FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
(INCLUDING EXHIBITS)
Washington 6036 Applied For
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(State or other jurisdiction of (Primary SICC No.) (I.R.S. Employer
incorporation or organization) Identification No.)
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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. [_]
(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) 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;
Statement and Outside Front Outside Front Cover Page
Cover of Prospectus
2. Inside Front and Outside Back Inside Front Cover Page; Outside Back
Cover Pages of Prospectus 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
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(h) Management's Discussion and Management's Discussion and Analysis of
Analysis of Financial Condition Financial Condition and Results of Operations
and 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 -- Transactions with
Related Transactions the Savings Bank
12. Disclosure of Commission Position Part II - Item 17
on Indemnification for Securities
Act Liabilities
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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.
FOR A DISCUSSION OF CERTAIN FACTORS 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
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
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.
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.
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
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.
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 - Aggressive Fund Option B - Balanced Fund Option C - Money Market Option D - Employer Stock Fund |
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.
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.
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
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-
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
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.
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,
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.
Investment Form
(Employer Stock Fund)
TIMBERLAND SAVINGS BANK, SSB
PROFIT SHARING PLAN
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
* * * * *
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4. Acknowledgement of Receipt. This Investment Form was received by the Plan Administrator and will become effective on the date noted below.
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 ________ __, 1997 ("Supplemental Eligible Account Holders"), and (iv) depositors and borrowers of the Savings Bank as of ________ __, 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) ___-____.
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
--------------------------------------------------------------------------------------------------------------------
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(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 the Direct Community Offering, if any, or 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 Noon, 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 Noon, 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 to be filed by amendment]
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.
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 Prospectus. The purchase of Common Stock is subject to certain risks. See "RISK FACTORS."
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. 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
Community and Syndicated 5,750,000 shares of Common Stock (subject
Community Offerings 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 Subscription
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
(i)
|
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.
Subscription Rights 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.
Prospectus Delivery and To ensure that each purchaser receives a
Procedure for Purchasing Prospectus at least 48 hours prior to
Common Stock the 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 the Direct
Community Offering and the Syndicated
Community Offering 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 Common
Shares to be Issued in the Stock is a Issued in the uniform, fixed
Conversion price for all subscribers, including the
Savings Bank's Board of Directors, its
management and tax-qualified employee plans,
and was set by the 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
(ii)
|
$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 Common Payment for subscriptions for shares of
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 the Consummation of the Offerings is subject
Offerings 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) 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 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."
(iii)
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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
Common Stock Purchases and (18 persons) are expected to subscribe
Beneficial Ownership for approximately $2.2 million of Common
Stock, or 5.1% or 3.8%, of the shares based
on the minimum and maximum, respectively, 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 The Holding Company's and the Savings
to Management Bank's directors and executive officers will
receive certain benefits as a result of the
Conversion. See "MANAGEMENT OF THE SAVINGS
BANK -- Benefits -- Employee Severance
Compensation Plan," "-- Benefits -- Employee
Stock Ownership Plan," "-- Benefits -- 1997
Stock Option Plan" and "-- Benefits --
Management Recognition Plan."
No Board Recommendations The Boards of Directors of the Holding
Company and the Savings Bank make no
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" 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) _____-______.
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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 to "subprime" borrowers who do not qualify for conventional residential mortgage loans 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 $102.0 million, or 49.8%, were one- to four-family residential mortgage loans, $42.9
million, or 21.0%, 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 ____ __, 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."
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 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.
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.
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 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 (including all persons on a joint account), 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 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 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 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 $2.2 million of Common
Stock, or 5.1% and 3.8% of the shares to be issued in the Conversion based
on the minimum and maximum of the Estimated Valuation Range, respectively.
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 24.65% and 23.44% 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.
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
======== ======== ======== ======== ======== ======== =======
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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(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 equity(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
------------------
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(1) Annualized, where appropriate, 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.
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 loans totalled $42.9 million, or 21.0%, 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
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."
Loans to subprime borrowers present a higher risk of default than conforming loans because of the increased potential for default by borrowers who may have previous credit deficiencies or who do not have an adequate credit history. Loans to subprime borrowers also involve additional liquidity risk because they generally have a more limited secondary market demand than conventional mortgage loans. The rates of delinquencies, foreclosures and losses on loans to subprime borrowers could be higher under adverse economic conditions than on loans to conventional mortgage loan borrowers. The FDIC has recently issued a letter to all FDIC-insured institutions highlighting the special risks associated with subprime lending and the need for management controls. The Savings Bank believes that the underwriting procedures and appraisal processes it employs enable it to mitigate the higher risks inherent in subprime 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 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 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, 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 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 217,550 shares of Common Stock, or 3.8% 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 217,550 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 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 23.44% 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.
Because the ESOP has a second priority Subscription Right (behind the Eligible Account Holders) to purchase shares of Common Stock in the Subscription Offering, it is possible that the ESOP's order will not be filled as a result of an oversubscription. If the ESOP is not able to purchase 8% of the shares of Common Stock issued in the Offerings, the ESOP may either purchase such shares in the open market after the consummation of the Conversion or acquire newly issued shares from the Holding Company, or a combination of both. In the event the ESOP acquires newly issued shares 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 "MANAGEMENT OF THE SAVINGS BANK -- Benefits -- Employee Stock Ownership Plan."
Assuming the MRP, Stock Option Plan and ESOP are funded entirely with authorized but unissued shares from the Holding Company, the voting interests of stockholders would be diluted by 18.03% at the minimum, midpoint, maximum and maximum, as adjusted, of the Estimated Valuation Range, respectively.
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."
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 ________ __, 1997 (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. See "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 (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 to
"subprime" borrowers who do not qualify for conventional residential
mortgage loans under FHLMC guidelines. At June 30, 1997, the Savings
Bank's gross loan portfolio totaled $204.6 million, of which $102.0
million, or 49.8%, were one- to four-family residential mortgage loans,
$42.9 million, or 21.0%, 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'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 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 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.
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)
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
--------------------------
Minimum of Estimated
Valuation Range
-----------------------
4,250,000 Shares
June 30, 1997 at $10.00 Per Share
----------------- ----------------------
Percent of Percent of
Adjusted Adjusted
Total Total
Amount Assets (1) Amount Assets (1)
------ ---------- ------ ----------
(Dollars in thousands)
GAAP capital............... $23,866 11.57% $34,434 15.52%
======= ===== ======= =====
Tier 1 (leverage) capital.. $23,866 11.71% $34,434 15.69%
Tier 1 (leverage) capital
requirement............... 6,114 3.00 6,584 3.00
------- ----- ------- -----
Excess..................... $17,752 8.71% $27,850 12.69%
======= ===== ======= =====
Tier 1 risk adjusted
capital................... $23,866 15.96% $34,434 21.88%
Tier 1 risk adjusted
capital requirement....... 5,981 4.00 6,294 4.00
------- ----- ------- -----
Excess..................... $17,885 11.96% $28,140 17.88%
======= ===== ======= =====
Total risk based capital... $25,320 16.93% $35,888 22.81%
Total risk based
capital requirement....... 11,962 8.00 12,589 8.00
------- ----- ------- -----
Excess..................... $13,358 8.93% $23,299 14.81%
======= ===== ======= =====
PRO FORMA AT JUNE 30, 1997
------------------------------------------------------------------------------
15% above
Midpoint of Estimated Maximum of Estimated Maximum of Estimated
Valuation Range Valuation Range Valuation Range
---------------------- -------------------- ---------------------
5,000,000 Shares 5,750,000 Shares 6,612,500 Shares
at $10.00 Per Share at $10.00 Per Share at $10.00 Per Share
---------------------- -------------------- ---------------------
Percent of Percent of Percent of
Adjusted Adjusted Adjusted
Total Total Total
Amount Assets (1) Amount Assets (1) Amount Assets (1)
------ ---------- ------ ---------- ------ ----------
(Dollars in thousands)
GAAP capital............... $36,384 16.19% $38,334 16.85% $40,576 17.58%
======= ===== ======= ===== ======= =====
Tier 1 (leverage) capital.. $36,384 16.36% $38,334 17.02% $40,576 17.76%
Tier 1 (leverage) capital
requirement............... 6,670 3.00 6,755 3.00 6,854 3.00
------- ----- ------- ----- ------- -----
Excess..................... $29,714 13.36% $31,579 14.02% $33,722 14.76%
======= ===== ======= ===== ======= =====
Tier 1 risk adjusted
capital................... $36,384 22.91% $38,334 23.93% $40,576 25.07%
Tier 1 risk adjusted
capital requirement....... 6,351 4.00 6,408 4.00 6,474 4.00
------- ----- ------- ----- ------- -----
Excess..................... $30,033 18.91% $31,926 19.93% $34,102 21.07%
======= ===== ======= ===== ======= =====
Total risk based capital... $37,838 23.83% $39,788 24.83% $42,030 25.97%
Total risk based
capital requirement....... 12,703 8.00 12,817 8.00 12,948 8.00
------- ----- ------- ----- ------- -----
Excess..................... $25,135 15.83% $26,971 16.83% $29,082 17.97%
======= ===== ======= ===== ======= =====
|
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.
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
======= ======= ======= =======
|
At or For the Nine Months Ended June 30, 1997
----------------------------------------------------
Minimum of Midpoint of Maximum of
Estimated Estimated Estimated 15% Above
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
===== ==== ===== =====
|
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.
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 17,500 175,000 * *
Executive Vice President,
Secretary and Director
Andrea M. Clinton 1,000 10,000 * *
Director
Robert Backstrom 10,000 100,000 * *
Director
Richard R. Morris, Jr. 20,000 200,000 * *
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) 1.2 *
Director
Other officers (9 persons) 30,550 305,500 * *
------- ---------- --- ---
Total 217,550 $2,175,500 5.1% 3.8%
======= ========== ==== ====
-----------------
|
(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. Mr. Mason 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%.
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
---- ---- ---- ---- ----
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.
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 to "subprime" borrowers who do not qualify for conventional residential mortgage loans under FHLMC guidelines. See "RISK FACTORS -- Certain Lending Risks -- Risks of Subprime 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."
. 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. In recent years the Savings Bank has increased its capital ratios by controlled asset growth to a level that is commensurate with its ability to generate operating profits. The Savings Bank's Tier I leverage ratio was 11.6% at June 30, 1997. 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 $102.0 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 $42.9 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 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 and 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.
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 a reduction in loan fees recognized as income under applicable accounting principles. 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 $16.7 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. 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. 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 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. 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 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. 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.
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 34.9% 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.
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)....... $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(2)..... 4.78% 5.08% 4.97%
Ratio of interest-earning
assets to.................
average interest-bearing
liabilities.............. 113.41% 113.05% 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 &
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:..............
Passbook accounts......... $ 24,699 $ 550 2.97 $ 24,769 $ 556 2.99
Money market accounts..... 13,205 393 3.97 12,695 378 3.97
NOW accounts.............. 17,181 311 2.41 17,707 330 2.48
Certificates of deposit... 87,333 3,893 5.94 97,472 4,302 5.88
FHLB 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%
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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
------------------
|
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 Increase Increase
(Decrease) (Decrease) (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)...... $ 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.
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 $42.9 million and $10.7 million, or 21.0% 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."
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.............................. $ 94,272 $28,339 $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)..................... 21,696 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.
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,
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."
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
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.
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.
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 $91.2 million, or 44.6%, 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."
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)
Unearned income........... (925) (906) (1,299) (1,554) (1,708)
Allowance for loan losses. (972) (1,138) (1,120) (1,119) (1,133)
Market value adjustment
of loans held for sale... -- -- (26) (3) (89)
-------- -------- -------- -------- --------
Total loans receivable,
net..................... $103,045 $106,259 $121,558 $156,523 $176,495
======== ======== ======== ======== ========
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At June 30, 1997
----------------
Amount Percent
------ --------
Mortgage Loans:
One- to four-family(1)(2) $101,957 49.83%
Multi-family.............. 12,644 6.18
Commercial................ 28,867 14.11
Construction and land
development.............. 42,872 20.95
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
========
|
Residential One- to Four-Family Lending. At June 30, 1997, $102.0 million, or 49.8% 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 13.8% 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, $87.9 million, or 86.2%, 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 subprime loans and the Savings Bank generally requires 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 Subprime 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.
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 37.2%
Custom and owner/builder construction.. 11,604 27.1
Multi-family........................... 9,161 21.3
Land development....................... 4,972 11.6
Commercial real estate................. 1,197 2.8
------- ------
Total................................ $42,872 100.00%
======= ======
|
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 37.2%, 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 27.1%, 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.
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
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 $10.4 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
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
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%.
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.
Loan Maturity and Repricing
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....................... $ 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
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(1) Includes construction/permanent that convert to a permanent mortgage loan once construction is completed.
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 $ 87,885 $101,957
Multi-family....................... 5,411 7,233 12,644
Commercial......................... 7,030 21,837 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............................ $75,180 $129,416 $204,596
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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
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
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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
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)
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:
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 and specific 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
Specific loss allowances.. -- -- --
--------------------
|
(1) For further information concerning the increase in classified assets, see "-- Nonperforming Assets and Delinquencies."
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 as well as specific allowances assigned to individual loans.
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. Specific valuation allowances are established to absorb losses on loans for which full collectibility may not be reasonably assured. The amount of the allowance is based on the estimated value of the collateral securing the loan and other analyses pertinent to each situation. Generally, 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 and no specific allowance for loan losses. 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.
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................... -- -- -- -- -- 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 $1,454
====== ======= ======= ======= ====== ====== ======
Allowance for loan losses as a
percentage of total loans (net)
outstanding at the end of the period.. 0.94% 1.07% 0.92% 0.71% 0.64% 0.67% 0.78%
Net charge-offs as a percentage
of average loans outstanding
during the period..................... 0.02% 0.01% 0.02% --% --% 0.01% 0.01%
Allowance for loan losses as
a percentage of nonperforming
loans at end of period................ 67.69% 140.84% 204.75% 107.91% 74.54% 97.90% 18.10%(1)
---------------
|
(1) This ratio would be 63.22% excluding the loans discussed under " -- Nonperforming Assets and Delinquencies."
The following table sets forth the breakdown of the allowance for loan losses by loan category at the dates indicated.
At September 30,
------------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996
---------------- ---------------- ---------------- --------------- ---------------
Percent Percent Percent Percent Percent
of Loans of Loans of Loans of Loans of Loans
in Category in Category in Category in Category in Category
to Total to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(Dollars in thousands)
Mortgage loans:
One- to four-family.........$ -- 59.43% $ -- 62.88% $ 333 52.94% $ 278 53.03% $ 261 48.51%
Multi-family................ -- 5.49 -- 2.02 77 3.45 81 6.21 83 6.35
Commercial.................. -- 10.30 -- 9.55 266 8.46 271 8.84 317 13.41
Construction................ -- 18.65 -- 19.72 240 28.79 337 24.23 316 23.83
Land........................ -- 1.91 -- 1.94 158 2.96 98 3.47 102 3.09
Non-mortgage loans...........
Consumer loans............... -- 3.91 -- 3.58 39 3.21 44 4.09 46 4.57
Commercial business loans.... -- 0.31 -- 0.31 7 0.19 10 0.13 8 0.24
Unallocated.................. 972 N/A 1,138 N/A -- 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% $1,133 100.00%
==== ====== ====== ====== ====== ====== ====== ====== ====== ======
At
June 30,
1997
-----------------
Percent
of Loans
in Category
to total
Amount Loans
------ -----
(Dollars in thousands)
Mortgage loans:
One- to four-family......... $ 253 49.83%
Multi-family................ 130 6.18
Commercial.................. 363 14.11
Construction................ 510 20.95
Land........................ 136 3.35
Non-mortgage loans...........
Consumer loans............... 50 5.23
Commercial business loans.... 50 0.35
Unallocated.................. -- N/A
------ ------
Total allowance
for loan losses........ $1,454 100.00%
====== ======
|
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."
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%
======= ====== ======= ====== ====== ====== ====== ======
|
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
========= ====== ======= =======
|
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."
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%
======== ==========
|
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
=======
|
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
======== ====== =======
|
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
======== ======== ======== ======== ========
|
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.
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
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Approximate
Location Year Opened Square Footage Deposits
-------- ----------- -------------- --------
Data Center:
422 6th Street 1990 2,700 N/A
Hoquiam, Washington 98550
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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."
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
Position with Savings Director Term
Name Age (1) Bank Since Expires
---- ------- ----------------------- -------- -------
Clarence E. Hamre 63 Chairman of the Board, 1969 1999
President, 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
----------------------
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(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.
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 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.
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
---------------------------------
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(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 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 2.84% 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.
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 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."
If the ESOP purchases newly issued shares from the Holding Company, total stockholders' equity would neither increase nor decrease. However, on a per share basis, stockholders' equity and per share net earnings would decrease because of the increase in the number of outstanding shares. See "RISK FACTORS -- Possible Dilutive Effect of Benefit Programs."
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.
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 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 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 $12,200. During the year ended September 30, 1996, the Savings Bank paid legal fees of approximately $11,500 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.
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.
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 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 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. 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 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 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 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, 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 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 have been audited through September 30, 1995 without any resulting additional tax liability.
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.
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, 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 __________ __, 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
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 __________ __, 1997); and (iv) Other Members (depositors and borrowers of the Savings Bank as of ________ __, 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.
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
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, 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 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 _____ __, 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 _____ __, 1997 or (ii) the amount of the "qualifying deposit" in such Savings Account on December 31, 1995 or ______ __, 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.
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 _____ __, 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 (_____, 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 Noon, 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.
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
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 Noon, 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.
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.
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 Noon, 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 (__________ __, 1997) and/or the Voting Record Date (________ __, 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
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
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
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
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 (including all persons on a joint account), 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%). 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,
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.
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.
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
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.
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
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."
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-_____) under the Securities Act with respect to the Common Stock offered in the Conversion. This Prospectus does not contain all the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the SEC. Such information may be inspected at the public reference facilities maintained by the SEC at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549; 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. Pursuant to the Washington conversion regulations, this Prospectus omits certain information contained in such Application. 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 the Savings Bank's office 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 the Savings Bank.
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.
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 OF TIMBERLAND BANCORP, INC. APPEARS HERE]
(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
[LETTERHEAD OF DWYER PEMBERTON AND COULSON, P.C. APPEARS HERE]
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.
Dwyer, Pemberton & Coulson
November 22, 1996
Tacoma, Washington
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
============ ============ ============
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See accompanying notes.
TIMBERLAND SAVINGS BANK, S.S.B.
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.
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
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)
------------------------------------------ ---------------------------
145,916 (89,664) 1,288,275 547,152 (319,634)
------------------------------------------ ---------------------------
NET CASH PROVIDED
BY OPERATING
ACTIVITIES 2,779,403 2,910,029 3,966,079 2,827,173 2,230,254
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of investments and
mortgage-backed securities (13,822,695) (2,552,775) -0- -0- -0-
Sales of investments and
principal repayments on
mortgage-backed securities 1,787,106 8,695,567 4,905,387 4,702,684 867,119
Increase in loans receivable
and loans held for sale, net (15,343,343) (34,941,634) (20,128,796) (12,711,152) (11,300,383)
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 partnership (45,398) (36,898) -0- -0- -0-
------------ ------------ ------------ ------------ ------------
NET CASH USED
BY INVESTING
ACTIVITIES (28,554,988) (29,029,756) (16,632,520) (8,515,607) (11,459,855)
------------ ------------ ------------ ------------ ------------
|
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 FINANCIAL
INSTITUTIONS, Beginning 24,115,708 7,360,189 4,860,320 4,860,320 5,055,325
------------ ----------- ----------- ----------- -----------
CASH AND DUE FROM FINANCIAL
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.
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:
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 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. The Savings Bank generally considers loans on a nonaccrual status to be impaired. 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.
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.
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.
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.
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 $ 96,484,011
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 42,871,616
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 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
===============================================
|
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 $ 87,885,215 $101,956,520
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 10,327,049 42,871,616
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
============
|
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 $ 2,394,400 $ 780,830 $1,264,477 $ 3,763,292 $ 93,753,521 $101,956,520
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 18,821,964 10,268,007 17,883 814,000 12,949,762 42,871,616
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
========================= ========
|
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
========================================== ============================
|
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
========================= ========
|
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.
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.
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
========================= ==========
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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
=================================== ==========
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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
======================= ==========
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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 235,477 277,692 295,902
Federal income tax bad debt deduction 153,644 269,274 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
======================= ==========
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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
======================================= ============
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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.
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
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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.
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
========
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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:
II-1
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.
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.
3.2 - Bylaws of Timberland Bancorp, Inc.
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4 - Form of Certificate for Common Stock
5 - Opinion of Breyer & Aguggia regarding legality of securities registered
8.1 - Federal Tax Opinion of Breyer & Aguggia
8.2 - State Tax Opinion of Dwyer Pemberton and Coulson, P.C.
8.3 - Opinion of RP Financial, LP as to the value of subscription rights
II-2
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10.1 - Proposed Form of Employee Stock Ownership Plan
10.2 - Timberland Savings Bank, SSB 401(k) Plan (a)
10.3 - Proposed Form of Timberland Savings Bank, SSB Employee Severance
Compensation Plan
21 - Subsidiaries of Timberland Bancorp, Inc.
23.1 - Consent of Dwyer Pemberton and Coulson, P.C.
23.2 - Consent of Breyer & Aguggia (contained in opinion included as Exhibit
5)
23.3 - Consent of Breyer & Aguggia as to its Federal Tax Opinion (contained
in opinion included as Exhibit 8.1)
23.4 - Consent of Dwyer Pemberton and Coulson, P.C. as to its State Tax
Opinion (contained in opinion included in Exhibit 8.2)
23.5 - Consent of RP Financial, LC.
24 - Power of Attorney (contained in signature page to the Registration
Statement)
99.1 - Order and Certification Form (contained in the marketing materials
included as Exhibit 99.2)
99.2 - Solicitation and Marketing Materials
99.3 - Appraisal Agreement with RP Financial, LC.
99.4 - Appraisal Report of RP Financial, LC. (a)
99.5 - Proxy Statement for Special Meeting of Members of Timberland Savings
Bank, SSB
---------------------
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(a) To be filed by amendment.
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 Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Baker City, Washington on the 17th day of September 1997.
TIMBERLAND BANCORP, INC.
By: /s/Clarence E. Hamre
-----------------------------------------
Clarence E. Hamre
President and Chief Executive Officer
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POWER OF ATTORNEY
We, the undersigned directors and officers of Timberland Bancorp, Inc., do hereby severally constitute and appoint Clarence E. Hamre, our true and lawful attorney and agent, to do any and all things and acts in our names in the capacities indicated below and to execute all instruments for us and in our names in the capacities indicated below which said Clarence E. Hamre may deem necessary or advisable to enable Timberland Bancorp, Inc., to comply with the Securities Act of 1933, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with the Registration Statement on Form S-1 relating to the offering of Timberland Bancorp, Inc.'s Common Stock, including specifically but not limited to, power and authority to sign for us or any of us in our names in the capacities indicated below the Registration Statement and any and all amendments (including post-effective amendments) thereto; and we hereby ratify and confirm all that Clarence E. Hamre shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this 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, President September 17, 1997
------------------------- and Chief Executive Officer
Clarence E. Hamre (Principal Executive Officer)
/s/ Michael R. Sand Executive Vice President, September 17, 1997
------------------------- Secretary, and Director
Michael R. Sand (Principal Financial and
Accounting Officer)
/s/ Andrea M. Clinton Director September 17, 1997
-------------------------
Andrea M. Clinton
/s/ Robert Backstrom Director September 17, 1997
-------------------------
Robert Backstrom
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/s/ Richard R. Morris Director September 17, 1997 ------------------------- Richard R. Morris /s/ Alan E. Smith Director September 17, 1997 ------------------------- Alan E. Smith /s/ Peter J. Majar Director September 17, 1997 ------------------------- Peter J. Majar /s/ Jon C. Parker Director September 17, 1997 ------------------------- Jon C. Parker /s/ James C. Mason Director September 17, 1997 ------------------------- James C. Mason |
INDEX TO EXHIBITS
1.1 - Form of proposed Agency Agreement among Timberland Bancorp, Inc.,
Timberland Savings Bank, SSB and Charles Webb & Co. (a)
1.2 - Engagement Letter between Timberland Savings Bank, SSB and Charles
Webb & Co.
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.
3.2 - Bylaws of Timberland Bancorp, Inc.
4 - Form of Certificate for Common Stock
5 - Opinion of Breyer & Aguggia regarding legality of securities
registered
8.1 - Federal Tax Opinion of Breyer & Aguggia
8.2 - State Tax Opinion of Dwyer Pemberton and Coulson, P.C.
8.3 - Opinion of RP Financial, LP as to the value of subscription rights
10.1 - Proposed Form of Employee Stock Ownership Plan
10.2 - Timberland Savings Bank, SSB 401(k) Plan (a)
10.3 - Proposed Form of Timberland Savings Bank, SSB Employee Severance
Compensation Plan
21 - Subsidiaries of Timberland Bancorp, Inc.
23.1 - Consent of Dwyer Pemberton and Coulson, P.C.
23.2 - Consent of Breyer & Aguggia (contained in opinion included as Exhibit
5)
23.3 - Consent of Breyer & Aguggia as to its Federal Tax Opinion (contained
in opinion included as Exhibit 8.1)
23.4 - Consent of Dwyer Pemberton and Coulson, P.C. as to its State Tax
Opinion (contained in opinion included in Exhibit 8.2)
23.5 - Consent of RP Financial, LC.
24 - Power of Attorney (contained in signature page to the Registration
Statement)
99.1 - Order and Certification Form (contained in the marketing materials
included as Exhibit 99.2)
99.2 - Solicitation and Marketing Materials
99.3 - Appraisal Agreement with RP Financial, LC.
99.4 - Appraisal Report of RP Financial, LC. (a)
99.5 - Proxy Statement for Special Meeting of Members of Timberland Savings
Bank, SSB
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(a) To be filed by amendment.
Exhibit 1.2
[LETTERHEAD OF CHARLES WEBB & COMPANY APPEARS HERE]
July 28, 1997
Mr. Clarence E. Hamre
Chairman, President and Chief Executive Officer
Timberland Savings Bank, S.S.B.
624 Simpson Avenue
Hoquiam, Washington 98550-3688
Dear Mr. Hamre:
This proposal is in connection with Timberland Savings Bank's (the "Bank") intention to convert from a mutual to a capital stock form of organization (the "Conversion"). In order to effect the Conversion, it is contemplated that all of the Bank's common stock to be outstanding pursuant to the Conversion will be issued to a holding company (the "Company") to be formed by the Bank, and that the Company will offer and sell shares of its common stock first to eligible persons (pursuant to the Bank's Plan of Conversion) in a Subscription and Community Offering.
Charles Webb & Company ("Webb"), a Division of Keefe, Bruyette and Woods, Inc. ("KBW"), will act as the Bank's and the Company's exclusive financial advisor and marketing agent in connection with the Conversion. This letter sets forth selected terms and conditions of our engagement.
Webb shall provide financial advisory services to the Bank which are typical in connection with an equity offering and include, but are not limited to, overall financial analysis of the client with a focus on identifying factors which impact the valuation of the common stock and provide the appropriate recommendations for the betterment of the equity valuation.
Additionally, post conversion financial advisory services will include advice on shareholder relations, NASDAQ listing, dividend policy (for both regular and special dividends), stock repurchase strategy and communication with market makers. Prior to the closing of the offering,
Mr. Clarence E. Hamre
July 28, 1997
Webb shall furnish to client a Post-Conversion reference manual which will include specifics relative to these items. (The nature of the services to be provided by Webb as the Bank's and the Company's financial advisor and marketing agent are further described in Exhibit A attached hereto.)
Mr. Clarence E. Hamre
July 28, 1997
Company against certain liabilities, including, without limitation, liabilities under the Securities Act of 1933.
Mr. Clarence E. Hamre
July 28, 1997
Webb shall be reimbursed for reasonable out-of-pocket expenses, including costs of travel, meals and lodging, photocopying, telephone, facsimile and couriers and reasonable fees and expenses of their counsel (such fees of counsel will not be incurred without the prior approval of Client). The selection of such counsel will be done by Webb, with the approval of the Bank. Such reimbursement of legal fees will not exceed $35,000.
Mr. Clarence E. Hamre
July 28, 1997
part of the Bank, the Company or Webb except as to the agreement to maintain the confidentiality of non-public information set forth in Section 3, the payment of certain fees as set forth in Section 7(a) and 7(b) and the assumption of expenses as set forth in Section 9, all of which shall constitute the binding obligations of the parties hereto and which shall survive the termination of this Agreement or the completion of the services furnished hereunder and shall remain operative and in full force and effect. You further acknowledge that any report or analysis rendered by Webb pursuant to this engagement is rendered for use solely by the management of the Bank and its agents in connection with the Conversion. Accordingly, you agree that you will not provide any such information to any other person without our prior written consent.
Webb acknowledges that in offering the Company's stock no person will be authorized to give any information or to make any representation not contained in the offering prospectus and related offering materials filed as part of a registration statement to be declared effective in connection with the offering. Accordingly, Webb agrees that in connection with the offering it will not give any unauthorized information or make any unauthorized representation. We will be pleased to elaborate on any of the matters discussed in this letter at your convenience.
If the foregoing correctly sets forth our mutual understanding, please so indicate by signing and returning the original copy of this letter to the undersigned.
Very truly yours,
CHARLES WEBB & COMPANY,
A DIVISION OF KEEFE, BRUYETTE & WOODS, INC.
By: /s/ Patricia A.. McJoynt
--------------------------------
Patricia A. McJoynt
Executive Vice President
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TIMBERLAND SAVINGS BANK, S.S.B.
By: /s/ Clarence E. Hamre Date: 8/1/97
-------------------------------- ---------------
Clarence E. Hamre
Chairman, President and Chief Executive Officer
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CONVERSION SERVICES PROPOSAL
TO TIMBERLAND SAVINGS BANK, S.S.B.
Charles Webb & Company provides thrift institutions converting from mutual to stock form of ownership with a comprehensive program of conversion services designed to promote an orderly, efficient, cost-effective and long-term stock distribution. The following list is representative of the conversion services, if appropriate, we propose to perform on behalf of the Bank.
Assist management and legal counsel with the design of the transaction structure.
Analyze and make recommendations on bids from printing, transfer agent, and appraisal firms.
Assist officers and directors in obtaining bank loans to purchase stock, if requested.
Assist in drafting and distribution of press releases as required or appropriate.
Establish and manage Stock Information Center at the Bank. Stock Information Center personnel will track prospective investors; record stock orders; mail order confirmations; provide the Bank's senior management with daily reports; answer customer inquiries; and handle special situations as they arise.
