all withdrawal authorizations will be terminated and all funds held will be promptly returned together with accrued interest at the Savings Bank's passbook rate from the date payment is received until the Conversion is terminated. PURPOSES OF CONVERSION The Board of Directors and management believe that the Conversion is in the best interests of the Savings Bank, its members and the communities it serves. The Savings Bank's Board of Directors has formed the Holding Company to serve as a holding company, with the Savings Bank as its subsidiary, upon the consummation of the Conversion. By converting to the stock form of organization, the Holding Company and the Savings Bank will be structured in the form used by holding companies of commercial banks and by a growing number of savings institutions. Management of the Savings Bank believes that the Conversion offers a number of advantages which will be important to the future growth and performance of the Savings Bank. The capital raised in the Conversion is intended to support the Savings Bank's current lending and investment activities and may also support possible future expansion and diversification of operations, although there are no current specific plans, arrangements or understandings, written or oral, regarding any such expansion or diversification. The Conversion is also expected to afford the Savings Bank's members and others the opportunity to become stockholders of the Holding Company and participate more directly in, and contribute to, any future growth of the Holding Company and the Savings Bank. The Conversion will also enable the Holding Company and the Savings Bank to raise additional capital in the public equity or debt markets should the need arise, although there are no current specific plans, arrangements or understandings, written or oral, regarding any such financing activities. EFFECTS OF CONVERSION TO STOCK FORM ON DEPOSITORS AND BORROWERS OF THE SAVINGS BANK GENERAL. Upon the Savings Bank's conversion to stock form, its Articles of Incorporation will be amended to authorize the issuance of capital stock to represent the ownership of the Savings Bank, including its net worth. THE CAPITAL STOCK WILL BE SEPARATE AND APART FROM DEPOSIT ACCOUNTS AND WILL NOT BE INSURED BY THE FDIC OR ANY OTHER GOVERNMENTAL AUTHORITY. Certificates will be issued to evidence ownership of the capital stock. All of the outstanding capital stock of the Savings Bank will be acquired by the Holding Company, which in turn will issue its Common Stock to purchasers in the Conversion. The stock certificates issued by the Holding Company will be transferable and, therefore, subject to applicable law, the stock could be sold or traded if a purchaser is available with no effect on any deposit account the seller may hold at the Savings Bank. VOTING RIGHTS. Savings members and borrowers will have no voting rights in the converted Savings Bank or the Holding Company and therefore will not be able to elect directors of the Savings Bank or the Holding Company or to control their affairs. Currently, these rights are accorded to savings members of the Savings Bank. Subsequent to the Conversion, voting rights will be vested exclusively in the Holding Company with respect to the Savings Bank and the holders of the Common Stock as to matters pertaining to the Holding Company. Each holder of Common Stock shall be entitled to vote on any matter to be considered by the stockholders of the Holding Company. A stockholder will be entitled to one vote for each share of Common Stock owned. 7 SAVINGS ACCOUNTS AND LOANS. The Savings Bank's savings accounts, account balances and existing FDIC insurance coverage of savings accounts will not be affected by the Conversion. Furthermore, the Conversion will not affect the loan accounts, loan balances or obligations of borrowers under their individual contractual arrangements with the Savings Bank. TAX EFFECTS. The Savings Bank has received an opinion from Breyer & Aguggia, Washington, D.C., that the Conversion will constitute a nontaxable reorganization under Section 368(a)(1)(F) of the Code. Among other things, the opinion states that: (i) no gain or loss will be recognized to the Savings Bank in its mutual or stock form by reason of its Conversion; (ii) no gain or loss will be recognized to its account holders upon the issuance to them of accounts in the Savings Bank immediately after the Conversion, in the same dollar amounts and on the same terms and conditions as their accounts at the Savings Bank in its mutual form plus interest in the liquidation account; (iii) the tax basis of account holders' accounts in the Savings Bank immediately after the Conversion will be the same as the tax basis of their accounts immediately prior to Conversion; (iv) the tax basis of each account holder's interest in the liquidation account will be zero; (v) the tax basis of the Common Stock purchased in the Conversion will be the amount paid and the holding period for such stock will commence at the date of purchase; and (vi) no gain or loss will be recognized to account holders upon the receipt or exercise of Subscription Rights in the Conversion, except to the extent Subscription Rights are deemed to have value as discussed below. Unlike a private letter ruling issued by the IRS, an opinion of counsel is not binding on the IRS and the IRS could disagree with the conclusions reached therein. In the event of such disagreement, no assurance can be given that the conclusions reached in an opinion of counsel would be sustained by a court if contested by the IRS. Based upon past rulings issued by the IRS, the opinion provides that the receipt of Subscription Rights by Eligible Account Holders, Supplemental Eligible Account Holders and Other Members under the Plan of Conversion will be taxable to the extent, if any, that the Subscription Rights are deemed to have a fair market value. RP Financial, a financial consulting firm retained by the Savings Bank, whose findings are not binding on the IRS, has indicated that the Subscription Rights do not have any value, based on the fact that such rights are acquired by the recipients without cost, are nontransferable 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 paid by purchasers in the Direct Community Offering for unsubscribed shares of Common Stock. If the Subscription Rights are deemed to have a fair market value, the receipt of such rights may only be taxable to those Eligible Account Holders, Supplemental Eligible Account Holders and Other Members who exercise their Subscription Rights. The Savings Bank could also recognize a gain on the distribution of such Subscription Rights. Eligible Account Holders, Supplemental Eligible Account Holders and Other Members are encouraged to consult with their own tax advisers as to the tax consequences in the event the Subscription Rights are deemed to have a fair market value. The Savings Bank has also received an opinion from Dwyer, Pemberton & Coulson, P.C., Tacoma, Washington, that, assuming the Conversion does not result in any federal income tax liability to the Savings Bank, its account holders, or the Holding Company, implementation of the Plan of Conversion will not result in any Washington income tax liability to such entities or persons. The opinions of Breyer & Aguggia and Dwyer, Pemberton & Coulson, P.C. and the letter from RP Financial are filed as exhibits to the Registration Statement. See "ADDITIONAL INFORMATION." PROSPECTIVE INVESTORS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS REGARDING THE TAX CONSEQUENCES OF THE CONVERSION PARTICULAR TO THEM. LIQUIDATION ACCOUNT. In the unlikely event of a complete liquidation of the Savings Bank in its present mutual form, each depositor in the Savings Bank would receive a pro rata share of any assets of the Savings Bank remaining after payment of claims of all creditors (including the claims of all depositors up to the withdrawal value of their accounts). Each depositor's pro rata share of such remaining assets would be in the same proportion as the value of his deposit account to the total value of all deposit accounts in the Savings Bank at the time of liquidation. 8 After the Conversion when the Savings Bank is in stock form, holders of withdrawable deposit(s) in the Savings Bank, including certificates of deposit ("Savings Account(s)"), shall not be entitled to share in any residual assets in the event of liquidation of the Savings Bank. However, the Savings Bank shall, at the time of the Conversion, establish a liquidation account in an amount equal to its total equity as of the date of the latest statement of financial condition contained herein. The liquidation account shall be a memorandum account on the records of the Savings Bank and there shall be no segregation of assets of the Savings Bank related to it. The liquidation account shall be maintained by the Savings Bank subsequent to the Conversion for the benefit of Eligible Account Holders and Supplemental Eligible Account Holders who retain their Savings Accounts in the Savings Bank. 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 balance ("subaccount"). The initial subaccount balance for a Savings Account held by an Eligible Account Holder 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 such holder's "qualifying deposit" in the Savings Account and the denominator is the total amount of the "qualifying deposits" of all such holders. Such initial subaccount balance shall not be increased, and it 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 at the close of business on any annual closing day of the Savings Bank subsequent to December 31, 1995 or September 30, 1997 is less than the lesser of (i) the deposit balance in such Savings Account at the close of business on any other annual closing date subsequent to December 31, 1995 or September 30, 1997 or (ii) the amount of the "qualifying deposit" in such Savings Account on December 31, 1995 or September 30, 1997, 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, such 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 Savings Bank (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 balance(s) for Savings Account(s) then held by such holder before any liquidation distribution may be made to stockholders. No merger, consolidation, bulk purchase of assets with assumptions of Savings Accounts and other liabilities or similar transactions with another federally insured institution in which the Savings Bank is not the surviving institution shall be considered to be a complete liquidation. In any such transaction the liquidation account shall be assumed by the surviving institution. In the unlikely event the Savings Bank is liquidated after the Conversion, depositors will be entitled to full payment of their deposit accounts before any payment is made to the Holding Company as the sole stockholder of the Savings Bank. ADDITIONAL INFORMATION The Holding Company has filed with the SEC a Registration Statement on Form S-1 (File No. 333-35817) under the Securities Act with respect to the Common Stock offered in the Conversion. 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; 500 West Madison Street, Suite 1400, Room 1100, Chicago, Illinois 60661; and 75 Park Place, New York, New York 10007. 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 Registration Statement is also available through the SEC's World Wide Web site on the Internet (www.sec.gov) 9 The Savings Bank has filed with the Division an Application to Convert a Mutual Savings Bank to a Stock Owned Savings Bank. The Application, which contains a copy of RP Financial's appraisal report, may be inspected at the office of the Division, Department of Financial Institutions, General Administration Building, 3rd Floor, Room 300, 210 11th Avenue, Olympia, Washington 98504. The Savings Bank has also filed a copy of such Application with the FDIC. Copies of the Plan of Conversion, which includes a copy of the Savings Bank's proposed Amended Articles of Incorporation and Stock Bylaws, and copies of the Holding Company's Articles of Incorporation and Bylaws are available for inspection at any of the Savings Bank's offices and may be obtained by writing to the Savings Bank at 624 Simpson Avenue, Hoquiam, Washington 98550; Attention: Clarence E. Hamre, Chief Executive Officer, or by telephoning the Savings Bank at (360) 533-4747. A copy of RP Financial's independent appraisal report is also available for inspection at any of the Savings Bank's offices. All persons eligible to vote at the Special Meeting should review both this Proxy Statement and the accompanying Prospectus carefully. However, no person is obligated to purchase any Common Stock. For additional information, you may call the Stock Information Center at (360) 537-6592. If you are out of the area, please call collect. BY ORDER OF THE BOARD OF DIRECTORS MICHAEL R. SAND SECRETARY Hoquiam, Washington _________ __, 1997 YOUR BOARD OF DIRECTORS URGES YOU TO CONSIDER CAREFULLY THE INFORMATION CONTAINED IN THIS PROXY STATEMENT 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. YOU MAY REVOKE YOUR PROXY BY WRITTEN INSTRUMENT DELIVERED TO THE SECRETARY OF THE SAVINGS BANK AT ANY TIME PRIOR TO OR AT THE SPECIAL MEETING OR BY ATTENDING THE SPECIAL MEETING AND VOTING IN PERSON. THIS PROXY STATEMENT IS NOT AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS IN THOSE JURISDICTIONS WHERE IT IS LAWFUL TO MAKE SUCH OFFER. 