First Federal to buy Liberty State Bank in St. Paul

Northwestern Financial Review, May 1-May 14, 2003

First Federal Capital Corp., the parent company of First Federal Capital Bank in La Crosse, Wis., announced April 10 it is purchasing Liberty Bancshares, Inc., in St. Paul Minn. Liberty Bancshares owns Liberty State Bank, a $395 million bank founded in 1917. First Federal said it is paying $78 million in cash and stock in a transaction that is expected to be complete in the third quarter, pending regulatory approval.

First Federal Capital Bank, a federal savings bank, will absorb the Liberty State Bank charter. The acquisition represents First Federal's entry into the Twin Cities market, although it does have other offices in Minnesota. Within the last year, the bank purchased three bank offices in Rochester from Marquette Bankshares of Minneapolis, and four supermarket branches in Albert Lea, Austin, Mankato and Rochester from Commercial Federal Corp., of Omaha, Neb. Another First Federal supermarket location is scheduled to open in Austin by summer.

Tim Macke, who has been at Liberty Bank since the early 1980s, will remain president of the bank, which has one branch and 25 automated teller machines.

The price represents 2.2 times the book value of the bank, or 15 times 12month trailing earnings as of Dec. 31. Participants in the employee stock ownership program, that holds part of the Liberty Bank stock, will receive cash for their shares.

"The acquisition of Liberty Bancshares is a strategic step for First Federal," said Jack C. Rusch, president and CEO of First Federal Capital Corp. "This is the first major market presence for First Federal. The acquisition opens the opportunity for expansion in a market with enormous potential and furthers our diversification strategy of acquiring successful commercial banks with business banking expertise.

"We have expressed an interest in entering the Twin Cities market for some time," Rusch continued.

"This merger gives us the opportunity to expand the services we provide, yet allows us to continue to operate as a community bank," commented Macke. "The increased size of our combined institutions will mutually benefit our business customers through larger lending capacity and added credit experience."

With the addition of Liberty State Bank, First Federal will grow to 93 locations with assets of $3.4 billion and more than 1,300 employees. The combined institutions will have $2.4 billion in loans and $2.7 billion in deposits.

Rusch said he expects staffing levels at the bank to remain constant. "Due to First Federal's emphasis on retail banking, mortgage loan origination and our desire to further expand business banking, we believe it is likely that our staff levels may increase after our operations are fully integrated," Rusch said.