Assign Webb's personnel to be at the Bank through completion of the Subscription and Community Offerings to manage the Stock Information Center, meet with prospective shareholders at individual and community information meetings, solicit local investor interest through a tele-marketing campaign, answer inquiries, and otherwise assist in the sale of stock in the Subscription and Community Offerings. This effort will be lead by a Principal of Webb/KBW.
Create target investor list based upon review of the Bank's depositor base.
Provide intensive financial and marketing input for drafting of the prospectus.
Prepare other marketing materials, including prospecting letters and brochures, and media advertisements.
Arrange logistics of community information meeting(s) as required.
Prepare audio-visual presentation by senior management for community information meeting(s).
Prepare management for question-and-answer period at community information meeting(s).
Attend and address community information meeting(s) and be available to answer questions.
Arrange for broker information meeting(s) as required.
Prepare audio-visual presentation for broker information meeting(s).
Prepare script for presentation by senior management at broker information meeting(s).
Prepare management for question-and-answer period at broker information meeting(s).
Attend and address broker information meeting(s) and be available to answer questions.
Produce confidential broker memorandum to assist participating brokers in selling the Bank's common stock.
Webb will use their best efforts to secure market making and on-going research commitment from at least two NASD firms, one of which will be Keefe, Bruyette &
Woods, Inc.
Exhibit 3.1
ARTICLES OF INCORPORATION
OF
TIMBERLAND BANCORP, INC.
Pursuant to the provisions of Title 23B of the Revised Code of Washington ("RCW") (the Washington Business Corporation Act), the following shall constitute the Articles of Incorporation of Riverview Bancorp, Inc., a Washington corporation:
ARTICLE I. NAME. The name of the corporation is Timberland Bancorp, Inc. (the "corporation").
ARTICLE II. DURATION. The duration of the corporation is perpetual.
ARTICLE III. PURPOSE AND POWERS. The nature of the business and the objects and purposes to be transacted, promoted or carried on by the corporation are to engage in the activities of a savings and loan holding company and in any other lawful act or business for which corporations may be organized under the Washington Business Corporation Act (as now in existence or as may hereafter be amended, the "WBCA").
ARTICLE IV. CAPITAL STOCK. The total number of shares of all classes of capital stock which the corporation has authority to issue is 51,000,000, of which 50,000,000 shall be common stock of par value of $0.01 per share, and of which 1,000,000 shall be serial preferred stock of par value $0.01 per share. The shares may be issued from time to time as authorized by the Board of Directors without further approval of the shareholders, 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 stated par value per share. Upon payment of such consideration such shares shall be deemed to be fully paid and nonassessable. Upon authorization by its Board of Directors, the corporation 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.
Except as expressly provided by applicable law, these Articles of Incorporation or by any resolution of the board of directors designating and establishing the terms of any series of preferred stock, no holders of any class or series of capital stock shall have any right to vote as a separate class or series or to vote more than one vote per share. The shareholders of the corporation shall not be entitled to cumulative voting in any election of directors.
A description of the different classes and series (if any) of the corporation'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:
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, but only when and as declared by the board of directors.
In the event of any liquidation, dissolution or winding up of the
corporation, 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 corporation available for distribution remaining after: (i)
payment or provision for payment of the corporation'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 corporation. 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.
(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(s) at which, and the terms and conditions on which, such shares may be redeemed;
(e) The amount(s) payable upon the shares of such series in the event of voluntary or involuntary liquidation, dissolution or winding up of the corporation;
(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(s) at which such shares may be redeemed or purchased through the application of such fund;
(g) Whether the shares of such series shall be convertible into, or exchangeable for, shares of any other class or classes or of any other series of the same or any other class or classes of stock of the corporation, and, if so convertible or exchangeable, the conversion price(s), 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 of preferred stock shall have the same relative rights as and be identical in all respects with all other shares of the same series.
C. 1. Notwithstanding any other provision of these Articles of Incorporation, in no event shall any record owner of any outstanding common stock which is beneficially owned, directly or indirectly, by a person who, as of any record date for the determination of shareholders entitled to vote on any matter, beneficially owns in excess of 10% of the then-outstanding shares of common stock ("Limit"), be entitled, or permitted to any vote in respect of the shares held in excess of the Limit, unless a majority of the Whole Board (as hereinafter defined) shall have by resolution granted in advance such entitlement or permission. The number of votes which may be cast by any record owner by virtue of the provisions hereof in respect of common stock beneficially owned by such person owning shares in excess of the Limit shall be a number equal to the total number of votes which a single
record owner of all common stock owned by such person would be entitled to cast, multiplied by a fraction, the numerator of which is the number of shares of such class or series which are both beneficially owned by such person and owned of record by such record owner and the denominator of which is the total number of shares of common stock beneficially owned by such person owning shares in excess of the Limit.
2. The following definitions shall apply to this Section C of this Article VII.
(a) "Affiliate" shall have the meaning ascribed to it in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on the date of filing of these Articles of Incorporation.
(i) which such person or any of its affiliates beneficially owns, directly or indirectly; or
(ii) which such person or any of its affiliates has (A) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding (but shall not be deemed to be the beneficial owner of any voting shares solely by reason of an agreement, contract, or other arrangement with the corporation to effect any transaction which is described in any one or more of subparagraphs A(1)(a) through (h) of Article X hereof or upon the exercise of conversion rights, exchange rights, warrants, or options or otherwise, or (B) sole or shared voting or investment power with respect thereto pursuant to any agreement, arrangement, understanding, relationship or otherwise (but shall not be deemed to be the beneficial owner of any voting shares solely by reason of a revocable proxy granted for a particular meeting of shareholders, pursuant to a public solicitation of proxies for such meeting, with respect to shares of which neither such person nor any such affiliate is otherwise deemed the beneficial owner); or
(c) A "person" shall mean any individual, firm, corporation, or other entity.
(d) "Whole Board" shall mean the total number of directors which the corporation would have if there were no vacancies on the board of directors.
3. The board of directors shall have the power to construe and apply the provisions of this Section C and to make all determinations necessary or desirable to implement such provisions, including but not limited to matters with respect to (i) the number of shares of common stock beneficially owned by any person, (ii) whether a person is an affiliate of another, (iii) whether a person has an agreement, arrangement, or understanding with another as to the matters referred to in the definition of beneficial ownership, (iv) the application of any other definition or operative provision of this Section C to the given facts, or (v) any other matter relating to the applicability or effect of this Section C.
4. The board of directors shall have the right to demand that any person who is reasonably believed to beneficially own common stock in excess of the Limit (or holds of record common stock beneficially owned by any person in excess of the Limit) supply the corporation with complete information as to (i) the record owner(s) of all shares beneficially owned by such person who is reasonably believed to own shares in excess of the Limit, and (ii) any other factual matter relating to the applicability or effect of this section as may reasonably be required of such person.
5. Except as otherwise provided by law or expressly provided in this Section C, the presence, in person or by proxy, of the holders of record of shares of capital stock of the corporation entitling the holders thereof to cast a majority of the votes (after giving effect, if required, to the provisions of this Section C) entitled to be cast by the holders of shares of capital stock of the corporation entitled to vote shall constitute a quorum at all meetings of the shareholders, and every reference in these Articles of Incorporation to a majority or other proportion of capital stock (or the holders thereof) for purposes of determining any quorum requirement or any requirement for shareholder consent or approval shall be deemed to refer to such majority or other proportion of the votes (or the holders thereof) then entitled to be cast in respect of such capital stock.
6. Any constructions, applications, or determinations made by the board of directors pursuant to this Section C in good faith and on the basis of such information and assistance as was then reasonably available for such purpose shall be conclusive and binding upon the corporation and its shareholders.
7. In the event any provision (or portion thereof) of this
Section C shall be found to be invalid, prohibited or unenforceable for any
reason, the remaining provisions (or portions thereof) of this Section C shall
remain in full force and effect, and shall be construed as if such invalid,
prohibited or unenforceable provision had been stricken herefrom or otherwise
rendered inapplicable, it being the intent of the corporation and its
shareholders that each such remaining provision (or portion thereof) of this
Section C remain, to the fullest extent permitted by law, applicable and
enforceable as to all shareholders, including shareholders owning an amount of
stock over the Limit, notwithstanding any such finding.
ARTICLE V. PREEMPTIVE RIGHTS. Holders of the capital stock of the corporation shall not be entitled to preemptive rights with respect to any shares of the corporation which may be issued.
ARTICLE VI. INITIAL DIRECTORS. The persons who shall serve as the initial directors of the corporation are: Clarence E. Hamre, Michael R. Sand, Andrea M. Clinton, Robert Backstrom, Richard R. Morris, Jr., Alan E. Smith, Peter J. Majar, Jon C. Parker and James C. Mason. The address of each initial director is 624 Simpson Avenue, Hoquiam, Washington 98550. The initial directors shall serve until the first annual meeting of shareholders, at which time they may stand for reelection.
ARTICLE VII. DIRECTORS.
ARTICLE VIII. REMOVAL OF DIRECTORS. Notwithstanding any other provisions of these articles of incorporation or the corporation's bylaws (and notwithstanding the fact that some lesser percentage may be specified by law, these articles of incorporation or the corporation's bylaws), any director or the entire Board of Directors may be removed only for cause and only by the affirmative vote of the holders of at least 80% of the total votes eligible to be cast at a legal meeting called expressly for such purpose. For purpose of this Article VIII, "cause" shall mean fraudulent or dishonest acts, a gross abuse of authority in discharge of duties to the corporation or acts that are detrimental or hostile to the interests of the corporation.
ARTICLE IX. REGISTERED OFFICE AND AGENT. The registered office of the corporation shall be located at 624 Simpson Avenue, Hoquiam, Washington 98550. The initial registered agent of the corporation at such address shall be Clarence E. Hamre.
ARTICLE X. NOTICE FOR SHAREHOLDER NOMINATIONS AND PROPOSALS.
A. Nominations for the election of directors and proposals for any new
business to be taken up at any annual or special meeting of shareholders may be
made by the board of directors of the corporation or by any shareholder of the
corporation entitled to vote generally in the election of directors. In order
for a shareholder of the corporation to make any such nominations and/or
proposals, he or she shall give notice thereof in writing, delivered or mailed
by first class United States mail, postage prepaid, to the Secretary of the
corporation not less than thirty days nor more than sixty days prior to any such
meeting; provided, however, that if less than thirty-one days' notice of the
meeting is given to shareholders, such written notice shall be delivered or
mailed, as prescribed, to the Secretary of the corporation not later than the
close of the tenth day following the day on which notice of the meeting was
mailed to shareholders. Each such notice given by a shareholder with respect to
nominations for election of directors shall set forth (i) the name, age,
business address and, if known, residence address of each nominee proposed in
such notice, (ii) the principal occupation or employment of each such nominees,
(iii) the number of shares of stock of the corporation which are beneficially
owned by each such nominee, (iv) such other information as would be required to
be included in a proxy statement soliciting proxies for the election of the
proposed nominee pursuant to Regulation 14A of the General Rules and Regulations
of the Securities Exchange Act of 1934, including, without limitation, such
person's written consent to being named in the proxy statement as a nominee and
to serving as a director, if elected, and (v) as to the shareholder giving such
notice (a) his name and address as they appear on the corporation's books and
(b) the class and number of shares of the corporation which are beneficially
owned by such shareholder. In addition, the shareholder making such nomination
shall promptly provide any other information reasonably requested by the
corporation.
B. Each such notice given by a shareholder to the Secretary with respect
to business proposals to bring before a meeting shall set forth in writing as to
each matter: (i) a brief description of the business desired to be brought
before the meeting and the reasons for conducting such business at the meeting,
(ii) the name and address, as they appear on the corporation's books, of the
shareholder proposing such business; (iii) the class and number of
shares of the corporation which are beneficially owned by the shareholder; and
(iv) any material interest of the shareholder in such business. Notwithstanding
anything in this Certificate to the contrary, no business shall be conducted at
the meeting except in accordance with the procedures set forth in this Article.
C. The Chairman of the annual or special meeting of shareholders may, if the facts warrant, determine and declare to the meeting that a nomination or proposal was not made in accordance with the foregoing procedure, and, if the Chairman should so determine, the Chairman shall so declare to the meeting and the defective nomination or proposal shall be disregarded and laid over for action at the next succeeding adjourned, special or annual meeting of the shareholders taking place thirty days or more thereafter. This provision shall not require the holding of any adjourned or special meeting of shareholders for the purpose of considering such defective nomination or proposal.
ARTICLE XI. APPROVAL OF CERTAIN BUSINESS COMBINATIONS. The shareholder vote required to approve Business Combinations (as hereinafter defined) shall be as set forth in this section.
A. (1) Except as otherwise expressly provided in this Article XI, the affirmative vote of the holders of (i) at least 80% of the outstanding shares entitled to vote thereon (and, if any class or series of shares is entitled to vote thereon separately, the affirmative vote of the holders of at least 80% of the outstanding shares of each such class or series), and (ii) at least a majority of the outstanding shares entitled to vote thereon, not including shares deemed beneficially owned by a Related Person (as hereinafter defined), shall be required to authorize any of the following:
(a) any merger or consolidation of the corporation with or into a Related Person;
(b) any sale, lease, exchange, transfer or other disposition, including without limitation, a mortgage, or any other security device, of all or any Substantial Part (as hereinafter defined) of the assets of the corporation (including without limitation any voting securities of a subsidiary) or of a subsidiary, to a Related Person;
(c) any merger or consolidation of a Related Person with or into the corporation or a subsidiary of the corporation;
(d) any sale, lease, exchange, transfer or other disposition of all or any Substantial Part of the assets of a Related Person to the corporation or a subsidiary of the corporation;
(e) the issuance of any securities of the corporation or a subsidiary of the corporation to a Related Person;
(f) the acquisition by the corporation or a subsidiary of the corporation of any securities of a Related Person;
(g) any reclassification of the common stock of the corporation, or any recapitalization involving the common stock of the corporation;
(h) any liquidation or dissolution of the corporation; and
(i) any agreement, contract or other arrangement providing for any of the transactions described in this Article XI.
(2) Such affirmative vote shall be required notwithstanding any other provision of these Articles of Incorporation, any provision of law, or any agreement with any regulatory agency or national securities exchange which might otherwise permit a lesser vote or no vote.
(3) The term "Business Combination" as used in this Article XI shall mean any transaction which is referred to in any one or more of subparagraphs (a) through (i) above.
C. For the purposes of this Article XI the following definitions apply:
(1) The term "Related Person" shall mean and include (a) any individual, corporation, partnership or other person or entity which together with its "affiliates" (as that term is defined in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934), "beneficially owns" (as that term is defined in Rule 13d-3 of the General Rules and Regulations under the Securities Act of 1934) in the aggregate 10% or more of the outstanding shares of the common stock of the corporation (excluding tax- qualified benefit plans of the corporation); and (b) any "affiliate" (as that term is defined in Rule 12b-2 under the Securities Exchange Act of 1934) of any such individual, corporation, partnership or other person or entity. Without limitation, any shares of the common stock of the corporation which any Related Person has the right to acquire pursuant to any agreement, or upon exercise or conversion rights, warrants or options, or otherwise, shall be deemed "beneficially owned" by such Related Person.
(2) The term "Substantial Part" shall mean more than 25% of the total assets of the corporation as of the end of its most recent fiscal year prior to when the determination is made.
(3) The term "Continuing Director" shall mean any member of the board of directors of the corporation who is unaffiliated with the Related Person and was a member of the board of directors prior to the time the Related Person became a Related Person, and any successor of a Continuing Director who is unaffiliated with the Related Person and is recommended to succeed a Continuing Director by a majority of Continuing Directors then on the board of directors.
(4) The term "Continuing Director Quorum" shall mean seventy- five percent (75%) of the Continuing Directors capable of exercising the powers conferred on them.
D. Nothing contained in this Article XI shall be construed to relieve a Related Person from any fiduciary obligation imposed by law. In addition, nothing contained in the Article XI shall prevent any shareholders of the corporation from objecting to any Business Combination and from demanding any appraisal rights which may be available to such shareholder.
ARTICLE XII. EVALUATION OF BUSINESS COMBINATIONS. In connection with the exercise of its judgment in determining what is in the best interests of the corporation and of the shareholders, when evaluating a Business
Combination (as defined in Article XI) or a tender or exchange offer, the board of directors of the corporation, in addition to considering the adequacy of the amount to be paid in connection with any such transaction, shall consider all of the following factors and any other factors which it deems relevant: (i) the social and economic effects of the transaction on the corporation and its subsidiaries, employees, depositors, loan and other customers, creditors and other elements of the communities in which the corporation and its subsidiaries operate or are located; (ii) the business and financial condition and earnings prospects of the acquiring person or entity, including, but not limited to, debt service and other existing financial obligations, financial obligations to be incurred in connection with the acquisition and other likely financial obligations of the acquiring person or entity and the possible effect of such conditions upon the corporation and its subsidiaries and the other elements of the communities in which the corporation and its subsidiaries operate or are located; and (iii) the competence, experience, and integrity of the acquiring person or entity and its or their management.
ARTICLE XIII. LIMITATION OF DIRECTORS' LIABILITY. To the fullest extent permitted by the WBCA, a director of the corporation shall not be personally liable to the corporation or its shareholders 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 RCW Section 23B.08.310 (relating to unlawful distributions by the corporation); 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. If the WBCA is amended in the future to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the corporation shall be eliminated or limited to the full extent permitted by the WBCA, as so amended, without any requirement or further action by shareholders. An amendment or repeal of this Article XII shall not adversely affect any right or protection of a director of the corporation existing at the time of such amendment or repeal.
ARTICLE XIV. INDEMNIFICATION. The corporation shall indemnify and advance expenses to its directors, officers, agents and employees as follows:
ARTICLE XV. SPECIAL MEETING OF SHAREHOLDERS. Special meetings of the shareholders for any purpose or purposes may be called only by the president or by the Board of Directors. The right of shareholders of the corporation to call special meetings is specifically denied.
ARTICLE XVI. REPURCHASE OF SHARES. The corporation may from time to time, pursuant to authorization by the board of directors of the corporation and without action by the shareholders, purchase or otherwise acquire shares of any class, bonds, debentures, notes, scrip, warrants, obligations, evidences of indebtedness, or other securities of the corporation in such manner, upon such terms, and in such amounts as the board of directors shall determine; subject, however, to such limitations or restrictions, if any, as are contained in the express terms of any class of shares of the corporation outstanding at the time of the purchase or acquisition in question or as are imposed by law.
ARTICLE XVII. AMENDMENT OF BYLAWS. In furtherance and not in limitation of the powers conferred by statute, the board of directors of the corporation is expressly authorized to make, repeal, alter, amend and rescind the bylaws of the corporation by a majority vote of the board of directors. Notwithstanding any other provision of these Articles of Incorporation or the bylaws of the corporation (and notwithstanding the fact that some lesser percentage may be specified by law), the bylaws shall not be adopted, repealed, altered, amended or rescinded by the shareholders of the corporation except by the vote of the holders of not less than 80% of the outstanding shares of capital stock of the corporation entitled to vote generally in the election of directors (considered for this purpose as one class) cast at a meeting of the shareholders called for that purpose (provided that notice of such proposed adoption, repeal, alteration, amendment or rescission is included in the notice of such meeting), or, as set forth above, by the board of directors.
ARTICLE XVIII. AMENDMENT OF ARTICLES OF INCORPORATION. The corporation reserves the right to repeal, alter, amend or rescind any provision contained in the Articles of Incorporation in the manner now or hereafter prescribed by law, and all rights conferred on shareholders herein are granted subject to this reservation. Notwithstanding the foregoing, the provisions set forth in Articles II, III, IV (other than a change to the number of authorized shares in connection with a split of, or stock dividend in, the corporation's own shares, provided the corporation has only one class of shares outstanding or a change in the par value of such shares), V, VI, VIII, X,
XI, XII, XIII, XIV, XV, XVI, XVII and this Article XVIII of these Articles of Incorporation may not be repealed, altered, amended or rescinded in any respect unless the same is approved by the affirmative vote of the holders of not less than 80% of the votes entitled to be cast by each separate voting group entitled to vote thereon, cast at a meeting of the shareholders called for that purpose (provided that notice of such proposed adoption, repeal, alteration, amendment or rescission is included in the notice of such meeting).
ARTICLE XIX. INCORPORATOR. The name and mailing address of the incorporator are Clarence E. Hamre, P.O. Box 697, Hoquiam, Washington 98550.
* * *
Executed this 4th day of September, 1997.
/s/ Clarence E. Hamre ------------------------------------------------ Clarence E. Hamre Incorporator |
Exhibit 3.2
BYLAWS
OF
TIMBERLAND BANCORP, INC.
ARTICLE I
PRINCIPAL OFFICE
SECTION 1. PRINCIPAL OFFICE. The principal office and place of business of the corporation in the state of Washington shall be located in the City of Hoquiam, Grays Harbor County.
SECTION 2. OTHER OFFICES. The corporation may have such other offices as the Board of Directors may designate or the business of the corporation may require from time to time.
ARTICLE II
SHAREHOLDERS
SECTION 1. PLACE OF MEETINGS. All annual and special meetings of the shareholders shall be held at the principal office of the corporation 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 shareholders of the corporation for the election of directors and for the transaction of any other business of the corporation shall be held annually on the third ______day 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 __:00 _.m., Pacific time, or at such other date and time as the Board of Directors may determine.
SECTION 3. SPECIAL MEETINGS. Special meetings of the shareholders for any purpose or purposes shall be called in accordance with the procedures set forth in the Articles of Incorporation.
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 6. FIXING OF RECORD DATE. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or shareholders entitled to receive payment
of any dividend, or in order to make a determination of shareholders for any other proper purpose, the Board of Directors shall fix, in advance, a date as the record date for any such determination of shareholders. Such date in any case shall be not more than 60 days, and in case of a meeting of shareholders, not less than 10 days prior to the date on which the particular action, requiring such determination of shareholders, is to be taken. If no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, or shareholders entitled to receive payment of a dividend, the day before the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment.
SECTION 7. VOTING LISTS. At least 10 days before each meeting of the shareholders, the officer or agent having charge of the stock transfer books for shares of the corporation shall make a complete list of the shareholders 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 shareholders shall be kept on file at the home office of the corporation and shall be subject to inspection by any shareholder at any time during usual business hours, for a period of 10 days prior to such meeting. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to inspection by any shareholder during the entire time of the meeting. The original stock transfer book shall be prima facie evidence of the shareholders entitled to examine such list or transfer books or to vote at any meeting of shareholders. Failure to comply with the requirements of this bylaw shall not affect the validity of any action taken at the meeting.
SECTION 8. QUORUM. A majority of the outstanding shares of the corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of shareholders. The shareholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. If a quorum is present or represented at a meeting, a majority of those present or represented may transact any business which comes before the meeting, unless a greater percentage is required by law. 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, and in the case of any adjourned meeting called for the election of directors, those who attend the second of the adjourned meetings, although less than a quorum, shall nevertheless constitute a quorum for the purpose of electing directors.
SECTION 9. PROXIES. At all meetings of shareholders, a shareholder may vote by proxy executed in writing by the shareholder or by his duly authorized attorney in fact. Proxies solicited on behalf of the management shall be voted as directed by the shareholder or, in the absence of such direction, as determined by a majority of the board of directors. All proxies shall be filed with the secretary of the corporation before or at the commencement of meetings. No proxy may be effectively revoked until notice in writing of such revocation has been given to the secretary of the corporation by the shareholder (or his duly authorized attorney in fact, as the case may be) granting the proxy. No proxy shall be valid after eleven months from the date of its execution unless it is coupled with an interest.
SECTION 10. VOTING OF SHARES BY CERTAIN HOLDERS. Shares standing in the name of another corporation may be voted by any officer, agent or proxy as the bylaws of such corporation may prescribe, or, in the absence of such provision, as the board of directors of such corporation may determine. A certified copy of a resolution adopted by such directors shall be conclusive as to their action.
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.
If shares are held jointly by three or more fiduciaries, the will of the majority of the fiduciaries shall control the manner of voting or giving of a proxy, unless the instrument or order appointing such fiduciaries otherwise directs.
A shareholder, whose shares are pledged, shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter, the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the corporation, nor shares held by another corporation, if a majority of the shares entitled to vote for the election of directors of such other corporation held by the corporation, shall be voted at any meeting or counted in determining the total number of outstanding shares at any given time for purposes of any meeting.
SECTION 11. VOTING. Every holder of outstanding shares of capital stock of the corporation entitled to vote at any meeting shall be entitled to the number of votes (if any) as set forth in the Articles of Incorporation. Shareholders shall not be entitled to cumulative voting rights in the election of directors. Unless otherwise provided in the Articles of Incorporation, by statute, or by these bylaws, a majority of those votes cast by shareholders at a lawful meeting shall be sufficient to pass on a transaction or matter.
SECTION 12. INFORMAL ACTION BY SHAREHOLDERS. Any action required to be taken at a meeting of the shareholders, or any other action which may be taken at a meeting of the shareholders, may be taken without a meeting if consent in writing, setting forth the action so taken, shall be given by all of the shareholders entitled to vote with respect to the subject matter.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. All corporate powers shall be exercised by, or under authority of, and the business and affairs of the corporation 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. The number of directors may be increased or decreased from time to time by amendment to or in the manner provided in these bylaws, but shall be no less than and no more than the numbers set forth in the Articles of Incorporation. No decrease, however, shall have the effect of shortening the term of any incumbent director unless such director is removed in accordance with the provisions of these bylaws. Unless removed in accordance with the Articles of Incorporation, each director shall hold office until his successor shall have been elected and qualified.
SECTION 3. REGULAR MEETINGS. An annual meeting of the Board of Directors shall be held without other notice than this bylaw immediately after the annual meeting of shareholders, 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, for the holding of additional regular meetings without other notice than such resolution. The president
of the corporation, the Board of Directors or any director may call a special meeting of the Board. Regular meetings may be held in or out of the state of Washington.
Members of the Board of Directors may participate in regular or 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 13 of this Article.
SECTION 4. NOTICE OF SPECIAL MEETING. Written notice of any special meeting shall be given to each director at least two days prior thereto. If mailed to 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. 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. Special meetings may be held in or out of the state of Washington.
SECTION 5. 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 6. MANNER OF ACTING. The act of the majority of the directors present at a meeting or adjourned 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 7. 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 8. RESIGNATION. Any director may resign at any time by sending a written notice of such resignation to the principal office of the corporation 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.
SECTION 9. REMOVAL. A director or the entire board of directors may be removed only in accordance with the procedures set forth in the Articles of Incorporation.
SECTION 10. VACANCIES. Vacancies of the board of directors may be filled only in accordance with the procedures set forth in the Articles of Incorporation.
SECTION 11. COMPENSATION. Directors, as such, may receive a stated fee for their services. By resolution of the board of directors, a reasonable fixed sum, and reasonable expenses of attendance, if any, may be allowed for actual attendance at each regular or special meeting of the board of directors. Members of either standing or special committees may be allowed such compensation for actual attendance at committee meetings as the board of directors may determine. Nothing herein shall be construed to preclude any director from serving the corporation in any other capacity and receiving remuneration therefor.
SECTION 12. PRESUMPTION OF ASSENT. A director of the corporation who is present at a meeting of the Board of Directors at which action on a corporation matter is taken shall be presumed to have assented to the action
taken unless his dissent or abstention shall be entered in the minutes of the meeting or unless he 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 corporation 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.
ARTICLE IV
COMMITTEES OF THE BOARD OF DIRECTORS
SECTION 1. APPOINTMENT. The board of directors may, by resolution adopted by a majority of the full board, designate one or more committees, each consisting of two or more directors, to serve at the pleasure of the board of directors. The board of directors may designate one or more directors as alternate members of any committee, who may replace any absent member at any meeting of any such committee.
SECTION 2. AUTHORITY. Any such committee shall have all the authority of
the board of directors, except to the extent, if any, that such authority shall
be limited by the resolution appointing the committee; and except also that no
committee shall have the authority of the board of directors with reference to:
the declaration of dividends; the amendment of the charter or bylaws of the
Corporation, or recommending to the shareholders 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 Corporation otherwise than
in the usual and regular course of its business; a voluntary dissolution of the
Corporation; a revocation of any of the foregoing; the approval of a transaction
in which any member of the committee, directly or indirectly, has any material
beneficial interest; the filling of vacancies on the board of directors or in
any committee; or the appointment of other committees of the board of directors
or members thereof.
SECTION 3. TENURE. Subject to the provisions of Section 8 of this Article III, each member of a committee shall hold office until the next regular annual meeting of the board of directors following his or her designation and until a successor is designated as a member of the committee.
SECTION 4. MEETINGS. Unless the board of directors shall otherwise provide, regular meetings of any committee appointed pursuant to this Article III shall be at such times and places as are determined by the board of directors, or by any such committee. Special meetings of any such committee may be held at the principal executive office of the Corporation, or at any place which has been designated from time to time by resolution of such committee or by written consent of all members thereof, and 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 shall been given in the manner provided for the giving of notice to members of the board of directors of the time and place of special meetings of the board of directors.
SECTION 5. QUORUM. A majority of the members of any committee shall constitute a quorum for the transaction of business at any meeting thereof.
SECTION 6. ACTION WITHOUT A MEETING. Any action required or permitted to be taken by any 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 any such committee.
SECTION 7. RESIGNATIONS AND REMOVAL. Any member of any 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 any committee may resign from any such committee at any time by giving written notice to the president or secretary of the Corporation. Unless otherwise specified, such resignation shall take effect upon its receipt; the acceptance of such resignation shall not be necessary to make it effective.
SECTION 8. PROCEDURE. Unless the board of directors otherwise provides, each committee shall elect a presiding officer from its members and may fix its own rules of procedure which shall not be inconsistent with these bylaws. It shall keep regular minutes of its proceedings and report the same to the board of directors for its information at the meeting held next after the proceedings shall have occurred.
ARTICLE V
OFFICERS
SECTION 1. POSITIONS. The officers of the Corporation shall be a president, a secretary and a treasurer, each of whom shall be elected by the board of directors. The board of directors may also designate the chairman of the board as an officer. The president shall be the chief executive officer unless the board of directors designates the chairman of the board as chief executive officer. The president shall be a director of the Corporation. 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 Corporation may require. The officers shall have such authority and perform such duties as the board of directors may from time to time authorize or determine. In the absence of action by the board of directors, the officers shall have such powers and duties as generally pertain to their respective offices.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the Corporation shall be elected annually by the board of directors at the first meeting of the board of directors held after each annual meeting of the shareholders. If the election of officers is not held at such meeting, such election shall be held as soon thereafter as possible. Each officer shall hold office until his successor shall have been duly elected and qualified or until his death or until he shall resign or shall have been removed in the manner hereinafter provided. Election or appointment of an officer, employee or agent shall not of itself create contract rights. The board of directors may authorize the corporation to enter into an employment contract with any officer in accordance with applicable law.