10 EXHIBIT A TIMBERLAND SAVINGS BANK, SSB HOQUIAM, WASHINGTON AMENDED PLAN OF CONVERSION FROM STATE MUTUAL SAVINGS BANK TO STATE STOCK SAVINGS BANK AND FORMATION OF A HOLDING COMPANY INTRODUCTION ------------ I. General ------- The Board of Trustees desires to attract new capital to the Savings Bank 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 by the Savings Bank. In addition, the Board of Trustees intends to implement stock option plans and other stock benefit plans as part of the Conversion in order to attract and retain qualified directors and officers. The Board of Trustees further desires to reorganize the Savings Bank as the wholly owned subsidiary of a holding company to enhance flexibility of operations, diversification of business opportunities and financial capability for business and regulatory purposes and to enable the Savings Bank to compete more effectively with other financial service organizations. Accordingly, on July 10, 1997, the Board of Trustees of Timberland Savings Bank, SSB ("Savings Bank"), after careful study and consideration, adopted, and on September 11, 1997 and October 23, 1997, subsequently amended, by unanimous vote this Plan of Conversion ("Plan"), which provides for the conversion of the Savings Bank from a state chartered mutual savings bank to a state chartered stock savings bank and the concurrent formation of a holding company for the Savings Bank ("Holding Company"). All capitalized terms contained in the Plan shall have the meanings ascribed to them in Section II hereof. Pursuant to the Plan, shares of Conversion Stock will be offered as part of the Conversion in a Subscription Offering pursuant to nontransferable Subscription Rights at a predetermined and uniform price first to the Savings Bank's Eligible Account Holders, second to the Tax-Qualified Employee Stock Benefit Plans, third to Supplemental Eligible Account Holders, and fourth to Other Members of the Savings Bank. Concurrently with the Subscription Offering, shares not subscribed for in the Subscription Offering will be offered as part of the Conversion to the general public in a Direct Community Offering. Shares remaining may then be offered to the general public in a Syndicated Community Offering, an underwritten public offering or otherwise. The aggregate Purchase Price of the Conversion Stock will be based upon an independent appraisal of the Savings Bank and will reflect the estimated pro forma market value of the Savings Bank as a subsidiary of the Holding Company. Consummation of the Conversion is subject to the approval of this Plan and the Conversion by the Division and by the affirmative vote of Members of the Savings Bank holding not less than a majority of the total votes eligible to be cast at a special meeting of the Members to be called to consider the Conversion. In addition, in order to consummate the Conversion, this Plan must be filed with and receive the non-objection of the FDIC in accordance with applicable FDIC regulations. No change will be made in the Board of Trustees or management of the Savings Bank as a result of the Conversion. A-1 II. Definitions ----------- As used in this Plan, the terms set forth below have the following meanings: A. Acting in Concert: (1) Knowing participation in a joint activity or ----------------- interdependent conscious parallel action towards a common goal whether or not pursuant to an express agreement; or (2) 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 who acts in concert with another Person ("other party") shall also be deemed 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. B. Application: The application submitted to the Division for approval ----------- of the Conversion. C. Associate: When used to indicate a relationship with any Person, --------- means (i) any corporation or organization (other than the Savings Bank or a majority-owned subsidiary of the Savings Bank, or the Holding Company) of which such Person is an officer or partner or is, directly or indirectly, the beneficial owner of ten percent 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 a Tax-Qualified Employee Stock Benefit Plan 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 or officer of the Savings Bank, any of its subsidiaries, or the Holding Company. D. Capital Stock: Any and all authorized capital stock in the Converted ------------- Savings Bank. E. Common Stock: Any and all authorized common stock in the Holding ------------ Company subsequent to the Conversion. F. Conversion: Collectively, (i) amendment of the Savings Bank's Charter ---------- and Bylaws to authorize issuance of shares of Capital Stock by the Converted Savings Bank and to conform to the requirements of a Washington-chartered stock savings bank under the laws of the State of Washington and regulations of the Division; (ii) issuance and sale of Conversion Stock by the Holding Company in the Subscription Offering, and Direct Community Offering (if any) and Syndicated Community Offering (if any); and (iii) purchase by the Holding Company of the Capital Stock of the Converted Savings Bank to be issued in the Conversion immediately following or concurrently with the close of the sale of all Conversion Stock. G. Conversion Stock: Holding Company common stock to be issued and sold ---------------- by the Holding Company pursuant to the Plan. H. Converted Savings Bank: Timberland Savings Bank, SSB, in its ---------------------- converted form as a state chartered capital stock savings bank. I. Direct Community Offering: The offering for sale of Conversion Stock ------------------------- to the public. J. Division: The Washington Department of Financial Institutions, -------- Division of Banks. K. Eligibility Record Date: December 31, 1995. ----------------------- L. Eligible Account Holder: Holder of a Qualifying Deposit in the ----------------------- Savings Bank on the Eligibility Record Date. A-2 M. FDIC: Federal Deposit Insurance Corporation. ---- N. Federal Reserve: The Board of Governors of the Federal Reserve --------------- System. O. FR Y-3 Application: The application submitted to the Federal Reserve ------------------ on FR Y-3 for approval of the Holding Company's acquisition of all of the Capital Stock of the Converted Savings Bank. P. Holding Company: A corporation to be formed by the Savings Bank under --------------- state law for the purpose of becoming a holding company through the issuance and sale of its stock under the Plan, and concurrent acquisition of 100% of the Capital Stock of the Converted Savings Bank to be issued pursuant to the Plan. Q. Holding Company Stock: Any and all authorized capital stock of the --------------------- Holding Company. R. Local Community: Grays Harbor, Thurston, Pierce and King Counties of --------------- the State of Washington, the counties in which the Savings Bank maintains an office(s). S. Market Maker: A dealer (i.e., any Person who engages 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) regularly publishes bona fide, competitive bid and offer quotations in a recognized inter-dealer quotation system or furnishes bona fide competitive bid and offer quotations on request and (ii) is ready, willing and able to effect transactions in reasonable quantities at his quoted prices with other brokers or dealers. T. Members: All Persons who are depositors and/or borrowers of the ------- Savings Bank prior to the Conversion. U. Notice: The Notice of Intent to Convert to Stock Form, including ------ amendments thereto, as filed by the Savings Bank with the FDIC pursuant to 12 C.F.R. Part 303. V. Officer: An executive officer of the Savings Bank, which includes the ------- Chairman of the Board, President, Executive Vice President, Senior Vice Presidents, Vice Presidents in charge of principal business functions, the Secretary and the Treasurer as well as any other person performing similar functions. W. Order Forms: Forms to be used to order Conversion Stock sent to ----------- Eligible Account Holders and other parties eligible to purchase Conversion Stock in the Subscription Offering pursuant to the Plan. X. Other Member: Holder of a Savings Account (other than Eligible ------------ Account Holders and Supplemental Eligible Account Holders) and borrowers from the Savings Bank as of the Record Date. Y. Person: An individual, a corporation, a partnership, an association, ------ a joint stock company, a trust, an unincorporated organization or a government or any political subdivision thereof. Z. Plan: This Plan of Conversion, which provides for the conversion of ---- the Savings Bank from a Washington-chartered mutual savings bank to a Washington-chartered capital stock savings bank as a wholly owned subsidiary of the Holding Company, as originally adopted by the Board of Trustees or as amended in accordance with the terms thereof. AA. Qualifying Deposit: The balance in any Savings Account as of the ------------------ Eligibility Record Date or the Supplemental Eligibility Record Date, as applicable; provided, however, that no Savings Account with a balance of less than $50 shall constitute a Qualifying Deposit. BB. RCW: Revised Code of Washington, as amended. --- A-3 CC. Record Date: Date which determines which Members are entitled to ----------- vote at the Special Meeting. DD. Registration Statement: The registration statement on Form S-1 or ---------------------- other applicable forms filed by the Holding Company with the SEC for the purpose of registering the Conversion Stock under the Securities Act of 1933, as amended. EE. Savings Account(s): Withdrawable deposit(s) in the Savings Bank, ------------------ including certificates of deposit, demand deposit accounts and non-interest- bearing deposit accounts. FF. Savings Bank: Timberland Savings Bank, SSB, in its present form as a ------------ state chartered mutual savings bank. GG. SEC: Securities and Exchange Commission. --- HH. Special Meeting: The special meeting of Members called for the --------------- purpose of considering the Plan for approval. II. Subscription Offering: The offering of Conversion Stock to Eligible --------------------- Account Holders, Tax-Qualified Employee Stock Benefit Plans, Supplemental Eligible Account Holders and Other Members under the Plan. JJ. Subscription Rights: 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. KK. Supplemental Eligibility Record Date: The last day of the calendar ------------------------------------ quarter preceding the approval of the Plan by the Division. LL. Supplemental Eligible Account Holder: Holder of a Qualifying Deposit ------------------------------------ in the Savings Bank (other than an Officer or director or their Associates) on the Supplemental Eligibility Record Date. MM. Syndicated Community Offering: The offering for sale by a syndicate ----------------------------- of broker-dealers to the general public of shares of Conversion Stock not purchased in the Subscription Offering and the Direct Community Offering. NN. Tax Qualified Employee Stock Benefit Plan: Any defined benefit plan or ----------------------------------------- defined contribution plan of the Savings Bank or Holding Company, such as an employee stock ownership plan, 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. A "non-tax-qualified employee stock benefit plan" is any defined benefit plan or defined contribution plan that is not so qualified. III. Steps Prior to Submission of the Plan to the Members for Approval ----------------------------------------------------------------- Prior to submission of the Plan to the Members for approval, the Savings Bank must receive approval from the Division of the Application and the FDIC must have issued a notice of non-objection to the proposed Conversion or the time period for FDIC review and objection shall have expired without objection by the FDIC. Prior to such regulatory approval: A. The Board of Trustees shall adopt the Plan by a vote of not less than two-thirds of its entire membership. B. The Savings Bank shall notify the Members of the adoption of the Plan by publishing legal notice in a newspaper having a general circulation in each community in which the Savings Bank maintains an office. A-4 C. A press release relating to the proposed Conversion may be submitted to the local media. D. Copies of the Plan as adopted by the Board of Trustees shall be made available for inspection at each office of the Savings Bank. E. The Savings Bank shall cause the Holding Company to be incorporated under state law and the Board of Trustees of the Holding Company shall concur in the Plan by at least a two-thirds vote. F. As soon as practicable following the adoption of this Plan, the Savings Bank shall file the Application with the Division and the Notice with the FDIC, and the Holding Company shall file the Registration Statement and the FR Y-3 Application. Upon filing the Application, the Savings Bank shall publish legal notice of the filing of the Application in a newspaper having a general circulation in each community in which the Savings Bank maintains an office and/or by mailing a letter to each of its Members, and shall publish such other notices of the Conversion as may be required in connection with the FR Y-3 Application and by the regulations and policies of the Federal Reserve. G. The Savings Bank 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 any gain or loss for Federal income tax purposes to the Savings Bank or its Eligible Account Holders, Supplemental Eligible Account Holders and Other Members. Receipt of a favorable opinion or ruling is a condition precedent to completion of the Conversion. IV. Meeting of Members ------------------ Upon receipt of approval of the Application by the Division and (i) receipt from the FDIC of a conditional intention to issue a notice of non-objection or (ii) expiration of the time period for FDIC review and objection without receipt of an objection by the FDIC, the Special Meeting shall be scheduled in accordance with the Savings Bank's Bylaws. Promptly after receipt of approval from the Division and at least 20 days but not more than 45 days prior to the Special Meeting, the Savings Bank shall distribute proxy solicitation materials to all Members and beneficial owners of accounts held in fiduciary capacities where the beneficial owners possess voting rights, as of the Record Date. The proxy solicitation materials shall include a copy of the proxy statement to be used in connection with such solicitation ("Proxy Statement") and other documents authorized for use by the regulatory authorities and may also include a copy of the Plan and/or a prospectus ("Prospectus") as provided in Paragraph V below. The Savings Bank shall 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 prepaid card on which to indicate whether he wishes to receive the Prospectus, if the Subscription Offering is not held concurrently with the proxy solicitation. At the Special Meeting, an affirmative vote of not less than a majority of the total outstanding votes of the Members is required for approval of the Plan. For purposes of voting at the Special Meeting, Members who are depositors of the Savings Bank shall be entitled to cast one vote for each $100, or fraction thereof, of the aggregate withdrawable value of all of the depositor's Savings Accounts as of the Record Date, Members who are borrowers shall be entitled