SECTION 3. REMOVAL. Any officer may be removed by vote of two-thirds of the board of directors whenever, in its judgment, the best interests of the Corporation will be served thereby, but such removal, other than for cause, shall be without prejudice to the contract rights, if any, of the person so removed.
SECTION 4. VACANCIES. A vacancy in any office because of death, resignation, removal, disqualification or otherwise, may be filled by the board of directors for the unexpired portion of the term.
SECTION 5. REMUNERATION. The remuneration of the officers shall be fixed from time to time by the board of directors and no officer shall be prevented from receiving such salary by reason of the fact that he is also a director of the Corporation.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. CONTRACTS. 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 corporation. Such authority may be general or confined to specific instances.
SECTION 2. LOANS. No loans shall be contracted on behalf of the corporation and no evidence of indebtedness shall be issued in its name, unless authorized by the Board of Directors. Such authority may be general or confined to specific instances.
SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts, or other orders for the payment of money, notes, or other evidences of indebtedness in the name of the corporation shall be signed by one or more officer, employee, or agent of the corporation in such manner as shall from time to time be determined by the Board of Directors.
SECTION 4. DEPOSITS. All funds of the corporation not otherwise employed shall be deposits form time to time to the credit of the corporation in any of its duly authorized depositories as the Board of Directors may select.
SECTION 5. CONTRACTS WITH DIRECTORS AND OFFICERS. To the fullest extent authorized by and in conformance with Washington law, the corporation may enter into contracts with and otherwise transact business as vendor, purchaser, or otherwise, with its directors, officers, employees and shareholders and with corporations, associations, firms, and entities in which they are or may become interested as directors, officers, shareholders, or otherwise, as freely as though such interest did not exist, except that no loans shall be made by the corporation secured by its shares. In the absence of fraud, the fact that any director, officer, employee, shareholder, or any corporation, association, firm or other entity of which any director, officer, employee or shareholder is interested, is in any way interested in any transaction or contract shall not make the transaction or contract void or voidable, or require the director, officer, employee or shareholder to account to this corporation for any profits therefrom if the transaction or contract is or shall be authorized, ratified, or approved by (i) the vote of a majority of the Board of Directors excluding any interested director or directors, (ii) the written consent of the holders of a majority of the shares entitled to vote, or (iii) a general resolution approving the acts of the directors and officers adopted at a shareholders meeting by vote of the holders of the majority of the shares entitled to vote. All loans to officers and directors shall be subject to Federal and state laws and regulations. Nothing herein contained shall create or imply any liability in the circumstances above described or prevent the authorization, ratification or approval of such transactions or contracts in any other manner.
SECTION 6. SHARES OF ANOTHER CORPORATION. Shares of another corporation held by this corporation may be voted by the president or any vice president, or by proxy appointment form by either of them, unless the directors by resolution shall designate some other person to vote the shares.
ARTICLE VII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. CERTIFICATES FOR SHARES. Certificates representing shares of capital stock of the corporation 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 corporation 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 corporation 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 corporation. All certificates surrendered to the corporation 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 corporation as the Board of Directors may prescribe.
SECTION 2. TRANSFER OF SHARES. Transfer of shares of capital stock of the corporation shall be made only on its stock transfer books. Authority for such transfer shall be given only 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 corporation. 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 corporation shall be deemed by the corporation to be the owner thereof for all purposes.
SECTION 3. CERTIFICATION OF BENEFICIAL OWNERSHIP. The Board of Directors may adopt by resolution a procedure whereby a shareholder of the bank may certify in writing to the corporation that all or a portion of the shares registered in the name of such shareholder are held for the account of a specified person or persons. Upon receipt by the corporation of a certification complying with such procedure, the persons specified in the certification shall be deemed, for the purpose or purposes set forth in the certification, to be the holders of record of the number of shares specified in place of the shareholder making the certification.
SECTION 4. LOST CERTIFICATES. The board of directors may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed. When authorizing such issue of a new certificate, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen, or destroyed certificate, or his legal representative, to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen, or destroyed.
ARTICLE VIII
FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the corporation shall end on the last day of September of each year. The corporation 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 IX
DIVIDENDS
Subject to the terms of the corporation's Articles of Incorporation and the laws of the State of Washington, the Board of Directors may, from time to time, declare, and the corporation may pay, dividends upon its outstanding shares of capital stock.
ARTICLE X
CORPORATE SEAL
The corporation need not have a corporate seal. If the directors adopt a corporate seal, the seal of the corporation shall be circular in form and consist of the name of the corporation, the state and year of incorporation, and the words "Corporate Seal."
ARTICLE XI
AMENDMENTS
In accordance with the corporation's Articles of Incorporation, these bylaws may be repealed, altered, amended or rescinded by the shareholders of the corporation only by vote of not less than 80% of the outstanding shares of capital stock of the corporation entitled to vote generally in the election of directors (considered for this purpose as one class) cast at a meeting of the shareholders called for that purpose (provided that notice of such proposed repeal, alteration, amendment or rescission is included in the notice of such meeting). In addition, the board of directors may repeal, alter, amend or rescind these bylaws by vote of two-thirds of the board of directors at a legal meeting held in accordance with the provisions of these bylaws.
* * *
Exhibit 4
TIMBERLAND BANCORP, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF WASHINGTON
COMMON STOCK CUSIP
See Reverse For
Certain Definitions
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $.01 PAR VALUE PER
SHARE, OF
Timberland Bancorp, Inc., a stock corporation incorporated under the laws of the State of Washington. The shares represented by this Certificate are transferable only on the stock transfer books of the Corporation by the holder of record hereof or by his duly authorized attorney or legal representative upon the surrender of this Certificate properly endorsed. Such shares are non- withdrawable and not insurable. Such shares are not insured by the Federal government. The Articles and shares represented hereby are issued and shall be held subject to all provisions of the Articles of Incorporation and Bylaws of the Corporation and any amendments thereto (copies of which are on file with the Transfer Agent), to all of which provisions the holder by acceptance hereof, assents.
IN WITNESS WHEREOF, Timberland Bancorp, Inc. has caused this Certificate to be executed by the facsimile signatures of its duly authorized officers and has caused a facsimile of its corporate seal to be hereunto affixed.
CORPORATE SECRETARY PRESIDENT AND CHIEF EXECUTIVE OFFICER
TRANSFER AGENT
[SEAL]
TIMBERLAND BANCORP, INC.
The shares represented by this Certificate are issued subject to all the provisions of the Articles of Incorporation and Bylaws of Timberland Bancorp, Inc. ("Corporation") as from time to time amended (copies of which are on file with the Transfer Agent and at the principal executive offices of the Corporation).
The shares represented by this Certificate are subject to a limitation contained in the Articles of Incorporation to the effect that in no event shall any record owner of any outstanding common stock which is beneficially owned, directly or indirectly, by a person who beneficially owns in excess of 10% of the outstanding shares of common stock (the "Limit") be entitled or permitted to vote in respect of the shares held in excess of the Limit, unless a majority of the whole Board of Directors, as defined, shall have by resolution granted in advance such entitlement or permission.
The Board of Directors of the Corporation is authorized by resolution(s), from time to time adopted, to provide for the issuance of preferred stock in series and to fix and state the powers, designations, preferences and relative, participating, optional or other special rights of the shares of each such series and the qualifications, limitations and restrictions thereof. The Corporation will furnish to any shareholder upon request and without charge a full description of each class of stock and any series thereof.
The shares represented by this Certificate may not be cumulatively voted on any matter. The affirmative vote of the holders of at least 80% of the voting stock of the Corporation, voting together as a single class, shall be required to approve certain business combinations and other transactions, pursuant to the Articles of Incorporation, or to amend certain provisions of the Articles of Incorporation.
The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as through they were written out in full according to applicable laws or regulations.
TEN COM -as tenants in common
TEN ENT -as tenants by the entireties
JT TEN -as joint tenants with right of survivorship and
not as tenants in common
UNIF GIFT MIN ACT -_______ Custodian _______ under Uniform Gifts to
(Cust) (Minor)
Minors Act _________
(State)
|
Additional abbreviations may also be used though not in the above list
For value received, ___________________________________________ hereby sell, assign and transfer unto
shares of the Common Stock evidenced by this Certificate, and do hereby irrevocably constitute and appoint __________________________________ Attorney, to transfer the said shares on the books of the within named Corporation, with full power of substitution.
Dated _________________
NOTICE: The signature to this assignment
must correspond with the name as written
upon the face of the Certificate in every
particular, without alteration or
enlargement or any change whatever.
Exhibit 5
[LETTERHEAD OF BREYER & AGUGGIA APPEARS HERE]
September 17, 1997
Board of Directors
Timberland Bancorp, Inc.
624 Simpson Avenue
Hoquiam, Washington 98550
RE: Timberland Bancorp, Inc.
Registration Statement on Form S-1
Gentlemen and Lady:
You have requested our opinion as special counsel for Timberland Bancorp, Inc., a Washington corporation, in connection with the above-referenced registration statement filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended.
In rendering this opinion, we understand that the common stock of Timberland Bancorp, Inc. will be offered and sold in the manner described in the Prospectus, which is part of the Registration Statement. We have examined such records and documents and made such examination as we have deemed relevant in connection with this opinion.
Based upon the foregoing, it is our opinion that the shares of common stock of Timberland Bancorp, Inc. will upon issuance be legally issued, fully paid and nonassessable.
This opinion is furnished for use as an exhibit to the Registration Statement. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to us under the heading "LEGAL OPINIONS."
Very truly yours,
/s/ Breyer & Aguggia
BREYER & AGUGGIA
Washington, D.C.
|
Exhibit 8.1
[LETTERHEAD OF BREYER & AGUGGIA APPEARS HERE]
September 11, 1997
Boards of Directors
Timberland Savings Bank, SSB
Timberland Bancorp, Inc.
624 Simpson Avenue
Hoquiam, Washington 98550
Gentlemen and Lady:
In accordance with your request, set forth herein is the opinion of this firm relating to certain federal income tax consequences of (i) the proposed conversion of Timberland Savings Bank, SSB (the "Savings Bank") from a Washington-chartered mutual savings bank to a Washington-chartered capital stock savings bank (the "Converted Savings Bank") (the "Stock Conversion") and (ii) the concurrent acquisition of 100% of the outstanding capital stock of the Converted Savings Bank by a parent holding company formed at the direction of the Board of Directors of the Savings Bank and to be known as "Timberland Bancorp, Inc." (the "Holding Company").
For purposes of this opinion, we have examined such documents and questions of law as we have considered necessary or appropriate, including but not limited to the Plan of Conversion as adopted by the Savings Bank's Board of Directors on July 10, 1997 (the "Plan"); the mutual charter and bylaws of the Savings Bank; the certificate of incorporation and bylaws of the Holding Company; the Affidavit of Representations dated September 10, 1997 provided to us by the Savings Bank (the "Affidavit"), and the Prospectus (the "Prospectus") included in the Registration Statement on Form S-1 to be filed with the Securities and Exchange Commission ("SEC") (the "Registration Statement"). In such examination, we have assumed, and have not independently verified, the genuineness of all signatures on original documents where due execution and delivery are requirements to the effectiveness thereof. Terms used but not defined herein, whether capitalized or not, shall have the same meaning as defined in the Plan.
Boards of Directors
Timberland Savings Bank, SSB
Timberland Bancorp, Inc.
September 11, 1997
Based solely upon our review of such documents, and upon such information as the Savings Bank has provided to us (which we have not attempted to verify in any respect), and in reliance upon such documents and information, we set forth herein a general summary of the relevant facts and proposed transactions, qualified in its entirety by reference to the documents cited above.
The Savings Bank is a Washington-chartered mutual savings bank which is in the process of converting to a Washington-chartered stock savings bank. The Savings Bank was initially organized in 1915. The Savings Bank is also a member of the Federal Home Loan Bank System and its deposits are federally insured under the Savings Association Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation ("FDIC"). The Savings Bank main office is located in Hoquiam, Washington.
The Savings Bank is engaged primarily in the business of attracting deposits from the general public and using such funds to originate fixed-rate mortgage loans and adjustable rate mortgage loans secured by one- to- four family residential real estate located in its primary market area. The Savings Bank is also an active originator of residential construction 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 shareholders' equity of $23.9 million, on a consolidated basis.
As a Washington-chartered mutual savings bank, the Savings Bank has no authorized capital stock. Instead, the Savings Bank, in mutual form, has a unique equity structure. A savings depositor of the Savings Bank is entitled to payment of interest on his account balance as declared and paid by the Savings Bank, but has no right to a distribution of any earnings of the Savings Bank except for interest paid on his deposit. Rather, such earnings become retained earnings of the Savings Bank.
Boards of Directors
Timberland Savings Bank, SSB
Timberland Bancorp, Inc.
September 11, 1997
interests held by a savings depositor in the Savings Bank cease when such depositor closes his accounts with the Savings Bank.
The Holding Company was incorporated on September 8, 1997 under the laws of the State of Washington as a general business corporation in order to act as a savings institution holding company. The Holding Company has an authorized capital structure of 50 million shares of common stock and one million shares of preferred stock.
Management of the Savings Bank believes that the Stock Conversion offers a number of advantages which will be important to the future growth and performance of the Converted Savings Bank in that it is intended to support the Converted Savings Bank's current lending and investment activities and also support possible future expansion and diversification of operations; afford the Converted 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 Converted Savings Bank; enable the Holding Company and the Converted Savings Bank to raise additional capital in the public equity or debt markets should the need arise.
Accordingly, pursuant to the Plan, the Savings Bank will undergo the Stock Conversion whereby it will be converted from a Washington-chartered mutual savings bank to a Washington-chartered stock savings bank. As part of the Stock Conversion, the Savings Bank will amend its existing mutual savings bank charter and bylaws to read in the form of a Washington stock charter and bylaws. The Converted Savings Bank will then issue to the Holding Company shares of the Converted Savings Bank's common stock representing all of the shares of capital stock to be issued by the Converted Savings Bank in the Conversion, in exchange for payment by the Holding Company of at least 50% of the net proceeds realized by the Holding Company from such sale of its Common Stock, less amounts necessary to fund the Employee Stock Ownership Plan of the Savings Bank, or such other percentage as the FDIC or Washington Department of Financial Institutions, Division of Banks (the "Division") may authorize or require.
Boards of Directors
Timberland Savings Bank, SSB
Timberland Bancorp, Inc.
September 11, 1997
Under the Plan and in accordance with regulations of the FDIC and the Division, the shares of Common Stock will first be offered through the Subscription Offering pursuant to non-transferable subscription rights on the basis of preference categories in the following order of priority:
(1) Eligible Account Holders;
(2) Tax-Qualified Employee Stock Benefit Plans of the Savings Bank;
(3) Supplemental Eligible Account Holders; and
(4) Other Members.
Any shares of Common Stock not subscribed for in the Subscription Offering will be offered in the Community Offering in the following order of priority:
(a) Natural persons residing in each county in which the Savings Bank has a home or branch office; and
(b) The general public.
Any shares of Common Stock not subscribed for in the Community Offering will be offered to certain members of the general public on a best efforts basis by a selling group of broker dealers in a Syndicated Community Offering.
The Plan also provides for the establishment of a Liquidation Account by the Converted Savings Bank for the benefit of all Eligible Account Holders and any Supplemental Eligible Account Holders in an amount equal to the net worth of the Savings Bank as of the date of the latest statement of financial condition contained in the final prospectus issued in connection with the Conversion. The establishment of the Liquidation Account will not operate to restrict the use or application of any of the net worth accounts of the Converted Savings Bank. The account holders will have an inchoate interest in a proportionate amount of the Liquidation Account with
Boards of Directors
Timberland Savings Bank, SSB
Timberland Bancorp, Inc.
September 11, 1997
respect to each savings account held and will be paid by the Converted Savings Bank in event of liquidation prior to any liquidation distribution being made with respect to capital stock.
Following the Stock Conversion, voting rights in the Converted Savings Bank shall be vested in the sole holder of stock in the Converted Savings Bank, which will be the Holding Company. Voting rights in the Holding Company after the Stock Conversion will be vested in the holders of the Common Stock.
The Stock Conversion will not interrupt the business of the Savings Bank. The Converted Savings Bank will continue to engage in the same business as the Savings Bank immediately prior to the Stock Conversion, and the Converted Savings Bank will continue to have its savings accounts insured by the SAIF. Each depositor will retain a withdrawable savings account or accounts equal in dollar amount to, and on the same terms and conditions as, the withdrawable account or accounts at the time of Stock Conversion except to the extent funds on deposit are used to pay for Common Stock purchased in the Stock Conversion. All loans of the Savings Bank will remain unchanged and retain their same characteristics in the Converted Savings Bank.
The Plan must be approved by the FDIC and the Division and by an affirmative vote of at least a majority of the total votes eligible to be cast at a meeting of the Savings Bank's members called to vote on the Plan.
Immediately prior to the Conversion, the Savings Bank will have a positive net worth determined in accordance with generally accepted accounting principles.
Based on the foregoing and in reliance thereon, and subject to the conditions stated herein, it is our opinion that the following federal income tax consequences will result from the proposed transaction.
Boards of Directors
Timberland Savings Bank, SSB
Timberland Bancorp, Inc.
September 11, 1997
2. The assets of the Savings Bank will have the same basis in the hands of the Converted Savings Bank as in the hands of the Savings Bank immediately prior to the Stock Conversion (Section 362(b) of the Code).
3. The holding period of the assets of the Savings Bank to be received by the Converted Savings Bank will include the period during which the assets were held by the Savings Bank prior to the Stock Conversion (Section 1223(2) of the Code).
5. No gain or loss will be recognized by the Holding Company upon receipt of money from stockholders in exchange for shares of Common Stock (Section 1032(a) of the Code).
6. No gain or loss will be recognized by the Eligible Account Holders and Supplemental Eligible Account Holders of the Savings Bank upon the issuance of them of deposit accounts in the Converted Savings Bank in the same dollar amount and on the same terms and conditions in exchange for their deposit accounts in the Savings Bank held immediately prior to the Stock Conversion (Section 1001(a) of the Code; Treas. Reg. (S)1.1001-1(a)).
7. The tax basis of the Eligible Account Holders' and Supplemental Eligible Account Holders' savings accounts in the Converted Savings Bank received as part of the Stock Conversion will equal the tax basis of such account holders' corresponding deposit accounts in the Savings Bank surrendered in exchange therefor (Section 1012 of the Code).
8. Gain or loss, if any, will be realized by the deposit account holders of the Savings Bank upon the constructive receipt of their interest in the liquidation account of the Converted Savings Bank and on the nontransferable subscription rights to purchase stock of the Holding Company in exchange for their proprietary rights in the Savings Bank. Any such gain will be recognized by the Savings Bank deposit account holders, but only in an amount not in excess of the fair market
Boards of Directors
Timberland Savings Bank, SSB
Timberland Bancorp, Inc.
September 11, 1997
9. The basis of each account holder's interest in the Liquidation Account received in the Stock Conversion and to be established by the Converted Savings Bank pursuant to the Stock Conversion will be equal to the value, if any, of that interest.
10. No gain or loss will be recognized upon the exercise of a subscription right in the Stock Conversion. (Rev. Rul. 56-572, 1956-2 C.B. 182).
11. The basis of the Common Stock acquired in the Stock Conversion will be equal to the purchase price of such stock, increased, in the case of such stock acquired pursuant to the exercise of subscription rights, by the fair market value, if any, of the subscription rights exercised (Section 1012 of the Code).
12. The holding period of the Common Stock acquired in the Stock Conversion pursuant to the exercise of subscription rights will commence on the date on which the subscription rights are exercised (Section 1223(6) of the Code). The holding period of the Common Stock acquired in the Community Offering will commence on the date following the date on which such stock is purchased (Rev. Rul. 70- 598, 1970-2 C.B. 168; Rev. Rul. 66-97, 1966-1 C.B. 190).
Our opinion is limited to the federal income tax matters described above and does not address any other federal income tax considerations or any federal, state, local, foreign or other tax considerations. If any of the information upon which we have relied is incorrect, or if changes in the relevant facts occur after the date hereof, our opinion could be affected thereby. Moreover, our opinion is based on the case law, Code, Treasury Regulations thereunder and Internal Revenue Service rulings as they now exist. These authorities are all subject to change, and such change may be made with retroactive effect. We can give no assurance that, after such change, our opinion would not be different. We undertake no responsibility to update or supplement our opinion. This opinion is not binding on the Internal Revenue Service and there can be no assurance, and none is hereby given, that the Internal Revenue Service will not take a position contrary to one or more of the positions reflected in the foregoing opinion, or that our opinion will be upheld by the courts if challenged by the Internal Revenue Service.
Boards of Directors
Timberland Savings Bank, SSB
Timberland Bancorp, Inc.
September 11, 1997
We hereby consent to the filing of this opinion with the Division and the FDIC as an exhibit to the Application to Convert a Mutual Savings Bank to a Stock Owned Savings Bank.
We also hereby consent to the filing of this opinion with the SEC as an exhibit to the Registration Statement and to the reference on our firm in the Prospectus, which is a part of the Registration Statement, under the headings "THE CONVERSION -- Effect of Conversion to Stock Form on Depositors and Borrowers of the Savings Bank -- Tax Effects" and "LEGAL AND TAX OPINIONS."
Very truly yours,
/s/ Breyer & Aguggia BREYER & AGUGGIA |
Exhibit 8.2
[Letterhead of Dwyer Pemberton and Coulson, P.C.]
September 11, 1997
Boards of Directors
Timberland Savings Bank, SSB
Timberland Bancorp, Inc.
624 Simpson Avenue
Hoquiam, Washington 98550
Gentlemen:
In accordance with your request, set forth herein is the opinion of this firm relating to certain Washington tax consequences of (i) the proposed conversion of Timberland Savings Bank, SSB ("Savings Bank") from a Washington-chartered mutual savings bank to a Washington-chartered stock savings bank ("Converted Savings Bank") and (ii) the concurrent acquisition of 100% of the outstanding capital stock of the Converted Savings Bank by a parent holding company formed at the direction of the Board of Directors of the Savings Bank and to be known as Timberland Bancorp, Inc. ("Holding Company") (collectively, the "Stock Conversion").
The State of Washington does not have a state income tax per se, but relies instead for its revenue on other types of taxes. These other taxes primarily include property taxes, retail sales/use taxes, and business and occupation taxes. Money, credits, accounts, bonds, stocks and shares of private corporations, along with various other intangibles, are expressly exempted from an valorem (property) taxation, under RCW 84.36.070. Through reasoning similar to that employed by the federal taxing authority in the case of exchanges described in under Code Section 351, the State of Washington, Department of Revenue takes the position, in WAC 458-20-106, that the retail sales/use tax does not apply to a transfer of capital to a corporation in exchange for stock therein. Likewise, the business and occupation ("B&O") tax does not apply to "casual or isolated sales," WAC 458-20-106, which are defined as "sales[s] made by a person who is not engaged in the business of selling the type of property involved." Since Timberland Bancorp, Inc. is not in the business of selling shares of stock in itself, we are of the opinion that issuance of shares of stock in exchange for capital contributions fits within this definition, and is, therefore, a casual or isolated sale not subject to the B&O tax.
Based upon the facts and circumstances attendant to the proposed reorganization, as they have been related to us via the Breyer & Aguggia opinion letter referred to above, it is our opinion that, under the laws of the State of Washington, no adverse tax consequences will be incurred by either the Savings Bank or its depositors as a result of the implementation of the transactions contemplated by the Plan.
No opinion is expressed on any matter other than state tax consequences which might result from the implementation of the Stock Conversion.
We hereby consent to the filing of this opinion with the SEC and the FDIC as exhibits to the Registration Statement on Form S-1 and the Savings Bank's Application for Conversion, respectively, and the reference on our firm in the Prospectus, which is a part such Registration Statement and Application, under the headings "THE CONVERSION -- Effects of Conversion on Depositors and Borrowers of the Savings Bank -- Tax Effects" and "LEGAL AND TAX OPINIONS."
/s/ DWYER PEMBERTON AND COULSON, P.C. |
Exhibit 8.3
[LETTERHEAD OF RP FINANCIAL, L.C. APPEARS HERE]
August 29, 1997
Board of Directors
Timberland Savings Bank
624 Simpson Avenue
Hoquiam, Washington 98550
Gentlemen:
Re: Plan of Conversion: Subscription Rights Timberland Savings Bank, SSB
Gentlemen:
All capitalized terms not otherwise defined in this letter have the meanings given such terms in the Plan of Conversion adopted by the Board of Directors of Timberland Savings Bank, SSB, ("Timberland" or the "Bank") whereby the Bank will convert from a state-chartered chartered mutual savings bank to a state-chartered stock savings bank and issue all of the Bank's outstanding capital stock to Timberland Bancorp, Inc. (the "Holding Company"). Simultaneously, the Holding Company will issue shares of common stock.
We understand that in accordance with the Plan of Conversion, Subscription Rights to purchase shares of Common Stock in the Holding Company are to be issued to: (1) Eligible Account Holders; (2) the ESOP; (3) Supplemental Eligible Account Holders; and (4) Other Members of the Bank. Based solely upon our observation that the Subscription Rights will be available to such parties without cost, will be legally non-transferable and of short duration, and will afford such parties the right only to purchase shares of Common Stock at the same price as will be paid by members of the general public in the Community Offering, but without undertaking any independent investigation of state or federal law or the position of the Internal Revenue Service with respect to this issue, we are of the belief that, pursuant to our valuation of the Subscription Rights:
(1) the Subscription Rights will have no ascertainable market value; and,
(2) the price at which the Subscription Rights are exercisable will not be more or less than the pro forma market value of the shares upon issuance.
Changes in the local and national economy, the legislative and regulatory environment, the stock market, interest rates, and other external forces (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 Holding Company's value alone. Accordingly, no assurance can be given that persons who subscribe to shares of common stock in the conversion will thereafter be able to buy or sell such shares at the same price paid in the Subscription Offering.
Sincerely,
/s/ James P. Hennessey James P. Hennessey Senior Vice President |
Exhibit 10.1
TIMBERLAND SAVINGS BANK, SSB
EMPLOYEE STOCK OWNERSHIP PLAN
Effective as of October 1, 1997
TIMBERLAND SAVINGS BANK, SSB
EMPLOYEE STOCK OWNERSHIP PLAN
TABLE OF CONTENTS
Page
PREAMBLE..................................................................... 1
ARTICLE I
DEFINITION OF TERMS AND CONSTRUCTION
1.1 Definitions............................................................. 2
1.2 Plurals and Gender...................................................... 7
1.3 Incorporation of Trust Agreement........................................ 7
1.4 Headings................................................................ 7
1.5 Severability............................................................ 8
1.6 References to Governmental Regulations.................................. 8
ARTICLE II
PARTICIPATION
2.1 Commencement of Participation........................................... 9
2.2 Termination of Participation............................................ 9
2.3 Resumption of Participation............................................. 9
2.4 Determination of Eligibility............................................ 10
ARTICLE III
CREDITED SERVICE
3.1 Service Counted for Eligibility Purposes................................ 11
3.2 Service Counted for Vesting Purposes.................................... 11
3.3 Credit for Pre-Break Service............................................ 11
3.4 Service Credit During Authorized Leaves................................. 11
3.5 Service Credit During Maternity or Paternity Leave...................... 12
3.6 Ineligible Employees.................................................... 12
ARTICLE IV
CONTRIBUTIONS
4.1 Employee Stock Ownership Contributions.................................. 13
4.2 Time and Manner of Employee Stock Ownership Contributions............... 13
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4.3 Records of Contributions............................................... 14
4.4 Erroneous Contributions................................................ 14
ARTICLE V
ACCOUNTS, ALLOCATIONS AND INVESTMENTS
5.1 Establishment of Separate Participant Accounts......................... 15
5.2 Establishment of Suspense Account...................................... 15
5.3 Allocation of Earnings, Losses and Expenses............................ 16
5.4 Allocation of Forfeitures.............................................. 16
5.5 Allocation of Annual Employee Stock Ownership Contributions............ 16
5.6 Limitation on Annual Additions......................................... 17
5.7 Erroneous Allocations.................................................. 20
5.8 Value of Participant's Interest in Fund................................ 21
5.9 Investment of Account Balances......................................... 21
ARTICLE VI
RETIREMENT, DEATH AND DESIGNATION OF BENEFICIARY
6.1 Normal Retirement...................................................... 22
6.2 Early Retirement....................................................... 22
6.3 Disability Retirement.................................................. 22
6.4 Death Benefits......................................................... 22
6.5 Designation of Death Beneficiary and Manner of Payment................. 23
ARTICLE VII
VESTING AND FORFEITURES
7.1 Vesting on Death, Disability, Retirement, Change in Control............ 24
7.2 Vesting on Termination of Participation................................ 24
7.3 Disposition of Forfeitures............................................. 25
ARTICLE VIII
EMPLOYEE STOCK OWNERSHIP RULES
8.1 Right to Demand Employer Securities.................................... 26
8.2 Voting Rights.......................................................... 26
8.3 Nondiscrimination in Employee Stock Ownership Contributions............ 26
8.4 Dividends.............................................................. 27
8.5 Exempt Loans........................................................... 27
8.6 Exempt Loan Payments................................................... 28
8.7 Put Option............................................................. 29
8.8 Diversification Requirements........................................... 30
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8.9 Independent Appraiser................................................. 30
8.10 Limitation on Allocation.............................................. 30
ARTICLE IX
PAYMENTS AND DISTRIBUTIONS
9.1 Payments on Termination of Service -- In General...................... 32
9.2 Commencement of Payments.............................................. 32
9.3 Mandatory Commencement of Benefits.................................... 32
9.4 Required Beginning Date............................................... 35
9.5 Form of Payment....................................................... 35
9.6 Payments Upon Termination of Plan..................................... 35
9.7 Distribution Pursuant to Qualified Domestic Relations Orders.......... 36
9.8 Cash-Out Distributions................................................ 36
9.9 ESOP Distribution Rule................................................ 37
9.10 Withholding........................................................... 37
9.11 Waiver of 30-day Notice............................................... 38
ARTICLE X
PROVISIONS RELATING TO TOP-HEAVY PLANS
10.1 Top-Heavy Rules to Control............................................ 39
10.2 Top-Heavy Plan Definitions............................................ 39
10.3 Calculation of Accrued Benefits....................................... 41
10.4 Determination of Top-Heavy Status..................................... 42
10.5 Determination of Super Top-Heavy Status............................... 43
10.6 Minimum Contribution.................................................. 43
10.7 Maximum Benefit Limitation............................................ 44
10.8 Vesting............................................................... 44
ARTICLE XI
ADMINISTRATION
11.1 Appointment of Administrator.......................................... 45
11.2 Resignation or Removal of Administrator............................... 45
11.3 Appointment of Successors: Terms of Office, Etc....................... 45
11.4 Powers and Duties of Administrator.................................... 45
11.5 Action by Administrator............................................... 46
11.6 Participation by Administrators....................................... 47
11.7 Agents................................................................ 47
11.8 Allocation of Duties.................................................. 47
11.9 Delegation of Duties.................................................. 47
11.10 Administrator's Action Conclusive..................................... 47
11.11 Compensation and Expenses of Administrator............................ 47
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11.12 Records and Reports.................................................. 48
11.13 Reports of Fund Open to Participants................................. 48
11.14 Named Fiduciary...................................................... 48
11.15 Information from Employer............................................ 48
11.16 Reservation of Rights by Employer.................................... 48
11.17 Liability and Indemnification........................................ 49
11.18 Service as Trustee and Administrator................................. 49
ARTICLE XII
CLAIMS PROCEDURE
12.1 Notice of Denial...................................................... 50
12.2 Right to Reconsideration.............................................. 50
12.3 Review of Documents................................................... 50
12.4 Decision by Administrator............................................. 50
12.5 Notice by Administrator............................................... 50
ARTICLE XIII
AMENDMENTS, TERMINATION AND MERGER
13.1 Amendments............................................................ 51
13.2 Consolidation, Merger or Other Transactions of Employer............... 51
13.3 Consolidation or Merger of Trust...................................... 52
13.4 Bankruptcy or Insolvency of Employer.................................. 52
13.5 Voluntary Termination................................................. 53
13.6 Partial Termination of Plan or Permanent Discontinuance of
Contributions........................................................ 53
ARTICLE XIV
MISCELLANEOUS
14.1 No Diversion of Funds................................................. 54
14.2 Liability Limited..................................................... 54
14.3 Incapacity............................................................ 54
14.4 Spendthrift Clause.................................................... 54
14.5 Benefits Limited to Fund.............................................. 55
14.6 Cooperation of Parties................................................ 55
14.7 Payments Due Missing Persons.......................................... 55
14.8 Governing Law......................................................... 55
14.9 Nonguarantee of Employment............................................ 55
14.10 Counsel............................................................... 56
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Timberland Savings Bank, SSB
EMPLOYEE STOCK OWNERSHIP PLAN
PREAMBLE
Effective as of October 1, 1997, Timberland Savings Bank, SSB (the "Sponsor"), a Washington chartered stock savings bank (the "Sponsor"), has adopted the Timberland Savings Bank, SSB Employee Stock Ownership Plan in order to enable Participants to share in the growth and prosperity of the Sponsor, and to provide Participants with an opportunity to accumulate capital for their future economic security by accumulating funds to provide retirement, death and disability benefits. The Plan is a stock bonus plan designed to meet the requirements of an employee stock ownership plan as described at Section 4975(e)(7) of the Code and Section 407(d)(6) of ERISA. The primary purpose of the employee stock ownership plan is to invest in employer securities. The Sponsor intends that the Plan will qualify under Sections 401(a) and 501(a) of the Code and will comply with the provisions of ERISA.
The terms of this Plan shall apply only with respect to Employees of the Employer on and after October 1, 1997.
ARTICLE I
DEFINITION OF TERMS AND CONSTRUCTION
1.1 Definitions.
Unless a different meaning is plainly implied by the context, the following terms as used in this Plan shall have the following meanings:
(a) "Act" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, or any successor statute.
(b) "Administrator" shall mean the administrative committee provided for in Article XI.
(c) "Annual Additions" shall mean, with respect to each Participant, the sum of those amounts allocated to the Participant's accounts under this Plan and under any other qualified defined contribution plan to which the Employer contributes for any Limitation Year, consisting of the following:
(1) Employer contributions;
(2) Forfeitures; and
(3) Voluntary contributions (if any).
(d) "Authorized Leave of Absence" shall mean an absence from Service with respect to which the Employee may or may not be entitled to Compensation and which meets any one of the following requirements:
(1) Service in any of the armed forces of the United States for up to 36 months, provided that the Employee resumes Service within 90 days after discharge, or such longer period of time during which such Employee's employment rights are protected by law; or
(2) Any other absence or leave expressly approved and granted by the Employer which does not exceed 24 months, provided that the Employee resumes Service at or before the end of such approved leave period. In approving such leaves of absence, the Employer shall treat all Employees on a uniform and nondiscriminatory basis.
(e) "Beneficiary" shall mean such persons as may be designated by the Participant to receive benefits after the death of the Participant, or such persons designated by the Administrator to receive benefits after the death of the Participant, all as provided in Section 6.5.
(f) "Board of Directors" shall mean the Board of Directors of the Sponsor.
(g) "Break" shall mean a Plan Year during which an Employee fails to complete more than 500 Hours of Service.
(h) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, or any successor statute.
(i) "Compensation" shall mean the amount of remuneration paid to an
Employee by the Employer, after the date on which the Employee becomes a
Participant, for services rendered to the Employer during a Plan Year, including
base salary, bonuses, overtime and commissions, and any amount of compensation
contributed pursuant to a salary reduction election under Code Section 401(k)
and any amount of compensation contributed to a cafeteria plan described at
Section 125 of the Code, but excluding amounts paid by the Employer or accrued
with respect to this Plan or any other qualified or non-qualified unfunded plan
of deferred compensation or other employee welfare plan to which the Employer
contributes, payments for group insurance, medical benefits, reimbursement for
expenses, and other forms of extraordinary pay, and excluding amounts accrued
for a prior year.
Notwithstanding the foregoing, for purposes of complying with Code Section 415, a Participant's contributions to a 401(k) Plan and cafeteria plan shall not be included in the Participant's compensation. Notwithstanding anything herein to the contrary, the annual Compensation of each Participant taken into account under the Plan for any Plan Year shall not exceed $150,000, as adjusted from time to time in accordance with Section 417 of the Code.
(j) "Date of Hire" shall mean the date on which a person shall perform his first Hour of Service. Notwithstanding the foregoing, in the event a person incurs one or more consecutive Breaks after his initial Date of Hire which results in the forfeiture of his pre-Break Service pursuant to Section 3.3, his "Date of Hire" shall thereafter be the date on which he completes his first Hour of Service after such Break or Breaks.
(k) "Disability" shall mean a physical or mental impairment which prohibits a Participant from engaging in any occupation for wages or profit and which has caused the Social Security Administration to classify the individual as "disabled" for purposes of Social Security.
(l) "Disability Retirement Date" shall mean the first day of the month after which a Participant incurs a Disability.
(m) "Early Retirement Date" shall mean the first day of the month coincident with or next following the date on which a Participant attains age 55 and completes ten (10) Years of Service.
(n) "Effective Date" shall mean October 1, 1997.
(o) "Eligibility Period" shall mean the period of 12 consecutive months commencing on an Employee's Date of Hire.
(p) "Employee" shall mean any person employed by the Employer, including officers but excluding directors in their capacity as such; provided, however, that the term "Employee" shall not include leased employees, employees regularly employed outside the employer's own offices in connection with the operation and maintenance of buildings or other properties acquired through foreclosure or deed, and any employee included in a unit of employees covered by a collective- bargaining agreement with the Employer that does not expressly provide for participation of such employees in this Plan, where there has been good-faith bargaining between the Employer and employees' representatives on the subject of retirement benefits.
(q) "Employer" shall mean Timberland Savings Bank, SSB, a Washington chartered stock savings bank, or any successors to the aforesaid by merger, consolidation or otherwise, which may agree to continue this Plan, or any affiliated or subsidiary corporation or business organization of any Employer which, with the consent of the Sponsor, shall agree to become a party to this Plan.
(r) "Employer Securities" shall mean the common stock issued by Timberland Bancorp, Inc., a Washington corporation, or any employer security within the meaning of Section 4975(c)(8) of the Code and Section 407(d)(1) of ERISA.
(s) "Entry Date" shall mean October 1 and April 1 of each Plan Year.
(t) "Exempt Loan" shall mean a loan described at Section 4975(d)(1) of the Code to the Trustee to purchase Employer Securities for the Plan, made or guaranteed by a disqualified person, as defined at Section 4975(e)(2) of the Code, including, but not limited to, a direct loan of cash, a purchase money transaction, an assumption of an obligation of the Trustee, an unsecured guarantee or the use of assets of such disqualified person as collateral for such a loan.
(u) "Former Participant" shall mean any previous Participant whose participation has terminated but who has a vested interest in the Plan which has not been distributed in full.
(v) "Fund" shall mean the Fund maintained by the Trustee pursuant to the Trust Agreement in order to provide for the payment of the benefits specified in the Plan.
(w) "Hour of Service" shall mean each hour for which an Employee is directly or indirectly paid or entitled to payment by an Employer for the performance of duties or for reasons other than the performance of duties (such as vacation time, holidays, sickness, disability, paid lay-offs, jury duty and similar periods of paid nonworking time). To the extent not otherwise included, Hours of Service shall also include each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by the Employer. Hours of working time shall be credited on the basis of actual hours worked, even though compensated at a premium rate for overtime or other reasons. In computing and crediting Hours of Service for an
Employee under this Plan, the rules set forth in Sections 2530.200b-2(b) and (c) of the Department of Labor Regulations shall apply, said Sections being herein incorporated by reference. Hours of Service shall be credited to the Plan Year or other relevant period during which the services were performed or the nonworking time occurred, regardless of the time when Compensation therefor may be paid. Any Employee for whom no hourly employment records are kept by the Employer shall be credited with 45 Hours of Service for each calendar week in which he would have been credited with a least one Hour or Service under the foregoing provisions, if hourly records were available. Solely for purposes of determining whether a Break for participation and vesting purposes has occurred in an Eligibility Period or Plan Year, an individual who is absent from work for maternity or paternity reasons shall receive credit for the Hours of Service which would otherwise have been credited to such individual but for such absence, or in any case in which such hours cannot be determined, eight Hours of Service per day of such absence. For purposes of this Section 1.1(w), an absence from work for maternity or paternity reasons means an absence (1) by reason of the pregnancy of the individual, (2) by reason of a birth of a child of the individual, (3) by reason of the placement of a child with the individual in connection with the adoption of such child by such individual, or (4) for purposes of caring for such child for a period beginning immediately following such birth or placement. The Hours of Service credited under this provision shall be credited (1) in the computation period in which the absence begins if the crediting is necessary to prevent a Break in that period, or (2) in all other cases, in the following computation period.
(x) "Investment Adjustments" shall mean the increases and/or decreases in the value of a Participant's accounts attributable to earnings, gains, losses and expenses of the Fund, as set forth in Section 5.3.
(y) "Limitation Year" shall mean the Plan Year.
(z) "Normal Retirement Date" shall mean the first day of the month coincident with or during which a Participant attains age 65.
(aa) "Participant" shall mean an Employee who has met all of the eligibility requirements of the Plan and who is currently included in the Plan as provided in Article II hereof.
(bb) "Plan" shall mean the Timberland Savings Bank, SSB Employee Stock Ownership Plan, as described herein or as hereafter amended from time to time.
(cc) "Plan Year" shall mean any 12 consecutive month period commencing on October 1 and ending on September 30.
(dd) "Qualified Domestic Relations Order" shall mean any judgment, decree or order (including approval of a property settlement agreement) that relates to the provision of child support, alimony, marital property rights to a spouse, former spouse, child or other dependent of the Participant (all such persons hereinafter termed "alternate payee") and is made pursuant to a State domestic relations law (including community property law) and, further, that creates or
recognizes the existence of an alternate payee's right to, or assigns to an alternate payee the right to receive all or a portion of the benefits payable with respect to a Participant and that clearly specifies the following:
(1) the name and last known mailing address (if available) of the Participant and the name and mailing address of each alternate payee to which the order relates;
(2) the amount or percentage of the Participant's benefits to be paid to an alternate payee or the manner in which the amount is to be determined; and
(3) the number of payments or period for which payments are required.
A domestic relations order is not a Qualified Domestic Relations Order if it:
(1) requires the Plan to provide any type or form of benefit or any option not otherwise provided under the Plan; or,
(2) requires the Plan to provide increased benefits; or
(3) requires payment of benefits to an alternate payee that is required to be paid to another alternate payee under a previously existing Qualified Domestic Relations Order.
(ee) "Retirement" shall mean termination of employment which qualifies as early, normal or Disability retirement as described in Article VI.
(ff) "Service" shall mean employment with the Employer.
(gg) "Sponsor" shall mean Timberland Savings Bank, SSB, a Washington chartered stock savings bank.
(hh) "Trust Agreement" shall mean the agreement, the Sponsor and the Trustee (or any successor Trustee governing the administration of the Trust as it may be amended from time to time.
(ii) "Trustee" shall mean the Trustee or Trustees by whom the assets of the Plan are held, as provided in the Trust Agreement, or his or their successors.
(jj) "Valuation Date" shall mean the last day of each Plan Year. The Trustee may make additional valuations, at the instruction of the Administrator, but in no event may the Administrator request additional valuations by the Trustee more frequently than quarterly.
Whenever such date falls on a Saturday, Sunday or holiday, the preceding business day shall be the Valuation Date.
(kk) "Year of Service" shall mean any Plan Year during which an Employee has completed at least 1,000 Hours of Service. Except as otherwise specified in Article III, in the determination of Years of Service for eligibility and vesting purposes under this Plan, the term "Year of Service" shall also mean any Plan Year during which an Employee has completed at least 1,000 Hours of Service with an entity that is:
(1) a member of a controlled group including the Employer, while it is a member of such controlled group (within the meaning of Section 414(b) of the Code);
(2) in a group of trades or businesses under common control with the
Employer, while it is under common control (within the meaning of
Section 414(c) of the Code);
(3) a member of an affiliated service group including the Employer, while
it is a member of such affiliated service group (within the meaning of
Section 414(m) of the Code); or
(4) a leasing organization, under the circumstances described in Section 414(n) of the Code.
1.2 Plurals and Gender.
Where appearing in the Plan and the Trust Agreement, the masculine gender shall include the feminine and neuter genders, and the singular shall include the plural, and vice versa, unless the context clearly indicates a different meaning.
1.3 Incorporation of Trust Agreement.
The Trust Agreement, as the same may be amended from time to time, is intended to be and hereby is incorporated by reference into this Plan and for all purposes shall be deemed a part of the Plan.
1.4 Headings.
The headings and sub-headings in this Plan are inserted for the convenience of reference only and are to be ignored in any construction of the provisions hereof.
1.5 Severability.
In case any provision of this Plan shall be held illegal or void, such illegality or invalidity shall not affect the remaining provisions of this Plan, but shall be fully severable, and the Plan shall be construed and enforced as if said illegal or invalid provisions had never been inserted herein.
1.6 References to Governmental Regulations.
References in this Plan to regulations issued by the Internal Revenue Service, the Department of Labor, or other governmental agencies shall include all regulations, rulings, procedures, releases and other position statements issued by any such agency.
ARTICLE II
PARTICIPATION
2.1 Commencement of Participation.
(a) Any Employee who completes at least 1,000 Hours of Service during his Eligibility Period or during any Plan Year beginning after his Date of Hire shall initially become a Participant on the Entry Date coincident with or next following the later of the following dates, provided he is employed by the Employer on that Entry Date:
(1) The date which is 12 months after his Date of Hire; and
(2) The date on which he attains age 21.
(b) Any Employee who had satisfied the requirements set forth in Section 2.1(a) during the 12-month period prior to the Effective Date shall become a Participant on the Effective Date, provided he is still employed by the Employer on the Effective Date.
2.2 Termination of Participation.
After commencement or resumption of his participation, an Employee shall remain a Participant during each consecutive Plan Year thereafter until the earliest of the following dates:
(a) His actual Retirement date;
(b) His date of death; or
(c) The last day of a Plan Year during which he incurs a Break.
2.3 Resumption of Participation
(a) Any Participant whose employment terminates and who resumes Service before he incurs a Break shall resume participation immediately on the date he is reemployed.
(b) Except as otherwise provided in Section 2.3(c), any Participant who incurs one or more Breaks and resumes Service shall resume participation retroactively as of the first day of the first Plan Year in which he completes a Year of Service after such Break(s).
(c) Any Participant who incurs one or more Breaks and resumes Service, but whose pre-Break Service is not reinstated to his credit pursuant to Section 3.3, shall be treated as a new Employee and shall again be required to satisfy the eligibility requirements contained in Section 2.1 before resuming participation on the appropriate Entry Date, as specified in Section 2.1.
2.4 Determination of Eligibility.
The Administrator shall determine the eligibility of Employees in accordance with the provisions of this Article. For each Plan Year, the Employer shall furnish the Administrator a list of all Employees, indicating the original date of their reemployment with the Employer and any Breaks they may have incurred.
ARTICLE III
CREDITED SERVICE
3.1 Service Counted for Eligibility Purposes.
Except as provided in Section 3.3, all Service completed by an Employee shall be counted in determining his eligibility to become a Participant on and after the Effective Date, whether such Service was completed before or after the Effective Date.
3.2 Service Counted for Vesting Purposes.
All Years of Service completed by an Employee (including Years of Service completed prior to the Effective Date) shall be counted in determining his vested interest in this Plan, except the following:
(a) Service which is disregarded under the provisions of Section 3.3; and
(b) Service prior to the Effective Date of this Plan if such Service would
have been disregarded under the "break in service" rules (within the meaning of
Section 1.411(a)-5(b)(6) of the Treasury Regulations).
3.3 Credit for Pre-Break Service.
Upon his resumption of participation following one or a series of consecutive Breaks, an Employee's pre-Break Service shall be reinstated to his credit for all purposes of this Plan only if either:
(a) He was vested in any portion of his accrued benefit at the time the Break(s) began; or
(b) The number of his consecutive Breaks does not equal or exceed the greater of five or the number of his Years of Service credited to him before the Breaks began.
Except as provided in the foregoing, none of an Employee's Service prior to one or a series of consecutive Breaks shall be counted for any purpose in connection with his participation in this Plan thereafter.
3.4 Service Credit During Authorized Leaves.
An Employee shall receive no Service credit under Section 3.1 or 3.2 during any Authorized Leave of Absence. However, solely for the purpose of determining whether he has incurred a Break during any Plan Year in which he is absent from Service for one or more Authorized Leaves of Absence, he shall be credited with 45 Hours of Service for each week
during any such leave period. Notwithstanding the foregoing, if an Employee fails to return to Service on or before the end of a leave period, he shall be deemed to have terminated Service as of the first day of such leave period and his credit for Hours of Service, determined under this Section 3.4, shall be revoked. Notwithstanding anything contained herein to the contrary, an Employee who is absent by reason of military service as set forth in Section 1.1(d)(1) shall be given Service credit under this Plan for such military leave period to the extent, and for all purposes, required by law.
3.5 Service Credit During Maternity or Paternity Leave.
For purposes of determining whether a Break has occurred for participation and vesting purposes, an individual who is on maternity or paternity leave as described in Section 1.1(w), shall be deemed to have completed Hours of Service during such period of absence, all in accordance with Section 1.1(w). Notwithstanding the foregoing, no credit shall be given for such Hours of Service unless the individual furnishes to the Administrator such timely information as the Administrator may reasonably require to determine:
(a) that the absence from Service was attributable to one of the maternity or paternity reasons enumerated in Section 1.1(w); and
(b) the number of days for which such absence lasted.
In no event, however, shall any credit be given for such leave other than for determining whether a Break has occurred.
3.6 Ineligible Employees.
Notwithstanding any provisions of this Plan to the contrary, any person who is employed by the Employer, but who is ineligible to participate in this Plan, either because of his failure:
(a) To meet the eligibility requirements contained in Article II; or
(b) To be an Employee, as defined in Section 1.1(p), shall, nevertheless, earn Years of Service for eligibility and vesting purposes pursuant to the rules contained in this Article III. However, such a person shall not be entitled to receive any contributions hereunder unless and until he becomes a Participant in this Plan, and then, only during his period of participation.
ARTICLE IV
CONTRIBUTIONS
4.1 Employee Stock Ownership Contributions.
(a) Subject to all of the provisions of this Article IV, for each Plan Year commencing on or after the Effective Date, the Employer shall make an Employee Stock Ownership contribution to the Fund, in such amount as may be determined by the Board of Directors in its discretion. Such contribution shall be in the form of cash or Employer Securities. In determining the value of Employer Securities transferred to the Fund as an Employee Stock Ownership contribution, the Administrator may determine the average of closing prices of such securities for a period of up to 90 consecutive days immediately preceding the date on which the securities are contributed to the Fund. In the event that the Employer Securities are not readily tradable on an established securities market, the value of the Employer Securities transferred to the Fund shall be determined by an independent appraiser in accordance with Section 8.9.
(b) In no event shall such contribution by the Employer exceed for any Plan Year the maximum amount that may be deducted by the Employer under Section 404 of the Code, nor shall such contribution cause the Employer to violate its regulatory capital requirements. Each Employee Stock Ownership contribution by the Employer shall be deemed to be made on the express condition that the Plan, as then in effect, shall be qualified under Sections 401 and 501 of the Code and that the amount of such contribution shall be deductible from the Employer's income under Section 404 of the Code.
4.2 Time and Manner of Employee Stock Ownership Contributions.
(a) The Employee Stock Ownership contribution (if any) for each Plan Year shall be paid to the Trustee in one lump sum or installments at any time on or before the expiration of the time prescribed by law (including any extensions) for filing of the Employer's federal income tax return for its fiscal year ending concurrent with or during such Plan Year. Any portion of the Employee Stock Ownership contribution for each Plan Year that may be made prior to the last day of the Plan Year shall be maintained by the Trustee in the Employee Stock Ownership suspense account described in Section 5.2 until the last day of such Plan Year.
(b) If an Employee Stock Ownership contribution for a Plan Year is paid after the close of the Employer's fiscal year which ends concurrent with or during such Plan Year but on or prior to the due date (including any extensions) for filing of the Employer's federal income tax return for such fiscal year, it shall be considered, for allocation purposes, as an Employee Stock Ownership contribution to the Fund for the Plan Year for which it was computed and accrued, unless such contribution is accompanied by a statement to the Trustee, signed by a representative of the Employer, which specifies that the Employee Stock Ownership contribution is made with respect to the Plan Year in which it is received by the Trustee. Any Employee Stock Ownership contribution paid by the Employer during any Plan Year but after the due date (including any extensions) for filing of its federal income tax return for the fiscal year of the Employer ending
on or before the last day of the preceding Plan Year shall be treated, for allocation purposes, as an Employee Stock Ownership contribution to the Fund for the Plan Year in which the contribution is paid to the Trustee.
(c) Notwithstanding anything contained herein to the contrary, no Employee Stock Ownership contribution shall be made for any year during which a "limitations account" created pursuant to Section 5.6(c)(2) is in existence until the balance of such limitations account has been reallocated in accordance with Section 5.6(c)(2).
4.3 Records of Contributions.
The Employer shall deliver at least annually to the Trustee, with respect to the contributions contemplated in Section 4.1, a certificate of the Administrator, in such form as the Trustee shall approve, setting forth:
(a) The aggregate amount of contributions, if any, to the Fund for such Plan Year;
(b) The names, Internal Revenue Service identifying numbers and current residential addresses of all Participants in the Plan;
(c) The amount and category of contributions to be allocated to each such Participant; and
(d) Any other information reasonably required for the proper operation of the Plan.
4.4 Erroneous Contributions.
(a) Notwithstanding anything herein to the contrary, upon the Employer's request, a contribution which was made by a mistake of fact, or conditioned upon the initial qualification of the Plan, under Code Section 401, or upon the deductibility of the contribution under Section 404 of the Code, shall be returned to the Employer by the Trustee within one year after the payment of the contribution, the denial of the qualification or the disallowance of the deduction (to the extent disallowed), whichever is applicable; provided, however, that in the case of denial of the initial qualification of the Plan, a contribution shall not be returned unless an Application for Determination has been timely filed with the Internal Revenue Service. Any portion of a contribution returned pursuant to this Section 4.4 shall be adjusted to reflect its proportionate share of the losses of the fund, but shall not be adjusted to reflect any earnings or gains. Notwithstanding any provisions of this Plan to the contrary, the right or claim of any Participant or Beneficiary to any asset of the Fund or any benefit under this Plan shall be subject to and limited by this Section 4.4.
(b) In no event shall voluntary Employee contributions be accepted. Any such voluntary Employee contributions (and any earnings attributable thereto) mistakenly received by the Trustee shall promptly be returned to the Participant.
ARTICLE V
ACCOUNTS, ALLOCATIONS AND INVESTMENTS
5.1 Establishment of Separate Participant Accounts.
The Administrator shall establish and maintain separate individual accounts for Participants in the Plan and for each Former Participant in accordance with the provisions of this Article V. Such separate accounts shall be for accounting purposes only and shall not require a segregation of the Fund, and no Participant, Former Participant or Beneficiary shall acquire any right to or interest in any specific assets of the Fund as a result of the allocations provided for under this Plan, except where segregation is expressly provided for in this Plan.
(a) Employee Stock Ownership Accounts.
The Administrator shall establish a separate Employee Stock Ownership Account in the Fund for each Participant. The account shall be credited as of the last day of each Plan Year with the amounts allocated to the Participant under Sections 5.4 and 5.5. The Administrator may establish subaccounts hereunder, including an Employer Stock Account reflecting a Participant's interest in Employer Securities held by the Trust and an Other Investments Account reflecting the Participant's interest in his Employee Stock Ownership Account other than Employer Securities.
(b) Distribution Accounts.
In any case where distribution of a terminated Participant's vested interest in the Plan is to be deferred, the Administrator shall establish a separate, nonforfeitable account in the Fund to which the balance in his Employee Stock Ownership Account in the Plan shall be transferred after such Participant incurs a Break. Unless the Former Participant's distribution accounts are segregated for investment purposes pursuant to section 9.4, they shall share in Investment Adjustments.
(c) Other Accounts.
The Administrator shall establish such other separate accounts for each Participant as may be necessary or desirable for the convenient administration of the Fund.
5.2 Establishment of Suspense Accounts.
The Administrator shall establish separate accounts to be known as "suspense accounts." There shall be credited to such appropriate suspense accounts any Employee Stock Ownership contributions that may be made prior to the last day of the Plan Year, as provided in Section 4.2. The suspense accounts shall share proportionately as to time and amount in any Investment Adjustments. As of the last day of each Plan Year, the balance of the Employee Stock
Ownership suspense account shall be added to the Employee Stock Ownership contribution and allocated to the Employee Stock Ownership Accounts of Participants as provided in Section 5.5, except as provided herein. In the event that the Plan takes an Exempt Loan, the Employer Securities purchased thereby shall be allocated to a separate Exempt Loan Suspense Account, from which allocations shall be made in accordance with Section 8.5.
5.3 Allocation of Earnings, Losses and Expenses.
As of each Valuation Date, any increase or decrease in the net worth of the aggregate Employee Stock Ownership Accounts held in the Fund attributable to earnings, losses, expenses and unrealized appreciation or depreciation in each such aggregate Account, as determined by the Trustee pursuant to the Trust Agreement, shall be credited to or deducted from the appropriate suspense accounts and all Participants' Employee Stock Ownership Accounts (except segregated distribution accounts described in Section 5.1(b) and the "limitations account" described in Section 5.6(c)(4)) in the proportion that the value of each such Account (determined immediately prior to such allocation and before crediting any Employee Stock Ownership contributions and forfeitures for the current Plan Year but after adjustment for any transfer to or from such Accounts and for the time such funds were in such Accounts) bears to the value of all Employee Stock Ownership Accounts.
5.4 Allocation of Forfeitures.
As of the last day of each Plan Year, all forfeitures attributable to the Employee Stock Ownership Accounts which are then available for reallocation shall be, as appropriate, added to the Employee Stock Ownership contribution (if any) for such year and allocated among the Participants' Employee Stock Ownership Accounts, as appropriate, in the manner provided in Sections 5.5 and 5.6.
5.5 Allocation of Annual Employee Stock Ownership Contributions.
As of the last day of each Plan Year for which the Employer shall make an Employee Stock Ownership contribution, the Administrator shall allocate the Employee Stock Ownership contribution (including reallocable forfeitures) for such Plan Year to the Employee Stock Ownership account of each Participant who completed at least 1,000 Hours of Service during that Plan Year, provided that he is still employed by the Employer on the last day of the Plan Year. Such allocation shall be made in the same proportion that each such Participant's Compensation for such Plan Year bears to the total Compensation of all such Participants for such Plan Year, subject to Section 5.6. Notwithstanding the foregoing, if a Participant attains his Normal Retirement Date and terminates Service prior to the last day of the Plan Year, or terminates Service by reason of is death or Disability, he shall be entitled to an allocation based on his Compensation earned prior to his termination and during the Plan Year. Furthermore, if a Participant completes 1,000 Hours of Service and is on a Leave of Absence on the last day of the Plan Year because of pregnancy or other medical reason, such a Participant shall be entitled to an allocation based on his Compensation earned during such Plan Year.
5.6 Limitation on Annual Additions.
(a) Notwithstanding any provisions of this Plan to the contrary, the total Annual Additions credited to a Participant's accounts under this Plan (and under any other defined contribution plan to which the Employer contributes) for any Limitation Year shall not exceed the lesser of:
(1) 25% of the Participant's compensation for such Limitation Year; or
(2) $30,000 (or, if greater, one-fourth of the defined benefit dollar limitation set forth in Section 415(b)(1)(A) of the Code). Whenever otherwise allowed by law, the maximum amount of $30,000 shall be automatically adjusted annually for cost-of-living increases in accordance with Section 415(d) of the Code and the highest such increase effective at any time during the Limitation Year shall be effective for the entire Limitation Year, without any amendment to this Plan.
(b) Solely for the purpose of this Section 5.6, the term "compensation" is defined as wages, salaries, and fees for professional services and other amounts received (without regard to whether or not an amount is paid in cash) for personal services actually rendered in the course of employment with the Employer maintaining the Plan to the extent that the amounts are includable in gross income (including, but not limited to, commissions paid to salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips, bonuses, fringe benefits, and reimbursements or other expense allowances under a nonaccountable plan (as described in Treas. Regs. Section 1.62-2(c)), and excluding the following:
(1) Employer contributions to a plan of deferred compensation which are not includable in the Employee's gross income for the taxable year in which contributed, or Employer contributions under a simplified employee pension plan to the extent such contributions are deductible by the Employee, or any distributions from a plan of deferred compensation;
(2) Amounts realized from the exercise of a non-qualified stock option, or when restricted stock (or property) held by the employee either becomes freely transferable or is no longer subject to a substantial risk of forfeiture;
(3) Amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option; and
(4) Other amounts which received special tax benefits, or contributions made by the employer (whether or not under a salary reduction agreement) towards the purchase of an annuity contract described in section 403(b) of the Code (whether or not the contributions are actually excludable from the gross income of the Employee).