to cast one vote, in addition to any votes they may also be entitled to cast as depositors, and no Member shall be entitled to cast more than 1,000 votes. Voting may be in person or by proxy. The Division shall be notified promptly of the actions of the Members. V. Summary Proxy Statement ----------------------- The Proxy Statement furnished to Members may be in summary form, provided that a statement is made in bold-face type that a more detailed description of the proposed transaction may be obtained by returning an enclosed postage prepaid card or other written communication requesting supplemental information. Without prior approval of the Division, the Special Meeting shall not be held less than 20 days after the last day on which the A-5 supplemental information statement is mailed to requesting Members. The supplemental information statement may be combined with the Prospectus if the Subscription Offering is commenced concurrently with or during 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 Direct Community Offering concurrently with or during the proxy solicitation of Members. The Holding Company may close the Subscription Offering 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 Savings Bank's proxy solicitation materials may require Eligible Account Holders, Supplemental Eligible Account Holders and Other Members to return to the Savings Bank by a reasonable certain date a postage prepaid card or other written communication requesting receipt of a Prospectus with respect to the Subscription Offering, provided that if the Prospectus is not mailed concurrently with the proxy solicitation materials, the Subscription Offering shall not be closed until the expiration of 30 days after the mailing of the proxy solicitation materials. If the Subscription Offering is not commenced within 45 days after the Special Meeting, the Savings Bank may transmit, not more than 30 days prior to the commencement of the Subscription Offering, to each Eligible Account Holder, Supplemental Eligible Account Holder and other eligible subscribers who had been furnished with proxy solicitation materials a notice which shall state that the Savings Bank is not required to furnish a Prospectus to them unless they return by a reasonable date certain a postage prepaid card or other written communication requesting the receipt of the Prospectus. Prior to commencement of the Subscription Offering, the Direct Community Offering and the Syndicated Community Offering, the Holding Company shall file the Registration Statement. The Holding Company shall not distribute the final Prospectus until the Registration Statement containing same has been declared effective by the SEC and the Prospectus has been declared effective by the Division. VII. Combined Subscription and Direct Community Offering --------------------------------------------------- Instead of a separate Subscription Offering, all Subscription Rights may be exercised by delivery of properly completed and executed Order Forms to the Savings Bank or selling group utilized in connection with the Direct Community Offering and the Syndicated Community Offering. If a separate Subscription Offering is not held, orders for Conversion Stock in the Direct Community Offering shall first be filled pursuant to the priorities and limitations stated in Paragraph IX.C., below. VIII. Consummation of the Conversion ------------------------------ After receipt of all orders for Conversion Stock, and concurrently with the execution thereof, the amendment of the Savings Bank's mutual Charter and Bylaws to authorize the issuance of shares of Capital Stock and to conform to the requirements of a Washington-chartered capital stock savings bank will be declared effective by the Division, the amended Charter and Bylaws approved by the Members will become effective. At such time, the Conversion Stock will be issued 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 Savings Bank will become a wholly owned subsidiary of the Holding Company. The Converted Savings Bank will issue to the Holding Company 1,000 shares of its common stock, representing all of the shares of Capital Stock to be issued by the Converted Savings Bank, and the Holding Company will make payment to the Converted Savings Bank of that portion of the aggregate net proceeds realized by the Holding Company from the sale of the Conversion Stock under the Plan as may be authorized or required by the Division. A-6 IX. Stock Offering -------------- A. Number of Shares ---------------- The number of shares of Conversion Stock to be offered pursuant to the Plan shall be determined initially by the Board of Trustees of the Savings Bank and the Board of Trustees of the Holding Company in conjunction with the determination of the Purchase Price (as that term is defined in Paragraph IX.B. below). The number of shares to be offered may be subsequently adjusted by the Board of Trustees prior to completion of the offering. B. Independent Evaluation and Purchase Price of Shares --------------------------------------------------- All shares of Conversion Stock sold in the Conversion, including shares sold in any Direct Community Offering, shall be sold at a uniform price per share, referred to herein as the "Purchase Price." The Purchase Price shall be determined by the Board of Trustees of the Savings Bank and the Board of Directors of the Holding Company 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 Savings Bank, as converted, at such time. The estimated pro forma market value of the Converted Savings Bank shall be determined for such purpose by an independent appraiser on the basis of such appropriate factors not inconsistent with the regulations of the Division. Immediately prior to the Subscription Offering, a subscription price range shall be established which shall vary from 15% above to 15% below the average of the minimum and maximum of the estimated price range. The maximum subscription price (i.e., the per share amount to be remitted when subscribing for shares of Conversion Stock) shall then be determined within the subscription price range by the Board of Trustees of the Savings Bank. The subscription price range and the number of shares to be offered may be revised after the completion of the Subscription Offering with Division approval without a resolicitation of proxies or Order Forms or both. C. Method of Offering Shares ------------------------- Subscription Rights shall be issued at no cost to Eligible Account Holders, Tax-Qualified Employee Stock Benefit Plans, Supplemental Eligible Account Holders and Other Members pursuant to priorities established by this Plan and the regulations of the Division. In order to effect the Conversion, all shares of Conversion Stock proposed to be issued in connection with the Conversion must be sold and, to the extent that shares are available, no subscriber shall be allowed to purchase less than 25 shares; provided, however, that if the purchase price is greater than $20 per share, the minimum number of shares which must be subscribed for shall be adjusted so that the aggregate actual purchase price required to be paid for such minimum number of shares does not exceed $500. The priorities established for the purchase of shares are as follows: 1. Category 1: Eligible Account Holders ------------------------------------- a. Each Eligible Account Holder shall receive, without payment, Subscription Rights entitling such Eligible Account Holder to purchase that number of shares of Conversion Stock which is equal to the greater of the maximum purchase limitation established for the Direct Community Offering, one-tenth of one percent of the total offering or 15 times the product (round ed 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. If the allocation made in this paragraph results in an oversubscription, shares of Conversion Stock shall be allocated among subscribing Eli gible 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 his total allocation equal to 100 shares of Conversion Stock or the total amount of his subscription, whichever is less. Any shares of Conversion Stock not so allocated shall be allocated among the subscribing Eligible Account A-7 Holders on an equitable basis, related to the amounts of their respective Qualifying Deposits as compared to the total Qualifying Deposits of all Eligible Account Holders. b. Subscription Rights received by Officers and directors of the Savings Bank and their Associates, as Eligible Account Holders, based on their increased deposits in the Savings Bank in the one-year period preceding the Eligibility Record Date shall be subordinated to all other subscriptions involving the exercise of Subscription Rights pursuant to this Category. 2. Category 2: Tax-Qualified Employee Stock Benefit Plans ------------------------------------------------------ a. Tax-Qualified Employee Stock Benefit Plans of the Savings Bank shall receive, without payment, non-transferable Subscription Rights to purchase in the aggregate up to 8% of the Conversion Stock. The Subscription Rights granted to Tax-Qualified Stock Benefit Plans of the Savings Bank shall be subject to the availability of shares of Conversion Stock after taking into account the shares of Conversion Stock purchased by Eligible Account Holders. Because the Subscription Rights granted to Tax-Qualified Employee Stock Benefit Plans of the Savings Bank are subordinate to the Subscription Rights granted to Eligible Account Holders, it is possible that the subscription order of Tax-Qualified Employee Stock Benefit Plans of the Savings Bank will not be filled as a result of an oversubscription by Eligible Account Holders. To the extent that Tax-Qualified Employee Stock Benefit Plans of the Savings Bank are unable to purchase in the aggregate up to 8% of the shares of Conversion Stock issued in the Conversion as a result of such an oversubscription, Tax-Qualified Employee Stock Benefit Plans of the Savings Bank may purchase shares in the open market following the consummation of the Conversion. Tax-Qualified Employee Stock Benefit Plans may use funds contributed or borrowed by the Holding Company or the Savings Bank and/or borrowed from an independent financial institution to exercise such Subscription Rights, and the Holding Company and the Savings Bank may make scheduled discretionary contributions thereto, provided that such contributions do not cause the Holding Company or the Savings Bank to fail to meet any applicable capital requirements. 3. Category 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 to the Application filed prior to the Division's approval, then, and only in that event, each Supplemental Eligible Account Holder shall receive, without payment, Subscription Rights entitling such Supplemental Eligible Account Holder to purchase that number of shares of Conversion Stock which is equal to the greater of the maximum purchase limitation established for the Direct Community Offering, one-tenth of one percent of the total offering or 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 Supplemental Eligible Account Holder and the denominator is the total amount of the Qualifying Deposits of all Supplemental Eligible Account Holders. A-8 b. Subscription Rights received pursuant to this category shall be subordinated to Subscription Rights granted to Eligible Account Holders and Tax-Qualified Employee Stock Benefit Plans. c. Any Subscription Rights to purchase shares of Conversion Stock received by an Eligible Account Holder in accordance with Category Number 1 shall reduce to the extent thereof the Subscription Rights to be distributed 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 as follows: (1) Shares of Conversion Stock shall be allocated 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 his total allocation (including the number of shares of Conversion Stock, if any, allocated in accordance with Category Number 1) equal to 100 shares of Conversion Stock or the total amount of his subscription, whichever is less. (2) Any shares of Conversion Stock not allocated in accordance with subparagraph (1) above 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 Supplemental Eligible Account Holders. 4. Category 4: Other Members -------------------------- a. Other Members shall receive Subscription Rights to purchase shares of Conversion Stock, after satisfying the subscriptions of Eligible Account Holders, Tax-Qualified Employee Stock Benefit Plans and Supplemental Eligible Account Holders pursuant to Category Nos. l, 2 and 3 above, subject to the following conditions: (1) Each such Other Member shall be entitled to subscribe for the greater of the maximum purchase limitation established for the Direct Community Offering or one-tenth of one percent of the total offering. (2) In the event of an oversubscription for shares of Conversion Stock pursuant to Category No. 4, the shares of Conversion Stock available shall be allocated among the subscribing Other Members pro rata on the basis of the amounts of their respective subscriptions. D. Direct Community Offering and Syndicated Community Offering ----------------------------------------------------------- 1. Any shares of Conversion Stock not purchased through the exercise of Subscription Rights set forth in Category Nos. 1 through 4 above may be sold by the Holding Company to Persons under such terms and conditions as may be established by the Savings Bank's Board of Trustees with the concurrence of the Division. The Direct Community Offering may commence concurrently with or as soon as possible after the completion of the Subscription Offering and must be completed within 45 days after completion of the Subscription Offering, unless extended with the approval of the Division. No Person may purchase in the Direct Community Offering shares of Conversion Stock with an aggregate purchase price that exceeds $200,000. The right to purchase shares of Conversion Stock under this Category is subject to the right of the Savings Bank or the Holding Company to accept or reject such subscriptions in whole or in part. In A-9 the event of an oversubscription for shares in this Category, the shares available shall be allocated among prospective purchasers pro rata on the basis of the amounts of their respective orders. The offering price for which such shares are sold to the general public in the Direct Community Offering shall be the Purchase Price. 2. Orders received in the Direct Community Offering first 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. 3. The Conversion Stock offered in the Direct Community Offering shall be offered and sold in a manner that will achieve the widest distribution thereof. Preference shall be given in the Direct Community Offering to natural Persons and trusts of natural Persons residing in the Local Community and then to natural Persons and trusts of natural Persons residing in the counties contiguous to the Local Community. 4. Subject to such terms, conditions and procedures as may be determined by the Savings Bank and the Holding Company, all shares of Conversion Stock not subscribed for in the Subscription Offering or ordered in the Direct Community Offering may be sold by a syndicate of broker- dealers to the general public in a Syndicated Community Offering. Each order for Conversion Stock in the Syndicated Community Offering shall be subject to the absolute right of the Savings Bank and the Holding Company to accept or reject any such order in whole or in part either at the time of receipt of an order or as soon as practicable after completion of the Syndicated Community Offering. No Person may purchase in the Syndicated Community Offering shares of Conversion Stock with an aggregate purchase price that exceeds $200,000. The Savings Bank and the Holding Company may commence the Syndicated Community Offering concurrently with, at any time during, or as soon as practicable after the end of the Subscription Offering and/or Direct Community Offering, provided that the Syndicated Community Offering must be completed within 45 days after the completion of the Subscription Offering, unless extended by the Savings Bank and the Holding Company with the approval of the Division. 5. If for any reason a Syndicated Community Offering of shares of Conversion Stock not sold in the Subscription Offering and the Direct Community Offering cannot be effected, or in the event that any insignificant residue of shares of Conversion Stock is not sold in the Subscription Offering, Direct Community Offering or Syndicated Community Offering, the Savings Bank and the Holding Company shall use their best efforts to obtain other purchasers for such shares in such manner and upon such conditions as may be satisfactory to the Division. 6. In the event a Direct Community Offering or Syndicated Community Offering appears not feasible, the Savings Bank will immediately consult with the Division to determine the most viable alternative available to effect the completion of the Conversion. Should no viable alternative exist, the Savings Bank may terminate the Conversion with the concurrence of the Division. E. Limitations Upon Purchases -------------------------- The following additional limitations and exceptions shall be imposed upon purchases of shares of Conversion Stock: 1. Purchases of shares of Conversion Stock in the Conversion, including purchases in the Direct Community Offering by any Person, and Associates thereof, or a group of Persons Acting in Concert, shall not exceed 1% of the shares of Conversion Stock issued in the Conversion (exclusive of any shares issued pursuant to an increase in the range of minimum and maximum aggregate values within which the aggregate amount of Conversion Stock issued in the Conversion will fall), except that Tax- Qualified Employee Stock Benefit Plans may purchase up to 8% of the total Conversion Stock issued and shares held A-10 or to be held by the Tax-Qualified Employee Stock Benefit Plans and attributable to a Person shall not be aggregated with other shares purchased directly by or otherwise attributable to such Person. 2. Officers and directors and Associates thereof may not purchase in the aggregate more than 31% of the shares issued in the Conversion. 3. The Savings Bank's Board of Trustees and Holding Company's Board of Directors will not be deemed to be Associates or a group of Persons Acting in Concert with other directors or trustees solely as a result of membership on the Savings Bank's Board of Trustees and Holding Company's Board of Directors. 4. The Savings Bank's Board of Trustees, with the approval of the Division and without further approval of Members, may, as a result of market conditions and other factors, increase or decrease the purchase limitation in paragraphs 1 and 4 above or the number of shares of Conversion Stock to be sold in the Conversion. If the Savings Bank or the Holding Company, as the case may be, increases the maximum purchase limitations or the number of shares of Conversion Stock to be sold in the Conversion, the Savings Bank or the Holding Company, as the case may be, is only required to resolicit Persons who subscribed for the maximum purchase amount and may, in the sole discretion of the Savings Bank or the Holding Company, as the case may be, resolicit certain other large subscribers. If the Savings Bank or the Holding Company, as the case may be, decreases the maximum purchase limitations or the number of shares of Conversion Stock to be sold in the Conversion, the orders of any Person who subscribed for the maximum purchase amount 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 from such Person 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 Persons. This right of the Holding Company to purchase such excess shares shall be assignable by the Holding Company. F. Restrictions On and Other Characteristics of the Conversion Stock ----------------------------------------------------------------- 1. Transferability. Conversion Stock purchased by Officers and --------------- trustees of the Savings Bank and officers and directors of the Holding Company shall not be sold or otherwise disposed of for value for a period of one year from the date of Conversion, except for any disposition (i) following the death of the original purchaser or (ii) resulting from an exchange of securities in a merger or acquisition approved by the regulatory authorities having jurisdiction. The Conversion Stock issued by the Holding Company to such Officers, trustees and directors shall bear a legend giving appropriate notice of the one-year holding period restriction. Said legend shall state as follows: "The shares evidenced by this certificate are restricted as to transfer for a period of one year from the date of this certificate pursuant to the laws of the State of Washington. These shares may not be transferred prior thereto without a legal opinion of counsel that said transfer is permissible under the provisions of applicable laws and regulations." A-11 In addition, the Holding Company shall give appropriate instructions to the transfer agent of the Holding Company Stock with respect to the foregoing restrictions. 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 Persons as may be then applicable to such restricted stock. 2. Subsequent Purchases by Officers and Directors. Without prior ---------------------------------------------- approval of the Division, if applicable, Officers and directors of the converted Savings Bank 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 and/or the Secretary of State of the State of Washington. Notwithstanding this restriction, purchases involving more than 1% of the total outstanding shares of Holding Company Stock and purchases made and shares held by a Tax-Qualified or non-Tax-Qualified Employee Stock Benefit Plan which may be attributable to such directors and officers may be made in negotiated transactions without the Division's permission or the use of a broker or dealer. 3. Repurchase and Dividend Rights. The Holding Company may ------------------------------ repurchase Holding Company Stock subject to applicable laws and regulations. The Converted Savings Bank may not declare or pay a cash dividend on the Capital Stock if the result thereof would be to reduce the regulatory capital of the Converted Savings Bank below (i) the amount required for the Liquidation Account or (ii) the amount required by the Division. For a period of ten years after the consummation of the Conversion, the Converted Savings Bank may not, without the prior approval of the Division, declare or pay a cash dividend on the Capital Stock in an amount in excess of one-half of the greater of (i) the Converted Savings Bank's net income for the then current fiscal year or (ii) the average of the Converted Savings Bank's net income for the then current fiscal year and not more than two of the immediately preceding fiscal years. For such purposes, "net income" shall be determined by generally accepted accounting principles. Any dividend declared or paid on, or repurchase of, the Capital Stock shall be in compliance with the rules and regulations of the Division, or other applicable regulations. The above limitations shall not preclude payment of dividends on, or repurchases of, Capital Stock in the event applicable regulatory limitations are liberalized subsequent to the Conversion. 4. Voting Rights. After the Conversion, 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. G. 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 (i) approval of the Plan by the Division, (ii) the receipt of a notice of non-objection from the FDIC with respect to the Notice or expiration of the time period for FDIC review and objection without receipt of an objection from the FDIC and (iii) the declaration of the effectiveness of the Prospectus, the Holding Company shall distribute Prospectuses and Order Forms for the purchase of shares of Conversion Stock in accordance with the terms of the Plan. The recipient of an Order Form shall be provided not less than 20 days nor more than 45 days from the date of mailing, unless extended, properly to complete, execute and return the Order Form to the Holding Company or the Savings Bank. Self-addressed, postage prepaid, return envelopes shall accompany all Order Forms when they are mailed. Failure of any eligible subscriber to return a properly completed and executed Order Form within the A-12 prescribed time limits shall be deemed a waiver and a release by such eligible subscriber of any rights to purchase shares of Conversion Stock under the Plan. The sale of all shares of Conversion Stock proposed to be issued in connection with the Conversion 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 Division. H. Method of Payment ----------------- Payment for all shares of Conversion Stock may be made in cash, by check or by money order, or if a subscriber has a Savings Account in the Savings Bank such subscriber may authorize the Savings Bank to charge the subscriber's Savings Account. The Holding Company 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 Offering from the date payment is received until the Conversion is completed or terminated. The Savings Bank is not permitted knowingly to loan funds or otherwise extend any credit to any Person for the purpose of purchasing Conversion Stock. If a subscriber authorizes the Savings Bank to charge the subscriber's Savings Account, the funds shall remain in the subscriber's Savings Account and shall continue to earn interest, but may not be used by such subscriber until the Conversion is completed or terminated, whichever is earlier. The withdrawal shall be given effect only concurrently with the sale of all shares of Conversion Stock proposed to be sold in the Conversion and only to the extent necessary to satisfy the subscription at a price equal to the Purchase Price. The Savings Bank shall allow subscribers to purchase shares of Conversion Stock by withdrawing funds from certificate accounts held with the Savings Bank without the assessment of early withdrawal penalties, subject to the approval, if necessary, of the applicable regulatory authorities. In the case of early withdrawal of only a portion of such account, the certificate evidencing such account shall be canceled if the remaining balance of the account is less than the applicable minimum balance requirement. In that event, the remaining balance shall 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 Form, along with evidence of a loan commitment from a financial institution for the purchase of shares, if applicable, during the Subscription Offering and by making payment for the shares on the date of the closing of the Conversion. I. Undelivered, Defective or Late Order Forms; Insufficient Payment ---------------------------------------------------------------- If an Order Form (i) is not delivered and is returned to the Holding Company or the Savings Bank by the United States Postal Service (or the Holding Company or Savings Bank is unable to locate the addressee); (ii) is not returned to the Holding Company or Savings Bank, or is returned to the Holding Company or Savings Bank after expiration 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 shall not be honored and shall be treated as though such Person failed to return the completed Order Form within the time period specified therein. Alternatively, the Holding Company or Savings Bank may, but shall 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 the shares of Conversion Stock subscribed for by such date as the Holding Company or Savings Bank may specify. Subscription orders, once tendered, shall not be revocable. The Holding Company's and Savings Bank's interpretation of the terms and conditions of the Plan and of the Order Forms shall be final. A-13 J. Members in Non-Qualified States or in Foreign Countries ------------------------------------------------------- The Holding Company shall make reasonable efforts to comply with the securities laws of all states of the United States in which Persons entitled to subscribe for shares of Conversion Stock pursuant to the Plan reside. However, no such Person shall be offered or receive any such shares under the Plan who resides in a foreign country or who resides in a state of the United States with respect to which any of the following apply: (a) a small number of Persons otherwise eligible to subscribe for shares of Conversion Stock reside in such state; (b) the granting of Subscription Rights or offer or sale of shares of Conversion Stock to such Persons would require the Holding Company to register, under the securities laws of such state, as a broker or dealer or to register or otherwise qualify its securities for sale in such state; or (c) such registration or qualification would