(c) In the event that the limitations on Annual Additions described in this
Section 5.6(a) above are exceeded with respect to any Participant in any
Limitation Year, then the contributions allocable to the Participant for such
year shall be reduced to the minimum extent required by such limitations in the
following order of priority:
(1) If any further reductions in Annual Additions are necessary, then the Employee Stock Ownership contributions and forfeitures allocated during such Limitation Year to the Participant's Employee Stock Ownership Account shall be reduced. The amount of any such reductions in the Employee Stock Ownership contributions and forfeitures shall be reallocated to all other Participants in the same manner as set forth under Sections 5.4 and 5.5.
(2) Any amounts which cannot be reallocated to other Participants in a current Limitation Year in accordance with Section 5.6(c)(1) above because of the limitations contained in Sections 5.6(a) and (d) shall be credited to an account designated as the "limitations account" and carried forward to the next and subsequent Limitation Years until it can be reallocated to all Participants as set forth in Sections 5.4, and 5.5, as appropriate. No Investment Adjustments shall be allocated to this limitations account. In the next and subsequent Limitation Years, all amounts in the limitations account must be allocated in the manner described in Sections 5.4 and 5.5, as appropriate, before any Employee Stock Ownership contributions may be made to this Plan for that Limitation Year.
(3) The Administrator shall determine to what extent the Annual Additions to any Participant's Employee Stock Ownership Account must be reduced in each Limitation Year. The Administrator shall reduce the Annual Additions to all other tax-qualified retirement plans maintained by the Employer in accordance with the terms contained therein for required reductions or reallocations mandated by Section 415 of the Code before reducing any Annual Additions in this Plan.
(4) In the event this Plan is voluntarily terminated by the Employer under
Section 13.5, any amounts credited to the limitations account
described in Section 5.6(c)(2) above which have not be reallocated as
set forth herein shall be distributed to the Participants who are
still employed by the Employer on the date of termination, in the
proportion that each Participant's Compensation bears to the
Compensation of all Participants.
(d) The Annual Additions credited to a Participant's accounts for each
Limitation Year are further limited so that in the case of an Employee who is a
Participant in both this Plan and any qualified defined benefit plan
(hereinafter referred to as a "pension plan") of the Employer, the sum of (1)
and (2) below will not exceed 1.0:
(1) (A) The projected annual normal retirement benefit of a Participant under the pension plan, divided by
(B) The lesser of:
(i) The product of 1.25 multiplied by the dollar limitation in effect under Section 415(b)(1)(A) of the Code for such Limitation Year; or
(ii) The product of 1.4 multiplied by the amount of compensation which may be taken into account under Section 415(b)(1)(B) of the Code for the Participant for such Limitation Year; plus
(2) (A) The sum of Annual Additions credited to the Participant under this Plan for all Limitation Years, divided by:
(B) The sum of the lesser of the following amounts determined for such Limitation Year and for each prior year of service with the Employer:
(i) The product of 1.25 multiplied by the dollar limitation in effect under Section 415(b)(1)(A) of the Code for such Limitation Year, or
(ii) The product of 1.4 multiplied by the amount of compensation which may be taken into account under Section 415(b)(1)(B) of the Code for the Participant for such Limitation Year. The Administrator may, in calculating the defined contribution plan fraction described in Section 5.6(d)(2), elect to use the transitional rule pursuant to Section 415(e)(6) of the Code, if applicable. If the sum of the fractions produced above will exceed 1.0, even after the use of the "fresh start" rule contained in Section 235 of the Tax Equity and Fiscal Responsibility Act of 1982 ("TEFRA"), if applicable, then the same provisions as stated in Section 5.6(c) above shall apply. If, even after the
reductions provided for in Section 5.6(c), the sum of the fractions still exceed 1.0, then the benefits of the Participant provided under the pension plan shall be reduced to the extent necessary, in accordance with Treasury Regulations issued under the Code. Solely for the purposes of this Section 5.6(d), the term "years of service" shall mean all years of service defined by Treasury Regulations issued under Section 415 of the Code.
(e) In the event that the Employer is a member of (1) a controlled group of
corporations or a group of trades or businesses under common control (as
described in Section 414(b) or (c) of the Code, as modified by Section 415(h)
thereof), or (2) an affiliated service group (as described in Section 414(m) of
the Code), the Annual Additions credited to any Participant's accounts in any
such Limitation Year shall be further limited by reason of the existence of all
other qualified retirement plans maintained by such affiliated corporations,
other entities under common control or other members of the affiliated service
group, to the extent such reduction is required by Section 415 of the Code and
the regulations promulgated thereunder. The Administrator shall determine if
any such reduction in the Annual Additions to a Participant's accounts is
required for this reason, and if so, the same provisions as stated in 5.6(c) and
(d) above shall apply.
(f) Annual Additions shall not include any Employer contributions which are used by the Trust to pay interest on an Exempt Loan nor any forfeitures of Employer Securities purchased with the proceeds of an Exempt Loan, provided that not more than one-third of the Employer contributions are allocated to Participants who are among the group of employees deemed "highly compensated employees" within the meaning of Code Section 414(q).
5.7 Erroneous Allocations.
No Participant shall be entitled to any Annual Additions or other allocations to his accounts in excess of those permitted under Sections 5.3, 5.4, 5.5, and 5.6. If it is determined at anytime that the Administrator and/or Trustees have erred in accepting and allocating any contributions or forfeitures under this Plan, or in allocating Investment Adjustments, or in excluding or including any person as a Participant, then the Administrator, in a uniform and nondiscriminatory manner, shall determine the manner in which such error shall be corrected and shall promptly advise the Trustee in writing of such error and of the method for correcting such error. The accounts of any or all Participants may be revised, if necessary, in order to correct such error.
5.8 Value of Participant's Interest in Fund
At any time, the value of a Participant's interest in the Fund shall consist of the aggregate value of his Employee Stock Ownership Account and his distribution account, if any, determined as of the next-preceding Valuation Date. The Administrator shall maintain adequate records of the cost basis of Employer Securities allocated to each Participant's Employer Stock Ownership Account.
5.9 Investment of Account Balances.
The Employee Stock Ownership Accounts shall be invested primarily in Employer Securities. All sales of Employer Securities by the Trustee attributable to the Employee Stock Ownership Accounts of all Participants shall be charged pro rata to the Employee Stock Ownership Accounts of all Participants.
ARTICLE VI
RETIREMENT, DEATH AND DESIGNATION OF BENEFICIARY
6.1 Normal Retirement.
A Participant who reaches his Normal Retirement Date and who shall retire
at that time shall thereupon be entitled to retirement benefits based on the
value of his interest in the Fund, payable pursuant to the provisions of Section
9.1. A Participant who remains in Service after his Normal Retirement Date
shall not be entitled to any retirement benefits until his actual termination of
Service thereafter (except as provided in Section 9.3(g)) and he shall meanwhile
continue to participate in this Plan.
6.2 Early Retirement.
A Participant who reaches his Early Retirement Date may retire at such time (or, at his election, as of the first day of any month thereafter prior to his Normal Retirement Date) and shall thereupon be entitled to retirement benefits based on the value of his interest in the Fund, payable pursuant to the provisions of Section 9.1.
6.3 Disability Retirement.
In the event a Participant incurs a Disability, he may retire on his Disability Retirement Date and shall thereupon be entitled to retirement benefits based on the value of his interest in the Fund, payable pursuant to the provisions of Section 9.1.
6.4 Death Benefits.
(a) Upon the death of a Participant before his Retirement or other termination of Service, the value of his interest in the Fund shall be payable pursuant to the provisions of Section 9.1. The Administrator shall direct the Trustee to distribute his interest in the Fund to any surviving Beneficiary designated by the Participant or, if none, to such persons designated by the Administrator pursuant to Section 6.5.
(b) Upon the death of a Former Participant, the Administrator shall direct the Trustee to distribute any undistributed balance of his interest in the Fund to any surviving Beneficiary designated by him or, if none, to such persons designated by the Administrator pursuant to Section 6.5.
(c) The Administrator may require such proper proof of death and such evidence of the right of any person to receive the interest in the Fund of a deceased Participant or Former Participant as the Administrator may deem desirable. The Administrator's determination of death and of the right of any person to receive payment shall be conclusive.
6.5 Designation of Death Beneficiary and Manner of Payment.
(a) Each Participant shall have the right to designate a Beneficiary or Beneficiaries to receive the sum or sums to which he may be entitled upon his death. The Participant may also designate the manner in which any death benefits under this Plan shall be payable to his Beneficiary, provided that such designation is in accordance with Section 9.4. Such designation of Beneficiary and manner of payment shall be in writing and delivered to the Administrator, and shall be effective when received by the Administrator. The Participant shall have the right to change such designation by notice in writing to the Administrator. Such change of Beneficiary or the manner of payment shall become effective upon its receipt by the Administrator. Any such change shall be deemed to revoke all prior designations.
(b) If a Participant shall fail to designate validly a Beneficiary or if no
designated Beneficiary survives the Participant, his interest in the Fund shall
be paid to the person or persons in the first of the following classes of
successive preference Beneficiaries surviving at the death of the Participant:
the Participant's (1) widow or widower, (2) children, (3) parents, and (4)
estate. The Administrator shall decide what Beneficiaries, if any, shall have
been validly designated, and its decision shall be binding and conclusive on all
persons.
(c) Notwithstanding the foregoing, if a Participant has been married throughout the 12 month period preceding the date of his death, the sum or sums to which he may be entitled under this Plan upon his death shall be paid to his spouse, unless the Participant's spouse shall have consented to the election of another Beneficiary. Such a spousal consent shall be in writing and shall be witnessed either by a representative of the Plan or a notary public. If it is established to the satisfaction of the Administrator that such spousal consent cannot be obtained because there is no spouse, because the spouse cannot be located, or other reasons prescribed by governmental regulations, the consent of the spouse may be waived, and the Participant may designate a Beneficiary or Beneficiaries other than his spouse.
ARTICLE VII
VESTING AND FORFEITURES
7.1 Vesting on Death, Disability, Retirement and Change in Control.
Unless his participation in this Plan shall have terminated prior thereto, upon a Participant's death, Disability, Early Retirement, or upon his attainment of Normal Retirement Date (whether or not he actually retires at that time) while he is still employed by the Employer, the Participant's entire interest in the Fund shall be fully vested and nonforfeitable. In addition, a Participant's interest shall be fully vested and unforfeitable upon a Change in Control. For purposes of this Plan, a "Change in Control" shall mean an event deemed to occur if and when (1) an offeror other than the Timberland Bancorp, Inc. purchases shares of the stock of Timberland Bancorp, Inc. or the Sponsor pursuant to a tender or exchange offer for such shares, (2) any person (as such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act) is or becomes the beneficial owner, directly or indirectly, of securities of Timberland Bancorp, Inc. or the Sponsor representing 25% or more of the combined voting power of Timberland Bancorp, Inc.'s or the Sponsor's then outstanding securities, (3) the membership of the board of directors of Timberland Bancorp, Inc. or the Sponsor changes as the result of a contested election, such that individuals who were directors at the beginning of any 24 month period (whether commencing before or after the date of adoption of this Plan) do not constitute a majority of the Board at the end of such period, or (4) shareholders of Timberland Bancorp, Inc. or the Sponsor approve a merger, consolidation, sale or disposition of all or substantially all of Timberland Bancorp, Inc.'s or the Sponsor's assets, or a plan of partial or complete liquidation. If any of the events enumerated in clauses (1) - (4) occur, the Board of Directors shall determine the effective date of the change in control resulting therefrom.
7.2 Vesting on Termination of Participation.
Upon termination of his participation in this Plan for any reason other than death, Disability, or Normal Retirement, a Participant shall be vested in a percentage of his Employee Stock Ownership Account, such vested percentages to be determined under the following table, based on the Years of Service (including Years of Service prior to the Effective Date) credited to him for vesting purposes at the time of his termination of participation:
Years of Service Completed Percentage Vested
Less than 1 0%
1 10%
2 20%
3 40%
4 60%
5 80%
6 or more 100%
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Any portion of the Participant's Employee Stock Ownership Account which is not vested at the time he incurs a Break shall thereupon be forfeited and disposed of pursuant to Section 7.3. Distribution of the vested portion of a terminated Participant's interest in the Plan may be authorized by the Administrator in any manner permitted under Section 9.1.
7.3 Disposition of Forfeitures.
(a) In the event a Participant incurs a Break and subsequently resumes both his Service and his participation in the Plan prior to incurring at least five Breaks, the forfeitable portion of his Employee Stock Ownership Account shall be reinstated to the credit of the Participant as of the date he resumes participation.
(b) In the event a Participant terminates Service and subsequently incurs a Break and receives a distribution, or in the event a Participant does not terminate Service, but incurs at least five Breaks, or in the event that a Participant terminates Service and incurs at least five Breaks but has not received a distribution, then the forfeitable portion of his Employer Account, including Investment Adjustments, shall be reallocated to other Participants, pursuant to Section 5.4 as of the date the Participant incurs such Break or Breaks, as the case may be.
(c) In the event a former Participant who had received a distribution from the Plan is rehired, he shall repay the amount of his distribution before the earlier of five years after the date of his rehire by the Employer, or the close of the first period of five consecutive Breaks commencing after the withdrawal in order for any forfeited amounts to be restored to him.
ARTICLE VIII
EMPLOYEE STOCK OWNERSHIP PROVISIONS
8.1 Right to Demand Employer Securities.
A Participant entitled to a distribution from his Employee Stock Ownership
Account shall be entitled to demand that his interest in the Account be
distributed to him in the form of Employer Securities, all subject to Section
9.9. In the event that the Employer Securities are not readily tradable on an
established market, the Participant shall be entitled to require that the
Employer repurchase the Employer Securities under a fair valuation formula, as
provided by governmental regulations. The Participant or Beneficiary shall be
entitled to exercise the put option described in the preceding sentence for a
period of not more than 60 days following the date of distribution of Employer
Securities to him. If the put option is not exercised within such 60-day
period, the Participant or Beneficiary may exercise the put option during an
additional period of not more than 60 days after the beginning of the first day
of the first Plan Year following the Plan Year in which the first put option
period occurred, all as provided in regulations promulgated by the Secretary of
the Treasury.
8.2 Voting Rights.
Each Participant with an Employee Stock Ownership Account shall be entitled to direct the Trustee as to the manner in which the Employer Securities in such Account are to be voted. Employer Securities held in the Employee Stock Ownership Suspense Account or the Exempt Loan Suspense Account shall be voted by the Trustee on each issue with respect to which shareholders are entitled to vote in the manner directed by the majority of the Participants who directed the Trustee as to the manner of voting their shares in the Employee Stock Ownership Accounts with respect to such issue. Prior to the initial allocation of shares, the Trustee shall be entitled to vote the shares in the Suspense Account without prior direction from the Participants or the Administrator. In the event that a Participant fails to give timely voting instructions to the Trustee with respect to the voting of his allocated Employer Securities, the Trustee shall be entitled to vote such shares in its discretion.
8.3 Nondiscrimination in Employee Stock Ownership Contributions.
In the event that the amount of the Employee Stock Ownership contributions that would be required in any Plan Year to make the scheduled payments on an Exempt Loan would exceed the amount that would otherwise be deductible by the Employer for such Plan Year under Code Section 404, then no more than one-third of the Employee Stock Ownership contributions for the Plan Year, which is also the Employer's taxable year, shall be allocated to the group of Employees who during the Plan Year or the preceding Plan Year:
(a) During the Plan Year or the preceding Plan Year was at any time a 5% owner of the Employer; or
(b) During the preceding Plan Year, received compensation from the Employer in excess of $80,000, as adjusted under Code Section 414(q) and, if elected by the Employer, was in the top paid group of Employees for such Plan Year.
8.4 Dividends.
Any cash dividends or other cash contributions received by the Trustee of Employer Securities allocated to the Employee Stock Account of Participants shall be credited to the applicable Participants' Ownership Accounts unless the Sponsor, in its sole discretion, elects to pay the cash dividends directly to the applicable Participants or directs the Trustee to pay the cash dividends to the Participants (or, if applicable, their Beneficiaries) within 90 calendar days of the close of the Plan Year in which the cash dividend were paid to the Fund. Notwithstanding anything contained in this Section to the contrary, the Sponsor may direct cash dividends, including dividends on non-allocated shares, be applied to repay an Exempt Loan, but only to the extent shares of Employer Securities with an aggregate fair market value equal to the amount of dividends so applied are allocated to the Employee Stock Ownership Account of the applicable Participants and to the extent the cash dividends are deductible under Section 404(k) of the Code. To the extent cash dividends on allocated shares are applied to repay an Exempt Loan, shares released from encumbrance the value equal to the amount of the dividends which, but for the repayment of the Exempt Loan, would have been allocated to Participants' Employee Stock Ownership Accounts shall be allocated to the Employee Stock Ownership Accounts of the affected Participants, and the remaining shares to be allocated shall be allocated among the Participants in accordance with Section 5.5. Dividends on Employer Securities obtained pursuant to an Exempt Loan and not yet allocated may be used to make payments on an Exempt Loan, as described in Section 8.5.
8.5 Exempt Loans.
(a) The Sponsor may direct the Trustee to obtain Exempt Loans. The Exempt Loan may take the form of (i) a loan from a bank or other commercial lender to purchase Employer Securities (ii) a loan from the Employer or affiliated corporation, to the Plan; or (iii) an installment sale of Employer Securities to the Plan. The proceeds of any such Exempt Loan shall be used, within a reasonable time after the Exempt Loan is obtained, only to purchase Employer Securities, repay the Exempt Loan, or repay any prior Exempt Loan. Any such Exempt Loan shall provide for no more than a reasonable rate of interest and shall be without recourse against the Plan. The number of years to maturity under the Exempt Loan must be definitely ascertainable at all times. The only assets of the Plan that may be given as collateral for an Exempt Loan are Employer Securities acquired with the proceeds of the Exempt Loan and Employer Securities that were used as collateral for a prior Exempt Loan repaid with the proceeds of the current Exempt Loan. Such Employer Securities so pledged shall be placed in an Exempt Loan Suspense Account. No person or institution entitled to payment under an Exempt Loan shall have recourse against Trust assets other than the aforesaid collateral, Employer Stock Ownership contributions (other than contributions of Employer Securities) that are available under the Plan to meet obligations under the Exempt Loan and earnings attributable to such
collateral and the investment of such contributions. All Employee Stock Ownership contributions paid during the Plan Year in which an Exempt Loan is made (whether before or after the date the proceeds of the Exempt Loan are received), all Employee Stock Ownership contributions paid thereafter until the Exempt Loan has been repaid in full, and all earnings from investment of such Employee Stock Ownership contributions, without regard to whether any such Employee Stock Ownership contributions and earnings have been allocated to Participants' Employee Stock Ownership Accounts, shall be available to meet obligations under the Exempt Loan as such obligations accrue, or prior to the time such obligations accrue, unless otherwise provided by the Employer at the time any such contribution is made. Any pledge of Employer Securities shall provide for the release of shares so pledged upon the payment of any portion of the Exempt Loan.
(b) For each Plan Year during the duration of the Exempt Loan, the number of shares of Employer Securities released from such pledge shall equal the number of encumbered shares held immediately before release for the current Plan Year multiplied by a fraction. The numerator of the fraction is the sum of principal and interest paid in such Plan Year. The denominator of the fraction is the sum of the numerator plus the principal and interest to be paid for all future years. Such years will be determined without taking into account any possible extension or renewal periods. If interest on any Exempt Loan is variable, the interest to be paid in future years under the Exempt Loan shall be computed by using the interest rate applicable as of the end of the Plan Year.
(c) Notwithstanding the foregoing, the Trustee may obtain an Exempt Loan pursuant to the terms of which the number of Employer Securities to be released from encumbrance shall be determined solely with reference to principal payments. In the event that such an Exempt Loan is obtained, annual payments of principal and interest shall be at a cumulative rate that is not less rapid at any time than level payments of such amounts for not more than 10 years. The amount of interest in any such annual loan repayment shall be disregarded only to the extent that it would be determined to be interest under standard loan amortization tables. The requirement set forth in the preceding sentence shall not be applicable from the time that, by reason of a renewal, extension, or refinancing, the sum of the expired duration of the Exempt Loan, the renewal period, the extension period, and the duration of a new Exempt Loan exceeds 10 years.
8.6 Exempt Loan Payments.
(a) Payments of principal and interest on any Exempt Loan during a Plan
Year shall be made by the Trustee (as directed by the Administrator) only from
(1) Employee Stock Ownership contributions to the Trust made to meet the Plan's
obligation under an Exempt Loan (other than contributions of Employer
Securities) and from any earnings attributable to Employer Securities held as
collateral for an Exempt Loan and investments of such contributions (both
received during or prior to the Plan Year); (2) the proceeds of a subsequent
Exempt Loan made to repay a prior Exempt Loan; and (3) the proceeds of the sale
of any Employer Securities held as collateral for an Exempt Loan. Such
contribution and earnings shall be accounted for separately by the Plan until
the Exempt Loan is repaid.
(b) Employer Securities released by reason of the payment of principal or interest on an Exempt Loan from amounts allocated to Participants' Employee Stock Ownership Accounts shall be allocated as set forth in Section 5.5.
(c) The Employer shall contribute to the Trust sufficient amounts to enable
the Trust to pay principal and interest on any such Exempt Loans as they are
due, provided however that no such contribution shall exceed the limitations in
Section 5.6. In the event that such contributions by reason of the limitations
in Section 5.6 are insufficient to enable the Trust to pay principal and
interest on such Exempt Loan as it is due, then upon the Trustee's request the
Employer or an affiliated corporation shall:
(1) Make an Exempt Loan to the Trust in sufficient amounts to meet such principal and interest payments. Such new Exempt Loan shall be subordinated to the prior Exempt Loan. Securities released from the pledge of the prior Exempt Loan shall be pledged as collateral to secure the new Exempt Loan. Such Employer Securities will be released from this new pledge and allocated to the Employee Stock Ownership Accounts of the Participants in accordance with applicable provisions of the Plan;
(2) Purchase any Employer Securities pledged as collateral in an amount necessary to provide the Trustee with sufficient funds to meet the principal and interest repayments. Any such sale by the Plan shall meet the requirements of Section 408(e) of ERISA; or
(3) Any combination of the foregoing. However, the Employer shall not, pursuant to the provisions of this subsection, do, fail to do or cause to be done any act or thing which would result in a disqualification of the Plan as an Employee Stock Ownership Plan under the Code.
(d) Except as provided in Section 8.1 above and notwithstanding any amendment to or termination of the Plan which causes it to cease to qualify as an Employee Stock Ownership plan within the meaning of Section 4975(e)(7) of the Code, or any repayment of an Exempt Loan, no shares of Employer Securities acquired with the proceeds of an Exempt Loan obtained by the Trust to purchase Employer Securities may be subject to a put, call or other option, or buy-sell or similar arrangement while such shares are held by the Plan or when such Shares are distributed from the Plan.
8.7 Put Option.
If a Participant exercises a put option (as set forth in Section 8.1) with respect to Employer Securities that were distributed as part of a total distribution pursuant to which a Participant's Employee Stock Ownership Account is distributed to him in a single taxable year, the Employer or the Plan may elect to pay the purchase price of the Employer Securities over a period not to exceed five years. Such payments shall be made in substantially equal
installments not less frequently than annually over a period beginning not later than 30 days after the exercise of the put option. Reasonable interest shall be paid to the Participant with respect to the unpaid balance of the purchase price and adequate security shall be provided with respect thereto. In the event that a Participant exercises a put option with respect to Employer Securities that are distributed as part of an installment distribution, the amount to be paid for such securities shall be paid not later than 30 days after the exercise of the put option.
8.8 Diversification Requirements
Each Participant who has completed at least 10 years of participation in
the Plan and has attained age 55 may elect within 90 days after the close of
each Plan Year during his "qualified election period" to direct the Plan as to
the investment of at least 25% of his Employee Stock Ownership Account (to the
extent such percentage exceeds the amount to which a prior election under this
Section 8.8 had been made). For purposes of this Section 8.8, the term
"qualified election period" shall mean the five-Plan Year period beginning with
the Plan Year after the Plan Year in which the Participant attains age 55 (or,
if later, beginning with the Plan Year after the first Plan Year in which the
Employee first completes at least 10 years of participation in the Plan). In
the case of the Employee who has attained age 60 and completed 10 years of
participation in the prior Plan Year and in the case of the election year in
which any other Participant who has met the minimum age and service requirements
for diversification can make his last election hereunder, he shall be entitled
to direct the Plan as to the investment of at least 50% of his Employee Stock
Ownership Account (to the extent such percentage exceeds the amount to which a
prior election under this Section 8.8 had been made). The Plan shall make
available at least three investment options (not inconsistent with regulations
prescribed by the Department of Treasury) to each Participant making an election
hereunder. The Plan shall be deemed to have met the requirements of this
Section if the portion of the Participant's Employee Stock Ownership Account
covered by the election hereunder is distributed to the Participant or his
designated Beneficiary within 90 days after the period during which the election
may be made. In the absence of such a distribution, the Trustee shall implement
the Participant's election within 90 days following the expiration of the
qualified election period.
8.9 Independent Appraiser.
An independent appraiser meeting the requirements of Code 170(a)(1) shall value the Employer Securities in those Plan Years when such securities are not readily tradable on an established securities market.
8.10 Limitation on Allocations.
In the event that the Trustee acquires shares of Employer Securities in a transaction to which section 1042 of the Code applies, such Shares shall not be allocated, directly or indirectly, to any Participant described in Section 409(n)(1) of the Code for the duration of the "nonallocation period" (as defined in Section 409(n)(3)(C) of the Code). Where any shares of Employer Securities are prevented from being allocated due to he prohibition contained in this
section the allocation of contributions otherwise provided under Section 5.5 shall be adjusted to reflect such result.
ARTICLE IX
PAYMENTS AND DISTRIBUTIONS
9.1 Payments on Termination of Service -- In General.
All benefits provided under this Plan shall be funded by the value of a Participant's vested interest in the Fund. As soon as practicable after a Participant's Retirement, death or termination of Service, the Administrator shall ascertain the value of his vested interest in the Fund, as provided in Article V, and the Administrator shall hold or dispose of the same in accordance with the following provisions of this Article IX.
9.2 Commencement of Payments.
(a) Distributions upon Retirement or Death. Upon a Participant's Retirement or Death, payment of benefits under this Plan shall, unless the Participant otherwise elects (in accordance with Section 9.3), commence no later than six months after the close of the Plan Year in which occurs the date of the Participant's Retirement or death.
(b) Distribution following Termination of Service. Unless a Participant
elects otherwise, if a Participant terminates Service prior to Retirement or
death, he shall be accorded an opportunity to commence receipt of distributions
from his Accounts within six months after the Valuation Date next following the
date of his termination of service. A Participant who terminates Service with a
deferred vested benefit shall be entitled to receive from the Administrator a
statement of his benefits. In the event that a Participant elects not to
commence receipt of distributions from his Accounts in accordance with this
Section 9.2(b), after the Participant incurs a Break, the Administrator shall
transfer his deferred vested interest to a distribution account. If a
Participant's vested Employer Account does not exceed (or at the time of any
prior distribution did not exceed) $3,500, the Plan Administrator may distribute
the vested portion of his Employer Account as soon as administratively feasible
without the consent of the Participant or his spouse.
(c) Distribution of Accounts Greater Than $3,500. If the value of a Participant's vested Account balance exceeds (or at the time of any prior distribution exceeded) $3,500, and the Account balance is immediately distributable, the Participant must consent to any distribution of such Account balance. The Plan Administrator shall notify the Participant of the right to defer any distribution until the Participant's Account balance is no longer immediately distributable. The consent of the Participant shall not be required to the extent that a distribution is required to satisfy Code Section 401(a)(9) or Code Section 415.
9.3 Mandatory Commencement of Benefits.
(a) Unless a Participant elects otherwise, in writing, distribution of benefits will begin no later than the 60th day after the latest of the close of the Plan Year in which (i) the Participant
attains age 65, (ii) occurs the tenth anniversary of the year in which the Participant commenced participation in the Plan Year, or (iii) the Participant terminates Service with the Employer.
(b) In the event that the Plan shall be subsequently amended to provide for a form of distribution other than a lump sum, as of the first distribution calendar year, distributions, if not made in a lump sum, may be made only over one of the following periods (or a combination thereof):
(i) the life of the Participant,
(ii) the life of the Participant and the designated beneficiary,
(iii) a period certain not extending beyond the life expectancy of the Participant, or
(iv) a period certain not extending beyond the joint and last survivor expectancy of the Participant and a designated beneficiary.
(c) In the event that the Plan shall be subsequently amended to provide for a form of distribution other than a lump sum, if the participant's interest is to be distributed in other than a lump sum, the following minimum distribution rules shall apply on or after the required beginning date:
(i) If a Participant's benefit is to be distributed over (1) a period not extending beyond the life expectancy of the Participant or the joint life and last survivor expectancy of the Participant and the Participant's designated beneficiary or (2) a period not extending beyond the life expectancy of the designated beneficiary, the amount required to be distributed for each calendar year, beginning with distributions for the first distribution calendar year, must at least equal the quotient obtained by dividing the Participant's benefit by the applicable life expectancy.
(ii) The amount to be distributed each year, beginning with distributions for the first distribution calendar year shall not be less than the quotient obtained by dividing the Participant's benefit by the lesser of (1) the applicable life expectancy or (2) if the Participant's spouse is not the designated beneficiary, the applicable divisor determined from the table set forth in Q&A-4 of section 1.401(a)(9)-2 of the Proposed Regulations. Distributions after the death of the participant shall be distributed using the applicable life expectancy in sub-section (iii) above as the relevant divisor without regard to Proposed Regulations 1.401(a)(9)- 2.
(iii) The minimum distribution required for the Participant's first distribution calendar year must be made on or before the Participant's required
beginning date. The minimum distribution for other calendar years, including the minimum distribution for the distribution calendar year in which the employee's required beginning date occurs, must be made on or before December 31 of the distribution calendar year.
(d) If a Participant dies after a distribution has commenced in accordance with Section 8.3(b) but before his entire interest has been distributed to him, the remaining portion of such interest shall be distributed to his Beneficiary at least as rapidly as under the method of distribution in effect as of the date of his death.