be impractical for reasons of cost or otherwise. X. Articles of Incorporation and Bylaws ------------------------------------ As part of the Conversion, Articles of Incorporation and Bylaws for the Converted Savings Bank will be adopted to authorize the Converted Savings Bank to operate as a Washington-chartered capital stock savings bank. By approving the Plan, the Members shall thereby approve such Articles of Incorporation and Bylaws. Prior to completion of the Conversion, the proposed Articles of Incorporation and Bylaws may be amended in accordance with the provisions and limitations for amending the Plan under Paragraph XVII below. The effective date of the adoption of the Articles of Incorporation and Bylaws shall be the date of the issuance of the Conversion Stock, which shall be the date of consummation of the Conversion. XI. Post Conversion Filing and Market Making ---------------------------------------- In connection with the Conversion, the Holding Company shall register the Conversion Stock with the SEC pursuant to the Securities Exchange Act of 1934, as amended, and shall undertake not to deregister such Conversion 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 shares of its stock. The Holding Company shall also use its best efforts to list its stock through The Nasdaq Stock Market or on a national or regional securities exchange. XII. Status of Savings Accounts and Loans Subsequent to Conversion ------------------------------------------------------------- All Savings Accounts shall retain the same status after Conversion as these accounts had prior to Conversion. Each Savings Account holder shall retain, without payment, a withdrawable Savings Account or accounts after the Conversion, equal in amount to the withdrawable value of such holder's Savings Account or accounts prior to Conversion. All Savings Accounts will continue to be insured by the Savings Association Insurance Fund of the FDIC up to the applicable limits of insurance coverage. All loans shall retain the same status after the Conversion as they had prior to the Conversion. See Paragraph IX.F.4. with respect to the termination of voting rights of Members. XIII. Liquidation Account ------------------- After the Conversion, holders of Savings Accounts shall not be entitled to share in any residual assets in the event of liquidation of the Converted Savings Bank. However, the Savings Bank shall, at the time of the Conversion, establish a liquidation account in an amount equal to its total net worth as of the date of the latest statement of financial condition contained in the final Prospectus. The function of the liquidation account shall be to establish a priority on liquidation and, except as provided in Paragraph IX.F.3 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 Savings Bank. A-14 The liquidation account shall be maintained by the Converted Savings Bank subsequent to the Conversion for the benefit of Eligible Account Holders and Supplemental Eligible Account Holders who retain their Savings Accounts in the Converted Savings Bank. 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 balance ("subaccount"). 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 such holder's Qualifying Deposit in the Savings Account and the denominator is the total amount of the Qualifying Deposits of all Eligible Account Holders and Supplemental Eligible Account Holders. Such initial subaccount balance shall not be increased, and it 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 at the close of business on any annual closing date subsequent to the Eligibility Record Date is less than the lesser of (i) the deposit balance in such Savings Account at the close of business on any other annual closing date subsequent to the Eligibility Record Date or the 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, such 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 Savings Bank, 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 balance(s) for Savings Account(s) then held by such holder before any liquidation distribution may be made to stockholders. No merger, consolidation, bulk purchase of assets with assumptions of Savings Accounts and other liabilities or similar transactions with another Federally-insured institution in which the Converted Savings Bank is not the surviving institution shall be considered to be a complete liquidation. In any such transaction, the liquidation account shall be assumed by the surviving institution. XIV. Restrictions on Acquisition of Stock of the Holding Company ----------------------------------------------------------- A. As soon as practicable following Conversion, the Converted Savings Bank shall enter into an agreement with the Division which will provide that for a period of three years following the date of Conversion, any company significantly engaged in an unrelated business activity (either directly or through an affiliate thereof) shall not be permitted to acquire control of the Converted Savings Bank. Any acquisition of the Converted Savings Bank shall also comply with RCW 32.32.228. B. Definitions (for purposes of this section only): 1. The term "affiliate" means any person or company which controls, is controlled by, or is under common control with, a specified company. 2. A person or company shall be deemed to have "control" of: (i) A savings bank if the person directly or indirectly or acting in concert with one or more other persons or through one or more subsidiaries, owns, controls, or holds with power to vote, or holds proxies representing, more than twenty-five percent of the voting shares of the savings bank, or controls in any manner the election of a majority of the directors of the bank; A-15 (ii) Any other company if the person directly or indirectly or acting in concert with one or more other persons, or through one or more subsidiaries, owns, controls, or holds with power to vote, or holds proxies representing, more than twenty-five percent of the voting shares or rights of the other company, or controls in any manner the election or appointment of a majority of the directors or trustees of the other company, or is a general partner in or has contributed more than twenty-five percent of the capital of the other company; (iii) A trust if the person is a trustee thereof; or (iv) A savings bank or any other company if the Division determines, after reasonable notice and opportunity for hearing, that the person directly or indirectly exercise a controlling influence over the management or policies of the savings bank or other company. 3. A company shall be deemed to be "significantly engaged" in an unrelated business activity of its unrelated business activity represents on either an actual or a pro forma basis more than fifteen percent of its consolidated net worth at the close of its preceding fiscal year or of its consolidated net earnings for such fiscal year. 4. The term "unrelated business activity" means any business activity not authorized for a savings bank or any subsidiary thereof. C. In addition, for a period of three years following completion of the Conversion, no Person may make directly, or indirectly, any offer to acquire or actually acquire Capital Stock of the Converted Savings Bank if, after consummation of such acquisition, such person would be the beneficial owner of more than ten percent of the Converted Savings Bank's Capital Stock, without the prior approval of the Division. However, approval is not required for purchases directly from the Savings Bank or the underwriters or selling group acting on its behalf with a view towards public resale, or for purchases not exceeding one percent per annum of the shares outstanding. Civil penalties may be imposed by the Division for willful violation or assistance of any violation. D. The Holding Company may provide in its articles of incorporation a provision that, for a specified period of up to 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 equity security of the Holding Company. Such provisions would not apply to acquisition of securities by Tax-Qualified Employee Stock Benefit Plans provided that such plans do not have beneficial ownership of more than 25% of any class of equity security of the Holding Company. The Holding Company may provide in its articles of incorporation for such other provisions affecting the acquisition of its stock as shall be determined by its Board of Directors. XV. Directors and Officers of the Converted Savings Bank ---------------------------------------------------- The Conversion is not intended to result in any change in the trustees or Officers. Each Person serving as a trustee of the Savings Bank at the time of Conversion shall continue to serve as a member of the Converted Savings Bank's Board of Directors, subject to the Converted Savings Bank's charter and bylaws. The Persons serving as Officers immediately prior to the Conversion will continue to serve at the discretion of the Board of Directors in their respective capacities as Officers of the Converted Savings Bank. In connection with the Conversion, the Savings Bank and the Holding Company may enter into employment agreements on such terms and with such officers as shall be determined by the Boards of Directors of the Savings Bank and the Holding Company. XVI. Executive Compensation ---------------------- The Savings Bank and the Holding Company may adopt, subject to any required approvals, executive compensation or other benefit programs, including but not limited to compensation plans involving stock options, stock appreciation rights, restricted stock grants, employee recognition programs and the like. A-16 XVII. Amendment or Termination of Plan -------------------------------- If necessary or desirable, the Plan may be amended by a two-thirds vote of the Savings Bank's Board of Trustees, at any time prior to submission of the Plan and proxy materials to the Members. At any time 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 Trustees only with the concurrence of the Division. The Plan may be terminated by a two-thirds vote of the Board of Trustees at any time prior to the Special Meeting, and at any time following such Special Meeting with the concurrence of the Division. In its discretion, the Board of Trustees may modify or terminate the Plan upon the order of the regulatory authorities without a resolicitation of proxies or another meeting of the Members. In the event that mandatory new regulations pertaining to conversions are adopted by the Division prior to the completion of the Conversion, the Plan shall be amended to conform to the new mandatory regulations without a resolicitation of proxies or another meeting of Members. In the event that new conversion regulations adopted by the Division 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 Trustees without a resolicitation of proxies or another meeting of Members. By adoption of the Plan, the Members authorize the Board of Trustees to amend and/or terminate the Plan under the circumstances set forth above. XVIII. Expenses of the Conversion -------------------------- The Holding Company and the Savings Bank shall use their best efforts to assure that expenses incurred in connection with the Conversion shall be reasonable. XIX. Contributions to Tax-Qualified Plans ------------------------------------ The Holding Company and/or the Converted Savings Bank may make discretionary contributions to the Tax-Qualified Employee Stock Benefit Plans, provided such contributions do not cause the Converted Savings Bank to fail to meet its regulatory capital requirements. * * * A-17 EXHIBIT B AMENDED ARTICLES OF INCORPORATION OF TIMBERLAND SAVINGS BANK, SSB The following shall constitute the Amended Articles of Incorporation of Timberland Savings Bank, SSB, a stock savings bank as defined under Title 32 of the Revised Code of Washington (hereinafter the "RCW"). ARTICLE I NAME The name of the savings bank is Timberland Savings Bank, SSB (hereinafter the "savings bank"). ARTICLE II OFFICE The principal office of the savings bank shall be located at 624 Simpson Avenue, in the City of Hoquiam and the County of Grays Harbor, State of Washington. ARTICLE III DURATION The duration of the savings bank is perpetual. ARTICLE IV PURPOSE AND POWERS The nature of the business and the objects and purposes to be transacted, promoted or carried on by the savings bank are to engage in any lawful act of business for which savings banks may be organized under the laws of the State of Washington as now in existence or as such laws may hereafter be amended, or as may be preempted by Federal law. ARTICLE V CAPITAL STOCK The total number of shares of all classes of capital stock which the savings bank has authority to issue is 10,000, of which 1,000 shall be common stock of par value of $1.00 per share, and of which 9,000 shall be preferred stock. The shares may be issued from time to time as authorized by the Board of Directors without further approval of the stockholders, except 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 per share. Neither promissory notes nor future services shall constitute payment or part payment for the issuance of shares of the savings bank. The consideration for the shares shall be cash, tangible or intangible property, labor, or services actually performed for the savings bank, 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 savings bank, shall be conclusive. Upon payment of such consideration such shares shall be deemed to be fully paid and nonassessable. Upon authorization by its Board of Directors, the savings bank may issue its own shares in exchange for or in conversion of its outstanding shares or distribute its own shares, pro rata to its shareholders or the shareholders of one or more classes or series, to effectuate stock dividends or splits, and any such transaction shall not require consideration. Nothing contained in this Article V 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, with no cumulative voting in the election of directors. A description of the different classes and series (if any) of the savings bank's capital stock and a statement of the designations, and the relative rights, preferences and limitations of the shares of each class and series (if any) of capital stock are as follows: A. Common Stock. Except as provided in this Article V, 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. 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 savings bank, 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 savings bank available for distribution remaining after: (i) payment or provision for payment of the savings bank's debts and liabilities; (ii) distributions or provision for distributions in settlement of its liquidation account; and (iii) distributions or provision 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 savings bank. 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 Board of Directors of the savings bank 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 voting powers, designations, preferences and relative, participating, optional or other special rights of the shares of each such series and the qualifications, limitations and restrictions thereof, including, but not limited to, determination of any of the following: (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 or dates, the payment date or dates for dividends, and the participating or other special rights, if any, with respect to dividends; (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 or prices at which, and the terms and conditions on which, such shares may be redeemed; (e) 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 savings bank; (f) Whether the shares or 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 or prices at which such shares may be redeemed or purchased through the application of such fund; B-2 (g) Whether the shares of such series shall be convertible into, or exchangeable for, shares of any other class or classes or of any other series of the same or any other class or classes of stock of the savings bank, and, if so convertible or exchangeable, the conversion prices 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; (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 preferred stock shall have the same relative rights as and be identical in all respects with all other shares of the same series. ARTICLE VI PREEMPTIVE RIGHTS Holders of the capital stock of the savings bank shall not be entitled to preemptive rights with respect to any shares of the savings bank which may be issued. ARTICLE VII CERTAIN PROVISIONS APPLICABLE FOR FIVE YEARS Notwithstanding anything contained in the savings bank's article of incorporation or bylaws to the contrary, for a period of five years from the effective date of these Articles of Incorporation, the following provisions shall apply: A. Beneficial Ownership Limitation. No person, other than Timberland ------------------------------- Bancorp, Inc., the holding company for the savings bank, shall directly or indirectly offer to acquire or acquire the beneficial ownership of more than 10% of any class of an equity security of the savings bank. This limitation shall not apply to a transaction in which the savings bank forms a savings and loan holding company or a bank 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 or the purchase of shares by underwriters in connection with a public offering, or to the shares held by such holding company in excess of 10% of any class of any equity security of the savings bank. In the event shares are acquired in violation of this Article VII, all shares beneficially owned by any person in excess of 10% 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. The terms "person" and "affiliate" shall have the meaning defined in Sections 32.32.435 and 32.32.025, respectively, of the RCW as now or hereafter in effect. B. Call for Special Meetings. Special meetings of stockholders relating ------------------------- to changes in control of the savings bank or amendments to its charter shall be called only upon direction of the Board of Directors. ARTICLE VIII DIRECTORS The savings bank shall be under the direction of a Board of Directors. The number of directors shall be as stated in the savings bank's Bylaws, but in no event shall be fewer than five. B-3 ARTICLE IX DIRECTORS The name, occupation and residential addresses of each persons who shall serve as the Board of Directors of the savings bank are as follows:
NAME OCCUPATION ADDRESS - ------------------- ----------------------------- ------------------------------------------------ Clarence E. Hamre President and Chief Executive 90 Westview Drive, Hoquiam, WA 98550 Officer of Savings Bank Michael R. Sand Executive Vice President, 128 Beacon Hill Drive, Hoquiam, WA 98550 and Secretary of Savings Bank Andrea M. Clinton Interior Designer 4520 Green Cove Ct., N.W., Olympia, WA 98502 Robert Backstrom Retired owner of insurance 608 W. McBryde, Montesano, WA 98563 and real estate company Richard R. Morris Owner of retail grocery 447 Dolphin Avenue, N.E., Ocean Shores, WA 95869 Alan E. Smith Former owner of 100 Gale Street, Hoquiam, WA 98550 retail pharmacy Peter J. Majar Retired general manager of 540 Bel Aire, Aberdeen, WA 98520 plywood manufacturer Jon C. Parker Attorney 320 Prospect Avenue, Hoquiam, WA 98550 James C. Mason Owner of a timber company 1300 Robert Gray Blvd., Aberdeen, WA 98520
ARTICLE X REMOVAL OF DIRECTORS Notwithstanding any other provisions of these Articles of Incorporation or the savings bank's Bylaws (and notwithstanding the fact that some lesser percentage may be specified by law, these articles and certificate of incorporation or the savings bank's Bylaws), any director or the entire Board of Directors may be removed at any time, but only by the affirmative vote of the holders of a majority of the total votes eligible to be cast at a legal meeting called expressly for such purpose. ARTICLE XI REGISTERED OFFICE AND AGENT The registered office of the savings bank shall be located at 624 Simpson Avenue, Hoquiam, Washington. The registered agent of the savings bank at such address shall be Clarence E. Hamre. ARTICLE XII INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES Any person against whom any action is brought or threatened by reason of the fact that such person is or was a director, officer or employee of this savings bank shall be indemnified by the savings bank to the fullest extent authorized by Washington law, as the same exists or may hereafter be amended (but, in the case of any such B-4 amendment, only to the extent that such amendment permits the savings bank to provide broader indemnification rights than permitted prior thereto), for any amount for which such person becomes liable by reason of any judgment in such action; reasonable costs and expenses, including reasonable attorney's fees, actually paid or incurred by such person in connection with proceedings related to the defense or settlement of such action, and reasonable costs and expenses, including reasonable attorney's fees, actually paid or incurred in any action to enforce his rights under this Article XII that results in a final judgment in favor of such person. However, even if the proceedings do not result in a final judgment on the merits in favor of the director, officer or employee, the Board of Directors may make the indemnification provided in the preceding sentence, provided that a majority of disinterested directors determine that such director or officer was acting in good faith within the scope of his employment or authority as he could reasonable have perceived it under the circumstances and for purposes he could reasonable have believed under the circumstances were in the best interests of this savings bank or its stockholders. If a majority of the directors concludes that, in connection with an action, any person ultimately may become entitled to indemnification under this Article XII, the directors may authorize payment of reasonable costs and expenses, including reasonable attorney's fees, arising from the defense or settlement of such action; provided, however, that before making advance payment of expenses under this Article XII, the savings bank shall obtain an agreement that the savings bank will be repaid if the person on whose behalf payment is made is later determined not to be entitled to such indemnification. The Board of Directors may authorize the obtaining of insurance to protect against such losses. ARTICLE XIII LIMITATION OF DIRECTORS' LIABILITY Effective July 1, 1990 and to the fullest extent permitted by Washington law, as it now exists or may hereafter be amended, a director of this savings bank shall not be personally liable to the savings bank or its stockholders for monetary damages for conduct as a director, except for liability of the director for acts or omissions that involve: (i) intentional misconduct by the director; (ii) a knowing violation of law by the director; (iii) conduct violating Section 23B.08.310 of the RCW regarding unlawful distributions; or (iv) any transaction from which the director will personally receive a benefit in money, property or services to which the director is not legally entitled. An amendment or repeal of this Article XIII shall not adversely affect any right or protection of a director of the savings bank existing at the time of such amendment or repeal. ARTICLE XIV AMENDMENT OF CHARTER No amendment to these articles and certificate of incorporation shall be made unless such is first approved by a majority of the directors of the savings bank and thereafter approved by the stockholders by a majority of the total votes eligible to be cast at a lawful meeting. All amendments to these articles of incorporation shall be subject to the approval of the Supervisor of Banking, State of Washington. ARTICLE XV ASSETS, LIABILITIES AND CAPITAL The savings bank's total assets, total liabilities and total capital as of September 30, 1997 is $________, $__________ and $__________, respectively. B-5 ARTICLE XVI DECLARATION OF SIGNERS Each of the undersigned hereby declares that he will accept the responsibilities and faithfully discharge the duties of a Director of the savings bank, and that he is free from all disqualifications specified in the RCW applicable to savings banks. Executed this ______ day of _______________, 1997 - ----------------------------- -------------------------------------------- Clarence E. Hamre Alan E. Smith - ----------------------------- -------------------------------------------- Michael R. Sand Peter J. Majar - ----------------------------- -------------------------------------------- Andrea M. Clinton Jon C. Parker - ----------------------------- -------------------------------------------- Robert Backstrom James C. Mason - ----------------------------- Richard R. Morris B-6 EXHIBIT C AMENDED BYLAWS OF TIMBERLAND SAVINGS BANK, SSB ARTICLE I PRINCIPAL OFFICE The principal office of the savings bank shall be located in the City and County of Grays Harbor, in the State of Washington. ARTICLE II STOCKHOLDERS SECTION 1. PLACE OF MEETINGS. All annual and special meetings of the stockholders shall be held at the principal office of the savings bank or at such other place within the State of Washington as the Board of Directors may determine. SECTION 2. ANNUAL MEETING. A meeting of the stockholders of the savings bank for the election of directors and for the transaction of any other business of the savings bank shall be held annually on the third Tuesday of January, if not a legal holiday, and if a legal holiday, then on the next day following which is not a legal holiday, at 2:00 p.m., Pacific time, or at such other date and time within 120 days after the end of the savings bank's fiscal year as the Board of Director may determine. SECTION 3. SPECIAL MEETINGS. Special meetings of the stockholders for any purpose or purposes 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 the outstanding capital stock of the savings bank entitled to vote at the meeting. Such written request shall state the purpose or purposes of the meeting and shall be delivered at the principal office of the savings bank 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 rules prescribed by the presiding officer of the meeting, unless otherwise prescribed by 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 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 delivered not less than 20 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 stockholder 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 stockholder at the address as it appears on the stock transfer books or records of the savings bank as of the record date prescribed in Section 6 of this Article II, with postage thereon prepaid. When any stockholders' 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 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 C-1 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 60 days, and in case of a meeting of stockholders, not less than 20 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. SECTION 7. VOTING LISTS. At least 20 days before each meeting of the stockholders, the officer or agent having charge of the stock transfer books for shares of the savings bank shall make a complete list 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. This list of stockholders shall be kept on file at the home office of the savings bank and shall be subject to inspection by any stockholder 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 stockholder during the entire time of the meeting. The original stock transfer book shall be prima facie evidence of the stockholders entitled to examine such list or transfer books or to vote at any meeting of stockholders. SECTION 8. STOCKHOLDER ACCESS TO BOOKS AND RECORDS. Any stockholder or group of stockholders of the savings bank who (1) have held of record voting stock of the savings bank for at least six months before making written demand, or (2) hold of record not less than five percent of the total outstanding voting stock of the savings bank, upon making written demand to the secretary of the savings bank under oath and stating the purpose thereof, shall have the right to examine for any proper purpose, in person or by agent, at any reasonable time or times, its books and records of accounts, minutes, and record of stockholders, and to make extracts therefrom. A "proper purpose" shall mean a purpose reasonable related to such person's interest as a stockholder. No stockholder or group of stockholders of the savings bank shall have any other right under this section or common law to examine its books and records of account, minutes and record of stockholders, except as provided in these bylaws with respect to inspection of a list of stockholders. The right to examination authorized by this Section 8 may be denied to any stockholder or group of stockholders upon the refusal of any stockholder or group of stockholders to furnish the savings bank, its transfer agent or registrar an affidavit that such examination or inspection is not desired for any purpose which is in the interest of a business or object other than the business of the savings bank, that such stockholder has not within the two years preceding the date of the affidavit sold or offered for sale, and does not now intend to sell or offer for sale, any list of stockholders of the savings bank or of any other savings bank, and that such stockholder has not within said two- year period assisted any person in procuring any list of stockholders for purposes of selling or offering for sale such list. The savings bank may deny a demand under this Section 8 if the requesting stockholder has improperly used any information secured through prior examination of the books and records of accounts, or minutes, or record of stockholders. Notwithstanding any provision of this Section 8 or common law, no stockholder, group of stockholders, or any other person shall have the right to obtain, inspect or copy any portion of any books or records of the savings bank containing: (1) a list of depositors in or borrowers from the savings bank; (2) their addresses; (3) individual deposit or loan balances or records; or (4) any data from which such information could be reasonably constructed. SECTION 9. QUORUM. One-third of the outstanding shares of the savings bank entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of stockholders. If less than a quorum 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 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. C-2 SECTION 10. 