(e) If a Participant shall die before the distribution of his interest in the Plan has begun, the entire interest of the Participant shall be distributed by December 31 of the calendar year containing the fifth anniversary of the death of the Participant, except in the following events:
(i) If any portion of the Participant's interest is payable to (or for the benefit of) a designated beneficiary over a period not extending beyond the life expectancy of such beneficiary and such distributions begin not later than December 31 of the calendar year immediately following the calendar year in which the Participant died.
(ii) If any portion of the Participant's interest is payable to (or for the benefit of) the Participant's spouse over a period not extending beyond the life expectancy of such spouse and such distributions begin no later than December 31 of the calendar year in which the Participant would have attained age 70-1/2.
If the Participant has not made a distribution election by the time of his death, the Participant's designated beneficiary shall elect the method of distribution no later than the earlier of (1) December 31 of the calendar year in which distributions would be required to begin under this Article or (2) December 31 of the calendar year which contains the fifth anniversary of the date of death of the Participant. If the Participant has no designated beneficiary, or if the designated beneficiary does not elect a method of distribution, distribution of the Participant's entire interest shall be completed by December 31 of the calendar year containing the fifth anniversary of the Participant's death.
(f) For purposes of this Article, the life expectancy of a Participant and his spouse may be redetermined but not more frequently than annually. The life expectancy (or joint and last survivor expectancy) shall be calculated using the attained age of the Participant (or designated beneficiary) as of the Participant's (or designated beneficiary's) birthday in the applicable calendar year reduced by one for each calendar year which has elapsed since the date life expectancy was first calculated. If life expectancy is being recalculated, the applicable life expectancy shall be the life expectancy as so recalculated. The applicable calendar year shall be
the first distribution calendar year, and if life expectancy is being recalculated, such succeeding calendar year. Unless otherwise elected by the Participant (or his spouse, if applicable) by the time distributions are required to begin, life expectancies shall be recalculated annually. Any such election not to recalculate shall be irrevocable and shall apply to all subsequent years. The life expectancy of a nonspouse beneficiary may not be recalculated.
(g) For purposes of Section 9.3(b) and 9.3(e), any amount paid to a child shall be treated as if it had been paid to a surviving spouse if such amount will become payable to the surviving spouse upon such child reaching majority (or other designated event permitted under regulations).
(h) For distributions beginning before the Participant's death, the first distribution calendar year is the calendar year immediately preceding the calendar year which contains the Participant's required beginning date. For distributions beginning after the Participant's death, the first distribution calendar year is the calendar year in which distributions are required to begin pursuant to this Article.
9.4 Required Beginning Dates.
The required beginning date of a Participant is the first day of April of the calendar year following the later of (1) calendar year in which the participant attains age 70-1/2 or (2) the calendar year in which the Participant terminated his employment, unless he is a 5% owner (as defined in Section 416) with respect to the Plan Year ending in the calendar year in which he attains age 70-1/2, in which case clause (2) shall not apply.
9.5 Form of Payment.
Each Participant's vested interest shall be distributed in a lump sum payment. Notwithstanding the preceding sentence, but subject to Section 9.3, the Administrator may not distribute a lump sum when the present value of a Participant's total Account balances is in excess of $3,500 without the Participant's consent. This form of payment shall be the normal form of distribution provided, however, that in the event that the Administrator must commence distributions with respect to an Employee who has attained age 70-1/2 and is still employed by the Employer, if the Employee does not elect a lump sum distribution, payments shall be made in installments in such amounts as shall satisfy the minimum distribution rules of Section 9.3.
9.6 Payments Upon Termination of Plan.
Upon termination of this Plan pursuant to Sections 13.2, 13.4, 13.5 or 13.6, the Administrator shall continue to perform its duties and the Trustee shall make all payments upon the following terms, conditions and provisions: All interests of Participants shall immediately become fully vested; the value of the interests of all Participants shall be determined within 60 days after such termination, and the Administrator shall have the same powers to direct the Trustee in making payments as contained in Sections 9.1 and 13.5.
9.7 Distributions Pursuant to Qualified Domestic Relations Orders.
Upon receipt of a domestic relations order, the Administrator shall notify promptly the Participant and any alternate payee of receipt of the order and the Plan's procedure for determining whether the order is a Qualified Domestic Relations Order. While the issue of whether a domestic relations order is a Qualified Domestic Relations Order is being determined, if the benefits would otherwise be paid, the Administrator shall segregate in a separate account in the Plan the amounts that would be payable to the alternate payee during such period if the order were a Qualified Domestic Relations Order. If within 18 months the order is determined to be a Qualified Domestic Relations Order, the amounts so segregated, along with the interest or investment earnings attributable thereto shall be paid to the alternate payee. Alternatively, if within 18 months, it is determined that the order is not a Qualified Domestic Relations Order or if the issue is still unresolved, the amounts segregated under this Section 9.6, with the earnings attributable thereto, shall be paid to the Participant or Beneficiary who would have been entitled to such amounts if there had been no order. The determination as to whether the order is qualified shall be applied prospectively. Thus, if the Administrator determines that the order is a Qualified Domestic Relations Order after the 18-month period, the Plan shall not be liable for payments to the alternative payee for the period before the order is determined to be a Qualified Domestic Relations Order.
9.8 Cash-Out Distributions
If a Participant receives a distribution of the entire present value of his vested Account balances under this Plan because of the termination of his participation in the Plan, the Plan shall disregard a Participant's Service with respect to which such cash-out distribution shall have been made, in computing his accrued benefit under the Plan in the event that a Former Participant shall again become an Employee and become eligible to participate in the Plan. Such a distribution shall be deemed to be made on termination of participation in the Plan if it is made not later than the close of the second Plan Year following the Plan Year in which such termination occurs. The forfeitable portion of a Participant's accrued benefit shall be restored upon repayment to the Plan by such former Participant of the full amount of the cash-out distribution, provided that the former Participant again becomes an Employee. Such repayment must be made by the Employee not later than the end of the five-year period beginning with the date of the distribution. Forfeitures required to be restored by virtue of such repayment shall be restored from the following sources in the following order of preference: (i) current forfeitures; (ii) additional employee stock ownership contributions, as appropriate and as subject to Section 5.6; and (iii) investment earnings of the Fund. In the event that a Participant's interest in the Plan is totally forfeitable, a Participant shall be deemed to have received a distribution of zero upon his termination of Service. In the event of a return to Service within five years of the date of his deemed distribution, the Participant shall be deemed to have repaid his distribution in accordance with the rules of this Section 9.8.
9.9 ESOP Distribution Rules.
Notwithstanding any provision of this Article IX to the contrary, the distribution of a Participant's Employee Stock Ownership Account (unless the Participant elects otherwise in writing), shall commence as soon as administratively feasible as of the first Valuation Date coincident with or next following his death, disability or termination of Service, but not later than one year after the close of the Plan Year in which the Participant separates from Service by reason of the attainment of his Normal Retirement Date, disability, death or separation from Service. In addition, all distributions hereunder shall, to the extent that the Participant's Account is invested in Employer Securities, be made in the form of Employer Securities. Fractional shares, however, may be distributed in the form of cash.
9.10 Withholding.
(a) Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributee's election under this Article IX, 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."
(b) For purposes of this Section 9.10, 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 10 years or more; any distribution to the extent such
distribution is required under section 401(a)(9) of the Code; and the portion of
any distribution that is not includable in gross income (determined without
regard to the exclusion for net unrealized appreciation with respect to Employer
Securities).
(c) For purposes of this Section 9.10, an "eligible retirement plan" is an individual retirement account described in section 408(a) of the Code, an individual retirement annuity described in section 408(b) of the Code, an annuity plan described in section 403(a) of the Code, or a qualified trust described in section 401(a) of the Code, 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.
(d) For purposes of this Section 9.10, a distributee includes a Participant or former Participant. In addition, the Participant's or former Participant's surviving spouse and the Participant's or former Participant's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in section 414(p) of the Code, are "distributees" with regard to the interest of the spouse or former spouse.
(e) For purposes of this Section 9.10, a "direct rollover" is a payment by the Plan to the "eligible retirement plan" specified by the distributee.
9.11 Waiver of 30-day Notice.
If a distribution is one to which sections 401(a)(11) and 417 of the Code do not apply, such distribution may commence less than 30 days after the notice required under Section 1.411(a)-11(c) of the Income Tax Regulations is given, provided that: (1) the Plan Administrator clearly informs the Participant that the Participant has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option), and (2) the Participant, after receiving the notice, affirmatively elects a distribution.
ARTICLE X
PROVISIONS RELATING TO TOP-HEAVY PLANS
10.1 Top-Heavy Rules to Control.
Anything contained in this Plan to the contrary notwithstanding, if for any Plan Year the Plan is a top-heavy plan, as determined pursuant to Section 416 of the Code, then the Plan must meet the requirements of this Article X for such Plan Year.
10.2 Top-Heavy Plan Definitions.
Unless a different meaning is plainly implied by the context, the following terms as used in this Article X shall have the following meanings:
(a) "Accrued Benefit" shall mean the account balances or accrued benefits of an Employee, calculated pursuant to Section 10.3.
(b) "Determination Date" shall mean, with respect to any particular Plan Year of this Plan, the last day of the preceding Plan Year (or, in the case of the first Plan Year of the Plan, the last day of the first Plan Year). In addition, the term "Determination Date" shall mean, with respect to any particular plan year of any plan (other than this Plan) in a Required Aggregation Group or a Permissive Aggregation Group, the last day of the plan year of such plan which falls within the same calendar year as the Determination Date for this Plan.
(c) "Employer" shall mean the Employer (as defined in Section 1.1(q)) and
any entity which is (1) a member of a controlled group including such Employer,
while it is a member of such controlled group (within the meaning of Section
414(b) of the Code), (2) in a group of trades or businesses under common control
with such Employer, while it is under common control (within the meaning of
Section 414(c) of the Code), and (3) a member of an affiliated service group
including such Employer, while it is a member of such affiliated service group
(within the meaning of Section 414(m) of the Code).
(d) "Key Employee" shall mean any Employee or former Employee (or any Beneficiary of such Employee or former Employee, as the case may be) who, at any time during the Plan Year or during the four immediately preceding Plan Years is one of the following:
(1) An officer of the Employer who has compensation greater than 50% of the amount in effect under Code 415(b)(1)(A) for the Plan Year; provided, however, that no more than 50 Employees (or, if lesser, the greater of three or 10% of the Employees) shall be deemed officers;
(2) One of the 10 Employees having annual compensation (as defined in
Section 415 of the Code) in excess of the limitation in effect under
Section
415(c)(1)(A) of the Code, and owning (or considered as owning, within the meaning of Section 318 of the Code) the largest interests in the Employer;
(3) Any Employee owning (or considered as owning, within the meaning of
Section 318 of the Code) more than 5% of the outstanding stock of the
Employer or stock possessing more than 5% of the total combined voting
power of all stock of the Employer; or
(4) Any Employee having annual compensation (as defined in Section 415 of the Code) of more than $150,000 and who would be described in Section 10.2(d)(3) if "1%" were substituted for "5%" wherever the latter percentage appears.
For purposes of applying Section 318 of the Code to the provisions of
this Section 10.2(d), Section 318(a)(2)(C) of the Code shall be
applied by substituting "5%" for "50%" wherever the latter percentage
appears. In addition, for purposes of this Section 10.2(d), the
provisions of Section 414(b), (c) and (m) shall not apply in
determining ownership interests in the Employer. However, for
purposes of determining whether an individual has compensation in
excess of $150,000, or whether an individual is a Key Employee under
Section 10.2(d)(1) and (2), compensation from each entity required to
be aggregated under Sections 414(b), (c) and (m) of the Code shall be
taken into account. Notwithstanding anything contained herein to the
contrary, all determinations as to whether a person is or is not a Key
Employee shall be resolved by reference to Section 416 of the Code and
any rules and regulations promulgated thereunder.
(e) "Non-Key Employee" shall mean any Employee or former Employee (or any Beneficiary of such Employee or former Employee, as the case may be) who is not considered to be a Key Employee with respect to this Plan.
(f) "Permissive Aggregation Group" shall mean all plans in the Required Aggregation Group and any other plans maintained by the Employer which satisfy Sections 401(a)(4) and 410 of the Code when considered together with the Required Aggregation Group.
(g) "Required Aggregation Group" shall mean each plan (including any terminated plan) of the Employer in which a Key Employee is (or in the case of a terminated plan, had been) a Participant in the Plan Year containing the Determination Date or any of the four preceding Plan Years, and each other plan of the Employer which enables any plan of the Employer in which a Key Employee is a Participant to meet the requirement of Sections 401(a)(4) and 410 of the Code.
10.3 Calculation of Accrued Benefits.
(a) An Employee's Accrued Benefit shall be equal to:
(1) With respect to this Plan or any other defined contribution plan (other than a defined contribution pension plan) in a Required Aggregation Group or a Permissive Aggregation Group, the Employee's account balances under the respective plan, determined as of the most recent plan valuation date within a 12-month period ending on the Determination Date, including contributions actually made after the valuation date but before the Determination Date (and, in the first plan year of a plan, also including any contributions made after the Determination Date which are allocated as of a date in the first plan year).
(2) With respect to any defined contribution pension plan in a Required Aggregation Group or a Permissive Aggregation Group, the Employee's account balances under the plan, determined as of the most recent plan valuation date within a 12-month period ending on the Determination Date, including contributions which have not actually been made, but which are due to be made as of the Determination Date.
(3) With respect to any defined benefit plan in a Required Aggregation Group or a Permissive Aggregation Group, the present value of the Employee's accrued benefits under the plan, determined as of the most recent plan valuation date within a 12-month period ending on the Determination Date, pursuant to the actuarial assumptions used by such plan, and calculated as if the Employee terminated Service under such plan as of the valuation date (except that, in the first plan year of a plan, a current Participant's estimated Accrued Benefit Plan as of the Determination Date shall be taken into account).
(4) If any individual has not performed services for the Employer maintaining the Plan at any time during the five-year period ending on the Determination Date, any Accrued Benefit for such individual shall not be taken into account.
(b) The Accrued Benefit of any Employee shall be further adjusted as follows:
(1) The Accrued Benefit shall be calculated to include all amounts attributable to both Employer and Employee contributions, but shall exclude amounts attributable to voluntary deductible Employee contributions, if any.
(2) The Accrued Benefit shall be increased by the aggregate distributions made with respect to an Employee under the plan or plans, as the case may be, during the five-year period ending on the Determination Date.
(3) Rollover and direct plan-to-plan transfers shall be taken into account as follows:
(A) If the transfer is initiated by the Employee and made from a plan maintained by one employer to a plan maintained by another unrelated employer, the transferring plan shall continue to count the amount transferred; the receiving plan shall not count the amount transferred.
(B) If the transfer is not initiated by the Employee or is made between plans maintained by related employers, the transferring plan shall no longer count the amount transferred; the receiving plan shall count the amount transferred.
(c) If any individual has not performed services for the Employer at any time during the five-year period ending on the Determination Date, any accrued benefit for such individual (and the account of such individual) shall not be taken into account.
10.4 Determination of Top-Heavy Status.
This Plan shall be considered to be a top-heavy plan for any Plan Year if, as of the Determination Date, the value of the Accrued Benefits of Key Employees exceeds 60% of the value of the Accrued Benefits of all eligible Employees under the Plan. Notwithstanding the foregoing, if the Employer maintains any other qualified plan, the determination of whether this Plan is top-heavy shall be made after aggregating all other plans of the Employer in the Required Aggregation Group and, if desired by the Employer as a means of avoiding top- heavy status, after aggregating any other plan of the Employer in the Permissive Aggregation Group. If the required Aggregation Group is top-heavy, then each plan contained in such group shall be deemed to be top-heavy, notwithstanding that any particular plan in such group would not otherwise be deemed to be top- heavy. Conversely, if the Permissive Aggregation Group is not top-heavy, then no plan contained in such group shall be deemed to be top-heavy, notwithstanding that any particular plan in such group would otherwise be deemed to be top- heavy. In no event shall a plan included in a top-heavy Permissive Aggregation Group be deemed a top-heavy plan unless such plan is also included in a top- heavy Required Aggregation Group.
10.5 Determination of Super Top-Heavy Status.
The Plan shall be considered to be a super top-heavy plan if, as of the Determination Date, the Plan would meet the test specified in Section 10.4 above for classification as a top-heavy plan, except that "90%" shall be substituted for "60%" whenever the latter percentage appears.
10.6 Minimum Contribution.
(a) For any year in which the Plan is top-heavy, each Non-Key Employee who has met the age and service requirements, if any, contained in the Plan, shall be entitled to a minimum contribution (which may include forfeitures otherwise allocable) equal to a percentage of such Non-Key Employee's compensation (as defined in Section 415 of the Code) as follows:
(1) If the Non-Key Employee is not covered by a defined benefit plan maintained by the Employer, then the minimum contribution under this Plan shall be 3% of such Non-Key Employee's compensation.
(2) If the Non-Key Employee is covered by a defined benefit plan maintained by the Employer, then the minimum contribution under this Plan shall be 5% of such Non-Key Employee's compensation.
(b) Notwithstanding the foregoing, the minimum contribution otherwise allocable to a Non-Key Employee under this Plan shall be reduced in the following circumstances:
(1) The percentage minimum contribution required under this Plan shall in no event exceed the percentage contribution made for the Key Employee for whom such percentage is the highest for the Plan Year after taking into account contributions under other defined contribution plans in this Plan's Required Aggregation Group; provided, however, that this Section 10.7(b)(1) shall not apply if this Plan is included in a Required Aggregation Group and this Plan enables a defined benefit plan in such Required Aggregation Group to meet the requirements of Section 401(a)(4) or 410 of the Code.
(2) No minimum contribution shall be required (or the minimum contribution shall be reduced, as the case may be) for a Non-Key Employee under this Plan for any Plan Year if the Employer maintains another qualified plan under which a minimum benefit or contribution is being accrued or made on account of such Plan Year, in whole or in part, on behalf of the Non-Key Employee, in accordance with Section 416(c) of the Code.
(c) For purposes of this Section 10.6, there shall be disregarded (1) any Employer contributions attributable to a salary reduction or similar arrangement, or (2) any Employer
contributions to or any benefits under Chapter 21 of the Code (relating to the Federal Insurance Contributions Act), Title II of the Social Security Act, or any other federal or state law.
(d) For purposes of this Section 10.6, minimum contributions shall be
required to be made on behalf of only those Non-Key Employees, as described in
Section 10.7(a), who have not terminated Service as of the last day of the Plan
Year. If a Non-Key Employee is otherwise entitled to receive a minimum
contribution pursuant to this Section 10.6(d), the fact that such Non-Key
Employee failed to complete 1,000 Hours of Service or failed to make any
mandatory or elective contributions under this Plan, if any are so required,
shall not preclude him from receiving such minimum contribution.
10.7 Maximum Benefit Limitation.
For any Plan Year in which the Plan is a top-heavy plan, Section
5.6(d)(1)(B)(i) and Section 5.6(d)(2)(B)(i)shall be read by substituting "1.0"
for "1.25" wherever the latter figure appears; provided, however, that such
substitution shall not have the effect of reducing any benefit accrued under a
defined benefit plan prior to the first day of the plan year in which this
Section 10.8 becomes applicable.
10.8 Vesting.
(a) For any Plan Year in which the Plan is a top-heavy plan, a Participant's Employer account shall continue to vest according to the schedule set forth in Section 7.2.
(b) For purposes of Section 10.8(a), the term "year of service" shall have the same meaning as set forth in Section 1.1(kk), as modified by Section 3.2
(c) If for any Plan Year the Plan becomes top-heavy and the vesting schedule set forth in Section 10.8(a) becomes effective, then, even if the Plan ceases to be top-heavy in any subsequent Plan Year, the vesting schedule set forth in Section 10.8(a) shall remain applicable with respect to any Participant who has completed 3 Years of Service.
ARTICLE XI
ADMINISTRATION
11.1 Appointment of Administrator.
This Plan shall be administered by a committee consisting of up to five persons, whether or not Employees or Participants, who shall be appointed from time to time by the Board of Directors to serve at its pleasure. The Sponsor may require that each person appointed as an Administrator shall signify his acceptance by filing an acceptance with the Sponsor. The term "Administrator" as used in this Plan shall refer to the members of the committee, either individually or collectively, as appropriate. In the event that the Sponsor shall elect not to appoint any individuals to constitute a committee to administer the Plan, the Sponsor shall serve as the Administrator hereunder.
11.2 Resignation or Removal of Administrator.
An Administrator shall have the right to resign at any time by giving notice in writing, mailed or delivered to the Employer and to the Trustee. Any Administrator who was an employee of the Employer at the time of his appointment shall be deemed to have resigned as an Administrator upon his termination of Service. The Board of Directors may, in its discretion, remove any Administrator with or without cause, by giving notice in writing, mailed or delivered to the Administrator and to the Trustee.
11.3 Appointment of Successors: Terms of Office, Etc.
Upon the death, resignation or removal of an Administrator, the Employer may appoint, by Board of Directors' resolution, a successor or successors. Notice of termination of an Administrator and notice of appointment of a successor shall be made by the Employer in writing, with copies mailed or delivered to the Trustee, and the successor shall have all the rights and privileges and all of the duties and obligations of the predecessor.
11.4 Powers and Duties of Administrator.
The Administrator shall have the following duties and responsibilities in connection with the administration of this Plan:
(a) To promulgate and enforce such rules, regulations and procedures as shall be proper for the efficient administration of the Plan, such rules, regulations and procedures to apply uniformly to all Employees, Participants and Beneficiaries;
(b) To determine all questions arising in the administration, interpretation and application of the Plan, including questions of eligibility and of the status and rights of Participants, Beneficiaries and any other persons hereunder;
(c) To decide any dispute arising hereunder strictly in accordance with the terms of the Plan; provided, however, that no Administrator shall participate in any matter involving any questions relating solely to his own participation or benefits under this Plan;
(d) To advise the Employer and the Trustee regarding the known future needs for funds to be available for distribution in order that the Trustee may establish investments accordingly;
(e) To correct defects, supply omissions and reconcile inconsistencies to the extent necessary to effectuate the Plan;
(f) To advise the Employer of the maximum deductible contribution to the Plan for each fiscal year;
(g) To direct the Trustee concerning all payments which shall be made out of the Fund pursuant to the provisions of this Plan;
(h) To advise the Trustee on all terminations of Service by Participants, unless the Employer has so notified the Trustee;
(i) To confer with the Trustee on the settling of any claims against the Fund;
(j) To make recommendations to the Board of Directors with respect to proposed amendments to the Plan and the Trust Agreement;
(k) To file all reports with government agencies, Employees and other parties as may be required by law, whether such reports are initially the obligation of the Employer, the Plan or the Trustee; and
(l) To have all such other powers as may be necessary to discharge its duties hereunder.
Reasonable discretion is granted to the Administrator to affect the benefits, rights and privileges of Participants, Beneficiaries or other persons affected by this Plan. The Administrator shall exercise reasonable discretion under the terms of this Plan and shall administer the Plan strictly in accordance with its terms, such administration to be exercised uniformly so that all persons similarly situated shall be similarly treated.
11.5 Action by Administrator.
The Administrator may elect a Chairman and Secretary from among its members and may adopt rules for the conduct of its business. A majority of the members then serving shall constitute a quorum for the transaction of business. All resolutions or other action taken by the Administrator shall be by vote of a majority of those present at such meeting and entitled to vote. Resolutions may be adopted or other action taken without a meeting upon written consent signed by at least a majority of the members. All documents, instruments, orders, requests, directions,
instructions and other papers shall be executed on behalf of the Administrator by either the Chairman or the Secretary of the Administrator, if any, or by any member or agent of the Administrator duly authorized to act on the Administrator's behalf.
11.6 Participation by Administrators.
No Administrator shall be precluded from becoming a Participant in the Plan if he would be otherwise eligible, but he shall not be entitled to vote or act upon matters or to sign any documents relating specifically to his own participation under the Plan, except when such matters or documents relate to benefits generally. If this disqualification results in the lack of a quorum, then the Board of Directors shall appoint a sufficient number of temporary Administrators who shall serve for the sole purpose of determining such a question.
11.7 Agents.
The Administrator may employ agents and provide for such clerical, legal, actuarial, accounting, medical, advisory or other services as it deems necessary to perform its duties under this Plan. The cost of such services and all other expenses incurred by the Administrator in connection with the administration of the Plan shall be paid from the Fund, unless paid by the Employer.
11.8 Allocation of Duties.
The duties, powers and responsibilities reserved to the Administrator may be allocated among its members so long as such allocation is pursuant to written procedures adopted by the Administrator, in which case, except as may be required by the Act, no Administrator shall have any liability, with respect to any duties, powers or responsibilities not allocated to him, for the acts of omissions of any other Administrator.
11.9 Delegation of Duties.
The Administrator may delegate any of its duties to other employees of the Employer, to the Trustee with its consent, or to any other person or firm, provided that the Administrator shall prudently choose such agents and rely in good faith on their actions.
11.10 Administrator's Action Conclusive.
Any action on matters within the authority of the Administrator shall be final and conclusive except as provided in Article XII.
11.11 Compensation and Expenses of Administrator.
No Administrator who is receiving compensation from the Employer as a full- time employee, as a director or agent, shall be entitled to receive any compensation or fee for his
services hereunder. Any other Administrator shall be entitled to receive such reasonable compensation for his services as an Administrator hereunder as may be mutually agreed upon between the Employer and such Administrator. Any such compensation shall be paid from the Fund, unless paid by the Employer. Each Administrator shall be entitled to reimbursement by the Employer for any reasonable and necessary expenditures incurred in the discharge of his duties.
11.12 Records and Reports.
The Administrator shall maintain adequate records of its actions and proceedings in administering this Plan and shall file all reports and take all other actions as it deems appropriate in order to comply with the Act, the Code and governmental regulations issued thereunder.
11.13 Reports of Fund Open to Participants.
The Administrator shall keep on file, in such form as it shall deem convenient and proper, all annual reports of the Fund received by the Administrator from the Trustee, and a statement of each Participant's interest in the Fund as from time to time determined. The annual reports of the Fund and the statement of his own interest in the Fund, as well as a complete copy of the Plan and the Trust Agreement and copies of annual reports to the Internal Revenue Service, shall be made available by the Administrator to the Employer for examination by each Participant during reasonable hours at the office of the Employer, provided, however, that the statement of a Participant's interest shall not be made available for examination by any other Participant.
11.14 Named Fiduciary.
The Administrator is the named fiduciary for purposes of the Act and shall be the designated agent for receipt of service of process on behalf of the Plan. It shall use ordinary care and diligence in the performance of its duties under this Plan. Nothing in this Plan shall preclude the Employer from indemnifying the Administrator for all actions under this Plan, or from purchasing liability insurance to protect it with respect to its duties under this Plan.
11.15 Information from Employer.
The Employer shall promptly furnish all necessary information to the Administrator to permit it to perform its duties under this Plan. The Administrator shall be entitled to rely upon the accuracy and completeness of all information furnished to it by the Employer, unless it knows or should have known that such information is erroneous.
11.16 Reservation of Rights by Employer.
Where rights are reserved in this Plan to the Employer, such rights shall be exercised only by action of the Board of Directors, except where the Board of Directors, by written resolution, delegates any such rights to one or more officers of the Employer or to the Administrator.
Subject to the rights reserved to the Board of Directors acting on behalf of the Employer as set forth in this Plan, no member of the Board of Directors shall have any duties or responsibilities under this Plan, except to the extent he shall be acting in the capacity of an Administrator or Trustee.
11.17 Liability and Indemnification.
(a) The Administrator shall perform all duties required of it under this Plan in a prudent manner. To the extent not prohibited by the Act, the Administrator shall not be responsible in any way for any action or omission of the Employer, the Trustee or any other fiduciaries in the performance of their duties and obligations set forth in this Plan and in the Trust Agreement. To the extent not prohibited by the Act, the Administrator shall also not be responsible for any act or omission of any of its agents, or with respect to reliance upon advice of its counsel (whether or not such counsel is also counsel to the Employer or the Trustee), provided that such agents or counsel were prudently chosen by the Administrator and that the Administrator relied in good faith upon the action of such agent or the advice of such counsel.
(b) The Administrator shall not be relieved from responsibility or liability for any responsibility, obligation or duty imposed upon it under this Plan or under the Act. Except for its own gross negligence, willful misconduct or willful breach of the terms of this Plan, the Administrator shall be indemnified and held harmless by the Employer against liability or losses occurring by reason of any act or omission of the Administrator to the extent that such indemnification does not violate the Act or any other federal or state laws.
11.18 Service as Trustee and Administrator.
Nothing in this Plan shall prevent one or more Trustees from serving as Administrator under this Plan.
ARTICLE XII
CLAIMS PROCEDURE
12.1 Notice of Denial.
If a Participant or his Beneficiary is denied any benefits under this Plan, either in whole or in part, the Administrator shall advise the claimant in writing of the amount of his benefit, if any, and the specific reasons for the denial. The Administrator shall also furnish the claimant at that time with a written notice containing:
(a) A specific reference to pertinent Plan provisions;
(b) A description of any additional material or information necessary for the claimant to perfect his claim, if possible, and an explanation of why such material or information is needed; and
(c) An explanation of the Plan's claim review procedure.
12.2 Right to Reconsideration.
Within 60 days of receipt of the information described in 12.1 above, the claimant shall, if he desires further review, file a written request for reconsideration with the Administrator.
12.3 Review of Documents.
So long as the claimant's request for review is pending (including the 60-day period described in Section 12.2 above), the claimant or his duly authorized representative may review pertinent Plan documents and the Trust Agreement (and any pertinent related documents) and may submit issues and comments in writing to the Administrator.
12.4 Decision by Administrator.
A final and binding decision shall be made by the Administrator within 60 days of the filing by the claimant of his request for reconsideration; provided, however, that if the Administrator feels that a hearing with the claimant or his representative present is necessary or desirable, this period shall be extended an additional 60 days.
12.5 Notice by Administrator.
The Administrator's decision shall be conveyed to the claimant in writing and shall include specific reasons for the decision, written in a manner calculated to be understood by the claimant, with specific references to the pertinent Plan provisions on which the decision is based.
ARTICLE XIII
AMENDMENTS, TERMINATION AND MERGER
13.1 Amendments.
The Employer reserves the right at any time and from time to time, and retroactively if deemed necessary or appropriate by it, to the extent permissible under law, to conform with governmental regulations or other policies, to amend in whole or in part any or all of the provisions of this Plan, provided that:
(a) No amendment shall make it possible for any part of the Fund to be used for, or diverted to, purposes other than for the exclusive benefit of Participants or their Beneficiaries under the Trust Agreement, except to the extent provided in Section 4.4;
(b) No amendment may, directly or indirectly, reduce the vested portion of any Participant's interest as of the effective date of the amendment or change the vesting schedule with respect to the future accrual of Employer contributions for any Participants unless each Participant with three or more Years of Service with the Employer is permitted to elect to have the vesting schedule in effect before the amendment used to determine his vested benefit;
(c) No amendment may eliminate an optional form of benefit;
(d) No amendment may increase the duties of the Trustee without its consent; and
(e) No amendment that shall change any of the following types of provisions shall be made more than once every six months, other than to comport with changes in the Code, the Act or the regulations thereunder: (i) any provision stating the amount and price of Employer Securities to be awarded to designated officers and directors or categories of officers and directors; (ii) any provisions specifying the timing of awards or allocations to officers and directors; (iii) any provision setting forth a formula that determines the amount, price and timing of allocations or awards, using objective criteria such as earnings of the issuer, value of the Employer Securities, Years of Service, job classification and Compensation levels.
Amendments may be made in the form of Board of Directors' resolutions or separate written document. Copies of all amendments shall be delivered to the Trustee.
13.2 Consolidation, Merger or Other Transactions of Employer.
Nothing in this Plan shall prevent the consolidation, merger, reorganization or liquidation of the Employer, or prevent the sale by Employer of any or all of its property. Any successor corporation or other entity formed and resulting from any such transaction shall have the right to become a party to this Plan by adopting the same by resolution and by appointing a new Trustee as though the Trustee had resigned in accordance with the Trust Agreement, and by
executing a proper supplemental agreement with the Trustee. If, within 180 days from the effective date of such transaction, such new entity does not become a party to this Plan as above provided, this Plan shall automatically be terminated and the Trustee shall make payments to the persons entitled thereto in accordance with Section 9.5.
13.3 Consolidation or Merger of Trust.
In the event of any merger or consolidation of the Fund with, or transfer in whole or in part of the assets and liabilities of the Fund to, another trust fund held under any other plan of deferred compensation maintained or to be established for the benefit of all or some of the Participants of this Plan, the assets of the Fund applicable to such Participants shall be transferred to the other trust fund only if:
(a) Each Participant would receive a benefit under such successor trust fund immediately after the merger, consolidation or transfer which is equal to or greater than the benefit he would have been entitled to receive immediately before the merger, consolidation or transfer (determined as if this Plan and such transferee trust fund had then terminated);
(b) Resolutions of the Board of Directors under this Plan, or of any new or successor employer of the affected Participants, shall authorize such transfer of assets, and, in the case of the new or successor employer of the affected Participants, its resolutions shall include an assumption of liabilities with respect to such Participants' inclusion in the new employer's plan; and
(c) Such other plan and trust are qualified under Sections 401(a) and 501(a) of the Code.
13.4 Bankruptcy or Insolvency of Employer.
In the event of (a) the Employer's legal dissolution or liquidation by any procedure other than a consolidation or merger, (b) the Employer's receivership, insolvency, or cessation of its business as a going concern, or (c) the commencement of any proceeding by or against the Employer under the federal bankruptcy laws, and similar federal or state statute, or any federal or state statute or rule providing for the relief of debtors, compensation of creditors, arrangement, receivership, liquidation or any similar event which is not dismissed within 30 days, this Plan shall terminate automatically on such date (provided, however, that if a proceeding is brought against the Employer for reorganization under Chapter 11 of the United States Bankruptcy Code or any similar federal or state statute, then this Plan shall terminate automatically if and when said proceeding results in a liquidation of the Employer, or the approval of any Plan providing therefor, or the proceeding is converted to a case under Chapter 7 of the Bankruptcy Code or any similar conversion to a liquidation proceeding under federal or state law including, but not limited to, a receivership proceeding). In the event of any such termination as provided in the foregoing sentence, the Trustee shall make payments to the persons entitled thereto in accordance with Section 9.5 hereof.
13.5 Voluntary Termination.
The Board of Directors reserves the right to terminate this Plan at any time by
giving to the Trustee and the Administrator notice in writing of such desire to
terminate. The Plan shall terminate upon the date of receipt of such notice,
the interests of all Participants shall become fully vested, and the Trustee
shall make payments to each Participant or Beneficiary in accordance with
Section 9.5. Alternatively, the Employer, in its discretion, may determine to
continue the Trust Agreement and to continue the maintenance of the Fund, in
which event distributions shall be made upon the contingencies and in all the
circumstances which would have been entitled such distributions on a fully
vested basis, had there been no termination of the Plan.
13.6 Partial Termination of Plan or Permanent Discontinuance of Contributions.
In the event that a partial termination of the Plan shall be deemed to have occurred, or if the Employer shall discontinue completely its contributions hereunder, the right of each affected Participant to his interest in the Fund shall be fully vested. The Employer, in its discretion, shall decide whether to direct the Trustee to make immediate distribution of such portion of the Fund assets to the persons entitled thereto or to make distribution in the circumstances and contingencies which would have controlled such distributions if there had been no partial termination or discontinuance of contributions.
ARTICLE XIV
MISCELLANEOUS
14.1 No Diversion of Funds.
It is the intention of the Employer that it shall be impossible for any part of the corpus or income of the Fund to be used for, or diverted to, purposes other than for the exclusive benefit of the Participants or their Beneficiaries, except to extent that a return of the Employer's contribution is permitted under Section 4.4.
14.2 Liability Limited.
Neither the Employer nor the Administrator, nor any agents, employees, officers, directors or shareholders of any of them, nor the Trustee, nor any other person shall have any liability or responsibility with respect to this Plan, except as expressly provided herein.
14.3 Incapacity.
If the Administrator shall receive evidence satisfactory to it that a Participant or Beneficiary entitled to receive any benefit under the Plan is, at the time when such benefit becomes payable, a minor, or is physically or mentally incompetent to receive such benefit and to give a valid release therefor, and that another person or an institution is then maintaining or has custody of such Participant or Beneficiary, and that no guardian, committee or other representative of the estate of such Participant or Beneficiary shall have been duly appointed, the Administrator may direct the Trustee to make payment of such benefit otherwise payable to such Participant or Beneficiary, to such other person or institution, including a custodian under a Uniform Gifts to Minor Act, or corresponding legislation (who shall be an adult, a guardian of the minor or a trust company), and the release of such other person or institution shall be a valid and complete discharge for the payment of such benefit.
14.4 Spendthrift Clause.
Except as permitted by the Act or the Code, no benefits or other amounts payable under the Plan shall be subject in any manner to anticipation, sale, transfer, assignment, pledge, encumbrance, charge or alienation. If the Administrator determines that any person entitled to any payments under the Plan has become insolvent or bankrupt or has attempted to anticipate, sell, transfer, assign, pledge, encumber, charge or otherwise in any manner alienate any benefit or other amount payable to him under the Plan or that there is any danger of any levy or attachment or other court process or encumbrance on the part of any creditor of such person entitled to payments under the Plan against any benefit or other accounts payable to such person, the Administrator may, at any time, in its discretion, direct the Trustee to withhold any or all payments to such person under the Plan and apply the same for the benefit of such person, in such manner and in such proportion as the Administrator may deem proper.
14.5 Benefits Limited to Fund.
All contributions by the Employer to the Fund shall be voluntary, and the Employer shall be under no legal liability to make any such contributions. The benefits of this Plan shall be only as can be provided by the assets of the Fund, and no liability for the payment of benefits under the Plan or for any loss of assets due to any action or inaction of the Trustee shall be imposed upon the Employer.
14.6 Cooperation of Parties.
All parties to this Plan and any party claiming interest hereunder agree to perform any and all acts and execute any and all documents and papers which are necessary and desirable for carrying out this Plan or any of its provisions.
14.7 Payments Due Missing Persons.
The Administrator shall direct the Trustee to make a reasonable effort to locate all persons entitled to benefits under the Plan; however, notwithstanding any provision in the Plan to the contrary, if, after a period of five years from the date such benefit shall be due, any such persons entitled to benefits have not been located, their rights under the Plan shall stand suspended. Before this provision becomes operative, the Trustee shall send a certified letter to all such persons at their last known address advising them that their interest in benefits under the Plan shall be suspended. Any such suspended amounts shall be held by the Trustee for a period of three additional years (or a total of eight years from the time the benefits first became payable), and thereafter such amounts shall be reallocated among current Participants in the same manner that a current contribution would be allocated. However, if a person subsequently makes a valid claim with respect to such reallocated amounts and any earnings thereon, the Plan earnings or the Employer's contribution to be allocated for the year in which the claim shall be paid shall be reduced by the amount of such payment. Any such suspended amounts shall be handled in a manner not inconsistent with regulations issued by the Internal Revenue Service and Department of Labor.
14.8 Governing Law.
This Plan has been executed in the State of Washington and all questions pertaining to its validity, construction and administration shall be determined in accordance with the laws of that State, except to the extent superseded by the Act.
14.9 Nonguarantee of Employment.
Nothing contained in this Plan shall be construed as a contract of employment between the Employer and any Employee, or as a right of any Employee to be continued in the employment of the Employer, or as a limitation of the right of the Employer to discharge any of its Employees, with or without cause.
14.10 Counsel.
The Trustee and the Administrator may consult with legal counsel, who may be counsel for the Employer and for the Administrator or the Trustee (as the case may be), with respect to the meaning or construction of this Plan and the Trust Agreement, their respective obligations or duties hereunder or with respect to any action or proceeding or any question of law, and they shall be fully protected with respect to any action taken or omitted by them in good faith pursuant to the advice of legal counsel.
IN WITNESS WHEREOF, the Sponsor has caused this Plan to be executed by its duly authorized officer and its corporate seal to be affixed on this ____ day of ________, 1997.
Attest: TIMBERLAND SAVINGS BANK, SSB
By:
------------------------------- ----------------------------------------
Secretary Clarence E. Hamre
President and Chief Executive Officer
|
Exhibit 10.3
FORM OF THE
TIMBERLAND SAVINGS BANK, SSB
EMPLOYEE SEVERANCE COMPENSATION PLAN
PLAN PURPOSE
The purpose of this Timberland Savings Bank, SSB Employee Severance Compensation Plan is to assure the services of Employees of the Savings Bank in the event of a Change in Control. The benefits contemplated by the Plan recognize the value to the Savings Bank of the services and contributions of the Employees of the Savings Bank and the effect upon the Savings Bank resulting from the uncertainties of continued employment, reduced employee benefits, management changes and relocations that may arise in the event of a Change in Control. The Board believes that the Plan will also aid the Savings Bank in attracting and retaining the highly qualified individuals who are essential to its success and that the Plan's assurance of fair treatment of the Savings Bank's Employees will reduce the distractions and other adverse effects on Employees' performance in the event of a Change in Control.
ARTICLE I
ESTABLISHMENT OF PLAN
As of the Effective Date of the Plan as defined herein, the Savings Bank hereby establishes an employee severance compensation plan to be known as the Timberland Savings Bank, SSB Employee Severance Compensation Plan." The purposes of the Plan are as set forth above.
The benefits provided by this Plan shall be available to all Employees of the Savings Bank, who, at or after the Effective Date, meet the eligibility requirements of Article III, except for those officers of the Savings Bank who have entered into, or who enter into in the future, and continue to be subject to, an employment or change in control agreement with the Employer.
This plan establishes and vests in each Participant a contractual right to the benefits to which each Participant is entitled hereunder in the event of a Change in Control, enforceable by the Participant against the Employer, the Savings Bank, or both. The Plan does not provide, and should not be construed as providing, benefits of any kind to any Employee, except in the event of a Change in Control and, in the event of a Change in Control, only upon the involuntary or voluntary termination of an Employee in the manner contemplated herein.
ARTICLE II
DEFINITIONS AND CONSTRUCTION
Whenever used in the Plan, the following terms shall have the meanings set forth below.
"Annual Compensation" of a Participant means and includes all wages, salary, bonus, and cash compensation, if any, paid (including accrued amounts) by an Employer as consideration for the Participant's service during the 12- month period ending on the last day of the month preceding the date of a Participant's termination pursuant to Section 4.2. For purposes of this Plan, a Participant's "Monthly Compensation" shall equal one-twelfth of a Participant's Annual Compensation as determined in accordance with this paragraph.
"Board" means the Board of Directors of the Savings Bank.
CHANGE IN CONTROL shall mean an event deemed to occur if and when (a) an
offeror other than the Company purchases shares of the common stock of the
Company or the Savings Bank pursuant to a tender or exchange offer for such
shares, (b) any person (as such term is used in Sections 13(d) and 14(d)(2) of
the Exchange Act) is or becomes the beneficial owner, directly or indirectly, of
securities of the Company or Savings Bank representing twenty-five percent (25%)
or more of the combined voting power of the Company's or the Savings Bank's then
outstanding securities, (c) the membership of the board of directors of the
Company or the Savings Bank changes as the result of a contested election, such
that individuals who were directors at the beginning of any twenty-four (24)
month period (whether commencing before or after the date of adoption of this
Plan) do not constitute a majority of the Board at the end of such period, or
(d) shareholders of the Company or the Savings Bank approve a merger,
consolidation, sale or disposition of all or substantially all of the Company's
or the Savings Bank's assets or a plan of partial or complete liquidation. If
any of the events enumerated in clauses (a) - (d) occur, the Board shall
determine the effective date of the change in control resulting therefrom.
"Company" means Timberland Bancorp, Inc., a Washington corporation, the holding company of the Savings Bank.
"Disability" means the permanent and total inability by reason of mental or physical infirmity, or both, of an Employee to perform the work customarily assigned to him. Additionally, a medical doctor selected or approved by the Board must advise the Board that it is either not possible to determine if or when such Disability will terminate or that it appears probable that such Disability will be permanent during the remainder of said Employee's lifetime.
"Effective Date" means the date the Plan is approved by the Board of the Savings Bank, or such other date as the Board shall designate in its resolution approving the Plan.
"Employee" means any employee of the Savings Bank or another Employer.
"Employer" means (i) the Savings Bank or (ii) a subsidiary of the Savings Bank or a parent company of the Savings Bank which has adopted the plan pursuant to Article VI hereof.
"Expiration Date" means a date ten (10) years from the Effective Date
unless earlier terminated pursuant to Section 8.2 or extended pursuant to
Section 8.1.
"Just Cause" shall means termination because of Participant's personal dishonesty, incompetence, willful misconduct, any breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violations or other similar offenses) or any final cease-and desist order.
"Payment" means the payment of severance compensation as provided in Article IV hereof.
"Participant" means an Employee who meets the eligibility requirements of Article III.
"Plan" means this Timberland Savings Bank, SSB Employee Severance Compensation Plan.
"Savings Bank" means Timberland Savings Bank, SSB or any successor as provided for in Article VII hereof.
The laws of the State of Washington shall be controlling law in all matters relating to the Plan to the extent not preempted by Federal law.
If a provision of this Plan shall be held illegal or invalid, the illegality or invalidity shall not affect the remaining parts of the Plan and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included.
ARTICLE III
ELIGIBILITY
The term "Participant" shall include all Employees of an Employer who have completed at least two (2) years of service with the Employer at the time of any termination pursuant to Section 4.2 herein. Notwithstanding the foregoing, persons who have entered into and continue to be covered by an individual employment contract or change in control agreement with an Employer shall not be entitled to participate in this Plan.
A Participant shall cease to be a Participant in the Plan when the Participant ceases to be an Employee of an Employer, unless such Participant is entitled to a Payment as provided in the Plan. A Participant entitled to receipt of a Payment shall remain a Participant in this Plan until the full amount of such Payment has been paid to the Participant.
ARTICLE IV
PAYMENTS
A Participant shall be entitled to receive from his or her Employer a
Payment in the amount provided in Section 4.3 if a Change in Control occurs and
if, within one (1) year thereafter, the Participant's employment by an Employer
shall terminate for any reason specified in Section 4.2. A Participant shall not
be entitled to a Payment if termination occurs by reason of death, voluntary
retirement, voluntary termination other than for the reasons specified in
Section 4.2, Disability or for Just Cause.
Following a Change in Control, a Participant shall be entitled to a Payment in accordance with Section 4.3 if employment by an Employer is terminated, voluntary or involuntary, for any one or more of the following reasons:
(a) The Employer reduces the Participant's base salary or rate of compensation as in effect immediately prior to the Change in Control, or as the same may have been increased thereafter.
(b) The Employer materially changes Participant's function, duties or responsibilities which would cause the Participant's position to be one of lesser responsibility, importance or scope with the Employer than immediately prior to the Change in Control.
(c) The Employer requires the Participant to change the location of the Participant's job or office, so that such Participant will be based at a location more than thirty-five (35) miles from the location of the Participant's job or office immediately prior to the Change in Control provided that such new location is not closer to Participant's home.
(d) The Employer materially reduces the benefits and perquisites available to the Participant immediately prior to the Change in Control; provided, however, that a material reduction in benefits and perquisites generally provided to all Employees of the Savings Bank on a nondiscriminatory basis shall not trigger a Payment pursuant to this Plan.
(e) A successor to the Employer fails or refuses to assume the Employer's obligations under this Plan, as required by Article VII.
(f) The Employer, or any successor to the Employer, breaches any other provisions of this Plan.
(g) The Employer terminates the employment of a Participant at or after a Change in Control other than for Just Cause.
Each Participant entitled to a Payment under this Plan shall receive from the Employer a lump sum cash payment equal to the product of the Participant's Monthly Compensation and the Participant's years of service (including partial years rounded up to the nearest full month) from the Employee's date of hire through the date of termination. Notwithstanding anything herein to the contrary, the maximum payment to a Participant under the Plan shall not exceed two hundred percent (200%) of the Participant's Annual Compensation
The Participant shall not be required to mitigate damages on the amount of the Payment by seeking other employment or otherwise, nor shall the amount of such Payment be reduced by any compensation earned by the Participant as a result of employment after termination of employment hereunder.
The Payment to which a Participant is entitled shall be paid to the Participant by the Employer or the successor to the Employer, in cash and in full, not later than thirty (30) business days after the termination of the Participant's employment. If any Participant should die after termination of the employment but before all amounts have been paid, such unpaid amounts shall be paid to the Participant's named beneficiary, if living, otherwise to the personal representative of behalf of or for the benefit of the Participant's estate.
Notwithstanding the foregoing, no payments or portions thereof shall be made under this Plan, if such payment or portion would result in the Savings Bank failing to meet its minimum regulatory capital requirements as required by 12 C.F.R. (S)567.2. Any payments or portions thereof not paid shall be suspended until such time as their payment would not result in a failure to meet the Savings Bank's minimum regulatory capital requirements. Any portion of benefit payments which have not been suspended will be paid on an equitable basis, pro rata based upon amounts due each Participant, among all eligible Participants.
ARTICLE V
OTHER RIGHTS AND BENEFITS NOT AFFECTED
Neither the provisions of this Plan nor the Payment provided for hereunder shall reduce any amounts otherwise payable, or in any way diminish the Participant's rights as an Employee of an Employer, whether existing now or hereafter, under any benefit, incentive, retirement, stock option, stock bonus, stock ownership or any employment agreement or other plan or arrangement.
This Plan does not constitute a contract of employment or impose on the Participant's Employer any obligation to retain the Participant, to maintain the status of the Participant's employment, or to change the Employer's policies regarding termination of employment.
ARTICLE VI
PARTICIPATING EMPLOYERS
6.1 Upon approval by the Board of the Savings Bank, this Plan may be adopted by any subsidiary of the Savings Bank or by the Company. Upon such adoption, the subsidiary or the Company shall become an Employer hereunder and the provisions of the Plan shall be fully applicable to the Employees of that subsidiary or the Company. The term "subsidiary" means any corporation in which the Savings Bank, directly or indirectly, holds a majority of the voting power of its outstanding shares of capital stock.
ARTICLE VII
SUCCESSOR TO THE SAVINGS BANK
7.1 The Savings Bank shall require any successor or assignee, whether direct or indirect, by purchase, merger, consolidation or otherwise, to all or substantially all the business or assets of the Savings Bank, expressly and unconditionally to assume and agree to perform the Savings Bank's obligations under this plan, in the same manner and to the same extent that the Savings Bank would be required to perform if no such succession or assignment had taken place.
ARTICLE VIII
DURATION, AMENDMENT AND TERMINATION
If a Change in Control has not occurred, this Plan shall expire as of the Expiration Date, unless sooner terminated as provided in Section 8.2, or unless extended for an additional period or periods by resolution adopted by the Board of the Savings Bank.
Notwithstanding the foregoing, if a Change in Control occurs this Plan shall continue in full force and effect, and shall not terminate or expire until such date as all Participants who become entitled to Payments hereunder shall have received such Payments in full.
The Plan may be terminated or amended in any respect by resolution adopted by a majority of the Board of the Savings Bank, unless a Change in Control has previously occurred. If a Change in Control occurs, the Plan no longer shall be subject to amendment, change, substitution, deletion, revocation or termination in any respect whatsoever.
The form of any proper amendment or termination of the Plan shall be a written instrument signed by a duly authorized officer or officers of the Savings Bank, certifying that the amendment or termination has been approved by the Board. A proper termination of the Plan automatically shall effect a termination of all Participants' rights and benefits hereunder.
(a) Except as required by law, no right to receive payments under this Plan shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation, or to execution, attachment, levy, or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to affect such action shall be null, void, and of no effect.
(b) This Plan shall be binding upon, and inure to the benefit of, each Employee, the Employer and their respective successors and assigns.
ARTICLE IX
LEGAL FEES AND EXPENSES
9.1 All reasonable legal fees and other expenses paid or incurred by a party hereto pursuant to any dispute or question of interpretation relating to this Plan shall be paid or reimbursed by the prevailing party in any legal judgment, arbitration or settlement.
ARTICLE X
REQUIRED PROVISIONS
10.1 The Savings Bank may terminate the Employee's employment at any time, but any termination by the Savings Bank, other than Termination for Cause, shall not prejudice Employee's right to compensation or other benefits under this Agreement if the Employee is otherwise entitled to a benefit. Employee shall not have the right to receive compensation or other benefits for any period after termination for Just Cause as defined in Section 2.1 hereinabove.
10.2 If the Employee is suspended and/or temporarily prohibited from participating in the conduct of the Savings Bank's affairs by a notice served under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. (S)1818(e)(3) or (g)(1), the Savings Bank's obligations under this Plan to such Employee shall be suspended as of the date of service, unless stated by appropriate proceedings. If the charges in the notice are dismissed, the Savings Bank may in its discretion (i) pay the Employee all or part of the compensation withheld while their contract obligations were suspended and (ii) reinstate (in whole or in part) any of the obligation which were suspended.
10.3 If the Employee is removed and/or permanently prohibited from participating in the conduct of the Savings Bank's affairs by an order issued under Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. (S)1818(e)(4) or (g)(1), all obligations of the Savings Bank under this Plan to the Employee shall terminate as of the effective date of the order, but vested rights of the contracting parties shall not be affected.
10.4 If the Savings Bank is in default as defined in Section 3(x)(1) of the Federal Deposit Insurance Act, 12 U.S.C. (S)1818(x)(1), all obligations of the Savings Bank under this Plan shall terminate as of the date of default, but this paragraph shall not affect any vested rights of the contracting parties.
10.5 All obligations of the Savings Bank under this contract shall be terminated, except to the extent determined that continuation of the contract is necessary for the continued operation of the institution, (i) by the Director of the OTS (or his designee) or (ii) the Federal Deposit Insurance Corporation ("FDIC") at the time FDIC enters into an agreement to provide assistance to or on behalf of the Savings Bank under the authority contained in Section 13(c) of the Federal Deposits Insurance Act, 12 U.S.C. (S)1823(c); or (ii) by the Director of the OTS (or his designee) at the time the Director (or his designee) approves a supervisory merger to resolve problems
related to the operations of the Savings Bank or when the Savings Bank is determined by the Director to be in an unsafe or unsound condition. Any rights of the parties that have already vested, however, shall not be affected by such action.
10.6 Any payments made to an Employee pursuant to this Plan or otherwise shall be conditioned upon compliance under 12 U.S.C. (S)1828(k) and any regulations promulgated thereunder.
ARTICLE XI
ADMINISTRATION OF THE PLAN
11.1 The Plan shall be administered by the Board (or, by a committee of non-employee directors designated by the Board). Subject to the other provisions of the Plan, the Board shall have authority to adopt, amend, alter and repeal such administrative rules, guidelines and practices governing the operation of the Plan as it shall from time to time consider advisable, to interpret the provisions of the Plan and to decide all disputes arising in connection with the Plan. The Board may correct any defect or supply any omission or reconcile any inconsistency in the Plan in the manner and to the extent it shall deem appropriate to carry the Plan into effect, in its sole and absolute discretion. The Board's decision and interpretations shall be final and binding. Any action of the Board with respect to the administration of the Plan shall be taken pursuant to a majority vote or by the unanimous written consent of its members.
Having been adopted by its Board on ___________, 1997, this Plan is executed by duly authorized officer of the Savings Bank this ______ day of __________________, 1997.
Attest
------------------------ ----------------------------------------
Secretary Clarence E. Hamre
President and Chief Executive Officer
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EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Parent
------
Timberland Bancorp, Inc.
Percentage Jurisdiction or
Subsidiaries (a) of Ownership State of Incorporation
---------------- ------------ ----------------------
Timberland Savings
Bank, SSB (1) 100% Washington
Timberland Service
Corporation (2) 100% Washington
|
SSB.
Exhibit 23.1
[LETTERHEAD OF DWYER PEMBERTON AND COULSON, P.C.]
CONSENT OF INDEPENDENT AUDITORS
The Boards 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 DWYER PEMBERTON & COULSON, P.C. Tacoma, Washington September 17, 1997 |
Exhibit 23.5
[LETTERHEAD OF RP FINANCIAL, LC. APPEARS HERE]
September 10, 1997
Board of Directors
Timberland Savings Bank
624 Simpson Avenue
Hoquiam, Washington 98550
Gentlemen:
We hereby consent to the use of our firm's name in the Application for Conversion of Timberland Savings Bank, SSB, Hoquiam, Washington, and any amendments thereto, and in the Form S-1 Registration Statement and any amendments thereto for Timberland Bancorp, Inc. We also hereby consent to the inclusion of, summary of and references to our Appraisal Report and our statement concerning subscription rights in such filings including the Prospectus of Timberland Bancorp, Inc.
Sincerely,
RP FINANCIAL, LC.
James P. Hennessey
James P. Hennessey
Senior Vice President
Exhibit 99.2
[LETTERHEAD OF TIMBERLAND BANCORP APPEARS HERE]
Stock Order Form
(1) Number of Shares Price Per Share (2) Total Amount Due
x $10.00 =
-------------------- --------------------
$
-------------------- --------------------
|
The minimum number of shares that may be subscribed for is 25. The maximum individual subscription is 20,000 shares. No person, together with associates and persons acting in concert with such person may purchase more than 1.0% of the Common Stock sold in the Conversion. There are additional purchase limitations for associates and groups acting in concert as defined in the Prospectus.
(3) [_] Enclosed is a check, bank draft or money order payable to Timberland Bancorp, Inc. for $_________________ (or cash if presented in person).
(4) [_] I authorize Timberland Savings Bank to make withdrawals from my Timberland Savings Bank certificate or savings account(s) shown below, and understand that the amounts will not otherwise be available for withdrawal:
a. [_] Eligible Account Holder Check here if you were a depositor with $50.00 or more on deposit with Timberland Savings Bank as of 12/31/95. Enter information below for all deposit accounts that you had at Timberland Savings Bank on 12/31/95.
b. [_] Supplemental Eligible Account Holder - Check here if you were a depositor with $50.00 or more on deposit with Timberland Savings Bank as of 9/30/97 but are not an Eligible Account Holder. Enter information below for all deposit accounts that you had at Timberland Savings Bank on 9/30/97
c. [_] Other Member - Check here if you were a depositor of Timberland Savings Bank as of ____________, but are not an Eligible Account Holder or a Supplemental Eligible Account Holder. Enter information below for all deposit accounts that you had at Timberland Savings Bank on _____________.
d. [_] Local Community - Check here if you are a permanent resident of Grays Harbor, Thurston, Pierce, or King Counties, Washington, but are not an Eligible Account Holder, Supplemental Eligible Account Holder, or Other Member.
[_] Individual [_] Uniform Transfer to Minors [_] Partnership [_] Joint Tenants [_] Uniform Gift to Minors [_] Individual Retirement Account [_] Tenants in Common [_] Corporation [_] Fiduciary/Trust (Under Agreement Dated _________________) |
Name Social Security or Tax I.D.
--------------------------------------------------------------------------------
Name Social Security or Tax I.D.
--------------------------------------------------------------------------------
Street Daytime
Address Telephone
--------------------------------------------------------------------------------
Zip Evening
City State Code County Telephone
--------------------------------------------------------------------------------
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THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS AND ARE NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY.
-------------------------------------------------------------------------------- Signature Title(if applicable) Date -------------------------------------------------------------------------------- Signature Title(if applicable) Date -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- FOR OFFICE Date Rec'd _____/____/_____ Check # _________ USE Amount $ _______________ Category _________ Batch# ________ - ________________Order # Deposit $ _________ -------------------------------------------------------------------------------- |
Timberland Bancorp, Inc.
Item (6) continued; Associate - Acting in Concert
Associates listed on Number of
other stock orders shares ordered
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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CERTIFICATION FORM
(This Certification Must Be Signed In Addition to the Stock Order Form On Reverse Hereof)
I ACKNOWLEDGE THAT THE SHARES OF COMMON STOCK, $0.01 PAR VALUE PER SHARE, OF TIMBERLAND BANCORP, INC. IS NOT A DEPOSIT OR AN ACCOUNT AND IS NOT FEDERALLY INSURED, AND IS NOT GUARANTEED BY TIMBERLAND SAVINGS BANK OR BY THE FEDERAL GOVERNMENT.
If anyone asserts that the shares of common stock are federally insured or guaranteed, or are as safe as an insured deposit, I should call the Director of the Washington Department of Financial Institutions, John Bley, at (360) 902-8700.