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 11. 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 savings bank to the contrary, at any meeting of the stockholders of the savings bank 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 stocks 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 savings bank may be voted by any officer, agent or proxy as the bylaws of such savings bank may prescribe, or, in the absence of such provision, as the board of directors of such savings bank may determine. Shares held by an administrator, executor, guardian 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 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 so to do 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 savings bank, nor shares held by another savings bank, if a majority of the shares entitled to vote for the election of directors of such other savings bank held by the savings bank, 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. VOTING. Every stockholder entitled to vote at any meeting shall be entitled to one vote for each share of stock held by him. Unless otherwise provided in the charter of the savings bank, 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 14. NOMINATING COMMITTEE. Only persons who are nominated in accordance with the procedures set forth in this Section 14 shall be eligible for election as directors. 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 forthwith be posted in a conspicuous place in each office of the savings bank. 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 accordance with the provisions of this Section 14. Nominations of individuals for election to the Board of Directors of the savings bank at an annual meeting of stockholders may be made by any stockholder of the savings bank entitled to vote for the election of directors at that meeting who complies with the notice procedures set forth in Section 14. Such nominations, other than those made by the Board of Directors acting as nominating committee, shall be made pursuant to timely notice in writing to the secretary of the savings bank as set forth in this Section 14. To be timely, a stockholder's notice shall be C-3 delivered to or received at the principal executive offices of the savings bank not later than 20 days prior to the meeting; provided, however, that in the event that less than 30 days' notice of the date of the meeting is given to stockholders (which notice must be accompanied by a proxy or information statement which identifies the nominees of the Board of Directors), notice by the stockholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re- election as a director, (i) the name, age, business address, and residence address of such person, (ii) the principal occupation or employment of such person, and (iii) such person's written consent to serving as a director, if elected; (b) as to the stockholder giving the notice, (i) the name and address of such stockholder, and (ii) the class and number of shares of the savings bank which are owned of record by such stockholder. At the request of the Board of Directors, any person nominated by the Board of Directors for election as a director shall furnish to the secretary of the savings bank that information required to be set forth in a stockholder's notice of nomination which pertains to the nominee together with the required written consents. No person shall be elected as a director of the savings bank unless nominated in accordance with the procedures set forth in this Section 14. Ballots bearing the name of all the persons nominated by the nominating committee and by stockholders shall be provided for use at the annual meeting. 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 stockholder entitled to vote and shall be voted upon. SECTION 15. NEW BUSINESS. At an annual meeting of stockholders, only such new business shall be conducted, and only such proposals shall be acted upon, as shall have been properly brought before the meeting. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at an annual meeting, except in accordance with the procedures set forth in this Section 15. For any new business proposed by management to be properly brought before the annual meeting, such new business shall be approved by the Board of Directors, either directly or through its approval of proxy solicitation materials related thereto, and shall be stated in writing and filed with the secretary of the savings bank at least 20 days before the date of at the annual meeting, and all business so stated, proposed and filed shall be considered at the annual meeting. Any stockholder may make any other proposal at the annual meeting and the same may be discussed and considered, but unless properly brought before the meeting, such proposal shall not be acted upon at the meeting. For a proposal to be properly brought before the annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the secretary of the savings bank. To be timely, a stockholder's notice must be delivered to or received at the principal executive offices of the savings bank, not less than 20 days prior to the meeting; provided, however, that in the event that less than 30 days' notice of the date of the meeting is given to stockholders (which notice shall be accompanied by a proxy or information statement which describes each matter proposed by the Board of Directors to be acted upon at the meeting), notice by the stockholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the annual meeting was mailed. A stockholder's notice to the secretary shall set forth as to each such matter the stockholder proposes such business, and (c) the class and number of shares of the savings bank which are owned of record by the stockholder. SECTION 16. INFORMAL ACTION BY STOCKHOLDERS. Any action required to be taken at a meeting of the stockholders, or any other action which may be taken at a meeting of the stockholders, may be taken without a meeting if consent in writing, setting forth the action so taken, shall be given by all of the stockholders entitled to vote with respect to the subject matter. SECTION 17. STOCKHOLDER DERIVATIVE ACTIONS. No action shall be brought by a stockholder to enforce a right of the savings bank unless the plaintiff was a holder of record of stock at the time of the transaction of which he or she complains, or his or her stock thereafter devolved upon him or her by operation of law from a person who C-4 was a holder of record at such time. Any action shall include information as to the efforts, if any, made to obtain the action the stockholder desires from the Board of Directors and, if necessary, from the stockholders, and the reason for the failure to obtain such action or for not making the effort. In any action hereafter instituted to enforce a right of the savings bank by the holder or holders of record of stock of the savings bank, the court having jurisdiction, upon final judgment and a finding that the action was brought without reasonable cause, may require the plaintiff or plaintiffs to pay to the parties named as defendant or the savings bank if it has indemnified those parties, the reasonable expenses, including attorneys' fees, incurred by them in the defense of such action. In any action now pending or hereafter instituted or maintained to enforce a right of the savings bank by the holders of record of less than five percent of the outstanding stock of any class of the savings bank, unless the stock so held has a market value in excess of $25,000, the savings bank on whose behalf such action is brought shall be entitled at any time before final judgment to require the plaintiff or plaintiffs to give security for the reasonable expenses, including attorneys' fees, that may be incurred by the savings bank in connection with such action or may be incurred by other parties named as defendant for which the savings bank may become legally liable. Market value shall be determined as of the date that the plaintiff institutes the action or, in the case of any intervenor, as of the date that he or she becomes a party to the action. The amount of such security may from time to time be increased or decreased, in the discretion of the court, upon showing that the security provided has or may become inadequate or is excessive. The savings bank shall have recourse to such security in such amount as the court having jurisdiction shall determine upon the termination of such action, whether or not the court finds the action was brought without reasonable cause. ARTICLE III BOARD OF DIRECTORS SECTION 1. GENERAL POWERS. All corporate powers shall be exercised by, or under authority of, and the business and affairs of the savings bank shall be managed under the direction of, the 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, TERM AND ELECTION. The Board of Directors shall consist of nine (9) members divided into three classes as nearby equal in number as possible. The member of each class shall be elected by ballot for a term of (3) years and shall serve until his or her successor is elected and qualified. One class shall be elected by ballot each year at the annual meeting. SECTION 3. REGULAR MEETINGS. A regular meeting of the Board of Directors shall be held without other notice than this bylaw immediately after the annual meeting of stockholders, and at the same place as other regularly scheduled meetings of the Board of Directors. The Board of Directors may provide, by resolution, the time and place, within the savings bank's normal lending territory, for the holding of additional regular meetings without other notice than such resolution. SECTION 4. QUALIFICATIONS. A person shall not be a Director of the savings bank if that individual: (i) is not a resident of a state of the United States; (ii) has been adjudicated a bankrupt or has taken the benefit of any insolvency law or has made a general assignment for the benefit or creditors; (iii) has suffered a judgment for a sum of money which has remained unsatisfied after all legal proceedings have been of record or unsecured on appeal for a period of more than three months; (iv) is a director, officer, clerk or other employee of any other savings bank; (v) is a director of a bank, trust company, or national banking association, a majority of the Board of Directors of which are directors of this savings bank; or (vi) is 75 years of age or older. 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 C-5 special meetings of the Board of Directors may fix any place, within the savings bank'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 attendance in person, but shall not constitute attendance for the purpose of compensation pursuant to Section 12 of this Article. SECTION 6. NOTICE OF SPECIAL MEETING. 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 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 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 these Bylaws. 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 savings bank addressed to the chairman of the board or the president. Unless otherwise specified therein, such resignation shall take effect upon receipt thereof 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 in 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 for the unexpired term of his predecessor in office. A 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 continuing only until the next election of directors by the stockholders. SECTION 12. COMPENSATION. A director may receive, by the affirmative vote of a majority of all the directors, reasonable compensation for (i) attendance at meetings of the Board of Directors; (ii) service as an officer of the savings bank, provided his duties as officer require and receive his regular and faithful attendance at the savings bank; (iii) service in appraising real property for the savings bank; and (iv) service as a member of a committee of the Board of Directors; provided, however, that a director receiving compensation for services as an officer pursuant to (ii) shall not receive any additional compensation for service under (i), (iii) or (iv). C-6 SECTION 13. PRESUMPTION OF ASSENT. A director of the savings bank who is present at a meeting of the Board of Directors at which action on a savings bank 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 his 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 savings bank within five (5) days after the date he receives a copy of the minutes of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action. SECTION 14. PERFORMANCE OF DUTIES. A director shall perform his or her duties as a director, including the duties as a member or any committee of the board upon which he or she may serve, in good faith, in a manner he or she reasonable believes to be in the best interest of the savings bank, and with such care as an ordinarily prudent person in a like position would use under similar circumstances. In performing such duties, a director shall be entitled to rely on information, opinion, reports or statements, including financial statements and other financial data, in each case prepared or presented by: (i) one or more officers or employees of the savings bank whom the director reasonably believes to be reliable and competent in the matters presented; (ii) counsel, public accountants or other persons as to matters which the director reasonably believes to be within such person's professional or expert competence; or (iii) a committee of the board upon which he or she does not serve, duly designated in accordance with a provision of these Bylaws, as to matters within it designated authority, which committee the director reasonable believes to merit confidence. However, a director shall not be considered to be acting in good faith if he or she has knowledge concerning the matter in question that would cause such reliance to be unwarranted. 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 (2) 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 thereto, 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 authority of the Board of Directors with reference to: the declaration of dividends; the amendment of the charter of the savings bank or bylaws of the savings bank, 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 savings bank otherwise than in the usual and regular course of its business; a voluntary dissolution of the savings bank; 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 provision 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 his or her 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. C-7 SECTION 5. QUORUM. A majority of the members of the executive committee shall constitute a quorum for the transaction of any business at a 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 adapted 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 savings bank. Unless otherwise specified thereon, such resignation shall take effect upon 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 next after the proceedings shall have occurred. SECTION 10. AUDIT COMMITTEE. At each annual meeting of the Board of Directors, the chairman, with the approval of the Board, shall appoint from among members of the Board, an Audit Committee consisting of not less than three members of the Board, none of whom may be members of management, all of whom shall serve until the next annual meeting and until their successors are appointed and confirmed. The Audit Committee shall, on or before the last day of March and the last day of October of each year, fully examine the records and affairs of the savings bank for the purposes of determining its financial condition. The Board may employ such assistants as it deems necessary to assist the Audit Committee in making such examination. A report of such examination shall be presented to the Board at a regular meeting of the Board of Directors held within 30 days after the completion of the examination and shall be filed in the records of the savings bank. SECTION 11. OTHER COMMITTEES. The Board of Directors may, by resolution, establish such other committees composed of directors as they may determine to be necessary or appropriate for the conduct of the business of the savings bank and may prescribe the duties, constitution, and procedures thereof. ARTICLE V OFFICERS SECTION 1. POSITIONS. The officers of the savings bank shall include 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 the Chief Executive Officer. The President shall be a director of the bank. 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 savings bank 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. C-8 SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the savings bank 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 the officers is not held at such meeting such election shall be held as soon thereafter as possible. Each officer shall hold officer until his or her successor shall have been duly elected and qualified or until the officer's death or 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 savings bank to enter into an employment contract with any officer, 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 savings bank 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. SECTION 6. RESTRICTIONS ON OFFICERS. An officer of this savings bank shall not: (1) Personally or as agent or partner of another, directly or indirectly, use any of the funds or deposits held by this savings bank or pay or emolument for services rendered to any borrower by the savings bank in connection with such loan, except as authorized by the Board of Directors; (2) Receive, directly or indirectly, and retain any commission on or benefit from any loan made by this savings bank or pay or emolument for services rendered to any borrower by the savings bank in connection with such loan, except as authorized by the Board of Directors; (3) Become an endorser, surety or guarantor or in any manner an obligor for any loan made by the savings bank; or (4) Personally or as agent or partner of another, directly or indirectly, borrow any of the funds or deposits held by the savings bank or become the owner of real property upon which the savings bank holds a mortgage, except as authorized by the Board of Directors. For purposes of this provision, a loan to or a purchase by an organization in which such officer is the owner of a 15 percent equity interest or in which that officer and other officers of the savings bank hold a 25 percent equity interest shall be deemed a loan to or a purchase by such officer within the meaning of this provision, unless the loan to or purchase by such organization occurred without such officer's knowledge or against such officer's protest. A deposit in a bank shall not be deemed a loan within the meaning of this provision. SECTION 7. UNAUTHORIZED COMPENSATION. If an officer or employee of this savings bank receives any commission on any loan made by this savings bank which that individual is not authorized by the Board of Directors to retain, the officer or employee shall immediately pay the same over to the savings bank. ARTICLE VI DEPOSITS AND WITHDRAWALS SECTION 1. DEPOSITS. The savings bank may limit the aggregate amount which an individual or any savings bank or society may have to his, her or its credit to such sum as the savings bank may deem expedient to receive; and may in its discretion refuse to receive a deposit, or may at any time return all or any part of any deposits or require the withdrawal of any interest. C-9 SECTION 2. WITHDRAWALS. The sums deposited with the savings bank, together with any interest credited thereto, shall be repaid to the depositors thereof respectively, or to their legal representatives, after demand in such manner, and at such times, and under such regulations, as the Board of Directors shall prescribe. Such regulations shall be posted in a conspicuous place in the principal office and each branch office of the savings bank, and shall be available to depositors upon request. All such regulations, and all amendments thereto, from time to time in effect, shall be binding upon all depositors. ARTICLE VII CONTRACTS, LOANS, CHECKS AND DEPOSITS SECTION 1. CONTRACTS. 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 bank to enter into any contract or execute and deliver any instrument in the name of and on behalf of the savings bank. Such authority may be general or confined to specific instances. SECTION 2. LOANS. No loans shall be contracted on behalf of the savings bank 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 in the name of the savings bank shall be signed by one or more officer, employee, or agent of the savings bank in such manner as shall from time to time be determined by the Board of Directors. SECTION 4. DEPOSITS. All funds of the savings bank not otherwise employed shall be deposits from time to time to the credit of the savings bank in any of its duly authorized depositories as the Board of Directors may select. ARTICLE VIII CERTIFICATES FOR SHARES AND THEIR TRANSFER SECTION 1. CERTIFICATES FOR SHARES. Certificates representing shares of capital stock of the savings bank shall be in such form as shall be determined by the Board of Directors. Such certificates shall be signed by the chief executive officer or by any other officer of the savings bank 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 savings bank 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 savings bank. All certificates surrendered to the savings bank for transfer shall be canceled and no new certificate shall be issued until the former certificate for the like number of shares has been surrendered and canceled, except that in case of a lost or destroyed certificate, a new certificate may be issued therefor upon such terms and indemnity to the savings bank as the Board of Directors may prescribe. SECTION 2. TRANSFER OF SHARES. Transfer of shares of capital stock of the savings bank shall be made only on its stock transfer books. Authority for such transfer shall be given only by the holder of record thereof or by his legal representative, who shall furnish proper evidence of such authority, or by his attorney authorized by power of attorney duly executed and filed with the savings bank. Such transfer shall be made only on surrender for cancellation of the certificate for such shares. The person in whose name of shares of capital stock stand on the books of the savings bank shall be deemed by the savings bank to be the owner thereof for all purposes. C-10 ARTICLE IX FISCAL YEAR; ANNUAL AUDIT The fiscal year of the savings bank shall end on the last day of December of each year. The savings bank shall be subject to an annual audit as of the end of its fiscal year by the independent public accountants appointed by and responsible to the Board of Directors. ARTICLE X DIVIDENDS Subject to the terms of the savings bank's Articles and Certificate of Incorporation and the laws of the State of Washington, the Board of Directors may, from time to time, declare, and the savings bank may pay, dividends upon its outstanding shares of capital stock. ARTICLE XI CORPORATE SEAL The Board of Directors shall provide a corporate seal, which shall be two concentric circles between which shall be the name of the savings bank. The year of incorporation of the savings bank or an emblem may appear in the center. ARTICLE XII CONFORMITY Any article, section or provision of these Bylaws in conflict with any laws or regulations relating to or governing this savings bank or the activities thereof shall be deemed amended to conform therewith. Whether or not specifically provided in these Bylaws, this savings bank, its Board of Directors and its officers shall have all authority, control, management and power granted to or provided for savings banks by the laws of the State of Washington and any other laws not or hereafter in effect. If any provision of these Bylaws should be held invalid or in violation of any law or regulations, it shall not affect the validity of the remainder of these Bylaws or of the article, section or other subdivision thereof in which such provision appears. ARTICLE XIII AMENDMENTS These Bylaws may be amended at any time by a majority vote of the full Board of Directors or by a majority of votes eligible to be cast by the stockholders of the savings bank at any legal meeting. * * * * * C-11 REVOCABLE PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF TIMBERLAND SAVINGS BANK, SSB FOR THE SPECIAL MEETING OF MEMBERS TO BE HELD ON DECEMBER 23, 1997 The undersigned member of Timberland Savings Bank, SSB ("Savings Bank") hereby appoints the Board of Directors, with full powers of substitution, as attorneys- in-fact and agents for and in the name of the undersigned, to vote such shares as the undersigned may be entitled to cast at the Special Meeting of Members ("Meeting") of the Savings Bank to be held at the Savings Bank's main office at 624 Simpson Avenue, Hoquiam, Washington, on the date and time indicated on the Notice of Special Meeting of Members, and at any adjournment thereof. They are authorized to cast all votes to which the undersigned is entitled, as follows: FOR AGAINST (1) To approve a Plan of Conversion adopted by the Board of Directors on July 10, 1997, and subsequently amended on September 11, 1997 and October 23, 1997, to convert the Savings Bank from a Washington-chartered mutual savings bank to a Washington-chartered capital stock savings bank to be held as a wholly-owned subsidiary of a new holding company, Timberland Bancorp, Inc., including the adoption of a Articles and Bylaws for the Savings Bank, pursuant to the laws of the United States and the rules and regulations of the Washington Department of Financial Institutions, Division of Banks. [ ] [ ] NOTE: The Board of Directors is not aware of any other matter that may come before the Meeting. IMPORTANT: PLEASE SIGN DATE AND RETURN THIS PROXY IN THE PRE-ADDRESSED ENVELOPE PROVIDED. VOTING FOR THE PLAN OF CONVERSION IN NO WAY OBLIGATES YOU TO BUY ANY STOCK. THIS PROXY WILL BE VOTED FOR THE PROPOSITION STATED IF NO CHOICE IS MADE HEREIN 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 Savings Bank at said Meeting of the member's decision to terminate this Proxy, then the power of said attorney-in-fact or agents shall be deemed terminated and of no further force and effect. The undersigned acknowledges receipt of a Notice of Special Meeting of Members of the Savings Bank called on the date and time indicated on the Notice of Special Meeting, and a Proxy Statement relating to said Meeting from the Savings Bank, prior to the execution of this Proxy. _________________________ Date _________________________ Signature _________________________ Signature Note: Only one signature is required in the case of a joint account but all account holders should sign, if possible. When signing as an attorney, administrator, agent, corporate officer, executor, trustee, guardian or other fiduciary capacity, indicate your full title. -----END PRIVACY-ENHANCED MESSAGE-----