I further certify that, before purchasing the shares of common stock of
Timberland Bancorp, Inc., I received a copy of the Prospectus dated ___________,
1997 which discloses the nature of the shares of common stock being offered
thereby and describes the following risks involved in an investment in the
common stock under the heading "Risk Factors" beginning on page __ of the
Prospectus:
1. Certain Lending Risks
2. Potential Adverse Impact of Changes in Interest Rates
3. Return on Average Equity After Conversion
4. Market Area Risk
5. Dependence on Key Personnel
6. Competition
7. New Expenses Associated With ESOP and MRP
8. Anti-takeover Considerations
9. Possible Dilutive Effect of Benefit Programs
10. Absence of Prior Market for the Common Stock
11. Possible Increase in Estimated Valuation Range and Number of Shares
Issued
12. Risk of Delayed Offering
13. Potential Operating Restrictions Associated with Regulatory Oversight
14. Possible Adverse Income Tax Consequences of the Distribution of
Subscription Rights
[LETTERHEAD OF CHARLES WEBB & COMPANY APPEARS HERE]
At the request of the Holding Company, we are enclosing materials explaining the conversion, including the opportunity to invest in shares of the Holding Company's common stock being offered to customers and the community through December XX, 1997. Please read the enclosed offering materials carefully. The Holding Company has asked us to forward these documents to you in view of certain requirements of the securities laws of your state.
If you have any questions, please visit our Stock Information Center at 624 Simpson Avenue, Hoquiam, Washington, or feel free to call the Stock Information Center at (360) XXX-XXXX.
Very truly yours,
Charles Webb & Company
a Division of Keefe, Bruyette & Woods, Inc.
THE SHARES OF COMMON STOCK OFFERED IN THE CONVERSION ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY. THIS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS.
XXXXXXXX XX, 1997
Dear Member:
We are pleased to announce that Timberland Savings Bank, SSB ("Savings Bank") is converting from a state chartered mutual savings bank to a state chartered capital stock savings bank ("Conversion"). In conjunction with the Conversion, Timberland Bancorp, Inc. the newly-formed corporation that will serve as holding company for the Savings Bank, is offering shares of common stock in a subscription offering and community offering.
Unfortunately, Timberland Bancorp, Inc. is unable to either offer or sell its common stock to you because the small number of eligible subscribers in your jurisdiction makes registration or qualification of the common stock under the securities laws of your jurisdiction impractical, for reasons of cost or otherwise. Accordingly, this letter should not be considered an offer to sell or a solicitation of an offer to buy the common stock of Timberland Bancorp, Inc.
However, as a member of the Savings Bank, you have the right to vote on the Plan of Conversion at the Special Meeting of Members to be held on XXXXXXXX XX, 1997. Therefore, enclosed is a Proxy Card, a Proxy Statement (which includes the Notice of the Special Meeting), Prospectus (which contains information incorporated into the Proxy Statement) and a return envelope for your proxy card.
I invite you to attend the Special Meeting on XXXXXXXX XX, 1997. However, whether or not you are able to attend, please complete the enclosed proxy card and return it in the enclosed envelope.
Sincerely,
Clarence E. Hamre
Chairman, President and Chief Executive Officer
XXXXXX XX, 1997
Dear Member:
We are pleased to announce that Timberland Savings Bank, SSB ("Savings Bank") is converting from a state chartered mutual savings bank to a state chartered capital stock savings bank ("Conversion"). In conjunction with the Conversion, Timberland Bancorp, Inc. ("Holding Company"), the newly-formed corporation that will serve as holding company for the Savings Bank, is offering shares of common stock in a subscription offering and community offering to certain of our depositors, to our Employee Stock Ownership Plan and certain members of the general public pursuant to a Plan of Conversion.
To accomplish the Conversion, we need your participation in an important vote. Enclosed is a proxy statement describing the Plan of Conversion and your voting and subscription rights. The Plan of Conversion has been approved by the Washington State Department of Financial Institutions, Division of Banks and the non-objection of the Federal Deposit Insurance Corporation ("FDIC") and now must be approved by you. YOUR VOTE IS VERY IMPORTANT.
Enclosed, as part of the proxy material, is your proxy card located behind the window of your mailing envelope. This proxy should be separated from the Stock Order and Certification Form, signed and returned to us prior to the Special Meeting scheduled for XXXXXXXX XX, 1997. After carefully reviewing the enclosed Proxy Statement, please take a moment to sign the enclosed proxy card and return it to us in the postage-paid envelope provided. FAILURE TO VOTE HAS THE SAME EFFECT AS VOTING AGAINST THE CONVERSION.
The Board of Directors of the Savings Bank believes that the Conversion is in the best interests of the Savings Bank and its members, offering a number of advantages, such as an opportunity for depositors and customers of the Savings Bank to become shareholders of the Holding Company. Please remember:
. Your accounts at the Savings Bank will continue to be insured up to the maximum legal limit by the FDIC.
. There will be no change in the balance, interest rate, or maturity of any of your deposit accounts or loans because of the Conversion.
. You have the right, but no obligation, to buy stock before it is offered to the public.
. Like all stock, stock issued by the Holding Company will not be insured by the FDIC.
Enclosed also are materials describing the stock offering. We urge you to read these materials carefully. If you are interested in ordering the common stock of the Holding Company, you must submit your Stock Order Form and Certification Form, and payment prior to Noon, Pacific Time, XXXXXXXX XX, 1997.
If you have any questions regarding the stock offering, please call us at
(360) XXX-XXXX, Monday through Friday 9:00 a.m. to 5:00 p.m. or stop by the
Stock Information Center located at 624 Simpson Avenue, Hoquiam, Washington.
Sincerely,
Clarence E. Hamre
Chairman, President and Chief Executive Officer
THE SHARES OF COMMON STOCK OFFERED IN THE CONVERSION ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND OR THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY. THIS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS.
XXXXXXXX XX, 1997
Dear Friend:
We are pleased to announce that Timberland Savings Bank, SSB ("Savings Bank") is converting from a state chartered mutual savings bank to a state chartered capital stock savings bank ("Conversion"). In conjunction with the Conversion, Timberland Bancorp, Inc ("Holding Company") the newly-formed corporation that will serve as holding company for the Savings Bank, is offering shares of common stock in a subscription offering and community offering. The sale of stock in connection with the Conversion will raise capital to support and enhance the Savings Bank's current operations.
Because we believe you may be interested in learning more about the Conversion, we are sending you the following materials which describe the stock offering. Please read these materials carefully before you submit a Stock Order and Certification Form.
PROSPECTUS: This document provides detailed information about the operations of the Holding Company and the Savings Bank and the proposed stock offering.
QUESTIONS AND ANSWERS BROCHURE: Key questions and answers about the stock offering are found in this brochure.
STOCK ORDER AND CERTIFICATION FORM: This form is used to order stock by returning it with your payment in the enclosed business reply envelope. The deadline for ordering stock is Noon, Pacific Time, XXXXXXXX XX, 1997.
As a friend of the Savings Bank, you will have the opportunity to buy stock
directly from THE Holding Company in the Conversion without commission or fee.
If you have additional questions regarding the Conversion and stock offering,
please call us at (360) XXX-XXXX, Monday through Friday from 9:00 a.m. to 5:00
p.m. or stop by the Stock Information Center at 624 Simpson Avenue, Hoquiam,
Washington.
We are pleased to offer you this opportunity to become a charter shareholder of Timberland Bancorp, Inc.
Sincerely,
Clarence E. Hamre
Chairman, President and Chief Executive Officer
THE SHARES OF COMMON STOCK OFFERED IN THE CONVERSION ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY. THIS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS.
XXXXXXX XX, 1997
Dear Prospective Investor:
We are pleased to announce that Timberland Savings Bank, SSB ("Savings Bank") is converting from a state chartered mutual savings bank to a state chartered capital stock savings bank ("Conversion"). In conjunction with the Conversion, Timberland Bancorp, Inc. ("Holding Company") the newly-formed corporation that will serve as the holding company for the Savings Bank, is offering shares of common stock in a subscription offering and community offering. The sale of stock in connection with the Conversion will raise capital to support and enhance the Savings Bank's current operations.
We have enclosed the following materials to help you learn more about the Conversion. Please read and review the materials carefully before you submit a Stock Order and Certification Form.
PROSPECTUS: This document provides detailed information about the operations of the Holding Company and the Savings Bank and the proposed stock offering.
QUESTIONS AND ANSWERS BROCHURE: Key questions and answers about the stock offering are found in this brochure.
STOCK ORDER AND CERTIFICATION FORM: This form is used to order stock by returning it with your payment in the enclosed business reply envelope. The deadline for ordering stock is Noon, Pacific Time, XXXXXX XX, 1997.
We invite our loyal customers and local community members to take advantage of the opportunity to become charter shareholders of the Holding Company. Through this offering you have the opportunity to buy stock directly from the Holding Company without commission or fee. The Board of Trustees and management of the Savings Bank fully support the stock offering.
If you have additional questions regarding the Conversion and stock offering, please call us at (360) XXX-XXXX, Monday through Friday from 9:00 a.m. to 5:00 p.m. or stop by the Stock Information Center located at 624 Simpson Avenue in Hoquiam, Washington.
Sincerely,
Clarence E. Hamre
Chairman, President, and Chief Executive Officer
THE SHARES OF COMMON STOCK OFFERED IN THE CONVERSION ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY. THIS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS.
Facts About Conversion
The Board of Trustees of Timberland Savings Bank, SSB ("Savings Bank") has unanimously adopted a Plan of Conversion, to convert from a state chartered mutual savings bank to a state chartered capital stock savings bank as a wholly- owned subsidiary of a newly chartered holding company (Conversion").
This brochure answers some of the most frequently asked questions about the Conversion and about your opportunity to invest in Timberland Bancorp, Inc. ("Holding Company"), the newly formed corporation that will serve as the holding company for the Savings Bank following the Conversion.
Investment in the stock of the Holding Company involves certain risks. For a discussion of these risks and other factors, investors are urged to read the accompanying Prospectus, especially the discussion under the heading "Risk Factors".
. support and expand its current financial and other services.
. allow customers and friends the opportunity to purchase stock and share in the Holding Company's and the Savings Bank's future.
PLEASE VOTE, SIGN AND RETURN ALL PROXY CARDS!
FOR ADDITIONAL INFORMATION YOU MAY CALL OUR STOCK INFORMATION CENTER BETWEEN 9:00 A.M. AND 5:00 P.M. MONDAY THROUGH FRIDAY.
Timberland Bancorp, Inc. 624 Simpson Avenue Hoquiam, Washington 98550-3688
STOCK OFFERING QUESTIONS AND ANSWERS
THE SHARES OF COMMON STOCK OFFERED IN THE CONVERSION ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY. THIS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS.
Timberland Bancorp, Inc. Stock Ownership Guide and Stock Order Form Instructions
Item 3 - Payment for shares may be made in cash (only if delivered by you in
person), by check, bank draft or money order payable to
Timberland Bancorp, Inc. DO NOT MAIL CASH. Your funds will earn interest at
Timberland Savings Bank's passbook rate which is currently ____%.
Item 4 - To pay by withdrawal from a savings account or certificate of deposit
at Timberland Savings Bank, insert the account number(s) and the amount(s) you
wish to withdraw from each account. If more than one signature is required to
withdraw, each must sign in the signature box on the front of this form. To
withdraw from an account with checking privileges, please write a check. No
early withdrawal penalty will be charged on funds used to purchase stock. A
hold will be placed on the account(s) for the amount(s) you show. Payments will
remain in account(s) until the stock offering closes. If a partial withdrawal
reduces the balance of a certificate account to less than the applicable
minimum, the remaining balance will be refunded.
Item 5 - Please check this box to indicate whether you are a director, officer
or employee of Timberland Savings Bank or a member of such person's immediate
family.
Item 6 - Please check this box if you or any associate (as defined on the
reverse side of the Stock Order Form) or person acting in concert with you has
submitted another order for shares and complete the reverse side of the Stock
Order Form.
Item 7 - Please check the appropriate box if you were:
a) A depositor with $50.00 or more on deposit at Timberland Savings Bank as of 12/31/95. Enter information below for all deposit accounts that you had at Timberland Savings Bank on 12/31/95.
b) A depositor with $50.00 or more on deposit at Timberland Savings Bank as of 9/30/97, but are not an Eligible Account Holder. Enter information below for all deposit accounts that you had at Timberland Savings Bank on 9/30/97.
c) A depositor of Timberland Savings Bank, Bank as of _____________, but are not an Eligible Account Holder or a Supplemental Eligible Account Holder. Enter information below for all deposit accounts that you had at Timberland Savings Bank on __________.
d) A permanent resident of Grays Harbor, Thurston, Pierce, or King Counties, Washington.
Item 8 - The stock transfer industry has developed a uniform system of
shareholder registrations that we will use in the issuance of Timberland
Bancorp, Inc. common stock. Please complete this section as fully and
accurately as possible, and be certain to supply your social security or Tax
I.D. number(s) and your daytime and evening phone numbers. We will need to call
you if we can not execute you order as given. If you have any questions
regarding the registration of your stock, please consult your legal advisor.
Subscription rights are not transferable. If you are a qualified member, to
protect your priority over other purchasers as described in the Prospectus, you
must take ownership in at least one of the account holder's names.
Joint Tenants - Joint tenants with rights of survivorship identifies two or more owners. When stock is held by joint tenants with rights of survivorship, ownership automatically passes to the surviving joint tenant(s) upon the death of any joint tenant. You may not list beneficiaries for this ownership.
Tenants in Common - Tenants in common may also identify two or more owners. When stock is to be held by tenants in common, upon the death of one co-tenant, ownership of the stock will be held by the surviving co-tenant(s) and by the heirs of the deceased co-tenant. All parties must agree to the transfer or sale of shares held by tenants in common. You may not list beneficiaries for this ownership.
Uniform Gift to Minors - For residents of many states, stock may by held in the name of a custodian for the benefit of a minor under the Uniform Gift to Minors Act. For residents in other states, stock may be held in a similar type of ownership under the Uniform Transfer to Minors Act of the individual state. For either ownership, the minor is the actual owner of the stock with the adult custodian being responsible for the investment until the child reaches legal age. Only one custodian and one minor may be designated.
Instructions: On the first Name line, print the first name, middle initial and last name of the custodian, with the abbreviation "CUST" after the name. Print the first name, middle initial and last name of the minor on the second Name line. Use the minor's social security number.
Corporation/Partnership - Corporations and Partnerships may purchase stock. Please provide the Corporation/Partnership's legal name and Tax I.D. To have depositor rights, the Corporation/Partnership must have an account in the legal name. Please contact the Stock Information Center to verify depositor rights and purchase limitations.
Individual Retirement Account - Individual Retirement Account ("IRA") holders may make stock purchases from their deposits through a prearranged "trustee-to- trustee" transfer. Stock may only be held in a self-directed IRA. Timberland Savings Bank does not offer a self-directed IRA. Please contact the Stock Information Center if you have any questions about your IRA account.
Fiduciary/Trust - Generally, fiduciary relationships (such as Trusts, Estates, Guardianships, etc.) are established under a form of trust agreement or pursuant to a court order. Without a legal document establishing a fiduciary relationship, your stock may not be registered in a fiduciary capacity.
Instructions: On the first name line, print the first name, middle initial and last name of the fiduciary if the fiduciary is an individual. If the fiduciary is a corporation, list the corporate title on the first name line. Following the name, print the fiduciary title such as trustee, executor, personal representative, etc. On the second name line, print the name of the maker , donor or testator or the name of the beneficiary. Following the name, indicate the type of legal document establishing the fiduciary relationship (agreement, court order, etc.). In the blank after "Under Agreement Dated", fill in the date of the document governing the relationship. The date of the document need not be provided for a trust created by a will.
(receipt of order letter - Timberland Bancorp, Inc. letterhead)
Date
Name
Address Tax I.D. Number XXX-XX-XXX
City, State, Zip
Receipt of Order
This letter is to acknowledge receipt of your order to purchase common stock offered by Timberland Bancorp, Inc. Please check the following information carefully to ensure that we have entered your order correctly. Each order is assigned a prioritized category described below. Acceptance of your order and the shares of stock you actually receive will be subject to the allocation provisions of the Plan of Conversion, as well as other conditions and limitations described in the Prospectus.
Our records indicate the following:
Number of Shares Ordered: _________ Purchase Price Per Share: $10.00 Total Order Amount: $________ Date Order Received: __/__/__ Order Number: _________ Category Assigned: _________ |
1. Eligible Account Holders - Depositors as of December 31, 1995 with
$50.00 or more on deposit
2. Employee Stock Ownership Plan (ESOP)
3. Supplemental Eligible Account Holders - Depositors as of September
30, 1997 with $50.00 or more on deposit
4. Other Members as of _________, 1997
5. Permanent Residents of Grays Harbor, Thurston, Pierce, or King
Counties, Washington
6. General Public
If this does not agree with your records or if you have any questions, please call our Stock Information Center at (360) XXX-XXXX. Thank you for your order.
Sincerely,
Clarence E. Hamre
Chairman, President and Chief Executive Officer
STOCK GRAM
We are pleased to announce that Timberland Bancorp, Inc. ("Holding Company"), the proposed holding company for Timberland Savings Bank, SSB ("Savings Bank"), is offering shares of common stock in a subscription and community offering. The sale of stock in connection with the offering will support and enhance the Savings Bank's current operations.
We previously mailed to you a Prospectus providing detailed information about the operations of the Holding Company and the Savings Bank and the proposed stock offering. We urge you to read this carefully.
We invite our loyal customers and community members to take advantage of the opportunity to become shareholders of Timberland Bancorp, Inc. If you are interested in purchasing the common stock of Timberland Bancorp Inc., you must submit your Stock Order Form/Certification Form and payment prior to Noon, Pacific Time on ________________, 1997.
Should you have additional questions regarding the stock offering or need additional materials, please call the Stock Information Center at (360) XXX-XXXX or stop by the Stock Information Center at 624 Simpson Avenue in Hoquiam.
The shares of common stock being offered are not savings accounts or deposits and are not insured by the Federal Deposit Insurance Corporation, the Bank Insurance Fund, the Savings Association Insurance Fund or any other governmental agency. This is not an offer to sell or a solicitation of an offer to buy common stock. The offer is made only by the Prospectus.
PROXY GRAM
We recently forwarded to you a proxy statement and related materials regarding a proposal to convert Timberland Savings Bank, SSB from a state chartered mutual savings bank to a state chartered capital stock savings bank.
Your vote is important to us, and we, therefore, are requesting that you sign the enclosed proxy card and return it promptly in the enclosed postage-paid envelope.
Voting for the Plan of Conversion does not obligate you to purchase stock or affect the terms or insurance on your accounts.
TIMBERLAND SAVINGS BANK, SSB
Hoquiam, Washington
Clarence E. Hamre
Chairman, President, and Chief Executive Officer
The shares of common stock offered in the Conversion are not savings accounts or deposits and are not insured by the Federal Deposit Insurance Corporation, the Bank Insurance Fund, the Savings Association Insurance Fund or any other governmental agency. This is not an offer to sell or a solicitation of an offer to buy common stock. The offer is made only by the Prospectus.
Exhibit 99.3
[LETTERHEAD OF RP FINANCIAL, L.C. APPEARS HERE]
May 28, 1997
Mr. Clarence E. Hamre
Chairman, President and Chief Excecutive Officer
Timberland Savings Bank, SSB
624 Simpson Avenue
Hoquiam, Washington 98550-0697
Dear Mr. Hamre:
This letter sets forth the agreement between. Timberland Savings Bank SSB, Hoquiam, Washington ("Timberland Savings" or the "Bank"), and RP Financial, L.C. ("RP Financial") for certain conversion appraisal services pertaining to the Bank's mutual-to-stock conversion and simultaneous holding company formation. The specific appraisal services to be rendered by RP Financial are described below. These appraisal services will be rendered by a team of one to two senior consultants on staff and will be directed by the undersigned.
Prior to preparing the valuation report, RP Financial will conduct a financial due diligence, including on-site interviews of senior management and reviews of financial and other documents and records, to gain insight into the Bank's operations, financial condition, profitability, market area, risks and various internal and external factors which impact the pro forma value of the Bank. RP Financial will prepare a written detailed valuation report of Timberland Savings which will be fully consistent with applicable regulatory guidelines and standard pro forma valuation practices. The appraisal report will include an in-depth analysis of the Bank's financial condition and operating results, as well as an assessment of the Bank's interest rate risk, credit risk and liquidity risk. The appraisal report will describe the Bank's business strategies, market area, prospectus for the future and the intended use of proceeds both in the short term and over the longer term. A peer group analysis relative to publicly-traded savings institutions will be conducted for the purpose of determining appropriate valuation adjustments relative to the group. We will review pertinent sections of the prospectus to obtain necessary data and information for the appraisal, including the impact of key deal elements on the appraised value, such as dividend policy, use of proceeds and reinvestment rate, tax rate, conversion expenses and characteristics of stock plans. The appraisal report will establish a midpoint pro forma value as well as the range of value. The appraisal report may be periodically updated throughout the conversion process and there will be at least one updated valuation prepared at the time of the closing of the stock offering.
RP Financial, LC.
Mr. Clarence E. Hamre
May 28, 1997
Timberland Savings at the above address in conjunction with the filing of the regulatory application. Subsequent updates will be filed promptly as certain events occur which would warrant the preparation and filing of such valuation updates. Further, RP Financial agrees to perform such other services as are necessary or required in connection with the regulatory review of the appraisal and respond to the regulatory comments, if any, regarding the valuation appraisal and subsequent updates.
Timberland Savings agrees to pay RP Financial a fixed fee of $20,000 for these services, plus reimbursable expenses. Payment of these fees shall be made according to the following schedule:
. $5,000 upon execution of the letter of agreement engaging RP Financial's appraisal services;
. $12,500 upon delivery of the completed original appraisal report; and
. $2,500 upon completion of the conversion to cover all subsequent valuation updates that may be required.
The Bank will reimburse RP Financial for out-of-pocket expenses incurred in preparation of the valuation. Such out-of-pocket expenses will likely include travel, printing, telephone, facsimile, shipping, computer and data services. RP Financial will agree to limit reimbursable expenses to a reasonable cap, subject to written authorization from the Bank to exceed such level.
In the event Timberland Savings shall, for any reason, discontinue the proposed conversion prior to delivery of the completed documents set forth above and payment of the respective progress payment fees, Timberland Savings agrees to compensate RP Financial according to RP Financial's standard billing rates for consulting services based on accumulated and verifiable time expenses, not to exceed the respective fee caps noted above, after giving full credit to the initial retainer fee. RP Financial's standard billing rates range from $75 per hour for research associates to $250 per hour for managing directors.
If during the course of the proposed transaction, unforeseen events occur so as to materially change the nature or the work content of the services described in this contract, the terms of said contract shall be subject to renegotiation by Timberland Savings and RP Financial. Such unforeseen events shall include, but not be limited to, major changes in the conversion regulations, appraisal guidelines or processing procedures as they relate to conversion appraisals, major changes in management or procedures, operating policies or philosophies, and excessive delays or suspension of processing of conversion applications by the regulators such that completion of the conversion transaction requires the preparation by RP Financial of a new appraisal or financial projections.
RP Financial, LC.
Mr. Clarence E. Hamre
May 28, 1997
Timberland Savings and RP Financial agree to the following:
1. The Bank agrees to make available or to supply to RP Financial such information with respect to its business and financial condition as RP Financial may reasonably request in order to provide the aforesaid valuation. Such information heretofore or hereafter supplied or made available to RP Financial shall include: annual financial statements, periodic regulatory filings and material agreements, debt instruments, off balance sheet assets or liabilities, commitments and contingencies, unrealized gains or losses and corporate books and records. All information provided by the Bank to RP Financial shall remain strictly confidential (unless such information is otherwise made available to the public), and if conversion is not consummated or the services of RP Financial are terminated hereunder, RP Financial shall upon request promptly return to the Bank the original and any copies of such information.
2. The Bank hereby represents and warrants to RP Financial that any information provided to RP Financial does not and will not, to the best of the Bank's knowledge, at the times it is provided to RP Financial, contain any untrue statement of a material fact or fail to state a material fact necessary to make the statements therein not false or misleading in light of the circumstances under which they were made.
3. (a) The Bank agrees that it will indemnify and hold harmless RP Financial, any affiliates of RP Financial, the respective directors, officers, agents and employees of RP Financial or their successors and assigns who act for or on behalf of RP Financial in connection with the services called for under this agreement (hereinafter referred to as "RP Financial"), from and against any and all losses, claims, damages and liabilities (including, but not limited to, all losses and expenses in connection with claims under the federal securities laws) attributable to (i) any untrue statement or alleged untrue statement of a material fact contained in the financial statements or other information furnished or otherwise provided by the Bank to RP Financial, either orally or in writing; (ii) the omission or alleged omission of a material fact from the financial statements or other information furnished or otherwise made available by the Bank to RP Financial; or (iii) any action or omission to act by the Bank, or the Bank's respective officers, directors, employees or agents which action or omission is willful or negligent. The Bank will be under no obligation to indemnify RP Financial hereunder if a court determines that RP Financial was negligent or acted in bad faith with respect to any actions or omissions of RP Financial related to a matter for which indemnification is sought hereunder. Any time devoted by employees of RP Financial to situations for which indemnification is provided hereunder, shall be an indemnifiable cost payable by the Bank at the normal hourly professional rate chargeable by such employee.
(b) RP Financial shall give written notice to the Bank of such claim or facts within thirty days of the assertion of any claim or discovery of material facts upon which the RP Financial intends to base a claim for indemnification hereunder. In the event the Bank elects, within seven days of the receipt of the original notice thereof, to contest such claim by written notice to RP Financial, RP
RP Financial, L.C.
Mr. Clarence E. Hamre
May 28, 1997
Financial will be entitled to be paid any amounts payable by the Bank hereunder, together with interest on such costs from the date incurred at the annual rate of prime plus two percent within five days after the final determination of such contest either by written acknowledgement of the Bank or a final judgment of a court of competent jurisdiction. If the Bank does not so elect, RP Financial shall be paid promptly and in any event within thirty days after receipt by the Bank of the notice of the claim.
(c) The Bank shall pay for or reimburse the reasonable expenses, including attorneys' fees, incurred by RP Financial in advance of the final disposition of any proceeding within thirty days of the receipt of such request if RP Financial furnishes the Bank: (1) a written statement of RP Financial's good faith belief that it is entitled to indemnification hereunder, and (2) a written undertaking to repay the advance if it ultimately is determined in a final adjudication of such proceeding that it or be is not entitled to such indemnification.
(d) In the event the Bank does not pay any indemnified loss or make advance reimbursements of expenses in accordance with the terms of this agreement, RP Financial shall have all remedies available at law or in equity to enforce such obligation.
It is understood that, in connection with RP Financial's above-mentioned engagement, RP Financial may also be engaged to act for the Bank in one or more additional capacities, and that the terms of the original engagement may be embodied in one or more separate agreements. The provisions of Paragraph 3 herein shall apply to the original engagement, any such additional engagement, any modification of the original engagement or such additional engagement and shall remain in full force and effect following the completion or termination of RP Financial's engagement(s). This agreement constitutes the entire understanding of the Bank and RP Financial concerning the subject matter addressed herein, and such contract shall be governed and construed in accordance with the laws of the Commonwealth of Virginia. This agreement may not be modified, supplemented or amended except by written agreement executed by both parties.
Timberland Savings and RP Financial are not affiliated, and neither Timberland Savings nor RP Financial has an economic interest in, or is held in common with, the other and has not derived a significant portion of its gross revenues, receipts or net income for any period from transactions with the other.
RP Financial, LC.
Mr. Clarence F. Hamre
May 28, 1997
* * * * * * * * * * *
Please acknowledge your agreement to the foregoing by signing as indicated below and returning to RP Financial a signed copy of this letter, together with the initial retainer fee of $5,000.
Sincerely,
Ronald S. Riggins
Ronald S. Riggins
President and Managing Director
Upon Authorization by the Board of Directors For: Timberland Savings Bank, SSB Hoquiam, Washington
Date Executed: 6/12/97
Exhibit 99.5
TIMBERLAND SAVINGS BANK, SSB
624 SIMPSON AVENUE
HOQUIAM, WASHINGTON 98550
(360) 533-4747
NOTICE OF SPECIAL MEETING OF MEMBERS
TO BE HELD ON ____________ __, 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 ________, _____________ __, 1997, at _:__ 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 ___________ __, 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.
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 ____________, _____________ __, 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 ________, _______ __, 1997, at _:__
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 _________ __, 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 ________ __, 1997 ("Supplemental Eligible Account Holders"), and then to depositors and borrowers of the Savings Bank as of ________ __, 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."
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 April 10, 1996, 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.
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 to "subprime" borrowers who do not qualify for conventional residential mortgage loans under Federal Home Loan Mortgage Corporation guidelines. At June 30, 1997, the Savings Bank's gross loan portfolio totaled $204.6 million, of which $102.0 million, or 49.8%, were one- to four-family residential mortgage loans, $42.9 million, or 21.0%, 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.
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 _________ __, 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 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. Twenty-five 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.
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.
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 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.
GENERAL
On July 10, 1997, the Board of Directors of the Savings Bank unanimously adopted and on September 11, 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 __________ __, 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 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 __________ __, 1997); and (iv) Other Members (depositors and borrowers of the Savings Bank as of ________ __, 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 (__% 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.
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.
After the Conversion, 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 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 _____ __, 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 _____ __, 1997 or (ii) the amount of the "qualifying deposit" in such Savings Account on December 31, 1995 or ______ __, 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-_____) under the Securities Act with respect to the Common Stock offered in the Conversion. This Prospectus does not contain all the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the SEC. Such information may be inspected at the public reference facilities maintained by the SEC at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549; 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. Pursuant to the Washington conversion regulations, this Prospectus omits certain information contained in such Application. 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 the Savings Bank's office 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 the Savings Bank.
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) ___-____. 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.
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
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 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.
As used in this Plan, the terms set forth below have the following meanings:
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.
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.
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.
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
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.
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.
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.
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.
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.
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.
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:
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 Eligible Account Holders so as to permit each such account holder, to the extent possible, to purchase a number of shares of Conversion Stock sufficient to make 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
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.
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, including shares of Conversion Stock to be issued in the Conversion as result of an increase in the estimated price range after commencement of the Subscription Offering and prior to the completion of the Conversion. 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; provided, however, that in the event the number of shares offered in the Conversion is increased to an amount greater than the maximum of the estimated price range as set forth in the Prospectus ("Maximum Shares"), the Tax-Qualified Employee Stock Benefit Plans shall have a priority right to purchase any such shares exceeding the Maximum Shares up to an aggregate of 8% of the Conversion Stock. 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.
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.
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.
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.
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 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.
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 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.
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."
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.
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.
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.
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 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.
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.
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.
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.
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.
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.
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.
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.
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.
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;
(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.
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.
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.
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.
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.
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.
* * *
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:
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.
(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;
(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:
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.
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.
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 Owner of retail pharmacy 100 Gale Street, Hoquiam, WA 98550
Peter J. Majar 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 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.
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 |
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
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.
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
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
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
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).
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.
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.
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.
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.
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.
* * * * *
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 _________ __, 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, 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.
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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.
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.